Mayor Maureen O’Connor: “This is callous and cynical.”
  • Mayor Maureen O’Connor: “This is callous and cynical.”
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In the summer of 1987, San Diego Gas & Electric sent its employees a document declaring that its board “has an obligation and responsibility to serve the best interests of its shareholders while maintaining reliability of service to its customers.” (Emphasis mine.) In short, serving shareholders was important, but so, too, was serving ratepayers. In public appearances, executives would state that the board had several constituencies: shareholders, employees, customers, communities, the environment, vendors.

That same year, Southern California Edison, the utility covering the Los Angeles metropolitan area, assigned an executive, Vikram Budhraja, to study possible savings that might come from a merger of Edison and San Diego Gas & Electric.

His conclusion: there would be no significant savings for Edison from a takeover of San Diego Gas & Electric.

The following year, San Diego Gas & Electric was attempting a merger with Tucson Electric Power. Edison believed that such a combination would threaten its huge market share in Southern California. So Edison prepared to make a hostile bid for San Diego Gas & Electric — and to hide the Budhraja findings.

Clair Burgener, former congressman, surrendered to Edison

Edison executives, including Budhraja, went back to the drawing board to see if they could find “savings.” Lo and behold, they did — $1.7 billion in savings over a ten-year period. Still, that would be a tiny percentage of the combined companies’ revenues over the decade.

And the data were phony, according to administrative law judges who studied the stats in 1991. George P. Lewnes of the Federal Energy Regulatory Commission said that Edison and San Diego Gas & Electric — which by then had capitulated to Edison — had used fabricated numbers to find savings. Lewnes blasted “the unreliability of the companies’ methodology” and the use of data “woefully lacking in credibility” and “inherently speculative and incomplete.” The savings were baloney, said Lewnes.

M. James Lorenz, now a senior federal judge in San Diego but during the takeover was a private attorney doing work for Edison — and serving as a major member of San Diegans for the Merger.

Two California administrative law judges were somewhat softer. They found $1 billion of savings over a decade, but after adjusting for inflation, the sum would be $613 million, and 94 percent of that would be labor savings — in other words, layoffs.

Mayor Maureen O’Connor, the San Diego City Council, the chamber of commerce, and the Coalition for Local Control worked to denounce Edison and convince the public that a merger was not in the public interest — largely because San Diego would lose a headquarters and employees and rates would go up, counter to Edison’s claim that they would go down. The groups such as the coalition didn’t have to spend much on advertising, because from the beginning, the San Diego public was overwhelmingly against the merger.

Charles "Red" Scott: “It was a very hostile environment."

The community feared that Edison, with its snug relationship with the California Public Utilities Commission and its lobbying power, would have an easier time picking San Diegans’ pockets than San Diego Gas & Electric would. Members of the San Diego Gas & Electric board, holding fistfuls of stock, would rake in bucks, because Edison’s final bid was starkly above the market value of San Diego Gas & Electric stock.

Malin Burnham: “We didn’t want to sell the company, but …”

Right from the start, it was clear that Edison would be wholly disingenuous when coming up with calculations, and once San Diego Gas & Electric surrendered and joined Edison in trying to get regulators’ okay for the merger, the local utility would be dishonest, too. San Diego Gas & Electric originally intended to fight Edison. Its chief executive, Thomas Page, and a delegation from the company went to Helen Copley, owner of the Union and the Tribune, which would merge in the early 1990s.

For some reason I have never understood, the papers did not jump immediately to Page’s support, and Page thought it was hopeless. But Copley conferred with her close friend, Mayor O’Connor, and they got the ball rolling. I began writing anti-Edison columns, and the late reporter Charles Ross sharply dug into the details where Satan was hidden. Ed Fike, Union chief editorial writer, wrote columns denouncing the deal, the Tribune blasted it, and so did other media in San Diego.

O. Morris Sievert would not succumb to the forces of greed.

Once San Diego Gas & Electric’s board surrendered, this would be a planned marriage between the falsehearted and the fraudulent. The merger would create a $2.4 billion enterprise, the largest investor-owned electric company in the nation.

But mercifully, the merger was stopped before the partners could go through with it. San Diegans, led by O’Connor, local media, and business groups such as the chamber of commerce and the Coalition for Local Control, showed state and federal regulators that the merger was not in the public interest. In fact, it would be destructive to the public interest, because, in essence, Edison would have a license to steal from San Diego ratepayers, with the enthusiastic participation of former San Diego Gas & Electric board members, pillars of the community who stood to rake in a bundle of money if regulators okayed the deal.

