5. Are Evidentiary hearings Necessary To Decide This Matter?

As noted above, by Resolution ALJ 176-3152 on May 5, 2005, the Commission preliminarily determined that evidentiary hearings would be needed to resolve this matter. The Scoping Memo and Ruling of Assigned Commissioner, June 30, 2005 noted that:

Parties disagree as to whether evidentiary hearings are necessary for developing the record for this application. Based upon hearing parties' arguments and in view of the protests that have been filed, I defer ruling on the request for evidentiary hearings until parties have filed testimony as set forth in the procedural schedule adopted below and have been afforded an opportunity for motions and responses on this matter. Those requesting hearings should identify material issues of fact and explain why we cannot resolve them with the record already developed. Those opposing hearings should respond on the schedule ordered.

Motions regarding the need for evidentiary hearings were filed on September 14. TURN, ORA, Level 3, Qwest and Disability Rights Advocates (DRA) filed motions asking for evidentiary hearings. Replies were filed on September 16 by TURN, ORA, Qwest, Greenlining and the Applicants. Greenlining stated that as it related its issues, there was no need for evidentiary hearings because those issues were resolved via an agreement.

On September 19, an Assigned Commissioner's Ruling denied the motions for evidentiary hearings and determined that evidentiary hearings were not necessary in this proceeding and ruled that the case would be deemed submitted upon the filing of reply briefs.

Subsequently, on September 28, ORA filed a motion asking for a Rule 6.5(b) decision affirming the Assigned Commissioner's Ruling denying the motion for evidentiary hearings (as well as full Commission review of the legal conclusions as discussed above). The Assigned Commissioner established an abbreviated comment cycle, and received responses to the motion on October 11, 2005 from the Applicants, Qwest, and TURN. We will also discuss this issue below.

We now turn our attention to the issue of whether evidentiary hearings are needed to resolve this matter.

5.1. No statute or Commission rule requires evidentiary hearings

No provision of law or Commission rule provides any party in this proceeding with a right to an evidentiary hearing. Section 1701.1(a) provides that the Commission, "consistent with due process, public policy and statutory requirements, shall determine whether a proceeding requires a hearing" (emphasis added). Rule 44.4 of the Commission's Rules of Practice and Procedure provides that the "filing of a protest does not insure that an evidentiary hearing will be held." Moreover, even without the appearance of witnesses or cross examination, the parties have had an adequate opportunity to be heard, consistent with due process.

The Commission has previously addressed this issue of whether and when due process considerations require evidentiary hearings. In Re Competition for Local Exchange Service, D.95-09-121, 1995 Cal. PUC LEXIS 788, at *13-*14, the Commission stated:

Due process is the federal and California constitutional guarantee that a person will have notice and an opportunity to be heard before being deprived of certain protected interests by the government. Courts have interpreted due process as requiring certain types of hearing procedures to be used before taking specific actions.

The California Supreme Court has laid down a simple rule regarding the application of due process. According to the Court if a proceeding is quasi-legislative, as opposed to quasi-judicial, there are no vested interests being adjudicated, and therefore, there is no due process right to a hearing. (Citing Consumers Lobby Against Monopolies v. Public Utilities Com. (1979) 25 Cal.3d 891, 901; Wood v. Public Utilities Commission (1971) 4 Cal. 3d 288, 292).

This proceeding is not a quasi-judicial proceeding in which a hearing is required because no vested interests of any party are being adjudicated. Rather, it is a ratesetting proceeding. Moreover, no party even argued in its protest that the proceeding should be classified as adjudicatory for purposes of § 1701 of the Public Utilities Code or the Commission's rules.

