3. Discussion

Section 854, subdivision (a) prohibits any corporation from acquiring control or merging with a California-regulated utility unless that corporation has received advance approval from us. Any transfer of control without advance Commission authorization is void under the statute. Public Utilities Code section 854 subdivision (a) states in pertinent part (emphasis added):

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 may establish by order or rule the definitions of what constitute merger, acquisition, or control activities which are subject to this section. Any merger, acquisition, or control without that prior authorization shall be void and of no effect. No public utility organized and doing business under the laws of this state, and no subsidiary or affiliate of, or corporation holding a controlling interest in a public utility, shall aid or abet any violation of this section.

Using similar language, section 851 prohibits California utilities from merging with any other company utilities unless the Commission has given advance approval. These strictures ensure that "before any transfer of public utility property is consummated", the Commission will, "review the situation and to take such action, as a condition to the transfer, as the public interest may require." (San Jose Water Co. (1916) 10 CRC 56; see also, In re E. B. Hicks Water Company (1990) 37 CPUC2d 13.)

Applicants admit that they transferred control of StormTel to CCC Merger without Commission authorization. Thus, the transfer is void under sections 851 and 854. Nevertheless, applicants request nunc pro tunc authority to transfer control of StormTel to CCC Merger. We are not persuaded that under the facts presented in this case we have authority to approve a merger that has already taken place. The clear language of sections 851 and 854 provides no legal basis for approving a merger that has already been completed. In fact, to do so without a solid legal basis allowing deviation from these statutory requirements would contravene the statutory directive that this Commission "proceed in the manner required by law." (Cf., Pub. Util. Code, § 1757, subd (a)(2).)

In a ruling issued December 17, 1999, the assigned administrative law judge asked applicants to "thoroughly explain why [retroactive approval] should be granted." In a short two page Amended Application filed on May 23, 2000, the applications stated:

Applicants seek nunc pro tunc authorization for the transaction. The Applicants' failure to obtain prior approval was unintentional. The completion of the transaction occurred subsequent to the execution and verification of the Application by the executives in July, 1999, and the filing occurred nearly simultaneous with the final transfer of the shares in August, 1999. The Commission has granted retroactive nunc pro tunc authority for sales, mergers and acquisitions without fines in other similar circumstances.

Unfortunately, the rather meager statement that the completion of the transaction prior to Commission approval was "inadvertent" does not provide a legal basis that allows this Commission to reverse the explicit directive of the Public Utilities Code and restore the validity of a merger that both sections 851 and 854 have rendered void. Applicants also indicate that the Commission has, in past decisions, granted retroactive approval of completed transactions. However, they offer no analysis or rationale that indicates their circumstances are in any way analogous to the circumstances of the applicants in those cases. Rather, applicants' response indicates that they expect this Commission to grant retroactive approval of their already-completed merger as a matter of course, without any regard to the explicit provisions of sections 851 and 854.

The proposed decision of the assigned administrative law judge in this proceeding suggests that section 853 gives the Commission discretion to restore the validity of a contract that has become void because it was completed without prior Commission review. However, this conclusion reads too much into section 853. Section 853 gives the Commission authority to determine that certain transactions or types of transactions need not be subject to any form of review at all. In order to grant such an exemption, the Commission must determine that the public interest is not served by even commencing review of particular transactions.

For example, in Re Securities Issuance Transactions of Sierra Pacific Power (2000) [D.00-03-049] __ Cal.P.U.C. __, 2000 Cal. P.U.C. LEXIS 227 the Commission considered that (1) Sierra's securities issuance transactions are reviewed and regulated fully by the Public Utilities Commission of Nevada (PUCN); (2) Sierra has minimal contact with California in relation to its Nevada operations and that greater than 94 percent of Sierra Pacific's revenues are derived from Nevada customers; and (3) the exemption would relieve Sierra from the legal and administrative expenses it incurs and management time it devotes in filing applications for securities issuances that are already reviewed and regulated by the PUCN. (Re Securities Issuance Transactions of Sierra Pacific Power, supra, 2000 Cal. P.U.C LEXIS 227, at LEXIS p. 3.) Applicants have not requested this type of exemption, and do not appear to have provided any justification that would support our granting it.

This authority cannot be relied upon as a legal basis for approving transactions that are void simply because the parties to those transactions chose not to, or forgot to, comply with sections 851, 854, or other similar provisions. The public interest test in section 853 is not met by ordinary transactions that were completed without Commission review as a result of oversight or a business decision to ignore the requirements of the Public Utilities Code. This Commission has a clear practice of invoking section 853 only to address significant practical difficulties created when transactions have been voided in "extraordinary circumstances." (E.g., Re Pacific Gas and Electric Company (1999) [D.99-02-062] __ Cal.P.U.C.2d __, __, 1999 Cal.P.U.C. LEXIS 59, LEXIS p. 9.) We have made clear the use of section 853 must be a "seldom used procedure." (Ibid.) Frequent reliance on section 853 would create an exception that swallowed the rule. Section 853 does not give us discretion to exempt from review a category of transactions the defining characteristic of which is they fail to meet pre-approval requirements of section 851 or 854. If we did so we would have amended the clear requirement of sections 851 and 854 out of the Public Utilities Code. This Commission is not empowered to take such legislative action.

In fact, Applicants' request, and the proposed decision of the assigned administrative law judge indicate that this Commission has begun a practice of routinely using section 853 or some other pretext to approve transactions that sections 851 and 854 render void. It appears that the Commission has, on an ever-increasing number of occasions, grated such approvals to the extent that they are now handled as a matter of course.² The ruling of the assigned administrative law judge asked applicants if they sought "nunc pro tunc" approval as if the Commission were explicitly authorized such approvals as an established aspect of its review of merger transactions.

Section 853 simply does not grant such broad authority. It gives the Commission authority to determine that certain transactions or types of transactions need not be subject to any form of review at all, when the specific and detailed facts of the case demonstrate that the public interest is not served by even commencing review of particular transactions. In a supposedly "seldom-unused" procedure, this authority has been invoked to address significant practical difficulties that arise when a transaction does not receive pre-approval. These requirements, which form the only legitimate basis on which section 853 can be invoked, have not been met in this case. The proposed decision of the administrative law judge finds that only two negative consequences will result. The first - that we might have to consider a properly filed application for pre-approval - is not a serious consequence, and it is one we are willing to bear. The second, the "inconvenience" of third parties that have entered into agreements with the merged entity, is described as merely "unfortunately." Given that applicants have stated there will be no changes to StormTel's operations, and it will continue to operate in California under the name StormTel, we do not find this possibility to rise to the level of a significant practical difficulty that creates extraordinary circumstances.

As a result, there is no basis on which this Commission can approve the transaction that has been brought before us in this application. Therefore, pursuant to the clear terms of sections 851 and 854, this transaction is void, and we are compelled to deny this application. To ensure that appropriate steps are taken to accommodate the fact that this transaction is void, we will order applicants to take the necessary steps to unwind their merger.

The proposed decision of the administrative law judge suggested that the remedy for failing to follow the requirements of sections 851 and 854 should be a fine. We believe the consequences for failing to follow sections 851 and 854 should be the voiding of the transaction specified in the statute, and not any others. However, we will order applicants to provide us with copies of their opinions of counsel regarding this transaction to determine if it was completed in good faith. We are concerned that applicants' cursory response to the request that they "thoroughly explain" the failure to comply with sections 851 and 854 indicates an overly-relaxed attitude towards obtaining necessary regulatory approvals.