ALJ/SRT/eap 1/14/2002

Decision 02-01-037 January 9, 2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Investigation whether Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, and their respective holding companies, PG&E Corporation, Edison International, and Sempra Energy, respondents, have violated relevant statutes and Commission decisions, and whether changes should be made to rules, orders, and conditions pertaining to respondents' holding company systems.	Investigation 01-04-002 (Filed April 3, 2001)
In the Matter of the Application of SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) for authorization to implement a plan of reorganization which will result in a holding company structure.	Application 87-05-007 (Filed May 6, 1987)
In the Matter of the Application of San Diego Gas & Electric Company (U 902-M) for Authorization to Implement a Plan of Reorganization Which Will Result in a Holding Company Structure.	Application 94-11-013 (Filed November 7, 1994)
In the Matter of the Application of Pacific Gas and Electric Company (U 39 M) for Authorization to Implement a Plan of Reorganization Which Will Result in a Holding Company Structure.	Application 95-10-024 (Filed October 20, 1995)
Joint Application of Pacific Enterprises, Enova Corporation, Mineral Energy Company, B Mineral Energy Sub and G Mineral Energy Sub for Approval of a Plan of Merger of Pacific Enterprises and Enova Corporation With and Into B Mineral Energy Sub ("Newco Pacific Sub") and G Mineral Energy Sub ("Newco Enova Sub"), the Wholly Owned Subsidiaries of a Newly Created Holding Company, Mineral Energy Company.	Application 96-10-038 (Filed October 30, 1996)

DECISION ON MOTIONS TO DISMISS
FOR LACK OF JURISDICTION

Respondents PG&E Corporation (PG&E Corp.), Edison International (EIX), and Sempra Energy (Sempra) (collectively, the holding companies) seek dismissal of this proceeding as it pertains to them for lack of jurisdiction. They contend that the conditions we imposed in our decisions authorizing the formation of the holding companies 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. They further contend that we have no continuing jurisdiction to unilaterally change these conditions or to impose new ones.

We deny the motions. Although the conditions we imposed may also be contractual, they are valid Commission orders that the Commission had jurisdiction to issue as necessary to fulfilling the Commission's duty to protect ratepayers from the risks that attended the formation of the holding companies. As validly issued Commission orders, they are enforceable in this proceeding. Because they are valid orders, the Commission also has jurisdiction pursuant to section 1708 of the Public Utilities Code to reexamine them, and modify or add to them as necessary to protect the public interest.

I. Background

A. The Underlying Proceedings.

In 1985, San Diego Gas and Electric Company (SDG&E) applied to this Commission, under Section 854 of the Public Utilities Code, to reorganize under a holding company structure.¹ Specifically, SDG&E sought to form a new holding company to which SDG&E would transfer ownership of (a) all of its common stock, and (b) all of its non-utility subsidiaries.² The Commission approved that application, subject to a variety of conditions the Commission found were necessary to protect the public interest.³ SDG&E ultimately decided not to form its holding company at that time, primarily because it did not want to comply with certain of those conditions, including conditions applicable to SDG&E's holding company and its affiliates.⁴

One year later, Southern California Edison Company (SCE) applied, also under Section 854, to reorganize under a holding company structure.⁵ We approved the application, once more contingent on certain conditions designed to protect the public interest.⁶ Specifically, the conditions we imposed were intended to mitigate the dangers stemming from the reorganization so that ratepayers would be indifferent to the change.⁷ As required by the Commission's order, SCE filed a written notice agreeing to the conditions.⁸

In 1995, SDG&E returned to the Commission, once again seeking authorization to reorganize under a holding company structure.⁹ 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 of the Public Utilities Code, rather than Section 854.¹⁰ 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.¹¹ And we required the utility and holding company to pass board resolutions signifying their agreement to those conditions.¹² Both the utility and its holding company passed resolutions signifying their agreement.¹³

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.¹⁴ 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.¹⁵ 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.¹⁶ 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.¹⁷

B. Procedural History of These Motions.

The Commission instituted these proceedings to investigate whether the holding companies and/or their utilities violated, inter alia, the conditions we imposed when we authorized the formation of the holding companies; to investigate whether changes, including changes in the conditions, should be made on a going forward basis; and to determine, should we find that violations occurred, what remedies, if any, should be imposed. The holding companies thereafter moved to dismiss. They argued that the Commission only has "subject matter jurisdiction" over "public utilities," that the holding companies are not public utilities, and that, even their own agreement to be bound by conditions in our decisions establishing the holding companies did not effect a waiver of the jurisdictional objections or estop them from raising such objections.

After considering briefing on the issue, we released a draft decision denying the motions. We based our decision principally on the principle of estoppel, holding that the holding companies' acceptance of our authorization to form, combined with their failure to challenge our jurisdiction to impose the conditions at the time we imposed them precluded them, years later, from challenging our authority to enforce the conditions in this proceeding. Alternatively, we held that the statutes that obligate the Commission to protect ratepayers whenever it approves the formation of a holding company system give the Commission implied jurisdiction to issue orders that are binding on the holding companies as conditions to the Commission's approval.

In comments on that draft decision, the holding companies changed their focus significantly. Where once they had appeared to contest the Commission's authority to enforce the conditions anywhere, they now conceded that the conditions were enforceable - but asserted that we could only seek such enforcement in court in an action for breach of contract, rather than in a Commission proceeding such as this one. The holding companies claimed the draft decision misstated their positions and asserted that their comments simply clarified their original motions, despite the fact that neither Sempra's nor EIX's original motions even hinted at their new contract theory, and despite the fact that PG&E Corp., far from conceding enforceabity of the conditions, merely suggested in a footnote that, "To the extent the Commission might contend that the Conditions create some type of continuing relationship between the Commission and PG&E Corporation, that relationship, if any, could be nothing more than contractual."¹⁸

This decision deviates from the draft decision to address the arguments raised for the first time in the holding companies' comments. Despite their new arguments, however, we still conclude that their motions to dismiss should be denied.