PRB Tech Notes: Pay Me Now or Pay Me Later

Money is always spent with the best intentions. We look for the best deal, often identifying it by the lowest price. Sometimes, our choice works out and we save money and get a great product. When it doesn’t work out, however, we find ourselves spending more and more money to repair or replace our "great deal."

Today’s coal yards are good examples of the dangers of being penny-wise and pound-foolish. Yard upgrades, as part of plant conversions to burn Powder River Basin (PRB) coal, are being made at unprecedented rates. Choosing a piece of equipment because it has the lowest capital cost may help keep a project budget in the black for a while. But you usually get what you pay for. If the cheap unit breaks down and dies — and takes other equipment with it in the process — your bottom line will quickly turn red.

Expensive Lessons

I know of many "pay me later" situations. One involved a utility that needed to better control the coal dust from rotary car dumps. It bought and installed a water mister — the lowest-cost option — rather than spend the money to upgrade existing dust collectors.

Following the installation, the company had to add expensive air baffles and freeze protection to the mister. Two years later, the retrofit is still affecting plant operations, because the mister’s positioning sensor often fouls, and the unit blocks readings of hopper levels. The original projected cost of the dust-control project was $365,000. To date, it has cost $1.05 million, and the books still aren’t closed.

I also recall when one utility decided — for reasons of cost — to buy a package of water treatment and dust suppression chemicals for its fleet of plants from a new supplier on the block. The water treatment chemicals worked, but the suppression chemicals didn’t. Their failure directly and immediately caused three crusher house fires, which cost $1.75 million to repair, and numerous complaints of excessive dust by operators and neighbors of the plant. It took three years for the utility’s purchasing department to re-bid the contract. The plant’s "pay me later" costs also included frayed relations with the operators’ labor union and local community.

Switch to Bifocals

In these and many other cases, looking at price alone proved to be a short-sighted purchasing strategy. Following are some purchasing guidelines that will lengthen and broaden your perspective and help protect your plant from financial ruin.

Bank on experience:

  • Be sure the supplier you’re considering has a good track record and reputation in the industry. Don’t rely on his word alone; ask around.

  • Require specific experience with PRB coal of a certain number of tons per year, per plant.

  • Keep 100% PRB and blend accounts separate.

Be meticulous about postpurchase support:

  • Be sure your contract specifies installation dates and deadlines, and the damages and/or termination fee a supplier will pay if his failure to perform delays a project.

  • Find out who will service your contract and how to reach them 24/7.

  • Make the sales reps articulate how they will resolve problems.

  • Don’t hesitate to contact the vendor’s senior management if you’re frustrated. Remember: The customer is always right.

Stop using a purchasing process tailored for commodities to buy value-added products and services:

  • Be prepared to give your purchasing department "real" numbers that incorporate worst-case scenarios, based on experience. Take purchasing staff to lunch, and entertain them with horror stories like the two above.

  • When deciding between two products, realize that you may be comparing apples with oranges. They may be similar on paper, but the extras are what set them apart.

  • Estimate the ongoing maintenance costs of high-wear items prior to buying them

Alert your senior management to what could go wrong with a project when you seek their buy-in:

  • Don’t dissemble.

  • Back up your risk analysis with estimates of what it will cost to fix something new that doesn’t work.

Spend Time Early

Getting any task done right the first time often requires spending more time on planning than on execution. For specific technical advice, the PRB Coal Users’ Group is an excellent forum and source of best practices and project information. The group’s web site (www.prbcoals.com) has oodles of evidence, examples, and case studies of coal-handling, safety, and combustion projects that have turned out well — and badly. Use them! Finally, remember that if the price of a piece of equipment sounds too good to be true, it probably is.