Review of Industrial Organization 16: 251–266, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Regulation, Open-Access Transportation, and
Department of Economics, Miami University, Oxford, OH 45056, U.S.A.
Abstract. This paper examines the initial impact of open-access transportation on ﬁrm efﬁciency.
Under open-access transportation, ﬁrms provide transportation service for a general class of cus-
tomers on a non-discriminatory basis. Open-access transportation may enhance competition among
ﬁrms, and lead to increases in ﬁrm efﬁciency as well as lower prices for consumers. The transporta-
tion program’s impact on productive efﬁciency is tested using a 1977–1989 panel of 20 U.S. interstate
natural gas pipeline companies. Results indicate that the program led to (i) a small reduction in
transportation cost, and (ii) small increases in ﬁrm efﬁciency.
Key words: Efﬁciency, open-access transportation, regulation.
The transmission sector of the U.S. interstate natural gas industry has undergone
a major change since the Federal Energy Regulatory Commission (FERC) issued
Order 436. Order 436 allows ﬁrms to become open-access transporters by obtaining
blanket certiﬁcates to transport gas for a general class of customers.
transporters have to allow their customers, local distribution companies (LDCs)
and end users, non-discriminatory access to their pipelines. LDCs and end users
purchase gas directly from gas producers, then the pipeline companies transport
the purchased gas.
Prior to this program, ﬁrms in the transmission sector provided
their customers with merchant and transportation service.
I want to thank Robert Adams, Gary Ferrier, participants at the International Atlantic Economic
Society Meetings in October 1998 and the Southern Economic Association Meetings in November
1998 for their comments and suggestions, Karen Bauer, Philip Budzik, Ronald Colter, and Mary
Streitwieser for their assistance in compiling the data sample, Bill Even and Paul Bauer for their
assistance in computer programming, and the Editor and two referees for their helpful comments.
Prior to blanket certiﬁcates, pipeline companies needed to obtain a certiﬁcate for each customer
(U.S. Department of Energy, 1989, p. 8).
The primary deliveries of interstate pipeline companies are (1) sales for resale (sales of gas
to pipeline companies for resale to local distribution companies and utilities), (2) transportation of
gas owned by others, and (3) mainline sales of gas (sales of gas from pipeline companies to large
industrial users). For the major interstate pipeline companies, the percentage of deliveries accounted
for by gas transported for others increased from 22% in 1979 to 76% in 1989 (U.S. Department of