NEW ENGLAND ELECTRIC SYSTEM et al.
Philip A. Loomis, Jr., Washington, D.C., for petitioner.
John R. Quarles, Boston, Mass., for respondents.
By § 11(b)(1)6 a holding company system is to be limited in operations by the Commission 'to a single integrated public-utility system,'7 provided, however, that it may be permitted to control one or more additional 'integrated public-utility systems' if the Commission finds, inter alia, that '(e)ach of such additional system cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system.' § 11(b)(1)(A). (Italics supplied.) It is on the meaning of this proviso that the present controversy depends. The Commission found that divestment of NEES' gas utilities would not result in a 'loss of substantial economies' to these companies within the meaning of § 11(b)(1)(A). It construed Clause (A) 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 Commission ruled that it was unable 'to find that the gas companies could not be soundly and economically operated independently of NEES.' It found that any losses of economies would be offset by the benefits that would flow from the healthy competition between the independently controlled gas and electric companies, promotion of competition between gas utilities and electric utilities being an important purpose of the Act. Accordingly, it ordered that the gas utilities be divested.
On petition for review the Court of Appeals reversed on the ground that the Commission had misinterpreted the statutory phrase 'loss of substantial economies.' 346 F.2d 399. The court held that Clause (A) 'called for a business judgment of what would be a significant loss, not for a finding of total loss of economy or efficiency' (346 F.2d, at 406), and, believing that on this record and with the statute so interpreted there could have been a finding in favor of NEES, remanded the case to the Commission. We granted certiorari, 382 U.S. 953, 86 S.Ct. 436, 15 L.Ed.2d 358.
We agree with the Commission's reading of Clause (A) and remand the cause to the Court of Appeals so that there may be a review of the challenged order in light of the proper meaning of the statutory term.
'Section 11 of both bills (i.e. the House and Senate versions), therefore, authorizes the Securities and Exchange Commission to require a holding company to limit its control over operating utility companies to one integrated public-utility system.
'The legislative history of Section 11(b)(1) indicates that it was the intent of Congress to create only a limited exception to the general rule confining holding companies to a single system, and that this exception was created to deal with the situation in which the proven inability of the additional system to stand by itself would result in substantial hardship to investors and consumers were its relationship with the holding company terminated.' Philadelphia Co., 28 S.E.C. 35, 46.
Competitive advantages to be gained by a separation are difficult to forecast. The gains to competition might well be in the public interest and might well offset the estimated loss in economies of operation16 resulting from a separation of the gas properties from the utility system. This is a matter for Commission expertise on the total competitive situation, not merely on a prediction whether, for example, a gas company in a holding company system may make more for investors than a gas company converted into an independent regime.
The phrase 'without the loss of substantial economies' is admittedly not crystal clear. But the Commission's construction seems to us to be well within the permissible range given to those who are charged with the task of giving an intricate statutory scheme practical sense and application. Power Reactor Development Co. v. International Union of Electricians, etc., 367 U.S. 396, 408, 81 S.Ct. 1529, 1535, 6 L.Ed.2d 924. And see Philadelphia Co. v. SEC, 85 U.S.App.DC. 327, 177 F.2d 720, 725.
Mr. Justice HARLEN, whom Mr. Justice STEWART joins, dissenting.
The question before the Court is the meaning of the phrase 'loss of substantial economies' as it appears in § 11(b)(1) of the Public Utility Holding Company Act of 1935.1 The Court of Appeals ruled that the phrase 'called for a business judgment of what would be a significant loss,' 346 F.2d, at 406, and I agree with this rendering which is both sensible and, in my view, obvious. This Court's opinion on the other hand seems to hold that the phrase demands a loss great enough to imperil 'sound' corporate operations.2 That holding, as I shall indicate, is at odds with the Act's wording, has little basis in legitimate statutory history or the aims of the Act, and cannot be sustained by agency or judicial precedent.
Inquiry naturally begins with the language of the Act, and with our reiterated principle that 'the words of statutes * * * should be interpreted where possible in their ordinary, everyday senses.' Crane v. Commissioner, 331 U.S. 1, 6, 67 S.Ct. 1047, 1051, 91 L.Ed. 1301; Malat v. Riddell, 383 U.S. 569, 571, 86 S.Ct. 1030, 1032, 16 L.Ed.2d 102. In this instance plainly the normal meaning of 'substantial economies' is a significant amount of money and not that amount, whatever its size, which guarantees corporate survival. The first reading would be given by lawyers and laymen alike automatically while the second could hardly be imagined without the prompting of persuasive legislative evidence. If Congress had intended the Court's test to govern, it could easily have said so in shorter space and with far greater precision.3 In addition, the Court's decision will apparently result in 'substantial economies' being read its way in § 11(b)(1) but in a quite different, more normal fashion where the same phrase appears in § 2(a)(29)(B), defining an integrated gas utility system (see ante, n. 4, of the Court's opinion). None of this is to say that the many subtle choices to be made in deciding what is a substantial sum in the present context are dictated by the terse language of the Act. See infra, n. 11. The choice here, however, is between two broad approaches, and the Act's language invites the first and repels the second.
