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— THE 

Spring Valley Purchase 

m 

Facts 
Figures 
Arguments 



Prepared for the information of the Citizens of 
San Francisco under the direction of the 
Spring Valley Campaign Committee 

JAMES ROLPH, Jr., Mayor. 

RALPH McLERAN, Supervisor, 
Chairman Finance Committee. 

M. M. O'SH AUGHNESSY, 

City Engineer. 
GEORGE LULL, City Attorney.. 

February 1, 1921. 



e^lll^Wycox&Co. 



THE 

Spring Valley Purchase 



Facts 
Figures 
Arguments 



Prepared for the Information of the Citizens of 
San Francisco under the Direction of the 
Spring Valley Campaign Committee 



JAS. ROLPH, JR., Mayor. 

RALPH McLERAN, Supervisor, 

Chairman Finance Committee. 
M. M. O'SHAUGHNESSY, 

City Engineer. 
GEO. LULL, City Attorney. 

February 1, 1921 



CONTENTS 



1. Need for Comprehensive Statement 3 

2. San Francisco's Water Supply — Historical Summary 3 

3. The Present Water Situation 7 

4. Logical Plan of Future Development 8 

5. Spring Valley and Hetch Hetchy Interdependent 10 

6. Financial Considerations 11 

7. The Spring Valley Purchase and The Raker Act 17 

8. The Properties to Be Acquired 19 

9. The Purchase Price 23 

10. Advantage of Buying Now 25 

11. How the Properties Will Be Managed 28 

12. Arguments of Opponents Answered 28 



Spring Valley Purchase 



FACTS :: FIGURES :: ARGUMENTS 



1. Need for Comprehensive Statement: 

The City of San Francisco is submitting to its voters the 
proposition of acquiring the properties of the Spring Valley 
Water Company for the sum of $37,000,000, plus capital ex- 
tensions and betterments, made and to be made by the com- 
pany between March 1, 1920 and the date at which the purchase 
shall be completed, not exceeding $1,000,000 in amount, and to 
authorize bonds bearing 5 per cent interest to cover the pur- 
chase price. In presenting to the people so complex a propo- 
sition as the question of acquiring by purchase nearly 62,000 
acres of land with all the water rights and appurtenant water 
works structures, more than usual care must be taken that au- 
thentic facts and figures and well considered arguments are 
advanced. With this in mind the following facts and figures 
based on a careful study by competent men of authentic data, 
are presented, together with a brief summary of the argu- 
ments which have convinced all those who are intimately 
familiar with the situation that this purchase should be made 
and should be made now. 

2. San Francisco's Water Supply — Historical Summary: 

San Francisco has been supplied with water for municipal 
and domestic purposes by the Spring Valley Water Company 
or its predecessor in interest, the Spring Valley Water Works, 
ever since the year 1865. Prior to that date the city had been 
furnished with water from small springs and streams located 
within the city and county. It early became apparent that 



4 



no sufficient supply of water for the growing population could 
be obtained witliin the city limits. As early as 1858 and imme- 
diately after its incorporation, the Spring Valley Water Works 
commenced acquiring water rights and lands on the San Mateo 
peninsula. The Pilarcitos reservoir was built in 1862; the 
San Andreas reservoir in 1871 ; Lake Merced and upper Crystal 
Springs in 1877 ; the Crystal Springs concrete dam in 1888. 
The first supply from Alameda County, derived from the flow 
of Alameda Creek at Niles, was" brought across the bay by 
submarine pipes in 1888, and a supplemental pipe line was 
built 12 years later, putting into use the Pleasanton supply, 
Calaveras Creek, and the Sunol filter beds. Since 1900 no new 
sources of water have been developed for the city, but the 
operations of the water company have been confined to a maxi- 
mum utilization of the sources already developed. Construc- 
tion work was commenced on the dam at the mouth of Calaveras 
Valley on the Alameda Creek in the year 1913, but due to the 
slow rate of construction adopted by the company and to the 
slide which occurred in the dam in the year 1918, this structure 
has not yet been completed, although it has progressed to a 
point where 8,000,000,000 gallons of water can be stored and 
conveyed into the Alameda Creek gravels during the dry months. 
In 1903 the city and the Spring Valley Water Company en- 
tered into a long series of controversies over the adequacy of 
water rates, which was not terminated until the decision by 
Judge Kudkin in 1918, holding that the rates fixed by the Board 
of Supervisors for the years 1906 to 1915 were unconstitutional, 
and that the impounded moneys should be returned to the com- 
pany. In 1915 under amendment of the State Constitution, the 
Kailroad Commission assumed jurisdiction of fixing rates, and 
pending a thorough investigation of the rates, permitted the 
company to charge rates yielding a revenue equivalent to that 
which was permitted under rates fixed by Ordinance of the Board 
of Supervisors in effect at the time the Railroad Commission 
took jurisdiction. These rates were fifteen per cent in excess 



5 



of those involved in the litigation decided by Judge Rudkin 
adversely to the city. 

In the same year it became apparent that the city was soon 
to be faced with a shortage in water supply unless means were 
taken to either increase the supply or diminish the use. The 
company determined upon the installation of meters to check 
waste, and has prior to this date completely metered the city, 
materially reducing the water consumption. The growth of the 
city, however, has caused the normal consumption of water to 
increase steadily from time to time, so that by 1919 the com- 
pany again found it desirable to take up the question of build- 
ing additional pipe line facilities and completing the Alameda 
storage. Claiming that their existing revenue had become in- 
sufficient, due to the increase in cost of operation, to enable 
them to raise some $12,000,000 additional required for the de- 
velopment program the company had adopted, a petition was 
presented to the Railroad Commission by the Spring Valley 
Water Company for an increase in rates. The city's representa- 
tive filed objection to the increase, basing the objection on the 
grounds that no valuation had ever been established upon which 
rates could be intelligently determined by the Railroad Com- 
mission, and on the further grounds that the plan of develop- 
ment proposed by the Spring Valley Water Company would 
not harmonize with the Hetch Hetchy project, but would in- 
volve the construction of a parallel conduit which would be 
superfluous when 'brought in. It was evident that some plan 
of bringing additional water to San Francisco must be adopted 
in order to prevent a future shortage, a series of three dry years 
having placed the city's water supply in a more or less pre- 
carious position. The city administration determined at that 
time to again submit the question of purchasing the company's 
properties to the people, at a valuation to be fixed by the Rail- 
road Commission, and filed with the Commission an offer to 
submit this question to the people again, providing the Spring 
Valley Water Company would agree to sell on a like valuation. 
The company responded with a similar resolution, offering to 



6 



submit the question of sale to its stockholders at a valuation to 
be fixed by the Commission. Both parties requested the Com- 
mission to fix the valuation. There was forthwith filed with the 
Commission the entire transcript of the record in the eases tried 
in the Federal Court covering some 12,000 pages of testimony 
and 225 exhibits. In addition to this, supplemental testimony 
was presented by both the company and the city, and the Com- 
mission directed its own engineers to make an independent 
valuation. The city engineer submitted the list of properties 
which he considered essential that the city should acquire if the 
works were taken over. 

