*

Honorable Richard Mills, Senior U.S. District Judge for the Central District of Illinois,

sitting by designation. 

United States Court of Appeals,

Eleventh Circuit.

Nos. 96-8655, 97-8123.

CAMPAIGN FOR A PROSPEROUS GEORGIA, Petitioner,

v.

SECURITIES AND EXCHANGE COMMISSION, Respondent.

The Southern Company, Intervenor.

Aug. 11, 1998.

Petition for Review from Orders of the Securities And Exchange Commission.

Before CARNES and MARCUS, Circuit Judges, and MILLS*

, Senior District Judge.

CARNES, Circuit Judge:

Campaign for a Prosperous Georgia ("CPG") petitions this Court for review of orders of the

Securities and Exchange Commission ("SEC") granting the Southern Company ("Southern"), a

utility holding company, permission to issue or sell securities for the purpose of investing up to

100% of its retained earnings in other power producers. In its petition, CPG argues that the SEC:

1) misapplied its own rule by not requiring Southern to specify the particular investments it would

make and demonstrate that each one would not have a "substantial adverse impact" upon Southern,

its subsidiaries, or customers; 2) acted in an arbitrary and capricious fashion by failing to review

each of Southern's investments individually; 3) lacked a substantial evidentiary basis for approving

Southern's investments because it did not review them individually; and 4) lacked a substantial

evidentiary basis for approving the investments because Southern did not show there would be no
substantial adverse impact on Southern, it's utility companies, or its customers. We hold that,

because it failed to raise the first three arguments in a timely fashion before the SEC, CPG is barred

from pursuing them before this Court. We reject CPG's fourth argument, which was timely raised,

as meritless.

I. BACKGROUND

A. STATUTORY FRAMEWORK

1. The Original Version of the Public Utility Holding Company Act

In 1935, following years of widespread fraud and mismanagement by the gas and electric

utility holding companies, Congress enacted the Public Utility Holding Company Act ("PUHCA")

to protect the interests of investors and ratepayers. See 15 U.S.C. § 79a. The PUHCA placed

considerable restrictions on the ability of utility holding companies to make acquisitions and

investments. Congress gave the SEC the authority and responsibility to enforce the PUHCA,

including the authority to issue rules, regulations, and orders thereunder. See 15 U.S.C. §§ 79r, 79t.

The Act makes the SEC responsible for insuring that all acquisitions by covered companies are

consistent with the goals of the legislation. See 15 U.S.C. §§ 79i, 79j.

Under the PUHCA, SEC approval is necessary for a covered company to issue or sell its

securities or to guarantee the obligations of any of its subsidiaries. See 15 U.S.C. §§ 79f, 79g,

79l(b); 17 C.F.R. § 259.101 (listing disclosure requirements for issuing securities). Under the Act,

the SEC is required to withhold approval for the issuance of a security if, among other reasons, it

finds that: (1) the security is not reasonably adapted to the security structure of the holding company

and its subsidiaries; (2) the security is not reasonably adapted to the earning power of the holding

company; or (3) the security to be issued is a guarantee of the security of another company and,

under the circumstances, issuance would constitute an improper risk. See 15 U.S.C. 79g(d)(1), (2),
(5).

2. The Energy Policy Act of 1992

Over the last decade, the traditional monopoly structure of the power industry has begun to

break down in favor of competition. To encourage that development, Congress passed the Energy

Policy Act of 1992, Pub.L. 102-486, 106 Stat. 2776, which amended the PUHCA in ways that eased

some of the restrictions on acquisitions and securities financings by covered companies. In the

amended PUHCA, Congress eased the restrictions for financing related to investments in two types

of entities: (1) Exempt Wholesale Generators ("EWGs"), which are companies exclusively in the

business of generating electricity for sale at a wholesale price and which do not own or operate

systems for transmitting electricity; and (2) Foreign Utility Companies ("FUCOs"), which are

companies that generate and transmit electricity outside the United States and do not derive any

income from the United States electricity market.

While the 1992 amendments expanded covered companies' ability to acquire EWG's and

FUCO's, they left intact the requirement that those companies obtain SEC approval of any financings

used to secure such acquisitions. See 15 U.S.C. § 79z-5a(h). However, Congress did relax the

standards for SEC approval of such financings somewhat. With regard to financings for acquisition

of a EWG, the SEC cannot make any of the adverse findings mentioned at 15 U.S.C. § 79g(d)(1),

(2), or (5) (outlined above), unless the covered company's proposed action would have a "substantial

adverse impact" on the utilities that the covered company operates. See 15 U.S.C. § 79z-5a(h)(3).

