ALJ/TRP/sid Date of Issuance 6/30/2008
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Address the Gas Utilities' Incentive Mechanisms and the Treatment of Hedging Under Those Incentive Mechanisms. |
FILED PUBLIC UTILITIES COMMISSION JUNE 26, 2008 SAN FRANCISCO, CALIFORNIA RULEMAKING 08-06-025 |
ORDER INSTITUTING RULEMAKING ON THE COMMISSION'S OWN MOTION TO ADDRESS THE GAS UTILITIES' INCENTIVE MECHANISMS AND THE TREATMENT OF HEDGING UNDER THOSE INCENTIVE MECHANISMS
TABLE OF CONTENTS
Title Page
ORDER INSTITUTING RULEMAKING ON THE COMMISSION'S OWN MOTION TO ADDRESS THE GAS UTILITIES' INCENTIVE MECHANISMS AND THE TREATMENT OF HEDGING UNDER THOSE INCENTIVE MECHANISMS 2
1. Summary 2
2. Background 3
3. Summary of Utility Incentive Mechanisms 11
4. Summary of Winter Hedge Plans 16
5. Preliminary Scoping Memo 18
6. Category of Proceeding 23
7. Schedule 23
8. Parties and Service List 24
9. Requirements for the Filing and Service of Documents 25
10. Ex Parte Communications 26
ORDER INSTITUTING RULEMAKING ON THE COMMISSION'S OWN MOTION TO ADDRESS THE GAS UTILITIES' INCENTIVE MECHANISMS AND THE TREATMENT OF HEDGING UNDER THOSE INCENTIVE MECHANISMS
1. Summary
This Order Instituting Rulemaking (OIR) will examine the California gas utilities' gas cost incentive mechanisms and the treatment of hedging1 costs under those incentive mechanisms as ordered by Decision (D.) 07-06-013.2 Particularly in view of the significant degree of gas supply and price volatility in recent years, the treatment of hedging costs, and the design of incentive mechanisms are important issues affecting both utility investors and their retail customers. The purpose of this OIR is to determine whether the utilities' natural gas "hedging" plans can and/or should be incorporated into their incentive mechanisms. We also shall address whether, as a general matter, we need to re-examine the design of the utilities' current incentive mechanisms to provide the proper economic signals to manage ratepayer costs prudently while encouraging innovative solutions for improving performance.
In broad terms, this OIR will address the following issues:
· the guidelines and policies each utility currently uses to operate its hedging plan;
· whether, or to what extent, the Commission should establish uniform statewide hedging guidelines and policies for all California gas utilities;
· whether, or how, hedging costs should be re-integrated into the existing incentive mechanisms in order to provide appropriate management accountability and responsiveness in view of the inherent risks and rewards associated with hedging;
· alternatively, whether a separate incentive mechanism can be designed to compare the cost of a hedging program with market benchmarks thus creating an incentive to manage costs, while allocating potential gains or losses from the hedging program among investors and customers in a fair and economically efficient manner;
· the process under which the utilities' should request authority for their hedging plan; and
· whether the utilities' current incentive mechanism designs should be revised in order to promote a more appropriate sharing of risks and rewards assuming that hedging costs and savings are excluded entirely from the incentive mechanisms.
In the present rulemaking, the Commission is naming as Respondents the following California utilities: Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Gas Company (SoCalGas), and Southwest Gas Corporation (SWG). The Commission invites all other interested parties to file initial comments on the issues and/or reply comment to the initial comments of the California utilities and other parties.
1 As explained in further detail herein, hedging is a form of price insurance used to protect customers from excessive swings in natural gas prices.
2 D.07-06-013, Ordering Paragraph (OP) 3.
