United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 4, 2001 Decided January 18, 2002
No. 00-1371
National Rural Electric Cooperative Association and
American Public Power Association,
Petitioners
v.
Securities and Exchange Commission,
Respondent
American Electric Power Company, Inc. and
Paul S. Davis,
Intervenors
Petition for Review of an Order of the
Securities and Exchange Commission
Scott Hempling argued the cause for petitioners. With
him on the briefs was David S. Lapp. Richard B. Geltman
entered an appearance.
John W. Avery, Special Counsel, Securities & Exchange
Commission, argued the cause for respondent. With him on
the brief was Eric Summergrad, Deputy Solicitor.
J. A. Bouknight Jr. argued the cause for intervenor. With
him on the brief were Samuel T. Perkins, Cynthia L. Taub
and Niki Kuckes. Douglas G. Green entered an appearance.
Before: Edwards, Henderson and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Tatel.
Tatel, Circuit Judge: The Securities and Exchange Com-
mission authorized American Electric Power Company, which
provides electricity services in a number of eastern and
midwestern states, to acquire a company that provides elec-
tricity services in several distant southern and southwestern
states. Challenging the Commission's decision, two electric
utility associations argue that the post-acquisition company
will violate section 10 of the Public Utility Holding Company
Act, 15 U.S.C. s 79j, which requires that any registered
public-utility holding company comprise a "single integrated
... system" that is "physically interconnected or capable of
physical interconnection" and "confined in its operations to a
single area or region," id. ss 79j(c)(1); 79k(b)(1);
79b(a)(29)(A). Because the Commission failed to explain its
conclusions regarding the interconnection requirement, and
because it failed to justify its finding that the proposed
acquisition will satisfy the single-area-or-region requirement,
we vacate the Commission's order and remand for further
proceedings consistent with this opinion.
I.
Congress passed the Public Utility Holding Company Act
of 1935, 15 U.S.C. ss 79a et seq. ("PUHCA"), to "protect
consumers and investors from abuses associated with [inter-
state] public utility holding companies," Envtl. Action, Inc. v.
SEC, 895 F.2d 1255, 1258 (9th Cir. 1990). Many of these
companies had developed highly pyramidal structures with a
few not always responsible shareholders of the top holding
company exercising excessive control over the underlying
operating companies. See Am. Power & Light Co. v. SEC,
329 U.S. 90, 100-03 (1946). To ensure that "the growth and
extension of holding companies" bear some "relation to econo-
my of management and operation or ... integration and
coordination of related operating properties," 15 U.S.C.
s 79a(b)(4), the Act requires most interstate holding compa-
nies to register with the Securities and Exchange Commis-
sion, id. s 79e, and charges the Commission with reviewing
all transactions in which a registered holding company pro-
poses to acquire securities or utility assets of another holding
or public-utility company, id. s 79j.
Although PUHCA states that the Commission "shall ap-
prove" most proposed acquisitions, id. s 79j(b), it details
several conditions barring approval, two of which are relevant
here. First, the Act prohibits approval of an acquisition if the
Commission finds that the resulting holding company will no
longer constitute a single "integrated public-utility system,"
id. ss 79j(c)(1); 79k(b)(1), defined elsewhere as--
[A] system ... whose utility assets, whether owned by
one or more electric utility companies, are physically
interconnected or capable of physical interconnection and
which under normal conditions may be economically op-
erated as a single interconnected and coordinated system
confined in its operations to a single area or region, in
one or more States, not so large as to impair (considering
the state of the art and the area or region affected) the
advantages of localized management, efficient operation,
and the effectiveness of regulation.
Id. s 79b(a)(29)(A). The Commission has broken this lan-
guage down into four separate prerequisites for approval of a
proposed acquisition: (1) The post-acquisition public-utility
system's assets must be "physically interconnected or capable
of physical interconnection" (the interconnection require-
ment); (2) the assets must be capable of economic operation
"as a single interconnected and coordinated system" (the
coordination requirement); (3) the system itself must be
confined to a "single area or region" (the region require-
ment); and (4) the system "must not be so large as to impair
... the advantages of localized management, efficient opera-
tion, and the effectiveness of regulation" (the localization
requirement). Electric Energy, Inc., PUHCA Release No.
