Federal Energy Regulatory Commission v. Electric Power Supply Association

ELECTRIC POWER SUPPL Y ASSOCIATION et al. certiorari to the united states court of appeals for

the district of columbia circuit No. 14–840. Argued October 14, 2015—Decided January 25, 2016* The Federal Power Act (FPA) authorizes the Federal Energy Regulatory Commission (FERC) 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. 16 U. S. C. §§ 824(b), 824d(a), 824e(a). But it places beyond FERC's power, leaving to the States alone, the regulation of “any other sale”—that is, any intrastate wholesale sale or, more pertinent here, any retail sale—of electricity. § 824(b). In an increasingly competitive interstate electricity market, FERC has undertaken to ensure “just and reasonable” wholesale rates, § 824d(a), by encouraging the creation of nonprofit entities to manage regions of the nationwide electricity grid. These wholesale market operators administer their portions of the grid to ensure that the network conducts electricity reliably, and each holds competitive auctions to set wholesale prices. These auctions balance supply and demand continuously by matching bids to provide electricity from generators with orders from utilities and other “load-serving entities” that buy power at wholesale for resale to users. All bids to supply electricity are stacked from lowest to highest, and accepted in that order until all requests for power have been met. Every electricity supplier is paid the price of the highest-accepted bid, known as the locational marginal price (LMP). In periods of high electricity demand, prices can reach extremely high levels as the least efficient generators have their supply bids accepted in the wholesale market auctions. Not only do rates rise dramatically during these peak periods, but the increased fow of electricity threatens to overload the grid and cause substantial service problems. Faced with these challenges, wholesale market operators devised wholesale demand response programs, which pay consumers for commitments to reduce their use of power during these peak periods. Just like bids to supply electricity, offers from aggregators of multiple users of electricity or large individual consumers to reduce consumption can be bid into the wholesale market auctions. When it costs less to pay consumers to

refrain from using power than it does to pay producers to supply more of it, demand response can lower these wholesale prices and increase grid reliability. Wholesale operators began integrating these programs into their markets some 15 years ago and FERC authorized their use. Congress subsequently encouraged further development of demand response.

Spurred on by Congress, FERC issued Order No. 719, which, among other things, requires wholesale market operators to receive demand response bids from aggregators of electricity consumers, except when the state regulatory authority overseeing those users' retail purchases bars demand response participation. 18 CFR § 35.28(g)(1). Concerned that the order had not gone far enough, FERC then issued the rule under review here, Order No. 745. § 35.28(g)(1)(v) (Rule). It requires market operators to pay the same price to demand response providers for conserving energy as to generators for producing it, so long as a “net benefits test,” which ensures that accepted bids actually save consumers money, is met. The Rule rejected an alternative compensation scheme that would have subtracted from LMP the savings consumers receive from not buying electricity in the retail market, a formula known as LMP−G. The Rule also rejected claims that FERC lacked statutory authority to regulate the compensation operators pay for demand response bids. The Court of Appeals for the District of Columbia Circuit vacated the Rule, holding that FERC lacked authority to issue the order because it directly regulates the retail electricity market, and holding in the alternative that the Rule's compensation scheme is arbitrary and capricious under the Administrative Procedure Act. Held: 1. The FPA provides FERC with the authority to regulate wholesale market operators' compensation of demand response bids. The Court's analysis proceeds in three parts. First, the practices at issue directly affect wholesale rates. Second, FERC has not regulated retail sales. Taken together, these conclusions establish that the Rule complies with the FPA's plain terms. Third, the contrary view would conflict with the FPA's core purposes. Pp. 276–291.

(a) The practices at issue directly affect wholesale rates. The FPA has delegated to FERC the authority—and, indeed, the duty—to ensure that rules or practices “affecting” wholesale rates are just and reasonable. §§ 824d(a), 824e(a). To prevent the statute from assuming near-infinite breadth, see, e. g., New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U. S. 645, 655, this Court adopts the D. C. Circuit's common-sense construction limiting FERC's “affecting” jurisdiction to rules or practices that “directly affect the

[wholesale] rate,” California Independent System Operator Corp. v. FERC , 372 F. 3d 395, 403 (emphasis added). That standard is easily met here. Wholesale demand response is all about reducing wholesale rates; so too the rules and practices that determine how those programs operate. That is particularly true here, as the formula for compensating demand response necessarily lowers wholesale electricity prices by displacing higher-priced generation bids. Pp. 277–279.

(b) The Rule also does not regulate retail electricity sales in violation of § 824(b). A FERC regulation does not run afoul of § 824(b)'s proscription just because it affects the quantity or terms of retail sales. Transactions occurring on the wholesale market have natural consequences at the retail level, and so too, of necessity, will FERC's regulation of those wholesale matters. That is of no legal consequence. See, e. g., Mississippi Power & Light Co. v. Mississippi ex rel. Moore , 487 U. S. 354, 365, 370–373. When FERC regulates what takes place on the wholesale market, as part of carrying out its charge to improve how that market runs, then no matter the effect on retail rates, § 824(b) imposes no bar. Here, every aspect of FERC's regulatory plan happens exclusively on the wholesale market and governs exclusively that market's rules. FERC's justifications for regulating demand response are likewise only about improving the wholesale market. Cf. Oneok, Inc. v. Learjet, Inc., 575 U. S. 373, 385. Pp. 279–288. (c) In addition, respondent Electric Power Supply Association's (EPSA) position would subvert the FPA. EPSA's arguments suggest that the entire practice of wholesale demand response falls outside what FERC can regulate, and EPSA concedes that States also lack that authority. But under the FPA, wholesale demand response programs could not go forward if no entity had jurisdiction to regulate them. That outcome would flout the FPA's core purposes of protecting “against excessive prices” and ensuring effective transmission of electric power. Pennsylvania Water & Power Co. v. FPC , 343 U. S. 414, 418; see Gulf States Util. Co. v. FPC , 411 U. S. 747, 758. The FPA should not be read, against its clear terms, to halt a practice that so evidently enables FERC to fulfill its statutory duties of holding down prices and enhanc-ing reliability in the wholesale energy market. Pp. 288–291. 2. FERC's decision to compensate demand response providers at LMP—the same price paid to generators—instead of at LMP−G, is not arbitrary and capricious. Under the narrow scope of review in Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U. S. 29, 43, this Court's important but limited role is to ensure that FERC engaged in reasoned decisionmaking—that it weighed competing views, selected a compensation formula with adequate support in the record, and intelligibly explained the reasons for making that decision. Here, FERC provided a detailed explanation of

its choice of LMP and responded at length to contrary views. FERC's serious and careful discussion of the issue satisfies the arbitrary and capricious standard. Pp. 291–296. 753 F. 3d 216, reversed and remanded. Kagan, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Ginsburg, Breyer , and Sotomayor, JJ., joined. Scalia, J., filed a dissenting opinion, in which Thomas, J., joined, post, p. 296. Alito, J., took no part in the consideration or decision of the cases.

