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

No. 75-607

Iu the Supreme Court of the United States

OCTOBER TERM, 1975

ASSOCIATION OF MASSACHUSETTS CONSUMERS, INC.,

PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE SECURITIES AND

EXCHANGE COMMISSION IN OPPOSITION

ROBERT H. BORK,

Solicitor General,

Department of Justice,

Washington, D.C. 20530.

DAVID FERBER,

Solicitor to the Commission,

GRANT G. GUTHRIE,

Special Counsel,

ANDREW F’. MACDONALD,

Attorney,

Securities and Exchange Commission,

Washington, D.C. 20549.

INDEX

Page

I dia oe 1

Jurisdiction —.____. POE eM Os DCRR nee ae eR 2

Questions presented 2

Statute involved SN ene 3

Statement - alee iiacaleipseaea eta iahdide nl bat. 3

Argument . 9

EE REE Ee a ee ae ee 16

| RE nn ae rent ee sonew aa la

CITATIONS

Cases:

American Electric Power Company, Inc.,

40 S.E.C. 564... EES eWay) Senate 10

Louisiana Gas Service Company, et al., 40

New England Electric System, 44 S.E.C.

New England Electric System, 41 S.E.C.

(eee ; 3

Securities and Exchange Commission v.

New England Electric System, 376 F.

2d 399, reversed, 384 U.S. 176 3-4

Securities and Exchange Commission v.

New England Electric System 376 F.

2d 107, reversed, 390 U.S. 207 4

United States v. Interstate Commerce

Commision, 396 U.S. 491.0 11

Valley Gas Company, et al., 41 S.E.C.

eae iesoalileanedlalamennbeneaieidiciili 10

Il mi

Rules and Regulations under the Public

Utility Holding Company Act of 1935:

Rule 6, 17 C.F.R. 250.6... 3, 15, 5a

Rule 23(e), 17 C.F.R. 250.23(e)_.3, 10, 6a

Statutes and rules: Page Statutes and rules—Continued Page

Federal Power Act, 49 Stat. 856, Section - a

305(b), 16 U.S.C. 825d(b) 14 yt crag eeatmmcaada

Public Utility Holding Company Act of

1935, 49 Stat. 803, 15 US.C. 79, et Rule 9(c), 17 C.F.R. 201.9(c).._ 6, 10

iit Miscellaneous :

Sestion B(a)(7), 15 UBC. Tera) Moody’s Public Utility Manual (1975

(a 3, 14, la-3a : ed.) 14

Section 2(a)(7)(A), 15 U.S.C. 79b New England ‘Electric. ‘System, Public

(a) (7) (A) nanan nee la nage Holding Company Act Release

(a) (7) (B) —----__-__---_----— 14, la New "England Electric System, Public

Section 2(a) (11) (A), 15 U.S.C. 79b Utility Holding Company Act Release

(a) (11) (A) 1 No. 16618 (February 24,1970) 10

Section 2(b), 15 U.S.C. 79b(b)___.3, 3a-4a New England Electric System, Public

Section 3(a), 15 U.S.C. 79¢(a)_..3,15, 4a Utility Holding Company Act Release

Section 3(a)(1), 15 U.S.C. 79ce(a) No. 17874 (February 5, 1973) 5

(1) 5, 4a-ba New England Electric System, Public

Section 9(a) (2), 15 U.S.C. 79i(a) Utility Holding Company Act Release

ee 2, 8,9, 11,12 No. 17906 (March 14, 1973). 5

Section 10, 15 US.C. ——— 8, 9, 11, 12 New England Electric System, Public

Section 11(b), 15 U.S.C. 79k(b)___.. 9, 10 Utility Holding Company Act Release

Section 11(b)(1), 15 U.S.C. 79k(b) No. 17908 (March 16, 1973)_. 6

(1) nnn anne nnne nner 3, 13 | New England Electric System, Public

Section 11(c), 15 U.S.C. 79k(c) 9, 10 | Utility Holding Company Act Release

Section 1l(e), 15 U.S.C. 79k(e)___. 3, 4, 5, No. 18133 (October 25, 1973) 7

9,10 Wall Street Journal, October 6, 1975 __. 14

Section 12(d), 15 U.S.C. 791(d)_.3, 6, 7, 5a Wall Street Journal, November 10, 1975. 14

