Some other states do use MTBE (and a few have refused to put it in). I heard a petroleum industry guy on the radio from out here in CA saying that there are about 60 different blends of gas used around the US depending on the time of year and location - state/region/local. There are strict laws regarding the distribution of the different blends based on alleged environmental reasons - i.e. if CA runs short on MTBE than it can't get extra from Nevada (no MTBE). The fragmented market helps keep prices high by limiting the supply of a particular (regional) blend.
Gray Davis knows he is going to need tens of millions to pay for this election campaign against Simon (he already has 30 mill saved for re-election). I would bet the house that there has been a back room deal cut with the oil industry or some intermediary to find funding for Davis if he got the extension. I have read that MTBE is very inexpensive to produce and the gas produced with it has a significantly higher profit margin (for the producer) than regular non-MTBE gas.