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How this utility is solving the supply chain puzzle

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The supply chain has been a trending topic and area of concern in all industries since the COVID-19 pandemic, and as the utility seeks to build more than ever before in a new era of grid modernization and clean energy one of the main bottlenecks remains the available supply of necessary equipment and materials.

This week, Power Perspectives welcomes in Laura Lewis, Chief Legal Officer and General Counsel at SMUD, to educate us on how one of the largest community-owned utilities in the nation is tackling supply chain challenges while advancing its ambitious clean energy goals. Laura shares SMUD’s strategies for navigating these obstacles, from securing critical needs like transformers to optimizing inventory processes. With a focus on electrification, regulatory collaboration, and sustainable practices, SMUD is setting a powerful example for utilities nationwide.

Tune in to learn about:

  • SMUD’s innovative approaches to supply chain management amidst tight markets and inflation.
  • The legal and operational intersections of supply chain strategies in the clean energy transition.
  • How electrification of vehicles and buildings shapes grid infrastructure needs.
  • The strategic partnerships with federal and state agencies to secure critical resources.

Join host Jason Price and producer Matt Chester as they explore these vital topics with Laura Lewis and uncover how utilities can balance operational reliability with bold clean energy ambitions.

Prefer to Read vs. Listening? Scroll Down to Read Transcript

Thanks to the sponsor of this episode of the Power Perspectives: West Monroe

 

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TRANSCRIPT

Jason Price:

Two words popularized from the pandemic were supply and chain. How are utilities dealing with supply chain? Why is it more painful as we move to a clean energy economy? Given its global ramifications, we're excited to hear from the Sacramento-based municipal utility trying to manage through it all. We'll cover this and a whole lot more next on Power Perspectives. I'm Jason Price, your host coming to you from New York City and with me as always from Orlando, Florida is energy essential producer and community manager, Matt Chester. Matt, how high are supply challenges on the list of issues keeping the energy central community buzzing these days and what's the latest in the discussions happening around supply chain issues in clean energy transition on energycentral.com?

 

Matt Chester:

Yeah, Jason, you're right on target in suggesting that supply chain challenges, they're top of mind for the energy central community. And I'd say that's especially the case as we look at the needs for the clean energy transition with the surge in demand for renewables, energy storage solutions. The discussions I'm seeing are focused on everything from material shortages to bottlenecks in sourcing critical components like lithium and semiconductors. So our community members are also weighing in on potential solutions, things like a more resilient and localized supply chain and new innovations like advanced recycling and alternative materials. So we're talking problems and solutions in the community and I'm hoping today's conversation on the podcast can really add some fuel to those discussions.

 

Jason Price:

Thanks Matt. Appreciate the context there. I think it's very helpful. And before we get started, we'd like to give a thanks to West Monroe, our sponsor of today's episode. And today we have, as I mentioned, Sacramento Municipal Utility District or SMUD, the nation's sixth-largest community owned electricity utility. And we'll hear firsthand how SMUD is stepping up to meet supply chain challenges head on. As we noted, a key component in achieving this transition lies in strategic supply chain management, especially as we face tight markets, inflation, and a host of regulatory changes.

Joining us from SMUD is Laura Lewis, chief legal officer and general counsel at SMUD who will walk us through how SMUD supply chain strategies are playing a pivotal role in supporting their clean energy vision, ensuring both economic growth and operational stability. So without further ado, Laura Lewis, welcome to Energy Central Power Perspectives Podcast.

 

Laura Lewis:

Thank you. It's a pleasure to be here with you.

 

Jason Price:

Thank you, Laura, and we're thrilled to have you. So let's start with the big picture. SMUD has been aggressively working towards a clean energy future. Can you talk about how supply chain management has played a role in enabling this transition? And your title is chief legal and governmental affairs officer at SMUD. So where do you come in when it comes to the company's supply chain focus?

