Finance Audit Feb 17 2026

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SPEAKER_09: Good evening, everyone, and welcome to the Finance and Audit Committee and Special Board Meeting of February 17, 2026.

SPEAKER_09: This meeting is being recorded and can be accessed on SMUD's website.

SPEAKER_09: Please remember to unmute your microphone when speaking in order that our virtual attendees may hear.

SPEAKER_09: The microphone will display green indicator light when the mic is on.

SPEAKER_09: For members of the public attending in person that wish to speak at this meeting, please fill out a speakers request form located on the table outside this room and hand it to SMUD's security.

SPEAKER_09: Members of the public attending this meeting virtually that wish to provide verbal comments during the committee meeting may do so by using the raised hand feature in Zoom or pushing star 9 on your telephone.

SPEAKER_09: At the time, the public comment period is called.

SPEAKER_09: Technical support staff will enable the audio for you when your name is announced during the public comment period.

SPEAKER_09: You may also submit written comments by emailing them to publiccommentatsmud.org.

SPEAKER_09: Written comments will not be read into the record but will be provided to the board electronically and placed into the record of the meeting if received within two hours after the meeting ends.

SPEAKER_09: Would the Chief Legal Officer please conduct the roll call?

Unknown: Director Kurth?

SPEAKER_06: Here.

SPEAKER_06: Director Buie-Thompson?

Unknown: Chair Rose?

SPEAKER_08: Here.

SPEAKER_06: Director Kurth?

SPEAKER_06: Chair Rose, or present, Director Buie-Thompson is absent, also present, our Director is Fishman, Herber, Sam Boren, and President Tumaya.

Unknown: All right, thank you.

SPEAKER_09: So item number one on tonight's agenda is to discuss the approval of the Memorandum of Understanding, or MOU, between the Sacramento Municipal Utility District and the Organization of Smud Employees, or OSE, for the period of January 1, 2026 through December 31, 2029.

SPEAKER_09: Matthew Powell, our Inter-Director of People, Services, and Strategies, welcome.

Unknown: Wonderful.

SPEAKER_01: Good evening, directors.

SPEAKER_01: Thank you, Chairperson Rose.

SPEAKER_01: My name is Matthew Powell, Interim Director of PSNS, People, Services, and Strategies.

SPEAKER_01: Joining me tonight as I navigate this is Tiffany Navarette, Manager of Labor and Employee Relations, and also Christopher Martin, the Senior Labor Relations Analyst.

SPEAKER_01: He served as the second chair during negotiations.

Unknown: On December 16, 2025, SMUD and the Organization of Smud Employees, OSE, reached a tentative agreement to a successor labor contract.

SPEAKER_01: Tonight, I'll be presenting the outcomes and key elements of the proposed Memorandum of Understanding, the MOU, between SMUD and the OSE for the period of January 1, 2026 through December 31, 2029.

Unknown: The MOU is a result of a comprehensive negotiation process which resulted in a fair and sustainable agreement for our employees and for SMUD.

Unknown: On our agenda tonight, I'm going to cover the following items.

SPEAKER_01: Primary outcomes that were agreed upon in the negotiation.

SPEAKER_01: I'm going to highlight the main terms of the new MOU.

Unknown: And I'm going to formally request that the Board approve and ratify the agreement.

Unknown: The proposed agreement meets three important objectives.

SPEAKER_01: First off, it's financially responsible. It aligns with SMUD's financial targets.

Unknown: It is also fair for OSE employees, providing market competitive compensation.

Unknown: And finally, it ensures we maintain a strong workforce pipeline supporting SMUD's long-term success.

SPEAKER_01: And it allows SMUD to continue to attract and retain high-caliber employees.

Unknown: The details of the agreement, as previously mentioned, SMUD and OSE reached the tentative agreement on December 16, 2025.

Unknown: This agreement was ratified by the OSE on January 22, 2026.

