A. The Conditions are Valid Commission Orders, and Therefore Enforceable in a Proceeding Before the Commission
The holding companies argue that the conditions imposed on them are merely provisions of a contract between them and the Commission, and therefore only enforceable in Superior Court in an action for breach of contract. If the Commission had jurisdiction to promulgate the conditions as valid orders, however, then they are enforceable in proceedings before the Commission, regardless of whether they might also be enforceable contractually (an issue we need not reach).19 We conclude that they are valid Commission orders, and therefore enforceable in this proceeding.
1. The Commission Can Enforce Its Own Orders
The Commission has jurisdiction to enforce its own orders, and need not institute an action in Superior Court to do so. As we have observed, "it would be illogical and unreasonable" to interpret the governing statutes as allowing us to issue binding orders, but then forbidding us from enforcing those orders in Commission proceedings.20 Thus, for example, we consistently have held that we have jurisdiction to impose fines for violations of our orders, and need not proceed directly to Superior Court to do so.21 The California Supreme Court routinely lets such determinations stand.22
Moreover, there is no question, contrary to the holding companies' contentions, that the Public Utilities Code contemplates the Commission's jurisdiction to enforce its orders against non-utilities. For example, Section 2107 of the Code pertains to the Commission's jurisdiction to impose penalties on utilities that violate Commission orders, and as noted above, we routinely do so in Commission proceedings. Section 2111 is identical to Section 2107 in every respect, except that it expressly pertains to violations of Commission orders by "[e]very corporation or person, other than a public utility, . . . which or who knowingly violates or fails to comply with . . . any order, decision, rule, direction, demand, or requirement of the commission."23 If the Commission lacked jurisdiction to enforce its orders as against entities that are not public utilities, as the holding companies assert, Section 2111 would be meaningless. Section 2113 similarly contemplates that Commission orders may be issued against non-utilities and enforced in Commission proceedings, providing, in relevant part, that "[e]very public utility, corporation, or person which fails to comply with any part of any order" of the Commission is punishable for contempt by the Commission.24
2. The Conditions Imposed on the Holding Companies Constitute Valid Commission Orders and Therefore are Enforceable in Commission Proceedings
In addition to authority expressly conferred on an administrative agency, an agency has implied authority to "adopt reasonable rules and regulations which are deemed necessary to the due and efficient exercise of powers expressly granted."25 Accordingly, "the commission's powers are not limited to those expressly conferred on it . . . . [Instead,] the commission [may] do all things, whether specifically designated in the Public Utilities Act or in addition thereto, which are necessary and convenient in the exercise of its jurisdiction over public utilities."26
On the basis of these principles, the Supreme Court has affirmed our authority to impose conditions on non-utilities doing business with utilities in carrying out our statutory duty to protect the public. For example, in Henderson v. Oroville-Wyandotte Irrigation District, 213 Cal. 514 (1931), two water utilities under the express jurisdiction of the Railroad Commission sought the Commission's approval to transfer certain of their facilities to the defendant Irrigation District, over which the Commission had no general regulatory jurisdiction.27 After the utility applied for permission to sell its facilities to the Irrigation District, water users filed a protest, apprehensive about the rates the District might charge.28
The protestors and the District ultimately settled their dispute, memorialized by a resolution of the District's board of directors, in which the District promised to charge only certain rates.29 The Commission ultimately issued an order authorizing the sale, on the condition, inter alia, that the District only charge those agreed-upon rates.30 When the District later tried to charge different rates, the protesters brought a declaratory judgment action in superior court to determine each party's rights and duties under the settlement. The District defended on two distinct grounds: (1) because its agreement with the protesters was not evidenced by a "formal or written" contract, but only by its unilateral board resolution, the District claimed it was not bound by any contract between it and the protesters; and (2) apart from any contract with the protesters, the District contended that it was not bound "by the order of the Railroad Commission," because the Commission had no jurisdiction over the District as it was not a public utility.31
