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Mr. wm* Reinhardt 9. December 4, 1951 fair return on the equity stock* Mr. ehe has disoussad this somewhat in his letter and has suggested that a pos­sible structure would call for 55$ stock, 45$ bonds. This relationship of course is not Inflexible,. However I think that the water utility should hare a substantial amount of borrowed capital from the Union Pacific so that it could demonstrate Its inability to borrow money on the outside under Junior issues when earnings are unfavorable. % If some financial structure similar to that referred to by Mr. eha were adopted, the water utility would have to is­sue additional stock having & par value equivalent to ap­proximately 55$ of th© depreciated book value of its total assets. p>i • - . . . The manner in which the borrowed capital would b© ev­idenced is something which could be handled in a number of ways. It seems to me that such borrowed capital could be evidenced by an open book account instead of bonds. This would seem to be preferrabls because it would entail no cost of issuance of bonds and would enable the lender to drain off accumulated cash when available in payment on the book account. However I do believe that interest ©- quivalent to the rate which would be paid upon capital borrowed from outside sources should be charged by the vMailroad Company upon the amount in the loan account. / It is my understanding that in the past th© las Ve­gas Land and Water Company at no time has had a cash ac­count, but that all revenues have been deposited to th© credit of the Railroad Company, which has paid all ex­penses, and that the loan account has been merely an ac­count which balances the difference between the receipts end expenditures made by the Railroad Company on behalf of the "'ater Company. It appears to me that it would be desirable for the reorganised Water Company to maintain a small working cash account and for transfers to be made periodically from this account in payment of balances due on the loan account. Cnch handling would make plain to a regulatory ooismiaston the need for a working cash allow­ance in the rate base, and if interest were paid on the balance in the loan account from time to time, the cost of borrowed money to the water utility could be readily dem­onstrated.