A natural gas company subject to the Natural Gas Act of 1938, 52
Stat. 821, produces some gas and purchases some gas, which it
mingles and conducts through a system of field, branch, and main
lines (all within a single state) into its main trunk line, whence
it is sold to interstate pipeline companies for transportation,
resale, and ultimate consumption in other states. The entire
movement from the wells to the purchasing companies, through their
compression pumps, and across the state lines is a continuous
process without interruption for storage, processing or any other
the Federal Power Commission has jurisdiction
under § 1(b) of the Natural Gas Act to regulate such sales. Pp.
331 U. S.
(a) Such sales are "in interstate commerce" within the meaning
of § 1(b) of the Natural Gas Act. Pp. 331 U. S.
(b) They are not within the clause of § 1(b), which excepts "the
production or gathering" of natural gas from the Commission's
regulatory jurisdiction. Pp. 331 U. S.
156 F.2d 949 affirmed.
Page 331 U. S. 683
The Federal Power Commission issued an order under § 5(a) of the
Natural Gas Act of 1938, 52 Stat. 821, requiring petitioner to
effect substantial rate reductions in certain of its sales of
natural gas and to file new schedules of rates and charges. 3
F.P.C. 416. The Circuit Court of Appeals denied a review. 156 F.2d
949. This Court granted certiorari limited to the question of the
Commission's jurisdiction. 330 U.S. 852. Affirmed,
331 U. S.
MR. CHIEF JUSTICE VINSON delivered the opinion of the Court.
This case originated in proceedings before the Federal Power
Commission initiated pursuant to § 5(a) of the
Page 331 U. S. 684
Natural Gas Act of 1938. [Footnote 1
] After overruling objections to its
jurisdiction, the Commission entered an order requiring the
petitioner to effect substantial rate reductions in certain of its
sales of natural gas and to file new schedules of rates and
charges. [Footnote 2
Petitioner, in seeking review of the order in the Circuit Court of
Appeals, denied the jurisdiction of the Commission to set rates for
the sales in issue in this case and asserted that the rates so
established were confiscatory. That Court, one judge dissenting,
denied the petition for review. [Footnote 3
] We granted certiorari limited to the question
of the Commission's jurisdiction.
Petitioner owns and operates 110 natural gas wells and owns or
controls over 56,000 acres in the Monroe field of northern
Louisiana. Petitioner's main pipeline transports gas southward from
the Monroe field through a part of Mississippi and back into
Louisiana, where, at Baton Rouge, sales are made to various
distributing companies and industrial consumers. Petitioner
concedes that, with respect to these operations, it is a natural
gas company within the meaning of § 2(6) [Footnote 4
] of the Act, and that the Commission has
jurisdiction to regulate the rates of sales connected
The issue of this case involves the jurisdiction of the Federal
Power Commission to regulate sales made in the field by petitioner
to three pipeline companies, each of which transports the gas so
purchased to markets in States other than Louisiana. [Footnote 5
] Gas produced from
Page 331 U. S. 685
wells flows into petitioner's system of field pipelines, moving
first into branch lines, then into trunk lines, and finally, into
the main trunk lines from which delivery is made to the three
purchasing companies. During the course of this movement,
petitioner purchases gas from other producers in the field, which
gas is introduced into petitioner's system at designated points and
is there commingled with the gas moving from petitioner's own
wells. By far the larger part of the gas so purchased by petitioner
has been gathered from various wells of the selling companies
before delivery to petitioner is made. [Footnote 6
] The gas moves through petitioner's system at
well pressure. Shortly after the sales in question are completed,
the gas is directed through the compressor stations of the
purchasing companies, and is there subjected to increased pressure
in order that it may be moved to markets as far distant as
Illinois. The entire movement of the gas from the wells to the
purchasing companies through the compressor pumps and across the
state lines is a continuous process, without interruption for
storage, processing, or for any other purpose. [Footnote 7
] All the gas sold in these transactions
is destined for ultimate public consumption in States other than
It appears that petitioner supplies only a part of the gas
purchased by the three pipeline companies in the Monroe
Page 331 U. S. 686
field. [Footnote 8
for petitioner conceded before the Commission that the prices
charged the three pipeline companies were, by agreement, identical
with those being charged by other producers in the field. The
Commission found that petitioner was an affiliate of one of the
three purchasing companies. It was the conclusion of the Commission
that the rates charged by petitioner in these sales were "unjust,
unreasonable, and unlawful," and ordered rate reductions amounting
to $596,320 per year as applied to the volume of gas sold in the
test year of 1941.
