The Battle for SDG&E;: David vs. 2 Goliaths : Public Takeover Bid Faces Grim Odds in Sacramento

Even before the first legislative shot has been fired in the fight to retain local control over San Diego’s power supply, the effort to scuttle California’s largest-ever utility merger is being described by many here as a nearly unwinnable battle.

The contest pits the San Diego County Water Authority, a virtual non-entity in the Capitol, against Southern California Edison Co. and San Diego Gas & Electric Co., two huge utilities that wield considerable clout based on their longstanding relationships with legislators of both political parties.

The Water Authority will be seeking a change in the law to allow it to acquire SDG&E;, which would make for the largest public takeover of an investor-owned utility in the nation’s history, according to the American Public Power Assn. SDG&E; and Edison, which wants to buy the San Diego utility, are expected to oppose the proposed legislation.

Any bill aimed at blocking the Edison-SDG&E; merger will almost certainly fail unless it is backed by a unified front of San Diego County cities and the county’s delegation in the Legislature. But the chances for that kind of unanimity seem slight.

Of the 11 legislators from San Diego County, only Republican Sen. Larry Stirling has so far come out against the private merger and in favor of turning investor-owned SDG&E; into a municipal utility run by the government. Stirling has said he will introduce legislation to enable the Water Authority to take over SDG&E.;

“I’m hopeful that most if not all of the San Diego delegation will sign on as co-authors and that the rest of the Legislature will defer to the San Diego delegation,” Stirling said.

But Stirling, whose bill is still in the drafting stage, has yet to obtain commitments from any of his colleagues, several of whom are openly pessimistic about the measure’s chances.

Four members--Assemblymen Steve Peace (D-Chula Vista) and Bill Bradley (R-San Marcos), Assemblywoman Carol Bentley (R-El Cajon) and Sen. Marian Bergeson, a Republican who represents parts of North County--have said they are skeptical of any attempt to launch a public takeover of the San Diego utility.

Five members have not yet staked out positions on the issue. Assemblyman Robert Frazee (R-Carlsbad) said he will not participate in the decision because he is an SDG&E; shareholder.

Several factors combine to make Stirling’s proposal an uphill climb. Among them:

- Edison and SDG&E; are firmly entrenched lobbying forces in the Capitol, spending hundreds of thousands of dollars a year to influence the Legislature, the governor and the Public Utilities Commission. They have credibility with lawmakers and will use every bit of it to make their case against a public takeover.

- A sizable contingent of Republicans, including Gov. George Deukmejian, are free-market advocates who would be reluctant to upend a business deal worked out between two major California corporations. There are signs that Edison and SDG&E; are lining up support from other investor-owned utilities nationwide out of concern that a public takeover in a city as large as San Diego might spur similar attempts elsewhere.

- The Water Authority’s proposal is seen as premature, given the fact that no one yet knows what effect the Edison-SDG&E; merger might have on customers. Many here wonder whether the water authority, an appointed body that acts as a middleman in water distribution for the county, is equipped to handle such a complicated undertaking.

A public takeover of SDG&E; would mean the loss of $32 million in property taxes paid annually by the utility to local governments in San Diego County. Funds would have to be found to compensate for that fiscal loss.

- Many legislators have had only one experience with a large municipal utility: the Sacramento Municipal Utility District. SMUD has suffered from serious management problems; has had difficulty running its Rancho Seco nuclear power plant and has seen its rates, although still lower than SDG&E;’s, nearly double in four years.

Jim Cassie, SDG&E;’s chief lobbyist in Sacramento, said he is asking legislators to give Edison a chance to prove its case before the Public Utilities Commission before aiding any attempt to block the merger.

No Official Position

“We will oppose very strongly any kind of bill involving a municipal takeover,” Cassie said. “We have asked members of the San Diego delegation to give Edison a chance to make their case before they set their feet in concrete.”

Edison as yet has no official position on Stirling’s bill, according to Edison lobbyist Robert Foster. But every legislator interviewed expects the utility to oppose it.

“When the facts are out, we think our position will be one that clearly shows the merger is beneficial to the ratepayers of San Diego and Los Angeles and better for both communities,” Foster said.

Stirling and the Water Authority are not totally without political ammunition. For one thing, San Diego enjoys a good reputation in the Capitol, where many legislators from other parts of the state see it as a clean, progressively run city capable of undertaking large projects with ease.

