(Slip   Opinion)                               OCTOBER  TERM,  2015                                                   1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience  of the  reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321,   337.

SUPREME COURT OF THE UNITED STATES

Syllabus

FEDERAL ENERGY REGULATORY COMMISSION v. ELECTRIC POWER SUPPLY 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 Regulato-

ry Commission (FERC) to regulate “the sale of electric energy at wholesale in interstate commerce,” including both wholesale electrici- ty  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, leav- ing to the States alone, the regulation of “any other sale”—i.e., 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 auc- tions to set wholesale prices. These auctions balance supply and de- mand continuously by matching bids to provide electricity from gen- erators with orders from utilities and other “load-serving entities” (LSEs) 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 electric- ity 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

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* Together with No. 14–841, EnerNOC, Inc., et al. v. Electric Power Supply Association et al., also on certiorari to the same court.

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high levels as the least efficient generators have their supply bids ac- cepted in the wholesale market auctions. Not only do rates rise dra- matically during these peak periods, but the increased flow of elec- tricity 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 peri- ods. 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 opera- tors 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, ex- cept when the state regulatory authority overseeing those users’ re- tail   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 gen- erators for producing it, so long as a “net benefits  test,”  which  en- sures 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 be- cause 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  whole- sale 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  re- tail sales. Taken together, these conclusions establish that the Rule complies with the FPA’s plain terms.        Third, the contrary view would

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conflict with the FPA’s core purposes. Pp. 14–29.

(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 assum- ing 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 lim- iting FERC’s “affecting” jurisdiction to rules or practices that “direct- ly affect the [wholesale] rate,” California Independent System Opera- tor 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 deter- mine 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. 14–17.

(b)  The Rule also does not regulate retail electricity sales in vio- lation 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 conse- quence. 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. The Commission’s justifica- tions for regulating demand response are likewise only about improv- ing the wholesale market.          Cf. Oneok, Inc. v. Learjet, Inc., 575 U. S.

       ,     .  Pp. 17–25.

(c)  In addition, EPSA’s position would subvert the FPA. EPSA’s arguments suggest that the entire practice of wholesale demand re- sponse 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 ju- risdiction to regulate them. That outcome would flout the FPA’s core purposes of protecting “against excessive prices” and ensuring effec- tive 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 du-

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ties of holding down prices and enhancing reliability in the wholesale energy market.  Pp. 25–29.

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. Automo- bile 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 ade- quate 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. 29–33.

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. ALITO, J., took no part in the consideration or decision of the cases.

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Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Wash­ ington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

Nos. 14–840 and 14–841

FEDERAL ENERGY REGULATORY COMMISSION, PETITIONER

14–840                                                v.

ELECTRIC POWER SUPPLY ASSOCIATION, ET  AL.

ENERNOC, INC., ET AL., PETITIONERS 14–841   v.

ELECTRIC POWER SUPPLY ASSOCIATION, ET  AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

[January  25, 2016]

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 inter­ state 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   re­

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sponse,” 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 fundamen­ tally, 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 compensa­ tion? 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 (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.

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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 ex­ panding 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,

§824(b)(1)—the same provision that gives FERC author­ ity over wholesale sales—states that “this subchapter,” including its delegation to FERC, “shall not apply to any other sale of electric energy.” Accordingly, the Com­ mission 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. State utility commissions continue to oversee those transactions.

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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 utili­  ties 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 com­ merce,” 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  mar­ ket    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 Basics 58–59 (Nov. 2015) (Energy Primer). Each administers a portion of the grid, providing generators with access to transmission lines and ensuring that  the  network  conducts  electricity  reliably.                              See  ibid. And still more important for present purposes, each opera­ tor conducts a competitive auction to set wholesale prices for electricity.

These  wholesale  auctions  serve  to  balance  supply   and

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demand on a continuous basis, producing prices for elec­  tricity that reflect 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  opera­ tors 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 pro­ duce 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 or­  dered.   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 Eco­ nomics of Regulation: Principles and Institutions 65–67 (1988).        FERC   calls   that   cost   (in   jargon   that will  soon become oddly familiar) the locational marginal price, or LMP.1

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1 To be more precise, LMP generally includes, in addition  to the price   of the highest-accepted bid, certain costs of moving power through the

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As in any market, when wholesale buyers’ demand for electricity increases, the price they must pay rises corre­ spondingly; 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 flow 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 natu- rally adjust by reducing how much they purchase. But con­ sumers 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  temperature  reaches  98  degrees,  many  people  see no

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grid. But those costs are not relevant here, and we therefore disregard them.

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option but to switch on  the  AC.  And  still  more:  Many  State regulators insulate consumers from short-term fluctuations in wholesale prices by insisting that LSEs set  stable retail rates.  See id., at 41, 43–44.   That, one might   say, short-circuits the normal rules of economic behavior.  Even in peak periods, as costs surge in the wholesale  market, consumers feel no pinch, and so keep running the  AC as before. That means, in turn, that LSEs must keep buying power to send to those users—no matter that  wholesale prices spiral out of control and increased usage risks  overtaxing  the grid.

