SDG&E; Directors OK Plan to Diversify Firm
San Diego Gas & Electric’s board of directors recommended Monday that the utility form a holding company that will allow it to diversify into non-regulated ventures.
The diversification, subject to approval by SDG&E; shareholders and various state and federal regulatory agencies, will enable the utility to “explore and invest in new ventures . . . without risk to utility customers,” according to Thomas A. Page, SDG&E; chairman, president and chief executive.
The non-regulated ventures could include alternative energy sources, land and financing of energy systems, Page said.
The non-utility ventures would expand slowly, he said. “We have no target percentage that’s driving us,” he said. “We’re a corporation with $3 billion in assets, so something (new) would have to be very significant to make a difference.”
Page said it could take as long as 50 years for SDG&E; to develop its proposed non-utility holdings to rival those of Pacific Lighting, the Los Angeles-based holding company that was created more than 50 years ago and owns Southern California Gas. Pacific, which has land-development and energy-related companies under its umbrella, still generates more than 75% of its operating income from its utility operations.
Created Subsidiary
In March, SDG&E; created a subsidiary, Pacific Diversified Capital, to house its non-utility operations. Page said the proposed holding company will concentrate on the same areas--”alternative energy sources that utilities can’t be involved in. We hope to be . . . a financial catalyst in the biomass or trash energy field.”
Page acknowledged that SDG&E;’s planned holding company could strain relations with the state Public Utilities Commission.
“We recognize the ongoing workload that they have, and we’ll try to be as clear and as even-paced as we possibly can,” he said. “The PUC has a very specific job, and it’s our responsibility to help them do that.”
SDG&E; is the first major California utility to come before the PUC with a diversification and holding-company proposal, according to William Ahern, director of the PUC’s public staff division. The agency, he said, will review the plan to “make sure that customers of SDG&E; won’t be harmed by it.”
Ahern said that, if the diversification should prove unprofitable and the company’s bond ratings were subsequently downgraded, then the PUC can “make (SDG&E;) digest those losses.”
Scrutiny From UCAN
SDG&E;’s plan will also come under scrutiny from the Utilities Consumer Action Network (UCAN), formed in San Diego two years ago as a utility consumer watchdog group.
“We don’t want to be financing their springboard into other businesses, and we don’t want to be a safety net if something goes wrong,” said Gary DeLoss, UCAN executive director. “We take a very cautious view of this type of development because we’d rather have SDG&E; management create a better-managed utility.”
Nationally, there is increased interest in utility holding companies, according to Douglas Bauer, senior vice president of the Edison Electric Institute in Washington. “More utilities are interested in diversification than five years ago,” he said. “We’ve identified more than 200 different diversified activities that (institute member) companies are involved in.”
Bauer said most utilities “say they are heavily diversified. But look at (their) balance sheets. The (non-utility) contributions are (usually) very, very modest.”
SDG&E; will hold a special board meeting this fall to put the holding-company idea up for shareholder approval. The proposal must also be approved by the PUC, the Securities and Exchange Commission and the Internal Revenue Service.
