Coal - A Pattern for Sound Fuel Procurement

A UTILITY that has a large consumption of coal must insure an adequate and sound supply of fuel. The Detroit Edison Co., which has an annual coal consumption of about four million tons and spends approximately $32 million a year for coal, including freight charges, has developed a program for fuel procurement and for evaluation and selection of fuel for reliable and efficient plant operation. Fuel Procurement Coal Purchasing Division: The Fuel Supply Div. of the Purchasing Dept. combines all of the procurement functions in one group, which must maintain adequate stocks of fuel. In addition to its usual purchasing duties, the division also governs transportation, follow-up, invoice and freight bill, in cooperation with the Accounting Dept. The Fuel Div. is comprised of the fuel agent, an assistant fuel agent, a coal buyer and five coal clerks, who follow the movement of each car, initially approve freight bills and invoices, and file claims whenever there is a shortage of one ton or more. The fuel agent reports directly to the purchasing agent of the Company, and all major programs are planned jointly with the chief purchasing officer. The apparent individuality of the fuel section is necessary because of the tremendous volume of coal cars handled each day, sometimes as many as 500, which must be handled promptly to complete the fastest possible move from the mines to the plants. Determining Annual Coal Volume: Through the combined studies of a Production Dept. Load Committee and the Controller's office, accurate predictions of coal requirements for any given year are provided the Fuel Dept. from 12 to 15 months in advance. This is divided into the requirements of all individual power plants and central heating plants. This in turn determines the quantity and quality for plants whose specific fuels vary with the type of equipment installed. In the Detroit area, which has a high industrial load, early estimates of annual coal consumption usually are resolved at the end of the year within 4 or 5 pct of the original plan. Operating in a highly developed industrial area eases the task of estimating primary output; and, with the residential demands increasing in a steady and fairly well-defined pattern, the overall coal schedules are not subject to radical changes during any given year. Selecting Suppliers: At any time, but especially during or before an emergency, the coal supply factor must be made secure. This is particularly true in the procurement of utility fuel. There are always extreme quantities of so-called "bargain" coal available during the buyers' markets, such as recently prevailed. These opportunistic offerings may be considered a means of averaging down overall price, rather than as a steady and dependable supply source. Coal is purchased on contract from mine operators and sales agents who have proved reliable. They are not opportunists who desert for higher dollars in times of duress; they do not fail to fulfill contracts when markets rise or overship when markets dip. The progressive operator today who is willing to expend capital to improve quality and service deserves much more consideration than a matching of short-term pennies. When a company has a high volume of annual needs, all phases of the mine supply must be considered. The mine must be able to produce the quality required at a fair price and be able to sell oversizes of coal in enough volume to screen sufficient nut and slack. It must crush coal and sell mine run at prices in line with competitive nut and slack and be willing to do so when there is no demand for prepared sizes. Determining Price: The public utility is in direct competition with any of its customers who can, if savings are guaranteed, generate their own power. Today, to a greater extent than ever before, private industry must do a better overall job than Government-controlled operations. The price of coal must be realistically balanced with the price paid by almost all industries and the railroads as well. The supply-demand ratio in coal is not difficult to discern. There is access at all times to Govern-