Legally and technically, this comprehensive system was divided into five parts. The original Central Pacific Railroad ran from 5 miles west of Ogden to Sacramento. In 1870 this company consolidated with the Western Pacific Railroad, operating between Sacramento and San José via Stockton, the San Francisco, Oakland and Alameda Railroad, which connected the Western Pacific with the city of Oakland, the San Joaquin Valley Railroad branch from Lathrop to Goshen, and the California and Oregon Railroad, which left the main line of the Central Pacific near Roseville, and ran in a northwesterly direction to Redding toward the Oregon boundary. All these lines were directly under one operating control.
A second important part of the system was the California Pacific between Sacramento and Vallejo, with a branch from Davis north to Marysville, and another from Napa Junction to Calistoga. The ownership of the third portion was vested in the Northern Railway. This company had been chartered in 1871, and had projected a line from Woodland, on the California Pacific, to Tehama, of which 82.20 miles were completed in 1875. In 1878 the company built from Oakland to Martinez, and from Benicia to Suisun, and still later it constructed a line from Benicia to Fairfield. This last bit of road enabled Central Pacific trains to run from Sacramento to San Francisco via Benicia, instead of passing through Vallejo. The San Pablo and Tulare, completed about the same time as the road from Oakland to Martinez, connected the Northern Railway with Tracy on the main line of the Central Pacific.
The fourth part of the Huntington-Stanford system was the Northern Division of the Southern Pacific Railroad from San Francisco through San José to Soledad and Tres Pinos. The Tres Pinos line has been referred to in the previous chapter. The extension from Gilroy to Soledad up the Salinas Valley was in operation by 1877, and formed the first part of the route which later became the coast route to Los Angeles. The fifth and last part of the system was the Southern Division of the Southern Pacific Railroad from Goshen to Mojave, Los Angeles, and Yuma, with branches from Alcalde to Huron, and from Los Angeles to Wilmington. In addition to the main groups mentioned, there were certain minor extensions, such as the railroads from Sacramento to Shingle Springs (the Sacramento Valley and Placerville Railroad), from Stockton to Milton (the Stockton and Copperopolis Railroad), and from Peters to Oakdale (the Stockton and Visalia Railroad).
Lease and Stock Control
The various parts of the system were held together by a combination of leases and stock control. The associates in 1877 held all or a majority of the stock of each railroad company which has been mentioned. Usually this stock had come to them in their capacity as shareholders in the various construction companies which had built the roads. In some cases, however, as with the California Pacific and the Northern Division of the Southern Pacific, the greater part of it had been acquired by purchase. But the associates in most instances preferred to add to their control by stock ownership the further security of a lease—a procedure which had the additional advantage of simplifying the conditions under which the companies were operated, by concentrating operations under a single management. Only in the case of the Northern Division of the Southern Pacific do they seem to have temporarily departed from this procedure, and this exception can probably be explained by the special circumstances of the case.
So long as the same parties held all the securities of all the companies in the Central Pacific-Southern Pacific system, it made little difference how payments under the various leases were determined. Yet the possibility that the Central Pacific might sometime divest itself of some portion of its property, was kept in mind, and rentals were fixed so that in most cases they were materially less than the net earnings of the leased mileage. This was probably not true of the Southern Pacific in early years, but it had become so by 1880. In form, the leases showed surprising variety. The rental of the Northern Railway to the California Pacific in 1876 was at the rate of $1,500 per mile per year.[193] Mr. Stanford thought that this was based on an estimated cost of construction.[194] In 1879 the same property was leased to the Central Pacific for a payment of a given sum per mile for each piece of equipment passing over the road. That is to say, 25 cents per mile was paid for each passenger or freight locomotive, 20 cents for each passenger car, and 8 cents for each freight or caboose car.[195] This proved to be a very expensive rental, and was changed to a monthly payment of $47,500.[196]
The lease of the California Pacific to the Central Pacific in 1876 carried a rental of $550,000 per year, plus three-fourths of the net earnings of the California Pacific above that amount. The Central Pacific guaranteed principal and interest on $3,000,000 of bonds. This was changed to a flat payment of $600,000 per year in 1879.[197] The Central Pacific leased the Amador branch between Galt and Ione for $3,500 per month. In the case of the Stockton and Copperopolis, however, it undertook only to pay principal and interest on $500,000 of thirty-year bonds, at 5 per cent, with the provision, however, that the net earnings should apply on the Stockton and Copperopolis floating debt.[198] These variations, if they show nothing else, are persuasive that the associates had no standard method of procedure but suited their arrangements to the facts in each individual case.
Lease of Southern Pacific
Perhaps the most interesting relations between the different companies in the Huntington-Stanford system were those existing between the Central Pacific and the Southern Pacific—the Central Pacific’s most important extension. It has already been noted that during the early period of construction the Southern Pacific lines south of Goshen were turned over to the Central Pacific operating department as fast as they were completed. At one time the authority of some Central Pacific officials reached east to New Orleans, though the general superintendent, Mr. Towne, seems never to have had jurisdiction beyond Vermillionville, 144 miles from New Orleans.[199] The advantages of this arrangement were obvious. Under the lease, the Central Pacific paid the Southern Pacific $500 per mile per month rental, less $250 per mile per month to cover operating expenses, or a net sum of $250 per mile per month. As amended in 1879 and 1880, the leases made no mention of the $500 payment, but the Central Pacific engaged to keep the Southern Pacific in good repair, and to pay $250 per mile monthly.[200] In its first form the lease contained the implication that the operating ratio of the Southern Pacific was only 50 per cent, and it has been suspected that this was deliberately arranged in order to assist Mr. Huntington in disposing of Southern Pacific securities in New York. The lease was originally terminable on twelve months’ notice, but in 1880, on demand of New York bankers who contemplated the purchase of Southern Pacific bonds, it was changed to run for at least five years.