Empirical Tests for the Effect of Regulation on Firm and Interruptible Gas Service

Observed patterns of firm-interruptible natural gas contracts are not a random occurrence, but rather a function of systematic variation in factors which characterize various systems of natural gas distribution. These factors are largely economic in nature, one of the most important being the presen...

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Bibliographic Details
Published in:Southern economic journal 1983-07, Vol.50 (1), p.195-205
Main Authors: Filer, John E., Hollas, Daniel R.
Format: Article
Language:English
Subjects:
Capacity costs
Coefficients
Customers
Economic models
Economic regulation
Economic theory
Gas utilities
Industrial regulation
Instrumental variables estimation
Natural gas distribution
Natural gas prices
Natural gas utilities
Peak load pricing
Rates of return
Regression analysis
Regulated industries
Regulation
Regulatory theory
Variable coefficients
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Summary:Observed patterns of firm-interruptible natural gas contracts are not a random occurrence, but rather a function of systematic variation in factors which characterize various systems of natural gas distribution. These factors are largely economic in nature, one of the most important being the presence and effectiveness of government regulation. Firm and interruptible natural gas prices are quite comparable to peak and off-peak prices in the electric utility industry. Proxy tests using firm (peak) and interruptible (off-peak) gas service for industrial customers support the hypothesis that peak prices are reduced by rate-of-return regulation. More specifically, the results show more stringent regulation results in an increase in capacity due to a diminished peak price of gas and a greater percentage of firm contracts. Although net welfare gains are probably present from rate-of-return regulation, the sensitivity of adding additional storage space largely offsets gains from regulated lower peak-price.
ISSN:0038-4038
2325-8012
DOI:10.2307/1058050