III. THE POWER OF CONGRESS TO REGULATE THE TRANSPORTATION OF NATURAL GAS IN INTERSTATE COMMERCE

The regulatory power of the Congress over the transportation of natural gas from within the borders of a State to another State is conclusively established by the following authorities: West v. Kansas Natural Gas Co., 221 U. S. 229; Pennsylvania v. West Virginia, 262 U. S. 553; Pennsylvania Gas Co. v. Public Service Commission, supra; East Ohio Gas Co. v. Tax Comm. of Ohio. supra; Missouri v. Kansas Natural Gas Co., supra; Public Utilities Commission of Kansas v. Landon, supra; Peoples Natural Gas Co. v. Public Service Commission of Penna., 270 U. S. 550.

In West v. Kansas Natural Gas Co., supra, it was held that natural gas, when reduced to possession, is a commodity which belongs to the owner of the land, and may be the subject of both intrastate and interstate commerce. It was further held that prohibiting the construction of pipe lines for natural gas, or the transportaition of the gas by such lines, except by domestic corporations whose charters provide that the gas shall only be transported between points in the State, and shall not be transported to or delivered to any person or corporation engaged in transporting or furnishing gas to points outside of the State, and giving to such domestic corporations the exclusive right of eminent domain in the use of the highways, as attempted by Oklahoma Laws of 1907, chapter 67, unconstitutionally interfered with interstate commerce, and could not be justified as an exercise of the police power of the State to conserve its natural resources.

In Pennsylvania v. West Virginia, supra, the Supreme Court held that a justiciable controversy between States in the sense of the judiciary article is presented when the plaintiff State, relying on the commerce clause of the Constitution, seeks to enjoin the defendant State from consummating a purpose evinced by statutory enactment and about to be carried out by her officials, of withdrawing natural gas from an established current of commerce moving from her territory into that of the plaintiff, when such withdrawal is likely to be productive of injury to the interests of the plaintiff as the proprietor of public institutions and schools in which the gas was largely used, and to private consumers, including inhabitants of many urban communities and a substantial part of the population of the plaintiff State, whose health, comfort, and welfare would be seriously jeopardized by withdrawal of the gas from the interstate stream.

The Court held that the transmission of natural gas from one State to another, for sale and consumption in the latter, is interstate commerce and not subject to restraint on the part of the States, in the following language (p. 596):

"By the Constitution, article I, section 8, clause 3, the power to regulate interstate commerce is expressly committed to Congress and therefore impliedly forbidden to the States. The purpose in this is to protect commercial intercourse from invidious restraints, to prevent interference through conflicting or hostile State laws and to insure uniformity in regulation. It means that in the matter of interstate commerce we are a single nation, one and the same people. All of the States have assented to it; all are alike bound by it; all are equally protected by it."

In Pennsylvania Gas Co. v. Public Service Commission, supra, it was held that the direct transmission of natural gas from the source of supply outside the State to local consumers and municipalities is interstate commerce; but until Congress acts under its superior authority by regulating the subject matter for itself the exercise of authority conferred by a State upon the public-service commission to regulate rates for natural gas transmitted directly from a source of supply outside the State to local consumers and municipalities within the State does not offend against the commerce clause of the Federal Constitution.

However, Pennsylvania Gas Co. v. Public Service Commission was modified in East Ohio Gas Co. v. Tax Commission of Ohio, supra, and distinguished in Missouri v. Kansas Natural Gas Co., supra, in both of which cases interstate commerce was held to terminate with the delivery of the gas into local supply mains, whether sold locally by the transporting company or sold to a distributing company for local distribution.

In Public Utilities Commission of Kansas v. Landon, supra, natural gas was piped from Oklahoma into Kansas and there sold at wholesale to local companies which distributed to consumers. The Supreme Court, speaking through Mr. Justice McReynolds, unanimously held that the Kansas commission could regulate rates for local distribution, even though the gas was transported in pipe lines across State lines in interstate commerce. The Court said (p. 245):

"That the transportation of gas through pipe lines from one State to another is interstate commerce, may not be doubted. Also, it is clear that, as part of such commerce, the receivers might sell and deliver gas so transported to local distributing companies free from unreasonable interference by the State. (Cases cited.)

*

*

"But in no proper sense can it be said, * that sale and delivery of gas to their customers at burner tips by the local companies operating under special franchises constituted any part of interstate commerce * *. Interstate commerce is a practical conception and what falls within it must be determined upon consideration of established facts and known commercial methods. (Cases cited.) * * Interstate movement ended when the gas passed into

local mains."