But what if there were an alternative to that scenario? Consider what would happen if wholesale market opera­ tors could induce consumers to refrain from using (and so LSEs from buying) electricity during peak periods. When­ ever 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 opera­ tor could ease pressure on the grid, thus protecting against system failures. That is the idea behind the prac­ tice 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 electric­ ity 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

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2 Differently designed demand response programs can operate in retail markets. Some States, for example, either encourage or require utilities to offer “critical-peak rebates” to customers for curtailing electricity use at times of high load.  See Energy Primer 45.

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operators, that is, rank order all the bids—both to produce and to refrain from consuming electricity—from least to most expensive, and then accept the lowest bids until   supply and demand come into equipoise. And, once again,  the LSEs pick up the cost of all those payments. So,  to  return to our prior example, if a store submitted an offer    not to use a unit of electricity at 2 p.m. on August 15 for

$35, the operator would accept that bid before calling on   the generator that offered to produce a unit of power for

$40. That would result in a lower LMP—again, wholesale market price—than if the market operator could not avail itself of demand response pledges. See ISO/RTO Council, Harnessing the Power of  Demand:  How  ISOs  and  RTOs  Are Integrating Demand Response Into Wholesale Elec­ tricity Markets 40–43 (2007) (estimating that, in one market, a demand response program reducing electricity usage by 3% in peak hours would lead to price declines of 6% to 12%).  And it would decrease the risk of blackouts  and other service problems.

Wholesale market operators began using demand re­ sponse 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 de­ mand 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 “im­ portant element[ ] of robust, competitive wholesale elec­ tricity markets.” App. 94, EPSA, Comments on Proposed Rule on Demand Response Compensation in Organized Wholesale Energy Markets (May 12, 2010).

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Congress added to the chorus of voices praising whole­ sale  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 en­ couraged.” §1252(f), 119 Stat. 966, 16 U. S. C. §2642 note. In particular, Congress directed, the deployment of “tech­ nology and devices that enable electricity customers to participate in . . . demand response systems shall be facili­ tated, and unnecessary barriers to demand response par­ ticipation in energy . . . markets shall be  eliminated.”  Ibid.3

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 aggrega­ tors of electricity consumers, except when the state regu­ latory 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 de­ mand response providers differently from generators  if  they so chose.   No party sought judicial   review.

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3 The dissent misreads  this  subsection  of  the  EPAct  in  suggesting that it encourages States’ use of  retail  demand  response,  rather  than  the wholesale programs at issue here. See  post,  at  8–9  (opinion  of SCALIA, J.); n. 2, supra. The prior subsection, §1252(e), as  the  dissent notes, promotes demand response in the States—but then the EPAct switches gears. Subsection (f) expressly addresses the programs of “regional electricity entit[ies]”—that is, wholesale market operators. Indeed, the provision lists all the markets those operators run: not just  the electricity market involved here, but  also  the  “capacity  and  ancil­ lary service markets.” Those are established components of the whole­ sale system with no counterparts at the  state  level. See Energy  Primer 59.

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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  Competi- tion 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 reasonable” wholesale rates by requiring market operators to appropriately compensate demand response providers and thus bring about “meaningful demand-side participa­ tion” in the wholesale markets. 76 Fed. Reg. 16658, ¶1, 16660, ¶10; 16 U. S. C. §824d(a). The Rule’s most signifi­ cant provision directs operators, under two specified con­ ditions, to pay LMP for any accepted demand response bid, just as they do for successful supply bids. See 76 Fed. Reg. 16666–16669, ¶¶45–67. In other words, the Rule requires that demand response providers in those circumstances receive as much for conserving electricity as generators do for producing it.

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 electric­  ity 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 accept­ ing 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 pro­ portionally   greater   burden   on   those   that are  left.               Each

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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 benefits test screens out  such counterproductive demand response bids, exempting them from the  Rule’s  compensation  requirement.  See  id., at 16659, 16666–16667, ¶¶3, 50–53. What remains  are  only those offers whose acceptance will result in actual savings to wholesale purchasers (along with more reliable service to end users).   See id., at 16671,   ¶¶78–80.

The Rule rejected an alternative scheme for compensat­ ing 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, dissent­ ing).           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 ac­ cepted 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

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4 The explanation is a stylized version of the actual phenomenon. In reality, LSEs rarely drop out of the market entirely because of demand response; instead, they will merely  order  less  electricity. But  the  effect 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  pur­ chase; and as those units decline, each remaining one bears a greater  share of the  bill.

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what ought to matter given FERC’s goal of strengthening competition in the wholesale market: Rates should reflect 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  re­  sponse 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 from fully participating in demand    response    programs.                             See   id.,   at  16667–16668,

¶¶57–58.

