Petition — Association of Massachusetts Consumers, Inc. v. Securities & Exchange Commission

IN THE

Supreme Court of the United States

OcToBER TERM, 1975

“ 25-607

ASSOCIATION OF MASSACHUSETTS CONSUMERS, INC.,

Petitioner,

Vv

~ . — — ‘ ' .

SECURITIES AND EXCHANGE COMMISSION, Lt,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

WortH ROWLEY

JAMES F’. FAIRMAN, JR.

Patrick FE’. MARTIN

Row.ey & Scott

1730 Rhode Island Avenue, N.W.

Washington, D.C. 20036

(202) 293-2170

Counsel for Petitioner

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

Page

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NS OD os es abd dade eheiba kas 6uaeueaeees 3

REASONS FoR GRANTING THE WRIT ............ceee00. 6

ND oe oak cate Pecan es ona ase 11

APPENDICES:

A. Opinions and Orders Below ................ la

FOF ERLE PTE REE EP Ee eer 26a

C. Resolution of Massachusetts Consumers’ Coun-

ee ar ane! ELC: tr eRe ie 4ha

D. Federal Power Commission’s Order to Show

ER eee eee oe POE” RIES Se Ree EE 43a

CITATIONS

CasEs:

Cascade Natural Gas Corp. v. El Paso Natural Gas Co.,

BOS TE, Be CRED Koi kcbvdsncivccencesvesesss 6

New England Electric System, 38 S.E.C. 193 (1958).. 3

New England Electric System, et al., 41 S.E.C. 888

RED - . nb64 6440 cnc aunsnendasssdusceeseseeens 3, 4

New England Electric System v. Securities and Ea-

change Commission, 346 F.2d 399 (1st Cir. 1965) 4

New England Electric System v. Securities and Ea-

change Commission, 376 F.2d 107 (1st Cir. 1967) 4

ii Index Continued

Page

Securities and Exchange Commission v. New England

Electric System, 384 U.S. 176 (1966) ........ 2, 4, 6,7

Securities and Exchange Commission v. New England

Electric System, 390 U.S. 207 (1968) ........ 2, 4, 6, 7

United States v. E. I. DuPont DeNemours & Co., 366

Me Se SD I 6 rnd udence dks bcacesscuces 6

STATUTES:

Public Utility Holding Company Act of 1935, 15 U.S.C.

Ss Oe eeadacenus divdcuues 2, 3, ‘4, 6, 7, 9, 10, 11

aeteee 2, TP WIG. OU vnc ccccccctccucsacs 3, 8

Section 2(a)(11)(A), 15 U.S.C. § 79b(a)(1)(A) 3,8

martion ©, 16 WAG. § TOE oo. ccccccecccvccs 3, 8, 10

Section 10, 15 U.S.C. § 79} ................. 3, 8, 10

Section 11, 16 U.S.C. § 79k .. wo. ccc ccese 3, 4, 8, 10

a

IN THE

Supreme Court of the United States

OcToBER TERM, 1975

No.

ASSOCIATION OF MASSACHUSETTS CONSUMERS, INC.,

Petitioner,

v

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

The Association of Massachusetts Consumers, Inc.

(‘‘Association’’), petitions for a writ of certiorari to

review the judgment of the United States Court of

Appeals for the District of Columbia Circuit entered

in this case on July 24, 1975.

OPINIONS BELOW

The opinion of the Court of Appeals for the District

of Columbia Circuit sought to be reviewed here is re-

ported at 516 F.2d 711 (D.C. Cir. 1975), and is re-

printed in Appendix A, infra, pp. la-9a.

2

The memorandum opinions and orders of the Secu-

rities and Exchange Commission (‘‘SEC’’) issued on

October 31, 1973 and January 11, 1974, and affirmed

by the court below are reprinted in Appendix A, infra,

pp. 10a-25a.

JURISDICTION

The judgment of the Court of Appeals was entered

on July 24, 1975. The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

. 1. Whether SEC, in carrying out a divestiture

twice mandatea by this Court (Securities and Ex-

change Commission v. New England Electric System,

384 U.S. 176 (1966); 390 U.S. 207 (1968)) denied

consumer interests the protection required by those

mandates and by the Public Utility Holding Company

Act of 1935, when SEC accepted and approved an out-

of-time plan for the sale of securities by a registered

holding company to an exempt holding company and

did so without investigation and without hearing, al-

though consumer interests credibly challenged the law-

fulness of the transaction and sought an investigation

and hearing.

2. Whether SEC, in administering divestiture re-

lief under the Public Utility Holding Company Act of

1935 and the mandate of this Court, impermissibly

failed to enforce the policies of the law with respect to

holding companies which favor consumer interests and

require the application of antitrust principles to util-

ity regulation.

» ee

ed OOP, Notte tk wes —s

ate ae eo rees

3

STATUTES INVOLVED

The statutory provisions involved are Sections 1, 2,

9, 10, and 11 of the Public Utility Holding Company

Act (“Act’’), 15 U.S.C. 79a, 79b, 79i, 79j and 79k. The

relevant excerpts are printed in Appendix B, infra,

pp. 26a-4la.

STATEMENT

The Association files this petition with the endorse-

ment and support of the Massachusetts Consumers’

Council, an agency of the Commonwealth of Massa-

chusetts, in order to maintain and defend consumer

interests, which although protected by the Public

Utility Holding Company Act of 1935, have otherwise

been unrepresented in this case.’

In 1957 SEC instituted proceedings under Section

11 of the Act to determine whether the New England

Electric System (‘‘NEES’’), a public utility holding

company registered under the Act, was to be per-

mitted to retain an aggregate of eight gas and seven

electric utility systems which it then controlled. SEC

determined that the electric properties constituted a

single integrated system (New England Electric Sys-

tem, 38 S.E.C. 193 (1958)), which NEES elected to

retain, and in 1964 ordered divestiture of the eight

gas utility companies held by NEES (New England

Electric System, et al., 41 S.E.C, 888 (1964) ).’

1 Appendix C, infra, pp. 4%a, is a copy of a Resolution adopted

by the Massachusetts Consumers’ Council on September 11, 1975,

supporting the petitioner’s position herein.

2The eight companies were: Central Massachusetts Gas Com-

pany, Lawrence Gas Company, Lynn Gas Company, Mystie Val-

ley Gas Company, North Shore Gas Company, Northampton Gas

Light Company, Norwood Gas Company and Wachusett Gas Com-

pany. SEC acknowledged that these companies constituted a

single integrated gas utility system. (41 S.E.C. 888)

ee ee

4

Successful appeals by NEES were twice. taken

through the Court of Appeals for the First Circuit to

this Court and twice this Court reversed the appellate

decisions. In its second decision, rendered March 5,

1968, this Court directed that a judgment be entered

affirming the Commission’s 1964 order.* That judg-

ment was issued on April 3, 1968 by the First Circuit,

thus ostensibly terminating a protracted and major

disagreement in favor of SEC’s exercise of its respon-

sibilities under the Act, and activating those provi-

sions of the Act under which the Commission must

discharge further responsibilities to accomplish, ‘‘as

soon as practicable,’’* the divestiture program it had

initiated in the public interest in 1957.

Thereafter proceedings in this cause slowed to the

stateliness and imperceptibility of geologic time. The

**as soon as practicable”’ scheduling of divestiture was

abandoned by SEC, and the April 1970 deadline im-

posed by Section 11(c) of the Act was ignored.

NEES’s first divestiture plan was not filed until Sep-

tember 1, 1971, and was limited in scope, relating to

only four small companies.’ Not until March 1973 did

* The various opinions and orders comprising this saga are listed

for convenience: New England Electric System, 41 S.E.C. 888

(1964), affirmed initially, SEC v. New England Electric System,

384 U.S. 176 (1966), reversing 346 F.2d 399 (1st Cir. 1965);

affirmed on second appeal, SEC v. New Englend Electric System,

390 U.S. 207 (1968), reversing, 376 F.2d 107 (1st Cir. 1967). See

a me Company Act Release (HCAR) No. 16618, February

415 U.S.C. $$ 79a, 79k.

* Central Massachusetts Gas Company, Norwood Gas Company,

Wachusett Gas Company and Northampton Gas Company. HCAR

No. 17066, March 25, 1971. Northampton was subsequently ac-

quired by Springfield Gas Light Company as part of the first

phase of the divestiture plan adopted by NEES.

5

SEC notice NEES’s proposed divestiture of its Law-

rence Gas Company stock to Springfield Gas Light

Company, an exempt holding company controlled by

the Tenney Group ° and subsequently merged inte Bay

State Company, another exempt holding company

under the same control.

By petition filed April 9, 1973, the Association re-

quested a hearing on the Lawrence matter and its con-

solidation with a companion proceeding in which

NEES sought approval of its plan for the sale of

stock of three other of its subsidiary gas companies

to Eastern Gas and Fuel Associates (‘‘Eastern’’) and

in which the Association was granted participation.’

After a lengthy hearing the Eastern proceeding was

settled. With respect to the Lawrence proceeding,

SEC took no action on the Association’s request for

a hearing and consolidation until, in its Memorandum

Opinion issued on October 31, 1973 (Appendix B,

infra, pp. 10a-14a), it summarily denied the Associa-

tion’s request and approved the sale of the Lawrence

stock to Springfield. Thereafter, on January 11, 1974,

SEC reaffirmed that decision in response to the Asso-

ciation’s application for a rehearing (Appendix B,

The Tenney Group is a de facto holding company or organi-

zation, unregistered and unregulated, which has brought under

common control various gas and electric utility properties operat-

ing in Massachusetts, New Hampshire, Pennsylvania, New Jersey

and New York, as follows: Brockton-Taunton Gas Company;

Coneord Electric Company; Exeter and Hampton Electric Com-

pany; Fitchburg Gas and Electric Light Company; Orange and

Rockland Utilities, Inc. (See FPC September 15, 1975 Order to

Show Cause, reprinted in Appendix D, infra, pp. 43a-49a.)

™The two plans constituting the last phase of the NEES di-

vestiture were concurrently before the Commission, i.e., Adminis-

trative Proceeding File No. 3-4053, the Lawrence proceeding; and

Administrative Proceeding File No. 3-4052. the Eastern proceeding.

6

infra, at pp. 15a-25a). By an opinion filed July 24,

1974, appeals for the District of Columbia Circuit sus-

tained SEC’s action (Appendix B, infra, at pp. 1a-

9a).

REASONS FOR CRANTING THE WRIT

1. The Court Should Compel Full Obedience to Its

Mandates in This Case.

Certiorari will invoke the supervisory power of this

Court to enforce and make meaningful the divestiture

it has twice approved in SEC v. NEES and which is

required by the Public Utility Holding Company Act

of 1935. This Court has both the authority and the dis-

position to require its mandates to be fully carried out.

See Cascade Natural Gas Corp. v. El Paso Natural Gas

Co., 386 U.S. 129 (1967) ; United States v. EJ. DuPont

DeNemours & Co, 366 U.S. 316, 325 (1961).

