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20231017 City Council Agenda PacketRegular City Council Meeting Agenda October 17, 2023 Page 1 of 5 Agenda City of Vernon Regular City Council Meeting Tuesday, October 17, 2023, 9:00 AM City Hall, Council Chamber 4305 Santa Fe Avenue, Vernon, California Crystal Larios, Mayor Judith Merlo, Mayor Pro Tem Melissa Ybarra, Council Member Leticia Lopez, Council Member Jesus Rivera, Council Member The public is encouraged to view the agenda and meeting through CityofVernon.org/publicmeetings. You may address the Council in the Council Chambers, via mail or email to PublicComment@cityofvernon.org, include the meeting date and item number in the subject line (mail and/or email must be received at least two hours prior to the start of the meeting). CALL TO ORDER FLAG SALUTE ROLL CALL APPROVAL OF AGENDA PUBLIC COMMENT At this time the public is encouraged to address the City Council on any matter that is within the subject matter jurisdiction of the City Council. The public will also be given a chance to comment on matters which are on the posted agenda during City Council deliberation on those specific matters. PRESENTATIONS 1. Employee Service Pin Awards Recommendation: Recognize September 2023 Employee Service Pin Award recipient. 2. City Administrator Report Recommendation: Receive presentation on various topics including New Business Welcome, Vernon Business Milestones, Health and Wellness Grants, Update on Clean-Up Efforts, Pink Patch Project, Regular City Council Meeting Agenda October 17, 2023 Page 2 of 5 Business Engagement and Community Events. CONSENT CALENDAR All matters listed on the Consent Calendar are to be approved with one motion. Items may be removed from the Consent Calendar for individual consideration. Removed items will be considered immediately following the Consent Calendar. 3. Meeting Minutes Recommendation: Approve the October 3, 2023 Regular City Council Meeting Minutes. 4. Claims Against City Recommendation: Receive and file the claims submitted by Gabriela Nubia Rojas Palacios and Jennifer Beas. 5. City Payroll Warrant Register Recommendation: Approve City Payroll Warrant Register No. 808, for the period of September 1 through September 30, 2023, totaling $2,989,186.50 and consisting of ratification of direct deposits, checks and taxes totaling $1,979,738.61 and ratification of checks and electronic fund transfers (EFT) for payroll related disbursements totaling $1,009,447.89 paid through operating bank account. 6. Operating Account Warrant Register Recommendation: Approve Operating Account Warrant Register No. 118, for the period of September 3 through September 16, 2023, totaling $4,516,762.48 and consisting of ratification of electronic payments totaling $4,123,445.19 and ratification of the issuance of early checks totaling $393,317.29. 7. Fire Department Activity Report Recommendation: Receive and file the August 2023 Fire Department Activity Report. 8. Police Department Activity Report Recommendation: Receive and file the August 2023 Police Department Activity Report. 9. Service Level Performance Agreements with USIP Communications, LLC Recommendation: A. Approve and authorize the City Administrator to execute a Service Level Performance Agreement and issue Change Orders with USIP Communications, LLC (USIPCOM), in substantially the same form as submitted, in an amount not-to-exceed $333,252 and up to a 15% contingency of $49,988, to provide the primary feed for Upstream Internet Access Services for three years; and B. Approve and authorize the City Administrator to execute a Service Level Performance Agreement and issue Change Orders with USIPCOM, in substantially the same form as submitted, in an amount not-to-exceed $289,704 and up to a 15% contingency of $43,456, to provide the backup feed for Upstream Internet Access Services for three years. Regular City Council Meeting Agenda October 17, 2023 Page 3 of 5 10. Lease Agreement with WEA CA, PC (WEA) Recommendation: Approve and authorize the City Administrator to execute a Lease Agreement with WEA, in substantially the same form as submitted, for a one-year term. 11. Professional Services Agreement with Northwest Electrical Services, LLC to Perform Technical Design, Controls, Automation and Analytical Services Recommendation: A. Find that the proposed action is categorically exempt from California Environmental Quality Act (CEQA) review, in accordance with CEQA Guidelines Section 15301, because the project consists of the maintenance, repair or minor alteration of existing facilities/equipment and involves negligible or no expansion of an existing use; B. Find that the best interests of the City are served by a direct award of an agreement with Northwest Electrical Services, LLC without a competitive selection process pursuant to Vernon Municipal Code Section 3.32.110(B)(2); C. Approve and authorize the City Administrator to execute a Professional Services Agreement with Northwest Electrical Services LLC, in substantially the same form as submitted for a three-year term from November 17, 2023, through November 16, 2026, in an amount not to exceed $2,719,903 to provide technical design, controls, automation, construction, and analytical services for Vernon Public Utilities Department; and D. Authorize a contingency amount of five percent (5%), or $135,995.15, for any unforeseen changes in fees or other expenses not included in the proposal, and grant authority to the City Administrator to issue Change Orders for an amount up to the contingency amount, if necessary. 12. Audited Financial Reports Recommendation: A. Receive and file the Fiscal Year 2021-22 Annual Financial Statements; and B. Extend submittal of the Fiscal Year 2022-23 Final Audit and Report to Council to January 16, 2024. NEW BUSINESS 13. Vernon Public Utilities 2023 Integrated Resource Plan (IRP) Recommendation: A. Find that approval of the proposed action is exempt from California Environmental Quality Act (CEQA) review, because it is a continuing administrative activity that will not result in direct or indirect physical changes in the environment, and therefore does not constitute a “project” as defined by CEQA Guidelines Section 15378; B. Approve and adopt the Vernon Public Utilities 2023 IRP; and C. Authorize the General Manager of Public Utilities to take all necessary actions to implement the IRP, consistent with California State law mandates, including but not limited to periodic updates and IRP revisions. ORAL REPORTS 14. City Administrator Reports on Activities and Other Announcements 15. Council Reports on Activities (including AB 1234), Announcements, or Directives to Staff Regular City Council Meeting Agenda October 17, 2023 Page 4 of 5 ADJOURNMENT On October 18, 2023, the foregoing agenda was posted in accordance with the applicable legal requirements. Regular and Adjourned Regular meeting agendas may be amended up to 72 hours and Special meeting agendas may be amended up to 24 hours in advance of the meeting. Regular City Council Meeting Agenda October 17, 2023 Page 5 of 5 Guide to City Council Proceedings Meetings of the City Council are held the first and third Tuesday of each month at 9:00 a.m. and are conducted in accordance with Rosenberg's Rules of Order (Vernon Municipal Code Section 2.04.020). Copies of all agenda items and back-up materials are available for review in the City Clerk Department, Vernon City Hall, 4305 Santa Fe Avenue, Vernon, California, and are available for public inspection during regular business hours, Monday through Thursday, 7:00 a.m. to 5:30 p.m. Agenda reports may be reviewed on the City's website at www.cityofvernon.org or copies may be purchased for $0.10 per page. Disability-related services are available to enable persons with a disability to participate in this meeting, consistent with the Americans with Disabilities Act (ADA). In compliance with ADA, if you need special assistance, please contact the City Clerk department at CityClerk@cityofvernon.org or (323) 583-8811 at least 48 hours prior to the meeting to assure arrangements can be made. The Public Comment portion of the agenda is for members of the public to present items, which are not listed on the agenda but are within the subject matter jurisdiction of the City Council. The City Council cannot take action on any item that is not on the agenda but matters raised under Public Comment may be referred to staff or scheduled on a future agenda. Comments are limited to three minutes per speaker unless a different time limit is announced. Speaker slips are available at the entrance to the Council Chamber. Public Hearings are legally noticed hearings. For hearings involving zoning matters, the applicant and appellant will be given 15 minutes to present their position to the City Council. Time may be set aside for rebuttal. All other testimony shall follow the rules as set for under Public Comment. If you challenge any City action in court, you may be limited to raising only those issues you or someone else raised during the public hearing, or in written correspondence delivered to the City Clerk at or prior to the public hearing. Consent Calendar items may be approved by a single motion. If a Council Member or the public wishes to discuss an item, it may be removed from the calendar for individual consideration. Council Members may indicate a negative or abstaining vote on any individual item by so declaring prior to the vote on the motion to adopt the Consent Calendar. Items excluded from the Consent Calendar will be taken up following action on the Consent Calendar. Public speakers shall follow the guidelines as set forth under Public Comment. New Business items are matters appearing before the Council for the first time for formal action. Those wishing to address the Council on New Business items shall follow the guidelines for Public Comment. Closed Session allows the Council to discuss specific matters pursuant to the Brown Act, Government Code Section 54956.9. Based on the advice of the City Attorney, discussion of these matters in open session would prejudice the position of the City. Following Closed Session, the City Attorney will provide an oral report on any reportable matters discussed and actions taken. At the conclusion of Closed Session, the Council may continue any item listed on the Closed Session agenda to the Open Session agenda for discussion or to take formal action as it deems appropriate. City Council Agenda Report Meeting Date:October 17, 2023 From:Michael Earl, Director of Human Resources Department:Human Resources Submitted by:Veronica Avendano, Human Resources Specialist Subject Employee Service Pin Awards Recommendation Recognize September 2023 Employee Service Pin Award recipient. Background The following employee is eligible to receive her service pin based on the number of service years with the City of Vernon. TEN YEARS OF SERVICE Lisette M. Grizzelle, Senior Human Resources Analyst, Hired September 2013 Fiscal Impact There is no fiscal impact associated with this report. Attachments None. City Council Agenda Report Meeting Date:October 17, 2023 From:Carlos Fandino, City Administrator Department:City Administration Submitted by:Diana Figueroa, Administrative Analyst Subject City Administrator Report Recommendation Receive presentation on various topics including New Business Welcome, Vernon Business Milestones, Health and Wellness Grants, Update on Clean-Up Efforts, Pink Patch Project, Business Engagement and Community Events. Background The City Administrator Report is a presentation highlighting City projects, responses to Council inquiries, and events and activities of interest to the community. The report will be available at the time of the meeting. Fiscal Impact There is no fiscal impact associated with this report. Attachments None. City Administrator Report October 17, 2023 October 17, 2023 Item 2 Staff Presentation TOPICS 1.New Business Welcome 2.Vernon Business Milestones 3.Health and Wellness Grants 4.Update on Clean-Up Efforts 5.Pink Patch Project 6.Business Engagement 7.Community Events HIGHLIGHTS NEW BUSINESS WELCOME ADMINISTRATION NEW BUSINESS WELCOME ADMINISTRATION VERNON BUSINESS MILESTONES ADMINISTRATION Helping Hands Anniversary Celebration! •Council Members joined Helping Hands for an Open House on September 23rd •Non-profit has been in Vernon for three years and is a two-time grant recipient of the Vernon CommUNITY Fund •Organization provides essentials like food, hygiene kits, clothing, and more to local community! VERNON BUSINESS MILESTONES ADMINISTRATION VERNON BUSINESS MILESTONES ADMINISTRATION JC Sales Anniversary Celebration! •City Administrator and staff joined JC Sales in celebrating its 30-year anniversary •Company has been in same location in Vernon since its beginnings •Business was honored with a Certificate of Recognition from the City for this substantial milestone VERNON BUSINESS MILESTONES ADMINISTRATION HEALTH + WELLNESS GRANTS HEALTH Grant Funding Pursuits Underway •Health Department and WEA have identified and submitted numerous grant applications for the City’s Health + Wellness program •Grants address specific areas of treatment like behavioral health, HIV care, vaccinations, youth programs, mental health outreach, substance use disorder, and equity in access HEALTH + WELLNESS GRANTS HEALTH Grants Awarded •National Association of County and City Health Officials (NACCHO) - $150,000 through June 2024 - for vaccine equity •US Aging Vaccination Program - $75,000 through April 2024 - to distribute flu and COVID-19 vaccines •Substance Abuse Mental Health Services Administration (SAMHSA) - $1.99 million over 3 years - to address integrated behavioral health and HIV care for unsheltered populations (pilot project) UPDATE ON CLEAN-UP EFFORTS PUBLIC WORKS Public Works Department is making major strides! •Staff is prioritizing clean-up efforts, scheduling time 2-3 days of the week •Responsive to community requests and proactive targeting areas with repetitive issues •Collaborative effort between City team (street crews, code enforcement, Vernon PD) and other partners including railroad, LA County, CalTrans, and Army Corp of Engineers UPDATE ON CLEAN-UP EFFORTS PUBLIC WORKS •Crews plan for strikes, sweeps, and clean- ups on railroad spurs, along freeway onramps, along the LA River, and in any area that requires attention •Since September of 2021, over 100 clean- ups on railroad spurs have been organized, with nearly 50 this year alone •Spur clean-ups must be coordinated with the railroads •City has encouraged more proactive clean-up activity by BNSF and Union Pacific UPDATE ON CLEAN-UP EFFORTS PUBLIC WORKS October is Breast Cancer Awareness Month •Vernon PD raises funds to support public awareness, education, and treatments through the Pink Patch Project •Uniformed personnel wear Pink Vernon PD patches and badges through October •The 2023 Pink Patch is available for purchase along with themed t-shirts – proceeds go directly to breast cancer research organizations POLICE PINK PATCH PROJECT POLICE PINK PATCH PROJECT BUSINESS ENGAGEMENT ADMINISTRATION Business Breakfast •Vernon’s Business Breakfast was held on September 27th •Topics discussed included LA County’s new bail schedule, electrification incentives, and mixed-use zoning •The City welcomed the largest group of business to date with approximately 40 attendees connecting with staff while enjoying breakfast at City Hall BUSINESS ENGAGEMENT ADMINISTRATION BUSINESS ENGAGEMENT Chamber of Commerce Event •Golf tournament hosted on October 2nd •City representatives were on hand to connect with the Vernon business community •Attendees participated in a day of golf and came together for dinner and award presentations ADMINISTRATION BUSINESS ENGAGEMENT ADMINISTRATION COMMUNITY EVENTS Coffee with a Cop •Event hosted on October 4th at Vernon’s new Starbucks on Soto! •LA County Fire partners joined PD for the event •Numerous members of the department joined community members for coffee, with Chief donning an apron and serving guests in the drive-thru! POLICE COMMUNITY EVENTS POLICE ADMINISTRATION COMMUNITY EVENTS Upcoming... •Non-Profit Grant Workshop October 18th @ 10:00am •Career Day October 18th @ 5:30pm •Halloween Spooktacular October 26th @ 5:00pm •Fall Harvest November 14 @ TBD Event details available at: www.cityofvernon.org City Administrator Report Highlighting Industry, Community, and Service City Council Agenda Report Meeting Date:October 17, 2023 From:Lisa Pope, City Clerk Department:City Clerk Submitted by:Sandra Dolson, Administrative Secretary Subject Meeting Minutes Recommendation Approve the October 3, 2023 Regular City Council Meeting Minutes. Background Staff has prepared and submits the minutes for approval. Fiscal Impact There is no fiscal impact associated with this report. Attachments 1. October 3, 2023 Regular City Council Meeting Minutes MINUTES VERNON CITY COUNCIL REGULAR MEETING TUESDAY, OCTOBER 3, 2023 COUNCIL CHAMBER, 4305 SANTA FE AVENUE CALL TO ORDER Mayor Larios called the meeting to order at 9:01 a.m. FLAG SALUTE Mayor Larios led the Flag Salute. ROLL CALL PRESENT: Crystal Larios, Mayor Judith Merlo, Mayor Pro Tem Melissa Ybarra, Council Member Leticia Lopez, Council Member Jesus Rivera, Council Member STAFF PRESENT: Carlos Fandino, City Administrator Angela Kimmey, Deputy City Administrator Zaynah Moussa, City Attorney Lisa Pope, City Clerk Scott Williams, Finance Director Fredrick Agyin, Health and Environmental Control Director Michael Earl, Human Resources Director Robert Sousa, Police Chief Dan Wall, Public Works Director Todd Dusenberry, Public Utilities General Manager APPROVAL OF THE AGENDA MOTION Councill Member Ybarra moved and Mayor Pro Tem Merlo seconded a motion to approve the agenda. The question was called and the motion carried unanimously. PUBLIC COMMENT Leonora K. Carrillo, Principal of Vernon City Elementary School, introduced herself to the City Council and community. Regular City Council Meeting Minutes Page 2 of 5 October 3, 2023 PRESENTATIONS 1. Proclamation Recognizing Daniel Cordova The City Council acknowledged Daniel Cordova for his years of service to the City. 2. Indigenous Peoples’ Day Proclamation City Clerk Pope read the proclamation and the City Council proclaimed October 9, 2023 as Indigenous Peoples’ Day in the City of Vernon. CONSENT CALENDAR MOTION Council Member Ybarra moved and Council Member Rivera seconded a motion to approve the Consent Calendar. The question was called and the motion carried unanimously. The Consent Calendar consisted of the following items: 3. Meeting Minutes Recommendation: Approve the September 19, 2023 Regular City Council Meeting Minutes. 4. Operating Account Warrant Register Recommendation: Approve Operating Account Warrant Register No. 117, for the period of August 20 through September 2, 2023, totaling $7,078,751.65 and consisting of ratification of electronic payments totaling $6,788,492.44 and ratification of the issuance of early checks totaling $290,259.21. 5. 2024 Calendar Year Medical, Dental, Vision, Life, and Employee Assistance Program Benefit Proposals for City Employees and Retirees Recommendation: Approve the acceptance of the 2024 Calendar Year Medical, Dental, Vision, Life, and Employee Assistance program proposals and authorize the City Administrator to execute 2024 calendar year carrier agreements with Blue Shield of California, Anthem, MetLife, EyeMed, Mutual of Omaha, and Anthem PRISM EAP. 6. Resource Adequacy Plan for 2024 Recommendation: A. Adopt Resolution No. 2023-21 approving and adopting the Vernon Public Utilities Department Resource Adequacy Plan for 2024, which includes the coincident peak Demand Forecast, the Planning Reserve Margin, the Qualifying Capacity Criteria, and the Qualifying Capacity from such resources, the City’s Resource Adequacy and Supply Data and approving the resources used to satisfy the California Independent System Operator’s (CAISO) tariff requirements and repealing Resolution No. 2022-35; and B. Authorize staff to submit the Vernon Public Utilities Department’s Resource Adequacy Plan for 2024 and the Monthly Resource Adequacy and Supply Data to the CAISO. 7. rPlanet Earth Los Angeles, LLC - Request to Consider Items Regarding Added Facilities for Electric Service and Electric Consumption Hurdle Escrow Funds Regular City Council Meeting Minutes Page 3 of 5 October 3, 2023 Recommendation: A. Find the action is categorically exempt from California Environmental Quality Act (CEQA) review, in accordance with CEQA Guidelines section 15060(c)(3), because it constitutes government fiscal activities that do not involve any commitment to any specific project that may result in a potentially significant physical impact on the environment and organizational or administrative activities of a public agency that will not result in direct or indirect physical changes in the environment. Moreover, adoption of the Resolution does not qualify as a "project" because it does not have the potential to result in either a direct, or reasonably foreseeable indirect, physical change in the environment, in accordance with CEQA Guidelines section 15378(a); B. Authorize the proposed request for Disbursement No. 3 to the existing Added Facilities Agreement with rPlanet Earth Los Angeles, LLC, in substantially the same form as submitted, for electric service delivery in the amount of $416,610.27; and C. Adopt Resolution No. 2023-22 amending the Escrow Agreement, agreement regarding Assignment and Assumption of Purchase and Sale Agreement, and Added Facilities Agreement to release remaining escrow funds for Added Facilities, in the estimated amount of $813,915.40 plus accrued interest, and to waive the final electric consumption hurdle of eight (8) megawatts (MW) and release the final deposit of $441,613.98 plus accrued interest from the Consumption Hurdle Escrow Account. 8. Public Works Department Monthly Report Recommendation: Receive and file the July 2023 and August 2023 Building Reports. NEW BUSINESS 9. Amendment to Classification and Compensation Plan Human Resources Director Earl presented the staff report. MOTION Council Member Lopez moved and Mayor Pro Tem Merlo seconded a motion to: A. Approve new, retitled and revised job descriptions; and B. Adopt Resolution No. 2023-23 adopting the Classification and Compensation Plan in accordance with Government Code Section 20636(b)(1) and repealing Resolution No. 2023-11 effective October 3, 2023. The question was called and the motion carried unanimously. Regular City Council Meeting Minutes Page 4 of 5 October 3, 2023 10. Citywide Fringe Benefits Policy Human Resources Director Earl presented the staff report. MOTION Council Member Lopez moved and Council Member Rivera seconded a motion to: Adopt Resolution No. 2023-24 approving the revised Citywide Fringe Benefits Policy and repealing Resolution No. 2022-28. The question was called and the motion carried unanimously. ORAL REPORTS 11. City Administrator Reports on Activities and other Announcements. City Administrator Fandino welcomed Vernon City Elementary School Principal Carillo. He announced Coffee with a Cop on October 4 from 8 to 10 a.m. at the new Starbucks on Soto Street; Grantmaking Workshop on October 18, from 10 a.m. to 2 p.m.; Annual Career Day on October 18, 5:30 – 7 p.m.; and the Annual Spooktacular on October 26, 2023. 12. City Council Reports on Activities (including AB 1234), Announcements, or Directives to Staff. None. RECESS Mayor Larios recessed the meeting to Closed Session at 9:14 a.m. CLOSED SESSION 13. Conference with Legal Counsel – Anticipated Litigation Initiation of Litigation Government Code Section 54956.9(d)(4) Number of potential cases: 1 RECONVENE At 9:51 a.m., Mayor Larios adjourned Closed Session and reconvened the regular meeting. CLOSED SESSION REPORT City Attorney Moussa reported the Council met in Closed Session, Council received an update from legal counsel and provided direction on the City’s participation in City of Whittier, et al v. LA Superior Court, et al (LASC Case Number 23STCP03579). Regular City Council Meeting Minutes Page 5 of 5 October 3, 2023 ADJOURNMENT Mayor Larios adjourned the meeting at 9:51 a.m. ______________________________ CRYSTAL LARIOS, Mayor ATTEST: ____________________________ LISA POPE, City Clerk (seal) City Council Agenda Report Meeting Date:October 17, 2023 From:Lisa Pope, City Clerk Department:City Clerk Submitted by:Yonnie Parker, Deputy City Clerk Subject Claims Against City Recommendation Receive and file the claims submitted by Gabriela Nubia Rojas Palacios and Jennifer Beas. Background The City received the following claims and, pursuant to Municipal Code Section 2.23.040, the claims are being presented to the City Council as soon after filing as possible. Name of Claimant Amount Demanded Date Received Gabriela Nubia Rojas Palacios $468.04 September 25, 2023 Jennifer Beas $850 (Estimate)September 25, 2023 Fiscal Impact There is no fiscal impact associated with this report. Attachments 1. Gabriela Nubia Rojas Palacios Claim 2. Jennifer Beas Claim City Council Agenda Report Meeting Date:October 17, 2023 From:Scott Williams, Director of Finance Department:Finance Submitted by:Efren Peregrina Renteria, Finance Specialist Subject City Payroll Warrant Register Recommendation Approve City Payroll Warrant Register No. 808, for the period of September 1 through September 30, 2023, totaling $2,989,186.50 and consisting of ratification of direct deposits, checks and taxes totaling $1,979,738.61 and ratification of checks and electronic fund transfers (EFT) for payroll related disbursements totaling $1,009,447.89 paid through operating bank account. Background Section 2.32.060 of the Vernon Municipal Code indicates the City Treasurer, or an authorized designee, shall prepare warrants covering claims or demands against the City which are to be presented to City Council for its audit and approval. Pursuant to the aforementioned code section, the City Treasurer has prepared City Payroll Account Warrant Register No. 808 covering claims and demands presented during the period of September 1 through September 30, 2023, drawn, or to be drawn, from East West Bank for City Council approval. Fiscal Impact The fiscal impact of approving City Payroll Warrant Register No. 808, totals $2,989,186.50. The Finance Department has determined that sufficient funds to pay such claims/demands, are available in the respective accounts referenced on City Payroll Warrant Register No. 808. Attachments 1. City Payroll Account Warrant Register No. 808 PAYROLL WARRANT REGISTERCity of VernonNo.808Month ofSeptember 2023I hereby Certify: that claims or demands covered by the This is to certify that the claims or demandsabove listed warrants have been audited as to accuracycovered by the above listed warrants have beenand availability of funds for payments thereof; and thataudited by the City Council of the City of Vernonsaid claims or demands are accurate and that funds areand that all of said warrants are approved for pay-available for payments thereof.mentsScott A. WilliamsDATEDirector of Finance / City TreasurerDATEDate:Page 1 of 1Payroll Warrant Register Memo September 2023 : Warrant10/03/2023 Payrolls reported for the month of September 08/13/2023 - 08/26/2023, Paydate 09/07/2023 08/13/2023 - 08/26/2023, Paydate 09/07/2023 (SP873) 08/24/2023 - 08/24/2023, Paydate 09/07/2023 (SP874) 08/27/2023 - 09/09/2023, Paydate 09/21/2023 Payment Method Date Payment Description Amount ACH 09/07/23 Net payroll, checks 10,261.19$ ACH 09/07/23 Net payroll, direct deposits 797,631.37 ACH 09/07/23 Payroll taxes 227,866.65 ACH 09/21/23 Net payroll, checks 6,326.07 ACH 09/21/23 Net payroll, direct deposits 740,128.01 ACH 09/21/23 Payroll taxes 197,525.32 Total net payroll and payroll taxes 1,979,738.61 15850 09/07/23 Mission Square 57,422.64 15849 09/08/23 IBEW Dues 4,620.59 15848 09/08/23 Vernon Police Officers' Benefit Association 2,186.09 15853 09/08/23 CalPERS 236,956.51 15854 09/08/23 California State Disbursement Unit 41.53 15862 09/08/23 Blue Shield of California (active)274,708.15 15863 09/08/23 Blue Shield of California (retiree)96,273.52 15864 09/08/23 Blue Shield of California (cobra)1,452.32 15865 09/08/23 Metlife - Group Benefits 26,694.19 15866 09/13/23 EyeMed 3,851.65 15867 09/14/23 AFLAC 12,062.01 15868 09/13/23 Mutual of Omaha 13,675.02 15869 09/13/23 Colonial 6,420.05 15857 09/21/23 Mission Square 27,300.44 15856 09/22/23 Teamsters Local 911 2,880.00 15855 09/22/23 Vernon Police Officers' Benefit Association 2,186.09 15860 09/22/23 CalPERS 240,675.56 15861 09/21/23 California State Disbursement Unit 41.53 Payroll related disbursements, paid through Operating bank account 1,009,447.89 Total net payroll, taxes, and related disbursements 2,989,186.50$ Page 1 of 1 City Council Agenda Report Meeting Date:October 17, 2023 From:Scott Williams, Director of Finance Department:Finance Submitted by:Efren Peregrina Renteria, Finance Specialist Subject Operating Account Warrant Register Recommendation Approve Operating Account Warrant Register No. 118, for the period of September 3 through September 16, 2023, totaling $4,516,762.48 and consisting of ratification of electronic payments totaling $4,123,445.19 and ratification of the issuance of early checks totaling $393,317.29. Background Section 2.32.060 of the Vernon Municipal Code indicates the City Treasurer, or an authorized designee, shall prepare warrants covering claims or demands against the City which are to be presented to City Council for its audit and approval. Pursuant to the aforementioned code section, the City Treasurer has prepared Operating Account Warrant Register No. 118 covering claims and demands presented during the period of September 3 through September 16, 2023, drawn, or to be drawn, from East West Bank for City Council approval. Fiscal Impact The fiscal impact of approving Operating Account Warrant Register No. 118, totals $4,516,762.48. The Finance Department has determined that sufficient funds to pay such claims/demands, are available in the respective accounts referenced on Operating Account Warrant Register No. 118. Attachments 1. Operating Account Warrant Register No. 118 OPERATING ACCOUNT WARRANT REGISTERCity of VernonNo.118I hereby Certify: that claims or demands covered by the This is to certify that the claims or demandsabove listed warrants have been audited as to accuracycovered by the above listed warrants have beenand availability of funds for payments thereof; and thataudited by the City Council of the City of Vernonsaid claims or demands are accurate and that funds areand that all of said warrants are approved for pay-available for payments thereof.ments except Warrant Numbers:Scott A. WilliamsDATEDirector of Finance / City TreasurerDATEDate:Page 1 of 1Operating Account Warrant Register 117 : Warrant10/3/2023 393,317.299/7/2023 86.00Invoice Description Account PO or Contract Line Item Amount081823 LIVE SCAN REIMBURSEMENT 011-010-120-529215 86.00Invoice Total: 86.009/7/2023 53.64Invoice Description Account PO or Contract Line Item Amount081623 EXPENSE REIMBURSEMENT 011-030-300-524000 53.64Invoice Total: 53.649/7/2023 4,581.05Invoice Description Account PO or Contract Line Item Amount20352282 BAN 9391053026 PERIOD 07/10/23-08/09/23 011-010-110-526010 20230186 48.80Invoice Total: 48.8020352283 BAN 9391053027 PERIOD 07/10/23-08/09/23 011-010-110-526010 20230186 251.91Invoice Total: 251.9120352284 BAN 9391053028 PERIOD 07/10/23-08/9/23 011-010-110-526010 20230186 1,941.76Invoice Total: 1,941.7620352285 BAN 9391053029 PERIOD 07/10/23-08/09/23 011-010-110-526010 20230186 1,367.05Invoice Total: 1,367.0520352286 BAN 9391053030 PERIOD 07/10/23-08/09/23 011-010-110-526010 20230186 702.99Invoice Total: 702.9920352385 BAN 9391055763 PERIOD 07/10/23-08/09/23 011-010-110-526010 20230186 24.40Invoice Total: 24.40CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023VENDOR - 1948 - AT&TPAYMENT # 611679EARLY CHECKS TOTAL:VENDOR - 7677 - AARON PERRYPAYMENT # 611677VENDOR - 3285 - ALEXY ESCOBEDOPAYMENT # 611678Page 1 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/202320352717 BAN 9391060354 PERIOD 07/10/23-08/09/23 011-010-110-526010 20230186 218.35Invoice Total: 218.3520397028 BAN 9391053440 PERIOD 07/15/23-08/14/23 011-010-110-526010 20230186 25.79Invoice Total: 25.799/7/2023 110.39Invoice Description Account PO or Contract Line Item Amount38962309051004VEHICLE BATTERY (ADJUSTMENT) 011-040-420-522000 240021 110.39Invoice Total: 110.399/7/2023 173.16Invoice Description Account PO or Contract Line Item Amount32248 AUTO PARTS 011-040-420-522000 240016 173.16Invoice Total: 173.169/7/2023 27,162.29Invoice Description Account PO or Contract Line Item Amount106626CS STREET SWEEPING SERVICES 07/23 011-040-430-529000 CS-1434 27,162.29Invoice Total: 27,162.299/7/2023 4,514.45Invoice Description Account PO or Contract Line Item Amount200482996 NEW TIRES 011-040-420-522000 20240052 4,514.45Invoice Total: 4,514.459/7/2023 2,960.43Invoice Description Account PO or Contract Line Item Amount125496845 AUTO PARTS 011-040-420-522000 240012 1,240.97VENDOR - 4860 - CLEANSTREET, LLCPAYMENT # 611682VENDOR - 4613 - DANIELS TIRE SERVICEPAYMENT # 611683VENDOR - 6696 - ELLIOTT AUTO SUPPLY CO, INCPAYMENT # 611684VENDOR - 4448 - BATTERY SYSTEMS, INCPAYMENT # 611680VENDOR - 4163 - CENTRAL FORD AUTOMOTIVE, INC.PAYMENT # 611681Page 2 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Total: 1,240.97125505936 AUTO PARTS 011-040-420-522000 240012 1,356.08Invoice Total: 1,356.08164289131 AUTO PARTS 011-040-420-522000 240012 363.38Invoice Total: 363.389/7/2023 29.45Invoice Description Account PO or Contract Line Item Amount1028401 COPIER COUNT 055-050-586-522000- 29.45Invoice Total: 29.459/7/2023 161.00Invoice Description Account PO or Contract Line Item Amount090523 LIVE SCAN REIMBURSEMENT 011-010-120-529215 161.00Invoice Total: 161.009/7/2023 750.50Invoice Description Account PO or Contract Line Item AmountIN355485 GPS SERVICES 011-040-420-529000 20240030 750.50Invoice Total: 750.509/7/2023 52.00Invoice Description Account PO or Contract Line Item Amount083123 LIVE SCAN REIMBURSEMENT 011-010-120-529215 52.00Invoice Total: 52.009/7/2023 40,500.00Invoice Description Account PO or Contract Line Item Amount083023 HSA QUARTERLY CONTRIBUTIONS 011-010-105-513030 1,000.00083023 HSA QUARTERLY CONTRIBUTIONS 011-010-110-513030 1,500.00VENDOR - 7678 - GLORIA GARCIAPAYMENT # 611688VENDOR - 4239 - HSA BANKPAYMENT # 611689VENDOR - 7352 - FISHER'S DOCUMENT SYSTEMS, INCPAYMENT # 611685VENDOR - 7676 - FRAMARKARUS JOHNSONPAYMENT # 611686VENDOR - 7107 - GEOTAB USA, INCPAYMENT # 611687Page 3 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023083023 HSA QUARTERLY CONTRIBUTIONS 011-010-115-513030 1,000.00083023 HSA QUARTERLY CONTRIBUTIONS 011-010-120-513030 1,000.00083023 HSA QUARTERLY CONTRIBUTIONS 011-010-125-513030 1,500.00083023 HSA QUARTERLY CONTRIBUTIONS 011-010-130-513030 2,000.00083023 HSA QUARTERLY CONTRIBUTIONS 011-020-200-513030 1,000.00083023 HSA QUARTERLY CONTRIBUTIONS 011-030-300-513030 10,500.00083023 HSA QUARTERLY CONTRIBUTIONS 011-040-400-513030 2,000.00083023 HSA QUARTERLY CONTRIBUTIONS 011-040-405-513030 1,500.00083023 HSA QUARTERLY CONTRIBUTIONS 011-040-415-513030 500.00083023 HSA QUARTERLY CONTRIBUTIONS 011-040-420-513030 500.00083023 HSA QUARTERLY CONTRIBUTIONS 011-040-430-513030 4,000.00083023 HSA QUARTERLY CONTRIBUTIONS 055-050-555-513030 500.00083023 HSA QUARTERLY CONTRIBUTIONS 055-050-575-513030 2,000.00083023 HSA QUARTERLY CONTRIBUTIONS 055-050-580-513030 1,500.00083023 HSA QUARTERLY CONTRIBUTIONS 055-050-585-513030 1,500.00083023 HSA QUARTERLY CONTRIBUTIONS 055-050-586-513030- 3,500.00083023 HSA QUARTERLY CONTRIBUTIONS 055-050-590-513030 500.00083023 HSA QUARTERLY CONTRIBUTIONS 056-060-600-513030 1,000.00083023 HSA QUARTERLY CONTRIBUTIONS 058-070-700-513030 2,000.00Invoice Total: 40,500.009/7/2023 3,300.00Invoice Description Account PO or Contract Line Item Amount090623RETIREE HEALTH INSURANCE REIMBURSMENT011-010-120-513035 3,300.00Invoice Total: 3,300.009/7/2023 250.00Invoice Description Account PO or Contract Line Item AmountVENDOR - 6399 - JOE DELIAPAYMENT # 611691VENDOR - 1315 - JEFFREY GRAVESPAYMENT # 611690Page 4 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023202309004VPD POLYGRAPH EXAMINATION 011-030-300-529215 20230053 250.00Invoice Total: 250.009/7/2023 9.40Invoice Description Account PO or Contract Line Item Amount11092319 TRANSLATION SERVICES 011-030-300-529220 20230162 9.40Invoice Total: 9.409/7/2023 20,644.00Invoice Description Account PO or Contract Line Item Amount2968 COUNTER TOP INSTALLATION 011-040-415-660000 20230172 20,644.00Invoice Total: 20,644.009/7/2023 491.17Invoice Description Account PO or Contract Line Item Amount199972 AUTO PARTS 011-040-420-522000 240014 26.28Invoice Total: 26.28200039 AUTO PARTS 011-040-420-522000 240014 21.72Invoice Total: 21.72200444 AUTO PARTS 011-040-420-522000 240014 377.73Invoice Total: 377.73200469 AUTO PARTS 011-040-420-522000 240014 65.44Invoice Total: 65.449/7/2023 68.00Invoice Description Account PO or Contract Line Item Amount1276 CAR WASH SERVICES 07/23 011-030-300-527000 240063 68.00Invoice Total: 68.00VENDOR - 309 - NAPA AUTO PARTSPAYMENT # 611694VENDOR - 870 - PARNUSU TOV SNCPAYMENT # 611695VENDOR - 3272 - LANGUAGE LINE SERVICES, INCPAYMENT # 611692VENDOR - 6667 - MEGA RENOVATION, INCPAYMENT # 611693Page 5 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/7/2023 19,342.02Invoice Description Account PO or Contract Line Item Amount3118819TEMPORARY STAFFING WEEK ENDING 6/18/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.403119049TEMPORARY STAFFING WEEK ENDING 6/25/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.403119950TEMPORARY STAFFING WEEK ENDING 07/23/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.403120755TEMPORARY STAFFING WEEK ENDING 08/06/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.403121154TEMPORARY STAFFING WEEK ENDING 08/13/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.403121404TEMPORARY STAFFING WEEK ENDING 8/20/23055-050-595-529215 20230183 3,190.02Invoice Total: 3,190.029/7/2023 1,455.00Invoice Description Account PO or Contract Line Item AmountVE23013 ON-CALL TRAFFIC ENGINEERING SERVICE 011-040-430-529215 CS-1201 1,455.00Invoice Total: 1,455.009/7/2023 34.20Invoice Description Account PO or Contract Line Item Amount398910000 ASPHALT 058-070-700-529000 240045 13.44Invoice Total: 13.4439892 ASPHALT 058-070-700-529000 240045 20.76VENDOR - 6956 - QUANTUM QUALITY CONSULTING, INCPAYMENT # 611697VENDOR - 1845 - SECURITY PAVING COMPANY, INCPAYMENT # 611698VENDOR - 7584 - POCH STAFFING, INCPAYMENT # 611696Page 6 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Total: 20.769/7/2023 550.00Invoice Description Account PO or Contract Line Item Amount9128 COMPLIANCE SUPPORT SERVICES 011-010-120-529215 20230029 550.00Invoice Total: 550.009/7/2023 629.30Invoice Description Account PO or Contract Line Item Amount74515 FRONT AXLE & ALIGNMENT REPAIR 011-040-420-522000 240008 309.3074515 FRONT AXLE & ALIGNMENT REPAIR 011-040-420-529000 240008 320.00Invoice Total: 629.309/7/2023 156.00Invoice Description Account PO or Contract Line Item Amount437465987 PEST CONTROL SERVICES 011-040-415-529000 CS-1408 156.00Invoice Total: 156.009/7/2023 2,604.26Invoice Description Account PO or Contract Line Item Amount848411648 SOFTWARE SUBSCRIPTION 011-010-110-529110 PD-0178 1,302.13Invoice Total: 1,302.13848735791 DATABASE SUBSCRIPTION 011-010-110-529110 PD-0178 1,302.13Invoice Total: 1,302.139/7/2023 211,941.72Invoice Description Account PO or Contract Line Item Amount11531C01 PAVEMENT AND STRIPING SERVICES 011-040-430-660000 20230179 211,941.72Invoice Total: 211,941.72VENDOR - 866 - WGJ ENTERPRISES, INCPAYMENT # 611703VENDOR - 1973 - STEVEN J. BURRISPAYMENT # 611700VENDOR - 6985 - THE TERMINIX INTERNATIONAL COMPANYPAYMENT # 611701VENDOR - 141 - WEST PUBLISHING CORPORATIONPAYMENT # 611702VENDOR - 6018 - SHAW HR CONSULTINGPAYMENT # 611699Page 7 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/12/2023 304.69Invoice Description Account PO or Contract Line Item Amount081523 EXPENSE REIMBURSMENT 011-010-100-529500 304.69Invoice Total: 304.699/14/2023 128.33Invoice Description Account PO or Contract Line Item Amount082923 REF. CLOSED ACCT# 378 CUST# 7254 055-000-000-110010 128.33Invoice Total: 128.339/14/2023 62.00Invoice Description Account PO or Contract Line Item Amount091223 LIVE SCAN REIMBURSEMENT 011-010-120-529215 62.00Invoice Total: 62.009/14/2023 100.00Invoice Description Account PO or Contract Line Item Amount0912232023 EMPLOYEE EVENT PHOTOBOOTH (DEPOSIT)011-010-120-529690 20240123 100.00Invoice Total: 100.009/14/2023 948.15Invoice Description Account PO or Contract Line Item Amount082923REF. CLOSED ACCT# 1003 CUST# 5226 (FANTASY DYEING)055-000-000-110010 948.15Invoice Total: 948.159/14/2023 842.33Invoice Description Account PO or Contract Line Item Amount5610056 RADIO EQUIPMENT MAINTENANCE 09/23 011-030-300-529000 PD-0186 842.33VENDOR - 6054 - BEAR COMMUNICATIONS INCPAYMENT # 611709VENDOR - 7689 - ADRIAN BARRAZAPAYMENT # 611706VENDOR - 7671 - ANTHONY BALLONADOPAYMENT # 611707VENDOR - 7684 - AZIS AHMADPAYMENT # 611708VENDOR - 5863 - LETICIA LOPEZPAYMENT # 611704VENDOR - 7682 - A&H IMPORTS, INCPAYMENT # 611705Page 8 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Total: 842.339/14/2023 9,526.37Invoice Description Account PO or Contract Line Item Amount091123 2023 EMPLOYEE RECOGNITION EVENT 011-010-120-529690 20240055 9,526.37Invoice Total: 9,526.379/14/2023 84.83Invoice Description Account PO or Contract Line Item Amount32657 AUTO PARTS 011-040-420-522000 240016 84.83Invoice Total: 84.839/14/2023 140.00Invoice Description Account PO or Contract Line Item Amount649116 WELDING SUPPLIES 055-050-586-529003- 240040 140.00Invoice Total: 140.009/14/2023 3,000.00Invoice Description Account PO or Contract Line Item Amount081423 CUSTOMER INCENTIVE PROGRAM 055-050-595-529702 3,000.00Invoice Total: 3,000.009/14/2023 1,628.02Invoice Description Account PO or Contract Line Item Amount125510434 AUTO PARTS 011-040-420-522000 240012 1,628.02Invoice Total: 1,628.029/14/2023 1,547.82Invoice Description Account PO or Contract Line Item Amount090723 GARNISHMENT 011-000-000-210260 1,547.82VENDOR - 4181 - FRANCHISE TAX BOARDPAYMENT # 611715VENDOR - 310 - CRAIG WELDING SUPPLY, COPAYMENT # 611712VENDOR - 7686 - DOUBLE BARGAIN INCPAYMENT # 611713VENDOR - 6696 - ELLIOTT AUTO SUPPLY CO, INCPAYMENT # 611714VENDOR - 7466 - CALIFORNIA COMMERCE CLUB, INCPAYMENT # 611710VENDOR - 4163 - CENTRAL FORD AUTOMOTIVE, INC.PAYMENT # 611711Page 9 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Total: 1,547.829/14/2023 500.00Invoice Description Account PO or Contract Line Item Amount082923 REF. CLOSED ACCT# 921 CUST# 6477 055-450-575-450010 500.00Invoice Total: 500.009/14/2023 1,393.78Invoice Description Account PO or Contract Line Item Amount13669269 AMINO ACID SOLVENT 055-050-586-520235- 240079 1,393.78Invoice Total: 1,393.789/14/2023 100.00Invoice Description Account PO or Contract Line Item Amount081023ATTENDANCE STIPEND BIC MEETING 08.10.23011-010-150-529215 100.00Invoice Total: 100.009/14/2023 519.77Invoice Description Account PO or Contract Line Item Amount202762677 OFFSITE BACKUP STORAGE 011-010-110-526010 20240021 519.77Invoice Total: 519.779/14/2023 60.00Invoice Description Account PO or Contract Line Item Amount091123 REIMBURSEMENT - D2 CERTIFICATE FEE 058-070-700-529670 60.00Invoice Total: 60.009/14/2023 500.49Invoice Description Account PO or Contract Line Item AmountVENDOR - 5333 - LA COUNTY SHERIFF'S DEPT.PAYMENT # 611721VENDOR - 6927 - HECTOR MORFINPAYMENT # 611718VENDOR - 829 - IRON MOUNTAIN, INCPAYMENT # 611719VENDOR - 5308 - JOSEPH ALVARADOPAYMENT # 611720VENDOR - 7683 - G.B.Y CORPPAYMENT # 611716VENDOR - 1355 - HACH COMPANYPAYMENT # 611717Page 10 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023090723 GARNISHMENT 011-000-000-210260 500.49Invoice Total: 500.499/14/2023 100.00Invoice Description Account PO or Contract Line Item Amount071323ATTENDANCE STIPEND VERNON HOUSING 07.12.23011-040-410-529215 100.00Invoice Total: 100.009/14/2023 52.00Invoice Description Account PO or Contract Line Item Amount082923 LIVE SCAN REIMBURSEMENT 011-010-120-529215 52.00Invoice Total: 52.009/14/2023 408.86Invoice Description Account PO or Contract Line Item Amount201162 AUTO PARTS 011-040-420-522000 240014 49.84Invoice Total: 49.84201195 AUTO PARTS 011-040-420-522000 240014 160.95Invoice Total: 160.95201303 AUTO PARTS 011-040-420-522000 240014 79.94Invoice Total: 79.94201458 AUTO PARTS 011-040-420-522000 240014 118.13Invoice Total: 118.139/14/2023 100.00Invoice Description Account PO or Contract Line Item Amount081023ATTENDANCE STIPEND BIC MEETING 08.10.23011-010-150-529215 100.00Invoice Total: 100.00VENDOR - 309 - NAPA AUTO PARTSPAYMENT # 611724VENDOR - 6420 - NAVDEEP SINGH SACHDEVAPAYMENT # 611725VENDOR - 6716 - MARLENE ELSA YBARRAPAYMENT # 611722VENDOR - 7681 - MIGUEL HERNANDEZ ACOSTAPAYMENT # 611723Page 11 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/14/2023 1,613.04Invoice Description Account PO or Contract Line Item Amount091123RETIREE HEALTH PLAN REIMBURSEMENT (Q3)011-010-120-513035 1,613.04Invoice Total: 1,613.049/14/2023 88.40Invoice Description Account PO or Contract Line Item Amount3049484948 AUTO PARTS 011-040-420-522000 240015 88.40Invoice Total: 88.409/14/2023 6,000.00Invoice Description Account PO or Contract Line Item Amount081423 CUSTOMER INCENTIVE PROGRAM 055-050-595-529702 6,000.00Invoice Total: 6,000.009/14/2023 9,586.58Invoice Description Account PO or Contract Line Item Amount523284 VENDOR & BID SOFTWARE FY 23-24 011-010-110-529110 IT-0178 9,586.58Invoice Total: 9,586.589/14/2023 6,460.80Invoice Description Account PO or Contract Line Item Amount3121673TEMPORARY STAFFING WEEK ENDING 08/27/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.403121923TEMPORARY STAFFING WEEK ENDING 09/08/23055-050-595-529215 20230183 3,230.40Invoice Total: 3,230.40VENDOR - 7584 - POCH STAFFING, INCPAYMENT # 611730VENDOR - 5934 - O'REILLY AUTO ENTERPRISES, LLCPAYMENT # 611727VENDOR - 7685 - PAPER PLUS CONNECTION INCPAYMENT # 611728VENDOR - 6493 - PLANETBIDS, INCPAYMENT # 611729VENDOR - 1148 - NORMAN SUTHERLINPAYMENT # 611726Page 12 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/14/2023 3,284.47Invoice Description Account PO or Contract Line Item Amount83311 FILTER SUPPLIES 055-050-560-529000 230425 697.29Invoice Total: 697.2983433 FILTER SUPPLIES 055-050-586-529000- 230426 191.4583433 FILTER SUPPLIES 055-050-586-529000- 230426 2,395.73Invoice Total: 2,587.189/14/2023 60.00Invoice Description Account PO or Contract Line Item Amount090623 REIMBURSEMENT - D2 CERTIFICATION FEE 058-070-700-529670 60.00Invoice Total: 60.009/14/2023 80.00Invoice Description Account PO or Contract Line Item Amount090623 REIMBURSEMENT - D2 CERTIFICATION FEE 058-070-700-529670 80.00Invoice Total: 80.009/14/2023 100.00Invoice Description Account PO or Contract Line Item Amount071323ATTENDANCE STIPEND VERNON HOUSING 07.12.23011-040-410-529215 100.00Invoice Total: 100.009/14/2023 85.00Invoice Description Account PO or Contract Line Item Amount74631 FRONT & BACK BRAKE INSPECTION 011-040-420-529000 240008 85.00Invoice Total: 85.00VENDOR - 5146 - ROBERTO ZEPEDAPAYMENT # 611733VENDOR - 6717 - RONIT DAHAN-EDRYPAYMENT # 611734VENDOR - 1973 - STEVEN J. BURRISPAYMENT # 611735VENDOR - 7252 - PURE PROCESS FILTRATION, INCPAYMENT # 611731VENDOR - 3763 - RAFAEL CASTELLANOSPAYMENT # 611732Page 13 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/14/2023 1,302.13Invoice Description Account PO or Contract Line Item Amount848892983 DATABASE SUBSCRIPTION 011-010-110-529110 PD-0178 1,302.13Invoice Total: 1,302.13VENDOR - 141 - WEST PUBLISHING CORPORATIONPAYMENT # 611736Page 14 of 29 4,123,445.199/8/2023 3,000.00Invoice Description Account PO or Contract Line Item Amount4161216946082523FILING SB1029, WATER SYSTEMS BONDS 2020 SERIES A058-070-700-529225 FI-0033 1,000.00Invoice Total: 1,000.004161217019082523SB1029 FILING ELECTRIC BONDS 2021/2022 SERIES A055-050-580-529225 FI-0033 1,000.00Invoice Total: 1,000.004161217313082523SB1029 FILING ELECTRIC BONDS 2022 SERIES A055-050-580-529225 FI-0033 1,000.00Invoice Total: 1,000.009/8/2023 18,408.49Invoice Description Account PO or Contract Line Item AmountVERJUL23 POTABLE WATER CHARGES 07/23 058-070-700-520130 8,057.69VERJUL23 POTABLE WATER CHARGES 07/23 055-050-586-520135- 10,350.80Invoice Total: 18,408.499/8/2023 4,045.67Invoice Description Account PO or Contract Line Item Amount070123 PRODUCER MEMBER DUES FY2023-2024 058-070-700-529550 4,045.67Invoice Total: 4,045.679/8/2023 120.00Invoice Description Account PO or Contract Line Item Amount1000618435 MONITORING SERVICES 1Q FY24 055-050-586-520231- 20240086 120.00Invoice Total: 120.009/8/2023 185.00CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023VENDOR - 1917 - CENTRAL BASIN WATER ASSOCATIONPAYMENT # 15703VENDOR - 7326 - COSCO FIRE PROTECTION, INCPAYMENT # 15704VENDOR - 947 - DAILY JOURNAL CORPORATIONPAYMENT # 15705ELECTRONIC TOTAL:VENDOR - 1413 - BLX GROUP, LLCPAYMENT # 15701VENDOR - 1401 - CENTRAL BASIN MWDPAYMENT # 15702Page 15 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Description Account PO or Contract Line Item AmountB3571325 PUBLICATION SERVICES 011-010-125-525000 185.00Invoice Total: 185.009/8/2023 67.43Invoice Description Account PO or Contract Line Item Amount155776 PARTS & SUPPLIES 011-040-420-522000 240005 67.43Invoice Total: 67.439/8/2023 798.65Invoice Description Account PO or Contract Line Item Amount127700 PARTS & SUPPLIES 058-070-700-522000 240043 105.10Invoice Total: 105.10127781 PARTS & SUPPLIES 058-070-700-529000 240043 590.98Invoice Total: 590.98127951 PARTS & SUPPLIES 058-070-700-529000 240043 102.57Invoice Total: 102.579/8/2023 33,909.09Invoice Description Account PO or Contract Line Item Amount2226820 FUEL 011-000-000-120030 240130 33,909.09Invoice Total: 33,909.099/8/2023 200.00Invoice Description Account PO or Contract Line Item Amount3094666345 SUBSCRIPTION 08/23 011-010-115-529600 LD-0045 200.00Invoice Total: 200.009/8/2023 370.31Invoice Description Account PO or Contract Line Item AmountVENDOR - 6884 - RELX, INCPAYMENT # 15709VENDOR - 6340 - S & J SUPPLY COMPANY, INCPAYMENT # 15710VENDOR - 399 - GARVEY EQUIPMENT COMPANYPAYMENT # 15706VENDOR - 804 - LB JOHNSON INDUSTRIAL HARDWAREPAYMENT # 15707VENDOR - 209 - MERRIMAC PETROLEUM, INC.PAYMENT # 15708Page 16 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023S100210967001 PARTS & SUPPLIES 058-070-700-522000 230396 370.31Invoice Total: 370.319/8/2023 9,409.18Invoice Description Account PO or Contract Line Item Amount6017211 ANALOG INPUT MODULE 055-050-586-529000- 20240065 9,409.18Invoice Total: 9,409.189/8/2023 1,250.83Invoice Description Account PO or Contract Line Item Amount27600 BUSINESS CARDS (SUN) 055-050-595-522000 230428 109.15Invoice Total: 109.1527601 ENVELOPES 055-050-595-522000 230429 1,141.68Invoice Total: 1,141.689/8/2023 93.67Invoice Description Account PO or Contract Line Item Amount119768 NAMEPLATES 011-040-400-522000 230285 16.37119768 NAMEPLATES 011-040-400-522000 230285 16.39119768 NAMEPLATES 011-040-405-522000 230285 17.55119768 NAMEPLATES 011-040-405-522000 230285 17.17Invoice Total: 67.48OE117096 NAMEPLATE - M. GARCIA 011-040-400-522000 230286 26.19Invoice Total: 26.199/8/2023 34,883.72Invoice Description Account PO or Contract Line Item Amount202313 QUARTERLY PAYMENT NO. 13 058-000-000-272010 34,883.72Invoice Total: 34,883.72VENDOR - 3775 - STAPLEMAN MEDIA SERVICES, INC.PAYMENT # 15712VENDOR - 6780 - THE HITT COMPANIES, INCPAYMENT # 15713VENDOR - 1658 - WATER REPLENISHMENT DISTRICTPAYMENT # 15714VENDOR - 7361 - SIEMENS ENERGY, INCPAYMENT # 15711Page 17 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/8/2023 3,812.27Invoice Description Account PO or Contract Line Item Amount5641840 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375641841 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375641842 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375641843 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375641844 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375641846 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 387.97Invoice Total: 387.975644460 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375644461 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 387.97Invoice Total: 387.975644463 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375644464 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.375644474 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 337.37Invoice Total: 337.379/8/2023 1,984.65Invoice Description Account PO or Contract Line Item Amount625768 STORAGE SERVICES 011-010-125-529215 409.00Invoice Total: 409.00626231 STORAGE SERVICES 011-010-125-529215 1,575.65VENDOR - 7110 - WATERLINE TECHNOLOGIES, INCPAYMENT # 15715VENDOR - 3584 - WILLIAMS SERVICE CORPORATIONPAYMENT # 15716Page 18 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Total: 1,575.659/8/2023 388,821.30Invoice Description Account PO or Contract Line Item Amount202309053161099192RECALCULATION CHARGES 09/22 055-050-590-520150 2,789.43202309053161099192RECALCULATION CHARGES 09/22 055-050-590-520170 (497.81)202309053161099192RECALCULATION CHARGES 09/22 055-050-590-520180 (6,301.21)202309053161099192RECALCULATION CHARGES 09/22 055-050-590-520190 (700.21)202309053161099192RECALCULATION CHARGES 05/23 055-050-590-520150 (1,556.96)202309053161099192RECALCULATION CHARGES 05/23 055-050-590-520190 (7.01)202309053161099192RECALCULATION CHARGES 05/23 055-050-590-520170 170.54202309053161099192INITIAL CHARGES 08/23 055-050-590-520150 387,200.93202309053161099192INITIAL CHARGES 08/23 055-050-590-520170 (4,723.33)202309053161099192INITIAL CHARGES 08/23 055-050-590-520190 1,200.32202309053161099192INITIAL CHARGES 08/23 055-050-590-520210 11,246.61Invoice Total: 388,821.309/7/2023 1,750.00Invoice Description Account PO or Contract Line Item Amount100000017249950GASB 68 REPORTING SERVICES FEE 011-010-130-529225 1,750.00Invoice Total: 1,750.00VENDOR - 2412 - CALIFORNIA ISOPAYMENT # 15719VENDOR - 714 - CALPERSPAYMENT # 15753Page 19 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239/15/2023 3,643.76Invoice Description Account PO or Contract Line Item Amount19782764 SURVEILLANCE CAMERAS FOR CITY HALL 011-010-110-522010 240132 3,643.76Invoice Total: 3,643.769/15/2023 15,802.00Invoice Description Account PO or Contract Line Item Amount296063070 MEDICAL RETIREES 09/23 011-010-120-513035 15,802.00Invoice Total: 15,802.009/15/2023 21,762.24Invoice Description Account PO or Contract Line Item AmountIVC32187 TPA FEES 07/23 011-010-120-529220 6,508.66Invoice Total: 6,508.66IVC32617 TPA FEES 08/23 011-010-120-529220 7,999.50Invoice Total: 7,999.50IVC32851 TPA FEES 09/23 011-010-120-529220 7,254.08Invoice Total: 7,254.089/15/2023 2,582.25Invoice Description Account PO or Contract Line Item Amount4163556931 Uniform Services 055-050-586-524000- LP-0663 224.634163556931 Uniform Services 056-060-600-524000 LP-0663 79.154163556931 Uniform Services 058-070-700-524000 LP-0663 155.074163556931 Uniform Services 055-050-550-524000 LP-0663 15.364163556931 Uniform Services 055-050-555-524000 LP-0663 170.62Invoice Total: 644.834164970574 UNIFORM RENTAL SERVICE 055-050-586-524000- LP-0663 224.634164970574 UNIFORM RENTAL SERVICE 056-060-600-524000 LP-0663 79.154164970574 UNIFORM RENTAL SERVICE 058-070-700-524000 LP-0663 159.46VENDOR - 5182 - ANTHEM BLUE CROSSPAYMENT # 15755VENDOR - 4303 - ATHENS INSURANCE SERVICES, INCPAYMENT # 15756VENDOR - 5490 - CINTAS CORPORATION NO. 2PAYMENT # 15757VENDOR - 5460 - 247CCTV, INCPAYMENT # 15754Page 20 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20234164970574 UNIFORM RENTAL SERVICE 055-050-550-524000 LP-0663 15.364164970574 UNIFORM RENTAL SERVICE 055-050-555-524000 LP-0663 170.62Invoice Total: 649.224165690132 UNIFORM RENTAL SERVICE 055-050-586-524000- LP-0663 224.634165690132 UNIFORM RENTAL SERVICE 056-060-600-524000 LP-0663 79.154165690132 UNIFORM RENTAL SERVICE 058-070-700-524000 LP-0663 153.324165690132 UNIFORM RENTAL SERVICE 055-050-550-524000 LP-0663 15.364165690132 UNIFORM RENTAL SERVICE 055-050-555-524000 LP-0663 170.62Invoice Total: 643.084166411865 UNIFORM RENTAL SERVICE 055-050-586-524000- LP-0663 224.634166411865 UNIFORM RENTAL SERVICE 056-060-600-524000 LP-0663 79.154166411865 UNIFORM RENTAL SERVICE 058-070-700-524000 LP-0663 155.364166411865 UNIFORM RENTAL SERVICE 055-050-550-524000 LP-0663 15.364166411865 UNIFORM RENTAL SERVICE 055-050-555-524000 LP-0663 170.62Invoice Total: 645.129/15/2023 274,264.00Invoice Description Account PO or Contract Line Item Amount108112 AUGUST 2023 055-050-590-520160 274,264.00Invoice Total: 274,264.009/15/2023 1,450,399.27Invoice Description Account PO or Contract Line Item AmountC0011480 FIRE PROTECTION SERVICES 10/23 011-030-305-529215 1,392,735.45C0011480 FIRE PROTECTION SERVICES 10/23 011-030-305-529215 30,142.22C0011480 FIRE PROTECTION SERVICES 10/23 011-030-305-529215 27,521.60Invoice Total: 1,450,399.279/15/2023 2,000.00Invoice Description Account PO or Contract Line Item AmountVENDOR - 7262 - CITADEL ENERGY MARKETING, LLCPAYMENT # 15758VENDOR - 1444 - COUNTY OF LOS ANGELESPAYMENT # 15759VENDOR - 7533 - DAMION PASION JONESPAYMENT # 15760Page 21 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023116094000313 PUBLIC WORKS CONFERENCE PROJECT 011-040-415-660000 20230136 2,000.00Invoice Total: 2,000.009/15/2023 7,388.00Invoice Description Account PO or Contract Line Item AmountVERN95 OCTOBER 2023 055-050-590-529215 LP-0463 7,388.00Invoice Total: 7,388.009/15/2023 112,925.00Invoice Description Account PO or Contract Line Item Amount3446723 AUGUST 2023 055-050-590-520160 112,925.00Invoice Total: 112,925.009/15/2023 1,305.00Invoice Description Account PO or Contract Line Item Amount354477 COMPLIANCE SERVICES 06/25-07/22/23 055-050-580-529225 20240064 1,305.00Invoice Total: 1,305.009/15/2023 454.70Invoice Description Account PO or Contract Line Item Amount17852 ADDITIONAL PRI LINE 011-010-110-529110 IT-0172 454.70Invoice Total: 454.709/15/2023 5,260.51Invoice Description Account PO or Contract Line Item Amount340366 COMPLIANCE SERVICES 04/02-04/29/23 055-050-580-529225 LP-0570 5,260.51Invoice Total: 5,260.519/15/2023 461.86Invoice Description Account PO or Contract Line Item AmountVENDOR - 7353 - EXTENDED OFFICE SOLUTIONS, INCPAYMENT # 15764VENDOR - 6899 - G2 INTEGRATED SOLUTIONS, LLCPAYMENT # 15765VENDOR - 1712 - GRAINGER, COPAYMENT # 15766VENDOR - 5658 - DAVID E DANPAYMENT # 15761VENDOR - 4116 - EDF, INC.PAYMENT # 15762VENDOR - 6519 - EN ENGINEERING, LLCPAYMENT # 15763Page 22 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/20239829117440 PARTS & SUPPLIES 011-040-415-522000 240117 307.90Invoice Total: 307.909830925930 PARTS & SUPPLIES 011-040-415-522000 240117 153.96Invoice Total: 153.969/15/2023 10,782.82Invoice Description Account PO or Contract Line Item Amount36X00123 DISPOSAL SERVICES 06/23 011-040-430-529215 CS-1371 3,599.24Invoice Total: 3,599.2437X00116 DISPOSAL SERVICES 07/23 011-040-430-529215 CS-1371 2,826.96Invoice Total: 2,826.9638X11665 DISPOSAL SERVICE 08/23011-040-430-529215 CS-1371 4,356.62Invoice Total: 4,356.629/15/2023 1,250.00Invoice Description Account PO or Contract Line Item Amount823001688006 AUGUST 2023 055-050-590-529215 167.50Invoice Total: 167.50823001688088 AUGUST 2023 055-050-590-529215 1,082.50Invoice Total: 1,082.509/15/2023 440.00Invoice Description Account PO or Contract Line Item Amount090623 TUITION REIMBURSEMENT 011-010-120-529680 440.00Invoice Total: 440.009/15/2023 1,234.03Invoice Description Account PO or Contract Line Item Amount10683464 PARTS & SUPPLIES 055-050-586-529000- 240126 380.39Invoice Total: 380.39VENDOR - 1150 - MCMASTER-CARR SUPPLY COMPANYPAYMENT # 15770VENDOR - 5350 - HAUL-AWAY RUBBISH SERVICE CO., INCPAYMENT # 15767VENDOR - 4500 - ICE US OTC COMMODITY MARKETS, LLCPAYMENT # 15768VENDOR - 1668 - LORENZO GAYTANPAYMENT # 15769Page 23 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/202310757886 PARTS & SUPPLIES 055-050-586-529000- 240126 61.87Invoice Total: 61.8710850573 PARTS & SUPPLIES 055-050-586-529000- 240126 757.65Invoice Total: 757.6511066811 PARTS & SUPPLIES 055-050-586-529000- 240126 34.12Invoice Total: 34.129/15/2023 5,424.68Invoice Description Account PO or Contract Line Item Amount2555 POSTAGE FEES 011-010-130-522000 FI-0041 5,000.00Invoice Total: 5,000.00823652 POSTAGE FEES 08/23 011-010-130-522000 FI-0041 424.68Invoice Total: 424.689/15/2023 68,898.75Invoice Description Account PO or Contract Line Item Amount1840 TECHNICAL DESIGN 08/23 058-070-700-660000 LP-0590-1 2,422.501840 TECHNICAL DESIGN 08/23 058-070-700-529000 LP-0590-1 7,695.001840 TECHNICAL DESIGN 08/23 058-070-700-660000 LP-0590-1 56,857.501840 TECHNICAL DESIGN 08/23 055-050-580-529225 LP-0590-1 1,923.75Invoice Total: 68,898.759/15/2023 112,575.00Invoice Description Account PO or Contract Line Item Amount239742 AUGUST 2023 055-050-590-520160 112,575.00Invoice Total: 112,575.009/15/2023 782.00Invoice Description Account PO or Contract Line Item Amount243854 PROFESSIONAL SERVICES 07/23 095-095-905-705020- 782.00VENDOR - 5908 - PACIFIC SUMMIT ENERGY, LLCPAYMENT # 15773VENDOR - 3900 - RICHARDS, WATSON & GERSHONPAYMENT # 15774VENDOR - 6687 - NEXTDAY DELIVERY SERVICE, LLCPAYMENT # 15771VENDOR - 5614 - NORTHWEST ELECTRICAL SERVICES, LLCPAYMENT # 15772Page 24 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Total: 782.009/15/2023 103,919.00Invoice Description Account PO or Contract Line Item Amount10247 SECURITY SERVICES 07/23 055-050-555-529215 20230234 83,135.2010247 SECURITY SERVICES 07/23 055-050-580-529215 20230234 20,783.80Invoice Total: 103,919.009/15/2023 41,835.24Invoice Description Account PO or Contract Line Item AmountDH0923 SEPTEMBER 2023 055-050-590-520154 41,835.24Invoice Total: 41,835.249/15/2023 248,533.90Invoice Description Account PO or Contract Line Item AmountDS20923 SEPTEMBER 2023 055-050-590-520154 248,533.90Invoice Total: 248,533.909/15/2023 24,669.00Invoice Description Account PO or Contract Line Item Amount7501585048 SEPTEMBER 2023 055-050-590-520170 24,669.00Invoice Total: 24,669.009/15/2023 25.78Invoice Description Account PO or Contract Line Item AmountOE122629 NAMEPLATE (SANDOVAL) 011-010-105-522000 240151 12.00OE122629 NAMEPLATE (SANDOVAL) 011-010-105-522000 240151 13.78Invoice Total: 25.789/15/2023 44,898.81VENDOR - 6780 - THE HITT COMPANIES, INCPAYMENT # 15779VENDOR - 2227 - US DEPARTMENT OF ENERGYPAYMENT # 15780VENDOR - 2517 - SCPPAPAYMENT # 15776VENDOR - 2517 - SCPPAPAYMENT # 15777VENDOR - 59 - SO CAL EDISONPAYMENT # 15778VENDOR - 6198 - S&S LABOR FORCE, INCPAYMENT # 15775Page 25 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Description Account PO or Contract Line Item AmountGG1766W0823 AUGUST 2023 CAPACITY 055-050-590-520180 29,817.21GG1766W0823 JULY 2023 ENERGY FLOW 055-050-590-520150 15,081.60Invoice Total: 44,898.819/15/2023 371.10Invoice Description Account PO or Contract Line Item Amount5644475 SODIUM HYPOCHLORITE 058-070-700-520140 20240032 371.10Invoice Total: 371.109/15/2023 500.00Invoice Description Account PO or Contract Line Item Amount090523 MONTHLY RENT 09/23 055-050-595-529703- 20240080 500.00Invoice Total: 500.009/15/2023 1,724.63Invoice Description Account PO or Contract Line Item Amount300541 SATELLITE PHONE SERVICE 011-010-110-529110 240153 1,724.63Invoice Total: 1,724.639/15/2023 581,882.93Invoice Description Account PO or Contract Line Item Amount202309123161151119RECALCULATION CHARGES 06/23 055-050-590-520150 (92.63)202309123161151119RECALCULATION CHARGES 06/23 055-050-590-520170 (8.56)202309123161151119RECALCULATION CHARGES 06/23 055-050-590-520190 (1.06)202309123161151119RECALCULATION CHARGES 11/21 055-050-590-520190 (326.39)VENDOR - 7663 - WEST SOTO STREET PARTNERSPAYMENT # 15782VENDOR - 894 - WHENEVER COMMUNICATIONS, LLCPAYMENT # 15783VENDOR - 2412 - CALIFORNIA ISOPAYMENT # 15811VENDOR - 7110 - WATERLINE TECHNOLOGIES, INCPAYMENT # 15781Page 26 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023202309123161151119RECALCULATION CHARGES 11/21 055-050-590-520170 (13.35)202309123161151119RECALCULATION CHARGES 11/21 055-050-590-520150 (215.59)202309123161151119RECALCULATION CHARGES 8/21 055-050-590-520150 (9.70)202309123161151119RECALCULATION CHARGES 8/21 055-050-590-520190 (57.76)202309123161151119RECALCULATION CHARGES 5/23 055-050-590-520150 (1,259.08)202309123161151119RECALCULATION CHARGES 5/23 055-050-590-520170 121.43202309123161151119RECALCULATION CHARGES 5/23 055-050-590-520180 120.72202309123161151119RECALCULATION CHARGES 5/23 055-050-590-520190 102.77202309123161151119INITIAL CHARGES 08/23 055-050-590-520170 (9,624.20)202309123161151119INITIAL CHARGES 08/23 055-050-590-520190 (1,941.13)202309123161151119INITIAL CHARGES 08/23 055-050-590-520210 12,688.16202309123161151119INITIAL CHARGES 08/23 055-050-590-520150 582,399.30Invoice Total: 581,882.939/15/2023 298,704.00Invoice Description Account PO or Contract Line Item AmountPV0923 SEPTEMBER 2023 CAPACITY 055-050-590-520180 236,153.00PV0923 AUGUST 2023 ENERGY 055-050-590-520150 52,551.00PV0923 PROJECT PSF 055-000-000-122100 10,000.00Invoice Total: 298,704.009/15/2023 159,850.00VENDOR - 2517 - SCPPAPAYMENT # 15812VENDOR - 7225 - TWIN EAGLE HOLDINGS N.A., LLCPAYMENT # 15813Page 27 of 29 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023Invoice Description Account PO or Contract Line Item Amount412504 AUGUST 2023 055-050-590-520160 159,850.00Invoice Total: 159,850.009/8/2023 1,747.55Invoice Description Account PO or Contract Line Item Amount090823_MULTI PARTS & SUPPLIES 011-040-415-52200024012920240035 1,382.39090823_MULTI PARTS & SUPPLIES 011-040-430-52200024012920240035 365.16Invoice Total: 1,747.559/15/2023 12,037.12Invoice Description Account PO or Contract Line Item Amount091523_MULTI PARTS & SUPPLIES 011-040-410-52200024012920240035 8,307.44091523_MULTI PARTS & SUPPLIES 011-040-415-52200024012920240035 3,729.68Invoice Total: 12,037.12VENDOR - 1552 - HOME DEPOT CREDIT SERVICESPAYMENT # 15815VENDOR - 1552 - HOME DEPOT CREDIT SERVICESPAYMENT # 15814Page 28 of 29 FUND EARLY CHECKS TOTAL ELECTRONIC TOTALGRAND TOTAL011 - GENERAL $ 339,356.09 $ 1,564,896.25 $ 1,904,252.34 055 - LIGHT & WATER $ 50,727.00 $ 2,436,512.72 $ 2,487,239.72 056 - NATURAL GAS $ 1,000.00 $ 316.60 $ 1,316.60 058 - WATER $ 2,234.20 $ 120,937.62 $ 123,171.82 095 - SEWC JPA $ 782.00 $ 782.00 $ 393,317.29 $ 4,123,445.19 $ 4,516,762.48 CITY OF VERNONOPERATING ACCOUNTWARRANT REGISTER NO. 118DATE 10/17/2023TotalPage 29 of 29 City Council Agenda Report Meeting Date:October 17, 2023 From:Carlos Fandino, City Administrator Department:City Administration Submitted by:Diana Figueroa, Administrative Analyst Subject Fire Department Activity Report Recommendation Receive and file the August 2023 Fire Department Activity Report. Background Attached is a copy of a Fire Department Activity Report which covers the period of August 1 through August 31, 2023. The report is provided by Los Angeles County Fire and consists of incident details and a summary for the month. Fiscal Impact There is no fiscal impact associated with this report. Attachments 1. Fire Department Activity Report – August 2023 City Council Agenda Report Meeting Date:October 17, 2023 From:Robert Sousa, Chief of Police Department:Police Submitted by:Donna Aggers, Records Manager Subject Police Department Activity Report Recommendation Receive and file the August 2023 Police Department Activity Report. Background The Vernon Police Department’s activity report consists of activity during the specified reporting period, including a summary of calls for service, and statistical information regarding arrests, traffic collisions, stored and impounded vehicles, recovered stolen vehicles, the number of citations issued, and the number of reports filed. Fiscal Impact There is no fiscal impact associated with this report. Attachments 1. August 2023 Police Department Activity Report City Council Agenda Report Meeting Date:October 17, 2023 From:Todd Dusenberry, General Manager of Public Utilities Department:Public Utilities Submitted by:Adriana Ramos, Administrative Analyst Subject Service Level Performance Agreements with USIP Communications, LLC Recommendation A. Approve and authorize the City Administrator to execute a Service Level Performance Agreement and issue Change Orders with USIP Communications, LLC (USIPCOM), in substantially the same form as submitted, in an amount not-to-exceed $333,252 and up to a 15% contingency of $49,988, to provide the primary feed for Upstream Internet Access Services for three years; and B. Approve and authorize the City Administrator to execute a Service Level Performance Agreement and issue Change Orders with USIPCOM, in substantially the same form as submitted, in an amount not-to-exceed $289,704 and up to a 15% contingency of $43,456, to provide the backup feed for Upstream Internet Access Services for three years. Background Vernon Public Utilities (VPU) Fiber Optic based Internet Access Service receives dedicated wholesale internet circuits from upstream service providers. These internet circuits are then provisioned through networking equipment at City Hall and other utility facilities to provide reliable internet services to Vernon's businesses and residents. Currently, VPU has contracts with two broadband providers, Lumen and USIPCOM, that are the source lines used by VPU to provide internet services to residential and business customers. On June 21, 2023, a Purchase Contract with Lumen was approved for an annual cost of $52,720.14 to provide the primary feed for Upstream Internet Access Services to VPU. The Lumen contract is set to expire on June 18, 2024, but would be terminated upon completion of the Fujitsu networking equipment project detailed below. Concurrently, on June 21, 2023, a Purchase Contract with USIPCOM was approved for an annual cost of $66,373.16 to provide the backup feed for Upstream Internet Access Services to VPU. The USIPCOM contract is set to expire on June 14, 2024 and would be replaced should the transition to the proposed agreements be approved. VPU’s existing fiber optic service is limited by the total bandwidth of these two contracts. Bandwidth thresholds limit the number of new customers VPU can reliably add to the fiber optics system and restrict the internet speeds offered to existing customers. VPU’s fiber optic service was limited by the existing Fujitsu Network Communication networking equipment (Fujitsu). To resolve this issue, on March 21, 2023, the City Council approved a Labor and Materials Contract with Fujitsu for $717,765.97 to upgrade the existing fiber optic network system and perform network migration services to facilitate the reliability and future growth of VPU’s fiber optic system. The new networking equipment is expected to be completed by the end of the calendar year 2023. To meet the installation timeframe of the new Fujitsu networking equipment, VPU has identified the need for new broadband service contracts to accommodate customers looking for higher internet speeds and cost-effective options from the City. The proposed upgrade will provide a more reliable, higher quality service, and various internet speed options for VPU's customers. More importantly, the contracts will provide the ability to market and sustain the future growth of the fiber system. With the increased bandwidth and upgrade of the existing networking equipment, VPU plans to update its existing offerings and service packages for customers and re-design the network distribution system to grow and serve more customers. VPU contacted vendors who could meet its broadband requirements, including future growth plans. VPU staff determined that USIPCOM can meet the service level requirements and expectations. VPU recommends City Council approve a three-year Service Level Agreement with USIPCOM. USIPCOM will provide the primary and backup feeds to the VPU fiber optic system. The monthly cost for the primary feed is $9,257 ($333,252 for three years), plus a 15% contingency or $49,988 for unforeseen changes in fees, taxes, etc., and the monthly cost for the backup feed is $8,039 ($289,704 for three years which includes a $300 one-time installation fee) plus a 15% contingency or $43,456 for unforeseen changes in fees, taxes, etc. USIPCOM will secure each service line from different sources to provide the reliability and redundancy necessary to meet VPU’s current and future requirements. The new services will each be offered at 100G, which provides VPU and its customers with 100 times the bandwidth compared to existing services. Staff recommends upgrading the new service provider contract to facilitate the existing and future growth of the VPU fiber optic system and offer high internet speeds to the City's residential and business customers. Upon City Council approval and completion of the Fujitsu networking equipment project, the existing contract with Lumen will be terminated at an approximate cost of $28,000 in accordance with the agreed upon Terms and Conditions. Since the bid from Lumen for a comparable new 100G service was priced at $19,851 per month ($238,212 for one year), it is more cost-effective to terminate the service with Lumen and move forward with a secondary service from USIPCOM. The proposed agreements are exempt from the competitive bidding and competitive selection requirements pursuant to Vernon Municipal Code Sections 3.32.110(A)(6) and 3.32.110(B)(1), as these contracts are for the acquisition, sale or transmission of electrical power, natural gas, water, or telecommunications for the Public Utilities Department, and would be commercially unreasonable to procure these services through the standard procurement procedures. USIPCOM’s Sale Order Forms have been reviewed and approved as to form by the City Attorney’s Office. Fiscal Impact The fiscal impact is not-to-exceed $744,400, including contingencies, for the term of the agreements. Sufficient funds are available in the Fiber Fund and approval of this action requires a transfer of $68,000 from Fiber Fund, Professional Services – Other Account No. 059-080-800- 529215 to Fiber Fund, Transport Services – Telecom Account No. 059-080-800-520173 for the current fiscal year and funds will be budgeted in subsequent years. Attachments 1. USIP Communications, LLC – Sales Order (Primary Feed) 2. USIP Communications, LLC – Sales Order (Backup Feed) 3. Lumen Technologies – Order Form Terms and Conditions Customer Name City of Vernon Sales Order: SO5690 Issued Date: 07-27-2023 03:43 PM Due Date : 10-31-2023 USIPCommunications 3201 Northside Dr STE 109 RALEIGH, North Carolina 27615 Phone 800-972-5004 Contact Tim Bass Billing Address Shipping Address 4305 santa fe Avenue Vernon, CA 90058 4305 santa fe Avenue Vernon, CA 90058 Item Code Item Name Quantity List Price Item Total Discount Total After Discount Total PRO114 GigE Dedicated Symmetrical 100G Fiber service with SLAs. BGP routing will be supported 1 $9,257 $9,257 0 (0 %)$9,257 $9,257 Items Total $9,257 Discount(0%)0 GRAND TOTAL($)$9,257 Contract Term Monthly Charge One-Time Charge 36 $9,257 $0 Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: Terms and Conditions can be found at www.usipcom.com/legal Important Information Billing Billing for Service will begin no later than two days after service is deemed ready for Billing and Invoicing by USIPCOM. Customer’s failure to promptly schedule and activate the service will result in billing beginning before service can be utilized by the Customer. In addition, the Customer is solely responsible for canceling any service with previous Provider. Termination Upon termination of the Service Agreement and/or the Service(s) not due to default, USIPCOM will disconnect, or will cause to be disconnected, the Service(s) if notified by the Customer in writing via E-mail to support@usipcom.com with no less that forty calendar (40) days’ notice prior to termination of the Agreement and/or Service(s). Please review Terms & Conditions and Legal Documents @ http://www.usipcom.com/legal Customer Care & Support Contact Information • Phone: 800-972-5004 • E-mail: support@usipcom.com Sales Contact • Name: Joe Willett • E-mail: jwillett@usipcom.com • Direct Phone: 919-439-3563 • Main Phone: 800-972-5004 Terms & Conditions Terms & Conditions along with other important documents can be found at http://www.usipcom.com/legal/. Please review the Terms & Conditions along with the Acceptable Use Policy, Service Level Agreement before signing for service. It is solely the customer's responsibility to review the Terms & Conditions, Acceptable Use Policy, and Service Level Agreement located @ http://www.usipcom.com/legal Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: Payment Form Please choose the desired payment method: Direct Deposit/ACH Credit Card Paper Check One-Time Charge Monthly Reoccurring Charge Credit Card Authorization Card Type: Card Number: CVC (3 or 4 digit security code on back or front of credit card) Expiration Date: Name on Card: Billing Address: City: State: ZIP: Country: Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: S E R V I C E O R D E R F O R M S E R V I C E O R D E R F O R M Data Installation Guide Product Installation Overview Customers ordering a T1, NxT1, EOC, or Cable should expect installation to occur within an average 30-45 business days from the date of order submission by USIPCOM to the underlying Carrier. Customers ordering MPLS, DS3, OCx and Fiber Buildout should expect installation to occur within an average of 60-90 business days from the date of order submission by USIPCOM to the underlying Carrier(s). All order submission will occur only after a completed contract has been presented and received by USIPCOM and the Customer has been approved for any/all applicable credit. It is important to understand that the average times to installation presented above are based on industry standards and USIPCOM experience. Individual circumstances may dictate that these installation timeframes could be shorter or longer than the aforementioned averages. Orders may be expedited and are contingent upon Carrier capability and acceptance. A one-time non-recurring expedite fee will be assessed on a Customer’s invoice. However, payment of this fee by the Customer does not guarantee a specific timeframe or completion date. Throughout the installation process a Customer will work with USIPCOM Installation Specialists and Activation Engineers. The Installation Specialist will manage the installation process up to Service Activation and is responsible for interacting with the Carrier to ensure all milestones are met, escalations and confirming with the Carrier and Customer that contracted service is provisioned correctly. The Activation Engineer is responsible for activating and verifying service. Installation Timeline Day 1-3: Order is placed with the Carrier USIPCOM will place the order with the underlying Carrier for Data service. The following requirements must be met by the Customer prior to order placement: Basic Requirements: • Accurate address including suite number and onsite phone number • Valid onsite contact with appropriate phone number • Main point of entry (MPOE) location where the Local Exchange Carrier (LEC) will deliver service the building (i.e. basement on first floor) • DMARC location, the actual location within the building where the service is to be delivered (i.e. suite 100) • Number of IPs desired and completed IP justification form if required by the Carrier Important Note: USIPCOM is not responsible for extending the circuit to the DMARC location unless the extension has been explicitly ordered and is listed as a line item on the USIPCOM Service Order Form (SOF). Unless the DMARC extension is listed on the SOF the circuit will only be delivered to the MPOE (as determined by the LEC) and any extension is the sole responsibility of the Customer. In general, any changes to the above information or to the service order during the installation process could result in delays and additional fees. After the order is placed with the Carrier a USIPCOM Installation Specialist will contact the Customer point of contact on record and complete an introduction call to review the ordered service solution, address, contact information, and will confirm the Customer has access to the customer portal. Day 4-9: Carrier places order with Local Exchange Carrier (LEC) The Installation Specialist will ensure the Carrier has initiated the design and engineering of the circuit so the order can be passed to the LEC. The LEC will then begin the design and engineering of the local loop. Day 10-20: Installation Date (Firm Order Commitment Date) Established The LEC will provide a Firm Order Commitment (FOC) date for installation of the local loop. At this time, if a FOC date has not been established the reason for delay will be relayed to the Customer. Day 21-30: Local Loop is installed (Firm Order Commitment Date) A technician from the LEC will install the local loop to the service location.The following requirements must be met in order for the technician to complete installation: Requirements: • A customer contact must be onsite to allow the LEC technician access to the location and telco closet as applicable for an entire business day. Day 31-45: Service Activation After the local loop has been installed and the LEC has tested and accepted with the Carrier, the Installation Specialist will schedule an activation appointment with the Customer. The following requirements must be fulfilled prior to the activation appointment: Requirements: • Space and power must be allocated for all equipment components applicable to Data service and any necessary mounting boards or racks shall be provided by the Customer • Sufficient power outlets must be available for the power unit which requires a standard 120V AC plug. The power outlet must not be overloaded and must be within 6’ of the Data Router • Any DMARC extensions not ordered through USIPCOM must be complete • All LAN devices and the Data Router must be wired/connected – USIPCOM does not provide patch cables or dispatch technicians to connect any equipment to the circuit. • The Data Router requires an operating environment with temperature ranges between 35-85° F and humidity of less than 90%, noncondensing • The environment must be free of excessive dust • Customer must call in to USIPCOM at the scheduled time of the activation appointment The USIPCOM Activation Engineer will bridge the Carrier on the phone with the Customer and conduct testing to ensure Data service is working properly. Day 60: Service Activation - DS3’s/OCX’s/Ethernet/Colocation/MPLS DS3 and OCX Solutions have an installation interval of 60-90 business days. Actual installation timeline will vary as these solutions may require build outs, special equipment, or other special requirements from the Carrier, LEC, and the Customer. The following Data Solutions may have additional requirements and specifications: CO-LOCATION In order to avoid any delays, it is the Customer’s responsibility to inform USIPCOM prior to order placement on what floor their equipment is located. Customers needs to work with their existing vendors (hosting company / cross connect provider) to determine where the circuit should be terminated and how the circuit shall be provided (i.e. open port on MPOE, open port on Carrier POP, channel on existing facility). In some cases, a CFA/LOA will need to be provided by the Customer. In addition, the Customer is also responsible for ordering the appropriate cross-connect from the MPOE to their equipment. ETHERNET When purchasing an Ethernet solution from a Carrier, it is the Customer’s responsibility to ensure that the Carrier has facilities going to the Customer’s floor. The Customer is responsible for extending this service either from the MPOE or the Telco closet on their floor to their suite if desired. MPLS The Customer must work with USIPCOM on an implementation plan to ensure the appropriate sites are installed in the order of importance. Customer must also provide their private IP addressing scheme and routing requirements. If the Customer is getting voice, their bandwidth requirements for voice across this network must be understood and provided to USIPCOM along with QOS requirements so the appropriate settings are implemented on the Carrier’s network. Billing Billing for Data Services will begin no later than two (2) business days after service is deemed ready for Billing and Invoicing by USIPCOM. Customer failure to promptly schedule and activate the circuit will result in billing beginning before service can be utilized by the Customer. In addition, the Customer is solely responsible for canceling any service with previous Carrier, and for updating any email or web hosting IP addresses with the current provider. USIPCOM does not support email or web hosting applications but can update any email or DNS records once the activation appointment has been completed. Multi-Site Solutions Multi-site solutions such as MPLS are billed site by site and not when all sites are installed. If all sites are ordered at the same time, each site will be billed as they are installed, tested, and accepted by the Carrier, regardless of whether Customer has completed all necessary steps to activate Service or whether other sites in the MPLS network are ready for activation. Move Orders In the event the Customer wishes to move service to a new location USIPCOM must be notified by an authorized contact by emailing support@usipcom.com a minimum of sixty (60) business days prior to the move. USIPCOM will coordinate the move of services once the new location is secure, has power, has a backboard or rack for equipment, and a new contract with USIPCOM has been signed and processed. Please note that Customers that do not have a minimum of twelve (12) months left on their existing contract will be re-termed for one (1) year upon completion of the move. The general timeframe for Data service move orders is the same as the timeline noted above. Customer Acceptance Customer acknowledges that the preceding installation timeline is provided as a general timeline only and that USIPCOM does not guarantee any specific date or timeframe for installation. Customer has read all of the requirement or specification for Data Service installation. Customer further acknowledges that failure to meet any requirement or specification may result in delays in the installation process. Customer further acknowledges that Billing/Invoicing for Data Service(s) will begin no later than two (2) business days after service is deemed ready for activation by USIPCOM. By signing below, Customer signatory certifies that (s)he is an officer or certified representative of the above listed Company authorized to enter into a binding agreement(s) on behalf of said company and affirmed by seal below as of the date below. Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: pg. 1 Terms & Conditions Internet Services Terms and Conditions These Service Terms and Conditions (the “Terms and Conditions”) apply to the Services (as defined below) described in the Service Order Form (“SOF”) by and between USIPCOM, LLC. (“Provider”) and the customer named in the SOF (“Customer”). Provider may amend these Terms and Conditions from time to time by posting an amended version at www/usipcom.com/legal/ and sending Customer written notice thereof. Such amendment will be deemed accepted and become effective thirty (30) days after such notice (the “Proposed Amendment Date”) unless Customer first gives Provider written notice of rejection of the amendment. If Customer rejects such amendment, these Terms and Conditions will continue pursuant to its original provisions and the amendment will become effective at the commencement of the next Renewal Term (as defined below) following the Proposed Amendment Date. Customer’s continued use of the Services following the effective date of an amendment will confirm Customer’s consent thereto. 1. Service Description. Provider will provide Customer with the Services described in the SOF for the Service Term so long as no Default (as defined below) has occurred. Customer has the sole and exclusive responsibility for the installation, configuration, security (including, without limitation, firewall security policies, even if Customer uses a third party to configure and implement such measures), and integrity of all Customer facilities, systems, equipment, proxy servers, software, networks, network configurations and the like (the “CPE” ) used in conjunction with or related to the Services provided by Provider, unless Customer obtains such CPE from Provider pursuant to a written agreement between Customer and Provider and Provider expressly assumes any of such duties in writing. 2. Service Activation Date. The “Service Activation Date” means the date two (2) business days after Provider deems the applicable Services ready for activation, which customarily will follow Provider’s receipt of confirmation from any applicable underlying carrier(s) that the Services are ready for activation; provided, however, with respect to MPLS Services (as defined below) only (as identified on the SOF), the “Service Activation Date” means the earlier of (i) the date two (2) business days after Provider deems the Services ready for activation, which customarily will follow Provider’s receipt of confirmation from any applicable underlying carrier(s) that the Services are ready for activation; and (ii) the date the Service is successfully activated by the underlying carrier and confirmed tested and accepted by Customer and Provider. Provider will notify Customer (via phone, email or other means) of the Service Activation Date. For clarity, the Service Activation Date established by Provider will apply regardless of whether Customer has completed all necessary steps to activate the Services. 3. Service Term. The initial Service Term will be as specified in any applicable SOF (the “Initial Service Term”). The Initial Service Term will automatically extend thereafter upon the same terms and conditions applicable during the Initial Service Term for additional consecutive term(s) of one (1) year unless earlier terminated pursuant to these Terms and pg. 2 Conditions or unless either party provides notice of nonrenewal to the other at least sixty (60) days prior to the expiration of the then existing Service Term. 4. Service Availability. Provider may from time-to-time interrupt or otherwise impact Services for routine maintenance. Provider will make commercially reasonable efforts to provide to Customer reasonable advance notification (via phone, email or other means) of such maintenance. Provider will use commercially reasonable efforts to perform such maintenance in a manner that will not unreasonably interrupt Services. Provider normally will perform maintenance between the hours of 11:30 PM and 6:00 AM Eastern. If Provider determines that emergency maintenance is necessary for any reason, Provider will make commercially reasonable efforts to notify Customer with respect to the anticipated down-time and/or other information pertinent to the affected Services. 5. Support Provider. provides support for the Services only as described at www.usipcom.com/legal/ pursuant to any applicable Service Level Agreement (“SLA”) posted at (“www.usipcom/legal/USIPCOM-SLA. NOTWITHSTANDING ANY TERM OF THESE TERMS AND CONDITIONS OR ANY APPLICABLE SLA TO THE CONTRARY, PROVIDER DOES NOT SUPPORT ANY SERVICES BEYOND THE PROVIDER POINT OF DEMARCATION, DEFINED AT WWW.USIPCOM.COM/LEGAL/. (e) theft, or (f) disaster. If USIPCOM CPE requires maintenance not caused by one of the events set out in the sentence above, USIPCOM or its agents shall either arrange to repair the CPE at Customer’s premises or ship an equivalent pre-configured replacement to Customer. If replacement CPE is shipped to Customer, Customer shall return the faulty CPE to USIPCOM within ten (10) days of receiving the replacement CPE or pay for such CPE. Customer will not receive compensation for downtime associated with CPE replacement or repair. In addition, if Customer has rented CPE, Customer shall return (at Customer’s own expense) USIPCOM CPE to USIPCOM within ten (10) days of termination. If this CPE is not returned in good working condition to USIPCOM Customer shall be invoiced and pay for this CPE. Should reject to the terms and conditions set forth in the Manufacturer’s or Publisher’s warranty, End-User license or agreement applicable to such CPE or CPE Provider Service, with no warranty of any kind from USIPCOM. Should customer receive purchased CPE that is damaged or dead on arrival Customer must notify USIPCOM Customer Care within ten (10) days of receipt. Returns will only be accepted on brand new factory-packaged products within thirty (30) days of the date CPE was shipped. All products must be fully complete including all original manufacturer boxes with the UPC code and packing materials, all manuals, blank warranty cards, accessories and any other documentation included with the original shipment. Products returned in used or altered condition will not be accepted. After thirty (30) days from initial product ship date, all sales are final. Customer is responsible for shipping charges to the USIPCOM distribution center for all products being shipped for return or exchange. Customer is responsible for all risk of loss and damage to products being shipped for return or exchange. Should Customer desire to return or exchange purchased CPE, pursuant to the above conditions, then Customer must e-mail Customer Care at customercare@usipcom.com to request a Return Materials Authorization (RMA). All returns and exchanges will incur a twenty percent (20%) restocking fee, as calculated according to the original purchase price. If the RMA is in response to CPE delivered pg. 3 dead on arrival or damaged, and said CPE is found to be operating within manufacturer specifications upon return, said CPE shall be subject to the restocking fee outlined above. 6. Applicable Only If Customer Purchases CPE from Provider: CPE purchased by Customer from Provider may be covered under a limited warranty provided by any applicable manufacturer or provider, which Provider will extend to Customer without charge to the extent Provider can do so pursuant to our agreements with any applicable manufacturer or provider; however, Provider provides no warranty with respect to any such purchased CPE (and/or CPE provider service). All sales of CPE purchased by Customer from Provider are final; provided, however, if Customer receives purchased CPE that is damaged or nonfunctional upon arrival, (i) within ten (10) days of receipt of such damaged or nonfunctional CPE, Customer must notify Provider via email to Customer Care at customercare@usipcom.com to request an RMA; (ii) Provider only will accept returns of any such damaged or nonfunctional products within thirty (30) days of the date of the shipment to Customer by Provider; (iii) any such damaged or nonfunctional CPE timely returned to Provider by Customer must be fully complete, including all original manufacturer boxes with the UPC code and packing materials, all manuals, blank warranty cards, accessories and any other documentation included with the original shipment to Customer; (iv) Provider will not accept CPE returned in used or altered condition; (v) Customer is solely responsible for all costs and expenses connected to the shipment to Provider of any such damaged or nonfunctional products shipped to Provider pursuant to this Section 7; (vi) Customer is responsible for all risk of loss and damage to products being shipped to Provider pursuant to this Section 7; and (vii) if Provider determines that the CPE operates within manufacturer specifications upon return pursuant to any applicable RMA, the affected CPE will be returned to Customer at Customer’s sole cost and expense, the sale of such CPE will remain final, and Provider may charge Customer a restocking fee equal to twenty percent (20%) of the original purchase price of such CPE. Notwithstanding any terms or conditions of any SLA to the contrary, except as otherwise expressly provided in this Section 7, Provider does not maintain, support or manage any CPE, which will be the obligation of Customer solely. Customer is solely responsible for unauthorized access to or use of any Services by any third-party through CPE, regardless of whether such unauthorized access is unintentional, accidental, intentional or fraudulent and regardless of whether Customer had knowledge of such unauthorized access. 7. Applicable Only If Customer Obtains Managed Network Services Pursuant to Any Applicable SOF: “Managed Network Services” are Services that may be specified in writing as “Managed Network Services” pursuant to any applicable SOF and is a solution in which the Internet access CPE (whether provided by Customer or Provider) is managed by Provider. If Customer chooses to provide its own Internet access CPE, Customer hereby assigns full operational management responsibility, including, but not limited to, full management of the logical configuration for such CPE, solely to Provider. Except as expressly provided in any applicable SOF, no Managed Network Services apply. 8.Applicable Only If Customer Obtains Professional Services Pursuant to Any Applicable SOF: “Professional Services” are any services that may be specified in writing as “Professional Services” pursuant to any applicable SOF and is a service in which Provider provides certain pg. 4 professional services to Customer as specified in such SOF. Except as expressly provided in any applicable SOF, no Professional Services apply. All Professional Services will be provided by phone, email or other similar means from Provider’s facilities. 9. Charges for Service. The monthly recurring charge(s) (“MRC”) and any non-recurring charge(s) (“NRC”) for Service are stated in said Service Order Form. Service charges are exclusive of applicable taxes and surcharges, including the Federal Universal Service Fund surcharge that USIPCOM passes on to its customers. At its sole discretion, USIPCOM may require a security deposit to continue provisioning of Service. After the initial term, USIPCOM may increase pricing upon at least thirty (30) days written notice. At any time, USIPCOM may pass on to Customer any circuit price increases from underlying carriers with at least thirty (30) days written notice. All rates and charges are subject to change immediately in the event there are mandated surcharges or taxes imposed by federal, state or governmental agencies. Notwithstanding the foregoing, in the event of any Regulatory Activity, or governmental taxation changes, USIPCOM reserves the right, at any time with as much advance notice as reasonably possible and without liability, to: (i) pass through to Customer all, or a portion of, any changes or surcharges directly or indirectly related to such governmental or Regulatory Activity; (ii) modify the Service, rates (including any rate guarantees), promotions, terms and/or conditions of this Agreement in order to conform to such action; or (iii) if such Regulatory Activity materially and adversely impairs the provision of Service under the Agreement, as reasonably determined by USIPCOM, terminate the Agreement. 10. Billing and Payment. USIPCOM shall bill Customer for Service rendered at the rates stated in said Service Order Form. Invoices shall include all applicable federal, state, and local taxes. all such taxes, and all use, sales, commercial, gross receipts, privilege, surcharges, or other similar taxes, license fees, miscellaneous fees, and surcharges, whether charged to or against USIPCOM, Inc., which shall be payable by the Customer. However, if Customer provides proof of its specific tax-exempt status, Provider shall not charge applicable taxes due to such exemption. Customer shall supply Provider a valid and properly executed tax exemption certificate(s). In such cases the Customer remains responsible for, and agrees to pay, any and all remaining non-exempt charges; tax exemption status validation is solely the responsibility of the Customer and Provider will not be obligated to consider any retroactive tax exemption. USIPCOM shall commence billing for the monthly recurring charges and usage (the Service) on the Service Commencement Date. First and second month charges for the recurring Service(s) are billed upon Service Commencement. Where applicable, service charges for the first partial month of service will be pro-rated and billed. Call usage charges are billed after the actual calls and usage has occurred. Payments are due within fifteen (15) days of the invoice date. After fifteen (15) days of non-payment, all fees will accrue interest at a rate of one and one-half percent (1.5%) per month or any part thereof, or the highest rate allowed by applicable law, and customer shall pay all collection costs incurred by USIPCOM (including, without limitation, reasonable attorney’s fees). Some Customers installed prior to two-thousand-and-eight (2008) may be subject to payment terms whereby payments are due within thirty (30) days from the invoice date; USIPCOM reserves the right to amend said Customers to a fifteen (15) day payment term should they fail to make satisfactory payments pursuant to their current account pg. 5 payment term. At any point beyond provided invoice due date, where Customer has failed to make satisfactory payment as so judged by USIPCOM, then USIPCOM may give Customer written notification, by email, that Customer has committed a material breach of the Agreement due to non-payment. Said notification will be provided five (5) business days prior to Service suspension or termination. Customer must pay all outstanding charges, within said notice period, to avoid suspension or termination of Service. If Service is terminated due to non-payment, then the Termination fees described in the Material Breach Section shall apply. In its sole discretion, USIPCOM may: (i) require a security deposit to continue the provisioning of Service(s) if Customer’s approved level of credit is deemed insufficient; (ii) change payment terms, billing cycle, and/or Due Date; (iii) demand immediate payment by wire or other means and discontinue Service(s) without notice should Provider determine Customer’s usage exceeds their approved level of credit; (iv) immediately block Customer’s Service(s) if a Customer’s pre-paid balance is depleted or is at a level that cannot cover Customer’s estimated traffic during the time required for the Customer to replenish their prepaid balance, or if Customer refuses to make any requested payments. USIPCOM retains the right to bill, including any amended or corrected billing, for the Service(s) for a period of up to twelve (12) months, commencing from the date the billed Service(s) were provided to Customer. USIPCOM shall retain such billing rights for this twelve (12) month period notwithstanding any prior billing to Customer for the same period(s) and regardless of any otherwise conflicting billing conditions in this Agreement. Customer agrees that for the duration of this twelve (12) month period, USIPCOM shall not be deemed to have waived any rights with regard to billing for the provided Service(s) that are subject to this period, nor shall any legal or equitable doctrines apply, including estoppel or laches. 11. Billing Disputes. In the event Customer disputes any invoiced charges, Customer shall pay in full all charges invoiced by the Due Date and submit written notification in the form of an email sent to customercare@usipcom.com, with “Notice of Billing Dispute” in the subject line of the email. Such email notification must include the Customer’s contact information, the specific dollar amount in dispute, detailed supporting reasons for the dispute, and any supporting documentation if available. USIPCOM shall respond to Customer, in writing, within thirty (30) calendar days of receiving a dispute notification from Customer. Any dispute resolved in favor of Customer shall be credited as appropriate on the next available invoice. In the event that any disputed amounts are deemed to be correct as billed and in compliance with this Agreement, Customer shall be notified in writing that the charges have been deemed valid and legitimate, and the dispute will be considered resolved by both parties; in such cases, if there should be any amount due from Customer related to the dispute, then all such amounts shall be due and payable immediately. Provider reserves the right to deny or delay any and all billing disputes and/or credits if the Customer’s account is in arrears or otherwise not in good standing. 12. Resumption of Service. If Customer requests that Service be restored after a suspension or termination, USIPCOM has the sole and absolute discretion to restore such Service and may condition restoration upon satisfaction of such conditions as USIPCOM determines necessary for its protection, including requiring Customer to execute a new agreement, pay all past due invoices in full, pass USIPCOM’s credit approval, and/or make advance payments. New nonrecurring charges also may apply to restore Service. pg. 6 13. Additional NRC (if applicable). In addition to the standard NRC listed above, the following NRC, if applicable, will apply (i) Changes of IP Addresses: $100.00; (ii) Service Reinstatement /Resumption Fee: $200.00 (plus any charges imposed by underlying carrier(s) and/or pursuant to Section 12 above); (iii) Missed Appointment Fee: $200.00; (iv) Rejected Credit Card/Unpaid Check: $40.00 (or legal limit, if lower); (v) Relocation Fee: varies upon address; (vi) Upgrade Charge: varies upon specific upgrade requested; (vii) Downgrade Charge: varies upon specific downgrade requested. Inside Wiring. The availability of inside wiring installation is dependent upon a number of factors, including, without limitation, any applicable service address and/or LEC availability. Any inside wiring provided by Provider’s underlying carrier(s) may incur additional fees to the charges listed in the SOF. Any request for inside wiring or wiring extension for any applicable Services will be provided on a best-effort basis only. In many cases, Customer's LEC will not extend wiring beyond the Minimum Point of Entry (“MPOE”) as determined by the LEC. In all such cases, Customer will provide any needed internal wiring or extensions (and required conduit, facilities, power, etc.) to the circuit required to provision service unless Provider has agreed in writing to provide this service to Customer. Special Construction Charge. When a Customer’s location has insufficient facilities needed to support any applicable Service, the underlying carrier(s) may add facilities that may impose an additional “special construction charge" or other similar charge. If this occurs, Provider will notify Customer (via phone, email or other means) of the cost of these additional special construction charges, if available and if any, as well as the estimated time to complete the construction. Customer must agree in writing to pay these additional special construction costs within three (3) business days. If Customer fails to do so, Provider will cancel the SOF for lack of facilities and the SOF will terminate without liability to either Customer or Provider. Miscellaneous Charges. Miscellaneous charges and/or fees imposed by any third party carrier or any underlying provider from time to time, whether charged to or against Provider, will be payable by Customer, including, without limitation, any cost recovery fee which shall represent an accurate and non-inflated recovery of the miscellaneous charges and/or fees to or against Provider associated with the provision of Service(s) by Provider to Customer. Usage charges (Applicable to burstable dedicated Internet Access Service Only): Additional usage charges stated in any applicable SOF will be calculated based on Customer’s monthly usage, which Provider will calculate as follows: Provider will take usage samples approximately every five (5) minutes throughout the applicable month and will retain the higher of two (2) samples taken during each five (5) minute period– one (1) sample that will reflect inbound usage/utilization and one (1) sample that will reflect outbound usage/ utilization. At the end of the applicable billing period, the samples will be arranged from highest to lowest. Provider will discard the top five percent (5%) of the samples for the purposes of pg. 7 calculating Customer’s monthly usage. Provider will utilize the highest remaining sample (i.e., the ninety‐fifth percentile (95%) peak Mbps port utilization) (the “Mbps Port Utilization”) to calculate Customer’s monthly usage. Provider will measure the Mbps Port Utilization to the 100th decimal place, but the invoice will reflect the Mbps Port Utilization only to the 10th decimal place. Provider will multiply the Mbps Port Utilization by the per-‐Meg rate listed on any applicable SOF to calculate any applicable additional usage charges. Provider will charge Customer such additional usage charges as well as any applicable base rate provided in any applicable SOF. 14.IP Addresses. USIPCOM assigns IP addresses to its customers for use with certain IP/data- based Service. USIPCOM shall retain any assigned public IP addresses when a customer’s service is terminated. USIPCOM and Customer agree that assigned addresses are “non-portable” and other providers are not allowed to route these addresses. Customer, who has its own IP addresses, which are allocated directly from American Registry for Internet Numbers (ARIN), will be ported/routed by USIPCOM where reasonably possible. USIPCOM cannot guarantee the portability/routability of these addresses beyond its own backbone and to the Internet in general. USIPCOM reserves the right to modify its IP Address Allocation Policy without notice. 15. Material Breach. USIPCOM or Customer may terminate this Agreement and the Service(s) provided hereunder in the event of a material breach that is not cured within thirty (30) days following the delivery of written notice specifying said breach, except in the case of serious material breaches, so judged by USIPCOM. Such notice from Customer must be in the form of an email sent to customercare@usipcom.com with “Notice of Material Breach” in the subject line of the email and Customer’s contact information and detailed explanation, including supporting documentation if available, in the body of the email. Such notice from USIPCOM shall be in the form of an email to the Customer. In the event of an uncured material breach by USIPCOM, the Agreement and Service(s) shall be terminated without further liability to the Customer, however, in such cases Customer shall remain responsible for: (a) charges for Service(s) actually and properly received prior to the date of Breach notification, (b) one hundred percent (100%) of the past due balance at the time of termination, and (c) any non-recurring charges originally waived by USIPCOM. In the event of an uncured material breach by Customer, such as early termination of this Agreement, the following termination fees shall apply: (a) charges for Service(s) actually and properly received prior to the date of Breach notification, (b) the total of monthly minimum commitments for all components of the Service(s) for the remainder of the Service Order Term(s) and any additional early Termination fees included in any and all relevant Service Order Form(s), (c) one hundred percent (100%) of the past due balance at the time of termination, and (d) any nonrecurring charges originally waived by USIPCOM. 16. Termination. Upon termination of the Service Agreement and/or the Service(s) not due to a material breach, USIPCOM will disconnect, or will cause to be disconnected, the Service(s) if notified by the Customer in writing via email to customercare@usipcom.com with no less than forty calendar (40) days notice prior to termination of the Agreement and/or Service(s). In all such cases, Customer retains the sole responsibility for notifying USIPCOM of any and all requests for termination or disconnection of Service(s), including but not limited to the porting pg. 8 out of billable telephone numbers (also referred to as “DIDs”), whether port outs are known or unknown by Customer; and, Customer remains responsible for all billable charges related to terminated Service(s) until USIPCOM is notified in writing as specified. Any request by Customer for cancellation or termination at any time within the Service Agreement Term and/or Service Term set forth in this Agreement, including: prior to installation, or at any time prior to the Service Commencement or Activation Date, or in the case of early termination by Customer, will be considered a Material Breach by the Customer and shall be subject to the applicable Material Breach provisions as outlined in the Material Breach section of this agreement. 17. Termination by Provider. In addition to any other right that Provider may have to terminate or suspend these Terms and Conditions and/or any applicable SOF, if Provider determines, in its sole discretion, that Customer’s ongoing use of any or all Services, and/or the specific method or technology utilized by Customer places the network operated by Provider, other customers, partners or the overall business(es) of each in jeopardy, Provider reserves the right to terminate these Terms and Conditions and/or any applicable SOF and Customer’s access to any or all applicable Services immediately and without notification. 18. Cooperation with Investigations. USIPCOM will cooperate with appropriate law enforcement agencies and other parties involved in investigating claims of illegal or inappropriate activity on the USIPCOM Network. USIPCOM reserves the right to disclose customer information to the extent authorized or required by federal or state law. In those instances, involving child pornography, USIPCOM complies with all applicable federal and state laws including providing notice to the National Center for the Missing and Exploited Children or other designated agencies. 19. Acceptable Use Policy. All use of Service must comply with USIPCOM’s Acceptable Use Policy (“AUP”), which is posted at www.usipcom.com and is incorporated herein by reference. By accepting USIPCOM Service, Customer agrees to comply with this AUP and any subsequent modifications thereto. USIPCOM reserves the right to modify this AUP from time to time, effective upon posting the AUP as modified at the URL shown above. Violation of the AUP shall be considered a material breach of this Agreement pursuant to Section 14. 20. Dispute Resolution Process and Applicable Law. (a) It is the mutual desire of the parties to promptly and fully resolve any dispute arising in connection with these Terms and Conditions and/or any applicable SOF in good faith, confidentially, and informally with minimal transaction costs; no public statement may be made by any party regarding any such dispute. If either party determines that the dispute cannot be resolved informally, then such party will initiate an escalation process by giving written notice (“Escalation Notice”) to the other party. Each party will name one executive as its representative, to be a person knowledgeable of the subject matter in dispute and someone with authority to discuss the dispute (“Officers”). The Officers will meet in person or by conference call, together with any persons assisting them, within fifteen (15) days after delivery of the Escalation Notice. All negotiations conducted by the Officers are confidential and will be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and any state rules of evidence. The Officers will conduct such additional meetings as they deem pg. 9 necessary to exchange relevant information, will appoint staff to engage in resolution of any disputed facts, and will attempt to resolve the dispute. Should the Officers be unable to resolve the dispute within such fifteen (15) days, or within such additional time as the parties may otherwise agree to in writing, either party may demand mediation, whereupon the parties will, in good faith, mediate the dispute no later than thirty (30) days after such demand through the services of a mutually selected mediator, the cost of whom will be borne equally by the parties, at a date and location selected by the mediator after consultation with the parties. IF THE DISPUTE IS NOT RESOLVED AFTER APPLYING THE ESCALATION PROCEDURES SET FORTH ABOVE, THE PARTIES AGREE TO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY JUDICIAL PROCEEDING ARISING UNDER OR RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, AND AGREE TO SUBMIT ALL CONTROVERSIES, CLAIMS AND MATTERS OF DIFFERENCE TO ARBITRATION ACCORDING TO THE COMMERCIAL RULES AND PRACTICES OF THE AMERICAN ARBITRATION ASSOCIATION (“AAA”). Arbitration here under will occur within sixty (60) days of the date of submission before a single neutral arbitrator having significant experience in the subject matter of this Agreement and who will selected in accordance with AAA rules. Arbitration proceedings will take place in Wake County, North Carolina. Discovery will be permitted, including the use of interrogatories, requests for admission and production of documents and depositions. If the amount claimed to be in dispute is less than $500,000, all applicable expedited procedures of the AAA will apply. The arbitrator’s fees and costs of the arbitration will be borne by the party against whom the award is rendered, except that if the arbitrator issues a split decision, granting partial relief to both parties, the arbitrator will equitably allocate the arbitrator’s fees and other costs. Each party will pay its attorney’s fees related to any dispute related to this Agreement. The arbitration award will be final and binding on both parties of this Agreement, will not be subject to any appeal and will be enforceable in any court of competent jurisdiction. (b) ANY DISPUTE RESOLUTION PROCEEDINGS, WHETHER IN ARBITRATION OR IN COURT, WILL BE CONDUCTED ONLY ON AN INDIVIDUAL BASIS AND NOT IN A CLASS ACTION OR REPRESENTATIVE ACTION OR AS A MEMBER IN A CLASS, CONSOLIDATED OR REPRESENTATIVE ACTION. CUSTOMER WILL NOT BE A CLASS REPRESENTATIVE, CLASS MEMBER OR OTHERWISE PARTICIPATE IN A CLASS, CONSOLIDATED OR REPRESENTATIVE PROCEEDING. (c) This Agreement will be governed by, construed under and enforced in accordance with the laws of the State of North Carolina without reference to its choice of law principles or the United Nations Convention on the International Sale of Goods. In the event any party brings a civil action or initiates judicial proceedings of any kind related to this Agreement (except for actions to enter or collect on judgments), the parties consent to the exclusive personal jurisdiction and venue of the federal and state courts located in Wake County, North Carolina and the prevailing party will be entitled to recover its costs, including reasonable attorney’s fees. 21. Limitation of Liability. EXCEPT AS PROVIDED IN SECTION 19, IN NO EVENT WILL USIPCOM OR CUSTOMER BE LIABLE FOR ANY INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST pg. 10 PROFITS) ARISING OUT OF OR IN RELATION TO THE SERVICE(S), CPE, AND/OR ANY PRODUCTS OR SERVICE PROVIDED BY THIRD PARTIES UNDER THIS AGREEMENT. USIPCOM’S MAXIMUM LIABILITY UNDER THIS AGREEMENT IS LIMITED TO SERVICE CREDITS NOT TO EXCEED THE FEES PAID TO USIPCOM BY CUSTOMER FOR THE SERVICE PROVIDED. 22. Indemnity. Customer shall indemnify and hold harmless USIPCOM, its Officers, Employees, Agents, and Affiliates from and against any and all alleged or actual losses, costs, claims, liability of any kind, damages (including to any tangible property or bodily injury to or death of any person), or expense of whatever nature, (including reasonable attorneys' fees) to or by any third party, relating to or arising from (a) the use of the Service provided to Customer, whether or not Customer has knowledge of or has authorized access for such use, (b) any damage to or destruction of CPE not caused by USIPCOM or its agents, and (c) any material breach of this Agreement by Customer. Customer has the sole and exclusive responsibility for the installation, configuration, security, and integrity of all Customer systems, equipment, software, and networks (the “Customer Equipment”) used in conjunction with or related to the Service(s) provided by USIPCOM. Customer therefore shall indemnify and hold harmless USIPCOM from and against any actual or alleged losses, costs, claims, liability of any kind, damages, or expenses or fees (including reasonable attorneys' fees) on the part of or which may be incurred by Customer or a third-party relating to or arising from the use or operation of the Customer Equipment. Customer’s indemnification in this subsection includes any alleged or actual losses or claims in connection with unauthorized access to or use of the Service(s) by any third-party through Customer Equipment, regardless of whether such unauthorized access is unintentional, accidental, intentional or by fraud and regardless of whether Customer had knowledge of such unauthorized access. In all such cases of unauthorized access Customer agrees that it retain full and sole responsibility for any and all charges for the Service(s) provided by USIPCOM. In the event USIPCOM grants Customer access, either by online access, by application programming interface (API), or access by any other means, to a service ordering/management system and other related electronic tools (collectively, the “Electronic Tools”), Customer agrees that it is fully and exclusively responsible for all information accuracy, charges, costs, transactions, and activities conducted through such Electronic Tools. Customer agrees that it is fully and exclusively responsible to safeguard, monitor, manage, and maintain access to the Electronic Tools, and to only allow authorized use of the Electronic Tools to persons that Customer designates. Customer therefore agrees that it shall indemnify and hold harmless USIPCOM from and against any actual or alleged losses, costs, claims, liability of any kind, damages, or expenses or fees (including reasonable attorneys' fees) on the part of or which may be incurred by Customer, or a third-party, relating to or arising from the use or operation of the Electronic Tools. Customer’s indemnification in this subsection includes any alleged or actual losses or claims in connection with unauthorized access to, use, transactions, or activity conducted through the Electronic Tools, regardless of whether such unauthorized access is unintentional, accidental, intentional, or by fraud, and regardless of whether Customer had knowledge of such unauthorized access. In all such cases of unauthorized access Customer pg. 11 agrees that it retains full and sole responsibility for any and all charges for the Service(s) provided by USIPCOM. 23. No Warranties and Customer Assumption of Risk. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN AN APPLICABLE SLA, ANY APPLICABLE SERVICE AND ANY CPE, EQUIPMENT, AND/OR RELATED SERVICES EACH IS PROVIDED “AS IS” AND “AS AVAILABLE” AND WITHOUT WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED. TO THE FULLEST EXTENT PERMISSIBLE PURSUANT TO APPLICABLE LAW, EACH OF PROVIDER, ITS AFFILIATES, SUPPLIERS AND, IF APPLICABLE, RESELLERS DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY OF NONINFRINGEMENT. WITHOUT LIMITING THE FOREGOING, PROVIDER, ITS AFFILIATES, SUPPLIERS AND, IF APPLICABLE, RESELLERS DO NOT WARRANT THAT ANY FUNCTIONS OF ANY SERVICES, ANY CPE, EQUIPMENT, AND/OR RELATED SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, THAT DEFECTS WILL BE CORRECTED, OR THAT ANY SERVICES (OR ANY SERVER THAT MAKES ANY SERVICES AVAILABLE) WILL BE FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS. PROVIDER DOES NOT WARRANT OR MAKE ANY REPRESENTATIONS REGARDING THE USE OR RESULTS OF ANY SERVICES OR ANY ELECTRONIC TOOL IN TERMS OF ITS CORRECTNESS, ACCURACY, RELIABILITY, UNAUTHORIZED ACCESS BY THIRD PARTIES OR OTHERWISE. CUSTOMER (AND NOT PROVIDER) ASSUMES THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION. CUSTOMER ACKNOWLEDGES THAT ANY DATA OR INFORMATION DOWNLOADED OR OTHERWISE OBTAINED OR ACQUIRED THROUGH THE USE OF ANY SERVICES AND/OR ELECTRONIC TOOL IS AT CUSTOMER’S SOLE RISK AND DISCRETION AND PROVIDER WILL NOT BE LIABLE OR RESPONSIBLE FOR ANY DAMAGE TO CUSTOMER OR CUSTOMER’S PROPERTY. CUSTOMER HEREBY EXPRESSLY ASSUMES THE RISK OF ITS USE OF ANY INFORMATION TRANSMITTED VIA ANY SERVICES AND/OR ANY ELECTRONIC TOOL. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY CUSTOMER FROM PROVIDER, ITS EMPLOYEES OR THROUGH OR FROM ANY SERVICE AND/OR ELECTRONIC TOOL WILL CREATE ANY WARRANTY NOT EXPRESSLY STATED IN THIS AGREEMENT. APPLICABLE LAW MAY NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE FOREGOING EXCLUSION MAY NOT APPLY. PROVIDER WILL HAVE NO OBLIGATION TO DEFEND OR INDEMNIFY CUSTOMER FROM OR AGAINST ANY THIRD PARTY CLAIMS ALLEGING THAT CUSTOMER’S USE OF ANY SERVICES OR ANY ELECTRONIC TOOL OR THE EXERCISE OF ANY RIGHTS GRANTED HEREIN INFRINGES ON ANY INTELLECTUAL PROPERTY OF ANY THIRD PARTY. IF A CLAIM IS MADE, OR IN PROVIDER’S REASONABLE OPINION IS LIKELY TO BE MADE, AGAINST PROVIDER, CUSTOMER OR ANY THIRD PARTY ALLEGING pg. 12 THAT ANY APPLICABLE SERVICES OR ELECTRONIC TOOL OR ANY USE THEREOF INFRINGES ANY INTELLECTUAL PROPERTY OF ANY THIRD PARTY, PROVIDER MAY, IN PROVIDER’S SOLE DISCRETION, TERMINATE THESE TERMS AND CONDITIONS AND/OR ANY APPLICABLE SOF AND ALL RIGHTS AND OBLIGATIONS PURSUANT TO THESE TERMS AND CONDITIONS AND/OR ANY APPLICABLE SOF. 24. Third Party Beneficiaries. The Parties do not intend by the execution, delivery, or performance of this Agreement to confer any benefit, direct or incidental, upon any person or entity not a party to this Agreement. 25. Miscellaneous. Customer acknowledges and understands that Customer is to receive the Service detailed in this Agreement and the Customer is not relying on any affirmation of fact, promise or description from any person or entity, nor any other oral or written representation other than what is contained in this Agreement. Handwritten alterations or additions to this agreement made by Customer will not be considered part of this Agreement. This Agreement may only be modified, or any rights under it waived, by a separate written document executed by both parties. This Agreement shall be governed by, construed under, and enforced in accordance with, the laws of the State of North Carolina without reference to its choice of law principles. For any action or suit to enforce any right or remedy of this Agreement, (except for actions to enter or collect on judgments) the parties’ consent to exclusive jurisdiction and venue in the courts for Wake County, North Carolina and the prevailing party shall be entitled to recover its costs, including reasonable attorney’s fees. In the event of a conflict between this Agreement and any applicable tariff, the tariff shall prevail. Customer may not assign this Agreement without USIPCOM’s prior written consent. This Agreement shall be binding on the parties hereto and their respective personal and legal representatives, successors, and permitted assigns. If any provision of this Agreement is held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby. By signing the unique, or any, Service Order Form, or any Attachments, Addendums, or any other documents incorporated herein by reference. Customer signatory certifies that (s)he is an officer or certified representative of the Customer, and as such is authorized to enter into this binding Agreement. In the event any specified time frame or deadline denotes calendar days, it is agreed that when the last date of required action or response falls on a weekend or holiday, the action and/or deadline shall automatically extend to the next business day. Agreement headings are provided for reference purposes only. THIS AGREEMENT, TOGETHER WITH ANY ATTACHMENTS, INCLUDING ANY SCHEDULES, ADDENDUMS, PRICE LISTS, SERVICE ORDERS, TERMS AND CONDITIONS, SERVICE LEVEL AGREEMENTS, AND ACCEPTABLE USE POLICIES, WHICH MAY BE POSTED AT: WWW.USIPCOM.COM/CONTENT/LEGAL, AND WHICH ARE INCORPORATED HEREIN BY REFERENCE, CONSTITUTE THE ENTIRE UNDERSTANDING BETWEEN THE CUSTOMER AND USIPCOM, INC, WITH RESPECT TO THE SERVICE(S) PROVIDED HEREIN. CUSTOMER ACKNOWLEDGES AND UNDERSTANDS THAT CUSTOMER IS NOT RELYING ON ANY AFFIRMATION OF pg. 13 FACT, PROMISE OR DESCRIPTION FROM ANY PERSON OR ENTITY, NOR ANY OTHER ORAL OR WRITTEN REPRESENTATION OTHER THAN WHAT IS CONTAINED IN THIS AGREEMENT AND ANY INCORPORATED DOCUMENTS. 26. Definitions. For the purposes of these Terms and Conditions and/or any applicable SOF, the following terms will have the following meanings: “Default” occurs: (i) if Customer fails to make any payment for Services more than two (2) business days immediately after the applicable Due Date, or any other payment contemplated by these Terms and Conditions and/or any applicable SOF on or before the date two (2) business days immediately after any applicable required date; (ii) if Customer violates the AUP; (iii) if Customer fails to perform or observe any term or obligation of these Terms and Conditions and/or any applicable SOF, including, without limitation, any document incorporated by reference into these Terms and Conditions, not otherwise specified in clauses (i) or (ii) above and applicable to the Services, which failure remains uncured thirty (30) calendar days after Customer’s receipt of written notification from Provider informing Customer of such failure; (iv) upon the institution of bankruptcy, receivership, insolvency, reorganization or other similar proceedings, by or against Customer, unless such proceedings have been dismissed or discharged not later than the date thirty (30) calendar days immediately after the commencement of such proceeding; (v) upon the making of an assignment for the benefit of creditors, adjudication of insolvency, or institution of any reorganization arrangement or other readjustment of debt plan, of or by Customer; and/or (vi) upon the appointment of a receiver for all or substantially all of Customer’s assets. “LEC” means local exchange carrier. “MPLS Services” means those multiprotocol layer switching services described in the SOF by and between Provider and Customer. “MRC” means monthly recurring charge. “NRC” means non-recurring charge. “Regulatory Activity” means any laws, regulations or other similar mandates (including, without limitation, any fees, surcharges or other like charges imposed or mandated) by any federal, state or other governmental agency at any time. “RMA” means a Return Materials Authorization. “Service Term” will mean the period commencing on the Service Activation Date during which any applicable SOF remains in effect with respect to any Services. For clarity, the “Service Term” will expire and/or terminate immediately upon the date when all SOFs entered into with respect to any Services from time to time will have expired and/or terminated by their terms. “Services” means those services described in the SOF by and between Provider and Customer, which services may include Burstable Dedicated Internet Access Services, dedicated Internet access services, Managed Network Services, MPLS Services, Professional Services, and/or private line services. Customer Name City of Vernon Sales Order: SO5691 Issued Date: 07-27-2023 03:46 PM Due Date : 10-31-2023 USIPCommunications 3201 Northside Dr STE 109 RALEIGH, North Carolina 27615 Phone 800-972-5004 Contact Tim Bass Billing Address Shipping Address 4305 santa fe Avenue Vernon, CA 90058 4305 santa fe Avenue Vernon, CA 90058 Item Code Item Name Quantity List Price Item Total Discount Total After Discount Total PRO114 GigE Dedicated Symmetrical 100G Fiber service with SLAs. BGP routing will be supported 1 $8,039 $8,039 0 (0 %)$8,039 $8,039 PRO24 Installation 1 $300 $300 0 (0 %)$300 $300 Items Total $8,339 Discount(0%)0 GRAND TOTAL($)$8,339 Contract Term Monthly Charge One-Time Charge 36 $8,039 $300 Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: Terms and Conditions can be found at www.usipcom.com/legal Important Information Billing Billing for Service will begin no later than two days after service is deemed ready for Billing and Invoicing by USIPCOM. Customer’s failure to promptly schedule and activate the service will result in billing beginning before service can be utilized by the Customer. In addition, the Customer is solely responsible for canceling any service with previous Provider. Termination Upon termination of the Service Agreement and/or the Service(s) not due to default, USIPCOM will disconnect, or will cause to be disconnected, the Service(s) if notified by the Customer in writing via E-mail to support@usipcom.com with no less that forty calendar (40) days’ notice prior to termination of the Agreement and/or Service(s). Please review Terms & Conditions and Legal Documents @ http://www.usipcom.com/legal Customer Care & Support Contact Information • Phone: 800-972-5004 • E-mail: support@usipcom.com Sales Contact • Name: Joe Willett • E-mail: jwillett@usipcom.com • Direct Phone: 919-439-3563 • Main Phone: 800-972-5004 Terms & Conditions Terms & Conditions along with other important documents can be found at http://www.usipcom.com/legal/. Please review the Terms & Conditions along with the Acceptable Use Policy, Service Level Agreement before signing for service. It is solely the customer's responsibility to review the Terms & Conditions, Acceptable Use Policy, and Service Level Agreement located @ http://www.usipcom.com/legal Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: Payment Form Please choose the desired payment method: Direct Deposit/ACH Credit Card Paper Check One-Time Charge Monthly Reoccurring Charge Credit Card Authorization Card Type: Card Number: CVC (3 or 4 digit security code on back or front of credit card) Expiration Date: Name on Card: Billing Address: City: State: ZIP: Country: Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: S E R V I C E O R D E R F O R M S E R V I C E O R D E R F O R M Data Installation Guide Product Installation Overview Customers ordering a T1, NxT1, EOC, or Cable should expect installation to occur within an average 30-45 business days from the date of order submission by USIPCOM to the underlying Carrier. Customers ordering MPLS, DS3, OCx and Fiber Buildout should expect installation to occur within an average of 60-90 business days from the date of order submission by USIPCOM to the underlying Carrier(s). All order submission will occur only after a completed contract has been presented and received by USIPCOM and the Customer has been approved for any/all applicable credit. It is important to understand that the average times to installation presented above are based on industry standards and USIPCOM experience. Individual circumstances may dictate that these installation timeframes could be shorter or longer than the aforementioned averages. Orders may be expedited and are contingent upon Carrier capability and acceptance. A one-time non-recurring expedite fee will be assessed on a Customer’s invoice. However, payment of this fee by the Customer does not guarantee a specific timeframe or completion date. Throughout the installation process a Customer will work with USIPCOM Installation Specialists and Activation Engineers. The Installation Specialist will manage the installation process up to Service Activation and is responsible for interacting with the Carrier to ensure all milestones are met, escalations and confirming with the Carrier and Customer that contracted service is provisioned correctly. The Activation Engineer is responsible for activating and verifying service. Installation Timeline Day 1-3: Order is placed with the Carrier USIPCOM will place the order with the underlying Carrier for Data service. The following requirements must be met by the Customer prior to order placement: Basic Requirements: • Accurate address including suite number and onsite phone number • Valid onsite contact with appropriate phone number • Main point of entry (MPOE) location where the Local Exchange Carrier (LEC) will deliver service the building (i.e. basement on first floor) • DMARC location, the actual location within the building where the service is to be delivered (i.e. suite 100) • Number of IPs desired and completed IP justification form if required by the Carrier Important Note: USIPCOM is not responsible for extending the circuit to the DMARC location unless the extension has been explicitly ordered and is listed as a line item on the USIPCOM Service Order Form (SOF). Unless the DMARC extension is listed on the SOF the circuit will only be delivered to the MPOE (as determined by the LEC) and any extension is the sole responsibility of the Customer. In general, any changes to the above information or to the service order during the installation process could result in delays and additional fees. After the order is placed with the Carrier a USIPCOM Installation Specialist will contact the Customer point of contact on record and complete an introduction call to review the ordered service solution, address, contact information, and will confirm the Customer has access to the customer portal. Day 4-9: Carrier places order with Local Exchange Carrier (LEC) The Installation Specialist will ensure the Carrier has initiated the design and engineering of the circuit so the order can be passed to the LEC. The LEC will then begin the design and engineering of the local loop. Day 10-20: Installation Date (Firm Order Commitment Date) Established The LEC will provide a Firm Order Commitment (FOC) date for installation of the local loop. At this time, if a FOC date has not been established the reason for delay will be relayed to the Customer. Day 21-30: Local Loop is installed (Firm Order Commitment Date) A technician from the LEC will install the local loop to the service location.The following requirements must be met in order for the technician to complete installation: Requirements: • A customer contact must be onsite to allow the LEC technician access to the location and telco closet as applicable for an entire business day. Day 31-45: Service Activation After the local loop has been installed and the LEC has tested and accepted with the Carrier, the Installation Specialist will schedule an activation appointment with the Customer. The following requirements must be fulfilled prior to the activation appointment: Requirements: • Space and power must be allocated for all equipment components applicable to Data service and any necessary mounting boards or racks shall be provided by the Customer • Sufficient power outlets must be available for the power unit which requires a standard 120V AC plug. The power outlet must not be overloaded and must be within 6’ of the Data Router • Any DMARC extensions not ordered through USIPCOM must be complete • All LAN devices and the Data Router must be wired/connected – USIPCOM does not provide patch cables or dispatch technicians to connect any equipment to the circuit. • The Data Router requires an operating environment with temperature ranges between 35-85° F and humidity of less than 90%, noncondensing • The environment must be free of excessive dust • Customer must call in to USIPCOM at the scheduled time of the activation appointment The USIPCOM Activation Engineer will bridge the Carrier on the phone with the Customer and conduct testing to ensure Data service is working properly. Day 60: Service Activation - DS3’s/OCX’s/Ethernet/Colocation/MPLS DS3 and OCX Solutions have an installation interval of 60-90 business days. Actual installation timeline will vary as these solutions may require build outs, special equipment, or other special requirements from the Carrier, LEC, and the Customer. The following Data Solutions may have additional requirements and specifications: CO-LOCATION In order to avoid any delays, it is the Customer’s responsibility to inform USIPCOM prior to order placement on what floor their equipment is located. Customers needs to work with their existing vendors (hosting company / cross connect provider) to determine where the circuit should be terminated and how the circuit shall be provided (i.e. open port on MPOE, open port on Carrier POP, channel on existing facility). In some cases, a CFA/LOA will need to be provided by the Customer. In addition, the Customer is also responsible for ordering the appropriate cross-connect from the MPOE to their equipment. ETHERNET When purchasing an Ethernet solution from a Carrier, it is the Customer’s responsibility to ensure that the Carrier has facilities going to the Customer’s floor. The Customer is responsible for extending this service either from the MPOE or the Telco closet on their floor to their suite if desired. MPLS The Customer must work with USIPCOM on an implementation plan to ensure the appropriate sites are installed in the order of importance. Customer must also provide their private IP addressing scheme and routing requirements. If the Customer is getting voice, their bandwidth requirements for voice across this network must be understood and provided to USIPCOM along with QOS requirements so the appropriate settings are implemented on the Carrier’s network. Billing Billing for Data Services will begin no later than two (2) business days after service is deemed ready for Billing and Invoicing by USIPCOM. Customer failure to promptly schedule and activate the circuit will result in billing beginning before service can be utilized by the Customer. In addition, the Customer is solely responsible for canceling any service with previous Carrier, and for updating any email or web hosting IP addresses with the current provider. USIPCOM does not support email or web hosting applications but can update any email or DNS records once the activation appointment has been completed. Multi-Site Solutions Multi-site solutions such as MPLS are billed site by site and not when all sites are installed. If all sites are ordered at the same time, each site will be billed as they are installed, tested, and accepted by the Carrier, regardless of whether Customer has completed all necessary steps to activate Service or whether other sites in the MPLS network are ready for activation. Move Orders In the event the Customer wishes to move service to a new location USIPCOM must be notified by an authorized contact by emailing support@usipcom.com a minimum of sixty (60) business days prior to the move. USIPCOM will coordinate the move of services once the new location is secure, has power, has a backboard or rack for equipment, and a new contract with USIPCOM has been signed and processed. Please note that Customers that do not have a minimum of twelve (12) months left on their existing contract will be re-termed for one (1) year upon completion of the move. The general timeframe for Data service move orders is the same as the timeline noted above. Customer Acceptance Customer acknowledges that the preceding installation timeline is provided as a general timeline only and that USIPCOM does not guarantee any specific date or timeframe for installation. Customer has read all of the requirement or specification for Data Service installation. Customer further acknowledges that failure to meet any requirement or specification may result in delays in the installation process. Customer further acknowledges that Billing/Invoicing for Data Service(s) will begin no later than two (2) business days after service is deemed ready for activation by USIPCOM. By signing below, Customer signatory certifies that (s)he is an officer or certified representative of the above listed Company authorized to enter into a binding agreement(s) on behalf of said company and affirmed by seal below as of the date below. Customer Acceptance USIPCOM Acceptance Print Name:Print Name: Signature:Signature: Title:Title: Date:Date: pg. 1 Terms & Conditions Internet Services Terms and Conditions These Service Terms and Conditions (the “Terms and Conditions”) apply to the Services (as defined below) described in the Service Order Form (“SOF”) by and between USIPCOM, LLC. (“Provider”) and the customer named in the SOF (“Customer”). Provider may amend these Terms and Conditions from time to time by posting an amended version at www/usipcom.com/legal/ and sending Customer written notice thereof. Such amendment will be deemed accepted and become effective thirty (30) days after such notice (the “Proposed Amendment Date”) unless Customer first gives Provider written notice of rejection of the amendment. If Customer rejects such amendment, these Terms and Conditions will continue pursuant to its original provisions and the amendment will become effective at the commencement of the next Renewal Term (as defined below) following the Proposed Amendment Date. Customer’s continued use of the Services following the effective date of an amendment will confirm Customer’s consent thereto. 1. Service Description. Provider will provide Customer with the Services described in the SOF for the Service Term so long as no Default (as defined below) has occurred. Customer has the sole and exclusive responsibility for the installation, configuration, security (including, without limitation, firewall security policies, even if Customer uses a third party to configure and implement such measures), and integrity of all Customer facilities, systems, equipment, proxy servers, software, networks, network configurations and the like (the “CPE” ) used in conjunction with or related to the Services provided by Provider, unless Customer obtains such CPE from Provider pursuant to a written agreement between Customer and Provider and Provider expressly assumes any of such duties in writing. 2. Service Activation Date. The “Service Activation Date” means the date two (2) business days after Provider deems the applicable Services ready for activation, which customarily will follow Provider’s receipt of confirmation from any applicable underlying carrier(s) that the Services are ready for activation; provided, however, with respect to MPLS Services (as defined below) only (as identified on the SOF), the “Service Activation Date” means the earlier of (i) the date two (2) business days after Provider deems the Services ready for activation, which customarily will follow Provider’s receipt of confirmation from any applicable underlying carrier(s) that the Services are ready for activation; and (ii) the date the Service is successfully activated by the underlying carrier and confirmed tested and accepted by Customer and Provider. Provider will notify Customer (via phone, email or other means) of the Service Activation Date. For clarity, the Service Activation Date established by Provider will apply regardless of whether Customer has completed all necessary steps to activate the Services. 3. Service Term. The initial Service Term will be as specified in any applicable SOF (the “Initial Service Term”). The Initial Service Term will automatically extend thereafter upon the same terms and conditions applicable during the Initial Service Term for additional consecutive term(s) of one (1) year unless earlier terminated pursuant to these Terms and pg. 2 Conditions or unless either party provides notice of nonrenewal to the other at least sixty (60) days prior to the expiration of the then existing Service Term. 4. Service Availability. Provider may from time-to-time interrupt or otherwise impact Services for routine maintenance. Provider will make commercially reasonable efforts to provide to Customer reasonable advance notification (via phone, email or other means) of such maintenance. Provider will use commercially reasonable efforts to perform such maintenance in a manner that will not unreasonably interrupt Services. Provider normally will perform maintenance between the hours of 11:30 PM and 6:00 AM Eastern. If Provider determines that emergency maintenance is necessary for any reason, Provider will make commercially reasonable efforts to notify Customer with respect to the anticipated down-time and/or other information pertinent to the affected Services. 5. Support Provider. provides support for the Services only as described at www.usipcom.com/legal/ pursuant to any applicable Service Level Agreement (“SLA”) posted at (“www.usipcom/legal/USIPCOM-SLA. NOTWITHSTANDING ANY TERM OF THESE TERMS AND CONDITIONS OR ANY APPLICABLE SLA TO THE CONTRARY, PROVIDER DOES NOT SUPPORT ANY SERVICES BEYOND THE PROVIDER POINT OF DEMARCATION, DEFINED AT WWW.USIPCOM.COM/LEGAL/. (e) theft, or (f) disaster. If USIPCOM CPE requires maintenance not caused by one of the events set out in the sentence above, USIPCOM or its agents shall either arrange to repair the CPE at Customer’s premises or ship an equivalent pre-configured replacement to Customer. If replacement CPE is shipped to Customer, Customer shall return the faulty CPE to USIPCOM within ten (10) days of receiving the replacement CPE or pay for such CPE. Customer will not receive compensation for downtime associated with CPE replacement or repair. In addition, if Customer has rented CPE, Customer shall return (at Customer’s own expense) USIPCOM CPE to USIPCOM within ten (10) days of termination. If this CPE is not returned in good working condition to USIPCOM Customer shall be invoiced and pay for this CPE. Should reject to the terms and conditions set forth in the Manufacturer’s or Publisher’s warranty, End-User license or agreement applicable to such CPE or CPE Provider Service, with no warranty of any kind from USIPCOM. Should customer receive purchased CPE that is damaged or dead on arrival Customer must notify USIPCOM Customer Care within ten (10) days of receipt. Returns will only be accepted on brand new factory-packaged products within thirty (30) days of the date CPE was shipped. All products must be fully complete including all original manufacturer boxes with the UPC code and packing materials, all manuals, blank warranty cards, accessories and any other documentation included with the original shipment. Products returned in used or altered condition will not be accepted. After thirty (30) days from initial product ship date, all sales are final. Customer is responsible for shipping charges to the USIPCOM distribution center for all products being shipped for return or exchange. Customer is responsible for all risk of loss and damage to products being shipped for return or exchange. Should Customer desire to return or exchange purchased CPE, pursuant to the above conditions, then Customer must e-mail Customer Care at customercare@usipcom.com to request a Return Materials Authorization (RMA). All returns and exchanges will incur a twenty percent (20%) restocking fee, as calculated according to the original purchase price. If the RMA is in response to CPE delivered pg. 3 dead on arrival or damaged, and said CPE is found to be operating within manufacturer specifications upon return, said CPE shall be subject to the restocking fee outlined above. 