Solicitor General Verrilli argued the cause for petitioner in No. 14–840. With him on the briefs were Deputy Solicitor General Kneedler , John F. Bash, Robert H. Solomon, and Holly E. Cafer. Carter G. Phillips argued the cause for private petitioners in No. 14–841. With him on the briefs were C. Frederick Beckner III, Matthew J. Cushing , Marvin T. Griff, and Robert A. Weishaar, Jr . Ransom E. Davis, Boh-dan R. Pankiw , and Kriss E. Brown filed a brief for respondents Joint States in support of petitioners in both cases pursuant to this Court's Rule 12.6. Elizabeth Dorman, Aroceles Aguilar , and Harvey Y . Morris filed a brief for respondent California Public Utilities Commission and Barry S. Spector and Paul M. Flynn filed a brief for respondent PJM Interconnection, L.L.C., both in support of petitioner in No. 14–840 pursuant to this Court's Rule 12.6.

Paul D. Clement argued the cause for respondents Electric Power Supply Association et al. in both cases. With him on the brief were Erin E. Murphy , Edmund G. LaCour, Jr., Ashley C. Parrish, David G. Tewksbury , Stephanie S. Lim, James P . Sullivan, Harvey L. Reiter , Edward H. Comer , Henri D. Bartholomot, Sandra E. Rizzo , Randolph Lee Elliott, Jesse A. Dillon, and Michael A. McGrail. Cynthia S. Bogorad, William S. Huang , Katharine M. Mapes, and Jessica R. Bell filed a brief for respondents Midwest Load-Serving Entities in both cases pursuant to this Court's Rule 12.6.†

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 inter-

Sandra Mattavous-Frye , Robert G. Mork, Paula M. Carmody , Stefanie A. Brand, and Jacqueline Lake Roberts; for the Conservation Law Foundation et al. by David T. Goldberg , Sean H. Donahue , John N. Moore , Vickie L. Patton, Peter Zalzal, Jerry Elmer , and Howard A. Learner; for Electricity Consumers and Demand Response Providers by Seth P . Waxman, Mark C. Kalpin, and David M. Lehn; for Energy Law Scholars by Richard J. Pierce, Jr.; for the Microgrid Resources Coalition by Erik S. Jaffe; for Charles J. Cicchetti by Hope M. Babcock; and for Charles D. Kolstad by Wendy B. Jacobs.

Richard B. Stewart filed a brief for the Guarini Center on Environmental, Energy and Land Use Law at New York University School of Law urging reversal in No. 14–840. Briefs of amici curiae urging affirmance were filed in both cases for the State of Indiana et al. by Gregory F. Zoeller, Attorney General of Indiana, Thomas M. Fisher , Solicitor General, and Laura Langeneckert, Deputy Attorney General, by Scott Pruitt, Attorney General of Oklahoma, Patrick Wyrick, Solicitor General, and Mithun Mansinghani, Deputy Solicitor General, and by the Attorneys General of their respective States as follows: Luther Strange of Alabama, Mark Brnovich of Arizona, Leslie Rutledge of Arkansas, Lawrence G. Wasden of Idaho, Derek Schimdt of Kansas, Alan Wilson of South Carolina, Ken Paxton of Texas, Sean D. Reyes of Utah, Patrick Morrisey of West Virginia, and Peter K. Michael of Wyoming; for CES et al. by Peter J. Brann and Stacy O. Stitham; for the North Carolina Utilities Commission by Kimberly W. Duffey , Donald L. Howell II, Rolayne Ailts Wiest, Luther Daniel Bentley IV , and Maureen A. Scott; for Southern Company Services, Inc., by Andrew W. Tun-nell; and for Robert L. Borlick et al. by Jeffrey A. Lamken and John Lee Shepard, Jr. Gerald Norlander and Richard Berkely filed a brief for the Public Utility Law Project of New York urging affirmance in No. 14–840. Erick M. Sandler and Ellen C. Ginsberg filed a brief for the Nuclear Energy Institute et al. urging affirmance in No. 14–841. Briefs of amici curiae were filed in both cases for Grid Engineers et al. by Douglas Hallward-Driemeier and Justin Florence; for NRG Energy, Inc., by Aaron M. Panner; and for the Public Service Commission of the State of New York by Jonathan D. Feinberg.

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 equiva -lently—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.

A

Federal regulation of electricity owes its beginnings to one of this Court's decisions. In the early 20th century, state

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 (2002) (quoting Gulf States Util. Co. v. FPC, 411 U. S. 747, 758 (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,

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 (“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 Snohomish Cty., 554 U. S. 527, 536 (2008).

As part of that effort, FERC encouraged the creation of nonprofit entities to manage wholesale markets on a regional basis. Seven such wholesale market operators now serve areas with roughly two-thirds of the country's electricity “load” (an industry term for the amount of electricity used). See FERC, Energy Primer: A Handbook of Energy Market

These wholesale auctions serve to balance supply and demand on a continuous basis, producing prices for electricity that refect its value at given locations and times throughout each day. Such a real-time mechanism is needed because, unlike most products, electricity cannot be stored effectively. Suppliers must generate—every day, hour, and minute—the exact amount of power necessary to meet demand from the utilities and other “load-serving entities” (LSEs) that buy power at wholesale for resale to users. To ensure that happens, wholesale market operators obtain (1) orders from LSEs indicating how much electricity they need at various times and (2) bids from generators specifying how much electricity they can produce at those times and how much they will charge for it. Operators accept the generators' bids in order of cost (least expensive first) until they satisfy the LSEs' total demand. The price of the last unit of electricity purchased is then paid to every supplier whose bid was accepted, regardless of its actual offer; and the total cost is split among the LSEs in proportion to how much energy they have ordered. So, for example, suppose that at 9 a.m. on August 15, four plants serving Washington, D. C. can each produce some amount of electricity for, respectively, $10/unit, $20/unit, $30/unit, and $40/unit. And suppose that LSEs' demand at that time and place is met after the operator accepts the three cheapest bids. The first three generators would then all receive $30/unit. That amount is (think back to Econ 101) the marginal cost—i. e., the added cost of meeting another unit of demand—which is the price an efficient market would produce. See 1 A. Kahn, The Economics of Regulation: Principles and Institutions 65–67 (1988). FERC calls

As in any market, when wholesale buyers' demand for electricity increases, the price they must pay rises correspondingly; and in those times of peak load, the grid's reliability may also falter. Suppose that by 2 p.m. on August 15, it is 98 degrees in D. C. In every home, store, or office, people are turning the air conditioning up. To keep providing power to their customers, utilities and other LSEs must ask their market operator for more electricity. To meet that spike in demand, the operator will have to accept more expensive bids from suppliers. The operator, that is, will have to agree to the $40 bid that it spurned before—and maybe, beyond that, to bids of $50 or $60 or $70. In such periods, operators often must call on extremely inefficient generators whose high costs of production cause them to sit idle most of the time. See Energy Primer 41–42. As that happens, LMP—the price paid by all LSEs to all suppliers—climbs ever higher. And meanwhile, the increased fow of electricity through the grid threatens to overload transmission lines. See id., at 44. As every consumer knows, it is just when the weather is hottest and the need for air conditioning most acute that blackouts, brownouts, and other service problems tend to occur.

