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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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