6. Applicable Only If Customer Purchases CPE from Provider: CPE purchased by Customer from Provider may be covered under a limited warranty provided by any applicable manufacturer or provider, which Provider will extend to Customer without charge to the extent Provider can do so pursuant to our agreements with any applicable manufacturer or provider; however, Provider provides no warranty with respect to any such purchased CPE (and/or CPE provider service). All sales of CPE purchased by Customer from Provider are final; provided, however, if Customer receives purchased CPE that is damaged or nonfunctional upon arrival, (i) within ten (10) days of receipt of such damaged or nonfunctional CPE, Customer must notify Provider via email to Customer Care at customercare@usipcom.com to request an RMA; (ii) Provider only will accept returns of any such damaged or nonfunctional products within thirty (30) days of the date of the shipment to Customer by Provider; (iii) any such damaged or nonfunctional CPE timely returned to Provider by Customer must be fully complete, including all original manufacturer boxes with the UPC code and packing materials, all manuals, blank warranty cards, accessories and any other documentation included with the original shipment to Customer; (iv) Provider will not accept CPE returned in used or altered condition; (v) Customer is solely responsible for all costs and expenses connected to the shipment to Provider of any such damaged or nonfunctional products shipped to Provider pursuant to this Section 7; (vi) Customer is responsible for all risk of loss and damage to products being shipped to Provider pursuant to this Section 7; and (vii) if Provider determines that the CPE operates within manufacturer specifications upon return pursuant to any applicable RMA, the affected CPE will be returned to Customer at Customer’s sole cost and expense, the sale of such CPE will remain final, and Provider may charge Customer a restocking fee equal to twenty percent (20%) of the original purchase price of such CPE. Notwithstanding any terms or conditions of any SLA to the contrary, except as otherwise expressly provided in this Section 7, Provider does not maintain, support or manage any CPE, which will be the obligation of Customer solely. Customer is solely responsible for unauthorized access to or use of any Services by any third-party through CPE, regardless of whether such unauthorized access is unintentional, accidental, intentional or fraudulent and regardless of whether Customer had knowledge of such unauthorized access. 7. Applicable Only If Customer Obtains Managed Network Services Pursuant to Any Applicable SOF: “Managed Network Services” are Services that may be specified in writing as “Managed Network Services” pursuant to any applicable SOF and is a solution in which the Internet access CPE (whether provided by Customer or Provider) is managed by Provider. If Customer chooses to provide its own Internet access CPE, Customer hereby assigns full operational management responsibility, including, but not limited to, full management of the logical configuration for such CPE, solely to Provider. Except as expressly provided in any applicable SOF, no Managed Network Services apply. 8.Applicable Only If Customer Obtains Professional Services Pursuant to Any Applicable SOF: “Professional Services” are any services that may be specified in writing as “Professional Services” pursuant to any applicable SOF and is a service in which Provider provides certain pg. 4 professional services to Customer as specified in such SOF. Except as expressly provided in any applicable SOF, no Professional Services apply. All Professional Services will be provided by phone, email or other similar means from Provider’s facilities. 9. Charges for Service. The monthly recurring charge(s) (“MRC”) and any non-recurring charge(s) (“NRC”) for Service are stated in said Service Order Form. Service charges are exclusive of applicable taxes and surcharges, including the Federal Universal Service Fund surcharge that USIPCOM passes on to its customers. At its sole discretion, USIPCOM may require a security deposit to continue provisioning of Service. After the initial term, USIPCOM may increase pricing upon at least thirty (30) days written notice. At any time, USIPCOM may pass on to Customer any circuit price increases from underlying carriers with at least thirty (30) days written notice. All rates and charges are subject to change immediately in the event there are mandated surcharges or taxes imposed by federal, state or governmental agencies. Notwithstanding the foregoing, in the event of any Regulatory Activity, or governmental taxation changes, USIPCOM reserves the right, at any time with as much advance notice as reasonably possible and without liability, to: (i) pass through to Customer all, or a portion of, any changes or surcharges directly or indirectly related to such governmental or Regulatory Activity; (ii) modify the Service, rates (including any rate guarantees), promotions, terms and/or conditions of this Agreement in order to conform to such action; or (iii) if such Regulatory Activity materially and adversely impairs the provision of Service under the Agreement, as reasonably determined by USIPCOM, terminate the Agreement. 10. Billing and Payment. USIPCOM shall bill Customer for Service rendered at the rates stated in said Service Order Form. Invoices shall include all applicable federal, state, and local taxes. all such taxes, and all use, sales, commercial, gross receipts, privilege, surcharges, or other similar taxes, license fees, miscellaneous fees, and surcharges, whether charged to or against USIPCOM, Inc., which shall be payable by the Customer. However, if Customer provides proof of its specific tax-exempt status, Provider shall not charge applicable taxes due to such exemption. Customer shall supply Provider a valid and properly executed tax exemption certificate(s). In such cases the Customer remains responsible for, and agrees to pay, any and all remaining non-exempt charges; tax exemption status validation is solely the responsibility of the Customer and Provider will not be obligated to consider any retroactive tax exemption. USIPCOM shall commence billing for the monthly recurring charges and usage (the Service) on the Service Commencement Date. First and second month charges for the recurring Service(s) are billed upon Service Commencement. Where applicable, service charges for the first partial month of service will be pro-rated and billed. Call usage charges are billed after the actual calls and usage has occurred. Payments are due within fifteen (15) days of the invoice date. After fifteen (15) days of non-payment, all fees will accrue interest at a rate of one and one-half percent (1.5%) per month or any part thereof, or the highest rate allowed by applicable law, and customer shall pay all collection costs incurred by USIPCOM (including, without limitation, reasonable attorney’s fees). Some Customers installed prior to two-thousand-and-eight (2008) may be subject to payment terms whereby payments are due within thirty (30) days from the invoice date; USIPCOM reserves the right to amend said Customers to a fifteen (15) day payment term should they fail to make satisfactory payments pursuant to their current account pg. 5 payment term. At any point beyond provided invoice due date, where Customer has failed to make satisfactory payment as so judged by USIPCOM, then USIPCOM may give Customer written notification, by email, that Customer has committed a material breach of the Agreement due to non-payment. Said notification will be provided five (5) business days prior to Service suspension or termination. Customer must pay all outstanding charges, within said notice period, to avoid suspension or termination of Service. If Service is terminated due to non-payment, then the Termination fees described in the Material Breach Section shall apply. In its sole discretion, USIPCOM may: (i) require a security deposit to continue the provisioning of Service(s) if Customer’s approved level of credit is deemed insufficient; (ii) change payment terms, billing cycle, and/or Due Date; (iii) demand immediate payment by wire or other means and discontinue Service(s) without notice should Provider determine Customer’s usage exceeds their approved level of credit; (iv) immediately block Customer’s Service(s) if a Customer’s pre-paid balance is depleted or is at a level that cannot cover Customer’s estimated traffic during the time required for the Customer to replenish their prepaid balance, or if Customer refuses to make any requested payments. USIPCOM retains the right to bill, including any amended or corrected billing, for the Service(s) for a period of up to twelve (12) months, commencing from the date the billed Service(s) were provided to Customer. USIPCOM shall retain such billing rights for this twelve (12) month period notwithstanding any prior billing to Customer for the same period(s) and regardless of any otherwise conflicting billing conditions in this Agreement. Customer agrees that for the duration of this twelve (12) month period, USIPCOM shall not be deemed to have waived any rights with regard to billing for the provided Service(s) that are subject to this period, nor shall any legal or equitable doctrines apply, including estoppel or laches. 11. Billing Disputes. In the event Customer disputes any invoiced charges, Customer shall pay in full all charges invoiced by the Due Date and submit written notification in the form of an email sent to customercare@usipcom.com, with “Notice of Billing Dispute” in the subject line of the email. Such email notification must include the Customer’s contact information, the specific dollar amount in dispute, detailed supporting reasons for the dispute, and any supporting documentation if available. USIPCOM shall respond to Customer, in writing, within thirty (30) calendar days of receiving a dispute notification from Customer. Any dispute resolved in favor of Customer shall be credited as appropriate on the next available invoice. In the event that any disputed amounts are deemed to be correct as billed and in compliance with this Agreement, Customer shall be notified in writing that the charges have been deemed valid and legitimate, and the dispute will be considered resolved by both parties; in such cases, if there should be any amount due from Customer related to the dispute, then all such amounts shall be due and payable immediately. Provider reserves the right to deny or delay any and all billing disputes and/or credits if the Customer’s account is in arrears or otherwise not in good standing. 12. Resumption of Service. If Customer requests that Service be restored after a suspension or termination, USIPCOM has the sole and absolute discretion to restore such Service and may condition restoration upon satisfaction of such conditions as USIPCOM determines necessary for its protection, including requiring Customer to execute a new agreement, pay all past due invoices in full, pass USIPCOM’s credit approval, and/or make advance payments. New nonrecurring charges also may apply to restore Service. pg. 6 13. Additional NRC (if applicable). In addition to the standard NRC listed above, the following NRC, if applicable, will apply (i) Changes of IP Addresses: $100.00; (ii) Service Reinstatement /Resumption Fee: $200.00 (plus any charges imposed by underlying carrier(s) and/or pursuant to Section 12 above); (iii) Missed Appointment Fee: $200.00; (iv) Rejected Credit Card/Unpaid Check: $40.00 (or legal limit, if lower); (v) Relocation Fee: varies upon address; (vi) Upgrade Charge: varies upon specific upgrade requested; (vii) Downgrade Charge: varies upon specific downgrade requested. Inside Wiring. The availability of inside wiring installation is dependent upon a number of factors, including, without limitation, any applicable service address and/or LEC availability. Any inside wiring provided by Provider’s underlying carrier(s) may incur additional fees to the charges listed in the SOF. Any request for inside wiring or wiring extension for any applicable Services will be provided on a best-effort basis only. In many cases, Customer's LEC will not extend wiring beyond the Minimum Point of Entry (“MPOE”) as determined by the LEC. In all such cases, Customer will provide any needed internal wiring or extensions (and required conduit, facilities, power, etc.) to the circuit required to provision service unless Provider has agreed in writing to provide this service to Customer. Special Construction Charge. When a Customer’s location has insufficient facilities needed to support any applicable Service, the underlying carrier(s) may add facilities that may impose an additional “special construction charge" or other similar charge. If this occurs, Provider will notify Customer (via phone, email or other means) of the cost of these additional special construction charges, if available and if any, as well as the estimated time to complete the construction. Customer must agree in writing to pay these additional special construction costs within three (3) business days. If Customer fails to do so, Provider will cancel the SOF for lack of facilities and the SOF will terminate without liability to either Customer or Provider. Miscellaneous Charges. Miscellaneous charges and/or fees imposed by any third party carrier or any underlying provider from time to time, whether charged to or against Provider, will be payable by Customer, including, without limitation, any cost recovery fee which shall represent an accurate and non-inflated recovery of the miscellaneous charges and/or fees to or against Provider associated with the provision of Service(s) by Provider to Customer. Usage charges (Applicable to burstable dedicated Internet Access Service Only): Additional usage charges stated in any applicable SOF will be calculated based on Customer’s monthly usage, which Provider will calculate as follows: Provider will take usage samples approximately every five (5) minutes throughout the applicable month and will retain the higher of two (2) samples taken during each five (5) minute period– one (1) sample that will reflect inbound usage/utilization and one (1) sample that will reflect outbound usage/ utilization. At the end of the applicable billing period, the samples will be arranged from highest to lowest. Provider will discard the top five percent (5%) of the samples for the purposes of pg. 7 calculating Customer’s monthly usage. Provider will utilize the highest remaining sample (i.e., the ninety‐fifth percentile (95%) peak Mbps port utilization) (the “Mbps Port Utilization”) to calculate Customer’s monthly usage. Provider will measure the Mbps Port Utilization to the 100th decimal place, but the invoice will reflect the Mbps Port Utilization only to the 10th decimal place. Provider will multiply the Mbps Port Utilization by the per-‐Meg rate listed on any applicable SOF to calculate any applicable additional usage charges. Provider will charge Customer such additional usage charges as well as any applicable base rate provided in any applicable SOF. 14.IP Addresses. USIPCOM assigns IP addresses to its customers for use with certain IP/data- based Service. USIPCOM shall retain any assigned public IP addresses when a customer’s service is terminated. USIPCOM and Customer agree that assigned addresses are “non-portable” and other providers are not allowed to route these addresses. Customer, who has its own IP addresses, which are allocated directly from American Registry for Internet Numbers (ARIN), will be ported/routed by USIPCOM where reasonably possible. USIPCOM cannot guarantee the portability/routability of these addresses beyond its own backbone and to the Internet in general. USIPCOM reserves the right to modify its IP Address Allocation Policy without notice. 15. Material Breach. USIPCOM or Customer may terminate this Agreement and the Service(s) provided hereunder in the event of a material breach that is not cured within thirty (30) days following the delivery of written notice specifying said breach, except in the case of serious material breaches, so judged by USIPCOM. Such notice from Customer must be in the form of an email sent to customercare@usipcom.com with “Notice of Material Breach” in the subject line of the email and Customer’s contact information and detailed explanation, including supporting documentation if available, in the body of the email. Such notice from USIPCOM shall be in the form of an email to the Customer. In the event of an uncured material breach by USIPCOM, the Agreement and Service(s) shall be terminated without further liability to the Customer, however, in such cases Customer shall remain responsible for: (a) charges for Service(s) actually and properly received prior to the date of Breach notification, (b) one hundred percent (100%) of the past due balance at the time of termination, and (c) any non-recurring charges originally waived by USIPCOM. In the event of an uncured material breach by Customer, such as early termination of this Agreement, the following termination fees shall apply: (a) charges for Service(s) actually and properly received prior to the date of Breach notification, (b) the total of monthly minimum commitments for all components of the Service(s) for the remainder of the Service Order Term(s) and any additional early Termination fees included in any and all relevant Service Order Form(s), (c) one hundred percent (100%) of the past due balance at the time of termination, and (d) any nonrecurring charges originally waived by USIPCOM. 16. Termination. Upon termination of the Service Agreement and/or the Service(s) not due to a material breach, USIPCOM will disconnect, or will cause to be disconnected, the Service(s) if notified by the Customer in writing via email to customercare@usipcom.com with no less than forty calendar (40) days notice prior to termination of the Agreement and/or Service(s). In all such cases, Customer retains the sole responsibility for notifying USIPCOM of any and all requests for termination or disconnection of Service(s), including but not limited to the porting pg. 8 out of billable telephone numbers (also referred to as “DIDs”), whether port outs are known or unknown by Customer; and, Customer remains responsible for all billable charges related to terminated Service(s) until USIPCOM is notified in writing as specified. Any request by Customer for cancellation or termination at any time within the Service Agreement Term and/or Service Term set forth in this Agreement, including: prior to installation, or at any time prior to the Service Commencement or Activation Date, or in the case of early termination by Customer, will be considered a Material Breach by the Customer and shall be subject to the applicable Material Breach provisions as outlined in the Material Breach section of this agreement. 17. Termination by Provider. In addition to any other right that Provider may have to terminate or suspend these Terms and Conditions and/or any applicable SOF, if Provider determines, in its sole discretion, that Customer’s ongoing use of any or all Services, and/or the specific method or technology utilized by Customer places the network operated by Provider, other customers, partners or the overall business(es) of each in jeopardy, Provider reserves the right to terminate these Terms and Conditions and/or any applicable SOF and Customer’s access to any or all applicable Services immediately and without notification. 18. Cooperation with Investigations. USIPCOM will cooperate with appropriate law enforcement agencies and other parties involved in investigating claims of illegal or inappropriate activity on the USIPCOM Network. USIPCOM reserves the right to disclose customer information to the extent authorized or required by federal or state law. In those instances, involving child pornography, USIPCOM complies with all applicable federal and state laws including providing notice to the National Center for the Missing and Exploited Children or other designated agencies. 19. Acceptable Use Policy. All use of Service must comply with USIPCOM’s Acceptable Use Policy (“AUP”), which is posted at www.usipcom.com and is incorporated herein by reference. By accepting USIPCOM Service, Customer agrees to comply with this AUP and any subsequent modifications thereto. USIPCOM reserves the right to modify this AUP from time to time, effective upon posting the AUP as modified at the URL shown above. Violation of the AUP shall be considered a material breach of this Agreement pursuant to Section 14. 20. Dispute Resolution Process and Applicable Law. (a) It is the mutual desire of the parties to promptly and fully resolve any dispute arising in connection with these Terms and Conditions and/or any applicable SOF in good faith, confidentially, and informally with minimal transaction costs; no public statement may be made by any party regarding any such dispute. If either party determines that the dispute cannot be resolved informally, then such party will initiate an escalation process by giving written notice (“Escalation Notice”) to the other party. Each party will name one executive as its representative, to be a person knowledgeable of the subject matter in dispute and someone with authority to discuss the dispute (“Officers”). The Officers will meet in person or by conference call, together with any persons assisting them, within fifteen (15) days after delivery of the Escalation Notice. All negotiations conducted by the Officers are confidential and will be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and any state rules of evidence. The Officers will conduct such additional meetings as they deem pg. 9 necessary to exchange relevant information, will appoint staff to engage in resolution of any disputed facts, and will attempt to resolve the dispute. Should the Officers be unable to resolve the dispute within such fifteen (15) days, or within such additional time as the parties may otherwise agree to in writing, either party may demand mediation, whereupon the parties will, in good faith, mediate the dispute no later than thirty (30) days after such demand through the services of a mutually selected mediator, the cost of whom will be borne equally by the parties, at a date and location selected by the mediator after consultation with the parties. IF THE DISPUTE IS NOT RESOLVED AFTER APPLYING THE ESCALATION PROCEDURES SET FORTH ABOVE, THE PARTIES AGREE TO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY JUDICIAL PROCEEDING ARISING UNDER OR RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, AND AGREE TO SUBMIT ALL CONTROVERSIES, CLAIMS AND MATTERS OF DIFFERENCE TO ARBITRATION ACCORDING TO THE COMMERCIAL RULES AND PRACTICES OF THE AMERICAN ARBITRATION ASSOCIATION (“AAA”). Arbitration here under will occur within sixty (60) days of the date of submission before a single neutral arbitrator having significant experience in the subject matter of this Agreement and who will selected in accordance with AAA rules. Arbitration proceedings will take place in Wake County, North Carolina. Discovery will be permitted, including the use of interrogatories, requests for admission and production of documents and depositions. If the amount claimed to be in dispute is less than $500,000, all applicable expedited procedures of the AAA will apply. The arbitrator’s fees and costs of the arbitration will be borne by the party against whom the award is rendered, except that if the arbitrator issues a split decision, granting partial relief to both parties, the arbitrator will equitably allocate the arbitrator’s fees and other costs. Each party will pay its attorney’s fees related to any dispute related to this Agreement. The arbitration award will be final and binding on both parties of this Agreement, will not be subject to any appeal and will be enforceable in any court of competent jurisdiction. (b) ANY DISPUTE RESOLUTION PROCEEDINGS, WHETHER IN ARBITRATION OR IN COURT, WILL BE CONDUCTED ONLY ON AN INDIVIDUAL BASIS AND NOT IN A CLASS ACTION OR REPRESENTATIVE ACTION OR AS A MEMBER IN A CLASS, CONSOLIDATED OR REPRESENTATIVE ACTION. CUSTOMER WILL NOT BE A CLASS REPRESENTATIVE, CLASS MEMBER OR OTHERWISE PARTICIPATE IN A CLASS, CONSOLIDATED OR REPRESENTATIVE PROCEEDING. (c) This Agreement will be governed by, construed under and enforced in accordance with the laws of the State of North Carolina without reference to its choice of law principles or the United Nations Convention on the International Sale of Goods. In the event any party brings a civil action or initiates judicial proceedings of any kind related to this Agreement (except for actions to enter or collect on judgments), the parties consent to the exclusive personal jurisdiction and venue of the federal and state courts located in Wake County, North Carolina and the prevailing party will be entitled to recover its costs, including reasonable attorney’s fees. 21. Limitation of Liability. EXCEPT AS PROVIDED IN SECTION 19, IN NO EVENT WILL USIPCOM OR CUSTOMER BE LIABLE FOR ANY INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST pg. 10 PROFITS) ARISING OUT OF OR IN RELATION TO THE SERVICE(S), CPE, AND/OR ANY PRODUCTS OR SERVICE PROVIDED BY THIRD PARTIES UNDER THIS AGREEMENT. USIPCOM’S MAXIMUM LIABILITY UNDER THIS AGREEMENT IS LIMITED TO SERVICE CREDITS NOT TO EXCEED THE FEES PAID TO USIPCOM BY CUSTOMER FOR THE SERVICE PROVIDED. 22. Indemnity. Customer shall indemnify and hold harmless USIPCOM, its Officers, Employees, Agents, and Affiliates from and against any and all alleged or actual losses, costs, claims, liability of any kind, damages (including to any tangible property or bodily injury to or death of any person), or expense of whatever nature, (including reasonable attorneys' fees) to or by any third party, relating to or arising from (a) the use of the Service provided to Customer, whether or not Customer has knowledge of or has authorized access for such use, (b) any damage to or destruction of CPE not caused by USIPCOM or its agents, and (c) any material breach of this Agreement by Customer. Customer has the sole and exclusive responsibility for the installation, configuration, security, and integrity of all Customer systems, equipment, software, and networks (the “Customer Equipment”) used in conjunction with or related to the Service(s) provided by USIPCOM. Customer therefore shall indemnify and hold harmless USIPCOM from and against any actual or alleged losses, costs, claims, liability of any kind, damages, or expenses or fees (including reasonable attorneys' fees) on the part of or which may be incurred by Customer or a third-party relating to or arising from the use or operation of the Customer Equipment. Customer’s indemnification in this subsection includes any alleged or actual losses or claims in connection with unauthorized access to or use of the Service(s) by any third-party through Customer Equipment, regardless of whether such unauthorized access is unintentional, accidental, intentional or by fraud and regardless of whether Customer had knowledge of such unauthorized access. In all such cases of unauthorized access Customer agrees that it retain full and sole responsibility for any and all charges for the Service(s) provided by USIPCOM. In the event USIPCOM grants Customer access, either by online access, by application programming interface (API), or access by any other means, to a service ordering/management system and other related electronic tools (collectively, the “Electronic Tools”), Customer agrees that it is fully and exclusively responsible for all information accuracy, charges, costs, transactions, and activities conducted through such Electronic Tools. Customer agrees that it is fully and exclusively responsible to safeguard, monitor, manage, and maintain access to the Electronic Tools, and to only allow authorized use of the Electronic Tools to persons that Customer designates. Customer therefore agrees that it shall indemnify and hold harmless USIPCOM from and against any actual or alleged losses, costs, claims, liability of any kind, damages, or expenses or fees (including reasonable attorneys' fees) on the part of or which may be incurred by Customer, or a third-party, relating to or arising from the use or operation of the Electronic Tools. Customer’s indemnification in this subsection includes any alleged or actual losses or claims in connection with unauthorized access to, use, transactions, or activity conducted through the Electronic Tools, regardless of whether such unauthorized access is unintentional, accidental, intentional, or by fraud, and regardless of whether Customer had knowledge of such unauthorized access. In all such cases of unauthorized access Customer pg. 11 agrees that it retains full and sole responsibility for any and all charges for the Service(s) provided by USIPCOM. 23. No Warranties and Customer Assumption of Risk. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN AN APPLICABLE SLA, ANY APPLICABLE SERVICE AND ANY CPE, EQUIPMENT, AND/OR RELATED SERVICES EACH IS PROVIDED “AS IS” AND “AS AVAILABLE” AND WITHOUT WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED. TO THE FULLEST EXTENT PERMISSIBLE PURSUANT TO APPLICABLE LAW, EACH OF PROVIDER, ITS AFFILIATES, SUPPLIERS AND, IF APPLICABLE, RESELLERS DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY OF NONINFRINGEMENT. WITHOUT LIMITING THE FOREGOING, PROVIDER, ITS AFFILIATES, SUPPLIERS AND, IF APPLICABLE, RESELLERS DO NOT WARRANT THAT ANY FUNCTIONS OF ANY SERVICES, ANY CPE, EQUIPMENT, AND/OR RELATED SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, THAT DEFECTS WILL BE CORRECTED, OR THAT ANY SERVICES (OR ANY SERVER THAT MAKES ANY SERVICES AVAILABLE) WILL BE FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS. PROVIDER DOES NOT WARRANT OR MAKE ANY REPRESENTATIONS REGARDING THE USE OR RESULTS OF ANY SERVICES OR ANY ELECTRONIC TOOL IN TERMS OF ITS CORRECTNESS, ACCURACY, RELIABILITY, UNAUTHORIZED ACCESS BY THIRD PARTIES OR OTHERWISE. CUSTOMER (AND NOT PROVIDER) ASSUMES THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION. CUSTOMER ACKNOWLEDGES THAT ANY DATA OR INFORMATION DOWNLOADED OR OTHERWISE OBTAINED OR ACQUIRED THROUGH THE USE OF ANY SERVICES AND/OR ELECTRONIC TOOL IS AT CUSTOMER’S SOLE RISK AND DISCRETION AND PROVIDER WILL NOT BE LIABLE OR RESPONSIBLE FOR ANY DAMAGE TO CUSTOMER OR CUSTOMER’S PROPERTY. CUSTOMER HEREBY EXPRESSLY ASSUMES THE RISK OF ITS USE OF ANY INFORMATION TRANSMITTED VIA ANY SERVICES AND/OR ANY ELECTRONIC TOOL. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY CUSTOMER FROM PROVIDER, ITS EMPLOYEES OR THROUGH OR FROM ANY SERVICE AND/OR ELECTRONIC TOOL WILL CREATE ANY WARRANTY NOT EXPRESSLY STATED IN THIS AGREEMENT. APPLICABLE LAW MAY NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE FOREGOING EXCLUSION MAY NOT APPLY. PROVIDER WILL HAVE NO OBLIGATION TO DEFEND OR INDEMNIFY CUSTOMER FROM OR AGAINST ANY THIRD PARTY CLAIMS ALLEGING THAT CUSTOMER’S USE OF ANY SERVICES OR ANY ELECTRONIC TOOL OR THE EXERCISE OF ANY RIGHTS GRANTED HEREIN INFRINGES ON ANY INTELLECTUAL PROPERTY OF ANY THIRD PARTY. IF A CLAIM IS MADE, OR IN PROVIDER’S REASONABLE OPINION IS LIKELY TO BE MADE, AGAINST PROVIDER, CUSTOMER OR ANY THIRD PARTY ALLEGING pg. 12 THAT ANY APPLICABLE SERVICES OR ELECTRONIC TOOL OR ANY USE THEREOF INFRINGES ANY INTELLECTUAL PROPERTY OF ANY THIRD PARTY, PROVIDER MAY, IN PROVIDER’S SOLE DISCRETION, TERMINATE THESE TERMS AND CONDITIONS AND/OR ANY APPLICABLE SOF AND ALL RIGHTS AND OBLIGATIONS PURSUANT TO THESE TERMS AND CONDITIONS AND/OR ANY APPLICABLE SOF. 24. Third Party Beneficiaries. The Parties do not intend by the execution, delivery, or performance of this Agreement to confer any benefit, direct or incidental, upon any person or entity not a party to this Agreement. 25. Miscellaneous. Customer acknowledges and understands that Customer is to receive the Service detailed in this Agreement and the Customer is not relying on any affirmation of fact, promise or description from any person or entity, nor any other oral or written representation other than what is contained in this Agreement. Handwritten alterations or additions to this agreement made by Customer will not be considered part of this Agreement. This Agreement may only be modified, or any rights under it waived, by a separate written document executed by both parties. This Agreement shall be governed by, construed under, and enforced in accordance with, the laws of the State of North Carolina without reference to its choice of law principles. For any action or suit to enforce any right or remedy of this Agreement, (except for actions to enter or collect on judgments) the parties’ consent to exclusive jurisdiction and venue in the courts for Wake County, North Carolina and the prevailing party shall be entitled to recover its costs, including reasonable attorney’s fees. In the event of a conflict between this Agreement and any applicable tariff, the tariff shall prevail. Customer may not assign this Agreement without USIPCOM’s prior written consent. This Agreement shall be binding on the parties hereto and their respective personal and legal representatives, successors, and permitted assigns. If any provision of this Agreement is held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby. By signing the unique, or any, Service Order Form, or any Attachments, Addendums, or any other documents incorporated herein by reference. Customer signatory certifies that (s)he is an officer or certified representative of the Customer, and as such is authorized to enter into this binding Agreement. In the event any specified time frame or deadline denotes calendar days, it is agreed that when the last date of required action or response falls on a weekend or holiday, the action and/or deadline shall automatically extend to the next business day. Agreement headings are provided for reference purposes only. THIS AGREEMENT, TOGETHER WITH ANY ATTACHMENTS, INCLUDING ANY SCHEDULES, ADDENDUMS, PRICE LISTS, SERVICE ORDERS, TERMS AND CONDITIONS, SERVICE LEVEL AGREEMENTS, AND ACCEPTABLE USE POLICIES, WHICH MAY BE POSTED AT: WWW.USIPCOM.COM/CONTENT/LEGAL, AND WHICH ARE INCORPORATED HEREIN BY REFERENCE, CONSTITUTE THE ENTIRE UNDERSTANDING BETWEEN THE CUSTOMER AND USIPCOM, INC, WITH RESPECT TO THE SERVICE(S) PROVIDED HEREIN. CUSTOMER ACKNOWLEDGES AND UNDERSTANDS THAT CUSTOMER IS NOT RELYING ON ANY AFFIRMATION OF pg. 13 FACT, PROMISE OR DESCRIPTION FROM ANY PERSON OR ENTITY, NOR ANY OTHER ORAL OR WRITTEN REPRESENTATION OTHER THAN WHAT IS CONTAINED IN THIS AGREEMENT AND ANY INCORPORATED DOCUMENTS. 26. Definitions. For the purposes of these Terms and Conditions and/or any applicable SOF, the following terms will have the following meanings: “Default” occurs: (i) if Customer fails to make any payment for Services more than two (2) business days immediately after the applicable Due Date, or any other payment contemplated by these Terms and Conditions and/or any applicable SOF on or before the date two (2) business days immediately after any applicable required date; (ii) if Customer violates the AUP; (iii) if Customer fails to perform or observe any term or obligation of these Terms and Conditions and/or any applicable SOF, including, without limitation, any document incorporated by reference into these Terms and Conditions, not otherwise specified in clauses (i) or (ii) above and applicable to the Services, which failure remains uncured thirty (30) calendar days after Customer’s receipt of written notification from Provider informing Customer of such failure; (iv) upon the institution of bankruptcy, receivership, insolvency, reorganization or other similar proceedings, by or against Customer, unless such proceedings have been dismissed or discharged not later than the date thirty (30) calendar days immediately after the commencement of such proceeding; (v) upon the making of an assignment for the benefit of creditors, adjudication of insolvency, or institution of any reorganization arrangement or other readjustment of debt plan, of or by Customer; and/or (vi) upon the appointment of a receiver for all or substantially all of Customer’s assets. “LEC” means local exchange carrier. “MPLS Services” means those multiprotocol layer switching services described in the SOF by and between Provider and Customer. “MRC” means monthly recurring charge. “NRC” means non-recurring charge. “Regulatory Activity” means any laws, regulations or other similar mandates (including, without limitation, any fees, surcharges or other like charges imposed or mandated) by any federal, state or other governmental agency at any time. “RMA” means a Return Materials Authorization. “Service Term” will mean the period commencing on the Service Activation Date during which any applicable SOF remains in effect with respect to any Services. For clarity, the “Service Term” will expire and/or terminate immediately upon the date when all SOFs entered into with respect to any Services from time to time will have expired and/or terminated by their terms. “Services” means those services described in the SOF by and between Provider and Customer, which services may include Burstable Dedicated Internet Access Services, dedicated Internet access services, Managed Network Services, MPLS Services, Professional Services, and/or private line services. 4 3 9 City Council Agenda Report Meeting Date:October 17, 2023 From:Freddie Agyin, Director of Health and Environmental Control Department:Health and Environmental Control Submitted by:Veronica Petrosyan, Deputy Director of Health and Environmental Control Subject Lease Agreement with WEA CA, PC (WEA) Recommendation Approve and authorize the City Administrator to execute a Lease Agreement with WEA, in substantially the same form as submitted, for a one-year term. Background The City of Vernon executed a Master Affiliation Services Agreement with WEA effective July 1, 2023, for the Wellness and Equity Alliance to provide public health and clinical services. Public health and clinical services will be administered using mobile healthcare vans and at the Vernon Health and Wellness Center located at the southwest corner of Civic Center grounds off Baker Way and Vernon Avenue. In preparation for providing health care services at the Vernon Health and Wellness Center, WEA submitted an application to the California Department of Health Care Services (DHCS) to become a Medi-Cal provider. Providers credentialed with DHCS are eligible to provide service to Medi- Cal Fee for Service beneficiaries. Medi-Cal is California's Medicaid health care program which pays for a variety of medical services for children and adults with limited income and resources. Medi-Cal is supported by federal and state taxes. The DHCS Medi-Cal provider application requires a lease agreement for the provider’s service location. Since the City owns the Vernon Health and Wellness Center service location, WEA is required to execute a lease agreement with the City. To facilitate the DHCS application process, staff is recommending approval of the lease agreement with WEA. The lease agreement has been approved as to form by the City Attorney’s Office. Fiscal Impact Approval and execution of the lease agreement will result in $12 in additional revenue to the General Fund for the 12-month term of the lease and $1 per month with extension of the term to a month-to-month basis. Attachments 1. Lease Agreement with WEA LEASE AGREEMENT BETWEEN THE CITY OF VERNON AND WEA CA, PC (WEA) THIS LEASE (“LEASE”) is made and executed this 17th day of October 2023, between CITY OF VERNON, a California municipal corporation and California charter city (“CITY”), and WEA CA, PC, a national alliance of population and public health professional corporation, (“WEA” or “LESSEE”), who agree as follows: 1. RECITALS: This Lease is made with reference to the following facts and objectives: A. LESSEE desires to rent two (2) medical office trailers and two (2) Sprinter Mobile Vans situated on Vernon City Hall property located at 4305 South Santa Fe Avenue in the City of Vernon, to house staff and facilities in furtherance of CITY’s partnership with WEA to provide public health and clinical services to the local population. B. LESSEE acknowledges that it has inspected the Premises (as defined in Section 2, below), and that the same are in good and tenantable condition on the date hereof, LESSEE agrees to accept the premises, access and improvements “WHERE-IS” and “AS-IS”, and LESSEE acknowledges and agrees that the CITY makes no warranty or representation of any kind respecting the condition, safety or suitability of the Premises, except as otherwise expressly stated in this LEASE. 2. DESCRIPTION OF PREMISES. CITY leases to LESSEE to use, on the terms and conditions of this LEASE, two (2) medical office trailers and two (2) Sprinter Mobile Vans situated on Vernon City Hall property located at 4305 South Santa Fe Avenue in the City of Vernon, consisting of approximately 600 square feet, located on Vernon City Hall property, 4305 South Santa Fe Avenue in the City of Vernon, (“Premises”). The Premises subject to this Lease is limited to the space identified herein and does not include other areas of City Hall property, including conference spaces. 3. TERM. Unless extended or sooner terminated as provided in this Lease, the term of this Lease is for twelve (12) months, commencing on November 1, 2023 and ending October 31, 2024. LESSEE may request to extend the term of this Lease on a month-to-month basis, commencing November 1, 2024, upon giving CITY written notice of such election not later than September 1, 2024. Upon receipt of such written notice, CITY may, but is under no obligation to, agree to extend the term of this Lease on a month-to-month basis. If CITY agrees to extend the term of this Lease on a month-to-month basis, then CITY will give LESSEE written notice of such agreement no later than October 1, 2024. CITY’s failure to give such written notice of agreement by October 1, 2024 will be deemed to be CITY’s disapproval of LESSEE’S request, and the term of this Lease will expire on November 1, 2024. 4. LEASE FEE. During the term of this Lease (November 1, 2023 – October 31, 2024), the CITY agrees to charge LESSEE one dollar ($1) per month. The Lease fee during any extension WEA Lease Agreement Page 2 of 9 ____________________ term shall be one dollar ($1) per month and shall be paid on the first day of each calendar month, commencing November 1, 2024. 5. USE OF PREMISES. Except as otherwise provided in this Lease, LESSEE will use the Premises to house personnel and equipment to provide public health and clinical services in conjunction with the partnership and then-current agreements between CITY and WEA. The Premises may not be used for any other purpose. LESSEE understands and agrees that LESSEE will not have the use of any conference space located on the Vernon City Hall property, other than that which is currently located in the Premises. 6. UTILITIES. CITY will provide all reasonable utilities and services required for the use of the Premises, including electricity, gas, internet, telephone services, trash, water, and janitorial services. 7. TERMINATION. This LEASE may be terminated as follows: A. At the expiration of the term; B. Upon mutual written agreement between the parties; C. Upon the date a condemning authority takes possession of all or any part of the Premises or the building of which the Premises are a part; or D. As provided in Section 18. E. If the term of this LEASE is extended on a month-to-month basis as provided in section 3, upon the giving by either party to the other of 30 (thirty) days prior written notice of termination. 8. CONDITION OF PREMISES UPON TERMINATION. Upon termination of this LEASE for any reason, LESSEE will vacate the Premises and deliver it to CITY in good order and condition, damage by the elements, earthquake, and ordinary wear and tear which could not have been avoided by reasonable maintenance practices excepted. 9. CONDEMNATION. If all or part of the building in which the Premises are located is acquired by eminent domain or purchase in lieu thereof, CITY shall be entitled to receive all awards and compensation in connection therewith, and LESSEE acknowledges that it will have no claim to any compensation awarded for the taking or for loss of or damage to LESSEE’s improvements, provided that LESSEE shall have the right to make a separate claim for loss of its trade fixtures and personal property and for relocation expenses so long as the same does not reduce LESSOR’S award and compensation. 10. FORCE MAJEURE. Except for the payment of monetary sums, no party to this LEASE shall be chargeable with, or liable for, or responsible to the other for anything or in any amount due to, WEA Lease Agreement Page 3 of 9 ____________________ and the time for performance hereunder by such party shall be extended for, any delay caused by fire, earthquake, explosion, flood, the elements, acts of terrorism, acts of God, insurrection, rebellion, riots, strikes, lockouts, unforeseeable labor or material shortages, litigation, or any other cause whether similar or dissimilar to the foregoing which is beyond the reasonable control of such party, and any delay due to said causes or any of them shall not be deemed a default under this LEASE. 11. LESSEE’S PERSONAL PROPERTY. All personal property of LESSEE located at the Premises will remain the property of LESSEE during the term of this LEASE and may be removed by LESSEE at any time and shall be removed by LESSEE prior to the expiration or other termination of the term of this LEASE. LESSEE, at LESSEE’S cost and expense, must promptly repair all damage to the Premises occasioned by the removal of its personal property. 12. ALTERATIONS, MECHANICS’ LIENS. LESSEE will not make, or cause to be made, any alterations or modifications to the Premises, or any part thereof, without CITY’s prior written consent, which consent CITY is under no obligation to give. LESSEE will keep the Premises free from any liens arising out of any permitted work performed, material furnished, or obligations incurred by LESSEE. 13. ASSIGNMENT AND SUBLETTING. This LEASE may not be assigned, transferred, or sublet by LESSEE, whether voluntarily or involuntarily. Any such purported transfer will be null and void. 14. CITY’S ACCESS. A. Access for Inspection. CITY and CITY’s agents shall have the right to enter the Premises at reasonable times, upon not less than twenty-four (24) hours prior notice to LESSEE or less in case of an emergency), for the purpose of inspecting same, and making such alterations, repairs, improvements or additions to the Premises as CITY may deem necessary. CITY will conduct Premises inspections on a quarterly basis to identify maintenance issues that require attention. CITY will provide to LESSEE a report specifying such maintenance issues as are identified that are Lessee’s responsibility under this Lease, and if appropriate, CITY will provide the estimated cost for services to perform the maintenance. B. No Warranty. Except as otherwise stated in this Lease, LESSEE hereby acknowledges that neither the CITY nor any employees or agents of the CITY has made any oral or written warranties or representations to Lessee relative to the condition or use by LESSEE of said Premises and LESSEE acknowledges that LESSEE assumes all responsibility regarding the Occupational Safety and Health Act, the legal use and adaptability of the Premises and compliance with all applicable laws and regulations in effect during the term of this Lease. WEA Lease Agreement Page 4 of 9 ____________________ C. Security Measures. CITY shall have the right to require a reasonable security system, device, operation or plan be installed and implemented to protect the Premises or any alterations. 15. HOLDOVER. If LESSEE continues to occupy the Premises after the Lease expires, with CITY’s written consent, such continued occupancy shall be on a month to month basis and such tenancy otherwise will be subject to all of the terms and conditions of this LEASE excluding rights to extend the term of this LEASE. 16. INDEMNIFICATION. Except to the extent directly caused by CITY’s negligence, LESSEE agrees to indemnify, protect, defend (by counsel reasonably satisfactory to CITY) and hold CITY harmless from and against all claims, losses, liabilities, actions, judgments, costs and expenses (including reasonable attorneys’ fees and costs) which CITY may suffer or incur arising from or relating to (a) LESSEE’s use of the Premises, (b) any negligence, act or omission of LESSEE in or about the Premises or (c) any default by LESSEE under this LEASE. For purposes of this section “CITY” includes CITY’s officers, officials, employees, agents, contractors, representatives, guests, invitees, and volunteers, and “LESSEE” includes LESSEE’s officers, officials, employees, agents, contractors, representatives, guests, invitees, and volunteers. A. LESSEE expressly agrees that this hold harmless and indemnification provision is intended to be as broad and inclusive as is permitted by the law of the State of California and that if any portion is held invalid, it is agreed that the balance will, notwithstanding, continue in full legal force and effect. B. It is expressly understood and agreed that the provisions of this Section will survive termination or expiration of this LEASE. C. The requirements as to the types and limits of insurance coverage to be maintained by LESSEE as required by this LEASE, and any approval of such insurance by CITY, are not intended to and will not in any manner limit or qualify the liabilities and obligations otherwise assumed by LESSEE pursuant to this LEASE, including but not limited to the provisions concerning indemnification. 17. INSURANCE. LESSEE must procure and maintain, at its sole cost and expense, insurance required by the CITY in commercially reasonable amounts and in accordance with all applicable state and federal laws and regulations. LESSEE shall provide CITY policies of insurance types in the amount set forth below for the duration of the LEASE and provide CITY certificates evidencing such coverage, which must be in a form approved by the CITY. In addition, the insurance policies required shall be issued by insurance companies licensed to do business in the state with an A.M. Best rating of at least A-VIII. A. General Liability coverage with limits of not less than $2,000,000 per occurrence and $4,000,000 aggregate. Premises/Operations and Personal injury coverage is required. WEA Lease Agreement Page 5 of 9 ____________________ The City of Vernon, its directors, commissioners, officers, employees, agents, and volunteers must be endorsed on the policy as additional insured under the LESSEE insurance policy; it shall be primary and non-contributory without seeking contribution from the CITY’s insurance or self-insurance. B. Automobile Liability coverage with limits of not less than $1,000,000 per occurrence and $2,000,000 annual aggregate. LESSEE agrees to subrogate automobile liability resulting from performance under this LEASE. The City of Vernon, its directors, commissioners, officers, employees, agents, and volunteers must be endorsed on the policy as additional insured under LESSEE’s insurance policy; it shall be primary and non-contributory without seeking contribution from the CITY’s insurance or self- insurance. C. Professional Errors and Omissions coverage with limits of not less than $5,000,000 per claim and the annual aggregate, covering all acts, errors, omissions, negligence, infringement, of intellectual property (except patent and trade secret), network and privacy risks (including coverage for unauthorized access, failure of security, breach of privacy perils, wrongful disclosure of information, as well as notification costs and regulatory defense) in the performance of services for the CITY or on behalf of the CITY hereunder. LESSEE shall maintain such coverage for at least five years after the termination of this LEASE. D. Workers’ Compensation coverage with limits of not less than $1,000,000 per occurrence. The policy shall be endorsed to waive all rights of subrogation against the CITY, its directors, commissioners, officers, employees, and volunteers for losses arising from the performance of this LEASE. E. Excess Liability Coverage. Any umbrella or excess insurance coverage shall contain or be endorsed to include a provision that such coverage shall also apply on a primary and non-contributory basis for the benefit of the CITY before the CITY’s insurance or self-insurance shall be called upon. If the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance. F. Fire Insurance on Premises. CITY shall maintain insurance (or applicable self- insurance) for fire damage covering the Premises. 18. COMPLIANCE WITH LAW. LESSEE will, at its sole cost and expense, comply with all of the requirements of all federal, state, and local authorities now in force, or which may hereafter be in force, pertaining to the Premises and will faithfully observe in the use of the Premises all applicable laws, rules and regulations, including, without limitation, laws, rules and regulations relating to the use, storage and disposal of toxic or hazardous substances. The judgment of any court of competent jurisdiction that LESSEE has violated any such requirement, law, rule or regulation in the use of the Premises will be conclusive of that fact as between CITY and LESSEE. WEA Lease Agreement Page 6 of 9 ____________________ 19. AMENDMENT; WAIVER. No term or provision of this LEASE may be amended, altered, modified or waived orally or by a course of conduct, but only by an instrument in writing signed by a duly authorized officer or representative of the party against which enforcement of such amendment, alteration, modification or waiver is sought. Any amendment, alteration, modification or waiver shall be for such period and subject to such conditions as shall be specified in the written instrument evidencing the same. Any waiver shall be effective only in the specific instance and for the specific purpose for which given. 20. DEFAULT. The occurrence of any one or more of the following shall constitute a default by LESSEE: (a) Failure by LESSEE to make any payment required to be made by LESSEE hereunder as and when due. (b) Failure by LESSEE to observe or perform any of the covenants or provisions of this LEASE, other than as provided in subsection (a) above, when such failure continues for a period of ten (10) days after written notice of such failure is given by CITY to LESSEE; provided, that if the nature of LESSEE's failure is such that more than ten (10) days are reasonably required for its cure, then LESSEE will not be deemed to be in default if LESSEE commences such cure within said ten (10) day period and thereafter diligently prosecutes such cure to completion. (c) The making by LESSEE of any general arrangement or general assignment for the benefit of creditors; (ii) LESSEE becoming a “debtor” as defined in the federal Bankruptcy Code or any successor statute thereto (unless, in the case of a petition filed against LESSEE, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of LESSEE’s assets located at the Premises or of LESSEE’s interest in this LEASE, where possession is not restored to LESSEE within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of LESSEE’s assets located at the Premises or of LESSEE’s interest in this LEASE, where such seizure is not discharged within thirty (30) days. 21. REMEDIES. If LESSEE is in default, then, in addition to all other rights and remedies which CITY may have at law or in equity, CITY has the following rights and remedies which are not exclusive but are cumulative: (a) CITY can, with or without terminating this LEASE, reenter the Premises and remove all property and persons therefrom, and any such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of LESSEE. If CITY elects to reenter or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, and if CITY has not elected to terminate this LEASE, CITY may either recover all rent as it becomes due under this LEASE or relet the Premises or any part or parts thereof for such term or terms and upon such provisions as CITY may deem advisable and will have the right to make repairs to and alterations of the Premises. No reentry or taking possession of the Premises by CITY is to be construed as an election to terminate this LEASE unless a written notice of such WEA Lease Agreement Page 7 of 9 ____________________ intention is given to LESSEE by CITY. Notwithstanding any reletting without termination by CITY because of LESSEE's default, CITY may at any time after such reletting elect to terminate this LEASE because of such default. If CITY elects to relet the Premises without terminating this LEASE, then rent received by CITY therefrom will be applied as follows: (i) First, to any indebtedness from LESSEE to CITY other than rent due from LESSEE; (ii) Second, to all costs and expenses, including, without limitation, for maintenance, repairs or alterations, incurred by CITY in connection with reletting the Premises; and (iii) Third, to the payment of rent due and unpaid under this LEASE and the residue, if any, will be held by CITY and applied in payment of future rent as the same may become due and payable under this LEASE and to any damages and other amounts which CITY is otherwise entitled to under this LEASE. Should that portion of such rent received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable hereunder during that month by LESSEE, then LESSEE agrees to pay such deficiency to CITY immediately upon demand. In no event will LESSEE be entitled to any excess rent received by CITY from such reletting. (b) CITY can terminate LESSEE's right to possession of the Premises at any time. No act by CITY other than giving written notice to LESSEE will terminate this LEASE. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on CITY's initiative to protect CITY's interest under this LEASE shall not constitute a termination of LESSEE's right to possession. (c) Without waiving the default, CITY can, at its sole option, pay such sums and/or take such actions as are necessary in CITY’s reasonable judgment in order to cure the default, and all sums expended or incurred by CITY in connection therewith, together with interest thereon at the maximum rate permitted by law, shall be paid by LESSEE to CITY immediately on demand. 22. NOTICES. Except as otherwise expressly provided by law, all notices or other communications required or permitted by this LEASE or by law to be served on or given to either party to this LEASE by the other party will be in writing and will be deemed served when personally delivered (including by commercial courier or next business day delivery service) to the party to whom they are directed, or in lieu of the personal service, upon the date when received as evidenced by the return receipt when deposited in the United States mail, certified or registered mail, return receipt requested, postage prepaid, addressed to: LESSEE at: WEA CA, PC 250 Quail Ridge Road Scotts Valley, CA 95066 Attn: Nancy Anwar Evans CITY at: City of Vernon WEA Lease Agreement Page 8 of 9 ____________________ 4305 South Santa Fe Avenue Vernon, CA 90058 Attn: City Administration Either party may change its address for the purpose of this section by giving written notice of the change to the other party in the manner specified in this section. 23. ACCEPTANCE OF ELECTRONIC SIGNATURES. The Parties agree that agreements ancillary to this LEASE and related documents to be entered into in connection with this LEASE will be considered signed when the signature of a party is delivered by electronic transmission. Such electronic signature will be treated in all respects as having the same effect as an original signature. 24. GOVERNING LAW. This LEASE has been made in and will be construed in accordance with the laws of the State of California and exclusive venue for any action involving this LEASE will be in Los Angeles County. 25. PARTIAL INVALIDITY. Should any provision of this LEASE be held by a court of competent jurisdiction to be either invalid or unenforceable, the remaining provisions of this LEASE will remain in effect, unimpaired by the holding. 26. COUNTERPARTS. This LEASE may be executed in counterparts, each of which is an original but all of which together constitute but one and the same instrument. Signature and acknowledgment pages, if any, of this LEASE may be detached from any counterpart and re- attached to any other counterpart of this LEASE which is identical in form hereto but having attached to it one or more additional signature and acknowledgment pages. 27. ATTORNEYS’ FEES. If either party to this LEASE brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in such action, on trial or appeal, shall be entitled to reasonable attorneys' fees to be paid by the losing party as fixed by the court. 28. DISCLOSURE. Pursuant to California Civil Code section 1938, CITY states that, as of the date of this LEASE, the Premises have not undergone inspection by a “Certified Access Specialist” (“CASp”) to determine whether the Premises meet all applicable construction-related accessibility standards under California Civil Code section 55.53. 29. HEADINGS; EXHIBITS. The section headings in this LEASE are for convenience of reference only and are not to be referred to in construing or interpreting this LEASE. The recitals to this LEASE, and all exhibits referred to in this LEASE, are a part of this LEASE. [Signatures Begin on Next Page]. WEA Lease Agreement Page 9 of 9 ____________________ IN WITNESS WHEREOF, the parties hereto have executed this LEASE as of the day and year first hereinabove written. FOR WEA CA, PC By: Name: Title: Date: By: Name: Title: Date: FOR CITY OF VERNON: By: Name: Carlos Fandino, Jr. Title: City Administrator Date: ATTEST: By: Lisa Pope, City Clerk APPROVED AS TO FORM: By: Zaynah N. Moussa, City Attorney City Council Agenda Report Meeting Date:October 17, 2023 From:Todd Dusenberry, General Manager of Public Utilities Department:Public Utilities Submitted by:Adriana Ramos, Administrative Analyst Subject Professional Services Agreement with Northwest Electrical Services, LLC to Perform Technical Design, Controls, Automation and Analytical Services Recommendation A. Find that the proposed action is categorically exempt from California Environmental Quality Act (CEQA) review, in accordance with CEQA Guidelines Section 15301, because the project consists of the maintenance, repair or minor alteration of existing facilities/equipment and involves negligible or no expansion of an existing use; B. Find that the best interests of the City are served by a direct award of an agreement with Northwest Electrical Services, LLC without a competitive selection process pursuant to Vernon Municipal Code Section 3.32.110(B)(2); C. Approve and authorize the City Administrator to execute a Professional Services Agreement with Northwest Electrical Services LLC, in substantially the same form as submitted for a three- year term from November 17, 2023, through November 16, 2026, in an amount not to exceed $2,719,903 to provide technical design, controls, automation, construction, and analytical services for Vernon Public Utilities Department; and D. Authorize a contingency amount of five percent (5%), or $135,995.15, for any unforeseen changes in fees or other expenses not included in the proposal, and grant authority to the City Administrator to issue Change Orders for an amount up to the contingency amount, if necessary. Background Vernon Public Utilities (VPU) continually prioritizes improving its infrastructure and upgrading technology while increasing efficiencies and strengthening its service offerings with the goal of providing high-quality, reliable, and responsive service at competitive and stable rates. As part of this effort, VPU continues to work toward upgrading, streamlining, and standardizing utility services along with Supervisory Control and Data Acquisition (SCADA) systems in all facilities and equipment in the electric, water, gas, and fiber divisions. The SCADA system enables VPU to provide essential services more cost-effectively, reliably, efficiently, and safely. This is critical for troubleshooting, especially for restoring service to customers during emergencies and interruptions in service. On November 17, 2020, the City Council approved a three-year Professional Services Agreement with Northwest Electrical Services, LLC (NW) to perform technical design, controls, automation, and analytical services. That agreement is set to expire on November 16, 2023. NW has completed numerous successful projects during that time, including the implementation of a new Water SCADA system, the implementation and commissioning of a fully automated water controls system, updated water system instrumentation and controls, the design and installation of a new water system fiber network and design and installation of a fiber ring for fully redundant network hardware at Station A and City Hall, replacement of the H. Gonzales natural gas turbine peaker engines (HG1 and HG2), and updated cyber security measures to comply with the Federal Cybersecurity & Infrastructure Security Agency - Industrial Control Systems best practices. The proposed agreement with NW for the next three years will allow VPU to continue improving efficiency in critical areas such as Power SCADA deployment and related hardware, MGS Support, and Water and Power SCADA Maintenance. Several Water electrical projects were delayed due to supply chain issues, especially for electrical equipment. As a result, Water projects for Wells 19 and 22 and Pumping Plant 1 will be completed by late 2023 or 2024. The training and development of operations and technical staff will also continue. There is a major effort to enhance the H. Gonzales units to support black start capability, so VPU does not rely on an older diesel generator. As reflected in the proposal from NW, the company has consistently applied its expertise to many projects as part of the three-year agreement approved by the City Council in November 2020. At that time, there was a specific project scope planned for the water fund as outlined in the Water Fund Capital Improvement Plan (CIP) as VPU began the much-needed deferred maintenance to overhaul the City’s wells to supply groundwater to customers. Unfortunately, the deteriorating condition of the water facilities and the pandemic-induced supply chain issues did not allow for the projects to be completed as planned over the three-year period. Multiple wells failed during the contract, forcing the City to rely on imported water for a short period of time. Imported water has historically cost the City over $1,250,000 annually and is approximately four times more expensive than pumping the City’s allocated groundwater allowance. Following the failure of multiple wells within a short period, the Water Fund reprioritized and accelerated projects and increased the workload for NW to return wells to operation swiftly, thus mitigating the need to import costly water. As VPU plans to complete the remaining work on the Water Fund CIP, NW will focus on automation, controls, data collection, analysis, and upgrades to the electric transmission and distribution system. A complete overhaul of the Power SCADA System is a significant undertaking and a critical project to take VPU into the green commerce and renewable energy future. The current Power SCADA system for remote control and real-time monitoring of the electric system was implemented in 1995. Upgrading the SCADA system will support VPU operations for the foreseeable future. As NW has already begun work to replace this legacy SCADA system, it is critical that VPU retain the services of NW to continue the work and avoid delays that could result in added costs or system interruptions. The transition to a more industry standard platform will provide added flexibility for the utility on the vendors that will be able to provide support and maintenance in the future. Throughout the many projects that NW has been involved with, NW continuously involves VPU field staff in every step of the process, conveying vast knowledge regarding the controls, operation, and maintenance of electrical and control systems, thus adding tremendous value to all VPU divisions. As a result, VPU now has some in-house capability to troubleshoot technical issues and operate systems and facilities more efficiently and economically. NW staff possesses a diverse technical skill set covering industrial design, utility operations, capital project implementation, and preventative maintenance. They perform the necessary and highly specialized tasks at a very competitive rate, assisting VPU in controlling costs. The principal staff at NW have over 75 years of combined, direct industrial experience serving in various positions in engineering, field services, startup and commissioning, operations, and overall Electric and Water plant management. NW has extensive experience in oil and gas, power generation, transmission and distribution, and machinery automation. Furthermore, NW has been instrumental in the development, design, and implementation of the Water SCADA system. Moreover, these specialized skills and diverse experience are critical in the utility industry and demand for this level of technical and engineering expertise is very competitive. Additionally, for almost ten (10) years, NW has been leading the overall design and implementation of key SCADA and electronic systems for VPU which has been critical for overall system reliability and the future infrastructure needed by VPU. It is important to note that these are unique skills, and these critical projects require continuity for VPU’s current and future success as well as meeting customer reliability. The proposed agreement is exempt from competitive bidding pursuant to Vernon Municipal Code (VMC) Section 3.32.110(A)(10) and can be exempt from competitive selection pursuant to Section 3.32.110(B)(2) if a direct award is found to be in the best interests of the City. VMC Section 3.32.110(B)(3) indicates that the City Council has the authority to make such a finding when the proposed contract exceeds $100,000. The City’s best interests are served by a direct award based on NW's demonstrated expertise in fields critical to VPU and their ability to provide services in a manner that will result in significant cost savings for the City, as outlined in this staff report. Contracting with NW provides a significant advantage in terms of efficiency and cost. Considering VPU’s budget, staff obtained competitive rates from other contractors and determined that the rates proposed by NW provide a significant value. Furthermore, NW has proposed to charge VPU a fixed hourly labor rate applicable to overtime labor as well. Equipment purchases executed by NW will be submitted for review and authorization by City staff, with no markup on equipment compared to other consultants who charge a markup on equipment purchases. NW proposes to be on-site and available to VPU and responds to trouble calls at all times throughout the day and night and can perform technical troubleshooting at any time (e.g., late night/early morning, weekends, holidays) without additional charges. Award of this contract is prudent for VPU to continue to maintain, streamline, and upgrade utility facilities, equipment, and processes to ensure reliability, maintain safety goals, lower operational costs, and enhance the overall efficiency of operations across all utility divisions. The proposed agreement has been reviewed and approved as to form by the City Attorney’s Office. Fiscal Impact The fiscal impact is not-to-exceed $2,855,898.15 during the proposed contract term of three years. Sufficient funds are available in the VPU Electric and Water Enterprise Funds for applicable Divisions and Accounts for the current fiscal year and sufficient funds will be budgeted in subsequent years. Attachments 1. Services Agreement with Northwest Electrical Services, LLC Page 1 of 17 SERVICES AGREEMENT BETWEEN THE CITY OF VERNON NORTHWEST ELECTRICAL SERVICES LLC FOR TECHNICAL DESIGN, CONTROLS, AUTOMATION AND ANALYTICAL SERVICES COVER PAGE Contractor: Northwest Electrical Services LLC Responsible Principal of Contractor: John S. Blizman, General Manager Notice Information - Contractor: Northwest Electrical Services LLC 17420 Goldenview Drive Anchorage, AK 99516 Attention: John Blizman, General Manager Telephone: (877) 336-3539 Notice Information - City: City of Vernon 4305 Santa Fe Avenue Vernon, CA 90058 Attention: Todd Dusenberry, General Manager of Public Utilities Telephone: (323) 583-8811 ext. 579 Commencement Date: November 17, 2023 Termination Date: November 16, 2026 Consideration: Total not to exceed $2,719,903 (includes all applicable sales tax); and more particularly described in Exhibit B Records Retention Period Three (3) years, pursuant to Section 11.20 Page 2 of 17 SERVICES AGREEMENT BETWEEN THE CITY OF VERNON AND NORTHWEST ELECTRICAL SERVICES LLC FOR TECHNICAL DESIGN, CONTROLS, AUTOMATION AND ANALYTICAL SERVICES This Agreement is made between the City of Vernon, a California charter City and California municipal corporation (“City”), and Northwest Electrical Services LLC, a limited liability company (“Contractor”). The City and Contractor agree as follows: 1.0 EMPLOYMENT OF CONTRACTOR. City agrees to engage Contractor to perform the services as hereinafter set forth as authorized by the City Council on October 17, 2023. 2.0 SCOPE OF SERVICES. 2.1 Contractor shall perform all work necessary to complete the services set forth in the Contractor's proposal to the City ("Proposal") dated August 16, 2023, Exhibit “A”, a copy which is attached to and incorporated into this Agreement by reference. 2.2 All services shall be performed to the satisfaction of City. 2.3 All services shall be performed in a competent, professional, and satisfactory manner in accordance with the prevailing industry standards for such services. 3.0 PERSONNEL. 3.1 Contractor represents that it employs, or will employ, at its own expense, all personnel required to perform the services under this Agreement. 3.2 Contractor shall not subcontract any services to be performed by it under this Agreement without prior written approval of City. 3.3 All of the services required hereunder will be performed by Contractor or by City approved subcontractors. Contractor, and all personnel engaged in the work, shall be fully qualified and authorized or permitted under State and local law to perform such services and shall be subject to approval by the City. 4.0 TERM. The term of this Agreement shall commence on November 17, 2023, and it shall continue until November 16, 2026, unless terminated at an earlier date pursuant to the provisions thereof. 5.0 COMPENSATION AND FEES. 5.1 Contractor has established rates for the City of Vernon which are comparable to and do not exceed the best rates offered to other governmental entities in and around Los Angeles County for the same services. For satisfactory and timely performance of Page 3 of 17 the services, the City will pay Contractor in accordance with the payment schedule set forth in Exhibit “B” attached hereto and incorporated herein by reference. 5.2 Contractor's grand total compensation for the entire term of this Agreement, shall not exceed $2,719,903 without the prior authorization of the City, as appropriate, and written amendment of this Agreement. 5.3 Contractor shall, at its sole cost and expense, furnish all necessary and incidental labor, material, supplies, facilities, equipment, and transportation which may be required for furnishing services pursuant to this Agreement. Materials shall be of the highest quality. The above Agreement fee shall include all staff time and all clerical, administrative, overhead, insurance, reproduction, telephone, air travel, auto rental, subsistence, and all related costs and expenses. 