Southern California Edison Co. has proposed a $2 billion merger with San Diego Gas & Electric Co., on condition that San Diego's proposed merger with Tucson Electric Power Co. be called off.

The new proposal was formally made in a July 25 letter from Howard P. Allen, chairman of Socal Ed's parent, SCE Corp., to Thomas A. Page, chairman of San Diego Gas & Electric.In the letter, Allen said that a merger with his company will benefit shareholders and ratepayers of San Diego more than the Tucson merger. He said that SCE Corp's board has proposed issuing 1.15 shares of its common stock for every share of San Diego stock, a plan that would increase San Diego's dividends by 10 percent.

Allen also said the merger would lower retail electricity rates for San Diego, which has some of the highest rates in the country. San Diego residents pay about 25 percent more than Socal Ed customers, and Allen said the merger would result in "meaningful rate reductions shortly after consummation of the acquisition."

Although Socal Ed is opposed to the Tucson merger, it insists that the new proposal was a friendly one, and would not be pursued without the approval of San Diego's board of directors.