By permitting Lawrence Gas Company to be be-

latedly transferred from NEES to the Tenney Group

under the aegis of this Court’s opinions and the Act

without any hearing or investigation, and over the

protests of the Association, SEC has seriously miscon-

strued this Court’s mandate, and has failed to fulfill

its own enforcement role in the administration of re-

lief. This Court could hardly have had in mind, when

it supported SEC’s position in the litigation back in

1968 and earlier, that SEC would falter and slacken in

its enforcement efforts, and would fail to apply the

standards of the Act in carrying out the divestiture it

was seeking. But that is precisely what SEC has done,

with the result that the entire exercise has been ren-

dered futile in that it has not resulted in significant

relief. In terms of consumer benefit and public in-

terest, nothing has been accomplished beyond the term-

ination of common proprietorship over gas and electric

OA et AORN NS Oe eh "

7

distribution properties in Lawrence’s service area.

State Utility Commission control over such service

makes this a marginal benefit. And transfer of con-

trol over Lawrence Gas Company from a regulated

holding company with electric utility interests to an

unregulated holding company with electric utility in-

terests is not simply meaningless; it is counterpro-

ductive.

Although it is prima facie suspect, this transfer has

remained untested by adversary proceedings. Such

proceedings, with the participation of the Association,

could have explored alternative divestiture proposals,

such as spin-off or sale to independent investors. Ad-

ministrative consideration of such proposals would

seem better to serve public interests and consumer

rights by promising, not a diluted, ambiguous and

absentee operation serving the needs of a multi-state

multi-utility holding group, but instead a manage-

ment wholly concerned with the interest of Lawrence

Gas Company and the municipality and customers

upon which it should depend. In the light of such pro-

ceedings the significance of the Tenney Group’s acqui-

sition of the Lawrence property could have been ex-

plored and a factual basis established for predicting

its impact upon the consumer interests which the Act

and this Court have sought to protect. Indeed, the

proceedings might have shown that an independent

Lawrence Gas Company would have provided yardstick

competition for the giant utilities which today domi-

nate gas distribution in Massachusetts.

SEC’s performance in the Lawrence proceeding has

been truly amazing. It usurped the function of this

Court by varying from the mandates of SEC v. NEES.

ee

8

It abdicated its own function in two respects. First, it

ignored its statutory duty to protect consumer in-

terests, refusing meaningful intervention to consumers

represented by the Association (the only consumer

entity which sought intervention), and failing to con-

duct an investigation and hearing so that the public

interest factors in the divestiture could be evaluated

and protected in the light of a developed record. See-

ond, SEC departed from the legal norms established by

the Act and endorsed by this Court to test the NEES

divestiture and the Tenney Group acquisition, namely

the antitrust and consumer public interest standards

embodied in Sections 1, 9, 10 and 11 of the Act.

To illustrate the lawlessness of SEC’s treatment,

consider the affiliate question. Springfield had

acquired Northampton Gas Light Company through

a previous divestiture sale by NEES. Thereby

Springfield became an “‘affiliate’’ of Lawrence as de-

fined by Section 2(a)(11)(A) of the Act. An affiliate

relationship triggers SEC investigations and requires

SEC approval of the proposed acquisition pursuant

to Sections 9 and 10 of the Act. SEC ignored these

requirements of law, and did not deal substantively

with the matter by investigation, hearing and formal

approval. Instead it claimed that the ‘“‘substance”’ of

the transaction took it out of the Act. And this des-

pite the fact that Congress expressly provided in See-

tion 10 for SEC investigation and approval of a pro-

posed acquisition offered, as was this one, to comply

with a Section 11(b) divestiture order. If SEC had

done its duty it would have found that the divestiture

of gas utility companies from the economically power-

ful control of NEES into the concentrated control of

the Tenney Group was inconsistent with the provisions

i im

9

of 10(b) of the Act proscribing acquisitions which

tend toward interlocking relations of a kind or to an

extent detrimental to the public interest or the interest

of investors.*

2. This is an Important Test Case Which Will Determine the

Direction and Efficacy of SEC Enforcement of the Public

Utility Holding Company Act With Respect to Combina-

tion Electric/Gas Utilities.

Back in 1957 when SEC began this entire proceed-

ing, it was recognized as the demonstration or trial run

of SEC’s powers under the Act to deal with the anti-

competitive problems posed by combination electric/

gas utilities. Today there are seventy-six such util-

ities, each with annual operating revenues in excess of

$1 million.*® To the extent that these utilities are vul-

nerable under the standards of the Act because of

holding company involvement,” the outcome of this

ease will determine whether SEC will proceed against

them, and if it does, whether consumer interests will

be granted effective participation to carry out che pur-

poses of the Act.

If the public benefits flowing from the enforcement

of the Act are as miniscule as the present status of

this test case indicates, the case will have demonstrated

that as a practical matter enforcement of the Act is a

game to be played or forfeited at the uncontrolled

8 See Appendix D infra.

®FPC Document 8-247: Statistics of Privately Owned Electric

Utilities in the United States.

10 Under the Act SEC has jurisdiction over seventy-eight electric

and/or gas utility subsidiaries in twenty active holding companies

controlling $33 billion in assets. See SEC 1974 Annual Report,

Tables 27 and 28, pp. 176, 177.

a

10

option of SEC, and a game to be won by utility interests

willing to play on and on forever. Such a conclusion

flies in the face of the Act itself, flouts the earlier de-

cisions of this Court in this case, and rewards unre-

generate and protracted resistance to the enforcement

powers with ultimate victory.

Moreover, unless certiorari is granted, and effective

and meaningful relief achieved in this test case, its sec-

ond teaching will be made clear: that responsible

consumer interests can claim no significant participa-

tion in the enforcement of the Act. The Court should

be aware that this is the only test case to survive out of

the entire NEES proceedings. The first four divesti-

tures in this litigation were small and insignificant,

and SEC’s approval of them went unchallenged. The

next three—the Eastern proceedings, wherein the As-

sociation actively participated—resulted, after extend-

ed investigative hearings, in a settlement of the con-

sumer issues which was secured in part by the Associa-

tion. Under that settlement the affected municipalities

were given options to acquire the divested systems for

municipal operation.

The last remaining divestiture is the present case,

wherein the Association has been denied a hearing and

effective participation, and the outcome of this case,

if unreversed, is a travesty which will certainly not

stimulate any further efforts by SEC to enforce the

Act and will with equal certainty discourage consumer

organizations from involving themselves with it. On

the other hand, if the Lawrence Gas Company were to

be divested in full compliance with all of the provi-

sions of the Act, including the standards of Sections 9,

10 and 11, with due attention given to the interests of

11

consumers as well as investors, it would serve as a

model after which future SEC compliance programs

can be patterned.

Either way, the lesson of this case will not be lost

on the combination electric/gas utilities which are vul-

nerable under the Act.

CONCLUSION

The Court below, by sustaining SEC’s position in

the Lawrence proceeding, adopted as its own the grave

legal error committed by SEC as hereinbefore shown.

Accordingly the writ prayed for should issue.

Respectfully submitted,

Association of Massachusetts

Consumers

By: Row.ey & Scorr

Worth RowLeEY

JAMES F. FAarRMAN, JR.

Patrick F’, MARTIN

APPENDIX

la

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

AssocIaTION oF MassacHusetTts ConsuMERS, INCORPORATED,

Petitioner,

Vv.

Unirtep States SeEcuriITIEs AND ExcHANGE CoMMISSION,

Respondent,

New England Electric System Bay State Gas Company,

Intervenors.

No. 74-1325.

United States Court of Appeals,

District of Columbia Circuit.

Argued Feb. 27, 1975.

Decided July 24, 1975.

Rives, Senior Circuit Judge:

Without a hearing, the Securities and Exchange Com-

mission (Hereafter referred to as ‘‘Commission’’) ap-

proved the final step in compliance with its order requiring

the New England Electric System (‘‘ NEES’’)—a statutory

holding company under the Publie Utilities Holding Com-

pany Act of 1935 (15 U.S.C. § 79) (hereinafter the Act)—

to divest itself of all ownership in gas utility companies.

The Association of Massachusetts Consumers, Ince.

(‘‘AMC’’), an intervenor in the proceedings before the

Commission, challenges the actions of the Commission. We

find that th. Commission did not abuse its discretion and

affirm its disposition of this case.

The controversy culminating in the present proceeding

began over 18 years ago. In 1957, NEES held stock in a

number of electric and gas utility companies serving New

England. In that year, the Commission began proceedings,

2a

under section 11 of the Act (15 U.S.C. § 79k), against

— uB. The following year the Commission “declared

N] ES’ electric utility holdings to be an integrated system

(See $2 of the Act, 15 U.S.C. §79b). Six years later the

Commission ordered NEES to divest itself of the gas atilit

stock.’ In 1968, after protracted litigation, the Su word

Court and the First Circuit affirmed the order.’ In a

ber, 1971, with approval of the Commission, NEES sold

its Stock in four of the gas utilities.* The following ear

NEES sought Commission approval of a plan to sell A the

Boston Gas Company, an operating subsidiary of the East-

ern Gas System, the assets of three utilities (plus another

company related to those utilities), whose corporate shell

would therafter be dissolved. In a separate contain:

NEES also proposed to sell to Springfield Gas Light Com.

pany its Lawrence Gas Company stock. The plan requir d

minority shareholders, whose holdings totaled 10% of th

stock, to sell their stock to Springfield at the same bes

received by NEES. Springfield would then merge into it

subsidiary, the Northampton Gas Light Company The

‘NEES transferred its stock to idi

~ S$ stoc a subsidiary, the M h

Gas System. The latter hel lary, the Massachusetts

be canal er held the stock until the divestment could

*See New England Electric System, 4

a initially, SEC v. New England ascot pol he oe

176, 86 S.Ct, 1397, 16 LLEd2d 456 (1966), reversing 346 F.2d

399 (1st Cir. 1965), affirmed on second appeal, SEC v ‘New Er

pore Electric System, 390 U.S. 207, 88 S.Ct. 916 19 L.Ed 2d 1042

(1968), reversing, 376 F.2d 107 (1st Cir, 1967). See also Hold: :

Company Act Release No. 16618, Feb. 24, 1970 (App 107-108).

. : 7 ; 1 “o., No

Gas Co. and Northampton Gas Co. rwood Gas Co., Wachusett

* Although the two

proposed sales were to be made i

purchasers, bids were solicited by copies of the same eon ee

oo no difference in the bidding procedure in the two cases Th

sales became separate proceedings after NEES had det sdeah

the highest bidders. ee

3a

surviving company would change its name to Bay State

Gas Company, and would hold all of the Lawrence stock.

Two petitions to intervene in the proceedings were filed

by AMC—(1) in the Eastern proceedings to ratify the sale

of the assets of the three utilities to Boston Gas, and (2)

in the Bay State proceedings to ratify the sale of the

Lawrence stock to Bay State. AMC moved that the Com-

mission consolidate the proceedings and conduct a hearing.

