IV. Order Instituting Investigation

This Commission has jurisdiction over respondents by virtue, inter alia, of their acceptance of those conditions that governed the formation of the respective holding companies. In addition, many provisions of the Public Utilities Code give the Commission broad authority to act to protect ratepayers in a variety of circumstances, to enforce the Constitution, statutes, and the Commission's rules, orders, and decisions, and to remedy violations thereof. These provisions include, but are not limited to, Public Utilities Code § 451² (requiring public utilities to furnish and maintain adequate, efficient, just and reasonable service as necessary to promote the safety, health, comfort, and convenience of its patrons, employees and the public); § 701 (Commission may do all things necessary and convenient to exercise its power and jurisdiction to regulate public utilities); § 761 (Commission may adopt order or rule to remedy unjust or unreasonable practices of a public utility); § 798 (provides for remedies against a utility that makes imprudent payments to its holding company); and §§ 2101 - 2113 (authority to enforce Constitution, statutes, and violations of Commission orders, rules, and decisions).

Common law also provides the Commission with authority to disregard corporate forms in a variety of circumstances in order to carry out the Commission's responsibilities. See, e.g., General Telephone Co. v. P.U.C., 34 Cal. 3d 817 (1983).

Finally, under Public Utilities Code Section 1708, upon proper notice to the parties and with opportunity to be heard as in the case of complaints, the Commission may rescind, alter, or amend any order or decision made by it. The Commission recognizes this authority in the context of its holding company decisions. For example, in PG&E Authorization II, the Commission noted its authority to impose additional conditions if necessary, and specifically provided that parties could raise the need for additional conditions in the future. See PG&E Authorization II, 194 P.U.R.4^th 1, 12-13 (April 22, 1999).

In this investigation, the Commission will review the past activities of SDG&E, SoCal Gas, their holding company and unregulated affiliates to determine if they have complied with the Commission's prior decisions and rules. In addition, we will consider whether any actions taken by the utilities and/or the holding company and affiliates have resulted in unjust or unreasonable impacts on utility customers.

Now time to raise these issues. Not only is it important to determine whether any prior violations of our holding company decisions or other laws have occurred, but it is also critical to take steps to ensure that healthy utility companies can continue to function in a way that balances both ratepayer and shareholder interests. This is particularly important at this time given that the utilities are resuming their historic roles as procurers of power for their customers, the dysfunction and lack of effective federal regulation of wholesale gas and electric markets and the magnitude and breadth of energy related business activities that Sempra and its affiliates have chosen to engage in within the service territories of their regulated affiliates, SDG&E and SoCal Gas.

We note that parties in a wide variety of proceedings have raised concerns regarding whether actions taken by SDG&E and SoCal Gas are in the best interests of ratepayers or are instead meant to benefit unregulated affiliates. Parties have raised such assertions in proceedings ranging from the supply of natural gas, to the procurement of electricity and the construction of transmission lines. The Commission has not yet taken it upon itself to fully consider the concerns raised by parties regarding this alleged inappropriate conduct, since those proceedings were not designated to address compliance with the Commission's holding company and affiliate rules.

The events described above suggest that significant conflicts of interest exist between the regulated utilities and their unregulated affiliated. If the investigation determines that actions undertaken by the respondent utilities or their affiliates have been detrimental to the interests of the utilities' ratepayers the Commission may, as a result of this investigation, consider the adequacy of the current conditions contained in the holding company authorization decisions cited above. Accordingly, in this proceeding, we will determine whether additional rules, conditions, or other changes are needed to protect ratepayers and the public from dangers of abuse of the holding company structure. Specifically, should it be apparent that problems exist, we may consider whether we should modify, change, or add conditions to the holding company decisions, make further changes to the holding company structure, alter the standards under which we determine whether to authorize the formation of holding companies, otherwise modify the decisions, or recommend statutory changes to the Legislature.