In the Supreme Court of the United States

OCTOBER TERM, 1975

No. 75-607

ASSOCIATION OF MASSACHUSETTS CONSUMERS, INC.,

PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE SECURITIES AND

EXCHANGE COMMISSION IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App.

la-9a) is reported at 516 F. 2d 711. The memo-

randum opinions and orders of the Securities and

Exchange Commission (“Commission”) issued on Oc-

tober 31, 1973, New England Electric System, Pub-

lic Utility Holding Company Act Release No. 18149,

and on January 11, 1974, Public Utility Holding

(1)

2

Company Act Release No. 18254, are set forth at

Pet. App. 10a-25a.

JURISDICTION

The judgment of the court of appeals was entered

on July 24, 1975. The petition for a writ of cer-

tiorari was filed on October 22, 1975. The jurisdic-

tion of this Court is invoked under 28 U.S.C. 1254

(1). :

QUESTIONS PRESENTED

1. Whether the Securities and Exchange Com-

mission abused its discretion in denying petitioner

consumers’ association a hearing on the propriety of

a sale of a gas utility subsidiary by a holding com-

pany registered under the Public Utility Holding

Company Act, when the consumers’ association failed

to raise any specific issues in its application that

it had not already raised in a companion proceeding

then pending before the Commission.

2. Whether the Securities and Exchange Commis-

sion correctly determined that Section 9(a) (2) of the

Public Utility Holding Company Act was not applic-

able to the acquisition of a gas utility company by

an exempt holcing company that merged with its

only existing affiliate at the same time it effected the

acquisition.

3. Whether the Securities and Exchange Commis-

sion abused its discretion in denying a hearing on the

possible anti-competitive effects of the acquisition,

when the issue was raised by the consumers’ associa-

tion for the first time in a petition for reconsidera-

tion of the Commission’s order and when the Com-

mission concluded that the objections of the consum-

ers’ association did not raise a substantial issue.

STATUTE INVOLVED

Portions of the Public Utility Holding Company

Act of 1935 (“Act”), 49 Stat. 803, 15 U.S.C. 79,

et seq., are printed at Pet. App. 26a-40a. Sections

2(a)(7), 2(b), 3(a), and 12(d) of the Act, and

Rules 6 and 23(e) of the Commission’s rules and

regulations under the Act, not there printed, are set

forth in the Appendix, infra, la-6a.

STATEMENT

In 1964, the Commission entered an order under

Section 11(b)(1) of the Act, 15 U.S.C. 79k(b) (1),

requiring the New England Electric System

(“NEES”), a registered holding company, to divest

itself of its gas utility business. New England Elec-

tric System, 41 S.E.C. 888. Under Section 11(b) (1),

a registered holding company is basically limited to a

single integrated public-utility system. NEES was

predominantly an electric utility holding company,

but it also owned eight gas utility subsidiaries, one

of which was Lawrence Gas Company (“Lawrence’’).

The Commission’s order requiring NEES to divest

its gas business was ultimately affirmed by this Court

in 1968. The Act, in Section 11(e), 15 U.S.C. 79k

1 The Commission’s order was initially affirmed in Securities

and Exchange Commission v. New England Electric System,

———omumuumumunomeeme 0008 |

a

(e), provides that companies may voluntarily comply

with divestiture orders by submitting plans, subject

to the Commission’s approval, for the sale of stock

or assets. Beginning in 1971, NEES filed three such

plans. The present action arose out of the third of

the Section 11(e) plans filed.

In the first round of negotiations, NEES success-

fully concluded arrangements to sell four of its gas

companies, and the Commission approved the sale on

December 30, 1971.? At about the same time, NEES

commenced formal efforts to find purchasers for its

remaining four gas companies, including Lawrence

(C.A. App. 43).° In its request for bids from pros-

pective purchasers, NEES offered to sell all four of

the remaining gas companies to one purchaser or,

in the alternative, to accept the most favorable ag-

gregate of separate bids (C.A. App. 45). The com-

bination that resulted in the greatest total considera-

tion to NEES was the bid by Springfield Gas Light

Company (“Springfield”) for Lawrence alone, to-

gether with the bid by Eastern Gas and Fuel As-

sociates (“Eastern”) for the other three gas com-

panies and for a non-utility subsidiary of NEES

(C.A. App. 7, 52-53).

