Chapter 5 - Spring Valley

The years 1877-1881 were transformative for San Francisco and for Newlands. The panic of 1873 had pitched nation and city into an economic slough—the so-called “long depression”—from which they only began to emerge in 1878. Twenty-five years of western drought had withered the agricultural economy, and the recession crippled the mining economy. San Francisco was hit hard.

Bryce described the city as a tinderbox. Angry unemployed men, 15,000 of them, prowled the streets. The Irish unemployed were allegedly the angriest, and they poured out their fury against Chinese businesses. “The Irish were the poor [in San Francisco] and they hated the Chinamen,” observed Mark Twain.[1] Denis Kearney, an Irish drayman who had attended Irish lyceums for public speaking, put the match to the tinder. Washed up and fed up, Kearney claimed that a friend had “put him into stocks” but that he had been swindled out of every penny. He was vituperative and histrionic—and boasted that he loved bonfires. At the end of every speech, Kearney concluded with the incendiary declaration, “And whatever happens, the Chinese must go.” He was all of San Francisco’s problems rolled into one. Bryce considered him San Francisco’s perfect storm.[2]

While the fires of discrimination and discontent simmered, water issues once again rose to the fore. In January 1879, the board of supervisors began discussing the new water-rate schedule, to be published in 1880. The new rates would be the first test of the state’s new constitution, which singled out “water-supplying bodies to be regulated and limited by law.”[3] The public expected a ten percent rate reduction. Newlands spent a great deal of time testifying before the board on Spring Valley’s costs. He adopted a moderate, professorial tone. One of Sharon’s many biographers said Newlands had “a new, sophisticated approach” that enabled the regulators for the first time to understand Spring Valley’s costs. “Fair dealings” with the company followed. Sharon’s biographer wrote that Sharon, always a hard liner, noticed that the less contentious approach was good for the company.[4]

The Spring Valley rate hearings were a personal triumph for Newlands. His years at Sharon’s side built on his natural affinity for technical expertise, and he habitually gave credence to the expert planner. Whenever he faced a problem, he attacked it with an expert at his side. In the Spring Valley rate matter, Newlands felt that rate setting under the new constitution required a new approach that convincingly explained the company’s cost structure. Schussler, the company’s well-known engineer who had run Sharon’s water company in Virginia City before he ran Spring Valley, tutored Newlands in the science of rate-setting.

Newlands swiftly converted his own education into a tutorial for the board of supervisors. He drew up for the supervisors an array of charts, diagrams, and maps explaining the company’s costs. The graphics showed how the company’s costs were linked to the size of the population served.[5] Newlands’ goal was to convince the supervisors that costs rose on a per capita basis when the population declined and fell when the population increased. The lesson was not novel—but the approach was.

Newlands’ tutorial worked. In 1880, the supervisors published a new rate structure, which they claimed was a ten percent rate reduction. Because the price of water was linked to the growth or decline of population served, the schedule was very complicated. It is unclear whether actual rates ultimately rose or fell. What’s certain is that the press did not attack the supervisors, who were so pleased with the 1880 schedule that they reaffirmed it for 1881.[6]

Fortuitously, San Francisco’s population rose so rapidly that company revenues increased. From 1870-1880, population grew by 57 percent. The city economy improved between 1879 and 1880. And the supervisors reached the same conclusions as Newlands’ tutorial. The company was entitled to “a fair rate of interest” over its costs, a “fair” rate was “between eight and ten percent,” and “current income…after deducting operating expenses” was below eight percent.

The supervisors had reached the right points about rates once they had accepted what Newlands said were the costs. Newlands believed that the way he presented the costs was critical. The modest professor armed with charts, diagrams, and maps had carried the day.

The success he had before the board was a triumph he always savored. Newlands saw himself in the role of the water expert, all mapped out and diagrammed up. He frequently tried to replay the triumph of 1880. Newlands was so devoted to experts on water issues that observers thought him “a crank.”[7] Yet in the years to come, it was the crank with his charts who would have the last laugh.