The scenario below is based on articles published in The New York Times and other media outlets. Please read it carefully and answer the questions below.
Frustrated with wildfires and intentional blackouts caused by Pacific Gas & Electric, more than two dozen California mayors and county leaders are calling for a customer-owned power company to replace the giant utility. PG&E, which filed for bankruptcy protection in January after accumulating an estimated $30 billion in liabilities from wildfires caused by its equipment, is widely expected to emerge with a different structure. However, Jennifer Robison, a PG&E spokeswoman, said in an email. We remain firmly convinced that a government or customer takeover is not the optimal solution that will address the challenges and serve the long-run interests of all customers in the communities we serve,
A number of local officials embraced a proposal by Mayor Sam Liccardo of San Jose to create a cooperative that would use their collective resources to take over the utility after PG&E intentionally blacked out millions of customers to prevent wildfires as fierce winds swept through Northern and Central California. PG&Es equipment has been identified as the possible cause of at least five different wildfires, including the Kincade fire, which has burned nearly 80,000 acres in the Sonoma County wine region and damaged or destroyed more than 400 structures.
Theres a strong response among the local leaders that I speak with that their communities are fed up, Mr. Liccardo said. They believe PG&E needs to be transformed into a company that is more responsive and more responsible. Mayor Darrell Steinberg of Sacramento said that he had signed on to the letter in solidarity with my fellow mayors. Sacramento runs one of the states municipal utilities along with the Los Angeles Department of Water and Power, the largest in the country. Mr. Steinberg said the Sacramento Municipal Utility District, which provides electricity in areas connected to PG&Es territory, had not had the kinds of problems that PG&E has encountered and customers are paying lower rates in general. He said not having the profit motive that drives the private utility appeared to be a significant factor. Theres a singular mission to provide safe, reliable and cost-effective electricity services, Mr. Steinberg said in an interview. Were not fighting between shareholders and ratepayers.
Liccardo and the other mayors indeed cited higher rates caused by the burden of paying dividends to shareholders as well as their lack of focus on maintenance and repairs as important reasons why it makes sense to mutualize PG&E. They argue that cooperatives can explore innovative ways of creating a reliable energy system for their communities. That means reinvesting money into the grid and investing in renewables. They also cite another benefit of electric cooperatives. They run on the principle of democracy, giving ratepayers democratic control through voting and allowing them to better serve customer needs.
Still, the officials said they recognized that it would cost billions of dollars to improve an electric system that many see as woefully neglected, no matter how the utility is structured. Even Mr. Liccardo admitted: Were not delusional about the challenges here.
Mr. Newsom has suggested that state ownership or a cooperative as Mr. Liccardo has proposed could be options. He has also raised other possibilities, including a takeover by Berkshire Hathaway, the holding company of the billionaire Warren E. Buffett, which has extensive energy interests throughout the West. PG&E as we know it cannot persist and continue, Mr. Newsom said. It has to be completely transformed. There will be a new entity.
a) How is PG&E organized (legal entity)? (2 points)
b) Would you describe PG&E as a Competitive firm, Oligopoly, or Monopoly? Briefly discuss some of the implications of this position in the market. (3 points)
c) What three unique features of cooperatives are referenced by both, Liccardo and Steinberg? Which benefits referenced in the text could cooperatives offer to their members to make their commitments worthwhile? (5 points)
d) What key limitations of cooperatives are not discussed in detail in the article? Please briefly mention traditional and new approaches to the cooperative model. Why might Newsome also be considering a takeover by Berkshire Hathaway (5 points)
e) Does the traditional cooperative model incentivize innovations and entrepreneurial spirit in the same way investor-oriented firms do? Discuss briefly why or why not and if and how members can benefit from innovation. (4 points)
f) Starting a cooperative and succeeding in todays economy can be a complex process. We derived four keys to success while covering new approaches, challenges, and opportunities of cooperatives in our lectures. Please name at least two. (4 points)
