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

Lucas Davis and Paige E. Weber

No 34454, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D24 L94 Q41 Q48 Q54 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-ene, nep-ind and nep-reg
Note: EEE IO
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