Document: 390 U.S. 207 88 S.Ct. 916 19 L.Ed.2d 1042 SECURITIES AND EXCHANGE COMMISSION, Petitioner,v.NEW ENGLAND ELECTRIC SYSTEM et al. No. 305. Argued Jan. 18, 1968. Decided March 5, Daniel M. Friedman, Washington, D.C., for petitioner. John R. Quarles, Boston, Mass., respondents. Mr. Justice BRENNAN delivered the opinion of Court. 1 Respondent New England Electric System (NEES), a holding company registered under § 5 Public Utility Holding Company Act 1935,1 controls both an integrated electric utility system and gas system.2 Section 11(b) requires Securities Exchange Commission to limit operations single public system, except may permit continue control any additional that determines, among other things, "cannot be operated as independent without loss substantial economies which can secured by retention such system. * *"3 In 1957 instituted proceedings determine whether NEES should permitted retain systems. The initially found companies constituted 38 S.E.C. 193 (1958), elected those its principal urged, however, it also After extensive hearings, refused respondent permission do so, ordered divested. 41 888 (1964). 2 reaching conclusion construed statutory phrase "loss economies" in Clause A 11(b)(1) require showing "additional cannot separate ownership so important cause serious impairment system." first review Commission's order, Court Appeals First Circuit held had erroneously statute; court's view, merely "called business judgment what would significant loss. *" court therefore set aside order remanded reconsideration light test. 346 F.2d 399, 406. We reversed, approving construction, challenged proper meaning term. SEC v. System, 384 176, 86 1397, 16 456 (NEES I). On remand, again order. 376 107.4 That court, "after fresh all evidence," concluded "that does not reveal application reason experience facts merits endorsement responsible exercise expertise." Id., at 111. granted certiorari. 389 816, 81, 65. reverse remand with direction enter affirming 3 question our decision is properly that, on record, erred finding failed prove case address against background congressional objective protect consumer interests through "elimination 'restraint free competition.' One evils resulted from utilities was one properties favoring these competing forms energy over other." I, U.S., 183, 1401.5 Congress ordained ownership—and divestiture where necessary reduce holdings system—as " 'very heart' Act." 180, 1399. Although aware some economic might suffered parent or separated utility, relented only extent authorizing if narrow exception provided 11(b)(1). But "retention 'additional' decidedly exception," burden satisfy "stringent test" statute. 182, 1399; cf. United States City Nat. Bank, 386 U.s. 361, 366, 87 1088, 1092, 18 151. 4 committed task determining has met situation falls within determination separation entails likely involves element prediction necessarily calls difficult expert judgment. assessment many subtle often intangible factors easily expressed precise quantifiable terms. This very nature forecasting. expertise simply "an counting commonplaces." Drum, 368 370, 384, 82 408, 415, 7 360; see 184-185, 1402-1403. Judicial limited one. See Gray Powell, 314 402, 412-413, 62 326, 332-333, L.Ed. 301; NLRB Hearst Publications, 322 111, 131, 64 851, 860, 1170; Atlantic Ref. Co. FTC, 381 357, 367-368, 85 1498, 1505-1506, 14 443; supra, 375-376, 410-411. expressly "(t)he findings facts, supported evidence, shall conclusive." 15 U.S.C. 79x(a); Universal Camera Corp. NLRB, 340 474, 71 456, 95 456; Erie Resistor Corp., 373 221, 236, 83 1139, 1149, 10 308. this indulged unwarranted incursion into administrative domain.6 adequate support record have been affirmed. As 1958, test year selected purposes proceedings,7 NEES' eight subsidiaries retail service 237,000 customers relatively compact 660-square-mile franchise area Massachusetts. served 75% about 78% were customers. gross investment plant equipment $56,300,000 revenues 1958 $22,700,000. organized administratively Gas Division centralized management, marketing supply operations, merchandising departments.8 chief executive president each ultimately vice charge management; short, top management rested executives having joint operations. 6 before "severance study," cost analysis projection prepared professional consulting firm, Ebasco Services, Inc. study projected approximately $1,100,000 annually result NEES. dealt alternative ways. It analyzed estimate inadequately number aspects leaves considerable doubts has) satisfactorily overcome record." Then went find even estimated accepted accurate "it lead us conclude substantial, when compared involved prior divestment cases viewed objectives Act, warrant properties. S.E.C., 895, 897. Because we supports latter ground, no occasion consider strictures reliability are well founded. ultimate did constitute "substantial" reached primarily upon basis subsidiary three matters: (1) losses significantly out line insubstantial previous cases; (2) nonaffiliated Massachusetts companies,9 but them smaller than apparently able operate successfully affiliations; (3) establish devoted solely promoting sales benefits offset losses. none evidence. disagree. I. 8 Commission, consistent practice cases,10 weighed relative rather absolute terms, calculating percentage revenues, expenses, income.11 ratios "lower higher corresponding systems whose required ground clause A." 898. particular comparisons made outside Massachusetts.12 "largely irrelevant" because "* they affect structure case, different assumption same level." 113, 115. close own "particular circumstances" relevant inquiry. 