384 U.S. 176, reversing 346 F. 2d 399 (C.A. 1), and was re-

affirmed in Securities and Exchange Commission v. New

England Electric System, 390 U.S. 207, reversing 376 F. 2d

107 (C.A.1).

2 New England Electric System, 44 S.E.C. 756.

*“C.A. App.” refers to the appendix in the court of appeals,

a copy of which is being lodged with the Clerk of this Court.

5

Since two different purchasers were involved, NEES

filed separate applications under Section 11(e) of

the Act for the sale of three gas companies and the

non-utility subsidiary to Eastern (the “Eastern

plan”) and for the sale of Lawrence to Springfield

(the “Lawrence plan”) (C.A. App. 1-79; 109-143).

It was contemplated in connection with the latter

plan that Springfield would simultaneously merge

with its only subsidiary, Northampton Gas Light

Company (“Northampton”), to form a new entity,

Bay State Gas Company (“Bay State”) (C.A. App.

126-127).* Notices giving interested persons the op-

portunity to request hearings on the two plans were

issued by the Commission on February 5, 1973,° and

March 14, 1973,° respectively.

Petitioner Association of Massachusetts Consumers,

Inc., and several other interested persons and organ-

izations requested a hearing on the Eastern sale (Pet.

App. 19a-20a). In its request, petitioner objected

to the combination of Boston Gas Company, owned

by Eastern, with the three neighboring gas com-

panies Eastern proposed to buy (C.A. App. 96-101).

*Bay State, like Springfield before it, is prima facie an

exempt holding company under Section 3(a) (1) of the Act,

15 U.S.C. 79c(a) (1), since it and its public’ utility sub-

sidiaries “carry on their business substantially in a single

State in which such holding company and every such subsidi-

ary company thereof are organized * * *.”

5’ New England Electric System, Public Utility Holding Com-

pany Release No. 17874.

* New England Electric System, Public Utility Holding Com-

pany Release No. 17906 (C.A. App. 80-83).

6

On March 16, 1973, the Commission granted the re-

quests for hearing, and petitioner was permitted to

participate pursuant to Rule 9(c) of the Commis-

sion’s Rules of Practice, 17 C.F.R. 201.9(c) (Pet.

App. 3a, 20a).’

Petitioner alone also requested a hearing on the

Lawrence pian and moved that any such hearing be

consolidated with the hearing that had already been

scheduled on the Eastern plan. Unlike its request

as to the Eastern sale, however, petitioner did not

raise any issue in its application that related specifi-

cally to Springfield’s acquisition of Lawrence (C.A.

App. 87-108). Instead, it merely referred to its ob-

jections to the Eastern acquisition and concluded that

the Lawrence sale was “subject to many of the same

objections * * *” (C.A. App. 102).°

The only common factual question raised by the two

applications, however, was whether NEES had main-

tained competitive conditions in accordance with Sec-

tion 12(d) of the Act, 15 U.S.C. 791(d), in offering

the properties for sale (Pet. App. 7a, 23a). The

entire competitive process had dealt with all four

of the gas utility companies without distinguish-

ing among them. The division of the sale into two

* New England Electric System, Public Utility Holding Com-

pany Act Release No. 17908.

* The principal objections that petitioner had raised to the

Eastern plan—-the size and pipeline relationships of Boston

Gas—were inapplicable on their face to Springfield’s purchase

of Lawrence, which involved very different facts. See New

England Service System, Public Utility Holding Company

Act Release No. 18254 (Pet. App. 22a).

7

plans occurred only at the conclusion of this process,

when it appeared that the most favorable financial

arrangement for NEES was to accept a combination

of bids from different purchasers (C.A. App. 52-53).