Making matters worse, the wholesale electricity market lacks the self-correcting mechanism of other markets. Usually, when the price of a product rises, buyers naturally adjust by reducing how much they purchase. But consumers of electricity—and therefore the utilities and other LSEs buying power for them at wholesale—do not respond to price signals in that way. To use the economic term, demand for electricity is inelastic. That is in part because electricity is a necessity with few ready substitutes: When the tempera-

But what if there were an alternative to that scenario? Consider what would happen if wholesale market operators could induce consumers to refrain from using (and so LSEs from buying) electricity during peak periods. Whenever doing that costs less than adding more power, an operator could bring electricity supply and demand into balance at a lower price. And simultaneously, the operator could ease pressure on the grid, thus protecting against system failures. That is the idea behind the practice at issue here: Wholesale demand response, as it is called, pays consumers for commitments to curtail their use of power, so as to curb wholesale rates and prevent grid breakdowns. See id., at 44–46. 2

These demand response programs work through the operators' regular auctions. Aggregators of multiple users of electricity, as well as large-scale individual users like factories or big-box stores, submit bids to decrease electricity consumption by a set amount at a set time for a set price. The wholesale market operators treat those offers just like bids from generators to increase supply. The operators, that is, rank order all the bids—both to produce and to refrain from consuming electricity—from least to most expensive, and

Wholesale market operators began using demand response some 15 years ago, soon after they assumed the role of overseeing wholesale electricity sales. Recognizing the value of demand response for both system reliability and efficient pricing, they urged FERC to allow them to implement such programs. See, e. g., PJM Interconnection, L. L. C., Order Accepting Tariff Sheets as Modified, 95 FERC ¶61,306 (2001); California Independent System Operator Corp., Order Conditionally Accepting for Filing Tariff Revisions, 91 FERC ¶61,256 (2000). And as demand response went into effect, market participants of many kinds came to view it—in the words of respondent Electric Power Supply Association (EPSA)—as an “important element[ ] of robust, competitive wholesale electricity markets.” App. 94, EPSA, Comments on Proposed Rule on Demand Response Compensation in Organized Wholesale Energy Markets (May 12, 2010).

Congress added to the chorus of voices praising wholesale demand response. In the Energy Policy Act of 2005, 119 Stat. 594 (EPAct), it declared as “the policy of the United States” that such demand response “shall be encouraged.”

B

Spurred on by Congress, the Commission determined to take a more active role in promoting wholesale demand response programs. In 2008, FERC issued Order No. 719, which (among other things) requires wholesale market operators to receive demand response bids from aggregators of electricity consumers, except when the state regulatory authority overseeing those users' retail purchases bars such demand response participation. See 73 Fed. Reg. 64119, ¶154 (codified 18 CFR § 35.28(g)(1) (2015)). That original order allowed operators to compensate demand response providers differently from generators if they so chose. No party sought judicial review.

Concerned that Order No. 719 had not gone far enough, FERC issued the rule under review here in 2011, with one commissioner dissenting. See Demand Response Competition in Organized Wholesale Energy Markets, Order No. 745, 76 Fed. Reg. 16658 (Rule) (codified 18 CFR § 35.28(g)(1)(v)). The Rule attempts to ensure “just and rea-

The two specified conditions ensure that a bid to use less electricity provides the same value to the wholesale market as a bid to make more. First, a demand response bidder must have “the capability to provide the service” offered; it must, that is, actually be able to reduce electricity use and thereby obviate the operator's need to secure additional power. Id., at 16666, ¶¶48–49. Second, paying LMP for a demand response bid “must be cost-effective,” as measured by a standard called “the net benefits test.” Ibid., ¶48. That test makes certain that accepting a lower-priced demand response bid over a higher-priced supply bid will actually save LSEs (i. e ., wholesale purchasers) money. In some situations it will not, even though accepting a lower-priced bid (by definition) reduces LMP. That is because (to oversimplify a bit) LSEs share the cost of paying successful bidders, and reduced electricity use makes some LSEs drop out of the market, placing a proportionally greater burden on those that are left. Each remaining LSE may thus wind up paying more even though the total bill is lower; or said otherwise, the costs associated with an LSE's increased share of compensating bids may exceed the savings that the LSE obtains from a lower wholesale price. 4 The net bene-

The Rule rejected an alternative scheme for compensating demand response bids. Several commenters had urged that, in paying a demand response provider, an operator should subtract from the ordinary wholesale price the savings that the provider nets by not buying electricity on the retail market. Otherwise, the commenters claimed, demand response providers would receive a kind of “double-payment” relative to generators. See id., at 16663, ¶24. That proposal, which the dissenting commissioner largely accepted, became known as LMP minus G, or more simply LMP−G, where “G” stands for the retail price of electricity. See id., at 16668, ¶60, 16680 (Moeller, dissenting). But FERC explained that, under the conditions it had specified, the value of an accepted demand response bid to the wholesale market is identical to that of an accepted supply bid because each succeeds in cost-effectively “balanc[ing] supply and demand.” Id., at 16667, ¶55. And, the Commission reasoned, that comparable value is what ought to matter given FERC's goal of strengthening competition in the wholesale market: Rates should refect not the costs that each market participant incurs, but instead the services it provides. See id., at 16668, ¶62. Moreover, the Rule stated, compensating demand response bids at their actual value—i. e., LMP—will help overcome various technological barriers, including a lack of needed infrastructure, that impede aggregators and large-scale users of electricity

is the same as in the text, because the total cost of accepted bids is spread among LSEs in proportion to the units of electricity they purchase; and as those units decline, each remaining one bears a greater share of the bill.

The Rule also responded to comments challenging FERC's statutory authority to regulate the compensation operators pay for demand response bids. Pointing to the Commission's analysis in Order No. 719, the Rule explained that the FPA gives FERC jurisdiction over such bids because they “directly affect[ ] wholesale rates.” Id., at 16676, ¶112 (citing 74 id., at 37783, ¶47, and 18 U. S. C. § 824d). Nonetheless, the Rule noted, FERC would continue Order No. 719's policy of allowing any state regulatory body to prohibit consumers in its retail market from taking part in wholesale demand response programs. See 76 Fed. Reg. 16676, ¶114; 73 id., at 64119, ¶154. Accordingly, the Rule does not require any “action[ ] that would violate State laws or regulations.” 76 id., at 16676, ¶114.

