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American Morning

National Hurricane Center to Release Predictions for the Season; FBI Investigate Congressman Jefferson; Who's to Blame for High Gas Prices?

Aired May 22, 2006 - 08:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DANA BASH, CNN CORRESPONDENT: I'm Dana Bash on Capitol Hill, where a congressman under investigation for corruption was caught with nearly $100,000 cash in his freezer.
More on that in just a few minutes.

CHAD MYERS, CNN METEOROLOGIST: You've heard about Dr. Gray's hurricane forecast. The official Hurricane Center forecast comes out for 2006 in a few hours. We'll have details on that.

SEAN CALLEBS, CNN CORRESPONDENT: And I'm Sean Callebs in the City of New Orleans.

While the rest of the country prepares for hurricane season, they're still digging out here.

A new report out saying much of the flooding that devastated the city was avoidable. I'll explain and tell you what the city is doing to protect itself this year, coming up.

MILES O'BRIEN, CNN ANCHOR: High gas prices sure aren't avoidable. They're still close to $3.a gallon.

But what's behind it all?

We'll ask a big oil company executive.

SOLEDAD O'BRIEN, CNN ANCHOR: And successful surgery late last night for Kentucky winner Barbaro -- Kentucky Derby winner Barbaro. Now America's favorite horse is up and around. Not out of the woods yet, though.

We'll find out more from his vet, just ahead on this AMERICAN MORNING.

M. O'BRIEN: Good morning to you.

I'm Miles O'Brien.

S. O'BRIEN: And I'm Soledad O'Brien.

Lots to get to this morning.

Our top story though, this hour, the cold hard cash. That is what FBI agents are saying they found in the freezer of Congressman William Jefferson. All part of an investigation into bribery and influence peddling.

CNN's Dana Bash live on Capitol Hill for us this morning -- hey, Dana, good morning to you.

BASH: Good morning.

Well, Soledad, this, as you just mentioned, really is quite extraordinary.

First of all, we now know that there was -- there is a videotape taken by the FBI of the congressman allegedly taking a briefcase with $100,000 cash, allegedly a bribe, and that was given to him by a businesswoman who turned out to be an FBI informant.

Later, this past August, the FBI raided the congressman's home and found $90,000 of that cash stuffed in his freezer, put -- stuffed inside frozen food containers and aluminum foil.

Now, the reason why we know about this now officially is because it was all part of a lengthy affidavit given to a judge to get a search warrant of his office here on Capitol Hill. This was something that was done over the weekend. FBI officials came to his office here on the Hill at -- just after 7:00 Saturday night, Soledad. And they stayed more than 17 hours, all night, didn't leave until Sunday; looking for faxes, phone records, things of that nature relating to this corruption probe.

It is unclear exactly what they found, but his lawyer says that he will speak up as soon as he is able to do that.

S. O'BRIEN: Well, speak up as soon as he's able to do that or speak up when he's actually charged with anything?

Because at this moment, he's not been charged, right?

BASH: That's a very good point. He has not been charged and he still does very much maintain his innocence. The eight-term Democrat, his lawyer released a statement last night saying simply that no legitimate investigative purpose is served by the public disclosure of the affidavit. Going on to say this disclosure by the prosecutors is part of a public relations agenda, an obvious attempt to embarrass Congressman Jefferson.

Now, again, he has not been charged with anything, but it's important to note that two businessmen have actually pleaded guilty in related charges to this, one saying that he did attempt to bribe the congressman, another saying that he at least attempted to aid and abet the bribery of a public official. And they are working with the government, with the prosecutors, in this probe of Congressman Jefferson -- Soledad.

S. O'BRIEN: Yes, and even with no charges, $100,000, nearly, in your freezer? That's just -- that's just odd.

BASH: We tried to get the lawyer to explain it last night. His comment was no comment -- Soledad. S. O'BRIEN: Yes.

You know what?

That man is making his money today, I bet.

All right, Dana Bash for us this morning on Capitol Hill.

Dana, thanks.

BASH: Thank you.

S. O'BRIEN: Miles.

M. O'BRIEN: It will be all ears this morning in the hurricane prone portions of this country as the National Hurricane Center releases its official prediction for the storm season that looms. The forecast is due out three hours from now, but we have a preview now.

Our severe weather expert, Chad Myers, at the Weather Center.

In a word, it's going to be busy.

MYERS: In a word, it will probably be busy. Look, nine out of the last 11 years have been above normal. There have only been two years that were below normal and those were el nino years, like '97 and 2001.

So the whole area there -- but we're in this multi-decadal cycle, they call it, that's really a 20-year cycle that started in '95 that we're going to have above normal hurricanes.

Here's the forecast that actually came out back in April from the Colorado State University -- 17 named storms, nine hurricanes and five major hurricanes. And I don't expect that anything that the Hurricane Center says today will be all that far from where the folks who have been thinking about it now for the past couple of months where all these things -- because nothing really has changed.