The SEC has the authority to promulgate regulations that establish the criteria defining a "substantial

adverse impact." See 15 U.S.C. § 79z-5a(h)(4).

To effectuate the 1992 amendments to PUHCA, the SEC promulgated Rule 53. That rule

creates a two-tiered system of reviewing financings for EWGs and FUCOs in order to determine
 1

Rule 53 discusses only financings related to EWGs, but the SEC has consistently applied the

rule to FUCO financings, as well, and the parties do not question that application. 

 2

Hereafter, we will use the term "investments" or "investment" to refer to the concept of

"investing the proceeds of financings." 

whether they will have a "substantial adverse impact."1

 The first tier is a "safe-harbor" provision,

which allows covered companies to invest the proceeds of financings in an amount up to 50% of

their retained earnings in EWGs and FUCOs without securing any SEC approval (thus irrebuttably

presuming that such investments will have no "substantial adverse impact").2

 Investments greater

than 50% of retained earnings, however, fall into the second tier. All related financings of such

investments must be submitted to the SEC in order for it to determine if those investments will not

have a "substantial adverse impact." See 17 C.F.R. § 250.53.

B. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Southern, a registered holding company, petitioned the SEC for approval of its proposal to

invest financing proceeds up to 100% of its retained earnings in EWGs and FUCOs. Southern's

application did not name the particular EWGs or FUCOs in which it would invest, but asserted that

it would use a demanding, critical process to determine which ones to invest in. Southern's

application also represented that such investments would not have a " "substantial adverse impact'

on the financial integrity of the Southern System," or an " "adverse impact' on any utility subsidiary

of Southern, or its customers, or on the ability of the four State commissions to protect such

customers."

After receiving Southern's application, the SEC issued a public notice soliciting comments

about it. CPG was the only party to respond to that notice. In its comment letter, filed on November

27, 1995, CPG raised three objections: (1) Southern's investments would result in an unavailability

of capital that Southern might need to fund future operating costs, thereby resulting in higher rates;
(2) profits from these investments would allow Southern to subsidize rates for its domestic

consumers, thereby inhibiting competition in the electricity market; and (3) approval of the

application would reward Southern even though it has a poor pollution record. By an order dated

April 1, 1996, the SEC rejected CPG's arguments and approved Southern's application. CPG filed

in this Court a timely petition for review of that order. In May 1996, CPG filed a motion for

rehearing before the SEC. That motion raised the same contentions as CPGs original comment letter,

and the SEC denied CPG's motion.

On October 24, 1996, after Southern had announced its intention to acquire a majority

interest in Consolidated Electric Power of Asia, a FUCO, CPG filed a "supplemental motion for

rehearing" with the SEC, citing that proposed acquisition as indicating the need for a hearing and

reconsideration of the SEC's order. In its supplemental motion, CPG raised three new arguments:

1) that the SEC had misapplied its own Rule 53 in allowing Southern to invest up to 100% of its

retained earnings without receiving approval prior to each investment; 2) that the factual findings

of the SEC were not supported by substantial evidence because it did not review the proposed

investments individually; and 3) that the SEC had acted in an arbitrary and capricious manner

because it did not give a reasoned analysis for its decision not to review each of Southern's

investments individually.

On January 15, 1997, the SEC denied CPG's "supplemental motion," finding that "CPG has

not demonstrated any reason for the [SEC] to take the extraordinary step of reopening this matter."

CPG then filed in this Court a timely petition for review of the SEC's denial of its supplemental

motion.

II. STANDARD OF REVIEW

 Whether a party is barred from bringing an argument by failing to present it before the SEC
is an issue that we have plenary authority to decide in the first instance. The factual findings of the

SEC in an adjudication under PUHCA are accepted unless the are not supported by substantial

evidence. See 15 U.S.C. § 79x(a); Environmental Action, Inc. v. SEC, 895 F.2d 1255, 1259 (9th

Cir.1990).