On November 24, 1920, the Railroad Commission returned 
its decision, fixing the valuation for purchase at $37,000,000 as 
of March 1, 1920. Thereupon, in accordance with the stipula- 
tion previously made, the Spring Valley Water Company sub- 
mitted the proposition of sale to its stockholders, and was au- 
thorized by them to make an offer of sale based on the Rail- 
road Commission's valuation, plus such capital expenditures as 
should be made between March 1, 1920, and the date at which 
the transfer might take place. 

On the city's part, a charter amendment was prepared, au- 
thorizing the supervisors to purchase the properties described 
in the offer of the Spring Valley Company, which were iden- 
tically the properties listed by the city engineer for valuation, 
and to issue bonds in an amount not exceeding $38,000,000 in 
payment therefor. These bonds are to bear 5 per cent inter- 
est and are to mature at the rate of $1,000,000 a year, com- 
mencing in 1928. Inasmuch as the present bonding capacity 
of the city under the charter is insufficient to permit of the sale 
of such a large block of bonds, it is provided by the amendment 
that these bonds shall be exclusive of the present charter limit. 
An election was called by ordinance of the Board of Supervisors, 
submitting this amendment to the people at an election to be 
held March 8, 1920. Inasmuch as it authorizes the issuance of 
bonds, a two-thirds vote is necessary at such election for its 
adoption. 



7 



The reason that the bond issue is fixed in an amount not to 
exceed $38,000,000, whereas the Railroad Commission valued the 
properties at $37,000,000 is this : 

The valuation of $37,000,000 was fixed as of March 1st, 1920. 
Due to the fact that we have practically reached the limit of 
Spring Valley's present available supply, something must be 
done immediately to create an additional supply. (The present 
water situation will be discussed under the next heading.) In 
addition, normal extensions of the present system have to be made 
to accommodate new consumers. The work on the Calaveras dam 
is under progress by the Spring Valley Water Company and 
it is vitally necessary that the dam be completed at once to a 
point where it can be of service to the city. Such expenditures 
made by the company in the way of work on the Calaveras dam 
and new extensions are capital expenditures and it is, of course, 
necessary that such expenditures as may be made after March 1st, 
1920, the date of the valuation, be returned to the company when 
the city takes over the properties. The amount of such expendi- 
tures, however, is limited to $1,000,000, which it is estimated 
will be sufficient to carry on the necessary work on the Calaveras 
dam and make necessary additions and betterments to accom- 
modate new consumers for a period of one year. All these ex- 
penditures are made subject to the approval of the city engineer 
and the amount thereof must be certified to by the Railroad 
Commission. 

3. The Present Water Situation: 

The water consumption of every large city increases with 
the growth of its population and industry. San Francisco has 
not been an exception in this regard. Since 1910 consumption 
figures and reserve storage at the end of each year have been as 
follows : 



8 





Average daily 
cons u m p t i on in 
millions of gal- 


Reserve Stor- 
es o o Tt on Q 1 

in billions of 
g 3.1 Ions. 


1910 


35.605 


21.369 


1911 


37.440 


25.349 


1912 


39.125 


17.397 


1913 


39.674 


11.822 


1914 


39.4 


14.660 


1915 


42.635 


16.940 


1916* 


40.915 


24.123 


1917* 


38.219 


18.143 


1918* 


37.165 


12.502 


1910* 


35.679 


13.773 


1920 


36.163 


11.158 



*Metering commenced in 1916 and was fully installed 
by 1919. 

From the above table it will be seen that up to 1915 the con- 
sumption of water in the city steadily increased and the reserve 
storage at the end of each year was steadily decreased. Due 
to the installation of meters, a temporary halt was caused in the 
increase of consumption until the city was fully metered, and 
then the upward trend of consumption started again. A series 
of three dry years had reduced the reserve storage by the end 
of 1920 to almost a critical point. If 1921 had been a dry year 
instead of being a wet year, the city would have faced a water 
famine. When the Calaveras reservoir is completed the storage 
capacity of the company can be increased by 30,000,000,000 
gallons, thus insuring the city against a water famine for sev- 
eral years to come. 

4. Logical Plan of Future Development: 

From engineering, financial, economic and legal standpoints, 
the logical sequence of developing additional water for San 
Francisco is as follows : 

1. Immediate steps should be taken to construct a conduit 
between the Crystal Springs reservoir and Alameda Creek, of 



sufficient capacity to deliver the additional water which can be 
stored in the Calaveras reservoir, and for which no conduit 
facilities are available. This conduit can be designed so as to be 
available for carrying Hetch Hetchy water also, and can thus be 
built from the proceeds of Hetch Hetchy bonds already author- 
ized. 

2. Concurrently with the construction of this conduit, 
the Calaveras dam should be completed to such a height as will 
insure sufficient storage to keep the conduit filled. Much of 
this work on Calaveras has already been completed by the Spring 
Valley Water Company, and it is anticipated that sufficient sur- 
plus from earnings under municipal ownership will result to 
enable the completion of the same, at a cost of about $1,000,000. 

3. In the course of a few years additional conduit facilities 
between the peninsular lakes of the Spring Valley Water Com- 
pany and the city distribution reservoirs in San Francisco should 
be constructed, including the new Amazon reservoir, for which 
the city has already acquired practically all the land. This con- 
duit and reservoir can be built from the proceeds of Hetch 
Hetchy bonds, because they will be available for the transmis- 
sion and storage of Hetch Hetchy water, although temporarily 
used in connection with the Spring Valley system. 

