Firm and Interruptible Pricing Patterns: Public versus Private Gas Distribution Utilities

Statistical tests are provided for the effect of municipal and private ownership forms on firm and interruptible gas prices. To test for ownership effects, the systems of demand, price, and cost equations are estimated for 6 customer groups served by natural gas distribution utilities. The statistical results support the hypothesis that unregulated municipal ownership lowers firm rates, thus encouraging peak usage. Concerning residential customers, there is strong evidence that unregulated municipals charge lower rates than regulated privates. Additional evidence supports the hypothesis that other unregulated municipal firm customer rates are lower relative to those charged by regulated private gas distributors. Interruptible rates are lowered by state regulated municipals alone. The change in net social welfare caused by municipal operation may be negative as municipal costs are higher than private costs, with regulatory effects held constant.