Petition for a Writ of Certiorari — Association of Massachusetts Consumers, Inc. v. Securities & Exchange Commission

INDEX

Page

I ieaseke na.

eee Ss Sets re ener Ee een ae eer 2

PTT CPT TT Te TTT ee ee 2

I II dio ki inoue cet casdbeccdeki 3

Ic St on nia 6 Cale eas kb ke wk GAs wa Rs keene bu 3

Reasons ror GRaNTING THE WRIT ...... 2.0.0 0ccccccs 6

NS hd icc ka hs weeks cdadakaedweheoen 11

APPENDICES:

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

oe ee aes 26a

C. Resolution of Massachusetts Consumers’ Coun-

We nite ya a rineica dion a Wale Goa 42a

D. Federal Power Commission’s Order to Show

I ie aa rr ae 43a

CITATIONS

CasEs:

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

Ree Mi Oe MED Ae ud Ack heen bo daknceweeeues 6

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

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

CUNED nV kk bd aXe bie Wk Palead 6 dig bs Aahie mae sek 3, 4

New England Electric System v. Securities and Fx-

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

New England Electric System v. Securities and Fx-

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

a ee

a i TORE RRB E ERS -

ii Index Continued

Page

Securities and Exchanye 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. 1. DuPont DeNemours & Co., 366

ey ee AIRE Ack baked abe eee wee Cioan esas 6

STATUTES:

Public Utility Holding Company Act of 19% 30, 15 U.S.C.

eB. Sf pre errr er ee 2, 3, 4, 6, 7, 9, 10, 11

meeten 2, 15 UB. FTO oc cise evcccsesesens 3,8

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

SMEG Se Re RIAA BMOE sv ssk cose etarduees 3, 8, 10

Section 10, 15 U.B.C. § 78} oo... ce ccccwseses 3, 8, 10

Section 11, 15 U.S.C. § 79k .............4.. 3, 4, 8, 10

IN THE

Supreme Court of the United States

OcrToBER TERM, 1975

No.

ASSOCIATION OF MASSACHUSETTS CONSUMERS, INc.,

Petitioner,

Vv

SECURITIES AND EXCHANGE ComM ISSION,

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, Ine.

(*‘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. 1a-9a.

9

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 mandated 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.

3

STATUTES INVOLVED

The statutory provisions involved are Sections 1, 2,

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

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

relevant excerpts are printed in Appendix B, infra,

pp. 26a-41a.

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 publie 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 electrie properties constituted a

single integrated system (New England Electric Sys-

tem, 38 8.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))2

? Appendix C, infra, pp. 42a, is a copy of a Resolution adopted

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

supporting the petitioner’s position herein.

* The 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)

A b SR eS RAD I EEM, ELLE, LEME

Ce BOS GK ORES EI ee Dy RET. PS EOD SPAT CH

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 Mareh 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 publie interest in 1957.

Thereafter , -ceedings in this cause slowed to the

stateliness and imperceptibility of geologie time. The

‘‘as soon as practicable” scheduling of divestiture was

abandoned by SEC, and the April 1970 deadline im-

posed by Section 11(e) 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

8 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 (Ist Cir. 1965) ;

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

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

also Holding Company Act Release (IICAR) No. 16618, February

24, 1970.

5’ 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.

TPIS ASEAN oN GTO: LTR UTS TSA AERA WEI TONNE MRD NPR ROBEY BO 68

5

SEC notice NEES’s proposed divestiture of its Law-

rence Gas Company stock to Springtield Gas Light

Company, an exempt holding company controlled by

the Tenney Group * and subsequently merged into 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;

Concord Electrie Company; Exeter and Hampton Electrie Com-

pany; Fitchburg Gas and Electrie Light Company; Orange and

Rockland Utilities, Ine. (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, ie., Adminis-

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

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

/ oy AWW A OREN AA FT AMY

TNR CRALUY RO . are

Fei ee I PO eid aah DAaa ANS Ete ARATE EE BE IBS RE ALE OE LE PLE SE GEDA EGR SES OLDER DIATE eS Tego renee

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. la-

9a).

