ARKANSAS ELECTRIC COOPERATIVE CORP. v. ARKANSAS PUBLIC SERVICE COMMISSION
No. 81-731
Supreme Court of the United States
Argued January 17, 1983—Decided May 16, 1983
461 U.S. 375
Robert D. Cabe argued the cause for appellant. With him on the brief was Leland F. Leatherman.
Jeff Broadwater argued the cause for appellee. With him on the brief was Robert H. Wood, Jr.*
*Wallace F. Tillman filed a brief for the National Rural Electric Cooperative Association as amicus curiae urging reversal.
Paul Rodgers filed a brief for the National Association of Regulatory Utility Commissioners as amicus curiae urging affirmance.
This appeal requires us to decide whether the Arkansas Public Service Commission (PSC) acted contrary to the Commerce Clause or the Supremacy Clause of the Constitution when it asserted regulatory jurisdiction over the wholesale rates charged by the Arkansas Electric Cooperative Corporation (AECC) to its member retail distributors, all of whom are located within the State. The Arkansas Supreme Court upheld the PSC‘s assertion of jurisdiction. We affirm.
I
Maintaining the proper balance between federal and state authority in the regulation of electric and other energy utilities has long been a serious challenge to both judicial and congressional wisdom. On the one hand, the regulation of utilities is one of the most important of the functions traditionally associated with the police power of the States. See Munn v. Illinois, 94 U. S. 113 (1877). On the other hand, the production and transmission of energy is an activity particularly likely to affect more than one State, and its effect on interstate commerce is often significant enough that uncontrolled regulation by the States can patently interfere with broader national interests. See FERC v. Mississippi, 456 U. S. 742, 755-757 (1982); New England Power Co. v. New Hampshire, 455 U. S. 331, 339 (1982).
This dilemma came into sharp focus for this Court early in this century in a series of cases construing the restrictions imposed by the Commerce Clause on state regulation of the sale of natural gas. Our solution was to fashion a bright line dividing permissible from impermissible state regulation. See Missouri v. Kansas Gas Co., 265 U. S. 298, 309 (1924); Public Utilities Comm‘n for Kan. v. Landon, 249 U. S. 236 (1919); cf. Pennsylvania Gas Co. v. Public Service Comm‘n of N. Y., 252 U. S. 23 (1920). Simply put, the doctrine of these cases was that the retail sale of gas was subject to state regulation, “even though the gas be brought from another State and drawn for distribution directly from interstate mains; and this is so
The wholesale/retail line drawn in Landon and Kansas Gas was applied to electric utilities in Public Utilities Comm‘n of R. I. v. Attleboro Steam & Electric Co., 273 U. S. 83 (1927). Attleboro involved an attempt by the Rhode Island Public Utilities Commission to regulate the rates at which the Narragansett Electric Lighting Co.—a Rhode Island utility—could sell electric current to a Massachusetts distributor. We struck down the regulation, holding that, because it involved a transaction at wholesale, it imposed a “direct” rather than an “indirect” burden on interstate commerce. In doing so we held that it was immaterial “that the general business of the Narragansett Company appears to be chiefly local,” id., at 90, or that the State Commission grounded its assertion of jurisdiction on the need to facilitate the regulation of the company‘s retail sales to its Rhode Island customers.
As a direct result of Attleboro and its predecessor cases, Congress undertook to establish federal regulation over most of the wholesale transactions of electric and gas utilities engaged in interstate commerce, and created the Federal Power Commission (FPC) (now the Federal Energy Regulatory Commission) (FERC) to carry out that task. See Fed-
“In the absence of any controlling act of Congress, we should now be faced with the question whether the interest of the state in the present regulation of the sale and distribution of gas transported into the state, balanced against the effect of such control on the commerce in its
national aspect, is a more reliable touchstone for ascertaining state power than the mechanical distinctions on which appellee relies.” Id., at 506.
We concluded, however, that we were “under no necessity of making that choice here,” ibid., for Congress, partly to avoid “drawing the precise line between state and federal power by the litigation of particular cases,” id., at 507, had adopted the “mechanical” line established in Kansas Gas and Attleboro as the statutory line dividing federal and state jurisdiction.3
The analysis in Illinois Gas was reaffirmed in subsequent cases and extended to similar jurisdictional disputes arising under the Federal Power Act. See, e. g., Panhandle Eastern Pipe Line Co. v. Public Service Comm‘n of Ind., 332 U. S. 507, 517 (1947) (“The line of the statute was . . . clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses“); United States v. Public Utilities Comm‘n of California, supra, at 308 (“Congress interpreted [Attleboro] as prohibiting state control of wholesale rates in interstate commerce for resale, and so armed the Federal Power Commission with precisely that power“) (footnote omitted); FPC v. Southern California Edison Co., 376 U. S. 205 (1964). The last of these cases is particularly noteworthy for our purposes here, for it held, among other things, that under the Attleboro test, a California utility that received some of its power from out-of-state was subject to federal and not state regulation in its sales of electricity to a California municipality that resold the bulk of the power to others. See also FPC v. Florida Power & Light Co., 404 U. S. 453 (1972).
