Our order for hearing herein required Standard Gas to show cause why the Company should not be ordered to liquidate and dissolve or to recapitalize on an all common stock basis," and, as we have noted, Standard Gas has consented to the entry of an order which would require either its dissolution or recapitalization.

We have found that the corporate structure of Standard Gas unduly and unnecessarily complicates the corporate structure of its holding company system and unfairly and inequitably distributes voting power among the security holders of the system. Apart from the need for eliminating such complexities, Section 11 (b) (2) also requires the elimination of Standard Gas itself if its continued existence unnecessarily complicates the structure of the holding company system of which it is a part. As we have pointed out, Standard Gas is under order to dispose of its holdings of securities in all of its subsidiaries except Philadelphia Company and Public Utility Engineering and Service Corporation and that the latter company is now in the process of liquidation. We have also noted that since the hearing was held in this matter, we have issued our order requiring Philadelphia Company to liquidate and dissolve. In connection with such liquidation order, we found that, under Section 11 (b) (1) of the Act, Philadelphia Company may not retain its gas and/or transportation properties in conjunction with its integrated electric utility system which lodged in a single company, namely, Duquesne Light Company. We also found that there is no need for Philadelphia Company as a holding company over either its electric or gas systems, that the continued existence of Philadelphia Company would unnecessarily complicate the structure of Standard Gas holding company system, and that Section 11 (b) (2) of the Act required the elimination of Philadelphia Company. Obviously, if there is no need for Philadelphia Company as a holding company over its subsidiary companies, Standard Gas, which is already required to dispose of its other assets, would likewise serve no useful purpose in the system. It would follow, therefore, that in the light of our findings concerning Philadelphia Company, there would be no useful purpose served by the survival of Standard Gas as a holding company and that its continued existence would be repugnant to the standards of Section 11 (b) (2) in that it would unnecessarily complicate the structure of the holding company system of which it would be a part."

We recognize, however, that the validity of our order requiring the liquidation and elimination of Philadelphia Company is being contested and, as we have said, our order has been stayed. But if our order is reversed and if Philadelphia Company is permitted to and does continue as a holding company, a fortiori, Standard Gas would serve no useful purpose merely a holding company over Philadelphia Company and its

as

26 Holding Company Act Release No. 8004.

27 Cf. Engineers Public Service Company, 24 S. E. C. 551 (1946).

continued existence would unduly and unnecessary complicate the structure of its holding company system. Under such circumstances, Standard Gas clearly would have to be eliminated from the system. However, there is the possibility, if our order is reversed so as to permit some holding company to remain alive over two or more of the subsidiaries of Philadelphia Company, that the management of Standard Gas may choose Standard Gas as the corporate entity to fulfill that function. We believe that progress can be made toward bringing the Standard Gas system into compliance with the Act without foreclosing this possibility. Accordingly, we do not now pass upon the question of whether only its dissolution will ultimately resolve the problems of Standard Gas under the Act.

we

As noted earlier, Standard Gas has stipulated its consent to an alternative order which would require it to liquidate and dissolve or to recapitalize on an all common stock basis. Compliance with either alternative of such an order will eliminate the corporate complexities of Standard Gas which have found to be in violation of the Act. In the event Standard Gas elects to accomplish this end by liquidation and dissolution any possible future problem caused by the company's continued existence would, of course, be eliminated. On the other hand, if Standard Gas chooses to recapitalize, such a course of action would, obviously, effectuate compliance with the standards of Section 11 (b) (2) in so far as we have found existing violations thereof and would constitute an appropriate step in the direction of eventual complete liquidation and dissolution if we should later determine that such action is required. In this connection, we believe that in view of the substantial amounts of outstanding debt and preferred stocks of its subsidiaries, in no event would there be room in the corporate structure of Standard Gas, if and so long as it continues in existence, for any security other than common stock. As we said in The Commonwealth & Southern Corporation, 11 S. E. C. 138, 152-3 (1942), ". . . it is not appropriate for a holding company to have outstanding debt and preferred stock based on assets consisting almost entirely of common stocks which are themselves junior to large amounts of debt and preferred stocks, and thus to have fixed charges and fixed interest requirements dependent almost entirely upon the prospect of dividends from such common stocks.' Accordingly, we think that an order with the prescribed alternative is appropriate under the circumstances. We shall, however, in our order to be entered herein, reserve jurisdiction to review at a future date the question of the appropriateness of the continued existence of Standard Gas.2