4. Concurrently with the foregoing construction, the Moun- 
tain Division of the Hetch Hetchy Water Supply project should 
be completed and the enormous power output of over 60,000 
horsepower to be derived from the Moccasin Creek power house 
generated and sold, thus taking the load of bond interest and 
redemption of approximately $28,000,000 worth of Hetch Hetchy 
bonds off the shoulders of the taxpayers. 

5. The acquisition of the rights of way for the main Hetch 
Hetchy water conduit and the engineering work preliminary to 
contracting for the construction of additional water tunnels and 
pipe lines can be carried on concurrently with the foregoing 
program. The actual construction of this water conduit be- 
tween Moccasin Creek in the Sierras and Alameda Creek in the 
Coast Range where it will connect with the conduit to be built 



10 



immediately should be on such a program as will enable the de- 
livery of water to San Francisco and vicinity at the moment 
when the water from the Calaveras sources has been fully 
absorbed in the local consumption. The exact date at which this 
latter work shall be completed will necessarily depend upon 
whether the East Bay cities join with San Francisco in the Hetch 
Hetehy project or not. The additional cost of this Hetch Hetchy 
conduit will depend upon the labor and material costs, at the 
date of construction, but under present estimates it should not 
exceed $45,000,000. 

6. As fast as the market for hydro-electric power permits, 
the city can proceed with additional development on the Hetch 
Hetchy project of nearly 200,000 horsepower at a relatively 
small increased cost, thus assuring a revenue which, together 
with the revenue from sales of Hetch Hetchy water will place 
San Francisco's entire water supply and power development on 
a better than self-operating basis. We need not build faster than 
we can use, but we should lay our plans for intelligent, business- 
like development of these great water and power resources. 

5. Spring Valley and Hetch Hetchy Interdependent, Not 
Competitive Projects: 

From the foregoing outline it can readily be seen that Spring 
Valley and Hetch Hetchy are not competitors. Each is neces- 
sary to the other. Engineering considerations demand that the 
city have available for the local storage of Hetch Hetchy water, 
reservoir sites advantageously located and of sufficient capacity. 
Crossing, as it must, several earthquake fault lines, the Hetch 
Hetchy aqueduct without local storage cannot be made an abso- 
lutely safe carrier of water to San Francisco. The Spring Val- 
ley Water Company controls all the desirable local storage sites, 
hence as an engineering proposition the practical operation of 
Hetch Hetehy is dependent upon the purchase of Spring Valley 
in order to insure near-by storage of at least 200 days' supply 
of water which City Engineer O 'Shaughnessy considers the 
safety factor. 



11 



lu order to sell Hetch Hetehy water we must have a dis- 
tributing system. The Spring Valley Water Company owns all 
the distributing mains and tanks and pumping plants in the city. 
To duplicate this system for Hetch Hetchy water would cause 
an enormous waste of public money and great discomfort to the 
public through torn up streets all through the city. Long and 
costly competition between the company and the city would re- 
sult in great detriment to both. Eventually the city might win, 
but at an unwarranted cost. Condemnation of the distribution 
system alone of the Spring Valley Water Company would prob- 
ably be little better on account of the large item of severance 
damage which surely would be allowed if this vital part of the 
company's works were separated from the rest. The amount of 
this severance damage cannot be exactly estimated but could 
easily equal the actual value of the distribution system. The 
city of Los Angeles had this experience when it attempted 
to condemn the distribution system of the local electric power 
companies in that city. Every consideration of public conven- 
ience and economy indicates that Hetch Hetchy water should be 
delivered through the local storage and distribution system of 
the Spring Valley Water Company. Conversely, Spring A^alley 
is dependent upon Hetch Hetchy. The reason why the Hetch 
Hetchy grant was given to San Francisco is that the water yield 
of the Spring Valley sources was shown to be insufficient for a 
long period in advance, and that the city must now provide for 
the future by securing these mountain rights before it should 
become too late. The city engineer estimates the ultimate eco- 
nomical additional development from Spring Valley sources to 
be acquired by the city at 25 million gallons daily. With this 
augmented supply there will be ample water for 700,000 people. 
When this is used up our mountain water must be here. AVe' re- 
peat that the Spring Valley and Hetch Hetchy are not com- 
petitive projects, but are interdependent. 

6. Financial Considerations: 

It is obvious 'that any development of additional water for 
San Francisco which can be paid for out of earnings at present 



12 



water rates is preferable to a development which must be paid 
for out of taxes. If the city purchases Spring Valley, it will 
be able from the revenues yielded by Spring Valley water works, 
under existing rates, to pay all the operating expenses of the 
system, to set aside an adequate depreciation fund, to pay the 
bond interest on $38,000,000 worth of bonds at 5 per cent, to 
pay the bond interest at 5 per cent on the cost of an additional 
immediate development of the Calaveras water in accordance 
with the plan above outlined, and have available for bond re- 
demption a sum varying from $300,000 annually during the 
next few years up to $775,000 annually by 1930. As the pro- 
posed bond issue does not start maturing until 1928 it means 
that the city can carry on the present system, making the re- 
quired immediate development, pay all the bond interest, and 
redeem the bonds as they become due without calling upon the 
taxpayers for one cent for contribution, and without increasing 
water rates. More than that, a study of the revenues and oper- 
ating expenses of the Spring Valley Company indicates that a 
surplus of $2,500,000 can be accumulated in 10 years after meet- 
ing all of the foregoing expenditures. This is surely sufficient 
margin to allow for any reasonable error in making a 10-year 
forecast. 

