This week on bloomberg government's "capitol gains." role reversal with the fracking guru the industry wants to start exporting abroad.
It could mean jobs but what would it mean for prices.
We'll the ceo of one of the biggest players, dominion virginia power.
Have a life-saving drug?
But as the need for speed putting safety at risk.
We left the fda rector of drug violation janet woodcock -- of drug evaluation janet woodcock.
Why did only one company bid to bid the president's next helicopter we will take a closer look.
I'm peter cook.
This is the sunday show where we focus on the business impact of government action using the exclusive research and analysis of bloomberg government.we begin today with a debate that no one saw coming.
A decade ago facing rising decline in production, america was looking to import natural gas from around the world.
Now the u.s. is challenging russia for the largest producer of natural gas.
Now they will be able to turn the usa into a natural gas export.
That'll mean more u.s. jobs and lower energy prices around the world.
But they are running to hurdles around here in washington in opposition that are worried exports will only boost prices here at home.
More than a dozen projects have been waiting for washington's green light.
Including dominion virginia power in this facility on chesapeake bay.
I am joined by ceo tom farrell here.
Again for joining us.
You've been one of the most vocal supporters, why is it in america's natural interest -- national interest?
There is a sea of natural gas to be found in america.
All of which has been with new technology can be released at economic prices.
It will help the development for that to have more markets available to be better for americans.
That was the analysis that was done to the department of energy's analysis.
He had an economic study done on the impacts of this on the american economy on every circumstance, that study -- independent study found that the american economy was better off.
Many other studies of the same thing.
Your big users of natural gas saying not so fast, we need natural gas.
It's a good thing for prices to come down, but this will drive american business here at home.
These studies have shown that that argument is not particularly sustained by fax.
-- by the facts.
The overall economy of the united states is better off.
The president has said that, and we are quite oval to see permits soon.
-- quite hopeful to see permits soon.
You will get the green light , you have two regulatory hurdles to clear but you will get that this year in 2013. we should get the department of energy permit this year.
The other permit is more of a local environmental review will take longer, but that will be in the next half of -- the first half of next year.
And then we will be export in gas 2014. why is this taking so long?
There are lots of interest around it, but it is time to issues permit.
Can you ensure that dominions customers around the country prices will go up?
The study itself says very little, very manageable in the overall economy will be better off.
All our customers will be better off by allowing exports.
You talk about the ocean of natural gas we have, but energy prices has been a fickle thing that is changed a lot over the years.
Just 10 years ago we looked at a different picture.
How confident we -- are you that this will continue?
We try not to use the term explosion around natural gas.
It is everywhere in their finding new shales everyday.
Overall they are fighting them more and more frequently.
The epa's looking at the issue of fracking.
The report will, next year.
Will this report at this industry in the crosshairs?
It could if that is what the epa comes up with.
I am confident -- i'm glad they are doing a study, i think it will validate the fact that shale -- shale gas, fracking is a safe practice that can be done done right and done in an environmentally friendly rate -- environmentally friendly way.
What will it mean for the coal business with the president turned to put coal out of business?
I will look the president speak for himself.
Big leading carbon from existing plants -- regulating carbon from existing plants, we have plenty of nuclear in biomass, the industry will need to deal with this new regulation is sufficient amount of time to allow transition so that all that will be paid for our customers -- paid for by our customers and keep the prices and reason we will have to have a lot of time.
Are you confident you will begin in that amount of time?
Gina mccarthy, administrator mccarthy is a responsible person.
She listens well.
She has a mandate she will carry out.
Hopefully we will work very hard with the epa to work this out.
Nuclear power, you been talking about a new plant in virginia.
What will it take for you to make a decision and give that the green light?
We have the design permit, we will use ge's design technology which will be soon and then we had to get an operating license permit which will be probably middle to late next year.
That is when our board of directors will wrestle that is -- that decision to read -- are we losing the fight against fda superdrug?
And the high-profile contract worth 7 million so why are most?
? we will take a look.
? if not something you hear about every day in washington.
A regulator trying to speed up regulatory reviews.
Especially in agency involved in drug meditation.
The fda has made a new pathway for breakthrough therapy with medicines that need a new faster review.
The fda can take as long as 10 years.
Breakthrough designation could not as much as two years off the timetable.
