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Price Regulation and Pipeline Transmission Capacity

43 Pages Posted: 8 Mar 2017  

Matthew Oliver

Georgia Institute of Technology

Date Written: March 7, 2017

Abstract

A considerable literature has extolled the virtues of transitioning away from rate-of-return regulation for infrastructure-intensive industries. I find that for a large-scale transmission network like the U.S. natural gas pipeline system, transmission capacity under rate-of-return regulation may be suppressed relative to that which occurs under a more flexible price cap regime. My results have specific implications for the U.S. natural gas market, as well as more general implications for the regulation of transmission network infrastructure, which emanate from the well-known effects of congestion on the economic efficiency of markets served by such networks.

Keywords: rate-of-return regulation; price cap regulation; transmission capacity; natural gas pipelines

JEL Classification: L51, L90, L95, Q48

Suggested Citation

Oliver, Matthew, Price Regulation and Pipeline Transmission Capacity (March 7, 2017). USAEE Working Paper No. 17-295. Available at SSRN: https://ssrn.com/abstract=2928767 or http://dx.doi.org/10.2139/ssrn.2928767

Matthew Oliver (Contact Author)

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

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