Slight Rate Drop Forecast for S.D. in Utility Merger

A state study released Tuesday concludes that the proposed merger of San Diego Gas & Electric Co. and Southern California Edison would result in a modest drop in rates for San Diegans and a rate increase for SCE customers.

The 67-page report, prepared by the Assembly Office of Research, also projected that without a takeover by Edison, San Diego rates would rise because increasing demand will force the utility to add considerably to its generation capacity in the coming years.

As for the potential acquisition of SDG&E; by a public agency, the study called it feasible but said the impact of such a move cannot be fully evaluated until a purchase price for the utility is set by the courts.

Requested by Killea

The study was conducted at the request of Assemblywoman Lucy Killea (D-San Diego), who called it “the first independent analysis” of how rates would be affected under several different scenarios for the future of SDG&E.;

While acknowledging that it was “not conclusive,” Killea said the study will help government leaders and consumer advocates better evaluate the merger proposal--an issue she said was ablaze in a “firestorm of controversy.”

Killea said one conclusion she reached after reviewing the report was that cost savings realized by a merger would be nominal. SCE has projected that the takeover would result in savings of $1.7 billion over 10 years. If those figures are accurate, a $50 monthly utility bill would be reduced to $49, Killea said.

“I doubt that is enough, by itself, to win the hearts of San Diegans,” she said.

Questions Raised

In addition, the savings might be “offset” by problems created by the merger, which, if approved by the Public Utilities Commission, would form the largest investor-owned power company in the United States. Such problems include “questionable commitments to preserving San Diego’s air quality and obvious disincentives to maintaining fair competition in the energy marketplace,” Killea said.

Among the study’s key findings was the prediction that SDG&E; ratepayers would see a drop in rates if the two companies joined, while SCE customers would have higher bills. That projection drew mixed responses Tuesday.

“It think that shows this deal would not be a win-win situation as the utilities have painted it all along,” said Michael Shames, executive director of the Utility Consumers Action Network, a San Diego-based consumers group. “This shows us that someone is going to lose if the merger happens. And it doesn’t look like it will be the utilities, either.”

Edison executives, meanwhile, disputed the study’s gloomy news for SCE customers. While they were “delighted” by predictions of cost-savings for San Diegans, the officials insisted all of their energy consumers would enjoy lower rates because of the cost savings that would be realized under a united utility.

“SCE customers will not be disadvantaged because operating costs for the merged company will be lower than for the two companies operating separately,” said Lewis Phelps, SCE’s manager of corporate communications. “We will demonstrate this conclusively in a filing we will make shortly with the PUC.”

The study predicted that without the merger, SDG&E; rates would rise in the future. But when measured in real dollars adjusted for inflation, the increases would not represent any significant change from current levels, the report said.

The question of how a takeover of SDG&E; by a public agency would affect ratepayers went mostly unanswered in the report--largely because rates would depend on the as-yet-unknown purchase price for SDG&E;, estimated at between $4.3 billion and $5.7 billion.

More definitive data on that issue is likely to come out of a study being conducted by the San Diego County Water Authority, which has expressed interest in taking over and running SDG&E.;

Still, some of those seeking to thwart the $2.4-billion corporate takeover by Rosemead-based SCE found cause for optimism in the report.

‘Municipalization Feasible’

“It indicates that municipalization is feasible and we’re certainly encouraged by that,” said Paul Downey, spokesman for San Diego Mayor Maureen O’Connor. “But we’re taking the results with a grain of salt. It’s just one report and we have a two-year process ahead before the PUC makes its decision.”

The study noted that the impact of any organizational framework on rates is minimal, largely because the vast majority of electricity costs are tied to fuel, generating plants, transmission lines and other factors not directly related to the corporate structure.

Given the small difference in rates, the report suggested that factors such as air pollution, economic impacts, loss of jobs and reliability of service are key ingredients to an evaluation of utility mergers.