Finance Audit Jan 14 2026

Unknown: All right. Good evening and welcome to the Finance and Audit Committee and Special Board

SPEAKER_07: Meeting of January 14, 2026. I'll say this quick since I just did it. This meeting is

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SPEAKER_07: Several items tonight. Chief legal officer, would you please conduct a roll call?

Unknown: Director Kerth. Here. Director Buie-Thompson.

SPEAKER_04: Chair Rose. Here. All committee members are present. Also present are directors Fishman,

SPEAKER_04: Kerber, Sanborn and President Tamayo. Thank you. Item number 1 is to discuss

SPEAKER_07: authorizing the CEO to negotiate and award contracts to Eagle Systems International,

SPEAKER_07: Inc., DBA Synergy, Sierra Valley Mechanical and Clark and Rush collectively with the contracts

SPEAKER_07: to provide residential assistance services for a three-year period from approximately March 1,

SPEAKER_07: 2026 to February 28, 2029 for a total aggregate not to exceed amount of $40 million across the

SPEAKER_07: contracts. All right. And we have our presenter is Tara Porter, our Director of Customer Operations

SPEAKER_07: and Assistance. Welcome. Thank you, Chair Rose, for the introduction. Good evening, board.

SPEAKER_09: So tonight I'll be provide a general overview and background of the programs and services that these

SPEAKER_09: contracts will cover. I'll talk about the procurement strategy that the team deployed,

SPEAKER_09: the results of the RFP and then the requested action.

Unknown: The HVAC and weatherization contracts primarily serve our low to moderate income customers

SPEAKER_09: and residential assistance programs such as neighborhood electrification, building

SPEAKER_09: electrification, equity EV, LMI pilots and potential grant projects. These contracts are

SPEAKER_09: currently in place today but are coming to the end of their term. As noted on this slide,

SPEAKER_09: we've made a decision to bundle the electrification HVAC and weatherization contracts in order to

SPEAKER_09: improve the customer experience as well as streamline and create some operational efficiency.

SPEAKER_09: For example, customer today that might have worked on, we would have electrification or HVAC

SPEAKER_09: contractor go out and they have to have a different appointment or separate appointment for a

SPEAKER_09: weatherization contractor to come out. This will enable that one contractor to be able to do all

SPEAKER_09: of the work for the customer which will reduce the amount of time the customer has to be available.

SPEAKER_09: It also will help streamline the invoicing process. When those quotes come in and the jobs

SPEAKER_09: are completed, my team will be able to manage the invoices more efficiently.

SPEAKER_16: You said LMI something? I'm so sorry. Low to moderate income.

SPEAKER_09: We were guessing load.

SPEAKER_09: I apologize for those acronyms. Thank you. All right. Next slide.

Unknown: Okay. So these are some examples. This is not a comprehensive list but these are examples of

SPEAKER_09: some of the programs or the services that these contracts will deliver on. As an example, you all

SPEAKER_09: are familiar with the MediView electrification project that we did from 24 to 25. These particular

SPEAKER_09: contracts enabled delivery of that electrification of over 350 homes in the MediView area.

SPEAKER_09: Director or Chair Rose, you wanted to kind of know a swag of, you know, the number of bundles that

SPEAKER_09: we're able to deliver. So as an example, in 2025, we delivered over 1400 energy saver bundles

SPEAKER_09: to customers utilizing these particular contract services. Next slide.

Unknown: We originally began discussing this re-solicitation in October of 2024.

SPEAKER_09: In the beginning, we included input from a third party consultant that looked at the broader market

SPEAKER_09: and to see if there was any options for changing the perform or options for performance of this

SPEAKER_09: work, one of the recommendations from that solicitation or that consultation, excuse me,

SPEAKER_09: was to bundle the services under this contract, under one single contract, excuse me.

SPEAKER_09: And so the RFP went live in September of 2025. There was a pre-proposal conference held online

SPEAKER_09: on October 3rd where we had 11 attendees. We ultimately, there were 147 companies that were

SPEAKER_09: notified, 51 of those downloaded the opportunity and three proposals were received.

Unknown: Next slide.

SPEAKER_09: The procurement outcome is that we received three proposals. All three are seed vendors

SPEAKER_09: and met the criteria and so we've made a decision to recommend awarding to all three,

SPEAKER_09: not to exceed the aggregate total of $40 million on these contracts.

Unknown: Next slide.

Unknown: And so with that, that concludes my presentation and I am open for any questions.

Unknown: I have a question. Oh, there you are. Who are those people in the picture and what are they doing?

SPEAKER_10: One of my brothers.

SPEAKER_04: Yeah, so this is actually, this is the Neighborhood Residential Electrification Press Conference

SPEAKER_09: with SMUD, with our SMUD customer and Congresswoman Matt Sui and this was in Metaview on October 3rd

SPEAKER_09: of 2024. And then the below picture is a member of my team that is out in the community doing

SPEAKER_09: customer service outreach, customer advocacy. Thank you very much. You're welcome. They are

SPEAKER_09: actually at the Delta Cove Senior Community Center in Metaview. So there's companies I know

SPEAKER_16: of that have been doing the commercial kind of work for years for us and I don't think they're,

SPEAKER_16: they were listed here. Are you saying they didn't propose at all? These companies have worked for us

SPEAKER_16: for a long time? These are, we received three bids, three proposals. So when you merged the commercial

SPEAKER_16: work with this bigger stuff, is it that smaller companies couldn't compete for the bigger

Unknown: bundle?

Unknown: Yeah, hi. This is Brandi, Chief Customer Officer. So this is for residential

SPEAKER_01: electrification. So not a commercial. Not any commercial. Right. Not any commercial. Right.