Petitioner has at no time contended that regulation of its sales
to the three purchasing companies is beyond the constitutional
powers of Congress. Petitioner has vigorously asserted, however,
that Congress did not exercise its full powers in the National Gas
Act, and that, in § 1(b) of the Act, the jurisdiction of the
Federal Power Commission is so limited as to preclude valid
regulation of the sales by that agency. Section 1(b) provides:
"The provisions of this Act shall apply to the transportation of
natural gas in interstate commerce, to the sale in interstate
commerce of natural gas for resale for ultimate public consumption
for domestic, commercial, industrial, or any other use, and to
natural gas companies engaged in such transportation or sale, but
shall not apply to any other transportation or sale of natural gas
or to the local distribution of natural gas or to the facilities
used for such distribution or to the production or gathering of
It is not denied that the transactions in question were sales of
natural gas for resale for ultimate public consumption.
Page 331 U. S. 687
Petitioner has raised two issues: First, it is contended, the
sales are not "in interstate commerce." Second, the sales are a
part of "production or gathering," and hence not within the
Commission's power of regulation.
We have no doubt that the sales are in interstate commerce.
Indeed, petitioner did not contest that position before the
Commission, but, so far as the record reveals, raised the issue for
the first time in its petition for rehearing in the Circuit Court
of Appeals. [Footnote 9
Federal Power Commission found that the gas sold to the three
pipeline companies moves
". . . in a constant flow from the mouths of the wells from
which it is produced through pipelines belonging to Interstate to
the compressor station of the respective purchaser, and thence
through said compressor stations into the pipeline of said
respective purchaser, and thus into and through states other than
Louisiana . . . , all without interruption, and said gas is so
destined from the moment of its production."
The Commission further found that
"The gas transported and sold by Interstate to these three
pipeline Companies continues its flow in interstate commerce and,
as an established course of business well known to Interstate, is
destined for resale for ultimate public consumption in . . .
markets outside Louisiana."
Under the circumstances described by the Commission, it is clear
that the sales in question were quite as much in interstate
commerce as they would have been had the
Page 331 U. S. 688
pipes of the petitioner crossed the state line before reaching
the points of sale. [Footnote
] Thus, in Public Utilities Commission v. Attleboro Steam
& Electric Co., 273 U. S. 83
sale of electrical energy at the state line was held to be in
interstate commerce. Commenting on that case, this Court, in
Jersey Central Power & Light Co. v. Federal Power
Commission, 319 U. S. 61
319 U. S. 69
stated: "We see no distinction between a sale at or before reaching
the state line." There is nothing in the terms of the Act or in its
legislative history to indicate that Congress intended that a more
restricted meaning be attributed to the phrase "in interstate
commerce" than that which theretofore had been given to it in the
opinions of this Court. [Footnote 11
] Section 2(7) of the Act defines "interstate
". . . commerce between any point in a State and any point
outside thereof, or between points within the same State but
through any place outside thereof. . . ."
Clearly, the sales in question were a part of commerce being
carried on between points in Louisiana and points in other States.
There is nothing in that language to suggest that Congress intended
that sales consummated before the gas crosses a state line should
not be regarded as being "in" such commerce.
Page 331 U. S. 689
Nor are we impressed with the suggestion that the interstate
movement of the gas should be regarded as beginning when the gas,
theretofore moving through petitioner's pipeline system at well
pressure, is subjected to increased pressure in the compressor
stations of the purchasing companies in order that the gas may be
moved to the distant markets. Long before the gas reaches the
compressor pumps, it has been committed to its interstate journey,
which follows without interruption or deviation. Under such
circumstances, the increase of pressure in the compressor stations
must be regarded as merely an incident in the interstate commerce,
rather than as its origin. [Footnote 12
The Company contends, however, that, regardless of whether the
sales in question are in interstate commerce, those transactions
fall within the clause of § 1(b) specifically excepting from the
Commission's jurisdiction regulation of " . . . the production or
gathering of natural gas." In evaluating that contention, we should
not lose sight of the objectives sought to be accomplished by
Congress in passing the Natural Gas Act.
