'Acid Rain: the Southern Company (a) Case Analysis Essay\r'

'Acid Rain: The s come to the foreherly Company (A) Case Analysis |\r\n toil Processes and Costs|\r\nExecutive Summary\r\nIn the form 1992, the Southern Company that held the Bowen fructify, a sear-fired steam electric kit and boodle had to ascertain on the various extracts avail equal to(p) to abide by with the amendments in the Clean Air mold, telling 1995. The Bowen form was an unusu tout ensembley large plant with a capacity to serve the residential, technical and industrial demands of 1 billion people. The Bowen generators consumed 8.338 jillion scores of sear and gene trea authoritatived 21,551 million kW- moments of electricity. During 1990, Bowen plant emitted over 30 lots of entropy dioxide per hour, an important precursor of acid rain. In 1990, Congress passes the Clean Air scrap that aimed at biddingling acid rain. As per the Clean Air Act, arising 1995 ( stagecoach 1) altogether the scorch-fired return plants would be receiving gross profit margin s to emit 2.5 pounds of randomness dioxide per million British Thermal Units (MMBtu) of ember consumed.\r\nIn the year 2000 (Phase 2), all scorch-fired utility plants, would get al number oneances worth 1.2 pounds per MMBtu of sear. The plants every had to decoct their emanations or purchase superfluous al brokenances from otherwisewise firms. The Bowen plant received allowances for 254,580 stacks of due south dioxide for for each one if the five age, from 1995 till 1999. From year 2000, it would receive allowances worth 122,198 oodles per year. To travel along with this sore law, Southern Company had the next choices: * slew eminent siemens Kentucky scorch without bush the exhaust gases, as in past, and secure the allowances from other firms. * throw in scrubbers to assume due south dioxide from the exhaust gases of the generators. in that location were elevate ii options on hand(predicate) to be realizeed * Scrubbers could be installed from 1992 to 199 4, to be lively for Phase one. * Install scrubbers from 1997-1999 and be take a leak for Phase 2. * whip to low- randomness combust from Kentucky or West Virginia. The outpourings would be lower than the metre permitted in Phase One, but in Phase twain they would stick to secure allowances. As a result of the analyses, excerption 3 : enthusiastic low- atomic number 16 blacken seem to be the outgo fit in this situation, because it has the minimum court voluminous and at that placeby, retroverts the maximum moolah for the company.\r\n line of work STATEMENT\r\nThe Southern Company, is trying to convention out the best option available, the one with the minimum comp shew k nonted, to comply with the amendments in the Clean Air Act, effective 1995. The main upshot was the arrive of siemens dioxide emitted each hour by the plant, which was 30 gross tons in year 1990. As per the amendments in the Clean Air Act, the amount of sulfur dioxide was set to 2.5 pounds per MMBTu of sear from year 1995 and still reduced to 1.2 pounds per MMBtu of burn from year 2000. The regulated amount was the marrow emission allowed by all the coal-fired utility plants in the country. As a result, Bowen plant would receive an allowance for 254,580 tons for each of five years beginning 1995 and 122,198 tons per year starting time 2000. The company could either subvert special allowances from other firms or reduce the emission amount by either chaparral off the sulfur dioxide from exhausted gases or use low-sulfur coal.\r\nMETHODOLOGY\r\nThe baptismal font hands troika main options which were analyzed to make an communicate decision about the choice to be made. I take a shit figure the give nonice drink value of the be gnarled in each of the three manners and recommend the option one with minimum gelt present value of cost to be utilise for complying with the Clean Air Act amendment. The three available options atomic number 18:\r\n* Burn high sulfur Kentucky coal without scrubbing the exhaust gases, as in past, and buy the allowances from other firms. * Install scrubbers to remove sulfur dioxide from the exhaust gases of the generators. in that location were further two options available to be considered * Scrubbers could be installed from 1992 to 1994, to be ready for Phase one. The Bowen plant would because be generating lower sulfur dioxide emissions that could be sold to other firms\r\n* Install scrubbers from 1997-1999 and be ready for Phase 2. In this, they get out be generating excess of allowed emission direct in Phase 1 (1995-1999) and would bugger off to buy those allowances. Starting Phase 2 (year 2000), they would be in a affirm to sell the allowances. * Switch to low-sulfur coal from Kentucky or West Virginia. The emissions would be lower than the amount permitted in Phase One, but in Phase Two they would gain to buy allowances.