Long Island Lighting Co. ("LILCO")Feb. 24, 1982 INQUIRY LETTER 1LONG ISLAND LIGHTING COMPANY 250 OLD COUNTRY ROAD MINEOLA, NEW YORK 11501 January 13, 1982 Securities and Exchange Commission 500 North Capitol Street, N.W. Washington, D.C. 20549. Attention: Mr. Steven C. Duvall Branch Chief Re: Proposal Submitted by Richard M. Kessel for Inclusion in the Proxy Statement for the 1982 Annual Meeting Gentlemen: Richard M. Kessel, 412 Midwood Avenue, Bellmore, New York 11710, the owner of one share of the Companys Common Stock, has made a timely submission of a proposal, together with a statement in support, which he intends to present for action at the 1982 Annual Meeting of the Company. Long Island Lighting Company intends to omit from its proxy solicitation materials for the 1982 Annual Meeting the proposal submitted by Mr. Kessel. Seven additional copies of the proposal, of the statement in support and of this statement setting forth the reasons why the omission of the proposal is proper are filed herewith. Last year, Mr. Kessel, who is the director of "Long Island Consumer Action, Inc." (LICA), submitted another proposal for inclusion in the Companys proxy statement. That proposal was also directed at the construction of the Shoreham plant and its impact on the consumer. We argued that Mr. Kessels proposal for the Annual Meeting was merely the latest tactic in his campaign as a professional consumer advocate against the Company. We submitted excerpts from radio interviews, press releases by LICA and Mr. Kessel, and transcripts of the Companys electric and gas rate case proceedings which amply proved our position. The Division responded on February 2, 1981, that there was a basis for our assertion and advised us as follows: "after consideration of the information contained in your letter and the exhibits thereto, this Division believes that there may be some basis for your view that the proposal may be omitted in reliance upon Rule 14a-8(c)(4). In the Divisions view, despite the fact that the proposal is drafted in such a way that it may relate to matters which may be of general interest to all shareholders, it appears that the Proponent is using the proposal as one of many tactics designed to redress an existing personal grievance against the Company. Under the circumstances, this Division will not recommend any enforcement action to the Commission if the subject proposal is omitted from the Companys proxy material." (See Exhibit A hereto.) Mr. Kessels proposal for the 1982 Annual Meeting calling for a special committee to oversee the day-to-day construction of the Shoreham plant and to recommend an allocation of its costs between shareowners and ratepayers also should be omitted under Rule 14a-8(c)(4). Mr. Kessels proposal suggests that it will serve to "apportion costs fairly" between ratepayers, shareowners and other interested parties. Mr. Kessel does not point out, however, that there is now New York precedent which requires such an apportionment. Once the Shoreham Unit begins operation, "fairness" dictates that those receiving the benefit, the consumers, should pay for its cost. In short, Mr. Kessel has carefully drafted a proposal which under the guise of protecting shareowner interests, would force the Company to consider shifting the historical allocation of completed plant costs from consumers to shareowners. We submit that Mr. Kessel once again is seeking to use the Annual Meeting and the Companys proxy statement to further his consumer-oriented positions. If he cannot manipulate rates by cutting off funds for Shoreham (see last years proposal), he now suggests "protection" for the shareowners in the form of greater shareowner responsibility for the costs of generating plants which benefit customers. During the past year, Mr. Kessel has made many statements which indicate how he feels about protecting LILCO investors. In a press release issued by LICA on May 21, 1981, after the Company was awarded a $183 million rate increase, Kessel stated, "This increase will only boost the fortunes of LILCO investors, at the expense of ratepayers," which is hardly the case (Exhibit B). As an intervener in other proceedings before the Public Service Commission in New York this past year, Kessel has reiterated the same theme - curtail any LILCO activity which may increase rates. In a proceeding before the PSC concerning the Companys formation of a subsidiary which would market and sell energy conservation equipment (Case No. 28025), Mr. Kessel again referred to the Shoreham project and expressed concern over any "further rate drain on ratepayers." (See Exhibit C at 74.) In the same proceeding, Mr. Kessel referred to the Companys investment in Bokum Resources Corporation, a uranium operation, and said "I feel LILCO is going to go to the ratepayers to make up for its losses. We are not going to stand for that so easily." (Exhibit C at 75, emphasis added. See also Exhibit C at 76-77.) Summing up what we believe is at the root of Mr. Kessels current proposal, he stated "We should be in a hearing today determining