A Power Struggle Over Power : Energy: The ruling opposing a SoCal Edison, SDG&E; merger heartens small electricity producers who feared the deal would hurt them.

Electric utility executives acknowledge that as long as the lights work and rates are relatively low, few customers care where electrical energy is generated or who owns the electric transmission grid that carries the power into homes and businesses.

But those issues--the ownership of electrical generation plants and how power is transmitted--were at the heart of a lengthy regulatory report released Friday that opposed a merger between Southern California Edison and San Diego Gas & Electric.

For most independent power producers that sell electricity to Edison, SDG&E;, Pacific Gas & Electric and California’s municipally owned utilities, the finding of two administrative law judges was “indeed welcome,” said Jan Smutny-Jones, executive director of the Independent Energy Producers, a Sacramento-based trade association that represents 50 power producers.

The association is not against the merger, but it is demanding that the state Public Utilities Commission--which along with the Federal Energy Regulatory Commission must approve the merger--give them increased access to the limited number of transmission lines in California, many of which are owned by Edison and SDG&E.;

“We’ve always had concerns about potential competitive impacts of the merger,” Smutny-Jones said. “And we’ve argued for an opening up of the transmission system that would allow us to compete in the (utility) market.”

Meanwhile, some utility industry observers who skimmed through the 1,300-page report said the judges--who make recommendations but are not backed by the force of law--believe that a merger would cause electric rates to increase.

The reason: It would adversely affect competition among California’s remaining utilities.

“Even though companies are monopolies, the report suggests that in a number of ways they compete with each other to buy power cheaply and produce power cheaply,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group that opposes the merger. “It says if you do the merger, you eliminate a major incentive for keeping rates as low as possible.”

Independent power producers fear that a merger would create a double burden for them by turning over control of all Southern California transmission lines to Edison and eliminating SDG&E; as a potential customer, Smutny-Jones said.

SDG&E;, which imports much of the electricity it needs to meet customer demand, will need an additional 1,000 megawatts of power by the year 2000. SDG&E; Chairman Tom Page hopes to fill that energy void by merging with Edison, a power-rich utility.

But that plan irks independent producers, who own electrical generating plants powered by wind, biomass, hydro power, cogeneration and solar power. “We view ourselves as an economically attractive, reliable and environmentally safe alternative,” Smutny-Jones said.

Up until 10 years ago, independent power producers didn’t exist in the United States. But a change in federal law allowed non-utility companies to enter the utility business, and independent producers now have 9,000 megawatts of generation capacity in place in California alone. By way of comparison, Edison’s 54 oil and gas fired power plants provide slightly more than 10,000 megawatts of power.

Not coincidentally, the state’s largest independent producer is Mission Energy, a subsidiary of SCEcorp, the Rosemead-based company that owns Southern California Edison. Mission owns portions of 21 generation plants capable of generating 2,349 megawatts of power. The three units at San Onofre Nuclear Power Plant generate 2,650 megawatts, by comparison.

Mission Energy and its sister operations, all of which fall outside the PUC’s regulatory grasp, contributed 11.9% of the parent company’s earnings in 1990. Analysts believe that the unregulated businesses will play an integral role in the company’s future.

But in addition to generating income, Mission also has produced controversy.

The PUC, which must approve contracts between utilities and independent producers, is investigating allegations that Edison overpaid Mission by $48 million on one electric purchase contract.

And even before the merger was proposed, Shames and others had petitioned the PUC to force Edison to spin off the Mission subsidiary--or, at least, to order it to stop selling power to Edison.

“The concern has been that Edison is offering better deals to Mission than it has to other providers,” Shames said. In other words, critics say Edison has struck sweetheart deals with its own affiliate.

But few observers expect Edison to spin off the profitable Mission operations. “If Edison is given the choice of spinning off Mission Energy and giving up SDG&E;, they’ll keep Mission,” Smutny-Jones said.

HIGHLIGHTS OF THE FINDINGS Two state Public Utilities Commission administrative law judges recommended Friday that the merger between Southern California Edison and San Diego Gas & Electric be denied. The two officials said the merger would:

Reduce the level of competition among power suppliers in Southern California. A merged company would dominate use of transmission grids, leaving competitors with less access to those facilities.

End existing competition between Edison and SDG&E; SDG&E; has tried to make its rates lower than those of Edison.

Allow the two companies to consolidate and then reduce the size of their respective staffs. But the two administrative law judges said the utilities overstated the resulting savings to consumers by underestimating the costs of finding and generating new power.

Result in increased emissions, creating significant negative environmental impact that could be mitigated by taking measures that would cost $62.7 million over the next 10 years.

SCE AT A GLANCE SCEcorp is the holding company of Southern California Edison Co., the 105-year-old electrical utility, and subsidiaries including Mission Group, which are non-regulated energy businesses. Edison serves more than 4 million customers in Central and Southern California.

Year ended Dec. 31 1990 1989 1988 Sales (millions) $7,198 $6,904 $6,252 Net income (millions) $786.4 $778.2 $761.8

Assets $16,312,246,000

Employees (Edison) 16,604

Shares outstanding 218,474,432

12-month price range $33.50-$40.25

Friday close (NYSE) $37.125, -0.50

SDG&E; AT A GLANCE San Diego Gas & Electric, a utility founded in 1881, serves about 1.1 million customers in San Diego County and the southwest corner of Orange County. Nearly 90% of its revenue comes from utility operations. The company also has a small stable of unregulated businesses.

Year ended Dec. 31 1990 1989 1988 Sales (millions) $1,772 $2,082 $2,076 Net income (millions) $207.8 $187.1 $189.4

Assets $3,656,637,000

Employees 4,200

Shares outstanding 55,921,000

12-month price range $39-$46.25

Friday close (NYSE) $44.125,-0.25

BOON TO CONSUMERS Southern California Edison’s claims of cost savings for ratepayers in its proposed merger with San Diego Gas & Electric have encountered regulators’ skepticism. Here’s how the projections of total savings over 10 years stack up:

Source Estimated savings Southern California Edison: $1.7 billion Division of Ratepayer Advocates* $1.3 billion or less Friday’s findings by hearing officer $1 billion

*Office at state Public Utilities Commission that represent consumers’ interests

* MERGER CHALLENGE

The proposed merger of Southern California Edison and San Diego Gas & Electric was dealt a major setback. A1