13871, 38 S.E.C. 658, 668 (Nov. 28, 1958). The second
relevant PUHCA condition prohibits the Commission from
approving an acquisition unless the Agency finds that the
proposed transaction will "serve the public interest by tend-
ing towards the economical and efficient development of an
integrated public-utility system." 15 U.S.C. s 79j(c)(2). To
win Commission approval, then, a proposed acquisition must
not only meet the four single-integrated-system require-
ments, but do so in a way that produces net " 'efficiencies and
economies.' " Wisconsin's Envtl. Decade, Inc. v. SEC, 882
F.2d 523, 528 (D.C. Cir. 1989) (quoting Union Elec. Co.,
PUHCA Release No. 18368, 45 S.E.C. 489, 494 (Apr. 10,
1974)).
The proposed acquisition at issue here will merge Central
and South West Corporation's ("CSW") four wholly-owned
operating subsidiaries, which currently supply power to parts
of Arkansas, Louisiana, Oklahoma, and Texas, with Interve-
nor American Electric Power Company's ("AEP") wholly-
owned electric generating company and seven wholly-owned
electric operating utilities, which supply power to parts of
Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia, and
West Virginia. Under the terms of the agreement, a newly-
formed AEP subsidiary will merge with and into CSW. CSW
will survive the merger, but it and most of its subsidiaries will
become subsidiaries of the post-acquisition company--so-
called "New AEP." With more than thirty-seven thousand
megawatts of generating capacity, New AEP will serve close
to five million customers in eleven states.
AEP and CSW's systems are neither contiguous nor physi-
cally interconnected--indeed, at their closest point, they are
separated by hundreds of miles. See Appendix A; see also
AEP, Service Territories, at http://www.csw.com/about/
territory.htm (last visited Nov. 8, 2001). The companies
propose to interconnect their systems by means of a 250-
megawatt, unidirectional transmission service contract with
Ameren Corporation. This "contract path" will enable New
AEP's western zone (the current CSW system) to make use
of some surplus generating capacity--that is, generating ca-
pacity over and above firm load obligations--in the eastern
zone (the current AEP system). The contract extends for
four years (from June 1, 1999 to May 31, 2003), after which
New AEP may renew, though potentially at greater cost.
See Resp't's Br. at 35. AEP and CSW apparently expect that
there will be fewer "opportunit[ies] to transfer energy eco-
nomically" from west to east than from east to west, but when
and if such opportunities arise, New AEP proposes to make
use of its rights under pre-existing transmission service
agreements. Am. Elec. Power Co., Inc. & Central S. W.
Corp., PUHCA Release Nos. 35-27186, 70-9381, 2000 SEC
LEXIS 1227, at *61 n.79, *65-66 (June 14, 2000) ["Approval
Order"].
The proposed acquisition requires the approval of several
regulatory agencies in addition to the Securities and Ex-
change Commission. The Federal Energy Regulatory Com-
mission granted conditional approval in March 2000 provided
that AEP and CSW reduce the merger's potential anticom-
petitive effects by divesting 550 megawatts of generating
capacity and "limit[ing] their ability to contract for firm
transmission capacity from [east to west] to 250" megawatts.
Am. Elec. Power Co., Cent. & S. W. Corp., Docket Nos.
EC98-40-000, ER98-2770-000, ER98-2786-000, 90 F.E.R.C.
p 61,242, 61776 (2000) (reversing in part, affirming in part,
vacating in part, and modifying FERC's initial decision); see
also Wabash Valley Power Ass'n v. FERC, 268 F.3d 1105
(D.C. Cir. 2001) (denying petition for review). The public
utility commissions of the affected states also considered the
proposed merger, and most explicitly approved side agree-
ments among AEP, CSW, and third parties, all drafted to
ensure that ratepayers realize benefits from the transaction.
Approval Order, 2000 SEC LEXIS 1227, at *23-24 & n.28.
On June 14, 2000, the Securities and Exchange Commission
added its voice to the chorus approving the proposed acquisi-
tion. Id. at *113. Dismissing concerns expressed by four
intervenors--a coalition of utility stakeholders and a group of
consumer counselors, as well as Petitioners in this case, the
American Public Power Association and the National Rural
Electric Cooperative Association--the Commission found that
the merger satisfies PUHCA's requirements. Id. at *44-109.
