20. Reasonableness Review-Job No. 4822-Plant-F53 Acquisition of Land Parcel No. 215

SGV purchased a 2.5 acre parcel of land for construction of a reservoir and booster station at Plant F53. The land was purchased in 2003 at a recorded cost of $162,079.

20.1. Positions of Parties

DRA recommends that, because the project associated with the parcel has been deferred for this GRC cycle, the cost of the parcel should be excluded from ratebase. DRA also asserts that even if SGV seeks to use the land in the next GRC cycle it is uncertain as to whether the project will be needed due to the downturn in the economy.

COF states the land parcel was intended for proposed improvements at Plant F53 that are not warranted. Thus, the parcel is likely to remain vacant for years to come and should not be included in ratebase.

FUSD states land that will not be used during the GRC forecast period should be removed from ratebase. FUSD proposes that the land be put in a memorandum account that would include costs associated with holding of the property for future use. That way, if the land is ever used, SGV would be able to request recognition of those costs.

SGV represents it planned to build the improvements at Plant F53 in 2010. SGV states, pursuant to the settlement, it has deferred the improvements at Plant F53 to the next GRC cycle, which begins in mid-2012, but still intends to build them.

SGV states that the Master Plan includes construction of Plant F53 no later than 2010.

20.2. Discussion

As part of the settlement, SGV withdrew its proposal to make the proposed improvements at Plant F53. Thus, the property will not be used in this GRC cycle. The need for the improvements at Plant F53 is based on the availability of Sandhill and growth in the demand for water, which SGV forecasts Sandhill will help supply. Such growth will not occur during this GRC cycle, and may not occur in the next GRC cycle. However, the property is adjacent to Plant F53 and will become useful when Plant F53 is expanded sometime in the future.

An option would be to treat this property as plant held for future use (PHFU).¹⁰ In order to qualify the utility must have definite plans for its use, including a definite date for such use.¹¹ In this case, while SGV asserts it has a definite plan, the date is uncertain due to the uncertainty as to when customer growth will resume to a level that would require the expansion of Plant F53. Therefore, treatment as PHFU is inappropriate. However, in order to provide equitable treatment of SGV and its customers regarding this land that may have a future use, SGV is authorized to establish a memorandum account that will list the costs incurred or associated with holding the property for future use.¹² If the property is ultimately used as planned, SGV may request recovery of such costs.

¹⁰ For water utilities, PHFU is not allowed in rate base and earns no return. However, water utilities are allowed to recover expenses associated with the PHFU. See D.94-08-031, in Re California Water Service (1994) 55 CPUC2d 704, 715.

¹¹ See D.96-04-083, in Re California Water Service (1996) 66 CPUC2d 100,109.

¹² See D.87-03-078, in Re California Water Service (1987) 24 CPUC2d 68, 87.