Otherwise the two plans dealt with different proper-

ties, different purchasers and different prices. The

Commission therefore refused «e# to consolidate

the proceedings and deferred action on the Lawrence

plan until the issue of competitive conditions, which

was being heard in the Eastern proceeding, was re-

solved. On October 25, 1973, the Commission ap-

proved the phase of the divestiture representing the

sale to Eastern (Pet. App. 20a).°

At about the same time as the Commission’s pro-

ceedings on the Eastern sale, the Massachusetts De-

partment of Public Utilities conducted its own in-

quiry on the proposed purchase of Lawrence and on

the merger of Springfield into Northampton to form

Bay State. Following a public hearing on September

5, 1973, at which the petitioner did not appear, the

Massachusetts DPU approved Springfield’s purchase

of Lawrence and the contemplated merger, but im-

posed extensive conditions to protect consumer in-

terests (C.A. App. 126-134). Thereafter, on October

31, 1973, the Commission issued its Memorandum

®* While the Eastern proceeding was shortened when all

of those opposing the plan withdrew their opposition to

Eastern as a purchaser, tne Commission independently found,

as required by Section 12(d), that competitive conditions with

respect to the sale had been maintained. New England Electric

System, Public Utility Holding Company Act Release No.

18133 (C.A. App. 162, 164-165).

8

Opinion and Order approving the Lawrence sale and

denying the Association’s request for a hearing (Pet.

App. 10a-17a). The Commission pointed out that the

proposed acquisition was not subject to Section 9(a)

(2) or Section 10 of the Act, 15 U.S.C. 79i(a) (2)

and 79j (Pet. App. 11a, n. 6), that the only issue that

had been effectively raised by petitioner—the main-

tenance of competitive conditions—had been resolved

in the Eastern proceedings, and that there were no

other identifiable reasons offered in support of pe-

titioner’s request for a hearing on the Lawrence sale

(Pet. App. 23a-24a).

A subsequent request for reconsideration merely

reiterated petitioner’s opposition to the plan, which

the Commission had already considered in its Oc-

tober 31 order (C.A. App. 144-151). In addition,

petitioner for the first time raised an objection to

the acquisition by Springfield because of that com-

pany’s relation to other gas and electric utility com-

panies having common officials (C.A. App. 148, n. *),

which petitioner subsequently refers to as the “Ten-

ney Group” and as a “de facto holding company”

(Pet. 5, n. 6). The Commission denied the new re-

quest for a hearing (Pet. App. 18a-25a) and briefly

addressed itself to the new issue of “doubtful merit

or relevance” that had been raised (id. at 23a and

n. 9):

[The Association’s] statement that as a result

of the sale Lawrence is transferred from one

combination gas and electric utility holding com-

pany to another is unfounded. Springfield is not

part of a statutory holding-company system, and

9

none of the companies with which it has any

administrative relationships conduct an electric

utility business in Lawrence. The sale of Law-

rence effectively separates its gas business from

the electric service that NEES provides in that

area.

The court of appeals affirmed the Commission in

all respects, holding that the Commission did not

abuse its discretion in refusing to consolidate the

Lawrence proceeding with the Eastern proceeding

and in denying petitioner’s request for a hearing and

its subsequent motion for reconsideration (Pet. App.

8a-6a). The court also addressed the substantive

issues. It agreed with the Commission that the ac-

quisition by Springfield was not subject to approval

under Sections 9(a)(2) and 10, 15 U.S.C. 79i(a)

(2) and 79j (Pet. App. 9a), and that the maximum

two-year period provided in Section 11(c), 15 U.S.C.

79k(c), for compliance with a Section 11(b) order

was not a limitation on the Commission’s discretion

to approve divestiture plans under Section 11(e)

(Pet. App. 6a-7a). It also rejected petitioner’s claim

that the Commission had failed in its statutory obli-

gation to investigate the alleged anti-competitive ef-

fects of the acquisition by the Tenney group (id.

at 8a).

ARGUMENT

The decision of the court of appeals is correct and

is not in conflict with the decision of any other court.

There is no reason for review by this Court.”

