Power Struggle

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Jim Schupp is looking on the bright side. With gas at the pump now topping $2 a gal. in his neighborhood and seemingly headed higher, he figures it's payback for all those insufferable, phony-rich, new-economy yuppies in their view-blocking, death-dealing, friend-of-OPEC SUVs. "Gas will probably go to $3, and I applaud it," says the retired computer-company executive as he fills the tank of his light pickup truck at a station in Los Angeles. "I'd like to see all gas guzzlers off the road."

Well, that's one view of a pressing energy crisis suddenly much larger than the state of California. Pedal-to-the-metal increases--not just in gasoline but in heating oil, natural gas and electricity--are a state of mind across the land, and most folks aren't appeased by Schupp's silver-lining view. Gasoline at the self-serve pump, for example, sells at a national average of more than $1.70 a gal.--up 5% in the past two weeks. That's an all-time high, although when adjusted for inflation the price is still lower than 1981's by about $1. But it follows a winter in which many homeowners saw heating costs soar more than 50%.

The creeping fear of unaffordable power has President George W. Bush looking for a backup policy generator as he prepares to unveil an energy program this week that is very fossil-fuel friendly--and simpatico with his and Vice President Dick Cheney's long ties to Big Oil. Bush says his policy, which stresses greater production over conservation, is a long-term solution.

Cheney, the former oil-service-company executive who is driving Bush's energy bus, has bluntly warned that there will be no magic bullet to deal with high gasoline prices or electricity shortages. And late last week, the President scoffed at the idea of intervening in the marketplace. "There's no such thing as immediate supply," he said.

But by Friday the White House had gone into reverse, even suggesting that the federal gas tax, which Bush vowed to protect, might be rolled back temporarily. The President then used the occasion to sell his tax cut. "If the Congress is interested in helping consumers pay for higher gas prices, they should pass the tax cut as quickly as possible," he said.

Essentially that would transfer money from the government to oil companies, via consumers--not exactly a populist move. Bush could suffer if he fails to relate to the immediate needs of people like Walter Melendez, who pulls over to top off his tank whenever he sees his gas gauge drop below three-quarters of a tank. "I'm afraid it's going to be $4 next time," says Melendez, a computer technician in L.A., where radio waves are full of energy talk.

The pain at the pump has put Big Oil in the profiteering spotlight again, albeit with an Internet twist. At least one widely distributed chain e-mail encourages readers to boycott stations operated by ExxonMobil, the largest gasoline retailer in the U.S. Exxon's profits roared 44% higher in the first quarter, to $5 billion, on fattened profit margins. The 27 largest energy firms in the U.S. earned $14.1 billion in the fourth quarter of 2000--more than double their profits in the same period a year earlier, reports the Energy Information Agency. Of course, there were no complaints while Exxon's profits were falling 33% between 1997 and 1999. But markets are more rational than people.

Consumers' energy quandaries aren't just at the pumps, as Californians know well. Last week the West Coast was hit again with sporadic power blackouts, further testimony to a botched deregulation effort that failed to encourage adding capacity in that state. Sizzling temperatures last Monday saw rolling blackouts for 103,000 customers. On Tuesday blackouts affected 300,000 more. Movie theaters went dark. Restaurants closed. Traffic lights went kaput. State officials predict 34 more such days before the fall. And in a frightening report, consultants at McKinsey & Co. say there could be a blackout somewhere in California on every single weekday over the summer.

That's just California, right? If only. Most now agree that the Northeast too is vulnerable as folks flick on the AC. Some believe problems lurk even in the less densely populated Southwest and Midwest. Thus, a week shy of Memorial Day, many officials wish summer were already over.

Of course, the whole scare may be a fake-out. For every expert with a panicky prediction, there's another with a view that things are under control. Eugene McGrath, chairman of Consolidated Edison in the New York City region, says his company has plenty of juice, and that electricity rates ought to be about the same as last summer--a good thing, given that rates spiked a year ago and stayed there. He's not predicting any power shortages in his area. Why, then, is New York racing to add several small plants by June 1?

As for gasoline, Bill Veno, director of the Global Oil Practice of Cambridge Energy Research Associates, says changing market conditions can't sustain gas at $2 a gal., never mind the $3 that alarmists are bandying about. "We believe gasoline prices may well have peaked, and could come down," he says, noting that refineries are running flat out and inventories have begun to build.