II
AECC is one of a large number of customer-owned rural power cooperatives established with loan funds and technical assistance provided by the federal Rural Electrification Ad-
AECC obtains most of its energy from a number of powerplants located in Arkansas, which it wholly or partially owns. Moreover, it sells most of what it generates to its member cooperatives. Like most electric utilities, however, AECC also participates in a variety of sale and exchange arrangements with other producers, buying power when its own need or the excess capacity of other utilities is high, and selling it when the opposite is the case. By virtue of these arrangements, AECC is ultimately tied into a multicompany and multistate “grid,” and, electricity being what it is, see FPC v. Florida Power & Light Co., supra, it is difficult to say with any confidence that the power AECC provides to its member cooperatives at any particular moment originated entirely within the State.
The retail rates charged by AECC‘s member cooperatives are regulated by the Arkansas PSC. If AECC were not a rural power cooperative, the wholesale rates it charges to its members would, under the scheme we described in Part I, supra, be subject exclusively to federal regulation. See
In 1979, after public hearings, the Arkansas PSC entered an order asserting jurisdiction over the rates charged by AECC to its member cooperatives. The PSC based its decision on the same Arkansas statutes that authorize its regulation of rural power cooperatives engaged in retail sales of electricity. App. 52-53; see
In its brief on the merits, AECC presses both the Commerce Clause and the pre-emption arguments rejected by the Arkansas PSC.6 We consider the statutory argument first.
The basic principles governing the pre-emption of state regulation by federal law are well known. See Fidelity Federal Savings & Loan Assn. v. De la Cuesta, 458 U. S. 141 (1982); Jones v. Rath Packing Co., 430 U. S. 519, 525-526 (1977). In this case, we are concerned with the possible pre-emptive effects of two federal statutes and administrative acts taken pursuant to them: the Federal Power Act and the Rural Electrification Act.
A
As we discuss supra, at 381-382, the FPC determined in 1967 that it did not have jurisdiction under the Federal Power Act over the wholesale rates charged by rural power cooperatives.7 That does not dispose of the possibility that
tional statement raised only the pure Commerce Clause issue, and did not offer pre-emption as a separate ground for reversal. Only after the United States, as amicus curiae, relied strongly on a pre-emption argument did AECC devote considerable attention to it in its brief on the merits. Nevertheless, the relationship between legislative and judicial enforcement of the Commerce Clause is close enough for the pre-emption issue to come, if by the barest of margins, within those “subsidiary question[s] fairly included” in the principal question on appeal. See this Court‘s
A more serious, because jurisdictional, problem was raised by AECC‘s counsel‘s statement at oral argument that, although the pre-emption issue was raised before the Arkansas PSC, it may not have been raised before the Arkansas Supreme Court. Tr. of Oral Arg. 8. As it turns out, however, the pre-emption argument was raised, if half-heartedly, both in AECC‘s petition for review in the Pulaski County Circuit Court, Record 104, and in its brief in the Arkansas Supreme Court, Brief for Appellee in No. 80-313, pp. 16-17.
B
We turn then to the REA. Nothing in the Rural Electrification Act expressly pre-empts state rate regulation of power cooperatives financed by the REA. Nevertheless, AECC and certain of the amici, including the United States, argue that the PSC‘s assertion of jurisdiction interferes with the REA‘s pervasive involvement in the management of the rural power cooperatives to which it loans funds, and may frustrate important federal interests. As the United States expresses this position in its brief:
“The terms and conditions of a loan to a generation and transmission association [such as AECC] require the borrower‘s rates and rate structure to be approved by the REA, not just at its inception, but throughout the term of the loan. And in passing on rate questions, the REA considers, not only the security thus afforded for payment of the loan, but also the suitability of the rates and structure to the Act‘s underlying purpose of facilitating the availability of cheap electric power in rural America.
. . . . .
