SDG&E; to Sell Its 20% Energy Factors Interest

San Diego Gas & Electric on Friday agreed to sell its remaining 20% interest in Energy Factors for $24.6 million, ending an association with the energy co-generation business that SDG&E; created in 1970 and spun off in 1983.

As a “side benefit” to the proposed sale, SDG&E; probably will alleviate some of the intense regulatory scrutiny on contracts between the two companies and avoid future allegations of “sweetheart deals” similar to those scheduled to be settled on Dec. 18 by the state Public Utilities Commission, according to SDG&E; spokesman Maurice Luque.

The sale is dependent on the Feb. 15, 1986, completion of a $70-million convertible debenture offering by Energy Factors. Proceeds will be used to buy the stock at $22.50 per share from SDG&E;, which paid $8 per share in 1983.

Energy Factors will use the remainder of the funds to “finance its investment in projects under development (and the) development of additional projects,” according to Vice President Richard Kay.

“We feel that (the stock repurchase) will expand our business opportunities,” said Kay, who added that SDG&E;’s stock ownership stalled “several” of Energy Factor’s cogeneration plant sales to other utilities. The stock repurchase would eliminate utility industry concerns generated by SDG&E;’s presence as a shareholder, Kay said.

Federal regulations prohibit utilities--singularly or combined--from owning more than 49% of any outside cogeneration companies or projects. Some utilities have avoided Energy Factors’ projects because SDG&E;’s 20% ownership would limit their equity interest to 29%.

SDG&E; officials maintained that the decision to divest the Energy Factors holdings was not connected to the upcoming PUC investigation into allegations that SDG&E; signed imprudent contracts with Energy Factors.

That investigation will determine what kind of rate reduction, if any, SDG&E; must provide to its customers. The Energy Factors contracts account for about $29 million of the $43.5-million difference between the rate reductions suggested by SDG&E; and the PUC staff.

The investigation is part of an annual PUC review of the cost of fuels which SDG&E; burns to generate electricity. If commissioners adopt the staff’s $95.4-million figure, the utility’s shareholders--not its customers--would be forced to absorb the difference.

Although SDG&E; officials on Friday denied that the stock divestiture was tied to the SDG&E; holding company request now pending before the PUC, Michael Shames, executive director of the citizen watchdog Utilities Consumer Action Network, suggested that the timing was “suspicious.”

Limit on Investments

SDG&E; has indicated that it probably will limit its future energy company investments to companies outside its immediate service area, said Shames.

“The more separated (SDG&E; and Energy Factors are) the better,” suggested William Ahern, director of the PUC public staff, which represents the general public in rate-making cases. “But this (sale) just gives them more money to invest in diversified businesses, which is what they’ve already indicated they want to do.”

SDG&E; would rather invest in energy companies outside its service district to avoid competing with itself and because there would be less need for regulatory involvement, SDG&E; Chairman Tom Page recently testified before PUC commissioners in San Francisco.

Officials of Pacific Diversified Capital Co., the SDG&E; subsidiary which holds the Energy Factors stock, thought the “time was basically right and that it was a good business decision to sell the stock off,” Luque said. “They thought the price they got for the stock was a fair and good price.”