CHAPTER XVI 

 MAKING THE RATE SCHEDULE 



Selling water by guess has now few advocates among the water works 

 engineers and superintendents. M. N. Baker, Editorial, Engineering News, 

 April 18, XLV, p. 285, 1901. 



The problem presented is to select a rational and just system 

 of water rates to produce a given amount of revenue. No de- 

 tailed discussion of the amount of revenue to be produced will 

 be here undertaken. 



To supply water at cost, the revenue produced must be 

 sufficient to pay all operating expenses of every description, 

 including the general administration, and this includes, in the 

 case of works owned by cities, a proportionate part of the gen- 

 eral expenses of the city government and of the city buildings, 

 a fair allowance for depreciation on all property used, all taxes 

 and charges of every kind, and in addition a return on the value 

 of the plant at the rate at which money can actually be borrowed 

 for the enterprise. 



In the case of plants owned and managed by cities, the 

 effort is most often to fix rates at cost. In other cases they are 

 fixed at less than cost and only sufficient to pay operating 

 expenses and interest on so much debt as exists. Where the 

 works are owned by private companies, a profit must be earned, 

 over and above cost, to make the business go. 



The measure of a fair profit is that it must be sufficient to 

 insure all necessary capital for extending the plant as may be 

 needed to serve an increasing business. Halford Erickson, 

 late Chairman of the Wisconsin Railroad Commission,* states: 



Public interest requires that the rates should be high enough to 'cover 

 the cost of adequate service, and to bring the necessary capital and the best 

 managing ability into the public utility field. 



* Proc. Am. W.W. Assn., p. 51, 1913. 

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