APPENDIX D

NORTH PENN GAS COMPANY AND SUBSIDIARIES

Condensed consolidated income statements, year ended December 31, 1948

NOTE 1.-Giving effect to the ownership by Allegany Gas Co. of all the common stock of Crystal City Gas Co. and the inclusion of the latter company in consolidation.

NOTE 2.-Pennsylvania Gas & Electric Corporation, the parent company, has filed a plan for its liquidation and dissolution. In the event of such dissolution, the tax reduction would cease.

IN THE MATTER OF

THE UNITED LIGHT AND RAILWAYS COMPANY, ET AL.

File No. 54-178. Promulgated December 29, 1949.

(Public Holding Company Act of 1935-Sections 11(b) and 11(e))

SIMPLIFICATION OF HOLDING COMPANY SYSTEM

Plan Under Section 11 (e)-Necessity

Plan under Section 11 (e) providing for the payment of the debts of a parent registered holding company and its subsidiary registered holding company, the distribution among the stockholders of the holding companies of the stocks of the subsidiary utility operating companies and the liquidation and dissolution of the holding companies, held "necessary" to effectuate the provisions of Section 11 (b).

Plan Under Section 11 (e)-Fairness and Equity

Plan under Section 11 (e) providing for the payment of the debts of a parent registered holding company and its subsidiary registered holding company, the distribution among the stockholders of the holding companies of the stocks of the subsidiary operating utility companies and the liquidation and dissolution of the holding companies, if amended in certain minor respects indicated, held, "fair and equitable to the persons affected thereby."

Reclassification and Exchange of Outstanding Common Stocks of Certain Subsidiary Utility Companies and the Issuance of Additional Securities by Such Subsidiary Companies

Plan under Section 11 (e) providing for the change of the common stocks of certain utility companies from par value to no par value, the exchange of the outstanding shares of common stock for a larger number of shares of such stock, the issuance to the parent companies of additional common stock to effect the capitalization of surplus, and the issuance and sale to the parent companies of additional common stock for cash, held, under the circumstances, to satisfy the applicable standards of Sections 7, 9, 10 and 12.

APPEARANCES:

Robert L. Foote of Sidley, Austin, Burgess & Harper, Chicago, Illinois, for applicants.

Morris L. Forer of Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania for David J. Greene.

Louis E. Clevenger for the Division of Public Utilities of the Commission.

FINDINGS, OPINION AND REPORT OF THE COMMISSION

The United Light and Railways Company ("Railways") and its subsidiary, Continental Gas and Electric Corporation ("Continental"), registered holding companies, have jointly filed an application and amendments thereto, under Section 11 (e) of the Public Utility Holding Company Act of 1935 ("Act"), for the approval of a plan of liquidation of the two companies.

In general, the plan, as amended, provides for the payment of the outstanding bank loans of Railways and Continental, the distribution, among the stockholders of such companies, of the common stocks of the operating utility subsidiaries, the liquidation and dissolution of the system service company and the liquidation and dissolution of Railways and Continental. It also provides that the operating subsidiaries, Iowa-Illinois Gas and Electric Company ("Iowa-Illinois"), Kansas City Power and Light Company ("Kansas City"), Iowa Power and Light Company (“Iowa Power") and St. Joseph Light and Power Company ("St. Joseph") will effect certain preliminary transactions generally involving reclassifications and issuances of additional shares of common stock. The plan is proposed as a method for achieving compliance by Railways and Continental with the standards of Section 11 (b) of the Act.

Hearings on the plan, as amended, have been held before a hearing officer, after appropriate notice. Briefs and oral argument have been waived by the respective parties. Upon consideration of the record we make the following findings:

DESCRIPTION OF SYSTEM

Railways

Railways, a Delaware corporation, is now the top company in what was formerly known as the United Light and Power Company system.

In 1941 the United Light and Power Company ("United Light") system consisted of ten holding companies and 42 operating companies. There were four major holding companies, United Light, Railways, Continental, and American Light & Traction Company ("American", now American Natural Gas Company). The system conducted operations in 15 states extending from Ohio to Texas and from Wisconsin to West Virginia. The corporate structure included five tiers of holding companies. The four major holding companies had outstanding in the hands of the public approximately $209,900,000 principal or par amount of

senior securities consisting of $114,000,000 of debt and $95,900,000 of preferred stocks and, in addition, there were $35,100,000 of dividend arrearages on the preferred stock of United Light.

In compliance with the order entered March 20, 1941, in proceedings instituted by the Commission under Sections 11 (b) (1) and 11 (b) (2) of the Act, and pursuant to a Section 11 (e) plan, approved April 5, 1943, United Light distributed the common stock of Railways to its preferred and common stockholders and was liquidated. Subsequently Railways and American consummated divestments of several non-retainable properties and effected mergers of certain other subsidiaries.2

Pursuant to a Section 11 (e) Plan approved December 30, 1947, Railways has divested itself through rights offerings of all interest in American and has used the proceeds to reduce its debt.3 Other terms of the plan, providing for the divestment by American of its interest in The Detroit Edison Company and Madison Gas and Electric Company and the simplification of American's structure, have also been consummated.

As a result of the transactions previously consummated in compliance with the Act and Orders issued by us thereunder, some 30 companies or the investments therein have been eliminated from the system and a number of companies have been combined, merged, or consolidated to form larger operating units. As at June 30, 1949, the holding companies' senior securities had been reduced to approximately $27,000,000 of debt held by banks, as compared to the $209,900,000 of publicly held senior securities in 1941. The system now consists of the two holding companies, Railways and Continental, five utility operating companies, and a system service company.

Railways holds directly all of the outstanding common stock of one operating utility, Iowa-Illinois, and 99.86% of the common stock of Continental. The United Light and Railways Service Company ("Service Company") is also a direct subsidiary of Railways.*

The outstanding securities of Railways consist of 3,173,338 shares of common stock, and a 22% bank loan in the principal

1 The United Light and Power Company, et al., 8 S.E.C. 837 (1941); 18 S.E.C. 1 (1943), affirmed in Otis & Co. v. S.E.C., 323 U.S. 624 (1945).

* The United Light and Power Company, et al., 9 S.E.C. 833 (1941); 10 S.E.C. 17 (1941); 10 S.E.C. 945 (1941); 10 S.E.C. 1215 (1942); 11 S.E.C. 837 (1942); 11 S.E.C. 877 (1942); 14 S.E.C. 3 (1943); 14 S.E.C. 878 (1943); 22 S.E.C. 754 (1946); The United Light and Railways Company, et al., 20 S.E.C. 1 (1945).

'The United Light and Railways Company, et al., 27 S.E.C. 441 (1947).

Railways also owns all the outstanding securities of Mason City and Clear Lake Railroad Company, a small interurban freight line.

amount of $19,500,000, payable August 1, 1950 and renewable, at the option of Railways, with the approval of this Commission, for two additional periods of one year each. A condensed corporate balance sheet of Railways, as at June 30, 1949, is included in Appendix A.

Continental

Continental, also a Delaware corporation, owns all the outstanding common stocks of Kansas City, Iowa Power, St. Joseph, and Eastern Kansas Utilities, Inc. ("Eastern Kansas"). Continental has outstanding 633,122 shares of common stock (including 30 shares reserved for the conversion of outstanding scrip), of which, as noted previously, 99.86% is held by Railways and the balance amounting to 915 shares is held by approximately 35 stockholders. Continental also has outstanding a 22% bank loan in the principal amount of $6,694,060 which matures at the rate of $750,000 semi-annually to 1954. A condensed corporate balance sheet of Continental, as at June 30, 1949, is included in Appendix A.

IOWA-ILLINOIS

Iowa-Illinois, an Illinois corporation, furnishes electric and natural gas service in Rock Island, Moline and East Moline, Illinois and in Davenport, Iowa City, and Fort Dodge, Iowa, as well as in a number of adjoining smaller communities. The company also operates an urban bus transportation system. Balance sheets of Iowa-Illinois as at May 31, 1949, per books, and pro forma reflecting the transactions proposed in the plan are attached hereto as appendix B.

Table I below shows the pro forma capitalization and surplus of Iowa-Illinois at May 31, 1949:

24% first mortgage bonds, due 1977..

TABLE I

Common stock and surplus: common stock, 1,904,003 shares outstanding.
Earned surplus......

Total capitalization and surplus................

"Continental also owns 26.22% of the common stock of Hume-Sinclair Coal Mining Company, a coal mining company operating in Missouri and Kansas, and all of the outstanding stock of Peoples Gas & Electric Company, which has only nominal assets and which, as agent for Kansas City, operates the latter company's properties in Mason City, Iowa.