SDG&E; Says Municipalization Study Off by $2 Billion

San Diego Gas & Electric on Monday claimed that a recently released study underestimated the cost of municipalizing the utility by as much as $2 billion.

Those additional costs would generate “higher, not lower, rates for gas and electric customers” should a government takeover occur, SDG&E; officials maintained.

SDG&E;’s arguments were included in a lengthy, written response to the preliminary municipalization study that the San Diego County Water Authority released Oct. 6. The CWA study, prepared by R.W. Beck & Associates, a Seattle-based consulting firm, concluded that municipalization was an “attractive” option that would reduce average electric rates by 5.6% to 10.4% during the first 13 years of operation.

The CWA report will be reviewed today during a 10 a.m. meeting at the CWA’s headquarters building. A blue-ribbon committee that is studying Beck’s report eventually will issue a final report.

SDG&E;, in its lengthy report, claimed that Beck’s financial experts failed to account for about $1 billion of SDG&E;’s current and anticipated liabilities. SDG&E; would have to pay those debts off or the government agency would have to assume them, according to the utility report. Those liabilities include tax obligations to federal and state governments and excess pension assets, according to SDG&E.;

That failure to include the liabilities was compounded by Beck’s underestimating the cost of acquiring SDG&E; by roughly $1 billion, according to the utility report. “Payment of only $3.2 billion (the “high-end” purchase price suggested by Beck) would not even allow for repayment of the shareholders’ book value, since all liabilities must be repaid prior to any distribution of shareholder funds,” according to SDG&E;’s report.

SDG&E; linked the $1 billion underestimate to tax consequences ignored by the Beck study.

Edison has proposed a tax-free, stock-swap merger, in which SDG&E; shareholders would receive shares of Edison stock in return for their SDG&E; holdings. But Beck’s study, SDG&E; argued, failed to acknowledge that a government body would have to pay “roughly $1 billion more than the (Edison) purchase price” to make its offer as attractive to SDG&E;’s shareholders as Edison’s existing offer.

Because of those shortfalls, “to truly match the minimum fair market value of the company . . . utility rates must be increased significantly,” according to SDG&E;’s report.