SERVICE CHARGE—HOW CONSTITUTED

SERVICE CHARGE—HOW CONSTITUTED

What constitutes a service charge and the ways of determining same naturally creates a broad field for discussion and difference of opinion. The New England Water Works Association Committee in determining their ratios used in the discussion, started with areas, of circles the same as meter sizes, which they tempered with the ratio of the carrying capacities, as well as the maximum normal output of meters, and it is interesting to note arrived at nearly the same ratios as the writer, wherein he started with the diameter of the service piping and the meter, tempered this with the normal capacity of meters, the loss of head in service pipe, meter, and orifice of influx. The relative final results as to ratios obtained by the writer and the New England Committe being,

With this ratio established the New England Committee proceeded to build up the service charge for a 5/8″ meter as follows:

“First, 10 per cent, of the average investment of the works in the service pipe and meter.

Second, $1 per annum for reading meters, billing, and collecting.

Third, $2 per annum for the probable value of unregistered water.

For a domestic service charge with 5/8″ meter, the ordinary service charge may properly be $3 when the service and meter are paid for by the taker; $4 when the meter is furnished by the works; and $5 or $6 where both meter and service pipe are paid for by the works; the lower figure being used where the average cost of the service pipe is under $15 and the higher where it is greater than $15.”

The service charge for larger size meters naturally is obtained by multiplying that found for the 5/8″ by the factors above given. The writer believes the service charge should be constituted of a consumer charge and a capacity charge, and that unregistered water should be accounted for in the output charge.

The consumer’s charge we would define as being made up of the cost which accrues to the plant due to each separate consumer, such as reading meter, repairing the meter and service line if owned by the Utility, interest on the meter and service line, the keeping of accounts and making out, mailing and collecting hills.

The capacity charge should in total for all consumers, including public and private fire protection, be the amount necessary to keep the plant ready for service and intact were not a drop of water delivered for the entire year, necessarily including interest on the fair investment and depreciation on the entire physical plant. The cost of producing service, together with maintenance and profits, should be incorporated in the output charge, which we will discuss later.

Whether we constitue the service charge of one thing or another and regardless of what elements may enter into this makeup, the burden of this paper is to argue and show, if possible, that the amounts set forth in the report of the New England Committee as ordinary proper service charges are inadequate, except in extreme cases, or at the best represent possible minimum amounts applicable in extraordinary cases only. A reply to the above may be that whatever the service charge produces, the balance must be made up by the output charge, which of course is the intention of any service charge, but we believe the New England Committee has neglected the fact that in many places the revenue from output charge is extremely variable and unstable, and unless it becomes the major source of revenue, it will too frequently occur, due to the ups and downs of prosperity, wet seasons and other causes too numerous to mention, that the revenue will become inadequate to meet the requirements expected of it. Let it therefore be understood that in the writer’s opinion, the function of the service charge is more to stabilize, than to produce a revenue, which might all come from an output charge, if revenue so obtained was from year to year stable.

Fire Protection.

Public.—We have told you previously that the service charge included public fire protection, but that the rate for same may be fixed by any of the methods above discussed, we do not contend, but shall pass this subject with the one suggestion that whatever the method of determining what the amount of public fire protection shall be, that it shall place the proper proportion of that burden on the vacant lot, as well as the improved property, encourage the installation of a sufficient number of hydrants and prevent in the instance of privately owned plants the ordering by the Municipality served of long lines of pipe without compensation.

Private.—It is the writer’s opinion that the service charge should cover private fire protection only to such extent as the hazard thereby incurred to the Water Company shall warrant, the excess over and above this being distributed to a per sprinkler head, per hydrant or per nozzle charge, and we hope to see the day when this charge shall be tempered by the hazard.

Output Charge.

The output charge may be defined as that part of the burden due to the cost of operating the plant, which includes fuel, supplies, maintenance, other than depreciation, and salaries to more or less extent in controversy; and the oft repeated statement that the proper return having been obtained through service charge, the entire output may be sold at a fixed price unit, is, in our opinion, in nine cases out of ten a fallacy, permissible only in districts where consumers are wholly residents or domestic, and even then open to question; for consider, the nearer you can group your consumers to the pumping station, the lower the cost at which they can he served. This would argue zone system of charges, varying with each foot the consumer is distant from the means of introducing the water into the mains. Again, each

consumer that resides higher than the lowest consumer costs the Water Company more to produce the pressure necessary to render him good service, so again the rate should increase with every increase in elevation above the means of introducing the water into the distributing system. Such refinement, however, would introduce endless complications and so common practice has ordinarily decreed that within a certain district, all consumers supplied by one pressure at the source or means of introducing water to the distributing system shall be accorded the same rate. In the output charge as we have above intimated, a variation should be made and in which in most eases quantity consumed should govern price per unit of service. To forestall attacks from the advocate of the principle that no water should be sold below cost, let us say that in our opinion cost is susceptible of different interpretations and should be looked upon from the standpoint that a large consumer is profitable at any rate which produces a result that will add to the net revenue of the plant, even though the rate is below the average cost as built up by administration, operating, depreciation, interest and profit. The principle adopted by many rate makers of first determining the high or unit price for small quantities to small consumers is in my opinion wrong, and that the minimum output unit price or charge to the largest consumer should be first determined, and the following are a few axioms observed by the writer in casting output charges:

A community with few or no industrial consumers may have but a single output charge.

Communities where a water supply is universally accessible to large consumers demands either a high service charge or the extremely variable output charge.

In casting a variable output charge the lowest unit price should he the maximum that conditions will permit, and the higher you make the low price, the. lower you may make the high price.

Usually a railroad or some large mill or factory is the consumer to receive the low price, and his ability to produce his own supply and the cost at which he can obtain it is not only the feature that must govern as to whether or not he is a consumer, but at what price the company or municipality can afford to furnish him a supply, which equitably should be a trifle more than the unit prire at which he could provide his own. Once this low price is fixed, the next larger consumers generally give less trouble, and the probable revenue from large consumers is soon ascertained and subtracted from the whole amount to be derived from output charge, the remainder can be distributed to the commercial and domestic or small consumers in a consistent manner.

Some consumers of Akron, O., are protesting against a lack of water pressure. Superintendent II. It. First, of the Water Department, in discussing the matter, said they would have to make the best of it as the expected shortage of pressure during the dry months was just becoming effective. If the city had voted additional bonds asked for last fall he said the pressure could have I een partially augmented by now through building of a portion of the high pressure line from the Kent plant.

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