Specifically, the Commission concluded that the contract path,
though both temporary and unidirectional, "is adequate to ...
satisfy the interconnection requirement" because it will per-
mit "the economic transfer of energy from one zone of the
New AEP System ... to another," generating "net-fuel relat-
ed savings of approximately $98 million over the ten-year
period following the merger." Id. at *50-51. Moreover, the
Commission observed, AEP has "committed" either "to renew
the [c]ontract [p]ath" or to find another way to satisfy the
interconnection requirement after 2003. Id. at *48.
With respect to the statute's coordination requirement, the
Commission conceded that New AEP's structure will "differ
in some respects from the traditional ... utility model," in
which generating capacity is centrally pooled and dis-
patched--presumably because New AEP's east and west
zones will continue to satisfy their respective power demands
separately, transferring power from east to west only when
"one [z]one has surplus capacity available for sale and the
other has insufficient capacity." Id. at *54-55, 61. The
Commission was unconcerned by this lack of centralization,
however, because it viewed "unbundling of generation and
transmission" to be "the direct result of [government] efforts
to promote a competitive energy market--a goal consistent
with" PUHCA's purpose of ensuring that the growth of
holding companies fosters economy of management and oper-
ation. Id. at *75.
The Commission next addressed PUHCA's region require-
ment. Finding that recent technological advances have "re-
duced the relative importance of ... geographical limitations"
on utility systems, the Commission declined to read this third
requirement as imposing any independent conditions on the
proposed merger. Id. at *83. Rather, the Commission found
that the merger satisfies PUHCA's other requirements--
including interconnection and coordination (discussed above)
and localization (discussed below)--and then concluded, "[i]n
view of these considerations, ... the New AEP System will
operate in a 'single area or region.' " Id. at *85.
Turning to the fourth single-integrated-system require-
ment, localization, the Commission observed that "[v]arious
state regulators have ... demonstrated that they can effec-
tively regulate the New AEP System," in that they have
already imposed "an extensive list of service quality stan-
dards on the New AEP System Operating Companies that
operate within their states." Id. at *94. Additionally, the
Commission indicated that most affected states have imposed
conditions on the proposed merger, under which the states
retain the ability to review the activities of New AEP and its
affiliates and subsidiaries. Id. at *94-95. Noting that it has
historically "found that effectiveness of state regulation is not
impaired where state regulators have the same jurisdiction
before and after a merger," id. at *95 (citing Conectiv, Inc.,
PUHCA Release Nos. 35-26832, 70-9069, 60 S.E.C. Docket
1260 (CCH) (Feb. 25, 1998)), and also citing its conclusion
(discussed below) that the AEP-CSW merger will generate
efficiencies, id. at *99, the Commission concluded that New
AEP will not be "so large as to impair ... the advantages of
localized management, efficient operation, and the effective-
ness of regulation," PUHCA, 15 U.S.C. s 79b(a)(29)(A).
Finally, the Commission considered PUHCA's requirement
that any "acquisition of securities or utility assets of a public
utility or holding company" must itself tend "towards the
economical and efficient development of an integrated public-
utility system." Id. s 79j(c)(2). Referring to AEP and
CSW's projection that the merger will save "almost $2 billion
of net non-fuel cost[s]" and "approximately $98 million" of
fuel-related costs over the first ten years, the Commission
indicated that it had "reviewed the assumptions and method-
ologies" underlying the projection and found them "reason-
able and consistent with ... precedent." Accordingly, the
Commission determined that the merger will produce suffi-
cient "economies and efficiencies" to pass muster under
PUHCA. Approval Order, 2000 SEC LEXIS 1227, at *100-
04.
II.
Reiterating many of the substantive arguments they raised
during the Commission's review process, Petitioners claim
that the Commission erred in finding that the proposed
acquisition satisfies PUHCA's interconnection and region re-
quirements and in accepting AEP and CSW's projections
regarding the cost savings that will result from the merger.
