The effect of the foregoing transactions on the books of Huntington Development is shown by the following statements of capitalization (including surpluses) as of December 31, 1937:

8,060, 158. 47

8, 060, 158. 47

() Indicates deficit. Huntington Development has estimated that the original cost of its properties as of December 31, 1937, was $5,318,274.32. Cost to the person first devoting such property to the public service was considered as original cost in arriving at this estimate. The gross book value of the fixed assets as of December 31, 1937, was $10,315,611.30 or $4,997,336.98 in excess of the estimated original cost. The balance to remain in the proposed special capital surplus of Huntington Development and Gas Company will be $4,615,658.47, which is $381,678.51 less than the excess of the book value of property over estimated original cost. Declarant claims that a portion of such excess would properly be chargeable to reserves in the event declarant should be required to reduce the book value of its property to estimated original cost.

The proposals of Huntington Development heretofore described will be in furtherance of a plan of Columbia Gas & Electric Corporation to place its accounts, and those of its subsidiaries, in such a position that the assets of the system can, if required, be written down to and carried at their estimated original cost as hereinabove defined. The plan of Columbia was considered by the Commission in In the matter of Columbia Gas & Electric Corporation, 4 S. E. C. 406 (1939). In that case, Columbia Gas & Electric Corporation was also permitted to create a special capital surplus by a reduction of its common capital account. In that case restrictions were also placed on the surplus as at December 31, 1937. One of the objectives of these steps by Columbia was to provide a special capital surplus so that it could charge to such account or to surplus prior to January 1, 1938, the amounts of reserves for investments and adjustments to investments which may be found necessary such as the reserve for its investment in Huntington Development and Gas Company and the adjustments it proposes to make to its investment in that company in order to eliminate the deficit surpluses of Huntington Development and the former Huntington Gas.

On December 17, 1938, the Commission approved the dissolution of Huntington Gas Company and the acquisition of the preferred and

58 E. C.

common stocks of Huntington Development and Gas Company by Columbia, which at that date owned all of the common stock of Huntington Gas (20,000 shares of common stock without par value). Columbia also had a claim in principal amount of $2,706,114.25 for demand indebtedness of Huntington Gas.

Columbia now seeks approval of the amounts at which it proposes to record the Huntington Development shares in its investment account. In recording the cancelation of this indebtedness from Huntington Gas and the receipt from Huntington Gas of its assets which consisted of (a) 14,443 shares (99.9 percent of outstanding shares) of 6% cumulative preferred stock, (b) 39,871 shares (99.7 percent) of the outstanding common stock of Huntington Development and Gas Company, and (c) other net assets in the amount of $12,681.15, Columbia proposes the following:

A. To record the Huntington Development and Gas Company preferred and common stocks in its investment account at a total of $5,668,034.18. This figure is the total of its investment in the stocks of and advances to the former Huntington Gas Company and its advances to Huntington Development and Gas Company as at December 31, 1937, after various deductions and adjustments, as follows:

Investment in Huntington Gas Company stock_.
Advances to Huntington Gas Company-‒‒‒

Advances to Huntington Development and Gas Company--

Total investment and advances_.

Deductions:

(a) To remove from investment account that portion of
Columbia's book value represented by revaluation sur-
plus of Huntington Gas Company. (This surplus was
created by a revaluation, made in November 1927 of
Huntington Development and Gas Company stock owned
by Huntington Gas Company).

(b) To reduce investment account by deficit in earned surplus
of Huntington Gas Company at December 31, 1937--
(c) To reduce investment account by the amount of 1938 loss
of Huntington Gas Company-

(d) To reduce investment account by the deficit in earned
surplus since acquisition of Huntington Development and
Gas Company to December 31, 1937----
(e) To credit investment in Huntington Gas Company with
the amount of other net assets received from Hunting-
ton Gas Company at its dissolution_-_.

Total deductions___.

Amount to be recorded as investment in Huntington Development

and Gas Company--.

