Report on Tucson Power Sparks Interest in New Merger Bid
Tucson Electric Power, the utility that San Diego Gas & Electric had hoped to merge with in 1988, has repeatedly ignored its customers while attempting to reward its managers and shareholders, a recent Arizona Corporation Commission report claims.
TEP has shown an “emphasis on shareholder and management compensation and disregard for its customers,” according to ACC Hearing Officer Jerry Rudibaugh. TEP has “a very unhealthy attitude for a regulated company,” Rudibaugh concluded. The comments were part of a 70-page report that recommended against granting TEP a 31% electric rate increase. Rudibaugh recommended that TEP’s rate increase be limited to 11.6%.
Welcomed by Observers
The report was welcomed by some local observers who believe that San Diegans would be better served if SDG&E; abandoned a proposed merger with Southern California Edison and resurrected last year’s aborted merger with TEP.
Although the report hits hard at current and past management, it does not take issue with the fact that TEP is a relatively small utility with a short-term glut of generating capacity and a highly desired web of transmission lines.
“I would be concerned . . . if Tucson were to take over SDG&E;,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group. “But if SDG&E; were to take over Tucson, they’d take over the resources and transmission lines that are available, not the management team.”
‘Even Better Bargain This Year’
“If Tucson Electric Power was a good bargain last year, then it’s an even better bargain this year,” said Peter Navarro, a University of San Diego professor and chairman of Prevent Los Angelization Now, a San Diego-based consumer group.
The proposed merger with TEP, which was announced in June, 1988, fell apart in November shortly after Rosemead-based Southern California Edison made a surprise bid for SDG&E.; TEP was unwilling to get involved in what was sure to be a long and costly effort to fend off Edison’s bid.
Reopening negotiations with TEP “is the single most important thing the City Council could be doing, outside of its regulatory hearings,” Navarro said Monday. “It’s very important that the council send an emissary to both the regulatory authorities and the company in question to explore that possibility.”
Navarro believes that San Diego Mayor Maureen O’Connor should “get on the phone to (SDG&E; Chairman) Tom Page’s equivalent at TEP” to determine if the utility wants to reopen merger talks. Council members could then “pass a non-binding resolution recommending that SDG&E; reopen discussions,” Navarro said.
Although Shames and Navarro want merger talks reopened, they have found little support at the state Public Utilities Commission. The PUC has not included an SDG&E;/TEP merger in a list of scenarios that regulators will study along with the proposed merger between SDG&E; and Edison.
As part of their review, commissioners have ordered the utilities to explain what would happen if the merger were not completed, and what would occur if SDG&E; were simply to buy power from Edison rather than merge. “We’ve been pushing for (a second look at the TEP merger) but the commission is reluctant,” Shames said. “I think it’s a viable scenario. In fact, it’s more viable now than it ever was.”
SDG&E; spokesman Dave Smith declined to comment on the Arizona commission report.
Rudibaugh’s report is but one step in a complex rate-making procedure that the Arizona utility must complete before adding generating plants and other facilities to its rate base. Shareholders would be forced to make up the difference if regulators determine that a new facility would not benefit ratepayers.
Select Decisions
TEP has taken several actions that are counter to the interest of TEP customers, according to Rudibaugh, who has recommended that the commission trim TEP’s $80-million rate increase to $57 million.
His report hit hard at those select decisions. “We cannot and will not permit ratepayers to pay for unneeded power resulting from imprudent decision,” Rudibaugh stated.
Rudibaugh also has demanded that TEP shareholders absorb $850,000 in management bonuses because the company’s “management compensation already exceeded the industry average.” In a related development earlier this summer, Einar Greve, TEP’s former chairman unexpectedly resigned just days after selling most of his TEP stock.
Rudibaugh also took issue with TEP’s plan to have customers absorb the $32.5-million purchase of a coal mine. Rudibaugh determined that the mine purchase was “imprudent. . . . It is not clear that it will ever be used to benefit ratepayers.”
The Arizona commission will review TEP’s rate-increase request, its first since 1983, later this year. TEP is expected to return to the commission soon with yet another hefty rate-increase request because more generating capacity soon will come on line.