Petitioners also argue that the Commission's "decision not to
hold evidentiary hearings as part of its review of the applica-
tion for approval of the acquisition was arbitrary and capri-
cious because the acquisition raised factual issues substantial-
ly in dispute." Pet'rs' Br. at 2. In considering these claims,
we follow the familiar rules of administrative review, accept-
ing the Commission's findings of fact as long as they are
supported by "substantial evidence," Steadman v. SEC, 450
U.S. 91, 97 n.12 (1981) ("Commission findings of fact are
conclusive for a reviewing court if supported by substantial
evidence." (internal citations omitted)), and affirming its con-
clusions of law unless they are "arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law,"
5 U.S.C. s 706(2)(A). See, e.g., Wonsover v. SEC, 205 F.3d
408, 412 (D.C. Cir. 2000) (applying this standard).
Interconnection Requirement
Petitioners have two principal concerns regarding the Com-
mission's application of the statute's interconnection require-
ment: first, that the companies' "temporary, one-way trans-
mission contract" is "too small and too tentative" to satisfy
PUHCA, and second, that the Approval Order departed from
Commission precedent without adequate explanation. Pet'rs'
Br. at 23-24, 33-35. In support of their first point, Petition-
ers contend that AEP and CSW's contract with Ameren
permits the transfer of only a "[t]oken [a]mount" of power, in
that the 250-megawatt contract path "represents just 0.68
percent" of New AEP's combined 37,000 megawatts of gener-
ating capacity. Id. at 24-25. Moreover, they argue that the
unidirectional contract path cannot satisfy PUHCA because
the Act requires interconnection--a term that, to Petitioners,
implies two-way transfers of power. Petitioners also point
out that AEP and CSW have never said how they plan to
satisfy the interconnection requirement after 2003. The com-
panies' promise to devise an alternative method of intercon-
necting their systems if they opt not to renew the contract
path is, according to Petitioners, inadequate because " 'sepa-
rate properties not interconnected must be capable of physi-
cal interconnection ... at the time the Commission considers
the matter and not at some indefinite future time.' " Id. at 27
(quoting Gen. Pub. Utils. Corp., PUHCA Release No. 10982,
32 S.E.C. 807, 825 (Dec. 28, 1951)). Finally, Petitioners
invoke our decision in Madison Gas & Elec. v. SEC, 183 F.3d
1337, 1340 (D.C. Cir. 1999), for the proposition that a trans-
mission contract cannot, in and of itself, support a finding
that utility assets are "physically interconnected or capable of
physical interconnection," PUHCA, 15 U.S.C. s 79b(a)(29)(A).
We are unpersuaded by Petitioners' characterization of the
contract path as too "small" and "tentative." Although we
recognize that 250 megawatts represents a small percentage
of New AEP's total generating capacity, Petitioners point to
no statutory language, legislative history, or case law requir-
ing that physically separated zones of a power system be
interconnected by lines capable of transmitting any specific
percentage of the power generated in each zone. Moreover,
the Commission said it could order New AEP to divest one of
the systems if the company fails to devise a satisfactory
method of integrating its utilities after the contract with
Ameren expires. Resp't's Br. at 35-36.
Nor are we swayed by Petitioners' reference to Madison
Gas. All we said there was that a power system's "showing
of a current transmission line contract and of a plan to build
two tie-lines ... before the end of the contract term" ade-
quately supported the Commission's finding that the system's
two zones were "capable of physical interconnection." Madi-
son Gas, 168 F.3d at 1340 (internal citations omitted). This
in no way implies that the transmission line contract would be
insufficient, in and of itself, to satisfy PUHCA. On the
contrary, just before approving the Commission's intercon-
nection finding we observed that "[t]he SEC has reasonably
construed [the interconnection] requirement to be satisfied in
cases past on the basis of contractual rights to use a third-
party's transmission lines or if physical interconnection is
contemplated or ... possible within the reasonably near
future." Id. (internal citations omitted) (emphasis added).
Thus, nothing in Madison Gas precludes a finding that AEP
and CSW's contract with Ameren meets PUHCA's intercon-
nection requirement.
We are, however, puzzled by the Commission's acceptance
of a unidirectional contract path to "interconnect" AEP and
CSW. Webster's Dictionary defines "interconnection" as
"connection between two or more: mutual connection"--a
definition that seems, on its face, to require two-way transfers
of power. Webster's Third New International Dictionary
1177 (1993) (emphasis added). In addition, PUHCA itself
requires that the interconnected system be one "which under
normal conditions may be economically operated as a single
interconnected and coordinated" whole. 15 U.S.C.
s 79b(a)(29)(A). Absent some explanation from the Commis-
sion, we cannot understand how a system restricted to unidi-
rectional flow of power from one half to the other can be
operated in such a manner.
