Fed. Energy Regulatory Comm'n v. Elec. Power Supply Ass'n

• Decision Date: 25 January 2016
• Docket Number: Nos. 14–840,14–841.,s. 14–840
• Parties: FEDERAL ENERGY REGULATORY COMMISSION, Petitioner v. ELECTRIC POWER SUPPLY ASSOCIATION, et al. EnerNOC, Inc., et al., Petitioners v. Electric Power Supply Association, et al.
• Court: U.S. Supreme Court

577 U.S. 260

136 S.Ct. 760

193 L.Ed.2d 661

FEDERAL ENERGY REGULATORY COMMISSION, Petitioner

v.ELECTRIC POWER SUPPLY ASSOCIATION, et al.

EnerNOC, Inc., et al., Petitioners

v.Electric Power Supply Association, et al.

Nos. 14–840

14–841.

Supreme Court of the United States

Argued Oct. 14, 2015.

Decided Jan. 25, 2016.

As Revised Jan. 28, 2016.

Donald B. Verrilli, Jr., Solicitor General, for Federal Energy Regulatory Commission.

Carter G. Phillips, Washington, DC, for EnerNOC, Inc., et al.

Arocles Aguilar, General Counsel, Harvey Y. Morris, Assistant General Counsel, Elizabeth Dorman, Principal Counsel, California Public, Utilities Commission, San Francisco, CA, for Respondent.

Carter G. Phillips, C. Frederick Beckner III, Sidley Austin LLP, Washington, DC, Matthew J. Cushing, EnerNOC, Inc., Boston, MA, for EnerNOC, Inc.

Marvin T. Griff, Husch Blackwell LLP, Washington, DC, for EnergyConnect, Inc.

Robert A. Weishaar, Jr., McNees Wallace & Nurick LLC, Washington, DC, for the Coalition of MISO Transmission Customers, and PJM Industrial, Customer Coalition.

Allen M. Freifeld, Philadelphia, PA, for Viridity Energy, Inc.

Cynthia S. Bogorad, William S. Huang, Katharine M. Mapes, Jessica R. Bell, Spiegel & McDiarmid LLP, Washington, DC, for Respondents Midwest Load–Serving Entities.

Roger E. Collanton, General Counsel, Burton Gross, Assistant General Counsel, Daniel J. Shonkwiler, Lead Counsel, California Independent System Operator Corp., Folsom, CA, Catherine E. Stetson, Counsel of Record, Elizabeth Austin Bonner, Hogan Lovells US LLP, Washington, DC, for Respondent.

Elizabeth Dorman, Counsel of Record, Principal Counsel, California Public Utilities Commission, San Francisco, CA, H. Robert Erwin, Jr., General Counsel, Ransom E. Davis, Associate General Counsel, Public Service Commission of Maryland, Baltimore, MA, Bohdan R. Pankiw, Chief Counsel, Kriss E. Brown, Assistant Counsel, Pennsylvania Public Utility Commission, Harrisburg, PA, for joint states.

David L. Morenoff, General Counsel, Robert H. Solomon, Solicitor, Holly E. Cafer, Attorney, Federal Energy Regulatory Commission, Washington, DC, Donald B. Verrilli, Jr., Solicitor General, Counsel of Record, Edwin S. Kneedler, Deputy Solicitor General, John F. Bash, Assistant to the Solicitor General, Department of Justice, Washington, DC, for Petitioner.

Vincent P. Duane, Senior Vice President and General Counsel, PJM Interconnection, L.L.C., Audubon, PA, Craig Glazer, Vice President–Federal Government Policy, PJM Interconnection, L.L.C., Washington, DC, Barry S. Spector, Counsel of Record, Paul M. Flynn, Wright & Talisman, P.C., Washington, DC, for Respondent PJM Interconnection, L.L.C.

Ashley C. Parrish, David G. Tewksbury, King & Spalding LLP, Washington, DC, for Electric Power Supply Association.

Paul D. Clement, Counsel of Record, Erin E. Murphy, Bancroft PLLC, Washington, DC, for all respondents joining this brief.

Harvey L. Reiter, Adrienne E. Clair, Stinson Leonard Street LLP, Washington, DC, for American Public Power Association, National Rural Electric Cooperative Association, and Old Dominion Electric Cooperative.

David B. Raskin, Steptoe & Johnson LLP, Washington, DC, for Edison Electric Institute.

Sandra E. Rizzo, Arnold & Porter LLP, Washington, DC, for PPL Electric Utilities Corporation, PPL, EnergyPlus, LLC, PPL Brunner Island, LLC, PPL, Holtwood, LLC, PPL Martins Creek, LLC, PPL, Maine, LLC, PPL Montour, LLC, PPL Susquehanna, LLC, Lower Mount Bethel Energy, LLC, and PJM Power Providers Group.

Paul Breakman, National Rural Electric, Cooperative Association, Arlington, VA, for National Rural Electric Cooperative Association.

Edward H. Comer, Henri D. Bartholomot, Edison Electric Institute, Washington, DC, for Edison Electric Institute.

Delia D. Patterson, Randolph Lee Elliott, American Public Power Association, Arlington, VA, for American Public Power Association.