9 significant, Appeals' criticism use relied heavily reading statistical data evidence "would decrease (NEES') rate return 6.4 per cent 1959 4.1 basis," 30% below, average 5.9 *." F.2d, 114. But, noted, computation realize 4.1% contained error, overlooked allowance income tax deductions generated actual taking account 5.2%.13 event, agree affected differences capital structure, market position, factors. means follows irrelevant range discretion ratios, did, "as guide adjudicating pending case." Philadelphia Co., 28 35, 50, n. 24. employ evaluative considers relevant.14 11 Indeed, recognized comes included more comparable level already decided Commission. attempted system's distance sources gives competitive advantage oil fuel, and, further, growth potential lack new housing expansion serviced companies. either respect insofar matters bore threatened II. 12 resort concerning response argument, Department Utilities, seek increases seriously impair destroy hope successful operation. Natural enjoyed smallest price section country. annual differential $7 typical house $27 $118 favor rest country.15 contended predicted increase substantially entirely eliminate competitors. answer inquire health earn fair although enjoying supposed advantages affiliation utilities; could face conditions NEES.16 further despite insistence differed stagnant areas offering less growth,17 there prevent system—which emerge second largest State—from effectively independents who long their own. Finally, noted after severance operating ratio favorable slightly nine entering realm speculation time assume ensue severance." 899.18 13 rejected comparison fail take special characteristics individual observed since "small cushion (t)he significance negated observing non-NEES seem surviving, focus must specific companies, ones order." 113. "irrelevant efficiently, yet too low attract investors." 114, 6. For reasons stated disagreement view disagree limits discretion. dissection evaluation function courts. believe done job differently better; judicial inquiry addressed fatal carry A. assessing forecast need economies, performance independently. afforded every opportunity sustain wither critical contrary inferences suggested error attempt unpersuasive, given size,19 prognosis efficiencies achieved independents.20 III. conceived measure realized "a interested 901. NEES, took position operation possible interservice competition. argument relying performances independents. All seven showed customer lower costs customers.21 unpersuasive explanation accounted greater residential independents.22 "serious impairment" offsetting done, general 115-116. Whatever merit premise, S.Ct., 1402-1403, understand fact independence. 900-901. proved justified rejecting it. reversed ordered. 17 Judgment direction. DOUGLAS MARSHALL part consideration case. HARLAN, whom STEWART joins, concurring. 20 Given earlier I wrongly statute myself bound, join today's 49 Stat. 812, 79e. At proceeding, consisted serving parts Hampshire, Massachusetts, Rhode Island, Connecticut. controlled services whole 1935, 820, 79k(b), provides pertinent part: duty soon practicable January 1, 1938: "(1) To notice hearing, company, thereof, action holding-company public-utility *: Provided, systems, if, finds that— "(A) Each interpreted standard requiring proof condition allowing survival sound "healthful continuing" "will imminent bankruptcy. 109. contested interpretation "By fostering competition between promotes described 'variegated 184, 15, 1402. following passage remand: "Even proving demise, is, said, meet 'a much stringent test' probable applied (NEES) stringent, exercised have, most practical standard, latest audited financial statements available hearing 889, 3. located 48 miles division headquarters; 80 away. "Nonaffiliated" "independent" refers affiliations jointly area. E.g., 50-52 (1948); General Pub. Util. 32 807, 837 (1951). amount to: 4.8% revenues; 6.0% revenue (excluding federal taxes); 23.3% (before 29.9% net taxes). Engineers Service 41, 55-61, 78-81 (1942); North Amer. 611 (1945); 45-53 814-815, 823-839 (1951); Middle So. Util., Inc., 35 (1953), 36 383 (1955). summarized appendix opinion. 905. Rate base, fixed formula tied generally value assets. source figure appears Appeals. derived follows: (a) $ 3,050,988 (1959 oper. taxes) = 6.4% $47,723,162 (rate base) (b) -1,098,600 (projected losses) 1,952,388 (est. income) (c) However, generate roughly 50%, increasing numerator fraction $1,952,388 $2,501,688, 5.2%. brief relies figure, recalculation. rates Percent Berkshire Gas..................... 5.2 Brockton-Taunton Gas.............. 6.1 Fall River Gas.................... 6.2 Haverhill 6.8 Lowell Gas........................ 7.9 Springfield Gas................... Worcester 4.5 (Resp.Ex. 117; 1436). parties dispute validity drawn cases, become controversy. Suffice say think looking guidance exceeded bounds piped way Texas, whereas shipped tanker. home heating $166 gas, $173 oil; space market. calculated composite 6.6% 1959. 114; 1431.) 6.3% 5.9% 1436.) cites prime regard testimony Robert Cahal, consultant faced. substance his highly State, being entrenched major residence construction; suburbs towns stagnant; area, prisoners communities; (d) growth; (e) Haverhill, Lowell, Springfield, Worcester, Brockton-Taunton; (but unspecified degree) Norwood. comment, population 1950 1960 11% 18% 899, 23. "the total (other depreciation, amortization conversion costs, Federal revenues." 25. "affords efficiency enterprise conducted while comparing trend similar enterprises." Moody's Manual ix (1967). 76.41% 79.14%, median mean 74.87% 76.35% respectively. Individual cited 26. size factor. Congress' concerns providing here small company. Cf. 181, 1400; SEC, 327 686, 697, 66 785. 792, 90 945. H.R.Rep. 1903, 74th Cong., 1st Sess., 68-71; S.Doc. 92, 70th Pt. 72-A, 831, 835. And size, especially indication position. accompanying text. 21 breakdown 1958— NEES...... Indep. Sales, mcf/cust. 44.2. 78.8 Revenues, cust. $95.44. $135.19 Cost customers, mcf. $2.16 $1.72 1959— 51.5. 83.7 $104.49. $142.10 $2.03 $1.70 Equivalent Norwood Company, asserted independents, 17, (1958 figures): Sales—51.8 60.4 mcf/customer; Revenues—$112.59 $125.66/customer; customers—$2.17 $2.08/mcf. 901, nn. 29-30. 1446-1447, 1449-1450. 22 "(N)o demonstration existence causal relation presented." 21, supra.

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