The Commission did not act upon AMC’s motion, but it did

allow AMC limited participation in the Eastern proceed-

ings. Following the hearings in those proceedings, a set-

tlement among the parties was reached, and the Commis-

sion approved the sale to Boston Gas. At about the same

time, the Massachusetts Public Utility Commission held a

public hearing on the proposed sale of the Lawrence stock

to Springfield and the merger of Springfield into North-

ampton to form Bay State. The record of those hearings

reveals no participation by AMC. The Massachusetts Com-

mission approved the plan. On October 31, 1973, the Com-

mission issued a memorandum opinion approving the sale

of the Lawrence stock to Springfield and denying AMC’s

motion. The Commission denied AMC’s request for re-

consideration. AMC appeals to this Court, pursuant to

§ 24(a) of the Act (15 U.S.C. § 79x(a)).

The question before this Court is whether the Commis-

sion abused its discretion in refusing to consolidate these

proceedings with the Eastern proceedings and in denying

a hearing on the original motion or on the motion for

reconsideration.

[1-3] The law is clear concerning judicial review of an

administrative body’s refusal to consolidate two proceed- |

ings.

‘“No principle of administrative law is more firmly

established than that of agency control of its own

calendar. Practical problems of calendar administra-

tion confront an agency whenever related applications

ta

are pending at the same time. Consolidation * * * and

similar questions are housekeeping details addressed

to the discretion of the agency and, due process or stat-

utory considerations aside, are no concern of the

courts.’’

City of San Antonio v. C. A. B., 126 U.S.App.D.C. 112, 374

F.2d 326, 329 (1967) (footnotes omitted). Consolidation

would have needlessly delayed resolution of the Eastern

proceedings. The failure to consolidate prejudiced none of

AMC’s rights in either proceeding. The Commission’s

refusal to consolidate the proceedings was a sound exercise

of necessary discretion.

[4] On appeal, AMC submits that, contrary to the Com-

mission’s determination, three issues required a hearing:

(1) the possible anti-competitive effects of the sale of

Lawrence to a member of the ‘‘Tenney”’ group;

(2) the possible application of sections 9(a)(2) and 10

[15 U.S.C. § 79i(a)(2) and § 79j] to the sale of Law-

rence to Springfield;

(3) the possible violation of the statute by NEES’s

submission of a voluntary plan for divestiture more

than wvo years after the divestiture order became ef-

fective.

AMC must show more than that these were issues which

the Commission could have considered. In addition, AMC

must show that it presented them in compliance with the

Commission’s procedural rules. Rule 9 of the Commis-

sion’s Rules of Practice, 17 CFR 201.9, requires that an

intervenor state specifically the issues whose resolution re-

quires a hearing. The published notice in the instant case

called AMC’s attention to that requirement. By timely

motion, NEES complained that AMC was not in compliance

with Rule 9.

_— oer’

5a

AMC’s compliance with the published notice was incom-

plete. It ignored NEES’s motion, even though AMC’s mo-

tion to intervene was vague as to the issues to be raised at

any hearing. It did mention NEES’s long delay in dispos-

ing of its gas utility stock and expressed suspicion about

the fairness of the procedure by which NEES sought bids

for the stock. In a letter, copy of which was appended to

the motion, the president of AMC stated that the instant

application raised ‘‘many of the same objections * * *

raised against the proposed sale [in the Eastern proceed-

ings]’’ (Emphasis supplied) (App. 156). Those three

statements gave the only definition of the issues which

AMC desired to explore in a hearing. AMC did not state

that the Commission ignored any anti-competitive effects

from the sale to Springfield,’ nor did it argue that section

9(a)(2) governed this sale. It was only after the sale had

been approved and on a petition for rehearing that AMC

introduced those two issues.

The requirement that the intervenors specify the issues

which demand a hearing serves important purposes. It en-

ables the Commission to screen out frivolous requests for

hearings and efficiently conduct hearings. Here, where the

subject matter is so complex, poorly framed issues could

turn the hearings into a maze in which justice could be

lost. The strict application of those procedural rules seems

appropriate here, where the intervenors were clearly on

notice that they must comply with Rule 9. Nevertheless,

since the intervenors argued that they represent important

5 It is true that in the Eastern proceedings AMC objected to the

purchaser and stated that the Bay State sale was subject to “‘many

of the same objections.’’ Since any potential anticompetitive ef-

fects from the sale to the particular buyer stemmed from facts

peculiar to each case, the Commission could not have surmised that,

though the circumstances of the buyer in each case were entirely

different, AMC wanted to transfer this particular objection from

the Eastern proceedings to the Bay State proceedings. The

reasonable interpretation was to the contrary.

6a

public interests, out of an abundance of caution we construe

their pleadings so as to protect those interests and consider

all issues referred to in their original petition. We follow

the same course in reviewing the issues mentioned in

AMC’s petition for reconsideration.

[5,6] After showing that reference was made to an issue

in its original petition for a hearing, AMC must show that

the resolution of the issue required a hearing and that the

denial by the Commission was an abuse of discretion. AMC

bears an even heavier burden as to the issues first raised in

its petition for reconsideration. Only a clear abuse of dis-

cretion warrants reversal for failure to grant a request for

a rehearing. See United States v. Pierce Auto Lines, 327

U.S. 515, 66 S.Ct. 687, 90 L.Ed. 821 (1946); United States

v. 1. C. C., 396 U.S, 491, 90 S.Ct. 708, 24 L.Ed.2d 700 (1970).

At the very least, the latter standard requires AMC to show

that a potential issue was present and the hearing would

have helped resolve it.

[7] An issue mentioned in the original petition was

whether the Commission erred in allowing NEES to submit

a voluntary plan for divestiture five years after the divesti-

ture order became effective. AMC submits that, under sec-

tion 11(e) [15 U.S.C. § 79k(e)], a holding company has no

more than two years in which to comply with a divestiture

order. AMC asks that the Commission’s approval of the

sale be vacated and that the Commission be directed to pro-

ceed pursuant to section 11(d) [15 U.S.C. §79k(d)].

Phillips v. Securities and Exchange Commission, 87

U.S.App.D.C. 380, 185 F.2d 746, 750 (1950) speaks to this

question.

**Sections 11(c) and 11(d) were designed to enable the

Commission to deal with a recalcitrant company. But

Congress could hardly have intended that an order

entered by the Commission should become a trap

closing down relentlessly at the end of a two-year

period, against the judgment of the Commission, con-

7a

trary to the provisions of the order entered, and to the

damage of the very interests which Congress was en-

deavoring to protect—the public interest and that of

investors. To give any such interpretation to the stat-

ute might well tend to cause the Commission to refrain

from issuing any order in a particular case until the

situation became ripe for complete and immediate en-

forcement.’’

Although NEES was slow in complying, within the two

years it did make some progress by creating a subsidiary,

the Massachusetts Gas System, to hold the gas utility stock.

That progress and the Commission’s satisfaction with the

final plan are enough to satisfy the requirements of the

Act.

[8-10] Another issue mentioned in the original petition

was whether NEES maintained competitive conditions in

soliciting bids for the stock. On appeal, AMC challenges

the propriety of transferring the Commission’s findings on

that issue from the Eastern proceedings to the present one.

We think that use proper. Since NEES solicited bids for

all the utilities as a part of the same transaction, the cir-

cumstances of soliciting both bids were identical. Fur-

thermore, AMC was not denied an opportunity to shape

the record, for it participated in the hearing in the Kastern

proceedings. The only complaint that AMC can make is

that it would have tried harder in the Eastern hearing if it

had known that that would be the only hearing. The Com-

mission need not hold a hearing to gain information which

has already been gathered. An administrative body may

‘‘mold its procedures to the exigencies of the particular

ease,’’ Gulf States Utilities Co. v. Federal Power Commis-

sion, 411 U.S. 747, 762, 93 S.Ct. 1870, 1880, 36 L.Ed.2d 635

(1973). Moreover, ‘‘[T]he mere fact that the determining

body has looked beyond the record proper does not invali-

date its action unless substantial prejudice is shown to

result.’? United States v. Pierce Auto Freight Lines, Inc.,

8a

327 U.S. 515, 530, 66 S.Ct. 687, 695, 90 L.Ed. 821 (1946).

AMC fails to show why the findings in the Eastern pro-

ceedings were wrong, or that the use of those findings was

prejudicial. The findings were supported by substantial

evidence and, clearly, there was no abuse of discretion.

[11] An issue which AMC raised for the first time in its

petition for reconsideration was whether the sale would

have anticompetitive effects. AMC contends that Spring-

field, the purchaser, belongs to an interstate group of gas

and electric utilities known as the ‘‘Tenney’’ group. Those

utilities have the same chief executive officer—a Mr.

Tenney—and have in common several Board of Director

members and officers. The Tenney family owns between

) and 15% of the stock in each company. Although AMC

concedes that the ‘‘Tenney”’’ group does not fit within the

statutory definition of a holding company, it argues that the

Public Utilities Holding Company Act requires the Com-

mission to ensure that any divestment will promote the

objectives of the Act. In short, AMC asks this Court to

hold that, even though the Commission could not order the

‘“*Tenney’’ group to sell the Lawrence stock—if any were

owned, it must forbid the group to buy any of the Lawrence

stock. We find it unnecessary to resolve that issue. To

prevail at a hearing on the matter, AMC would have to

show that, although the ‘‘Tenney’’ group was not a statu-

tory holding company,’ it was a source of the same abuses

and vices which led the Congress to enact the Public Utili-

ties Holding Company Act. See §1, 15 U.S.C. § 79a.

Elimination of common officers and directors in noncom-

peting utility companies was not the precise purpose of the

Act. AMC makes no allegation that the ‘‘Tenney”’ group

is the source of any evils set forth in section 1 of the Act

(15 U.S.C. § 79a). AMC having failed to show that there

would have been substantial issues raised at the hearing——

® See the definition of holding company in section 2 of th

15 U.S.C. § 79b. a

9a

even if its interpretation of the Act were correct (a ques-

tion we do not reach), we find that the Commission did not

abuse its discretion in refusing to vacate its approval of

the sale.

[12,13] The remaining issue raised in the petition for

reconsideration was whether this transa< tion fell within the

ambit of section 9(a)(2) of the Act [15 U.S.C. § 79i(a) (2) ]

and, hence, required Commission approval (see $10 of the

Act, 15 U.S.C. §79j). Since Springfield merged into

Northampton after it had bought the Lawrence stock, for

an instant there were three entities—Northampton, Law-

rence and Springfield. Thus, AMC argues that Springfield,

which was already an affiliate of Northampton, was buying

the stock of a utility company. Section 9(a)(2) forbids

such a purchase without Commission approval. The Com-

mission concluded that the merger of Springfield into Nor-

thampton was so closely related to the sale that the transac-

tion should be viewed as one in which Northampton, a com-

pany without an affiliate, obtained the Lawrence stock. We

find the Commission’s reasoning persuasive. In assessing

interrelated corporate adjustments, comparison should be

made of the situation just prior to and immediately follow-

ing the adjustments. The sequence of relatively simul-

taneous corporate adjustments whose order has no prac-

tical effect do not govern the applicability of section

9(a)(2). The same result would not obtain wuere the se-

quence of corporate adjustments had a harmful effect on

investors or the public.

Finding no reversible error, we affirm the judgment of

the Commission.

Affirmed.

