Judge Urges Rejection of Plan to Join 2 Utilities : Pollution: Proponents predict that a federal commission will ignore the jurist’s objections and approve the merger.

A federal law judge on Tuesday recommended that a proposed merger of Southern California Edison and San Diego Gas & Electric be rejected, saying it would stifle competition, generate few benefits for customers and increase smog in Ventura County and other parts of Southern California.

But utility executives predicted that the Federal Energy Regulatory Commission would ignore many of the law judge’s more strident objections and issue a favorable, final decision on the merger early next year.

The recommendation to the five-member commission delighted merger opponents in Ventura County and elsewhere who are pressing state and federal regulators to block the move to create the nation’s largest electric utility.

“It’s not a final decision, but it is a real victory for cleaner air,” said Patricia Baggerly of the Environmental Coalition of Ventura County.

Area environmentalists and city officials in Simi Valley, Oxnard, Ojai and Ventura oppose the merger because, if it is approved, Edison plans to shift electricity generation from older San Diego power plants to newer ones in Oxnard. The increased electrical load would add hundreds of tons of pollutants to the county’s air every year for at least four years.

In making the final decision, commissioners have the option of rejecting or accepting all or part of the report written by Administrative Law Judge George P. Lewnes after he conducted the FERC’s merger hearings this past summer in Washington.

The federal merger review is one of two remaining hurdles for utility executives who proposed the merger in late 1988. The California Public Utilities Commission is also conducting a review, which is scheduled to be completed early in 1991.

While Lewnes’ report focused largely on antitrust concerns, it also faulted the utilities for failing to prove that the merger would lower customers’ electric rates and said it would hurt air quality.

“The pollutants in the South Coast, San Diego and Ventura areas will increase under the merger to levels beyond those absent the merger, levels found to be unacceptable by the Environmental Protection Agency and other state agencies,” Lewnes wrote in his 125-page report.

Initially, Ventura County officials objected to Edison’s plans to increase electricity production and pollution at power plants at Ormond Beach and Mandalay Bay. But county officials agreed not to oppose the merger after Edison promised several anti-smog measures, including converting the diesel engines used to pump oil around the county to cleaner electric motors.

Under a final agreement, Edison would increase air pollutants in the county through 1995 in exchange for more substantial reductions in smog through the next 20 years. However, Edison’s promises failed to satisfy all critics, such as city leaders in Oxnard and Simi Valley, which would receive the largest initial increases of smog.

“We are looking at five years of increased smog,” said Simi Valley Mayor Greg Stratton. “So if this ruling holds us, at least we will keep the status quo. Most of what happens in Oxnard gets blown into Simi Valley.”

Richard L. Baldwin, manager of the county’s Air Pollution District, said if the merger is blocked, it would reduce the leverage to get Edison to help replace the dirtiest diesel engines that operate the county’s oil fields. But he said it would also eliminate concerns of critics who contend that Edison’s promises of anti-smog measures weren’t good enough.

“It would certainly be easier on me if it were not approved,” he said. “I wouldn’t have to continue explaining why our agreement with Edison would work.”

In San Diego, Mayor Maureen O’Connor, an outspoken opponent of the planned merger, said the judge’s ruling bolstered her claim that the merger was designed to benefit Edison shareholders, not electric customers. Opponents in San Diego suggested that the strongly worded ruling should kill the deal.

But SDG&E; Vice President Lee Haney said commissioners might ignore the more negative portions of Lewnes’ report. In 1988, Haney said, commissioners rejected an equally bleak recommendation from Lewnes when they unanimously approved Portland-based Pacific Power & Light’s now-completed merger with Utah Power & Light.

“It was not unexpected,” said Edison spokesman Lewis Phelps, who maintained that Lewnes is known to believe that “larger utilities are by definition anti-competitive.”

An attorney who is familiar with FERC proceedings on Tuesday said that commissioners can--and do--toss administrative law judges’ recommendations aside if they believe that the reports incorrectly represent testimony taken during hearings. “That’s what they did with Pacific Power and they could do it again here,” the attorney said.

Phelps said Lewnes’ recommendation ignored Edison’s contention that the merger will generate $1.7 billion in savings that would be passed on to utility customers. Haney said Lewnes also ignored an agreement that the utilities have reached with the federal Department of Justice that would eliminate antitrust concerns.

In a related development Tuesday, state PUC Chairman G. Mitchell Wilk acknowledged in a prepared statement that the PUC’s long-running merger review won’t be completed by the end of December, the original target date.

Wilk’s statement ended hopes that the PUC would meet its self-imposed deadline. That goal was dashed, according to Wilk’s statement, by the need for “extensive and careful analysis” of the thousands of pages of evidence that have been submitted.

Edward J. Tirello Jr., a New York-based utility industry analyst, predicted Tuesday that the PUC would issue a decision favorable to the utilities. “The PUC is a pretty level-headed group,” Tirello said. “I think they’re going to issue a (positive) decision.”