Stephen L. Baum: “Under certain circumstances, the duty of a director of a regulated public utility is virtually exclusively to shareholders.”

The public be damned

Presiding at the proposed nuptials would be a law firm, New York–based Skadden, Arps, Slate, Meagher & Flom. This firm had sleazy clients — among them, Mike Milken, the junk bond/takeover king who had spent a spell in prison for his corporate depredations. Actually, you could almost say that Skadden Arps invented the hostile takeover, at least the ugly kind that prevailed in the 1980s and 1990s, leading, in some cases, to organized-crime-connected companies taking over reputable American firms. Skadden Arps came up with an offensive maneuver to aid the raider. If a board refused to accept a so-called reasonable buyout offer, Skadden warned the members that stockholders of the target company — in this case San Diego Gas & Electric — would sue each board member individually on the grounds that those shareholders had lost an opportunity to make lots of loot had the deal gone through. Skadden talked big numbers: some board members might be wiped out financially defending themselves, the law firm claimed.

Skadden’s opinion, in short, was that the public be damned. Not only would the community lose jobs and a headquarters, but local cultural organizations and charities would surely suffer. With the headquarters gone, vendors would lose business, and that would ripple through the San Diego economy. The only important factor in a merger of two companies was the comfort of the shareholder, said Skadden. It intoned to the San Diego Gas & Electric board in 1988, “The board’s principal obligation is to its shareholders. This precept is at the very essence of the proposition that directors are fiduciaries for the shareholders. We are unaware of any authority suggesting that directors are fiduciaries for any other constituencies,” such as the community.

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Comments

JustWondering July 3, 2018 @ 11:36 a.m.

Your history with Peevey is more extensive than I understood and the extent of his corruption is far deeper too. How could ANY Governor be associated with or appoint this person to any commission?

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Don Bauder July 3, 2018 @ 2:56 p.m.

JustWondering: The answer is that Peevey and Jerry Brown were buddies of long standing. Peevey was appointed president of the CPUC in 2002 by Gray Davis. That was done to appease the publicly held utilities, which complained that the then-president, who was consumer-oriented, needed to be replaced. Brown kept reappointing Peevey, who finally stepped down in December of 2014. Best, Don Bauder

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JustWondering July 3, 2018 @ 11:45 a.m.

While Maureen O’Connor was politically adept, she wasn’t the sharpest tool in the shed when it came to business dealings. Do you think she was being coached on the SCE and SDG&E merger by her husband, Robert O. Petersen, founder of Ocar’s and Jack-in-the-Box restaurants?

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Don Bauder July 3, 2018 @ 3 p.m.

JustWondering: I think Maureen was very sharp in business dealings. Robert Peterson, Jack in the Box founder and her husband, may have given her excellent suggestions on how to fight Edison, but she could stand on her own. He died in 1994. Best, Don Bauder

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JustWondering July 3, 2018 @ 7:35 p.m.

Well then something happened to her after his demise. She admitted to embezzling over two million dollars from his charity foundation trust to feed her gambling problems. If that’s your example of a good business person, you’ll need to rethink it.

It’s also my understanding as of 2017 she hasn’t paid anything toward that debt, yet the U.S. Attorney still hasn’t proceeded with prosecution. Must be nice to be connected similar to Peevey who should be prosecuted too.

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Don Bauder July 3, 2018 @ 8:56 p.m.

JustWondering: I don't believe the addiction that gripped Maureen had anything to do with intelligence, just as addictions to alcohol or drugs are not a measure of intelligence. Addiction is a disease. Best, Don Bauder

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JustWondering July 4, 2018 @ 8:49 a.m.

It’s my opinion, intellect, willpower, faith and support can overpower any addiction IF the person wants to change. With support being critically important. But it’s just an opinion.

There is so little understood comparatively about the brain, tumors and personality disorders. While some suggest there can be a relationship, it’s difficult, if not impossible to know with certainty.

I am surprised that there were not any stories of interventions by her identical twin sister and physician husband. Truly a sad situation.

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Don Bauder July 4, 2018 @ 1:55 p.m.

JustWondering: I think much depends on the source of the addiction. Was it mainly genetic or mainly environmental? Certainly, willpower is important. Intellect? That could be a factor in the sense that someone with intelligence may have a very good job that he or she does not want to lose. Faith? I am not so sure of that. Desire to change definitely is a factor. Best, Don Bauder

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danfogel July 4, 2018 @ 7:45 a.m.

Well, she did have a brain tumor. Psychiatric personality or behavioral changes often time can be the symptom of the tumor.

