this is hosted by the stanford graduate school of business. >> thank you so much, maria. it is my pleasure to introduce the person he will you are actually here to see. patty poppe is ceo of pacific gas and electric company, one of the largest utility companies in the united states. they have about 28,000 employees, they supply natural gas and electricity to about 16 million people in northern and central california. now those of you who are familiar with pg&e hear a lot about pg&e in the news, those of you who are less familiar with pg&e should know that it's a publicly traded company that has faced a lot of challenges in recent years. in 2010 there was a gas line explosion in san bruno, california. 2017 and 2018 there were major

fires including the campfire that basically sparked by my understanding is power lines that killed about 84 people in paradise, california, destroyed the town. the company actually pled guilty to criminal charges of involuntary manslaughter, there were lawsuits, billions of dollars of settlements and the company went bankrupt. patty poppe came in as ceo of the company right after that she -- right after that. i want to be clear about that. [laughter] she came in in 2021 on the company has a challenging pass but also a lot of challenging things going forward. basic questions about grid safety but also capacity, use of renewables, how to handle structure building and pricing. before at pg&e, patty poppe was president and ceo of cms energy

and its subsidiary consumers energy in michigan, ran a power plant and also ran a plant for general motors. she earned her bachelors and masters in industrial engineering from purdue university. she is a fan of the boilermakers. and she earned her masters degree in management as a sloan fellow at the gsp in 2005. please join me in welcoming patty poppe. >> i was going to thank you for the kind introduction, but -- [laughter] >> thank you for coming on for your willingness to engage in the conversation about some challenges that pg&e has faced.

patty said she was happy to take questions from the audience and we will have time for that at the end of the session. but first i want to have a conversation where we acknowledge the elephant in the room. that is why i decided upfront to just get that on the table. patty: the first -- the first question ayatollah -- i have for you -- this is a challenging job. a really challenging situation. what motivated you to take that on? patty: yeah, it goes to when i was originally being recruited for the job and there were multiple times when i said no, thank you. [laughter] i have a good gig, everything is fine. but the board chair made a compelling point. he said, first i asked him if

this was a financial turnaround or operational cultural turnaround. if it is a financial turnaround, i am not interested, truly. that is not my jam. if it is an operational, culture changing, safety orientation turnaround of what should be an extraordinary utility, then i am in. that was one thing. he assured me it was operational and cultural, no doubt the financials will follow performance. the second thing was he suggested that i should consider this as my professional final exam. everything i have learned done done needed to be put to bear and that the people of california deserved a high-performing pg&e.

after all, it is just a utility, right? i ran one and know what a good one can look and feel like and the opportunity to make this what california desperately wants and deserves is my challenge. >> was this final exam more or less difficult than the final exams when you were a sloan below? patty: this was the real deal. those were just theoretical. this is way harder. >> i taught some executives at pg&e after the san bruno incident and before the campfire in paradise. i was struck in that setting that it seemed that there was an

attempt to imbue a culture of safety because like literally every morning there was the discussion of here's our safety procedures for the day and i never seen any other company do that and then when the campfire happened i looked back on that and i thought, was this just bad luck? how do you build a culture of safety? patty: a couple of things. we still start every day with safety. we start every meeting with safety. but that is insufficient and i think your point is that proved to be true. a safety culture takes a mindset that every moment is a moment to reinforce safety. the leadership team took a stand at everyone and everything is always safe. and we say it like that because we will cause that to be our truth every day but it takes every job, every action has to consider what do i do if

something goes wrong. we have a real gem in our nuclear power plant diablo canyon and our nuclear industry nationwide has a tremendous safety culture embedded in the operations of those plants, born out of crises. the follow-through and development of a safety culture, we have to look to that blueprint to see that there is a failsafe mindset that says you cannot actually, i have heard operators say you have to trust the instruments. no, actually you have to assume that the instruments will be wrong, the wind will come from a direction you did not expect, then you have to build in the offer of safety so it is a technical issue but also cultural issue of making it safe to say, stop the job, something has changed. when i came to pg&e one of the

early things we did was establish our purpose, which is delivering for our hometowns, serving the planet, leading with love. a lot of people question the whole leading with love business. they are like, are you running a utility, or? but it relates to safety. i have had the unfortunate duty and experience to attend funerals of people who have died on the job. and the expression of love in those circumstances is overwhelming. and my observation is that it's too late. you missed the moment to demonstrate your love for another human being by stopping that job where that happened, by having the courage to say to someone more senior than you, wait, i don't understand.

or, are you sure that is safe? that culture takes decades to create. i think pg&e learned a lot through those early instances and learned that a nuclear power plant what it means. we just had to deploy those lessons to the whole enterprise and have an expectation that we would have a pg&e way based on that purpose and not leading with love is something we do every day. my union president said to me one day early, patty, you have got to drop the lead with love business, you are losing credibility. i said, bob, buckle up. there is more where that came from. i am gonna love you right through this. [laughter] fast forward a year or two and he pulled me aside and he said, i think there is something to it. we attended too many serious

incident reviews and we know that to keep our communities safe, we have to keep each other safe and that the safety culture is a journey, we are on a commitment that everyone and everything is always safe and it will never end and we are always working to make that so. we have tremendous statistics to back that up but we are not done. >> as i think about what people want out of their utility, probably people want it to be cheap and reliable and then people care more about safety, and recently some care about it being green. how do you think about planning and investing for the future, thinking about things like baseload capacity, which is if you are going to have more electric vehicles drawing on the grid, die canyon and just shut

down, how do you think about planning that strategically going forward in the company? patty: think about this all the time. i am a climate optimist and i am here to assure you that the grid is not only ready for the electric vehicles, but we need them and i will ask when that in a second. there is a hierarchy of needs. it absolutely begins with safety as the foundation. we have to have safe infrastructure. the fact is, given climate change and changing extreme weather conditions, it creates a different standard required for the infrastructure. so i think it is going to be the biggest era of change in the way we define safe infrastructure is happening before our eyes and here in california we have the opportunity to lead the world in

building infrastructure that is resilient to climate, extreme climate conditions. not just wildfire. wildfire caused by droughts is certainly a hazard. we have reduced 94% of the wildfire risk on our system to date but that is just the beginning. we had a blizzard warning in the sierras for the first time this year. we need infrastructure that is resilient for wildfires, blizzards, winds, tornadoes. we need infrastructure resilient to that, particularly given the demand that decarbonizing the economy will be borne by electrification, it is absolutely possible to have climate resilient infrastructure that is affordable and reliable . we just have to engineer it to a new standard and build it to that standard where necessary, so i certainly could talk more about that but what i can tell you is there's lots of reasons

to believe that the infrastructure transformation that will occur in the next decade and then maybe another decade after that will lower cost for customers and increase the safety and resilience and decarbonize the economy. >> i had a question about costs actually that sort of relates to this. one of the big infrastructure improvements that pg&e wants to do is under grounding. probably really good for people who are at risk of wildfires probably really good for the , workers who do the work because that's a lot of employment. but i understand it is really expensive. this is an investment that costs a substantial amount and if pg&e

gets essentially something that's like a guaranteed rate of return on investment that gives a big incentive to do large capital projects. i am curious about your thoughts about the criticism that it is good for the company but overly expensive compared to other ways of reducing the risk of wildfire. what are your thoughts? patty: i have so many thoughts about this. a couple of things. the investor utility model, which i think is at the heart of the question, like does it work , does the investor own model where you are incentivized to invest in infrastructure, does that in fact create a a disincentive for affordability for customers? there is a winning model where everyone wins. let me explain. call it our simple affordable model and it's one i am employed

at at a different utility to great success and we're in the early days here in california . this will be very beneficial. it starts with the idea that we have to invest in infrastructure. originally the model was designed to reward infrastructure investment so that you could spread out the cost for customers over a longer time. when we invest in capital, we get that finance through debt and equity and we spread out the cost then for a customer instead of paying it all the minute we spend it, so it's beneficial because it spreads out the cost and then it's beneficial because the maintenance of that equipment is less. you have to spend less on maintenance on a new system.

by sharing the cost broadly across the state you could then , invest in infrastructure that actually lowered prices year after year after year so the unit price went down. we are about to enter that era, and i know it it feels hard to imagine but let me explain how that works specifically with under grounding. by the way our undergrounding , plan is for 8% of our lines, not 100%. we have 8% of our lines that are in the highest fire risk areas and they are high fire risk areas because they have enormous tree density. the sieras or up into shasta county, some of the most beautiful places in our state . part of what makes them beautiful as all of the trees. part of what makes them dangerous is all the trees. so we need to bury those specific lines those specific miles are actually also the

place where you have heavy snow cover. we expect the lights to turn on even when it is snowing and we expect to be safe in our homes even when the wind is blowing and there has been a drought. in those specific miles we can invest in that infrastructure and deferred them and reduce the cost of maintaining those overhead lines and trimming all the trees. it might shock you to know that we spend $1.8 billion a year trimming and removing trees in california. the u.s. forest service spends about $600 million trimming trees in oregon, california, and hawaii combined. that is what pg&e customers are paying for today. that is why your bills went up. we have to change the way we

expect infrastructure. the good news is we can attract capital from the capital markets to invest in an infrastructure and reduce the operating expense, spread out the cost and your bills will go down. the trade is in your favor. it is an economic and a policy choice that the commission had a lot of questions. you do not get a blank check. you have the obligation and a very transparent public proceeding where you have all sorts of opinions, there is a whole adjudicated process to come to a conclusion. what we have all learned, what the professionals have learned, is it is too expensive to do what we are doing and all of our x customers are experiencing

that in the bills right now. we can reduce the cost of delivering energy if we can transition to real infrastructure investments in the right place, 8% of the system, then reduce the vegetation management expense. we can trade one dollar of expense for seven dollars of capital and keep the bill the same. so you trade $1.8 billion a year , now you're talking about 14 billion of available spend for capital which keeps cost the imagine if you spent less than same. imagine if you spent less than $14 billion? so that is what we are doing. the return on investment is an attraction to the low-cost capital that we need from the capital market, who by the way, the shell rulers -- shareholders of pg&e stop are the kind of people you would want to own and they are retirees, pension

funds, teachers, firefighters, police officers. of those we want to promise a return when they put their nest egg in our hands, we use that wisely, we provide a small return, then a predictable return, predictable financial performance. why wouldn't we want those people to have a return on their investment in our infrastructure here in california? so when we can show with our model capital investment, offset by operating expense reductions. our most recent rate case in four years [inaudible] -- a 3% increase over this time and overtime showing prices

going down because we are doing more infrastructure investment and less annual maintenance band-aids that get passed along to customers annually. that is how bills go down when infrastructure investment goes up. i do not see a trade-off or choice. the model serves customers and investors and there is no loser in the equation, it is a win-win. >> is it in the interest of the investors if the rates, holding fixed the behavior of pg&e, isn't it in the interest of the investors to have higher rates rather than lower rates condition on whatever investment is being done in interest in the consumer's are lower? patty: it's a great question and easily misunderstood.

my first question is how are your prices because they know a regulator cannot say yes to prices that keep going up. so investors very much care about that reasonable rate for the service you deliver. i can assure you universally that is the number one question i get in investor meetings. more importantly, and here's the great news about california and decarbonizing the economy. it will be a great era for california and the world. as we invest in the capital necessary and offset it with operating expenses and then we layer in load growth, we have not had load growth in decades and when we can have load growth through electrification of transportation on buildings and decarbonizing of heating water and building heating, and then adding on data centers and the energy load for ai computing

power the load growth can provide a platform to reduce costs. our forecasts show we can decarbonize the economy by 70% and household energy spend will go down by 30% at the same time. because electricity is more efficient than gas as a fuel and as we transition to an electrified economy, households spend on energy will go down. so we can decarbonize and save households spend an increase in the economy out of the energy and into growing our economy in other ways. i am extremely excited about this. we have not been in this era in such a long time people do not recognize it for what it is but i am so glad you are all here today. this is time to be optimistic. we can both decarbon the economy and lowerer household spend on

energy simultaneously, it's a great time to be in this business. >> before i open up the floor to audience questions so many of , the decisions that pg&e makes it is partially in concert with working with the regulator. but it almost feels like public policy decisions at some sense right because you know if you change to a rate structure that make some of the rate depend on people's income. some people are going to like that. some people are going to hate that. how do you think about all the different stakeholder groups when interacting with society as a whole? patty: i always start with our customers. i know it sounds trite, but it is true.

on the whole, how can we best serve all people? we have the privilege to serve but also an obligation. there are multiple stakeholders. a lot of voices in these decisions and not one has the authority to make the decision in a vacuum. i can't come the legislature can't, we have a representative government that allows for people to become experts and we have a regulated industry with expertise regulating the actions and choices we make. we definitely look at the pros and cons of all decisions. when i think about the safety and well-being of the people we serve and the ability to thwart the effects of climate change, to set the pace for the world on decarbonizing our economy and proving there is a way to do it at lower cost, i think there is no place better than california to lead at. and i think we have the system.

democracy is messy. it is hard to have all these voices. but the voices make us better. we listen to one another, learn from one another, then have expertise we put to bear. when i thought about taking the job, i reflected back on early in my career. i remember wondering, how did the ceos know what to do? how do they know? then i was one. [laughter] and i wondered, how did the ceos know what to do? i'm just getting. -- i am just kidding. [laughter] what i realized is experience is a very good teacher. and i knew from all my experiences, and i have been in operations my entire career, i am much happier in a hard hat

than a hairdo. i have learned it takes people purpose and a performance playbook and that is what we are deploying at pg&e and as we perform we have the power to influence the outcomes of those decisions, we prove ourselves, our theme inside the company for 2024 is trustworthy. to be trustworthy takes fulfilling our promise. it means doing what we said we will do and doing it well. so when we made a commitment to bury 350 miles of line last year even when we were faced with a lost first quarter, if anyone remembers the atmospheric rivers all 15 of them that happened , in sequence. for us that meant 90 of a 100 days in emergency posture restoring power to people across the state. we lost a quarter of construction time and yet we

still delivered 350 miles at the end of the year. because we have a performance playbook. we have trained our leaders to deploy our system. today i attended a graduation of first-line supervisors. 70 completed one year of training and development, some of them have 20 years with the company but never had a training and development course. we are investing in our people, leveraging our purpose, and training skills through our operating system, safety management system, and breakthrough thinking to transform how energy is delivered by us to the people of california who have high expectations that we are going to be. >> you are talking about other voices and conversations. i would like to offer a few more voices, getting questions from the audience. we have a microphone.

that will work much better than if you shout. >> thank you so much. i love your energy and optimism. >> you have to have energy if you are working with power. [laughter] >> my question is around community solar. there was a recent decision that i do not know if it will stick but basically the three largest utilities came against the community solar folks with the net value billing tariffs and other states have gone forward with this approach. i think it would be helpful for us to meet our goals in the state and incredibly helpful for low income communities who need the service. i would love your perspective. patty: both rooftop and community solar are a very challenging subject here in

california. let me just start by saying solar has an incredibly important role in the clean energy transition. i will start with that. the important thing is getting the price right. when you asked, 10, about how we take competing demands and desires, how do we think about it, this is a good example of how we have to think about serving all. i can tell you today that a customer who does not have solar has a $30 a month higher bill than someone who does, not partly because of the energy usage but partly because of -- but mainly because they are not paying the full cost of the grid.

there was a time when it was necessary to have the net energy metering cost allocation to incentivize the investment in a new technology and i love california for that. it supported winds and the cost of wind has come down. same with solar. but it cannot be forever. there has to be a point when we graduate from the subsidy. in this case today when affordability is top of mind for so many we need to look at all the policies that perpetuate an unnecessary cost shift. $30 a month is very meaningful to customers and when we think about the policy changes it is the genesis of what is now being recommended and the proposed decision on the fixed charge. the fixed charge, someone called

it the income graduated fixed to charge. that was a very bad name and very distracting. let me explain the fixed charge. he fixed charge for all customers is important because it equalizes the utilization and use of distributed resources. at my house, i have solar. i bought the house, it had a solar system. the guy who sold me the house told me, i did a real good job for you putting in a solar system. i was like, i don't know. i am new here, i'm not sure. [laughter] as a customer, i will tell you, it is awesome. it's awesome he made that infrastructure investment. but i can't paid too much for that. i actually make a donation to an environment equity fund to offset it because i have remorse . i can't talk out of both sides

of my mouth. so the idea of a fixed charge says patty poppe lives at a premise that has a wire to my house. about 45 days of the year i still need the grid and the pole at the end of my drive are not cheaper because i only use them 45 days. they cause the same to install, maintain, make fireproof. so the fixed charge is designed to reflect the cost of just the ongoing maintenance on fixed cost of operating the grid. the usage, the benefits of usage from solar can be leveraged by the people able to invest. i will say this about the fixed charge recommendation. i think they did a good job listening to a wide spectrum of people. they matched the fixed charge.

the income graduated part is confusing because our current rates are already income graduated. it would actually not change. we currently have three tiers of rate. a rate for our most vulnerable customers called the care rate, a fair rate for middle income customers, and a higher rate for everybody else, about 60% of the population. so there are already three tiers that are income graduated. the fixed charge also has three tiers that match the exact same tiers. so the fixed charge for most people is $24 but it is $12 for the middle tier and six dollars for the most vulnerable. so the fixed charge i think is good policy. we were directed by the legislature to implement that policy. i support it and think it is good we will implement it.

coming round to your point about community solar as a point of access for those who do not have a rooftop or someone who wants to participate, i think there will be ways for the utilities to work with investing in community solar programs that customers can participate in that provide the lowest cost pathway to clean energy access. that is what we will continue to work toward. >> we started a few months -- a few minutes late so i will let us go a few minutes long and then i will wrap up to be mindful of your time and i know there is a reception, it's been a long day. i will call on one more person to ask a question. >> we still produce a lot and use a lot of coal. in the last decade we have discovered we also have sun and wind. [laughter]

at purdue on i-65 is one of the largest wind installations in the nation now. but we do not talk about nuclear. what should we be thinking about the future of nuclear in california and outside? patty: i am gratified our governor and the legislature has taken actions to allow at least a temporary extension of diablo canyon. that was smart. when we look at the facts and we see that baseload carbon free energy at a low unit cost of existing infrastructure, we should utilize those assets. so we are proud to operate that power plant and proud that we will be filing, we have filed for license and been given interim approval for a 20 year license. california legislature has only

authorized to extend five years after 2025 but i am sure that conditions will not change that much, i am not sure but i expect there will be a conversation in that five year window that maybe we can extend that further. it would be good policy to use the safe highest performing assets of the state. i was at the institute of nuclear power operators, they assess our plants. every other year we get a score. it's a big deal. ceos can get fired over a bad score. i am very tuned into the score. [laughter] it is all about how safely you operate a nuclear power plant and that is part of why our nuclear fleet nationwide is so safe. they were naming the units that received the highest performance

, naming them in sequence of who had the most. they started with those over the life of the assets who had the least amount of exemplary ratings and who had the most. let me say this. i got through salad, dinner, dessert, coffee. we were the second to last plant recognized. that means we had the second-highest performance over decades and our nuclear plant here in california. we have great people running the plant quietly, doing their jobs extremely well every day. they are a blue point -- blueprint for the rest of the company. small modular reactors are interesting. it is unlikely pg&e will take on that challenge until the technology is proven but there are companies who are taking on the challenge and i am rooting for them and hope we can find an additional source of baseload

generation, carbon free generation to support the growth of our nation. >> i want to say thank you, patty, for engaging in the conversation and taking questions. i really appreciate you coming on doing this. thank you so much. patty: thank you. [applause] i just want to add a closing comment. it is a privilege and honor to be here at stanford. i am proud to call my alma mater and wonderful to be here. i want you to know that the people of pg&e i getting up every day to serve you. i wear this pin, it's a little ladybug and i just want you to know what we are up to. before i came, there was a fire

in 2020 and there was a family, there was a little girl who would be turning 12 on the 14th of this month. she died when she was eight years old, she was in the car with her mother tried to get out. there was a fire caused by a tree landing on one of our powerlines. our team will make it safe. i just want you to know. we are debating issues and thinking about that, but i never stop thinking about that. it will safe and we will make it right. thank you. [applause] >> i should have asked if you had a few last words. that was terrible moderator behavior. [laughter] i do want to say a few words

because a few years ago i was asked to co-lead a task force on business government society which is kind of a lead in to this forum and many things going on in the school and this is just my thoughts about this whole thing going on in the school, separate from our conversation but i wanted to share concluding thoughts on today's event. what i see and what i hope for out of this is more engagement by our students, faculty, alumni with business leaders and politicians and regulators and civil society leaders who are grappling with really tough questions about the role of business in society. it is useful to recognize simultaneously that business can have tremendously positive impacts on society and that not everything is win-win. there are things that are not. then we are in a world of

trade-offs, which is much of the world we live in. then decisions need to be made. that is true for business leaders making principled decisions as the leaders of organizations about what priorities and focus will be, what not to focus on because we need to focus only on certain things and not everything. but it is also important for citizens and policymakers. the things that really make possible the entire enterprise of business and capitalism is society, governments setting the structure that makes it possible. and the structures of society are what can channel the positive productive and innovative energies of business and capitalism in ways that are beneficial for a lot of people in society. i think it is really important to support that endeavor, the civil society and government angle, as well as companies doing the right thing and making

good decisions. what should the decisions be? what should the policies be in a company and in society? that is a hard question. i think amongst people in the and amongst people outside of this room there was a lot of disagreement about that as well, so those of the conversations we need to be continually having and having those sorts of respectful agreements about how things should function at the intersection of business, governance, and society, so that is what i wanted to say before handin this is about 20

minutes. >> day have three very special announcements. first, during this anniversary year, the u.s. mission will