We did have a little La Nina period where we were thinking oh, no, let's please not have that, because that's really going to hurt. That's going to make more storms. But now it's pretty much neutral.

And here are the names, from Alberto right on down into Kirk. We've got an e-mail that said wouldn't it be awful to get by a Hurricane Kirk? Kind of funny, I guess. People are kind of looking at the names and having at least a little bit of lightness before hurricane season really gets going. And then it'll just be all the way to the wall and the floor boards will be pushed down here in the Weather Center as we start to go full throttle for this hurricane season -- back to you guys.

M. O'BRIEN: Good thing you got your fishing in, Chad.

MYERS: I did.

M. O'BRIEN: Thank you very much.

MYERS: I have one more vacation, then I'm done for six months.

M. O'BRIEN: Yes, I think you are.

So how confident are you in the government's ability to react to a disastrous storm?

Out this morning, a CNN poll with some interesting figures. Just 52 percent of Americans are confident the government can handle the damage. Forty-five percent are not confident -- Soledad.

S. O'BRIEN: People died in Hurricane Katrina because of politics and cost-cutting. That is according to the head of an independent study that's coming out today. It says 80 percent of the flooding in New Orleans could have been prevented.

Let's get right to Sean Callebs.

he's live for us in New Orleans this morning -- Sean, good morning to you.

Who did this report and who do they say is responsible, in fact, for the flooding?

CALLEBS: Well, it comes from the National Science Foundation. They had three dozen of the best scientists from around the country -- in terms of risk, why it happened -- pore over every inch of this area to find out what had happened.

And you're exactly right, this is coming out. There's going to be a public hearing today. People here are not going to be happy. The headline -- 80 to 90 percent of the flooding that simply devastated this city, killed close to 1,300 people, was avoidable, was preventable. That is the conclusion of the finding.

Well, how did it happen?

Well, chiefly, the flooding that hit the heart of the city, the business district, the downtown area, it happened because water came pouring down canals like this one behind me from Lake Pontchartrain. And the levees, the floodwalls weren't overtopped, they simply gave way because of lousy construction -- Soledad.

S. O'BRIEN: So if they gave way because of all of that lousy construction, what possibly can be done between now and the start of hurricane season, or maybe even a little bit further out, to resolve these problems?

CALLEBS: Well, the Army Corps of Engineers has been working around the clock for the last eight months, trying to make things better. Chiefly, they're putting up these flood gates. That is supposed to stop the water from coming down from the lake.

Why weren't the flood gates in places years, decades ago?

That's the question that the researchers were asking. And you can't blame the Corps for that.

You know who you can blame? Local government. Simply petty squabbling and bickering over who controlled what. That is what the study says led to the fact that these flood gates did not go up.

And down in the Lower 9th Ward -- and I know you've been down there, Soledad -- and in St. Bernard Parish, the areas hit hardest, it wasn't the floodwalls. What happened there, they built the earthen levees, the things supposed to protect the area, out of porous sand. It simply gave way when the waves came rushing in during the hurricane.

S. O'BRIEN: So the bottom line is the whole thing was done on the cheap?

CALLEBS: Exactly. Pathetic.

S. O'BRIEN: Oh, it really is.

All right, Sean Callebs for us this morning with that report from the NSF.

Thanks a lot -- Miles.

M. O'BRIEN: Happening in America this morning, another term for Ray Nagin. The New Orleans mayor says he's already talked with President Bush about getting more aid for debris removal in his city. Nagin beat Lieutenant Governor Mitch Landrieu 52-48 percent. The margin was about 5,400 votes. His next term begins May 31st. That is the eve of the next hurricane season.

Also in Louisiana, a man facing murder charges today in the shooting deaths of four people at a church in Baton Rouge yesterday. Police are still looking for a motive, though. They say the gunman then abducted his wife, killed her in a nearby apartment.

And it took 2,800 pounds of dynamite to do this. That's a Portland, Oregon landmark tumbling down. Not tumbling down, just poof in smoke. It's a cooling tower at the Trojan nuclear power plant. The Trojan was shut down years ago for safety reasons. This is all part of the decommissioning process. Apparently that's the largest cooling tower ever demolished in the U.S. Quite a picture.

S. O'BRIEN: Yes, it really is.

M. O'BRIEN: And Israeli Prime Minister Ehud Olmert is in Washington this morning. He's on a four-day U.S. visit, scheduled to meet with President Bush, expected to push his plan for setting boundaries for a Palestinian state. We'll keep you posted on that trip -- Soledad.

S. O'BRIEN: Ahead this morning, as we've been mentioning all day, hurricane season almost here.

Do you think New York, New York City, is due for a monstrous storm? We'll take a look at that.

Also, a look at the worst case scenario for the Big Apple.

