author: Justice Brennan Justice White,

text:
    ARKANSAS ELECTRIC COOPERATIVE CORP. v. ARKANSAS PUBLIC SERVICE COMMISSION
    No. 81-731.
    Argued January 17, 1983
    Decided May 16, 1983

      Brennan, J., delivered the opinion of the Court, in which Marshall, Blackmun, Powell, Rehnquist, Stevens, and O’Connor, JJ., joined. White, J., filed a dissenting opinion, in which Burger, C. J., joined, post, p. 396.

      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.

   Justice Brennan

delivered the opinion of the Court.

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 whether the local distribution be made by the transporting company or by independent distributing companies,” Missouri v. Kansas Gas Co., supra, at 309, but that the wholesale sale of gas in interstate commerce was not subject to state regulation even though some of the gas being sold was produced within the State. Our rationale was that “[transportation of gas from one State to another is interstate commerce; and the sale and delivery of it to the local distributing companies is a part of such commerce,” 265 U. S., at 307, but that “[w]ith the delivery of the gas to the distributing companies... the interstate movement ends” and the further “effect on interstate commerce, if there be any, is indirect and incidental,” id., at 308. See also, e. g., State Corporation Comm’n v. Wichita Gas Co., 290 U. S. 561, 563-564 (1934); East Ohio Gas Co. v. Tax Comm’n of Ohio, 283 U. S. 465, 470-471 (1931).

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 Federal Power Act of 1935 (Title II of the Public Utility Act of 1935), 49 Stat. 838-863; Natural Gas Act of 1938, 52 Stat. 821. Although the main purpose of this legislation was to “ ‘fill the gap’ ” created by Attleboro and its predecessors, see New England Power Co. v. New Hampshire, supra, at 340; United States v. Public Utilities Comm’n of California, 345 U. S. 295, 311 (1953), it nevertheless shifted this Court’s main focus — in determining the permissible scope of state regulation of utilities — from the constitutional issues that concerned us in Attleboro to analyses of legislative intent. For example, in Illinois Gas Co. v. Public Service Co., 314 U. S. 498 (1942), we were required to determine whether the sale of natural gas by an Illinois pipeline corporation to local distributors in Illinois was subject to the jurisdiction of the Federal Power Commission or the Illinois Commerce Commission. We began our analysis by describing the wholesale/retail test drawn in Landon, Kansas Gas, Attleboro, and other cases. We then noted another line of cases — relating to both utility regulation and other Commerce Clause issues — in which the Court was “less concerned to find a point in time and space where the interstate commerce . . . ends and intrastate commerce begins, and . . . looked [instead] to the nature of the state regulation involved, the objective of the state, and the effect of the regulation upon the national interest in the commerce.” 314 U. S., at 505. We stated:

“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.

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 lnd., 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 Administration (REA) in order to bring electric power to parts of the country not adequately served by commercial utility companies. See generally Rural Electrification Act of 1936, 49 Stat. 1363, 7 U. S. C. §901 et seq. (1976 ed. and Supp. V). Unlike most rural power cooperatives, however, AECC does not provide power directly to individual consumers. Rather, its sole members and primary customers are 17 smaller Arkansas rural power cooperatives who in turn serve the ultimate consumer. AECC is governed by a Board of Directors consisting of 34 persons, 2 designated by each of the 17 member cooperatives. Among the duties of this Board is to determine the rates charged the member cooperatives by AECC.

AECC obtains most of its energy from a number of power-plants 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 § 201(b) of the Federal Power Act, 49 Stat. 838, 847, as amended, 16 U. S. C. § 824(b) (1976 ed., Supp. V); FPC v. Southern California Edison Co., supra; FPC v. Florida Power & Light Co., supra. In 1967, however, the FPC held that it had no jurisdiction under the Federal Power Act to regulate wholesale rates charged by rural power cooperatives under the supervision of the REA. Dairyland Power Cooperative, 37 F. P. C. 12, 67 P. U. R. 3d 340. Thus, until the proceedings that culminated in this case, the rates charged by AECC to its member cooperatives were not subject, at either the federal or the state level, to the type of pervasive rate regulation almost universally associated with electric utilities in this country.

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 Ark. Stat. Ann: §§73-201(a), 73-202(a), 73-202.1 (1979). In response to objections raised by AECC, the PSC held that state regulation was neither forbidden by Attleboro or FPC v. Southern California Edison Co., supra, nor pre-empted by the Federal Power Act or the Rural Electrification Act. On review, the Pulaski County Circuit Court set aside the PSC’s order, but the Arkansas Supreme Court reversed and upheld the jurisdiction of the PSC. 273 Ark. 170, 618 S. W. 2d 151 (1981). We noted probable jurisdiction. 457 U. S. 1130 (1982).

In its brief on the merits, AECC presses both the Commerce Clause and the pre-emption arguments rejected by the Arkansas PSC. We consider the statutory argument first.

I — < h-Í

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 preemptive 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. That does not dispose of the possibility that the Federal Power Act pre-empts state regulation, however, because a federal decision to forgo regulation in a given area may imply an authoritative federal determination that the area is best left tmregulated, and in that event would have as much pre-emptive force as a decision to regulate. See NLRB v. Nash-Finch Co., 404 U. S. 138, 144 (1971); cf. Fidelity Federal Savings & Loan Assn. v. De la Cuesta, supra, at 155. In this case, however, nothing in the language, history, or policy of the Federal Power Act suggests such a conclusion. Congress’ purpose in 1935 was to fill a regulatory gap, not to perpetuate one. Moreover, the FPC’s refusal in 1967 to assert jurisdiction over rural power cooperatives does not suggest anything to the contrary. In that decision, the FPC simply held that, purely as a jurisdictional matter, the relevant statutes gave the REA exclusive authority among federal agencies to regulate rural power cooperatives. Dairy land Power Cooperative, 37 F. P. C., at 26, 67 P. U. R. 3d, at 352-354. It did not determine that, as a matter of policy, rural power cooperatives that are engaged in sales for resale should be left unregulated. Indeed, the FPC’s published opinion concluded by specifically urging Congress to amend the statute and grant it jurisdiction over at least some of the activities of such utilities. Id., at 28, 67 P. U. R. 3d, at 355. We therefore find no bar to the PSC’s assertion of jurisdiction either in the Federal Power Act itself or in the FPC’s Dairyland decision.

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 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. See, e. g., 80 Cong. Rec. 5316 (1936) (Rep. Lea); Hearing on S. 3483 before the House Committee on Interstate and Foreign Commerce, 74th Cong., 2d Sess., 30, 37, 51, 52 (1936). Admittedly, the legislative record focuses on retail rates charged by rural power cooperatives, but with respect to the particular concerns that AECC and amici have pressed in support of pre-emption, we can discern no relevant difference between wholesale and retail rates: both types of rates implicate the Government’s interest in securing its loans, and, if anything, retail rates more directly implicate the Government’s interest in assuring that individual rural households receive electricity at a reasonable price.

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, 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 commissions.” REA Bulletin 111-4, pp. 1-2 (1972). Since Bulletin 111-4 was issued subsequent to the FPC’s decision in Dairyland, the “regulatory commissions having jurisdiction” to which it refers can only be state regulatory agencies such as the Arkansas PSC. Moreover, it is worth noting that the REA’s supervision of wholesale rates charged by its borrowers appears to be no more exclusive than its supervision over their retail rates, REA Bulletin 112-2 (1971); REA Bulletin 112-1, pp. 1, 16 (1979), and it has never been contended that state regulatory jurisdiction over those rates is pre-empted, see REA Bulletin 112-2, at 5; Brief for United States as Amicus Curiae 11.