The foregoing statement also takes into account that the city 
will lose the taxes which Spring Valley now pays on lands situ- 
ated within the City of San Francisco which are to be acquired 
by the city. This loss in taxes will be offset by the saving to the 
tax-payers in the charges which the city government now pays 
to the Spring Valley Water Company for water for municipal 
purposes, such as fire protection, street cleaning, sewer flushing, 
municipal buildings, etc. The figures upon which these con- 
clusions are based are obtained from the company's books. 
Roughly speaking, it is estimated that during the past three 
years the city could have saved in the neighborhood of $75,000 
annually in operating costs, due principally to the saving in 
federal and state taxes, general officers' salaries, legal expense 
and publicity expense. As against these savings have been off- 
set probable increases in the cost of labor under municipal owner- 



13 



ship, due to the higher schedule paid skilled labor by the city. 
In this connection, however, it should be remembered that a 
relatively small amount of skilled labor is employed on a water 
works. A large portion of the company's operating expenses 
arise from the cost of reading meters, keeping consumers ac- 
counts, making corrections and in the fuel oil necessary for 
operating its pumping stations. When the Hetch Hetchy project 
is completed and cheap electric power is brought to the city, 
considerable reduction in these pumping costs may be antici- 
pated. This has not, however, been taken into account in the 
foregoing estimate. The attached table will indicate approxi- 
mately how the city officials, who have made a study of the situa- 
tion, believe municipal ownership of the Spring Valley system 
would work out. 



14 



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15 



The first item in the table covers the gross revenue estimated 
to be derived from each year's operation, using the average rate 
of increase indicated by the company's past experience. This 
may be easily exceeded if the city develops large quantities of 
additional water for sale to nearby cities. 

"Operating expenses" are based on the average percentage 
which the operating expenses of the Spring Valley "Water Com- 
pany have borne to its revenues in the past. Due to the falling 
prices of materials, for which no allowance has been made, it 
seems probable that this estimate is very liberal. 

"Taxes" refers to the taxes paid on lands outside the city 
and county. As stated, the city will lose the taxes on lands 
which it acquires in the City and County of San Francisco, but 
this loss will be compensated by not charging the tax-payers for 
water used for municipal purposes, the present revenue from 
which has not been included in the estimated gross revenue. 

"Depreciation fund" is in excess of the average past re- 
quirements of the company for replacements, and will enable 
the city to keep the structures in first class operating condition. 

Subtracting the sum of operating expenses, taxes and de- 
preciation from the gross revenue, the net operating revenue is 
derived. From this must then be subtracted bond interest on 
the purchase price at 5 per cent. The resultant figure indicates 
a profit from operation that varies from $384,000 in 1921 to 
$1,076,000 in 1930. It is not necessary to stop there. Interest 
not previously estimated on the capital expenditures for addi- 
tional water development may next be deducted. The cost of 
this development for the immediate future has been estimated 
by the city engineer at $6,000,000, spread over a period of three 
or four years. Inasmuch as interest charges will mount pro- 
gressively with expenditures, $75,000 has been deducted for 
1921, and the charge for each of the succeeding three years has 
been increased by $75,000 a year until interest on the full $6,000,- 
000 is reached in 1924. Subtracting these charges from the 
profit shown from operation, leaves available for bond redemp- 
tion from $309,000 in 1921 to $776,000 in 1930. As no redemp- 
tion will take place until 1928, this sum may be accumulated 



16 



yearly, as shown in Item 10, leaving the city at all times a margin 
to cover possible errors in forecasting estimates, new capital ex- 
penditures, or if circumstances warrant, a reduction in water 
rates. 

As against this business-like solution of the water problem, 
consider the result if the city does not acquire Spring Valley. 
Due to the difference of nearly 2 per cent in bond interest which 
the water company has to pay and to the more expensive plans 
of development which its officers have in mind for bringing 
additional water to San Francisco, the same study of Spring 
Valley operating statistics indicates that the present net revenue 
of the company will be insufficient to permit of this plan of 
additional development and the refunding of its outstanding 
bond obligations. The Spring Valley Water Company has out- 
standing a bond issue of $20,000,000 which matures in 1923. 
This issue must be refunded on or before that date, or its bond 
holders will foreclose. In addition to this, it must raise $12,000,- 
000 in new capital for additional development. If its money 
costs the company 2 per cent more than it does the city, it will 
mean that on this $32,000,000 the company will have to pay 
$640,000 annually more in interest charges than would the City 
of San Francisco. Its present revenues from existing water 
rates will not permit this to be done. The only solution for the 
company is apparently a raise in rates. That this will be the 
solution is intimated in the report of the Railroad Commission 
fixing the Spring Valley valuation, where it says : 

"In view of existing conditions, it is not to be ex- 
pected that the company is ready or able to raise the 
necessary new capital for construction and exten- 
sions, and the city cannot afford to wait for an im- 
provement of the urgent present water situation until 
the completion of the Hetch Hetchy system. 

"It has, for some time, been evident to this Com- 
mission that either the full responsibility of supplying 
water to the citizens of San Francisco must be as- 
sumed by this company or by the city. If the city 
is not to purchase the Spring Valley properties, then 



17 



it undoubtedly is the company's duty to go forward 
and make the necessary investment to furnish an ade- 
quate water supply to this community for its present 
and future needs. If it be determined that the city 
does not purpose supplying its citizens with water at 
this time, then this Commission properly will insist 
that the company take the full responsibility for this 
service and meet its obligation by the necessary cap- 
ital expenditures coupled with adequate plans to 
operate for the future." 
Thus, if San Francisco does not buy the Spring Valley now, 
it may reasonably expect to be faced with an increase in water 
rates, coupled with the burden of completing the Hetch Hetchy 
project at the taxpayer's expense without the aid of the net 
revenues which the city can derive from operating the Spring 
Valley properties. Nor, under competitive conditions, would 
a market for all the Hetch Hetchy water be assured and water 
rates would have to be very high to pay the interest on the Hetch 
Hetchy development. To any fair minded business man these 
considerations clearly indicate that the city should buy the prop- 
erties now. If we wait until Spring Valley obtains a raise in 
rates and finances new development, we shall be in a much less 
advantageous position to talk of the purchase which must eventu- 
ally be made, in any event. 

7. The Spring Valley Purchase and the Raker Act: 

In every Spring Valley purchase campaign the question has 
been raised by opponents as to what is the effect of the provi- 
sions of Section 9 (h) of the Act of Congress of December 19, 
1913, commonly known as the Raker Act or Hetch Hetchy grant. 
This provision reads as follows : 

"That the said grantee shall not divert beyond the 
limits of the San Joaquin Valley any more of the waters 
from the Tuolumne watershed than, together with the 
waters which it now has or may hereafter acquire, shall 
be necessary for its beneficial use for domestic and other 
municipal purposes." 



