A recommended state approval of the proposed $5 billion mergerbetween Los Angeles-based Pacific Enterprises and neighboring SanDiego-based Enova Corp. is drawing qualified praise from the twoutility holding companies that want to combine into a new entitynamed Sempra Energy. However, they will be asking the CaliforniaPublic Utilities Commission to allow more time to capture greatersavings from the corporate marriage, which will create the largestaggregation of energy customers in the nation-more than 6 million(4.7 million for Southern California Gas and 1.3 million at SanDiego Gas and Electric). CPUC action could come at its March 26meeting.

Most of the terms and conditions in a CPUC administrative lawjudge’s (ALJ’s) recommendation were expected, so overall theholding company parents of the two utilities are “pleased becausefor the most part the judge has adopted our positions,” said aspokesperson for the two companies, but he noted that “certainaspects of the (150-page proposed) decision we take issue with.”

Among those, the “primary” concern is the proposed five-yearperiod over which savings are allowed to be captured as opposed toa 10-year period suggested by the merger partners. They considerthe five years too short to capture the full dollar value of thesynergies, according to the companies’ contention.

In recommending the merger, the ALJ cited potential net savingsof up to $340 million computed over five years and distributed on anearly equal basis to ratepayers and shareholders. Ratepayers willget a slightly larger $175 million, if the ALJ’s recommendation isultimately followed by the CPUC.

The companies argue that there are substantial costs that needto be incurred in the early years after the merger so that savingsapproaching $1.1 billion can be realized. Those dollars would beshared between ratepayers and shareholders. Using the shorterperiod costs both groups several hundred million dollars apiece inlost savings, the companies argue.

A spokesperson for the merging companies noted that the ALJ hasfound the merger meets a list of criteria making it in the “publicinterest,” including “improving the financial strength of thecompanies, being fair to both employees and shareholders,benefiting the state’s economy and providing savings to consumers.”

The Federal Energy Regulatory Commission last year gaveconditioned approval to the merger, pending the state addressingvarious market power issues, such as the gas pipeline option andthe power plants.

Richard Nemec, Los Angeles

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