III. Issues
Natural gas prices can be extremely volatile. For example, the price of gas at Henry Hub (Louisiana), the most liquid trading point in the United States, varied from a low of $1.74/million British thermal unit (MMBtu) to a high of $10.50/MMBtu over the past two years. The spot price of gas at the Southern California Border (SoCalBorder) varied from a low of $1.26/MMBtu to a high of $55.00/MMBtu while the SoCalBorder "bid week"1 price used in the formula of most SCE QF contracts to determine the price paid to QFs for energy varied from $1.75/MMBtu to $16.06/MMBtu during the same period. To put this volatility in perspective, a $1 increase in the price of gas at the SoCalBorder results in a $130 million increase in SCE's annual payments to qualifying facilities (QFs).2
SCE and the Office of Ratepayer Advocates (ORA) agreed at the August 1, 2002 continued prehearing conference (PHC) that the issues in this proceeding are whether the $208.8 million cost SCE incurred from hedging 2002 and 2003 fuel cost risks is reasonable and whether the cost is recoverable.3 Consistent with that agreement and pursuant to Rule 6.3 of the Commission's Rules of Practice and Procedure (Rules), the Assigned Commissioner issued a Scoping Memo and Ruling identifying the agreed-upon issues for hearing. There are no other issues.
1 The Bid Week Price is the average of prices reported to market publications for transactions occurring during the week before a given month for constant gas deliveries for the following month. 2 The initial PHC was held on May 30, 2002, at which time ORA requested and received an extension of time to conduct discovery and to prepare testimony. 3 QFs are independently owned power producer or cogenerators that meet certain operating, efficiency, and fuel-use standards set forth by the Federal Energy Regulatory Commission (FERC).