\r\nTo calculate the total be involved for each of the three options , I have considered solely those factors that ar not common land in all. I have calculated only the excess of cost that dexterity be required to deploy an option. The trustworthy operating(a) be and all cost that do not change amongst the options have been left out as these costs would remain same and go away have no effect on the decision.\r\n data Requirement or Sources\r\nThe data utilize to perform analysis has been taken from the case study only. The factors available argon: * change by reversal cost of coal: switching from high sulfur to low sulfur. * Costs or tax income involved with buying or selling, respectively, the sulfur dioxide emission allowances. * Depreciation on great costs\r\n* Capital costs involved to fire the plant with scrubbers or existent machinery. * Additional operating costs\r\n* Energy consumptions (R chargeue lost) when employ scrubbers. * Federal and secern revenue enhancementes involved\r\n* Discount stride use by the company to evalua te coronation opportunities.\r\nKey Assumptions\r\nTo determine the costs involved in the given three options, following assumptions have been made: * on that point is no available evidence that the cost of coal may deviate from the given amounts, or the company seems to have contracts with the coal vendors and so the values be constant. * The electricity generated by the plant remains constant passim the operating theater of the plant, that is, amount of electricity generated is 21,551 million kilowatt hours any year.\r\n* The amount of coal required to generate the electricity amount remains fixed to 8.338 million tons when high-sulfur coal is used and 8.391 million when low-sulfur coal is used. * In 1990, the revenue generated by electricity is $5.6 cents per kilowatt hour on an average, and give more or less the same. * The rate of buying or selling allowances is estimated to be $250 in year 1995 and entrust ontogenesis at a rate of 10% any year till 2010. aft(prenomi nal) 2010, the rates testament remain constant. * As per the amendments in the Clean Air Act, in Phase One, Bowen plant exit be allowed to emit 254580 tons of sulfur dioxide and in Phase Two, 122198 tons of sulfur dioxide. * There be firms ready to sell or buy the allowances for sulfur dioxide emissions.\r\nAnalysis\r\n pick 1: Burning High-Sulfur Coal without Scrubbers; purchase Allowances In this option, we consider utilize the existing infrastructure. Since, the companies be allowed to buy extra emissions from some(prenominal) other firms, we go forth consider that. The cultivation that is available to analyze is:\r\n* Cost of coal from 1992-1995 is $41.46 per ton and is pass judgment to fall bundle to $29.82 per ton from 1996. * The amount of sulfur dioxide emitted is 266550 tons for burning 8.338 million of high-sulfur coal. * The graduation exercise and only cost in this mode go away be the cost to buy emission allowances for sulfur dioxide from other firms. The costs go outing vary every year because of the going in allowance prices as shown in possess â€Å" cream1”1. * There is no capital costs involved in this method as at that place we argon not investing in machinery required. Also, since there is no capital costs involved, there is no wear and tear. * The additional operating costs are also zero.\r\n subsequently, adding the tax benefits to the total cost, the dismiss present value of cost in this method is $266,379,610. The advantages of using this approach are that there will be no costs to add or upgrade machinery. Also, since the plant will be operating as it currently is, there are least chances of unexpected malfunctioning of the plant. The issue with this approach is that we are assuming that there are firms voluntary to sell their allowances.\r\nBut, since it is cognise that the Bowen plant is comparatively cleaner than the other coal-fired steam electric plant, finding the firms willing to sell involves tak e a chance. And in-case, if we are not able to find firms ready to sell allowances, it will put the plant into a risk of shutting the operations and pay fines, or accrue the amount of electricity contemporaries to emit the allowed sulfur dioxide takes. Also, it is a great threat to the environment to emit such large numbers of sulfur dioxide when there are methods available to decrease those numbers.\r\nOption 2: Burning High-Sulfur Coal with Scrubbers; plow Allowances In this option, we consider adding scrubbers to the plant. Scrubbers will service of process reduce the amount of sulfur dioxide emissions by 90%. In this option, the plant will be able to sell allowances as very low amounts of sulfur dioxide will be emitted by the plant. The information that is available to analyze this option is: * Cost of coal from 1992-1995 is $41.46 per ton and is expected to fall blue to $29.82 per ton from 1996. * The amount of sulfur dioxide emitted is 26655 tons for burning 8.338 mill ion of high-sulfur coal, once the scrubbers are installed * The first cost in this method will be the cost of installment scrubbers. The scrubbers are highly expensive and so can be considered to be installed and ready to use either by the beginning of Phase 1 (year 1995) or by the starting of Phase 2 (year 2000).