The response of investors in publicly-traded utilities to blackouts

Seth Blumsack, Oladipu Ositelu

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Large blackouts are economically costly and socially disruptive, but in some cases can also be beneficial to investors in publicly-traded utilities. Large blackouts, particularly those that damage capital equipment, can increase future cash flows of utilities if replacement capital expenditures are permitted to be included in the rate base. The semi-strong version of stock-market efficiency suggests that these future cash flow increases will be reflected in utility stock prices following blackouts (but before the conclusion of any rate case proceedings). We use an event-study framework to examine abnormal returns for U.S. Electric utilities in the 60-day period following large blackouts. In many cases utility stock returns decline immediately following the blackout as cash reserves are depleted. In the case of blackouts that are unlikely to involve large-scale capital replacement, the blackout has little impact on abnormal returns over a longer time horizon. In the case of blackouts caused by natural disasters or extreme weather, we observe that fast recovery times (one week or shorter) are associated with a slight increase in abnormal stock returns, suggesting that investors have confidence that future rate cases will turn in the utility's favor. Finally, blackouts affecting more than one million customers and those that take more than 10 days to achieve full restoration are associated with a decline in abnormal stock returns for affected utilities, this decline persists for several weeks following restoration.

Original languageEnglish (US)
Title of host publicationProceedings of the 48th Annual Hawaii International Conference on System Sciences, HICSS 2015
EditorsRalph H. Sprague, Tung X. Bui
PublisherIEEE Computer Society
Pages2557-2565
Number of pages9
ISBN (Electronic)9781479973675
DOIs
StatePublished - Mar 26 2015
Event48th Annual Hawaii International Conference on System Sciences, HICSS 2015 - Kauai, United States
Duration: Jan 5 2015Jan 8 2015

Publication series

NameProceedings of the Annual Hawaii International Conference on System Sciences
Volume2015-March
ISSN (Print)1530-1605

Other

Other48th Annual Hawaii International Conference on System Sciences, HICSS 2015
CountryUnited States
CityKauai
Period1/5/151/8/15

All Science Journal Classification (ASJC) codes

  • Engineering(all)

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