opinion: SECURITIES AND EXCHANGE COMMISSION v. NEW ENGLAND ELECTRIC SYSTEM et al.
  No. 636.
  Argued March 23, 1966.
  Decided May 16, 1966.
  Philip A. Loomis, Jr., argued the cause for petitioner. With him on the brief were Solicitor General Marshall, David Ferber and Solomon Freedman.
  John R. Quarles argued the cause for respondents. With him on the brief were Richard B. Dunn, Richard W. Southgate and John J. Glessner III.
  Mr. Justice Douglas
  delivered the opinion of the Court.
  New England Electric System (NEES) is a holding company registered under § 5 of the Public Utility Holding Company Act of 1935. Its holdings include both electric and gas utility properties. The electric companies serve retail customers in New Hampshire, Massachusetts, Rhode Island, and Connecticut. The gas companies serve retail customers in Massachusetts alone. The Commission, proceeding under § 11 of the Act, held that the electric utility subsidiaries of NEES constituted an “integrated electric utility system” as defined in § 2 (a)(29) (A). 38 S. E. C. 193. The question in this case does not concern these electric utility subsidiaries but only the gas utility subsidiaries of NEES, which both NEES and the Commission agree constitute an “integrated gas utility system” within the meaning of § 2 (a)(29)(B) of the Act.
  By §11 (b)(1) a holding company system is to be limited in operations by the Commission “to a single integrated public-utility system,” provided, however, that it may be permitted to control one or more additional “integrated public-utility systems” if the Commission finds, inter alia, that “[e]ach of such additional systems cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system.” § 11 (b)(1)(A). (Italics supplied.) It is on the meaning of this proviso that the present controversy depends. The Commission found that divestment of NEES’ gas utilities would not result in a “loss of substantial economies” to these companies within the meaning of § 11 (b) (1) (A). It construed Clause (A) to require a showing that the “additional system cannot be operated under separate ownership without the loss of economies so important as to cause a serious impairment of that system.” The Commission ruled that it was unable “to find that the gas companies could not be soundly and economically operated independently of NEES.” It found that any losses of economies would be offset by the benefits that would flow from the healthy competition between the independently controlled gas and electric companies, promotion of competition between gas utilities and electric utilities being an important purpose of the Act. Accordingly, it ordered that the gas utilities be divested.
  On petition for review the Court of Appeals reversed on the ground that the Commission had misinterpreted the statutory phrase “loss of substantial economies.” 346 F. 2d 399. The court held that Clause (A) “called for a business judgment-of what would be a significant loss, not for a finding of total loss of economy or efficiency” (346 F. 2d, at 406), and, believing that on this record and with the statute so interpreted there could have been a finding in favor of NEES, remanded the case to the Commission. We granted certiorari, 382 U. S. 953.
  We agree with the Commission’s reading of Clause (A) and remand the cause to the Court of Appeals so that there may be a review of the challenged order in light of the proper meaning of the statutory term.
  The requirement in § 11 of a “single integrated” system is the “very heart” of the Act. The retention of an “additional” integrated system is decidedly the exception. As originally passed by the Senate, § 11 would have limited all registered holding companies to a single “geographically and economically integrated public-utility system.” The House version differed in that it permitted the Commission to make exceptions where limitation of the operations of the holding company was not found to be “in the public interest.” The version with which we deal emerged from a conference committee. The scope of the exception as it appears in the bill’s final form was thus explained to the House:
  “Section 11 of both bills [i. e., the House and Senate versions], therefore, authorizes the Securities and Exchange Commission to require a holding company to limit its control over operating utility companies to one integrated public-utility system.
  “The conference substitute meets the House desire to provide for further flexibility by the statement of additional definite and concrete circumstances under which exception should be made to the form of one integrated system. . . .
  “The substitute, therefore, makes provision to meet the situation where a holding company can show a real economic need on the part of additional integrated systems for permitting the holding company to keep these additional systems . . . .” H. R. Rep. No. 1903, 74th Cong., 1st Sess., 70-71. (Italics supplied.)
  Additional light is shed on the purpose of § 11 by the remarks of Senator Wheeler, a member of the conference committee:
  “Since both bills accepted the proposition that a holding company should normally be limited to one integrated system, my colleagues and I conceived it to be our task to find what concrete exceptions, if any, could be made to this rule that would satisfy the demand of the House for some greater flexibility. After considerable discussion the Senate conferees concluded that the furthest concession they could make would be to permit the Commission to allow a holding company to control more than one integrated system if [among other tests] the additional systems were in the same region as the principal system and were so small that they were incapable of independent economical operation . . . .” 79 Cong. Rec. 14479. (Italics supplied.)
