Productivity in the U.S. interstate natural gas transmission industry under the Natural Gas Policy Act of 1978

Abstract

This dissertation assesses the impact of the 1978 NGPA on the production technology and cost structure of the U.S. interstate natural gas transmission industry, based on a newly constructed panel of twenty-four major pipeline companies for nine years, 1977-1985. The primary focus is the effect of partial deregulation of field prices on the structure of technology and costs, productive growth, technical efficiency, and substitution possibilities between factor inputs. Empirical results indicate the transmission industry is characterized by substantial economies of scale. Since the NGPA was enacted there has been a marked decline in productivity, paralleling the decline in output for the industry. Current regulatory changes to promote open access to pipelines appears to have enabled some firms to mitigate the overall industry productivity decline. Despite the increasing competition within the industry, we found significant differences in the technical efficiency among firms. There has been a slight shift in the structure of production under the NGPA; the industry is becoming more pipeline intensive and energy saving. There appears to be considerable long-run substitution possibilities among most factor inputs. The NGPA instituted a complex structure of partial and gradual decontrol of natural gas field prices. The legislation cost natural gas producers considerable lost revenue by holding average field prices below the unregulated, free-market level. The interstate transmission industry and all consumers, except residential, benefited by paying less for natural gas than they otherwise would have.