Section 11 (b) (2) provides that the Commission shall require each registered holding company and each subsidiary company thereof to take such steps as shall be necessary to insure that the corporate structure or continued existence of any company in the holding-company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding-company system. In addition, no holding-company system may contain a pyramided structure whereby there would be more than three tiers of public-utility or holding companies.

Section 11 (d) provides for the appointment by a court, upon application of the Commission, of a trustee to enforce compliance with any order issued under section 11 (b).

Section 11 (e) provides that a registered holding company or its subsidiary may file a plan to effectuate compliance with the provisions of section 11 (b) and, if approved by the Commission, may be enforced by a court.

Section 11 also provides for the approval by the Commission of a plan of reorganization where a court of the United States has appointed a trustee for any registered holding company or subsidiary thereof. Further, unless approval of the Commission is given, it shall be unlawful for any person to solicit a proxy in respect of any reorganization plan of a registered holding company or subsidiary thereof.

Section 12

Section 12 (a) prohibits a holding company from borrowing or receiving any extension of credit or indemnity from any public-utility or subsidiary company in the same holding-company system. Other provisions of section 12 provide, among other things, that, unless approval by the Commission is first obtained(1) no registered holding company or subsidiary may lend or in any manner extend its credit to or indemnify any company in the same holdingcompany system (sec. 12 (b));

(2) no registered holding company or subsidiary thereof may declare a dividend out of capital surplus or acquire any of its securities (sec. 12 (c)); (3) no registered holding company may sell any security which it owns of any public-utility company or any utility assets (sec. 12 (d));

(4) no solicitation of the stockholders with respect to any security of a registered holding company or subsidiary thereof may be effected (sec. 12 (e)); and

(5) no transaction between affiiliates may be effecutated (sec. 12 (f) and 12 (g)).

Section 12 (h) makes it unlawful for any registered holding company or subsidiary to make any contribution in connection with the candidacy, nomination, election, or appointment of any person for or to any office in the Government of the United States, a State or any political subdivision of a State, or to make any contribution to or in support of any political party or any committee or agency thereof.

Section 12 (i) makes it unlawful for any person employed or retained by any registered holding company or subsidiary to advocate any matter affecting any registered holding company or subsidiary thereof, before the Congress or any member or committee thereof, or before the Securities and Exchange Commission or the Federal Power Commission unless such person files a report with the Securities and Exchange Commission with respect to such activity.

Section 13

Section 13 of the act governs the activities of service companies. In general, it prohibits any registered holding company from acting as a service company, and also prohibits common officers unless the holding company pays their entire compensation. Other provisions govern the type of services performed by subsidiary service companies or mutual service companies, and provides that services shall be at cost.

Section 17

Section 17 (a) of the act provides that every officer or director of a registered holding company must file with the Commission a statement of the securities he owns of such registered holding company or subsidiary sompany thereof and periodically report any change in such ownership. In addition, section 17 (b) of the act provides that if any officer or director of a holding company purchases and sells any security of such registered holding company or subsidiary thereof

within any period of less than 6 months, any profit realized thereby shall inure to and be recoverable by the holding company or subsidiary in respect of the security of which such profit was realized.

In this connection it may be noted that this provision is similar to the provision contained in section 16 (b) of the Securities Exchange Act of 1934 which pertains to companies which have a security registered on a national securities exchange. Two of the four companies particularly interested in section 5 of the bill, namely, Pacific Power & Light Co. and Portland General Electric Co., have no securities registered on a national securities exchange and are therefore not subject to that provision of the Securities Exchange Act. In addition, as a consequence, neither of these two companies is subject to the Commission's jurisdiction with respect to its proxy rules. If either of the companies should register as a holding company, the provisions of section 17 (b) of the Public Utility Holding Company Act and the Commission's proxy rules would become applicable to it. Section 17 (c) of the Public Utility Holding Company Act prohibits any registered holding company or subsidiary thereof from having, as an officer or director, any director, partner, or representative of any bank, trust company, investment banker, or banking association or firm except as permitted by rules or regulations prescribed by the Commission.

Section 20

Section 20 (a) provides that the Commission may prescribe forms for the reporting by companies of information with the Commission and the items to be shown in the balance sheet, the profit-and-loss statement, and the surplus accounts.

However, section 20 (b) provides that if the accounts of any company are prescribed under the provisions of any law of the United States or of any State, the requirements of the Securities and Exchange Commission in respect of such accounts shall not be inconsistent with the requirements imposed by such law or any regulation thereunder. Accordingly, if any public-utility company not now subject to the jurisdiction of the Commission under the Holding Company Act becomes subject to its jurisdiction in the future the Commission cannot require such company to change its methods of accounting if its accounts are prescribed by a State commission or the Federal Power Commission.

