On this episode of Fortune’s Leadership Next podcast, host Diane Brady talks to Patti Poppe, CEO of Pacific Gas and Electric (PG&E). Poppe left her position as CEO of Consumers Energy in Michigan in 2020 to join PG&E, shortly after the company pled guilty to criminal charges for the massive Camp wildfire that devastated California's Butte County. She only signed on after getting a promise that the turnaround would focus on the company's culture and operations. PG&E had just exited bankruptcy and Poppe told the board chair at the time, "I'm not excited about a financial turnaround. But I'm excited about an operational and safety turnaround and cultural turnaround." The playbook she and her team put into place did end up building a strong new financial foundation for PG&E but, she said it was just as important to improve physical safety, including a reduction in wildfire risk as well as workers' safety incidents.

The interview also covers building toward a decarbonized economy, nuclear energy, and why it's time for employers to go beyond the work-pay construct to, instead, lead with love. "I want my team to have the full expression of their skills, their talents, their gifts, and then the appreciation for one another as they achieve it," said Poppe.

Listen to the episode or read the transcript below.

Transcript

Diane Brady: Leadership Next is powered by the folks at Deloitte who, like me, are exploring the changing roles of business leadership and how CEOs are navigating this change.

Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Diane Brady.

Pacific Gas and Electric, PG&E, is the largest utility in California. For most of us outside and inside the state, it's perhaps best known for starting one of the deadliest wildfires in U.S. history for which it faced criminal charges and hefty fines, not to mention bankruptcy in 2019. The person brought in to turn around the company, the culture, and its relationships with customers is CEO Patti Poppe. It's a turnaround that's proven to be tough and costly. I spoke to her about the tough choices that all of us face in addressing climate change, as well as the role of innovation in energy, and perhaps most surprisingly, how Poppe feels that both AI and EVs are a boon in getting where we need to go. Take a listen.

[Interview begins.]

Patti, thank you so much for joining us today.

Patti Poppe: Thank you. It's good to be with you, Diane.

Brady: You know, you're the first female CEO to move from leading one Fortune 500 company to another. So I just want to put that out there. I think that makes you a baller. Is that the right term? Probably.

Poppe: That's a good term, but I won't be the last. So that's the good news.

Brady: Listen, you've been in the job now for three-and-a-half years at PG&E. You came in after the company pled guilty to criminal charges for the Camp fire. Obviously, you've got a lot of challenges. You've mentioned that this was a turnaround of culture and safety. Can you walk us through, has it turned out as you expected it to be at this juncture? Or walk us through a little bit what you've learned.

Poppe: Yeah, you know, it was very important to me when I took this role that it was, in fact, an operational and cultural turnaround. I told the board chair at the time that if this is a financial turnaround — the company had just gone bankrupt, had just exited bankruptcy — I'm not excited about a financial turnaround. But I'm excited about an operational and safety turnaround and cultural turnaround. And so we really put into place some foundational pieces with our what we call our performance playbook. I had to get everybody on the same page in that playbook, learn the basics of a lean operating system and a safety management system, and something we call breakthrough thinking. And that has proven to be very beneficial to creating a foundation of physical and financial, but really primarily physical safety that has been very consequential. We’ve reduced wildfire risk. Moody's, in fact, just did an assessment, and has indicated that we reduced the risk of economic damage by 93%. We've reduced the number of acres burned by 99%. We've reduced our coworkers’ safety incidents, both preventable motor vehicle incidents and serious incidents, and most gratifying, fatalities on the job, dramatically. I think that foundation is exactly the foundation that we need so that we can then move into serving customers more affordably, more reliably, and then decarbonize the economy, which is our great ambition.

Brady: You know, I think it's good to level-set for listeners. Why is it so tough to fight wildfires in California? And you have unique challenges, too, in terms of the type of landscape that PG&E is in.

Poppe: Well, I'll just give you an example of the landscape. Just last week, I was at something called our Helms Power Plant, and it's a pumped storage power plant that was, a big tunnel was dynamited out of a mountain in the late seventies, and hundreds of millions of gallons of water are pumped between two reservoirs to produce energy in California. But from a wildfire perspective, certainly the vegetation that exists in our Sierras and our Santa Cruz Mountains, those mountainous territories facing the effects of climate change and extreme weather, extreme drought, therefore resulting in dead and dying trees at an alarming rate, make contact with a power line that otherwise — at one point in time, was the lowest cost way to deliver energy from point A to point B — that same power line is now a hazard. And electric equipment sparks, it sparks everywhere. Ours is not unique. But ours sparks, under certain conditions, those sparks can turn into an ignition. Those ignitions can result in catastrophic wildfire if, in fact, we don't mitigate those risks. And so it's very much, in the land of risk management, we've had to absolutely create what we call a fail-safe environment for our equipment that used to fail safe every day. We have to cause it now to fail safe in a very different way.

