Q1. Amelia Andrews, CFA, is the current head of the California Utilities Commission, the agency which has regulatory authority over all utilities providers in the state of California. Andrews has been head of the agency for three years, before which she had spent her twenty year career in various roles at California Electric (CE), the largest producer and distributor of electricity to residential customers in California. Presently, legislators in the state of California are struggling with the issue of how to balance rising consumer demand for electricity with an obsolete production infrastructure that is already producing at levels approaching full capacity. Andrews has scheduled a joint meeting at the Commission’s office with state legislators, consumer representatives, and utilities providers to address the issues.

At the meeting, Andrews greets several of her former co-workers, who are still employed by California Electric. The Chief Executive Officer of CE is Andrews’s former boss and mentor, as well as occasional golf partner. The CEO of CE is at the meeting to acknowledge consumer concerns about rising electricity prices, but also to explain that CE cannot make any price concession because their existing plants are nearly at full production capacity and new, more efficient plants are several years away from completion. CE’s proposal is to maintain the current strategy of passing on gradual price increases to consumers, which will then level off in the next few years as new plants are brought into production. This would allow CE to maintain its current profits margins while still providing excellent service to its customers.

Andrews introduces herself to the representatives of the consumer interest group, which has recently formed in response to the rise in utilities rates. The consumer interest group is represented by three concerned citizens from different cities across the state who volunteered to attend the meeting to voice the opinions of the consumers they represent. Their main goal is to put pressure on the regulatory commission to hold electricity rates constant until the end of the next year, stating that electricity providers have experienced years of profitability and now should be willing to make concessions to the consumers. Also, the representatives will inform meeting participants if consumer demands are not met, consumers are willing to switch to other “alternative” sources of power, even if that means a decrease in the quality of service or a slight increase in price.

Andrews also welcomes to the meeting several California state legislators who are in attendance. One of them, Louis Briggs, has known Andrews professionally for many years and is the person who had originally proposed Andrews for the job as head of the California Utilities Commission. Briggs had sent a note to Andrews before the meeting to say that he would like to help facilitate a smooth negotiation process at the meeting in anticipation of upcoming state-wide elections. He expresses to Andrews that no solution will be attractive to all interested parties, and that each of them should be willing to give up some ground.

After participating in a preliminary discussion among the representatives of the three interested parties and listening to each of their concerns, Andrews proposes yet another possible course of action: deregulation. Andrews argues that some degree of deregulation for the utilities industry in California could have many advantages over the current system. She requests that further discussions regarding the pros and cons of her proposal be held.

In an industry in which a natural monopoly may exist, such as the electric utilities industry, regulators generally attempt to set industry prices at a level where:

A)   price equals long-run average cost.

B)   each participant earns a competitive return on investment.

C)   participants cannot engage in predatory pricing practices.

答案和详解如下：

Correct answer is A)

thx

good