Arkansas Electric Cooperative Corporation v. Arkansas Public Service Commission

Decision Date16 May 1983
Docket NumberNo. 81-731,81-731
Citation103 S.Ct. 1905,76 L.Ed.2d 1,461 U.S. 375
PartiesARKANSAS ELECTRIC COOPERATIVE CORPORATION, Appellant v. ARKANSAS PUBLIC SERVICE COMMISSION
CourtU.S. Supreme Court
Syllabus

Appellant is a customer-owned rural power cooperative established with loan funds and technical assistance provided by the federal Rural Electrification Administration (REA), but unlike most such cooperatives, which provide power directly to consumers, appellant's sole members and primary customers are 17 smaller Arkansas rural power cooperatives which in turn serve the ultimate consumer. Although tied into an interstate "grid" arrangement with other producers, appellant obtains most of its energy from power plants located in Arkansas, which it wholly or partially owns, and sells most of what it generates to its member cooperatives. Appellee Arkansas Public Service Commission entered an order asserting jurisdiction over the wholesale rates charged by appellant to its member cooperatives, concluding that state regulation was neither forbidden by Public Utilities Comm'n v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54—which held that while consistent with the Commerce Clause the States could regulate retail sales of electricity, they could not regulate wholesale sales—nor pre-empted by the Federal Power Act or the Rural Electrification Act of 1936. On review, the Pulaski County Circuit Court set aside appellee's order, but the Arkansas Supreme Court reversed.

Held:

1. Appellee's assertion of jurisdiction over the wholesale rates charged by appellant to its members does not offend the Supremacy Clause of the Constitution. Pp. 383-389.

(a) Neither the Federal Power Act nor administrative actions taken thereunder pre-empt state regulation. The Federal Power Commission determined in 1967 that it did not have jurisdiction under the Act over the wholesale rates charged by rural power cooperatives under the supervision of the REA, and such decision was based on the Commission's conclusion that the relevant statutes gave the REA exclusive authority among federal agencies to regulate rural power cooperatives, not on a conclusion that, as a matter of policy, such cooperatives that are engaged in sales for resale should be left unregulated. Pp. 383-385.

(b) The Rural Electrification Act does not expressly pre-empt state rate regulation of power cooperatives financed by the REA, and the legislative history of the Act establishes that, although the REA was expected to assist the fledgling rural power cooperatives in setting their rate structures, it would do so within the constraints of existing state regulatory schemes. In addition, the REA's present policy is wholly inconsistent with pre-emption of state regulatory jurisdiction over wholesale rates. Pp. 385-389.

2. Appellee's assertion of regulatory jurisdiction over wholesale rates does not offend the Commerce Clause. Pp. 389-395.

(a) If the mechanical wholesale/retail test articulated in Attleboro, supra, were applied here, it would require setting aside appellee's assertion of jurisdiction. However, the general trend in this Court's modern Commerce Clause jurisprudence is to look in every case to the nature of the state regulation involved, the State's objective, and the effect of the regulation upon the national interest in the commerce involved, and that modern jurisprudence, rather than the mechanical line drawn in Attleboro, must govern the decision here. Pp. 389-393.

(b) "Where [a] statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to putative local benefits" Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174. Economic protectionism is not implicated here, and state regulation of the wholesale rates charged by appellant to its members is well within the scope of "legitimate local public interests," particularly considering that although appellant is tied into an interstate grid, its basic operation consists of supplying power from generating facilities located within the State to member cooperatives, all of which are located within the State. Although appellee's regulation of appellant's rates charged to its members will have an incidental effect on interstate commerce, "the burden imposed on such commerce is not clearly excessive in relation to the putative local benefits." Pp. 1393-395. 273 Ark. 170, 618 S.W.2d 151, affirmed. [Fastcase Editorial Note: The Court's reference to 273 Ark. 170, 618 S.W.2d 151 is short for Arkansas Public Service Commission v. Arkansas Elec. Co-op. Corp., 273 Ark. 170, 618 S.W.2d 151.]

Robert D. Cabe, Little Rock, Ark., for appellant.

Jeff Broadwater, Little Rock, Ark., for appellee.

Justice BRENNAN delivered the opinion of the Court.

This appeal requires us to decide whether the Arkansas Public Service Commission (PSC) acted contrary to the Commerce Clause or the Supremacy Clause of the Constitution when it asserted regulatory jurisdiction over the wholesale rates charged by the Arkansas Electric Cooperative Corporation (AECC) to its member retail distributors, all of whom are located within the State. The Arkansas Supreme Court upheld the PSC's assertion of jurisdiction. We affirm.

