• Determine the efficacy of deregulating U.S. interstate natural gas prices.

The Challenge

• To validly assess the effects of the 1959 Supreme Court decision allowing ceilings on the retail market price of natural gas as well as to project the likely outcome of lifting them.

The Solution

• An econometric model was constructed to regress the retail market price of natural gas on such factors as the supply of natural gas, the price of oil, and the growth rate of the macroeconomy and general population.
• A dummy variable was used to control for prices of natural gas before 1959 (carrying back to 1938) versus thereafter.
• The data were then manipulated to generate a predictor model using only the pre-1959 values. Then, using the predicted values generated by this model, a comparison was made to the actual prices for the ensuing years.

The Deliverables

• An assessment based on the differences in predicted versus actual retail market prices was completed in order to estimate the efficacy of the Court-imposed ceilings. Since the effects of the ceilings proved statistically significant and higher than those that would have prevailed in a free market setting, the effects were judged to be detrimental to consumers.

The Results

• The client was very impressed with the assessment.

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