Epco, Inc. and Subsidiaries - Page 6




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          facility upgrade and compared these expenses to the projected               
          revenue of the sewer line by using a formula he called a "life              
          cycle cost analysis".                                                       
               Imperial is a regulated utility and its revenue from sewage            
          collection and treatment is regulated by the PSC.  At the time              
          petitioner decided to construct the sewer line, the PSC tariff              
          provided for a $400 "contribution in aid of construction fee" and           
          a monthly service charge of $18 for each mobile home.  The $400             
          fee was a one-time fee charged to occupied mobile home pads,                
          regardless of the existence of a sewer line.  Imperial was                  
          permitted to charge customers for the cost of a sewer line                  
          connecting the customers' property to petitioner's treatment                
          facility and the cost of upgrading that treatment facility to               
          meet any increased waste flow.                                              
               On March 11, 1988, Imperial entered into a contract entitled           
          "Agreement for Sewer Service New Construction" (McArthy-Imperial            
          agreement) with Mr. McArthy and Interstate.  Pursuant to the                
          McArthy-Imperial agreement, Imperial agreed to build a 2-1/2-mile           
          sewer line extending from Brookshire through Interstate's                   
          property to the treatment facility, thereby allowing service to             
          both properties.  Imperial also agreed to upgrade its treatment             
          facility to handle the anticipated increase in waste.  The                  
          McArthy-Imperial agreement also provided for Mr. McArthy to pay             
          Imperial $200,000 in "tap-on fees in accordance with the Sewer              





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