C

A divided panel of the Court of Appeals for the District of Columbia Circuit vacated the Rule as “ultra vires agency action.” 753 F. 3d 216, 225 (2014). The court held that FERC lacked authority to issue the Rule even though “demand response compensation affects the wholesale market.” Id., at 221. The Commission's “jurisdiction to regulate practices `affecting' rates,” the court stated, “does not erase the specific limit[ ]” that the FPA imposes on FERC's regulation of retail sales. Id., at 222. And the Rule, the court concluded, exceeds that limit: In “luring . . . retail customers” into the wholesale market, and causing them to decrease “levels of retail electricity consumption,” the Rule engages in “direct regulation of the retail market.” Id., at 223–224.

The Court of Appeals held, alternatively, that the Rule is arbitrary and capricious under the Administrative Procedure Act, 5 U. S. C. § 706(2)(A), because FERC flailed to “adequately explain[ ]” why paying LMP to demand response providers “results in just compensation.” 753 F. 3d, at 225.

Judge Edwards dissented. He explained that the rules governing wholesale demand response have a “direct effect . . . on wholesale electricity rates squarely within FERC's jurisdiction.” Id., at 227. And in setting those rules, he argued, FERC did not engage in “direct regulation of the retail market”; rather, “[a]uthority over retail rates . . . remains vested solely in the States.” Id., at 234 (internal quotation marks omitted). Finally, Judge Edwards rejected the majority's view that the Rule is arbitrary and capricious. He noted the substantial deference due to the Commission in cases involving ratemaking, and concluded that FERC provided a “thorough” and “reasonable” explanation for choosing LMP as the appropriate compensation formula. Id., at 236–238.

We granted certiorari, 575 U. S. 995 (2015), to decide whether the Commission has statutory authority to regulate wholesale market operators' compensation of demand response bids and, if so, whether the Rule challenged here is arbitrary and capricious. We now hold that the Commission has such power and that the Rule is adequately reasoned. We accordingly reverse.

Our analysis of FERC's regulatory authority proceeds in three parts. First, the practices at issue in the Rule— market operators' payments for demand response commitments—directly affect wholesale rates. Second, in address-

The FPA delegates responsibility to FERC to regulate the interstate wholesale market for electricity—both wholesale rates and the panoply of rules and practices affecting them. As noted earlier, the Act establishes a scheme for federal regulation of “the sale of electric energy at wholesale in interstate commerce.” 16 U. S. C. § 824(b)(1); see supra, at 266. Under the statute, “[a]ll rates and charges made, demanded, or received by any public utility for or in connection with” interstate wholesale sales “shall be just and reasonable”; so too shall “all rules and regulations affecting or pertaining to such rates or charges.” § 824d(a). And if FERC sees a violation of that standard, it must take remedial action. More specifically, whenever the Commission “shall find that any rate [or] charge”—or “any rule, regulation, practice, or contract affecting such rate [or] charge”—is “unjust [or] unreasonable,” then the Commission “shall determine the just and reasonable rate, charge[,] rule, regulation, practice or contract” and impose “the same by order.” § 824e(a). That means FERC has the authority—and, indeed, the duty—to ensure that rules or practices “affecting” wholesale rates are just and reasonable.

Taken for all it is worth, that statutory grant could extend FERC's power to some surprising places. As the court below noted, markets in all electricity's inputs—steel, fuel,

For that reason, an earlier D. C. Circuit decision adopted, and we now approve, a common-sense construction of the FPA's language, limiting FERC's “affecting” jurisdiction to rules or practices that “directly affect the [wholesale] rate.” California Independent System Operator Corp. v. FERC , 372 F. 3d 395, 403 (2004) (emphasis added); see 753 F. 3d, at 235 (Edwards, J., dissenting). As we have explained in addressing similar terms like “relating to” or “in connection with,” a non-hyperliteral reading is needed to prevent the statute from assuming near-infinite breadth. See New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U. S. 645, 655 (1995) (“If `relate to' were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes [the statute] would never run its course”); Maracich v. Spears, 570 U. S. 48, 59 (2013) (“The phrase `in connection with' is essentially indetermi-nat[e] because connections, like relations, stop nowhere” (internal quotation marks omitted)). The Commission itself incorporated the D. C. Circuit's standard in addressing its authority to issue the Rule. See 76 Fed. Reg. 16676, ¶112 (stating that FERC has jurisdiction because wholesale demand response “directly affects wholesale rates”). We think it right to do the same.

Still, the rules governing wholesale demand response programs meet that standard with room to spare. In general (and as earlier described), wholesale market operators em-

And that is particularly true of the formula that operators use to compensate demand response providers. As in other areas of life, greater pay leads to greater participation. If rewarded at LMP, rather than at some lesser amount, more demand response providers will enter more bids capable of displacing generation, thus necessarily lowering wholesale electricity prices. Further, the Commission found, heightened demand response participation will put “downward pressure” on generators' own bids, encouraging power plants to offer their product at reduced prices lest they come away empty-handed from the bidding process. 76 Fed. Reg. 16660, ¶10. That, too, ratchets down the rates wholesale purchasers pay. Compensation for demand response thus directly affects wholesale prices. Indeed, it is hard to think of a practice that does so more.

The above conclusion does not end our inquiry into the Commission's statutory authority; to uphold the Rule, we also must determine that it does not regulate retail electricity sales. That is because, as earlier described, § 824(b) “limit[s] FERC's sale jurisdiction to that at wholesale,” re-serving regulatory authority over retail sales (as well as intrastate wholesale sales) to the States. New York, 535 U. S., at 17 (emphasis deleted); see 16 U. S. C. § 824(b); supra, at

is, to direct sales for consumptive use.” Panhandle Eastern Pipe Line Co. v. Public Serv. Comm'n of Ind., 332 U. S. 507, 516 (1947). FERC regulates interstate wholesale sales of electricity; the States regulate retail sales of electricity. And FERC may also regulate, as it did here, practices and rules affecting wholesale prices—that is, matters beyond wholesale sales themselves—so long as, in doing so, it does not trespass on the States' authority to regulate retail sales of electric power. See supra, at 266–267.

And in setting rules for demand response, that is all FERC has done. The Commission's Rule addresses—and addresses only—transactions occurring on the wholesale market. Recall once again how demand response works— and forgive the coming italics. See supra, at 270–271. Wholesale market operators administer the entire program, receiving every demand response bid made. Those operators accept such a bid at the mandated price when (and only when) the bid provides value to the wholesale market by balancing supply and demand more “cost-effective[ly]”—i. e., at a lower cost to wholesale purchasers—than a bid to generate power. 76 Fed. Reg. 16659, 16666, ¶¶2, 48. The compensation paid for a successful bid (LMP) is whatever the operator's auction has determined is the marginal price of wholesale electricity at a particular location and time. See id., at 16659, ¶2. And those footing the bill are the same wholesale purchasers that have benefited from the lower wholesale price demand response participation has produced. See id., at 16674, ¶¶99–100. In sum, whatever the effects at the retail level, every aspect of the regulatory plan happens exclusively on the wholesale market and governs exclusively that market's rules.

