over, we will reserve jurisdiction to reconsider the exemption herein granted and to alter or withdraw such exemption, or the conditions thereof, after notice and opportunity for hearing, should subsequent facts, in our opinion, make such action necessary or appropriate. An appropriate order will issue. By the Commission: (Commissioners McConnaughey, Caffrey, and McEntire), Chairman Purcell and Commissioner Healy being absent and not participating. 23 S. E. C. IN THE MATTER OF NY PA NJ UTILITIES COMPANY METROPOLITAN EDISON COMPANY NATIONAL POWER & LIGHT COMPANY File Nos. 70-1246 and 54–128. Promulgated June 10, 1946 (Public Utility Holding Company Act of 1935-Sections 9 (a), 10 and 12 (d)) SALE OF UTILITY SECURITIES. Joint declaration filed by registered holding company and its subsidiary company pursuant to Section 12 (d) of the Act and Rule U-44 promulgated thereunder regarding the sale of utility securities owned by the subsidiary to a non-affiliate, permitted to become effective, the Commission observing no basis for adverse findings. ACQUISITION OF UTILITY SECURITIES. Application filed by a subsidiary of a registered holding company pursuant to Sections 9 (a) and 10 of the Act regarding its acquisition from a non-affiliate of the capital stock of a utility company, granted the Commission finding that such acquisition has the tendency required by Section 10 (c) (2) of the Act and that the other applicable provisions of Section 10 are satisfied. APPEARANCES: Herbert D. Miller and Jerome M. Alper, of the Public Utilities Division of the Commission. Harold J. Ryan, for Metropolitan Edison Company. FINDINGS AND OPINION OF THE COMMISSION Metropolitan Edison Company (Met Ed), a subsidiary of NY PA NJ Utilities Company (NY PA NJ), a registered holding company and a subsidiary of General Public Utilities Corporation (GPU), also a registered holding company, has filed an application pursuant to Sections 9 (a) and 10 of the Public Utility Holding Company Act of 1935 with respect to its acquisition of the outstanding capital stock and scrip of The Edison Illuminating Company of Easton (Edison) from Pennsylvania Power & Light Company (Pennsylvania). Pennsylvania, a subsidiary of National Power & Light Company (Na 23 S. E. C.-35-6691. ional), a registered holding company, and National have filed a upplemental application pursuant to Section 12 (d) of the Act and Rule U-44 promulgated thereunder with respect to the sale to Met Ed of the capital stock and scrip of Edison. These applications were consolidated for hearing and disposition, and after appropriate notice, a public hearing was held on them. The Commission, having considered the record, makes the following indings: BUSINESS OF APPLICANTS AND DECLARANTS Met Ed, a Pennsylvania Corporation, renders electric service in the southern and eastern portions of Pennsylvania including the City of Easton. Other principal communities served with electricity include Reading, York, Lebanon, and Hanover. It is also engaged in selling steam for heating in a portion of the City of Easton. NY PA NJ, a Delaware corporation, is the principal subsidiary company of GPU, the surviving company under the plan of reorganization of Associated Gas and Electric Company and Associated Gas and Electric Corporation. The assets of NY PA NJ consist chiefly of securities of subsidiary public utility companies operating in New York, Pennsylvania, and New Jersey. Pennsylvania, a Pennsylvania Corporation, is engaged primarily in rendering electric service in eastern Pennsylvania but not in or adjacent to the city of Easton. Gas and steam heating service is also rendered to a limited extent. Edison, a Pennsylvania corporation, owns electric distribution facilities and real estate in the city of Easton, Pennsylvania. All of its property is leased to Met Ed under a 99-year lease dated February 1, 1900. By order dated October 26, 1945, we approved the acquisition by Pennsylvania from National of the capital stock and scrip of Edison subject to the condition that Pennsylvania make some appropriate disposition of such securities within a period of one year from the date of our order. Pennsylvania states that the proposed sale of the capital stock and scrip of Edison to Met Ed is in compliance with such condition. PROPOSED TRANSACTION Met Ed proposes to purchase from Pennsylvania all of the outstanding stock and scrip of Edison, consisting of 12,317 shares of capital stock having a par value of $25 per share, and capital stock scrip representing the equivalent of 4.5348 shares of capital stock. In consideration therefor, Met Ed will pay in cash $298,179, plus a sum equal to the net current assets as defined in the purchase agreement. On February 1, 1900, Edison leased its property and franchises to Easton Power Company, a predecessor of Met Ed, for a term of 99 years at an annual rental of $30,000 (since reduced by agreement to $29,245). The leasehold interest in the property and franchises of Edison became vested in Met Ed in 1928; and, since that time, Met Ed, as the assignee of the lease, has been in possession of and has operated the property and business of Edison. The proposed transaction, therefore, involves no transfer of customers. Met Ed owns directly some of the facilities used by it in the supply of electricity in the City of Easton and has a leasehold interest in the remainder of such facilities. Met Ed states that the development of the business of supplying electricity in Easton has been such that it is increasingly difficult to separate the property of Edison's system from that of Met Ed. The property originally leased by Edison to Met Ed's predecessor included a power plant, distribution facilities, and real estate. The power plant of Edison has long since been abandoned as a power plant by Met Ed. The pole lines of Edison, as they existed in 1900, cannot presently be segregated accurately from the existing distribution system in Easton, most of which is owned by Met Ed. The same is true of the original meters and transformers. Part of the original distribution system of Edison has been placed underground. Met Ed states that even though much of the property of Edison cannot be specifically identified and segregated, the lessee is under obligation at the expiration of the lease to put the lessor in possession of property of similar character equal in value to that originally owned by Edison except insofar as the same may be accounted for by a sale and the proceeds turned over to Edison. ADEQUACY OF CONSIDERATION As previously stated, Met Ed proposes to purchase the capital stock of Edison for a base purchase price of $298,1791 plus a sum equivalent to the net current assets at date of closing. As of February 28, 1946, such purchase price would have been $450,491. Since the acquisition of the net current assets of Edison is merely an exchange of dollars we are primarily concerned with the reasonableness of the base purchase price. Met Ed, in accordance with the terms of the lease, is required to make all replacements, pay all maintenance expenses of the leased 1 The base purchase price is stated to be based upon an average of (a) the amount recorded as utility plant, less cash turned over to the lessor for plant retired and not replaced, and (b) a capitalization of operating income at 6 percent for the 10 year period from 1934 through 1943. property, and pay an annual rental of $29,245 for a remaining period of 53 years. The net annual savings to Met Ed, upon elimination of the lease, will amount to $18,133 after deducting Federal income taxes (at 1946 rates) applicable to such savings. The base purchase price of $298,179 represents the present value of such net annual savings on approximately a 6 per cent discount basis. It is also noted that the net income per books of Edison for the 10-year period from 1934 through 1943 averaged $22,815 per year or a yield of 5.1 percent on a purchase price of $450,491. Met Ed and Pennsylvania are non-affiliated and it appears that negotiations in connection with the proposed sale were conducted at arm's length. On the basis of the foregoing and in view of all the circumstances of this case, the consideration proposed to be paid by Met Ed and to be received by Pennsylvania for the capital stock of Edison does not appear to be unreasonable, and we so find. ACCOUNTING TREATMENT There is attached hereto as Appendix A a balance sheet of Edison, as at February 28, 1946. It will be noted that Edison carries its plant and property on its books in the amount of $364,765 against which there is a retirement reserve of $139,979 leaving a net book value for the property and plant of $224,786. As indicated previously, during the 46 years that the lease has been in existence Met Ed has made no effort to segregate on its records the replaced property from its own property with the result that all replacements to the leased properties have been added to its own plant and property account. Accordingly, Met Ed states that the amount of such replacements cannot be determined. The Pennsylvania Public Utility Commission has approved the acquisition by Met Ed of the capital stock of Edison subject to the condition that Met Ed cause Edison to be dissolved and to declare a liquidating dividend of all its assets to Met Ed, not later than December 31, 1946, and has reserved jurisdiction over the accounting entries to be made by Met Ed to record the acquisition of the capital stock and scrip of Edison and the acquisition, as a liquidating dividend, of all the assets of Edison. No original cost studies of the property of Edison have been made. Met Ed, in accordance with the provisions of the applicable classifications of accounts, proposes to make an original cost study of the Edison properties upon its acquisition thereof. Such original cost studies will be reviewed by both the Pennsylvania Public Utility Commission and by the Federal Power Commission, and the account |