10 While petitioner refers to the “out-of-time plan” (Pet.

2) and the “belated transfer” (Pet. 6) approved by the Com-

10

1. Petitioner does not dispute the Commission’s

determination that its request for a hearing on the

Lawrence plan did not comply with the requirements

of Rule 23(e) of the Rules and Regulations *promul-

gated under the Act, 17 C.F.R. 250.23(e). That rule,

together with Rule 9(c) of the Commission’s Rules

of Practice, 17 C.F.R. 201.9(c), requires that any-

one who requests a hearing must specifically identify

the nature of his interest and the reasons that justify

holding a hearing. The reasons given in petitioner’s

application were totally inadequate to satisfy these

rules, as the court of appeals found (Pet. App. 5a):

The requirement that the intervenors specify

the issues which demand a hearing serves im-

portant purposes. It enables the Commission to

screen out frivolous requests for hearings and

efficiently conduct hearings. Here, where the

mission, it does not challenge the finding of the court of ap-

peals that the Commission may approve a Section 11(e) plan

filed after expiration of the two-year period provided by Sec-

tion 11(c) (Pet. App. 6a-7a), nor does it claim it was preju-

diced by the delay. NEES originally had until April 3, 1969,

to comply with the Commission’s Section 11(b) order. By

subsequent orders, however, the time was extended to April 2,

1970. New England Electric System, Public Utility Holding

Company Act Release Nos. 16424 (July 11, 1969) and 16618

(February 24, 1970) (C.A. App. 107-108). These are not iso-

lated examples of Commission approval of Section 11(e) plans

after the two-year period allowed by Section 11(c). As an

historical matter, full compliance with Section 11(b) orders

issued by the Commission has often taken much longer than

the two years anticipated by that section. See, e.g., Valley

Gas Company, et al., 41 S.E.C. 867; American Electric Power

Company, Inc., 40 8.E.C. 564; Louisiana Gas Service Com-

pany, et al., 40 S.E.C. 193.

11

subject matter is so complex, poorly framed is-

sues could turn the hearings into a maze in

which justice could be lost. The strict applica-

tion of those procedural rules seems appropriate

here, where the intervenors were clearly on no-

tice that they must comply with Rule 9.

Furthermore, petitioner’s application for a hearing

on the Lawrence plan contended only that the pro-

posed sale raised many of the same objections that

were raised in the Eastern proceeding (C.A. App.

102), in which petitioner fully participated (Pet. 10).

As noted p. 6, supra, the only common question

was whether NEES had maintained competitive con-

ditions, an issue that had been resolved in the hear-

ing on the Eastern plan. Thus, the Commission’s re-

fusal to consolidate the two proceedings or to accord

petitioner a hearing on the Lawrence plan was not

an abuse of discretion. United States v. Interstate

Commerce Commission, 396 U.S. 491, 520-521.

2. Petitioner contends that the Commission was

required by Section 9(a)(2) of the Act, 15 U.S.C.

79i(a)(2), to prohibit the sale of Lawrence to

Springfield unless the Commission expressly found

that the acquisition complied with the standards of

Section 10, 15 U.S.C. 79j. Specifically, Section 9(a)

(2) requires a company that already is an “affiliate,”

as defined in Section 2(a)(11)(A) of the Act, 15

U.S.C. 79b(a)(11)(A),” of one public utility com-

1 Section 2(a) (11) (A) defines an “affiliate”, inter alia, as

an individual or company that owns or controls five percent

or more of the voting stock of a specified company. Thus, the

“affiliate” relationship exists between a parent and subsidiary.

12

pany to apply for Commission approval before it may

acquire stock in another company that would become

its second “affiliate.” Petitioner argues that Spring-

- field, which before the sale already had one subsi-

diary, i.e., Northampton, had to meet the standards

of Section 10 in order to purchase Lawrence, which

would thereby become its second subsidiary.

The Commission and the court of appeals correctly

rejected this argument. Concurrent with the Law-

rence acquisition, Springfield and its former sub-

sidiary, Northampton, merged to create the present

parent company, Bay State. Thus, both before and

after the acquisition, only a single affiliate relation-

ship—Northampton and Springfield, followed by Bay

State and Lawrence—existed. The Commission’s in-

terpretation of Section 9(a)(2) as giving effect to

the final results of the sequence of the simultaneous

corporate adjustments was a reasonable construction

of the statute. As the court below held (Pet. App.

