“Restructuring the Rate Base”
Steve Cicala* (Tufts University)

This paper evaluates the impact of power plant divestiture on the restructured utilities whose operations became narrowed in scope following electricity market liberalization. These utilities’ transmission and distribution (T&D) lines of business remained subject to cost-of-service regulation after their generation assets were sold off. I use a matched-difference-indifferences design based on proximate, similarly sized utilities in states that did not restructure as a control group. Using an annual panel of U.S. utilities’ capital stocks from 1993-2009, I find that firms responded to restructuring by increasing their investments in T&D system capital. The average utility held $0.45B (9.5%) in excess T&D capital 9 years after divestiture. This finding suggests a mechanism through which consumers would fail to benefit from competitive electricity generation.