President, Pennsylvania Coal Association

at the

25^th Annual St. Barnabas CEO Leadership Conference

Monday, September 18, 2011

Good morning and thank you for inviting me to participate in this energy forum.

By way of background, the Pennsylvania Coal Association is a lobbying organization representing bituminous coal operators and service suppliers whose total annual coal production account for almost 80 percent of Pennsylvania’s yearly coal output.

We certainly have a diverse and abundant mix of energy sources in Pennsylvania, particularly in southwestern Pennsylvania, to satisfy the twin goals of achieving economic prosperity and energy security in an environmentally consistent manner. My remarks will focus on the potential role that Pennsylvania coal can play as part of our energy mix.

Historical Context

The coal geology of Pennsylvania is essentially divided into two distinct coal regions – anthracite and bituminous. I will focus on the dominant bituminous region.

Bituminous coal seams underlay about 12,000 square miles in 28 counties. Coal is found in its four major coal fields:

• The Main Bituminous Field in the southwest,
• The Georges Creek Field in the south,
• The Broad Top Field in the southcentral, and
• The Northcentral field in northcentral.

For over two centuries, coal has played a major role in the economic and industrial development of Pennsylvania. Within that time span, it has been estimated that between 10-20 billion tons of coal have been produced in Pennsylvania, about 20 percent of the total national output during that period.

Licenses for exploration of Pennsylvania’s minerals were actually first granted by William Penn as early as 1692, a decade after the founding of the Commonwealth in 1681.

Bituminous coal was first mined in Pennsylvania in the late 18^th century at “Coal Hill” or what is now Mount Washington.

Overlooking Fort Pitt on the south side of the Monongahela River, coal was mined there to provide fuel for the settlement. The coal was extracted from drift mines in the Pittsburgh coal bed, which cropped out along the steep hillside and transported by canoe to the military garrison.

The growth of western Pennsylvania’s coal production was tied to population growth and development of rail and river transportation, then escalated with the emergence of the steel industry. Towards the last half of the 19^th century, the demand for steel generated by the explosive growth of the railroads and ship building also impacted the demand for coal.

Coal eventually played a major role in driving the economic engine that fueled the industrial revolution and helped lead America to victories in two World Wars.

With that historical synopsis of coal mining in Pennsylvania, I will now focus on the current state of the Pennsylvania coal industry.

Profile of the Pennsylvania Coal Industry

Pennsylvania is the fourth leading coal producing state – our 2010 production totaled 66 million tons. Most of this output, about 59 million tons or 90 percent of the total production, came from bituminous mines located in western Pennsylvania; including 36 underground mines and 300 surface mines and reprocessing sites.

Underground mining accounts for 80 percent of Pennsylvania’s total yearly output. In fact, of the major U.S. underground bituminous coal mines, four mines located in Greene County rank among the top 15 mines nationally. These mines are led by Consol’s Enlow Force (11.1 MT/Y) and Bailey Mines (10.0 MT/Y), which rank one and two respectively; and Alpha Natural Resources’ Cumberland (6.8 MT/Y) and Emerald (5.6 MT/Y) mines, which rank 5^th and 15^th.

Indeed, Greene County, located in the southwestern-most part of the state, is the second largest coal producing county in the nation.

Pennsylvania is the third largest state in terms of coal produced by underground mining methods and ranks first in terms of total coal extracted by longwall mining technology.

Coal is our largest indigenous fossil fuel. The Energy Information Administration (EIA) estimates the demonstrated U.S. coal reserve base at 496 billion tons distributed geographically among 31 states; with 27 billion tons remaining in Pennsylvania (of the 27 billion tons of Pennsylvania’s coal reserves, almost 19 million tons, about 71 percent, are located in southwestern Pennsylvania). At current production and consumption levels, coal supplies will be available for at least the next 250 years. In fact, on an energy equivalent basis, the 5,441 quadrillion BTUs of U.S. coal surpasses the 4,446 quadrillion BTUs of Middle East oil.

Most of our coal is primarily used for electric generation – about 80 percent of what we mine each year is used for this purpose. Our other markets include industrial production (particularly in the steel making process) and foreign exports.

Coal is the major fuel of choice for electricity. Almost 45 percent of the United States’ electricity is generated by coal and coal accounted for 48 percent of the total amount of electricity produced in Pennsylvania in 2009. Indeed, Pennsylvania’s reliance on coal-fired electricity has made the Commonwealth the largest net exporter of electricity among the states. About 37 percent of what we generate in Pennsylvania is sent to other states.

Coal’s cost and abundance are the reasons for its dominance of the electric generating market.

Coal is the least expensive fuel for electric generation. Based on information from the Pennsylvania PUC, the cost to generate electricity from coal is 5.7 cents/kWh. By comparison gas costs 7.20 cents/kWh; wind is 7.46 cents/kWh; nuclear is 7.5 cents/kWh; solar thermal units $2.76/kWh and solar PVs is $4.12/kWh.

The mining industry is a significant contributor to Pennsylvania’s economy. In 2008, its annual worth to the Commonwealth, based on employment, compensation, output and the impact of industry’s supply chain, was valued at over $7 billion.

