Eli Nauful, Energy Industry
The deregulation of the utilities industry has posed a new set of challenges for effective fuels management. While fuel demand has not changed, the rules of the fuels management business have. Cost-conscious managers can no longer rely on large inventories and long-term contracts to assure competitive energy prices. Vital fuels such as coal-responsible for 60 percent of the nation’s electricity-have evolved to the level of a commodity, requiring the management of their acquisition, transportation and disposition. This new wrinkle demands new technology.
Electricity price still depends heavily on fuel. Approximately 35 to 65 percent of its total market price is driven by fuel costs. Before the deregulation era, coal contracts and prices were determined by the supplier/customer relationship. Companies maintained large coal inventories to ensure sufficient supply. Today, with coal options traded on the New York Mercantile Exchange, managers are decreasing their inventories to deal with price fluctuations and to offset storage costs. Smaller inventories mean greater risk of shortage, however, and the pressure falls directly on fuels managers to prevent supplies from running low.
There are a number of ways managers can stay on top of their coal supply:
- Tracking from the mine to the plant: New technologies allow fuels managers to follow trains from start to finish, monitoring the railways to pinpoint shipment status and related information such as arrival date and quantity. Keeping a close eye on shipments enables comfortable and precise management of fuel needs while increasing vendor accountability for delivery.
- Scrutinizing the price index: Managers can make effective use of spot coal prices to balance increasing inventory costs with swings in fuel prices. Fuels managers can ship coal to other locations and pay a generator for converting BTUs to kWh (commonly known as tolling). Profit opportunities also exist for fuels managers to leverage their buying power and become resellers to interested customers. This requires technology that simplifies complex contract management from invoice to delivery-keeping track of bids, receipts, and schedules for each transaction.
- Checking quality: This is especially important for meeting emissions regulation requirements. Today, fuels managers require the ability to closely monitor fuel quality in order to make price adjustments and hold vendors accountable for the contracted product. The Clean Air Act limits on sulfur dioxide emissions require that delivered coal meets specified sulfur content-this quality management component can be an essential part of an overall compliance plan. Fuel managers can more effectively manage coal quality with systems that track and store this information and allow financial adjustments if suppliers exceed specified limits.
Looking at fuel as a commodity has created new revenue opportunities. Fly ash, the byproduct of burning coal, for example, has real value on the market (as an ingredient for concrete) but must meet a specific quality standard. Being able to manage the quality and quantity of this potential revenue product provides a
two-fold benefit-reduction in landfill space and additional income to offset the cost of generation.
As the transition from fuels management to commodity retailing continues, managers will have increased responsibility to monitor material costs. With the vast amounts of raw materials and chemicals required to produce electricity, tracking prices from the most competitive vendors is a difficult undertaking. Commodity management requires long-term, high-volume data monitoring. Advanced database technology provides solutions that integrate such functions made necessary by today’s changing market goals.
Fuels management will increasingly rely on technology solutions such as SCT’s Banner Fuels Management System to: plan and budget; manage bids, contracts, receipts, invoices and inventory; track shipments; and perform and compile sample analyses. This innovative technology helps enable utilities to optimize investment in raw materials and manage commodity retail to their advantage.
New industry trends require new industry solutions. The most effective fuels managers will meet the challenges of change with technology that will support new ways to derive profit, increase revenues and generate value.