Moreover, we agree with Petitioners that the Commission
failed to follow its own prior reasoning regarding interconnec-
tion of distant utilities. Petitioners point to several prior
orders in which the Commission expressly indicated that
"contract rights cannot be relied upon to integrate two dis-
tant utilities." WPL Holdings, Inc., PUHCA Release No. 35-
26856, 53 S.E.C. 501, 517 n.39 (Apr. 14, 1998) (emphasis
added) (concluding that "the distances at issue in this mat-
ter"--between cities in Iowa and Wisconsin--are "within the
parameters of the previous decisions"), aff'd, Madison Gas &
Elec., 183 F.3d 1337; see also UNITIL Corp., PUHCA
Release No. 35-25524, 50 S.E.C. 961, 967 n.30 (Apr. 24, 1992)
("[C]ontract rights cannot be relied upon to integrate two
distant utilities."); Northeast Utils., PUHCA Release Nos.
35-25221, 70-7695, 50 S.E.C. 427, 449 n.75 (Dec. 21, 1990)
(indicating that "the use of a third party cannot be relied
upon to integrate two distant utilities"). Although these
statements were dicta, Petitioners argue that they express a
clear policy from which the Commission departed in approv-
ing the AEP-CSW merger. We agree.
As Petitioners point out, the Commission has clearly indi-
cated that a contract path cannot alone integrate distant
utilities. We think those statements sufficiently explicit to
obligate the Commission to provide some rationale for its
current contrary view. "[A]n agency changing its course
must supply a reasoned analysis indicating that prior policies
and standards are being deliberately changed, not casually
ignored." Greater Boston Tel. Corp. v. FCC, 444 F.2d 841,
852 (D.C. Cir. 1970). This is particularly true here, since the
few cases in which the Commission has accepted transmission
contracts as evidence of interconnection, unlike this case,
have involved contracts for transmission of large amounts of
power in both directions between relatively closely situated
utility assets. E.g., Conectiv, Inc., 66 S.E.C. Docket at 1266
(stating that "the physical interconnection requirement of the
Act can be satisfied on the basis of contractual rights to use
third parties' transmission lines, when the merging companies
are members of a tight power pool"--that is, a group of
utilities that coordinate their planning and operation to im-
prove economy and reliability); UNITIL Corp., 50 S.E.C. at
966 (deciding that contract rights were adequate to intercon-
nect utilities, both because the utilities were part of a tight
power pool, and because they were located in New England, a
small area with "unique geographical characteristics"); Cen-
terior Energy Corp., PUHCA Release Nos. 35-24073,
70-7149, 49 S.E.C. 472, 478 (Apr. 29, 1986) (approving use of
third-party transmission lines to interconnect two formerly
separate utility systems in light of a study showing that the
transmission lines would be adequate even in an emergency
in which one of the systems had to meet 100% of the other
system's power demand).
Recognizing the apparent conflict between its past and
present views on the interconnection issue, the Commission
rationalized its approval of the contract path in this case as
follows:
There is dicta in a series of our decisions stating that
contract rights cannot be relied on to "integrate" "dis-
tant" utility properties.... We do not believe that these
statements mean that a contract path might not meet the
interconnection requirement because of its length.
These earlier cases suggest that the reason a contract
path might not "integrate" two distant utilities was due
to the "single area or region" requirement.... We did
not hold in any of these prior cases that the length of a
contract path was relevant in determining whether the
interconnection requirement ... was met. Such an ap-
proach would be inappropriate in view of the express
language of [PUHCA] as well as technological and com-
mercial developments that have made feasible the trans-
mission of power over longer distances.
Approval Order, 2000 SEC LEXIS 1227, at *49-50. We
perceive only one rational interpretation of this peculiar
paragraph: Although a long transmission line may be suffi-
cient to interconnect two distant utilities, the length of the
line--that is, the distance between the connected utilities--
may violate PUHCA's region requirement. Yet the Commis-
sion concedes that it failed explicitly to consider the length of
the contract path in deciding whether New AEP meets the
region requirement. Resp't's Br. at 37 n.24. The Commis-
sion cannot first distinguish its prior orders on the grounds
that a factor considered in those orders is relevant to one part
of its analysis but not another, and then ignore that factor
altogether. There may be a satisfactory explanation for the
Commission's change in course, but it is not evident from the
Approval Order now before us.