 

Laura Lewis:

Absolutely. Yeah, supply chain management is such an important issue and I'm really grateful for the opportunity to chat with you about it. Now, it used to be when people asked me what kept me up at night, I'd have two responses, cybersecurity risk, and then of course being in California wildfire risk. But in the last couple of years, a new risk has been added and that supply chain risk. As a community-owned utility, we have to balance reliability, affordability, and sustainability. And what this really means is having the critical equipment that we need to keep the lights on as our customers of course expect, as well as being able to meet future demand as we electrify everything from cars to buildings. And as an example of the challenges that we're facing, we used to get transformers in about 10 to 20 weeks, which is pretty manageable, right?

But then 2021 hit and suddenly we're looking at lead times of up to 150 weeks and that's almost three years. And the good news is that we're seeing some improvement now. We've managed to get these lead times down to about 50 weeks on average, though it still varies quite a bit, we've actually found some new suppliers who can deliver in 36 weeks, which is pretty remarkable given the current market conditions. I mentioned before the need to maintain reliability, affordability as well as sustainability. And in 2021, our board approved what we call the 2030 zero carbon plan, which is essentially a roadmap to completely eliminate carbon from our power supply by 2030. And it's actually one of the most aggressive goals in the country. And we plan to achieve this goal without sacrificing reliability or affordability because that's what our customers care about the most and in a way that prioritizes environmental justice and equity.

And we're also looking at carbon reduction holistically. So looking beyond our own emissions and seeing what we can do to eliminate carbon from the transportation and building sectors. And that's where actually things get really interesting because we're now in the middle of this massive transformation in how people use energy. So when you think about electric vehicles, for instance, we're seeing these EV hot spots pop up in certain neighborhoods where suddenly we have five or six EVs on a single distribution circuit. And those transformers that I mentioned earlier, well we may need to upgrade them much sooner than planned in those areas because of the increased power demand. And it's not just EVs. We're in this unique spot in California and Sacramento where unlike some other regions, we're actually seeing population growth, people moving from the San Francisco Bay Area because housing prices here are still reasonable compared to where they are there.

So we're seeing more residential development, and then we're even getting interest from data centers looking to set up shop here in Sacramento because SMUD has some of the lowest rates in California. And I know you had a guest on your show about a month ago that talked about the massive energy needs that these data centers have and the amount of infrastructure needed to support them and that includes, of course, transformers. So then finally throw some extreme weather. And over the past few years, we've seen storms here in Sacramento with high winds that have taken down our power lines, and we need to make sure we've got enough equipment on hand to restore power quickly when these events hit. So what does that mean from a contracting standpoint? And let me share some numbers that really show how things have changed are quite dramatic. So 10 years ago in 2014, we were spending about $230 million in contract spend.

In this year, 2024, we're looking at around 650 million in contract spend. So what's driving this massive increase? Well of course inflation, we're seeing increased costs around the board, but it's also a mix of other factors. I mentioned our 2030 zero carbon plan. Well, that requires us to develop renewable resources and we're developing some regional wind generation. We're also hardening our system to prevent wildfires. And then finally, we're buying more distribution equipment to make sure our system is reliable and storm resistant. And we're doing this while maintaining some of the lowest rates in California. And all of this points to one crucial fact, having a reliable and secure supply chain isn't just about keeping the lights on anymore, it's really fundamental to achieving our carbon reduction goals. And we need to ensure that we have the right equipment at the right time, whether it's for developing local renewable resources or preparing for the increased load from transportation and building electrification.

And I really want to take a pause here and give a shout-out to our supply chain team because they have managed to handle this dramatic growth, especially over the last three years. They're coordinating millions of dollars in contracts while planning for even more growth in the future. And it's a massive undertaking, but it's absolutely essential for building the energy infrastructure of tomorrow. Now, you would ask your title as chief legal officer, where do you fit in this picture? And that's really a great question and I'm smiling because sometimes I'll walk into a meeting with suppliers and they'll have this look on their face like, why did you bring your lawyer? And so it is sometimes surprising for people to learn that it's chief legal officer I'm also the executive that oversees our supply chain operations. But when you think about it, supply chain management is fundamentally about risk management and organizational stability.

