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 cr 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 cease to 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 prac tices 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 reorganizations, makes it unlawful for any person to soliict any proxy, power of #torney, 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 attorBey 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 [ractices 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 Fan." 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 b 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.

SECTION 13. SERVICE, SALES, AND CONSTRUCTION CONTRACTS

This section is designed to free public-utility companies of the tribute hereto'ore exacted from them in the performance of service, sales, and construction ontracts by their holding companies and by servicing, construction, and other ompanies controlled by their holding companies. Such contracts when made freely and openly by parties dealing at arm's length are subject to the checks ncident to our competitive system, but when dictated by holding companies sitfing on both sides of the transaction, are one of the most abused devices of the ¡ublic-utility holding-company system. Where a holding company services its Iroperties, it should do so without profit except as it may derive profit indirectly *hrough the dividends which come from increased efficiency and economies of the operating companies.

The administration of this section is vested in the Federal Power Commission. The object of this section is not merely to require the contracts to be performed at cost, but at the same time to avoid the almost impossible and wasteful task of trying to determine what that cost is when the operations are commingled with the various other activities of the performing company. To accomplish this end there is adopted the device of mutualization of service, sales, and construction Contracts through the use of "mutual service companies "-a mechanism which is patterned after a similar device already used by one or two holding companies In their recognition of the inherent dangers and abuses of the prevalent practice in regard to these contracts. The companies are given until January 1, 1936, to make the necessary adjustments in this field.

Subsection (a) makes it unlawful for any registered holding company or subsidiary to perform service, sales, or construction contracts with any company in the same system, any affiliate of such a company, or any public-utility company. Subsection (b) makes it unlawful for any affiliate of a public-utility company to perform any service contract unless it has been approved as a mutual service mpany under the subsequent provisions of the section.

It is, of course, not intended by the preceding subsections that a holding comany, subsidiary, or affiliate which is also an operating company should be preated from entering into contracts to receive services, goods, or construction work as a member of a mutual service company, and subsection (c) so provides. Subsection (d) submits to the administrative rules of the Federal Power Commission the performance of the same kind of contracts by any person engaged in the business of performing such contracts with public-utility companies or with mpanies in holding-company systems. The section is of fundamental importance in the period after which holding companies will cease to exist. In the interim the provision is essential in order that the prohibitions already set forth n the section cannot be exceeded under the guise of apparently independent ervicing, sales, and construction concerns. The Federal Power Commission is horized to prescribe rules regarding reports, accounts, costs, competitive bidang, disclosure of interests, duration of contracts, and similar matters in order to protect the public interest and that of investors and consumers in the carrying nt of service, sales, and construction contracts. It is expressly provided that Independent organizations engaged in the business of performing these contracts a cooperative or mutual basis must be approved as mutual service companies der the following provisions of this section if they are to carry on as mutual mpanies. These provisions are designed to insure that the mutual companies reated in the future will be truly and equitably cooperative and operated in the interests of the operating companies which they serve.

The remaining subsections of section 13 set up the machinery for the formation and approval by the Federal Power Commission of mutual service companies. Subsection (e) sets forth the nature of the information which the Federal Power Commission may require to be filed in an application by a mutual service Ympany for approval. This information is designed to disclose fully the nature of the association and the steps taken to insure performance of contracts for member companies at cost fairly and equitably allocated among such companies. Subsection (f) requires the Commission to act upon an application for 15proval as a mutual service company within 30 days after it is filed. As in the ther cases of this procedure, the application may be denied only after notice and pportunity for hearing.

Subsection (g) sets forth the two fundamental conditions which must be met order to obtain the Federal Power Commission's approval of the applicant as mutual service company: (1) The association must be so organized as to

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ownership, costs, revenues, and the sharing thereof as reasonably to insure the efficient and economical performance of service, sales, and construction contracts for member companies at cost, fairly and equitably allocated among such companies; and (2) the company must be so organized as to insure performance of contracts at a substantial saving to member companies over the charges which such companies would be required to pay for comparable contracts performed by independent persons.

Subsection (h) gives the Federal Power Commission authority to prescribe, in its approval of an applicant as a mutual-service company, terms and conditions regarding the business to be carried on and the sharing of revenues and expenses by the mutual company so that investors and consumers will be protected and the policy of the bill will be effected.

Subsection (i) gives the Federal Power Commission authority to require from mutual-service companies the filing of information and documents concerning their transactions, membership, and method of sharing expenses and distributing revenues in order that the Federal Power Commission may be kept currently apprised of the condition of mutual-service organizations, and so that under the preceding subsections of this section the Federal Power Commission may promulgate appropriate rules and regulations governing the business and transactions of mutual-service companies in the interest of true and equitable cooperative arrangements.

Subsection (1) prohibits mutual-service companies from entering into business or transactions in contravention of the rules, regulations, or orders of the Federal Power Commission regarding the types of businesses and transactions in which such companies may engage, the manner of engaging therein, competitive bidding, costs, disclosure of interest, relations with member companies and affiliates, and similar matters.

Subsection (k) gives the Federal Power Commission power to revoke or suspend approval of a mutual-service company or to require the reallocation or reapportionment of costs and services to insure the efficient and economical operation of the mutual-service company in the interest of the member operating companies and their investors and consumers.

Subsection (1) directs the Federal Power Commission to conduct from time to time investigations regarding service, sales, and construction contracts in order that the nature of such contracts and their effect upon and benefits to the companies served may be made available for all public-utility companies and State commissions.

SECTION 14. PERIODIC AND OTHER REPORTS

Registered holding companies and mutual-service companies are required, under this section, to file periodic and special reports with the Securities and Exchange Commission and the Federal Power Commission, respectively. The nature and type of information which may be required is prescribed in the bill; flexible administrative powers regarding form and details are delegated to the respective Commissions. Under this section the material which must be filed at the time of registration of holding companies will be kept up to date, as will the information filed upon the initial approval of mutual-service companies. These reports will contain information concerning the companies and their holding-company systems and affiliations and will thereby constitute the source of information essential for the protection of the investor and the advancement of the industry and for the orderly and equitable simplification and reorganization of holding-company systems and the elimination of holding companies.

SECTION 15. ACCOUNTS AND RECORDS

This section, with proper regard for the various requirements imposed by States on operating companies within their boundaries, provides for the prescribing of uniform accounting systems for holding companies and their subsidiaries and for mutual service companies, as well as for affiliates insofar as their transactions are covered by the bill. These provisions are essential not only for the proper administration of this bill, but also in order to avoid one of the most obstructive features of the holding-company device from the point of view of State regulation of local operating companies. Not only has it been difficult in the past for State commissions to obtain information regarding their operating companies, which was contained only in the books of the holding companies, by reason of the fact that those books were kept beyond the jurisdiction