Spring Val. Waterworks v. City and County of San Francisco

• Decision Date: 21 October 1911
• Docket Number: 13,598,13,756.,13,395
• Citation: 192 F. 137
• Court: U.S. District Court — Northern District of California
• Parties: SPRING VALLEY WATERWORKS v. CITY AND COUNTY OF SAN FRANCISCO et al. SPRING VALLEY WATER CO. v. SAME (two cases).

192 F. 137

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

SPRING VALLEY WATER CO. v. SAME (two cases).

Nos. 13,395, 13,598, 13,756.

United States Circuit Court, N.D. California.

October 21, 1911

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

A. E Shaw, Page, McCutchen & Knight, and Heller, Powers & Ehrman (James L. Robison, of counsel), for complainants.

Percy V. Long, City Atty., and Thomas E. Haven, for defendants.

FARRINGTON District Judge.

Under the ordinance of the city and county of San Francisco fixing water rates for the fiscal year 1902-03--

The gross income of the Spring Valley Waterworks was		$1,962,240 91
Of this amount there was collected from private rate payers		1,666,401 81
From the city and county of San Francisco .........................		161,401 95
And from shipping and other sources ...............................		134,437 15
During that year the company disbursed for operating expenses ..............................	$454,013 77
And for taxes ......................................	236,828 97
The net income was .............................................		$1,271,398 17

In March, 1903, the board of supervisors by ordinance reduced the rates to be collected from private consumers 7 per cent.; otherwise, the rates remained as in 1902. On the 20th day of the following month suit was brought by the Spring Valley Waterworks in this court against the city and county of San Francisco and its board of supervisors to enjoin the enforcement of the ordinance. A preliminary injunction was issued almost immediately, and is still in force.

During the fiscal year commencing July 1, 1903, and ending June 30, 1904, the Spring Valley Waterworks and its successor, the Spring Valley Water Company, collected rates under the ordinance of 1902.

Their gross income was ..........................................	$2,075,983 09
The amount collected, if the ordinance of March, 1903, had been in force, would have been ......................................	1,943,941 06
Deducting from this estimated income ...............................	566,786 97
for operating expenses, and ......................................	325,287 66
for taxes claimed to have been paid by the company, there would have been a net income of .............................	$1,051,866 43

The ordinance of March 7, 1904, reduced the rate on fire hydrants, of which there were 4,057 in the city, from $2 to $1 per month for each hydrant; otherwise, the rates were fixed as in 1903. This reduction made a difference of $48,684 in the annual income of the Company. June 1, 1904, the Spring Valley Water Company brought suit to restrain the enforcement of this ordinance. A preliminary injunction, still in effect, enabled the company to continue the 1902 rates, under which--

Its income for that year was ................................	$2,131,323 98
The estimated gross income under the ordinance of 1904, if enforced, would have been ..................................	1,996,496 59
Deducting from this estimated income ...........................	543,672 42
for operating expenses, and ..................................	336,410 30
for taxes claimed to have been disbursed by the company, there would have been a net income of ...................	$1,116,413 87

March 13, 1905, the ordinance of the previous year was re-enacted without change. This was followed by a third suit, commenced May 2d. A preliminary injunction permitted the water company to maintain the rates of 1902 during the following year.

The gross income received therefrom is estimated at ........	$2,243,000 00
The ordinance of 1905, if enforced, would have yielded an estimate gross income of ..................................	2,110,200 00
And a net income of .........................................	1,172,584 63

After subtracting $387,198 93 for taxes, and

550,416 44 for operating expenses.

