NEWS ANALYSIS : Now SDG&E; Must Rush to Find Power : Merger Rejection Means It Can’t Count on SCE Surplus
More than two years and a hundred million dollars later, the marriage that would have created the nation’s largest private electric utility failed to reach the altar. Now the would-be partners--giant Southern California Edison and much smaller San Diego Gas & Electric--face the likely prospect of a future without each other.
The companies are studying a possible court appeal to Wednesday’s state Public Utilities Commission vote prohibiting the proposed $1.8-billion merger. But if the vote goes unchallenged--as many industry observers predict--the PUC decision clearly will have the biggest impact on the smaller San Diego utility.
For Edison, the commissioners’ 5-0 vote is a setback, if not an embarrassment. The huge utility spent vast sums in the failed effort. And the merger attempt represented a personal defeat for former SCEcorp Chairman Howard Allen, who dreamed up the deal in the summer of 1988. It also poses problems for the current chairman, John Bryson, who must decide whether to mount an expensive court challenge.
But it should be business as usual for most of Edison’s electric operations. The utility, which needs to sell its excess generating capacity, probably will be able to do so because Western states will soon face a shortage of electricity. In addition, Edison will be able to maintain its unregulated subsidiary, Mission Energy, which would have enjoyed even greater profit potential had the merger gone forward.
SDG&E;, a fast-growing utility that historically has lacked generating capacity, stands to be hurt much more by a failed merger. It was banking on Edison’s excess electricity to meet its growing customer demand.
SDG&E; officials have said the utility probably will need 1,000 additional megawatts of electricity to meet increased demand by the year 2000. Lacking a merger with the much larger Edison, SDG&E; will have to focus on filling its energy needs.
Chairman Tom Page said Wednesday that the utility is prepared to go it alone if the merger is doomed.
During SDG&E;’s annual meeting in April, Page paraded top executives before shareholders to quell fears that the planned merger was resulting in a “brain drain” among key officials who saw a limited future in a merged company.
Page has maintained that while the merger was SDG&E;’s “preferred option,” it would rely upon fallback plans to meet its energy needs. But some observers believe that it will be difficult for SDG&E; to adjust to life without a merger.
“SDG&E; has put a lot of stuff on hold during the past two years and now they’re going to have to play catch-up,” said Audrie Krause, director of TURN, a San Francisco-based consumer group that had opposed the controversial merger since it was proposed in 1988.
Jan Smutny-Jones, executive director of the Independent Power Producers Assn., a Sacramento-based trade group whose members generate power purchased by Edison, is concerned about SDG&E;’s ability to crank up its generating capacity if it doesn’t move quickly and decisively.
“San Diego has needed additional generating capacity for some time now,” he said.
The PUC will have to pay “close attention” to Edison to ensure that the utility doesn’t “misuse confidential, proprietary information it learned about SDG&E; during the past three years,” said Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group that has opposed the merger.
The possibility that Edison will use confidential information to improve its competitive situation “is going to be a problem,” Shames said.
The PUC ordered that proprietary information be maintained separately and returned, but Shames said Edison now has “an intimate knowledge of how SDG&E; operates.”
Edison officials have long maintained that the PUC safeguards are adequate and that confidential information obtained by either party would not be misused.
Shames and various civic, consumer group and business leaders will hold a press conference today at the Greater San Diego Chamber of Commerce to discuss problems facing SDG&E; if the utilities don’t appeal Wednesday’s ruling.
“There’s no question that SDG&E; has lost credibility among its employees, the (San Diego) community and its customers,” Shames said. “I think the only answer is for them to restore those burned bridges . . . by opening their decision-making process for more community involvement. They’ve got to let the sun shine in.”
David Moore, business manager of an International Brotherhood of Electrical Workers Union that represents about 5,000 SDG&E; employees, said the utility will “rebound” from the three year-period where “every decision had to be reviewed by Edison.”
“We’ve been through layoffs and bad times before,” Moore said. “We’ve been through a lot tougher things than this.”
Key Dates in the Merger Saga
June 13, 1988: San Diego Gas & Electric announces a planned merger with Tucson Electric Power, an Arizona utility with excess electrical generating capacity and an extensive electrical transmission grid. The resulting utility, to be headquartered in San Diego, would have $5.6 billion in assets, 3.8 million customers and 5,681 employees.
July 26, 1988: SCEcorp, the Rosemead-based parent of Southern California Edison, surprises SDG&E; with an uninvited, $2-billion stock swap merger offer. The merger would create the nation’s largest investor-owned electric utility with 4.8 million customers.
Nov. 3, 1988: SDG&E; and Tucson Electric abandon their planned merger. The two utilities blame anticipated stiff opposition from SCEcorp.
Nov. 30, 1988: SDG&E;’s board unanimously accepts SCEcorp’s sweetened $2.4-billion stock swap merger offer.
April 18, 1989: SDG&E; shareholders approve merger with SCEcorp’s Southern California Edison subsidiary.
April 20, 1989: SCEcorp and Southern California Edison shareholders approve merger with San Diego Gas & Electric. State and federal regulators begin lengthy reviews of the planned merger.
Nov. 27, 1990: A Federal Energy Regulatory Commission law judge recommends that the merger be denied on antitrust grounds. However, the Justice Department and the FERC staff subsequently argued that commissioners should ignore the report when a final FERC decision is made later this year.
Feb. 1, 1991: A report issued by two state Public Utilities Commission law judges recommends against approving the merger on the grounds that it would hurt the environment and hurt competition among remaining utilities in the West.
LARGEST UTILITIES Here is a list of the 10 largest investor-owned electric utilities, along with figures for San Diego Gas & Electric.
Rank Company Customers 1. Pacific Gas & Electric 4,109,646 2. Southern California Edison 4,000,000 3. Commonwealth Edison 3,179,611 4. Florida Power & Light 3,122,847 5. Consolidated Edison 2,920,690 6. TU Electric 2,131,806 7. Detroit Edison 1,905,304 8. Public Service Electric & Gas 1,848,751 9. Virginia Electric Power 1,648,696 10. Duke Power 1,595,011 22. San Diego Gas & Electric 1,100,000
Figures are as of Dec. 31, 1989, except for Southern California Edison and San Diego Gas & Electric, which are for Dec. 31, 1990.
Sources: Companies, Edison Electric Institute.
SDG&E; at a Glance
San Diego Gas & Electric, 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 some small 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
Wednesday close: $38.625, - 4.875
SCE at a Glance SCEcorp is the parent of Southern California Eidson Co., the 105-year-old electrical utility, and units 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
Wednesday close: $39.50, + 0.75
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