of the newly formed corporation. Section 305 (b) of the Federal Power Commission Act of 1953 prohibits an officer of a public utility under the jurisdiction of the Commission from becoming an officer of another public utility without prior approval of the Commission.223 Dixon, however, did not file for such approval until March 15, 1955, which application has not to date been approved. 224 James, his counsel, maintained before this subcommittee that Dixon had not violated the law since MVGC did not become a "public utility" upon incorporation, but was to become one at a later unspecified time.225 At the AEC offices, on August 3, a meeting was held between high officials of the Atomic Energy Commission and the Securities and Exchange Commission (including SEC's Chairman, Ralph H. Demmler) to consider the problems the SEC would have to face under the Public Utility Holding Company Act when MVGC came before it for approval of its capital and financial structure.226 The group discussed the problems faced by the SEC before it could grant its approval within the framework of the act. One of the hurdles was the unorthodox financing debt-equity ratio.227 Dixon-Yates proposed to supply only 5 percent equity (MVGC's entire 5 percent common stock to be distributed between the sponsoring companies, Middle South Utilities and Southern Co.228) and to have MVGC raise the remaining 95 percent capital by issuing debt securities, whereas the SEC had previously announced that companies subject to the act should not be financed by more than 60 percent debt. The second problem discussed at the AEC-SEC conference was the act's section (c) (2) requirement of "integration," 229 since Southern Co.'s area was 150 miles from the planned site of MVGC with no direct transmission line planned.230 This would make it difficult to fulfill the statutory requirement that acquisition by existing utility holding companies should tend toward "development of an integrated" system.231 An additional obstacle facing the group was Dixon's notice to the SEC that Middle South Utilities would be opposed to a requirement that it consolidate its financial statements with that of its new subsidiary, MVGC. Demmler, testifying December 5, 1955, frankly confessed that "one of the great quandaries which confronts an administrative agency every day" is how it can "justify advising somebody whose contractual partner is coming before the SEC with a contract that it must pass on." 232 These problems had been brought to the attention of the SEC as early as April 9, just before the second Dixon-Yates proposal was submitted, when Dixon and officers of Middle South and Southern Co. consulted Robert A. McDowell, Director of SEC's Division of Corporate Regulation, concerning the difficulties which their plan might encounter under the Public Utilities Holding Company Act.233 At that time, the questions discussed involved the interlocking 223 1013. 224 1013. 225 1014. 226 737, 1264. 227 781. 328 24. 229 1717, 1719, sec. 10 (c) (2), Public Utility Holding Company Act of 1935. 230 745 and 781. 231 746 and 783. 232 1266. 233 Exhibit 104, 740-741. relationships and concentration of control provisions of the act as well as the problems of "integration" and consolidation of financial statements.234 In respect to the latter problem, McDowell records in his memorandum of this conference: Middle South proposes not to consolidate the financial position of "X" [which later became MVGC] with itself and its other companies, in preparing financial statements for the public and for the SEC. Mr. Dixon wanted to be very sure that this was understood from the very beginning for if the SEC should insist on consolidation, either initially or at a later date, this would be a real obstacle to Middle South's interest in the matter.235 Cook of AEC testified that in August 1954, after the August 3 meeting at the AEC, SEC Chairman Demmler participated in another meeting at the White House, which included, among others, Hughes and AEC officials, the focal point was again the PUHC Act and future SEC proceedings in regard to the Dixon-Yates contract and MVGC.236 Cook, who testified about this meeting, although he could not place its exact date nor the substance of the discussion, related that there had been several other meetings at the White House concerning the contract during this negotiation period.237 Neither these meetings, nor the August 3 AEC conference, are disclosed in either of the official chronologies. In the period from August 3 through the initiation of the SEC equity financing proceedings, December 7, 1954,238 a number of meetings took place between McDowell and representatives of the DixonYates group concerning the financial and capital structure of MVGC in light of the PUHC Act.239 At an important conference on August 29 at the SEC, McDowell met with Dixon and