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Pint-Sized SDG&E Subsidiary May Grow in Importance

February 04, 1988|GREG JOHNSON | Times Staff Writer

SAN DIEGO — Even after last week's Super Bowl tickets flap, San Diego Gas & Electric's subsidiary, Pacific Diversified Capital, remains largely unknown in San Diego.

PDC, the subsidiary that houses SDG&E's four non-regulated businesses, became entangled in the ticket flap after it sold 20 Super Bowl tickets at their $100 face value to SDG&E. PDC was able to buy the Super Bowl tickets because of a clause in its sky-box lease at San Diego Jack Murphy Stadium.

SDG&E subsequently offered those tickets at face value to various government officials, including members of the state Public Utilities Commission--the public body that regulates SDG&E. Critics berated SDG&E's ticket offer, which eventually was accepted by only one PUC member.

That brief flurry of media attention was probably more exposure than PDC has drawn since SDG&E formed the wholly-owned subsidiary in 1986.

"We're probably better known out of town, where we have operations, than in San Diego," PDC President and Chief Executive Richard Korpan acknowledged.

Small in Comparison

PDC remains tiny in comparison to SDG&E's natural gas and electric distribution businesses, which generated $190 million in net income and $1.9 billion in revenue during 1987.

But the small company will grow in importance during the next decade, according to officials at SDG&E and PDC. PDC is expected to generate 10% of SDG&E's net income by 1991, and 25% of net income by 1996.

The wholly owned subsidiary generated about $360 million in 1987 revenue and operated at "nearly break-even" during its first full fiscal year, according to Korpan. PDC, which had $180 million in assets at the end of 1987, is expected to become profitable during 1988, Korpan said.

PDC has used SDG&E's retained earnings--but no ratepayer money--to acquire four companies that manufacture products and provide basic services. A hefty chunk of PDC's cash horde was generated by the 1986 sale of PDC's 20% interest in Energy Factors for $24.6 million.

PDC's future might have grown a bit brighter last week when the state Public Utilities Commission gave Southern California Edison permission to form a holding company that would house that company's utility and non-utility businesses.

SDG&E in 1986 won PUC approval to form a holding company. But SDG&E opted not to form the holding company because commis sioners also included 20 restrictions that SDG&E later described as too limiting. The PUC did not impose those restrictions on Southern California Edison.

Growth Not Stymied

PDC's growth has not yet been inhibited by the lack of a holding company, Korpan said. But growth could be hindered if the holding company is not formed by 1989, Korpan said.

SDG&E will continue to diversify beyond the gas and electric businesses even without a holding company. But Korpan said that PDC could "grow quicker and be more easily separated from the utility under a holding company."

Consequently, SDG&E will give strong consideration to requesting regulatory approval to form a holding company, according to SDG&E Senior Vice President Stephen Baum, who was "encouraged" by the PUC vote.

PDC's future revenue and net income growth will be driven by the four companies now in PDC as well as by future acquisitions.

"We had planned on making two acquisitions during 1987 but we only made one because of the time (that acquisition) involved," according to Korpan. PDC will probably add one or two more companies during 1988, and eventually will own between eight and 12 companies, according to Korpan.

Interestingly, PDC might have benefitted from the recent market crash.

"Supposedly, the Oct. 19 price drops have (brought) some public companies at least closer to the price range that we can consider looking at them seriously," Korpan said. But Korpan is not convinced that "the premium those companies would want we'd have to pay would be attractive."

PDC's existing revenue stream is dominated by Mock Resources, an Irvine-based marketer and distributor of natural gas and petroleum products. The energy businesses generate a high sales volume but paper-thin margins, Korpan said.

PDC also owns Computing Solutions, a Port Chester, N.Y. computerized mapping software company, and Wahlco,a Santa Ana-based manufacturer of air pollution control equipment. The companies sell products and services to the utility industry around the world.

Nearly two-thirds of PDC's assets are tied up in real estate owned by PDC's Phase One Development company. San Diego-based Phase One's best known local development project is the Belmont Park commercial center at Mission Beach.

Eventually, the bulk of PDC's revenue and profit will be derived from businesses that "do business with the utility industry," according to Korpan. And, PDC hopes to bolster its non-real-estate assets, Korpan said.

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