In  4Cal3d 288, the court clearly stated that regulation, as to the setting of rates, is quasilegislative, and for that reason, there is no right to evidentiary hearings. The court stated as follows:

In adopting rules governing service and in fixing rates, a regulatory commission exercises legislative functions delegated to it and does not, in so doing, adjudicate vested interests or render quasi-judicial decisions which require a public hearing for affected ratepayers. (&_butType=3&_butStat=2&_butNum=3&_butInline=1&_butinfo=&_fmtstr=FULL&docnum=1&_startdoc=1&wchp=dGLbVzb-zSkAA&_md5=13c0151758875a7bf161eae710d08161" target="_top">United States v. Merchants and Manufacturers Association of Sacramento (1916) 242 U.S. 178 [61 L.Ed. 233, 37 S.Ct. 24]; cf. &_butType=3&_butStat=2&_butNum=4&_butInline=1&_butinfo=&_fmtstr=FULL&docnum=1&_startdoc=1&wchp=dGLbVzb-zSkAA&_md5=554a84591b6f0e6bfa5b4d409da62d3c" target="_top">Koppers Co. v. United States (W.D.Pa. 1955) 132 F.Supp. 159; and &_butType=3&_butStat=2&_butNum=5&_butInline=1&_butinfo=&_fmtstr=FULL&docnum=1&_startdoc=1&wchp=dGLbVzb-zSkAA&_md5=01704f37f6a3c85d5a5f858989393321" target="_top">Florida Citrus Commission v. United States (N.D. Fla. 1956) 144 F.Supp. 517, affd. &_butType=3&_butStat=2&_butNum=6&_butInline=1&_butinfo=&_fmtstr=FULL&docnum=1&_startdoc=1&wchp=dGLbVzb-zSkAA&_md5=f572fd19c0feba3827325ddfd6218b06" target="_top">352 U.S. 1021 [1 L.Ed.2d 595, 77 S.Ct. 589].)

Thus, in Public Utilities Com'n of State of Cal. v. United States (9th Cir. 1966) 356 F.2d 236, 241, certiorari denied 385 U.S. 816 [17 L.Ed.2d 54, 87 S.Ct. 35], the court rejected the claim of the California commission that due process entitled it to be heard in an informal meeting before the Federal Communications Commission, which later resulted in rate changes. The court stated that "Public utility regulation, historically, has been a function of the legislature; and the prescription of public utility rates by a regulatory commission, as the authorized representative of the legislature, is recognized to be essentially a legislative act. Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 589, 65 S.Ct. 829, 89 L.Ed. 1206 (1945). As a ratepayer would have no constitutional right to participate in a legislative procedure setting rates, this right to be heard in a commission proceeding exists at all only as a statutory and not a constitutional right."⁶²

The court went further to state:

The Public Utilities Code does not require public hearings before rate increases or rule changes resulting in rate increases may be authorized. Section 454 of that code requires only a showing before the commission and a finding by the commission of justification for such increases. It leaves to the commission the determination of the appropriate procedures to be followed. (See Pub. Util. Code, § 701.)⁶³

Finally, in 25 Cal.3d 891, the court clearly states that ratemaking is "quasilegislative."⁶⁴

Both these decisions were made in a period preceding the statutory division of cases into quasilegislative, ratemaking, and adjudicatory. From the text of the decisions, it is clear that for the purposes of the courts and for due process consideration, ratemaking proceedings are deemed quasilegislative.

As noted above, there is still no law or rule of procedure that requires a hearing for a ratemaking proceeding such as this. Thus, a hearing is not necessary for due process reasons under any state law. Furthermore, the California Court of Appeal has confirmed that the Public Utilities Code does not require the Commission to conduct public evidentiary hearings concerning rates, but leaves the matter to the Commission's discretion.⁶⁵ The Court in PG&E also noted that the Code expressly permits the Commission to determine whether or not to hold hearings.⁶⁶ For example, § 1701.3 states that if the Commission determines that a ratesetting case requires a hearing, certain procedures should apply, indicating that whether to hold a hearing in a ratesetting case is a matter within the Commission's discretion (Emphasis added). Similarly, § 454(b) allows the Commission to adopt rules that apply in ratesetting cases including the form and manner of the presentation of the showing, with or without a hearing, and the procedure to be followed (Emphasis added). These statutes and precedents amply demonstrate that, in a ratesetting case such as this one, the Commission has discretion to determine whether to hold an evidentiary hearing.

