SDG&E; Drops Tucson Electric Deal, Opening Way for SCEcorp
San Diego Gas & Electric and Tucson Electric Power on Thursday scrapped their merger plans, an unexpected move that could help Rosemead-based SCEcorp in its bid to acquire the the San Diego utility.
Instead of merging with the Tucson company, SDG&E; will consider “remaining independent, pursuing a possible combination with SCEcorp and other extraordinary transactions,” according to a terse statement issued by SDG&E; Chairman and Chief Executive Thomas Page.
Officials of SCE, the parent of Southern California Edison, confirmed they still are interested in SDG&E.; “We made the proposal to buy San Diego on the condition that the Tucson Electric merger wasn’t consummated. Nothing’s changed,” said SCE spokeswoman Diane Wittenberg.
Combining SDG&E; and Edison would create the nation’s largest electric utility with 4.8 million customers. Utility analysts have predicted industry consolidation for more than a year, but few mergers have taken place. SCE’s uninvited merger proposal was a particularly unusual move for the usually staid industry.
SCE unveiled its surprise $2.16-billion stock bid for SDG&E; in early July, shortly after the San Diego utility announced its planned merger with TEP. On Sept. 1, SDG&E;’s board rejected SCE’s bid and set out to complete the merger with TEP.
However, SCE promised to use its lobbying power to convince regulators that SDG&E;’s merger with TEP was not a good pairing. That threat evidently was “large enough to make TEP’s board believe they weren’t going to win in the long run,” according to Steve McNamara, an analyst with the investment firm Bateman Eichler, Hill Richards in Los Angeles.
“SDG&E; is going to have a hard time turning down SCE’s bid now,” McNamara said. “And from a shareholder point of view, it’s a good deal.”
In a joint release issued Thursday, SDG&E; and TEP acknowledged that SCE’s opposition to their deal would “significantly complicate” an already complex regulatory approval process that would have involved more than a half-dozen agencies.
Thursday’s announcement might have been prompted by a cost-saving study that SDG&E; and TEP were conducting, according to Michael Shames, executive director of Utilities Consumer Action Network.
SDG&E; “was supposed to be quantifying savings that would occur because of the TEP merger,” Shames said. “If savings were substantial, SCE’s opposition wouldn’t have mattered.
Shames speculated, however, that the study failed to turn up the potential for substantial savings. The merger scuttled Thursday would have paired SDG&E;, which has among the nation’s highest electric rates, with TEP, known as one of the nation’s lowest-cost producers.
SCE, on the other hand, has suggested that it could win regulatory approval for its proposed acquisition because of the likely cost savings. SCE Chairman Howard Allen has said Edison’s rates would remain lower than SDGE’s, but that the customers of the San Diego utility would get a 10% electric rate cut anyway if the deal is completed.
Page has countered that electricity rates across Southern California will soon be equal because Edison’s rates are rising while SDG&E;’s are falling.
Regulators are not expected to approved an SCE-SDG&E; deal unless they can prove it would cut, or at least hold down, costs for customers of both companies.
SDG&E; and TEP’s merger proposal might also have been hurt by a recent Federal Energy Regulatory Commission ruling involving Pacificorp, a Portland-based utility holding company merging with Utah Power and Light. FERC ruled that the utilities could merge only if they agreed to let other utilities--and large customers--transmit power over their transmission lines.
Some analysts had suggested that the SDG&E; merger with TEP would be less attractive if saddled with that transmission requirement.
SDG&E; and TEP’s late afternoon announcement surprised SCE executives, Wittenberg said. “We heard that they’d be sending something out late (Thursday),” Wittenberg said. “But we had no idea of what they were going to say.”
