Finance Audit Oct 13 2026

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Unknown: Thank you.

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Unknown: All right.

SPEAKER_03: Good evening and welcome to the Finance and Audit Committee and Special Board Meeting

SPEAKER_03: of October 13, 2026.

SPEAKER_03: This meeting is being recorded and can be accessed on SMUD's website.

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SPEAKER_03: ends.

SPEAKER_03: Would the chief legal officer please conduct the roll call?

Unknown: Director Kurth?

SPEAKER_07: Here.

SPEAKER_07: Dr. Bowie-Thompson?

SPEAKER_07: Chair Rose?

Unknown: I am here and we expect Director Bowie-Thompson in a couple of minutes.

SPEAKER_07: Councilmember Zia present or Director Herber, Sam Board and President Tamayo.

Unknown: All right.

SPEAKER_03: Thank you.

SPEAKER_03: So, if we have item number one on tonight's agenda is to discuss approving contract change

SPEAKER_03: number five to contract with Androids Hydro Corp for Community Generator One Rehabilitation

SPEAKER_03: to increase the contract not to exceed amount by 1.6 million.

SPEAKER_03: We have Josh Langen, our Director of Power Generation and newly appointed Chief Energy

SPEAKER_03: and Grid Operations Officer.

SPEAKER_03: Welcome.

SPEAKER_10: Thank you.

SPEAKER_10: Thank you.

SPEAKER_10: And good evening, Chair Rose.

SPEAKER_10: I appreciate the introduction.

SPEAKER_10: Ultimately, I'm here to ask for change order number five to increase this contract.

SPEAKER_10: Before I do that formally, I'll walk through and provide some context on what this project

SPEAKER_10: is and some of the drivers for the cost increase.

SPEAKER_10: So, as you noted, this is a generator rewind at our Camino Powerhouse.

SPEAKER_10: I think what's interesting about this slide, you could kind of see the two pictures there.

SPEAKER_10: This site was commissioned in the late 60s.

SPEAKER_10: Right.

SPEAKER_10: So, as we think about the age of this asset, over the years, there's been a number of,

SPEAKER_10: of course, retrofits, upgrades to the asset and equipment just to keep it reliable.

SPEAKER_10: One of those is on the generators.

SPEAKER_10: So, twice before in the history of this asset, we've done a full generator rewind.

SPEAKER_10: I'll get into what that means, but essentially, we're at the point where we're due for a new

SPEAKER_10: rewind.

SPEAKER_10: So, it's basically rehabbing, refurbishing the generator.

SPEAKER_10: So, as we look at some of the components and some of the drivers of this outage in particular

SPEAKER_10: and what drove some of the change orders, when we first issued the contract, we had

SPEAKER_10: an opportunity to do an inspection internally and identify some improvement opportunities.

SPEAKER_10: So, that's the first driver of some of the cost increases, which I'll touch on a little

SPEAKER_10: bit more.

SPEAKER_10: But the other component is really the tariffs around, right?

SPEAKER_10: This project uses quite a bit of copper and steel.

SPEAKER_10: So, those tariffs were approximately 25% from importing into the U.S. and to this project site.

SPEAKER_10: So, those are the big drivers.

SPEAKER_10: But as we think about the business need, right, especially as we think about continuing decarbonization,

SPEAKER_10: these hydro assets are critical to that mission.

SPEAKER_10: So, essentially, from a reliability standpoint, this really resets the clock and the health

SPEAKER_10: of that generator and makes sure it's reliable for the next 30 to 40 years.

SPEAKER_10: From a financial perspective, one of the improvements I noted, we identified an opportunity

SPEAKER_10: to actually redesign this generator to actually increase the total output.

SPEAKER_10: So after we finish this project, we'll actually get the potential of more energy out of this

SPEAKER_10: generator than we've had in the past.

SPEAKER_10: So that's another big benefit from the financial stewardship perspective.

SPEAKER_10: It could add additional RA if we need additional energy.

SPEAKER_10: This is a potential outcome of this project as well.

SPEAKER_10: And as I already noted, from an environmental leadership and stewardship, this, of course,

SPEAKER_10: having this unit reliable allows us to integrate more renewables, balance the system and the

SPEAKER_10: grid, and continue to create opportunities where we could have more solar and wind in storage.

SPEAKER_10: So, here's a couple of pictures just to put things into context.

SPEAKER_10: On the far left, that is Camino 1.

SPEAKER_10: This is where we're performing the work.

SPEAKER_10: Actually, this outage just started about a week and a half ago.

SPEAKER_10: We completed mechanical disassembly.

SPEAKER_10: The picture on the left shows the generator rotor in there.

SPEAKER_10: That currently today, that rotor is all the way out, and we're continuing mechanical disassembly.

SPEAKER_10: We do have the contractor on site, Andritz.

SPEAKER_10: They're starting the deconstruction before we start the rebuild.

SPEAKER_10: But on the left-hand picture there, you see the windings in blue.

SPEAKER_10: Essentially, those are what we're going to replace.

SPEAKER_10: Also, in the middle picture, you see the rotor halfway out of the generator stator.

SPEAKER_10: The red box there is a field pole.

SPEAKER_10: So, part of this work, which wasn't done previously, is actually replacing all those field poles.

SPEAKER_10: So, at the end of this project, we'll have a brand new generator, not only windings, the stator,

SPEAKER_10: and the rotor at the field pole.

SPEAKER_10: So, on the far right, you see a picture of the stator.

SPEAKER_10: If you see the workers in there, that core iron is actually all redesigned and going to be replaced

SPEAKER_10: part of this outage.

SPEAKER_10: We actually increase the number of stator winding bars.

SPEAKER_10: That actually increases the stability of the unit, which actually will result in a longer life

SPEAKER_10: going forward than we've previously seen.

Unknown: And then the upper right picture, that just is an example of the stator bars or the windings

SPEAKER_10: that we're going to be replacing as part of this project.

Unknown: So, just to provide a little bit of history, as I noted, this contract actually was awarded in June 2024.

SPEAKER_10: Since that time, we did do that evaluation or that internal inspection, identified the opportunity to

SPEAKER_10: actually redesign the unit.

SPEAKER_10: That drove some of the initial cost increases because we had more actual bars and material.

SPEAKER_10: And then as you look at here in July of 2026, that's when we identified, right, as tariffs were actually

SPEAKER_10: pretty volatile and they were moving around, we got some certainty in July as material actually started

SPEAKER_10: being shipped to site.

SPEAKER_10: Those materials did come into the U.S., so we did have certainty on what those costs were.

SPEAKER_10: So, as we look at the project schedule, the change order number five that I'm requesting moved to the

SPEAKER_10: consent calendar, that's really the large component and large driver of that is the tariff impacts.

SPEAKER_10: Approximately $850,000 is associated with this cost increase of 1.6.

SPEAKER_10: The remainder of the amount is really, as you, any time you open up an asset, you know, there is a

SPEAKER_10: potential for additional discovery work.

SPEAKER_10: So, really some of the contract increase is to allow us to manage that work.

SPEAKER_10: Ideally, we won't find anything and it's a full redesign and rebuild, but that provides some

SPEAKER_10: opportunity should we find anything that needs to be addressed that's unexpected.

SPEAKER_10: We do have the ability to manage that in real time as the outage is going on right now.

SPEAKER_10: It would prevent us from having to come back to the board for an emergency increase.

SPEAKER_10: So, that really concludes my presentation.

SPEAKER_10: Happy to answer any questions.

SPEAKER_10: And if there are no questions, I just make the recommendation that this move to the consent calendar for approval.

SPEAKER_13: Just a couple of background questions.

SPEAKER_13: How many pounds of copper are in this?

SPEAKER_13: Oh, you know, that's a good question.

SPEAKER_10: I have to get back to you on that.

SPEAKER_10: But the stator bars, and they're all copper, they're approximately six and a half feet tall.

SPEAKER_10: There's 210 of them.

SPEAKER_10: So, we could probably do the math and figure that out.

SPEAKER_10: Quite a bit of copper.

SPEAKER_10: Yeah, I'd be curious.

SPEAKER_13: Well, and I have to ask on Director Sanborn's behalf, we're of course recycling all the copper we're taking.

SPEAKER_13: Absolutely.

SPEAKER_13: Yeah, part of the project we do coordinate with our internal teams that manage the recycling of that material.

SPEAKER_10: Okay, thanks very much.

SPEAKER_06: Thank you.

SPEAKER_06: This is a great project.

SPEAKER_06: And, you know, my husband and I have rehabbed a lot of houses.

SPEAKER_06: I know there's always something in the wall that you don't know when you go into a project.

SPEAKER_06: So, I get this.

SPEAKER_06: So, it's $850,000 or so is the hard cost for all the tariffs and the extra expenses.

SPEAKER_06: And you're asking for double that just to make sure as you're in there, you can, if additional costs come up, you can deal with them.

SPEAKER_10: That is correct.

SPEAKER_10: That's one driver, but the $850,000 associated with the tariff, there are other costs.

SPEAKER_10: As part of the redesign opportunity, we actually did defer the outage one entire year.

SPEAKER_10: So, as we not only redesigned it, there was extra stator bars and more material redesign of the core iron.

SPEAKER_10: So, those drove some of those costs as well.

SPEAKER_10: And then we had to store material for an entire year for this year to execute the outage.

SPEAKER_10: So, that kind of makes up some of the remainder of those costs that I covered.

SPEAKER_06: So, you expect all of this to be expended?

SPEAKER_06: This is not a buffer?

Unknown: Correct.

SPEAKER_10: Yeah, there is some potentially for discovery, but the large majority is for the extra material, the redesign, the storage costs, and then the tariffs.

Unknown: Okay.

SPEAKER_06: Well, thank you.

SPEAKER_06: I look forward to getting this thing fixed and ready for the next 40 years.

SPEAKER_06: Thanks.

Unknown: I remember visiting this when I was a key account manager for SMUD and was just amazed by the facility.

SPEAKER_08: I'm just wondering, and I know you probably said this, how often do we have to do this?

Unknown: Yeah, typical generator life, and it's really the windings inside.

SPEAKER_10: They all have insulation.

SPEAKER_10: Typically, on average, you could get 30 years.

SPEAKER_10: But as I talk about that, we do extensive testing annually to determine the health of those windings.

SPEAKER_10: One thing I did skip over, we actually did have one of the windings fail in this generator a couple years ago.

SPEAKER_10: We were able to do a field repair.

SPEAKER_10: But that failure is really indicative of the remaining life of the asset and the other windings.

SPEAKER_10: But generally, 30 years, we're thinking with the redesign, 30 to 40 years with this next iteration, right?

SPEAKER_10: So we'll get us over that century mark for this asset.

SPEAKER_10: Thank you.

Unknown: You know, the hydro is the cheapest power that we have, and so the tariffs are, of course, unfortunate.

SPEAKER_03: We see that cost very directly here, but this is still the best place to go for our power.

SPEAKER_03: So I'm glad to support this.

SPEAKER_03: Do we have any other public comment?

Unknown: No, we do not.

Unknown: Okay.

