provisions are so designed as not to cause interference with State policy which allows or fosters the carrying on of waterworks, traction business, bus systems, etc., by electric and gas utilities.

Subsection (b) is concerned with the unfair subordination of the production and transportation of natural gas to the production and distribution of electric energy, and vice versa. It prohibits, in the same holding-company system, electric utilities and facilities for the transportation of natural gas in interstate commerce or for the production of natural gas.

Subsection (d), in line with this same basic policy, prevents the inclusion in the same holding-company system of a gas utility company and an electric utility company serving substantially the same territory where State law prevents the combination of the gas utility and electric utility in the same company. This subsection is concerned with competition in the field of distribution of gas and electric energy-a field which is essentially a question of State policy and becomes the proper subject of Federal action only where the extra-State device of a holding company is used to circumvent State policy. The preceding subsection (b), however, is concerned with the control of the sources of natural gas and the transportation of that gas in interstate commerce (questions which are essentially national in scope because of the fact that gas fields exist in limited localities and that gas is transported from those localities for distribution in States which have not their own supply). The provision is aimed to break up the threatening monopolization of the transmission of natural gas by a few powerful groups who at the same time control the distribution of competing electric energy.

Subsection (c) prevents the inclusion of foreign utilities in the same system with domestic utilities. It is expressly provided, however, that the Commission may exempt a system from the limitations of this subsection upon a showing that the foreign utilities are geographically and economically integrated with the domestic utilities in the system such as would be the case in regard to operations between a border State and Canada or Mexico.

SECTION 9. ACQUISITION OF SECURITIES AND CAPITAL ASSETS

Subsection (a) of this section makes it unlawful for any registered holding company or any subsidiary company to acquire any securities or capital assets of another company without the approval of the Commission. It is designed to secure complete Commission supervision of the securities and capital plants that are to be brought into holding-company systems, making impossible the mad scramble for utility properties that has characterized the mushroom growth of holding companies, and providing the necessary safeguards to the investor in the process of reorganization and elimination of holding companies.

In subsection (b) two exceptions are made to the requirement of Commission approval of these acquisitions. First, the requirement does not apply to the acquisition of capital assets by a holding company which is an operating publicutility company where such acquisition has been expressly authorized by a State commission, or to the acquisition of securities of a subsidiary operating public-utility company where there has been similar approval by a State commission. In the case of securities the exemption applies only if both the public-utility company acquiring the securities and the company whose securities are to be acquired are organized in the same State and are doing business exclusively in that State. In both cases, therefore, this exemption is limited to the situation in which a State commission has full authority to control the acquisition in question and has exercised that authority.

Subsection (c) contains the second exemption from the requirement of approval of acquisitions and covers the investment of current funds. The companies are permitted to invest in Government securities, Federal, State, and local, and other readily marketable securities permitted by the rules and regulations of the Commission as appropriate, both as to type and amount, for investments of this kind. Utility funds should be conserved for the development of the utility enterprise and not subjected to the hazards of speculative investments.

SECTION 10. APPROVAL OF ACQUISITION OF SECURITIES AND CAPITAL ASSETS

This section prescribes the procedure whereby application may be made for approval of the acquisition of securities and capital assets, and fixes the conditions under which the Commission shall grant such approval.

Subsection (a) prescribes the type of information and documents which the Commission may require to be filed in such application. It empowers the Commission to obtain a full disclosure of the cost and value of the securities or capital assets to be acquired, the relationship between buyer and seller, and the terms of the proposed acquisition, but full administrative flexibility is provided for.

Subsection (b) requires the Commission to approve a proposed acquisition unless in its judgment it will tend to create monopoly or restraint of trade in the exercise of control of public-utility companies, or unless the consideration to be paid is not reasonable and does not bear a proper relation to the sums prudently invested in the underlying public-utility property, or unless the acquisition will complicate the capital structure of the holding-company system of the applicant, will be detrimental to the interest of consumers, or will unfairly affect investors. The Commission will thus be in a position to prevent any acquisition of capital assets or security attended by any of the evil features which have featured the past growth of holding companies.

Subsection (c) requires the Commission to act upon an application for approval of an acquisition within 30 days after it is filed. As in the preceding cases, the application may be denied only after notice and opportunity for hearing.

