Negotiated settlements and intergenerational equity in the pipeline services market: Borrowing from Pete Jr. to pay Paul Sr

The movement from traditional regulatory hearings to negotiated settlements represents both a departure from cost of service regulation and a relaxation of regulatory oversight in the regulation of oil and gas pipeline tolls. Under negotiated settlements pipelines and shippers are able to renegotiate inclusions in their cost of service while simultaneously creating a profit margin for the pipeline where none existed under the cost of service outcome of a traditional hearing.;This thesis constructs a model to illustrate the existence of positive gains to pipeline and shipper from the re-allocation of expenses through time. This inter-temporal reallocation implies higher tolls for future shippers which is a concern for the National Energy Board (responsible for regulating Canadian oil and gas pipelines) as it places an unfair burden on future shippers and future end consumers of oil and gas.;Behaviour consistent with the model is observable in anecdotal and econometric evidence provided in this thesis. Empirical investigation by Littlechild (2007) into settlement procedures in the Florida electricity market reveal similar findings; however, this analysis represents the first attempt to model the behaviour formally and provide econometric results. The econometric analysis uses new data collected and compiled specifically for this thesis.;Predicated on the observed preference of pipelines and shippers for negotiated settlements; most economic literature assumes that these settlements represent increased efficiency over hearings. Various claims have been made as to why negotiated settlements are more efficient than hearings but little attention is paid to other elements that affect these preferences without increasing efficiency.