SPEAKER_03: Thank you.

SPEAKER_10: Thank you.

Unknown: All right.

Unknown: Item number two is to discuss authorizing the CEO to negotiate and award a contract to International Business Machines Corporation, IBM, for the SAP S4HANA implementation services for a period of November 1, 2026 through December 31, 2029, for not to exceed the amount of $32.18 million.

SPEAKER_03: All right.

SPEAKER_03: We have our Director of Enterprise Systems, Rajiv, and Governance.

SPEAKER_03: Welcome.

Unknown: Thank you for the introduction.

SPEAKER_01: Good evening, Director Rose, Chair of Finance and Audit Committee, members of the SMART Board of Directors, and all attendees.

SPEAKER_01: My name is Yooraju Palaniaput, and I'm the IT Director of Enterprise Systems, Strategy, and Governance.

SPEAKER_01: I'm standing in front of you representing close to 100 employees who have worked for the last 12 to 14 months in this extensive SI selection process.

SPEAKER_01: Along with me, I have Michael Chan, our co-sponsor for SAP S4HANA, and I also have Austin Sivyan from Pre-Kuruman, who has been with us throughout this journey.

Unknown: I will begin by recapping the background on the systems included in this modernization effort.

Unknown: You might recall that SMART has relied on SAP systems for many years to support important business functions, such as finance, supply chain, work management, customer support, and utility industry-specific functions across the organization.

Unknown: Our core enterprise system was originally implemented in 1999.

SPEAKER_01: We later added SAP Business Warehouse in 2004 to support reporting and analytics, and then SAP Customer Relationship Management in 2012 to support our Customer Contact Center.

SPEAKER_01: These systems have served SMART well by their now aging, reaching end of mainstream maintenance support, and becoming more difficult to sustain over the years.

Unknown: This project before you is intended to modernize these core systems in a phased and disciplined way, with implementation planned from early 2027 through 2029.

Unknown: Let me walk you through this.

Unknown: This slide summarizes the way this project is needed and the work completed to date.

Unknown: There are two primary drivers for moving forward now.

SPEAKER_01: First, the accessing system and the price system are nearing end of mainstream support.

SPEAKER_01: Second, the current environment limits SMART's ability to take advantage of modern capabilities.

Unknown: To position SMART for the future, the board previously approved a five-year agreement with SAP for the cloud-based S4HANA platform.

SPEAKER_01: That approval established the core software foundation for this modernization.

Unknown: Since then, we have focused on implementation readiness.

Unknown: This work included a robust discovery phase, legacy system data cleanup, internal planning and alignment, organizational readiness, and preparation for the request proposal, which is RFP, for identifying a system integrator.

Unknown: We also helped enterprise naming contests for this program, and the winning employee submission was ROTOHANA.

Unknown: Moving forward from this presentation onwards, you may be hearing a lot about ROTOHANA.

Unknown: On the last point in this slide, after an extensive and deliberate process, we identified a recommended system integrator to help SMART implement this program.

SPEAKER_01: I will cover the selection process in the next few slides.

Unknown: First, I will cover the scope and the implementation timeline.

Unknown: And in the next slide, I will cover the overall program contracting roadmap, and then I will start covering through the details of the SI selection process.

Unknown: We are planning this program in two phases to reduce risk and improve manageability.

Unknown: The phase one includes core enterprise system and customer relationship management system.

SPEAKER_01: This phase is currently planned for a 15-month project followed by a three-month hypercare period.

SPEAKER_01: The phase two includes the business warehouse and reporting environment.

Unknown: That phase is planned for nine months, followed by a hypercare period as well.

Unknown: This phased approach allows SMART to manage complexity more effectively, reduce implementation risk, and stabilize each phase before moving to the next.

Unknown: The last time we were here for HESFORHANA, the board has asked for a slide that puts together today's request in the context of a broader program.

SPEAKER_01: Let me walk you through the four major contract components associated with the HESFORHANA program.

SPEAKER_01: The first is the SAP software agreement, which was previously approved by the board.

SPEAKER_01: The second is the system integrator contract, which is the approval we are seeking today.

Unknown: We also expect to return to the board in the near future with two additional contracts to support the program.

Unknown: One is for the independent quality assurance and project oversight, in short, PAQA.

SPEAKER_01: And the second is for a specialized technical advisory support from SAP.

SPEAKER_01: These additional contracts are intended to strengthen governance, risk management, and implementation quality throughout the program.

SPEAKER_01: In terms of scope and or cost, these two contracts are of a much smaller magnitude compared to the first two contracts.

Unknown: Before I go into the five steps integration selection process, I would like to provide some background on the activities that took place prior to developing the RFP.

Unknown: To guide our selection, we focused on three key areas.

SPEAKER_01: Outreach to peer utilities, consultation with industry advisors, including SAP, and lessons learned internally during the discovery phase.

Unknown: We engaged the utility peers such as Nebraska Power, Public Power District, Sempra, Oklahoma Gas and Electric,

SPEAKER_01: which have already implemented or are currently undergoing S4HANA project.

SPEAKER_01: We also consulted industry advisors, including Gardner and Infotech, and received guidance from SAP in reviewing the RFP before it was issued.

Unknown: This outreach helped us understand lessons learned, implementation risk, and the capability most important in selecting the right partner.

Unknown: One of the key takeaways was the importance of choosing a system integrated with proven experience and technical expertise in implementing S4HANA within the U.S. utility sector.

Unknown: As a result, we clearly reflected this in the RFP requirement and technical questions.

Unknown: To ensure that only highly qualified proposers move forward in the selection process, the RFP included a minimum point threshold which required proposers to achieve 80% of the technical points available in order to qualify for commercial evaluation.

Unknown: Now I would like to walk you through the structured and competitive five-step process we used, which took us a little over a year.

SPEAKER_01: This process includes first, the development and issuance of the RFP, second, detailed evaluation and scoring of a vendor responses,

SPEAKER_01: third, two days of on-site demonstration and oral presentation by each selected vendor,

Unknown: fourth, several months of statement of work development, and finally contract negotiation.

SPEAKER_01: In the last two steps, beyond multiple commercial discussions, we also concentrated on key areas such as scope normalization, resource allocation, SLAs, penalties, and milestone-based deliverables.

Unknown: These are all essential criteria for ensuring the progress success of the program.

Unknown: This was also a broad, cross-functional, evolving, multiple business and IT staff across smart to ensure the recommendation reflects enterprise-wide needs.

SPEAKER_01: Throughout the SI selection process, as I mentioned earlier, more than 90 employees, including senior leaders, directors, managers, and subject matter experts participated in the SI selection process.

Unknown: I'm going to skip ahead a little bit and start with what is at the end of the slide.

Unknown: IBM is the highest rated proposal. Let me walk you through how we get there.

Unknown: In October 2025, smart issued a request for proposal for S4HANA, implementation services.

Unknown: Of the eight responses we received, one did not meet the mandatory requirement.

Unknown: The remaining seven vendors underwent a detailed technical evaluation based on predefined criteria.

Unknown: This includes product knowledge, industry experience, implementation experience, hyper-care and transition support, organizational change management, accelerator and automation, and integration tools, knowledge, and capability.

SPEAKER_01: From that evaluation, three vendors were selected to proceed to the demonstration phase based on their potential to achieve the minimum technical threshold that we set up front during the RFP stage itself.

Unknown: Each of these vendors then participated in extensive two days on-site demonstration and oral presentation, which accounted for 30% of the overall technical scores.

SPEAKER_01: After considering both proposal scoring and on-site demonstration performance, IBM was rated the highest among the candidates and was the only vendor to meet the minimum technical threshold, achieving 80% of the available technical points.

SPEAKER_08: I have a quick question, if that's okay, Mr. Chair. Can you tell us a little bit about what you asked them to do in the demo?

SPEAKER_08: I'm just curious myself at what you're looking for when they come in to do the demos.

Unknown: Sure.

Unknown: First, for the two days, we have classified the breakout sections by workstream. How we design the workstream is by business capabilities.

SPEAKER_01: And each workstreams have their specific business areas they tested.

SPEAKER_01: And how we tested in the two days is by industry experience. We have a series of questions on their industry experience, what they have done, what type of tools they use to bring the S4HANA migrations.

SPEAKER_01: It's a compressive process by business needs, by business modules, and also including how the change management practices they use.

SPEAKER_01: And in addition to that, the project metallurgy they use, for example, we have a brown field migration, which is apple-to-apple migrations.

SPEAKER_01: And the green field, which is a plain migration, and also we call brown blue field. It's another in between the brown field and green field.

SPEAKER_01: So we tested them also, what kind of methodology they bring to the table, and what type of experience they have in these areas.

SPEAKER_01: And in addition to that, we also tied to the utility-specific experience they're bringing to the table in order for us to have the right system integrated to help us out in this process kind of thing.

SPEAKER_01: Thank you.

Unknown: So to follow up on that, so of the three, after the two-day demo, it was determined that IBM would be the only one that had met the threshold.

SPEAKER_05: What was the issue with Deloitte, Bushu, and HCL for them to not make it past the demo, to not be able to score their proposal?

Unknown: So we had seven technical criteria, and each of these seven technical criteria, we have questions around 8 to 14 in average.

SPEAKER_01: And each of these criteria that we set with the questions, IBM ranked in order all of the questions better than the second player.

SPEAKER_01: And the way IBM consistently demonstrated is the ability to meet all the technical conditions that we are doing.

SPEAKER_01: And in terms of Deloitte, we found there is a lack in the utility-specific experience in comes to HES for HANA.

SPEAKER_01: So the methodology they're bringing to the table and the experience in the utility space specific to HES for HANA compared to IBM, they had a little bit less experience compared to IBM.

SPEAKER_01: I'm just going to say, I'll let you continue a bit.

SPEAKER_05: And I don't typically delve in, but I tried to find that information.

SPEAKER_05: The trip list was very light, and so I didn't see any of that.

SPEAKER_05: So I would like to see that before moving forward.

SPEAKER_05: It was just very sparse.

SPEAKER_05: And the reason why I asked is, and I'll do full disclosure.

SPEAKER_05: I used to work IBM Deloitte Accenture.

SPEAKER_05: There's five of the top players.

SPEAKER_05: I've worked for three of the five.

SPEAKER_05: And I guess I need to see more, and I didn't see that because I'm shocked that Deloitte and HCL, I don't know HCL as much, but at least Deloitte and Cognizant is I'm more aware.

SPEAKER_05: Deloitte just did Eugene.

SPEAKER_05: They did SoCal Outison.

SPEAKER_05: They've done other large utilities.

SPEAKER_05: I'm just very surprised that our requirements were so arduous that they couldn't meet the minimum threshold.

SPEAKER_05: Seeing if you look at Gartner's Magic Quadrant and what have you, the players are IBM, Deloitte, Accenture did not bid, CapGenimai, and Tata.

SPEAKER_05: And so I just will need more information after this is done because that's mind blowing to me that one of the five world's known SAP integrators can't meet our requirements.

