California Previews the Next National Melodrama: Coal and the Clinton Legacy in Electric Power
Columbus, Ohio February 5, 2001

Remarks by Jack N. Gerard President & Chief Executive Officer
National Mining Association
To the Ohio Society of Mining Engineers 2001 Annual Meeting

Thank you ladies and gentlemen of the Ohio Society of Mining Engineers: Thank you for your welcome and for the opportunity to meet with you.

This is my first meeting with a coal-state group since I was elected president and chief executive officer of the National Mining Association last December.

This is not, however, my introduction to coal, or to coal country, or to a number of the Ohio coal family.

These things came last fall: Came just days after the selection committee recommended me to be American mining’s next spokesman in the legislative and executive councils of the federal government.

For my introduction to coal and coal country, General Lawson put me on work-release in the custody of Bob Murray, of Ohio Valley Coal Company. Bob put me through a full-immersion program of basic training and orientation that started at Powhatan No. 6.

Bob took me to school in the best tradition of the industry…and in all meanings of the phrase.

When we were arranging the visit he told me that I should expect to work only half days.

When I reported for work, he said: OK, Gerard, which half of the day do you want to work? From 6 a.m. to 6 p.m. … or from 6 p.m. to 6 a.m.

We really did work back-to-back half days. It was a great sleepless experience and…a real learning experience. Bob is a true stalwart for coal.

I’ve compared my transition into the association with the process of drinking from an open fire hydrant. I’ve been headfirst in the fire hydrant of knowledge for almost eight weeks now and I’m coming up to speed on the many activities and interests of mining.

I now have a richer and rounded understanding of what coal the industry and coal the resource really mean to America:

  • That coal is her largest source of non-imported energy – 40 percent of all domestic fossil production, 95 percent of all reserves;
  • That coal delivers the majority share of electric power, the crisis in California notwithstanding;
  • That Californians would not have such a deep crisis today if they had not foreclosed coal in days gone by;
  • That the crisis is not wider because its largest city Los Angeles relies on and shares millions of tons of coal by wire – billions of kilowatt-hours generated elsewhere in the West;
  • That it is not deeper because coal-fired plants in the mountain states have raised output, where possible, to wheel power westward;
  • And that good policy can neither neglect nor penalize coal the resource or coal the industry – not if Americans are to have a hope of energy that is stable, reliable and adequate to their aspirations.

In matters of national and international energy, the relevant signs say that America’s aspirations and economic growth may be in peril.

In Washington the realization is taking hold in the new Congress and the new administration that:

  • The reliability and adequacy of the nation’s power supply may soon be at risk – too little supply and too much requirement;
  • That California’s distress and demand may disrupt the rest of the West;
  • That recent episodes of federal regulation may well have set the stage for outbreaks of the California syndrome in the rest of the nation;
  • And that the sum of concerns adds up to a problem which demands early and serious attention for national energy policy.

President Bush last week established an Energy Policy Development Group and appointed Vice President Cheney to head it. The users of energy and the producers of energy are in consultation with leaders of the legislative and executive branches.

We have formed coalitions to propose and to support consensus legislation that deals with all energy. The heart of the coal portion was just introduced as a free-standing bill – the National Electricity and Environmental Technology Act, called the NEET bill. The bill number is S. 60.

The NEET bill was introduced in the Senate with bi-partisan support from leading coal states: Sponsorship by Robert Byrd, of West Virginia, the ranking Democrat on the Appropriations Committee; and Mitch McConnell, of Kentucky, the chairman of the Rules Committee and a mainstay of the Republican leadership.

We’re adding other sponsors across the range of mining’s activities. Thanks to NMA members, our new colleagues from the hardrock states of the West include in their number the likes of Harry Reid, of Nevada, the Whip and second-ranking Democrat in the Senate; and Jeff Bingaman, of New Mexico, the ranking Democrat on the Energy and Natural Resources Committee.

