Decision Near on 3-Year Merger Try by Edison, SDG

When Southern California Edison executives made their bid to merge with San Diego Gas & Electric during the summer of 1988, some industry observers predicted that the deal would be completed in about two years.

But unforeseen obstacles extended that timetable.

SDG&E;’s board initially fought the uninvited, $1.8-billion stock-swap merger bid by SCEcorp, Edison’s Rosemead-based parent company. When SDG&E;’s board finally approved the merger in late 1988, an unlikely alliance of San Diego civic, business, labor and consumer group leaders formed to keep Edison from absorbing the home-grown utility.

The group, led by San Diego Mayor Maureen O’Connor, rejects Edison’s claims that air quality will improve and that electric rates will fall after the merger occurs. The utilities maintain that rates will be held down because the merged companies would enjoy significant economies of scale.

The logjam should break Wednesday morning when the state Public Utilities Commission casts its final vote on the controversial merger. The Federal Energy Regulatory Commission is expected to cast its final merger vote during the summer.

Wednesday’s vote is the culmination of an intense regulatory review. State and federal regulatory reviews included a combined total of 123 days of hearings that produced testimony from 60 different parties. The merger must be approved by both regulatory agencies.

Utility officials have fought hard to win regulatory approvals.

SCEcorp has already spent $71 million of shareholder money on outside attorneys, consultants and public relations firms. SDG&E; has spent $18 million in shareholder funds. Edison is seeking PUC approval to pass along another $40 million in additional costs to customers if the merger is completed.

Here are some answers to key questions about the proposed merger:

What happens if the merger is approved?

A merger would blend Edison, which has surplus electric generating capacity, with SDG&E;, a fast-growing utility that lacks sufficient generating capacity.

Edison and SDG&E; will merge their operations, creating the nation’s largest investor-owned utility with 5.1 million customers, $18.2 billion in assets and a 54,100-square-mile service territory that stretches from Central California to the Mexican border.

SDG&E;’s corporate headquarters would be eliminated, and its 1.1 million customers would become Edison’s largest division. “We’re ready to go,” Edison spokesman Lewis Phelps said recently. “We would be able to move very promptly to integrate the two companies.”

What happens if the merger is not approved?

Edison and SDG&E; maintain that, in addition to planning for the merger, they also have planned for life as stand-alone utilities. SDG&E; Chairman Thomas Page has said that the utilities would go “back to business as usual.” However, Page also acknowledged that, absent a merger with Edison, SDG&E; will need to look elsewhere for 1,000 megawatts of additional power that will be needed by the year 2000 to meet increased customer demand.

How will the merger affect SCEcorp and SDG&E; stock?

SDG&E; shareholders will receive 1.3 shares of SCEcorp common for each share of SDG&E; common. Preferred and preference stock will be traded evenly. SDG&E; has traded at about $45 per share in recent months while SCEcorp has hovered at about $38 per share. SDG&E; shareholders would enjoy a 27% dividend increase when the merger is completed.

SCEcorp stock would most likely remain stable or possibly rise slightly if the merger does not occur because the deal would initially dilute the value of SCEcorp stock. SDG&E; stock, which rose when the merger was announced, would probably fall by about $5 per share, according to analysts.

What would happen to electric rates if the merger is approved?

Two PUC law judges, in a report issued in February, found that the merger would produce about $1 billion in savings during the coming decade that could be used to lower electric rates. The utilities have maintained that the merger would produce at least $1.7 billion in savings. Merger opponents maintain that residential electric bills will fall by just pennies each month if the merger occurs.

What are the environmental impacts of the merger?

The PUC law judges determined that a merger would cause “significant” air-quality deterioration in the Los Angeles-Orange County air basin. However, the judges also determined that those problems “could be mitigated” if Edison, among other things, adds pollution control devices to its electrical generating plants.

Edison officials have crafted mitigation plans with air-quality officials in its service territory. But the utility is at odds with air quality officials in San Diego County who maintain that the merger would significantly harm air quality in San Diego.

Who opposes the merger?

The cash-strapped city of San Diego has spent $6 million during the past three years to dash the merger. Utility Consumers Action Network, a San Diego-based consumer group, has logged more than 3,000 hours of attorney fees during its fight to stop the merger. UCAN and San Francisco-based Toward Utility Rate Normalization have argued that Edison’s promised rate reductions are illusory and that the mega-utility to be created would enjoy an unfair competitive advantage.

Municipally owned utilities in Southern California have opposed the merger, arguing that the resulting utility would enjoy an unfair competitive advantage. Independent power producers who sell electricity to various utilities, including SDG&E; and Edison, also oppose the merger.

A majority of SDG&E;’s employees are against the merger because it will result in the loss of jobs, according to David Moore, business manager of Local 465 of the International Brotherhood of Electrical Workers. The companies have maintained that no employees would lose jobs because of the merger.