Natural Gas Act of 1938

Natural Gas Act of 1938
U.S. Government · Public domain · source
Shorttitle	Natural Gas Act
Othershorttitles	NGA
Longtitle	An Act to regulate the transportation and sale of natural gas in interstate commerce, and for other purposes.
Enacted by	the 75th United States Congress
Effective date	June 21, 1938
Cite public law	Pub. L. 75–688
Cite statutes at large	52, 821
Title amended	15 U.S.C.: Commerce and Trade
Sections created	§§ 717–717w
Introducedin	House
Introducedbill	H.R. 6586
Introducedby	Clarence F. Lea (D–CA)
Introduceddate	March 17, 1937
Committees	House Interstate and Foreign Commerce
Passedbody1	House
Passeddate1	June 7, 1937
Passedvote1	Passed
Passedbody2	Senate
Passeddate2	June 14, 1938
Passedvote2	Passed
Passedbody5	House
Passeddate5	June 14, 1938
Passedvote5	Agreed
Passedbody6	Senate
Passeddate6	June 14, 1938
Passedvote6	Agreed
Signedpresident	Franklin D. Roosevelt
Signeddate	June 21, 1938

Natural Gas Act of 1938 is a foundational United States federal law that established comprehensive federal regulation over the interstate commerce of natural gas. Enacted during the New Deal era, the legislation granted the Federal Power Commission—later succeeded by the Federal Energy Regulatory Commission—authority to oversee the rates and practices of interstate pipelines. Its passage addressed growing concerns over monopoly power and the need for stable, affordable energy supplies, fundamentally reshaping the American energy landscape.

Background and legislative history

Prior to the Great Depression, the natural gas industry was largely governed by state public utility commissions under rulings like Munn v. Illinois. However, the 1928 United States Supreme Court decision in Public Utilities Commission of Rhode Island v. Attleboro Steam & Electric Co. created a significant regulatory gap, finding that states could not regulate sales of gas across state lines. This "Attleboro gap" left interstate pipelines and sales largely unregulated, leading to concerns over price discrimination and the market power of major holding companies like Insull Utilities Investments. Investigations by the Federal Trade Commission and advocacy from the American Public Gas Association highlighted these issues. The legislation was championed in Congress by Representative Clarence F. Lea and Senator Burton K. Wheeler, receiving strong support from the Roosevelt administration as part of a broader effort to regulate public utilities, following precedents like the Interstate Commerce Act of 1887 and the Federal Power Act.

Provisions and regulatory framework

The Act granted the Federal Power Commission (FPC) jurisdiction over the transportation of natural gas in interstate commerce and its sale for resale. Key provisions required interstate pipelines to obtain certificates of public convenience and necessity for new construction or service abandonment. The FPC was empowered to prescribe "just and reasonable" rates for transportation and wholesale sales, based on a utility's rate base and cost of service. The law also mandated that all rates and charges be filed publicly in tariffs and prohibited undue preference or prejudice in service. Importantly, the Act explicitly reserved the rights of states to regulate local distribution and wellhead production, a division of authority that would later be contested. Enforcement tools included the power to investigate, hold hearings, and issue cease and desist orders.

Impact on the natural gas industry

The Act's implementation created a stable, regulated monopoly framework for interstate pipelines, which encouraged massive post-World War II infrastructure investment, such as the Transcontinental Gas Pipe Line. This facilitated the rapid expansion of natural gas from regional markets in Texas and the Gulf of Mexico to heating homes and powering industries across the Midwestern United States and Northeastern United States. By ensuring reliable transportation and controlling wholesale prices, the law helped natural gas displace coal gas and fuel oil for residential heating. However, the regulatory system also led to a rigid, cost-based pricing structure that contributed to the energy crises of the 1970s, as regulated interstate prices fell below those in unregulated intrastate markets, causing supply shortages.

Major amendments and related legislation

The most significant amendment was the Natural Gas Policy Act of 1978 (NGPA), enacted during the Carter administration in response to the aforementioned shortages. The NGPA began the process of deregulation by phasing out wellhead price controls for new gas. Subsequent legislation, including the Natural Gas Wellhead Decontrol Act of 1989 and orders by the Federal Energy Regulatory Commission (FERC), such as FERC Order 436 and FERC Order 636, completed the transition to a competitive market for pipeline transportation. Other related statutes include the Outer Continental Shelf Lands Act, which governs offshore production, and the Energy Policy Act of 2005, which further refined FERC's enforcement authorities. The Department of Energy Organization Act of 1977 transferred the FPC's functions to the newly created FERC.

Judicial review and significant court cases

The United States Supreme Court has played a central role in interpreting the Act's scope. In Federal Power Commission v. Hope Natural Gas Co. (1944), the Court established that regulated rates must be reasonable overall for the utility, not tied to any specific formula. The landmark case Phillips Petroleum Co. v. Wisconsin (1954) extended the FPC's jurisdiction to regulate prices at the wellhead for independent producers, a decision that greatly expanded federal control. Later, in Natural Gas Pipeline Co. of America v. Panoma Corporation (1955), the Court affirmed the use of historical cost for rate-making. The D.C. Circuit has also been pivotal, reviewing major FERC rules like Order 636. More recent litigation has involved challenges to pipeline certificate approvals under the National Environmental Policy Act and disputes over capacity release regulations.

Category:1938 in American law Category:United States federal energy legislation Category:New Deal