Determination of a Reasonable Return for Public Fire Hydrant Service

Determination of a Reasonable Return for Public Fire Hydrant Service

Folowing is an abstract from a paper prepared by Messrs. Metcalf, Kuichling and Hawley, and read by the former at the meeting of the American Waterworks Association in Rochester:

The income of a waterworks corporation is usually derived from the performance of two distinct services, first the supply of water for public fire protection service, second, the general supply of water for domestic, industrial and public uses. The sum of the receipts front these two sources should be sufficient to place the corporation on a sound financial basis within a few years after the completion of the works, or after about two-thirds of the population of the community have become permanent consumers. The basis for the determination of the reasonable or legitimate return for public hydrant or lire protection service has. so far as the writers are aware, never been outlined or passed upon judicially by our courts in such a manner as to be of general applicability. Not only has intelligent discussion of this subject been neglected, but commercial considerations and off-setting allowances for public franchise, or the right to build and operate waterworks, have too often controlled, and have made the actual resulting payments for hydrant rental of little value front a theoretical standpoint: without relation to the cost of the service rendered, and therefore of little significance in a consideration of the cost or value of public lire protection service. As is well known to waterworks operators, one of the two following considerations has usually controlled in the negotiations leading to the establishment of waterworks : First, what might be termed the “method of averages,” that the hydrant rental and water rates should not exceed the average rates paid in the surrounding district or state, or perhaps in the learest large city, which has found application in the larger communities: and second, what might be termed the “guaranty basis,” that the hydrant rental should be substantially equal to the interest charges upon the necessary investment, leaving the water rates to meet operating, maintenance and depreciation charges and profit, which has found application in the towns and smaller cities. In the early history of waterworks development therefore, the demand for water service has controlled rather than any equitable consideration of the cost or value of the service rendered. This paper outlines a rational mode of determining how much income should be derived yearly from the general public fire protection service rendered by the works through the public fire hydrants, and does not consider the value of the kindred service rendered by supplying water to special apparatus for extinguishing fire that may be placed in public or private buildings, such as private hydrants or standpipes, sprinklers or other automatic devices. It is assumed that Ihe quantity of water and extra capacity of distributing pipes required for the public hydrant service is always somewhat greater than that which is needed for the special apparatus referred to, when it is brought into action. It has been generally claimed that the yearly cost of this extra capacity for fire protection should be borne by the community as a unit, and when this principle applies. no large additional revenue for special fire protection service can be expected. In support of this principle, it is claimed by the makers of special automatic apparatus for extinguishing fire that a discharge of from 750 to 1,000 gallons of water per minute for a period of 10 to 15 minutes, has been found by long experience sufficient to overcome most incipient tires in mercantile and factory buildings, whereas from two to 10 times this rate of discharge is usually required to extinguish a fire in such a building after it has got beyond the control of the special apparatus and requires the attention of the public fire department. It may also be said that the capacity for fire hydrant service in even the smallest industrial community should not be less than 1,200 gallons per minute, and should increase in some ratio with the population.

FIRE HYDRANT SERVICE IN VARIOUS CITIES.

In the following table certain fundamental data is given relating to fire hydrant service in various cities of the United States.

A grouping of the hydrant rentals, contained in the table according to localities, gives tbe following results:

It is also of interest to note that the average of all 103 cities excepting the Eastern cities, iS43,48, approximately 5o per cent, greater than lor the Eastern states. It is well to note, however, that the average for the Eastern states is obtained from the record of but 15 cities supplied by private works.

HYDRANT RENTALS RY DECADES.

In order to ascertain if there was ground for the belief that hydrant rentals had decreased somewhat in the last two or three decades, the authors sent out postal cards to the list of pri vately owned (corporation I waterworks, shown in the table, bm the replies received were too limited to draw final conclusions from. They, however, indicate that no substantial reduction has taken place in rates paid for hydrant rental during the past 30 years.

COMMON METHOD OF Dili NO FOR EIRE PROTECTION SERVICE.

The usual method of paying for public fire protection service is by an annual rental per hydrant, coupled with the requirement in the contract of the water company with the community served, that one additional hydrant shall be ordered in the case of extension of the pipe system for every 000 feet, more or less, of such extension. It is believed that this method of charge is a less equitable one than would be the payment of a lump sum for public hydrant service. granting to the city the right to attach as many hydrants as it may desire to the water mains of the company, upon the additional payment of tbe actual cost of such additional hydrants and connections, and making provision for the increase of this annual payment for hydrant service upon some such basis of payment as pro rata increase in population or assessed valuation or pipe line mileage within the municipality or district served by the waterworks. In this connection, it is interesting to note the standard recently adopted by a water company supplying a number of different municipalities as follows: Annual charge for fire protection service, per mile of distribution: one year, $.’125; ten years, $275, and 20 years. $200. Per fire hydrant in service, one year, $15: 10 years, $0; 20 years, $5. It will be noted that in this case, the charge for lire protection service is a combination of a mileage charge and an annual charge per hydrant, the latter being designed to cover the approximate maintenance and fixed charges resulting from the installation of additional hydrants.

