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(Etrrtttt (Eouri
Ninth Judicial Circuit, Northern District of California
<*
The Spring Valley Water Works
(a corporation ),
Complainant, \
vs.
The City and County of San Francisco
(a municipal corporation), The Board of
SuPBRVISORS OF THE ClTY AND COUNTY OF
San Francisco, and James P. Booth
et al., members of and constituting said
Board of Supervisors, -
Defendants.
The Spring Valley Water Company
(a corporation),
Complainant,
vs.
The City and .County of San Francisco
(a municipal corporation), The Board of
Supervisors of the City and County of
San Fra-ncisco, and James P. JJ&oth
et al., melibers of and constituting said
Board of Supervisors,
Defendants.
No. 13,395
In Equity
13,598 and
13,756
In Equity
CLOSING ARGUMENT
of Edward J. McCutchen for Complainant,
on Final Hearing
Perxatt Publishing Co.
SAN F <~;.00M
SAN FRANCISCO
PUBLIC LIBRARY
SAN FRANCISCO PUBLIC LIBRARY
3 1223 90149 8775
REFERENCE BOOK
■Not to be taken from the Library
Digitized by the Internet Archive
in 2012 with funding from
California State Library Califa/LSTA Grant
c
http://archive.org/details/springvalleywat3190306spr
Index to Closing Argument
Page
Value 2
Substitutional value 2
Judicial notice as to bond issue 12
Estimates of cost of Tuolumne system 16
Complainant's monopoly 17
Grunsky's valuation of Spring Valley prop-
erties 19
Interest during construction 19
Interest on properties not in use 22
Allowance of $1,400,000 for incidentals and
omissions 24
Upper Crystal Springs and Pilarcitos dams 25
Alameda lands and water rights 27
Valuation of $1,000 per miner's incli 34
Duty of complainant to anticipate demands 37
Valuation of Lake Merced lands 42
Defendants' method of ascertaining value 103
Sales of Lake Merced properties 103
Testimony of Schussler 107
Quantities 113
Missing cash books 116
Properties out of use 121
San Francisco City Water Works 122
Depreciation 123
Undivided profits 126
Transfer Spring Valley Water Works to Spring
Valley Water Company 127
Value of properties 129
Rate of Return 134
INDEX.
ADDENDA.
Page
A Value of Sclmssler's estimates 155
B (1) An answer to defendants' argument and ta-
bles regarding estimates on wrought iron
pipe 229
(2) Defendants' tables Nos. 1 and 2, on depre-
ciation 239
34-s
/?03 -06
v. 3
S. F. PUBLIC LIBRARY
(Etrrmi (tart
OF THE
United £>tate0
Ninth Judicial Circuit, Northern District of California
The Spring Valley Water Works
(a corporation),
Complainant,
vs.
The City and County of San Francisco
(a municipal corporation), The Board of
Supervisors of the City and County of
San Francisco, and James P. Booth
et al., members of and constituting said
Board of Supervisors,
Defendants.
The Spring Valley Water Company
(a corporation),
Complainant,
vs.
The City and County of San Francisco
(a municipal corporation), The Board of
Supervisors of the City and County of
San Francisco; and James P. Booth
et al., members of and constituting said
Board of Supervisors,
Defendants.
No. 13,395
In Equity
Nos.
13,598 and
13,756
In Equity
CLOSING ARGUMENT
of Edward J. McCutchen for Complainant,
on Final Hearing
2
SUBSTITUTIONAL VALUE.
Mr. McCutchen. If your Honor please: At the
opening of the argument for defendants, counsel on the
other side expressed a great deal of surprise that com-
plainant had taken the position which was taken by
counsel who made the opening argument in its behalf.
He suggested that he was very much misled, that he was
in a maze of uncertainty, that he did not know where
to turn or exactly what to do because the theory upon
which the case was presented upon oral argument was
so radically different from that followed in the briefs.
He also suggested that the oral argument antagonized
the briefs and that it was absolutely impossible to recon-
cile the positions taken in the argument with those taken
in the briefs. His criticism was directed, first, to our use
of the so-called substitutional system; and, second, to
resort to the cost of duplication for the purpose of de-
termining value.
I was very much surprised by counsel's attitude. He
was not content with stating it once, but he stated it
time and again. Indeed, this substitutional system was
as worrying to him as was Banquo's ghost to Macbeth.
There was not a session from the time he began his
argument until he closed that he did not devote some
part of it to the substitutional system. The use of the
substitutional system has worried him beyond measure;
and it is that system which, he has so solemnly said to
your Honor, had no foundation either in law or reason.
The doctrine of substitutional cost was urged in com-
plainant's opening brief, and let me recall what counsel
on the other side said in reply. I will read from page
60 of the defendants' brief, under the sub-title of sub-
stitutional cost:
''The contention that the value of complainant's
plant should be fixed by 'the estimated cost of the
next available substitutional system' has no basis
in reason or law."
It is hard to understand why counsel so expressed
themselves in their brief, if there was nothing in our
brief indicating that we relied upon that method of
reaching value.
But let us go a little further: I quoted to your
Honor in my opening argument a statement from the
brief of the defendants that substitutional cost was one
of the elements to be considered. On page 361 of the
transcript of his argument he said — and I only take up
the time to show that the position of the complainant
has been perfectly consistent — that nothing is said in
complainant's closing brief, as to the fixing of value by
comparison with a substitutional system, and that the
views of the respective parties are irreconcilable.
"Upon oral argument", says he, "complainants have
entirely changed their position."
And on page 396 of the transcript, he says :
"Believing that the closing brief of complainant,
filed more than four years after the testimony was
closed, and signed by all of the solicitors for the
complainant, represented the final wisdom of the
large array of attorneys employed by complainant
in this case, defendants prepared to discuss the is-
sues of this case on the final arguments on the posi-
tions taken in that brief. Greatly to our surprise,
however, counsel for complainant in orally arguing
his case has taken positions which are entirely in-
consistent with the views expressed in the brief
and has made but slight reference to the complain-
ant's brief, and that is a very strange circumstance
because counsel referred to our brief very frequently
during his argument."
And I ask counsel now, in common fairness, to point
to a line in the oral argument in which any position
taken in the briefs is antagonized.
I could not understand what the purpose of counsel
was in endeavoring to make it appear to the court that
the counsel who made the oral argument was at cross-
purposes with those who prepared the briefs.
Mr. Haven. I refer to the paragraph in the closing
brief which says there are two methods of determining
value in an action of this character, and in neither of
those methods is the method of substitutional value men-
tioned.
Mr. McCutchen. In reply to that suggestion, I refer
your Honor to the statement on page 8 of Vol. 1,
complainant's closing brief, to which counsel has made
reference. It is there said:
"Second: By other independent evidence tending
to show what would be the cost of reproducing all
the property if it were necessary to acquire the
lands and construct the works in their present con-
dition at the time of the investigation."
If counsel can find any substantial difference between
that statement and my statement of substitutional cost,
I would like him to do it. And he says lie agrees with
that: he is committed here practically to an agreement
with that statement of the law on the subject.
And again he says, still trying to find some antago-
nism between the briefs and the oral argument, at page
543 of the transcript:
"Now, turning from the brief to the oral argu-
ment of complainant, which is not consistent, or at
least is not the same argument as was made in the
brief; as I understand, the oral argument was
mainly, and I don't know but entirely on the two
bases upon which counsel seeks to fix the value of
the property; one is what he has designated as a
comparison of value with a substitutional system;
the second was attempting to get at the value of
water as such, and an attempt made by him to show
that Grunsky had inflicted a heavy wrong on com-
plainant by leaving out a certain quantity of water.' '
Are those the only methods of valuation which counsel
understands were dealt with in the oral argument? If
they are, I am unfortunate, indeed, in my effort to make
myself understood. I put upon the blackboard here a
number of valuations based upon his own figures, with
one or two exceptions. Does he understand that those
were not contended, for, at least as minimum valuations?
And again:
"With reference to the substitutional system,
even if the Tuolumne system was an accomplished
fact and were here furnishing water, or ready to
furnish water, there is no authority for the assump-
tion that that is a final basis for fixing rates for an
existing plant."
6
I have not claimed that it is. Do not these quota-
tions, taken one by one, starting with the beginning ana
reading on from day to day, show an admission on his
part that so far from the argument having no basis in
law or reason, it has very substantial basis?
After stating that counsel for complainant was grasp-
ing at a straw when he relied on the so-called substi-
tutional system, and saying that a falling man will grasp
at almost anything, he was asked this question :
"Do you now say that substitutional cost is not
to be considered?"
And his answer to that question was:
"I do not.
"Mr. McCutchen. Then I have not misconstrued
you, have I?
"Mr. Haven. You have not misconstrued me if
you say that is to be considered, but, as I under-
stood your argument, you say it is not only to be
considered but because we have said it is to be con-
sidered we have therefore said that you were justi-
fied in building up your valuation by this compari-
son."
I stated to your Honor very candidly that I did not
claim that you were obligated to allow for this property,
if you were to take the Tuolumne system as a compari-
son, the entire cost of that system. But I did say that
it was a most important circumstance, and in my view
was the most important circumstance that was developed
by this record. And counsel is compelled, by force of
the logic of the positions which he took in the early part
of Lis argument, to come to that conclusion; he can
reach no other.
Upon what right, I ask, — and I asked him when I
made my argument to reply to this, and he has closed
his argument with silence upon the subject, — I say I
asked him to tell us by what right he took substitutional
cost for the structural parts of this plant, and refused
to apply the same rule to water rights and real estate.
Has he made any answer?
I now come for a moment to a comparison of this
plant with a projected substitutional plant as a circum-
stance enabling the court to tell what the value of this
plant is.
I never have contended, and I do not now contend,
that your Honor is compelled to take as the measure
of value of this property what it would cost to bring
a supply of water from the Tuolumne. I do claim, how-
ever, that one of the circumstances which you may
and should take into consideration is what it would
cost to render the same service to San Francisco that
was being rendered in the year 1903 by the complain-
ant. Your Honor will recall that there are used, by the
authorities dealing with the subject of rate regulation,
the expressions "an equivalent service", "the cost of
the service", "the value of the service". For the pur-
pose of determining the value of the service, it is proper
to consider what it would cost to supply San Francisco
with the same quantity of water, and of the same quality,
and with the same reliability of service, as that with
which the city is now being supplied. Counsel was not
very far away from that proposition when he got
through with his argument. He started with the notion
8
that our argument for a comparison with the proposed
system was monstrous, but, before he got to the end of
his argument, he was prepared to admit the usefulness
of the doctrine of substitutional cost, with the qualifica-
tion that the cost of the substitutional system would
stand as an upper limit to the value of the existing
property.
Counsel at times was very alert to the effect of this
substitutional doctrine, if we may so characterize it.
He found it necessary, on other branches of his case,
to follow a line of discussion which evidently did not
appear to him at the time to have any effect on the
doctrine of substitutional value. One of those in-
stances is found on page 431 of his argument, where he
said, when discussing cost — and by the way, at one time
he thought cost was value, at another time he thought
that cost of duplication was value — :
"The city is bound to pay a fair rate of income
upon the value of the property which is then being
used for its benefit. The measure of that value
has been held to be what it would cost to reduplicate
the property. This must include, however, redupli-
cation by the city itself, if necessary."
He was there discussing our right to make a discount
on stocks and bonds. As he saw it, the proper way to
ascertain the value of the property was to determine
what it would cost to duplicate it, and that means what
it would cost to duplicate all of it.
I went into quite an elaborate discussion for the pur-
pose of showing what it would cost San Francisco if
9
the ideal system which Mr. Grunsky recommended were
adopted, that is, a combination of the Tuolumne system,
having but one pipe-line, with our peninsula system, that
is to say: what it would cost per million gallons to bring
water from the Tuolumne, where there is no market for
it, to Crystal Springs reservoir, from which it could be
distributed to a market. I assume that counsel finds no
fault with my figures on that phase of the case. His
only criticism is that it is not certain that that system
will ever be built and that, therefore, your Honor should
not use the comparison for any purpose. He did not
go so far, toward the end of his argument, as to say
that, but he did say that your Honor should not take
the cost of the Tuolumne project as being beyond any
doubt the value of the existing plant. I do not claim
that. I think we have a showing here from which it
may fairly be said that it is not possible to find, short
of the Sierra, water which the city needs and which it
must have, if the present system is not used. That is
the conclusion of their own witness; that is their show-
ing. There is no getting away from that showing so
far as the city is concerned.
As I said to your Honor in my opening, you can afford
to take that branch of the case as the city has made it.
It makes no difference whether our engineers think that
that will be an expensive system or not; the showing
made is that San Francisco must have water. There is
no intimation that she can get it cheaper than from the
Tuolumne. The unqualified showing is that the Tuol-
umne is the most available system. Your Honor knows
10
something of the topography of this state; you know
something about the localities where water is to be had,
and you know, of your own knowledge — a knowledge
which is common to all the people in California, cer-
tainly to all those who have spent any time in San
Francisco, — that unless water be drawn from the San
Joaquin or Sacramento rivers, and that has been con-
demned by everybody who has considered the subject —
the city will be compelled to go to the Sierra unless
she continues to rely upon the existing plant. That
being the case, and Mr. Grunsky having said, and the
city by its formal action having said, that the Tuolumne
is the best and most available source, are we not en-
titled to take into consideration the cost of water per
million gallons from the Tuolumne, to determine the
value of our property? Mr. Schussler, than whom no
man knows better the value of water, says that the
water which we supply is worth at least $150,000 per
million gallons. Mr. Hering, who is one of the foremost
men in the country, and who is now employed by the
city of San Francisco to supervise some of its engineer-
ing works, says that the water which we furnish is
worth $150,000 per million gallons. Are not the state-
ments of those witnesses very materially supported by
a showing that to get other or additional water the
city must go to the Sierra — to which their witnesses all
say you must go — and that the water so coming from
the Sierra will cost, exclusive of the cost of impound-
ing it, at least $460,000 per million gallons? We do
not ask you to make us an allowance of $460,000, but
11
suggest that the fact that that will be the expense of
getting other water here affords a very substantial sup-
port to the statement of Schussler and Hering that our
water rights are worth $150,000 per million gallons of
daily production. It is all well enough to say that it is
speculation, but, if it be called speculation at all, it is
speculation with a very substantial foundation. We
claim that your Honor should take into consideration
with that — by judicial notice — the fact that San Fran-
cisco has voted the issuance of $45,000,000 in bonds to
acquire that system. Counsel said you could not take
that into consideration because it happened after the
taking of the testimony in this case. We relied upon
proof of the early action of the city and its officials to
show the initial action on the part of San Francisco
looking toward the acquisition of that supply. We
might have asked your Honor to open the case before
this argument began, and allow us to make proof that
that initial action had been consummated by a deter-
mination to acquire that system, and that bonds had
been authorized to be issued. It would not have been
a valid objection that that had not occurred before the
trial of this case. It would not have been an objection
that that had not occurred before these expert witnesses
testified. The order in which the proceedings were had
would not have had any effect upon the value of the
Tuolumne system; nor would it have had any effect on
the value of our system. Our system would have been
of just as great value, and the cost of the Tuolumne
would have been just as great, whether San Francisco
voted for or against these bonds. But the object of ask-
12
ing your Honor to take judicial notice of the fact was
that you might know and consider that the initial action
taken by the board of supervisors had finally resulted
in the approval of the people of San Francisco.
JUDICIAL NOTICE AS TO BOND ISSUE.
Counsel has reminded me that I need not have gone
so far afield to find authorities on the question of judi-
cial notice. I listened to him with some interest when
he said that I could have gotten that from the Schmitz
case. From the beginning to the end of the Schmitz
case, there is nothing said about judicial notice. The
court did not consider in that case whether it could
take judicial notice of the fact that Schmitz was mayor.
In fact the statute expressly provides that it should
take such notice. The court there considered the valid-
ity of an indictment, and we all know that although
a court will take judicial notice of a fact, that does not
relieve from the necessity of pleading the fact, if it be
one which should be pleaded ordinarily. In the Schmitz
case, there was no allegation in the indictment that de-
fendant was mayor, and all that the court held was that
the People should have pleaded that fact if they in-
tended to rely upon it.
I understand counsel's argument to be that as we
could not have offered proof of this matter before the
testimony was published, the court cannot take judicial
notice of it. I call your Honor's attention to the case
13
of Southern Pacific Company v. Lipman, 148 Cal. 491,
from which I read:
"It is insisted by counsel for respondent that
neither the decision of the Supreme Court in 183
U. S. 519 (22 Sup. Ct. 154), nor the commissioner's
letter can be taken into consideration as evidence
because the decision of the Supreme Court of the
United States was rendered and the letter written
subsequent to the decision in the case at bar, and,
as counsel say, have 'no legal significance in the
determination of the motion for a new trial.' But
they are not considered as evidence at all. The de-
cision is taken as conclusive authority that the con-
clusion reached by the trial court that it had been
finally determined by the prior decisions of the su-
preme court, cited in the agreed statement of facts,
that patent shall not issue to plaintiff for these
lands within its main-line grant, was wrong. And
the letter of the commissioner of which we take
judicial notice (Southern Pac. R. R. Co. v. Wood,
124 Cal. 475, (57 Pac. 388), is considered in connec-
tion with that decision as showing that the govern-
ment has conformed to the equitable requirement
declared therein and partitioned between itself and
plaintiffs the lands within the conflicting primary
limits of the grant, so as to set oif to the plaintiff
the lands in the case at bar within such limits which
it had assumed to sell, in order that, as the court
said, 'Thus the title to the purchasers be per-
fected.' "
The commissioner of the general land office had acted
pursuant to a decision of the supreme court of the
United States, and the trial court took judicial notice
of the action of the commissioner. This action by
him was after the case had been decided and when it was
pending on motion for new trial.
14
And so we say here that the court will take judicial
notice of these proceedings to the extent of considering
them for the purpose of determining whether this
initial action of the board of supervisors declaring in
favor of the so-called Tuolumne system was ever com-
pleted by those having the authority to complete it.
There is one case which I desire to cite to your
Honor on the question of substitutional cost which I
failed to cite in the opening. It is Brunswick Water
District v. Water Co., with which your Honor is familiar.
You will remember that the company in that case owned
two sources of supply. It was bringing water from the
more expensive source rather than from the source
from which it could have been brought for smaller ex-
pense. The opinion nowhere intimates that the value
of the complainant's properties is lessened because
of their dedication to the public. Judge Savage wrote
the opinion in that case and said, at page 543 of 59
Atlantic :
"We turn to the other question involved in this
request. That relates to the assumed existence of
a nearer and cheaper source of supply than the one
now in use by the company, which is a part of its
present entire plant, and which in part represents
its actual investment. We do not doubt that, when
the worth of a public service of this kind to the
public or the customers is spoken of, necessarily
one of the elements to be considered is the expense
at which the public or customers, as a community,
might serve themselves were they free to do so,
and were it not for the existence of the practically
exclusive franchises of the supplying company.
When the worth of the water to a consumer is esti-
mated, we are not limited to the value of water it-
15
self, for it is an absolute necessity. Its value has
no limit. Water, speaking abstractly, is priceless;
it is inestimable. To sustain life it must be had
at any price. And in this respect, a public water
service differs from all other kinds of public service.
In estimating what it is reasonable to charge for a
water service — that is, not exceeding its worth to
the consumers — water is to be regarded as a prod-
uct, and the cost for which it can be produced or
distributed is an important element of its worth.
It is not the only element, however. The individ-
uals of a community may with reason prefer to pay
rates which yield a return to the money of other
people higher than the event shows they could serve
themselves for, rather than make the venture them-
selves, and risk their own money to lose in an un-
certain enterprise. It was said by us in the Water-
ville case that the investor is entitled to something
for the risk he takes, and it is not unreasonable for
the consumer to be charged with something on that
account. That is one of the things which make up
the worth of the water to the customer. But such a
consideration as this last one must always be treated
with caution. The company is only entitled to fair
returns, in any event, and 'fair' to the customer as
well as to itself.
"In the aspect now being considered, the worth
of a water service to its customers does not mean
what it would cost some one individual, or some few
individuals, to supply themselves, for one may be
blessed with a spring, and another may have a good
well. It means the worth to the individuals in a
community taken as a whole. It is the worth to
the customers as individuals, but as individuals
making up a community of water takers. In the
very nature of things a water system is usually in-
tended to supply a somewhat compactly settled com-
munity, or a community whose geographical limits
are somewhat restricted. As a matter of fact, in
this state such systems usually supply villages, or
16
the more compact portions of cities. The necessity
does not exist for extending such systems beyond
these limits, and the expense would be practically
prohibitive. Such a community must, in general,
stand as a whole. The rates for such a system are
generally and properly uniform, although the ex-
pense of supplying some — as those nearer the source
of supply — is actually less than that of supplying
those at the outermost limits. Still the benefits are
uniform, and uniform rates are reasonable. Now,
such a community is, we think, entitled to the bene-
fit of such natural and sufficient facilities for pro-
curing pure water as exist in its vicinity. Com-
munities are in every respect entitled to the benefit
of existing natural advantages."
ESTIMATES OF COST OF TUOLUMNE SYSTEM.
Defendants in their brief and counsel in his argument
before your Honor have characterized the estimates of
cost made by our engineers, that is, the estimates of
cost for the construction of the Tuolumne system, as
absolutely unreliable, because of large discrepancies in
the different valuations. The estimates of these en-
gineers are as follows:
Hering $55,000,000 (p. 3475)
Schuyler 54,896,000 (p. 5408)
Adams 53,330,000 (p. 4681)
Schussler 55,000,000 (p. 1560)
Stearns 54,400,000 (p. 4256).
It is true that Mr. Stearns said that in his opinion
the city could not afford to rely upon that plant with
only two pipe-lines, and with no storage capacity, — and
17
it is well known, it would not have any storage capacity
— so he said that in order to make the system approach
reliability it was necessary to allow for another pipe-
line, and that is the way Mr. Stearns reached $70,000,000.
So far from there being the very great diversity of
opinion which counsel on the other side has told you of,
there is, under the circumstances, the greatest unanimity
of opinion as to what the cost of that property will be.
We submit that all the facts necessary for the accept-
ance of the cost of Tuolumne supply as a basis for com-
parison, have been shown, and that this cost should be a
guide of the greatest value in determining the worth of
complainant's properties.
COMPLAINANT'S MONOPOLY.
I am reminded that considerable was said by counsel
on the other side with reference to our monopoly. The
monopoly consists, as I understand counsel, in having
purchased from time to time the properties about the
bay of San Francisco which are available for a water
supply for San Francisco. It occurs to me to ask him
what might have become of those properties if we had
not purchased them; where might their ownership be
today, if it were not in the Spring Valley Water Com-
pany?
We did use the word monopoly in our argument, but
it must be borne in mind that we get no monopoly from
any right that San Francisco or the state has conferred
upon us. If we had not monopolized those nearby
18
sources, somebody else would have gotten them, and
what would have been the plight of San Francisco to-
day? She would have been compelled, long ere this, to
go to the Sierra; to the place, as to which Mr. Dock-
weiler said, all engineers agree that she should go. If,
by reason of acquiring all of the properties that are
capable of producing water within a certain distance of
San Francisco, we have acquired a monopoly of water
producing properties, we are not to be criticised for
having acquired such a monopoly. And if those acqui-
sitions, and the fact that they are all united and under
one ownership, and are interchangeable, as they are,
add any additional value to the property, we are entitled
to the additional value. Why should it be said that we
are not entitled to that additional value as it would have
existed if San Francisco had stood in our shoes, and
had bought these properties herself1? If she had bought
them, and united them as we have, they would have
increased in value. Would San Francisco in that case
have had a monopoly? The answer will be "yes" but
that would have been a monopoly in the interest of the
public. However, the value on account of having ac-
quired and combined all those properties would be just
the same and only the same.
These properties are just as valuable in our hands
as they would be if owned by San Francisco. We are
not to be called monopolists, and we are not to be char-
acterized as monstrous because, by the exercise of fore-
sight and judgment, — which words counsel on the other
side does not at all like, — we did acquire all of these
19
properties which are now used for the benefit of, and
are useful to, San Francisco.
We now turn to a consideration of the various ele-
ments of value omitted by Grunsky in his valuation of
complainant's properties.
INTEREST DURING CONSTRUCTION.
Counsel had nothing to say in relation to the item
of interest during construction. Of course, there can
be no question but that we are entitled to interest dur-
ing construction, upon any method of valuation. His
only argument upon interest during construction is with
reference to the cost as it appears upon the books. He
has no quarrel with the charge of interest during con-
struction to ascertain what similar structures would
cost.
Counsel seemed to get the impression from Mr.
Schussler's statement that construction covered from
one to one and one-half years, working seven months a
year, and that that meant that the seven months were
to be taken as the whole year. That is not my under-
standing of Mr. Schussler's testimony, because he says
in several other places, one of which as I recall I
quoted to your Honor, that it took from two to three
years. So if you will take from a year to a year and a
half, that is, from 12 to 18 months, as the aggregate
time and assume that the work could be carried on for
only seven months in each year you will get just about
the result that all the engineers agree upon, namely,
20
that the average period of construction was about two
years. The rule for the computation of interest is to
take the full rate for one-half the time. That is the
rule that the witnesses on both sides used.
In this connection Grunsky says as follows:
"P. 361-XQ. 202. No allowance for interest dur-
ing construction is included in the figures $39,531,000
for the Tuolumne system.
"361-XQ. 203. I have made no calculation to de-
termine what that interest would amount to.
"362. This was intended as an indication of the
bond issue that might be required, in order to con-
struct the works. If I had been endeavoring to
determine the actual cost of the works to the city,
regardless of how paid for, I would have added
interest.
"362-XQ. 204. I assumed it would take five years
to construct the works.
"362-XQ. 206. With regard to interest, the gen-
eral rule for its allowance during construction, is
to add the full rate for one-half the time that it
takes to construct the works.
"362-XQ. 207-8. The interest on the bonds to
provide the funds to build the Tuolumne system was
assumed to be Sy2 per cent. At that rate, on
$40,000,000, for two and a half years, the interest
would be $3,500,000.
"378-XQ. 310. In the case of introducing items
at cost, the 10 per cent has not always been added
in addition to the cost that was given us."
I do not care to further discuss this question except to
say that counsel claims we are not entitled to have inter-
est during construction considered on the question of cost,
because he claims it was paid out of the water rates.
Does that make the property any less valuable, or its
cost any less? Interest during construction was an item
21
of expense ; that he does not deny. His criticism is that
it was paid out of water rates. We might safely ad-
mit, for this branch of the argument, that it was so
paid. If complainant did pay for it out of water rates,
the result represented value, and it belonged to the
corporation. He has presented us with a table — I do
not know how long he said it was, I am almost afraid
to say the number of feet in length, but it was very
long, — by which he makes an effort to show how much
of this interest during construction was actually pro-
vided for out of water rates. To whom did the water
rates belong after they were collected? Did they not
belong to the corporation? He says in that connection
that it makes no difference whether the fact is that
the company used money that came from water rates
to take care of interest during construction, and it
makes no difference whether such use reduced dividends ;
that in any event, it does not represent cost or value.
That is the logic to which he comes all the time. So the
effect is, if the company has money enough in its treas-
ury to pay interest during construction, and the money
is used for that purpose, such interest does not form
part of the cost if the money used to pay it happens to
have come from water rates.
My notion is that it does not make any difference from
what source the money comes. It does not make any
difference who paid it. It does not make any difference
whether the water rates were too high when it was paid.
It is, nevertheless, value which has gone into the struc-
tures. It is an entirely false quantity to say that it was
22
allowed for out of operating expense. They got an an-
swer from Mr. Reynolds that the corporation did get
enough money out of the water rates — I think beginning
in 1880 — to pay the interest which it did pay and to
pay such operating expenses as were paid and to pay
such dividends as were paid. Does that make interest
during construction actually paid any the less a part
of the cost of constructing the property? Money so
paid is just as much cost as if we had drawn it from
our own pockets. That is what we did, in effect, because
we reduced our dividends to that extent. He seems to
answer that satisfactorily to himself by saying that it
is of no concern to us whether we did or did not use
for the purpose money which otherwise might have been
distributed in dividends. He does not seem to realize
that this argument confounds cost of structures or value
of structures with the source from which came the
money to pay for them. If the structures were built
to-day, they would cost so much in money, and their
value would not at all be influenced by the source from
which the money to pay for them was derived.
INTEREST ON PROPERTIES NOT IN USE.
When counsel was discussing the subject of interest,
he stated that if interest were to be allowed during
construction, there must be an allowance for interest
on the properties not in use. Now, I cannot follow him
there.
23
Mr. Haven. An allowance on the other side, I meant.
Mr. McCutchen. Do you mean that as I have said it?
Mr. Haven. No, I do not mean it as you say it. I
say if you take into consideration interest, you must also
take into consideration interest that has been paid
for all these years on properties not in use, for which
the rate payers have had no benefits.
Mr. McCutchen. In other words, let us take as a
concrete example the Crystal Springs concrete dam. "We
will say that cost $2,000,000. A part of that sum
includes interest during construction. Because interest
during construction was part of the expense, it is in-
cluded in the total cost of the Crystal Springs dam.
The San Francisco Water Works, they say, went out of
use many, many years ago. Now, if you are going to
allow interest during construction upon the Crystal
Springs dam, in order to get at the actual cost of that
dam — and that is the only reason it will be allowed —
you must calculate interest on $1,386,000 on the other
side for property that has gone out of use. That is
what counsel says he means. What are you going to
deduct it from? Are you going to take it from the
Crystal Springs dam? Does the fact that that prop-
erty went out of use make Crystal Springs dam any
the less valuable? Does it make its cost any the less?
And yet that is the argument which counsel seriously
makes. And it only shows, to my mind, the failure of
counsel to distinguish between actual investment, as
shown by the books, and the actual cost, whether shown
24
by the books or shown by these engineers. As a matter
of course, to determine actual investment — and by that
1 do not mean primal cost — we should calculate interest
on properties still owned but that have gone out of use.
And that is what Mr. Reynolds did in the computation
by which he reached the net investment of $49,000,000.
Counsel does not deny it. His only criticism is that
Mr. Reynolds computed interest on properties out of use
at 6 per cent, and that he computed interest upon the
moneys contributed at a higher rate. In this, counsel
is correct; Mr. Reynolds should have computed his in-
terest on properties not in use (and which were still
in the company's possession) at current rates, whereas
he actually did use six per cent for all years. This
would necessitate a slight deduction from the $49,000,000,
which he gives as actual investment. But this error
is in no way connected with, and can have no bearing
upon, the question of present cost of duplication. Here
the only result desired is actual cost of each structure
if presently erected, and previous investment and inter-
est thereon is, beyond question, immaterial. When
value is to be ascertained upon the basis of the cost of
reproducing the properties, interest, in the sense in
which it would necessarily be considered when actual in-
vestment is to be determined, is of no concern or im-
portance.
ALLOWANCE OF $1,400,000 FOR INCIDENTALS AND OMISSIONS.
I am also reminded of counsel's reply to our inclusion
of the $1,400,000 in Mr. Grunsky's valuations. I do not
25
exactly appreciate the argument. He said that Mr.
Grunsky wanted to be careful and that the board of
supervisors had the right to reject Mr. Grunsky 's esti-
mate. If it rejected his estimate, no basis remained for
the valuation it adopted. Mr. Grunsky was called to the
stand by defendants. He said that the $1,400,000 was
intended to be included by him as an asset, as a tangible
asset of the company. He did not use the word "tangi-
ble", but it is impossible to read his testimony and reach
any other conclusion than that his intention was that
that should be treated as a tangible asset, and that there
was tangible value to represent it.
On page 196 in answer to question 34, he said :
1 ' The total appraisement made in 1904, — including
allowance of $1,500,000, which, as I have already
explained, should be considered rather as an allow-
ance for omissions, contingencies and the like, would
be $26,173,212."
I quoted in full in my opening argument, many other
extracts from Grunsky *s testimony in this connection.
It is hardly necessary to comment further upon this
element of value which he found and for which the
supervisors refused to make an allowance.
UPPER CRYSTAL SPRINGS AND PILARCITOS DAMS.
Something has been said with reference to the Upper
Crystal Springs dam. Counsel admits it may perform
some service, but he seems to argue that, because there
is an opening between the top of the roadway and the
26
top of the old dam, therefore it does not operate to form
a settling basin. I do not understand how counsel
reaches that conclusion, and I cannot follow him to that
result. When the roily water comes in from the lower
end of the water-shed, it goes without saying that if
there is a dam there 80 feet high, which is solid — and
on top of that there is some additional material intended
to raise it in order that it might be used as a roadway
— nevertheless that 80 feet or 90 feet, or whatever the
original height was, serves to convert the lake into a
settling reservoir, and there would be no settling reser-
voir if that dam were not there. It is not necessary that
the dam should reach the entire height of the present
road in order to serve as a settling reservoir. It is said
by all our expert witnesses that it does perform a very
important office. Mr. Grunsky is candid enough to say
that it does perform that office to some extent, although
he said that he did not think it was properly allowable.
But, if it does perform that office, and if it does what
Adams says — and nobody denies that it does that — then
in the event of an accident to the Crystal Springs lower
dam, it would store a large supply for the use and bene-
fit of the consumers. So it does perform a very useful
service. This no one denies, and therefore its cost
should be included as part of our value.
There was also something said about the Crystal
Springs concrete dam. It carried with it a veiled criti-
cism on Mr. Schussler's method of construction. Your
Honor knows that dam was within about three-eighths
of a mile of the earthquake fault. You know that down
below it are the towns of San Mateo and Burlingame,
27
having a population of six or eight thousand. No one
can tell what might have been the result if Mr. Schuss-
ler had not built it as strongly as he did. The sugges-
tion that it might have been built on a smaller section,
and enlarged later, carries with it the necessity, at
the time of enlargement, of emptying the reservoir and
losing the twenty thousand million gallons of stored
water which the reservoir impounds. However, there
is no testimony to indicate how much the greater sec-
tion increased the cost, and we do not understand that
defendants really claim that this has any bearing on
the value of the dam.
ALAMEDA LANDS AND WATER RIGHTS.
Mr. Grunsky's valuation of Alameda properties ex-
cludes from consideration approximately $700,000 act-
ually invested, and upon which, on his figures, com-
plainant would not recover any return. That is to
say, the difference between our actual investment in
Alameda properties and the allowance for that sys-
tem in Grunsky's figures is approximately seven hun-
dred thousand dollars. According to defendants' table
No. IV our investment in lands and water rights, com-
prising the Alameda properties, is $2,413,482.78. Grun-
sky's valuation of Alameda lands and water rights
is $1,720,251. Your Honor has visited the company's
properties in that locality. We own nearly all, if
not quite all, the riparian rights from above the lo-
cation of the Calaveras reservoir down to the point
28
where Alameda creek empties into the bay of San
Francisco. Our entire ownership there has contrib-
uted to our ability to deliver from that source of sup-
ply the pure water which Dr. D'Ancona, in the board
of supervisors, when the investigation took place in
1903 said that San Francisco and its citizens were to be
congratulated upon having, and which he further said
was of a purity equal to that furnished to any city in
the United States. The fact that we did not own all
the watershed did not prevent us from delivering pure
water. The ownership of the riparian rights was the
essential thing. We think it may safely be said there is
no water company supplying a large city in the United
States that owns as large a percentage of the water-
shed from which its supply comes as does this company.
It was by reason of our control of the stream that we
were enabled to deliver to San Francisco water of an
unexampled purity. Not one dollar of our investment
can be said to have failed to contribute to the result
which Dr. D'Ancona found. And yet, when the super-
visors fixed our rates for 1903, and the other years in-
volved, they arbitrarily excluded seven hundred thou-
sand dollars of our actual investment. Every acre of
property, and every water right representing this invest-
ment, were actually in use in accomplishing the delivery
of pure water to San Francisco, and no portion of them
could be disposed of or excluded, without affecting the
supply of water and its purity. The acquisition of this
property extended over a period of thirty years. The
result of the valuation allowed by the board for the
Alameda property not only does not afford us any con-
29
sideration for the use of our money for that period, but
actually deprives us of a large part of the principal.
They refuse us a return upon what we paid for that
property during a period of 30 years and say that the
property is not in use. For example, it is said: "You
are not using Calaveras reservoir." It must be clear
to your Honor that if the Calaveras reservoir site should
pass into the hands of, and be utilized by, other interests,
a \ery valuable safeguard to the present water supply
to San Francisco would be taken away. And yet, for
its ownership, and our large investment in it, and the
water rights appurtenant to it, we do not get any ade-
quate consideration.
I now refer your Honor to Table No. IV, opposite
page 199 of "Defendants' Brief".
We had some discussion the other day with reference
to Mr. Grunsky's method of ascertaining the value of the
Alameda lands and water rights. I said I could not find
in the record anything to indicate how he segregated
that item, or, rather, I could not find any itemization of
his total for lands and water rights. I was endeavoring
to get the items comprising that total, for the purpose
of justifying my figure of $383,236, which I added to
Mr. Grunsky's allowance for water rights. Counsel on
the other side said that I was altogether wrong, that
there was not any such basis, and that it was not his
fault that Mr. Grunsky had left us in the dark, and
with no clear disclosure as to the basis of his estimate.
Calling attention now to Table No. IV in defendants'
brief, in the second column you will find the words
30
" Alameda Creek System, Lands, Water Rights, Rights
" of Way, Rights of Way (San Mateo County)"; if you
will follow along now to Mr. Grunsky's name, you will
find these figures, "$720,000, water-rights, Peninsula Sys-
tem"; just underneath that you will find "$1,720,251".
Now, if you will follow along to the column underneath
Mr. Brooks' name, you will find opposite "Lands",
"$2,103,730"; and you will find under "Water Rights",
"$293,437.79". Looking at the last column, which is
Mr. Dockweiler's, you will find "$2,116,718.91" as the
cost of lands, and "$296,763.87" as the cost of water
rights.
Counsel said there was no warrant for taking those
figures. Mr. Grunsky allowed $1,720,000 as against an
admitted total investment of over $2,411,000. I take my
figures for this purpose from Mr. Dockweiler's testi-
mony. There are two sets of figures there, one given
by Mr. Brooks and one given by Mr. Dockweiler. There
is not a word in the brief or argument of defendants
that questions the reliability of either set of figures. I
take $1,720,251, Mr. Grunsky's total for lands and
water rights, and as Mr. Dockweiler's figure for water
rights is the larger, I will use his figure, $296,763. If
the latter figure is subtracted from the former, it is
apparent that Grunsky allowed us for lands $1,423,488.
Now, we can prove beyond question that he must have
allowed us at least that much for lands because he said
he took the latest purchases for lands as his basis for
land values, and Dockweiler's figures show that if you
divide that sum by the latest price paid per acre, you
31
will get fewer acres than we have there. However,
counsel on the other side says this is all speculation.
Your Honor will notice that I have not heretofore used
Mr. Dockweiler's figures. I will be perfectly candid.
I have not used his figures because I do not think he
has made any showing which indicates that his figures
are reliable, and I prefer to be consistent. If we were
to substitute Mr. Dockweiler's value of Alameda proper-
ties for Mr. Grunsky's figure, instead of getting $383,000
as the excess over Grunsky's figures which appears in
my diagram, we would get $1,200,000. So that when
they say we are indulging in speculation in attempting
to segregate land from water rights in Mr. Grunsky's
valuation, they are going from one dilemma to a still
more perplexing one.
Mr. Dockweiler says at page 647 of the testimony that
the value of lands and water rights in Alameda system,
in use and useful, is $2,953,800.
Now, let me show your Honor the difference, and
there is no chance to quibble about it. Deducting Grun-
sky's total of $1,720,251 from Dockweiler's total for the
same properties, we get $1,233,549.