Unknown: Out of 208 votes counted, which represents approximately 50% of OSE membership, an overwhelming 87% voted in favor, showing strong support for the contract terms.

Unknown: The proposed MOU is a four-year contract, effective January 1, 2026 through December 31, 2029,

Unknown: which provides stability for both employees and SMUD's operations over the long term.

Unknown: The new agreement continues to ensure competitive pay and robust total compensation package for our OSE employees.

Unknown: The general wage increase, or GWI, for each of the years will be 3.85%.

Unknown: This applies to all OSE employees that are represented by the OSE.

Unknown: Additionally, as part of the salary analysis that was done in negotiation, SMUD and OSE have also agreed to increase the pay scale for four job classes or job series.

Unknown: These include 4.7% for our engineering designers, our graphic designers are receiving 4%, 17.1% for our IT technicians, and 15.9% for the land agent series.

Unknown: These adjustments will be effective the first pay period of 2026 and apply to both incumbent salaries in those series as well as the overall range.

Unknown: It's also of note that all terms of the contract will be retroactive to January 1.

Unknown: Moving on to benefits, the new contract also provides some changes to the benefits, including enhancements to the 401K benefit with both direct and matching contribution increases.

Unknown: SMUD will match eligible OSE employees' 401K contributions annually up to $600 for each calendar year from 2026 to 2029.

Unknown: In the previous MOU, this was $400 with an increase of $200 annually to this benefit.

Unknown: Additionally, SMUD will make direct 401K contributions that will increase incrementally throughout the contract period.

SPEAKER_01: With the amounts based on years of service.

Unknown: For 2026, the contributions will match 2025's contribution levels, but then starting in 2007, they will increase $25 per month each year of the contract.

SPEAKER_01: So for example, an employee that is newly hired in their first five years of service, they'll receive $150 every month, contributed directly.

Unknown: In 26, which matches 25, and then those increase $25 each year through to $225 in 29.

Unknown: The highest tier for employees with more than 16 years of service rises to $300 per month over the term of the contract.

SPEAKER_01: So then, our match, they will automatically put in, say, the bottom of $150, and if they choose to put in their own, will match up to $600.

SPEAKER_09: Correct.

Unknown: In summary, the successor MOU is the outcome of collaborative negotiations that balance employee well-being with SMUD's financial and organizational objectives.

Unknown: The agreement ensures a strong pool of qualified applicants and candidates supporting our internal mobility as well as our workforce development goals.

Unknown: Maintaining the competitive compensation helps us to preserve organizational knowledge and stability.

Unknown: And the agreement aligns with SMUD's financial objectives and our overall budget, demonstrating commitment to fiscal stewardship.

SPEAKER_01: So therefore tonight, staff is requesting the Board to ratify the proposed MOU as tentatively agreed to by SMUD and the OSCE effective January 1, 2026 through December 31, 2029.

Unknown: Thank you for your time, and I'm happy to answer any questions or provide any further details on any element of the agreement.

SPEAKER_09: Laura, just in terms of process, is this going to be the full Board meeting, or are we actually approving it tonight?

SPEAKER_07: It's on the consent calendar for Thursday night.

SPEAKER_09: Okay. So go ahead.

Unknown: I was wondering, when did we start matching contributions to 401Ks, 457s? I'm just curious when that started.

Unknown: The 401K contribution was part of the last contract, but I can find out and come back to you when it fully started. I don't know which contract that was initially started.

SPEAKER_08: Okay. Thank you.

SPEAKER_01: Thank you.

SPEAKER_09: Any other questions or comments? I would just ask, could you maybe just touch upon a little bit about the equity adjustments and some of the methodology behind why those classes and why those percentages?

SPEAKER_09: Yeah. So in negotiations, the goal was to bring the classifications that were below the median to the median. And so those equity adjustments reflect bringing those series back up to the median to be equitably compensated.

SPEAKER_01: Go ahead.

