The Great Price Cap Debate

ByABC News
May 29, 2001, 1:13 PM

May 29 -- To cap or not to cap?

That question is at the heart of the debate over what do about California's record-high electricity prices. President Bush and the state's Democratic governor, Gray Davis, could hardly be more at odds over the answer.

"We will not take any action that makes California's problems worse and that's why I oppose price caps," the president said in remarks to the Los Angeles World Affairs Council today.

After failing to convince Bush to change his mind during a brief face-to-face meeting this afternoon, Davis said he would go to court to try and force the administration to impose limits on the amount of money power companies can charge for electricity.

"We are entitled as a matter of law to some form of price relief," Davis told reporters following the 40-minute session with the president. "We will file a lawsuit against the Federal Energy Regulatory Commission for failing to discharge its legal obligations."

But hours before the governor announced his plans, the 9th U.S. Circuit Court of Appeals in San Francisco dealt Davis' legal challenge a major blow, refusing a request by Democratic state legislators to order the commission to impose price caps.

Davis has been pleading for the federal government to impose a ceiling on the wholesale price of electricity since Bush took office, but the White House has steadfastly rejected such federal intervention.

The Demand for Supply

In January, the average market price of electricity in California soared to nearly 26 cents per kilowatt hour, according to the Utility Consumers' Action Network more than 10 times the average rate paid only 10 months earlier.

Experts on both sides attribute the sky-high prices to the state Legislature's decision in 1996 two years before Davis was elected governor to partially deregulate the electricity market. The move was aimed at holding down prices by opening up the industry to competition, but when rapidly rising demand began to outstrip supply, rates soared.