Good afternoon. Thank you for this opportunity to be part of the American Public Power Association’s Annual Legislative Rally. I am pleased to have this opportunity to share with you my thoughts and concerns on energy matters.

Our country has gone too long without a strategic, comprehensive energy policy. The consequences of not developing a sound energy plan can have potential catastrophic effects on our economy and environment. Developing the best energy plan for the United States is the task set before Congress and all the participants in the energy sector. We must fulfill this obligation for the good of our citizens, both present and future.

Republican leadership in the Senate has made enacting energy legislation a priority for the 108th Congress. My goals for the Energy and Natural Resources Committee are to carefully evaluate current circumstances and potential solutions in order to develop a sound foundation for our energy future. One of the most challenging sectors in the energy industry that requires a great deal of our attention is the electricity sector.

Electricity
These are very troubled times for the electricity sector. There are a many challenges that affect the electricity sector these days. I want to focus our attention on two particularly difficult, related situations:

1. The DISTRESSED FINANCIAL CONDITIONS IN THE MARKET and
2. REGULATORY UNCERTAINTY

Distressed Financial Conditions
While Public Power’s financial health is relatively strong, the financial conditions facing most of the electricity sector are very bad. The downturn in the electricity sector parallels the challenges facing our economy in general.

Economic stimulus is a top legislative priority for the President as well as Congress. It is a fact that the cost and availability of electricity impacts the entire economy. Restoring investment in the electricity sector – the backbone of our economy – is necessary to restoring more strength to the economy. Investment in the electricity industry requires improved access to capital. Capital access, however, is impeded by the unprecedented perception of risk associated with this sector.

This crisis of confidence — starting from the California debacle and Enron mess and continuing in a spiral of downgrades by credit agencies — must be allayed. The answer often repeated to this problem is the need for regulatory certainty.

Regulatory Certainty
For regulatory certainty to exist, market participants must have a clear understanding of the structure and rules under which they must operate. Since the Energy Policy Act of 1992, there has been a trend towards more competition on the generation front and increased access to the interstate transmission grid.

FERC's major initiatives in the 1990s - Order 888 and Order 2000 — sought to assure open access to the grid to support competitive wholesale markets. FERC has proposed further refinement to its theme through the Proposed Rulemaking on Standard Market Design - the SMD. While FERC surely believes that SMD is the right path for the future, it is a significant policy shift that requires our most cautious analysis.

One of the main changes the SMD proposes is FERC=s intention to exercise jurisdiction over both unbundled and bundled transmission service. FERC maintains that this policy change is necessary to fulfill its Federal Power Act obligation to remedy undue discrimination. Opponents decry this as jurisdictional overreaching by FERC and potentially harmful to consumers. Since becoming Chairman, I am learning just how many people think SMD is a four letter word.

You are all aware of how charged the issue of SMD has become across the industry. You are also aware that there have been serious considerations by some Members of Congress to halt the SMD proceedings. I understand and share many of the concerns about the SMD. I strongly believe that we must slow down and take account of all the facts and circumstances before we proceed. Chairman Pat Wood has said that it is more important to do this right, than to do this fast. I agree. To that end, I intend to hold a hearing on FERC's SMD White Paper. I will work with my colleagues to carefully consider the merits of FERC's plan.

Chairman Wood has described the White Paper as a preview of the final rule. That preview should show the adjustments FERC will make to better suit SMD to the regional concerns of stakeholders. Resolving the SMD issue will be an important step in improving regulatory certainty for the electric industry.

Environmental Regulatory Certainty
Improving regulatory certainty for the electric industry will also require attention to consistent, fair environmental regulations. The Bush Administration has proposed common-sense reforms to the New Source Review program. The President has also proposed his Clear Skies initiative to significantly reduce emissions of air pollutants from power plants. These are steps in the right direction — but to enable new investment in the energy sector we must also address the issue of climate change in a meaningful way.

We should develop a response to the challenge of climate change that encourages investments in cleaner energy technologies — not just in the U.S., but around the world. We can create more energy with fewer emissions, but we will need advanced fossil, renewable, and nuclear technologies to do it. I hope we can address this need in a significant way as we consider energy legislation later this year.

Conclusion
We must work together to find effective, politically acceptable solutions to these challenges. The main principle that the solutions must achieve is the promotion of power from diverse resources that is reliable, economic and environmentally sound— All for the ultimate benefit of consumers.

I commend the Public Power Utilities for sharing that principle as your dedicated common goal - to provide necessary, reliable electricity at reasonable prices with proper protection of the environment. It is the standard by which we shall measure whether any electricity policy we develop is good. And that brings us to the million megawatt question.

Will a comprehensive energy bill include an electricity title? It is an option. That is the only answer I can offer now. The Energy Committee is going to hold a series of hearings and meetings to discuss the issues and come to a consensus on what will be included in an energy bill. An Electricity Title will be carefully considered.

The work done by the Conference last year offers a starting point. It does not necessarily reflect the possible conclusions to be drawn this year. My goal is to focus the Committee's attention on the industry's challenges and work together to find the common ground where we can promote the right energy policy principles.

Thank you.