Customers of San Diego Gas & Electric and Southern California Edison should absorb part of the premium that SCEcorp has agreed to pay for the San Diego-based utility, SCEcorp Chairman Howard Allen told utility industry analysts during a meeting Thursday in New York.
The "cost recovery plan" that Allen described on Thursday drew immediate opposition from Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer group. Allen earlier had indicated that Edison would use those cost savings--estimated at $100 million or more--to generate lower rates for its customers, Shames said.
"I think (the plan) stinks," Shames said. "Allen previously said that any dilution (in the value of SCEcorp stock) would be made up over time, but not this way. This is a whole new angle."
The plan proposed by SCEcorp, the parent company of Edison, has "has nothing to do with increasing rates for Edison customers," according to Edison spokesman Lewis Phelps. Rather, the plan would split savings among ratepayers and shareholders "instead of passing all the savings through to ratepayers," Phelps said.
It was unclear on Thursday what SCEcorp's plan would do to rates. SCEcorp must seek approval of the plan from the state Public Utilities Commission.
Commissioner G. Mitchell Wilk, who declined to comment specifically on Allen's remarks, on Thursday maintained that "ratepayers are not going to pay for the up-front costs of this merger. The ratepayers have to benefit pro-actively from this merger."
However, Wilk noted that "it's been the policy of the CPUC that the long-term benefits having to do with any utility action inevitably involve some sharing between ratepayers and shareholders. There's obviously a balancing act."
A portion of the more than $100 million in operating savings would be passed along to shareholders in the form of additional profit, Phelps said. That transfer would soften the impact on SCEcorp shareholders because the proposed merger would dilute the value of Rosemead-based SCEcorp's stock by 6.9%.
SCEcorp agreed to pay a premium--or an extra amount--over SDG&E's book value because the proposed merger promises to produce "substantial savings and benefits for our customers," Allen said. "In fairness, our shareholders should not be required to assume the entire cost of this premium."
Allen previously had said that SCEcorp's stock would eventually recoup its lost value as investors realized the hidden value of the resulting company. Shames on Thursday suggested that Allen had previously indicated that any cost savings would be passed along to customers in the form of lower rates.
Staff writer Don Woutat in Los Angeles contributed to this story.