This partial transcript of Special Report with Brit Hume, May 16, 2001, was provided by the Federal Document Clearing House. Click here to order the complete transcript.

BRIT HUME, HOST:  The administration, as you've heard, is poised to release its energy plans on Thursday and seems increasingly aware that while it's proposing a long-term policy, there are some short-term politics that need attention, as well.  Gasoline prices are up.  Electricity supplies are down, especially out west.  Democrats are in full cry, and Republicans in Congress say they need something to point to that will make a difference soon.  So what might that be?

Well, joining me now is energy secretary Spencer Abraham.

Welcome to you, sir.

SPENCER ABRAHAM, ENERGY SECRETARY:  Thank you.

HUME:  Thank you for coming.  I know you can't say too much about the plan and its particulars, but does this plan offer anything to a Republican House member facing reelection, where energy prices are high and whose constituents are screaming?

ABRAHAM:  Well, I think it does because it offers a real plan, a substantive approach.  You know, a lot of the problems we're encountering this summer, ones we had last summer, in some cases the previous summer.  And instead of approaching on a comprehensive basis with -- with the ideas that our plan will include, we've -- we've lurched from crisis to crisis.  Now what a congressman can say is, "I'm supporting a plan that will fix these problems once and for all."

HUME:  Now, clearly, though, there's something different in terms of -- this is -- this is not just a spike in fuel prices.  Obviously, this is also a supply issue.  In California it's particularly serious.  You had Governor Davis, I noticed, in The Washington Post this morning with a -- with a -- urging more be done, talking about the possibility of getting some sort of price caps in place to tide his state over until it can get the actions it's taking to take effect, and so on.

What do you say to that?

ABRAHAM:  Well, with regard to California, the very first thing I did officially as secretary of energy was to call the governor of California and offer our help.

HUME:  Right.

ABRAHAM:  And we've worked closely with California since day one.  We've extended emergency orders so there'd be more natural gas and electricity available to California.  We've helped to expedite permits to put more power plants in place.  And we're taking major efforts at federal facilities to reduce -- through conservation reduce energy usage, so we can help this summer.

But fundamentally, California's got a major supply-demand imbalance, and they're going to have more blackouts this summer.  Our -- we're trying to reduce that amount.  The plans that we've offered I think will help.  But the price cap idea that the governor proposes will make the situation worse.

HUME:  Explain why that is.

ABRAHAM:  Well, I believe, and -- and I think it's consistently shown, as soon as you put price caps in place, what happens is you don't reduce demand.  You typically increase it.  You certainly don't increase supply.

HUME:  Because people lack the incentive to conserve that higher prices provide?

ABRAHAM:  Right, as well as the fact that people who might think about building new electricity supply in the state are going to say, "If there's price caps, we don't want anything to do with it," so...

HUME:  Well, what about...

ABRAHAM:  ... we think it'll make the -- it'll make the problems worse.

HUME:  Well, what about if it clear from the get-go that this is a temporary measure designed to tide a state over until various other sources can come on stream, and so forth?  Is that...

ABRAHAM:  Well, again, I don't think it's going to either decrease demand or increase supply.  And the big problem in California...

HUME:  In the near term.

ABRAHAM:  That's right.  The problem California has is that right now, they're facing blackouts.  I think that price caps will make the blackouts worse.  They'll last longer.  And I think they'll last well into the future.  And there's too much at stake, in my judgment, to roll the dice on price caps.

HUME:  Now, how worried are you that while the measures you're working to take here are -- are being applied or being enacted or we're waiting for their effects, which, as you know, will take some time -- that the economy, because of the higher prices for fuel and because of the -- the more menacing situation in California, may be badly hurt by this and may tip into recession?

ABRAHAM:  I think the thing that will hurt the economy is if we don't act on a comprehensive basis to address the energy crisis we confront.  That's what this plan's all about.  We started working on this the very first week we were in office because we've waited too long to do this.  One of the reasons we suffer some of the economic problems we do today is because we haven't had a comprehensive energy plan.

