Transcript

CHIEF JUSTICE WILLIAM H. REHNQUIST: We'll hear argument now in No. 00-568, New York v. Federal Energy Regulatory Commission and the companion case, 00-809. MR. Malone.

MR. LAWRENCE G. MALONE: Mr. Chief Justice, and may it please the Court: From 1910 until the issuance of the FERC decision under review, all 50 States regulated transmissions of electricity to retail customers. You didn't see the rates, terms, and conditions of that regulation, with a few exceptions, because the rates were bundled in bills that charged customers for all of the elements of retail service which are basically the energy itself, or the commodity, its delivery over transmission high voltage and distribution low voltage lines, and metering and billing.

The issue in this case is whether the 1935 Congress intended the Federal Power Commission, now FERC, to displace the State laws that required that regulation from 1910 until 1996 if the commodity, the energy -- not the transmission, but the commodity -- is unbundled from the retail customers' bills.

The FERC, while conceding that unbundling was never contemplated by the 1935 Congress, nonetheless has taken the position that if the commodity comes out of the bill, in order to give the customer knowledge to effect a choice to buy energy from a utility or a non-utility, then the transmission, although it still remains bundled with other elements and is never shown on the bill, except in the State of California, becomes a new and separate service and that that transmission is subject to preemption so that the States have to leave the scene for only FERC --

JUSTICE SANDRA DAY O'CONNOR: What if there -- what if there were no statute at all? Do you think that under the Commerce Clause, with today's multi-state grids for transmission of power, that the States could have directly regulated energy transmission as a separate service?

MR. MALONE: I don't think there's any question, Your Honor, that under today's Commerce Clause jurisprudence, the States would be able to regulate retail deliveries over transmission facilities, particularly within their own States.

Remember that retail is essentially a local business. Retail electricity. We have 127,000 customers in this country, and FERC certainly is in no position to be regulating the rates, terms, and conditions charged those customers for transmission.

And I think the -- the jurisprudence, under the dormant Commerce Clause, leaves no question that the States would be able to continue regulate retail transmission.

CHIEF JUSTICE REHNQUIST: But the statute does give the FERC jurisdiction over the transmission of electric energy in interstate commerce. Are you saying this isn't the transmission of electric energy in interstate commerce?

MR. MALONE: Exactly. We are saying, Your Honor, that that transmission that was described in 201(b) in 1935 was not transmission headed to retail customers. The court -- the Congress at that time was attempting to fill --

JUSTICE O'CONNOR: But in 1935, we didn't have these interstate grids, and isn't it conceivable that you could have a power company producing power within a State and distributing it to customers within the State, everything totally intrastate?

That may have been a common occurrence at the time the statute was passed. Today, with the multi-state grid, it's hard to know how any transmission that goes on that is other than interstate commerce.

MR. MALONE: Well, Your Honor, the rate of interconnection from 1920 to 1935 was actually greater than the rate of interconnection that we have seen since. The Indiana Consumer Council's reply brief points that out. So, there's no question that the '35 Congress knew that interconnection was coming.

There certainly was interconnection at the time in '35, and it recognized that notwithstanding that interconnection, that retail regulation was a local service and that the States should continue it. And that's why, in addition to crafting 201(b) which referred to transmissions and sales -- and frankly, the Congress wanted to give FERC jurisdiction to regulate transmission independently of sales because if you have a sale from company A to company C, you might have company B that isn't taking title and is simply transmitting.

JUSTICE DAVID H. SOUTER: Are you -- are you saying either of these two things? Either transmission regardless of the rate at which it is billed is -- is not essentially interstate commerce, or are you saying that you simply cannot read the act to pick up that activity in interstate commerce?

MR. MALONE: I'm saying that the -- the latter with -- with one caveat.

JUSTICE SOUTER: So, you admit then that -- that it is interstate commerce. It is subject to regulation if Congress wants to regulate it. This statute just doesn't do it.

MR. MALONE: It clearly is subject to regulation by Congress if it wants to. We don't need -- the States do not need to get into the question of which transmissions are in interstate commerce and which aren't in order to preserve its jurisdiction over retail transmissions because Congress wanted the States to be able to continue to regulate retail transmissions.

JUSTICE ANTONIN SCALAIA: This is what I don't understand. You -- why do you have to say that Congress wanted the States to regulate transmissions? As I read the statute, if -- if there's anything wrong with -- with FERC's position, it is that the statute divides the -- there are a lot of ways of dividing the universe. The -- the statute divides it between transmission and sale, and giving -- giving FERC authority over transmission means it can regulate the manner of transmission, who -- who is authorized to transmit, who is required to transmit, and all that. But the universe of sale is covered by the next portion. And FERC is authorized to fix prices, to interfere with the sales, only at wholesale in interstate commerce.

And once -- once you're dealing with a sale at retail, FERC is just not given sales regulation authority. It's still given transmission regulation authority, and it could still forbid certain people from transmitting and it could still impose certain requirements over transmission, even at the local level, but it simply cannot regulate the sales price. Why isn't -- why isn't that the way to look at it rather than --

MR. MALONE: Because the -- as the Colton case held, there's a -- there's a bright line here between retail and wholesale. There are -- with no exceptions is what -- what the Court said.

JUSTICE SCALIA: That's what I'm saying.

MR. MALONE: All right. Now, what FERC is saying is if you unbundle the commodity, that transmission becomes unbundled and it regulates transmissions to retail customers. Your Honor, if -- what we're interested in is the following: protecting the rates and the service to the 127 million customers in this country, and we don't want to lose the ability to do that if we take a pro- competitive position and unbundle the commodity. Now, when we do that -- you're right, Your Honor -- the transmission is not even unbundled. It's not separate. It's still -- it's not shown on -- on bills.

JUSTICE SCALIA: But you seem to concede -- and I don't see why you do it -- that the right to regulate transmission includes the right to regulate sale.

MR. MALONE: No, we -- we don't. We don't concede that. What I'm saying is that when unbundles -- when one unbundles transmission, the States don't lose it, even if it's out there by itself, if it's part of retail. Let me give an example.

JUSTICE RUTH BADER GINSBURG: But doesn't it depend -- doesn't it depend on what sale means? If it's sale of the commodity, it says, sale of such energy at wholesale in interstate commerce. Those are the words of the statute: sale of such energy.

The transmission cost is -- is not the same as the energy itself. So, why couldn't one read this: the sale of the energy, the commodity, at retail belongs to the State, but not the transportation or transmission cost?

MR. MALONE: Because when -- let's go back to 1935, Your Honor. When FERC brought this bill to Congress, it said the main portion of the bill is transmission.

The retail transmissions are being regulated by the State and that's the most important part because that's the most -- that's the largest part of the bill. Now, if we take the position -- and -- and --

JUSTICE SCALIA: By bill, you mean the bill that the customer gets.

MR. MALONE: Yes.

JUSTICE SCALIA: Okay.

MR. MALONE: Now -- now, this Court has said many time, Your Honor -- times, Your Honor -- I know, Justice Scalia, you don't reference the legislative history, but you do accept reading provisions in harmony.

