7. Tolling Arrangements

SoCalGas and SDG&E propose that the management of their combined gas acquisition department be allowed to assist SDG&E with respect to "tolling"⁷ arrangements for wholesale power purchases to serve SDG&E's electric customers. Currently, SDG&E has a joint gas-and-electric procurement department, which operates independently of SoCalGas' gas acquisition department. The utilities contend that if the management of SoCalGas and SDG&E's gas acquisition functions are consolidated in a single department, it makes sense to allow SDG&E's electric procurement management to have access to the gas expertise of the consolidated gas procurement department, just as SDG&E's electric procurement management today has access to the gas procurement expertise of its own gas buyers. SoCalGas and SDG&E recommend that the consolidated gas acquisition group bill SDG&E on a time and expense basis for any consulting services provided with respect to tolling. They point out that this is no different than the allocation process used for a variety of services one utility provides to the other since the 1998 merger and is consistent with the concept that such sharing is in the interest of utility customers by producing merger efficiencies.

SoCalGas and SDG&E emphasize that they are not proposing any consolidation of tolling gas for SDG&E's electric transactions with the gas supplies and assets in their proposed consolidated gas portfolio to serve their gas procurement customers. Tolling purchases will not rely upon core assets, and the separately identified tolling transactions will be subject to Commission audit. Depending on the nature of tolling arrangements SDG&E enters into, the combined portfolio may manage additional assets, such as interstate capacity and storage (to be acquired and held by SDG&E) to supply tolling gas.

SCGC argues that this proposal would somehow give core priority to transportation of gas to generators with whom SDG&E has tolling arrangements. SoCalGas and SDG&E respond that merely because a tolling supply agreement was managed by the consolidated gas acquisition group would not confer any elevation in curtailment priority. ORA opposes the proposal on the ground that it is premature. SDG&E is not expected to purchase power prior to January 1, 2003, when Department of Water Resources' (DWR) authority to purchase power for SDG&E expires.

We agree with the utilities. SDG&E's electric customers should be permitted to benefit from the expertise available in the consolidated gas acquisition group as a means of reducing costs and ameliorating electric rates. We see no threat that tolling gas will receive core priority in transportation, and to refuse the proposed tolling arrangements because they are not needed immediately will delay implementation and jeopardize anticipated benefits.