10a

Pusuic Utiurry Hotprne Company Act or 1935

Release No. 18149/October 31, 1973

Admin. Proe. File No. 3-4053

In the Matter of

New Encuanp Etectric System

Massacuvusetts Gas System

Westborough, Massachusetts

(54-248)

(70-5275)

MemoranpDuM Oprnton Approvine Section 11(e) Puan

This proceeding relates to a plan of New England Elec-

tric System (‘‘NEES’’), a registered holding company,

and its subsidiary holding company, Massachusetts Gas

System (‘‘Mass Gas’’), filed pursuant to Section ll(e) of

the Public Utility Holding Company Act of 1935 (‘‘Act’’)

and other applicable provisions and rules thereunder, in-

cluding Section 12(d) and Rule 44. The plan proposes that

NEES sell its capital stock interest in the Lawrence Gas

Company (‘‘Lawrence’’), a subsidiary company, to Spring-

field Gas Light Company (‘‘Springfield’’), an exempt hold-

ing company under the Act pursuant to Rule 2 thereunder.

It also provides for the liquidation of Mass Gas and the

elimination of the minority shareholder interest in Law-

rence.

A notice of the filing was issued,” and the Association of

Massachusetts Consumers (‘‘AMC’’), a non-profit organi-

zation, requested that a hearing be held. It also requested

that we consolidate this hearing with the hearing which we

ordered at the request of AMC and others on the Section

‘See, New England Electric System, 41 S.E.C. 888 (1964), af-

firmed SEC v. New England Electric System, 390 U.S. 207 (1968).

* Holding Company Act Release No. 17906 (March 14, 1973).

lla

11(e) plan of NEES proposing to sell its stock interests

in its other gas subsidiaries.* Subsequently, the contro-

versy as to the latter plan was settled, and AMC and the

other parties to the settlement have withdrawn from the

proceeding.* AMC gave no reasons to support its request

for hearing, as directed by our notice. The record is suffi-

cient to render a decision in this proceeding without a

hearing. The request for such hearing is hereby denied.

Under the plan, Mass Gas, which is to be liquidated, will

transfer to NEES its holdings of 90.42% of the capital

stock of Lawrence. NEES will then sell the Lawrence

stock to Springfield, a Massachusetts Gas utility,® for

46,638,000 in cash. Concurrently with the Lawrence ac-

quisition Springfield will be merged into Bay State Gas

Company (‘‘Bay State’’), presently a Springfield subsidi-

ary company, and Lawrence will be retained by Bay State

as a subsidiary company.’ Bay State proposes to claim

an exemption as a holding company under Rule 2 of the

Act. The minority shareholders of Lawrence will be paid

the same price per share as that paid to NEES.

Lawrence is a gas utility company which supplies gas

service to over 30,000 customers in four communities in

northeast Massachusetts, with an estimated population of

140,700. In 1972 Lawrence had a net operating income

of $977,858, net income of $462,865, and net utility plant of

$14,767,993. Gas sales by Lawrence totaled 4,353,298 Mef

for that year. Lawrence has outstanding 188,000 shares of

common stock, of which 170,002, is owned indirectly by

8 Holding Company Act Release No. 17908 (March 16, 1973).

4 Holding Company Act Release No. 18133 (October 25, 1973).

5 The acquisition of the Lawrence stock was approved by the

Massachusetts Department of Public Utilities in D.P.U. 17726,

dated October 10, 1973.

6 As a result of the concurrent merger, Lawrence will be Bay

State’s sole statutory affiliate. The proposed acquisition is there-

fore not subject to Sections 9(a) (2) or 10 of the Act.

12a

NEES through Mass Gas. The balance of 17,998 is pub-

licly held. Lawrence’s pipeline natural gas is supplied by

Tennessee Gas Pipeline Company, which also supplied

Springfield.

We find, as required by Section 11(e), that the plan is

necessary to comply with Section 11(b). Our order there-

under directed NEES to divest its interests in its gas util-

ity companies, including Lawrence, and the sale of Law-

rence does that. The retirement of the minority shares of

Lawrence, as we have held in other cases,’ is required un-

der Section 11(b) (2).

We also find under Section 11(e) that the plan is ‘‘fair

and equitable’’ to NEES and the minority shareholders of

Lawrence. The highest bid received by NEES was the one

from Springfield, in the amount of $6,638,000, plus or minus

a dollar for dollar adjustment by the amount of any in-

crease or decrease in the underlying book value of the

shares between December 31, 1971, of the Lawrence shares

to be sold by NEES.* The minority shareholders will re-

ceive the same premium as NEES. This premium over

book value compares very favorably when tested against

the sales of securities of similar companies. The per

share price to be paid is 14.82 and 13.96 times Lawrence’s

earnings for the years 1972 and 1971, respectively.

The sale of the Lawrence stock is also subject to Section

12(d) of the Act and Rule 44 promulgated thereunder, in-

cluding the requirement that competitive conditions shall be

maintained with respect to the sale. NEES solicited ex-

T Northeast Utilities, Holding Company Act Release No. 15448

(April 13, 1966) ; Lynn Electric Company, 40 S.E.C. 828, 833 fn.

9 (1961); New Orleans Public Service, 40 S.E.C. 887 (1961).

8 The adjusted contract price would represent 183% of the

underlying book value of the shares at December 31, 1972.

® By order, dated November 23, 1971, we granted NEES an ex-

emption from the competitive bidding requirements of Rule 50.

Holding Company Act Release No. 17371.

13a

pressions of interest, either for the separate purchase of

Lawrence or together with its other remaining gas proper-

ties, by individual letters and by newspaper advertise-

ments. NEES conducted exploratory discussions with

those who expressed an interest in Lawrence, and at vari-

ous times sent additional information to them. Through-

out the prebidding period NEES provided the same basic

information to all who continued to have a serious inter-

est in the acquisition of Lawrence. NEES received sealed

bids for Lawrence at the same time and it reviewed them

at the same time. These procedures afforded a fair oppor-

tunity for all persons seriously interested to make offers

and for NEES to secure the maximum price reasonably ob-

tainable. We conclude that NEES maintained competi-

tive conditions in offering to sell Lawrence and in choos-

ing Springfield as the successful bidder.

The liquidation of Mass Gas and the transfer of its as-

sets and liabilities to NEES will be recorded at the values

carried on the books of Mass Gas. NEES proposes to

record the sale of the common stock of Lawrence by (1) a

debit to its cash account in the amount of the sales price;

(2) a credit to its investment account in the amount of the

book value of the shares sold and (3) a credit to dividend

income in an amount equal to the undistributed income

having accrued from the time the NEES system first ac-

quired the Lawrence shares. An amount equal to cash in

excess of the above credits will be credited to the earned

surplus account representing the gain to NEES from the

sale. Among other things, the order by the Massachusetts

Department of Public Utilities approving the acquisition

by Springfield requires it to segregate the excess of acqui-

sition price over the book valne of the Lawrence assets

and to amortize that amount over the life of the associated

property.

NEES and Mass Gas have requested that our order en-

tered herein recite that each of the transactions, exchanges,

l4a

sales and investments proposed in the plan are necessary

or appropriate to effectuate the provisions of Section

11(b)(1) of the Act, in accordance with the requirements

of Sections 1081 through 1083 of the Internal Revenue

Code of 1954, as amended. This request will be granted.

No fees or commissions will be paid by NEES or Mass

Gas in connection with the sale. Certain services, incident

to the transactions, have been or will be performed by New

England Power Service Company, the system service com-

pany, at cost. A post-effective amendment will be filed

setting forth these costs.

We conclude that the proposed transactions satisfy the

provisions of the Act and the rules thereunder. An ap-

propriate order will issue.

By the Commission. (Chairman Garrett, Commissioners

Loomis, Evans and Sommer. Commissioner Owens not

participating.)

Georce A. Firzstmmons

Secretary

lda

Release No. 18149/October 31, 1973

In the Matter of

New Encuanp Evectric System

MassacHuvusetts Gas System

Westborough, Massachusetts

(54-248, 70-5275)

Orper APPROVING Puan Fitep Unpber Section 11(e)

The Commission having issued its Findings and Opinion

and Order dated March 19, 1964 (Holding Company Act

Release No. 15035, 41 SEC 888), pursuant to Section 11(b)

(1) of the Public Utility Holding Company Act of 1935

(‘‘Act’’) requiring divestment by New England Electric

System (‘‘NEES’’) of all its interests, direct or indirect, in

its gas-utility subsidiary companies, and having ordered

therein under Section 11(b)(1) that NEES dispose of its

interests in its gas properties:

NEES and Massachusetts Gas System (‘‘Mass Gas’’)

having filed a plan, as amended, pursuant to Section 11(e)

of the Act, to effectuate compliance with the Section 11(b)

(1) order by the proposed divestiture of Lawrence Gas

Company (‘‘Lawrence’’); to retire the minority stock

interest in Lawrence and to carry out the other proposals

therein specified.

The Commission having considered the record and having

this day issued its Memorandum Opinion, concluding there-

in that the plan, as amended, is necessary to effectuate the

provisions of Section 11(b)(1) of the Act and is fair and

equitable to the persons affected thereby; and that NEES

ma.:tained competitive conditions in the bidding and pro-

posed sale of Lawrence to Springfield, as required under

Section 12(d) of the Act;

NEES and Mass Gas having requested the Commission

recite in its Order that the transactions proposed are nec-

l6a

essary or appropriate to the integration of the NEES

holding company system in accordance with the provisions

of Section 11(b) of the Act and with the requirements of

Section 1081 through 1083 of the Internal Revenue Code

of 1954, as amended:

Ir Is Orpverep that the request for hearing of the Asso-

ciation of Massachusetts Consumers is hereby denied; and

Ir Is FurtHeR Orperep, pursuant to Section 11(e) and

other provisions of the Act and Rules thereunder, that

said plan, as amended be, and it hereby is, approved, effec-

tive forthwith; and

Ir Is Hereny DeterMINneD AND Orperep that each of the

transfers, sales, exchanges, expenditures and investments

described in subparagraphs I and II below is necessary

or appropriate to the integration or simplification of the

holding-company system of which New England Electric

System is a member, and to the effectuation of the provis-

ions of Section 11(b) of the Act, and that each such trans-

action is hereby authorized, approved and directed; that

the sale and transfer described in subparagraph I below

is ordered to be consummated within 120 days from the

date of this Order; and that the expenditures or invest-

ments described in subparagraph II below are ordered to

be made within 24 months of such sale and transfer. The

transactions to which this Order relates, the stocks which

are to be transferred, sold and exchanged, and the expendi-

tures or investments which are to be made, are specified

and itemized as follows:

I. New England Electric System shall sell and transfer

to Springfield Gas Light Company 170,002 shares of

capital stock of par value of $10 per share of Law-

rence Gas Company in exchange for cash in the

amount of $6,608,000, plus or minus the net increase

or decrease in the book value thereof between De-

cember 31, 1971, and the end of the calendar month

next preceding such sale and transfer.