Canaday, from which resulted the McDowell memorandum to the Commission (dated August 31) outlining the substance of the conference and analyzing in detail the difficulties the provisions of the proposed contract posed, together with McDowell's recommendations to the Commission for their expeditious handling 240 A matter of great concern to Dixon was the speed with which the contract could be made effective. This required, as well as SEC approval, submission of the contract to the Joint Committee on Atomic Energy, thereby enabling that committee to convene hearings if they desired to do so.21 However, Dixon brought out at this conference that AEC was having trouble in reaching an agreement with TVA in respect to the latter's accepting MGVC power, TVA refusing to confer with AEC on the matter.242 In his memo, McDowell reported to the Commission that this refusal on the part of TVA to discuss the contract with AEC has resulted in postponement of the Joint Committee's hearings, because according to Mr. Dixon, ***the administration feels that * * * 243 McDowell further explained that the TVA Board consisted of three members, but that General Vogel, the new designee as Chairman of TVA, had not yet taken office. He will become a Director and Chairman on Wednesday, September 1, 1954. After that Mr. Dixon hopes that the position of the TVA Board will be clearer *** With General Vogel's appointment * * * it seems wise to give him time to hold a Board meeting of the TVA for consideration of the matter before the Joint Committee commences its hearings. Mr. Dixon expects that the hearings of the committee will start in about 2 weeks.244 In spite of the fact that MVGC power was to be used largely in the Memphis, Tenn., area, 245 McDowell's memo asserts: Mr. Dixon says that under no circumstances will he permit Mississippi Valley to run its transmission lines into Tennessee and thereby be subject in any way to the laws of that State.246 In discussing the problem raised by the disproportionate debt-equity ratio of MVGC, McDowell advised the Commission: Therefore, if the SEC should be unwilling to go along with the 95 percent debt and should insist on a lower debt ratio, the whole structure of the contract and all of the negotiations carried on to date would be upset.247 And on the "integration" obstacle of section 10 (c) (2), McDowell was of the opinion that this would not "be an insurmountable problem" and that he doubts it will be necessary for the Commission to rely on 248 In connection with this last observation of McDowell, it is interesting to note that he modified his thoughts on the section 10 problem by the time he submitted his Division's "Proposed Findings and Conclusions" to the Commission on January 11, 1955, following his termination of the SEC equity hearings in the case.249 Instead of recommending an affirmative finding of "integration" based upon the record as developed during the hearings, he suggested an implied exemption to section 10 in the case of power being sold to the Government on a ong-term basis even though the plant location and place of delivery to the 2441 and 4 of exhibit 103 and 775. 24:809. 246 6 of exhibit 103 and 776. 247 5 of exhibit 103. 249 6 and 7 of exhibit 103, 776-777. 249 799. 230 SEC, Division of Corporate Regulation. Proposed Findings and Conclusions in the Matter of MVGC, January 11, 1955. This was the method, in conjunction with the "national defense" justification, finally adopted by the Commission to get around "integration" in their decision of February 9, 1955, approving MVGC organization.251 As forecast by Dixon and McDowell, Gen. Herbert D. Vogel was sworn in as Chairman of TVA on September 1. Within 2 days, Vogel and AEC General Manager Nichols, after a conference in Washington, announced in a joint statement that "a meeting of minds had been reached on all fundamental issues" relating to the Dixon-Yates contract.252 Before this subcommittee, 253 during its 1954 hearings into power policy and the Dixon-Yates contract, James D. Stietenroth (former secretary-treasurer of Mississippi Light & Power Co., a subsidiary of Middle South) testified on September 28 that Hallingsby (assistant to Dixon) had told him about a month before, regarding the Dixon-Yates contract, "It looks all right. It is on the rails, and the rails were greased. 99 254 In spite of McDowell's April 9 meeting with Dixon, the large August 3 conference between AEC and SEC officials, the meeting at the White House shortly thereafter, and numerous other meetings between McDowell and the Dixon-Yates group, including the important one of August 29 with Dixon, all of these involving the problem of SEC approval, McDowell, nevertheless, stated in a memorandum to Assistant Attorney General J. Lee Rankin on October 15, in response to Rankin's inquiries concerning SEC approval of MVGC, since the SEC will have to pass on this matter after a full record has been developed, probably after a public hearing, it cannot state at this time what its position would be on this question. 