Economic Regulation

Federal regulation of the interstate natural gas pipeline industry began with the passage of the Natural Gas Act (NGA) in 1938. The Act established a regulated system of private contract carriage, rather than common carriage, of natural gas. Pipelines contracted to buy gas from producers and sold it to distribution customers at the other end of their system.

The NGA gave the Federal Power Commission (FPC) the authority to establish just and reasonable rates for interstate pipelines, which has been interpreted as a requirement for cost-of-service regulation in noncompetitive markets. The NGA and subsequent case law also gave the FPC the authority to approve the construction of pipelines and the abandonment of pipeline service. Pipelines acquired the obligation to continue to serve their customers even after their customers' contracts had expired.