3. Long Term Gas Prices

Scenario 3 assumes that natural gas prices will be one standard deviation higher that the prices used to establish the "base case." The base case was provided to the Commission in February 2004, using data from autumn of 2003. (Ex. SCE-4, at cover page, p. 62.) Edison's witness testified that the base case contained a conservatively low gas price. (Tr., vol. 4, at p. 574.)

The Decision justifies its determination to rely on the scenario using higher gas prices by stating that since 2003, "natural gas prices throughout the United States have increased dramatically for various reasons..." (Decision, at p. 66.) The Decision takes official notice of two decisions and a resolution that "confirm increasing natural gas price trends." Those orders are Petition of Pacific Gas and Electric Company (2005), D.05-10-015 (slip op.), Emergency Petition of Southern California Gas Company et al. (2005), D.05-10-043 (slip op.), and Res. E-3942.

The Application asserts that the Commission used "irrelevant and impermissible extra-record evidence" to select Scenario 3. (Application, at p. 17.) Also, TURN/CEC assert that D.05-10-105 and D.05-10-043 do not provide convincing evidence that natural gas prices will be higher in 2012 because they focus on short-term prices. The rehearing Application further claims that Res. E-3942 cannot be relied upon because no evidence shows that the forecast made in that resolution is relevant to this proceeding. The Application notes that the Decision elsewhere denies an Edison motion to add its recent gas price forecasts for 2005 to 2014 to the record.

These claims should be denied for several reasons. First, the Application incorrectly describes the effect of the Decision's review of D.05-10-015, D.05-10-043, and Res. E-3942. The Decision uses the information made available in those proceedings to evaluate the record developed here. In this case, Scenario 1 made a cost-effectiveness calculation using assumptions about gas prices based on 2003 data, and Scenario 3 made a different cost-effectiveness calculation assuming that future gas prices would be higher. The Decision does not choose to replace the calculations made in Scenarios 1 or 3 with information from D.05-10-015, D.05-10-043, or Res. E-3942. Rather, because those proceedings signaled a significant increase in gas prices, the Commission chose Scenario 3's high forecast.²

Nothing in the record suggests that choosing Scenario 3 was an unreasonable or arbitrary choice. Notably, parties did not disagree with the gas cost assumptions built into Scenario 3.³ The record also shows that parties were aware that the Commission ultimately could choose any of the cost-effectiveness scenarios to evaluate the cost-effectiveness of the SGRP. The assigned ALJ specifically asked Edison to prepare a complete summary of possible scenarios stating, "...there is a wide range of outcomes the Commission may choose to adopt. I would like to have as many of them as possible explored in exhibits that are available to all the parties." (Tr., vol. 4, at p. 493-494.)

Second, we firmly reject the claim that referring to past decisions is somehow "improper." The rehearing Application does not allege that the Commission is unable to take official notice of past decisions and resolutions in the manner set forth in the Decision. (Cf., Pub. Util. Code, § 1731, subd. (b).) And Rule 73⁴ of the Commission's Rules of Practice and Procedure states: "Official notice may be taken of such matters as may be judicially noticed by the courts of the State of California." Clear authority establishes that Commission decisions can be judicially noticed. (Hartwell Corp. v. Superior Court (2002) 27 Cal.4th 256, at p. 263, fn. 4.) The fact that the Commission might take official notice of its three orders was made known to the parties when the Alternate Decision of President Peevey was circulated for Comment. TURN clearly had an adequate opportunity to present information on the propriety of taking official notice of these three orders, because TURN's Comments address this question, at pp. 7-8. CEC did not comment on the Alternate.

For similar reasons, the Decision's reference to past decisions and a resolution is not inconsistent with the denial of Edison's motion to update the gas price information in the record. Edison's motion was denied because it did not make sense, after 16 months of administrative litigation, to update the numerical basis of only one portion of the record. The Decision found that, in fairness, the Commission could either completely update the record (precipitating re-litigation of the case) or render a decision based on the information already adduced. To avoid re-litigation, the Decision used the information already obtained. (Decision, at p. 77.) The Decision is consistent with this approach. As explained above, it does not replace record evidence with new gas price information, as Edison sought to do in its motion. Rather, the Decision relies on Scenario 3, already part of the record, to evaluate the SGRP.

Third, we reject the Application's contentions on the relevance of gas price information. Notably, the Application for rehearing does not challenge the proposition that gas prices have risen since 2003, or that they will remain high during the time period relevant to the cost-effectiveness calculation. TURN/CEC only assert that D.05-10-015 and D.05-10-043 do not cover the years that are most relevant to the SGRP, i.e., "beginning in 2012," and that Res. E-3942 (which does cover that time period) should be ignored because there is nothing to "demonstrate[] the relevance of this forecast in this proceeding." (Application, at p. 18.)

To the contrary, the two decisions and one resolution referred to in the Decision contain data suggesting that natural gas prices rose unexpectedly in recent years, and may well remain high in the future. D.05-10-014 and D.05-10-043 both discuss gas price increases caused by hurricane activity in the Gulf of Mexico and a more general outstripping of supply since 2002. (Response to Emergency Petition of Southern California Gas, et al. (2005) D.04-10-043, at p. 9 (slip op.).) These pieces of information do not relate only to "short term" gas prices, as TURN/CEC allege. (Application, at p. 18.) Finally, because Res. E-3942 provides gas price projections to 2024, the rehearing Application is incorrect when it claims that the Decision improperly relies on near term gas price information.

B. Ratemaking Issues

² That forecast put, for example, 2020 gas prices at $5.13/MMbtu, while Res. E-3942 relies on a figure of between $6.85 and $7.15 per MMbtu. (Compare, Ex. SCE-4, at p. 63 (table), Res. E-3942, Appendix B, (right hand table).)

³ As Edison noted in its Reply Brief, parties did not focus on natural gas prices. (Edison Reply Brief, at p. 38.) Parties instead presented evidence that gas prices are an important factor in the cost-effectiveness analysis of the SGRP. Aglet witness Weil testified that a small percentage change in fuel costs can produce a larger percentage change in net benefits. (Ex. Aglet-1, at p. 5.)

⁴ The Rules of Practice and Procedure are codified at Title 20 of the California Code of Regulations, with section numbers corresponding to the section number of the rules. In this document, each section of the Rules of Practice and Procedure (and corresponding section of Title 20) is referred to as a "Rule."