In a series of decisions announced prior to the passage of the
Act, this Court had held that, although Congress had not acted, the
regulation of wholesale rates of gas and electrical energy moving
in interstate commerce is beyond the constitutional powers of the
States. [Footnote 13
Petitioner, relying in part upon the principles established by
those cases, has successfully avoided regulation by the
Page 331 U. S. 690
Public Service Commission. [Footnote 14
] As was stated in the House Committee report,
the "basic purpose" of Congress in passing the Natural Gas Act was
"to occupy this field in which the Supreme Court has held that the
States may not act." [Footnote
] In denying the Federal Power Commission jurisdiction to
regulate the production or gathering of natural gas, it was not the
purpose of Congress to free companies such as petitioner from
effective public control. The purpose of that restriction was,
rather, to preserve in the States powers of regulation in areas in
which the States are constitutionally competent to act. Thus, the
House Committee Report states: "The bill takes no authority from
State Commissions, and is so drawn as to complement, and in no
manner usurp, State regulatory authority. . . ." [Footnote 16
] Clearly, among the powers thus
reserved to the States is the power to regulate the physical
production and gathering of natural gas in the interests of
conservation or of any other consideration of legitimate local
concern. [Footnote 17
was the intention of Congress to give the States full freedom in
these matters. Thus, where sales, though technically consummated in
interstate commerce, are made during the course of production and
gathering and are so closely connected with the local incidents of
that process as to render rate regulation by the Federal Power
Commission inconsistent or a substantial interference with the
exercise by the its regulatory functions, the jurisdiction of the
Federal Power Commission does not attach. [Footnote 18
] But such conflict must be clearly
Page 331 U. S. 691
to the primary grant of jurisdiction in the section are to be
strictly construed. It is not sufficient to defeat the Commission's
jurisdiction over sales for resale in interstate commerce to assert
that, in the exercise of the power of rate regulation in such
cases, local interests may in some degree be affected. [Footnote 19
There is nothing in the record to indicate that the regulation
in question is in any way inconsistent with the exercise by
Louisiana of the powers over production and gathering of natural
gas reserved to it by Congress in § 1(b) of the Act. The State, in
a series of enactments, has made elaborate provision for the
conservation of its natural gas resources, and has established
various rules and regulations relating to the production and
gathering process. [Footnote
] Most of those provisions presumably, are applicable to
petitioner's field operations. [Footnote 21
] The record is devoid of any suggestion that
Louisiana has ever opposed the jurisdiction of the Federal Power
Commission in this case, or has ever urged that federal regulation
of the sales in question would interfere with the exercise by the
its regulatory functions. [Footnote 22
] We do not suggest that the
Page 331 U. S. 692
jurisdiction of the Commission in any case is to be determined
by the resistance or lack of resistance on the part of the State to
federal regulation. But, in evaluating the Company's contention
that the State's powers have been invaded, we regard it a matter of
some significance that, although the State has freely exercised its
regulatory powers over the production and gathering of natural gas,
there is no evidence of any conflict, present or threatened, in the
performing of those functions by the State with the exercise of the
jurisdiction of the Federal Power Commission in this case.
It is not contended that the Commission is precluded from
regulating the sales in question by reason of the exception from
the Commission's jurisdiction relating to the production of natural
gas. Petitioner asserts, however, that the sales to the three
pipeline companies are a part of the gathering process and
consequently not within the Commission's power of regulation. This
basic contention has given rise to a great many subsidiary
questions, such as whether the sales were made from petitioner's
"gathering" lines or from petitioner's "transmission" lines, and
whether the gathering process continued to the points of sale, or
was, as the Commission found, completed at some point prior to
surrender of custody and passage of title. We have found it
unnecessary to resolve those issues. The gas moved by petitioner to
the points of sale consisted of gas produced from petitioner's
wells commingled with that produced and gathered by other companies
and introduced into petitioner's pipeline system during the course
of the movement. By the time the sales are consummated, nothing
further in the gathering process remains to be done. We have held
that these sales are in interstate commerce. It cannot be doubted
that their regulation is predominately a matter of national, as
contrasted to local, concern. All the gas sold in these
transactions is destined
Page 331 U. S. 693
for consumption in States other than Louisiana. Unreasonable
charges exacted at this stage of the interstate movement become
perpetuated in large part in fixed items of costs which must be
covered by rates charged subsequent purchasers of the gas including
the ultimate consumer. [Footnote
] It was to avoid such situations that the Natural Gas Act
For reasons stated above, we have concluded that the Federal
Power Commission in this case has not exceeded the jurisdiction
conferred upon it by Congress in § 1(b) of the Natural Gas Act.
52 Stat. 821, 56 Stat. 83, 15 U.S.C. § 717 et seq.
3 F.P.C. 416.
1946, 156 F.2d 949.
Section 2(6) provides:
"'Natural gas company' means a person engaged in the
transportation of natural gas in interstate commerce, or the sale
in interstate commerce of such gas for resale."
The three companies include the Mississippi River Fuel
Corporation, Southern Natural Gas Company, and the United Gas Pipe
Line Company, to which gas is sold for the account of the Memphis
Natural Gas Company.
Petitioner produced and purchased a total of 51,659,799 Mcf of
gas in the Monroe field during 1941. Of this total, petitioner
produced from its own wells 28,819,814 Mcf. Of the 22,839,985 Mcf
purchased, 95% was gathered by the producers before delivery to
petitioner; the remaining 5% was purchased by petitioner directly
at the well heads. Petitioner sold 21,863,278 Mcf to the three
purchasing companies in the transactions in question.
