* See "Meter rates for Water Works," chapter xviii, by Hazen, 1918.

Normal maximum deliveries of meters of various sizes
obtained approximately by graphical methods, in

gallons per month.

sentative meter rates, typical of existing rates in American Cities, are shown in "Meter Rates for Water Works." Many of these rates have been replaced or increased since these diagrams were published, but they will serve to give a good idea of the wide divergence and unreasonableness of many existing rates and of the advantages of rates in the standard form of the Association. In studying any particular problem it is very helpful to make corresponding diagrams of present and proposed rates. In plotting service charge rates in diagram form, also certain minimum type rates, it is necessary to assume certain size meters for stated quantities.

Statistics of consumption in six completely metered systems are shown in table 30. Data of great interest are noted and a helpful form of arrangement of data in studying rate problems is indicated.

3 Allen Hazen, Meter Rates for Water Works, J. Wiley and Sons, Inc., 1918.

CHAPTER XXI

PRICE TRENDS AND THE FINANCIAL STATUS OF WATER WORKS

IN THE UNITED STATES

Barring the railroads the water works of this country were the first of the great public utilities. They were the first of the noncompetitive utilities, antedating the other important ones of this group the telephone, gas, electric light, traction and power companies.

It is a singular fact, however, that the water works of the country, the purveyors of one of the necessities, not only of industry, but of life itself, should have had a chequered financial career.

The majority of the water works in the United States were built in the last quarter of the last century, a few of the plants serving the older and larger cities having been established prior thereto. The exploitation of water works building and operation, as a source of profit, occurred in the late eighties and early nineties, and at the latter time several important failures, due to lack of financial sagacity, had a serious retarding influence upon development.

The state of the art advanced rapidly.

The serious menace of water-borne typhoid was effectively checked by the introduction and development first of long sedimentation, then slow sand, and finally rapid mechanical filtration, with the use of chemicals for coagulation. Then followed the development of chlorination and a general advance in standards of purity and attractiveness, consideration being given not only to the safety of the water and low bacterial content, but to its freedom from turbidity, odor and color, and to its softness.

In 1905, or thereabouts, following the period of rapid development of the general public utility field, the making of large loans for betterments in anticipation of the future, with some abusethough less than generally thought there resulted the appointment in many states of the public utility commissions created to regulate the financial operations of public utilities and to reduce the rapidly multiplying litigation in this field facing the State and Federal courts.

Here again the problem was new and without precedent. It is not strange, therefore, that in the inflamed condition of the public mind the work of the commissions should have been seriously hampered and that property valuations fixed by them, and rates allowed, should have been lower than their own later experience has justified; but on the whole the work done by the commissions has been much to their credit and has served to stabilize values. It has suffered most from the short period of service of men appointed to these commissions. The appointment of new men has involved each time education in a highly specialized field. But with the development of experience, growth in precedent, and better methods of keeping records, and with the constant increase in decisions of the higher courts, this difficulty is being reduced and the attractiveness of the water works field for investment is being greatly improved. There can be no doubt that without the commissions it would not have been possible to bridge the gap between prewar and postwar conditions, without the failure of many water works properties, the impairment of the borrowing capacity of others, and a very general lowering of the standard of service rendered to the public by them. Records seem to show that there was a delay of from eighteen months to two years on the part of the commissions, in giving relief to the water works through the agency of increased rates, and that the total cost to the water works of this country was probably well in excess of the sum of $250,000,000. This was

in effect the contribution of this industry to the fighting of the Great War. This delay, or lag, is not to be wondered at, but it is the more surprising that in the face of it the commissions showed the courage to make the necessary increases at a later day notwithstanding falling prices even though failure to do so would have brought serious injury, alike to the works and to the public, through impairment of borrowing capacity and resulting increase in rate of interest to be paid.

Since the war the emergency relief granted by the commissions has been reviewed and there has been a very general revaluation of the properties. The effect of the reduced purchasing power of money, created by the war, is being met step by step by the general, though in some cases enforced, recognition by the public utility commissions, of the mandate of the higher courts that economic considerations rather than arbitrary fiat must be given fair weight,

and that present value rather than past cost should control in valuation and rate determinations. These advances in value of existing properties, as measured by the reduced purchasing power of the dollar, together with allowances for the higher operating costs, taxes and depreciation corresponding to the higher postwar level, promise to bridge successfully a very difficult period in the life history of these works.

Up to recent times (1922 or thereabouts) water works securities have not had the same marketability as the securities in other public utility fields. They have not been generally quoted upon the large exchanges or been dealt in except by certain brokerage houses making a specialty of them.

These conditions have been due probably to the following causes: 1. Lack of information and precedent in the public utility field and of appreciation of the essential factors of the problem, growing out of the fact that the water works were the first of the noncompetetive utilities. For example, there was little appreciation of the extent of the overhead costs; the brokerage, interest-during-construction, and other costs incident to the attracting of money; and no conception of the cost and time involved in developing the business, which in the early days involved a period generally in excess of nine to twelve years and costs more substantial even than those of today.

2. Long-time contracts, fixing the rates for periods of twenty years, more or less, without means for readjustment to meet changing conditions.

3. Substantial advance over several decades, in cost of labor and in some cases in cost of materials.

4. The marked advance in quality standards such as the requirement of sedimentation, filtration and other treatment of the water at great cost to the water works, without increase in compensation.

5. Burdensome litigation in connection with value and rating problems.

6. Increase in costs and decrease in purchasing power of money incident to and following the Great War.