III. Background

In 1985, San Diego Gas and Electric Company (SDG&E) filed an application under Section 854 of the Public Utilities Code⁵³, to reorganize under a holding company structure.⁵⁴ SDG&E sought to form a new holding company to which SDG&E would transfer ownership of all of its common stock and all of its non-utility subsidiaries. According to SDG&E, this reorganization was necessary because of trends toward deregulation and increasing competition in the electric industry. The Commission approved that application, subject to a variety of conditions that it found necessary to protect the public interest.⁵⁵ SDG&E ultimately decided not to form its holding company at that time.

One year later, Southern California Edison Company (SCE) applied, also under Section 854, to reorganize under a holding company structure.⁵⁶ According to SCE, the primary purpose underlying the proposed reorganization was to "face the new challenges resulting from the partial deregulation of the traditional electric utility business." We approved the application, once more subject to certain conditions designed to protect the public interest.⁵⁷ We intended the conditions to mitigate the dangers stemming from the reorganization so that ratepayers would be indifferent to the change. As required by the Commission's order, SCE filed a written notice agreeing to the conditions.

In 1995, SDG&E returned to the Commission, once again seeking authorization to reorganize under a holding company structure.⁵⁸ At the time, the Commission determined that the reorganization involved no change in actual control of SDG&E, and therefore decided the application could proceed under Section 818, rather than Section 854. Despite this difference, we once again imposed certain conditions on the utility and its holding company as a prerequisite to our approval, designed to maintain ratepayer indifference and protect the public interest.⁵⁹ And, once again, we required the utility and holding company to pass board resolutions signifying their agreement to those conditions. Both the utility and its holding company passed such resolutions signifying their agreement.

The same pattern continued in two more applications. In 1996, Pacific Gas and Electric Company (PG&E) applied under Section 818 of the Public Utilities Code to reorganize under a holding company structure.⁶⁰ We approved that application, subject to a number of conditions designed to maintain ratepayer indifference and protect the public interest, and subject to the agreement of PG&E's and its holding company's boards of directors.⁶¹ The following year, SDG&E's parent holding company, Enova Corporation, applied to merge with Pacific Enterprises, to form a new holding company that would own SDG&E, and which eventually became Sempra Energy.⁶² We approved this application pursuant to Section 854 of the Public Utilities Code, once more imposing certain conditions intended to protect the public interest, and requiring that the newly formed holding company agree to those conditions.⁶³

On April 3, 2001, the Commission issued an Order Instituting Investigation ("OII") to investigate whether PG&E, Edison, SDG&E, and their respective

holding companies, violated any of the terms of the holding company agreements. The subject motions to dismiss followed.

The holding companies in their motions acknowledge our jurisdiction to impose conditions on the reorganization, including that the electric utilities secure the holding companies' agreement. The holding companies also acknowledge their obligations to uphold the agreements which resulted. The holding companies contend that the agreements are enforceable in superior court, not in this proceeding. The holding companies argue that the Commission lacks subject matter jurisdiction because they are not "utilities" under the provisions of the Public Utilities Code. The holding companies add that subject matter jurisdiction may not be created or the jurisdictional defect cured by waiver, estoppel or unclean hands.