Discussion

Whether to Approve (A.03-10-032) WilTel's First Transaction

WTC requests authority under Public Utilities Code § 854 for a transfer of control through implementation of the POR.³ Section 854(a) states that no person or corporation shall acquire control of any public utility organized and doing business in this state without first securing authorization to do so from the Commission, and any such acquisition without that prior authorization shall be void and of no effect.

The Commission has broad discretion to determine if it is in the public interest to authorize a transaction pursuant to § 854(a).⁴ The two standards used by the Commission to determine if a transaction should be authorized under § 854(a) are whether the transaction will adversely affect the public interest⁵ and whether the transaction will serve the public interest.⁶ Here the second standard is more appropriate. The applicant seeks nunc pro tunc approval of a transaction, the applicant has sought to limit comment or review, it is reasonable to expect the applicant to make a showing that is commiserate with the latter, more rigorous, standard. In the instant proceeding WTC's seeking nunc pro tunc approval, its seeking expedited review that didn't allow for the customary 30-day comment period on the application, and its not allowing any comments on a draft order before the transfer of control took effect establish the latter standard as more appropriate.

Where necessary and appropriate, the Commission may attach conditions to a transaction in order to protect and promote the public interest.⁷ Pursuant to this authority, our approval is conditioned upon the parties submitting to the jurisdiction and regulatory oversight of this Commission. Specifically, in furtherance of our regulatory oversight of WCG, WTC and Leucadia may also be required to submit to Commission discovery and investigation. Thus, parties are reminded that, where a non-regulated company acquires control of a regulated utility, rather than limit the Commission's regulatory authority, such transactions effectively expand Commission oversight by obliging the controlling entity, in this case Leucadia, to cooperate with the Commission's regulatory obligations.

In a situation where a company that does not possess a CPCN desires to acquire control of a company that does possess a CPCN, we will apply the same requirements as in the case of an applicant seeking a CPCN to exercise the type of authority held by the company being acquired. Since WTC possesses a CPCN to provide limited facilities-based and resold local exchange telecommunications services within California, we will apply the requirements for such authority to new WCG.

The Commission has established two major requirements for determining whether a CPCN should be granted. An applicant who desires to provide limited facilities-based and resold local exchange services must demonstrate that it has a minimum of $100,000 in cash or cash equivalent, reasonably liquid and readily available to meet the firm's start-up costs. In addition, the applicant is required to make a reasonable showing of technical expertise in telecommunications or a related business.

WTC provided a copy of new WCG's most recent U. S. Securities and Exchange Commission (SEC) Form 10-Q that demonstrates that new WCG has sufficient resources to meet our financial requirements. Since WTC continues to operate under many of the same managers, we find that our requirement for technical expertise is also satisfied.

In addition to satisfying the above requirements, WilTel represents that there were no changes to WTC's rates, terms or conditions of service as a result of the transaction and that WTC's customers and the public were not harmed by the transfer of control. However, as previously noted, we must determine whether the transaction will serve the public interest. The record reveals that, the transfer of control associated with the transaction will provide WTC increased access to capital and thereby allow it to better compete in the market.⁸ Though the claimed benefits of greater competition are often speculative, Old WCG's dealings with the bankruptcy court prior to the transaction confirm the tangible nature of this benefit in this instance. We therefore conclude that WilTel has satisfied the applicable requirements and it is therefore reasonable to grant A.03-10-032 to the extent it requests prospective authority under § 854(a) for the transfer of control of WTC from old WCG to new WCG.

The purpose of § 854(a) is to enable the Commission to review a proposed acquisition before it takes place in order to take such action as the public interest may require.⁹ Granting A.03-10-032 on a retroactive basis would thwart the purpose of § 854(a). Therefore, we deny A.03-10-032 to the extent it requests retroactive authority under § 854(a) for the transfer of control. Since we do not grant retroactive authority, the transfer of control is void under § 854(a) for the period of time prior to the effective date of this decision. WTC and new WCG are at risk for any adverse consequences that may result from having implemented the transfer of control without Commission authority.

Whether to Penalize WTC for
Failure to Comply with § 854(a)

WTC failed to comply with § 854(a) by effectuating the transfer of control without Commission authorization. Violations of § 854(a) are subject to monetary penalties under § 2107 which states that any public utility which violates or fails to comply with any provision of the Constitution of this state, or which fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the Commission, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than five hundred dollars, nor more than twenty thousand dollars for each offense.

For the following reasons, we conclude that WTC should be fined for its failure to comply with § 854(a). First, any violation of § 854(a), regardless of the circumstances, is a serious offense that should be subject to fines. Second, the imposition of a fine will help to deter future violations of § 854(a) by WTC and others.

To determine the size of the fine, we shall rely on the criteria adopted by the Commission in D.98-12-075 as discussed below.

1. Severity of the Offense

In D.98-12-075, the Commission held that the size of a fine should be proportionate to the severity of the offense. To determine the severity of the offense, the Commission stated that it would consider the following factors:¹⁰

Physical harm: The most severe violations are those that cause physical harm to people or property, with violations that threatened such harm closely following.

Economic harm: The severity of a violation increases with (i) the level of costs imposed upon the victims of the violation, and (ii) the unlawful benefits gained by the public utility. Generally, the greater of these two amounts will be used in setting the fine. The fact that economic harm may be hard to quantify does not diminish the severity of the offense or the need for sanctions.

Harm to the Regulatory Process: A high level of severity will be accorded to violations of statutory or Commission directives, including violations of reporting or compliance requirements.