We have to read 201(b), the language, Justice Ginsburg, that you're referring to, with 201(a), 206(d), and 212(h). Those --

CHIEF JUSTICE REHNQUIST: Where do we find these?

MR. MALONE: They are -- they are -- I'm sorry, Your Honor. They're in the -- the statutory appendix to our -- to our brief.

CHIEF JUSTICE REHNQUIST: And whereabouts? Starting with 652a?

MR. MALONE: The -- I don't have the -- the page reference off the top of my head. It's -- they are recited in our briefs. And the language -- I don't -- I'm not trying to quote the language specifically, Your Honor.

I'm just trying to give the conceptual strain that runs through these statutes. Basically what we have Congress saying is that the Federal Government has to fill the Attleboro gap, and that relates to wholesale transactions.

CHIEF JUSTICE REHNQUIST: Well, you're summarizing a series of statutory provisions in those words?

MR. MALONE: No. I'm -- no. I'm trying to get to what -- what 201(a), 206(d), and 212(h) do collectively, Your Honor. The -- the FERC has drawn your attention to 201(b) throughout this case.

The questioning has been on the meaning of the word transmission in 201(b). The point is that the other provisions of the statute, 201(a), 206(d), and 212(h), say something else. They say that FERC's jurisdiction over --

JUSTICE SCALIA: Do you want to give us the U.S.C. cites of those things? It's crazy when you people who spend your whole life in this one statute use the old -- the old numbers instead of the United States Code numbers. You're talking about 16 U.S.C. 824 (a) and (b). Right?

MR. MALONE: Yes. That's correct, Your Honor. That's correct. And I -- and basically what -- what the first provision says is that FERC's jurisdiction over transmission is limited to that part of transmission that involves transmissions for distribution, so that where energy that is --

CHIEF JUSTICE REHNQUIST: You're talking now about section (a)?

MR. MALONE: Yes, Your Honor. And that's conceptually -- what it -- what it says is that FERC's -- the universe of -- of transmission that FERC is going to regulate is energy that is being resold. Now, the point here is that we all know what Congress intended in 1935.

JUSTICE STEPHAN GERALD BREYER: Well, just on that, is it the case that if in 1935 Duke Power owns generating facilities in West Virginia, owns lines from West Virginia to North Carolina, and owns a distribution company in North Carolina, all one company, does the FPC have any jurisdiction at all in your opinion?

MR. MALONE: If there's a sale for resale --

JUSTICE BREYER: No, no. Look. Take my example.

MR. MALONE: No.

JUSTICE BREYER: Not what you're saying.

MR. MALONE: There is a case in 1934 at 2 P.U.R. 2d, where it's -- it's almost your -- your hypothetical. It's Carolina Power & Light.

JUSTICE BREYER: All right. So, your point then is if my hypothetical is true in 1935, all we have in this case is 1935, is my hypothetical, with the additional fact that instead of Duke Power which really is generating that power, there's also the possibility that Enron will come in and supplant Duke Power.

MR. MALONE: That's correct.

JUSTICE BREYER: That's your argument.

MR. MALONE: Yes.

JUSTICE BREYER: Okay. I understand it.

JUSTICE SCALIA: Mr. Malone, it would seem to -- is that -- you're done?

MR. MALONE: I just wanted to add, Justice Breyer, that if you look at 206(d), that calls on FERC to provide costs in your hypothetical from West Virginia to the North Carolina --

JUSTICE BREYER: Then I would say if that's your argument, the response to that argument will be this is an unforeseen case in '35, the possibility of Enron supplanting Duke, and it's close enough to wholesale sales.

MR. MALONE: If Enron supplants Duke and sells directly to a retail customer, it's going to be purchasing electricity, selling retail, over a delivery system that Enron does not own. It's our -- it's our position that we regulate the rates for the delivery system.

We have here a case where FERC is admitting to the Court that the sine qua non of preemption was not contemplated by the '35 Congress. If Congress did not contemplate the trigger point for preemption, it could not have contemplated the preemption itself.

So, the issue before the Court is, can the Federal Government displace the laws of 50 States that have required us to regulate all aspects of retail service for 90 years when -- when it is conceding that Congress did not intend its action?

JUSTICE GINSBURG: May I ask you one question --

JUSTICE SCALIA: Mr. Malone.

JUSTICE GINSBURG: -- about the words in the statute? The statute uses an and. It says that -- that on the Federal side, there's authority over two things, and one is transmission of electric energy in interstate commerce -- that's one thing -- and the sale of such energy at wholesale in interstate commerce. Both (a) and (b) use the and. But I take it from your argument that you're saying the transmission has to be read as linked to the sale as wholesale, that they're not discrete pieces.

MR. MALONE: Not quite, Your Honor. If you have -- if we go back to Justice Breyer's hypothetical and we have company A in West Virginia which is selling to company C in North Carolina with an intermittent carrier by a transmission line, we would concede that FERC would have jurisdiction over the transmission, even though company B is not taking title and is simply carrying. And that was intended by Congress and that's why it did not link the transmission and the sale.

In other words, the transmitter does not have to be selling the energy. Either way, FERC has jurisdiction.

JUSTICE SCALIA: Mr. Malone --

MR. MALONE: But it should be a wholesale transaction.

JUSTICE SCALIA: -- could I come back to Justice Ginsburg's earlier question which focused on section 824(b)(2), which says that the provisions shall not apply to any other sale of electric energy. And her question focused on the fact that it just says, sale of electric energy, and doesn't say, sale of transmission. Now, it seems to me your response to that -- if I were making the response, at least, I would have said that if -- if sale of electric energy in (b)(2) is so narrow that it just means the commodity and not the -- the transmission and the servicing and -- and the metering and everything else, if it is that narrow in (2), it would also be that narrow in (1). And -- and (1) gives -- gives FERC authority over the sale of electric energy at wholesale.

And I -- I assume that that authority over the sale at wholesale includes authority over the price of the commodity, the price of the transmission, the price of everything else.

So, if you're going to give it an expansive reading in (1), it seems to me you have to give it an expansive reading in (2). And just as FERC has authority over the whole sale at wholesale, so -- so the States have authority over the whole sale at retail.

MR. MALONE: Including the transmission.

JUSTICE SCALIA: Including the transmission.

MR. MALONE: Your Honor, I think that is a valid reading of the statute. Can I just take a quick minute and explain why we care so much about this?

JUSTICE SCALIA: It's up to you. (Laughter.)

MR. MALONE: Your Honor, we have situations in New York State, for example, where we have -- FERC has regulated curtailments over transmission systems. That involves which customers stay in the light and which customers go into the dark.

When we have a decision to make in New York, over the last 30 years that I've been involved in this, we're going to look to try to minimize the number of people who go into the dark. That's number one. Number two, we're going to protect critical customers: hospitals, prisons, people on life support systems. We're on the ground and we're there to protect retail customers. When FERC preempts us on curtailment in this case, it -- it says that curtailment under that situation has -- has to be nondiscriminatory.

It sounds wonderful, and it's consistent with our economic plan. But it has to give way to critical care customers and keeping the most people in the light that you possibly can. This is an example of where an agency has overstepped its bounds.

