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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1973
- **Citation:** 411 U.S. 747

## Text

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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

0

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

se

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

a

Jn the Supreme Court of the Wnited States

OctToBER TERM, 1972

No. 71-1178

GutF StaTes UTILITIES COMPANY, PETITIONER
v.
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

2

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. ;

(c) No public utility shall, without the con-
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.

* * * * *

3

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

4

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

i)
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
d

*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).

—..

7

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

8

(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).

a

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).°

9

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.

10
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

11

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

3

12

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.

13

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

14

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

A

* 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. * * *”

_—

15

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).

16

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-

17

*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.

18

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

19

20

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

© The Commission argues (FPC Br. 17-18) that in Denver &
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.

21

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

22

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

23

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.

24

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

25

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.”

26

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

28

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.

—

29

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.

. ——

30

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.

31

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.

32

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.

33

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.

34

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

36

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.

37

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.).

38

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

39

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0145%3A13. Public record. Not legal advice.