Scale,scope, and regulation in the Texas gas transmission industry

This article describes and analyzes the Texas Railroad Commission's regulatory policies for the intrastate gas transmission industry, paying special attention to the impact of direct utility competition on scale and scope economies. Our econometric results suggest that most firms operate at substantial decreasing returns to scale, and the largest firms suffer the biggest diseconomies of scale. There are economies of scope between types of gas sales, but diseconomies of scope when a pipeline combines transportation with multiple categories of gas sales. These results suggest that the Texas Railroad Commission's liberal policies on entry and private contracting have not resulted in inefficient entry.