Then we've got the Kentucky Derby winner, Barbaro, now recovering after surgery. His injury could take his life. We're going to talk to the doctor who operated on him and find out how he's doing today.

And then this, for a new parent it's always a problem -- should the baby sleep with you? And how do you get that crying baby to stop and go to sleep?

A well known doctor on the issues might be changing his advice.

That's ahead.

Stay with us.

(COMMERCIAL BREAK)

M. O'BRIEN: In the raging debate over immigration reform, there's an awful lot of talk about mass deportations of immigrants who are in this country illegally. But when you hear all that talk, you should think about the person your about to meet.

Here's Allan Chernoff.

(BEGIN VIDEOTAPE)

DAVID DEJONG, IMMIGRANT: You look OK. Look at papa. Turn around.

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): David DeJong appears to be an all American dad. He's a veteran, served overseas in the Army, then worked on a U.S. military base in Germany.

DEJONG: Have a good day.

CHERNOFF: He lives in Farmingville, Long Island, a New York suburb packed with illegal immigrants who every morning wait at street corners for a day's work.

But it is David, not the day workers, who is facing deportation back to his native Canada.

DEJONG: A little frustrating. They don't have to worry about being deported. I do.

CHERNOFF: When David was 12, his mother married an American and moved the family from Canada to Long Island. David graduated high school there, enlisted in the U.S. military and was stationed in Germany. It was there he met and married a German woman, had a child and planned to come home to the U.S.

But when his son was born with a heart defect requiring surgery, David stayed in Germany, using the country's socialized health care. DEJONG: For working on base, I honestly believed that my status was being maintained.

CHERNOFF: But David failed to fill out paperwork necessary to keep his legal residency. David and his wife got divorced, he gained custody of their three children and moved back to the U.S. to be closer to his family.

DEJONG: I am a single father with custody of my three children and I need that family support to be able to work, raise my children and go to school full-time all at the same time.

CHERNOFF: David's attorney says immigration policy should be flexible, especially for a veteran.

DONALD BIRNBAUM, DEJONG'S ATTORNEY: Every case should be looked at on an individual basis. He has done more for this country than most Americans have done.

CHERNOFF: David has gained support from local officials, including his congressman.

REP. TIMOTHY BISHOP (D), NEW YORK: He's being vigorously pursued by immigration with the threat of deportation and yet we have, you know, thousands -- and across the country millions -- of people who are here without proper documentation who don't get anywhere near the same level of scrutiny.

CHERNOFF: The Bureau of U.S. Immigration and Customs Enforcement told CNN: "We're aware of the situation and we're looking into it.

DEJONG: All right, guys.

CHERNOFF: David hopes the government will soon grant him an exception in return for his service so he can remain in the country that he considers home.

Allan Chernoff, CNN, Farmingville, New York.

(END VIDEOTAPE)

M. O'BRIEN: And DeJong's next court hearing is in September.

We'll keep you posted.

Coming up, the age old debate -- how to get that crying baby to fall asleep. Do you let him cry?

S. O'BRIEN: Cry it out. That's my theory.

M. O'BRIEN: Cry -- ooh, it's like fingernails on a blackboard for some parents, though, just listening to that.

S. O'BRIEN: Cry it out.

M. O'BRIEN: The doctor behind some controversial advice may have had a change of heart.

Also ahead, oil prices go up, they go down and we just -- we have a hard time understanding how that relates to the price we're paying at the pump. We're going to ask an executive from a big oil company about some of these things.

That's ahead on AMERICAN MORNING.

(COMMERCIAL BREAK)

S. O'BRIEN: If you remember Dr. Richard Ferber's book back in the '80s, "How To Get Your Children To Sleep," the impact of Dr. Ferber's book was such that the term "Ferberizing" was popularized. His controversial approach involved leaving the kid to cry for progressively longer intervals until he or she fall asleep.

Well, there is a new edition of that book. It's out this week. And Dr. Ferber is revising his stance.

"Newsweek" magazine has got an article about it.

Lisa Miller is a senior editor of "Newsweek."

Nice to see you.

LISA MILLER, SENIOR EDITOR, "NEWSWEEK": It's nice to see you.

S. O'BRIEN: Are you telling me that Dr. Ferber is changing his position?

MILLER: He wouldn't say that, but that's what it looks like. He used to say that if you slept in the bed with your kid, you were doing damage to your kid, not...

S. O'BRIEN: Psychological damage, right?

MILLER: Psychological, long-term damage. Your kid wouldn't grow up to be an independent adult.

S. O'BRIEN: Let me stop you there, because we actually have a little chunk from his book.

MILLER: OK.

S. O'BRIEN: This is the book back in the 1980s, 1985. Put it up on the screen there: "Sleeping alone," he wrote, "is an important part of your child's learning to be able to separate from you without anxiety and to see himself as an independent individual."