255 260 Further intergovernmental meetings were held on Labor Day weekend,256 October 18,257 November 7,258 and November 8,259 and the formal contract between the Atomic Energy Commission and Mississippi Valley Generating Co. was finally signed on November 11, 1954. Demmler states the Labor Day conference was between him and Admiral Strauss. The Shippingport, Pa., water-pressure reactor was to be dedicated. Demmler went up on the train with McDowell and he discussed with Admiral Strauss the problems the Dixon-Yates contract would face before the SEC.261 He suggested if the contract were signed, it would be easier to get it approved.262 He invited himself and McDowell to go on the trip. Just as he had gone on August 3 to AEC to warn of the problems so he went on Labor Day to warn Admiral Strauss.263 Demmler said he did not urge that the 30-day waiting period in the AEC be rushed and waived but the memo he gave Strauss raised the problem of this 30-day delay.264 Demmler testifies also that on November 3, 1954, he attended a meeting at the White House with General Persons, General Vogel, of 251 SEC, Findings and Opinions of Commission in Matter of MVGC Holding Company Act, Release No. 12794, February 9, 1955, pp. 38-39. 252 New York Times, September 1, 1954. 253 83d Cong., 2d sess., pt. 2, September-October 1954. 254 Hearings, p. 207. 255 Exhibit No. 98, 737. 256 830-831. 257 Exhibit No. 99, 737. 255 Exhibit No. 101, 738. 259 Exhibit No. 100, 738. 260 830 and 1281-1282. 261 1282-1283. 262 1285. 263 1286. 264 1283 and 1287. TVA, Kuykendall, of FPC, Jack Martin, formerly administrative assistant to Senator Taft, and Shanley. Demmler's purpose was to discuss whether the SEC should appear before the Joint Committee on the waiver hearing. He advised SEC would not.265 Just before, on November 4, the contract was presented to the Joint Committee on Atomic Energy 266 pursuant to section 164, Atomic Energy Act of 1954, requiring that an AEC power contract be submitted to the committee for a 30-day waiting period before it becomes legally effective. The issue debated at that time was whether the committee should waive this period, as it may do under the Act.267 On November 13, 2 days after the signing of the contract, the Joint Committee passed the resolution necessary to waive the 30-day period. 268 Shortly before the SEC opened its proceedings into the equity financing of MVGC on December 7, SEC Chairman Demmler conferred with officials from the AEC, BOB, and the White House regarding the scheduling of the hearings. 269 The SEC was faced with the problem of completing its proceedings before February 15, 1955, the date incorporated in the contract as the "cutoff" point beyond which neither party could terminate the contract without incurring liability, but only if all regulatory approvals were secured by that date.270 J. Sinclair Armstrong (present SEC Chairman) testified that these meetings on SEC scheduling and clearance resulted in a "darn tight schedule-a terribly tight schedule." 271 At another meeting, held at the White House, on December 2, Chairman Demmler, together with Gerald Morgan (Special Counsel to the President), Hughes, Rankin, Cook, and William Mitchell (General Counsel to the AEC) reviewed the brief attacking the validity of the contract submitted to the SEC by counsel for the State of Tennessee.272 The group agreed that Rankin and Mitchell would participate in the hearings on the question of legality raised in the brief, urging that the SEC should not consider the issue, or, in the alternative, find the contract legally valid. The SEC hearings were opened on December 7 and continued through December 21, culminating in the Commission's decision of February 9, 1955, approving MVGC's financial structure. Examined on December 5, 1955, about his conduct of this hearing, Demmler could offer no explanation as to why he excluded any evidence by the State of Tennessee that the power under the contract was not "replacement" power and was not going to the AEC but to commercial users in Tennessee.273 Nor could he explain why he blocked out efforts to prove the contract differed from the E. E. I. or O. V. E. C. contracts.274 On this hearing the SEC sat en banc. Demmler said this was because of the public importance of the case and to hear it expeditiously without having to rule on an appeal from the hearing examiner. But he could not name any other case where the SEC had sat en banc in the history of the Commission although he said he 25 1275-1276. 256 JCAE: 1. 267 Hearings, JCAE. Hearings, JCAE. 359 666-667. 170 834. 271 667. Letter from Cook (AEC) to Senator Kefauver, July 27, 1955, and 1272–1280. 373 1268. 274 1269. |