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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"

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(Etrrtttt (Eouri 



Ninth Judicial Circuit, Northern District of California 

<* 

The Spring Valley Water Works 
(a corporation ), 

Complainant, \ 

vs. 

The City and County of San Francisco 
(a municipal corporation), The Board of 

SuPBRVISORS OF THE ClTY AND COUNTY OF 

San Francisco, and James P. Booth 
et al., members of and constituting said 
Board of Supervisors, - 

Defendants. 



The Spring Valley Water Company 
(a corporation), 

Complainant, 

vs. 

The City and .County of San Francisco 
(a municipal corporation), The Board of 
Supervisors of the City and County of 
San Fra-ncisco, and James P. JJ&oth 
et al., melibers of and constituting said 
Board of Supervisors, 

Defendants. 



No. 13,395 
In Equity 



13,598 and 

13,756 
In Equity 



CLOSING ARGUMENT 

of Edward J. McCutchen for Complainant, 

on Final Hearing 



Perxatt Publishing Co. 



SAN F <~ ; .00M 






SAN FRANCISCO 
PUBLIC LIBRARY 



SAN FRANCISCO PUBLIC LIBRARY 



3 1223 90149 8775 
REFERENCE BOOK 

■Not to be taken from the Library 



Digitized by the Internet Archive 

in 2012 with funding from 

California State Library Califa/LSTA Grant 



c 

http://archive.org/details/springvalleywat3190306spr 



Index to Closing Argument 



Page 

Value 2 

Substitutional value 2 

Judicial notice as to bond issue 12 

Estimates of cost of Tuolumne system 16 

Complainant's monopoly 17 

Grunsky's valuation of Spring Valley prop- 
erties 19 

Interest during construction 19 

Interest on properties not in use 22 

Allowance of $1,400,000 for incidentals and 

omissions 24 

Upper Crystal Springs and Pilarcitos dams 25 

Alameda lands and water rights 27 

Valuation of $1,000 per miner's incli 34 

Duty of complainant to anticipate demands 37 

Valuation of Lake Merced lands 42 

Defendants' method of ascertaining value 103 

Sales of Lake Merced properties 103 

Testimony of Schussler 107 

Quantities 113 

Missing cash books 116 

Properties out of use 121 

San Francisco City Water Works 122 

Depreciation 123 

Undivided profits 126 

Transfer Spring Valley Water Works to Spring 

Valley Water Company 127 

Value of properties 129 

Rate of Return 134 



INDEX. 
ADDENDA. 



Page 

A Value of Sclmssler's estimates 155 

B (1) An answer to defendants' argument and ta- 
bles regarding estimates on wrought iron 

pipe 229 

(2) Defendants' tables Nos. 1 and 2, on depre- 
ciation 239 



34-s 

/?03 -06 
v. 3 



S. F. PUBLIC LIBRARY 



(Etrrmi (tart 

OF THE 

United £>tate0 

Ninth Judicial Circuit, Northern District of California 



The Spring Valley Water Works 
(a corporation), 

Complainant, 

vs. 

The City and County of San Francisco 
(a municipal corporation), The Board of 
Supervisors of the City and County of 
San Francisco, and James P. Booth 
et al., members of and constituting said 
Board of Supervisors, 

Defendants. 



The Spring Valley Water Company 
(a corporation), 

Complainant, 

vs. 

The City and County of San Francisco 
(a municipal corporation), The Board of 
Supervisors of the City and County of 
San Francisco; and James P. Booth 
et al., members of and constituting said 
Board of Supervisors, 

Defendants. 



No. 13,395 
In Equity 



Nos. 
13,598 and 

13,756 
In Equity 



CLOSING ARGUMENT 

of Edward J. McCutchen for Complainant, 

on Final Hearing 



2 



SUBSTITUTIONAL VALUE. 

Mr. McCutchen. If your Honor please: At the 
opening of the argument for defendants, counsel on the 
other side expressed a great deal of surprise that com- 
plainant had taken the position which was taken by 
counsel who made the opening argument in its behalf. 
He suggested that he was very much misled, that he was 
in a maze of uncertainty, that he did not know where 
to turn or exactly what to do because the theory upon 
which the case was presented upon oral argument was 
so radically different from that followed in the briefs. 
He also suggested that the oral argument antagonized 
the briefs and that it was absolutely impossible to recon- 
cile the positions taken in the argument with those taken 
in the briefs. His criticism was directed, first, to our use 
of the so-called substitutional system; and, second, to 
resort to the cost of duplication for the purpose of de- 
termining value. 

I was very much surprised by counsel's attitude. He 
was not content with stating it once, but he stated it 
time and again. Indeed, this substitutional system was 
as worrying to him as was Banquo's ghost to Macbeth. 
There was not a session from the time he began his 
argument until he closed that he did not devote some 
part of it to the substitutional system. The use of the 
substitutional system has worried him beyond measure; 
and it is that system which, he has so solemnly said to 
your Honor, had no foundation either in law or reason. 

The doctrine of substitutional cost was urged in com- 
plainant's opening brief, and let me recall what counsel 



on the other side said in reply. I will read from page 
60 of the defendants' brief, under the sub-title of sub- 
stitutional cost: 

''The contention that the value of complainant's 
plant should be fixed by 'the estimated cost of the 
next available substitutional system' has no basis 
in reason or law." 

It is hard to understand why counsel so expressed 
themselves in their brief, if there was nothing in our 
brief indicating that we relied upon that method of 
reaching value. 

But let us go a little further: I quoted to your 
Honor in my opening argument a statement from the 
brief of the defendants that substitutional cost was one 
of the elements to be considered. On page 361 of the 
transcript of his argument he said — and I only take up 
the time to show that the position of the complainant 
has been perfectly consistent — that nothing is said in 
complainant's closing brief, as to the fixing of value by 
comparison with a substitutional system, and that the 
views of the respective parties are irreconcilable. 

"Upon oral argument", says he, "complainants have 
entirely changed their position." 

And on page 396 of the transcript, he says : 

"Believing that the closing brief of complainant, 
filed more than four years after the testimony was 
closed, and signed by all of the solicitors for the 
complainant, represented the final wisdom of the 
large array of attorneys employed by complainant 
in this case, defendants prepared to discuss the is- 
sues of this case on the final arguments on the posi- 



tions taken in that brief. Greatly to our surprise, 
however, counsel for complainant in orally arguing 
his case has taken positions which are entirely in- 
consistent with the views expressed in the brief 
and has made but slight reference to the complain- 
ant's brief, and that is a very strange circumstance 
because counsel referred to our brief very frequently 
during his argument." 

And I ask counsel now, in common fairness, to point 
to a line in the oral argument in which any position 
taken in the briefs is antagonized. 

I could not understand what the purpose of counsel 
was in endeavoring to make it appear to the court that 
the counsel who made the oral argument was at cross- 
purposes with those who prepared the briefs. 

Mr. Haven. I refer to the paragraph in the closing 
brief which says there are two methods of determining 
value in an action of this character, and in neither of 
those methods is the method of substitutional value men- 
tioned. 

Mr. McCutchen. In reply to that suggestion, I refer 

your Honor to the statement on page 8 of Vol. 1, 

complainant's closing brief, to which counsel has made 

reference. It is there said: 

"Second: By other independent evidence tending 
to show what would be the cost of reproducing all 
the property if it were necessary to acquire the 
lands and construct the works in their present con- 
dition at the time of the investigation." 

