City, SDG&E; Should Make Peace : There’s room for both sides to give on legal costs of merger battle.

Who’s holding who hostage here, anyway?

First, San Diego Gas & Electric Co. accused Mayor Maureen O’Connor of holding a routine refinancing of industrial bonds hostage until the utility reimbursed the city for every dime of the $6.3 million spent battling its now-defunct effort to merge with Southern California Edison.

Ultimately, the mayor backed off, and the $400-million bond refinancing measure--which is expected to save ratepayers $65 million over the next 25 years--was approved unanimously by the City Council.

But, during the debate, it was revealed that SDG&E; also had a hostage: a substantial donation to the mayor’s pet project--a new, state-of-the-art downtown library.

In previously secret negotiations with the city attorney’s office, the utility had offered to donate $1 million over five years to the project. And there was a second option: giving the city a power station site on a prime downtown parcel that could be used for the library if the port district refuses to turn over Lane Field, the bayfront site preferred by O’Connor.

Certainly, all corporate donations to the library effort are welcomed. But, if not explicitly, at least implicitly, SDG&E; made clear that both offers would be pulled from the table if the council continued to draft a ballot measure intended to give the city veto power over any future merger efforts.

Though O’Connor wisely compromised on the refinancing measure, both sides are needlessly intransigent on key issues. O’Connor’s aides say she still wants full reimbursement for the city’s legal fees and veto rights over any future sale or merger effort by SDG&E.; The utility insists it won’t pay a penny in reimbursement or be a part of any effort to strengthen the city’s hold over the company’s future. From such bargaining positions only gridlock is born.

It’s time for both sides to demonstrate some flexibility, particularly on the most important point: repaying the city for legal expenses. Unlike consumer groups that intervened in the merger battle, the city has no legal right to reimbursement. As a much-needed goodwill gesture, SDG&E; should make a substantial donation to help cover the legal costs. But it’s impractical for Mayor O’Connor to demand that the utility pay the entire tab. A compromise on this key issue is essential.

The proposed ballot measure is a lesser concern. If it passes--and it probably will--the effect will be more political than legal. The city is convinced that its current contract with the utility grants it veto powers already, a contention that the city was spared from proving in court last year when the state Public Utilities Commission unanimously rejected the merger proposal.

Placing even tougher language before voters may be politically expedient. But many legal observers--including some within City Hall--doubt that it will have much practical effect. Courts generally don’t put much weight in efforts by one party to renegotiate a contract in mid-stream. So the ballot measure isn’t necessarily the anti-business bogey man SDG&E; seems to think it is.

Fortunately, there is one thing both sides agree on: Almost three years after the merger effort began, it’s time for the city and its sole utility to make peace. Doing so will require all involved to be flexible--and reasonable. It’s time for the healing to begin.