Background
WorldCom filed its merger application and this Motion on December 10, 1999. In Rulings dated December 30, 1999 and January 18, 2000, I extended the period for parties to respond to the Motion to January 6, 2000, and invited parties filing oppositions after January 6 to seek leave to do so. The Utility Reform Network (TURN), the Commission's Office of Ratepayer Advocates (ORA) and the California Attorney General's Office (AG) each filed timely oppositions to the Motion. Pacific Bell (Pacific) sought leave to file a late opposition on January 14, 2000, which I now grant. 1
WorldCom's merger application seeks Commission approval of a stock-for-stock transaction in which MCI WorldCom will acquire control of Sprint and its California operating subsidiaries. The new holding company will be called WorldCom.
WorldCom's Motion asserts that the merger is not subject to the criteria in §§ 854(b) and (c) because the transaction does not involve combining two traditionally regulated telephone systems; WorldCom and Sprint are not subject to Commission rate regulation; the two companies grew under competitive forces at the sole risk of their shareholders; and the merger requires prompt approval to realize competitive benefits. WorldCom cites several cases in which the Commission waived the § 854(b) and (c) criteria in favor of a public interest analysis of the mergers under § 854(a).
The legislature added Sections 854(b) and (c) to the statute in 1996 in response to Southern California Edison Company's proposed - and ultimately unconsummated - acquisition of San Diego Gas and Electric Company. According to the legislative history supplied by WorldCom in support of its Motion, the legislature was concerned at the proliferation of mega-mergers not only of electric and gas utilities, but of telephone utilities as well. 2 Sections 854(b) and (c) were intended to supply criteria for evaluating mergers and other change of ownership or control scenarios where none previously existed. 3
Section 854(b) calls for the Commission to ensure that a merger:
(1) Provides short-term and long-term economic benefits to ratepayers.
(2) Equitably allocates, where the commission has ratemaking authority, the short-term and long-term economic benefits, as determined by the commission, of the proposed merger, acquisition, or control, between shareholders and ratepayers. Ratepayers shall not receive 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.
Section 854(c) requires the Commission to find, on balance, that the merger will:
(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.
WorldCom asks the Commission to waive each of these provisions, and instead to analyze the merger under Section 854(a), which provides that,
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.
The Commission has interpreted Section 854(a) to require a determination of whether the transaction at issue would be adverse to the public interest. 4 WorldCom argues that the Section 854(a) public interest test is adequate to ensure that the merger is appropriate.
1 Pacific Bell sought leave for late filing based on its assertion that a determination of WorldCom's exemption from Sections 854(b) and (c) required consideration of the merits of the merger application. Because protests to that application were not due until January 28, 2000, requiring earlier opposition to the motion in essence required premature filing of protests. Motion of Pacific Bell for Order Authorizing Late Filing of Its Opposition to Motion, at 2. WorldCom opposed Pacific's motion on several grounds. However, WorldCom effectively conceded the relevance of the protests to consideration of this Motion when it asked that a ruling on its Motion "be issued no later than February 8, 2000, which is two weeks after the filing of Applicants' replies to any protest to the Application." Motion at 1 (emphasis added). Moreover, because Pacific's lodged Opposition to WorldCom's Motion repeats arguments made by other parties, I see no harm in accepting the Opposition for filing here. 2 WorldCom's Supplement to Motion for Early Determination of Exemption from Public Utilities Code Section 854 Subsections (b) and (c) (WorldCom Supplement), Exh. A (Analysis of Senate Bill 52 by the Senate Committee on Energy and Public Utilities), at 4 ("SB 52 [later Sections 854(b) and (c) now only applies to very large electric, gas and telephone utilities which have annual gross California revenues in excess of $250,000,000 [later raised to $500,000,000]." [Emphasis omitted]). I do not agree with WorldCom's contention that the increase in revenues from $250,000,000 to $500,000,000 was done to exempt WorldCom from § 854(b) and (c) scrutiny. Moreover, WorldCom does not dispute that it meets the $500,000,000 revenue test. 3 Id., Exh. A, at 1 (statute's "author [concerned] that Section 854 of the Public Utilities Code dealing with merger authorization had absolutely no criteria for determining the conditions that needed to be met before a merger would be approved by the PUC." [Emphasis in original]). 4 D.98-08-068, mimeo., at 22, cited in WorldCom's Reply to Opposition to Motion for Early Determination of Exemption from Public Utilities Code Section 854 Subsections (b) and (c) (WorldCom Reply), at 4.