BASES FOR ANALYSIS OF HYDRANT RENTAl CHARGE.

Obviously the equitable hydrant rental should lie at some point between the cost of the service to the water company and its value to the community. The value of the public lire protection service must lie greater than its cost, otherwise there will be no demand for it and no hydrant rental question. The reasonableness of the charge for hydrant rental may be reviewed from five points of view :

  1. I he cost of furnishing fire protection service.
  2. The value of this service to the community, as measured by the saving in lire insurance premiums, ignoring the effect of the economic waste resulting from loss in business, income and wages, in the reconstruction period following the tire, and the loss of property that cannot be replaced.
  3. The actual and desirable number of hydrants and distance between them and the annual rental per hydrant resulting from the assumption of certain gross annual payments for lire protection service.
  4. Thc effect upon taxes, based upon the assessed valuation of property in the municipality or district served, and different assumed annual charges for fire protection service.
  5. Tbe relative Cost of different kinds of public service, police and public safety, light and tire protection, in the community served.

COST OF FURNISHING EIRE PROTECTION SERVICE.

It lias been assumed, perhaps generally, by on gineers, that of tbe entire cost of waterworks that furnish public lire protection as well as domestic and industrial service, approximately one-half iinvolved by the cost of the tire protection service. While this may be the case in large towns or small cities, it is not believed In the writers to be a safe or true statement as applied to the waterworks generally, regardless ot the extent of population in the communities served.

It is believed that a fairer statement of the true conditions would he, to sa that the cost of the portion of the waterworks plant involved by tire protection service, probably constitutes from lit per cent, to HP per cent, of the entire cost of the physical property in the ease of communities having less than 5,nnn population: 20 per cent, to .’In per cent in communities of IUII.IMKI population. more or less, and perhaps In per cent. to 2n per eent. in the ease of our largest cities. hatever the exact figures corresponding to average conditions in the United States may prove to lie, hereafter when all of the facts have been determined, if such a time shall ever come, it is safe to say that tile figures cited above probably indicate the general conditions very much more closely than do the prevailing opinions as first cited.

It is evident that the relative cost of the portion of a plant devoted to public lire protection serovicc is greater in small cities than in large ones, and greater also in purely residential cities than in manufacturing cities. Thus the conditions recently analyzed In the writers in a plant serving a manufacturing city of approximately IdO.OUH population, showed tbe following approximate subdivision of reproduction cost:

Had the demands for industrial service been substantially less, as would have been tbe case in a residential city, the relative cost of tbe public lire protection service would have been substantially increased.

COST OF IN STALLING EXTRA HYDRANTS,

The cost of installing extra hydrants will vary with the different conditions under which the work has to be prosecuted. Upon the large mains, particularly those in tbe heart of the city, the connection is likely to he made through the agency of a Smith tapping machine, without inter ruption of ibe service, placing a valve upon the hydrant branch In the city not only will various obstructions be encountered, but the paving of the streets will add substantialy to the cost of the work. In the outlying residential districts, particular!) where the hydrants are inserted oil small mains such as ill inch pipe, gates may be omitted from the hydrant branches and little or no paving may be encountered in the work. I be general range of probable costs of cutting in hydrants may perhaps be said to lie between $50 and $1-50 per hydrant, as follow s:

*Cifting in *pecial.

fIncludes excavation, laying and backfill, etc

HIGH PRKsSt’KR.

One of tbe factors tending to increase the cost of the portion of tbe waterworks plant chargeable to tire protection service in our largest cities is to be found in the demand for a separate piping system devoted solely to the furnishing of water for hydrant service, not only in large volume, but under much greater pressure than that which can be furnished ordinarily through the domestic piping system. This growth in demand is the outcome of higher insurance standards, brought about indirectly by the disastrous losses entailed by sonic of the terrible conflagrations which have been suffered by a number of our American cities, such for instance as the tires in Chicago, Boston, Baltimore and San Francisco, and by the admirable studies of and resulting recommendations concerning the water supply and lirc-lighting facilities of our larger American cities made by the National Board of Fire Underwriters within the past live years. The effect of the building of skyscrapers should also not be lost sight of. Unfortunately the requirements of the building code as to the use of fireproof or slowburning construction, have not kept pace with building construction, and the problem has unfortunately been approached rather from the point of putting out the fire than of substantially reducing if not preventing the possibility of its development.

OPERATING CHARGES PEON PCHI.IC KIRK PROTECTION SERVICE.

