The Boom (35 page)

Soon after the ads appeared, Chesapeake acknowledged its role in funding the campaign. “It’s simply that we think reduced emissions,” said Tom Price Jr., one of McClendon’s closest advisers, “is a good thing.” There was another benefit to stopping TXU’s coal plants that he didn’t mention.

It costs a lot of money to build a new coal plant. To recoup those costs, coal plants run for decades. Once built, TXU’s new coal burners would be a major force in the giant Texas power market for generations. They would elbow competitors off the grid with their cheap power. Texas, with its large population and its power-hungry refineries and petrochemical plants, uses more electricity than any other state. The Texas power grid was a big market for natural gas. The amount of electricity generated by natural gas in Texas was nearly twice as much as in California. Texas, by itself, generated more power from gas than thirty-eight other states
combined.
If TXU built the eleven new power plants, demand for natural gas would go down, and so would prices. And not just in Texas; the impact would be nationwide.

This didn’t sit well with McClendon. Chesapeake had been leasing up gas fields and promised investors it would continue ramping up production. McClendon also saw, before nearly anyone else, that an abundance of natural gas was about to hit US markets, even if he failed to fully grasp how much. Chesapeake had bet its future on natural gas, and TXU wanted to cannibalize one of his biggest markets. As for the environmental benefits of burning gas instead of coal? McClendon saw the greatest threat from a warming planet was that winters would get warmer, cutting demand for natural gas to heat homes. He didn’t view climate change as an existential threat. It was a business opportunity. McClendon, arguably, figured out how to profit from bizarre weather trends that
New York Times
columnist Thomas Friedman later termed “global weirding.” Extreme cold or hot snaps cause volatility in natural gas prices. McClendon used that volatility—“We crave volatility,” he once said—to generate billions of dollars for Chesapeake by trading gas futures. Even as he profited from weather gyrations—and employed his own two-man weather team—he said he wasn’t even sure if the science predicting climate change was right. But he realized that the growing anxiety about climate change created an opportunity for him and for Chesapeake’s growing reserves of natural gas.

TXU had strong support for its Texas coal plants. The day it announced its plans, its stock jumped nearly 8 percent, signaling that investors were pleased. Texas’s governor, Rick Perry, also backed the plan. Perry had appointed the regulators who would vote on whether to issue the needed air permits. McClendon didn’t have many options except declaring war on coal, which is what he did. His anticoal campaign would prove enormously successful, but only partly because of his involvement.

TXU was facing resistance from environmental groups, as well as from the mayors of Dallas and Houston. Several prominent Dallas businessmen, including real estate magnate Trammell S. Crow, came out against the plan. They asked TXU to scale back its coal plans or at least slow them down, but were rebuffed. TXU’s political strategists considered this opposition manageable. But there was another, thornier problem with Wilder’s coal dream. TXU’s plan to haul millions of tons of coal from Wyoming was in trouble. It wasn’t clear if the railroads could deliver all the coal that was needed. And the shipments they could provide would be expensive. The arithmetic of Wilder’s coal plan wasn’t adding up. He needed to scale back. Internal doubts about the plan’s feasibility grew. But TXU and its ally in the governor’s mansion had expended a lot of political capital to get the permits approved. The plan was to get state approval for the eleven new coal plants and then retreat.

Some on Wall Street sensed this weakness and began circling the wounded TXU. A couple months before the “Coal Is Filthy” campaign began, two large private equity firms, Kohlberg Kravis Roberts & Co. and Texas Pacific Group, approached Wilder about buying the company. During preliminary discussions, the Wall Street firms pressed TXU for more information about its coal plans. Then McClendon’s ads began running. Already weakened by its railroad problem, TXU surrendered. On February 9, 2007, less than a week after the first ads appeared, TXU’s lawyers agreed to the buyout. Negotiations would continue in secret for a couple more weeks, but the deal was basically done.

Two days after the preliminary agreement was struck privately, about two thousand people rallied in Austin at the capitol to protest the coal plants. With Chesapeake’s “Coal Is Filthy” ads running in every major Texas newspaper, turnout was boosted for what was Texas’s largest environmental rally in years. Some protesters wore “Face It. Coal Is Filthy” T-shirts. Others held “Vote No on Coal” placards. A woman in a bright floral dress, with a large headdress in the shape of the sun, with streamers attached, danced around a man with a smudged face wearing a large, black smokestack.

When the TXU buyout deal was announced in late February, the new owners capitulated to the anticoal opponents. They would seek to build only three new coal plants, “preventing fifty-six million tons of annual carbon emissions,” according to a press release. The death of TXU’s grand vision to power Texas well into the twenty-first century with coal plants came about at least partly because the railroads had the stronger negotiating position and planned to force TXU to pay a steep price for the coal it wanted. But McClendon’s “Coal Is Filthy” campaign also played an important role. TXU and the private equity firms that wanted to buy it realized they were facing a fight not just against mayors and environmental groups that held little political power in Texas and had little money. They also faced an opponent willing to break with convention and drag TXU’s reputation through the mud. McClendon had sent a message to all concerned. He had a lot of natural gas, he was prepared to fight, and he was willing to spend money to accomplish his goals. The Los Angeles–based advertising agency that put together the ads said at the time that the “Coal Is Filthy” campaign cost “north of a million dollars.”

