4. Discussion

This case appears to present an issue of first impression for the Commission, as review of existing case law reveals no clear precedent. The analytical starting point must be jurisdictional - what authority does this Commission hold in the given situation, which concerns a straddle customer served by both SCE, which the Commission regulates, and LADWP, which it does not?

4.1. Party Positions

Neither party disputes the Commission's regulatory authority over SCE or lack of jurisdiction over LADWP. Tesoro argues that because the Refinery is an existing customer of SCE, the Commission must direct SCE to increase its service to the Refinery, if Tesoro determines to integrate and/or expand operations at SCE's voltage level. Tesoro argues it makes no sense to require continued operation of the Refinery as two disparate facilities served by two different electric utilities which provide electric power at two different voltage levels, rather than as one contiguous facility.

In contrast, SCE focuses on Tesoro's existing relationship with LADWP. SCE argues that "[t]he Commission does not have the authority to take LADWP's customer away from LADWP over LADWP's objection" and concludes, therefore, that the Commission cannot order SCE to serve Tesoro's full requirements.⁹ SCE advances three theories in support of its position. One, the instant matter is a service territory dispute between a municipal utility and its customer and Commission intercession not only would deprive LADWP "of its right to have its interests represented in a dispute with its own customer" but also would provide Tesoro a "windfall" in the form of "sanctioned utility shopping" - an unfair advantage which no other retail customer enjoys, and which risks poor relations between neighboring electric distribution utilities.¹⁰ Two, SCE cannot serve Tesoro's full requirements without triggering the reciprocity provisions of Pub. Util. Code § 9601(c),¹¹ potentially opening SCE's service territory to retail competition from LADWP. Three, both law and policy in California prohibit retail customers located wholly within a single service territory from choosing their distribution and transmission suppliers and therefore, giving straddle customers such choice would provide them with a unique "bargaining chip" resulting in "the creation of unnecessary border conflicts between neighboring utilities, discriminatory treatment of customers, unstable service territory boundaries, higher rates and deterioration of service for other customers, and harm to the public welfare as a whole."¹² This last argument largely repeats the first.

Regarding SCE's concern that LADWP is not a party to the complaint pending at the Commission, we acknowledge only that LADWP, as is its right, has declined to participate. That, alone, is no basis for us to decline to exercise our jurisdiction over the dispute between SCE and its customer. Below, we review pertinent case law and statute.

4.2. Existing Law

Universal Studios, Inc. v. Southern California Edison (Universal Studios),¹³ the primary decision on which Tesoro relies, provides certain factual parallels but no clear precedent. The Commission determined that a customer, Universal Studios, whose property and operations straddled SCE and LADWP service territories and who received service from both utilities, could not avoid Assembly Bill (AB) 1890's Competition Transition Charge (CTC) by shifting all electric load to LADWP.¹⁴ Universal Studios operated a number of "distinct but interrelated businesses" on 415 contiguous acres.¹⁵ It argued that reconfiguring its internal electric distribution system to take full requirements from LADWP would constitute a departure from SCE's service territory, qualifying for a statutory exemption from the CTC under the terms of the governing statute, Pub. Util. Code § 371. The Commission determined that Universal Studios was already two customers (a customer of each utility) and that because an internal reconfiguration did not constitute a physical departure from SCE's territory within the terms of § 371, such a change would not exempt Universal Studios from CTC responsibility for the portion of the load SCE wished to shift to LADWP.

The Commission was not asked to determine whether Universal Studios could undertake the internal reconfiguration and related load shift. No hearings were held; instead, the parties filed a Statement of Facts as part of a Joint Status Report and later filed concurrent legal briefs.¹⁶ The recitation of fact in Universal Studios, subtitled "Stipulated Facts," summarizes the parties' joint Statement of Fact and several of the decision's Findings repeat, unchanged, specific portions of the Statement of Fact. Finding 2, for example, acknowledges that LADWP, whom Universal Studios wanted to have serve its entire electric load (post-reconfiguration), was providing a minority of the pre-reconfiguration requirement, about 23%, while SCE was providing about 77%. Thus, similar to the pending case, the customer wished to move its full demand to the utility supplying the minority portion of the existing load but unlike the pending case, the customer wished to consolidate service under the municipal utility.

