SECURITY ISSUANCE OF PUBLIC SERVICE COMPANIES FOR THE PAYMENT OF COMMON STOCK DIVIDENDS

SECURITY ISSUANCE OF PUBLIC SERVICE COMPANIES FOR THE PAYMENT OF COMMON STOCK DIVIDENDS

A public service company engaged in both intrastate and interstate business may not issue securities as dividends on its common capital stock.

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                                                                 August 20, 1951

Washington Public Service Commission
Insurance Building
Olympia, Washington                                                                                                              Cite as:  AGO 51-53 No. 102

Gentlemen:

            We have your request for an opinion on the following question:

            Can a public service company engaged in both intrastate and interstate business legally issue stocks, stock certificates, or other evidence of interest or ownership for the purpose of paying a dividend on its common capital stock?

            Our conclusion may be summarized as follows:

            A public service company engaged in both intrastate and interstate business may not issue securities as dividends on its common capital stock.

                                                                     ANALYSIS

            The legislature has declared in section 2, chapter 151, Laws of 1933 (Rem. Supp. 10439-2) that the power of public service companies to issue securities is a special privilege, the right of supervision, regulation and control of which shall be vested in the state.  To implement that policy, the exercises of the privilege is restricted.  Section 1, chapter 30, Laws of 1937 (Rem. Supp. 10439-3) provides as follows:

            "A public service company may issue stocks and stock certificates or other evidence of interest or ownership, and bonds, notes and other evidences of indebtedness payable on demand or at periods of more than twelve months after the date thereof,for the following purposes and no others:  Namely, for  [[Orig. Op. Page 2]] the acquisition of property, or for the construction, completion, extension or improvement of its facilities or for the improvement or maintenance of its service, or for the discharge or lawful refunding of its obligations, or for the reimbursement of monies actually expended from income or from any other monies in the treasury of the public service company not secured by or obtained from the issue of stocks or stock certificates or other evidence of interest or ownership or bonds, notes or other evidences of indebtedness of such public service company for any of the aforesaid purposes except maintenance of service, in cases where the applicant shall have kept its accounts and vouchers for such expenditures in such manner as to enable the department to ascertain the amount of monies so expended and the purpose for which such expenditure was made."  (Emphasis supplied.)

            The payment of common stock dividends is not a purpose approved by this section for which securities may be issued.  Since the statute specifically prohibits the issuance of securities except for the purposes therein listed, securities may not be issued for the purpose of paying common stock dividends.

            You have directed our attention to the case of State ex rel. Washington Water Power Co. v. E. K. Murray, 181 Wash. 27, 42 P. (2d) 429.  The court there held that section 11, chapter 165, Laws of 1933 (Rem. Supp. 10458-5) was not intended to authorize the commission to regulate the payment of dividends by a public service company doing both intrastate and interstate business.  The decision was grounded on the particular language involved.  The statement "No public service company engaged in intrastate business in this state" was interpreted to mean "No public service company engaged only in intrastate business."

            The instant situation embraces both the paying of dividends and the issuance of securities.  While the former activity in itself has been determined to be beyond the ambit of administrative supervision where a public service company is engaged in both intrastate and interstate business, that determination does not preclude a prohibition imposed on the latter activity by a separate legislative enactment.  Section 1, chapter 151, Laws of 1933 (Rem. Supp. 10439-1) defines public service companies as follows:

             [[Orig. Op. Page 3]]

            "b. The term 'public service company' shall mean every person, firm, corporation or association, or their lessees, trustees or receivers, now or hereafter engaged in business in this state as a public utility and subject to regulation as to rates and service by the department of public works:  Provided, That the term shall not include and this act shall not include common carrier railroad companies and other public utilities, the issuance of stocks and securities of which are subject to regulation by the interstate commerce commission."

            While this section has not been the subject of judicial interpretation, there is no qualification excluding a company doing interstate business if it is otherwise within the definition.  Likewise, there is no reason to imply that the legislative intent was to except such a company.  The courts and the commission have recognized the jurisdiction of the commission over public utilities engaged in intrastate and interstate business with respect to regulation of intrastate rates and services.  The issuance of securities by a company doing intrastate and interstate business would affect the property and operations of the company within this state, and such issuance would to that extent be affected with a public interest and be within the subject matter of the declared legislative policy.

            For the reasons indicated, we are of the opinion that a public service company engaged in both intrastate and interstate business may not issue securities as dividends on its common capital stock.

            In view of the disposition made of your request it is unnecessary now to consider your other inquiries.

Very truly yours,

SMITH TROY
Attorney General

LAWRENCE K. McDONELL
Assistant Attorney General