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Don Bauder July 4, 2018 @ 8:06 a.m.

danfogel: That is possibly an explanation. Best, Don. Bauder

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Bob_Hudson July 3, 2018 @ 9:24 p.m.

The city attorney's office did a pretty good job in this whole affair and hopefully advised Mayor Mo, but her main role, as I saw it in practice, was to be the important figurehead for the cause and not the strategist.

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Don Bauder July 4, 2018 @ 8:12 a.m.

Bob_Hudson: You were close to the action. Yes, the city attorney's office played a positive role. But I never thought of Maureen as a figurehead. In times I met with her, particularly early in the battle, she was talking strategy. Best, Don Bauder

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swell July 3, 2018 @ 2:22 p.m.

Don brings us literacy with his history lesson:

bunkum and buncombe (ˈbəŋkəm) n. nonsense. That’s just plain bunkum! Your Honor, counselor’s airbrained buncombe is an insult to the court. I object!

With lessons like this, I'll some day be able to join in conversation with eddycated folks.

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Don Bauder July 3, 2018 @ 3:01 p.m.

swell: Obviously, the word "bunk" derived from buncombe or bunkum. Best, Don Bauder

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Visduh July 3, 2018 @ 4:10 p.m.

Charles "Red" Scott was not a paragon of business virtue, but he had it right when he opposed the takeover. That SDG&E board of the time read like a who's who of local power brokers and establishment figures. Yet, if they were public spirited, it wasn't showing up in local utility bills. We had those highest-in-the-nation (or very close to it) electric rates 'way back then, and much earlier too. Nobody ever explained the "why" of that to my satisfaction, especially in the 70's when Edison DID have lower rates and a more reliable system.

As for the long-term effects of the turn-down of the merger on local rates, could we be any worse off than we are now? Ans: Yes, no matter how bad things are, they can always be worse. But I don't see that the benefit was anything to brag about, or that there's anything to feel good about.

Tom Page was a weak nincompoop, who was not CEO material at all. If you want a caretaker president, a guy like he was fills the bill. But he sure folded when Edison growled, and I was at his first "coming out" appearance after the merger proposal. His talk was sickening and groveling.

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Don Bauder July 3, 2018 @ 4:33 p.m.

Visduh: I was very disappointed when Page, Burnham, and other board members caved in to the Skadden Arps scam. Happily for the U.S., that scam did not survive many court tests. I agree that Red Scott left much to be desired -- his conglomerate went through bankruptcy -- but in this case he did the right thing.

The point I was trying to make in this piece was that Skadden's legal strategy -- the one used to hammer members of SDGE's board -- was false on its face. I kept trying to make that point in columns at that time. Utilities have a special relationship with their communities and should not be cowed by a strategy meant to kick meek companies into the hands of gangster-tied takeover artists. Best, Don Bauder

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Visduh July 3, 2018 @ 7:56 p.m.

Your point was clear, Don, and I would expand on it. Shouldn't there be some rules/regulations/laws that define the special nature of a public utility? If there were, then when a move like that proposed merger comes along, the board can cite the special nature of the corporation and then apply common sense. The utilities, despite the recent moves to deregulate some of them, have been given a monopoly over a vital resource in their service areas. The rules for businesses that lack any such granted special status should be, and are, different. The role of a board out in the dog-eat-dog private sector is to maximize shareholder value. But, as you point out, if the corporation is a public utility with a government granted lock on a service area, the board is responsible for the stockholders along with the ratepayers, public agencies, local government, and a host of others. SDGE/Sempra had wrestled with those competing demands for decades, and usually come down in favor of the shareholders, regardless of the obvious conflicts with ratepayer fairness.

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Don Bauder July 3, 2018 @ 9:17 p.m.

Visduh: You make excellent points. Utilities are granted monopolies in their service areas, and as a result have several constituencies: the community, governments/regulators, ratepayers, shareholders, employees, the environment, vendors, for openers. Utility mergers must meet a number of contingencies, and one is that their communities must be in agreement with the objectives of the combinations.

Frankly, I believe all kinds of companies would be well advised to realize they have a number of constituencies: shareholders, customers, employees, communities, the environment, vendors, for example. Best, Don Bauder

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JustWondering July 4, 2018 @ 9:11 a.m.

Ah, sort like the three-legged stool test. If one leg fails, the stool will be difficult, if not impossible to balance properly. If we say the legs of the stool are: The CPUC, Customers and Company&Shareholders, then one leg, The CPUC, has sustained substantial damage with the stool tilting precariously toward the owner/shareholder needs. Seems we are in need of thoughtful repair to prevent a catastrophe.