SPEAKER_01: So there's a different set of contractors that handle the commercial. Okay, so stuff like the

SPEAKER_16: aerospace museum and nonprofits and stuff that would not be in this. Correct. Okay, thank you.

SPEAKER_16: And I'm confusing the two. Thank you. One of my questions related to that, are they,

SPEAKER_07: did they have a number of subcontractors underneath these main contractors to accomplish a broader

SPEAKER_07: array of work or is it just these individual companies? It's these individual companies. So

SPEAKER_09: part of the consultant work that was performed was to look for service providers and we didn't

SPEAKER_09: receive any bids from them. So I'm going to be a little more pointed in my, so by combining the

SPEAKER_15: weatherization services with HVAC, we're combining two things that are, they're kind of touch each

SPEAKER_15: other, but very different skill sets and did our previous delivery of weatherization services,

Unknown: it seems would that have been like a very different universe of companies that we're providing that?

SPEAKER_15: Maybe smaller companies, maybe more local companies. What was the effect on, did combining

SPEAKER_15: this exclude companies that might have been very well qualified to do the weatherization services

SPEAKER_15: and so they just weren't able to compete because they don't have the ability to do the HVAC

SPEAKER_15: electrification? I'm not sure. Okay, yeah. So I'm going to call my colleague up,

SPEAKER_09: Kasey. Thank you. Yeah, I'll just add some information here. One is the incumbent on this,

SPEAKER_08: and sorry, I should introduce myself just for the record, Kasey Fallon, Director of Purchasing

SPEAKER_08: Warehouse and Fleet. So I just wanted to add a little bit of context. The incumbent here is

SPEAKER_08: Synergy. So we're continuing on with Synergy and we're expanding two additional contractors,

SPEAKER_08: Sierra Valley and Clark and Rush. Within those prime seed proposals, there are additional

SPEAKER_08: subcontractors that are performing specific scopes of work. So there's a handful of about

SPEAKER_08: five or six companies that are doing the electrical work. These are just independent

SPEAKER_08: electrical contractors that are subs to the primes. There are also a couple HVAC installation

SPEAKER_08: companies and then several other companies that are providing materials and equipment to support

SPEAKER_08: the scope of work that the primes have bid on. So there's a pretty significant amount of

SPEAKER_08: subcontracting within these three awards. And from my perspective, I see this as we're expanding the

SPEAKER_08: participation from the contractor community to perform the scope of this program. I'm hoping

SPEAKER_08: that helps answer the questions that have come up here. Yeah, I mean, and then you said that Synergy

SPEAKER_15: is the incumbent, the current contract. And were they currently providing both components of this

SPEAKER_15: contract, the weatherization and the HVAC, or were there different companies that were providing

SPEAKER_15: some of those that weren't successful in bidding for this? Good question. They were the incumbent

SPEAKER_08: on the low-income weatherization. I didn't look up the specifics on the other side of the program.

SPEAKER_08: I could do that and follow up. All right. Thank you.

SPEAKER_07: So let me say a couple of things. One, this is some of the foundational work. We go out on our

SPEAKER_07: walks usually once a year, a couple times a year. And I was out by Rush Park in Citrus Heights

SPEAKER_07: with this mud staff doing a walk. And these services were sort of the core. The core drivers,

SPEAKER_07: right, the core actual real work, we were talking to people and we heard the stories like,

Unknown: oh, my AC is broken, I'm growing mold in my house and my roof is leaking. And all stacked up. And

SPEAKER_07: it's important to connect that this contract is that primary tool that our staff is able to use

SPEAKER_07: to improve people's lives. And you see the bottom line figure is a lot because it's a lot of work

SPEAKER_07: over a number of years. But I'm glad to see that it's being contracted out. I feel like I really

SPEAKER_07: can. We paid a bunch of money and spent a bunch of time with a consultant who said you should

SPEAKER_07: combine these. I'm going to assume that's a smart thing to do. Maybe in the future round,

SPEAKER_07: in three or four years, if you remember this, we'll have more background. We'll do a comparison

SPEAKER_07: and make sure that that advice was good. Because I think it will be pretty clear, yeah, that was a

SPEAKER_07: really smart move. Or, yeah, we'll do it differently next time. But if everything is worth

SPEAKER_07: taking the opportunity to try to improve and then learning those lessons if there's lessons

SPEAKER_07: to be had. So I will certainly approve this. Are there any other comments?

SPEAKER_15: I just really want to I really do appreciate the the the intent to increase our efficiency and

SPEAKER_15: the resources that it takes to do this. And also, in particular, improving that customer experience.

SPEAKER_15: So, you know, just kind of wanted to see where there's some negative things that might have

SPEAKER_15: occurred. But thank you very much. Appreciate it. Okay. You're welcome. And then are there any

SPEAKER_07: public public comments? I don't have anything, no. All right. All right. Thank you.

Unknown: All right. We'll skip to item number two. And this is to discuss authorizing the CEO to negotiate

SPEAKER_07: and execute a three-year contract renewal with Wells Fargo Bank North America to modify and

SPEAKER_07: extend a $50 million line of credit, Wells Fargo line, and all other documents or actions necessary

SPEAKER_07: to facilitate the line of credit. And also a three-year contract with PNC Bank N.A. for a new

SPEAKER_07: $100 million line of credit and all other documents and actions necessary to facilitate the PNC line.

