Interest Expense Disallowed

Lakeshore Utility Company, a privately owned utility, provides water and sewer services to residential customers in Henderson County, Texas. Lakeshore's stock is wholly owned by Sentry Title Company, as are the physical plant and facilities Lakeshore uses in providing its services. In January 1989, Lakeshore filed an application with the Texas Water Commission (TWC) for a rate and tap fee increase. In its application, Lakeshore included $11,410 in interest charges on a loan from Sentry paid incrementally over an eight‐year period, which it requested be treated as an operating expense. TWC denied the application for an increase but was reversed by the trial court.