The Supreme Court sided with federal regulators Monday, upholding a rule meant to incentivize efforts to reduce electricity demand.

The court ruled that the Federal Energy Regulatory Commission (FERC) did not exceed the authority Congress gave it when it wrote its “demand response” rule, mandating that electric utilities pay customers to reduce use during peak demand periods.

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FERC’s authority only extends to wholesale power markets; the agency cannot regulate retail power rates, and the court said the regulation at issue fits both criteria, overturning a previous decision from the Court of Appeals for the District of Columbia.

“The commission’s rule addresses — and addresses only — transactions occurring on the wholesale market,” Justice Elena Kagan wrote in a 6-2 decision, from which Justice Samuel Alito recused himself due to an investment. “Wholesale market operators administer the entire program, receiving every demand response bid made.”

As for setting retail rates, the court said, “states continue to make or approve all retail rates, and in doing so may insulate them from price fluctuations in the wholesale market.”

Energy companies had challenged the rule from FERC, saying that it overstepped its authority under the Federal Power Act, which gives states the primary authority for regulating retail electricity.

The court’s justices seemed to side mostly with the energy companies during the October oral arguments for the case, FERC v. the Electric Power Supply Association. They were open to the challengers’ notion that, since the demand response rule affects retail rates, it goes too far.

Environmental groups had participated in the litigation to defend FERC, saying that demand response programs help clean energy sources like wind and solar thrive.

Those groups cheered Monday’s ruling.

“Today’s Supreme Court decision strongly affirms our nation’s bedrock authority to ensure clean, low-cost and reliable energy has full access to the marketplace,” Vicki Patton, general counsel for the Environmental Defense Fund, said in a statement.

“FERC’s demand response programs make energy cheaper, ensure the reliability of the grid, and protect our air and water from fossil fuel pollution,” said Casey Roberts, a staff attorney at the Sierra Club.