IV. Discussion

A. The Commission does not have jurisdiction over the non-public utility holding companies.

The Commission is a regulatory body that derives its powers from the Constitution and the Legislature. Public Utilities Commission v.City of Fresno (1979) 62 Cal. Rptr. 79. The Commission has no jurisdiction over an entity unless it falls within one of the enumerated classes of public utilities in Article XII, section 23 of the California Constitution,⁶⁴ or Section 216. Television Transmission v. Public Utilities Commission (1956) 47 Cal.2d 82, 84, 85. As we previously acknowledged, the "California Supreme Court has held that unless the entity is a public utility . . . the Commission is without power to issue any orders against the entity." Westcom Long Distance, Inc. v. Pacific Bell (1994) 54 CPUC 2d 244, 255 [D.94-04-082].

The Utility Reform Network (TURN) and the Office of Ratepayer Advocates ("ORA") concur that the "[t]he holding compan[ies] ... are not subject to the direct jurisdiction of state regulatory Commissions."⁶⁵ ORA states that "nothing in the California Constitution or the Public Utilities Code confers jurisdiction on the Commission to directly regulate the activities of a utility affiliate which is not itself a public utility."⁶⁶

Neither Section 854 nor Section 818 extend the jurisdiction of the Commission to the regulation of non-utility corporations. Rather, the Commission has jurisdiction to ensure that the electric utility structures the reorganization in such a way as to protect the ratepayers. As explained by ORA, "[t]he Commission has only one opportunity to provide [ratepayer] protection - through this proceeding granting ... conditional approval to reorganize. This is the Commission's only jurisdictional opportunity to protect ratepayers from the costs and risks of [the] unregulated activities [of the resulting holding company]."⁶⁷

Furthermore, the power of the Commission under Section 701 to do all things "necessary and convenient" only pertains to our exercise of jurisdiction over public utilities. Section 701 does not "confer upon the Commission any [independent] authority." Assembly of the State of California v. Public Utilities Commission (1995) 48 Cal. Rptr. 2d. 54. The California Supreme Court has expressly "rejected a construction of Section 701 that would confer upon the Commission powers contrary to other legislative directions, or to express restrictions placed upon the Commission's authority by the Public Utilities Code. " Id. at 89.

B. The Commission may enforce the holding company agreements in superior court.

The California Supreme Court has also made clear that conditions agreed to by a non-public utility, while not establishing Commission jurisdiction, are binding and enforceable in superior court. See Henderson v. Oroville-Wyandotte Irrigation District (1931) 213 Cal. 514, 529. The holding companies are therefore bound to uphold the agreements. In fact, the holding companies have never claimed that the Commission may not now enforce these conditions in superior court.⁶⁸

Henderson is analogous to the instant case. See id. In Henderson, two public water utilities sold their systems to an unregulated district. The Commission had approved the sale only after the district agreed to charge outside water users the same rate as customers located within its boundaries. The district subsequently violated this agreement by overcharging outside users. The trial court found that the agreement was binding on the district.

The Supreme Court affirmed the ruling of the trial court. The Supreme Court expressly stated that the Commission did not have jurisdiction over the district. Id. at 524. The Supreme Court then went on to state that the Commission had jurisdiction to impose conditions on the sale of the public utilities, and the district was bound by those conditions:

"While it is true that the [district] is not in any manner under the jurisdiction of the Railroad Commission ... we know of no law, and none has been called to our attention by the district, which would permit the [District] to disregard the conditions under which [it] made [its] purchase." (emphasis added). Id. at 529.

Similarly, under Sections 818 and 854, we had jurisdiction to condition our approval of the reorganization and require that the utilities secure the agreement of the holding companies. The holding companies, like the district, were not public utilities subject to our jurisdiction. The holding companies expressly agreed to certain conditions, and they acknowledge that the conditions are binding. Pursuant to Henderson, the Commission could file an action in superior court if necessary to enforce the agreements against the holding companies.

C. The holding companies are not barred from challenging the jurisdiction of the Commission.

We next refute the majority decision's arguments that the holding companies are barred from challenging the subject matter jurisdiction of the Commission. As established below, the holding companies are neither equitably estopped from challenging the Commission's jurisdiction nor barred from doing so by Sections 1731 and 1709.

1. Collateral attack is proper to contest lack of jurisdiction.

We are not persuaded by the argument that the holding companies are barred by Sections 1731 and 1709 from "collaterally attacking" the jurisdiction of the Commission. ⁶⁹ The California Supreme Court has repeatedly held that "[c]ollateral attack is proper to contest lack of personal or subject matter jurisdiction . . . ." Becker v. S. P. V. Construction Co. (1980) 27 Cal.3d 489, 493; Armstrong v. Armstrong (1976) 15 Cal.3d 942, 950; Swycaffer v. Swycaffer (1955) 44 Cal.2d 689, 693. "While final orders and decisions of the [C]ommission are generally conclusive in all collateral actions and proceedings, that is only so as to determinations within the [C]ommission's jurisdiction."⁷⁰

Peery v. Superior Court (1985) 174 Cal.App.3d 1085, does not stand for a contrary proposition. In Perry, a California trial court asserted jurisdiction in a custody battle and found in favor of the plaintiff. A Louisana court later heard the same case and awarded custody to the defendant. The defendant thereafter collaterally challenged the California court's subject matter jurisdiction over the case. The appellate court found that the defendant was collaterally estopped from challenging the jurisdiction. Id. at 1094. The appellate court then proceeded to cite a number of collateral estoppel exceptions, applicable here, which permit a collateral attack for lack of subject matter jurisdiction.

