It's not the price cap (which will probably start out fairly high) by itself that will prevent new power plant building, it's the thought that if the state government is willing to intervene in our business, what is to keep them from lowering the price cap after we've invested in the new plant.
Politically, President Bush should regretfully give in to Gov Davis' wishes and let California get it's price caps. When the price caps merely discourage new power plants and stabilize prices at the cap price, Gov Davis will have difficulty crying foul. He'll try, of course, CA residents have short memories. A year from now Gov Davis can insist that he fought against price caps and FERC overruled him.
Washington Post (05/24/01) P. A7 President Bush and California Gov. Gray Davis will meet next week when the president visits the Fresno and Los Angeles areas. The two political leaders will discuss how to solve the California energy crisis, despite Davis' strong criticism of the White House's energy plan and Bush's connection to the energy industry. Wholesale price caps have been suggested by Davis as a way to reign in price gouging by Texas-based electricity generators, but President Bush has rejected the idea on the basis that price caps would not decrease demand or increase supplies.(www.washingtonpost.com)