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PG&E’s new CEO faces epic task of fixing ‘culture of ineptitude’

Light-blue PG&E vehicles lined up in a parking lot
PG&E Corp. has hired Patricia K. Poppe, the top executive at Michigan’s largest power provider.
(Ben Margot / Associated Press)

After years of upheaval, criminal charges and bankruptcy, California utility giant PG&E Corp. has placed its fate in the hands of a new chief executive with a record of reducing accidents, cutting costs and building bridges.

Patricia K. Poppe, a General Motors Co. veteran who now runs the Michigan utility CMS Energy Corp., will be PG&E’s fourth leader in the last two years, taking over Jan. 4., the company said Wednesday in a statement.

Her task is monumental. Not only must she reform a sprawling enterprise that’s been found responsible for sparking numerous deadly wildfires, but she also has to regain the trust of the public and government officials including Gov. Gavin Newsom, who had threatened to take over the company if it didn’t correct its “culture of ineptitude.” And she has to do it while cutting $1 billion in costs.

“What we have to see is if can we change the course of this company,” Robert Flexon, chairman of the board at PG&E, said during a media call with reporters. “I believe Patti can.”

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Expensive hire

Critics won’t be easy to win over. Within hours of Poppe being named, the Utility Reform Network, a San Francisco-based advocacy group, issued a statement saying the company has a pattern of hiring CEOs who are “grossly overpaid” and yet fail to change the utility’s culture.

“We certainly hope this latest CEO will be an improvement, but past history makes us skeptical,” the group’s executive director, Mark Toney, said in the statement.

Poppe is an expensive hire. Her contract entitles her to $1.35 million in salary, annual long-term incentives worth $9.25 million, as well as a one-time payment of cash and stock worth roughly $40 million to replace awards from CMS that she had to forfeit to take the new job. Though it’s standard for companies to make new executives whole on old awards, such payments rarely amount to four times the person’s annual compensation.

But according to Flexon, Poppe’s candidacy was no contest. “There was nobody near the caliber of Patti,” he said. “Everything has prepared her to do this.”

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PG&E shares surged 9.7% Wednesday to their highest level since March.

Fire risks

The stakes are high for the century-old utility. It pleaded guilty in June to 84 counts of involuntary manslaughter for its role in starting the Camp fire, which destroyed the town of Paradise in 2018. Regulators have put in place oversight measures that could include a state takeover if the company causes another catastrophic blaze as drought and extreme weather have made California increasingly prone to wildfires.

The announcement follows a record-breaking fire season. PG&E has cut power multiple times in recent months to large swaths of Northern California to prevent its power lines from sparking more blazes. The effort has been mostly successful, although investigators are looking at the company’s equipment as the possible cause of a large fire that killed four people in Shasta County.

Moving forward, the company will need to do a vastly better job on fire prevention work, hardening the grid and reducing the frequency of power shutoffs, interim CEO Bill Smith told reporters.

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“It’s going to be a challenge,” said Paul Patterson, an analyst at Glenrock Associates. “It’s not an easy task to turn around a company the size and complexity of PG&E, but clearly she’s willing to take on the challenge and sees an opportunity there.”

Climate record

Poppe will become the second female CEO at PG&E. Women remain scarce in the upper ranks of the industry, making up less than 11% of utility CEOs in the Standard & Poor’s 500 index.

Her climate record may help her win friends in California as the state pursues an ambitious net-zero carbon goal. During her four years at CMS, she worked to retire seven coal plants and doubled renewable energy capacity. She also built strong relationships with labor unions, environmental groups and regulators, Flexon said.

“She’s a very solid CEO, and I’m guessing that is what PG&E needs,” said Nikki Hsu, a utility analyst for Bloomberg Intelligence. During her tenure at CMS, Poppe delivered very consistent earnings and maintained good relationships with state regulators and lawmakers, Hsu said.

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Poppe also pushed to improve CMS’ safety record, driving down accidents 70% from 2008 while boosting total customer savings to $3.1 billion since 2009.

“She’s got a demonstrated, strong track record of implementing a safety culture,” Smith said.

Electric vehicles

Poppe worked for DTE Energy Co. for five years, including as a power plant director, and oversaw five power-generating facilities. Before that, she worked 15 years at GM. She is considered one of the utility industry’s biggest advocates for electric vehicle infrastructure.

“California is going to be the leader in electric vehicles, for the next few years at least, and she has experience with some of the largest players in that market,” Morningstar analyst Travis Miller said in an interview. “Certainly, it’s a key investment for PG&E to grow the electric vehicle fleet in its territory.”

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PG&E, which serves about 16 million people in Northern and Central California, emerged from Chapter 11 bankruptcy protection in July after settling wildfire claims from individual victims, insurers and public agencies for $25.5 billion. The company’s last permanent CEO, Bill Johnson, retired at the end of June after steering the company through the Chapter 11 process.

The company has replaced 11 of its 14 board members since collapsing into bankruptcy. It also made a number of other concessions in order to win state approval of its reorganization plan, including freezing its dividend for three years and changing its operations to have more of a safety focus.

Poppe has resigned from CMS effective Dec. 1. She will be replaced by Garrick Rochow, executive vice president of operations.


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