Three essays on energy markets and utility regulation

This dissertation is composed of three chapters on energy markets and utility regulation. The first chapter examines the geographic extent of the U.S. natural gas spot markets using daily wholesale price data at 76 market places throughout the U.S. pipeline network from 1993 to 1997. The estimation results from the autoregressive (AR) model of price differentials suggest that the natural gas spot markets have become so integrated that transportation constraints seem to be the only major factor that segments markets. This suggests that the policies of natural gas price deregulation and open access to interstate pipelines have been successful in achieving market integration.; The second chapter studies empirically the product extent of the world crude oil market. The estimation results from the AR model show that crude oils of various qualities are indeed in the same market. The results from the hedonic model of crude characteristics show that the equilibrium relative prices among crude oils are predominantly determined by their quality differences rather than their locations. These results confirm that the current regime of spot market trading is efficient in adjusting the relative prices among crude oils.; The third chapter provides an economic analysis of the negotiated settlement approach to utility ratemaking at the Federal Energy Regulatory Commission (FERC) and other state regulatory commissions. This chapter first shows empirically that the settled rate of return at the FERC is influenced by the players' compromises over other components of the cost of service. This chapter then interprets how making tradeoffs in the settlement negotiations serves as an important incentive for players to settle a case in a multi-issue bargaining framework. Negotiated settlement improves welfare because it is not subject to the issue-by-issue agenda restriction that characterizes formal adjudication.