The United States Supreme Court upheld the authority of the Federal Energy Regulatory Commission to adopt a regulation that might indirectly affect the quantity or terms of retail electricity sales because the intended and direct impact was on wholesale electricity markets. The relevant rule was designed to encourage a practice called “demand-response” by which operators of wholesale markets pay electricity consumers not to use electricity at certain high peak times (click here to access FERC Rule 35.28(g)(1)(v)). By doing so, demand for electricity is theoretically reduced, and higher use of electricity that might degrade electricity grids (and potentially cause brown-outs or even blackouts) is avoided. Under applicable law, FERC has the authority to regulate “the sale of electric energy at wholesale in interstate commerce,” but leaves “any other sale of electric energy,” to the states’ exclusive oversight, including retail sales. A federal appeals court previously ruled that FERC infringed state authority when it adopted its demand-response rule. The FERC rule was challenged by the Electric Power Supply Association – a national trade association for power suppliers. In ruling for FERC, in a 6-2 decision authored by the Hon. Elena Kagan, the Court held that the agency’s wholesale demand-response rule directly affected wholesale price. There may be an impact on retail prices, said the Court, but that does not render such rules impermissible. According to the Court, “[i]t is a fact of economic life that the wholesale and retail markets in electricity, 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.” The dissenting opinion, written by the Hon. Antonin Scalia, noted that, under applicable law, wholesale energy sales are defined as “a sale of electric energy to any person for resale.” According to Judge Scalia, since demand-response participants consume electricity themselves rather than resell it, FERC’s rule encouraging demand-response is not aimed at electricity sales at wholesale and is thus unauthorized.