5.4 City shall reimburse Contractor only for those costs or expenses specifically approved in this Agreement, or specifically approved in writing in advance by City. Unless otherwise approved, such costs shall be limited and include nothing more than the following costs incurred by Contractor: 5.4.1 The actual costs of subcontractors for performance of any of the services that Contractor agrees to render pursuant to this Agreement, which have been approved in advance by City and awarded in accordance with this Agreement. 5.4.2 Approved reproduction charges. 5.4.3 Actual costs and/or other costs and/or payments specifically authorized in advance in writing and incurred by Contractor in the performance of this Agreement. 5.5 Contractor shall not receive any compensation for extra work performed without the prior written authorization of City. As used herein, “extra work” means any work that is determined by City to be necessary for the proper completion of the Project, but which is not included within the Scope of Services and which the parties did not reasonably anticipate would be necessary at the time of execution of this Agreement. Compensation for any authorized extra work shall be paid in accordance with the payment schedule as set forth in Exhibit “B,” if the extra work has been approved by the City. 5.6 Licenses, Permits, Fees, and Assessments. Contractor shall obtain, at Contractor’s sole cost and expense, such licenses, permits, and approvals as may be required by law for the performance of the services required by this Agreement. Contractor shall have the sole obligation to pay for any fees, assessments, and taxes, plus applicable penalties and Page 4 of 17 interest, which may be imposed by law and which arise from or are necessary for the performance of the Services by this Agreement. 6.0 PAYMENT. 6.1 As scheduled services are completed, Contractor shall submit to the City an invoice for the services completed, authorized expenses, and authorized extra work actually performed or incurred according to said schedule. 6.2 Each such invoice shall state the basis for the amount invoiced, including a detailed description of the services completed, the number of hours spent, reimbursable expenses incurred and any extra work performed. 6.3 Contractor shall also submit a progress report with each invoice that describes in reasonable detail the services and the extra work, if any, performed in the immediately preceding calendar month. 6.4 Contractor understands and agrees that invoices which lack sufficient detail to measure performance will be returned and not processed for payment. 6.5 City will pay Contractor the amount invoiced within thirty (30) days after the City approves the invoice. 6.6 Payment of such invoices shall be payment in full for all services, authorized costs, and authorized extra work covered by that invoice. 7.0 CITY'S RESPONSIBILITY. City shall cooperate with Contractor as may be reasonably necessary for Contractor to perform its services; and will give any required decisions as promptly as practicable so as to avoid unreasonable delay in the progress of Contractor's services. 8.0 COORDINATION OF SERVICES. Contractor agrees to work closely with City staff in the performance of Services and shall be available to City’s staff, consultants, and other staff at all reasonable times. 9.0 INDEMNITY. Contractor agrees to indemnify City, its officers, elected officials, employees and agents against, and will hold and save each of them harmless from, any and all actions, suits, claims, damages to persons or property, losses, costs, penalties, obligations, errors, omissions or liabilities (herein “claims or liabilities”), including but not limited to professional negligence, that may be asserted or claimed by any person, firm or entity arising out of or in connection with the work, operations or activities of Contractor, its agents, employees, subcontractors, or invitees, provided for herein, or arising from the acts or omissions of Contractor hereunder, or arising from Contractor’s performance of or failure to perform any term, provision, covenant or condition of this Agreement, except to the extent such Page 5 of 17 claims or liabilities arise from the gross negligence or willful misconduct of City, its officers, elected officials, agents or employees. 10.0 INSURANCE. Contractor shall, at its own expense, procure and maintain policies of insurance of the types and in the amounts set forth below for the duration of the Agreement, including any extensions thereto. The policies shall state that they afford primary coverage. i. Automobile Liability with minimum limits of at least $1,000,000 combined single limit, including owned, hired, and non-owned liability coverage. ii. Contractor agrees to subrogate automobile liability resulting from performance under this Agreement by agreeing to defend, indemnify, and hold harmless the City and its respective employees, agents, and City Council from and against all claims, liabilities, suits, losses, damages, injuries and expenses, including all costs and reasonable attorney’s fees (“Claims”), which are attributable to any act or omission by the City under the performance of the services. iii. General Liability with minimum limits of at least $1,000,000 per occurrence and $2,000,000 aggregate written on an Insurance Services Office (ISO) Comprehensive General Liability “occurrence” form or its equivalent for coverage on an occurrence basis. Premises/Operations and Personal Injury coverage is required. The City of Vernon, its directors, commissioners, officers, employees, agents, and volunteers must be endorsed on the policy as additional insureds with respect to liability arising out of Contractor’s performance of this Agreement. (1) If the Contractor employs other contractors as part of the services rendered, Contractor’s Protective Coverage is required. Contractor may include all subcontractors as insured under its own policy or shall furnish separate insurance for each subcontractor, meeting the requirements set forth herein. (2) Contractor agrees to subrogate General Liability resulting from performance under this Agreement by agreeing to defend, indemnify, and hold harmless the City and its respective employees, agents, and City Council from and against all claims, liabilities, suits, losses, damages, injuries and expenses, including all costs and reasonable attorney’s fees (“Claims”), which are attributable to any act or omission by the City under the performance of the services. iv. Professional Errors and Omissions coverage in an amount not less than Page 6 of 17 $1,000,000 per claim and the annual aggregate, covering all acts, errors, omissions, negligence, infringement, of intellectual property (except patent and trade secret) and network and privacy risks (including coverage for unauthorized access, failure of security, breach of privacy perils, wrongful disclosure of information, as well as notification costs and regulatory defense) in the performance of services for the City or on behalf of the City hereunder. Such insurance shall be maintained in force at all times during the term of the Agreement and for a period of 5 years thereafter for services completed during the duration of the Agreement. The City shall be given at least 30 days’ notice of the cancellation or expiration of the aforementioned insurance for any reason. v. Excess Coverage – Any umbrella or excess insurance shall contain or be endorsed to contain a provision that such coverage shall also apply on a primary and non- contributory basis for the benefit of the City before the City’s own insurance or self-insurance shall be called upon to project it as a named insured. Any umbrella or excess liability policy will be in the “following form.” It will contain a provision to the effect that if the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance. vi. Contractor shall comply with the applicable sections of the California Labor Code concerning workers’ compensation for injuries on the job. In addition, Contractor shall require each subcontractor to similarly maintain workers’ compensation insurance in accordance with the laws of California for all of the subcontractor’s employees. Compliance is accomplished in one of the following manners: (1) Provide a copy of permissive self-insurance certificate approved by the State of California; or (2) Secure and maintain in force a policy of workers’ compensation insurance with statutory limits and Employer’s Liability Insurance with a minimal limit of $1,000,000 per accident. The policy shall be endorsed to waive all rights of subrogation against the City, its directors, commissioners, officers, employees, and volunteers for losses arising from the performance of this Agreement or (3) Provide a “waiver” form certifying that no employees subject to the Labor Code’s Workers’ Compensation provision will be used in the performance of this Agreement. vii. Each insurance policy included in this clause shall be endorsed to state that coverage shall not be canceled except after thirty (30) days prior written notice to the City. viii. Insurance shall be placed with insurers with a Best’s rating of no less than A-VIII. Page 7 of 17 ix. Prior to the commencement of performance, Contractor shall furnish the City with a certificate of insurance for each policy. Each certificate must be signed by a person authorized by that insurer to bind coverage on its behalf. The certificate(s) must be in a form approved by the City. City may require complete, certified copies of any or all policies at any time. x. Failure to maintain required insurance at all times shall constitute a default and material breach. In such event, Contractor shall immediately notify the City and cease all performance under this Agreement until further directed by the City. In the absence of satisfactory insurance coverage, City may, at its option: (a) procure insurance with collection rights for premiums, attorney’s fees and costs against Contractor by way of set-off or recoupment from sums due to Contractor, at City’s option; (b) immediately terminate this Agreement and seek damages from the Agreement resulting from said breach; or (c) self-insure the risk, with all damages and costs incurred, by judgment, settlement or otherwise, including attorney’s fees and costs, being collectible from Contractor, by way of set-off or recoupment from any sums due to Contractor. 11.0 GENERAL TERMS AND CONDITIONS. 11.1 INDEPENDENT CONTRACTOR. 11.1.1 It is understood that in the performance of the services herein provided for, Contractor shall be, and is, an independent contractor, and is not an agent, officer or employee of City and shall furnish such services in its own manner and method except as required by this Agreement, or any applicable statute, rule, or regulation. Further, Contractor has and shall retain the right to exercise full control over the employment, direction, compensation and discharge of all persons employed by Contractor in the performance of the services hereunder. City assumes no liability for Contractor’s actions and performance, nor assumes responsibility for taxes, bonds, payments, or other commitments, implied or explicit, by or for Contractor. Contractor shall be solely responsible for, and shall indemnify, defend and save City harmless from all matters relating to the payment of its employees, subcontractors and independent contractors, including compliance with social security, withholding and all other wages, salaries, benefits, taxes, exactions, and regulations of any nature whatsoever. 11.1.2 Contractor acknowledges that Contractor and any subcontractors, agents or employees employed by Contractor shall not, under any circumstances, be considered employees of the City, and that they shall not be entitled to any of the benefits or rights afforded employees of City, including, but not limited to, sick leave, vacation leave, Page 8 of 17 holiday pay, Public Employees Retirement System benefits, or health, life, dental, long-term disability or workers' compensation insurance benefits. 11.2 CONTRACTOR NOT AGENT. Except as the City may authorize in writing, Contractor and its subcontractors shall have no authority, express or implied, to act on behalf of or bind the City in any capacity whatsoever as agents or otherwise. 11.3 OWNERSHIP OF WORK. All documents and materials furnished by the City to Contractor shall remain the property of the City and shall be returned to the City upon termination of this Agreement. All reports, drawings, plans, specifications, computer tapes, floppy disks and printouts, studies, memoranda, computation sheets, and other documents prepared by Contractor in furtherance of the work shall be the sole property of City and shall be delivered to City whenever requested at no additional cost to the City. Contractor shall keep such documents and materials on file and available for audit by the City for at least three (3) years after completion or earlier termination of this Agreement. Contractor may make duplicate copies of such materials and documents for its own files or for such other purposes as may be authorized in writing by the City. 11.4 CORRECTION OF WORK. Contractor shall promptly correct any defective, inaccurate or incomplete tasks, deliverables, goods, services and other work, without additional cost to the City. The performance or acceptance of services furnished by Contractor shall not relieve the Contractor from the obligation to correct subsequently discovered defects, inaccuracy, or incompleteness. 11.5 RESPONSIBILITY FOR ERRORS. Contractor shall be responsible for its work and results under this Agreement. Contractor, when requested, shall furnish clarification and/or explanation as may be required by the City, regarding any services rendered under this Agreement at no additional cost to City. In the event that an error or omission attributable to Contractor occurs, then Contractor shall, at no cost to City, provide all necessary design drawings, estimates and other Contractor professional services necessary to rectify and correct the matter to the sole satisfaction of City and to participate in any meeting required with regard to the correction. 11.6 WAIVER. The City's waiver of any term, condition, breach, or default of this Agreement shall not be considered to be a waiver of any other term, condition, default or breach, nor of a subsequent breach of the one waived. The delay or failure of either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way be deemed a waiver of those rights to require such performance or compliance. No waiver of any provision of this Agreement shall be effective unless in writing and executed Page 9 of 17 by a duly authorized representative of the party against whom enforcement of a waiver is sought. 11.7 SUCCESSORS. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective heirs, successors, and/or assigns. 11.8 NO ASSIGNMENT. Contractor shall not assign or transfer this Agreement or any rights hereunder without the prior written consent of the City and approval by the City Attorney, which may be withheld in the City's sole discretion. Any unauthorized assignment or transfer shall be null and void and shall constitute a material breach by the Contractor of its obligations under this Agreement. No assignment shall release the original parties from their obligations or otherwise constitute a novation. 11.9 COMPLIANCE WITH LAWS. Contractor shall comply with all Federal, State, County and City laws, ordinances, rules and regulations, which are, as amended from time to time, incorporated herein and applicable to the performance hereof. Violation of any law material to performance of this Agreement shall entitle the City to terminate the Agreement and otherwise pursue its remedies. Further, if the Contractor performs any work knowing it to be contrary to such laws, rules, and regulations Contractor shall be solely responsible for all costs arising therefrom. 11.10 ATTORNEY'S FEES. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled. 11.11 INTERPRETATION. 11.11.1 Applicable Law. This Agreement shall be deemed an agreement and shall be governed by and construed in accordance with the laws of the State of California. Contractor agrees that the State and Federal courts which sit in the State of California shall have exclusive jurisdiction over all controversies and disputes arising hereunder, and submits to the jurisdiction thereof. 11.11.2 Entire Agreement. This Agreement, including any exhibits attached hereto, constitutes the entire agreement and understanding between the parties regarding its subject matter and supersedes all prior or contemporaneous negotiations, representations, understandings, correspondence, documentation, and agreements (written or oral). 11.11.3 Written Amendment. This Agreement may only be changed by written amendment executed by Contractor and the City Administrator or other authorized Page 10 of 17 representative of the City, subject to any requisite authorization by the City Council. Any oral representations or modifications concerning this Agreement shall be of no force or effect. 11.11.4 Severability. If any provision in this Agreement is held by any court of competent jurisdiction to be invalid, illegal, void, or unenforceable, such portion shall be deemed severed from this Agreement, and the remaining provisions shall nevertheless continue in full force and effect as fully as though such invalid, illegal, or unenforceable portion had never been part of this Agreement. 11.11.5 Order of Precedence. In case of conflict between the terms of this Agreement and the terms contained in any document attached as an Exhibit or otherwise incorporated by reference, the terms of this Agreement shall strictly prevail. 11.11.6 Construction. In the event an ambiguity or question of intent or interpretation arises with respect to this Agreement, this Agreement shall be construed as if drafted jointly by the parties and in accordance with its fair meaning. There shall be no presumption or burden of proof favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 11.12 TIME OF ESSENCE. Time is strictly of the essence of this agreement and each and every covenant, term, and provision hereof. 11.13 AUTHORITY OF CONTRACTOR. The Contractor hereby represents and warrants to the City that the Contractor has the right, power, legal capacity, and authority to enter into and perform its obligations under this Agreement, and its execution of this Agreement has been duly authorized. 11.14 ARBITRATION OF DISPUTES. Any dispute for under $25,000 arising out of or relating to the negotiation, construction, performance, non-performance, breach, or any other aspect of this Agreement, shall be settled by binding arbitration in accordance with the Commercial Rules of the American Arbitration Association at Los Angeles, California and judgment upon the award rendered by the Arbitrators may be entered in any court having jurisdiction thereof. The City does not waive its right to object to the timeliness or sufficiency of any claim filed or required to be filed against the City and reserves the right to conduct full discovery. 11.15 NOTICES. Any notice or demand to be given by one party to the other must be given in writing and by personal delivery or prepaid first-class, registered or certified mail, addressed as follows. Notice simply to the City of Vernon or any other City department is not adequate notice. Page 11 of 17 If to the City: City of Vernon Attention: Todd Dusenberry, General Manager of Public Utilities 4305 Santa Fe Avenue Vernon, CA 90058 If to the Contractor: Northwest Electrical Services LLC 17420 Goldenview Drive Anchorage, AK 99516 Attention: John Blizman, General Manager Phone: (877) 336-3539 Any such notice shall be deemed to have been given upon delivery, if personally delivered, or, if mailed, upon receipt, or upon expiration of three (3) business days from the date of posting, whichever is earlier. Either party may change the address at which it desires to receive notice upon giving written notice of such request to the other party. 11.16 NO THIRD PARTY RIGHTS. This Agreement is entered into for the sole benefit of City and Contractor and no other parties are intended to be direct or incidental beneficiaries of this Agreement and no third party shall have any right or remedy in, under, or to this Agreement. 11.17 TERMINATION FOR CONVENIENCE (Without Cause). City may terminate this Agreement in whole or in part at any time, for any cause or without cause, upon fifteen (15) calendar days' written notice to Contractor. If the Agreement is thus terminated by City for reasons other than Contractor's failure to perform its obligations, City shall pay Contractor a prorated amount based on the services satisfactorily completed and accepted prior to the effective date of termination. Such payment shall be Contractor's exclusive remedy for termination without cause. 11.18 DEFAULT. In the event either party materially defaults in its obligations hereunder, the other party may declare a default and terminate this Agreement by written notice to the defaulting party. The notice shall specify the basis for the default. The Agreement shall terminate unless such default is cured before the effective date of termination stated in such notice, which date shall be no sooner than ten (10) days after the date of the notice. In case of default by Contractor, the City reserves the right to procure the goods or services from other sources and to hold the Contractor responsible for any excess costs occasioned to the City thereby. Contractor shall not be held accountable for additional costs incurred due to delay or default as a result of Force Majeure. Contractor must notify the City immediately upon knowing that non-performance or delay will apply to this Agreement as a result of Force Majeure. At that Page 12 of 17 time Contractor is to submit in writing a Recovery Plan for this Agreement. If the Recovery Plan is not acceptable to the City or not received within 10 days of the necessary notification of Force Majeure default, then the City may cancel this order in its entirety at no cost to the City, owing only for goods and services completed to that point. 11.19 TERMINATION FOR CAUSE. Termination for cause shall relieve the terminating party of further liability or responsibility under this Agreement, including the payment of money, except for payment for services satisfactorily and timely performed prior to the service of the notice of termination, and except for reimbursement of (1) any payments made by the City for service not subsequently performed in a timely and satisfactory manner, and (2) costs incurred by the City in obtaining substitute performance. If this Agreement is terminated as provided herein, City may require, at no additional cost to City, that Contractor provide all finished or unfinished documents, data, and other information of any kind prepared by Contractor in connection with the performance of Services under this Agreement. Contractor shall be required to provide such document and other information within fifteen (15) days of the request. 11.19.1 Additional Services. In the event this Agreement is terminated in whole or in part as provided herein, City may procure, upon such terms and in such manner as it may determine appropriate, services similar to those terminated. 11.20 MAINTENANCE AND INSPECTION OF RECORDS. The City, or its authorized auditors or representatives, shall have access to and the right to audit and reproduce any of the Contractor's records to the extent the City deems necessary to insure it is receiving all money to which it is entitled under the Agreement and/or is paying only the amounts to which Contractor is properly entitled under the Agreement or for other purposes relating to the Agreement. The Contractor shall maintain and preserve all such records for a period of at least three (3) years after termination of the Agreement. The Contractor shall maintain all such records in the City of Vernon. If not, the Contractor shall, upon request, promptly deliver the records to the City of Vernon or reimburse the City for all reasonable and extra costs incurred in conducting the audit at a location other than the City of Vernon, including, but not limited to, such additional (out of the City) expenses for personnel, salaries, private auditors, travel, lodging, meals, and overhead. 11.21 CONFLICT. Contractor hereby represents, warrants, and certifies that no member, officer, or employee of the Contractor is a director, officer, or employee of the City of Page 13 of 17 Vernon, or a member of any of its boards, commissions, or committees, except to the extent permitted by law. 11.22 HEADINGS. Paragraphs and subparagraph headings contained in this Agreement are included solely for convenience and are not intended to modify, explain or to be a full or accurate description of the content thereof and shall not in any way affect the meaning or interpretation of this Agreement. 11.23 ENFORCEMENT OF WAGE AND HOUR LAWS. Eight hours labor constitutes a legal day's work. The Contractor, or subcontractor, if any, shall forfeit twenty-five dollars ($25) for each worker employed in the execution of this Agreement by the respective Contractor or subcontractor for each calendar day during which the worker is required or permitted to work more than 8 hours in any one calendar day and 40 hours in any one calendar week in violation of the provisions of Sections 1810 through 1815 of the California Labor Code as a penalty paid to the City; provided, however, work performed by employees of contractors in excess of 8 hours per day, and 40 hours during any one week, shall be permitted upon compensation for all hours worked in excess of 8 hours per day at not less than 1½ times the basic rate of pay. 11.24 EQUAL EMPLOYMENT OPPORTUNITY PRACTICES. Contractor certifies and represents that, during the performance of this Agreement, it and any other parties with whom it may subcontract shall adhere to equal employment opportunity practices to assure that applicants, employees and recipients of service are treated equally and are not discriminated against because of their race, religion, color, national origin, ancestry, disability, sex, age, medical condition, sexual orientation or marital status. Contractor further certifies that it will not maintain any segregated facilities. Contractor further agrees to comply with The Equal Employment Opportunity Practices provisions as set forth in Exhibit “C”. [Signatures Begin on Next Page]. Page 14 of 17 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Commencement Date stated on the cover page. City of Vernon, a California charter City and California municipal corporation By: ____________________________ Carlos Fandino, City Administrator Northwest Electrical Services LLC, a limited liability company By: Name: Title: ATTEST: _______________________________ Lisa Pope, City Clerk By: Name: Title: APPROVED AS TO FORM: _______________________________ Zaynah N. Moussa, City Attorney Page 15 of 17 EXHIBIT A CONTRACTOR'S PROPOSAL Professional Services Agreement with The City of Vernon to Perform Technical Design, Controls, Automation and Analytical Services 2023 - 2026 August 16, 2023 Forward Northwest Electrical Services has been engaged in a three-year contract since November 2020, and it has been a very challenging period. Despite the COVID challenges, the Vernon Public Utilities (VPU) Water Division Capital Improvement Projects (CIP) have been largely completed. There remains some work on the water system that has been largely delayed due to COVID-19 supply chain issues. Major accomplishments were achieved during the last three years: 1. Water SCADA has been fully deployed. 2. The new water network and fiber ring for water communication redundancy has been completed. 3. Physically separated servers and fully redundant network hardware have been installed and operating, with equipment located at both Station A and City Hall. 4. Cybersecurity measures and architecture fully comply with the Federal ICCS best practices. 5. Fully automatic water autonomous control system is in operation, along with automated water production reporting. 6. All Storm Water sump controls have been updated. 7. HG1 and HG2 engines were replaced. The new engines outperform the originals and have met the emissions testing. 8. Work has begun on the new power SCADA system and blackstart functions of the HG1/2 units to support MGS. Also, we are proud and grateful to continue supporting the City during emergencies. Again, we are proud of the relationship with the Water Division team and operations staff. With the ongoing development of the new Water SCADA System, we have been able to forge a strong working relationship with operations staff who regularly provide critical advice and guidance. Relationships such as the one with operations have translated into successful completion of projects and will lead to further enhancements in operational efficiency. As always, we answer the phone 24/7. NORTHWEST ELECTRICAL SERVICES LLC Design-Build-Commissioning-O&M of Electrical, Mechanical, Automation and I&C Systems for Industry 17420 Goldenview Dr. Anchorage AK 99516 http://nwelec.com Phone: 877-336-3539 Fax: 484-551-3370 email: jblizman@nwelec.com Projected Scope of Work As we survey the work over the next three years, some of the work is still in the Water System CIP. Largely due to supply chain delays, some jobs cannot be completed until late 2023/2024. Well 22, PP1, and Well 19 are the remaining work, with extremely long lead times for basic electrical equipment. In addition, Power SCADA development and deployment will be a focus over the next three years. In addition to project work, maintenance of water system controls, networks, instrumentation, and continued development and enhancements will factor into the workload. Training and development for both operations and technicians is planned. Remote read-only access, particularly for field staff, is to be studied. Work to explore the possibility of water export from the City along with water treatment is expected. There is a major effort to enhance the Gonzales units to support black start in a manner which does not rely on the older diesel generator and, as such, be capable of supporting at least the turning gear of the MGS CTs to avoid a 40-hour lockout in the event of a major transmission interruption. Also, the Gonzales units will require CEMS in 2026, so this effort and engineering are also planned, along with an upgrade of the HMI graphics, as the version is getting outdated. An allotment of time is allocated for Emergencies, MGS support, Gonzales Support, and special projects such as engineering studies, etc. Given the nature of our wide areas of expertise, we often can offer support for a wide variety of topics. Detailed Work Scope The following table represents the known scope and labor hour estimates for projects being undertaken by the City. The total labor hours largely represent the engineering/commissioning expected. Based on the scope, the following three years will be heavily labor intensive, with maintenance of low voltage electrical, instrumentation, automation, networking, and IT functions for operations increasing in scope. This represents an average 65-72 hour work week for the three weeks we propose to be on site. Materials line item is added where Northwest can take advantage of certain discount options and pass those along at cost to the City. Tasks Breakdown Cost Hours 1 Power SCADA 13.00%$333,957 2344 2 Power SCADA Hardware / Network 13.50%$346,801 2434 3 Gonzales / MGS Blackstart 1.00%$25,689 180 4 MGS Support 2.00%$51,378 361 5 Well 22 4.00%$102,756 721 6 Water SCADA Maintenance, revisions, network, reports, modeling 9.00%$231,201 1622 7 Power SCADA Maintenance, revisions, network, reports 9.00%$231,201 1622 8 Water and Power SCADA Remote Access (read only)0.50%$12,844 90 9 Water System Elecrtical LV maintenance 4.00%$102,756 721 10 Water System I&C Maintenance 2.60%$66,791 469 11 Operator Training and Development 2.10%$53,947 379 12 Automation Training and Development 3.00%$77,067 541 13 Station A Diesel Simulation 5.00%$128,445 901 14 Gonzales CEMS 2.50%$64,222 451 15 Emergency Response 2.50%$64,222 451 16 Gonzales Maintenance 0.50%$12,844 90 17 Control Room Display Wall 1.50%$38,533 270 18 PP1 New Building, VFD's electrical, automation 7.00%$179,823 1262 19 Well 19 electrical and VFD Conversion 7.50%$192,667 1352 20 Water Export and Treatment 1.00%$25,689 180 21 Sump Electrical and Control Maint for Public Works 0.50%$12,844 90 22 Technical Consulting 1.00%$25,689 180 23 External Consultants as required 1.50%$38,533 270 24 Materials $300,000 NA 94.20%$2,719,903 16982 Previous Contract Services Terms: Northwest has not applied or considered a cost-of-living rate adjustment over the past three years despite substantial inflationary pressures. Our contract has a fixed rate for three years, and like everyone else, we work through the challenges, as the City also works through the same challenges. Northwest charged a flat rate, regardless of the skill set involved. Unlike other firms, skillsets and positions such as Project Management, Senior Engineer, Design Engineer, Commissioning Engineer, Test Engineer, Technician, Network Design and Security, drafting, etc. have various billable rates. The IEEE published typical rates for various industries in 2022. A few key rates to consider: 1. Utilities – Median rate $180 / hour nationwide, with a mean rate of $206 / hour. 2. For the Pacific census region, the median rate is $200 / hour. 3. For experience of 35 or more years, the median rate is $193 / hour nationwide. By comparison, Northwest has combined over 75 years in the utility and process control industries. Moreover, Northwest does not simply consult, we design and build, which are added costs to consultancy design fees. The IEEE Survey report for 2022 reports an increase in rates nationally of $10 / hour between 2021 and 2022. Additionally, BLS reports a 9.7% increase in CPI nationally from November 2021 to the present. (https://data.bls.gov/pdq/SurveyOutputServlet) Proposed Contract Services Terms: Principal Rates While the survey indicates an increase in rates of $10 / hour just in the past year, and CPI has increased 9.7% since the start of the last contract, 9.7% would increase our rate to $156.32 / hour. We are pleased to inform that the proposed rate will remain unchanged at a $142.50 / hour flat rate, which includes all expenses for both principals (Mark Wray and John Blizman). There will be no additional charges for travel and, as in the past, never a charge for overtime or phone calls, which we typically answer 24/7. Additional Staff If additional staff beyond two persons resident at any time is required, this would be at the cost of $130 / hour + expenses billed at cost. This would be based on project requirements and must be authorized by the City before deployment. This represents a 10% change to the previous contract, consistent with the IEEE survey. Since we cannot control external rates, we need to recognize the increase. Cost of Living Adjustments Northwest will maintain the practice of not applying cost of living adjustments (inflation, etc.), with the sole exception of a major change in CA state tax rates. Should the future political landscape increase tax liability beyond the current levels, Northwest will review the impact and consult with the City only if the impact represents a significant cost restructuring. Insurance • NW already maintains the insurance levels as currently required by the City. Current Insurance certificates renewed in March 2023 are on file with the City. • NW actively retains CA DIR Registration. Contract Term • The contract term is three years. Material Purchases • Northwest will purchase material as required and only as authorized by the City on a case-by-case basis with zero markup. Invoicing • Invoices for Labor will be submitted once per month. • All labor invoices shall be supported with timesheets. • Invoices for material and/or expense costs, if applicable, will be submitted upon authorization by the City to purchase. • Material or expense invoices shall be supported with vendor quotations/bills, expense receipts, and prior City authorization(s) for purchase. Estimated Costs Based on the scope of work and the proposed terms, Northwest estimates the cost of the labor hours only portion of the contract to be $2,419,903. This represents a decrease from the previous three-year contract. Materials are a separate line item and are estimated at $300,000. The proposed not-to-exceed amount is $ Features of the Proposed Services and Terms • Residency on site allows for synergy between project completion and training and development. • Including the residency on-site, the rate structure proposed is much less than market consultant rates. • There is consistency in the contract rate year to year. • NW's experience covers a wide spectrum of industrial design, operations, and maintenance. • Our principals have held positions in engineering, field services, start-up and commissioning, operations, plant front line, and executive management. We have worked in Oil and Gas, Power Generation, Transmission and Distribution, and machinery automation. We have worked in over 36 countries. Combined, our principals have 76 years of direct industrial experience. • We have demonstrated the ability and resources to pursue a concept to the completion of many multi- disciplined projects. Many of these projects involved engineering, procurement, and construction of civil, mechanical, and electrical disciplines. Our experience in operations and maintenance ensures less downstream problems with equipment and troubleshooting. • Unlike traditional design firms, we have substantial experience in utility plant staff management, budgeting, cost-benefit analysis, cost tracking, and resource and personnel management, provides our clients with a partner in strategic planning and project execution. We have experience in large project estimating IRP development, including emerging technologies contract management. • We provide full life cycle costs of a design, factoring in O&M fixed and variable expenses, and competently analyze the remaining life cycle of existing assets, including life cycle extension options. • Our work philosophy is goal-oriented. We work closely with clients and are often embedded into the client’s organization as a partner as opposed to a consultant. • We embrace, encourage, and deliver client resource training. Many of our trained client professionals have successfully transitioned from a previous trade role to a design, supervisory, and, in a few cases, executive positions. We provide on-the-job training and structured classroom training. • We can perform many generator and relay testing operations and do so regularly for Siemens. • We have design and installation experience in Fire and gas systems. • Our automation experience is substantial and not limited to any specific vendors. Our considerable experience is in SCADA, PLCs, and embedded controllers. We have substantial experience in substation automation with both SEL, Siemens, and Alstom. We are current and forward-looking with technology. We are registered system integrators with Aveva, Schneider Electric, and Rockwell Software. • Data integration between disparate, modern, and legacy systems both on the plant floor and corporate systems. • Cyber Security design experience for all network systems. • Aside from automation systems, we have core programming experience in many languages, Java and Javascript, C++, Python, .NET. • We have substantial database programming experience. We have developed many database applications leveraging raw field data into performance indicators on demand. • Unlike many firms, we do not simply write specifications and plans. We have the ability to not only provide engineering and research, but we also have the ability to build, subcontract, manage, and commission. This ability, while working closely with the client, provides a much better handover situation to operations and maintenance. • Unlike many firms, we do not apply rates based on skillsets utilized. Our rates are fixed for a client. This gives our clients the ability to utilize our skillsets without concern over the cost of any particular resource or type of work we may be asked to complete. Our rates are very competitive, with a superior skillset matrix and the flexibility to ensure work is completed. We do not charge overtime rates, and often, there is no charge for off-duty assistance. We are always committed to working as efficiently as possible and as a dedicated and loyal partner with the City. We thank you for your continued trust in our services. Sincerely, John S. Blizman General Manager Northwest Electrical Services LLC 17420 Goldenview Dr. Anchorage, AK 99516 ph: +1.877.336.3539 fax: +1.484.551.3370 email: jblizman@nwelec.com mobile: +1.610.937.3987 Page 16 of 17 EXHIBIT B SCHEDULE Tasks Breakdown Cost Hours 1 Power SCADA 13.00%$333,957 2344 2 Power SCADA Hardware / Network 13.50%$346,801 2434 3 Gonzales / MGS Blackstart 1.00%$25,689 180 4 MGS Support 2.00%$51,378 361 5 Well 22 4.00%$102,756 721 6 Water SCADA Maintenance, revisions, network, reports, modeling 9.00%$231,201 1622 7 Power SCADA Maintenance, revisions, network, reports 9.00%$231,201 1622 8 Water and Power SCADA Remote Access (read only)0.50%$12,844 90 9 Water System Elecrtical LV maintenance 4.00%$102,756 721 10 Water System I&C Maintenance 2.60%$66,791 469 11 Operator Training and Development 2.10%$53,947 379 12 Automation Training and Development 3.00%$77,067 541 13 Station A Diesel Simulation 5.00%$128,445 901 14 Gonzales CEMS 2.50%$64,222 451 15 Emergency Response 2.50%$64,222 451 16 Gonzales Maintenance 0.50%$12,844 90 17 Control Room Display Wall 1.50%$38,533 270 18 PP1 New Building, VFD's electrical, automation 7.00%$179,823 1262 19 Well 19 electrical and VFD Conversion 7.50%$192,667 1352 20 Water Export and Treatment 1.00%$25,689 180 21 Sump Electrical and Control Maint for Public Works 0.50%$12,844 90 22 Technical Consulting 1.00%$25,689 180 23 External Consultants as required 1.50%$38,533 270 24 Materials $300,000 NA 94.20%$2,719,903 16982 Previous Contract Services Terms: Northwest has not applied or considered a cost-of-living rate adjustment over the past three years despite substantial inflationary pressures. Our contract has a fixed rate for three years, and like everyone else, we work through the challenges, as the City also works through the same challenges. Northwest charged a flat rate, regardless of the skill set involved. Unlike other firms, skillsets and positions such as Project Management, Senior Engineer, Design Engineer, Commissioning Engineer, Test Engineer, Technician, Network Design and Security, drafting, etc. have various billable rates. The IEEE published typical rates for various industries in 2022. A few key rates to consider: 1. Utilities – Median rate $180 / hour nationwide, with a mean rate of $206 / hour. 2. For the Pacific census region, the median rate is $200 / hour. 3. For experience of 35 or more years, the median rate is $193 / hour nationwide. By comparison, Northwest has combined over 75 years in the utility and process control industries. Moreover, Northwest does not simply consult, we design and build, which are added costs to consultancy design fees. The IEEE Survey report for 2022 reports an increase in rates nationally of $10 / hour between 2021 and 2022. Additionally, BLS reports a 9.7% increase in CPI nationally from November 2021 to the present. (https://data.bls.gov/pdq/SurveyOutputServlet) Proposed Contract Services Terms: Principal Rates While the survey indicates an increase in rates of $10 / hour just in the past year, and CPI has increased 9.7% since the start of the last contract, 9.7% would increase our rate to $156.32 / hour. We are pleased to inform that the proposed rate will remain unchanged at a $142.50 / hour flat rate, which includes all expenses for both principals (Mark Wray and John Blizman). There will be no additional charges for travel and, as in the past, never a charge for overtime or phone calls, which we typically answer 24/7. Additional Staff If additional staff beyond two persons resident at any time is required, this would be at the cost of $130 / hour + expenses billed at cost. This would be based on project requirements and must be authorized by the City before deployment. This represents a 10% change to the previous contract, consistent with the IEEE survey. Since we cannot control external rates, we need to recognize the increase. Cost of Living Adjustments Northwest will maintain the practice of not applying cost of living adjustments (inflation, etc.), with the sole exception of a major change in CA state tax rates. Should the future political landscape increase tax liability beyond the current levels, Northwest will review the impact and consult with the City only if the impact represents a significant cost restructuring. Insurance • NW already maintains the insurance levels as currently required by the City. Current Insurance certificates renewed in March 2023 are on file with the City. • NW actively retains CA DIR Registration. Contract Term • The contract term is three years. Material Purchases • Northwest will purchase material as required and only as authorized by the City on a case-by-case basis with zero markup. Page 17 of 17 EXHIBIT C EQUAL EMPLOYMENT OPPORTUNITY PRACTICES PROVISIONS A. Contractor certifies and represents that, during the performance of this Agreement, the contractor and each subcontractor shall adhere to equal opportunity employment practices to assure that applicants and employees are treated equally and are not discriminated against because of their race, religious creed, color, national origin, ancestry, handicap, sex, or age. Contractor further certifies that it will not maintain any segregated facilities. B. Contractor agrees that it shall, in all solicitations or advertisements for applicants for employment placed by or on behalf of Contractor, state that it is an "Equal Opportunity Employer" or that all qualified applicants will receive consideration for employment without regard to their race, religious creed, color, national origin, ancestry, handicap, sex or age. C. Contractor agrees that it shall, if requested to do so by the City, certify that it has not, in the performance of this Agreement, discriminated against applicants or employees because of their membership in a protected class. D. Contractor agrees to provide the City with access to, and, if requested to do so by City, through its awarding authority, provide copies of all of its records pertaining or relating to its employment practices, except to the extent such records or portions of such records are confidential or privileged under state or federal law. E. Nothing contained in this Agreement shall be construed in any manner as to require or permit any act which is prohibited by law. City Council Agenda Report Meeting Date:October 17, 2023 From:Scott Williams, Director of Finance Department:Finance Submitted by:Jessica Alcaraz, Financial Services Administrator Subject Audited Financial Reports Recommendation A. Receive and file the Fiscal Year 2021-22 Annual Financial Statements; and B. Extend submittal of the Fiscal Year 2022-23 Final Audit and Report to Council to January 16, 2024. Background Audits are to be performed in accordance with the standards set forth for the financial audits by the Governmental Accounting Standards Board (GASB), in the General Accounting Office (GOA). In addition, Article VIII, Chapter 8.11 of the City Charter requires City Council to appoint a California certified public accounting firm to provide an independent, annual audit of all City accounts, including the accounts of all departments, officers and employees who receive, handle or disburse public funds. The Charter also requires the final audit to be submitted to Council 120 days after the end of the fiscal year. Following a competitive Request for Proposal (RFP) process, on May 5, 2020 Council awarded White Nelson Diehl Evans LLP, now CliftonLarsonAllen LLP (CLA), a three-year professional services agreement for professional auditing services. Fiscal Year (FY) 2021-22 was the last audit year where CLA was to provide auditing services and production of the audited financial statements. In the months after the close of the FY 2021-22 financial statements, staff worked with CLA on providing the requisite information for the firm to initiate and conduct the audit. The audit process can be lengthy as in addition to verifying and analyzing financial data, the audit firm also reviews relevant City policies and procedures, and conducts interviews with management staff and Council. While industry best practice for the completion of an audit is 18 months after a budget is adopted, a combination of circumstances throughout the audit process, including implementation of a new GASB pronouncement, audit questions pertaining to the purchase of MGS, and staffing changes/challenges at CLA, resulted in a significant and atypical delay in the completion of the FY 2021-22 audit. With the audit now complete, staff is submitting the Fiscal Year 2021-22 Annual Financial Statements to Council as required by the City’s Charter. As noted above, Article VIII, Chapter 8.11 of the City Charter requires the final audit to be submitted to Council within 120 days after the end of the fiscal year. With the City’s fiscal year ending on June 30, audited financial statements would need to be submitted to Council by late October 2023. However, 120 days after the end of the fiscal year (June 30) is not feasible as it can take several months to receive all documents from outside contractors and vendors to accrue all expenditures related to the prior year, finalize journal entries, reconciliations and for the auditors to complete their audit and produce the final audited financial reports. Additionally, industry best practice is 18 months after a budget is adopted, which places finalization of the audited financials by end of the calendar year and presentation to Council soon after. As such, staff is seeking an extension for submission of the final audit and report to Council for Fiscal Year 2022-23 Annual Financial Statements to January 16, 2024, anticipated to be the first Council Meeting of 2024. Staff is currently working with the City’s new audit firm, The Pun Group LLP, on the FY 2022-23 audit and is confident the audit will be completed in advance of the January 16 date. Pursuant to Article VIII, Chapter 8.11 of the City Charter, the City Council may extend the deadline for submission of audited financial statements beyond 120 days after the end of the fiscal year. Fiscal Impact There is no fiscal impact associated with this report. Attachments 1. 2022 Audited City-wide Financial Statements 2. 2022 Audited VPU Financial Statements 3. 2022 Audited Electric Financial Statements 4. 2022 Audited Water Financial Statements CITY OF VERNON ANNUAL COMPREHENSIVE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2022 CITY OF VERNON TABLE OF CONTENTS YEAR ENDED JUNE 30, 2022 INTRODUCTORY SECTION LETTER OF TRANSMITTAL I FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 1 MANAGEMENTS’ DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION) 4 FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION 17 STATEMENT OF ACTIVITIES 18 FUND FINANCIAL STATEMENTS BALANCE SHEET – GOVERNMENTAL FUNDS 20 RECONCILIATION TO THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION – GOVERNMENTAL ACTIVITIES 21 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – GOVERNMENTAL FUNDS 22 RECONCILIATION TO THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUND TO THE STATEMENT OF ACTIVITIES – GOVERNMENTAL ACTIVITIES 23 STATEMENT OF NET POSITION – PROPRIETARY FUNDS 24 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – PROPRIETARY FUNDS 26 STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS 27 STATEMENT OF FIDUCIARY NET POSITION – FIDUCIARY FUNDS 29 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION – FIDUCIARY FUNDS 30 NOTES TO FINANCIAL STATEMENTS 31 CITY OF VERNON TABLE OF CONTENTS YEAR ENDED JUNE 30, 2022 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE – GENERAL FUNDS 78 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION 79 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN 80 SCHEDULE OF PENSION CONTRIBUTIONS – MISCELLANEOUS PLAN 83 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY – SAFETY PLAN 85 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN 86 SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN 87 SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS 89 SCHEDULE OF OPEB CONTRIBUTIONS 91 INTRODUCTORY SECTION 4305 Santa Fe Avenue, Vernon, California 90058 Telephone (323) 583‐8811 (i) City of Vernon, California Finance Department October 2, 2023 To the Honorable Mayor and City Council Vernon, California In accordance with the Charter of the City of Vernon (City), please accept submission of the Annual Financial Report for the fiscal year ended June 30, 2022. Responsibility for the accuracy of the data, completeness, and fairness of the presentation, including all disclosures, rests with the City. We believe the data included is accurate in all material aspects and is presented in a manner designed to fairly set forth the financial position and operational achievements of the City, as measured by the financial activity of its various funds. In addition, all disclosures necessary to enable the reader to gain a maximum understanding of the City’s financial activities have been included. Vernon’s City Charter requires an annual audit of the City’s financial statements by an independent Certified Public Accountant. Accordingly, this year's audit was completed by CliftonLarsonAllen LLP. The auditors' report on the basic financial statements is included in the financial section of this report. Management’s discussion and analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the City’s basic financial statements. MD&A complements this letter of transmittal and, as such, should be read in conjunction. ECONOMIC CONDITION AND OUTLOOK Since it was founded in 1905, Vernon has maintained a business-friendly environment, thus allowing the City to remain one of Southern California's prime locations for industry of all types. Vernon offers businesses a range of advantages compared to nearby cities in L.A. County. Features such as lower permit fees; lower electricity, water and natural gas utility rates; excellent City services tailored to specific business needs; easy access to major transportation hubs; and proximity to a substantially skilled workforce enable business and industry to thrive in Vernon. Vernon is the industrial heart of Southern California. Major manufacturers, processors and distributors have made Vernon their home for more than a century. Vernon currently houses more than 1,800 businesses that employ approximately 50,000 men and women from nearby communities throughout the Greater Los Angeles area. These include food and agriculture, apparel, steel, plastics logistics and home furnishings companies serving as a vital economic engine in the region. (ii) Vernon is a key contributor to the diverse Los Angeles County economy. While the California economy has effectively recovered from the pandemic recession of 2020 with a faster return to normalcy in most business sectors, the current global and local economies continue to face many of the same challenges of the prior year and remain prevalent today, Inflation continues to top historical norms, rising interest rates continue to put pressure on the housing market, car sales and other certain parts of the economy, the risk of new COVID variants, and the war in Ukraine continue to have a global economic effect. A mix of economic forecasts believe that the longer inflation persists and the higher the Federal Reserve increases interest rates in response, the greater the risk to the overall economy. The City will continue to build on the successes and achievements realized in the current year and remains committed to serving its customers. The City’s main revenue sources consisting of utilities fees, property and parcel taxes, business license taxes, and sales and use tax, have all sustained steady growth this year despite the current financial woes. As the City moves into fiscal year (FY) 2022- 23, we are optimistic about continued growth but applied conservative budgeting principles during the budget development process for FY 2022-23. While the budget reflects tempered optimism, the current global and local economies continue to face new and ongoing challenges that lead us reevaluate spending strategies, The City’s future economic health will ne dependent on growing and maintaining healthy reserves through fiscally conservative budgets and polices, planning for economic opportunities, and maintaining its strong financial position through prudent, long-range policy decisions and sound fiscal management, The City will continue to monitor key economic indicators, sources of revenue, and spending levels as part of its sound, conservative fiscal approach. Additionally, the City continues to make strides in developing its community relationships. With seasonal community outreach events, it is connecting with Vernon residents and those residents in neighboring communities in the southeast region. The City has begun circulating a Resident Newsletter and is also active on its social media platforms, focusing on dissemination of information that is relevant to the community, ensuring that its population is well-informed on City matters. By forging these connections with community members, the City is confident that the bi-directional conversations that result will allow it to better serve the needs of its constituents. Powering Business Competitiveness The City of Vernon Public Utilities Department (VPU) serves as an essential resource to the City's business and residential community, providing high-quality utility services at cost effective rates with the highest standards of reliability. VPU offers electricity, natural gas, water, and fiber optic services to Vernon based businesses and residents, often at a cost savings compared to neighboring utility providers. The City-owned electric, natural gas, water, and fiber optic distribution systems have a strong, established history of reliability, capable of efficiently and successfully serving the needs of the City's unique largely industrial community. The electric utility provides businesses reliable and competitive electrical services. The electric utility has operated for more than 80 years. Its electrical power and distribution system helps guarantee uninterrupted electrical service for Vernon's businesses. Electricity costs for large businesses are comparable and less than power costs from competing utility providers in the Los Angeles region, depending on the customer type and service being provided. (iii) Vernon's natural gas distribution system offers significant advantages for businesses. Vernon's natural gas transportation rates are less than those offered by a large private natural gas utility in the same service area. Vernon’s natural gas is distributed through a robust network of more than 44 miles gas distribution pipelines. Vernon has 35 miles of fiber optic cable spanning its five-square miles, offering businesses “dark fiber” and “lit fiber” data services. Vernon's advanced network of fiber optic cable provides businesses new high-speed methods to virtually connect their buildings and offices to the Internet at lower costs with high reliability. Vernon's water utility offers large industrial users water rates that are among the lowest in Southern California. Vernon maintains reliable water sources to serve a customer base that uses a high volume of water. Vernon supplies most of the water it sells from City-owned wells and purchases the remaining water supplies from regional agencies through agreements with the Metropolitan Water District of Southern California (MWD). Safeguarding the Environment Vernon is one of four cities in the State of California with a health department. Vernon's Health and Environmental Control Department regulates industrial operations conducted in the City. Established in 1908, the Vernon Department of Health & Environmental Control (DHEC) provides comprehensive and efficient services to accomplish this goal, tailoring its operations to regulate and meet the needs of the City's large industrial sector. The DHEC provides Vernon businesses and residents multiple programs to ensure that they are operating as required by local and State regulations. In addition, the department oversees numerous programs that cater to the basic needs of the community as a whole. From food safety, water quality, solid waste, to sustainability, the DHEC functions as a resource hub for information on regulatory mandates, user-friendly guidance, specialized permitting, and education. These in-house experts are accessible to businesses and residents alike. By maintaining its own municipal health authority, the community deals directly with Vernon DHEC officials to address important environmental and health-related issues, thus enhancing the City’s ability to respond quickly, especially in critical times like the recent pandemic. DHEC staff are equipped to efficiently address situations that have the potential to impact the health and wellness of the community. The team partners with complementary agencies including Los Angeles County Fire, Los Angeles County Public Health, and Vernon’s own Police Department; and engages third- party resources when necessary. The DHEC will often be the first on-scene when a hazardous incident is reported, as the team possesses the expertise to coordinate resources, and can spearhead the implementation of remedies to ensure that the City is safe haven to live and conduct business. Vernon manages several special programs and operations to safeguard the public’s health and safety and protect the City's environment. Among these are the following: Food safety, Food Defense and Consumer Protection, Water Quality, Land Use, Solid Waste, Liquid Waste, Certified Unified Program Agency (CUPA), Groundwater and Soil Clean-up and Emergency Preparedness and Disaster Response. Each of these programs is designed to ensure a safe environment for residents and the business community. (iv) Public Works The City’s Public Works Department is responsible for the Planning, Building and Safety, and maintenance and construction of the City’s infrastructure. The department includes approximately 40 employees consisting of engineers, building inspectors, plan checkers, technicians, mechanics and maintenance personnel. The engineering section is responsible for administering city contracts and designing public improvements, such as roadways, storm drains, sewers, traffic signals and City-owned buildings. This section also maintains plans for city construction projects and prepares legal descriptions for street dedications. The survey section maintains Vernon’s centerline ties, monuments and benchmarks, providing the basis from which private property lines are established in the City. It is also responsible for engineering and inspecting city-run construction projects. Public works crews maintain the City’s streets, sewers, storm drain systems, traffic islands and City buildings. These crews also provide graffiti and litter removal. The City garage warehouses supplies and maintains a fleet of more than 300 vehicles and motorized equipment. Public Works reviews, inspects and approves all new construction within the public right-of-way, and cooperates with other departments to review and process all parcel maps, lot line adjustments, lot mergers, covenants and agreements. Public Safety Creating a safe environment for residents and businesses to thrive is a key factor to Vernon’s success. The City’s skilled Police Department personnel are some of the best in their respective fields. Expeditious response times and community engagement are hallmarks of their exceptional service. The mission of the Vernon Police Department (VPD) is to provide swift, skillful, and responsive law enforcement services to the people and businesses of our community through the application of proactive problem-solving strategies and the development of equal partnerships with the people served. Officers seek to ensure a sense of well-being in the community, and they are guided by their commitment to working closely with the industrial population. VPD is dedicated to maintaining the highest degree of professionalism and ethical standards in its pursuit of this mission, ever mindful of the need to safeguard the individual liberties of all members of the community. VPD responds to emergency calls in less than four minutes. Vernon police officers are specially trained and outfitted with the latest technology to investigate offenses unique to an industrial community. Using mobile computer terminals in their patrol cars, officers can query criminal databases from the field and connect seamlessly with the Department's advanced communications center, which is fully integrated with its records management and E911 systems. With its specialized units, the VPD maintains an effective community policing strategy. Vernon's Police serve as a major emergency response and disaster preparedness resource for the Greater Los Angeles region. Vernon works closely with L.A. County and municipal public safety agencies in neighboring cities to offer essential public safety resources and assistance at times of an emergency through mutual aid agreements. Vernon consistently provides more police and emergency response mutual aid coverage than that which the City requests through these agreements. (v) MAJOR INITIATIVES Under the direction of the Mayor and City Council, City management identifies the priorities that shape the path leading into the City’s future. City initiatives are reevaluated regularly, and new goals are frequently vetted to ensure that City efforts are consistent with the priorities of our policy body and the community. The City strives each year to better fulfill its mission of delivering outstanding municipal services that are responsive, comprehensive, and beneficial to the entire community by continuing its tradition of fostering innovation, ingenuity, and opportunity within its operations. City staff remains focused on actions that achieve the primary goals of tending to the public’s needs, building neighborhood connections, and governing for results that strengthen our community. The City’s dedication to improvement and modernization has created an environment where City of Vernon residents and businesses are dialed in and able to collaborate with staff, voice their concerns, and have access to a plethora of information on the City and their chosen topic(s) of interest. As these relationships flourish, businesses and residents alike are able to enjoy all that Vernon has to offer while also participating in guiding Vernon down its path into the future. 1. Vernon is very committed to meeting its debt service coverages. In order to address the budget deficit historically present in the General Fund, the City placed on the ballot a measure to increase the Utility Users Tax from 1% to 6% which passed in April 2019. The passage of this measure will effectively eliminate operating transfers from its enterprise activities to the General Fund. To minimize the burden on the business community, an equivalent discount has been provided to Vernon’s electric, gas, water, and fiber optics utility customers. 2. Vernon has the capacity to expand its services as new businesses emerge and as existing businesses flourish and expand. An attractive, business friendly approach is extended to customers in the form of discounts that are available for large electricity consumers. Revenue sharing mechanisms have also been implemented to help stimulate both growth and retention. The City’s Good Governance and Reform initiatives provide a tangible demonstration of the overarching commitment to sound governance and best business practices. 3. Based upon the City’s electric debt service schedule, there will be a significant reduction in debt service starting in 2027. With input from business and residential communities, the City continues to evaluate its position and initiatives to ensure that electric rates remain competitive and that infrastructure needs are being addressed. 4. The inherent governance challenges in the City, due to a very small residential population, continues to be addressed by its residents, businesses, Chamber of Commerce, and City Council. Over the past 5 years, the public has become much more engaged in the political process and continues to keep a watchful eye on all important issues facing the City. The disincorporation controversy raised by assembly bill 46 in 2011 has been addressed with the whole-hearted adoption of key reforms and comprehensive implementation of best practices in all City operations. 5. The State of California Joint Legislative Audit Committee (JLAC) is no longer pursuing the disincorporation of the City. Vernon has addressed all outstanding JLAC recommendations effective July 2018. Emphatically committed to good governance and transparency, the City is proud of its success in satisfying each reform that JLAC recommended. As a result, the City moves forward with clear, concise, and comprehensive policies and procedures that uphold best practices. 6. The shutdown of the Exide recycled battery plant operation has been and will continue to be under State of California oversight. The Department of Toxic Substances Control is completely responsible for monitoring the site and all related cleanup on a continual basis. The State of California has established funding for the Exide plant cleanup effort collected through a fee on (vi) each battery recycled along with any restitution from Exide which remains a global company. There is no direct impact on City operations and Exide does not pose a concern to existing Vernon businesses. 7. Vernon’s electric rates remain competitive, and in many cases, lower than adjacent municipal and investor-owned utilities. However, in many respects, Vernon’s electric utility services continue to outperform its neighboring peers thanks to a higher reliability rating and greater customer satisfaction. In fact, VPU is a three-time recipient of the RP3 Diamond Level Award, the highest reliability award from APPA, which reflects our continued investment in utility infrastructure and commitment to safety and workforce development. 8. Since the purchase of Malburg Generating Station (MGS), Vernon Public Utilities optimizes the operating profile for operational savings and continued coordination with the CAISO to prevent statewide rolling blackouts and requests to run MGS when energy is needed most across the electric grid. FINANCIAL INFORMATION Management of the City is responsible for establishing and maintaining internal control designed to ensure that the assets of the government are protected from loss, theft, or misuse, and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with U.S. generally accepted accounting principles. Internal control is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. This report consists of management’s representations concerning the finances of the City. As a result, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. Management asserts that, to the best of their knowledge and belief, this financial report is complete and reliable in all material respects. BUDGETARY CONTROLS The City maintains budgetary controls, the objective of which is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of all governmental funds and proprietary funds are included in the annual appropriated budget. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is established at the departmental level. RELEVANT FINANCIAL POLICIES Over the years, through sound fiscal management, the City has positioned itself well to weather economic downturns, create a positive atmosphere for economic development, and allow flexibility in addressing budgetary challenges. As of June 30, 2022, the City’s overall total net position was $256.7 million. This consisted of a positive governmental net position of $74.3 million and business-type net position of $182.4 million. By continuing to develop sound fiscal management plans, the City intends to maintain an overall positive net position. ACKNOWLEDGMENTS The preparation of this report on a timely basis is a team effort involving many dedicated people across the entire organization. I would like to extend a special thanks to the talented finance professionals throughout the City, led by Joaquin Leon, Deputy City Treasurer, Jessica Alcaraz, Financial Services Administrator and Angela Melgar, Finance Manager. Appreciation is also expressed to Carlos Fandino, City Administrator; Zaynah Moussa, City Attorney; Todd Dusenberry, General Manager of Public Utilities; Dan wall, Director of Public Works; Robert Sousa, Chief of Police; Freddy Agyin, Director of Health and Environmental Control; Michael Earl, Human Resource Director; and Lisa Pope, City Clerk. (vii) In closing, without the leadership and support of the City Council, the preparation and results presented within this report would not have been conceivable. Their steadfast leadership has made possible the implementation of the City’s important, innovative concepts in fiscal management discussed herein. Should you have any questions regarding the documentation provided, please do not hesitate to contact me. Respectfully submitted, Scott Williams Director of Finance/City Treasurer FINANCIAL SECTION CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer. CliftonLarsonAllen LLP CLAconnect.com (1) INDEPENDENT AUDITORS’ REPORT Honorable Mayor and Members of the City Council City of Vernon Vernon, California Report on the Audit of the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Vernon, California (the City), as of and for the year ended June 30, 2022, and the related notes to financial statements, which collectively comprise the City’s financial statements as listed in the table of contents. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2022, and the changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Emphasis of Matter Change in Accounting Principle As described in Note 1C to the financial statements, effective July 1, 2021, the City adopted new accounting guidance, Statement of Governmental Accounting Standards Board (GASB Statement) No. 87, Leases. Our opinions are not modified with respect to this matter. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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. Honorable Mayor and Members of the City Council City of Vernon (2) In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City of Vernon’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we:  Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Obtain an understanding of internal control relevant to the audit 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 City’s internal control. Accordingly, no such opinion is expressed.  Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.  Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit. (3) Honorable Mayor and Members of the City Council City of Vernon Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the General Fund budgetary comparison schedule, the schedules of changes in net pension liability and related ratios and schedules of pension contributions related to the City’s miscellaneous and safety pension plans, and the schedule of changes in net OPEB liability and related ratios related to the City’s other postemployment benefits plan, be presented to supplement the financial statements. Such information is the responsibility of management and, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the 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 financial statements, and other knowledge we obtained during our audit of the 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 Management is responsible for the other information included in the annual report. The other information comprises the introductory section but does not include the basic financial statements and our auditors’ report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 4, 2023, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’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 City’s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Irvine, California October 4, 2023 CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (4) As management of the City of Vernon (“the City”), we offer readers of the financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2022. OVERVIEW OF BASIC FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements comprise three components: (i) government-wide financial statements, (ii) fund financial statements, and (iii) notes to the basic financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City'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. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, and health services. The business-type activities of the City is administered by the Vernon Public Utilities which consists of the Electric, Gas, Water, and Fiber Optics utilities. The government-wide financial statements include not only the City of Vernon (known as the primary government), but also blended component units. Certain blended component units, although legally separate entities are, in substance, part of the primary government’s operations and are included as part of the primary government. Fiduciary funds are not presented in the government-wide financial statements as the resources are not available to support City programs. The government-wide financial statements can be found on pages 17-19 of this report. Fund financial statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (5) Governmental funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison schedule has been provided for the General Fund (see page 74). The basic governmental funds financial statements can be found on pages 20-23 of this report. Proprietary funds The City’s proprietary funds consist of enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its Vernon Public Utilities which consists of the Electric, Gas, Water, and Fiber Optics utilities. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the Vernon Public Utilities. The basic proprietary funds financial statements can be found on pages 24-28 of this report. Fiduciary funds Fiduciary funds are used to account for resources held for the benefit of parties outside of the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support City programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary funds financial statements can be found on pages 29-30 of this report. Notes to the basic financial statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 31-75 of this report. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (6) GOVERNMENT-WIDE FINANCIAL ANALYSIS City’s Net Position The table below summarizes the City’s net position as of June 30, 2022 and June 30, 2021. The details of the current year’s summary can be found on page 17 of this report. City of Vernon Net Position June 30, 2022 and 2021 2022 2021 2022 2021 2022 2021 Assets: Current and other assets 31,543,883$ 15,676,741$ 190,425,409$ 174,666,191$ 221,969,292$ 190,342,932$ Restricted assets 6,267,964 5,070,045 46,383,084 56,392,885 52,651,048 61,462,930 Capital assets 163,093,528 165,326,345 458,427,644 257,253,484 621,521,172 422,579,829 Total assets 200,905,375 186,073,131 695,236,137 488,312,560 896,141,512 674,385,691 Deferred Outflows of Resources Deferred outflows related to pensions 23,034,461 23,952,913 5,338,797 4,901,360 28,373,258 28,854,273 Deferred outflows related to OPEB liability 2,856,840 3,326,931 662,143 680,773 3,518,983 4,007,704 Deferred amount on bond refunding ‐ ‐ 1,933,345 292,472 1,933,345 292,472 Total deferred outflows of resources 25,891,301 27,279,844 7,934,285 5,874,605 33,825,586 33,154,449 Liabilities: Current liabilities 4,494,931 3,779,531 23,591,507 21,910,613 28,086,438 25,690,144 Long term liabilities 92,405,587 135,010,934 485,156,669 316,254,536 577,562,256 451,265,470 Total liabilities 96,900,518 138,790,465 508,748,176 338,165,149 605,648,694 476,955,614 Deferred Inflows of Resources Deferred inflows related to pensions 44,972,489 2,754,345 10,423,470 563,607 55,395,959 3,317,952 Deferred inflows related to OPEB liability 6,807,966 7,315,776 1,577,912 1,496,988 8,385,878 8,812,764 Deferred inflows related to Leases 3,803,114 ‐ ‐ ‐ 3,803,114 ‐ Deferred gain from sale of generation assets ‐ ‐ ‐ 6,555,916 ‐ 6,555,916 Total deferred outflows of resources 55,583,569 10,070,121 12,001,382 8,616,511 67,584,951 18,686,632 Net Position: Net investment in capital assets 162,746,593 165,326,345 168,787,837 148,442,763 331,534,430 313,769,108 Restricted 4,422,510 4,146,007 32,836,544 23,894,665 37,259,054 28,040,672 Unrestricted (deficit)(92,856,514) (104,979,963) (19,203,517) (24,931,923) (112,060,031) (129,911,886) Total net position 74,312,589$ 64,492,389$ 182,420,864$ 147,405,505$ 256,733,453$ 211,897,894$ Governmental Activities Business‐type Activities Totals The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $256,733,453 (net position). The category of the City’s net position with the largest balance totaling $331,534,430 represents resources that are invested in capital assets, net of the related debt. The second-largest category of net position, totaling $37,259,054 represents the City’s restricted assets, which are restricted for employee flexible spending account, grants and debt service. The last remaining category of net position, totaling ($112,060,031) represents a deficit in unrestricted net position that is expected to be recovered from the City’s future revenues. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (7) Governmental activities, net position: Current and other assets increased by $15,867,142 from the prior year due to increase in cash and cash equivalents of $3,566,960, accounts receivable of $1,773,892, taxes receivable of $1,630,903, internal balances of $4,881,456 and lease receivable of $3,836,304 through the implementation of GASB Statement No. 87. Restricted assets increased by $1,197,919 from the prior year mainly due to an increase in restricted cash and investments balance for streets improvements. Capital assets decreased by $2,232,817 from the prior year mainly due to depreciation of $4,991,029 offset by the acquisition of machinery and equipment and infrastructure and building upgrades and improvements as well as the liquidation & disposal of City department’s assets. Deferred outflows of resources for pension costs decreased by $918,452 from the prior year mainly due to a change in current year’s contribution to the pension that will be applied as a reduction in net pension liability in the next fiscal year, or other items arising from changes in actuarial assumptions, difference between actual and projected experiences, difference between actual and projected investment gains/losses, or changes in a fund’s proportionate share of the net pension liability. Deferred outflows of resources for other postemployment benefits (OPEB) decreased by $470,091 from the prior year due a change in current year contribution to the OPEB plan that will be applied as a reduction in net OPEB liability in the next fiscal year, or other items arising from changes in actuarial assumptions, difference between actual and projected experiences, difference between actual and projected investment gains/losses, or changes in a fund’s proportionate share of the net OPEB liability. Current liabilities increased by $715,400 from the prior year mainly due to an increase in accounts payable of $1,718,829 offset by a decrease in accrued wages and benefits of $825,446 and unearned revenue of $216,467. Long-term liabilities decreased by $42,605,347 from the prior year mainly due to decrease in net pension liability and other postemployment benefits liability of $40,851,219 and $3,485,823, respectively, offset by an increase in liabilities due in more than 1 year of $1,291,165. Deferred inflows of resources for pension actuarial increased by $42,218,144 from the prior year due to changes in total pension liability that are to be recognized as an increase in pension expenses in future fiscal years. These balances arise from changes in actuarial assumptions, the difference between actual and projected experiences, the difference between actual and projected investment gains/losses, or changes in the fund’s proportionate share of the plan’s net pension liability. Deferred inflows of resources for OPEB decreased by $507,810 from the prior year mainly due to changes in actuarial assumptions and the difference between actual and expected experience. Deferred inflows of resources for leases increased by $3,803,114 due to the implementation of GASB Statement No. 87. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (8) Governmental activities, net position (continued): Net investment in capital assets decreased by $2,579,679 from the prior year which is equivalent to the decrease in capital assets, net of finance purchase obligations during the current year. Restricted net position increased by $276,503 from the prior year mainly due to a decrease in the restricted designation placed on street improvement account and SCWP account. The unrestricted net deficit decreased by $10,456,738 from the prior year mainly due to the current year’s change in net position of $8,153,489 offset by a decrease in net investment in capital assets of $2,579,679. Business-type activities, net position: Current and other assets increased $15,759,218 from the prior year mainly due to an increase in cash and cash equivalents of $10,600,320 and in receivables of $9,212,592 offset by a decrease in internal balances of $4,881,456. Restricted assets decreased by $10,009,801 from the prior year mainly due to the drawdowns funding the capital improvement projects. Capital assets increased $201,174,160 from the prior year mainly due to acquisitions of the Malburg Generation Station (MGS), and new equipment and facility improvements, offset by depreciation of $17,904,210 and net capital asset disposals of $2,315,926 (See Note 5). Deferred outflows of resources increased by $2,059,680 due to the decrease in amount on bond refunding of $1,640,873 and in deferred pensions of $437,437. Current liabilities increased $1,680,894 mainly due to an increase in accounts payable of $3,393,468 offset by a decrease in bond interest payable $1,498,676. Long-term liabilities increased by $168,902,133 from the prior year mainly due to bonds payable increase with newly issued bonds related to MGS acquisition (see Note 6). Deferred inflows of resources increased by $3,384,871 mainly due to the increase related to pensions of $9,859,863 offset by the amortization of the remaining deferred gain from sale of generation assets of $6,555,916 as a result of the purchase of MGS. Net investment in capital assets decreased by $11,290,729 from the prior year, which is attributable to the increase in capital assets, net of capital bonds payable. The VPU’s total net position at fiscal year 2021-22 was $182,420,864, which increased by $35,015,359 from the prior year due to an increase in the net investment in capital assets by $20,345,074, an increase in the funds restricted for debt service of $8,941,879 and a decrease of the unrestricted (deficit) of $5,728,406. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (9) Changes in Net Position The table below summarizes the City’s changes in net position between the current and prior fiscal year. The details of the current year’s changes in net position can be found on pages 18-19 of this report. City of Vernon Statement of Activities Years ended June 30, 2022 and 2021 2022 2021 2022 2021 2022 2021 Revenues: Program revenues Charges for services 5,912,509$ 6,470,901$ 5,912,509$ 6,470,901$ Vernon public utilities 238,570,758 212,205,129 238,570,758 212,205,129 Operating and capital grants and contributions 5,262,389 2,103,424 865,403 6,127,792 2,103,424 General revenues Taxes 41,888,435 39,163,804 41,888,435 39,163,804 State allocations 14,989,046 14,445,575 14,989,046 14,445,575 Investment income (loss)208,039 70,480 285,622 69,606 493,661 140,086 Gain (loss) on the sale of land and assets ‐ ‐ ‐ ‐ ‐ ‐ Other revenues 2,736,631 2,531,566 ‐ ‐ 2,736,631 2,531,566 Total revenues 70,997,049 64,785,750 239,721,783 212,274,735 310,718,832 277,060,485 Expenses: Governmental activities General government 17,564,758 15,238,548 ‐ ‐ 17,564,758 15,238,548 Public safety 35,417,532 33,919,854 ‐ ‐ 35,417,532 33,919,854 Public works 11,811,876 10,468,302 ‐ ‐ 11,811,876 10,468,302 Health services 1,416,058 1,280,046 ‐ ‐ 1,416,058 1,280,046 Interest on long‐term debt 199 67,707 ‐ ‐ 199 67,707 Business‐type activities Vernon public utilities 199,672,850 203,474,562 199,672,850 203,474,562 Total expenses 66,210,423 60,974,457 199,672,850 203,474,562 265,883,273 264,449,019 Change in net position before transfers 4,786,626 3,811,293 40,048,933 8,800,173 44,835,559 12,611,466 Transfers: Interfund transfers 5,033,574 4,781,720 (5,033,574) (4,781,720) ‐ ‐ Net Transfers 5,033,574 4,781,720 (5,033,574) (4,781,720) ‐ ‐ Change in net position 9,820,200 8,593,013 35,015,359 4,018,453 44,835,559 12,611,466 Net position ‐ beginning of year 64,492,389 55,899,376 147,405,505 143,387,052 211,897,894 199,286,428 Net position ‐ end of year 74,312,589$ 64,492,389$ 182,420,864$ 147,405,505$ 256,733,453$ 211,897,894$ Business‐type ActivitiesGovernmental Activities Totals CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (10) Governmental activities, changes in net position: Governmental activities’ net position increased by $9,820,200 and business-type activities’ net position increased by $35,015,359 for a net increase of $44,835,559 for the City. Governmental activities consist of the following departments: GENERAL GOVERNMENT PUBLIC SAFETY PUBLIC WORKS HEALTH SERVICES CITY COUNCIL POLICE ADMIN‐ENGINEERING‐PLANNING HEALTH CITY ADMINISTRATION BUILDING REGULATIONS INFORMATION TECHNOLOGY CITY HOUSING CITY ATTORNEY FACILITIES MAINTENANCE HUMAN RESOURCES FLEET SERVICES CITY CLERK STREET LIGHTING FINANCE STREET MAINTENANCE COMMUNITY PROMOTION WAREHOUSE INDUSTRIAL DEVELOPMENT COMMUNITY DEVELOPMENT CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (11) CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (12) Business-type activities, changes in net position: Business-type activities increased the City's net position by $35,015,359 before transfers which is a $30,996,906 decrease from the prior year. The key reason for this increase was due to the significant increase in operating income of $27,102,304 and lower interest expense of $5,134,307 offset by the loss on the disposition of assets of $2,315,926. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (13) FINANCIAL ANALYSIS OF THE GOVERNMENTAL FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental funds The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, the nonspendable, restricted, committed, assigned, and unassigned fund balances may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City's governmental funds reported a combined ending fund balances of $27,847,091 (see page 20), an increase of $10,879,836 from the prior year. Approximately 0.61% of the total fund balance amount, $168,491, constitutes nonspendable fund balance, which are amounts that are not in a spendable form or are required to be maintained intact. Approximately 15.88% of the total fund balance amount, $4,442,510, constitutes restricted fund balance, which are amounts that can be spent only for specific purposes stipulated by external resource providers, constitutionally, or through enabling legislation. The remainder of the fund balance amount, $23,256,090 is an unassigned fund balance deficit to indicate that it is the residual classification that is not contained in the other classifications. The General Fund is the operating fund of the City. At the end of the current fiscal year, the total fund balance was $27,847,091 (see page 22). At the end of the current fiscal year, the total fund balance represents 43.9% of the total expenditures for the year. Proprietary funds The City's proprietary funds provide the same type of information found in the government-wide financial statements but in more detail. Unrestricted net position for the Vernon Public Utilities at the end of the year amounted to a deficit balance of $19,203,517 (see page 25). This deficit balance in unrestricted net position is primarily due to the proprietary funds being heavily invested in capital assets for which it has not yet recovered the cost of capital invested. The proprietary funds expect to eliminate these deficit balances through increased future revenues. The total increase in net position for the Vernon Public Utilities was $35,015,359 (see page 26). Other factors concerning the finances of these funds have already been addressed in the discussion of the City's business-type activities. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (14) GENERAL FUND AND BUDGETARY HIGHLIGHTS For the current year, the General Fund’s total positive variance between the final budgeted amounts and the actual amount of change in fund balance was $11,450,180. The key reasons for this variance were due to lower actual revenues than projected of $1,615,795 and lower actual expenditures than appropriated by $13,155,975. For the current year, the General Fund’s total positive variance between the final budgeted estimated revenues and actual revenues was $1,615,795. The main reason for the variance, was that taxes came in higher than expected by $2,621,650 and $8,935,173 respectively offset by intergovernmental revenues coming in lower by $5,534,510. For the current year, the General Fund’s total positive variance between the final budgeted amount and the actual amount for expenditures was $13,155,975. The key reasons for this variance were due to higher appropriations than actual expenditures of $9,440,279 in capital outlay and $2,192,186 in public works. CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets The City's investment in capital assets for its governmental and business-type activities as of June 30, 2022, amounts to $621,521,172 (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, building, utility system improvements, machinery and equipment, infrastructure such as roads, and intangible assets such as environmental emission credits. The increase in capital assets of $198,941,343 is mainly due to the purchase of Malburg Generation Station. Additionally, capital assets was updated for the implementation of GASB Statement No. 87, Leases, for right-to-use- lease assets. Additional information on the City's capital assets can be found in Note 5 of this report. Outstanding debt As of June 30, 2022, the following debt remains outstanding:  $37,895,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A  $11,505,000 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  $19,305,000 City of Vernon Electric System Revenue Bonds, 2020 Series A  $173,815,000 City of Vernon Electric System Revenue Bonds, 2021 Taxable Series A  $52,070,000 City of Vernon Electric System Revenue Bonds, 2022 Taxable Series A  $14,600,000 City of Vernon Water System Revenue Bonds, 2020 Taxable Series A  $1,220,930 City of Vernon agreement with the Water Replenishment District of Southern California CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (15) 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 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. The City of Vernon Electric System Revenue Bonds, 2021 Series A were issued to provide funds: (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the city limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights, (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement, and (iii) to pay costs of issuance of the 2021 Bonds. The City of Vernon Electric System Revenue Bonds, 2022 Series A were issued to (i) refund and defease all the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue Bonds, 2012 Taxable Series B and (ii) to pay costs of issuance of the 2022 Bonds. The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds. As of June 30, 2022, the ratings on all Electric System Revenue Bonds of the City changed from the prior year to BBB+/Stable by S&P and Baa1/Stable by Moody’s and the ratings on all Water Revenue Bonds is A-/Stable by S&P and not rated by Moody’s. Additional information on the City's long-term debt can be found in Note 6 of this report. CITY OF VERNON MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (16) ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES Local and state economies experienced continual growth throughout fiscal year 2021-22, with tapering in the latter months due to prolonged historical high inflation and the increased interest rates by the Federal Reserve. Cities continue to be challenged in forecasting the economy and preparing the budget for the next fiscal year. The City has been fortunate in its specific mix of businesses, which has proven to be resilient in response to volatile economic changes. These factors were considered in preparing the City and VPU’s budget for fiscal year 2022-23. The City developed a conservative spending plan addressing City Council and community priorities while focusing on operations at full capacity, deferring maintenance and operational needs while still focused on delivering quality core municipal services. VPU continues to respond to inflation and supply chain issues, including higher energy, natural gas, materials and supplies, chemicals, and construction costs to maintain generation, transmission, and distribution infrastructure to continue to provide exceptionally reliable service. Continue to implement VPU’s capital plan, manage operating and maintenance expenses, update the 2018 Integrated Resource Plan, complete an Electric Cost of Service Analysis and Rate Design study, transition customer load growth to green commerce, optimize the MGS operating profile, and continue to implement the multi-year water rate adjustment plan approved by City Council. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City's finances for all those with an interest in the City'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, swilliams@cityofvernon.org, City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058. CITY OF VERNON STATEMENT OF NET POSITION JUNE 30, 2022 See accompanying Notes to Financial Statements. (17) Governmental Business-Type Activities Activities Total ASSETS Cash and Cash Equivalents 17,973,383$ 156,960,639$ 174,934,022$ Accounts Receivable, Net of Allowance 1,783,820 14,262,338 16,046,158 Taxes Receivable 4,947,687 - 4,947,687 Lease Receivable - Current Portion 66,705 - 66,705 Lease Receivable 3,769,599 - 3,769,599 Notes and Loans Receivable 8,816 - 8,816 Other Receivables 61,919 - 61,919 Accrued Unbilled Revenue - 19,025,964 19,025,964 Accrued Interest Receivable - 89,197 89,197 Internal Balances 2,763,463 (2,763,463) - Prepaid Natural Gas - 636,909 636,909 Prepaid Expenses 168,491 1,012,402 1,180,893 Deposits - 1,201,423 1,201,423 Restricted Cash and Investments 6,267,964 46,383,084 52,651,048 Capital Assets: Nondepreciable 65,801,086 70,803,890 136,604,976 Depreciable, Net 97,292,442 387,623,754 484,916,196 Total Assets 200,905,375 695,236,137 896,141,512 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pensions 23,034,461 5,338,797 28,373,258 Deferred Outflows Related to OPEB Liability 2,856,840 662,143 3,518,983 Deferred Amount on Bond Refunding - 1,933,345 1,933,345 Total Deferred Outflows of Resources 25,891,301 7,934,285 33,825,586 LIABILITIES Accounts Payable 2,828,577 17,472,509 20,301,086 Accrued Wages and Benefits 613,476 406,604 1,020,080 Customer Deposits 239,139 500,168 739,307 Bond Interest Payable - 5,212,226 5,212,226 Unearned Revenue 813,739 - 813,739 Noncurrent Liabilities: Due Within One Year 2,563,534 50,905,670 53,469,204 Due in More than One Year 5,082,788 414,605,974 419,688,762 Net Other Postemployment Benefit Liability 13,292,721 3,080,913 16,373,634 Net Pension Liability 71,466,544 16,564,112 88,030,656 Total Liabilities 96,900,518 508,748,176 605,648,694 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions 44,972,489 10,423,470 55,395,959 Deferred Inflows Related to OPEB Liability 6,807,966 1,577,912 8,385,878 Deferred Inflows Related to Leases 3,803,114 - 3,803,114 Total Deferred Inflows of Resources 55,583,569 12,001,382 67,584,951 NET POSITION Net Investment in Capital Assets 162,746,593 168,787,837 331,534,430 Restricted for: Employee Flexible Spending Account 25,261 - 25,261 Street Improvements 3,855,244 - 3,855,244 Asset Forfeiture Funds 542,005 - 542,005 Debt Service - 32,836,544 32,836,544 Unrestricted (Deficit) (92,856,514) (19,203,517) (112,060,031) Total Net Position 74,312,589$ 182,420,864$ 256,733,453$ CITY OF VERNON STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (18) Program Revenues Charges Operating Capital for Grants and Grants and Function/Program Activities Expenses Services Contributions Contributions PRIMARY GOVERNMENT Governmental Activities: General Government 17,564,758$ 8,525,489$ 2,273$ -$ Public Safety 35,417,532 229,726 1,862,043 - Public Works 11,811,876 1,564,854 5,616 3,392,457 Health Services 1,416,058 626,014 -- Interest on Long Term Liabilities 199 - -- Total Governmental Activities 66,210,423 10,946,083 1,869,932 3,392,457 Business-Type Activities: Electric 176,601,293 208,539,519 665,887 - Gas 18,478,619 18,705,573 5,029 - Water 9,217,802 10,845,652 194,487 - Fiber Optics 408,710 480,014 -- Total Business-Type Activities 204,706,424 238,570,758 865,403 - Total Primary Government 270,916,847$ 249,516,841$ 2,735,335$ 3,392,457$ CITY OF VERNON STATEMENT OF ACTIVITIES (CONTINUED) YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (19) Function/Program Activities PRIMARY GOVERNMENT Governmental Activities: General Government Public Safety Public Works Health Services Interest on Long Term Liabilities Total Governmental Activities Business-Type Activities: Electric Gas Water Fiber Optics Total Business-Type Activities Total Primary Government General Revenues: Property Taxes Parcel Taxes Utility Users Taxes Franchise Taxes Business License Taxes Other Taxes Investment Income Rental income State Contribution - Sales and Use Taxes Other Revenues Total General Revenues CHANGE IN NET POSITION Net Position - Beginning of Year NET POSITION - END OF YEAR Net (Expenses) Revenues and Change in Net Position Governmental Business-Type Activities Activities Total (9,036,996)$ -$ (9,036,996)$ (33,325,763) - (33,325,763) (6,848,949) -(6,848,949) (790,044) -(790,044) (199) -(199) (50,001,951) - (50,001,951) -32,604,113 32,604,113 -231,983 231,983 -1,822,337 1,822,337 -71,304 71,304 -34,729,737 34,729,737 (50,001,951) 34,729,737 (15,272,214) 4,982,723 -4,982,723 15,214,692 - 15,214,692 13,826,831 - 13,826,831 1,821,409 -1,821,409 5,929,166 -5,929,166 12,805 - 12,805 100,809 285,622 386,431 208,039 -208,039 14,989,046 - 14,989,046 2,736,631 -2,736,631 59,822,151 285,622 60,107,773 9,820,200 35,015,359 44,835,559 64,492,389 147,405,505 211,897,894 74,312,589$ 182,420,864$ 256,733,453$ CITY OF VERNON BALANCE SHEET – GOVERNMENTAL FUND JUNE 30, 2022 See accompanying Notes to Financial Statements. (20) General Fund ASSETS Cash and Cash Equivalents 17,973,383$ Accounts Receivable, Net of Allowance 1,783,820 Taxes Receivable 4,947,687 Lease Receivable - Current Portion 66,705 Lease Receivable 3,769,599 Notes and Loans Receivable 8,816 Other Receivables 61,919 Due from Other Funds 2,966,261 Prepaid Items 168,491 Restricted Cash and Investments 6,267,964 Total Assets 38,014,645$ LIABILITIES AND FUND BALANCE LIABILITIES Accounts Payable 2,828,577$ Accrued Wages and Benefits 613,476 Unearned Revenue 813,739 Customer Deposits 239,139 Advances from Other Funds 202,798 Total Liabilities 4,697,729 DEFERRED INFLOWS OF RESOURCES Deferred Inflows - Unavailable Revenues 1,666,711 Deferred Inflows Related to Leases 3,803,114 Total Deferred Inflows of Resources 5,469,825 FUND BALANCE Nonspendable: Prepaid Items 168,491 Restricted for: Employee Flexible Spending Account 25,261 Street Improvements 3,855,244 Asset Forfeiture Funds 542,005 Unassigned 23,256,090 Total Fund Balance 27,847,091 Total Liabilities and Fund Balance 38,014,645$ CITY OF VERNON RECONCILIATION TO THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION – GOVERNMENTAL ACTIVITIES JUNE 30, 2022 See accompanying Notes to Financial Statements. (21) Fund Balance - Governmental Fund 27,847,091$ Amounts reported for governmental activities in the Statement of Net Position are different because: Receivables not available to pay for current period expenditures are reported as unavailable revenue in the financial statements. 1,666,711 Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental fund 163,061,941 Right to Use assets used in governmental activities are not current financial resources and therefore are not reported in the funds. Related long-term lease liabilities are not due and payable in the current period; therefore, they are not reported in the funds. These items consist of: Right to Use Assets, Net of Accumulated Amortization 31,587 Lease Liability (31,660) Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental fund Compensated Absences (2,673,930) Claims Payable (4,940,732) Net pension and other postemployment benefit (OPEB) liabilities applicable to the City's governmental activities are not due and payable in the current period and therefore are not reported in the governmental fund. Deferred outflows and inflows of resources related to the pension and OPEB liabilities applicable to the City's governmental activities are only reported in the government-wide financial statements Deferred Outflows of Resources for Pensions 23,034,461 Deferred Outflows of Resources for OPEB 2,856,840 Deferred Inflows of Resources for Pensions (44,972,489) Deferred Inflows of Resources for OPEB (6,807,966) Net Pension Liability (71,466,544) Net OPEB Liability (13,292,721) Net Position of Governmental Activities 74,312,589$ CITY OF VERNON STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – GOVERNMENTAL FUND YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (22) General Fund REVENUES Taxes 56,686,792$ Special Assessments 1,704,159 Licenses and Permits 2,158,284 Fines, Forfeitures, and Penalties 258,268 Investment Income 100,809 Intergovernmental Revenues 1,789,300 Charges for Services 10,276,400 Rental Income 513,701 Other Revenues 876,199 Total Revenues 74,363,912 EXPENDITURES Current: General Government 17,085,390 Public Safety 34,345,479 Public Works 7,688,016 Health Services 1,411,874 Capital Outlay 2,927,921 Debt Service: Principal 25,197 Interest 199 Total Expenditures 63,484,076 CHANGE IN FUND BALANCE 10,879,836 Fund Balance - Beginning of Year 16,967,255 FUND BALANCE - END OF YEAR 27,847,091$ CITY OF VERNON RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUND TO THE STATEMENT OF ACTIVITIES – GOVERNMENTAL ACTIVITIES YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (23) Net Change in Fund Balance - Total Governmental Fund 10,879,836$ Amounts reported for governmental activities in the Statement of Activities are different because: Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds 1,666,711 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the costs of those assets are allocated over their estimated useful lives as a depreciation expense. As a result, fund balances decrease by the amount of financial resources expended, whereas net position decreases by the amount of depreciation expense charged for the year. Capital Outlay 3,291,130 Depreciation and Amortization Expense (5,016,299) Loss on Disposal of Capital Assets (564,505) Principal payment of long term liabilities uses current financial resources but is not reported in the Statement of Activities Principal Payments Lease Liability 25,197 Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental fund: Change in Net Pension Liability 40,851,219 Change in Net OPEB Liability 3,485,823 Change in Deferred Outflows Related to Pensions (918,452) Change in Deferred Outflows Related to OPEB (470,091) Change in Deferred Inflows Related to Pensions (42,218,144) Change in Deferred Inflows Related to OPEB 507,810 Change in Compensated Absences (168,675) Change in Claims Payable (1,531,360) Change in Net Position of Governmental Activities 9,820,200$ CITY OF VERNON STATEMENT OF NET POSITION – PROPRIETARY FUNDS JUNE 30, 2022 See accompanying Notes to Financial Statements. (24) Business-Type Activities Enterprise Funds Nonmajor Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals ASSETS Current Assets: Cash and Cash Equivalents 130,758,591$ 8,692,417$ 17,015,777$ 493,854$ 156,960,639$ Accounts Receivable, Net of Allowance 12,396,047 580,100 1,141,938 144,253 14,262,338 Accrued Unbilled Revenue 16,411,782 1,240,987 1,373,195 -19,025,964 Accrued Interest Receivable 84,749 -4,448 -89,197 Due from Other Funds 70,399 --- 70,399 Prepaid Expenses 17,666 --- 17,666 Prepaid Natural Gas 636,909 --- 636,909 Total Current Assets 160,376,143 10,513,504 19,535,358 638,107 191,063,112 Noncurrent Assets: Restricted Cash and Investments 39,025,025 -7,358,059 -46,383,084 Advances to Other Funds 27,079,890 -202,798 -27,282,688 Prepaid Expenses 994,736 --- 994,736 Deposits 1,201,423 --- 1,201,423 Capital Assets: Nondepreciable 63,421,951 -7,381,939 -70,803,890 Depreciable, Net 362,295,361 15,379,161 8,886,072 1,063,160 387,623,754 Total Noncurrent Assets 494,018,386 15,379,161 23,828,868 1,063,160 534,289,575 Total Assets 654,394,529 25,892,665 43,364,226 1,701,267 725,352,687 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pensions 4,016,377 397,282 917,279 7,859 5,338,797 Deferred Outflows Related to OPEB Liability 498,130 49,273 113,765 975 662,143 Deferred Amount on Refunding 1,933,345 - -- 1,933,345 Total Deferred Outflows of Resources 6,447,852 446,555 1,031,044 8,834 7,934,285 CITY OF VERNON STATEMENT OF NET POSITION – PROPRIETARY FUNDS (CONTINUED) JUNE 30, 2022 See accompanying Notes to Financial Statements. (25) Business-Type Activities Enterprise Funds Nonmajor Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals LIABILITIES Current Liabilities: Accounts Payable 15,828,391$ 215,122$ 1,415,262$ 13,734$ 17,472,509$ Accrued Wages and Benefits 333,914 28,032 44,295 363 406,604 Due to Other Funds 2,965,077 71,583 -- 3,036,660 Customer Deposits 425,426 13,558 61,184 -500,168 Bond Interest Payable 4,969,736 -242,490 -5,212,226 Bonds Payable 50,110,000 -250,000 -50,360,000 Note Payable - - 139,535 -139,535 Compensated Absences 369,608 8,377 28,069 81 406,135 Total Current Liabilities 75,002,152 336,672 2,180,835 14,178 77,533,837 Noncurrent Liabilities: Advances from Other Funds -23,226,198 -3,853,692 27,079,890 Bonds Payable 397,826,476 -14,885,833 -412,712,309 Note Payable - - 1,081,395 -1,081,395 Compensated Absences 739,215 16,754 56,139 162 812,270 Other Postemployment Benefit Liability 2,317,770 229,264 529,343 4,536 3,080,913 Net Pension Liability 12,461,180 1,232,605 2,845,943 24,384 16,564,112 Total Noncurrent Liabilities 413,344,641 24,704,821 19,398,653 3,882,774 461,330,889 Total Liabilities 488,346,793 25,041,493 21,579,488 3,896,952 538,864,726 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions 7,841,575 775,654 1,790,896 15,345 10,423,470 Deferred Inflows Related to OPEB Liability 1,187,063 117,419 271,107 2,323 1,577,912 Total Deferred Inflows of Resources 9,028,638 893,073 2,062,003 17,668 12,001,382 NET POSITION Net Investment in Capital Assets 145,563,396 15,301,360 6,869,387 1,053,694 168,787,837 Restricted for Debt Service 32,836,544 - -- 32,836,544 Unrestricted (Deficit)(14,932,990) (14,896,706) 13,884,392 (3,258,213) (19,203,517) Total Net Position 163,466,950$ 404,654$ 20,753,779$ (2,204,519)$ 182,420,864$ CITY OF VERNON STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION – PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (26) Business-Type Activities Enterprise Funds Nonmajor Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals OPERATING REVENUES Charges for Services 208,539,519$ 18,705,573$ 10,845,652$ 480,014$ 238,570,758$ Total Operating Revenue 208,539,519 18,705,573 10,845,652 480,014 238,570,758 OPERATING EXPENSES Cost of Sales 144,582,543 17,765,508 7,743,964 222,558 170,314,573 Depreciation 16,510,921 707,035 500,102 186,152 17,904,210 Total Operating Expenses 161,093,464 18,472,543 8,244,066 408,710 188,218,783 OPERATING INCOME 47,446,055 233,030 2,601,586 71,304 50,351,975 NONOPERATING REVENUES (EXPENSES) Intergovernmental 665,887 5,029 194,487 -865,403 Investment Income 269,257 4,128 11,991 246 285,622 Net Decrease in Fair Value of Investments (8,231) - -- (8,231) Interest Expense (13,599,589) -(563,895)-(14,163,484) Loss on Disposal of Assets (1,900,009) (6,076) (409,841)-(2,315,926) Total Nonoperating Revenues (Expenses)(14,572,685) 3,081 (767,258) 246 (15,336,616) CHANGE IN NET POSITION 32,873,370 236,111 1,834,328 71,550 35,015,359 Net Position (Deficit) - Beginning of Year 130,593,580 168,543 18,919,451 (2,276,069) 147,405,505 NET POSITION (DEFICIT) - END OF YEAR 163,466,950$ 404,654$ 20,753,779$ (2,204,519)$ 182,420,864$ CITY OF VERNON STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (27) Business-Type Activities Enterprise Funds Nonmajor Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers 199,972,221$ 18,586,393$ 10,427,677$ 367,504$ 229,353,795$ Cash Paid to Suppliers for Goods and Services (133,793,435) (16,770,406) (6,851,398) (242,584) (157,657,823) Cash Paid to Employees for Services (3,090,696) (724,165) (1,818,089) (168,276) (5,801,226) Cash Paid to City for Services (5,214,961) - -- (5,214,961) Net Cash Provided by Operating Activities 57,873,129 1,091,822 1,758,190 (43,356) 60,679,785 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Repayment of Bonds (34,975,000) -(240,000)-(35,215,000) Issuance of Bonds 235,885,000 --- 235,885,000 Bond Premiums 38,266,557 --- 38,266,557 Payment to Refunding Bond Escrow Agent (62,999,903) --- (62,999,903) Bond Interest Paid (16,875,267) -(587,975)-(17,463,242) Payment of Note Payable - - (139,535)-(139,535) Net Acquisition of Capital Assets (216,887,677) (261,506) (4,033,299) (211,814) (221,394,296) Net Cash Used by Capital and Related Financing Activities (57,586,290) (261,506) (5,000,809) (211,814) (63,060,419) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Grant Revenue Received 665,887 5,029 194,487 -865,403 Cash Received (Paid) to Other Funds 114,065 (59) 1,915,195 (114,006) 1,915,195 Net Cash Provided (Used) by Noncapital Financing Activities 779,952 4,970 2,109,682 (114,006) 2,780,598 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income 178,598 4,128 7,583 246 190,555 Cash Provided by Investing Activities 178,598 4,128 7,583 246 190,555 CHANGE IN CASH AND CASH EQUIVALENTS 1,245,389 839,414 (1,125,354) (368,930) 590,519 Cash and Cash Equivalents - Beginning of Year 168,538,227 7,853,003 25,499,190 862,784 202,753,204 CASH AND CASH EQUIVALENTS - END OF YEAR 169,783,616$ 8,692,417$ 24,373,836$ 493,854$ 203,343,723$ COMPOSITION OF CASH AND CASH EQUIVALENTS Cash and Cash Equivalents 130,758,591$ 8,692,417$ 17,015,777$ 493,854$ 156,960,639$ Restricted Cash and Investments 39,025,025 -7,358,059 -46,383,084 Total 169,783,616$ 8,692,417$ 24,373,836$ 493,854$ 203,343,723$ CITY OF VERNON STATEMENT OF CASH FLOWS – PROPRIETARY FUNDS (CONTINUED) YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (28) Business-Type Activities Enterprise Funds Nonmajor Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income (Loss) 47,446,055$ 233,030$ 2,601,586$ 71,304$ 50,351,975$ Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by Operating Activities: Depreciation 16,510,921 707,035 500,102 186,152 17,904,210 Deferred Gain from Sale of Generation Assets (6,555,916) - -- (6,555,916) Change in Operating Assets and Liabilities: Accounts Receivable (6,672,318) (216,191) (164,414) (112,510) (7,165,433) Accrued Unbilled Revenue (1,889,809) 97,011 (254,361) -(2,047,159) Due from Other Funds 523,087 - -- 523,087 Prepaid Expenses and Deposits (104,017) - -- (104,017) Prepaid Natural Gas (636,909) - -- (636,909) Deferred Outflows of Resources (564,694) 5,199 102,727 37,961 (418,807) Accounts Payable 3,257,996 164,516 (1,292) (27,752) 3,393,468 Accrued Wages and Benefits (115,466) (22,058) (67,916) (4,087)(209,527) Due to Other Funds 2,965,077 71,583 (593,486) -2,443,174 Customer Deposits (5,171) -800 -(4,371) Compensated Absences 56,427 1,347 (18,983)(2,289) 36,502 Other Postemployment Benefit Liability (111,573) (48,588) (167,986) (24,246)(352,393) Net Pension Liability (3,801,160) (627,374) (1,822,068) (168,284) (6,418,886) Deferred Inflows of Resources 7,570,599 726,312 1,643,481 395 9,940,787 Net Cash Provided (Used) by Operating Activities 57,873,129$ 1,091,822$ 1,758,190$ (43,356)$ 60,679,785$ CITY OF VERNON STATEMENT OF FIDUCIARY NET POSITION – FIDUCIARY FUND YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (29) Redevelopment Successor Agency Trust Fund ASSETS Other Receivable 3,654$ Restricted Cash and Investments 19,037,529 Total Assets 19,041,183 LIABILITIES Bond Interest Payable 734,183 Long-Term Debt: Due Within One Year 1,845,000 Due in More than One Year 36,885,803 Total Liabilities 39,464,986 NET POSITION (DEFICIT) Total Net Position Held in Trust for Dissolution of Former Redevelopment Agency (20,423,803)$ CITY OF VERNON STATEMENT OF CHANGES IN FIDUCIARY NET POSITION – FIDUCIARY FUND YEAR ENDED JUNE 30, 2022 See accompanying Notes to Financial Statements. (30) Redevelopment Successor Agency Trust Fund ADDITIONS Property Tax Increment 4,969,969$ Investment Earnings 7,054 Total Additions 4,977,023 DEDUCTIONS Community Development 831,337 Interest on Long-Term Debt 2,289,050 Total Deductions 3,120,387 CHANGE IN NET POSITION 1,856,636 Net Position (Deficit) Held in Trust - Beginning of Year (22,280,439) NET POSITION (DEFICIT) HELD IN TRUST - END OF YEAR (20,423,803)$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (31) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Vernon, California (City) have been prepared in conformity with 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 more significant of the City’s accounting policies are described below. A. Reporting Entity The City was incorporated on September 16, 1905 as a General Law City. Effective July 1, 1988, the City became a Charter City. The City operates under a Council-City Administrator form of government. As required by generally accepted accounting principles, the accompanying financial statements present the City of Vernon (primary government) and its component units, entities for which the primary government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations and so data from these units are combined with the data of the primary government. For the fiscal year ended June 30, 2021, the City transferred its fire department operations to Los Angeles County, California. See Note 4 and Note 7 for further details on how the transfer impacted the City's capital assets and safety pension plan, respectively. B. Basis of Presentation Government-Wide Financial Statements The statement of net position and statement of activities display information about the primary government (the City). These statements include the financial activities of the overall government. It is the City’s policy to make eliminations to minimize the double counting of internal activities, except for services rendered by governmental activities to business-type activities. These statements distinguish between the governmental and business-type activities of the City. Governmental activities, which normally are supported by taxes, are reported separately from business-type activities, which rely to a significant extent on fees charged to external parties. Effective February 1, 2012, due to AB 1X 26, the dissolution of Redevelopment Agencies throughout California, the activities of the dissolved Vernon Redevelopment Agency are recorded in the Vernon Redevelopment Successor Agency trust fund which is a component unit of the City. The statement of activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the City and for each function of the City’s governmental activities. Direct expenses are those that are specifically associated with a program or function; and therefore, are clearly identifiable to a particular function. Program revenues include (i) charges paid by the recipients of goods or services offered by the programs and (ii) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented instead as general revenues. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (32) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basis of Presentation (Continued) Government-Wide Financial Statements (Continued) Separate financial statements are provided for governmental fund, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. The major individual governmental fund and the major individual enterprise funds are reported as separate columns in the fund financial statements. Fund Financial Statements The fund financial statements provide information about the City’s funds and blended component units. Separate statements for each fund category – governmental and proprietary – are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. 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. The City reports one major governmental fund: The General Fund is the City’s primary operating fund. It is used to account for all revenues and expenditures necessary to carry out basic governmental activities of the City that are not accounted for through other funds. For the City, the General Fund includes such activities as general government, public safety, health services, and public works. The City reports three major enterprise funds: The Electric Fund accounts for the maintenance and operations of the City’s electric utility plant. Revenues for this fund are primarily from charges for services. The Gas Fund accounts for the maintenance and operations of the City’s gas utility plant. Revenues for this funds are primarily from charges for services. The Water Fund accounts for the maintenance and operations of the City’s water utility plant. Revenues for this fund are primarily from charges for services. The City also reports a fiber optics nonmajor enterprise fund for the maintenance and operation of the City’s fiber optics utility plant. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (33) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basis of Presentation (Continued) Fund Financial Statements (Continued) The City reports one fiduciary fund: Vernon Redevelopment Successor Agency Private-Purpose Trust Fund – This is a fiduciary fund type used by the City to report trust arrangements under which principal and income benefit other governments. This fund reports the assets, liabilities and activities of the Successor Agency to the Dissolved Vernon Redevelopment Agency. Unlike the limited reporting typically utilized for Agency Funds, the Private-Purpose Trust Fund reports a statement of fiduciary net position and a statement of changes in fiduciary net position. The government-wide and proprietary fund 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. Nonexchange transactions, in which the City gives (or receives) value without directly receiving (or giving) equal value in exchange, include property and sales taxes, grants, entitlements and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenues from sales taxes are recognized when the underlying transactions take place. Revenues from grants, entitlements and donations are recognized in the fiscal year in which all eligible requirements have been satisfied. Governmental fund type financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues and other governmental fund type financial resources are recognized when they become susceptible to accrual – that is, when they become both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Property, sales, and other taxes are considered available and are accrued when received within 60 days after fiscal year-end. Additionally, all other revenue sources are considered available and are accrued when received within 60 days of year-end. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. General capital assets acquisitions are reported as expenditures in governmental fund statements. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The City maintains a separate fund to report the activities of the Successor Agency to the Dissolved Redevelopment Agency. These assets do not belong to the City. The accounting used for fiduciary funds is much like that used for proprietary funds. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (34) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basis of Presentation (Continued) Fund Financial Statements (Continued) Because the governmental fund financial statements are presented on a different measurement focus and basis of accounting than the government-wide financial statements for governmental activities, reconciliations are presented which briefly explain the adjustments necessary to reconcile the fund financial statements to the governmental-wide statements. C. Implementation of New Accounting Pronouncements In June 2017, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 87, Leases. This standard requires the recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and as inflows of resources or outflows of resources recognized based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this standard, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. The City adopted the requirements of the guidance effective July 1, 2021 and has applied the provisions of this standard to the beginning of the period of adoption. D. Cash and Investments The City follows the practice of pooling cash and investments of all funds to maximize returns for all funds, except for funds held by trustees or fiscal agents. For purposes of the statement of cash flows, the City considers amounts on deposit in the City’s cash and investment pool and 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 trade 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 City 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. E. Receivables/Payables Short-term interfund receivables and payables are classified as “due from other funds” and “due to other funds”, respectively, on the balance sheet and as internal balances on the statement of net position. Long-term interfund receivables and payables are classified as “advances to/from other funds,” respectively, on the balance sheet and as internal balances on the statement of net position. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (35) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Receivables/Payables (Continued) Proprietary fund trade receivables are shown net of an allowance for uncollectible accounts. Allowances for uncollectible were $1,043,137 as of June 30, 2022. Utility customers are billed monthly. The estimated value of services provided, but unbilled at year-end, has been included in the accompanying financial statements. F. Inventories All inventories are valued at cost, or estimated historical costs when historical information is unavailable, using the first-in/first-out (FIFO) method. Inventory costs in the governmental funds are recorded as an expenditure when used and are reported under the consumption method of accounting. Inventory costs in the proprietary funds are recorded as an expense or capitalized into capital assets when used. G. Prepaid Items The City 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 9 for further information regarding SCPPA. H. 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 valued at their acquisition value on the date contributed. Capital assets include intangible assets with indefinite lives and public domain (infrastructure) general capital assets consisting of certain improvements including roads and bridges, sidewalks, curbs and gutters, and traffic light systems. 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 in the government-wide and proprietary funds statements. The estimated useful lives are as follows: Infrastructure 10 to 50 Years Utility Plant and Buildings 25 to 50 Years Improvements 10 to 20 Years Right-to-use equipment 3 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 changes in net financial position. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (36) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. Compensated Absences Accumulated vacation is accrued when incurred in the government-wide, proprietary and fiduciary fund financial statements. A liability for accrued vacation is recorded in the governmental fund only to the extent that such amounts have matured (i.e., as a result of employee resignations and retirements). Upon termination of employment, the City will pay the employee all accumulated vacation leave at 100% of the employee’s base hourly rate. J.Deferred Outflows and Inflows of Resources The statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to a future period and will not be recognized as an outflow of resources (expense/expenditure) until that time. The City has the following items that qualify for reporting as deferred outflows of resources: Deferred outflows related to pension and OPEB plans equal to employer contributions made after the measurement date of the pension and OPEB liabilities. Deferred outflows related to pension and OPEB plans for differences between expected and actual experiences. These amounts are amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided with pensions and OPEB benefits through the plans. Deferred outflows related to pension for changes in employer’s proportion and differences between employer’s contributions and the proportionate share of employer contributions. These amounts are amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided with pensions benefits through the plans. Deferred outflows related to OPEB plans for changes in assumptions. These amounts are amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided with OPEB benefits through the plans. Deferred outflows related to pension and OPEB plans resulting from the net difference between projected and actual earnings on plan investments. These amounts are amortized over five years. Deferred amount on bond refunding which is amortized over the life of refunding debt. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (37) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J.Deferred Outflows and Inflows of Resources (Continued) The statement of net position and the governmental fund balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net assets that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. The City has the following items that qualify for reporting in this category: Deferred inflows related to OPEB plans for changes in assumptions. These amounts are amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided with pensions and OPEB benefits through the plans. Deferred inflows related to OPEB plans for differences between expected and actual experiences. These amounts are amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided with OPEB benefits through the plans. Deferred inflows related to pension plans for changes in employer’s proportion and differences between employer’s contributions and the proportionate share of employer contributions. These amounts are amortized over a closed period equal to the average of the expected remaining service lives of all employees that are provided with pension benefits through the plans. Deferred inflows related to pension and OPEB plans resulting from the net difference between projected and actual earnings on plan investments. These amounts are amortized over five years. K. Long-Term Obligations Certain of the City’s governmental fund obligations not currently due and payable at year-end are reported in the government-wide statement of net position. Long-term debt and other obligations financed by proprietary funds and the fiduciary fund are reported as liabilities in the appropriate proprietary fund, fiduciary fund and government-wide statement of net position, respectively. Bond discounts and premiums, and deferred amounts on refunding are amortized over the life of the bonds using the straight-line method, which approximates the effective interest method. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (38) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Leases Lessee The City is a lessee for a noncancellable leases of equipment. The City recognizes a lease liability and an intangible right-to-use asset (lease asset) in the governmental activities in the government-wide statement of net position. At the commencement of a lease, the City initially measures the lease liability at the present value of payments expected to be made during the lease term. Subsequently, the lease liability is reduced by the principal portion of lease payments made. The lease asset is initially measured as the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement date. Subsequently, the lease asset is amortized on a straight-line basis over its useful life. The City monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease asset and liability if certain changes occur that are expected to significantly affect the amount of the lease liability. Lessor The City is a lessor for a noncancellable lease of land and improvements. The City recognizes a lease receivable and a deferred inflow of resources in the statement of net position and in the governmental fund balance sheet. At the commencement of a lease, the City initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term. The City monitors changes in circumstances that would require a remeasurement of its lease and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (39) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) M. Net Position The government-wide financial statements and proprietary fund financial statements utilize a net position presentation. Net position is categorized as follows: Net Investment in Capital Assets – This category groups all capital assets, including infrastructure, into one component of net position. Accumulated depreciation and the outstanding balances of debt 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 City not reported in other categories. 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. N. Fund Balance In the fund financial statements, the governmental fund balance is classified in the following categories: Nonspendable Fund Balance – includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash, for example, inventories, prepaid amounts, and long-term notes receivable. Restricted Fund Balance – includes amounts that are restricted for specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed Fund Balance – includes amounts that can only be used for the specific purposes determined by formal action of the City’s highest level of decision-making authority, its City Council. Commitments may be changed or lifted only by the City taking the same formal action that imposed the constraint originally (for example, ordinance). Unassigned Fund Balance – includes the residual classification for the General Fund and includes all amounts not contained in the other classifications. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is depleted in the order of restricted, committed, assigned, and unassigned. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (40) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Encumbrances The City establishes encumbrances to record the amount of purchase orders, contracts, and other obligations, which have not yet been fulfilled, canceled or discharged. Encumbrances outstanding at year-end do not constitute expenditures or liabilities. Encumbrances outstanding at year-end are reported as a component of unassigned fund balance. Unencumbered appropriations lapse at year-end. P. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Q. Property Taxes The County of Los Angeles (County) levies, collects and apportions property taxes for all taxing jurisdictions within the County. Property taxes are determined by applying approved rates to the properties’ assessed values. The County remits property taxes applicable to the City less an administrative fee throughout the year. Article XIIIA of the state of California Constitution limits the property tax levy to support general government services of the various taxing jurisdictions to $1.00 per $100 of assessed value. Taxes levied to service voter-approved debt prior to June 30, 1978, are excluded from this limitation. Secured property taxes are levied in two installments, November 1 and February 1. They become delinquent with penalties after December 10 and April 10, respectively. The lien date is January 1 of each year for secured and unsecured property taxes and the levy date occurs on the 4th Monday of September of the tax year. Unsecured property taxes on the tax roll as of July 31 become delinquent with penalties on August 31. R. 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) and PARS plan and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS and PARS. 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 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (41) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) S.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 Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, the Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value. NOTE 2 CASH AND INVESTMENTS Cash and Investments Cash and investments as of June 30, 2022, are classified in the accompanying financial statements as follows: Primary Fiduciary Government Fund Total Cash and Cash Equivalents 174,934,022$ -$ 174,934,022$ Restricted Cash and Cash Equivalents 52,651,048 19,037,529 71,688,577 Total Cash and Cash Equivalents 227,585,070$ 19,037,529$ 246,622,599$ Cash and investments as of June 30, 2022, consist of the following: Cash on Hand 1,300$ Deposits with Financial Institutions 99,883,420 Investments 146,737,879 Total Cash and Investments 246,622,599$ 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. 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. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (42) NOTE 2 CASH AND INVESTMENTS (CONTINUED) The City’s Investment Policy (Continued) 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 Obligations 5 Years None None None U.S. Agency Securities 5 Years None None None Local Agency Bonds 5 Years None None AA CA State and Local Agency Bonds 5 Years 30%None None Bankers’ Acceptances 180 Days 40%30%None Commercial Paper 270 Days 25%10%(1) Negotiable Certificates of Deposit 5 Years 30%None None 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 None None (1)Highest letter and numerical rating by a nationally recognized statistical ratings organization. * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (43) NOTE 2 CASH AND INVESTMENTS (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 U.S. Treasury Obligations None None None None U.S. Agency Securities None None None None Certificates of Deposit None None None None Bankers’ Acceptances 1 Year None None None Commercial Paper None None None (1) Money Market Mutual Funds N/A None None AAA State Administered Pool Investment N/A None $50 Million None Investment Contracts None None None None (1)Highest letter and numerical rating by a nationally recognized statistical ratings organization. Disclosure Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The City has no specific limitations with respect to this metric. Investment Maturities Fair Value (in Months) as of Less than 13 to 25 to Investment Type 6/30/2022 12 Months 24 Months 60 Months Investments: Local Agency Investment Fund 627,044$ 627,044$ -$ -$ Investments with Fiscal Agent: Money Market Mutual Funds 146,110,835 146,110,835 -- Total Investments 146,737,879$ 146,737,879$ -$ -$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (44) NOTE 2 CASH AND INVESTMENTS (CONTINUED) 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. 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 a 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, 2022, there were no investments held by the City that exceeded 5% in any one issuer, excluding the investments in 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 year-end, the carrying amounts of the City’s deposits were $99,883,420. The bank balances were $100,221,139, respectively. The difference between the bank balances and the carrying amounts represents outstanding checks and deposits in transit. As of June 30, 2022, the City’s deposits with financial institutions were either FDIC-insured or collateralized by the pledging financial institution as required by Section 53652 of the California Government Code. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (45) NOTE 2 CASH AND INVESTMENTS (CONTINUED) Local Agency Investment Fund (LAIF) The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the state of California. The fair value of the City’s investment in this pool is reported in the accompanying financial statements at amounts based upon the City’s pro rata share of the fair value provided by LAIF for the entire LAIF portfolio. The balance available for withdrawal is based on the accounting records maintained by LAIF. LAIF is not rated. Fair Value Measurement The City categorizes its fair value measurement within the fair value hierarchy established by accounting principles generally accepted in the United States of America. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets, Level 2 inputs are quoted prices of similar assets in active markets, and Level 3 inputs are significant unobservable inputs. The fair value of the City’s investments in the Local Agency Investment Fund and the money market mutual funds are not subject to the fair value hierarchy requirement. Minimum Fair Value Required Credit Rating as of Investment Type Rating Moody's / S&P June 30, 2022 Investments: Local Agency Investment Fund Not Rated Not Rated 627,044$ Investments with Fiscal Agent: Money Market Mutual Funds Aaa / AAA Aaa / AAA 146,110,835 Total Investments 146,737,879$ NOTE 3 LEASE RECEIVABLE The City, acting as lessor, leases land and improvements under a noncancellable lease agreement. The lease expires in January 2061. The net present value of the lease receivable was determined using a discount rate of 2.01%. Monthly lease payments are $11,914. During the year ended June 30, 2022, the District recognized $65,378 and $77,584 in lease revenue and interest revenue respectively, pursuant to this lease agreement. The lease provides for increases in future minimum monthly lease payments, subject to certain variable increases. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (46) NOTE 3 LEASE RECEIVABLE (CONTINUED) Estimated future minimum lease payments to be received are as follows: Fiscal Year Ending June 30,Principal Interest 2023 66,705$ 76,258$ 2024 68,058 74,905 2025 69,439 73,524 2026 70,847 72,115 2027 72,284 70,678 2028-2032 384,022 330,792 2033-2037 424,587 290,227 2038-2042 469,436 245,378 2043-2047 519,023 195,791 2048-2051 573,847 140,966 2052-2056 634,463 80,350 2057-2061 483,593 16,776 Total Requirements 3,836,304$ 1,667,760$ NOTE 4 INTERFUND TRANSACTIONS Interfund receivables and payables were as follows at June 30, 2022: Due to/from Other Funds Due from Other Funds Due to Other Funds Amount General Fund Electric Enterprise Fund 2,965,077$ Gas Enterprise Fund 1,184 Electric Enterprise Fund Gas Enterprise Fund 70,399 Total 3,036,660$ The interfund balances resulted from borrowing of cash for temporary purposes. All balances are expected to be reimbursed within the subsequent year. Advances to/from Other Funds Receivable Fund Payable Fund Amount Electric Enterprise Fund Gas Enterprise Fund 23,226,198$ Fiber Optics Enterprise Fund 3,853,692 Water Enterprise Fund General Fund 202,798 Total 27,282,688$ The advance between the Electric Enterprise Fund and the Gas and Fiber Optics Enterprise Funds do not accrue interest due to the nature of the City’s operational relationship and capital projects funded by the Electric Enterprise Fund that benefit all City operations. On November 6, 2012, the City adopted Resolution No. 2012-215 extending the repayment term of the advance from 15 months to a period of over 10 years. The advance between the Water Enterprise Fund and the General Fund does not accrue interest due to the nature of the City’s operational relationship and capital projects funded by the Water Fund that benefit both. On November 6, 2012, the City adopted Resolution No. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (47) 2012-215 extending the repayment term of the advance from 15 months to a period of over 10 years. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (48) NOTE 5 CAPITAL ASSETS Capital asset activity of governmental activities for the fiscal year ended June 30, 2022, was as follows: Balance June 30, 2021 Balance Restated (1) Additions Deletions June 30, 2022 Governmental Activities: Capital Assets, Not Being Depreciated: Land 63,569,108$ -$ -$ 63,569,108$ Construction in Progress 1,286,427 945,551 - 2,231,978 Total Capital Assets, Not Being Depreciated 64,855,535 945,551 - 65,801,086 Capital Assets, Being Depreciated/Amortized: Infrastructure 158,968,027 108,610 - 159,076,637 Building and Improvements 16,711,672 69,284 (8,362) 16,772,594 Improvements Other than Buildings 11,980,249 229,764 (297) 12,209,716 Right-to-Use Leased Equipment 56,857 - - 56,857 Machinery and Equipment 20,279,547 1,937,921 (5,312,385) 16,905,083 Total Capital Assets, Being Depreciated/Amortized 207,996,352 2,345,579 (5,321,044) 205,020,887 Less: Accumulated Depreciation/ Amortization For: Infrastructure (75,134,891) (3,567,572) - (78,702,463) Building and Improvements (9,215,846) (394,407) 5,185 (9,605,068) Improvements Other than Buildings (6,228,742) (349,342) 199 (6,577,885) Right-to-Use Leased Equipment - (25,270) - (25,270) Machinery and Equipment (16,889,206) (679,708) 4,751,155 (12,817,759) Total Accumulated Depreciation/ Amortization (107,468,685) (5,016,299) 4,756,539 (107,728,445) Total Capital Assets, Being Depreciated/ Amortized, Net: Infrastructure 83,833,136 (3,458,962) - 80,374,174 Building and Improvements 7,495,826 (325,123) (3,177) 7,167,526 Improvements Other than Buildings 5,751,507 (119,578) (98) 5,631,831 Right-to-Use Leased Equipment 56,857 (25,270) - 31,587 Machinery and Equipment 3,390,341 1,258,213 (561,230) 4,087,324 Total 100,527,667 (2,670,720) (564,505) 97,292,442 Governmental Activities Capital Assets, Net 165,383,202$ (1,725,169)$ (564,505)$ 163,093,528$ (1)Beginning balance was restated to add right-to-use leased assets due to implementation of GASB Statement No. 87, Leases. See Note 1C Depreciation expense was charged to governmental functions as follows: General Government 826,038$ Public Safety 222,444 Public Works 3,967,817 Total Depreciation/Amortization Expense - Governmental Functions 5,016,299$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (49) NOTE 5 CAPITAL ASSETS (CONTINUED) Capital asset activity of business-type activities for the fiscal year ended June 30, 2022, was as follows: Balance Balance June 30, 2021 Additions Deletions Transfers June 30, 2022 Business-Type Activities: Capital Assets, Not Being Depreciated: Electric Utility - Land 13,193,594$ -$ -$ -$ 13,193,594$ Water Utility - Water 467,640 - - - 467,640 Electric Utility - Intangibles - Environmental Credits 1,163,811 3,610,772 - - 4,774,583 Electric Utility - Construction in Progress 45,324,750 129,024 - - 45,453,774 Water Utility - Construction in Progress 4,635,417 2,366,637 - (87,755) 6,914,299 Total Capital Assets, Not Being Depreciated 64,785,212 6,106,433 - (87,755) 70,803,890 Capital Assets, Being Depreciated Electric Utility - Production Plant 16,189,303 196,173,685 - - 212,362,988 Electric Utility - Transmission Plant 4,888,113 - (1,271,649) - 3,616,464 Electric Utility - Distribution Plant 258,451,179 16,781,817 (18,181,346) - 257,051,650 Electric Utility - General Plant 9,587,933 192,379 (25,903) - 9,754,409 W ater Utility Plant 23,765,353 1,666,662 (1,789,499) 87,755 23,730,271 Gas Utility Plant 26,973,692 261,506 (34,604) - 27,200,594 Fiber Optic Utility Plant 4,161,378 211,814 (616,583) - 3,756,609 Total Capital Assets, Being Depreciated 344,016,951 215,287,863 (21,919,584) 87,755 537,472,985 Less: Accumulated Depreciation for: Electric Utility - Production Plant (10,757,493) (8,634,043) - - (19,391,536) Electric Utility - Transmission Plant (3,424,581) (78,093) 1,059,485 - (2,443,189) Electric Utility - Distribution Plant (101,227,123) (7,438,076) 16,493,501 - (92,171,698) Electric Utility - General Plant (6,148,921) (360,709) 25,903 - (6,483,727) Water Utility Plant (15,723,755) (500,102) 1,379,658 - (14,844,199) Gas Utility Plant (11,142,926) (707,035) 28,528 - (11,821,433) Fiber Optic Utility Plant (3,123,880) (186,152) 616,583 - (2,693,449) Total Accumulated Depreciation (151,548,679) (17,904,210) 19,603,658 - (149,849,231) Total Capital Assets, Being Depreciated, Net: Electric Utility - Production Plant 5,431,810 187,539,642 - - 192,971,452 Electric Utility - Transmission Plant 1,463,532 (78,093) (212,164) - 1,173,275 Electric Utility - Distribution Plant 157,224,056 9,343,741 (1,687,845) - 164,879,952 Electric Utility - General Plant 3,439,012 (168,330) - - 3,270,682 W ater Utility Plant 8,041,598 1,166,560 (409,841) 87,755 8,886,072 Gas Utility Plant 15,830,766 (445,529) (6,076) - 15,379,161 Fiber Optic Utility Plant 1,037,498 25,662 - - 1,063,160 Total 192,468,272 197,383,653 (2,315,926) 87,755 387,623,754 Business-Type Activities Capital Assets, Net 257,253,484$ 203,490,086$ (2,315,926)$ -$ 458,427,644$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (50) NOTE 5 CAPITAL ASSETS (CONTINUED) Depreciation expense was charged to the business-type functions as follows: Electric Fund 16,510,921$ Gas Fund 707,035 Water Fund 500,102 Fiber Optics Fund 186,152 Total Depreciation Expense - Business- Type Functions 17,904,210$ NOTE 6 LONG-TERM LIABILITIES Changes in Long-Term Liabilities The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022: Balance Balance Amounts June 30, 2021 Due Within Restated (1) Additions Reductions June 30, 2022 One Year Governmental Activities: Claims Payable (Note 7)3,409,372$ 2,831,928$ (1,300,568)$ 4,940,732$ 1,646,911$ Compensated Absences (Note 1I)2,505,255 1,597,293 (1,428,618) 2,673,930 891,310 Lease Liability 56,857 - (25,197)31,660 25,313 Total 5,971,484$ 4,429,221$ (2,754,383)$ 7,646,322$ 2,563,534$ Business-Type Activities: Other Debt: Bonds Payable 281,475,000$ 235,885,000$ (96,450,000)$ 420,910,000$ 50,360,000$ Bond Premium 7,744,795 38,266,557 (2,680,100) 43,331,252 - Bond Discount (1,923,931) - 754,988 (1,168,943) - Notes Payable - Direct Borrowing 1,360,465 - (139,535)1,220,930 139,535 Compensated Absences 1,181,903 805,554 (769,052) 1,218,405 406,135 Total 289,838,232$ 274,957,111$ (99,283,699)$ 465,511,644$ 50,905,670$ (1)The beginning balance was restated to add leases payable due to the implementation of GASB Statement No. 87, Leases. See Note 1C. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (51) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) Compensated Absences There is no fixed payment schedule for earned but unpaid compensated absences in both the governmental and business type activities. Lease Liability The City leases equipment under a noncancelable lease agreement. The lease expires October 2023. The net present values of the lease payable was determined using a discount rate of 0.46%. Monthly lease payments total $2,116. Total future minimum lease payments under lease agreements are as follows: Lease Liability Fiscal Year Ending June 30,Principal Interest 2023 25,313$ 83$ 2024 6,347 2 Total Requirements 31,660$ 85$ $43,765,000 Electric System Revenue Bonds (2008 Taxable Series A) At June 30, 2022, $37,895,000 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 $72,050,772, payable through fiscal year 2039. For the current year, debt service and net electric revenues were $4,240,768 and $69,089,394, 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) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series A, in the amount of $37,640,000. 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. The Electric System Revenue Bonds were refunded in the current fiscal year with the issuance of the Electric System Revenue Bonds 2021 Series A. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (52) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) $35,100,000 Electric System Revenue Bonds (2012 Taxable Series B) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series B, in the amount of $35,100,000. During the current fiscal year, a portion of the Electric System Revenue Bonds were refunded with the issuance of the Electric System Revenue Bonds 2022 Series A. At June 30, 2022, $11,505,000 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 $12,752,831, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $25,817,900 and $69,089,394, 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. $111,720,000 Electric System Revenue Bonds (2015 Taxable Series A) At June 30, 2022, $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 $124,140,019, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $5,087,518 and $69,089,394, 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, 2022, $19,305,000 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 $30,319,875, payable through fiscal year 2038. For the current year, debt service and net electric revenues were $25,596,000 and $69,089,394, 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 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (53) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) $183,815,000 Electric System Revenue Bonds (2021 Series A) In December 2021, the City of Vernon issued 2021A Electric System Revenue Bonds in the amount of $183,815,000 (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the City limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights; (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement; and (iii) to pay costs of issuance of the 2021 bonds. The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis on April 1 and October 1, commencing April 1, 2022. At June 30, 2022, $173,815,000 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 $207,098,300, payable through fiscal year 2028. For the current year, debt service and net electric revenues were $12,671,686 and $69,089,394, 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, 2021 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue bonds, 2012 Taxable Series B and (ii) pay costs of issuance of the 2022 Bonds. $52,070,000 Electric System Revenue Bonds (2022 Series A) In December 2021, the City of Vernon issued 2022A Electric System Revenue Bonds in the amount of $52,070,000 to refund the 2012A Electric System Revenue Bonds, a portion of the 2012B Electric Revenue Bonds, and provide for the costs of issuing the bonds. The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis beginning February 1 and August 1, commencing on August 1, 2022. At June 30, 2022, $52,070,000 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 $78,789,447, payable through fiscal year 2042. For the current year, debt service and net electric revenues were $0 and $69,089,394, 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, 2021 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue bonds, 2012 Taxable Series B and (ii) pay costs of issuance of the 2022 Bonds. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (54) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) $14,840,000 Water System Revenue Bonds (2020 Series A) At June 30, 2022, $14,600,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of water revenues payable to bondholders. The debt service remaining on the bonds is $25,040,038, payable through fiscal 2051. For the current year, debt service and net water revenues were $827,975 and $3,194,732, respectively. Under the Indenture of Trust dated May 6, 2020, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Water Enterprise (as those terms are defined in the Indenture of Trust). A summary of bonds payable for business-type activities is as follows: Fixed Annual Original Interest Principal Issue Outstanding Bonds Maturity Rates Installments Amount June 30, 2022 City of Vernon 07/01/38 7.40% - To begin 07/01/10: 43,765,000$ 37,895,000$ Electric System Revenue Bonds,8.59%$265,000 - 2008 Taxable Series A $4,065,000 City of Vernon 08/01/26 6.25% - To begin 08/01/22: 35,100,000 11,505,000 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 19,305,000 Electric System Revenue Bonds,$1,525,000 - 2020 Taxable Series A $28,655,000 City of Vernon 04/01/28 4% - To begin 04/01/22: 183,815,000 173,815,000 Electric System Revenue Bonds,5.00% $10000,000 - 2021 Taxable Series A $54,915,000 City of Vernon 08/01/41 5.00% To begin 05/05/22: 52,070,000 52,070,000 Electric System Revenue Bonds,$950,000 - 2022 Taxable Series A $5,850,000 Premiums 42,376,244 Discounts (1,098,956) Total Electric System Revenue Bonds 447,587,288 Water System: City of Vernon 08/01/50 5.00% To begin 08/01/21: 14,840,000 14,600,000 Water System Revenue Bonds, $240,000 - 2020 Taxable Series A $3,785,000 Premium 535,833 Total Water System Revenue Bonds 15,135,833 Total Revenue Bonds 462,723,121$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (55) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) Note Payable – Direct Borrowing In May 2019, the City entered into an agreement with Water Replenishment District of Southern California (WRD) for assistance with the construction of a new groundwater well or rehabilitation of an existing groundwater well. The promissory note is unsecured and has no interest basis for an amount not to exceed $1,500,000. As of June 30, 2022, WRD has disbursed all of the funds under the agreement to the City. The note is payable in quarterly principal payments commencing September 1, 2020, in an amount which, together with all quarterly payments, will be sufficient to fully amortize the principal balance of the note by the maturity date of April 1, 2031. Upon an event of default, WRD may declare any or all of the outstanding and unpaid principal balance immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice, declaration or act of any kind, all of which are hereby expressly waived by the City. Business-Type Activities Debt Service Requirements As of June 30, 2022, annual debt service requirements of business-type activities to maturity are as follows: Electric System Revenue Bonds 2008 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 1,025,000$ 3,211,156$ 2024 1,120,000 3,119,029 2025 1,220,000 3,018,526 2026 1,330,000 2,909,004 2027 1,450,000 2,789,603 2028-2032 9,445,000 11,747,040 2033-2037 14,510,000 6,677,437 2038-2041 7,795,000 683,979 Total Requirements 37,895,000$ 34,155,772$ Electric System Revenue Bonds 2012 Taxable Series B Fiscal Year Ending June 30,Principal Interest 2023 6,165,000$ 531,831$ 2024 1,170,000 302,613 2025 1,305,000 225,269 2026 1,390,000 140,181 2027 1,475,000 47,938 Total Requirements 11,505,000$ 1,247,832$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (56) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) Business-Type Activities Debt Service Requirements (Continued) Electric System Revenue Bonds 2015 Taxable Series A Fiscal Year Ending June 30,Principal Interest 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 15,295,000 370,904 Total Requirements 111,720,000$ 12,420,019$ Electric System Revenue Bonds 2020 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 -$ 965,250$ 2024 - 965,250 2025 - 965,250 2026 - 965,250 2027 - 965,250 2028-2032 6,585,000 4,188,125 2033-2037 10,325,000 1,940,625 2038-2041 2,395,000 59,875 Total Requirements 19,305,000$ 11,014,875$ Electric System Revenue Bonds 2021 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 20,380,000$ 8,385,050$ 2024 21,335,000 7,405,125 2025 22,400,000 6,325,000 2026 23,530,000 5,190,875 2027 31,255,000 3,917,875 2028-2032 54,915,000 2,059,375 Total Requirements 173,815,000$ 33,283,300$ Electric System Revenue Bonds 2022 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 -$ 1,923,697$ 2024 4,690,000 2,486,250 2025 4,885,000 2,246,875 2026 5,130,000 1,996,500 2027 5,405,000 1,733,125 2028-2032 5,270,000 7,357,500 2033-2037 6,765,000 5,860,625 2038-2042 19,925,000 3,114,875 Total Requirements 52,070,000$ 26,719,447$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (57) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) Business-Type Activities Debt Service Requirements (Continued) Water System Revenue Bonds 2020 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 250,000$ 575,725$ 2024 265,000 562,850 2025 275,000 549,350 2026 - 542,475 2027 - 542,475 2028-2032 1,985,000 2,563,500 2033-2037 2,180,000 2,052,625 2038-2042 2,680,000 1,535,450 2043-2047 3,180,000 1,051,925 2048-2051 3,785,000 463,663 Total Requirements 14,600,000$ 10,440,038$ Note Payable Fiscal Year Ending June 30,Principal Interest 2023 139,535$ -$ 2024 139,535 - 2025 139,535 - 2026 139,535 - 2027 139,535 - 2028-2031 523,256 - Total Requirements 1,220,930$ -$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (58) NOTE 6 LONG-TERM LIABILITIES (CONTINUED) Expense Stabilization Fund The City 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. In the event of default under the Indenture shall have occurred and is continuing, the Trustee shall transfer all moneys in the 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 no event of default exists under the Indenture. As at June 30, 2022, this fund has a balance of $38,934,149. 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. Credit Ratings As of June 30, 2022, the ratings on all Electric System Revenue Bonds is BBB+ by S&P and Baa2 by Moody’s and the ratings on all Water System Revenue Bonds is AA by S&P and not rated by Moody’s. Line of Credit As at June 30, 2022, the City does not have a line of credit with a financial institution. NOTE 7 RISK MANAGEMENT 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 our Risk Financing Program. 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 the Risk Financing Program in the General Fund, whereby assets are set aside for claim-litigation settlements associated with the above-mentioned risks up to their self-insured retentions or policy deductibles. Athens Administrators Inc. is our Third-Party Administrator for the City’s workers’ compensation program and they provide basic services for general liability claims and litigation. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (59) NOTE 7 RISK MANAGEMENT (CONTINUED) The insurance limits for the fiscal year 2022 are as follows (amounts in thousands): 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 nonsafety; $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 nonutility 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 $5,000,000 Terrorism and Sabotage Liability Per Occurrence/Aggregate The City has numerous claims and pending litigations, which generally involve accidents and/or liability or damage to City property. The balance of claims/litigations against the City is in the opinion of management, ordinary routine matters, incidental to the normal business conducted by the City. In the opinion of management, such proceedings are substantially covered by insurance, and the ultimate dispositions of such proceedings are not expected to have a material adverse effect on the City’s financial position, results of operations or cash flows. Changes in the balance of claims liabilities for the past two fiscal years for all self-insurance activities combined are as follows: 2022 2021 Claims Payable, Beginning of Fiscal Year 3,409,372$ 3,840,080$ Incurred Claims and Change in Estimates 2,831,928 836,537 Claims Payments (1,300,568) (1,267,245) Claims Payable, End of Fiscal Year 4,940,732$ 3,409,372$ NOTE 8 PENSION PLANS The following is a summary of pension related items for the year ended June 30, 2022: Deferred Deferred Pension Outflows Inflows Pension Liability of Resources of Resources Expense Miscellaneous 28,268,856$ 7,936,320$ (14,256,658)$ 3,150,422$ Safety 59,761,800 20,436,938 (41,139,301) 5,288,917 Total 88,030,656$ 28,373,258$ (55,395,959)$ 8,439,339$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (60) NOTE 8 PENSION PLAN (CONTINUED) A. General Information About the Pension Plans On October 1, 2020, the City transferred its fire department operations to Los Angeles County, California. The City’s full-time safety (police and fire personnel) employees were converted from the City’s agent multiple-employer defined benefit pension plan to a cost- sharing defined benefit pension plan during the fiscal year ended June 30, 2021. See Note 10 for further information. Plan Descriptions All full-time safety 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. 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 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (61) NOTE 8 PENSION PLAN (CONTINUED) A. General Information About the Pension Plans (Continued) Benefits Provided (Continued) The Plans’ provisions and benefits in effect as of the measurement date of June 30, 2021, 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 Age5052 Monthly Benefits, as a Percent 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 11.380% 11.380% Payment of Unfunded Liability 3,924,540$ -$ 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 Age5050 Monthly Benefits, as a Percent of Eligible Compensation 3%2.0% to 2.7% Required Employee Contribution Rates 9.000%13.750% Required Employer Contribution Rates: Normal Cost Rate 22.780% 22.780% Payment of Unfunded Liability 7,063,113$ 15,563$ Employees Covered At June 30, 2022, the following employees were covered by the benefit terms for each Plan: Miscellaneous Safety Inactive Employees or Beneficiaries Currently Receiving Benefits 243 262 Inactive Employees Entitled to But Not Yet Receiving Benefits 215 132 Active Employees 161 41 Total 619 435 CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (62) NOTE 8 PENSION PLAN (CONTINUED) A. General Information About the Pension Plans (Continued) 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 (UAL). The City is required to contribute to the difference between the actuarially determined rate and the contribution rate of employees. Contributions for the fiscal year ended June 30, 2022, included $11,003,216 for the UAL and $3,213,343 for the normal cost rate resulting in a total amount paid of $14,216,559. B. Net Pension Liability The City’s net pension liability for each Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions The total pension liabilities in the June 30, 2021 actuarial valuations were determined using the following actuarial assumptions: Miscellaneous Safety Valuation Date June 30, 2020 June 30, 2020 Measurement Date June 30, 2021 June 30, 2021 Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.500% 2.500% Payroll Growth 2.750%2.750% 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. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (63) NOTE 8 PENSION PLAN (CONTINUED) B. Net Pension Liability (Continued) 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. 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 Allocation 1 - 10 (b)11+ (c) Global Equity 50.00 %4.80 %5.98 % Fixed Income 28.00 1.00 2.62 Inflation Assets -0.77 1.81 Private Equity 8.00 6.30 7.23 Real Assets 13.00 3.75 4.93 Liquidity 1.00 -(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 ACFR, 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. Asset Class (a) 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 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (64) NOTE 8 PENSION PLAN (CONTINUED) B. Net Pension Liability (Continued) Subsequent Events On July 12, 2021, CalPERS reported a preliminary 21.3% net return on investments for fiscal year 202-21. Based on the thresholds specified in CalPERS Funding Risk Mitigation policy, the excess return of 14.3% prescribes a reduction in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021. On November 17, 2021, the board adopted a new strategic asset allocation. The new asset allocation along with new capital market assumptions, economic assumptions and administrative expense assumption support a discount rate of 6.90% (net of investment expense but without a reduction for administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumption from 2.50% to 2.30% as recommended in the November 2021 CalPERS Experience Study and Review of Actuarial Assumptions. This study also recommended modifications to retirement rates, termination rates, mortality rates and rates of salary increases that were adopted by the board. These new assumptions will be reflected in the GASB 68 account valuation reports for the June 30, 2022 measurement date. C.Changes in the Net Pension Liability The changes in the Net Pension Liability for the Miscellaneous Plan over the measurement period follows: Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Liability Net Position Miscellaneous Plan: Balance at June 30, 2020 (Measurement Date) 184,953,577$ 138,335,116$ 46,618,461$ Changes in the Year: Service Cost 2,735,636 -2,735,636 Interest on the Total Pension Liability 13,153,255 -13,153,255 Differences Between Expected and Actual Experience 1,777,340 -1,777,340 Contribution - Employer -4,979,542 (4,979,542) Contribution - Employee -1,161,711 (1,161,711) Net Investment Income -30,012,771 (30,012,771) Benefit Payments, Including Refunds of Employee Contributions (8,274,278) (8,274,278) - Administrative Expenses -(138,188)138,188 Net Changes 9,391,953 27,741,558 (18,349,605) Balance at June 30, 2021 (Measurement Date)194,345,530$ 166,076,674$ 28,268,856$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (65) NOTE 8 PENSION PLAN (CONTINUED) C.Changes in the Net Pension Liability (Continued) The City reported a net pension liability for its proportionate share of the net pension liability of the safety plan as of June 30, 2022, in the amount of $59,761,800. The City’s net pension liability for the safety plan is measured as the proportionate share of the net pension liability of the CalPERS cost sharing pool. The City’s net pension liability of the Plan is measured as of June 30, 2021, and the total pension liability for the safety plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The City’s proportionate share of the net pension liability for the safety plan as of June 30, 2020 and 2022 measurement dates was as follows: Safety Proportion - June 30, 2020 1.33110 % Proportion - June 30, 2021 1.70286 Change - Increase (Decrease) 0.37176 % Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City for each Plan, calculated using the discount rate for each Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is a one percentage point lower or a one percentage point higher than the current rate: Miscellaneous Safety One Percent Decrease 6.15%6.15% Net Pension Liability 55,565,615$ 99,454,775$ Current Discount Rate 7.15%7.15% Net Pension Liability 28,268,856$ 59,761,800$ One Percent Increase 8.15%8.15% Net Pension Liability 5,909,752$ 27,158,923$ 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 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (66) NOTE 8 PENSION PLAN (CONTINUED) D.Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the measurement period ended June 30, 2021, the City recognized pension expense of $3,150,422 related to the miscellaneous plan and $5,288,917 related to the safety plan. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Miscellaneous Plan Safety Plan Total Deferred Deferred Deferred Deferred Deferred Deferred Outflows of Inflows of Outflows of Inflows of Outflows of Inflows of Resources Resources Resources Resources Resources Resources Pension Contributions Subsequent to Measurement Date 5,957,671$ -$ 8,258,888$ -$14,216,559$ -$ Differences Between Expected and Actual Experience 1,978,648 -10,210,224 -12,188,872 - Change in Assumptions - - - -- - Net Differences Between Projected and Actual Earnings on Plan Investments - (14,256,658) -(35,569,658)-(49,826,316) Change in Employer's Proportion and Differences Between the Employer's Contributions and the Employer's - - Proportionate Share of Contributions - - 1,967,827 (5,569,643) 1,967,827 (5,569,643) Total 7,936,319$ (14,256,658)$ 20,436,939$ (41,139,301)$ 28,373,258$ (55,395,959)$ The $14,216,559 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Fiscal Year Ended June 30,Miscellaneous Safety Total 2023 (2,128,886)$ (5,309,183)$ (7,438,069)$ 2024 (2,660,978) (5,836,729) (8,497,707) 2025 (3,443,913) (8,027,111) (11,471,024) 2026 (4,044,233) (9,788,227) (13,832,460) 2027 - - - E. Payable to the Pension Plan At June 30, 2022, the City had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022. NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) A.General Information About the OPEB Plan Plan Description 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. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (67) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) A. General Information About the OPEB Plan (Continued) Benefits Provided Generally, the City will provide a postemployment benefit plan for the employee only to those 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 fifty (50), the City will pay the premium for the medical and dental plans until they reach the age of sixty-five (65). Resolution 2011-129 provided lifetime medical benefits to Police Management employees and their spouses, who have been employed as sworn safety personnel for a minimum of twenty (20) years and a minimum of ten (10) years of that services have been with the City of Vernon. Resolution 2011-127 sets forth the Memorandum of Understanding of the Vernon Police Officers’ Benefit Association, provided lifetime medical benefits to those employees and their spouses, who have been employed as sworn safety personnel for a minimum of twenty (20) years and a minimum of ten (10) years of that service has been with the City of Vernon. Resolution 2012-217 granted specific retiree medical benefits to employees who retire 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, and that this offer be extended as an option to safety and safety management groups, at their discretion, in addition to the related options provided in the Vernon Firefighters Association Memorandum of Understanding and the Vernon Police Officers’ Benefit Association Memorandum of Understanding. Resolution 2013-06 declared that the retiree medical benefits which had not been a vested right for employees will continue to be nonvested right for employees who continue to be employed by the City on or after July 1, 2013, but will become 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 cost in accordance with GASB Statement No 75. The City may terminate its unvested OPEB in the future. 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 year ended June 30, 2022, the City contributed $1,538,693 to the trust, paid $905,939 for retiree premiums, and the estimated implied subsidy was $433,399, resulting in a total contribution of $2,878,031. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (68) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) A. General Information About the OPEB Plan (Continued) Employees Covered by Benefit Terms At June 30, 2022, the following employees were covered by the benefit terms: Category Count Active Employees 208 Inactive Employees or Beneficiaries Currently Receiving Benefit Payments 115 B. Net OPEB Liability The City’s net OPEB liability is measured as of June 30, 2021, 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 below. 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. The total OPEB liability in the June 30, 2020, actuarial valuation was rolled forward to the June 30, 2021, measurement date using standard actuarial techniques. 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 Mortality 6.3% for FY2021, gradually decreasing over several decades to ultimate rate of 3.8% in FY76 and later years 2017 CalPERS Experience Study. Tables include 15 years of static mortality improvement using 90% of scale MP-2016 CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (69) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) B.Net OPEB Liability (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, 2021 are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return CERBT Strategy 1: Equity 59.00 %4.42 % Fixed Income 25.00 1.00 TIPS 5.00 0.15 Commodities 3.00 3.98 REITs 8.00 1.73 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. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (70) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) B.Net OPEB Liability (Continued) Change in the Net OPEB Liability Increase (Decrease) Total Plan Net OPEB OPEB Fiduciary Liability Liability Net Position Balance at June 30, 2020 (Measurement Date) 27,215,028$ 7,003,178$ 20,211,850$ Changes in the Year: Service Cost 303,057 - 303,057 Interest on the Total OPEB Liability 1,682,954 - 1,682,954 Differences Between Actual and Expected Experience (677,446) - (677,446) Changes in Assumptions 66,075 - 66,075 Changes of Benefit Terms - Investment Income - 2,084,288 (2,084,288) Contribution - Employer - 3,131,526 (3,131,526) Benefit Payments (1,199,826) (1,199,826) - Administrative Expenses - (2,958) 2,958 Net Changes 174,814 4,013,030 (3,838,216) Balance at June 30, 2021 (Measurement Date) 27,389,842$ 11,016,208$ 16,373,634$ Change of Assumptions There were no changes of assumptions. Change of Benefit Terms There were no changes of benefit terms. Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the City’s 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 One Percent One Percent Decrease Current Rate Increase (5.25%) (6.25%) (7.25%) Net OPEB liability 19,437,875$ 16,373,634$ 13,799,250$ CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (71) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) B.Net OPEB Liability (Continued) Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the City’s net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8 %) than the current rate: Healthcare Trend Rate One Percent One Percent Decrease Current Rate Increase Net OPEB liability 15,079,060$ 16,373,634$ 17,660,423$ OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2022, the City recognized OPEB expense(revenue) of $(843,086). At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Contributions Between Measurement Date and Reporting Date 2,933,295$ -$ Difference Between Expected and Actual Experience 138,780 (3,529,083) Changes in Assumptions 446,908 (3,749,862) Net Differences Between Projected and Actual Earnings on Investments - (1,106,933) Total 3,518,983$ (8,385,878)$ The $2,933,295 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: Deferred Outflows (Inflows) Fiscal Year Ending June 30,of Resources 2022 (2,335,409)$ 2023 (2,344,060) 2024 (2,330,268) 2025 (628,401) 2026 (74,715) Thereafter (87,337) CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (72) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) B.Net OPEB Liability (Continued) Payable to the OPEB Plan At June 30, 2022, the City had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022. NOTE 10 VERNON PUBLIC UTILITIES 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 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). 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. On December 15, 2021, the City made the determination to reacquire MGS to achieve potential costs savings and other resource management benefits. In addition to the potential savings, the City expects there to be other benefits associated with the acquisition of MGS, which includes having control of the facility and the site, providing the City with flexibility with respect to the MGS operations and MGS’s role in the City’s resource portfolio. The City issued Electric System Revenue Bonds, 2021 Series A and Electric System Revenue Bonds, 2022 Series A in 2022 to finance the acquisition. (See Note 6) 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. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (73) NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued) 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. 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 2022 was $3,320,768. 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: CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (74) NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued) Power Purchase Commitments (Continued) 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 $2,250,667. 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 $1,007,652. 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 $1,192,621. CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (75) NOTE 11 COMMITMENTS AND CONTINGENCIES Contract with Los Angeles County Fire Department The City contracted with the County of Los Angeles (LA County) for Fire services on May 20, 2020, setting forth the terms and conditions under which LA county will provide fire protection, paramedic, and incidental services in the City for the next ten years. The City is to pay LA County the annual fee on a monthly basis. During the initial five-year period, the annual fee limitation shall not exceed 4% per fiscal year, during the sixth year of the agreement the annual fee limitation shall be the average of the preceding four years’ percentage increases plus 1%. During the seventh year of the agreement and each subsequent fiscal year, the annual fee limitation shall be the average of the immediately preceding five years’ percentage increases in the Annual Fee plus o1%. Additionally, there are conversion costs that will be paid in 36 equal payments. The agreement shall remain in effect for a minimum of 10 years, subsequently it will be renewed for one-year periods. Either party may terminate this agreement any time after the expiration of the initial 10-year period term upon one year’s written notice. The following was the contract cost for the fiscal year ended June 30, 2022 totaled $16,785,842. NOTE 12 SUCCESSOR AGENCY DISCLOSURES The accompanying financial statements also include the Private-Purpose Trust Fund for the Successor Agency to the City’s former Redevelopment Agency (Successor Agency). The City, as the Successor Agency, serves in a fiduciary capacity, as the custodian for the assets and to wind down the affairs of the former Redevelopment Agency. Its assets are held in trust for the benefit of the taxing entities within the former Redevelopment Agency’s boundaries and as such, are not available for the use of the City. Disclosures related to the certain assets and long-term liabilities of the Successor Agency are as follows: Capital Assets Effective February 1, 2012, due to AB 1X 26, Redevelopment Agencies throughout California has been dissolved. The activities of the dissolved Vernon Redevelopment Agency have been recorded in the Vernon Redevelopment Successor Agency fiduciary fund. In accordance with the Successor Agency’s long-range plan to wind down the affairs of the Successor Agency, all capital assets of the Successor Agency were either written-off or transferred over to the City restricted for government purpose use. Long-Term Liabilities The long-term liabilities of the Successor Agency at June 30, 2022, were as follows: CITY OF VERNON NOTES TO FINANCIAL STATEMENTS JUNE 30, 2022 (76) NOTE 12 SUCCESSOR AGENCY DISCLOSURES (CONTINUED) Amounts Balance Balance Due Within June 30, 2021 Additions Reductions June 30, 2022 One Year Bonds Payable 42,300,000$ -$ (3,385,000)$ 38,915,000$ 1,845,000$ Bond Premium 236,866 - (25,869)210,997 - Bond Discount (439,105) - 43,910 (395,195) - Total 42,097,761$ -$ (3,366,959)$ 38,730,802$ 1,845,000$ $49,420,000 Industrial Redevelopment Project Tax Allocation Bonds, Series 2005 At June 30, 2022, $30,785,000 remained outstanding. The bonds are special obligation bonds and are payable from the pledged tax revenues and amounts on deposit in the reserve account. The debt service remaining on the bonds is $43,289,819, payable through fiscal 2036. For the current year, debt service amounted to $3,276,800. The bonds were issued to (i) finance various redevelopment projects, in or benefiting the Agency’s Industrial Redevelopment Project area, (ii) fund the reserve requirement for the Series 2005 Bonds, and (iii) pay costs of issuance of the Series 2005 Bonds. Debt service was calculated at the actual fixed rates of the coupons ranging from 3.25% to 5.25%. $19,490,000 Industrial Redevelopment Project Tax Allocation Bonds, Series 2011 At June 30, 2022, $8,130,000 remained outstanding. The bonds are special obligation bonds and are payable from the pledged tax revenues and amounts on deposit in the reserve account. The debt service remaining on the bonds is $11,882,263, payable through fiscal 2031. For the current year, debt service amounted to $2,452,425. The bonds were issued to (i) finance the acquisition of one or more parcels of land, and certain redevelopment projects, in or benefiting the Agency’s Industrial Redevelopment Project area, (ii) fund a deposit to the reserve account sufficient to meet the reserve requirement, and (iii) pay costs of issuance of the Series 2011 Bonds. Debt service was calculated at the actual fixed rates of the coupons ranging from 3.00% to 9.25%. The following schedule shows the debt service requirements to maturity for the bonds as of June 30, 2022: Fiscal Year Ending June 30,Principal Interest Total 2023 1,845,000$ 2,174,497$ 4,019,497$ 2024 2,015,000 2,053,091 4,068,091 2025 2,195,000 1,922,319 4,117,319 2026 2,385,000 1,781,719 4,166,719 2027 2,585,000 1,627,475 4,212,475 2028-2032 15,265,000 5,381,106 20,646,106 2033-2037 12,625,000 1,316,875 13,941,875 Total 38,915,000$ 16,257,081$ 55,172,081$ REQUIRED SUPPLEMENTARY INFORMATION CITY OF VERNON BUDGETARY COMPARISON SCHEDULE – GENERAL FUND YEAR ENDED JUNE 30, 2022 See accompanying Note to Required Supplementary Information. (78) Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes 54,065,142$ 54,065,142$ 56,686,792$ 2,621,650$ Special Assessments 1,201,200 1,201,200 1,704,159 502,959 Licenses and Permits 1,596,500 1,596,500 2,158,284 561,784 Fines, Forfeitures, and Penalties 140,800 140,800 258,268 117,468 Investment Income 86,700 86,700 100,809 14,109 Intergovernmental Revenues 7,323,810 7,323,810 1,789,300 (5,534,510) Charges for Services 10,337,306 10,337,306 10,276,400 (60,906) Rental Income 551,500 551,500 513,701 (37,799) Other Revenues 676,749 676,749 876,199 199,450 Total Revenues 75,979,707 75,979,707 74,363,912 (1,615,795) EXPENDITURES Current: General Government 17,337,548 17,534,892 17,085,390 449,502 Public Safety 34,936,189 34,936,189 34,345,479 590,710 Public Works 9,507,202 9,880,202 7,688,016 2,192,186 Health Services 1,825,172 1,895,172 1,411,874 483,298 Capital Outlay 12,348,200 12,368,200 2,927,921 9,440,279 Debt Service 25,396 25,396 25,396 - Total Expenditures 75,979,707 76,640,051 63,484,076 13,155,975 CHANGE IN FUND BALANCE - (660,344)10,879,836 11,540,180 Fund Balance - Beginning of Year 16,967,255 16,967,255 16,967,255 - FUND BALANCE - END OF YEAR 16,967,255$ 16,306,911$ 27,847,091$ 11,540,180$ CITY OF VERNON NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2022 (79) NOTE 1 BUDGET The City adheres to the following general procedures in establishing its annual budget, which is reflected in the accompanying General Fund budgetary comparison schedule. An annual budget is adopted by the City Council that provides for the general operation of the City. The budget includes authorized expenditures and estimated revenues of the General Fund. The budget is adopted on a modified accrual basis and formally integrated into the accounting system and employed as a management control device during the year. Encumbrances, which are commitments related to executory contracts for goods and services, are recorded to assure effective budgetary control and accountability. Encumbrances outstanding at year-end do not constitute expenditures or liabilities. Encumbrances outstanding at year-end are reported as committed fund balance for subsequent year expenditures. Unencumbered appropriations lapse at year-end. Excess expenditures over appropriations are financed by beginning fund balance. The final budgeted amounts used in the accompanying General Fund budgetary comparison schedule include any amendments made during the fiscal year 2022. Encumbrances carried forward from the prior year are reflected in the original budget. For the current year, the General Fund’s total positive variance between the final budgeted amounts and the actual amount of change in fund balance was $11,450,180. The key reasons for this variance were due to lower actual revenues than projected of $1,615,795 and lower actual expenditures than appropriated by $13,155,975. For the current year, the General Fund’s total positive variance between the final budgeted estimated revenues and actual revenues was $1,615,795. The main reason for the variance, was that taxes came in higher than expected by $2,621,650, in particular Sales Tax revenue offset by intergovernmental revenues coming lower by $5,534,510 since expected capital related work to the Atlantic Bridge Project funded by Caltrans was not completed. For the current year, the General Fund’s total positive variance between the final budgeted amount and the actual amount for expenditures was $13,155,975. The key reasons for this variance were due to higher appropriations than actual expenditures of $9,440,279 in capital outlay as work and purchases were delayed due to the pandemic and supply chain issues offset by an increase of $2,192,186 in public works supplies and repairs and maintenance costs. CITY OF VERNON SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN (CONTINUED) LAST TEN FISCAL YEARS * (80) Fiscal Year Ended June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 Measurement Period June 30, 2021 June 30, 2020 June 30, 2019 June 30, 2018 Total Pension Liability: Service Cost 2,735,636$ 2,905,980$ 2,991,388$ 2,826,440$ Interest on Total Pension Liability 13,153,255 12,502,379 11,863,069 11,053,679 Changes of Assumptions - -- (549,432) Differences Between Expected and Actual Experience 1,777,340 1,316,307 3,767,030 3,059,775 Benefit Payments, Including Refunds of Employee Contributions (8,274,278) (7,720,453) (6,652,881) (6,166,082) Net Change in Total Pension Liability 9,391,953 9,004,213 11,968,606 10,224,380 Total Pension Liability - Beginning of Year 184,953,577 175,949,364 163,980,758 153,756,378 Total Pension Liability - End of Year (a) 194,345,530$ 184,953,577$ 175,949,364$ 163,980,758$ Plan Fiduciary Net Position: Contributions - Employer 4,979,542$ 4,501,532$ 3,908,165$ 3,380,432$ Contributions - Employee 1,161,711 1,271,580 1,357,537 1,214,616 Net Investment Income 30,012,771 6,484,512 8,077,977 9,803,260 Benefit Payments, Including Refunds of Employee Contributions (8,274,278) (7,720,453) (6,652,881) (6,166,082) Plan to Plan Resource Movement - -- (296) Administrative Expenses (138,188) (188,889) (90,906) (186,518) Other Miscellaneous Income (1) - - 296 (354,202) Net Change in Plan Fiduciary Net Position 27,741,558 4,348,282 6,600,188 7,691,210 Plan Fiduciary Net Position - Beginning of Year 138,335,116 133,986,834 127,386,646 119,695,436 Plan Fiduciary Net Position - End of Year (b) 166,076,674$ 138,335,116$ 133,986,834$ 127,386,646$ Net Pension Liability - Ending (a)-(b) 28,268,856$ 46,618,461$ 41,962,530$ 36,594,112$ Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 85.45%74.79%76.15%77.68% Covered Payroll 15,355,968$ 15,399,491$ 15,996,725$ 15,146,241$ Net Pension Liability as Percentage of Covered Payroll 184.09% 302.73% 262.32% 241.61% Notes to Schedule: Benefit Changes: There were no changes in benefits. Changes in Assumptions: From fiscal year June 30, 2015 to June 30, 2016: GASB 68, paragraph 68 states that the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense. From fiscal year June 30, 2016 to June 30, 2017: There were no 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: From fiscal year June 30, 2019 to June 30, 2020: There were no changes in assumptions. From fiscal year June 30, 2020 to June 30, 2021: There were no changes in assumptions. From fiscal year June 30, 2021 to June 30, 2022: There were no changes in assumptions. * Fiscal year 2015 was the first year of implementation and therefore only eight years are shown. Demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Assumptions December 2017 CITY OF VERNON SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN (CONTINUED) LAST TEN FISCAL YEARS * (81) Fiscal Year Ended Measurement Period Total Pension Liability: Service Cost Interest on Total Pension Liability Changes of Assumptions Differences Between Expected and Actual Experience Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability - Beginning of Year Total Pension Liability - End of Year (a) Plan Fiduciary Net Position: Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Plan to Plan Resource Movement Administrative Expenses Other Miscellaneous Income (1) Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning of Year Plan Fiduciary Net Position - End of Year (b) Net Pension Liability - Ending (a)-(b) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Covered Payroll Net Pension Liability as Percentage of Covered Payroll June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014 2,432,788$ 2,129,659$ 1,962,270$ 1,955,694$ 10,383,859 9,969,103 9,447,012 9,609,274 9,321,776 - (2,466,126) - (711,339) 1,046,363 (9,700,904) - (6,145,366) (5,748,657) (5,680,624) (2,388,449) 15,281,718 7,396,468 (6,438,372) 9,176,519 138,474,660 131,078,192 137,516,564 128,340,045 153,756,378$ 138,474,660$ 131,078,192$ 137,516,564$ 3,629,603$ 3,140,644$ 2,340,002$ 1,825,732$ 1,245,990 1,095,824 1,054,426 1,015,741 11,857,647 583,692 2,337,855 16,045,243 (6,145,366) (5,748,657) (5,680,624) (2,388,449) 1,118 (780) 18 - (161,327) (67,200) (124,052) - - - - - 10,427,665 (996,477) (72,375) 16,498,267 109,267,771 110,264,248 110,336,623 93,838,356 119,695,436$ 109,267,771$ 110,264,248$ 110,336,623$ 34,060,942$ 29,206,889$ 20,813,944$ 27,179,941$ 77.85%78.91%84.12%80.24% 13,440,076$ 13,150,103$ 11,708,057$ 11,084,188$ 253.43% 222.10% 177.77% 245.21% CITY OF VERNON SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN (CONTINUED) LAST TEN FISCAL YEARS * (82) Notes to Schedule: Benefit Changes: There were no changes in benefits. Changes in Assumptions: From fiscal year June 30, 2015 to June 30, 2016: GASB 68, paragraph 68 states that the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense. From fiscal year June 30, 2016 to June 30, 2017: There were no 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: From fiscal year June 30, 2019 to June 30, 2020: There were no changes in assumptions. From fiscal year June 30, 2020 to June 30, 2021: There were no changes in assumptions. From fiscal year June 30, 2021 to June 30, 2022: There were no changes in assumptions. * Fiscal year 2015 was the first year of implementation and therefore only eight years are shown. Demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Assumptions December 2017 CITY OF VERNON SCHEDULE OF PENSION CONTRIBUTIONS – MISCELLANEOUS PLAN LAST TEN FISCAL YEARS * (83) Fiscal Year Ended June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 Contractually Required Contribution (Actuarially Determined)5,957,671$ 4,979,905$ 4,500,718$ 3,908,165$ Contributions in Relation to the Actuarially Determined Contributions (5,957,671) (4,979,905) (4,500,718) (3,908,165) Contribution Deficiency (Excess)-$ -$ -$ -$ Covered Payroll 19,708,798$ 15,355,968$ 15,399,491$ 15,996,725$ Contributions as a Percentage of Covered Payroll 30.23%32.43%29.23%24.43% Notes to Schedule: Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 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) Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Inflation 2.625%2.625%2.625%2.75% Salary Increases (2)(2)(2)(2) Investment Rate of Return 7.25% (3) 7.25% (3) 7.25% (3) 7.375% (3) Retirement Age (4)(4)(4)(4) Mortality (5)(5)(5)(5) (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) 2.0% at 55, 2.7% at 55, 2% at 60, and 2.0% at 62 (5) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board. * Fiscal year 2015 was the first year of implementation and therefore only eight years are shown. CITY OF VERNON SCHEDULE OF PENSION CONTRIBUTIONS – MISCELLANEOUS PLAN (CONTINUED) LAST TEN FISCAL YEARS * (84) Fiscal Year Ended Contractually Required Contribution (Actuarially Determined) Contributions in Relation to the Actuarially Determined Contributions Contribution Deficiency (Excess) Covered Payroll Contributions as a Percentage of Covered Payroll Notes to Schedule: Valuation Date Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Amortization Method Asset Valuation Method Inflation Salary Increases Investment Rate of Return Retirement Age Mortality June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 3,380,432$ 3,629,603$ 3,140,644$ 2,340,002$ (3,380,432) (3,629,603) (3,140,644) (2,340,002) -$ -$-$ -$ 15,146,241$ 13,440,076$ 13,150,103$ 11,708,057$ 22.32%27.01%23.88%19.99% 6/30/2015 6/30/2014 6/30/2013 6/30/2012 Entry Age Entry Age Entry Age Entry Age (1)(1)(1)(1) Fair Value Fair Value Fair Value 15 Year Smoothed Market Method 2.75%2.75%2.75%2.75% (2)(2)(2)(2) 7.50% (3) 7.50% (3) 7.50% (3) 7.50% (3) (4)(4)(4)(4) (5)(5)(5)(5) (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) 2.0% at 55, 2.7% at 55, 2% at 60, and 2.0% at 62 (5) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board. * Fiscal year 2015 was the first year of implementation and therefore only eight years are shown. CITY OF VERNON SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY – SAFETY PLAN LAST TEN FISCAL YEARS * (85) Fiscal Year Ended June 30, 2022 June 30, 2021 Measurement Period June 30, 2021 June 30, 2020 Plan's Proportion of the Net Pension Liability 1.702860% 1.331100% Plan's Proportionate Share of the Net Pension Liability 59,761,800$ 88,682,300$ Plan's Covered Payroll 7,618,673$ 11,770,766$ Plan's Proportionate Share of the Net Pension Liability as a Percentage of Covered Payroll 784.41% 753.41% Plan's Proportionate Share of the Fiduciary Net Position as a Percentage of the Plan's Total Pension Liability 79.73%69.13% Plan's Proportionate Share of Aggregate Employer Contributions 12,561,115$ 10,280,295$ Notes to Schedule: *Fiscal year 2021 was the first year the City's Safety Plan was converted from an Agent Multiple Plan to a Cost Sharing Plan therefore only two years are shown. Safety CITY OF VERNON SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN LAST TEN FISCAL YEARS * (86) Fiscal Year Ended June 30, 2020 June 30, 2019 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 Measurement Period June 30, 2019 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014 Total Pension Liability: Service Cost 4,287,003$ 4,414,740$ 4,144,398$ 3,454,025$ 3,388,157$ 3,448,760$ Interest on Total Pension Liability 18,414,262 17,691,261 16,898,830 16,325,879 15,777,736 15,255,372 Changes of Benefit Terms - - -- - - Changes of Assumptions -(1,533,898)14,134,794 - (3,878,396) - Differences Between Expected and Actual Experience (364,199) 2,008,618 (1,380,683) (2,430,394) (2,400,883) - Benefit Payments, Including Refunds of Employee Contributions (12,139,668) (10,992,416) (10,147,899) (9,736,302) (9,470,058) (9,639,123) Net Change in Total Pension Liability 10,197,398 11,588,305 23,649,440 7,613,208 3,416,556 9,065,009 Total Pension Liability - Beginning of Year 261,832,661 250,244,356 226,594,916 218,981,708 215,565,152 206,500,143 Total Pension Liability - End of Year (a) 272,030,059$ 261,832,661$ 250,244,356$ 226,594,916$ 218,981,708$ 215,565,152$ Plan Fiduciary Net Position: Contributions - Employer 7,011,540$ 6,109,373$ 5,476,196$ 5,116,412$ 4,147,441$ 3,234,539$ Contributions - Employee 1,239,891 1,302,308 1,212,646 1,222,561 1,167,329 1,092,012 Net Investment Income 12,275,401 14,666,919 17,760,401 760,559 3,525,241 24,855,525 Benefit Payments, Including Refunds of Employee Contributions (12,139,668) (10,992,416) (10,147,899) (9,736,302) (9,470,058) (9,639,123) Plan to Plan Resource Movement -(431)(1,118) 780 24 - Administrative Expenses (131,969) (272,124)(237,068) (99,525) (191,323) - Other Miscellaneous Income (1) 431 (516,768) -- - - Net Change in Plan Fiduciary Net Position 8,255,626 10,296,861 14,063,158 (2,735,515) (821,346) 19,542,953 Plan Fiduciary Net Position - Beginning of Year 184,928,220 174,631,359 160,568,201 163,303,716 164,125,062 144,582,109 Plan Fiduciary Net Position - End of Year (b) 193,183,846$ 184,928,220$ 174,631,359$ 160,568,201$ 163,303,716$ 164,125,062$ Net Pension Liability - Ending (a)-(b) 78,846,213$ 76,904,441$ 75,612,997$ 66,026,715$ 55,677,992$ 51,440,090$ Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 71.02%70.63%69.78%70.86%74.57%76.14% Covered Payroll 13,737,311$ 14,292,273$ 13,879,896$ 12,971,888$ 12,740,785$ 12,510,920$ Net Pension Liability as Percentage of Covered Payroll 573.96% 538.08% 544.77% 509.00% 437.01% 411.16% Notes to Schedule: Benefit Changes: There were no changes in benefits. Changes in Assumptions: From fiscal year June 30, 2015 to June 30, 2016: From fiscal year June 30, 2016 to June 30, 2017: There were no 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: From fiscal year June 30, 2019 to June 30, 2020: There were no changes in assumptions. GASB 68, paragraph 68 states that the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense. Demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Assumptions December 2017 * Fiscal year 2015 was the first year of implementation. Additionally, fiscal year 2021 was the first year the City's Safety Plan was converted from an Agent Multiple Plan to a Cost Sharing Plan, and therefore only six years are shown. CITY OF VERNON SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN LAST TEN FISCAL YEARS * (87) Fiscal Year Ended June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 Contractually Required Contribution (Actuarially Determined)8,258,888$ 7,650,585$ 7,834,050$ 7,011,540$ Contributions in Relation to the Actuarially Determined Contributions (8,258,888) (7,650,585) (7,834,050) (7,011,540) Contribution Deficiency (Excess)-$ -$ -$ -$ Covered Payroll 5,630,861$ 7,618,673$ 11,770,766$ 13,737,311$ Contributions as a Percentage of Covered Payroll 146.67% 100.42%66.56%51.04% Notes to Schedule: Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 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) Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Inflation 2.625%2.625%2.625%2.75% Salary Increases (2)(2)(2)(2) Investment Rate of Return 7.25% (3) 7.25% (3) 7.25% (3) 7.375% (3) Retirement Age (4)(4)(4)(4) Mortality (5)(5)(5)(5) (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) 3.0% at 50, 3.0% at 55, and 2.7% at 57 (5) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board. * Fiscal year 2015 was the first year of implementation and therefore only eight years are shown. CITY OF VERNON SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN (CONTINUED) LAST TEN FISCAL YEARS * (88) Fiscal Year Ended Contractually Required Contribution (Actuarially Determined) Contributions in Relation to the Actuarially Determined Contributions Contribution Deficiency (Excess) Covered Payroll Contributions as a Percentage of Covered Payroll Notes to Schedule: Valuation Date Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Amortization Method Asset Valuation Method Inflation Salary Increases Investment Rate of Return Retirement Age Mortality June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 6,109,373$ 5,476,196$ 5,116,412$ 4,147,441$ (6,109,373) (5,476,196) (5,116,412) (4,147,441) -$ -$-$ -$ 14,292,273$ 13,879,896$ 12,971,888$ 12,740,785$ 42.75%39.45%39.44%32.55% 6/30/2015 6/30/2014 6/30/2013 6/30/2012 Entry Age Entry Age Entry Age (1)(1)(1)Entry Age Fair Value Fair Value Fair Value (1) 15 Year Smoothed 2.75%2.75%2.75% Market Method (2)(2)(2)2.75% 7.50% (3) 7.50% (3) 7.50% (3)(2) (4)(4)(4)7.50% (3) (5)(5)(5)(4) (5) (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) 3.0% at 50, 3.0% at 55, and 2.7% at 57 (5) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by the CalPERS Board. * Fiscal year 2015 was the first year of implementation and therefore only eight years are shown. CITY OF VERNON SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS LAST TEN FISCAL YEARS * (89) Fiscal Year End June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 Measurement Date June 30, 2021 June 30, 2020 June 30, 2019 June 30, 2018 Total OPEB Liability: Service Cost 303,057$ 565,922$ 549,137$ 1,204,747$ Interest on Total OPEB Liability 1,682,954 1,699,197 1,641,230 2,063,052 Differences Between Expected and Actual Experience (677,446) 206,148 - (6,680,583) Assumption Changes 66,075 579,724 (124,861) (7,657,196) Change of Benefit Terms - (800,265) -- Benefit Payments (1,199,826) (1,222,538) (1,158,450) (1,006,087) Net Change in Total OPEB Liability 174,814 1,028,188 907,056 (12,076,067) Total OPEB Liability - Beginning of Year 27,215,028 26,186,840 25,279,784 37,355,851 Total OPEB Liability - End of Year (a)27,389,842$ 27,215,028$ 26,186,840$ 25,279,784$ Plan Fiduciary Net Position: Contributions - Employer 3,131,526$ 3,915,406$ 2,989,393$ 2,065,407$ Net Investment Income 2,084,288 44,684 258,220 65,276 Benefit Payments and the Implied Subsidy Benefit Payments (1,199,826) (1,222,538) (1,158,450) (1,006,087) Administrative Expenses (2,958) (2,563) (629) (808) Other Deductions - -- (1,400) Net Change in Plan Fiduciary Net Position 4,013,030 2,734,989 2,088,534 1,122,388 Plan Fiduciary Net Position - Beginning of Year 7,003,178 4,268,189 2,179,655 1,057,267 Plan Fiduciary Net Position - End of Year (b)11,016,208$ 7,003,178$ 4,268,189$ 2,179,655$ Net OPEB Liability - Ending (a)-(b)16,373,634$ 20,211,850$ 21,918,651$ 23,100,129$ Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 40.22%25.73%16.30%8.62% Covered - Employee Payroll 31,702,877$ 31,958,957$ 35,182,647$ 33,496,565$ Net OPEB Liability as Percentage of Covered - Employee Payroll 51.65%63.24%62.30%68.96% Notes to Schedule: Benefit Changes: There were no changes in benefits. Changes in Assumptions: * Fiscal year 2018 was the first year of implementation and therefore only five years are shown. Fiscal year end June 30, 2018 is the first year of implementation; therefore, there are no previous GASB 75 actuarial reports for comparison. Fiscal year end June 30, 2022: Medical trend rates have been updated by actual premium increase from 2021 to 2022. Fiscal year end June 30, 2019: Discount rate for the implicit subsidy liability was changed from 3.56% to 6.5% based on updated expectations of long-term returns on trust assets and updated valuation methods. Fiscal year end June 30, 2020: Medical trend rates were updated to exclude Affordable Care Act's Excise Tax on high-cost health insurance plan due to its repeal. Fiscal year end June 30, 2021: Discount rate for the implicit subsidy liability was changed from 6.5% to 6.25% based on updated expectations of long-term returns on trust assets and updated valuation methods. Inflation rate changed from 2.50% to 2.25%. CITY OF VERNON SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS LAST TEN FISCAL YEARS * (90) Fiscal Year End Measurement Date Total OPEB Liability: Service Cost Interest on Total OPEB Liability Differences Between Expected and Actual Experience Assumption Changes Change of Benefit Terms Benefit Payments Net Change in Total OPEB Liability Total OPEB Liability - Beginning of Year Total OPEB Liability - End of Year (a) Plan Fiduciary Net Position: Contributions - Employer Net Investment Income Benefit Payments and the Implied Subsidy Benefit Payments Administrative Expenses Other Deductions Net Change in Plan Fiduciary Net Position Plan Fiduciary Net Position - Beginning of Year Plan Fiduciary Net Position - End of Year (b) Net OPEB Liability - Ending (a)-(b) Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability Covered - Employee Payroll Net OPEB Liability as Percentage of Covered - Employee Payroll June 30, 2018 June 30, 2017 1,166,825$ 1,879,025 - (770,716) - (838,818) 1,436,316 35,919,535 37,355,851$ 1,898,138$ (2,049) (838,818) (4) - 1,057,267 - 1,057,267$ 36,298,584$ 2.83% 33,511,114$ 108.32% Notes to Schedule: Benefit Changes: There were no changes in benefits. Changes in Assumptions: * Fiscal year 2018 was the first year of implementation and therefore only five years are shown. Fiscal year end June 30, 2018 is the first year of implementation; therefore, there are no previous GASB 75 actuarial reports for comparison. Fiscal year end June 30, 2022: Medical trend rates have been updated by actual premium increase from 2021 to 2022. Fiscal year end June 30, 2019: Discount rate for the implicit subsidy liability was changed from 3.56% to 6.5% based on updated expectations of long-term returns on trust assets and updated valuation methods. Fiscal year end June 30, 2020: Medical trend rates were updated to exclude Affordable Care Act's Excise Tax on high-cost health insurance plan due to its repeal. Fiscal year end June 30, 2021: Discount rate for the implicit subsidy liability was changed from 6.5% to 6.25% based on updated expectations of long-term returns on trust assets and updated valuation methods. Inflation rate changed from 2.50% to 2.25%. CITY OF VERNON SCHEDULE OF OPEB CONTRIBUTIONS LAST TEN FISCAL YEARS * (91) Fiscal Year Ended June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 June 30, 2018 Actuarially Determined Contribution 1,538,693$ 1,538,693$ 1,931,700$ 2,692,868$ 2,692,868$ Contributions in Relation to the Actuarially Determined Contributions (2,933,295) (3,131,526) (3,915,406) (2,989,393) (2,065,407) Contribution Deficiency (Excess)(1,394,602)$ (1,592,833)$ (1,983,706)$ (296,525)$ 627,461$ Covered - Employee Payroll 31,702,877$ 31,702,877$ 31,958,957$ 35,182,647$ 33,496,565$ Contributions as a Percentage of Covered - Employee Payroll 9.25%9.88%12.25%8.50%6.17% Notes to Schedule: Valuation Date 6/30/2020 6/30/2019 6/30/2018 6/30/2018 6/30/2017 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) Amortization Period 27 Years 27 Years 27 Years 27 Years 29 Years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25%2.25%2.50%2.50%2.75% Healthcare Trend Rates (4)(4)(3)(3)(2) Investment Rate of Return 6.25%6.25%6.50%7.00%7.00% Mortality (6)(6)(6)(6)(5) (1) Level percentage of payroll, closed. (2) 8.50% trending down to 5.00%. (3) 6.90% trending down to 4.00%. (4) 6.70% trending down to 3.8%. (5) CalPERS December 2014 experience study (6) CalPERS December 2017 experience study * Fiscal year 2018 was the first year of implementation and therefore five years are shown. VERNON PUBLIC UTILITIES (THE ELECTRIC, GAS, WATER, AND FIBER OPTICS ENTERPRISE FUNDS OF THE CITY OF VERNON) FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2022 CITY OF VERNON VERNON PUBLIC UTILITIES TABLE OF CONTENTS YEAR ENDED JUNE 30, 2022 INTRODUCTORY SECTION A MESSAGE FROM THE GENERAL MANAGER OF VERNON PUBLIC UTILITIES i FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 1 MANAGEMENTS’ DISCUSSION AND ANALYSIS (Required Supplementary Information – Unaudited) 4 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 10 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION 12 STATEMENT OF CASH FLOWS 13 NOTES TO BASIC FINANCIAL STATEMENTS 15 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 SUPPLEMENTARY INFORMATION COMBINING STATEMENT OF NET POSITION 53 COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION 55 COMBINING STATEMENT OF CASH FLOWS 56 INTRODUCTORY SECTION Vernon Public Utilities 4305 Santa Fe Avenue, Vernon, CA, 90058 323.583.8811 | CityofVernon.org Message from the General Manager As an essential resource to all customers, our job is to provide dependable, high-quality electric, water, natural gas, and fiber optic services at cost - effective rates with the highest standards for reliability. We ensure that electricity will stay on when needed, customers have safe, clean drinking water, there is a reliable supply of natural gas to meet demand, and our fiber services offer competitive rates and the latest technology. Our mission focuses on reliably providing the lowest electric rates in California by 2030. As a municipally owned utility, every customer is a stakeholder in Vernon Public Utilities (VPU). VPU enjoys the continued support of the City Council, which has approved key strategic initiatives for sustained success. These initiatives include Renewable Energy Projects, such as the Daggett Solar Project (operational in September 2023) and the Sapphire Solar and Storage Facility Project (operational in December 2025). With Council support, along with City Administration, VPU remains focused on providing our customers with reliable services and competitive rates. Despite the recent supply chain issues and higher costs for energy, materials, and supplies, which are critical to our operations, VPU is committed to maintaining a strong financial and operational position for the future. Our strategy focuses on the following initiatives for financial and operational flexibility : 1.Electric load growth with a diversified customer base which includes green commerce. 2.A diversified Energy Resource portfolio, which includes meeting California’s Renewable Portfolio Standard Targets as outlined in SB100. Specifically, (i) 2027 - 52%, (ii) 2030 - 60%, and (iii) 2045 - 100% Carbon Neutral. VPU is in the process of updating its Integrated Resource Plan, which focuses on providing direction for reliability, affordability, and meeting renewable energy requirements. 3.Optimizing the operating profile for the Malburg Generating Station (MGS) for operational savings and continued coordination with the CAISO to prevent statewide rolling blackouts and requests to run MGS when energy is needed most across the electric grid. 4.Continued strategic capital investment in electric, water, natural gas, and fiber optic infrastructure to support high-quality and reliable services. VPU continues to be one of the most reliable electric systems compared to other utilities. VPU is a three-time recipient of the RP3 Diamond Level Award, the highest reliability award from APPA, which reflects our continued investment in utility infrastructure and commitment to safety and workforce development. 5.A focus on the utility’s financial strength, including improving key financial metrics used by the rating agencies such as Moody’s and S&P Global Ratings, including the implementation of a Utility Financial Reserves Policy, and keeping rates competitive to ensure businesses can grow in Vernon. As we enter 2023, I am optimistic about the future. VPU is focused on providing reliable and competitive electric, water, natural gas, and fiber optic services. In that pursuit, we will excel today and in the future. Sincerely, Todd Dusenberry General Manager FINANCIAL SECTION (1) INDEPENDENT AUDITORS’ REPORT Honorable Mayor and the Members of the City Council City of Vernon, California Report on the Audit of the Financial Statements Opinion We have audited the accompanying financial statements of Vernon Public Utilities (VPU) of the City of Vernon, California (City), which comprise the statement of net position as of June 30, 2022, 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 VPU’s basic financial statements as listed in the table of contents. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vernon Public Utilities of the City of Vernon, California, as of June 30, 2022, 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. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Vernon Public Utilities and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter As discussed in Note 1 to the financial statements, the financial statements present only the Vernon Public Utilities and do not purport to, and do not, present fairly the financial position of the City of Vernon, California as of June 30, 2022, 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. Responsibilities of Management 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. CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer. CliftonLarsonAllen LLP CLAconnect.com Honorable Mayor and the Members of the City Council City of Vernon, California (2) Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit 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 Vernon Public Utilities’ internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of proportionate share of the net pension liability, schedule of plan contributions, schedule of proportionate share of the 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 is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial Honorable Mayor and the Members of the City Council City of Vernon, California (3) 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the VPU’s basic financial statements. The combining financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such 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. The 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 GAAS. In our opinion, the combining financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory section but does not include the basic financial statements and our auditors’ report thereon. Our opinion on the basic financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 8, 2023, on our consideration of the VPU’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 VPU’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 VPU’s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Irvine, California August 8, 2023 CITY OF VERNON VERNON PUBLIC UTILITIES MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (4) The management of the Vernon Public Utilities (VPU), the electric, gas, water, and fiber optics utilities of the City of Vernon (“the City”), offers the following overview and analysis of the basic financial statements of the VPU for the fiscal year ended June 30, 2022. 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 VPU’s basic financial statements. Included as part of the financial statements are three separate statements. The statement of net position presents information on the VPU’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 net position presents information showing how the VPU'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 basic financial statements provide additional information that is essential to fully understand the data provided in the financial statements. CITY OF VERNON VERNON PUBLIC UTILITIES MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (5) FINANCIAL HIGHLIGHTS Net Position The table below summarizes the VPU’s net position as of the current fiscal year ended June 30, 2022 and prior fiscal year ended June 30, 2021. The details of the current year’s summary can be found on pages 10- 11 of this report. City of Vernon Vernon Public Utilities Net Position June 30, 2022 and 2021 CITY OF VERNON VERNON PUBLIC UTILITIES MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (6) Net Position (Continued) The assets and deferred outflows of resources of the VPU exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $182,420,864 (net position). The category of the VPU’s net position with the largest balance totaling $168,787,837 represents resources that are invested in capital assets, net of related debt. The second category restricted for debt services totaling $32,836,544 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 $(19,203,517) represents a deficit in unrestricted net position that is expected to be recovered from the VPU’s future revenues and controlling operating and maintenance expenses. Total current assets increased by $20,538,011 from the prior year mainly due to an increase in cash and cash equivalents of $10,600,320, an increase in accounts receivable, net of allowance of $7,165,433, an increase in accrued unbilled revenue of $2,047,159, and an increase in inventories of $636,909. Capital assets increased by $203,490,086, net of depreciation, from the prior year mainly due to acquisitions of new equipment and facility improvements. (See Note 5). Total liabilities increased by $173,549,288 from the prior year, primarily due to an increase in accounts payable of $3,393,468, an increase in bonds payable (current and long-term) of $175,776,445, and partially offset by a decrease of $6,418,886 in the net pension liability. The VPU’s total net position at fiscal year 2021-22 was $182,420,864, which increased by $35,015,359 from the prior year due to an increase in the net investment in capital assets by $20,345,074, an increase in the funds restricted for debt service of $8,941,879 and a decrease of the unrestricted deficit net position of $5,728,406. CITY OF VERNON VERNON PUBLIC UTILITIES MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (7) Changes in Net Position The table below summarizes the VPU’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 12 of this report. City of Vernon Vernon Public Utilities Net Position June 30, 2022 and 2021 VPU’s operating income of $50,351,975, less net non-operating revenues (expenses) of $(15,336,616), resulted in an increase in net position of $35,015,359 during the current year. VPU increased its net position by $30,996,906 when compared to the prior year, which is due to the significant increase in operating income of $26,365,629 and lower interest expense of $5,134,307 offset by the loss on the sale of assets of $2,315,926. CITY OF VERNON VERNON PUBLIC UTILITIES MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (8) CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets The VPU’s investment in capital assets as of June 30, 2022 amounted to $458,427,644 (net of accumulated depreciation). This investment in capital assets includes land, intangible assets, construction in progress, building, utilities system improvements, and machinery and equipment. The net increase in the VPU's investment in capital assets for the current fiscal year was $201,169,979. Additional information on the VPU's capital assets can be found in Note 5 of this report. Outstanding debt As of June 30, 2022, the following Electric Fund debt remains outstanding: $37,895,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A $11,505,000 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 $19,305,000 City of Vernon Electric System Revenue Bonds, 2020 Series A $173,815,000 City of Vernon Electric System Revenue Bonds, 2021 Taxable Series A $52,070,000 City of Vernon Electric System Revenue Bonds, 2022 Taxable 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 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. The City of Vernon Electric System Revenue Bonds, 2021 Series A were issued to provide funds: (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the city limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights, (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement, and (iii) to pay costs of issuance of the 2021 Bonds. CITY OF VERNON VERNON PUBLIC UTILITIES MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (9) The City of Vernon Electric System Revenue Bonds, 2022 Series A were issued to (i) refund and defease all the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue Bonds, 2012 Taxable Series B and (ii) to pay costs of issuance of the 2022 Bonds. As of June 30, 2022, the following Water Fund debt remains outstanding: $14,600,000 City of Vernon Water System Revenue Bonds, 2020 Taxable Series A $1,220,930 City of Vernon agreement with the Water Replenishment District of Southern California The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds. As of June 30, 2022, the ratings on all Electric System Revenue Bonds of the City were BBB+/Stable by S&P and Baa1/Stable by Moody’s. The rating on Water System Revenue Bonds is A-/Stable by S&P. Additional information on the VPU's long-term debt can be found in Note 6 of this report. ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES These factors were considered in preparing the VPU’s FY 2022-23 operating and capital budgets. VPU is committed to providing dependable, high-quality electric, water, natural gas, and fiber services at the lowest competitive rates and the highest standards for reliability. VPU continues to respond to inflation and supply chain issues, including higher energy, natural gas, materials and supplies, chemicals, and construction costs to maintain generation, transmission, and distribution infrastructure to continue to provide exceptionally reliable service. Continue to implement VPU’s capital plan, manage operating and maintenance expenses, update the 2018 Integrated Resource Plan, complete an Electric Cost of Service Analysis and Rate Design study, transition customer load growth to green commerce, optimize the MGS operating profile, and continue to implement the multi-year water rate adjustment plan approved by City Council. REQUESTS FOR INFORMATION This report is designed to provide an overview of the VPU’s FY 2021-22 results. Questions concerning the fund’s financial or operating results can be addressed to Scott Williams, Director of Finance, swilliams@cityofvernon.org, City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058. CITY OF VERNON VERNON PUBLIC UTILITIES STATEMENT OF NET POSITION JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (10) ASSETS Current Assets: Cash and Cash Equivalents 156,960,639$ Accounts Receivable, Net of Allowance 14,262,338 Accrued Unbilled Revenue 19,025,964 Accrued Interest Receivable 89,197 Due from Other City Funds - Prepaid Items 17,666 Inventories 636,909 Total Current Assets 190,992,713 Noncurrent Assets: Restricted Cash and Cash Equivalents 46,383,084 Advances to Other City Funds 202,798 Prepaid Items 994,736 Deposits 1,201,423 Capital Assets: Nondepreciable 70,803,890 Depreciable, Net 387,623,754 Total Noncurrent Assets 507,209,685 Total Assets 698,202,398 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to OPEB Liability 662,143 Deferred Outflows Related to Pensions 5,338,797 Deferred Amount on Refunding 1,933,345 Total Deferred Outflows of Resources 7,934,285 CITY OF VERNON VERNON PUBLIC UTILITIES STATEMENT OF NET POSITION (CONTINUED) JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (11) LIABILITIES Current Liabilities: Accounts Payable 17,472,509$ Accrued Wages and Benefits 406,604 Due to Other City Funds 2,966,261 Customer Deposits 500,168 Bond Interest Payable 5,212,226 Bonds Payable 50,360,000 Note Payable 139,535 Compensated Absences 406,135 Total Current Liabilities 77,463,438 Noncurrent Liabilities: Bonds Payable 412,712,309 Note Payable 1,081,395 Compensated Absences 812,270 Other Postemployment Benefit Liability 3,080,913 Net Pension Liability 16,564,112 Total Noncurrent Liabilities 434,250,999 Total Liabilities 511,714,437 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to OPEB Liability 1,577,912 Deferred Inflows Related to Pensions 10,423,470 Total Deferred Inflows of Resources 12,001,382 NET POSITION Net Investment in Capital Assets 168,787,837 Restricted for Debt Service 32,836,544 Unrestricted (Deficit)(19,203,517) Total Net Position 182,420,864$ CITY OF VERNON VERNON PUBLIC UTILITIES STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (12) OPERATING REVENUES Charges for Services 238,570,758$ Total Operating Revenues 238,570,758 OPERATING EXPENSES Cost of Sales 170,314,573 Depreciation 17,904,210 Total Operating Expenses 188,218,783 OPERATING INCOME 50,351,975 NONOPERATING REVENUES (EXPENSES) Intergovernmental 865,403 Investment Income 285,622 Net Decrease in Fair Value of Investments (8,231) Interest Expense (14,163,484) Loss on Disposition of Assets (2,315,926) Total Nonoperating Revenues (Expenses)(15,336,616) CHANGE IN NET POSITION 35,015,359 Net Position - Beginning of Year 147,405,505 NET POSITION - END OF YEAR 182,420,864$ CITY OF VERNON VERNON PUBLIC UTILITIES STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (13) CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers 229,353,795$ Cash Paid to Suppliers for Goods and Services (157,657,823) Cash Paid to Employees for Services (5,801,226) Cash Paid to City for Services (5,214,961) Net Cash Provided by Operating Activities 60,679,785 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Repayment of Bonds (35,215,000) Issuance of Bonds 235,885,000 Bond Premiums 38,266,557 Payment to Refunding Bond Escrow Agent (62,999,903) Bond Interest Paid (17,463,242) Payment of Note Payable (139,535) Net Acquisition of Capital Assets (221,394,296) Net Cash Used by Capital and Related Financing Activities (63,060,419) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Grant Revenue Received 865,403 Payment from (Provided to) Other City Funds 1,915,195 Net Cash Provided by Noncapital Financing Activities 2,780,598 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income 190,555 Net Cash Provided by Investing Activities 190,555 CHANGE IN CASH AND CASH EQUIVALENTS 590,519 Cash and Cash Equivalents - Beginning of Year 202,753,204 CASH AND CASH EQUIVALENTS - END OF YEAR 203,343,723$ COMPOSITION OF CASH AND CASH EQUIVALENTS Cash and Cash Equivalents 156,960,639$ Restricted Cash and Investments 46,383,084 Total 203,343,723$ CITY OF VERNON VERNON PUBLIC UTILITIES STATEMENT OF CASH FLOWS (CONTINUED) YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (14) RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income 50,351,975$ Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 17,904,210 Deferred Gain from Sale of Generation Assets (6,555,916) Change in Operating Assets and Liabilities: Accounts Receivable (7,165,433) Accrued Unbilled Revenue (2,047,159) Due from Other Funds 523,087 Prepaid Expenses and Deposits (104,017) Inventories (636,909) Deferred Outflows of Resources (418,807) Accounts Payable 3,393,468 Accrued Wages and Benefits (209,527) Due to Other City Funds 2,443,174 Customer Deposits (4,371) Compensated Absences 36,502 Other Postemployment Benefit Liability (352,393) Net Pension Liability (6,418,886) Deferred Inflows of Resources 9,940,787 Net Cash Provided by Operating Activities 60,679,785$ CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (15) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements present only the Vernon Public Utilities (VPU) 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 VPU accounts for the independent operations and the maintenance of the City’s electric, gas, water, and fiber optics utilities. A fund, or utility, administered by the VPU is 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. Ordinance No. 1242, adopted May 16, 2017, requires each utility of the City to be independent with its assets, liabilities, and equities segregated, budgeted, and accounted for in separate funds. Ordinance No. 1240, adopted March 21, 2017, consolidates all utilities- related services under the management of the stand-alone entity “Vernon Public Utilities” for better oversight and management of the day-to-day activities of such independent utilities. Each of the City’s utilities, namely the electric, gas, water, and fiber optics utilities, were established by the City under and by virtue of the City Charter and the City Code enacted in 1988. Prior to July 1, 2016, the electric and gas utilities were consolidated and reported as the Light & Power Enterprise for financial reporting purposes. Ordinance No. 1242 continues to require each utility to be independent with its assets, liabilities, and equities segregated, budgeted, and accounted for in separate funds, while Ordinance No. 1240 enables the consolidated financial reporting of those independent utilities for better oversight and management. The financial statements of the VPU have been prepared in conformity with 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 VPU’s significant accounting policies are described below. A. Basis of Presentation The VPU’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. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (16) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Basis of Presentation (Continued) The VPU 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, gas, and water. 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 VPU’s operating cash balance is pooled with other City funds for deposit purposes. The share of each fund in the pooled cash account is recorded in each of the funds’ 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. C. Cash Deposits and Investments For purposes of the statement of cash flows, the VPU 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 VPU 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 accounts were $1,043,137 as of June 30, 2022. Utility 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. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (17) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Prepaid Item The VPU made a prepayment to Southern California Public Power Authority (SCPPA) for the VPU’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. Inventories All inventories are valued at cost, or estimated historical costs when historical information is unavailable, using the first-in/first-out (FIFO) method. Inventory costs in the proprietary funds are recorded as an expense or capitalized into capital assets when used. G. Deposits The VPU has deposits in SCPPA’s Project Stabilization Fund for use within SCPPA’s project purposes at the VPU’s discretion. At June 30, 2022, the amount of deposits totaled $1,201,423. H. 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 Plant 3 to 50 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. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (18) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. Compensated Absences Accumulated vacation is accrued when incurred. Upon termination of employment, the VPU will pay the employee all accumulated vacation leave at 100% of the employee’s base hourly rate. J.Deferred Outflows and Inflows of Resources The VPU recognizes deferred outflows and inflows of resources. A deferred outflow of resource is defined as consumption of net position by the VPU that is applicable to a future reporting period. A deferred inflow of resources is defined as an acquisition of net position by the VPU that is applicable to a future reporting period. On June 30, 2022, the VPU has deferred outflows of resources representing deferred amounts on bond refunding, pension-related transactions, and other postemployment benefit-related transactions, and deferred inflows of resources representing pension-related transactions and other postemployment benefit-related transactions. K. Long-Term Obligations Bond discounts and premiums and deferred amounts on refunding are amortized over the life of the bonds using the straight-line method. L. Net Position The VPU 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 net position of the VPU not restricted for any project or other purpose. The VPU’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. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (19) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) M. 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. N. 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. O. 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, 2022, are classified in the accompanying statement of net position as follows: Cash and Cash Equivalents 156,960,639$ Restricted Cash and Cash Equivalents 46,383,084 Total Cash and Cash Equivalents 203,343,723$ Cash and cash equivalents as of June 30, 2022, consist of the following: Equity in the City's Pooled Cash 19,875,769$ Deposits with Financial Institutions 45,261,169 Short-Term Investments 138,206,785 Total Cash and Cash Equivalents 203,343,723$ CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (20) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) Equity in the Cash Pool of the City of Vernon The VPU has equity in the cash pool managed by the City. The VPU 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 VPU has not adopted an investment policy separate from that of the City. The amount of the VPU’s cash in this pool is reported in the accompanying financial statements based upon the VPU’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. 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 CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (21) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) 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. 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 $75 Million None Investment Contracts None None None None CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (22) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) Disclosure Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City has no specific limitations with respect to this metric. Information about the sensitivity of the fair values of the VPU’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided in the following table that shows the distribution of the VPU’s investments by maturity: Investment Maturities Fair Value (in Months) as of Less than 13 to 25 to Investment Type 6/30/2022 12 Months 24 Months 60 Months Local Agency Investment Fund 627,044$ 627,044$ -$ -$ Held by Trustee: Money Market Mutual Funds 137,579,740 137,579,740 - - Total investments 138,206,784$ 138,206,784$ -$ -$ 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. Minimum Actual Fair Value Required Credit Rating as of Investment Type Rating Moody's / S&P June 30, 2022 Local Agency Investment Fund Not Rated Not Rated 627,044$ Held by Trustee: Money Market Mutual Funds Aaa / AAA Aaa / AAA 137,579,740 Total investments 138,206,784$ 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, 2022, there were no investments held by the VPU that exceeded 5% in any one issuer, excluding money market mutual funds. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (23) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) 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, 2022, all of the VPU’s deposits were insured or collateralized as required by Section 53652 of the California Government Code. Local Agency Investment Fund (LAIF) The VPU 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 VPU’s position in the pool. Fair Value Measurement The VPU 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 VPU’s investments in money market mutual funds and LAIF are not subject to categorization in the fair value hierarchy. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (24) NOTE 3 ACCOUNTS RECEIVABLE The VPU’s accounts receivable at June 30, 2022, are as follows: Accounts Receivable 15,305,475$ Less: Allowance for Uncollectible Accounts (1,043,137) Total Accounts Receivable, Net 14,262,338$ NOTE 4 INTERNAL TRANSACTIONS Transactions between the VPU and the City commonly occur in the normal course of business for services received or furnished (accounting, management, engineering, legal services, and capital projects). Advances to Other City Funds The following table summarizes the VPU’s advances to the other City funds at June 30, 2022: Advances to Other City Funds - July 1, 2021 2,117,993$ Advance Repaid by City Funds During the Year (1,915,195) Advances to Other City Funds - June 30, 2022 202,798$ The advances between the other City funds and the VPU does not accrue interest due to the nature of the City’s operational relationship and capital projects funded by the VPU that benefits both. On November 6, 2012, the City adopted Resolution No. 2012-215 extending the repayment term of the loan to the City from 15 months to a period of over 10 years. The City’s General Fund allocates certain administrative and overhead costs to the VPU which the VPU financial statements include as part of the cost of sales. The allocated costs for the year ended June 30, 2022, were $3,813,444. Transfers from (to) City The VPU’s electric 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 VPU transferred to the City’s General Fund $5,033,574 in lieu of franchise tax. This amount is reported in the accompanying financial statements as part of operating expenses. Under the City Charter and the VPU’s electric revenue bond indentures, the VPU’s electric utility is allowed to transfer up to 11.5% of its retail sales after meeting debt service obligations and certain debt coverage ratios. However, no additional transfers were made for the year ended June 30, 2022. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (25) NOTE 5 CAPITAL ASSETS Capital asset activity of the VPU for the fiscal year ended June 30, 2022, was as follows: Balance Balance June 30, 2021 Additions Deletions Transfers June 30, 2022 Capital Assets, Not Being Depreciated: Electric Utility - Land 13,193,594$ -$ -$ -$ 13,193,594$ Water Utility - Water 467,640 - - - 467,640 Electric Utility - Intangibles - Environmental Credits 1,163,811 3,610,772 - - 4,774,583 Electric Utility - Construction in Progress 45,324,750 129,024 - - 45,453,774 Water Utility - Construction in Progress 4,635,417 2,366,637 - (87,755) 6,914,299 Total Capital Assets, Not Being Depreciated 64,785,212 6,106,433 - (87,755) 70,803,890 Capital Assets, Being Depreciated: Electric Utility - Production Plant 16,189,303 196,173,685 - - 212,362,988 Electric Utility - Transmission Plant 4,888,113 - (1,271,649) - 3,616,464 Electric Utility - Distribution Plant 258,451,179 16,781,817 (18,181,346) - 257,051,650 Electric Utility - General Plant 9,587,933 192,379 (25,903) - 9,754,409 Water Utility Plant 23,765,353 1,666,662 (1,789,499) 87,755 23,730,271 Gas Utility Plant 26,973,692 261,506 (34,604) - 27,200,594 Fiber Optic Utility Plant 4,161,378 211,814 (616,583) - 3,756,609 Total Capital Assets, Being Depreciated 344,016,951 215,287,863 (21,919,584) 87,755 537,472,985 Less Accumulated Depreciation for: Electric Utility - Production Plant (10,757,493) (8,634,043) - - (19,391,536) Electric Utility - Transmission Plant (3,424,581) (78,093) 1,059,485 - (2,443,189) Electric Utility - Distribution Plant (101,227,123) (7,438,076) 16,493,501 - (92,171,698) Electric Utility - General Plant (6,148,921) (360,709) 25,903 - (6,483,727) Water Utility Plant (15,723,755) (500,102) 1,379,658 - (14,844,199) Gas Utility Plant (11,142,926) (707,035) 28,528 - (11,821,433) Fiber Optic Utility Plant (3,123,880) (186,152) 616,583 - (2,693,449) Total Accumulated Depreciation (151,548,679) (17,904,210) 19,603,658 - (149,849,231) Total Capital Assets, Being Depreciated, Net: Electric Utility - Production Plant 5,431,810 187,539,642 - - 192,971,452 Electric Utility - Transmission Plant 1,463,532 (78,093) (212,164) - 1,173,275 Electric Utility - Distribution Plant 157,224,056 9,343,741 (1,687,845) - 164,879,952 Electric Utility - General Plant 3,439,012 (168,330) - - 3,270,682 Water Utility Plant 8,041,598 1,166,560 (409,841) 87,755 8,886,072 Gas Utility Plant 15,830,766 (445,529) (6,076) - 15,379,161 Fiber Optic Utility Plant 1,037,498 25,662 - - 1,063,160 Total 192,468,272 197,383,653 (2,315,926) 87,755 387,623,754 Total Capital Assets, Net 257,253,484$ 203,490,086$ (2,315,926)$ -$ 458,427,644$ The VPU’s total depreciation expense for the year was $17,904,210, broken down as follows: Electric Fund 16,510,921$ Gas Fund 707,035 Water Fund 500,102 Fiber Optics Fund 186,152 Total Depreciation Expense 17,904,210$ CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (26) NOTE 6 LONG-TERM OBLIGATIONS As of June 30, 2022, outstanding debt obligations consisted of the following: $43,765,000 Electric System Revenue Bonds (2008 Taxable Series A) At June 30, 2022, $37,895,000 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 $72,050,772, payable through fiscal year 2039. For the current year, debt service and net electric revenues were $4,240,768 and $69,089,394, 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) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series A, in the amount of $37,640,000. 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. The Electric System Revenue Bonds were refunded in the current fiscal year with the issuance of the Electric System Revenue Bonds 2021 Series A. $35,100,000 Electric System Revenue Bonds (2012 Taxable Series B) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series B, in the amount of $35,100,000. During the current fiscal year, a portion of the Electric System Revenue Bonds were refunded with the issuance of the Electric System Revenue Bonds 2022 Series A. At June 30, 2022, $11,505,000 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 $12,752,831, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $25,817,900 and $69,089,394, 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 VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (27) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) $111,720,000 Electric System Revenue Bonds (2015 Taxable Series A) At June 30, 2022, $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 $124,140,019, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $5,087,518 and $69,089,394, 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, 2022, $19,305,000 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 $30,319,875, payable through fiscal year 2038. For the current year, debt service and net electric revenues were $25,596,000 and $69,089,394, 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. $183,815,000 Electric System Revenue Bonds (2021 Series A) In December 2021, the City of Vernon issued 2021A Electric System Revenue Bonds in the amount of $183,815,000 (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the City limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights; (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement; and (iii) to pay costs of issuance of the 2021 bonds. The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis on April 1 and October 1, commencing April 1, 2022. At June 30, 2022, $173,815,000 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 $207,098,300, payable through fiscal year 2028. For the current year, debt service and net electric revenues were $12,671,686 and $69,089,394, respectively. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (28) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) $183,815,000 Electric System Revenue Bonds (2021 Series A) (Continued) 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). $52,070,000 Electric System Revenue Bonds (2022 Series A) In December 2021, the City of Vernon issued 2022A Electric System Revenue Bonds in the amount of $52,070,000 to refund the 2012A Electric System Revenue Bonds, a portion of the 2012B Electric Revenue Bonds, and provide for the costs of issuing the bonds. The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis beginning February 1 and August 1, commencing on August 1, 2022. At June 30, 2022, $52,070,000 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 $78,789,447, payable through fiscal year 2042. For the current year, debt service and net electric revenues were $0 and $69,089,394, 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, 2021 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue bonds, 2012 Taxable Series B and (ii) pay costs of issuance of the 2022 Bonds. $14,840,000 Water System Revenue Bonds (2020 Series A) At June 30, 2022, $14,600,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of water revenues payable to bondholders. The debt service remaining on the bonds is $25,040,038, payable through fiscal 2051. For the current year, debt service and net water revenues were $827,975 and $3,194,732, respectively. Under the Indenture of Trust dated May 6, 2020, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Water Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (29) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) A summary of bonds payable under the VPU is as follows: Fixed Annual Original Interest Principal Issue Outstanding Bonds Maturity Rates Installments Amount June 30, 2022 Electric System: City of Vernon 07/01/38 7.40% - To begin 07/01/10: 43,765,000$ 37,895,000$ Electric System Revenue Bonds, 8.59% $265,000 - 2008 Taxable Series A $4,065,000 City of Vernon 08/01/26 6.25% - To begin 08/01/22: 35,100,000 11,505,000 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 19,305,000 Electric System Revenue Bonds, $1,525,000 - 2020 Taxable Series A $28,655,000 City of Vernon 04/01/28 4% - To begin 04/01/22: 183,815,000 173,815,000 Electric System Revenue Bonds, 5.00% $10000,000 - 2021 Taxable Series A $54,915,000 City of Vernon 08/01/41 5.00% To begin 05/05/22: 52,070,000 52,070,000 Electric System Revenue Bonds, $950,000 - 2022 Taxable Series A $5,850,000 Premiums 42,795,419 Discounts (1,168,943) Total Electric System Revenue Bonds 447,936,476 Water System: City of Vernon 08/01/50 5.00% To begin 08/01/21: 14,840,000 14,600,000 Water System Revenue Bonds, $240,000 - 2020 Taxable Series A $3,785,000 Premium 535,833 Total Water System Revenue Bonds 15,135,833 Total Revenue Bonds 463,072,309$ Note Payable – Direct Borrowing In May 2019, the City entered into an agreement with Water Replenishment District of Southern California (WRD) for assistance with the construction of a new groundwater well or rehabilitation of an existing groundwater well. The promissory note is unsecured and has no interest basis for an amount not to exceed $1,500,000. As of June 30, 2022, WRD has disbursed all of the funds under the agreement to the City. The note is payable in quarterly principal payments commencing September 1, 2020, in an amount which, together with all quarterly payments, will be sufficient to fully amortize the principal balance of the note by the maturity date of April 1, 2031. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (30) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Note Payable – Direct Borrowing (Continued) Upon an event of default, WRD may declare any or all of the outstanding and unpaid principal balance immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice, declaration or act of any kind, all of which are hereby expressly waived by the City. Debt Service Requirements As of June 30, 2022, annual debt service requirements of the VPU to maturity are as follows: Electric System Revenue Bonds 2008 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 1,025,000$ 3,211,156$ 2024 1,120,000 3,119,029 2025 1,220,000 3,018,526 2026 1,330,000 2,909,004 2027 1,450,000 2,789,603 2028-2032 9,445,000 11,747,040 2033-2037 14,510,000 6,677,437 2038-2041 7,795,000 683,979 Total Requirements 37,895,000$ 34,155,772$ CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (31) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Debt Service Requirements (Continued) Electric System Revenue Bonds 2012 Taxable Series B Fiscal Year Ending June 30,Principal Interest 2023 6,165,000$ 531,831$ 2024 1,170,000 302,613 2025 1,305,000 225,269 2026 1,390,000 140,181 2027 1,475,000 47,938 Total Requirements 11,505,000$ 1,247,832$ Electric System Revenue Bonds 2015 Taxable Series A Fiscal Year Ending June 30,Principal Interest 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 15,295,000 370,904 Total Requirements 111,720,000$ 12,420,019$ Electric System Revenue Bonds 2020 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 -$ 965,250$ 2024 - 965,250 2025 - 965,250 2026 - 965,250 2027 - 965,250 2028-2032 6,585,000 4,188,125 2033-2037 10,325,000 1,940,625 2038-2041 2,395,000 59,875 Total Requirements 19,305,000$ 11,014,875$ CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (32) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Debt Service Requirements (Continued) Fiscal Year Ending June 30,Principal Interest 2023 20,380,000$ 8,385,050$ 2024 21,335,000 7,405,125 2025 22,400,000 6,325,000 2026 23,530,000 5,190,875 2027 31,255,000 3,917,875 2028-2032 54,915,000 2,059,375 Total Requirements 173,815,000$ 33,283,300$ Electric System Revenue Bonds 2021 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 -$ 1,923,697$ 2024 4,690,000 2,486,250 2025 4,885,000 2,246,875 2026 5,130,000 1,996,500 2027 5,405,000 1,733,125 2028-2032 5,270,000 7,357,500 2033-2037 6,765,000 5,860,625 2038-2042 19,925,000 3,114,875 Total Requirements 52,070,000$ 26,719,447$ Electric System Revenue Bonds 2022 Taxable Series A Water System Revenue Bonds 2020 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 250,000$ 575,725$ 2024 265,000 562,850 2025 275,000 549,350 2026 - 542,475 2027 - 542,475 2028-2032 1,985,000 2,563,500 2033-2037 2,180,000 2,052,625 2038-2042 2,680,000 1,535,450 2043-2047 3,180,000 1,051,925 2048-2051 3,785,000 463,663 Total Requirements 14,600,000$ 10,440,038$ CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (33) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Debt Service Requirements (Continued) Note Payable- Direct Borrowing Fiscal Year Ending June 30,Principal Interest 2023 139,535$ -$ 2024 139,535 - 2025 139,535 - 2026 139,535 - 2027 139,535 - 2028-2031 523,256 - Total Requirements 1,220,930$ -$ Changes in Long-Term Liabilities The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022: Amounts Balance Balance Due Within June 30, 2021 Additions Reductions June 30, 2022 One Year Other Debt - Bonds Payable 281,475,000$ 235,885,000$ (96,450,000)$ 420,910,000$ 50,360,000$ Bond Premium 7,744,795 38,266,557 (2,680,100) 43,331,252 - Bond Discount (1,923,931) - 754,988 (1,168,943) - Note Payable- Direct Borrowing 1,360,465 - (139,535) 1,220,930 139,535 Compensated Absences (Note 1) 1,181,903 805,554 (769,052) 1,218,405 406,135 Total 289,838,232$ 274,957,111$ (99,283,699)$ 465,511,644$ 50,905,670$ Expense Stabilization Fund The VPU 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, 2022, this fund has a balance of $38,934,149. 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 VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (34) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Credit Ratings As of June 30, 2022, the ratings on all Electric System Revenue Bonds is BBB+/Stable by S&P and Baa1/Stable by Moody’s and the ratings on all Water System Revenue Bonds is A- /Stable by S&P and not rated by Moody’s. NOTE 7 RISK MANAGEMENT The VPU 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 above- mentioned 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 2022 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 VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (35) 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 VPU’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 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 agent multiple-employer defined benefit pension Safety and Miscellaneous Plans 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 VPU’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 VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (36) NOTE 8 PENSION PLAN (CONTINUED) A. General Information about the Pension Plans (Continued) Benefits Provided (Continued) The Plans’ provisions and benefits in effect for the measurement date of June 30, 2021, 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 11.380% 11.380% Payment of Unfunded Liability 3,924,540$ -$ 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% 13.750% Required Employer Contribution Rates: Normal Cost Rate 22.780% 22.780% Payment of Unfunded Liability 7,063,113$ 15,563$ 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, 2022, the VPU’s share of employer contributions made to the plans was $2,674,983. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (37) 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, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, 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, 2020 June 30, 2020 Measurement Date June 30, 2021 June 30, 2021 Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.500% 2.500% Payroll Growth 2.750% 2.750% 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 VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (38) 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 - 0.77% 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 VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (39) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Subsequent Events On July 12, 2021, CalPERS reported a preliminary 21.3% net return on investments for fiscal year 2020-21. Based on the thresholds specified in CalPERS Funding Risk Mitigation policy, the excess return of 14.3% prescribes a reduction in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021. On November 17, 2021, the board adopted a new strategic asset allocation. The new asset allocation along with new capital market assumptions, economic assumptions and administrative expense assumption support a discount rate of 6.90% (net of investment expense but without a reduction for administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumption from 2.50% to 2.30% as recommended in the November 2021 CalPERS Experience Study and Review of Actuarial Assumptions. This study also recommended modifications to retirement rates, termination rates, mortality rates and rates of salary increases that were adopted by the board. These new assumptions will be reflected in the GASB 68 account valuation repots for the June 30, 2022 measurement date. Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the VPU The VPU’s 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 VPU’s proportionate share of the combined net pension liability was based on the VPU’s current year share of contributions to the pension plans relative to the City’s total current year contributions to the pension plans. The VPU’s proportionate share of the combined net pension liability for the pension plans as of the measurement date ended June 30, 2020 and 2021 were as follows: Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Proportionate Liability Net Position (Asset)Share Balance at June 30, 2020 (MD)87,452,632$ 64,469,634$ 22,982,998$ 16.99% Balance at June 30, 2021 (MD)120,548,668 103,984,555 16,564,112 18.82% Net Changes during 2020-21 33,096,036$ 39,514,921$ (6,418,885)$ 1.83% CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (40) 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 For the measurement period ended June 30, 2021, the VPU recognized its proportionate share of the combined pension expense of the Plans which totaled $3,003,538. At June 30, 2022, the VPU reported its proportionate share of the Plans’ combined deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Pension Contributions Subsequent to Measurement Date 2,674,983$ -$ Differences Between Actual and Expected Experience 2,293,548 - Net Differences Between Projected and Actual Earnings on Plan Investments - (9,375,486) Differences Between Employer Contributions And Proportionate Share of Contributions - (950,132) Change in Employer's Proportion 370,266 (97,852) Total 5,338,797$ (10,423,470)$ $2,674,983 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Fiscal Year Ended June 30,Total 2023 (1,399,634)$ 2024 (1,599,037) 2025 (2,158,527) 2026 (2,602,458) 2027 - Thereafter - CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (41) NOTE 8 PENSION PLAN (CONTINUED) B.Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the VPU’s proportionate share of the Plans’ combined net pension liability, calculated using a discount rate of 7.15%, as well as what the VPU’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 29,168,636$ Current Discount Rate 7.15% Net Pension Liability 16,564,112$ 1% Increase 8.15% Net Pension Liability 6,222,202$ Pension Plan Fiduciary Net Position Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Payable to the Pension Plan At June 30, 2022, the VPU had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022. NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) The other postemployment benefits (OPEB) described in the following paragraphs relate to the City’s OPEB plan. The VPU’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 VPU’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 postemployment benefit plan for the employee only to those 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). CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (42) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Benefits Provided (Continued) 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 45. The City may terminate its unvested OPEB in the future. 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, 2022, the VPU’s proportionate share of contributions made was $551,938 ($289,520 contributed to the OPEB trust, $170,456 paid for retiree premiums, and the estimated implied subsidy of $91,962). Net OPEB Liability The City’s net OPEB liability is measured as of June 30, 2021, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2021. 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: CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (43) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Actuarial Assumptions (Continued) 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 6.3% 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 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, 2021 are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return CERBT Strategy 1: Equity 59.00 % 4.42% Fixed Income 25.00 1.00% TIPS 5.00 0.15% Commodities 3.00 3.98% REITs 8.00 1.73% 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. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (44) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Allocation of the Net OPEB Liability The VPU’s proportionate share of the net OPEB liability as of the measurement dates ended June 30, 2020 and 2021 was as follows: Increase (Decrease) Total Plan Net OPEB OPEB Fiduciary Liability Proportionate Liability Net Position (Asset)Share Balance at June 30, 2020 (MD)4,622,908$ 1,189,602$ 3,433,306$ 16.99% Balance at June 30, 2021 (MD)5,153,673 2,072,760 3,080,913 18.82% Net Changes during FY 2020-21 530,765$ 883,158$ (352,393)$ 1.83% Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the VPU’s proportionate share of the 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%)(7.25%) Net OPEB Liability 3,657,431$ 3,080,913$ 2,596,467$ Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the VPU’s proportionate share of the net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate: Healthcare Trend Rate 1% Decrease Current Rate 1% Increase Net OPEB Liability 2,837,276$ 3,080,913$ 3,322,985$ OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2022, the VPU recognized its proportionate share of the OPEB expense(revenue) of $(158,635). At June 30, 2022, the VPU reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (45) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB (Continued) Deferred Deferred Outflows Inflows of Resources of Resources Contributions Between Measurement Date and Reporting Date 551,938$ -$ Difference Between Expected and Actual Liability 26,113 (664,032) Changes of Assumptions 84,092 (705,599) Net Differences Between Projected and Actual Earnings on Investments - (208,281) Total 662,143$ (1,577,912)$ The $551,938 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: Deferred Outflows (Inflows) Fiscal Year Ending June 30,of Resources 2023 (439,431)$ 2024 (441,059) 2025 (438,463) 2026 (118,239) 2027 (14,058) Thereafter (16,457) Payable to the OPEB Plan At June 30, 2022, the VPU had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (46) NOTE 10 VERNON PUBLIC UTILITIES 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 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). 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. On December 15, 2021, the City made the determination to reacquire MGS to achieve potential costs savings and other resource management benefits. In addition to the potential savings, the City expects there to be other benefits associated with the acquisition of MGS, which includes having control of the facility and the site, providing the City with flexibility with respect to the MGS operations and MGS’s role in the City’s resource portfolio. The City issued Electric System Revenue Bonds, 2021 Series A to finance the acquisition. (See Note 6) 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. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (47) NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued) 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. 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 2022 was $3,320,768. The City expects no significant increases in costs related to its nuclear resources. CITY OF VERNON VERNON PUBLIC UTILITIES NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (48) NOTE 10 VERNON PUBLIC UTILITIES OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued) 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 $2,250,667. 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 $1,007,652. 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 $1,192,621. REQUIRED SUPPLEMENTARY INFORMATION CITY OF VERNON VERNON PUBLIC UTILITIES SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN LAST TEN FISCAL YEARS * (49) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 Plan’s Proportion of the Net Pension Liability 18.82% 16.99% 15.47% 14.86% 15.55% 15.41% Plan’s Proportionate Share of the Net Pension Liability 16,563,816$ 22,982,998$ 18,692,374$ 16,866,107$ 17,052,279$ 14,675,830$ Plan’s Covered Payroll 3,902,610 4,203,972 4,418,536 4,577,147 4,210,103 2,026,477 Plan’s Proportionate Share of the Net Pension Liability as a Percentage of Covered Payroll 424.43% 546.70% 423.04% 368.49% 405.03% 724.20% Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 85.45% 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%. From fiscal year June 30, 2021 to June 30, 2022: The inflation rate was decreased from 2.625% to 2.5% The payroll growth rate was reduced from 2.875% to 2.75%. The investment rate of return was decreased from 7.15% to 7.00%. * Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the VPU; therefore only six years are shown. CITY OF VERNON VERNON PUBLIC UTILITIES SCHEDULE OF PLAN CONTRIBUTIONS CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN LAST TEN FISCAL YEARS * (50) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Actuarially Determined Contribution 2,674,983$ 2,145,491$ 1,908,522$ 1,622,690$ 1,475,490$ 1,403,235$ Contributions in Relation to the Actuarially Determined Contribution (2,674,983) (2,145,491) (1,908,522) (1,622,690) (1,475,490) (1,403,235) Contribution: Deficiency (Excess) -$ -$ -$ -$ -$ -$ Covered Payroll 4,767,901$ 3,902,610$ 4,203,972$ 4,418,536$ 4,577,147$ 4,210,103$ Contributions as a Percentage of Covered Payroll 56.10% 54.98% 45.40% 36.72% 32.24% 33.33% Notes to Schedule: Valuation Date 6/30/2019 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 Entry Age Amortization Method (1) (1) (1) (1) (1) (1) Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Inflation 2.625% 2.625% 2.625% 2.75% 2.75% 2.75% Salary Increases (2) (2) (2) (2) (2) (2) Investment Rate of Return 7.00% (3) 7.25% (3) 7.25% (3) 7.375% (3) 7.50% (3) 7.50% (3) Mortality (4) (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 VPU; therefore only six years are shown. CITY OF VERNON VERNON PUBLIC UTILITIES SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY LAST TEN FISCAL YEARS * (51) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan’s Proportion of the Net OPEB Liability 18.82% 16.99% 15.47% 14.86% 10.71% Plan’s Proportionate Share of the Net OPEB Liability 3,080,913$ 3,433,306$ 3,391,408$ 3,432,725$ 3,887,475$ Plan’s Covered-Employee Payroll 5,385,241 4,944,915 5,228,211 3,587,387 3,588,945 Plan’s Proportionate Share of the Net OPEB Liability as a Percentage of Covered-Employee Payroll 57.21% 69.43% 64.87% 95.69% 108.32% Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 40.20% 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 five years are shown. In the June 30, 2018 measurement period, the pre-65 waived retiree re-election was updated to be 10% after age 65. 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. CITY OF VERNON VERNON PUBLIC UTILITIES SCHEDULE OF OPEB CONTRIBUTIONS LAST TEN FISCAL YEARS * (52) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Actuarially Determined Contribution 289,525$ 261,372$ 298,886$ 400,166$ 288,398$ Contributions in Relation to the Actuarially Determined Contribution (551,938) (531,940) (605,820) (444,230) (221,199) Contribution: Deficiency (Excess) (262,413)$ (270,568)$ (306,934)$ (44,064)$ 67,199$ Covered Payroll 5,965,311$ 5,385,241$ 4,944,915$ 5,228,211$ 3,587,387$ Contributions as a Percentage of Covered Payroll 4.85% 4.85% 6.04% 7.65% 8.04% Notes to Schedule: Valuation Date 6/30/2019 6/30/2018 6/30/2018 6/30/2016 6/30/2016 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) Amortization Period 28 years 28 years 27 years 27 Years 29 Years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25% 2.25% 2.50% 2.50% 2.75% Healthcare Trend Rates (7) (6) (3) (3) (2) Investment Rate of Return 6.25% 6.25% 6.50% 7.00% 7.00% Mortality (5) (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%. (7) 6.30% trending down to 3.80%. * Fiscal year 2018 was the first year of implementation; therefore five years year are shown. SUPPLEMENTARY INFORMATION CITY OF VERNON VERNON PUBLIC UTILITIES COMBINING STATEMENT OF NET POSITION JUNE 30, 2022 (53) Electric Gas Water Fiber Optics Eliminating Fund Fund Fund Fund Entry Totals ASSETS Current Assets: Cash and Cash Equivalents 130,758,591$ 8,692,417$ 17,015,777$ 493,854$ -$ 156,960,639$ Accounts Receivable, Net of Allowance 12,396,047 580,100 1,141,938 144,253 - 14,262,338 Accrued Unbilled Revenue 16,411,782 1,240,987 1,373,195 - - 19,025,964 Accrued Interest Receivable 84,749 - 4,448 - - 89,197 Due from Other City Funds 70,399 - - - (70,399) - Prepaid Items 17,666 - - - - 17,666 Prepaid Natural Gas 636,909 - - - - 636,909 Total Current Assets 160,376,143 10,513,504 19,535,358 638,107 (70,399) 190,992,713 Noncurrent Assets: Restricted Cash and Cash Equivalents 39,025,025 - 7,358,059 - - 46,383,084 Advances to Other City Funds 27,079,890 - 202,798 - (27,079,890) 202,798 Prepaid Items 994,736 - - - - 994,736 Deposits 1,201,423 - - - - 1,201,423 Capital Assets: Nondepreciable 63,421,951 - 7,381,939 - - 70,803,890 Depreciable, Net 362,295,361 15,379,161 8,886,072 1,063,160 - 387,623,754 Total Noncurrent Assets 494,018,386 15,379,161 23,828,868 1,063,160 (27,079,890) 507,209,685 Total Assets 654,394,529 25,892,665 43,364,226 1,701,267 (27,150,289) 698,202,398 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pensions 4,016,377 397,282 917,279 7,859 - 5,338,797 Deferred Outflows Related to OPEB Liability 498,130 49,273 113,765 975 - 662,143 Deferred Amount on Debt Refunding 1,933,345 - - - - 1,933,345 Total Deferred Outflows of Resources 6,447,852 446,555 1,031,044 8,834 - 7,934,285 CITY OF VERNON VERNON PUBLIC UTILITIES COMBINING STATEMENT OF NET POSITION (CONTINUED) JUNE 30, 2022 (54) Electric Gas Water Fiber Optics Eliminating Fund Fund Fund Fund Entry Totals LIABILITIES Current Liabilities: Accounts Payable 15,828,391$ 215,122$ 1,415,262$ 13,734$ -$ 17,472,509$ Accrued Wages and Benefits 333,914 28,032 44,295 363 - 406,604 Due to Other City Funds 2,965,077 71,583 - - (70,399) 2,966,261 Customer Deposits 425,426 13,558 61,184 - - 500,168 Bond Interest Payable 4,969,736 - 242,490 - - 5,212,226 Bonds Payable 50,110,000 - 250,000 - - 50,360,000 Note Payable - - 139,535 - - 139,535 Compensated Absences 369,608 8,377 28,069 81 - 406,135 Total Current Liabilities 75,002,152 336,672 2,180,835 14,178 (70,399) 77,463,438 Noncurrent Liabilities: Advances from Other City Funds - 23,226,198 - 3,853,692 (27,079,890) - Bonds Payable 397,826,476 - 14,885,833 - - 412,712,309 Note Payable - - 1,081,395 - - 1,081,395 Compensated Absences 739,215 16,754 56,139 162 - 812,270 Net Other Postemployment Benefit Liability 2,317,770 229,264 529,343 4,536 - 3,080,913 Net Pension Liability 12,461,180 1,232,605 2,845,943 24,384 - 16,564,112 Total Noncurrent Liabilities 413,344,641 24,704,821 19,398,653 3,882,774 (27,079,890) 434,250,999 Total Liabilities 488,346,793 25,041,493 21,579,488 3,896,952 (27,150,289) 511,714,437 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions 7,841,575 775,654 1,790,896 15,345 - 10,423,470 Deferred Inflows Related to OPEB Liability 1,187,063 117,419 271,107 2,323 - 1,577,912 Total Deferred Inflows of Resources 9,028,638 893,073 2,062,003 17,668 - 12,001,382 NET POSITION Net Investment in Capital Assets 145,563,396 15,301,360 6,869,387 1,053,694 - 168,787,837 Restricted for Debt Service 32,836,544 - - - - 32,836,544 Unrestricted (Deficit) (14,932,990) (14,896,706) 13,884,392 (3,258,213) - (19,203,517) Total Net Position 163,466,950$ 404,654$ 20,753,779$ (2,204,519)$ -$ 182,420,864$ CITY OF VERNON VERNON PUBLIC UTILITIES COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022 (55) Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals OPERATING REVENUES Charges for Services 208,539,519$ 18,705,573$ 10,845,652$ 480,014$ 238,570,758$ Total Operating Revenues 208,539,519 18,705,573 10,845,652 480,014 238,570,758 OPERATING EXPENSES Cost of Sales 144,582,543 17,765,508 7,743,964 222,558 170,314,573 Depreciation 16,510,921 707,035 500,102 186,152 17,904,210 Total Operating Expenses 161,093,464 18,472,543 8,244,066 408,710 188,218,783 OPERATING INCOME 47,446,055 233,030 2,601,586 71,304 50,351,975 NONOPERATING REVENUES (EXPENSES) Intergovernmental 665,887 5,029 194,487 - 865,403 Investment Income 269,257 4,128 11,991 246 285,622 Net Decrease in Fair Value of Investments (8,231) - - - (8,231) Interest Expense (13,599,589) - (563,895) - (14,163,484) Loss on Disposition of Assets (1,900,009) (6,076) (409,841) - (2,315,926) Total Nonoperating Revenues (Expenses) (14,572,685) 3,081 (767,258) 246 (15,336,616) CHANGE IN NET POSITION 32,873,370 236,111 1,834,328 71,550 35,015,359 Net Position (Deficit) - Beginning of Year 130,593,580 168,543 18,919,451 (2,276,069) 147,405,505 NET POSITION (DEFICIT) - END OF YEAR 163,466,950$ 404,654$ 20,753,779$ (2,204,519)$ 182,420,864$ CITY OF VERNON VERNON PUBLIC UTILITIES COMBINING STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2022 (56) Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers 199,972,221$ 18,586,393$ 10,427,677$ 367,504$ 229,353,795$ Cash Paid to Suppliers for Goods and Services (133,793,435) (16,770,406) (6,851,398) (242,584) (157,657,823) Cash Paid to Employees for Services (3,090,696) (724,165) (1,818,089) (168,276) (5,801,226) Cash Paid to City for Services (5,214,961) - - - (5,214,961) Net Cash Provided (Used) by Operating Activities 57,873,129 1,091,822 1,758,190 (43,356) 60,679,785 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Repayment of Bonds (34,975,000) - (240,000) - (35,215,000) Issuance of Bonds 235,885,000 - - - 235,885,000 Bond Premiums 38,266,557 - - - 38,266,557 Payment to Refunding Bond Escrow Agent (62,999,903) - - - (62,999,903) Bond Interest Paid (16,875,267) - (587,975) - (17,463,242) Payment of Note Payable - - (139,535) - (139,535) Net Acquisition of Capital Assets (216,887,677) (261,506) (4,033,299) (211,814) (221,394,296) Net Cash Used by Capital and Related Financing Activities (57,586,290) (261,506) (5,000,809) (211,814) (63,060,419) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Grant Revenue Received 665,887 5,029 194,487 - 865,403 Payment from (Provided to) Other City Funds 114,065 (59) 1,915,195 (114,006) 1,915,195 Net Cash Provided (Used) by Noncapital Financing Activities 779,952 4,970 2,109,682 (114,006) 2,780,598 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income 178,598 4,128 7,583 246 190,555 Net Cash Provided by Investing Activities 178,598 4,128 7,583 246 190,555 CHANGE IN CASH AND CASH EQUIVALENTS 1,245,389 839,414 (1,125,354) (368,930) 590,519 Cash and Cash Equivalents - Beginning of Year 168,538,227 7,853,003 25,499,190 862,784 202,753,204 CASH AND CASH EQUIVALENTS - END OF YEAR 169,783,616$ 8,692,417$ 24,373,836$ 493,854$ 203,343,723$ COMPOSITION OF CASH AND CASH EQUIVALENTS Cash and Cash Equivalents 130,758,591$ 8,692,417$ 17,015,777$ 493,854$ 156,960,639$ Restricted Cash and Investments 39,025,025 - 7,358,059 - 46,383,084 Total 169,783,616$ 8,692,417$ 24,373,836$ 493,854$ 203,343,723$ CITY OF VERNON VERNON PUBLIC UTILITIES COMBINING STATEMENT OF CASH FLOWS (CONTINUED) YEAR ENDED JUNE 30, 2022 (57) Electric Gas Water Fiber Optics Fund Fund Fund Fund Totals RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income 47,446,055$ 233,030$ 2,601,586$ 71,304$ 50,351,975$ Adjustments to Reconcile Operating Income to Net Cash Provided (Used) by Operating Activities: Depreciation 16,510,921 707,035 500,102 186,152 17,904,210 Deferred gain from sale of generation assets (6,555,916) - --(6,555,916) Change in Operating Assets and Liabilities: Accounts Receivable (6,672,318) (216,191) (164,414) (112,510) (7,165,433) Accrued Unbilled Revenue (1,889,809) 97,011 (254,361) -(2,047,159) Due from Other Funds 523,087 - --523,087 Prepaid Expenses and Deposits (104,017) - --(104,017) Prepaid Natural Gas (636,909) - --(636,909) Deferred Outflows of Resources (564,694) 5,199 102,727 37,961 (418,807) Accounts Payable 3,257,996 164,516 (1,292)(27,752) 3,393,468 Accrued Wages and Benefits (115,466) (22,058)(67,916)(4,087)(209,527) Due to Other City Funds 2,965,077 71,583 (593,486) -2,443,174 Customer Deposits (5,171)-800 -(4,371) Compensated Absences 56,427 1,347 (18,983)(2,289)36,502 Other Postemployment Benefit Liability (111,573) (48,588)(167,986)(24,246) (352,393) Net Pension Liability (3,801,160) (627,374) (1,822,068) (168,284) (6,418,886) Deferred Inflows of Resources 7,570,599 726,312 1,643,481 395 9,940,787 Net Cash Provided (Used) by Operating Activities 57,873,129$ 1,091,822$ 1,758,190$ (43,356)$ 60,679,785$ CITY OF VERNON ELECTRIC FUND (AN ENTERPRISE FUND OF THE CITY OF VERNON) FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2022 CITY OF VERNON ELECTRIC FUND TABLE OF CONTENTS YEAR ENDED JUNE 30, 2022 INTRODUCTORY SECTION A MESSAGE FROM THE GENERAL MANAGER OF VERNON PUBLIC UTILITIES i FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 1 MANAGEMENTS’ DISCUSSION AND ANALYSIS (Required Supplementary Information – Unaudited) 4 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 10 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION 12 STATEMENT OF CASH FLOWS 13 NOTES TO BASIC FINANCIAL STATEMENTS 15 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 48 SCHEDULE OF PLAN CONTRIBUTIONS – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 49 SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY 50 SCHEDULE OF OPEB CONTRIBUTIONS 51 INTRODUCTORY SECTION Vernon Public Utilities 4305 Santa Fe Avenue, Vernon, CA, 90058 323.583.8811 | CityofVernon.org Message from the General Manager As an essential resource to all customers, our job is to provide dependable, high-quality electric, water, natural gas, and fiber optic services at cost - effective rates with the highest standards for reliability. We ensure that electricity will stay on when needed, customers have safe, clean drinking water, there is a reliable supply of natural gas to meet demand, and our fiber services offer competitive rates and the latest technology. Our mission focuses on reliably providing the lowest electric rates in California by 2030. As a municipally owned utility, every customer is a stakeholder in Vernon Public Utilities (VPU). VPU enjoys the continued support of the City Council, which has approved key strategic initiatives for sustained success. These initiatives include Renewable Energy Projects, such as the Daggett Solar Project (operational in September 2023) and the Sapphire Solar and Storage Facility Project (operational in December 2025). With Council support, along with City Administration, VPU remains focused on providing our customers with reliable services and competitive rates. Despite the recent supply chain issues and higher costs for energy, materials, and supplies, which are critical to our operations, VPU is committed to maintaining a strong financial and operational position for the future. Our strategy focuses on the following initiatives for financial and operational flexibility : 1.Electric load growth with a diversified customer base which includes green commerce. 2.A diversified Energy Resource portfolio, which includes meeting California’s Renewable Portfolio Standard Targets as outlined in SB100. Specifically, (i) 2027 - 52%, (ii) 2030 - 60%, and (iii) 2045 - 100% Carbon Neutral. VPU is in the process of updating its Integrated Resource Plan, which focuses on providing direction for reliability, affordability, and meeting renewable energy requirements. 3.Optimizing the operating profile for the Malburg Generating Station (MGS) for operational savings and continued coordination with the CAISO to prevent statewide rolling blackouts and requests to run MGS when energy is needed most across the electric grid. 4.Continued strategic capital investment in electric, water, natural gas, and fiber optic infrastructure to support high-quality and reliable services. VPU continues to be one of the most reliable electric systems compared to other utilities. VPU is a three-time recipient of the RP3 Diamond Level Award, the highest reliability award from APPA, which reflects our continued investment in utility infrastructure and commitment to safety and workforce development. 5.A focus on the utility’s financial strength, including improving key financial metrics used by the rating agencies such as Moody’s and S&P Global Ratings, including the implementation of a Utility Financial Reserves Policy, and keeping rates competitive to ensure businesses can grow in Vernon. As we enter 2023, I am optimistic about the future. VPU is focused on providing reliable and competitive electric, water, natural gas, and fiber optic services. In that pursuit, we will excel today and in the future. Sincerely, Todd Dusenberry General Manager (i) FINANCIAL SECTION CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer. CliftonLarsonAllen LLP CLAconnect.com (1) INDEPENDENT AUDITORS’ REPORT Honorable Mayor and the Members of the City Council City of Vernon, California Report on the Audit of the Financial Statements Opinion 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, 2022, 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Electric Fund as of June 30, 2022, 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. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City’s Electric Fund and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter As discussed in Note 1, the financial statements present only the Electric Enterprise Fund and do not purport to, and do not, present fairly the financial position of the City of Vernon as of June 30, 2022, 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. Honorable Mayor and the Members of the City Council City of Vernon, California (2) Responsibilities of Management 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’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we:  Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Obtain an understanding of internal control relevant to the audit 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 Electric Fund’s internal control. Accordingly, no such opinion is expressed.  Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit. Honorable Mayor and the Members of the City Council City of Vernon, California (3) 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 Management is responsible for the other information included in the annual report. The other information comprises the introductory section but does not include the basic financial statements and our auditors’ report thereon. Our opinion on the basic financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 8, 2023, 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 August 8, 2023 CITY OF VERNON ELECTRIC FUND MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (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, 2022. 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, 2022 (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, 2022, and prior fiscal year ended June 30, 2021. The details of the current year’s summary can be found on page 10-11 of this report. City of Vernon Electric Fund Fund Net Position June 30, 2022 and 2021 The category of the Electric Fund’s net position with the largest balance totaling $145.6 million represents resources that are invested in capital assets, net of the related debt. The second category restricted for debt services totaling $32.8 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 ($14.9) million represents a deficit in the unrestricted net position that is expected to be recovered from the Electric Fund’s estimated load growth, future revenues, including rate adjustments, and control of operating expenses. CITY OF VERNON ELECTRIC FUND MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (6) Fund Net Position (Continued):  Current assets increased by $16 million from the prior year while restricted and other assets decreased by $6 million from the prior year due to the drawdowns funding the electric capital improvement projects.  Capital assets increased by $198.5 million from the prior year mainly due to the continued capital investment in the Electric Fund infrastructure.  Current liabilities increased by $29.8 million from the prior year while long-term liabilities increased by $147 million from the prior year mainly due to higher debt service requirements.  The total net position of the Electric Fund increased by $32.9 million from the prior year primarily due to a $21.3 million increase in net investment in capital assets, an increase of $8.9 million in debt service restrictions, and an increase in the unrestricted (deficit) of $2.7 million. CITY OF VERNON ELECTRIC FUND MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2022 (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 12 of this report. City of Vernon Electric Fund Changes in Fund Net Position June 30, 2022 and 2021 The Electric Fund’s operating income of $47.4 million, less non-operating revenue (expenses) of $14.6 million resulted in an increase in net position by $32.8 million during the current year. The Electric Fund’s $30.7 million increase in its change in net position is primarily due to higher billed amount to customers of $19.5 million or 10%, higher consumption of 18.0 or 1%, and lower cost of sale (operating expenses) of $11.2 million or 7%. CITY OF VERNON ELECTRIC FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (8) CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets The Electric Fund’s investment in capital assets as of June 30, 2022 amounted to $425.7 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 $216.9 million, offset by the depreciation of $16.5 million representing total capital assets, net of $200.4 million. Additional information on the Electric Fund's capital assets can be found in Note 5 of this report. Outstanding debt As of June 30, 2022, the following debt remains outstanding:  $ 37,895,000 City of Vernon Electric System Revenue Bonds, 2008 Taxable Series A  $ 11,505,000 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  $ 19,305,000 City of Vernon Electric System Revenue Bonds, 2020 Series A  $173,815,000 City of Vernon Electric System Revenue Bonds, 2021 Taxable Series A  $ 52,070,000 City of Vernon Electric System Revenue Bonds, 2022 Taxable 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 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. The City of Vernon Electric System Revenue Bonds, 2021 Series A were issued to provide funds: (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the city limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights, (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement, and (iii) to pay costs of issuance of the 2021 Bonds. CITY OF VERNON ELECTRIC FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (9) The City of Vernon Electric System Revenue Bonds, 2022 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue Bonds, 2012 Taxable Series B and (ii) to pay costs of issuance of the 2022 Bonds. As of June 30, 2022, the ratings on all Electric System Revenue Bonds of the City were BBB+/Stable rating by S&P and Baa1/Stable rating by Moody’s. Additional information on the Electric Fund's long-term debt can be found in Note 6 of this report. ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES These factors were considered in preparing the Electric Fund’s FY 2022-23 operating and capital budgets:  VPU is committed to providing dependable, high-quality electric, water, natural gas, and fiber services at the lowest competitive rates and the highest standards for reliability.  VPU continues to respond to inflation and supply chain issues, including energy, natural gas, materials and supplies, and construction costs to maintain generation, transmission, and distribution infrastructure to continue to provide exceptionally reliable service.  Continue to implement VPU’s capital plan, manage operating and maintenance expenses, update the 2018 Integrated Resource Plan, and complete an Electric Cost of Service Analysis and Rate Design study. REQUESTS FOR INFORMATION This report is designed to provide an overview of the Electric Fund's FY 2021-22 results. Questions concerning the fund’s financial or operating results can be addressed to Scott Williams, Director of Finance, swilliams@cityofvernon.org, City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058. CITY OF VERNON ELECTRIC FUND STATEMENT OF NET POSITION JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (10) ASSETS Current Assets: Cash and Cash Equivalents 130,758,591$ Accounts Receivable, Net of Allowance of $971,686 12,396,047 Accrued Unbilled Revenue 16,411,782 Accrued Interest Receivable 84,749 Due from Other City Funds 70,399 Prepaid Items 17,666 Inventories 636,909 Total Current Assets 160,376,143 Noncurrent Assets: Restricted Cash and Cash Equivalents 39,025,025 Advances to Other City Funds 27,079,890 Prepaid Items 994,736 Deposits 1,201,423 Capital Assets: Nondepreciable 63,421,951 Depreciable, Net 362,295,361 Total Noncurrent Assets 494,018,386 Total Assets 654,394,529 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pensions 4,016,377 Deferred Outflows Related to OPEB Liability 498,130 Deferred Amount on Refunding 1,933,345 Total Deferred Outflows of Resources 6,447,852 CITY OF VERNON ELECTRIC FUND STATEMENT OF NET POSITION (CONTINUED) JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (11) LIABILITIES Current Liabilities: Accounts Payable 15,828,391$ Accrued Wages and Benefits 333,914 Due to Other City Funds 2,965,077 Customer Deposits 425,426 Bond Interest Payable 4,969,736 Bonds Payable, Net 50,110,000 Compensated Absences 369,608 Total Current Liabilities 75,002,152 Noncurrent Liabilities: Bonds Payable, Net 397,826,476 Compensated Absences 739,215 Other Postemployment Benefit Liability 2,317,770 Net Pension Liability 12,461,180 Total Noncurrent Liabilities 413,344,641 Total Liabilities 488,346,793 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions 7,841,575 Deferred Inflows Related to OPEB Liability 1,187,063 Total Deferred Inflows of Resources 9,028,638 NET POSITION Net Investment in Capital Assets 145,563,396 Restricted for Debt Service 32,836,544 Unrestricted (Deficit)(14,932,990) Total Net Position 163,466,950$ CITY OF VERNON ELECTRIC FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (12) OPERATING REVENUES Charges for Services 208,539,519$ Total Operating Revenue 208,539,519 OPERATING EXPENSES Cost of Sales 144,582,543 Depreciation 16,510,921 Total Operating Expenses 161,093,464 OPERATING INCOME 47,446,055 NONOPERATING REVENUES (EXPENSES) Intergovernmental 665,887 Investment Income 269,257 Net Decrease in Fair Value of Investments (8,231) Interest Expense (13,599,589) Loss on Disposition of Assets (1,900,009) Total Nonoperating Revenues (Expenses)(14,572,685) CHANGE IN NET POSITION 32,873,370 Net Position - Beginning of Year 130,593,580 NET POSITION - END OF YEAR 163,466,950$ CITY OF VERNON ELECTRIC FUND STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (13) CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers 199,972,221$ Cash Paid to Suppliers for Goods and Services (133,793,435) Cash Paid to Employees for Services (3,090,696) Cash Paid to City for Services (5,214,961) Net Cash Provided by Operating Activities 57,873,129 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Repayment of Bonds (34,975,000) Issuance of Bonds 235,885,000 Bond Premiums 38,266,557 Payment to Refunding Bond Escrow Agent (62,999,903) Bond Interest Paid (16,875,267) Net Acquisition of Capital Assets (216,887,677) Net Cash Used by Capital and Related Financing Activities (57,586,290) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Grant Revenue Received 665,887 Payments from Other City Funds 114,065 Net Cash Provided by Noncapital Financing Activities 779,952 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income 178,598 Net Cash Provided by Investing Activities 178,598 CHANGE IN CASH AND CASH EQUIVALENTS 1,245,389 Cash and Cash Equivalents - Beginning of Year 168,538,227 CASH AND CASH EQUIVALENTS - END OF YEAR 169,783,616$ COMPOSITION OF CASH AND CASH EQUIVALENTS Cash and Cash Equivalents 130,758,591$ Restricted Cash and Investments 39,025,025 Total 169,783,616$ CITY OF VERNON ELECTRIC FUND STATEMENT OF CASH FLOWS (CONTINUED) YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (14) RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income 47,446,055$ Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 16,510,921 Deferred Gain from Sale of Generation Assets (6,555,916) Change in Operating Assets and Liabilities: Accounts Receivable (6,672,318) Accrued Unbilled Revenue (1,889,809) Due from Other City Funds 523,087 Prepaid Expenses and Deposits (104,017) Prepaid Natural Gas (636,909) Deferred Outflows of Resources (564,694) Accounts Payable 3,257,996 Accrued Wages and Benefits (115,466) Due to Other City Funds 2,965,077 Customer Deposits (5,171) Compensated Absences 56,427 Other Postemployment Benefit Liability (111,573) Net Pension Liability (3,801,160) Deferred Inflows of Resources 7,570,599 Net Cash Provided by Operating Activities 57,873,129$ CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (15) 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (16) 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 receivables were $971,686 as of June 30, 2022. 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 Item The City made a prepayment to Southern California Public Power Authority (SCPPA) for the VPU’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. Inventories All inventories are valued at cost, or estimated historical costs when historical information is unavailable, using the first-in/first-out (FIFO) method. Inventory costs in the proprietary funds are recorded as an expense or capitalized into capital assets when used. G. 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, 2022, the amount of deposits totaled $1,201,423. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (17) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. 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. I. 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. J. 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, 2022, 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 pension-related transactions and postemployment benefit-related transactions. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (18) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) K. Long-Term Obligations Bond discounts, premiums and deferred amounts on refunding are amortized over the life of the bonds. L. 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. M. 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. N. 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (19) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. 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, 2022 are classified in the accompanying statement of net position as follows: Cash and Cash Equivalents 130,758,591$ Restricted Cash and Cash Equivalents 39,025,025 Total Cash and Cash Equivalents 169,783,616$ Cash and cash equivalents as of June 30, 2022 consist of the following: Equity in the City's Pooled Cash 8,340,938$ Deposits with Financial Institutions 30,593,952 Short-Term Investments 130,848,726 Total Cash and Cash Equivalents 169,783,616$ 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (20) 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (21) 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 $75 Million None Investment Contracts None None None None Disclosure Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City has no specific limitations with respect to this metric. Information about the sensitivity of the fair values of the Electric Fund’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided in the following table that shows the distribution of the Electric Fund’s investments by maturity: Investment Maturities Fair Value (in Months) as of Less than 13 to 25 to Investment Type 6/30/2022 12 Months 24 Months 60 Months Local Agency Investment Fund 627,044$ 627,044$ -$ -$ Held by Trustee: Money Market Mutual Funds 130,221,682 130,221,682 - - Total investments 130,848,726$ 130,848,726$ -$ -$ 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (22) 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, 2022 Local Agency Investment Fund Not Rated Not Rated 627,044$ Held by Trustee: Money Market Funds Aaa / AAA Aaa / AAA 130,221,682 Total in Custody of Trustee 130,848,726$ 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, 2022, 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, 2022, 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (23) 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 RECEIVABLE The Electric Fund’s accounts receivable at June 30, 2022, are as follows: Accounts Receivable 13,367,733$ Less: Allowance for Uncollectible Accounts (971,686) Total Accounts Receivable, Net 12,396,047$ CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (24) 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). Advances to Other City Funds The following table summarizes the Electric Fund’s advances to the other City funds at June 30, 2022: Advances to Other City Funds - July 1, 2021 27,193,955$ Advance Repaid by City Funds During the Year (114,065) Advances to Other City Funds - June 30, 2022 27,079,890$ The advances between the other City funds and the Electric Fund do 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, 2022, was $3,203,444. 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 $5,033,574 in lieu of franchise tax. Additionally, for the current year, the Electric Fund paid the City’s General Fund $181,387 for 40% of the cost of the new ERP system. This amount is reported in the accompanying financial statements as part of operating expenses. Under the City Charter and the Electric Fund’s electric revenue bond indentures, the Electric Fund is allowed to transfer up to 11.5% of its retail sales after meeting debt service obligations and certain debt coverage ratios. However, no additional transfers were made for the year ended June 30, 2022. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (25) NOTE 5 CAPITAL ASSETS Capital asset activity of the Electric Fund for the fiscal year ended June 30, 2022, was as follows: Balance Balance June 30, 2021 Additions Deletions Transfers June 30, 2022 Capital Assets, Not Being Depreciated: Electric Utility - Land 13,193,594$ -$ -$ -$ 13,193,594$ Electric Utility - Intangibles - Environmental Credits 1,163,811 3,610,772 - - 4,774,583 Electric Utility - Construction In Progress 45,324,750 129,024 - - 45,453,774 Total Capital Assets, Not Being Depreciated 59,682,155 3,739,796 - - 63,421,951 Capital Assets, Being Depreciated: Electric Utility - Production Plant 16,189,303 196,173,685 - - 212,362,988 Electric Utility - Transmission Plant 4,888,113 - (1,271,649) - 3,616,464 Electric Utility - Distribution Plant 258,451,179 16,781,817 (18,181,346) - 257,051,650 Electric Utility - General Plant 9,587,933 192,379 (25,903) - 9,754,409 Total Capital Assets, Being Depreciated 289,116,528 213,147,881 (19,478,898) - 482,785,511 Less Accumulated Depreciation for: Electric Utility - Production Plant (10,757,493) (8,634,043) - - (19,391,536) Electric Utility - Transmission Plant (3,424,581) (78,093) 1,059,485 - (2,443,189) Electric Utility - Distribution Plant (101,227,123) (7,438,076) 16,493,501 - (92,171,698) Electric Utility - General Plant (6,148,921) (360,709) 25,903 - (6,483,727) Total Accumulated Depreciation (121,558,118) (16,510,921) 17,578,889 - (120,490,150) Total Capital Assets, Being Depreciated, Net Electric Utility - Production Plant 5,431,810 187,539,642 - - 192,971,452 Electric Utility - Transmission Plant 1,463,532 (78,093) (212,164) - 1,173,275 Electric Utility - Distribution Plant 157,224,056 9,343,741 (1,687,845) - 164,879,952 Electric Utility - General Plant 3,439,012 (168,330) - - 3,270,682 Net Depreciable Assets 167,558,410 196,636,960 (1,900,009) - 362,295,361 Total Capital Assets, Net 227,240,565$ 200,376,756$ (1,900,009)$ -$ 425,717,312$ The Electric Fund’s total depreciation expense for the year was $16,510,921. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (26) NOTE 6 LONG-TERM OBLIGATIONS As of June 30, 2022, outstanding debt obligations consisted of the following: $43,765,000 Electric System Revenue Bonds (2008 Taxable Series A) At June 30, 2022, $37,895,000 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 $72,050,772, payable through fiscal year 2039. For the current year, debt service and net electric revenues were $4,240,768 and $69,089,394, 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) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series A, in the amount of $37,640,000. 