Commentary : A Hollow Argument in Utility Merger Debate?

One of the recurring issues in the ongoing utility merger debate in San Diego is “local control.” It is also one of the most nebulous and ill-defined.

Opponents of the Southern California Edison-San Diego Gas & Electric merger have been unable to specifically define what local control means for San Diego and what its continuing benefits are, other than to express a vague feeling that local control, however it is defined, is preferable to losing a corporate headquarters.

That argument loses its potency when one examines the local control situation now and looks at the decided disadvantages that a stand-alone utility would face in the future.

We agree very strongly with Mike Madigan, a merger opponent, who wrote in a commentary on these pages a few months ago: “We would be remiss, all of us--SDG&E; and Edison included--if we failed to take this opportunity to consider carefully, calmly and dispassionately the future of San Diego’s local utility.”

Lost in the often-emotional response by some San Diego political and business leaders has been Edison’s struggle to do just that: offer a calm, dispassionate discussion of the facts and the benefits of the merger.

We have embarked on a long, complicated and detailed process, and the recent filing of our case in chief with the California Public Utilities Commission provides significant factual information upon which San Diego residents, politicians and business people can base their support or opposition.

But let’s look specifically at the local control issue. From a practical, regulatory standpoint, local control is somewhat of a myth. The PUC, by virtue of its assigned role as a watchdog for ratepayer interests, is really the controlling body for all state utilities--not the City Council, not the County Board of Supervisors nor any local agency.

In this capacity, the PUC makes decisions regarding rate increases or decreases. This would not change whether the utility were headquartered in San Diego, Escondido or Rosemead. SDG&E;’s recent filings for rate reductions were a product of that company’s normal business process, not a product of a local political process.

Two critical questions exist:

- Will a stand-alone utility find it more difficult to assure delivery of power in difficult times?

- Will a stand-alone utility be limited in its ability to respond to new energy needs, resulting in the construction of new plants here at great cost and an additional impact on the environment?

In Edison’s view, the answer is yes to both questions. Dwindling excess capacity will be a fact of life in the near future, as assessed by many independent sources across the country. Dwindling supply in the near-term future creates an urgent necessity for advance planning now to forestall oppressive rates in the future.

That is why rates is the primary issue in this merger, and not the location of a headquarters. Are we to believe that if this merger fails, the city leadership will somehow find a way to ensure San Diego’s energy future?

Rates in the future will be driven by the utility’s ability to obtain or generate the least expensive power from a variety of sources. Not to be ignored is the fact that SDG&E; realized its future vulnerability, and that realization was the catalyst behind the Tucson merger proposal. We can put this need for future energy sources into perspective by examining the current state of the utility industry.

Experts who follow the utility industry today generally agree that the merger/consolidation trend will continue--and that the trend is healthy. These experts believe that new technologies combined with the need to exploit economies of scale make the prospect of a country served by perhaps 30 generating companies an appealing one.

Shearson Lehman Hutton commissioned a 1988 study by Experimental Engineering Corp. of Maryland that suggested a merging of 136 U.S. utilities into 41. That study pointed to continuous service areas and transmission interconnections that formed logical groups. The annual savings was estimated at more than $3.4 billion.

San Diego must not be ignored by this trend. Nationally, the oversupply situation that has enabled SDG&E; to apply recently for lower rates will be at an end. Utilities that are currently selling excess power at bargain rates will require it themselves. Or supply and demand will dictate significantly increased prices.

When that happens, small, stand-alone utilities will bear a tremendously increased burden, and their ratepayers will suffer. Local control will not prevent high energy costs when that happens. A strong generating capacity and a variety of energy sources will. That’s what the merger promises to San Diego.

In a filing as part of our case with the PUC, former U.S. Energy Secretary James Schlesinger aptly stated, “There is no basis for an assumption that, in the absence of this consolidation, the power (that) the San Diego area needs in excess of what SDG&E; plans to generate from its own power plants will miraculously spring forth. . . . “

The merger should not be judged on the question of civic pride, but rather on what is in the long-term interest of San Diego. If the electric power provider is not in a position to provide added capacity or acquire the added power that will be needed in the 1990s, San Diegans will suffer.

San Diego’s utility, like those across the nation, must be ready to respond to increased power needs in its service area at the same time as excess power supplies are dwindling.Regardless of whether it remains a stand-alone SDG&E; or the major division of SCE, the utility’s challenge will be the same. It is unlikely that any energy analyst would support the notion that SDG&E; could meet that challenge more successfully alone.

Another major issue in the local control debate focuses on local versus Rosemead-based leadership. In criticizing proposed employment contracts and board seats for San Diegans in the merged companies, opponents are ignoring the important fact that these contracts and board seats are precisely the method by which San Diego will maintain a strong presence within the organization.

The continuity offered by the continued leadership of current SDG&E; executives is critical to the merger process. Our approach in this matter has been consistent with the best interests of the community. San Diego will, in fact, be Edison’s largest operating division, and extremely influential within the company just by virtue of its size.

There are other side issues concerning local control. Will service be poorer with a company headquartered outside the county? No. Although SDG&E;’s service is good, Edison’s is better as measured by such standards as numbers of complaints and customer-service response time. We will increase customer service via additional telephone-service hours and new branch offices around the county.

Will the community lose support for its charitable and cultural organizations? No. Edison has a solid record of community involvement in hundreds of organizations in its service area. It has promised, in writing, to increase community participation in San Diego. Indeed, to lessen community involvement is not in SCE’s best interest.

There is an appropriate time for all of us to make our cases to the public. The process of hearings before the PUC safeguards the public interest and provides a forum that discounts emotion and makes decisions based on facts.

Recently, PUC President Mitchell Wilk commented that “the time has come to separate fact from fiction, speculation, opinion and rhetoric.” Southern California Edison welcomes the participation of the community in that process.