how to get Shoreham on line as quickly as possible and how to prevent all these rate increases from going into effect." (Exhibit C at 81). In the Companys recent gas rate case (Case No.28006), was it Mr. Kessels concern for protection of the Companys shareowners which prompted him to say that the Commission should not permit increased rates to become effective on an expedited schedule, but should delay the effective date? (Exhibit D at 25). Mr. Kessel also advocates the termination of LILCO as a private investor utility. Apparently, Mr. Kessel supports a municipal takeover of the Company. We are constrained to see how such a position, which could only bring about a liquidation of private investor holdings in the Company, may be reconciled with Mr. Kessels purported concern for shareowner well-being. (See Exhibit E, Transcript of "Joel Martin Show" June 1-2 at 41, 44, 45.) Mr. Kessel has spoken of the "inherent conflict" between ratepayers and shareowners. He is quoted as saying, "You cant please a stockholder and a rate-payer...One wants profit and one wants low bills." (Exhibit E at 22.) According to Mr. Kessel, the way to resolve this apparent conflict is to establish a publicly-owned utility. (ld.) A review of our letter and exhibits submitted last year, and Mr. Kessels activities and statements made during 1981 prove that Mr. Kessel is a consumer advocate who has fought any effort to raise rates which would provide a just return for shareowners. As an active consumer spokesman who believes there is an inherent conflict between the private investor and the consumer, one might ask, "Why did Mr. Kessel invest approximately $20 in Long Island Lighting Company?" In his own words"...to find out whats going on the other side." (Exhibit E at 16). We believe the present resolution once more seeks to exploit the shareowner governance mechanisms by publicizing a private campaign to lower rates at the expense of the shareowners and should be excluded under Rule 14a-8(c)(4). As an additional ground for exclusion, we believe the proposal, in the form submitted, is not a proper subject for action by security holders and, under Rule 14a-8(c)(1) of the Commissions Rules and Regulations, may therefore be omitted. Section 701 of the New York Business Corporation Law (BCL) provides that the business of a corporation shall be managed under the direction of the board of directors. Mr. Kessels proposal would, if approved, force the Board of Directors to set up a committee which would give to shareowners and non-directors the power to "exercise greater managerial control" over the Shoreham project. Mr. Kessel seeks a "greater daily role" for shareowners in this project. The law of New York allows corporations whose charters or by-laws authorize it to set up "executive" or other committees which may exercise the authority of the Board, insofar as the resolution of a majority of the Board may delegate that authority. (BCL §712.). Each of these committees must consist of at least three directors. (BCL §712.) Long Island Lighting Companys by-laws authorize the formation of such committees. (By-Laws Article II, Section 8.) (See Exhibit F hereto.) However, the authority to establish such a committee rests not with the shareowners, but with the Board of Directors. Under New York Law, shareowners have no authority to appoint committees which will usurp or limit the managerial control of the Board. In my opinion, this resolution attempts to establish a management committee in a manner not authorized by state law. Very truly yours, John J. Kearney, Jr. JJK:ja Enclosures cc: Mr. Richard M. Kessel INQUIRY LETTER 2BRICHARD M. KESSELD 412 Midwood Avenue Bellmore, New York 11710 John Kearney, Secretary Long Island Lighting Co. 250 Old Country Rd. Mineola, NY 11501 Dear Mr. Kearney: Enclosed please find a resolution of the Companys 1982 proxy statement be distributed for the Companys 1982 Annual Meeting. I will attend the meeting, in person, to make this proposal. I would appreciate any further communications on this matter. Thank you. RESOLUTION BE IT RESOLVED, That the Long Island Lighting Company appoint a joint committee of 10 shareholders and 6 management personnel, company officers, and/or directors to oversee the final completion of the Shoreham Nuclear Generating Station, and, BE IT FURTHER RESOLVED, That said committee be directed to submit a formal recommendation to the Company and its shareholders, by the 30th day of September, 1982, as to how the total costs of the Shoreham project should be apportioned between ratepayers, shareholders, and other interested parties. Purpose: The purpose of this resolution is for shareholders to exercise greater managerial control over the final completion of the Shoreham Generating Station. The inflated costs of the plant, along with serious questions of managerial competence relating to plant design; construction supervision; theft and sabotage; questionable labor practices; and poor fuel investment practices all demand a greater daily role in the completion of the facility. The