Although continuing divisions between old and new heads of the California Public Utilities Commission surfaced, state regulators Thursday approved Southern California Edison Co.’s move to hedge its wholesale natural gas and purchased electrical power costs — although a question of making the power-buying deals more transparent was raised. Hundreds of millions of dollars are involved in the deals.

The CPUC on a unanimous 5-0 vote approved Edison’s use of $208.8 million in financial hedging arrangements for natural gas associated with the utility’s own power plants, qualifying facility (QF) and inter-utility contracts covering 2002 and 2003.

“We authorized Edison to hedge these costs as part of the (October 2001) federal court settlement that allowed Edison to return to financial stability in large part,” said Commissioner Loretta Lynch. “I think Edison did a nice job of obtaining financial hedges for gas, and obtained this protection at a time when gas prices and hedges were relatively low. We’re currently seeing significant price volatility in the wholesale natural gas market with prices more than doubling since Edison purchased its hedges. So the $200 million to protect exactly the types of price increases we’ve experienced, I believe has been money well spent.”

Lynch estimated that the savings for consumers from the gas hedges are likely to turn out to be in “the hundreds of millions of dollars.”

She was less sanguine on the issue of Edison’s more recently signed electricity purchase power contracts, entered into under an interim process adopted by the regulatory panel last summer to facilitate the state’s three major electric utilities’ return to buying net short wholesale bulk electricity — a role the state had performed the past two years on an interim, emergency basis.

A sticking point proved to be the use of “procurement review groups” to look over (confidentially) the Edison power contracts in place of a traditional public process regarding utility fuel supply contracts. Lynch voted against the contracts because she feels that what she calls a “secretive, Star Chamber-like” process should be abolished for the development of future utility supply contracts.

“The use of the procurement review group has served its purpose,” said Lynch, noting it was used to meet a short five-month deadline then facing the utilities before the state’s power-buying by the Department of Water Resources (DWR) was abolished. “As it turns out, most of the interim procurement [of power] was actually done without the credit assistance of DWR. I believe we need to go back to our normal processes of putting out the proposed contracts for public comment and review.”

She emphasized that now that the review process is completed, the contracts need to be made public, something with which other CPUC commissioners expressed agreement. For the future, Lynch said there is no continued need for “secrecy, cutting corners and lack of due-process.”

Current CPUC President Michael Peevey, who replaced Lynch as commission head at the beginning of this year, said the review group was not meant to be a permanent entity or mechanism. “I do challenge the assertion that it is a ‘Star Chamber’. Those are not words I would evoke, and they bring forth an image that the representatives (from consumer and environmental groups) would not willingly place upon themselves.

The vote was 4-1 approving the contracts, with Lynch opposing.

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