*

However, in Missouri v. Kansas Natural Gas Co., supra, the court held the transportation of gas from Oklahoma into Kansas and Missouri and selling it, not to consumers, but to independent distributing companies which sell it locally to consumers is interstate commerce free from State interference. In that case the Kansas Natural Gas Co. furnished gas at wholesale to independent distributing companies in both States. Local companies protested rate increases by the transmitting company, and the Missouri and Kansas utility commissions intervened to prevent the increase. The court held that the commissions of the respective States had no jurisdiction. With respect to the sale and delivery of gas to distributing ocmpanies the court said (p. 309):

"The business of supplying, on demand, local consumers is a local business, even though the gas be brought from another State and drawn for distribution directly from interstate mains; and this is so whether the local distribution be made by the transporting company or by independent distributing companies. In such case the local interest is paramount, and the interference with interstate commerce, if any, indirect and of minor importance. But here the sale of gas is in wholesale quantities, not to consumers, but to distributing companies for resale to consumers in numerous cities and communities in different States. The transportation, sale, and delivery constitute an unbroken chain, fundamentally interstate from beginning to end, and of such continuity as to amount to an established course of business. The paramount interest is not local but national, admitting of and requiring uniformity of regulation. Such uniformity, even though it be the uniformity of governmental nonaction, may be highly necessary to preserve equality of opportunity and treatment among the various communities and States concerned."

The transportation of gas in pipe lines from one State to another where the custody and title to the gas passes at the State line to the company making distribution without arresting the movement of the gas to its intended destination has been held to be interstate commerce. Peoples Gas Co. v. Public Service Commission, supra. In that case, the Supreme Court, speaking through Mr. Justice Van Devanter, stated the facts and its holdings in its opinion as follows (p. 552):

"The People's Co. is a public-service corporation created under the laws of Pennsylvania and engaged in producing, purchasing, transporting by pipe line, and selling natural gas. It purchases about two-thirds of the gas which it transports and sells from a producing company in West Virginia having pipe lines leading from wells in that State to the boundary between the two States; and it produces the other one-third from its own wells in the southwestern counties of Pennsylvania. It has a system of pipe lines in Pennsylvania which is connected at the State boundary with the lines of the West Virginia company and leads thence to Pittsburgh, Johnstown, and other Pennsylvania cities and boroughs where it sells the gas. The gas coming from West Virginia is transported, through the pipe lines as connected at the State boundary, in a continuous stream from the places of production in one State to those of consumption in the other. At the State boundary that gas passes through a registering meter and that point is treated as the place of delivery to the People's Co.; but the transportation is not interrupted there."

"As respects the West Virginia gas, we are of the opinion, in view of its continuous transportation from the places of production in one State to those of consumption in the other, and its prompt delivery to purchasers when it reaches the intended destinations, that it must be held to be in interstate commerce throughout these transactions. Prior decisions leave no room for discusssion on this point, and show that the passing of custody and title at the State

(Cases

boundary without arresting the movement to the destinations intended are minor details which do not affect the essential nature of the business." cited.) (P. 554.)

In East Ohio Gas Co. v. Tax Commission of Ohio, supra, the Supreme Court, although upholding an excise tax on gross receipts derived from the sale of gas in local distribution, reaffirmed the holding in the foregoing case.

"The transportation of gas from wells outside Ohio by the lines of the producing companies to the State line, and thence by means of appellant's highpressure transmission lines to their connection with its local systems is essentially national→not local-in character, and is interstate commerce within as well as without that State. The mere fact that the title or the custody of the gas passes while it is en route from State to State is not determinative of the question where interstate commerce ends. (Cases cited.) But when the gas passes from the distribution lines into the supply mains, it necessarily is relieved of nearly all the pressure put upon it at the stations of the producing companies, its volume thereby is expanded to many times what it was while in the high-pressure interstate transmission lines, and it is divided into the many thousand relatively tiny streams that enter the small service lines conneeting such mains with the pipes on the consumers' premises. So segregated the gas in such service lines and pipes remains in readiness or moves forward to serve as needed. The treatment and division of the large compressed volume of gas is like the breaking of an original package, after shipment in interstate commerce, in order that its contents may be treated, prepared for sale, and sold at retail. (Cases cited.) It follows that the furnishing of gas to consumers in Ohio municipalities by means of distribution plants to supply the gas suitable for the service for which it is intended is not interstate commerce, but a business of purely local concern exclusively within the jurisdiction of the State."