A collateral attack is permitted where "the lack of jurisdiction is clear." Id. at 1094. Perry found this exception inapplicable because the child had resided in California for 6 months. Unlike Perry, the lack of jurisdiction in the instant case is clear and the exception applies. Neither the Constitution nor Sections 216, 818 or 854 confer jurisdiction over the non-public utility holding companies.

A collateral attack for lack of subject matter jurisdiction is also permitted when the court is of limited jurisdiction or when the jurisdictional issue was not previously litigated. Id. at 1094. Perry did not find either of these exceptions

applicable, yet both apply here. In contrast to the superior court in Perry, the Commission is an administrative agency with limited jurisdiction to regulate public utilities. Subject matter jurisdiction was also never litigated in this proceeding.

It appears that such a jurisdictional challenge would have been premature. The holding companies were not even parties to the proceeding. It is unclear as to what basis, if any, existed at the time for the holding companies to seek rehearing and/or judicial review. The holding companies did not then and do not now dispute their obligation to fulfill the agreements. Neither did the holding companies dispute our jurisdiction to require that the electric utilities secure their agreement as a condition for approving the reorganization. Therefore, it may not have been until the Commission asserted jurisdiction via its own enforcement proceeding, instead of in superior court, that the challenge became ripe for adjudication.

Furthermore, Sections 1731 and 1709 have no bearing on motions to dismiss for lack of subject matter jurisdiction. There is no bar against motions to dismiss for lack of subject matter jurisdiction because, as discussed below, subject matter jurisdiction may never be waived and can be challenged at anytime.⁷¹

For these reasons, there is no bar on collateral attack.

2. Subject matter jurisdiction cannot be created by estoppel.

The majority decision's argument that the holding companies are equitably estopped from challenging the Commission's subject matter jurisdiction is similarly flawed. "Subject matter jurisdiction in its strict sense refers to a court's or other tribunal's power or authority over the subject matter of or the parties to a dispute" (emphasis added).⁷² Lack of subject matter jurisdiction includes an absence of authority over the parties , such as the holding companies.⁷³ It is a well-settled rule of law that subject matter jurisdiction may never be created

```````````````````````through waiver or estoppel and that subject matter jurisdiction may be challenged at any time.<sup>74</sup>

We know of no case, including Henderson v. Oroville-Wyandotte Irrigation District (1931) 213 Cal. 514, that states a proposition to the contrary. This is because the water users in Henderson brought suit in the superior court to enforce conditions against the non-public utility. As such, there was no holding in Henderson that the non-public utility was estopped from challenging the jurisdiction of the Commission to initiate its own proceedings. The Supreme Court instead affirmed that the Commission did not have jurisdiction over the non-public utility.

Further, the non-binding federal cases cited in the majority decision are distinguishable and unpersuasive. There is no challenge to the subject matter jurisdiction of the agency in Federal Power Commission v. Colorado Interstate Gas Co. (1955) 348 U.S. 492, 502, Callanan Road Improvement Co. v. United States (1953) 345 U.S. 507, 513, or Kaneb Services, Inc. v. FSLIC (5<sup>th</sup> Cir. 1981) 650 F.2d 78, 81-82. Moreover, these cases do not hold that estoppel creates agency subject matter jurisdiction.

We next reject the argument that the doctrine of unclean hands bars the holding companies from raising a subject matter jurisdiction challenge. As explained In re William T (1985) 172 CA3d 790, the argument that a party "should be estopped to deny jurisdiction . . . because of unclean hands is more nonsense." "[F]or the same reason that subject matter jurisdiction cannot be conferred by consent, such jurisdiction cannot be assumed by virtue of the unclean hands doctrine." In re Marriage of Ben-Yehoshua (1979) 91 CA3d 259, 263, 268. We also reject arguments that to grant the subject motions would allow the holding companies to obtain by a fraud what they could not have otherwise obtained, namely the Commission's approval of the creation of the holding company structure. This is because the holding companies acknowledge that the conditions the Commission imposed are binding and enforceable.

Accordingly, the holding companies are not equitably estopped from challenging the Commission's subject matter jurisdiction.

3. The subject matter jurisdiction rubric is applicable.

Lastly, dismissal cannot be avoided by attempts by the majority decision to re-characterize the lack of subject matter jurisdiction as an act in excess of jurisdiction. As explained in Abelleira v. District Court of Appeals (1941) 17 Cal.2d 280, 288, lack of jurisdiction means an entire absence of power to hear or determine the case. Abelleira cites an applicable example of lack of subject matter jurisdiction as a proceeding beyond the jurisdiction defined for a court by statute or constitutional provision. Id. at 288. The holding companies challenge our proceeding as beyond the subject matter jurisdiction defined by the Legislature in Section 216 and the California Constitution.

This is readily distinguishable from a challenge to the exercise of our power over public utilities in a particular manner. That is, it is distinguishable from a challenge that an act was in excess of our jurisdiction. A court acts in excess of jurisdiction where, though the court has jurisdiction over the subject matter and the parties, it has no power to act except in a particular manner or to give certain kinds of relief. Conservatorship of O'Connor (1996) 48 Cal.App.4<sup>th</sup> 1076, 1088. The holding companies are challenging the very existence of the Commission's power over non-public utilities and not just how it was exercised.

<sup>70</sup> Stepak v. American Tel. & Tel. Co. (1986) 186 Cal.App.3d 633, 647 (citing Section 1709 of the California Public Utilities Code).