NOTICES

Order

[39 Pa.B. 6921]
[Saturday, December 5, 2009]

Public Meeting held
November 19, 2009

Commissioners Present: James H. Cawley, Chairperson; Tyrone J. Christy, Vice Chairperson; Kim Pizzingrilli; Wayne E. Gardner; Robert F. Powelson

Application of Verizon North, Inc. for any approvals required under the public utility code for transactions related to the restructuring of the company to a Pennsylvania-only operation and notice of an affiliate transaction; Doc. No. A-2009-2111330; A-2009-2111331; A-2009-2111337

Order

By the Commission:

 On May 29, 2009, Verizon North, Inc. (Verizon North or the Applicant) filed an application pursuant to Chapters 11 and 30 of the Pennsylvania Public Utility Code, 66 Pa.C.S. § 1102(a) and 66 Pa.C.S. § 3019(b)(1) seeking all approvals necessary in connection with a corporate restructuring whereby the Pennsylvania-only operations of Verizon North will be spun off to a newly created entity, Verizon North Retain Company (Verizon North Retain). The Applicant states that the restructuring is necessary because Verizon Communications, Inc. (Verizon), the ultimate parent of Verizon North, has entered into an agreement with Frontier Communications Corporation (Frontier) to transfer its incumbent local exchange carrier (ILEC) operations in certain states to Frontier. However, Verizon North's Pennsylvania operations are not included in this transaction, and as a result Verizon North must restructure itself.

 Presently, Verizon North is a wholly-owned subsidiary of GTE Corporation (GTE), which in turn is a wholly-owned subsidiary of Verizon. In addition to providing ILEC service in Pennsylvania, Verizon North provides telecommunications services in a number of other states, including: Illinois, Indiana, Michigan, Ohio and Wisconsin. Verizon North was formerly known as GTE North, Inc. GTE North, Inc.'s name was changed to Verizon North, Inc. following the merger of GTE and Bell Atlantic Corporation.

 The Applicant avers that under the proposed restructuring, a new, wholly-owned corporation of Verizon North, Verizon North Retain, will be created. All of the Pennsylvania assets, operations and liabilities of Verizon North will be transferred to Verizon North Retain, and then all of the stock of Verizon North Retain will be transferred to GTE. Verizon North will abandon the provision of public service in the Commonwealth at the same time Verizon North Retain will enter public service and begin serving all existing Verizon North's Pennsylvania customers.

 The Applicant claims that the proposed restructuring simply changes the geographic scope of operations of Verizon North so that the resulting ILEC will operate only in Pennsylvania. The Applicant further avers no changes to Verizon North's Pennsylvania operations will occur as a result of the restructuring and that ultimate ownership by Verizon will not change.

 In addition to no change in the operations or ultimate control of Verizon North's Pennsylvania operations, the Applicant states that the proposed transaction will not affect the Commission's authority over the restructured entity. Verizon North will continue to operate under the terms of any and all certificates of authority issued by the Commission to Verizon North, will adopt all of the Pennsylvania tariffs of Verizon North, and will assume all of the regulatory and contractual obligations of Verizon North in Pennsylvania. According to Applicant, Verizon North Retain will adopt Verizon North's Commission-approved alternative regulation plan, including its network modernization commitments pursuant to 66 Pa.C.S. § 3019(b)(4).

 The Applicant avers that the proposed transaction will be transparent to customers, that is, customers will continue to receive service under the same rates, terms and conditions as they do today. After consummation of the transaction, all of the same managerial, technical and financial resources available to Verizon North today will be available to Verizon North Retain as a wholly-owned subsidiary of Verizon.

 Verizon North has also requested that because there is no change of control or any change in management or operations of the successor company, its application should be considered under the ''streamline approach'' granted to transactions where corporations have transformed themselves from a business corporation to a new limited liability corporation.¹ As part of the streamlined process, the Applicant asserts that the proposed restructuring does not trigger the standard of demonstrating affirmative public benefit set forth in City of York v. PUC, 295 A. 2d 825 (Pa. 1972).

Procedural History

 On June 15, 2009, Communications Workers of America (CWA) and International Brotherhood of Electrical Workers, Locals 1451, 1635 and 1637 (IBEW) (collectively the ''Unions'') filed preliminary objections to the application. The Unions stated that they are the authorized collective bargaining agents and representatives of employees of certain Pennsylvania subsidiaries of Frontier² and Verizon North. The Unions allege that the Application was insufficiently specific and legally insufficient because underlying the restructuring of Verizon North in Pennsylvania is the merger of Verizon and Frontier, and that the merger must be approved by the Commission because it would result in a change in control of Frontier, the parent of Frontier PA. The Unions asserted that the merger would result in Verizon stockholders owning between 66% and 71% of Frontier, and that Verizon stockholders would act in concert as a group through the management and directors of Verizon to control Frontier. The Unions sought to have the Applicant amend its application to include more information about the merger and its impact on Frontier PA's customers, employees and competitors. The Unions also sought to have the Frontier PA companies joined as necessary parties to this proceeding.