There may come a time when the REA changes its present policy, and announces that state rate regulation of rural power cooperatives is inconsistent with federal policy. If that were to happen, and if such a rule was valid under the Rural Electrification Act, it would of course pre-empt any further exercise of jurisdiction by the Arkansas PSC. See Ray v. Atlantic Richfield Co., 435 U. S. 151, 171-172 (1978); cf. Fidelity Federal Savings & Loan Assn. v. De la Cuesta, 458 U. S., at 154; Free v. Bland, 369 U. S. 663, 668 (1962). Similarly, as Arkansas already recognizes, see Ark. Stat. Ann. §73-202.3 (1979), the PSC can make no regulation affecting rural power cooperatives which conflicts with particular regulations promulgated by the REA. Moreover, even without an explicit statement from the REA, a particular rate set by the Arkansas PSC may so seriously compromise important federal interests, including the ability of the AECC to repay its loans, as to b,e implicitly pre-empted by the Rural Electrification Act. See Jones v. Rath Packing Co., 430 U. S., at 525-526, 540-543; cf. Rice v. Santa Fe Elevator Corp., 331 U. S. 218, 231-232 (1947). We will not, however, in this facial challenge to the PSC’s mere assertion of jurisdiction, assume that such a hypothetical event is so likely to occur as to preclude the setting of any rates at all. Exxon Corp. v. Governor of Maryland, 437 U. S. 117, 130-131 (1978). See generally Merrill Lynch, Pierce, Fenner & Smith v. Ware, Inc., 414 U. S. 117, 136-140 (1973).

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 the utility in Attleboro, sells at wholesale electric energy transmitted in interstate commerce. As we pointed out in Illinois Gas, however, see supra, at 379-380, it is difficult to square the mechanical line drawn in Attleboro and its predecessor cases, and based on a supposedly precise division between “direct” and “indirect” effects on interstate commerce, with the general trend in our modern Commerce Clause jurisprudence to look in every case to “the nature of the state regulation involved, the objective of the state, and the effect of the regulation upon the national interest in the commerce.” 314 U. S., at 505. Cf. Pike v. Bruce Church, Inc., 397 U. S. 137 (1970). This modern jurisprudence has usually, although not always, given more latitude to state regulation than the more categorical approach of which Attleboro is one example. But in any event, it recognizes, as Attleboro did not, that there is an “infinite variety of cases, in which regulation of local matters may also operate as a regulation of [interstate] commerce, [and] in which reconciliation of the conflicting claims of state and national power is to be attained only by some appraisal and accommodation of the competing demands of the state and national interests involved.” Southern Pacific Co. v. Arizona ex rel. Sullivan, 325 U. S. 761, 768-769 (1945). See Minnesota v. Clover Leaf Creamery Co., 449 U. S. 456 (1981); Pike v. Bruce Church, Inc., supra, at 142; Parker v. Brown, 317 U. S. 341, 362-363 (1943).

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 applied in our Commerce Clause cases for roughly the past 45 years? Of course, the principle of stare decisis counsels us, here as elsewhere, not lightly to set aside specific guidance of the sort we find in Attleboro. Nevertheless, the same respect for the rule of law that requires us to seek consistency over time also requires us, if with somewhat more caution and deliberation, to seek consistency in the interpretation of an area of law at any given time. Thus, in recent years, this Court has explicitly abandoned a series of formalistic distinctions — akin to the one in Attleboro — which once both defined and controlled various corners of Commerce Clause doctrine. See, e. g., Commonwealth Edison Co. v. Montana, 453 U. S. 609 (1981) (abandoning rule that constitutionality of state severance tax depended on whether it was imposed on goods prior to their entry into interstate commerce); Hughes v. Oklahoma, 441 U. S. 322 (1979) (rejecting rule, based on legal fiction of ownership, that States had absolute control over disposition of wild animals within their borders); Washington Revenue Dept. v. Association of Washington Stevedoring Cos., 435 U. S. 734 (1978) (rejecting rule that tax on stevedoring automatically constituted an impermissible “direct” tax on interstate commerce); cf. Michelin Tire Corp. v. Wages, 423 U. S. 276 (1976) (overruling “original package” rule in Import-Export Clause doctrine).

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, 455 U. S. 331 (1982); Panhandle Eastern Pipe Line Co. v. Michigan Public Service Comm’n, 341 U. S. 329, 336-337 (1951). Finally, we can see no strong reliance interests that would be threatened by our rejection today of the mechanical line drawn in Attleboro. Therefore, here, as in few other contexts, the burden shifts somewhat to the party defending the rule to show why it should be applied in this case.

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. Nevertheless, AECC has given us no good reason why a bright line between state regulation and unexercised federal power is more justifiable here than in other contexts in which we must interpret the negative implications of the Commerce Clause.

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 thersole 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 interstate 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, 129 U. S. App. D. C. 117, 120, 391 F. 2d 470, 473 (1968). 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, at 469, 473; Exxon Corp. v. Governor of Maryland, 437 U. S., at 128.

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.

V

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 rates previously unregulated. Quite the contrary is true. Although under the relevant cases, with which it was surely familiar, In re Rahrer, 140 U. S. 545 (1891); Clark Distilling Co. v. Western Maryland R. Co., 242 U. S. 311 (1917), Congress could have authorized state regulation of such rates, it chose not to do so. See New England Power Co. v. New Hampshire, 455 U. S. 331, 341 (1982) (“Nothing in the legislative history or language of [16 U. S. C. § 824(b)] evinces a congressional intent to alter the limits of state power otherwise imposed by the Commerce Clause,’... or to modify the earlier holdings of this Court concerning the limits of state authority to restrain interstate trade”). Instead Congress enacted Titles II and III of the Federal Power Act, 49 Stat. 847, 16 U. S. C. § 824 et seq. (1976 ed. and Supp. V), in 1935 (and the Natural Gas Act, 52 Stat. 821, 15 U. S. C. §717 et seq. (1976 ed. and Supp. V), in 1938) expressly adopting the Attleboro bright-line demarkation, see FPC v. Southern California Edison Co., 376 U. S. 205 (1964); United States v. Public Utilities Common of Cal., supra. That Act provided that the FPC would set just and reasonable rates for public utilities that sold electric power at wholesale. 16 U. S. C. § 824d(a). The term public utility was defined broadly. 16 U. S. C. §824(e) (1976 ed., Supp. V). Nowhere in the Act is there any indication that state authority to regulate wholesale rates was in any way expanded beyond that permitted by the Commerce Clause as interpreted in Attleboro. “What Congress did was to adopt the test developed in the Attleboro line [of cases] which denied state power to regulate a ‘sale at wholesale to local distributing companies.’” FPC v. Southern California Edison Co., supra, at 214. “The line of the statute was thus clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses. No exceptions were made in either category for particular uses, quantities or otherwise.” Panhandle Eastern Pipe Line Co. v. Public Service Comm’n of Indiana, 332 U. S. 507, 517 (1947).

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 ^regulated,” ante, at 384.

The Rural Electrification Act, 49 Stat. 1363, 7 U. S. C. § 901 et seq. (1976 ed. and Supp. V), was passed in 1936, and the Federal Power Commission later held that cooperatives such as appellant are not within its regulatory authority, not because they were exempted by the Rural Electrification Act, but because they are beyond the jurisdiction conferred on the Commission by the Federal Power Act. Dairyland Power Cooperative, 37.F. P. C. 12, 67 P. U. R. 3d 340 (1967). This left the cooperatives’ wholesale rates unregulated and beyond the reach of state authority, just as they would have been immediately after Attleboro. In the 47 years since the passage of the Rural Electrification Act, Congress has not sought to authorize state regulation of the wholesale rates charged by rural cooperatives. It has adhered to its wholesale-retail boundary between federal and state authority. In all these years, there has been no state rate regulation of rural cooperatives’ wholesale rates. This was the necessary result of Congress’ adopting as its own the Attleboro line and thereby occupying the field of wholesale regulation.

