SDG&E; Hopes Diversification Plans Generate Revenue Sources

If San Diego Gas & Electric wins state approval to form a holding company and become a diversified company, its identity as a local gas and electric company will slowly start to change.

Its role model for diversification may be PacifiCorp, the utility based in Portland, Ore., that, even before it changed its name last year from Pacific Power & Light Co., was involved in a lot more than power and light.

The company began diversifying during the 1950s, buying coal fields in a handful of Western states. Later, the utility bought a small telecommunications company.

Last year, 43% of PacifiCorp’s $1.8 billion in revenue came from a diversified base that included cable television, telecommunications, financial services and coal fields. PacifiCorp, which operates coal and hydroelectric generation stations in four states, distributes electricity to 670,000 customers in six northwestern states.

“They’re recognized as a leader in the area of diversification,” said Steve Edwards, manager of special projects at SDG&E.; Edwards is interested in diversification because, starting Monday, SDG&E; will present its case for diversification to the Public Utilities Commission.

SDG&E; is seeking PUC approval to establish a holding company that would include SDG&E; and any corporate offspring that diversification brings. SDG&E; reported $1.6 billion in 1984 operating revenues, all of which came from electricity and gas sales in Southern California.

That contrasts with the situation at PacifiCorp, whose natural resource division now includes gold and silver mines, gas and oil exploration, and a distribution and production network that reaches 21 states. In 1984, mining operations generated 21% of the company’s revenue.

PacifiCorp’s telecommunications operation, which includes a company-owned satellite, 180 earth stations (including one in San Diego) and three major call-switching centers in cities as far away as New York, also pipes Muzak into office buildings. PacifiCorp’s telephone service operates in a dozen states, and it handles most long-distance calls in Alaska. Telecommunications accounted for 22% of the company’s 1984 revenue.

In August, PacifiCorp used $53 million in cash and a $3-million promissory note to buy the assets of a financial services company that reported $3 million in net income and $40 million in revenue during 1984.

PacifiCorp, which promotes itself as “the nation’s most diversified electric utility,” has also taken some expensive steps into the high-tech arena: It has purchased interests in companies that manufacture flight instruments, a machine that uses the human eye--rather than fingerprints--to identify people, and a company that produces subliminal anti-theft messages for use by retail stores.

“Our goal for the next year is to contribute an additional $10 million to net income through acquisition growth,” PacifiCorp President A.M. Gleason said earlier this year. “We’ve developed a list of target business lines which we are now studying in depth.”

The utility also reported net profits during 1982 and 1983, at the same time that it was writing off nearly half of its $573-million investment in the ill-fated Washington Public Power Supply System’s nuclear plant.

Interestingly, PacifiCorp’s diversification has taken place without moving to the holding company structure that SDG&E; is pursuing. It also has taken place in Oregon, a state that has “stronger state laws (governing intracompany transactions) than almost any other state,” according to Frank Taussig, assistant public utilities commissioner for Oregon.

Although many of PacifiCorp’s divisions escape commission review because they are independent of utility operations, the utility has nevertheless brushed up against the state utility commissioner.

Oregon’s regulatory staff is creating guidelines to govern transactions between utilities and their unregulated subsidiaries. Taussig said he will present those guidelines during California PUC diversification hearings scheduled to begin next week in San Francisco.

In addition to creating guidelines, Oregon’s public utility commissioner has gone to court to stop PacifiCorp’s recently announced plan to transfer its purchasing and warehousing operations to a new subsidiary. Taussig said the state wants to stop the transaction because it involves “transferring a vital management function to an unregulated subsidiary.”