Subsection (d) authorizes the Commission to prescribe terms and conditions in respect of the acquisition of any securities or capital assets permitted by the Commission. It expressly provides that these conditions may include a determination of the price to be paid for the property to be acquired. This check on the price is perhaps the most obvious point at which the interests of consumers and investors are one. It is the necessary basis for the elimination of overcapitalization, which inevitably injures investors and which encourages the maintaining of high rates to consumers.

Subsection (e) further defines the conditions under which an acquisition may be approved. Approval is to be given only in the case of the acquisition of securities of a company engaged solely in a business in which a registered holding company may lawfully have an interest under the provisions of section 8, or the acquisition of capital assets for the conduct of a business of that kind. Furthermore, since the acquisition of utility properties or the securities of utility companies directly affect the operating conditions of the industry and the physical relation between operating facilities, approval is to be granted only if there has been obtained from the Federal Power Commission a certificate that the acquisition will serve the public interest by advancing economy and efficiency in the operations of a geographically and economically integrated public-utility system. Any acquisition which is subject to the jurisdiction of a State securities commission is not to be approved unless all applicable State laws have been complied with.

SECTION 11. SIMPLIFICATION, REORGANIZATION, AND DISSOLUTION OF HOLDING COMPANIES

This section requires the simplification of present holding company systems and the liquidation or reorganization of companies to the extent necessary to make every company cease to be a holding company after January 1, 1940.

The simplification of present holding company systems is to be carried out under the supervision of the Commission. This section supplies the constant legislative pressure which must be provided in order to prod holding company officials into undertaking such simplification and reorganization as may be necessary to make possible the dissolution of the holding companies into reasonably integrated operating units by the end of 5 years, with due regard for the protection of investors.

Under subsection (a) it is made the duty of the Commission to examine the corporate structure of every company in the holding company system of a registered holding company, the relationships among such companies, and the character of their properties to determine the extent to which unnecessary complexities may be removed and the properties of each of these companies be confined to a set of operating companies essentially related in operation and substantially contiguous in location. The process of ultimate dissolution of holding companies is one which will take time and skill in order that undue injury will not be done investors and that the underlying operating companies may be protected. This process of reorganization of the industry in order to eliminate those financial structures which have been superimposed upon the operating

units should be done as quickly as is consistent with the protection to be afforded the interests involved.

Subsection (b) makes it the duty of the Commission, after notice and opportunity for hearing, to require companies to dispose of securities and capital assets under certain specified conditions: (1) The duty to require every registered holding company and subsidiary to dispose of any security or capital assets held in violation of any provision of the act takes effect at once. (2) After January 1, 1938, the Commission shall require every such company to dispose of any securities or capital assets the continued ownership or control of which is not necessary or appropriate to the operations of a geographically and economically integrated public-utility system. This provision is designed to start the process of reducing a holding company's properties to those which are functionally related. Diversification of investments is the task of the individual investor or of an investment trust. The holding company has in the past confused the function of control and management with that of investment and in consequence has more frequently than not failed in both functions. Some holding companies may be able to divest themselves of the control of their present subsidiaries and become investment trusts, but an investment company ceases to be an investment company when it embarks into business and management. Investment judgment requires the judicial appraisal of other people's management. (3) After January 1, 1938, the Commission is also required to order a reorganization or dissolution of a holding company or any subsidiary thereof if it appears to the Commission that the corporate structure or continued existence of any such company unduly or unnecessarily complicates the structure of the public-utility system as a whole. This provision is designed to start the process of eliminating confused capital structures with divers tiers of bonds and stocks with unequal voting rights and of getting rid of the unnecessary tiers of intermediate companies. These provisions for the revamping of the holding company into a simple structure embracing a compact territory should accelerate its dissolution into a reasonably integrated operating unit. With respect to both of these provisions, which take effect in 1938, the Commission may defer action in any particular case for a period not extending beyond January 1, 1940, if it is of the opinion that earlier action would cause unnecessary injury to investors or consumers. (4) After January 1, 1940, the Commission is to require every registered holding company to dispose of securities or to be reorganized or dissolved insofar as may be necessary to make such companies ceaseto be holding companies, with a definite exception, which is set forth below.