The Court claims support for its apparent view that Congress authorized (or somehow expected) state control over wholesale rates charged by rural cooperatives in the legislative history of the Rural Electrification Act. In particular it points to statements that cooperatives were to comply with state regulation of retail rates, a power which the States possessed in the absence of congressional authorization. The Court then opines that there is no more reason to control retail rates than there is to control wholesale rates. From these two premises it infers that Congress in effect authorized, or at the very least expected, state regulation that this Court had barred States from engaging in. The two premises, however, do not support the conclusion. Congress did not expressly authorize state regulation of wholesale rates charged by cooperatives, and I find nothing in the history of the Rural Electrification Act to indicate that Congress was in any way departing from its basic decision to embrace the holding in Attleboro that the Commerce Clause barred the States from regulating wholesale rates.

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 this statement is misplaced. First, given the silence of the Rural Electrification Administration on this point, an isolated reference in an administrative bulletin is not persuasive evidence of the Administration’s position. Second, in the absence of any persuasive evidence that Congress intended to depart from the Attleboro line in the case of cooperatives, I doubt seriously that the REA itself would purport to adopt a policy at odds with the law. And surely it did not do so in advising cooperatives to comply with the orders of any authority having jurisdiction. Nor am I persuaded that there was a general understanding at the state level that each of the States to which a generating cooperative delivered power at the wholesale level was free to regulate that cooperative’s wholesale prices. Finally, the statement could have been intended to direct wholly intrastate cooperatives to comply with the orders of state commissions. In such a situation a State would have jurisdiction over wholesale rates and the Administration might well have concluded that it should honor state control over intrastate rates.

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.

       See FPC v. Southern California Edison Co., 376 U. S. 205 (1964), and United States v. Public Utilities Comm’n of California, 345 U. S. 295 (1953), for discussions of the relevant legislative history.

       But cf., e. g., New England Power Co. v. New Hampshire, 455 U. S. 331 (1982).

       We make no attempt in this opinion to trace the subsequent development of these statutes, except as may be relevant to our decision today.

       The United States Court of Appeals for the District of Columbia Circuit reached the same conclusion in Salt River Project Agricultural Improvement & Power District v. FPC, 129 U. S. App. D. C. 117, 391 F. 2d 470 (1968). But cf. n. 7, infra.

       We discuss infra, at 385-388, the role of the REA in regulating the rates set by rural electric cooperatives. We also note infra, at 394, the argument that AECC, because it is owned and directly managed by its 17 principal customers, is essentially self-regulating.

       There is a legitimate question in this ease as to whether the pre-emption argument advanced by AECC is properly before us. AECC’s jurisdie-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 questions] fairly included” in the principal question on appeal. See this Court’s Rule 15.1(a); Brown v. Socialist Workers ’74 Campaign Committee, 459 U. S. 87, 94, n. 9 (1982); United States v. Arnold, Schwinn & Co., 388 U. S. 365, 371, n. 4 (1967). See also Vance v. Terrazas, 444 U. S. 252, 258, n. 5 (1980).
      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.

       Neither party here has challenged the correctness of that determination, and we express no opinion on the subject. Were FERC or the courts ever definitively to overrule Dairyland Power Cooperative, 37 F. P. C. 12, 67 P. U. R. 3d 340 (1967), and decide that the FPC did have jurisdiction, we would obviously be faced with a very different pre-emption question.

       As the dissent suggests, Congress in 1935 almost certainly thought that state regulation of the wholesale activities of rural power cooperatives operating in interstate commerce would be barred under this Court’s Attleboro doctrine. Cf. infra, at 389-390. To the extent that Congress sought to freeze its perception of Attleboro into law, however, it did so only as a means to accomplishing the end of workable federal regulation, not as an end in itself. If we start from the premise that Congress did not intend to subject rural power cooperatives to the federal regulatory scheme it was creating in the 1935 legislation, see n. 7, supra, then it would not have served Congress’ purposes to pre-empt state regulation over such cooperatives. Significantly, the dissent does not put forward any argument to the contrary.

       Similarly, although the Court of Appeals opinion in Salt River Project Agricultural Improvement & Power District v. FPC, supra, did suggest in its initial description of rural power cooperatives that they were effectively self-regulating as to rates, id., at 120, 391 F. 2d, at 473, its conclusions of law upholding the FPC’s refusal to take jurisdiction were grounded fundamentally on considerations of interagency jurisdiction.

       All this is not to say that officials of the REA have always welcomed state regulation of rural power cooperatives, or thought it was a good idea. See, e. g., REA, Rural Electrification on the March, pp. 25-26 (1938). But, of course, such expressions of opinion do not constitute sufficient grounds for pre-emption.

       Contrary to the suggestion in the dissent, we do not infer from this legislative history that Congress either “authorized” or “expected” “state regulation that this Court had barred States from engaging in.” Post, at 400. See n. 15, infra; n. 8, supra. The relevant inquiry, however, is not whether Congress authorized or expected such regulation, but whether it intended by its own actions to forbid it. Cf. Pacific Gas & Electric Co. v. State Energy Resources Conservation & Development Comm’n, ante, p. 190. In answering that question, we look quite naturally to whether Congress intended in any way to forbid state regulation of rural power cooperatives.

       How well this oversight works in practice may be another matter. See REA Bulletin 111-1, Memorandum from REA Administrator to All REA Electric Borrowers, Managers, and Board Presidents (Mar. 18,1970) (complaining that some borrowers had neglected to obtain the necessary review and approval by the REA). As the United States admits in its brief, “the REA does not control the rates and rate structure of . . . generation and transmission associations as thoroughly or with the formality of the Federal Power Commission.” Brief for United States as Amicus Curiae 12.

       See also REA Bulletin 3-1, p. 1 (1955) (“It is the responsibility of borrowers ... to initiate and carry forward proceedings before regulatory bodies of appropriate jurisdiction in which all required certificates of convenience and necessity, franchises, and rate, tariff and other approvals are sought”).

       The dissent faults us for finding significance in REA Bulletin 111-4. Post, at 400-401. In particular, it speculates that “the statement [in Bulletin 111-4] could have been intended [only] to direct wholly intrastate cooperatives to comply with the orders of state commissions.” Post, at 401 (emphasis added). It is our understanding, however, that, as of 1972, all the generating cooperatives in the country, except perhaps those in Texas, were tied into an interstate grid. If this is true, it is unlikely that the REA would have used as broad and unqualified language as it did for the sole purpose of directing cooperatives in one State to submit to state regulation.

       In light of our discussion in text, an argument might be made that state rate regulation of rural power cooperatives engaged in sales for resale is not only not pre-empted, but is indeed affirmatively authorized by the Rural Electrification Act. Cf. Western & Southern Life Insurance Co. v. Board of Equalization, 451 U. S. 648, 652-653 (1981); Prudential Insurance Co. v. Benjamin, 328 U. S. 408, 423-426 (1946). On balance, however, it seems most likely that Congress and the REA intended no more than to leave in place state regulation otherwise consistent with the requirements of the Commerce Clause. See New England Power Co. v. New Hampshire, 455 U. S., at 341; Lewis v. BT Investment Managers, Inc., 447 U. S. 27, 49 (1980).

