Utility Merger Promises Likened to Bribe Offers : Former SDG&E; Director Says Job Contracts Helped Soften Opposition From Executives

SCEcorp’s promises of seats on its board for select San Diego Gas & Electric board members in the wake of a proposed merger between Southern California Edison and SDG&E; constituted “bribes,” former SDG&E; board member Charles (Red) Scott said Monday during a daylong deposition conducted by attorneys representing the city of San Diego.

Scott, who resigned from SDG&E;’s board in December to protest the proposed merger, also testified that Edison softened opposition to the merger among key SDG&E; executives--including SDG&E; Chairman Thomas Page--through offers of lucrative employment contracts.

SDG&E; executives subsequently used “devious” methods to mask the true monetary value of those contracts, according to Scott. The former board member described Page’s proposed employment contract as “clearly an inducement to influence Mr. Page.”

‘Tainted’ Deliberations

Those offers of board seats and employment contracts “poisoned or tainted” deliberations by SDG&E; board members who, on Nov. 30, followed management’s advice and approved the proposed $2.4-billion, stock-swap merger, Scott said.

Scott on Monday became the second former board member to testify that SCEcorp’s pre-vote offers swayed SDG&E; board members and officers. Last Tuesday, O. Morris Sievert also claimed that the offers by SCEcorp affected the board vote.

“Logic tells me that (the contracts) must have” influenced SDG&E;’s executives as they concluded negotiations with Edison, Scott said. “That is my greatest concern.”

Scott, chairman of La Jolla-based Intermark, said that in mid-November he noticed an abrupt change in how the board viewed the proposed merger with Rosemead-based Edison.

Returned From Trip

Scott returned that month from an out-of-town business trip “thinking that we, the directors and management were going to stand with our arms locked together and fight those bastards to the last drop of air was left . . . (But) I came back to town and we had broken ranks.

“I was shocked and surprised that some of the people who were leading the charge to fight the (Edison offer) had switched and were now in favor of it,” Scott said. “When it first was announced, Mr. Page was adamantly against it and he solicited our support to stand behind him and not let it happen.”

Scott also testified that he felt “shock and horror” upon realizing that Salomon Brothers, a New York-based investment firm, would reap a financial windfall if the Edison merger were completed. Salomon, which SDG&E; hired to evaluate Edison’s stock-swap offer, “profited by our being bought by Edison,” Scott said.

Additional $4 Million

According to SDG&E;’s proxy statement, the local utility has agreed to pay Salomon up to $5.25 million, including a $3.25-million payment if the proposed merger with Edison is completed. Salomon also has received an additional $4 million in payments from Edison since 1986, according to the proxy.

Scott complained that his protest against the Salomon contract generated rebukes from SDG&E;’s executives. “It was obvious I was being spanked” for questioning top utility managers about the fee arrangement with Salomon, Scott said.

During his wide-ranging, day-long appearance at the deposition, Scott described Edison’s initial merger offer, in July, 1988, as “a bad deal . . . . I don’t recall anybody in the room having anything good to say about the transaction.”

Serious Doubts

Board members, he maintained, had serious doubts that Edison Chairman Howard Allen would keep his promised 10% rate cut for SDG&E;’s residential customers. The promised rate reduction was “so much B.S.,” Scott said.

Scott said that he grew irritated as time went by because Page wanted a unanimous vote in favor of the merger.

Page was in effect asking him to “sprinkle holy water on a transaction I thought was wrong,” Scott said.

Scott, mirroring testimony presented last week by former SDG&E; board member Sievert, said that SDG&E;’s board members had inadequate information upon which to base their vote.

‘Lip Service’

Scott testified that board members gave “half-hearted lip service” to the proposed merger’s effect upon SDG&E; customers, and talked only briefly about the environmental impacts and the number of SDG&E; employees who might lose their jobs.

Scott and Sievert appeared at the depositions only after being subpoenaed by the city of San Diego, which is actively contesting the proposed utility merger in proceedings before the state Public Utilities Commission. However, both men agreed to discuss actions that led to the board’s Nov. 30 vote.

However, SDG&E; has maintained that Sievert and Scott cannot testify about advice offered by Skadden, Arps, Slate, Meagher & Flom, a New York law firm that is advising SDG&E; on legal matters surrounding the merger. Scott and Sievert have agreed to withhold testimony about the law firm until after a law judge rules on SDG&E;’s contention.