I. INTRODUCTION
In the Order we dispose of the applications for rehearing of Decision (D.) 05-11-029 ("Decision") filed by The Utility Reform Network ("TURN") and the Office of Ratepayer Advocates ("ORA")1 jointly, and by Verizon Communications, Inc. ("Verizon") and MCI, Inc. ("MCI") jointly.
In Application (A.) 05-04-020 Verizon and MCI (collectively "Applicants") sought approval of the transfer of control of MCI's California utility subsidiaries to Verizon.
Neither Verizon nor MCI are regulated telephone companies within California. However, both holding companies own California subsidiaries which are subject to public utility regulation by the Commission. Verizon California is an incumbent local exchange carrier ("ILEC") and all of MCI's California subsidiaries are non-dominant inter-exchange carriers ("NDIECs") and competitive local exchange carriers ("CLECs").2
Under the proposed transaction, MCI would become a subsidiary of Verizon. The MCI California subsidiaries would remain subsidiaries of MCI and subject to the authorizations and licenses currently held by MCI California. The proposed transaction would not merge any of the assets, operations, lines, plants, franchises, or permits of Verizon and MCI. In addition, the proposed transaction would not affect the regulatory authority of the Commission over the Applicant's California subsidiaries, or call for any change in the rates, terms, or conditions for the provision of any communications services provided in California.
On September 19, 2005, the Assigned Commissioner issued a ruling denying motions for evidentiary hearings and determining the applicability of Public Utilities Code Section 8543 to the proposed transaction ("ACR"). The ACR determined that while the proposed transaction was subject to Section 854(a),4 it was appropriate to apply Section 853(b)5 to exempt the transaction from review under Sections 854(b)6 and (c).7 However, the ACR also determined that for purposes of Commission review of the transaction it was consistent with past merger cases granting a Section 853(b) exemption to use the criteria under Section 854(c) as guidelines for determining whether the transaction is in the public interest, and also to include a broad discussion of antitrust considerations.
Consistent with the parameters for review established in the ACR, in D.05-11-029 we granted the proposed transaction between Verizon and MCI subject to three conditions.8 The three conditions as stated under the Decision are:
1. Verizon shall, by February 28, 2006, cease forcing customers to separately purchase traditional local phone service as a condition for obtaining digital subscriber line ("DSL") service (this condition is commonly known as a requirement to provide "naked DSL"). We further order that no later than February 28, 2006, Verizon shall submit an affidavit evidencing compliance with this condition of the merger.
2. Applicants shall adopt the agreement that Verizon California negotiated with The Greenlining Institute and Latino Issues Forum ("Greenlining Agreement"). Under the key terms of this agreement, the Applicants agree to:
a) Participate in a statewide Broadband Task Force.
b) Increase corporate philanthropy over the next five years by an additional $20 million above current levels, with a good faith effort to maintain the aggregate contributions to minorities and underserved communities in a manner consistent with its past practice.
c) Make a good faith effort to increase the supplier diversity goal for minority business enterprises from the current 15% to a minimum of 20% by 2010. To achieve this goal, Verizon California anticipates spending $1 million over five years in technical assistance to minority businesses and another $1 million to develop Verizon's internal infrastructure devoted to such efforts.
3. Applicants shall commit $3 million per year for five years in charitable contributions ($15 million total) to a non-profit corporation, the California Emerging Technology Fund ("CETF"), to be established by the Commission for the purpose of achieving ubiquitous access to broadband and advanced services in California, particularly in underserved communities, through the use of emerging technologies by 2010. No more than half of Applicant's total commitment to the CETF may be counted toward satisfaction of the Applicant's commitment in the Greenlining Agreement to increase charitable contributions by $20 million over five years.
On December 5, 2005, joint applications for rehearing were filed by TURN and ORA, and by Verizon MCI. TURN and ORA challenge the Decision on the grounds that: (1) it improperly exempts the transaction from review under Public Utilities Code Section 854; (2) it commits legal error because it "cherry picks" particular Public Utilities Code Sections, imposes a new burden of proof, and accords inappropriate weight to the Attorney General Opinion ("AG Opinion"); (3) it makes numerous errors with respect to Sections 1705 and 1757; (4) it denies adequate due process by imposing an unreasonable procedural schedule and dispensing with hearings; and (5) it circumvents Rule 51 in its treatment of the settlement with The Greenlining Institute ("GL") and The Latino Issues Forum ("LIF"). Verizon and MCI challenge the Decision on the grounds that: (1) it acts in excess of Commission jurisdiction in adopting the condition requiring Verizon to provide "naked DSL" service.
