SCE Expected to Switch on Full Power to Push SDG&E; Merger
Utility industry observers are betting that Southern California Edison will pull out all the stops during upcoming state Public Utilities Commission hearings on Edison’s proposed merger with San Diego Gas & Electric.
“You’ve already seen the full-page newspaper ads in San Diego,” said William Ahern, director of the Division of Ratepayer Advocates, which represents the public at PUC proceedings. Once Edison is “committed to doing something, it’s no longer just like they’re trying to do a good job. . . ., Ahern said. “It’s Mary Kay Cosmetics. It’s salesmanship time.”
‘Unloading Its Testimony’
Rosemead-based Edison “has the reputation of backing up a truck and unloading its testimony,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group.
The PUC is awaiting a final merger application from the two utilities. An administrative law judge will soon be appointed and hearings will be scheduled; the entire merger process is expected to take more than a year.
Edison’s reputation as a forceful and free-spending player at PUC proceedings leads Shames to believe that San Diegans who support a municipal takeover of SDG&E; will end up “playing Pop Warner ball against Edison, which always plays in the big leagues.”
Edison was playing hardball during the PUC’s 1986-87 review of how Edison managed construction of the $5.4-billion second and third units at the San Onofre nuclear plant.
Ahern’s staff spent $5 million in funds collected from utility customers in California to prove that Edison’s mismanagement had generated $1 billion in cost overruns.
But Edison eventually spent about $30 million in shareholder funds to prove that construction of the two nuclear generating units was proper, according to PUC records.
At the end of the two-year proceeding, commissioners trimmed the proposed $1-billion penalty back to just over $200 million.
Edison spent freely during that defense “because this thing was so damn technical,” according to Edison Executive Vice President Michael R. Peevey. Costs also escalated because “there were something like 95 days of hearings . . . it was very complex,” Peevey said.
Based on Edison’s San Onofre defense, some utility industry observers believe that Edison will stage an equally aggressive performance during the upcoming PUC review of the proposed merger between SCEcorp (Edison’s parent company) and SDG&E.;
Gathering on Many Fronts
Edison will “put on the best case that we possibly can,” Peevey said, and that means gathering testimony on many fronts. “We think we can demonstrate that this merger is in the best interest of the public.”
Edison “will spend as much if not more during this case because, frankly, more is at stake,” Shames predicted.
“They will spend whatever it takes,” predicted Sylvia Siegel, executive director of Toward Utility Rate Normalization, a San Francisco-based consumer group. “They always (hire) the fanciest talent and the biggest names, and they’re very well connected.”
During the San Onofre hearings, Edison assembled what Ahern has described as “a list of celebrity witnesses” that included two Harvard professors, former Environmental Protection Agency Administrator William Ruckelshaus, renowned economist Alfred Kahn and former Department of Energy Secretary James R. Schlesinger.
“They got all this fancy talent and tried to put on a big razzle-dazzle show . . . to impress the commissioners,” Siegel said.
“They tried to create this climate of credibility for the company,” Ahern said. “They thought by getting these nationally renowned people to testify . . . (the PUC) would say ‘look, your dinky civic service staff and their consultants are way out of line.’ ”
During a typical PUC proceeding, the PUC staff is outspent 2 to 1 by Edison, and groups such as UCAN are outspent by 5 to 1, Shames said. “In the San Onofre proceedings, we were outspent a million to one.”
Edison’s shareholders paid Schlesinger $70,000 for his brief appearance, according to PUC records. In contrast, Shames said, UCAN’s attorney received $60,000 for nearly six months of full-time work.
Peevey dismissed Ahern’s description of nationally prominent individuals as “celebrity witnesses.”
Schlesinger “was not there because he’s a celebrity,” Peevey said. “He was there because he has expertise in the management of large systems” such as a nuclear plant construction program.
Victor Gilinsky, a former Nuclear Regulatory Commissioner, “talked about the NRC and nuclear power plants,” Peevey said. “Schlesinger and Fred Kahn talked about managing big construction projects, and Bill Ruckelshaus talked about . . . nuclear power and the EPA’s safety programs.”
Defended Witnesses
He also defended the integrity of Edison’s witnesses, noting that Peevey maintained that, although Gilinsky represented Edison during the San Onofre hearing, “he represented the PUC staff” during a recent review of alleged cost overruns at the Diablo Canyon nuclear plant that is owned largely by Pacific Gas & Electric Co.
In addition to its high-priced experts, Edison’s San Onofre defense also included highly paid and well-respected legal, engineering and consulting firms.
For example, Edison paid at least $7.7 million to O’Melveny & Myers, a high-priced Los Angeles law firm, and $4.4 million to Bechtel Group, an engineering firm that helped to build San Onofre.
Similarly, Ahern expects Edison to rely heavily upon internal and external studies that will outline the proposed merger’s impact on electric rates, regional economics and other issues that commissioners will study during their review.
Edison already has retained O’Melveny & Myers for the merger review. “They’re using the same attorney, Joe Malkim and, boy, is he good,” said William Shaffran, the attorney who regularly represents the city of San Diego at PUC proceedings.
Shames predicted that Edison will once again hire a cadre of experts to address technical issues, former high-ranking government officials to testify about the economic impact of the proposed merger, and, possibly, the effect of mergers in general.
Ahern linked Edison’s strong defense during the San Onofre proceedings to Edison Chairman Howard Allen’s belief that the PUC report was “an attack on the moral fiber of his company. . . . He came right out and put that in his testimony.”
Allen’s emotions colored his testimony, according to Ahern. “He got very emotional before the commission, and he had tears in his eyes,” Ahern recalled. “I almost fell out of my chair.”
Unlike Shames and Siegel, Ahern doubts that Edison will assemble a panel of highly recognizable national experts. “That kind of thing can backfire on you,” Ahern said. “It’s very tricky to do it right.”
Edison will use nationally recognized witnesses only if the utility determines that they are “people with a (needed) expertise.”
“That’s the way it ought to be,” he said, noting that San Diegans have “the right to delve into it just as deeply. And we think that the PUC is the right forum for all of this to happen.”
