8. Operational and Administrative Functions
Under the operational allocation approach adopted today, the utilities will now perform all of the day-to-day scheduling and dispatch functions for the DWR contracts allocated to their portfolios, just as they will perform these functions for their existing resources and new procurements. These functions include: day-ahead, hour-ahead and real time trading, scheduling transactions with all involved parties (e.g., suppliers, the ISO and transmission providers), making surplus sales, preparing forecasts and obtaining relevant information for these functions, such as transmission availability, among others.
Legal title to the contracts resides with DWR. Financial reporting responsibilities, including those associated with the DWR revenue requirements proceeding and Trust indenture reporting requirements, will also remain with DWR. In addition, DWR will be financially responsible for paying all contract-related bills. However, as DWR points out, this does not require that DWR staff and consultants continue to perform the billing and collecting "settlement" function for those contracts. Rather, we expect the utilities to assume these activities for the DWR contracts as they resume the same settlement functions for new procurements. In other words, the utility would verify the invoices and instruct DWR to pay the bills.54 The utilities should work with DWR to establish the frequency and format of any information that will ensure fulfillment of these remaining responsibilities. The resulting agreements will be incorporated into the Servicing Arrangements.
Currently, a number of the combustion turbine DWR contracts contain gas tolling provisions under which DWR can accept the gas price from the seller or "bring" (e.g., purchase) the gas supplies itself. As DWR explains:
"Usually on an annual basis a fuel plan is submitted. We sit down with the counterparties.... Essentially, they are out there buying the gas at various points on the pipelines and putting a little markup on it. If we can do it cheaper and better, we will do it."55
Apparently DWR has elected to bring the gas under several contracts (e.g., Calpine) and thus far includes that cost in its revenue requirements. DWR anticipates that it will continue to have the option of bringing gas under the contracts, where appropriate, in years down the road. The utilities are concerned that they will become responsible for the reasonableness of DWR's decisions on gas tolling. At the same time, they do not want to assume the function of purchasing gas under the tolling provisions.56
Gas tolling provisions are not unusual in contracts that involve combustion turbine technologies. From an operational standpoint, they provide the contract administrator with an opportunity to minimize an important component of variable costs (i.e., fuel) under these contracts through the regular review of fuel plans and consideration of alternate gas supply options. The utility, and not DWR, should now assume this function because it goes hand in hand with the objective of economic dispatch (to minimize operating costs) for which the utility is now clearly responsible. Moreover, to have DWR continue in this role ignores the fact that it is (1) exiting the electric procurement business in all other respects and (2) not accountable to utility ratepayers for the gas tolling decisions it might make in the future.
In sum, the utility's operational and administrative responsibilities for DWR contracts should extend to the implementation of gas tolling provisions. However, nothing in today's decision precludes the utility from considering DWR as a potential supplier for that gas under contracting arrangements, should it determine that DWR has access to supplies at more favorable terms and quantities than either the utility or contract supplier.
