Rev. April 28, 1993
Acid Rain: The Southern Company (A)
Early in 1992, managers at the Southern Company were reexamining their strategy for complying with the acid rain provisions of the 1990 amendments to the Clean Air Act. The Southern Company was a holding company; its operating units were electric utilities in Georgia, Alabama, Mississippi, and Florida. The largest Southern subsidiaries, Georgia Power and Alabama Power, provided most of the electricity in their respective states. Dozens of Southern Company executives had worked on compliance strategies since the Clean Air Act's passage in November 1990, but the time for analysis was just about over. Because of long lead times in installing pollution-control equipment, the final decisions on compliance strategy would have to be made in 1992 in order to meet the Act's 1995 effective date. The choices that the company faced at Georgia Power's Bowen coal-fired plant were representative of the dilemmas the Clean Air Act posed for the Southern Company as a whole. The Bowen plant sat on the banks of the Etowah River near Taylorsville, Georgia, northwest of the city of Atlanta. Completed in 1975, it was capable, when all four of its generators were running at capacity, of producing enough power to serve the residential, commercial, and industrial demands of 1 million people. The Bowen plant was an unusually large, but otherwise fairly typical, coal-fired steam electric plant. Coal was burned in massive vessels. Steam, traveling through pipes that ran through these vessels, was heated by the energy from the burning coal. Adjacent turbines converted the energy in the steam to mechanical energy, which was then converted to electrical energy in the plant's generators. Large coal-fired plants like Bowen had high fixed costs but relatively low variable costs and were designed to operate continuously. Utilities used them for baseload generation, supplementing the energy from the coal plants with power from oil- or gasfired plants to meet peak demands. Running the Bowen plant was an operation of vast scale. Hundreds of railroad cars, carrying coal from southeastern Kentucky, arrived at the plant each day, contributing to a pile of inventory that weighed over 1 million tons. During 1990, Bowen's generators consumed 8.338 million tons of coal (952 tons of coal every hour) and generated 21,551 million kilowatt-hours of
Professor Forest Reinhardt prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1992 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1
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Acid Rain: The Southern Company (A)
electricity. The value of this electricity varied substantially across markets, but in 1990 the Southern Company realized an average of 5.6 cents per kilowatt-hour in revenues. Also during 1990, over 30 tons of sulfur dioxide left the stacks of the Bowen plant each hour. This pollutant was an important precursor of acid deposition, or acid rain, which had been implicated in damage to lakes, forest ecosystems, and manmade materials like metals and paints. New legislation aimed at controlling acid rain, passed by Congress and signed by President Bush in November 1990, would regulate these emissions starting in 1995. Most previous regulations for air pollution control had specified a particular quantity of pollution that a facility could emit. A firm faced fines or other sanctions if its emissions exceeded the...