PA Supreme Court: Court Reverses Decision Blocking 2005 Verizon-MCI Merger

(January 2, 2008)

In an opinion issued December 27, 2007, the Pennsylvania Supreme Court has reversed the decision of the Commonwealth Court and affirmed the Pennsylvania Public Utility Commission’s (“PUC”) approval of the 2005 merger of telecommunication companies Verizon and MCI, reasoning that long-term public benefits would accrue from the merger.

The PUC initially granted the merger, In re Verizon Communications, Inc., Docket No. A-31058F0009, 2006 WL 995853 (Pa. P.U.C. Jan. 11, 2006), finding sufficient merger benefits in the overall benefits that accrue from a merger (e.g., economies of scope/scale, better access to capital markets, infrastructure enhancements, synergies).  The Office of Consumer Advocate (“OCA”) appealed the PUC’s Order, contending that general benefits across Verizon's entire national territory did not affirmatively promote the public interest in some substantial way in Pennsylvania as required under the Pennsylvania utility code and under the City of York v. Pa. P.U.C. case standard.  In a 6-1 decision issued on February 20, 2007, the Commonwealth Court agreed with the OCA and reversed the PUC, thereby blocking the merger.  Verizon and the PUC subsequently petitioned the Supreme Court for review, which it granted.

In a decision that will impact future utility mergers in Pennsylvania, the Supreme Court found that the City of York does not require that the PUC secure legally binding commitments to assure public benefit from a merger.  Rather, as the agency with expertise in the utility arena, requiring only a preponderance of evidence (i.e., more likely than not) that public benefits would accrue, which evidentiary findings a reviewing court is reluctant to disturb, the PUC was afforded great deference.   "On this record, there is ample evidentiary support underlying the PUC's findings and conclusions in these regards. While there is also support for contrary propositions, the Commission was the designated finder of fact, and its factually-based determinations are entitled to respect where, as here, they are supported by substantial evidence."  (Slip opinion at page 29).   In short, traditional pro-competition platitudes of greater ability to compete sufficiently constituted long term benefits that "are as meaningful as short-term rate concessions" (slip opinion at 30).  This decision appears to give ammunition to companies proposing mergers to hold out against giving in to "extortion-type" interventions in which any party with any colorable claim to standing could procedurally and potentially substantively hold up a merger until the party received some particular concession. 

A copy of the full opinion is available by clicking here.