SPEAKER_08: My only concern about this is that it was an overwhelming percentage of those who voted, but we only got 50% response. Is there something else behind that, or is it just, I mean, it's hard to reach people sometimes.

Unknown: So as part of the rollout process, there were several days in which we were able to, or that the OSCE was able to engage with their membership. I wouldn't be able to speak to, I could see if there's any insights that we can provide us to what members might have been saying in that, but couldn't speak to that because that's a OSCE governs their process for ratification on their side.

Unknown: I would say, in my experience as a rank and file is they open it for an election period, but as soon as they hit the quorum, 50% plus one, they close it. So it's like you never, never more than 50% voting. And if you don't vote fast enough, you're out of luck.

SPEAKER_02: And if that's the case, then 87% says it says a lot more than five other ways.

SPEAKER_09: Yeah. Perfect. Thank you. Any other comments?

SPEAKER_09: I would just think, I would think you and I would think the staff on our negotiators and I would think, uh, OSCE, I know everybody puts an enormous amount of time into these negotiations and trying to come up with something that's fair and that's financially prudent.

Unknown: And so I would thank everybody for that. Right. Thank you, Jerry. And I will see you at the, well, it's going to be on consent. Thank you.

SPEAKER_09: Okay. Um, was there any public comment?

SPEAKER_07: No, I do not see any hands now.

SPEAKER_09: Perfect. And then item number two is our regular quarterly procurement report for the fourth quarter of 2025. We have Casey Fallon, our director of procurement warehouse and fleet.

Unknown: Good evening. Thanks for the introduction. Like you said, the usual procurement quarterly report is going to recap the fourth quarter of 2025 and the year altogether with the typical policy elements of BL eight.

SPEAKER_03: Uh, to start with for 2025, we awarded over $500 million in new contracts. 85% of those were done competitively.

SPEAKER_03: Um, and 2025 was a more typical year with 2024 being somewhat of an outlier there. You can see on the slide.

SPEAKER_03: So just wanted to thank procurement supply chain staff and collaboration with the business and legal for all of the contracting throughout the year last year.

Unknown: Uh, so the next section here would be on participation. The orange bars on the slide represent the number of solicitation events that we completed during the year.

Unknown: Are there a total of 71 events? Um, and on average, we had 5.6 bidders. This is great news. It's a continued trend of more than three bidders per year for four years in a row now.

SPEAKER_03: So this is this is something that we're excited about and we like to like to see regularly. That's good news. It was taken down. Let's come back. Great. Thank you.

Unknown: We had a slow start to the year for seed participation, but throughout the year we ramped up for a total of 31.6% seed by year end. $98 million total.

SPEAKER_03: That's made up of 68 million in seed prime contracts and 30 million in seed subcontracting.

SPEAKER_03: Just a couple of notable large seed contract awards. A new civil construction contractor, $20 million for Navajo pipelines.

SPEAKER_03: We had some long standing seed partners, Arrow Construction, $10 million for asphalt and concrete repair. Mater Supply helped us source circuit breakers and will be a distributor.

SPEAKER_03: And then Ablegov, again a long standing partner providing computer hardware and equipment.

SPEAKER_03: And several other notable seed subcontracting, large subcontracting events, various trades, traffic control, grinding, boring, electrical engineering, supporting civil construction and renewable engineering contracts.

Unknown: So unfortunately with our seed compliance report, we have a continued trend that is not great news. Somewhat disappointing result for two contracts.

SPEAKER_03: Just a refresher, we've been reporting outcomes on contracts that are greater than a million dollars with seed subcontracting commitments.

SPEAKER_03: And when we close those contracts, we do an audit and we look at what happened with the sub spend based on what they planned at the front end.

SPEAKER_03: We've audited 82 contracts in total and closing out year end 2025, the compliance amount was 75.3%.

SPEAKER_03: And this is a change from year end 2024 where the compliance was quite a bit higher, 94%.

Unknown: So just to give you the details here on these two contractors, for LEAF there was a contract awarded for $8 million and the spend on the contract was $5.7 million.