With the above résumé of the scope of the SEC's regulation under the Public Utility Holding Company Act of 1935 in mind, it perhaps would be helpful to the committee to show how those regulatory provisions would apply to the Pacific Northwest Power Co. situation. In this analysis it will be assumed that S. 2643 is not enacted and that none of the four sponsoring companies would obtain an exemption under the provisions of section 3 (a) of the act. We shall first consider the situation with respect to Pacific Northwest Power Co. itself and, thereafter, with respect to each of its four sponsoring companies.

Pacific Northwest Power Co. ("Pacific Northwest").-This company is organized under the laws of the State of Oregon and is qualified to do business in the States of Idaho, Washington, and Montana. It has obtained a preliminary permit from the Federal Power Commission to construct a hydroelectric project on the Snake River, which is the boundary between Idaho and Oregon.

Pacific Northwest would, when in full operation, be an electric-utility company as defined in section 2 (a) (3) of the act. It is not clear, however, as to the exact point in time prior thereto when such status would attach. This would depend, in large measure, as to what is meant in section 2 (a) (3) by the phrase owns or operates facilities used for the generation *** of electric energy. There appears to be no precedent on this point and counsel for Pacific Northwest, by letter dated December 28, 1955, stated that, in their opinion, the company was not, at that time, an electric-utility company. Assuming that, upon the obtaining of license under section 4 (e) of the Federal Power Act, Pacific Northwest would then become an electric-utility company, each of its four sponsors would simultaneously become a holding company. Assuming, further, that each of the four sponsors would then register as a holding company, Pacific Northwest would become a subsidiary of a registered holding company.

As a subsidiary of a registered holding company, any security issuance or sale by Pacific Northwest would be subject to the provisions of sections 6 (a) and 7 of the act. However, if a security issuance and sale was expressly authorized by the Public Service Commissioner of Oregon' and was solely for the purpose of

2 The Oregon commissioner has jurisdiction to approve the issue and sale of securities by a public utility operating within the State. See sec. 757.005 and sec. 757.145 of the Oregon Revised Statutes.

financing Pacific Northwest's business, and SEC would be required, pursuant to the third sentence of section 6 (b), to exempt such issue and sale from the requirements of sections 6 (a) and 7 subject to such terms and conditions as it deems appropriate in the public interest or for the protection of investors or consumers. As a term and condition to the exemption, the SEC would normally insist that its statements of policy with respect to first-mortage bonds and preferred stock be complied with and that the competitive bidding requirements of rule U-50 be followed.

If Pacific Northwest proposed to acquire any securities or utility assets or any other interest in any business, the provisions of sections 9 (a) and 10 of the act would be applicable, but if an acquisition of utility assets had been expressly authorized by either the Public Service Commissioner of Oregon' or the Idaho Public Utilities Commission,' the requirements of sections 9 (a) and 10 would not be applicable. If no exemption with respect to the proposed acquisition were available, then the standards of section 10 discussed above would be applicable. As a company in a registered holding company system, the geographic integration standards and capital structure requirements of section 11 (b) would be applicable to Pacific Northwest. Insofar as the geographic integration standards embodied in section 11 (b) (1) are concerned, it would appear that, as a generating company supplying in large measure the energy requirements of its four parent companies, the definition of an integrated public-utility system contained in section 2 (a) (29) (A) would be satisfied so far as it and some one of its parent companies are concerned. The standards of section 11 (b) (1) would therefore probably not require the dismemberment of the generating project.

Insofar as section 11 (b) (2) is concerned, since Pacific Northwest would be a public-utility company, the SEC could not, under the limitations contained in the last sentence of that subsection, require any change in its corporate structure or existence except for the purpose of fairly and equitably distributing voting power among its security holders. Whether or not some action would be required under this provision would depend, of course, upon the capitalization of Pacific Northwest. If control over it were exerted through disproportionately small investment, there would be present an evil set forth in section 1 (b) (3) of the act-control of a public utility company exerted through disproportionately small investment, and the SEC would require the company to take appropriate action to eliminate that evil.

All the provisions of section 12 would be applicable to Pacific Northwest. The provisions of section 13 would not be applicable to Pacific Northwest since it would not be engaged in the performance of any service contract or sales contract as defined in sections 2 (a) (18) or 2 (a) (19) of the act.