 On June 25, 2009, Verizon North filed an answer to the preliminary objections. Applicant argued that the preliminary objections should be denied because they were: (1) irrelevant to Verizon North's Application seeking approval to restructure itself as a Pennsylvania-only operation; and (2) without merit because the merger of Verizon and Frontier will not result in a new controlling interest in Frontier PA.

 On July 2, 2009, CWA and IBEW filed a Protest to the Application. On July 22, 2009, Verizon North filed preliminary objections to the Protest of CWA and IBEW. On July 31, 2009, CWA and IBEW filed an Answer to the Preliminary Objections of Verizon North. On August 5, 2009, Verizon North filed an Answer in Support of its Preliminary Objections.

 On July 8, 2009, Office of Consumer Advocate (OCA) filed a Notice of Intervention.

 On August 12, 2009, Administrative Law Judge (ALJ) Charles E. Rainey, Jr. issued an order denying the preliminary objections of CWA and IBEW. The ALJ stated:

I find for purposes of ruling on the preliminary objections that Objectors have not shown that the application is clearly insufficient to establish Applicant's right to relief. I find that for purposes of ruling on the preliminary objections that the application is sufficiently specific and legally sufficient to establish Applicant's right to relief. I also find for purposes of ruling on the preliminary objections that Objectors have not shown that as a matter of law the Frontier PA companies are necessary parties to this proceeding that must be joined.

 On August 26, 2009, CWA and IBEW filed a Petition for Interlocutory Review and Answer to a Material Question. The material question raised by the Unions was:

Whether the Commission is required to grant a certificate of public convenience and necessity before the parent company of Pennsylvania telecommunications utilities can transfer more than 66 percent of its common stock to the shareholders of an unaffiliated corporation, and in which the unaffiliated corporation would appoint 25 percent of the parent's board of directors.

 On September 8, 2009, CWA and IBEW filed a Brief in Support of their Petition for Interlocutory Review.

 On September 8, 2009, Verizon North filed its Opposition to the Unions' Petition for Interlocutory Review.

 On September 24, 2009, the Commission entered an Opinion and Order in regard to the Unions' Petition for Interlocutory Review and Answer to a Material Question. Pursuant to 52 Pa. Code § 5.303(a)(3), the Commission declined to answer the material question and returned the proceeding to the Office of Administrative Law Judge for further proceedings consistent with the Opinion and Order. The Commission stated as follows:

On consideration of the positions of the Parties, we decline to answer the question. We find that the material question presented is irrelevant for purposes of resolving the Application. Consequently, we see no reason why interlocutory review will prevent substantial prejudice or expedite the conduct of the present proceeding.

The instant Application requests all approvals necessary for one corporate transaction—the reorganization of Verizon North. The material question presented seeks a ruling that the Commission has jurisdiction over a second corporate transaction—the transfer of Frontier's stock. The two transactions are related, but they can be treated as separate and distinct transactions for purposes of Commission approval. This is apparent from Petitioner's request forrelief: that the Commission require Frontier (not Verizon North) to file an application seeking approval of the transfer of control. Brief in Support of Petition at 7. Moreover, as Verizon North correctly notes in its brief, Verizon North could have proposed the same corporate reorganization even if it had not engaged in any transaction with Frontier. Brief in Opposition to Petition at 4.

The Petitioners assert, without any support or explanation, that the Commission must review both transactions together. While there are obvious advantages to a single application that seeks Commission approval of both transactions, we are not persuaded that a single application covering both transactions is required by law. Under these circumstances, a finding that we do or do not have jurisdiction over the merger of Frontier and Verizon is irrelevant for purposes of adjudicating an application pertaining to the first transaction.

Finally, we note that the Petitioners have sufficient alternative means of pursuing their claim that the second transaction is subject to Commission review. There is no need to confuse or delay the adjudication of the first transaction by considering questions pertaining to the second.

 Opinion and Order at 7-8.

 By Hearing Cancellation/Reschedule/Judge Change Notice dated August 21, 2009, an initial prehearing conference was scheduled for October 6, 2009. The prehearing conference was held as scheduled. Applicant appeared in person. CWA and IBEW appeared by telephone. OCA also appeared by telephone. During the prehearing conference, CWA and IBEW announced that they were withdrawing their protest. OCA stated that it would not be pursuing the matter further. As a result, Applicant's Preliminary Objections to the Protest of CWA and IBEW were rendered moot by the Unions withdrawal of their Protest.

 On October 6, 2009, CWA and IBEW filed notice of withdrawal of their Protest. In withdrawing their Protest, CWA and IBEW stated as follows:

The Protest is being withdrawn because the Commission ruled on September 24, 2009, that the scope of this proceeding would be limited to the internal reorganization of Verizon North. CWA and IBEW have determined that their interests are not likely to be adversely affected by that internal reorganization.

 Notice of Withdrawal at 1.

 Because the sole protest to the Application has been withdrawn, there was no need for a hearing or the further adjudication of this matter by the Office of Administrative Law Judge. On October 8, 2009, ALJ Rainey transferred the Application to the Bureau of Fixed Utility Services for disposition.

Discussion

 Verizon North has requested that the Commission take a ''streamlined approach'' similar to the Frontier Order. We find, however, it is unnecessary to address this issue because, as outlined below, we find that the transaction provides a public benefit.

 As undisputedly stated in the Application, the proposed transaction is a corporate reorganization which will transfer the assets, liabilities and operations of Verizon North's Pennsylvania operations to a new corporate entity, Verizon North Retain. No change in ultimate ownership and control of the new company will occur as a result of the transaction. Rates, terms and conditions of service or regulatory obligations including Verizon North's Commission-approved alternate regulation plan will not change as a result of this reorganization. No disruption in service to Pennsylvania customers will occur. The restructuring will create a Pennsylvania-only entity that will permit the new corporation to concentrate its operational and managerial efforts to promote better service to Pennsylvania customers. All of the managerial, technical and financial resources currently available to Verizon North Pennsylvania consumers will be available to Verizon North Retain.

 Therefore, we find that the record sufficiently supports the Applicant's claim that the proposed reorganization will benefit customers by permitting the new corporation to concentrate its operational and managerial efforts to promote better service in Pennsylvania while allowing Verizon to consummate its transaction with Frontier involving the other states in which Verizon North operates.

 The Commission has determined that the Applicant is current with its annual financial and Security Planning and Readiness Self Certification Form report filing requirements, and there are no outstanding Commission fines or assessments against the Applicant.

 Having reviewed the instant application, we conclude that the entry of Verizon North Retain as an ILEC, the proposed transfer of assets used by Verizon North to provide service in Pennsylvania to Verizon North Retain, and the abandonment of service by Verizon North are necessary or proper for the service, accommodation, convenience, or safety of the public, and that the application should be approved; Therefore,

It Is Ordered That:

 1. The Application of Verizon North Retain Company to begin the provision of services as a local exchange carrier at A-2009-2111330 is granted.

 2. The application at A-2009-2111331 for the transfer of Pennsylvania assets from Verizon North, Inc. to Verizon North Retain Company and subsequent transfer of stock of Verizon North Retain Company to GTE, and the abandonment by Verizon North, Inc. of all telecommunication services at A-2009-2111337 are hereby approved.

 3. Within 30 days following consummation of transaction described in Ordering Paragraph No. 2, above, Verizon North Retain Company shall notify this Commission of the effective date of the asset transfer and file with this Commission notice of such consummation along with: (a) a copy of the Pennsylvania Department of State's registration of the entity's certificate of organization and (b) a tariff adoption supplement by which Verizon North Retain Company adopts as its own the tariff of Verizon North, Inc.

 4. Upon receipt of the tariff adoption supplements as required under Ordering Paragraph No. 3, above, (a) certificates of public convenience be issued evidencing the approvals granted in Ordering Paragraphs No. 1 and 2, above, and (b) Verizon North, Inc. be deleted from the active lists of the Secretary's Bureau of Administrative Services.

 5. If Verizon North, Inc. comes to determine that the instant transaction will not occur, Verizon North, Inc. shall promptly file with this Commission notice of such determination.

 6. Upon filing of the notice required in Ordering Paragraph No. 3 or 5, above, the case be marked closed.

 7. A copy of this order be published in the Pennsylvania Bulletin.

JAMES J. McNULTY, 
Secretary

[Pa.B. Doc. No. 09-2258. Filed for public inspection December 4, 2009, 9:00 a.m.]

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¹  See Docket Nos. A310400 F0004, A310550 F0004, A311750 F0004, A-312600 F0003, and A-311250. Joint application of Frontier Communications of Breezewood, Inc., et al. for approval of a corporate restructuring from corporations to limited liability companies (Order entered October 17, 2003). To take a more streamlined approach, this application was not viewed as an entry and abandonment by a new business entity and no new utility code was issued.

²  The Pennsylvania subsidiaries of Frontier include Commonwealth Telephone Company, d/b/a Frontier Commonwealth Telephone Company; Frontier Communications of Breezewood; Frontier Communications of Canton; Frontier Communications of Lakewood; Frontier Communications of Oswayo River; and Frontier Communications of Pennsylvania (collectively Frontier PA).

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