17a

IT. An amount equal to the amount of cash received by

New England Electric System upon the sale and

transfer of such shares of capital stock of Lawrence

Gas Company, as hereinabove ordered, shall be ex-

pended or invested by New England Electric Sys-

tem in one or more of the following manners: for

stock of, or as a contribution to the capital or as

paid-in surplus of, one or more corporations which

are at the time of such expenditure or investment

electric utility subsidiaries of New England Electric

System, including but not limited to the following:

Massachusetts Electric Company,

The Narragansett Electric Company,

Granite State Electric Company and

New England Power Company

or in repayment of short-term notes issued by New

England Electric System evidencing indebtedness

originally incurred by New England Electric Sys-

tem on November 15, 1972, in the principal amount

of $30 million, which amount was invested in com-

mon stock of said New England Power Company.

Ir Is Furtuer Ornverep that jurisdiction be, and it hereby

is, reserved to take such action or enter such further orders

as may be appr priate to carry out the provisions of Section

11(b) and the plan approved herein, including, insofar as

may be necesary, judicial enforcement of the provisions

in the plan for the elimination of the minority interest in

Lawrence.

By the Commission. (Chairman Garrett, Commissioners

Loomis, Evans and Sommer. Commissioner Owens not par-

ticipating.)

Georce A. FirzsmmMons

Secretary

18a

Unrtrep States or AMERICA

before the

SEcURITIES AND Excuance ComMISSION

Public Utility Holding Company Act of 1935

Rel. No. 18254/January 11, 1974

Admin. Proc. File No. 3-4053

In the Matter of

New Encuanp Execrric System

MassacHusetts Gas System

Westborough, Massachusetts

(54-248)

(70-5275)

SUPPLEMENTAL Memoranpum Opinion Anp Orper GrRant-

inc Leave To Fite Petition Out Or Toxwe Anp Deny-

Inc Petition For REHEARING

On October 31, 1973, we approved a plan of New England

Electric System (‘‘NEES’’), a registered holding com-

pany, filed pursuant to Section 11(e) of the Public Utility

Holding Company Act of 1935 (‘‘Act’’), and denied an

application filed by the Association of Massachusetts Con-

sumers, Inc. (“‘AMC’’) requesting a hearing on the plan

and moving for consolidation of the proceeding on such

plan with another NEES proceeding.’ On December 4,

1973, AMC petitioned for rehearing with respect to our

order. NEES opposes this petition but takes no position

on AMC’s motion for leave to file its petition out of time.”

The plan proposed that NEES sell its capital stock inter-

est in the Lawrence Gas Company (‘‘Lawrence’’), a sub-

sidiary company, to Springfield Gas Light Company

* Holding Company Act Release No. 18149 (October 31, 1973).

* Rule 21(a) of our Rules of Practice permits a petition for re-

hearing but a petition for rehearing is not preconditioned to ap-

pellate review of a Commission order under Section 24(a) of the

Act.

19a

(‘‘Springfield’’), an exempt holding company under Rule

2 of the Act. The sale of Lawrence to Springfield was

consummated on November 14, 1973, effective as of Oc-

tober 31, 1973, in accordance with the provisions of the

plan, as amended.

Originally, Springfield contemplated acquiring Lawrence

and merging it into either Springfield or Northhampton

Gas Light Company, (renamed Bay State Gas Company

(‘Bay State’’)), a wholly-owned subsidiary company of

Springfield. However, on advice of tax counsel Springfield

rearranged the form of acquisition so that Springfield and

Bay State were merged concurrently with the acquisition

of Lawrence, leaving Bay State as the surviving company

and Lawrence as its sole subsidiary. The acquisition of

Lawrence, whether by Springfield or Bay State, is not sub-

ject to Sections 9(a) (2) and 10 of the Act. Bay State, the

surviving company, is, like its predecessor, Springfield,

an exempt holding company. Notice of the proposed sale

of Lawrence, issued March 14, 1973, (Holding Company

Act Release No. 17906) gave any interested person until

April 9, 1973, to request in writing that a hearing be held.

In accordance with Rule 23(e) the notice specified that

any person requesting a hearing shall state the reason

for such request and the issues of fact or law raised by the

plan which he desires to controvert. On April 9, 1973,

AMC filed a request for hearing, an application to inter-

vene therein, and a motion to consolidate the Springfield

proceeding with another case in which a hearing had al-

ready been granted.

The other proceeding with which AMC sought consolida-

tion involved the proposed sale of three NEES gas utility

subsidiary companies, Lynn Gas Company (‘‘Lynn’’),

Mystie Valley Gas Company (‘‘Mystic Valley’’) and

North Shore Gas Company (‘‘North Shore’’) and Massa-

chusetts LNG, Inc., (‘‘ Mass. LNG’’), a gas storage com-

pany, to Eastern Gas and Fuel Associates (‘‘Kastern’’)

20a ,

the parent of Boston Gas Company (‘‘Boston Gas’’). A

concurrent purchase of the assets of these gas utility com-

panies and of the stock of Mass. LNG by Boston Gas was

to be effected so that a single gas utility company would

survive. AMC and others had requested a hearing on this

proposed sale to Eastern. AMC’s request for a hearing

set forth in detail the issues of fact and law which it de-

sired to controvert as prescribed in our notice of the pro-

posed sale and in Rule 23(e). AMC cited five issues sup-

ported by factual allegations on which it claimed a hear-

ing would be warranted. We ordered a hearing on that

sale. AMC was allowed limited participation at the hear-

ing in accordance with our Rules of Practice, and its coun-

sel participated from time to time in the proceeding which

lasted over seven weeks. The hearing was terminated

when AMC and others settled their controversy with

Eastern and NEES and withdrew from the proceeding,

as noted in our Memorandum Opinion and Order of Octo-

ber 25, 1973, approving the sale of the NEES subsidiary

companies.®

Although on April 9, 1973, AMC also requested a hearing

on the proposed sale of Lawrence to Springfield, it did

not specify reasons warranting a hearing on that partic-

ular transaction or state the particular issues of law and

fact it desired to controvert. Aside from a general conten-

tion that the two sales should be heard together, AMC

stated only: ‘‘{ W]e request you to hold a public hearing

on this matter which is subject to many of the same ob

jections we raised against the proposed sale of Lynn,

North Shore and Mystic Valley to Boston Gas.’”

’ Holding Company Act Release No. 18133 (October 25, 1973).

* This request appears in a pricr letter of AMC to the Admin-

istrative Law Judge, dated March 29, 1973, annexed to the ap-

plication as Appendix B. The request for hearing on the Eastern

sale referred to was annexed as Appendix A. The application of

April 9, 1973, itself was directed primarily to identifying AMC

and arguing for consolidation of the two proceedings.

2la

On October 31, 1973, six days after authorizing the East-

ern sale, we issued our Memorandum Opinion and Order

which authorized the sale of Lawrence. We denied AMC’s

request for a hearing because AMC had not presented any

reasons to justify its request.

This deficiency is more than a matter of form. A hearing

is not ordered as a matter of course nor are we required

to grant it merely because it has been requested.® A hear-

ing is a means of ascertaining the facts necessary to reach

a decision on legal issues in the proceeding. If a request

for a hearing fails to specify the issues of fact or law

which it is desired to controvert and the reasons why evi-

dence must be taken to resolve such controversies, no issue

has been drawn to define the scope of such hearing. Ac-

cordingly, in accordance with our established practice, our

notice in this proceeding expressly required such specifi-

eation.* This procedure makes good administrative sense

and at the very least serves to screen out requests for

hearings on vague, unsubstantial or immaterial issues.

Without it, a hearing may be futile or turned into a search

for issues rather than an effective exploration of issues

specifically identified and properly noticed.

AMC cannot expect us to determine for it which of the

‘‘many’’ reasons it had specified in opposition to the pro-

posed sale to Eastern had some relevance to the proposed

sale of Lawrence and to recast them into issues to be

heard in the latter proceeding. Pleading by allusion is no

substitute for the direct and explicit statement that we

have required as this very case demonstrates. Even con-

5 The price paid for NEES’ stock interest was $6,638,000 or 183%

of the book value. The minority stockholding of Lawrence will

be paid the same price.

® See Gulf States Utilities Co. v. F.P.C., 411 U.S. 762 (1973).

7 Holding Company Act Release No. 17906 (March 14, 1973). Cf.

Rule 23(e) and Rule 23(c).

22a

strued with the utmost liberality, AMC’s request would

not justify a hearing on the Lawrence sale.

It is clear that many of the AMC objections to the East-

ern acquisition could in no way be applicable to the pro-

posed Springfield acquisition. AMC objected to the pro-

posed merger of Lynn, Mystic Valley and North Shore

into Boston Gas, Eastern’s subsidiary, because of East-

ern’s substantial stock interest in Algonquin Gas Trans-

mission Company, Boston’s supplier of pipeline natural

gas. Springfield, on the other hand, receives its pipeline

gas from Tennessee Gas Transmission Company with

which it has no corporate affiliation.

Another AMC objection dealt with the alleged increment

of market control by Boston Gas if it were allowed to

merge with the three former NEES companies. Geograph-

ically, the utility properties to be acquired by Boston

adjoined its existing territory and shared with it gas ser-

vice to metropolitan Boston. In contrast, Lawrence and

Springfield serve distinct areas of Massachusetts. AMC

cited statistics showing an increase in Boston Gas custom-

ers, after the merger, from 338,680 on January 1, 1972,

or 31.68 percent of all Massachusetts private utility gas

customers, to 515,295 customers, or 48.20 percent. No sta-

tistics were cited by AMC to show the respective market

share or number of customers for Springfield, Bay State

and Lawrence. However, the record shows that as of Jan-

uary 1, 1972, Springfield had 67,849 customers, Bay State

had 8,000 customers and Lawrence had 32,791 customers.

Obviously, the aggregate market share for Springfield

and Bay State, assuming a combination with Lawrence, is

in no way comparable to that of Boston Gas.

In its petition for rehearing AMC seeks to restate its

objections to the Springfield sale. It is now alleged, for

the first time, that, in terms of market concentration,

23a *

Springfield should not be considered as a single and iso-

lated utility company. Springfield is related to a group of

other utilities through common executive personnel,® and

it is now urged that the effect of the Lawrence sale to

Springfield should be considered in this larger adminis-

trative context.

The statutory relevance of these new allegations is by no

means clear, but there is no need to pursue this issue now.

For present purposes it is sufficient to note that these

allegations were not even remotely suggested by AMC’s

original objections. In fairness to all concerned we do not

deem it proper to reconsider the Lawrence sale, which

has been consummated pursuant to our order, on the basis

of a novel issue of doubtful merit or relevance that AMC

has now presented to us for the first time.”

We could and did read AMC’s original request for hear-

ing as raising an issue as to the maintenance of competi-

tive conditions in the efforts by NEES to sell these com-

panies. The bidding itself, the evaluation of the bids and

8For many years, Springfield Gas Company, Fitchburg Gas

and Electric Light Company, Brockton-Taunton Gas Company

(Massachusetts) Concord Electric Company and Exeter and Hamp-

ton Electric Company (New Hampshire) and Orange and Rock-

land Utilities, Inc. (New York), an exempt holding company with

subsidiaries in adjacent portions of New Jersey and Pennsylvania,

have shared executive offices and certain other administrative

services.

