Power-Price Cap: California Dreamin'

Only extra supplies of electricity will ease the state's woes. That's why S&P is bullish on these independent power producers

By Craig Shere

The California Senate passed legislation Monday to implement an effective cap on power prices through state taxes. S&P sees this move as political grandstanding, given that the cap, which California regulators previously scrapped, is below the cost of many generators. And producers are already increasing their long-term contracts with the state.

Some 2,000 megawattts still are offline because of the state's inability to pay the bills. Politicians are impotent in face of reality: only higher supply can both meet demand and reduce prices.

S&P continues to overweight independent power producers and has a 5 STARS (buy) recommendation on shares of Dynegy (DYN ), Calpine (CPN ) and Mirant (MIR ).

Craig Shere is an energy analyst for Standard & Poor's