[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED _____________________ U.S. COURT OF APPEALS ELEVENTH CIRCUIT Nos. 96-8655 & 97-8123 2/18/03 ______________________ THOMAS K. KAHN CLERK
S.E.C. Docket No. 70-8725
CAMPAIGN FOR A PROSPEROUS GEORGIA, Petitioner, versus
SECURITIES AND EXCHANGE COMMISSION, Respondent.
THE SOUTHERN COMPANY, Intervenor. _____________________
Petition for Review from Orders of the Securities And Exchange Commission _____________________ (August 11, 1998)
Before CARNES and MARCUS, Circuit Judges, and MILLS*, Senior District Judge.
_________________ *Honorable Richard Mills, Senior U.S. District Judge for the Central District of Illinois, sitting by designation. 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 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.
2 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
3 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”),
4 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
5 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,
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.
Hereafter, we will use the term “investments” or “investment” to refer to the 2
concept of “investing the proceeds of financings.” 6 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; (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.
7 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
8 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
9 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
10 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
11 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 (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 (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 (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
12 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 (1944); see also
Civil Aeronautics Bd. v. Delta Air Lines, 367 U.S. 316, 321-22, & 330-31, 81
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. 13 S. Ct. 1611, 1617 & 1621-22 (1965)(discussing the interest of finality in
administrative proceedings). The 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
14 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 (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 (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
15 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.”).
16 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.
V. CONCLUSION
For the reasons stated above, the petition for review is DENIED.