I believe that once we show fortitude, moving ahead with the president's bold proposals, that what we're going to see is some response in the economy.  People will realize we're going to have some predictability as to our energy supplies in the future.  And that'll make people -- that'll lead people to make decisions about expanding their plants and moving forward in terms of areas where energy is needed that right now they're hesitant to make because they're not sure we'll have affordable and plentiful energy supplies.  So I think -- I think moving ahead on this plan will help the economy, not hurt it.

HUME:  Now, the president, as -- as you heard him say, has said the Federal Trade Commission is being asked to keep a vigilant eye for any -- what he called "illegal pricing" or illegal overcharging.  Is that something -- is he asking the Federal Trade Commission to do something they wouldn't already be doing?

ABRAHAM:  Well, I think he's trying to make a very clear point that we will be vigilant as an administration, in terms of the practices of the energy companies, whether it's the oil companies or electricity generators.  There's been some speculation that somehow or another people aren't acting the way -- consistent with the law in terms of the prices they've charged.

HUME:  Do you see anything that makes you suspect that?

ABRAHAM:  No, and the Federal Trade Commission just completed a study about last summer that proved that there were -- there was no collusion, even though much of it was alleged.  However, we're going to keep a very watchful eye on the situation so that there are no incentives for anybody to -- to not adhere to proper corporate practice.

HUME:  Now, people see a situation in which they see prices skyrocketing.  They know that supplies and -- and -- are not what is necessary.  And they say, "Well, if" -- and they see oil company profits soaring, and they say, "What incentive do these companies, who are doing so very well under the current circumstance, have to increase supply and bring the prices down, when they're doing so well with lower supply -- lower costs and higher prices?"

ABRAHAM:  Well -- well, it's funny.  We're being -- we've been criticized because our energy plan is designed to produce more supply so that we can alleviate the kinds of shortages and the high prices shortages create.  The whole idea behind our plan is to -- is to bring supply and demand into equilibrium so that you don't have these price spikes.  And
that's the reason the president's plan makes so much sense.

We're going to include many components that will modernize the way we approach conservation and energy efficiency, so we can reduce demand on the one side, but on the other side, we want to bring new technologies into play to increase supply.  And I think if we do that, then it'll bring the whole system, in terms of prices and profits, into, I think, a reasonable and acceptable level.

HUME:  Well, let me -- let me come at this...

ABRAHAM:  Sure.

HUME:  ... because I get to do this because I'm a news guy and not a businessman.  Let me come at this matter from another premise, then.  Let's assume that -- that there's plenty of incentive by virtue of these prices and -- and you hear reports that the energy industry is already gearing up big-time and that -- and that they may be adding as much capacity as they could in any reasonable timeframe add, that there's -- there's investment money available to do it because of the prices and the promise of profits.

What can you add to that?  And isn't it -- wouldn't it be better to focus your efforts solely on trying to reduce the demand?

ABRAHAM:  Well, no, because there are a number of regulatory impediments that make it very hard.  Even if there's a will to increase supply, there's -- there may not be a way.  For example, we have infrastructure limitations in terms of the pipeline availability to bring new supplies to market.  We have infrastructure problems that have impeded the building of refineries.  I mean, even if we had more supply of gasoline right now, or of oil, we have -- our refineries, which have declined in number by over 100 in the last 25 years, don't have any capacity to translate that oil into gasoline.

Part of the reason for that is because of some of the regulations that have made it very difficult for new refineries to be brought on line.  And so we do have to take some actions consistent with increasing supply.  Doesn't necessarily mean in every case that we're drilling into the ground.  In many cases, it's addressing regulations that have made it difficult for us to increase supply, even though there was a desire to do so.

HUME:  Secretary Abraham, thank you for being here.

ABRAHAM:  Thanks, Brit.

HUME:  Nice to have you.

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