XXI. Land Rights
ORA proposed a change in policy for the treatment of land rights for SoCalGas and SDG&E. Land rights have previously been amortized240 in rates rather than remaining indefinitely in rate base at the full acquisition cost. SDG&E has amortized land rights in rates since 1971 and SoCalGas has been allowed for some time to amortize them too. ORA went further and wants to exclude the costs from rate base.241 Both SoCalGas and SDG&E argued in response that the land rights at issue are not related to other parcels of land that are purchased outright by the companies. They argue that over time the value often declines to zero. They also point out that excluding the cost from rate base would preclude them from ever recovering the capital expenditure to acquire the land rights in the first place.242
ORA did not try to justify that the land rights should have never been acquired, which would support excluding their recovery (in any manner). ORA did not challenge the declining value argument raised by SoCalGas and SDG&E, which would only justify not amortizing the costs, but would then implicitly argue for retaining the original cost in rate base in perpetuity (or until the rights are disposed of or no longer used and useful). Under the utilities' proposal, the capital expenditure is eventually eliminated from rate base and the customers who receive any benefit pay that cost. We decline to make a change to the current practice and will adopt the Test Year 2004 estimates as proposed by SoCalGas and SDG&E.
240 SoCalGas uses the term "depreciation," incorrectly, in that depreciation applies to tangible assets whereas the correct accounting terminology applicable to intangible assets, such as land rights, is amortization.
241 Ex. 302, p. 25-11 and 25-12, and Ex. 301, pp. 25-10 and 25-11.
242 Sempra opening litigation brief, p. 295.