SPEAKER_05: That tells me that it may be an issue with our requirements because they seem to be fine with other very larger utilities than ourselves doing.

SPEAKER_05: And if we have things that are so out of the ordinary from similar utilities, that concerns me because with these upgrades, you don't want to be what we call in consulting the purple squirrel.

SPEAKER_05: You want to try to get as much as you can from the base and not go to blue and green to in depth because that's a nightmare for upgrades.

SPEAKER_05: So I'm just saying that now so you can continue.

SPEAKER_05: Sure.

Unknown: We have a couple of slides left.

SPEAKER_03: Let's get through that and then we'll have some more discussion.

Unknown: Sure.

Unknown: So I think so for a project of this magnitude and complexity, IBM demonstrated the capabilities, experience, knowledge, standards needed for a successful outcome.

Unknown: That cost my life.

Unknown: Let's get into the detail.

SPEAKER_01: Remember the 80% technical threshold that I mentioned earlier.

SPEAKER_01: That means a vendor had to score 48 out of 60 points or higher to qualify for commercial evaluation.

SPEAKER_01: IBM was the only vendor who met the threshold with a score of 48.65.

SPEAKER_01: That threshold was an important safeguard to ensure that only highly qualified firm would advance.

SPEAKER_01: While only IBM advanced to commercial evaluation, staff conducted a comparative analysis of all qualified submission and pricing.

Unknown: At the proposed amount of 29.26 million, when compared to the range of pricing received, IBM's price is within 12% of median.

Unknown: Median was 28.72 million.

SPEAKER_01: IBM's pricing is 29.26 million with 1.85 differences.

SPEAKER_01: Therefore, IBM is recommended not just for its pricing, but also because of its iniquity meets the requirement technical standard for this complex project.

Unknown: In summary, this contract represents a critical step forward in SMART's effort to modernize our cost systems, ensure long-term operational stability, and deliver value to our customers.

Unknown: Based on thorough evaluation and strategic planning, we recommend awarding the contract to IBM a proven partner with the strongest capabilities.

Unknown: Before I end my presentation, I would like to thank Ken and Souchin from IBM who are here today.

SPEAKER_01: I also want to thank again to the entire 90, almost close to 100 employees who worked tirelessly in the last 12 to 14 months in this extensive RFP process.

SPEAKER_01: Thank you for your consideration and support.

SPEAKER_01: I'm happy to answer any other questions you may have.

SPEAKER_01: That concludes my presentation.

Unknown: Is there any questions?

Unknown: Yeah.

SPEAKER_03: And if that's okay.

SPEAKER_08: And I don't know if it's okay to share the information or not because I know the process is, you know, kind of not open to everybody.

SPEAKER_08: But what made IBM's score lower?

SPEAKER_08: Can we go back to the score sheet?

Unknown: Yeah.

SPEAKER_08: On environmental.

SPEAKER_08: They did 4.85 and the other two were fives.

SPEAKER_08: What was going on there?

SPEAKER_08: Sure.

SPEAKER_01: I would like to invite Austin to answer that question.

Unknown: Hello.

SPEAKER_14: My name's Austin Savin.

SPEAKER_14: I'm a senior procurement specialist on the IT team.

SPEAKER_14: They lost .15 points in environmental because they failed to distinguish between scope one and scope two emissions in a question that asked about how they reduced those emissions.

SPEAKER_14: Scope one is related to the greenhouse gas emissions caused by the direct operations of the company.

SPEAKER_14: Scope two emissions are related to sort of secondary emissions from that company related to like their fleet vehicles and things like that.

SPEAKER_14: And so they did explain how they reduced greenhouse gas emissions overall, but they didn't specify a difference between scope one and scope two, which is why they lost a little bit of points.

SPEAKER_14: I see.

SPEAKER_08: Thank you.

Unknown: Thank you.

SPEAKER_01: And I'd like to touch base with what Director Nancy asked.

SPEAKER_01: One thing we found out during this exploration phase, not one utility followed the same methodology.

SPEAKER_01: You called out Southern Cal Addison.

SPEAKER_01: Southern Cal Addison, their migration is from certain platforms are from legacy system to S4, where else for us, we already have the ECC environment SAP.

SPEAKER_01: And for us to move to S4HANA, we need to utilize the concept called SDT, which is migrating the existing data and the investment that we invested in this platform and save it in the newer platform with the newer data models.

SPEAKER_01: So that also is a very important piece in the success of the UAT and IAT in the future.

SPEAKER_01: So that's another factor we considered.

SPEAKER_01: While we are looking into different utilities, we talked beyond the three different utilities as well.

SPEAKER_01: And we found every utility has some differences.

SPEAKER_01: So we stay closer to this utility that almost closer to our environment.

SPEAKER_01: So NPPD is very close to our environment, which is moved from ECC to S4 and other utilities as well, just to give some perspective there.

Unknown: I don't understand what you just said, right?

SPEAKER_03: This SCE did an SDT migration and it's because they're so specialized, they were able to do it versus some other company?

Unknown: Yes.

SPEAKER_01: Okay.

SPEAKER_03: Anything else?

SPEAKER_06: So looking at the scores, so our minimum score on technical points was 48.

SPEAKER_06: IBM got 48.65 and number two got 47.55.

SPEAKER_06: And we're talking about a point difference and barely the winner barely got over that.

SPEAKER_06: So I mean, I do understand Dr. Bowie-Thompson's question here about, like, how did one just barely get above this line?

Unknown: It's very close.

SPEAKER_06: And then the, I don't know, I've never kind of seen anything like this, honestly.

Unknown: And the seed points are pretty close.

SPEAKER_06: The environmental is almost exactly the same.

SPEAKER_06: And the technical is almost exactly the same, really.

Unknown: So I mean, this is a big contract.

SPEAKER_06: And I don't know, it just feels a little odd to have them be that close together and have our line be that high that only one could barely eke it out.

SPEAKER_01: The scores that we're displaying here is a summarize of all the total scores.

SPEAKER_01: So we have seven technical criterias we set.

SPEAKER_01: Each of these technical criterias, we have an average of eight to ten questions on average.

SPEAKER_01: And scored by over 90 employees by work streams and by the modules they're in charge for.

SPEAKER_01: So even though the point showing is one point different, underlaying is like there's a lot of folks, our employees has scored that for different criteria.

SPEAKER_01: And what we found out, out of seven criteria, six out of seven in the proposals IBM was leading, compared to the second player.

SPEAKER_01: And seven out of the seven, compared to the second player, IBM was leading.

SPEAKER_01: So that's how this positioning of the points come up, actually, and where IBM stand out compared to the others.

Unknown: Well, thanks for explaining.

SPEAKER_06: Somebody has to win.

SPEAKER_06: But I mean, that's pretty darn close spread there.

Unknown: Let me, I'll say this, right?

SPEAKER_03: I saw this for the first time last week and pre-rooped it.

SPEAKER_03: My comments to staff echoed what both of everybody has said so far, which is why we got a supplemental memo briefing for this meeting.

SPEAKER_03: But I will say what you said.

SPEAKER_03: What questions are we asking that the top companies in the world are barely breaking 80 percent?

SPEAKER_03: The one isn't.

SPEAKER_03: They're barely breaking 80 percent of the technical points, right?

SPEAKER_03: I've certainly ridden and scored solicitations in my career, right?

SPEAKER_03: And you say, well, what are we asking for that they all forgot to include, right?

SPEAKER_03: This is clearly something that they do on an everyday basis in their business.

SPEAKER_03: I'm deeply concerned about not having the cost competition,

SPEAKER_03: because I frankly don't know if we're getting a good deal or not, or if we're getting totally ripped off, right?

SPEAKER_03: And that's, I don't think we are, but it's certainly a possibility.

SPEAKER_03: And then I think for me, the larger issue is we've been seeing too many contracts with these sort of questionable points here, little things here and there.

SPEAKER_03: I'd have to go back and look at our documents for the last year,

SPEAKER_03: but I feel like we're seeing too many of these where we're not just saying, yeah, that's fine.

SPEAKER_03: Where we're saying, hey, this looks a little odd.

SPEAKER_03: And then things shouldn't be coming to the board if the scoring is going to look a little odd to us,

SPEAKER_03: or we're going to bring up these comments, and that's at a higher level.

SPEAKER_03: I actually really understand your concerns. I really do.

SPEAKER_14: I think that one of the important things to remember here is this threshold and these questions and requirements were all written prior to the release of the RFP.

SPEAKER_14: So for us to sort of try to manipulate the points awarded actually would have probably been the wrong thing to do.

SPEAKER_14: And I understand that the really close scores here, CMOD, especially when they're centered around that threshold number of 48.

Unknown: I'd like to point out a couple of facts that are kind of interesting here.

Unknown: So in our initial written evaluations, it's common for us to get a really wonderful written evaluation.

SPEAKER_14: They get a lot of time to work with their teams.

SPEAKER_14: They get the best minds put together, and they deliver these really well-written proposals.

Unknown: I sort of felt a sense of relief from the team when they had the chance to meet with all these vendors,

SPEAKER_14: because during Deloitte's demo, to be frank with you, the team walked away from that feeling like they were not the right selection,

SPEAKER_14: and their scoring reflected that.

SPEAKER_14: And actually, pre-demo, just based on proposals alone, Deloitte scored 81%.

SPEAKER_14: They were above the threshold.

SPEAKER_14: But after they did so poorly in their demo, it brought them below that threshold, which we didn't expect, but that's how it panned out.

SPEAKER_14: And actually, we were trying to be extra inclusive during this process.

SPEAKER_14: HCL was just under that 80%, but we did the math and realized, hey, if they score 99 or 100 on this demo percentage-wise,

SPEAKER_14: they will achieve that minimum point threshold and move forward in evaluations.

SPEAKER_14: So we tried to bring all three of them forward.

SPEAKER_14: The scores showed the team's feelings towards those demonstrations provided.

SPEAKER_14: And again, I understand your concerns, but this is just the way that the scoring worked out.

SPEAKER_14: And we're just trying to be transparent here, and we're showing the honest results.

Unknown: Yeah, I'll leave it at that.

SPEAKER_14: Thank you.

SPEAKER_13: Why did you have the threshold to begin with?

SPEAKER_14: Sure. Yeah, I can speak to that.

SPEAKER_14: These thresholds are actually an important tool for us in procurement because there will be situations where,

SPEAKER_14: let's say a business unit has a decent understanding of the market, maybe some of the top players,

SPEAKER_14: and the solution that they're going to get as a result, some idea of what that's going to look like.

SPEAKER_14: In some cases, you'll see what could be called sort of a mom-and-pop shop, a smaller organization,

SPEAKER_14: just barely meet our minimum requirements, do fairly poorly in the technical evaluation,

SPEAKER_14: but then they have by far the lowest price, and they're awarded all the price points.

SPEAKER_14: And so we don't want to let everyone through to pricing evaluations unless they've shown us that they're technically adequate.

SPEAKER_14: And so that's the reason for the 80 percent minimum point threshold.