The Court. Where is that testimony taken from?
Mr. McCutchen. From Mr. Dockweiler, page 647.
The Court. And that is the same figure for it which
he in his table gives— $2,116,718?
Mr. McCutchen. No, your Honor.
The Court. They do not mean the same thing?
32
Mr. McCutchen. They do not mean the same thing.
That item of $2,116,718 means the cost of lands, accord-
ing to Dockweiler. These later figures are the values
of Dockweiler and Grunsky respectively. This is the
value which Grunsky put upon our lands and water
rights in the Alameda system. If, instead of putting
upon my chart, $383,206, as the excess of water rights
upon Grunsky 's own theory, I had taken the difference
between Dockweiler 's total value for lands and water
rights, and Grunsky 's total for the same items, I would
have had $1,231,794. But I still say that my plan is a
consistent plan and I am willing to stand by it. If coun-
sel does not want to stand by it, he must take the only
alternative which his own case presents.
In answer to this contention, counsel calls attention to
the testimony of Mr. Schussler, that a large part of the
consideration on one of the land purchases should
really be charged to water rights because by that pur-
chase they had obtained control of water rights of im-
mense value. Counsel can take any horn of the dilemma
he pleases; he can take Mr. Schussler 's valuation of
water rights in Alameda County at $1,200,000; he can
take Mr. Dockweiler 's valuation of lands and water
rights together, if he pleases; or he can take, — and we
will be content, — the total valuation placed by Mr. Grun-
sky upon lands and water rights, and from that deduct
$296,000 which Dockweiler said represented the cost of
all water rights in Alameda County. It was suggested
there were other water rights; that there were water
rights in the one million dollar purchase. Assuming
31
will get fewer acres than we have there. However,
counsel on the other side says this is all speculation.
Your Honor will notice that I have not heretofore used
Mr. Dockweiler's figures. I will be perfectly candid.
I have not used his figures because I do not think he
has made any showing which indicates that his figures
are reliable, and I prefer to be consistent. If we were
to substitute Mr. Dockweiler's value of Alameda proper-
ties for Mr. Grunsky's figure, instead of getting $383,000
as the excess over Grunsky's figures which appears in
my diagram, we would get $1,200,000. So that when
they say we are indulging in speculation in attempting
to segregate land from water rights in Mr. Grunsky's
valuation, they are going from one dilemma to a still
more perplexing one.
Mr. Dockweiler says at page 647 of the testimony that
the value of lands and water rights in Alameda system,
in use and useful, is $2,953,800.
Now, let me show your Honor the difference, and
there is no chance to quibble about it. Deducting Grun-
sky's total of $1,720,251 from Dockweiler's total for the
same properties, we get $1,233,749.
The Cotjet. Where is that testimony taken from?
Mr. McCutchen. From Mr. Dockweiler, page 647.
The Court. And that is the same figure for it which
he in his table gives— $2,116,718?
Mr. McCutchen. No, your Honor.
The Court. They do not mean the same thing?
32
Mr. McCutchen. They do not mean the same thing.
That item of $2,116,718 means the cost of lands, accord-
ing to Dockweiler. These later figures are the values
of Dockweiler and Grunsky respectively. This is the
value which Grunsky put upon our lands and water
rights in the Alameda system. If, instead of putting
upon my chart, $383,206, as the excess of water rights
upon Grunsky 's own theory, I had taken the difference
between Dockweiler 's total value for lands and water
rights, and Grunsky 's total for the same items, I would
have had $1,231,794. But I still say that my plan is a
consistent plan and I am willing to stand by it. If coun-
sel does not want to stand by it, he must take the only
alternative which his own case presents.
In answer to this contention, counsel calls attention to
the testimony of Mr. Schussler, that a large part of the
consideration on one of the land purchases should
really be charged to water rights because by that pur-
chase they had obtained control of water rights of im-
mense value. Counsel can take any horn of the dilemma
he pleases; he can take Mr. Schussler 's valuation of
water rights in Alameda County at $1,200,000; he can
take Mr. Dockweiler 's valuation of lands and water
rights together, if he pleases; or he can take, — and we
will be content, — the total valuation placed by Mr. Grun-
sky upon lands and water rights, and from that deduct
$296,000 which Dockweiler said represented the cost of
all water rights in Alameda County. It was suggested
there were other water rights; that there were water
rights in the one million dollar purchase. Assuming
33
there were water rights in the million dollar purchase,
they must have been included in Grunsky's figure of
$1,722,000, according to counsel. If they were included
at some figure other than Dockweiler's they were in-
cluded at Mr. Schussler 's figure, because there is not an-
other figure in the testimony that will throw any light
upon the subject. Instead of having water rights of
$296,000 therefore, we have water rights of $1,200,000,
so that at any angle from which you view the situation,
you are bound to conclude that Mr. Grunsky has not
given us the value for water rights in Alameda to which
we are entitled.
If the water rights were worth $1,200,000, as Mr.
Schussler says, they were wholly in use during the whole
of the years 1903, 1904 and 1905. It is true we had not
constructed the Calaveras reservoir; it is true that we
had not constructed the San Antonio reservoir, but the
ownership of those properties by us prevented the waters
being used by anybody else. The ownership of the lands
and rights was not only a protection, but enabled us to
render excellent service. No one can say what effect
the failure of the company to acquire those properties
years ago might have been. Calaveras and the prop-
erty between it and Niles Canyon are called the key to
the situation by Mr. Schussler. It was because of their
ownership, because of the ownership of lands along that
creek from Calaveras all the way to the bay, it was
because we could not be interfered with by riparian pro-
prietors, that we have been enabled all these years to
deliver this water to San Francisco, and of which San
34
Francisco lias had, and now has, the benefit. And yet
the hint is thrown out that some of the water rights
are not in use. What rights, if any, are not in use,
there is no attempt to state. I don't know how Mr.
Grunsky reaches his figure, but as I have shown to you,
and I have shown it from the figures on that chart pre-
pared and used by the defendants, he lops off from us
in some way $700,000 of actual money paid out, and
some of it paid out years ago.
In his first valuation of the property, Grunsky allowed
us $300.00 an acre for the Calaveras land. In his 1903
valuation, he allowed us $60.00 an acre, because he said
we were not using those lands for reservoir purposes.
We were using them, however, for the purpose of pro-
tecting the water which San Francisco needed, and our
ownership of them was, at all times, aidful in enabling
us to render efficient service.
VALUATION OF $1,000 PER MINER'S INCH.
I want to come back to the valuation of $1,000 an inch
for water. Mr. Adams stated, and there is no denial of
it, in fact it is emphasized by the statement of Dock-
weiler, that waters about the bay of San Francisco are
exceedingly valuable. He made the statement which
was not questioned by any other witness that water
here was worth more than in Southern California. He
stated that there was no place in California where water
was worth as much as about this bay. Mr. Dockweiler,
when he testified and told us that water was king, said
35
that there was great need for water in this locality, and
such great need for it that the people could better afford
to go to the Sierra. What would it cost to get it from
the Sierra? Is it not the showing here that it would
cost, in excess of impounding and other works, at least
$460,000 per million gallons? It is. Counsel would say
in reply that that system is not built yet, and that we
have no right to use that figure, but we have the right
to take into consideration, from our general knowledge
of the subject, what it would cost to bring water from
the Sierra; and Dockweiler says that, rather than use
this water for the purpose for which it is being used
now, the city should go to the Sierra. That is as com-
plete a showing as we could have that this water is
worth infinitely more than $1,000 an inch. Dockweiler
says that San Francisco should go to the Sierra, and he
declares that that is the opinion of every engineer who
has ever considered the subject. You know that the
value of water, brought from the Sierra and deliv-
ered here to consumers, will far exceed $50,000 a cubic
foot. That is common knowledge, and you do not re-
quire any evidence to establish it to your satisfaction.
Nor does it require evidence that the Tuolumne project
is to become a reality to establish for the Spring Valley
water a value greatly in excess of this figure. The show-
ing of Grunsky and Dockweiler conclusively establishes
that fifty thousand dollars per cubic foot per second
would be a ridiculously low valuation. There being the
great need for water which each of them states, — and
Dockweiler conclusively shows that after a Sierra supply
is conveyed here there will still be that great need for
all we can furnish, — it is most absurd to say that our
supply per million gallons is worth only forty thousand
dollars, which is less than one-tenth, or fifty thousand
dollars per cubic foot per second, which is less than
one-fifth, the value Sierra water delivered in San Fran-
cisco would have.
We have the statement of Mr. Schuyler that, for irri-
gation in Southern California, water sells for $1,000 an
inch. That represents its common value. That is not
denied. Mr. Grunsky says domestic use is the highest
use for water. Now, if to take the place of the water
which is here it is necessary and it is the duty of San
Francisco to go to the Sierra and bring water at what it
will cost to bring it from that locality, will anybody have
the hardihood to say that the water which we have is
not worth $1,000 an inch? We are, therefore, not led
to this result by one avenue alone, — we are led to it by
two broad avenues which defendants have prepared
for us. It seems that it would be almost trifling with a
serious subject to hold that water for this great city
of San Francisco, which you know, by reason of your
general knowledge of the situation, is the highest use to
which it can be applied, is not worth in excess of $1,000
an inch.
Considering the testimony of Mr. Grunsky that in his
opinion the city should go to the Sierra for water; and
second, the testimony of Mr. Dockweiler, that water is
king, and because of the great need for the water now
available, a supply should be brought from the Sierra,
37
it would seem to conclusively follow that this water
which we supply, and which is so highly recommended
by Dr. D ' Ancona, is altogether undervalued, when placed
at only $1,000 an inch. I ask your Honor to consider
the testimony of Schussler and of Hering, with refer-
ence to the value of water, and in connection with it to
consider the testimony of Grunsky with reference to the
necessity of going to the Sierra, and the testimony of
Dockweiler regarding the great need for water about
this bay. As has been said, Schussler and Hering place
the value at $150,000 per million gallons, which is less
than one-third of what I have shown will be the cost of
water from the Sierra. Thirty-five million gallons at
$150,000 per million gives for water, or water rights
alone, $5,250,000. I submit that in the light of the en-
tire showing, that result is more consistent with fairness
and is more logical than the result reached by Grunsky.
DUTY OF COMPLAINANT TO ANTICIPATE DEMANDS.
And let me remark here, that Mr. Grunsky, when up-
on the witness-stand, said that he considered it the duty
of a public service corporation to anticipate the needs
of the municipality which it was serving by at least
25 years. I have already commented upon Grunsky 's
exclusion of about $700,000 of our Alameda investment.
If we did not get property in advance of the actual need
for it, we would not be able to have it when it was need-
ed. Property which we buy in anticipation of an im-
mediate future demand is to all intents and purposes
18
just as much in use from the date of its purchase as the
property theretofore acquired and used. The words
"in use" are not fairly susceptible to the strict con-
struction which defendants would give them.
I wish to refer to page 381 of Mr. Haven's argument.
After quoting an extract from your Honor's opinion in
the 1908 case, he said:
"The principle established by the decisions cited
by your Honor is very simple, namely, that the value
to be fixed is the value of that which is presently
used and useful. If a plant is larger than is neces-
sary, or is more expensive than is necessary, the
value allowed is not the value of the entire plant,
but rather the value of that portion of it which is
in use, or, in the language of the Supreme Court,
the value of that which it employs for the public
convenience. ' '
In connection with that, I wish to read from Grunsky's
testimony on the same subject.
"XQ. 322. How long in advance of a demand for
water, should, in your opinion, a company charged
with the duty of supplying a municipality with
water provide for?
"A. It should look far into the future.
"XQ. 323. What do you consider far? Give it
to me in years, and I will understand it better.
"A. It should take into consideration about a
doubling of the population.
"XQ. 324. How many years would you estimate
that to be?
"A. That time period would become shorter with
an increase in rate of growth of a municipality. No
definite rule can be given for that.
"XQ. 325. If the population should double in
five years, would you consider that a company was
39
doing its duty if it provided for only five years in
advance?
"A. No, I think that a company should look
farther than five years into the future; that is to
say, if a company occupies such a position that it is
practically the sole purveyor of water, and if the
municipality is dependent upon that condition alone.
"XQ. 326. Yes, assuming that.
"A. And also assuming that the company, act-
ing as the agent of the people, acts just as the
municipality itself should act under such circum-
stances.
"XQ. 328. Do you think that in a country with a
climate such as this is, and where the meteorological
conditions and water supply is limited, as in this
state, a company would be justified in providing
for only 20 years? Take the particular case of San
Francisco, would a company which had practically
the sole supplying of this city, be justified in pre-
paring for only 20 years?
"A. I did not in my answer mean to imply that
the 20 years should be the absolute limit. A com-
pany that is to supply water for an indefinite period
looks further into the future than that. But in
planning such work, as pipe lines and the like, it is
not always necessary to look as far into the future
in the matter of pipe line capacities, as it would be
in the general scheme of expansion.
"XQ. 329. Well, let us take the general scheme
then, and say as to water sources, how far ahead
ought the company to look?
"A. That will depend upon local conditions en-
tirely, and upon the cost of acquisition upon the
properties. If it becomes apparent that some prop-
erty that will produce water, should come into use
in the future, the steps towards its acquisition
should be taken so long in advance of that acquisi-
tion that the property can be acquired without too
great an expense. If the necessity is such that the
40
property must be had, it is always to be expected
that more will have to be paid therefor.
"XQ. 330. Can we get at the years?
"A. I cannot give it in years.
"XQ. 331. Can you give it approximately? Ap-
proximately, what would you consider a reasonable
period to provide for?
"A. The water that should actually be at the
command of the company should certainly be suffi-
cient for the community five years in the future.
It is desirable that it should be a much longer
period.
"XQ. 332. Would 50 years be unreasonable to
secure water rights and lands!
"A. 50 years might be a reasonable period for
the municipality itself. In the case of a private
company, it is a difficult question to determine.
"XQ. 333. Would 25 years be unreasonable for
a private company, in your opinion!
"A. If I were advising a private company I
should certainly look that far into the future, and
endeavor to so arrange matters that there would be
no shortage of water.
"XQ. 334. That would require an investment of
capital, would it not!
"A. Yes, it would require an investment of
capital.
"XQ. 335. Do you think that that capital should
not be compensated in any way by the municipality
which will derive the benefit of it when it is devoted
to a public service?
' ' A. It should be properly entered into the valua-
tion when the property comes into use.
"XQ. 336. But, in the interim, should it not be
entered at all?
"A. I do not think that it can be entered under
the law."
In other words, as the board of supervisors had been
treating the situation, Mr. Grunsky did not think it could
41
be entered. According to his view a water company
would not perform its duty to the public if it did not
make investments so as to anticipate present needs by
at least twenty-five years. According to counsel on the
other side, the city can at any time begin the construc-
tion of its own works, and in that event the property ac-
quired for the future will never, while held for the city
for whose benefit it was acquired, yield the company any
return. I think it only requires that that proposition be
stated in order that its answer may be afforded. If I
had the time I would read to your Honor the cross-
examination of Mr. Grunsky with reference to the
Fortola properties. He says they are useful to San
Francisco, and that they can be utilized within five
years at a comparatively small expenditure. Yet they
are excluded from any consideration in the rates given
to us by the board of supervisors. Other properties ac-
quired and now owned by the company are almost cer-
tain to be needed for this city before a supply from an-
other source can be brought here. When any of these
properties come into use, by the rule of counsel on the
other side, what are we to get, what valuation are we
to be allowed? He says it will be its value for water
producing purposes. I have endeavored from the begin-
ning of the argument to have counsel suggest a rule by
which its value for water producing purposes is to be
found. I have not been able to learn from him what is
the measure to be applied in finding the value of an
isolated piece of property, although he is very sure it is
not the rule applicable in eminent domain.
42
VALUATION OF LAKE MERCED LANDS.
Among other things, counsel has said that if our prop-
erties have increased in value since they were acquired,
we are entitled to the increase. In another portion of
his argument, he has said that these properties were
devoted to a public use, and that no value greater than
their value for that use can be considered. I asked him
upon the oral argument to state to your Honor, when he
came to reply, what was the rule or measure by which
that increase in value was to be ascertained. That
seemed a pertinent question. I stated, and I repeat,
there is only one rule for determining the value of a
property, and that is the rule that obtains in eminent
domain.
Counsel seeks to get away from the application of that
rule, but fails to give any other rule which can be fol-
lowed.
One of the positions announced by counsel was that
this was not a private corporation and that its
property could not be appraised as if it were a
private corporation, doing a private business. That was
stated not alone in his argument but in his brief as well,
and to support it, he cited the case of Kennebec Water
District v. City of Waterville. The claim is made that
that case sustains his contention.
It may be well to know to what Judge Savage was ad-
dressing himself in that case. I will read from the
Kennebec case, which is reported in 54 Atlantic Re-
porter, page 12:
"We think it is clear that the pecuniary value of
the property of the Maine Water Company, both
43
plant and franchises, depends, to a considerable
extent, upon the financial returns it can be made to
yield to the stockholders; that is, upon its net in-
come. The franchise or right to do business, if un-
productive, is of little value, and it stands to reason
that the plant, as a structure, irrespective of fran-
chise, if the business were profitable, would be
worth more and would sell for more, than if the
business were unprofitable."
My recollection is that in that case the company had
an exclusive franchise.
"The basis of income, of course, is the tolls
charged and received."
In that case, the company fixed its own tolls.
"If the Maine Water Company were doing a pri-
vate business, knowing its present net income, and
the facts tending to show a probable increase in the
future, or otherwise, it would be comparatively
easy to approximate the present value of its plant
and franchises. But it is not doing a private busi-
ness."
That is to say, if it were doing a private business,
value would be ascertained by the capitalization of in-
come. No one can doubt that the court meant that and
only that.
"But it is not doing a private business. It is not
a private corporation. The value of its property
cannot be appraised as if it were a private corpora-
tion, doing a private business. ' '
I understand that to mean, and it cannot mean any-
thing else, that in such a case it is not permissible to
ascertain value by capitalizing income.
44
"It is a quasi public or public service corporation.
In pursuit of legitimate gain, it has devoted its
property to a public use. In that way, the pub-
lic have acquired an interest in the use of the prop-
erty. The company owes a duty to the public as
well as to its stockholders. It must serve the public
faithfully and impartially and charge no more than
reasonable rates for service. The legislature may
limit the tolls of such a corporation so that they
shall be reasonable. Unreasonable charges may be
reached by the restraining hand of the court. Thus
far the parties agree. And it may be said that the
fair and equitable value of the system of the Maine
Water Company, as a whole, may, in a large sense,
be measured by its net income at reasonable rates,
taking into account future probabilities. But the
plaintiff (request 4) asks us to say that 'what would
be reasonable rates can be determined only after
and by means of a valuation of the company's prop-
erty', and that 'the actual rates which may have
been charged by the companies, and their actual
earnings have no bearing either on the value of the
companies' plant or property, or of their fran-
chises, and are immaterial'. On the other hand the
defendants state their proposition in these words
(request 11) : 'that the value of a franchise depends
on its productiveness or net earning power, present
and prospective, developed or capable of develop-
ment, within the entire territory embraced by the
taking; that whenever net earning power, or net
incomes and revenues, is to be determined under
this act, it is to be so determined under reasonable
water rates, after due allowance for operating ex-
penses and maintenance or depreciation'."
What the court wished to emphasize was that
the value of the property of a public service cor-
poration was not to be found by capitalizing income,
as is sometimes done in determining the value of private
45
property. To claim that to be authority for the prop-
osition broadly stated by counsel, that this is not a
private corporation, and that, therefore, the value of
its property cannot be appraised as if it were a private
corporation, seems to be entirely unwarranted.
The Court. Mr. McCutchen, if you should discover
a valuable coal mine on your Lake Merced property,
would that increase the value of that property for rate-
fixing purposes?
Mr. McCutchen. This thought suggests itself to
my mind — that we might remove the coal without in
anywise interfering with the use of the property as a
witer-producing property. If the doctrine which has
been adopted by the state, restricting our right of dis-
position is susceptible of a construction which would
prevent us from mining the coal, then it would neces-
sarily follow that its value as a coal mine would have to
be included for rate-fixing purposes. It is unthinkable
that a corporation must continue to use property of any
kind for the benefit of the public, and not get a return
upon its value.
The case which your Honor puts, while a very ex-
treme one, is not, of course, warranted by the facts here.
We start here with the proposition admitted by every-
body,, and particularly emphasized by Mr. Grunsky, that
all this property is used and useful, the whole of it.
That means we cannot take any part of it for any other
use- we are bound to continue it in the use. The con-
tention of the city is that because some one has said
that it is only worth $2,000,000 for water purposes —
which by the way no one has said — although it is worth
$14,000,000 for other purposes, as ordinary real estate,
for instance, the state can still insist that we retain it
and use it for water purposes by allowing us a return
on only $2,000,000, and no return whatever on the other
$12,000,000. I am reminded, while discussing this sub-
ject, of a question put to me by counsel on the other side,
referring to the Boom Company — Patterson case. Your
Honor remembers the facts in that case. Counsel asked
me to suppose that Mr. Patterson had devoted his prop-
erty to the public use of agriculture, assuming there
could be such a state of things, and that some one at-
tempted to take it in the exercise of eminent domain.
It goes without saying that plaintiff could not, in the
supposed case, condemn it except for a superior use.
Could Mr. Patterson, asks counsel, claim more than
$300 for the property, its value for agricultural pur-
poses? I answer yes, emphatically. I will answer fur-
ther by asking counsel if, in his opinion, it is possible
under constitutional government, or, to use the language
of Judge Hough, in any American government, that
Patterson's property could be taken from him by a cor-
poration upon payment of $300, but could not in turn
be taken from the plaintiff for less than its value for
its highest use which, in the case supposed, was $5200?
According to counsel, the property could be taken by
another from Patterson, who had devoted it to the per-
petual use of agriculture, and immediately after could
be sold for its value for its most available purpose.
The question would seem to afford its own answer. The
47
fact that Patterson had devoted his property to a par-
ticular use, would have no effect whatever upon its
value when some one, asserting its necessity for a
superior use, attempted to take it from him.
Instead of going so far afield as to employ the illus-
tration with reference to the Patterson case, let us come
home to the very situation we have in hand.
One of the positions announced by counsel was that
the public had the right to take this property in the
exercise of the power conferred upon it by law. The
property, he says, is impressed with a public use, and
he gives to it a value of, we will say, $2,000,000 or $2,-
500,000 for water producing purposes. Let us assume
at the same time that its value for other purposes is
what Mr. Baldwin says it is, namely, $13,000,000 or
$14,000,000. Let us also assume that the city institutes
a proceeding in condemnation; the defendant attempts
to show by appropriate testimony that the property is
worth, for residential purposes, $13,000,000 or $14,-
000,000; the city objects, that it is devoted to the public
use of supplying water, and that the only issue on value
is what is it worth for supplying water, and the court
sustains the objection and a verdict is rendered, we will
say. for $2,000,000 or $2,500,000, and the city takes the
property and the defendant ceases to have any interest
m it. The next day, under the charter of San Francisco,
that property may be leased or sold, not for the pur-
pose of supplying water, but it may be sold for resi-
dential purposes for its very highest value, and
48
The Court. Well, I don't think that there is any
question but that that is the rule in eminent domain;
the only question is how far that rule can be applied in
cases of this sort.
Mr. McCutchen. I have cited to your Honor a num-
ber of rate cases in which that was held to be the rule,
and there does not appear to be one holding the con-
trary. There was no qualification of this rule,
or any suggestion of another in the Consolidated
Gas case. I have cited to you any number of
rate cases, where it is said present value is the ulti-
mate fact to be determined. None of them says " pres-
ent value for the purpose for which it is used" — you
do not find that expression in any one of these opinions.
That was contended for before Judge Hough and he
replied that it was not intended, when the company in
that case dedicated its property to public use, to
thereby suspend the operation of the law of economics.
Youi Honor remembers his very strong expression
which was in effect that it was inconceivable that any
American government could have contended that any
measure for the ascertainment of value should be ap-
plied to property like that there involved, which would
not be applied in any other case where value was the
issue. Your Honor will also remember that he said the
property there being considered was as much private
property as is the private property of any citizen.
When the case reached the supreme court, it said in
effect that the method employed by the lower court to
ascertain value was the proper method.
49
Judge Hough stated the principle not alone in one
portion of the opinion, but he stated it two or three
times, employing somewhat different phraseology. He
quoted case after case from the Supreme Court of the
United States, and said it was impossible to recognize
the use of the present tense in all those cases, without
reaching the conclusion that it is present economic value
which is to be ascertained.
It is not possible to present to your Honor more apt
illustrations or more apt cases upon the subject than
those to which I have referred.
Now, let us apply that for a moment to the Lake
Merced lands. What portion of the Lake Merced land
is U\ use, or, to put it differently, what portion of the
Lake Merced land is out of use? It seems to me there
could not be a more apt or succinct illustration of the
application to this case of the rule for which we con-
tend. In other words, to state it in the form of a
syllogism, all property which is in use must be in-
cluded in the valuation; all the Lake Merced lands are
in use, therefore all the Lake Merced lands must be
valued.
The Court. The record shows that all of the land
is in use, does it not?
Mr. McCutchen. Yes sir, unqualifiedly. It is the
unqualified statement of Mr. Grunsky. Would your
Honor like me to refer you to the page of his testimony?
Counsel will admit that, I assume?
Mr. Haven. I would like to hear the testimony.
50
Mr. McCutchen. Very well, I will refer you to Mr.
Grunsky's testimony.
Mr. Grunsky's report was offered in evidence, in
which, among other things, was contained the following
(reading from page 191 of his testimony) :
"Lake Merced properties — lands including con-
tiguous lands in San Mateo county, the Ocean View
pump tract, etc., 2,638 acres, $2,030,000."
At page 280 he was asked upon cross-examination:
"XQ. 321. Did you say that you valued only the
property in use?
"A. That was the intention of this appraise-
ment— to value the property in use. ' '
Every witness in the case agrees with Grunsky as to
the necessity of the Merced lands as part of the water
system. The testimony was quoted in full in my open-
ing argument.*
Let us see where the other rule will lead us. It will
lead to the result I suggested a while ago. If this prop-
erty, devoted to a public use, has a value for that use
very much less than its value for any other purpose,
then in eminent domain instituted by San Francisco,
Note. Furthermore, counsel admits the usefulness of the
Merced properties. At page 750 of his argument he said:
"we would say that Lake Merced has always been treated
by us as in use and included in all estimates".
For that reason he claimed we were chargeable with rents
received from the Merced properties. Of course by "Lake
Merced" he meant Lake Merced Ranch, because we got no rents
from the lake.
51
according to counsel's contention, the city may take the
property at the value which it has for the use to which
it has been devoted, for, says counsel, by reason of the
dedication, the company may not claim any greater value
than it has for that use. San Francisco could only take
it for a public use. She could not take it for private
purposes. Under a provision of her charter, she could
sell it immediately after acquiring it. The section is as
follows :
''Sec. 14. The City and County shall have power
to acquire, construct or complete any public utility
from funds derived from taxes levied for that pur-
pose, or from funds derived from the sale of bonds
issued for that purpose, as is provided in this
Charter, and may operate, maintain, sell or lease the
:ame, subject to the other provisions and limita-
tions of this Charter."
I submit to your Honor, there is no other section
which limits the right to dispose of it absolutely the
day after it is acquired.
If, because the property has been devoted to public
use, its value for that use only is to be considered for
rate-fixing, and it must continue in the use so long as
it is useful; and it could be shown that it would prob-
ably continue useful for all time, then upon the rea-
soning of counsel, San Francisco might plausibly con-
tend in eminent domain that the company was entitled
to no more than the value for the purpose to which it
was devoted. I asked counsel to indicate any testimony
in the record to the effect that the property, to its full
extent, and for its full value, whatever it may be, is
52
not necessary to the city for its water supply. There
is no suggestion of that nature in the record, nor any
from which, by the most liberal rule, it can be inferred.
Grunsky ascertained the value of the property as real
estate, and that is all. He made no allowance for water
rights. He did not place any value on Lake Merced
water rights. He simply adopted Mr. Schadde's esti-
mate of real estate value. The conclusion necessarily
would be, if counsel is sound, that, according to Grunsky,
who is referred to by counsel as the most judicial of all
the experts here, we would not be entitled to any valua-
tion whatever for Lake Merced properties. I do not for
a moment suggest that your Honor will entertain any
such thought as that, but I say that is the logic of the
argument.
If we start with the showing, of which there is no
denial, that this property is used and useful — I do not
put it now as strongly as Mr. Grunsky puts it — is not
your Honor bound to assume that it is used and useful
to the extent of its value? There is no testimony
here from which you can determine what part is
useful and what part is not useful. There is no
testimony from which you can determine the value
of the property, as water producing property, as dis-
tinct from its value as ordinary real estate. If an
effort were made to draw or define a line separating
the portion which is useful from that which is
not useful, it would hopelessly fail. It seems to me
the difficulty has arisen from a failure to recognize the
fact. — proven here beyond, and indeed without, conflict —
53
that the property as it stands is used and useful, and
that means that all of it is used and that all of it is
useful. It is not possible to say that any fractional
part is not used and useful or that any fractional part
of its value, whatever the value may be, is not properly
chargeable against the use in which the property is
engaged.
Your Honor's question suggests the thought that is
contained in the opinion of the Supreme Court in the
New York Gas case, where it is said that if the value
of the property mounts so high as that to allow
a fair rate on it would put an insupportable
burden upon the consumers, then the question may have
to be considered whether the rate will not have to be
reduced even though it does not return fair interest or
the current rate of interest to the stockholders. That
is the point which your Honor's question in reference
to a coal mine suggests.
It may be that if the property had a coal mine upon
it. its value as a coal mine would cause it to mount so
high as that, while we were still compelled to use it for
the purpose of discharging our obligation to the public,
to allow us the current rate of interest upon that value
might make the burden insupportable to the consumers
of water. I think that answers your Honor's question.
As long as that condition has not been reached, as long
as that point has not been reached, as long as we can be
allowed the current rate of interest without imposing a
burden upon the consumers greater than they can afford
54
to bear, so long are we entitled to a return upon the
full value of the property.
If there were a coal mine upon the property, we would
be entitled to have the value due to that taken into
consideration, and to be allowed a return upon that
value, until the possibility suggested in the Gas
case should be realized. Until that condition is reached
— and there is nothing in this record to show that we
are in any danger of reaching that condition here — we
must have a return upon full value.
And that again suggests to me that all through coun-
sel's argument he confounded rate of return with value.
You can hardly read a page of his argument, but that
you find those two questions confounded.
There are two things to be determined by a rate-fixing
body, and there are two issues to be determined by the
court whenever the question properly arises. The one is,
what is the value of the property which is the basic
element upon which rates are to be fixed? The other is,
what is a fair return upon that value?
Whenever one undertakes to determine that value
except by economic laws, he gets into a state of uncer-
tainty from which he never can extricate himself.
And let me ask, how are we to determine the value of
this property for water purposes'? We cannot determine
it by the income it produces. That was in effect what
Mr. Partridge asked Mr. Baldwin to do, when he was
under cross-examination. We do not know any way
of ascertaining the value of property like this except to
55
determine what it will sell for in the market. Grunsky,
who is an hydraulic engineer, evidently knew no other
way, because he went to a real estate broker to get the
information. Counsel fails to suggest any other way.
Unless our suggestion, which indicates what may con-
servatively be said to afford a reasonable way of getting
at value, be the right method, the Court will find itself
entirely in the dark in attempting to determine what
this property is worth. I have listened for four days
for a suggestion of some rule or measure by which,
under the contention of counsel on the other side, the
value of these properties may be fixed. Now, if I may
borrow an expression from him, we have pointed out to
you i broad road, a well-traveled road, from which, up
to this time, courts have not departed. Counsel leaves
that well-beaten track, but does he indicate one that you
may safely take? I have studied this record and his
argument with a great deal of care, and I cannot find
that he indicated any, and that is the reason I asked
him to tell us what his rule was, in order that your
Honor might have the benefit of his view. He cannot
state it. It is not within the possibilities that any law-
yer can state it. His effort to escape the application of
the eminent domain rule begins without logic and ends
in the same way.
With reference to the Omaha- case, counsel made the
statement that that case decided there was a different
rule applicable in the determination of the value of
property for sale and in a rate-fixing case. All that
Judge Lurton said on that subject was, somebody evi-
56
dently having contended that he was running counter
to the Consolidated Gas case and the Knoxville case,
that those were rate-fixing cases. What was said in the
Knoxville case, and it was only with reference to going
concern, was that the question would not then be decided,
but would be left open. Judge Lurton simply said, in
effect, it is sufficient to say that those cases were rate-
fixing cases. It seems to me, if he considered there
was any other rule, he never would have said that the
Consolidated Gas case was a rate case, because I think
I have shown to your Honor beyond the possibility of
doubt, that in the Consolidated Gas case, the court con-
sidered value for all purposes, and in that case allowed
for a franchise.
While I am upon that subject, let us look at the other
properties. Counsel does not give you any rule to ascer-
tain the appreciation in value of real estate. He has
in effect said there never can be any appreciation. That
is the logic of his argument. He is very quick to take
off four million of dollars for properties which he says
have gone out of use, but the inevitable logic and result
of his argument is that no part of our property can
appreciate in value.
Let me recall what he said when discussing the reason
for the change in the method of bookkeeping which he
said was inaugurated in 1879 or 1880. You doubtless
remember what he said about profits. It was that the
corporation could not earn any profits beyond the mere
dividends which it distributed to its stockholders. That
means, if it means anything, that the value must not be
57
permitted to increase, that no matter what happens, the
value must remain stationary, except to the extent that
the company puts in new money. I regard counsel's
attitude on this question as somewhat significant and,
that I may state him correctly, I will read from page 511
of his argument:
"The regulation of water rates by the board of
supervisors began in 1880, and the company could
not, making a fair disclosure to the board of super-
visors, allow undivided profits to accumulate be-
cause the rates must be sufficient simply to pay
their dividends, and not to accumulate a profit."
Indeed it is quite logical for him to go that length.
It is quite in keeping with other statements made by
him. If the return is to be a fixed return, it must be be-
cause the value is a fixed value, for return must be
upon value. The argument that the company cannot
accumulate a profit is of course irreconcilable with the
possibility of an appreciation in value.
Counsel finds ground for criticism of us because we
contend that the value, upon which income is to be com-
puted, must be determined exactly as we would go about
to determine the value of other property, and that all
elements of the property, including what he styles the
monopoly which we have secured, must be considered
against the public, just as much as it might if only
private interests were involved. And why not? What
does he suggest to indicate unsoundness in the conten-
tion? We invested our money in this property. Is it
to be said that when we made the investment, we took
the chance of loss on account of properties ceasing to be
58
useful — and counsel says $4,000,000 of our original in-
vestment has gone out of use — but had no chance for
profit? The question answers itself. But if we are to
have the benefit of enhancement, how, by defendants'
argument, is that to be defined?
The Court. Do you regard that as absolutely the
law, without any question and without any exception,
that you cannot dispose of any part of that Lake Merced
property?
Mr. McCutchen. That we cannot dispose of it?
The Court. That you cannot dispose of it.
Mr. McCutchen. We cannot dispose of it so long as
it is used and useful for the purpose for which we
acquired it.
The Court. And you cannot substitute other prop-
erty for it?
Mr. McCutchen. No sir, we cannot. We cannot find
any other property to substitute for it.
The Court. I was asking you that as an abstract
question, whether they could not substitute other prop-
erty for this property, provided they had some that
would answer the purpose.
Mr. McCutchen. I know of no law that would per-
mit it. Whenever the property ceases to be useful, then,
as a matter of course, it would no longer be affected by
the public use. The public would no longer have any
interest in its use. But as long as it is used, as long
as it is useful, I understand the law of this state to be
that we cannot relieve it from the use. Even though
59
there were property which might be a substitute for it,
we could not make the substitution in my opinion, but
in any event, unless there is some property that could
be substituted for it, we certainly could not relieve it.
It is because there is no property that can be substi-
tuted for it that these engineers state that it is indis-
pensable to San Francisco. If we were permitted to sell
it, we could realize $13,000,000. Nevertheless, the at-
titude of the city is that it is impressed with a use in
its favor, and for that use it will allow us a return on
about one-sixth of the actual value, and no more. De-
fendants come into a court of equity and ask a decree
which shall say in effect that we shall have a return
upon only one-sixth of the actual value. The claim is
outrageous and unconscionable.
With reference to the Lake Merced lands, I want to
call your Honor's attention to the further fact that they
were purchased in 1872 ; that they were being used by the
grantor of complainant at the time of the adoption of
the constitution of 1879, which constitution contained
the provision — and I think I am correct when I say that
this constitution was in that respect a pioneer — that the
Legislature might not pass any act relieving the prop-
erty of a public service corporation from the duty which
it was intended it should perform. The Spring Valley
Water Works acquired this large tract of land and,
while it owned it, the constitution containing this pro-
vision was submitted and ratified. It can hardly be
said, therefore, that we devoted our property to public
use with our eyes open.
60
There is no suggestion that we are using this prop-
erty or ever have used it in any way that interferes
with the discharge of our duty to the public. The use
to which it is put now, promotes it, rather than in-
jures it.
The Court. Was that question ever passed upon in
this state?
Mr. McCutchen. That is, whether it can be used for
other purposes?
The Court. Yes.
Mr. McCutchen. I do not think it has.
The Court. Or whether it can be disposed of?
Mr. McCutchen. Oh yes, I think that has been de-
cided beyond any question.
I called your Honor's attention the other day to the
Pasadena case. That case involved a sale by the Pasa-
dena Land and Water Company to the city of Pasadena.
The Pasadena Land and Water Company had been sup-
plying not only the city of Pasadena, but South Pas-
adena as well, and South Pasadena, fearing that the
sale of the property might interfere with its right to
get water after title had passed to the city of Pasadena,
instituted an action to prevent the conveyance of the
property from the Pasadena Land and Water Company
to the city of Pasadena. I do not recall what the judg-
ment of the lower court was, but the case reached the
supreme court, and that court held that the conveyance
might be made, but it was subject, and the property
conveyed would always be subject, to the obligation im-
61
posed upon the city of Pasadena as the grantee of the
company, to supply South Pasadena with water, just
as the Pasadena Land and Water Company had done
in the past. Does that answer your Honor's question?
The Court. Yes, and no, too. What I would like to
know is, whether there has ever been any decision as to
your right to substitute other property which would
perform the duty quite as well as the property which
you have?
Mr. McCutchen. I can tell you that there has not
been. That could not be done, I take it, except by one
condition coming about. The showing here is that this
property is used and useful. If San Francisco were to
take the position that this property was not useful,
even though it were used, that would bind her and
she would probably be estopped from thereafter claim-
ing it was useful and thus we would be able to dispose
of it. I feel that I may say with positiveness that there
is no decision by any court of this state holding that
one property may be substituted for another. Assum-
ing, however, for the argument, that that might be done,
it would in no way weaken our claim that, as long as
the property is used end useful, full value for it must be
allowed. Unless we are allowed full value, the use of
the property is taken without compensation. If we can
be denied part of the value, we can be denied all of it.
A claim more violative of common right was never sug-
gested than that a city might compel a corporation to
use property for the city's benefit, and deny it a return
upon a value at least equal to the price for which the
property could be readily sold.
62
Your Honor suggests that the Pasadena case does not
entirely meet the thought which you have in your mind.
It decides that the property there in question, being-
impressed with a public use in favor of South Pasadena,
although it had been sold by the Pasadena Land and
Water Company to the city of Pasadena, nevertheless
was still impressed with the use in favor of South Pas-
adena, and the city of Pasadena could be compelled to
render the service just as its grantor could have been
compelled to render it if the grant had not been made.