SPEAKER_03: This is a five year agreement put in place in 2020, closed out last year.

SPEAKER_03: And the original seed sub commitment was for $284,000 or roughly 3% of the total.

SPEAKER_03: And the seed spend was zero.

SPEAKER_03: What's interesting though is there was one subcontractor, a drone inspection company, and they were tagged with a commercially useful function to provide construction inspection support broadly.

SPEAKER_03: And what's interesting is that we don't use drones for inspection work, we use drone services for photographic work or surveying.

SPEAKER_03: And we have an internal surveying and photo department.

SPEAKER_03: So the subcontracting gave us good optionality, but we didn't use the subcontracting from this prime.

SPEAKER_03: Though in 2020, if 2022 if it was then 21, that was certainly just getting off the ground.

SPEAKER_09: Some of our drone, our own drone work going back five or six years.

Unknown: Yeah, I think you bring up a great point.

SPEAKER_03: 2020 and 2021 were definitely challenging times and very competitive for subcontracting.

SPEAKER_03: So I've seen several subcontracting commitments that maybe weren't a great fit at that time.

SPEAKER_03: So that could be part of it.

SPEAKER_03: But again, I don't want to speculate here.

SPEAKER_03: This is the result. We didn't use the subcontractor.

SPEAKER_03: The second one, NV5, is really the same.

SPEAKER_03: What we did notice is that the prime didn't propose using the seed sub during the contract.

SPEAKER_03: And this one was slightly different scope of work.

SPEAKER_03: So with our contract manager and the prime, we could have influenced the use of more seed.

SPEAKER_03: And since we did our audit, we have a replacement contract with NV5.

SPEAKER_03: And we are already using a new seed subcontractor on that project.

SPEAKER_03: They're performing well, and they're likely to exceed that requirement on this new contract.

SPEAKER_03: Which brings me to some of the insight and kind of what we're doing about the result.

SPEAKER_03: Looking back, procurement has really focused on scrutinizing the subcontracting designation forms on the front end.

SPEAKER_03: You know, what the commercially useful functions are and whether or not they make sense.

SPEAKER_03: And we have really good data on this.

SPEAKER_03: But going forward, we really need to spend more time with contract managers and create a little bit more accountability and more training and awareness around this function.

SPEAKER_03: So that'll be our focus in 2026.

SPEAKER_03: It's contract management, generally speaking, is becoming a strategic priority in 2026 for several reasons, including seed, risk management, performance management, and other areas.

SPEAKER_03: So that's the focus for us this year.

Unknown: Casey, let me ask you sort of the opener ended question.

SPEAKER_09: Sorry.

SPEAKER_09: But like, are you finding part of having us start to track the seed, which has been going for about five-ish years now, maybe a little longer, was exactly this.

SPEAKER_09: So we're catching it when it's not happening.

SPEAKER_09: Are you finding, just like anecdotally, as we're finding these things that are happening here and there, which is still a relatively small amount of the overall amounts, are we figuring out how to make sure we're incorporating it?

SPEAKER_09: Because you said this NV5 contract, this next round of it, we've already figured out how to make sure the seed's engaged.

Unknown: Yeah, I added this slide that might help answer the question if I'm following you.

SPEAKER_03: Okay, I think you're maybe asking about trends and what we're seeing.

SPEAKER_03: If this is a different view of the seed subcontracting compliance, where rather than per contract, we're looking by year.

SPEAKER_03: So there are several years, going back seven, eight years, where we spent more than we had planned, which was great news.

SPEAKER_03: And on average, those six years to the left are about 100%. It's really just the last two years where things have started to fall behind.

SPEAKER_03: And so we're just really digging into that, and we want to create some awareness.

SPEAKER_03: Again, I have several ideas, but I don't want to speculate too much with just turnover in our procurement department during COVID, new contract managers through that five-year period, a mismatch in seed.