SPEAKER_07: So I would just point out when I was pre-briefing this, this is our line of credits and not our

SPEAKER_07: commercial paper. So just FYI. So we'll go ahead. Jennifer Reciva, who's our Director of Treasury

SPEAKER_07: and Revenue Strategy. Welcome. Thank you, Board members. Good evening. I'm Jennifer Reciva,

SPEAKER_02: Director of Treasury and Revenue Strategy. And I'm here tonight to ask you, as Director Rose has

SPEAKER_02: already said, to approve extending and increasing our lines of credit. And they are not letters of

SPEAKER_02: credit. They're key liquidity tools that give us flexibility to provide reliable and affordable

SPEAKER_02: service to our community. So liquidity means having enough money in your checking account

SPEAKER_02: to be able to pay your bills, right? So SMUD needs to have cash on hand to be able to pay our bills

SPEAKER_02: when they're due. So that means paying our vendors, paying for our team, and also to be able to handle

SPEAKER_02: an emergency if it comes up. So we aim to keep cash on hand to cover at least 150 days of expenses.

SPEAKER_02: You've heard us talk about 150 days cash. And so roughly nearly almost enough to cover half a

SPEAKER_02: year's of bills. So we know that surprises happen. Storms bring unexpected costs. We have delays in

SPEAKER_02: collecting revenues or unexpected costs come up. And our cash doesn't always match up where it

SPEAKER_02: comes into where we're spending it. So these tools give us the ability to make, to give us

SPEAKER_02: flexibility to respond fast, to keep things running smoothly, and seize opportunities when

SPEAKER_02: they come up so that we can keep the business moving. So we have two main tools that give us

SPEAKER_02: this liquidity. The first is our commercial paper, and the other is our line of credit. Last year,

SPEAKER_02: you approved renewing the letters of credit for our $400 million commercial paper program.

Unknown: We use our commercial paper for short-term borrowing, and then we fix that with long-term debt

Unknown: to lock in the rates and the repayment terms. So by issuing long-term bonds, we're able to match

SPEAKER_02: the cost of the assets that we buy over the life of them. So sort of like when you buy a house,

SPEAKER_02: the mortgage payments are spread over the time you live in the house. The flexibility provided by

SPEAKER_02: these tools lets us pick the best time to borrow long-term and also lets us manage our capital

SPEAKER_02: projects smoothly. So we're not having to worry about cash flow. Commercial paper is short-term

SPEAKER_02: borrowing that we sell to investors, so we can get cash quickly, typically within one to three

SPEAKER_02: weeks, and we pay it back on a set date. A line of credit is a flexible loan from a bank, so we can

SPEAKER_02: borrow, pay it back, and borrow again up to that set limit. A line of credit is a low, sort of,

SPEAKER_02: think of it as a low interest rate credit card. We have the flexibility. We're pre-approved. We

SPEAKER_02: don't have to use it, but it's there if we need a safety net. And if unexpected costs come up,

SPEAKER_02: we can get cash quickly without having to wait on investors, which is important. So we currently

SPEAKER_02: have a hundred million dollar line of credit with Wells Fargo that expires in February.

Unknown: We're extending our Wells Fargo line and adding the new line with PNC, which increases the total

SPEAKER_02: lines to 150 million dollars. This spreads our risk and makes sure the business can keep running

SPEAKER_02: smoothly. These lines of credit protect us if financial markets get shaky or if cash flow gets

SPEAKER_02: tight, giving us flexibility to pay our bills on time no matter what. They're vital tools that give

SPEAKER_02: us flexibility and confidence to handle whatever comes our way. So keeping strong liquidity means

SPEAKER_02: that we have the ability to have smooth operations, but also that we will have strong credit ratings.

SPEAKER_02: Strong credit ratings mean borrowing costs us less, and we proved that we're financially solid.

SPEAKER_02: So these tools are very vital to help us keep our electric service dependable and affordable.

SPEAKER_02: So this concludes my presentation. Are there any questions?

SPEAKER_02: Thank you for this presentation. I do know how important it is to make sure that you have the

SPEAKER_10: money to run your operations. What I'm wondering about though is Wells Fargo and why we are still

SPEAKER_10: using Wells Fargo when they have a really bad history of opening accounts that, you know,

SPEAKER_10: customers didn't open and generally just not having really good customer service. Why

SPEAKER_10: are we going with Wells Fargo? It's a very valid question. So Wells Fargo did have a fake account

SPEAKER_02: scandal back in 2016. They've done a lot of improvements with their governance and risk.

SPEAKER_02: They actually in 2025, where their asset cap was taken away from the state of California,

SPEAKER_02: so that means they're back in business. And they really have a heavy investment in renewable

SPEAKER_02: energy financing. They've invested over $3 billion in California wind and solar projects

SPEAKER_02: from 2021 to 2024, including major deals directly tied to our power purchase agreement, such as the

SPEAKER_02: Great Valley Solar and Sun Zia wind projects. And there's not a lot of banks that can provide this

SPEAKER_02: type of facility for us. And so, you know, this is less than what we had with Wells before.

SPEAKER_02: Previously the line of credit was $100 million, so we dropped it down to 50. They are also our

SPEAKER_02: emergency response bank. So if something were to happen with our primary bank, we have them as a

SPEAKER_02: great and changing banks, as we all know, is difficult. So definitely very aware of the

SPEAKER_02: concerns. And, you know, they have come a long way in their programs to sort of make

SPEAKER_02: corruptions for what they did back in 2016. Thank you for that background. And, you know,

SPEAKER_10: I hope that we continue to look for a bank that has a better reputation in the future.

Unknown: Any other questions for comments? Okay. I did query them during the pre-brief as well, so you

SPEAKER_07: as always. I think my thought is it's been, what is this, 26? It's been almost 10 years.

SPEAKER_07: And I know they have strong sort of environmental and social goals.