According to estimates by some in the industry.
For more on other issues in the world of drug developer and i am joined by dr.
She is the chief drug tester for the united states and the fda -- good to see you -- the fda has try to speed up reviews of drugs in the past.
What makes this different?
We do have a numbered pathway.
Particularly speeding up review.
Right there was about being a clinical testing which is actually a long.
-- the long period.
Breakthrough is for if you see something unprecedented -- a treatment effect you would never see that disease -- then you can get a breakthrough designation from the fda and we will do a full-court press on the drug.
What else you need to do to get into the hands of doctors and patients.
You've had this designation for a year.
You've had 70 applications, what have been the results so far?
So far we have designated 25 breakthroughs from the 73. and some others are pending.
Don't forget, this is about clinical development, not the review time.
These are drugs that are first in humans or early phase one or phase two trials.
But we do is work with the companies to expedite the further testing in people.
So we get the information that is needed for approval.
We would not expect after we designate for a year or so that we would see the drug actually come out into the market.
There are a lot an this industry thrilled that the fda is making his pathway available.
What is your view that the goal of the fda is being sacrificed by exiting this process -- by expediting the process?
We are not necessarily expediting or shortening the safety if valuation.
What we are doing is working with the company as soon as we find out the drug is so promising to determine what next must be done.
How much work has to be done on safety as well as on effectiveness to get the drug on the market.
Because without this the company may go through the phase one, phase two, phase three trial.
May be asked those patients to ineffective control that they do not need to do.
Where'd you see holding this -- when you see this holding the most promise?
I think all forms of therapy from the new science.
The new sites really understands the molecular basis of the disease.
Why do these cystic fibrosis patients have this problem.
These new doug's -- these new drugs target that mechanism.
They are seeing much more effective drugs than we used to see.
The question isn't whether it is effective, the question is what is the safety profile.
Had it we work at and who they work in.
You've talked about the need to develop new antibiotics to deal with these drug resistant superbugs.
You've talked about this is a global pricing scheme.
What is happening with those kind of drugs in the market?
We are having to tracks of effort.
We've issued new guidance is which are roadmaps for industry about how to get the drug on the market, including one on these resistant bugs and how to study them specifically in a small population.
We are also talking about something called special medical use, or limit -- limited medical use which is a new expedited pathway for drug development limited to very small subpopulations.
That isn't in effect right now . we are exploiting with congress and other ways how we might get that stab at.
How nervous should americans be right now?
We are in danger of losing the weapons we have to fight bacteria now losing their effectiveness over time.
Unless there are more the come along, we will begin to handed.
One final budget related question.
Sequestration affecting across federal government.
You get most of your funding from user fees from industry yet you've said you have to sequester those user fees as well.
How's that hampering your ability to carry it your mission and to some extent are not able to fill the requirements of the user fee program as a result?
We have not been able to hire the people we agreed to last year under the law that was passed for the next user fee program because our user fees are restricted as well as our money from the taxpayers.
So this is hampering doing some of these programs that we agree with industry and with congress that we would put forth like for rare diseases and so forth.
Does and she had a legitimate claim your?
That the fees are not being used appropriately?
The government can't use them for anything else.
It is simply that congress the appropriation by congress that is been interpreted as not allowing us to spend the proportion that would be under sequestration.
Another wrinkle from sequestration.
janet woodcock we appreciate you joining us.
When we come back, congress went to break leaving unfinished business behind.
We will talk about that.
And later the new chopper we will show you what it looks like just ahead.
? they can't even get what they want done.
They can't pass a simple a prohibition bill.
Take it one step at a time.
I'm sure the august recess.
After the august recess the congress left plug-in unfinished business in a full calendar.
Living is a threat of a government shutdown as soon as decent burr 31st of they do not reach a spending deal.
For more on the good luck in the prospects we are dealing with we have bloomberg director of legislative analysis.
Good to see both of you.
Loren duggan they have not left a lot of times get things done.
On the comeback there's only nine business days left.
Which is the endpoint of the fiscal year and have to come to some sort of consensus.
No spending bill so far?
No spending bill in a bill that would've funded housing transportation.
There is a much larger swath of the government that needs to be funded.
And the word on the hill is that they might conflate this spending fight with the same as the debt ceiling fight?
