San Diego to Sue to Learn Its Rights in Merger Fight

The city of San Diego will file a lawsuit today to determine whether it has the power to block San Diego Gas & Electric Co.’s planned merger with Southern California Edison Corp., the city attorney’s office said Monday.

The suit, to be filed in San Diego Superior Court, will ask a judge to resolve one technical question: whether the city can stop the merger by refusing to allow SDG&E; to transfer city-granted franchise agreements, which give the utility right of way on city property, to Edison, said Deputy City Atty. William Pettingill.

Representatives of both utilities, who had expected the legal challenge as an outgrowth of last fall’s unanimous City Council vote opposing the merger, promised Monday to contest the suit, contending that the merger would not constitute a transfer of the franchises.

“We will take whatever legal steps are necessary in this suit to defend our position,” said Lewis Phelps, an Edison spokesman.

In a related development, the Federal Energy Regulatory Commission opened hearings Monday on the proposed merger in Washington, but got no further than initial procedural matters. SDG&E; Chairman Tom Page is scheduled to testify Wednesday at the hearings, which will explore the merger’s impact on competition among utilities in the Southwestern United States.

Meanwhile, the San Diego County Board of Supervisors is scheduled to decide today if county residents should vote this year on an advisory ballot measure to gauge public support for the merger plan.

The merger would create the nation’s largest utility company, with 4.8 million customers. The boards of both utilities approved it in November, 1988, and shareholders of both assented in early 1989.

The merger itself would actually be accomplished by a $2.4-billion stock swap under which 1.3 shares of Edison’s parent company, SCEcorp, would be exchanged for a single share of SDG&E; common stock.

The deal must be approved by the FERC and the California Public Utilities Commission. Both agencies expect to complete their reviews by early next year.

The two utilities have spent at least $2.2 million on merger-related public relations and advertising, they disclosed in documents filed late last year with the PUC. Yet the merger has generated considerable formal opposition, including two announcements last week.

Last Thursday, a PUC staff report recommended that the merger be blocked, saying the plan would not produce long-term benefits for utility consumers. Last Wednesday, state Atty. Gen. John Van de Kamp said his office will oppose the merger, charging it would violate antitrust laws and damage air quality in the Los Angeles Basin.

The San Diego City Council registered its unanimous objection to the plan Nov. 30 after public hearings. Mayor Maureen O’Connor painted Edison as a debt-heavy corporation that would be inaccessible to San Diego residents because it is based in “remote” Rosemead, a town in the San Gabriel Valley near Los Angeles.

The council’s vote cleared the way for the city attorney’s office to research the suit against the two utilities concerning the normally mundane franchises. The franchise gives SDG&E; the right of way for such things as boxes and cables on, under or over city streets and sidewalks.

Before last fall’s hearings, City Atty. John Witt had advised council members that SDG&E; needs council permission to transfer the franchises to Edison.

The suit itself will not ask “for any court order to stop anything or to do anything,” said Pettingill, the deputy city attorney handling the case. Instead, it “just asks the court to spell out who’s got what rights,” he said.

Pettingill said he expects the suit to be resolved “well before” the state and federal regulatory agencies rule on the proposed merger. “All we’re asking for is a declaration whether we have the right to approve or disapprove the merger,” he said. “Then we’ll take it from there.”

Pettingill declined to release a copy of the complaint before it was filed, although he said it will name as defendants SDG&E;, Edison and SCEcorp.

SDG&E; and Edison repeatedly have contended that, under California law, the merger does not constitute a transfer of the franchises. In a letter distributed Monday to employees, SDG&E; said it will “vigorously contest” the suit on the grounds that neither the franchises nor the law give the city the right to obstruct the merger.

Because Witt had told the City Council last year that the merger needed council approval, Monday’s announcement of the impending suit caused little surprise at the two utilities. “We sort of figured it was coming,” said Steven S. Wall, a lawyer for SDG&E.;

Officials at SDG&E; and Edison declined further comment, saying they did not want to talk without having seen the suit. But Pettingill said the city is optimistic its claim will be upheld.

Noting last week’s announcements against the merger from the PUC staff and Van de Kamp, he said in a statement announcing the filing of the suit that it “opens another front in the mounting campaign against the merger.”

Times staff writer Greg Johnson contributed to this report.