Letter from William Reinhardt (Los Angeles) to A. E. Stoddard, October 6, 1950

Los Angeles - October 6, 1950 Mr. A. E. Stoddard: (cc - Mr. W. H. Hulsizer - Omaha Mr. T. W. Bockes - Omaha Mr. E. E. Bennett ) I enclose herewith duplicate originals and two extra copies of agreemeat between LA&SL, UPRR and LVL&WCo. covering the furnishing of water by the Railroad to the LVL&WCo. at Las Vegas and the charges therefor. I am also sending copies of the agreement to Mr. Hulsizer and Mr. Bockes. Mr. Bennett advises that the agreement may be signed by you or a Vice President of the two Railroads with the consent of the Executive Committee pursuant to provisions of Section 6, Article V, of the UPRRCo. Bylaws, Section 3, Article V, of the LA&SL Bylaws, and be signed by you as President of the LVL&WCo. with the approval of the Board of Directors pursuant to Section 2. Article IV, of its Bylaws. I recommend that the agreement be executed so that it will be in operation prior to the hearing on the proposed application of LVL&WCo. to the Nevada Public Service Commission for increase in rates. Studies made by Mr. Hulsizer and other Department Heads in connectlon with data developed for the report on results of operation of the Las Vegas Water System made by Mr. Roy A. Wehe have indicated that the charges made by the Railroad upon LVL&WCo. for water furnished to the latter at Las Vegas pursuant to existing agreement dated March 30, 1929, Audit No. 7322, do not fully compensate the Railroad. The Wehe report, which will be the basis for our presentation to the Nevada Commission, will show the amount which the Railroad should charge the Water Company for water furnished. It is desirable that at the hearing our statement of the proper charges be supported by an agreement between the Railroads and the LVL&WCo. providing for compensation to the Railroad on the proper basis. The enclosed agreement terminates the existing agreement and becomes effective as of January 1, 1950. The value of the water production facilities upon which the LVL&WCo. agrees to pay the Railroad a return of 61/4% above operating expenses and federal Income Taxes is in excess of the ledger value of the water bearing lands and water production facilities. The value used in the contract is the market value as of January 1, 1950 of the water bearing lands and the original cost as of January 1, 1950 of the wells and other facilities developed in the Wehe report. The reason why the original cost of the improvements is in excess of the ledger value is that the original cost figure was developed in accordance with the retirement accounting practices usually employed by water - 2 - utilities whereas the accounts of the Railroad reflect the betterment accounting practices prescribed by the Interstate Commerce Commission. Therefore in order that billing practices under the preposed contract can conform thereto, it may be necessary to maintain a record in additon to the ordinary accounts of the Railroad showing the original cost of the water production facilities as increased from time to time by any additions and betterments thereto made in accordance with retirement accounting practices. I also call your attention to the fact that the value of the water production facilities of the Railroad, upon which the return to computed under the contract, is a depreciated value thereof. This is the basis used in the Wehe report in developing the charge which the Railroad should make upon the LVL&WCo. for water furnished to the latter. This is a matter which has been discussed by Mr. Hulsizer and Mr. Wehe who have, I understand, reconciled their views. I expect to proceed with our request for a rate increase in the very near future and will appreciate it if the execution of the unclosed agreement can be progressed as rapidly as possible. (Signed) WM. REINHARDT Wm. Reinhardt