Amicus Curiae Brief — Gulf States Util. Co. v. FPC

Supreme Court brief1973

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~ Question presented... -.-----------------------

7 Matutes involved. .....-----------------------

F Toterest of the United States...........--------

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I. The decision of this Court in Denver &

Rio Grande is controlling here and

requires the Federal Power Commis-

sion to consider competitive factors in

deciding whether proposed securities

issues are compatible with the public

i aces a aes a ~ 13

II. The structure and legislative history of

the/ Federal Power Act confirm the

conélusion that the Commission must

consider anticompetitive factors in de-

termining whether a*particular securi-

ties issue is compatible with the public

NONE. i eS ieeticedaonognteccee 24

III. Consideration by the Commission of the

anticompetitive consequences of securi-

ties issues, in the manner required by ¥

the court below, will not impair the

utilities’ ability to raise funds -- --- -- 37

Nn ok cele s Wan cewns'e oune 39

487-564—72———1

CITATIONS

Cases:

Black Hills Power & Light Company, 28 FPC wis

PI EERE I 20 SOS AR Dees ete 4 Map eS) BA AT aE

Black Hills Power & Light Company, 31 FPC

iis de whines wo inhale ok wieiia tnd w teed ek ioe ccileioa ties 8B

California v. Federal Power Commission, 369

We aidtbnondcdunkesdecildusne 18, 21, 23, 22

Commonwealth Edison Company and Central

Illinois Electric and Gas Company, 36 FPC

927 affirmed sub. nom. Utility Users League

v. Federal Power Commission, 394 F. 2d 16,

certiorari denied, 393 U.S. 953__..._.____ 19

Denver & Rio Grande Western R. Co. v. United

NE PE A Ry neo eeeclbi cnweiced t.

8, 10, 13, 14, 15, 16, 17, 18, 19, 20, 24,

27, 28, 38

Federal Communications Commission v. RCA

Communications, Inc., 346 U.S. 86____.--- 21, 22

Federal Maritime Commission v. Aktiebolaget

Svenska Amerika Linien, 390 U.S. 238_-_ 10, 21, 23

Jersey Central Co. v. Federal Power Com-

Wa mee Ue Oh on oa cae. 29

McLean Trucking Co. v. United States, 321

ek waneuibrhhenmntmeus bones 17, 21

Municipal Electric Association of Massachusetts

v. Securities and Exchange Commission,

GD 0 Si hii se in Cenk banawcis 37

Municipal Electric Association of Massachusetts

v. Securities and Exchange Commission,

GO WG Ee FU hk sdb cbeleceubcuikewaus 37

National Broadcasting Co. v. United States,

eg: ARAN Ei ipa Raden Sr Pe 22.

Cases—Continued

North American Co. v. Securities & Exchange page

Commission, 327 U.S. 686............---- 29

Northern Natural Gas Co. v. Federal Power

Commission, 399 F. 2d 953........---- 21, 23, 32

~~ Otter Tail Power Co. v. United States, probable

jurisdiction noted, 406 U.S. 944........_. 31, 32

Pacific Power & Light Company, 27 FPC

is le Uk eandaiie mnie abenipaianionwnns 8, 27, 28

Pan American World Airways v. United States,

OEd ha Sic hok sue n dunchiedenuinsudnen 34

Pittsburgh v. Federal Power Commission, 237 F.

BT ci ch idedeoksk soctboudkadenicwepan 32

Port of Portland v. United Statrs, 408 U.S. 811. 22, 23

Poll-¥. Arte, 106 TB, FB B ok Soninknkeccun 14

Public Utilities Commission v. Attleboro Steam

& Blecivic Co., 278 U.S. 8B... .....-=... 30

Statesville v. Atomic Energy Commission, 441

By Ue Roce neds awrbbbieiuccece 35, 36

United States v. Philadelphia National Bank,

WOW RE OEE cen cn ebovens imieweuncnous 23

Statutes:

Atomic Energy Act of 1954, 68 Stat. 918, as

amended, 84 Stat. 1472, 42 U.S.C. 2011,

et seq:

Gs RES CEs 2 capran phlei 36

Clayton Act, 38 Stat. 730, as amended, Sec-

COON Fs oe Rs Ble OF BOD vcicittiteninnn ne 3

NN pei aa ndccwsiscmabennanarc 17

WE os ui R, oun onbanwe aes ce 17, 23

Federal Power Act, 41 Stat. 1063, as amended,

49 Stat. 838, 16 U.S.C. 79la, et seqg..___- 3, 28

ES vance cWicedecauenas 31, 34, 35

LEE LSS PRP ie aL eee eee

Statutes—Continued

Federal Power Act, 41 Stat. 1063, as amended,

49 Stat. 838, 16 U.S.C. 791a, et seg.—Con.

nigcstec bere OT ee MN FA 31, 34

UIE OSs oss onc enn ncn ce cunns 31, 34

OGD WOW in cnn cee nc cn cancumeitbncs 31, 34

fe i, _ SEE SASL REL LP 34

eet Se NE Te AE

Federal Water Power Act of 1920, 41 Stat.

1063, as amended, 49 Stat. 838, 16 U.S.C.

SG: FE a ikea nth crtre eh cdi Suotuibicdncione: 28

Interstate Commerce Act, 24 Stat. 379, as

amended, 49 U.S.C. 1, et seg......_._____ 3

preceding Section 1__-_-_-._-.- me... 1

ONE Bow dedianesetuaunk> 15, 17, 18, 20, 28

OE Fao cain wiinccncctencaeee i,

10, 13, 14, 15, 17, 18, 20, 25, 27, 33

Natural Gas Act, 52 Stat. 821, as amended,

20 ARG 40 Oe OR cn aniewaccokawecicas 19

Public Utility Act of 1935, 49 Stat. 803_____- 28

PN Pi ita ciaccewincecirinion we 24, 28, 30

Public Utility Holding Company Act of 1935,

49 Stat. 803, as amended, 15 U.S.C. 79, et

DOB nw eerie cc nec embawnemnncn aces 3-4, 24, 8

NE Wicd ncn ncmcnnmeccmne emanate 30, 36

IES en clectnimamnninnnsteuncmais 9, 30, 36

Section 8. ........--.-------\ ek 30

Section 9___..__._-_-___- nee" 30

SE BO. ox ei satocorse nme narneniinaienas 30

IN Roki tiene cenmmaemawinpats 30

Shipping Act of 1916, 39 Stat. 733, as amended,

Section 15, 46 U.S.C. 814___.___________- 2

35 Fed. Reg. 16649-- ---------------------

Hearings Before the House Committee on In-

terstate and Foreign Commerce on H.R.

5423, 74th Cong., Ist Sess... ------------ 33

Hearings Before the Senate Committee on

Interstate Commerce on 8S. 1725, 74th

Cong., Ist Sess- ------------------------ 30

H. Rep. No. 1318, 74th Cong., Ist Sess. - ---- 29, 31

Interstate Commerce Commission: ;

82d Annual Report (1968) - ---------- adh 38

83d Annual Report (1969) - ------------ 38

85th Annual Report (1971) - ----------- 39

Meeks, Concentration in the Electric Power In-

dustry: The Impact of Antitrust Policy, 72

Colum. Law Rev. 64 (1972)-_------------- 32

S. 1725, 74th Cong., Ist Sess... ------------ 25°

S. 2796, 74th Cong., Ist Sess. _------------- 25

S. Doc. No. 92, 70th Cong., 1st Sess.:

Report of the Federal Trade Commission

to the Senate of the United States on

Holding and Operating Companies of

Electric and Gas Utilities, Parts 1-

S. Rep. No. 621, 74th Cong., Ist Sess. ------- 14,

\ 25, 29, 31, 32

Shenefield, Antitrust Policy Within the Electric

Utility Industry, 16 Antitrust Bulletin

CIPD ec nein ecinnnomnenncnchamanieate 32

Sutherland, Statutory Construction § 5201 (3d

OB) ce cannccvnscnuncnccocececsntinocnee 14

Jn the Supreme Court of the Wnited States

OctToBER TERM, 1972

No. 71-1178

GutF StaTes UTILITIES COMPANY, PETITIONER

FEDERAI, POWER COMMISSION,

City OF LAFAYETTE, LOUISIANA, AND

City OF PLAQUEMINE, LOUISIANA

ON WRIT OF CERTIORARI TO THB UNITED STATES COURT OF

APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

OPINION BELOW

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

29a)’ is reported at 454 F, 2d 941.

y JURISDICTION

The judgment of the court of appeals was entered

on October 12, 1971 (Pet. App. 30a), and a timely

*“Pet. App.” refers to the appendix to the petition for a writ

of certiorari filed in this Court by Gulf States Utilities Com-

pany. “App.” refers to the separate appendix filed in this

Court after certiorari was granted.

