proceeding. The motion stated, among other things, that we were not authorized to go forward with this proceeding until we had conducted certain studies and made public our recommendations thereon pursuant to Section 30, and that to hold the hearings herein before publishing such recommendations would deprive the respondents of property without due process of law in violation of the fifth amendment to the constitution. Believing that these contentions were groundless and that they provided their own answer, we rejected them without setting out our views thereon in detail. We did, however, hold the hearings herein in abeyance, at the respondents' request, pending preparation of a report by our staff on the holding company system in the light of the requirements of Sections 11 (b) (1) and 11 (b) (2), and the issuance of a statement of our tentative views regarding compliance by the respondents with the requirements of Section 11 (b) (1).3

Meanwhile the respondents have reiterated their previous contentions with respect to Section 30. They have also advanced the further argument that even if our studies and recommendations under Section 30 are not prerequisite to the 11 (b) (1) proceeding as a matter of law, such studies and recommendations are prerequisite thereto as a matter of practical administration. Inasmuch as a prompt resumption of the hearings herein is anticipated, and since similar questions have been raised in other proceedings under Section 11 (b) (1), we deem it appropriate to express our views on the Section 30 question at this time. Section 30 provides in full as follows:

The Commission is authorized and directed to make studies and investigations of public utility companies, the territories served or which can be served by public utility companies, and the manner in which the same are or can be served, to determine the sizes, types, and locations of public utility companies which do or can operate most economically and efficiently in the public interest, in the interest of investors and consumers, and in furtherance of a wider and more economical use of gas and electric energy; upon the basis of such investigations and studies the Commission shall make public from time to time its recommendations as to the type and size of geographically and economically integrated public utility systems which, having regard for the nature and character of the locality served, can best promote and harmonize the interests of the public, the investor, and the

Motion to dismiss denied by order entered June 8, 1940; petition for rehearing denied by order entered June 17, 1940, Holding Company Act Release No. 2119.

3 The Commonwealth & Southern Corporation, et al., 7 S. E. C. 369 (1940); the statement of tentative views of the Commission appears in Holding Company Act Release No. 2626. The hearings in this proceeding were further postponed pending the determination of certain preliminary matters in a related proceeding (File No. 59-20) under Section 11 (b) (2). See The Commonwealth & Southern Corporation, Respondent, 9 S. E. C. 609 (1941), and 11 S. E. C. 138 (1942).

See, especially, statement of Justin R. Whiting, president of Commonwealth, submitted to this Commission and released to the public April 10, 1941.

5 E.g., Engineers Public Service Company, et al., 7 S. E. C. 371 (1940) and 9 S. E. C. 764 (1941); The United Corporation, 10 8. E. C. 418 (1941); The North American Company, et al., 11 S. E. C. 194 (1942), at footnote 3.

consumer.

The Commission is authorized and directed to make a study of the functions and activities of investment trusts and investment companies, the corporate structures, and investment policies of such trusts and companies, the influence exerted by such trusts and companies upon companies in which they are interested, and the influence exerted by interests affiliated with the management of such trusts and companies upon their investment policies, and to report the results of its study and its recommendations to the Congress on or before January 4, 1937.

It will be observed that this section has two distinct parts: the first part provides for "studies and investigations" of public utility companies and their territories and manner of service (referred to herein as "utility studies") and for the publishing of our recommendations based thereon; the second provides for a study of investment trusts and investment companies (referred to herein as the "investment trust study"), and for a report thereon to the Congress. There is no dispute as to our duty to comply with both parts since both are mandatory. Inasmuch as we have completed the investment trust study and submitted our report thereon to the Congress, the second part of Section 30 is not involved here except for purposes of comparison. The only points of disagreement herein relate to the time and manner of our compliance with the first part of the section, and the effect (if any) that the utility studies and recommendations, or the lack of them, may have upon the conduct of this proceeding. Our discussion will first take up these problems as a matter of law, and second, as a matter of practical administration.