There is certainly no time for them to come up with a four- year spending given how far apart they are.
We really expect sometime in mid-to-late september the congress to push the spending fight back four months, sometime in that time.
. it is not clear what that means.
And then somewhere in the october to mid november range.
Which is exactly where we've been for the past however many years.
There is always talk of a grand bargaining looming in the background.
We've seen some dealmaking in the senate the past few months.
Senator mccain am a senator collins.
Some of these individual republican senators, but very notably not mr.
Mcconnell the minority leader he still weirded out reelection.
Of the past few months we've seen john mccain going around mcconnell making deals with democrats to get things through whether it is immigration, the rules for nominations.
They are going around mcconnell and doing their own thing.
The chances of them doing something on the budget are daunting in the senate and in- house.
The senate is incredibly fractured on this.
You have a group of republicans who want to vote against anything.
You the leadership group in the middle and then some moderates are working on deep cuts in the transportation bill.
And making a bill that lines up with a coalition of democrats and a handful of republican's in the senate, it is still really difficult for this congress to figure out a way to find some common ground there.
So, we're looking at a showdown sometime in september?
] the debt ceiling does not have to be raised to november and the day keeps moving.
But that day will come and if you can push back the spending moving corporate taxes back on the radar screen did he move the volatile?
May be that he did not do as much as you think.
It fell flat and congress, he did move his own goal posts earning himself some more breathing room.
You've seen his imitation move towards republicans on tax reform very incrementally and now he's given himself something additional.
If revenue demand trade as he contends really -- continually moves towards republican it tax reforms that's happening.
We could see corporate tax reform and not individual tax reform?
Thanks to both of you, it will be interesting fall.
When we come back, one colorado town declares open season on drums.
We will its plan.
? to join the conversation, drop us a line.
You can find more research and analysis at bgov.com.
The helicopter i have now seems perfectly adequate.
Of course i've never had a helicopter before but i think it is an example of corporate process gone amok and we will have to fix it.
That was a younger looking obama in 2009 just days into office talking about building a new fleet of helicopters.
That program was canceled and told the navy to start over.
This last week marked the bid for the navy to create new one.
Only the incumbent united technology along with its partner lockheed martin bid on the prize.
This a rendering of the modified version of the chopper that the company is proposing to build.
The helicopter is already in use around the world and it is capable of meeting the unique demand of residential -- president shall travel.
Europe's agosta westwards quest in the openness of competition saying there are proposal issues that inhibit our ability to submit a competitive offering in that provide a significant advantage to are likely competitor.
Sikorsky was dorothy wind the contract.
The navy was to have choppers and service by 2020. finally today it is open season on government intrusion one colorado town.
On tuesday, the town council in deer trail will vote on ordinance that will allow hunting licenses for welcome back to "capitol gains." it will offer a downy for each drone brought down.
Predator drone's will have to worry.
It was called a symbolic way for his town of 500 to protest against government surveillance.
The penalty for successive that successful hunt could be up to 10 years in jail.
That will do it for this week's "capitol gains." thanks for watching.
We will see you next sunday.
It's the biggest restaurant chain in the world, feeding 69 million people a day.
We are a lightning rod.
Because of our size.
The food is fast, but what mcdonald's serves up takes years to make.
We go inside the golden arches.
To find out what is in the secret sauce.
And, how a restaurant built on burgers and fries stays competitive in a world of changing appetites.
Two all-beef patties, lettuce, onions, pickles, on a sesame bun.
It is all real food.
Mcdonald's raised its golden arches in des plaines, illinois, 1955. first-day sales totaled $366. its famous hamburger sold for only $.15 a paddy.
Today mcdonald's feeds over 25 million people in the u.s. daily.
It is also a global brand with over 34,000 restaurants in 118 countries.
Everyday customers eat up 9 million pounds of french fries, equal to the weight of 900 elephants.
There are over 145 items on the menu.
It is the big five that bring home the bacon.
Big macs, quarter pounders, mcnuggets, fries, and egg mcmuffin's account for 25% of sales.
More americans visit mcdonald's than any other chain of any kind, including walmart.
And it has the grocery list to prove it.
Let's start with the fixins.
43 million pounds of tomatoes.
102 million pounds of lettuce.