® AMC’s statement that as a result of the sale Lawrence is trans-

ferred from one combination gas and electric utility holding com-

pany to another is unfounded. Springfield is not part of a statu-

tory holding-company system, and none of the companies with

which it has any administrative relationships conduct an electric

utility business in Lawrence. The sale of Lawrence effectively

separates its gas business from the electric service that NEES

provides in that area.

24a

the preparatory discussions NEES conducted with all

prospective bidders involved Lawrence as well as Lynn,

Mystic Valley and North Shore. It had to because NEES

had offered, as one bidding alternative, the sale of all

four companies together. Pecause this issue was neces-

sarily identical on both sales, we deferred action on the

Lawrence sale until a full exploration of the bidding pro-

cedure was completed in the Eastern hearing. If any ir-

regularities were to be uncovered, AMC’s counsel had

ample opportunity to uncover them in the seven weeks of

hearings on the Eastern acquisition. Having found after

a full hearing that the procedures adopted by NEES

maintained competitive conditions in sufficient measure to

satisfy Section 12(d) and Rule 44,’° we saw no need for

another hearing for the purpose of again reviewing the

same subject.

From AMC’s original request and from its present motion

for rehearing, it appears that AMC’s main objective was

to consolidate for hearing the two proceedings. They dealt

with the sale of different properties to different purchas-

ers at different prices, and, except for the question of the

»idding procedure, the governing facts were not interre-

lated. We adhere to the original determination that con-

solidation would have encumbered each proceeding and

purchaser with questions and proof foreign to the expedi-

tious disposition of the particular transaction involved.

AMC also takes exception to our determination that an

acquisition of the stock of a utility company with a con-

current liquidation or merger of the company acquired

should be considered, under the Act, as an acquisition of

assets rather than as an acquisition of utility securities.

It requires no argument to show that this interpretation

correctly reflects the substance of the transaction being

1° Holding Company Act Release No. 18133 (October 25, 1973).

25a

examined. The acquisition of the stock is simply a method

of transferring title to the assets. We have not been pre-

sented with any persuasive reasons to change our long

standing interpretation of Section 9(a) (2).”

It appears that there was an inadvertent failure to serve

AMC with the Order of October 31, 1973, authorizing the

Lawrence sale. The motion for leave to file the petition for

rehearing out of time is granted.

For the reasons set forth above, the petition for rehear-

ing is denied.

By the Commission.

/s/ Georce A. FirzstmmMons

George A. Fitzsimmons

Secretary

11 Crescent Public Service Company, 22 S.E.C. 426, 432 (1946).

The same rule is well established in tax law. Cf. Ashland Oil &

Refining Corp. v. Commissioner, 99 F.2d 588 (C.A. 6, 1936), cert.

den., 306 U.S. 661; Kanawaha Gas & Utilities Co. v. Commissioner,

214 F. 2d 685, 691 (C.A. 5, 1954).

26a

APPENDIX B

Pusuic Utmrry Houtpinc Company Act or 1935*

Tirte I—Conrrou or Pusiic Uriuity Hoitpinc Companies

Necessity for Control of Holding Companies

Sec. 1. (a) Public-utility holding companies and their

subsidiary companies are affected with a national public

interest in that, among other things, (1) their securities

are widely marketed and distributed by means of the mails

and instrumentalities of interstate commerce and are sold

to a large number of investors in different States; (2)

their service, sales, construction, and other contracts and

arrangements are often made and performed by means of

the mails and instrumentalities of interstate commerce;

(3) their subsidiary public-utility companies often sell and

transport gas and electric energy by the use of means

and instrumentalities of interstate commerce; (4) their

practices in respect of and control over subsidiary com-

panies often materially affect the interstate commerce in

which those companies engage; (5) their activities extend-

ing over many States are not susceptible of effective con-

trol by any State and make difficult, if not impossible, ef-

fective State regulation of public-utility companies.

(b) Upon the basis of facts disclosed by the reports of

the Federal Trade Commission made pursuant to S. Res.

83 (Seventieth Congress, first session), the reports of the

Committee on Interstate and Foreign Commerce, House

of Representatives, made pursuant to H. Res. 59 (Sev-

enty-second Congress, first session) and H. J. Res. 572

(Seventy-second Congress, second session) and otherwise

disclosed and ascertained, it is hereby declared that the

national public interest, the interest of investors on the

securities of holding companies and their subsidiary com-

panies and affiliates, and the interest of consumers of elec-

* Approved August 26, 1935, 49 Stat. 803, 15 U.S.C. 79a et seq.

Only Title I of this Act is printed herewith. Title II containing the

amendments of the Federal Water Power Act is administered by

the Federal Power Commission. (Note. See p. 29.)

27a

tric energy and natural and manufactured gas, are or may

be adversely affected—

(1) when such investors cannot obtain the information

necessary to appraise the financial position or earning

power of the issuers, because of the absence of uniform

standard accounts; when such securities are issued with-

out the approval or consent of the States having jurisdic-

tion over subsidiary public-utility companies; when such

securities are issued upon the basis of fictitious or un-

sound asset values having no fair relation to the sums in-

vested in or the earning capacity of the properties and

upon the basis of paper profits from intercompany trans-

actions, or in anticipation of excessive revenues from sub-

sidiary public-utilty companies; when such securities are

issued by a subsidiary public-utility company under cir-

cumstances which subject such company to the burden of

supporting an overcapitalized structure and tend to pre-

vent voluntary rate reductions;

(2) when subsidiary public-utility companies are sub-

jected to excessive charges for services, construction

work, equipment, and materials, or enter into transactions

in which evils result from an absence of arm’s-length bar-

gaining or from restraint of free and independent compe-

tition; when service, management, construction, and other

contracts involve the allocation of charges among subsid-

iary public-utility companies in different States so as to

present problems of regulation which cannot be dealt with

effectively by the States;

(3) when control of subsidiary public-utility companies

affects the accounting practices and rate, dividend, and

other policies of such companies so as to complicate and

obstruct State regulation of such companies, or when con-

trol of such companies is exerted through disproportion-

ately small investment;

(4) when the growth and extension of holding compan-

ies bears no relation to economy of management and op-

28a

eration or the integration and coordination of related op-

erating properties; or

(5) when in any other respect there is lack of economy

of management and operation of public-utility companies

or lack of efficiency and adequacy of service rendered by

such companies, or lack of effective public regulation, or

lack of economies in the raising of capital.

(c) When abuses of the character above enumerated be-

come persistent and wide-spread the holding company be-

comes an agency which, unless regulated, is injurious to

investors, consumers, and the general public; and it is

hereby declared to be the policy of this title, in accordance

with which policy all the provisions of this title shall be

interpreted, to meet the problems and eliminate the evils

as enumerated in this section, connected with public-util-

ity holding companies which are engaged in interstate com-

merce or in activities which directly affect or burden in-

terstate commerce; and for the purpose of effectuating

such policy to compel the simplification of public-utility

holding-company systems and the elimination therefrom

of properties detrimental to the proper functioning of

such systems, and to provide as soon as practicable for

the elimination of public-utility holding companies except

as otherwise expressly provided in this title.

Definitions

Sec. 2. (a) When used in this title, unless the context

otherwise requires—

* * . * * * . 7 * +

(11) ‘‘Affiliate’’ of a specified company means—

(A) any person that directly or indirectly owns, con-

trols, or holds with power to vote, 5 per centum or

more of the outstanding voting securities of such

specified company ;

29a

Acquisition of Securities and Utility Assets and

Other Interests

Sec. 9. (a) Unless the acquisition has been approved by

the Commission under section 10, it shall be unlawful—

(1) for any registered holding company or any sub-

si.iary company thereof, by use of the mails or any

means or instrumentality of interstate commerce, or

otherwise, to acquire, directly or indirectly, any securi-

ties or utility assets or any other interest in any busi-

ness;

(2) for any person, by use of the mails or any means

or instrumentality of interstate commerce, to acquire,

directly or indirectly, any security of any pvublic-utility

company, if such person is an affiliate, under clause (A)

of paragraph (11) of subsection (a) of section 2, of

such company and of any other public utility or holding

company, or will by virtue of such acquisition become

such an affiliate.

(b) Subsection (a) shall not apply to—

(1) the acquisition by a public-utility company of util-

ity assets the acquisition of which has been expressly

authorized by a State commission; or

(2) the acquisition by a public-utility company of se-

curities of a subsidiary public-utility company thereof,

provided that both such public-utility companies and

all other public-utility companies in the same holding-

company system are organized in the same State, that

the business of each such company in such system is

substantially confined to such State, and that the acqui-

sition of such securities has been expressly authorized

by the State commission of such State.

(c) Subsection (a) shall not apply to the acquisition by

a registered holding company, or a subsidiary company

thereof, of—

30a

(i} securities of, or securities the principal or inter-

est of which is guaranteed by, the United States, a

State, or political subdivision of a State, or any agency,

authority, or instrumentality of any one or more of the

foregoing, or any corporation which is wholly owned,

directly or indirectly, by any one or more of the fore-

going ;

(2) such other readily marketable securities, within

the limitation of such amounts, as the Commission may

by rules and regulations prescribe as appropriate for

investment of current funds and as not detrimental to

the public interest or the interest of investors or con-

sumers; or

(3) such commercial paper and other securities, with-

in such limitations, as the Commission may by rules and

regulations or order prescribe as appropriate in the

ordinary course of business of a registered holding com-

pany or subsidiary company thereof and as not detri-

mental to the public interest or the interest of investors

or consumers.

Approval of Acquisition of Securities and Utility Assets

and Other Interests

Sec. 10. (a) A person may apply for approval of the

3la

(A) the security to be acquired, the consideration to

be paid therefor, and compliance with such State laws

as may apply in respect of the issue, sale, or acquisition

thereof,

(B) the outstanding securities of the company whose

security is to be acquired, the terms, position, rights,

and privileges of each class and the options in respect

of any such securities,

(C) the names of all security holders of record (or

otherwise known to the applicant) owning, holding, or

controlling 1 per centum or more of any class of security

of such company, the officers and directors of such com-

pany, and their remuneration, security holdings in, ma-

terial contracts with, and borrowings from such com-

pany and the offices or directorships held, and securities

owned, held, or controlled, by them in other companies,

(D) the bonus, profit-sharing and voting-trust agree-

ments, underwriting arrangements, trust indentures,

mortgages, and similar documents, by whatever name

known, of or relating to such company,

(E) the material contracts, not made in the ordinary

course of business, and the service, sales, and construc-

tion contracts of such company,

acquisition of securities or utility assets, or of any other

interest in any business, by filing an application in such

form as the Commission may by rules and regulations pre-

scribe as necessary or appropriate in the public interest

or for the protection of investors and consumers. Such

application shall include—

(F) the securities owned, held, or controlled, directly

or indirectly, by such company,

(G) balance sheets and profit and k 3s statements of

such company for not more than five preceding fiscal

years, certified, if required by the rules and regulations

of the Commission by an independent public accountant,

(1) in the case of the acquisition of securities, such

information and copies of such documents as the Com-

mission may by rules and regulations or order pre-

scribe as necessary or appropriate in the public interest

(H) any further information regarding such company

and any associate company or affiliate thereof, or its re-

ations with the applicant company, and

or for the protection of investors or consumers in re-

spect of—

(I) if the applicant be not a registered holding com-

pany, any of the information and documents which may

32a

be required under section 5 from a registered holding

company ;

(2) in the case of the acquisition of utility assets, such

information concerning such assets, the value thereof and

consideration to be paid therefor, the owner or owners

thereof and their relation to, agreements with, and interest

in the securities of, the applicant or any associate company

thereof as the Commission may by rules and regulations or

order prescribe as necessary or appropriate in the public

interest or for the protection of investors or consumers;

and

(3) in the case of the acquisition of any othe interest

in any business, such information concerning such business

and the interest to be acquired, and the consideration to be

paid, as the Commission may by rules and regulations or

order prescribe as necessary or appropriate in the public

interest or for the protection of investors or consumers.

