SDG&E; Vows Suit to Stop Takeover Study : Disputes Authority of Water Board, Which Counters by Nearly Doubling Its Budget

San Diego Gas & Electric Co. plans to file suit today to prevent the County Water Authority from financing a feasibility study of a public takeover of the utility, an attorney for SDG&E; said Thursday.

Attorney Steven S. Wall told the Water Authority’s board of directors at its Thursday meeting that it has no authority to finance the study.

“Don’t spend the taxpayers’ money on doing something that you don’t have the power to do,” Wall said.

The board’s response was to approve a budget of nearly $1 million--almost double the amount recommended by its general manager--to investigate the takeover possibility as an alternative to SDG&E;’s planned merger with Southern California Edison.

Wall, of the law firm Luce, Forward, Hamilton & Scripps, vowed to go to court immediately on behalf of SDG&E; to obtain a temporary restraining order against the Water Authority.

$250,000 Offered by City

San Diego Mayor Maureen O’Connor has led the city in its drive to block the merger of SDG&E; and Rosemead-based SCEcorp, Edison’s parent company, since the agreement was announced in July. After the city attorney’s office suggested that a governmental agency might take over the utility, the Water Authority was eventually tapped as the most likely candidate.

In December, the City Council voted to lend the Water Authority $250,000 to study the feasibility of a takeover, but Water Authority attorney Paul Angstrand ruled last month that the agency could finance the study on its own.

In the agenda packet circulated to the board members, Lester Snow, the Water Authority’s general manager, originally recommended raising the Phase I budget from $250,000 to $500,000 and urged the board to approve the increased amount immediately so the proposed three-phase study could be completed before the merger.

But, when Wall told the Executive Committee before the board meeting that SDG&E; would sue to stop the expenditure, committee member Herb Stickney immediately moved to raise the amount to $940,000 in order to defend against SDG&E;’s threats of litigation.

The 35-member board, with three members abstaining, voted to adopt the budget increase. The single “no” vote was cast by Gordon Luce.

Before voting, Luce, chairman of Great American First Savings Bank, said he is concerned about the mounting public debt in the county and said he feels that Water Authority staff members’ attention was already being diverted in too many directions.

Newly Formed Committee

Luce also is chairman of a newly formed committee on the merger that is made up of civic and business leaders. The committee, formed as the result of a meeting among O’Connor and officials of the Chamber of Commerce and the Economic Development Commission, has taken a stance against the merger, but has not come forward in support of municipalization of SDG&E.;

Outside the meeting, Snow defended the proposed expense and said that raising the budget to $940,000 will not have an “immediate impact” on water rates because the agency has reserves of about $10 million.

“On every occasion, they (SDG&E;) claim to be expressing concern about us using taxpayers’ money,” Snow said. “If we had their full cooperation, we could probably do this for somewhere around $200,000.”

Snow said the Water Authority has been forced to continually escalate its budget for the takeover study “by the posturing and attitude” of SDG&E.; The actual feasibility study would take only a fraction of the $940,000 budget, he said, but the rest of the money will be necessary to hire lobbyists in Sacramento to combat lobbyists from SDG&E; and SCE, to mount a public-relations campaign in San Diego and to cover the cost of the litigation.

In December, the board of directors voted to get the ball rolling on the study, as well as to seek an amendment to the County Water Authority Act that would explicitly allow the agency to acquire and operate a gas and electricity system.

But, according to Wall, the Water Authority cannot use money on the study unless it has been given power to undertake such an acquisition.

“Until the California Legislature has made a determination and the people have spoken, it is our position, with regret, that you are acting far beyond your power,” he told the board members.

Temporary Restraining Order

Wall said he will go to court this afternoon to seek a temporary restraining order against the Water Authority.

Before the vote was taken, SDG&E; spokeswoman Karen Hutchensc attempted to explain the utility’s position to the water board members.

“We feel a multibillion-dollar organization is more appropriately run by private enterprise,” she said.

Hutchens said the board was reacting in a “knee-jerk” fashion against the merger and urged it to “slow down” and wait for all the facts surrounding the proposed merger to be made public before spending money to fight it.

“How do you get all the facts on the table without investigating the alternative to the merger?” board member Mike Madigan asked.

“We know that the facts on the table right now (show) there is no way a governmental agency could take over . . . and not increase rates,” Hutchens said.

SDG&E; Director of Finance Malyn Malquist told board members that a public takeover would mean a drastic increase in utility rates. Malquist cited a study done for SDG&E; by the Seattle-based consulting firm of CH2M Hill, which concluded that such a move would mean a rate increase of as much as 23%.

The study also found that a debt of $1.3 billion owed by SDG&E; to its bondholders would not be assumable by a public agency.

“The only way the utility’s present debt could be assumed is if every bondholder voted to permit a transfer to the local government agency,” Hutchens said. “And a unanimous vote would be virtually impossible.”

According to the study, a government takeover would also result in a federal and state income tax liability of $1 billion, which would not be the case with a merger. The total cost of a takeover would be $6.5 billion, the study found.

Several board members cited previous pledges by SDG&E; to cooperate fully with the Water Authority, and asked why the company was not willing to let them proceed with the study.

Hutchens responded, “We would be more than willing to sit down with the general manager to go over the numbers we have presented today for your scrutiny.”

Board member Christine Frahm countered, “You can’t expect us to accept somebody else’s version of the facts, yet you won’t let us do the minimum amount of work to get the facts.”

When asked if SDG&E; would consider helping the Water Authority conduct another study to verify the conclusions of CH2M Hill, Hutchens replied, “We feel it would be a waste of taxpayer money.”

After the meeting, Water Authority spokesman Jim Melton said the agency has no response yet to the takeover cost figures presented to the board by SDG&E.; “We don’t know if the figures are high or low,” he said. “They may be accurate.”

Ben Clay, legislative representative for the Water Authority, said: “Our budget was expanded because of saber rattling by SDG&E; about going into court. If these folks hadn’t threatened to go to court and not opposed this in Sacramento, there wouldn’t be half the money spent.

“They’re just scared to death that, if we shed a little light on these numbers, there might be a good basis for” a public takeover of SDG&E.;

Times staff writer Greg Johnson contributed to this story.