The Court. That was a sale of the whole water
system ?
Mr. McCutchen. That was a sale of the whole water
system. Do not understand that I am contending for
anything here different from the contention made by
counsel on the other side in his oral argument. He did
quote in his brief from Munn v. Illinois, to the effect
that when one who had devoted his property to use of
the public desired to withdraw it from that use, he might
do so. But I do not understand that that is his position
in oral argument. Our position with reference to this
phase of the case is that the property is devoted to a
public use, and we cannot withdraw it so long as it is
useful, and particularly so long as San Francisco says
it is useful, for the purpose.
The Court. Do you also take the position that it
cannot be used for any other purpose? That, if it is
susceptible to other uses, it cannot be used for those
purposes?
63
Mr. McCutchen. I take the position that if it is sus
cepbble to other uses, it cannot be used so long as it is
impressed with the public use, if the other uses in any-
wise interfere with the public use. I do not know wheth-
er your Honor has in mind the leasing of the surface
for vegetables, or anything of that kind?
The Court. That would do just as well for the illus-
tration as anything else.
Mr. McCutchen. I would say that so long as the
company could allow the property to be used for the
purpose of raising vegetables, and that that use would
rather promote than interfere with the use for which
it was dedicated to the public, that it would be a good
thing and not a harmful thing to permit such use. Your
Honor will understand that the revenue from such a
source would be a mere bagatelle in any event.
Counsel has quoted to your Honor the provision of the
constitution of California, which says:
"The use of all water, when appropriated for
sale, rental, or distribution, is declared to be a
public use and subject to the regulation and control
of the state in the manner provided by law."
All that the state has reserved by this provision is
the right to regulate a public use. The state has not by
this, nor by any other provision, attempted to reserve
any right or power to fix or limit value, or to interfere
with the operation of economic laws. The thought that
it has, seems to be the fundamental error into which
counsel is led by his argument. The fact that the state
has an interest in the use does not empower the state.
64
nor the regulating body which is the agent of the state,
to fix a value in any other way than value would be
fixed if the issue arose in any other proceeding. This
provision of the constitution does not mean that the
property of the corporation or individual who is dis-
charging the use, is subject to control and regulation of
the state in the manner to be prescribed by law, it
simply means that that use — and that is the only thing
that has been dedicated to the public — is subject to reg-
ulation and control in the manner to be prescribed by
law. It seems illogical to say that that provision of the
constitution means that the property itself has passed
to the public, or that any interest in it has passed to the
public. And that is the fundamental error which has
run throughout counsel's argument. It never was
claimed before, certainly no court has ever held, that,
by devoting property to the public use of supplying
water, the public acquired any interest in the property.
It acquires an interest in the use and it is that use that
by this constitutional provision, the public has reserved
the right to regulate and control.
Starting with that as a principle, that it is the use of
this property which has been dedicated to the public,
and it is the use of the property which the public has
reserved the right to regulate and control, what is the
measure of value when the public comes to regulate and
control that use? Is there an}^thing suggested in that
constitutional provision which would relieve the board
of supervisors, or a court having the right to pass upon
the subject, from applying, in the ascertainment of value,
the rules which would be applied in any other case where
value is to be ascertained? Is it to be assumed that it
was the intention, when it was said that the state re-
served the right to regulate and control the use, that
it meant that it could regulate and control the value?
That is the sharp point which this discussion develops,
and to me — and of course I am a partisan — the answer
is not only plain, but is inevitable. I do not see how
two minds could differ upon the proposition which I
am low presenting to your Honor.
In my opening argument, I stated that the power con-
ferred upon the government to regulate and control did
not confer upon it the power to say that that which was
valuable had no value. We have been told time and
again by the highest court in the country that the basic
element upon which rates are to be fixed, that is, the
basic element upon which this power to regulate and
control is to be exercised, is the value of the property.
It is strange, if the courts intended to say that that
value was to be restricted or limited, that they have
not at some time, in the many, many cases of this im-
pression that have arisen, said that such a limitation or
restriction was to be imposed.
The Court. You do not contend that you still have
the right to fix the value, do you?
Mr. McCutchen. We do not contend that, but we
say that the value is to be fixed just as if we did own
the property and we were selling it for any purpose for
which it was available.
66
The Court. They have the right to fix the reasonable
present value, just as they have the right to fix the
reasonable rate of income on the property.
Mr. McCutchen. Unquestionably. We concede that.
I conceded that at the outset of my argument. If your
Honor will remember, I said that those were the same
issues that you were passing upon here, the value of the
property and the reasonable income to be derived from
the property. Those were the two questions that the
board of supervisors was authorized to determine, and
it was bound to determine value by the application — and
I cannot repeat it too often — of economic laws. The
board could not exercise their whim in fixing value. The
board has power to fix rates. The legislature has not
said, either expressly or impliedly, that the board might
disregard all or any of the rules and measures by which
value from time immemorial has been determined. It
cannot deny value to that which has value, nor can
it deny full value in any instance. In arriving at value,
it has no discretion.
The Court. Do you draw any distinction between the
constitutional limitations which are placed upon the
rate-fixing body when it fixes the rate and when it fixes
the value?
Mr. McCutchen. No, I do not, your Honor. Prelim-
inary to the fixing of rates, it must determine value. It
must determine value and upon that value it must fix
what will be a fair return to the company. But it must
find the value as it actually exists.
67
The Court. I understand you now. I thought you
were trying to draw a distinction between the power of
the board to fix the rates, and to fix the value — that it
had no power to fix the value.
Mr. McCutchen. I did not intend to say that, your
Honor. If it could not determine value for its own
purposes, that is, for the purpose of fixing a rate, it
could not fix the rate because it would have no basic
element upon which to fix the rate.
Mr. Haven. Do not the same principles of reason-
ableness apply to the fixing of value as apply to the fix-
ing of the rate?
Mr. McCutchen. I would say no. I would say that
whenever it appears that the rate-fixing body has not
allowed value, that then unless the rate which is al-
lowed is large enough to cover the value which actually
exists, the rate must be set aside. It has no discretion,
absolutely none, in determining value. To say that it
has any discretion in determining value, is to say that
it may whittle it to a point. The only matter in which
it has any discretion, if it has any at all, is in the rate
of return. It has no discretion even in that respect
under the later cases, as I construe them, and I interpret
that to be your Honor's meaning in the 1908 opinion.
Under the Gas case, it has no discretion to go below the
current rate of interest, and has no discretion whatever
in determining value. It must find value as it exists.
The question of counsel seems to imply that he thinks
that the rate-fixing body has discretion in determining
68
value, and that it may determine that that which actu-
ally has value has no value in fact.
It has no discretion to determine what is reasonable
value, because it is upon reasonable value that it must
fix rates. And I would say that if, for instance, it
valued a piece of property at $2,000,000, and it were
shown that at the time, it was, beyond question worth
$5,000,000, a court would set the ordinance aside with-
out further question, unless the rate of return was suffi-
cient to allow a fair income upon the actual value of the
property, which was $5,000,000. In other words, the
court would look, just as your Honor did in the 1908
case, to the ultimate result. Your Honor will remember
that we argued in the 1908 case that if the board dis-
carded and refused to consider elements of value which
actually existed, that that was in and of itself sufficient
to entitle us to a preliminary injunction. We did not
claim that that was sufficient upon final hearing, but
that it was sufficient to entitle us to a preliminary in-
junction. Your Honor declined to follow us, and stated
that the ultimate question, whether it arose on applica-
tion for preliminary injunction or on the final hearing, —
the ultimate question to be determined was whether the
rates fixed would yield a fair return upon the value of
the property; not the value as the board fixed it, but
the value as the court determined it. I deny that it has
any discretion whatever to limit value below what
value actually is. To repeat what I said in my opening,
value is value for all purposes; and it can make no
difference whether the property, when value is to be de-
69
termined, is owned by a public service corporation, or
an individual. Counsel said, at page 373 of his argu-
ment, and I do not know whether it was a quotation
from your Honor's 1908 opinion or not:
"In protecting these rights of the public, a fair
and equitable valuation of the property involved is
as important as a fair rate of income."
I have no quarrel with that doctrine, but, on the other
hand, I say that it is the true doctrine and that it ap-
plies to the corporation as well as to the public.
Quoting from your Honor in the 1908 case, he said :
"Generally that which is just but no more than
just to the owner, ought to be the equivalent of that
which is just but no more than just to the con-
sumer. ' '
Counsel quotes the Consolidated Gas case — the su-
preme court opinion — and says that the correct con-
struction of the opinion is that whenever a rate is unjust
to the public, fairness to the corporation must yield.
What conclusion is to be drawn from that? By that is
not meant that the value of the company's property is
to be any less, but that because the value of the prop-
erty has mounted so high as that to allow current rates
of return upon the value would create a burden unbear-
able by the consumer, the right to current rates on value
must yield to the interests of the public. No other inter-
pretation of that part of the opinion is possible. The
?ourt was there dealing with value. It had previously
said that the court below adopted the proper method in
ascertaining present value of the property. And the
70
unquestioned result of this decision must be that if the
value of the property increased to such an extent that
a fair rate of return upon it would work a hardship on
the public, the rate of return may be lowered, on the
ground of necessity. There is, however, no intimation in
any portion of that opinion or any other that value will
be lessened in determining the basis upon which rates
must be fixed.
I have read to your Honor the portion of the argu-
ment of counsel claiming that a corporation of this kind
will not be permitted to make any profit beyond a div-
idend for stockholders. Losses will be visited upon it,
but he says the constitution will not permit the accumu-
lation of profits, and that the corporation may not make
anything beyond what is distributed to the stockholders.
As has elsewhere been said, this is but another way of
saying that the value of the property cannot enhance.
Now, I am going back for a moment to the Gas case in
the lower court. It seems to me that that case ought to
answer, as completely as can be answered, the question
which has been in your Honor's mind. I read from 157
Federal Reporter, 854:
"As to realty, the values assigned are those
of the time of inquiry; not cost when the land was
acquired for the purposes of manufacture, and not
the cost to the complainant of so much as it ac-
quired when organized in 1884, as a consolidation of
several other gas manufacturing corporations.
"It is objected that such method of appraisement
seeks to confer upon complainant the legal right of
earning a fair return upon land values which rep-
resent no original investment by it, does not indi-
71
cate land especially appropriate for the manufac-
ture of gas, and increases apparent assets without
increasing earning power. Analogous questions
arise as to plant, mains, services and meters. The
reported values whereof are the reproductive cost,
less depreciation, and not original cost to the com-
plainant or its predecessors."
Ir other words, he includes property of every de-
scription. He begins with real estate, and ends with
meters.
"It appears by the undisputed evidence that some
of these last items of property cost more than new
articles of the same kind would have cost at the
time of inquiry; that some are of designs not now
favored by the scientific and manufacturing world,
so that no one now entering upon a similar business
would consider it wise to erect such machines or
obtain such apparatus. In every instance, however,
the value assigned in the report is what it would
cost presently to reproduce each item of property,
in its present condition, and capable of giving serv-
ice neither better nor worse than it now does. As
to all of the items enumerated, therefore, from real
estate to meters, inclusive, the complainant demands
a fair return upon the reproductive value thereof,
which is the same thing as the present value prop-
erly considered. To vary the statement: Com-
plainant's arrangements for manufacturing and dis-
tributing gas are reported to be worth the amounts
above tabulated if disposed of (in commercial par-
lance) 'as they are'.
"Upon authority, I consider this method of valu-
ation correct. What the court should ascertain is
the 'fair value of the property being used'; the
'present' as compared with 'original' cost; what
complainant 'employs for the public convenience';
and it is also the 'value of the property at the time
it is being used.' Smyth v. Ames, 169 U. S. 546-7."
72
It has always been within the power of San Fran-
cisco to say to us that this property was not useful to
it. It has always been within her power to say she no
longer needs our Lake Merced lands, that they are not
useful, and, if so, to decline to allow us any rate of in-
come upon them. At any time within the past 10 years
we would have welcomed that declaration. But she
does not tell us that. She tells us the property is
useful ; not only useful, but indispensable. Having told
us that it is indispensable, she at the same time says she
does not propose to allow us what it is worth, but will
fix upon it an arbitrary valuation which, perchance, she
deems to be its worth for water-producing purposes.
And in this connection I desire to reply further to the
question which your Honor put with reference to the
presence of a coal mine on the property. If there were
a coal mine, and San Francisco still said to us the prop-
erty was necessary to enable us to render the service,
by every rule of common sense, the consumers would
have to pay a rate upon its value, including the coal.
From that conclusion, there would seem to be no escape.
The converse of the proposition is that a private corpo-
ration must devote the use of its property to the benefit
of the public without adequate return upon its value,
and this is unthinkable.
If you will bear in mind that it always lies with the
municipality to say whether the property is useful, it
seems to me the doubt which you have heretofore enter-
tained will readily and quickly disappear.
73
Quoting further now, from the opinion of the lower
court in the Gas case:
"It is impossible to observe this continued use of
the present tense in these decisions of the highest
court without feeling that the actual or reproductive
value of the property at the time of inquiry is the
first and most important figure to be ascertained,
and these views are amplified by San Diego Land
Co. v. Jasper, (C. C.) 110 Fed., at page 714, and
Cotting v. Kansas City Stockyards, (C. C.) 82 Fed.,
at page 854, where the subject is more fully dis-
cussed. Upon reason, it seems clear that in solving
thio equation, the plus and minus quantities should
be equally considered, and appreciation and depre-
ciation treated alike. Nor can I conceive of a case
to which this procedure is more appropriate than
the one at bar. The complainant by itself and some
of its constituent companies has been continuously
engaged in the gas business since 1823. A part of
the land in question has been employed in that
business for more than two generations, during
which time the value of land upon Manhattan Island
has increased even more rapidly than its popula-
tion. So likewise the construction expense not only
of buildings, but of pipe systems under streets now
consisting of continuous sheets of asphalt over gran-
ite, has enormously advanced.
"The value of the investment of any manufac-
turer in plant, factory or goods, or all three, is
what his possessions would sell for upon a fair
transfer from a willing vendor to a willing buyer,
and it can make no difference that such value is
affected by the efforts of himself or others, by
whim or fashion, or (what is really the same thing)
by the advance of land values in the opinion of the
buying public. It is equally immaterial that such
value is affected by difficulties of reproduction. If
it be true that a pipe-line under the New York of
1907 is worth more than was a pipe-line under the
74
city of 1827, then the owner thereof owns that
value, and that such advance arose wholly or
partly from difficulties of duplication created by
the city itself is a matter of no moment. Indeed,
the causes of either appreciation or depreciation are
alike unimportant, if the fact of value be conceded
or proved; but that ultimate inquiry is oftentimes
so difficult that original cost and reasons for
changes in value become legitimate subjects of in-
vestigation, as checks upon expert estimates or
bookkeeping, inaccurate and perhaps intentionally
misleading. ' '
# * # # # * #
"If 50 years ago, by the payment of certain
money, one acquired a factory and the land appur-
tenant thereto, and continues today his original
business therein, his investment is the factory and
the land, not the money originally paid; and unless
his business shows a return equivalent to what land
and building, or land alone, would give if devoted
to other purposes (having due regard to cost of
change), that man is engaged in a losing venture,
and is not receiving a fair return from his invest-
ment, i. e., the land and building.
"The so-called 'Money value' of real or personal
property is but a conveniently short method of
expressing present potential usefulness, and * in-
vestment' becomes meaningless if construed to
mean what the thing invested in, cost generations
ago. Property, whether real or personal, is only
valuable when useful. Its usefulness commonly
depends on the business purposes to which it is, or
may be, applied. Such business is a living thing,
and may nourish or wither, appreciate, or depre-
ciate; but, whatever happens, its present usefulness,
expressed in financial terms, must be its value.
"As applied to a private merchant or manu-
facturer, the foregoing would seem elementary; but
some difference is alleged to exist where the man-
75
ufacturer transacts his business only by govern-
mental license — whether called a franchise or by
another name."
And let me stop here to remark that the principle of
government regulation has, as your Honor well said in
your 1908 opinion, existed from almost the beginning
of the law. It was the common law that the government
might regulate a public use. It was not the common
law, nor is it the law of any American commonwealth,
that wuen, in the exercise of the power to regulate
it becomes necessary to ascertain value, a court or a
rate-fixing body can deny value to that which has value.
To continue the quotation:
"Such license, however, cannot change an eco-
nomic law, unless a different rule be prescribed by
the terms of the license, which is sometimes done.
No such unusual condition exists here, and, in the
absence thereof, it is not to be inferred that any
American government intended when granting a
franchise, not only to regulate the business trans-
acted thereunder, and reasonably to limit the profits
thereof, but to prevent the valuation of purely pri-
vate property in the ordinary economic manner, and
the property now under consideration is as much
the private property of this complainant as are the
belongings of any private citizen."
It is the use, which the government is clothed with
the power to regulate and control. It is the rate of
income, which it is authorized to fix. I doubt if ever
before it was contended that, by devoting property to
public use, any interest in the property itself passed
76
to the public. Counsel is entitled to be hailed as the
pioneer in that field.
"Nor can it be inferred that such government in-
tended to deny the application of economic laws to
valuation of increments, earned or unearned, while
insisting upon the usual results thereof in case of
equally unearned, and possibly unmerited, depre-
ciation. ' '
Mr. Haven deducts $4,000,000 from what he claims to
have been our investment for property that was once
useful but which, by the operation of the laws of nature,
has gone out of use. At the same time he says we may
not make any profit above a dividend to stockholders.
When Judge Hough comes to the discussion of fran-
chise, he takes it for granted that the law of eminent
domain applies; and he says that rate regulation is pro
tanto condemnation. He employed in that case every
rule which would have been applied had the city of New
York been seeking to take the property in the exercise
of the right of eminent domain.
And in the Consolidated Gas case the supreme court
said (I will read your Honor from the opinion as pub-
lished in 53 Lawyers' Edition, page 399):
"And we concur with the court below in holding
that the value of the property is to be determined
as of the time when the inquiry is made regarding
rates. If the property which legally enters into the
consideration of the question of rates has increased
in value since it was acquired, the company is enti-
tled to the benefit of such increase."
It may fairly, and without fulsomeness, be said that
the opinion of the court below in that case was a master-
77
ful opinion. No other interpretation can be given to the
language of the supreme court than that it fully ap-
proved the method which the court below adopted in
reaching value. It is the present value which is to be
ascertained, and if the property has increased in value
since it was acquired, the company is entitled to the
benefit of that increase. There was no suggestion that
it should be limited to its value for gas generating pur-
poses. Judge Hough said the property was worth more
than when originally acquired, for the same reason that
all othe^ realty was worth more; that for two genera-
tions past, realty values had increased more rapidly
than the population. Yet counsel for defendants seems
outraged at the suggestion that consumers are to be
asked to pay this company a return upon increased
value which has resulted from the growth of population
about the bay of San Francisco. The Gas case seems
to answer him.
That opinion simply harks back to the fundamental
principle from which we started, and that is that it is
not the property in which the public acquires an inter-
est, but it is the use of that property. The public is
not clothed with the power or right to regulate or con-
trol value, but may regulate and control the use.
I put to counsel in my opening argument the question
whether, if the constitution of California had said that
property devoted to a public use shall never increase in
value, such provision would be constitutional? He did
not see fit to answer it. He could have made but one
answer. But by the logic of his argument he would be
78
forced to say that such a provision would have been
constitutional.
The Court. Mr. McCutchen, you have stated that
you have a vegetable garden there which yields a nom-
inal income, and that the use of that vegetable garden is
not injurious to the water storing and water gathering
capacity of that land; suppose instead of considering
that this is a nominal income, it was a very large income
that you derived, and that the use of the land as now,
for that purpose, is not in any wise harmful or detri-
mental to its use as a water gathering or water storing
property — in that event, could you take the full value
of the property that is, the present value of the prop-
erty as a basis for fixing water rates?
Mr. McCutchen. We would be entitled to do so if
the use did not interfere with the discharge of our duty
to the city. That comes back to the proposition which
we were discussing a few days ago, that if from outside
sources, that is, from sources other than water rates,
we derive a total of say 6 per cent, although our prop-
erty is all devoted to the use of supplying San Fran-
cisco, from which we cannot relieve it, San Francisco
would be entitled to water for nothing. I do not think
that helps us in arriving at the solution of the question
now under consideration.
The Court. Suppose that instead of being used for
gardening purposes, you derived a large income from
it in supplying the city of Oakland with water from that
watershed ?
79
Mi. McCutchen. I am inclined to think that if we
did that it would be said that this property is not useful
in its entirety to the people of San Francisco, that it
•was neither entirely used nor was it in its entirety useful
to San Francisco. If there were enough water to supply
not only the city and county of San Francisco, but the
city of Oakland as well, in that event there would be a
division of value. But we must keep to the showing
which is made here, if your Honor please, for the pur-
pose of determining the question in hand.
The Court. I appreciate that. There is no necessity
of going through that again. I was simply trying to
ascertain what your views were here with reference to
this particular question that you are discussing.
Mr. McCutchen. Well my views are, as I have sug-
gested to your Honor, that all this property is useful
and therefore, full value must be allowed. Speaking of
a vegetable garden, I know a portion of the land is
planted to vegetables today; whether that was the case
in 1903, I do not know, and I do not think there is any-
thing in the record on that subject.
The Court. Oh, that is too trifling to take into con-
sideration at all; we were simply using that as an illus-
tration.
Mr. McCutchen. I submit that if the property is
useful, and all of it is useful to San Francisco, and we
cannot take it away from San Francisco, we are entitled
to the full value, although it may be possible for us to
make a use of it which is not inconsistent with the dis-
80
charge of our duty to San Francisco. And that, as
your Honor can well imagine, would be in the nature
of things some very trifling use, because the property
cannot be relieved from the obligation which it owes to
San Francisco.
Mr. Haven. Mr. McCutchen, may I ask you a ques-
tion?
Mr. McCutchen. Certainly.
Mr. Haven. Suppose you could cover that Lake Mer-
ced land with improvements and get a large income,
without interfering with it for the use of water-produc-
mg purposes and could use it for water-producing pur-
poses at the same time, also getting an income out of it
for real estate purposes, would that have any effect on
the value of it?
Mr. McCutchen. I should say that that again would
mean that the property was not useful, that portion of it
which we had put to the other use, and which necessarily
would be inconsistent with the use of it as a water
supply.
Mr. Haven. I am assuming that both could be done
together.
Mr. McCutchen. Well, you are assuming an impos-
sible situation, it seems to me.
The Couet. We have precisely that situation when
you come to fix the rates of railroads as between inter-
state traffic and intra-state traffic; there the whole prop-
erty of the railroad company is used perhaps very
triflingly for intra-state traffic and still in proportioning
81
the property for rate-fixing purposes, it is not the whole
value of the property that is taken, they ascertain the
whole property and then it is apportioned between the
two.
Mr. McCutchen. Do we not find a very great differ-
ence between that case and this? The whole property
in that case is not necessary for intra-state business. It
looks to me as if that answers that analogy. In this
case, the whole property is necessary.
The Court. The public should pay simply for what
it takes, nothing more, nothing less.
Mr. McCutchen. That is doubtless true, but in de-
termining what it shall pay for the service it demands,
the value of all property which is employed in such
service must be taken as a basis. The public is not pay-
ing for the property. It is paying for the use of it, and
that payment must be determined by ascertaining what
property serves the public. The city needs all the water
which can be withdrawn from the property, and re-
quires the company to use all the Merced lands for that
purpose.
The Court. It takes the use, but it does not take the
property.
Mr. McCutchen. It takes the use to the extent of not
permitting us to dispose of the property. For all prac-
tical purposes, so far as our right to a revenue is con-
cerned, the whole property is taken.
The Court. That is the question I have been endeav-
oring to answer in my mind for the last two days. You
82
take the use of the property, you do not take anything
more; but if you discover a coal mine on that ground,
the city would not be entitled to take any of that coal, —
it is not entitled to a blade of grass; it is not entitled
to anything there. It would not be entitled to go out
there and mow that grass and put it up for hay; it
grows on the ground. It is only entitled to take the
water that is produced on that land, so much of it as it
needs. It would not be entitled to take any more than
that.
Mr. McCutchen. That is unquestionably so, but your
Honor will see that while the city is not entitled to the
property itself or a blade of grass thereon, it is entitled
to have the property, and the whole of it, not simply a
part or an interest in the whole, but all of it, maintained
in its present condition. We can, speaking broadly,
change neither its condition nor its use. It would be
most unreasonable, not to say unjust, to hold that the
use of the entire property has been taken, but need not
be paid for. While the city has not and cannot take the
property, it can, and has taken the use. For this it must
pay a rate on value. All the city is entitled to get from
any property under these circumstances is water; it is
under no circumstances to touch or control the land. It
can, as your Honor says, neither mow grass nor extract
ore.
The company, on the other hand, may justly demand
a fair return on the value of all property impressed
with the use. If all land is impressed, the value of all
of it must be included ; if only a part, then the value of
83
;hat part alone serves as a basis— but if it be once deter-
nined that given property is impressed, the difficulty
md?;. Its full value must be allowed. The objection to
aermitting the city to say— "True, your land is needful,
' but is not very valuable to us; we will allow you one-
' half its value ' '—is patent. The argument that our land,
pile worth $14,000,000 as realty, is only worth $1,000,-
)00 as watershed, is an exact analogy.
But the contention is made that, since its usefulness
:o the city is for water-producing purposes alone, its
^alue for that purpose represents its value for rate-
ixing. This argument entirely ignores the point we
nake. It is not directly a question of the value of the
and to the city, but the value of the water; and the
irakie of the latter is to be determined by using the
value of the former as a basis. In order to furnish the
water ive must devote all the land to the use. If the
nty may dictate upon what basis it will pay, we are not
ilone allowing it to regulate the use, but we are per-
nitting it to regulate value as well. Might it not say
tvith equal force — "We will allow you what this land
' is worth for agriculture (or, perhaps, for mining.)"?
[f it has the right to do the one, has it not the power
lo do the other? Can the city, in other words, accept
the benefit of a dedication of all the land and announce
ipon what basis of value the owner is to be remuner-
ated? It is but an extension of the principle here con-
tended for by defendants to say that the city may take
land and allow therefor its cost, and refuse to recognize
ralue in the form of unearned increment.
84
There must be a reason for the rule your Honor stated
in the 1908 case, and to which you have referred here,
namely, that it is value for water-producing purposes
which is to be taken. The reason cannot be that the use
fixes value. Mr. Justice Field stated the contrary in the
Patterson case with too great positiveness to admit of
question. It can only be because the city has the power
and the right and the authority to determine what basis
of value is to be adopted. Upon the theory which your
Honor announced, the city might with equal propriety,
though perhaps with not an equal showing of justice,
take the value of the land as agricultural, instead of
water-producing, property as a basis. On the reasoning
of defendants, there is nothing to prevent it. Or, to go
a step further, what would prevent an acceptance by the
city of the theory that cost is value? And could it not,
under this guise, deprive us for all time of any increase
in value?
This is not, and never has been, the rule. It is not a
question of policy which is here involved, but of con-
stitutional right. And we submit that the city has no
right to take the use of property from an individual
without compensating that individual with a return upon
the highest value of the property taken. The city cannot
demand the land, name the use upon which value is to be
determined, and reimburse the owner upon a basis which
may, as it does here, deprive him of one of the most
valuable of property rights. Furthermore, suppose we
made a use of that land which polluted the water?
85
The Court. Then you would have to be stopped, I
presume?
Mr. McCutchen. By whom?
The Court. Well, if you did not stop it yourselves,
I presume the government would stop you.
Mr. McCutchen. The city and county of San Fran-
cisco would stop us.
The Court. They are entitled to the use of that land
for water-gathering purposes ; they take the use of it for
that purpose. I assume that you are not permitted to
make any use of it that would interfere with the gather-
ing of that water, but still if you could make a use of
it for some other purpose which would not interfere
with the water-gathering and water-storing purposes of
the land which were needed by the city, I do not im-
agine the city could prevent you from doing it. Sup-
pose you discovered a coal mine on that ground and
you could put up your works and extract the coal with-
out interfering in any manner with the gathering of
the water and the storing of it, do you think that to
that extent the city could stop you mining that coal?
Mr. McCutchen. As I answered your Honor yester-
day, I am inclined to think it could not.
The Court. And in that event could you say that
this land is worth twice as much now as it was before
that coal mine was discovered and, therefore, it must
go in for rate-fixing purposes at twice its former value,
assuming that the additional value was for coal pur-
poses?
86
Mr. McCutchen. No, I would not, assuming that
we would in that case have the right, as your Honor
suggests, to mine the coal. But even in that case, what
would be the value of that which was left after the coal
was removed? The value would be for the highest pur-
pose to which the remainder of the land could be put,
and that would be to sell it for real estate.
The Court. That is a question I would like to hear
you say something about. Many people invest in land
that is not productive and they hold it with a view of
selling it at an enhanced figure some time in the future;
they expect to make their profit out of the appreciation
in the value of the land. Now, if you have an acre of
land in Merced county, for instance, that is worth $100;
your pasturage on that land would perhaps be worth
$1.00 a month for an animal ; you have a piece of land
out here that is not needed at present for building pur-
poses in San Francisco, but it has an enormous future
value, and will be worth $10,000 an acre, but you could
not use it for anything better at present than pasturage;
how much would you be entitled to charge for pasturage
on that land?
Mi. McCutchen. One dollar an acre. I am follow-
ing your Honor's question — we could not use it for any-
thing else.
The Court. You cannot at present, but still you
would not sell it for $100 an acre, because it has an enor-
mous value for future purposes.
Mr. McCutchen. When are we ever going to realize
that? 1
87
The Coukt. You may in four or five or six years
hence. You have invested with that in view; that the
city of San Francisco will grow in five or six years, and
that it will be needed for stores and residences; at the
present time it is not so needed.
Mr. McCutchen. Does your Honor assume that to
be a fact with reference to Lake Merced?
The Couet. No, I am not assuming it at all; I am
simply trying to see what sort of a formula we are
going to apply to cases of this sort.
Mr. McCutchen. I think I understand your Honor's
question. If I owned an acre of land in Merced county
that was worth $100 an acre and I could not use it for
any purpose but pasturage, and I could get but $1.00
an acre for it for that purpose, and an acre of land
in San Francisco for that same purpose would not
yield more than $1.00 an acre, then I should
say that for pasturage purposes, my acre of land
in San Francisco was not worth any more than
my acre of land in Merced county. My acre of Merced
land might appreciate or might depreciate; my
acre of land in San Francisco might also appreciate or
depreciate. Whenever it does appreciate, no matter
when that event comes about, I am entitled to the ben-
efit of it. I think that is the fallacy of the argument of
the other side. Now, has that appreciation come about?
Before I answer that question, I will take the case of the
Merced acre. When that increased in value I would no
longer rent it for pasturage at $1.00 an acre; I would
use it for the more useful purpose for which it was then
88
available, or I would sell it at the enhanced price. And
so here a demand has come about which makes this
property immensely more valuable than the value placed
upon it by the city. Now that, mind you, is a present
condition; that is not a speculative condition; it is a
present condition. So that for the purpose of getting
at the sharp point with reference to the matter now
under discussion, you must assume that there is a
market today for this property, far in excess of Grun-
sky's figure. Now, of course, under those circumstances
I would not rent it for one dollar an acre because I
could sell the property and invest the money in some-
thing that would yield me infinitely more than a dollar
an acre. But I happen to occupy a relation to the
city of San Francisco by which San Francisco is per-
mitted to say to me that the property is useful to her,
and she will not let me sell it. She will allow me
a return on my original investment, whatever it may
be, say, for illustration, $2,000,000, and will continue
this allowance so long as she may see fit to say the
land is useful to her; the property is, in fact, worth
$13,000,000, but nevertheless, while insisting that I shall
continue to use it for her benefit, she will only allow
me a return on a value of $2,000,000. That is the
exact situation that is presented. We cannot use
it for any purpose for which we can get income on
$13,000,000. It is only common sense to say that if we
could do it we would do it. San Francisco has us bound
and tied. We are not in a position to use the land for
anything that will interfere with the discharge of our
public duty.
89
To adopt any other rule in this case than the one we
urge, will leave you in the realm of speculation. There
is absolutely nothing in the record that will tell you
what is the value of this particular property, — that is
to say, looked at as an independent property — for water-
producing purposes. That is not the way Mr. Grunsky
valued it. We quote from the testimony of Mr. Grunsky
as follows:
"Page 326, XQ. 17. Then what was the value
upon which you attempted to appraise the proper-
ties in those four years'?
"A. In part it was cost of reproduction of the
works; in part it was appraisement of land values
by experts whose opinions I had confidence in and
accepted ; and in part it was my own personal opin-
ion and judgment as to what would be a reasonable
allowance for the lands and water rights.
"XQ. 311. When these real estate experts ap-
praised the city property of the Spring Valley
Water Works as what kind of property did they
appraise it for you?
"A. They appraised it as they would have ap-
praised other property similarly located.
"XQ. 312. That is the ordinary commercial value
as commercial property?
"A. Yes sir.
"XQ. 313. They did not appraise it as property
capable of being devoted to the use of a water works
supply?
"A. No, they appraised it as they would have
appraised it if it were not being used for that pur-
pose.
"XQ. 320. Then you would not have valued
them and did not value them as being capable of
devotion to a water supply system?
"A. The real estate in San Francisco was not
so valued.
90
"XQ. 552. 'The appraisement of the Lake Merced
lands is based upon the values which they would
have if their use for the production of water were
abandoned.' Do you remember that?
"A. I remember words to that effect.
"XQ. 553. Is that correct?
"A. They were appraised as lands apart from
their water-producing possibilities.
"XQ. 554. And is that so as to 1903 and also
1904?
"A. Yes sir."
No witness who testified on the subject said that that
was the value for water producing purposes. Mr.
Grunsky says the people from whom he got his informa-
tion valued it as real estate. So, if that position be
taken, you have absolutely no guide, absolutely no in-
formation, which will enable you to tell what the value
of this property is. We have given you its value for
ordinary real estate purposes. I desire to read upon
that subject the testimony of Mr. Baldwin. And when I
say that we have given you its value for ordinary real
estate purposes, that is the only purpose for which
we could give you its value, in the very nature of things,
treating it as independent of other parts of the system.
We could not tell you the value of this specific piece of
property for water producing purposes. There is no
measure or guide known to the law by which we could
tell you that. We could not determine its value by
capitalizing the rates which we could get from it. If
we are to consider it as an independent piece of real
estate — and that is the light in which it is considered
by defendants — we must adopt the well-settled and
the onlv rule by which its value can be determined.
91
And now I am reminded of a stipulation which coun-
sel on the other side says was made in reference to the
right of witnesses who testified in this case to consult
others.
Mj . Grunsky did not consult brokers or experts under
that stipulation; he did it before the stipulation was
made. Let me tell your Honor how that stipulation
came to be made. With reference to quantities, there
was some information obtained by our people from out-
side sources through surveyors and assistant engineers.
Mr. Partridge had objected to the use of that sort of
information. When Mr. Grunsky took the stand, he
testified to the way in which he got his quantities. Mr.
Kellogg did not object, but asked Mr. Grunsky if that
was a proper way, in his opinion as an engineer, to make
computations of the contents of these properties, and
Grunsky answered that it was indispensable, that
one man could not do all such work. Thereupon Mr.
Kellogg said "The only reason I asked you that, Mr.
" Grunsky, is because the use of similar information
" has been objected to by the other side." Mr. Part-
ridge then proposed the stipulation, and I will read the
exact language of it to your Honor:
"It is stipulated that neither party will object
to any evidence offered in this case based upon data
or information furnished by others than the wit-
ness himself."
I say that that does not mean anything more or less
than if a witness has seen fit to take information given
to him by somebody else, he may use that information.
92
But it does not say, by any means, and is not to be con-
strued to mean, that the man who gave the information
was under oath.
Mr. Haven. Your position is, Mr. McCutchen, is it
not, that the only evidence here as to the value of those
lands for any purpose is Mr. Baldwin's appraisement?
Mr. McCutchen. No. I think I made that statement
to you the other day, Mr. Haven, but I was wrong. I
think there is other evidence; for instance, the evidence
of Mr. Schussler, who was also under oath.
The Court. Did Mr. Grunsky give it as his opinion
that the land was worth $2,000,000?
Mr. McCutchen. No sir.
The Court. He did not give any opinion at all?
Mr. McCutchen. He simply said, "I took that from
" real estate experts; I do not claim to be a real estate
" expert". Mr. Powers calls my attention to what Mr.
Grunsky said on that subject, and I will read it now as
your Honor has it in mind. I am reading from page
89 of Vol. 1 of the closing brief of complainant :
"Mr. Kellogg. XQ. 140. I understand that in
estimating the value of lands you obtained expert
information?
"A. Yes sir.
"XQ. 141. You did not rely upon your own
knowledge of land values ; you are not an expert on
land values, are you?
"A. That applied to the matter of the city real
estate. I had appraisements made, for the first
valuation, by Mr. William Schadde, and a subse-
quent appraisement by Mr. H. P. Sonntag.
93
"Mr. Long. XQ. 142. Mr. Grunsky, will you
tell what Mr. Schadde ?s experience was, in order to
qualify him?"
To that question Mr. Kellogg objected. Of course the
question is objectionable; there can be no doubt about
that.
"Mr. Long. I do not want to interrupt you, Mr.
Kellogg, but I would like to bring that out right
here. I can bring it out later.
"Mr. Kellogg. You may go right ahead with the
answer, Mr. Grunsky. I only object to the com-
petency of it.
"A. At the time Mr. Schadde was employed for
this purpose he was an appraiser of real estate
values for the Hibernia Savings and Loan Society.
"XQ. 143. As to any of the other properties, did
you take figures from other people as to values, in
making up your appraisement?
"A. The appraisement made by both Mr.
Schadde and Mr. Sonntag extended to the Merced
properties, and included those properties, which
overlap into San Mateo county; apart from that,
there was no appraisment available to me by real
estate experts of the lands owned by the company."
And at page 353 he testified further on the same
subject :
"Mr. Kellogg. XQ. 149. Mr. Grunsky, did Mr.
Schadde the real estate expert, or Mr. Sonntag, also
the real estate expert, who furnished you with val-
ues of the city real estate, including Lake Merced,
appear before the board of supervisors in 1901 or
1902 or 1903, or during any of the periods which
jour appraisments covered?
"A. They did not, so far as I know."
94
The proceedings here show they did not. I will now
read from page 91 of the same testimony :
"XQ. 154. The snm and substance of it is, they
reported to you on these valuations, you reported
to the board of public works, and the board of pub-
lic works reported to the supervisors?
"A. Yes, I accepted their valuations, their ap-
praisements, as my appraisement.
"XQ. 155. Not yourself making any investiga-
tion on those particular topics, is that it?
"A. Yes, I was in conference with them.
"XQ. 156. Are you a real estate expert on values
in San Francisco?
"A. I am familiar with the real estate values to
some extent, but never have considered myself and
do not now consider myself an expert."
He took another position with reference to the penin-
sula, lands because he said he had familiarity with their
values, and he determined their values himself.
I will now read to your Honor the testimony of Mr.
Baldwin, commencing at page 5751. Mr. Baldwin is a
very well-known real estate man, as is clearly evidenced
by ihe dialogue from the record, when he was placed
upon the stand.
"Q. 5. Do you know the property of the Spring
Valley Water Works, located in San Francisco?
"A. Yes, sir.
"Q. 6. And the Lake Merced ranch, which is
also partially in the county of San Mateo?
"A. Yes sir.