       It is possible to distinguish Attleboro on its facts, since it was concerned with the sale of power by a company in one State to a wholesale customer in another State. Nevertheless, it is much more difficult to dismiss the broad principle articulated in Attleboro and its predecessor cases, especially in light of the reading given to those cases in our subsequent decisions. See, e. g., Illinois Gas Co. v. Public Service Co., 314 U. S. 498, 504, 508 (1942); FPC v. Southern California Edison Co., 376 U. S., at 212, 214.

       Note also that the Arkansas PSC’s regulation of AECC’s rates can be justified, if on no other grounds, as facilitating its regulation of the retail rates charged by AECC’s members: The PSC’s inquiry into the reasonableness of those retail rates must already include an inquiry into the reasonableness of the wholesale rates upon which they in part depend. Moreover, if the retail rates are found unreasonable (by virtue of the wholesale rates being unreasonable), it seems likely that the retail cooperatives will, through their representatives on AECC’s Board of Directors, vote for a reduction in the wholesale rates. Regulating AECC’s rates directly allows the PSC both to rationalize and to streamline this process, and also to obtain the necessary information directly from its source.

        Clark Distilling upheld the Webb-Kenyon Act, 37 Stat. 699, prohibiting importation into a State of liquor to be received, possessed, or sold in violation of the laws of the State. About the time Congress passed the Public Utilities Holding Company Act, Congress also enacted a law substantially similar to the Webb-Kenyon Act, the Ashurst-Sumners Act, 49 Stat. 494, which made it unlawful to transport goods made by convict labor into any State where the goods were to be received, sold, or possessed in violation of its law. See Kentucky Whip & Collar Co. v. Illinois Central R. Co., 299 U. S. 334, 351 (1937) (“The Ashurst-Sumners Act as to interstate transportation of convict-made goods has substantially the same provisions as the Webb-Kenyon Act as to intoxicating liquors. . . . The subject of the prohibited traffic is different, the effects of the traffic are different, but the underlying principle is the same”).
      But see Cooley v. Board of Wardens, 12 How. 299 (1852) (dicta).

       Section 824(e) defines a public utility as “any person who owns or operates facilities subject to the jurisdiction of the Commission under this subchapter.” Section 796(4) defines a person as “an individual or a corporation.” Section 796(3) defines a corporation as “any corporation, joint-stock company, partnership, association, business trust, organized group of persons, whether incorporated or not. . . .”

       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.

       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 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 0. Staggers); id., at 5 (letter from Orville L. Freeman, Secretary of Agriculture, to Hon. Harley 0. Staggers); id., at 6 (letter from Warren Christopher, Deputy Attorney General, to Hon. - Harley 0. Staggers). The bills were not reported out of committee.

       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.

       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.


source: Caselaw Access Project

author: Justice Marshall

license: Public Domain

text:
    AMERICAN PAPER INSTITUTE, INC. v. AMERICAN ELECTRIC POWER SERVICE CORP. et al.
    No. 82-34.
    Argued March 22, 1983
    Decided May 16, 1983

      Marshall, J., delivered the opinion of the Court, in which all other Members joined, except Powell, J., who took no part in the consideration or decision of the cases.

      Deputy Solicitor General Bator argued the cause for petitioners in both cases. With him on the briefs for petitioner in No. 82-226 were Solicitor General Lee, Deputy Solicitor General Claiborne, Elliott Schulder, Charles A. Moore, Jerome M. Feit, and Robert F. Shapiro. Zachary Shimer, Paul G. Pennoyer, Jr., Rigdon H. Boykin, Richard L. Schmalz, and Walter Kiechel, Jr., filed briefs for petitioner in No. 82-34. .

      Edward Berlin argued the cause for respondents in both cases. With him on the brief for respondent Electric Utilities was Thomas M. Lemberg, Andrew D. Weissman, Robert S. Taylor, A. Joseph Dowd, and Peter Garam. John T. Miller, Jr., filed a brief for respondent Elizabethtown Gas Co.

       Together with No. 82-226, Federal Energy Regulatory Commission v. American Electric Power Service Corp. et al., also on certiorari to the same court.

       Briefs of amici curiae urging reversal were filed by Samuel Efron, David J. Bardin, James P. Mercurio, and Lewis E. Leibowitz for Diamond Shamrock Corp. et al.; by Robert H. Loejfler, Steven S. Rosenthal, and Henry D. Levine for Kerr-McGee Chemical Corp. et al.; and by Gregory A. Thomas, Alan S. Miller, and William A. Butler for the Natural Resources Defense Council, Inc.

        Robert L. Baum, Carl D. Hobelman, and Eugene R. Fidell filed a brief for the Edison Electric Institute as amicus curiae urging affirmance.

   Justice Marshall

delivered the opinion of the Court.

This case concerns two rules promulgated by the Federal Energy Regulatory Commission (FERC) pursuant to §210 of the Public Utility Regulatory Policies Act of 1978 (PURPA), 92 Stat. 3144, as amended, 16 U. S. C. §824a-8 (1976 ed., Supp. V). The first rule requires electric utilities to purchase electric energy from cogenerators and small power producers at a rate equal to the purchasing utility’s fall avoided cost, i. e., the cost the utility would have incurred had it generated the electricity itself or purchased the electricity from another source. The second rule requires utilities to make such interconnections with cogenerators and small power producers as are necessary to effect purchases or sales of electricity authorized by PURPA. The Court of Appeals held that FERC had not adequately explained its adoption of the full-avoided-cost rule, and that it exceeded its statutory authority in promulgating the interconnection rule. 219 U. S. App. D. C. 1, 675 F. 2d 1226 (1982). We reverse.

I

A

Section 210 of PURPA was designed to encourage the development of cogeneration and small power production facilities. As we noted in FERC v. Mississippi, 456 U. S. 742, 750 (1982) (footnote omitted), “Congress believed that increased use of these sources of energy would reduce the demand for traditional fossil fuels,” and it recognized that electric utilities had traditionally been “reluctant to purchase power from, and to sell power to, the nontraditional facilities.” Accordingly, Congress directed FERC to prescribe, within one year of the statute’s enactment,- rules requiring electric utilities to deal with qualifying cogeneration and small power production facilities. PURPA § 210(a), 16 U. S. C. § 824a-3(a) (1976 ed., Supp. V). With respect to the purchase of electricity from cogeneration and small power production facilities, Congress provided that the rate to be set by the Commission

“(1) shall be just and reasonable to the electric consumers of the electric utility and in the public interest, and
“(2) shall not discriminate against qualifying cogener-ators or qualifying small power producers.
“No such rule prescribed under subsection (a) of this section shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.” PURPA § 210(b), 16 U. S. C. §824a-3(b) (1976 ed., Supp. V).

Following rulemaking proceedings, FERC promulgated regulations governing transactions between utilities and those cogeneration and small power production facilities, designated as “qualifying facilities,” 18 CFR §§292.201-292.207 (1982), that may invoke the provisions of PURPA to sell electricity to and purchase electricity from utilities.