As a subsidiary of a registered holding company, the provisions of section 17 (b) of the act would be applicable to it. Accordingly, any officer or director of any of its parent holding companies, who purchased and sold, within any period of less than 6 months, any security of Pacific Northwest, would be liable to the company for any profit on the transactions. Further, pursuant to the provisions of section 12 (e) of the act and rule U-61 promulgated thereunder, the proxy requirements of the Commission adopted pursuant to section 14 (a) of the Securities Exchange Act of 1934 would be applicable to the company.

In addition, the provisions of section 17 (c) of the act would be applicable to Pacific Northwest and, except as permitted by the provisions of rule U-70 adopted pursuant to that section, Pacific Northwest could not have as an officer or director any person who is also a director, partner, or representative of any bank, trust company, investment banker, or banking association or firm.

Since the accounting system of Pacific Northwest would be prescribed by the Federal Power Commission, and, possibly, by the Public Service Commissioner of Oregon or the Idaho Public Utilities Commission, its accounts would not be subject to any system of accounts prescribed by the SEC.

It

Washington Water Power Co. (Washington).-Washington is incorporated under the laws of the State of Washington and furnishes electric service in Washington and Idaho and water and steam heat service in Washington. also owns certain reservoir lands in Montana. Through two subsidiaries, neither of which is a public-utility company as defined in the Public Utility Holding Company Act, the company owns certain lands at Priest Rapids, Wash.,

The Oregon commissioner has jurisdiction to approve the acquisition by a public utility of utility assets. See sec. 757.160 of the Oregon Revised Statutes. It is questionable whether the Idaho Commission has jurisdiction to approve the acquisition by a public utility of utility assets. See sec. 61.901 of the Idaho Code.

and certain lands in Nex Perce County, Idaho. The company itself is a public utility company as defined in the act, and, in view of its ownership of 25 percent of the voting securities of Pacific Northwest, would be a holding company, and, presumably, would register as such under section 5 (a) of the act.

As a registered holding company, any security issuance or sale by Washington would be subject to the provisions of section 6 (a) and 7 of the act. Since the company would not be a subsidiary of a registered holding company, there would not be available to it the exemption provided by the third sentence of section 6 (b). Accordingly, any issue or sale of securities would be required to satisfy the standards of section 7, and the Commission's statements of policy with respect to first mortgage bonds and preferred stocks, as well as the competitive bidding requirements of rule U-50, would be applicable to it.

5

If Washington proposed to acquire any securities or utility assets or any other interest in any business, the provisions of sections 9 (a) and 10 of the act would be applicable. If an acquisition of utility assets would be expressely authorized by the Washington Public Service Commission or by the Idaho Public Utilities Commission, the requirements of Sections 9 (a) and 10 would not be applicable. If no exemption with respect to any proposed acquisition were available, then the standards of section 10 discussed above would be applicable.

As a registered holding company, the geographic integration and capital structure requirements of section 11 (b) would be applicable to Washington. In so far as the geographic integration standards of section 11 (b) (1) are concerned, Washington would be required to demonstrate that its electric operations, together with the electric operations of Pacific Northwest, conform to the standards of an integrated public-utility system contained in section 2 (a) (29) (A) of the act. It also would be required to demonstrate that its own nonutility operations, as well as those of its subsidiaries, satisfy the incidental business clauses of section 11 (b) (1).

Insofar as section 11 (b) (2) is concerned, since Washington is a publicutility company, the discussion set forth above with respect to the application of the standards of the subsection to Pacific Northwest would be equally applicable to Washington.

As a registered holding company, all the provisions of section 12 would be applicable to Washington.

The provisions of section 13 (a) would require the compensation of any common officer as between Washington and Pacific Northwest to be paid entirely by Washington.

Since Washington would presumably not be engaged in the performance of any service contract or sales contract as defined in sections 2 (a) (18) or 2 (a) (19) of the act, the other provisions of section 13 would not be applicable to it.

The common stock of Washington is registered on the New York, San Francisco, and Spokane Stock Exchanges. Accordingly, it is now subject to the proxy requirements of the Commission adopted pursuant to section 14 (a) of the Securities Exchange Act of 1934. In addition, for the same reason, the provisions of section 17 (b) of the Holding Company Act would not impose any additional restrictions upon its officers or directors with respect to the purchase and sale of any security of Washington. However, section 17 (b) would extend these restrictions to trading in the securities of Pacific Northwest.

7

The provisions of section 17 (c) of the act would become applicable to Washington, and except as permitted by rule U-70 adopted pursuant to that section, Washington could not have as an officer or director any person who was also a director, partner, or representative of any bank, trust company, investment banker, banking association or firm.

Since the accounting system of Washington is now prescribed by the Federal Power Commission and by the Washington commission and the Idaho commission its accounts would not be subject to any system of accounts prescribed by this Commission.

Pacific Power & Light Co. (“Pacific”).-Pacific is incorporated under the laws of the State of Maine and furnishes electric utility service in the States of Idaho, Montana, Oregon, Washington, and Wyoming. It also renders water service in

The Washington Commission has jurisdiction to approve the acquisition by a public service company of utility assets. See sec. 80.04.011 and sec. 80.12.040 of the Revised Code of Washington.

See note 4, supra.

The inside trading restrictions of sec. 17 (b) of the Public Utility Holding Company Act are also imposed on officers and directors of companies whose securities are listed on a registered exchange by sec. 16 (b) of the Securities Exchange Act of 1934.

Oregon and Montana; furnishes steam heating service in Oregon, Washington and Wyoming, and provides telephone service in Montana. Through a subsidiary, it owns 54 percent of the voting common stock of a company which furnishes telephone services in Oregon. Pacific itself is a public-utility company as defined in the act and, in view of its ownership of 25 percent of the voting secunities of Pacific Northwest, would be a holding company, and presumably, would register as such under section 5 (a) of the act.

As a registered holding company, any security issuance and sale by Pacific would be subject to the provisions of sections 6 (a) and 7 of the act. Since the company would not be a subsidiary of a registered holding company and since it is not incorporated in any State in which it does business, there would not be available to it the exemption provided by the third sentence of section 6 (b). Accordingly, any issue or sale of securities would be required to satisfy the standards of section 7; and the Commission's statements of policy with respect to first-mortage bonds and preferred stocks, as well as the competitive bidding requirements of rule U-50, would be applicable to it.

8

If Pacific proposed to acquire any securities or utility assets or any other interest in any business the provisions of sections 9 (a) and 10 of the act would be applicable. If an acquisition of utility assets were expressly authorized by the Washington Public Service Commission, the Idaho Public Utilities Commission, the Public Utilities Commissioner of Oregon, or the Wyoming Public Service Commission," the requirements of sections 9 (a) and 10 would not be applicable.12

10

If no exemption with respect to any proposed acquisition were available, the standards of section 10 discussed above would be applicable to the acquisition. As a registered holding company, the geographic integration and capital structure requirements of section 11 (b) would be applicable to Pacific. Insofar as the geographic integration standards of section 11 (b) (1) are concerned, Pacific would be required to demonstrate that its electric operations, together with the electric operations of Pacific Northwest, conform to the standards of an "integrated public-utility system" contained in section 2 (a) (29) (A) of the act. It also will be required to demonstrate that its own water steam heating, and telephone services, as well as the telephone service of its subsidiary, satisfy the "incidental business" clauses of section 11 (b) (1).

Insofar as section 11 (b) (2) is concerned, since Pacific is a public-utility company, the discussion set forth above with respect to the application of the standards of that subsection to Pacific Northwest would be equally applicable to Pacific.

As a registered holding company all the provisions of section 12 would be applicable to Pacific.

The provisions of section 13 (a) would require the compensation of any common officer as between Pacific and Pacific Northwest to be paid entirely by Pacific. Since Pacific would presumably not be engaged in the performance of any "service contract" or "sales contract" as defined in sections 2 (a) (18) or 2 (a) (19) of the act, the other provisions of section 13 would not be applicable to it.

None of the securities of Pacific is registered on any national securities exchange. Accordingly, pursuant to the provisions of section 12 (e) of the act and rule U-61 promulgated thereunder, the proxy requirements of the Commission adopted pursuant to section 14 (a) of the Securities Exchange Act of 1934 would become applicable to it.

In addition, as a registered holding company, the provisions of section 17 (b) of the act would become applicable. Accordingly, any officer or director of Pacific who purchased and sold within any period less than 6 months, any of its securities, would be liable to the company for any profit on the transactions. Moreover, the provisions of that subsection would extend to similar trading in any securities of Pacific Northwest.

The provisions of section 17 (c) of the act would become applicable to Pacific, and, except as permitted by rule U-70 adopted pursuant to that secion, Pacific

8 See note 5, supra.

• See note 4, supra.

10 See note 3, supra.

11 It is doubtful whether the Wyoming commission has jurisdiction to approve the acquisition by a public utility company of utility assets. See sec. 64.304 of the Wyoming Compiled Statutes.

12 The Board of Railroad Commissioners of Montana does not have jurisdiction to approve the acquisition by an electric utility company of utility assets.