Today it looks like and feels like things will move faster than anyone could have expected just three weeks ago. The administration is moving, the Congress is moving; and we have the NEET bill ready to move with them.

Without Bob Murray’s foresight and insistence, the NEET bill would not have taken on its present form or early utility.

Since this is my first talk in a coal state, I feel a little like the newest in-law at a big family reunion. I’m excited to be here and I feel welcome.

Yet we’re about to embark on an historic opportunity that none of us could have predicted just a year ago; and most of the family doesn’t know anything about me.

Despite a generous introduction, few in the Ohio coal family know me. Few have any idea how I might conduct the affairs of the association – few outside the board of directors.

And so, I think it will help to further introduce myself in stages as follows:

  • First, I’d like to share some personal experiences – details on things that influenced the way I think and work, the kind of stuff that thumbnail biographies never give to the people who have to introduce speakers;
  • Then I’ll annotate the experiences and connect them to the job at hand;
  • Then we’ll think some more about the energy situation – the one in California and the national one;
  • And, in closing, I’ll ask you to think about coal in the future and the future of coal.

I grew up in a small family community not dissimilar from some I’ve seen here in Ohio – Mud Lake, Idaho, population 190. My first job was with Gerard Brothers Dairy. I did not work for my father and his brothers. The Gerards in this operation were my brothers and me.

In winter the morning lows were often below the age of even the youngest brother, only one of us in our teens. Dad always had the heater going in the barn by 5 a.m.

If every brother wasn’t on the job by 5:30, the heater went off; and we were left to finish the day’s chores on our own.

Dad called it incentive to pull together – no double meaning intended. It led us to keep track of one another, to check with one another frequently, and to trade information.

After a few years we quickly developed enough business acumen to sell the operation.

A number of years later – following my first year of college – I accepted a two-year missionary assignment in Australia. As an assistant to the Mission President, my duties involved the management, motivation and coordination of 200 young men and women volunteers – those things plus the details of their activities, logistics and budget.

When I came home there were short stints in the Governor’s office of Idaho and as a lobbyist for higher education. But soon curiosity about the federal government took me to Washington.

My first look at it was at the outset of the Reagan administration. I signed on as an intern in the office of Congressman George Hansen, of Idaho.

In our first meeting, the Congressman asked me to find ways to save tax dollars by cutting the federal budget. The implied suggestion was, don’t come back until you have something to report.

I was too dumb to be intimidated by the magnitude of the budget and too determined not to try. Time passed and I tried to make something happen. More time passed and I tried harder.

By the time of my farewell interview, I think Congressman Hansen might even have forgotten what he had told me to do. We shook hands, and then I produced my thick notebook of findings, offering it to him.

What’s this? he said.

Over $40 billion you can save the taxpayers, I answered.

Where’d you find it? he asked.

I told him: In GAO reports – the audits and public reports of the Government Accounting Office; in the reports of House and Senate committees; in testimony at oversight hearings; in newspaper stories; from asking questions; and by following my nose.

Congressman Hansen immediately called the White House and arranged for me to meet with David Stockman, then the director of the Office of Management and Budget.

The next day I went to the Old Executive Office Building – next to the west wing of the White House – and shared my dog-eared, tattered report with Mr. Stockman. He appeared to be impressed and thanked me for my work.

Not long after, the Congressman received a personal note from Ronald Reagan. It thanked him for his work and went on to list items from my research that would be sent to Capitol Hill in the first Reagan budget.

The Congressman offered me a full-time job. I took it; transferred to George Washington University; and completed my undergraduate degree at night.

Even today one of my brothers swears that I owe my professional start to a habit I developed behind a shovel at the Gerard Dairy – the habit of following my nose.

Idaho is prime mining country. Being the congressman’s legislative assistant meant immersion in the culture, values and essential importance of mining.

Later I joined the staff of U.S. Senator James McClure, then chairman of the Committee on Energy and Natural Resources, and also chairman of the Appropriations Subcommittee on the Interior.