Region Requirement
Challenging the Commission's determination that the pro-
posed merger satisfies PUHCA's region requirement, Peti-
tioners make three arguments: No industry standard sup-
ports the conclusion that AEP and CSW are in the same
"region"; the Commission failed to make independent eviden-
tiary findings to support that conclusion; and finally, the
Commission erred in deciding that a proposed acquisition that
meets the other single-integrated-system requirements is
necessarily also confined to a single region. We agree with
the Commission that the first argument "read[s] into [PUH-
CA] additional constraints that are not imposed by" the
statute's language. Resp't's Br. at 30. Nothing in the Act
requires, as Petitioners imply, that a utility system's bound-
aries conform to those of the "reliability regions" created by
the voluntary North American Reliability Council ("NARC").
Nor does the Act mention FERC's "regional transmission
organizations." While the Commission could potentially
point to boundaries identified by NARC or FERC as evi-
dence that a utility system is confined to a single region,
Petitioners may not point to such boundaries as evidence that
a utility system is not so confined. The Commission may
make its own decision regarding the meaning of the region
requirement; NARC and FERC actions have no precedential
value for that decision.
That said, we agree with Petitioners that the Commission's
decision that New AEP meets the region requirement cannot
withstand even the most deferential review, both because the
Commission failed to make any evidentiary findings on the
issue and because it erroneously concluded that a proposed
acquisition that satisfies PUHCA's other requirements also
meets the statute's region requirement. On the first point,
we note that prior Commission decisions addressing the
region requirement have analyzed such factors as the geogra-
phy and socioeconomic characteristics of the areas covered by
the system. In Middle West Corp., for example, the Commis-
sion stated:
To find that an aggregation of the properties of South-
western Light, Public Service and Southwestern Gas
constitutes a single system, we must find that an area
400 miles north-to-south and 350 miles east-to-west em-
braces but a single area or region. In well-settled and
economically developed territory such a finding might be
impossible. But the geographical characteristics of the
territory encompassed by this sector of properties are
fairly homogeneous. The area is more or less typical
throughout, relying largely on oil and other minerals,
agriculture, and relatively light industry for its subsis-
tence. The rendition of satisfactory service in arid and
sparsely-settled areas frequently requires the stretching
of lines over long distances to connect small population
centers with generating facilities strategically placed
near suitable water and fuel supplies. In view of these
facts we believe that the properties in question lie within
a single area or region.
PUHCA Release No. 4846, 15 S.E.C. 309, 336 (Jan. 25, 1944).
Similarly, in American Natural Gas Co., the Commission
listed several factors that could be relevant to a finding that
different service areas are located in "a common economic
and geographic region," including "industrial, marketing and
general business activity, transportation facilities, and gas
utility requirements." PUHCA Release No. 15620, 43 S.E.C.
203, 206 (Dec. 12, 1966).
The Approval Order in this case considers none of these
factors. Never mentioning whether the territories served by
AEP and CSW have common geographic or geologic traits,
the order's discussion of the region requirement rests on two
repeated assertions: that the terms "area" and "region" are
"by their nature ... susceptible of flexible interpretation,"
e.g., Approval Order, 2000 SEC LEXIS 1227, at *81, 84, and
that "recent institutional, legal and technological changes
have reduced the relative importance of geographical limita-
tions" on utility systems, id. at *83, 87, 92. From these
statements, which we accept as true, the Commission some-
how concludes that it may reach an affirmative decision
regarding the region requirement without any substantive
discussion of the noncontiguous and seemingly dissimilar
regions served by New AEP.
In fact, as Petitioners' final argument stresses, the Com-
mission's Approval Order ultimately determines that New
AEP satisfies the region requirement not because of any
identified similarities between the areas currently served by
AEP and those served by CSW, but instead because New
AEP satisfies all other PUHCA requirements:
As described above, the New AEP System will be inter-
connected and susceptible of economic and coordinated
operation.... We find below that the size of the New
AEP System will not impair efficient operation, localized
management or effective regulation and that the Merger
will result in economies and efficiencies.... In view of
these considerations, we find that the New AEP System
will operate in a single area or region.