SPEAKER_14: And I actually just remembered what I was going to say a moment ago, which was, you know, to Nancy's point,

SPEAKER_14: we expect these vendors as the leaders in the world in this space to perform well, actually above 80 and maybe into the 90s.

SPEAKER_14: We're actually shocked that they didn't score better than they did.

SPEAKER_14: And I would say just to finish this off, that the requirements themselves weren't that restrictive.

SPEAKER_14: This is a result of these proposers' responses to our questions and our score of those.

SPEAKER_14: So it wasn't specific requirements that were, you know, exclusionary necessarily.

SPEAKER_14: It was just their performance and our score of the performance that led to these numbers.

SPEAKER_03: Director Fisherman?

SPEAKER_11: Thank you.

SPEAKER_11: All of the things that this organization does to keep the lights on, the IT side is probably my least knowledgeable area.

SPEAKER_11: I won't even get close to using the word expertise.

SPEAKER_11: And so I'm in the position of, you know, having to rely on staff and the process here.

SPEAKER_11: And, you know, the explanations we've heard.

SPEAKER_11: I think my colleagues have raised some great questions.

SPEAKER_11: And I think the explanations we've heard are, you know, valid and kind of get to the heart of the matter that, you know,

SPEAKER_11: the process is what the process is.

SPEAKER_11: The scores are what they are.

SPEAKER_11: And we go with the top scoring organization.

SPEAKER_11: And the others didn't quite make the mark.

SPEAKER_11: And I'm willing to go with that.

SPEAKER_11: So that's where I am.

Unknown: For me, it's not even that IBM did it.

SPEAKER_05: It's just that we only got one to review.

SPEAKER_05: And I think it's a fallacy of your process.

SPEAKER_05: And so I'm just going to say that.

SPEAKER_05: As someone who has done hundreds of these, you know, where we delivered literally four SUVs, this is back in the day,

SPEAKER_05: we had to do paper, that if our top scorer is barely making it, there is a flawed process here.

SPEAKER_05: And I know you had, and I read the memo, you had gobs of people.

SPEAKER_05: It's more than I've seen evaluate, which I think is great.

SPEAKER_05: My concern is, A, we didn't get pricing.

SPEAKER_05: And maybe at the end of the day, when it all shook out, IBM probably, you know, I know the pricing.

SPEAKER_05: This is within range.

SPEAKER_05: It's nothing extraordinary.

SPEAKER_05: My concern is that we set this up in a way that the top companies in the world and the one that we're awarding barely meets

SPEAKER_05: your minimum required.

Unknown: That's concerning to me.

SPEAKER_05: And demos are subjective.

SPEAKER_05: I sat in one here at SMUD where Siemens, which is, you know, top, bond in the demo, they had a bad day.

Unknown: Luckily, you know, it wasn't the final and we were just observing.

SPEAKER_05: But those are very subjectional.

SPEAKER_05: The questions you ask and the team that's flown out could not be the team, you know, whatever the case is.

SPEAKER_05: It's all very subjectional.

SPEAKER_05: So when you get to the demo phase, what I'm concerned is the structure of it, that that's how you did this technical to get pricing.

SPEAKER_05: And so just generally, whoever, I mean, I feel like there's a bit of a shuffle with procurement.

SPEAKER_05: But how you set it up, I see this as flawed.

SPEAKER_05: That only one makes it to the end.

SPEAKER_05: This is $35 million or 32.

SPEAKER_05: And that we only see pricing for one.

SPEAKER_05: Again, if you had probably priced all three, most likely, IBM, because of their technical score and the other areas, right, seed was pretty high too.

SPEAKER_05: They probably still would have made it.

SPEAKER_05: But that's not where I have issues, is that we didn't even get to see, and you didn't get to see what that final scoring was or present that to us.

SPEAKER_05: And that, to me, tells me that there's an issue with the procurement process and the questions that were delineated and that you would put this technical score the way it is, because it doesn't give me a lot.

SPEAKER_05: And the thing is, I know IBM is an amazing company.

SPEAKER_05: I grew up in Sunnyvale.

SPEAKER_05: I've been around.

SPEAKER_05: They will do a fantastic job, I am sure.

Unknown: But to have our vendor squeak by at our minimum threshold tells me that there is something wrong with how we set that up.

SPEAKER_05: And so I would like to see what the scoring would have been if you scored Deloitte and HCL past their demo to see at least where their pricing would have been.

SPEAKER_05: I would not feel comfortable any time soon moving this, and I'm one person.

SPEAKER_05: I just want to see it from my own, because I just would never have created an RFP that would have come out this way, that it was so arduous that the winner is like C minus getting across the line.

SPEAKER_05: That doesn't give me faith in the process or how it ended up.

SPEAKER_05: I would have hoped the top company would have been exponentially higher and well above our minimum, because when I think of minimum, I think of C-level work.

SPEAKER_05: I'm reasonably on board with that, but I'd like to hear what the staff perspective is.

SPEAKER_03: Is that a reasonable request that can be done?

Unknown: I can just maybe comment on that a little bit.

SPEAKER_07: In development of the RFP, we did consult with industry advisors, including InfoTech and Gardener, in developing the RFP.

SPEAKER_07: SAP also reviewed the RFP, and we were fairly confident in what we put together, what the team put together, in the 12 months that we took to develop this RFP.

SPEAKER_07: I think you've heard from staff in terms of the amount of people that were involved in the process, 96 evaluators across the organization.

SPEAKER_07: We had the written piece of it, which Delight did well, and we had the oral presentations where they fell short.

Unknown: When we developed the RFP and set the 80 percent threshold, I don't think anybody thought that we would only have one entity meet the threshold,

Unknown: but that's what we put in the RFP, and IBM is the only one that met it.

SPEAKER_07: We can certainly, I believe, bring this back in November, but my understanding is that because of what was in the RFP and the thresholds, we can't change the scores.

SPEAKER_07: We'd have to start all over again with the process.

SPEAKER_07: Again, we're comfortable with the pricing, although we didn't evaluate the pricing across the board, we did receive the initial pricing,

SPEAKER_07: which reflected that IBM's price was among the medium, and then the team did a great job of negotiating with that pricing down.

SPEAKER_07: Maybe we could provide a little bit of detail around that, and then as noted earlier, they also received a significant amount, I think the highest amount of seed.

SPEAKER_07: I don't know that the outcome would have been any different.

SPEAKER_05: I can't change the process, but for me, I would like to see what this would have been.

SPEAKER_05: We just FY in the future, 80 percent, I've seen that, but it does not build confidence in me that the vendor that we're choosing barely made the technical score.

SPEAKER_05: So there's something that went awry.

SPEAKER_05: So you can guess, Gartner and whatever, but I just would like to see the numbers.

SPEAKER_05: It is what it is, but just for the future, I mean, it's a problem, and I hope there is a review because our winning vendor should not have barely met our minimums.

Unknown: I have both Director Kurth and Director Sam Borden.

Unknown: Yeah, after hearing staff's explanation and knowing where we are and how long it took to get here, and we can't change this process, and the importance of getting this done, I mean, this is not the – as the Chair said, this is not the first time we've had a contract issue in the last few months,

SPEAKER_06: and I think that's something we could maybe talk to our CEO about, and getting more confidence, or at least the information presented to us in a way we feel like we've got the whole picture in the future, or things are done in a way that we're comfortable with.

SPEAKER_06: But I would be ready to move this because it sounds like this was a ton of work, and we've got a good outcome, and you're confident that this was a fair process, and we're getting a good deal.

SPEAKER_06: But this is also an important thing for us to move on and get done for the reliability of our entire program, and I always say the IT system is the brains of the operation, and it is.

SPEAKER_06: So I would be ready to move it.

SPEAKER_06: I think we need to have a board discussion about the contracts and how we avoid these sort of situations in the future. Thank you.

Unknown: Thank you. I have a question. So the two that were excluded from the commercial evaluation, how much work goes into the commercial evaluation? What was saved by not including them?

SPEAKER_14: It's not so much the effort saved by SMUD staff. It's more related to us not wanting to give, frankly, a chance to someone that's not technically qualified.

SPEAKER_14: So I actually have the results that Director Bowie-Thompson is looking for here, and it actually demonstrates the need for a minimum point threshold.

SPEAKER_14: If we select yes and allow HCL and Deloitte to move forward, the ranking goes HCL, IBM, Deloitte. HCL has a significantly lower technical point score.

SPEAKER_14: They did not meet that minimum of 80% of technical points achieved, and so we would be in that situation where we're awarding to someone because they had by far the lowest price and gained all of the price points while not doing very well technically.

SPEAKER_14: And so that threshold eliminates them from consideration.

SPEAKER_14: Okay.

SPEAKER_14: But I can reassure you that the second place was still IBM.

SPEAKER_14: Okay. Thank you. And just to the issue at hand, there's a lot of work got us to this point here, and I understand there's – it's, again, awkward or odd to have just one sort of team make it through to the end.

SPEAKER_13: And so maybe there's some review there that staff needs to do to how we end up in this predicament.

SPEAKER_13: But there's a lot of work went into getting us here.

SPEAKER_13: We need this project to keep it scheduled.

SPEAKER_13: You know, we've got a great team.

SPEAKER_13: I mean, they did score the best.

SPEAKER_13: So we might be a little bit worried about the price, but I understand it was leased in the median area.

SPEAKER_13: And this is not the most costly item we're spending on this transition.

SPEAKER_13: So thanks.

Unknown: Since June of this year, till end of September, early October, we've been discussing on SOW very extensively, including commercial evaluations.

SPEAKER_01: And multiple rounds of commercial evaluations was discussed to map the scope and the SOW.

SPEAKER_01: So it was a pretty extensive work right after we identified the SI to work on.

SPEAKER_01: Just to answer the question there from that perspective, a lot of work has gone in to ensure not only we've done the due diligence at the technical scoring level,

SPEAKER_01: when the contract on SOW being planned and executed, we have to protect the program.

SPEAKER_01: So we spent a lot of time discussing about SLA penalties and all the commercial related items as well.

SPEAKER_01: In that discussions, we're able to bring down the original pricing from IBM down by significant dollars as well.

Unknown: I just want to clarify.

SPEAKER_05: I didn't mean that I wanted to bump it.

SPEAKER_05: I said I would not feel comfortable voting for it next week without this information.

SPEAKER_05: So I want to be clear.

SPEAKER_05: I also want to be clear that I am concerned about this process because you get even better pricing when you have more people bidding.

Unknown: And being said, hey, there's three bidders that have made it.

SPEAKER_05: What's your best and final instead of you're the last one standing.

SPEAKER_05: Or however you phrased it, maybe you didn't tell IBM that they were the last.

SPEAKER_05: I hope you didn't.

SPEAKER_05: But I just, you know, this is yet another contract.

SPEAKER_05: I get lots of great minds, but you see what happened, right?

SPEAKER_05: This is not ideal.

Unknown: It's not ideal to not have several people fighting for a final product.

SPEAKER_05: And I'm sorry, 45, being 75%, this also tells me that our, however was scored,

SPEAKER_05: was challenging because HCL also is a very capable company.

SPEAKER_05: And so I just want to be clear that I just wanted to be on public record.

SPEAKER_05: I'm not pleased with how this was set up from the get go because the results have shown that there was something flawed in the process that our top bidder barely meets our 80%.

SPEAKER_05: And so I just want the number so I can see what it would have been.

SPEAKER_05: I know you verbally said it, but I'd like to see the finances because I've always been on the other side too, given more when I've known there's more people with possibly better pricing.

Unknown: I have one more comment, right?

SPEAKER_03: And for me, I call it OPM, other people's money, right?

SPEAKER_03: And there's a lot of money up here relative to our overall budget.

SPEAKER_03: It's not, but it's a lot of money, right?

SPEAKER_03: And it's coming from our rate payers.

SPEAKER_03: And so I feel a strong fiduciary to ensure we're getting the best value possible.

SPEAKER_03: And I know, like, on this contract, the price points are 25.

SPEAKER_03: Most of our contracts, it's no more than 40.

SPEAKER_03: I think that's potentially one area that we definitely want to take a look at in the long run, not for this one, to make sure we're getting good pricing on our contracts.

SPEAKER_03: It's something that's concerning me, and we're going to have a budget presentation that we need to get to.

SPEAKER_03: And you're going to hear me going on about budget benchmarking too, right?

SPEAKER_03: Like, we need to follow the dollars and cents.

SPEAKER_03: It sounds like if you email over some of this cost data, it will be because I'm okay at taking this to the board meeting, but I would also like what Director Bowie-Thompson is asking for.

SPEAKER_03: Is there any other comment?

SPEAKER_03: Director Tamayo, Director Herver, are you both on board with moving this forward?

SPEAKER_03: Do you have any other comments?

Unknown: I am on board with moving it forward.

SPEAKER_08: I join Director Fishman in not understanding the IT world.

SPEAKER_08: But I do think it is important that we move forward.

SPEAKER_08: I do trust that staff has done a good job and picked the provider that they think is best.

SPEAKER_08: I do think Director Bowie-Thompson's concerns about the process should be looked at, but I'm on board.

Unknown: Okay.

SPEAKER_03: It sounds like we'll help you on the consent calendar.

SPEAKER_03: Thank you.

SPEAKER_03: It's your email.

SPEAKER_03: All right.

SPEAKER_03: Thank you, guys.

SPEAKER_03: And thank you, everybody.

SPEAKER_03: And no, as you pointed out, there's like 100 staff involved in this over, like, a year.

SPEAKER_03: So it's a lot of work.

SPEAKER_03: That's for sure.

SPEAKER_03: I appreciate it.

SPEAKER_03: I've been in these processes before.

SPEAKER_03: I know how much work it is on the staff's side.

Unknown: Okay.

SPEAKER_03: Is there any public comment on that item?

SPEAKER_03: No, there's not.

SPEAKER_03: Okay.

SPEAKER_03: I didn't think so.

Unknown: So let's jump.

SPEAKER_03: Item number three has been pulled.

SPEAKER_03: So let's jump to item number four.

SPEAKER_03: And this is a budget preview from Michelle Kirby, our Director of Enterprise, Energy, and Planning.

SPEAKER_03: Welcome.

Unknown: Thank you, Director Rose.

SPEAKER_04: And good evening, board members.

SPEAKER_04: As you mentioned, my name is Michelle Kirby.

SPEAKER_04: I'm Director of Enterprise, Strategy, and Planning at SMUN.

SPEAKER_04: I'm here to provide the board with our preview of our 2027 proposed budget.

SPEAKER_04: This is the first time I'll be here in front of the board, really the opportunity for us

Unknown: to give you an early preview and get the board's feedback and any questions you may have before

SPEAKER_04: I come back with a full presentation in November.

Unknown: Please note that we are still finalizing the budget.

SPEAKER_04: So I'll go through a lot of numbers, but some of them may change before I come back in November

SPEAKER_04: for the full presentation.

Unknown: All right.

SPEAKER_04: Next slide, please.

SPEAKER_04: All right.

SPEAKER_04: The agenda for tonight, I'll start with MUD's 2027 priorities.

SPEAKER_04: We'll go over our major initiatives and spending and talk about how we maintain our financial

SPEAKER_04: security.

Unknown: Then I'll go over our 2027 budget summary.

SPEAKER_04: We'll go over our O&M, our capital, and our commodity spend.

SPEAKER_04: And then the next steps in the process.

SPEAKER_04: And I finished the presentation tonight with our key messages.

Unknown: Next slide.

Unknown: All right.

SPEAKER_04: I want to start by emphasizing that the board's vision and strategic direction are really

SPEAKER_04: what drives MUD's priorities and our initiatives.

SPEAKER_04: While we recently welcomed our new CEO and three new executives to the team, our commitment

SPEAKER_04: to the community and as our stewards of a vital community asset remain the same as we

SPEAKER_04: deliver a balanced energy transition.

SPEAKER_04: So each of the priority areas that you see above are representative of all of the strategic

SPEAKER_04: direction as you see noted in any of those boxes in the four areas.

Unknown: So as part of our foundation, we invest heavily in our grid infrastructure, providing power

SPEAKER_04: and service to our customers that they can count on.

SPEAKER_04: And it is important for us to build a sustainable future with our green or clean energy

SPEAKER_04: investments.

SPEAKER_04: And that's whether that be through the energy contracts that we procure or the programs

SPEAKER_04: that we ask our customers to join in this journey along with us.

SPEAKER_04: Customer, delivering an excellent customer service is really critical to us, and we want

SPEAKER_04: to ensure that our customers get the value for what they pay.

SPEAKER_04: Along with that, it's important for us to invest in our employees, our culture, and

SPEAKER_04: making MUD the best place to work.

SPEAKER_04: Because we know that employee experience directly translates into our customer and

SPEAKER_04: community experience.

Unknown: As for the economic engine, MUD has an important role to play in our economic development,

SPEAKER_04: and there are significant benefits not just to MUD but the greater region as a whole.

SPEAKER_04: Underscoring all of that is supporting our priorities as prudent financial strategy.

SPEAKER_04: The financial discipline we institute today will preserve our ability for our customers

SPEAKER_04: to affordably and invest into customer affordability and invest in our reliable and sustainable

SPEAKER_04: future for tomorrow.

Unknown: So as a community owned not-for-profit utility, we're committed to keeping our rates low while

SPEAKER_04: providing the most value for every dollar that we spend.

Unknown: Next slide, please.

SPEAKER_04: Thank you.

SPEAKER_04: All right.

SPEAKER_04: Reliability is critical to our customers.

SPEAKER_04: Therefore, we continue to invest in our infrastructure and maintain a reliable grid for today and

SPEAKER_04: into the future.

SPEAKER_04: You can see at the top here a large investment.

SPEAKER_04: We have $185 million for our substation capital.

SPEAKER_04: We're spending that across our different substations.

SPEAKER_04: So we have a substation J, $68 million, and that's to support our expanding downtown network.

Unknown: And we're finishing up our substation upgrade in El Rio or the Alberta substation in the north area.

SPEAKER_04: And when that comes online in 2027, that will help us interconnect our Country Acres renewable project in

SPEAKER_04: the north area.

SPEAKER_04: The last one on there is $20.5 million for the UC Davis Medical Center primary and backup service.

SPEAKER_04: We're supporting UC Davis as they move from their co-gen plant as part of their zero carbon plan.

SPEAKER_04: The great thing about this is this project is fully reimbursable.

SPEAKER_04: And so we'll get upfront payments from UC Davis.

SPEAKER_04: So we're not having our ratepayers shoulder the burden of providing this service.

Unknown: As we go down the list, we have $64 million for our Folsom Administrative Office Building Project.

SPEAKER_04: And this is really to continue this project and ensure that we're providing a new reliable operations building.

Unknown: $50 million for our vegetation management, making sure that we're removing any hazardous overgrowth around our

SPEAKER_04: infrastructure, providing public safety, and reducing our wildfire risk.

SPEAKER_04: This one I like to highlight is the OPEX.

SPEAKER_04: And the other thing in here is our staff was able to negotiate lower cost contracts for our vegetation management for the

SPEAKER_04: same amount of work that we're doing.

SPEAKER_04: We have $36 million for pole and cable replacements.

SPEAKER_04: And again, this is also an opportunity where we're able to leverage the grants that we get from our CERI grant from the CEC.

SPEAKER_04: About $9 million more of grant funds will offset that $36 million cost.

SPEAKER_04: As well as our grid infrastructure, as you guys mentioned earlier this evening, our technology infrastructure is very critical.

SPEAKER_04: So as we were just discussing, we have $34 million for our S4 HANA upgrade to ensure that we're upgrading our core operations.

Unknown: And the last item on the list under infrastructure is $5 million for our dam safety.

Unknown: Yes.

Unknown: I think these things, this is just a general comment on budget stuff.

SPEAKER_06: We get these millions thrown out.

SPEAKER_06: And without context of what it was against the last budget, like for vegetation management, is that up?

SPEAKER_06: Is that down?

SPEAKER_06: If so, how much?

SPEAKER_06: That would be helpful to just give context about.

SPEAKER_04: Absolutely.

SPEAKER_04: So when I come back in November, a lot of the slides you'll see that comparison, especially at the high level of what was our O&M

SPEAKER_04: spend last year and comparably to this year, I'm happy to answer those questions.

SPEAKER_04: For veg management, we're about $1.7 million less than we were last year in terms of those costs.

SPEAKER_04: Surprising.

SPEAKER_06: Okay.

SPEAKER_06: And then like for dam safety, why just dams?

SPEAKER_06: It feels like people are shooting at substations, transformers.

Unknown: There's a tax coming, it seems like, for all of our hardware.

Unknown: Yes.

SPEAKER_04: So actually, I don't know, this slide looks like one of our not updated slides.

SPEAKER_04: So we do incorporate it later with all of our hydro improvements.

SPEAKER_04: But in terms of our facilities costs, we also do cover some of the safety, physical safety.

SPEAKER_04: I just think that's something that we have to really pay attention to in this next budget, is making sure we've hardened everything for safety with all the threats out there in the world and people targeting utilities.

SPEAKER_06: Okay.

SPEAKER_06: Thank you.

SPEAKER_06: And more if I could, again, our chief energy and grid operations officer.

SPEAKER_10: So the dam safety and that portfolio of projects really comes out of a FERC obligation, so regulatory obligation.

SPEAKER_10: Recently, we performed comprehensive inspections of all our dams and they identified some items that were actually going to mitigate and reduce the risk there.

SPEAKER_10: So those dam safety projects really border some compliance requirements as we work with our regulators and our license requirements there.

SPEAKER_10: But-

SPEAKER_06: Federal compliance thing more than it is, are just trying to hurt and protect our system.

SPEAKER_06: That's correct.

SPEAKER_10: It's not directly related to like a physical or cyber security risk, but-

SPEAKER_02: I'm a member of the chief diversity officer.

SPEAKER_02: When we go through the SC16 presentation, we'll be able to provide an overview of the existing safety mitigation measures we have, both at the cyber and physical security, which will incorporate what Josh discusses well.

