3. Parties' Response to Motion

On September 17, 2003, ORA and TURN filed responses to SCE's motion. Both parties state that the public interest is best served if SCE is allowed to begin hedging in October 2003 rather than January 2003 provided the Commission adopts specific modifications.

ORA agrees with SCE's proposed level of interim authority, a confidential percentage of its natural gas price risk associated with its 2004 QF contracts. This percentage is less than SCE requests in its 2004 short term plan, and is consistent with ORA's recommended percentage limit in the hearing record.

ORA states that SCE's motion seeks permission to hedge using NYMEX futures and options, over-the-counter options, broker basis swaps and bilateral basis swaps. ORA recommends the Commission rule that the reasonableness of SCE's hedges will be determined by comparing SCE's hedge transactions to similar transactions in the NYMEX market, using the following NYMEX data sources:

Table 1: ORA Recommended Data Sources

Contract	Market Benchmark
Futures	NYMEX Natural Gas Futures
Options	NYMEX Natural Gas Options
Malin Basis Swaps	NYMEX Clearpoint Malin Basis Swap (NOI)
SoCal Basis Swaps	NYMEX Clearpoint SoCal Basis Swap (NGI)

TURN states it shares SCE's concerns regarding the ratepayer risks associated with potentially volatile natural gas prices in 2004 and supports the motion subject to a process limitation that would prevent SCE executing hedges without prior consultation with its PRG. TURN states this condition is necessary because SCE has presented the PRG with a wide range of hedging options that do not adequately demonstrate the particular criteria that will be used in deciding the types and quantities of products to be utilized. Therefore, according to TURN, SCE should be required to share relevant details (actual market data, any internal analyses, and proposed actions) along with an explanation of its underlying hedging "philosophy" with the PRG at the earliest possible date.

On September 25, 2003, SCE filed its reply to the responses of ORA and TURN. SCE objects to the modifications requested by each party that they would limit SCE's flexibility to exercise judgment within the established boundaries on a real-time basis. SCE urges the Commission to reject the modifications proposed by ORA and TURN and grant, as expeditiously as possible, SCE interim authority to hedge a portion of its QF natural gas price risk for 2004.