And these are areas that align perfectly with my broader responsibilities. My role really centers around three key questions that guide everything we do. First, what are the risks we're facing? Because we need to understand these thoroughly and stay ahead of them. Second, what resources and strategies do we need to mitigate these risks? It's not just about having plans on paper, it's about having the right people, processes, and tools in place. And third, and this is really critical in today's rapidly evolving energy sector, what's changing in our business? We need to be able to see around the corner and constantly evaluate whether our current strategies and resources are sufficient to keep pace with industry changes. We can't just react to change, we need to anticipate and prepare for it. So running a utility supply chain isn't just about managing today's challenges, it's about building resilience for the future and that's why having this strategic oversight at the executive level is really crucial for SMUD's success.

 

Jason Price:

All right, one prevalent challenge we've heard from utilities is that the supply chain isn't just needed to meet business as usual, but it's an important strategy to meet broader objectives. So can you talk about that?

 

Laura Lewis:

Yeah. We get asked a lot about whether a grid can support California's ambitious climate goals, especially when it comes with electric vehicles. And let me put this in perspective, our 2030 zero carbon plan calls for 290,000 light duty EVs in our service territory by 2030, and that's about seven times the number of EVs we have on our system right now. So it's really a massive increase. But that's not all. We're also looking at significant new demand for medium and heavy duty fleet vehicles because California has mandated that these vehicles go zero emission by 2045. So in trying to understand how this would impact us, we actually did a study of just our top 100 commercial fleets and we found that they could add over 1100 megawatts of new charging load. Our all time peak demand for context is just so you have 300 megawatts, and if all that charging happened during peak periods, so for SMUD that's between five and eight on a summer day, we need about $1.2 billion in system upgrades over 20 years.

And of course, all these costs have to be passed on to our customers. Now here's the good news. We actually don't need to spend that kind of money. That level of investment, quite frankly, it's not affordable and more importantly, it's just not necessary. The solution lies in better using what we already have. Our system is designed to handle peak load, which means that most of the time we have excess capacity. So the key is encouraging customers to use that capacity when it's available rather than all charging their vehicles at the same time. And the technology to do this is already here. Modern EVs make it incredibly easy for customers to control when their cars charge. And the reality is most customers don't care when their car charges as long as it's ready for them when they need it. In fact, we launched a residential pilot program last year with BMW, Ford, and GM involving about a thousand customers and it's pretty straightforward.

Customers just set a time by when they need their car charged, and the system automatically charges when power prices are lower and there's less stress on our grid. And by managing EV charging in this way, we can significantly reduce costs for our customers. So it's really a triple win. Customers save money, we make better use of our existing infrastructure, and we're reducing carbon emissions because vehicles tend to charge during times of abundant renewables. And that's really what smart grid management looks like. It's not just about building more capacity, it's about using what we already have more intelligently. So partnering with automakers and leveraging technology, we're showing how utilities can support ambitious climate goals without breaking the bank or overwhelming the grid.

 

Jason Price:

Laurie, you and everyone in this industry talking about tight supply chain issues and long lead times, especially as it relates to critical components to run the grid like transformers. So talk to us and share with us what are some of the concrete steps that SMUD is taking to manage these constraints and ensure you're able to continue and maintain the reliability for your customers?

 

Laura Lewis:

What's really interesting about our approach is that we're not just focusing on the supply side, we're actively managing both supply and demand. So it's about having a complete picture of our needs and resources. And let me take you back about three years ago when we were really feeling the pressure from high inflation and severe transformer shortages. That's when we create a comprehensive database that tracks every type of transformer and customer job in our system. We developed really detailed metrics and charts for inventory management, and it's all managed weekly by a cross-functional team. Having this robust database helps us monitor supply levels, maintain appropriate safety stocks, and most importantly, manage customer expectations effectively. So it's really been a game changer for us. And it's not just about tracking what we have today, it's about taking a longer term view and consolidating our spending strategically. This is an example.

We used to source large power transformers in small batches with about a one or two year forecast, and we also procured them separately for each business unit, but that process wasn't attracting large manufacturers, so we had to think differently. Now all the business units get together to develop a five-year forecast and we'll go out to bid for that aggregate demand. In doing so, we increased our amount of global suppliers and decreased our costs. We saved about $32 million in savings on that one procurement. But we didn't stop there. We've expanded this approach to other critical equipment like circuit breakers, and one of our key strategies is ensuring we never rely on a single source for any critical equipment.