Brady: You know, it's interesting because what you're talking about gets to the point that the conversation around climate change has switched to some extent from mitigating it, of course, preventing it, but really, it's about adapting to it now, isn't it?

Poppe: Yeah, I think it's both. We definitely are building infrastructure that's fit for purpose and the purpose has changed and the risks have changed. And so we have to adapt that infrastructure, just as you said. And we also have to mitigate and contain and reduce the carbon emissions that are the root cause. And it would be a shame to stop at just the adaptation. But the combination of adapting and for us, we consider that our journey to be trusted to take the next step to decarbonizing the economy, we first have to prove ourselves reliable and trustworthy in delivering the safety foundation and the adapted infrastructure is key to earning the right to then deliver the decarbonized economy.

Brady: Now, anyone listening to this cannot see the picture behind your head, which is a big heart. And I know you talk about leading with love. And love is one of those terms that can be pretty fraught when you're talking about an employer, a utility, whatever. What exactly do you mean by love?

Poppe: Well, I have two main examples that I'll use. First is regarding safety. You know, I've had the unfortunate duty to attend the funeral of a fallen co-worker, somebody who died on the job. And the expression of love in those moments is overwhelming and it's beautiful, but it's too late. Love should have been expressed on the job when someone was about to do something stupid or make an inadvertent error or do something that was going to put themselves or someone else at harm, somebody should have spoken up and stopped the job. That's the act of love that we reinforce day in and day out with our teams and why I think we've had a dramatic change in our safety culture that we acknowledge that a loving act is speaking up. But the flipside of that is also, I think, and this is for all corporate American executives, I want you to hear me on this, I think too often companies stop at a work-pay construct. You work, we pay you. That's the deal. You know, hopefully everybody wins. I look at athletes and athletic teams and the Olympics were just on, you know, we saw all these athletes expressing the full range of emotions in their joy for their craft. That's their job, these people. Those professional athletes, their job is to compete on the athletic field. But at the end of the game, they don't stop and say, okay, congratulations to the team and shake hands and walk out of the stadium. No, they're jumping up and down. They're expressing full range of joy and I think that's a version of love. Like those teams wrap their arms around each other and say, I love this guy. Why do you love that guy? Because you just won with him. We win at work every day. We achieve great things. And what I remind my team, what we do is way more important than putting a ball through a net for goodness sake. Why can't we love each other while we do that and while we achieve the unachievable side by side? I want my team to have the full expression of their skills, their talents, their gifts, and then the appreciation for one another as they achieve it.

Brady: I love that, of course. Let's look. I want to double down on the theme of love a bit because I'm curious, where do you get the most joy out of your job?

Poppe: Well, I like when we achieve the unachievable and when I see my team achieving what they thought was previously impossible. I love that. I watch my team, we had a situation in 2023 where we were burying, we had a target to bury 350 miles of line, power line as part of our safety initiative and our infrastructure for purpose. And in the first quarter of the year, we had three months nonstop of atmospheric rivers. These are massive, like an onshore kind of hurricane-level storm for three months straight. It wasn't a weekend, it wasn't 48 hours. We had 15 successive atmospheric rivers. We lost three months of construction when we had the goal to achieve the largest amount of power lines ever buried in a single year. And we achieved it. The team works together. We use our performance playbook. They made the challenges visible. They implemented new standards, they innovated new solutions. They worked it, they worked it, they worked it. I remember seeing the team in mid-June and it was looking rough and they were looking rough, but they were not losing faith. And I'll tell you what, at the end of the year, when we delivered over 360 miles of line, the team could not have been more proud and I knew pure, unmitigated joy watching them achieve what they really did not think was possible midway through the year.

Brady: Well, and it gets to the point that doing this is expensive, right? You’re talking about burying power lines. I know you've had some rate increases of course. Talk a little bit about that. Part of the word "utility" sometimes evokes commodity to people, which it is not, insofar as you know, there's excellent service, there's poor service, there's, you know, value for money. There's not, how do you make those choices in what's got to be an expensive profession that you're in, given the world that we live in right now?