These provisions should accomplish the elimination of the public-utility holding company, and the organization of utility systems into integrated operating units whenever possible, which units will then be unhampered by the financial holding company and will thereby become susceptible of effective State control and of intelligent scrutiny by the investor and consumer. It is contemplated, however, that certain exceptions will have to be made in cases where the merger of existing properties into one or more independent operating units is made impossible by the applicable State or foreign law. Frequently such law requires that any utility operating within the jurisdiction be incorporated under the corporation statutes of the jurisdiction. In such cases the Commission is authorized under proper conditions to permit the continuation of such holding companies as shall have obtained from the Federal Power Commission a certificate that the existence of the holding device is necessary for the operation of an integrated public-utility system serving an economic district in two or more contiguous States or in a State and a contiguous foreign country and that the merger or consolidation of such holding company with its subsidiaries is impossible under the applicable State or foreign law. Continuation of a holding company may also be permitted if no public-utility company in its system is organized or doing business within the United States. This simply enables American investors to vote as a unit their holdings in foreign utility companies. The foregoing provisions are designed to produce a gradual and orderly elimination of the utility holding companies. Present companies, since they are put under regulation at once and required to simplify their structures under Commission supervision, would be placed in a condition in which their elimination could be effected with a minimum of financial abuse or other injury to investors

or consumers.

It is of the utmost importance that this process be surrounded with the safeguards necessary to insure an equitable distribution protecting all interests and to prevent those on the inside from dissipating the property and taking their toll in exorbitant fees.

Subsections (c) and (d) outline the procedure whereby the reorganization plans must be approved by the Commission and carried out under court supervision. The court is to take jurisdiction of the assets involved and appoint the Commission sole trustee or receiver to administer the assets as a trust estate for the benefit of the persons interested therein as their interests may appear. By these provisions it is intended to give the Commission the complete supervisory power which is essential to the elimination of the present wasteful practices in corporate reorganizations. It also ensures to investors that their properties will not be needlessly sacrificed but will be conserved by the Commission and the court until a satisfactory reorganization can be arranged. If a company is solvent, the court could continue the payment of interest, and in appropriate cases dividends, until a prudent reorganization is effected. If it is insolvent or unable to pay its debts, the Commission is empowered by subsection (d) to institute proceedings for the reorganization of the company under section 77B of the Bankruptcy Act; in such proceedings, also, the Commission could have itself appointed sole trustee. Under either subsection Commission approval of reorganization plans and supervision of the conditions under which such plans are prepared will make it impossible for a group of favored insiders to continue their domination over inarticulate and helpless minorities, or, as is more often the case, majorities. All fees, expenses, and remuneration paid in connection with any such reorganization, whether under section 77B of the Bankruptcy Act or otherwise, are made subject to the approval of the Commission. The court is to allow the Commission reasonable compensation for its services as trustee.

Subsection (e), to prevent the defeat of control in the public interest of reor ganizations, makes it unlawful for any person to soliict any proxy, power of attorney, or deposit of securities for or against any reorganization plan, except under certain prescribed conditions. The plan must either have been prepared by the Commission or submitted to it by a person having a bona fide interest in the reorganization. A copy of the report made by the Commission on the plan and other plans submitted to it or an abstract of such report approved by the Commission must accompany each such solicitation. The Commission may, by its rules, regulations, or orders, prescribe other terms of the solicitation which it considers necessary or appropriate in the public interest or for the protection of investors or consumers. It is expressly provided that no person shall be prevented from appearing before the Commission or any court through an attorney or proxy. All that this subsection is designed to secure is that there will be a fair opportunity to consider concrete proposals on their merits, with full and fair disclosure of all material facts before a security holder is pressed to register his vote on a reorganization plan or to tie himself irrevocably to a plan which may develop in the future to be unfavorable to him and to involve great expense on his part.

