V. Parties' Responses to the Proposals

TURN and DRA filed responses to PG&E's petitions. They did not file responses to the petitions of SoCalGas or SDG&E because the filing date for the responses fell after the evidentiary hearing. TURN and DRA filed briefs to address their concerns and ideas after the hearings.

In its response to PG&E's petition, TURN states it generally supports utility hedging natural gas supplies but raised concerns about the lack of detail concerning the criteria used to determine hedging parameters and the analyses used to determine possible bill impacts. In its brief, TURN stated its support for the utility hedging proposals generally and urged quick approval of them. TURN believes hedging can provide important protection for ratepayers against price spikes. TURN proposes the Commission address the longer-term issue in a rulemaking or the application PG&E recently filed for authority to adopt a
long-term hedging plan, Application (A.) 06-05-007.

In its response to PG&E's petition, DRA opposes PG&E's proposal, believing PG&E should conduct hedging activities within the context of its CPIM. It believes the dollar amounts PG&E wishes to spend on hedging instruments is "excessive" and the percentage of total gas supplies PG&E would hedge is too high. If the Commission permits PG&E to hedge outside the CPIM, DRA would propose the following conditions:

1. PG&E's dollar authority should be capped;

2. PG&E should not be allowed to hedge utilizing swaps;

3. The amount of gas PG&E should be permitted to hedge should be reduced substantially;

4. PG&E's lower CPIM deadband would be expanded to two percent; and

5. The Commission should order PG&E to provide the Commission with a report no later than April 1, 2007 that would provide an ex post review of how PG&E's hedging program affected gas customers.

In addition, DRA proposes a compromise hybrid CPIM approach whereby the cost and returns associated with 25% of all hedges would be included in the CPIM and 75% be allocated outside the CPIM.

In its brief, DRA also opposes SDG&E's proposal. DRA believes SDG&E's budget for hedging is excessive and unwisely includes an unknown amount of potential losses associated with purchase of "swaps" or futures. It proposes the Commission limit SDG&E's spending on hedging instruments to a lower amount than requested, prohibit SDG&E from hedging in non-winter months and require SDG&E to submit a report that provides details about the results of hedging activities. DRA opposes any hedging outside of incentive mechanisms but proposes increases to the tolerance bands as a way of limiting shareholder exposure to risk. Alternatively, DRA proposes that 25% of hedging costs and returns be included in SDG&E's PBR, with the remaining 75% allocated directly to ratepayers.

DRA also filed a brief in opposition to SoCalGas' proposal. DRA recommends expanding the lower GCIM tolerance band to reduce shareholder exposure to risk and that SoCalGas be required to file a report detailing the results of its hedging activities. As for the other utilities, DRA opposes any hedging outside of incentive mechanisms but proposes a compromise that would include 25% of hedging costs and returns in the GCIM, with the remaining 75% allocated directly to core ratepayers.

SPURR/ABAG Power oppose the utilities' proposals to be shielded from the risk of hedging. They observe that the utilities' proposals are not founded on information about what customers would be willing to pay for this type of insurance, and that hedging outside of incentive mechanisms eliminates the motivation for sound decision-making and transparent transactions. SPURR/ABAG Power also raise concerns that DRA and TURN are not in a position to judge the merits of utility hedging strategies and do not necessarily represent the interests of non-residential customers. They propose that the utilities be required to disclose what they intend to hedge and the average cost at the beginning of each month and to disclose what they spent and gained or lost shortly after the winter 2006-07 period.

Coral Energy does not oppose the utilities' proposals but raises concerns that the gas incentive mechanisms may require modification to permit the utilities to make commitments for gas supplies in long-term contracts. It also believes the Commission should explore the option of pre-approving annual gas procurement plans.