Permitting the Commission to determine whether to hold evidentiary hearings is entirely consistent with federal due process considerations. Federal cases concerning due process in administrative proceedings are in accord with California law discussed above. Federal courts have held that, where an administrative proceeding cannot truly be said to be quasi-judicial, there is no due process right to a trial-type hearing with an opportunity to cross-examine witnesses.⁶⁷ Cross examination is not necessary to satisfy due process in an administrative proceeding unless motive, intent, or credibility are at issue or there is a dispute over a past event.⁶⁸ Here, there could be no credible claim that such matters are at issue, and therefore no evidentiary hearings are necessary.

Finally, we note that the Commission has itself affirmed that due process does not require a hearing that serves no useful purpose.⁶⁹

As shown throughout this decision, the issues in this case can be resolved without cross examination. Thus, Commission precedent, California law, and federal law all make clear that the Commission s obligation to afford due process to parties participating in this proceeding does not require that it hold evidentiary hearings.

5.2. There is sufficient evidence in the record to permit the Commission to decide this matter

The record in this proceeding is extensive. This evidentiary record was developed through exhaustive discovery, which has proceeded efficiently and with few disputes requiring Commission resolution. Applicants have responded to approximately 800 data requests, or over 1,400 when subparts are counted separately, and produced well over a million pages of documents. All Intervenors have had ample opportunity to discover the facts on which the Applicants' positions are based and to present facts which support their own positions. The parties presented their positions in many hundreds of pages of opening, reply and rebuttal testimony, briefs and reply briefs.

Because the Commission has ample information in this extensive record to determine whether the proposed transaction satisfies the requirements of law, no evidentiary hearings are needed.⁷⁰

5.3. The public has had ample opportunity to participate in this proceeding

The Commission conducted six Public Participation Hearings on August 15, 16 and 18, 2005, in Whittier, Long Beach and San Bernardino to take comments from consumers on the proposed merger. Verizon and MCI sent notices to all of their customers and posted newspaper announcements inviting the public to attend the public hearings. Nearly 400 persons turned out for the meetings, and the Commission heard from 245 speakers.

The overwhelming majority of speakers supported the proposed merger. Most of the speakers represented non-profit organizations, schools and other community organizations that had received financial and volunteer support from Verizon. They praised Verizon as a leading corporate citizen, and they endorsed the proposed merger for combining what they said were the complementary technological strengths of Verizon and MCI. For example, Vince Vazquez, a policy fellow in technology studies at the Pacific Research Institute in San Francisco, said that with new technologies like wireless, satellite and cable becoming more affordable, "traditional wireline companies like Verizon and MCI [must] seek additional ways to hone their competitive edge." Long Beach Mayor Beverly O'Neill praised Verizon as a leader in supporting community literacy efforts and added that in 2003 Verizon won the award of excellence for public/private partnership from the United States Conference of Mayors Business Council.

Twelve speakers opposed or had misgivings about the merger, expressing concern about the market power of the combined organization, the elimination of a strong competitor like MCI and the risk of reestablishing telephone monopolies. For example, Rick Werniche, speaking at one of the Whittier hearings, said, "The only thing I can see this merger doing is diluting shareholders' value and possibly adding a huge debt to the ratepayers, which the PUC will probably add on to our bill...This is a power play by a bunch of guys in New York that circles the wagons trying to put back together what Judge Green took apart [in the AT&T divestiture]."

In addition to those attending the Public Participation Hearings, the Commission also heard from more than 325 consumers who wrote letters or sent electronic mail in response to the announcement of the hearings. In contrast to the public speakers, the letters and e-mails were running about 80% in opposition to the transaction and about 12% in favor of it, with the rest undecided or urging conditions to keep rates low and improve service. Many cited individual service complaints, particularly against MCI. A typical message commented that, "As in the past with Pacific Bell and SBC, or AT&T Wireless and Cingular, mergers proved detrimental to the consumers as I could witness through decreased customer service, increased prices and overall lower quality."

In summary, this proceeding has already benefited from a review by the public of this proposed transaction.

5.4. Since § 854(b) does not apply to this transaction, many issues raised by parties become moot.

The first part of this section demonstrated that: 1) as a matter of law,
§ 854(b) does not apply to this transaction; 2) as a matter of Commission precedent, § 854(b) should not apply to this transaction; and 3) as a matter of policy, § 854(b) should not apply to this transaction.