In response to the first defense, the court held that even though the contract was not evidenced by any formal written agreement, it still was a binding agreement between the District and the water users.32 The court then turned to the District's separate contention that the Commission's order imposing conditions on it was not binding because the Commission lacked jurisdiction over it, the precise issue presented here. The court held that although the Commission lacked general regulatory jurisdiction over the District because it was not a utility, the conditions were binding Commission orders, because the Commission did have limited jurisdiction to impose those conditions.33 The Supreme Court held that although no statute expressly granted the Commission authority to regulate the non-utility, "[i]n approving or authorizing such a sale, the Railroad Commission has jurisdiction to impose such conditions as will in the judgment of the Railroad Commission protect and safeguard the pre-existing rights of those entitled to service under [the selling] public utility."34
Exactly the same situation was present in each of our decisions authorizing the formation of respondent holding companies. In each case, we determined that imposing certain conditions on these reorganizations was necessary to "protect the public interest," or to maintain "ratepayer indifference." Just as we had authority to impose such conditions for those purposes in Henderson, we had authority to impose those conditions here, because their imposition was "necessary to the due and efficient exercise of powers expressly granted."35
In their comments on the draft decision, the holding companies contend that Henderson supports their position that the conditions we imposed are only contractual, and only enforceable in superior court. They misread Henderson. For example, EIX argues that the Court "made clear that the binding force of the [Commission's] conditions arose from their status as contract terms."36 EIX's quotations from the case regarding the Irrigation District being "bound by its contract," however, refer to the Irrigation District's contract with the plaintiff water users - the first of the two issues presented in Henderson , not any kind of contractual relationship between the Irrigation District and the Commission. Nowhere in the decision does the court hold that conditions in a Commission order are merely contractual provisions. Nor does the court hold that if the Commission were to bring an enforcement action it must do so in state court.37 Instead, in its discussion of the second issue raised in that case, the Court held that the Commission "had jurisdiction" to impose the conditions. If the conditions were purely contractual, the Court would have had no reason to discuss the Commission's "jurisdiction." An entity does not require "jurisdiction" to enter into a contract.
B. The Holding Companies Are Barred From Collaterally Attacking The Commission's Prior Orders
Even if the conditions were not, in fact, valid Commission orders, but rather were merely clauses in a contract, the holding companies now would be barred from challenging our jurisdiction.
1. Bar on Collateral Attack Under Public Utilities Code Sections 1709, 1731
Neither the utilities nor the holding companies challenged our authority to impose and enforce conditions on the holding companies in the underlying proceedings. They may not now collaterally attack the validity and/or enforceability of those conditions. Read together, Sections 1731 and 1709 of the Public Utilities Code bar an untimely attempt to challenge the legality or reasonableness of a Commission decision. Pursuant to Public Utilities Code Section 1731, a party has 30 days after the date an order is issued to apply for rehearing. If no rehearing application is made, the party loses its right to file an action in any court.38 Section 1709 provides that, "[i]n all collateral actions or proceedings, the orders and decisions of the commission which have become final shall be conclusive."
Here, the Commission issued orders requiring the utilities and holding companies to take certain actions. None of the utilities or holding companies applied for a rehearing to contest the Commission's determination of its authority to impose and enforce these orders. Now, at this late date, their attempts to challenge the Commission's decisions are untimely and thus barred.
