Case | HBS Case Collection | February 1992 (Revised April 1993)

Acid Rain: The Southern Co. (A)

by Forest L. Reinhardt

Abstract

The Southern Co., an electric utility, is planning its compliance with the 1990 amendments to the Clean Air Act. The Act established a system of tradeable permits for sulfur dioxide emissions. The company must decide whether to install pollution control equipment and generate excess permits for sale to other firms, or to emit larger quantities of sulfur dioxide, save capital costs, and purchase pollution permits. Can be used to teach discounted cash flow analysis of a make versus buy decision. Also raises issues of expected cost minimization, questions of economic and political uncertainty, and the value of flexibility.

Keywords: Energy Generation; Business Strategy; Environmental Sustainability; Cost vs Benefits; Financial Management; Strategic Planning; Investment Return; Government Legislation; Wastes and Waste Processing; Utilities Industry; Energy Industry; United States;

Citation:

Reinhardt, Forest L. "Acid Rain: The Southern Co. (A)." Harvard Business School Case 792-060, February 1992. (Revised April 1993.)