28

In concluding as we have, we want it clearly understood that the possibility that the dissolution of Standard Gas may, in any event ultimately be required under the Act, would not, in our view, serve as an excuse for not taking the necessary

28 Cf. Pennsylvania Gas & Electric Corporation, 28 S. E. C.

. (1948).

action for complying with one or the other of the available alternatives under the order we shall enter. For, as we have said, dissolution will meet any possible problem in connection with the continuation of Standard Gas, and recapitalization will cure the existing violations of Section 11 (b) (2) with respect to the complex corporate structure and the unfair distribution of voting power, and, in addition, will be an appropriate step in the direction of complete liquidation if such action is eventually found necessary.

An appropriate order will issue

By the Commission. (Chairman Hanrahan and Commissioners McConnaughey, McEntire, McDonald, and Rowen).

(a) A plan for the liquidation and dissolution of this company was declared effective as of September 1, 1948, and has been consummated pursuant to order of the United States District

APPENDIX A--Continued

Notes: --Continued

Court for the District of Delaware. Under the plan, the Delaware Company's holdings of common stock of Louisville Gas and Electric Company (Kentucky) were distributed to its stockholders. As a result of the plan the voting power of Standard Gas and Electric Company in the Kentucky Company was reduced to approximately 20%.

(b) A plan of liquidation for Market Street Railway Company was filed with the Commission in May 1948. Hearings have been concluded and the Commission has taken the matter under advisement.

(C) In 1948, Oklahoma Gas and Electric Company issued and sold for public distribution 65,000 shares of preferred stock, having voting rights. In addition, Standard Gas and Electric Company sold to the public 250,000 shares of its holdings of the common stock of Oklahoma Gas and Electric Company. By these transactions the voting power of Standard Gas and Electric Company was reduced to 31.95%

(d) During 1948, Equitable Gas Company ceased to be a subsidiary of Pittsburgh and West Virginia Gas Company and became a direct subsidiary Philadelphia Company. In connection with such transaction Finleyville Oil and Gas Company was liquidated.

(e) Inactive.

(f) 60% owned by Philadelphia Company and 40% owned by Louisville Gas and Electric Company (Kentucky).

(8) Pittsburgh Railways Company operates a unified street railway system in the City of Pittsburgh. A wholly-owned subsidiary, Pittsburgh Motor Coach Company, operates a bus system. Pittsburgh Railways Company and Pittsburgh Motor Coach Company have been in reorganization under Section 77B and Chapter X of the Bankruptcy Act since 1938, and the system is now operated by the reorganization trustees. The traction system is composed of the properties and franchises of Pittsburgh Railways Company, together with those of 53 so-called "underlier" companies which are linked to Pittsburgh Railways Company through operating agreements, conveyances, assignments, leases or stock ownership. The United States District Court for the Western District of Pennsylvania has assumed jurisdiction over the assets of 49 of the 53 underliers for the purpose of formulating a reorganization plan involving the entire system. Philadelphia Company holds, directly or indirectly 10% or more of the common stock of 41 of the 53 under liers. One of the remaining 12 companies is a statutory affiliate of Philadelphia Company and the other 11 are non-affiliated.

(h) Wisconsin Public Service Corporation, during 1948 acquired one-third of the outstanding common stock of Wisconsin River Power Company, which latter company has filed an application requesting the Commission to issue an order declaring it not to be a subsidiary within the meaning of and for the purpose of the Public Utility Holding Company Act of 1935.

(1) Declared not to be a subsidiary within the meaning of and for the purpose of the Public Utility Holding Company Act of 1935.

(j) In process of liquidation.

Standard Gas and Electric Company and Subsidiaries Condensed Consolidated Income Accounts For Years Ended December 31, 1941 to 1947, Inclusive