Thus, the power of Congress to regulate the interstate transportation and wholesale sale of natural gas has been fully recognized by the Supreme Court of the United States. This power is not in conflict with any authority resident in the States, but, on the contrary, augments that power. The States cannot control the wholesale rates extracted for natural gas thus transported, nor may they regulate any other of the phases of the interstate transportation. Moreover, the regulation of retail rates and matters incident to local distribution have been exclusively reserved by H. R. 11662 to the States.

IV. ANALSIS OF THE PROVISIONS OF H. R. 11662 (NATURAL GAS ACT) AND ITS CONTEMPLATED SCOPE AND EFFECT

It is the intention here to analyze the specific provisions of the act, section by section, in an attempt to clarify the requirements imposed on the industry engaged in transporting natural gas in interstate commerce and those aspects of the interstate activities which the bill is designed to regulate.

(a) Necessity for regulation of natural-gas companies

SECTION 1 (a): This subsection contains a declaration, based on the Reports of the Federal Trade Commission pursuant to S. Res. 83 (70th Cong., 1st sess.) and other reports made pursuant to Congressional authority, that the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest, and that Federal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest.

That Congress may declare a policy with reference to legislative enactments and may make findings of the necessity of such regulation can no longer be disputed, in view of Panama Refining Co. v. Ryan, supra. The Federal Trade Commission reports made pursuant to Senate Resolution 83, Seventieth Congress, first session, disclose widespread practices detrimental to the public interest in connection with the transportation of natural gas in interstate commerce. The necessity for legislative enactment to correct the abusive practices is obvious from the most cursory examination of such reports. Other legislation has been predicated upon the same Federal Trade Commission reports, viz, the Public Utility Holding Company Act of 1935.

Subsection 1 (b) makes the provisions of the act applicable to the transportation of natural gas in high-pressure mains in interstate commerce and to natural-gas companies engaged in such transportation, but not to the distribu

tion of natural gas moving locally in low-pressure mains or to the facilities used for such distribution or to the production of natural gas; with a proviso that the Commission shall have no authority to fix rates or charges for the sale of natural gas locally or for industrial use.

With respect to the distinction between the transportation of natural gas in interstate commerce in high-pressure mains and the distribution of such gas locally in low-pressure mains, and the power of Congress to regulate the former activity, see West v. Kansas Natural Gas Co., supra; Pennsylvania v. West Virginia, supra; Public Utilities Commission of Kansas v. Landon, supra; Missouri v. Kansas Natural Gas Co., supra; Peoples Natural Gas Co. v. Public Service Commission of Pennsylvania, supra; East Ohio Gas Co. v. Tax Commission of Ohio (234 U. S. 548). The bill makes no attempt to regulate the production or gathering facilities of a natural-gas company, this function being purely local in character, nor is any attempt made to exercise control over distribution facilities. Likewise natural gas in the process of transportation in high-pressure mains in interstate commerce for industrial use is excluded upon the basis that such sale is made under highly competitive conditions and is not imbued with a public interest. In short, this subsection limits the exercise of authority to only those interstate activities which involve natural gas intended for ultimate distribution to the public, as that phase of its activities places the natural-gas company in the status of a public utility, enjoying a monopolistic position subject to regulation in the public interest. That Congress alone may undertake such regulation is established by Missouri v. Kansas Natural Gas Co., supra.

Moreover, a summary of the decisions above referred to demonstrates that where a company transmitting across State lines sells to a company which distributes locally to consumers, neither the sending nor receiving State may regulate the wholesale rates. The wholesale rates which the foregoing cases recognize as being within the regulatory province of the Federal Government are the only rates subject to regulation under the present bill.

(b) Definitions

Section 2 contains definitions of (1) "Person"; (2) "Corporation"; (3)* "Municipality"; (4) "State"; (5) "Natural Gas Company"; (6) "Interstate Commerce"; (7) "State commission"; and (8) "Commission" and "Commis sioner."

The most important of these is (5) "Natural-gas company' means a person engaged in the transportation of natural gas in high-pressure mains in interstate commerce." The definitions as they appear in this section are self-explanatory and require no further discussion here.