"Mr. Kellogg. Mr. Partridge, I suppose you will
concede that Mr. Baldwin is a qualified witness?
"Mr. Partridge. Yes, entirely so."
And then Mr. Baldwin goes on to give his values of
these properties, and to tell why he places those values.
95
He gives values from his general experience in handling
properties of that kind ; he gives individual transactions
and individual sales within the neighborhood and within
a short time before his testimony was given. He was
asked, among other things, whether land values in that
particular locality had increased within a short time,
and he made the answer that they had increased 500
per cent in 10 years. There is not a word in this record
that is claimed to contradict or qualify that testimony.
What is there on the other side? You have the state-
ment of Mr. Grunsky that he consulted a Mr. Schadde,
who was an examiner for the Hibernia Savings & Loan
Society, and that Mr. Schadde told him that this prop-
erty was worth $2,000,000 odd. The counsel has thought
it proper to call your attention to some transactions in
the property which took place in 1904, and one trans-
action that took place in 1901. Three of them are trans-
actions in properties on the sand dunes near the ocean.
They averaged something over I should say, well, close
to $900. They are given as $972 and $750 and, without
taking the time to figure it, I think it will certainly aver-
age $850 an acre for the poorest property in the tract.
At $850 an acre the property would have been worth
more than the price which Mr. Schadde is said to have
put upon it. Mr. Schadde did not go upon the stand.
There was no opportunity to cross-examine him. We do
not know what his method of valuation was. We do not
know whether it was a horse-back opinion or one of
poorer value. But the counsel has demonstrated here
beyond the shadow of a doubt that Mr. Schadde 's valu-
ation is absolutely unreliable. But aside from that, is
96
Mr. Schadde's statement — he not having been under
oath and not having been submitted to any sort of ex-
amination— is his statement to be given the credit that
is to be given to the testimony of Baldwin, who gave a
reason for every dollar of valuation assigned by him?
I should say that the question furnished its own answer.
That stipulation did not mean that the statement of
the witness was any the less hearsay. As I construe it,
it simply meant that a witness might use that informa-
tion for the purpose of reaching his conclusion, if he de-
sired to do so. It did not at all change the value
of his testimony. If they saw fit to rely, in as important
a matter as that, upon the unsworn statement of Mr.
Schadde, that is their concern.
The Court. What did Mr. Baldwin base his opinion
on?
Mr. McCutchen. He based his opinion on sales in
the neighborhood. I will read your Honor Mr. Bald-
win's testimony because it is very important.
"Mr. Partridge. Q. 33. How did you get your
valuation of $13,650,000 for the Lake Merced lands?
"A. I valued it at $5,000 an acre.
"Q. 34. What was the basis of that valuation?
"A. I did not quite understand your question.
"Q. 35. By what method did you arrive at the
valuation of $5,000 an acre?
"A. From sales that are being made in and
about that vicinity. Take, for instance, the Park
Side property, which is along the line of 19th Ave-
nue, and down at the further end of the Outside
Lands District property, it is being sold in subdivi-
sions at from $800 to $1200 a lot; 25 by 120 lots.
That is equivalent to from $10,000 to $14,000 an
97
acre. That is only one instance. The whole out-
side district is full of illustrations of what can be
done with that class of property. This Lake Mer-
ced property, of course, would have to be treated
on a broad and comprehensive system of improve-
ment and development. The property could not, in
all probability, be sold in the San Francisco market
quickly, to realize this amount of money, but it
could be disposed of in other markets besides San
Francisco; in other words, the home market might
not be sufficiently strong to absorb $13,000,000 worth
of property, but it can be sold."
Of course, that simply means that, when it is put on
the market in the proper way, if the people who are
here and have money to invest do not want it, there will
be plenty of people to come in from the outside and take
it. That is the invariable rule.
"Q. 36. Do you consider that as desirable prop-
erty for residence purposes as the Park Side up on
the hill?
"A. I think it is much more desirable.
"Q. 37. In the bed of the lake?
"A. I did not contemplate filling in the lake at
all. I think the lake should be retained. The lake
is a feature that adds tremendously to the value of
the property surrounding it."
I am reminded of a suggestion made by counsel on the
other side to the effect that Mr. Schussler, when a
witness before the board of supervisors, was asked if
that property was worth $5,000,000 — and this was away
back in 1895 — and he said "if we could sell that prop-
" erty for $5,000,000, we would sell it and apply the
" money to our bonded debt". If San Francisco will
permit us to sell it to-day, we will wipe out a very
considerable part of our bonded debt. But no, says the
city, we must not sell it, we are using it for the city
and its citizens, it is indispensable to them, and while
we are using it for their benefit, and while we must
continue to use it for their benefit, and while it is in-
dispensable to them, nevertheless they will allow us a
return on only one-fifth or one-sixth of its value.
Continuing with Mr. Baldwin's testimony:
"Q. 36. Do you consider that as desirable prop-
erty for residence purposes as the Park Side up
on the hill?
"A. I think it is much more desirable.
"Q. 37. In the bed of the lake?
"A. I did not contemplate filling in the lake at
all. I think the iake should be retained. The lake
is a feature that adds tremendously to the value of
the property surrounding it.
"Q. 38. Did you take that from your valuation,
that portion of the land that is covered by water?
"A. No, I consider that the lake is a sufficient
attraction to offset any land in the value of that
area.
"Q. 39. How would you go to work to put that
property on the market?
"A. I would employ the very best architects in
the country — a man like Burnham, or someone
equally as good, if he could be found — to create a
model city of it, that is, lay it out in attractive
shape. As to the details of construction, that is a
matter for artists; that would be outside of my
province.
"Q. 40. You would consider it entirely feasible,
however ?
"A. Absolutely so.
"Q. 41. In between the two lakes, do you mean,
or, on the slopes, or both?
99
1 'A. All of the properties except the lakes them-
selves.
"Q. 42. You have made no estimate of the
amount of water that that property provides for
this corporation, have you?
"A. No sir.
"Q. 43. Do you know anything about that?
"A. No sir.
"Q. 44. Do you know how much profit the cor-
poration receives from the water it sells out of
those lakes?
"A. No sir."
That question suggests the argument made here that
we are not permitted to make any profit — that we
have no right to make any profit. The point suggested
by the question seems to be that we do not make any
profit out of the use of the land for water purposes,
and it would seem to follow on that theory that it is
not worth anything for rate fixing purposes, and we
cannot use it for any purpose except to furnish water.
And again, reading from Mr. Baldwin's testimony:
"Q. 45. If that property were turned into resi-
dence property, you consider it would, within a
reasonable time, be sold so as to produce the
amount you give here, $13,650,000?
"A. It would produce that and more than that;
by that I mean it would realize that sum exclusive
of any cost of improvements. That is equivalent
to about $450 a lot."
Just across the roadway they were selling lots for
from $800 to $1250. That does not look like speculation.
There are here 2800 acres of land all within the cor-
porate limits of San Francisco. I suggest to your Honor
100
that you go down the peninsula and see the improvements
there, away beyond the southern line of the Lake Merced
rancho ; that you go along the Ocean Shore Railway and
look at the little villages that have been built up there
far beyond the southern line of the Lake Merced rancho,
and that will convince you that there was no exaggera-
tion in Baldwin's statement that that property was then
worth $450 a lot, or, in the aggregate, $13,650,000.
And now I want to point the application of counsel's
argument by defendants' cross-examination of Baldwin.
"Q. 46. How much ought money to earn, if
available at the present time, in your opinion?
"A. I think it depends a great deal upon what
it is invested in. Money, in first-class real estate,
is supposed to be entitled to 5 per cent net per
annum; in other classes of property, less desirable,
it is all the way from 6 to 10 per cent net per
annum.
"Mr. Partridge. Q. 47. Supposing the corpora-
tion gets 3,000,000 gallons of water a day from that
lake, which it sells for $180 a million gallons, taking
the entire water sales, $197,100 per annum, without
deducting the cost of selling that water, if that
property were worth $13,650,000 would you say the
company was justified in keeping that capital tied
up in that property? I further call your attention
to the fact, in connection with it, that 5 per cent of
the sum you name is $682,500, or some 3y2 times the
amount that the company actually receives?"
Could we be furnished with a better illustration of the
soundness of the doctrine for which we are contending?
The answer to the question is:
"A. I do not know whether the company is justi-
fied in doing it; I would not want to do it myself."
101
Could we have a better illustration, I say, of the fair-
ness and the logic of the doctrine for which we contend?
Mr. Partridge thought he had the witness cornered, and
that there was no possible escape for him.
But to continue:
"Q. 48. But you would say definitely that if the
company would put that property on the market it
could, within a reasonable time, dispose of it for the
amount you name, $13,650,000 profit?
"A. And leaving the reservoirs intact, yes sir."
There is no testimony in the record that contradicts
that. Not one word of testimony fell from the lips of a
witness that contradicts it. The testimony of Baldwin
has the ring of truth to it. If the issue of value were
involved in any other case, and the showing was what
it is here, your Honor would not, I venture to say, hesi-
tate a moment to take his testimony as conclusive.
Suppose the company had made an agreement to
sell this property for $10,000,000, and an action in
damages for breach of the contract had been in-
stituted for its refusal to make a conveyance, and
that Baldwin, being a witness, had given the same testi-
mony that he gave here, and that was all the testimony
before the court. Would not your Honor, if the case
were being tried before you with a jury, tell them that
they were bound to render a verdict for the difference
between the $10,000,000 and $13,650,000, because the tes-
timony was uncontradicted? And must it not therefore
be taken as an admitted or confessed fact in this case
that that property is worth $13,650,000 except to the
102
extent that it may be qualified by these alleged pur-
chases, to which I shall come later on!
Baldwin was further asked on cross-examination:
"Q. 49. What would you say as to the value of
that property now, compared to what it was 10
years ago?
"A. I think it is worth five times more, at
least."
We all know that. We all know that that section of
San Francisco was transformed from a sand dune
within ten years of the time this testimony was taken.
We know that land south of Golden Gate Park which
today is occupied by residences, as close to one another
as are buildings in the locality in which this court is
being held, was a sand dune but a few years ago. Our
common sense tells us, and our every day experience
teaches us, that changes of this nature must have enor-
mously enhanced the value of these lands.
Mr. Baldwin's and Mr. Schussler's testimony is
the only testimony in this case as to the value
of Lake Merced lands. This valuation counsel does not
criticise, except that he says that Mr. Baldwin's method
of disposition might require some time. But Mr. Bald-
win says, and he gives a good reason for it, that that
amount of money can be realized for the property over
and above expenses of sale, that is to say, it will be
net. As that is the testimony, the court is not left to,
and will not, speculate upon what the value is, but will
take it from the record.
103
The testimony was given by a man of whom defend-
ants, when he was placed upon the stand, said: "We
admit his qualifications entirely." So there is no room
for the criticism that this is the testimony of an expert,
and that it is to be looked upon with suspicion. This
expert is clothed with a certificate of reliability and
character by counsel on the other side. It will be pre-
sumed that if it had been possible for defendants to
produce an expert of good standing, who would question
the soundness or reliability of Baldwin's valuation of
the property, they would have produced him. Not hav-
ing produced him, the presumption is that none such
could be found. Baldwin said that just across the road
the Parkside property was selling at from $850 to $1250
a lot, which is from $10,000 to $14,000 per acre. De-
fendants must have recognized the conservativeness of
Baldwin's figures and have realized that any responsible
expert in realty values would not have placed a lower
valuation on this property than Baldwin did. I submit,
therefore, that the court should take Mr. Baldwin 's valu-
ation because there is none other to be taken.
SALES OF LAKE MEECED PROPERTIES.
The defendants, for the purpose of proving the value
of the Lake Merced property, have called your Honor's
attention to certain transactions from which it is as-
sumed the complainant, after the commencement of this
suit, acquired title to some of that property. Three of
those properties, as you will remember, are on the por-
104
tion of the property immediately or practically adjoin-
ing the ocean. So that I take it, for the purpose of de-
termining the average value of those properties, it would
be quite fair to add the prices per acre of the three, and
take an average. That gives an average for the prop-
erty j3urchased in that locality of $874. They say that
the other property, which they describe as among the
best, — although there is not any evidence to show it, —
was purchased for eighteen hundred dollars per acre.
By taking the average of those two prices, we get $1337
per acre. How many acres have we there — I will figure
it at 2735 acres, — 2735 acres at $1337 an acre will give
a total of $3,656,000.
The Court. What was allowed for it in the super-
visors' estimates for those years?
Mr. McCutchen. It was allowed at $2,030,000, Mr.
Grunsky's valuation; the supervisors took his valua-
tion.
I suggested to your Honor, when this question arose,
that in my opinion the testimony had no probative value.
However, the defendants insisted that it had, and I sup-
pose for their purposes that is practically an admission
of the value of the property.
I will read to your Honor from Lewis on Eminent
Domain, Vol. 2, Second Edition:
"Sec. 447. Purchases by the party condemning.
— What the party condemning has paid for other
property is incompetent. Such sales are not a fair
criterion of value, for the reason that they are in
the nature of a compromise. They are affected by
an element which does not enter into similar trans-
105
actions made in the ordinary course of business.
The one party may force a sale at such a price as
may be fixed by the tribunal appointed by law. In
most cases, the same party must have the particular
property, even if it costs more than its true value.'
The Tear of one party or the other to take the risk
of legal proceedings ordinarily results in the one
party paying more or the other taking less than is
considered to be the fair market value of the prop-
erty. ' '
The Court. That testimony is excluded, is it not,
because it is affected by the condemnation proceedings?
Do you think that is appropriate to a case like this?
Mr. McCutchen. Oh, unquestionably, your Honor.
It has been held, repeatedly, that in a suit by a corpora-
tion to condemn property, it could not be shown what
it had paid for similar property in the same locality —
I mean by a contract with the selling public. The theory
of it is, and it seems to me it is perfectly simple, that
the corporation can take the property in the exercise of
the light of eminent domain, and hence the parties are
not at arm's length. There is not a willing seller and
a willing buyer.
The Court. But how does that affect this eighteen
hundred dollar price? That was not taken under emi-
nent domain.
Mr. McCutchen. No, but it could have been taken
under eminent domain That is the point. That is the
reason for the rule laid down here.
The Court. You mean any actual sale of that prop-
erty made between a willing buyer and a willing seller
106
would have been inadmissible — no testimony could have
been admitted?
Mr. McCutchbn. I am afraid your Honor does not
get my point.
The Court. I am afraid I do not.
Mr. McCutchen. You are assuming now that the
Spring Valley Water Works was a willing buyer?
The Court. Under that eighteen hundred dollar pur-
chase, there is nothing in the evidence that I recollect
which shows that that was not a perfectly fair transac-
tion between the parties, a willing seller on the one side,
and a willing purchaser on the other.
Mr. McCutchen. But the willing buyer on the other
side was a corporation that had the right to take the
property in condemnation. The law is I think quite well
settled. The law says, that such a transaction is to be
looked upon in the nature of a compromise. That seems
to be perfectly clear. Does your Honor see it as I sug-
gest it from this authority?
The Court. Well, I would want to examine the au-
thorities on that.
Mr. McCutchen. That is amply sustained.
The Court. I know that has been the rule in cases of
eminent domain, where a party has been condemning a
lot of land, they have to sue A, B, C and D, and so on;
they compromise with A, B, C and D, and in the suit
with E no testimony can be introduced as to the price
paid A, B, C and D; but how far that rule goes back is
107
a question with me; whether it is going to cover every
purchase that has been made by the corporation of land
is aD other proposition.
Mr. McCutchen. I think your Honor will find I have
stated the rule correctly. Let me suggest another thing :
your Honor will undoubtedly look at the map of that
land before you decide this case. You will find as to
each one of these purchases, that they were isolated
tracts, entirely surrounded by the property of the com-
pany. They were not attractive to the ordinary pur-
chaser. There was really but one purchaser for them.
Mr. Haven. The gum forest faced on a well-estab-
lished road.
Mr. McCutchen. The gum forest faced on a well-
established road, yes, but was surrounded by the
company's property. In that condition and with no
railroad communication there, and none likely to exist
until the company's property was put upon the market,
a property owner would be much more ready to sell than
under ordinary circumstances. I will not take the time
to discuss this any further, because I am quite certain
that an examination of the law will satisfy the court that
these purchases have no probative value.
THE TESTIMONY OF SCHUSSLER.
There has been some criticism of Mr. Schussler with
reference to his figures in this case, but when your
Honor comes to read the record you will find a very
potent and very cogent reason for the discrepancies be-
108
tween him and the other engineers who acted for com-
plainant. You will find that Mr. Schussler was endeav-
oring to ascertain the cost of duplicating the prop-
erty at the time the rates were fixed, which is what
the supreme court of the United States has repeatedly
announced to be proper. Mr. Schussler used an
eight-hour day and two dollars and a half wage, while
all of the other experts use a ten-hour day and
two dollars wage. I do not claim that these facts
alone account for all of the differences between
Schussler and the other experts, but I do claim
that, in large measure, they do away with the dis-
crepancies which counsel on the other side has criticised
so severely in some instances. A very large difference
may be thus explained. Furthermore, it is well known,
and it is developed in the testimony, that before 1903
San Francisco had become a unionized town, and that
all work which was done from that time on was done
under union regulations, and at a correspondingly in-
creased cost.
Mr. Grunsky said that he was not figuring upon the
cost of labor or upon the cost of materials as of the
date when these rates were fixed, but that his prices
were those ranging over a period of ten years prior to
1903. He admitted that between 1901 and 1903 the cost
of labor and the cost of materials had enormously in-
creased.
Now, I take it that Mr. Schussler had a perfect right
to use the eight-hour day and the two dollars and a
half wage, which were then actually prevailing, for the
109
purpose of determining what it would cost to duplicate
the properties at that time, and that in any event his
doing so very largely explains the fact that his valua-
tion for the structural properties is larger than that of
any other witness.
And is it to be said that Mr. Schussler is to be en-
titled, or that his estimates of value or cost are to be
entitled, to no consideration in this case because he
does reach a higher valuation than anybody else? Mr.
Schussler has been identified with this property from
the time of its commencement. As counsel on the other
side says, he knows it better than anybody else.
Mr. Schussler answered forty-three hundred ques-
tions; I think he was on the witness-stand for three
months. It seems to be regarded as strange that he
should not be able to go back a period of 40 years, and
tell the cost of structures as of that day. I should
say that a witness who professed to be able to go back
that length of time and tell the cost of the properties,
unless he made some explanation to show why these
particular facts were impressed upon his mind, would
make himself an object of suspicion, and his testimony
of questionable value.
I recall a very interesting fact that is developed in
the testimony of Adams in this connection. Some very
learned engineer had suggested to the cross-examiner
that the number of brick which Schussler said were used
to l4ne one of his structures would have been enough
to fll it up solid and to leave 20,000 brick over; and
counsel asked Mr. Adams if he would not make a com-
110
putation and determine how many brick were probably
in the lining of the tunnel. Adams, from the testimony,
made a computation, and he found that there were not
enough brick in Schussler's computation to line the tun-
nel and that Schussler was probably several thousand
short (pp. 5075, 5130).
We cannot follow counsel, it is absolutely impossible
to follow him, through all these criticisms of Mr. Schuss-
ler, but we ask your Honor to refer to the testimony,
when these criticisms are being considered, and not
simply to the extracts which are printed in defendants'
brief. We ask your Honor, for instance, to look thor-
oughly into that phase of Mr. Schussler's testimony
where it is claimed he made a statement before the
board of supervisors in 1901, in which a very much
lower valuation was claimed than in his estimate of
1903-04. I remember one quotation from defendants'
brief as follows:
"XQ. You stated at the end of your testimony,
in answer to the question, 'Are those the present
values': A. 'Yes, they are the present values, but
I did not say that was all they were worth; a man
may state a thing is worth $100, but that does not
say it is not worth $150; if it is worth $150, it is
certainly worth $100.' "
This I consider to be entirely misleading. He ex-
plains in connection with that, and there is no reference
to the explanation in the defendants' brief, that the
company was then engaged in an effort to acquire prop-
erties which were very needful; that the officers of
complainant realized that the board of supervisors
Ill
would not allow any higher rates than had been al-
lowed in previous years; that it had been the policy of
the board of supervisors to cut down rates, and reduce
values. He explains that he consulted with Mr. Kel-
logg, who was the counsel for the company, and that
Mr. Kellogg said that it was not necessary to give more
than a certain valuation; that no income above that
would be allowed in any event, and that if a valuation,
with reasons therefor, was given, that was all that need
be done at this particular hearing ; that complainant was
seeking to acquire properties, and, if the high value
which these properties really had was made public,
, such statements would make it a practical impossibility
for it to acquire much needed property in Alameda
county and on the peninsula. Mr. Schussler, deeming
that a sufficient reason — and I think he was right in
deemiug it a sufficient reason, and I do not think your
Honor would have any hesitation in advising a client
of yours as Mr. Kellogg did — is criticised because he
i did not give the high valuation which he gave in subse-
quent years. I suggest that an examination of Schuss-
ler's testimony affords a perfect explanation of that
phase of the case.
And another complete answer to all criticism of this
character is that that is not an estoppel. There is no
suggestion that the board of supervisors was induced to
act upon anything said by Mr. Schussler in that year,
that is, in fixing rates for the years in controversy. That
such was not the case is fully shown by a letter written
to the board of supervisors when it proposed to adopt
these rates, in which the company said:
"We solemnly protest against the enactment of
these rates."
112
Therefore the supervisors were not misled. Neither
they nor the consumers have been injured. Schussler
gave them a valuation which they refused to accept. I
think I can very candidly say that if your Honor reads
the whole of that testimony you will reach the conclu-
sion that Mr. Schussler is not fairly subject to any
criticism for having said and done what he did at that
time.
The testimony of Schussler is entitled to very great
weight, no matter whether his is the highest estimate
or not. He built the works. He knows better than any-
one what would be involved in an effort to duplicate
them. The results accomplished should enable him, bet-
ter than anyone else, to advise as to the cost of dupli-
cation. Counsel on the other side would have you be-
lieve that Schussler, in order to serve the company, has
made statements that are untrue and for which there is
no foundation in fact. I submit to your Honor that
such a judgment as that should not be lightly passed.
His answers seem to be candid. When the fact was
against him, he seems to have had no reluctance in say-
ing so. He has, and he is entitled to have, a very ex-
alted opinion of the work which he has done. He has
said, for instance, that men doing work of the character
required by him could only lay so many brick a day;
other men have said that a man doing that sort of
work would lay a great many more brick a -day, pos-
sibly more than would be accounted for by the differ-
ence between the hours taken by Schussler and the
hours taken by those who make other estimates. But
113
they say at the same time that it is a notorious fact in
the engineering profession that the Spring Valley
Water Company insists upon work of an exceptionally
high character. I am not sure whether or not it was
called to your attention, but I remember very well, that
Mr. Adams, when he was under cross-examination, said :
I I never insist upon such work as Mr. Schussler in-
F sists upon". In the construction of ordinary works,
there is no one, there is no concern, there is no water
company, that draws the line as tightly with refer-
ence to quality and character of workmanship, and
to quality of material, as does the Spring Valley Water
Company. It is because of its rigid requirements that
the company has been able to get the long life that it
has out of its structures. It is for this reason that
its structures show less deterioration than the struc-
tures of other companies.
We ask your Honor to consider all these facts when
determining the weight and the credibility of Mr.
Schussler 's testimony.
QUANTITIES.
I also want to call your Honor's attention to the fact
that the impression is somewhere given in the brief of
counsel for defendants that there were no quantities
given by any witness except Schussler; that there was no
proof of quantities made by anybody else and, therefore,
that all his estimates must fail. Am I correct about
that?
114
Mr. Haven. No; the statement was that two of your
witnesses took a great many of their quantities from Mr.
Schussler — Mr. Adams and Mr. Schuyler stated they
took their quantities from him in a great many instances,
if not entirely so.
Mr. McCutchen. Well, I thought the claim was
stronger than that.
I was going to refer to the testimony of Mr. Grunsky
and to a letter written by him to the board of pub-
lic works, in which lie said that for a long time he
had four men in the field making surveys, measurements
and computing quantities in these various structures.
I have not compared them in all cases, but if your Honor
will look at the municipal report which is in evidence,
you will find that those quantities vary very little from
those given by Schussler. Grunsky does not agree with
Schussler in his unit prices, but he does not differ
from him materially in his quantities. It is an unfair,
and it must be an unconvincing criticism to make of Mr.
Schussler, that there is no check upon the quantities
which he used. Is it to be assumed, that because he
alone computed quantities, the results reached by him
are incorrect1? These structures were open to examina-
tion by any witness. Cross-sections of all of them were
available; all the material was at hand for very close
estimates.
Grunsky did say, as to the Crystal Springs dam, that
quantities were difficult to determine, because the toes on
the two sides were not uniform — and naturally, they
would not be in a dam of that kind — but he did not say
115
it was impossible to ascertain quantities; he said just
exactly the contrary.
At page 324 Mr. Grunsky testified :
"In the matter of the constructive works, quanti-
ties were carefully determined, as carefully as cir-
cumstances permitted, and unit prices were adopted,
these prices being applied to quantities in order to
determine about what the cost of reproduction of
the works would have been in a series of years pre-
ceding the time that the estimate was made."
And at page 419 :
"Assistants Sanford, Thompson and Meyer, also
Mr. Stut, were all actively at work verifying state-
ments as to properties of the water company and
estimating quantities. Mr. Schadde acted as land
appraiser. * * * Our combined estimates re-
sulted in the making of the appraisement which was
submitted on February 26th.' '
"XQ. 545. Is it a fact that Assistants Sanford,
Thompson, and Meyer, also Mr. Stut, were actively
engaged in verifying statements as to the properties
of the company and in estimating quantities ?
"A. Yes, sir. They were the assistants engaged
upon the measuring of the different structures,
works, and the like, that were in use for the Spring
Valley Water Works in connection with the supply
of water to San Francisco.
"XQ. 546. And on their estimates of quantities,
you made your report?
"A. They were my assistants and made the
measurements for me.
"XQ. 547. And you made your report on that
basis?
"A. I used the information they gave me in con-
nection with making my appraisement."
116
MISSING CASH BOOKS.
Counsel has said that it is very strange that the cash
books were missing. I recall that counsel during his
argument stated that Dockweiler said he had found in
a stable, where the complainant company kept some of
its records, vouchers from which the cost of all the
properties could be ascertained. He said there were
boxes and boxes of them. That suggests two thoughts
to my mind: Mr. Dockweiler was the consulting engi-
neer— so described — to the city attorney of the city
and county of San Francisco. Of course, your Honor
knows that there is no such office as that, and
I read that to mean that he was the retainer of the
city attorney of San Francisco for the purpose of aid-
ing him in every way that his ingenuity could suggest in
the preparation and in the trial of this case. He makes
one of the most extravagant statements with reference
to these vouchers that it would be possible for anybody
to make; and if any evidence were needed, further than
that which has been presented to your Honor's eyes,
of the partisanship of Mr. Dockweiler in this case,
the portion of the testimony so quoted should furnish
it. How could he tell, not having examined those
vouchers, whether the Spring Valley Water Company
could ascertain the cost of every portion of its prop-
erty? And if it could be told, why didn't he determine
it? The answer will be that he only discovered the
vouchers two weeks before the taking of the testimony
was closed. There was no suggestion upon the part
of defendants that Dockweiler would like further time
to examine those vouchers and determine those facts.
117
There is rothing in the record to indicate that if such
a request had been made, it would have been antago-
nized by the complainant. And if the vouchers existed,
that shows quite conclusively that complainant was
trying to conceal the facts they would establish.
Your Honor will recall the testimony of Mr. Comte
that I have read to you, in which he said
that the board of supervisors had sent its ex-
pert to examine the books of the company, and
that the accountant returned with the report that
the company had shown him every courtesy and had
thrown open all its books to him. Of what advantage
was it to the company to have those cash books spirited
away? I fail to find anything in the statement of coun-
sel that indicates that any advantage was gained. He
says that Mr. Eeynolds stated while on the stand that
he could, from the journal entries, reproduce any entry
called for in the missing cash books. Defendants did
not ask him to reproduce any of those entries. Nor is
Mr. Wenzelburger 's essay on that subject — and I do
not say that offensively, because that is what it is —
susceptible of the construction that those missing cash
books prevented him from determining what the cost
of the property was. I make no criticism — and I think it
is needless for me to say that — of the city attorney's
office; but I submit that when you consider the instruc-
tions given by Dockweiler to Wenzelburger, when you
consider what he was told to do, and more particularly
what he was told not to do, the criticism about the miss-
ing books is not entitled to much weight. Dockweiler,
by the exaggerated and extravagant statement regard-
118
ing the facts which might be shown by vouchers which
he did not inspect, shows that he was not seeking in-
formation to aid in the solution of any disputed ques-
tion, but was looking for something which might be
used to embarrass the company. There never has been
a session of this court at which you have presided,
where there was under consideration a case in which
this company was interested, that Dockweiler has
not been at the elbow of the city attorney. During all
f.his long argument he is the only man on the city's
side of the case, other than Mr. Haven, who has been
in court. He has not only prompted him, he has not
only come to the bar and given him information, but
he has in every way shown himself to be, as he is, the
paid advocate of the city. I do not reflect upon Mr.
Dockweiler for that — that is what he was paid for; he
was paid to assist the citjr attorney in preparing this
case, and particularly in getting the evidence together.
Mr. Haven. You don't begrudge me that assistance,
.do you?
Mr. McCutchen. Not at all, that is what you paid
Mr. Dockweiler for ; but I do say it is asking a good deal
of a Chancellor to take the testimony of Mr. Dockweiler
as he would take the testimony of a man who had
not shown himself to be a partisan. That is the point
I am making. I think that is only common sense.
Mr. Haven. Is there anything in that exhibit you
have there to show that those instructions were given
by Mr. Dockweiler?
119
Mr. McDutchen. I am going to read it and see what
the instruction is. This is the report dated October 25,
1904. This is Exhibit 100. I am reading from page 1.
It is addressed to the city attorney :
"On June 3, 1904, I made my first report to you
on the general books of the Spring Valley Water
Company, covering the first five months of the
work.
"This second report, and its accompanying
schedule covers my work since and consists of data
gathered and compiled from the company's general
books from their beginning, 1860 to August, 1904.
The schedule consists of one volume, two sections,
comprising 411 pages. When I refer to the Spring
Valley Water Company, I, of course, include the
Spring Valley Water Works, the last named being
the original corporation incorporated in 1858 and
succeeded by the Spring Valley Water Company,
September 15, 1903. I have continued the work
under Engineer Dockweiler's direction, as in-
structed, and have furnished him from time to time
detail schedules of land data running back to the be-
ginning of the company's general books."
I now read from page 28 of the same exhibit. As
we have seen, the witness was under Mr. Dockweiler's
instructions.
"I have gotten all the information furnished in
this report and its various schedules from the com-
pany's general books, asking, as suggested by you,
practically no questions or assistance from the com-
pany's officials."
That shows the condition under which Mr. Wenzel-
burger did his work. Why was that instruction given?
Your Honor knows that an auditor is often sent to ex-
amine the books of a company. But it would be a most
120
remarkable thing to tell him not to ask any questions;
that if he found anything that was doubtful and might
be susceptible of explanation if he were to ask a ques-
tion about it, that still he was not to seek any informa-
tion. It is fair to characterize such action as the send-
ing of a special agent to find what he could, and that
if what he found was against the company, he was to
seek no explanation. It is evident that Wenzelburger
thought that if he had been permitted to ask questions
he would have received information. I remember one
instance of this particularly. There is an item which
defendants charge against us, amounting to $15,000,
where Wenzelburger says the company charges one
amount for service connections with reference to oper-
ating expense, and another amount with reference to
new construction. Now, is it not quite within the possi-
bilities that, if he had asked for information on that sub-
ject, he would have received a reasonable explanation?
Is it to be assumed that he would not have received it?
Is it not to be assumed in common fairness that this
charge was possibly susceptible of an explanation, and
that it was the duty of this auditor, as it is the duty
of every auditor who examines the books of a company,
to seek information with reference to matters about
which doubts arose in his mind?
I read further from exhibit 97, page 2, in which he
says:
"My work to this point, with the exception of a
little land data, looked up and reported on verbally
to Mr. Grunsky and Mr. Dockweiler, has been con-
fined to the company's general books, from which I
gathered all the information furnished, asking, as
121
suggested by you, practically no questions of the
company's officials."
He then says :
"It was my hope to be able to compile in detail
from the beginning every account affecting cost of
plant, but before that result was attained," — long
after the dialogue about the missing cash books —
"Mr. Dockweiler notified me to stop the work on
September 30, 1904, because of lack of funds to
carry it on. I worked on the books in the com-
pany's office until nearly that date in order to get
as much data as possible, and have ever since been
compiling the figures in my own office to prepare
this report."
Does it not fairly appear from that report that Wenzel-
burger by no means thought that the fact that the cash
books were missing would prevent him from making a
complete report?
PROPERTIES OUT OF USE.
Counsel has referred several times to the properties
out of use as designated by Mr. Schussler, and in one
instance said they did not differ very largely in amount
from that given by Mr. Dockweiler. Of course, counsel
did not intend your Honor to understand that the prop-
erties out of use were referred to by Schussler in the
same sense or in the same connection in which they were
referred to by Dockweiler, nor that they were the same
properties. Schussler was testifying particularly with
reference to what is known as the Arroyo Valle reser-
voir site and the lands purchased there which drain into
122
it. As stated by Dockweiler, those lands were not owned
by the company, nor by the Suburban Company, at the
time his figures were taken; they only apply to one of
the later years. Schussler, after having determined his
value, proceeded on the same basis to determine the
value of the Arroyo Valle reservoir and the waters which
could be impounded from the watershed lands which
drain into it. His total estimate for properties out of
use was $4,500,000. Every one of the defendants' wit-
nesses has said that those lands are out of use; not
one dollar has been allowed for them in any one of the
estimates. That, of course, will not be denied. So that
when your Honor comes to consider properties out of
use as described by Mr. Schussler, it will be necessary
to bear in mind that the great bulk of that amount is for
properties which defendants say never have been used
and are not useful, and as to which no one of the defend-
ants' witnesses allows us a dollar.
SAN FRANCISCO CITY WATER WORKS.
And while I am on the subject of properties out of
use, there is an item of $1,386,000 which counsel on the
other side would strike out of this list of properties,
and for which he would make us no allowance either in
investment or in actual cost of building up the works.
That is an amount representing a large part of the cost
of the San Francisco Water Works. Counsel says
that we are not entitled to have this sum considered,
because the franchises which were conveyed to us only
V23
existed for periods of 30 years and 20 years, respect-
ively, and that the one that was for 30 years was held
to be void, on the ground that the legislature had at-
tempted to confer on the corporation special privileges.
But this company got something more than franchises
by that purchase. As Mr. Eeynolds points out, it got
a going business. Reynolds calls attention to the fact
that, in the year immediately following that purchase,
the revenue of the company doubled. Having purchased
a going business, it is not to be said that, because ft
franchise included in the purchase has expired, the
asset, so far as it consisted of the purchased business,
is not to be included in ascertaining our investment. Of
course that is only to be considered in connection wit1'
what is the actual cost of the properties of the cor-
poration and its stockholders; in ascertaining what is
the actual investment. It seems, looking at it in that
light, it would be very unfair to say that because the
franchises had ceased to exist, or because one of them
had been held to be void by the Supreme Court, the
company did not get anything by the purchase. I think
that is a very apt illustration of the soundness of our
claim that a company of this kind is entitled to an al-
lowance for going concern. The company certainly
paid something for going concern in this instance.
DEPRECIATION.
With reference to depreciation, we find ourselves in
rather an unfortunate situation. We all know, as your
Honor said in the 1908 case, that there goes on from
124
time to time, and from year to year, by the operation
of natural causes, a deterioration of the structural prop-
erties of a plant like the one with which we are dealing.
It is claimed by the defendants that this deterioration
has been, to a very large extent, taken care of by re-
newals made from time to time. To the extent that
such renewals have been made, they belong to the com-
pany, no matter whether they were paid for out of
income from water rates or from other moneys; those
moneys at the time they were expended for the re-
newals belonged to the corporation. There is no founda-
tion for claiming that because, if it be the fact, which
we deny, the water rates were sufficient to enable the
company to make renewals, we are not now entitled to
an allowance for depreciation.
There is no presumption, as claimed by counsel, that
water rates in the past have been fair. There is no
presumption that in order to pay for renewals the
stockholders were not compelled to forego dividends.
But he says it is immaterial whether to do so they did
forego dividends. When renewals were made, they be-
came part of the complainant's property, and if the city
had made it a present of the money necessary to make
them they would be none the less part of complainant's
plant and belong to it.
We are somewhat in doubt whether there is sufficient
testimony in this record to enable your Honor to tell
what the deterioration is from year to year; and we rec-
ognize, of course, that if deterioration has taken place,
and your Honor makes an allowance to take care of
125
the depreciation which may take place in the future,
it is only your duty to take into consideration the de-
terioration which has taken place in the past. Defend-
ants contend that the renewals have kept the plant in
excellent condition, and that it is in just as fine condi-
tion today, so far as the rendition of service is con-
cerned, as when it was completed. About that there
is no question. In the shape in which this proof is, we
very candidly say to your Honor that we are unable
to state what amount fairly represents such deteriora-
tion as may have taken place in the past; but in view
of the statement that the plant has been kept up to
this high state of efficiency it would seem we are en-
titled to some allowance for depreciation to take
care of worn-out portions of the plant when they cease
to be useful. Whether your Honor can determine what
that is from the record, I confess I am unable to say.
That renewals necessary to be made have been made,
counsel on the other side admits. How the money was
secured for the purpose, makes no difference. The plant
is none the less the plant of the complainant company
because the money to make renewals came out of the
water rates. Your Honor recognized in the 1908 case
that we were entitled to something for depreciation ; what
allowance should be made, I must frankly say I do not
know definitely. My associate suggests to me that
the subject is fully discussed in Vol. 1 of complainant's
reply brief. We are willing to rest the matter of de-
preciation on our showing there and in the addenda to
this argument.
126
UNDIVIDED PROFITS.
There was considerable discussion by counsel with
reference to contributions by stockholders to the cap-
ital of the corporation and with reference to undivided
profits. I do not understand that he has said
anything further on that subject than he said in his
brief, and I think that argument has been fully met.
Undivided profits are clearly to be considered for the
purpose of determining the actual cash which the
company has put into the property. But, for the pur-
pose of determining what the actual investment of
these stockholders is, the only method which can be pur-
sued is that which was followed by Mr. Reynolds. We
suggested in our opening that it necessarily followed
from the argument of counsel that it made no differ-
ence so far as the stockholders were concerned whether
they got dividends in 1860 or whether they got them
in 1905. It is, says counsel, a question of how
much actual money in dividends the stockholders
got, and the period of abstinence, as it is called
by economists who have written upon the sub-
ject, is entirely ignored. I gave to your Honor, and
1 asked counsel to reply to it, a concrete illustration of
the difference between his rule and the correct rule.
I showed that if the money contributed had been put
in a savings bank and left there, as it was left in this
enterprise during the first seven years of its existence,
the interest which would have accumulated in those
seven years would have been in the neighborhood of
$1,200,000 more than the interest allowed in their table
127
No. 1. To that he has made no response. The argu-
ment is unanswerable.
Counsel also suggests that we have no ground for
dissatisfaction when we have a total investment, ac-
cording to our books, of $26,699,000 derived from
stockholders' contributions of approximately $9,000,000.
Counsel could hardly have intended to say that, be-
cause the $26,000,000 included all of the money received
from the sale of bonds, which was a very considerable
amount.
