MARKET-BASED REGULATION OF NATURAL-GAS PIPELINES

We argue that some forms of market-based regulation allowed within current statutory constraints can outperform traditional rate-setting regulation now used for interstate natural gas pipelines. In particular, a resale market for pipeline capacity rights can yield efficient choices in the short term, even for a natural monopoly pipeline. We also propose applying market mechanisms to setting the pipeline's original rates. The paper reviews experimental evidence on the performance of some of the proposed rate-setting institutions and describes some specific proposals made by pipelines that are consistent with those described here. © 1990 Kluwer Academic Publishers.