(c) Transportation to a foreign country

"SEC. 3. After six months from the date on which the act takes effect, no person shall transport any natural gas from the United States to a foreign country without first having secured an order of the commission authorizing it to do so. Such orders will be issued by the Commission upon application unless, after opportunity for hearing the facts, it finds that the proposed transportation would impair the sufficiency of the supply of natural gas within the United States. Applications may be granted in whole or in part; and modifications may be prescribed by the Commission and terms and conditions imposed, and supplemental orders made, as may be necessary or appropriate."

This section is comparable to section 202 (e) of part II of the Federal Power Act and requires no explanation (49 Stat. 838).

(d) Rates and charges; schedules; suspension of new rates

Section 4 (a) provides that all rates and charges made, demanded, or received by any natural-gas company for or in connection with the transportation and sale of natural gas subject to the jurisdiction of the Commission, and all rules and regulations relating thereto, shall be just and reasonable.

Subsection (b) prohibits preferences, advantages, prejudices, and disadvantages with respect to any service rendered or to be rendered in the transportation of natural gas in high-pressure mains in interstate commerce subject to the jurisdiction of the Commission. The maintenance of any unreasonable difference in rates, charges, service, facilities, or in any other respect, either as between localities or as between classes of service, is also prohibited.

(c) Schedules showing all rates and charges for any transportation or sale subject to the jurisdiction of the Commission are to be filed with the Commission and kept open in convenient form and place for public inspection.

(d) Unless the Commission otherwise orders, no change shall be made by any natural-gas company in any such rate, charge, classification, or service except after 30 days' notice to the Commission and to the public.

(e) The Commission has power of rate suspension, acting on complaint or on its own motion, for a period of 5 months beyond the date when the rate would otherwise become effective.

Except for its application to natural-gas companies subject to the jurisdiction of the Commission rather than to electric companies engaged in interstate commerce, this section is comparable to section 205, part II, of the Federal Power Act (49 Stat. 838).

Congress has in many previous instances imposed regulatory measures upon many phases of important interstate businesses, such as railroads, telephones, express companies, and pipe lines (U. S. v. Louisiana & P. R. Co., 234 U. S. 1; U. S. v. Ohio Oil Co., supra; Chicago Board of Trade v. Olsen, supra; St. Louis 8. W. R. Co. v. U. S., 245 U. S. 136).

(e) Fixing rates and charges; determination of cost of production

or transportation

"SEC. 5. (a) The Commission may determine just and reasonable rates when those filed are unjust, unreasonable, unduly discriminatory, or preferential. "(b) The Commission may investigate and determine the cost of the production or transportation of natural gas by means of facilities under the jurisdiction of the Commission in cases where it has no authority to establish a rate governing the sale of such natural gas." This section rests on the same congressional power as the previous one. It is comparable to section 206 of part II of the Federal Power Act (49 Stat. 838).

(f) Ascertainment of cost of property

"SEC. 6. (a) The Commission may investigate and ascertain the actual legitimate cost of the property of every natural-gas company, the depreciation therein, and, when found necessary for rate-making purposes, other facts which bear on the determination of such cost or depreciation and the fair value of such property."

Subsection (b) provides that every natural-gas company upon request shall file with the Commission an inventory of all or any part of its property, and a statement of the original cost thereof, and shall keep the Commission informed regarding the cost of all additions, betterments, extensions, and new construction.

The same comment applies to this section as to the two preceding sections with the exception that this section is comparable to section 208, part II, of the Federal Power Act.

(g) Extension of facilities

"SEC. 7. (a) Whenever the Commission, after notice and opportunity for hearing, finds such action necessary or desirable in the public interest, it may, by order, direct a natural-gas company, transporting gas for ultimate distribution to the public, to extend or improve its facilities for the purpose of serving communities in or immediately adjacent to the territory occupied or served by such natural-gas company, which can be supplied adequately without undue disturbance of existing service requirements, or those reasonably to be anticipated: Provided, That the Commission shall have no authority to compel the enlargement of transportation facilities for such purposes, or to compel such natural-gas company to establish physical connection or to sell natural gas when to do so would impair its ability to render adequate service to its customers."

Support for this provision of the bill is amply provided in New York ex rel. New York & Queens Gas Co. v. McCall (245 U. S. 345), New York ex rel. Woodhaven Gas Light Co. v. Public Service Commission (269 U. S. 244), upholding the orders of State regulatory bodies requiring public-utility gas companies subject to their jurisdiction to make extensions of considerable size in the territory in which they held permissive. although not mandatory franchises. Further support is afforded by numerous cases upholding Commission orders