Petitioners Brief — Securities & Exchange Commission v. New England Electric System

SS Sie: 8 ae

SES ee I ted apt e D et te (Ae ee

Oi noc eonsapepeecquapesconadcence

i i. dccticadecdwuswstuadnceddéades ke

on conc itacernuacusecsuedecewe

Argument:

The Commission correctly ruled that Section 11(b) (1)

(A) of the Public Utility Holding Company Act of

1935 prohibits a holding company from retaining

more than one integrated public utility system un-

less the company shows that the additional system

sought to be retained is incapable of sound and

economical operation independent of the principal

SUT nn we niding es cnt eseqdeeyvensescnsquecceqes

A. The history and design of Section 11(b) (1)

(A) support the Commission’s interpre-

iad Reveirekt dupravecsonist oe soe

B. The Commission’s longstanding interpreta-

tion is entitled to great deference______-

C. The Commission’s test, but not that of the

court below, permits meaningful con-

sideration of the competitive advantages

flowing from the operation of the “addi-

tional’ gas system independent of the

“principal” electric system_-__-_-__..-_-_-

CITATIONS

Cases:

Court decisions:

Atlantic Cleaners & Dyers v. United States, 286

206—-046— 66——1 (D

w ce to to wt §

11

13

26

34

39

41

24

27

Cases—Continued

Court decisions:

Engineers Public Service Co. v. Securities and Ex-

change Commission, 138 F. 2d 936, certiorari

granted, 322 U.S. 723, vacated as moot, 332 Page

Be Stns 19, 32, 33

First Nat'l Bank in St. Louis v. Missouri, 263

Sse anicdided andismhsan hbacanen

Gray v. Powell, 314 US. 402... .......-.......

Hastings & Dakota R.R. Co. v. Whitney, 132 U.S.

DOE Steeda Geedeakeedsn. Skdedinvedoenn

Lahti v. New England Power Ass’n, 160 F. 2d 845_

Leedom v. International Union, 352 U.S. 145____-

Louisiana Public Service Commission v. Securities

and Exchange Commission, 235 F. 2d 167,

reversed on jurisdictional grounds, 353 U.S.

a ok eae eA een dig bak dadien kit hen ae 33, 34

North American Co. v. Securities and Exchange

Comantesion, 337. U3. 666....-.......-......-. 11,17

Philadelphia Co. v. Securities and Exchange Com-

mission, 177 F. 2d 720.......-..--- 10, 18, 19, 32, 37

Power Reactor Co. v. Electricians, 367 U.S. 396__- 27

Surgett v. Lapice, 8 How. 48.._...--..---------

CE To RE, BO Us Bio ooo nw ee ee wc cccns

Unemployment Comm’n v. Aragon, 329 U.S. 143-. 27

United Corporation In re, 184 F. Supp. 502,

I I ee

United States v. Moore, 95 U.S. 760... _ = _--

Universal Batteru Co. v. United States, 281 U.S.

Securities and Exchange Commission Decisions:

American Gas & Electrie Co., 21 S.E.C. 575____-

Cities Service Co., 15 S.E.C. 962_.....---------.

Cities Service Power & Light Co., 14 S.E.C. 28___ 31, 36

Columbia Gas & Electric Corp., 8 S.E.C. 443____- 4

Commonwealth & Southern Corp., 26 S.E.C. 464_- 31

Eastern Utilities Associates, 31 S.E.C. 329______-

27, 29, 30, 31

Federal Light & Traction Co., 15 S.E.C. 675____- 31

General Public Utilities Corp., 32 S.E.C. 807 __.- 31

Middle South Utilities, Inz., 35 S.E.C. 1_.____-- 31

mW

Cases --Continued

Securities and Exchange Commission Decisions—Con. _ Page

Middle West Corp., 15 S.E.C. 309. _..-.-------- 31

New England Electrie System, 38 S.E.C. 193... - 4

North American Co., The, 11 S.E.C. 194... 27, 28, 29, 31

North American Co., The, 18 S.E.C. 611_..--.-- 37

North American Co., The, 32 S.E.C. 169__.____- 31

Pennsylvania Gas & Electric Corp., 28 S.E.C. 553. 31

Peoples Light & Power Co., 20 S.E.C. 357... __- 31

Philadelphia Co., 28 S.E.C. 35_-.------ 4, 10, 17, 27, 31

Republie Service Corp., 23 S.E.C. 436_-.-_.____- 31

United Gas Improvement Co., The, 9 S.E.C. 52__ - 4

Miscellaneous Administrative Decisions:

Cambridge Gas Light Co., P.U.R. 1930 D, 263___- 36

Lynn Gas and Electric Co., 31 P.U.R. 3d 209___ - 36

Statutes:

Administrative Procedure Act, 5 U.S.C. 1001, et seq.:

Section 5(a), 5 U.S.C, 1004(a)_---- 2-2-2222 23

Section 7(b) (6), 5 U.S.C. 1006 (b) (6)------------ 23

Public Utility Holding Company Act of 1935, 49 Stat.

803, et seq.:

Seatien 3,38 UB Dis <i sinc bistrcin vant 3, 41, 42

Section 1(b), 15 U.S.C. 79a(b)_...-.----.------ 9,41

Section 1(b) (2), 15 U.S.C. 79a(b)(2)__.__- 11, 17, 20, 42

Section 1(b) (4), 15 U.S.C. 79a(b) (4)... --- 17, 20, 42

Section 1(b) (5), 15 U.S.C. 79a(b)(5)_--.----- 20, 42

Section 1(c), 15 U.S.C. 79a(c).-...-.-...-.---. 42

Section 2(a)(29), 15 U.S.C. 79b(a) (29)... - 3, 43

Section 2(a)(29)(A), 15 U.S.C. 79b(a) (29) (A) __-- 3,

25, 26, 43

Section 2(a)(29)(B), 15 U.S.C. 79b(a)(29)(B)_.-. 4,

9, 21, 22, 24, 25, 26, 44

Gestion &,: 1h- We: ts soko keh sao ceaecie 3

Section 7 (d) (3), 15 U.S.C. 79g(d) (3)_-..-..----- 20

ees ED Ci AG perce bik ccndeesns ue 35

Section 10(c)(2), 15 U.S.C. 79j (c)(2) eed, aes he 20

Seetinn 31, 16 Te FO no kcceewisias 15

Section 11 (b)(1), 15 U.S.C. 79k(b) (1)_------ -- -. 2.

3, 4, 5, 8, 11, 12, 17, 19, 20, 22, 24, 25, 26, 34

Section 11(b)(1)(A), 15.U.S.C. 79k(b) (1) (A) .__- - 6.

7, 8, 9, 10, 11, 12, 13, 19, 21, 23, 24, 25, 26, 27, 28, 32, 33,

34, 35.

—

tv

Statutes—Continued

Public Utility Holding Company Act of 1935, 49 Stat.

803, et seg.—Continued —_

Section 12(d), 15 U.S.C. 79l(d).....-.. 2. 20

Section 12(f), 15 U.S.C. 790(f).................. 20

Section 12(g), 15 U.S.C. 79l(g)_................ 20

Section 13, 16 U.S.C. 70m... ...........-.-.--. 20

Miscellaneous:

79 Cong. Ree. :

Dwamerecerteusdvadsénculucdddedebucebec 15

Pea didbud dsc dcnvinddbtedikessvitweave 15

Peetred duels hankcsSe sedate sdvcwbbdcbec 16

Sete on cneetdadbiecdhudoedebbededdttadeects 14

Send ddcveddassuvbeutndsebabebutust debeoe 16

H. Rep. No. 1318 on S. 2796, 74th Cong., Ist Sess... 14, 15

H. Rep. No. 1903, 74th Cong., Ist Sess........-- ~~ SB

Commerce on S. 1725, 74th Cong., Ist Sess... 13, 20, 35

Holding Company Act Release No. 11016 Gen. 22,

Report of National Power Policy Tisonaiainn H.

Doc. No. 137, 74th Cong., Ist Sess., appended to

S: Rep. No. 621, 74th Cong., Ist Sess......... 8, 13,35

S. 1708, 76th Come. O00 Goma... 222s tess. 14

S. 2796, 74th Cong., Ist Sesa..................----- 14

S. 1336, 80th Comg., let Seps....................... 23

S. Rep. No. 621, 74th Cong., Ist Sess_........ 11, 14, 35, 36

————

i

Gn the Supreme Court of the United States

Octroser TERM, 1965

No. 636

SECURITIES AND EXCHANGE COMMISSION, PETITIONER

Vv.

New ENGLAND ELEctTRIC SYSTEM, ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STAY®* COURT OF

APPEALS FOR THE FIRST CIRCUIT

BRIEF FOR THE SECURITIES AND EXCHANGE COMMISSION

OPINIONS BELOW

The opinion of the court of appeals (R. 1455-1471)

is reported at 346 F. 2d 399. The findings and opin-

ion of the Securities and Exchange Commission, dated

March 19, 1964 (R. 1254-1282), are reported in the

Commission’s Holding Company Act Release No.

15096.

JURISDICTION

The judgment of the court of appeals was entered

on June 4, 1965 (R. 1471-1472). On September 2,

1965, Mr. Justice Black extended the time to file a

petition for a writ of certiorari to October 2, 1965.

The petition was filed on October 1, 1965, and was

(1)

a

2

granted on December 13, 1965 (R. 1472). The

jurisdiction of this Court rests on 28 U.S.C. 1254(1).

QUESTION PRESENTED

Section 11(b)(1) of the Public Utility Holding

Company Act of 1935, 15 U.S.C. 79k(b) (1), permits

a registered holding company to control one or more

integrated public-utility system in addition to its prin-

cipal integrated system only if the Commission finds,

inter alia, that “Each of such additional systems can-

not be operated as an independent system without the

ioss of substantial economies which can be secured

by the retention of control by such holding company

of such system * * *.” The question presented is

whether the court below erred in rejecting the Com-

mission’s longstanding interpretation that, under this

provision, “the loss of substantial economies” must be

such as to render the additional system ineapable of

sound and economical operation independent of the

principal system and in holding instead that the re-

quired loss is merely one which, in ordinary business

parlance, is of a substantial nature.

STATUTE INVOLVED

Section 11(b)(1) of the Public Utility Holding

Company Act of 1935, 49 Stat. 820, 15 U.S.C. 79k(b)

(1), provides in pertinent part:

It shall be the duty of the Commission, as

soon as practicable after January 1, 1938:

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

portunity for hearing, that each registered hold-

ing company, and each subsidiary company

thereof, shall take such action as the Commis-

3

sion 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, * * * Provided, however, That

the Commission shall permit a registered hold-

ing 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 of substantial economies which can be

secured by the retention of control .by such

holding company of such system * * *.

Pertinent parts of Section 1 and Section 2(a) (29)

of the Act are set forth in an Appendix, infra, pp.

41-44,

STATEMENT

On August 5, 1957, the Securities and Exchange

Commission instituted proceedings under Section 11

(b)(1) of the Publie Utility Holding Company Act

of 1935, 15 U.S.C. 79k(b)(1), te determine the ex-

tent to which New England Electric System

(“NEES’’), a holding company registered under Sec-

tion 5 of the Act, 15 U.S.C. 79e, could lawfully retain

control over the electric, gas and other properties in

its holding company system. The initial phase of the

proceedings terminated on February 20, 1958, when

the Commission held that the electric utility sub-

sidiaries of NEES eomprised an “integrated electric

utility system’’ as defined in Section 2(a)(29)(A),

15 U.S.C. 79b(2)(29)(A).’ NEES elected to retain

‘New England Electric System, 38 S.E.C, 193.