Legislative history and purpose, heavily relied on by the Court, furnish no reason for departing from the natural reading of the Act. There was very little direct explanation of the 'substantial economies' provision in Congress; the majority opinion sets out in full the two important statements, one by the House Conference Committee (ante, p. 180-181) and the other by Senator Wheeler (ante, p. 181).5 The Committee Report, highly authoritative but unilluminating, says merely that there must be 'a real economic need' to justify retention of an additional system. Indisputably, substantial savings can be labeled a real economic need, the more so since Congress was sharply concerned with the lack of economic justification for many utility combinations. That the Committee's language is also compatible with the SEC's reading of 'substantial economies' does no more than make that language a useless guidepost.
Far more weight is given by the Court's opinion to the Act's supposed hostility toward common control of gas and electric utility systems with its danger of stifled competition. First of all, this hostility appears to be an illusion. The House and Senate Committees in identical language expressly stated that common ownership of competing forms of energy was 'a field which is essentially a question of State policy'; the present § 8, 15 U.S.C. § 79h (1964 ed.), was enacted to support this approach by using federal power to limit common ownership only where it is contrary to state law. See S.Rep.No. 621, 74th Cong., 1st Sess., 29—30; H.R.Rep.No. 1318, 74th Cong., 1st Sess., 14—15.8 In its decision in this very case the SEC stated: 'We do not take the view that the Act expresses a federal policy against combined gas and electric operations as such.' Holding Company Act Release No. 15035, p. 15. This was apparently so clear at the time the Act passed that in an early and now-repudiated decision the SEC went so far as to hold that gas and electric companies could be combined in the same single integrated public utility system. American Water Works & Elec. Co., 2 S.E.C. 972 (1937).
There remains to be answered only the Court's claim that its reading of the statute is 'supported by consistent administrative practice' (ante, p. 182, n. 12). Analysis of the SEC decisions shows that the Court is mistaken. The first important construction of 'substantial economies' came in North American Co., 11 S.E.C. 194, decided in 1942 only seven years after the Act took effect. Rejecting the assertion that any saving beyond a wholly nominal one would do, the SEC stated: 'The normal and usual meaning of the word 'substantial' is a meaning connoting 'important.' And we think that this normal and usual meaning is compelled here.' Id., at 209. At least four subsequent decisions cite North American and adopts its 'importance' test, a natural reading of the Act rather the unusual and specialized one adopted today. Cities Serv. Power & Light Co., 14 S.E.C. 28, 37 (1943); Middle West Corp., 15 S.E.C. 309, 319 (1944); Cities Serv. Co., 15 S.E.C. 962, 984 (1944); American Gas & Elec. Co., 21 S.E.C. 575, 597 (1945). Also during this first decade of the Act's enforcement two decisions, including one just cited, said that inability to operate independently was 'one of the guides which (among others) Congress intended to be used * * *.' Cities Serv. Power & Light Co., 14 S.E.C. 28, 62 (1943); Commonwealth & Southern Corp., 26 S.E.C. 464, 489 (1947). In one other case the SEC stated the loss must be one which would 'seriously impair * * * effective operations.' Engineers Pub. Serv. Co., 12 S.E.C. 41, 61 (1942).
To conclude, I think it should be noted that the Court's departure from the statute is not just an abstract legal error but does immediate, tangible harm in a most practical sense. The annual losses which respondent has forecast for its gas system because of separation exceed $1,000,000, a figure the SEC has questioned in part but not yet properly considered. The respondent's analysis also shows annual losses of $800,000 for the electrical system, although the SEC deems irrelevant losses to the primary system and the Court of Appeals did not reach this issue. The heavy losses in this case will presumably be borne by investors and consumers if the figures are accurate and separation occurs; it is noteworthy that the Massachusetts Department of Public Utilities appeared at the hearings in this case to oppose divestiture. The SEC has wide latitude in deciding how to gauge and compute 'substantial economies' and it has used that freedom in the past.11 What the Commission has no right to do, however, is to substitute to the detriment of business interests and the public alike a quite different standard for the one enacted by Congress. Neither does this Court have that right. I would affirm the Court of Appeals' well considered decision.
49 Stat. 812, 15 U.S.C. § 79e (1964 ed.).
NEES, the electric companies, and the gas companies are all parties respondent and are hereafter referred to as respondent.