If counsel can find any substantial difference between 
that statement and my statement of substitutional cost, 



I would like him to do it. And he says lie agrees with 
that: he is committed here practically to an agreement 
with that statement of the law on the subject. 

And again he says, still trying to find some antago- 
nism between the briefs and the oral argument, at page 
543 of the transcript: 

"Now, turning from the brief to the oral argu- 
ment of complainant, which is not consistent, or at 
least is not the same argument as was made in the 
brief; as I understand, the oral argument was 
mainly, and I don't know but entirely on the two 
bases upon which counsel seeks to fix the value of 
the property; one is what he has designated as a 
comparison of value with a substitutional system; 
the second was attempting to get at the value of 
water as such, and an attempt made by him to show 
that Grunsky had inflicted a heavy wrong on com- 
plainant by leaving out a certain quantity of water.' ' 

Are those the only methods of valuation which counsel 
understands were dealt with in the oral argument? If 
they are, I am unfortunate, indeed, in my effort to make 
myself understood. I put upon the blackboard here a 
number of valuations based upon his own figures, with 
one or two exceptions. Does he understand that those 
were not contended, for, at least as minimum valuations? 

And again: 

"With reference to the substitutional system, 
even if the Tuolumne system was an accomplished 
fact and were here furnishing water, or ready to 
furnish water, there is no authority for the assump- 
tion that that is a final basis for fixing rates for an 
existing plant." 



6 



I have not claimed that it is. Do not these quota- 
tions, taken one by one, starting with the beginning ana 
reading on from day to day, show an admission on his 
part that so far from the argument having no basis in 
law or reason, it has very substantial basis? 

After stating that counsel for complainant was grasp- 
ing at a straw when he relied on the so-called substi- 
tutional system, and saying that a falling man will grasp 
at almost anything, he was asked this question : 

"Do you now say that substitutional cost is not 
to be considered?" 

And his answer to that question was: 

"I do not. 

"Mr. McCutchen. Then I have not misconstrued 
you, have I? 

"Mr. Haven. You have not misconstrued me if 
you say that is to be considered, but, as I under- 
stood your argument, you say it is not only to be 
considered but because we have said it is to be con- 
sidered we have therefore said that you were justi- 
fied in building up your valuation by this compari- 
son." 

I stated to your Honor very candidly that I did not 
claim that you were obligated to allow for this property, 
if you were to take the Tuolumne system as a compari- 
son, the entire cost of that system. But I did say that 
it was a most important circumstance, and in my view 
was the most important circumstance that was developed 
by this record. And counsel is compelled, by force of 
the logic of the positions which he took in the early part 
of Lis argument, to come to that conclusion; he can 
reach no other. 



Upon what right, I ask, — and I asked him when I 
made my argument to reply to this, and he has closed 
his argument with silence upon the subject, — I say I 
asked him to tell us by what right he took substitutional 
cost for the structural parts of this plant, and refused 
to apply the same rule to water rights and real estate. 
Has he made any answer? 

I now come for a moment to a comparison of this 
plant with a projected substitutional plant as a circum- 
stance enabling the court to tell what the value of this 
plant is. 

I never have contended, and I do not now contend, 
that your Honor is compelled to take as the measure 
of value of this property what it would cost to bring 
a supply of water from the Tuolumne. I do claim, how- 
ever, that one of the circumstances which you may 
and should take into consideration is what it would 
cost to render the same service to San Francisco that 
was being rendered in the year 1903 by the complain- 
ant. Your Honor will recall that there are used, by the 
authorities dealing with the subject of rate regulation, 
the expressions "an equivalent service", "the cost of 
the service", "the value of the service". For the pur- 
pose of determining the value of the service, it is proper 
to consider what it would cost to supply San Francisco 
with the same quantity of water, and of the same quality, 
and with the same reliability of service, as that with 
which the city is now being supplied. Counsel was not 
very far away from that proposition when he got 
through with his argument. He started with the notion 



8 



that our argument for a comparison with the proposed 
system was monstrous, but, before he got to the end of 
his argument, he was prepared to admit the usefulness 
of the doctrine of substitutional cost, with the qualifica- 
tion that the cost of the substitutional system would 
stand as an upper limit to the value of the existing 
property. 

Counsel at times was very alert to the effect of this 
substitutional doctrine, if we may so characterize it. 
He found it necessary, on other branches of his case, 
to follow a line of discussion which evidently did not 
appear to him at the time to have any effect on the 
doctrine of substitutional value. One of those in- 
stances is found on page 431 of his argument, where he 
said, when discussing cost — and by the way, at one time 
he thought cost was value, at another time he thought 
that cost of duplication was value — : 

"The city is bound to pay a fair rate of income 
upon the value of the property which is then being 
used for its benefit. The measure of that value 
has been held to be what it would cost to reduplicate 
the property. This must include, however, redupli- 
cation by the city itself, if necessary." 

He was there discussing our right to make a discount 
on stocks and bonds. As he saw it, the proper way to 
ascertain the value of the property was to determine 
what it would cost to duplicate it, and that means what 
it would cost to duplicate all of it. 

I went into quite an elaborate discussion for the pur- 
pose of showing what it would cost San Francisco if 



9 



the ideal system which Mr. Grunsky recommended were 
adopted, that is, a combination of the Tuolumne system, 
having but one pipe-line, with our peninsula system, that 
is to say: what it would cost per million gallons to bring 
water from the Tuolumne, where there is no market for 
it, to Crystal Springs reservoir, from which it could be 
distributed to a market. I assume that counsel finds no 
fault with my figures on that phase of the case. His 
only criticism is that it is not certain that that system 
will ever be built and that, therefore, your Honor should 
not use the comparison for any purpose. He did not 
go so far, toward the end of his argument, as to say 
that, but he did say that your Honor should not take 
the cost of the Tuolumne project as being beyond any 
doubt the value of the existing plant. I do not claim 
that. I think we have a showing here from which it 
may fairly be said that it is not possible to find, short 
of the Sierra, water which the city needs and which it 
must have, if the present system is not used. That is 
the conclusion of their own witness; that is their show- 
ing. There is no getting away from that showing so 
far as the city is concerned. 

