TRANSFORMER REPLACEMENT AT MOUNTAIN of an incident. For the case in which there is a high likeli- STATES ELECTRIC SERVICE hood that an incident will occur, there is a .004 probability that a fire will occur sometime during the remaining life Mountain States Electric Service is an electrical utility of the transformer and a 996 probability that no fire will occur. If a fire occurs, there is a 20 probability that it will company serving several states in the Rocky Mountains be bad and the utility will incur a very high cost of approxi- region. It is considering replacing some of its equipment at mately 590 million for the cleanup, whereas there is an 80 a generating substation and is attempting to decide whether probability that the fire will be minor and cleanup can be it should replace an older, existing PCB transformer . (PCB accomplished at a low cost of approximately $8 million. Ir is a toxic chemical known formally as polychlorinated no fire occurs, no cleanup costs will occur. For the case in biphenyl.) Even though the PCB generator meets all cur- which there is a low likelihood that an incident will occur rent regulations, if an incident occurred, such as a fire, and there is a .001 probability that a fire will occur during the PCB contamination caused harm either to neighboring busi life of the existing transformer and a .999 probability that nesses or farms or to the environment, the company would a fire will not occur. If a fire does occur, the same prob- be liable for damages. Recent court cases have shown that abilities exist for the incidence of high and low cleanup simply meeting utility regulations does not relieve a utility costs, as well as the same cleanup costs, as indicated for of liability if an incident causes harm to others. Also, courts the previous case. Similarly, if no fire occurs, there is no have been awarding large damages to individuals and busi cleanup cost. nesses harmed by hazardous incidents. Perform a decision tree analysis of this problem for Mountain States Electric Service, and indicate the recom- If the utility replaces the PCB transformer, no PCB mended solution. Is this the decision you believe the com- incidents will occur, and the only cost will be the cost of pany should make? Explain your reasons. the transformer, $85,000. Alternatively, if the company decides to keep the existing PCB transformer, then man This case is based on W. Balson, J. Welsh, and D. Wilson, "Using De sion Analysis and Risk Analysis to Manage Utility Environmental Risk agement estimates that there is a 50-50 chance of there Interfaces 22, no. 6 (November December 1992 126-19 being a high likelihood of an incident or a low likelihood TRANSFORMER REPLACEMENT AT MOUNTAIN of an incident. For the case in which there is a high likeli- STATES ELECTRIC SERVICE hood that an incident will occur, there is a .004 probability that a fire will occur sometime during the remaining life Mountain States Electric Service is an electrical utility of the transformer and a 996 probability that no fire will occur. If a fire occurs, there is a 20 probability that it will company serving several states in the Rocky Mountains be bad and the utility will incur a very high cost of approxi- region. It is considering replacing some of its equipment at mately 590 million for the cleanup, whereas there is an 80 a generating substation and is attempting to decide whether probability that the fire will be minor and cleanup can be it should replace an older, existing PCB transformer . (PCB accomplished at a low cost of approximately $8 million. Ir is a toxic chemical known formally as polychlorinated no fire occurs, no cleanup costs will occur. For the case in biphenyl.) Even though the PCB generator meets all cur- which there is a low likelihood that an incident will occur rent regulations, if an incident occurred, such as a fire, and there is a .001 probability that a fire will occur during the PCB contamination caused harm either to neighboring busi life of the existing transformer and a .999 probability that nesses or farms or to the environment, the company would a fire will not occur. If a fire does occur, the same prob- be liable for damages. Recent court cases have shown that abilities exist for the incidence of high and low cleanup simply meeting utility regulations does not relieve a utility costs, as well as the same cleanup costs, as indicated for of liability if an incident causes harm to others. Also, courts the previous case. Similarly, if no fire occurs, there is no have been awarding large damages to individuals and busi cleanup cost. nesses harmed by hazardous incidents. Perform a decision tree analysis of this problem for Mountain States Electric Service, and indicate the recom- If the utility replaces the PCB transformer, no PCB mended solution. Is this the decision you believe the com- incidents will occur, and the only cost will be the cost of pany should make? Explain your reasons. the transformer, $85,000. Alternatively, if the company decides to keep the existing PCB transformer, then man This case is based on W. Balson, J. Welsh, and D. Wilson, "Using De sion Analysis and Risk Analysis to Manage Utility Environmental Risk agement estimates that there is a 50-50 chance of there Interfaces 22, no. 6 (November December 1992 126-19 being a high likelihood of an incident or a low likelihood