It's moved into retail regulation, conceding that Congress didn't intend it. There's a Federal/State balance that this Court has protected, absent clear evidence from Congress that it should change.

And here that balance has changed and it's creating difficulties. We now have two hands on the retail wheel, and it doesn't work. If there are no further questions, I'd like to reserve the rest of my time for rebuttal.

CHIEF JUSTICE REHNQUIST: Very well, Mr. Malone. Mr. Cohen, we'll hear from you.

MR. LOUIS R. COHEN: Thank you, Mr. Chief Justice, and may it please the Court: FERC's open access transmission tariff is concerned with usage of the interstate transmission grid, something that only FERC can effectively regulate.

The OATT does require that interstate transmission rates be published and be proportional to usage, but its major concern, as Pennsylvania's amicus brief says more eloquently than we did, is rules of the road, access, usage priorities, classes of service, reservation and scheduling of service, access to real-time information about the system, pro rata curtailment in periods of constraint, and similar matters that the States don't and can't regulate. FERC found endemic, undue discrimination in the provision of interstate transmission service by the traditional utilities that collectively own most of the grid. But FERC did not comply with the statutory command to cure that discrimination. FERC imposed the OATT but said it had no jurisdiction to apply it to transmissions that are bundled with retail energy sales, and thus exempted about 60 percent of the traffic from the rules of the road.

CHIEF JUSTICE REHNQUIST: Did it say it had no jurisdiction or just chose, in its discretion, not to regulate them?

MR. COHEN: It said that the transmissions should not be considered within the interstate transmission clause giving FERC jurisdiction over interstate transmissions, but rather, in the case of transmissions bundled with retail sales, should be considered part of the bundled retail sale. The D.C. Circuit then said --

JUSTICE SCALIA: Which means what? Which means that it doesn't have jurisdiction. When you say should be considered part of, you mean discretionarily should be considered or must be --

MR. COHEN: Well, the D.C. Circuit called it a permissible policy choice, and -- but --

JUSTICE SCALIA: And you agree with that? You agree it was a policy choice and not a jurisdiction --

MR. COHEN: I think FERC made a jurisdictional mistake and I think the D.C. Circuit --

JUSTICE SOUTER: It misconstrued its statute.

MR. COHEN: It misconstrued its statute.

JUSTICE SOUTER: It didn't simply withdraw its hand. It misconstrued the act.

MR. COHEN: Yes, yes. And we are -- we are asking the Court to tell FERC that it did have jurisdiction over that large portion of the transmission --

JUSTICE JOHN PAUL STEVENS: In your view --

MR. COHEN: -- and that it should, therefore, solve the problem that it found.

JUSTICE STEVENS: In your view, if FERC does have jurisdiction of this -- this part of the problem, must it exercise that jurisdiction or can it allow the States to regulate?

MR. COHEN: What it must do under section 206, which is section 824(e), is cure the undue discrimination that it found. I think FERC does have, would have a good deal of discretion to decide how to do that.

CHIEF JUSTICE REHNQUIST: Well, then it's pretty much a Pyrrhic victory for you if you persuade us that the CADC was wrong in saying it was just a policy choice, it was a jurisdictional decision. It goes back to them and they say, well, so we have jurisdiction, we're choosing not to exercise it.

MR. COHEN: I'm hoping that what I had was a Pyrrhic defeat in the -- in the D.C. Circuit and that -- and that FERC, once told that it has jurisdiction, and having recognized that it has the obligation to cure undue discrimination, will exercise that jurisdiction properly. Because this -- this is a problem that only FERC can solve.

JUSTICE ANTHONY KENNEDY: We usually have cases in which the agency is alleged to go too far. What case do you cite that we could look to for a model where the agency goes not far enough and we have to push them?

MR. COHEN: Well, actually in the Louisiana Power & Light case, which we cite and think is very much in point here, which arises under the same parallel provisions of the Natural Gas Act,

FERC's initial position was that it -- I believe FERC's initial position was that it did not have jurisdiction to regulate bundled direct retail sales of -- of gas and that that included a lack of jurisdiction over the transportation of that gas. And -- and this Court said, yes, you do.

JUSTICE BREYER: I guess what would -- suppose FERC says or suppose I read it as saying, since you're whipsawing them between you and New York, look, in 1935 yours is the case where Congress would have never dreamt they had jurisdiction.

Theirs is the case that's somewhat ambiguous. I take it that's their reply. Theirs is the new legal animal, the new factual animal. Yours is the old one. Yours is the situation I described in the hypothetical.

MR. COHEN: What happened in 1935 was that, recognizing that interconnection was coming, Congress granted FERC jurisdiction over transportation of electric energy in interstate commerce without limitation.

It is only more recently -- really only in the 1990's -- that competition for the use of the interstate grid, which is what we're -- what we're about here, has arisen and has become a problem.

JUSTICE SCALIA: It gave them, without limitation, authority over transportation of energy, but not without limitation authority over sale of energy. Your argument, like I'm sure the Government's which will follow, assumes that the -- the power to regulate the transmission includes the power to regulate the sale.

MR. COHEN: No.

JUSTICE SCALIA: Isn't that an essential part of your argument?

MR. COHEN: No. We --

JUSTICE SCALIA: Well, where does it -- where does it --

MR. COHEN: We think that the States have plenary power to regulate who may serve their retail customers and at what rates and at what -- and on what other terms and conditions.

But they must take into account FERC's -- and properly respect FERC's regulation of the -- the item that is within FERC's jurisdiction, namely transmission. And this is a parallel to the Nantahala case where this Court said --

JUSTICE SCALIA: What do you mean take into account? I thought you're saying that -- that FERC has the power to determine a -- a component of the retail sale.

MR. COHEN: It has the power to determine the -- the cost of -- of transmission of electricity insofar as that -- and that may be one of the costs that the retail utility incurs for which the retail utility has the right under State law to recover. That's just like the wholesaling cost. FERC is no more -- is no more regulating the retail transaction when it regulates the --

JUSTICE SCALIA: That's right.

MR. COHEN: -- the transmission --

JUSTICE SCALIA: But it has authority to regulate the -- the wholesale sale. It does not have authority to regulate the retail sale.

MR. COHEN: But it has authority to regulate transmission, and what I'm saying is --

JUSTICE SCALIA: But transmission by the statute, as I read it, is separated from sale. It says, the provisions shall apply to the transmission of --

CHIEF JUSTICE REHNQUIST: Where are you reading from?

JUSTICE SCALIA: I'm reading from (b)(1). Shall apply to the transmission of -- section 824(b)(1). I don't know what -- at (2), whatever it is in the -- in the --

MR. COHEN: It's 824 --

JUSTICE SCALIA: 16 U.S.C. 824(b)(1).

MR. COHEN: Yes.

JUSTICE SCALIA: The provisions of this chapter shall apply to the transmission of electric energy in interstate commerce. And it does not then say, including the sale of electric energy at wholesale.