Gas in the Monroe field is "dry" gas, and consequently is not
subjected to any extraction processing. Before moving into the
compressor pumps, the gas is run through a series of "scrubbers"
which remove dirt and foreign particles. This is accomplished,
however, without interruption in the movement.
The transactions in question supply the Mississippi Fuel Corp.
with 22% of its requirements, 24% of the requirements of the
Memphis Natural Gas Co., and 16.61% of the requirements of Southern
Natural Gas Co.
In its complaint filed in the District Court for the Eastern
District of Louisiana invoking the equity powers of the Court to
restrain the Louisiana Public Service Commission from conducting an
investigation into petitioner's rates and charges, petitioner
specifically asserted that the sales in question are in interstate
commerce, and thus beyond the jurisdiction of the state commission.
The District Court granted the requested relief. Interstate
Natural Gas Co. v. Public Service Commission, 33 F. Supp.
; 34 F. Supp.
Shafer v. Farmers' Grain Co., 268 U.
; Lemke v. Farmers' Grain Co.,
258 U. S. 50
Dahnke-Walker Milling Co. v. Bondurant, 257 U.
. And see Illinois Natural Gas Co. v. Central
Illinois Public Service Co., 314 U. S. 498
314 U. S.
-504; Currin v. Wallace, 306 U. S.
, 306 U. S. 10
People's Natural Gas Co. v. Public Service Comm'n,
270 U. S. 550
270 U. S. 554
Illinois Central R. Co. v. Railroad Comm'n, 236 U.
, 236 U. S. 163
Cf. Milk Control Board v. Eisenberg Farm Products,
306 U. S. 346
Illinois Natural Gas Co. v. Central Illinois Public Service
Co., 314 U. S. 498
314 U. S. 508
Peoples Natural Gas Co. v. Federal Power Comm'n,
U.S.App.D.C. 235, 127 F.2d 153. Cf. Jersey Central Power &
Light Co. v. Federal Power Comm'n, 319 U. S.
, 319 U. S.
Cf. Illinois Natural Gas Co. v. Central Illinois Public
Service Co., supra,
at 314 U. S.
-505; State Tax Comm'n v. Interstate Natural Gas
Co., 284 U. S. 41
284 U. S. 44
Missouri v. Kansas Natural Gas Co., 265 U.
; Public Utilities Comm'n v. Attleboro Steam
& Electric Co., 273 U. S. 83
State Corp. Comm'n v. Wichita Gas Co., 290 U.
See note 9
H.R.Rep. No.709, 75th Cong., 1st Sess., 2.
Colorado Interstate Gas Co. v. Federal Power Comm'n,
324 U. S. 581
324 U. S.
The Federal Power Commission has not asserted jurisdiction over
all sales taking place in the natural gas fields even though in
interstate commerce for resale for ultimate public consumption.
In the Matter of Columbia Fuel Corp.,
2 F.P.C. 200; In
the Matter of Billings Co.,
2 F.P.C. 228. We express no
opinion as to the validity of the jurisdictional tests employed by
the Commission in these cases.
Cf. Colorado Interstate Gas Co. v. Federal Power Comm'n,
at 324 U. S. 603
Federal Power Comm'n v. Hope Natural Gas Co., 320 U.
, 320 U. S.
La.Gen.Stat. §§ 4766-4826.2.
The record contains testimony by counsel for petitioner to the
effect that these provisions apply to petitioner and that
petitioner's operations have conformed with their requirements.
Counsel for the Louisiana Public Service Commission and for two
Louisiana municipalities participated in the proceedings before the
Federal Power Commission.
A number of cases in this Court have held that the
reasonableness of cost items such as that incurred by a purchasing
pipeline company in acquiring gas for transportation may be
inquired into during the course of subsequent regulation when buyer
and seller are affiliated corporations and there is evidence that
the sales were not made at arms' length. The Commission found
affiliation to exist between petitioner and only one of the three
purchasing companies, the Mississippi River Fuel Corporation. There
was a finding of "close contractual and operating arrangements"
between petitioner and another of the purchasing companies.
Natural Gas Pipeline Co. v. Slattery, 302 U.
; Columbus Gas & Fuel Co. v. Public
Utilities Comm'n, 292 U. S. 398
Dayton Power & Light Co. v. Public Utilities Comm'n,
292 U. S. 290
Western Distributing Co. v. Public Service Comm'n,
285 U. S. 119
Smith v. Illinois Bell Telephone Co., 282 U.
; United Fuel Gas Co. v. Railroad Comm'n,
278 U. S. 300