(1)

lel ah nick Se 3

petition for rehearing was denied on December 15,

1971 (Pet. App. 31a). The petition for a writ of

certiorari was filed on March 11, 1972, and was

granted on May 30, 1972 (406 U.S. 956). The juris.

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

on Section 313(b) of the Federal Power Act, 16

U.S.C. 8251(b).

QUESTION PRESENTED

Whether, in determining if an electric utility’s ap-

plication for authorization to issue securities is “for

some lawful object, * * */and compatible with the

public interest,” as required by Section 204(a) of the

Federal Power Act, the Federal Power Commission

must consider claims that the funds to be raised will

be used for anticompetitive purposes.

STATUTES. INVOLVED

Section 204 of the Federal Power Act, 49 Stat. 850,

16 U.S.C. 824¢, provides in part:

(a) No public utility shall issue any security,

or assume any obligation or liability as guaran-

tor, indorser, surety, or otherwise, in respect of

any security of another person, unless and until,

and then only to the extent that, upon applica-

tion by the public utility, the Commission by

order authorizes such issue or assumption of

liability. The Commission shall make such order

only if it finds that such issue or assumption

(a) is for some lawful object, within the corpo-

rate purposes of the applicant, and compatible

with the public interest, which is necessary or

appropriate for or eonsistent with the proper

_———e

performance by the applicant of service as &

public utility and which will not impair its

ability to perform that service, and (b) is rea-

sonably necessary or appropriate for such pur-

poses. The provisions of this section shall be

effective six months after August 26, 1935.

(b) The Commission, after opportunity for

hearing, may grant any application under this

section in whole or in part, and with such modi-

fications and upon such terms and conditions

as it may find necessary or appropriate, and

may from time to time, after opportunity for

hearing and for good cause shown, make such

supplemental orders in the premises as it may

find necessary or appropriate, and may by any

such supplemental order modify the provisions

of any previous order as to the particular pur-

poses, uses, and extent to which, or the condi-

tions under which, any security so theretofore

authorized or the proceeds thereof may be ap-

plied, subject always to the requirements of

subsection (a) of this section. ;

sent of the Commission, apply any security or

any proceeds thereof to any purpose not speci-

fied in the Commission’s order, or supplemental

order, or to any purpose in excess of the

amount allowed for such purpose in such order,

or otherwise in contravention of such order.

* * * * *

Other pertinent provisions of the Federal Power

Act, 16 U.S.C. 791a, et seqg., the Clayton Act, 15 U.S.C.

12, et seq., the Interstate Commerce Act, 49 U.S.C. 1,

et seq., and the Public Utility Holding Company Act,

487-564—.72——-2

-—e

15 U.S.C. 79, et seq., are set forth at Pet. App. 43a-50,

and at FPC Br. App. 29-62.’

INTEREST OF THE UNITED STATES

‘This case raises an important question concerning

the duty of the Federal Power Commission to consider

anticompetitive factors in administering the Federal

Power Act, 16 U.S.C. 791a, et seq. The United States

is interested in the proper definition of the comple.

mentary roles of the regulatory agencies and the fed-

eral courts in furthering the fundamental national

economic policy expressed in the federal antitrust

laws. Consideration of antitrust factors by regulatory

agencies in determining whether proposed conduct is

in the ‘‘public interest’’ not only can serve to promote

this fundamental policy, but also can have an impor-

tant impact on the enforcement jurisdiction of the

courts. By preventing in their incipiency transactions

which might otherwise develop into full-blown viola-

tions of the antitrust laws or by conditioning approval

of proposed actions on the remedying of past viola-

tions, an agency can make unnecessary prolonged and

burdensome suits to enforce the antitrust laws.

STATEMENT

In October 1970 the Gulf States Utilities Company

(‘Gulf States”), an electric utility engaged in the

generation, distribution, and sale at retail and for re-

sale of electric energy in southeastern Texas and south

central Louisiana (App. 5), applied to the Federal

2“RPC Br.” refers to the Brief for the Federal Power Con-

mission In Support of Petitioner, filed in this Court.

—

merece meta ema te

Power Commission for authorization pursuant to

Section 204(a) of the Federal Power Act, 16 U.S.C.

924c(a), to issue $30,000,000 worth of long-term bonds

(App. 1-52). The purpose of the bond issue was to

refund part of the company’s outstanding commercial

paper and short-term notes (App. 5).’

After the Commission gave notice of the applica-

tion, 35 Fed. Reg. 16649, the cities of Lafayette and

Plaquemine, Louisiana, filed a protest and petition to

intervene (App. 54-160), contending that the funds

to be raised would not be used for a “lawful object”

compatible with the “public interest,’’ as required by

Section 204(a) of the Act, but instead would be

applied to finance or refinance attempts to suppress

competition (App. 56-57). The cities alleged that Gulf

States, the Louisiana Power and Light Company and

the Central Louisiana Electric Company had for

several years engaged in activities “apparently viola-

tive of the antitrust laws,” as well as other federal

statutes (App. 56).

The cities claimed that the three utilities had at-

tempted to destroy the Louisiana Electric Cooperative

(“LEC”)—a generation and transmission electric co-

operative financed by the Rural Electrification Ad-

ministration (Pet. App. 5a)—and pointed to a history

of “extraordinary litigation” by the utilities between

1964 and 1970 to prevent LEC from-constructing gen-

erating and transmission facilities with loans which

*The company had used the proceeds from the notes to help

finance its construction program and for other corporate pur-

poses (App. 162).

had been approved by the Administration (App. 60,

71-74). The facilities would permit LEC to provide

wholesale power to eight of its twelve member distyi-

bution cooperatives which at the time bought their

power from the three utilities (Pet. App. 5a). The

cities further charged that Gulf States and the other

companies had agreed not to transmit LEC power on

any of their lines unless a 1968 agreement among the

cities, LEC and the Dow Chemical Company to estab.

lish an interconnection and pooling system was can-

celled (App. 57-59). The cities claimed that the pool-

ing arrangement would provide them with important

economic benefits not available under their existing

interconnection agreements with the three utilities

(App. 58).

Accordingly, the cities requested that Gulf States’

proposed financing not be approved unless conditioned

upon cessation of the alleged anticompetitive activities

and rectification of their effects. If Gulf States would

not consent to such a condition, the cities asked the

Commission to permit them to intervene as full parties

and to hold a hearing to investigate. the challenged

activities and to determine whether and under what

conditions Gulf States’ financing should be approved

(App. 56-57, 65-66).

In its answer (App. 165-176) to the cities’ petition,

Gulf States asserted that the purpose of Section 204

“is to prevent unsound financing which might impair

the financial integrity of public utilities,” and that,

accordingly, the cities’ allegations of unlawful activ-

ity—which it denied—were “irrelevant to this appli-

cation” (App. 167, 173).

—..

The Commission agreed with Gulf States. Denying

the request for a hearing, the Commission issued a

prief order authorizing the issuance of the bonds on

the grounds that they were for a lawful object and

compatible with the public interest (App. 181-185).

As to the cities’ protest, the Commission held (App.

184)

(6) The matters asserted and activities al-

leged in the filed protest and petition to inter-

vene by the Cities of Lafayette and Plaquemine,

Louisiana, are irrelevant to the purpose of issu-

ing bonds to refund short-term indebtedness

heretofore authorized by the Commission.

The cities’ petition for rehearing was denied (App.

201).

On petition for review, the court of appeals unani-

mously reversed the Commission (Pet. App. la-29a).