We're actively maintaining multiple supply sources, both domestic and global, to reduce our risk exposure. And the key to all of this is really looking at the bigger picture. We're constantly monitoring our relationships with our suppliers, raising our safety standards for repair work, and making sure we have the resources and capacity to adapt if trends change. And critically, we've made sure to have the necessary contracts and funding in place to support all of these efforts. And this comprehensive approach has really helped us navigate through some challenging times, all while maintaining reliable service for our customers. So it's not just about solving today's problems, it's about building resilience for whatever comes next.

 

Jason Price:

Yeah. Laura, I want to ask you a question about your relationship or how you envision working with the federal government in light of the new administration that's going to be coming in. So it's really along lines of how is SMUD engaging the federal agencies of today and what would that look like and what do you expect in the future? And basically, what role is the federal government helping to manage some of the supply chain constraints that you face, especially as it relates to clean energy projects?

 

Laura Lewis:

Yeah, that's really a great question. And let me start with some context. The supply chain disruptions we're experiencing with distribution transformers actually began during the COVID-19 pandemic, and they're still affecting SMUD and the entire electric sector today. As I mentioned before, with building and transportation electrification on the horizon, we know our need for transformers is only going to grow. And we've been actively engaged with both the Department of Energy in Congress to address these challenges across different time horizons, immediate, medium, and long-term. And so one of our key priorities has been advocating for robust funding through the Defense Production Act to boost domestic production of transformers and other critical grid components. And it's interesting, the Defense Production Act was activated in June '22 specifically to accelerate domestic production of those components. But here's the catch. We actually need federal appropriations to fund these activities and that's why we're working closely with our congressional delegation on this.

And there's another layer to this that's really important. In December 2022, the Department of Energy proposed new energy efficiency standards for transformers that would've required a higher grade of steel. And here's the kicker, the steel was only supplied by one company in the US. The proposed standards would've made our already challenging supply chain situation even more difficult, potentially increasing lead time significantly all for less than a half a percent improvement in energy efficiency. So when we want to talk to the Department of Energy, we explain that we absolutely support energy efficiency, but the proposed standards were actually counterproductive to the administration's electrification goals because it would make it harder to secure the critical equipment necessary for electrification. And I'm happy to say we've seen some positive movement recently. Last April, the Department of Energy released its final rule in these standards, and they made some important adjustments.

They reduced the percentage of a transformers that need to use the high grade steel and extended the compliance deadline from 2027 to 2029. This gives our sector the breathing room we need to ensure reliable transformer supplies. And by staying engaged with federal agencies and advocating for practical solutions, we're working to ensure we can meet both our current needs and our future clean energy goals. And you mentioned how this will change with the new administration, and I'm going to quote Yogi Berra here to say, "It's tough to make predictions especially about the future."

But we'll continue to have the conversation in the dialogue. It will be interesting to see whether or not the Defense Production Act gets funded so we can continue to ensure that we have a domestic supply of these transformers. As far as the efficiency standards, I haven't really given that much thought. I'm not really sure what will happen with that. But again, our strategy really regardless of the administration, to really let them know what our priorities are and ensure that the policies that come down from the federal level are supporting where we're trying to go in terms of carbon reduction and also obviously reliability and affordability for our customers.

 

Jason Price:

Laura, I want to go back to something you said early on in the conversation. It was around SMUD's commitment to finding areas for improvement in optimization have been demonstrated in areas like improved recycling and inventory processes, if I understood correctly. Can you talk about that? How are these efforts benefiting both the environment and SMUD's ultimate mission to serve?

