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Does Regulation Distort Exit Decisions? Evidence from U.S. Power Plants

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  • Lucas W. Davis
  • Paige E. Weber

Abstract

Hundreds of power plants have closed in the United States since 2010, including 130+ gigawatts of coal and 50+ gigawatts of natural gas. In this paper, we highlight the potential for regulation to distort this type of exit decision. Using generator-level data from 2010–2023, we show that regulated units have been 45% less likely to exit than unregulated units. For unregulated units, exit decisions are made based on wholesale electricity prices, ongoing capital costs, and other traditional economic factors. In contrast, owners of regulated units are largely insulated from these factors and, in some cases, have a strong incentive to continue operating capital-intensive equipment. Previous work documents how this regulatory distortion affects investment decisions. Our paper emphasizes that these same incentives affect exit decisions as well.

Suggested Citation

  • Lucas W. Davis & Paige E. Weber, 2025. "Does Regulation Distort Exit Decisions? Evidence from U.S. Power Plants," NBER Working Papers 34454, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34454
    Note: EEE IO
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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