DOING BUSINESS IN MEXICO : Edison Scuttles Plan to Invest in Massive Coal-Fired Power Plant

Southern California Edison Corp. announced Monday that it has ended a controversial attempt to invest in and operate a $1.6-billion coal-fired power plant in Mexico, about 150 miles southwest of San Antonio.

The unfinished plant, called Carbon II, had raised the hackles of U.S. environmentalists and become a potent example for groups opposing the North American Free Trade Agreement.

The facility, located 130 miles southeast of Big Bend National Park, is not going to have expensive air-pollution control devices called smokestack scrubbers, as U.S. utilities must under federal law.

As a result, Carbon II has become an increasing embarrassment for Edison at a time when the utility has been burnishing its image as an environmentally responsible company. When completed in 1996, Carbon II is expected to spew 120,000 tons of sulfur dioxide annually, polluting the air in nearby Texas and causing acid rain over the national park.

Critics of NAFTA say the proposed trade accord would encourage more U.S. companies to move operations across the Mexican border in search of environmental laws that will be less stringent even if the pact is approved.

Michael McCloskey, chairman of the Sierra Club, which opposes NAFTA, welcomed the news. The Carbon II deal would have been “an example of how NAFTA operates,” McCloskey said. “The question is whether U.S. firms ought to be a party to environmental irresponsibility. I hope Southern California Edison decided it did not.”

Mission Energy Co., Edison’s wholly owned subsidiary, planned to jointly operate the 1,400-megawatt plant with the Mexican company, Grupo Acerero del Norte. The Comision Federal de Electricidad, Mexico’s government-owned national electric utility, is building the plant.

Recent negotiations with Edison’s Mexican partners, which intensified last weekend, included discussions of whether scrubbers would be added, at an estimated cost of $200 million to $300 million. But Lewis M. Phelps, an Edison spokesman, said Monday that “the cost of scrubbers was not the issue specifically. There were several unresolved issues.”

Edison invested $358 million in preparation for the joint venture. Under the deal-ending agreement, the utility will get most of the money back, receiving $78 million in a five-year note. But Edison will also take an after-tax charge of $18 million in 1993’s third quarter, or 4 cents per Edison share.

Mark D. Luftig, senior vice president and analyst at Kemper Securities, described the loss as “not large” for a company of Edison’s size, noting that he expects Edison shares to earn $1.70 in 1993, about 20% of that from Mission Energy.

Yet as electricity demand has softened in Southern California’s battered economy, and the California Public Utilities Commission has tightened the utility’s allowed return on equity, Edison has looked to Mission Energy’s overseas power projects as its best bet for earnings increases.

Edison, in a Form 8K to be filed with the Securities and Exchange Commission, said termination of the deal “will significantly impact” Mission’s earnings in 1993, 1994 “and possibly beyond.” Mission also owns and operates power plants in England, Australia and Spain.

Edward J. Tirello Jr., a senior vice president and utilities analyst with Natwest Securities in New York, recently lowered his recommendation for Edison stock. “Now,” Tirello said Monday, “they have five years in the future of relatively flat earnings. This was to be their earnings growth.”

Edison stock slipped 12.5 cents Monday to $22.375 on the New York Stock Exchange.