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  ex­ plained 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

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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 caus­ ing them to decrease “levels of retail electricity consump­ tion,” 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 failed to “adequately explain[ ]” why paying LMP to demand response  providers  “results  in  just  compensation.” 753

F. 3d, at 225. According to the court, FERC did not “properly consider” the view that such a payment would give those providers a windfall by leaving them with “the full LMP plus . . . the savings associated with” reduced consumption. Ibid. (quoting Demand Response Competi- tion in Organized Wholesale Energy Markets: Order on Rehearing and Clarification, Order No. 745–A (Rehearing Order), 137 FERC ¶61,215, p. 62,316 (2011) (Moeller, dissenting)). The court dismissed out of hand the idea  that “comparable contributions [could] be the reason for equal 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 capri­ cious.             He  noted  the  substantial  deference  due   to  the Commission in cases involving ratemaking, and concluded that FERC provided a “thorough” and “reasonable” expla­ nation for choosing LMP as the appropriate compensation formula.  Id., at 236–238.

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We granted certiorari, 575 U.  S.           

(2015),  to decide

whether the Commission has statutory authority to regu­ late 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 Com­ mission has such power and that the Rule is adequately reasoned.   We accordingly reverse.

II

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 com- mitments—directly    affect    wholesale    rates.               Second,   in addressing those practices, the Commission has not regu­ lated   retail   sales.    Taken  together,  those  conclusions  es­ tablish that the Rule complies with the FPA’s plain terms. And third, the contrary view would conflict with the Act’s  core purposes by preventing all use of a tool that no one  (not even EPSA) disputes will curb prices and enhance reliability in the  wholesale electricity   market.5

A

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 3. 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

——————

5 Because we think FERC’s authority clear, we need not address the Government’s alternative contention that FERC’s interpretation of the statute is entitled to deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).

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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] unreason­ able,” 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, and labor most prominent among them—might affect generators’  supply of power.  See 753 F. 3d, at 221;  id., at 235 (Edwards, J., dissenting). And for that matter, markets in just about everything—the whole economy, as     it were—might influence LSEs’ demand. So if indirect or tangential impacts on wholesale electricity rates sufficed, FERC could regulate now in one industry, now in another, changing a  vast array of rules and practices to implement  its vision of reasonableness and justice.  We cannot imag­  ine that was what Congress had in     mind.

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”  jurisdic­ tion to rules or practices that “directly affect the [whole­ sale] 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  &

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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.           ,          (2013)  (slip  op.,  at  9)  (“The

phrase ‘in connection with’ is essentially indeterminat[e] because connections, like relations, stop  nowhere”  (inter­ nal    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 oper­ ators employ demand response bids in competitive auc­ tions that balance wholesale supply and demand and  thereby    set   wholesale   prices.                See    supra,   at   7–8.                                                         The operators accept such bids if and only if they bring  down  the wholesale rate by displacing higher-priced generation. And when that occurs (most often in peak periods), the easing of pressure on the grid, and the avoidance of service problems, further contributes to lower charges. See Brief for Grid Engineers et al. as  Amici  Curiae  26–27.  Whole­ sale demand response, in short, is all about reducing wholesale rates; so too, then, the rules and practices that  determine how those programs  operate.

And that is particularly true of the formula that opera­ tors use to compensate demand response providers. As in other areas of life, greater pay leads to greater participa­ tion.               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 Com­ mission found, heightened demand response participation

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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.

B

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 elec­ tricity sales. That is because, as earlier described, §824(b) “limit[s] FERC’s sale jurisdiction to that at wholesale,”  reserving 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 3.6 FERC cannot take an action transgressing  that limit no matter how direct, or dramatic, its impact on wholesale rates. Suppose, to take a far-fetched example, that the Commission issued a regulation compelling every consumer to buy a certain amount of electricity on the retail market.   Such a rule would necessarily     determine

——————

6 EPSA additionally cites §824(a) as constraining the Commission’s authority, see Brief for Respondent EPSA et al. 25, 31, 43 (Brief for Respondents), but that provision adds nothing to the analysis. Section 824(a), the FPA’s “declaration of policy,” states that federal regulation of electricity is to “extend only to those matters which are not subject to regulation by the States.” We have often explained that this declara­ tion serves only to frame the Act’s basic structure and purpose. See, e.g., New York, 535 U. S., at 22 (Section 824(a) “broadly expresse[s] [the Act’s] purpose” (quoting FPC v. Southern Cal. Edison Co., 376 U. S. 205, 215 (1964)); id., at 215 (Section 824(a) is “merely a ‘policy  declara­ tion . . . of great generality’ ” (quoting Connecticut Light & Power Co. v. FPC, 324 U. S. 515, 527 (1945))). That means, as applied to the issue here, that §824(a) merely points toward the division of regulatory authority that §824(b) carries out. The operative provision is what counts.

