NEP; Purchasing Coal (Essay Sample)

NEP; Purchasing Coal
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NEP; Purchasing Coal
Summary
National Electric Power is a company that generates energy from its various energy assets. Its headquarters is in Columbus, Ohio and has a service of about 198000 square miles in multiple cities. In 2001, it had $47billion in assets and $61.3 billion in revenues. It uses different fuels to generate energy. The remaining two percent is generated from wind, pumped storage, and hydro sources.
It has coal mines in Louisiana, Ohio, and Kentucky that produce more than 10 million tons of coal annually. The amount is inadequate for their 80 plants that need 75 million tons to supply electricity to its 7.4 million customers. NEP has established coal traders, a subdivision of commodity sellers, to meet the extra coal requirements. The coal traders identify coal sources, negotiate prices, secure contracts with suppliers, and monitor the coal commodity market (NEP n.d.).
Coal traders are always aware of the shortcomings of each plant in order to operate near capacity and optimize capital equipment. The traders know the production rate of each plant to avoid run outs of coal. They estimate the amounts of coal used by the plants by monitoring the energy output from the plants. NEP also considers the type of coal to purchase for its operations. Every plant has its unique coal requirements and specifications. It uses lignite, bituminous, and sub bituminous types of coals in its power generation. Physical characteristics differentiate each coal from the others. Traders use four basic criteria to differentiate the types of coal and evaluate their qualities. They value quality in order to get high value coal.
They first consider moisture content that is an expression of the weight of water in the coal. They prefer moisture contents below 20 percent for sub bituminous and bituminous. Lignite coal can at times have moisture contents above 45 percent. The traders also consider the amount of ash that is measured as the amount of coal's weight that remains unburnt. An appropriate coal should have an ash proportion of between six and eight percent. The quantity of ash required is dependent on the plant's operations as it can be sold in secondary markets or reused. The proportion of ash changes depending on its source(NEP n.d. ).
The traders also consider the quantities of sulfur as sulfur emissions are restricted by the EPA. Operating with non-efficient plants can violate the EPA standards leading to its closure. Lastly, the traders consider the coal's caloric value. Caloric value refers to the British thermal units per ton. A ton with 12000-Btu content produces more electricity than a ton of 10000-Btu. The source origin of the coal is essential to the traders due to the shipping prices.
Analysis
NEP prioritizes the competitive bidding method in selecting a supplier. It grants contracts based on delivery schedule, value, service, quality, and other conditions that meet its needs. It does not emphasize on competitive bidding at all times, but it requires coal traders to document reasons as to why it was not necessary for a given situation. It does not have quantitative methods of prequalifying suppliers. It relies on reputation and experience in choosing its suppliers. NEP specifies to bidders to indicate if they will subcontract parts of the bid to other contractors. It maintains policies of not granting preference due to location or union status. In evaluating the various alternatives available through which it can purchase coal, it is unfortunate that it relies on reputation. The reputation of a supply guarantees nothing especially to new customers. The supplier can be famous in providing services in the area, but the neither the quality nor the price is disclosed. Compromising the quality in the coal delivered can lead to sulfur emissions that are against the EPA guidelines. Contracting a supplier based on experience...