Pg & E Corp. v. Public Utilities Com'n, A099858.

Citation13 Cal.Rptr.3d 630,118 Cal.App.4th 1174
Decision Date21 May 2004
Docket NumberNo. A100896.,No. A100895.,No. A099858.,No. A099864.,No. A099863.,No. A100892.,No. A100897.,A099858.,A099863.,A099864.,A100892.,A100895.,A100896.,A100897.
CourtCalifornia Court of Appeals
PartiesPG & E CORPORATION, Petitioner, v. PUBLIC UTILITIES COMMISSION, Respondent; Office of Ratepayer Advocates et al., Real Parties in Interest. [And five other cases.<SMALL><SUP>*</SUP></SMALL>].

Matthew Eric Freedman, San Franciscon, CA, for Real Party in Interest The Utility Reform Network.

JONES, P.J.

I. INTRODUCTION

Disputing the jurisdiction of the Public Utilities Commission (PUC or Commission) over entities other than public utilities, the parent holding companies of California's three large investor-owned electric utilities seek to be dismissed from a pending PUC proceeding investigating actions taken by the holding companies and their utility subsidiaries during the electricity energy crisis of 2000 and 2001. The holding companies and their utility subsidiaries also challenge an interim opinion of the PUC interpreting one of the conditions imposed at the time the utilities sought approval to form holding company structures.

The challenged rulings arise out of an investigation initiated by the PUC during the height of California's electricity energy crisis in 2001. (See Cal.P.U.C. Order Instituting Investigation, Investigation No. 01-04-002, 2001 WL 710117 (Apr. 3, 2001) [2001 Cal.PUC Lexis 405] (hereafter Order Instituting Investigation).) In addition to naming the utilities as parties to the investigation, the PUC also included as parties their parent holding companies — Edison International (EIX), Sempra Energy (Sempra), and PG & E Corporation (PG & E Corporation) (collectively, the holding companies).

The PUC's investigation relates back to a series of proceedings in the 1980s and 1990s in which California's investor-owned electric utilities each sought approval to reorganize under a holding company structure, which would permit each utility to become the wholly owned subsidiary of a holding company. The PUC approved the requests of the three utilities — Southern California Edison Company (Edison), San Diego Gas & Electric Company (SDG & E), and Pacific Gas and Electric Company (PG & E Utility) (collectively, the utilities) — subject to certain conditions referred to as the holding company conditions. The holding company conditions were intended to protect ratepayers and to address the potential for abuse arising from the holding company structure.

One of the holding company conditions is the so-called first priority condition, also referred to as the capital requirements condition,1 which in general requires that the holding companies give first priority to the capital requirements of their utility subsidiaries as determined to be necessary to meet their obligation to serve. The investigation initiated by the PUC in 2001 sought to determine, among other things, whether the holding companies had violated the first priority condition by failing to infuse capital into their financially distressed utility subsidiaries.

Fundamentally, these seven petitions raise two issues. The threshold issue is whether the PUC has jurisdiction to enforce the holding company conditions against the holding companies. The second issue raised by these petitions concerns the PUC's initial interpretation of the first priority condition. We have consolidated the three petitions challenging jurisdiction; we have separately consolidated the four petitions raising substantive issues; and we have granted a writ of review in each consolidated proceeding. We now order all seven cases consolidated for purposes of decision.

On the jurisdictional question, we affirm the PUC's decisions denying the holding companies' motions to dismiss. (Cal.P.U.C. Dec. Nos. 02-01-037 (Jan. 9, 2002) [2002 Cal.PUC Lexis 7] & 02-07-044, 2002 WL 31006238 (July 17, 2002) [2002 Cal.PUC Lexis 430].) Under the circumstances presented here, the PUC has jurisdiction over a holding company to enforce conditions imposed by the PUC pursuant to its statutory authority to approve applications by public utilities for certain mergers, acquisitions, changes in control, or issuances of securities. (See Pub. Util.Code,2 §§ 701, 818, 819 & 854.) On the interpretation of the first priority condition, we conclude the issue is not yet ripe for review. (Cal.P.U.C. Dec. Nos. 02-01-039 (Jan. 9, 2002) [2002 Cal.PUC Lexis 5] & 02-07-043, 2002 WL 31006348 (July 17, 2002) [2002 Cal.PUC Lexis 440].)