SPEAKER_07: But I think it always begets that question. They earned us to ask that question because we asked

SPEAKER_07: last time you brought this to us a couple years ago as well. And we probably will continue to

SPEAKER_07: ask it next time. Rightfully so. Yeah. Just I was curious, just very briefly, some commentary on

SPEAKER_07: moving from 100 to $150 million on the line of credits. Is there, what is the staff's

SPEAKER_07: just thought on that? So this gives us more flexibility of something where to happen. We

SPEAKER_02: have access to more cash. We have access from two separate banks, right? And the terms worked out to

SPEAKER_02: be very favorable. What's the favorable? Okay. Because I'm scrolling through the contract,

SPEAKER_07: but there's no way in its hundreds of pages I can figure out what the terms actually are in there.

SPEAKER_07: Okay. And then I have, there's no other board comment. David Wright, I think this is one you

SPEAKER_07: wanted to comment on, right? Right. Speaking to the microphone, set your name for the record,

SPEAKER_07: and please do not move the microphone as designed to pick up your voice.

SPEAKER_07: Good evening. My name is David Wright. I'm speaking on behalf of 350 Sacramento.

SPEAKER_12: So back in the day, I recommended that SMUD borrow a large, large amount of money back when

SPEAKER_12: interest rates were about as low as they ever, ever get. And now you're borrowing money at

SPEAKER_12: significantly higher rates. I'm wondering why you don't pursue a policy of borrowing a lot

SPEAKER_12: when interest rates are low, so you don't have to borrow when interest rates are high. Is there some

SPEAKER_12: obstacle to borrowing enough money to cover you for, say, 10 years? And is there some way to change

SPEAKER_12: that obstacle if there is an obstacle? I can briefly respond. Do you want to respond? Okay.

Unknown: So that would be great if we could do that. So we issue tax exempt bonds. And so part of the,

SPEAKER_02: so if you say you're going to, I'll just use a simple example, right? If we were going to build

SPEAKER_02: a solar plant, and that solar plant's not going to be finished for five years, we can't issue

SPEAKER_02: tax exempt debt to pay for it today, right? Because there's rules, there are rules around

SPEAKER_02: the timing of when you can issue debt. I believe it's three years, right? And so you can't just

SPEAKER_02: borrow a bunch of money and then wait. You also would be paying interest on that money that you've

SPEAKER_02: borrowed over the time. So it does degrade the savings. And so we very much try to manage,

SPEAKER_02: right? And that's if we were to borrow before we needed the money, that's a cost that current

SPEAKER_02: ratepayers would be paying that they shouldn't have to pay. So we really try to manage our

SPEAKER_02: liquidity in a way that's responsible for both current and future ratepayers. This line of credit

SPEAKER_02: that I'm getting approval for tonight, we may not use it, right? It's a safety net. And so

SPEAKER_02: I just want to be really clear that we do look at all of this very thoughtfully and make sure that

SPEAKER_02: we comply by all the rules, because there are a lot of them. I would just add, I want to say,

SPEAKER_07: I completely agree with you. And it's something that I've certainly thought about over time.

SPEAKER_07: At the beginning of COVID, right, we did borrow like $400 million, which is a lot for a single go.

SPEAKER_07: Because we knew the rates were low, the risk level was high. So I would say, yeah, we have done that.

SPEAKER_07: But as Jennifer just said, there's only so much you can borrow out of go, right? And then the other

SPEAKER_07: thing I want to point out, when you actually look at the muni bond market, it really hasn't gone up

SPEAKER_07: as much as you might have thought. And you can go pull up the numbers. Knock on the watch and say

SPEAKER_07: this, but I think it's only maybe a percent higher than it was, even at the lowest. It's not like what

SPEAKER_07: you've seen in like commercial mortgages where the rates doubled, which is somewhat surprising,

SPEAKER_07: but it's the nature of that market and the taxes and the taxes in nature and demand for our bonds

SPEAKER_07: as well. So that's my edge for two cents. Yeah, Director Fishman. I just want to say, I think our

SPEAKER_13: finance team has done a stellar job over the years of moving the chess pieces around borrowing money

SPEAKER_13: when we can, paying it off when we can, refinancing when it makes sense. And there's a strategy to that.

SPEAKER_13: You got to look at it in kind of this whole big picture. And I think you've just done a great job.

SPEAKER_13: So keep it up. Thank you. Yeah. Thank you. Okay. Are there any commenters online?

Unknown: I don't see any hands now. Okay. Perfect. Thank you.

SPEAKER_07: All right. We'll jump to item number three. Three is to provide the board with SMUD's financial

SPEAKER_07: results from the 11th month period ending November 30th, 2025 and a summary of SMUD's

SPEAKER_07: current power supply costs. We have Lisa Limconcaco, our Director of Accounting and Controller.

SPEAKER_07: Thank you. I think there's maybe a new title coming into that straight.

SPEAKER_03: Good evening. I'm Director Rose and SMUD Board of Directors. I'm Lisa Limcaco,

SPEAKER_03: Director of Accounting and Controller. And I will be going over the November 2025

SPEAKER_03: financial highlights. Year to date, you can see here customer revenues at approximately $1.7

SPEAKER_03: billion, $18 million higher than planned. This is primarily due to our commercial customer revenues

SPEAKER_03: being higher than planned this year. Commodity costs $486 million, $43 million lower than budget.

SPEAKER_03: And this has to do with the milder weather that we've seen throughout the year leading to favorable

SPEAKER_03: market conditions so we can procure power at favorable market prices, as well as lower fuel

SPEAKER_03: costs due to the lower fuel prices as well. Other operating expenses, $930 million, $98 million

SPEAKER_03: lower than budget. Three areas to note, transmission and distribution expenses are below budget,

SPEAKER_03: primarily due to the reduced transmission fee costs, as well as lower vegetation maintenance costs.

SPEAKER_03: Next, we have administrative and general expenses are below budget. This is due to

SPEAKER_03: delay in the start of several projects, such as the Esperahana pre-work,

SPEAKER_03: the EDAM extended day ahead market, as well as the Agile product team. And then finally,

SPEAKER_03: we have public good expenses. It's right at budget as of November, and this is due to the participation

SPEAKER_03: in low income building electrification programs, such as the community impact plan metal view project.