Do not hold the cheese.
Mcdonald's buys 231 million pounds of cheese a year.
The yearly tally that adds up to $9 billion.
That is $3 billion more than the military's food budget.
And they have a bigger workforce as well.
Mcdonald's employs more than the army, navy, marine corps, and air force combined.
? 40% of our executives at mcdonald's started as hourly employees.
Over 50% of our franchisees, those that own and operate restaurants, started as hourly employees.
There is no other institution that i know of that can boast of those kind of opportunities and success stories.
At mcdonald's, what we are about as making sure that regardless of where you came from in life, some of those people i mentioned have high school diplomas only and some of them have their mba it is a diverse pool, but every last one of them has the opportunity to show what they can do in the mcdonald's environment in satisfying customers.
And building this business.
Mcdonald's stands for opportunity.
The company has been under fire for this financial planning website.
Former mcdonald's employees have said it shows that mcdonald's is out of touch with the minimum- wage worker, that they do not understand what it is like to live on minimum wages.
How do you feel about that?
That has been out there for five years.
This website has been out there for five years.
It was intended to do something very simple.
To help somebody who might be entering the workforce for the first time or someone who had not really had financial planning or management practices to be able to help manage finances.
When i was at a younger age, i did not know anything about financial planning.
I would've loved to have had something to guide me through.
That was what the tool was all about.
There was a comment about there were two line-items -- they were saying, $20 for healthcare is unrealistic.
The two lines for income were going to say, if you have a spouse or significant other -- a two-person household?
It was intended to be a tool to help a person plan, regardless of what their demographic was or where they came from.
It shows it is difficult and impossible in many ways to live on minimum wage, and therefore, the minimum wage should be raised in the u.s. would you agree with that?
We have legislators and many people who will determine whether or not minimum wage should be raised.
If minimum wage is raised, we have always been an above- minimum wage employer.
We have always provided opportunity.
For us, whatever legislation comes, our franchise, our system will abide by the legislation.
We are about providing opportunity.
When we can be the entry-level employer, when we can provide the number of jobs we can at mcdonald's and we can help people to have viable incomes, we will continue to do that and provide opportunity so that a person can rise through the system and gain greater wealth.
When we come back -- this was about four years in the making.
We will show you how food goes from menu idea to the menu boards.
That's how long it took to make this, this, and this.
There are currently 145 choices, all of which took anywhere from nine months to four years to go from idea to your plate.
Mcgriddles was huge for me.
Mcdonald's lead food scientist and the brains behind the all-encompassing breakfast sandwich.
They wanted a kind of platter idea where you have your sausage and eggs and we finally arrived on the hot cake idea in a more portable, fun way.
Getting an item on mickey d.'s menu is no easy feat.
How do you know when you have a new product whether or not you're going to be able to bring that up into, say, the top five.
It's hard to say what's going to be the next big mac and it's not until we get it into the restaurants and show how it resonates with our customers over time.
There are 45 members of the menu innovation team, people who spend their days conceptualizing and executing new menu items like the now-famous smoothie.
You push the blueberry- pomegranate smoothie button, you pick the size, and it starts making a smoothie.
Altogether it's about 30 seconds from the time you start it, pull the cup and pour it.
Smoothies are on trend in the restaurant world, making up 9% of all menus, but not all menu items have panned out.
In the past we've had pizzas, and mcdonald's and pizzas didn't go together.
There are too many other pizza options out there.
How do you know it's time to pull the plug on a product?
If we don't have something we sell a lot of, then the quality cannot be consistent in a way we're proud of.
Something they are proud of, adding fresh produce to the menu.
That was a big deal.
Huge when mcdonald's got into that.
It took a lot of work to understand the different varieties of apples.
What ones taste good and which ones don't. what was the most surprising thing you learned?
How temperature-sensitive produce is.
How to ensure that you're in that zone of anywhere from about 36 to 45 degrees.
When you go beyond that, you have a lot of change in that product's quality and characteristics.
Mcdonald's buys more than 60 million pounds of apples a year.
Precisely why it can take years to launch a product.
When mcdonald's rolled out their wild berry smoothie, it took an extra year because they would have had to buy 30% percent of crops in the u.s. there are a lot of things we do we never thought we could have done before.
