Analysis

Three high-performing appeals lawyers lined up to make high-quality arguments in the Supreme Court on Wednesday, but it may be very significant that the second chair from the right on the bench was empty.  If, as many signs indicated, the Court winds up splitting four to four in Federal Energy Regulatory Commission v. Electric Power Supply Association, the absence of Justice Samuel A. Alito, Jr., probably for an ethical reason, would be decisive.

This is a case whose importance is hard to over-estimate:  if FERC’s lawyer was right, it affects billions of dollars in the nation’s market for electricity, and could affect whether the nation’s power grid collapses in a blackout or at least a brownout; and, if the lawyer for some energy companies was right, will cost customers in many states a lot more on their monthly bills.  But FERC just might lose the case in a whimper, because an even split on the bench would simply uphold — without an opinion — a defeat handed to FERC by a federal appeals court.

Since the Constitution was adopted, the United States has always had two levels of government — a national government that handles things which affect the states collectively, and state governments that look after matters within their borders.  But it is not always easy to know where the dividing line is, even when Congress tried to describe one.

The FERC case is a near-perfect illustration of that difficulty: where did Congress draw the line for regulating the price of electricity — in producing it and in delivering it to the ultimate user?  Who oversees the wholesale and retail prices, respectively, especially when each quite naturally affects the other?

Solicitor General Donald B. Verrilli, Jr., who had a stellar career in handling such issues when he was a private lawyer, was notably confident as he defended FERC’s authority to write a rule that has the economic effect of persuading the ultimate users of electricity to cut back their demands at peak periods — a transaction in “negawatts” instead of the usual purchase of “megawatts.”

But he had barely started when Justice Anthony M. Kennedy, in the role of “a student in Economics 101,” would concede that what happens in each side of the market — wholesale and retail — would affect the other.  If that were what was at stake, Kennedy told Verrilli, “you win the case.”  But, switching to the role of judge, he said the federal law governing FERC draws a distinction in regulatory power, and so “we have to make the distinction between the end of federal power and the beginning of local power.”

Verrilli replied that the mere fact that anything FERC does on wholesale rates is going to affect retail rates surely could not be the basis for denying Congress’s grant of power to FERC to regulate both the wholesale electricity market and also the factors which affect rates in that sector.  That drew a retort from Justice Antonin Scalia that Verrilli was relying on “a pretty fuzzy line,” and Scalia repeated the challengers’ argument that the agency was “fiddling around with retail rates” in a way that would force them upward.

Soon, Kennedy wondered aloud whether it was “fair to say that FERC was luring retail customers into the wholesale market,” and he added sarcastically that FERC was expressing confidence that “market forces would work it out, but we define the market.”  He repeated that same thought later in the argument.

In further comments by Kennedy and Scalia, and by remarks or questions from Chief Justice John G. Roberts, Jr., it seemed that, for them, FERC was losing on the question of its authority — that it may well have crossed a federal-state dividing line. If that is where those three wind up, it seems entirely likely that they would attract a fourth vote:  that of Justice Clarence Thomas, who remained silent as usual but is generally a skeptic of robust federal authority.

On the other side, Justices Stephen G. Breyer, Elena Kagan, and Sonia Sotomayor participated in ways suggesting that they could be counted on FERC’s side.  It seems likely that they would attract the vote of Justice Ruth Bader Ginsburg, who spent the hour listening.  In that event, the Court could be divided evenly.  By custom, that results in a simple order saying that the lower court ruling — here, by the U.S. Court of Appeals for the District of Columbia Circuit — had been upheld.  It would not stand as a precedent, but it would be a distinct loss for FERC.

If, however, Justice Kennedy were to join with those four to find that FERC had the power it claimed, he could get at least some of them to join in a majority that would throw out the specific rule that the agency had adopted, finding it to have been “arbitrary and capricious.”  That is a second issue in the case, to be answered if FERC wins on the point of jurisdiction.

There was almost nothing that would suggest that Kennedy would be comfortable allowing FERC to use the extensive power that he had so rigorously questioned, although he did seem eager to make sure that the lawyers argued whether, in fact, the FERC rule was flawed on its merits.  The Chief Justice also encouraged argument on that separate point.  And the Justices as a group would have an incentive to avoid disposing of such an important case without saying something of significance.

Justice Alito, had he participated, might well have had the deciding vote if the apparent line-ups of the other Justices followed the indications on Wednesday, but he has taken himself out of the case, probably because he has some investments in companies that could be affected by the outcome.  No explanation for such a recusal is required, and is seldom given.

Verrilli’s argument for FERC got some significant support from the private sector, or at least from the companies that are a part of the pay-to-abstain program that FERC’s rule mandates.  Those entities were represented by Washington, D.C., lawyer Carter G. Phillips, who used his ten minutes to good advantage.  However, when he tried to argue what FERC was intending to do, Kennedy bluntly responded that “maybe it was not its intention” to cross into retail rate regulation, but the problem was “the mechanism” it chose.

The state regulatory agencies and private energy companies that oppose the FERC mandate sent Washington lawyer Paul D. Clement to the lectern, where he landed a good many rhetorical jabs on the federal agency.  In a fashion that is typical for Clement, he made his entire argument without a single note in front of him on the lectern.

A telling moment came in his response to Justice Breyer, who asked why it would make a difference if, on a hot day in August, the electricity business decided it would cost $500,000 to have built a new generator to handle the peak demand, but then decided instead that it could spend $400,000 to get people to run their air conditioners at another time instead of at the peak, resulting in lower wholesale rates that, of course, would affect retail rates, too.

Clement said the difference was that the customers at which such a plan aimed would be retail customers. “The way to understand this,” he added, was to imagine that a large user of electricity — like WalMart– might be attracted by the prices prevailing in the wholesale market, so “it walks into the wholesale market” to buy power, entirely bypassing its usual regulator, a state or local utility agency.  End-users like WalMart, he said, simply do not belong in the wholesale market.

If the Court does cast a four-to-four vote at its private Conference on Friday, and decides that it the most that it can do, that result would be announced promptly, perhaps as early as next Monday.

 

 

 

Posted in Federal Energy Regulatory Commission v. Electric Power Supply Association, EnerNOC v. Electric Power Supply Association, Featured, Merits Cases

Recommended Citation: Lyle Denniston, Argument analysis: When an empty chair may count the most, SCOTUSblog (Oct. 14, 2015, 2:13 PM), http://www.scotusblog.com/2015/10/argument-analysis-when-an-empty-chair-may-count-the-most/