Unknown: And then finally, we have non-operating revenues, $150 million, $98 million higher than planned.

SPEAKER_03: And this is due to the inflation reduction act, monies that we received about $92 million

SPEAKER_03: for the Solano floor project, all leading to $417 million of net income.

Unknown: Next, we have November 2025 energy sources. So for the month of November, we see that actually

SPEAKER_03: hydro generation is higher than planned due to the above average temperatures for the month,

SPEAKER_03: as well as the increased precipitation in November. Thermal plants was down for the month.

SPEAKER_03: This is due to an unplanned consumers plant outage that extended into November. And then also

SPEAKER_03: leading to the net purchase power being higher for that month. Next, we have year to date,

SPEAKER_03: kind of similar trend that we've seen for most of the year due to the milder weather that we've seen.

SPEAKER_03: Hydro and thermal generation is below budget, leading to

SPEAKER_03: procuring power at favorable market prices.

Unknown: Next, we have delinquency by account type as of December. You can see the decrease from November

SPEAKER_03: to December, about $2 million, leading to our balance to about $33 million as of December.

SPEAKER_03: You can see the decline in November to summer, and that's usually what we see

SPEAKER_03: due to the summer bills getting paid off and now we're into the winter months.

SPEAKER_03: You can see that about $14.2 million of that delinquency balance is in payment plans as of

SPEAKER_03: December and about 73% of the delinquency balance is made of EPR and residential customers.

Unknown: Here we see the precipitation levels as of January 5th, due to the storms that we had in

SPEAKER_03: December and January. You can see the increase 30 inches as of January 5th, which is about 142%

SPEAKER_03: of the average to date and about 53% of our entire water year.

Unknown: Next, we have the snowpack as of January 5th. The snowpack is about 52.5%

SPEAKER_03: and then our storage reservoirs are about 70% full capacity.

SPEAKER_03: It's mostly rain, it's not snow. What is our full capacity? Is it 70?

SPEAKER_10: Or like, oh, it'd be 100. Okay, never mind. Do we, on average, do we have,

Unknown: do we know what we usually have in the U.R.? I think the average that we're showing here,

SPEAKER_03: probably at the high is probably about 80%, if I'm looking at the chart correctly. Okay, thank you.

SPEAKER_07: We have a blue dotted line compared to the yellow line, the capacity.

Unknown: Then we have our commodity budget mitigations and forecasts. The hydro performance annual forecasts

SPEAKER_03: were coming in 156 gigawatt hours less than planned. However, we are still lower in our

SPEAKER_03: commodity annual costs. $522 million is forecasted about $88 million less than budget. Again,

SPEAKER_03: it's due to the lower cost that we procure power this year as well as the lower fuel prices.

SPEAKER_03: Then the Hydro Rate Stabilization Fund and our WAPA rate stabilization fund has no changes

SPEAKER_03: until April. And then finally, we have days cash on hand. You can see actual cash as of November

SPEAKER_03: is at 230 days, which is above the budget. And then projected for year end is about 209 days,

SPEAKER_03: which is above our budget as well as the 150 days minimum that we have. And there is no commercial

SPEAKER_03: paper outstanding as of the end of the year. And that's my presentation. Any questions?

SPEAKER_03: I don't have any questions. Okay, thank you. Okay, thank you.

Unknown: All right, we will jump to item number four. To provide the board with an informational

SPEAKER_07: presentation on our internal audit and our 2026 internal audit plan. And we have Claire Rogers,

SPEAKER_07: our director of internal audit services. Chair Rose, I apologize. Someone just raised

SPEAKER_04: their hand. I don't know. It's John. I don't know if it's for this item. Do you have a comment on

SPEAKER_04: the last one? All right. I don't know if it's item three or if it was this item. Let's chat with him.

Unknown: Sorry, Claire, it's my fault.

Unknown: So, John, did you want to intend to comment on the previous item? Yes, this is John.

SPEAKER_11: And I have just a quick question. On the purchase power, so we have the hydro, we have the gas,

SPEAKER_11: and then we have the purchase power. I'm just wondering what percentage of that purchase power

SPEAKER_11: comes from our PPAs, like our solar farms, and what percent is just market purchases?

SPEAKER_11: I was just curious about that. I don't know if that can be answered or not. But that was it. Thank you.

Unknown: So, generally, John, on slide three of the presentation where you have the month-to-date

SPEAKER_07: and year-to-date data, the orange bar represents our long-term contracts plus our thermal plants,

SPEAKER_07: and then the green would be our net purchase power. If you look at the informational item

SPEAKER_07: for tonight, which is in the agenda, you can go pull up the actual financial documents, and it

SPEAKER_07: will list each project, each one of the renewable products, all the power plants, and all the

SPEAKER_07: projects, and it will tell you which generation by source and by category as well if you want to do

SPEAKER_07: a deep dive. And that's just right on the website. Does that help? I'll assume yes.

SPEAKER_07: Okay. Thank you. All right. Is there anybody else who wants to speak?

SPEAKER_07: I don't see any other hands. Okay. Sorry for that. Thank you. All right. We'll go ahead and jump over.

SPEAKER_07: Go ahead, Claire. It's okay. I'm glad that question wasn't for me.