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Don Bauder July 4, 2018 @ 10:18 a.m.

JustWondering: Excellent analogy. However, I have one problem: the catastrophe is already here. You can see it in the sky-high rates of SDG&E, Edison, and Pacific Gas & Electric. Similarly, you see it in Edison flipping the bird to the public on the decommissioning of San Onofre: not only do ratepayers have to absorb a huge percentage of the costs, but Edison is burying spent fuel near the ocean despite strong complaints of the citizenry. Best, Don Bauder

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swell July 3, 2018 @ 9:49 p.m.

You hit the nail on the head, Don: "Frankly, I believe all kinds of companies would be well advised to realize they have a number of constituencies"

I suppose most people have played the Monopoly board game at some point. We quickly learn that it's good to own utilities. Not so good for everyone else though. They have to pay and pay and pay.

Whose idea was it to put utilities in private hands? That's as crazy as giving the national highway system to Friends of Trump, so they can charge a toll. Stupid!!! But it seems that Mexico, Russia and many other questionable countries have put essential services into the hands of connected individuals.

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Don Bauder July 4, 2018 @ 8:17 a.m.

swell: Yes, and all too many chief executive officers act like Russian oligarchs. Some U.S. politicians do, too. Best, Don Bauder

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AlexClarke July 4, 2018 @ 6:46 a.m.

For profit utilities do not consider the customer that they fleece constituencies. All utilities should be ratepayer owned. Compare IID to SCE et al.

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danfogel July 4, 2018 @ 7:41 a.m.

Perhaps you are correct. Or maybe not. But despite your declarations, most utilities remain for profit and that is how it will stay. Twas ever thus.

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Don Bauder July 4, 2018 @ 8:21 a.m.

AlexClarke: There is no question that municipally owned utilities have lower rates than investor-owned ones. The movement toward taxpayers playing a larger role in utilities is a result of this. Best, Don Bauder

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Visduh July 4, 2018 @ 8:41 a.m.

Alex, I wish I could sign on to your confidence in public ownership of the electric grid. But it implies government with the built-in inefficiencies that go with it. The model of regulated private ownership that encourages efficiency with the profit motive makes sense, and does work well in much of the nation. Then there's the Los Angeles Department of Water and Power, which isn't something that anyone can hold up as an example. It is the largest of nearby "ratepayer owned" utilities. If you study the history of that operation over the past 30-40 years, you'll see that it is out-of-control, with even a "strong" mayor system in place.

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Don Bauder July 4, 2018 @ 10:25 a.m.

Visduh: The model of profit-making utilities that are regulated does make sense -- on paper. But look at the rates of the three California investor-owned utilities -- all among the highest in the nation. And look at the arrogance: shifting of San Onofre decommissioning costs to ratepayers, burying of spent fuel next to the ocean, the San Bruno explosion. Best, Don Bauder

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AlexClarke July 5, 2018 @ 6:13 a.m.

IID (Imperial Irrigation District) provides electricity to the eastern half of the Coachella Valley while SCE (Southern California Electric) provides electricity to the western half. SCE has tiered rates with high rates. During the "shoulder months" when it can get over 100 degrees, the bill for a 1500 sq ft home can run $800 a month. IID has one rate, no tiers, no "summer rates" etc. The same house in the IID area would be $200.

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Don Bauder July 4, 2018 @ 8:27 a.m.

danfogel: You may be right. I am a classic example of an investor working against his own interests. Utilities are the single biggest holding -- by far -- in my portfolio. Yet I proselytize for solar panels and community involvement in investor-owned utilities. Best, Don Bauder

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Don Bauder July 5, 2018 @ 6:43 a.m.

AlexClarke: That's enough of a difference to cause a civil war. Best, Don Bauder

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Don Bauder July 5, 2018 @ 3:50 p.m.

Peter Peters: Yes, SDG&E's electricity rates are a bit higher than Edison's. SDG&E's rates are consistently the highest in the nation and Edison is close behind. Had Edison taken over SDG&E, the rates would have been higher still. Edison's claim that the rates would go down was false.

Some blame Obama for killing a possible facility for storing spent fuel. I think there were other problems that would have stopped that Nevada site. Best, Don Bauder

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Don Bauder July 10, 2018 @ 9:17 a.m.

Bill Cunningham: At one time, utilities pledged to put the customer first. No longer. Utilities are just as greedy as any other type of industry -- in some cases even greedier. And the CPUC goes along. Best, Don Bauder

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Don Bauder July 10, 2018 @ 9:18 a.m.

Eric Nelson: No. They are completely different O''Donnells. Best, Don Bauder

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