For rate-fixing purposes the board of supervisors valued the company's property as follows:

In 1902 ..	$24,468,210 00
1903 ...	24,124,389 00
1904 ...	24,672,212 00
1905 ...	25,001,441 00

Complainant declares that it is entitled to a net return of 7 per cent. per annum upon a valuation in excess of $40,000,000 for 1903-05, and upon a valuation in excess of $50,000,000 for 1905-06; i.e., a net income of $2,800,000 for each of the first two years, and $3,500,000 for the last year. Tabulating the above figures we have:

---------------------------------------------------------------------------- 1902-03 1903-04 1904-05 1905-06 ---------------------------- ---------- ---------- ---------- ---------- Gross income under 1902 ordinance ................ $1,962,240 $2,075,983 $2,131,323 $2,243,000 Estimated gross income, if ordinance enforced ....... 1,943,941 1,996,496 2,110,200 Operating expenses ......... 454,013 566,786 543,672 550,416 Taxes ...................... 236,828 325,287 336,410 387,198 Actual net income under 1902 ordinance ................ 1,271,398 1,183,910 1,251,241 1,305,384 Estimated net income, if ordinance enforced ....... 1,051,866 1,116,413 1,172,584 Net income demanded ........ 2,800,000 2,800,000 3,500,000 ----------------------------------------------------------------------------

In the pleadings defendants admit a valuation for the property in actual use for supplying water to the city of from $20,000,000 to $24,000,000. In framing the rates for 1903-04:

The supervisors estimated taxes at .............................	$ 242,000 00
And operating expenses at ..........................................	450,000 00
	--------------
Total ....................................................	$ 692,000 00
And gross income under the new ordinance at ......................	1,960,881 97
Their estimates exceeded the gross income under the ordinance, if enforced, by .........................................	9,171 90
And fell short of the actual disbursements .........................	200,074 63
Their result was a net income of .................................	1,268,881 94
This is $62,662.49 over and above a 5 per cent. income on a valuation of ................................................	24,124,389 00
If $724,773.73, interest paid on the bonded and floating debt of the company during the fiscal year 1903-04, is deducted, there remains $524,108.21, sufficient to pay a dividend of 3.74 per cent. on ................................	$14,000,000 00

the issued capital stock of the Spring Valley Waterworks.

During that year the company--

Actually disbursed $566,786 97 for operating expenses And................ 325,287 66 for taxes, Or a total of ...................................................	$ 892,074 66
If this be subtracted from ......................................	$1,943,941 06
the estimated collection under the ordinance of 1903, if enforced, the result ........................................	$1,051,866 43

is but 4.36 per cent. on the valuation adopted by the board.

In their answer, filed May 29, 1903, defendants assert that during the fiscal year 1903-04, operating expenses will not exceed $400,000, or taxes $240,000. Now, after a showing of an actual disbursement for these items of $892,074.63, defendants contend that $91,174.88 of this amount is excessive, and under the evidence no more than $484,625.79 for operating expenses, and $316,273.96 for taxes, are proper. Assuming this to be correct:

The net income will be ............................. $ 1,143,041 31

Or 4.7 per cent. on the supervisors' valuation of .. $24,124,389 00

In other words, $63,174.14 short of a 5 per cent. return. However, there is evidence showing that the company received during the year $141,337 additional income from rents, not included in the gross income of $1,946,941.06. There is also evidence tending to show that a portion of the property included in the supervisors' valuation was neither used nor useful in supplying the city with water during that year.

Complainant contends that--

'the rates fixed by the several ordinances in question are unjust, unfair, unreasonable, confiscatory, and unconstitutional; that the ordinances were finally passed without notice to complainant, and without any provision in any law, organic or statutory, of the state of California, providing for such notice; that they were fixed arbitrarily and at random, and by more guesswork, and were not based upon actual value of the property, but upon the mere whim of the board of supervisors; that said board never did determine or pretend to determine the value of the property of the complainant actually in use or to be used, but the evidence upon which the board acted was mere hearsay and unsworn statements; that the rates were fixed by the board without regard to complainant's right to a reasonable income, based on the cost or the actual value of the property owned by the company and used in supplying water to San Francisco and its inhabitants, without regard to complainant's indebtedness, or the annual interest thereon, or its actual operating expenses or taxes, or the right of its stockholders to a reasonable or any dividend on their stock, without any allowance for depreciation, without reference to the value of the service rendered or to be rendered, and without taking into account the value of the franchise and going business.'

In the bill of complaint for the second suit, and again in the bill for the third suit, it...