SPEAKER_00: So, I'm here tonight to provide my annual update to the board, and you may be wondering,

SPEAKER_00: why does Claire come to the board every year to provide her annual update? And this is something

SPEAKER_00: that's actually required by the Institute of Internal Auditors. And the other thing that you're

Unknown: may be wondering is why does she tell us the same thing every year? And that's also required by the

SPEAKER_00: Institute of Internal Auditors. So, most of the information that I'm sharing with you is definitely

SPEAKER_00: stuff that you have seen before. But the reason why the Institute of Internal Auditors does this

Unknown: is because it's really important for us to have this dialogue to remind you about the role that

SPEAKER_00: we play in the organization. And it also provides the board an opportunity to ask questions,

SPEAKER_00: because you may decide that you want us to do something else after you hear about it. So,

Unknown: but before I start, I want to make sure to recognize the two managers on the team.

Unknown: That's Tammy Barkoski and Linda Wong. They're sitting over there. They're here tonight to

SPEAKER_00: support the work that we do. And I also want to recognize the entire team. I have a great

SPEAKER_00: internal audit team. And they're the ones that actually do all of the work and write the report.

SPEAKER_00: So, big shout out to everything that they do during the year.

SPEAKER_00: Okay. So, I always want to start off my presentation talking about governance

Unknown: and the role of internal audit and governance. And governance is one of those terms that I think

SPEAKER_00: people use. And it has a different meaning for many different people. So, I want to define what

SPEAKER_00: it means for internal audit. And we think about it pretty simply. It's really the structures and

SPEAKER_00: processes that are in place to help an organization achieve its goals. And it's not necessarily good

SPEAKER_00: or bad. It's just it is. It's processes and structures. And so, what we do as internal audit,

SPEAKER_00: how we support good governance at SMUD is to do audits and identify risks that could get in the

SPEAKER_00: way of achieving those goals. And so, that's how we intersect with governance and why our role,

Unknown: I believe, is so important here in the organization. I also want to make sure to thank all of you,

SPEAKER_00: board and senior management for supporting the work that we do. I feel so supported by you guys.

SPEAKER_00: My team does as well. And we can't do this job without it. So, thank you.

Unknown: One of the things that isn't prescribed by the Institute of Internal Auditors is our vision.

Unknown: And so, we have a vision, of course, to help SMUD achieve its goals because that's why we're here.

SPEAKER_00: That's what we do. But the way that we do that, that's something that me and my team have

SPEAKER_00: decided this is important to us. We want to be a trusted audit partner. So, we want our goal is to

Unknown: develop trust with the organization, which I believe we have. And we do that by being transparent.

Unknown: You know, nobody gets an audit and doesn't understand what the scope of that audit is

SPEAKER_00: and why we have determined what the scope of that audit is. We're very transparent about what we're

SPEAKER_00: looking at and why we're looking at it. We're also very transparent throughout the whole process,

Unknown: giving status updates. And as soon as we find something that we think potentially could be a

SPEAKER_00: recommendation, we let our customers know because we don't want there to be any surprises. We want

SPEAKER_00: to make sure that by the time they get the report, they know exactly what to expect. And so,

SPEAKER_00: building trust really helps us to have a better process. We also work very collaboratively. We

SPEAKER_00: try our intention is always to be collaborative and work across the organization to build those

SPEAKER_00: relationships. So, I share that with you because not every internal audit department has that kind

SPEAKER_00: of a vision, but we do. And this is really critical for me and my team. So, onto the more

SPEAKER_00: IIA stuff. This is what is called the three lines model. And I think it's really good because it

SPEAKER_00: shows the organization in a different way than just an org chart. And so, at the top are the board

SPEAKER_00: and executive management. And the reason is because you guys are the ones that set the goals. You guys

SPEAKER_00: are the ones that define those structures and processes. And you're also the ones that help

SPEAKER_00: support internal audit. And then you have management. So, we have two roles for management

SPEAKER_00: in the organization. It's called the first line role. And this is really the people that every

SPEAKER_00: day manage the processes and the risks. And then we have the second line role. And those are the

SPEAKER_00: organizations that help the first line manage risk. So, you can think of enterprise risk management,

Unknown: cybersecurity, reliability, compliance. Those organizations are assisting the first line role.

SPEAKER_00: And then internal audit. Now, why are we in a box all by ourselves? We are in that box because we're

SPEAKER_00: the only organization that reports directly to the board. And so, that's why we stand alone as that

SPEAKER_00: third line. But, like I mentioned before, we collaborate across the organization to share

SPEAKER_00: information with both the first line and the second line. And we also share ideas that may

Unknown: help the organization reduce risk or improve internal controls. So, we work very collaboratively

SPEAKER_00: across the group. We don't let our box stop us by being there. An important group that we collaborate

SPEAKER_00: with is enterprise risk management. And I want to just remind you that when you get an audit report,

Unknown: the enterprise risk that's most closely associated with that area that we audited is reflected on the

SPEAKER_00: front page of that report. And that way, you can see how they connect. And before you get an audit

SPEAKER_00: report, we share that audit report with enterprise risk so that they have an opportunity to assess the

SPEAKER_00: impact of our audit recommendations to the residual risk that's identified for that particular

SPEAKER_00: enterprise risk. So, we have a really important collaboration there. And then, as Michelle came

SPEAKER_00: to the SD17 report, she kind of recapped all of the changes to improve the enterprise risk framework

SPEAKER_00: here at SMUD. And we'll be looking at our own processes to make sure that we're in alignment with

SPEAKER_00: the work that they're doing. And then, as they go forward to build that risk culture at SMUD,

SPEAKER_00: we'll be working hand in hand to support them with whatever help they need.

Unknown: Okay. So, as you know, we report to the board of directors, the CEO for administrative

SPEAKER_00: responsibilities. And this helps to ensure that we continue to be independent. But it is also the best

SPEAKER_00: of the best practices for internal audits to report to the board of directors. So,

SPEAKER_00: I just wanted to share that with you. And then, as you know, the BL3 establishes our role in the

SPEAKER_00: organization. And I've identified a few things that you have asked us to do in the BL3. And I think

SPEAKER_00: about it as setting the expectations for me and the department. The BL3 also provides our purpose

SPEAKER_00: authority roles, responsibilities. And the purpose statement in green is the Institute of Internal

SPEAKER_00: Auditor's purpose statement, which we adopted last year when I made proposed some changes to the BL3.

