PG&E; Drops Consolidation With Utility in Sacramento

After several months of encountering what its spokesman called “stonewalling,” Pacific Gas & Electric Co. on Thursday withdrew a Sept. 3 proposal to consolidate with the struggling Sacramento Municipal Utility District.

SMUD, as the city-owned utility is called, countered that it had not been given enough information for “serious negotiations” despite its “repeated efforts” to obtain specific details. It added:

“However, based on available information, it is clear that a consolidation with PG&E; does not offer the rate protection found with the other options now under study.”

At the same time, SMUD General Manager Richard Byrne disclosed that he would proceed with negotiations Friday with Southern California Edison to finish a wholesale power agreement that will give SMUD flexibility in its review of “all the options.”

PG&E; noted in its letter of withdrawal that SMUD has been negotiating with other utilities in an effort to sell or lease the municipality’s generating facilities, including its controversial and problem-plagued nuclear generating station, Rancho Seco.

Investor-owned PG&E; furnishes gas and power to the northern half of the state and is one of the nation’s biggest utilities. SMUD, exempt from taxation, began selling low-cost electricity in 1946. It got into trouble financing Rancho Seco, which has been closed for two years after a cooling problem.

‘Consider Benefits’

Among other things, PG&E; had proposed to permanently close Rancho Seco and to halt the rapid rise in SMUD’s consumer rates.

PG&E;’s letter of withdrawal, which it made public, expressed regret that the course chosen by the SMUD board would deny--”at least for the present”--a chance for Sacramento-area customers to “consider the benefits of consolidation.”

While no price had been put on the offer, industry and analyst estimates at the time ranged from more than $1 billion to as high as $2 billion.

Richard A. Clarke, PG&E; chairman and chief executive, told SMUD President Clifford R. Wilcox in a letter Thursday that PG&E; still believes that consolidation is “the most comprehensive and permanent solution to the problems confronting SMUD and its customers.”

All that had been needed to develop specifics of a consolidation proposal was for the SMUD board “to agree to participate in normal, constructive business negotiations,” the letter said, and SMUD customers could have voted on the matter.

But, Clarke continued, recent negotiations along other lines than consolidation and public statements by SMUD directors and staff “make it clear that the SMUD board has no intention of seriously considering consolidation with PG&E.;”

The letter said that, at SMUD’s request, PG&E; met last Monday with Byrne, SMUD’s financial advisers and Duke Power Co. of North Carolina. He said the meeting was the type PG&E; unsuccessfully sought on the subject of consolidation, but was called to talk only about forming a holding company to buy SMUD’s generating assets.

Clarke added that “(PG&E; is) not interested in either owning or operating Rancho Seco” and would not take part in a holding company for that purpose.

“The best choice for SMUD customers in the absence of consolidation with PG&E;,” the letter said, “is a new wholesale power supply agreement with PG&E; . . . I want to emphasize our desire to remain SMUD’s preferred energy supplier.”