As I said to your Honor in my opening, you can afford 
to take that branch of the case as the city has made it. 
It makes no difference whether our engineers think that 
that will be an expensive system or not; the showing 
made is that San Francisco must have water. There is 
no intimation that she can get it cheaper than from the 
Tuolumne. The unqualified showing is that the Tuol- 
umne is the most available system. Your Honor knows 



10 



something of the topography of this state; you know 
something about the localities where water is to be had, 
and you know, of your own knowledge — a knowledge 
which is common to all the people in California, cer- 
tainly to all those who have spent any time in San 
Francisco, — that unless water be drawn from the San 
Joaquin or Sacramento rivers, and that has been con- 
demned by everybody who has considered the subject — 
the city will be compelled to go to the Sierra unless 
she continues to rely upon the existing plant. That 
being the case, and Mr. Grunsky having said, and the 
city by its formal action having said, that the Tuolumne 
is the best and most available source, are we not en- 
titled to take into consideration the cost of water per 
million gallons from the Tuolumne, to determine the 
value of our property? Mr. Schussler, than whom no 
man knows better the value of water, says that the 
water which we supply is worth at least $150,000 per 
million gallons. Mr. Hering, who is one of the foremost 
men in the country, and who is now employed by the 
city of San Francisco to supervise some of its engineer- 
ing works, says that the water which we furnish is 
worth $150,000 per million gallons. Are not the state- 
ments of those witnesses very materially supported by 
a showing that to get other or additional water the 
city must go to the Sierra — to which their witnesses all 
say you must go — and that the water so coming from 
the Sierra will cost, exclusive of the cost of impound- 
ing it, at least $460,000 per million gallons? We do 
not ask you to make us an allowance of $460,000, but 



11 



suggest that the fact that that will be the expense of 
getting other water here affords a very substantial sup- 
port to the statement of Schussler and Hering that our 
water rights are worth $150,000 per million gallons of 
daily production. It is all well enough to say that it is 
speculation, but, if it be called speculation at all, it is 
speculation with a very substantial foundation. We 
claim that your Honor should take into consideration 
with that — by judicial notice — the fact that San Fran- 
cisco has voted the issuance of $45,000,000 in bonds to 
acquire that system. Counsel said you could not take 
that into consideration because it happened after the 
taking of the testimony in this case. We relied upon 
proof of the early action of the city and its officials to 
show the initial action on the part of San Francisco 
looking toward the acquisition of that supply. We 
might have asked your Honor to open the case before 
this argument began, and allow us to make proof that 
that initial action had been consummated by a deter- 
mination to acquire that system, and that bonds had 
been authorized to be issued. It would not have been 
a valid objection that that had not occurred before the 
trial of this case. It would not have been an objection 
that that had not occurred before these expert witnesses 
testified. The order in which the proceedings were had 
would not have had any effect upon the value of the 
Tuolumne system; nor would it have had any effect on 
the value of our system. Our system would have been 
of just as great value, and the cost of the Tuolumne 
would have been just as great, whether San Francisco 
voted for or against these bonds. But the object of ask- 



12 



ing your Honor to take judicial notice of the fact was 
that you might know and consider that the initial action 
taken by the board of supervisors had finally resulted 
in the approval of the people of San Francisco. 



JUDICIAL NOTICE AS TO BOND ISSUE. 

Counsel has reminded me that I need not have gone 
so far afield to find authorities on the question of judi- 
cial notice. I listened to him with some interest when 
he said that I could have gotten that from the Schmitz 
case. From the beginning to the end of the Schmitz 
case, there is nothing said about judicial notice. The 
court did not consider in that case whether it could 
take judicial notice of the fact that Schmitz was mayor. 
In fact the statute expressly provides that it should 
take such notice. The court there considered the valid- 
ity of an indictment, and we all know that although 
a court will take judicial notice of a fact, that does not 
relieve from the necessity of pleading the fact, if it be 
one which should be pleaded ordinarily. In the Schmitz 
case, there was no allegation in the indictment that de- 
fendant was mayor, and all that the court held was that 
the People should have pleaded that fact if they in- 
tended to rely upon it. 

I understand counsel's argument to be that as we 
could not have offered proof of this matter before the 
testimony was published, the court cannot take judicial 
notice of it. I call your Honor's attention to the case 



13 



of Southern Pacific Company v. Lipman, 148 Cal. 491, 
from which I read: 

"It is insisted by counsel for respondent that 
neither the decision of the Supreme Court in 183 
U. S. 519 (22 Sup. Ct. 154), nor the commissioner's 
letter can be taken into consideration as evidence 
because the decision of the Supreme Court of the 
United States was rendered and the letter written 
subsequent to the decision in the case at bar, and, 
as counsel say, have 'no legal significance in the 
determination of the motion for a new trial.' But 
they are not considered as evidence at all. The de- 
cision is taken as conclusive authority that the con- 
clusion reached by the trial court that it had been 
finally determined by the prior decisions of the su- 
preme court, cited in the agreed statement of facts, 
that patent shall not issue to plaintiff for these 
lands within its main-line grant, was wrong. And 
the letter of the commissioner of which we take 
judicial notice (Southern Pac. R. R. Co. v. Wood, 
124 Cal. 475, (57 Pac. 388), is considered in connec- 
tion with that decision as showing that the govern- 
ment has conformed to the equitable requirement 
declared therein and partitioned between itself and 
plaintiffs the lands within the conflicting primary 
limits of the grant, so as to set oif to the plaintiff 
the lands in the case at bar within such limits which 
it had assumed to sell, in order that, as the court 
said, 'Thus the title to the purchasers be per- 
fected.' " 

The commissioner of the general land office had acted 
pursuant to a decision of the supreme court of the 
United States, and the trial court took judicial notice 
of the action of the commissioner. This action by 
him was after the case had been decided and when it was 
pending on motion for new trial. 



14 



And so we say here that the court will take judicial 
notice of these proceedings to the extent of considering 
them for the purpose of determining whether this 
initial action of the board of supervisors declaring in 
favor of the so-called Tuolumne system was ever com- 
pleted by those having the authority to complete it. 

There is one case which I desire to cite to your 
Honor on the question of substitutional cost which I 
failed to cite in the opening. It is Brunswick Water 
District v. Water Co., with which your Honor is familiar. 
You will remember that the company in that case owned 
two sources of supply. It was bringing water from the 
more expensive source rather than from the source 
from which it could have been brought for smaller ex- 
pense. The opinion nowhere intimates that the value 
of the complainant's properties is lessened because 
of their dedication to the public. Judge Savage wrote 
the opinion in that case and said, at page 543 of 59 
Atlantic : 

"We turn to the other question involved in this 
request. That relates to the assumed existence of 
a nearer and cheaper source of supply than the one 
now in use by the company, which is a part of its 
present entire plant, and which in part represents 
its actual investment. We do not doubt that, when 
the worth of a public service of this kind to the 
public or the customers is spoken of, necessarily 
one of the elements to be considered is the expense 
at which the public or customers, as a community, 
might serve themselves were they free to do so, 
and were it not for the existence of the practically 
exclusive franchises of the supplying company. 
When the worth of the water to a consumer is esti- 
mated, we are not limited to the value of water it- 



15 



self, for it is an absolute necessity. Its value has 
no limit. Water, speaking abstractly, is priceless; 
it is inestimable. To sustain life it must be had 
at any price. And in this respect, a public water 
service differs from all other kinds of public service. 
In estimating what it is reasonable to charge for a 
water service — that is, not exceeding its worth to 
the consumers — water is to be regarded as a prod- 
uct, and the cost for which it can be produced or 
distributed is an important element of its worth. 
It is not the only element, however. The individ- 
uals of a community may with reason prefer to pay 
rates which yield a return to the money of other 
people higher than the event shows they could serve 
themselves for, rather than make the venture them- 
selves, and risk their own money to lose in an un- 
certain enterprise. It was said by us in the Water- 
ville case that the investor is entitled to something 
for the risk he takes, and it is not unreasonable for 
the consumer to be charged with something on that 
account. That is one of the things which make up 
the worth of the water to the customer. But such a 
consideration as this last one must always be treated 
with caution. The company is only entitled to fair 
returns, in any event, and 'fair' to the customer as 
well as to itself. 