The first regulation at issue in this case, 18 CFR §292.-304(b)(2) (1982), requires a utility to purchase electricity from a qualifying facility at a rate equal to the utility’s full avoided cost. The utility’s full avoided cost is “the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source.” PURPA § 210(d), 16 U. S. C. § 824a-3(d) (1976 ed., Supp. V). See 18 CFR §292.101(b)(6) (1982) (the term full “avoided costs” used in the regulations is the equivalent of the term “incremental cost of alternative electric energy” used in § 210(d) of PURPA). In its order accompanying the promulgation of this rule, FERC explained its decision to set the rate at full avoided cost rather than at a level that would result in direct rate savings for utility customers by permitting a utility to obtain energy at a cost less than the cost to the utility of producing the energy itself or purchasing it from an alternative source. 45 Fed. Reg. 12214 (1980). The Commission emphasized the need to provide incentives for the development of cogeneration and small power production:

“[I]n most instances, if part of the savings from co-generation and small power production were allocated among the utilities’ ratepayers, any rate reductions will be insignificant for any individual customer. On the other hand, if these savings are allocated to the relatively small class of qualifying cogenerators and small power producers, they may provide a significant incentive for a higher growth rate of these technologies.” Id., at 12222.

The Commission noted that “ratepayers and the nation as a whole will benefit from the decreased reliance on scarce fossil fuels, such as oil and gas, and the more efficient use of energy.” Ibid.

FERC rejected proposals that it set the rate for the purchase of electricity from qualifying facilities at a fixed percentage of the purchasing utility’s full avoided cost:

“[I]n most situations, a qualifying cogenerator or small power producer will only produce energy if its marginal cost of production is less than the price he receives for its output. If some fixed percentage is used, a qualifying facility may cease to produce additional units of energy when its costs exceed the price to be paid by the utility. If this occurs, the utility will be forced to operate generating units which either are less efficient than those which would have been used by the qualifying facility, or which consume fossil fuel rather than the alternative fuel which would have been consumed by the qualifying facility had the price been set at full avoided costs.” Id., at 12222-12223.

The second regulation at issue here, 18 CFR §292.303 (1982), provides that electric utilities shall purchase electricity made available by qualifying facilities, sell electricity to qualifying facilities upon request, and, most important for present purposes, “make such interconnections with any qualifying facility as may be necessary to accomplish purchases or sales under this subpart.” § 292.303(c)(1). An interconnection is a physical connection that allows electricity to flow from one entity to another.

In its order the Commission rejected the contention that § 210(e)(3) of PURPA requires it to afford an opportunity for an evidentiary hearing to any utility that is unwilling to make an interconnection with a qualifying facility that has invoked the provisions of PURPA to enter into a purchase or sale with the utility. Section 210(e)(3), 92 Stat. 3145, provides in relevant part:

“No qualifying small power production facility or qualifying cogeneration facility may be exempted under this subsection from—
“(B) the provisions of section 210 ... or 212 of the Federal Power Act... or the necessary authorities for enforcement of any such provision under the Federal Power Act_” 16 U. S. C. §824a-3(e)(3) (1976 ed., Supp. V).

Sections 210 and 212 of the Federal Power Act (FPA), 16 U. S. C. §§824i and 824k (1976 ed., Supp. V), describe the procedure to be followed by FERC when an electric utility, federal power marketing agency, cogenerator, or small power producer applies for an order requiring another such facility to make an interconnection. Section 210 provides that, upon receipt of an application for an order requiring an interconnection, the Commission shall issue notice to each affected state regulatory authority, utility, federal power marketing agency, and owner or operator of a cogeneration facility or small power production facility, and to the public, §210(b)(1), 16 U. S. C. § 824i(b)(1) (1976 ed., Supp. V), afford an opportunity for an evidentiary hearing, § 210(b)(2), 16 U. S. C. § 824i(b)(2) (1976 ed., Supp. V), and issue an order approving the application only if it determines that approval

“(1) is in the public interest,
“(2) would—
“(A) encourage overall conservation of energy or capital,
“(B) optimize the efficiency of use of facilities and resources, or
“(C) improve the reliability of any electric utility system or Federal power marketing agency to which the order applies, and
“(3) meets the requirements of [§212 of the FPA].” 16 U. S. C. §824i(c) (1976 ed., Supp. V).

Section 212 of the FPA, 16 U. S. C. §824k (1976 ed., Supp. V), provides that an order approving an interconnection under § 210 may be issued only if the Commission determines that the interconnection is not likely to result in a reasonably ascertainable uncompensated loss for any electric utility, cogenerator, or small power producer, impose an undue burden on any such facility, unreasonably impair the reliability of any electric utility, or impair the ability of any electric utility to supply adequate service to its customers.

In concluding that an evidentiary hearing under the FPA is not required prior to an interconnection necessary to complete a purchase or sale authorized by PURPA, the Commission reasoned that § 210(a) of PURPA “provides a general mandate for the Commission to prescribe rules necessary to encourage cogeneration and small power production.” 45 Fed. Reg. 12221 (1980). The Commission also emphasized that “a basic purpose of section 210 of PURPA is to provide a market for the electricity generated by small power producers and cogenerators,” and that “to require qualifying facilities to go through the complex procedures set forth in section 210 of the Federal Power Act to gain interconnection would, in most circumstances, significantly frustrate” the achievement of that purpose. Ibid.

Following the filing of several petitions for rehearing, the Commission issued an order adhering to both the full-avoided-cost rule and the interconnection rule. Id., at 33958.

B

Respondents American Electric Power Service Corp., Consolidated Edison Co. of New York, Inc., and Colorado-Ute Electric Association, Inc., sought review of the Commission’s rules in the United States Court of Appeals for the District of Columbia Circuit. The Court of Appeals vacated both rules. 219 U. S. App. D. C. 1, 675 F. 2d 1226 (1982).

The Court of Appeals concluded that FERC had not adequately demonstrated that the full-avoided-cost rule was consistent with the mandate of § 210(b) of PURPA that the Commission prescribe rates for purchases of electric energy from qualifying facilities that are “ ‘just and reasonable to the electric consumers of the electric utility’” and “‘in the public interest.’” Id., at 7, 675 F. 2d, at 1232. “By ordering that the purchase rate be equal to the full avoided cost in every case, FERC has, without convincing explanation, simply adopted as a uniform rule the maximum purchase rate specified in the statute.” Id., at 8, 675 F. 2d, at 1233. The court stressed that “FERC should allocate the benefits more evenly between the cogenerators and the utilities if the utilities can demonstrate that, under a percentage of avoided cost approach, an allocation less heavily favoring the cogenera-tors is in the public interest and the interest of the utilities’ electric consumers, and will not disproportionately discourage cogeneration.”. Id., at 9, 675 F. 2d, at 1234. While acknowledging that an approach requiring calculation of each cogenerator’s costs on a case-by-case basis “would indeed veer toward the public utilities-style rate setting that Congress wanted to avoid,” the Court of Appeals emphasized that FERC should have given additional consideration to a percentage-of-avoided-cost approach, whereby FERC would either set a percentage itself or establish a range within which each state regulatory commission could fix a precise percentage. Ibid.

The Court of Appeals held that FERC had exceeded its authority in promulgating the interconnection rule. The court reasoned that the “relatively specific limitation on authority in PURPA section 210(e)(3) . . . must control over the relatively general grant of authority in FPA section 212(e).” Id., at 15, 675 F. 2d, at 1240 (emphasis in original). The court concluded that the Commission must provide notice to interested parties and afford an opportunity for an eviden-tiary hearing with respect to each interconnection requested by a qualifying facility.

Following the denial of petitions for rehearing and rehearing en banc, petitions for certiorari were filed by both FERC and American Paper Institute, Inc., the national trade association of the pulp, paper, and paperboard industry, which accounts for a large share of the cogeneration of electric power in the United States today. We granted both petitions. 459 U. S. 904 (1982).