In addition, Stirling will argue that a municipal takeover of an investor-owned utility does not represent government interference in the free market.

“I don’t think that, in California, since the utilities are monopolies, that the fact that they are investor-owned or publicly owned makes a dime’s bit of difference,” he said. “I don’t think there’s any significant difference in their profitability or the quality of their management based on their institutional arrangement.

“While I admire and respect the concept of private enterprise, in this case it’s not private enterprise, it’s a publicly regulated institution.”

Los Angeles’ Success

Ben Clay, the Water Authority’s lobbyist, noted that, although Sacramento’s experience with municipal power might be unsatisfactory, Los Angeles has had a successful public Water and Power Department for more than 50 years.

“This isn’t about some little, tiny water agency trying to municipalize a utility,” Clay said. “The issue is how do you keep SDG&E; in San Diego. What they are ignoring is that the people of San Diego don’t want to see SDG&E; taken over by a Los Angeles firm.”

Stirling, who argues that the biggest benefit of public ownership would be the ability to buy cheap hydroelectric power through the federal government, said his bill will probably include provisions for a vote of the people and a restructuring of the Water Authority board of directors.

But there remain many skeptics.

Sen. Wadie Deddeh (D-Chula Vista) said he doubts the legislation will make it to the governor’s desk. “I don’t think it’s going to fly,” he said. And Deddeh, who earlier considered authoring the bill himself, now gives it only a tepid endorsement.

“If the bill clears the committees and comes to the floor, I probably would vote for it,” he said.

Staying Out of Fray

Sen. William Craven (R-Oceanside) said the loss of local control over the power company concerns him. But he said he expects to stay out of the fray.

“Customers such as myself probably feel that the SDG&E; directors have in effect, by this action, not really supported them as users,” Craven said. “But the directors’ responsibility is to the shareholders, not to the subscribers. That’s a big difference.”

Assemblywoman Bentley said she has “innate bad feelings” about the idea of a municipal utility.

“I don’t think government is efficient,” she said. “I think the private sector is more efficient.”

Bentley and Assemblyman Bradley both said they are concerned about the loss of property-tax revenue a public takeover would cause and the effect that might have on county health and social services. Bradley also doubts that the Water Authority could keep rates down while it is struggling to repay the debt required to finance the purchase.

“The fact that they would have to sell bonds to buy SDG&E; tells me that, for the life of those bonds, I don’t think we can get cheaper power,” he said. “I don’t see it as a big plus--so far.”

Several other bills besides Stirling’s will probably be introduced before the end of February.

Assemblywoman Lucy Killea (D-San Diego) said she will propose a measure to allow the Water Authority to study the takeover idea, something it is already doing, indirectly, through a loan from the city.

“You’ve got to do the study first to see if it makes any sense, aside from the emotional appeal of doing our own thing,” Killea said.

Peace will probably introduce legislation as well. One idea he has is to allow the Water Authority to buy and sell electricity but not necessarily acquire SDG&E.; Peace favors competition among utilities, a radical and probably unsalable departure from today’s government-regulated monopolies.

Peace also said he will oppose the Edison-SDG&E; merger unless Edison agrees to move its headquarters to San Diego, which would be the largest city in its service area, and promises not to use San Diego’s oil-burning power plants to produce electricity for the Los Angeles area when air-quality standards prohibit the use of the same kinds of power plants in the Los Angeles basin.

Sen. Herschel Rosenthal (D-Los Angeles), chairman of the Senate Energy and Utilities Committee, has introduced a bill that would require the PUC to stop any merger that does not provide “positive benefits” to customers, maintain or improve the quality of service and benefit the local economies.

“I’m not suggesting the merger shouldn’t take place,” Rosenthal said. “I’m just trying to make sure that no one gets hurt as a result of it.”

Such a proliferation of bills on the issue presents a risk to the Water Authority: the agency could lose control over the debate. Lawmakers may compromise with the utilities to move their own bills along and leave the water authority out in the cold.

For Stirling, elected to the Senate in November after four terms in the Assembly, this will be his first major test. As a freshman, he will not have established as much good will or influence in the Senate as he enjoyed in the lower house.

Stirling said it is still too early to rate the legislation’s chances for success. But he acknowledged that the fight will be a difficult one.

“You’ve got (SDG&E; President) Tom Page threatening to spend every last cent of the company’s money to stop us, and Southern California Edison is no shrinking violet,” he said. “Both are gunning against us. I doubt the Legislature is going to roll over.”