Natural Gas Act of 1938
Description
The Natural Gas Act (NGA) of 1938 was the first instance of direct Federal regulation of the natural gas industry. Concern about the exercise of market power by interstate pipeline companies prompted the NGA, which gave the Federal Power Commission (FPC) (subsequently the Federal Energy Regulatory Commission (FERC)) the authority to set "just and reasonable rates" for the transmission or sale of natural gas in interstate commerce. It also gave FPC the authority to grant certificates allowing construction and operation of facilities used in interstate gas transmission and authorizing the provision of services. A "certificate of public convenience and necessity" is issued under Section 7 of the NGA, and permits pipeline companies to charge customers for some of the expenses incurred in pipeline construction and operation. The NGA also requires Commission approval prior to abandonment of any pipeline facility or services.
Section 3 of the NGA requires Federal approval by the Department of Energy for the import and export of natural gas, including liquefied natural gas (LNG), and approval by FERC for the siting, construction, and operation of onshore LNG import and export facilities.
Regulatory functions under the NGA were originally delegated to the Federal Power Commission, and subsequently transferred to the Federal Energy Regulatory Commission and to the Department of Energy in 1977, by the Department of Energy Organization Act.
The NGA does not apply to the production, gathering, or local distribution of natural gas.
Impact
The Natural Gas Act has had an enormous impact on the interstate natural gas market in the United States. Although the natural gas industry has undergone tremendous change since 1938, and pipeline companies no longer function as resellers of gas to local distribution companies (LDCs), the key principles continue to motivate natural gas regulation in the United States. Concern about market power continues to be a key driver of natural gas regulation and monitoring of the market.