REASONS FOR GRANTING 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 vy. NEES and which is

required by the Publie 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. EI. 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 earrying 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

MERON A SATURN FRY EPS ye We cP OONOROND MYO MEBANE Et vt

eT a es Lae ee

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 electrie utility interests to an

unregulated holding company with electrie 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. Sueh

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

npon 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 vardstick

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 vy. NEES.

GOP RIOD. thee

tied onthe ik BELLY cd ae das, 2. Le ta)

M

li abdieated its own funetion in two respeets. First, i

yrnered ite statutory duty to profeet consumer in

terests, refoeing meaning fal intervention to consumers

represented by the Association (the only consumer

entity whieh sought intervention), and failing to eon

diet an oinvestigation and hearing so that the publie

interest factors in the divestiture eonld be evaluated

and proteeted in the bght of a developed reeard. See

ond, Sle departed from the legal norms established by

the Aet and endorsed by this Court to test the NerSs

divestiture and the Tenney Group aequisition, mamely

the antitrust and consumer publie interest standards

embodied in Seetions 1,9, 10 and Tloof the Aet.

To illustrate the lawlessness of SEC's treatment,

eousider the athliate question. Springfield had

aequired Northampton Gas Light Company through

a previous divestiture sale hy NEES. Thereby

Springticld became an “afliliate’ of Lawrence as de

tined by Seetion 20a) C11) CA) of the Aet. An affiliate

relationship triggers SEC investigations and requires

SEC approval of the proposed acquisition pursuant

to Sections 9 and 10 of the Aet. SHC ignored these

requirements of law, and did not deal substantively

with the matter by investigation, hearing and formal

approval. Instead it elaimed that the ‘‘substanee” of

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

pite the facet 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 Seetion 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

"

OF TOC) of the Ae Proceribing sequicitions whieh

fond foward Hiterlockinw relations Of mw bined on tes nny

OXfont detrimental te the Piiblie Tteneet on the dtepecdt

Of inveatopa.”

2. Tie te mn Tevepseretinns Teal Case Which Will Determine the

Direction manned Fifercy of BEC Enforcement of the Publi

Utility Holding Company Act With Respect to Combina

tion Electric Gae Utilities.

Rack in MoT when Mie hogan thie entive proceed

inp, wae reearnized as the domoneteation on triad ran

of SON. Powers vider the Aet te dent With the pati

COMpOTIL VE prallonne poeed by combination eleetrie/

Kas utilities, Today there ape weventy sie cued til

ities, enel with anneal Operating revenues in exeoes of

#Tomillion.” Po the extent that theee wWtilities are yvulo -

Herable under the ctandapede Of the Act heeanee of

Heolelinage company invelvement,” the outeome of thie

ease Will determine whether SiC WI proceed against

them, and if it does, whether COMMING interests yyjf]

he granted effective participation ty carry out the pur

poses of the Aet,

If the public benefits Nowing from the enforcement

of the Act are as miniseule as the present statue of

this test ease indicates, the case will have demonstrated

that asa practioal matter enforcement of the Art ja a

Kame to be played or forfeited at the uncorntre) led

“See Appendix D infra.

*FPC Document S-247- Statisties of Privately Owned Blears,

Utilities in the United States.

"Under the Act SEC has jurisdiction over sever ty-ight +lertei-

and /or gas utility subsidiaries in twenty artive holding nmoaniss

controlling $33 billion in assets. See SEC 1974 Annzal Report.

Tables 27 and 2s, pp. 176, 177.

Mitaeinaivamcesss MRE ERR ARAL) SO ROE ORRIN one iter Ss

2

a¢

*

a

Ss

¥

:

10

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

willing to play on and on forever. Such a conelusion

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

cisions of this Court in this ease, 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 see-

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

se AVS RARER CS Ay PRES tay

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: Rowtey & Scorr

WortH Rowtey

JAMES F, FairMAN, Jr,

Patrick F, Martin