gas and electric utility company operating in the State of Arizona; Nashville Gas and Heating Company, a gas utility operating in the State of Tennessee; Concord Gas Company and Manchester Gas Company, gas utilities operating in the State of New Hampshire; The Wyandotte County Gas Company, a gas utility operating in the State of Kansas; Connecticut Light and Power Company,10 an electric and gas utility company, also engaged in the operation of steam heat and hot water facilities and in holding securities in nonutility companies in the State of Connecticut; New Haven Gas Light Company, The Hartford Gas Company, and Bridgeport Gas Light Company, gas utility companies operating in the State of Connecticut; and Connecticut Railway and Lighting Company, which is engaged in operating bus transportation facilities and leases gas and electric properties.

THE ISSUES PRESENTED

As a result of our orders to show cause, respondents' answers and the arguments before us, respondents have clearly defined their position with respect to several properties and various legal issues have been joined and are presented for decision. The report, prepared by the staff at the direction of the Commission (see footnote 4, supra), setting forth informative data with respect to the UGI holding company system and suggesting the application of the pertinent provisions of the Act, has been revised to reflect corrections in the statement of facts and, with respect to factual matters, as distinguished from legal conclusions, has been made a part of the record in this proceeding as an agreed statement of facts. Respondents have indicated also that, as to the properties herein considered, no additional evidence would be offered.

1. Respondents agree that the integrated electric utility system operating in the 3-state area (Pennsylvania, Delaware, and Maryland), as described in the staff's report and in our Tentative Conclusions, is at least a part of the primary system contemplated by Section 11 (b) (1), and further agree that this primary system is confined to these three states. Although we are not here directly concerned with establishing the limits of the principal system or systems in this area," the position taken by respondents in this respect has enabled

10 Since the date of our last notice, UGI has sold its interest in this company; see infra. "The Commission's statement of tentative conclusions takes the position that the single integrated system in the 3-state area is composed of electric properties alone. No conclusion was expressed on the question whether the gas operations in this area constituted an additional integrated system. Respondent contends that both electric and gas properties in this area may be properly considered as constituting a single integrated system within the definition of an integrated public utility system in Section 2 (a) (29). This contention was argued and a brief in support was filed. The issue is not relevant to the properties considered in this opinion but it is, of course, of importance with respect to the properties (Footnote 11 continued on p. 61.)

the Commission and the respondents to simplify the issues considered in this Opinion as well as the scope of the proof to be offered in subsequent stages of the proceeding.

2. Respondents have specifically conceded that the properties which are under consideration at this time are not a part of the single integrated system or systems in the 3-state area.

3. Respondents have further stated that as to the properties in Connecticut no proof would be offered to meet the standards of clauses (A) and (C) referring to additional integrated systems, and that, as to the remainder of the properties considered herein, they make no contention that they are retainable as additional systems under any construction of clause (B).

4. Should we find that certain of the properties considered herein are utility subsidiaries of UGI (it is contended, as to certain properties discussed below, that although within the statutory definition of subsidiaries they are merely investments), then respondents make no contention that such utility subsidiaries are retainable under the Act.

The legal issues presented here arise out of the positions taken by respondents with respect to specific properties and certain over-all contentions which apply to all of the properties considered herein. These issues are, as follows:

I. Statutory Subsidiary Interests Claimed To Be Investments.— With respect to certain of UGI's properties in the State of Connecticut, the position is taken that, although UGI's stock holdings are sufficient to create the holding company-subsidiary relationship defined in Section 2 (a) (8) (A), the presence of a Connecticut statute, which prohibits the control by holding companies foreign to the State of Connecticut of gas, electric, or water companies incorporated by and engaged in business within the state,12 requires us to treat these holdings of UGI as mere investments rather than as subsidiaries. For the reasons discussed below, we have concluded that the provisions of the Act clearly require us to reject this argument.

II. Interests in Other Businesses.-It is contended by respondents that investment interests (that is, interests insufficient to create the statutory parent-subsidiary relationship) in both utilities and nonutilities are beyond the scope of any of the provisions of Section 11 (b) (1) and that no order may issue under Section 11 (b) (1) requiring the divestment of such investment interests. We have been unable to agree with such construction, for reasons indicated later in this opin

Footnote 11 continued:

in the 3-state area and must be resolved when proof is offered concerning the electric and gas utility properties in that area. Since the question has been argued at length and has been carefully briefed by able counsel, we deem it appropriate to set forth our views on the point as a guide for the future conduct of the case. These views are set forth in the Appendix attached to this opinion (p. 77, infra).

Cumulative Supplement to the Connecticut General Statutes, January Sessions, 1931, 1933, 1935 (1935), Ch. 196, Sec. 1414c, quoted infra.

ion, and have concluded that Section 11 (b) (1) permits the retention of such investments only if the standards set forth in the statute are found to be satisfied.

It is further contended as to certain properties that, since negotiations for their sale have been in progress and continue without success, the Commission should refrain from entering an order requiring their disposition at this time. We consider this request later, with reference to the specific properties to which it is directed.

III. Contention of City of Philadelphia.-The city of Philadelphia has intervened in this proceeding and has taken the position that UGI's compliance with any order which this Commission might enter requiring the unconditional disposition of any of the properties in the UGI system would result in preventing UGI's compliance with the terms of a guaranty contract now in force between UGI and the city of Philadelphia. We have concluded, for reasons stated later in this opinion, that the position taken by the city of Philadelphia is not well founded.

