Edison Says Ruling May Make It Drop SDG&E; Merger

TIMES STAFF WRITERS

Southern California Edison Co. threatened Thursday to drop its proposed $2.6-billion merger with San Diego Gas & Electric Co. if the state Public Utilities Commission acts on a recommendation to impose millions of dollars in new costs and force the sale of certain operations.

Meanwhile, in what could further complicate the unprecedented case, state Atty. Gen. Dan Lungren said his office wants to "reassess"--and possibly reverse--an opinion by his predecessor opposing the Edison-SDG&E; merger as anti-competitive.

Although the Republican attorney general stressed that he still needs to study the matter further, he indicated that he may offer a "broader" interpretation of a new state law that would open the door for a recommendation from his office that the merger be approved.

Edison's statement was the first time that the company has said it would reconsider the deal that was initiated in 1988 and has already cost shareholders more than $60 million.

Opponents of the merger saw the move as an act of desperation by the company, which has faced several setbacks in its efforts to win regulatory approval for the merger. The combination would create the largest investor-owned utility in the nation.

Edison's statement came in response to an opinion issued earlier this month by two state administrative law judges, who recommended against the merger despite evidence that it could save ratepayers more than $1 billion by the year 2000.

Their recommendation was based in part on an analysis by Lungren's predecessor, Democrat John Van de Kamp, who said the merger would be anti-competitive.

The judges' opinion cheered opponents of the merger but chagrined Edison officials, who say the law judges should have taken a more balanced approach.

The final battle will take place before a newly reconstituted PUC, including two members appointed earlier this month by Gov. Pete Wilson. On Thursday, the PUC postponed a hearing on the merger until March 20. Its final decision is expected later this year.

In Sacramento Thursday, Lungren said his office will formally request that the PUC allow it to file a "supplemental brief" to an advisory opinion issued last year by Van de Kamp.

"I don't think we ought to adopt the notion that bigness is per se badness as the essential rule of antitrust or competition-based law in California," he said. "I don't find that in the law. I think that notion has been rejected by many antitrust scholars and practitioners over the years."

In their filing with the PUC on Thursday, the companies said the judges' recommendation would impose an additional $150 million in transaction-related costs on Edison and SDG&E; shareholders through the end of the decade. That includes $20 million per year for four years that would result from a reduction in the companies' authorized return on equity.

Edison said that if the PUC adopts the law judges' recommendations to place additional costs on shareholders and require divestiture of SCECorp.'s Mission Energy operations, it would walk away from the merger.

"Even if authorized to merge by the Commission, (Edison and SDG&E;) cannot go forward under conditions where their shareholders would be required to bear all of the transaction costs necessary to achieve ratepayer benefits," the companies wrote.

Edison also characterized as overly narrow the judges' interpretation of state law that prohibits mergers if they reduce competitiveness.

San Diego Mayor Maureen O'Connor, who has vehemently opposed the merger, saw Edison's argument as a confirmation of the city's position that Edison never really intended for its shareholders to pick up all of the deal's costs.

Lungren, who assumed office in January, said Thursday that he didn't intend to get involved in the politically sensitive merger until two weeks ago, when Edison officials contacted him and requested a meeting. Lungren said that at that point he decided to review the advisory opinion, which was required under a 1989 law saying such utility mergers can be approved only if they do not "adversely affect competition."

Lungren, a former congressman, said he wanted to make sure that any attorney general's opinion used in the PUC proceedings gives amply broad interpretation to the legislative intent of the law.

But Sen. Herschel Rosenthal (D-Los Angeles), a merger watcher who authored the law, said Thursday that the old ruling was exactly what he had in mind.

Patrick Lee reported from Los Angeles and Ralph Frammolino from Sacramento.

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