A generation and transmission cooperative (G&T) in the Midwest faced declining liquidity and deteriorating financial ratios, which put their credit rating at risk. The problem was compounded by the need for large capital expenditures to address NOx, SO2 and mercury compliance for its fleet of coal units to meet the Clean Air Transport Rule/Cross State Air Pollution Rule and the MACT rule. With a senior management mandate to develop lower-cost environmental compliance solutions in the face of capital constraints and projected rising member rates, the G&T asked MCR for advice.
MCR led a cross-functional team of client staff in using our business case process to evaluate costs and risks of various environmental compliance alternatives for the G&T’s two largest coal-based power plants. We helped the team gain consensus on the key background facts and specific quantitative compliance requirements, leading to a more precise problem statement and scope of the analysis.
We defined the base case and alternatives, including key cost and risk assumptions under different regulatory scenarios, and performed analysis to quantify the present value of costs and the risks of each potential compliance alternative, evaluating the tradeoff between cost and risk. MCR and the client team presented the results and recommendations to the client’s Project Review Team and senior management.
The client implemented the recommended plan to install lower cost hybrid SCR/SNCR scrubbers to address NOx, change its fuel mix, purchase allowances and implement ACI for mercury. The plan saved $50 million, as compared to the base case solution of installing much more costly SCRs, and helped the G&T maintain and eventually raise its credit rating as financial ratios improved significantly without substantial member rate increases.