It doesn't say, including the sale. It says, shall apply to the transmission in interstate commerce and to the sale of electric energy at wholesale -- at wholesale -- in interstate commerce, drawing a dichotomy between transmission and sale. And what the State is saying here is the only sale you're given authority over is the wholesale and -- and not -- not the retail sale.

MR. COHEN: And we have stressed -- whereas the -- the nine States have tried to blur this distinction, we have stressed the distinction between FERC's jurisdiction over transmission and FERC's jurisdiction over wholesale sales. Let me put it this way. The State regulates retail sales.

A retail seller has two costs. It may have more, but two of its costs are the cost of power, which it may buy at wholesale, and the cost of transmission of power, which it incurs in order to make a retail sale.

Both of those two things are regulated by the -- by the Federal Government, by -- by FERC. And just as this Court has squarely held that the -- that FERC's jurisdiction over the cost of wholesale sales is -- is -- does not encroach upon the States' retail sale authority, but it is something that the States must respect in setting retail rates, so FERC's regulation of the cost of transmission.

JUSTICE SCALIA: But FERC's regulation of the cost of -- of interstate transmission at wholesale comes about not because of its authority over the transmission of -- of electric energy, but because of its authority over the sale of electric energy at wholesale. It can fix those wholesale prices, and once it does, the States have to take that --

JUSTICE STEVENS: That's the point of your disagreement.

MR. COHEN: Yes. I don't -- I don't agree with that.

JUSTICE STEVENS: That's the issue, isn't it?

MR. COHEN: Yes. That -- that is the statutory --

JUSTICE O'CONNOR: Yes. The statute says, shall apply to transmission of electric energy in interstate commerce. And you take that as a separate grant.

CHIEF JUSTICE REHNQUIST: And it says and.

JUSTICE O'CONNOR: And -- and, two, the sale of electric energy at wholesale in interstate commerce, which you take to be a second grant of authority.

MR. COHEN: Yes, and the basic --

JUSTICE O'CONNOR: Not linked together.

MR. COHEN: The basic structure of our argument is that just as your opinion for the Court, Justice O'Connor, explained in Nantahala, that the States must take into account the wholesale cost of energy, so the States can be required to -- to take into account FERC's regulation of transmission --

JUSTICE O'CONNOR: What difference does it make whether the transmission component is bundled or unbundled at retail sale?

MR. COHEN: We don't think it should make any because transmissions, whether for wholesale or retail, whether bundled or unbundled, compete for use of the interstate grid. And what we are really about here isn't even rates in any important way. It is competition for the use of the grid.

JUSTICE KENNEDY: Can you sell at retail in States which are -- which are bundled?

MR. COHEN: Absolutely not. What we want --

JUSTICE KENNEDY: Well, then why -- then why is there -- then why is there a problem?

MR. COHEN: Because what we want the right to do is to use the transmission system through those States without the retail -- the traditional monopoly utility that owns the facilities in those States being able to hog those facilities for its own use and keep us off the road. Let me -- let me try an example.

JUSTICE KENNEDY: In other words, even though you're not trying to reach retail --

MR. COHEN: Even though we're not trying to reach retail customers, we may be trying to sell energy to the utility in -- in Wisconsin. I'm taking this example partly from the Eighth Circuit's decision in the NSP case, which is in our briefs. We're trying to sell energy to the utility at wholesale in Wisconsin. To do that, we have to transmit through Minnesota. The traditional --

JUSTICE KENNEDY: Well, then that -- then that wholesale sale can be regulated.

MR. COHEN: The wholesale sale can be regulated, but the traditional utility in Minnesota, which owns the facilities and mostly makes bundled retail sales to its customers in Minnesota, can say, our bundled retail sales are not subject to FERC's OATT. We can schedule transmissions an hour before we want to send them, but your transmissions through to Wisconsin need 2 days.

JUSTICE BREYER: I'm very surprised that FERC is saying that they have no jurisdiction over that. You would have thought that if you are in State A and you are selling to a different, say, retailer in State C, the transmission from A to C is certainly a transmission that falls within the classical notion of this statute, isn't it? And if B puts something up on those lines that blocks the transmission, I'm very surprised that FERC would say they don't have jurisdiction to stop that.

MR. COHEN: Well, we were a little surprised too.

JUSTICE BREYER: But that's what this case is about in your view.

MR. COHEN: From our -- from our standpoint, that's what our side of this case is about. And it's exactly what the Eighth Circuit said in the NSP case. They said --

JUSTICE SCALIA: That -- that would be an interference with the transmission, not with the sale. I mean, sure, they'd have authority over that because they have authority over transmission, both interstate and intrastate.

MR. COHEN: All that I'm asking the Court to say is that FERC has the ability to -- the jurisdiction to apply its general open access transmission tariff not only to our sales at wholesale and to -- but -- but also to the bundled retail sales that compete with us for use of -- of the transmission grid.

JUSTICE KENNEDY: Well, if the -- FERC can regulate your transmissions and you go to FERC and say, you know, our transmissions are being blocked, why can't they say, we will exercise jurisdiction over your transmission and we will unblock you?

MR. COHEN: Justice Kennedy, the answer to that is, first of all, that it's -- it's not just blockage. It can be more complicated than that. But -- but second of all, FERC actually said in Order 888 we need to impose the OATT because doing this on a case-by-case basis doesn't work.

If you're going to have an interstate highway system in which the traffic is present simultaneously, instantaneously in all parts of the system, you need a set of rules of the road that apply to everybody.

You can't just say, weeks or months later, we found that somebody -- that somebody improperly blocked somebody else's through transmission.

JUSTICE BREYER: But I -- I thought you wanted the particular reg -- there's a particular reg that New York has been talking about, and I thought you wanted that applied to the bundled sales as well.

MR. COHEN: Particular regulation.

JUSTICE BREYER: Yes.

MR. COHEN: Yes.

JUSTICE BREYER: And -- and that seems to me a different issue than somebody climbing up a pole, for example, and cutting the wire so that you can't get your electricity between State A and State C.

MR. COHEN: Well, the ideal example is the curtailment example. What happens when there is a constraint such that the system can't carry all the would- be transmission? The OATT says there shall be a complicated formula pro rata curtailment of different uses.

The Eighth Circuit said in the NSP case, because FERC had no -- had said it had no jurisdiction over bundled retail sales, they don't get prorated. Our transmissions through Minnesota to Wisconsin get cut back so that our service to the -- to the homeowners and -- or through the utility that serves the homeowners and hospitals in Wisconsin gets cut back so that the utility in Minnesota can provide full service to its retail customers.

JUSTICE SCALIA: You want the Federal Government to determine which -- which will be the emergency users and the preferred users in each State and locality. You want that decided in Washington.

MR. COHEN: We want the Federal Government to regulate the transmission of electric energy in interstate commerce, and that has become a more complicated problem than it was in 1935.

There is new competition for those facilities. Transmission has itself become a product, but we think both the jurisdiction to regulate and the obligation to cure a discrimination have been in the statute since -- since that time.

JUSTICE SCALIA: There's always been a product. It's now a separately sold product, but it's always been part -- in fact, it used to be even a greater percentage, I think, of the cost of the electricity.

