Suggestion of Basis for Extension of Water Mains
Additional Income Department or Company Should Receive—Those Benefited Should Pay for Extension —Wrong Viewpoint on Cost—Suggested Contract
THE extension of water mains is always a problem and in the past few years it has been a serious one. Previous to the great war, cast iron pipe was delivered f. o. b. cars Terre Haute for $22; in October 1920, the price was $77.60. Fire hydrants, valves, special castings and valve boxes are also very much higher in price. Common labor costs twice as much as formerly. It costs a little over $1.80 per foot to furnish and lay 6-inch Class B cast iron pipe at present price —$64 perton. On this basis, the cost of an extension for a block of say 365 ft. including the fire hydran,t, valves valve boxes and 6-inch tee is $829. If it is necessary to cut into a main and insert a special for a connection, the cost would be greater.
Connection with Main Expensive Operation
It may not be out of place to say here that in estimating cost of pipe laying, the cost of connecting with existing mains is sometimes overlooked. It is expensive to shut off a main, cut a piece out of it, pump out the water that is in the main, insert a special, cut a piece of pipe to close the gap, put on a sleeve, and make four lead joints. It sometimes happens in Terre Haute that the water from the pipe softens the earth so that there is a caving of the banks. A number of valve stems have been broken while the workmen were trying to get the water off so that the cut could be made. However, for present purposes, we will estimate a block of 6-inch pipe at $829.
Additional Income to the Company or Department
Assuming that the extension is needed and that the water department or company can finance the improvement, the next question would be, what additional income should the department or company receive. In the writer’s opinion, the income should be the same regardless of whether the water works belonged to a municipality or company. A municipally owned plant should be conducted on business principles and should charge for fire hydrants and they should be paid for out of the general fund.
The Indiana Public Service Commission allows water companies a rate of return of 8 per cent, and 1 per cent, for depreciation. Assuming that the cost of operation and taxes are 10 per cent, of the valuation, the charge against an extension of a block of 6-inch pipe with one fire hydrant, should be 19 per cent, of $829 or $157 per annum. At first blush this may strike some as being rather high. But analyze the statement and you will find that $157 is not too high.
Proportionate Rate of Return Should Be Charged
What about the rate of return on the rest of the plant? What good would the extension be without a water supply, pumps, boilers, filters, housings and reservoirs? The extension should pay its proportionate cost or rate of return on the main plant. Something should be added for return on these items.
In many cases, it would be necessary to put in 8inch or larger pipe. If 8-inch, the cost for a block, including hydrant, valves, etc. would be $1,000. In that case, the income should be $190 per annum. If 12-inch pipe, it would be considerably higher and someone must pay on this investment and also sufficient to cover proportionate to cost of operation. The average water department or company does not have a special fund to cover such costs and it would not be fair to load them on the existing consumers.
Wrong Viewpoint on Cost
We have gotten the wrong viewpoint on the cost of a water supply. We have been satisfied with, or at least have accepted a return much lower than the manufacturer or merchant receives. It was Leonard Metcalf, that fine man, deep thinker, and great engineer, who said:
“When we stop to reflect upon the life of the community, it seems to me that we must admit that the water supply is of fundamental importance. There is no other service of a public nature which is so supremely important to the life of the community as the water supply.. Moreover, there is no other service which is so cheap, even at present day prices, as the water supply.”
The writer recalls a rent of $200 for fire hydrants at a plant where he was employed in the “Eighties.” Since then water service has been wonderfully improved and the cost reduced. Then we pumped natural river water, now we pump it twice, coagulate, settle, filter and chlorinate it.
Extensions Should Be Paid for by Those Benefited
To return to the subject, how is the $157 or $190 to be paid? It should be paid by those who are benefited. There are two kinds of extensions, one where there are houses where water supply is needed at once, and another in virgin territory which a real estate owner wants to develop and sell off in lots.
First, let us consider an extension inside the city where some houses have been built. On an average city block of 365 ft., after deducting the street, there would be say 14 42-foot lots. It would seem only fair and reasonable that there should be say six houses on the 14 lots; that each of these should guarantee a $1.50 minimum monthly rate (about 5 c. per day) for a period of five years. Then if the city would pay $50 a year for the fire hydrant, there would be an annual income of $158. If the extension required 8-inch pipe (60 per cent, of the mains in Terre Haute are 8-inch and larger), then the six prospective consumers should guarantee -1.75 minimum per month and the hydrant rental should be $60 per annum. This would mean an income of $186 per annum, if all the consumers kept up their payments. To protect the department or company, contracts should be made with owners instead of renters and the service pipe should be laid from the curb into the houses and at least a faucet connected in the kitchen. before the main was laid.
Second, where extensions are desired for the development of real estate so that lots may be sold, such extensions are for the benefit of the landowner and he should pay the cost, and be re-imbursed by the water department or company when the income from water consumers and hydrant rental on such extensions is equal to the rate of return (on the original cost) allowed by the Indiana Public Service Commission plus depreciation and the proportionate cost of operation and taxes.
