THE IMPACT OF BLACKOUT COST RECOVERY ON STOCK BEHAVIORS AMONG ELECTRIC UTILITIES
Open Access
- Author:
- Ma, Haoming
- Graduate Program:
- Energy and Mineral Engineering
- Degree:
- Master of Science
- Document Type:
- Master Thesis
- Date of Defense:
- March 13, 2019
- Committee Members:
- Seth Adam Blumsack, Thesis Advisor/Co-Advisor
Zhen Lei, Committee Member
Mort D Webster, Committee Member - Keywords:
- stock behavior
event study
hurricane
large blackouts - Abstract:
- Hurricanes considered as one of the most destructive natural disasters along coastal areas in the U.S. in past decades. Utilities undergo disturbance events and reports economic loss after hurricanes. Investors of publicly-traded utility companies respond to the power outage events immediately after the power outages. In the short term, large amounts of unexpected cash would be spent on restoration, which drives shareholders into the risk of recovery allocations. In the long term, policymakers would consider shifting natural disaster cost between the electricity ratepayers and the taxpayers to support utilities overcome the financial crisis. This paper addressed investor behaviors corresponding to the recovery mechanism based on stock market data and annual financial reports of the publicly-traded utilities after large blackouts caused by hurricanes in the period of 2002 to 2012. By conducting the event study method and the capital assets pricing model (CAPM), four key observations are detected. Firstly, the stock prices of most utility firms immediately decline following blackouts, and longer blackouts will yield larger market loss. Secondly, hurricanes have state-leveled contagion effects on market values of neighbor utilities who did not report blackouts same way as blackout firms, but the stock of neighbor utilities will be back to its initial position faster. Thirdly, investors do not incorporate one-week ahead hurricanes forecast into utility stock valuation. Lastly, investors do incorporate the risk that the cost recovery will be shifted to shareholders in the short run. Studying historical hurricane blackouts provides strategies to stakeholders on their investments after natural disasters and regulators on welfare allocation in the long run.