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Acid Rain The Southern Company A Case Solution
The case study is a deep insight into the comparative analysis of the three different business strategies to be adopted by The Southern Company after there were acid rain provisions emphasized by the government under the Clean Air Act. The company Georgia Power’s Bowen coal-fired plant was quite efficient in terms of electrical output, but the main issue was the high emissions of hazardous sulfur dioxide gas. The acid rain provisions were implemented to control these sulfur dioxide emissions from plants and the law allowed firms to choose their emission levels, based on their electrical output and allowance limits. The allowance limits could be purchased or sold to other companies. To comply with the new acid rain provisions, Southern Company researched and developed three options that could offer them a solution. They might continue using their current procedures and buying permits, put in the new flue-gas desulfurization equipment to eliminate sulfur dioxide from the air pollutants or start buying low-sulfur coal from West Virginia or Kentucky. The executives wanted a cost-minimizing method that complied with the Act.
Following questions are answered in this case study solution:
What is the impact of the Clean Air Act Amendments of 1990 on the Southern Company’s Bowen Plant?
What options does Southern Company have in complying with the new law?
What is the Southern Company’s least costµ alternative? In answering this question, you should focus on the two high-sulphur coal options (i.e. with and without a scrubber). You should look at the present value of both scenarios, using the data in the exhibits. You should ignore in your calculations the ´interest on constructionµ alluded to in the case. You should also ignore plant operations for the years 1992-94, which will be the same in both scenarios.
What uncertainties does the company face that might cause it not to pursue the ´least cost solution?
What should the Southern Company do at the Bowen Plant?
Case Study Questions Answers
1. What is the impact of the Clean Air Act Amendments of 1990 on the Southern Company’s Bowen Plant?
The Southern Company's senior management is re-evaluating the company's policy to comply with the 1990 Act of Clean Air rectification of acid rain installations. The company's many managers are working on the compliance policy, but the time for observation is quickly running out and a lengthy period of command is needed to control the polluting equipment.
The company's coal-fired power plant in Georgia is having difficulties. The company needs to operate this plant while following the provisions laid out under the Clean Air Act (ACC). This coal-fired power station is a huge facility. A lot of smoke is produced when burning coal in big, bulky vessels, and it passes through surfaces that get burned by the heat of burning charcoal or carbon. The energy from the steam and smoke is transformed into mechanical energy by adjacent rotor coils, which are then transformed into electrical energy in the plant's engine driver.
The Clean Air Act Amendments are envisioned to rectify acid rains by reducing the number of emissions of sulfur dioxide from plants. The Act will be effective from 1995. The Act sets a fixed sulfur dioxide emission limit for plants. Based on their electrical production and emission restrictions, firms are now permitted by the new acid rain regulation to select their emission levels. Companies could purchase or sell their allowance limits in the open market.
The Act impacted Southern Company’s Bowen plant as it had high sulfur dioxide emissions. By 1995, the Bowen facility either had to cut emissions or get allowances. Moreover, after 2000, the Act implemented further reductions in emissions so Bowen will have to further reduce emissions or increase its purchases of allowances. Only 254,580 tonnes of annual emission allowance from 1995 to 1999 and 122,198 tonnes of annual emission each year after 2000 were issued to The Southern Company's Bowen facility. Bowen had to come up with a practical solution to adhere to the Amendments' requirements.
2. What options does Southern Company have in complying with the new law?
The Southern Company has three possible alternatives to comply with the new Clean Air Act Amendments of 1990. They might continue using their current procedures and buying permits, put in the new flue-gas desulfurization equipment to eliminate sulfur dioxide from the air pollutants or start buying low-sulfur coal from West Virginia or Kentucky. The executives wanted a cost-minimizing method that complied with the Act. The three proposed alternatives all have their advantages and disadvantages. Under the high-sulfur coal option, Bowen would have to buy the additional sulfur dioxide allowances even if it could save the expenses of the investment to install scrubbers. The scrubber installation option demanded a high 3-year installation investment and scrubber running fee. Bowen might, however, make money under this arrangement by selling the extra allowances to other utilities or business facilities. Finally, the last option to replace high-sulfur coal with low-sulfur coal required further capital investment, even though Bowen did not need to buy much sulfur dioxide allowance.
The first alternative was for the business to keep running its Bowen unit by burning Kentucky coal with a high sulfur content without first cleaning the exhaust emissions. Due to this, Bowen emits more sulfur dioxide than is allowed, totalling 266,550 tonnes annually. Bowen would then have to purchase allowances from other Southern Company facilities or otherwise on the open market. The excess amount of sulfur dioxide annually till 2000 would amount to 11,970 tonnes and 144,352 tonnes every year after 2000.
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