SPEAKER_02: They'll be more comprehensive.

SPEAKER_02: So we'll go through that as well.

SPEAKER_02: But I think you also hear Michelle talk about there'll be an overall umbrella discussion in budget as well.

Unknown: All right. Thank you.

SPEAKER_04: Let's go to the next slide, please.

Unknown: All right.

SPEAKER_04: We're committed to a continuous decarbonization, advancing our clean energy transition while keeping affordability, reliability, and sustainability in balance.

SPEAKER_04: Our clean energy future entails much more than just removing carbon from our power supply.

Unknown: Electrification of both buildings and vehicles are an important part of our budget.

Unknown: And you'll see that reflected here as they're two of our largest carbon emitting sectors in California.

Unknown: At the top, you see over 270 million for renewable commodity contracts, such as our Senzia Wind, Country Acres that'll be online next year, and Dry Creek for our solar and battery projects.

SPEAKER_04: We're spending 55 million for customer building electrification and energy efficiency.

SPEAKER_04: We want to continue to be a leader in the region's transformation to a clean power city for our customers.

SPEAKER_04: This $55 million includes launching new rebates, developing a contractor tool for customized proposals, and updating our smart home offerings so we can serve our multifamily and affordable housing projects.

SPEAKER_04: And I think for context, I want to recall Director Sanborn, I think we spent about $47 million last year in this area.

SPEAKER_04: And all of these, in building electrification, load flex, and electric vehicles, we are spending more this year than we did last year.

SPEAKER_04: And that aligns with our commitment to the community in terms of decarbonization.

Unknown: All right. We continue to invest in our local, sorry, in our hydro capital improvements and upgrades. We have $49 million there.

SPEAKER_04: And that was inclusive of the previous dam safety that actually got moved to the slide.

SPEAKER_04: So here we're wanting to extend the life of our existing assets. You heard a presentation from Director Langdon earlier.

SPEAKER_04: And this is really supporting the maintenance of one of our cleanest resources, our hydro assets in Europe.

SPEAKER_04: We're continuing to upgrade our legacy fire protection systems at all of our powerhouses and our transformer replacement projects.

Unknown: All right. We're spending $31 million for local and regional renewable projects to meet our California RPS.

SPEAKER_04: We're going to be doing a couple of our best standards. And this one is, I really want to note, is Country Acres.

SPEAKER_04: We're bringing on our 344-megawatt solar and 172-megawatt four-hour battery project in Q1 of 2027.

SPEAKER_04: So this will power the equivalent of 105,000 homes in Sacramento region with renewable energy.

Unknown: We're continuing to promote electric vehicle adoption with $20 million in our customer electric transportation programs.

SPEAKER_04: With a whole host of programs, some of the highlights will be launching our customer EV app alongside our public charging network program with pricing discounts for our low-income customers.

Unknown: We'll reinstate our dealership engagements, increase our charge at home electric circuit incentives up to $750, and we're launching our residential EV managed charging programs.

SPEAKER_04: And under this bucket, we'll also continue to finish out our two EV grants, the FAST and the REACH 2.0 grant.

SPEAKER_04: So we will see our DC FAST chargers in Q1 of next year at high traffic corridors in areas like the Sacramento Airport, Amtrak, and Sac State.

SPEAKER_04: As part of the REACH 2.0 grant, we expect to put in 400 new level two chargers in multifamily housing and strategic neighborhoods throughout the city of Sacramento.

Unknown: We have $15 million for our customer load flexibility, including our batteries.

SPEAKER_04: So we're continuing our popular My Energy Optimizer, MEO Partner Plus, our battery incentives that were very popular this year.

SPEAKER_04: It will be a slightly lower incentive as we go into next year, but are continuing that popular program.

Unknown: We're also launching our commercial virtual power plant, our commercial VPP pilot, and we're getting offering incentives to expand our battery options.

SPEAKER_04: And our last item on there is $5 million as we enter the extended day ahead market in, I think, I believe the end of 2027.

SPEAKER_04: So that will give us the opportunity, possibly purchase lower price commodities during certain hours of the day.

Unknown: Quick question on this slide.

SPEAKER_11: $55 million for building electrification, $20 million for EV electric vehicle stuff.

SPEAKER_11: We get more bang for the buck carbon reduction wise from EVs and buildings, I think.

Unknown: And I'm wondering why that disparity in spending.

SPEAKER_11: If you can explain it or somebody else sitting around the dais?

Unknown: I'd have to get back to you on that.

SPEAKER_04: I know these are kind of the split between the two that we've historically had.

SPEAKER_04: And as I mentioned, as you look back, and I can as we'll talk in November, looking at those budgets, we are increasing both of them.

SPEAKER_04: I'm assuming, I mean, building electrification is still more expensive and harder.

SPEAKER_11: So it costs more.

SPEAKER_11: And I'm fine with that if that's the reason why.

SPEAKER_11: Just a question.

Unknown: Yeah, my recollection was that was what Dr. Ayala told us.

SPEAKER_06: Yes, yeah.

SPEAKER_11: I mean, EVs or vehicle emissions are still, I mean, it's the lion's share of the carbon.

SPEAKER_11: So just a question.

SPEAKER_11: Thank you.

Unknown: Thank you.

Unknown: All right, next slide.

Unknown: All right, when we talk about customer employee care.

SPEAKER_04: As I mentioned, when we ensure that our employees' work experiences are better, safer, and easier, we can see that translate into delivering exceptional care for our customers and our community.

SPEAKER_04: So we'll talk about what we're investing in this area, about $21 million for our community impact plan that we continue to fund into the future and our community engagement.

SPEAKER_04: So we're continuing our business and residential electrification walks, standing up new partnerships with healthcare organizations that help educate our customers on the non-energy benefits of electrification, especially with those customers with certain health conditions, and then partner them with SMUD and some of our incentives and rebate programs.

Unknown: And we'll continue our solar and storage for nonprofits pilot program.

SPEAKER_04: We're investing $11 million for our employee training and engagement.

SPEAKER_04: That includes a whole host of opportunities, SMUD's Power Academy to maintain our apprentice pipeline, our career development and learning, and investing a lot in our change management team to help the organization navigate a lot of the process and technology transformation that we'll have in 2027, as well as our employee engagement activities.

SPEAKER_04: We're investing $8.4 million in our customer assistance programs, so that's continued support of our customer energy delivery and our residential assistance delivery, or kind of our standard program offerings there.

Unknown: And we're investing $3.4 million in our digital customer experience improvements. So this is really online.

SPEAKER_04: So we are improving our My Account experience for our customers, and we'll finish our migration of our residential customers from the old platform to the new My Account.

SPEAKER_04: We're also implementing this phase two improvements that were requested by customers, so that includes increased accessibility to some of our programs and offerings on a mobile device.

SPEAKER_04: And we'll be implementing our community assistance agency portal.

Unknown: All right. It's one of investing $1.7 million in our regional workforce development.

SPEAKER_04: This includes partnering with more than 50 education and workforce organizations and training thousands for careers in our clean energy economy.

SPEAKER_04: We host regional STEM events, and we work with our Sac State students and really want to ensure that they can explore different career pathways.

SPEAKER_04: On the regional workforce efforts, excited to talk about serving our underserved communities to look at career opportunities in the energy industry.

SPEAKER_04: So this includes things like the Utilities Vegetation Management Program, our partnership with the sheet metal local 101 to train more HVAC technicians and promote our heat pump conversions, and a four-year electrician pathway support program.

SPEAKER_04: Additionally, we're making SEED, our SEED program, easier for our local and small businesses to interact with us.

SPEAKER_04: We're launching a new video registration tutorials, and we're also translating our new campaign and outreach materials into 10 different languages so our customers can interact with us.

SPEAKER_04: Finally, we're spending $1.7 million in community and solar partnerships with schools. This is our Solar for Schools program.

SPEAKER_04: We're working with two school districts, Sacramento City Unified and Twin Rivers Unified School District, and combining solar and energy storage systems at both Hiram Johnson and Grant Union High School.

Unknown: The final priority area that I'll talk about tonight is our economic engine, where we're powering the Sacramento region for a more prosperous, resilient, and sustainable future.

SPEAKER_04: Keeping our rates affordable means that customers are able to keep more of their household income and 1.5 billion stays in our community to support our families.

SPEAKER_04: According to a study conducted by GSEK, SMUD generates an average annual impact of $3.4 billion in our local economy through our operations and contracting activities.

SPEAKER_04: We believe that impact can be even greater with all of our partnerships with our nonprofits and community outreach efforts.

Unknown: How do we power the economic engine? We have $29 million for our diversified business under SD19.

SPEAKER_04: That's where we're providing operational support to our community-choice aggregators, and we're building strategic partnerships to support those that have shared goals around advancing new technologies and strengthening the local economy.

SPEAKER_04: Like the image you see there of Peak Energy, our partnership with them, and I think many of you attended the ribbon cutting in July.

Unknown: So, Peak Energy is bringing the region's first commercial gigafactory for sodium ion batteries to the Sacramento region.

Unknown: We'll invest $7 million for research and development for emerging technologies that benefit our customers and our community.

SPEAKER_04: We've got a lot of cool pilot projects coming into the next year.

SPEAKER_04: The Smart Panel Cluster Pilot, we're deploying the SPAN smart panels at heavily loaded transformer locations so that we can leverage load flexibility of the smart panels to alleviate some of our distribution capacity constraints.

Unknown: We're doing school bus demos and trying to demonstrate our ability to implement our V2G or vehicle to grid, so taking the batteries and putting that back onto our grid, and our managed charging, or V1G demonstrations, where we can manage the best time that they charge the school buses.

SPEAKER_04: We're working with Peak Energy on the construction of a 750kW 9-megawatt-hour demonstration battery at the hedge facility.

Unknown: And a whole host of other pilots that we have.

SPEAKER_04: We'll invest $3.3 million for programs that bring our customers along with us on our journey towards our sustainability goals, such as the My Energy Optimizer Program, which helps our customers save money as they turn their customer thermostats down just a few degrees during peak event days.

Unknown: Finally, we plan to invest $2.3 million for economic development to strengthen our economic health, investments in our Sustainable Communities Program, through initiatives such as the Regional Economic Development Implementation of the Newmark Study, and our Regional Startup Ecosystem, which fosters business growth, innovation, and talent development.

SPEAKER_04: Alright, the study you just mentioned, the Newmark Study.

Unknown: Have you been presented with that?

SPEAKER_06: Sure. I was able to come in as Chief Diversity Officer.

SPEAKER_02: So, one of the efforts that SMUD has been working with as part of our regional partnership for economic development is we've worked with GSEK and with Valley Vision on commissioning a study on how we can identify how to better bring economic development dollars to the entire six county region.

SPEAKER_02: Newmark is the consulting firm that put the study together and laid out some key criteria that we could do to better compete with similar sized markets in the West Coast.

SPEAKER_02: So, really this is a focus on activating on those priority areas. Workforce development is a key area. There's also regional alignment around core goals.

SPEAKER_02: The peak example that's here on the screen is the example of the type of businesses we want to align around.

