The Dow Jones Utilities Index posted another year of solid gains in 2006. As might be expected, in connection with both the near-term and longer-term historical investor performance of the utility...
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we do that the better it will be for our customers because it is a very low-interest-rate environment. I expect after the election we will probably see something pretty substantial coming out of the Federal Reserve in an uptick basis.
Many utilities such as AEP are participating in state plans to reduce emissions of nitrogen oxide and sulfur oxide. Are you concerned that the federal government would impose tougher restrictions in the future? Are the states not opening a Pandora's box?
People run around and talk in terms of air pollution getting worse and worse and worse. But statistically that is absolutely inaccurate. Every year since the Clean Air Act has been in place the air quality has gotten better. People need to deal with the facts on those issues. That doesn't mean that there isn't room for improvement. There always is. States and the federal government trying to do one-upping of each other, leading ultimately for coal plants to drop off the system. Now, you are demanding 35 trillion feet of gas on a supply base of 22 trillion feet of gas. In that scenario, I think gas goes to $10 or $20 per million BTU and energy goes to $100 or $200 per megawatt hour. You cannot have an economy in this country without coal-fired generation. Period.
Do you believe AEP should join PJM as FERC has ordered?
I believe long term that the whole notion of the transmission grid being in interstate commerce, which it is, and therefore being regulated by the FERC, is exactly the right way to go. If you look at the interstate gas model, I think it plays well on the interstate electric model if folks will allow that to happen. For instance, here in Columbus, Columbia Gas of Ohio is regulated by the PUCO [Public Utilities Commission of Ohio]. They can't charge a distribution rate without the PUCO approving that rate. But the PUCO does not regulate the Columbia Gulf system or the Columbia interstate transmission system. That model is workable on the electric side as well. [PUCO] can regulate Ohio Power's distribution rates. They can regulate Columbia Southern's distribution rates. They don't need necessarily to regulate the interstate aspects of the transmission grid itself. I think RTOs are taking us there.
Having said that, to the latter part of your question, it will not happen quickly if we don't have a dialogue, and if the federal government isn't willing to talk to the states to try to find a meaningful way to get that done. If you take a typical [AEP] bundled kilowatt of 5.5 cents, about 2.5 cents for generation, about 2.5 cents for distribution and a half a penny for transmission. Why don't the states just simply focus on regulating the gen and distribution rate and let the interstate commerce clause do what it was meant to do? Because power generated in Ohio and consumed in West Virginia or generated in Kentucky and consumed in Ohio is interstate commerce. What we are trying to encourage the FERC to do and tried