The court referred to “the nation’s profound and per-

vasive devotion to competition as a fundamental eco-

nomic policy’? (Pet. App. 13a), and cited numerous

decisions to the effect that where an agency is called

upon to determine whether a proposal is in the “public

interest,’’ the agency “has the authority and typically

the responsibility to consider a challenge based on the

asserted anti-competitive purpose or consequence of

the proposal’’ (Pet. App. 12a). Noting that Section

204(a) of the Federal Power Act is virtually identical

to the relevant portion of Section 20a of the Inter-

state Commerce Act, 49 U.S.C. 20a, the court found

controlling this Court’s decision in Denver & Rio

Grande Western R. Co. v. United States, 387 U.S. 485

(Pet. App. 14a-16a).* The Court there held that the

Interstate Commerce Commission, in deciding under

Section 20a whether a particular issuance of securities

is compatible with the public interest, must consider

not only the financial integrity of the issuing company,

but also the anticompetitive effects of the transaction,

However, while holding that the Federal Power Com.

mission similarly must consider the anticompetitive

_ effects of proposed issuances of securities, the court

below made clear that it was not imposing a require-

ment that evidentiary hearings on the antitrust issues

be held in every case. Such issues could be disposed

of without hearing if accompanied by an explanation,

supported by the record, showing that no substantial

anticompetitive issues were raised or that there was

no “reasonable nexus between the activities challenged

and the activities furthered by the application’’ (Pet,

App. 22a).° |

In the same opinion, the court of appeals also con-

sidered petitions filed by the cities to review two orders

* The court below declined to follow the Commission’s decision

in Pacific Power & Light Co., 27 FPC 623, that in authorizing

the issuance of securities under Section 204 it need consider only

the impact of the securities on the issuer’s financial integrity

and ability to operate. The court held that Denver & Rio Grande,

decided five years later, had undercut the rationale of that deci-

sion (Pet. App. 16a-19a).

‘The court of appeals also indicated that the Commission

might approve “a large portion of the application,” reserving

decision on the competitive issues, or might even approve an

entire application, reserving until a later, separate application,

in a different time frame, consideration of the competitive issues

(Pet. App. 23a).

of the Securities and Exchange Commission under Sec-

tion 7 of the Public Utility Holding Company Act, 15

U.S.C. 79g, authorizing the issuance of various securi-

ties by the Louisiana Power and Light Company. In au-

thorizing issuance of the securities, the SEC had re-

fused to hold a hearing on the cities’ allegations of

anticompetitive conduct—which were similar to the

allegations made in the proceeding before the Federal

Power Commission—on the ground that the alleged

conduct was not relevant to the limited inquiry under

Section 7 (Pet. App. 7a-8a). The court of appeals

affirmed the SEC orders, holding that while the SEC

has some jurisdiction over the structure of the power

industry, it, unlike the Federal Power Commission,

‘has not been given any regulatory jurisdiction over

operations of the company’’ (Pet. App. 27a), and thus

need not as a general rule consider the impact of an

applicant’s operations on a competitor or potential

competitor under Section 7 of the Holding Company

Act (Pet. App. 29a).°

In their memorandum in opposition to the petition in this

case, the cities contended that there is no basis for distinguish-

ing between the Securities and Exchange Commission’s responsi-

bilities under Section 7 of the Holding Company Act and the

Federal Power Commission’s responsibilities under Section 204

of the Federal Power Act and stated that they “reserve the

right” to attack the affirmance of the orders of the SEC if

certiorari were granted (Mem. in Opp., p. 3). But, since the

cities did not petition from that aspect of the court of appeals’

decision and since their time for petitioning had expired prior to

the filing of their memorandum in opposition, the propriety of

the SEC orders is not in issue before this Court.

SUMMABY OF ARGUMENT

1. Under Section 204(a) of the Federal Power Act,

16 U.S.C. 824c(a), a public utility may not issue ge.

curities until the Federal Power Commission has de-

termined that the issue is “for some lawful object * * *

and compatible with the public interest.’’ Section

204(a) is directly patterned after, and is virtually

identical to, Section 20a(2) of the Interstate Com-

merce Act, 49 U.S.C. 20a(2). In Denver & Rio Grande

Western R. Co. v. United States, 387 U.S. 485, this

Court held that the Interstate Commerce Commission

is required to consider competitive factors before ap-

proving a stock issue under Section 20a(2). The

decision in Denver & Rio Grande is controlling tere,

not only because similar statutory provisions ate in-

volved, but because the Federal Power Commission,

like the Interstate Commerce Commission, has broad

regulatory authority over the structure and opera-

tions of the industry it regulates.

The decision in Denver & Rio Grande is but a spe-

cific application of the general rule that agencies with

broad economic regulatory powers must consider anti-

trust policies to give “understandable content to the

broad statutory concept of the ‘public interest.’ ” Fed-

eral Maritime Commission vy. Aktiebolaget Svenska

Amerika Linten, 390 U.S. 238, 244. In enacting regu-

latory statutes such as the Interstate Commerce Act

and the Federal Power Act, Congress has entrusted

federal agencies with economic regulatory authority

over certain industries in partial substitution for free

competition. But, with some exceptions not relevant

here, the antitrust laws continue to be applicable to

such industries, and the agencies must administer

their respective statutes in the light of the basic poli-

cies behind those antitrust laws. By giving the agen-

cies the responsibility of scrutinizing transactions for

anticompetitive consequences before the transactions

are effected, Congress has made the agencies a first

line of defense against anticompetitive practices

which, if unchecked, might become full-blown viola-

tions of the antitrust laws. The agencies thus com-

plement the courts in advancing antitrust policies.

9. The structure and legislative history of the Fed-

eral Power Act confirm that the Commission must

consider anticompetitive factors in determining under

Section 204 whether an issuance of securities is in

the public interest. In adopting the broad public inter-

est standard in Section 204 to govern securities issues,

Congress specifically rejected a provision which would

have limited the Commission’s function to determin-

ing whether a securities issue was for one of several

enumerated purposes. The clear implication is that

in making this choice Congress intended that the Com-

mission would take into account a broad range of con-

siderations in authorizing securities issues. The fact

that Congress expressed a particular desire to promote

sound financial practices and eliminate fiscal manipu-

lations is no indication that Congress wished the

Commission to refrain from considering other funda-

mental public policies such as those expressed in the

antitrust laws.

487-564—72

Section 204 was enacted as part of Title IT of the

Publie Utility Act of 1935. Title I of that Act en-

compassed the Publie Utility Holding Company Aet,

which was designed to curb certain abusive practices

of public utility holding companies and diminish the

high economic concentration among utilities by sim-

plifying public utility holding companies and placing

their future growth under federal supervision. Title

II of the Publie Utility Act encompassed Part IT of

the Federal Power Act and gave the Federal Power

Commission substantial regulatory authority over the

rapidly growing business of transmitting and selling

at wholesale interstate electric power. In giving the

Commission these powers, Congress was well aware

of the special role of periodic competition in the elec-

tric power industry. The Commission concedes that

it must weigh anticompetitive factors in determining

what is in the public interest with respect to pro-

ceedings under many Sections of the Federal Power

Act, but denies that it has any such obligation with

respect to proceedings under Section 204. In view of

the structure and legislative history of the Federal

Power Act, there is no basis for concluding that the

term “public interest’’ is used in a narrower sense in

Section 204 than in other Sections of the Act.

3. The decision below gives the Commission suffi-

cient flexibility so that it can consider anticompetitive

consequences in connection with a proposed securities

issue without unduly interfering with the timing of

the sale of the securities. The Commission need not

dwell on the allegations of anticompetitive conduct,

for example, if it finds that there is no substantial

factual basis for such claims or that there is no ra-

tional nexus between the allegations and the proposed

securities issue for which approval is sought under

Section 204.

