Order 636 and the U.S. natural gas industry

An intent of the U.S. Federal Regulatory Commission's Order 636, promulgated in April 1992, was to promote competition and efficiency in the transportation sector of the natural gas industry. Additionally, the Order altered the roles of the traditional players in the industry by increasing not only their options for purchase and sale of natural gas, but also their risks. Increased options have the potential of increasing competition and efficiency, not only in the transportation sector, but also in the distribution sector. This paper examines impacts of Order 636. Using annual, aggregate, U.S. price data, a Wilcox rank sum test is employed to test for statistically significant differences between the pre- and post-636 eras. Results indicate median revenues attributable to the transportation sector have declined since the implementation of Order 636.¹ Although there are naturally a number of factors that may affect transportation revenues, the decline in median price can be attributed, at least in part, to increased competition, increased efficiency, or both. At this level of aggregation the effects can not be segregated. Results also indicate that although decreased costs of transportation have at least partially been passed on to final consumers, local distribution companies have not significantly altered their business practices when dealing with customers.