A response to the TURN and ORA application for rehearing was filed by The Greenlining Institute and by Verizon and MCI (jointly). A response to the Verizon and MCI application for rehearing was filed by Earthlink, Inc., and TURN and ORA (jointly).
We have carefully considered each and every argument raised in the joint applications for rehearing and are of the opinion that good cause does not exist to grant rehearing. Accordingly, the joint applications for rehearing of D.05-11-029 filed by TURN and ORA, and by Verizon and MCI are denied.
1 Subsequent to filing the application for rehearing, Senate Bill 608 (Stats. 2005, ch. 440, § 1.) took effect renaming ORA as the Division of Ratepayer Advocates.
2 In this Order, the abbreviations "ILEC" refer to an incumbent local exchange carrier, "CLEC" refer to a competitive local exchange carrier, and "NDIEC" refer to a non-dominant inter-exchange carrier.
3 All other section references are to the Public Utilities Code, unless otherwise stated.
4 Section 854(a) provides in pertinent part:
No person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state without first securing authorization to do so from the commission. (Pub. Util. Code, § 854, subd. (a.).)
5 Section 853(b) provides:
The commission may from time to time by order or rule, and subject to those terms and conditions as may be prescribed therein, exempt any public utility or class of public utility from this article if it finds that the application thereof with respect to the public utility or class of public utility is not necessary in the public interest. The commission may establish rules or impose requirements deemed necessary to protect the interest of the customers or subscribers of the public utility or class of public utility exempted under this subdivision. These rules or requirements may include, but are not limited to, notification of a proposed sale or transfer of assets or stock and provision for refunds or credits to customers or subscribers. (Pub. Util. Code, § 853, subd. (b).)
6 Section 854(b) provides:
Before authorizing the merger, acquisition, or control of any electric, gas, or telephone utility organized and doing business in this state, where any of the entities that are parties to the proposed transaction has gross annual California revenues exceeding five hundred million dollars ($500,000,000), the commission shall find that the proposal does all of the following:
(1) Provides short-term and long-term economic benefits to ratepayers.
(2) Equitably allocates, where the commission has ratemaking authority, the total short-term and long-term forecasted economic benefits, as determined by the commission, of the proposed merger, acquisition, or control, between shareholders and ratepayers. Ratepayers shall receive not less than 50 percent of those benefits.
(3) Not adversely affect competition. In making this finding, the commission shall request an advisory opinion from the Attorney General regarding whether competition will be adversely affected and what mitigation measures could be adopted to avoid this result. (Pub. Util. Code, § 854, subd. (b).)
7 Section 854(c) provides:
Before authorizing the merger, acquisition, or control of any electric, gas, or telephone utility organized and doing business in this state, where any of the entities that are parties to the proposed transaction has gross annual California revenues exceeding five hundred million dollars ($500,000,000), the commission shall consider each of the criteria listed in paragraphs (1) to (8), inclusive, and find, on balance, that the merger, acquisition, or control proposal is in the public interest,
(1) Maintain or improve the financial condition of the resulting public utility doing business in the state.
(2) Maintain or improve the quality of service to public utility ratepayers in the state.
(3) Maintain or improve the quality of management of the resulting public utility doing business in the state.
(4) Be fair and reasonable to affected public utility employees, including both union and nonunion employees.
(5) Be fair and reasonable to the majority of all affected public utility shareholders.
(6) Be beneficial on an overall basis to state and local economies, and to the communities in the area served by the resulting public utility.
(7) Preserve the jurisdiction of the commission and the capacity of the commission to effectively regulate and audit public utility operations in the state.
(8) Provide mitigation measures to prevent significant adverse consequences which may result. (Pub. Util. Code, § 854, subd. (c).)
8 Not including conditions previously imposed by the Federal Communications Commission ("FCC") approval of the transaction and upon which D.05-11-029 relies, in part, in reaching its determination. See Memorandum Opinion and Order, In the Matter of Verizon Communications, Inc. and MCI, Inc. Applications for Transfer of Control ("Verizon/MCI merger Order"), WC Docket No. 05-57 (rel. November 17, 2005).