SPEAKER_00: And there's a lot of words there, but really, it's that we're the independent assurance provider at

SPEAKER_00: SMUD. And I'm not going to go over all of these, but I do want to point out having direct access

SPEAKER_00: to the board is really important. It's a best practice. And it's also reinforced by the new

SPEAKER_00: standards that came out last year. And we do this in many ways. But one of the ways is by me coming

Unknown: to the Finance and Audit Committee meeting and answering any questions that you might have on

SPEAKER_00: the reports that are on the SSS. So before, during, after the meeting, having that open

SPEAKER_00: dialogue is really important. And then just to reiterate, our role is to help with good governance

SPEAKER_00: by doing audits because our recommendations promote good governance. And then responsibilities

SPEAKER_00: to share with you our audit plan and to make sure you get all of our audit reports.

Unknown: So just to wrap it up, I'm going to share some of the key focus areas with you. But I do want you to

SPEAKER_00: know in developing the audit plan, we use a lot of different inputs. And one of the inputs that we

SPEAKER_00: use is by going out and talking to people. We met with over 60 people this year. We talk about,

SPEAKER_00: ask them about their risks, you know, what's going on in their business? What are they worried about?

SPEAKER_00: What changes do they expect? We look at what's going on in the industry because that's an

SPEAKER_00: important input for us. We look beyond the industry to see what's actually going out in the business

SPEAKER_00: world. We also take into consideration, you know, what are SMUD's goals? And how are we doing on

SPEAKER_00: meeting those goals? What risks do we see potentially that could be barriers to meeting those goals?

Unknown: And then we also look to our own knowledge, you know, because we're talking to people every day

SPEAKER_00: and formally. And we look to understand, you know, the impact of audits that we've done in the past.

Unknown: So we take all of that into consideration. And we try to, I like to think about it as kind of doing

SPEAKER_00: the right audit at the right time, you know, to take also think about what are some of the other

SPEAKER_00: things that are going on in the business. So that's how we come up with our audit plan.

Unknown: So some focus areas for us. We'll continue to look at the board monitoring reports. And I just wanted

SPEAKER_00: to point out we don't actually audit those reports. But we do take a sample of the information

SPEAKER_00: that's in the board monitoring report and make sure it's supported by documentation.

SPEAKER_00: We will be doing an audit, though, of benefits administration. So it's those processes to manage

SPEAKER_00: our employee benefits, as well as an audit of cranes, the regulatory requirements about cranes

SPEAKER_00: and other hoisting equipment. We're also going to be doing an advisory review this year of cyber

SPEAKER_00: security. And that is really to support the work that cyber is already doing to mature the cyber

SPEAKER_00: security program here at SMUD. So it's really to help. We'll be doing an audit of compliance with

SPEAKER_00: policies and procedures for energy trading and risk management. And then the next one is a new

SPEAKER_00: area for us. We're going to be doing what we're going to call project assurance reviews for the

SPEAKER_00: SAP S4HANA project. And we will be doing these reviews as the project goes through their life

SPEAKER_00: cycle. So we'll be looking at things like project management, project governance, risk management,

SPEAKER_00: data migration, training, change management. So all of the parts of the project that are

Unknown: really important that they go right, they have high risk associated with them, those are the

SPEAKER_00: things that we're going to be looking at. We're working on the RFP now and likely we'll be coming

SPEAKER_00: back to the board to award that contract in the next couple of months or so. So look forward to

SPEAKER_00: another presentation from me. And then lastly, just an audit of the transmission vegetation

SPEAKER_00: management plan. And then you have the full audit plan that you received on Monday. And with that,

SPEAKER_00: I would take any questions that you might have.

SPEAKER_00: Senator Sanborn.

Unknown: Thank you. Claire, I just want to thank you and your team because the work that you do is just

SPEAKER_16: so important. I don't know if the public understands how important it is. But I mean, you do the

SPEAKER_16: internal audit and catch mistakes and catch things that we can do better before they become a bigger

SPEAKER_16: problem or they cost us a lot of money. So I read your reports. I've seen some of the things that

SPEAKER_16: you've caught and suggested, these changes, but you always work collaboratively with the staff. And

Unknown: people don't do things intentionally that are not going to be good. But sometimes it just happens

SPEAKER_16: over time. So I just really appreciate you and your team. And I want to thank you all for doing

SPEAKER_16: the good work. And I do read them and I do comment when I see stuff. And so we normally do emails and

SPEAKER_16: I don't have to bring it to these meetings. But thank you very much for all your work. Thank you.

Unknown: Perfect. Thank you for that. I know I would just throw out there if there's anything that the board

SPEAKER_07: members have any interest in having the staff take a look at. This is really appropriate. I did a few

SPEAKER_07: things to back my mind. I'm going to chat with our CEO about them a little bit. But just sort of keep

SPEAKER_07: that in mind. This is your opportunity. But it's a very lengthy list. It's an impressive work plan

SPEAKER_07: that the staff intends to go through this year. And this is just a little sample of it. But that's

SPEAKER_07: only about less than a quarter of everything. So they're very busy. And I appreciate,

SPEAKER_07: as Director Sambor, I appreciate having the set of eyes going through

SPEAKER_07: and helping people out within SMUD. All right. Are there any other comments or questions? Yeah.