18 



Opponents of the Spring Valley purchase suggest that if San 
Francisco buys the Spring Valley properties, it will have to 
develop these properties before Hetch Hetchy water can be 
brought in, and that this acquisition will act as a legal impedi- 
ment to the Hetch Hetchy project. Such, however, is not the 
case. In the hearings before Congress it was made plain by the 
representatives of San Francisco and by all the proponents of 
the Raker Bill that San Francisco intended to acquire and de- 
velop the Spring Valley properties. The irrigationists in the 
San Joaquin Valley, and many of the members of Congress, 
were insistent that there should be no waste of water. Mr. 
Freeman, in his report to the city, had suggested that Hetch 
Hetchy water could be brought over and temporarily used for 
irrigation purposes in the Santa Clara Valley. The San Joaquin 
Valley irrigationists vigorously insisted that water should not 
be taken from the Tuolumne watershed and used for irrigation 
purposes elsewhere. All conceded the superior rights of domes- 
tic users, but all were equally insistent that all the water avail- 
able to San Francisco should be beneficially used for domestic 
and municipal purposes, and not wasted, or turned over to the 
Santa Clara Valley irrigationists. It therefore becomes rather 
apparent that what Congress meant by the foregoing provisions 
was that San Francisco should not bring in Hetch Hetchy water 
and waste the waters which it now has or is now using, or any 
waters which the city might hereafter acquire. This makes it 
necessary that San Francisco should not acquire water supply 
properties which it could not beneficially and economically de- 
velop. Great care has been taken by the city engineer to ex- 
clude from the proposed purchase any properties which it is not 
economically desirable to develop, such as the coast streams, the 
Ravenswood lands, Arroyo Valle lands and the Portola lands, 
all of which are owned by the Spring Valley Water Company, 
but none of which can, in the opinion of City Engineer O'Shaugh- 
nessy, be economically developed for municipal use. 

If we acquire the Spring Valley properties, therefore, we 
shall not be obliged by the provisions of the Raker Act to de- 
velop any water for city use that we do not desire anyway. Bat 



19 



we will be required to develop and use those waters which we 
now have and will have acquired before making additional diver- 
sions from the Tuolumne. This is not an onerous obligation. 
It is common sense, economical procedure. 

On the other hand, if San Francisco does not acquire the 
Spring Valley properties and the Spring Valley Water Com- 
pany develops Calaveras or other sources and brings the water 
in to our population, the question may well arise as to whether 
the city can, by proceeding on competitive policy, force the com- 
pany to waste any portion of the water that it has actually de- 
livered to San Francisco and its inhabitants and substitute 
Tuolumne River water therefor, or turn it over to irrigationists. 
In other words, the debates and proceedings before Congress do 
not indicate that Congress was particularly concerned with the 
question of the title to the water. If San Francisco was using 
Spring Valley water, it should not be permitted to waste it and 
substitute Heteh Hetchy water therefor. Congress did not 
attempt to club the city into buying Spring Valley, although it 
had assurance from all of San Francisco's representatives that 
such was the city's intention, and a condemnation suit had actu- 
ally been filed at the date when the Raker Act was passed. 
Opposition to the Heteh Hetchy grant from the Spring Valley 
Water Company had been withdrawn after an assurance from 
the city officials that its properties would be purchased by con- 
demnation or otherwise. To that extent the good faith of the 
city is involved. But San Francisco's position under the Raker 
Act will be much stronger if it owns the properties sought to 
be acquired and hence can control their development than if it 
is forced to compete with the Spring Valley Water Company, 
and face the possibility that the company might develop other 
sources than those to be taken and bring the water in for munici- 
pal use and force the city to face the claims of the San Joaquin 
Valley irrigationists under the above provisions of the Act. 

8. The Properties to Be Acquired: 

As stated in the previous paragraph, the city engineer has 
designated, for acquisition, all of those properties which the city 



20 



needs, or will need, for the economical development of its water 
supply in conjunction with the Hetch Hetchy project, and no 
other properties. Briefly summarized, the properties listed for 



acquisition are the following: 

In the City and County of 

San Francisco Acreage 
All of the reservoir sites, tank lots, pump stations, and 
the city distribution system, including water pipes, 
services and meters 135 



Merced Lakes lying west of Twin Peaks, together with 
sufficient watershed lands adjoining to protect the 
purity of supply including 50 acres in San Mateo Co.. 829 
In San Mateo County 

3 great reservoirs at Pilarcitos, San Andreas, and Crystal 



Springs 2080.1 

All of the watersheds adjacent to said reservoirs, extend- 
ing to the crest of the hills surrounding them 19010.1 

Miscellaneous lands containing pipes, pumping stations, 

wells, etc 1036.7 

In Alameda and Sa t nta Clara Counties 

2 reservoir sites, the Calaveras and San Antonio 2592 

The watersheds surrounding these reservoirs to the crest 

of the hills .' 21084 

The filter beds at Sunol and adjacent lands in Niles 

Canyon 13063 

Pleasanton well tracts and protective strips 759 

Miscellaneous lands in all 4 counties 971 



Total area to be acquired in fee 61560 

Area of additional rights of way 190 



The lands which have been excluded from purchase as being 
either not needed or an uneconomical acquisition are the fol- 
lowing : 



21 



Acreage 

Watershed lands at Lake Merced not adjacent to the 

lakes 1871.8 

Coyote Creek lands in Santa Clara Co 771. 

Pleasanton ranch lands 4731.8 

Lands on slope toward Pacific Ocean 2297.1 

Marsh lands at Eavenswood and vicinity 6532.8 

Lands near Portola and San Francisco Bay drainage 2844.2 

Arroyo Valle lands in Alameda County 4993.4 

Farming lands on Niles Cone 116.5 

Grazing lands in Niles Canyon 1697.9 

A few scattered lots in San Francisco, including the old 
Market Street reservoir tract through which streets 
have long ago heen opened 20.2 



Total area excluded lands 25876.7 



These excluded lands are valued by the company at $5,490,000. 