MR. COHEN: Yes. I -- I'm told --

JUSTICE SCALIA: It's a lesser percentage now than it used to be.

MR. COHEN: -- on average it's now about -- it's now about 10 percent. But there has not been --

JUSTICE O'CONNOR: I don't know about you, but when I look at my utility rate, it's a very small amount for transmission and a substantially larger amount for the energy.

MR. COHEN: It is. It's a small fraction of the cost, which is one of the reasons why this case isn't primarily about rates. The OATT, which is in the joint appendix, starts -- it runs about 110 pages.

And two- and-a-half of those pages talk about rates and say that you must publish a transmission rate and that it shall be essentially proportional to usage. But what we're concerned about here is getting on the system, being able to schedule your transmissions.

JUSTICE BREYER: I don't even see how this works. I mean, it isn't like water. I mean, you get on the system, you get on the system, and they have these people underground who pull levers and so forth.

The electricity flows according to some scientific way. It's not like putting water through a dam. So, I don't even know how this works, this blocking scheduling business.

MR. COHEN: Well, in order to have the -- the electricity flows -- the power flows generally over the system, but -- but in order to have the right to turn on -- to ramp up your generator to produce some additional electricity which your customer -- at a time when your customer is going to take electricity off the system at some other point, you need to have a contractual arrangement or other right to do that. Thank you, Mr. Chief Justice.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Cohen. Mr. Kneedler, we'll hear from you.

MR. EDWIN S. KNEEDLER: Thank you, Mr. Chief Justice, and may it please the Court: Order 888 fully respects and, indeed, complements State regulatory jurisdiction over the transmission -- excuse me -- over the sale of electric energy.

Some States have chosen to maintain the traditional monopoly system for the delivery of power to retail customers. In that situation, there is no separate transmission service, and the customer pays a single rate that includes all of the utility's costs, basically calculated by that utility and regulated by the State, for the generation, the transmission, and the distribution of power to the local customer. Order 888 does not affect those traditional monopoly arrangements.

Other States, however -- now about half the States -- have decided to take a different path, which is to separate out the transmission service and -- and introduce competition in the purchase of electric power at retail. In that system, the retail customer has the right to purchase the power not simply from the utility that previously had the monopoly control, but from a broad variety of utilities. In that situation, that power might have to be generated, purchased and transmitted from out of State or in State by another utility.

In that situation, it is necessary for there to be access to the transmission facilities to move the power from the generation place to the place of -- of retail delivery. In that situation, there is now a new transmission service that did not exist in 1935 when the Federal Power Act was passed.

JUSTICE SCALIA: Mr. Kneedler, if -- if I understand it correctly, it is -- the position of the agency hinges on the proposition that the power conferred by -- by section 824 to regulate the transmission of electrical energy includes -- includes the power to regulate the sale of the transmission of electrical energy. Isn't that what --

MR. KNEEDLER: The sale -- the sale of the transmission, yes.

JUSTICE SCALIA: The sale of the transmission.

MR. KNEEDLER: But what it does not -- what it does not include is the retail sale.

JUSTICE SCALIA: Now, if that were true, it seems to me that 824(b)(1), instead of reading the way it does, should read this way: The provisions of this subchapter shall apply to the transmission of electric energy in interstate commerce -- which would include the sale of that transmission, right? -- and to the sale of the commodity portion of electrical energy at wholesale in interstate commerce.

Because you wouldn't need the second half to cover the sale of the transmission component. You're saying the sale of the transmission component is covered by the first half of the -- of the sentence, shall apply to the transmission of electrical energy.

MR. KNEEDLER: Well --

JUSTICE SCALIA: And -- but -- so, it should have gone on to say, and to the sale of the -- of the commodity at wholesale in interstate commerce.

MR. KNEEDLER: But -- but that is what it says I believe because electric energy is the commodity. And the transmission -- it's the transmission of the commodity, to use your words, or the wholesale interstate commerce of the commodity. In both cases, the electric energy is the commodity.

And what FERC can regulate is two different things. As Justice O'Connor pointed out, these are two separate and independent grants of jurisdiction to FERC. One is wholesale sales of -- of the commodity, and the other is the transmission of the commodity. Now, it's true in this case, this case turns primarily on rights of access, physical access, to the transmission capacity. But a necessary part of regulating access is also regulating the rates because different qualities of -- of access, rights of access -- you could have firm or non-firm power.

Those different rights of access necessarily would -- would cost more or less. A utility would charge more for -- for a firm power than -- than non-firm power. And that -- so, in that situation, the rates being charged for the access are essentially inseparable from setting the rules of the road.

So, it seems to us not -- not feasible as a practical matter and not textually the natural reading of the act to say that somehow FERC does not have authority to regulate the costs -- or excuse me -- the price on which interstate transmission will be sold.

And I think it was Justice Ginsburg also pointed out that the clause of the statute that saves power to the -- authority to the State says that the provisions of this subchapter affirmatively grant the power to FERC --

CHIEF JUSTICE REHNQUIST: Where are you reading from?

MR. KNEEDLER: I'm sorry. This is (b)(1) on page 2 of New York's brief.

CHIEF JUSTICE REHNQUIST: (B)(1)?

MR. KNEEDLER: (B)(1), yes. It says, but except as provided in paragraph (2), shall not apply to any other sale of electric energy. It does not say, does not apply to the transmission or the sale of transmission or matters having to do with transmission. And it's also important in --

JUSTICE SCALIA: And you think that -- that sale of electric energy at wholesale in -- in the first portion of it, in -- in (1), only referred to the sale of -- regulating the sale of the commodity at wholesale.

MR. KNEEDLER: Well, yes, but -- but for example, in setting a wholesale cost -- or excuse me -- a wholesale rate, FERC could take into account the costs of transmission --

JUSTICE SCALIA: Because --

MR. KNEEDLER: -- in setting a wholesale rate, just as the State could.

JUSTICE SCALIA: Because of its authority over the transmission of energy.

MR. KNEEDLER: Either one. It has authority over the transmission. But that's -- what I just said is parallel to the way it would work for the State. The State, in setting a retail rate -- as Mr. Cohen explained, the State in setting a retail rate, would have to take into account all of the costs that are components of that retail rate. That could be the cost of the electric energy, the commodity, and it would also include, importantly, the cost of the transmission service.

JUSTICE SCALIA: I think that's a very unrealistic reading of what Congress thought it was doing when it wrote this thing, that when it -- when it spoke of the sale of electric energy at wholesale in interstate commerce, it had in mind only -- only the sale of the -- the commodity and not the sale of, you know, the transmission and the entire cost. I think they were saying FERC can regulate wholesale rates.

MR. KNEEDLER: Yes, absolutely. And I didn't mean to say anything else. All I'm -- all I'm saying is that as part of -- one component of the wholesale rates includes the cost of transmitting the electric energy at wholesale. So, if it is setting a -- a wholesale rate, it has to include that as part of it.

JUSTICE SCALIA: But you can't say that because if you say that that -- that the reason you have that authority is because of the phrase, the sale of electric energy at wholesale, you would also have to say in the very next phrase, the sale of electric energy -- any other sale of electric energy, sale at retail, would also include the transmission component. You'd have to exclude the transmission component from both of them.