TRANSFER SPRING VALLEY WATER WORKS TO SPRING
, VALLEY WATER COMPANY.
I now come to the matter of the transfer from the
Spring Valley Water Works to the Spring Valley Water
Company. I said something to your Honor the other
day with reference to what the minutes showed. The
offer made by Mr. Partridge included not only the
minutes, but all the books and accounts of the two com-
panies ; it therefore included the stock books. Your
Honor has seen neither those books nor the minute
books, and this statement of mine will have to be taken,
therefore, subject to verification by your Honor, which
we will afford in any shape you desire.
There were 140,000 shares of the Spring Valley Water
Works. The reorganization took place in September,
1903. By the end of December, 1903, there had been
surrendered of the stock of the Spring Valley Water
Works 129,545 shares. Your Honor will see that that
includes all but about 10,500 shares. Bv the first of
12S
September, 1905, when these books were offered in evi-
dence, there had been surrendered 139,017 shares, of
which not one share had been surrendered for cash.
New stock had been issued for the old. That left out-
standing at that time less than 1,000 shares, out of
140,000.
Counsel claims that that transaction fixes the value
of our property. But, even if this theory of ascertain-
ing value were adopted, we would still be entitled to a
return upon a valuation of approximately $26,000,000.
The price of that stock at $90 per share, was $12,600,000.
We had outstanding bonds of $13,750,000. Our floating
debt was at least $1,200,000; the total price paid was,
therefore, $27,652,446. There was no period of ab-
stinence, and there is, accordingly, no warrant for any
discount. We paid immediately, if you are going to
look upon this as a transaction of purchase and sale.
Counsel, by a rule of mathematics that is quite new to
me, says that in order to get at the actual value we
must deduct for property not in use $4,600,000, $2,900,000
of which had not only gone out of use, but had, ac-
cording to his own theory, no existence at the time of
this transaction.
I assume that it is not necessary for me to suggest
to your Honor that if this was a transaction of pur-
chase and sale these people were not purchasing $2,900,-
000 of property that had gone out of use years ago,
and which not only had gone out of use, but had ceased
to exist. If it was a purchase and sale, complainant
was buying the Spring Valley Water Works as it
129
was on that day. Furthermore, if value is to be pre-
dicated on this sale, the $1,700,000 is not properly de-
ductible, because there is no showing — and in this in-
stance the burden is upon the defendants — that the un-
used property is worth that amount.
If, however, there were some showing that the unused
property was worth, in 1903, $1,700,000, as claimed by
defendants, and if that sum were properly deductible
from the $27,652,446, the total price paid for the entire
properties, we reach, on defendants' own theory, a valu-
ation of $25,952,446. The income of $1,284,000, which
defendants claim complainant has received, gives, upon
this sum, a rate of 4.1 per cent.
We submit that there is a conclusive showing that
this transaction involved only a reorganization of the
Spring Valley Water Works; and that defendants have
so recognized it in their brief (680), where they say:
"Other items of expenditure charged against
operating expenses for 1903 to which Mr. Wenzel-
burger took exception were the expenses of the in-
corporation of the Spring Valley Water Company
* * * for proxies in connection with the reor-
ganization."
Wenzelburger, at four different places in his exhibit
No. 97, referred to the transaction as a "reorganization."
VALUE OF PROPERTIES.
I have been asked by counsel on the other side to
tell what the value of this property is, and to tell
whether it has any value and how your Honor is going
130
to arrive at that value. With reference to value, we
believe we have made a definite showing. On one
branch of the argument we began with the proposition
that the rates allowed were wholly inadequate, even
on . defendants ' showing of value. On that phase of
the case we started with the estimate of Grunsky, so far
as it was adopted by the supervisors, namely $24,124,389,
and added to that an item which Grunsky included, but
which the board excluded, and other items which, we
think we have clearly demonstrated, Grunsky on his
own method of valuation improperly omitted, and which
brought the total lip to $26,549,226. We have pre-
sented to you seven other valuations which are reached
upon theories we have previously explained.
The valuation on which we rely is reached in the
following manner: We take Mr. Grunsky at the value
of the structures stated in defendants' brief, $15,276,744;
to that we add interest during construction, $753,837,
contingencies and omissions, $1,400,000, lands and water
rights, $9,047,645, and we substitute for his value of
water rights the values given by Mr. Schussler and
Mr. Hering, $150,000 per million gallons. We also
substitute Baldwin's values on San Francisco real es-
tate for Grunsky 's values on San Francisco real estate,
and by that process we arrive at $43,066,241.
With reference to our right to substitute $150,000 per
million gallons, I have shown, I think conclusively, that
it is impossible for San Francisco to bring water
from the Sierra at a cost of less than $460,000 per
million gallons. It is immaterial to what source the
131
city goes, assuming it goes to the only place where
Dockweiler and Grunsky say it can go, and that is to
the Sierra. It cannot bring water from any point in
the Sierra any cheaper than from the Tuolumne. So
that, if it will cost it that price per million gallons
to bring water from the only place from which they say
it can obtain it, I submit that it is only fair that
the estimate of Mr. Schussler and the estimate of Mr.
Hering as to the value of water, $150,000 per million
gallons, be accepted. That is less than one-third the
cost per million gallons of water from the Hetch Hetchy
supply. Their valuation of water finds more sub-
stantial support in the record, and, in view of the whole
showing, is more logical than that of Grunsky. Water
is of great or small value as it will require a great
or small investment to produce it. The city has itself
shown what the cost of an equivalent quantity from
the most available source will be, and it is far in excess
of the value placed by Schussler and Hering upon our
water rights. This testimony has also an important
bearing upon the element of unit value. The combina-
tion of our properties has made it possible to accom-
plish a result which could not otherwise be accomplished
except by going to the Sierra. The claim that existing
water rights are worth at least one-third of the cost of
delivering here, from the Sierra, water equivalent to
the quantity those rights supply, does not seem an ex-
aggerated one, nor does it sound unfair. It seems
the court might with the utmost propriety allow this
value of $150,000 per million gallons for water rights,
or might allow it as the value of the unit, in excess of
132
the values of the several parts. We are entitled to an
allowance for value due to the combination of our
several properties, and it is difficult to suggest a more
reasonable or logical method of reaching it.
In that connection I desire to read from Cleveland
Railroad Co. v. Bachus, 154 U. S. 443, in which it is
said:
"The true value of a line of railroad is some-
thing more than an aggregation of the values of
separate parts of it, operated separately. It is
the aggregate of those values plus that arising from
a connected operation of the whole and each part
of the road contributes not merely the value arising
from its independent operation, but its mileage
proportion of that flowing from a continuous and
connected operation of the whole. This is no denial
of the mathematical proposition that the whole is
equal to the sum of all its parts, because there is
a value created by and resulting from the combined
operation of all its parts as one continuous line.
This is something which does not exist, and cannot
exist, until the combination is formed."
All the separate elements of our property have the
values placed upon them, respectively, by defendants,
independent of any allowance for unit value.
"A notable illustration of this was in the New
York Central Railroad Consolidation. Many years
ago the distance between Albany and Buffalo was
occupied by three or four companies, each operating
its own line of road, and together connecting the
two cities. The several companies were united and
formed the New York Central Railroad Company,
which became the owner of the entire line between
Albany and Buffalo, and operated it as a single
road. Immediately upon the consolidation of these
companies, and the operation of the property as a
133
single connected line of railroad between Albany
and Buffalo, the value of the property was recog-
nized in the market as largely in excess of the ag-
gregate of the values of the separate properties. It
is unnecessary to enter into any inquiry as to the
causes of this. It is enough to notice the fact."
I may be asked what that value is in dollars and
cents. I confess freely to your Honor that I cannot
tell. That is one of the problems to be submitted to
the court. I have, however, suggested a method for get-
ting at it which seems to me sound and altogether fair.
It is none the less an element of value because we have
not the assurance to stand before you and say exactly
how much it is worth. We have given you all the facts ;
we have given you all the information of which the case
is susceptible. It has value, however. And you are
entitled to look at the cost of this substitutional system
for the purpose of enlightening yourself as to what
that value is. That showing surely has an important
bearing on the question of unit value. Here were a
lot of individual and isolated properties which have
been acquired from time to time — I am afraid to say
by the exercise of foresight and forethought and judg-
ment, because those words seem to be offensive to coun-
sel. However, we have acquired them from time to
time, and we now have a system that enables us to
perform a service that cannot be performed except by
the bringing of water from the Sierra. The cost of
that will be infinitely greater than the value de-
fendants allow for our properties. That seems to be
the most satisfactory evidence that could be adduced
to show unit value. Particularly should it be carefully
134
weighed in determining whether Schussler and Hering
are not quite conservative in estimating the value of
water rights at $150,000 per million gallons. I know of
no better way to present facts to you, I know of no
other facts that could be presented, to enable you to
exercise an intelligent judgment with reference to unit
value, than the cost of an equivalent service to San
Francisco. We could not render the service if it were
not for this unification of our properties. We could
not render the service with any one of these properties
taken by itself. It is because we have combined them,
it is because — to employ the language of counsel on the
other side — Mr. Schussler has built up a magnificent
system — that we are able to keep San Francisco supplied
with water. But when counsel comes to consider that
phase of the question, he says we are entitled to nothing
for that element. It is sufficient, he says, that we get
the values of the individual elements which go to make
up the unit.
RATE OF RETURN.
I want to address myself for a moment to one ques-
tion to which counsel has called attention, and that is
interest on bonds. I do not know exactly what is
claimed to be established by his argument, but I assume
it to mean that, because we have paid four per cent in-
terest on bonds, we are not entitled to receive, through
rates, more than five per cent. I do not see why he was
so generous as not to claim we are not entitled to more
than four per cent. I feel I demonstrated in my open-
ing that this contention is not sound. Counsel said thai
some of these bonds bore four per cent, and some six
135
per cent, I do not know just what the average was. All
the property which this corporation has, is behind those
bonds, and every dollar of it, if necessary, can be taken
to pay them. The situation of the stockholders is not
comparable in any way to that of the bondholders.
We have furthermore consistently claimed that, be-
cause of the nature of this business, the risks of the
enterprise must be considered in ascertaining a rea-
sonable rate.
I have a number of cases on this question of the risks
of the enterprise. Many have been cited to your Honor
in the opening brief, but there is one to which I wish
particularly to call attention; it is a decision from the
House of Lords, to which I referred in the 1908 case.
The question concerned the tolls that were to be re-
ceived for the use of a bridge. This case was cited with
approval by Judge Brewer in the Kansas City Stock-
yards case, and a long quotation was made from it. The
name of the case is International Bridge Co., reported
in 8 House of Lords, 529:
"It seems to their lordships that it would be a
very extraordinary thing indeed, unless the legisla-
ture had expressly said so, to hold that the persons
using the bridge could claim the right to take the
whole accounts of the bridge company, to dissect
their capital account, and to dissect their income ac-
count, to allow this item and disallow that, and, after
manipulating the accounts in their own way, to ask
the court to say that the persons who have pro-
jected such an undertaking as this, who have en-
countered all the original risks of executing it, who
are still subject to the risks which from natural and
other causes every such undertaking is subject to,
136
and who may possibly, as in the case alluded to by
the learned judge in the court below, have the whole
thing swept away in a moment, are to be regarded
as making unreasonable charges not because it is
otherwise than fair for the railway using the bridge
to pay those charges, but because the bridge com-
pany gets a dividend which is alleged to amount, at
the utmost, to 15 per cent. Their lordships can
hardly characterize that argument as anything less
than preposterous."
How does the argument which counsel made this
morning seem to measure with the argument which was
there characterized by their lordships as preposterous?
He says we were borrowing some money at 4 per cent
on our bonds, and therefore we are not entitled to make
a profit out of San Francisco on money which we so
borrowed. San Francisco is entitled, according to this
argument, when determining the value to it and its cit-
izens of the service rendered by the comjjany, to take
the benefit of any profit, so to speak, the company may
have made on money which it has borrowed. I do not
think I can more appropriately characterize that than
as it was characterized in the opinion just quoted. It
is preposterous.
Now, let us see what would follow from defendants'
argument. If the company had been able, on account
of the high standing of the men who were in the con-
cern, and by the use of collateral, to borrow half the
money that went into the plant at two per cent, the
logic of the argument of counsel is that in that case
you should simply allow a rate of return that would pay
five per cent on half the value and two per cent on the
other half. In other words, the rate of return should
137
not be on value, but upon the high credit which the cor-
poration had, by reason of the personnel of its stock-
holders or by reason of its ability to satisfy the people
from whom it borrowed that the money would unques-
tionably be returned. The argument, if it can gener-
ously be so characterized, has the merit of novelty.
That the company could or can borrow at low rates, is
no concern of the board of supervisors, nor is it any
concern of the court.
It may very well be, and undoubtedly it is, the fact
that the rate which the bonds bear affords to an extent
the explanation of the company's ability to pay divi-
dends as large as it has paid.
I take it that, so far from these facts being in coun-
sel's favor, they are distinctly in our favor. With all
that saving, we were enabled to pay only the very small
dividends which the record shows. Our property is
none the less valuable because we borrowed money to
pay for it. We are none the less entitled to have its
value determined in the ordinary way because we bor-
rowed money to pay for it. It is none the less valuable
because the credit of the corporation is good. Counsel
cites to you a number of loans made to the company at
four per cent. I remember that Mr. Wenzelburger in
his report spoke of loans secured by collateral. That
is net explained in detail, but I can well imagine that he
means by that, that the company went to a commercial
bank or to some man who had money to lend, and de-
posited a lot of its bonds as collateral on a short term
loan, and in that way was enabled to get a lower rate
of interest than might have resulted by selling its bonds
138
at the then prevailing price. The city is not entitled to
the credit of that; not upon any theory. That does not
affect the value of complainant's property, nor does it
have the slightest bearing upon the rate of return to
which the stockholders are entitled. It is an absolutely
false quantity in the discussion, but illustrates the length
to which defendants seem to be forced and indeed to be
willing to go in their effort to sustain these ordinances.
In the discussion before the board of supervisors,
when the 1903-04 rate was adopted, it appeared that the
company had incurred a large floating debt. The ques-
tion was asked, "Why have you incurred that debt?"
The answer was that we could not pay any dividends
and that we could not continue operation without doing
so. I do not mean by that, that the company was pay-
ing dividends out of unearned profits, because if there
was any appreciation in the value of the properties,
that was a profit which they were entitled to use in pay-
ing dividends. But one of the supervisors, and one
who took a very active interest in forcing the reduction
of seven per cent, said in effect: "Let this corporation
" stop paying dividends and pay its debts, there is no
" reason why it should have any debt." In this con-
nection I must again remind you of counsel's claim that,
after the new constitution went into effect, complainant
was not permitted to make any profit over and above
the dividends paid to stockholders.
So, according to the argument of defendants, this cor-
poration should have stopped paying dividends, and
have paid its floating debt. That indebtedness accrued
after the constitution went into effect. Having started
139
with a clean sheet practically, in 1879, complainant and
its grantor, in order to pay dividends and keep the plant
a going concern, incurred that floating debt, and were
even then able to pay dividends of only 4.2 per cent in
1903, and 3.78 per cent in 1904. It seems to me that is
the best illustration that could be put to your Honor of
the reason for the reduction in dividends. That reduc-
tion was due and wholly due to the reductions beginning
in 1897 and continued from year to year until 1903.
I again call attention to the testimony of some of the
witnesses on the question of rate of return. I think I
have said to your Honor that this evidence is not
in the form of affidavits. These bankers and brokers
had made affidavits which were used at the preliminary
hearing, and, in order to save the time and expense of
both the city and company, it was stipulated that if they
were present they would testify to these facts. This
is, therefore, to be considered their testimony in all
respects, and to the same extent, as if they appeared
before the Examiner.
I will read from the testimony of Jacob Barth, one of
the most prominent brokers in San Francisco :
"Jacob Barth. That he is a stock and bond
broker and a member of the Stock & Bond Ex-
change of San Francisco, and has been doing busi-
ness in said San Francisco as such broker for the
last 10 years. That he is, and during all of said
time has been familiar with the income yielded by
investments of large amounts of capital in said San
Francisco, and in said state, and generally on the
Pacific Coast. That the usual and customary net
income from investments of capital in corporations
where they are judiciously managed is not less than
140
7 per cent per annum. That, in his opinion, based
upon his knowledge of financial conditions in said
city and county, and in said state, and generally on
the Pacific Coast, and based also upon his said ex-
perience, a net income of less than 7 per cent per
annum upon an investment of $10,000,000 and up-
wards, in a quasi public or public utility corpora-
tion in said city and county, and in said state, and
generally on the Pacific Coast, would not be a rea-
sonable or fair return upon the investments so
made by said corporation in acquiring or construct-
ing its properties for such quasi public purposes
and that capital could not be obtained to be put
into and be invested in such investments for ac-
quiring or constructing such properties unless the
owners of such capital could be reasonably sure
that such investments would produce at least 7 per
cent per annum, and that in his opinion, based on
his knowledge and experience as such broker, the
present selling price of the capital stock of the com-
plainant, the Spring Valley Water Company (cap-
italized at $28,000,000) to-wit, $40.25 and $40.50 per
share (with slight variations at times) is caused by
the attempted cut in water rates purporting the last
few years to be made by the board of supervisors
of this city and county, in alleged ordinances, es-
tablishing rates, and that such price is based upon
such facts and not upon the values of the proper-
ties of the complainant in use in supplying water to
said city and county, and its inhabitants, because
when rates have been in vogue allowing dividends
of 6 per cent, or even somewhat less, upon stock of
the former company, the Spring Valley Water
Works, which had $14,000,000 stock issued, at a
par value of $100 per share, and no more properties
in use, the stock of said water works sold at par,
and at one time even $3.00 per share above par."
The fact therefore clearly appears, and there is noth-
ing to contradict the showing, that the board of super-
141
visors cut rates from time to time. There can be no
other possible reason for the reduction of dividends.
The five per cent rate of return about which
there has been so much discussion was not, in
fact, paid by complainant to its stockholders, and
the company was unable to pay it, and the
board did not enact rates from which it could be
paid. If your Honor will examine Mr. Beynolds' chart,
you will find that, from 1901 on, the company never was
able to pay five per cent. When the repeated cuts
are relied upon here to establish acquiescence or estop-
pel it is enough to provoke a smile. I cannot refrain
from recalling counsel's answer when, before discussing
rate of return in my opening argument, I asked him
whether there was any testimony in the record that five
per cent was a fair return to the complainant. He re-
plied that he did not think there was any testimony at
all on the subject of rate of return.
I have called your Honor's attention to the fact that
in this record of the board of supervisors, there was
a letter from the company, following the report of the
minority member of the water rates committee, recom-
mending a horizontal cut of seven per cent, the letter
saying that the company solemnly protested against the
rate proposed. Nevertheless, the cut was made, the
ordinance was passed, and we have come here for relief,
and your Honor, as you said in the 1908 case, will de-
termine all these questions as if these proceedings had
not taken place before the board of supervisors — I mean
as if the reasons for the various acts of the board of
142
supervisors did not appear. Upon your own indepen-
dent investigation you will arrive at a result.
There is no pretense that complainant induced the
supervisors to adopt any of the rates in question — -on
the contrary, it appears, and it was so stated by counsel,
that the relations between the company and the city
have for years been characterized by lack of harmony,
and that there has never been a time for years when
there was not lack of harmony on the questions of value
and rate of return.
Counsel calls your Honor's attention to some testi-
mony by Mr. Schussler, and also to an exhibit found in
the 1900-01 Municipal Reports, which, it is claimed, show
that five per cent is an adequate rate. This must have
been offered on the theory that there had been either
acquiescence on complainant's part or a compromise.
The theory as to each of the propositions is wholly at
variance with the facts. The exhibit is as follows:
Estimate of Spring Valley Water Works for 1901 :
For operating expenses $ 450,000.00
For taxes 260,000.00
For coupons 658,500.00
For other interest 19,000.00
For twelve dividends, 5 per cent . . . 705,600.00
Total $2,093,100.00
Less rent for building . .$34,200.00
Other rents 10,000.00
Making a total of $44,200.00 44,200.00
Amount needed from water rates. .$2,048,900.00
143
I now read from page 2953 of Mr. Schussler's testi-
mony:
"In the water rate investigation of 1901, did jrou
testify as follows: 'Mr. Schussler. I think the di-
vision was reduced either one or two years ago to
5%. This young man hands me a statement that
up to January, 1899, the rate of interest on the
stock was 6%, but from February on, that is, two
years ago, the rate was voluntarily reduced to 5%
on the stock.
11 'Q. You mean the dividends?
" 'A. Yes sir.
11 'Q. That was by reason of the two ordinances
passed by the board of supervisors?
" 'A. No sir, it was passed before the ordi-
nance went into effect and before the rate was fixed
two years ago.' "
The supervisors began reducing rates in 1897, and
this is unquestionably the reason for reducing divi-
dends. For 1901 and 1902, as shown by Eeynolds, the
dividends fell below five per cent. The request of the
complainant that it be allowed dividends at the rate of
at least five per cent upon the par value of its stock in
1901, cannot be construed to be an admission that that
was the current rate to which it was entitled.
During the discussion before the board of supervisors,
in 1903, Mr. Connor, who was a member of the commit-
tee on water rates, recommended a horizontal cut of
seven per cent from the rates of the previous year, in
which there had been a horizontal reduction of ten per
cent below those of the preceding year. For 1902-03, the
supervisors allowed a valuation of $25,500,000, and the
company during that year contributed over $700,000 in
144
capital investments, making the value of complainant's
plants, on the basis of the supervisors' previous valua-
tion, $26,200,000, at the beginning of the fiscal year 1903.
When this horizontal cut of seven per cent was pro-
posed, Mr. Comte, who is conceded by all to be a man
of high character and great ability, said :
"Supervisor Comte. I have been a member of
this board for three years. When I came to the
discharge of the duty devolving upon me as a super-
visor, I had the same prejudice against the Spring
Valley Water Works that some people have now.
It was only after hearing the evidence which was
introduced for three different years that I became
satisfied that my prejudice was unfounded and un-
supported. I am here as a juror, trying a case
upon the evidence and the law as it is submitted to
me, and not as a politician, nor as one who wears
any man's collar, but in the discharge of my con-
scientious duty. I do not propose to obey the dic-
tates of any club or newspaper. I do not under-
stand that it is my duty as a supervisor every time
that water rates are fixed, or gas rates are fixed,
that I must of necessity make a cut or reduction
upon the rates. Those rates should be allowed in
a reasonable and fair manner, based upon the law
as it has been construed by the highest courts in the
land. It is uncontradicted that the true measure
to be fixed in this matter is the allowance of a rea-
sonable interest upon the actual value of the prop-
erty used in supplying the city and county with
water. I say that that is a very illiberal measure,
because it makes no provision for a depreciation
account, it makes no provision for a reserve fund,
but simply allows an interest upon property, much
of which in time will disappear, and the principal
to a great extent will have been lost to the stock-
holders. But striking that out of the calculation
and conceding that we are bound to follow the
145
majority opinion of the court, what are the facts in
this case? This board last year fixed upon a valua-
tion of $25,500,000. None of that property has been
withdrawn from the service since that time. In
other words, all the property that was there in
February, 1902, is there now. We have had an
expert. We have paid him for two months ' work in
trying to find errors in the books of the company.
I have had none pointed out to me. I have not
heard of any mistakes that the company has made.
It has verified the opinion I always had of their
bookkeeping, that it was fair and open to inspection.
That valuation, then, has remained unimpaired, if
we were correct when we fixed it twelve months ago.
"To that must be added the new construction of
$733,500, which makes a total of $26,235,500, upon
which, as the Supreme Court says, they are entitled
to a fair income. I think that five per cent is a very
small income in view of the depreciation that comes
to this kind of property. Five per cent would give
$1,311,775, to which we add for taxes much less
than the company claims, but the amount we paid
last year, of $242,500, it will be more this year, be-
cause they will have to pay taxes on their increased
construction account more or less of $733,000. The
state rate will be more, so that when we put it at
what they paid last year, we are putting it below
what it really will be. The operating expenses we
put at $450,000, which is much less by some $30,000
than the company claim they will expend, which
makes a total of $2,004,175 that they are entitled to
receive under the laws under which we live. They
received last year $1,980,651, which is much less
than the amount they are entitled to receive. Now,
they may receive some increased business, prob-
ably will, but if they do, it will not enable them to
pay the twelve dividends which their stockholders
are entitled to receive. It will not restore to them
the $31,000 and over, which they paid in excess of
taxes, over the amount we allowed them. It will
146
not pay back to them the $43,000 in excess in oper-
ating expenses. For that reason the majority of
the committee thought that the continuance of the
present ordinance for the next year was only fair,
and less, really, than they were entitled to re-
ceive. ' '
On that showing, with no change in conditions, and
against our protest, they lopped off about $2,000,000
from the previous valuation.
It would seem unnecessary to make any explanation
of the item reading "for twelve dividends 5 per cent",
found in the 1901 reports. That applied to the fiscal
year 1901, and not to any of the years with which we
are now concerned, and the company did not get the rate
asked even for that year. However, there is sufficient
in the record to show that the reason for that state-
menr was that the company very well knew that the
board would not under any circumstances grant any
higher rate. That is quite conclusively shown by the
statement of Mr. Kellogg, who, while addressing the
board and protesting against the proposed cut in 1903,
said:
"The board last year estimated these properties
to be worth $25,500,000. It is indisputably a matter
of record by the evidence in this case that we have
added to that construction $733,000, making some-
thing like $26,200,000, upon which, if you allow five
per cent, we will still be a little over one dividend
or one month's interest to stockholders short. And
I think that five per cent is a very small per cent.
I agree with one gentleman who said here on the
floor of this house last night, that he did not think
it was enough. But it is useless to talk upon such
147
a proposition as that when it has been fixed so
many years."
In other words, the supervisors had turned a deaf
ar for so many years that it was useless to talk about
getting more than five per cent from them. That, of
purse, does not show what was the current rate of
return to which the stockholders were really entitled.
We produce a dozen or more bankers and brokers,
who state that capital can not be had to invest in an
enterprise of this kind unless it pays at least six per
?ent, and some of them say seven and eight per cent.
t gainst that, — after saying there is no testimony in the
pjcord on the subject of sufficiency of rate of return —
30unsel quotes the statement of Mr. Schussler with ref-
erence to a reduction of dividends in a previous year.
[ submit that that statement — aside from the fact that
it is entirely foreign to the matters we are considering —
is to be looked at in the light of the treatment shown
to have been meted out to the company by the public
agency. The statement of Schussler that the company
reduced dividends was quite natural in view of the fact
that it could not continue to pay what it formerly paid.
For this there was but one reason. Mr. Kellogg said to
the board in effect: It was useless to ask it for more
than five per cent ; the action of the board for many years
tiad been such as that to argue with it for more than
that return would be a waste of time. He said that
percentage was too low, and that even if it were allowed,
the company would nevertheless be compelled to pass
one dividend; it could not pay twelve dividends to the
148
stockholders at that rate. He asked a return of at least
five per cent on $26,200,000. What did the board do in
response to this appeal? Did it grant what the company
might have accepted I Indeed no ! It turned a deaf ear
to that appeal in 1903, as in 1901 it turned a deaf ear
to the appeal that was then made by the company.
The 1901 statement seems to be relied upon as an
agreement, or an acquiescence, or an estoppel, with
reference to the rate of return, but this is completely
contradicted by the record. The reduction in dividend re-
ferred to by Schussler was for the reason that the rates
fixed, forced the reduction.
Counsel has stated repeatedly in his brief and argu-
ment that there had for years been contention between
the company and the supervisors; that unfriendly and
inharmonious relations had prevailed. It is not possible
to assume that the reduction in dividends was made for
any other reason than that the board of supervisors had
consistently refused to allow complainant a sufficient
income to pay larger dividends. No other reason can
be assigned for the reduction than that the supervisors
would not allow the company sufficient income to pay
larger dividends.
If counsel had sought to rely upon this as an estoppel
or an acquiescence, and, indeed, if it were not an after-
thought, he would have pleaded it. We have presented
the testimony of some of the foremost financial men in
this city, and there is absolutely nothing on the other
side. The fact that the company in 1901 filed a state-
ment containing an item for twelve dividends at five per
149
cent, does not, by the most liberal interpretation in
favor of the city, show that to have been a fair rate
even for the year to which it referred, let alone for a
subsequent year. Nor does the fact that Mr. Schussler
said they reduced the rate to five per cent prove that
that was a fair rate of return. The case is out of the
hands of the board of supervisors. It is now before
your Honor. What is the proof before you with refer-
ence to the fairness of rate! Is there one syllable of
testimony — and counsel admits there is not — to show
you that during the years 1903, 1904 and 1905, any
lower rate than six per cent was a fair rate? It is
upon this testimony that your Honor is to determine
the question, and not on a showing of the company's
willingness to accept in another year, under conditions
not disclosed, a rate of five per cent, on par value, which,
by the way, it did not get. That can be neither a guide
nor even an indication as to what was a fair rate even in
1901, and surely not as to 1903 to 1905.
In passing, I wish to direct attention to one reason
for making this cut as little as seven per cent; in other
words, for not making it ten per cent. It was con-
tended that the reduction should be ten per cent. A
report adopted by the board, by a vote of ten to six, con-
tained the following:
"And in view of the fact that the Spring Valley
Water Works has voluntarily increased the wages
of its laborers to $2.50 per day of eight hours, and
that it pays good salaries to its other employees,
consent is reluctantly given to this enormous sum
being allowed."
They not only did not allow complainant a fair rate
for that year, but they did not allow it for the next
150
year, and they had not allowed it for years previously.
They reduced the valuation of the properties from year
to year, notwithstanding new structures were being add-
ed from year to year, and an increased quantity of water
was being furnished each year over the delivery of the
preceding year. One of the reasons stated in the testi-
mony of the bankers and brokers for the fall in the sell-
ing price of the stock was the refusal of the board of
supervisors to allow adequate rates, and the decline in
price was attributed to the action of the board in persist-
ently reducing income year after year. This is the only
testimony in the record with reference to what was a
fair rate of interest upon investments of this kind in
1903. and from that on to 1905. It is full and unequiv-
ocal that anything less than six per cent was unfair.
Upon this — the entire showing — a rate of less than
six per cent was inadequate. You can hardly
be influenced by the fact that complainant was, two
years before this controversy, under circumstances of
which you are not informed, willing to accept a return
of five per cent on the par value of its stock — in addi-
tion to the entire interest on its bonds — but which, as
has been made clear, it did not receive.
I have omitted to call your Honor's attention to an-
other point. In the 1903 and 1904 valuation, the super-
visors not only did not take Mr. Grunsky's figure, but
they took what Mr. Justice Lurton in the Omaha case
described as the "bare bones". They took the indi-
vidual properties, they determined the value of each
piece of land, and the value of each structure, and made
no allowance for what we call "Unit Value". Thev
151
made a horizonal cut of seven per cent from rates for
the previous year, expressing the regret that they had
not made it ten per cent, and in 1904 reduced the hy-
drant rate to one-half what it had formerly been.
Ten members of that board were the men who, two
years before, passed the resolution which in effect said
to complainant, ''If you do not sell to us at a price that
"is satisfactory to us, we will secure water elsewhere;
11 we will take your market away from you, and we will
" convert your lands into agricultural lands merely."
It would require a great stretch of liberality to say
that showed a spirit of fairness. We ask you to couple
with that the suggestion that no dividends should be
distributed until the floating debt was paid; and to add
to that the suggestion of counsel that we are not al-
lowed to accumulate any profits to pay floating, or any
other, debt. You will then get some appreciation of the
difficulties under which complainant has labored. I am
stating these facts to you from the record. I ask wheth-
er that betrays the judicial spirit which Chief Justice
Waite, in the Schottler case, said it must be presumed
would be exercised by supervisors in establishing rates?
We have not only demonstrated that the allowed value
was inadequate and unfair, but we have demonstrated
that the action of the board of supervisors was dictated
by an unfriendly feeling toward the company. We think
it is not exaggeration to say that an impartial considera-
tion of the record leads to that conclusion.
152
Let me say, however, there is no such rule as that
for which counsel contends. It has long ceased to be
the rule — if it ever was — that we must show bad faith,
although I submit that we have shown absence of good
faith here. It has ceased to be the rule — if it ever was
the rule — that we must show anything more to a Chan-
cellor passing upon a case like this than that the rate
of income is inadequate. That is the only burden that
is upon us. It could not be more succinctly expressed
than it was by your Honor in the 1908 case, when you
said that when the matter reached a court of equity
it was the duty of the court, upon its own independent
investigation, to ascertain the value of the property;
upon its own independent investigation, to ascertain
what is a fair rate of income, and upon that independent
investigation to determine whether the rate of return
allowed was fair or unfair.
These three cases are all submitted on the same testi-
mony, with the single exception as to the operating ex-
penses for the different years. We have called your
Honor's attention to the fact that there are a number of
Hems which defendants strike out of operating ex-
penses, or with which they charge us, based on the as-
sumption that there were items in 1904 and 1905, cor-
responding to charges in 1903, to which they make ob-
jection.
For instance, there are certain items in the 1903 case,
such as service connections, $14,000 odd. There are no
such items in the 1904 case, nor in the 1905 case; but
they assume, because they found a particular charge in
153
the 1903 case, that the same charge existed in 1904 and
in 1905. There is nothing in the record to warrant that
assumption. In that connection, I again call your atten-
tion to the fact that Mr. Wenzelburger's report did not
cover the whole of the year 1903, so that you cannot tell
what was done with reference to any item mentioned by
him before the end of the year. With these exceptions,
the two later cases are heard upon the same testimony
as the 1903 case.
Note: Upon oral argument counsel admitted at page 750
that he had improperly included $10,550 as income from prop-
erties not in use. He also admitted at page 764 that $47,000,
shown by Reynolds to have been collected by the Suburban
Water Company, on accounts which became due prior to 1903,
had been included by him in his estimate of the Company's in-
come for the fiscal year 1903. We quote as follows:
"Mr. Haven. On page 655 of the defendants' brief we
point out that the outside rents included in those three
items, being the latter two, amount to $61,981.66.
"Mr. McCutchen. You do not claim that that all ac-
crued for the fiscal year 1903, do you ?
"Mr. Haven. For 1903-4, yes, I so understood it. Is
not that the fact?
"Mr. McCutchen. No, it is not. It is explained in the
testimony by Mr. Reynolds and not contradicted, that
$47,000 of that was for moneys accrued during the pre-
ceding years.
"Mr. Haven. You are right as to that year; I over-
looked that. In the $115,082 there is a figure $47,000, or
there is a certain figure coming from the previous year. ' '
If these two sums are added together, we have a total of
$57,550, so that the net income for the year 1903, even conced-
ing the correctness of all counsel's other figures as to income
and expenses, which we think have been shown to be inaccurate,
is $1,226,826.31.
155
ADDENDA. A
VALUE OF SCHUSSLER'S ESTIMATES.
Defendants, at page 451 of their brief, say as follows,
with reference to Mr. Schussler:
"An engineer so circumstanced should have been
the most valuable witness in this case. With his
unusual sources of information, he could have en-
lightened the court upon the perplexing questions
here involved. A study of this record compels us
to the conclusion, however, that his estimates of the
values of complainant's properties are neither trust-
worthy nor convincing, and cannot be relied upon by
the court as a basis for the finding of value."
To support this statement, defendants then advance
six reasons to prove the unreliability of Mr. Schussler 's
estimates. We shall consider these in detail.
"The record discloses estimates made by Mr.
Schussler in reports to the board of supervisors in
the matter of its investigations prior to fixing of
water rates in the year 1901 and in February, 1904,
but a few months before his evidence was given in
this case, from August to December, 1904. The dis-
crepancies between some of these estimates and his
testimony in this case are so great as entirely to
destroy the weight of such testimony."
To sustain this statement, defendants have inserted
a table, numbered 36, which purports to be a comparison
of Mr. Schussler 's estimates in this suit with those given
by him in previous water rate investigations. This
156
table, it is submitted, affords no proper basis for com-
parison.
(1) The figures given in the column headed "Esti-
mates of 1901", were not in fact Mr. Schussler's esti-
mates. He repeatedly, in the course of his testimony,
emphasizes the fact that these figures were furnished by
the secretary from the books. These figures showed
what had been charged on the books to the cost of con-
struction, but omitted large amounts, which should have
been charged to that account. At page 2206, Mr. Schuss-
ler testifies:
"XQ. 2898. In the exhibit filed by the company
with the board of supervisors in 1900-1901, the cost
of the upper dam is placed at $219,596.61. You
place it at $345,477.
"Mr. Kellogg. I would like to ask you, Mr.
Partridge, who made that exhibit!
"Mr. Partridge. That is the exhibit of Mr.
Ames ; it is supposed to be the actual cost of it.
"A. You should not compare my estimate of
cost, that is, of what it would cost to build that kind
of work in 1903, with what the bookkeeper or ac-
countant states has been charged to that dam. I
might not have charged everything to it; I do not
know.
"XQ. 2899. Then he has misled the board of
supervisors if he has not.
"A. I do not know about that; he has been
asked to give an account. I am not the accountant.
You should not compare his figures with mine. You
might compare my former estimates with my pres-
ent estimate; that would be a little fairer. Then
you would see a difference in the estimates, owing
to the fact that labor and materials are different in
157
At page 2479, Mr. Schussler says:
"XQ. 3901. In your exhibit of 1901, did you
place the Crystal Springs lower dam at $2,242,000?
"A. I did, not including ten per cent.
"XQ. 3902. And in your testimony, do you place
it at $2,192,000?
"A. I do, but that needs also an explanation
as regards the testimony of 1901. I called on Mr.
Ames, the secretary, about a year ago, and told him
that I thought there was too much charged to the
lower Crystal Springs dam. He appointed a time
when I jointly with him looked through the books.
I discovered that some of the land purchases had
been charged to the Crystal Springs dam in the
sum total of $2,242,000 which I had given to the su-
pervisors in this approximate estimate of 1901. Sub-
sequently, when I went to work to make up the total
estimate of 1903-04 of the upper Crystal Springs
dam I think that I discovered that there were certain
things that should have been charged to the upper
dam; had been charged to the lower dam. * * *
The only explanation that I can give of it — of
course, I do not keep the books."
And at page 2484:
"XQ. 3921. You have, time and again, during
this cross-examination, mentioned instances where
you presented statements to the board of super-
visors which, for one reason or other, we will say,
were inaccurate. I say how do you expect the board
of supervisors to fix your rates justly when your
own statements to them are, according to your own
testimony so manifestly inaccurate?
"A. Yes; but I have been the one who has gone
to work and corrected those things, and I have been
the one who has found out, for the purpose of get-
ting at the exact facts, what portion should be prop-
erly charged to one account or another. * * * If I
go as engineer of the company, to the secretary of
the company, who has charge of the finances, and
158
ask him for a list of figures of what he has charged
to various items, I cannot very well say, unless I
positively know right then and there, that that is an
overcharge or that there is a mistake in it. * * *
Those things are liable to occur at any time."
At page 2763, Mr. Schussler says:
' ' I think I made, at the request of the supervisors,
or at least I made for the supervisors, an estimate
of the cost (Crystal Springs main dam), which fig-
ure was handed to me by the secretary because he
was the only one who knew everything that had been
charged to the dam. Not having any other proof
to the contrary, I took his figures, as coming from
the official head of the accounting department."
At page 2603:
"XQ. 4417. Mr. Schussler, will you have pre-
pared for me, to be given to me either by Mr. Kel-
logg or someone else, the actual cost of each one of
the structures that you have estimated in your
testimony?"