 

Laura Lewis:

Yeah. At the heart of our approach is our supplier code of conduct. And it's more than just a document, it's really our blueprint for creating a more sustainable and responsible supply chain. And we work very closely with our contractors because we believe that together we can make a bigger impact. And when we talk about our code of conduct, we're looking at several key areas. Of course there's compliance with laws and regulations, but we go beyond that. We focus on labor and human rights, environmental and social responsibility, health and safety and diversity, equity, inclusion and belonging. Ethics and compliance are absolutely fundamental to everything we do. So let me share some progress that we've made. We're seeing real results from our recycling, reuse, and waste diversion programs. For instance, through September of this year, we've managed to keep over one and a half million pounds of materials out of landfills.

So that's up more than 10% from last year. So we're talking about things like pallets, wood reels, and metals from our warehouse operations. We're also making significant strides and tool electrification. Compared to last year, we've increased our use of electric tools by 20%. So now seven out of every 10 tools we use are electric. And the shift isn't just about reducing emissions, it's about creating a better working environment for our teams. And then here's something that really shows how sustainability and good business practice actually go hand in hand. Through our investment recovery team, we've managed to return nearly $400,000 worth of reusable materials that might've otherwise ended up in landfills. So that's win-win better for the environment and better for our bottom line. So it's really about taking a holistic approach to sustainability. And when we evaluate our suppliers, we're looking at their entire approach to environmental sustainability, because at the end of the day, our supply chain isn't just about moving materials, it's about doing it in a way that supports our broader mission of environmental stewardship and community service.

 

Jason Price:

Really appreciate the thoughtful response there. That's very interesting. And supply chain has become such a challenging and comprehensive topic. You're clearly doing a great job and continue it. And we really appreciate you sharing these thoughts. So Laura, we're going to give you the final word, but at this moment in the show, we tend to take a pause and we go to what's called the lightning round, which gives us an opportunity to learn a little bit more about you, the person rather than you the professional. We'll throw at you a series of questions and we ask you to keep your response brief to one word or phrase. So are you ready?

 

Laura Lewis:

I'm ready. I think so.

 

Jason Price:

All right, let's give it a try. So what book or movie would you bring with you to a deserted island?

 

Laura Lewis:

So I have to go with a movie here and I'll say Crazy, Stupid, Love or any movie with Steve Carell.

 

Jason Price:

All right. Sticking with movies, what's your go-to movie snack?

 

Laura Lewis:

Absolutely Junior Mints. And for everyone that is a Seinfeld fan, you might remember there was actually an episode that revolved around the Junior Mint. So if you haven't seen it, go look it up.

 

Jason Price:

Yeah, I know exactly what you're talking about. If you didn't end up at SMUD, what alternative career path do you think you would've taken?

 

Laura Lewis:

So, okay, I'm going to cheat here. It's not really a career path, but when I was a kid, I loved playing sports, so I always dreamed of competing in the Olympics. And the problem was I never found my Olympic sport and I was just really about to give up and then I saw the Australian breakdance competition this summer, so I kind of feel like I still have a shot there.

 

Jason Price:

Okay. We have collected lightning round questions from past podcast guests to ask future guests. And so this one comes from Steven Martz of Xcel Energy. "What is one thing that no one is talking about in the energy sector, but everyone should be talking about?"

 

Laura Lewis:

There's so many exciting things going on in the energy sector that I think sometimes we forget to recognize the employees that perform the day-to-day activities that often go unnoticed and unsung. And when you stop to think about it, it's often the work that we don't talk about that is really foundational for our success. It's those small tasks that our teams do well each and every day to deliver reliable, affordable, and sustainable power to our customers and our communities. And one of my favorite quotes is from John Wooden, who was a former UCLA basketball coach, and he said, "Little things make big things happen." In other words, if we don't get the basics right, we can forget about all the rest. So I would say, we should talk more about those everyday wins and the people working behind the scenes to make them happen.

 

Jason Price:

And now Laura, it's your turn. What lightning round question do you want to challenge a future guest to answer? And it can be of course, topical or related to the energy field. It's up to you.

 

Laura Lewis:

Okay. I'm going to go with one related to the energy field. So the relationship with our customers is going to change significantly over the next several years. And if I could describe our current relationship with our customers, I compare it to the relationship I have with my son who's away at college. I typically don't hear from him unless there's a problem. But as customers install devices on their side a meter, we're going to want to establish a stronger partnership with them so we can leverage their devices such as home batteries, EVs, and thermostats in a way that provides us with mutual benefits. So the question I have is, what are some strategies for increasing engagement and participation in customer programs?