Finding 6 indicates that such load shifting had occurred frequently in the past:

Since December 20, 1995, as a normal consequence of its operations, Universal has shifted, and continues to shift, electrical demand between Edison and LADWP by relocating various operational units to different physical locations and by expanding, remodeling, or constructing additional facilitates.¹⁷

Tesoro argues that "by deciding the consequences of Universal Studio's decision to reconfigure its system, the Commission impliedly affirmed that Universal Studio was permitted to make this decision."¹⁸ However, Tesoro overlooks other language in Universal Studios that suggests a more limited Commission focus and correspondingly, a narrower conclusion: "Absent any legal or regulatory restrictions, Universal can physically reconfigure its internally owned and operated distribution facilities and serve its entire property with electric service provided by either Edison or LADWP."¹⁹ This language, found in the decision's Stipulated Facts section, comes directly from the parties' joint Statement of Facts, though it is not made an express Finding. Moreover, the Commission addresses the applicability of the CTC only; it does not discuss whether any other regulatory or legal restrictions exist, or suggest what they might be.

SCE challenges Tesoro's reading of Universal Studios and points to several cases, spanning several decades, in which the Commission has adjudicated service territory disputes between investor-owned utilities or between one investor-owned utility and a customer or potential customer located near the utility's service territory border.²⁰ Though these highly fact-dependent decisions create no bright line for resolving future cases, they represent the Commission's historical affirmation that service territory boundaries should be honored absent an unwillingness or inability to serve. That principle provides little guidance here, however, where a municipal utility and an investor-owned utility share a common service territory border and where both presently serve the same customer through different connections on the customer's property.

More pertinent are several cases involving straddle customers of investor-owned utilities. Like the cases just discussed, all are heavily fact-dependent. In San Gabriel Valley Water Co. v. Suburban Water Co.,²¹ the Commission expressly recognized a straddle customer's right to choose one of two potential suppliers. In that case, the service territory boundary between those two utilities bisected property owned by Challenge-Cook Bros., Inc. and each utility was certificated to serve the portion of the property within its service area. At the time the dispute arose, only San Gabriel Valley had supplied water to Challenge, first for agricultural purposes and subsequently for construction of manufacturing facilities on the property. Challenge negotiated with both utilities for service to the manufacturing site and on the advice of its engineers and fire insurance underwriters, selected Suburban. As the connection point for the site's new distribution system was located on the portion of the Challenge property within San Gabriel Valley's service territory, to effectuate service from Suburban Challenge had to run approximately 135 feet of water lines across its property to a point in Suburban's service territory. San Gabriel Valley filed a complaint to prohibit Suburban from serving Challenge.

The Commission dismissed San Gabriel Valley's complaint, stating:

San Gabriel has not acquired the right ... to prevent a consumer from taking service from another utility lawfully authorized to render service in the area in which the consumer is located. Suburban has the duty to serve, to the reasonable limit of its facilities, all those who request service in its certificated area. (Citation omitted.) There is no legal action that can be taken by a public utility or by the Commission to force a consumer to continue to accept service from a public utility without his consent and after he has no use for the service. (Citations omitted.) These principles, applied to this case, give Challenge the right to demand service from Suburban, and Suburban has the duty to provide such service. This will result in Suburban's serving water to property located in San Gabriel's certificated area; but this result is unavoidable. No one suggests that we require Challenge to construct two independent water systems on its property.²²

A few months earlier, the Commission had issued Alisal Water Corp.,²³ which determined that Alisal Water, the smaller and lower-cost of two adjacent investor-owned water utilities, should serve the entirety of a proposed new development that would span both service territories. The Commission reasoned service by Alisal offered a number of benefits: it avoided construction of duplicative facilities, provide lower rates to customers, and cured Alisal's low pressure problem by adding infrastructure.

In a later case, Prometheus Development Co. Inc., et al. v. California Water Service Company (Prometheus 2),²⁴ the Commission limited a straddle customer's right to choose between two providers. Prometheus Development planned to build a hotel and park on a portion of an undeveloped 22-acre site bisected by the border between the San Jose Water Company and California Water Service Company service territories. Though the new development would be located almost exclusively (more than 99%) within California Water's territory, Prometheus wanted San Jose Water as its water provider. The Commission denied Prometheus' request, concluding that service by San Jose Water would constitute to an "indirect invasion" of California Water's service area since all of the construction except a small portion of an underground garage and some paved parking in the park would be built within that service area.²⁵ In the decision denying rehearing of Prometheus 2, the Commission observed that because a prior Commission had considered and resolved, ten years earlier, certain service issues raised by the proposed new development
(in Prometheus 1²⁶), those issues were moot, but that even if Prometheus 1 were set aside, "unique circumstances" continued to support Prometheus 2 and to distinguish it from San Gabriel Valley Water Co. and Alisal Water Corp.²⁷ The pending case is factually distinguishable as well. Unlike the proposed development in the Prometheus cases, Tesoro's facilities have been in existence for years. They are not confined to one side of the service territory border, but span the entire property.

