Reference no: EM13250524

The Hydro-Electric Company (HEC) has three sources of power. A small amount of hydroelectric power is generated by damming wild and scenic rivers; a second source of power comes from burning coal, with emissions that create acid rain and contribute to global warming; and the third source of power comes from nuclear fission. HEC's coal fired plants use obsolete pollution control technology, and an investment of several hundred million dollars would be required to update it.

Environmentalists urge HEC to promote conservation and purchase power from suppliers that use the cleanest fuels and technology.

However, HEC is already suffering from declining sales, which have resulted in billions of dollars invested in idle equipment. Its large customers are taking advantage of laws that permit them to buy power from low-cost suppliers HEC must cover the fixed costs of idle capacity by raising rates charged to its remaining customers or face defaulting on bonds (bankruptcy). The increased rates motivate even more customers to seek low-cost suppliers, the start of a death spiral for HEC. To prevent additional rate increases, HEC implements a cost cutting program and puts its plans to update pollution controls on hold.

Form sides, and discuss the ethical, environmental, and political issues and trade-offs associated with HEC's strategy.