Thank you very much, Michael [Tennenbaum], and good afternoon everybody.  I'm very pleased to be here to talk to you about a subject that touches all our lives.  Energy and the security of our energy supply is of highest importance to the economy of the United States and particularly here in California.  I thought, as the news this morning showed the troops leaving on an aircraft carrier and other ships from San Diego to go out to the Persian Gulf, of the amount, not just in human costs that we expend or are about to expend on energy security, but on the dollars that we'll spend for the second time in a decade in protecting our oil supply in the Middle East. 

Whatever may be said about human rights or weapons of mass destruction, at the fundament is the protection of the supply of oil to our economy.  I think about the amount of money that we spend in doing that and how perhaps a fraction of that amount could be expended on a coordinated energy policy within the United States to provide for energy security.  As the president calls for us to increase our domestic production, there are many things that we can do.  I want to talk about those that would flow from a national energy policy that made sense, which could lessen our reliance and, therefore, our need to spend our blood and our capital on protecting foreign sources for our national security. 

I want to first talk about what that national energy policy might look like.  As you know, the President has put a program before the Congress that has not been passed.  It contains elements which are very divisive, particularly if we think about drilling for additional domestic production in the Artic National Wildlife Refuge — whoever thought of that name won the battle right in the beginning; you picture Bambi shivering in the cold as the heavy equipment of the evil oil companies approaches — it's not a very politically palatable thing to do that.  But I think we can make many strides in our national energy policy that do not involve such significant environmental or resource issues as those presented by drilling, for example, in the National Wildlife Refuge, although I will say that I believe it is important to exploit our domestic supplies.  The Federal Energy Regulatory Commission has recently published a standardized market design for the electric system of the United States.  It makes a great deal of sense to Sempra and, I think, to many people who are thoughtful about these things, to maximize the utility; that is the utilization of the existing resources that we have at our disposal within the United States.  We can do that by coordinating at a national level, our transmission systems and our generation systems which we do not currently do for reasons that are primarily historical but also due to a question of fundamental states rights and control.  We operate our energy system, that is, in the electric and gas systems in the United States, on a state-by-state regulatory basis.  As you know from the California energy crisis, California sees itself, for example, in effect, as a sovereign nation with regard to energy policy, and believes that it can regulate the electronics at the border.  That doesn't work very well.  So, the first thing that I would call upon all of us to do, and this bears directly on our security, is to have a coordinated and integrated policy with respect to the movement of energy within the United States, principally electricity, and to build the requisite transmission facilities necessary to do that.  The cost of doing that is a fraction of the cost of sending some of these troops off to the Middle East.  To implement, it will require some political conviction that energy is not only a local question but is also a national question.

Apart from this integration planning for our electric system, there are several other things that we can do.  Particularly here in California, there has been a swing in the pendulum, if you will, towards catering to individual parochial interests at the sacrifice of the common good.  I bring this up in connection with projects that are necessary for our energy security.  For example, we all know the word "NIMBY" – Not In My Backyard – and that is a factor that opposes many projects that have to be built regardless of their overall societal benefits.  We also know, because of term limits, more and more experienced "NIMTO," which is, Not In My Term Of Office — and worse we now have a "BANANA," which is Build Absolutely Nothing Anywhere Near Anybody.  I fear that we'll wind up eventually with "NOPE," Not On Planet Earth.  Not to make light of this, in the history of Los Angeles, imagine trying to do today the steps that were taken to create the Department of Water and Power to bring the water from the Owens Valley.  All of us have seen the movie Chinatown.  The major steps and decisions that were made in this city that have made it great probably could not be accomplished today because we have shifted too much towards catering to individual rights and individual voices.  I think we need to think more about the collective good.

I also believe that we are going to have to turn to a diversification of our energy supply, and one of the things I would like — it's in the National Energy Bill in the president's program and it's also now enacted into law here in the State of California — is the diversification away from fossil fuels towards renewables.  It is again a cost, because currently, in order to provide electricity from renewable sources, it's generally a little bit more expensive, not a lot more expensive, but a little bit more expensive than it is to use fossil fuels.  But again, contrast that cost, that subsidy that has to be paid for getting that energy independence and that fuel diversity to the cost of having to go and fight a war.  I think they are not comparable, and so I'm pleased, frankly, that the state legislature passed a bill that requires all energy providers in the state to eventually produce more than 15 percent of energy from renewables.  I'm also pleased to say when our electric subsidiary, SDG&E, went out for bids recently for its energy needs, it's back in the energy business now as the state is leaving it, it was able to get a very large portion of its needs for the next several years from renewable sources.  So I think something we need to refocus our attention on is to use non-fossil fuel base sources.

