Spring Val. Water Co. v. City and County of San Francisco

• Decision Date: 07 October 1908
• Parties: SPRING VALLEY WATER CO. v. CITY AND COUNTY OF SAN FRANCISCO et al.
• Court: U.S. District Court — Northern District of California

165 F. 667

SPRING VALLEY WATER CO. v. CITY AND COUNTY OF SAN FRANCISCO et al.

United States Circuit Court, N.D. California.

October 7, 1908

[Copyrighted Material Omitted]

Heller Powers & Ehrman and Page, McCutchen & Knight, for complainant.

Percy V. Long, City Atty., and Thomas E. Haven and W. H. Smith Jr., Asst. City Attys., for defendants.

Edward Robeson Taylor, amicus curiae.

FARRINGTON District Judge.

Under the provisions of the Constitution of the state of California, art. 14, Sec. 1, it is the duty of the board of supervisors of the city and county of San Francisco in the month of February of each year to fix the rates or compensation to be collected by any person, company, or corporation for the use of water to be supplied to that city and county and to its inhabitants during they year commencing on the 1st day of July thereafter. The Constitution declares that the ordinance by which such rates are so established 'shall continue in force one year, and no longer * * * Any person, company, or corporation collecting water-rates * * * otherwise than as so established, shall forfeit' its 'franchise and waterworks * * * to the city and county * * * for the public use.'

The water rates so fixed by municipal ordinance of February, 1902, have prevailed, and have been collected by the Spring Valley Water Company, and by its predecessor, the Spring Valley Waterworks, from July 1, 1902, until the beginning of the present suit. Each year the board of supervisors has adopted a new ordinance, and in each of these enactments, except the ordinance of 1908, the rates were substantially less than the rates of 1902; but, with equal regularity, except in 1906, the water company has brought suit against the city and county of San Francisco, and the enforcement of each ordinance has been stayed by interlocutory injunction issued out of this court. Suit was brought in 1902 to restrain the enforcement of the municipal enactment of that year on the ground that the rates then established were so low as to be practically confiscatory. That suit was voluntarily dismissed by the complainant. The suits for 1903, 1904, 1905, and 1907 are still pending; not one of them has yet been decided or submitted to the court for final decision. In the 1903 suit, and again in the suits of 1904 and 1905, the complainant in each bill of complaint expressed its willingness to supply the city and county of San Francisco and its inhabitants with water at the rates specified in the ordinance of 1902, and asked that it might, pending the litigation, be permitted to collect the rates fixed by that ordinance, upon such provisos as the court might think proper.

In each case, however, the complainant stated that the rates of 1902 were less than the reasonable value of the services to be rendered. The rates adopted for 1908 are the rates of 1902, with this difference: the ordinance for 1908 fixes the compensation for water furnished the city and county for fire purposes and flushing sewers at $2,50 per month for each hydrant; this is an advance of 50 cents per month per hydrant, and, as there are more than 4,000 hydrants, the rates for 1908 (the rates attacked in this suit) are higher in the aggregate, other things being equal, by more than $2,000 per month, than the rates of 1902.

The Spring Valley Water Company now declares that the rates fixed by the ordinance of 1908 are still far too low to afford a just or reasonable recompense for its services and for the use of its property. For this reason complainant alleges the ordinance is repugnant to those provisions of the federal Constitution which prohibit the taking of property for public use without due process of law, and it now demands that each and all of the defendants, and all consumers of water in San Francisco, be enjoined, pending this litigation, from enforcing, or attempting to enforce, this ordinance by suit or otherwise, and from attempting in any manner to compel complainant to furnish water at the rates therein specified. As the propriety of restraining the defendants is the important question to be determined in this proceeding, it would be unprofitable to recite even the substance of the voluminous pleadings now on file. For the present purpose the following statement will be sufficient:

Complainant is a California corporation with a capitalization of $28,000,000, divided into 280,000 shares, having a par value of $100 per share. In September, 1903, it acquired its plant from the Spring Valley Waterworks, also a California corporation, which at the time of the transfer had a capitalization of but $14,000,000, divided into 140,000 shares, having a par value of $100 each. Complainant's capital stock is in the hands of about 1,800 stockholders. Immediately prior to the earthquake of April, 1906, the market price of said stock was from $37 to $38.50; since that time the price has fallen until it now varies from $18 to $24. This depreciation is alleged to be the result of hostile legislation by successive boards of supervisors. The aggregate indebtedness of the company is $17,859,000, on which the interest for the present fiscal year will be $760,000. The Spring Valley Company owns about 20,000 acres in its Peninsula system, 29,000 acres in the counties of Alameda and Santa Clara, and 2,730 acres in Lake Merced Ranch. The Peninsula system controls about 114 square miles of watershed, on which the company has four reservoirs with a joint capacity of 29,300,000,000 gallons; Crystal Springs, the largest of these, is about eight miles in length, has a water area of about 1,730 acres, and a capacity of 19,000,000,000 gallons. The Alameda system controls at present about 600 square miles of watershed, stretching approximately from Mt. Hamilton on the south to Mt. Diablo on the north, and from Sunol on the west to Livermore Pass on the east. Alameda Creek and its tributaries bring practically all the drainage of this territory to Sunol. Here the subsurface flow is held by an underground dam built on the bed rock across the canyon; above this dam are 1,200 acres of gravel bed; 14,000 feet of cement tunnels collect the water after it has filtered through the gravel, and from this source 15,000,000 gallons of water are daily sent to San Francisco. Within the city limits the company has nine distributing reservoirs, with an aggregate capacity of 87,000,000 gallons; it has nine pumping stations, with a combined daily pumping capacity of 70,000,000 gallons; more than six miles of tunnel; 78 miles of water mains, from 22 to 54 inches in diameter; and 410 miles of distributing pipes laid in the streets of San Francisco; it is supplying nearly all the people of the city with water; its mains are connected with nearly all the buildings therein, whether public or private, and its customers number about 49,000; it supplies the city daily about 31,000,000 gallons of water, annually between eleven and twelve billion gallons, and has a present daily capacity of about 35,000,000 gallons; it has in storage in the neighborhood of 25,000,000,000 gallons of water, or two years' supply, with a daily inflow of 15,000,000 gallons from the Alameda system.

It is alleged that complainant's system of waterworks is not only ample for the needs of San Francisco with its present population, but with additional dams and aqueducts it will be capable of supplying sufficient water for more than 2,000,000 people, and that the value of the property is more than $50,000,000, and its actual cost to stockholders more than $53,758,450.72. Defendants deny any value to the Spring Valley Water Company property in excess of twenty or twenty-four million dollars, and any capacity, even with additional dams and aqueducts, to supply water to a population much greater than San Francisco has at the present time.

Complainant alleges it is entitled to have its rates so fixed for the fiscal year 1908-09 as to afford a sufficient annual revenue to pay its operating expenses, estimated at $600,000; its taxes, estimated at $375,000; an annual sum to make good the depreciation in its plant, estimated at $260,000; an annual sum to make good its losses by reason of the earthquake; and, in addition, an annual income of 7 per cent. per annum on its property in use for supplying the city and its inhabitants with water. The value of said property is claimed to be $45,000,000 for property in actual use, and $7,500,000 for property purchased for 'reasonably immediate use.' Defendants deny that complainant should receive, or is entitled to receive, any income in excess of that which will be yielded by the present ordinance; and deny that the company is entitled to anything for depreciation or earthquake damages.

The company contends that the ordinance in question will not yield an income of 2 per cent. net, above operating expenses and taxes, on the value of its property; that the supervisors have undervalued its property, and the rate of income, 5 per cent., adopted by the board, even if it could be realized from the rates established in the ordinance, is wholly inadequate. This is denied y defendants, who assert that the rates fixed in the ordinance will yield an income of more than 5 per cent. per annum, net, on the fair value of the property actually in use; and that 5 per cent. net, after taxes and expenses are paid, is just. Complainant alleges that the ordinance of 1908 was passed for the purpose of depreciating the value of the property in order that defendants might purchase it for less than its actual value; that the rates provided in the ordinance are unreasonable, unfair, unjust, fraudulent, and confiscatory; that they were fixed arbitrarily and at random, and by mere guesswork, and were not based upon actual value of the properties, but upon...