"In the aspect now being considered, the worth 
of a water service to its customers does not mean 
what it would cost some one individual, or some few 
individuals, to supply themselves, for one may be 
blessed with a spring, and another may have a good 
well. It means the worth to the individuals in a 
community taken as a whole. It is the worth to 
the customers as individuals, but as individuals 
making up a community of water takers. In the 
very nature of things a water system is usually in- 
tended to supply a somewhat compactly settled com- 
munity, or a community whose geographical limits 
are somewhat restricted. As a matter of fact, in 
this state such systems usually supply villages, or 



16 



the more compact portions of cities. The necessity 
does not exist for extending such systems beyond 
these limits, and the expense would be practically 
prohibitive. Such a community must, in general, 
stand as a whole. The rates for such a system are 
generally and properly uniform, although the ex- 
pense of supplying some — as those nearer the source 
of supply — is actually less than that of supplying 
those at the outermost limits. Still the benefits are 
uniform, and uniform rates are reasonable. Now, 
such a community is, we think, entitled to the bene- 
fit of such natural and sufficient facilities for pro- 
curing pure water as exist in its vicinity. Com- 
munities are in every respect entitled to the benefit 
of existing natural advantages." 



ESTIMATES OF COST OF TUOLUMNE SYSTEM. 

Defendants in their brief and counsel in his argument 
before your Honor have characterized the estimates of 
cost made by our engineers, that is, the estimates of 
cost for the construction of the Tuolumne system, as 
absolutely unreliable, because of large discrepancies in 
the different valuations. The estimates of these en- 
gineers are as follows: 

Hering $55,000,000 (p. 3475) 

Schuyler 54,896,000 (p. 5408) 

Adams 53,330,000 (p. 4681) 

Schussler 55,000,000 (p. 1560) 

Stearns 54,400,000 (p. 4256). 

It is true that Mr. Stearns said that in his opinion 
the city could not afford to rely upon that plant with 
only two pipe-lines, and with no storage capacity, — and 



17 



it is well known, it would not have any storage capacity 
— so he said that in order to make the system approach 
reliability it was necessary to allow for another pipe- 
line, and that is the way Mr. Stearns reached $70,000,000. 

So far from there being the very great diversity of 
opinion which counsel on the other side has told you of, 
there is, under the circumstances, the greatest unanimity 
of opinion as to what the cost of that property will be. 
We submit that all the facts necessary for the accept- 
ance of the cost of Tuolumne supply as a basis for com- 
parison, have been shown, and that this cost should be a 
guide of the greatest value in determining the worth of 
complainant's properties. 



COMPLAINANT'S MONOPOLY. 

I am reminded that considerable was said by counsel 
on the other side with reference to our monopoly. The 
monopoly consists, as I understand counsel, in having 
purchased from time to time the properties about the 
bay of San Francisco which are available for a water 
supply for San Francisco. It occurs to me to ask him 
what might have become of those properties if we had 
not purchased them; where might their ownership be 
today, if it were not in the Spring Valley Water Com- 
pany? 

We did use the word monopoly in our argument, but 
it must be borne in mind that we get no monopoly from 
any right that San Francisco or the state has conferred 
upon us. If we had not monopolized those nearby 



18 



sources, somebody else would have gotten them, and 
what would have been the plight of San Francisco to- 
day? She would have been compelled, long ere this, to 
go to the Sierra; to the place, as to which Mr. Dock- 
weiler said, all engineers agree that she should go. If, 
by reason of acquiring all of the properties that are 
capable of producing water within a certain distance of 
San Francisco, we have acquired a monopoly of water 
producing properties, we are not to be criticised for 
having acquired such a monopoly. And if those acqui- 
sitions, and the fact that they are all united and under 
one ownership, and are interchangeable, as they are, 
add any additional value to the property, we are entitled 
to the additional value. Why should it be said that we 
are not entitled to that additional value as it would have 
existed if San Francisco had stood in our shoes, and 
had bought these properties herself 1 ? 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 Sy 2 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 3y 2 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 l 4 ne 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 incorrect 1 ? 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 citj r 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 wit 1 ' 
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 j r ou 
testify as follows: 'Mr. Schussler. I think the di- 
vision was reduced either one or two years ago to 
5%. This young man hands me a statement that 
up to January, 1899, the rate of interest on the 
stock was 6%, but from February on, that is, two 
years ago, the rate was voluntarily reduced to 5% 
on the stock. 

11 'Q. You mean the dividends? 

" 'A. Yes sir. 

11 'Q. That was by reason of the two ordinances 
passed by the board of supervisors? 

" 'A. No sir, it was passed before the ordi- 
nance went into effect and before the rate was fixed 
two years ago.' " 

The supervisors began reducing rates in 1897, and 
this is unquestionably the reason for reducing divi- 
dends. For 1901 and 1902, as shown by Eeynolds, the 
dividends fell below five per cent. The request of the 
complainant that it be allowed dividends at the rate of 
at least five per cent upon the par value of its stock in 
1901, cannot be construed to be an admission that that 
was the current rate to which it was entitled. 

During the discussion before the board of supervisors, 
in 1903, Mr. Connor, who was a member of the commit- 
tee on water rates, recommended a horizontal cut of 
seven per cent from the rates of the previous year, in 
which there had been a horizontal reduction of ten per 
cent below those of the preceding year. For 1902-03, the 
supervisors allowed a valuation of $25,500,000, and the 
company during that year contributed over $700,000 in 



144 



capital investments, making the value of complainant's 
plants, on the basis of the supervisors' previous valua- 
tion, $26,200,000, at the beginning of the fiscal year 1903. 
When this horizontal cut of seven per cent was pro- 
posed, Mr. Comte, who is conceded by all to be a man 
of high character and great ability, said : 

"Supervisor Comte. I have been a member of 
this board for three years. When I came to the 
discharge of the duty devolving upon me as a super- 
visor, I had the same prejudice against the Spring 
Valley Water Works that some people have now. 
It was only after hearing the evidence which was 
introduced for three different years that I became 
satisfied that my prejudice was unfounded and un- 
supported. I am here as a juror, trying a case 
upon the evidence and the law as it is submitted to 
me, and not as a politician, nor as one who wears 
any man's collar, but in the discharge of my con- 
scientious duty. I do not propose to obey the dic- 
tates of any club or newspaper. I do not under- 
stand that it is my duty as a supervisor every time 
that water rates are fixed, or gas rates are fixed, 
that I must of necessity make a cut or reduction 
upon the rates. Those rates should be allowed in 
a reasonable and fair manner, based upon the law 
as it has been construed by the highest courts in the 
land. It is uncontradicted that the true measure 
to be fixed in this matter is the allowance of a rea- 
sonable interest upon the actual value of the prop- 
erty used in supplying the city and county with 
water. I say that that is a very illiberal measure, 
because it makes no provision for a depreciation 
account, it makes no provision for a reserve fund, 
but simply allows an interest upon property, much 
of which in time will disappear, and the principal 
to a great extent will have been lost to the stock- 
holders. But striking that out of the calculation 
and conceding that we are bound to follow the 



