Merger of Edison, SDG&E; Killed by Utilities Panel

In a stunning and unanimous vote, the state Public Utilities Commission on Wednesday dashed Southern California Edison’s plan to merge with San Diego Gas & Electric Co. and create the nation’s largest electric utility.

The five-member PUC ruled that the utilities failed to prove that the hotly contested, $1.8-billion stock-swap proposal met tough regulatory guidelines that govern mergers between large, California-based utilities.

The five commissioners, including two recently appointed by Gov. Pete Wilson, determined that the merger would adversely affect utility industry competition because Edison would even further dominate electric transmission in the West.

A majority of the commissioners also agreed that the merger was unlikely to produce long-term benefits such as lower rates. The commission said short-term rate reductions of about $1 billion were possible, but that Edison could not demonstrate continuation of those savings.

Edison also failed to meet seven other yardsticks--including improved customer service and benefits to employees--that California legislators approved in 1989, shortly after the utilities announced their intention to merge.

The utilities have 30 days to appeal the decision to the California Supreme Court. Industry observers consider a court challenge unlikely.

Executives at the utilities, who have spent nearly $100 million in shareholder funds over the past three years in their quest to complete the merger, seemed stunned by the vote.

In a terse statement, John Bryson, chairman of SCEcorp, Edison’s parent company, said he was “disappointed” because “the merger would provide 12.5 million Southern Californians with lower rates and enhanced air quality.”

Merger opponents, however, were ecstatic.

A beaming San Diego Mayor Maureen O’Connor, who traveled to San Francisco for the meeting, said there was no question that the PUC ruling was a personal vindication for her, as well as for the rest of the San Diego Establishment that waged what many considered an uphill fight against one of California’s biggest utilities.

“In my 20 years of public service, I think this is the sweetest victory because it really was David and Goliath--the little city with little money against the big, monster utility that had all the money” to pay consultants and New York attorneys, she said. The cash-strapped city of San Diego spent about $6 million to fight the merger.

“We had some dedicated people that passionately believed the city should have its own utility,” said O’Connor. “So when you have passion on your side, and right, you can win.”

Added Audrie Krause, executive director of Towards Utility Rate Normalization, a San Francisco-based consumer group that opposed the merger: “They (SCE) were essentially the state’s energy bullies, and they’ve just been put in their place, which is delightful.”

Many SDG&E; employees erupted into celebration as word of the vote spread through the utility’s downtown San Diego office.

“If you ever were at Times Square in New York on New Year’s Eve, then you know how it was,” said David Moore, business manager for an International Brotherhood of Electrical Workers local that represents about 5,000 SDG&E; employees. “A company guy in a suit and tie jumped up and slapped me a high five. . . . We won against the big, bad Edison.”

Jan Smutny-Jones, executive director of the Independent Energy Producers Assn., a Sacramento-based trade group representing companies that sell power to utilities, questioned whether Edison could find grounds to challenge the PUC vote.

Smutny-Jones and others cautioned that both utilities now need to begin planning for life as stand-alone companies. “California right now is at the point where it will have (electrical generation) capacity problems,” Smutny-Jones said. “We know we’ll have capacity problems in the late 1990s.”

The PUC vote pushed SCEcorp stock up slightly in New York Stock Exchange trading, apparently because the value of SCEcorp stock will not be diluted by the planned merger. The value of SDG&E;’s stock, which would have increased with a merger, fell $4.875 a share to close at $38.625.

Edward Tirello Jr., a utility industry analyst with Smith Barney, Harris Upham & Co. in New York, criticized the PUC for “derailing” a merger he and other proponents said would deliver $1.7 billion in savings that could have been used to lower electric rates.

“I would love to know the real politics behind this decision,” said Tirello, who first suggested in the mid-1980s that Southern Californians would benefit from a merger between Edison and SDG&E.; “It was a disgusting decision.”

From the beginning, however, there was clearly more at stake in the merger fight than questions of electrical rates and power grids.

In San Diego, the merger became a matter of civic pride, with Rosemead-based Edison widely viewed as a rapacious interloper bent on gobbling up one of the city’s few large corporations.

Long resentful of Los Angeles, San Diegans who once openly vilified SDG&E; for shoddy management and high rates now could not stand the thought of having their electricity controlled by a corporation based near Los Angeles.

“We’re the second-largest city in the state of California, the sixth in the country, and to have our own utility--it is our destiny as a city,” O’Connor said.

Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based group opposed to the merger, described the three-year proceedings as a “sobering experience. . . . It’s like someone shot a bullet at you and missed. There are very few victors in this thing. . . . It’s a tragedy that never should have happened.”

In Sacramento, the senator who wrote the 1989 law that eventually tripped up Edison likened Wednesday’s vote to a peak political experience.

“I’ll tell you something, my heart is jumping all over the place,” said Sen. Herschel Rosenthal (D-Los Angeles), who called the ruling the highlight of his 16-year legislative career. “One person can make a difference,” he said.

Rosenthal, chairman of the Senate Energy and Public Utilities Committee, challenged the merger only indirectly by making Edison live up to its promises. The Democrat took the company’s claims and fashioned a law that lists economic and service-oriented tests the PUC had to consider. Before the law, there were no set guidelines for evaluating large utility mergers.

“They (SCE) said, for instance, that the merger has got to be beneficial to both rate bases, it’s got to be beneficial to both (sets of) stockholders. They said that it would have to provide savings. . . . They pointed out that it would not stifle competition,” said Rosenthal.

“I just took a bill and said, ‘OK, all I’m going to do is hold you to what was said,’ ” he said Wednesday. In the end, those promises, written into suggested guidelines by law, persuaded the PUC to reject the merger.