Id. at *85 (internal quotations omitted). This analysis con-
flicts with PUHCA's express requirement that an electric
utility system be "confined in its operations to a single area or
region ... not so large as to impair ... the advantages of
localized management, efficient operation, and the effective-
ness of regulation." 15 U.S.C. s 79b(a)(29)(A). The Com-
mission applies the requirement as if it did not include the
word "single" but instead read: "confined to an area or areas
not so large as to impair...." Technological improvements
may well justify ever-expanding electric utilities, but PUHCA
confines such utilities to a "single" area or region.
In support of its approval of the merger in this case, the
Commission cites its decision in North American Co.,
PUHCA Release No. 35-5657, 18 S.E.C. 459 (Mar. 13, 1945),
for the principle that a "flexible approach" to interpreting the
region requirement "is not new," Resp't's Br. at 26-27. But
that case involved an integrated gas rather than electric
system--a highly relevant detail, for even in 1945, PUHCA
specifically provided that "gas utility companies deriving nat-
ural gas from a common source of supply may be deemed to
be included in a single area or region." 15 U.S.C.
s 79b(a)(29)(B) (1940). Thus, the statute itself expressly
supported the Commission's conclusion that the two natural
gas companies in question lay "in a single area within the
meaning of the Act" despite the "wide intervening territory
lying between them." North American Co., 18 S.E.C. at 462-
63. No comparable statutory language supports the Commis-
sion's parallel decision regarding the electric utilities at issue
in this case. See 15 U.S.C. s 79b(a)(29)(A).
The Commission may well be right that PUHCA's region
requirement is outdated in light of recent technological ad-
vances. In view of the statute's plain language, however, only
Congress can make that decision. In fact, a pending bill
would repeal PUHCA, but it has not yet become law. See
Public Utility Holding Company Act of 2001, S. 206, 107th
Cong. s 4 (2001) (last action in May 2001). In the meantime,
the Commission may not interpret the phrase "single area or
region" so flexibly as to read it out of the Act. The Commis-
sion may have some legitimate basis for concluding that
AEP's service territories in Indiana, Kentucky, Michigan,
Ohio, Tennessee, Virginia, and West Virginia fall in the same
"region" as CSW's service territories in Arkansas, Louisiana,
Oklahoma, and Texas, but we cannot find it in the record
before us.
Economies and Efficiencies
This brings us finally to Petitioners' arguments regarding
PUHCA's requirement that a holding company's acquisition
of securities or utility assets of another holding or public-
utility company produce net "economies and efficiencies."
According to Petitioners, the Commission erred in accepting
AEP and CSW's projections that the proposed merger will
produce approximately $2.1 billion in cost savings. We dis-
agree. We owe considerable deference to the Commission's
assertion that it "reviewed the assumptions and methodolo-
gies that underlie" the projections and found them "reason-
able and consistent with ... precedent." Approval Order,
2000 SEC LEXIS 1227, at *102. Moreover, Petitioners point
to no evidence or expert testimony supporting their assertion
that the companies' calculations were flawed. Their unsup-
ported claims that the projections are speculative and that
the companies' FERC-mandated divestiture of generating
capacity is neither economical nor efficient are insufficient to
cast doubt on the Commission's contrary findings or even to
raise a substantial question of fact warranting a hearing. Cf.
City of Holyoke Gas & Elec. Dep't v. SEC, 972 F.2d 358, 365
(D.C. Cir. 1992) (noting that the Commission need only grant
a hearing if "the ultimate decision will ... be enhanced or
assisted by the receipt of [additional] evidence," and that we
review for abuse of discretion a Commission decision not to
hold a hearing).
III.
The Commission's order is vacated and this matter is
remanded for further proceedings consistent with this opin-
ion.
So ordered.
[Photo not available electronically]
Appendix A: Map of the United States showing the CSW
service territories in parts of Arkansas, Louisiana,
Oklahoma, and Texas, and the AEP service territories in
parts of Indiana, Kentucky, Michigan, Ohio, Tennessee,
Virginia, and West Virginia.