In addition, it was responsible for the creation of 41,500 direct and indirect jobs with a payroll totaling over $2.2 billion. Taxes on these wages alone netted more than $700 million to the coffers of federal, state and local governments.

In addition to the Commonwealth’s array of general business tax obligations that apply to coal operators, the Pennsylvania coal industry is also subject to paying a locally imposed ad valorum tax in which coal is taxed as property before it is extracted.

Essentially, coal reserves are assessed “in-place” as an interest in real estate for property tax purposes. While the rate of the tax varies by county (factors generally considered in developing the rate include the quality and mineability of the coal and the thickness of the seam), the tax represents a substantial portion of the local property tax base in some regions of the state.

The coal industry also pays a severance tax on each ton of coal mined under the federal 1977 Surface Mining Conservation and Reclamation Act.

Although this money goes into a federally administered fund (the Abandoned Mine Land Fund), it is returned to the states under a statutorily-designed formula to help address abandoned mine land and acid mine discharge problems created before 1977.

Since the inception of this tax, Pennsylvania coal operators alone have paid $526 million into the fund to date. Because the distribution formula is based on historical coal production trends that favor states like Pennsylvania with a long heritage of coal mining, the total dollar amount Pennsylvania has received from the fund within this time span exceeds $850 million. Again, this money must be used towards addressing our past environmental legacy.

Southwestern Pennsylvania has a strong concentration of manufacturers producing machinery and equipment for the industry. In fact, Pennsylvania has the largest mining and equipment manufacturing industry in the country, accounting for 27 percent of that sector’s national employment.

Supporting its position as the hub of the coal industry, southwestern Pennsylvania is home to two of the largest coal research facilities in the country – the National Energy Technology Center and Consol’s Energy Research and Development Center, both located in Pittsburgh. Together, they account for nearly $500 million in coal-related research and development annually.

While coal mining is inherently dangerous, coal mining in Pennsylvania is safer now than ever before by any standard of measurement:

• There have been no coal mining related fatalities in Pennsylvania since July, 2009.

• Incident rates for all categories at Pennsylvania’s underground mines are all below the national average.

Frankly, Pennsylvania’s coal mines are the safest in the world due to commitments made by management, labor and regulators to adhere to a strict culture of mine safety every minute of every shift; enactment of new modern laws and regulations, and technological advancements.

Advancements in technology combined with strict regulatory standards and a rigorous permitting process have allowed mining to proceed without posing long-term environmental offsets.

Postmining discharges from newly permitted mine sites have been virtually eliminated and the active mining industry has taken the lead in reclaiming abandoned mine lands and abating old acid mine drainage at not cost to the Commonwealth.

Most importantly, Pennsylvania operators individually and collectively have an excellent record of compliance with the mining laws and regulations. According to OSM’s yearly annual review of DEP’s coal mine regulatory program, operators achieved a compliance rate of 94 percent in 2010; OSM’s objective is 88 percent.

Pennsylvania DEP data indicate that coal is becoming an increasingly cleaner source of electricity for the state’s power plants. From 2000 – 2010, electric generating units in Pennsylvania have reduced their emissions of SO2 by 58 percent and NOx emissions by 41 percent.

In addition, according to EPA figures, newer plants emit 90 percent fewer pollutants per unit of electricity.

These sizeable reductions result from the application of existing pollution control technologies and not esoteric technology barely off the drawing board.

Energy self-sufficiency requires us to tap all our indigenous resources – there is no one panacea and no source can be left behind. However, it is hard to deny the fact that coal is essential to generating affordable and reliable electricity, a prerequisite to energy sufficiency and sustained economic growth. In this respect, southwestern Pennsylvania coal fields should play a major role in any blueprint for energy independence.

Despite these clear benefits the road ahead for coal, or any fossil fuel, is daunting. Perhaps the biggest impediment to our continued reliance on fossil fuels to generate electricity is federal policies designed to transform America’s energy use away from these sources.

Frankly, EPA’s heightened scrutiny and overzealous regulation of coal mining in the past two years threaten the future economic viability of our industry. These policies attack both the mineral extraction process through protracted federal review of mining permits heretofore reserved to the states, and the end use process through establishing unreasonable and unjustifiable emission reduction standards for greenhouse gases, mercury, coal waste, NOx, SO2 and a plethora of other alleged pollutants.

The cumulative effect of this assault will be an economic train wreck.

The consequences of enacting these proposals would be devastating. They would add a heavy burden on consumers through massive rate hikes, destabilize Pennsylvania’s electric grid by replacing reliable forms of energy with intermittent sources and derail an already fragile economy. Our supply vulnerability is not mere conjecture. The PJM estimates that 20,000 MW of coal-fired capacity within its system is at risk of retirement from EPA’s rules and both the Pennsylvania PUC and DEP have questioned the reliability assessments performed by the federal agency for these rules, maintaining that they could present serious local reliability issues.

At the risk of sounding overly dramatic, how these issues are addressed will not only impact the future role of coal as an energy source but also alter our nation’s ability to secure its energy future and restore economic stability.

Everyone wants a sound environment, but this goal has to be and can be balanced by the need for cheap and reliable electricity in quantities that only coal can reliably deliver at costs that only coal can reliably promise.

This is the true path towards energy security and economic prosperity and it is a route that runs through southwestern Pennsylvania.