Evening star., 1940-12-24
Cities Service Co.
May Have 10 Split
Oil, Utility Interests
S. {. c. Denies Exemption
From Holding Company
Act in Order
By the Associated Press.


The Cities Service Co. was held
subject to the Public Utility Hold
ing Company Act by the Securities
and Exchange Commission yester.
day. raising the prospect that it
might have to split up its vast
petroleum and utility interests into
two separate companies.
Cities Service, which has voting
power in ITO corporations with more
than $1,150000,00 of assets. had
applied for exemption from the act.
but the commission denied the appli-
cation in an order effective Janu-
ary Is.
The company had asked exemp-
tion en- the ground that it was only
incidentally interest and did not
derive material part of its income
from utility interests, since its main
business concerned petroleum and
petroleum products.
Rejects Both Contentious.
The commission rejected both
contentious with a statement that
"it would be detrimental to the
public interest and the interest Of
investors and consumers to grant
the present application"
Cities Service told the commission
that registering under the Holding
Company Act and being obliged to
submit all OF its operations to the
close control exercised by the S. E. C.
over utility companies would handi-
cap 1t in competition with other
petroleum companies which were
not subject to the same regulation.
The commission said however,
that whatever burden the act i'm.
posed upon Cities Service in its COM
petition in the oil business resulted
from the fact that it was a public
utility holding company.
Called Hybrid Organizat ton.
| The company's troubles. the COM
mission said in its tWo-page opinion,
would be therefore the natural con-
| sequence" of having developed as
"a hybrid form of organization which
places under its common control
both public utility and oil COM
| panies."
| The commission then called atten-
| ton to the fact that under the law
it would be necessary to determine
| whether Cities Service could retain
both its utility and oil subsidiaries
under the so-called death sentence"
section of the Holding Company Act.
| That section calls for geogra phical
| integration and permits utilities to
have non-utility business only when
/ they are found to be reasonably in
| cidental, or economically necessary
or appropriate to the operations" of
/ the utility setup.
'If it is not so found" the S. E. c.
declared, then applicant (Cities
Service) will be required to dispose
of its interest in those businesses
If it is to remain public utility
holding company"
Controls Vast Empire.
Describing Cities Service as IN
volving one of the most important
utility holding company systems in
the country, the commission noted
that for many years it has con-
trolled a far-fung utility empire
with assets valued at more than
s400 100000" with operations in
more than 20 States and Canada.
| It added:
THE applicants securities are
widely held by members of the
investing public and the value of
their investment obviously rests in
considerable measure upon the
underlying assets of applicants
public utility subsidiaries. The
record before us indicates an in
dulgence in practices explicitly con-
demned by Congress, such as
pyramiding upstream loans. and
write-ups which in some instances
have exceeded 100 per cent"
The opinion said that Cities Serv-
ice Co. had received more than II
per cent of its total cash income
from utility companies during the
five years ending December 81, 1888.
and that in addition consideration
should be given to the undistributed
income of subsidiaries. If this were
not done, the S. E. C. said, parent
company could assure itself exemp-
ton from the Holding Company
Act by preventing the distribution
of earnings of its utility subsidiaries
for a certain period prior to apply
ing for exemption.
The bulk of the utility companies
in the system are subsidiaries in
the Cities Service Power & Light
System, a registered holding COM
pany in which Cities Service Co.
has a large interest,