III. DISCUSSION

A. WHETHER CPG PROPERLY RAISED ITS OBJECTIONS BEFORE THE SEC

 The arguments CPG makes to this Court are that the SEC: 1) misapplied its own Rule 53

by failing to consider each of Southern's proposed investments on an individual basis; 2) acted in

an arbitrary and capricious manner by failing to examine individually Southern's proposed EWG and

FUCO investments; 3) lacked a substantial evidentiary basis for approving Southern's application

because it did not consider each investment individually; and 4) lacked a substantial evidentiary

basis for finding that Southern's investments would not have a "substantial adverse impact" on the

utilities Southern operates because those investments would result in an unavailability of capital for

Southern's operations. CPG's first three arguments are different facets of the same contention, which

is that the SEC should have considered each of Southern's EWG and FUCO investments on an

individual basis instead of determining in advance that Southern could invest in any EWGs and

FUCOs it chose. Accordingly, we will refer to those three arguments and the issue they address

collectively as the "individual review" argument or issue.

CPG did not raise the individual review issue in either its initial filing or its initial petition

for rehearing with the commission. The first time it raised the issue with the SEC was in its

supplemental motion for rehearing, which was filed six months after the SEC order and nearly a year

after comments had been solicited on Southern's application. As a result, the SEC contends that this

Court lacks jurisdiction to decide the issue. CPG responds that it has satisfied the literal
requirements of the judicial review provision contained in PUHCA § 24, and therefore this Court

has jurisdiction to decide the individual review issue. CPG's position is that § 24 requires nothing

more than that the ground of objection or issue in question be raised before the SEC at some point,

at any point, in the administrative process. Because it did make its individual review arguments or

objections known to the SEC in a supplemental motion for rehearing, that is enough, CPG contends.

Section 24 of the PUHCA, 15 U.S.C. § 79(x)(a), provides that "[n]o objection to the order

of the Commission shall be considered by [a Court of Appeals] unless such objection shall have been

urged before the Commission or unless there were reasonable grounds for failure so to do."

(emphasis added) Section 24 is ambiguous, because it is not apparent from the language of that

provision when an objection must have been made in order to have been "urged before the

Commission." That phrase might mean only those objections to the application that were urged

prior to the SEC issuing an order deciding the matter. Or it might include all objections urged prior

to the SEC's denial of an initial rehearing petition. Or, at the extreme, the statutory phrase might

include objections urged at any time whatever, no matter how late in the process, or even after the

process has been completed. In order to decide this case, we need only decide this specific issue:

Does "urged before the Commission" as used in § 24 of PUHCA, include an objection not raised

until a supplemental motion for rehearing that was filed six months after the SEC had issued an

order on the application? For the following reasons, we hold that the answer to that question is "no."

 An ambiguous statutory phrase should be construed in the context in which it is used, with

the congressional intent in mind. See, e.g., Robinson v. Shell Oil Co., 519 U.S. 337, 117 S.Ct. 843,

848, 136 L.Ed.2d 808 (1997). The manifest congressional intent behind the provision in question

is to give the SEC a meaningful opportunity to rule on, make factfindings about, and apply its

expertise to, any objections parties may have to a proposed administrative action. See McKart v.
 3

CPG could have raised its individual review objection and arguments before the SEC ruled

on Southern's application, even though Southern did not select any particular EWG or FUCO

investment until later. The thrust of the objection is that Rule 53 requires consideration of such

investments on a case by case basis; therefore, if valid, the objection would have required denial

of the application as filed by Southern, because it did not specify the companies in which the

investments would be made. 

United States, 395 U.S. 185, 192-95, 89 S.Ct. 1657, 1662-63, 23 L.Ed.2d 194 (1969)(discussing the

importance of administrative agency review in light of agency expertise and authority); See

McCarthy v. Madigan, 503 U.S. 140, 145, 112 S.Ct. 1081, 1087, 117 L.Ed.2d 291 (1992)

(discussing the importance of a record being developed before an administrative agency).

Given the realities of the administrative process, in order for the SEC's opportunity to

consider objections to be meaningful, the objections must be made while the SEC has the application

under consideration. Absent some reasonable ground for the delay—and here there is none—a

supplemental motion for rehearing, filed six months after the SEC has decided the matter and issued

its order, and nearly a year after it had solicited comments, is too late to provide a meaningful

opportunity for administrative review.3

 In this case, for example, the SEC had approved Southern's

application and moved on to other matters, and Southern was acting on the SEC's approval by the

time CPG raised the objections it now advances before this Court.

In the realm of regulatory proceedings, finality is important to agencies, to parties, and to the

public. As the Supreme Court stated more than a half-century ago:

If upon coming down of the [administrative] order litigants might demand rehearings as a

matter of law because some new circumstance has arisen, some new trend has been

observed, or some new fact discovered, there would be little hope that the administrative

process could ever be consummated in an order that would not be subject to reopening.

