Garwood Irrigation Company - Page 28

                                       - 28 -                                         
          application, and the entities that did protest were not concerned           
          about the harm to the basin, but rather were afraid the approval            
          would lead to many future transfers.  We do not find respondent’s           
          argument persuasive because as of the valuation date, petitioner            
          had not yet filed its application for approval of the Corpus                
          Christi transaction.  The record shows that at that time, the               
          LCRA and others intended to oppose the transfer to Corpus                   
          Christi, and petitioner could not predict whether its application           
          would be approved.                                                          
               Mr. Scheig assumed regulatory approval would be obtained 2             
          years after the valuation date and that petitioner would receive            
          the monthly payments over this 2-year period, with the balance at           
          closing.  He discounted that amount using an 8-percent cost of              
          capital discount and a 15-percent lack of marketability discount,           
          to reflect the restrictions in the regulatory approval process              
          involved in transfers of petitioner’s water.                                
               Mr. Lloyd assumed regulatory approval would be obtained 3              
          years after the valuation date.  He discounted the total monthly            
          payments made to that date by a 12-percent cost of capital.  He             
          then discounted the balance due at closing ($13,810,000) by 30              
          percent, to reflect the rate of return a private equity buyer               
          would require given the risks involved.                                     
               We recognize the regulatory risks and time delays that                 
          threatened the Corpus Christi transaction.  Mr. Scheig testified            






Page:  Previous  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  36  37  Next

Last modified: May 25, 2011