Letter from E. E. Bennett (Los Angeles) to William Reinhardt, September 30, 1952

Los Angeles, September 30, 1952 80-12 Mr. Wm. Reinhardt; You will recall that in my letter to you of December 4, 1951, I recommended the transfer of the water production facilities of the Railroad at Las Vegas to the Las Vegas Land and Water Company. I believe final consideration of this suggestion was deferred because of an alternate suggestion for disposition of the entire water system at Las Vegas made by Mr. Hulsizer and because of the negotiations for sale of the properties to the Las Vegas Valley Water District, which have now resulted in a tentative agreement to sell the properties to the District for two and a half Million dollars subject to certain credits and adjustments. I am again raising the question of transferring the water production facilities of the Railroad to the Water Company at this time because of the situation which faces us in Nevada Public Service Commission Case No. 1207 involving the adequacy of the water supply furnished by the LVL&W Company at Las Vegas. You will recall that this case was initiated in August, 1950, on the complaint of the City of Las Vegas, and that after a partial hearing in September of 1950 the case was continued indefinitely until reopening was requested by the City, with the understanding that pumps would be placed on Wells 6, 10 and 11 to secure an additional supply of water during the peak periods of consumption during the summer months. The City has requested the reopening of this case, and it is expected that the Commission will set it for hearing some time in November of this year. I have just returned from Las Vegas, where I conferred with the representatives of the District. They have furnished me a tentative set of plans showing the proposed improvements to be constructed by the District. One such improvement is the construction of a 30-milllon gallon reservoir on land to the west of our existing water field. I am Inclined to believe from discussions with the District representatives that the District will Mr. Wm. Reinhardt 2. September 30, 1952 assist the City in presenting a vigorous demand for the drilling or acquisition of additional wells and ths construction of additional storage facilities equivalent to the storage capacity proposed by the District, If such an order were made and complied with, a very substantial expenditure would be required. While in Las Vegas I was informed that the bond election will not be held until February, 1953, so it is probable that the Commission will have decided the case prior to that time. It is,of course, always possible that the people will not vote the bonds, in which event the Company will face the necessity of operating the water system at Llas Vegas for a considerable period of time. It appears to me that it is the plan of the District to have the Water Company construct as much of the facilities projected by the District as possible, with the thought that If the bonds fail, the City will at least havs the benefit of greatly expanded water facilities, You have instructed me to oppose the request that we drill additional wells or provide additional storage and to resist In Court, if necessary, any order of the Commission requiring substantial capital improvements, I believe that our ability to resist such an order from the Commission would be Improved if the Railroad Company were not the owner of the water production facilities at Las Vegas. The instant case involves only the Las Vegas Land and Water Company, but if that Company attempted to avoid carrying out an order of the Commission on the ground that it was without the necessary funds and was not the owner of the water bearing lands and production facilities, an attempt might be made to have the Union Pacific Railroad Company ltself dsclared to be a public utility. This question is discussed quite fully in my letter to you of December 4, 1951, If the Railroad Company dispossessed Itself of ths water production facilities, it would be In a better position to refuse to finance any unreasonable capital expenditures of the Las Vegas Land and Water Company, I also doubt very much that it would be possible for the Water Company to borrow from outside sources substantial amounts of capital, particularly If the Railroad Company held a first mortgage upon all of the properties of the Water Company to secure its advances. If such a transfer is made, it must be made Immediately to be of any benefit. Mr. Wm. Reinhardt 3. September 30, 1952 Accordingly I recommaend: 1. That the Railroad Company immediately transfer to the LVL&W Company at book value the 570 acres of land and the water production facilities which the District is now negotiating to buy. 2. That the Railroad Company grant a license, subject to termination upon short notice, to the LVL&W Company for pipe line and power line rights of way across the retained lands of the Railroad Company; 3. That the Water Company immediately start serving industries now served by the Railroad (excluding perhaps the P.F.E.) by proper tariff publication. I understand it will be necessary to construct a pipe line across the Railroad yards to connect the P.F.E. to the shop wall, so it might be necessary for the Water Company to furnish water to the P.F. E. during an interim period. 4. That the Las Vegas Land and Water Company execute a mortgage upon its entire water systsem in favor of the Railroad Company to secure advances which the Railroad Company has already made to the water department and which it will have made by the transfer of its facil- ities to the Water Company. It appears to me that Interest on such advances should be charged. 5. That the existing contract between the Railroad and the LVL&W Company be super- seded by one providing that the Railroad Com- pany will maintain and operate the water pro- duction facillties at actual cost of labor and materials plus the present management fee.This would eliminate the present Interest charge and income tax allowance billed to the LVL&W Company. If it were decided to have the main- tenance and operation crews in the water field on the payroll of the LVL&W itself rather than on the Railroad payroll, the only charge which the Railroad would make to the Water Company would be for management services and lnterest on the advances. Mr. Wm. Reinhardt 4. September 30, 1952 I think the foregoing things should be done Immedi- ately, If at all. As promptly as possible the LVL&W Com- pany should also divest itself of all industrial lands and other properties except the water department at Las Vegas now owned by it in the States of Nevada and California. These could be transferred to an appropriate subsidiary. I realise that it might take longer to accomplish this than to accomplish the transfer of the water production facilities from the Railroad to the LVL&W Company, How- ever I think the entire plan should be progressed as promptly as possibls so as to leave In the ownership of the LVL&W Company only the water production and distribution system at Las Vegas. I am proposing the foregoing on the assumption that the ultimate sale of the water production and distribu- tion system by a separate water company to the District would not result in substantial Income tax disadvantages. This, of course, is a matter which should be carefully considered by the appropriate departments before the plan above is adopted. E. E. Bennett