SPEAKER_03: Some of the subcontracting designations and commercial use functions.

SPEAKER_03: We're a little bit disappointed by the result, and we're going to look into it more deeply.

Unknown: Thanks, Casey.

Unknown: So if I heard you correctly, the remedy for being literally at less than 40% compliance is education. Is that what I heard?

Unknown: Internally, we want to spend more time with our contract managers and a real awareness on the commitments that are made on the front end of the contract to make sure they're reminding contractors over that life cycle of the contract for each work order, task, PO that we're issuing.

SPEAKER_03: We're being mindful and reminding them of the seed commitment.

Unknown: Okay. Well, I know we're not in the business of micromanaging staff, but I will say that it is concerning to me that we're seeing this kind of huge drop.

SPEAKER_00: And the problem is people win contracts based on this, and they get points for it, which means somebody else who might have had the same level of compliance didn't win the project, which is very unfair.

Unknown: And so to me, this is something that has to be remedied just so that we keep our reputation as a good organization to contract with, and that operates on a fair and level playing field for our local businesses and anybody who bids for us.

SPEAKER_00: So I mean, I'm all for education, but I do believe that trust but verify, and if they promise they're going to hire a certain amount of local people by a certain date or a certain type of work, that is something that could be tracked easily from oversight.

SPEAKER_00: Or having them report to the contract manager or something.

SPEAKER_00: So I'm just going to throw that out there because I don't want to get into the weeds with you, but I think this is a pretty serious problem, and it needs to be addressed quickly.

Unknown: Thank you.

Unknown: Hi. Now it's my turn to beat you up. No, I'm teasing. I was talking to Brandon and he said, I think the punishment is having to come present the info.

SPEAKER_04: Because I know you know that this disappoints us. We really do take pride in the fact that we give 20% of our contracting to groups that are here, local, in town.

SPEAKER_04: And so it's really disappointing when these big contracts don't come through.

Unknown: And the truth is I know that you and your team are working really hard, and education doesn't always do it.

SPEAKER_04: But I think that it is appropriate to take these steps now, but if we're here in 27 and it's all lower, then we'll be more concerned.

SPEAKER_04: But we do know how dedicated you are and how hard you work in your team, too.

SPEAKER_04: And we also want to continue to support the businesses in our area. So keep it up. Keep working at it.

Unknown: Well, thank you. Thank you for the support. And I agree. We'll look into this more deeply.

SPEAKER_03: I'll say one more thing. They brought this news to us six months ago. So seeing it here, we were told months ago, we're seeing the summary.

SPEAKER_09: But just reminding us that it's not news tonight. That this year, 2025, it was not going as we would like to have gone.

SPEAKER_09: Okay, go ahead.

Unknown: I do just have one more slide. We had three protests during the year. 2025, the final of the three was in the fourth quarter.

SPEAKER_03: This was on a field service management RFP. And just for reference, we did have some details that we sent in a board memo in November.

SPEAKER_03: And just in brief, the second place bidder protested the award in October. They asserted that we didn't follow some of the criteria in our RFP or weight our scores correctly.

SPEAKER_03: The bidder also claimed that they did not receive full credit for certain sections. And they also claimed that SMUD did not contact and consider references.

SPEAKER_03: We were able to prove that those were false, and we denied the protest. The bidder appealed to the CEO, and that was denied again.

SPEAKER_03: And then we actually had a really good follow-up debrief meeting with that contractor just to help them understand our process completely and encourage their participation in the future.

SPEAKER_03: So with the end of the protests here, that wraps the report. And happy to take any questions you might have.

Unknown: I thought you said there were more than one protests.

SPEAKER_04: Yeah, there were three during the year. Just one of them was in the fourth quarter. The other two, I can just tell you, one was in April. It was meter repair services.

SPEAKER_03: And these two were reported in prior reports, but I'll just do the overview here. That's why I didn't include them here. Sorry about that.