1. AS A MATTER OF LAW

We think it clear that utility studies and recommendations under Section 30 are not, as a matter of law, necessary prerequisites to the conduct of proceedings under Section 11 (b) (1). The Act contains no provision making them prerequisite. No reference is made in Section 30 to any part of Section 11 or to holding companies or holding company systems, nor does Section 11 contain any reference to Section 30. Each of these sections is, on its face, functionally independent of the other, and they differ widely in scope and purpose. Their provisions relating to time- i. e., the time when their respective mandates are to be fulfilled-demonstrate that the action required under Section 11 (b) (1) with respect to particular holding company systems cannot wait upon our completion of Nation-wide studies and general recommendations regarding ideal operating utility companies; for action under Section 11 (b) is directed to be taken by us "as soon as praeticable after January 1, 1938," while our recommendations under Seetion 30 are directed to be made public "from time to time."

This study and the report thereon led to the enactment of the Investment Company

Act of 1940 and the Investment Advisers Act of 1940.

11 S. E. C.

As will be more fully developed later on in this opinion, we have from time to time made studies and public recommendations relating to utility companies and integrated systems, within the purview of Section 30, in the course of administering other sections of the Act. We do not, however, mean to imply that we have fulfilled in a substantial way the ultimate requirements of Section 30; it is plain on the face of that section that the utility studies are a long-range project which, indeed, can never be completely fulfilled, and which was not intended to have any finality or to affect substantively our duties under other statutory provisions. Recommendations thereunder were (as the statute plainly says) to be made public "from time to time," without limitation. We are of the opinion that the chief purposes of these utility studies and recommendations are to provide a basis for future action by operating companies in organizing themselves voluntarily so as to serve the public in the best possible way, to provide a basis for possible future legislation dealing with operating utility companies, and to provide standards for future action by state and federal regulatory bodies in respect of the corporate structures, territories, and operations of such companies.

The respondents base their argument to the contrary on the premises that Section 30 provides for utility studies and recommendations dealing with the "very subject matter" dealt with in Section 11, and that two statements, made by the principal sponsors of the Act, show that the utility studies and recommendations were intended by Congress to precede action under Section 11 (b) (1). We do not agree that the two sections deal with the same subject matter, and we think it clear that the legislative history cited by the respondents in no way supports their contention since the statements in question related to earlier bills which, unlike the present Act, embodied a program for the elimination of virtually all public utility holding companies and contemplated their conversion into operating utility companies or investment trusts. This becomes readily apparent from an examination of the legislative history of the Act.

Substantially similar bills were originally introduced on February 6, 1935 by Senator Wheeler and Congressman Rayburn, and were referred to the appropriate congressional committees. Committee hearings were first held on the House bill, an analysis of which was submitted by Congressman Rayburn to the committee. In the Senate Committee, the original bill was considered in the light of the hearings held before the House Committee as well as the hearings held before the Senate Committee, and as a result a substitute bill (hereinafter

Hearings before the Committee on Interstate and Foreign Commerce on H. R. 5423 (74th Cong., 1st sess.), pp. 321-342.

referred to as the Senate substitute) was favorably reported. The Senate substitute was passed by the Senate with minor amendments and was sent to the House.

9

Thereafter the House Committee made extensive changes in the bill and reported its own version (hereinafter referred to as the House amendment) which was adopted by the House. On the disagreeing votes of the two chambers the measure was sent to conference and a compromise was reported 1o and finally enacted. In all its history, the principal point of dissension between the Senate and the House centered on the provisions of Section 11.

10

In searching for aid in the legislative history of the Act, we must read the statements of its sponsors in the light of the particular bills to which they referred. The two statements on which the respondents rely were made in reference to bills preceding the House amendment, at which time the bills in question provided that the utility studies and recommendations were to be made by the Federal Power Commission, and conferred certain other duties on that Commission (as well as ours) under other sections also.

