Securities and Exchange Commission v. New England Electric System

PETITIONER: Securities and Exchange Commission
RESPONDENT: New England Electric System
LOCATION: South Boston Court

DECIDED BY: Warren Court (1967-1969)
LOWER COURT: United States Court of Appeals for the First Circuit

CITATION: 390 US 207 (1968)
ARGUED: Jan 18, 1968
DECIDED: Mar 05, 1968

Facts of the case


Media for Securities and Exchange Commission v. New England Electric System

Audio Transcription for Oral Argument - January 18, 1968 in Securities and Exchange Commission v. New England Electric System

Earl Warren:

Number 305, Securities and Exchange Commission versus New England Electric System et al.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

This case is here on a writ of certiorari to the Court of Appeals for the First Circuit for the second time.

It involves the validity of an order of the Securities and Exchange Commission entered under Section 11(b)(1) of the Public Utility Holding Company Act, directing the respondent New England Electric System which with convenience I shall refer to as NEES, to divest itself of its gas properties.

The NEES is a registered holding company.

In Section 11(b)(1) of the statute, in general terms, restricts a holding company to a single integrated public utility system and it does, however, permit an exception if the Commission finds among other things that the additional system cannot be operated as an independent system without the loss of substantial economies that would occur if the additional system is retained in the holding company system.

This is a Clause A of 11(b)(1) which is the subject of this litigation.

Now, when the case was here before, the question was the interpretation of that clause, the meaning of the phrase, loss of substantial economies.

The Court of Appeals had held that a loss of substantial economies was shown if the company proved a loss that would be considered substantial as a matter of a business judgment.

This Court reversed holding that the Court of Appeals have taken too narrow a view of the statute and it’s said that the appropriate interpretation of the statute which is that -- which is viewed the Commission consistently had upheld, that is as it put -- as the Commission has put it, the economy is so important as to cause a serious impairment of the additional system.

The question now before the Court is not the interpretation of that statute.

That was resolved the last time for the application of that statute.

That is, did the Securities and Exchange Commission here correctly hold that NEES had failed to carry its burden of proving that the divestment of its gas properties would entail the loss of substantial economy?

NEES has both an electric utility system and a gas utility system, and it has selected its electric system as its principal system to be retained.

The gas system has eight different, separate gas companies, all located in Massachusetts.

Its total plant is about $56 million.

Its gross revenues for the last year for which both at its figures were available 1958 were about $22 million and it serves 235,000 customers approximately.

Byron R. White:

This is the gas system.

Daniel M. Friedman:

This is the gas system, the eight gas companies.

Now, about almost 80% of NEES’ gas customers are also served by one of the electric subsidiaries of NEES and there is an over exchange -- the areas cover each other to the extent of 75%.

That is the service 75% of the area in which the gas companies have their franchise.

It’s also an area where the electric companies have their franchise.

The gas companies are organized administratively as a gas division and it has a centralized management and operations.

The man who is the head of the gas division is also the president of each of the gas companies.

And he in turn reports directly to the Vice President for Management of NEES, and NEES is understandable in this kind of a situation.

It performs a large variety of services for both the gas and the electric systems.

And to support their claim that divestiture of the gas properties have result in the loss of substantial economies, NEES relied on a very elaborate study which purported to show in great detail, exactly how much more it would cost for every phase of the gas company’s operations if they were required to operate separately rather than jointly.

The study was prepared by a public utility consultant firm named Ebasco.

The study basically what Ebasco did in making the study is as follows.