PUC Division Urges Rejection of Edison, SDG&E; Merger : Utilities: The unit said the deal would not guarantee lower rates after 1993, would increase air-quality woes and cause antitrust problems.

The state Public Utilities Commission division that represents utility customers urged commissioners Thursday to reject Southern California Edison’s proposed merger with San Diego Gas & Electric because it would not produce long-term benefits for customers.

In a report issued Thursday, the PUC’s Division of Ratepayer Advocates charged that, as structured, the merger would not guarantee lower rates for customers after 1993. The report also said the merger would worsen Southern California’s air-quality problems and cause severe antitrust problems.

“Our analysis shows that the benefits are smaller and less certain to materialize than the applicants have claimed,” DRA Director Terry L. Murray said in the report issued Thursday in San Francisco. “DRA urges the commission to reject the merger unless the applicants amend their proposal to make it beneficial to California ratepayers.”

The PUC’s five commissioners will use the report--along with thousands of documents generated by the utilities and dozens of other interested parties--when they make a final decision on whether to approve the merger and create the nation’s largest utility, with 4.8 million customers.

In April, the PUC will gather public comments on the merger in public hearings throughout Southern California. The PUC hopes to complete its review late this year.

Merger opponents on Thursday described the DRA report as one more important barrier that stands between the utilities and a completed merger.

“This report, coupled with (state Atty. Gen. John K.) Van de Kamp’s decision to oppose the merger, constitutes a one-two knockout punch,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group that is opposing the merger that Edison proposed in 1988. “We’ll never see this merger occur.”

The utilities were “basically encouraged by the tone of the DRA report,” Edison spokesman Louis Phelps said Thursday. “They’re basically saying that they have concerns, and we’re saying that we think we can resolve those concerns.” Phelps maintained that the merger would produce $1.7 billion in savings that would be passed along to customers in the form of lower rates.

“We’re certainly willing to open the door and talk with DRA,” Bill Reed, SDG&E;’s regulatory affairs manager, said Thursday. “I think, bottom line, that they have confirmed that there’s a substantial level of benefits for our customers.”

State Sen. Herschel Rosenthal (D-Los Angeles), who last year suggested that the state needed to toughen up regulations governing utility mergers, said Thursday that he is “not convinced that the guarantees for rate reductions were there. Without guarantees, they probably shouldn’t be doing the merger.”

The PUC staff based its report on an “independent forecast” that tracked the utilities’ claim that a merger would produce significant savings for utility customers by reducing operating, labor and fuel costs. The DRA forecast suggested that customers would be better off if the merger did not occur because a combination could “result in slightly higher rates in the long-run.”

The DRA report also noted that while Edison and SDG&E; had guaranteed rate savings through 1993, “there is no mechanism to ensure that ratepayers will receive one cent of the savings after 1993.” Edison and SDG&E; have maintained that the bulk of the merger’s savings would accrue in the long term.

On the complex question of antitrust issues, the DRA noted that the merger would bolster Edison’s ability to buy bulk power from other utilities but create long-term problems for a handful of small, municipally owned utilities in Southern California that import electrical power through Edison’s already impressive transmission grid.

“Based on what we know so far about DRA’s position on anti-competitive issues and access to the transmission system of the merged utilities . . . we believe these issues can be resolved,” Edison’s Phelps said.

Larry O’Donnell, a businessman who formed a San Diego-based group that supports the proposed utility merger, described most of the DRA’s conditions as “bridgeable.” O’Donnell also cautioned that the DRA report is not the PUC’s final word on the complex merger.

“The important thing to remember is that the DRA often stakes out a strong position which the commissioners often toss out,” O’Donnell said.

San Diego Deputy City Atty. William Shaffran, who has long represented the city in utility matters, doubted that Thursday’s seemingly negative report would dissuade Edison and SDG&E; from seeking to complete the merger.