Federal Approval of Utility Merger May Set Precedent

SAN DIEGO —  In a decision that might set a precedent for the federal government’s review of San Diego Gas & Electric’s proposed merger with Tucson Electric Power, the Federal Energy Regulatory Commission on Wednesday conditionally approved Portland-based Pacificorp’s merger with Utah Power & Light.

SDG&E; welcomed the decision because commissioners in Washington ignored a federal law judge who earlier had recommended against a Pacificorp merger with Utah Power, according to Bill Reed, SDG&E;’s director of regulatory affairs.

“We’re obviously pleased with the outcome because of . . . FERC’s willingness to . . . see benefits in mergers,” Reed said Wednesday. “The commission found conditions which it felt made the merger allowable.”

Before Wednesday’s decision, SDG&E; and other utilities were uncertain how federal regulators would view a consolidation in the utility industry. Wednesday’s ruling seemed to indicate that more mergers will be permitted, according to Reed.

‘Troubling Precedent’

Michael Shames, executive director of San Diego-based Utilities Consumer Action Network, criticized the decision.

“The FERC decision sets a troubling precedent,” Shames said. “It rejected out of hand the determination that many of the utility’s claims were without merit,” he said of a judge’s decision about the company’s cost-cutting claims. The two utilities have said that the merger will produce $500 million in savings during the first five years.

The decision ignored the “key” question of how the two merged utilities would transfer energy between their subsidiaries in Oregon and Utah, Shames said. “We want that kind of thing out in the open so we can make sure they’re buying power from the lowest-cost producer, not their subsidiary,” Shames said.

State regulators in California and Arizona also must approve SDG&E;’s proposed merger with Tucson Electric. But, during a legislative hearing in San Diego on Monday, several utility industry experts testified that the impending FERC decision would signal how receptive federal regulators will be toward a utility-industry consolidation.

The FERC on Wednesday attached several conditions when it approved the Pacificorp-Utah merger. Among them was a demand that other Pacific Northwest utilities be given access to the newly created utility’s web of interstate transmission lines.

The Pacificorp merger would create a single utility with 1.2 million customers in Oregon, Northern California, Utah, Wyoming, Montana, Idaho and Washington. Pacificorp and Utah Power executives will study the FERC’s conditions and decide next week whether to complete the merger. Seven state agencies have either approved the proposed merger or are still reviewing it.

Testimony of Challengers

Early next year, the FERC will gather testimony from 19 intervenors who have challenged SDG&E;’s merger with Tucson Electric. A law judge’s ruling is expected by late April. The full commission’s decision will follow.

In a related matter, a San Diego Superior Court judge has agreed to postpone action on SCEcorp’s demand that SDG&E; turn over a copy of its shareholder list. Attorneys for both companies agreed to the postponement, according to an SDG&E; spokesman.

SCE, the parent company of Southern California Edison, wants the shareholder list in order to communicate with SDG&E; shareholders, a possible prelude to a hostile takeover of SDG&E.; The two utilities are trying to negotiate an out-of-court settlement, an SDG&E; spokesman said.