II. Background

In response to the events affecting the natural gas infrastructure resulting from Hurricane Katrina and because of rising natural gas prices, on September 13, 2005, PG&E filed an emergency petition for modification of its current Core Procurement Incentive Mechanism (CPIM) in D.04-01-047. After taking comments on PG&E's emergency petition, we adopted D.05-10-015 on October 6, 2005. D.05-10-015 authorized PG&E to purchase hedges as set forth in its confidential hedging plan for a total of three years. The order also approved, among other things, PG&E's request that the costs associated with the approved hedges be paid for by PG&E's core customers and that all payouts associated with the hedges flow directly to PG&E's core gas customers.

Similarly, on October 11, 2005, SoCalGas and SDG&E filed an emergency petition to modify D.02-06-023 and D.03-07-037. In response, the Commission adopted D.05-10-043, which adopted the utilities' hedging plans and allocated all risks, costs, and benefits to their respective ratepayers.

PG&E filed the instant petition on May 5, 2006, seeking an order by June 15, 2006. SoCalGas and SDG&E filed their petitions on May 17, 2006, seeking an order by June 29, 2006. On May 26, 2006, The Utility Reform Network (TURN) and the Division of Ratepayer Advocates (DRA) filed responses to PG&E's petition. Neither filed responses to the petitions of SoCalGas or SDG&E although both participated in subsequent hearings.

On May 29, 2006, the assigned Administrative Law Judge (ALJ) issued a ruling in these proceedings that directed the utilities to respond in writing to a number of questions about their respective proposals, decision-making processes, and alternatives. Each utility served responses to the questions presented in the ALJ's ruling. The ALJ subsequently conducted two days of hearings on June 9 and June 16, 2006. At the hearing, the ALJ agreed that some of the information relevant to cross-examination was confidential because its public disclosure might affect the utilities' ability to purchase lowest-cost financial instruments. The ALJ therefore conducted portions of the hearing such that they were closed to the public and parties who had not signed nondisclosure agreements. The associated hearing transcripts were filed under seal.

PG&E, SoCalGas, SDG&E, TURN, Coral Energy Resources L.P. (Coral), School Project for Utility Rate Reduction (SPURR) and the ABAG Publicly Owned Energy Resources (ABAG Power), and DRA filed briefs on June 26, 2006 and filed reply briefs on June 30, 2006.