City, UCAN Back Curbs on SDG&E; Plans

The state Public Utilities Commission should disallow or severely limit San Diego Gas & Electric’s plan to form a holding company and diversify beyond its traditional utility business, according to documents filed Monday by the City of San Diego and two consumer and business organizations.

“SDG&E; should stay in the utility business and nothing else,” Deputy City Atty. William S. Shaffran argued in a document filed with the PUC on Monday. Shaffran acknowledged, however, that conditional approval of a holding company may be more desirable than allowing SDG&E; to continue creating and operating “unregulated” subsidiaries within the utility company structure (Utilities are closely regulated by the state, but most other businesses are not.).

“This (holding company) proposal is ratepayer neutral at best and is simply not needed,” Utility Consumers Action Network (UCAN) Executive Director Michael Shames said Monday. “Other healthy, established utilities are not forming holding companies, but SDG&E;, which found itself to be cash-rich during the past three years, is asking for permission to create a holding company.”

Although Shames predicted that the PUC would approve SDG&E;’s request, he suggested that strict limits be placed on how quickly--and in what directions--the utility should be allowed to expand its unregulated subsidiaries.

Both Shames and Shaffran suggested that the utility stall its diversification plans for several months until the PUC determines the “reasonableness” of SDG&E;’s construction costs for Units 2 and 3 at the San Onofre Nuclear Generating Station. The PUC staff has recommended that utility shareholders be forced to absorb as much as $200 million in “unreasonable” costs.

The utility should hang on to its retained earnings until “it knows what it might be forced to absorb, instead of spending on diversification,” Shaffran said.

The city, UCAN and Sacramento-based Independent Energy Producers, which represents unregulated energy producers, have urged that SDG&E; accept 14 recommendations made by the PUC’s staff.

Although the utility has agreed verbally to most of those suggestions, it remains opposed to three: limiting its capital investment in non-utility affiliates to 15% of the consolidated assets of the holding company; gaining PUC approval before selling any subsidiaries, and selling any operations that the commission brands as detrimental to utility customers.

UCAN and Independent Energy Producers also suggested that:

- Utility shareholders foot the bill if the commission needs to hire additional staff members to govern the proposed holding company.

- SDG&E; be prohibited from signing contracts with any unregulated subsidiaries it creates.

- SDG&E; pay “imputed royalties” on resources or personnel that are developed by the utility but that are subsequently used to benefit non-utility operations.

Shames suggested that royalty payments would, for example, keep the utility from selling at a profit the land that was acquired at a lower price through the use of eminent domain. It would also compensate the utility if the subsidiaries drain away its experienced personnel to bolster their revenues.

Independent Energy Producers warned that SDG&E;’s competitors in unregulated markets would be at a disadvantage without equal access to SDG&E;’s vast array of marketing and information.