145 



majority opinion of the court, what are the facts in 
this case? This board last year fixed upon a valua- 
tion of $25,500,000. None of that property has been 
withdrawn from the service since that time. In 
other words, all the property that was there in 
February, 1902, is there now. We have had an 
expert. We have paid him for two months ' work in 
trying to find errors in the books of the company. 
I have had none pointed out to me. I have not 
heard of any mistakes that the company has made. 
It has verified the opinion I always had of their 
bookkeeping, that it was fair and open to inspection. 
That valuation, then, has remained unimpaired, if 
we were correct when we fixed it twelve months ago. 
"To that must be added the new construction of 
$733,500, which makes a total of $26,235,500, upon 
which, as the Supreme Court says, they are entitled 
to a fair income. I think that five per cent is a very 
small income in view of the depreciation that comes 
to this kind of property. Five per cent would give 
$1,311,775, to which we add for taxes much less 
than the company claims, but the amount we paid 
last year, of $242,500, it will be more this year, be- 
cause they will have to pay taxes on their increased 
construction account more or less of $733,000. The 
state rate will be more, so that when we put it at 
what they paid last year, we are putting it below 
what it really will be. The operating expenses we 
put at $450,000, which is much less by some $30,000 
than the company claim they will expend, which 
makes a total of $2,004,175 that they are entitled to 
receive under the laws under which we live. They 
received last year $1,980,651, which is much less 
than the amount they are entitled to receive. Now, 
they may receive some increased business, prob- 
ably will, but if they do, it will not enable them to 
pay the twelve dividends which their stockholders 
are entitled to receive. It will not restore to them 
the $31,000 and over, which they paid in excess of 
taxes, over the amount we allowed them. It will 



146 



not pay back to them the $43,000 in excess in oper- 
ating expenses. For that reason the majority of 
the committee thought that the continuance of the 
present ordinance for the next year was only fair, 
and less, really, than they were entitled to re- 
ceive. ' ' 

On that showing, with no change in conditions, and 
against our protest, they lopped off about $2,000,000 
from the previous valuation. 

It would seem unnecessary to make any explanation 

of the item reading "for twelve dividends 5 per cent", 

found in the 1901 reports. That applied to the fiscal 

year 1901, and not to any of the years with which we 

are now concerned, and the company did not get the rate 

asked even for that year. However, there is sufficient 

in the record to show that the reason for that state- 

menr was that the company very well knew that the 

board would not under any circumstances grant any 

higher rate. That is quite conclusively shown by the 

statement of Mr. Kellogg, who, while addressing the 

board and protesting against the proposed cut in 1903, 

said: 

"The board last year estimated these properties 
to be worth $25,500,000. It is indisputably a matter 
of record by the evidence in this case that we have 
added to that construction $733,000, making some- 
thing like $26,200,000, upon which, if you allow five 
per cent, we will still be a little over one dividend 
or one month's interest to stockholders short. And 
I think that five per cent is a very small per cent. 
I agree with one gentleman who said here on the 
floor of this house last night, that he did not think 
it was enough. But it is useless to talk upon such 



147 

a proposition as that when it has been fixed so 
many years." 

In other words, the supervisors had turned a deaf 

ar for so many years that it was useless to talk about 

getting more than five per cent from them. That, of 

purse, does not show what was the current rate of 

return to which the stockholders were really entitled. 

We produce a dozen or more bankers and brokers, 
who state that capital can not be had to invest in an 
enterprise of this kind unless it pays at least six per 
?ent, and some of them say seven and eight per cent. 

t gainst that, — after saying there is no testimony in the 
pjcord on the subject of sufficiency of rate of return — 
30unsel quotes the statement of Mr. Schussler with ref- 
erence to a reduction of dividends in a previous year. 
[ submit that that statement — aside from the fact that 
it is entirely foreign to the matters we are considering — 
is to be looked at in the light of the treatment shown 
to have been meted out to the company by the public 
agency. The statement of Schussler that the company 
reduced dividends was quite natural in view of the fact 
that it could not continue to pay what it formerly paid. 
For this there was but one reason. Mr. Kellogg said to 
the board in effect: It was useless to ask it for more 
than five per cent ; the action of the board for many years 
tiad been such as that to argue with it for more than 
that return would be a waste of time. He said that 
percentage was too low, and that even if it were allowed, 
the company would nevertheless be compelled to pass 
one dividend; it could not pay twelve dividends to the 



148 



stockholders at that rate. He asked a return of at least 
five per cent on $26,200,000. What did the board do in 
response to this appeal? Did it grant what the company 
might have accepted I Indeed no ! It turned a deaf ear 
to that appeal in 1903, as in 1901 it turned a deaf ear 
to the appeal that was then made by the company. 

The 1901 statement seems to be relied upon as an 
agreement, or an acquiescence, or an estoppel, with 
reference to the rate of return, but this is completely 
contradicted by the record. The reduction in dividend re- 
ferred to by Schussler was for the reason that the rates 
fixed, forced the reduction. 

Counsel has stated repeatedly in his brief and argu- 
ment that there had for years been contention between 
the company and the supervisors; that unfriendly and 
inharmonious relations had prevailed. It is not possible 
to assume that the reduction in dividends was made for 
any other reason than that the board of supervisors had 
consistently refused to allow complainant a sufficient 
income to pay larger dividends. No other reason can 
be assigned for the reduction than that the supervisors 
would not allow the company sufficient income to pay 
larger dividends. 

If counsel had sought to rely upon this as an estoppel 
or an acquiescence, and, indeed, if it were not an after- 
thought, he would have pleaded it. We have presented 
the testimony of some of the foremost financial men in 
this city, and there is absolutely nothing on the other 
side. The fact that the company in 1901 filed a state- 
ment containing an item for twelve dividends at five per 



149 



cent, does not, by the most liberal interpretation in 
favor of the city, show that to have been a fair rate 
even for the year to which it referred, let alone for a 
subsequent year. Nor does the fact that Mr. Schussler 
said they reduced the rate to five per cent prove that 
that was a fair rate of return. The case is out of the 
hands of the board of supervisors. It is now before 
your Honor. What is the proof before you with refer- 
ence to the fairness of rate! Is there one syllable of 
testimony — and counsel admits there is not — to show 
you that during the years 1903, 1904 and 1905, any 
lower rate than six per cent was a fair rate? It is 
upon this testimony that your Honor is to determine 
the question, and not on a showing of the company's 
willingness to accept in another year, under conditions 
not disclosed, a rate of five per cent, on par value, which, 
by the way, it did not get. That can be neither a guide 
nor even an indication as to what was a fair rate even in 
1901, and surely not as to 1903 to 1905. 

In passing, I wish to direct attention to one reason 
for making this cut as little as seven per cent; in other 
words, for not making it ten per cent. It was con- 
tended that the reduction should be ten per cent. A 
report adopted by the board, by a vote of ten to six, con- 
tained the following: 

"And in view of the fact that the Spring Valley 
Water Works has voluntarily increased the wages 
of its laborers to $2.50 per day of eight hours, and 
that it pays good salaries to its other employees, 
consent is reluctantly given to this enormous sum 
being allowed." 