“The spectre of state regulation poses a threat to the REA loan because of the possibility that the state may refuse to permit its cooperatives to pay a generation and transmission association the rates to which they agreed
law upholding the FPC‘s refusal to take jurisdiction were grounded fundamentally on considerations of interagency jurisdiction.
and upon the security of which the loan was issued. Moreover, the policy behind the Rural Electrification Act is at stake. . . . [T]he REA has always encouraged its borrowers to establish affordable rates for all of its subscribers. In this way, costs are shared in a manner which, over the long run, benefits all by the creation of a sound, extensive rural electric system. If the state were to insist on a restructuring of the generation and transmission association‘s rate structure, the policies of the Act would be undermined.” Brief for United States as Amicus Curiae 12-13.
As the United States and AECC admit, the REA is a lending agency rather than a classic public utility regulatory body in the mold of either FERC or the Arkansas PSC. This case might therefore present the interesting question of how we should in general define the proper relationship between the requirements established by federal lending agencies and the more direct regulatory activities of state authorities. We need not examine the issue at that level of abstraction, however, because we have quite specific indications of congressional and administrative intent on precisely the question before us. Cf. Fidelity Federal Savings & Loan Assn. v. De la Cuesta, 458 U. S., at 159, n. 14.
First, the legislative history of the Rural Electrification Act makes abundantly clear that, although the REA was expected to play a role in assisting the fledgling rural power cooperatives in setting their rate structures, it would do so within the constraints of existing state regulatory schemes.10 See, e. g., 80 Cong. Rec. 5316 (1936) (Rep. Lea); Hearing on S. 3483 before the House Committee on Interstate and For-
Second, the present published policy of the REA is wholly inconsistent with pre-emption of state regulatory jurisdiction. Although generating cooperatives dealing with the REA must obtain the agency‘s approval whenever they modify their wholesale rates,12 the same document setting out guidelines for what constitute proper wholesale rates also states: “Borrowers must, of course, submit proposed rate changes to any regulatory commissions having jurisdiction and must seek approval in the manner prescribed by those
There may come a time when the REA changes its present policy, and announces that state rate regulation of rural
IV
A
Even in the absence of congressional legislation, “the Commerce Clause contains an implied limitation on the power of the States to interfere with or impose burdens on interstate commerce.” Western & Southern Life Insurance Co. v. Board of Equalization, 451 U. S. 648, 652 (1981) (footnote omitted). If the constitutional rule articulated in Attleboro were applied in this case, it would require setting aside the PSC‘s assertion of jurisdiction over AECC, since AECC, like
We are faced, then, in this case, with precisely the question left open in Illinois Gas: Do we follow the mechanical test set out in Attleboro, or the balance-of-interests test ap-
The wholesale/retail line drawn in Attleboro is no less anachronistic than the rules we rejected in the cited cases. Moreover, we have had no occasion, since the 1930‘s, either to apply that line or to reject it in a case not governed by statute. The difficulty of harmonizing Attleboro with modern Commerce Clause doctrine has been apparent for a long time, so much so that we expressed skepticism about its continuing soundness as a constitutional, rather than statutory, rule in Illinois Gas. Our constitutional review of state utility regulation in related contexts has not treated it as a special province insulated from our general Commerce Clause jurisprudence. See New England Power Co. v. New Hampshire,
AECC makes essentially two arguments, in the course of its brief and oral argument, for why Attleboro should govern here. First, it contends that the constitutional import of the Attleboro line was reaffirmed in FPC v. Southern California Edison Co., 376 U. S. 205, which was decided in 1964. This claim is simply wrong. Southern California Edison Co. did no more than interpret the Federal Power Act, and it cited with approval the constitutional agnosticism spelled out at length in Illinois Gas. See 376 U. S., at 214.
Second, AECC argues that, although “[t]he Attleboro line of cases established an admittedly mechanical test for determining the limitation of state power, . . . the court arrived at that test by careful consideration of what was national importance as opposed to what was essentially local and could be, therefore, regulated by the states,” Tr. of Oral Arg. 11, and that nothing that has happened since has changed that implicit balance. This contention is also unpersuasive. Even if we assume—as is not necessarily the case, see supra, at 390—that the underlying substantive concerns motivating the Court to strike down the state regulation in Attleboro were identical to the considerations articulated in our more recent cases, that in itself does not explain why the bright-line test drawn in Attleboro should be applied to the somewhat different set of facts present here, see n. 16, supra. Bright lines are important and necessary in many areas of the law, including constitutional law. Moreover, Southern California Edison Co. and other cases have made it clear that the Federal Power Act draws a bright line between the respective jurisdictions of federal and state regulatory agencies. Neverthe-
Attleboro and its predecessors are by no means judicial atrocities, plainly wrong at the time they were decided. In the first place, it is not entirely insignificant, quite apart from the sort of statutory analysis in which we engaged in Part III, supra, that those cases were decided in a day before Congress had already spoken with some breadth on the subject of utility regulation. Cf. Duckworth v. Arkansas, 314 U. S. 390, 400 (1941) (Jackson, J., concurring in result). This Court was in 1927 the sole authority safeguarding federal interests over a wide range of state utility regulation. Under those circumstances, drawing a fairly restrictive bright line may have made considerable sense. Indeed, the line the Court drew in Attleboro, though by no means perfect, would undoubtedly lead in a large number of cases to results entirely consistent with present-day doctrine. Second, the judicial turn of mind apparent in Attleboro, although problematic in many respects, can also be a healthy counterweight in many contexts to an otherwise too-easy dilution of guarantees contained in the Constitution. Nevertheless, Attleboro can no longer be thought to provide the sole standard by which to decide this case, and we proceed instead to undertake an analysis grounded more solidly in our modern cases.