All of the company's water rights except those relating to 
the so-called coast streams which drain into the Pacific Ocean, 
the company's rights near Eavenswood and storage rights at 
Arroyo Valle have been included. In addition thereto the city 
is to acquire the right to pump not exceeding 15,000,000 gallons 
daily of water as against the lands retained at Pleasanton by 
the Spring Valley Water Company. This right is in excess of 
any amount of water which has heretofore been pumped from 
that source. The company agrees not to interfere with this right 
except that it may take such water as is necessary for irrigating 
the retained lands, but nothing further. The city engineer has 
insured physical protection of the city's right to pump by in- 
cluding two strips of land running in the most advantageous 
direction through the lands retained by the company at Pleas- 
anton, with the idea that the city can, if it desires, drive addi- 
tional wells on said strips and extract all of the available water 
from beneath the adjacent lands. 

The title to the foregoing properties is to be subject to the 
approval of the city attorney after report thereon by the title 



22 



company. The voters may rest assured that the city will not 
acquire or pay for any unsatisfactory titles if such are found. 
Previous examination of the company's titles prior to filing con- 
demnation suit indicated that in general they are in very satis- 
factory condition. 

The question is sometimes asked as to what lands have been 
excluded in the present purchase which were included in the 
purchase propositions of 1915 and 1910. The only lands which 
have been excluded from the present purchase which were in- 
eluded in the 1915 purchase, were the Arroyo Valle lands, por- 
tions of the Ravenswood lands and the Pacific Coast streams. 
The area of these exclusions was 7900 acres as against which 1200 
acres of newly bought lands have been included, having greater 
value than the excluded lands. The reason for this exclusion 
was primarily that the city's legal advisers do not desire that any 
complications should possibly arise under the provisions of the 
Raker Act above cited, which might require the city to make any 
local water development which seemed uneconomical before 
bringing in the Hetch Hetchy water supply. As compared to the 
1910 purchase, considerable land has been excluded, principally 
at Lake Merced. However, the Spring Valley Water Company 
has acquired so many large tracts of land since 1910 at Pleasan- 
ton and in the Calaveras Valley that it is difficult to make any 
accurate comparison with the acreage included in the 1910 pur- 
chase, nor does it seem particularly important to do so, as more 
than ten years have elapsed since that proposition was rejected, 
and values have materially changed. 

In general, all of the lands which have been listed as ex- 
cluded will be found to be those draining into watersheds from 
which the city will not take any water, or lands which are purely 
agricultural in character. In the former category may be men- 
tioned the lands draining into the Pacific Ocean, lands draining 
into San Francisco Bay, the Arroyo Valle lands, and in the latter 
category may be mentioned the Pleasanton ranch lands, the 
marsh lands at Ravenswood and vicinity, farming lands on the 
Niles Cone and grazing lands in the Niles Canyon. All ex- 
cluded lands in the City and County of San Francisco are those 



23 



which are not needed in connection with water supply purposes 
and are available for residential purposes. 

9. Purchase Price: 

The purchase price fixed in the company's offer and in the 
amendment submitted to the voters is $37,000,000, plus such sums 
not exceeding $1,000,000 in amount as the Railroad Commission 
shall certify to have been properly expended by the company for 
water supply purposes since March 1, 1920. This price is based 
upon the valuation made by the California State Railroad Com- 
mission as of the 1st day of March, 1920. Due to the impend- 
ing water shortage during the last year, at the express request 
of the Mayor and the city engineer, the company proceeded to 
make additional expenditures on the Calaveras dam to increase 
its storage capacity and elsewhere so as to expedite the delivery 
of additional water to San Francisco if an emergency should 
arise. All of these expenditures are such as the city would have 
made had it owned the properties on that date, and they were 
made with the understanding that if the properties should be 
acquired they would be added to the valuation made as of March 
1, 1920. At the present time the aggregate of these additional 
expenditures is in the neighborhood of $400,000, and it is esti- 
mated that before the properties are finally taken over by the 
city they will approach $1,000,000. It should be noted, how- 
ever, that the city is protected by requiring the Railroad Com- 
mission's certificate as to the propriety of the expenditures be- 
fore they can be added to the purchase price. 

The valuation of $37,000,000 was arrived at by the Railroad 
Commission after more than six months study of the evidence 
before it. This evidence, as stated in Section 2, consisted of 
the entire record of the appraisal made as of December 31, 1913, 
in the trial of the rate cases before the Master in Chancery, com- 
prising testimony on the part of the company and on the part 
of the city, detailed valuations by real estate experts, hydraulic 
engineers, water rights valuations, arguments for and against 
the allowance of going concern value, and a study of the earn- 
ings and operating expenses of the company covering a period 



24 



of practically ten years. Further testimony was introduced show- 
ing the capital expendietures made by the company on its prop- 
erties since that date, also changes in basic prices of lands and 
structures. It was agreed that the structures should not be 
valued on the basis of 1920 prices, which were abnormally high, 
but that an average for six years should be taken as the basis. 
In addition to all this testimony in behalf of the city and the 
company, the Commission caused an independent investigation 
and appraisal to be made by its own engineers. The details of 
these appraisals have, since the Commission's decision, been 
submitted to the city and show that the Commission's engineers 
valued the property at over $500,000 in excess of the sum of 
$37,000,000, which the Commission determined as a fair value. 
There is not the slightest evidence, therefore, for challenging 
the statement that the Commission arrived at its valuation after 
a careful, thorough and painstaking investigation, based upon 
months of study of the most voluminous and comprehensive rec- 
ord probably ever submitted to a judicial tribunal in a valua- 
tion case. If anything, the evidence before it was more favor- 
able to the city than would have been the case if this had been a 
contested condemnation suit, for in such a suit, under the prin- 
ciples of law the valuation would have to be based on prices out- 
standing at the date at which it was made. This would certainly 
have justified a much higher figure for the valuation of struc- 
tures than the Commission's price indicates. Furthermore, the 
figure of $37,000,000 compares very favorably with the previous 
valuations. If the 1915 purchase price be taken, and adjust- 
ments made for capital expenditures, increased value of country 
real estate and increase in structural costs, and additional ac- 
crued depreciation since that date, the figure derived will be in 
excess of the Commission's valuation. If the valuation of $34,- 
000,000 reached by District Judge Rudkin in the federal rate 
case be similarly compared, with due adjustments for changes 
in the properties valued, additional capital expenditures and 
accrued depreciation, a sum in excess of that which the Com- 
mission found will be reached. 



