Papers Reveal Negatives in Merger

Previously secret documents released this week by San Diego Gas & Electric and Tucson Electric Power show that their abandoned merger was expected to generate far greater cost savings than would be produced by a merger of SDG&E; and Southern California Edison.

The charts and graphs were among nearly 1,000 pages of previously secret documents that were released by order of the state Public Utilities Commission, which is reviewing SDG&E;’s proposed merger with Edison.

The documents indicate that, in mid-1988, SDG&E;’s staff believed a merger with Edison would have “negative effects” on SDG&E;’s existing customers, said Deborah Berger, a city of San Diego deputy attorney who is reviewing the now-public documents. The papers suggest that the “Edison deal stinks,” Berger said. “They were hard-pressed to say that there were any substantial benefits with Edison.”

The 1988 planning documents suggested that an SDG&E-Edison; merger would not generate significant economies of scale through the combination of the two utilities’ transmission and generation systems. The papers also cast doubt on Edison’s claim that the merger would give SDG&E; improved access to generation with a wide variety of fuels.

The documents did indicate that an SDG&E-Edison; merger would produce heftier administrative savings--largely through the elimination of an estimated 1,000 jobs--than the Tucson company could produce.

The documents were prepared just months before Tucson Electric backed out of the planned merger with SDG&E; in November, 1988. Weeks later, SDG&E;’s board of directors voted to accept Edison’s $2.4-billion stock swap merger offer. One board member who resigned to protest the board’s merger vote later alleged that Edison improperly induced SDG&E; board members to approve the merger.

Edison and SDG&E; officials this week maintained that cost-savings conclusions in the staff documents were, in some cases, incomplete, because SDG&E; staff members lacked comprehensive data about Edison’s operations.

The documents that painted a bright future for a combined SDG&E-Tucson; Electric utility failed to predict the wave of financial troubles that recently swamped the Arizona power company.

The utility recently halted its common stock dividends after Arizona regulators granted it half of an $83-million rate increase request.

UTILITY MERGER OPTIONS An early analysis of merger options showed greater benefits if San Diego Gas & Electric joined with Tucson Electric Power rather than with Southern California Edison. The analysis conducted by SDG&E; staff did not reflect the financial difficulties that Tucson Electric now faces.

Benefit each year Tucson Electric Edison Merger Power Merger Use of surplus $11 million $11 million generation capacity Reserve margin $50 million none & load diversity starting in 1996 Transmission $1 million growing none capital deferrals to $6 million Fuel diversity $5 growing to less than $1 million & system operations $30 million

Source: SDG&E; mid-1988 slide presentation.