SCE&G: Relevant and Non-Relevant Costs
South Carolina Electric and Gas (SCE&G), a principal subsidiary of SCANA Corporation, makes life convenient by bringing electricity and natural gas to homes and businesses. The company also provides residential, commercial, and industrial builder service firms the energy they need for construction (www.sceg.com). The company also has telecommunications services and other businesses which involve non-regulated energy. To supply electricity and natural gas, SCE&G operates 22 various plants, most of which are coal plants. Today, SCE&G serves nearly 1 million customers in South Carolina (“SCE&G Quick Facts”).
The coal plants of SCE&G emit nitrogen oxide. Also known as NOx, this is one of the compounds that form smog in the atmosphere. Thus, the company has been making efforts to lower the emission of NOx. Just recently, SCE&G has installed the selective catalytic reduction (SCR) equipment on Wateree Station and Williams Station, the two largest plants of the company to reduce NOx emission. This has cost them $138 million (www.sceg.com). The company has also invested 80 million dollars on equipment for emission and pollution control (Zaleski, 2007).
In 2008, the firm has decided to install the SCR equipment on the Cope Station as well. The project, which started on the summer of 2007 and will end on the fall of 2008, will cost the company 69 million dollars (Zaleski, 2007). This amount includes relevant costs (i.e., costs that are significant to a specific decision) such as the cost of the equipment and the cost of installation (CITATION).
The previously mentioned expenditures prior to the Cope Station project–the investment on SCR equipment and on the emission and pollution control equipment—are considered sunk costs. Whether SCE&G would push through with the Cope project or not, the costs of these equipments have already been incurred. Hence, they are irrelevant to the project.
SCE&G reported in its statement of projected expenditure that the budget for the Cope Station project was $ 26 million (“SCANA Corp. 2007-2009 Projection Expenditure,” 2007). Since the investment would cost $ 69 million, it would result in a budget deficit of $ 43 million. This implies that the company had to make budget adjustments in order to fund the said project.
When the project is complete, it would surely result in “clean, safe, and reliable power source for [the] citizens and industries” (Zaleski, 2007). Although it would not bring the company explicit financial benefits, by making the plant environment-friendly, the project can further contribute to the healthy relationship of SCE&G with its neighboring communities. Moreover, this may “attract new industries [to invest] in [the] area” as the environment becomes free of the polluting NOx (Zaleski, 2007).
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Zaleski, G.. (6 November 2007). SCE&G investing $69 million in Cope plan to reduce
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