The menu has to be innovative and exciting while maintaining the heritage and quality and taste of our core values.
A blueberry pomegranate smoothie was something we never thought about 10 years ago, or wraps.
You will see some differences in our menu.
You said last year the menu to you seemed to lack a bit of energy.
What went wrong?
I think that -- i'll say less than when went wrong, what didn't we do.
It's always about opportunity.
Some of the opportunities we had were some of the products around the world, like the mcwraps, which originated in poland.
To be able to come into the u.s. as a great entree and introduce new vegetables is phenomenal.
We want to focus on beverages, chicken products, premium beef products and innovative entrees.
That's why you see again egg white delight, the new wrap sandwiches, the smoothies.
Smoothies we introduced a while ago but we have to remind customers that we have real fruit smoothies, not just sugar- based drinks.
These are real fruit smoothies, pureed fruit.
Mango-pineapple, strawberry- banana.
Really great additions to the menu.
I noticed you used the word "real" very emphatically.
People criticize mcdonald's food.
You hate it when you hear this.
They say mcdonald's is not real food.
How does that make you feel?
I visit our suppliers.
We have tremendously high quality proteins.
Our meats, cheeses, vegetables.
We have a huge grocery list which gives us two things.
It gives us leverage in terms of our buying power.
It's the reason we can afford to have our products at a low cost.
But why do customers say it's not real food?
It doesn't look like real food?
I say get to know who we are at mcdonald's. i can't indict a person for what they believe.
All i can do is say here is who we really are.
Your beef is 100%? yes, 100%. we do add salt and pepper on the grill.
100%. your chicken, that's really -- yes, it is.
Whole muscle, breast meat chicken.
It's in our nuggets, white meat.
It is in our grilled and crispy chicken products.
Is this why you're adding in egg whites, vegetables and smoothies?
Is that part of your emphasis on saying look, we're trying to offer more healthy foods at mcdonald's? we think health is going to be determined by the person who decides to buy that.
I will tell you, yes, more fruits and vegetables is part of our plan.
At the same time, a big mac, two all-beef patties, lettuce, cheese, pickles, onions on a sesame seed bun.
It is all fresh food.
So you lost 20 pounds while eating on the menu?
What did you eat?
I'm all over the menu.
Give me a five-day menu.
I'll have an egg white delight one day with canadian bacon.
Another day i may have it with a sausage patty.
Some days i'll have our oatmeal.
Everyone has to make their own personal choices.
I made a choice because i was traveling a lot.
A lot going on.
I said i got to get myself back into working out and i had fallen off the wagon so i began to work out more.
People, when they hear you eat at mcdonald's every day and lost weight, how is that possible?
Can you understand why people would be startled by that?
Let me substitute mcdonald's for a second.
If i said i ate at a fine dining restaurant every night and i managed to lose weight, ok.
Now, if i'm out and i have a pretty big steak or a rack of ribs or something like that.
If i'm having that late at night and i go straight to bed, i might put on a few pounds.
It's calories in, calories out.
You have to watch what you're putting in.
But i don't eat food just for sustenance.
I want something that tastes great.
I've been eating at mcdonald's for a number of years.
I do better when i'm eating at mcdonald's than when i'm off doing something different.
You're always going to sell french fries and chicken mcnuggets.
There's not a way to win the obesity debate.
Ray kroc said i don't know what we'll be selling in the year 2000, but we'll sell more than anyone else.
I don't know what we'll be selling in 10 years but it will be what customers want.
We are a restaurant business.
Customers are our business.
We have to take care of their needs, wants, desires.
But they don't want salads.
They want burgers.
But we still have them on the menu because there are some that do want salads and if we don't sell them in the traditional way, maybe we could sell them in a wrap.
When we come back, we find out what it takes to pass the test at hamburger university.
? it's called fast food, but what mcdonald's serves up is actually a product of years of research, whether the latest menu item or leadership development.
On the grounds of mcdonald's headquarters just outside chicago, hamburger university is recommended training for all the company's managers and franchise owners.
Mcdonald's co-owner ray kroc's commitment to employees led to the creation of hamburger university.
If we're going to go anywhere, we have to have some talent.
I'm going to put my money into talent.
A unique curriculum that combines homework with hamburgers.
