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
*
Honorable Richard Mills, Senior U.S. District Judge for the Central District of Illinois,
sitting by designation.
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
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;
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."
(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.
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
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.
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.