City Warns That SDG&E-SCE; Merger Might Be Bad for Shareholders

The city of San Diego fired another salvo Tuesday in its battle to thwart the merger of San Diego Gas & Electric Co. and Southern California Edison, warning SDG&E; stockholders that some terms of the buyout may not be in their best interest.

In a letter from its newly hired Washington attorneys to the federal Securities and Exchange Commission, the city alleges that SDG&E; stock may be converted to Edison stock at an unfavorable rate and that terms of the buyout may restrict SDG&E; executives from “exercising many substantial rights that may otherwise be in the best interests of SDG&E; and its shareholders” while the merger is pending.

SDG&E; officials were asked to comment on the allegations late Tuesday night, but the request was forwarded to an Edison official in Pasadena instead. Edison spokesman Lew Phelps did not deny that SDG&E; stock may be converted at an unfavorable rate. Instead, Phelps said that this and other issues will be “discussed in our joint proxy statement, which will be issued to shareholders of both companies.”

He said the statement will be available “within a few days,” after it is reviewed by the SEC.

May Lose Tax-Free Status

The city also warned that $550 million of tax-free industrial development bonds that it issued on behalf of SDG&E; may lose their tax-free status when the merger goes through, and alleged that five directors of SCEcorp, the parent company of SoCal Edison, may be violating federal regulations which prohibit them from simultaneously sitting on the boards of directors of companies that market or underwrite public securities.

“We think there are some matters that are going to give shareholders of both companies major doubts about the merger,” City Atty. John Witt said.

Phelps denied that the tax-free bonds issued on behalf of SDG&E; would lose their status. “We emphatically disagree with that,” he said.

In a separate action aimed at helping the County Water Authority fight an SDG&E; lawsuit, the City Council approved a resolution formally giving the Water Authority its authorization to conduct a study of a government takeover of SDG&E.;

The study, which the city has been seeking, is currently being held up by an SDG&E; lawsuit claiming that the Water Authority is prohibited from spending public money to conduct it. A court hearing on the matter is scheduled for next week.

SDG&E; directors approved a $2.4-billion merger between the two utilities Nov. 30 in a deal that would create the nation’s largest investor-owned utility. Mayor Maureen O’Connor has since led a high-profile campaign to scuttle the plan, which requires the approval of the state Public Utilities Commission, the SEC and the Federal Energy Regulatory Commission.

In their letter to the SEC, attorneys Carter Strong and G. Cope Stewart warned that the city would not consent to relinquish its control of SDG&E;’s franchise if the tax-free bonds become taxable as a result of the merger.