9a):

We find the Commission’s reasoning persuasive.

In assessing interrelated corporate adjustments,

comparison should be made of the situation just

prior to and immediately following the adjust-

ments. The sequence of relatively simultaneous

corporate adjustments whose order has no prac-

tical effect do not govern the applicability of

section 9(a) (2).

3. Petitioner’s allegations that the Commission

has frustrated the purposes of the Act and has con-

travened this Court’s mandate in the New England

13

Electric System cases have no support in the record.

To the contrary, the divestiture by NEES and pur-

chase by Springfield have furthered these goals.

Prior to the sale, Lawrence was owned by a holding

company with electric utility holdings that, in many

localities including Lawrence, competed directly with

the retail gas business of the same system. Presently,

however, neither Bay State nor any other company

in the Tenney group serves electric customers in the

Lawrence service area. Thus, the goal of Section

11(b) (1) to further competition in the public utility

industry was achieved by the Commission’s order.

Furthermore, the Commission’s approval of the

sale does not foreclose additional regulatory measures

in the future should they appear necessary. The

Tenney group is a loose affiliation of companies, pre-

dating the Act, arising primarily from the fact that

members of the Tenney family have long been sub-

stantial stockholders in each of the companies and

the companies have had the majority of their direc-

tors and executive personnel in common.” Although

122C. H. Tenney, II, is the chairman and chief executive

officer of Bay State, and held the same position with Brockton

Taunton Gas Company, also a Massachusetts company, prior

to that company’s merger into Bay State in Nove:nber 1974.

The other utility companies in which Tenney and his associ-

ates are interested are Exeter & Hampton Electric Company

and Concord Electric Company, both of which are incorpo-

rated in New Hampshire Fitchburg Gas & Electric Light

Company, a Massachusetts company; and Orange and Rock-

land Utilities, Inc., a New York company. Orange and Rock-

land, which has two wholly-owned subsidiaries serving con-

tiguous areas in New Jersey and Pennsylvania, and Bay State

14

these facts alone do not make the group a holding-

company system under the Act,” the Commission

may designate any of its members as a holding com-

pany if, after a hearing upon notice, it appears that

he has “such a controlling influence over the manage-

ment or policies” of a public utility “as to make it

necessary or appropriate in the public interest or for

the protection of investors or consumers” that he

“be subject to the obligations, duties, and liabilities”

imposed by the Act upon holding companies.“ Sec-

tion 2(a) (7) (B), 15 U.S.C. 79b(a) (7) (B).

are themselves exempt holding companies. The remaining

companies are solely operating companies 2nd conduct busi-

ness only in the states in which they are incorporated. See

Moody’s Public Utility Manual, pp. 85-95, 2608-2609, 2679-

2680, 2730-2733 and 2743-2744 (1975 ed.).

18 Under Section 2(a) (7) of the Act, a company that owns

10 percent or more of the voting stock of a public utility

is presumed to be a holding company, whereas a natural

person who owns such control of a public utility is not.

14 Petitioner’s sole objection to the Tenney group apparently

relates to a possible need to eliminate certain interlocking

directorates, rather than the need for regulating that group

as a holding-company system. A pending Federal Power

Commission proceeding under Section 305(b) of the Federai

Power Act, 49 Stat. 856, 16 U.S.C. 825d(b), has to some

measure resolved the problems of which petitioner complains.

Following a show cause order issued by the Federal Power

Commission on September 15, 1975 (Pet. App. 43a-49a), Ten-

ney and several associates either resigned or announced their

intention to resign positions with Fitchburg Gas & Electric

Company or with Orange and Rockland Utilities, Inc., which

is by far the largest company in the Tenney group. See Wall

Street Journal, October 6, 1975, p. 15, and November 10, 1975,

p. 14. Significantly, it was under the Federal Power Act,

15

In addition, although Bay State is an exempt hold-

ing company because of the intrastate nature of its

business, see p. 5, n. 4, supra, the Commission may

terminate the exemption upon notice if it “finds the

exemption detrimental to the public interest or the

interest of investors or consumers * * *.” Section

3(a), 15 U.S.C. 79c(a); Rule 6, Rules and Regula-

tions under the Public Utility Holding Company

awmder-the Act, 17 C.F.R. 250.6. Thus, the Commis-

sion retains the power to exercise its full jurisdiction

over Bay State should developments contrary to the

public interest arise.