They not only did not allow complainant a fair rate 
for that year, but they did not allow it for the next 



150 



year, and they had not allowed it for years previously. 
They reduced the valuation of the properties from year 
to year, notwithstanding new structures were being add- 
ed from year to year, and an increased quantity of water 
was being furnished each year over the delivery of the 
preceding year. One of the reasons stated in the testi- 
mony of the bankers and brokers for the fall in the sell- 
ing price of the stock was the refusal of the board of 
supervisors to allow adequate rates, and the decline in 
price was attributed to the action of the board in persist- 
ently reducing income year after year. This is the only 
testimony in the record with reference to what was a 
fair rate of interest upon investments of this kind in 
1903. and from that on to 1905. It is full and unequiv- 
ocal that anything less than six per cent was unfair. 
Upon this — the entire showing — a rate of less than 
six per cent was inadequate. You can hardly 
be influenced by the fact that complainant was, two 
years before this controversy, under circumstances of 
which you are not informed, willing to accept a return 
of five per cent on the par value of its stock — in addi- 
tion to the entire interest on its bonds — but which, as 
has been made clear, it did not receive. 

I have omitted to call your Honor's attention to an- 
other point. In the 1903 and 1904 valuation, the super- 
visors not only did not take Mr. Grunsky's figure, but 
they took what Mr. Justice Lurton in the Omaha case 
described as the "bare bones". They took the indi- 
vidual properties, they determined the value of each 
piece of land, and the value of each structure, and made 
no allowance for what we call "Unit Value". Thev 



151 



made a horizonal cut of seven per cent from rates for 
the previous year, expressing the regret that they had 
not made it ten per cent, and in 1904 reduced the hy- 
drant rate to one-half what it had formerly been. 

Ten members of that board were the men who, two 
years before, passed the resolution which in effect said 
to complainant, ''If you do not sell to us at a price that 
"is satisfactory to us, we will secure water elsewhere; 
11 we will take your market away from you, and we will 
" convert your lands into agricultural lands merely." 

It would require a great stretch of liberality to say 
that showed a spirit of fairness. We ask you to couple 
with that the suggestion that no dividends should be 
distributed until the floating debt was paid; and to add 
to that the suggestion of counsel that we are not al- 
lowed to accumulate any profits to pay floating, or any 
other, debt. You will then get some appreciation of the 
difficulties under which complainant has labored. I am 
stating these facts to you from the record. I ask wheth- 
er that betrays the judicial spirit which Chief Justice 
Waite, in the Schottler case, said it must be presumed 
would be exercised by supervisors in establishing rates? 

We have not only demonstrated that the allowed value 
was inadequate and unfair, but we have demonstrated 
that the action of the board of supervisors was dictated 
by an unfriendly feeling toward the company. We think 
it is not exaggeration to say that an impartial considera- 
tion of the record leads to that conclusion. 



152 



Let me say, however, there is no such rule as that 
for which counsel contends. It has long ceased to be 
the rule — if it ever was — that we must show bad faith, 
although I submit that we have shown absence of good 
faith here. It has ceased to be the rule — if it ever was 
the rule — that we must show anything more to a Chan- 
cellor passing upon a case like this than that the rate 
of income is inadequate. That is the only burden that 
is upon us. It could not be more succinctly expressed 
than it was by your Honor in the 1908 case, when you 
said that when the matter reached a court of equity 
it was the duty of the court, upon its own independent 
investigation, to ascertain the value of the property; 
upon its own independent investigation, to ascertain 
what is a fair rate of income, and upon that independent 
investigation to determine whether the rate of return 
allowed was fair or unfair. 

These three cases are all submitted on the same testi- 
mony, with the single exception as to the operating ex- 
penses for the different years. We have called your 
Honor's attention to the fact that there are a number of 
Hems which defendants strike out of operating ex- 
penses, or with which they charge us, based on the as- 
sumption that there were items in 1904 and 1905, cor- 
responding to charges in 1903, to which they make ob- 
jection. 

For instance, there are certain items in the 1903 case, 
such as service connections, $14,000 odd. There are no 
such items in the 1904 case, nor in the 1905 case; but 
they assume, because they found a particular charge in 



153 



the 1903 case, that the same charge existed in 1904 and 
in 1905. There is nothing in the record to warrant that 
assumption. In that connection, I again call your atten- 
tion to the fact that Mr. Wenzelburger's report did not 
cover the whole of the year 1903, so that you cannot tell 
what was done with reference to any item mentioned by 
him before the end of the year. With these exceptions, 
the two later cases are heard upon the same testimony 
as the 1903 case. 

Note: Upon oral argument counsel admitted at page 750 
that he had improperly included $10,550 as income from prop- 
erties not in use. He also admitted at page 764 that $47,000, 
shown by Reynolds to have been collected by the Suburban 
Water Company, on accounts which became due prior to 1903, 
had been included by him in his estimate of the Company's in- 
come for the fiscal year 1903. We quote as follows: 

"Mr. Haven. On page 655 of the defendants' brief we 
point out that the outside rents included in those three 
items, being the latter two, amount to $61,981.66. 

"Mr. McCutchen. You do not claim that that all ac- 
crued for the fiscal year 1903, do you ? 

"Mr. Haven. For 1903-4, yes, I so understood it. Is 
not that the fact? 

"Mr. McCutchen. No, it is not. It is explained in the 
testimony by Mr. Reynolds and not contradicted, that 
$47,000 of that was for moneys accrued during the pre- 
ceding years. 

"Mr. Haven. You are right as to that year; I over- 
looked that. In the $115,082 there is a figure $47,000, or 
there is a certain figure coming from the previous year. ' ' 

If these two sums are added together, we have a total of 
$57,550, so that the net income for the year 1903, even conced- 
ing the correctness of all counsel's other figures as to income 
and expenses, which we think have been shown to be inaccurate, 
is $1,226,826.31. 



155 



ADDENDA. A 



VALUE OF SCHUSSLER'S ESTIMATES. 

Defendants, at page 451 of their brief, say as follows, 
with reference to Mr. Schussler: 

"An engineer so circumstanced should have been 
the most valuable witness in this case. With his 
unusual sources of information, he could have en- 
lightened the court upon the perplexing questions 
here involved. A study of this record compels us 
to the conclusion, however, that his estimates of the 
values of complainant's properties are neither trust- 
worthy nor convincing, and cannot be relied upon by 
the court as a basis for the finding of value." 

To support this statement, defendants then advance 
six reasons to prove the unreliability of Mr. Schussler 's 
estimates. We shall consider these in detail. 



"The record discloses estimates made by Mr. 
Schussler in reports to the board of supervisors in 
the matter of its investigations prior to fixing of 
water rates in the year 1901 and in February, 1904, 
but a few months before his evidence was given in 
this case, from August to December, 1904. The dis- 
crepancies between some of these estimates and his 
testimony in this case are so great as entirely to 
destroy the weight of such testimony." 

To sustain this statement, defendants have inserted 
a table, numbered 36, which purports to be a comparison 
of Mr. Schussler 's estimates in this suit with those given 
by him in previous water rate investigations. This 



156 



table, it is submitted, affords no proper basis for com- 
parison. 

(1) The figures given in the column headed "Esti- 
mates of 1901", were not in fact Mr. Schussler's esti- 
mates. He repeatedly, in the course of his testimony, 
emphasizes the fact that these figures were furnished by 
the secretary from the books. These figures showed 
what had been charged on the books to the cost of con- 
struction, but omitted large amounts, which should have 
been charged to that account. At page 2206, Mr. Schuss- 
ler testifies: 

"XQ. 2898. In the exhibit filed by the company 
with the board of supervisors in 1900-1901, the cost 
of the upper dam is placed at $219,596.61. You 
place it at $345,477. 