Each chairmanship was a junction of influence from which policy could be specified and the style of its administration given shape.

As the Senator’s director of legislation, I went in two directions:

  • On one hand, there was immersion in the details and inter-relations of legislation, policy, budgets and administration;
  • And, on the other, a widening in my understanding and appreciation of the enterprises and the resources that hold America together, especially those that flow from mining.

In these years, I also completed a law degree in night classes at George Washington University.

Senator McClure decided to retire in 1990, and I began to think about what came next.

It seemed to me that the McClure team knew better than most what it took to move legislation and to guide policy. After all, we’d done a lot of both. It seemed that we knew what good representation requires. After all, we’d been on the receiving end of a lot that wasn’t good.

And so, I wrote and presented the business plan for what became the government affairs firm of McClure, Gerard and Neuenschwander Inc. – the third partner being Tod Neuenschwander, the Senator’s chief of staff.

The firm achieved success on the Hill. Business responded accordingly. We had many clients in energy and natural resources. Then we began to add clients that think of themselves as a little apart – as being the new economy.

And so, I settled into the comfortable life of founding partner in a successful firm. I was making plans to relax and spend more time with my wife Claudette and our six children. I was sure I was settled there for all time.

Little did I know.

The search committee of CEOs approached me in the early rounds; but I gave them the senior practitioner’s view of the future.

I thanked them, but told them that my plans were made, my course set, my future secure; that I was flattered, but they ought to look elsewhere.

The search moved on, and Dick Lawson’s impending retirement came on. In the closing rounds the committee approached me again. They asked me to just consider the job description.

I said: Send it to me, and I’ll get back to you.

Then I made my big mistake: I took it home and shared it with Claudette. She made a case that my experience was precisely what they wanted, that the job was tailor-made.

As I read and re-read the committee’s outlines of responsibilities and challenges, I began to think item-by-item – to think of what might be done, and of how to do it.

My mind raced forward; and soon it seemed that most of what I had done or experienced in my working life was meant to deposit me at this turning point.

Other thoughts welled up and washed over my plans and complacency – thoughts that touched on:

  • The get-it-done traditions and the entrepreneurial culture that motivate the mining industry;
  • On the political movements and cultural trends that are dedicated to ripping out and casting aside this industry and this tradition;
  • And on how deeply the modern life of this nation depends on the material resources and the electric power that come only from mining.

Before I had finished reading, it all came clear to me. I am a true believer!

This was not a job to me. It was a way of life, a passion.

At that moment I knew that no matter how comfortable the founding-partner’s life might be, I could not turn my back on my beliefs, my experience or my passion.

And so, I got back to them.

In the normal progression, my nomination was forwarded to the board in October and I was elected in December. General Lawson and I completed our transition on December 15.

There’s been a lot of recent talk in the press and around Washington about legacies – most about the Clinton legacy in the environment; but, lately, about the Carol Browner legacy at the Environmental Protection Agency.

I’d like to turn to those legacies in a moment.

But for the time being, there is another legacy that requires both mention and a different kind of comment – the Richard Lawson legacy.

He presided at the union of mining’s representation in Washington in a time of trouble and challenge. In creating the National Mining Association he held together two diverse groups; and he infused their united effort with a reputation for integrity, credibility and effectiveness – a strong legacy.

In the Gerard administration there’ll be no effort to reinvent the association or to fix what does not need fixing.

The challenge is to build on the tradition and extend the achievement – to seize opportunities where they exist and to create them where they are scarce. In doing this, I want to adjust and synchronize this resource with the other strong resources of the industry in anticipation of all that is evolving: In politics, in policy, in public opinion.

