3. Discussion
Joint Applicants request dismissal of this application, because there is no actual transfer of control that will occur when the voting provisions in the Amended Partnership Agreement become effective. Joint Applicants state there can be no actual acquisition of the power to elect a majority of the Board before at least two annual elections of Buckeye GP's directors have been held by the public limited partners due to staggered Board elections and voting power restrictions.
3.1. The Grant of Voting Rights Does Not Result in an Indirect Transfer of Control
Under Section 852, no public utility, and no subsidiary, affiliate of, or corporation holding a controlling interest in a public utility shall purchase or acquire, take or hold, any part of the capital stock of any other public utility, organized or existing under the laws of this state, without prior Commission authorization. Section 854 further requires Commission authorization before a company may "merge, acquire, or control . . . any public utility organized and doing business in this state . . . "The purpose of these and related sections is to enable the Commission, before any transfer of a public utility is consummated, to review the situation and to take such action, as a condition of the transfer, as the public interest may require."1
As noted in Decision (D.) 08-12-021, the Commission evaluates whether a transaction requires prior approval under Section 854 on a case-by-case basis, based on the relevant facts and circumstances. 2 In past decisions the Commission has considered factors such as:
1) whether the acquiring entity's equity interest in the utility or its parent will be greater than 50%;3
2) whether the acquiring entity has the power to appoint a majority of the members of the board of directors or to direct management of the utility or its parent entity;4 and
3) whether the acquiring entity has actual or working control of the day-to-day business of the utility.5
Under the circumstances presented here, there is no acquiring entity. Instead, the transaction grants voting rights to the public owners of Buckeye Partners limited partnership units. Further, Holdings GP relinquishes control of Buckeye Partners and indirect control of LGS. Thus, the above-mentioned factors the Commission has considered in weighing whether the transaction results in an indirect transfer of control do not apply to the circumstances of this transaction, and we will address the specifics of the transaction.
As of August 10, 2010, there were 51,537,631 Buckeye Partners partnership units held of record by approximately 1,900 holders, 27,774,016 Holdings common units held of record by approximately 8 holders, and 525,984 Holdings management units held by two holders. After the merger is completed, Holdings unitholders will receive approximately 20 million Buckeye Partners partnership units. The Buckeye Partners public limited partnership unitholders will be able to elect seven members of the Board, and Holdings GP will appoint two members of the Board. Although one or more public owners could in the future accumulate enough units to establish control, after the merger the members of the Board will remain those appointed by Holdings GP until the first election. The first annual election will elect three members of the Board, and the successive two elections will elect two members at each election.6
The potential for a future transfer of control is limited by the staggered elections of the members of the Board and restrictions placed on the voting power of any individual or entity or group holding more than 20% of the limited partnership units. The Amended Partnership Agreement limits any person or group beneficially owning 20% or more of the outstanding limited partnership units by precluding the voting of units in excess of 20% and not counting the units in excess of 20% when calculating the required votes for such matter. In effect, in order to gain control of the Board an individual would need to acquire more than 63% of the outstanding units, if BGH Holdings continues to own 17% of the limited partnership units, and more than 80% of outstanding units, if BGH Holdings no longer owns any partnership units. Under current ownership by public unitholders, no individual or entity holds or otherwise controls more than 5% of the Buckeye Partners limited partnership units. Thus, an indirect transfer of control does not occur when voting rights are granted to the public owners of Buckeye Partners limited partnership units, and an indirect transfer of control could not occur for a substantial period of time. Because there is no indirect transfer of control, preapproval of this transaction under § 854 is not required. In the event of an actual transfer of control at some point in the future, Joint Applicants acknowledge that Commission preapproval of that transfer of control is required.
3.2. Motion for Leave to File Confidential Materials Under Seal
LGS' August 24, 2010 motion to file under seal the LGS audited financial statements, attached as Exhibit 3 to the application, is granted.
1 San Jose Water Co. (1916) 10 CRC 56.
2 D.08-12-021, (Warburg Pincus Private Equity IX, L.P., Warburg Pincus Private Equity X, L. P. and Electric Lightwave, LLC (U5377C), Eschelon Telecom, Inc. (U6864C), and Advanced Telcom, Inc.) 2008 Cal. PUC LEXIS 469 **8, 9.
3 D.86-02-059 (In Re Pacific Telesis Group), D.86-12-090 (BellSouth Corp. and Mobile Communications Corp.), D.98-12-056 (MM Holdings Corp.), and D.96-02-061 (San Francisco Thermal.)
4 See D.93-11-063 (In Re Paging Network of San Francisco), D.96-02-061 (San Francisco Thermal).
5 See D.94-01-025 (In Re San Jose Water Company), D.90363 (WUI Inc. v. Continental Tel. Corp.)
6 If a vacancy occurs prior to the first election or in between elections, the independent directors would appoint a new director who would be up for election at the same time as other directors in that class of directors.
