9. Trucks

As noted already, there are problematic self-dealing transactions which we proscribe in the future, prohibiting any further family transactions. Alco would have us adopt its fair market valuations for the trucks and equipment acquired from G&L Leasing (owned by Mrs. Adcock) and trucks and equipment (not everything is a truck but "truck" is an adequate generic term) acquired from her son who is the company's current president, T.R. Adcock. We find these valuations to be tainted by self-interest and not independently verified.36 We therefore adopt DRA's valuation for ratemaking. We adopt Alco's forecast for the purchase of three new trucks but we condition rate recovery on Alco demonstrating to the Commission's Division of Audits and Water that the trucks were purchased in an arms-length transaction from a commercial seller of trucks not related to the Adcock family.

Alco has previously used equipment owned by G&L Leasing, which was owned by Mrs. Adcock, an Alco shareholder and Mother of the current president, T.R. Adcock. There is no dispute the equipment was used by Alco and title is now held by Alco. (Alco Opening Brief at 24-25.)

Alco proposes to use a "fair market value" of $109,39037 for numerous items previously leased from G&L Leasing. DRA argues that the transaction is inherently unreasonable between related parties and proposes instead that ratepayers should only pay for the net book value of $32,35038 remaining on the books of G&L Leasing. If G&L Leasing could actually sell this equipment on the open market at the alleged fair market value it would have a gain of $77,040 over its remaining book value.

Ratepayers have been paying the lease charges on this equipment and should not pay an inflated valuation on the residual use of this equipment. A basic tenet of regulation of a public utility is that rate base cannot be inflated by reselling assets (or even whole companies) simply to reflect a new "market" value in excess of the remaining book value. We adopt DRA's valuation of $32,350.

In a second example of self-dealing the applicant would have us adopt a fair market valuation, not independently verified in the record, of $201,530.39 DRA proposes instead the net book value remaining on this equipment of $109,540. Ratepayers have been paying the lease charges on this equipment and should not pay an inflated valuation on the residual use of this equipment. We adopt DRA's valuation of $109,540.

Alco proposes to acquire three new large work trucks to support its capital improvements and ongoing maintenance. DRA opposes the $177,464 cost of the acquisition of the new trucks arguing the current fleet is sufficient in size to meet Alco's needs. At $59,154 each, these are clearly large specialized trucks and for a company the size of Alco reflect a major acquisition. Elsewhere, we authorize the construction of three of the six proposed new wells (three previously approved in Resolution W-4577), as well as the various items in the settlement agreement.40 We therefore find that Alco is persuasive that it has need of these three trucks. As with all disputed capital acquisitions, we are conditioning rate recovery so that Alco must file an advice letter to recover the revenue requirement only after acquiring the trucks with a cap of $177,464. Additionally, Alco must document for the advice letter that the trucks were obtained at a fair commercial price in an arms-length transaction from an unrelated business entity.

36 Any such equipment valuation would be beyond the typical scope of Alco's independent audit by a certified public accountant; it would be done instead by an equipment broker or evaluator.

37 Ex. D-1 at Table 14-B on at 14-8. ($36,000 + $73,390 = $109,390.)

38 Id. ($15,220 + $17,130 = $32,350.

39 Ex. D-1 at table 14-A on at 14-6.

40 "Alco and DRA have reached agreement that Alco will install approximately one mile of various sized new water mains in years 2010, 2011 and 2012, approximately 80 service line replacements during those years, and approximately 12 sample tap/blow-off assemblies, as well as the 5 million gallon storage tank required by federal court order." (Alco Opening Brief at 23.)

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