Although the record-setting storage injection numbers and drop in gas prices last week were encouraging signs, Charles Schwab energy analyst Christine Tezak says she wouldn’t rule out Washington possibly interfering in the gas markets over the next year by either capping prices or ordering supply rationing if market conditions should take a turn for the worse.

“At a minimum, we see a high likelihood…if the markets become more volatile, make another sustained leap upward, or if electricity prices start to spike [that] Congress might threaten intervention or toy with the idea of price caps. Rationing supplies is feasible under existing law on the orders of the president. If natural gas markets go wildly out of control, we can’t rule out Congress attempting to cap prices, at least temporarily,” said Tezak in an “Energy/Electricity Bulletin” published this month.

However, if gas markets remain expensive on a historical basis (but not beyond politicians’ expectations), the weather cooperates, tensions in the Middle East lessen, consumer confidence rises and other favorable conditions occur, “we might just make it to and through the winter without an aneurysm in energy policy,” she noted. “At this point, we believe that price cap legislation generally faces very long odds.”

The power generation market, which is highly dependent on gas, won’t be immune from “Washington-led meddling,” Tezak noted. “We saw it [price caps] in 2000-2001 — we could see it again. Congress pressured the Federal Energy Regulatory Commission to slap price caps on the runaway California electricity market.”

Congress would have to pass legislation to cap gas prices. “Fortunately, we don’t believe that there are enough votes in Congress to slap price caps on natural gas, yet,” she said. However, “we cannot dismiss the threat of price caps in the natural gas markets out of hand for one big reason — California.”

Industry opposition to gas price controls would be substantial, according to Tezak. “We think the prospect of serious intervention in this market would be fought tooth-and-nail by Big Oil, one of the most influential lobbies in Washington.”

The Bush administration also has consistently said it does not support price controls. “We believe it [the White House] would have to be practically railroaded into it by Capitol Hill or poll numbers that threatened a second Bush term,” she said.

The energy bill, which was debated in the Senate last week, has put energy issues — such as the gas supply-demand crunch — on the front burner. “This situation could be good if cool heads prevails — it could be bad if a populist groundswell against high prices spur re-regulatory action and legislators looking at an upcoming electoral season are afraid to vote against such action.”

If the White House threatens to veto a congressional bill that places price caps on gas, “we do not believe that the legislature could muster the super-majority needed for a veto override,” Tezak noted.

Federal Reserve Chairman Alan Greenspan, who testified before the House Energy and Commerce Committee last Tuesday, “may have done a good service by reinforcing expectations that gas will remain pricey,” Tezak said. “This might be enough to keep politicians from acting.”

But if “several things in concert go awry” — such as the weather, terrorist attacks, spiking power prices driven by marginal gas, or awful storage injections — “Congress could lean heavily on the Bush administration to pressure the Department of Energy (DOE) to invoke its authority in the case of ‘natural gas emergency-related supply interruptions,'” she noted.

The Bush administration has the authority to allocate and ration gas supplies, and prohibit gas use by electric utilities and other major fuel-burning installations under four laws: the Natural Gas Policy Act of 1978, the Public Utilities Regulatory Policies Act of 1978, the Defense Production Act of 1950, and the Power Plant and Industrial Fuel Use Act of 1978 (FUA).

“We’ve…heard that the conversation-stopping topic of reviving the Power Plant and Industrial Fuel Use Act (a law that severely limited natural gas in electricity production) has resurfaced” on Capitol Hill, Tezak said. The FUA, among other things, would bar the construction of power plants that don’t have dual-fuel capability.

There also is some talk of potentially relaxing clean-air requirements, she noted. “We do believe that if we have sustained high prices or politically intolerable high natural gas price spikes, Northeast politicians may consider relaxing air pollution controls on a temporary basis as we saw in the California Air Resources Board work with generation owners toward the end of the crisis there.”

But “we firmly believe that any waiving of emissions limits will come from the states, not from the Bush EPA, and will come only after the proverbial train hits the wall, and not before.”

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