  As the Commission said in 1948:
  “The legislative'history of Section 11 (b)(1) indicates that it was the intent of Congress to create only a limited exception to the general rule confining holding companies to a single system, and that this exception was created to deal with the situation in which the proven inability of the additional system to stand by itself would result in substantial hardship to investors and consumers were its relationship with the holding company terminated.” Philadelphia Co., 28 S. E. C. 35, 46.
  While the Commission has variously phrased the rule, it has consistently adhered to that view.
  This suggests a much more stringent test than “a business judgment of what would be a significant loss,” to quote the Court of Appeals. 346 F. 2d, at 406. Promotion of “economy of management and operation” and “the integration and coordination of related operating properties” (§ 1 (b)(4), 49 Stat. 804, 15 U. S. C. § 79a (b)(4) (italics supplied)) is a theme that runs throughout the Act. But so does the theme of elimination of “restraint of free and independent competition.” § 1 (b) (2), 49 Stat. 803-804, 15 U. S. C. § 79a (b)(2). One of the evils that had resulted from control of utilities by holding companies was the retention in one system of both gas and electric properties and the favoring of one of these competing forms of energy over the other.
  In the present case the Commission said on this phase of the controversy:
  “Although the NEES Gas Division handles sales and promotional activities and various other matters for the gas subsidiaries separately from the electric companies, final authority on all important matters rests in the top NEES management. The basic competitive position that exists between gas and electric utility service within the same locality is affected by such vital management decisions as the amount of funds to be raised for or allocated to the expansion or promotion of each type of service.”
  Competitive advantages to be gained by a separation are difficult to forecast. The gains to competition might well be in the public interest and might well offset the estimated loss in economies of operation resulting from a separation of the gas properties from the utility system. This is a matter for Commission expertise on the total competitive situation, not merely on a prediction whether, for example, a gas company in a holding company system may make more for investors than a gas company converted into an independent regime.
  The phrase “without the loss of substantial economies” is admittedly not crystal clear. But the Commission’s construction seems to us to be well within the permissible range given to those who are charged with the task of giving an intricate statutory scheme practical sense and application. Power Reactor Co. v. Electricians, 367 U. S. 396, 408. And see Philadelphia Co. v. SEC, 177 F. 2d 720, 725.
  Reversed and remanded.
  49 Stat. 812, 15 U. S. C. §79e (1964 ed.).
  NEES, the electric companies, and the gas companies are all parties respondent and are hereafter referred to as respondent.
  49 Stat. 820, 15 U. S. C. § 79k (1964 ed.).
  49 Stat. 810, 15 U. S. C. § 79b (a) (29) (A) (1964 ed.). An “integrated public-utility system” as applied to electric utility companies is defined by § 2 (a) (29) (A) as “a system consisting of oiie or more units of generating plants and/or transmission lines and/or distributing facilities, 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 operated 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.”
  49 Stat. 810, 15 U. S. C. § 79b (a) (29) (B) (1964 ed.). An "integrated public-utility system” as applied to gas utility companies is defined by § 2 (a) (29) (B) as “a system consisting of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single 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.”
  49 Stat. 820, 15 U. S. C. § 79k (b)(1) (1964 ed.).
  The Commission has long held that a single “integrated public-utility system” cannot include both gas and electric properties. See Columbia Gas & Electric Corp., 8 S. E. C. 443, 462-463; The United Gas Improvement Co., 9 S. E. C. 52, 77-83; Philadelphia Co., 28 S. E. C. 35, 44. Respondent does not contest this aspect of the Commission’s reading of the Act.
  North American Co. v. SEC, 327 U. S. 686, 704, n. 14; S. Rep. No. 621, 74th Cong., 1st Sess., 11.
  North American Co. v. SEC, supra, at 696-697.
  S. 2796, § 11 (b), 74th Cong., 1st Sess. And see S. Rep. No. 621, 74th Cong., 1st Sess., 32.
  S. 2796, §11 (b), as passed by the House of Representatives, and sent to the Senate on July 9, 1935. And see H. R. Rep. No. 1318, 74th Cong., 1st Sess., 17.