This weeklong program puts its student through the paces in a way no other hamburger company does.
Hamburger u is not a cooking school.
On average each mcdonald's restaurant brings in about $2.6 million.
So its goal is to provide managers like kevin with real business smarts.
What's your goal?
My goal is to become an operator some day, i want to keep working up.
Fred, charlie, and jim have climbed the golden arches paying their dues in the kitchen before hanging up their aprons to become c.e.o. which means people like michelle could be training the company's next c.e.o. they have to think bigger picture.
A lot of times we get bogged down by the day-to-day, the big details.
It's about big picture and diagnosing your situation.
That is a skill taught in hamburger u's classes.
This gives students 30 seconds to congress ore 36 snare's in a restaurant.
Everything we do here they run into, whether it's a buzz that comes on the lot or a customer slips and falls or something burning in the kitchen.
You need that real feeling.
To be in the moment.
And anyone who thinks this is just a week off work, think again.
A week through hamburger u. gets you real college credit recognized by the american council on education.
Can you see an improvement in sales after your managers go through hamburger u? what we see is better efficiency and management and yes, that yields better sales but it's about something broader at mcdonald's. you don't get a chance to become a restaurant manager until you have qualified by both in- restaurant training and out of restaurant training and education.
Everything from people practices, effective operational platform management, supply chain management.
Clearly, food quality and safety.
What it means to market locally.
What the local community means.
All of these kinds of things, strategic planning relative to how much labor you have in the restaurant, what food costs are.
All of these are things that our managers learn as they are developing.
You don't learn it all as a manager but as an assistant manager, as a department manager as you come through the mcdonald's system.
We're very big on education and ongoing education for managers and then as those managers move forward then through supervision and then up through the system and then ultimately our chief operating officer globally.
You travel often.
You travel less now as ceo than when you were chief operating officer.
In europe, things are pretty bad there still.
Some have said look, we're in a recovery in europe but you've said before i'm not sure if i see that everywhere.
Many of the countries across europe would say they don't necessarily see themselves in a recovery mode either.
I think the southern part of europe clearly.
When you think about what's happening in spain, portugal.
Jobless rates there.
Unemployment rates across italy or across europe are on average above 10%. which is a big number.
Spain is about 27% unemployment.
The bigger challenge is youth unemployment is in the mid- 50%'s. these challenges across europe are based on unemployment and also austerity based measures.
Many governments are trying to work through that.
Our business over there, again, we're gaining market share in many of the market, despite contracting i.e.o. and consumer discretionary spending being softer.
Nonetheless, they're challenging environments.
We have to stay focused on customers, stay focused on having the right value and the the items to appeal to customers.
This is a market share game and we're at our best if we focus on the market.
There is a lot of competition overseas and china is a fast growing market.
Comp sales in the second quarter were down about 6%. k.f.c., yum brands, pizza hut, they've gotten ahead of you in market share.
How are you going to catch up in china?
China is going to be a growth market for us.
We've been gaining share back again in china.
Yes, it's been troublesome relative to what's happened with chicken.
There were two things.
There was an antibiotic scare, which was not a part of our mcdonald's system or our supply chain but nonetheless it impacted consumers and their psyche across china.
That was followed up by avian influenza, which was a much broader asian epidemic, if you would.
There have been a couple things like that now.
We've seen the avian influenza impact dissipate, which is great for the marketplace and we've seen customers starting to come back relative to chicken purchases but china is going to be a positive market for us.
We're not gauging our success in china based on someone else.
We have to gauge that based on how many customers come to visit mcdonald's. back in the united states, you have to continue to grow your market share.
Some of the wall street analysts said look, the company is so big that it's really going to take something to move the needle.
What do you say to that?
Everyone needs to keep in mind we grow revenues.
Not everyone is growing revenues.
Many are seeing growth in incomes, etc.
We grew revenues, income, earnings per share and we've taken market share and we've outperformed the competitors.
There are a few players in the market that are doing well.
We're one of the players that is positive and gaining market share.
I would say we're doing well in the u.s. relative to our own position.
Our business is a retail and consumer based business.
Every day it's slightly uncertain.
Customers come in with different expectations every day.
We have to be able to manage through and provide the things they want.
My focus is on these golden arches.
? ? . .
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