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. The Electric System Revenue Bonds were refunded in the current fiscal year with the issuance of the Electric System Revenue Bonds 2021 Series A. $35,100,000 Electric System Revenue Bonds (2012 Taxable Series B) On January 10, 2012, the City issued Electric System Revenue Bonds, 2012 Series B, in the amount of $35,100,000. During the current fiscal year, a portion of the Electric System Revenue Bonds were refunded with the issuance of the Electric System Revenue Bonds 2022 Series A. At June 30, 2022, $11,505,000 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 $12,752,831, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $25,817,900 and $69,089,394, 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (27) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) $111,720,000 Electric System Revenue Bonds (2015 Taxable Series A) At June 30, 2022, $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 $124,140,019, payable through fiscal year 2027. For the current year, debt service and net electric revenues were $5,087,518 and $69,089,394, 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, 2022, $19,305,000 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 $30,319,875, payable through fiscal year 2038. For the current year, debt service and net electric revenues were $25,596,000 and $69,089,394, 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. $183,815,000 Electric System Revenue Bonds (2021 Series A) In December 2021, the City of Vernon issued 2021A Electric System Revenue Bonds in the amount of $183,815,000 (i) to pay the costs of the acquisition by the City of Vernon of a 134-megawatt natural gas-fired generating facility located within the City limits on land owned by the City, together with certain related electrical interconnection facilities and other assets, property, and contractual rights; (ii) to fund a deposit to the Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement; and (iii) to pay costs of issuance of the 2021 bonds. The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis on April 1 and October 1, commencing April 1, 2022. At June 30, 2022, $173,815,000 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 $207,098,300, payable through fiscal year 2028. For the current year, debt service and net electric revenues were $12,671,686 and $69,089,394, respectively. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (28) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) $183,815,000 Electric System Revenue Bonds (2021 Series A) (Continued) 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). $52,070,000 Electric System Revenue Bonds (2022 Series A) In December 2021, the City of Vernon issued 2022A Electric System Revenue Bonds in the amount of $52,070,000 to refund the 2012A Electric System Revenue Bonds, a portion of the 2012B Electric Revenue Bonds, and provide for the costs of issuing the bonds. The bonds bear interest rates between 4.00%-5.00% that is payable on a semi-annual basis beginning February 1 and August 1, commencing on August 1, 2022. At June 30, 2022, $52,070,000 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 $78,789,447, payable through fiscal year 2042. For the current year, debt service and net electric revenues were $-0- and $69,089,394, respectively. Under the Bond Indenture of Trust, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Light and Power Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Electric System Revenue Bonds, 2021 Series A were issued to (i) refund and defease all of the City’s outstanding Electric System Revenue Bonds, 2012 Series A and a portion of the City’s outstanding Electric System Revenue bonds, 2012 Taxable Series B and (ii) pay costs of issuance of the 2022 Bonds. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (29) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) A summary of bonds payable under the Electric Fund is as follows: Fixed Annual Original Interest Principal Issue Outstanding Bonds Maturity Rates Installments Amount June 30, 2022 City of Vernon 07/01/38 7.40% - To begin 07/01/10: 43,765,000$ 37,895,000$ Electric System Revenue Bonds, 8.59% $265,000 - 2008 Taxable Series A $4,065,000 City of Vernon 08/01/26 6.25% - To begin 08/01/22: 35,100,000 11,505,000 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 19,305,000 Electric System Revenue Bonds, $1,525,000 - 2020 Taxable Series A $28,655,000 City of Vernon 04/01/28 4% - To begin 04/01/22: 183,815,000 173,815,000 Electric System Revenue Bonds, 5.00% $10000,000 - 2021 Taxable Series A $54,915,000 City of Vernon 08/01/41 5.00% To begin 05/05/22: 52,070,000 52,070,000 Electric System Revenue Bonds, $950,000 - 2022 Taxable Series A $5,850,000 Premium 42,795,419 Discounts (1,168,943) Total Revenue Bonds 447,936,476$ As of June 30, 2022, 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 2023 1,025,000$ 3,211,156$ 2024 1,120,000 3,119,029 2025 1,220,000 3,018,526 2026 1,330,000 2,909,004 2027 1,450,000 2,789,603 2028-2032 9,445,000 11,747,040 2033-2037 14,510,000 6,677,437 2038-2041 7,795,000 683,979 Total Requirements 37,895,000$ 34,155,772$ CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (30) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Electric System Revenue Bonds 2012 Taxable Series B Fiscal Year Ending June 30,Principal Interest 2023 6,165,000$ 531,831$ 2024 1,170,000 302,613 2025 1,305,000 225,269 2026 1,390,000 140,181 2027 1,475,000 47,938 Total Requirements 11,505,000$ 1,247,832$ Electric System Revenue Bonds 2015 Taxable Series A Fiscal Year Ending June 30,Principal Interest 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 15,295,000 370,904 Total Requirements 111,720,000$ 12,420,019$ Electric System Revenue Bonds 2020 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 -$ 965,250$ 2024 - 965,250 2025 - 965,250 2026 - 965,250 2027 - 965,250 2028-2032 6,585,000 4,188,125 2033-2037 10,325,000 1,940,625 2038-2041 2,395,000 59,875 Total Requirements 19,305,000$ 11,014,875$ Electric System Revenue Bonds 2021 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 20,380,000$ 8,385,050$ 2024 21,335,000 7,405,125 2025 22,400,000 6,325,000 2026 23,530,000 5,190,875 2027 31,255,000 3,917,875 2028 54,915,000 2,059,375 Total Requirements 173,815,000$ 33,283,300$ CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (31) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Electric System Revenue Bonds 2022 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 -$ 1,923,697$ 2024 4,690,000 2,486,250 2025 4,885,000 2,246,875 2026 5,130,000 1,996,500 2027 5,405,000 1,733,125 2028-2032 5,270,000 7,357,500 2033-2037 6,765,000 5,860,625 2038-2042 19,925,000 3,114,875 Total Requirements 52,070,000$ 26,719,447$ Changes in Long-Term Liabilities The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022. Amounts Balance Balance Due Within June 30, 2021 Additions Reductions June 30, 2022 One Year Other Debt - Bonds Payable 266,635,000$ 235,885,000$ (96,210,000)$ 406,310,000$ 50,110,000$ Bond Premium 7,189,882 38,266,557 (2,661,020) 42,795,419 - Bond Discount (1,923,931) - 754,988 (1,168,943) - Compensated Absences (Note 1) 1,052,396 724,315 (667,888) 1,108,823 369,608 Total 272,953,347$ 274,875,872$ (98,783,920)$ 449,045,299$ 50,479,608$ 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, 2022, this fund has a balance of $38,934,149. 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. Credit Ratings As of June 30, 2022, the ratings on all Electric System Revenue Bonds of the City were BBB+/Stable by S&P and Baa1/Stable by Moody’s. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (32) 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 2022 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 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. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (33) NOTE 8 PENSION PLAN A. General Information About the Pension Plans Plan Descriptions All full-time safety 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 BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (34) NOTE 8 PENSION PLAN (CONTINUED) A. General Information About the Pension Plans (Continued) The Plans’ provisions and benefits in effect at the measurement date of June 30, 2021, 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 11.380% 11.380% Payment of Unfunded Liability 3,924,540$ -$ 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% 13.750% Required Employer Contribution Rates: Normal Cost Rate 22.780% 22.780% Payment of Unfunded Liability 7,063,113$ 15,563$ 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, 2022, the Electric Fund’s share of employer contributions made to the Plans was $2,012,496. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (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, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, 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, 2020 June 30, 2020 Measurement Date June 30, 2021 June 30, 2021 Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.500% 2.500% Payroll Growth 2.750% 2.750% 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. 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. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (36) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) The expected real rates of return by asset class are as follows: Assumed Real Return Real Return Asset Years Years t 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) In the CalPERS CAFR, Fixed (b)An expected inflation of 2.0% used for this period. (c)An expected inflation of 2.92% used for this period. 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. Subsequent Events On July 12, 2021, CalPERS reported a preliminary 21.3% net return on investments for fiscal year 2020-21. Based on the thresholds specified in CalPERS Funding Risk Mitigation policy, the excess return of 14.3% prescribes a reduction in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (37) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Subsequent Events (Continued) On November 17, 2021, the board adopted a new strategic asset allocation. The new asset allocation along with new capital market assumptions, economic assumptions and administrative expense assumption support a discount rate of 6.90% (net of investment expense but without a reduction for administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumption from 2.50% to 2.30% as recommended in the November 2021 CalPERS Experience Study and Review of Actuarial Assumptions. This study also recommended modifications to retirement rates, termination rates, mortality rates and rates of salary increases that were adopted by the board. These new assumptions will be reflected in the GASB 68 account valuation repots for the June 30, 2022 measurement date. 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, 2020 and 2021 was as follows: Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Proportionate Liability Net Position (Asset)Share Balance at June 30, 2020 (MD)61,879,846$ 45,617,506$ 16,262,340$ 12.02% Balance at June 30, 2021 (MD)69,252,712 56,791,532 12,461,180 14.16% Net Changes during 2020-21 7,372,866$ 11,174,026$ (3,801,160)$ 2.14% Pension Expense and Deferred Outflows and Inflows of Resources For the measurement period ended June 30, 2021, the Electric Fund recognized its proportionate share of the combined pension expense of the Plans, totaling $3,093,351. At June 30, 2022, the Electric Fund reported its proportionate share of the Plans’ combined deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (38) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Pension Expense and Deferred Outflows and Inflows of Resources (Continued) Deferred Deferred Outflows Inflows of Resources of Resources Pension Contributions Subsequent to Measurement Date 2,012,496$ -$ Differences Between Actual and Expected Experience 1,725,314 - Change in Assumptions - - Net Differences Between Projected and Actual Earnings on Plan Investments - (7,053,136) Differences Between Employer Contributions And Proportionate Share of Contributions - (714,821) Change in Employer's Proportion 278,567 (73,618) Total 4,016,377$ (7,841,575)$ $2,012,496 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Fiscal Year Ended June 30,Total 2023 (1,053,016)$ 2024 (1,203,219) 2025 (1,623,974) 2026 (1,957,485) 2027 - 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: CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (39) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate (Continued) Total 1% Decrease 6.15% Net Pension Liability 21,944,686$ Current Discount Rate 7.15% Net Pension Liability 12,461,180$ 1% Increase 8.15% Net Pension Liability 4,681,201$ Pension Plan Fiduciary Net Position Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Payable to the Pension Plan At June 30, 2022, the Electric Fund had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022. 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). CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (40) NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) Benefits Provided (Continued) 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. 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, 2022, the Electric Fund’s proportionate share of contributions made was $415,223 ($217,817 contributed to the OPEB trust, $128,240 paid for retiree premiums, and the estimated implied subsidy of $69,166). Net OPEB Liability The City’s net OPEB liability is measured as of June 30, 2021, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2021. 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: CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (41) NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) Actuarial Assumptions (Continued) 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 6.3% for FY2022, 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 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, 2021 are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return CERBT Strategy 1: Equity 59.00% 4.42% Fixed Income 25.00 1.00% TIPS 5.00 0.15% Commodities 3.00 3.98% REITs 8.00 1.73% 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. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (42) NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) 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. 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, 2020 and 2021 was as follows: Increase (Decrease) Total Plan Net OPEB OPEB Fiduciary Liability Proportionate Liability Net Position (Asset)Share Balance at June 30, 2020 (MD)3,271,125$ 841,782$ 2,429,343$ 12.02% Balance at June 30, 2021 (MD)3,877,225 1,559,455 2,317,770 14.16% Net Changes during FY 2021-22 606,100$ 717,673$ (111,573)$ 2.14% 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%)(7.25%) Net OPEB Liability 2,751,626$ 2,317,770$ 1,953,422$ 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 (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate: Healthcare Trend Rate 1% Decrease Current Rate 1% Increase Net OPEB Liability 2,134,592$ 2,317,770$ 2,500,009$ CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (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, 2022, the Electric Fund recognized its proportionate share of the OPEB expense(revenue) of $(119,343). At June 30, 2022, the Electric Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Contributions Between Measurement Date and Reporting Date 415,223$ -$ Difference Between Expected and Actual Liability 19,646 (499,577) Changes of Assumptions 63,261 (530,789) Net Differences Between Projected and Actual Earnings on Investments - (156,697) Total 498,130$ (1,187,063)$ The $415,223 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: Deferred Outflows (Inflows) Fiscal Year Ending June 30,of Resources 2022 (330,601)$ 2023 (331,825) 2024 (329,873) 2025 (88,956) 2026 (10,577) Thereafter (12,324) Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Payable to the OPEB Plan At June 30, 2022, the Electric Fund had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (44) 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 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). 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. On December 15, 2021, the City made the determination to reacquire MGS to achieve potential costs savings and other resource management benefits. In addition to the potential savings, the City expects there to be other benefits associated with the acquisition of MGS, which includes having control of the facility and the site, providing the City with flexibility with respect to the MGS operations and MGS’s role in the City’s resource portfolio. The City issued Electric System Revenue Bonds, 2021 Series A to finance the acquisition. (See Note 6) 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: CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (45) NOTE 10 ELECTRIC FUND OPERATIONS AND COMMITMENTS (CONTINUED) Southern California Public Power Authority (Continued) Take or Pay Contract (Continued) 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. 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 2022 was $3,320,768. 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 $2,250,667. CITY OF VERNON ELECTRIC FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (46) 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 $1,007,652. 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 $1,192,621. (47) REQUIRED SUPPLEMENTARY INFORMATION CITY OF VERNON ELECTRIC FUND SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN LAST TEN FISCAL YEARS * (48) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 City’s Proportion of the Net Pension Liability 14.17% 12.03% 10.93% 10.61% 10.60% 10.41% City's Proportionate Share of the Net Pension Liability 12,461,180$ 16,262,340$ 13,198,355$ 12,037,649$ 11,622,798$ 9,913,819$ City’s Covered Payroll 2,763,712 2,971,068 3,153,590 3,119,774 2,844,009 1,368,926 City’s Proportionate Share of the Net Pension Liability as a Percentage of City's Covered Payroll 450.89% 547.36% 418.52% 385.85% 408.68% 724.20% Plan Fiduciary Net Position as a Percentage of the Plan's Total Pension Liability 85.45% 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%. From fiscal year June 30, 2021 to June 30, 2022: The inflation rate was decreased from 2.625% to 2.5% The payroll growth rate was reduced from 2.875% to 2.75%. The investment rate of return was decreased from 7.15% to 7.00%. * Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Electric Fund, therefore only six years are shown. CITY OF VERNON ELECTRIC FUND SCHEDULE OF PLAN CONTRIBUTIONS CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN LAST TEN FISCAL YEARS * (49) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Actuarially Determined Contributions 2,012,496$ 1,518,109$ 1,347,573$ 1,158,143$ 1,005,691$ 947,914$ Contributions in relation to the Actuarially Determined Contributions (2,012,496) (1,518,109) (1,347,573) (1,158,143) (1,005,691) (947,914) Contribution : Deficiency (Excess)-$ -$ -$ -$ -$ -$ Covered Payroll 3,589,490$ 2,763,712$ 2,971,068$ 3,153,590$ 3,119,774$ 2,844,009$ Contributions as a Percentage of Covered Payroll 56.07% 54.93% 45.36% 36.72% 32.24% 33.33% Notes to Schedule: Valuation Date 6/30/2019 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 AgeEntry AgeEntry AgeEntry AgeEntry AgeEntry Age Amortization Method (1)(1)(1)(1)(1)(1) Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Inflation 2.625% 2.625% 2.625% 2.75% 2.75% 2.75% Salary Increases (2)(2)(2)(2)(2)(2) Investment Rate of Return 7.00% (3)7.25% (3)7.25% (3)7.375% (3)7.50% (3)7.50% (3) Mortality (4)(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 six years are shown. CITY OF VERNON ELECTRIC FUND SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY LAST TEN FISCAL YEARS * (50) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan’s Proportion of the Net OPEB Liability 14.16% 12.02% 10.93% 10.61% 6.43% Plan’s Proportionate Share of the Net OPEB Liability 2,317,770$ 2,429,343$ 2,394,613$ 2,449,998$ 2,333,037$ Plan’s Covered-Employee Payroll 3,810,495 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 60.83% 69.58% 64.17% 113.80% 108.32% Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 40.22% 25.73% 16.30% 8.62% 2.83% Notes to Schedule: Changes in Assumptions: * Fiscal year 2018 was the first year of implementation, therefore only five 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 * (51) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Actuarially Determined Contribution 217,810$ 184,942$ 211,038$ 285,605$ 173,080$ Contributions in relation to the Actuarially Determined Contribution (415,223) (376,391) (427,758) (317,055) (132,751) Contribution: Deficiency (Excess)(197,413)$ (191,449)$ (216,720)$ (31,449)$ 40,329$ Covered Payroll 4,487,701$ 3,810,495$ 3,491,517$ 3,731,469$ 2,152,941$ Contributions as a Percentage of Covered Payroll 4.85% 4.85% 6.04% 7.65% 8.04% Notes to Schedule: Valuation Date 6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015 Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry AgeEntry AgeEntry AgeEntry AgeEntry Age Amortization Method (1)(1)(1)(1)(1) Amortization Period 28 years 28 years 27 years 27 years 29 years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25% 2.25% 2.50% 2.50% 2.75% Healthcare Trend Rates (7)(6)(3)(3)(2) Investment Rate of Return 6.25% 6.25% 6.50% 7.00% 7.00% Mortality (5)(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%. (7)6.30% trending down to 3.80%. * Fiscal year 2018 was the first year of implementation, therefore five years year are shown. CITY OF VERNON WATER FUND (AN ENTERPRISE FUND OF THE CITY OF VERNON) FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2022 CITY OF VERNON WATER FUND TABLE OF CONTENTS YEAR ENDED JUNE 30, 2022 INTRODUCTORY SECTION A MESSAGE FROM THE GENERAL MANAGER OF VERNON PUBLIC UTILITIES i FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT 1 MANAGEMENTS’ DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION – UNAUDITED) 4 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 9 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION 11 STATEMENT OF CASH FLOWS 12 NOTES TO BASIC FINANCIAL STATEMENTS 13 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 37 SCHEDULE OF PLAN CONTRIBUTIONS – CITY’S MISCELLANEOUS AND SAFETY COST SHARING PLAN 38 SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY 39 SCHEDULE OF OPEB CONTRIBUTIONS 40 INTRODUCTORY SECTION Vernon Public Utilities 4305 Santa Fe Avenue, Vernon, CA, 90058 323.583.8811 | CityofVernon.org Message from the General Manager As an essential resource to all customers, our job is to provide dependable, high-quality electric, water, natural gas, and fiber optic services at cost - effective rates with the highest standards for reliability. We ensure that electricity will stay on when needed, customers have safe, clean drinking water, there is a reliable supply of natural gas to meet demand, and our fiber services offer competitive rates and the latest technology. Our mission focuses on reliably providing the lowest electric rates in California by 2030. As a municipally owned utility, every customer is a stakeholder in Vernon Public Utilities (VPU). VPU enjoys the continued support of the City Council, which has approved key strategic initiatives for sustained success. These initiatives include Renewable Energy Projects, such as the Daggett Solar Project (operational in September 2023) and the Sapphire Solar and Storage Facility Project (operational in December 2025). With Council support, along with City Administration, VPU remains focused on providing our customers with reliable services and competitive rates. Despite the recent supply chain issues and higher costs for energy, materials, and supplies, which are critical to our operations, VPU is committed to maintaining a strong financial and operational position for the future. Our strategy focuses on the following initiatives for financial and operational flexibility : 1.Electric load growth with a diversified customer base which includes green commerce. 2.A diversified Energy Resource portfolio, which includes meeting California’s Renewable Portfolio Standard Targets as outlined in SB100. Specifically, (i) 2027 - 52%, (ii) 2030 - 60%, and (iii) 2045 - 100% Carbon Neutral. VPU is in the process of updating its Integrated Resource Plan, which focuses on providing direction for reliability, affordability, and meeting renewable energy requirements. 3.Optimizing the operating profile for the Malburg Generating Station (MGS) for operational savings and continued coordination with the CAISO to prevent statewide rolling blackouts and requests to run MGS when energy is needed most across the electric grid. 4.Continued strategic capital investment in electric, water, natural gas, and fiber optic infrastructure to support high-quality and reliable services. VPU continues to be one of the most reliable electric systems compared to other utilities. VPU is a three-time recipient of the RP3 Diamond Level Award, the highest reliability award from APPA, which reflects our continued investment in utility infrastructure and commitment to safety and workforce development. 5.A focus on the utility’s financial strength, including improving key financial metrics used by the rating agencies such as Moody’s and S&P Global Ratings, including the implementation of a Utility Financial Reserves Policy, and keeping rates competitive to ensure businesses can grow in Vernon. As we enter 2023, I am optimistic about the future. VPU is focused on providing reliable and competitive electric, water, natural gas, and fiber optic services. In that pursuit, we will excel today and in the future. Sincerely, Todd Dusenberry General Manager FINANCIAL SECTION (1) INDEPENDENT AUDITORS’ REPORT Honorable Mayor and the Members of the City Council City of Vernon, California Report on the Financial Statements Opinion We have audited the accompanying financial statements of the Water Fund of the City of Vernon, (Water Fund), an enterprise fund of the City of Vernon, California (City), which comprise the statement of net position as of June 30, 2022, 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 Water Fund’s basic financial statements as listed in the table of contents. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Water Fund as of June 30, 2022, 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. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City’s Water and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter As discussed in Note 1 to the financial statements, the financial statements present only the City’s Water Fund and do not purport to, and do not, present fairly the financial position of the City of Vernon, California as of June 30, 2022, 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. CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer. CliftonLarsonAllen LLP CLAconnect.com Honorable Mayor and the Members of the City Council City of Vernon, California (2) Responsibilities of Management 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’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS and Government Auditing Standards, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit 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 Water Fund’s internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit. Honorable Mayor and the Members of the City Council City of Vernon, California (3) 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 net pension liability, schedule of plan contributions, schedule of proportionate share of the 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 Management is responsible for the other information included in the annual report. The other information comprises the introductory section but does not include the basic financial statements and our auditors’ report thereon. Our opinion on the basic financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 8, 2023, on our consideration of the Water 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 Water 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 Water Fund’s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Irvine, California August 8, 2023 CITY OF VERNON WATER FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (4) The management of the Water Fund of the City of Vernon (“the City”) offers the following overview and analysis of the basic financial statements of the Water Fund for the fiscal year ended June 30, 2022. 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 Water Fund’s basic financial statements. Included as part of the financial statements are three separate statements. The statement of net position presents information on the Water 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 net position presents information showing how the Water 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 to fully understand the data provided in the financial statements. CITY OF VERNON WATER FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (5) FINANCIAL HIGHLIGHTS Fund Net Position The table below summarizes the Water Fund’s net position as of the current fiscal year ended June 30, 2022 and prior fiscal year ended June 30, 2021. The details of the current year’s summary can be found on pages 9 and 10 of this report. City of Vernon Water Fund Fund Net Position June 30, 2022 and 2021 The assets and deferred outflows of resources of the Water Fund exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $20,753,779 (net position). The category of the Water Fund’s net position with the largest balance totaling $13,884,392 represents the unrestricted net position that is expected to be used for future projects or other purposes. The remaining category of net position, totaling $6,869,387, represents resources that are invested in capital assets, net of related debt. CITY OF VERNON WATER FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (6) Fund Net Position (Continued): Current assets increased by $3.2 million from the prior year due to increases in cash by $2.8 million, accounts receivable by $164 thousand, and accrued unbilled revenue by $254 thousand. Restricted assets decreased by $3.9 million in 2022 as we drew down on the Water System Revenue Bonds 2020 Taxable Series A to fund capital projects. Capital assets increased $3.1 million from the prior year due to additional water plant construction totaling $3.1 million, net of depreciation of $410 thousand (See Note 5). Current liabilities decreased by $663 thousand from the prior year primarily due to decreases accrued wages and benefits by $68 thousand and in the amount due to other city funds balance by $593 thousand. Long-term liabilities decreased by $2.4 million from the prior year due to decreases in bonds payable by $269 thousand, in the note payable by $140 thousand, and net other postemployment benefit liability of $168 thousand, and net pension liability of $1.8 million. The net investments in capital assets, net of related debt decreased by $434 thousand while the unrestricted net position increased by $2.3 million causing an increase in the total net position of $1.8 million. CITY OF VERNON WATER FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (7) Changes in Fund Net Position The table below summarizes the Water 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 11 of this report. City of Vernon Water Fund Changes in Fund Net Position June 30, 2022 and 2021 The Water Fund’s FY 2021-22 operating income of $2.6 million offset by net non-operating revenues (expenses) of $(767) thousand resulted in a net position of $1.8 million. The key reasons for this change are due to a water rate adjustment effective January 2022, management and control of operating expenses, and higher net non-operating revenues(expenses) by $200 thousand. CITY OF VERNON WATER FUND MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2022 (8) CAPITAL ASSETS The Water Fund’s investment in capital assets as of June 30, 2022 amounted to $16.3 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, and utility system improvements. Additional information on the Water Fund's capital assets can be found in Note 5 of this report. OUTSTANDING DEBT As of June 30, 2022, the following debt remains outstanding:  $14,600,000 City of Vernon Water System Revenue Bonds, 2020 Taxable Series A  $1,220,930 City of Vernon agreement with Water Replenishment District of Southern California The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to(i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds. As of June 30, 2022, the rating on the Water System Revenue Bonds is A-/Stable by S&P. Additional information on the Water Fund's long-term debt can be found in Note 6 of this report. ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES These factors were considered in preparing the Water Fund’s FY 2022-23 operating and capital budgets.  VPU is committed to providing dependable, high-quality electric, water, natural gas, and fiber services at the lowest competitive rates and the highest standards for reliability.  VPU continues to respond to inflation and supply chain issues, including higher chemical and construction costs, to maintain infrastructure investment to continue to provide exceptionally reliable service.  Continue to implement the multi-year water rate adjustment plan approved by City Council as well as manage and control operating expenses. REQUESTS FOR INFORMATION This report is designed to provide an overview of the Water Fund's FY 2021-22 results. Questions concerning the fund’s financial or operating results can be addressed to Scott Williams, Director of Finance, swilliams@cityofvernon.org, City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058. CITY OF VERNON WATER FUND STATEMENT OF NET POSITION JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (9) ASSETS Current Assets: Cash and Cash Equivalents 17,015,777$ Accounts Receivable, Net of Allowance of $53,364 1,141,938 Accrued Unbilled Revenue 1,373,195 Accrued Interest Receivable 4,448 Total Current Assets 19,535,358 Noncurrent Assets: Restricted Cash and Cash Equivalents 7,358,059 Advances to Other City Funds 202,798 Capital Assets: Nondepreciable 7,381,939 Depreciable, Net 8,886,072 Total Noncurrent Assets 23,828,868 Total Assets 43,364,226 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows Related to Pensions 917,279 Deferred Outflows Related to OPEB Liability 113,765 Total Deferred Outflows of Resources 1,031,044 CITY OF VERNON WATER FUND STATEMENT OF NET POSITION (CONTINUED) JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (10) LIABILITIES Current Liabilities: Accounts Payable 1,415,262$ Accrued Wages and Benefits 44,295 Customer Deposits 61,184 Bond Interest Payable 242,490 Bonds Payable 250,000 Note Payable 139,535 Compensated Absences 28,069 Total Current Liabilities 2,180,835 Noncurrent Liabilities: Bonds Payable 14,885,833 Note Payable 1,081,395 Compensated Absences 56,139 Net Other Postemployment Benefit Liability 529,343 Net Pension Liability 2,845,943 Total Noncurrent Liabilities 19,398,653 Total Liabilities 21,579,488 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions 1,790,896 Deferred Inflows Related to OPEB Liability 271,107 Total Deferred Inflows of Resources 2,062,003 NET POSITION Net Investment in Capital Assets 6,869,387 Unrestricted 13,884,392 Total Net Position 20,753,779$ CITY OF VERNON WATER FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (11) OPERATING REVENUES Charges for Services 10,845,652$ Total Operating Revenue 10,845,652 OPERATING EXPENSES Cost of Sales 7,743,964 Depreciation 500,102 Total Operating Expenses 8,244,066 OPERATING INCOME 2,601,586 NONOPERATING REVENUES (EXPENSES) Intergovernmental 194,487 Investment Income 11,991 Interest Expense (563,895) Loss on Disposition of Assets (409,841) Total Nonoperating Revenues (Expenses)(767,258) CHANGE IN NET POSITION 1,834,328 Net Position - Beginning Of Year 18,919,451 NET POSITION - END OF YEAR 20,753,779$ CITY OF VERNON WATER FUND STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2022 See accompanying Notes to Basic Financial Statements. (12) CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers 10,427,677$ Cash Paid to Suppliers for Goods and Services (6,851,398) Cash Paid to Employees for Services (1,818,089) Net Cash Provided by Operating Activities 1,758,190 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Payment of Bond Payable (240,000) Bond Interest Paid (587,975) Payment of Note Payable (139,535) Net Acquisition of Capital Assets (4,033,299) Net Cash Used by Capital and Related Financing Activities (5,000,809) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Grant Revenue Received 194,487 Payment from (Provided to) Other City Funds 1,915,195 Net Cash Provided by Noncapital Financing Activities 2,109,682 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income 7,583 Net Cash Provided by Investing Activities 7,583 CHANGE IN CASH AND CASH EQUIVALENTS (1,125,354) Cash and Cash Equivalents - Beginning of Year 25,499,190 CASH AND CASH EQUIVALENTS - END OF YEAR 24,373,836$ COMPOSITION OF CASH AND CASH EQUIVALENTS Cash and Cash Equivalents 17,015,777$ Restricted Cash and Investments 7,358,059 Total 24,373,836$ RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income 2,601,586$ Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 500,102 Change in Operating Assets and Liabilities: Accounts Receivable (164,414) Accrued Unbilled Revenue (254,361) Deferred Outflows of Resources 102,727 Accounts Payable (1,292) Accrued Wages and Benefits (67,916) Due to Other Funds (593,486) Customer Deposits 800 Compensated Absences (18,983) Other Postemployment Benefit Liability (167,986) Net Pension Liability (1,822,068) Deferred Inflows of Resources 1,643,481 Net Cash Provided by Operating Activities 1,758,190$ CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (13) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements present only the Water Enterprise Fund (the Water 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 Water Fund accounts for the independent operations and the maintenance of the City’s Water utility. The Water 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 Water 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 Water Fund’s significant accounting policies are described below. A. Basis of Presentation The Water 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 Water 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 Water. 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 Water 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 WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (14) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Cash Deposits and Investments For purposes of the statement of cash flows, the Water 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 Water 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 accounts were $53,364 as of June 30, 2022. The Water Fund’s customers are billed monthly. The estimated value of services provided, but unbilled at year-end has been included in the accompanying financial statements. E. 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, 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. The estimated useful lives are as follows: Utility Plant 3 to 50 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. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (15) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Compensated Absences Accumulated vacation is accrued when incurred. Upon termination of employment, the Water Fund will pay the employee all accumulated vacation leave at 100% of the employee’s base hourly rate. G.Deferred Outflows and Inflows of Resources The Water Fund recognizes deferred outflows and inflows of resources. A deferred outflow of resource is defined as a consumption of net position by the Water Fund that is applicable to a future reporting period. A deferred inflow of resources is defined as an acquisition of net position by the Water Fund that is applicable to a future reporting period. On June 30, 2022, the Water Fund has deferred outflows of resources representing deferred amounts on pension-related transactions and postemployment benefit-related transactions and deferred inflows of resources representing pension- related transactions and postemployment benefit-related transactions. H. Long-Term Obligations Bond discounts and premiums are amortized over the life of the bonds using the straight-line method. I. Net Position The Water Fund 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. The Water Fund does not have any restricted net position. Unrestricted Net Invested in Capital Assets or Position – This category represents the net position of the Water Fund not restricted for any project or other purposes. The Water Fund’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. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (16) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Use of Estimates The preparation of the 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. K. 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. L. Other 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 Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, the 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, 2022, are classified in the accompanying statement of net position as follows: Cash and Cash Equivalents 17,015,777$ Restricted Cash and Cash Equivalents 7,358,059 Total Cash and Cash Equivalents 24,373,836$ Cash and cash equivalents as of June 30, 2022 consist of the following: Equity in the City's Pooled Cash 10,972,364$ Deposits with Financial Institutions 6,043,413 Money Market Mutual Funds 7,358,059 Total Cash and Cash Equivalents 24,373,836$ CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (17) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) Equity in the Cash Pool of the City of Vernon The Water Fund has equity in the cash pool managed by the City. The Water 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 Water Fund has not adopted an investment policy separate from that of the City. The amount of the Water Fund’s cash in this pool is reported in the accompanying financial statements based upon the Water 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. 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 CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (18) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) 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. 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 $75 Million None Investment Contracts None None None None CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (19) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) Disclosure Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City has no specific limitations with respect to this metric. Information about the sensitivity of the fair values of the Water Fund’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided in the following table that shows the distribution of the Water Fund’s investments by maturity: Investment Maturities Fair Value (in Months) as of Less than 13 to 25 to Investment Type 6/30/2022 12 Months 24 Months 60 Months Held by Trustee: Money Market Mutual Funds 7,358,059$ 7,358,059$ -$ -$ 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. Minimum Actual Fair Value Required Credit Rating as of Investment TypeRatingMoody's / S&P June 30, 2022 Held by Trustee: Money Market Mutual Funds Aaa / AAA Aaa / AAA 7,358,059$ 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, 2022, there were no investments held by the Water Fund that exceeded 5% in any one issuer, excluding money market mutual funds. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (20) NOTE 2 CASH AND CASH EQUIVALENTS (CONTINUED) 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 $250,000, made by state or local governmental units by pledging government securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Such collateral is held by the pledging financial institution’s trust department or agent in the City’s name. At June 30, 2022, all of the Water Fund’s deposits were insured or collateralized as required by Section 53652 of the California Government Code. Fair Value Measurement The Water Fund categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset.  Level 1 inputs are quoted prices for identical assets or liabilities in active markets that the government can access at the measurement date.  Level 2 inputs are other than quoted prices included in Level 1 that are observable for an asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs for an asset or liability. The Water Fund’s investments in money market mutual funds is not subject to categorization in the fair value hierarchy. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (21) NOTE 3 ACCOUNTS RECEIVABLES The Water Fund’s accounts receivable at June 30, 2022, are as follows: Accounts Receivable 1,195,302$ Less: Allowance for Uncollectible Accounts (53,364) Total Receivables, Net 1,141,938$ NOTE 4 INTRA-ENTITY TRANSACTIONS Transactions between the Water 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). Advances to Other City Funds The following table summarizes the Water Fund’s advances to the other City funds at June 30, 2022: Advances to Other City Funds - July 1, 2021 2,117,993$ Advance Repaid by City Funds During the Year (1,915,195) Advances to Other City Funds - June 30, 2022 202,798$ The advances between the other City funds and the Water Fund does not accrue interest due to the nature of the City’s operational relationship and capital projects funded by the Water Fund that benefits the 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 Water Fund which is included as part of the cost of sales. The allocated costs for the year ended June 30, 2022, were $610,000. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (22) NOTE 5 CAPITAL ASSETS Capital asset activities of the Water Fund for the fiscal year ended June 30, 2022, were as follows: Balance Balance June 30, 2021 Additions Deletions Transfers June 30, 2022 Capital Assets, Not Being Depreciated: Land 467,640$ -$ -$ -$ 467,640$ Construction in Progress 4,635,417 2,366,637 - (87,755) 6,914,299 Total Capital Assets, Not Being Depreciated 5,103,057 2,366,637 - (87,755) 7,381,939 Capital Assets, Being Depreciated: Water Utility Plant 23,765,353 1,666,662 (1,789,499) 87,755 23,730,271 Total Capital Assets, Being Depreciated 23,765,353 1,666,662 (1,789,499) 87,755 23,730,271 Less Accumulated Depreciation for: Water Utility Plant (15,723,755) (500,102) 1,379,658 - (14,844,199) Total Accumulated Depreciation (15,723,755) (500,102) 1,379,658 - (14,844,199) Total Capital Assets, Being Depreciated, Net Water Utility Plant 8,041,598 1,166,560 (409,841) 87,755 8,886,072 Total 8,041,598 1,166,560 (409,841) 87,755 8,886,072 Total Capital Assets, Net 13,144,655$ 3,533,197$ (409,841)$ -$ 16,268,011$ The Water Fund’s total depreciation expense for the year was $500,102. NOTE 6 LONG-TERM OBLIGATIONS As of June 30, 2022, outstanding debt obligations consisted of the following: $14,840,000 Water System Revenue Bonds (2020 Series A) At June 30, 2022, $14,600,000 remained outstanding. The bonds are special obligation bonds which are secured by an irrevocable pledge of water revenues payable to bondholders. The debt service remaining on the bonds is $25,040,038, payable through fiscal 2051. For the current year, debt service and net water revenues were $827,975 and $3,194,732, respectively. Under the Indenture of Trust dated May 6, 2020, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Water Enterprise (as those terms are defined in the Indenture of Trust). The City of Vernon Water System Revenue Bonds, 2020 Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (23) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) A summary of the bonds payable under the Water Fund is as follows: Fixed Annual Original Interest Principal Issue Outstanding Bonds Maturity Rates Installments Amount June 30, 2022 City of Vernon 08/01/50 5.00% To begin 08/01/21: 14,840,000$ 14,600,000$ Water System Revenue Bonds,$240,000 - 2020 Taxable Series A $3,785,000 Premium 535,833 Total Revenue Bonds 15,135,833$ Note Payable – Direct Borrowing In May 2019, the City entered into an agreement with Water Replenishment District of Southern California (WRD) for assistance with the construction of a new groundwater well or rehabilitation of an existing groundwater well. The promissory note is unsecured and has no interest basis for an amount not to exceed $1,500,000. As of June 30, 2022, WRD has disbursed all of the funds under the agreement to the City. The note is payable in quarterly principal payments commencing September 1, 2020, in an amount which, together with all quarterly payments, will be sufficient to fully amortize the principal balance of the note by the maturity date of April 1, 2031. Upon an event of default, WRD may declare any or all of the outstanding and unpaid principal balance immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice, declaration or act of any kind, all of which are hereby expressly waived by the City. Debt Service Requirements As of June 30, 2022, annual debt service requirements of the Water Fund to maturity are as follows: Water System Revenue Bonds 2020 Taxable Series A Fiscal Year Ending June 30,Principal Interest 2023 250,000$ 575,725$ 2024 265,000 562,850 2025 275,000 549,350 2026 - 542,475 2027 - 542,475 2028-2032 1,985,000 2,563,500 2033-2037 2,180,000 2,052,625 2038-2042 2,680,000 1,535,450 2043-2047 3,180,000 1,051,925 2048-2051 3,785,000 463,663 Total Requirements 14,600,000$ 10,440,038$ CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (24) NOTE 6 LONG-TERM OBLIGATIONS (CONTINUED) Debt Service Requirements (Continued) Note Payable - Direct Borrowing Fiscal Year Ending June 30,Principal Interest 2023 139,535$ -$ 2024 139,535 - 2025 139,535 - 2026 139,535 - 2027 139,535 - 2028-2031 523,256 - Total Requirements 1,220,930$ -$ Changes in Long-Term Liabilities The following is a summary of long-term liabilities transactions for the fiscal year ended June 30, 2022: Amounts Balance Balance Due Within June 30, 2021 Additions Reductions June 30, 2022 One Year Other Debt - Bonds Payable 14,840,000$ -$ (240,000)$ 14,600,000$ 250,000$ Bond Premium 554,913 - (19,080) 535,833 - Note Payable - Direct Borrowing 1,360,465 - (139,535) 1,220,930 139,535 Compensated Absences 103,191 79,892 (98,875) 84,208 28,069 Total 16,858,569$ 79,892$ (497,490)$ 16,440,971$ 417,604$ Credit Ratings As of June 30, 2022, the ratings on all Water System Revenue Bonds is A-/Stable by S&P and not rated by Moody’s. NOTE 7 RISK MANAGEMENT The Water 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. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (25) NOTE 7 RISK MANAGEMENT (CONTINUED) 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 2022 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 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 Water 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. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (26) NOTE 8 PENSION PLAN A. General Information About the Pension Plans Plan Descriptions All full-time safety 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 Water 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 WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (27) NOTE 8 PENSION PLAN (CONTINUED) A. General Information About the Pension Plans (Continued) Benefits Provided (Continued) The Plans’ provisions and benefits in effect as of the measurement date of June 30, 2021, 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 11.380% 11.380% Payment of Unfunded Liability 3,924,540$ -$ 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% 13.750% Required Employer Contribution Rates: Normal Cost Rate 22.780% 22.780% Payment of Unfunded Liability 7,063,113$ 15,563$ 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, 2022, the Water Fund’s share of employer contributions made to the Plans was $459,607. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (28) 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, 2021, using an annual actuarial valuation as of June 30, 2020, rolled forward to June 30, 2021, 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, 2020 June 30, 2020 Measurement Date June 30, 2021 June 30, 2021 Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.500% 2.500% Payroll Growth 2.750% 2.750% 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 WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (29) 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 WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (30) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Subsequent Events On July 12, 2021, CalPERS reported a preliminary 21.3% net return on investments for fiscal year 2020-21. Based on the thresholds specified in CalPERS Funding Risk Mitigation policy, the excess return of 14.3% prescribes a reduction in investment volatility that corresponds to a reduction in the discount rate used for funding purposes of 0.20%, from 7.00% to 6.80%. Since CalPERS was in the final stages of the four-year Asset Liability Management (ALM) cycle, the board elected to defer any changes to the asset allocation until the ALM process concluded, and the board could make its final decision on the asset allocation in November 2021. On November 17, 2021, the board adopted a new strategic asset allocation. The new asset allocation along with new capital market assumptions, economic assumptions and administrative expense assumption support a discount rate of 6.90% (net of investment expense but without a reduction for administrative expense) for financial reporting purposes. This includes a reduction in the price inflation assumption from 2.50% to 2.30% as recommended in the November 2021 CalPERS Experience Study and Review of Actuarial Assumptions. This study also recommended modifications to retirement rates, termination rates, mortality rates and rates of salary increases that were adopted by the board. These new assumptions will be reflected in the GASB 68 account valuation repots for the June 30, 2022 measurement date. Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the Water Fund The Water Fund’s 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 Water Fund’s proportionate share of the combined net pension liability was based on the Water 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 Water Fund’s proportionate share of the combined net pension liability for the pension plans as of the measurement date ended June 30, 2020 and 2021 were as follows: Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Proportionate Liability Net Position (Asset)Share Balance at June 30, 2020 (MD)17,762,255$ 13,094,244$ 4,668,011$ 3.45% Balance at June 30, 2021 (MD)20,712,814 17,866,870 2,845,943 3.23% Net Changes during 2020-21 2,950,559$ 4,772,626$ (1,822,067)$ -0.22% CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (31) 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 For the measurement period ended June 30, 2021, the Water Fund recognized its proportionate share of the combined pension expense of the Plans, totaling $67,423. At June 30, 2022, the Water Fund reported its proportionate share of the Plans’ deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Pension Contributions Subsequent to Measurement Date 459,607$ -$ Differences Between Actual and Expected Experience 394,025 - Change in Assumptions - - Net Differences Between Projected and Actual Earnings on Plan Investments - (1,610,826) Differences Between Employer Contributions And Proportionate Share of Contributions - (163,253) Change in Employer's Proportion 63,647 (16,817) Total 917,279$ (1,790,896)$ $459,607 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Fiscal Year Ended June 30,Total 2023 (240,409)$ 2024 (274,651) 2025 (370,754) 2026 (447,410) 2027 - Thereafter - CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (32) NOTE 8 PENSION PLAN (CONTINUED) B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the Water Fund’s proportionate share of the Plans’ combined net pension liability, calculated using a discount rate of 7.15%, as well as what the Water 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 5,011,809$ Current Discount Rate 7.15% Net Pension Liability 2,845,943$ 1% Increase 8.15% Net Pension Liability 1,069,110$ Pension Plan Fiduciary Net Position Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Payable to the Pension Plan At June 30, 2022, the Water Fund had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2022. NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) The other postemployment benefits (OPEB) described in the following paragraphs relate to the City’s OPEB plan. The Water 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 Water Fund’s operations are handled by City employees who are eligible to participate in the City’s OPEB Plan. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (33) NOTE 9 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (CONTINUED) 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 postemployment benefit plan for the employee only to those 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. 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, 2022, the Water Fund’s proportionate share of contributions made was $94,830 ($49,746 contributed to the OPEB trust, $29,288 paid for retiree premiums, and the estimated implied subsidy of $15,796). Net OPEB Liability The City’s net OPEB liability is measured as of June 30, 2021, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2021. 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. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (34) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Actuarial Assumptions (Continued) 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: 6.3% for FY2022, 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 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, 2021 are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return CERBT Strategy 1: Equity 59.00% 4.42% Fixed Income 25.00 1.00% TIPS 5.00 0.15% Commodities 3.00 3.98% REITs 8.00 1.73% 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. CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (35) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) Allocation of the Net OPEB Liability The Water Fund’s proportionate share of the net OPEB liability as of the measurement dates ended June 30, 2020 and 2021 was as follows: Increase (Decrease) Total Plan Net OPEB OPEB Fiduciary Liability Proportionate Liability Net Position (Asset)Share Balance at June 30, 2020 (MD)938,946$ 241,617$ 697,329$ 3.45% Balance at June 30, 2021 (MD)885,514 356,171 529,343 3.23% Net Changes during FY 2020-21 (53,432)$ 114,554$ (167,986)$ -0.22% Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the Water Fund’s proportionate share of the 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%)7.25%) Net OPEB Liability 628,426$ 529,343$ 446,130$ Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the Water Fund’s proportionate share of the net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate: Healthcare Trend Rate 1% Decrease Current Rate 1% Increase Net OPEB Liability 487,506$ 529,343$ 570,961$ OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2022, the Water Fund recognized its proportionate share of the OPEB expense(revenue) of $(27,257). At June 30, 2022, the Water Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: CITY OF VERNON WATER FUND NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2022 (36) NOTE 9 POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (OPEB) (CONTINUED) OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB (Continued) Deferred Deferred Outflows Inflows of Resources of Resources Contributions Between Measurement Date and Reporting Date 94,830$ -$ Difference Between Expected and Actual Liability 4,487 (114,095) Changes of Assumptions 14,448 (121,225) Net Differences Between Projected and Actual Earnings on Investments - (35,787) Total 113,765$ (271,107)$ The $94,830 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: Deferred Outflows (Inflows) Fiscal Year Ending June 30,of Resources 2022 (75,491)$ 2023 (75,491) 2024 (75,530) 2025 (72,853) 2026 50,007 Thereafter (2,814) Payable to the OPEB Plan At June 30, 2022, the Water Fund had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022. REQUIRED SUPPLEMENTARY INFORMATION CITY OF VERNON WATER FUND SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN LAST TEN FISCAL YEARS * (37) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 Plan’s Proportion of the Net Pension Liability 3.23% 3.45% 3.28% 3.11% 3.74% 3.80% Plan’s Proportionate Share of the Net Pension Liability 2,845,943$ 4,668,011$ 3,964,339$ 3,533,209$ 4,100,788$ 3,619,851$ Plan’s Covered Payroll 792,625 891,592 925,620 1,100,727 1,038,438 499,838 Plan’s Proportionate Share of the Net Pension Liability as a Percentage of Covered Payroll 359.05% 523.56% 428.29% 320.99% 394.90% 724.20% Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 85.45% 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%. From fiscal year June 30, 2021 to June 30, 2022: The inflation rate was decreased from 2.625% to 2.5% The payroll growth rate was reduced from 2.875% to 2.75%. The investment rate of return was decreased from 7.15% to 7.00%. * Fiscal year 2017 was the first year the City allocated a portion of the net pension liability to the Water Fund; therefore only six years are shown. CITY OF VERNON WATER FUND SCHEDULE OF PLAN CONTRIBUTIONS CITY'S MISCELLANEOUS AND SAFETY COST SHARING PLAN LAST TEN FISCAL YEARS * (38) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Actuarially Determined Contributions 459,607$ 435,752$ 404,765$ 339,930$ 354,831$ 346,113$ Contributions in relation to the Actuarially Determined Contributions (459,607) (435,752) (404,765) (339,930) (354,831) (346,113) Contribution : Deficiency (Excess) -$ -$ -$ -$ -$ -$ Covered Payroll 819,206$ 792,625$ 891,592$ 925,620$ 1,100,727$ 1,038,438$ Contributions as a Percentage of Covered Payroll 56.10% 54.98% 45.40% 36.72% 32.24% 33.33% Notes to Schedule: Valuation Date 6/30/2019 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 Entry Age Amortization Method (1) (1) (1) (1) (1) (1) Asset Valuation Method Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Inflation 2.625% 2.625% 2.625% 2.75% 2.75% 2.75% Salary Increases (2) (2) (2) (2) (2) (2) Investment Rate of Return 7.00% (3) 7.25% (3) 7.25% (3) 7.375% (3) 7.50% (3) 7.50% (3) Mortality (4) (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 Water Fund; therefore only six years are shown. CITY OF VERNON WATER FUND SCHEDULE OF PROPORTIONATE SHARE OF THE NET OPEB LIABILITY LAST TEN FISCAL YEARS * (39) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Measurement Date 6/30/2021 6/30/2020 6/30/2019 6/30/2018 6/30/2017 Plan’s Proportion of the Net OPEB Liability 3.23% 3.45% 3.28% 3.11% 4.08% Plan’s Proportionate Share of the Net OPEB Liability 529,343$ 697,329$ 719,261$ 719,107$ 1,482,614$ Plan’s Covered-Employee Payroll 1,093,781 1,048,734 1,095,236 1,368,166 1,368,760 Plan’s Proportionate Share of the Net OPEB Liability as a Percentage of Covered-Employee Payroll 48.40% 66.49% 65.67% 52.56% 108.32% Plan Fiduciary Net Position as a Percentage of the Total OPEB Liability 40.22% 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 five years are shown. In the June 30, 2018 measurement period, the pre-65 waived retiree re-election was updated to be 10% after age 65. 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. CITY OF VERNON WATER FUND SCHEDULE OF OPEB CONTRIBUTIONS LAST TEN FISCAL YEARS * (40) Fiscal Year Ended 6/30/2022 6/30/2021 6/30/2020 6/30/2019 6/30/2018 Actuarially Determined Contribution 49,744$ 53,086$ 63,389$ 83,829$ 109,990$ Contributions in relation to the Actuarially Determined Contribution (94,830) (108,041) (128,484) (93,060) (84,361) Contribution: Deficiency (Excess) (45,086)$ (54,954)$ (65,095)$ (9,231)$ 25,629$ Covered Payroll 1,024,922$ 1,093,781$ 1,048,734$ 1,095,236$ 1,368,166$ Contributions as a Percentage of Covered-Employee Payroll 9.25% 9.88% 12.25% 8.50% 6.17% Notes to Schedule: Valuation Date 6/30/2019 6/30/2018 6/30/2018 6/30/2016 6/30/2016 Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry AgeEntry AgeEntry AgeEntry AgeEntry Age Amortization Method (1)(1)(1)(1)(1) Amortization Period 28 years 28 years 27 Years 27 Years 29 Years Asset Valuation Method Market Value Market Value Market Value Market Value Market Value Inflation 2.25% 2.25% 2.50% 2.50% 2.75% Healthcare Trend Rates (7)(6)(3)(3)(2) Investment Rate of Return 6.25% 6.25% 6.50% 7.00% 7.00% Mortality (5)(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%. (7)6.30% trending down to 3.80%. *Fiscal year 2018 was the first year of implementation; therefore five years year are shown. City Council Agenda Report Meeting Date:October 17, 2023 From:Todd Dusenberry, General Manager of Public Utilities Department:Public Utilities Submitted by:Adriana Ramos, Administrative Analyst Subject Vernon Public Utilities 2023 Integrated Resource Plan (IRP) Recommendation A. Find that approval of the proposed action is exempt from California Environmental Quality Act (CEQA) review, because it is a continuing administrative activity that will not result in direct or indirect physical changes in the environment, and therefore does not constitute a “project” as defined by CEQA Guidelines Section 15378; B. Approve and adopt the Vernon Public Utilities 2023 IRP; and C. Authorize the General Manager of Public Utilities to take all necessary actions to implement the IRP, consistent with California State law mandates, including but not limited to periodic updates and IRP revisions. Background Vernon Public Utilities’ (VPU) 2023 IRP is a comprehensive 20-year strategy that outlines the Utility’s plan for how it will continue to meet its customers’ need for reliable and cost-effective electric service while meeting various regulatory initiatives, generating and procuring clean energy, and the continuous investment in the distribution system infrastructure while addressing system constraints. Senate Bill (SB) 350 requires Publicly Owned Utilities (POUs), like VPU, to develop an IRP at least once every five years. The last IRP was filed in 2018. The IRP outlines the process for developing a resource acquisition strategy that balances supply and demand. This roadmap aims to help make short-term and long-term decisions on how the utility will comply with several legislative requirements. Specifically, SB 350’s requirement to reduce greenhouse gas emissions by 40% to 1990 levels by 2030 and 100% of retail load with clean energy by 2045, as well as SB 1020, which mandates that 90% of the load be served by clean energy by 2035 and 95% a load with clean energy by 2045. Over the past five years, the Utility’s Integrated Resource team has worked diligently to transform the power portfolio and can proudly share that VPU has met the goals identified in the 2018 IRP; increased its renewable generation by 43.3% and affirmed that more than 50% of its resources are carbon-free. It’s important to know that VPU recently signed two Power Purchase Agreements (PPAs) for two large solar projects: Daggett Solar for 60 megawatts (MW) of capacity with an expected commercial operation of December 2023, and Sapphire Solar for 39 MW of capacity with an anticipated commercial operation date of December 2026. As part of these PPAs, VPU will also acquire a total of over 50 MW of four–hour energy storage: 30 MW from Daggett and 19.6 MW from Sapphire. These two solar agreements greatly surpass what was recommended in the 2018 IRP. VPU’s goal for the 2023 IRP is to continue to procure reliable, affordable, renewable, and zero- carbon energy while addressing the growth of transportation and building electrification, demand for energy efficiency and demand side management initiatives, and the growing advancements with distributed energy technologies. To assist with this effort, on March 21, 2023, the City Council approved a services agreement with Ascend Analytics (Ascend) to assist VPU staff with developing a comprehensive IRP Strategy. Ascend has assisted many of the neighboring POUs with designing Portfolio Options using their proprietary PowerSIMM modeling software that includes resource mixes, availability in the market, costs, and analyzes them to develop preferred portfolio options. IRP Process During the planning process, VPU engaged community stakeholders to seek guidance and direction on key decisions for preferred portfolios of generation, demand, and distributed resources, including cost. VPU spent several months on stakeholder outreach by conducting in- person meetings, circulating a comprehensive survey, informing them about the IRP process, and garnering input for developing Portfolio Options. Part of the outreach was to inform stakeholders of the challenges facing VPU and to obtain valuable insight into the customers’ needs and priorities. VPU stakeholders included city residents, current and prospective property and business owners, property developers, business employees, the Vernon Business and Industry Commission, the Green Vernon Commission, the Vernon Chamber of Commerce, the City Council, and commissioners, to name a few. Through the stakeholder meetings and feedback from the survey, Vernon customers made their priorities clear, which was to ensure that the utility continued to provide reliable electric service and maintained low rates. Responses from the survey also provided helpful insight; more than 80% of the respondents were either satisfied or very satisfied with the services provided by VPU, and more than 70% of respondents felt there was a direct correlation with rates increasing if VPU exceeded the state’s Renewable Portfolio Standards (RPS) target. A total of three stakeholder meetings were held on March 15th, May 11th, and June 21, 2023. Throughout the process, presentations were made that provided an overview of the survey results, explained the IRP process, summarized legislative requirements, described the scenario modeling process, and provided details regarding the final three scenarios for consideration, along with the associated costs. VPU communicated information about both the community meetings, as well as a survey through several outreach channels which included advertisements in the paper, use of social media platforms, printed mail seeking participation in the survey and meetings, email updates, newsletters, as well as direct phone calls to customers. Portfolio Options IRP modeling is a multi-step process where staff worked with Ascend to gather data on VPU supply resources and load, including historical data, projections for resource updates, and expected changes in customer load. Ascend’s modeling provides several scenarios that vary in system costs, reliability, emissions, and resource operations. The Portfolio Options explored a different mixture of resource options, and renewable generation such as geothermal, solar photovoltaic (PV), wind, and clean energy like hydrogen, Carbon Capture Sequestration, hydroelectric, and nuclear, as well as battery storage for capacity. Portfolio 1 includes procuring solar PV from northern and southern CA, the most cost-effective wind and four-hour battery storage options, and maintaining operations of the utility’s natural gas power plant, Malburg Generating Station (MGS), until 2035. Portfolio 2 is similar to Portfolio 1 but includes assumptions to procure nearly 70 MW of geothermal. Portfolio 3 does not include geothermal but considers fuel switching the MGS to produce an output of approximately 45 MW of green hydrogen and includes wind and battery storage. Portfolio 1 was selected as the preferred portfolio primarily because geothermal and hydrogen are estimated to be much more expensive than the four-hour battery storage and the sheer volume of solar resources available in today’s market. The total supply costs for Portfolio 2 and Portfolio 3 are significantly higher than the total supply cost for Portfolio 1. These costs are a function of the expected resource costs 10 to 15 years from now, which include a significant amount of uncertainty and risk. Pursuing Portfolio 1 would achieve the renewable and zero- carbon generation goals, maintain the utility’s ability to provide reliable service and affordable rates, and meet all statutory requirements. VPU’s ongoing goal is to strive for competitive and stable rates and provide high reliability throughout the entire planning period of 2023 through 2045. If adopted by the City Council (VPU’s governing board), the 2023 IRP will be submitted to the California Energy Commission as required by SB 350. Compliance filing must include the IRP, supporting information, and the four standardized tables. Fiscal Impact There is no fiscal impact associated with this report. Attachments 1. Vernon Public Utilities 2023 Integrated Resource Plan VERNON PUBLIC UTILITIES CITY OF VERNON October 17, 2023 City Council Meeting INTEGRATED RESOURCE PLAN (IRP) October 17, 2023 Item 13 Staff Presentation 2023 IRP What is the Purpose of the IRP Document? An IRP is a planning document that outlines how a utility plans to meet its energy and capacity needs, policies and regulations, physical and operational constraints, and other priorities. The City’s 2023 IRP will serve as a 20-year blueprint for ensuring reliable and environmentally-responsible energy, at competitive and affordable rates. Legislative Requirements Updated every 5 years –last IRP was adoptedNovember 2018 INTEGRATED RESOURCE PLAN IRP Senate Bill 350 •Reduce GHG emissions by 40% from 1990 level by 2030 Senate Bill 100 •Requires at least 60% of load served by renewable energy in 2030 Requires 100% retail load served by clean energy by 2045 Senate Bill 1020 •Requires 90% of load served by clean energy by 2035 •Requires 95% of load be served clean energy by 2040 Policy and Regulation Compliance Regulations RESOURCE MIX VPU GREEN HYDROGENGEOTHERMAL ANALYZED PORTFOLIO OPTIONS SOLAR, WIND & STORAGE •MGS is kept in a 2x1 configuration until the end of 2029 at a 139 MW capacity •In 2030, convert to a 1x1 configuration at 67 MW capacity •Solar and Wind additions to fill RPS gap •Resource Adequacy (RA) gaps are filled with new battery storage projects •MGS is kept in a 2x1 configuration until the end of 2029 at a 139 MW capacity •In 2030, convert to a 1x1 configuration at 67 MW capacity •Solar and Wind additions to fill RPS gap •Up to a 70MW¹ of Geothermal is added by January 2036 •70 MW of geothermal is the estimated size required for replacing MGS 1x1 capacity starting in 2036 •MGS is kept in a 2x1 configuration until the end of 2029 at a 139 MW capacity •In 2030, convert to a 1x1 configuration at 67 MW capacity •Solar and Wind additions to fill RPS gap •Two 45 MW Combustion Turbine Burning Hydrogen are installed at MGS Site •Hydrogen CT turbines come in 45 MW units; two units are required to replace MGS 1x1 configuration starting in 2036 PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3 Planning, Analysis, & Modeling Community Stakeholder Outreach • Understanding the priorities and concerns of customers and stakeholders was crucial in developing the IRP. • VPU created a website, held in-person meetings, and circulated an electronic survey. • Customers made their top 2 priorities very clear—reliable service and affordable rates. • VPU contracted Ascend Analytics to assist with utilizing forecasts, data modeling, and developing a comprehensive strategy and an optimal portfolio. •The 2023 IRP is designed to smoothly transition and address the goals and targets outlined in the 2018 IRP to ensure the utility can successfully meet the aggressive state energy policies set by 2045. IRP Process IRP MARCH MAY JUNE OCT NOV/DEC 1 st Community Meeting Introduce IRP Process and Survey Input 2 nd Community Meeting Present Survey Results 3 rd Community Meeting Present Survey Findings and Scenarios to Model IRP Presentation at City Council Meeting Submit Final IRP to CEC TIMELINE MARCH MAY JUNE Questions VERNON PUBLIC UTILITIES www.cityofvernon.org/IRP2023