Poppe: Diane, one thing I'll say that I think I'm happy to bust the myth on this. What's expensive is what we're doing today. Wildfire is expensive. Catastrophic wildfire is devastatingly expensive. The amount of vegetation management that we are doing is expensive. So when we can replace an annual maintenance cost with an infrastructure investment that dramatically, 99% reduction in risk, that is lower cost. And it actually, as we look at our ten-year plan, we see billions of dollars of savings for customers versus the current mitigation technique, which is just cutting down every tree within striking distance of the line. And here's just an interesting step that might surprise you: Infrastructure investments in a utility like ours, in an energy company like ours, actually is the lowest cost investment for customers because maintenance and annual expenses every year get fully absorbed by customers in the following year. When we can spread out the cost of that infrastructure over the life of the asset, 50, 60 years is much more affordable. So it's like making a mortgage payment versus paying cash for the house. For us, the best utilities are over, spend about $2 of capital on infrastructure for every dollar that they spend to maintain or expense to maintain that equipment. At PG&E because of the emergencies that we've been chasing, we spend about $0.80 of capital for every dollar of expense. So instead of $2 for every dollar we spend, $0.80 for every dollar, which means that annual cost of maintaining our equipment for our customers is much more expensive. So when we compare ourselves to other energy providers nationally, that's the big opportunity. We can reduce cost. That doesn't mean not do the right maintenance, every utility does maintenance, but it's a two-to-one ratio instead of an $0.80 to a dollar ratio. So that's a big opportunity for us to fix that. Our customers will have more reliable equipment, lower risk, and a lower price, and we look forward to stabilizing those bills and making sure the energy that we're providing is affordable.

Brady: And those rolling blackouts you have during crisis periods, maybe reducing that as well.

Poppe: We have reduced that. In fact, we just had a big test here in July. We had eight consecutive days of the highest, of high temperature mornings in the Bay Area. That has never happened before. Eight consecutive days. We had no flex alerts, no blackouts. The state and PG&E have invested in particularly battery storage. The state has added ten gigawatts of battery storage that we can call on that matches when the solar power that's produced here in California, and it actually creates a perfect match so that on a hot summer day now we have the ability to serve in a way that just two years ago we were unable to. We actually added nine gigawatts of new power resources in the last year as a state. So we definitely are in a much better position to deal with more extreme weather and we're not finished yet. We're not satisfied. We're going to keep working together as a state to make sure that we keep the lights on and that air conditioning running on those hot days.

[Music starts.]

Brady: Inequality in the health care system is one of the toughest and most critical issues to address. I read a Deloitte report recently showing that mental health inequities alone, if left unaddressed, could lead to staggering excess costs. But we also have a staggering opportunity to address it. We spoke with Jason Girzadas, the CEO of Deloitte U.S., which is the long time sponsor of this podcast. Here's what he had to say.

Jason Girzadas: We actually believe that the health equity cost to society could rise by up to a trillion dollars by 2040. So this is an economic issue for all businesses. The role of business is to recognize that health equity impacts the workforces of every single business, and it's needing to be on the CEO agenda and board agendas for all organizations. In our country your zip code can determine your health status, and that's problematic. If you think about the drain on worker productivity, the cost to businesses in terms of the health and well-being of their workforces, making this a priority from the standpoint of looking at what actions you can take through your organization around health and benefits, as well as how it pertains specifically to the products and services and also the types of partners that organizations team with to address health equity issues broadly. There are resources to look at the Deloitte Health Equity Institute, which has pro bono data and analytical tools to leverage that are accessible to all organizations to start on this journey of making health equity not just a societal concern, but actually a business priority.

[Music ends.]

Brady: Patti, you point to something that I think is really interesting as to the mix of renewables. You know, obviously there's a move toward electric vehicles, especially in a place like California. How is that impacting your strategy?

Poppe: Yeah, it's an important part of the strategy. In fact, last year, PG&E delivered 100% carbon-free energy to our customers. It is not a pipe dream. So for folks who are in California or who might be suspect about what's happening in California, I can tell you there's lots of reasons to believe that a carbon-free energy system can in fact, be reliable. Battery storage is a massive game changer and things like hydro storage, like I was just talking about, we have a plant, the Helms pump storage power plant. It's a big water battery. That's a carbon-free energy resource that every single day delivers 1200 megawatts that powers a million people's homes and our nuclear power plant. The state made a big decision to extend the life of our Diablo Canyon Nuclear Power Plant. That was a great decision. The baseload power, carbon-free that can be delivered from a safely operated nuclear power plant like ours is an important part of the mix as well. So I really feel like, I know that we have a path forward. We consider ourselves climate optimists and, you know, there's a lot of hand-wringing. It feels like people are second guessing something that's already working in California today. So it's not such a leap of faith for us. We have actually, the actual performance of our system to give us confidence to keep moving forward.

