Tucson Electric Sues Edison Over Merger : Utilities: The ailing Arizona power company hoped to merge with SDG&E; itself. It seeks damages but doesn’t ask to bar the other marriage.

Financially ailing Tucson Electric Power Co. on Wednesday filed a multimillion-dollar lawsuit against Southern California Edison Co. in connection with Edison’s 1988 proposed merger with San Diego Gas & Electric Co., a move that eventually derailed Tucson Electric’s previously proposed merger with SDG&E.;

The suit seeks damages, interest payments and attorneys’ fees that could total “hundreds of millions of dollars,” Tucson Electric spokesman Roger Yohem said. But he said the suit, filed in San Diego Superior Court, does not attempt to block Edison’s pending merger with SDG&E.;

“The suit is totally groundless and without merit,” Edison spokesman Lew Phelps said. “Tucson Electric Power, at the time that it agreed to terminate its merger agreement with SDG&E;, indicated that it wasn’t damaged as a consequence of the termination.”

Phelps added that Tucson Electric, “by its own admission, is in dire financial health and they’re apparently grasping at straws.”

Industry observers said the unexpected suit could further complicate the already complex and controversial $2.4-billion stock swap merger between SDG&E; and Edison that is being reviewed by federal and state regulators. If completed, the Edison-SDG&E; merger would create the nation’s largest investor-owned utility, with 4.8 million customers.

The lawsuit alleges that the Tucson utility was weakened financially by Edison’s proposed merger with SDG&E.; Edison’s intervention dashed Tucson Electric’s hope of spreading its excess power generation among the broadened customer base that a merger with SDG&E; would have created.

“The plot thickens with this lawsuit,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group that is opposing Edison’s proposed merger with SDG&E.; “If the (Tucson Electric-SDG&E;) merger had gone through, Tucson would be in a lot better position that it is now.”

Tucson Electric’s claim that Edison’s uninvited bid for SDG&E; weakened the Arizona utility financially “is accurate to a degree,” according to Doug Brooks, director of the Arizona Corporate Commission’s Residential Utility Consumers Office. However, “a lot has gone on with Tucson Electric Power other than the failure of the merger agreement,” Brooks said.

The Tucson-based utility “took some significant hits last October” when the Arizona Corporations Commission ordered the utility’s shareholders to absorb a significant portion of costs associated with new coal-fired electrical generating units, Brooks said.

Tucson Electric reported an $87.4-million net loss on $233 million in revenue for the six-month period ended June 30. The utility reported a $41.4-million net profit and $260 million in revenue for the like period a year earlier.

Tucson Electric’s stock, which closed at $53 per share on July 26, 1988, the day that Edison unveiled its uninvited merger with SDG&E;, has traded in recent weeks at about $10 per share.

Tucson Electric’s suit names both Edison and SCEcorp, its Rosemead-based parent. SCEcorp hopes to merge SDG&E; into its Edison subsidiary.