by a registered holding company of securities which it owns of any public utility company, if the Commission finds that the terms and conditions of such sale with respect to various matters therein specified are not detrimental to the public interest or the interest of investors or consumers, and will not tend to circumvent the provisions of the Act or any rules, regulations, or orders of the Commission thereunder. The Commission finds that the proposed pledge will meet the requirements of such section and rule.

An appropriate order will issue subject, however, to the following conditions:

(1) That all acts in connection with said applications as amended shall be performed in all respects as set forth in, and for the purposes represented by, said applications; and

(2) That in the event that the order of the Illinois Commerce Commission authorizing the issuance of the aforesaid note or notes and the delivery of such note or notes to American shall be revoked, rescinded, or otherwise terminated, the exemption granted herein shall immediately terminate without further notice or order of this Commission; and

(3) That within 10 days after the issuance of the note or notes referred to herein and the acquisition and pledge of such note or notes by American the applicants shall respectively file with this Commission certificates of notification showing that such issuance and sale and acquisition and pledge have been effected in accordance with the terms and conditions of, and for the purposes represented by, said applications.

By the Commission: Commissioner Healy was absent at the time of the Commission's consideration of this case and did not participate therein.

5 S. E. C.

[No. 789]

IN THE MATTER OF

NORTHERN INDIANA PUBLIC SERVICE COMPANY

File No. 58-16. Promulgated July 5, 1939

SALE OF PUBLIC UTILITY SECURITIES TO ASSOCIATE COMPANIES OR AFFILIATES.

Approval.

Application, filed by a subsidiary of a registered holding company pursuant to Rule U-12F-1 promulgated under Section 12 of the Public Utility Holding Company Act of 1935, for approval of the sale of common capital stock of a public utility company, which it owns, to the utility company's parent, the purpose of the sale being to enable applicant to enter into a new and more advantageous electric service agreement with the utility company, approved, subject to certain conditions, the Commission finding that the sale will not be detrimental to the public interest or the interest of investors or consumers, and will not tend to circumvent the provisions of the Act or any rules, regulations, or orders of the Commission thereunder.

FINDINGS AND OPINION OF THE COMMISSION

Northern Indiana Public Service Company (hereinafter termed the "applicant"), a subsidiary of the Trustees of Midland Utilities Company, a registered holding company, has filed an application pursuant to Rule U-12F-12 of the General Rules and Regulations under the Public Utility Holding Company Act of 1935 for approval of the sale of its entire holdings (215,280 shares) of the common capital stock of Chicago District Electric Generating Corporation to Commonwealth Edison Company of Chicago, Ill., present owner of all the remaining outstanding shares of said stock. The Trustees of Midland Utilities Company have joined in and adopted the application of Northern Indiana Public Service Company.

1 Midland Utilities Company, a Delaware corporation, owner of all the applicant's outstanding common stock, filed a petition for its reorganization pursuant to Section 77B of the Federal Bankruptcy Act on June 9, 1934, in the District Court of the United States for the District of Delaware.

Rule U-12F-1 provides in part as follows:

...

No registered holding company or any subsidiary thereof shall, directly or indirectly, sell any security which it owns of any public utility company, to any company in the same holding company system or to any affiliate of a company in such holding company system except upon application to the Commission and in compliance with an order of the Commission entered after opportunity for hearing upon such application.

A public hearing on the application, as amended, was duly held after appropriate notice. No representative of investors or consumers or member of the public appeared at the hearing. The applicant has waived a trial examiner's report, submission to it of proposed findings of fact by the Commission or requested findings of fact by counsel to the Commission, and the right to file briefs and make oral argument before the Commission prior to the entry of these findings and the order thereon. The Commission has considered the record in this matter and now makes the following findings:

Applicant is a corporation organized under the laws of the State of Indiana engaged as a public utility company in supplying electricity, gas, and water to the public in 29 counties in the northern part of the State of Indiana.

Commonwealth Edison Company (hereinafter termed "Edison") is a corporation organized under the laws of the State of Illinois engaged as a public utility company in the generation and distribution of electrical energy in the city of Chicago, Ill.

Chicago District Electric Generating Corporation (hereinafter termed "Chicago District") was organized under the laws of the State of Indiana. It owns and operates an electric generating station located in Indiana, on the shore of Lake Michigan, at the Illinois-Indiana state line. Chicago District has no distribution system and all generated energy, except that used by it in connection with its generating station, is delivered to Edison and to the applicant for resale. As at December 31, 1938, Chicago District had outstanding 1,167,600 shares of no par value common stock with a stated value of $10 per share. Commonwealth Edison Company owns 952,320 shares, or 81.56 percent, of such stock, and the applicant owns the remaining 215,280 shares, representing 18.44 percent of the total number of shares outstanding.