25 



As compared to the 1910 purchase price of $35,000,000 for 
all the properties that the company owned, the Commission's 
valuation is probably not so favorable to the city. But in 
all fairness, it must be taken into account that during the 
ten years that have elapsed since 1910, there have been very 
substantial increases in real estate and structural values, and 
additional water rights have been developed, and the com- 
pany's business and revenues have increased very largely. 
The gross revenue is about $1,500,000 greater than in 1910. 
Under such circumstances, it is not to be expected that the same 
figure which was then submitted can be duplicated. It has 
already been set forth in paragraph 6 that the earnings from 
the company's properties will permit of a fair return to the 
city on the basis of the valuation reached, and are sufficient 
to remove any danger of the interest charges, operation costs 
or bond redemption falling upon the taxpayers or result in. 
increased water rates. 

Finally, it may be said that nothing in the present situation 
indicates that any valuation made at a future date would be 
less than the one we submit. The city has twice rejected the 
purchase, and each time an election is held the price is higher 
than the previous one. If the company is now permitted to 
retain its properties and expend over $12,000,000 in new devel- 
opment and is given rates sufficient to yield a return, the 
probabilities are that the increase in its business and the nor- 
mal increase in value of real estate and water rights will make 
any future price still higher in proportion than the one now 
submitted. The Spring Valley is not in the position of a 
utility which depends upon the life of a franchise for its ability 
to carry on its business. All of the Spring Valley franchises 
are of unlimited life, although none of them have been valued 
by any of the witnesses, nor has any attempt been made to 
capitalize this advantage. 

10. Advantage of Buying Now: 

Many of the advantages of immediate purchase become 



26 



apparent from a perusal of the foregoing facts. They may be 
enumerated briefly as follows : 

1. Acquisition now of the Spring Valley properties will 
insure their coordination with Hetch Hetchy development. The 
city may make definite plans for its future program of con- 
struction with the knoAvledge that when Hetch Hetchy water 
is brought here there will be a local storage and distribution 
system ready to receive and market it. 

2. With Spring Valley properties in San Francisco owner- 
ship, this city will be in a position to cordially invite the cooper- 
ation of the East Bay cities in our Hetch Hetchy project, thus 
reducing the expense to ourselves and assuring the economical 
development of our great Tuolumne resources for the benefit 
of all the bay cities. San Francisco will then be in a position, 
if it is thought desirable, to offer those of the East Bay cities 
who have been suffering from water shortage immediate relief 
from the Alameda Creek sources, provided they cooperate with 
us in the development of the Hetch Hetchy project. 

3. If we purchase now, we practically insure ourselves 
against an increase in water rates which the Railroad Commis- 
sion rather intimates in its report will necessarily have to be 
made if the water company retains possession and continues 
development on its own program. In this connection the Com- 
mission says : 

"It has, for some time, been evident to this Com- 
mission that either the full responsibility of supply- 
ing water to the citizens of San Francisco must be 
assumed by this company' or by the city. If the city is 
not to purchase the Spring Valley properties, then it 
undoubtedly is the company's duty to go forward and 
make the necessary investment to furnish an adequate 
water supply to this community for its present and 
future needs. If it be determined that the city does 
not purpose supplying its citizens with water at this 
time, then this Commission properly will insist that the 
company take the full responsibility for this service 



27 



and meet its obligation by the necessary capital ex- 
penditures coupled with adequate plans to operate for 
the future. 

"It will not do to say that this program of develop- 
ment may be entered tipon by the company and that 
the city, nevertheless, may purchase at any time it sees 
fit, becaiise it must be remembered that whatever in- 
vestment is made by the company must be compen- 
sated for later by the city. In addition, the develop- 
ment undertaken by the company will probably go 
forward in conflict with the plans which the city 
might adopt if it entered into this service. 

"We believe that from every standpoint a delib- 
erate choice should now be made by the citizens of 
San Francisco, either for the continuance of water 
supply by the privately owned company with the full 
responsibility placed upon that company for such 
development as will safeguard the water needs of this 
community for the future (with which, of course, must 
go reasonable assurance that the investment made by 
the company for this purpose will not be destroyed), 
or that the city will promptly enter into possession 
and ownership of its own water supply and thereafter 
occupy the field completely. We consider a continua- 
tion of the present condition as a danger to the com- 
munity as far as its water supply is concerned and 
we urge that a definite decision be reached at the 
earliest possible date on this important matter." 
4. The acquisition of this great municipal empire of 
62,000 acres — practically twice the present area of the City 
of San Francisco — will furnish to our citizens a source of 
justifiable pride and enjoyment, without in any way endan- 
gering the purity of the water. Highways and boulevards can, 
as time progresses, be built through these properties, and, with 
proper sanitary regulations, at selected places picnic grounds can 
be provided, and new additions to the city's park and play- 
ground system, of almost unlimited extent and varied scenic 



2 8 



character, can be obtained. No more beautiful spots in Cali- 
fornia can be found than in some of the corners of the San 
Mateo peninsular lands of the Spring Valley Water Company, 
now excluded from public enjoyment. Wilder and more rugged 
scenery may be found in the Calaveras and Upper Alameda 
canyons, while nearby parks and playgrounds are possible in 
the vicinity of the Merced Lakes. 

All of the foregoing considerations and many others lead 
to the conclusion that these properties should be acquired by 
San Francisco, and should be acquired now. 

1 1 . Management of Properties : 

In order that the properties to be acquired may be operated 
and managed by a body whose sole duties and responsibilities 
shall be the operation and management thereof the charter 
amendment, authorizing their purchase, provides that the Board 
of Supervisors shall create by ordinance a Water Commission 
and fix its powers, duties and responsibilities, said commission 
to be appointed by the Mayor. It is obvious that some commis- 
sion should be charged with this responsibility and that there is 
sufficient work to keep such a commission employed. 

12. Arguments of and Opponents' Answer: 

While it is difficult to concede that any public-spirited and 
well-informed citizen of this city will oppose this purchase, past 
experience indicates that opposition may be expected. It 
may be of interest to briefly summarize and answer some of 
these arguments. 