2. Equitable Estoppel
An entity may not seek an agency's approval of a particular act, obtain that approval subject to certain requirements, accept the benefits that flow from it, and later challenge the agency's authority to enforce the requirements while at the same time retaining the benefits of the approval. As the United States Supreme Court has explained:
The appellant cannot blow hot and cold and take now a position contrary to that taken in the proceedings it invoked to obtain the Commission's approval. If the appellant then had taken the position it seeks now, the Commission might conceivably have refused its approval of the transfer. The appellant accepted the transfer with the limitations contained in the certificate. The appellant now will not be heard to say it is entitled to receive more . . . .39
Without this rule, entities could regularly evade the requirement that they obtain agency approval before they engage in certain conduct. Knowing that the agency would not grant its approval except subject to certain conditions or requirements, an entity could acquiesce to the agency's authority to impose the requirements, or simply remain silent, and only later - after having gained the agency's approval - challenge the requirements themselves. If successful, such a challenge would get the entity exactly what it otherwise never could legally have received: agency approval free from the challenged requirements. Other courts have reached identical conclusions on similar facts, holding that once an entity accepts the benefits of an agency's authorization made subject to conditions, the entity may not later challenge the agency's jurisdiction to have imposed the conditions in the first place.40
This principle is fully applicable here, and bars the holding companies' current challenge to our jurisdiction. The holding companies' belated acknowledgement that the conditions are enforceable - albeit in court, rather than at the Commission - is disingenuous at best. When we authorized formation of the holding companies and ordered them to abide by certain conditions, they did not protest. They never raised their theory that the conditions were but contractual provisions enforceable in a breach of contract action in superior court. Indeed, in the very first proceeding authorizing the formation of a holding company, SDG&E conceded that the conditions were enforceable against the holding companies in Commission proceedings, citing, Section 2111 of the Public Utilities Code (discussed above):
SDG&E responds that the Commission can enforce conditions as against both the utility and SDO. . . . SDG&E also cites Public Utilities Code Section 2111, et seq., as evidence of the Commission's ability to enforce conditions should SDO breach any of them.41
Then, in response to certain jurisdictional questions raised by other parties - but not by SDG&E - SDG&E offered to enter into a contract, in addition to the conditions, if the Commission wanted:
SDG&E proposes that, if the Commission deems it necessary, a contract, agreeing to the performance of the conditions adopted in this order, can and will be executed by SDG&E and SDO on behalf of the Commission, naming the Commission as the third-party beneficiary to the agreement. Under the contract, this Commission would, according to SDG&E, be entitled to sue SDG&E and/or SDO for specific performance of any of the conditions.42
The Commission declined that offer, relying on SDG&E's concession and our own assessment that the Commission had jurisdiction.43 Clearly, if anyone had viewed the conditions as merely contractual, SDG&E's concession that they were enforceable under section 2111 would have been improper, and its offer to enter into a contract, apart from the conditions, unnecessary.
In subsequent proceedings, no electric utility or holding company ever raised the issue of jurisdiction. Nor did they ever suggest that the conditions we imposed were merely contractual. Each subsequent proceeding relied on, and largely adopted, the conditions and analysis first propounded in the SDG&E proceeding, and there is no reason to consider that the status of the conditions and jurisdictional analysis in the subsequent proceedings should be any different. The parties in the subsequent proceedings all were fully on notice of the Commission's position, and that of SDG&E, in the first proceeding, and no party suggested that the conditions were not valid orders enforceable in a Commission proceeding. Moreover, the first SDG&E decision makes clear, had the Commission believed that the conditions were merely contractual, and unenforceable in Commission proceedings, there is little question that it would not have approved the utilities' applications to form holding companies.44
Once we showed an inclination to exercise our authority and enforce our own orders, however, the holding companies not only denied that we could enforce the conditions at all, but even claimed that their voluntary agreement to the conditions meant nothing. When we pointed out in the draft decision that if they truly believed we lacked authority to order them to obey the conditions they should have appealed the orders at the time, they changed their position. For the first time, they conceded that the conditions are enforceable, but argued that they were so only as contractual provisions. In this circumstance, the holding companies are estopped to take this position now. The upshot of the holding companies' present position is that they should be permitted to retain the benefits of the Commission's authorization of their formation, but under terms that the Commission would not have deemed adequate to give its authorization in the first place. As every court to have considered a similar issue has concluded, this result should not, and cannot, be permitted.
