The Revealed Market Power of a Natural Gas Pipeline

A natural gas pipeline operates in a regulated market environment in which transportation rates are set by regulators. Transportation rates are set using a fixed plus variable changing scheme in order to achieve a revenue path that covers the cost of providing service. Regulators have allowed pipelines to discount their rates from the maximum allowed by regulation in order to meet the competition in the market place. While isolated incidents exists, full deregulation of the natural gas transportation market has not been allowed by regulators. The discounting behavior of a pipeline in a regulated environment provides indirect evidence of the competitiveness in the market place.