which was enacted as part of the same legislation containing

the Public Utility Holding Company Act, that Congress chose

to regulate interlocking directorships and officers. As the court

below noted (Pet. App. 8a), “[e]limination of common officers

and directors in noncompeting utility companies was not the

precise purpose of the Act.” The division of authority between

the Federal Power Commission and the Securities and Ex-

change Commission only highlights the distinction that should

be drawn between dealing with interlocking directorates and

regulating persons as holding companies.

16

CONCLUSION

For the foregoing reasons, it is respectfully sub-

mitted that the petition for a writ of certiorari

should be denied.

ROBERT H. Bork,

Solicitor General.

DAVID FERBER,

Solicitor to the Commission,

GRANT G. GUTHRIE,

Special Counsel,

ANDREW F.. MACDONALD,

Attorney,

Securities and Exchange Commission.

DECEMBER 1975.

la

APPENDIX

Public Utility Holding Company Act of 1935,

49 Stat. 803, 15 U.S.C. 79, et seq.: :

Section 2(a), 15 U.S.C. 79b(a):

When used in this title, unless the context other-

wise requires—

+ 7 > * >

(7) “Holding company” means—

(A) any company which directly or in-

directly owns, controls, or holds with power

to vote, 10 per centum or more of the out-

standing voting securities of a public-utility

company or of a company which is a hold-

ing company by virtue of this clause or

clause (B), unless the Commission, as here-

inafter provided, by order declares such

company not to be a holding company; and

(B) any person which the Commission

determines, after notice and opportunity for

hearing, directly or indirectly to exercise

(either alone or pursuant to an arrange-

ment or understanding with one or more

other persons) such a controlling influence

over the management or policies of any pub-

lic-utility or holding company as to make it

necessary or appropriate in the public in-

terest or for the protection of investors or

consumers that such person be subject to

the obligations, duties, and liabilities im-

posed in this title upon holding companies.

The Commission, upon application, shall by order

declare that a company is not a holding company

2a

under clause (A) if the Commission finds that the

applicant (i) does not, either alone or pursuant to

an arrangement or understanding with one or more

other persons, directly or indirectly control a public-

utility or holding company either through one or

more intermediary persons or by any means or de-

vice whatsoever, (ii) is not an intermediary com-

pany through which such control is exercised, and

(iii) does not, directly or indirectly, exercise (either

alone or pursuant to an arrangement or understand-

ing with one or more other persons) such a control-

ling influence over the management or policies of any

public-utility or holding company as to make it nec-

essary or appropriate in the public interest or for

the protection of investors or consumers that the

applicant be subject to the obligations, duties, and

liabilities imposed in this title upon holding compa-

nies. The filing of an application hereunder in good

faith by a company other than a registered holding

company shall exempt the applicant from any obli-

gation, duty, or liability imposed in this title upon

the applicant as a holding company, until the Com-

mission has acted upon such application. Within a

reasonable time after the receipt of any application

hereunder, the Commission shall enter an order

granting, or, after notice and opportunity for hear-

ing, denying or otherwise disposing of, such appli-

cation. As a condition to the entry of any order

granting such application and as a part of any such

order, the Commission may require the applicant to

apply periodically for a renewal of such order and

ce a

3a

to do or refrain from doing such acts or things, in

respect of exercise of voting rights, control over

proxies, designation of officers and directors, exist-

ence of interlocking officers, directors and other rela-

tionships, and submission of periodic or special re-

ports regarding affiliations or intercorporate rela-

tionships of the applicant, as the Commission may

find necessary or appropriate to ensure that in the

case of the applicant the conditions specified in

clauses (i), (ii), and (iii) are satisfied during the

period for which such order is effective. The Com-

mission, upon its own motion or upon application of

the company affected, shall revoke the order declar-

ing such company not to be a holding company when-

ever in its judgment any condition specified in clause

(i), (ii), or (iii) is not satisfied in the case of such

company, or modify the terms of such order when-

ever in its judgment such modification is necessary

to ensure that in the case of such company the condi-

tions specified in clauses (i), (ii), and (iii) are sat-

isfied during the period for which such order is effec-

tive. Any action of the Commission under the pre-

ceding sentence shall be by order.