I also think that we're going to — and its politically unpalatable right now — return to the need for nuclear energy.  It probably won't be in my term of office as the Chairman of Sempra but I think in the end, as we weigh the total costs of energy from nuclear sources, we're going to find that the lack of emissions of carbon and other gases from nuclear will make our ability to comply with the Kyoto Accords more probable.  We will find, that because the government must solve the problem of disposal of waste that has to be accomplished anyway due to its nuclear weapons program that we will have the means to dispose of the waste.  There is new technology that's much cleaner than the technology we've employed.  So, while I think it may disturb many, we will and should return to nuclear energy as a source. 

I also believe the United States should rejoin the [International Thermonuclear Experimental Reactor] ITER project.  Many of you know that during the Clinton administration we withdrew from that project.  One of the places it was to be located was San Diego, and it has now been relocated to Switzerland.  That's the international project to study fusion energy production.  I believe now the Bush administration is considering rejoining that project.  There have been some significant steps forward in fusion — another technological advance that will increase our security over time.

And last, but not least in this regard, I fully endorse, and I think we all should, the conservation programs that are implicit both in the national energy bill, and also in current legislation in California.  I think it's very interesting that during the energy crisis of 2000-2001 when the retail price caps were in place there was not a price signal sent to consumers as to the real cost of energy and so the demand side of the equation was not served.  Economics 101 says that when prices go up usually demand adjusts to those price increases.  That was masked by the fact that we had a fixed price and two of the utilities became insolvent as the result of that.  When those prices were floated through in part we saw an immediate response of about ten percent reduction in usage.  The governor's 20-20 program put in last year — if you reduced your demand 20 percent over your previous baseline you could get a 20 percent rebate on your bill — worked extremely well and we did get significant reductions in energy use in this state.  I believe we need to seize that as a national program.  Again, I come back to the comparison of costs to making war as opposed to making some small adjustments domestically. 

Second, I think we need to have coordination in North America of energy policy.  [Sepmra] does business in Mexico in rather a large way and we also have business in Canada.  Each of the three countries was able to enter into the NAFTA agreement to open the borders to trade without economic barriers, but we have not made very good strides in coordinating our energy usage.  The Canadians, of course, export a great deal of natural gas into the United States, and we export some gas into Northern Mexico, and we interchange electricity, but there has not been what I would call a NAFTA-type coordination on energy supply in North America which could fairly easily be accomplished.  Parts of Northern Mexico, for instance, are not interconnected with the center and so they're already dependent upon interconnection with the United States for their supply. 

This coordinated policy leads me to the third leg of what I think we need to do.  We’re going to need to import large quantities of liquefied natural gas into North America and we will not do that as successfully if we do that outside coordination among the three countries.  Of course, the import of liquefied natural gas is, ironically, going to create a similar security problem to the import of crude oil and products that we already have.  So, as we try to lessen our dependence on foreign oil because of declines in production in North America of natural gas which has been a solely domestically produced product, we are going to have to import liquefied natural gas from other parts of the world.  But we have a chance now, because we know the sources of that natural gas, to enter into bilateral arrangements with those countries from which it will come to coordinate that supply: (a) to avoid an OPEC-type cartel, which would have the option to strangle us on that commodity as it has in petroleum, and (b) to coordinate the environmental and transportation impacts that are going to come from the importation of that natural gas. 

We have experienced a 20-year bubble in the availability of inexpensive natural gas in the United States.  That time is at an end.  There's growing agreement, virtually at all levels, that declines of production in North America, including the Gulf and including even in the Rocky Mountains, are going to produce short-falls in the near term.  We have seen that expressed already in terms of rising natural gas prices, prices are now above $5 and are approaching $6 this winter, and much lower storage levels than we had anticipated.  Sustained prices for natural gas above $3.25, which I think most everyone agrees now will be the case, will mean that the importation of liquefied natural gas from as far away as Indonesia and offshore Australia becomes profitable to transport and regasify and sell in North America.  There are also very large supplies of natural gas outside of the Pacific basin in western Africa and in the Middle East and we will see imports, significant imports, coming from Nigeria as well.  So we have an opportunity now to take the steps to build the infrastructure to bring in that natural gas and enter into the bilateral arrangements that may assure the security of that supply.

In conclusion, I believe that our security depends principally not on military action, not on what you would traditionally think about as security, in terms of armed guards or steps taken following the events of 9/11, but more on the reformation of our own internal policies and a coordination of our own resources to get the maximum amount of efficiency.

Thank you.