Judge Urges U.S. Not to OK Merger of Utilities : Power: A plan for Southern California Edison to join with San Diego Gas & Electric offers few benefits, a report states.

A federal law judge on Tuesday recommended that the Federal Energy Regulatory Commission prohibit Southern California Edison from merging with San Diego Gas & Electric because the combination would stifle utility competition, generate few benefits for utility customers and further degrade Southern California air quality.

Merger opponents described the 125-page report Tuesday as proof that federal and state regulators should prohibit the controversial merger, which would create the nation’s largest electric utility with 4.8 million customers.

But utility executives predicted that the federal commission’s five members would ignore many of the judge’s more strenuous objections and issue a favorable final decision on the merger early next year.

Commissioners have the option of rejecting or accepting all or part of the report written by George P. Lewnes, the administrative law judge, after he conducted the commission’s merger hearings last summer in Washington.

The federal review is one of two remaining hurdles for utility executives who proposed the merger in late 1988. The California Public Utilities Commission also is conducting a review 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 generate cost savings needed to provide “substantial net benefits” for consumers in the form of lower electric rates.

San Diego Mayor Maureen O’Connor, a vigorous opponent of the planned merger, said Lewnes’ report bolstered her charge that the utilities designed the merger to benefit “SCE, the corporation, and SCE shareholders. . . . There’s not any benefit for the citizens of San Diego, rates would go up and environmental quality would go down. . . . It’s what we’ve been saying all along.”

“I don’t see how the FERC could overturn this decision,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group that has opposed the merger since it was suggested in 1988. “This decision is so strongly worded and is so strenuous in its objections that it for all intents and purposes kills the merger.”

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 the commission’s proceedings said Tuesday that commissioners can--and do--toss administrative law judges’ recommendations aside if they feel 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 cost savings that would be passed through to utility customers. Haney said that Lewnes also ignored an agreement that the utilities have reached with the federal Department of Justice that would eliminate possible antitrust concerns.

Edward J. Tirello Jr., a New York-based utility industry analyst with Smith Barney, Harris Upham & Co., said Tuesday that Lewnes’ recommendation was “no surprise . . . because he hates” utility mergers.

“Lewnes was overruled (by the commission) in Pacific Power and that’s exactly what’s going to happen here,” Tirello said.

Steven Miles, a Washington-based attorney who represents the City of San Diego in the commission’s review, described Lewnes’ recommendation as “a major finding. . . . We’re obviously gratified by the decision, which reaches the appropriate and correct finding . . . that the merger should be killed.”

In a related development, state PUC Chairman G. Mitchell Wilk acknowledged in a prepared statement released on Tuesday 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.

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