In their briefs, the holding companies insist that estoppel has no place here because, they assert, their claim is one of subject matter jurisdiction, and a party cannot ever be estopped from challenging subject matter jurisdiction. This argument lacks merit for three reasons. First, subject matter jurisdiction is jurisdiction over the type of case.45 Here, the Commission plainly had jurisdiction over the type of case: the formation of a holding company under sections 854 or 818 of the Public Utilities Code. Second, the parties once again have changed their position in their comments. As PG&E Corp. concedes in its comments on the proposed decision, for instance, what the holding companies are talking about really is jurisdiction over the parties.46 "Estoppel may operate to confer jurisdiction over the parties to a controversy. . . ."47
Third, this is not the usual case. In the usual case, when a court or agency decision is voided for lack of subject matter jurisdiction, the parties are back to where they were had the judgment never issued.48 Here, accepting the holding companies' position would not return the parties - or, more significantly, ratepayers - to the positions they would have been in had the holding companies timely objected to the Commission's assertion of jurisdiction. Had the holding companies, during the proceedings in which they applied to form, taken the position they now take, we would have rejected their applications, and today they would not exist. If we were to accede to the position that the holding companies now assert, they would, as the Supreme Court put it, "receive more" than they could have received had they timely raised the issue.49 They would get both their authority to form and the benefits derived therefrom and freedom from conditions enforceable in Commission proceedings. Similarly, ratepayers would receive less than they deserve: full protection from the risks inherent in the formation of the holding companies.
C. The Commission Has Jurisdiction In This Proceeding To Enforce The Conditions Imposed In The Underlying Proceedings, And To Investigate Whether New Conditions Must Be Imposed
Pursuant to our authority to reopen proceedings to reexamine our earlier decisions under Section 1708 of the Public Utilities Code, our authority to impose these conditions includes authority to change those conditions prospectively if experience proves that the original conditions imposed did not protect the public interest and maintain ratepayer indifference, as they were intended to do. We note further that the holding companies undoubtedly were on notice from the outset that we only would, and could, approve their formation provided that their formation would not adversely affect ratepayers. They also were on notice that we might have to revisit the conditions we imposed.50
Comments on Draft Decision
The draft decision of the ALJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(g)(1) and Rule 77.7 of the Rules of Practice and Procedure. Pursuant to Pub. Util. Code § 311(g)(3), the 30-day period for comment on the draft decision was reduced to 5-1/2 days due to public necessity. Moreover, pursuant to Pub. Util. Code § 311(g)(2), and due to an unforeseen emergency situation, the 30-day period for comments on this draft decision was reduced to the same period. Here, both the "public necessity" and "unforeseen emergency" provisions are implicated by the utilities' - especially Edison's - financial situation. It is essential, we believe, that we lift the cloud of uncertainty surrounding the issues in this proceeding by informing the parties, the public and the financial markets how we will decide the jurisdictional issues in this proceeding. PG&E Corp., EIX, SDG&E/Sempra, ORA, and CCSF filed comments.
Each holding company Respondent claims the draft decision misunderstood its arguments. Respondents now concede we have the power to enforce the conditions, but claim we may only do so in court.
We address these comments above. In summary, what each Respondent fails to acknowledge is that the draft decision does not hold the Commission has general power to regulate the holding companies or that the holding companies are public utilities. Rather, it concludes that (1) the Commission had authority to impose the conditions, and they thus constitute part of a valid Commission order; (2) the Commission has the power to enforce its own orders; and (3) the holding companies are estopped from challenging the Commission's order imposing the conditions. Far from representing "a radical departure from basic legal principles,"51 the draft decision is entirely consistent with the law.
We reject Respondents' remaining arguments.
Findings of Fact
1. In 1985, SDG&E applied to the Commission to reorganize under a holding company structure. Although the Commission approved that application, subject to certain conditions imposed on both the utility and its new holding company, SDG&E decided not to form its holding company at that time, primarily because it disliked the conditions imposed on it and its holding company.
2. In 1988 the Commission approved, pursuant to section 854 of the Public Utilities Code, SCE's application to reorganize under a holding company structure. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the utility and the holding company to those conditions. SCE filed a written acceptance of the conditions with the Commission.