Section 2(b), 15 U.S.C. 79b(b):

No person shall be deemed to be a holding company

under clause ,'-) of paragraph (7) of subsection

(a), or a subsidiary company under clause (B) of

paragraph (8) of such subsection, or an affiliate

under clause (D) of paragraph (11) of such subsec-

tion, unless the Commission, after appropriate notice

ee...

4a

and opportunity for hearing, has issued an order de-

claring such person to be a holding company, a sub-

sidiary company, or an affiliate, or declaring a class

of which such person is a member to be affiliates.

Such an order shall not become effective for at least

thirty days after the mailing of a copy thereof to

the person thereby declared to be a holding company,

subsidiary company, or affiliate; or, in the case of

determination of affiliates by classes, until at least

thirty days after appropriate publication thereof in

such manner as the Commission shall determine.

Whenever the Commission, on its own motion or upon

application by the person declared to be a holding

company, subsidiary company, or affiliate, finds that

the circumstances which gave rise to the issuance of

any such order no longer exist, the C »mmission shall

by order revoke such order.

Section 3(a), 15 U.S.C. 79c(a):

The Commission, by rules and regulations upon its

own motion, or by order upon application, shall ex-

empt any holding company, and every subsidiary

company thereof as such, from any provision or pro-

visions of this title, unless and except insofar as it

finds the exemption detrimental to the public inter-

est or the interest of investors or consumers, if—

(1) such holding company, and every subsid-

iary company thereof which is a public-utility

company from which such holding company de-

rives, directly or indirectly, any material part

of its income, are predominantly intrastate in

5a

character and carry on their business substan-

tially in a single State in wihch such holding

company and every such subsidiary company

thereof are organized;

Section 12(d), 15 U.S.C. 79l(d):

It shall be unlawful for any registered holding

company, by use of the mails or any means or instru-

mentality of interstate commerce, or otherwise, to

sell any security which it owns of any public-utility

company, or any utility assets, in contravention of

such rules and regulations or orders regarding the

consideration to be received for such sale, mainte-

nance of competitive conditions, fees and commis-

sions, accounts, disclosure of interest, and similar

matters as the Commission deems necessary or ap-

propriate in the public interest or for the protection

of investors or consumers or to prevent the circum-

vention of the provisions of this title or the rules,

regulations, or orders thereunder.

Rules and Regulations, Public Utility Holding

Company Act of 1935:

Rule 6, 17 C.F.R. 250.6:

Termination of exemptions. If it appears to the

Commission (on the basis of statements claiming ex-

emption or otherwise) that a substantial question of

law or fact exists as to whether any holding com-

pany claiming exemption under § 250.2, § 250.3,

§ 205.4, § 250.5, or § 250.10 or any other section now

or hereafter in force pursuant to section 3(a) of the

6a

act exempting any class of holding companies from

the registration requirements of the act, is within the

exemption afforded by any such section, or if it ap-

pears that any question exists as to whether the ex-

emption of any such company may be detrimental to

the publie interest or the interest of investors or

consumers, the Commission may notify such holding

company to that effect by registered mail. Thirty

days after such notification, such exemption shall

terminate, without prejudice to the right of such

holding company to file an application for an order

granting such an exemption pursuant to any appli-

cable section of the act, and without prejudice to

any temporary exemption provided for by the act if

such application is filed in good faith.

Rule 23(e), 17 C.F.R. 250.23(e) :

Notice of filing. The Commission will publish in

the FEDERAL REGISTER notice of the filing of a

declaration or application, stating the earliest date

upon which such declaration or application, as filed

or as amended, may be permitted to become effective

or be granted. Any interested person may, not later

than fifteen days after the publication of such notice

or such other date as may be fixed therein, request

the Commission in writing that a hearing be held,

stating his reasons therefor and the nature of his

interest.

G. &. GOVERNMENT rainTine orricz; 1975 s9e977 156