Brady: Do you think that the conversation around nuclear energy is changing? I mean, you and I both grew up in a time when, you know, Three Mile Island, people think about disaster, Chernobyl, you know. How do you find the receptiveness to the idea of even doubling down on nuclear power?

Poppe: It definitely, the conversation has changed globally and here in the United States. I was just at a conference, Research Institute for Electric Utilities, last week, and there was someone there who was representing the global nuclear power industry. They went through a list of all the new nuclear units that are being built around the world and it's quite stunning. We just had our own first major four new units built in Georgia. I think the nation has realized that we can operate nuclear units safely, that, yes, it was scary in the seventies, but that is a long time ago. And we have realized that there are ways, just like with wildfire prevention, where we have a risk mitigation system in place at our nuclear power plant where we can fail safely. So when an instrument fails, we have a backup and we understand what we need to do to make sure that doesn't cascade into a significant incident. And I think if everyone would actually look at the safety record of our nuclear units across the globe, I think we would find that they're some of the safest kind of power generation units there are of any kind. And so I think it's very hopeful and I'm very optimistic about the role that nuclear power plays in the future energy system.

Brady: You know, one of the other big trends, of course, is AI, both, you know, useful for your business, but a big sucking noise when it comes to energy and data centers. People talk about this hard choice between sustainability and AI. How do you think about it and how is it impacting you?

Poppe: I think new data center load, AI-driven data center load, electrification, and electric transportation are all contributors to the ability to fund rebuilding of our grid, expanding our grid at a lower unit cost. And let me just give you some stats on that. So if we added a gigawatt, so consider that power for a million people, to serve a data center, a gigawatt-sized data center, let's say that came online, we can spend up to $2 billion to invest in that infrastructure, to serve that data center but the new revenue from that data center actually is more than the cost to build out that infrastructure that better utilizes existing grid assets, plus makes the rebuild of those assets more reliable, more resilient at a lower unit cost for all customers. So that by increasing the utilization of our existing assets and rebuilding them at a cost that is less than the increase in revenue that gets put against those assets, we have a profit margin story there that delivers a more reliable system at a lower unit cost for customers. That's a big win. So I say we're very lucky to have load growth for the first time in decades. That load growth is actually going to be what funds the rebuilding of an aging infrastructure nationwide. We're going to be able to rebuild that infrastructure. And certainly here in California, that load growth is definitely happening and we're going to be able to rebuild this grid in a more affordable way for customers. It's a big advantage.

Brady: Smarter grid. We all want that. I mentioned at the start that you've had multiple leadership roles, Patti. I'd love to hear more about your leadership journey. Did you start out wanting to be a CEO?

Poppe: Oh no, I was an engineer. I wanted to make cars. I worked in the auto industry for 15 years. My dream-come-true job was going to be plant manager at a General Motors car plant. I thought that if I ever achieved that, I would achieve my worldly aspirations. That happened faster than I expected. And I had a boss one day say, 'Patti, you're going to have to dream bigger than that.' And so I guess it was then that I started thinking about the fact that I love leading people, that I guess I was feeling like I was pretty good at it. And I then switched to the utility industry where I could make a big difference in the world. You know, delivering energy, delivering light on the darkest night and heat on the coldest day in a way that keeps people safe is, I think, a noble pursuit. And it brings me joy to deliver that for customers and to lead people to achieve what they never thought was possible is just a lot of fun. And so I think being a CEO ended up being a really good role for me.

Brady: I want to pivot to a little bit of advice. You know, I'm always a bit loathe to talk about that women question because, of course, you've lived in your body all your life, as have I, and that's the experience we know. But it is true that I think 10% now of Fortune 500 companies are led by women. And I'm curious, one of the things I think about is that we often don't like to admit that we're ambitious, that we want to be in these leadership roles. Do you have any advice to people who look at you as an inspiration or, when you're talking to anybody on your own teams about taking on bigger leadership roles, what are some of the things that you think hold people back?

