The Only Merger Question: Would Bigger Be Better? : Decision should not be based on San Diego’s fears or pressure from Edison

Southern California Edison and San Diego Gas & Electric have had a marriage of convenience for years. Since the late 1960s, they have jointly owned San Onofre Nuclear Generating Station, one of the West’s biggest power plants. Now, the two utilities want to consummate the union. If the California Public Utilities Commission approves the proposed merger of the two companies and the Federal Energy Regulatory Commission gives its blessing, the combined company would be the nation’s largest investor-owned utility.

There has been no shortage of objectors to this marriage. The city of San Diego was one of the first to speak up in 1988, when SCE proposed what was initially a hostile takeover. Mayor Maureen O’Connor blasted the merger; Establishment business executives in San Diego jumped on her bandwagon. Radio talk show hosts and one of San Diego’s newspapers quickly added their voices. Polls registered disapproval throughout San Diego County.

Understandably, San Diegans do not want to lose one of the community’s few remaining corporate headquarters--especially one providing such a vital service. It’s a matter of civic pride for the nation’s fourth largest county.

San Diegans were even more passionate about the prospects of a large Los Angeles-area firm engulfing a San Diego institution. But, however legitimate these concerns, the PUC should not base its decision on them. It must look at broader issues.

Will Southern California have a more reliable supply of reasonably priced energy with a mega-utility, or is it better served by having San Diego Gas & Electric independent? Will it make a difference in the next 10 to 20 years when the homeowner flips on the light switch or when a business needs steady power to run its computers? Will the merger help fill the state’s need--including San Diego’s growing needs--for additional power?

The California Energy Commission says that the state can meet its energy needs over the next 20 years with or without the merger, because half of the additional power could come from conservation and the other half from alternative energy sources, such as solar or geothermal energy. But if those goals fail--and without an effective national energy policy, they well may--then the question becomes: Is Southern California better served by the added competition of two companies or by the added clout and possible added efficiencies of the merged utilities?

ARGUMENT FOR: The major argument is that combining the companies will translate into savings for ratepayers--how much varies with who runs the figures. The most official calculations probably come from the administrative law judges who evaluated the mergers for the PUC. They estimate $1 billion in savings for nearly 5 million ratepayers over 10 years. Per month, it would amount to less than a dollar for the average user. The PUC staff estimates the savings at even less, about 25 cents a month, but most of this saving would come from the elimination of 1,073 jobs. The administrative law judges argue that an even bigger Edison would not necessarily mean a more efficient one.

ARGUMENT AGAINST: The major objection raised by several regulators is that the merged companies would hinder competition for energy supplies. This could eventually increase the cost of energy for consumers and wipe out the fairly minimal savings.

Several smaller, municipally owned power companies are concerned that the merger will further limit their access to Edison’s impressive transmission grid. The city of Los Angeles recommends against the merger for similar reasons.

The question the PUC faces is whether the $1 billion in savings, if accurate, can be used to offset the competitive disadvantages, and if so, do the savings outweigh the concern?

This is a technical issue--one that has consumed two years of review. The two state law judges alone compiled 1,300 pages of reasoning to back their recommendation against the merger. And two succeeding state attorneys general have disagreed on interpretations of the law. What’s more, the decision is being watched nationally by an industry torn between the status quo and the desire for deregulation.

The commission’s charter is to regulate utility activities in the public’s best interests. This case is no exception. The decision must be based on the facts, as best as they have been able to be determined through the review process. It should not be based on San Diego’s fears or pressure from Edison, which has spent $87 million on the merger.

Edison correctly argued for a dispassionate evaluation, when anti-merger fever was at its height in San Diego some time ago. The matter still calls for a dispassionate decision.