MILLER: Right. So parents felt really terrible about sleeping with their kids because Dr. Ferber, who was the god of children and sleep, said you shouldn't do it. And yet millions of parents, as we know, sometimes sleep with their kids.

S. O'BRIEN: We did it anyway and we felt bad and guilty about it. MILLER: Right.

S. O'BRIEN: So he's got this revised version and here's what he writes now: "Whatever you want to do, whatever you feel comfortable doing is the right thing to do as long as it works."

It kind of sounds like the guy who was fairly hard core back in 1985 is now, you know, whatever makes you happy.

MILLER: Right. Well, what he would say is that in the old -- in the earlier version, he was reflecting the conventional wisdom of the time, that most people thought that it was bad for kids to sleep in parents' beds and that he was a new doctor and that he didn't really mean to take such a hard line. And so he's just reflecting his true views in the new edition.

S. O'BRIEN: Does that mean that he personally thinks it's OK to sleep with your child, co-sleeping?

MILLER: As long as it works. As long as everybody is getting sleep. And as long as the parents have a goal to get the kid out of their bed, preferably by six months, definitely by three years.

S. O'BRIEN: What about on the crying baby, you know, the cry it out theory of "Ferberizing" your baby, which many of us at least tried or struggled with at some point?

Is he backing away from that?

MILLER: No. That's the core of his method, you know, the incremental crying. And last night I was looking on Amazon at reviews of the book and, you know, people really swear by it. The ones who love it really love it. And those who hate it, hate it.

S. O'BRIEN: The "Ferberizing?"

MILLER: Yes.

S. O'BRIEN: I -- it worked for all four of my kids, I'll tell you that.

Do you think that, you know, does he understand how -- how he has become sort of ingrained in all the parenting? I mean how personally people took what he wrote, almost as an indictment, not only of your child's sleeping, but an indictment of your parenting abilities?

MILLER: He said to us that he didn't -- he didn't see -- he didn't foresee how dogmatic people were going to become about it. But people really are dogmatic about it. And they attach themselves to one side or the other and then they don't let go.

S. O'BRIEN: Oh, the message boards on iVillage are vicious, are hostile...

MILLER: Right. Urban Baby, it's horrible.

S. O'BRIEN: In being people attacking you...

MILLER: That's right.

S. O'BRIEN: ... not just for, you know, well, whatever choice is your choice, but just...

MILLER: That's right.

S. O'BRIEN: ... for being a bad parent.

MILLER: Well, he's trying to soften it in this new edition and really say, you know, what Spock said in the old days, which is trust your instincts. You know best. The important thing is that your kid sleep and that you sleep, because there's a -- there's no worse parent than a sleep deprived parent.

S. O'BRIEN: Yes, that's true.

That is very true.

Well, Lisa Miller is a senior editor at "Newsweek."

Thanks a lot.

It will be interesting to hear, to see -- take a look at this book. And so -- well, my kids are out of that now, so I'm glad that's a stage I'm past.

MILLER: Yes. It's -- everybody involved in the story had a kid younger than two, so...

S. O'BRIEN: Oh, it's brutal.

MILLER: ... we were all reading every word.

S. O'BRIEN: I kind of feel sorry for all of you. They sleep eventually and then they go off to college.

MILLER: That's what everybody says.

S. O'BRIEN: That's right -- Miles.

M. O'BRIEN: And it all happens way too fast, doesn't it?

Coming up on the program, what would happen if a powerful hurricane like Katrina took aim on New York City?

We'll take a look at the worst case scenario for the Big Apple. The results are kind of frightening.

Plus, the Kentucky Derby winner, Barbaro, is back on his hooves after a six-hour surgery. The vets say, however, he only has a 50-50 shot at survival after breaking his leg in the Preakness. We'll ask the doctor who operated on Barbaro how he's doing this morning.

Stay with us. (COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

UNIDENTIFIED CORRESPONDENT (voice-over): The Aflac leader who's had the U.S. all quacked up on today's Blue Chips.

DANIEL P. AMOS, CHAIRMAN & CEO, AFLAC: As a CEO, the thing that I've concentrated on is to try to stay focused, come up with a strategic plan and don't vary from the plan.

UNIDENTIFIED CORRESPONDENT: Dan Amos's tactic seems to be working for America's top supplemental insurance provider. Revenues have more than quadrupled in the 15 years that he's been CEO. And things really took flight with the Aflac duck advertising campaign.

This year, Aflac made "Fortune's" list of America's Top 100 Employers for the eighth consecutive time.

AMOS: We've concentrated on being an outstanding employer because if you've got happy employees, that will permeate all of society, including potential customers as well as existing customers.

(END VIDEOTAPE)

S. O'BRIEN: Still to come this morning, what's behind the current surge in gas prices?

We're going to get some answers from the vice chairman of Chevron, just ahead on AMERICAN MORNING.

We're back in a moment.