(b) If the requirements of subsection (f) are satisfied,

the Commission shall approve the acquisition unless the

Commission finds that—

(1) such acquisition will tend towards interlocking

relations or the concentration of control of public-

utility companies, of a kind or to an extent detrimental

to the public interest or the interest of investors or

consumers ;

(2) in ease of the acquisition of securities or utility

assets, the consideration, including all fees, commis-

sions, and other remuneration, to whomsoever paid, to

be given, directly or indirectly, in connection with such

acquisition is not reasonable or does not bear a fair re-

lation to the sums invested in or the earning capacity

of the utility assets to be acquired or the utility assets

underlying the securities to be acquired; or

(3) such acquisition will unduly complicate the capi-

tal structure of the holding-company system of the ap-

33a

plicant or will be detrimental to the public interest or

the interest of investors or consumers or the proper

functioning of such holding-company system.

The Commission may condition its approval of the acquisi-

tion of securities of another company upon such a fair offer

to purchase such of the other securities of the company

whose security is to be acquired as the Commission may

find necessary or appropriate in the public interest or for

the protection of investors or consumers.

(c) Notwithstanding the provisions of subsection (b), the

Commission shall not approve—

(1) an acquisition of securities or utility assets, or of any

other interest, which is unlawful under the provisions of

section 8 or is detrimental to the carrying out of the pro-

visions of section 11; or

(2) the acquisition of securities or utility assets of a pub-

lic-utility or holding company unless the Commission finds

that such acquisition will serve the public interest by tend-

ing towards the economical and efficient development of an

integrated public-utility system. This paragraph shali not

apply to the acquisition of securities or utility assets of a

public-utility company operating exclusively outside the

United States.

(d) Within such reasonable time after the filing of an

application under this section as the Commission shall fix

by rules and regulations or order, the Commission shall

enter an order either granting or, after notice and oppor-

tunity for hearing, denying approval of the acquisition

unless the applicant shall withdraw its application. Amend-

ments to an application may be made upon such terms and

conditions as the Commission may prescribe.

(e) The Commission, in any order approving the acqui-

sition of securities or utility assets, may prescribe such

terms and conditions in respect of such acquisition, inelud-

ing the price to be paid for such securities or utility assets,

ota

as the Commission may find necessary or appropriate in

the public interest or for the protection of investors or

consumers.

(f) The Commission shall not approve any acquisition as

to which an application is made under this section unless it

appears to the satisfaction of the Commission that such

State laws as may apply in respect of such acquisition have

been complied with, except where the Commission finds

that compliance with such State laws would be detrimental

to the carrying out of the provisions of section 11.

Simplification of Holding-Company Systems

Sec. 11. (a) It shall be the duty of the Commission to

examine the corporate structure of every registered hold-

ing company and subsidiary company thereof, the relation-

ships among the companies in the holding-company system

of every such company and the character of the interests

thereof and the properties owned or controlled thereby to

determine the extent to which the corporate structure of

such holding-company system and the companies therein

may be simplified, unnecessary complexities therein climi-

nated, voting power fairly and equitably distributed among

the holders of securities thereof, and the properties and

business thereof confined to those necessary or appropri-

ate to the operations of an integrated public-utility system.

(b) It shall be the duty of the Commission, as soon as

practicable after January 1, 1928:

_(1) To require by order, after notice and opportu-

nity for hearing, that each registered holding company,

and each subsidiary company thereof, shall take such

action us the Commission shall find necessary to limit

the operations of the holding-company system of which

such company is a part to a single integrated public-

utility system, and to such other businesses as are

reasonably incidental, or economically necessary or ap-

propriate to the operations of such integrated public-

utility system: Provided, however, That the Commis-

35a

sion shall permit a registered holding company to

continue to control one or more additional integrated

public-utility systems, if, after notice and opportunity

for hearing, it finds that—

(A) Each of such additional systems cannot be

operated as an independent system without the loss

substantial economies which can be secured by the

retention of control by such holding company of such

system;

(B) All of such additional systems are located in

one State, or in adjoining States, or in a contiguous

foreign country; and

(C) The continued combination of such systems

under the control of such holding company is not

so large (considering the state of the art and the

area or region affected) as to impair the advantage

of localized management, efficient operation, or the

effectiveness of regulation.

The Commission may permit as reasonably incidental,

or economically necessary or appropriate to the opera-

tions of one or more integrated public-utility systems

the retention of an interest in any business (other than

the business of a public-utility company as such) which

the Commission shall find necessary or appropriate in

the public interest or for the protection of investors or

consumers and not detrimental to the proper function-

ing of such system or systems.

(2) To require by order, after notice and opportu-

nity for hearing, that each registered holding com-

pany, and each subsidiary company thereof, shall take

such steps as the Commission shall find necessary

to ensure that the corporate structure or con-

tinued existence of any company in the holding-

company system does not unduly or unnecessarily com-

plicate the structure, or unfairly or inequitably dis-

tribute voting power among security holders, of such

holding-company system. In carrying out the pro-

visions of this paragraph the Commission shall require

each registered holding company (and any company

in the same holding-company system with such hold-

36a

ing company) to take such action as the Commission

shall find necessary in order that such holding com-

pany shall cease to be a holding company with respect

to each of its subsidiary companies which itself has a

subsidiary company which is a holding company. Ex-

cept for the purpose of fairly and equitably distribut-

ing voting power among the security holders of such

company, nothing in this paragraph shall authorize

the Commission to require any change in the corporate

structure or existence of any company which is not

a holding company, or of any company whose principal

business is that of a public-utility company.

The Commission may by order revoke or modify any order

previously made under this subsection, if, after notice and

opportunity for hearing, it finds that the conditions upon

which the order was predicated do not exist. Any order

made under this subsection shall be subject to judicial re-

view as provided in section 24.

(c) Any order under subsection (b) shall be complied

with within one year from the date of such order; but the

Commission shall, upon a showing (made before or after

the entry of such order) that the applicant has been or will

be unable in the exercise of due diligence to comply with

such order within such time, extend such time for an addi-

tional period not exceeding one year if it finds such exten-

sion necessary or appropriate in the public interest or for

the protection of investors or consumers.

(d) The Commission may apply to a court, in accordance

with the provisions of subsection (f) of section 18, to en-

force compliance with any order issued under subsection

(b). In any such proceeding, the court as a court of equity

may, to such extent as it deems necessary for purposes of

enforcement of such order, take exclusive jurisdiction and

possession of the company or companies and the assets

thereof, wherever located; and the court shall have juris-

diction, in any such proceeding, to appoint a trustee, and

the court may constitute and appoint the Commission as

lan ph aniia dukdiin eee eid »

<A apwe en +

TO PO Oe POEUN aD EW

Pe eT a eee

37a

sole trustee, to hold or administer under the direction of

the court the assets so possessed. In any proceeding for

the enforcement of an order of the Commission issued

under subsection (b), the trustee with the approval of the

court shall have power to dispose of any or all of such as-

sets and, subject to such terms and conditions as the court

may prescribe, may make such disposition in accordance

with a fair and equitable reorganization plan which shall

have been approved by the Commission after opportraity

for hearing. Such reorganization plan may be proposed in

the first instance by the Commission, or, subject to such

rules and regulations as the Commission may deem neces-

sary or appropriate in the public interest or for the protec-

tion of investors, by any person having a bona fide interest

(as defined by the rules and regulations of the Commis-

sion) in the reorganization.

(e) In accordance with such rules and regulations or

order as the Commission may deem necessary or appro-

priate in the public interest or for the protection of in-

vestors or consumers, any registered holding company or

any subsidiary company of a registered holding company

may, at any time after January 1, 1936, submit a plan to

the Commission for the divestment of control, securities,

or other assets, or for other action by such company or any

subsidiary company thereof for the purpose of enabling

such company or any subsidiary company thereof to com-

ply with the provisions of subsection (b). If, after notice

and opportunity for hearing, the Commission shall find

such plan, as submitted or as modified, necessary to ef-

fectuate the provisions of subsection (b) and fair and

equitable to the persons affected by such plan, the Com-

mission shall make an order approving such plan; and the

Commission, at the request of the company, may apply to

a court, in accordance with the provisions of subsection

(f) of section 18, to enforce and carry out the terms and

provisions of such plan. If, upon any such application,

the court, after notice and opportunity for hearing, shall

38a

approve such plan as fair and equitable and as appropriate

to effectuate the provisions of section 11, the court as a

court of equity may, to such extent as it deems necessary

for the purpose of carrying out the terms and provisions

of such plan, take exclusive jurisdiction and possession of

the company or companies and the assets thereof, wherever

located; and the court shall have jurisdiction to appoint a

trustee, and the court may constitute and appoint the Com-

mission as sole trustee, to hold or administer under the

direction of the court and in accordance with the plan

theretofore approved by the court and the Commission,

the assets so possessed.

(f) In any proceeding in a court of the United States,

whether under this section or otherwise, in which a receiver

or trustee is appointed for any registered holding com-

pany, or any subsidiary company thereof, the court may

constitute and appoint the Commission as sole trustee or

receiver, subject to the directions and orders of the court,

whether or not a trustee or receiver shall theretofore have

been appointed, and in any such proceeding the court shall

not appoint any person other than the Commision as trus-

tee or receiver without notifying the Commision and giving

it an opportunity to be heard before making any such

otherwise shall the Commission be appointed as trustee or

receiver without its express consent. In any such proceed-

ing a reorganization plan for a registered holding company

or any subsidiary company thereof shall not become effec-

tive unless such plan shall have been approved by the com-

mission after opportunity for hearing prior to its submis-

sion to the court. Notwithstanding any other provision

of law, any such reorganization plan may be proposed in

the first instance by the Commission or, subject to such

rules and regulations as the Commission may deem neces-

sary or appropriate in the public interest or for the protec-

tion of investors, by any person having a bona fide interest

(as defined by the rules and regulations of the Commis-

sion) in the reorganization. The Commission may, by such

39a

rules and regulations or order as it may deem necessary or

appropriate in the public interest or for the protection of

investors or consumers, require that any or all fees, ex-

penses, and remuneration, to whomsoever paid, in connec-

tion with any reorganization, dissolution, liquidation, bank-

ruptcy, or receivership of a registered holding company or

subsidiary company thereof, in any such proceeding shall

be subject to approval by the Commission.

