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As summer looms, so does concern over blackouts, high gas prices

Published Sep. 9, 2005

Power blackouts appear inevitable in California this summer and could spill into neighboring Western states, the Bush administration says, even as stocks of a gasoline additive raise concerns of another summer of price spikes at the pump.

Energy Secretary Spencer Abraham told a Senate hearing that the administration is trying to find ways to increase power supplies in the West, where prices have soared because of shortages. The administration strongly opposes price controls, he said.

"The problem will get worse, and blackouts this summer appear inevitable," Abraham said. The administration's hope is that "California doesn't start a wave of blackouts that go beyond its borders," he said.

Abraham announced no specific actions to ease the Western electricity crunch, although he said he has discussed the possibility of a small amount of additional power being obtained from Mexico.

He said the administration opposes price controls on wholesale power sales in the West, despite pleas from California and the Northwest that federal intervention in "a broken market" is essential.

"Let me be clear on this," he told a hearing on price control legislation. "Any action we take must either help increase supply or reduce demand. . . . Price caps will not increase supply or reduce demand."

He said that California tried price controls and prices soared. He said the debate over wholesale prices is diverting attention from the need to find ways to increase supplies and prevent blackouts.

"I believe in the free market," responded Sen. Gordon Smith, R-Ore., but in California and the rest of the West "what we now have is a broken market and a duty to do something."

"All we're asking for is help to prevent price gouging," added Sen. Dianne Feinstein, D-Calif. She said her state faces a likely shortage of 5,000 megawatts of power during peak demand this summer.

One megawatt supplies about 1,000 homes.

Smith and Feinstein have proposed legislation to require the Federal Energy Regulatory Commission to limit prices charged by power generators across 11 states in the West. Wholesale electricity in California averaged $228 a megawatt hour in February, eight times what it cost a year earlier.

At the White House, spokesman Ari Fleischer indicated Bush's opposition to the Smith-Feinstein legislation. "The president does not support price controls," Fleischer said.

Meanwhile, there was growing concern that this summer may bring another series of price spikes for gasoline, although many energy experts said it was too early to tell if it will be another season of $2-a-gallon fill-ups.

The Energy Information Administration forecast average gasoline prices this summer of $1.49 a gallon, about a dime higher than in recent weeks.

"Gasoline inventories are below the average expected range. It's something we've got to keep an eye on," said Jonathan Cogan, a spokesman for the EIA.

Refiners traditionally step up gasoline production in late March and April to build up stocks. But refiners reportedly are behind schedule in producing MTBE, the clean air additive, because of this winter's high natural gas demand. MTBE is derived from natural gas.

Such a shortage could affect gas supplies for major cities that must use the additive because of pollution. Last summer shortages of reformulated gasoline in Chicago and Milwaukee were blamed for gasoline prices above $2 per gallon.