To this he replies :
"A. That I cannot give you. The only man
who can possibly give you that is the secretary. I
have absolutely no account of that. I have simply
an account of the dimensions as regards the three
clay dams with the modifications that I have spoken
of in my direct testimony. As to the cost, that
would be a question of expert bookkeeping, and I
believe the only man who would be able to give ap-
proximately near it would be the secretary. ' '
And, at page 2606:
"XQ. 4425. In your communication to the board
of supervisors dated March 11, 1901, you use the
following language: 'I shall also show the under-
valuation in the cost of the works below the actual
159
cost of construction which we can prove by the com-
pany's books, vouchers and witnesses, particularly
the large undervaluations far below their cost and
the value of the water and riparian rights of the
Spring Valley Water Works.' How could you make
such a statement as that if you did not know the
cost of these various works?
"A. That was based upon the secretary's ac-
counts, when it comes to cost. In making inquiry of
the secretary and of the experts who had been em-
ployed, they definitely stated to me that the cost
was greater than the figures given by Mr. Grunsky,
in his estimates, and as I was the representative of
the company at that time before the supervisors,
I made this statement to them: 'That I shall also
show the undervaluations in the cost of the works
below the actual cost of construction.' The actual
cost of construction being given me at that time by
the secretary."
At page 1803 :
"XQ. 1122. Is that the tunnel you have refer-
ence to in your estimate filed with the Board of
Supervisors in 1901, at page 87, as having been con-
structed in July, 1888, and costing $89,865.53?
"A. I do not remember that. The books of all
those constructions were kept by the secretary
and in those days any information that the super-
visors wanted from me, I being the man who was
asked by our directors to go to the supervisors, I
would inquire from the secretary, and he gave me
the figures and data, and I simply delivered the
figures to these supervisors as coming from the
company."
With regard to his 1904 figures, Mr. Schussler says,
at page 2498:
"In the year 1903-04, in this testimony, I have
the total estimate of the Locks Creek line, inclusive
160
of ten per cent for incidentals, etc., at $399,200, on
page 1048 of the testimony. My estimate made in
February, 1904, was $376,700, so that that came
quite close to it.
"XQ. 3972. There are three estimates on that!
"A. There is a change in the time and in the
wage scale, and in materials also.
"XQ. 3973. From 1904 up?
"A. No sir; there is a change in the time and
in the wage scale from 1901 to 1903-04.
"XQ. 3974. But your estimate of 1904 does not
agree with your estimate now in this case?
"A. My estimate in 1904 was made at the time,
and without any ten per cent being added in it.
"XQ. 3975. In 1904 did you add any estimate
in it?
"A. No sir; I neglected that."
"While at page 2514, Mr. Schussler says:
"XQ. 4055. Will you give from your exhibit in
1904 your estimate of the protective system from
Colma Gulch ? Have you the total for that ?
"A. I have no separate estimate. I have an ap-
proximate estimate made at the time, in the ab-
sence of details, of $260,000 in the report to the
supervisors in February, 1904.
"XQ. 4056. And in your testimony it is how
much?
"A. In the testimony it is, inclusive of ten per
cent, $343,000. That is, after carefully going over
the details and putting in whatever might have
been omitted in the original hasty estimate."
(2) But even if the secretary's figures for 1901 had
included everything properly chargeable to the cost of
construction, which they did not, there can still be no
proper comparison with Mr. Schussler 's figures, which
were based on measurements and dimensions, quantities
161
and qualities, and which are estimates of what it would
cost to reproduce, and not of original cost. His estimate
of the cost of reproduction, moreover, always takes into
consideration cost of materials, labor and the number
of hours' work and the conditions as to day's work pre-
vailing in the years 1903-04.
(3) The testimony shows as to some of the items
to which attention is called in defendants' table, that
although the particular structure selected for compar-
ison is designated by the same name, the later estimate
refers to a different structure. Take, for instance, the
item designated "Ocean House Flume", from which
counsel draws comparisons between the estimate of $9,-
000 in 1901, and $12,000 in February, 1904, and $15,750
m Schussler's testimony. These estimates did not refer
to the same structure. The estimates for 1901 and
February, 1904, referred to an old flume built about
thirty years ago. That was completely rebuilt and en-
larged to about double its former capacity in the first
half of the year 1904 (p. 3864), and Mr. Schussler says
that he had then with him, at the giving of his testi-
mony, an account showing the actual cost of materials
and labor used in the new construction (Test. Schussler,
XQ. 1091).
Again, defendants compare the figures given the board
of supervisors for 1901 as to the Crystal Springs pump-
bag station, $91,610, with Mr. Schussler's estimate in
this suit of $165,300. The testimony shows that the for-
mer figures were from the secretary's report, which, as
to that item dealt only with the cost of the pump, while
162
Schussler's own estimates included the entire aqueduct,
from the station to the Locks Creek line, besides much
additional construction (p. 2243).
Another instance is the Pilarcitos side flume : In 1901
and February, 1904, the figures were $10,000 and $18,000,
respectively; while, for the purposes of this suit, the
estimate was $20,000. The additional $2,000 represents
the main flume and a branch flume later constructed.
(4) The difference between Mr. Schussler's esti-
mates in February, 1904, and those given at the time
he testified in this suit has been already explained. The
one represented approximations only, prepared in a
period of five days ; the other was the result of careful
surveys and measurements and an elaborate investiga-
tion of every detail.
II.
We quote from defendants' brief (p. 455):
"Second. Defendants produced four witnesses
who participated in the construction of portions of
complainant's properties in San Mateo County —
Messrs. Emery, Higgins, Carey and Fifield. Their
testimony, together with the records of complain-
ant as contained in its minute and account books,
contains the only basis of comparison of actual cost
of construction with engineer's estimates which the
record furnishes."
Defendants, upon this testimony, seek to show the ex-
aggeration of Mr. Schussler's estimates and the infe-
rior character of the structures composing complainant's
163
plant. We propose to examine this criticism in detail.
COST OF HAULING SAND, CEMENT AND BRICKS.
With respect to Schussler 's estimate for the hauling
of these three items, the following appears from the tes-
timony :
In hauling sand, Schussler states, at page 2752, that
a 4-horse team will haul 2 cubic yards, or 5,000 pounds,
making one round trip a day, from Millbrae to struc-
tures in the Pilarcitos region, at an expense of $7.50,
this amount of sand costing $3.20 delivered on barges
at Millbrae; the total cost therefore for the 2 cubic
yards or 14 barrels is $10.70, and the cost per barrel 76
cents. Since 5 barrels are sufficient for $1,000 bricks,
the cost of sand on that basis is $3.80.
As to Locks Creek Tunnel No. 1, the sand or other
material had to be hauled to the top of the hill and
sledded down, since there was no road. It would be
economy now, as it was then, to so deliver it, the build-
ing of a road for this one purpose being more expensive
than to pay the extra sledding expense (1018-19).
Schussler 's cost is here 88.4 per barrel, or $4.42 per
1,000 bricks.
As to the brick shaft and inlet tunnel at San Andreas
reservoir, San Andreas waste weir, and gate shaft and
tunnel at Upper Crystal Springs dam, Schussler 's fig-
ures are 65 cents, including cost of sand. For gate shaft
and tunnel at Crystal Springs main dam and Six-Mile
House tunnel, his estimates stand alone, and without
criticism. In detail, they are:
164
Name of Structure
Cost of Sand Delivered
Per Per 3000
Barrel bricks laid
Pilarcitos waste weir
Gate House at Pilarcitos tunnel
No. 1
Pilarcitos tunnels No. 1 and No.
2
Pilarcitos stone dam brick cap
(Conditions like 1, 2, 3
above)
Locks Creek tunnel No. 1
Brick shaft and inlet tunnel at
San Andreas reservoir
Bald Hill tunnel (Conditions
like 6 above)
San Andreas waste weir
Gate shaft and tunnels at Crys-
tal Springs main dam
Gate shaft and tunnel at Upper
Crystal Springs dam
Six-Mile House tunnel
76 cents
$3.80
76 cents
3.80
76 cents
3.80
88.4 cents
4.42
65 cents
3.25
65 cents
3.25
55 cents
2.75
65 cents
3.25
57 cents
2.85
Schussler's cost of hauling cement is given for Pil-
arcitos waste weir, gate house and tunnels Nos. 1 and
2, at 62.5 cents per barrel, and for other structures at
between 31 and 33 cents, on account of easier grades and
greater accessibility. Two and one-half barrels of ce-
ment are used per 1,000 bricks, and the cost for various
structures is given in the following table:
165
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166
Cement costs $2.75 a barrel at the depot nearest to
structure.
In hauling bricks, Schussler (822) estimates that a
4-horse team will make two round trips a day over Bald
Hill, hauling 1,000 bricks, or 5,000 pounds to the load.
From this, it will be seen that Schussler 's average
weight for a 4-horse team is 5,000 pounds, and that
his figures include all expenses. Defendants' witness,
Fifield, on the other hand, says that at the time he
was driving a team for complainant, he hauled from
10 to 12 barrels of sand at a wage of $10 a day, furnish-
ing his own horses' feed, etc., but not taking into ac-
count any expense for screening or saving. His $10
cost for an average of 11 barrels gives over 90 cents a
day, with no provision for the cost of the material, which
Mr. Schussler arbitrarily estimates at 10 cents.
The weight of these 11 barrels is equivalent to the
weight of 1.57 cubic yards, which is, therefore, less than
Schussler 's figures of 2 cubic yards. The statement that
one round trip was made to Pilarcitos daily corroborates
Mr. Schussler 's testimony to that effect.
Carey is the second of defendants ' witnesses to testify
as to hauling. His evidence (45) shows that by putting
in side boards in a wagon 4 feet wide (length not given)
with six mules, between 2 and 3 yards of sand could be
hauled. This is, of course, indefinite, but establishes an
outside limit of 3 yards, or 7,500 pounds. It seems fair
to take 21/> cubic yards as an average, or 6,250 pounds,
and particularly so, since this is more closely in accord-
ance with the figures of Fifield and Schussler, allowing
167
proportionately for extra power. No statement as to
the cost of the team or the value of the driver 's services,
cost of maintenance, or as to the actual weight his team
could haul is made.
Carey further testifies (45) that he could haul one
load a day to Locks Creek tunnel inlet through San
Mateo valley, while he made two to the outlet. The fact
is, as shown by Exhibit 21, that to get to the inlet, the
San Mateo valley could not be entered. This evidence
was all given after a 30 years' lapse of time, and shows
the general inaccuracy of the witness. He further states
that he could make two round trips a day to the outlet.
The distance from Millbrae is 7 miles (Ex. 21), and two
round trips would make a total of 28 miles. His state-
ment on page 45 was that he could make two trips a
day to the Bald Hill tunnel, a total of 8 miles, while
his claim of two trips a day to Locks Creek tunnel
necessitates a haul of 20 miles more than the distance
he has previously shown a team would travel in an
ordinary day's work.
As to hauling sand for the San Andreas waste weir,
no details are given, Carey simply saying that he hauled
sand to the inlet of Locks Creek tunnel No. 1. This was
impossible then, as now, as all materials had to be sled-
ded downhill, as before stated. With cement and brick,
as with sand, he testifies to hauling to the inlet of Locks
Creek tunnel, where it has already been shown there is
no road.
At pages 42 and 43, Carey says that he could haul 25
barrels of cement, or 2,000 bricks, a total weight of
168
10.000 pounds in each case, with a 6-mule team. This
is so inconsistent with his former testimony that 6,250
pounds was a load that he must have been mistaken,
particularly since his former figure corresponded so
closely with the figures of the other witnesses.
It is to be noted that in not one sentence of Carey's
testimony is any figure as to cost of maintenance, value
of service, cost of screening or any other detail given,
except his monthly salary of $70. We submit that his
testimony is absolutely valueless as a test or criticism
of Mr. Schussler's figures.
Higgins, another of defendants' witnesses, gives no
evidence as to the hauling of sand, but he does remark,
in connection with the transportation of cement, that
"A six-mule team could haul in a load of cement
16 to 20 barrels to the load * * * that would do us
for 2 or 3 days" (10-11).
The average day's work was 5 yards of masonry,
and one barrel of cement was used to each cubic yard;
we, therefore, conclude that 15 barrels was the outside
amount used for three days, and that this was the aver-
age load carried. The only other detail given by Hig-
gins as to hauling was $5 per thousand brick, but there
is no means of ascertaining how he got the figure; it
gives the ratio of $5 for 5,000 pounds, but does not show
what the figure included, and furnishes no test what-
ever as to the entire cost of hauling.
The testimony of Fifield, in so far as it goes, is val-
uable, and shows the conservatism of Mr. Schussler's
estimates. Carey's statements are so tinged with in-
169
definiteness and uncertainty, and show such variances,
that it is difficult to see how much credence can be given
them, while Higgins does not pretend to any exact
knowledge on the subject. The exact and minute esti-
mates of Mr. Schussler seem to entitle his figures to
respect. He is the only witness who includes all the
elements of cost in his figures.
We now approach the question as to the cost of the
different elements which go to make up brickwork.
(I) Sand.
Mr. Schussler says, at page 753, that there is no sand
fit for use in the region of these structures, and that
sand must now be imported from San Francisco county;
his estimate for cost of sand at Millbrae is $1.60 per
cubic yard (there being 7 barrels to the cublic yard),
while, as has been previously shown, the cost for hauling
is $7.50 for 2 cubic yards. Carey testifies that the
sand hauled was obtained from a ravine near Millbrae
(45) near the Seventeen-Mile House, among the willows,
where the water used to run, the necessary implication
being that water no longer runs there. Higgins testifies
that sand was hauled from the creek at Millbrae, the
only cost being hauling, but he omits entirely to estimate
on the cost of screening, saving and loading, while Fi-
field, in discussing the Pilarcitos properties, states that
at first the sand was obtained from Pilarcitos creek, and
that when that gave out, the supply at Millbrae was then
consumed. He further states that the company had a
man there gathering at all times.
170
No witnesses testify that there are now any sources
in San Mateo county, from which sand can be obtained,
or that the San Francisco supply is not the cheapest and
most available; and the sole question, therefore, is
whether or not the fact that sand at original construction
was to be found in the vicinity makes an estimate now,
which takes into consideration the fact that at present
no supply is available, erroneous. It is believed that
since the question is present value, the only material
fact is what it will cost to erect a duplicate structure
under the present state of supplies and engineering sci-
ence. It is submitted that the fact that sand has been
taken from this neighborhood, or that this sand is now
in existing structures, is not at all pertinent. It surely
would not be, if this sand had been used for other pur-
poses, and the fact that complainant has used the supply
does not decrease in any measure the expense which it
must sustain, if the present plant of complainant is to
be duplicated. In other words, no contention would be
made that, if a supply available at original construction
were obliterated by any act of God, the cost of present
construction would be reached on the basis of that sand
being now where it formerly was. So far as cost of
duplication goes, that situation is identical with our own.
(II) Cement.
Schussler's estimate of cost of cement was $2.75 per
barrel, delivered at the nearest railroad station (783,
852, 864, 822, 926, 892, 998). No other witness disputes
these figures.
171
(III) Brick.
Mr. Schussler's figure as to the cost of good brick
culled and selected, delivered by rail, is $11 per 1,000.
Adams and Schuyler accept this figure (5077, 5524) :
"Do you know what brick usually costs!
"A. Yes, I frequently have occasion to buy brick
in the markets about the bay here. I have not
bought any for the several years past for work I
have been familiar with about the bay for less than
$11. I have usually paid $12. Mr. Schussler's
statement of $11 for the class of brick he was get-
ting seemed to me beyond question but that it was
a reasonable price." (Adams.)
"Will you give us the details by which you ar-
rived at the figure of $39.20 for bricking tunnel
No. 11
"A. Brick, on the basis of their delivery at
Millbrae on the cars — $11 per thousand", etc.
(Schuyler).
Schuyler gives a detailed estimate of this figure. De-
fendants intimate, on page 430, that most of the bricks
used in complainant's properties were slop made, and
say:
"The testimony of Messrs. Higgins and Carey
shows that the greater portion of the brick was
burnt by the company on Bald Hill ; in one instance
they were slop made by Chinamen. * * * Only a
small portion of the brick came from San Jose."
Carey's testimony contains no such statement. At
page 42 he says:
"I hauled the brick and cement into the Pilar-
citos Valley from Millbrae, we used to call it the
17 Mile House; also to the Bald Hill tunnel, which
was being done by Jim De Noon, and to the Locks
Creek tunnel."
172
At page 43 he says:
"Q. When you hauled bricks to the outlet end
of the tunnel, where did you get them?
"A. They also came from the Bald Hill."
These two extracts are the only references by Carey
to brick and the Bald Hill tunnel.
Mr. Higgins does say (pp. 3-4) :
"The brick laid in the Bald Hill tunnel were sup-
plied by Mr. Walker, who was supervisor and
sheriff of San Mateo county. These brick were slop
made and were made on Bald Hill by Chinamen, at
$2.00 a thousand; Mr. Walker supplying the pug
mill, horses and tools and a foreman to watch the
work. Mr. Walker made them for the company at
$6.00 per thousand. The cement used on all this
work was Rosedale cement.
"Q. Did the company supply the wood?
"A. They were to supply the wood. Mr. Walker
made these brick for $6 per thousand, complete, the
company to supply the wood to burn them with.
"Q. And they cost how much?
"A. About $8. I do not know much about that,
but I think it was about that.
"Q. $8 altogether?
"A. Yes, sir."
From this testimony, it is evident that Higgins did
not know, and did not pretend to know, anything definite
about cost. He thought it was about $8, but says:
"I do not know much about that."
And this $8 included no allowance for fuel or inci-
dentals, as to which Mr. Higgins was evidently ignorant.
The only slop made brick which defendants' own witness-
es testify to was this lot at Bald Hill, and Higgins does
173
not even question Sclmssler's statement that all brick
was carefully culled and selected. This, continued use
and serviceability must be taken to prove. Furthermore,
in connection with cost, there is no attempt to give an
estimate as to the character, amount or cost of firewood
used for this work, or the cost of loading and unloading,
which Schussler places at from 83 to 55 cents (see Ap-
pendix, Table XVII). This testimony has the general
characteristics of all Higgins' evidence — indefiniteness
and ignorance of material considerations. And besides
this, Higgins makes no allowance for inspection, which
Schussler estimates at 50 cents per thousand, in addition
to his $10.50 primal cost.
We submit that Mr. Sclmssler's figures are not. only
conservative estimates, but are the only ones taking into
consideration all elements of cost.
THE TESTIMONY OF HIGGINS COMPARED WITH THAT
OF SCHUSSLER,
In defendants' brief, at page 455, it is said:
"Defendants produced four witnesses, who partic-
ipated in the construction of portions of complain-
ant's property in San Mateo county — Messrs. Eni-
ery, Higgins, Carey and Fifield. Their testimony,
together with the records of complainant as con-
tained in its minute and account books, contains the
only basis of comparison of actual cost of construc-
tion with engineers' estimates, which the record fur-
nishes. These witnesses were examined as to the
actual cost of certain portions of the work, concern-
ing which Mr. Schussler had previously testified as
174
to the manner of construction and cost of redupli-
cation. The discrepancies between the two sets of
figures, * * * are altogether too great to be ac-
counted for by the difference in dates to which the
two apply.
"It is to be regretted that additional witnesses
who had personal information of the cost and man-
ner of the construction of complainant's properties
were not produced. They could have been much
more easily found by complainant than by defend-
ants. But it is submitted that the testimony of
these four witnesses is sufficient to establish :
"I. That Mr. Schussler's estimates of the cost
of construction of some of complainant's structural
properties are very much exaggerated, and cannot
be relied upon as a basis of valuation.
"II. That in the absence of a contrary showing
the discrepancies which have been proved as to
some of the works must be presumed to exist as to
others; and therefore that none of Mr. Schussler's
figures can be accepted or followed.
"III. That the estimates of all the witnesses as
to cost of construction of the structural works are
much higher than the actual cost of the works war-
rants.
"IV. That Mr. Schussler's testimony as to the
character of materials and workmanship which
went into the structures, and also his statements
as to quantities is disproved, and must be disre-
garded. ' '
The testimony of Emery, Carey and Fifield, in so far
as it concerns the cost of any portion of the structural
properties, has already been considered, and we believe
that it can be asserted that Schussler's figures must be
taken to stand alone, on account of the indefinite char-
acter and lack of detail which is found in the testimony
of these three men. We therefore turn to Higgins as the
175
sole reliance of defendants in their efforts to show lack
of accuracy and unwarranted exaggeration on the part
of Schussler.
Higgins' testimony covers two broad fields: (1) brick-
work; and (2) drifting of tunnels. We shall examine
these two main subjects in detail.
I.
BRICKWORK.
This section involves the labor of handling and trans-
porting brick from the place of delivery to the place
where the work was actually done, the wages of brick-
layers' assistants, such as hodcarriers, mortarmen, and
helpers, the wages of the bricklayers themselves who
did the mechanical work of laying the brick and mortar,
the wages of carpenters, who are required for the prepa-
ration of the tunnels for the brickwork, and who assist,
after the brickwork has been installed, in removing un-
necessary timbers. In complainant's brick structures,
which number twenty-four, 10,094,500 bricks were used
(Tables 19, 20, and 21, Appendix). This brickwork, not*
withstanding the contention of defendants, has been in
the main done by day's work. A tabulated account by
Mr. Schussler shows that out of twenty brick structures,
only four, according to defendants' witness, Mr. Higgins,
were done by him under contract, namely, Pilarcitos
tunnel No. 1, Locks Creek tunnel No. 1, Bald Hill tunnel,
and Six-Mile House tunnel. On the basis of number of
bricks laid, these four structures represent 20.2 per cent,
176
or practically one-fifth of all the work of this character
performed in the service of complainant. All the later
structures of complainant have been erected on the day's
work basis.
Before proceeding to a specific examination of Mr.
Higgins' testimony, the fact should be shown that the
conditions under which labor is now performed, aside
from the question of wages, is very different from that
in the early seventies. Now, no piece of work can be
undertaken, with any prospect of success, unless the
unions of the various laborers are taken into account;
and whereas it may have been possible, at the time, that
much of the work as to which Higgins testifies could be
done without hodcarriers, that would be an utter im-
possibility now. Such rules as this make decided dif-
ferences between actual cost in the first instance and the
expense of present construction (2443).
Higgins qualifies as a witness in this suit with the
following statement as to his experience (p. 2) :
"In the year 1867 I was employed as a journey-
man on work being done by the Spring Valley Water
Works at Lake Honda. In 1870 I was awarded the
contract for the brickwork of the Bald Hill tunnel.
In 1870 and 1871 I was engaged on the masonry
work on College Hill. In 1871 I was awarded the
contract for the brickwork on Pilarcitos Tunnel No.
1. In the same year I was engaged by the com-
pany as foreman in the construction of the stone
dam in Pilarcitos ravine, about two miles below the
main dam. In 1871 and 1872 I was awarded the
contract for the masonry work in Locks Creek tun-
nel. In 1874 and 1875 I was engaged in bricking
the waste weir of the San Andreas tunnel. In 1883
177
I was awarded the contract for the complete con-
struction of the University Mound tunnel. In 1884
I had a contract with the Spring Valley Water
Works for drifting and timbering two tunnels
through Bernal Heights, one 1,120 and one 223 feet.
In 1885 I was engaged in lining University Mound
reservoir with concrete. In 1886 I was engaged in
drifting and bricking the Sierra Point Tunnel. In
1885 I was engaged in the construction of the foun-
dation of the Clay Street tank and the retaining
wall about the fifty vara lot. In 1887 I was en-
gaged in drifting and bricking the Crystal Springs
Tunnel. I built the Bryant Street stable in 1888
and 1889."
We now turn to an examination of Higgins ' testimony
with regard to each specific structure upon which he
claims to have worked.
(1) Bald Hill Tunnel:
Mr. Schussler's figures for the cost of brickwork on
this tunnel, which includes the mechanical, semi-mechan-
ical and common labor required for each 1,000 bricks,
were $32.52. The tunnel was constructed in 1870, was
2,820 feet in length, and required 564,000 bricks (864).
At page 3, Mr. Higgins says substantially as follows:
That the length of the tunnel was about 2800 feet ; that
complainant furnished sand, cement and brick, and that
the contractor provided tools, candles, labor and board
for himself and his men at $15 per thousand bricks laid ;
that the tunnel was to contain 205 bricks per lineal foot,
but that he believes the tunnel took 183% bricks per
lineal foot, and that the work took 4% months, during
178
which time there were employed, besides himself, four
bricklayers and nine laborers. It is not stated in his
testimony, at any point, what this work cost him per
thousand bricks laid — whether he made or lost money on
the job, or how much; at what rate he charged up his
own time; at what rate he paid the four bricklayers or
the nine laborers ; what the number of hours which con-
stituted the length of a day's work was; what the board
of the men cost him. Furthermore, he does not take
into consideration the fact that complainant, at its
own expense, delivered all materials to be used by
him at both ends of the tunnel, nor does he state that
he was to pay the cost of lowering the materials from
the surface to the tunnel. The tenor of his answers and
the uncertainty of his memory cannot but detract from
the value of Iris testimony, and it seems evident that,
where specific details are necessary for the final total
estimate, the fact that certain elements are not figured
on at all makes the computation, as a whole, valueless.
It is an absolute impossibility, upon the basis of his
evidence, to ascertain what he himself figured should be
taken to constitute the actual original cost of this tunnel.
(2) Pilar citos Tunnel No. I.-
Mr. Schussler's figures for the labor employed on
this tunnel in bricking are $31.70 per thousand brick.
He says, at page 771, that one bricklayer can, in this
small arch, lay about 400 bricks a day in the first-class
fashion which complainant requires ; that the wages and
board of a bricklayer are $6.80 a day, or $17 per thou-
179
sand brick; that the wages of hodcarriers and mortar-
men will reach $6.45 per thousand brick; that a car-
penter will receive $2, and laborers $6.25 upon the same
basis, giving his total of $31.70. The tunnel was con-
structed in 1871, is 1,550 feet in length and required
341.000 bricks (770).
Higgins' testimony, at page 6, shows that he bricked
the tunnel in 1871. He estimates its length to be "about
1,300 feet", but he is not positive about this, and thinks
it may have been longer. He states that complainant
furnished all materials, such as sand, labor and cement,
while he supplied tools, cars, candles, labor and board
of men; that he employed four masons and eleven
laborers. He estimates that 200 brick were used per
lineal foot of tunnel, which he again thinks was about
1,300 feet in length, and upon this basis reaches a total
of 260,000 bricks. He shows great uncertainty and
doubt as to the time the work actually took him, but
remembers having heard from Mr. Abbey that Lake
Honda reservoir in San Francisco held only 42 days'
supply, and that he agreed that, if this supply should
run out, he would stop work and allow complainant to
run sufficient water through that tunnel to supply part
of the city, without any extra expense to the company.
He takes this recollection as a basis for saying that the
work was actually completed within forty-two days'
time.
Higgins states that for this work he was to receive
$24 per thousand bricks laid. From these facts, based
upon an erroneous assumption as to the length of the
180
tunnel, and upon a guess as to the time the work actually
consumed, and a resulting guess as to the number of
bricks per lineal foot, Mr. Higgins arrives at the con-
clusion that each bricklayer actually laid 1,500 bricks
during a ten-hour day.
Having piled assumption upon assumption, Higgins
further proceeds to multiply the 200 bricks per foot by
his assumed 1,300 feet of length, and divides the pro-
duct, 260,000 bricks, by 42 days, obtaining 6,190 bricks
laid daily by four men, or 1,547 by each of four brick-
layers in a ten-hour day. As to the wages paid the
men, Higgins says that the four bricklayers each re-
ceived $5.50 per day of ten hours and their board,
which he estimates at $5 a week, or 83 cents per working
day. The eleven laborers received $40 a month and
board, which he figures (p. 9) at $2.25 per day. The
daily wages paid by Mr. Higgins to the bricklayers
would be, therefore, $6.33, and the wages paid the
laborers, $2.25, or to the former, 63 cents per hour,
and to the latter, 22y2 cents per hour.
The further error of Higgins' estimate is shown by
taking the number of bricks actually laid, 341,000, and
dividing by 42 — the number of days which he assumes
the work required — giving, in round numbers, 8,120
bricks per day, or an average for each bricklayer of
2,030. Practical experience shows this to be an im-
possibility. His price of $24 per thousand bricks does
not include the cost of templets for the arches, which
complainant had agreed to furnish. Another method of
checking this estimate is to take the direct cost charges
181
of Pilarcitos Tunnel No. 1, without any allowance for
incidental contingent, engineering or superintending ex-
penses. These were:
1871 $16,489.84
1872 3,207.35
Total $19,697.19 (Table II, App. Rep. Brief).
If this total is divided by 341, the number of thousand
bricks actually laid in this tunnel, we get, as direct cost
charges, $57.76 per thousand brick, with no allowance
for incidentals or superintending expenses. This would
seem to conclusively show the error of Higgins' esti-
mate (p. 10) of $47 per thousand bricks laid, or $24 for
labor and $23 for material, for it is $10.76 below charges
on the books made by complainant's accounting depart-
ment.
Considering the increased cost of labor and materials,
the difference of something less than $8 between the cost
figures and those of Mr. Schussler for present construc-
tion, shows, we submit, that the latter 's estimate was
conservative.
(3) Locks Creek Tunnel No. 1:
Schussler 's estimate of present cost of labor per
thousand bricks is $31.70 (p. 1,017), Higgins $16 (p. 12).
This tunnel, 3,200 feet in length, was built in 1871-72.
The number of bricks required was 704,000. The testi-
mony of Mr. Higgins shows, in substance, as follows:
He took the contract at $16 per thousand bricks, for all
182
labor required in laying the brick ; he was to supply tools,
while complainant was to furnish all materials, brick,
sand and cement. The work was to be completed in
sixty days, and if not so completed, the contractor was
to forfeit $100 for every day over that time. Higgins
believes that he completed about 3,100 feet of the tunnel
within this time and that he was then stopped by bad
weather, and later went back and finished the work. He
employed eight bricklayers and sixteen laborers, the
former receiving $6 per day and board at $1.00 ($7
total), the latter $40 per month and board, or $2.68 per
day. As to the number of bricks required per lineal
foot, he says:
"We laid 200 brick to the foot and each mason
would average about 1,300 per day.
"Q. 41. Mr. Schussler in his direct testimony
(p. 1,018) testifies as follows: 'The bricking of this
tunnel required an average of 220 brick per lineal
foot.' Is that the fact?
"A. I would not like to say whether that was
the fact or not. It was a tunnel about the same as
the others; they called for 205 and 210. I would
not say about 220. I would not like to dispute that
or to say which way it was. As near as my recol-
lection serves me I was paid for 200 bricks to the
foot. * * *
"Q. 46. How many bricks do you estimate were
laid in Locks Creek Tunnel No. 11
"A. We laid 200 brick to the foot, making, for
the 3,200-foot tunnel, 640,000 brick laid at that time.
There were more in the tunnel and I went back in
the fall and finished it."
This quotation shows that Higgins was at this point
relying entirely upon memory, and that no present com-
putation had been made by him in this connection.
183
Higgins does not say that he completed this work in
time to avoid the forfeiture clause in his contract, but
assumes, as he did in the case of the Pilarcitos tunnel,
that the whole work was completed within the sixty
days, although he had, on the preceding page, said
that only 3,100 feet of the tunnel was at this time
bricked by him. He therefore multiplies the whole
length of the tunnel, 3,200 feet, which he had not
actually finished, by 200, the number of bricks which he
in an indefinite sort of way thinks the men may have
laid per foot, arriving at a total of 640,000 bricks. By
multiplying eight bricklayers, who were at work, by 60
days, he gets 480 bricklayers' days, which he divides
into his total number of bricks, reaching as a result
1,333 bricks per bricklayer per day, which he rounds
off at 1,300 to a man per day. A more inaccurate
method of reaching a mathematical result can hardly
be imagined. There is not a single premise which Mr.
Higgins assumes which he was able to state, in the
giving of his testimony, was an actual fact, according
to his own knowledge. The absurdity of the result, no
matter what method was employed in reaching it, is
further shown by the fact that Higgins' total of $43 is
$4 below that which he himself gives as the cost of
Pilarcitos tunnel No. 1. While the diameter of both
tunnels is practically the same, the Locks Creek tunnel,
which we are now considering, is over twice the length
of the Pilarcitos. It is generally conceded by defend-
ants' witnesses that the longer a tunnel is, the more
expensive its construction. We also call attention to the
fact that in the construction of the Pilarcitos tunnel,
184
Higgins did the work by contract for $24 a thousand
bricks, without any penalty or any time limit; whereas
here, working under pressure and under a stringent
forfeiture condition, on a tunnel of twice the former's
length, he received only two-thirds the price. Such tes-
timony as this does not seem to provide a basis for any
computation whatever, and it appears to be a waste of
time to further examine it. But, since defendants' sole
witness as to this work is Mr. Higgins, we are forced to
proceed, item by item, upon the chance that he may
have provided some definite criticism of Mr. Schussler's
figures.
(3a) Small Brick Cap on Pilar citos Stone Dam:
At page 1,012, Schussler gives a lump estimate as fol-
lows: 10,700 brick laid at $56 per thousand. Mr. Hig-
gins (p. 12) says that he sent one of his masons over
from the Locks Creek tunnel to do this piece of brick-
work. We quote from his testimony:
' ' Q. 39. Do you know how many bricks were laid
on that dam?
"A. I do not. I sent a mason over from Locks
Creek tunnel, where I was working on a contract
job, and he alone finished the job in about four
days. I did not pay any attention to it."
Mr. Schussler's undisputed evidence (p. 1012) shows
that this piece of brickwork contains 10,700 bricks. If
this number is divided by 4 — the number of days this
mason is supposed to have taken in its construction —
it appears that the rate per day was 2,675 bricks. Mr.
Higgins here, as elsewhere, qualifies his statement by
185
saying that he does not know much about this, but he
does, nevertheless, state such to be the fact. Such a
piece of work is submitted to be an absolute impossi-
bility.
(3b) Stone Dam in Pilar citos Valley:
This dam does not properly belong to the class called
brickwork by Mr. Schussler, but is mentioned in Mr.
Higgins' testimony and considered here. At page 11,
Higgins is asked:
"Q. 35. What do you estimate it cost a yard to
construct the Pilarcitos stone dam?
"A. Not to exceed $10. That estimate is based
on the following details:
One man * * with board, $ 7.75
Two men, including board, 9.50
Three laboring men, including board, 5.70
Total paid for labor per day, $22.95
These men lay 5 yards of masonry a day, making
the cost of labor per yard about $4.55. Allowing
an entire barrel of cement for each yard laid, I
placed the cost of cement, including hauling, at
$3.00. Cost of rock and sand, including hauling and
quarrying, $1.50; that would make cost complete
$9.00. I have allowed $1.00 extra in my estimate.
"Q. 36. Would you do that for $10.00 a cubic
yard today?
"A. I would."
He assumes that all the building stone was found about
200 or 300 feet away on the upstream side out of the
granite canyon. "There were lots of loose rock, and
" we did not have to blast" (p. 10). This statement he
practically contradicts on page 11, by saying: "Cost of
186
" rock and sand, including hauling and quarrying,
" $1.50".
We now consider his cost of $3 for cement, including
hauling: It is not in evidence what the cost of cement
was at the time this dam was built, but it is a matter of
common knowledge that material of this character was
more expensive than at present. If we assume that the
cost was $2.65 originally (its present cost), plus 10 cents
for freight to Millbrae, we must then, on the basis of Mr.
Fifield's testimony, add thereto for hauling 83% cents.
This results in a total of $3.50, according to defendants'
own witnesses, as against Higgins' allowance of $3.00.
Assuming, for the present, that the three masons whom
Higgins mentions could lay an average of 5 cubic yards
of this stone masonry in a ten-hour day, it would follow
that in an eight-hour day they would lay 4 cubic yards,
or each mason 1.33 cubic yards. The cost of five masons
working at this rate would be (pp. 927-28) :
5 stone masons at $6.80 a day $34.00
2 hodcarriers and mortarmen at $4.30 8.60
3 laborers at $2.50 7.50
Total $50.10
(These helpers would be essential under present labor
conditions.)
If this latter sum is divided by 6%, the number of cubic
yards of masonry, we get a cost per cubic yard of $7.50.
To this should be added the cost of cement and sand,
together with that of delivery, which would equal $4.89,
and stone, $1.50. (This cost of sand and cement, to-
gether with the charges for hauling, have been previously
.187
considered.) This, therefore, gives a total of $13.89
per cubic yard. Mr. Schussler's estimate for 1903-04,
exclusive of incidental and contingent expenses, was
$8,072 for 624.4 cubic yards of stone masonry, which
will average $13.78 per cubic yard, a trifle less than
the result reached above on the basis of Higgins'
figures.
(3c) Concrete Lining of University Mound Reservoir:
Higgins says (pp. 2, 25-27, inclusive) :
"I was employed by the day on that work. The
concrete in this reservoir was laid 4 inches thick.
* * * Imported Portland cement was used in
this work. Two barrels of sand, that is, about 6
cubic feet of sand, were used to one barrel of
cement. The men employed in this work worked
ten hours a day and boarded themselves. * * *
I have taken this work at say one day's wages for
the men that were working in there; that was the
only way I could get at it. All the wages, including
everything there, amounted to $105 a day; we
averaged 75 barrels of cement a day, equal to 551/.
cubic yards, at a cost of $1.90 per cubic yard, or
2y3 cents per superficial foot ; that is for labor. How
I get the average of that is that in the bottom we
averaged, say 95 barrels per day; in the sides 65,
making 160 barrels. Taking half of that would be
80, and I have put it down at 75 barrels per day,
which gives me 55 yards. We therefore have the
following amounts:
Labor $105.00
551/2 yards of rock at $1.50, which was a good
price for delivering it 83.00
75 barrels of cement and sand at, say, $4 a
barrel, which is ample 300.00
Making a total for one day's work. $488.00
188
which we will call 11 cents per superficial foot com-
plete. There were 58y2 yards and 27 feet to the
yard, gives you a total of 1498 feet; multiplying
that by 3, it gives 4494 feet, which, at 11 cents per
foot, will make a total of $494."
This evidence shows that the witness resorted entirely
to a recollection of what he considered to be about a
day's performance and about the quantity of materials
used in a day. In the first place, he assumes that hard,
fine-crushed rock, which was necessary for this piece of
work, could be delivered at $1.50 per cubic yard. This
rock was quarried at a distant quarry, crushed into
small bits, loaded on wagons, hauled to the site of the
reservoir, and delivered, and for all of this work, with
perhaps an additional cost for the rental of the quarry,
Higgins gives the figure of $1.50 per cubic yard.
Schussler's testimony relative to the foundation of
the Presidio Heights tank in San Francisco (1431)
gives actual cost for 1025 cubic yards as $2,349, or
$2.29 per cubic yard delivered, and this rock was not as
fine and was therefore less expensive than the former.
Higgins' only estimate as to the cost of sand and cement
delivered is a lump sum. He does state that the
day's work was ten hours, but he does not state what
the wages were for the laborers, what salary he him-
self received, or whether he added this to his estimate
of labor cost per day; he simply lumps the whole sum
at $105 per day for labor. It is evident from this that
there is no way for us to determine the basis of his
computation. He himself indicates that it is entirely a
matter of memory.
189
Mr. Schussler estimates the concrete which it would
take to line the University Mound Eeservoir at 150,000
cubic feet, and the cost at $54,000 (p. 1371), making
the cost per cubic foot 36 cents. This is the same
rate which he applied to the forebay tunnel. At the
Presidio Heights tank foundation, which is a late piece
of construction, and which was built while the present
scale of wages and materials was in force, the cost
(p. 1431) was $7834 for 833 cubic yards, or 22,491 cubic
feet. This makes the cost per cubic foot $34.83, show-
ing his estimate of 36 cents for the University Mound
Reservoir — a much more difficult and expensive piece of
work — to be conservative.
