SDG&E; Merger

In an article in the Los Angeles Times on Feb. 18 (“Four Magic Words That May Slay a Giant Merger”), staff writers Ralph Frammolino and Greg Johnson explored the genesis of the new law underlying the administrative law judges’ proposed decision in the Southern California Edison-San Diego Gas & Electric merger.

As the president of the California Assn. of Utility Shareholders, I was intimately in volved in the evolution of this law, Senate Bill 52, enacted in September, 1989. The simple truth is the judges have erred in their interpretation, if the intentions of participants in the hearings are in any way relevant.

Clearly, no one involved at the time ever suggested that insubstantial competitive impacts should determine a merger outcome. Yet this is where the administrative law judges came out.

The new law requires that the merger provide net benefits to utility customers and not adversely affect competition. It does not require that either the net benefits or any adverse effect on competition be substantial or even significant. But it does not follow, as the administrative law judges reasoned, that any anti-competitive effect, however insignificant, should bar this and, by precedent, any future mergers in California.

Sen. Herschel Rosenthal (D-Los Angeles), the author of SB52, has recently said he intended the bill to mean what the administrative law judges have construed it to mean. But, if so, he certainly did not make his intentions apparent at the time to the state Public Utilities Commission and utilities that would be affected by such a legal straitjacket, or to his colleagues in the Legislature, all of whom clearly should have been put on notice on the record of such a major public policy departure.

The genesis of this legal contretemps was a joint legislative hearing in October, 1988, when Sen. Rosenthal expressed his concern that the PUC had no criteria that needed to be met before a merger could be approved by the PUC. Testifying in response, PUC President G. Mitchell Wilk listed criteria that probably would be applied. These criteria provided the foundation for SB52. When the bill finally became law, Wilk was quoted as saying, “In fact, all that bill really did was codify a commitment I made . . . to look at those issues.”

From the outset, even those opposing the bill--Edison, SDG&E;, the PUC and the California Assn. of Utility Shareholders (CAUS)--endorsed the basic premise underlying SB52; their objections were limited to specific provisions of the bill.

The language regarding competition was not at issue. In fact, it was never changed even though the bill was amended several times. Clarification and/or more explicit language was unnecessary because none of the utilities nor CAUS regarded the language as intended to change the way the PUC traditionally weighed anti-competitive issues.

In the legislative environment of 1989, it was reasonable to assume, and it was assumed that the standard for anti-competitive impacts would essentially remain the federal antitrust laws, where any adverse impacts could be mitigated or balanced against benefits.

Even the administrative law judges acknowledged that the record developed in the Edison-SDG&E; proceeding relied heavily on the models for measuring competitive impacts developed under federal antitrust statutes and Department of Justice guidelines.

It remains for the PUC commissioners to accept or reject the administrative law judges’ interpretation of SB52. If they accept it, they will not only severely constrain their own future public policy discretion in merger cases, they will also deny $1 billion in merger benefits to utility customers.

PHILIP C. PRESBER, President, California Assn. of Utility Shareholders