To the point: From the sum of my experience, the principles that will guide my conduct include the following:

  • The day’s not over until the work’s done – not even Bob Murray’s half days;
  • We will coordinate and harmonize our capabilities, our strengths and our diverse membership across the range of activities;
  • We will pursue objectives down all avenues and at all junctions open to representation – junctions of legislation, policy, budget, administration and, if necessary, judicial action;
  • We will introduce our friends in office to one another and to our common concerns to maximize effectiveness – their effectiveness and our effectiveness;
  • We will strive to make new friends for mining – new friends in elective office, in appointive office and among the public at large.

I don’t have all the answers; but I am willing to do what it takes to get the job done.

Let’s go back to the California situation for just a minute.

I call it the California syndrome because it brings to mind the Hollywood melodrama The China Syndrome. The movie was pitched to the tempo of the campaigns and campaigners that blocked nuclear power – campaigns of opinion, regulation and litigation.

The attitudes that upheld the campaigns and the movie are still at work in California today.

One way to examine the attitudes is through the proposals and practices of the commentator, cultural critic and policy entrepreneur Amory Lovins.

Attested a genius by the MacArthur Foundation, certified a hero of the planet by Time magazine, founder of the think-tank the Rocky Mountain Institute, Mr. Lovins began his career of commentary and speculation as a spokesman for the group Friends of the Earth.

Mr. Lovins conceived the converse of the megawatt and called it the negawatt. The negawatt is the increment of central-station capacity that is not built due to rigorous regimens of conservation. The thesis is that negawatts are more useful to society than new megawatts going on line.

Mr. Lovins became the nabob of negawatts – popularized the idea that energy security is best achieved by turning to energy efficiency and renewable resources. He says we use 75 percent too much energy.

Movements took hold around these and other philosophies. All who question them are held to be either wilfully ignorant; or hopelessly out of date; or driven only by the profit motive; or, possibly, corrupt; or, maybe, all of the foregoing.

No response to the speculation was more enthusiastic than California’s.

In California, philosophies and personalities at the far edges of the green and consumer movements captured public policy and, in some cases, public office. Preference went to the novel, the exotic, the counter-intuitive and the would-be ideal.

The California syndrome displays at least five abnormalities implanted by such preferences:

  • Lack of intra-state generation capacity;
  • Lack of diversity in the generation that exists – too little alternative to natural gas for too much power;
  • Lack of transmission capacity for power and fuel;
  • Over-stringent air regulations that take capacity out of service without regard to need;
  • And, by most accounts, a sham deregulation – a counterfeit of the real thing that appears to have been an attempt to repeal the law of supply and demand.

California made itself a laboratory of the application of theory, and now the results of those experiments are making headlines every day.

In California, they used to speculate that the least expensive kilowatt is the one that is not used. Now events are proving that the most expensive kilowatt is the one that’s not there when needed.

The rolling blackout is the ultimate in negawatts and the crudest tool of demand-side management.

California showed the new economy what the first economy has known all along – without power at the right time in the right places at the right prices, everything either slows down or goes down.

Adequate power and reliable power are a modern economy’s irreplaceable commodities.

Here and there around the nation some detect – and more suspect – early symptoms of the California syndrome.

For month after month the natural gas market has been signaling that volatility has been resurrected – is alive and thriving. The Clinton administration’s regulatory practices combined both to drive up demand and to retard increases of supply.

Back in Washington at the seat of government – or, if you prefer, the scene of the accident – the local gas company felt it necessary to send a special mid-winter advisory to customers that: "The cost of natural gas has continued to rise…."

Meanwhile, U.S. dependence on imported oil is high and rising. World oil prices have been elevated for almost a year-and-a-half. No retreat is expected. A few collaborating non-members have joined the cartel OPEC (the Organization of Petroleum Exporting Countries) in holding up prices by holding down production.

To round out the national picture in electric power, we can turn to findings from a federal study of the big regional failures of two summers ago:

  • Item – in many parts of the country, requirement is outrunning forecasts;
  • Item – new generation and transmission have fallen behind growth;
  • Item – reliability is eroding;
  • And, last item – the immediate future may require higher reliability than the recent past.