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the load purchased on the wholesale market too, and thus would alter wholesale prices. But even given that  ineluc­ table consequence, the regulation would exceed FERC’s authority, as defined in §824(b), because it specifies terms  of sale at retail—which is a job for the States alone.7

Yet a FERC regulation does not run afoul of §824(b)’s proscription just because it affects—even substantially— the quantity or terms of retail sales. It is a fact of eco- nomic life that the wholesale and retail markets in electric­ ity, as in every other known product, are not hermetically sealed from each other. To the contrary, transactions that occur on the wholesale market have natural consequences at the retail level. And so too, of necessity, will FERC’s regulation of  those  wholesale  matters.   Cf. Oneok, Inc.  v.

Learjet,   Inc.,   575    U. S.           ,           (2015)  (slip  op.,  at 13)

(noting that in the similarly structured  world  of  natural  gas  regulation,  a  “Platonic  ideal”  of  strict  separation  be­

——————

7 The dissent disputes this framing of the  issue, but  its  criticism (made by neither EPSA nor its amici) is irrelevant to deciding this case. According to the dissent, the FPA prohibits FERC  from  regulating  not only retail sales of electricity (as we agree) but also any other sales of electricity aside from wholesale sales. See post, at 2–4. But the dissent turns out not to argue that the Rule regulates some kind of non-retail, non-wholesale sale of electric energy (whatever that might be). Rather, the dissent claims that the Rule regulates retail sales, see post, at 4– 6—exactly the point that we address, and reject, in the following pages. And in any event, the dissent’s framing of the issue is  wrong if and to     the extent it posits some undefined category of other electricity sales falling within neither FERC’s nor the States’ regulatory authority. Sales of electric energy come in two varieties: wholesale and retail. The very case the dissent relies on recognizes that fact by referring to “other sales, that 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,  mat­ ters 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 3.

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tween federal and state realms cannot exist). When FERC sets a wholesale rate, when it changes wholesale market rules, when it allocates electricity as between wholesale purchasers—in short, when it takes virtually any action respecting wholesale transactions—it has some effect, in either the short or the long term, on retail rates.  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 (1988) (holding that an order regulating whole­ sale     purchases      fell     within    FERC’s       jurisdiction,      and preempted contrary state action, even though it clearly affected retail prices); Nantahala Power & Light Co. v. Thornburg, 476 U. S. 953, 959–961, 970 (1986) (same);

FPC v. Louisiana Power & Light Co., 406 U. S. 621, 636–  641 (1972) (holding similarly in the natural gas context). 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.

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 7–8. Whole- sale market operators administer the entire program, receiving every demand response bid made. Those opera­ tors 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 purchas­ ers—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 particu­ lar location and time. See id., at 16659, ¶2. And those footing  the  bill  are  the  same  wholesale  purchasers that

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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 mar­ ket’s rules.

What is more, the Commission’s justifications for regu­ lating demand response are all about, and only about, improving the wholesale market.   Cf. Oneok, 575 U. S.,    at

         (slip  op.,  at  11)  (considering  “the  target  at which [a] law aims” in determining whether a State is properly regulating retail or, instead, improperly regulating  whole­ sale sales). In Order No. 719, FERC explained that de­ mand 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 organized wholesale energy markets can help improve the function­ ing and competitiveness of those markets”: by replacing high-priced, inefficient generation; exerting “downward pressure” on “generator bidding strategies”; and “sup­ port[ing]    system    reliability.”  76  id.,  at  16660,   ¶10;  see Notice of Proposed Rulemaking for Order No.  745, 75 id.,     at 15363–15364, ¶4 (2010) (noting similar aims); supra, at 7–8. FERC, that is, focused wholly on the benefits that demand response participation (in the wholesale market) could bring to the wholesale market. The retail market figures no more in the Rule’s goals than in the mechanism through which the Rule   operates.

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 4–6.   The     argument

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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 whole­ sale 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 de­ mand 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 at retail plus the $5 it passed up. See id., at 10. And by thus increasing effective retail rates, EPSA concludes, FERC trespasses on the States’ ground.

The modifier “effective” is doing quite a lot  of  work  in that argument—more work than any conventional under­ standing 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 ser­  vice.” 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 estab­  lish 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    con­

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sumers’ 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 flight 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 cost of not accepting the airline’s proffered payment— to the price of every continuing passenger’s ticket. So a person who originally spent $400 for his ticket, and de­ cides to reject the airline’s proposal, paid an “effective” price  of  $700.                                                           But  would  any  passenger  getting off the plane say he had paid $700 to fly? That is highly unlikely. And airline lawyers and regulators (including many, we are sure, with economics Ph. D.’s) appear to share that common-sensical view. It is in fact illegal to “increase the price” of “air transportation . . . after [such] air transporta­ tion   has   been   purchased   by the  consumer.” 14   CFR

§399.88(a) (2015). But it is a safe bet that no airline has ever gotten into trouble by offering a payment not to fly.9

——————

8 The dissent offers, alternatively, a definition of “price,” but that only further proves our point. “Price,” says the dissent, is “[t]he amount of money or other consideration asked for or given in exchange for some­ thing else.” Post, at 6 (quoting Black’s Law Dictionary 1380). But the “effective” rates posited by EPSA and the dissent do not meet that test. If $10 is the actual rate for a unit of retail electricity, that is the only amount either “asked for” or “given” in exchange for power. A retail customer is asked to pay $10 by its LSE, and if it buys that electricity,   it gives the LSE that same $10. By contrast, the $15 “effective” rate is neither asked for nor given by anyone.