SPEAKER_02: So, the executing on the study is a holistic economic development approach for the region.

Unknown: Is that a comment?

SPEAKER_02: Yes, the study was completed, I want to say second quarter of this year, and was essentially commissioned by GSEK and Valley Vision with support from SMUD.

SPEAKER_02: And it includes SAC County, City of Sacramento, Folsom, including a number of regional partners.

SPEAKER_02: So, that money would go to implementing it?

SPEAKER_02: Yes, our component of implementing that plan.

SPEAKER_02: Gotcha, thank you.

Unknown: Thank you.

Unknown: Alright, next slide.

Unknown: So, I've covered our major initiatives and our spending areas, but really what enables us to entertain all of this work is our prudent financial strategy.

SPEAKER_04: Keeping our rates manageable, or cost manageable, ensures the rate stability for our customers.

SPEAKER_04: So, how do we go about doing that?

SPEAKER_04: The organization has implemented strategic planning and prioritization tools that help us scenario plan and determine how we best balance our spend in our regulatory compliance versus the board's strategic directives.

SPEAKER_04: We're constantly balancing our funding, our short-term needs, versus preparing for our long-term goals.

SPEAKER_04: We have an OPEX team that's dedicated to driving initiatives that reduce costs and finding opportunities to increase efficiency across the board.

SPEAKER_04: And the outcomes of that is really focusing on keeping our O&M dollars low or stable, and that's our O&M dollars are really what has the biggest impact on our rate increases.

SPEAKER_04: So, it's a very important area.

SPEAKER_04: We also have a dedicated grant strategy team, and their focus is on obtaining both state and federal grant funding to offset our existing O&M and capital expenses.

SPEAKER_04: Finally, we have several rate stabilization funds that help us manage changing business conditions, market volatility.

SPEAKER_04: If we have a low water year, we can go and leverage our stabilization funds so that we're not having to go back to our customers and ask for rate increases.

SPEAKER_04: So, as you can see, rate stability and customer affordability are top of mind for us.

SPEAKER_04: We have taken several measures to ensure strategic investment planning and minimal impact to our customers in times of market volatility and resource uncertainty.

Unknown: Next slide, please.

Unknown: All right. So, I will give you an overview of our 2027 budget summary.

SPEAKER_04: These are an overview of our major initiatives by funding type. It's not an exhaustive list, so if you add them all up, they don't need to call the number at the top.

SPEAKER_04: Otherwise, it would be a very long list of, you know, one and two million dollar pieces of work.

SPEAKER_04: So, on the left, you'll see our O&M and public good budget. We have 879 million for 2027.

SPEAKER_04: Some of the highlights in the O&M and public good are power generation and grid operations and maintenance at 378 million, our customer in building electrification and energy efficiency at 55 million, property casualty and other insurance at 52 million.

SPEAKER_04: And as I mentioned earlier, our veg management costs at 50 million, and community impact plan and engagement at 21 million in our customer electric transportation programs at 20 million.

Unknown: On the right-hand side in the green, you'll see our capital investments of 673 million in 2027.

SPEAKER_04: Some big areas are our substation capital, 185 million on our big substation upgrades that I mentioned earlier, and 67 million on our capacity and new service projects.

SPEAKER_04: 64 million on our Folsom administrative office building, 49 million on hydro capital improvements, and 36 on pull and cable replacement, and 31 on our renewable projects.

Unknown: The last bucket in that yellow golden color is 636 million dollars for our commodity, 271 million of that on clean energy commodities.

SPEAKER_04: So that's wind, solar, biogas, and battery storage, all to help support our clean energy transition goals.

Unknown: Any questions?

Unknown: Okay, next slide.

Unknown: So tonight is the first of several opportunities. We'll get to talk about the budget.

SPEAKER_04: As I mentioned tonight, just a high-level preview of our priorities and our major spend areas.

SPEAKER_04: I will be back on November 17th serving in the interim CFO role and present you to the full 2027 proposed budget with all of the details and comparisons to last year.

SPEAKER_04: And we'll get into some of the pro forma financial statements.

SPEAKER_04: Before that, we want to make sure that we post all of the materials available to the public November 11th. Those will be available on smud.org.

SPEAKER_04: And you should have received inquiry from the board office inviting you to talk to staff between the first two weeks of November prior to our next committee meeting.

SPEAKER_04: If you want to talk to us, ask questions, give us some feedback, and we're happy to delve into those details with you and the finance staff.

SPEAKER_04: Like I said, I'll come back November 17th, and then I'll be here one more time on December 10th to get the board's vote for approval of the SMUD budget for 2027.

Unknown: All right. My last slide here.

SPEAKER_04: As I wrap up tonight, I want to reiterate that our priorities, approach, and continued commitments into 2027 as stewards of a vital community asset, we have strong investment in our infrastructure.

SPEAKER_04: It is important for us to maintain a reliable grid, not only for today, but into the future.

SPEAKER_04: SMUD's commitment to clean energy investments along with community involvement are key to delivering our balanced energy transition as we move from a sprint to 2030 to enabling continuous decarbonization.

SPEAKER_04: It's critical for us to deliver exceptional customer and employee experiences. The care that we show our people will translate directly into the care they show for our community as a whole.

Unknown: All of this comes together as we fuel our economic engine to power the Sacramento region for a more prosperous, resilient, and sustainable future.

Unknown: After tonight's presentation, I hope you find that our budget is reflective of our commitment to execute on SMUD's vision while maintaining our prudent financial management to ensure we're able to continue to offer affordable rates to our customers.

Unknown: Thank you for your time. That concludes my presentation. I'm happy to answer any questions you may have.

Unknown: All right. Does there any? I know we have one public comment. I have a couple of questions and some commentary. Does anybody have anything?

SPEAKER_03: A couple of things. One, on the building electrification number, I suspect there's some grant money in there. It seems much higher than we would normally spend.

SPEAKER_03: I'll sit down with you guys before the budget meeting.

SPEAKER_03: But that caught my eye. I think the investment in the hydro is a good thing. Certainly, the facilities are getting old. It's important that we continue to invest in them and make that a priority.

SPEAKER_03: I'll be curious to hear a little bit about what our natural gas spend number is estimated for next year as well, something I look at.

SPEAKER_03: And then in terms of savings and benchmarking and just general inflation fighting, which is a never-ending battle, you mentioned the OFDEX, but I'll be curious to see some details around what are some of our successes in the OFDEX over the last previous budget year.

SPEAKER_03: And some of the areas we're focusing on in the future. And then there was no mention of AI. And I'll be curious to have a touch on our plan on how AI can help us reduce our costs and improve our level of service as well.

SPEAKER_03: And those are the main things that pop into my mind with this. But it's overall, it's good. It's pretty standard. Lights on, keep the rates affordable.

SPEAKER_03: And the only other thing that I can think of off the top of my head is, and I mentioned this in the past, how do we make sure we're connecting our budget R&R actions to our rate making?

SPEAKER_03: It is perhaps one of the largest flaws in the state's regulatory IOU system with the PUC. They've definitely been following, if you follow that body of politics, they're definitely following a lot more closely than they used to.

SPEAKER_03: But it's still, I think, a significant weakness. And I think it's something that we certainly have far less of, but it's certainly something for us to continue to think about as we move forward as well.

SPEAKER_03: Absolutely.

Unknown: With that, do you want to make a comment before we hear?

SPEAKER_06: Yeah, I'm going to, I've asked for a briefing on this because I do have some other questions. But one of the things, I have boards and I, when I present them with the new budget, I will show them, here's the previous budget that we approved, here's where we landed.

Unknown: And this is why I'm presenting you with this budget. Based on your changes in policy. So that would, again, give context.

Unknown: Sure.

SPEAKER_06: How did we do on our last one? And going into this one, what are we going to change and why? So anyway, that's to prepare you for those questions when I have my briefing. Thank you.

SPEAKER_03: Let's go ahead and take the public comment. I have just one card from David Wright. So please come up. David, you know the rules.

SPEAKER_09: I know the drill. Hi, everybody.

Unknown: On a positive note, a fun note, I enjoyed the October 1st absolute festival Smud threw over in the adjacent building. I brought an Afghan friend. He's a refugee and he is studying to be an electrician.

Unknown: Has worked for the U.S. Army as an electrician. And he hopes one day that he could work for Smud. I hope he can achieve that dream. Anyway, we had a great time. It was quite the festival.

Unknown: Less positively, it was kind of a slap in the face. We can see the zero carbon cards as they fall, but we were blindsided by CEO Anguis.

Unknown: We recently stated publicly that Smud is abandoning the 2030 zero carbon plan. This was not well done. And it's questionable to me whether she really has the authority to do that without the board say so.

SPEAKER_09: So it affects Smud's image and the trust that the public has in Smud's actions and policies. Discussion about this within the community is pretty hot. You probably will hear more about that.

SPEAKER_09: I very much hope that the board members will have very frank discussions with the CEO about this abrupt and uncollaborative and frankly arrogant unveiling unilateral.

Unknown: So maybe this staff title shift is why the zero carbon plan seems not very explicit in the budget presentation. Given the long-term benefits and the savings that come from zero carbon energy, I feel like Smud and the board need to invest more boldly in zero carbon spending despite apparent headwinds.

Unknown: On another topic, PPAs, power purchase agreements. I think there's a significant enterprise risk here. Energy contractors could fail or find richer buyers or upon renewal jack up the cost of the contract because Smud's in a bind in a corner that needs to buy their energy.

SPEAKER_09: I'd suggest Smud needs more Smud-owned energy, owned and operated. Batteries and including customer installed batteries and geothermal seem like promising no carbon solutions or low carbon if you include embodied carbon.

SPEAKER_09: Okay, the construction may be contracted out, but Smud owns and operates. Thank you.

Unknown: All right, thank you for that. I think there was some media attention today. I have not had a chance to go through my email thoroughly personally as that is at work all day, but tomorrow night is the Integrated Resource Plan public kickoff, which we have been saying that is going to help chart our direction on the 2030 plan.

SPEAKER_03: So I think that's probably what the staff presents tomorrow night and we'll have a very lively and active discussion.

SPEAKER_07: I just wanted to say we do have one other public comment.

Unknown: Could I respond briefly to Mr. Wright?

Unknown: Briefly, yes.

Unknown: I don't believe we're abandoning the zero carbon plan. I think we're recognizing that 2030 was a very, very aggressive goal and that we're going to keep working towards that goal and it may take us a couple of extra years to get there.

SPEAKER_11: I think we're also recognizing that the costs have risen to work towards that goal and that if we spend the money that it would require to meet the 2030 goal, we're going to require rate increase.

SPEAKER_11: We're going to require increases that none of us on the board are willing to impose on our customers and frankly none of our customers are willing to bear.

SPEAKER_11: So it's imperative that we keep rates low, not just because it's the right thing to do, but because we can actually reduce carbon by far more by incentivizing electrification of vehicles and buildings than we can by shutting off our power plants completely.