(4) Six-Mile House Tunnel:
Schussler 's estimate of the present cost of labor per
thousand bricks, is $31.70, and the length of tunnel,
2145 feet. The number of bricks is 430,000 (p. 997).
According to Higgins' testimony, a contract for the
drifting, timbering and bricking of this tunnel was
dated October 9, 1883, and required the contractor,
under penalty, to complete the drifting and timber-
ing at the rate of not less than 270 lineal feet per
month, and within sixty days after completion to finish
the brickwork in the tunnel, according to complainant's
plans and specifications, the entire work to be com-
pleted within ten months from the date of the contract.
As the tunnel was 2145 feet long, and Higgins was to
drift at the rate of not less than 270 lineal feet a month,
the drifting was to be completed in a little less than
190
eight months. His testimony shows that he did not
commence bricking until after the drifting had been
completed. It does not show when he finished the
bricking, how many bricklayers, helpers or laborers he
employed, how many shifts of these men were necessary,
nor the wages which he paid the men, nor whether
he boarded them, and, if so, at what cost. He took the
work at the figure of $6 per lineal foot of tunnel, or
$30 per thousand bricks laid; but he does not state
whether he made a profit or lost money on the trans-
action; nor does he show what final total figure repre-
sents the entire cost to complainant both for the drift-
ing and bricking of the tunnel. The testimony shows
that complainant furnished the brick (see p. 331, Ap-
pendix), but there is no showing as to the cost of
either cement or sand, or who paid for them. The con-
tract required that there should be 200 bricks to every
running foot, and, therefore, Higgins was to receive
$30 per thousand bricks laid. At page 23, his esti-
mate of the cost of brick delivered at the tunnel, was
$12 50 per thousand. Cement and sand delivered, $9.00
per thousand, leaving $8.50 per thousand brick with
which to pay the cost of labor, such as bricklayers,
helpers, laborers, board, cars, tools, candles, and lastly,
a fair compensation for his own services. At page 23
Higgins makes this statement:
"Each man laid about 10 feet of brickwork with
200 brick to the foot, averaging about 2,000 a day."
This estimate, for a difficult piece of work, is so much
in excess of any other estimate for similar work, with
191
the single exception of his guess as to the stone dam,
that we believe it cannot be accepted. This belief is
further fortified by the fact that details as to cost of
services are not given.
An explanation of the estimate is furnished by Mr.
Schussler. The time limit being 60 days, and there be-
ing 430,000 bricks to be laid, Higgins probably had in
mind a certain number of bricklayers and on that basis
reckoned his rate per day.
(5) Brick Forebay and Tunnel at College Hill Res-
ervoir:
The witness here gives no details as to the cost or
number of brick, or to the cost of cement or sand, or
the number of days' work of brickmasons and helpers,
but only states what he thinks he remembers as the
average day's work done by each brickmason. His tes-
timony is as follows:
"I was told to hire the men by the day and the
company would furnish everything. The men were
paid $5 per day for eight hours' work, without
board. We averaged about 1200 bricks to the man.
In that work the cement used was Kosedale cement.
"Mr. Kellogg. Q. 23. How many brick did you
say to the man?
"A. About 1200. I do not say that is positive,
but about that" (pp. 5-6).
Higgins is positive as to the fact that he looked
after the work, but he is not positive about the rate at
which bricks were laid. And, although in the long,
192
narrow and cramped Six-Mile House tunnel lie claims
that bricklayers averaged 2000 bricks a day to a man,
He can, upon the same day, and while such a statement
is fresh in his mind, still say that in this more ac-
cessible structure at College Hill, a large part of which
was open work, the average was 1200. About that, how-
ever, he is not positive.
Schussler's figures as to the cost of reconstruction
of this forebay were 60,000 bricks at $43 per thousand,
$2580. The situation of this work is similar to that of
the Lombard Street reservoir. This is another strong
illustration of the fact that Higgins did not have
actual and definite figures in mind, and that all through
his testimony he is in great doubt as to what the exact
conditions were. This is easily explained by the fact
that much of the work in question had been constructed
40 years before his testimony was given, and that all
of it had been finished over 18 years previous to 1903.
In only isolated instances did he have even memoranda
to refresh his recollection, and it would be an extraordi-
nary feat of memory for any man, without such assist-
ance, to give accurate and detailed information as to
work of this character.
(6) San Andreas Waste Weir:
Schussler says, at page 824, that in this structure a
bricklayer would lay about 500 bricks a day; that his
wages and board would be $6.80, or, for a thousand
bricks, $13.60; that four bricklayers would have three
hodcarriers and mortarmen at $3.50 and board, or
193
$4.30, making $12.90 a day; that there would also be
three laborers to assist in running cars, piling brick,
etc., at $2.50 per day, making $7.50 for the three; that
one carpenter would be $4, giving a total of $24.40. If
this is divided by 2,000 bricks, we have, for the help
per thousand bricks, $12.20, giving a total for brick-
layers and helpers of $25.80 per thousand bricks.
The San Andreas waste weir was constructed in 1874,
and required 696,000 bricks (p. 820). Higgins (pp. 15-
16) says:
"I was employed as foreman on the San An-
dreas waste weir, which was built in 1874 and 1875.
Besides myself there were three masons and eight
laborers employed by the water company on that
work.
"I would say that we averaged about 1,000 brick
a day. We must have averaged, I think, from 1,000
to 1,200 brick a day to the man, but we will say
1,000 brick a day. I want to be on the safe side
of this thing.
"Q. 49. How many men were engaged on that
work for the entire time?
"A. There were four bricklayers, including my-
self, and eight helpers, or laborers rather. I re-
ceived $7 a day and the other brickmasons received
$6 a day. Later on they paid me $200 a month.
There were no hodcarriers engaged on the work,
nor was there a carpenter; except I will state that
at the outlet end of that tunnel it was funnel-
shaped and they had carpenters to make the center
for the inlet end of the waste weir of that tunnel.
It was a large center and it was funnel-shaped, and
it required a carpenter to do it. That was put up
and we bricked it over.
"Q. 50. That was the customary way of brick-
ing an arch?
194
"A. Yes, sir; we did it in the usual way, ac-
cording to the engineer's instructions."
In the first place, it is hard to tell from this evidence
whether there was or was not a carpenter. He says
there was no carpenter, and then proceeds to show that
there was need of one, and that one was present. He
does not state whose carpenters built the stage, both
for the outside as well as the inside of the brick gate-
house at the inlet end of the waste weir, nor how any-
one but a carpenter could have made the templets for
the arches, and it seems probable that a long lapse of
time had caused him to forget these considerations. The
testimony is further unsatisfactory in that it gives no
details. For instance, it is not shown whether com-
plainant boarded all the men, including Higgins him-
self, nor what the cost per day was. He does not give
the length of day's work, what the services of the car-
penter cost per day, nor what they cost complainant per
thousand bricks laid. He makes no estimate as to the
cost per thousand bricks laid, or bricks, cement and sand
delivered at the structure. The only point about which
he attempts to make even a rough estimate is what
might have been the number of bricks which a bricklayer
averaged per day in this structure, some of which was
built 30 years ago, and some 18 years previous to the
time this testimony was given. There is not a fact
definitely stated. The witness says that he thinks they
must have averaged from 1,000 to 1,200 bricks a day,
but he is not sure. That all his testimony in this con-
nection is mere guesswork based neither upon actual
definite knowledge nor memorandum, is once again shown
195
by the fact that he estimates 2,000 bricks a day for the
exceedingly difficult Six-Mile House tunnel, and 1,000
for what is comparatively a much easier piece of work.
Mr. Schussler's figures, on the other hand, are based
upon actual experience in the year or year and a half
preceding the giving of his testimony, and upon the
prices which the company actually had to pay for a
given piece of work. It seems that his estimates must
therefore be given respect.
(7) Bernal Tunnels:
These tunnels were constructed in 1884, and required
403,500 bricks (p. 1499). The length of these tunnels was
225 feet and 1120 feet, respectively, making a total of 1345
feet. At page 991, Mr. Schussler showed the difficulty and
interruptions encountered and the loss of time occasioned
by the alternating work which boilermakers and bricklay-
ers had to perform, the principal difficulty in construction
being that it is through these tunnels that the water from
the Crystal Springs pipe-line is carried under pressure,
and that the tunnels themselves had to be completely
bricked to insure safety. Mr. Schussler says that where,
under the present conditions of labor in other tunnels of
about the same size as these, a first-class bricklayer lays
between 400 and 500 bricks in cement mortar in an eight-
hour day, the same bricklayer, under the conditions ex-
isting in the pressure tunnels, will not, by a large per-
centage, be able to equal that daily performance in
these tunnels. Higgins says, at page 24, when asked
as to the bricking of the pipe in these tunnels:
196
"Yes, I did, but it was not done under con-
tract. It was day's work. I started the work. I
was there twenty days, and then I went on other
work. The same men stopped there and finished
the tunnel. I got over there every chance I had to
see them. I did not finish it, I only started it."
He does not state how many days or months were re-
quired to complete all of this brickwork in these tunnels,
aggregating 1345 feet in length, but he does say that he
only worked there for twenty days. When asked by
defendants' counsel to estimate the complete cost, upon
being shown a memorandum, he said (p. 24) :
"A. Yes, I made this out. That pipe is 3 feet
8 inches in diameter; add 8 inches to that, and
take three times that, and you will get the circum-
ference of that as 13 feet; 12 brick to the foot gives
me 156 brick to the foot, or 1404 brick for 9 feet.
There were employed in doing 9 feet of masonry
the following:
2 masons one day $12.00. ' '
Again referring to the manner in which he reached his
156 bricks, which he assumes to be the number of bricks
in these tunnels per lineal foot:
"I figure that we laid 156 brick to the foot, which
would mean a total of 209,820 brick.
"Q. Was the back filling of brick or of earth?
"A. We set the two rings of brick about the
pipe and then had it filled in with earth. There
was no back filling of brick" (p. 25).
As to this testimony, the first serious error is the
assumption that there were only two concentric rings
of brick masonry about the pipe, instead of the three
197
rings which Schussler has previously shown to exist.
Beside this, there was additional outside brickwork fill-
ing (991).
Furthermore, Mr. Schussler shows that Higgins'
testimony is full of technical errors. In the first place,
the outside diameter of the pipe was not 3 feet 8 inches,
or 44 inches, but 44.6 inches; nor (2) was the thick-
ness of the two rings of brick masonry 8 inches, but,
rather, 9; nor (3) was the diameter of the center line
of his double brickwork lining 44 inches plus 8 inches,
or 52 inches, but actually 44.6 plus 9 inches, or 53.6.
Furthermore, he is obviously in error when he tries
to obtain the circumference of the double brickwork
ring by multiplying his assumed 52 inches by 3,
when he should have multiplied the 53.6 by 3.1416. If
these details had been followed by Mr. Higgins, a total
of 14.03 feet, instead of his 13 feet, would have been
obtained.
Mr. Higgins ' assumption is, further, that two-thirds of
a cubic foot of brickwork took 12 bricks (pp. 2-3), and
that oue cubic foot takes 18. The 18.4 cubic feet of
brickwork required to solidly fill the entire space be-
tween the outside of the pipe and the inside of the
tunnel would, at the rate of Higgins' 18 brick per cubic
foot, require about 331 bricks, instead of the 156, which
as he figures it, represents the number of bricks per
lineal foot of tunnel. Schussler 's testimony shows a
conservative average of 300 bricks to the lineal foot.
198
Beside this, Higgins is inconsistent with regard to
the pipe. He says (p. 25) :
''The masons could not lay any more brick than
the boilermakers put in pipe for. They put in
three pipe a day. There was one machinist and
two laborers employed in putting in three pipe a
day. That is what they did for a day's work; not
any more or less."
While, at page 24, he says :
"12 brick to the foot gives me 156 brick to the
foot, or 1404 brick for 9 feet. There were employed
in doing 9 feet of masonry the following:
2 masons one day $12.00
4 laborers one day 9.00 ' '
and he gives this as an " average of 700 brick per man. ' '
This memorandum assumes that the three lengths of
pipe which the boilei makers could put in a tunnel in
a day's work equalled 9 feet. Mr. Sclmssler's testimony
(p. 982) shows that this pipe was not three feet in
length, but 3 feet 6*4 inches, or, in round numbers, 3y2
feet. We are therefore confronted with a question
which Mr. Higgins does not answer, — whether the wit-
ness intends to say that the bricklayers bricked into the
tunnel three lengths of pipe in a day (10y2), or whether
he means to say that the boilermakers put in three pipes
a day, but that the bricklayers covered with brickwork
only 9 feet. Mr. Higgins is very emphatic in saying
that the boilermakers could only put in three pipe a
day, and that the bricklayers could not put in the brick-
work at a faster rate than the pipes were installed. He
apparently assumed that the three pipes had a total
199
of only 9 feet, and that he laid only two 4-inch rings
of brick around the pipe, and that he filled the balance
of the tunnel with earth. He further assumed that it
took about 156 brick to the running foot of pipe. On the
basis of all these assumptions, he comes to the conclu-
sion that the day's work of a bricklayer consisted of 9
times 156, or 1404 bricks a day. Practically every one
of these assumptions is incorrect, and the total is ob-
viously so.
His estimate of 700 bricks per man is reached upon
the assumption that there were two men laying brick.
It seems futile to investigate these details at length upon
the meager information furnished by Mr. Higgins, but
we wish to show that in every instance where his testi-
mony controverts that of Mr. Schussler, he is in error.
Figuring on the actual length of the pipe as 3y2 feet, it
would require to fill the entire space between the out-
side of the pipe and the inside of the tunnel 300 bricks
to each running foot, or 3150 to 10y2 feet of pipe, and
2700 for Mr. Higgins' assumed 9 feet daily. If we
follow his assumption, therefore, it would mean that
each bricklayer must lay 1350 bricks a day, while, if
the 10y2 feet of pipe is taken as a basis, they must each
lay 1575 bricks per man per day. The difficulties of the
work render this an absolute impossibility. It may also
be worthy of notice that Mr. Higgins appreciated the
much greater difficulty and expense in laying the brick
in the pressure tunnels, as compared with the Six-Mile
House tunnel, for his figures show that, in his opinion,
a bricklayer in the pressure tunnels could lay only 35
200
per cent of the number of bricks which he could lay-
in the easier Six-Mile House tunnel.
(8) The Gate Shaft and Tunnels at Crystal Springs
Main Dam:
At page 927, Mr. Schussler testifies that bricklayers
in the small inlet tunnels will average about 500 bricks
a day, which makes the cost per thousand bricks $13.60.
The cost of helpers he, in detail, shows to be $12.76, with
a total per thousand bricks laid of $26.36. These struc-
tures were built in 1887, and required 940,000 bricks.
The brickwork comprised in this structure is arch
work, and much more difficult than ordinary outside
brickwork. Mr. Higgins says that he was employed in
drifting and bricking the Crystal Springs tunnel in
1887 (p. 27). He gives no facts as to the item of day's
wages to the bricklayers or to the men who helped
them. The only time he mentions wages is when he
refers to his own wages and the wages paid to the
men who drifted the tunnel. He does quote the price
of the board of these men, and after giving the number
of men with which he started, gives the pay which the
men on the cars and roustabouts received. He says:
"The men employed in the drifting of the tunnel
were paid $2.00 a day and board. The contract for
boarding the men was let to a man by the name of
Price, who got $4.00 a week for each man. I
started in on that work as foreman with 20 men
under me. The men on the cars and the roust-
abouts got $40 a month and board (p. 27).
"Q. 74. You also had charge of the bricking of
said tunnel and you kept an account of the ex-
penses thereof, did you!
"A. Yes, sir."
201
And, further, in answer to a request to give the cost of
labor employed on the work, the bricks used, and the
number of barrels of cement, Higgins says :
''Yes, sir. There were $16,009.55 for masonry
work on that tunnel. * * * There were 1,050,-
000 bricks.
"Q. 76. How many barrels of cement!
"A. 2257 barrels. * * *
"Q. 81. You say that is the cost for as much
of the work as you did. What do you mean by
that?
"A. I do not include the cost of some subse-
quent work which was done on the top of the shaft.
1 did all this work on that tunnel with the excep-
tion of raising the top of the shaft" (p. 30).
This is all the information he gives as to these tun-
nels. While he places the total number of bricks at
1,050,000, Mr. Schussler shows that the total number
of bricks in the entire structure, in its present condi-
tion is 940,000, fully 80,000 of which were laid in the
year 1890, two years after Higgins had stopped work.
The total which was actually laid at this time was,
therefore, 860,000 bricks, and not 1,050,000. Higgins
does not give the number of bricklayers employed at
any time, nor the total number of days' work required,
nor the number of days' work of laborers, nor the
wages of either. On Higgins' basis of 1,050,000 and
$16,009.55, we get $15.24 for labor per thousand bricks.
As Higgins does not give any data necessary to arrive
at the correct cost of labor, Schussler suggests that data
202
obtainable from work at the San Andreas waste weir
be used. If this substitution is made, the cost would be,
for labor $16,009.55
for Higgins ' wages and board 1,950.00
for board of bricklayers and laborers. 3,520.00
Total $21,479.55
This sum probably represents the cost of labor con-
nected with the laying of 860,000 bricks placed in the
structure at the year 1887. This gives an average cost
of $24.88 to be charged to labor per thousand bricks in
Crystal Springs tunnels and shafts, and not $15.24, as
Mr. Higgins evidently wishes to infer. Mr. Schussler's
estimate of $26.36 is about $1.50 higher than the esti-
mate of Higgins thus reached. This, however, does
not seem excessive, in view of the changed labor con-
ditions.
We have now examined carefully every structure as
to which Higgins claims to have any knowledge of cost,
and we believe that it is a conservative statement to
say that his evidence must be considered absolutely
valueless. In not one instance has he given a total
which includes all the cost elements necessary to deter-
mine what the actual expense to the company for
that given piece of work was. In broad subjects,
which do not require detailed and specific information,
the testimony of such men as Higgins and Carey may
well be of value; but to produce an ordinary workman
thirty or forty years after the work has been com-
pleted, and to attempt, upon the basis of his remem-
brance, without any data or other proof, to overthrow
203
the estimates of the engineer who built the works and
has computed every element with the greatest care, is
hardly convincing.
DRIFTING OF TUNNELS.
Bald Hill Tunnel and Pilarcitos Tunnel No. 2.
At page 399 of defendants ' brief, we find the following
quotation from Mr. Schussler's testimony regarding
Bald Hill Tunnel:
"The drifting of this tunnel, at that time when it
was drifted, cost between $10.50 and $11.00 a run-
ning foot, inclusive of timber. It can now be done
for about $9.00 a running foot,"
A quotation is then inserted from what is said to be
the minutes of the directors, showing that the contract
for drifting this tunnel had been let at $8.50 per lineal
foot. It is not stated in the contract or in defendants'
brief who was to furnish the timbers and labor for
timbering this tunnel; whether extra compensation was
paid to the contractor for this material and work ; and if
so, in what amount ; who furnished the track, the cars or
the tools.
The westerly part of this tunnel was drifted from the
bottom of the San Andreas brick outlet shaft, requiring
the hoisting by hand-windlasses of all materials blasted
and excavated out of this part of the Bald Hill tunnel,
which is 2820 feet in length, and all the timbers and
other materials had to be lowered in the same manner
204
down to the men at the inlet level. There is no state-
ment in defendants' brief as to who paid for all this
extra labor.
Mr. Schussler 's statement, quoted above, referred to
the total cost per running foot of tunnel, inclusive of all
drifting, blasting, track, cars, tools, timbers, lagging,
labor of erecting and timbering the tunnel, hoisting exca-
vated materials out of the shaft, and lowering timbers
into it. This is one of the instances where the cost at
the present time was found by Mr. Schussler to be de-
cidedly less than the original cost, and he therefore dis-
cards, as he has done in other instances, all data as to
original cost, reckoning only on the demands and ex-
penses of today. He took into consideration the im-
proved methods of blasting with single-hand drills and
giant powder over methods formerly used, and he also
considered the increase in the wages of miners since the
original drifting of Bald Hill Tunnel, and says :
"It can now be done for about $9.00 a running
foot."
Finally, defendants' contention that Mr. Schussler 's
primal cost estimate was inaccurate, can hardly be ma-
terial when they do not attempt to assail his present total
estimate.
Lake Honda Tunnel.
At pages 377-8 of defendants ' brief, it is said :
"The minutes show, however, that the same Mr.
de Noon to whom Mr. Schussler refers, contracted
for the Lake Honda tunnel (timbered) at $8.00 per
foot; as Mr. Schussler 's estimate for this tunnel is
205
the same as for the two Pilarcitos tunnels, the same
cost price must be assumed. If Mr. Schussler's
memory of the cost price is erroneous to the extent
of $3.50 per foot, what shall be said of his other esti-
mates, based on recollections? The minute record
referred to is found in Book B, pages 234 and 235,
and is as follows: 'November 15, 1866; the Presi-
dent reports that he has given the contract of the
Lake Honda tunnel to Mr. E. P. de Noon, at $8.00
per lineal foot, timbered. ' ' '
There is no showing here, as has been found to be so
often the case, what the actual cost of this tunnel was;
whether the contractor, who, it is in evidence, had much
trouble with caving and other difficulties (pp. 789 and
790), made or lost money on the job, and whether the
company came to his rescue when he was in financial
difficulties.
Mr. Schussler shows (p. 2451) that one portion of the
3420-foot Lake Honda tunnel was drifted and blasted
through rock, while the other portion was through sand,
and he suggests that the contractor who had had experi-
ence during the same year with Pilarcitos tunnel No. 2,
may have assumed from the outside appearance of the
flat ridge, through which the latter tunnel was to be
drifted, that it would be all, or nearly all, of a sandy
character, and that this supposition induced him to enter
into the low contract price, named in the minutes.
Six Mile House Tunnel.
Defendants' brief contains the following, at page 319:
" Table No. 16 sets forth the estimates on the
drifting, timbering, and bricking of this tunnel, to-
206
gether with figures on cost supplied by Mr. Higgins,
the contractor. It is noticeable that Mr. Schussler's
estimate nearly doubles the cost. ' '
Once more there is the assumption with no basis in
actual proof that Higgins' figures for the drifting as
well as for the bricking of that tunnel represent its cost.
It would be idle here to reiterate what has been pre-
viously said under the head of "Bricking", as to Hig-
gins' estimates. They are so fragmentary and incom-
plete and are so lacking in necessary detail, that cost of
drifting can be no more nearly ascertained from his tes-
timony than could the cost of bricking.
Mr. Schussler, in all instances, gave the details of his
estimates, and in the absence of conflict as to details, his
estimates should stand.
Bernal Heights Tunnel.
Counsel for defendants (p. 286), says:
"These are two tunnels leading the extension of
the Crystal Springs 44-inch pipe through two ridges
at Bernal Heights which are included by Mr. Schuss-
ler in his estimates on the City Pipe System under
the classification of 'single structures.' Following
will be found Table No. 11, giving the estimates sub-
mitted on drifting and bricking of these tunnels, to-
gether with figures on cost, supplied by Mr. Higgins,
who did the work under contract. It will be noted
that the difference between Mr. Schussler's esti-
mates and cost given by Mr. Higgins equals $19,-
599.88, being increase over 100 per cent on cost."
Higgins' testimony shows conclusively that he did not,
as asserted in the above quotation, perform the work
207
tinder contract. He claimed that he did the drifting un-
der contract, but as to the bricking says it was not
under contract, — it was day's work (testimony, p. 24).
His testimony is further conflicting in that he says, on
page 23, that his contract was for $7.75 per lineal foot,
while on page 25, he says the drifting was $7.87Vo. He
nowhere says what wages per day were; or cost per
lineal foot ; or what the value of his own time was. He
does not state how many shifts of men he had drifting
tunnels ; nor how many men to the shift ; nor the number
of hours which each man worked; nor the number of
men employed in running cars. It is therefore impos-
sible here, as in other cases, to compare the estimates of
Schussler and Higgins, as to the cost of drifting or tim-
bering, under present conditions of organized labor and
the shortening of a miner's day's work. Much of the
total difference, however, in this estimate, which includes
bricking and drifting, is due to the fact that Mr. Hig-
gins, speaking from recollection, states that the number
of bricks actually used was 209,820, whereas it has been
shown by us that the number was actually 403,000
bricks.
Outlet Shaft and Tunnels, Cnjstal Springs Main Dam.
Counsel says (p. 306) :
"Table No. 15 gives a comparison of cost figures,
and estimates of the drifting and bricking of these
outlet works, showing the usual extravagance of Mr.
Schussler 's estimates. ' '
208
Higgins is once again defendants' only witness as
to the actual work of drifting and bricking this structure.
His testimony (pp. 27-8), shows that he had twenty
men working in the tunnel; that the men who did the
drifting, — the number of whom he does not give, —
received $2.00 a day, and their board; that the rest of
the men, the number of whom he does not give, received
$40 a month and their board. To the total amount of
wages, $6,143, which Higgins said he paid for drifting
580 feet of tunnel (actually 554 feet, Schussler, 924),
should be added the cost of board of these laborers,
whose number is rounded off at twenty. This equals for
22 weeks, at $4.00 per week per man, $1760. Higgins'
own wages, at $200 per month, for 5 months, would
equal $1000, in addition to the cost of his board, $88.
This gives a total of $8991, which, when divided by
Higgins' erroneous length of tunnel, 580 feet, gives a
cost of $15.50 per lineal foot, and not $11.00, as Mr.
Higgins would indicate, by omitting the cost of board
of these men as well as his own wages and board.
If the above amount of $8991 is, however, divided by
554, the actual number of feet in the tunnel, the result
is $16.22 per lineal foot, which does not include allow-
ance for timbers, lagging, track, etc. Schussler 's esti-
mate is $16.80, per foot, but this includes many inci-
dentals not taken into account by Higgins, even under
our amended estimate.
This covers all Schussler 's estimates which defendants
have subjected to criticism.
209
III.
We quote from page 456 :
"Third. In the case of some estimates, compari-
sons are furnished by records of contracts and
purchase prices disclosed by the minutes and ac-
count books of the company. In all cases in which
such information is obtainable, the difference be-
tween the actual record and the estimates and state-
ments of the chief engineer are so marked as to be
absolutely unexplainable, as is shown by the tables
and quotations from minutes and testimony given in
the preceding pages."
This is practically a repetition of the statement made
under the general heading of II above, and it is shown
that in every case where the estimates of Mr. Schussler
exceeded the amounts named in the minute books, there
were ample and satisfactory reasons for these excesses.
In some cases, the contractor did not complete his con-
tract according to the prices named in the books; in
others, the prices there named covered only a portion of
the work which was to be completed, and, we believe, it
is not putting the case too strongly to say that in not a
single instance does a set of figures found upon the
minute books contradict Schussler 's estimate, without
some adequate explanation. Furthermore, in every case,
it must be remembered that Schussler 's estimates are
for present cost, heeding always the changed condi-
tions as to labor and material. The court can hardly
put much stress upon this argument of defendants.
210
IV.
"Fourth. Mr. Schussler's valuations are dis-
proved by the preponderance of the testimony of
the other witnesses. That his figures are very
greatly in excess of those given by complainant's
best informed witnesses, Messrs. Adams and Schuy-
ler, is proved by columns 31 to 35 of table number
3, which show that the average of Messrs. Adams'
and Schuyler's estimates on all structures amounted
to $16,993,625, while Mr. Schussler's total figure for
the same structures was $19,317,000. * * * As the
estimates of the other witnesses who gave details
are in nearly all instances less than those above
mentioned, Mr. Schussler's estimates stand alone
without support from any other witness. It is sub-
mitted that they are not only unsupported but
absolutely disproved by the discrepancies above
noted."
It seems unnecessary to once more review in detail the
cause of difference between Schussler, on the one hand,
and Adams and Schuyler, on the other. The principal
cause of difference which we have previously emphasized
is the item of labor, which is perhaps shown most clear-
ly in the cost of brickwork, where Schussler figures, in
some instances, at $63, while Adams and Schuyler are
approximately $40. This represents the main, and
practically the only large point of difference in their
testimony. To say that Schussler's testimony is "dis-
proved" because of this difference or because of a dif-
ference from other witnesses of $2,000,000 in the total
estimates is an absurdity. It may be proper to reduce
some of his estimates, but it may be fully as proper to
increase some of theirs; in any event, his is the most
carefully prepared and contains the fullest data of any
valuation furnished by any witness.
211
V.
From page 457 we quote:
"Fifth. Mr. Schussler's answers to questions
propounded on cross-examination are frequently so
evasive and apparently insincere as not to inspire
confidence."
To sustain this statement, one quotation from Mr.
Sehussler's testimony is given as follows:
"XQ. 3289. You stated at the end of your testi-
mony, in answer to the question: Q. 'Are those
present values? A. Yes.'
"A. They are the present values, but I did not
say that was all they were worth. A man may
state a thing is worth $100; that does not say it is
not worth $150. If it is worth $150, it is certainly
worth $100" (p. 2311).
We concede that this quotation, standing by itself,
does give an impression of evasion; but let us see what
the circumstances were under which this testimony was
given. At page 2309, Mr. Partridge was cross-examin-
ing Mr. Schussler as to his estimate in 1901 for lands,
water rights and rights of way, of $6,400,000, and the
present estimate of $29,000,000 for the same properties.
Sehussler's answer was as follows:
"A. That is very easily explained. In the first
place we were at that time acquiring property on
the Alameda Creek system, and it would not do for
us to publicly announce what we considered the
property worth that we were getting at lower fig-
ures, and trying to get at lower figures. By keep-
ing the purchases private, and the knowledge of
our being the people who were trying to buy it,
and not putting too high a valuation on it publicly
(we) saved incidentally and indirectly to the city a
great many millions of dollars. The city fathers
212
who carried on the investigation on the part of the
city, were only too anxious to have it known pub-
licly, broadcast, and scattered through the news-
papers, how much we were paving, and if at that
time we had put on those incompleted purchases the
value that we considered them worth, that we knew
they would be worth the moment the entire prop-
erties, particularly on Alameda Creek, were unified
into one unit as they have been since, we would
never have been able to buy that property. * * *
I consulted with the attorney and said, 'I said, Mr.
Kellogg' — or whether it was Mr. Herrin, I do not
remember — 'if we disclose the real value of these
properties, what they are going to be, before we
complete our purchases that are now pending' —
a number of them were pending — 'we will never be
able to complete the purchases.' He said some-
thing to this effect: 'This is for the purpose of
water rate fixing, and even if you put on a lower
valuation than what you think it is worth, it will
answer the purpose.' Therefore I specifically
stated, as you read there, that in most cases it is
quoted at so much only. We were willing to ac-
knowledge that we were to pay $100 an acre for
watershed properties, and for that reason we did
not hesitate in mentioning it. But the reservoir
sites, being the absolute keys to the situation, we
were not willing to disclose at that time, most of
the purchases being incomplete, what they were
really worth. As I stated in the quotation of that
testimony, we had only about 3,800 acres, or there-
abouts, outside of the Calaveras reservoir site,
which would make the total acreage that we at that
time acknowledged publicly we owned around the
Calaveras reservoir site somewhat over 5,100 acres.
We have since acquired a great deal of additional
property and a portion of that being in the reser-
voir site, it was very essential that we did not then
publicly state what we thought it was worth."
!13
Then come the passages to which defendants object:
"You stated at the end of your testimony in
answer to the question: 'Are those the present
values ? A. Yes. '
"A. They are the present values, but I did not
say that was all they were worth."
It seems to us that the explanation is not only plaus-
ible, but is a full explanation. The answer may have
been unhappily framed, but when read in connection
with the subject under discussion, the sincerity of the
witness is apparent.
VI.
From page 458 of defendants' brief we quote as
follows :
"Sixth. Mr. Schussler's testimony discloses a
remarkable absence of knowledge with regard to
the cost of sundry properties of complainant. His
long connection with the company enabled him to
have access to all of its records. He also alleges
ignorance as to some of the details of recent con-
struction, concerning which it would seem that an
engineer of his ability and thoroughness should have
been advised. This consistent avoidance of any
knowledge of cost prices, particularly with regard
to structures recently built, greatly weakens the
value of his estimates. Nearly, if not all, of the
other witnesses, state that they would have pre-
ferred to have used cost prices as the basis of their
estimates, if they had been available. AVe have
proved that such figures were available to Mr.
Schussler in many instances. The wide difference
between such figures and his estimates probably
furnishes the reason why they were not used. ' '
214
Defendants then, in skeleton form, state thirty-nine
different places in Mr. Schussler's testimony in which
this professed ignorance is shown. We shall examine
these in detail:
(1) Actual Cost of Alameda 36-Inch Pipeline (2886) :
"XQ. 5536. Can you give us the actual cost of
laying the Alameda 36-inch pipeline?
"A. No, sir, I cannot. I have estimated that as
closely as I could get at it under the circumstances."
Actual cost involves the sums expended on the books.
As Mr. Schussler repeatedly points out, it was not his
business, in the first place, to know these amounts, and,
in the second place, if it had been, they were not obtain-
able.
(2) Size of Trench for Pipe (2886-7) :
"XQ. 5535. On the Alameda pipeline, Mr.
Schussler, have you any record of this excavation
for the trench!
"A. We have not. The ditch was dug of suf-
ficient and ample size to handle the pipe, and the
joint-holes were dug, and when the pipe had been
put in and riveted together, and repainted and
coated, the ditch was thoroughly filled and replaced
in as near the condition as it was before as possible.
There was no record kept of the size of the trench.
"XQ. 5537. Can you give us the character of
the earth through which the trench was dug?
"A. No, sir. On this side of the bay, that is,
on the west side of the bay, it run through a clayey
character of country, quite stiff. In the neighbor-
hood of Redwood City it turned into stiff adobe,
and continued some distance until it turned into yel-
lowish or brownish clay again as we got toward Bel-
mont, and that character continued with more or
less variation."
215
Apparently Mr. Schussler did not here know the char-
acter of the soil through which this pipe was run.
(3) Right of Way Cost (2887) :
"XQ. 5541. How much did the right of way
cost?
"A. That I could not tell you. The land agent
has charge of those matters."
The pertinency of this answer is evident.
(4) Vandervoort Crossing (2824) :
"XQ. 5238. Can you give us the actual cost of
that (Vandervoort crossing) f
"A. No, sir, I cannot. It is the estimate of cub-
ical contents. There was no accurate separate ac-
count kept of any of these structures. The entire
works went in as a whole, and by a careful re-
measurement we have proportioned as near as
practical the various details."
The answer that no one knows the cost is certainly a
sufficient excuse for Mr. Schussler 's inability to state it.
(5) Cost of Laguna Creek Ditch (2824) :
"XQ. 5233. Do you know the actual cost of that?
"A. I do not. I computed the amount of riprap
and of concrete at what it costs now.
"XQ. 5234. You do not know the exact cost of
it?
"A. No, sir, I do not.
"XQ. 5235. The Laguna Creek ditch, from what
data did you make up your estimate of the cost
of that?
"A. Those were all measured carefully by a
careful survey made under the auspices of Mr.
Williams."
216
(6) Cost of Laguna Creek Diverting Dam (2824) :
The answer of Mr. Schussler to this question is identi-
cal with his answer regarding the question above.
(7) Filter Galleries at Sunol (2858) :
"XQ. 5403. Can you give the exact cost of that
filter gallery?
"A. I cannot, sir. I have a very close esti-
mate of it based upon my experience and judgment
and also based upon the experience with other work,
and for the year 1903-04."
Once more, Mr. Schussler 's inability to give actual
cost does not seem inconsistent with his knowledge of
present structural cost.
(8) Cost of Pipe in City Distributing System (2962) :
"XQ. 5884. Can you give the actual cost of the
pipe system?
"A. No, sir, I do not know whether anybody
can give that.
"XQ. 5885. Where did you get all these data
from which you made up these estimates'?
"A. In the first place, I got all the data of how
many feet of pipe we had of each kind and of each
size.
"XQ. 5886. Where did you get that data?
"A. From our pipe book records.
"XQ. 5887. How did you get the data of the
cost of these particular jobs?
"A. These were kept a careful tally of by our
foreman in the yard, checked by our foreman on
the ditch. So we are absolutely certain we have
the correct account as near as it can possibly be
got at."
The witness is, therefore, in this case attempting to
supply, as far as possible, details which are not other-
wise obtainable.
217
As to the following questions and answers, we believe
no further criticism is necessary:
(9) Cost of Laying Pipe on Lobos Avenue (2603) :
"XQ. 4414. (Referring to Lobos Avenue pipe.)
Do you know what the cost of laying it was?
"A. I do not.
"XQ. 4415. Do you know how far it was — that is
how long it was?
"A. I do not know the length of it now, but it
was laid from the pumping station uphill to Lobos
avenue."
(10) Percentage of Deterioration in City Pipe System
(2969) :
"XQ. 5925. Can you tell by experience how
much deterioration takes place in the city system?
"A. You mean by percentage?
"XQ. 5926. Yes.
"A. No, sir, I cannot. I believe that cast iron
pipe has a very much longer life than it is gener-
ally supposed, especially if water is kept running
through it with more or less current."
(11) Estimate to Board of Supervisors on Clay Street
Tank, 1904 (2517) :
"XQ. 4076. The next is the Clay street tank?
"A. In the report of 1904 I estimated the Clay
street tank at $15,000. I do not think that I included
some of the work surrounding the tank, such as
pavements. I do not know whether I did include
the wall made of concrete which surrounds the
property. However, the hasty estimate made at
that time of the Clay street tank was $15,000. An
accurate revision of all the details of this work,
including the wall surrounding the property on
three sides, and other street work that had to be
done on account of it, also the standpipe, etc.,
218
which is given in great detail in my testimony on
pages 1397 and 1398, I placed in round figures at
$19,000."
(12) University Mound Reservoir (2516):
"XQ. 4074. The next is the University Mound
reservoir ?
"A. The University Mound reservoir in my es-
timate in the report to the supervisors in Febru-
ary, 1904, was placed in round figures at $175,000.
I do not know whether that includes the buildings
or the fences around it, but it was simply placed
here in round figures at that price. In my care-
fully revised estimate for the purpose of this suit,
after going into great detail into all the construc-
tion, and inclusive of the building, barn and fences,
it was placed at $204,000."
(13) Cost of Crystal Springs Dam (2763) :
"XQ. 4964. Can you give us the actual cost of
the Crystal Springs main dam?
"A. No, sir, I cannot. I think that might be
segregated in the secretary's books by making some
of those deductions that I mentioned to you some
time ago.
"XQ. 4965. Did you make any reports on the
cost of it either before or during its construction,
or after it was finished?
"A. I do not remember.
"XQ. 4966. Do you know that you did not?
"A. I really do not, no. I may have talked to
our directors — Do you mean to the directors?
"XQ. 4967. Yes, or to any person?
"A. I think I made, at the request of the super-
visors, or at least I made for the supervisors an
estimate of the cost which figure was handed to me
by the secretary because he was the only one who
knew everything that had been charged to the dam.
Not having any other proof to the contrary I took
his figures as coming from the official head of the
accounting department. ' '
219
(14) Excavation for Crystal Springs Dam (2751) :
"XQ. 4889. Do you know the actual cost of the
excavation for the Crystal Springs dam, the lower
Crystal Springs dam?
"A. I do not. I have made a very careful esti-
mate, though, of what it would cost in 1903-04."
(15) Character of Earth Through Which Trenches for
Crystal Springs Line Were Dug (2777) :
"XQ. 5028. Can you give the character of the
land through which the trenches were dug for the
laying of the pipe?