9 The dissent replaces our simple, real-world example with a convo­ luted, fictitious one—but once again merely  confirms  our  point. Sup­ pose, the dissent says, that an airline cancels a passenger’s $400 ticket;

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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 7–8. And when wholesale prices go down, retail prices tend to follow, because state regulators can, and mostly do, insist that wholesale buyers eventually pass on their savings to consumers. EPSA’s theoretical construct thus  runs  head­ long into the real world of  electricity  sales—where  the  Rule does anything but increase retail    prices.

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 cus­ tomers] 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  disap­ proved of “many States’ continued preference” for   stable

——————

gives him a refund plus an extra $300; and then tells  him  that  if  he  wants to repurchase the ticket, he must pay $700. Aha!, says the dissent—isn’t the price now $700? See post, at 5–6. Well, yes  it  is,  because that is now the actual amount the passenger will have to hand over to the airline to receive a ticket in exchange (or in the dissent’s definition  of price, the amount “asked  for”  and “given,” see n. 8, supra). In other words, in search of an intuitive way  to  explain  its  “effective rate” theory, the  dissent  must  rely  on  an  “actual  rate”  hypothetical. But all that does is highlight the distance, captured in the law, between real prices (reflecting amounts paid) and effective ones (reflecting opportunity costs).

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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 overriding” that state policy.  Id., at 29, 49.

That claim initially founders 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   8.        In  designing  their newly organized markets, those operators recognized  almost at once that demand response would lower whole­ sale 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 so for the identical reason: to enhance the wholesale, not retail,   electricity   market.                         Like  the  market  operators, FERC saw that sky-high demand in peak periods threat­ ened network breakdowns, compelled purchases from inefficient generators, and consequently drove up whole­ sale prices. See, e.g., 73 Fed. Reg. 64103, ¶16; 76 id., at 16660,  ¶10;  see  supra,   at  6–7.            Addressing those prob­ lems—which demand response does—falls within the sweet   spot   of   FERC’s statutory  charge.                                                    So  FERC  took action promoting the practice. No doubt FERC recognized connections, running in both directions, between the States’ policies and its own. The Commission understood that by insulating consumers from price fluctuations, States contributed to the wholesale market’s difficulties in optimally balancing supply and demand.  See 76 Fed. Reg.

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16667–16668, ¶¶57, 59; supra, at 6–7. And FERC realized that increased use of demand response in that  market  would (by definition) inhibit retail sales otherwise  subject to   State   control.            See   73   Fed.  Reg.  64167.      But   nothing supports EPSA’s more feverish idea that the Commission’s interest in wholesale demand response emerged  from  a  yen to usurp State authority over, or impose its own regu­ latory    agenda    on,   retail   sales.                                In   promoting   demand response, FERC did no more than follow the dictates of its regulatory mission to improve the competitiveness, effi­ ciency, and  reliability of the wholesale   market.

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  12.  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 over­ seeing retail sales. See 76 Fed.  Reg.  16676,  ¶¶112–114.  The veto power thus granted to the States belies  EPSA’s  view that FERC aimed to “obliterate[ ]” their regulatory authority   or   “override”   their   pricing   policies.                                       Brief  for Respondents 29, 33.  And that veto gives States the means   to block whatever “effective” increases in retail rates demand response programs might be thought to produce.  Wholesale demand response as implemented in the Rule is   a program of cooperative federalism, in which the States retain   the   last   word.     That  feature  of  the   Rule  removes any conceivable doubt as to its compliance with §824(b)’s allocation of federal and state    authority.

C

One last point, about how EPSA’s position would  sub­ vert  the  FPA.

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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 con­ servation 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 regulating ‘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 re­ sponse 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 Kan., 372 U. S. 84, 91 (1963). A State could not oversee offers, made in a wholesale market operator’s auction,   that   help   to   set wholesale  prices.        Any  effort  of that kind would be  preempted.

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 mar­ kets.   See supra, at 2–3.   The Act makes federal and  state

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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. Trans- continental 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 to FERC all its proposed rules  and  procedures. See   16   U. S. C.   §§824d(c)–(d);   18   CFR  §§35.28(c)(4),

35.3(a)(1). Assume that, as EPSA argues, FERC could not  authorize any demand response program as part of that package. Nor could FERC simply allow  such  plans  to  go into effect without its consideration  and  approval.  There are no “off the books” programs in the wholesale electricity markets—because, once again, there is no regulatory “no man’s land.” Transcontinental, 365 U. S., at 19. The FPA mandates  that  FERC  review,  and  ensure  the  reasonable­

——————

10 The dissent contests this point (complaining that our decades’ worth of precedents affirming it partly rely on legislative history), but the example the dissent offers in response misses the mark. See post, at 7–8. The dissent hypothesizes a rule enabling generators to sell directly to consumers and fixing all generation, transmission, and retail rates. But of course neither FERC nor the States could issue such a rule: If FERC did so, it would interfere with the States’ authority over retail sales and rates as well as (most) generation; if a State did so, it would interfere with FERC’s power over transmission. Thus, to imple­ ment such a scheme, the States would need to do some things and FERC to do others. And if the one or the other declined to cooperate, then the full scheme could not proceed. But that just goes to show that the FPA divides regulatory power over electricity matters between FERC and the States. The example does nothing to demonstrate that some electricity transactions can proceed outside any regulator’s authority.