Symptoms of the California syndrome on a national scale – the findings could have come from a study of California today.

America will require as much as 45 percent more electric power in the next 20 years – will need at least an additional 1.4 trillion kilowatts a year by then; and the growth is underway now.

Right now, the existing coal-fired and nuclear fleets are going all-out. Analysts expect the coal plants to be pushing toward 85 percent capacity-utilization and nuclear plants have been at 86 percent.

Reserve margins are being used up. The time to add baseload capacity is coming on.

The U.S. increase in requirement approaches the present combined generation of Japan and Germany.

There’s a building sense that California’s time of trouble may be a dress rehearsal for the next national melodrama – will be a preview without adjustment in policy and course-corrections in its regulations.

In regulation, the Clinton legacy and the Browner legacy is based on a novel and usurpatory notion: That the authority granted by Congress to regulate was a backdoor through which they could rewrite any law passed by Congress.

To illustrate: Ms. Browner once told an interviewer that, in essence, the Environmental Protection Agency must be willing to impose unilateral changes on policy if Congress will not authorize changes in policy.

Ms. Browner’s EPA attempted to use regulatory authority in ways that would:

  • Rewrite and rig the competitive power production intended by the National Energy Policy Act;
  • Would concentrate new generation in natural gas;
  • Would force significant coal-fired capacity out of service;
  • Would raise the price of power from coal capacity that remained in service;
  • Would deter generators from building new coal-fired capacity as the industry restructures;
  • And that would enact, through the backdoor, a climate policy and a treaty that the Clinton administration never sent to Congress for fear of rejection.

All of this was done without even a thought about Congress and, in some instances, over objections from Congress.

In the last months, weeks and days of the administration the President turned his executive power and the regulatory power of the Forest Service and the Department of the Interior to the task of creating an environmental legacy for him.

The designation of monuments combined with the roadless initiative locked away from public use a whole sub-continent of resources – a federal sub-continent of gas, oil, coal and minerals. In Utah the latter specifically precludes development of coal deposits that were to be a future increment of power to California.

In the earlier Grand Staircase-Escalante Canyon set-aside, the President’s executive order expropriated from the public an electricity reserve of about 3-trillion kilowatt-hours – an estimated 30 billion tons of recoverable coal that stood for many years of growth in power.

All of this was done against the will of the Congressional delegations and the state governments of the Western states.

The courts and the present administration are sifting through the Clinton-Browner legacies, the over-reaches and the upwelling of midnight regulation. Some parts are before the Supreme Court and may well be overturned. Others are subject to executive adjustment.

Absent modification, the nation may soon be justified in talking about a Clinton brownout legacy.

Cost also has to be a consideration for the next 1.4 trillion kilowatt-hours. Coal-fired power typically has come at less than one-half the cost of gas or oil.

Based on the Utility Data Institute’s most recent reports on operating costs, the following applies:

  • America’s 50 most efficient plants are either coal or nuclear;
  • Almost 80 percent of this is coal-fired – 39 of the best 50 use coal;
  • The first nine of the best 10 are coal-fired;
  • The best coal plant delivers at 83/100ths of a cent per kilowatt-hour;
  • The best nuclear plant is a shade less than 1.1 cents;
  • The 39 coal plants average 1.18 cents per kilowatt-hour;
  • The 11 nuclear plants average 1.26 cents.

Diversity also has to be a consideration.

At different times in the 1990s, generation by the different forms fluctuated up or down – a period of low water might have meant less hydro power for a time, or maintenance outages might have curtailed nuclear output. Other output was increased to compensate.

During the 1990s the following downward fluctuations were recorded:

  • Nuclear generation – decline of 7 percent;
  • Hydro-electric – decline of 9.5 percent;
  • Natural gas – decline of 15 percent;
  • And, petroleum – decline of 33 percent.

The reasons for the specific fluctuations aren’t important. The point is that there were gaps to be filled.