ARGUMENT

|, THE DECISION OF THIS COURT IN DENVER & RIO GRANDE

ag. 1s CONTROLLING HERE AND REQUIRES THE FEDERAL

POWER COMMISSION TO CONSIDER COMPETITIVE FACTORS

IX DECIDING WHETHER PROPOSED SECURITIES ISSUES ARE

COMPATIBLE WITH THE PUBLIC INTEREST

In Denver & Rio Grande Western R. Co. v. United

States, 387 U.S. 485, this Court held that the Inter-

state Commerce Commission, in performing its duty

under Section 20a(2) of the Interstate Commerce Act

(49 U.S.C. 20a(2)) to determine whether the issuance

of particular securities is “for some lawful object

* * * and compatible with the public interest,’’? must

as a general rule consider the anticompetitive con-

sequences of the issuance. 387 U.S. at 498. When Con-

gress vested in the Federal Power Commission sub-

stantially the same responsibility with respect to the

securities issues of electric power utilities, it similarly

required the Commission under Section 204(a) of the

Federal Power Act (16 U.S.C. 824c¢(a)) to authorize

only issuances that are ‘‘for some lawful object * * *

and compatible with the public interest.’’? The virtual-

ly identical wording of these Sections of the two

Acts‘ was intentional; Congress patterned Section 204

(a) after Section 20a. S. Rep. No. 621, 74th Cong,

1st Sess., p. 20. It follows that Denver & Rio Grande

is controlling here under the traditional principle of

statutory construction that like provisions—and gg.

pecially those intentionally ffike—normally receive

like interpretations. H.g., Pott v. Arthur, 104 US,

735; Sutherland, Statutory Construction, § 5201 (3rd

ed.).

We need not rely on the similarity of the statutory

provisions alone, however, for Denver & Rio Grande

represents but a. specifie application of the broad

doctrine of complementary regulation under which

agencies with economic regulatory authority over

particular industries are required to consider basic

antitrust policies in carrying out their regulatory

* Section 20a(2) of the Interstate Commerce Act reads in

pertinent part:

“* * * The Commission shall make such order [of author-

ization] only if it finds that such issue or assumption: (a) is

for some lawful object within its corporate purposes, and com-

patible with the public interest, which is necessary or appro-

priate for or consistent with the proper performance by the

carrier of service to the public as a common carrier, and which

will not impair its ability to perform that service, and (b) is

reasonably necessary and appropriate for such purpose * * *,”

Section 204(a) of the Federal Power Act reads in pertinent

part:

“* * * The Commission shall make such order [of author-

ization] only if it finds that such issue or assumption (a) is

for some lawful object, within the corporate purposes of the

applicant and compatible with the public interest, which is nee-

essary or appropriate for or consistent with the proper perform-

ance by the applicant of service as a public utility and which

will not impair its ability to perform that service, and (b)

is reasonably necessary or appropriate for such purposes. * * *”

_—

functions. While its authority is in certain respects

not as broad as that of the Interstate Commerce Com-

mission, the Federal Power Commission is vested

with considerable economic regulatory power over the

electric power industry. No meaningful distinction

ean be drawn between the case at bar and Denver &

Rio Grande.

1. Denver & Rio Grande arose out of an application

by the Railway Express Agency for approval under

Section 20a of the Interstate Commerce Act of the

issuance of 500,000 shares of common stock (which

when issued would constitute 20 percent of its out-

standing common stock) to the Geryhound Corpora-

tion, a competitor in the express business. An agree-

ment between Railway Express and Greyhound con-

templated that within 60 days of the issuance of the

500,000 shares, G revhound would acquire an additional

one million shares of common stock—enough to give it

control of Railway Express. Only the proposed issu-

ance of the 500,000 shares, however, was submitted for

ICC approval. 387 U.S. at 489-490. Numerous rail and

motor carriers complained that the proposed transac-

tion was severely anticompetitive and therefore not

in the public interest, and that, since it was a first step

in the acquisition of “eontrol’? of Railway Express

by Greyhound, a hearing was required under Section

5(2) of the Act, 49 U.S.C. 5(2).° 387 U.S. at 489-490.

‘Under Section 5(2), a carrier acquiring control of another

carrier must obtain the approval of the Interstate Commerce.

Commission, which can act only after affording “reasonable op-

portunity for interested parties to be heard.” Section 5(2) (b).

The Commission refused to consider the anticompeti-

tive issues and approved Railway Express’ applica.

tion without a hearing. 387 U.S. at 491. On appeal

from an order of a three-judge court upholding the

Commission’s approval, this Court reversed.

While agreeing that the Commission did not abuse

its discretion in deferring a hearing under Section 5

until it became clear whether or not Greyhound would

acquire the additional 1,000,000 shares of common

stock and thus obtain “control’’ of Railway Express

(387 U.S. at 499-500), the Court held that the Com.

mission should have considered the anticompetitive is-

sues raised prior to authorizing the issuance of 500,000

shares under Section 20a. The Court rejected the Com-

mission’s argument that Section 20a was intended sole-

ly to protect stockholders and the public from fiscal

manipulation, stating (387 U.S. at 492):

* * * Even if Congress’ primary concern was

to prevent such manipulation, the broad terms

“public interest’? and “lawful object’’ negate

the existence of a mandate to the ICC to close

its eyes to facts indicating that the transaction

may exceed limitations imposed by other rele-

vant laws. Common sense and sound administra-

tive policy point to the conclusion that such

broad statutory standards require at least some

degree of consideration of control and anticom-

petitive consequences when suggested by the

circumstances surrounding a particular trans-

nae? **

The Court noted that the Commission is required to

weigh anticompetitive effects in determining under

—

Section 5 of the Act whether a proposed merger or

acquisition of control is “consistent with the public

interest” (see McLean Trucking Co. v. United States,

391 U.S. 67), and concluded that the “foundations of

the ICC’s obligations under §5 are largely applicable

to § 20a as well.”” 387 U.S. 492-493.

In holding that the Interstate Commerce Commis-

sion is required, as a general rule, to consider anti-

competitive consequences prior to approving stock is-

sues under Section 20a, the Court stated that in some

cases the Commission might legitimately decline to

hold a hearing or defer consideration of the anticom-

petitive issues. In such circumstances, however, the

reviewing courts must “closely scrutinize’ the Com-

mission’s action. 387 U.S. at 498. With respect to

Railway Express’ proposed issuance of 500,000 shares

of common stock, the Court found the anticompetitive

issues sufficiently serious to require pre-issuance con-

sideration by the Commission. 387 U.S. at 501-507.

9. Guif States attempts (Br. 6-9) to distinguish

Denver & Rio Grande on the ground that the Court,

in discussing the Interstate Commerce Commission’s

overall responsibilities, focused on the Commission’s

specific obligation under Section 11 of the Clayton Act

(15 U.S.C. 21) to enforce Section 7 of that Act (15

U.S.C. 18) against common carriers subject to its

jurisdiction ° and on the Commission’s general duty to

advance the competitive policies reflected in the Na-

*The complainants had alleged that Railway Express’ issu-

ance of securities would violate Section 7 of the Clayton Act.

887 U.S. at 490-491.

tional Transportation Policy (49 U.S.C. preceding

Section 1). 387 U.S. at 493. Gulf States points out

(Br. 9) that the Federal Power Commission is not

obligated to enforce the Clayton Act or advance bes

National Transportation Policy.

The Court’s decision in Denver & Rio Grande, how-

ever, did not turn on the Interstate Commission’s du-

ties with respect to the Clayton Act, nor was it con-

fined to consideration of the National Transportation

Policy. In referring to those duties, the Court was

merely illustrating the scope of the Commission’s reg-

ulatory obligations to underscore the illogie of the

Commission’s narrow reading of the terms ‘lawful

object” and ‘‘publie interest’? contained in Section

20a. Indeed, immediately after noting that the Inter-

state Commerce Commission is required to weigh anti-

competitive consequences in determining whether

merger or acquisition of control applications are ‘‘con-

sistent with the publie interest’? under Section 5 of

the Interstate Commerce Act, the Court added that

(387 U.S..at 492-493) :

Bis Men Aoe similarly broad responsibilities are en-

compassed within like broad directives ad-

dressed to other agencies. E..g., National Broad-

casting Co. v. United States, 319 U.S. 190, 224;

FCC v. RCA Communications, Inc., 346 U.S.

86, 94; California v. FPC, 369 U.S. 482, 484-

485.

Of particular relevance here is the Court’s citation

to California v. Federal Power Commission. In the

—

cited passage, the Court in that case stated (369 U.S.

at 484-485) :

Evidence of antitrust violations is plainly

relevant in merger applications, for part of the

content of “public convenience and necessity” as

used in 67 of the Natural Gas Act is found in

the laws of the United States. * * *

Significantly, neither the Clayton Act nor the Natural

Gas Act, 15 U.S.C. 717, et seq., confers upon the Fed-

eral Power Commission specific authority to enforce

the antitrust laws; vet the regulatory authority of the

Commission under the Natural Gas Act was held to be

sufficiently broad to obligate it to consider the anti-

trust laws in approving merger applications, Simi-

larly, under Section 203 of the Federal Power Act,

16 U.S.C. 824b, the Commission considers anticom-

petitive consequences in approving mergers of electric

utilities (Commonwealth Edison Co., 36 FPC 927,

affirmed stb nom. Utility Users League v. Federal

Power Commission, 394 F. 2d 16 (C.A. 7), certiorari

denied, 393 U.S. 953), although here too the Com-

mission lacks the specific authority to enforce the

antitrust laws.

The applicability of Denver & Rio Grande to the

present case is thus clear: the Court there reasoned

that since the Interstate Commerce Commission has

broad regulatory responsibilities and traditionally

considers antitrust issues in determining whether a

merger or acquisition of control, is in the ‘‘public

interest,” it cannot exclude anticompetitive issues

from consideration in applying the similar ‘‘public

interest’? standard to an application for approval of

an issue of stock. Similarly, since the Federal Power

Commission exercises broad regulatory powers in

administering the Natural Gas Act and the Federal

Power Act and considers anticompetitive issues in

approving mergers and acquisitions under those Acts,

it must also consider such issues in determining

whether the refinancing of short-term debt through

the issuance of bonds is in the ‘‘publie interest’? under

Section 204 of the Federal Power Act."° And, as we

Rio Grande the Court was primarily concerned with the anti-

competitive potential of the acquisition of stock of one carrier

by another and that since Section 5(2) of the Interstate Com-

merce Act applies only when one carrier acquires “control” of

another, the anticompetitive potential of stock acquisitions not

involving a transfer of contro] could be considered only under

Section 20a of the Act. By contrast, the Commission points out,

all acquisitions of one utility’s stock by another must be ap-

proved by the Commission under Section 203 of the Federal

Power Act. The Commission's contention is that because it con-

siders anticompetitive consequences in Section 203 proceedings,

it need not consider them in Section 204 proceedings. But

Denver & Rio Grande cannot properly be read so narrowly. In

there construing the term “public interest” in Section 20a of the

Interstate Commerce Act broadly, the Court did not confine its

reasoning to cases where one carrier is acquiring the stock of

another but announced a rule of general application that when

the ICC considers any stock issued under Section 20a it must

take into account alleged anticompetitive consequences. Both

Denver & Rio Grande (387 U.S. at 498) and the decision

below (see pp. 37-39, infra) do, however, permit summary dis-

position of antitrust allegations which are frivolous or have

no reasonable nexus with the transaction for which approval

is sought.

discuss in detail in point II, pp. 24-37, infra, the

structure and legislative history of the Federal Power

Act reenforee the conclusion that antitrust policy

is as much a component of the “public interest” in the

context of a Section 204 proceeding as it is in pro-

ceedings under other Sections of the Federal Power

Act.

3 As the foregoing discussion indicates, Denver &

Rio Grande is but a specific application of the general

rule that agencies must consider the nation’s funda-

mental policy of competition to give “understandable

eontent to the broad statutory concept of the ‘public

interest’.”. Federal Maritime Commission v. Aktie-

bolaget Svenska Amerika Linien, 390 U.S. 238, 244.

When an agency makes economic regulatory decisions

under a broad “‘publie interest” standard, the values

of free economic competition reflected in the antitrust

laws are too important to be ignored. McLean Truck-

ing Co. v. United States, supra, 321 U.S. at 80; Cali-

fornia v. Federal Power Commission, supra, 369 U.S.

at 484-485; Federal Communications Commission V.

RCA Communications, Inc., 346 U.S. 86, 94. Nor is

there necessarily any irreconcilable conflict between

regulatory statutes and the antitrust laws, for both

share the “basic goal * * * to achieve the most ef-

ficient allocation of resources possible.’’ Northern

Natural Gas Co. v. Federal Power Commission, 399

F. 2d 953, 959 (C.A. D.C.). To carry its burden of

reaching this “basie goal,” a regulatory agency which

must decide whether a proposed transaction is in the

“public interest”? should at least consider whether the

transaction would interfere with competition. In this

respect, it is not only conduct by the parties which

would violate the antitrust laws to which the agency

must be alert (see National Broadcasting Co. y,

United States, 319 U.S. 190, 222-224), but also com-

petitive considerations which may not rise to the level

of violations of the Sherman or Clayton Acts (Federal

‘Communications Commission v. RCA Communications,

Inc., supra, 346 U.S. at 93-94).

The obligation of an agency to weigh competitive

factors in administering a broad regulatory statute

stems from two related sources: the agency’s duty of

economic oversight, which functions in partial sub-

stitution for free competition; and its concomitant

duty to scrutinize regulated transactions in advance

for compatibility with. the public interest. If an

agency is to meet these responsibilities effectively, it

may not authorize a transaction which involves or

results in violations of other laws also representing

the competitive or regulatory policy of the United

States, without even considering the policies embodied

in those laws. Cf. Port of Portland v. United States,

408 U.S. 811, 841. If, on the other hand, an agency is

sensitive to its broad responsibilities in determining

what is in the ‘‘public interest,” its scrutiny of a pro-

posed transaction may uncover in its incipiency con-

duct which is inconsistent with basic antitrust policy.

The agency must then determine whether that conduct

is sufficiently serious and sufficiently connected with

the proposed transaction to warrant either disapprov-

ing the proposed transaction as not being in the “‘pub-

lic interest” or, if within the agency’s power, condi-

tioning approval on elimination of the anticompetitive

conduct. Through such pre-transaction scrutiny, agen-

cies regulating economic activity function as the pul-

lie’s first line of defense against violations of funda-

mental antitrust policies.

Of course, except in the limited circumstances where

agencies are empowered to enforce particular anti-

_ trust laws (see, e.g., Section 11 of the Clayton Act, 15

U.S.C. 21), regulatory agencies applying the ‘‘publie

interest” standard are not engaged in the direct en-

forcement of the antitrust laws. An agency’s consid-

eration of antitrust considerations as one component

of the “publejnterest” in approving a transaction,

therefore, does not normally foreclose a direct judicial

challenge to the transaction under antitrust laws. See

United States v. Philadelphia National Bank, 374 U.S.

321, 350-351; California v. Federal Power Commis-

sion, supra." But a regulatory agency’s jurisdiction

serves as a complement to the enforcement jurisdic-

tion of the courts in implementing the nation’s over-

all economic policy (see Northern Natural Gas Co. v.

Federal Power Commission, supra, 399 F. 2d at 959),

and also serves to minimize the enforcement burden

upon the courts by eliminating many potential of-

fenses before they become full-blown violations.

Congress may, of course, expressly immunize certain types

of approved transactions from challenge under the antitrust

laws. See, ¢.g., Section 5a(9) of the Interstate Commerce Act,

49 U.S.C. 5b(9); Section 15 of the Shipping Act, 46 U.S.C.

814. In these instances the agency’s duty to consider alleged

violations of other laws which have a rational nexus to the

transaction in question is no less important. Cf. Federal Mari-”

time Commission v. Aktiebolaget Svenska Amerika Linien,

supra; Port of Portland v. United States, supra.

Il. THE STRUCTURE AND LEGISLATIVE HISTORY OF THE

FEDERAL POWER ACT CONFIRM THE CONCLUSION THat

THE COMMISSION MUST CONSIDER ANTICOMPETITIVE

FACTORS IN DETERMINING WHETHER A PARTICULAR

SECURITIES ISSUE IS COMPATIBLE WITH THE PUBLIC

INTEREST

In point I we examined this Court’s holding in

Denver & Rio Grande that an agency with broad eco-

nomic regulatory responsibility may not find a trans-

action to be in the “public interest” without consider-

ing whether the transaction is consistent with the

fundamental economic policies expressed in the anti-

trust laws—a holding which is fully applicable to

the Federal Power Commission. We shall now take

a closer look at the pertinent language and legislative

history of the Federal Power Act, and at the Act’s

legal setting.

1. Section 204(a) of the Federal Power Act pro-

hibits electric utilities * from issuing securities until

authorized to do so by the Federal Power Commission,

and directs the Commission to authorize a securities

issue only if it is “‘for some lawful object * * * and

compatible with the public interest.” Under Section

12 Section 204(a) does not apply to utilities whose securities

are regulated by State regulatory agencies (see Section 204(f))

or to holding companies subject to the Public Utility Holding

Company Act of 1935, 15 U.S.C. 79, et seg. (see Section 213 of

the Federal Power Act, 16 U.S.C. 825q). Contrary to Gulf

States’ contention (Br. 15-16), the fact that Congress

chose to defer to State regulation of securities issues hardly

proves that in the regulation which Congress did undertake it

meant to limit agency consideration of securities issues to mat-

ters of financial integrity. Respect for federalism is not incon-

sistent with respect for competition.

, Pa ta =~ a ol ot «1 ee

904(b), the Commission may modify, or approve only

part of, a proposed issuance of securities or may im-

pose conditions in return for approval; under Section

204(c), a utility must spend the proceeds from the

issuance of securities only for the purposes authorized

pv the Commission. The legislative history of Section

204 sheds some light on the undefined terms ‘‘lawful

object” and “public interest.”

The original version of the Section, as introduced

in the Senate, contained no broad reference to the

public interest, but instead enumerated four specific

purposes for which a utility could issue securities“

The Senate Commerce Committee, in an effort ‘‘to at-

tain greater flexibility and workability,’’ cast aside

the specific enumeration and substituted the present,

general language of Section 204a, borrowed almost

verbatim from Section 20a of the Interstate Com-

merce Act. S. Rep. No. 621, 74th Cong., 1st Sess., p.

% Section 206 of S. 1725, 74th Cong., 1st Sess., pp. 109-110

(which, when amended, became Section 204 of S. 2796—the bill

which eventually was enacted), gave the Commission the au-

thority to approve securities issuances :

“* * * if it finds that such issue * * * is for one or more

of the following purposes and no others, and is reasonably

necessary or appropriate for such purpose or purposes: the

acquisition of property; the construction, completion, exten-

sion or improvement of the facilities or service of the public

utility: the discharge or lawful refunding of its obligations;

and the reimbursement of moneys actually expended from

sources other than the issue of securities for any of the afore-

said purposes in cases where the applicant shall have kept

its accounts and vouchers for such expenditures in such man-

ner as to enable the Commission to ascertain the amount of

moneys so expended and the purpose for which such expendi-

ture was made.”

20. Thus, the Senate specifically rejected a provision

which would have limited the Commission’s function

in approving a securities issue to the relatively simple

task of determining whether the issue is for one of

certain enumerated purposes and substituted the far

oreader responsibility—deliberately copied from an-

other regulatory statute—of determining whether the

issue is for a “lawful object’? and in the ‘public

interest.”’ And, in recognition of this broader responsi-

bility, the Commission was given the power to place

conditions upon approval (Section 204(¢))—thus au-

thorizing the Commission, for example, to approve an

issue subject to the condition that none of the proceeds

from the issue be used in connection with a particular

transaction which, in the Commission’s view, would

not be in the ‘‘public interest.”’

Guif States (Br. 12-18) and the Commission

(FPC Br. 22-24) attempt to limit the scope of the

terms “lawful object” and ‘‘public interest” by citing

further legislative history indicating that-in enacting

Section 204 Congress was intent on promoting sound

financial practices and preventing fiscal manipulation

by utilities. While these indeed were major concerns

of Congress, there is nothing in the legislative history

to indicate that these were Congress’ exclusive con-

cerns and that other fundamental public policies,

such as those expressed in the antitrust laws, should

be excluded from consideration in determining what is

in the ‘“‘public interest.” As this Court stated in

_Dhoor & Rio Grande with respect to Section 20a of

the Interstate Commerce Act (387 U.S. at 492):

Even if Congress’ primary concern was to

prevent [fiscal] manipulation, the broad terms

‘public interest” and “lawful object” negate the

existence of a mandate to the ICC to close its

eyes to facts indicating that the transaction may

exceed limitations imposed by other relevant

lowe, ©: O*

In the light of Denver & Rio Grande, there is no

merit to Gulf States’ (Br. 9-11) and the Commission’s

(FPC Br. 20-22) contention that the court below

should have yielded to the Commission’s earlier ad-

ministrative ruling that the ‘‘plain purpose of Section

204 is to prevent the issuance of securities which

might impair the company’s financial integrity or its

ability te perform its public utility responsibilities.”

Pacific Power & Light Co., 27 FPC 623, 626. In that

case, the Commission expressly recognized that See-

tion 204 was modeled after Section 20a of the Inter-

state Commerce Act and concluded that Congress must

have had similar objectives with respect to both

statutes. 27 FPC at 627. Thus, when this Court in

Denver & Rio Grande refused to give Section 20a a

narrow reading, the basis of the Commission’s decision

in Pacific Power & Light was undermined and the

court below correctly declined to follow it (Pet. App.

16a-17a)."*

“The Commission’s statement (FPC Br. 21) that it has con-

sistently followed Pacific Power & Light is similarly of limited

significance in view of the fact that, except for the instant

case, the Commission decisions it cites were all handed down

2. In enacting the Public Utility Act of 1935, 49

Stat. 803, of which Section 204 was a part,”* Congregg

had two important and related aims: to curb certain

abusive practices of public utility holding companies

and bring such companies under effective public con-

trol, and to provide effective federal regulation of the

prior to the decision in Denver & Rio Grande. Moreover, the

Commission has not always taken so crabbed a view of the

“public interest” standard contained in Section 204. In Black

Hills Power & Light Co., 28 FPC 1121, and Black Hills Power

& Light Co., 31 FPC 1605, the Commission held that proposed

stock issues for a restricted stock option plan were not com.

patible with the public interest under Section 204(a). Over

the dissents of two commissioners who claimed that the Com-

mission was deviating from its decision in Pacific Power &

Light, the Commission explained: “The incentives under stock

option plans, however, tend naturally to divert management

from their responsibilities to the public and to focus their

attention on maximizing prices and earnings in order to push

stock quotations ever higher. * * * The electric power industry

of today recognizes that it must perform its work with a broad

regard for the interests of consumers and the general public, as

well as the interests of stockholders and management. Stock

option plans do not lend themselves to this balanced manage-

ment attitude.” 31 FPC at 1611-1612. Another way for the

Commission similarly to insure “a broad regard for the interests

of consumers and the general public” is to require utilities to con-

form their conduct to the policies expressed in the antitrust laws.

8 Title I of the Public Utility Act -was the Public Utility

Holding Company Act of 1935, 49 Stat. 803-838, now codified

as 15 U.S.C. 79, et seg. Title II of the Public Utility Act tech-

nically consisted of amendments to the Federal Water Power

Act of 1920 (41 Stat. 1063), but in Section 213 of the Public

Utility Act (49 Stat. 847) Congress added two major new parts

(Parts II and III) to the Federal Water Power Act, and

changed the name of that earlier Act to the Federal Power

Act. Parts II and III of the Federal Power Act are now codi-

fied at 16 U.S.C. 824, et seqg., and 16 U.S.C, 825, et seq.; Part

1 is codified at 16 U.S.C. 791a-823.

—

large and growing business of transmitting and sell-

ing electric power in interstate commerce. S. Rep.

No. 621, supra, pp. 1-4; H. Rep. No. 1318, 74th Cong.,

ist Sess., pp. 3, 7-8; North American Co. v. Securities

& Exchange Commission, 327 U.S. 686; Jersey Central

(Co. v. Federal Power Commission, 319 USS. 61.

Numerous practices of public utility holding com-

panies, exhaustively surveyed by the Federal Trade

Commission,” were found abusive. Dubious financial

practices were among the most pronounced. Those

abuses, Congress concluded, resulted from a structural

imbalance in the economy whereby there was an in-

tolerable “concentration of economic and_ political

power now vested in the power trust.” S. Rep. No.