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ness of, every wholesale rule and practice.  See 16 U. S.   C.

§§824d(a), 824e(a); supra, at 3, 14–15. If FERC could not carry out that duty for demand response, then those pro­ grams could not go  forward.

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. Pennsyl- vania 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 interrup­ tions in peak periods.  See supra, at 20.  No one taking  part                in              the   rulemaking                   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 re­ sponse participation in wholesale markets because of its “economic  and  operational”  benefits).11               Congress  itself

——————

11 EPSA now contends that wholesale demand response  is  unneces­ sary because state regulators can adopt programs to reduce demand at the retail level. See Brief for Respondents 46–47. For example, States can insist that utilities give rebates to customers for not using energy at certain times. See n. 2, supra.  But according  to  both  the  Commis­ sion 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

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agreed, “encourag[ing]” greater use of demand response participation at the wholesale level. EPAct §1252(f ), 119 Stat.  966.  That  undisputed  judgment  extinguishes  any  last flicker of life  in  EPSA’s  argument.  We  will  not  read the FPA, against its clear terms, to halt a practice that so evidently enables the Commission to fulfill its statutory duties of holding down prices and enhancing reliability in  the  wholesale  energy market.

III

These cases present a second, narrower question: Is FERC’s decision to compensate demand  response  provid­ ers at LMP—the same price paid to generators—arbitrary and capricious? Recall here the basic issue. See supra, at 9–12.      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 electric­ ity 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 approach, demand response providers get a windfall—a kind of  “double-payment”—unless  mar­ ket operators subtract the savings associated with con­ serving electricity from the ordinary  compensation  level.  76   Fed.   Reg.  16663,  ¶24.                 EPSA   now   claims   that   FERC failed  to  adequately  justify  its  choice  of  LMP  rather  than

——————

operators could pay LSEs to reduce their electricity purchases: Because LSEs lose revenues whenever demand goes down, any demand  re­ sponse 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”).

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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 tech­  nical area like electricity rate design: “[W]e afford great deference to the Commission in  its  rate  decisions.”  Mor- gan 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 a competi­ tive par.” Id., at 16668, ¶61 (quoting Kahn Affidavit); see  also App. 830, Kahn Affidavit (stating that “economic efficiency requires” compensating the two equally given their   equivalent   function   in  a  “competitive   power mar­

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ket[ ]”). With both supply and demand response available on equal terms, the operator will select whichever bids, of whichever kind, provide the needed electricity at the lowest possible cost. See Rehearing Order, 137 FERC, at 62,301–62,302, ¶68 (“By ensuring that both . . . receive the same compensation for the same service, we expect the Final Rule to enhance the competitiveness” of wholesale markets and “result in just and reasonable rates”).

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 de­ mand 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 com­ pensating 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 10–11. 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 pur­ chasers—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  ap­ proach, a demand response provider will receive the same compensation as a generator only when it is in fact provid­ ing the same service to the wholesale market.       See ibid.,

¶53.

The Commission responded at length to  EPSA’s  con­  trary 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 need to pay.” Id.,  at  16668,  ¶60.  FERC  explained that compensation ordinarily reflects only the value of the

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service an entity provides—not the costs it incurs, or benefits it obtains, in the process. So when a generator presents a bid, “the Commission does not inquire into the  costs   or   benefits   of   production.”                            Ibid.,      ¶62.    Different power plants have different cost structures. And, indeed, some plants receive tax credits and similar incentive payments   for   their   activities,   while   others  do  not.          See Rehearing Order, 137 FERC, at 62,301,  ¶65,  and  n.  122.  But the Commission had long since decided that such  matters are irrelevant: Paying LMP to all generators— although some then walk away with more profit and some with less—“encourages more efficient supply and demand decisions.”      76  Fed.  Reg.  16668,  ¶62   (internal  quotation marks     omitted).        And  the  Commission  could  see no eco­ nomic reason to treat demand response providers any differently. Like  generators,  they  too  experience  a  range of benefits and costs—both the benefits of not paying for electricity and the costs of not using it  at  a  certain  time. But, FERC again  concluded,  that  is  immaterial:  To  in­ crease competition and optimally balance supply and demand, market operators should compensate demand response providers, like generators, based on their contri­ bution to the wholesale system. See ibid.; 137 FERC, at 62,300, ¶60.

