on segregation for the Accounting Department, 4,897 square feet were calculated as attributable to the requirements of 54 additional meter readers. In estimating space requirements for these additional employees, Coffman merely multiplied the Accounting Department's average square footage of 90,7 per employee, by 54. Yet, on cross-examination, he was unable to state how much space a meter reader actually utilized or whether he even had a desk. On redirect examination, after Coffman had investigated the matter further, he stated that no desk space is now assigned to outside meter readers, and that the space occupied in the central office building by the chief meter reader and meter book racks is approximately 300 square feet, or 2.7 square feet per meter reader. He then went on to state that, during the two-week interval since his cross-examination had been concluded, he had made a more detailed analysis of the actual working space requirements for the various employees of the Accounting Department. On the basis of this labor analysis, he estimated that 80,172 square feet would be required on segregation as against his earlier figure of 76,250. However, while it appears that Coffman did make a more detailed examination in this respect of present space occupancy, it further appears that his later estimate of space needs after segregation was arrived at by the same method previously used--i.e., by merely multiplying the average of present space requirements by the number of personnel estimated to be required on segregation, without any attempt at an independent study of the actual space needs which would be required by the companies on segregation.

Moreover, the way in which Coffman used average costs of rental space in determining his estimate of increased expenses represents a further deficiency in his study, particularly in view of the wide discrepancies in the rates presently paid by the different companies for different space. In one instance he did not take the lower figure into account at all but proceeded to use the highest charge. Thus, in considering the increased rental space which would be required for garage facilities, he initially used a rental cost of $90.00 per car which he described as "a judgment figure" based upon "conversations he had during our investigation" "with the department heads." He testified that there were 187 cars garaged at the Lexington Avenue garage at an aggregate rental cost of $16,321, which he stated came to about $87.30" per car. He admitted that there were also 391 additional cars serviced at Manchester which "just treating those cars as against the rental charge of Manchester .. would be $11.96" per car, as against the $87.00 per car charged at Lexington. At the resumption of the hearings that afternoon, Coffman presented a revised calculation which resulted in a per-car charge of $90.40 for Lexington, which "'in the exercise of judgment" he increased to $90.75 per

Proceeding on the same basic theory as that used by Coffman, Hartt and Stone reached their conclusions as to what adjustments would be required in Coffman's studies. In some instances the estimated personnel requirements exceeded Coffman's figures and in other instances were less than them. Their over-all conclusion was that five more employees would be required upon segregation than indicated in Coffman's studies, with a payroll increase of $46,506 and that the total increased expenses which would be incurred on segregation would be $77,084 more than Coffman estimated.

Hartt and Stone did not purport to make any independent examination of the problem or to deviate from the basic procedures and theory followed by Coffman. They devoted only a few days to their studies and their entire efforts were directed toward determining what changes should be made in Coffman's figures to reflect their own views of the situation. The basic defects which we have found inherent in Coffman's studies were obviously carried over and are inherent in the conclusions reached by Hartt and Stone. Under these circumstances, we cannot find that the conclusions of Hartt and Stone can be regarded as curing the defects in Coffman's study or as representing independent evidence sufficient to constitute proof of the loss of substantial economies on segregation.

Other Claimed Economies

In addition to the specific claim of increased expenses reflected in Coffman's studies, respondents contend that other losses, while perhaps not capable of precise measurement, would also result from segregation. As to most of the claimed "other losses," there is nothing in the record to indicate the extent or even to support the existence of such losses. With respect to the inclusion in these claimed losses of the saving resulting from the use of a consolidated tax return by Philadelphia Company and its subsidiaries," it may be noted that we have on previous occasions considered and rejected the argument that tax savings constitute substantial economies" within the meaning of clause (A). We have pointed out that such savings bear no relation to any operational functions of retention of control, that the argument assumes a continuation of current tax laws which may be changed, and that furthermore we cannot permit the incidence of tax savings to disrupt the basic policy of the Act that holding companies generally be limited to a single integrated system. Moreover, it should be noted that, while respondents have attempted to claim this tax item as an additional loss, their aggregate figures do not take into account the very much more substantial tax reduction which would result from their estimated increased expenses. See n. 13, supra.

Cities Service Company, 15 S. E. C. 962 (1944); Federal Light & Traction Company, 15 S. E. C. 675 (1944).

C. Conclusion of Retention of Additional System

46

The burden of proving that substantial economies would be lost upon segregation lies with the company. Philadelphia Company has failed to sustain that burden. We have concluded (1) that, even if we were to accept respondents' own claims at face value, we could not find that the claimed increased expenses would represent a loss of substantial economies" within the meaning of clause (A), and (2) that the evidence does not in fact support respondents' claims and falls far short of establishing that substantial economies would be lost on segregation,47 With respect to this latter conclusion we find that Coffman's studies are entitled to little or no weight, because of the inherent defects stemming from his failure to make a systemwide study of the problem, his perpetuation of the present General Department Organization, his failure to provide sufficient data on which his judgments and opinions could be tested, and the other deficiencies which we have discussed. Nor can we place any greater reliance on the testimony of Hartt and Stone since it is subject to the same basic infirmities as Coffman's evidence. Accordingly we cannot make the statutory findings required by clause (A) to permit retention of an additional system, and we must require that Philadelphia Company dispose of its interest in the gas system.

the requirements of clauses (A), (B) and (C) are cumulative, we find it unnecessary, in view of our conclusions under clause (A), to consider the applicability of clause (C). We turn next to a consideration of the so-called ''other businesses" in the Philadelphia Company system.