Unknown: Claire, relative to a couple of things that are already on your list,

Unknown: it would be really interesting to know. And no hint that we're not, but how are we getting ready for

SPEAKER_13: the extended day head market at Kaiso? And are we on track to be ready when we need to be ready for

SPEAKER_13: that? I don't know. Again, I don't know if we need your audit services for that. Maybe it's something,

Unknown: if I can go back to the last meeting, which I'm probably not supposed to do,

SPEAKER_13: to put in the parking lot. Just an update on where we are with preparing for EDAM.

SPEAKER_14: So Director Fishman, yes. So this is one of the stuff that we always always in conversation with

SPEAKER_14: the internal audit team to see, you know, as new projects comes up, when is the right time for us

SPEAKER_14: to put the auditing panel in place? So for example, that's why you saw the S. Wahana

SPEAKER_14: assurance review. In the past, we've never done that. But when we actually look at it,

SPEAKER_14: we say this is a huge undertaking that we do once every 20, 30 years. So we got to make sure that

SPEAKER_14: we have to put the mechanisms in place to making sure that all those, when you have a huge project,

SPEAKER_14: that all those pieces needs to be looked at and it's got to be looked at externally. So making

SPEAKER_14: sure that we have a third spread of eyes on it. So when EDAM, right now, as you know, the

SPEAKER_14: governor actually passed, just passed legislation on extending EDAM. So in fact, John Olson, our

SPEAKER_14: director for compile contract is actually in Arizona right now, you know, attending the EDAM.

SPEAKER_14: And as that gets developed, and as get more clarity on it, the audit team will probably look at,

SPEAKER_14: you know, as we start looking at our systems, our process of procedures and our trading guidelines,

SPEAKER_14: we'll probably, we'll probably talk to the audit team and say, what is probably the best assurance,

SPEAKER_14: right? Audit assurance that we need to have to do that. So this is the ongoing work that audit,

SPEAKER_14: and audit team does. That's we have new projects and new initiatives coming up.

SPEAKER_14: Thank you. Yeah, like I said, I'm not sure that we're at that point where we need to audit

SPEAKER_13: something that's barely happening yet, but I would be interested in having an update on

SPEAKER_13: how we're approaching it. That's all. Any public comments?

Unknown: All right. Thank you, Claire. And we have no public comment.

SPEAKER_04: Yeah, I just want to make a comment. I just want to say special thanks to Claire and her team. I

SPEAKER_14: mean, I know a lot of these things are happening behind the scene and everything, you know,

SPEAKER_14: goes smoothly. But a lot of the reasons why things go smoothly as much is because the work they do,

SPEAKER_14: auditing us, and then giving businesses recommendations when they find something that,

SPEAKER_14: you know, this area needs attention or this area needs beefing up. This area needs modification

SPEAKER_14: and improvement. And we really have an excellent working relationship between the audit team

SPEAKER_14: and the business units because it's really a partnership to making sure that everything

SPEAKER_14: that we do, you know, conforms and complies, but also making sure that it's actually efficient the

SPEAKER_14: way we're doing it. So I just want to say thank you, Claire, and your team's institute,

SPEAKER_14: to your managers here. And we don't get to say that very often.

Unknown: All right. So item number five, the status of the recommendation report. Are there any

SPEAKER_07: questions or comments that usually have any? All right. Let's jump to the next item then.

Unknown: Right. Sorry. All right. All right. Is there anything else tonight?

SPEAKER_04: And we have no public comment on the audit recommendations. And if anybody has comments.

SPEAKER_04: I think I have one comment for Mr. Wright.

SPEAKER_04: On the agenda. Yeah.

SPEAKER_07: I don't have any hands yet.

Unknown: Okay. So this is for public comment on items not on the agenda. Go ahead.

Unknown: Hi. David Wright, Sacramento 350. I want to thank you for canceling the Coyote Creek contract.

Unknown: Full stop.

Unknown: 350 Sacramento does favor adding more environmentally sound renewable energy generation

SPEAKER_12: with all deliberate speed. So we would like to do anything that we can to help that happen.

Unknown: Smud took a reputation hit from this Coyote Creek thing. None of us wants to see that happen again.

Unknown: We would appreciate having some discussion about how Smud will achieve these environmentally sound projects.

SPEAKER_12: Ideally something that's public. That's open to the general public. Or maybe a board presentations.

SPEAKER_12: Or actually board presentations are not the best for Q&A, right? So anyway, 350 would be happy to host.

SPEAKER_12: Some discussions. And policy formulation around what Claire called governance surrounding how you choose your projects.

Unknown: And on a personal note, not coming from 350 per se, but I would think it would be useful to have some

SPEAKER_12: public review and maybe reconsideration of what items come before the board and our public and what

SPEAKER_12: stay privy to staff. I think sometimes I see things come before the board and I think, wow,

SPEAKER_12: this is really in the weeds. Why is so much brain power being leveled at this tiny thing?

SPEAKER_12: And sometimes things go by and don't get to the board and I'm like, why did we not get a public

SPEAKER_12: chance to comment on that? So that would be, to me, a useful thing to pull out and look at and say,

SPEAKER_12: hmm, does this need any changes? Thank you.

Unknown: Thank you for that. Are there any other public comments?

Unknown: I don't see any other hands, no. Okay. Is there any summary? And so any written comments received

SPEAKER_07: on items not on the agenda will be included in the record of the meeting. They're perceived

SPEAKER_07: within two hours of the end of the meeting. And then the last item is a summary of community

SPEAKER_07: direction. The only thing, and I wasn't sure, Director Fishman, did you want an update on what

SPEAKER_04: we're doing to prepare for EIM or EDAM? Is that something that you would, so a written update?

SPEAKER_04: Yeah. At some point, you know, the next step wants to be the next week or something.

Unknown: That's the only thing I had.

Unknown: Perfect. Do we have anything else? All right, then we will be adjourned. Thank you.