Form of Contract Recommended
The following is a form of contract which is recommended where such extensions are made:
This agreement made and entered into this— —by and between — hereinafter for brevity called the Water Company and the —, hereinafter for brevity called the Land Company, witnesseth:
- The Land Company is the owner of that certain tract or body of land extending from — and is desirous of having water mains extended from the Water Company’s existing system of water mains into and in the streets in said tract as the same have been platted by said Land Company; and the Water Company is willing to make such extensions for the Land Company for the consideration and upon the terms and conditions hereinafter set forth.
- The proposed extension will be made by the Water Company upon the orders in writing of the Land Company after the said streets have been brought to grade by the Land Company. Provided, however, orders for extensions for the current yearshall be limited to —
- Orders for extensions shall be limited to the tract or body of land and its boundary streets, as specified in Article I. of this agreement. Provided that orders for any calendar year after — shall not exceed four thousand (4,000) feet of mains, unless otherwise mutually agreed by the parties.
- The Water Company will purchase all materials and employ all labor necessary for the proposed extensions, including the installation of service connections and meters, and shall have full charge and control of all the work contemplated hereby. The Water Company will keep a true record and account of the cost of each extension, which record shall at all reasonable times be subject to inspection by the Land Company.
- When the work on any extension is completed, the Water Company will notify the Land Company thereof in writing and in such notice state the cost thereof and the Land Company will within ten (10) days of receipt of such notice pay to the Water Company such costs in cash. Provided, however, the cost of service connections and meters will be kept separately and payment therefor made to the Water Company by the Land Company in amounts of approximately two hundred ($200) dollars as the same accrue.
- All mains, service connections, and meters hereby contemplated, for which the Land Company shall pay as herein contemplated, shall remain the property of the Land Company until the Water Company shall reimburse the Land Company without interest the aggregate sums so paid by the Land Company.
- The Water Company agrees that whenever, and as its net earnings on the basis fixed by the Public Service Commission for determining and allowing net earnings (proportionate operating expenses, taxes and depreciation being deducted from the gross earnings from extensions made for the Land Company), for a period of one year for water and service on any extension, shall be equal to 8 per rent, on the money so paid by the Land Company to the Water Company, representing the cost of such extensions, meters, and service connections thereto, as provided in Article V, that it will reimburse the Land Company for such payments, without interest; thereupon the ownership of such extensions, meters and service connections to curb shall pass to the Water Company.
- It is agreed and understood, however, that for all purposes of operation by the Water Company of its general water works plant at and in the city of —, the Water Company shall have the right to use water mains, service connections, meters, and all other equipment installed under this agreement, and to collect and retain all money for water and service furnished by the Water Company through or by means of such mains, service connections, meters, etc., in all respects as if the Water Company were the owner thereof and as if the same constituted a part of the general water works plant and system of the Water Company. Provided, however, that the Water Company will at the end of each calendar year until the final reimbursement by it to the Land Company as contemplated hereunder render a statement to the Land Company of all such collections so made by it.
- For all the purposes of this agreement, the Water Company shall be the sole judge of the sizes and kinds of mains and other materials to be used in the work contemplated hereby and shall have full direction and control of the installation thereof.
- All water and service supplied by the Water Company hereunder will be furnished and supplied at and upon its standard schedule of rates now in force and as fixed by the Public Service Commission of Indiana, subject, however, to such changes or modifications thereof as may from time to time be made by the Public Service Commission.
- This agreement though tentatively signed and executed by the parties shall not be binding upon the parties unless approved by the Public Service Commission of Indiana, or approved as lawful by the counsel of the Public Service Commission.
In witness whereof, the parties have executed this agreement in duplicate the day and year aforesaid.
Landowner Reimbursed for Extension
The form of contract provides that the landowner will be reimbursed for the cost of the extension, but without interest. The income from the consumers and also any hydrant rental belongs to the department or company for service rendered. The plan enables the landowner to improve his property and make it attractive to prospective buyers at the cost of the main pipes, meters and service pipes to curb line. He is not required to make an investment for pumps, boilers and filters. He does not have responsibility of operating a water plant. He gets the benefit of the same prices for material that the department or company enjoys.
The cost of the water pipes, etc. are a part of the development, like sidewalks, grading and trees, except that if good judgment has been used in selecting the land and the lots are sold at profitable prices in a reasonable period, the owner may be reimbursed for that portion of his investment for water mains. Incidentally, the cost of all improvements are added to the price of lots when they are sold.
In conclusion, it should be stated that a community cannot grow and prosper unless its utilities are prosperous; their interests are closely related and what hurts one ultimately injures both. To be prosperous, a utility must have adequate rates which will produce sufficient earnings to make its securities attractive to the investor.
NOTE—Excerpts from paper before the annual meeting of the Indiana Sanitary and Water Supply Association.
During the discussion of a resolution before the Providence, R. I., common council authorizing the water supply board to expend $5,000,000 for water supply purposes, President William S. Scofield, of the council, estimated that the new Scituate water supply would cost the city some twenty million dollars by the time it was completed. The council adopted the resolution.