Do Gas Cost Incentive Mechanisms Work? A Nation-Wide Study

Abstract

This study evaluates the impact of Gas Cost Incentive Mechanisms on the consumer rates of natural gas throughout the Continental US. Panel data comes from a custom survey of state public service commissions and the annual survey EIA-176 by the US Department of Energy. After controlling for a group of incentive programs and other competition-enhancing efforts in the state and at the providers, the data shows no impact of the introduction of the Gas Cost Incentive Mechanisms on the level of consumer prices. This is consistent with the default hypothesis that all utilities minimize costs and that the limited sharing of earnings that the mechanisms offer does not induce further cost reductions. Interestingly, statewide consumer choice programs are found to lower prices significantly.