II

The first question before us is whether FERC’s action m promulgating the full-avoided-cost rule was “arbitrary, capricious, [or] an abuse of discretion.” 5 U. S. C. §706(2)(A). We cannot answer this question simply by noting that the full-avoided-cost rulé is within the range of permissible rates that Congress established in § 210(b) of PURPA. The Commission plainly has the authority to adopt a full-avoided-cost rule, for PURPA sets full avoided cost as the maximum rate that the Commission may prescribe. Whether the Commission properly exercised that authority is a separate issue. To decide whether the Commission’s action was “arbitrary, capricious, [or] an abuse of discretion,” we must determine whether the agency adequately considered the factors relevant to choosing a rate that will best serve the purposes of the statute, and whether the agency committed “a clear error of judgment.” Citizens to Preserve Overton Park v. Volpe, 401 U. S. 402, 416 (1971).

FERC’s explanation of its reasons for promulgating the full-avoided-cost rule must be examined in light of the criteria set forth in § 210(b) of PURPA, 16 U. S. C. § 824a-3(b) (1976 ed., Supp. V), which provides that the purchase rate established by the Commission must be “just and reasonable to the electric consumers of the electric utility and in the public interest” and must not discriminate against qualifying facilities. Since the full-avoided-cost rule plainly satisfies the nondiscrimination requirement, we need only consider whether FERC adequately explained why the rule is “just and reasonable to the electric consumers of the electric utility and in the public interest.”

We cannot accept respondents’ suggestion, Brief for Respondent Electric Utilities 9, and n. 4, that the “just and reasonable” language in § 210(b) was intended to require that the purchase rate be set “ ‘at the lowest possible reasonable rate consistent with the maintenance of adequate service in the public interest.’” Atlantic Refining Co. v. Public Service Comm’n of New York, 360 U. S. 378, 388 (1959), quoting the original version of the Natural Gas Act. Simply on the basis of the statutory language, we would be reluctant to infer that Congress intended the terms “ ‘just and reasonable,’ ” which are frequently associated with cost-of-service utility rate-making, see, e. g., NAACP v. FPC, 425 U. S. 662, 666 (1976), to adopt a cost-of-service approach in the very different context of cogeneration and small power production by nontraditional facilities. The legislative history confirms, moreover, that Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities. The Conference Report states in pertinent part:

“It is not the intention of the conferees that cogenerators and small power producers become subject ... to the type of examination that is traditionally given to electric utility rate applications to determine what is the just and reasonable rate that they should receive for their electric power. The conferees recognize that cogenerators and small power producers are different from electric utilities, not being guaranteed a rate of return on their activities generally or on the activities vis a vis the sale of power to the utility and whose risk in proceeding forward in the cogeneration or small power production enterprise is not guaranteed to be recoverable.
“[C]ogeneration is to be encouraged under this section and therefore the examination of the level of rates which should apply to the purchase by the utility of the cogen-erator’s or small power producer’s power should not be burdened by the same examination as are utility rate applications, but rather in a less burdensome manner. The establishment of utility type regulation over them would act as a significant disincentive to firms interested in cogeneration and small power production.” H. R. Conf. Rep. No. 95-1750, pp. 97-98 (1978).

In contrast, a subsequent passage in the Conference Report explicitly states that the “just and reasonable” language of § 210(c), 16 U. S. C. § 824a-3(c) (1976 ed., Supp. V), which concerns sales by utilities to qualifying facilities, “is intended to refer to traditional utility ratemaking concepts.” , H. R. Conf. Rep. No. 95-1750, supra, at 98 (emphasis added).

The Commission did not ignore the interest of electric utility consumers “in receiving electric energy at equitable rates.” H. R. Conf. Rep. No. 95-1750, supra, at 97. The Commission recognized that the full-avoided-cost rule would not directly provide any rate savings to electric utility consumers, but deemed it more important that the rule could “provide a significant incentive for a higher growth rate” of cogeneration and small power production, and that “these ratepayers and the nation as a whole will benefit from the decreased reliance on scarce fossil fuels, such as oil and gas, and the more efficient use of energy.” 45 Fed. Reg. 12222 (1980). As the Commission explained, a purchase rate established at a fixed percentage of avoided cost would discourage production of electric energy by qualifying facilities whose marginal costs exceeded the rate that a purchasing utility would be required to pay under this approach, whereas those same facilities would retain an incentive to produce energy under the full-avoided-cost rule so long as their marginal costs did not exceed the full avoided cost of the purchasing utility. Id., at 12222-12223.

The Commission would have encountered considerable difficulty had it attempted to determine an appropriate rate less than full avoided cost. A wide variety of technologies are used in cogeneration and small power production, including internal combustion engines, steam turbines, combustion turbines, windmills, solar cells, and hydro turbines. Facilities may vary greatly in capacity. It would have been extremely difficult, if not impossible, for the Commission to make any useful estimate of the amount of cogeneration and small power production that would be discouraged by setting the rate at a level lower than full avoided cost.

It bears emphasizing that the full-avoided-cost rule is not as inflexible as might appear at first glance. First, any state regulatory authority and any nonregulated utility may apply to the Commission for a waiver of the rule. A waiver may be granted if the applicant demonstrates that a full-avoided-cost rate is unnecessary to encourage cogeneration and small power production. 18 CFR §292.403 (1982). Second, a qualifying facility and a utility may negotiate a contract setting a price that is lower than a full-avoided-cost rate. § 292.301(b)(1). Because the full-avoided-cost rule is subject to revision by the Commission as it obtains experience with the effects of the rule, it may often be in the interest of a qualifying facility to negotiate a long-term contract at a lower rate. The Commission’s rule simply establishes the rate that applies in the absence of a waiver or a specific contractual agreement.

Under these circumstances it was not unreasonable for the Commission to prescribe the maximum rate authorized by PURPA. The Commission’s order makes clear that the Commission considered the relevant factors and deemed it most important at this time to provide the maximum incentive for the development of cogeneration and small power production, in light of the Commission’s judgment that the entire country will ultimately benefit from the increased development of these technologies and the resulting decrease in the Nation’s dependence on fossil fuels. The Commission has a statutory mandate to set a rate that is “in the public interest,” and as this Court stated in NAACP v. FPC, 425 U. S., at 669, “the words ‘public interest’ in a regulatory statute . . . take meaning from the purposes of the regulatory legislation.” The basic purpose of §210 of PURPA was to increase the utilization of cogeneration and small power production facilities and to reduce reliance on fossil fuels. See FERC v. Mississippi, 456 U. S., at 750. At this early stage in the implementation of PURPA, it was reasonable for the Commission to prescribe the maximum rate authorized by Congress and thereby provide the maximum incentive for the development of cogeneration and small power production.

III

Absent § 210(e)(3) of PURPA, there would be no doubt as to the validity of the Commission’s interconnection rule. Section 210(a) of PURPA, 16 U. S. C. §824a-3(a) (1976 ed., Supp. V), provides the Commission with general authority to promulgate

“such rules as it determines necessary to encourage co-generation and small power production . . . which rules require electric utilities to offer to—
“(1) sell electric energy to qualifying cogeneration facilities and qualifying small power production facilities and
“(2) purchase electric energy from such facilities.”

The authority to promulgate such rules as are necessary to require purchases and sales plainly encompasses the power to promulgate rules requiring utilities to make physical connections with qualifying facilities in order to consummate purchases and sales authorized by PURPA. No purchase or sale can be completed without an interconnection between the buyer and seller.

