S. D. Charter Gives City Veto Power Over SDG&E; Mergers

A little-noticed clause in the San Diego City Charter gives the City Council the power to veto certain mergers or acquisitions involving San Diego Gas & Electric, city officials said Friday.

That power stems from a 50-year, exclusive electric and natural gas sales franchise that the city negotiated with SDG&E; in 1970. The charter requires that SDG&E; seek City Council approval to “sell, transfer or assign” rights to that exclusive franchise. The city has negotiated similar agreements with Cox Cable of San Diego and Southwestern Cable TV.

The relatively innocuous clause gained importance in recent weeks after SDG&E; became involved in two proposed mergers.

In June, SDG&E; disclosed a planned merger with Tucson Electric Power, an Arizona-based utility. In late July, SCEcorp, the parent company of Southern California Edison, proposed a merger that would blend SDG&E;’s 1 million customers in with Edison’s 3.8 million.

According to the franchise agreement, “neither side can amend the franchise without the other’s approval,” according to City Atty. John Witt.

Witt cautioned that the council’s power is severely restricted. Council members might “have to justify its serious doubts in court to the point that a judge could enforce our veto,” Witt said. “It has to be something more than just a provincial dislike for a Los Angeles company running our power company.”

Mayor Maureen O’Connor, who plans to schedule public hearings on the merger proposals, said Friday that the city will use its power to ensure that SDG&E;’s customers don’t see higher rates because of a merger.

“In the short term, a merger might mean lower rates, but in the long run, maybe you’d see higher rates,” O’Connor said.

O’Connor also expressed concern that a merger would eliminate jobs at SDG&E;, or result in the loss of yet another corporate headquarters. In recent years, PSA, Signal and Wickes have closed their corporate offices in San Diego.

Move to Dispel Fears

SDG&E; on Friday moved to dispel fears about changes that a merger might generate. In a prepared statement, SDG&E; Chairman Thomas Page pledged “to take into consideration the interests of customers, the community, shareholders and employees in our merger decision-making process.”

While the San Diego City Council could use the franchise agreement to kill a proposed merger, Witt said that the city will rely heavily on the state Public Utilities Commission, which also has authority to veto any merger involving SDG&E.;

“To a big extent, that’s where we’re going to have the most impact on making sure that whatever deal gets done is a good one,” Witt said. The city regularly takes part in PUC hearings involving SDG&E; “to make sure that the peculiar circumstances of our ratepayers in San Diego are fully explained,” Witt said.

The City Council’s veto could come into play in SDG&E;’s proposed merger with Tucson Electric Power, according to Witt. Under that proposal, SDG&E; and Tucson Electric would operate as separate utilities that would be owned by a newly created holding company. The new company would have to negotiate a new franchise agreement with the city.

If financial or regulatory problems keep the utility from creating a new holding company to house the two electric utilities, SDG&E; could simply buy Tucson Electric and operate it as part of SDG&E.; In that case, Witt said, the city would have no power to stop the deal because no new franchise would be involved.

The city would have veto power if SDG&E; agrees to Edison’s proposal because Rosemead-based Edison, the surviving corporate entity, would first have to negotiate a new franchise agreement.

On Monday, the PUC will open what is expected to be a yearlong review of SDG&E;’s proposed merger with Tucson Electric. SCEcorp has given SDG&E;’s board of directors until Sept. 1 to respond to its merger proposal.

In addition to the city of San Diego and the PUC, any merger involving SDG&E; would have to be approved by various regulatory authorities, including the Internal Revenue Service, the Federal Energy Regulatory Commission and the Securities and Exchange Commission.

SDG&E;’s proposed merger with Tucson Electric also must be approved by the Arizona Corporate Commission.