I

Maintaining the proper balance between federal and state authority in the regulation of electric and other energy utilities has long been a serious challenge to both judicial and congressional wisdom. On the one hand, the regulation of utilities is one of the most important of the functions traditionally associated with the police power of the States. See Munn v. Illinois, 94 U.S. 113, 24 L.Ed. 77 (1877). On the other hand, the production and transmission of energy is an activity particularly likely to affect more than one State, and its effect on interstate commerce is often significant enough that uncontrolled regulation by the States can patently interfere with broader national interests. See FERC v. Mississippi, 456 U.S. 742, 755-757, 102 S.Ct. 2126, 2135-2136, 72 L.Ed.2d 532 (1982); New England Power Co. v. New Hampshire, 455 U.S. 331, 339, 102 S.Ct. 1096, 1100, 71 L.Ed.2d 188 (1982).

This dilemma came into sharp focus for this Court early in this century in a series of cases construing the restrictions imposed by the Commerce Clause on state regulation of the sale of natural gas. Our solution was to fashion a bright line dividing permissible from impermissible state regulation. See Missouri v. Kansas Gas Co., 265 U.S. 298, 309, 44 S.Ct. 544, 546, 68 L.Ed. 1027 (1924); Public Utilities Comm'n v. Landon, 249 U.S. 236, 39 S.Ct. 268, 63 L.Ed. 577 (1919); cf. Pennsylvania Gas Co. v. Public Service Comm'n, 252 U.S. 23, 40 S.Ct. 279, 64 L.Ed. 434 (1920). Simply put, the doctrine of these cases was that the retail sale of gas was subject to state regulation, "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," Missouri v. Kansas Gas Co., supra, 265 U.S., at 309, 44 S.Ct., at 546, but that the wholesale sale of gas in interstate commerce was not subject to state regulation even though some of the gas being sold was produced within the State. Our rationale was that "[t]ransportation of gas from one State to another is interstate commerce; and the sale and delivery of it to the local distributing companies is a part of such commerce," id., at 307, 44 S.Ct., at 545, but that "[w]ith the delivery of the gas to the distributing companies . . . the interstate movement ends" and the further "effect on interstate commerce, if there be any, is indirect and incidental," id., at 308, 44 S.Ct., at 546. See also, e.g., State Comm'n v. Witchita Gas Co., 290 U.S. 561, 563-564, 54 S.Ct. 321, 322-323, 78 L.Ed. 500 (1934); East Ohio Gas Co. v. Tax Comm'n, 283 U.S. 465, 470-471, 51 S.Ct. 499, 500-501, 75 L.Ed. 1171 (1931).

The wholesale/retail line drawn in Landon and Kansas Gas was applied to electric utilities in Public Utilities Comm'n v. Attleboro Steam & Elec. Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927). Attleboro involved an attempt by the Rhode Island Public Utilities Commission to regulate the rates at which the Narragansett Electric Lighting Company—a Rhode Island utility could sell electric current to a Massachusetts distributor. We struck down the regulation, holding that, because it involved a transaction at wholesale, it imposed a "direct" rather than an "indirect" burden on interstate commerce. In doing so we held that it was immaterial "that the general business of the Narragansett Company appears to be chiefly local," id., at 90, 47 S.Ct., at 296, or that the state commission grounded its assertion of jurisdiction on the need to facilitate the regulation of the company's retail sales to its Rhode Island customers.

As a direct result of Attleboro and its predecessor cases, Congress undertook to establish federal regulation over most of the wholesale transactions of electric and gas utilities engaged in interstate commerce, and created the Federal Power Commission (FPC) (now the Federal Energy Regulatory Commission) to carry out that task. See Fed- eral Power Act of 1935 (Tit. II of the Public Utility Act of 1935), 49 Stat. 803, 838-863; Natural Gas Act of 1938, 52 Stat. 821.1 Although the main purpose of this legislation was to "fill the gap" created by Attleboro and its predecessors, see New England Power Co. v. New Hampshire, 455 U.S., at 340, 102 S.Ct., at 1101; United States v. Public Utilities Comm'n of California, 345 U.S. 295, 311, 73 S.Ct. 706, 715, 97 L.Ed.1020 (1953), it nevertheless shifted this Court's main focus—in determining the permissible scope of state regulation of utilities—from the constitutional issues...

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