1. One of the first arguments always made has already 
been answered, namely, that if Spring Valley is purchased, San 
Francisco cannot develop Hetch Hetchy water because of the 
provisions of the Eaker Act hereinbefore mentioned. This is 
always coupled with the curious claim that the Spring Valley 
Water Company has sufficient water for all time. If such 
were the case, the city would never have gone to Tuolumne 
County for its future sirpply. As heretofore pointed out, we 
are taking only such sources as it is economically desirable to 



29 



develop. There is nothing in the Raker Act or any other law 
which prevents us from fully utilizing our Heteh Hetchy 
sources as soon as this local water is used up, the period of 
time which may be conservatively estimated at from ten to 
twenty-five years, depending upon whether the East Bay cities 
join with us or not. 

2. The argument is made that the Spring Valley title to 
the Calaveras waters is bad. This is based on a long-standing 
controversy between the Spring Valley Water Company and 
certain irrigationists on the Niles Cone in Alameda County. 
Since the last purchase proposition, by stipulation this contro- 
versy was submitted to a Board of Arbiters, consisting of the 
Water Commission of the State of California, and has been 
decided practically in accordance with the company's conten- 
tions. San Francisco will succeed to the company's rights in 
this matter. 

3. It is contended that the price is unreasonable. Every 
prominent engineer who has examined the properties of the com- 
pany, including Waldo Smith, engineer for the great New York 
Ashokan aqueduct, has pronounced the price to be reasonable, 
and in line with previous purchase valuations when recent capital 
expenditures by the company are taken into account. 

4. It is claimed by opponents that the water rates will 
have to be raised under municipal ownership. A careful analy- 
sis of the Spring Valley revenue and operating figures here- 
tofore made absolutely negatives any such conclusions. The 
figures used by the opponents in this respect are usually pulled 
out of thin air or based on hypothetical increases in cost which 
will never occur. The figures hereinabove submitted are based 
»n actual operating experience, and are as reliable as can be 
made. 

5. Another argument made in previous campaigns is that 
this issue would cause us to exceed our bond limit. As these 
water bonds have by the terms of the proposed charter amend- 
ment been expressly placed outside of the bond limit, for the 



30 



reason that the properties Avhich the city will acquire will be 
self-supporting, this argument is conclusively answered. 

6. It is stated that the Spring Valley pipes and distribution 
system are rotten and inadequate. This statement is absolutely 
without any sound foundation. In the trial of these various 
contested suits, with the hope that the city might be able to 
show a higher degree of depreciation and thus reduce the valua- 
tion, the city's engineers caused sections of the pipes to be 
cut throughout various portions of the city and subjected to 
examination and tests. In practically every case the pipe was 
found to be in as good condition as when laid, due to the 
superior coating which it had been given under the direction 
of Engineer Herman Schussler, who originally built the works. 
Some of the company's pumping stations are not of the latest 
type, but they have all been working practically without cessa- 
tion since the date of their installation, and are apparently in 
as good working order as before. Furthermore, their present 
condition has been fully taken into account by the various engi- 
neers who testified as to their value. While the Commission 
does not indicate its ruling on the percentage condition of struc- 
tures, the evidence shows that all valuations submitted to it by 
the city's engineers and its own engineers fixed the percentage 
of condition at less than 80 per cent. It is to be presumed that 
such depreciation as has actually accrued has been taken into 
account in fixing the price. The company has at all times main- 
tained an adequate depreciation fund from which ordinary 
replacements were made as time progressed, and if any faulty 
pipe sections were ever found, they were immediately taken 
out and replaced with new pipe, thus keeping the system in 
first-class operating condition. 

7. Purity of Water : Equally lacking in force are the state- 
ments sometimes made that Spring Valley water is impure. 
Analyses made by the city's engineers from time to time indi- 
cate that Spring Valley water is first class in every respect 
from a potable standpoint. It is true that it is not as soft as 
the mountain water, and for that reason probably is less desir- 



31 



able for washing clothes, etc. The percentage of hardness, how- 
ever, is not excessive, and when eventually mixed with the 
Tuolumne water it should be substantially reduced. 

8. Claim is made by certain opponents that the Spring 
Valley has not a clear title to some of its lands. This is an- 
swered by the provision in the proposed amendment that the 
company must furnish a title satisfactory to the city's legal 
advisor, the city attorney, after he has caused a search of the 
same to be made by duly licensed title companies. The city 
attorney is under bonds to the city for the faithful performance 
of his duty. It is to be presumed that he will not approve and 
that the city will not accept or pay for any land to which a 
satisfactory title is not shown. It does not follow that because 
a claim is asserted it is necessarily a valid one or that every 
negotiation should be halted while the claim is being adjudi- 
cated. 

9. It has been urged that the city ought not to agree upon 
any purchase price without bringing condemnation proceedings 
to obtain the properties. This argument does not apply to the 
present situation where the purchase price has not been agreed 
upon, but has been fixed by the Railroad Commission upon 
the basis of conflicting evidence. Furthermore, the Eailroad 
Commission is the body legally constituted under California 
law to make findings of value in all condemnation suits for 
the taking of public utilities. If the city should now reject 
this purchase and file formal condemnation proceedings in the 
Eailroad Commission, can any reasonable person doubt that the 
valuation found by the Commission would be substantially the 
same as that which it has fixed in this case? It might even be 
greater, for as has been stated, the rules of law would require 
the valuation to be based entirely upon the present day price, 
whereas in the present case, a six-year average has been taken. 

For the information of those who desire to carefully study 
this important proposition which is on the eve of submission to 
the people'of San Francisco, the foregoing facts and figures, com- 



32 



piled after careful study and impartial consideration, are sub- 
mitted. The election date is March 8th, 1921. We ask every 
citizen to do his or her duty by voting "Yes." 

James Rolph, Jr., 

Mayor, 

Ralph McLeran, 
Chairman Spring Valley Campaign 
Committee, 

M. M. 0 'Shaughnessy, 

City Engineer, 
George Lull, 

City Attorney, 
Robert M. Searls, 
Special Counsel Hetch Hetchy 
Water Supply. 

Dated : February 1, 1921.