San Diego Utility Expects to Post a Second-Quarter Loss

Taking a major step back from its strategy of diversification in the 1980s, San Diego Gas & Electric Co. said Tuesday that it expects to lose money in the second quarter because it will take after-tax write-offs of more than $80 million.

Most of the write-offs are related to its 80% stake in Wahlco Environmental, which makes air pollution-control devices, and its real estate subsidiary known as Phase One Development.

Santa Ana-based Wahlco has been hurt by less stringent clean-air standards that enable polluters to use less expensive alternatives to Wahlco products, while Phase One has been hit hard by San Diego’s declining real estate values.

SDG&E; said a small portion of the write-offs--about $13 million--will occur because of the uncertainty all California utilities face due to recently proposed rate-setting rules designed to be in line with free-market competition. In the past, the Public Utilities Commission has set rates by fixing a profit based on a percentage of the utilities’ costs.

The uncertainty forced SDG&E; to cancel its $450-million South Bay Repowering Project, a modernization of a power station in Chula Vista, because it said it was no longer certain that the investment would be profitable. The utility is writing off the engineering and planning costs related to the plan.

Like many other utilities, SDG&E; diversified into non-power-generating businesses in the 1980s as a way of protecting itself in the then-volatile energy industry. It bought Wahlco in 1987 and then sold 20% of the company to the public. It acquired Phase One Development in 1986.