ICC v. Jersey City, 322 U.S. 503, 514-15, 64 S.Ct. 1129, 1134, 88 L.Ed. 1420 (1944); see also Civil

Aeronautics Bd. v. Delta Air Lines, 367 U.S. 316, 321-22, & 330-31, 81 S.Ct. 1611, 1617 & 1621-

22, 6 L.Ed.2d 869 (1961)(discussing the interest of finality in administrative proceedings). The
same reasoning applies to interpreting "urged before the Commission" as that language is used in

§ 24 of PUHCA. If all a party has to do in order to obtain judicial review of an objection to a SEC

order is file a supplemental motion for rehearing with the Commission, the administrative process

might never be completed, or a party could readily bypass any meaningful consideration by the

Commission of its objections. For example, a party could file a supplemental motion for rehearing

in the SEC the day prior to filing a petition for judicial review, and its belated objections would have

been "urged before the Commission"—if we adopt CPG's interpretation of the statutory language.

We decline to adopt that interpretation, because it would lead to lack of finality in the administrative

process and to judicial review of objections that the SEC never had a meaningful opportunity to

consider. Those are the very things we believe Congress meant to avoid when it adopted § 24 of

PUHCA.

We realize that the SEC sometimes entertains new objections on rehearing, and that one

court of appeals, the D.C. Circuit, has agreed to hear objections that would otherwise have been

barred where the SEC has actually considered and decided the merits of those objections. See City

of Lafayette v. SEC, 454 F.2d 941, 947 (D.C.Cir.1971), aff'd sub nom, Gulf States Utilities v. FPC,

411 U.S. 747, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1973). We have no quarrel with such a holding,

which is analogous to a well established doctrine involving federal habeas corpus review of

procedurally barred issues where the state courts have not enforced the bar themselves. See, e.g.,

Wainwright v. Witt, 469 U.S. 412, 431 n. 11, 105 S.Ct. 844, 855-56 n. 11, 83 L.Ed.2d 841 (1985);

Davis v. Singletary, 119 F.3d 1471, 1479 (11th Cir.1997). Where the SEC has considered and ruled

on the merits of an objection, the reviewing court will have the benefit of the Commission's

expertise, factfindings, and decision. Judicial review in such circumstances will not jeopardize

finality or lead to inordinate delay.
Seeking to rely on City of Lafayette, CPG suggests that the SEC actually discussed and

decided the merits of its individual review objection and argument, therefore, this Court should as

well. We disagree with CPG's procedural premise. The SEC's order denying CPG's "supplemental

motion for rehearing" specifically stated that "CPG has not demonstrated any reason for the [SEC]

to take the extraordinary step of reopening this matter." The SEC declined to rule on the merits of

CPG's untimely objection and argument about individual review. It follows that the City of

Lafayette exception is inapplicable.

B. THE OBJECTION PROPERLY BEFORE US

 CPG did raise before the SEC during the comment period three objections to Southern's

application. Those timely raised objections, for which CPG is entitled to seek judicial review, are

that: 1) Southern investing an amount up to 100% of its retained earnings in EWGs and FUCOs

would result in an unavailability of capital that it might need to fund future operating costs, thereby

resulting in higher rates for consumers; 2) profits from such investments would allow Southern to

subsidize rates for its domestic consumers, thereby inhibiting competition in the electricity market;

and 3) approval of the application would reward Southern even though it has a poor pollution record.

CPG did not raise the second and third of those objections in its brief to this Court, so we consider

them to be abandoned. See, e.g., Marek v. Singletary, 62 F.3d 1295, 1298 n. 2 (11th Cir.1995)

("Issues not clearly raised in the briefs are considered abandoned.").

The only objection CPG presented to the SEC in a timely fashion and presses before us, is

that Southern's investment in FUCOs and EWGs would result in an unavailability of capital for

Southern's operations. That amounts to an attack on the substantiality of the evidence before the

SEC, which found to the contrary. We reject that attack, because it is clear from the record that the

SEC had a substantial evidentiary basis for finding the proposed investments would not result in
capital being unavailable for other operations. The SEC considered financial data from several

sources, sought comment from the state regulatory agencies, and used its own expertise in judging

Southern's application. Taking all of that evidence into consideration, the SEC had substantial

evidence to conclude that Southern's investment of financing proceeds in an amount up to 100% of

its retained earnings in FUCO's and EWG's would not have a "substantial adverse impact" on local

operations.

IV. CONCLUSION

For the reasons stated above, the petition for review is DENIED.