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Show PSCU Revises Portions Of Order In Garkane Power Complaint The Utah Public Service Com-mission, which in December issued a Report and Order as a result of a complaint lodged against Garkane Power Assn. by First National Credit Corporation; has revised a portion of the conclusions drawn in the Report and waived a part of the Order. At the December hearing, attorneys for First National Credit Corporation, for Garkane, and for the Utah Division of Public Utilities appeared before the Utah Public Service Commission. The complaint alleged that Garkane had made an improper loan of $96,626.15 to Richard Von Hake, Johnson Canyon, Kane County and that the loan had been made to finance litigation pending between the complainant and Von Hake. It also charged that the loan was past due and asked the Public Service Commission to require Garkane to call the loan. Based on the evidence presented, the commission found that Garkane has an option signed by Von Hake to purchase property and water rights for which First National Credit Corporation holds a deed signed by Von Hake.' It found that the deed to FNCC was delivered by Von Hake to Ed Thomas, president of FNCC and immediately recorded prior to the granting of the option by Von Hake to Garkane. Von Hake' has charged FNCC with fraud and a lawsuit is pending to determine the validity of the deed issued by Von Hake to FNCC on the property and water rights later optioned by Von Hake to Garkane. After the deed was delivered and recorded from Von Hake to FNCC, Garkane' made the loan to Von Hake. It is secured by a mortgage on 830 acres of property valued, according to Carl Albrecht, Garkane assistant manager, at $500 an acre and at $1,000 an acre according to Lynn Goodfellow, a member of Garkane's board of directors who is up for reelection. The 830 acre parcel lies close to the optioned parcel and could also be developed for a power plant with the acquisition of water, Goodfellow said. The commission found that Garkane's rational for making the loan was based on reasoning by Garkane board members and management that the loan would improve Garkane's chances of exercising its option on the , contested property without a substantial risk because the loan was secured by the C30 acre parcel owned by Von Hake, The commission recognized that although the loan was past due it had not been called by Garkane. Although the complainant charged that Garkane had made the' loan to finance Von Hake's litigation against FNCC, the commission found that Thomas presented no supporting evidence for his claim. Witnesses fpr Garkane testified that the loan was made so that if Von Hake successfully retained his title, Garkane and others could use the land and water rights for construction of an electrical generating plant in the Johnson Canyon area which could eventually serve (the,, proposed Alton Coal Mine and other areas. The commission agreed that this appeared to be the real purpose of the loan. It also found that Garkane had not advised the commission of its intent nor sought approval in contemplating construction of a generating plant, in seeking the possible involvement of other parties, in proposing acquisition of additional property, nor had it conducted feasibility, cost, demand or other studies to justify such con templated construction. Additionally the commission .found1 that Garkane's accounting records'dw not reflect that the loan was made by Garkane in contemplation of the construction of a generating plant. It found that Garkane's annual report shows the loan as "preliminary survey and investigation charges" and that nowhere in the annual report is it noted that the attorneys utilized by Garkane, Olsen and Chamberlain, Richfield, for (Continued on Page 2) PSCU Revises Portions Of Order In Garkane Power Complaint (Continued from Page 1) advice on the transaction and for drawing up legal documents pertinent to the transaction were found to have a "beneficial Interest" in the land and water rights optioned by Garkane and that Garkane was aware of their interest. Finally, the commission found that no title search of the land and water rights had been ordered by Garkane or recommended by its attorneys prior to making the loan to Von Hake. ' The commission did not order ' Garkane to call the loan which it had found to be overdue. Albrecht, said that the company felt that the commission had ruled in its favor by not requiring the loan to be called. He said that the loan does not mature until July 5 of this year. In its revised supplmental conclusions released last week, the commission concluded that "Garkane accounting procedures and notice to consumers was inadquate with respect to the transaction evidenced by the loan of $96,626.15 to Richard Von Hake" and listed "several areas of concern. one concern was the "loaning of and ;. potential expenditure of money in contemplation of the construction of a possible 400-megawatt generating plant without informing the commission." Another expressed further inadequacies where Garkane was "using reporting and record-keeping methods not calculated to clearly advise Garkane's members, the commission, and the public that the loan was made by Garkane to Richard Von Hake for the purpose of securing land and water rights to be used in the construction of a contemplated electrical generating plant." It also concluded that Garkane had failed "to require a title search on the optioned property prior to committing substantial funds" and noted that Garkane had consulted "attorneys with a known financial Interest in the property" and used them to prepare documents used in the transaction. On the basis of the commission's findings and conslusions, Garkane was originally ordered to publish a copy of the commission's report and order in a local newspaper; but a subsequent appeal by Garkane delayed the order until a revision last week deleted the order to publish. Further, Garkane was ordered to "fully advise the Public Service Commission prior to making any future expenditures in consturction of an electrical generating plant" and was ordered to obtain PSC approval prior to making such expenditures. Garkane was also ordered, with the assistance of fhe Division of Public Utilities, to determine changes in Garkane's accounting treatment and reporting procedures relating to the transaction, with any disagreement to be brought before the commission for resolution. Garkane spokesmen appeared to consider the commission's findings and orders as being in Garkane's favor. When asked, Mr. Albrecht said the loan did not appear as a loan on the annual report because there was no proper place on the report to note such a loan. He said that the loan had been properly brought before the members of the board of directors and presented as a loan but at least one member said he thought the company was purchasing water rights. Garkane representatives appeared to have no explanation for the lack of a title search both on the contested property and the 830 acre parcel securing the loan. They said that there was no appraisal of the properties and no price fixed on the water rights. Albrecht emphasized that Garkane stood no risk because the funds, which were turned over to the Kane County sheriff for the redemption of the con-, tested property, were placed in.one or ' more Savings and Loan Institutions where they were drawing about 12 percent Interest. He said he did not know Inwhich institutions they, had been placed.' Albrecht said the money had been lent to Von Hake at 15V4 percent Interest and that Von Hake was responsible for the interest difference. He said that no payments had been made on the interest or on the principal but did not specify the terms of the loan. Albrecht said he felt there was no risk to Garkane's funds since they were simply supposed to be returned to Garkane if Von Hake lost his lawsuit. He felt the funds were drawing sizable interest and at the same time assuring Garkane of valuable property and water rights if Von Hake's litigation goes favorably. He said, "We feel like we're in the driver's seat. Garkane will not be hurt either way. The commission realized this and ruled in our favor; Garkane made a smart move." He said the loan had been approved with a unanimous vote of all eight board members. He said that acquisition of the land and water rights being contested could promise expansion of the company's ability to serve its present customers and allow for serving new customers in areas as yet not on Garkane's system. He said the company had notified REA of its move and that while REA had replied asking for additonal information, it has apparently accepted Garkane's explanation of the somewhat complex transaction. Some consumers were still questioning the location of the loan' funds, and whether the water rights, which were supposed to have been given to Garkane according to some sources, could be legally separated from the land. A district meeting will be held in Loa on March 24 at the LDS Cultural Hall at 7:30 p.m. for reading of the annual report, financial report and other business matters and vote in' person. The annual meeting will be held in Orderville on March 25 at 7:30 p.m. at the Orderville Elementary School. Members may also vote for board members by mail and ballots have been sent out. |