Since neither law, nor precedent nor policy supports an application of
§ 854(b) to this transaction, the factual disputes concerning the exact enumeration and division of merger benefits become moot. In particular, of the twelve factual issues identified by TURN, a full six (issues g through l) become moot. Similarly, major portions of ORA's testimony addressing the enumeration and distribution of merger benefits become moot.

5.5. Many remaining issues identified conflate policy issues with issues of fact.

Many of the remaining issues identified by parties conflate policy disputes with disputes of facts. For example, ORA raises two issues: (1) the definitions of "short-term" and "long-term" and (2) the treatment of up-front merger implementation costs. Each of these issues is a matter that can and should be determined based on policy considerations and precedent, and cross-examination will shed no further light on them. Whether MCI's operations should be included in the calculation is plainly such an issue. The Commission has consistently exempted synergies associated with fully competitive services and declined to impose sharing obligations on NDIECs and CLECs.

The question in this case is simply whether the Commission should adhere to these precedents or, for policy reasons, depart from them. TURN admits that "the legal theory on which Applicants" exclude MCI-related synergies or revenue synergies "is an issue for briefs."⁷¹ These legal issues account for a majority of the differences among the synergy estimates, and the estimates of synergies that would result from applying one policy conclusion as opposed to another are not disputed as a factual matter. Likewise, the time period over which to calculate synergies, which TURN acknowledges is "one of the most significant determinants of the differences in estimates of shareable merger benefits,"⁷² is a matter of policy and precedent. Neither ORA nor TURN disputes the estimates that would result depending on the various time periods chosen. While TURN argues that Applicants' management used a longer period than the one proposed here in calculating synergies, Applicants do not dispute that fact." Accordingly, the debate concerns whether this discrepancy is significant, as TURN claims, or irrelevant under Commission precedents that recognize that management calculations performed for purposes other than § 854(b)(2) are not controlling, as Applicants claim. Either way, these are matters for the briefs.

5.6. The Commission can and has frequently resolved issues of fact without evidentiary hearings,

Clearly, there are a series of factual issues identified above for which there remain factual differences between parties. For example, an assessment of the transaction's impact remains to be made concerning the competitive situation in California specific issues concerning special access circuits, as well as the need for regulation to ensure non-discriminatory treatment of packets moving across networks.

The Commission on many occasions, including proceedings involving the merger or change in control of telecommunications utilities pursuant to § 854, has decided complex and contentious proceedings without holding evidentiary hearings. The Commission has approved a number of contested applications involving mergers or changes in control of telecommunications utilities without holding evidentiary hearings. Mergers or changes in control involving AT&T and Comcast (D.02-11-025), Qwest Communications Corporation (D.00-06-079), AT&T and Media One (D.00-05-023), MCI and WorldCom (D.98-08-068), and MCI and British Telecom (D.97-07-060) all were protested by one or more parties and all (except for AT&T/Comcast) were subjected by the Commission to an analysis of the public interest factors set forth in § 854(c). Despite extensive differences of opinion and disputes of facts presented and argued in the protests and the replies to protests in these cases regarding the public interest factors and other matters, the Commission elected not to hold evidentiary hearings, generally concluding instead that there was sufficient information in the record to determine whether the application complied with the requirements of §§ 851-854 and whether the application should be approved. In Re AT&T and Media One, supra, 2000 Cal.PUC LEXIS 355, at *17. While these decisions briefly discussed § 854(c) public interest factors, the Commission determined that each transaction was exempt from review under §§ 854(b) and (c).

The Commission's resolution of complex and contentious cases without holding evidentiary hearings is not restricted to telecommunications merger cases. In D.98-12-026,⁷³ the Commission made several significant modifications to the New Regulatory Framework applicable to Pacific Bell and GTE, including the suspension of sharing mechanisms by which cost savings related to streamlined regulation were shared with ratepayers and the elimination of Z factor adjustments related to the LEC's recovery of certain costs. Although parties to the NRF proceeding differed greatly on whether such modifications should be made and the impact on ratepayers from making or not making such modifications, the Commission made its decision without holding evidentiary hearings.

