VII. Conclusion

In sum, this order resolves the utilities' petitions as follows:

· Denies the utilities' requests to pre-approve hedging plans;

· Denies the utilities' requests for authority to account for 100% of the costs and benefits of hedging instruments outside their respective incentive mechanisms at their discretion;

· Permits each utility to account for up to 75% of the costs of hedging instruments outside its incentive mechanisms, with a corresponding share of returns similarly accounted for outside the incentive mechanisms. This modification applies only to the 2006-07 winter season;

· Authorizes each utility to spend up to the amounts requested in its respective petitions on hedged instruments, subject to the shared allocation of risk and reward;

· Requires that all hedging instruments for each utility shall be subject to the same ratemaking treatment during the 2006-07 season, whether fully included in the incentive mechanism or partially accounted for outside the incentive mechanism, as described herein; and

· Requires each utility to provide the Commission and interested members of the public a report no later than April 1, 2007 that provides information about the costs and benefits of the program in the aggregation, funds expended by category of purchase, impacts on utility rates and the amounts of gas hedged in each purchasing period.

We proceed to consider these matters further for PG&E in its application for a longer-term ratemaking program for natural gas hedging activities in
A.06-05-007.