NATURE OF THE APPLICATION

Applicant proposes to sell the 215,280 shares of common stock of Chicago District which it owns to Edison for the sum of $2,513,734.73, plus interest at 5% per annum from January 1, 1939, to the date of payment of the purchase price. If the tax accruals of Chicago District as at December 31, 1938, are finally found to be excessive, Edison will pay the applicant the latter's proportionate share (18.44 percent) of such excess, less the amount of any reasonable expenses incurred by Chicago District in the determination of its actual tax liability.

PURPOSES OF PROPOSED SALE OF STOCK

According to the record, the primary purpose of the sale of applicant's stock holdings in Chicago District to Edison at this time is to

enable applicant to enter into a new and more advantageous electric service agreement with Chicago District.

Applicant is now purchasing capacity and electrical service from Chicago District under certain electric service agreements dated December 22, 1928, for a term ending June 30, 1979. Supplementary capacity is obtained pursuant to an interchange energy contract between applicant, Commonwealth Edison Company, Public Service Company of Northern Illinois and Western United Gas and Electric Company dated January 1, 1933, which by its terms terminates on February 1, 1944. Applicant states that concurrently with the sale of said stock it will withdraw from the interchange energy contract and all supplements thereto, will cancel the electric service agreements with Chicago District dated December 22, 1928, and will enter into a new electric service agreement with Chicago District for certain amounts of electrical capacity and energy for a term commencing January 1, 1939, and ending June 30, 1979, and for certain additional amounts referred to as supplementary capacity for a term ending December 31, 1955, unless extended in accordance with the provisions of the agreement. According to the record, Edison, which controls Chicago District, has informed applicant that it will not be possible to enter into a new electric service agreement unless applicant agrees to sell its 215,280 shares of Chicago District stock to Edison.

Applicant deems it advisable to enter into the new electric service agreement at this time for the following reasons:

Applicant has received inquiries from large industrial users for substantial supplies of additional energy. According to the record, Edison has notified applicant that it will not extend the interchange energy contract expiring February 1, 1944. Applicant states that unless a new electric service agreement is entered into with Chicago District, it will be necessary for applicant to make substantial investments beginning in the year 1942 to provide itself with additional generating capacity in 1944 if applicant is not to be subject to the risk of obtaining purchased power at uncertain prices or of reducing its own volume of business. Furthermore, it is now necessary to obtain the mutual agreement of all parties to the interchange energy contract before applicant can complete negotiations with its large industrial customers for additional loads or for extensions of the present contracted loads, thus placing in the hands of the parties to the interchange energy contract the ability to limit and condition such negotiations.

A copy of the proposed new electric service agreement has been incorporated in the record of these proceedings as applicant's Exhibit No. 2.

CONSIDERATION FOR SALE OF STOCK

The consideration to be received by applicant for the sale of its 215,280 shares of common stock of Chicago District is $2,513,734.73, plus interest at 5% per annum from January 1, 1939, to date of payment of the purchase price, plus an amount equal to 18.44 percent of any excess of the reserve for taxes on the books for Chicago District on December 31, 1938, over the actual aggregate liability for taxes less the amount of any reasonable expense incurred by Chicago District in the determination of such liability.

The proposed base selling price of the shares in question was determined by adding to their aggregate stated value of $2,152,800 a sum equal to said shares' portion (18.44 percent) of what the earned surplus of Chicago District would have been at December 31, 1938, if Chicago District had not during that year refunded its publicly held bonds and redeemed its preferred stock through the sale of new mortgage bonds and notes to Edison, and had not made certain charges to surplus with respect to such refunding and redemption and to adjust the carrying value of fuel to physical inventory taken as of the end of the year. These charges aggregated $2,576,600.62, and reversing them results in converting the surplus deficit of $619,022.66 shown on the books of Chicago District on December 31, 1938, into a surplus balance as of that date of $1,957,577.96. Applicant's proportionate share of that adjusted surplus, $360,934.73, was added to the stated value of the stock to be sold in arriving at the proposed base selling price of $2,513,734.73. The 215,280 shares to be sold cost applicant $2,166,205.34 and are carried on its books at that amount. Thus, the proposed selling price, exclusive of interest from January 1, 1939, and of any amount that may be received on account of possible excess tax accruals on the books of Chicago District as at December 31, 1938, will yield a profit to the applicant of $347,529.39.

The income statements of Chicago District for the years 1929 (the first year of commercial operation) to 1938, inclusive, show aggregate net income for the period of $6,395,410. After payment of preferred stock dividends, there remained $4,889,444 available for the common stock, of which amount only $782,184 was actually paid in dividends. No dividends have been paid on the common stock since 1932, and total dividends received by the applicant on the shares owned by it aggregated $165,407, or less than 1% per year on its investment in this stock. Chicago District's surplus deficit as at December 31, 1938, is the result of charges to surplus in the amount of approximately $1,800,000 representing provisions for losses on investments, officers' and employees' accounts and employees' investment fund, and the charges heretofore described made in connection with the 1938 refinancing and fuel supply adjustment.