SDG&E; Merger Proposal Hits Nerve in Business Community

Great American First Savings Bank Chairman Gordon Luce and Southern California Edison Chairman Howard Allen were in agreement in 1986 when, as members of PS Group’s board of directors, they voted to sell San Diego-based Pacific Southwest Airlines to USAir Group.

The two former board members now find themselves with dramatically different views on the future of San Diego Gas & Electric.

Allen is working to complete a $2.4-billion takeover of SDG&E; that would transfer control of the utility to Rosemead-based Edison. Luce, a longtime Republican stalwart who espouses free-market competition, recently emerged as one of the most powerful opponents of the merger.

“I think this is a very unusual situation,” acknowledged Luce, who has taken the decidedly uncharacteristic step of trying to derail a merger that already has been blessed by both utilities’ corporate boards.

“We have the reputation of our city at stake,” said Luce, who has agreed to chair the recently formed Committee for Local Control, which was created to oppose the merger. “I felt very strongly about this from early on.”

Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based group, maintains that it is “kind of ironic that San Diego’s business community is responding to the proposed merger on the emotional and gut-level issue of who’s going to control San Diego.”

“But, in this case, the consumer groups are focusing more on the facts involved,” Shames said. “It is an unusual situation.”

“This merger has hit a sensitive chord,” said Mark Nelson, president of the San Diego Taxpayers Assn., which has yet to take a stance on either the merger or a municipal takeover of SDG&E.; “The whole debate over merger or municipalization has cut across corporate lines in a really interesting way.”

Luce is opposing the merger despite the fact that, under his leadership, Great American has used mergers and acquisitions involving other savings and loan associations to grow from a sleepy, San Diego-based thrift into a strong, regional financial institution that does business in nine states.

Several Concerns

Luce is basing his opposition to the merger in part on concern that rates might increase and service decline after a merger. He also worries that as many as 1,000 San Diegans could lose their jobs once the merger is completed.

Neither do Luce and other local business leaders want the county to lose one of the few headquarters companies that can make major contributions to the county’s charitable and civic organizations. Similarly, he fears that civic and business leaders will lose their relatively easy access to the utility’s top executives.

But Luce’s opposition is based also on a decidedly philosophical issue: Utilities, he argues, with their government-guaranteed monopolies, are unduly sheltered from free-market forces.

Consequently, Luce doesn’t want to turn over control of that monopoly without a fight.

People have no choice about whom to buy power from, because there is a monopoly, Luce said. “If this were an S&L; merger, there are hundreds of other companies to deal with. . . . But on power, we have no choice.”

Other San Diego business leaders echo Luce’s reasoning.

‘Plenty of Other Airlines’

“I was unhappy about the PSA takeover by USAir, but I didn’t think to oppose it because there’s still plenty of other airlines around,” said Mike Madigan, a Pardee Construction Co. executive. But Madigan, a San Diego County Water Authority board member, was upset enough by Edison’s merger bid to suggest that the agency study a government takeover of SDG&E.;

“There must be 200 home builders around . . . but SDG&E; is a monopoly,” Madigan said. “And there’s a fundamental difference between that and free enterprise.”

“If a takeover is not in the best interest of San Diego, then one alternative is obviously public ownership,” Madigan said. “I don’t know if municipalization is a good idea. But this is the only time we’ll get to explore it properly.”

Luce’s committee will oppose the merger, but it has stopped decidedly short of endorsing a municipal takeover.

Although the Greater San Diego Chamber of Commerce in September took the unusual step of opposing the merger, chamber President Lee Grissom has acknowledged that his organization’s board would have to think long and hard before embracing municipalization.

Frustrated Enough

Elsewhere in San Diego, another group of business leaders evidently is banding together to oppose a government takeover of SDG&E;, which has 1 million gas and electric customers.

But some business executives in San Diego are frustrated enough to endorse a government takeover of SDG&E.;

“I’m for free enterprise,” said John Mabee, founder of the Big Bear grocery store chain and another GOP stalwart. “But I hope the CWA pursues (a takeover) because, in my opinion, under their operation, rates would be much lower than at present. I’m for keeping (control) right here.”

“There is no competition,” he complained, adding that SDG&E; “doesn’t make good, sound business judgments, and, as a result, we have some of the highest electric rates in the country right here in San Diego.”

Many of San Diego’s business leaders have been seeing red ever since late November, when SDG&E;’s board of directors accepted the $2.4-billion stock swap merger that, if completed, would create the nation’s largest investor-owned electric utility, with 4.8 million customers.

Longtime San Diego businessmen Charles (Red) Scott and Morris O. Sievert, two SDG&E; board members who voted against the merger, unexpectedly resigned after fellow directors refused to reject the proposal.

Sievert cautioned that SDG&E;’s managers do not “recognize the profound impact . . . that will result as they become a relatively small branch of a very large corporation headquartered in a suburb of Los Angeles.”

San Diego Mayor Maureen O’Connor recognized Scott’s protest by awarding him one of this year’s San Diego “Seahorse” awards.

The San Diego Economic Development Commission, a quasi-government body that supports economic growth in the county, has gone on record opposing the proposed merger.

That opposition is in stark contrast to the decided lack of reaction when USAir acquired PSA, or when La Jolla-based Signal Cos. disappeared during a merger with New Jersey-based Allied Corp.

That past silence was in part dictated by “corporate etiquette,” which “normally suggests that businessmen keep out of these things,” said Murray Weidenbaum, director of the Center for the Study of American Business at Washington University in St. Louis.

But that code increasingly has been ignored in the wake of the unprecedented number of hostile corporate takeovers, Weidenbaum said. Local business leaders are opposing takeovers that “tend to change corporate control. These leaders don’t want anything to upset the status quo.”

Not surprisingly, Weidenbaum has never come across a business community “that objected to one of their firms taking over a firm in someone else’s territory.”

“It is unusual for a chamber to comment specifically about a particular merger,” according to Roger Middleton of the council for corporate policy at the U. S. Chamber of Commerce in Washington. “Increasingly, we’re hearing from stake holders, which can go far beyond just the shareholders . . . to the community at large, employees, pension holders and retirees.”