The earlier of the two statements related to Section 29 of the original House bill (predecessor of the present Section 30) and was as follows:

This section directs the Federal Power Commission to study and investigate public utility companies and the territories served and manner of service, in order to make recommendations as to the type and size of a geographically and economically integrated public utility company which, having regard for the nature and character of the locality served, can best promote and harmonize the interests of the public, the investor, and the commer. This section is designed to promote the gathering of information and data which will serve as the basis not only for the reorganization and simplification of holding com panies preparatory to their dissolution, but also as a basis for future action by operating companies in organizing themselves so as to best serve the public." The other statement related to Section 11 of the Senate substitute bill and was, to the extent quoted by the respondents, as follows:

(a) Voluntary readjustment.—Substantially such holding companies are given 5 years (with certain permissible extensions) in which to rearrange their affairs in their own on their own initiative, utilizing their present connections with investment banking houses for the flotation of new and refunding is nes to boy and sell properties and their present interrelationships with each other for the purpose of arranging exchanges of properties.

Report of Senator Wheeler, from the Committee on Interstate Commerce, B. Ri (74th Cong., 1st sess.) on S. 2796, May 14, 1935.

*S. 2796, June 24, 1935, reported by Congressman Rayburn from the Come ma Interstate and Foreign Cominerce, H. R. Rep. No. 1318 (74th Cong., 1st wa

* Conference Report, H. R. Rep. No. 1903 (74th Cong., 1st sess.), £ 274

24, 1935.

From the analysis submitted by Congressman Rayburn, Hearings fres, for at p. 342 [emphasis supplied].

The Securities and Exchange Commission and the Federal Power Commission are expressly directed by the title to make a study of rearrangement possibilities 12 to aid such rearrangement on a voluntary basis during the next 5 years. There has been a very pronounced voluntary movement on the part of the better companies in the last 10 years to dispose of outlying properties and to rearrange their properties into integrated systems. There are many forces at work in the industry which, given the machinery and the encouragement of legislation, will undertake to set their houses in order in enlightened self-interest in the same way that groups in the field covered by the Securities Exchange Act have undertaken reforms without compulsion within the framework of that act. Among those forces are new scientific developments, new distributions of financial power, the interests of investment banking houses in salvaging situations they have "sponsored," Government holdings of utility securities taken as collateral for Government loans, and the sheer necessity of reorganization, entirely independent of this title, in many holding company situations.

Section 11 provides that plan for the voluntary readjustment of the affairs of holding companies to conform with the section may be presented to the Federal courts at any time and that in such cases those courts may exercise in the furtherance of such voluntary plans all the extraordinary powers such courts have been accustomed to exercise when called upon under the Sherman and Hepburn Acts to effect compulsory corporate readjustments required by the public policy expressed in those acts.

With intelligent cooperation between the commissions, the Federal courts, Federal taxing policy, and the utility interests themselves, practically the entire operation of transformation and arrangement of those holding companies in which investors have anything left to save can be completed prior to the end of 5 years. Where the corporate structure of companies is simple, compliance with the bill will be comparatively simple. Where the corporate structure is complicated and confusing, as is the case with some holding companies, reorganization is inevitable irrespective of legislative compulsion.

(b) Compulsory readjustment.-In the case of those holding companies which at the end of the 5 years may not have completed for themselves the task of transformation into an investment trust or of rearrangement of their properties into a single integrated system, the Securities Commission is given power to take them into the Federal courts to require compliance with the title in one or the other way. The process of compulsory divestment of control is left to the Federal courts, without time limit, for the application of the technique worked out in the dissolutions under the Sherman Act and the Hepburn Act (commodities clause)."3

The immediate question presented by these statements is: what was meant by Congressman Rayburn's reference to the reorganization and simplification of holding companies "preparatory to their dissolution," and by Senator Wheeler's reference to "rearrangement possibilities"?

While the original House bill and the Senate substitute differed in

12 The studies of the Federal Power Commission referred to here must be taken to mean the utility studies under Section 30 of the Senate substitute.

13 S. Rep. No. 621 (supra, footnote 8) at pp. 13, 14.