"A. No sir, I cannot, but we can estimate it
very closely on account of having similar work done
since. ' '
(16) Character of Rock Through Which Crystal
Springs Tunnels Were Drifted (2776) :
"XQ. 5027. Can you give the details of the
character of the rock through which these tunnels
were drifted?
"A. No sir. The character is about the same
throughout that country."
(17) Proportion of Pilar citos Dam Built by Contract
(2045) :
"XQ. 2216. Was the dam built by contract?
"A. No sir, but a part of it.
"XQ. 2217. How much of it?
"A. I do not remember that.
"XQ. 2218. You remember the depth of those
pits, but you do not remember how much of the
dam was built by contract?
"A. No sir ; but I can show you by this profile.
"XQ. 2219. The profile shows how much of it
was built by contract?
"A. No sir; but it shows what the original dam
was. Most of that was built by contract. The con-
220
tractor had taken the work too cheap. I was ex-
tremely rigid, and so was the superintendent, about
the quality of the material, and in working it, and
the consequence was that the contractor lost a good
deal of money."
(18, 19) The Terms of This Contract (2057):
"XQ. 2261. Have you the contract?
"A. No. I have no idea what has become of it.
"XQ. 2262. Have you any record of the terms
of it?
"A. No sir, I have not.
"XQ. 2263. Has the company?
"A. Maybe. Possibly the secretary may find
something for you. My recollection is that it was
38 or 40 cents a cubic yard. ' '
(20) Number of Cubic Yards Removed Pilarcitos Stone
Dam Flume and Character Thereof (2462) :
"XQ. 3837. Have you any details of the number
of cubic yards removed?
"A. No ;sir. As I stated in my direct testi-
mony we have only a few accurate data as to the
cost of building flumes where we kept the accounts
separate. There was the main Locks Creek flume,
and then we had almost complete data of the stone
dam flume, and we had accurate data of the Ocean
House flume. Taking those various flumes into
consideration, and figuring them on the basis of
what they would cost to be reproduced during 1903-
04, I arrived at an average cost for that mountain
flume, as I said before, of about 18 cents for every
foot, board measure, of clear surfaced lumber used
in the channel of the flume."
(21) Date When Upper Pilarcitos Dam Was Built
(1696):
"XQ. 590. When was upper Pilarcitos dam
built?
>21
"A. I do not know; but it was several years be-
fore the consolidation ; it was long before my time.
"XQ. 591. Do you know who built it?
"A. I think it was built under the direction of
Col. von Schmidt."
(22) Labor, Lumber, Iron Pipe of Original Pilarcitos
Pipeline (2034):
The witness volunteered as follows:
"Before you begin, Mr. Partridge, I wish to
state that I have an old map that purports to be
the survey of the old Pilarcitos line to Lake Honda.
It was made in 1861. It had been misplaced, but
we found it again. I think that from that map I
can make some kind of an estimate — I will try at
least — of what that line may have cost at about
1861 or 1862, when the old Spring Valley Water
Works constructed it. I will try to make that
estimate as near as I can get at it at this late date.
I do not know what the price of lumber was at
that time, nor the price of iron pipe, nor exactly
what labor was, but I will endeavor to find out; it
may take a few days to do it."
(23) Cost of 24-Inch Cast Iron Pilarcitos Pipe and
Other Details (2651) :
"XQ. 4554. Eef erring to that 24-inch cast iron
pipe mentioned in connection with the Pilarcitos sys-
tem, what was the number of blow-offs there per
mile?
"A. I do not know. I believe there are but one
or two blow-offs there. That is laid in the bottom
of the valley. We only put in the blow-offs where
a pipe passes over a depression. There may be
two in that lower portion of the pipe.
"XQ. 4555. How many valves?
"A. There is a valve to each blow-off, and then
we have air-cocks on top. I do not remember now
how many. We usually put an air-cock on each
09O
summit, where we go over a higher piece of ground
in order to let the air out whenever the pipe is be-
ing filled."
"XQ. 4556. What was the size of the trench?
"A. I do not remember exactly, but it was
probably a foot wider than the outside of the pipe.
"XQ. 4557. What depth?
"A. That I do not know, but we usually carry
about 2y2 feet of dirt on top of the pipe.
"XQ. 4558. What was the character of the work
excavated there?
"A. I could not tell you, sir. It is the usual
character that we encounter in those hills. It is
usually stiff clay or clayey material. Sometimes
we encounter rock, especially on the side hills.
"XQ. 4559. Do you know how much it costs to
lay that pipe per foot?
"A. I could not tell you. We have an approx-
imate estimate of it. It figures about, taking into
consideration transportation and dragging it over
the country and transporting it over the hills and
hauling it from Millbrae with teams and bringing
it to Millbrae on the cars, and all the work in con-
nection with it, digging the trench and the lead
joints and the painting and the labor, 10.6 cents
per pound, inclusive of the pipe."
(24) Cost of Pilarcitos Side Flume (2133) :
"XQ. 2635. (Eeferring to the flume.) What
was the character of the soil?
"A. It was pretty easy cutting.
"XQ. 2636. How much did it cost per foot?
"A. That I do not know.
"XQ. 2637. How much would it cost now?
"A. That I do not know, but I am going! to
give you an explanation of how we estimate and
arrive at the cost of the building of flumes" — which
he does.
223
(25) Average Cost of Rights of Way on San Andreas
Line (2898) :
"XQ. 5594. Do you know what the actual cost
of the rights of way was on the Crystal Springs
pipeline?
"A. No sir, but I think the land agent could
find that out for you. I believe that there were
some water payments — cheaper water or something
of that kind — besides money. I do not remember
how those things were divided."
(26) Details of San Andreas Pipeline Construction
(2747):
"XQ. 4861. Do you remember the distance be-
tween the joint-holes and all those details'?
"A. No sir, not now, but the distance between
the joint-holes was guided by the length of the pipe
that came from the shop. As I described yester-
day, there is a joint riveted and chipped and caulked
on the ground in the ditch, and that fixes the length
of the joint-holes."
(27) Cost of Wrought Iron Pipe in Flume and Feeder
on San Andreas (2741) :
"XQ. 4829. (referring to this feeder.) Can you
tell us the actual cost of that pipe?
"A. No sir, I cannot. This is my estimate of
what it would cost to reproduce that work in
1903-04."
(28) Cost of Flume Portion of San Andreas Pipe
Feeder (2738):
"XQ. 4809. Referring to the feeders that feed
water into the San Andreas, especially the flume
and pipe feeder, what is the amount and character
of excavation for that flume?
"A. In the first place, you mean the one on the
west side of the San Andreas valley?
224
"XQ. 4810. The 2780 foot flume?
"A. In the tirst place, there is a grade cut
through the slope of the mountain for the flume,
and wherever we come to a deep gulch which would
be too long to go around, we go straight across with
the pipe.
"XQ. 4811. That is not what I wanted. I want
to know the size of the grading you did?
"A. That I do not know. It was sufficient to
have the entire width of the flume rest on solid
ground, so that no part rests on any of the fill that
is thrown out, and so that there is a space behind
the flume to allow the air to circulate well, and so
that the dirt that might slide down at any time
would have some space to slide into.
"XQ. 4812. I want to know the size of it.
"A. I could not tell you. * * * It varies with
the different sizes of flume."
(29) Data on Locks Creek (2741) :
"XQ. 4821. Have you the original data of that
Locks Creek flume?
"A. I have not.
"XQ. 4822. What has become of it?
"A. I do not know. I suppose it is in the office.
"XQ. 4823. Will you produce those data to-
night?
"A. I have nothing original; whatever I have
are simply notes copied from the time data that
the timekeeper gave me.
"XQ. 4824. I want the originals that the time-
keeper gave to you?
"A. I have not got them.
"XQ. 4825. What did you do with them?
"A. Perhaps I can find them. They may be
still in the office, or they may be with the time-
keeper; I do not know."
225
(30) Ocean View Pumps, 1904 Estimate (2515) :
"XQ. 4065. The next is Ocean View Pump.
"A. I do not believe I included the Ocean View
Pump in the report to the supervisors in February,
1904.
"XQ. 4066. Why not?
"A. I do not know. It is omitted here.
"XQ. 4067. Is it in use?
"A. It is ready for use.
"XQ. 4068. Have you ever used it?
"A. We have used it formerly.
"XQ. 4069. Are you using it now?
"A. No sir, but it is ready for use.
"Mr. Kellogg. It is a relay pump, is it not?
"A. Yes sir, it is a relay pump, in case of any
accident or breakdown in the main pipe leading up
from Lake Merced."
(31) Number of Worthington Meters in Use Now
(2949) :
Eef erring to meters, Schussler says:
"A. Those were the old second-hand Worthing-
ton meters. Since that time we have replaced most
of them by brass meters of a different pattern.
"XQ. 5845. How many Worthington meters are
there in use in the city at the present time?
"A. I do not know.
"XQ. 5846. There are some 5,000 or 6,000 are
there not?
"A. I do not know. Mr. Booker has the record
of that.
"XQ. 5047. I thought Mr. Williams could tell
you that?
"A. You would call it hearsay, because he gets
it from Mr. Booker."
226
(32) Cost of Telephone Lines (2968) :
"XQ. 5922. Could you tell the cost of the tele-
phone lines?
"A. No sir; perhaps Mr. Brooks, the purchasing
clerk, may be able to tell you that."
(33) Cost of Roads Built by Complainant (2968) :
"XQ. 5921. Can you give the actual cost of those
roads f
"A. No sir, I have only made an estimate."
This testimony was given after detailed examination
as to different requirements in road-making.
(34) Number of Miles of Company Fence (2967) :
"XQ. 5912. * * * Do you know how many miles
of fence you have?
"A. I do not exactly, no sir.
' ' XQ. 5913. Do you know what kind of fence it is f
"A. Some is board fence and some is barbed
wire fence and some is netting fence.
"XQ. 5914. Do you know how many miles of
each kind?
"A. I do not."
(35) Work on Tunnels by Hand and Air Drills (2437) :
"XQ. 3738. Considering the fact that you have
to fill in, do you believe it could be done cheaper by
hand than by air drills?
"A. I do not know, but my opinion is, from my
experience, that this is the best method for this par-
ticular work. If you have a tunnel in a mine where
you have hard rock, and you do not' have to refill
the spaces excavated, and if the tunnels are large
and roomy, you might use the other method."
227
(36) Construction of Dams (Plowing or Hand Labor)
(2085) :
"XQ. 2416. Was there any reason why you could
not use plows, at least near the surface?
"A. We might possibly have used plows for the
upper portion, but in most cases the pits were small
and short, and in that case the turning around of
the plows causes a great deal of loss of time.
"XQ. 2417. It would be very much cheaper than
the expense of blowing it up and then breaking it
up afterwards with sledge-hammers, would it not?
"A. Well, I do not know. We have had excava-
tions— we frequently used the plow. For instance,
we used the plow frequently in making pipe ditches
for our main conduit pipes.
"XQ. 2420. It is much cheaper, is it not?
"A. I do not think it is very much cheaper.
"XQ. 2421. Do you know whether or not it is?
"A. No sir, because wherever we find that it is
cheaper to use the plow method, naturally we would
use it, the same as we use it for the removing of
the top soil, as I detailed yesterday."
(37) Mixing Gravel and Clay in Dam Construction
(2093) :
"XQ. 2473. Would it do any harm to a clay
dam of this kind if there was any gravel mixed with
the clay?
"A. It has been done, I believe, in England. I
have had no experience with it. I have always
made it a point not to have any loose material of
that kind in it. If the gravel was thoroughly pud-
dled by hand or in a machine with first-class clay, I
suppose it would do no harm."
(38) Cement in California avid England (2125) :
"XQ. 2604. What kind of cement do you use?
"A. We have been using Portland cement, part-
ly English and partly German.
228
"XQ. 2605. Is there not any domestic cement
which is as good?
"A. I do not know. They are making a cement
here now which promises to be very good, if the
character of the manufacture is maintained such
as some of the samples I have seen."
(39) California Cement in Government Contracts
(2126) :
"XQ. 2609. Do you know whether the United
States government has made contracts with the
local cement makers for large quantities of their
product?
"A. I do not. I understood that not long ago
there was but very little foreign cement imported
here now because the local cement shows up very
well, and I think is a little cheaper."
We submit that the answers to these questions do not
show a "consistent avoidance" of the knowledge of cost
prices, but that in every instance the facts as to cost
were either impossible of ascertainment or were pecu-
liarly within the knowledge of some other official of com-
plain ant.
"We further submit that defendants have failed on
every side to prove that the estimates given by Schuss-
ler are not trustworthy and convincing. His testimony
is entitled to the greatest respect and consideration.
229
ADDENDA B.
AN ANSWER TO DEFENDANTS' ARGUMENT AND TABLES
REGARDING ESTIMATES ON WROUGHT IRON PIPE.
It is our aim to here show as briefly as possible the
points in defendants' tables and the accompanying argu-
ments in which we believe they are in error. At page
590 of the argument, defendants say:
"It is entirely true that Mr. Schussler's unit of
10.6^ per pound is an average arrived at by him
by averaging a unit of 10.87^ per pound which he
considered the reduplication value of the Alameda
54-inch pipe-line and the other unit of 10.4^ per
pound, which he ascribed to the oldest pipe-line, —
the San Andreas pipe-line."
The unit of 10.4^ was the figure which Mr. Schussler
reached for the 44-inch San Andreas line, of which the
actual cost was known (pp. 2742-48) and which was re-
duced by him to 1903-04 rates (p. 2776). This line was
built as shown on defendants' table No. 1, in 1897-9, and
is next to the newest of defendants' wrought iron pipe-
lines. Although the system applied by Mr. Schussler
in determining his average cost per pound of pipe has
been considered in the briefs, we wish to outline here
the method which he employed:
The actual, and to all intents, the present cost in 1903
of the Alameda 54-inch pipe was known. With this, Mr.
Schussler averaged the cost of the 44-inch San Andreas
pipe In reaching the sub-unit as to the cost of iron for
this latter figure, he took the four component parts of
230
this system, — the 30-inch pipe at 4.6^, the 44-inch pipe
at 3.75^, the 1400 feet of 37-inch pipe at 3^ and 2020
feet of 44-inch at 4.6^. The average of these four pipes,
reckoned on a basis of actual weight, gives as a result
4.06(*, which Mr. Schussler took as the cost of the 44-
inch San Andreas in comparing this cost with that of
the 54-inch Alameda pipe. Knowing the cost of iron
in this pipe, he applied 1903-04 rates to the other units
as well, reaching a result of 10.4^ which, as we have
previously shown, he averaged with the 10.87^ of the
54-inch Alameda, obtaining a unit applied to all pipe-
lines alike of 10.6^.
San Andreas 30-Inch Pipe. In referring to the San
Andreas 30-inch pipe, at page 593, defendants argue that
because this pipe weighed only 371/2 pounds per foot, and
was consequently comparatively light pipe, that it was
therefore worth less per pound than a heavier pipe.
We believe that the answer to this proposition is obvious.
In the first place, the pipe is small, only 30 inches in
diameter, and is used under light pressure, where there
is no necessity for thickness in the pipe. It is important
to distinguish between character and weight. The
weight of a pipe in no way enters into the question of
character or quality of the iron. It is simply rolled
thinner, since there is no requirement for its withstand-
ing heavy pressure. The facts here stated will be found
to be substantiated in Mr. Schussler 's testimony as
follows :
231
Pilarcitos Pipe. At page 778 with reference to this
pipe, the good quality of this iron is shown, and its cost
price of 3.9^ per pound in the east is noted.
San Andreas 30-Inch Pipe. This pipe is similar to the
Pilarcitos pipe, and Mr. Schussler states at page 2275
that it would cost 3.9^ per pound in the east. It is also
an important fact that the iron used in the 54-inch Ala-
meda, the 36-inch Alameda, the 30-inch San Andreas
and that in the Crystal Springs system, is all first-class
iron. — while that in use in the 44-inch San Andreas and
the lslais Creek line is inferior to, and of a grade lower
than, that used in the former pipe.
Crystal Springs 44-Inch Pipe. It is shown by Mr.
Schussler, pages 978 and 1208, that the iron in this line
is of a high grade, while at page 2152, it is stated that it
was rolled in the same manner as the Pilarcitos and
San Andreas iron, costing, Mr. Schussler states, at
pages 2274-6, 4.6^ per pound.
Alameda 36-Inch Pipe. This pipe is shown at page
1208 to have been composed of iron of a high grade,
costing (page 2274) 4.6^ per pound. These specific
statements are cited to show that the quality of the iron
in the Pilarcitos 30-inch, San Andreas 30-inch, Crystal
Springs 44-inch, and the Alameda 36-inch, is of the high-
est quality, and that the weight, varying as it does in
the different lines, is no indication of the character of
the material entering into the composition of the pipe
itself, — the weight per foot necessarily varying in the
different pipes in proportion to their diameters, as well
232
as the various thicknesses of the iron. The fact that
an allowance is made for the pressure which the pipe
must necessarily withstand, is neither a controlling fac-
tor nor an indication of any kind as to what the quality
or character of the iron employed actually is.
This rather full explanation is here given in answer
to the question of the court at page 594 of defendants'
argument, as to whether there are different qualities of
iron in the Crystal Springs pipe-line, because of the
differences in weight. There is no difference in qual-
ity. The iron employed in this system is of the same
quality throughout, — the only distinction which can pos-
sibly be drawn being that the iron in the pipe of the
smaller thickness has been drawn out more than that in
the thicker pipe. The number of laminations is the
same in each.
Abandoned San Andreas 30-Inch Pipe. At the bottom
of page 595 of the argument, defendants quote Mr.
Schussler 's testimony "that a portion of the original
" San Andreas 30-inch pipe-line was left in the ground
" and abandoned, because it was too expensive to take
" out". The answer to this suggestion which plainly
appears in the testimony is that no portion of this pipe
was estimated upon by Mr. Schussler, but that his esti-
mate included the 44-inch pipe which replaced it.
Quality of Pilarcitos Pipe. Defendants have quoted
from Mr. Schussler 's testimony regarding this pipe at
Schoolhouse Station, with the evident intention of show-
ing the poor quality of the pipe here in use. It has al-
233
ready been shown that this pipe is of good quality and
that the difficulties encountered in this particular place
were due to the fact that the pipe was not, at the time
of its installation, caulked. This is an old pipe, and when
it was put into use, the process of caulking had not been
given a thorough trial. Upon proof of its effectiveness,
however, this pipe was taken out, caulked and put in
again, and has, from that time to this, given no trouble
whatever.
54-Inch Alameda Pipe. With regard to Table No. 3,
defendants fail to quote Mr. Schussler's entire testi-
mony as to the data which he was to give regarding the
cost of wrought iron pipe. The portion quoted by them
is as follows:
"I shall give the data which shows the cost per
pound of plate iron in the construction of these
pipes."
There should be an addition to this, to the effect that
Mr. Schussler compared the data which he gave for
the 54-inch Alameda line, with some of the other pipe,
and that the result gave him the cost for all wrought
iron pipe, and not for the 54-inch pipe alone. The lay-
ing of this pipe was attended with greater difficulties
than was that in connection with the 54-inch pipe, but
Mr. Schussler concludes that allowances for other units
would be less in the case of the 54-inch pipe to a prac-
tically equal extent, so that it is safe to adopt practi-
cally the same units here (p. 330, complainant's opening
brief).
234
Sub-Units. Defendants, in describing table No. 4, at
page 598 of their argument, state that the second volume
of the closing brief concedes all the sub-units claimed
by them except those which are specifically mentioned.
This is not the fact. It is true that the only sub-units ac-
tually in evidence are those with regard to the 54-inch
pipe, but the testimony plainly indicates beyond the pos-
sibility of a doubt, that the estimates for the 54-inch
pipe were not accepted as to the other, without reason.
We shall examine these sub-units in detail.
(a) Rivets. In connection with the item of rivets,
it is shown that the weight of the rivets used in the con-
struction of the 54-inch Alameda pipe was 4 per cent of
the plate iron actually used, and that in all pipe lines
of complainant, the proportion in weight of rivets to
the total line is the same. This figure is, therefore, not
an arbitrary adoption of a unit shown in the 54-inch
pipe, but represents the cost, proved by the experience
of the company. The rivets in all pipe lines cost the
same per pound as shown in detail on page 159, ap-
pendix to complainant's reply brief, and the sub-unit of
.17^ would, therefore, be the same for all lines.
(b) Hauling, digging, etc. This item in the case of
the 54-inch pipe, was 1.86^. At page 193 of Volume 2,
complainant's reply brief, it is shown that this item, in
connection with the San Andreas 44-inch pipe, was 2.26f
Mr. Schussler's testimony, as to the conditions and
circumstances surrounding the laying of other pipes,
transportation, etc., which is criticized at the bottom of
defendants' table No. 3, shows plainly that Mr. Schuss-
235
ler did not use the item of 1.86^ for all the pipes. In
this instance, the oldest pipes showed a larger expense.
The further reference in defendants' table No. 4 to the
appendix of complainant's reply brief, page 202, from
which defendants deduce that Schussler based cost es-
timates for trench work on the cost of the 54-inch pipe,
shows that the 54-inch pipe was not meant, but the two
larger pipes, that is, the 54-inch Alameda and the 44-
inch San Andreas. The evidence shows that somewhere
between 1.86^ and 2.26^ had been applied to the smaller
pipes.
At page 598, defendants refer to their table No. 5,
which has to do with the original cost figures of pipe
lines. It is argued that Mr. Schussler was influenced
in ascertaining the cost of the San Andreas pipe by the
fact that that was the only figure which appeared in
the record. This is error. Mr. Schussler 's testimony
shows that he stated that the 44-inch pipe was of a
quality inferior to the other pipes, and that he took
cognizance of that inferiority in quality and lower
price in his estimate of the San Andreas pipe-line when
he reached his estimated value of the plate iron for
that line in San Francisco at 4$. Counsel further
argues at pages 598-9 of the argument that the increase
in price per pound for the Millbrae force pipe was due
to the smaller quantity ordered, as compared with the
San Andreas 44-inch pipe. The fact is (2681-94) that
the delivery to the contractor for the laying of the 44-inch
pipe was contingent upon the delivery to complain-
ant of plate iron from the mills in the east. It is there
stated what the rate of delivery was to be to the con-
236
tractor, and that the completion of that delivery was
not to occur until some time in the following year, so
that at that time, two months after the 44-inch pipe was
ordered, and at the time when the order for the Millbrae
force pipe was given, the mills had not completed one-
half of the San Andreas order, and were then actually
engaged in the rolling of iron for the San Andreas 44-
inch line.
Table No. 7 claims a price for the San Andreas 44-
inch of 2y2<t per pound in the east. This is error. The
testimony shows it to have been 3^. The Islais Creek
pipe cost 2 i/o cents in the east and 314 cents here.
In table No. 8, there is a quotation from Mr. Schuss-
ler's testimony regarding the damage by salt water, and
the failure to properly caulk the San Andreas pipe; a
further quotation from Mr. Schussler to the effect that
the caulking was afterwards done, and that the line is
still efficient and in actual use, should, in all fairness,
have been added.
The fifth, sixth, seventh and eighth quotations can
have no possible bearing upon Mr. Schussler 's esti-
mates, for the reason that the iron referred to was not
in use, nor estimated upon by Mr. Schussler in his
valuation in these cases.
Mr. Schussler estimated on 44-inch pipe, and on page
2190 of his testimony he stated specifically the pur-
poses served by this pipe, — one of which was an in-
crease in its carrying capacity.
The quotation opposite the Crystal Springs line in
this table should be extended. It is to the effect that
237
the iron is worth 4.6^ per pound here. The same refer-
ence applies to the Alameda 36-inch pipe. Moreover,
the last quotation in table No. 8, should be amplified by
the further statement that Mr. Schussler took into ac-
count the lower price of iron in the 44-inch pipe when
he reached his estimate of 4^ per pound for the iron in
the San Andreas pipe-line. These statements are in
answer to page 601 of defendants' argument.
In table No. 9, also, the figures of 2y2$ for plate iron
should be changed to 3^ in accordance with Mr. Schuss-
ler's testimony; while the second quotation should fur-
ther explain that the price of 3^ per pound was the price
in the east, and not in San Francisco. The only other
fact which need be noted, in connection with this table, is
that the third quotation, referring to an extra piece of
pipe, applies not to the 44-inch pipe, but to the 37-inch.
Table No. 10: In this table, the figure "3^ for main
portion of 44-inch pipe" is in accordance with Mr.
Schussler 's testimony and the cost of 3^ in the east;
this fact involves an addition of .75^ for freight. The
reference to 2020 feet of 44-inch pipe, and the further
reference to "highest unit * * * lighter pipe" neces-
sitates the answer that this 2020 feet of 44-inch pipe is
the same grade of iron as that used in the Crystal
Springs line. It is slightly lighter in weight, because
its thickness is less, due to the fact that it was only
required to stand one-quarter of the pressure which the
Crystal Springs pipe was forced to bear. Further-
more, the reference to the average of the whole pipe-
line and the statement that it was lighter iron, and the
238
further statement that three large portions were re-
placed, simply necessitates a re-statement on our part
that weight is no indication whatever of quality, and
that the portions replaced were not estimated on by
Schussler at all.
Table No. 11: Defendants seek to show that the Crys-
tal Springs pipe and the pipe used at the Islais Creek
Crossing, costing 2V^ in the east, are of the same
character. This is not the case. The Crystal Springs
is of the highest grade of iron, costing 4.6^ here, while
the Islais Creek pipe would cost here 2>y±f. The Crystal
Springs 44-inch pipe is not the same pipe, nor is it of
the same grade of iron, and the discussion of the two
pipes in the same connection unless noted, gives an
erroneous impression. Defendants try to show further
in this table that the iron used in the 44-inch Islais
Creek Crossing in 1900 differs from that in the 44-inch
San Andreas, and conclude that because the Islais
Creek 44-inch was laid on a trestle, it was consequently
cheaper plate iron per pound. It is, of course, obvious
that the fact that the pipe was laid on a trestle does
not detract, and cannot detract from the value of the
iron which was bought in the east, and it might be well in
this connection to state that it costs less per pound to lay
pipe on trestle, barring the cost of the trestle, approxi-
mately 4^ (which defendants seem to ignore), than it
does to lay the same pipe in the ditch.
Defendants' reference to the plate iron in the vari-
ous pipe-lines, and their argument to the effect that
they did not use Mr. Schussler 's estimate of 3^ for
239
plate iron (defendants say for laying pipe-line), for all
the lines, but did for two smaller lines involves an adop-
tion by the city of the 3^ rate for the pipe-lines, against
4.6^ used by Schussler. The actual fact is that Schuss-
ler gave his estimate of 3^ in the east for the San
Andreas 44-inch and the Islais Creek 44-inch; for the
Pilarcitos 3.9^ in the east, and San Andreas 3.9^ in the
east, and defendants arrive at 3^ here in San Francisco
for Pilarcitos and San Andreas pipe, by a process of
erroneous assumptions and deductions from Mr. Schuss-
ler's testimony, which the testimony itself does not war-
rant. Mr. Schussler did give the price of the 44-inch
San Andreas pipe at 3^ in his original testimony, and
did not say 3^ in the east. This fact has, however, since
been corrected, and the undisputed cost of the San
Andreas iron in San Francisco is 3.75 cents per pound.
TABLES NOS. 1 AND 2, ON DEPRECIATION.
The purpose of these tables, as stated in defendants'
argument, is to show that depreciation has been covered
through allowances made in water rates. We believe
that we can show conclusively the error of this argu-
ment:
240
Alameda Pipe.
The cost of the Alameda pipe-line, as given
by defendants, is $1,589,869.30
This figure probably includes the Belmont
pumps and the 16-inch submarine pipe,
although it is not possible from the table
submitted to state this with certainty.
To be entirely conservative, however, we
include these two items at the figures
given by Mr. Grunsky in the Municipal
Reports, 1900-1901, as follows:
Belmont pumps (page 220) $159,470.00
Plus 10% 15,947.00
16-inch submarine pipe (p. 217) . 120,000.00
Plus 10% 12,000.00
Total $ 307,417.00
This amount, when subtracted from the fig-
ures given by defendants, supra, leaves
as a total $1,282,452.30
as the approximate cost of the Alameda pipe.
Defendants' witness Grunsky, page 223, Municipal Re-
ports for 1900-1901, estimates the life of wrought iron
pipe at forty years. Reckoning upon a basis, therefore,
of $1,282,452.30, and assuming that the pipe will last the
40 years which he suggests, we find that in order for
the company to be made whole at the end of that period,
there should be contributed annually to a fund for that
purpose $21,224.58. This is, of course, estimated upon
the basis that the money contributed from year to year
241
will be compounded. Were this system not followed,
the annual contribution would necessarily be materially
higher. This sum would be in addition to all operating
charges of every character, such as those for patrolling
the line; keeping gates, blow-offs and air valves in
working order; salaries of patrol-men; up-keep of con-
veyances; tools; cost of repairing leaks or breaks
caused by earthquake, explosion, floods, wash-outs, wind-
storms, etc.; replacement of lumber, trestles and air
valves; painting buildings; and other preservative mea-
sures. Accepting then, our figure of $21,224.58 as an
annual contribution, which must be made in fairness to
complainant to provide an amortization fund, we find
that from defendants' own figures, the contributions
actually were as follows:
1901 $1,263.30
1902 1,074.77
1903 869.69
These figures, upon defendants' own showing, include
every cent which the company received to cover depre-
ciation.
Crystal Springs Pipe Line.
The cost of this line, according to defendants' exhibit
101, page 228, was $1,348,045.04. Accepting Grunsky's
testimony as to the life of the pipe — 40 years — we find
that it would be necessary that there should be an annual
contribution to a depreciation fund, for this system,
of $22,310.14.
242
The following payments were in fact received by com-
plainant :
1901 $ 17.25
1902 275.70
1903 928.49
It should, moreover, be borne in mind that these are
the only payments received by complainant to cover this
account, and include items which we submit are beyond
question operating expenses.
Pilarcitos and San Andreas Pipe Lines.
The cost of these lines, according to defendants' table
showing the cost of structural works, which was taken
from pages 226-228 of exhibit 101, shows an expenditure
of $975,384.48. Estimating upon the basis previously
explained, we find the necessity for an annual contribu-
tion of $16,142.61. The amounts actually received by
complainant, according to defendants' own figures, which
we shall subsequently examine, were:
San Andreas Pilarcitos Total
1901 $ 49.67 $ 973.96 $1,023.63
1902 8.22 2,953.26 2,961.48
1903 210.41 544.68 755.09
Locks Creek Line.
The cost of this line, on the basis of defend-
ants' table, which shows the cost of struc-
tural properties, was $393,784.66
From this, to ascertain the cost of pipe, we
subtract the San Andreas and San Mateo
tunnel, generally known as "Pilarcitos
tunnel No. 2" $73,624.01
243
Stone dam 6,000.00
10% for contingencies 600.00
Tunnel No. 1 76,800.00
10% 7,680.00
Earth dam 7,200.00
10% 720.00
Concrete dam 7,500.00
10% 750.00
Tunnel No. 2 70,600.00
10% 7,060.00
Concrete aqueduct 50,800.00
10% 5,080.00
44-inch pipe 18,900.00
10% 1,890.00
44-inch pipe 2,800.00
10% 280.00
Leaving, when subtracted from the total ex-
penditure for the line $393,784.66
as the cost of flumes $115,000.65
Grunsky estimated the life of a flume at 20 years ; the
life of permanent structures at 100 years, and the life
of pipe 40 years. The figures given above for perma-
nent structures amount to $191,290; for pipe, $23,890;
and for flumes, $115,000.65. Reckoning, then, on the
above life, we find that the annual contribution to cover
depreciation should be as follows :
For permanent structures $ 612.13
For pipe 395.05
For flumes 4,732.25
Total $5,739.43
244
The amounts claimed by defendants in table No. 1 to
have been allowed for this depreciation, under the head
of "operating expenses", were:
1901 $ 86.12
1902 3,073.61
1903 863.02
Pumping Plants.
It is exceedingly difficult to arrive at a definite annual
charge to cover depreciation in pumping plants, upon the
basis of the testimony presented in this case. Grunsky,
at page 223 of the Municipal Reports of 1900-1901, gives
the life of pumping engines at 40 years, and boilers
at 20 years. There are parts of engines, such as springs,
valves, castings, etc., and of boilers, such as tubes,
grates, burners, etc., that have to be replaced oftener
than is allowed in the estimates of Grunsky, in order to
keep the main parts of the plant intact for the stated
periods. There is such great uncertainty as to these
minor details, and as to the extent or nature of main-
tenance and depreciation in this connection, that an item-
ized estimate to cover depreciation is impossible. This
is well illustrated by a charge made in 1903 of $270.00,
which is entered on the books simply under the heading
' l Pumps ' '. This might be repair, a replacement to cover
an accident, a depreciation charge, or a permanent
improvement. The same holds true as to charges for
such items as tube-cleaners, fans, harness repairs, burn-
ers, stacks, and many others.
245
Crystal Springs, San Andreas and Pilarcitos Reservoirs.
For the maintenance and protection of these reser-
voirs, a large force of men is necessary, particularly in
the seasons of the year when forest fires are a possi-
bility. In connection with this work, there are expenses
for horses, wagons, tools, blacksmithing, carpenter work,
castings, fittings, hardware, paint, pipe, plumbing and re-
pairs, and lumber. These charges, all of which are in-
cluded in tables Nos. 1 and 2, are so evidently maintenance
expenses, in no way connected with a depreciation account,
that we do not here discuss the matter further. We do,
however, wish to discuss generally the items claimed by
defendants to cover depreciation. There is no showing
that any of the items enumerated in either of the tables
above referred to, claimed by defendants to be charge-
able to depreciation, are not in fact expenses incurred
in the operation of complainant's plant. It must be re-
membered that they were so charged upon the books of
complainant, and the nature of the expenses indicates
a proper understanding of such accounts by complain-
ant. It would be futile to attempt a specific discussion
of each of these many charges, but we do wish to show in
sufficient detail that the claim of defendants in this
regard is supported by neither reason nor authority.
Such items as blacksmithing for shoeing horses, elec-
trical fittings, hardware, erection of keepers' houses,
paint, asphaltum for patrolmen's launch, plumbing, fur-
niture, whitewash, castings, valves, oil, plaster, etc., are
evidently expenses incurred in the ordinary operation of
complainant's plant, and can in no sense be taken to con-
246
stitute a depreciation fund, upon which complainant may
depend on the exhaustion of an individual portion of its
plant.
Defendants ' exhibit 101, prepared by Mr. Wenzel-
burger, has been carefully examined, and we find that
there is no single charge therein which cannot properly
be said to be a construction or operating expense. In the
absence of some proof, or at least of some indication,
showing an error in complainant's method of apportion-
ment, we believe that the fact that the charges were en-
tered as against construction or operation should be
taken to be conclusive that they were properly so made.
The whole question has been adequately covered and dis-
cussed in previous parts of this argument, and in the
briefs of the respective parties, and it would be useless
to once more cover that ground. We do, however, sub-
mit that this exhibit discloses no new reason why the
charges on complainant 's books should be changed. The
fact should not be lost sight of that, upon defendants'
own showing, there is no allowance, and has been none in
past years, to cover the decay of perishable portions of
complainant's plant.
We have accepted, for the purposes of this discussion,
defendants' figures as to cost of pipe-lines, and as to the
allowances made in the fixing of rates, to cover deprecia-
tion, and we find that whereas $22,310 should have been
allowed in 1901 to cover the deterioration in the Crystal
Springs pipe-line, $17.25 was actually allowed; that
where in another instance $16,142 was, according to
Grunsky, a proper allowance, $1,023.63 was actually re-
ceived by the company. Of these charges so received,
247
practically every cent was to cover regular operating
expenses, and no allowance of any character was made
with the intention of covering the major items of depreci-
ation, such as the exhaustion of pipe-lines or the ultimate
decay of other structural properties. It is a fact, which
no manipulations of defendants can remedy, that this
complainant has not received, at any time, an allowance
for depreciation, and that there was no allowance made
by the supervisors in 1903, 1904 or 1905 to cover that
item. Whatever provisions have been made to insure
the continued life and reliability of complainant's plant,
have been made by the stockholders, and if, as claimed
by defendants, the plant is now in as good condition,
structure for structure, as at its inception, that is due
to no allowance made by the city, nor to receipts gained
from rate-payers. We could hardly have desired a
stronger showing than that with which we are furnished
by defendants' table, and upon the subject of deprecia-
tion we are willing to leave the case as defendants have
made it.
COST OF STRUCTURAL PROPERTIES.
Turning to a consideration of the table entitled ' ' Show-
ing Cost of Structural Properties of Complainant",
which gives the figure $14,875,258, we find no error in the
charges so far as they apply to the Alameda Creek sys-
tem, Crystal Springs system, or the Lake Merced drain-
age system. Under the heading "Locks Creek Aque-
duct", the item "San Andreas and San Mateo tunnel,
$73,624", should be eliminated and added to the Pilar-
citos svstem. This is Pilarcitos tunnel No. 2.
248
Pilarcitos System.
To this account should be added tunnel No. 2, as above
suggested, also Pilarcitos steam engine, exhibit 101, page
226, $1,520.60. From the San Andreas system, there
has been omitted the item "Abbey Flume, $9,233.41",
pages 22 and 228 -of exhibit 101. This is the Ocean
House flume on the Pilarcitos pipe-line, and is still in
existence.
City Distributing Reservoirs.
The following reservoirs are entirely omitted from
this table:
The College Hill, for which there does not appear any
charge in the new construction accounts or in the seg-
regated trial balance of January 1, 1904;
The University Mound, the cost of which was $197,-
486.30;
Presidio Heights reservoir, as to which the various
charges are found, exhibit 99, pages 14 and 96, $3,956.94,
pages 13 and 88-91, exhibit 98, $21,549.80, making a total
of $25,506.74. No allowance is made in this table for
payments made by complainant to San Francisco Water
Works for reservoirs bought from that corporation,
namely, Lombard street and Francisco street reservoirs ;
Also from this table, under the heading of "City Pipe
System ' ', have been omitted items of construction in the
segregated trial balance of January 1, 1904, parts of
which structures are now in use in their original loca-
tions, and parts of others of which are in other portions
of the city pipe system.
249
Other omissions are:
Page 227, exhibit 101, Lake Honda reservoir pipe,
$74,329.54;
Lake Honda 22-inch main, $64,687.51;
Lake Honda 30-inch main, $88,642.08.
"San Pedro Works, $21,308.55".
We also find that the cost of all pipe acquired from
San Francisco City Water Works has been omitted. De-
fendants estimate the cost of this pipe, using Adams'
units, page 138 of their brief, $136,801.66. If these addi-
tional construction expenses are considered, the total
is over $15,500,000.
In addition to the omissions above noted, there are
items included in the segregated trial balance of Janu-
ary 1, 1904, which include charges properly allowable
against structures, in addition to those specifically
named. They are: salaries, exhibit 101, page 225,
$465,462.18; interest during construction, page 225,
$301,189.90; contingent expenses, such as surveying,
engineering, etc., $414,573.06; construction, general ex-
pense, $372,369.58; sundries, such as telegraph lines,
street work, sewers, fencing, gates, cement, lumber,
grading, engineers' expenses, provisions, etc., $726,-
229.06.
If we add these omissions to defendants' table we
have as the total primal cost of complainant's structural
properties, instead of the $14,875,258 reached by defend-
ants, $17,798,000, which we are willing to accept. This
result, it should be remembered, is reached from de-
fendants' own showing and fails to take into account
the greater cost of present day construction.