In the absence of a specific provision to the contrary, the Commission’s power to promulgate rules under PURPA requiring interconnections would not be negated by the provisions of the PPA that give the Commission the authority to conduct adjudicatory proceedings and issue orders requiring interconnections. As a general matter, the existence of power to proceed by adjudication under one statute is in no way inconsistent with the existence of power to proceed by rulemaking under another statute. Moreover, there is nothing in the FPA to suggest that the Commission must proceed by adjudication in determining the obligations of facilities within its jurisdiction to make interconnections. On the contrary, Congress expressly provided in § 212(e) of the FPA, 16 U. S. C. §824k(e) (1976 ed., Supp. V), that §210 of the FPA shall not be construed “as requiring any person to utilize the authority of [§ 210]... in lieu of any other authority of law,” or “as limiting, impairing, or otherwise affecting any authority of the Commission under any other provision of law.”

The critical question, therefore, is whether § 210(e)(3) of PURPA deprives FERC of the power it would otherwise have under § 210(a) of PURPA to promulgate rules requiring utilities to make such interconnections with qualifying facilities as are necessary to effect purchases or sales authorized by the Act. In holding the interconnection rule invalid, the Court of Appeals relied upon what it took to be “the literal meaning” of § 210(e)(3), 219 U. S. App. D. C., at 15, 675 F. 2d, at 1240, which states in pertinent part:

“No qualifying small power production facility or qualifying cogeneration facility may be exempted under this subsection from—
“(B) the provisions of section 210 ... or 212 of the Federal Power Act... or the necessary authorities for enforcement of any such provision under the Federal Power Act. . . .”

The Court of Appeals interpreted § 210(e)(3) of PURPA to mean that FERC may not promulgate a rule requiring utilities to interconnect with qualifying facilities in order to complete purchases and sales the utilities are required to enter into under PURPA, but must instead afford an opportunity for an evidentiary hearing under §§210 and 212 of the FPA in the case of each purchase and sale.

While the language of § 210(e)(3) of PURPA can be so interpreted, the purposes of PURPA strongly support the Commission’s contrary reading of that provision. The purposes of the statute make it most unlikely that Congress could have intended that an evidentiary hearing be held for every interconnection necessary to consummate a purchase or sale of electricity authorized by the Act. Evidentiary hearings under §210 of the FPA entail a determination of whether a proposed interconnection (1) is in the public interest, and (2) would encourage overall conservation of energy or capital, optimize the efficiency of use of facilities and resources, or improve the reliability of the affected utility systems. 16 U. S. C. §8241(c)(1) (1976 ed., Supp. V). It is highly doubtful that Congress could have intended that the Commission make such a determination every time a qualifying facility seeks to hook up with a utility to complete a purchase or sale under PURPA, for Congress itself determined in enacting PURPA that these purchases and sales are in the public interest, and that the development of cogeneration and small power production will help to conserve energy and capital and ensure the more efficient use of the Nation’s resources.

Providing an opportunity for evidentiary hearings before the Commission for every interconnection necessary to complete a purchase or sale under PURPA would seriously impede the very development of cogeneration and small power production that Congress sought to facilitate. Many of the facilities in question are small operations. By definition a small power production facility has a production capacity of no more than 80 megawatts, 16 U. S. C. § 796(17)(A)(ii) (1976 ed., Supp. V), and cogeneration facilities may also be of modest size. Many owners of qualifying facilities would have little incentive to purchase or sell electric energy if they had to go through an evidentiary hearing before FERC in Washington, D. C., every time they needed to hook up with a utility to consummate a purchase or sale. The average cost to FERC of a contested interconnection proceeding is currently more than $57,000, see FERC Notice of Proposed Rule-making, Docket RM 82-38-000, Fees Applicable to Electric Utilities, Cogenerators, and Small Power Producers 29-30 (Sept. 1, 1982), and the costs to private parties are doubtless also substantial. If we were to hold that utilities must be provided an opportunity for a hearing whenever a qualifying facility seeks an interconnection in order to effectuate a purchase or sale under PURPA, we would be “imput[ing] to Congress a purpose to paralyze with one hand what it sought to promote with the other.” Clark v. Uebersee Finanz-Korporation, A. G., 332 U. S. 480, 489 (1947). Cf. E. I. du Pont de Nemours & Co. v. Train, 430 U. S. 112, 132-133 (1977); Permian Basin Area Rate Cases, 390 U. S. 747, 777 (1968).

We agree with the Commission that, in light of the entire statutory scheme, § 210(e)(3) of PURPA may reasonably be interpreted to forbid the Commission to exempt qualifying facilities from being the target of applications under the FPA for orders “requiring ... [a] physical connection,” FPA, § 210(a)(1), but not to forbid the Commission to grant qualifying facilities the right to obtain interconnections without applying for an order under the FPA. The use of the word “exempted” in § 210(e)(3) is consistent with an intent to ensure only that qualifying facilities not be immunized from the requirements that the Commission may impose under §§210 and 212 of the FPA. The term “exemption” is ordinarily used to denote relief from a duty or service. See, e. g., Black’s Law Dictionary 513 (5th ed. 1979) (to “exempt” is “to relieve, excuse or set free from a duty or service imposed upon the general class to which the individual exempted belongs”). The only duty that §§210 and 212 of the FPA directly impose upon any facility is the duty to obey an order “requiring ... [a] physical connection.” Section 212(e) of the FPA expressly states that § 210 of the FPA shall not be construed “as requiring any person to utilize the authority of [§ 210] ... in lieu of any other authority of law.” Significantly, the Commission’s interconnection rule does not immunize qualifying facilities from the only requirement that §§210 and 212 of the FPA do directly impose on them — the requirement that they obey an interconnection order issued under those provisions. Qualifying facilities remain subject to applications by other facilities for orders requiring them to make interconnections. The Commission’s rule simply permits qualifying facilities to take certain steps to require other parties, namely, electric utilities, to make interconnections.

The Commission’s interconnection rule represents “ ‘a contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried and new.’ ” Udall v. Tallman, 380 U. S. 1, 16 (1965), quoting Power Reactor Development Co. v. Electrical Workers, 367 U. S. 396, 408 (1961). To uphold it, “we need not find that [FERC’s] construction is the only reasonable one, or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings.” Unemployment Compensation Comm’n v. Aragon, 329 U. S. 143, 153 (1946). See Mourning v. Family Publications Service, Inc., 411 U. S. 356, 371-372 (1973). We need only conclude that it is a reasonable interpretation of the relevant provisions. For the reasons stated above, we do conclude that the Commission’s interpretation is reasonable and that the Court of Appeals erred in rejecting that interpretation.

IV

We hold that the Commission did not act arbitrarily or capriciously in promulgating the full-avoided-cost rule or exceed its authority in promulgating the interconnection rule. Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

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

       The statute defines a “cogeneration facility” as a facility that produces both electric energy and steam or some other form of useful energy, such as heat. 16 U. S. C. §796(18)(A) (1976 ed., Supp. V). A “small power production” facility is a facility that has a production capacity of not more than 80 megawatts and produces electric power from biomass, waste, or renewable resources such as wind, water, or solar energy. 16 U. S. C. § 796(17)(A) (1976 ed., Supp. V).

       In an accompanying regulation, FERC directed that each qualifying facility “pay any interconnection costs which the State regulatory authority ... or nonregulated electric utility may assess against the qualifying facility on a nondiscriminatory basis.” 18 CFR § 292.306(a) (1982).