formation of the Committee, with its formally stated tasks, will insure company shareholders that the plant will be completed as quickly as possible, at a cost that can be apportioned fairly so as not to hurt the Companys financial integrity, and the economic well-being of the service territory. STAFF REPLY LETTERJanuary 24, 1982 John J. Kearney, Jr., Secretary Long Island Lighting Company 250 Country Road Mineola, New York 11501 Fe: Long Island Lighting Company Dear Mr. Kearney: This is in regard to your letter dated January 13, 1982, which was received by the Commission on January 22, 1982, concerning a request made to the Long Island Lighting Company ("Company") by Mr. Richard M. Kessel ("Proponent") to include one shareholder proposal in the Companys proxy soliciting material for its 1982 annual meeting of security holders. Pursuant to Rule 14a-8(d) under the Securities Exchange Act of 1934, your letter indicated the intention of management to exclude this proposal from the Companys proxy material. Subsequently, we received a letter dated January 19, 1982 from the Proponent, suggesting that the managements determination to omit the proposal was erroneous. The proposal, the text of which is set forth in an enclosure to your letter, seeks the establishment of a committee which would make recommendations to the Company concerning the apportionment of costs incurred on the Shoreham project. It is your view that the proposal is excludable from the Companys proxy material under paragraphs (c)(1) and (c)(4) of Rule 14a-8, and you cite certain reasons in support of that view. The Proponent, however, for the reasons stated in his letter on the matter, does not agree with your position. In support of your view that the proposal may be excluded from the Companys proxy material, you refer the staff to the Companys letter dated December 17, 1980 concerning Mr. Kessels prior activities. Upon a review of that letter, we note that the Proponent has appeared in six rate hearings since 1975 and consistently has opposed efforts by the Company to obtain rate relief. We also reviewed the newspaper articles and transcripts of conversations involving Mr. Kessel which were attached to your letter. In this regard, it would appear that in 1975 while Mr. Kessel was a candidate for public office, he indicated that he was going to spearhead a campaign to have consumers hold back on paying rate increases, and such a campaign, in fact, was implemented. It also appears that Mr. Kessel instituted a campaign to have the Companys customers overpay their bills by one cent as a means to confuse the Companys computer system. A transcript from a 1978 radio broadcast contains a statement by Mr. Kessel to the effect that he bought his one share of Company stock so that he could go to the shareholders meeting. He further stated that "Im going to start yelling at the stockholders to start pressuring LILCO to cut down on their construction programs." Your January 13, 1982 letter recounts a further series of events which, in the view of management, clearly reflects that the proposal relates to the enforcement of a personal claim or the redress of a personal grievance which the Proponent has against the Company and, therefore, the proposal is excludable under Rule 14a-8(c)(4). In this connection, you state that once the Shoreham project begins operation, those receiving the benefit, i.e., the consumers, should pay for its costs. Implementation of the proposal, however, would force the Company to consider shifting the historical allocation of completed plant costs from consumers to shareholders. Therefore, it is your view, that the submission of the proposal is merely another tactic of the Proponent designed to reduce consumer rates. After consideration of the information contained in you letter and the exhibits thereto, as well as your letter dated December 17, 1980, this Division believes that there may be some basis for your view that the proposal may be omitted in reliance upon Rule 14a-8(c)(4). In the Divisions view, despite the fact that the proposal is drafted in such a way that it may relate to matters which may be of general interest to all shareholders, it appears that the Proponent is using the proposal as one of many tactics designed to further his consumer advocacy cause of reducing the rates to be paid by the user. Under the circumstances, this Division will not recommend any enforcement action to the Commission if the subject proposal is omitted from the Companys proxy material. In considering our enforcement alternatives, we have not found it necessary to reach the other basis for omission upon which you rely, although there appears to be some support for this reason as well. In connection with the foregoing, your attention is directed to the enclosure, which sets forth a brief discussion of the Divisions informal procedures regarding shareholder proposals. Sincerely, Lee B. Spencer, Jr. Director Enclosure cc: Mr. Richard M. Kessel 412 Midwood Avenue Bellmore, New York 11710 |
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