Skip to main content

Full text of "The Spring Valley Water Works (a corporation) complainant, vs. the City and County of San Francisco (a municipal corporation) ... et al. ... defendants. No. 13,395 in equity. The Spring Valley Water Company (a corporation) complainant, vs. the City and County of San Francisco (a municipal corporation) ... et al. ... defendants. Nos. 13,598 and 13,756 in equity"

See other formats


/ 


<u 


(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 


0    n» 

CD  73 

a  s^* 

Jr!       03    tH 

o    „, 

o  »o 

>o 

o 

iO 

ia 

i.O) 

o 

o 

-*    TjH 

-H 

L— 

CO 

CO 

CO 

CO 

to 

CO  CO 

^9- 

3D 

00 

t- 

t^ 

t> 

t> 

t>^ 

■+J       rH    *£ 

CO      <D    ,Q 

O     A 

Q 

u   +* 

ob 

M 

CD     d    «H 

d 

CD 

d 
o 

tifi 

CD 

'otal  cost  p 

bl.  of  ceme 

delivered  a 

structure. 

CO 

6 

73 

CD 
W 

0) 

6 

to 
q 

CO 

o 

CO 

o 

6 

73 
73 
d 

^ 

CD 

r3 

CO 

73 

o 
o 

CD 

CO* 

CO 

^r 

2.98 
tra    2 

3.00 

r-i  X2 

H-3 

ft 

q_i      i       i 

CD 

CD 

o  S  S 

Ph    d 

ri 

Hfj 

§2% 

CO 

oq 

QQ 

X 

X 

d 

CD       . 

an 

d 

CD 

x 

CD 

d 

d 

^       s 

o  o 

6 

d 

6 

a 

d 

a 

CD 

6 

CD 

•*a    'r3    "^ 

«.■*■* 

o 

73 

cq 

o 
'43 

Ol 

rH 

T3 

CO 

Ol 

CO 

73 
d 

tH 

CO 

d 

rH 

CO 

CO 

CO 

o 

o 

Q 

O 

tH 

6 

p. 

CO 

o 

H 

73 

d 
d 

7t> 

X 

■H> 

ca 

"a" 

| 

X 

he 

d 

Ph 
X 

X 

r>, 

Q 

o 

CD 

X 

"cj 

d 

03 

rH 

'a 

d 
d 

oi 

C3 

"3 

PH 

'53 

cc; 

X 

o 

d 

CD 

c3 

d 
d 
X 

Ph 

d 

CD 

CO 

O 

i—i 

2 

rH 

6 

d 

X 

CD 

"o 

"a; 

2 

pa 

o 

0 

El 

6 

X 

CD 

a 

73 

CD 

'co 

d 

a 

03 

_d 

13 

CD 
X 

- 

d 

d 

d 
d 

d 

a 

re; 

d 
d 

-^ 

CD 

CD    d 

x 

03     °3 

d 
d 

d 
o 

0 

d 
d 

Ph 

d 
d 

CO 

5 
c: 

d 

d 
d 
d 

73 

X   "-1 

d  J 

o 

CD 

a 

d 

£     CD 

X 
GO      d 

o   o 

.is  a 

£     CD 

d  ^ 

r^   d 

CO 

O 
o3 

QD 
00 

o 
'a 

Qj 
O 

5 

QQ 

O 

QQ 

'o 

> 
U 

Cj 
QQ 

CD 

d 

d 

ea 

03 

73 

d 
d 

d 

QD 

a 
c3 

CO 

CD 

— i 

c3 

Springs 
ix-Mile  Re 
County 

Ph  C  Ph  Ph  ^  M 

ffi  x 

3 

^ 

X 

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.