      Section 212 of the FPA, as set forth in 16 U. S. C. §824k (1976 ed., Supp. V), provides in pertinent part:
      (a) “No order may be issued by the Commission under section 824i [FPA § 210]... of this title unless the Commission determines that such order—
      “(1) is not likely to result in a reasonably ascertainable uncompensated economic loss for any electric utility, qualifying cogenerator, or qualifying small power producer, as the case may be, affected by the order;
      “(2) will not place an undue burden on an electric utility, qualifying co-generator, or qualifying small power producer, as the case may be, affected by the order;
      “(3) will not unreasonably impair the reliability of any electric utility affected by the order; and
      “(4) will not impair the ability of any electric utility affected by the order to render adequate service to its customers.
      “The determination under paragraph (1) shall be based upon a showing of the parties. The Commission shall have no authority under section 824i ... of this title to compel the enlargement of generating facilities.”
      (b) “No order may be issued under section 824i... of this title unless the applicant for such order demonstrates that he is ready, willing, and able to reimburse the party subject to such order for—
      “(1) in the case of an order under section 824i of this title, such party’s share of the reasonably anticipated costs incurred under such order . . .”
      (d) “If the Commission does not issue any order applied for under section 824i... of this title, the Commission shall, by order, deny such application and state the reasons for such denial.”
      (e) “No provision of section 824i... of this title shall be treated—
      “(1) as requiring any person to utilize the authority of such section 824i ... of this title in lieu of any other authority of law, or
      “(2) as limiting, impairing, or otherwise affecting any authority of the Commission under any other provision of law.”

       With respect to the Commission’s statement that any savings to consumers that a lower rate might produce would be insignificant in comparison to the benefit to qualifying facilities provided by the full-avoided-cost rate, the court suggested that the Commission had failed to “bear in mind, as Congress surely knew, that inevitably the impact of FERC’s rules per consumer will be less than their impact per cogenerator.” 219 U. S. App. D. C., at 9, 675 F. 2d, at 1234.

       The court proceeded to “outline some additional concerns raised by the full avoided cost rule, which the Commission should address in its subsequent rulemaking.” Ibid. See id., at 9-11, 675 F. 2d, at 1234-1236.

       In denying a petition for rehearing, the Court of Appeals emphasized that it had not declared the full-avoided-cost rule inconsistent with PURPA but had “simply remanded the matter because the Commission had failed to explain ‘its rationale and process of consideration.’” 219 U. S. App. D. C., at 21, 675F. 2d, at 1246, quoting id., at 8, 675 F. 2d, at 1233. A suggestion for rehearing en banc was denied by a vote of 3 to 2, with 6 of the 11 active Circuit Judges not participating. Id., at 21, 675 F. 2d, at 1246.

       It is not entirely clear from the Court of Appeals’ opinion what standard of review the court applied, but it appears that the court may have erroneously employed the substantial-evidence standard. The court criticized FERC for failing “to demonstrate the factual basis,” id., at 9, 675 F. 2d, at 1234, for its finding that sharing the savings from cogeneration with consumers would afford consumers only insubstantial savings, and it cited in a footnote an earlier decision that had employed the substantial-evidence test in a case involving informal rulemaking by the Commission under the FPA. Id., at 9, n. 36, 675 F. 2d, at 1234, n. 36, citing Public Systems v. FERC, 196 U. S. App. D. C. 66, 606 F. 2d 973 (1979).
      In any event, the Court of Appeals should have applied only the arbitrary-and-capricious standard. Unlike the FPA, see 16 U. S. C. § 825i(b), PURPA does not direct reviewing courts to determine whether orders entered thereunder are supported by substantial evidence. In the absence of a specific command in PURPA to employ a particular standard of review, the full-avoided-cost rule must be- reviewed solely under the more lenient arbitrary-and-capricious standard prescribed by the Administrative Procedure Act for judicial review of informal rulemaking. See, e. g., FCC
        v. National Citizens Committee for Broadcasting, 436 U. S. 775, 803 (1978).

       See also H. R. Conf. Rep. No. 95-1750, p. 98 (1978) (the purchase rate prescribed by the Commission is to be “the lower of... a rate which is just and reasonable to consumers of the utility, in the public interest, and nondiscriminatory, or the incremental cost of alternate electric energy”).

       We interpret the “just and reasonable” language of § 210(b) to require consideration of potential rate savings for electric utility consumers. Of course, even when utilities purchase electric energy from qualifying facilities at full avoided cost rather than at some lower rate, the rates the utilities charge their customers will not be increased, for by hypothesis the utilities would have incurred the same costs had they generated the energy themselves or purchased it from other sources. Moreover, a utility’s existing rates will ordinarily have been determined to be “just and reasonable” by the appropriate state regulatory authority. But it does not follow that the full-avoided-cost rule is necessarily “just and reasonable to the electric consumers of the electric utilities” within the meaning of § 210(b) of PURPA. Unless the “just and reasonable” language is to be regarded as mere surplusage, it must be interpreted to mandate consideration of rate savings for consumers that could be produced by setting the rate at a level lower than the statutory ceiling.

       A decrease in the utilities’ reliance on fossil fuels may result in a reduction of the prices of those fuels to levels lower than would have been the ease with higher demand. Since the rates the utilities are permitted to charge their customers are based on their costs, electric utility customers can expect to share in the savings to the utilities resulting from reduced fuel prices.

       We reach this conclusion even though we agree with the Court of Appeals, see n. 4, supra, that the rule was not adequately explained by the Commission’s observation that “in most instances, if part of the savings from cogeneration and small power production were allocated among the utilities’ ratepayers, any rate reductions will be insignificant for any individual customer,” whereas the rule would provide significant incentives for cogenerators and small power producers. 45 Fed. Reg. 12222 (1980). In the context of ratemaking, it is typically the case that any increment in the rate will “make a small dent in the consumer’s pocket,” FPC v. Texaco Inc., 417 U. S. 380, 399 (1974), while that same increment will have substantial consequences for the parties to whom the rate is paid. FERC’s statutory mandate to prescribe a rate that “shall be just and reasonable to the electric consumers of the electric utility,” 16 U. S. C. § 824a-3(b)(1) (1976 ed., Supp. V), obviously reflects a congressional determination that potential savings for consumers as a class are important even though rate changes will generally not have great economic significance for any individual consumer. Cf. FPC v. Texaco Inc., supra, at 399 (“Even if the effect of increased small-producer prices would make a small dent in the consumer’s pocket, . . . the [Natural Gas] Act makes unlawful all rates which are not just and reasonable, and does not say a little unlawfulness is permitted”).

       The Commission’s interpretation also finds support in the indications in the legislative history of §§ 210 and 212 of the FPA that those provisions were intended to address a different situation. Prior to their enactment, the Commission’s authority to order interconnections was limited, under § 202(b) of the FPA, 16 U. S. C. § 824a(b), to utilities over which it had regulatory jurisdiction and, except in emergencies, to situations in which a “person engaged in the . . . sale of electric energy” applied for an order directing such a utility to interconnect. Congress was concerned with the refusal of some intrastate utilities to make interconnections with other systems because, had they done so, they would have become part of the interstate system and thereby become subject to the full range of regulation under the FPA. See 124 Cong. Rec. 34763-34764 (1978) (Sen. Metzenbaum); id., at 34770 (Sen. Bartlett); 123 Cong. Rec. 31194 (1977) (Sen. Johnston); id., at 32397-32398 (colloquy between Sen. Johnston and Sen. Domenici). Sections 210, 211, and 212 of the FPA were enacted to give the Commission authority to order interconnections where they will enhance the reliability of the Nation’s electric power systems and optimize the use of its generating capacity. At the same time, Congress provided, in § 201(b)(2) of the FPA, 16 U. S. C. § 824(b)(2) (1976 ed., Supp. V), that compliance with orders to interconnect issued under § 210 or § 211 would not subject an entity to regulation by the Commission under any other provision of the Act. There is nothing in the legislative history of §§ 210-212 to suggest that they were intended to provide the exclusive means of obtaining an interconnection.