Moreover, FERC found, paying LMP will help demand response providers overcome certain barriers to participa­ tion  in  the  wholesale  market.   See  76  Fed. Reg. 16667– 16668,   ¶¶57–59.       Commenters  had  detailed  significant start-up expenses associated with demand response, in­ cluding the cost of installing necessary metering technol- ogy 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

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participation). The Commission agreed that such factors inhibit potential demand responders from competing with generators in the wholesale markets. See 76 Fed.  Reg.  16668, ¶59. It concluded that rewarding demand response at LMP (which is, in any event,  the  price  reflecting  its  value to the market) will encourage that competition and,    in turn, bring down wholesale prices.   See   ibid.

Finally, the Commission noted that determining the “G” in the formula LMP-G is easier proposed than accom­ plished. See ibid., ¶63. Retail rates vary across and even within States, and change over time as well. Accordingly, FERC concluded, requiring market operators to incorpo­ rate 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  dis-  puted 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 decisionmaking—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.

IV

FERC’s statutory authority extends to the Rule at issue here   addressing   wholesale   demand   response.                                                                        The  Rule

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governs a practice directly affecting wholesale electricity rates.          And   although   (inevitably)   influencing   the   retail market too, the Rule does not intrude on the States’ power  to regulate retail sales. FERC set  the  terms  of  transac­  tions occurring in the organized wholesale markets, so as    to ensure the reasonableness of wholesale prices and the reliability of the interstate grid—just as the FPA contem­ plates.    And   in   choosing   a   compensation  formula,  the Commission   met   its   duty   of  reasoned  judgment.  FERC took full account of the alternative policies proposed, and  adequately supported and explained its decision. Accord­ ingly, we reverse the judgment of the Court of Appeals for the District of Columbia Circuit and remand the cases for further proceedings consistent with this   opinion.

It is so ordered.

JUSTICE ALITO took no part in the consideration or decision of these cases.

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SCALIA, J., dissenting

SUPREME COURT OF THE UNITED STATES

Nos. 14–840 and 14–841

FEDERAL ENERGY REGULATORY COMMISSION, PETITIONER

14–840                                                v.

ELECTRIC POWER SUPPLY ASSOCIATION, ET  AL.

ENERNOC, INC., ET AL., PETITIONERS 14–841   v.

ELECTRIC POWER SUPPLY ASSOCIATION, ET  AL.

ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

[January  25, 2016]

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 A

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. Mis- sissippi 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 15.  But  as the majority recognizes, ante, at 17, that extratextual limit on the “affecting” jurisdiction merely    supplements,

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SCALIA, J., dissenting

not supplants, limits that are already contained in the statutory text and structure. I believe the Court miscon- strues the primary statutory limit. (Like the majority, I think that deference under Chevron U. S. A. Inc. v. Natu- ral Resources Defense Council, Inc., 467 U. S. 837 (1984), is unwarranted because the statute is clear.)

The Act grants FERC authority to regulate the “genera- tion . . . [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 17. That formu- lation 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 author-   ity. 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. Gon- zales v. Raich, 545 U. S. 1, 39–40 (2005) (SCALIA, J., con- curring in judgment).)

Properly framing the inquiry matters not because I think there exists “some undefined category of . . . electric- ity sales” that is “non-retail [and] non-wholesale,” ante, at 18, n. 7,* but because a proper framing of the inquiry is

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* Although the majority dismisses this possibility, in fact it appears to think that demand response is in that category: It rejects the conclusion that  the  demand-response  rule  regulates  retail  sales,  ante,  at    17–23,

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important to establish the default presumption  regarding the scope of FERC’s authority.  While the majority would  find every sale of electric energy to be within FERC’s authority to regulate unless the transaction is demonstra-  bly a retail sale, the statute actually excludes from FERC’s jurisdiction all sales of electric  energy  except  those  that  are demonstrably sales at   wholesale.

So what, exactly, is a “sale of electric energy at whole- sale”? We need not guess, for the  Act  provides  a  defini- tion:  “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 19–20, nothing can change the fact that the vast major-   ity 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 7—do not resell electric energy; they con- sume 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  19.  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

——————

yet also implicitly rejects the conclusion that it regulates wholesale sales—otherwise why rely on FERC’s “affecting ” jurisdiction to rescue the  rule’s legitimacy?

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complete. It cut[s] sharply and cleanly between sales for resale and direct sales for consumptive uses. No  excep-  tions [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  U. S.  507,  517  (1947). The majority makes no textual response to  this  plain  reading  of  the statute.

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 con- struction that “needlessly produces a contradiction in the statutory  text.”    Shapiro  v.  McManus,  577  U. S.      , (2015) (slip op., at 4). A faithful application of that princi- ple 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)].” Id., at      (slip op., at  5).

B

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 “de-  signed to induce lower consumption of electric energy”—in other words, to induce a reduction in “retail electricity sales”—by  offering  “incentive  payments”  to  those custom-

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ers. 18 CFR §35.28(b)(4). The incentive payments effec- tively increase the retail price of electric energy for partic- ipating 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 offering credits to retail cus- tomers to reduce their electricity consumption “would be   an impermissible intrusion into the retail market” because   it would in effect regulate retail rates. 753 F. 3d 216, 223 (CADC 2014). Demand-response incentive payments are identical  in substance.

