6. Assignment of Proceeding
Michael R. Peevey is the Assigned Commissioner and Christine M. Walwyn is the assigned Administrative Law Judge in this proceeding.
Findings of Fact
1. SCE's request for interim authorization to begin hedging a portion of its natural gas price risk for 2004 QF contracts is generally reasonable.
2. ORA's recommendation that the reasonableness of the price of SCE's hedges should be determined by comparing the hedge transactions to similar transactions in the NYMEX market, as specified in Table 1 of its response, is unreasonable because it is not applicable to the California market.
3. SCE's proposed methodology for setting the maximum volume limits on trading is reasonable for this requested interim authority.
4. The value to ratepayers of whether to engage in specific hedging transactions should be measured by a cost-effectiveness test using a commercially available financial model.
5. SCE should use the model identified in the Energy Division's confidential letter of December 6, 2002 regarding Resolution E-3802 or nominate an alternative, commercially available financial model within 5 days of this decision.
6. The value of a hedge should at least be commensurate with (and would preferably exceed) its price at the time of purchase.
1. SCE should be granted its requested interim authorization to hedge natural gas price risks for its 2004 QF contracts subject to the following conditions:
(a) The value to ratepayers of whether to engage in specific hedging transactions should be measured by a cost-effectiveness test using a commercially available financial model; and
(b) The value of a hedge should at least be commensurate with (and would preferably exceed) its price at the time of purchase.
2. This interim authority should expire once the Commission issues a decision on SCE's 2004 Short Term Procurement Plan.
3. SCE should provide the Commission and all interested parties adequate time and opportunity to review formal procurement requests.
4. The time for public review and comment on the draft decision should be reduced because the public need to quickly grant SCE interim authority to hedge its natural gas price risk associated with 2004 QF contracts clearly outweighs the public interest in having the full 30-day period for review and comment
5. This decision should be effective immediately because SCE needs this interim authority now.
IT IS ORDERED that:
1. The request of Southern California Edison Company (SCE) for interim authorization to hedge a portion of its natural gas price risks for its 2004 Qualifying Facility contracts shall be granted subject to the following conditions:
(a) The value to ratepayers of whether to engage in specific hedging transactions shall be measured by a cost-effectiveness test using a commercially available financial model; and
(b) The value of a hedge shall at least be commensurate with (and would preferably exceed) its price at the time of purchase.
2. SCE shall use the financial model identified in the Energy Division's confidential letter of December 6, 2002 regarding Resolution E-3802 or nominate an alternative, commercially available financial model within five business days of this decision. If SCE chooses to nominate an alternative model, it shall do so by written notification of the name of the model to the Director of Energy Division, with copies to the service list.
3. This interim authority shall expire once the Commission issues a decision on SCE's 2004 Short Term Procurement Plan
This order is effective today.
Dated , at San Francisco, California.
