Tough Call--Rendered in Straight Language : State turns thumbs down on proposed utilities merger

Seldom are government decisions as unequivocal as the California Public Utilities Commission’s blanket rejection Wednesday of a merger between San Diego Gas & Electric and Los Angeles-based Southern California Edison.

The written opinion was almost as unanimously negative as the commission’s 5-0 vote.

The PUC concluded, reasonably enough, that the competitive disadvantages were many and the long-term benefits to consumers few. This is the same conclusion that two administrative law judges and the PUC’s staff had previously reached.

DETACHED RULING: The commission correctly put aside San Diego’s more parochial arguments about local utility autonomy. And it resisted Edison’s well-financed pro-merger efforts. From the beginning, the commission seemed determined to immunize itself against undue lobbying pressure. It adopted strict rules prohibiting the utilities from having off-the-record discussions with commissioners about the merger.

The commission’s exhaustive and apparently impartial analysis is a good example of how government regulation should work.

The commission’s decision went to the very heart of the issue: Monopolies, although intrinsically capable of providing uniform service, do not and cannot offer the salutary effects of competition.

Indeed, the merger, creating the nation’s largest investor-owned utility, would have added yet another layer of insulation to what is already a difficult-to-regulate industry. That would have been a move in the wrong direction if the PUC is interested in encouraging competition to foster efficiency and lower costs, as it says it is.

The commission gave numerous examples of how feisty competitiveness by even comparatively small players can benefit consumers and other utilities. For instance, the commission concluded that SDG&E; plays a competitive role in providing transmission service to other utilities in California and the Pacific Northwest. “No other utility in the state has undertaken this brokering role, and SDG&E; has been creative in . . . (its) brokering activities,” the commission pointed out.

It went on to describe the value of SDG&E; and its “rivalry” with Edison in providing a regulatory benchmark to evaluate the performance of Edison and other California utilities.

While a merged utility might be well run, good management alone cannot compensate for the lost benefits of competition.

PLAIN LANGUAGE: One new element that came through in the PUC ruling was the potentially harmful effects of some of Edison’s past practices. The commission said that Edison has used its control over transmission to the disadvantage of other utilities, that it has engaged in self-dealing with an unregulated subsidiary, that it has been intransigent in complying with rules regarding these dealings and that Edison has been contentious about allowing the commission access to its books and records.

If these practices were resistant to regulation with Edison in competition with SDG&E;, the commission reasoned, they could be even more of a problem with a merged utility.

But most compelling of all the commission’s reasons was that the two utilities had simply failed to prove that there would be any long-term benefits to a merger.

If there had been significant benefits, Edison’s vigorous campaign--2 1/2 years long and $100 million deep--should have been able to make that case. Yet Edison did not sway the PUC.

It’s time for the two companies to get on with their separate businesses. The PUC has done its job. It looked at the evidence and made a call. And the answer is no.