PUC Staff Group Recommends Against SDG&E; Bid to Expand for New Ventures

A staff group of the California Public Utilities Commission has recommended that the commission prohibit San Diego Gas & Electric from creating a holding company that would allow the utility to expand beyond its traditional gas and electric businesses.

“No major utility has requested to be controlled by a holding company until this SDG&E; application,” said William R. Ahern, director of the PUC’s Public Staff Division, in testimony to be presented during hearings to be held next week in San Francisco. “Therefore this is the case in which the Commission should set its policy toward the creation of new holding companies. That policy should be to prevent them.”

Ahern’s testimony expands on the general arguments he presented in a report issued earlier this month.

SDG&E;’s proposed holding company structure would remove both the holding company and any new businesses from PUC regulatory control, said Ahern, who added that the holding company concept “present(s) major opportunities and incentives to divert utility resources to assist affiliates, especially new ventures, to the potential detriment of utility ratepayers.”

The San Diego-based utility can use wholly owned subsidiaries--which would remain under PUC scrutiny-- to “deploy hundreds of millions of dollars of its retained earnings in the San Diego area,” said Ahern. “A holding company is not needed to do this.

Operating under the proposed holding company structure, SDG&E; could raise capital to finance additional alternative power generation projects that are best left to non-regulated companies, Ahern said. That added internally generated power would likely result in less use of lower-cost outside energy supplies, he added.

SDG&E;&s; existing competitors and a host of newer start-up companies “do not need (SDG&E;) to be a new competitor to build condominiums or provide financial management services or develop sources of alternative generation,” Ahern said. “If there are market opportunities they can be met without the proposed (holding company).”

In Ahern’s earlier report, he charged that utilities view holding companies as a way to “avoid (PUC) regulation, create ‘exciting’ activities for current managers by disposing of excess cash in new investments or acquisitions, and to deemphasize the ‘stodgy’ utility business role in corporate affairs and identity.”

The PUC won authority to regulate utility use of holding companies in 1971 when the Legislature required “PUC authorization for any corporation to acquire control of (a) public utility in the state,” Ahern said.

Since 1971, the PUC has approved the creation of two minor holding companies, Ahern said. Those approvals, he added, came about not because “the new holding companies were in the public interest, but from the determination that the applications were not adverse to the public interest.”