\r\nThe total capital costs including the 10% capital interest for installing scrubbers is $719,430,000. The cost is disperse over three years, $143,850,000; $503,610,000; $71,970,000. * There is depreciation amounts involved for the investments in installing scrubbers. * The additional operating cost is $0.0013 per kilowatt hour that amounts to a total cost of $28,016,300 per kilowatt hour for each year * Also, the operation of Scrubbers uses 2% of the total electricity generated, which manner 2% of the total revenue generated every year which has the value of $24,137,120. After adding the benefits of tax deductible expenses and depreciation values, the earn present va lue of cost in this option is $451,531,619 if the Scrubbers are ready to be used in Phase 1 (as shown in Exhibit â€Å"Option2A”). If the Scrubbers are ready to be used in Phase 2 the pull in present value comes out to be $293,959,184 (shown in Exhibit â€Å"Option2B”).\r\nThe advantages of using this approach are that there is a very low emission train of sulfur dioxide, and we can earn revenue by selling allowances. Also, we are sure that there will be firms ready to buy those allowances. This option also is skilful for the environment. The issue with this approach is that we are the net present value of the cost is high. Also, we will be investing atleast $293,959,184 in the plant which we are sure will be operational for only a few more years, till 2016. With the advancement in technology, there are higher chances of refreshed more efficient plants to come on stream even earlier.\r\nOption 3: Burning Low-Sulfur Coal\r\nIn this option, we consider changing the t ype of coal that is burned-out in the plant. We can switch to low sulfur coal which contains 1% sulfur by weight and so will reduce the emission of sulfur dioxide in the environment. The information that is available to analyze this option is: * Cost of low- sulfur coal from 1996 is $30.37 per ton and is expected to rise to $34.92 per ton from 2000. In years 1992-1995, coal used in the plant will be high-sulfur coal which has the cost of $41.46 per ton * The amount of sulfur dioxide emitted is 16750 tons for burning 8.391 million of low-sulfur coal starting 1996 and so we would have to buy emission allowances for the years 1995, 2000-2016 and we will generate revenue in years 1996-1999 by selling the excess of emission allowance.\r\n* The first cost in this method will be the cost of switching from high-sulfur coal to low-sulfur coal. The amount and cost of high-sulfur coal required to generate 21,551 million kilowatt hours every year is different from the low-sulfur coal rate and quantity. There is an overall increase in the cost when operations are switched from high-sulfur coal to low-sulfur coal as shown in Exhibit â€Å"Option3”. * Switching to low-sulfur coals also need changes in the existing electrostatic precipitators used to control airborne particulate matter as it is currently designed for operating with high-sulfur coal. The costs for upgrading the electrostatic precipitators for low-sulfur coal is $22.1 million * There is depreciation amounts involved for the investments for upgrading electrostatic precipitators.\r\nAfter adding the benefits of tax deductible expenses and depreciation values, the net present value of cost in this option is $176,919,328 (as shown in Exhibit â€Å"Option3”). The advantages of using this approach are that the net present value of the costs is the lowest and so is most beneficial for the Southern Company. There is relatively lower emission level of sulfur dioxide. Although we have to buy allowances in most of the years, still the lower levels are better for the environment. The issue with this approach is that we are the investing a $22.1 million in the plant and we are depending on the new type of coal whose cost is expected to rise over the years.\r\nConclusions and Concerns:\r\nAfter analyzing all the three available options, I would dissolve that the best option to be deployed is Option 3: Burn low-sulfur coal. This option does not only have the least cost but is also beneficial for the environment. The option will generate higher profits for the company and we can have even a lower cost, if the price of the low sulfur coal does not rise and is negotiable. Also, there can be a possibility that the changes in the electricity precipitator for low-sulfur coal could decrease the emission levels. The major concern with this option is that we have to either find firms willing to sell their allowances (although a small amount) or would have to decrease the amount of electricity ge nerated to adjust the sulfur dioxide emissions which will impact the revenues but since the amounts are low, the revenues will not be stirred adversely.\r\n'