What is more, the Commission's justifications for regulat-ing demand response are all about, and only about, improving the wholesale market. Cf. Oneok, 575 U. S., at 385 (considering “the target at which [a] law aims” in determining whether a State is properly regulating retail or, instead, improperly regulating wholesale sales). In Order No. 719, FERC explained that demand response participation could help create a “well-functioning competitive wholesale electric energy market” with “reduce[d] wholesale power prices” and “enhance[d] reliability.” 73 Fed. Reg. 64103, ¶16. And in the Rule under review, FERC expanded on that theme. It listed the several ways in which “demand response in or-

EPSA's primary argument that FERC has usurped state power (echoed in the dissent) maintains that the Rule “effectively,” even though not “nominal[ly],” regulates retail prices. See, e. g., Brief for Respondents 1, 10, 23–27, 35–39; Tr. of Oral Arg. 26, 30; post, at 299–301. The argument begins on universally accepted ground: Under § 824(b), only the States, not FERC, can set retail rates. See, e. g., FPC v. Conway Corp., 426 U. S. 271, 276 (1976). But as EPSA concedes, that tenet alone cannot make its case, because FERC's Rule does not set actual rates: States continue to make or approve all retail rates, and in doing so may insulate them from price fluctuations in the wholesale market. See Brief for Respondents 39. Still, EPSA contends, rudimentary economic analysis shows that the Rule does the “functional equivalen[t]” of setting—more particularly, of raising—retail rates. Id., at 36. That is because the opportunity to make demand response bids in the wholesale market changes consumers' calculations. In deciding whether to buy electricity at retail, economically-minded consumers now consider both the cost of making such a purchase and the cost of forgoing a possible demand response payment. So, EPSA explains, if a factory can buy electricity for $10/unit, but can earn $5/unit for not buying power at peak times, then the effective retail rate at those times is $15/unit: the $10 the factory paid

The modifier “effective” is doing quite a lot of work in that argument—more work than any conventional understanding of rate-setting allows. The standard dictionary definition of the term “rate” (as used with reference to prices) is “[a]n amount paid or charged for a good or service.” Black's Law Dictionary 1452 (10th ed. 2014); see, e. g., 13 Oxford English Dictionary 208–209 (2d ed. 1989) (“rate” means “price,” “cost,” or “sum paid or asked for a . . . thing”). To set a retail electricity rate is thus to establish the amount of money a consumer will hand over in exchange for power. Nothing in § 824(b) or any other part of the FPA suggests a more expansive notion, in which FERC sets a rate for electricity merely by altering consumers' incentives to purchase that product. 8 And neither does anything in this Court's caselaw. Our decisions uniformly speak about rates, for electricity and all else, in only their most prosaic, garden-variety sense. As the Solicitor General summarized that view, “the rate is what it is.” Tr. of Oral Arg. 7. It is the price paid, not the price paid plus the cost of a forgone economic opportunity.

Consider a familiar scenario to see what is odd about EPSA's theory. Imagine that a fight is overbooked. The airline offers passengers $300 to move to a later plane that has extra seats. On EPSA's view, that offer adds $300—the

And EPSA's “effective price increase” claim fares even worse when it comes to payments not to use electricity. In EPSA's universe, a wholesale demand response program raises retail rates by compelling consumers to “pay” the price of forgoing demand response compensation. But such a consumer would be even more surprised than our air traveler to learn of that price hike, because the natural consequence of wholesale demand response programs is to bring down retail rates. Once again, wholesale market operators accept demand response bids only if those offers lower the wholesale price. See supra, at 270–271. And when whole-

EPSA's second argument that FERC intruded into the States' sphere is more historical and purposive in nature. According to EPSA, FERC deliberately “lured [retail customers] into the[ ] wholesale markets”—and, more, FERC did so “only because [it was] dissatisfied with the States' exercise of their undoubted authority” under § 824(b) to regulate retail sales. Brief for Respondents 23; see id., at 2–3, 31, 34. In particular, EPSA asserts, FERC disapproved of “many States' continued preference” for stable pricing—that is, for insulating retail rates from short-term fluctuations in wholesale costs. Id., at 28. In promoting demand response programs—or, in EPSA's somewhat less neutral language, in “forc[ing] retail customers to respond to wholesale price signals”—FERC acted “for the express purpose of overrid-ing” that state policy. Id., at 29, 49.

That claim initially flounders on the true facts of how wholesale demand response came about. Contra EPSA, the Commission did not invent the practice. Rather, and as described earlier, the impetus came from wholesale market operators. See supra, at 271. In designing their newly organized markets, those operators recognized almost at once that demand response would lower wholesale electricity prices and improve the grid's reliability. So they quickly sought, and obtained, FERC's approval to institute such programs. Demand response, then, emerged not as a Commission power grab, but instead as a market-generated innovation for more optimally balancing wholesale electricity supply and demand.

And when, years later (after Congress, too, endorsed the practice), FERC began to play a more proactive role, it did

Indeed, the finishing blow to both of EPSA's arguments comes from FERC's notable solicitude toward the States. As explained earlier, the Rule allows any State regulator to prohibit its consumers from making demand response bids in the wholesale market. See 76 id., at 16676, ¶114; 73 id., at 64119, ¶154; supra, at 275. Although claiming the ability to negate such state decisions, the Commission chose not to do so in recognition of the linkage between wholesale and retail markets and the States' role in overseeing retail sales. See 76 Fed. Reg. 16676, ¶¶112–114. The veto power thus granted to the States belies EPSA's view that FERC aimed

One last point, about how EPSA's position would subvert the FPA.

EPSA's jurisdictional claim, as may be clear by now, stretches very far. Its point is not that this single Rule, relating to compensation levels, exceeds FERC's power. Instead, EPSA's arguments—that rewarding energy conservation raises effective retail rates and that “luring” consumers onto wholesale markets aims to disrupt state policies—suggest that the entire practice of wholesale demand response falls outside what FERC can regulate. EPSA proudly embraces that point: FERC, it declares, “has no business regu-lating `demand response' at all.” Id., at 24. Under EPSA's theory, FERC's earlier Order No. 719, although never challenged, would also be ultra vires because it requires operators to open their markets to demand response bids. And more: FERC could not even approve an operator's voluntary plan to administer a demand response program. See Tr. of Oral Arg. 44. That too would improperly allow a retail customer to participate in a wholesale market.