In D.04-11-015,⁷⁴ the Commission resolved a number of contested issues regarding PG&E's issuance of bonds related to its bankruptcy including the timing of the bond issuances, the permitted uses of bond proceeds, and the recovery of bond charges from departing load and new municipal load. Again, despite the fact that parties differed greatly on the resolution of these issues and their impact on ratepayers and others, the Commission resolved these matters without holding evidentiary hearings.

The mere existence of disputed facts does not require that evidentiary hearings be held. As in the telecommunications merger cases cited above, the question of whether to hold evidentiary hearings depends on whether there is sufficient information in the record to enable the Commission to determine whether the Application should be approved. Here, the record is clearly sufficient. There are no factual disputes that we require evidentiary hearings to resolve. Thus, a hearing would serve no useful purpose.

5.7. Consistent with Rule 6.5(b), the Assigned Commissioner's Ruling of September 19 determining that evidentiary hearings are not necessary is affirmed.

The ORA motion of September 28, 2005 requests a Rule 6.5(b) decision affirming the Assigned Commissioner's ruling of September 19 that reversed the preliminary determination that evidentiary hearings were necessary. In response, the Applicants note that although such rulings can be ratified by the full Commission in a simple procedural ruling, they can also be ratified in a final decision, and doing so is fully consistent with Commission precedent.⁷⁵

This discussion of the need for evidentiary hearings and the resulting findings, conclusions of law and ordering paragraphs constitutes a Rule 6.5(b) decision affirming the Assigned Commissioner's ruling of September 19, 2005.

To the extent that the ORA motion of September 28, 2005 requests such a review, its motion is granted. To the extent that the ORA motion requests a reversal of the September 19 reversal of the preliminary determination, it is denied consistent with the reasoning contained above.

⁶² Wood v. Public Utilities Commission (1971) 4 Cal. 3d 288, 292 [93 Cal. Rptr. 455, 481 P.2d 823].)

⁶³ Id.

⁶⁴ Consumers Lobby against Monopolies v. PUC, 25 Cal. 3d 891, 909. 

⁶⁵ Pacific Gas & Electric Co. v. State Department of Water Resources, 112 Cal. App. 4th 477, 500-502 (2003).

⁶⁶ Id. at 500-501.

⁶⁷ Allied Van Lines Co. v. United States, 303 F. Supp. 742 (C.D. Cal. 1969).

⁶⁸ Exxon Co., U.S.A. v. F.E.R.C. 182 F.3d 30, 46-47 (D.C. Cir.1999).

⁶⁹ In Touch Communications, Inc. and Inflexion California Comm. Corp., For the Sale and Purchase, Respectively of the Customer Base, Operating Authorities and other Assets, D. 04-09-027, 2004 Cal. PUC LEXIS 417 *6-7

⁷⁰ See AT&T/MediaOne, D.00-05-023, 2000 Cal. PUC LEXIS 355 at *17.

⁷¹ TURN, Motion, at 15.

⁷² TURN, at 11.

⁷³ In Rulemaking Re Third Triennial Review of the New Regulatory Framework, D. 98-10-026, 1998 Cal. PUC LEXIS 669.

⁷⁴ In Re PG&E Energy Recovery Bonds, D. 04-11-015, 2004 Cal. PUC LEXIS 538.

⁷⁵ See, e.g., Cal-American Water, D.98-08-036, 1998 Cal, PUC LEXIS 617, *22 (reversing preliminary determination that hearings were required in rate increase application, citing Rule 6.5(b): "In light of the complete disposition of the applications by today's decision, it is unnecessary to issue a separate order regarding the joint [assigned commissioner and ALJ] ruling's changes to the preliminary determination on need for hearing."); San Diego Gas & Electric Co., D.99-02-075, 1999 Cal. PUC LEXIS 51, *1-2 (reversing preliminary determination that hearings were required in §851 request to sell property, stating: "Granting the application constitutes Commission approval of the change in determination that evidentiary hearings are needed in this matter."); Pacific Gas & Electric Co., D.04-08-048, 2004 Cal. PUC LEXIS 441, *31 (final decision reversed preliminary determination that hearings were required, based on finding of no disputed material facts).