PUC to Begin Review of SDG&E; Merger Plan : Nearly 30 Parties Will Scrutinize, Criticize Proposed Deal With Tucson Electric Power

SAN FRANCISCO — San Diego Gas & Electric Co.’s proposed merger with Tucson Electric Power will be scrutinized, and quite possibly opposed, by nearly 30 utilities, consumer groups and government agencies during a yearlong state Public Utilities Commission review that began here Monday.

The commission’s review will be “lengthy and complicated,” predicted Michael Shames, executive director of the Utilities Consumer Action Network, a San Diego-based consumer group. The group will be one of the 30 interested parties taking a hard look at the proposal.

The consumer group wants SDG&E; to prove that the merger “will achieve benefits to monopoly customers and to the state as a whole and that the benefits exceed the costs of the merger,” according to Shames.

May Demand Reductions

It also wants to ensure that SDG&E; is not using the merger “merely to accelerate its diversification efforts,” Shames said. And the group may ask state commissioners to force SDG&E; and Tucson Electric to guarantee rate reductions before the merger is approved.

Besides scrutiny by the Public Utilities Commission and UCAN, SDG&E;’s merger plans will be studied by Pacific Gas & Electric Co., the city of San Diego, El Paso Natural Gas, Southern California Gas and a handful of utilities from the Southwest. Most were represented at the preliminary meeting of the commission Monday, but few gave any indication of whether they would support or oppose the merger.

SDG&E;’s proposal also is expected to draw a stiff challenge from SCEcorp, the Rosemead-based parent company of Southern California Edison, which in late July surprised SDG&E;’s board of directors with a $2-billion stock-swap merger proposal.

According to documents filed recently with the public utilities panel, Edison will argue that SDG&E;’s merger with Tucson Electric could “adversely affect the public interest.” However, Richard K. Durant, an Edison attorney who attended Monday’s hearing, declined to elaborate on what objections Edison will raise during the commission’s review.

Last Wednesday, Edison agreed with SDG&E;’s request that Edison’s Aug. 12 deadline to reply to its merger proposal be extended until Sept. 1.

A disgruntled SDG&E; shareholder recently filed suit in U. S. District Court in San Diego, alleging that the utility’s board of directors has failed to give Edison’s offer serious consideration.

Going Ahead With Plans

Edison predicated its merger offer on SDG&E; dropping its proposed merger with Tucson Electric. An SDG&E; official reiterated Monday that the utility is completing plans for that merger while its board studies Edison’s offer.

The Public Utility Commission’s staff will be pressing SDG&E; to prove that its proposed merger with Tucson Electric would not harm customers or shareholders. The commission staff is expected to pay special attention to the myriad technical details--fuel mixes and customer demand for electricity, for example--that the commission must study before it deals with the merger proposal.

During the lengthy hearing process, SDG&E; hopes to prove that the proposal is in the public interest. It hopes to win state approval of its plan in a manner that eliminates any “litigation delays,” according to documents filed with the Public Utilities Commission.

William Shaffran, an assistant attorney with the city of San Diego, pressed the commission to schedule hearings on the proposed merger in San Diego.

City Atty. John Witt last week advised the City Council that, thanks to a little-noticed section of the City Charter, the city has veto power over some merger and acquisition proposals involving SDG&E.; That power stems from the 50-year, exclusive gas and electric franchise agreement the city negotiated with SDG&E; in 1970.

The in-depth Public Utilities Commission review will be essentially stalled until after SDG&E;’s proxy statement is approved by the Securities and Exchange Commission in early October.

That lengthy document will contain most of the technical information regulators need to conduct their investigation.