 

Jason Price:

Interesting. And lastly, Laura, what will you consider success when you ultimately look back at your career?

 

Laura Lewis:

I don't think that there's going to be any one thing. I am really fortunate to have a career that challenges me and allows me to learn and get a little bit better at each and every day. And if I can inspire others to grow and develop both personally and professionally, to embrace struggle, keep pushing forward and do good work and have some fun along the way, I think that would be satisfying for me.

 

Jason Price:

Fantastic. And Laura, I mentioned you would have the final word. So if our listeners can take just one thing away from today's conversation, what do you want that prevailing message to be?

 

Laura Lewis:

We're in very uncertain times, and the only thing that we know for sure is that we'll continue to see a lot of change in our industry and that will bring with that new challenges, along with new opportunities. So it's really going to be important for us as an industry to remain nimble as well as to listen, learn and work together so that we can continue to provide value to our customers and communities.

 

Jason Price:

Fantastic. Laura, really appreciate your insight today and giving us things to think about. And I know our listeners will have plenty of questions to ask if they're not munching on some Junior Mints while they're asking them.

And we certainly want to invite you back, Laura, to check in on things to keep the conversation going. But until then though, we just want to thank you for sharing your insight with us on today's episode of the podcast.

 

Laura Lewis:

Right. Thanks. It was a lot of fun. Thank you.

 

Jason Price:

And you can always reach Laura through the energycentral.com platform where she welcomes your questions and comments. And we also want to give a shout out of thanks to today's sponsor. Thanks to West Monroe. West Monroe is a leading partner for the nation's largest electric gas and water utilities working together to drive grid modernization, clean energy, and workforce transformation. West Monroe's comprehensive services are designed to support utilities in advancing their digital transformation, building resilient operations, securing federal funding, and providing regulatory advisory support. With a multidisciplinary team of experts, West Monroe offers a holistic approach that addresses the challenges of the grid today and provides innovative solutions for a sustainable future. Once again, I'm your host Jason Price. Plug in and stay fully charged in the discussion by hopping into the community at energycentral.com. And we'll see you next time at the Energy Central Power Perspectives Podcast.

 

 

About Energy Central Podcasts

Power Perspectives features conversations with thought leaders in the utility sector. At least twice monthly, we connect with an Energy Central Power Industry Network community member to discuss compelling topics that impact professionals who work in the power industry. Some podcasts may be a continuation of thought-provoking posts or discussions started in the community or with an industry leader that is interested in sharing their expertise and doing a deeper dive into hot topics or issues relevant to the industry.

Power Perspectives is the premiere podcast series from Energy Central, a Power Industry Network of Communities built specifically for professionals in the electric power industry and a place where professionals can share, learn, and connect in a collaborative environment. Supported by leading industry organizations, our mission is to help global power industry professionals work better. Since 1995, we’ve been a trusted news and information source for professionals working in the power industry, and today our managed communities are a place for lively discussions, debates, and analysis to take place. If you’re not yet a member, visit www.EnergyCentral.com to register for free and join over 200,000 of your peers working in the power industry.

Power Perspectives is hosted by Jason Price, Community Ambassador of Energy Central. Jason is a Business Development Executive at West Monroe, working in the East Coast Energy and Utilities Group. Jason is joined in the podcast booth by the producer of the podcast, Matt Chester, who is also the Community Manager of Energy Central and energy analyst/independent consultant in energy policy, markets, and technology.  

If you want to be a guest on a future episode of Power Perspectives, let us know! We’ll be pulling guests from our community members who submit engaging content that gets our community talking, and perhaps that next guest will be you! Likewise, if you see an article submitted by a fellow Energy Central community member that you’d like to see broken down in more detail in a conversation, feel free to send us a note to nominate them.  For more information, contact us at [email protected]. Podcast interviews are free for Expert Members and professionals who work for a utility.  We have package offers available for solution providers and vendors. 

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