Report Says City Takeover of SDG&E; Is ‘Attractive’

A government takeover of San Diego Gas & Electric “is economically feasible and attractive,” according to a preliminary report to be issued today by the San Diego County Water Authority.

The report, prepared for the water authority by R. W. Beck & Associates, a Seattle-based consulting firm, suggests that a government takeover of SDG&E; would reduce average electricity rates by 5.6% to 10.4% during the first 13 years of operation.

Natural gas rates charged by a public entity also would fall during that 13-year period, according to the report. A municipal operation would reduce rates by 2.2% to 4%, depending on interest rates and the cost of acquiring the utility, the report said.

Actual savings generated by a government takeover of the gas and electric operations would be determined by how much a government agency would have to pay SDG&E; shareholders in a takeover, the report states.

$1-Billion Benefit

According to the report, if a government agency paid top dollar for SDG&E;’s electric business, consumers would still realize an estimated $1.09-billion economic benefit--including a $273-million equity stake in the utility and accumulated electric bill savings of $821 million. If a “low end” price were paid, economic benefits would total $2.6 billion, including a $650-million equity stake and accumulated electric bill savings of $1.95 billion, the report contends.

If the gas operation were acquired for a price “at the high end of the range,” the report says, consumers would “realize total benefits” of $216 million, including a $65-million equity stake in the gas system and accumulated gas bill savings of $151 million. If a lower acquisition price for the gas operation were negotiated, consumers would realize a $453-million benefit, including a $195 million equity stake and $258 million in natural gas rates, it says.

The report, which discusses more than a half-dozen acquisition scenarios, discounts suggestions that a public agency would be hard-pressed to arrange the loans needed to acquire SDG&E.;

Lower Operating Costs

It also states that the economic feasibility of a takeover can be measured by comparing rates that would be charged by a financially sound, publicly owned utility and those projected by SDG&E.; The report suggests that a publicly owned utility would have lower operating costs that would make it possible to charge rates lower than those forecast by SDG&E.;

The study indicates that a publicly owned and operated utility could obtain significant cost savings not possible at a privately held utility. Those savings include the elimination of stock dividends paid to shareholders and a reduction in top management’s salaries and benefits.

SDG&E; had “18 employees with combined annual salaries, benefits and expense accounts in excess of $100,000 in 1987,” according to the report. The study suggests that a publicly owned utility could cut top management’s annual pay and benefit costs by as much as $1.5 million “and still recruit a top-quality management team. . . . A review of large consumer-owned utilities shows that high-quality management personnel can be recruited at a much lower cost.”

Elimination of Taxes

Public ownership, the report states, would also eliminate city, state and federal income taxes. However, the report acknowledges that a publicly owned utility would transfer $42 million to local government agencies through “general fund transfers or in-lieu taxes.”

The report also suggests that a publicly owned utility’s operating costs would be reduced by millions of dollars each year because municipal systems are not regulated by the state Public Utilities Commission. SDG&E;, the report states, spent $7.5 million on “regulatory costs” during the past four years.

The water authority paid Beck $100,000 to complete the preliminary report. The document will be turned over today to a “blue-ribbon committee” that the water authority has appointed to review it. That committee will later issue a final report.

Municipalization first surfaced as an issue late last year, shortly after SDG&E; agreed to merge with Rosemead-based Southern California Edison. That merger, if completed, would transfer control of SDG&E; to Edison’s corporate headquarters in Rosemead.

Judge’s Ruling

SDG&E; earlier this year attempted to block the water authority from completing the preliminary study of municipalizing the utility. On March 28, Superior Court Referee Harold F. Wolters ruled that the authority “does have certain areas of statutory authority, an inherent power, to make some studies.”

But Wolters also determined that the study raised “issues of serious consequence” for the county’s taxpayers and the authority’s board of directors. He warned that the cost of the study “is substantial, and could end up as wasted . . . (and that) the taxpayer is not without remedy.”

The water authority board, which has not taken a stand on municipalizing SDG&E;, has budgeted about $1 million to study whether the county’s residents would benefit if some government agency were to take over SDG&E.;