The data relating to the operating and maintenance charges, involved in the fire protection service are meager. It is believed that these charges lie between 5 and 10 per cent, of the total annual operation and maintenance charges, including taxes, but excluding depreciation, interest and profit allowances. If we assume the gross income for small works to be 15 per cent, per annum of the value of the works, and the portion of the gross income chargeable to hydrant protection service to be 10 per cent., we should have an annual cost of operation and maintenance, including taxes, in terms of the value of the property, amounting to approximately 1.5 per cent.; while for large works we might assume for the corresponding figures, 6 per cent, by 10 per cent, equals 0.0 per cent. In other w’ords, the range of operating charges would scent to lie between I ¼ per cent, and one half per cent, of the value of the property, depending upon the size of the community. While these limits will undoubtedly be exceeded in individual cases, these estimates will perhaps serve for a general analysis of the problem. The limited amount of data upon which the above figures are predicated, however, must be clearly borne in mind. For depreciation, interest and profit allowances we might assume approximately:

Depreciation, 1 per cent to 2 per cent; interest, fi per cent, to (i per cent.; profit, 0 per cent, to 2 per cent; total, 7 per cent, to 10 per cent, or say 8 per rent, of the value of the portion of the system involved by lire protection service.

KIRK INSURANCE RATES.

Iii the report of the National Boaard of Fire Underwriters of May 26, 11)10, the average rates charged for lire insurance in the various states by 163 joint stock companies, range from a minimum of 0.53 per cent, in the District of Columbia, to a maximum of 2.46 per cent, in Nevada. They are as follows:

The total tire risks written in 1909 by these 103 companies was $33,117,008,129, and the total amount of premiums charged was $371,01)0.701. thus making the average rate throughout the whole country 1.1223 per cent. It will be noticed that the rates are much lower in the densely populated states than in those having a relatively small population. This is due to the extensive construction of waterworks and more tire resistent buildings. The risks written in 1909 in Massachusetts, New York, New Jersey, Pennsylvania, Ohio and Illinois amounted to 37.0 per cent, of the total business, and the amount charged for premiums therein was 32.4 per cent, of the total ; the average rate being 0.907 per ent Adding thereto the corresponding figures for Rhode Island, Connecticut, Wisconsin and Missouri, makes for these ten States 43.9 per cent, of the total lire risks, 38.0 per cent, of the total premiums charged, and an average rate 0.972 per cent, charged for the tire insurance.

The Massachusetts records indicate that the ratio of lire insurance premiums covering both buildings and contents, to the assessed valuations of buildings alone, is approximately 1.22 per cent, and that the premiums written average approximately $5,400 per 1,000 of population, or $5.40 per capita annually; the New York records indicate an average of $1.90 per capita. The writers are advised by insurance men who have been consulted, that the introduction of a waterworks system into a community will effect a saving to the insured of at least 25 per cent, to 33 per cent, in his insurance rate upon buildings and contents. Or in other words, that the rate of $1.25 per $100 of insurance would be reduced to at least $1 and a rate of $1 to approximately 75 cents, by the introduction of a system of reasonably efficient waterworks. Furthermore, it is asserted that the saving to the insurance company by sucli introduction of waterworks is undoubtedly much greater than the reduction in premium allowed to the insured cited above. It is also stated that with the stock fire insurance companies in New England, the prevailing average insurance rates in cities having a good water supplv increase from ¼ to ⅛ per cent, when the distance between hydrants is greater than 509 feet; that upon factory property, the increase is 1/2 more or less, and upon mercantile property it may be two or threefold.

ACTUAL AND DESIRABLE NUMBER OF HYDRANTS.

lit a tabic prepared by the Indianapolis Water Company is shown the approximate number of feet of water pipe per hydrant in different cities in the United States, the average being 555 feet excluding Indianapolis, or 558 feet .including Indianapolis. The latter corresponds to approximately 9.5 of hydrants per mile of pipe line.

Broadly speaking, it may be said that the tendency at the present time is to reduce the hydrant interval, or increase the number of hydrants per mile, in the interest of decreasing the amount of hose required and correspondingly increasing the efficiency of the lire protection service. It will also be found helpful to consider the number of hydrants that can be massed upon any assumed fire in different districts in the city, such as the congested value district, the ordinary commercial or mercantile district, the residential and tenement house districts, etc. The area to be served by the hydrants will vary from one acre per hydrant in the mercantile and manufacturing districts of highest value, to three acres, more or less, per hydrant in the well builtup residential districts.

LIMITATION IN NUMBER OF HYDRANTS UNDESIRABLE

Tile limiting of the number of hydrants which may be attached to the mains is, to say the least, unfortunate, except for the fact that increased number of connections with the mains carries with it some additional danger of injury and leakage and some added cost in construction and maintenance. Nevertheless the community should be encouraged to place tlie hydrants close together rather than far apart—150 to 250 feet apart in important thickly built-up districts; and 300 to 000 feet apart in residential districts, with houses well separated; all depending upon the character of the fire risk and values involved. Even if the city is called upon to bear the added expense of making the installation, the saving to it in better service and in fire hose more than offsets the expense involved. While the provision contained in the majority of contracts providing for the installation of aditional hydrants for each unit of extension of the pipe system (be such unit 500 feet or less) with added annual payment of hydrant rental bv the city thereafter, is in many respects satisfactory and equitable, the writers are of the opinion that a better basis of determining the annual charge or payment for public fire hydrant service can be had.

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