PUC Votes Down Utility Merger : Ruling: Edison’s proposed consolidation with SDG&E; would hurt competition, commissioners agree.

In a stunning and unanimous vote, the state Public Utilities Commission on Wednesday dashed Southern California Edison Corp.’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 merger met a string of tough regulatory guidelines that govern mergers between large, California-based utilities.

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

On other parts of the decision, a majority of the commissioners agreed that the merger was unlikely to produce long-term benefits such as lower rates. The commission agreed that short-term rate reductions of about $1 billion were possible, but that Edison couldn’t demonstrate that those savings would continue over time.

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

Utility executives, who have spent nearly $100 million in shareholder funds over the past three years in their quest to complete the merger, seemed to be stunned by the overwhelmingly negative vote.

In a terse statement, John Bryson, chairman of SCEcorp, Edison’s parent company, said that he was “disappointed” by the vote because “the merger would provide 12.5 million Southern Californians with lower rates and enhanced air quality.” It was uncertain Wednesday if the utilities would appeal the decision to the California Supreme Court.

During an afternoon press conference in San Diego, SDG&E; Chairman Tom Page voiced “disappointment’ with the vote. But he said that SDG&E; would “immediately shift into overdrive” if the merger is, indeed, doomed.

Merger opponents 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 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,” O’Connor said. “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. The company’s telephone lines were tied up for a time as employees spread word of the decision.

“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 that represents companies which sell power to various utilities, questioned whether Edison could find grounds to challenge the unanimous vote in an appeal to the state Supreme Court. The utilities now have 30 days in which to make such an appeal.

But 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 won’t 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 New York-based utility industry analyst with Smith Barney Harris Upham, blasted the PUC for “derailing” a merger that 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.”

Tirello said the negative merger vote would probably cause rates to increase in San Diego because “SDG&E; is going to have to buy large blocks of expensive power” from suppliers other than Edison.

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 was a matter of civic pride, as the establishment fended off Rosemead-based Edison to keep one of the city’s few large corporate headquarters.

The fight saw San Diegans, once openly critical of their namesake utility for shoddy management and high rates, become protective of SDG&E; and horrified at the thought of someone near Los Angeles controlling their electricity.

“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,” said O’Connor, who linked the victorious PUC decision with her steadfast resistance to advocate mandatory water rationing.

“It shows that San Diego is a different city,” she said outside the PUC hearing room. “We have a different style of leadership and when we’re committed to something we hang together. There’s no limit to what you can accomplish when you stick together.”

The fact that O’Connor, who has been stung with bad publicity over her defense of voluntary water rationing and personal water use, embraced the merger news as a personal victory was evident throughout the proceedings. As it became apparent that PUC commissioners were going to reject the merger, she nudged a reporter.

“Do write that the mayor of San Diego has some guts and vision on this one. . . . I’m finished in statewide politics but who cares?” she said.

After the PUC vote, O’Connor took a cellular phone supplied by twin sister Mavourneen and placed a call to Bob White, Gov. Wilson’s top aide, to exult in the decision and thank the governor--prompting White to then speak to reporters and explain that Wilson, former San Diego mayor, never tried to influence the PUC vote.

“From my perspective, it was an independent thing,” White said. “We never took a position. Never.”

O’Connor received a decidedly more chilly response when she called Page. The mayor made a sour face after the SDG&E; chairman put off her requests for a meeting by saying he would talk at a more “appropriate time.”

Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based group that has opposed the merger, described the three-year merger 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.”

Krause of TURN also portrayed the merger in less than flattering terms for SCE.

“You couldn’t just assume they were some friendly, benign corporate neighbor that would come in and everything would be hunky-dory and they would come over with a plate of cookies,” she said.

In Sacramento, the state senator who paved the way in legislation for the PUC decision likened the news Wednesday 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 said the ruling based on his law was the “highlight” of a 16-year legislative career. “One person can make a difference.”

Rosenthal, chairman of the Senate Energy and Public Utilities Committee, challenged the merger indirectly by making Edison live up to its promises. The Democrat took the claims and fashioned a 1989 law that lists economic and service-oriented tests the PUC had to consider in order to approve the merger. Prior to 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 provides savings. . . . They pointed out that it would not stifle competition,” Rosenthal said.

“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 turned legal guidelines persuaded the PUC to reject the merger.