MR. KNEEDLER: No. If I could -- if I could answer that. First of all, quite aside from whether it -- it -- FERC would have the power under the wholesale sales clause, it would unquestionably, we think, have the power under the transmission clause, which I said is a -- is a --

JUSTICE SCALIA: I don't think that's unquestionable at all.

MR. KNEEDLER: But -- well, it's -- it's an independent grant of authority. And -- and for FERC's authority in this area to be complete, especially in these days of interconnected grids, it's -- it's necessary that -- that FERC have the ability to regulate all aspects of access to the grid, which as I said, is not just technical problems of scheduling but also what the costs of different -- different quality of access to the grid will be. But the other point I wanted to make -- and this -- this ties in, I think, to a -- a misconception of Attleboro and Pennsylvania Gas, which is the background against which Congress acted, that I -- that I would like to address here. States, in setting retail rates, have the authority -- and I was saying this before -- have the authority to take into account all of the costs that the utilities serving retail customers may incur.

And in the monopoly situation, the -- the State will regulate the -- will take into account the generation costs, the transmission costs, and the -- and the retail delivery costs and come up with a rate. And in -- in the Pennsylvania Gas case, this Court held that a State, consistent with the Interstate Commerce Clause, could regulate the retail rates of natural gas that were -- that were paid by retail customers at the end line of the distribution system for the cost of natural gas. And the Court rejected the argument that because that gas had moved interstate, that the State had no power to regulate the delivery to the retail customer. But in so holding, the Court didn't say that the States could regulate interstate commerce. What they said was that the States could regulate the local distribution, even though it had an incidental effect on interstate commerce. So, the rates that were left to the States, under Attleboro and under Pennsylvania Gas, were the ability to actually regulate the rates that the local utility is going to charge to the local customer, but it -- the Court did not say that the States had affirmative authority to directly regulate the interstate transmission itself.

JUSTICE KENNEDY: Well, suppose you have -- have a condition, as described by counsel for Enron, and they say, we just can't transmit our gas through this State. Do you have jurisdiction to exercise -- does the commission have jurisdiction to exercise if it chooses to do so?

MR. KNEEDLER: Absolutely. We think that FERC's --

JUSTICE KENNEDY: So, this is just discretionary -- a discretionary choice.

MR. KNEEDLER: Well, there are two different things, and I think it was maybe you who put the question. There's -- or maybe Justice Breyer. What Enron is seeking here is to have an existing regulation on open access, all comers, anytime, anywhere to -- for retail -- excuse me -- to have a -- a pricing provision under an open access regime applied to the -- the transmission component even in the monopoly State. That -- that is -- that would be a significant change in the way that retail rates for bundled sales have been handled.

JUSTICE KENNEDY: Well, it might. He's seeking a number of different things. But the first thing he's seeking is an acknowledgement that you do have jurisdiction to exercise if you choose to do it.

MR. KNEEDLER: Right. And -- and as --

JUSTICE KENNEDY: Do you concede that you have that?

MR. KNEEDLER: We don't just concede, we affirmatively assert that we do have authority. And -- and, for example, in the Northern States --

JUSTICE KENNEDY: So, then this isn't a jurisdiction case.

MR. KNEEDLER: Not in that respect, no, because I think that all -- with respect to this order --

JUSTICE KENNEDY: And so you would have no objection to our saying -- and I don't know quite how we'd say it, but the FCC has jurisdiction over transmissions of bundled sales at retail.

MR. KNEEDLER: Well, let me -- let me just modify that in one respect. What Enron was seeking here was essentially to have FERC regulate the transmission component of a retail sale while it remained bundled. FERC did not disclaim the authority in an appropriate case to order the unbundling of -- of that service --

JUSTICE KENNEDY: Well, that's just a two-step -- you say, first, unbundle, and now that you've unbundled, we're going to regulate it.

MR. KNEEDLER: And the court of -- and what the -- the court of appeals analysis in this case essentially looked at the -- at the transaction --

JUSTICE KENNEDY: If we can get back to my question. That means that you do have jurisdiction to reach this problem and to regulate transmissions.

MR. KNEEDLER: Yes. And in the -- in the Northern States Power case, that is discussed in the -- in the briefs, it -- it addresses the question of curtailment. Under the open access tariffs, a -- a utility is required to curtail all service in a nondiscriminatory manner.

And in -- in FERC's view that meant that a -- a utility having control over transmission capacity had -- would have had to curtail all service -- all transmission for retail on a nondiscriminatory basis. And that --

JUSTICE KENNEDY: Well, if jurisdiction is thought of in constitutional terms, the answer is pretty clear. You have jurisdiction. If it's thought of in statutory terms, do you have statutory jurisdiction to order the unbundling?

MR. KNEEDLER: I believe FERC does.

JUSTICE KENNEDY: To order unbundling.

MR. KNEEDLER: I believe FERC does. I mean, that's essentially what FERC ultimately did in the natural gas area.

JUSTICE STEVENS: But aren't -- aren't you --

MR. KNEEDLER: But -- but let me be clear. That would be a -- that would be a -- a major change in the way that utility regulation has happened. And what -- what FERC has done is leave to the States the decision as to whether to maintain the traditional --

JUSTICE GINSBURG: What FERC has --

JUSTICE STEVENS: Mr. Kneedler, I'm really puzzled because I -- I must have misread the papers. I thought that the position of the FERC, at the agency level and the court of appeals, was that it did not have jurisdiction to take the action that Enron wants it to take.

MR. KNEEDLER: To order -- to order unbundling.

JUSTICE STEVENS: Yes.

MR. KNEEDLER: That -- that may well have been an implicit understanding of FERC, but if you look at the order, it actually never says that. And the court of appeals opinion, in affirming the -- the FERC order, simply says that it -- that FERC's characterization of a bundled transaction is within the -- the realm of its discretion.

What the court of appeals said is you could look at the bundled transaction as being primarily a -- a retail sale, and that has traditionally been subject to State regulation.

Or you could look at it as including that -- the transmission component, and that would be subject to FERC regulation. But FERC made a -- FERC made a permissible --

JUSTICE BREYER: So, the position of the Government is, in respect to Enron's case, not New York's, Enron is right. FERC does have jurisdiction, but FERC, in exercising that jurisdiction, could say, we do not wish to exercise it. And that's what happened here.

MR. KNEEDLER: The commission in this --

JUSTIC BREYER: Is that -- is that your position or not?

MR. KNEEDLER: I cannot speak for FERC on that question because FERC did not address that in this order. All FERC said was it was not going to order the unbundling, and -- and all it was doing was -- was regulating the transmission component where there is unbundling.

JUSTICE BREYER: But I want to know what -- I have an argument in some briefs made by Enron, and perhaps I misread them and I'll go back to them. But I thought Enron was saying the error that FERC made and the Government in this case is that FERC denied it had jurisdiction to give us the order we'd like them to give. Now, I read that, I think, in their briefs. Therefore, I want to know what does the Government say about that.