(COMMERCIAL BREAK)

M. O'BRIEN: Good morning to you.

I'm Miles O'Brien.

S. O'BRIEN: And I'm Soledad O'Brien.

Lots to get to this morning.

We begin with Carol Costello.

She's at the newsroom this morning -- hey, Carol, good morning.

CAROL COSTELLO, CNN ANCHOR: Good morning, Soledad.

Good morning to all of you.

A bit of developing news out of the Middle East to tell you about now.

There's an ongoing firefight in Gaza. These are new pictures we're just getting in. Well, you can see Hamas gunmen said to be trading fire, or they are trading fire, with Palestinian police near the parliament building in Gaza. Tensions are said to be on the rise between members of Hamas and Fatah.

Lots of shouting at the Saddam Hussein trial today. First, his lawyer was thrown out of court because she wouldn't keep quiet. She was thrown out last month for showing Abu Ghraib pictures. When Saddam Hussein rose to defend her, the judge yelled at him to sit down. The former president said, "I am Saddam Hussein and nothing is going to change that."

There is anger in Kentucky. Families of three of the five men killed in Saturday's mine explosion have learned the men survived the blast, but died of carbon monoxide poisoning, the same thing that killed 11 miners in the Sago explosion. They're angry that no steps were taken to prevent that from happening again. The Darby Mine in Harlan County, Kentucky could be safe enough for investigators to enter as soon as today.

It marks its final break up in the former Yugoslavia. People of Montenegro have voted to secede from Serbia. The news prompting celebrations there. The two countries made up what was left of the former Yugoslavia. At one time, it was made up of six republics.

An amazing 7-year-old ready to tackle the rock. A second grader is just two hours away from attempting a record-setting swim from Alcatraz to San Francisco. If he makes it, he will be the youngest to finish the mile-and-a-half swim. But don't worry, his swim coach and the Coast Guard will be tagging along just in case.

That's a look at the headlines this morning.

Back to you -- Soledad.

S. O'BRIEN: Yes, that's good news.

I think I'm resting a little bit easier because of that, because he's such a little kid. Hopefully he'll make it. It's a mile and a quarter.

Carol, thanks.

The National Hurricane Center releases its 2006 hurricane forecast. We're expecting it in just about two and a half hours. And we're also expecting that they're going to predict another active season. There's always a chance this could be the year the big one hits New York City.

John Zarrella has our report.

(BEGIN VIDEOTAPE)

JOHN ZARRELLA, CNN CORRESPONDENT (voice-over): Steve and Debbie O'Sullivan live in Rockaway Beach in Queens, New York; a tranquil setting, a beautiful, wide shoreline. They never really worried about hurricanes until now. STEVE O'SULLIVAN, RESIDENT: We never really understood, you know, the greater impact of it. We never really had a great fear of them. We used to play out in them.

ZARRELLA (on camera): What's changed?

S. O'SULLIVAN: Katrina.

ZARRELLA (voice-over): For the first time, the O'Sullivans, whose house sits just one block from the ocean, with the Atlantic on one side and Jamaica Bay on the other, are thinking about stocking up on hurricane supplies.

DEBBIE O'SULLIVAN, RESIDENT: I really am seriously considering getting more supplies of water and dry goods. It is a worry for me. I mean, he is not as worried as I am.

ZARRELLA: There may be good reason for concern. New York City hasn't experienced a big hurricane since 1938. With the increase in hurricane activity, combined with the law of averages, many experts believe another major storm may be coming -- and soon.

(on camera): Is it going to be a slow rise?

NICHOLAS K. COCH, QUEENS COLLEGE CUNY: Yes, yes. It's going to come up slowly, about the rate that you'd fill a bathtub.

ZARRELLA (voice-over): Coastal geologist Nick Coch, himself a New Yorker, believes it would be catastrophic. Deaths might surpass Katrina.

COCH: Because the most dangerous thing in New York is the New Yorker, and the New Yorker thinks they've been tested by everything. But very few New Yorkers have been in the eye of a hurricane and know how uncontrollable the energy is.

ZARRELLA: National Hurricane Center computer models and comprehensive studies are chilling. The water is pushed into lower Manhattan, steadily rising. Sea water pours through the Holland and Brooklyn Battery Tunnels. JFK Airport goes under in an astounding 20 feet of water.

(on camera): This is the famous Fulton Ferry Boat, landing in Brooklyn. It's a popular spot for young couples to come and take wedding pictures. But if a major hurricane hits, all this will be underwater.

(voice-over): Water in the Wall Street District could be seven feet deep, the subways knocked out.

COCH: There's going to be glass all over the street, glass flying through the air.

ZARRELLA: One study puts economic losses from a Category 3 hurricane at $100 billion. That threat is causing AllState to stop writing new insurance policies in the New York area, and even canceling some customers.