These provisions are framed to bring back to the investor such property in terest as he may have in the underlying properties owned by the holding company. They destroy and confiscate no property, but they remove the confusing corporate devices and contrivances which have confused the investor and in many cases have been used to deprive the investor of the fruits of his investment. SECTION 12. INTERCOMPANY LOANS, DIVIDENDS, FEES, SALE OF SECURITIES AND CAPITAL ASSETS, PROXIES, AND OTHER TRANSACTIONS

During the remaining period of holding-company existence, and as a permanent measure in the case of those holding companies that are permitted to survive under the exception made in section 11 (b) (4), complete regulation of intercompany transactions is necessary to prevent the further milking of operating companies in the interest of the controlling holding-company groups. Section 13, below, deals specifically with service, sales, and construction contracts within holding-company systems. The present section covers other intercompany transactions and also certain holding-company practices detrimental to operating companies.

Subsection (a) makes it unlawful for any registered holding company to borrow or receive any extension of credit or indemnity from any public-utility company in its system. This is a flat prohibition of the so-called "upstream loan." Money raised on the credit of a public-utility company should be devoted solely to the regulated business of that company and not used to finance the speculative activities of those who control it. Nor should the people in one community be forced to support a weaker plant in another community which happens to be in the same system.

Subsection (b) makes it unlawful for any registered holding company or any subsidiary company to lend to any company in the same holding-company system in contravention of the Commission's rules and regulations. Downstream loans, whether on an open-book account or otherwise, may be legitimate sources of credit to utility companies while they are controlled by holding companies. It is important, however, that interest charges and other terms be fair, that no profit accrue to the holding company by reason of its favored position, and that no unsound financial policies be pursued in making such loans. Furthermore, they should not be permitted where they result in an evasion of either the letter or the spirit of State or Federal regulation of capitalization. Plainly the subject is one in which the rulemaking power of the Commission is required to meet a host of varying circumstances.

Subsection (c) makes it unlawful for any company in a holding-company system to declare or pay any dividend or to acquire or redeem any of its own securities in contravention of such rules, regulations, or orders as the Commission may prescribe to protect the financial integrity of such companies, to safeguard their working capital, or to prevent the payment of dividends out of capital or unearned surplus.

Subsection (d) makes it unlawful for a registered holding company or any subsidiary company to receive any fee or commission in connection with any transaction with or by any company in its holding-company system unless permitted by the Commission by rules and regulations. The elimination of profits at the expense of companies under common control is a basic objective of the bill. The holding company, so long as it is permitted to exist, should be content with the return which comes by way of dividends from its operating companies and should not seek profits determined by it from dealings with companies which it dominates.

Subsection (e) prohibits registered holding companies from disposing of their assets and securities in contravention of the rules and regulations of the Commission regarding costs, accounts, competitive bidding, fees, disclosure of interest, and similar matters so that both the investor and the underlying properties may be protected in the reorganization of the systems. This section is essential to prevent piecemeal evasion of the reorganization safeguards set up in section 11 and to prevent the sacrifice of the investor's equity. Far from forcing the sacrifice of the investor's equity, the bill deliberately guards against it.

Subsection (f) covers the solicitation of proxies in connection with all holding-company and subsidiary-company securities so that such solicitations will not afford the basis for subtle control adverse to the interests of investors who have a right to be kept fairly and properly informed by representatives of their own choosing as against selfish, self-constituted cliques. Subsection (g) gives full rule-making power to the Commission to control transactions between companies in the same holding-company system, and between those companies and their affiliates whose dealings are not at arm's length. It embraces all transactions not otherwise specifically covered by the bill. It specifically enumerates the subjects which may be covered by the Commission's rules: Reports, accounts, costs, competitive bidding, disclosure of interest, and similar matters. This subsection is flexible enough to give the Commision reasonable control over intercompany transactions while at the same time the bill itself imposes no obstacle to the performance of such transactions under conditions which the companies can demonstrate to be economically justifiable.

The device used in subsection (g) makes it unlawful for a registered holding company or a subsidiary company to make, negotiate, or perform any transaction with a company in the same holding-company system or with an affiliate of a company in that system in contravention of the Commission's rules and regulations.

Subsection (h) makes it unlawful for an affiliate to carry on any transactions with companies in the holding-company system in contravention of the Commission's rules on the same subject matters. Here the prohibition also extends to the use by an affiliate of the mails and instrumentalities of interstate commerce to carry on these transactions with any public utility company with which it is affiliated in contravention of the Commission's rules and regulations.