Finally, we turn to Pub. Util. Code § 9601(c), which requires reciprocity between utilities such as SCE and LADWP before they may make retail sales of electric power, known as direct access sales, to one another's customers.²⁸ SCE links the statute to Universal Studios. As we have seen, Universal Studios determined that a straddle customer, who altered its internal electrical system in order to take power from one of two existing suppliers in an effort to avoid the CTC, could not escape those charges. SCE argues that Universal Studios therefore necessarily stands for the proposition that if a customer actually switches suppliers, that customer triggers the reciprocity provisions of § 9601(c). The danger, according to SCE, is that if SCE should become the sole supplier to Tesoro without LADWP's consent, in future LADWP might have carte blanche to invade SCE's territory.

We find no support for this argument. We note that Universal Studios mentions § 9601 only once and then, in the context of an ancillary issue.²⁹ The statute appears to have no relevance to the facts presented in Universal Studios, and even less here, where a straddle customer wishes to modernize, increase the efficiency of its internal operations, and possibly expand them. Under the interpretation of § 9601(c) that SCE suggests, no such modernization could occur, and we are aware of no authority that lends credence to such a result, which effectively would place unique limits on a straddle customer's business decisions. Finally, we also observe that California's direct access program has been suspended. Thus, unlike the case before us, new retail electric sales by one utility to customers wholly within the service territory of another utility are not possible at this time.

4.3. Tesoro's Rights and Obligations as a Straddle Customer

We conclude that SCE may serve Tesoro's full requirements following an internal retrofit of Tesoro's facilities and an accompanying reconfiguration of its electrical system. If asked to serve the resulting changed demand, SCE must do so. It is beyond our jurisdiction to assess whether, under LADWP's tariffs at the time of such a shift, some kind of exit fee might apply to Tesoro's departing load. We note that Tesoro's complaint suggests that post-redevelopment, Tesoro's electric needs may change substantially. Tesoro largely may be self-sufficient electrically and may require only stand-by power. Thus, if the proposed development materializes, Tesoro may become a very different kind of customer than it is today.

Regardless, we find that Commission precedent and sound policy support the result we reach today. As we discuss above, the most relevant Commission decisions point to this outcome or can be distinguished, based on the unique circumstances present. From a public policy standpoint, it makes no sense to hold that because historically both SCE and LADWP have served portions of the Refinery load, Tesoro must forever operate two different electrical systems there. Tesoro, like any other customer, should be able to make a business decision to modernize its plant to maximize efficiencies and improve air quality (presuming all necessary permits or other approvals).

4.4. MOS Study

Tesoro contends that SCE's own tariffs (Rule 15 re: distribution line extensions and Rule 16 re: service extensions) require it to do an MOS study for an existing customer like the Refinery. Under those tariffs, SCE must plan, design and engineer service extensions within its own service territory. As previously noted, Tesoro recognizes that the new service delivery point must be within SCE's service territory. Tesoro also acknowledges that a customer must fund such a study and it agrees to pay.

At the prehearing conference (PHC), the Administrative Law Judge (ALJ) directed SCE to provide her with a letter from a knowledgeable employee or officer confirming that SCE had declined to do the MOS study and setting out SCE's rationale for refusal. The ALJ advised that the first paragraph of the letter should state that the letter was being submitted in response to the ALJ's PHC request and that a copy should be sent to the assigned Commissioner and to Tesoro. SCE complied. The February 20, 2008 letter from Lisa D. Cagnolatti, Vice President, Business Customer Division, reiterates SCE's refusal to do the MOS study. The letter provides no additional insight but repeats the objections noted previously.

Because we conclude that SCE may serve Tesoro's full requirements, and must do so if asked, we direct SCE to perform the MOS study. If LADWP should agree to perform such a study also and Tesoro wants to pay for both studies in order to better assess its options, that is a business decision for Tesoro to make.

⁹ SCE Opening Brief at 3.

¹⁰ Id. at 6, 7.

¹¹ Footnote 28, infra, sets out the text of § 9601(c).

¹² Id. at 11.