THE RETENTION OF OTHER BUSINESSES

Section 11 (b) (1) makes it our duty to require that the operations of a holding company system be limited to a single integrated public-utility system, to such additional public utility systems as meet the standards of clauses (A), (B) and (C), and to

"such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public-utility system..."

The section further provides that

"The Commission may permit as reasonably incidental, or economically necessary or appropriate to the operations of one or more integrated public-utility systems the retention of an interest in any business (other than the business of a public-utility company as such) which the Commission shall find necessary or appropriate in the

46 Columbia Gas & Electric Corporation, 17 S. E. C. 494 (1944).

We cannot, as we have done in some cases, find that the record would only support a claim of increased expenses on segregation of a percentage of respondents' figures and treat respondents' figures as appropriately reduced. Cf. Engineers Public Service Company, 12 S. E. C. 41, 60 (1942). Here the basic defects in the evidence offered on increased expenses make it impossible to attempt to estimate just what the amount of the increase in expenses on segregation, if any, would be.

public interest or for the protection of investors or consumers and not detrimental to the proper functioning of such system or systems."

It is well settled that the burden is upon the holding company to show that the "other businesses" sought to be retained meet the quoted standards. United Gas Improvement Co. v. S. E. C., 138 F. 2d 1010, 1021 (C.C.A. 3, 1943). We have construed these standards as requiring an affirmative showing of an operating or functional relationship between the operations of the retainable utility system and the non-utility business sought to be retained, and an affirmative showing that retention would be in the public interest. This interpretation has been approved by the Circuit Court of Appeals for the Third Circuit in the United Gas Improvement case, supra, and by the Circuit Court of Appeals for the Second Circuit in the North American case. 49 In the latter case the Court stated (133 F. 2d at pp. 152-3):

"The Commission interpreted these 'other business' clauses to permit retention only when it affirmatively appears that the public interest will be furthered by retention of a non-utility interest by reason of its relation "to economy of management and operation" of a publicutility system or systems or "the integration and coordination of related operating properties." This conclusion is consonant with the policy of the Act expressed in Section 1 (b) (4) . . . We agree with the Commission's interpretation...

Although certiorari was granted in the North American case, the issue before the Supreme Court was restricted to the constitutionality of Section 11 (b) (1).50 However, it is not without significance to the matter now before us that the Supreme Court in that case, aware as it must have been from the Circuit Court of Appeals' opinion under review of the controversy in the lower court concerning the proper interpretation of the "other business" clauses, used the following language in summarizing and describing the effect of those provisions (327 U.S. at p. 697):

... other holdings may be retained only if their retention is related to the operations of the retained utility properties." (Emphasis added).51

United Gas Improvement Company, 9 S. E. C. 52 (1941); Engineers Public Service Company, 9 S. E. C. (1941); The North American Company, 11 S. E. C. 194 (1942); Cities Service Company, 15 S, E. C. 962 (1944).

North American Co. v. S. E. C. 133 F. 2d 148 (C.C.A. 3, 1943).

50 The North American Company v. S. E. C., 327 U.S. 686, 690 (1946).

51Cf. Arkansas Natural Gas Corporation v. S. E. C. 154 F. 2d 597 (C.C.A. 5th, 1946), in which the Court sustained the Commission's conclusions as to the non-retainability of the non-utilities businesses there involved, but interpreted the second clause of the "other business" standards, in relation to the first clause, as "an enlargement, an addition thereto." (154 F. 2d at p. 599.) The company's petition for certiorari was denied, 329 U.S. 738 (1946).

Counsel for respondents contend that this construction of the "other business" clauses, insofar as it requires a showing of a functional or operating relationship between the utility system and the other business sought to be retained, is erroneous and, in support of this contention, places principal reliance on the decision of the Court of Appeals for the District of Columbia in Engineers Public Service Company v. S. E. C. In the Engineers case, the Court placed particular emphasis on the language of the second "other business' clause and took the position that Congress intended to forbid the divestment of other businesses not detrimental to the functions of the principal system, if retention will serve the interests of investors or consumers, irrespective of the functional relationship between those businesses and the principal system. (138 F.2d at p. 947) Although the Commission's petition for certiorari in the Engineers case was granted by the Supreme Court, the issue was rendered moot when the properties in question were divested from the system before a decision was reached.54

53

The arguments presented in respect to this issue by counsel for respondents have been fully considered in our previous opinions dealing with the question. We see no reason for overruling those decisions, particularly in view of the cited decisions of the Second and Third Circuits and the above quoted language used by the Supreme Court in the North American case. Accordingly, we reaffirm the holdings of our prior decisions dealing with this matter 5 on the basis of the reasoning set forth therein. However, for the reasons indicated below, our conclusions herein would not be affected by whether the test set forth in our prior decisions or that announced by the Court of Appeals in the Engineers case were to be applied. And, to avoid any gap, we have thought it appropriate to consider the retainability of the non-utility properties under both tests.

1. Pittsburgh Railways

Pittsburgh Railways, Philadelphia's largest non-utility subsidiary, has been in receivership since May 10, 1938, when voluntary petitions were filed under Section 77B of the Bankruptcy Act. The properties are now being operated by trustees appointed by the Federal District Court on June 14, 1938.

56

Prior to 1901 the present underliers of Pittsburgh Railways had been formed into six major systems which operated in the Pittsburgh area. Philadelphia Company, which had theretofore engaged only in the gas business, made its first street

52 138 F.2d 936 (1943).

53 322 U.S. 723 (1944). 54 68 Sup. Ct. 96 (1947).

55 See cases cited in n. 48, supra.

56 In the fall of 1938, the provisions of Chapter X were made applicable to the proceedings. Previously to the current reorganization proceedings, the system was in equity receivership from 1918 to 1924.