3. In 1995, the Commission approved, pursuant to Section 818 of the Public Utilities Code, SDG&E's second application to reorganize under a holding company structure. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the utility and the holding company to those conditions. Both SDG&E and its holding company's boards of directors passed a resolution agreeing to those conditions, and filed it with the Commission.
4. In 1996 and 1999, the Commission approved, pursuant to Section 818 of the Public Utilities Code, PG&E's second application to reorganize under a holding company structure. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the utility and the holding company to those conditions. Both PG&E and its holding company's boards of directors passed a resolution agreeing to those conditions, and filed it with the Commission.
5. In 1996, Enova Corporation was SDG&E's holding company. That year, Enova applied to the Commission to merge with Pacific Enterprises, to form a new holding company, which ultimately became Sempra Energy. The Commission that application in 1998. The approval was made expressly contingent on a number of conditions, which were determined to be necessary to protect the public interest and maintain ratepayer indifference. These conditions were applicable to both to the utility and its holding company. The approval also was made expressly contingent on the agreement of the new holding company to those conditions. The new holding company's board of directors passed a resolution agreeing to those conditions, and filed it with the Commission.
6. Each utility and each holding company agreed to the conditions the Commission imposed in its decisions authorizing the formation of the holding companies, either expressly in writing or implicitly by accepting our approval and proceeding to reorganize.
7. In the first SDG&E proceeding, the Commission's jurisdiction to enforce conditions against the holding company was raised. SDG&E conceded that the Commission had jurisdiction to enforce the conditions against both it and its parent company, citing, for example, section 2111 of the Public Utilities Code. SDG&E offered, quite apart from the conditions, to execute a contract that could be enforced in Superior Court. The Commission rejected that challenges to its jurisdiction, and declined SDG&E's offer to execute a contract. These actions indicate that all concerned recognized that the conditions were valid Commission orders, enforceable in Commission proceedings. In the subsequent proceedings authorizing the formation of respondent holding companies, neither respondent utilities nor respondent holding companies challenged the Commission's jurisdiction or authority to impose or enforce the conditions it did on the holding companies, either in the underlying proceedings authorizing the formation of the holding companies or in an application for rehearing of those decisions.
8. There is no evidence in the decisions authorizing the formation of the holding companies to suggest that either the Commission or any of the parties believed the conditions to be only in the nature of contractual provisions, or that they would be enforceable only in an action brought in Superior Court.
9. The holding companies have reaped large benefits as a result of our approvals of their formations, as set forth, in part, in the Order Instituting Investigation in this proceeding, slip op. at 5-9.
Conclusions of Law
1. The Commission has jurisdiction to enforce its own orders in proceedings before the Commission. This jurisdiction extends to orders respecting public utilities, as well as to orders respecting other entities that are not utilities.
2. The Commission had jurisdiction to impose conditions on the holding companies as a prerequisite to its approval of their applications to form. Those conditions are valid Commission orders, not mere contractual provisions, and as such are enforceable in proceedings before the Commission.
3. The holding companies' are barred by Sections 1709 and 1731 of the Public Utilities Code from collaterally attacking the Commission's authority to impose conditions on them that are enforceable in Commission proceedings.
4. The holding companies, having agreed to the conditions the Commission imposed, and having accepted the benefits of the approvals for their formation, are estopped to challenge the validity those conditions as valid Commission orders enforceable in Commission proceedings.
5. Pursuant to Sections 818 and/or 854 of the Public Utilities Code, the Commission had subject matter jurisdiction in the underlying proceedings to determine whether the utilities' applications to reorganize under a holding company structure should be approved, and whether that approval should be contingent on the conditions we imposed.
6. Pursuant to section 1708 of the Public Utilities Code, the Commission has jurisdiction to modify, clarify, or add to the conditions initially imposed in the underlying proceedings.
IT IS ORDERED that respondent holding companies' motions to dismiss are DENIED.