(¢) It shall be unlawful for any person to solicit or per-

mit the use of his or its name to solicit, by use of the mails

or any means or instrumentality of interstate commerce,

or otherwise, any proxy, consent, authorization, power of

attorney, deposit, or dissent in respect of any reorganiza-

tion plan of a registered holding company or any subsidi-

ary company thereof under this section, or otherwise, or

in respect of any plan under this section for the divest-

ment of control, securities, or other assets, or for the disso-

lution of any registered holding company or any subsidiary

company thereof, unless—

(1) the plan has been proposed by the Commission,

or the plan and such information regarding it and its

sponsors as the Commission may deem necessary or

appropriate in the public interest or for the protection

of investors or consumers has been submitted to the

Commission by a person having a bona fide interest

(as defined by the rules and regulations of the Com-

mission) in such reorganization ;

(2) each such solicitation is accompanied or pre-

ceded by a copy of a report on the plan which shall be

made by the Commission after an opportunity for a

hearing on the plan and other plans submitted to it,

or by an abstract of such report made or approved by

the Commission; and

(3) each such solicitation is made not in contraven-

tion of such rules and regulations or orders as the

40a

Commission may deem necessary or appropriate in the

public interest or for the protection of investors or

consumers.

Nothing in this subsection or the rules and regulations

thereunder shall prevent any person from appearing be-

fore the Commission or any court through an attorney or

proxy.

G The Commonwealth of Massachusetts

nomen

PAUL 6. OITLin

EXECUTIVE SECRETARY

October 1, 1975

The following resolution was adopted by unanimous vote

of the Massachusetts Consumers’ Council at its regularly

scheduled monthly meeting of September 11, 1975.

Resolved:

That the Massachusetts Consumers’ Council urge the

Association of Massachusetts Consumers to continue and

pursue its challenge to the merger of Lawrence Gas with

aoa TTT TGS i elf

Springfield Gas (now Bay State Gas) and explore all

avenwes of appeal, including the Supreme Court, in order

to force resclution of the public interest considerations

involved in the creation of bigger and bigger utiiity

combinations in Massachusetts.

A true copy attested by:

NOTARY PUBLIC:

0

we

my Coase SSicn Cave’ 0k

mAT UA

43a

APPENDIX D

UNITED STATES OF AMERICA

FEDERAL POWER COMMISSION

Before Commissioners: Jonn N. Nassrtkas, Chairman;

Wruiam L, Sprincer, and Joun H. Hottoman III.

Docket No. ID-1316

Grorce A. CARLSON

Docket No. ID-1643

Tuomas W. SHERMAN

Docket No. ID-1599

JAMES F’. SMITH

Docket No. ID-1095

Cuarzes H. Tenney IT

Order To Show Cause

(Issued September 15, 1975)

By order issued October 24, 1957, George A. Carlson

(Applicant) was authorized pursuant to Section 305(b) of

the Federal Power Act to hold the following positions:

Assistant Treasurer—Fitchburg Gas & Electric Light Com-

pany

Assistant Treasurer—Rockland Light & Power Company

Assistant Treasurer—Rockland Hieciric Company

Assistant Treasurer—Pike County Light & Power Com-

pany

By order issued November 26, 1971, Thomas W. Sherman

(Applicant) was authorized pursuant to Section 305(b)

of the Federal Power Act to hold the following positions:

Assistant Treasurer—Orange & Rockland Utilities, Ine.

Assistant Treasurer—Rockland Electric Company

44a

Assistant Treasurer—Pike County Light & Power Com-

pany

Assistant Treasurer—Fitchburg Gas & Electric Light

Company

By order issued August 2, 1972, James F. Smith (Appli-

cant) was authorized pursuant to Section 305(b) of the

Federal Power Act to hold the following positions:

Director, Vice President, Treasurer and Assistant Secre-

tary—Orange & Rockland Utilities, Inc.

Director, Vice President, Treasurer and Assistant Secre-

tary—Rockland Electrie Company

Director, Vice President, Treasurer and Assistant Secre-

tary—Pike County Light & Power Company

Director and Vice President—Fitchburg Gas and Electric

Light Company

By order issued February 18, 1964, Charles H. Tenney IT

(Applicant) was authorized pursuant to Section 305(b) of

the Federal Power Act to hold the following positions:

Chairman of the Board of Directors, Director—Orange &

Rockland Utilities, Ine.

Chairman of the Board of Directors, Director—Pike

County Light & Power Company

Chairman of the Board of Directors, Director—Rockland

Electric Company

Chairman of the Board of Directors, Director—Fitchburg

Gas & Electric Light Company

In each of the aforementioned orders, the Commission

reserved the right to require Applicants to make further

showings that neither public nor private interests would

be adversely affeeted by the continued holding of the above-

named positions.

45a

Persons are prohibited by Section 305(b) of the Federal

Power Act from holding interlocking board of directors

and officers positions in two or more utilities unless they

demonstrate that such holding is not adverse to public or

private interests. In the past, the Commission has gen-

erally authorized the holding of interlocking positions

between companies which are under common ownership,

which have adjoining territories, and which operate as a

single integrated utility system, as in the case of utilities

within the Orange & Rockland Group.’ However, the Ap-

plicants hold positions which interlock both within the

Orange & Rockland Group and with companies outside *

the Orange and Rockland Group. The Commission has not

granted authorization for persons to hold interlocking

positions which extend outside a group of utilities which

operate as an integrated utility system, except in the case

of the applicants all of whom are associated with the so

called ‘‘Tenney Group’’’*.

Based upon a Staff investigation of the ‘‘Tenney Group’’

arrangement, the Commission has determined that the

present holding of interlocking positions which extend to

utilities outside the Orange & Rockland Group may be

adverse to public or private interests insofar as Orange &

Rockland and subsidiaries are concerned because:

1 Utilities involved in the Orange & Rockland Group arrange-

ment are: Orange & Rockland Utilities, Inc., and its subsidiaries,

Rockland Electric Company, and Pike County Light & Power

Company. These companies are subject to Commission jurisdiction.

2Tenney Group companies outside the Orange & Rockland

Group: Fitchburg Gas & Electric Company (subject to Commission

jurisdiction), Brockton Taunton Gas Company, Concord Electric

Company, Exeter and Hampton Electric Company, and Bay State

Gas Company.

8 “‘Tenney Group’’: Provides management and other services

to the group of utilities listed in footnotes 1 & 2, notwithstanding

the fact that the number of shares of voting stock owned directly

or indirectly in each company is relatively small.

46a

(1) Orange & Rockland Utilities and subsidiaries no

longer should be considered a small utility and the com-

plexity of its operation warrants full time executive man-

agement by its officers and directors;

(2) Support of offices in Boston by Orange & Rockland

Utilities and subsidiaries as an integral part of sharing

the talent of certain key executives appears no longer to be

justified by any reciprocal benefits to Orange & Rockland

and its subsidiaries;

(3) Orange & Rockland Utilities and subsidiaries while

sharing its top executives with other utilities encountered

serious financial problems much earlier than the onset of

financial problems in the electric utility industry and these

problems were attributable in part to deficiencies which

relate to:

(a) management of reported earnings beginning as

early as 1968 through accounting changes while avoid-

ing requests for rate increases;

(b) actions related to arrangements for construction

and operation of the Bowline Generating Station on a

joint owneiship basis with Consolidated Edison Com-

pany; and

(c) administration of joint-use of pole arrangements

with telephone utilities and cable television operators.

Notwithstanding the size and complexity of the opera-

tions of Orange & Rockland and subsidiaries, the ‘‘ Tenney

Group’’ arrangement calls for four persons in executive

management positions to be located in Boston apart from

Orange & Rockland’s main office in Spring Valley, New

York and to devote only part of their time to the affairs of

Orange & Rockland and subsidiaries.

In addition, Charles H. Tenney II as Chairman of the

Board of Directors for Orange & Rockland Group Compa-

nies and other Companies participating in the ‘‘Tenney

47a

Group’’ arrangement received in 1973 a total salary of

$158,417.00, of which 42% or $65,750.00 was borne by

Orange & Rockland Utilities and subsidiaries. For the

year 1973 Orange & Rockland Utilities and subsidiaries

had operating revenues totaling approximately $123.4 mil-

lion. Accounting to a report published by Commonwealth

Management Consultants,‘ the median salary for the high-

est paid top executive of a company having revenues in

the range of $123.4 million was between $70,000 and

$80,000, or about one-half of the effective annual rate paid

Charles H. Tenney II by Orange & Rockland and subsid-

iaries. Absent a showing of special circumstances, there

would appear to be no justification for Applicant to re-

ceive a salary substantially in excess of the levels paid

other utility executives reported in the survey.

The Commission finds:

In view of the foregoing, it is necessary and appropriate

for the purpose of administering the Federal Power Act

that the Applicants show cause, if any there be, why the

Commission should not terminate the present authority to

hold the interlocking positions referred to above.

The Commission orders:

(A) George A. Carlson, ID-1316, shall show cause, if

any there be, on or before October 17, 1975, why the Com-

mission should not find and determine that the continued

authorization to hold the following interlocking positions:

Assistant Treasurer—Fitchburg Gas & Electric Light

Company

Assistant Treasurer—Rockland Light & Power Company

Assistant Treasurer—Rockland Electric Company

4The published results of a study of executive salaries by Com-

monweelth Management Consultants for the year 1971. The sur-

vey on which the results were based included executives in 77

electric, gas, combination and pipeline utility companies.

48a

Assistant Treasurer—Pike County Light & Power Com-

pany

would be adverse to public or private interests and should

be terminated.

(B) Thomas W. Sherman, ID-1643, shall show cause, if

any there be, on or before October 17, 1975, why the Com-

mission should not find and determine that the continued

authorizations to hold the following interlocking positions.

Assistant Treasurer—Orange & Rockland Utilities, Ine.

Assistant Treasurer—Rockland Electric Company

Assistant Treasurer—Pike County Light & Power Com-

pany

Assistant Treasurer—Fitchburg Gas & Electric Light

Company

would be adverse to public or private interests and should

be terminated.

(C) James F. Smith, 1D-1599, shall show cause, if any

there be, on or before October 17, 1975, why the Commis-

sion should not find and determine that the continued

authorization to hold the following interlocking positions:

Director, Vice President, Treasurer and Assistant Secre-

tary—Orange & Rockland Utilities, Inc.

Direetor, Vice President, Treasurer and Assistant Secre-

tary—Rockland Electric Company

Director, Vice President, Treasurer and Assistant Secre-

tary—Pike County Light & Power Company

Director and Vice President—Fitchburg Gas & Electric

Light Company

would be adverse to public or private interests and should

be terminated.

49a

(D) Charles H. Tenney II, ID-1095, shall show cause,

if any there be, on or before October 17, 1975, why the

Commission should not find and determine that the con-

tinued authorization to hold the following interlocking

positions:

Chairman of the Board of Directors, Director—Orange &

Rockland Utilities, Inc.

Chairman of the Board of Directors, Director—Pike

County Light & Power Company

Chairman of the Board of Directors, Director—Rockland

Electric Company

Chairman of the Board of Directors, Director—Fitchburg

Gas & Electric Light Company

would be adverse to public or private interests and should

be terminated.

By the Commission.

(Sav)

Kewnneta F. Pius,

Secretary.