Jesse A. Dillon, Talen Energy, Allentown, PA, for Talen Energy Marketing, LLC, Brunner Island, LLC, Holtwood, LLC, Martins Creek, LLC, Talen Maine, LLC, Montour, LLC, Susquehanna Nuclear, LLC, and Lower Mount Bethel Energy, LLC.

Michael A. McGrail, PPL Services Corporation, Allentown, PA, for PPL Electric Utilities Corporation.

Justice KAGAN delivered the opinion of the Court.

The Federal Power Act (FPA or Act), 41 Stat. 1063, as amended, 16 U.S.C. § 791a et seq., authorizes the Federal Energy Regulatory Commission (FERC or Commission) to regulate "the sale of electric energy at wholesale in interstate commerce," including both wholesale electricity rates and any rule or practice "affecting" such rates. §§ 824(b), 824e(a). But the law places beyond FERC's power, and leaves to the States alone, the regulation of "any other sale"—most notably, any retail sale—of electricity. § 824(b). That statutory division generates a steady flow of jurisdictional disputes because—in point of fact if not of law—the wholesale and retail markets in electricity are inextricably linked.

These cases concern a practice called "demand response," in which operators of wholesale markets pay electricity consumers for commitments not to use power at certain times. That practice arose because wholesale market operators can sometimes—say, on a muggy August day—offer electricity both more cheaply and more reliably by paying users to dial down their consumption than by paying power plants to ramp up their production. In the regulation challenged here, FERC required those market operators, in specified circumstances, to compensate the two services equivalently—that is, to pay the same price to demand response providers for conserving energy as to generators for making more of it.

Two issues are presented here. First, and fundamentally, does the FPA permit FERC to regulate these demand response transactions at all, or does any such rule impinge on the States' authority? Second, even if FERC has the requisite statutory power, did the Commission fail to justify adequately why demand response providers and electricity producers should receive the same compensation? The court below ruled against FERC on both scores. We disagree.

I

A

Federal regulation of electricity owes its beginnings to one of this Court's decisions. In the early 20th century, state and local agencies oversaw nearly all generation, transmission, and distribution of electricity. But this Court held in Public Util. Comm'n of R.I. v. Attleboro Steam & Elec. Co., 273 U.S. 83, 89–90, 47 S.Ct. 294, 71 L.Ed. 549 (1927), that the Commerce Clause bars the States from regulating certain interstate electricity transactions, including wholesale sales (i.e., sales for resale) across state lines. That ruling created what became known as the "Attleboro gap"—a regulatory void which, the Court pointedly noted, only Congress could fill. See id., at 90, 47 S.Ct. 294.

Congress responded to that invitation by passing the FPA in 1935. The Act charged FERC's predecessor agency with undertaking "effective federal regulation of the expanding business of transmitting and selling electric power in interstate commerce." New York v. FERC, 535 U.S. 1, 6, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) (quoting Gulf States Util. Co. v. FPC, 411 U.S. 747, 758, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1973) ). Under the statute, the Commission has authority to regulate "the transmission of electric energy in interstate commerce" and "the sale of electric energy at wholesale in interstate commerce." 16 U.S.C. § 824(b)(1).

In particular, the FPA obligates FERC to oversee all prices for those interstate transactions and all rules and practices affecting such prices. The statute provides that "[a]ll rates and charges made, demanded, or received by any public utility for or in connection with" interstate transmissions or wholesale sales—as well as "all rules and regulations affecting or pertaining to such rates or charges"—must be "just and reasonable." § 824d(a). And if "any rate [or] charge," or "any rule, regulation, practice, or contract affecting such rate [or] charge[,]" falls short of that standard, the Commission must rectify the problem: It then shall determine what is "just and reasonable" and impose "the same by order." § 824e(a).

Alongside those grants of power, however, the Act also limits FERC's regulatory reach, and thereby maintains a zone of exclusive state jurisdiction. As pertinent here, § 824(b)(1) —the same provision that gives FERC authority over wholesale sales—states that "this subchapter," including its delegation to FERC, "shall not apply to any other sale of electric energy." Accordingly, the Commission may not regulate either within-state wholesale sales or, more pertinent here, retail sales of electricity (i.e., sales directly to users). See New York, 535 U.S., at 17, 23, 122 S.Ct. 1012. State utility commissions continue to oversee those transactions.

Since the FPA's passage, electricity has increasingly become a competitive interstate business, and FERC's role has evolved accordingly. Decades ago, state or local utilities controlled their own power plants, transmission lines, and delivery systems, operating as vertically integrated monopolies in confined geographic areas. That is no longer so. Independent power plants now abound, and almost all electricity flows not through "the local power networks of the past," but instead through an interconnected "grid" of near-nationwide scope. See id ., at 7, 122 S.Ct. 1012 ("electricity that enters the grid immediately becomes a part of a vast pool of energy that is constantly moving in interstate commerce," linking producers and users across the country). In this new world, FERC often forgoes the cost-based rate-setting traditionally used to prevent monopolistic pricing. The Commission instead undertakes to ensure "just and reasonable" wholesale rates by enhancing competition—attempting, as we recently explained, "to break down regulatory and economic barriers that hinder a free market in wholesale electricity." Morgan Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of...