Energy policy study. Volume 11. Federal pipeline regulation

Technical Report · Fri Aug 01 04:00:00 EDT 1980

OSTI ID:5234629

Berlin, B P

The technical characteristics of natural gas and petroleum pipelines are such that, in the absence of Federal regulation, each pipeline company could possibly, according to traditional economic analysis, behave as a natural monopolist. Federal regulation of these pipelines probably has, therefore, generally resulted in slightly greater supplies of the delivered produce (at slightly lower prices) than would have occurred in the absence of those regulations. In addition to the cases of regulation and no regulation, two alternative forms of possible Federal pipeline regulation are presented. Specifically, regulation which would attempt to approximate a competitive solution could do so with the adoption of average cost pricing. This would result in some efficiency losses, since, at that output, marginal cost is less than price. To achieve maximum efficiency (i.e., maximum output for a given amount of inputs) the regulation would need to require marginal cost pricing. But since marginal cost pricing would result in losses for the firm, a subsidy would be needed for the firm to survive. On the other hand, regulation which would attempt to induce competition among pipelines would probably also result in efficiency losses, since pipelines competing in an area would necessrily be smaller than a more efficiently-sized monopoly; hence, the result would be higher prices and lower output than would result under the monopoly solution. If deregulation of the pipeline industries were to occur, the petroleum pipeline industry would probably enjoy fewer competitive gains from deregulation than the gas pipeline industry would. This would result because present oil pipeline regulations do not, unlike gas pipeline regulations, restrict entry and because oil pipeline regulations have produced unusually high rates-of-return on equity for the stockholders of those pipelines.

• Research Organization: Department of Energy, Washington, DC (USA). Energy Information Administration
• OSTI ID: 5234629
• Report Number(s): DOE/EIA-0201/11
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020700* -- Petroleum-- Economics
Industrial
& Business Aspects
03 NATURAL GAS
030600 -- Natural Gas-- Economic
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
293000 -- Energy Planning & Policy-- Policy
Legislation
& Regulation
294002 -- Energy Planning & Policy-- Petroleum
294003 -- Energy Planning & Policy-- Natural Gas
DEREGULATION
ECONOMIC IMPACT
ENERGY SOURCES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
MARGINAL-COST PRICING
MONOPOLIES
NATIONAL GOVERNMENT
NATURAL GAS
PETROLEUM
PIPELINES
PRICES
REGULATIONS
TRANSPORT