B
Illinois Gas cited as examples of the less formalistic approach to the Commerce Clause such now-classic cases as South Carolina Highway Dept. v. Barnwell Bros., 303 U. S. 177 (1938), and Duckworth v. Arkansas, supra. One recent reformulation of the test established in those cases is found in Pike v. Bruce Church, Inc.:
“Where [a] statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on inter-
state commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities.” 397 U. S., at 142 (citation omitted).
Applying the Bruce Church test to this case is relatively simple. The most serious concern identified in Bruce Church—economic protectionism—is not implicated here. Compare Philadelphia v. New Jersey, 437 U. S. 617 (1978), with Minnesota v. Clover Leaf Creamery Co., 449 U. S., at 471-472. Moreover, state regulation of the wholesale rates charged by AECC to its members is well within the scope of “legitimate local public interests,” particularly considering that although AECC is tied into an interstate grid, its basic operation consists of supplying power from generating facilities located within the State to member cooperatives, all of which are located within the State. Cf. id., at 473, n. 17.
An argument could be made that, because AECC‘s Board of Directors consists exclusively of representatives of its 17 customers, it is effectively self-regulating, and that therefore any state regulation is not supported by an appreciable state interest. Cf. Salt River Project Agricultural Improvement & Power District v. FPC, supra, at 473. Nevertheless, there is evidence that even cooperative power utilities may engage in economically inefficient behavior, see generally R. Schmalensee, The Control of Natural Monopolies 91-93 (1979), and sources cited, and we will not under these circumstances second-guess the State‘s judgment that some degree of governmental oversight is warranted. See Clover Leaf Creamery Co., supra,
Finally, although we recognize that the PSC‘s regulation of the rates AECC charges to its members will have an incidental effect on interstate commerce, we are convinced that “the burden imposed on such commerce is not clearly excessive in relation to the putative local benefits.” Part of the power AECC sells is received from out-of-state. But the same is true of most retail utilities, and the national fabric does not seem to have been seriously disturbed by leaving regulation of retail utility rates largely to the States. Similarly, it is true that regulation of the prices AECC charges to its members may have some effect on the price structure of the interstate grid of which AECC is a part. But, again, we find it difficult to distinguish AECC in this respect from most relatively large utilities which sell power both directly to the public and to other utilities. It is not inconceivable that a particular rate structure required by the Arkansas PSC would be so unreasonable as to disturb appreciably the interstate market for electric power. But, as we said in our discussion of the pre-emption issue, see supra, at 389, we are not willing to allow such a hypothetical possibility to control this facial challenge to the PSC‘s mere assertion of regulatory jurisdiction. See Exxon Corp. v. Governor of Maryland, supra, at 128-129.
On this record, the PSC‘s assertion of jurisdiction over the wholesale rates charged by AECC to its members offends neither the Supremacy Clause nor the Commerce Clause. The judgment of the Arkansas Supreme Court is
Affirmed.
JUSTICE WHITE, with whom THE CHIEF JUSTICE joins, dissenting.
I respectfully dissent. I believe that state regulation of rural cooperative wholesale power rates is pre-empted because Congress has occupied the field of wholesale power rate regulation.
Several years before the expansion of the jurisdiction of the Federal Power Commission to regulate interstate wholesale power rates, this Court had invalidated as repugnant to the Commerce Clause state attempts to regulate interstate power wholesale rates. Public Utilities Comm‘n of R. I. v. Attleboro Steam & Electric Co., 273 U. S. 83 (1927). The Court drew a bright line demarking the permissible scope of state regulation. States could regulate retail sales of energy in interstate commerce, but could not regulate wholesale sales of energy in interstate commerce. ”Attleboro declared state regulation of interstate transmission of power for resale forbidden as a direct burden on commerce.” United States v. Public Utilities Comm‘n of Cal., 345 U. S. 295, 304 (1953). Had there been at the time of Attleboro a cooperative that generated electricity and sold it for resale across state lines, state regulation of such sales would have been foreclosed as an interference with commerce. I do not see how that conclusion could be questioned.
