Letter from W. R. Rouse (Omaha) to A. E. Stoddard, December 18, 1951

Omaha - December 18, 1951. Mr. A. E. Stoddard: (cc - Mr. E. E. Bennett Los Angeles, California) Referring to your notation to me on your letter of December 10 to Mr. Sutton and Mr. Hulsizer relative to the suggestions in Mr. Bennett's letter of December 4 to Mr. Reinhardt for a change in the corporate setup of the water producing and distributing facilities in Las Vegas: I am in hearty accord with Mr. Reinhardt's belief, expressed in his letter to you of December 4, that the recommendations contained in the analysis presented by Mr. Bennett's letter should be given serious consideration. In fact, I am willing to go somewhat further, and, subject to what may be developed by Messrs. Sutton and Hulsizer from tax and accounting standpoints, to say that I am so impressed with Mr. Bennett's presentation and, to my mind, the soundness of his reasoning, as to feel Justified in a conclusion that a change in the corporate setup of the Las Vegas Land Water Company should be worked out and progressed to a consummation. In the furnishing of water, and electricity also for that matter, to outside parties our railroad companies have attempted to hedge the transactions about so as to heap them out of the class of public utilities In rendering the service. We have felt, not entirely without some misgivings in a few cases, that an express understanding that we were furnishing only surplus water and power would protect us. The situation at Las Vegas has now reached the point where the "surplus water" argument has lost most, if not in fact all, of its strength. The LA&SL has a certificate of appropriation of water from the State of Nevada authorizing it to appropriate from the water bearing lands it owns in Las Vegas the amount of water Which can be beneficially used by it for railroad and domestic purposes not in excess of 8.5 cubic feet per second. According to Mr. Bennett only an almost negligible portion of this appropriated amount Is used by the Railroad Company, but it has outstanding contracts for the furnishing of water with certain industrial and other users (my records show 17 of these ). The agreement of November 30, 1950 between LA&SL, UP and LVL&W makes reference to these private con- tracts and then goes on to say that "all of the rest of the water produced from said lands above described is delivered to the Water Company by Second Party" (U.P.). This recital evidently includes not only the residue water left over from the Railroad Company's appropriation after serving itself and the private contract users but also the 1.68 cubic feet per second appropriation of the water Company which may be used by the Water Company for irrigation and domestic purposes and the 81.49 cubio feet per second which may be used by it for municipal supply and domestic purposes. There is another phase of our present operations which might possibly, under Nevada law as pointed out by Mr. Bennett, bring our railroad companies into the class of public utilities in the water furnishing field. Section 1 of the November 30, 1950 contraot provides that the "Second Party (U.P.) shall use reasonable diligence to produce from said water bearing lands by moans of the existing water production facilities located thereon all water which Second Party and Water Company can put to beneficial use not in excess of the amount thereof Which both are entitled to appropriate and divert from the water bearing lands." This wholesale delivery of water might bring the railroad companies within the definition of public utilities if a court wore asked to pass upon that question. Mr. Bennett points out a series of important disadvantages which in my judgment would Justify as in studiously avoiding coming within the public utilities definition as far as the furnishing of water is concerned. It would be desirable if the Railroad Company could retain as its own so much of the water as it used out of the 8.6 cubic feet and also furnish out of that appropriation water needed by the PFE to the extent of the balance of the appropriation. There is, however, some doubt as to whether water furnished the PFE is for a railroad purpose. The same question, under somewhat different circumstances of course, was considered in connection with the possible providing of water by the Railroad Company at Laramie for PFE purposes bat it was there concluded that an attempt to furnish water to the PFE under the classification of a "railroad purposes might load to difficulty and the considered plan was disregarded. Considering that the Railroad Company has long been delivering water to the PFE under a private contract, wo may bo able to arrive at a different conclusion at Las Vegas than the one we arrived at at Laramie. Mr. Bennett's views en this question would be valuable. The Railroad Company has its own appropriation for water at Las Vegas, and consequently can use the water to the limit of such appropriation, and in my judgment this right, irrespective of whether the Water Company is reorganized. Should be safely guarded for at least one especial reason ? that in time of shortage of water it should not be compelled to submit to a prorate of water with other customers of the Water Company. If the water producing sad distributing facilities bo sold by the Railroad Company to the Water Company care Should bo taken to reserve to the Railroad Company such amount of water from its own 2.3 cubic feet as it may need, and this could bo followed by a contract with the Water Company by Which it would agree to produce and deliver to the Railroad Company such water from the railroad's own supply at cost to the Water Company far such production and delivery. There is a question in this connection upon Which Mr. Bennett's letter does not throw any specific light, and that is whether if the Railroad Company reserves from its own appropriation such water as it may need for railroad and domestic purposes the rest of the water can be taken over by the water Company. We should have Mr. Bennett's help on the matters discussed in this paragraph. Passing by questions which have to do with accounting, I go along with Mr. Bennett's thought expressed at the top of page 7 of his letter and the reasons ho gives therefor that the most advantageous plan of making a transfer of the water production and distribution facilities of the Railroad Company would bo to make such transfer to the Las Vegas Land and Water Company and have that company transfer all other assets, except water production and distribution assets, to another corporation. I am not sure that this need bo a now corporation as Mr. Bennett says. We have a Nebraska corporation. The Union Land Company, which has been used not only in Nebraska but in a number of other states for the purpose of holding title to, and dealing with, real property where it earns more advantageous to have this done by a separate corporation rather than a railroad company or its railroad or other non-railroad subsidiaries. The Union Land Company has been domesticated in Wyoming, Missouri, Utah, Idaho, Colorado and Kansas. Whether The Union Land Company could function in Nevada and also in California for the purposes of handling real estate included in the assets of the Las Vegas Land and Water Company, other than water producing and distributing facilities, is also a question upon which we should have advice from Mr. Bennett. On page 9 of Mr. Bennett's letter he thinks that borrowed capital could be evidenced by an open book account instead of bonds. His reasons have, in my opinion, a sound ring to them but I am not going, as I have indicated, beyond the field of the purposes of this letter. The question of what service should be performed by the various departments of the Railroad Company for the Water Company is something which, at this stage of the proceedings, I should leave alone. I am sending a copy of this letter to Mr. Bennett with the request that he give us his views on questions raised above and upon which I have indicated his advice Should be solicited, leaving him free to make any other suggestions, too, which he may think of value. Original Signed W. R. ROUSE