  Respondent concedes that the Commission has, since 1948, “articulated” a test “like the present test.” See Philadelphia Co., 28 S. E. C. 35, 46-47, 53-74; General Public Utilities Corp., 32 S. E. C. 807, 814-815, 826-827, 831; Middle South Utilities, Inc., 35 S. E. C. 1, 11-13. Respondent contends, however, that previous decisions of the Commission applied a less restrictive standard of “substantial economies.” The Commission disagrees, urging that while there was “some variation in choice of words,” it has maintained a basically consistent position and that any semantic differences are due largely to “the varying contentions with which the Commission was dealing.” The cases referred to are North American Co., 11 S. E. C. 194, 208-213; Engineers Public Service Co., 12 S. E. C. 41; Cities Service Power & Light Co., 14 S. E. C. 28, 37; Middle West Corp., 15 S. E. C. 309, 319; Cities Service Co., 15 S. E. C. 962, 984; American Gas & Electric Co., 21 S. E. C. 575, 596-597. We do not read those eases as being inconsistent with the Commission’s position since 1948. In each of these cases the Commission found no showing of “substantial economies" under whatever test might be applied; thus it was not there compelled to go further. There are, to be sure, a few cases in which the Commission permitted retention of small additional systems on the ground that the requirements of §11 (b)(1) were met; in these, however, the Commission did not articulate any standard. See, e. g., Federal Light & Traction Co., 15 S. E. C. 675, 683; Republic Service Corp., 23 S. E. C. 436, 451. But cf. North American Co., 11 S. E. C. 194, 243-244.
  We cannot say that these early decisions show any clear inconsistency with the standard which the Commission today applies, and has applied since 1948. Under these circumstances, we feel justified in regarding the Commission’s reading of the statute as supported by consistent administrative practice.
  Section 1 (b) provides “. . . [I]t is hereby declared that the national public interest, the interest of investors in the securities of holding companies and their subsidiary companies and affiliates, and the interest of consumers of electric energy and natural and manufactured gas, are or may be adversely affected ... (2) when subsidiary public-utility companies are subjected to excessive charges for services, construction work, equipment, and materials, or .enter into transactions in which evils result from an absence of arm’s-length bargaining or from restraint of free and independent competition; . . .” (Italics supplied.)
  See S. Rep. No. 621, 74th Cong., 1st Sess., 29; Report of National Power Policy Committee, H. R. Doe. No. 137, 74th Cong., 1st Sess., 10 (Appendix to S. Rep. No. 621, 74th Cong., 1st Sess.).
  Congress was well aware of the anti-competitive potential of corporate structures through which control of gas and electric utility companies rests under the umbrella of a single holding company. That a holding company so situated might retard expansion of the gas utility company in favor of the electric utility company was expressly discussed in the Senate Hearings on an earlier version of the Act. See Hearings before the Senate Committee on Interstate Commerce on S. 1725, 74th Cong., 1st Sess., 783.
  Congress made specific provision in §8 of the Act to prohibit a registered holding company from acquiring an interest in both an electric and a gas utility serving the same territory in a State which prohibits common control, without first obtaining permission from the appropriate state regulatory agency. While § 8 reflects the concern of Congress with this aspect of competition (see S. Rep. No. 621, supra, at 29-30; Report of National Power Policy Committee, supra, at 10), there is no warrant for concluding that §8 was the exclusive legislative effort relating to the problem. The history of the Act reflects the presence of a sophisticated statutory scheme. To some extent, local policy was expected to govern, with § 8 serving to prevent circumvention of that policy by use of the "extra-State device of a holding company.” S. Rep. No. 621, supra, at 29-30. At the same time, § 11 was expected to assist in imposing restrictions with regard to the combination of gas and electricity in one system. . Discussing the interplay between § 8 and § 11, the Senate Committee noted that § 8 only applied to future acquisitions: “The committee felt that while the policy upon which this section was based was essential in the formulation of any Federal legislation on utility holding companies, it did not think that the section should make it unlawful to retain {up to the time that section 11 may require divestment) interests in businesses in which the companies were lawfully engaged on the date of the enactment of the title.” Id., at 7. (Italics supplied.)
  By fostering competition between gas and electric utility companies, the Act promotes what has been described as “variegated competition.” Hearings before the Subcommittee on Antitrust and Monopoly of the Senate Committee on the Judiciary, 89th Cong., 1st Sess., pt. 2, 840 (1965) (statement of Dr. Samuel M. Loescher). “But since the distribution of electricity, following geographical divorcements, was to remain a natural monopoly in every region, the only kind of competition to be enhanced was that of ‘variegated competition.’ ” Ibid.
  See, e. g., Hearings before House Committee on Interstate and Foreign Commerce on H. R. 5423, 74th Cong., 1st Sess., 1249, 1402-1403, 1530-1531, 2257-2277; Hearings before Senate Committee on Interstate Commerce on S. 1725, 74th Cong., 1st Sess., 65. It was only the loss of “substantial economies” that Congress thought would justify an exception from the separation rule of § 11.