IV. Authority to Enter Orders at This Time.-Respondents take the position that the Commission lacks authority to enter final orders requiring the disposition of any of the properties dealt with herein, until the entire proceeding is closed and final disposition is made with respect to all of the system's properties. For the reasons discussed below, we have concluded that the Commission is not only granted the authority to enter final orders requiring disposition at this stage of the proceeding, but that the discharge of its duties under the Act requires that such orders be entered as promptly as possible after all issues bearing on the question whether any particular property or properties may be retained under Section 11 (b) (1) have been properly presented and can be resolved.

V. Constitutional Questions.-Respondents also contend that any order entered by this Commission would be void on the ground that Section 11 (b) (1) is legislation prohibited by and in violation of the Constitution. We have concluded that this question is not one within our power to resolve and that we must proceed, unless the courts rule otherwise, on the assumption that the legislation entrusted by the Congress to our administration is constitutional.

The first two of these issues apply to specific properties; the latter three apply to all properties and are sometimes referred to herein as the over-all contentions.

ISSUES WITH RESPECT TO THE SPECIFIC PROPERTIES

Connecticut Light and Power Company.-UGI owns 61.1 percent of the common stock of Connecticut Light and Power Company, an operating gas and electric utility which is also engaged in operating steam

heat and hot water facilities and which owns securities in certain nonutilities.13 On March 24, 1941, UGI filed with this Commission an application in connection with the proposed sale to underwriters, for resale to the public, of all of its holdings of common stock in this company. On April 8, 1941, this application was granted and the sale has now been completed; consequently, these properties are no longer involved in this proceeding.

The Arizona Power Corporation; Nashville Gas and Heating Company; Concord Gas Company; and Manchester Gas Company.—UGI, through its ownership of 99.9 percent of the voting stock of Commonwealth Utilities Corporation (a holding company), owns and controls 89.75 percent of the voting securities of The Arizona Power Corporation, an operating gas and electric utility company in Arizona. UGI also owns directly 100 percent of the common stock of Nashville Gas and Heating Company, a gas utility operating in the State of Tennessee, 52.8 percent of the voting securities of Concord Gas Company, a gas utility company operating in the State of New Hampshire, and 46.67 percent of the common stock and 9.3 percent of the preferred stock of Manchester Gas Company, a gas utility operating in the State of New Hampshire.1

The contentions which apply to these interests are first, the suggestion that UGI is at present negotiating for the sale of these properties and that the Commission should therefore refrain from entering orders at this time requiring their disposition, and second, the three over-all contentions. As indicated above, we have concluded that the over-all contentions are no bar to the entry of an order at this time. Since it is conceded that none of these properties is a part of the primary system or systems in the 3-state area, since UGI makes no contention that they are retainable as additional systems under any construction of clause (B) of the provisions relating to additional systems and does not contend that these interests are retainable on any other basis, and since the record before us indicates that these properties may not be retained, we must therefore order the disposition of these properties unless there is merit in UGI's suggestion that the entry of an order should be postponed because of the pending negotiations.

13 Connecticut Light and Power Company owns 100 percent of the common stock of Rocky River Realty Company (a real estate company) and Shelton Canal Company and Windsor Locks Canal Company (industrial water power companies).

Respondents, in their answer to our order to show cause, allege that at present, by reason of dividend defaults, the preferred stock alone is entitled to vote, so that UGI's interest in the Manchester Gas Company represents merely 9.3 percent of the voting power. This situation was made the basis of an application for a declaration that the Manchester Gas Company is not a subsidiary of UGI. This application was dismissed in Manchester Gas Company, 7 S. E. C. 57 (1940), but since the Commission had instituted a proceeding under Section 2 (a) (8) (B) of the Act and had consolidated that proceeding with the proceeding upon the original application, the company was declared to be a subsidiary of UGI.

In both its original answer and in its answer to our order to show cause, UGI alleges that it has undertaken negotiations for the sale of its interests in these companies, which negotiations have been unsuccessful thus far, that such negotiations are now going on, and that, although it is willing to agree to dispose of these properties, it is unwilling to consent to the entry of an order requiring disposition at this time.

In answer to respondents' suggestion of the possible hardship attendant upon the entry of an order of disposition at this time, we may point out first, that the problems of Section 11 and the necessity for eventual compliance with the statutory provisions have been, or should have been, matters for the respondents' consideration since 1935; second, that the statute imposes the duty upon us to secure compliance with Section 11 as promptly as possible; and third, that under the Act respondents will have a year (and possibly more time if warranted by statute) within which to comply with any order requiring disposition. We may also point out that compliance with an order of disposition does not necessarily require the sale of the properties. We have concluded that the statute requires that UGI must cease to retain any interest, direct or indirect, in these companies and that an order requiring such disposition must be issued.

New Haven Gas Light Company; Connecticut Railway and Lighting Company; and The Hartford Gas Company.-UGI controls 99.6 percent of the common stock of New Haven Gas Light Company, a company operating gas facilities in Connecticut,15 43.5 percent of the common stock and 88.2 percent of the preferred stock of Connecticut Railway and Lighting Company, which engages in the operation of bus transportation facilities and leases gas and electric properties in Connecticut, and 10.3 percent of the common stock directly and 11.77 percent of the common stock indirectly of The Hartford Gas Company, a gas utility also operating in the State of Connecticut.

As to these properties, the only contention made, in addition to the over-all contentions, is the argument that the Connecticut properties are not subsidiaries but are merely investments and, as such, are not covered by the provisions of Section 11 (b) (1). For the reasons indicated in the general discussion below, we have concluded that there is no merit in these contentions and that an order must issue requiring the disposition of these properties.

We may note here, first, that it is conceded that none of these properties are part of the single 3-state area system or systems. Second, respondents have stated that they, will offer no proof as to whether

15 This common stock in the New Haven Gas Light Company is held by the Connecticut Gas & Coke Securities Co., a holding company, in which UGI holds 70.3 percent of the common stock and .3 percent of the preferred stock.