The Southern Company (A)
In 1992, executives at the Southern Company have three years to formulate a robust and complex strategy that will involve massive capital outlay and substantial modifications to processes and procedures as it works to comply with provisions enacted in 1990 to the amendments of the Clean Air Act, while simultaneously ensuring they remain sustainable and profitable. Analysis
The Southern Company is an American based electric utilities company in Alabama, Georgia, Florida, and Mississippi. It is the fourth largest in the U.S. The case surrounds the challenges the company’s Bowen plant in Georgia faces as it attempts to conform to the new 1990 Clean Air Act Amendments. The Bowen plant is a coal fired plant capable of producing enough power to serve residential, commercial, and industrial demands of over one million people. The Clean Air Act recognizes sulfur as a contributor to the acid rain problem and enacted a goal to reduce total national sulfur dioxide emissions to half of 1990 levels. The Act describes the cap and trade approach whereby companies are permitted to pollute a certain amount of sulfur dioxide compared to levels of electricity output they produce.
Rainwater is naturally acidic with a pH of around 5.7. Acid rain can be defined by anthropogenic acidification caused by nitrogen compounds and sulfur dioxide, formed as particulate matter released in man-made products such as smoke stack emissions and automobiles. Environmentalists have grown more concerned about the effects of acid rain which contains lower than normal pH levels in water. The effects of the lowered pH as surface water streams into rivers and threatens aquatic species, disappearance of sensitive coral reefs, disrupts microorganisms and natural acid buffers in soil, weakens tree roots, causes leaf loss, and corrodes limestone and buildings.
The case serves to examine the methods and alternatives for which sulfur dioxide is utilized, and the relation with its pollution within coal-fired energy plants. Through new provisions passed in the Clean Air Act of 1990, the Southern Company’s Bowen plant in Georgia will require strategic action in order to comply with the new law. They must reduce their sulfur dioxide emissions from 262,800 tons per year to 254,580 per year, as well as steeper reductions in subsequent years. If it does not, it will be allowed to buy allowances from other plants or companies to meet the legislative requirements. Conversely, the Bowen plant can work to significantly lower sulfur dioxide emissions and sell their excess pollution allowances to other plants or companies. To this end, the case discusses three options the Bowen plant is investigating in order to comply with the new Clean Air provisions, which are: 1. Option 1: Burn high-sulfur coal without scrubbers and purchase allowances 2. Option 2: Burn high-sulfur coal with scrubbers and sell allowances 3. Option 3: Burn low-sulfur coal and have potential to sell allowances
The Southern Company must consider certain ambiguities as they evaluate their options. First, the pricing of pollution allowances are established estimates and could vary depending on projected levels and future government protocol. Second, if the Bowen plant selects the option that would produce the greatest amount of pollution, it would counter the intent of the Clean Air Act and therefore, even if the option chosen is most advantageous from a profitability standpoint, the company should consider a balance of profitability and adherence to the progression of global conservation.
The Southern Company has certain advantages in working toward a solution to bring their plants up to code and in line with new regulations. They have four plants in the southeast, representing a strong energy producing market share in the region. Each plant is in a different stage of code adherence, so the company has flexibility as...
References: Reinhardt, F., (1992). Acid Rain: The Southern Company (A). HBS No. 9-792-060. Boston, MA: Harvard Business School Publishing
Meyer, R., and Yandle, B., (1987) The Political Economy of Acid Rain Cato Journal, Vol. 7, No. 2. The Cato Institute
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