McClendon’s easy victory against the Texas coal plants emboldened him. Later in 2007, Chesapeake decided to fight a new coal plant in its home state. “Coal is the wrong answer for Oklahoma today,” McClendon told a regulatory body considering the plant. “We should not be importing trainloads of dirty coal while at the same time export clean-burning natural gas. Coal is a contributor to air pollution, water pollution, and it’s the wrong solution for Oklahoma’s growing energy needs.” In a letter to a newspaper in Tulsa, he stepped up his attack. “Coal is simply on the wrong side of history—it is a twentieth-century technology that is completely unsuitable for meeting the new energy and environmental challenges of the 21st century,” he wrote. “Oklahoma-produced, clean-burning natural gas is the fuel of the future.” Before the end of the year, he had won this fight also. The state denied the power companies’ request to charge ratepayers $1.8 billion to build the coal plant. Three years later, natural gas passed coal as the largest source of power generation in Oklahoma. Two years after that, for a month in the spring of 2012, as much electricity was made in the United States by burning natural gas as with coal for the first time ever.

The Texas coal skirmish marked the beginning of a larger battle for the future of US energy. Eventually the maelstrom that McClendon started would suck in renewable energy companies and threaten the survival of the nation’s oldest and most prominent environmental group. It caused environmentalists to rethink long-held positions on the future of the planet’s climate and whether allowing the industrialization of forests would do more good than harm. Fear that fracking would lead to widespread water contamination spread across the Northeast and became a rallying cry for opponents, but the rhetoric never matched reality. Within a couple years, the largest grassroots environmental movement in a generation rose up against McClendon’s gascentric vision of the future. Chesapeake changed from a small, obscure Oklahoma company into a boogeyman. But the change unleashed by the gas industry’s fracking also helped accomplish something almost unprecedented. All that natural gas cut US carbon emissions. The reverberations from this epochal shift can still be felt, if not understood.

McClendon wasn’t content to win a couple regional fights. As usual, he wanted more. He wanted—and needed—to keep drilling and producing gas. If supply was going to rise, he wanted to make sure that demand rose as well. Otherwise prices would fall. That’s Economics 101: basic supply and demand. In the late summer of 2007, a plan came together in his head. If he could convince Texas and Oklahoma that natural gas was a better fuel than coal, why stop there? Why not preach the gospel of gas on a national basis? Since there was no national energy policy, McClendon set out, essentially, to create one. Concern about global warming was rising, and natural gas, while not carbon-free, could generate a lot more kilowatts of power for each ton of carbon emitted than coal could. Asked why he fought the Oklahoma coal plant—whether it was blatant self-interest or something loftier—he said both were true. “What’s the matter with self-interest? From my perspective, I have a better product than coal,” he said in a 2007 interview. Years later, he called coal “an antiquated fuel contributing to serious health and pollution issues . . . I was determined to speak when others didn’t seem willing to do so.”

To deliver this message, he needed allies that could reach people not inclined to listen to an energy executive. He wanted natural gas to be sanctioned by an esteemed environmentalist. As usual, McClendon got what he wanted. After several meetings with the Sierra Club’s Pope, he received a papal blessing, of sorts, for his chosen fuel. Within a year of their first meeting, Pope began promoting the environmental benefits of natural gas. It was a strange alliance.

The partnership began with money. In October 2007 McClendon made the first of $56 million in anonymous pledges to the Sierra Club. It was one of the largest donations in the history of the organization. At the same time, he also created the American Clean Skies Foundation, a national outgrowth of the Texas Clean Sky Coalition. McClendon was the chairman of the foundation and its main financier. (Tom Price and Ralph Eads served on the board.) The Chesapeake CEO pursued a two-pronged strategy. He could use the American Clean Skies Foundation to promote the benefits of US natural gas across the country. It was a domestic energy source and has half the greenhouse gas emissions as burning coal, the group trumpeted. Plus, it doesn’t emit any of the other toxins that coal produces—the nitrogen oxide and sulfur dioxide—associated with an increased incidence of asthma. Privately, he provided the money for the Sierra Club to expand an ongoing anticoal campaign. The Sierra Club’s effort had focused on coal plants in the Midwest. With McClendon’s money, it went national.

The first inkling that Carl Pope had befriended the fossil-fuel industry came in early 2008, in the
Oil and Gas Investor
, a small glossy magazine that delivered monthly doses of glowing executive profiles and insights into which companies were drilling where. In an interview, Pope talked about his willingness to embrace gas. “Among the fossil fuels, natural gas is at the top,” he said. “There’s a lot of opportunity—people in the natural gas industry tell me—to produce more natural gas domestically by using new technologies, and we’re in favor of that.”

The alliance was a marriage of convenience, not ideology. Pope, the environmentalist, viewed climate change induced by massive increases in carbon in the atmosphere as a global threat. He expounded on this theme in his monthly column in the Sierra Club’s magazine. If the warming of the Earth isn’t stopped, he argued, all previous club victories such as preserving wild places and protecting wildlife would be pointless. McClendon, the energy executive, was a capitalist who believed in natural gas, the down-home religion of Oklahoma. He was engaged in a fuel fight, not an environmental fight. Pope wanted to eradicate coal to cut carbon emissions. McClendon wanted to beat down coal because it would create a larger market for natural gas. They were fighting the same fight, but for different reasons. Still, the two men seem to have forged a genuine bond. “I’m a big fan of Carl,” McClendon said years later.

At the time, McClendon was well on his way to becoming a billionaire. His personal fortune was tied mostly to Chesapeake, which was tethered to natural gas. When gas prices rose, so did Chesapeake’s share price and McClendon’s wealth. Pope, meanwhile, was struggling to keep the Sierra Club’s coffers full. Following the terrorist attacks of 2001, the nation’s attention moved away from environmental causes. Pope said later that after 9/11, “the Sierra Club and all other membership organizations started getting less and less individual donations. So we became more reliant on money that came with strings. That’s the reality of the world.” Even with McClendon’s donations, the Sierra Club’s finances weren’t robust. Pope would soon cut funds for local chapters and lay off staff.