Poppe: Well, I do think we think we're not supposed to utter the words. And so and in fact, I felt like maybe I wasn't supposed to utter the words, and it took somebody kind of pulling it out of me. So my advice would be utter the words. If you have an ambition that you want to be a CEO someday, then get clear about that and be specific about that. Study CEOs. What is the path when in fact, I just had a mentor meeting this morning and I shared with a young, very talented woman that if she wants to be a CEO someday, then she should be clear about that but she should get the requisite experiences. And sometimes those are the hard jobs, sometimes those are operational jobs. You know, I took some jobs that were tough, not glamorous, but I got the stripes. I got the experience I needed. I didn't just want to be a CEO. I wanted to be a good one. And so when I'm out in the field with my crews, I'm comfortable in a pair of boots and a hard hat. I like being in a truck. I like being on a job site because I spent many years of my life learning the business there. And so doing core business operations or engineering, if it's an operations and engineering company; finance, if it's a finance company; customer service, if it's a customer company, you know, understand [what] the core business is at your company and do the core jobs even when they're hard, even when they don't seem like it's glamorous or fun, it's giving you the experience that you need so you can be in position to compete for the top job.

Brady: You called yourself a climate optimist. Let me step back. Are you an optimist overall about just innovation and where this country's going, the economy, etc.?

Poppe: How can one not be? I mean, there's so many proof points especially here in America and California, I'm just in the heartbeat of innovation. We can achieve anything we set our mind out to. You know, there's all sorts of examples of how the unachievable was achieved. I had actually one of our board members said to me, he's a four-star admiral and he has studied every great military accomplishment. And I was feeling concerned about wildfire when I first got here and wondered, Can we can we overcome this? And he said to me, 'Patti, you have to remember two things about every great military accomplishment that ever happened. Number one, there were setbacks. And number two, they had a leader who never gave up.'

And so I see that as my role at OG&E to to never give up and see us through whatever setbacks may come. We can do anything. We can cause our future to be different than our past. We can create a company that our customers can be proud to call their own. And that's really what we're up to. And so I am extraordinarily optimistic. I believe in people, and I believe people can achieve anything if they set their mind to it.

Brady: You know, one other thing, when I think about the military, there's also the peacetime CEO and the wartime CEO. And when you're dealing with the number of crises that frankly, are not going to go away, as you know, you're in the middle of it, I don't want to make a false analogy, but it must change the mindset of having to navigate volatility.

Poppe: I have a new appreciation for risk? I used to think I understood risk, and now I actually understand risk. And creating an environment where we can fail safe takes a particular mindset, and there's no doubt that the challenges that I encountered when I joined the PG&E family were great, are great, and we're not finished yet. But we understand the importance of risk identification, mitigation, controls, and then a failsafe construct. And so we have a lot of it's not just will, it's not just optimism. It's smart methods, visibility to our challenges, and then a daily commitment to make those challenges challenges of the past that challenges of the future.

Brady: And is there anything else on your radar you want to put on ours in terms of even just a little glimpse of what's around the corner that excites you?

Poppe: Well, I'll tell you one thing that I'm excited about, and people know that they'd be surprised if I didn't mention while we were together, Diane. I'm very optimistic about the role that electric vehicles play in the grid. A lot of people will say to me, Oh, isn't the grid overwhelmed? Aren't the EVs going to strain the grid? What I'm going to tell you is EVs are the best thing that ever happened to the grid. Electric vehicles are the first form of dynamic demand. Until now, the grid was a demand taker. Whatever demand existed, we built the grid for that. A peak day is driven by air conditioning. Air conditioners come on when it's hot, lights come on when it's dark, motors at the factory turn when the factory starts. EVs can be demanded at any time of the day. And if we send the right price signal in the right customer experience, then we can leverage excess power that we have every day driven by excess solar that's producing energy here in California. We can use that excess power to fuel those cars, and then those cars can go ahead and be dispatched back to the grid, which I think is particularly exciting on a peak summer day as a little mini power plant. So look forward to hearing more from us about the role that EVs play in the grid of the future.

Brady: I always love that idea. We can be our own mini power plants. Thanks for joining us, Patti.

Poppe: Thank you, Diane. Great to be with you.

Brady: Leadership Next is edited by Nicole Vergalla. Our audio engineer is Natasha Ortiz. Our executive producer is Hallie Steiner. Our producer is Mason Cohn. Our theme is by Jason Snell. Leadership Next is a production of Fortune Media

Leadership Next episodes are produced by Fortune‘s editorial team. The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.

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