Generating Cash
Encouraged by high prices fetched by rival utilities for their generating facilities, San Diego Gas & Electric Co. said Tuesday that it plans to auction its two power plants and a 20% stake in its San Onofre nuclear plant.
Enova Corp., parent company of SDG&E;, waited to gauge the depth of interest in the plants auctioned by Southern California Edison and Pacific Gas & Electric Co., analysts said. Recent sales by the state’s two largest investor-owned utilities fetched prices far higher than their book value.
“Before, companies were wondering how much they had to pay. It was a black box,” said Daniele Seitz, an analyst at UBS Securities in New York. “Utilities are pleasantly surprised that the world is giving good value to generating assets.”
SDG&E;’s two gas-fired plants in the San Diego County cities of Chula Vista and Carlsbad, combined with their combustion turbines, have a generating capacity of 2,000 megawatts and a book value estimated at $250 million. The plants run at between 20% and 35% capacity. The 20% share in the San Onofre plant has a book value of $650 million.
SDG&E; Chief Executive and President Donald Felsinger declined to speculate on the value of the plants on the market.
On Monday, Rosemead-based Edison said it sold 10 plants for $1.1 billion, 2 1/2 times their book value. Last week, San Francisco-based PG&E; auctioned off three plants for $501 million, or 1.3 times book value.
The California Public Utilities Commission directed Edison and PG&E; to sell at least half their gas-fired plants in preparation for electricity deregulation, which starts in January.
SDG&E;, the state’s third-largest utility, was not required to sell its plants, Felsinger said. For the last two decades, the utility has focused on becoming a distributor of power rather than a supplier. It currently buys 65% of its power from suppliers in Canada, Arizona and elsewhere.
Although SDG&E; is the last of California’s three biggest investor-owned utilities to put its plants on the auction block, demand remains high, analysts said.
“There’s a great hunger by outside companies to gain a foothold in the California market,” said Barry Abramson, a utilities analyst at PaineWebber in New York. “There’s a desire to get in early and build relationships with customers.”
Said Felsinger: “There was no price or no risk in waiting--we got a free look. We saw that others had a robust auction.”
SDG&E;’s board of trustees voted Monday to sell the plants and other generating assets. The company plans to file with the PUC in December and sell the assets by the end of 1998.
Under state law, the new owners must continue to employ the 285 workers at the two plants for the next two years.
Shares of Enova rose 44 cents to close at $26 on the New York Stock Exchange.
SDG&E; has 1.2 million electricity customers and 710,000 natural gas customers. The sale requires approval from the PUC.
Bloomberg News was used in compiling this report.