621, supra, p. 11. Congress was aware that there had

been no use of the antitrust laws, a potentially effec-

tive weapon, to halt or slow the growth of public utility

holding companies. Summary Report, pp. 47-54." TIn-

deed, through the holding company device, economic

concentration in the electric and gas industry had “as-

sumed tremendous proportions.’? S. Rep. No. 621,

ol i ta Bale

%See Report of the Federal Trade Commission to the Senate

of the United States on Holding and Operating Companies of

Electric and Gas Utilities, S. Doc. No. 92, Parts 1-84D, 70th

Cong., Ist Sess. The Commission published its conclusions in ’

Utility Corporations—Summary Report, 70th Cong., 1st Sess., S. q

Doc. No. 92, Part 73-A (“Summary Report”).

Senator Wheeler, in leading the debate on the legislation,

commented that if the Sherman Act had “been enforced and

executed and upheld as Congress intended * * * I do not think

there would have been much question that holding companies

could not have been organized.” 79 Cong. Ree, 8392.

. ——

supra, App. 55. Congress concluded that new legisla-

tion was needed to restructure the holding companies

and, as restructured, to regulate their activities. Ac.

cordingly, Section 11 of Title I of the Public Utility

Act (15 U.S.C. 79k) required the reduction of each

holding company system into a single, integrated pub-

lic utility system; while the other sections comple-

mented this restructuring by placing a range of inter-

company transactions under the control of the Seeu-

rities and Exchange Commission.”

While Title I of the Public Utility Act thus placed

the structure of holding companies under federal con-

trol, Title II-—applicable to electric utilities engaged

in the interstate transmission or sale at wholesale of

electric power (16 U.S.C. 824(b) and (e))—was con-

cerned not only with industry structure, but with the

operational integrity of the nation’s electric power

system. Several years prior to the enactment of Title

II, this Court had held in Public Utilities Commission

v. Attleboro Steam & Electric Co., 273 U.S. 83, that

the States lack the constitutional power to regulate

** Both Senator Wheeler and Representative Rayburn, the

sponsors and floor managers of the legislation in the Senate and

the House, labelled the situation “private socialism.” Hearings

Before the Senate Committee on Interstate Commerce, on S’

1725, 74th Cong., Ist Sess. (“Senate Hearings”), pp. 66-70.

* Sections 8, 9, and 10 (15 US.C. 79h, 79i, and 79j) placed

the acquisitions of securities, utility assets end interests in other

businesses under SEC control. Sections 6 and 7 (15 U.S.C. 79f

and 79g) require SEC approval for securities issues. Sections 12

and 13 (15 U.S.C. 791 and 79m) either prohibit, or allow only

subject to SEC rules, a variety of intercompany financial, sery-

ice, sales and construction activities.

rates charged in interstate wholesale electric power

transactions. In light of this decision and of the rapid

growth of the electric power industry, Congress deter-

mined that federal regulation of certain aspects of the

industry was needed. 8. Rep. No. 621, supra, p. 17; H.

Rep. No. 1318, supra, p. 7.

Title II, or Part II of the Federal Power Act, did

not establish a regulatory scheme sufficiently compre-

hensive to preclude the operation of other federal

laws, such as the antitrust laws” to electric utilities,

but it did vest in the Commission important powers

in specific areas. Specifically, Section 202(a), 16

U.S.C. 824a(a), directs the Commission to divide the

nation into regional power districts and to encourage

the voluntary interconnection of transmission and

generation facilities within them; Section 202(b), 16

U.S.C. 824a(b), empowers the Commission under cer-

tain circumstances to order interconnections and sales

and exchanges of electric energy; Sections 205 and

206, 16 U.S.C. 824d and 824e, authorize the Commis-

sion to suspend, investigate and fix wholesale rates

and charges; and Section 207, 16 U.S.C. 824f, em-

powers the Commission to order the furnishing of

adequate interstate service. Although the Commis-

sion’s powers are not all encompassing—the Commis-

sion, for example, cannot compel a utility to wheel

power, i.¢., transmit on its facilities another utility’s

*The applicability of the antitrust laws to certain aspects

of the electric power industry is at issue in Otter Tail Power

Co. v. United States, No. 71-991, probable jurisdiction noted,

406 U.S. 944.

power (see S. Rep. No. 621, supra, p. 19) ”—they

are extensive; it is within the context of these signifj-

cant powers over both industry structure and opera-

tions that one must view the Commission’s obligation

to determine whether particular transactions are in

the ‘‘public interest.”’

3. There can be no doubt that antitrust policies are

relevant to the electric power industry in general (see,

generally, Meeks, Concentration in the Electric Power

Industry: The Impact of Antitrust Policy, 72 Colum.

L. Rev. 64 (1972) ; Shenefield, Antitrust Policy With-

in the Electric Utility Industry, 16 Antitrust Bulletin

681 (1971) ), and to the administration of the Federal

Power: Act in particular. See California v. Federal

Power Commission, supra; cf. Northern Natural Gas

Co. v. Federal Power Commission, supra; Pittsburgh

v. Federal Power Commission, 237 F. 2d 741 (C.A.

D.C.). In considering the Publie Utility Act, Con-

gress was aware that ‘‘[w]hile the distribution of gas

or electricity in any given community is tolerated as

a ‘natural monopoly’ to avoid local duplication of

plants * * *,’”’ such a local monopoly should be toler-

ated only within its proper limits. S. Rep. No. 621,

supra, App. 55." Thus, David Lilienthal, Director of

*1 Although the Commission has no authority to compel

wheeling, it is our view that the district courts can compel

wheeling in certain circusnstances to remedy violations of the

antitrust laws. See our brief on the merits in Otter Tail Power

Co. v. United States, No. 71-¥91, probable jurisdiction noted, 406

US. 944

22The appendix to the Senate Report, quoted above, con-

sists of the report of the President’s National Power Policy

Committee.

the Tennessee Valley Authority and a member of the

President’s National Power Policy Committee, testi-

fed that TVA power could not compete with private

power in any municipality from day to day, for two

power systems cannot compete in the same locality on

that basis. Hearings Before the House Committee on

Interstate and Foreign Commerce on H.R. 5423, 74th

.Cong., 1st Sess., pp. 1962-1963 (‘‘House Hearings’’).

See also the testimony of Thomas Corcoran, Senate

Hearings, pp. 157-159.

But, Mr. Lilienthal explained, there is room for

periodic competition: If a private utility does not per-

form well, the municipality may decide to buy out the

company’s local system. Further, the local municipal

system often has a competitive choice of obtaining its

wholesale power either from a private power com-

pany, or from a public agency, such as the TVA.

House Hearings, pp. 1962-1963.* It is precisely this

type of competition that the cities charged Gulf States

with attempting to suppress (see pp. 5-6, supra).

Moreover, the Federal Trade Commission called to

Congress’ attention the existence of a significant

amount of valuable competition, both actual and po-

tential, in the power industry. The Commission

emphasized the “‘hundreds’’ of municipalities which

owned their own distribution systems and could make

“purchases [of power] from more than one operating

system.’”’ Summary Report, supra, p. 52.

2 Mr, Lilienthal stated that TVA intendéd to compete in

this way. House Hearings, p. 1963.

In apparent: recognition of the role of competitiog

in the electric power industry, the Commission ¢on-

cedes in its brief that antitrust policies must be taken

into account in administering many Sections of thy

Federal Power Act. The Commission states (FP¢

Br. 13-14):

Allegations of anticompetitive conduct would

be properly raised and fully considered by the

Commission in proceedings to order an inter

connection under Section 202, 16 U.S.C. § 824a,

to approve acquisitions or any merger under

Section 203, 16 U.S.C. § 824b, to review rates

under Sections 205 and 206, 16 U.S.C. §§ 8244

and 824e, to review charges of unduly discrimi-

natory rates or practices under Section 205, 16

U.S.C. § 824d, or to review charges of inade-

quate service under Section 207, 16 U.S.C.