And what I hear you saying is they are right in claiming that FERC had jurisdiction, but they are wrong if they say that FERC had to exercise it. Now, that's what I would like to know, just what the position is.

MR. KNEEDLER: Well, there are really two points about FERC's power here -- authority here that I would -- would like to separate. One is the -- the power -- the authority of the sort Justice Kennedy was asking, where -- where a utility is -- is reserving its load for bundled retail in a way that frustrates the ability of someone like Enron to pass through its power to another State. That would -- that would be, in effect, imposing an obstacle, like cutting the line, that is frustrating the ability of FERC to regulate the -- the aspects of transmission that New York, I think, concedes that FERC has. I think in that situation -- and that's like the Louisiana Power & Gas case. I think in that situation, FERC unquestionably has the authority to prevent any --

JUSTICE BREYER: Whether they have the authority -- how do I answer this question from your question presented? Number 2, in 00-809, the question presented is whether the court of appeals properly deferred to the commission's determination that it lacks jurisdiction over retail transmission service that is sold together with electric energy in a single bundled transaction, et cetera. Now, I have to answer that question. Do I answer that question yes or no, that it did properly defer or that it did not properly defer?

MR. KNEEDLER: It did properly defer because the predicate is that there is a single transaction. The -- the transmission service has not been separated out of the one bundled transaction.

JUSTICE SOUTER: Okay. Are you -- are you saying that -- are you drawing this line? You're saying that FERC has the authority to order unbundling. No question. Jurisdiction, constitutional and statutory, to do that.

Are you also saying that if FERC chooses not to order unbundling, it has no jurisdiction to regulate the transmission that is a component of the ultimate unbundled cost? Is that where you're drawing the line?

MR. KNEEDLER: Yes. That -- and that -- that is I think all that FERC said. I would like to modify the first point, which is I am not -- I'm not affirmatively asserting at this point that FERC has the jurisdiction to order unbundling. I don't see anything in the act that prevents it, and under the --

JUSTICE SOUTER: So, you're saying that you see nothing in the act that would prevent FERC from doing just what Mr. Cohen wants it to do so long as it takes two steps, so long as it orders unbundling first. That's the difference, I think, between you and Enron. Is that correct?

MR. KNEEDLER: Assuming that FERC has this authority. As I stated, it didn't disclaim it, but FERC in this order did not -- did not stress that.

JUSTICE SOUTER: Right. But you're assuming they have authority. You see no reason --

MR. KNEEDLER: I'm -- I see nothing in the act, in the parallel provisions of the Natural Gas Act --

JUSTICE KENNEDY: Well, again, referring to the question presented that you drafted, question 2, the question presented is whether the court of appeals properly deferred to the commission's determination that it lacks jurisdiction over retail transmission. And you want us to say yes.

MR. KNEEDLER: But the rest of the question is: when it is sold together with electric energy in a single bundled transaction. And that is -- and that is the transaction. That is the transaction that --

JUSTICE BREYER: And you want us to say yes, it lacks jurisdiction.

MR. KNEEDLER: Yes.

JUSTICE BREYER: In that circumstance.

MR. KNEEDLER: In that circumstance.

JUSTICE BREYER: Therefore, when Mr. Cohen put the example that he did of a grid, and the grid covers several States, and there are many sales for wholesale between -- sales for resale between A and C and D and F, but there's one in the middle, C, where it in fact is all bundled. And they all -- you know, it's a big grid. It goes everywhere. And if in fact they are scheduling deliveries, the State commission, in that C so that the wrong people are getting the energy and so that the wholesale -- the sales for resale in A, E, and F are all mucked up, the answer is, of course, the commission has jurisdiction to deal with that situation.

MR. KNEEDLER: Yes.

JUSTICE BREYER: Of course.

MR. KNEEDLER: Even -- even under Order 888 -- what Order 888 does is decline to extend the plenary rate -- the plenary jurisdiction of Order 888 itself over the transmission component of bundled sales.

JUSTICE BREYER: So, the sole thing it doesn't have jurisdiction over, in your opinion, is to make this kind of nondiscriminatory order applicable in our middle State C where the transactions are all run from generating to distribution to transmission, everything is run by one company, PG&E.

MR. KNEEDLER: Right.

JUSTICE BREYER: It doesn't have jurisdiction over that.

MR. KNEEDLER: As long as they -- as long as they are -- as long as the State hasn't unbundled it, the utility has not unbundled it, and FERC has not exercised whatever authority it would have to unbundle it --

JUSTICE BREYER: Even though they're in the grid.

MR. KNEEDLER: Even though they are in the grid.

JUSTICE BREYER: See, I didn't --

MR. KNEEDLER: But -- but let me -- let me make clear. This does not mean -- this does not mean, with respect to Justice Breyer's question, that even -- even though FERC did not impose that requirement across the board by imposing the -- the separate rate component requirement on bundled retail transmission, if a utility exercises its authority in a way that disadvantages, that discriminates the matters that are within FERC's jurisdiction, FERC can -- can act to eliminate that discrimination, which is what FERC -- the position FERC took in the NSP --

JUSTICE BREYER: And your reason, as I interpret it, in a sentence is if we go back to 1935, even if the New York situation was something they never would have dreamt of, the Enron situation is something that they certainly did dream of. It was absolutely common, and they rejected it, the statute covering that.

MR. KNEEDLER: Right. The -- the statute leaves the retail rates. But again --

JUSTICE BREYER: Am I right? Don't say I'm right if I'm not.

MR. KNEEDLER: Yes. No, you're correct. But -- but again, what -- what --

JUSTICE BREYER: Where? Where does the statute -- you say the statute leaves the retail rates. What are you referring to?

MR. KNEEDLER: In the -- in the clause in 201(b) that you were referring to, shall not apply to any other sale of electric energy. That is leaving to the States the authority to set the rates for the retail sale of electric energy, which is essentially what was left to them under the Pennsylvania Gas case as -- as a matter of the Interstate Commerce Clause.

JUSTICE GINSBURG: Mr. Kneedler, would you please clarify what FERC has no jurisdiction -- that is, no authority -- Congress gave them no authority to do what versus what they can do or decline to do as a matter of policy? As I read Judge Sentelle's portion of the per curiam opinion, those two were put together, and they're two quite different things. One is a question of power. Does FERC have the power to do it? One is a question of should it exercise that power, the policy question. Which is no power and which is a matter of policy?

MR. KNEEDLER: I think what is no power is where the transaction remains bundled, FERC may characterize that in the same way that it has always been treated, as -- as a single retail rate, and that FERC cannot require, as long as the transaction remains bundled, that be -- that a separate cost component for retail transmission be stated.

JUSTICE SCALIA: What do you mean? You say, may characterize it. You mean must characterize it.

JUSTICE KENNEDY: Yes. That's a crucial point.

JUSTICE SCALIA: If -- if you're going to say it has no power, you have to say must characterize it, not may characterize it.

MR. KNEEDLER: Yes, but -- but I don't have to say -- it depends by what you mean by must because -- (Laughter.) -- the court of appeals did not say that was the only way to read the statute. The court of appeals said the agency could have --

JUSTICE KENNEDY: Well, but we want to know your -- your position, and it's a very odd answer to the question to say that we may say we may have no jurisdiction -- we have no jurisdiction. I've never heard of such a thing. We may say we have no jurisdiction.