Nor is it sensible to argue that such a cooperative‘s rates became subject to state regulation when a few years later Congress subjected to federal regulation most wholesale
¹ Clark Distilling upheld the Webb-Kenyon Act,
But see Cooley v. Board of Wardens, 12 How. 299 (1852) (dicta).
Congress thus affirmatively asserted jurisdiction over wholesale rates charged by all entities, either by giving the FPC jurisdiction or by freeing such entities from regulation because of their quasi-governmental nature. Neither of these options leaves room for state control of wholesale rates charged by public utilities (except those that are arms of the State or its political subdivisions); the first gives sole control to the FPC, the latter can be viewed as a decision that the rates of governmental and quasi-governmental entities are “best left unregulated,” ante, at 384.
The Rural Electrification Act,
²
³ The Court accepts the holding in Dairyland that the FPC lacks jurisdiction over rural cooperatives. It then notes that the FPC believed that regulation of some rural cooperatives would be proper. From all this the Court concludes that the lack of regulation of rural cooperatives does not represent a judgment that their wholesale rates are “best left unregulated,” ante, at 384. The FPC, however, did not suggest that the State had any role to play in filling this regulatory void. Furthermore, there is no evidence that Congress thinks, or thought, that the cooperatives’ wholesale rates should be regulated, or that, if they should be, the States rather than the FPC or the Rural Electrification Administration should do the regulating.
⁴ Indeed, the only indication of the views of Congress with respect to the question of jurisdiction over the rates of rural cooperatives is the spate of bills introduced around the time that the FPC was considering the Dairyland Power case. These bills were designed to add rural cooperatives to the list of governmental instrumentalities exempt from FPC jurisdiction, e. g., H. R. 5348, 90th Cong., 1st Sess. (1967); H. R. 8426, 90th Cong., 1st Sess. (1967), and reaffirm the jurisdiction of the Rural Electrification Administration over rural cooperatives. S. 1365, 90th Cong., 1st Sess. (1967) (introduced by Sens. Holland and Smathers); H. R. 7799, 90th Cong., 1st Sess. (1967) (introduced by Rep. Fascell). The Department of Justice, the FPC, and the Department of Agriculture (of which the REA is a part) took the position that the legislation was not needed to protect cooperatives from FPC control in light of the Commission‘s decision, in Dairyland Power (which had been announced by the start of the hearings on the bill), that rural cooperatives were governmental instrumentalities
The second source for its apparent view that the Rural Electrification Act allows state regulation of wholesale rates is a statement appearing in a Rural Electrification Bulletin. The statement basically instructs the borrower to comply with the wholesale rate orders of any body that has jurisdiction to make such rate orders. This statement is supposed to express a “policy of the REA [that] is wholly inconsistent with pre-emption of state regulatory jurisdiction” over wholesale rates. Ante, at 387. The Court‘s reliance on
exempt from FPC jurisdiction. Hearings on H. R. 5348 et al. before the Subcommittee on Communications and Power of the House Committee on Interstate and Foreign Commerce, 90th Cong., 1st Sess., 3 (1967) (letter from Lee C. White, Chairman, FPC, to Hon. Harley O. Staggers); id., at 5 (letter from Orville L. Freeman, Secretary of Agriculture, to Hon. Harley O. Staggers); id., at 6 (letter from Warren Christopher, Deputy Attorney General, to Hon. Harley O. Staggers). The bills were not reported out of committee.
Given the 48-year period in which Congress has asserted jurisdiction over wholesale rates and never manifested any belief that its policies would be furthered by state regulation of such rates, this Court should not purport to negate the congressional decision to abide by Attleboro. I would hold, as a matter of pre-emption, that absent a contrary indication from Congress States may not regulate wholesale rates of cooperatives.⁶
⁵ It is surely more reasonable to read a statement that a borrower is to comply with rate orders of any body that has jurisdiction to mean only that borrowers should comply with regulations governing intrastate wholesale sales, over which a State could constitutionally exercise jurisdiction, rather than reading it to mean that borrowers are to comply with rate orders of commissions whose exercise of jurisdiction is clearly unconstitutional.
⁶ I do not reach the question of whether the limitation on state power implicit in the Commerce Clause proscribes Arkansas’ assertion of jurisdiction in this case.