2. Background

In these decisions the Commission investigated whether the respondent utilities, Southern California Edison Company (Edison), Pacific Gas and Electric Company (PG&E), and San Diego Gas and Electric Company (SDG&E), and their respective holding companies violated Commission decisions and relevant statutes.

D.02-01-037 denies the motions of PG&E Corporation (PG&E Corp), Edison International, and Sempra Energy (collectively, the Holding Companies) that the proceeding be dismissed as it pertains to them for lack of jurisdiction. The Holding Companies argued that the conditions imposed on them in Commission decisions authorizing their formation are only parts of a contract between the Commission and the Holding Companies, and therefore are enforceable only in an action for breach of contract in Superior Court. The Commission determined, however, that the orders authorizing formation of the Holding Companies were valid Commission orders fulfilling the Commission's duties to protect ratepayers from the risks that attended the formation of the Holding Companies.

In D.02-01-037, the Commission determined that it would be unreasonable and illogical to conclude the Commission can issue orders but not enforce these orders. Since the conditions imposed on the Holding Companies are valid Commission orders, therefore they are also enforceable by the Commission. Conversely, the Commission said that even if the orders were not valid, the Commission's jurisdiction may not be challenged now as the Holding Companies did not file timely applications for rehearing, as required under Sections 1731 and 1709.¹ Furthermore, the Commission determined that the Holding Companies cannot seek the Commission's approval to form, accept the benefits that flow from that approval, and then challenge the Commission's authority to enforce the requirements of that approval. D.02-01-037 concludes that the Commission has authority both to enforce the conditions imposed in the underlying proceedings, and to investigate whether new conditions must be imposed in order to protect ratepayers.

In D.02-01-039, the Commission provided an initial interpretation of the "first priority condition" incorporated into the decisions approving the Holding Companies for PG&E, Edison and SDG&E. The Holding Companies, and their respective utilities, PG&E, Edison and SDG&E (collectively, Respondents) argued that the first priority condition is limited to various financial requirements and investment in utility plant. Thus Respondents contended the first priority condition cannot be interpreted to require infusion of operating funds for energy purchases. TURN, the Office of Ratepayer Advocates, the City and County of San Francisco, and the City of Long Beach asserted, however, that the language of the first priority condition requires infusion of money into the utility subsidiary when the utility's access to capital is impaired such that discharge of its obligation to serve or its ability to operate normally is threatened. TURN also argued that the term "capital" in the condition must be given an expansive meaning to distinguish it from "balanced capital structure" as used in the Holding Company decisions.

The Commission rejected Respondents' narrow definition of capital, and adopted the expansive definition advocated by TURN. The Commission also determined that the decisions forming the Holding Companies should be broadly interpreted and not limited in the manner suggested by Respondents, and that the context of these decisions shows the Commission was concerned with preventing the utilities from becoming unable to acquire sufficient money to meet their obligation to serve. The Commission also found that contrary to Respondents' arguments, infusions of working capital can provide a return on investment and do not constitute a "taking." While PG&E Corp contended that there was no reasonable opportunity to earn a return on working capital,² the Commission rejected this argument, noting that corporate owners regularly infuse working capital into corporations as a means to return a company to profitability. Similarly, the Commission rejected PG&E Corp arguments implying that the first priority condition was unconstitutional and that holding companies should not be expected to infuse capital into their regulated subsidiaries. The Commission found that the formation of the holding companies and the transfer of assets to unregulated utility subsidiaries increased the ability of holding companies to raise capital, but similarly decreased the ability of the related utility to raise capital. This transfer necessarily implied that the holding companies would be expected to infuse capital in the utilities in time of need to leave ratepayers indifferent to the transfers of assets from the utilities to the holding companies.