March 24, 1997
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
Mail Stop 6-9
450 Fifth Street, NW
Washington, DC 20549
e:mail: rule-comments@sec.gov
RE: Comments on Plain English Disclosure -- Proposed Rules and Handbook
(File No. S7-3-97)
Dear Secretary Katz:
Baltimore Gas and Electric Company ("BGE") is pleased to have this opportunity to comments on the plain English proposed rules (Release Nos. 33-7380; 34-38164; IC-22464; File No. S7-3-7.). We believe the proposed rules are a giant step towards disclosure simplification.
BGE is an investor-owned electric and gas utility serving over a million customers in central Maryland. We have 147 million common shares outstanding, which are listed on the New York, Chicago, and Pacific stock exchanges. We have about 77 thousand record common stockholders. We also have outstanding preference stock which is publicly traded. As our business is capital intensive, we frequently access the capital markets to raise equity and debt. Adding together our filings under the Securities Act of 1933, reports filed under the Securities Exchange Act of 1934, press releases and stockholder communications, we draft an average of one disclosure documents per week.
We wish to thank the Commission for its foresight in establishing the plain English pilot program. We participated in the pilot for 2 BGE documents -- a medium term note prospectus and our 1996 Management's Discussion and Analysis. We had a very positive experience and found the time and effort involved were repaid several times over by the skills we developed and the improvement in the "readability" of our documents. We appreciated very much the high quality leadership and staff who worked with us in the pilot, including Ann Wallace, Nancy Smith, Cary Miller, Roger Schwall, and Kim Do.
In our comments, we use the same numbering/lettering format you used in the release. Numbers or letters are omitted where we had no comments.
IV.A. PROPOSED PLAIN ENGLISH RULE 421(d)
Will The Proposed Plain English Requirements Achieve Clearer Disclosure And Improve Readability?
Yes. We strongly believe that disclosure is clearer and readability is improved by following the plain English elements included in the release and handbook.
Will Compliance With The Rule Changes Cause Registrants To Highlight Key Information And Eliminate Redundant Or Uninformative Information?
Yes, the proposed changes will help us continue to eliminate redundant and uninformative information. Being in the pilot assisted us in convincing outside parties who have a role in our disclosure documents (like investment bankers and their counsel) to abandon folklore (such as "there are many cases where issuers were held liable for failing to repeat a large amount of data on the cover and in the body of the prospectus and again in the prospectus supplement). Being in the pilot also assisted us to clear up certain disclosure that we had added it in the past in response to past Staff comments. We had been afraid that deleting this disclosure might result in comments and delays. The leadership provided by our SEC plain English pilot team was useful in tracking down the original concerns that led to the comments and allowed us to improve the disclosure - in several cases we rewrote our disclosure making it clearer and in one case we deleted disclosure that was truly uninformative to BGE investors and our other readers.
IV.C.1. FRONT OF REGISTRATION STATEMENT AND OUTSIDE FRONT COVER PAGE OF PROSPECTUS
Should The Existing Cover Page Requirements Be Retained?
Please do not retain the existing cover page requirements. We believe they are incompatible with the plain English requirements.
Are The Proposed Disclosure Requirements Sufficiently Flexible To Permit Us To Meet The Plain English Requirements?
Yes, the proposed requirements will allow us to meet the plain English requirements. These proposed requirements are critical to good plain English disclosure.
Should The Cross-Reference To Risk Factors Be Retained For All Offerings?
No. We think the cross-reference diverts the reader from important information on the cover page.
Should You Require Or Prohibit Any Specific Print Size Or Font Type?
We hope the final rules will require that the document must be legible, leaving print size and font type to our discretion. This will give us the flexibility:
We like the plain English legends you proposed in Section IV C 1. We think they better inform investors than the existing legends, because the format is more inviting and the words are easier to understand.
You Ask Whether Information On The Cover Page Should Be Limited To The Name Of The Company And The Securities Offered.
We suggest you mandate only the name of the company and the securities offered, but also allow us to add other information that is important to specific facts (including the type transaction, the intended audience, market concerns. For merger proxy statements we suggest you mandate only the names of the companies, the exchange ratios, and relevant dates (for dissenters rights, the shareholders meetings), again with flexibility for us to add other appropriate information.
IV.C.2. INSIDE FRONT AND OUTSIDE BACK COVER PAGES OF
PROSPECTUS
You Asked Us To Comment On Whether "Available Information" Disclosure Should Be Required On The Back Prospectus Cover, Elsewhere In The Document, Or Where Exchange Act Reports Are Incorporated By Reference
We have received many compliments on our combined available information and incorporation by reference sections (named "Where You Can Find Additional Information"). We modeled our section after an earlier filing made by ITT Corporation. We hope the final rules will allow us to continue this practice. We think the location of the section should be flexible.
Proposed changes to Item 502 requirements.
We agree with the proposed changes.
You Asked For Comment On Where The Table Of Contents Should Be Located
We suggest you permit flexibility. The table of contents may be most useful in different places for different documents. For example, a "plain vanilla" four to six page prospectus is typically delivered folded vertically. In that case, leaving the table of contents on the back cover might make sense. In longer documents where the table occupies several pages, neither the back cover nor the inside front cover are good choices.
IV.C.3.a. SUMMARY
We agree that the summary must be in plain English. We believe any limit on the number of pages is inadvisable for two reasons:
Should Plain English Be Mandated Or Only Recommended?
Mandated. From the board to the CEO to the executives to the drafters, BGE is committed to plain English. However, we need your help in mandating plain English to help with the many outside parties -- underwriters, trustees, their counsel - who have a "say" in our disclosure documents. Mandating plain English will
Yes. The cover, summary, and risk factors section are good starting points. However, all required disclosure is important and plain English disclosure is better disclosure.
VII. COST-BENEFIT ANALYSIS
Our costs were not higher for plain English documents. For the first documents, there was some extra time spent while our drafting team learned the process. However, the BGE drafting team all agree that we each took away benefits (better writing skills and a fresh perspective) that outweigh the time. Also, the time decreases with each new project we draft in plain English.
X. HANDBOOK
The handbook is useful. We think it covers all important topics.
Very truly yours,
Susan Wolf
Associate General Counsel - Corporate