II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Holding Company Decisions
1. SDG & E I

In 1985, SDG & E was the first electricity utility to apply to the PUC to reorganize under a holding company structure in order to facilitate the decision of SDG & E management to diversify its business. (Re San Diego Gas and Electric Co. (1986) 20 Cal.P.U.C.2d 660, 662 (SDG & E I).) SDG & E sought approval of its proposed reorganization under section 854, which provides that no person or corporation may acquire or control a public utility, either directly or indirectly, without first securing the authorization of the PUC.3 (SDG & E I, supra, 20 Cal.P.U.C.2d at p. 662.) The proposed reorganization took the form of a reverse triangular merger, in which SDG & E would become the wholly owned subsidiary of a newly formed public utility holding company that would own the stock of the regulated utility and non-regulated affiliated enterprises. (Ibid.; cf. Re Pacific Gas and Electric Co. (1996) 69 Cal.P.U.C.2d 167, 180 & fn. 3 [describing reverse triangular merger] (PG & E I).)

The PUC ultimately approved SDG & E's application subject to 20 conditions intended to insulate utility operations and ratepayers from potentially adverse consequences of diversification. (SDG & E I, supra, 20 Cal.P.U.C.2d at pp. 662, 676-686.) Several of these conditions related to the maintenance of the utility's financial strength. (Id. at p. 681.) Among these financial conditions were the "balanced capital structure" condition, which requires the holding company to maintain a balanced capital structure in its utility subsidiary. Another financial condition was the "stand-alone dividend" condition, which requires the utility to continue to set its dividend policy as if it were a stand-alone entity. As relevant here, one of the conditions imposed upon SDG & E and its holding company was the "capital requirements" or "first priority condition" condition, which reads as follows: "The capital requirements of the utility, as determined to be necessary to meet its obligation to serve, shall be given first priority by the Board of Directors of [the holding company], and SDG & E." (Ibid.) Other than describing the first priority condition as a condition related to "financing priorities," the PUC's 1986 decision approving SDG & E's application contains no discussion of the meaning, purpose, or interpretation of the first priority condition. (Ibid.)

In the SDG & E I decision, the Commission devoted considerable attention to the PUC's authority to enforce the conditions. (SDG & E I, supra, 20 Cal.P.U.C.2d at pp. 686-687.) Parties opposing SDG & E's application "allege[d] that the Commission has questionable jurisdiction to enforce any conditions adopted in this order as against [the holding company]." (Id. at p. 686.) In contrast to the position SDG & E asserts now in its petition before this court, SDG & E at the time argued that the PUC possesses the authority to enforce the conditions as against SDG & E and its holding company parent, citing section 21114 as evidence of the PUC's ability to enforce Commission orders violated by entities other than public utilities. Indeed, SDG & E conceded the PUC's jurisdiction by itself proposing conditions governing the holding company's activities. Additionally, if the PUC deemed it necessary, SDG & E proposed entering into a contract with its holding company parent agreeing to the performance of the conditions and naming the PUC as a third-party beneficiary to the agreement. Thus, according to SDG & E, the PUC would be entitled to sue either SDG & E or its parent holding company for specific performance of any of the conditions. (20 Cal.P.U.C.2d at p. 686.)

The PUC concluded in SDG & E I that it has jurisdiction over the holding company parent, reasoning as follows: "Section 854 vests in this Commission a broad authority to approve or deny applications for transfers of utility ownership or control. Implicit in this authority is the right to place reasonable conditions upon the transferor and/or transferee should a need for conditions be shown. SDG & E, on its own...

To continue reading

Request your trial
65 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT