Manslaughter due to a deadly wildfire ignited by their electric grid. She also talks about electric grid capacity and building climate resilient infrastructure. This is hosted by the Stanford Graduate School of business. Business. Applaud. Thank thank you so it cae my pleasure to introduce the person youre actually here too see, who is Patricia Poppe whose last get speak the entire event. So patty is ceo of pacific gas and Electric Company who is a largest Utility Companies in the united states. They have about 20,000 employees. Employees. They supply natural gas and electricity to about 16 Million People in northern and central california. That those of you who are familiar with pge hear a lot of pge in the news. Those of you who are listening with pg e should know that its a publicly traded company that assays a lot of challenges in recent years. In 2010 thatrs was a a gas line explosion in san bruno california. 2017 and 2018 were major fires including the campfire that basically sparked by my dissent is a power line 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 in settlement and the company went bankrupt. And patty poppe came in as ceo of the company right after that. She came in, what a be very clear about that, so she came in in 2021 and the company had a challenging past but also has a lot of chungking things Going Forward. Facing questions not just about great satan things like that but also capacity, use of renewables, how to handle Structure Building and pricing of things like that. Before she was at pg e, patty poppe was president ceo cms energy and its subsidiary Consumers Energy in michigan. She read power plant in michigan and also ran a plan for general motors. She r p earned her naturalist de and her masters degree in Industrial Engineering from purdue university, and i just confirmed backstage she a fan of the boilermakers. So theyre in the final four for those of you who follow mens basketball. And she earned her message great and is a sloan fellow at the gse in 2005. I would like you to join me in welcoming patty poppe. [applause] 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 highperforming 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 heres 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 followthrough 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 its 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 dont 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 theres 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 thats 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 thats 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 its one i am employed at at a different utility to Great Success and were 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 its beneficial because it spreads out the cost and then its 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 youre 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 lowcost 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 wouldnt 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 bandaids that get passed along to customers annually. That is how bills go down when Infrastructure Investment goes up. I do not see a tradeoff or choice. The model serves customers and investors and there is no loser in the equation, it is a winwin. But the condition what youre doing, is that in the interest of investors if the rates, holding fixed the behavior pge, isnt it in the interest of the investors have higher rates rather than lower rates to dispel whatever investment is being done . No. No, thats not true. Thats a great question. It is easily misunderstood. First of all, my investors the first question i get and every investor meeting is how are your prices . Because in a regulator cant say yes to prices going up and going up and going up. That puts at risk their investment. Investors very much care about that reasonable rate for the service that you deliver. I can assure you conversely thats number one question im getting in meetings. Moreat importantly, is when you can take, and use great news about california specifically and decarbonized the economy, it will be a great error for california and the world. As we invest in the capital necessary and we all set with operating expenses, and then we later in load growth, we have it load growth in decades. When we can upload growth in electrification of transportation and electrification of buildings and the decarbonizing of our heating water and building heating and then add in data centers, i know that was a top uptodate and energy load for the ai Computing Power especially in this area, that load growth can then provide t a platform to reduce costs. Our forecast show this. We can decarbonized the economy by 70 , and Household Energy spend will goy down by 30 at te same time. Because electricity is more efficient than gasoline as a fuel, andra as we transition ton electrified economy, households spend on energy will go down. Therefore, wene can both decarbonized and safe household spend, an increase in the economy out of the energy and into growing our economy and other ways. Ixt personally and extremely excited about this area. We have been in the spare in such a long time. People dont know to recognize for what it is. Im so glad you are all here today. This is a time to be optimistic. We can both decarbonized the economy and lower household spend on any simultaneous it. Its a great time to be in this. One more question before it opened thegr floor for a couple obvious questions, so many of the decisions pg e makes is partially in concert with working with a regular, with cpuc, but theyll most elect Public Policy decisions, right . If you change to a rate struc