SPEAKER_03: But yeah, meter repair services was protested in April, and it claimed that we had mishandled the bid. And we found that the proposal didn't include a couple signatures, subcontractor designation forms.

SPEAKER_03: It didn't have a bid bond. These were really requirements, statutory requirements. So therefore the protest was denied. And then the other one was audio-visual production services.

SPEAKER_03: And the protest claimed some procedural irregularities, and that they should have been awarded as the lowest qualified proposer.

SPEAKER_03: This is one of those RFPs where it was not just the qualifications, it was the qualifications plus the commercial terms. So they were ranked fourth overall, and we denied that protest as well.

Unknown: Thank you for taking the time to do that for me.

SPEAKER_04: No problem.

Unknown: So my highlight takeaway was, for 2025, seed participation was 31.6 percent and just under $100 million of contracting. I think this is my takeaway of your presentation, so thank you for that.

SPEAKER_03: Thank you. Those are excellent numbers. And the bid numbers have grown in the last quarter up to over seven bids per contract, which we had seen drop to the lowest three a year or two ago. So that's a good trend as well.

Unknown: Any other questions or comments? No?

Unknown: Thank you.

SPEAKER_09: Do we have any public comment?

SPEAKER_09: No, we have no public comment.

Unknown: All right. And then item number three is to provide the board with a summary of SMUD's current power supply costs. And then we have please to look at our finance transformation leader.

Unknown: Good evening, Director Rose and SMUD board of directors. Tonight I will be going over just the power supply costs for December. Our year-end audited financial statements are in the middle of the audit, and I'm going to come back in March to give final presentation for year-end numbers.

Unknown: So looking over the mitigation and forecast for the commodity budget, the Hydro Rate Stabilization Fund and WAPA rate stabilization fund, there has been no changes since April of last year. The next change will be of April of this year.

Unknown: And then we have our hydro performance annual cost came in for UARP and WAPA, 137 gigawatt hours below plan due to the milder summer that we had and not running our hydro plants as we usually do when it's super hot.

SPEAKER_05: And then we have the 2025 commodity annual costs, actuals at $514 million, so $96 million below plan, mainly due to the milder weather we had in 2025 and lower load as well as being able to procure power at favorable market prices for the year.

Unknown: And then ending up with the precipitation levels for last week, Monday, before the two days of rain that we've had, we were at 30 inches, similar to beginning of January, about 96% average to date, and then 53% average for the entire water year.

SPEAKER_05: As of last week, the report came out that estimated forecast for the next two weeks would have been 12.2 inches.

Unknown: And it's going to be snow.

Unknown: Yeah.

SPEAKER_02: Yeah, it's more snow.

SPEAKER_09: And then the snowpack and storage reservoir also as of last week, so the snowpack was only at 32%. We should see that increasing as well.

SPEAKER_05: And then the storage reservoir at about 66% full capacity.

Unknown: And that's my presentation for tonight. Any questions?

Unknown: I don't see any questions. Any public comment?

Unknown: We have no public comment.

Unknown: Okay, thank you.

Unknown: And then the last item, item number four, is just an opportunity to ask questions of the internal audit services report, 2025 internal compliance program assessment.

Unknown: Claire, does anybody have any questions?

SPEAKER_09: Any public comment on that one?

Unknown: Thank you.

Unknown: Wait, are there any public?

SPEAKER_09: No, no public comments.

SPEAKER_09: Any public comments for items not on the agenda?

SPEAKER_09: I don't see any hands.

Unknown: And just a reminder, any written comments received on items not on the agenda will be included in the record if received within two hours at the end of the meeting.

SPEAKER_09: And then the last item is any summary of committee direction?

SPEAKER_09: Staff will provide information about when SMUD is starting contributing to OSCE's 401k accounts.

Unknown: Okay, thank you.

SPEAKER_09: All right, so we will be adjourned and then as soon as this meeting is over we will have a brief pause and move into the policy committee. Thank you.