JEANNE SALVATORE, INSURANCE INFORMATION INSTITUTE: Metropolitan areas high population density and very expensive properties. So you throw a hurricane into that scenario, and results can be really catastrophic.

ZARRELLA: City officials are in the midst of a major preparedness campaign. Part of the plan, move 2.3 million people out of coastal zones. But how many will go?

Dolores Orr heads the community board in Rockaway.

DOLORES ORR, COMMUNITY BOARD CHAIRMAN: For those that were raised here, I hear them today talking that they're not going anywhere. And that's a concern.

ZARRELLA: For the O'Sullivans, being prepared just makes sense. Even here in New York, where hurricanes are as unheard of as the Yankees not making play-offs.

John Zarrella, CNN, New York.

(END VIDEOTAPE)

(WEATHER REPORT)

S. O'BRIEN: And of course you want to stay tuned to CNN for all the big storm activity. CNN is your hurricane headquarters.

Miles.

M. O'BRIEN: The latest on the gas gauge for you. According to the AAA's fuel gauge report, the national average, $2.89 for a gallon of unleaded regular. That's one cent higher than one month ago, when it was $2.88. And a year ago, it was $2.13 a gallon and there was a slight downturn in the Lundberg Survey so, you figure it out. If you're saving a penny on gas, you're happy. Just don't spend it all in one place.

The question is, who are you going do blame for the high gas prices? Because, of course, we love to blame someone, and certainly not the person in the mirror who's pumping gas into that big old SUV. We're not going to do that, are we? It's much more convenient to go after big oil company executives.

And joining me now is one, Chevron's vice chairman Peter Robertson. Alongside me here is Andy Serwer. We're going to ask him a couple of questions about how the oil company business works and how prices are determined. Good to have you with us, sir.

PETER ROBERTSON, VICE CHAIRMAN, CHEVRON: Good to be here.

M. O'BRIEN: Your first quarter profit, $4 billion. An astounding amount of money. I think the question on a lot of peoples' minds -- you know, this is a capitalist system, we want you to make money. Certainly, the shareholders love that. But how much money are you spending on looking for some alternatives?

ROBERTSON: Well, first of all, $4 billion is a lot of money and last year, we earned $14 billion. This year we're going to invest $15 billion. So we're investing more than we've earned. Most is invested in oil and gas production around the world, Gulf of Mexico, but in many countries of the world. On alternatives, we're probably investing about $300 million a year. We have some significant...

M. O'BRIEN: Shouldn't that be more?

ROBERTSON: It's increasing, and it probably will be more. On the -- one of the things we're looking at right now is the ethanol business. We are in the process of -- we have ethanol in 20 percent of our gasoline today. We are looking at -- in fact, building a biodiesel plant in Galveston, Texas. We have a geothermal business around the world.

In fact, we're the largest renewal company ever of all the global oil and gas companies. So we have a range of projects going. We have an E-85 project in California with General Motors. So I think ethanol is going to be an important part of the solution here. I think all of the alternatives are going to be important, but they're not going to solve the problem.

M. O'BRIEN: Let me ask you this. Why hasn't -- you say all these billions spent on additional exploration and production capabilities as it relates to oil. And yet a refinery, a single refinery, has not been opened in this country in 30 years. Why not? And can Chevron do something about that?

ROBERTSON: Well, you know, a single refinery has not been opened, you're right. And many small ones are being closed down. But the refining capacity today in the United States is significantly higher than it was many years ago. So there's constant reinvestment in refining in the U.S., and constant increasing of capacity of existing refineries. We're currently...

M. O'BRIEN: But you could use another refinery, don't you think?

ROBERTSON: We could use expansions of existing refineries or another refinery. But there's plenty of room for expanding existing refineries. One of their issues is it's very tough. With the regulatory environment that we have, nobody wants a new refinery, let alone an expansion, in their backyard. But we're expanding our refineries in the U.S. and will continue to do that.

ANDY SERWER, "FORTUNE" COLUMNIST: A question about high gas prices, though. The big oil companies like yours always say we're not making a lot of money on higher gas prices. The gas stations say they're not making any money on higher gas prices. My question to you, who is making money on higher gas prices, then?

ROBERTSON: Well, that's -- you know, the price of gasoline is basically 55 percent crude oil, 20 percent taxes -- you know, federal, state, excise taxes, sales taxes -- and about 25 percent refining and marketing, distribution. So, crude oil is the biggest component, 55 percent. That's a price that's set globally. They're producers, thousands of producers all over the world, buying and selling oil. There's a huge demand on the system today from China and India and the United States.

And so the supply system is getting strained, and so the price of crude oil is higher and the people that sell crude oil, whoever they are, including Chevron, make money on that. But Chevron, in fact, is about 2 percent of the world's crude oil production. So we're a small player in a huge game.

SERWER: Your production has dropped, though, over the past several years. Supposed to increase this year. Why has your production levels been dropping over the past several years when demand is so high?