¹³ D.99-03-023, 85 CPUC2d 290 (1990), 1999 Cal. PUC LEXIS 406.

¹⁴ AB 1890, the California electric restructuring legislation, was enacted as Stats.1996,
c. 854.

¹⁵ 85 CPUC2d at 292.

¹⁶ We have retrieved from state archives the Commission's formal file for C.98-04-037, the complaint case that resulted in Universal Studios. The parties' Joint Status Report and the Statement of Facts attached thereto were filed November 6, 1998. The Statement of Facts, which consists of 21 separately numbered points, includes the disclaimer that SCE and LADWP stipulate to them "solely for the purposes of this
C.98-04-037, and for no other or proceeding." Today's decision does not expand upon that context, but merely reviews portions of the Statement of Facts within the confines of Universal Studios.

¹⁷ 85 CPUC2d at 294.

¹⁸ Tesoro Opening Brief at 20, emphasis in original.

¹⁹ 85 CPUC2d at 292.

²⁰ SCE references the following decisions, which we list in chronological order and summarize:

1. Clara Street Water Co. v. Park Water Co., D.41682, 48 CPUC 154 (1948), affirmed
D.04-09-028, and ordered that Park Water Co. cease and desist from extending service into the certificated territory of Clara Street Water Co., even though a customer requested such service, though Clara Street Water was not actually serving there, and though Clara Street Water had not opposed a publicly-owned water company's invasion of a different area that was awkward for Clara Street Water to serve. A certificate does not give a utility an exclusive right to serve but does protect certificated service territory "to the extent that good service is provided at reasonable rates" and furthermore, permitting "unlimited and unauthorized invasion of certificated territory by other utilities merely for the reason that the lands are contiguous and not being then actually and physically served, would result in curtailment of investments in utility properties, confusion and uncertainty in design of facilities, would retard expansion or utility systems into new territory and result in the supplying of inferior service."
(Id. at 158.)

2. Application of Cal. Water Service, D.83-01-054, 10 CPUC2d 690 (1983), denied the request of Cal. Water Service to serve a proposed residential development near its main but located within the service territory of Wesmilton Water System, though the developer could obtain service from Cal. Water Service at 1/4 to 1/5 of the cost and Wesmilton would need to drill a new well. Decision findings state that allowing customers to choose among utilities creates problems for utility planning and undermines a utility's economic viability to the detriment of existing customers, that the Commission has a duty to protect service territory boundaries absent a "strong and clear showing" that a utility is unable to serve. (Id. at 709.)

3. Re Southwest Gas Corp., D.88-12-090, 30 CPUC2d 361 (1988), resolved competing requests to serve uncertificated territory and also reapportioned certain previously certificated territory based on assessment of various factors, including efficiencies, reiterating that the standard for taking customers and certificated areas away from a public utility to give them to another should be "based upon failure to adequately serve." (Id. at 390.)

²¹ D.70837, 65 CPUC 653 (1966).

²² 65 CPUC at 656.

²³ D.70197, 65 CPUC 197 (1966).

²⁴ D.93-02-035, 48 CPUC2d 187 (1993), 1993 Cal. PUC LEXIS 95, rehearing denied by
D.93-09-046, 50 CPUC2d 729 (1993), 1993 Cal. PUC LEXIS 638.

²⁵ 1993 Cal. PUC LEXIS 638 *2.

²⁶ See 1993 Cal. PUC LEXIS 638 discussing D.86-05-021 (1986), referred to as
Prometheus 1, and a related advice letter, AL-922.

²⁷ 1993 Cal. PUC LEXIS 638 *10.

²⁸ The statute provides, in relevant part:

No local publicly owned electric utility or electrical corporation shall sell electric power to the retail customers of another local publicly owned electric utility or electrical corporation unless the first utility has agreed to allow the second utility to make sales of electric power to the retail customers of the first utility. (§ 9601(c).)

²⁹ The reference states:

In addition, Universal's claims to inferior status as an LADWP customer relative to Universal's status as an Edison customer have no merit. The law provides for the appropriate regulatory body to determine the applicable transition costs and corresponding charges. The fact that the Los Angeles City Council has not yet undertaken such a task does not imply that Universal's position as a customer of LADWP is inferior to its position as a customer of Edison. Sections 9601, 9602, and 9603 provide that both publicly-owned and investor-owned utilities are protected in terms of transition cost collection, once publicly-owned utilities conform to certain requirements. LADWP has not yet proceeded with those requirements. (85 CPUC2d at 293.)