49 Stat. 820, 15 U.S.C. § 79k (1964 ed.).
49 Stat. 820, 15 U.S.C. § 79k(b)(1) (1964 ed.).
The Commission has long held that a single 'integrated public-utility system' cannot include both gas and electric properties. See Columbia Gas & Electric Corp., 8 S.E.C. 443, 462 463; The United Gas Improvement Co., 9 S.E.C. 52, 77—83; Philadelphia Co., 28 S.E.C. 35, 44. Respondent does not contest this aspect of the Commission's reading of the Act.
North American Co. v. SEC, 327 U.S. 686, 704, n. 14, 66 S.Ct. 785, 795, 90 L.Ed. 945; S.Rep. No. 621, 74th Cong., 1st Sess., 11.
North American Co. v. SEC, supra, at 696—697, 66 S.Ct. at 792.
S. 2796, § 11(b), 74th Cong., 1st Sess. And see S.Rep. No. 621, 74th Cong., 1st Sess., 32.
S. 2796, § 11(b), as passed by the House of Representatives, and sent to the Senate on July 9, 1935. And see H.R.Rep. No. 1318, 74th Cong., 1st Sess., 17.
Respondent concedes that the Commission has, since 1948, 'articulated' a test 'like the present test'. See Philadelphia Co., 28 S.E.C. 35, 46—47, 53—74; General Public Utilities Corp., 32 S.E.C. 807, 814—815, 826—827, 831; Middle South Utilities, Inc., 35 S.E.C. 1, 11—13. Respondent contends, however, that previous decisions of the Commission applied a less restrictive standard of 'substantial economies.' The Commission disagrees, urging that while there was 'some variation in choice of words,' it has maintained a basically consistent position and that any semantic differences are due largely to 'the varying contentions with which the Commission was dealing.' The cases referred to are North American Co., 11 S.E.C. 194, 208—213; Engineers Public Service Co., 12 S.E.C. 41; Cities Service Power & Light Co., 14 S.E.C. 28, 37; Middle West Corp., 15 S.E.C. 309, 319; Cities Service Co., 15 S.E.C. 962, 984; American Gas & Electric Co., 21 S.E.C. 575, 596—597. We do not read those cases as being inconsistent with the Commission's position since 1948. In each of these cases the Commission found no showing of 'substantial economies' under whatever test might be applied; thus it was not there compelled to go further. There are, to be sure, a few cases in which the Commission permitted retention of small additional systems on the ground that the requirements of § 11(b)(1) were met; in these, however, the Commission did not articulate any standard. See, e.g., Federal Light & Traction Co., 15 S.E.C. 675, 683; Republic Service Corp., 23 S.E.C. 436, 451. But cf. North American Co., 11 S.E.C. 194, 243—244.
We cannot say that these early decisions show any clear inconsistency with the standard which the Commission today applies, and has applied since 1948. Under these circumstances, we feel justified in regarding the Commission's reading of the statute as supported by consistent administrative practice.
See S.Rep. No. 621, 74th Cong., 1st Sess., 29; Report of National Power Policy Committee, H.R.Doc. No. 137, 74th Cong., 1st Sess., 10 (Appendix to S.Rep. No. 621, 74th Cong., 1st Sess.).
Congress was well aware of the anti-competitive potential of corporate structures through which control of gas and electric utility companies rests under the umbrella of a single holding company. That a holding company so situated might retard expansion of the gas utility company in favor of the electric utility company was expressly discussed in the Senate Hearings on an earlier version of the Act. See Hearings before the Senate Committee on Interstate Commerce on S. 1725, 74th Cong., 1st Sess., 783.
By fostering competition between gas and electric utility companies, the Act promotes what has been described as 'variegated competition.' Hearings before the Subcommittee on Antitrust and Monopoly of the Senate Committee on the Judiciary, 89th Cong., 1st Sess., pt. 2, 840 (1965) (statement of Dr. Samuel M. Loescher). 'But since the distribution of electricity, following geographical divorcements, was to remain a natural monopoly in every region, the only kind of competition to be enhanced was that of 'variegated competition." Ibid.
See, e.g., Hearings before House Committee on Interstate and Foreign Commerce on H.R. 5423, 74th Cong., 1st Sess., 1249, 1402—1403, 1530—1531, 2257—2277; Hearings before Senate Committee on Interstate Commerce on S. 1725, 74th Cong., 1st Sess., 65. It was only the loss of 'substantial economies' that Congress thought would justify an exception from the separation rule of § 11.
I say 'seems' to hold both because two statements in the opinion (ante, pp. 179, 184-185) emphasize a supposed offsetting economic saving to be found in divestiture and because the SEC has stated the test in this case in varying terms.
'It * * * (is) wrong to deny the natural meaning of language its proper primacy; like Cardozo's 'Method of Philosophy,' it 'is the heir presumptive. A pretender to the title will have to fight his way." Friendly, Mr. Justice Frankfurter and the Reading of Statutes, in Felix Frankfurter: The Judge 40 (1964).
One other legislative comment on the provision favors the Commission, 79 Cong.Rec. 14165—16166 (remarks of Mr. Cooper), but the Court of Appeals properly disregarded it as an opponent's attempt to blacken the Act, cf. National Labor Relations Board v. Fruit and Vegetable Packers and Warehousemen, Local 760, 377 U.S. 58, 66, 84 S.Ct. 1063, 1068, 12 L.Ed.2d 129, and the SEC no longer relies upon it in its brief.
The statement was quoted as cumulative, minor evidence on another matter in 1941, the SEC admitting that it 'may not strictly be considered part of the legislative history' but saying it deserved 'some consideration.' Engineers Pub. Serv. Co., 9 S.E.C. 764, 782—783. In 1942, it was quoted as bearing on the present question but its test was not adopted. North American Co., 11 S.E.C. 194, 209. The following year the statement was thought to reveal 'one' of the various criteria to be used along with others. Cities Serv. Power & Light Co., 14 S.E.C. 28, 62.
For its 'decidedly the exception' characterization, the Court cites (ante, p. 180, n. 9) North American Co. v. SEC, 327 U.S. 686, 66 S.Ct. 785. That decision imparted no such gloss to the ABC clauses but gave a most cursory summary in passing on the constitutionality of § 11(b)(1).
The Court's opinion (ante, p. 184, n. 14) quotes from p. 7 of the above-cited Senate report, borrowing from its language that suggests § 11 was forwarding the same policy as § 8. What the Court overlooks is that this discussion was directed to an earlier and very different version of § 8, in which it also embodied other restrictions on holding company ownership having nothing to do with common control of gas and electricity, but closely related to § 11's policy of federally imposed simplification. A reading of the Court's quotation in context along with the relevant version of S. 2796, 74th Cong., 1st Sess., §§ 8, 11 (as reported on May 13, 1935), will quickly show that its reliance is misplaced. The majority's other citations in the same footnote are also infirm. The first two citations are statements on behalf of the rule that is now § 8, which allows the States to decide the issue. The remaining citation to the Senate Hearings does indeed reveal one Senator's general concern with common ownership's impact on competition; the respondent states it is 'the only such reference in the entire Senate hearing.' Brief, p. 37, n. 45.
It should again be remembered also that the present provision is not the only legislative safeguard. Even to obtain ownership over two systems, a holding company must, along with proving 'substantial economies,' show that there is geographical unity and that the combination is not so large as to impair 'the advantages of localized management, efficient operation, or the effectiveness of regulation' (supra, n. 1). Section 8 (supra, p. 190) acts as a further restraint in some cases. Other sections of the Act regulate transactions between utility companies and require disclosure of reports and maintenance of accounting data and other records. §§ 12(f) 13(a), 14, 15, 15 U.S.C. §§ 79l(f), 79m(a), 79n, 79o (1964 ed.).
The Fifth Circuit case is Louisiana Pub. Serv. Comm'n v. SEC, 235 F.2d 167. It was reversed here on jurisdictional grounds, 353 U.S. 368, 77 S.Ct. 855, 1 L.Ed.2d 897, which does not of course impair statement on the merits. The Second Circuit decision is North American Co. v. SEC, 133 F.2d 148, aff'd on constitutional questions, 327 U.S. 686, 66 S.Ct. 785, 90 L.Ed. 945. The District of Columbia decision is Philadelphia Co. v. SEC, 85 U.S.App.D.C. 327, 177 F.2d 720; that court thought it was following its earlier two-to-one decision in Engineers Pub. Serv. Co. v. SEC, 78 U.S.App.D.C. 199, 138 F.2d 936, cert. granted, 322 U.S. 723, 64 S.Ct. 1273, 88 L.Ed. 1561, vacated as moot, 332 U.S. 788, 68 S.Ct. 96, 92 L.Ed. 370, but Engineers is ambiguous.
Among examples—and I do not mean to approve or disapprove the ones I cite—are SEC rulings that as noted it will not consider losses to the principal system, General Pub. Utils. Corp., 32 S.E.C. 807, 838—839 (1951); that it will not consider tax losses as a very significant factor, Cities Serv. Co., 15 S.E.C. 962, 985 (1944); that it will give only limited weight to capital costs of divestiture, Eastern Utils. Associates, 31 S.E.C. 329, 349 (1950); and that it will offset predicted gains resulting from separation against the losses, North American Co., 18 S.E.C. 611 (1945).