ALJ/RAB/sid
Decision 01-09-056 September 20, 2001
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Joint Application of Pacific Enterprises, Enova Corporation, Mineral Energy Company, B Mineral Energy Sub and G Mineral Energy Sub for Approval of a Plan of Merger of Pacific Enterprises and Enova Corporation With and Into B Energy Sub ("Newco Pacific Sub") and G Energy Sub ("Newco Enova Sub"), the Wholly-Owned Subsidiaries of A Newly Created Holding Company, Mineral Energy Company. |
Application 96-10-038 (Petition filed |
Sempra Energy1 (Sempra) submits this Petition to Modify Decision (D.) 98-03-073 (merger decision), or for a declaratory order affirming that its proposed reorganization of its California utility subsidiaries, Southern California Gas Company (SoCalGas) and San Diego Gas & Electric Company (SDG&E) is within the authority granted by the Commission in D.98-03-073.
I. Introduction and Summary
Sempra proposes to reorganize its regulated California utility businesses to further integrate the management and cultures of SoCalGas and SDG&E. While this reorganization may be completely within the authority sought from, and granted by, the merger decision in 1998, Sempra seeks a review of its plan in order to gain a clear understanding of the Commission's view of Sempra's authority in this regard. If we determine that Sempra's plans are in any way outside of Sempra's current authority, Sempra seeks modification of the merger decision to permit the proposed reorganization.
A. The Merger Application and Decision, and Subsequent Merged Operations
The merger decision authorized the combination of applicants Pacific Enterprises and Enova Corporation into a single entity, Sempra Energy. The Commission authorized the merger based on the forecast applicants provided, pursuant to Cal. Pub. Util. Code § 854(b)(2), 2 that the merger would yield $435.8 million in savings over five years, to be shared 50-50 between ratepayers and shareholders. 3 While this forecast found most merger savings in the integration of certain operations of SoCalGas and SDG&E, applicants specifically declined to merge the utilities, and the decision accepted applicants' limitations on utility integration.
Since the merger decision, Sempra states that it has attempted to achieve the savings available from integrating the utilities' operations. In terms of management, consistent with the merger application, the two utilities report to a Group President, Regulated Operations. Initially, most transactional, policy, and governance functions, primarily in the area defined under the Commission's Affiliate Rules as "Shared Services," such as finance, legal, human resources, and regulatory, were combined at the parent company level, outside the regulated utility group. Certain line operations were either combined within one of the utilities (e.g., gas engineering), or workload was shared between the two utilities (e.g., Orange County meter reading).
Sempra believes that, to date, substantially all practicable quantitative efficiency and savings measures have been implemented by eliminating duplication, achieving economies of scale and scope, and adopting best practices. In December 1999 Sempra announced to its employees that the last of merger-related position reductions had taken place.
Sempra says that while significant cost savings were projected to occur as a result of the sharing of personnel and resources between the two utilities, neither applicants' merger case, the merger decision, nor applicants' post-merger compliance plan specified a detailed organizational or management structure under which integration would take place. The sole structural elements presented and approved were that the operations of both utilities would report to a principal executive entitled "President," and that SoCalGas and SDG&E would each maintain the essential attributes of a separate corporate identity, including separate franchises, permits, capital structures, and headquarters. Neither applicants nor the merger decision identified a definitive plan for achieving the savings. Rather, the savings estimates resulted from a forecast of possible actions prepared well before the merger actually closed, by teams from each of two equal merger partners for purposes of providing the "forecast" of "economic benefits" required by Section 854(b).
Because the actions proposed in the merger application and testimony were forecasts of possible outcomes, and because Sempra recognizes the desirability of changing those forecasts as business conditions change, Sempra now requests the Commission's guidance regarding the proper interpretation of D.98-03-073. Sempra also requests a finding that its "no merger layoffs" policy is replaced by a guarantee that there will be no involuntary employment separations resulting from the proposed integration project, and that this integration employment guarantee would be effective through December 31, 2001.
B. The Proposed Reorganization
Sempra says effective June 1, 2000, Sempra's board of directors approved implementation of the executive succession plan set forth in the Pacific Enterprises/Enova merger agreement.4 The Board decided that service reliability and quality could benefit by further integrating the management cultures of SDG&E and SoCalGas.
Sempra plans to reorganize its regulated California utility operations by (1) returning to the utilities certain transactional support services previously integrated at the corporate parent, and (2) integrating the management of certain utility operations. This latter aspect would integrate most gas and electric operations at the senior leadership level; most officers would carry responsibility for their function in both corporate utility entities. Such integrated operations would report to the President or CEO of Sempra's regulated utility group. Integration of functions below the officer level will be designed and carried out by these officers, and will follow a similar model, although some functions will continue to be managed based on business drivers such as geography, market segment, scope and scale of operations, technology, etc. as appropriate to the function. The reorganization would comply with all limitations on utility integration set forth in the merger decision, as well as the conditions set forth in Attachment B to the merger decision. Charts illustrating the proposed reorganization are set forth at pp. 13 and 15, infra.
C. The Relief Sought
Sempra submits that the Commission can properly grant this petition and find that the relief sought is in the public interest without evidentiary hearings, based upon this petition, any responsive papers, the record in A.96-10-038, and the merger decision.
1 Sempra Energy is the legal successor-in-interest to applicants in the above docket, Mineral Energy Company, B Mineral Energy Sub and G Mineral Energy Sub. As described in the application, the latter two entities were created to facilitate the acquisition of Enova and Pacific Enterprises' stock, and became merged with and into Sempra Energy, the new name for Mineral Energy. This merger became effective on June 26, 1998. 2 This section requires the Commission to find that the merger proposal equitably allocates between ratepayers and shareholders "the total short-term and long-term forecasted economic benefits" of the merger (emphasis added). All statutory citations herein are to the Cal. Pub. Util. Code unless otherwise indicated. 3 Merger decision at 19. The Commission adopted applicants' savings forecast with some adjustments. Applicants had requested that the savings be forecast and shared over 10 years. 4 Unless otherwise indicated, record citations are to the pleadings and evidentiary record in Application (A.) 96-10-038.