"Mr. Kellogg. I would like to ask you, Mr. 
Partridge, who made that exhibit! 

"Mr. Partridge. That is the exhibit of Mr. 
Ames ; it is supposed to be the actual cost of it. 

"A. You should not compare my estimate of 
cost, that is, of what it would cost to build that kind 
of work in 1903, with what the bookkeeper or ac- 
countant states has been charged to that dam. I 
might not have charged everything to it; I do not 
know. 

"XQ. 2899. Then he has misled the board of 
supervisors if he has not. 

"A. I do not know about that; he has been 
asked to give an account. I am not the accountant. 
You should not compare his figures with mine. You 
might compare my former estimates with my pres- 
ent estimate; that would be a little fairer. Then 
you would see a difference in the estimates, owing 
to the fact that labor and materials are different in 



157 



At page 2479, Mr. Schussler says: 

"XQ. 3901. In your exhibit of 1901, did you 
place the Crystal Springs lower dam at $2,242,000? 

"A. I did, not including ten per cent. 

"XQ. 3902. And in your testimony, do you place 
it at $2,192,000? 

"A. I do, but that needs also an explanation 
as regards the testimony of 1901. I called on Mr. 
Ames, the secretary, about a year ago, and told him 
that I thought there was too much charged to the 
lower Crystal Springs dam. He appointed a time 
when I jointly with him looked through the books. 
I discovered that some of the land purchases had 
been charged to the Crystal Springs dam in the 
sum total of $2,242,000 which I had given to the su- 
pervisors in this approximate estimate of 1901. Sub- 
sequently, when I went to work to make up the total 
estimate of 1903-04 of the upper Crystal Springs 
dam I think that I discovered that there were certain 
things that should have been charged to the upper 
dam; had been charged to the lower dam. * * * 
The only explanation that I can give of it — of 
course, I do not keep the books." 

And at page 2484: 

"XQ. 3921. You have, time and again, during 
this cross-examination, mentioned instances where 
you presented statements to the board of super- 
visors which, for one reason or other, we will say, 
were inaccurate. I say how do you expect the board 
of supervisors to fix your rates justly when your 
own statements to them are, according to your own 
testimony so manifestly inaccurate? 

"A. Yes; but I have been the one who has gone 
to work and corrected those things, and I have been 
the one who has found out, for the purpose of get- 
ting at the exact facts, what portion should be prop- 
erly charged to one account or another. * * * If I 
go as engineer of the company, to the secretary of 
the company, who has charge of the finances, and 



158 



ask him for a list of figures of what he has charged 
to various items, I cannot very well say, unless I 
positively know right then and there, that that is an 
overcharge or that there is a mistake in it. * * * 
Those things are liable to occur at any time." 

At page 2763, Mr. Schussler says: 

' ' I think I made, at the request of the supervisors, 
or at least I made for the supervisors, an estimate 
of the cost (Crystal Springs main dam), which fig- 
ure was handed to me by the secretary because he 
was the only one who knew everything that had been 
charged to the dam. Not having any other proof 
to the contrary, I took his figures, as coming from 
the official head of the accounting department." 

At page 2603: 

"XQ. 4417. Mr. Schussler, will you have pre- 
pared for me, to be given to me either by Mr. Kel- 
logg or someone else, the actual cost of each one of 
the structures that you have estimated in your 
testimony?" 

To this he replies : 

"A. That I cannot give you. The only man 
who can possibly give you that is the secretary. I 
have absolutely no account of that. I have simply 
an account of the dimensions as regards the three 
clay dams with the modifications that I have spoken 
of in my direct testimony. As to the cost, that 
would be a question of expert bookkeeping, and I 
believe the only man who would be able to give ap- 
proximately near it would be the secretary. ' ' 

And, at page 2606: 

"XQ. 4425. In your communication to the board 
of supervisors dated March 11, 1901, you use the 
following language: 'I shall also show the under- 
valuation in the cost of the works below the actual 



159 



cost of construction which we can prove by the com- 
pany's books, vouchers and witnesses, particularly 
the large undervaluations far below their cost and 
the value of the water and riparian rights of the 
Spring Valley Water Works.' How could you make 
such a statement as that if you did not know the 
cost of these various works? 

"A. That was based upon the secretary's ac- 
counts, when it comes to cost. In making inquiry of 
the secretary and of the experts who had been em- 
ployed, they definitely stated to me that the cost 
was greater than the figures given by Mr. Grunsky, 
in his estimates, and as I was the representative of 
the company at that time before the supervisors, 
I made this statement to them: 'That I shall also 
show the undervaluations in the cost of the works 
below the actual cost of construction.' The actual 
cost of construction being given me at that time by 
the secretary." 

At page 1803 : 

"XQ. 1122. Is that the tunnel you have refer- 
ence to in your estimate filed with the Board of 
Supervisors in 1901, at page 87, as having been con- 
structed in July, 1888, and costing $89,865.53? 

"A. I do not remember that. The books of all 
those constructions were kept by the secretary 
and in those days any information that the super- 
visors wanted from me, I being the man who was 
asked by our directors to go to the supervisors, I 
would inquire from the secretary, and he gave me 
the figures and data, and I simply delivered the 
figures to these supervisors as coming from the 
company." 

With regard to his 1904 figures, Mr. Schussler says, 

at page 2498: 

"In the year 1903-04, in this testimony, I have 
the total estimate of the Locks Creek line, inclusive 



160 



of ten per cent for incidentals, etc., at $399,200, on 
page 1048 of the testimony. My estimate made in 
February, 1904, was $376,700, so that that came 
quite close to it. 

"XQ. 3972. There are three estimates on that! 

"A. There is a change in the time and in the 
wage scale, and in materials also. 

"XQ. 3973. From 1904 up? 

"A. No sir; there is a change in the time and 
in the wage scale from 1901 to 1903-04. 

"XQ. 3974. But your estimate of 1904 does not 
agree with your estimate now in this case? 

"A. My estimate in 1904 was made at the time, 
and without any ten per cent being added in it. 

"XQ. 3975. In 1904 did you add any estimate 
in it? 

"A. No sir; I neglected that." 

"While at page 2514, Mr. Schussler says: 

"XQ. 4055. Will you give from your exhibit in 
1904 your estimate of the protective system from 
Colma Gulch ? Have you the total for that ? 

"A. I have no separate estimate. I have an ap- 
proximate estimate made at the time, in the ab- 
sence of details, of $260,000 in the report to the 
supervisors in February, 1904. 

"XQ. 4056. And in your testimony it is how 
much? 

"A. In the testimony it is, inclusive of ten per 
cent, $343,000. That is, after carefully going over 
the details and putting in whatever might have 
been omitted in the original hasty estimate." 

(2) But even if the secretary's figures for 1901 had 
included everything properly chargeable to the cost of 
construction, which they did not, there can still be no 
proper comparison with Mr. Schussler 's figures, which 
were based on measurements and dimensions, quantities 



161 



and qualities, and which are estimates of what it would 
cost to reproduce, and not of original cost. His estimate 
of the cost of reproduction, moreover, always takes into 
consideration cost of materials, labor and the number 
of hours' work and the conditions as to day's work pre- 
vailing in the years 1903-04. 