SPEAKER_11: So this is not an abandonment of that goal. It's a recognition that we need to pivot a little bit to keep moving towards that goal and we will continue to work towards it. It just may take us a little longer than we'd hoped.

Unknown: We have another online comment.

Unknown: Yes, John.

Unknown: John, are you there?

Unknown: Yes, this is John Weber. Can you hear me?

SPEAKER_00: Yes, go ahead.

Unknown: Good evening, Chair, board and committee members. Thank you for the presentation. The budget is the most important document an organization creates.

SPEAKER_00: It is a value statement. It assigns money to what it values. It doesn't assign money to things it doesn't value. It must prioritize different things to fund some things and not to fund other things.

Unknown: In the 2026 draft budget, there was over $35 million for communications and marketing. Smud is a monopoly. $0 should be spent on marketing. Instead of media messaging saying how great Smud is, those dollars should be spent making Smud great.

SPEAKER_00: I counted 21 power purchase agreements. PPAs are like renting a house for 20 years. After the 20 years, you have to keep renting the house or find another house to rent.

SPEAKER_00: Yes, you had a place to live, but you were left with nothing when the agreement is over.

Unknown: Smud needs to own a bigger share of its generation. That way it can design exactly to meet Smud's customer needs. It also means Smud will have an asset generating electricity long after a PPA would have expired.

SPEAKER_00: This should have been done in the past when interest rates were close to zero. It was a lost opportunity. Don't lose it in the future.

Unknown: On page 10 of the presentation named Next Steps, I don't see any public meetings or places for public comment. This is the most important documents, Bud creates, and there are no public input sessions beyond normal committee and board meetings.

SPEAKER_00: It is also interesting to note that there is opportunity for budget detail inquiries from November 4th through the 13th, but the budget material won't be available until the 11th.

SPEAKER_00: That only allows two days to review about a 100 page document. Please hold at least one public meeting after the budget is available and at least allow two weeks after the budget is available for comments.

SPEAKER_00: Please also post all comments from the board and from the public at the end of the draft budget and publish a red lined budget so the board and the public can see what changes were made based on the comments.

SPEAKER_00: Thank you.

Unknown: Thank you, John. Just a reminder, many of our PPAs have purchase options built into them at various points in the contract. Generally, whatever is most advantageous to SMUD is how they're designed.

SPEAKER_03: If you want more information, I'm sure the staff can volunteer them. Dive into the details of how those contracts are structured.

SPEAKER_03: Just a reminder, this was a pre-budget meeting. The actual budget meeting is in November. And then the actual final approval of the budget is not until December.

SPEAKER_03: We added this pre-meeting a few years ago to make sure there's plenty of time for the public to look at it and give some early feedback to the staff.

SPEAKER_03: Just remember, this is going to be wanted for almost two more months. Thank you for your comment, for sure. I appreciate it.

SPEAKER_03: I don't see any other questions or comments tonight. Michelle, thank you.

Unknown: Then we have one more item.

Unknown: I'll tell you we have two, but number six will be quick. Item number five is to provide the board with SMUD's financial results for the eighth month period of August 31, 2026 and a summary of the current power supply costs.

SPEAKER_03: Good evening, George.

SPEAKER_12: George Bond, Director of Accounting and Controller. Good evening, Chair Rose and SMUD Board of Directors.

SPEAKER_12: I'm here to take you through the eight-month period ending August 31st on financials and power supply costs.

SPEAKER_12: We'll start with the financial highlights. Customer revenues is $1.33 billion. That's very close to plan.

SPEAKER_12: So in terms of what we budgeted versus where we've actually come in, we're $1 million lower than budget, which is 0.1 percent.

Unknown: Slightly lower commercial and industrial sales and slightly higher residential sales, largely offset.

Unknown: Commodity expenses is our biggest budget variance year-to-date. The gross number is $387 million.

SPEAKER_12: It's $28 million lower than budget, which is about 7 percent.

SPEAKER_12: That's largely driven by some very favorable market pricing, which is causing us to generate less thermal power, reducing fuel expense.

Unknown: And then other operating expenses is $704 million. That's about 1 percent lower than plan.

SPEAKER_12: That's kind of all the other things. Most of the other things not comprised in the commodity, in the revenue section.

Unknown: We're a little bit under in public good and customer, primarily around some program and project timing.

SPEAKER_12: And then there's been some efficiencies, as Michelle described, on veg maintenance and some other things that are reducing costs a little bit.

SPEAKER_12: Our total net income year-to-date is $280 million. The plan was $235 million through August.

SPEAKER_12: So right now we have a $45 million favorable variance.

SPEAKER_12: And that was really very important when we just saw the capital spending, which was $687 million proposed like shear.

SPEAKER_03: And here is the net income. So you can do the quick math on that.

SPEAKER_03: There's still a lot in the capital budget that potentially gets borrowed.

SPEAKER_03: So it's be assured SMUD is not making lots of money that this slide may lead somebody to believe.

SPEAKER_12: Yeah, absolutely. Thank you.

Unknown: Energy sources. This just describes where we've been getting our energy from.

SPEAKER_12: We'll start with the blue section on the bottom, which is hydro.

SPEAKER_12: So the left-hand part of the slide is the month of August. The right side is year-to-date.

SPEAKER_12: We're well under in hydro, and this is just due to some less than ideal hydro conditions, low precipitation, no snowpack remaining, et cetera.

SPEAKER_12: The orange is thermal generation. We're also well below in thermal generation.

SPEAKER_12: And that is largely because of these favorable market prices that I described earlier.

SPEAKER_12: And in turn, those favorable market prices are driving up our net purchase power, which is in the green.

SPEAKER_12: So you can see that's well above plan.

Unknown: We talk about delinquencies every month here.

SPEAKER_12: We're at $33 million. As of August 31st of customer delinquencies, about three-quarters of this is residential and EPR related.

Unknown: For context, August of 2025 was $37 million. So we're about 10 percent lower than we were last year this time.

SPEAKER_12: So I think that's with the economy and everything right now, I think that's a good trend that we're lower in terms of that balance.

SPEAKER_12: And then just the natural progression as we hit the summer months is what we're seeing with that increase in July and August.

Unknown: Commodity budget, we're forecast to come in at $583 million versus a budget of $593 million.

Unknown: Again, largely driven by what I discussed before about low fuel costs and favorable market pricing.

Unknown: On the bottom right, that's a chart showing our predicted hydro forecast.

Unknown: Right now we're still coming in a projection of 190 gigawatt hours under plan by the end of the year.

Unknown: Days cash on hand. So we have a metric here. We like to stay, well, we need to stay at 150 days of cash on hand.

Unknown: And you can see right now we're at 238 year-to-date, which is actually just coincidentally happens to be our plan.

Unknown: At the end of the year we're forecasted at 192 days. That's a little bit lower.

SPEAKER_12: That's due to the timing of some capital spending and some other factors around the end of the year.

Unknown: But again, well above our 150-day threshold. We've paid off all of our commercial paper, so there won't be any of that outstanding at the end of the year.

SPEAKER_12: And again, that big bump in green in the middle was a bond issuance that we had in July.

SPEAKER_12: So with that, I can take any questions.

Unknown: Any commentary on the WAPA? And the WAPA number, it's held up much better than I would have suspected given the poor hydro year.

SPEAKER_03: And then you see that reflected in the deposit being made of 2.9 million. So it's interesting.

Unknown: Are you asking why that would be favorable?

SPEAKER_12: Is there any commentary? Yeah.

SPEAKER_12: Yeah. I actually will have to get back to you on that.

SPEAKER_12: I'm not entirely clear why the WAPA is favorable and the UARP is unfavorable on that, but I can get back to you on that.

Unknown: John?

Unknown: I still have to read. Chief integrated planning and market strategy officer generalism.

SPEAKER_15: So the state system actually had a pretty decent winter, comparatively speaking.

SPEAKER_15: They left the runoff season with the reservoirs in really good condition, and they were able to add from their initial forecast, they actually added generation into it afterwards.

SPEAKER_15: So they just had a little better situation.

SPEAKER_15: Cool. Thank you.

Unknown: I don't see anybody else?

Unknown: Just looking at these numbers, I guess this explains why John Olson got a promotion because he saved us $28 million. So nice going.

SPEAKER_11: Yeah.

Unknown: All right. Is there any public comment on this item?

Unknown: No, there's not.

SPEAKER_07: Okay. Thank you.

SPEAKER_03: Thank you.

SPEAKER_03: And then just real quick, our last item, item number six, is just an informational item if there's any questions on the status of recommendations on the third quarter 2026 internal audit services report.

SPEAKER_03: And I don't have any. I reviewed it. Most of us do offline.

SPEAKER_03: All right. And with that, is there any comment?

SPEAKER_03: There was just a hand raised.

SPEAKER_07: This might just be a.

SPEAKER_03: Yeah, I'm sorry.

SPEAKER_07: Looks like there's a hand raised. I believe it's for this public comment period from John.

SPEAKER_07: I don't think it's on the prior item.

Unknown: Let's see.

Unknown: Hello, this is John again. Can you hear me?

SPEAKER_00: Hey, John. Yep.

Unknown: Good evening, Chair, board and committee members.

SPEAKER_00: This will be short. Please place plug-in solar in the parking lot.

Unknown: I know staff is working on policy for plug-in solar. The state law goes into effect on January 1st, 2027.

SPEAKER_00: Since smud meters are bi-directional, I would assume any amount of excess generation that goes back into the grid would end up going back into the house at some point during the same calendar day.

Unknown: I would not think customers will be looking for any kind of dollar credit. I would think they would like to see any excess generation go to offset their daily use.

Unknown: This policy should be crafted with input from the board and the public.

SPEAKER_00: Smud should consider selling plug-in solar systems at Smud's online store.

SPEAKER_00: Smud can also encourage customers to mount them west facing in the summer to help during peak demand.

SPEAKER_00: These plug-in solar systems will help achieve Smud's climate goals. The SMUD board declared a climate emergency in July of 2020.

SPEAKER_00: The emergency has only gotten more urgent since then. Thank you and have a good evening.

Unknown: Thank you, John. And I just pulled up the work plan from last week's meeting. The balcony solar is in our parking lot. So it will come up at some point soon.

SPEAKER_03: But thank you for that. There's some good comments there.

SPEAKER_03: Are there any other comments before we close out? No, there's not.

SPEAKER_03: Okay. And then is there any summary of community direction?

Unknown: Yeah. Staff will provide information related to the pounds of copper required for the community rehabilitation project.

SPEAKER_07: Staff will provide additional technical scoring and pricing information to the board related to the S4 HANA system integrator contract.

SPEAKER_07: And in the budget presentation, staff will explain why we're spending more on building electrification and energy efficiency than on transportation electrification,

Unknown: what our natural gas spend is, some successes in operational excellence, comparisons of previous budget, and how AI can help us reduce costs.

Unknown: That's fine. I think for me, those comments were from them to think about in the final budget presentation.

SPEAKER_03: Correct.

SPEAKER_03: Okay. With that, just a reminder that 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_03: And with that, we will be adjourned. Thank you, everybody.

Unknown: Thank you.