§ 824f. * * #2

We fully agree that the Commission must consider

anticompetitive practices in connection with proceed-

ings under Sections 202, 203, 205, 206 and 207 of the

Act. In our view, however, the Commission’s conces-

ston merely underscores the breadth of its responsi-

*TIn addition, the Commission notes that it may investigate

allegedly anticompetitive practices by utilities under Sections

306 and 307, 16 U.S.C. 825e and 825f (FPC Br. 14-15). While

this is undoubtedly true, those Sections are couched in terms of

enforcing the Federal Power Act and thus do not constitute

@ general grant of jurisdiction to remedy anticompetitive prac-

tices or violations of the antitrust laws. Compare Pan American

World Airways v. United States, 371 U.S. 296. The Commis

sion’s primary weapon for curbing anticompetitive practices is

the withholding of authorization of transactions which beat

some relation to such practices.

—

bility to administer the Act in accordance with the

public interest. Nothing in the Act suggests that the

term “public interest’’ is used in a different and nar-

rower sense in connection with the issuance of securi-

ties under Section 204(a) than it is used with respect

to an interconnection under Section 202(b) or an

acquisition or a merger under Section 203(a).

The Commission’s contention (FPC Br. 14) that

the cities’ antitrust allegations might have been raised

in other proceedings misses the point. In the first

place, no other proceedings were pending before the

Commission and it does not appear that additional

Commission-ordered interconnections under Section

202(b) between the cities and the private power com-

panies would have provided the cities with the econ-

omies they were seeking from independent arrange-

ments with LEC and Dow Chemical (see pp. 5-6,

supra). More fundamental, however, is the fact that

even if the cities could have aired their grievances in

other proceedings, they chose to air them here; if in

fact there is substance to their allegations and if in

fact the proceeds from the securities issue for which

approval is sought would be used to further anti-

competitive conduct, then it simply may not be in

the “public interest” to approve the issue. It is, there-

fore, the Commission’s responsibility to consider these

issues in the present proceeding, as the court below

held.*

% The Commission’s contention (FPC Br. 24) that Statesville

y. Atomic Energy Commission, 441 F. 2d 962 (C.A. D.C.), con-

flicts with the decision below is without merit. In that case, the

4. Gulf States contends (Br. 19-20) that the court

below was inconsistent in construing Section 204 to

require the Federal Power Commission to consider

anticompetitive factors in approving securities issues

while holding that the Securities and Exchange Com-

mission had no similar obligation in approving secv-

rities issues under Sections 6 and 7 of the Public Util-

ity Holding Company Act. However, the duties of the

two Commissions under their respective statutes—

even though the statutes were enacted together as part

of the Public Utility Act of 1935—are significantly

different. The Public Utility Holding Company Act is

concerned primarily with the structures of public util- /

ity holding companies and does not vest in the SEC/

any regulatory jurisdiction over utility operations,

Since the anticompetitive allegations of the cities re-

court held that the Atomic Energy Commission is not required

to consider competitive factors in issuing research and develop-

ment licenses under Section 104(b) of the Atomic Energy Act

(42 U.S.C. 2134(b)). As the court was careful to point out, the

legislative history of that Act showed that in 1954 Congress

had amended it to remove a provision which had given the

Commission an affirmative obligation to consider a wide range

of competitive factors in the issuance of licenses. It was clear

to the court of appeals from the remarks of both the chief

sponsor and the opponents of the 1954 amendment that the

purpose of the new legislation was to eliminate the Commis-

sion’s responsibility to consider antitrust policies in its licensing

of experimental facilities. 441 F. 2d at 972-973. It was to this

specific legislative history that the court of appeals referred

when it spoke of “the drafters’ intent to narrowly limit anti-

trust considerations to specific portions of the statute while ex-

panding the health and national security considerations of the

Act as a whole.” 441 F. 2d at 972. In contrast, the legislative

history of Section 204 of the Federal Power Act lacks any

indication that Congress intended to exclude consideration of

antitrust policies in the administration of that Section.

late primarily to the manner in which the private util-

ities were conducting their operations and not to the

corporate structure of a public utility holding com-

pany, the court below correctly held that the SEC had

no obligation to consider the allegations.” By contrast,

the Federal Power Commission is concerned not only

with structure; it also has quite extensive authority

over the day-to-day operations of public utilities. Ac-

cordingly, in determining what is in the ‘‘public inter-

est”? under Section 204(a), the Federal Power Com-

mission must consider antitrust allegations whether

relating to industry structure or to utility operations.

III. CONSIDERATION BY THE COMMISSION OF THE ANTI-

COMPETITIVE CONSEQUENCES OF SECURITIES ISSUES, IN

THE MANNER REQUIRED BY THE COURT BELOW, WILL NOT

IMPAIR THE UTILITIES’ ABILITY TO RAISE FUNDS.

Both the Commission and Gulf States argue that

the need of public utilities to raise funds on an expe-

ditious basis militates against including competitive

factors as an element of the public interest under Sec-

tion 204 (FPC Br. 25; Petr. Br. 24-27). This argu- :

ment, however, is without merit. The decision below :

fully recognized that securities are often issued on a q

CS DSTO ET

Where industry structure is at issue, the court of appeals

has reached a different result. In Municipal Electric Associa-

tion of Massachusetts v. Securities and Exchange Commission,

413 F. 2d 1052 (C.A.D.C.), the court held that under Section

10 of the Public Utility Holding Company Act, the SEC must

consider the alleged competitive harm to municipal power com- F

panies of holding company acquisitions of stock in two nu- €

clear-power electric generating companies. See also Municipal e

Electric Association of Massachusetts v. Securities and Ea-

change Commission, 419 F. 2d 757 (C.A.D.C.).

tight time schedule and provided for administrative

flexibility in considering antitrust issues in connec.

tion with the approval of securities under Section 204,

Specifically, the court held that the Commission “is

not required to hold hearings in matters where the

ultimate decision will not be enhanced or assisted by

the receipt of evidence” (Pet. App. 22a) ; the Commis-

sion may, without hearing, reject protests raising

anticompetitive claims, as long as it provides a. rea-

soned explanation, supported by the record, “that

the intervenor’s contentions are too insubstantial or

barren to indicate the existence of substantial anti-

competitive issues, or to meet the requirement of a

reasonable nexus between the activities challenged and

the activities furthered by the application” (tbid.).

The court also stated that, in view—of_the limited

time frame in which most securities are issued, the

Commission might in some cases approve the great

bulk of the issue, or even the entire issue, reserving

consideration of the competitive matters until a later

time (Pet. App. 22a-23a). Finally, the court indicated

that the Commission might defer consideration of such

matters pending resolution of relevant antitrust litiga-

tion in the courts (Pet. App. 23a).

Of particular relevance here is the fact that the

reports of the Interstate Commerce Commission give

no indication that financing in the transportation

industry has been hindered by the Commission’s con-

sideration of anticompetitive issues in authorizing

securities ‘issues under Section 20a of the Interstate

Commerce Act following this Court’s decision in Den-

ver & Rito Grande. See 1968 Anual Report of the

Interstate Commerce Commission, p. 81; 1969 Annual

Report of the Interstate Commerce Commission, pp.

79-80; 1971 Annual Report of the Interstate Com-

merce Commission, p. 72. There is no reason to expect

that the electric power industry will encounter greater

difficulties than the transportation industry. In any

event, even if meaningful administrative consideration

of relevant issues in proceedings under Section 204 of

the Federal Power Act might result in some delays

in the sale of some securities issues, that would not

justify abdication by the Commission of its obligation

to consider as an element of the ‘‘public interest”

such fundamental national policies as those embodied

in the antitrust laws.”

CONCLUSION

For the foregoing reasons, the judgment of the

court of appeals should be affirmed.

Respectfully submitted.

Erwin N. GRISWOLD,

Solicitor General.

Tomas E. KavuPER,

Assistant Attorney General.

SaMUEL HUNTINGTON,

Assistant to the Solicitor General.

Howarp E. SHaPIRo,

Rosert B. NICHOLSON,

Attorneys.

NovEMBER 1972.

7 The Commission’s suggestion that affirmance of the decision

below may lead utilities to enter holding company arrange-

ments (FPC Br. 26-27) is highly unrealistic in view of the

numerous burdens which the Public Utility Holding Company

Act places on holding companies and in view of the adminis-

trative flexibility provided for in the court of appeals’ opinion.

U S. GOVERNMENT PRINTING OFFICE: 1972

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.