(3) The testimony shows as to some of the items 
to which attention is called in defendants' table, that 
although the particular structure selected for compar- 
ison is designated by the same name, the later estimate 
refers to a different structure. Take, for instance, the 
item designated "Ocean House Flume", from which 
counsel draws comparisons between the estimate of $9,- 
000 in 1901, and $12,000 in February, 1904, and $15,750 
m Schussler's testimony. These estimates did not refer 
to the same structure. The estimates for 1901 and 
February, 1904, referred to an old flume built about 
thirty years ago. That was completely rebuilt and en- 
larged to about double its former capacity in the first 
half of the year 1904 (p. 3864), and Mr. Schussler says 
that he had then with him, at the giving of his testi- 
mony, an account showing the actual cost of materials 
and labor used in the new construction (Test. Schussler, 
XQ. 1091). 

Again, defendants compare the figures given the board 
of supervisors for 1901 as to the Crystal Springs pump- 
bag station, $91,610, with Mr. Schussler's estimate in 
this suit of $165,300. The testimony shows that the for- 
mer figures were from the secretary's report, which, as 
to that item dealt only with the cost of the pump, while 



162 



Schussler's own estimates included the entire aqueduct, 
from the station to the Locks Creek line, besides much 
additional construction (p. 2243). 

Another instance is the Pilarcitos side flume : In 1901 
and February, 1904, the figures were $10,000 and $18,000, 
respectively; while, for the purposes of this suit, the 
estimate was $20,000. The additional $2,000 represents 
the main flume and a branch flume later constructed. 

(4) The difference between Mr. Schussler's esti- 
mates in February, 1904, and those given at the time 
he testified in this suit has been already explained. The 
one represented approximations only, prepared in a 
period of five days ; the other was the result of careful 
surveys and measurements and an elaborate investiga- 
tion of every detail. 



II. 

We quote from defendants' brief (p. 455): 

"Second. Defendants produced four witnesses 
who participated in the construction of portions of 
complainant's properties in San Mateo County — 
Messrs. Emery, Higgins, Carey and Fifield. Their 
testimony, together with the records of complain- 
ant as contained in its minute and account books, 
contains the only basis of comparison of actual cost 
of construction with engineer's estimates which the 
record furnishes." 

Defendants, upon this testimony, seek to show the ex- 
aggeration of Mr. Schussler's estimates and the infe- 
rior character of the structures composing complainant's 



163 

plant. We propose to examine this criticism in detail. 

COST OF HAULING SAND, CEMENT AND BRICKS. 

With respect to Schussler 's estimate for the hauling 
of these three items, the following appears from the tes- 
timony : 

In hauling sand, Schussler states, at page 2752, that 
a 4-horse team will haul 2 cubic yards, or 5,000 pounds, 
making one round trip a day, from Millbrae to struc- 
tures in the Pilarcitos region, at an expense of $7.50, 
this amount of sand costing $3.20 delivered on barges 
at Millbrae; the total cost therefore for the 2 cubic 
yards or 14 barrels is $10.70, and the cost per barrel 76 
cents. Since 5 barrels are sufficient for $1,000 bricks, 
the cost of sand on that basis is $3.80. 

As to Locks Creek Tunnel No. 1, the sand or other 
material had to be hauled to the top of the hill and 
sledded down, since there was no road. It would be 
economy now, as it was then, to so deliver it, the build- 
ing of a road for this one purpose being more expensive 
than to pay the extra sledding expense (1018-19). 
Schussler 's cost is here 88.4 per barrel, or $4.42 per 
1,000 bricks. 

As to the brick shaft and inlet tunnel at San Andreas 
reservoir, San Andreas waste weir, and gate shaft and 
tunnel at Upper Crystal Springs dam, Schussler 's fig- 
ures are 65 cents, including cost of sand. For gate shaft 
and tunnel at Crystal Springs main dam and Six-Mile 
House tunnel, his estimates stand alone, and without 
criticism. In detail, they are: 



164 



Name of Structure 



Cost of Sand Delivered 
Per Per 3000 
Barrel bricks laid 



Pilarcitos waste weir 

Gate House at Pilarcitos tunnel 

No. 1 
Pilarcitos tunnels No. 1 and No. 

2 
Pilarcitos stone dam brick cap 

(Conditions like 1, 2, 3 

above) 
Locks Creek tunnel No. 1 
Brick shaft and inlet tunnel at 

San Andreas reservoir 
Bald Hill tunnel (Conditions 

like 6 above) 
San Andreas waste weir 
Gate shaft and tunnels at Crys- 
tal Springs main dam 
Gate shaft and tunnel at Upper 

Crystal Springs dam 
Six-Mile House tunnel 



76 cents 


$3.80 


76 cents 


3.80 


76 cents 


3.80 


88.4 cents 


4.42 


65 cents 


3.25 


65 cents 


3.25 


55 cents 


2.75 


65 cents 


3.25 


57 cents 


2.85 



Schussler's cost of hauling cement is given for Pil- 
arcitos waste weir, gate house and tunnels Nos. 1 and 
2, at 62.5 cents per barrel, and for other structures at 
between 31 and 33 cents, on account of easier grades and 
greater accessibility. Two and one-half barrels of ce- 
ment are used per 1,000 bricks, and the cost for various 
structures is given in the following table: 



165 



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166 



Cement costs $2.75 a barrel at the depot nearest to 
structure. 

In hauling bricks, Schussler (822) estimates that a 
4-horse team will make two round trips a day over Bald 
Hill, hauling 1,000 bricks, or 5,000 pounds to the load. 

From this, it will be seen that Schussler 's average 
weight for a 4-horse team is 5,000 pounds, and that 
his figures include all expenses. Defendants' witness, 
Fifield, on the other hand, says that at the time he 
was driving a team for complainant, he hauled from 
10 to 12 barrels of sand at a wage of $10 a day, furnish- 
ing his own horses' feed, etc., but not taking into ac- 
count any expense for screening or saving. His $10 
cost for an average of 11 barrels gives over 90 cents a 
day, with no provision for the cost of the material, which 
Mr. Schussler arbitrarily estimates at 10 cents. 

The weight of these 11 barrels is equivalent to the 
weight of 1.57 cubic yards, which is, therefore, less than 
Schussler 's figures of 2 cubic yards. The statement that 
one round trip was made to Pilarcitos daily corroborates 
Mr. Schussler 's testimony to that effect. 

Carey is the second of defendants ' witnesses to testify 
as to hauling. His evidence (45) shows that by putting 
in side boards in a wagon 4 feet wide (length not given) 
with six mules, between 2 and 3 yards of sand could be 
hauled. This is, of course, indefinite, but establishes an 
outside limit of 3 yards, or 7,500 pounds. It seems fair 
to take 2 1 /> 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, 22y 2 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 55 1 /. 
cubic yards, at a cost of $1.90 per cubic yard, or 
2y 3 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 58y 2 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, 3y 2 
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 (10y 2 ), 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 3y 2 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 10y 2 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 10y 2 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 2y 2 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 37 1 /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 2y 2 <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 2y 2 $ 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.