Regulatory reform for natural gas pipelines: The effect on pipeline and distribution company share prices
The natural gas shortages in the 1970s focused considerable attention on the federal government's role in altering energy consumption. For the natural gas industry these shortages eventually led to the passage of the Natural Gas Policy Act (NGPA) in 1978 as part of the National Energy Plan. A series of events in the decade of the 1980s has brought about the restructuring of interstate natural gas pipelines which have been transformed by regulators and the courts from monopolies into competitive entities. This transformation also changed their relationship with their downstream customers, the LDCs, who no longer had to deal with pipelines as the only merchants of gas. Regulatory reform made it possible for LDCs to buy directly from producers using the pipelines only for delivery of their purchases.^ This study tests for the existence of monopoly rents by analyzing the daily returns of natural gas pipeline and utility industry stock price data from 1982 to 1990, a period of regulatory reform for the natural gas industry. The study's main objective is to investigate the degree of empirical support for claims that regulatory reforms increase profits in the affected industry, as the normative theory of regulation expects, or decrease profits, as advocates of the positive theory of regulation believe. I also test Norton's theory of risk which predicts that systematic risk will increase for firms undergoing deregulation.^ Based on a sample of twelve natural gas pipelines, and 25 utilities an event study concept was employed to measure the impact of regulatory event announcements on daily natural gas pipeline or utility industry stock price data using a market model regression equation.^ The results of this study provide some evidence that regulatory reforms did not increase the profits of pipeline firms, confirming the expectations of those who claim that excess profits result from regulation and will disappear, once that protection is removed and the firms are operating in competitive markets. The study's empirical findings support the claims of Norton's risk theory that systematic risk is higher in unregulated firms. ^
Elisabeth Antonie Jurman,
"Regulatory reform for natural gas pipelines: The effect on pipeline and distribution company share prices"
(January 1, 1997).
ETD Collection for Fordham University.