SEC V. NEW ENGLAND ELEC. SYS., 384 U. S. 176 (1966)

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U.S. Supreme Court

SEC v. New England Elec. Sys., 384 U.S. 176 (1966)

Securities and Exchange Commission v.

New England Electric System

No. 636

Argued March 23, 1966

Decided May 16, 1966

384 U.S. 176


The Securities and Exchange Commission (SEC) brought proceedings under § 11(b)(1) of the Public Utility Holding Company Act of 1935 to determine the extent to which respondent New England Electric System (NEES), a holding company registered under § 5, could lawfully retain control over its electric, gas, and other properties. The SEC held that NEES' subsidiaries supplying electricity to retail customers in four New England States composed an "integrated electric utility system," and both the SEC and NEES agree that its gas utility subsidiaries serving retail customers in Massachusetts constitute an "integrated gas utility system" under the Act. The SEC, after hearing, ordered divestment of Nees' gas utilities under § 11(b)(1)(A), which limits a holding company system to a single integrated public utility system unless the SEC finds, inter alia, that an additional system cannot be operated independently "without the loss of substantial economies." Construing that provision to require a showing that the additional system cannot be operated under separate ownership without the loss of economies so important as to cause a serious impairment of that system, the SEC found that the gas companies could be economically operated independently of NEES, and that any losses of economies would be offset by the benefits from competition between the independently controlled gas and electric companies. The Court of Appeals reversed, interpreting "loss of substantial economies" to be satisfied by "a business judgment of what would be a significant loss."

Held: the SEC was warranted in ruling that the Act prohibits a public utility holding company from retaining an integrated gas utility system in addition to its integrated electric utility system unless the gas utility system sought to be retained could not be soundly and economically operated independently of the principal system. Pp. 384 U. S. 179-185.

(a) The "single integrated" public utility system requirement, as the legislative history shows, is the heart of the Act, retention of an additional system being the decided exception, and the SEC has consistently adhered to that view. Pp. 384 U. S. 180-182.

Page 384 U. S. 177

(b) Control by a single holding company of both gas and electric companies was one of the anticompetitive evils at which the Act was aimed. P. 384 U. S. 183.

(c) Though competitive advantage from separating the gas system from the principal holding company system are hard to forecast, it is for the SEC, which has expertise on the total competitive situation and has the task of practically applying an intricate statutory scheme, to gauge whether the gains to competition through separation are in the public interest and might offset the estimated loss in economies of operation. Pp. 384 U. S. 184-185.

346 F.2d 399 reversed and remanded.

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