Through all the fluctuations the amount of power generated with coal rose almost 20 percent – capacity-utilization factors rose and began their ongoing ascent.

Coal filled the gaps and satisfied growth. Coal was America’s margin of reliability. Coal is America’s margin of reliability.

Coal is the nation’s first line reserve of electric power – almost 275 billion tons of it.

The NEET legislation looks to the needs of the future for this power; and it also begins to bring order from the Clinton and Browner legacies.

The National Electricity and Environmental Technology Act – it emphasizes the introduction of the clean coal technologies into commercial use.

Is the environment a concern?

The NEET bill encourages use of a number of technologies that will deliver power at about one-sixth to one-quarter of the most stringent limit on sulfur dioxide; and at one fifth to one-half the most stringent on nitrogen. It fosters other technologies that help standing capacity perform below the limits.

Is increased output a concern?

The NEET bill fosters the upgrade of existing plants to increase efficiency and output; and repowering at old sites with technology that increases capacity; and the construction of greenfield capacity.

Are investors wary of generation on which federal regulators might arbitrarily raise the ante? Of new technology?

The NEET bill provides for a period of "safe harbor" from added regulation; for investment tax credits; and for modest production tax credits. It provides these things for retrofits, for repowered capacity and for new capacity.

It also provides for a power plant improvement initiative and accelerated research and development.

The NEET bill is not a blank check. Its incentives are limited in amount and duration. They are meant to pioneer commercialization of state-of-the-art and advanced technologies.

As the NEET technologies achieve their promise – economic and environmental – in commercial and baseload use, other generators are certain to follow the pioneers.

Active in moving NEET forward we have the following:

  • The Energy Task Force of the National Mining Association;
  • The Coal-based Generation Group that includes NMA, the Edison Electric Institute, the National Rural Electric Cooperative Association, the Center for Energy and Economic Development and the American Association of Railroads;
  • The Coalition for Affordable and Reliable Energy that goes by the acronym CARE – all of the above plus representatives of additional power generation, business, basic industry, labor and agriculture.

In addition, the associations that represent the energy-producing industries have set aside rivalries and are joined in the National Energy Coalition; for the Clinton-Browner legacy affects more than the use of coal in electric power.

Oil, gas, nuclear, hydro – all of the associations in this coalition, and their members, will come together in support of a broad energy-policy bill. Each industry will provide the section that deals with its concerns. There is agreement not to criticize, not to seek preference and not to make separate deals.

The National Electricity and Environmental Technology Act will be the heart of the coal section – the NEET bill.

Broader coalitions of business and industry also will be in advocacy of energy legislation.

I urge you, join us in moving forward.

We need your help, co-operation and active participation as we move forward over the next few months – lend your support as individuals, in your professional organizations and in your corporate capacities.

Early sponsorship of the NEET bill by Ohio’s Senators DeWine and Voinovich and your big House delegation would mean a great deal as the movement gathers momentum. It would add to the momentum.

There’s a stirring in favor of new coal-fired capacity now – a renewed interest despite the regulatory impediments and attitudes thrown up during the Clinton years.

As the legacies are cleared away, the movement will pick up volume and speed.

The steps taken this year could well guarantee the future of coal and the reliability of America’s electric power supply for the next 20 years.

This, then, is how it looks at the outset of the 107th Congress in the first month of the administration of the 43rd president of the United States.

The realization is taking hold that the reliability and adequacy of the country’s electric supply may soon be at risk – too little supply and too much requirement.

Coal is diversity.

Coal is reliability.

And coal is America’s electricity reserve – 275 billion tons.

Coal is the antidote to the futility of the negawatt and a remedy to check and roll back the California syndrome.

Whether new economy or basic economy, if Americans are to have energy equal to their aspirations, they’ll need coal.

Coal may not have all the answers but this much is sure: We’re willing to do what it takes to get the job done!

Thank you for your attention, and for making me feel like one of the family.