Pacific Gas and Electric Company Business Regulation Stimulation

Pacific Gas and Electric Company (PG&E), is a utility which provides natural gas and electricity to most of Northern and Southern California. In 1993, PG&E was accused of contaminating the drinking water with hexavalent chromium, also known as chromium (VI), in the Southern California town of Hinkley (Malcolm, 2006, p. B1).

Chromium (VI) is known to be toxic and carcinogenic, when ingested via inhalation or orally (Pellerin & Booker, 2000, p. A402). PG&E used the chromium (VI) in the water cooling towers to prevent scale and rust of the pipes. PG&E released statements to the townspeople, saying they have nothing to worry about, chromium is in many multivitamins. The Maximum Contaminant Level for chromium is 0.10 ppm which is set by the United States Environmental Protection Agency; Hinkley’s groundwater had a contaminant level of 0.58 ppm (United States Environmental Protection Agency [USEPA], 2006, p. 1; Blowes, 2002, p. 2024). Hence, many townspeople illnesses’ were linked to the hexavalent chromium; for example, cancers, birth defects, and organ failures (Pellerin & Booker, p. A403).

After many arguments the case was led to arbitration with a maximum of $400 million. After the first 40 people settled for approximately $110 million, PG&E reassessed its position and decided they made the wrong decison. In 1996, the case was settled for $333 million, the largest settlement ever paid in a direct-action lawsuit in U.S. history (Malcolm, 2006, p. B1).

As it turned out, PG&E failed to show it had effective systems in place to deal with the crisis. It showed little leadership after the allegations, and appeared indifferent to the environment and humanitarian destruction. From this case study, it is noted that environmental regulation is perhaps the most stringent area of government’s regulation of business. The government imposes great technology investment demands on industry for regulatory compliance. However, the penalty for a single act of recklessness can be greater….

Situation Analysis

In the stimulation, students played the role as Business Managers of Alumina Inc.; Alumina is a $4 billion aluminum making company, operating in eight countries around the world, with the USA accounting for 70% of its sales.

Alumina is situated on the fringe of Lake Dira in the state of Erehwon. The company has business interests in automobile components and manufacturing materials, bauxite mining, alumina refining, and aluminum smelting. Alumina falls under the jurisdiction of region 6 of the Environment Protection Agency (EPA). At the federal level, the EPA coordinates public control of private action as it affects the environment. The EPA administers federal laws that concern pollution of the air and water, solid waste and toxic substance disposal, pesticide regulation, and radiation (Reed & Morehead, 2005, p. 513). Region 6 is includes five states (Arkansas, Louisiana, New Mexico, Oklahoma and Texas) and sixty-five Indian tribes in the U.S. (USEPA, 2006, p. 1).

According to the stimulation, Alumina was reported to be in violation of environmental discharge norms in a routine EPA compliance evaluation inspection five years ago. The polynuclear aromatic hydrocarbons (PAH) concentration test samples were above the prescribed limit; sources of environmental PAHs include power plants, domestic heating systems that burn oil, coal, or wood, gasoline and diesel engines, various industrial activities. Some PAHs are classified as potent carcinogens. A cleanup was ordered by the EPA, to which Alumina complied promptly. Barring this one incident, Alumina has enjoyed a good overall environment regulation compliance record.

Kelly Bates, a local resident, threatens to mar Alumina’s good compliance record. Bates accused Alumina of repeatedly contaminating the waters of Lake Dira with carcinogenic effluents, and has alleged that consumption of the contaminated water is the precise cause of her daughter’s leukemia. In addition, Bates alleges that her daughter’s leukemia may be as old as Alumina’s first instance of environmental law violation.

In the stimulation, as Business Managers at Alumina Inc., students are given the responsibility of leading Alumina in their effort of managing the dilemmas, which arise out of allegations of environmental damages. Each student primary objective was to prevent extensive losses, environmentally and commercially; preserve Alumina’s public image, and abide by the pertinent environmental statutes.

Issues

Due to allegations of environmental and humanitarian destruction, Alumina’s managers are dealing with issues, such as complying with environmental laws, maintaining the company’s image, and resolving the Bates’ issue.