19991028Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
STEPHANIE MILLER
TONYA CLARK
RON LAW
JOE CUSICK
JUDY STOKES
WAYNE HART
MADONNA FAUNCE
TERRI CARLOCK
WORKING FILE

FROM:

DATE: October 28, 1999

RE: CAMBRIDGE AND COUNCIL TELEPHONE COMPANIES’ APPLICATION
TO MERGE THEIR OPERATIONS, CASE NOS. CAM-T-99-1 AND COUT99-1

On October 20, 1999, Cambridge Telephone and Council Telephone Companies filed an Application requesting that the Commission authorize the merger of the two telephone companies with Cambridge as the surviving corporation. Cambridge is a Title 61 regulated telephone company providing services in Cambridge, Indian Valley, Cuprum, and Lowman exchanges. Cambridge is a closely held corporation. Council is a Title 61 telephone company providing service in the Council exchange. Council is a wholly-owned subsidiary of Cambridge.

THE APPLICATION
The Application recites that Council was created as a Cambridge subsidiary when Cambridge purchased the former Council exchange from U S WEST in 1994. The Commission approved the purchase conditioned upon a 3-year rate freeze for Council customers. The Application states that the original rationale for operating Council as a separate subsidiary (i.e., the rate freeze) no longer exists. Moreover, the Federal Communications Commission (FCC) treats the two companies as a single entity for purposes of federal universal service support.
The Application asserts that the merger will provide a number of advantages. First, combining the two entities will result in some cost savings from the elimination of duplicative functions such as separate books and records. Second, the merger will eliminate “the regulatory cost” associated with allocating joint and common costs between the two companies. Finally, the combined entities will have better access to capital. Operation and control of the two companies will not change because the officers of both corporations are identical. Merger Application at 2.
The Companies state that the merger will require the approval and cooperation of both companies’ lenders. “Cambridge has a total debt to Rural Utility Services (“RUS”) in the amount of $3,141,765, secured by a first mortgage lien on Cambridge’s assets. Council has a total debt of $4,255,798 to CoBank secured by a first mortgage lien on Council’s assets. Applicants are requesting that both RUS and CoBank agree to a shared first mortgage lien on the merged entity’s assets.” Id. at 3. Until the lenders have given their consent, the Companies will keep the Commission informed with regards to the ongoing negotiations with the lenders. At such time as the lenders consent to the merger, the Companies will inform the Commission.
The parties maintain that the merger is revenue neutral and will not affect the rates or charges of either company. The parties have filed a separate rate case (Nos. CAMT-99-2 and COU-T-99-2). In the rate case, the parties seek an increase in annual revenues of approximately $240,000. They also request that the Commission consolidate the two companies’ Certificates of Public Convenience and Necessity.
The Applicants request that the Commission process this Application under Modified Procedure. The Companies maintain that the merger will not affect the Commission’s jurisdiction over the Companies or the surviving corporation.

STAFF RECOMMENDATION
The Staff believes that it is appropriate to process this Application under Modified Procedure with a 21-day comment period. The Staff also believes that it is appropriate to process the merger Application separate and distinct from the Companies’ rate case.

COMMISSION DECISION
Does the Commission adopt the Staff’s recommendation to process this Application under Modified Procedure?

vld/M:CAM-T-99-1_COU-T-99-1_dh

DECISION MEMORANDUM 1