Citing PUC Restrictions, SDG&E; Drops Holding Company Plans

Fearful that regulatory restrictions would severely inhibit diversification into non-utility ventures, San Diego Gas & Electric has abandoned its much-publicized plan to create a holding company, sources at the utility and at the state Public Utilities Commission said Wednesday.

During a four-hour special board meeting April 3, SDG&E; directors agreed unanimously that several of the 20 regulatory restrictions the PUC mandated would force SDG&E; to operate the holding company in an “economically unsound” manner, according to several SDG&E; directors, who requested anonymity.

Last month, the commission approved SDG&E;’s plans to create a holding company, but it imposed a lengthy list of restrictions designed to protect SDG&E; customers from having to bear the costs of any losses in SDG&E;’s non-utility ventures.

SDG&E; is expected to issue an official announcement of its decision to drop the holding company plan today.

“We haven’t heard anything officially yet, but we did the best job we could in laying down conditions which would make it possible for (SDG&E;) to diversify and at the same time protect the integrity of the utility,” PUC President Donald Vial said Wednesday.

Vial said the PUC has even stronger control over any diversification efforts SDG&E; conducts through its existing operating company.

Although the PUC had not been informed of the utility’s decision by late Wednesday afternoon, “the inference is that they’re not going to pursue the holding company,” said Terry Murray, an adviser to PUC Commissioner Victor Calvo. “We’ve heard informally that they had problems with a few of our conditions.”

Under those conditions, SDG&E; would have had to inform the commission before it could sell any of its assets, and the holding company would have had to obtain PUC approval before it could invest more than 15% of its assets in non-utility subsidiaries.

SDG&E; board members also opposed a PUC restriction that would have required the holding company to pay “imputed royalties” to reimburse utility customers for the “intangible assets” that eventually would have been transferred to the holding company.

Despite its decision to drop the holding company plan, SDG&E; is likely to continue to expand its non-utility businesses through Pacific Diversified Capital Co., a recently created subsidiary that already boasts of a landholding division, a computer services business and an energy technology company.

Japatul Corp., the land company, will eventually include residential, commercial and industrial real estate developments. Integrated Information Systems will concentrate on computer services. It has already obtained several contracts to study the use of computers by other utilities. The third company, Pacific Energy, will develop new types of energy technology.

Even though SDG&E; plans to continue diversifying through its existing operating company, utility customers will be better protected because the PUC retains jurisdiction over diversification handled through existing utility companies, according to Michael Shames, executive director of Utility Consumers Action Network, which is based in San Diego.

“There’s no question that we want (diversification) to be handled through a utility subsidiary rather than through a holding company structure,” said Shames, who described the holding company plan as the “least advantageous to ratepayers . . . (and) the most advantageous to the company.”

After the SDG&E; board of directors decided to drop the holding company proposal, SDG&E; began to lobby against state Senate and House bills that would place strict limits on utilities that want to create holding companies.

The bills were introduced in February, but “SDG&E; had been pretty much on the sidelines up until Tuesday,” a Senate staff member said.