This order is effective today.
Dated January 9, 2002, at San Francisco, California.
LORETTA M. LYNCH
CARL W. WOOD
GEOFFREY F. BROWN
We will file a joint dissent.
/s/ HENRY M. DUQUE
/s/ RICHARD A. BILAS
I will file a concurrence.
/s/ GEOFFREY F. BROWN
Dissent of Commissioner Henry M. Duque and Commissioner Richard A. Bilas:
Respondents PG&E Corporation (PG&E Corp.), Edison International (EIX), and Sempra Energy (Sempra) (collectively, the holding companies), move to dismiss for lack of subject matter jurisdiction. The respondent holding companies contend that the Commission lacks jurisdiction over them because they are not public utilities. We agree and hereby dissent from the majority decision.
The Commission has jurisdiction over the electric utilities to impose and now enforce conditions relating to the holding company structure. More specifically, the Commission has jurisdiction over the electric utilities to have conditioned our reorganization approval on them securing the agreement of their respect holding companies. The resulting agreements are neither a legislative nor a constitutional grant of jurisdiction over the non-public utility holding companies, however, contrary to the majority decision, subject matter jurisdiction cannot be created by applying the doctrines of estoppel, waiver or unclean hands based on the agreements. The majority decision likewise cannot conjure up subject matter jurisdiction merely by stating that it never intended to relinquish jurisdiction which never existed in the first place.
The agreements, while not conferring subject matter jurisdiction, are nevertheless binding on the holding companies. Indeed, the holding companies acknowledge that the agreements are binding and enforceable in superior court. The Commission can authorize its General Counsel to file in superior court if necessary to enforce the agreements against the holding companies.
In a companion decision issued concurrently in this proceeding, the Commission took its first step in enforcing the agreements.52 The Commission ostensibly defined the "first priority" condition contained in the agreements. More accurately, through "broad readings" and "expansive interpretations," the Commission erroneously redefined every basic term in the fields of economics as well as finance and then distorted its own record.
Illusive regulatory conditions such as the ones applied in these two majority decisions are erroneous and undermine the confidence of parties in acting on Commission direction. The majority decisions send the message that the Commission can on a whim rewrite conditions whether the parties originally
agreed to them or not. We have serious reservations about this aspect of the majority decisions because it establishes an unenforceable, ever-shifting standard that makes our process unreliable and thus harmful to the California economy. Absent a clear set of guidelines to the particular regulated industry, business will either seek a less hostile environment to operate or place an extremely high-risk premium on doing business in California. Equally important is to restore confidence in the integrity of the Commission and its decisions. The subject motions for lack of jurisdiction should have been granted, and the respondent holding companies dismissed from our proceeding.19 The fact that the orders also required the holding companies and utilities to adopt board resolutions agreeing to the conditions does not indicate that the Commission believed that it needed a contract with the holding companies to enable it to enforce the conditions. The Commission regularly requires utilities to pass board resolutions agreeing to orders that the Commission indisputably has jurisdiction to issue and enforce in its own proceedings. See, e.g., Application of Pacific Gas & Elec. Co., D.01-05-059, 2001 Cal. PUC LEXIS 413, at *130-135 (May 14, 2001). It does so not because it believes the resolutions are necessary to create enforceable contractual conditions, but to require an affirmative gesture on the part of the regulated entity, and to ensure that the entity fully understands and intends to comply with the Commission's order. 20 Pacific Bell v. MCI Telecommunications Corp., D.98-11-063, 1998 Cal. PUC LEXIS 707, at *58. 21 See Order Instituting Investigation on the Commission's Own Motion into the Operations and Practices of Futurenet, D.99-06-055, 1999 Cal. PUC LEXIS 311, at *15. 22 See id. 23 Section 2107 provides, in full:
Any public utility which violates or fails to comply with any provision of the Constitution of this state or of this part, 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 ($ 500), nor more than twenty thousand dollars ($ 20,000) for each offense.Section 2111 provides, in full: