departure from the goal of utility systems dedicated to the service of a single geographic region, as defined in the Act. In contrast, extrinsic holding company growth through acquisitions by both registered and exempt holding companies is governed by the requirements of section 10 of the Act, which, in significant respects, are stricter than the standards of Section 11(b)(1). Section 10(c) (2) requires that, in order to approve an acquisition, the Commission must find affirmatively that the acquisition "will serve the public interest by tending towards the economical development of an integrated public utility system." As a consequence, since the passage of the Act; utility holding companies have not experienced any significant degree of external growth. 16/ Absolute size, in this industry, is not dependent on holding company status. If a size limitation on individual utility systems were desired, the holding company relationship would not be an appropriate jurisdictional basis for implementing such a policy. In terms of size, in the restricted sense of the Comptroller General's Report, the operating utilities listed 16/ In 1946, the Commission denied an application by American Electric Power Company to acquire Columbus and Southern Ohio Electric Company, 22 S.E.C. 808. A later proposal for the same acquisition (File No. 70-4596) led to extensive hearings, and the case is pending for decision. In addition, in one instance the Commission denied authorization for a major consolidation in Massachusetts, New England Electric System, Holding Company Act Rel. No. 18635, 5 SEC Docket 372 (Oct. 30, 1974). At anotner time, it authorized a combination of two large utility companies in Illinois, Illinois Power Company, 44 S.E.C. 140 (1970), but an conditions which the applicants found unacceptable. Similarly, Northeast Utilities was authorized by the Commission to acquire two major Connecticut utilities and two smaller adjoining utilities in Western Massachusetts (Northeast Utilities, 42 S.E.C. 963 (1966); 43 S.E.C. 462 (1967)). And, there is now pending a proceeding regarding the status under Section 11(b)(1) of a major registered system. Central and South West Corporation, Holding Company Act Rel. No. 19361, 8 SEC Docket 1202 (Jan. 30, 1976). -17 below, which are not a part of any holding company system, are of approximately the same order of magnitude as the registered systems (as of December 31, 1975). See page 22, infra. In its discussion of the issue of size, the Comptroller General's Report notes (p. 15) that Section 30 of the Act authorized and directed the Commission to make general studies of utility companies to consider "the sizes, types and location of public utilities" for the purpose of developing recommendations for "integrated public utility systems," and that the Commission has not conducted any studies under Section 30. Studies under Section 30, however, were Indeed, the never intended as part of the regulatory structure of the Act. immediate, major task facing the Commission after passage of the Act was the reorganization of registered systems under Section 11(b). Studies to that end were expressly provided for in Section 11(a), which instructed the Commission to examine each registered holding company system in order, among other things, to simplify its corporate structure, to eliminate complexities, and to confine it to properties and businesses of an integrated public utility system. The Commission reviewed most of the elecric industry and the larger part of the gas industry in the course of reorganizing campanies or systems in conformance with the statutory standards of Section 11(b). Additional or supplementary studies under Section 30 were not underWhen the Commission's Section 11(b) program had been largely campleted in 1955, such studies appeared somewhat distant and superfluous after the passage of almost a quarter of a century. At this time, in view of the vast technological changes in the utility industry, studies contemplated by Section 30 appeared to call for legislative reassessment, both in terms of need and of purpose. If such types of studies are found still to be germane, and depending upon the breadth of the studies contemplated, it may be more appropriate that the responsibility to conduct such studies should be lodged with the federal agency charged with developing a national energy policy. We would, of course, be willing to assist in any such studies if they are authorized by Congress and if the necessary funds should be appropriated. 19 III. EXEMPT HOLDING COMPANIES Chapter 3 of the Report, dealing with the granting of exemptions, largely ignores the language and structure of the Act, and, consequently, confuses the standards specified in Section 3 of the Act for the granting of exemptions with the entirely different standards, contained primarily in Section 11 of the Act, for companies which do not qualify for an exemption. There seems to be an assumption, based upon the Report's conceptual pre-occupation with size, that the Commission has complete discretion to grant or withhold exemptions and should exercise that discretion with primary reference to the issue of size and the other standards specified in Section 11 for nonexempt companies and that geographical location is an inappropriate criteria for exemption. On the contrary, geographic location is the primary standard for exemption. Section 3(a)(1) provides that the Commission shall exempt holding companies if they are predominantly intrastate and located within a single state. Section 3(a)(2) provides for exemption if the company is predominantly an operating utility operating in contiguous states. Size is not among the criteria mentioned in Section 3. If a company qualifies under Section 3, it is entitled to an exemption whether or not it meets all the requirements enumerated in Section 11 for a nonexempt holding company including, particularly, the requirement of Section 11(b)(1) that the operations of the system be limited to a "single integrated public utility system." 17/ The Commission, accordingly, has repeatedly held, from 17/ All the exemptions under Section 3(a), including those in subsections (a)(1) and (a)(2), are subject to the qualification that the exemption (continued) - 20 the earliest days of its administration of the Act, that a company does not have to meet all the standards of Section 11 in order to obtain an exemption under Section 3 and the Commission's interpretation has been judicially affirmed. 18/ The Report does not expressly take issue with this conclusion; it simply ignores it and assumes, in the discussion on pages 22 through 28, that the standards for exemption and the standards for companies which do not qualify for exemption should be identical, and that the Commission has mistakenly failed to adopt this approach. As we have noted, Section 3 of the Act provides, in mandatory terms, for carefully defined exemptions of wide scope. A major purpose of the Act was to make possible, rather than to displace, state regulation, by eliminating evasion of state jurisdiction through the holding company device. The relevant exemptive provisions of Section 3 identify those types of holding company systems which are essentially equivalent to local operating 17/ (continued) shall be granted "unless and except to the extent" that the Commission 18/ City of Cape Girardeau v. Securities and Exchange Commission, C.A.D.C., No. 74-15901, (Sept. 22, 1975), affirming per curiam Union Electric Company, Holding Company Act Rel. 18368, 4 SEC Docket 89 (Apr. 10, 1974); see also Public Service Corporation of New Jersey, 27 S.E.C. 682 (1948); Northern States Power Co., 36 S.E.C. 1 (1954); National Utilities and Industries Corp., Holding Company Act Rel. 17857 (Jan. 11, 1973); Pacific Lighting Corporation, Holding Company Act Rel. 17855 (Jan. 11, 1973); Union Electric Company, 40 S.E.C. 1072 (1962); Delmarva Power & Light Co., Holding Company Act Rel. 19717, 10 SEC Docket 735 (Oct. 19, 1976). |