Yet state commissions could not regulate demand response bids either. EPSA essentially concedes this point. See Brief for Respondents 46 (“That may well be true”). And so it must. The FPA “leaves no room either for direct state regulation of the prices of interstate wholesales” or for regulation that “would indirectly achieve the same result.” Northern Natural Gas Co. v. State Corporation Comm'n of

And all of that creates a problem. If neither FERC nor the States can regulate wholesale demand response, then by definition no one can. But under the Act, no electricity transaction can proceed unless it is regulable by someone. As earlier described, Congress passed the FPA precisely to eliminate vacuums of authority over the electricity markets. See supra, at 265–266. The Act makes federal and state powers “complementary” and “comprehensive,” so that “there [will] be no `gaps' for private interests to subvert the public welfare.” Louisiana Power & Light Co., 406 U. S., at 631. Or said otherwise, the statute prevents the creation of any regulatory “no man's land.” FPC v. Transcontinental Gas Pipe Line Corp., 365 U. S. 1, 19 (1961); see id., at 28. Some entity must have jurisdiction to regulate each and every practice that takes place in the electricity markets, demand response no less than any other. 10

For that reason, the upshot of EPSA's view would be to extinguish the wholesale demand response program in its entirety. Under the FPA, each market operator must submit

And that outcome would flout the FPA's core objects. The statute aims to protect “against excessive prices” and ensure effective transmission of electric power. Pennsylvania Water & Power Co. v. FPC , 343 U. S. 414, 418 (1952); see Gulf States Util. Co. v. FPC , 411 U. S. 747, 758 (1973). As shown above, FERC has amply explained how wholesale demand response helps to achieve those ends, by bringing down costs and preventing service interruptions in peak periods. See supra, at 282. No one taking part in the rule-making process—not even EPSA—seriously challenged that account. Even as he objected to FERC's compensation formula, Commissioner Moeller noted the unanimity of opinion as to demand response's value: “[N]owhere did I review any comment or hear any testimony that questioned the benefit of having demand response resources participate in the organized wholesale energy markets. On this point, there is no debate.” 76 Fed. Reg. 16679; see also App. 82, EPSA, Comments on Proposed Rule (avowing “full[ ] support” for demand response participation in wholesale markets because of its “economic and operational” benefits).11 Congress itself

These cases present a second, narrower question: Is FERC's decision to compensate demand response providers at LMP—the same price paid to generators—arbitrary and capricious? Recall here the basic issue. See supra, at 272– 275. Wholesale market operators pay a single price— LMP—for all successful bids to supply electricity at a given time and place. The Rule orders operators to pay the identical price for a successful bid to conserve electricity so long as that bid can satisfy a “net benefits test”—meaning that it is sure to bring down costs for wholesale purchasers. In mandating that payment, FERC rejected an alternative proposal under which demand response providers would receive LMP minus G (LMP−G), where G is the retail rate for electricity. According to EPSA and others favoring that ap-

insist that utilities give rebates to customers for not using energy at certain times. See n. 2, supra. But according to both the Commission and market participants, state-level programs cannot offer nearly the same benefits as wholesale demand response because individual utilities lack the regional scope and real-time information needed to identify when demand response will lower prices and ensure reliability system-wide. See 73 Fed. Reg. 64103, ¶18; Energy Primer 45–46; Brief for NRG Energy, Inc., as Amicus Curiae 20–22. Similarly, FERC addressed and rejected the dissent's suggestion that wholesale market operators could pay LSEs to reduce their electricity purchases: Because LSEs lose revenues whenever demand goes down, any demand response programs targeting those actors would be highly inefficient. See FERC, Assessment of Demand Response and Advanced Metering 72 (2006); Tr. of Oral Arg. 56 (Solicitor General noting that LSEs engaged in demand response would be “cannibaliz[ing] their own profits”).

In reviewing that decision, we may not substitute our own judgment for that of the Commission. The “scope of review under the `arbitrary and capricious' standard is narrow.” Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U. S. 29, 43 (1983). A court is not to ask whether a regulatory decision is the best one possible or even whether it is better than the alternatives. Rather, the court must uphold a rule if the agency has “examine[d] the relevant [considerations] and articulate[d] a satisfactory explanation for its action[,] including a rational connection between the facts found and the choice made.” Ibid. (internal quotation marks omitted). And nowhere is that more true than in a technical area like electricity rate design: “[W]e afford great deference to the Commission in its rate decisions.” Morgan Stanley , 554 U. S., at 532.

Here, the Commission gave a detailed explanation of its choice of LMP. See 76 Fed. Reg. 16661–16669, ¶¶18–67. Relying on an eminent regulatory economist's views, FERC chiefly reasoned that demand response bids should get the same compensation as generators' bids because both provide the same value to a wholesale market. See id., at 16662– 16664, 16667–16668, ¶¶20, 31, 57, 61; see also App. 829–851, Reply Affidavit of Dr. Alfred E. Kahn (Aug. 30, 2010) (Kahn Affidavit). FERC noted that a market operator needs to constantly balance supply and demand, and that either kind of bid can perform that service cost-effectively—i. e., in a way that lowers costs for wholesale purchasers. See 76 Fed. Reg. 16667–16668, ¶¶56, 61. A compensation system, FERC concluded, therefore should place the two kinds of bids “on

That rationale received added support from FERC's adoption of the net benefits test. The Commission realized during its rulemaking that in some circumstances a demand response bid—despite reducing the wholesale rate—does not provide the same value as generation. See 76 Fed. Reg. 16664–16665, ¶38. As described earlier, that happens when the distinctive costs associated with compensating a demand response bid exceed the savings from a lower wholesale rate: The purchaser then winds up paying more than if the operator had accepted the best (even though higher priced) supply bid available. See supra, at 273–274. And so FERC developed the net benefits test to filter out such cases. See 76 Fed. Reg. 16666–16667, ¶¶50–53. With that standard in place, LMP is paid only to demand response bids that benefit wholesale purchasers—in other words, to those that function as “cost-effective alternative[s] to the next highest-bid generation.” Id., at 16667, ¶54. Thus, under the Commission's approach, a demand response provider will receive the same compensation as a generator only when it is in fact providing the same service to the wholesale market. See ibid., ¶53.

The Commission responded at length to EPSA's contrary view that paying LMP, even in that situation, will overcompensate demand response providers because they are also “effectively receiv[ing] `G,' the retail rate that they do not

Moreover, FERC found, paying LMP will help demand response providers overcome certain barriers to participation in the wholesale market. See 76 Fed. Reg. 16667–16668, ¶¶57–59. Commenters had detailed significant start-up expenses associated with demand response, including the cost of installing necessary metering technology and energy management systems. See id., at 16661, ¶18, 16667–16668, ¶57; see also, e. g., App. 356, Viridity Energy, Inc., Comments on Proposed Rule on Demand Response Compensation in Organized Wholesale Energy Markets (May 13, 2010) (noting the “capital investments and operational changes needed” for demand response participation). The Commission agreed that

Finally, the Commission noted that determining the “G” in the formula LMP−G is easier proposed than accomplished. See ibid., ¶63. Retail rates vary across and even within States, and change over time as well. Accordingly, FERC concluded, requiring market operators to incorporate G into their prices, “even though perhaps feasible,” would “create practical difficulties.” Ibid. Better, then, not to impose that administrative burden.