ROBERTSON: Well, because we all produce oil fields that decline. And, the -- while we've invested over the last four years about $36 billion in new projects, the decline rate of our existing projects, like all oil fields, is on the downturn, so new projects have to make up for that decline. We've sold some properties that didn't fit our system.

And, you know, I think that the net -- we have a lot of projects that are sitting in the queue that we're working on that are about to come on. So probably starting next year, we'll start -- maybe even this year, we'll start to see increases in our production. Gulf of Mexico last year was a big problem, dropped a lot of production. But we've been -- we have a significant growth curve ahead of us, 3 percent a year for many years into the future, based on projects as they're in the pipeline.

M. O'BRIEN: Mr. Robinson, they're -- inevitably, when there are profits of the size we're seeing in the oil company right now, there's talk about the windfall tax profit. And a lot of Americans watching right now would say, well, why not a windfall tax? Especially if that money were to put toward laying the groundwork for some alternatives, for something down the road that would be an alternative to oil. What do you say to that? What do the oil companies say to that? I mean, that makes good sense, and maybe the -- would it be better if the oil companies were spending more on their own to negate that possibility?

ROBERTSON: Well, I just told you we're investing basically everything we earn, and about a third of that, $15 billion for this year, is going to be invested in the United States. We'd like to invest more in the United States. We'd like to invest more in exploration and production in the United States.

But there are many parts of the United States that are off- limits, and so the American public need to get to their legislators and open up some more acre in the United States for us to invest in. So there's -- we have more to invest, we're anxious to invest. We'd like to invest more in the United States. But only a third of our investments can go to the United States. Now, in terms of -- you asked about alternatives.

M. O'BRIEN: Right. ROBERTSON: You know, it's only been recently where prices have got to the point where alternatives probably make economic sense. And, we're spending a lot of time and energy research, on trying to figure out -- let me give you an example. Right now, ethanol -- ethanol -- we produce in the United States more ethanol than Brazil. And yet -- and Brazil has always been held up as an example. And they've been a tremendous example.

But we have such a huge transportation system in the United States, that although we produce more than ethanol than Brazil -- and in Brazil the ethanol is 30 percent of their transportation fuel -- in the United States, it's only about 1 percent. And we use 12 percent of the corn crop. So, in order to get the 5 percent, we'd have to use half of the corn crop in the United States.

We need to find another way to produce ethanol, and another way to produce these liquid fuels. And we can do that, and we're working on that. But technologies in the lab -- but it's not commercialized yet.

SERWER: So, $3.05 my local gas station. Who sets the price? How does that work?

ROBERTSON: The market. The market sets the price.

SERWER: We hear that, but how does it actually work?

ROBERTSON: Well, I just told you where it comes from. Crude oil is a big part of it, 55 percent. Taxes are a part of it. Refining and marketing is a part of it. Somebody puts up a sign up in the street, people buy it or they don't buy it. If we reduce our price, we'd be sold out by lunch time and everybody would go to another station and the prices would go up.

So the market sets the price. Thousands -- 169,000 stations competing. We've got the most competitive environment in the world. Consumers are setting the price. Obviously, the cost structure is based, just as the way I told you -- crude oil, taxes, advertising and marketing, distribution.

M. O'BRIEN: In spite of all of that, many Americans have the perception, especially when see those profits, that they're being gouged. What do you say to them in response to that?

ROBERTSON: Well, I say, you know, there's a lot of things they can do. There's a lot of things they can do. The first thing they can do is get a little bit more efficient.

M. O'BRIEN: No, no, no. But in response to the direct question, are they being gouged?

ROBERTSON: We're earning four or five cents a gallon on gasoline. That seems like -- I think that's a reasonable amount to earn. They're not being gouged.

M. O'BRIEN: Right. But they're... ROBERTSON: With all the earning.s..

M. O'BRIEN: There's a lot of profit in the upstream and the production and the other things.

ROBRTSON: All the profit that we're making, we're reinvesting, like I just described. We're reinvesting. We're making $14 billion last year. We're investing $15 billion this year, and an appetite to invest more if we can get more opportunities, particularly in the United States. So we're -- we are reinvesting everything. It's not -- I mean, somebody's taking it out in the back in a wheelbarrow. We are -- everything we earn, we're reinvesting.

M. O'BRIEN: Peter Robertson, who's with Chevron. Thanks very much for coming in.

ROBERTSON: Good to be here.

M. O'BRIEN: Appreciate the explanation.

ROBERTSON: Thanks, Miles, appreciate it.

M. O'BRIEN: Back to Andy Serwer.

SERWER: Yes, Miles. Coming up, some business news. Cadillac drives into the Xbox. Plus, the Chinese karaoke train, and Ted Turner says good night and good luck. Miles, back to you.