MR. KNEEDLER: This is a Chevron point. Where you -- where you have a -- where you have a bundled transaction, what the court of appeals said is that FERC could have looked at the bundled transaction as being primarily a retail sale over which the States are -- are -- their jurisdiction is preserved under the clause I just mentioned. Or FERC has plenary jurisdiction over the transmission and it would be possible to look at that and say that the -- that the transmission component of the bundled sale does come under FERC's jurisdiction.

What the court of appeals said is that it was -- and this is on page 35a of the -- of the petition appendix, Enron's petition appendix -- FERC's decision to characterize bundled transmissions as part of retail sales, subject to State jurisdiction, therefore, represents a statutorily permissible policy choice. In other words, it's the characterization of the bundled sale.

JUSTICE SCALIA: If you have the power to characterize it one way or the other, it seems to me you have the power to assert jurisdiction. So, you're saying FERC has the power to assert jurisdiction.

MR. KNEEDLER: As a Chevron matter, FERC has -- has concluded -- has construed the statute not to authorize it to -- under Chevron, the -- the agency could go either way.

JUSTICE SCALIA: It could have done differently, and if it had done differently, it could move in to regulate it all. Right?

MR. KNEEDLER: But -- but FERC has now construed the statute, in a statutorily permissible way, that does not give it jurisdiction over the transmission component of bundled retail sales.

JUSTICE STEVENS: May I ask this question?

JUSTICE GINSBURG: So, FERC couldn't -- couldn't exercise the power on that reading unless Congress gave it to them.

MR. KNEEDLER: Right, as long as the transaction remains bundled. But what we -- what we fundamentally have in 25 States is that 25 States have provided for the unbundling and created a separate transmission service, transmission of power in interstate commerce, which the States could not have regulated in 1935. They couldn't have regulated a separate transmission service. All they were allowed to do was regulate the local retail rate, which --

JUSTICE STEVENS: Mr. Kneedler, may I ask you this question? If we assume -- we assume the commission has said that they do not have jurisdiction when the transaction remains bundled, because it wasn't voluntarily unbundled or compelled to be unbundled by State or Federal authority.

If we disagreed with that and said, no, you do have jurisdiction there, is there anything in the statute that would compel them to exercise the jurisdiction?

MR. KNEEDLER: No. I think -- I think FERC would have great authority in deciding how to identify discrimination and how to deal with it. I wanted to mention one last point with respect to New York's claim -- desire to protect its -- its retail customers, and particularly those in dire needs.

Nothing -- this tariff -- and I'd point the Court to pages 772 to 775 of the joint appendix. Utilities are allowed to set curtailment priorities under their tariffs, and therefore, they could protect retail customers, they could protect hospitals, that sort of thing.

It's just that when you have curtailment, the utility has to curtail in a nondiscriminatory way. It can't favor its own transmission at retail to hospitals and discriminate against another supplier of electric power to hospitals.

In other words, it has -- it can have -- it can have priorities based on the -- the need for the power, but it can't discriminate against suppliers of the power. And that is the whole point --

JUSTICE SCALIA: It's all at the sufferance of FERC, however. I mean, in FERC's graciousness, it -- it allows the -- the State of New York to decide who should be served first, and if FERC wanted to change that and say, we say these should be your priority -- right?

MR. KNEEDLER: Well, there may well be limitations on that because, among other things, the act preserves to the States the authority over local distribution systems and over retail rates.

The sense of that, I think, is to preserve the general State police power over the way power is being delivered to the ultimate customer. That's what this act was really leaving to the States. But in any -- any event, FERC did not seek to upset the priorities for power --

JUSTICE O'CONNOR: Now, if FERC has -- has determined, after a hearing, that there is discrimination going on in the allocation of transmission services, must it then order a remedy?

MR. KNEEDLER: I think if it finds discrimination, it has to order appropriate relief. It wouldn't necessarily be relief under Order -- Order 888. There may well be other -- other measures that could be taken.

JUSTICE O'CONNOR: And are there still some intrastate electric producers that also transmit their energy totally within the State and FERC has no jurisdiction over that at all?

MR. KNEEDLER: The -- if they -- if a utility -- such utility is connected to the grid, it cannot transmit --

JUSTICE O'CONNOR: But probably there are some that are not connected to the grid.

MR. KNEEDLER: I'm informed by FERC that there are virtually none anymore, and that -- that while the act does preserve intrastate transmission to the -- to the States, there's virtually none that isn't connected to the grid. And if it is connected to the grid, as the commission said in the Florida Power case, because of the electromagnetic connection of all generators and all users to the grid, it is -- anything put onto the grid is necessarily in interstate commerce. So, Congress -- the limitations Congress placed on FERC's power come elsewhere in preserving the power over the ultimate retail rates and the local distribution to the -- to the local utilities, and -- and the State regulation.

But the transmission, the control over that critical interstate grid, is left to the Federal Energy Regulatory Commission. Now, there's also in Texas, the Texas -- a portion of Texas is not connected to the interstate grid, and that would -- that would remain --

JUSTICE KENNEDY: Would you say that if a State regulates a bundled retail sale, it is, for all practical purposes, in part regulating transmission?

MR. KNEEDLER: I would say it is not regulating transmission, and I -- and I think that that is what the Court said in -- in Pennsylvania -- in Pennsylvania Gas.

It's regulating the retail sale that may have an incidental effect on interstate transmission, but it is not directly regulating the transmission itself. And we think the Commerce Clause then and the Federal Power Act now wouldn't allow it.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Kneedler. Mr. Malone, you have 1 minute remaining.

MR. MALONE: Your Honor, Justice Scalia, in response to your question as to whether FERC has given the authority to the States to decide prioritization of curtailment, the answer is no. The utility has sole discretion to decide that, not the State of New York.

It's joint appendix 350 where FERC says, in asserting jurisdiction over unbundled retail transmission in interstate commerce, the commission in no way is asserting jurisdiction to order retail transmission directly to an ultimate consumer.

888 directly says that they cannot order retail wheeling to a consumer, and they are correct in that respect. Transmission is not a new service. It is the same service that we have always seen. It is a monopoly service to retail customers.

Justice Kennedy, when we have a bundled sale, there's no question that the State is regulating the transmission within that bundled sale, and that's why the Northern States case held that FERC could not govern curtailments in the bundled case, as it is attempting to do in this case in the unbundled case. The FERC order is at war with itself in several respects. It says that it has exclusive jurisdiction over transmission and it can't delegate an iota of it.

And yet, it turns around and says, but, States, you regulate customer complaints. That's the sort of thing that happens when a Federal agency is over-reaching, rewriting the law, and trying to regulate, in this case, retail transactions which Congress expressly left to the States in 1935.

There's no question Congress in '35 did not intend FERC to do what it is doing today, which is taking over the relationship between 127,000 retail customers and the people who deliver electricity to them. Thank you very much.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Malone. The case is submitted.