$1,600,000.00 2,706, 114.25 3,342,465. 24

7,648, 579. 49

600, 000, 00

350, 275. 06

220, 891. 25

796, 697. 85

12, 681. 15

1,980,545. 31

5,668, 034. 18

2

B. To set up a reserve in the amount of $3,342,465.24 against its investment in Huntington Development.

3

Included in the advances to Huntington Gas Company is the amount of $366,521.60 of intercompany profit in connection with the sale of Huntington Gas collateral trust notes to Huntington Gas by Columbia Corporation, a wholly owned subsidiary of Columbia Gas & Electric Corporation. Included in the advances to Huntington Development is the amount of $128,062.66 of intercompany profit to Columbia Corporation on the redemption of Huntington Development bonds. The premium paid for the retirement of these bonds, $238,262.58, was charged to the earned surplus of Huntington Development and Gas Company, thus contributing to the amount of the deficit in earned surplus, which it is now proposed to eliminate from the books of Huntington Development and Gas Company and from the investment account of Columbia Gas & Electric Corporation. On Columbia Gas & Electric Corporation's books the deficits in surplus ($350,275.06 and $796,697.85) are being charged to "surplus prior to January 1, 1938," and the losses of Huntington Gas Company ($220,891.25) for 1938 are being charged to "earned surplus since December 31, 1937."

The proposed gross carrying value of Columbia's investment in Huntington Development and Gas Company, therefore, represents substantially cost less deficit in surplus to date of dissolution of Huntington Gas Company.

After recording the proposed adjustments of $1,980,545.31, the balance in Columbia's investment account will be $5,668,034.18. This amount will be partly offset by a reserve against this investment of $3,342,465.24. Thus, the net carrying value of Columbia's investment in Huntington Development will be $2,325,568.94, which is less than the net assets of Huntington Development if adjusted to estimated original cost. The Commission finds no objection to this accounting treatment.

Columbia Gas & Electric Corporation owns 99.7 percent of the outstanding common stock and 99.9 percent of the outstanding preferred stock of Huntington Development and Gas Company. Two shares of the preferred stock, which is a regularly voting stock, and 129 shares of common stock are in the hands of the public. None of the several proposals involve the disposal of any assets nor the

Applicant has agreed to segregate this amount on its consolidated balance sheet as a special reserve against consolidated property account instead of eliminating it in consolidation by a credit to special capital surplus.

Columbia has created a special capital surplus as part of its declaration under Section 7 (File No. 43-160). It will transfer $3,342,465.24 from its special capital surplus to "reserve for contingencies-investment in Huntington Development and Gas Company." The amount of this reserve will not be affected by adjustments presently to be made.

issuance of any new securities nor will they affect the operations or revenues of the company. The Commission therefore observes no basis for finding that the proposed transaction will be "detrimental to the public interest or to the interest of investors," or that it will result in an "unfair or inequitable distribution of voting power" among holders of securities of the declarant. Thus, the requirements of Section 7 (e) are satisfied.

In the opinion of counsel for the company no state commission's approval is required for this transaction, and no state commission or any other regulatory body has advised this Commission of any failure to comply with any state law. The Commission finds that there has been compliance with Section 7 (g).

Since the proposed action of Columbia and Huntington Development will not affect the interests of consumers or investors, and the conditions of Section 7 of the Act are satisfied, the declaration and application are approved, subject, however, to the following conditions:

With respect to the declaration of Huntington Development and Gas Company:

(1) No charge (other than the charge proposed to be made to eliminate the deficit in declarant's earned surplus account) shall be made to special capital surplus unless (a) such charge has previously been authorized by appropriate resolution of declarant's board of directors and (b) subsequent to such resolution of the board of directors, 30 days' prior notice of the making of such charge be given to this Commission. The Commission reserves jurisdiction, on receipt of such notice, in and as part of the proceedings herein, after notice given within such 30 days and opportunity for hearing, to disapprove such charge on the basis of the record herein and any additional evidence that may be adduced by any interested party; and in the event that the Commission shall notify declarant to show cause why such charge should not be disapproved, the charge in question shall not be made until expressly authorized by order of this Commission. With respect to the application of Columbia Gas & Electric Corporation:

(1) The reserve of $3,342,465.24 which Columbia Gas & Electric Corporation is setting up against its investment in Huntington Development and Gas Company shall be carried on the consolidated balance sheet as a reserve against consolidated property account.

(2) No charge to this reserve (other than the charges presently proposed to be made) shall be made unless (a) such charge has previously been authorized by appropriate resolution of applicant's board of directors, and (b) subsequent to such resolution of the

board of directors, 30 days' prior notice of the making of such charge be given to this Commission. The Commission reserves jurisdiction, on receipt of such notice, in and as part of the proceedings herein, after notice given within such 30 days and opportunity for hearing, to disapprove such charge on the basis of the record herein and any additional evidence that may be adduced by any interested party; and in the event that the Commission shall notify applicant to show cause why such charge should not be disapproved, the charge in question shall not be made until expressly authorized by order of this Commission.

(3) This Commission reserves the right to require additional charges, on account of items in Columbia's investment in Huntington Development, to this reserve, other than those now proposed by applicant.

An appropriate order will issue.

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

5 S. E. C.