upr000197 48

Mr. T#m. Reinhardt 9. December 4, 1951 f a i r r e t u r n on th e e q u it y s t o c k . M r. Wehe has d is c u s s e d t h i s somewhat in h is l e t t e r and has s u g g ested t h a t a pos­s i b l e s t r u c tu r e would c a l l f o r 55$ s t o c k , 45$ bonds. T h is r e la t io n s h ip o f co u rse i s n o t i n f l e x i b l e . H ow ever I th in k t h a t th e w a te r u t i l i t y sh ou ld have a s u b s t a n t ia l amount o f borrow ed c a p i t a l from th e Union P a c i f i c so t h a t i t cou ld d em on stra te i t s i n a b i l i t y t o borrow money on th e o u ts id e under ju n io r is s u e s when e a rn in g s a re u n fa v o r a b le . I f some f i n a n c i a l s tr u c tu r e s im ila r t o t h a t r e f e r r e d to by M r. Wehe w ere a d o p te d , th e w a te r u t i l i t y w ould have t o i s ­sue a d d it io n a l s to c k h a v in g a par v a lu e e q u iv a le n t t o ap­p r o x im a t e ly 55$ o f th e d e p r e c ia t e d book v a lu e o f i t s t o t a l a s s e t s . The manner in w hich th e borrowed c a p i t a l would be e v ­id e n ce d i s som eth in g w h ich co u ld be handled in a number o f w ays. I t seems to me t h a t such borrow ed c a p i t a l c o u ld be e v id e n c e d by an open book a ccou n t in s te a d o f bonds. T h is would seem to be p r e f e r r a f c l e because i t would e n t a i l no e o s t o f is s u a n c e o f bonds and would e n a b le th e le n d e r to d r a in o f f accum ulated cash when a v a ila b le in payment on th e book a c c o u n t. H ow ever I do b e l i e v e t h a t i n t e r e s t ®- q u lv a le n t to th e r a t e w h ich would be p a id upon c a p i t a l borrow ed from o u ts id e so u rce s should be ch arged by th e R a ilr o a d Company upon th e amount in th e lo a n a cco u n t. I t I s my u n d e rs ta n d in g t h a t in th e p a s t th e Las V e­gas Land and W ater Company a t no tim e has had a cash a c­c o u n t, but t h a t a l l reven u es have been d e p o s ite d to th e c r e d i t o f th e R a ilr o a d Company, w hich has p a id a l l ex­p e n s e s , and th a t th e lo a n accou n t has been m e r e ly an ac­count w hich b a la n c e s th e d i f f e r e n c e betw een th e r e c e ip t s and e x p e n d itu r e s made by th e R a ilr o a d Company on b e h a lf o f th e W ater Company. I t appears t o me t h a t i t would be d e s ir a b le f o r th e r e o r g a n iz e d W ater Company t o m a in ta in a sm a ll w ork in g cash a cco u n t and f o r t r a n s f e r s t o be made p e r i o d i c a l l y from t h is acco u n t In payment o f b a la n c e s due on th e lo a n a c c o u n t. Such h a n d lin g would make p la in t o a r e g u la t o r y com m ission th e need f o r a w o rk in g cash a llo w ­ance in th e r a t e b a se, and i f I n t e r e s t w ere p a id on th e b a la n c e in th e lo a n accou n t from tim e t o t im e , th e c o s t o f borrow ed money to th e w a te r u t i l i t y co u ld be r e a d i l y dem­o n s t r a t e d .