M. O'BRIEN: Also ahead, coming up we'll have an update on Barbaro's condition. The Kentucky Derby winner had to undergo surgery after a potentially life-threatening injury in the Preakness on Saturday. We'll ask the vet on Barbaro how he's doing today. Stay with us.

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M. O'BRIEN: Coming up in the program, the link between a woman's weight and breast cancer, and why there might be an even stronger connection than doctors thought in the first place.

Plus, the Kentucky Derby winner Barbaro, out of surgery now, but he's not out of the woods just yet. We'll talk to the vet who operated on him after his Preakness injury, dramatic as it was. We'll see how he's doing this morning. Stay with us.

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M. O'BRIEN: Horse racing is a chancy business. After all, it is the nature of the game. But we're reminded just how chancy by what you see right there on the screen at the beginning of the Preakness on Saturday. Barbaro, the Kentucky Derby winner, twisting his ankle at about 40 miles per hour, and that led to an injury which is truly life threatening. The veterinarian who conducted the surgery on Barbaro yesterday, Dr. Dean Richardson joins us now. He led the team of surgeons that did the operation. He joins us from Kennett Square, Pennsylvania.

Dr. Robertson (sic), good to have you with us. You must be exhaustive, given all you've been through here. We appreciate you spending some time with us. First of all, how is Barbaro doing this morning?

DR. DEAN RICHARDSON, BARBARO'S SURGEON: Barbaro passed the night very uneventfully. He's actually quite comfortable this morning, is acting like a fairly healthy 3-year-old colt today, acting pretty normally.

M. O'BRIEN: Well, that's encouraging, isn't it? Or is it way too early to say what that really means?

RICHARDSON: It's still far too soon to say that he's going to make it. This is a very, very serious injury. Every day that goes by is important, but the reality is that it takes months before you know if a case like this is going to survive.

M. O'BRIEN: Now, the nature of this injury is such that, clearly, his racing career is over. And typically, a horse like this would be euthanized. In this case, the decision to do this extraordinary surgery -- and that has, quite frankly, a lot to do with the fact, as a stallion, Barbaro has great value in future, right?

RICHARDSON: Well, that's partially true. But it's important for everyone to keep in mind that surgeries are done to repair horses' injuries on a very regular basis. The only thing unusual about Barbaro is that he had a three different major injuries instead of just one of these. That's what made him a little bit different. So we were repair fractures like the individual elements of his injury on a regular basis. It's just unusual to have all three in the same horse. And there's no question that you're more likely to try to save a horse of his potential value of a stallion than you would be a less valuable animal.

M. O'BRIEN: So what you're talking are two significant breaks in the right hind leg, and then a dislocation of the ankle. Is that right?

RICHARDSON: That's correct.

M. O'BRIEN: And I -- as we look at the x-ray here, it's just -- the leg now is just loaded with hardware that you had to put in there. Did all that go well? And I assume all that hardware and all the healing that has to go along with there is fraught with complications.

RICHARDSON: Yes, indeed. There's no question that we have a lot of concerns about his -- when you do this type of surgery. The surgery went technically well, considering the complexity of the injury. It's a very difficult fracture to prepare. But yes, there's major potential complications, including infection, failure of implants. And horses have a unique problem. If they can't bear weight fully on the broken limb, they can develop something called laminitis, which is a problem in the foot of the opposite hind limb. And that's a very...

M. O'BRIEN: So really...

RICHARDSON: ... major problem.

M. O'BRIEN: I guess a lot of people didn't know that a horse cannot survive, really, without four good legs, right?

RICHARDSON: Yes, they don't do well at all if they can't walk on all four limbs. Some horses will make it. But again, big, big adult horses like Barbaro would have difficulty getting around for any extended period of time on three limbs. They tend to have problems in their opposite limb. So in his case, he could have problems in the left hind limb.

M. O'BRIEN: Let's talk just briefly about the rush to try to make the triple crown here. There's two weeks that separate the Kentucky Derby and Preakness, and then another three weeks from the Preakness to the Belmont. Is it asking these athletes, the horses, these highly tuned athletes, too much to race in that interval? And did that have anything to do with the injury we just saw the other day?

RICHARDSON: No. I don't think so. I think there's no evidence whatsoever that racing two weeks after the Kentucky Derby or even a week later is likely to result in more injury. There's no evidence at all that that would be the case. Actually, historically, thoroughbred race horses used to race much more frequently than they do nowadays. Horses actually get more time between races now than they have historically.

And that's -- so I don't think that's an issue at all. And I really do not believe that it had anything to do with it. This was a misstep, an unfortunate accident, the sort of thing that could happen pretty much any time.

M. O'BRIEN: A tragic fluke. Dean Richardson, the veterinarian who led the team. Good work and get some rest and keep us posted on Barbaro as he recovers from this injury.

RICHARDSON: Thank you.

M. O'BRIEN: Back with more in a moment.

RICHARDSON: Thank you very much.

M. O'BRIEN: You're welcome.

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