The majority resists this elementary economic conclu-  sion (notwithstanding its own  exhortation  to  “think  back to Econ 101,” ante, at 5).  Why?   Because  its  self- proclaimed “common-sensical” view dictates otherwise. Ante, at 22. 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  flight.  Consider  the following formulation of that example, indistinguish-  able in substance from the majority’s formulation. (Indis- tinguishable because the hypothetical  passenger  has  exactly the same options and outcomes available to him.)  Suppose the airline said to the passenger: “We have proac- tively 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 repurchasing a ticket    on the same flight, 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 intui- tion 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 with- hold  from  purchasing  that  unit  and  receive  instead       an

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SCALIA, J., dissenting

incentive payment (of say $5). The two options thus pre-  sent 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, at 21 (“the amount of money a consumer will hand over in exchange for   power”).

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 22–  23,  n. 9.  That  recognition  gives  away  the   game.   For FERC is prohibited not just from directly setting or modi- fying 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 23, n. 9) or the “effective” retail price is  immaterial;  either way, the  rule—by  design—induces  demand- response participants to forgo retail electric-energy pur- chases 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 my- opic view of retail pricing—all the while evading the incon- venient fact that fiddling with the effective retail price of electric energy, be it through incentive payments or hypo- thetical credits, regulates retail sales of electric energy no  less than  does  direct ratesetting.

C

The majority cites dicta in several of our opinions ex- pressing the assumption that state jurisdiction and federal jurisdiction under FERC cover the field, so that there is no

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regulatory “gap”; one entity or the other “must have juris- diction to regulate each and every practice that takes place in the electricity markets.” Ante, at 27. 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. Loui- siana 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 n. 13. One would expect the congressional proponents of legislation to assert that it is “comprehen- sive” and leaves no stone unturned. But even if one is a fan of legislative history, surely one cannot rely upon such generalities in determining what a statute actually does. Whether it is “comprehensive” and leaves not even the most minor regulatory “gap” surely depends on what it says and not on what its proponents hoped to achieve. I cannot imagine a more irrational interpretive principle than the following, upon which the majority evidently relies:

“[W]hen a dispute arises over whether a given trans- action is within the scope of federal or state regulatory authority, we are not inclined to approach the prob- lem negatively, thus raising the possibility that a ‘no man’s land’ will be created. That is to say, in a bor- derline case where congressional authority is not ex- plicit we must ask whether state authority can practi- cably 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.

8                     FERC v. ELECTRIC POWER SUPPLY ASSN.

SCALIA, J., dissenting

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, trans- mission, 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 “gap”? Has the generator-to-consumer sales scheme fallen into a regulatory “no man’s land”? Must FERC therefore be allowed to implement this scheme on its own? Applying the majority’s logic would yield nothing but “yesses.” Yet the majority acknowledges that neither FERC nor the States have regulatory jurisdiction over this scheme. Ante, at 27, n. 10. Such sales transactions, in- volving a mix of retail and wholesale players—as the demand-response scheme does—can be regulated (if at all) only by joint action. I would not call that a “problem,” ante, at 26; I would call it an inevitable consequence of the federal-state division created by the FPA.

The majority is evidently distraught that affirming the decision below “would . . . extinguish the wholesale de- mand response program in its entirety.” Ante, at 27. Alarmist hyperbole. Excluding  FERC  jurisdiction  would at most eliminate this particular flavor of FERC-regulated demand response. Nothing prevents FERC from tweaking its demand-response scheme by requiring incentive pay- ments 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 programs, run by the States, do and would con- tinue to exist.  See Brief for Respondent EPSA et al. 46–  47; Brief for Respondents Midwest Load-Serving   Entities

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6–11. In fact Congress seemed to presuppose that States, not FERC, would run such programs: The relevant provi- sions 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) of the 2005 Act is therefore best read as directing the Secretary to eliminate “unnecessary barriers” to States’ adopting and implementing demand- response systems—and not,  as  the  majority  contends,  as “praising wholesale demand response” systems to be deployed and regulated by FERC, ante, at 9 (emphasis added).

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 25. 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 per- taining 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 induc-  ing 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

10                   FERC v. ELECTRIC POWER SUPPLY ASSN.

SCALIA, J., dissenting

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.

II

Having found the  rule  to  be  within  FERC’s  authority,  the Court goes on to hold that FERC’s choice of compen- sating demand-response bidders with the “locational marginal price” is not arbitrary and capricious. There are strong  arguments  that  it  is.  Brief  for  Robert  L.  Borlick   et al. as Amici Curiae  5–34.  Since,  however,  I  believe FERC’s rule is ultra vires I have neither need nor desire to analyze whether, if it were not ultra vires, it would be reasonable.

*          *          *

For the foregoing reasons, I respectfully    dissent.