SDG&E; Takeover Study OKd by Water Authority

Adding to the momentum building to try to block San Diego Gas & Electric Co.’s proposed merger with Southern California Edison, the San Diego County Water Authority voted unanimously Wednesday to study the feasibility of acquiring the utility.

However, the Water Authority’s action, which came after financial analysts said that a “very preliminary” study suggests that a public purchase of SDG&E; is economically viable, is contingent on the San Diego City Council’s acceptance of certain conditions concerning the $250,000 that it has agreed to loan to the water board to conduct a “cost-benefit analysis” of a possible public takeover.

Specifically, members of the Water Authority’s board of directors emphasized that they do not regard the city’s money as a loan, but rather as a grant to be repaid only if the agency takes over SDG&E.; If, on the other hand, SDG&E;’s proposed $2.4-billion takeover by Edison’s parent company, SCEcorp., is approved, or if the water board, for any reason, does not assume control of the utility, the $250,000 would not be paid back to the city.

Whether those terms are acceptable to city officials remained questionable Wednesday night. In a letter sent to the Water Authority on Tuesday, San Diego City Manager John Lockwood refers to the $250,000 as an “advance” to be repaid “as soon as . . . legislation” enabling the board to acquire and operate SDG&E; is effective. The Water Authority is now authorized only to operate as a water utility.

Not in Line With Council

Although Lockwood’s letter does not specifically address what would happen in the event that the public acquisition plan falls through, City Atty. John Witt said Wednesday night that the Water Authority’s terms “aren’t exactly in line” with the council’s position on the $250,000.

“There are some differences there and I’d have to consult with (the council) to see whether that’s acceptable,” Witt said. He added, however, that he believes the differences can be worked out.

From the council’s perspective, Witt said, the $250,000 is to be repaid after the Water Authority secures legislation allowing it “to use its own funds” for the feasibility study, not only if public ownership of SDG&E; becomes a reality. Water Authority board members, though, were insistent Wednesday about not using water funds under any circumstances for the study, although they did agree to solicit funds from the county and its 17 other incorporated cities in an effort to relieve San Diego of the full financial burden of the study.

“Public acquisition is only one possible road--in fact, it’s something of a long shot,” Witt said. “If that’s the only way we’d get our money back, I think the council would have some questions. . . . But there’s no confrontational issue here. We’re all trying to get to the same place.”

‘At Square One’

If the conditions are acceptable to the city, Water Authority executives said, they could proceed with hiring a consultant for the study as early as next week. But, if the city raises objections, “We’re back at square one,” Water Authority General Manager Lester Snow said.

Under Wednesday’s action, the Water Authority would proceed with a feasibility study, not to exceed $250,000, and seek a change in state law authorizing the water board to own and operate a gas and electric company. State Sen. Larry Stirling (R-San Diego) already has said he intends to introduce such legislation in order to give San Diegans “one more option” for possibly retaining local control of SDG&E.;

During a nearly three-hour meeting, half of it in closed session, the Water Authority board members went to great lengths to emphasize that the feasibility study is simply that--a study of the financial, legal and political ramifications, not a commitment to proceed with public acquisition of SDG&E.;

‘Not a Commitment’

“A study is not a commitment to move beyond the study,” board member Paul Peterson said.

That comment echoed a remark made earlier in the meeting by Assemblyman Steve Peace (D-Chula Vista), who told the board that, although he supports the study of all options, “I am concerned that some in our community appear to be promoting such options before they have the facts.”

The only “facts” before the board Wednesday were sketchy, preliminary financial projections indicating that a publicly owned SDG&E; would be an economically sound enterprise. The analysts who presented those estimates, however, stressed that their preliminary nature, noting that their recommendations on the financial feasibility could change after a more thorough, exhaustive analysis.

With that rather large caveat in mind, F. H. Muhs, a managing director of Prudential-Bache, told the board: “The deal could be financed in the credit markets and the resulting company . . . with the same rate structure would be able to (pay off) the debt.”

$4-Billion Cost

That tentative conclusion, Muhs explained, is based on estimates that the total cost of a public takeover of SDG&E; would be $4.036 billion, a figure that includes the company’s equity value, taxes, closing costs and other debts.

SDG&E;’s annual revenue appears sufficient to pay off that debt, Muhs added, with much of that money coming from savings of up to $200 million a year in state and federal income taxes and stock dividends that a publicly owned utility would not have to pay.

One objection to a public takeover raised by some local officials is that San Diego schools and area governments could lose tens of millions of dollars in property taxes if the utility were no longer privately owned. Muhs, however, said that loss would not occur, explaining that his projections assume that the utility would continue to make comparable payments to local schools and governmental entities in lieu of property taxes.

Action Criticized

An SDG&E; official at Wednesday’s meeting, however, used the tentative nature of the financial estimates to criticize the Water Authority board’s action.

“What’s very unfortunate is that they’ve taken a step toward spending a quarter of a million in taxpayer money based on some very broad, reaching financial assumptions,” said Karen Hutchens, SDG&E;’s government affairs coordinator. “If I went to the bank with that kind of financial analysis, I know they wouldn’t finance my house, much less a utility company.”