All of that together is enough. The Commission, not this or any other court, regulates electricity rates. The disputed question here involves both technical understanding and policy judgment. The Commission addressed that issue seriously and carefully, providing reasons in support of its position and responding to the principal alternative advanced. In upholding that action, we do not discount the cogency of EPSA's arguments in favor of LMP−G. Nor do we say that in opting for LMP instead, FERC made the better call. It is not our job to render that judgment, on which reasonable minds can differ. Our important but limited role is to ensure that the Commission engaged in reasoned decision-making—that it weighed competing views, selected a compensation formula with adequate support in the record, and intelligibly explained the reasons for making that choice. FERC satisfied that standard.

FERC's statutory authority extends to the Rule at issue here addressing wholesale demand response. The Rule governs a practice directly affecting wholesale electricity rates. And although (inevitably) infuencing the retail market too,

It is so ordered.

Justice Alito took no part in the consideration or decision of these cases.

Justice Scalia, with whom Justice Thomas joins, dissenting.

I believe the Federal Power Act (FPA or Act), 16 U. S. C. § 791a et seq., prohibits the Federal Energy Regulatory Commission (FERC) from regulating the demand response of retail purchasers of power. I respectfully dissent from the Court's holding to the contrary.

I agree with the majority that FERC has the authority to regulate practices “affecting” wholesale rates. §§ 824d(a), 824e(a); Mississippi Power & Light Co. v. Mississippi ex rel. Moore , 487 U. S. 354, 371 (1988). I also agree that this so-called “affecting” jurisdiction cannot be limitless. And I suppose I could even live with the Court's “direct effect” test as a reasonable limit. Ante, at 278. But as the majority recognizes, ante, at 279–280, that extratextual limit on the “affecting” jurisdiction merely supplements, not supplants,

The Act grants FERC authority to regulate the “generation . . . [and] transmission of electric energy in interstate commerce and the sale of such energy at wholesale.” § 824(a). Yet the majority frames the issue thusly: “[T]o uphold the [r]ule, we also must determine that it does not regulate retail electricity sales.” Ante, at 279. That formulation inverts the proper inquiry. The pertinent question under the Act is whether the rule regulates sales “ at wholesale.” If so, it falls within FERC's regulatory authority. If not, the rule is unauthorized whether or not it happens to regulate “retail electricity sales”; for, with exceptions not material here, the FPA prohibits FERC from regulating “any other sale of electric energy” that is not at wholesale. § 824(b)(1) (emphasis added). (The majority wisely ignores FERC's specious argument that the demand-response rule does not regulate any sale, wholesale or retail. See Brief for Petitioner in No. 14–840, p. 39. Paying someone not to conclude a transaction that otherwise would without a doubt have been concluded is most assuredly a regulation of that transaction. Cf. Gonzales v. Raich, 545 U. S. 1, 39–40 (2005) (Scalia, J., concurring in judgment).)

Properly framing the inquiry matters not because I think there exists “some undefined category of . . . electricity sales” that is “non-retail [and] non-wholesale,” ante, at 280, n. 7,*

So what, exactly, is a “sale of electric energy at wholesale”? We need not guess, for the Act provides a definition: “a sale of electric energy to any person for resale.” § 824(d) (emphasis added). No matter how many times the majority incants and italicizes the word “wholesale,” ante, at 282–283, nothing can change the fact that the vast majority of (and likely all) demand-response participants—“[a]ggregators of multiple users of electricity, as well as large-scale individual users like factories or big-box stores,” ante, at 270—do not resell electric energy; they consume it themselves. FERC's own definition of demand response is aimed at energy consumers, not resellers. 18 CFR § 35.28(b)(4) (2015).

It is therefore quite beside the point that the challenged “[r]ule addresses—and addresses only—transactions occurring on the wholesale market,” ante, at 282. For FERC's regulatory authority over electric-energy sales depends not on which “market” the “transactions occu[r] on” (whatever that means), but rather on the identity of the putative purchaser. If the purchaser is one who resells electric energy to other customers, the transaction is one “at wholesale” and thus within FERC's authority. If not, then not. Or so, at least, says the statute. As we long ago said of the parallel provision in the Natural Gas Act, 15 U. S. C. § 717, “[t]he line of the statute [i]s thus clear and complete. It cut[s] sharply and cleanly between sales for resale and direct sales for consumptive uses. No exceptions [a]re made in either category for particular uses, quantities, or otherwise.” Panhandle Eastern Pipe Line Co. v. Public Serv. Comm'n of Ind., 332

The demand-response bidders here indisputably do not resell energy to other customers. It follows that the rule does not regulate electric-energy sales “at wholesale,” and 16 U. S. C. § 824(b)(1) therefore forbids FERC to regulate these demand-response transactions. See New York v. FERC , 535 U. S. 1, 17 (2002). That is so whether or not those transactions “directly affect” wholesale rates; as we recently said in another context, we will not adopt a construction that “needlessly produces a contradiction in the statutory text.” Sha-piro v. McManus, ante, at 43. A faithful application of that principle would compel the conclusion that FERC may not “do under [§§ 824d(a) and 824e(a)] what [it] is forbidden to do under [§ 824(b)(1)].” Ante , at 44.

The analysis could stop there. But the majority is wrong even on its own terms, for the rule at issue here does in fact regulate “retail electricity sales,” which are indisputably “matters . . . subject to regulation by the States” and therefore off-limits to FERC. § 824(a); see FPC v. Conway Corp., 426 U. S. 271, 276 (1976); Panhandle Eastern Pipe Line Co., supra, at 517–518. The demand-response participants are retail customers—they purchase electric energy solely for their own consumption. And FERC's demand-response scheme is intentionally “designed to induce lower consumption of electric energy”—in other words, to induce a reduction in “retail electricity sales”—by offering “incentive payments” to those customers. 18 CFR § 35.28(b)(4). The incentive payments effectively increase the retail price of electric energy for participating customers because they must now account for the opportunity cost of using, as opposed to abstaining from using, more energy. In other words, it literally costs them more to buy energy on the retail market. In the court below, FERC conceded that offer-

The majority resists this elementary economic conclusion (notwithstanding its own exhortation to “think back to Econ 101,” ante, at 268). Why? Because its self-proclaimed “common-sensical” view dictates otherwise. Ante, at 285. Maybe the easiest way to see the majority's error is to take its own example: an airline passenger who rejects a $300 voucher for taking a later fight. Consider the following formulation of that example, indistinguishable in substance from the majority's formulation. (Indistinguishable because the hypothetical passenger has exactly the same options and outcomes available to him.) Suppose the airline said to the passenger: “We have proactively canceled your ticket and refunded $400 to your account; and because we have inconvenienced you, we have also deposited an extra $300. The money is yours to use as you like. But if you insist on repur-chasing a ticket on the same fight, you must not only pay us $400, but return the $300 too.” Now what is the effective price of the ticket? Sometimes an allegedly commonsensical intuition is just that—an intuition, often mistaken.

Moving closer to home, recall that demand-response participants must choose either to purchase a unit of energy at the prevailing retail price (say $10) or to withhold from purchasing that unit and receive instead an incentive payment (of say $5). The two options thus present a choice between having a unit of energy, on the one hand, and having $15 more in the bank, on the other. To repeat: take the energy, be $15 poorer; forgo the energy, be $15 richer. Is that not the very definition of price? See Black's Law Dictionary 1380 (10th ed. 2014) (“[t]he amount of money or other consideration asked for or given in exchange for something else”). In fact, is that not the majority's definition of price? Ante,

In any event, the majority appears to recognize that the effective price is indeed $15—just as the effective price of the airline ticket in the hypothetical is $700. Ante, at 285, n. 9. That recognition gives away the game. For FERC is prohibited not just from directly setting or modifying retail prices; it is prohibited from regulating retail sales, no matter the means. Panhandle Eastern Pipe Line Co., supra, at 517. Whether FERC sets the “real” retail price (to use the majority's idiosyncratic terminology, ante, at 285, n. 9) or the “effective” retail price is immaterial; either way, the rule— by design—induces demand-response participants to forgo retail electric-energy purchases they otherwise would have made. As noted, even FERC conceded that offering credits to retail customers would impermissibly regulate retail sales. The majority blithely overlooks this concession in favor of its own myopic view of retail pricing—all the while evading the inconvenient fact that fiddling with the effective retail price of electric energy, be it through incentive payments or hypothetical credits, regulates retail sales of electric energy no less than does direct ratesetting.

The majority cites dicta in several of our opinions expressing the assumption that state jurisdiction and federal jurisdiction under FERC cover the field, so that there is no regulatory “gap”; one entity or the other “must have jurisdiction to regulate each and every practice that takes place in the electricity markets.” Ante , at 289. The cases that express such a principle, with respect to the Federal Power Act and its companion the Natural Gas Act, base it (no surprise) on legislative history. See, e. g., FPC v. Louisiana Power & Light Co., 406 U. S. 621, 631 (1972); FPC v. Transcontinental Gas Pipe Line Corp., 365 U. S. 1, 19 (1961); Panhandle Eastern Pipe Line Co., 332 U. S., at 517–518, and

“[W]hen a dispute arises over whether a given transaction is within the scope of federal or state regulatory authority, we are not inclined to approach the problem negatively, thus raising the possibility that a `no man's land' will be created. That is to say, in a borderline case where congressional authority is not explicit we must ask whether state authority can practicably regulate a given area and, if we find that it cannot, then we are impelled to decide that federal authority governs.” Transcontinental Gas Pipe Line Corp., supra, at 19–20 (citation omitted).

That extravagant and otherwise-unheard-of method of establishing regulatory jurisdiction was not necessary to the judgments that invoked it, and should disappear in the Court's memory hole.

Suppose FERC decides that eliminating the middleman would benefit the public, and therefore promulgates a rule allowing electric-energy generators to sell directly to retail consumers across state lines and fixing generation, transmission, and retail rates for such sales. I think it obvious this hypothetical scheme would be forbidden to FERC. Yet just as surely the States could not enact it either, for only FERC has authority to regulate “the transmission of electric energy in interstate commerce.” 16 U. S. C. § 824(b)(1); see also New York, 535 U. S., at 19–20. Is this a regulatory

The majority is evidently distraught that affirming the decision below “would . . . extinguish the wholesale demand response program in its entirety.” Ibid. Alarmist hyperbole. Excluding FERC jurisdiction would at most eliminate this particular favor of FERC-regulated demand response. Nothing prevents FERC from tweaking its demand-response scheme by requiring incentive payments to be offered to wholesale customers, rather than retail ones. Brief for Respondent Electric Power Supply Assn. (EPSA) et al. 47–48; Brief for Respondents Midwest Load-Serving Entities 10–11. And retail-level demand-response pro -grams, run by the States, do and would continue to exist. See Brief for Respondent EPSA et al. 46–47; Brief for Respondents Midwest Load-Serving Entities 6–11. In fact Congress seemed to presuppose that States, not FERC, would run such programs: The relevant provisions of the Energy Policy Act of 2005, 119 Stat. 594 et seq., are intended “to encourage States to coordinate, on a regional basis, State energy policies to provide reliable and affordable demand response services.” § 1252(e)(1), id., at 965, codified at 16 U. S. C. § 2642 note (emphasis added). That statute also imposes several duties on the Secretary of Energy to assist States in implementing demand-response programs. §§ 1252(e)(2), (e)(3), 119 Stat. 965–966. In context, § 1252(f)

Moreover, the rule itself allows States to forbid their retail customers to participate in the existing demand-response scheme. 18 CFR § 35.28(g)(1)(i)(A); see Brief for Petitioner in No. 14–840, at 43. The majority accepts FERC's argument that this is merely a matter of grace, and claims that it puts the “finishing blow” to respondents' argument that 16 U. S. C. § 824(b)(1) prohibits the scheme. Ante, at 287. Quite the contrary. Remember that the majority believes FERC's authority derives from 16 U. S. C. §§ 824d(a) and 824e(a), the grants of “affecting” jurisdiction. Yet those provisions impose a duty on FERC to ensure that “all rules and regulations affecting or pertaining to [wholesale] rates or charges shall be just and reasonable .” § 824d(a) (emphasis added); see § 824e(a) (similar); Conway Corp., 426 U. S., at 277–279. If inducing retail customers to participate in wholesale demand-response transactions is necessary to render wholesale rates “just and reasonable,” how can FERC, consistent with its statutory mandate, permit States to thwart such participation? See Brief for United States as Amicus Curiae 20–21, in Hughes v. Talen Energy Marketing, LLC , No. 14–614 etc., now pending before the Court (making an argument similar to ours); cf. New England Power Co. v. New Hampshire , 455 U. S. 331, 339–341 (1982). Although not legally relevant, the fact that FERC—ordinarily so jealous of its regulatory authority, see Brief for United States as Amicus Curiae in No. 14–614 etc.—is willing to let States opt out of its demand-response scheme serves to highlight just how far the rule intrudes into the retail electricity market.

* * *

For the foregoing reasons, I respectfully dissent.