California regulators have approved the $6.6 billion merger ofPacific Enterprises and Enova Corp., allowing the formation of acompany that will serve 21 million gas and electric consumers inSouthern California. But the merger partners did not get all theyrequested. The CPUC ruled merger savings of $174.9 million must bereturned to ratepayers and savings of $161.5 million returned toshareholders over the five years following completion of the mergerrather than over 10 years

“We are very pleased that the CPUC has approved our merger andfound that it is in the public interest,” said PE President RichardD. Farman. “We would have preferred adoption of our 10-year savingsperiod because it provides more certainty to customers andshareholders than the five year period.

The Utility Reform Network, a consumers advocacy group, laudedthe decision, which basically accepted a recent ruling by a CPUCAdministrative Law Judge. “The Commission clearly did the rightthing in supporting the judge’s recommendations,” said TURN staffattorney Theresa Mueller. “The utilities lobbied hard for acommission-approved guarantee of shareholder earnings from themerger, but the logic of ratepayers’ arguments prevailed.

The decision also calls for the new company, Sempra Energy, tofollow through on San Diego Gas & Electric’s divestiture of itstwo gas-fired power plants. It orders Southern California Gas todivest its options to eventually acquire in-state portions of twointerstate natural gas pipelines serving California: Kern River andMojave. It allows for only $148 million in merger-related costs,rather than the $202 million requested. And there are also 25remedial measures required by the Federal Energy RegulatoryCommission that also will be implemented as part of the merger. Themerger still requires final FERC and Securities and ExchangeCommission approval

The pending further restructuring of the natural gas industry inCalifornia later this year also could impact the merger byrequiring further divestiture of its in-state gas transmission andstorage operations and/or the creation of a gas pipelineindependent system operator (ISO) along the lines of the onecreated for the electric industry. CPUC staff members working onthe gas proceedings have indicated that both the divestiture optionand the gas ISO are being looked at seriously

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