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WASHINGTON, DC, July 23, 2002 - By depleting U.S. SO2
allowance banks now, power companies will accelerate their need
to spend billions on SO2 controls under impending
multipollutant regulation, according to a new study released
by ICF Consulting, an international energy and environment analysis
firm. The recent heightened focus on cash flow and earnings
brought on by the ENRON debacle is forcing some power companies
to sell excess SO2 allowances driving down near-term
prices. This emphasis on near-term earnings and the continued
uncertainty over future air regulations will accelerate the
need for SO2 controls and tighten SO2
allowance markets for years to come. Proposed multipollutant
regulations such as the Bush Administration's Clear Skies Initiative
(CSI) will slash the SO2 supply, leaving companies
with depleted allowance banks and at the mercy of a very tight
market.
"ICF Consulting recommends a buy and hold strategy for
SO2 allowances," says John Blaney, director
of ICF Consulting's energy environmental practice, which authors
the annual study. Exhausting the allowance bank prematurely
under a policy such as CSI will shift the need for controls
forward in time. With the timing of new control installations
pushed forward, power companies will experience a sudden and
significant hit to their balance sheets far earlier than anticipated
if current depletion rate of the bank continues. "The
current allowance market does not adequately reflect the cost
of complying with existing regulations in the future, and
substantially undervalues the cost of complying with increasingly
likely additional SO2 emissions reduction requirements,"
Blaney says. "This disparity between SO2 allowance
prices and their value provides a cost-effective opportunity
for proactive companies to hedge future regulatory risk."
Sharp cuts in the SO2 emissions cap and other
components of multipollutant policies will have a profound
impact on coal markets. More importantly, such policies will
not affect regional coal markets uniformly. "New regional
production patterns will emerge as mercury premiums and SO2
scrubber installations change the economics of coal choice—these
new patterns will alter existing business plans for suppliers,
transporters, and end-users," explains Blaney. He adds,
"The rosy outlook for Powder River Basin (PRB) coal production
is definitely at risk."
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ICF International (Nasdaq: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets. The firm combines passion for its work with industry expertise and innovative analytics to produce compelling results throughout the entire program life cycle, from analysis and design through implementation and improvement. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 1,800 employees serve these clients worldwide. ICF’s Web site is http://www.icfi.com.
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For Immediate Release
Contact: Douglas Beck
1.703.934.3820
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