original 340 had gone out of service); and $26 for all additional hydrants, the company had in service when its contract expired a total of 1,275 hydrants at an aggregate rental of $25,722 per annum, or an average of $20.17 per hydrant. Beginning with January 7, 1914, it increased its charge to $25 per hydrant per annum. In its claim, dated August 1, 1914, the company alleged that between January 7 and June 30, inclusive, it had furnished the city with certain fire hydrants and supplied water to the city through them; that such hydrants and water "were duly used" by the city "in public streets and places within the borough of Queens;" and that for these hydrants and water "the city of New York by its proper authorities and officials duly authorized thereunto agreed to pay" the company in accordance with the claim and bill attached the sum of $15,249.33, which was "the agreed and the full and fair market value" of the service rendered.

The department advised the comptroller of the pending investigation and stated that it would not oppose the payment of the claim, if reduced to the old contract rates. But the comptroller's engineers at first thought that $18 per hydrant, the rate paid to the Jamaica Water Supply Company and the Woodhaven Water Supply Company, was sufficient, and the claim was allowed on that basis. The company, however, refused to accept the settlement. Later, the comptroller's engineers, after being informed by me (upon inquiry) that, according to our investigation, the $20 rate being paid to the Queens County Water Company was not excessive, changed their recommendation and allowed the Citizens bill at $20 per hydrant, which was approximately but not exactly the old contract rate. In accordance with this precedent, the company's bills for the second half of 1914 and all of 1915 were audited at this rate, and the company accepted payment.

Late in 1915 the company acquired from the Sage Foundation Homes Company the distribution system which had been installed by the latter at Forest Hills Gardens, which included 91 fire hydrants in service. On May 5, 1916, the Citizens company filed with the department at my request a bill for hydrant rental service for the first four months of the year, and included in this bill was a charge for the 91 hydrants at Forest Hills Gardens for the six months' period from November 1, 1915, to April 30, 1916. This portion of the bill was disallowed on the ground that the hydrants had not been installed or acquired at the request of the city, nor their locations approved by the city. It was found that 19 of them were of no present value for fire protection. The remaining ones, 72 in number, were accepted for service as of May 1, 1916. The remainder of the company's bill was cut to the usual $20 basis, and from it as so reduced was deducted the sum of $7.589.43, representing the net amount due the city for the use of the Queens Boulevard main from February 1, 1914, to April 30, 1916, at the rate of $281.09 per month, as hereinbefore shown to be reasonable. This left only $1,768.91 to be paid in cash on account of hydrant service during 1916 up to the date when it was proposed to make the rate readjustment effective. This settlement was accepted by the company.

The company has received for service subsequent to the expiration of its contract the following sums:

Less deduction for use of city main, February 1, 1914, to April 30, 1916....

7,589.43

Net total..

$54,197.23

1 Ante, p. 84.

The engineers of the finance department in their first report on the company's bills for the first half of 1914, in which they recommended that a hydrant rental rate of $18 per annum be allowed as furnishing sufficient compensation to this company for the fire protection service rendered in the Second Ward of Queens, relied upon an investigation and report made in 1910 by Prof. Edward W. Bemis, the well-known public utility expert, who was at that time deputy commissioner of this department. At the suggestion of Mr. Henry de Forest Baldwin, Prof. Bemis had been asked by the comptroller to present to the finance department a report setting forth what he deemed to be "a fair annual hydrant rental" for the services rendered by the Queens County Water Company during the years 1908 and 1909. The Queens County company at that time had no hydrant rental contract with the city, and its bills for hydrant service were in dispute. Under date of October 19, 1910, Prof. Bemis submitted his report, in which he gave the following table, showing for each of the private water companies operating in Brooklyn and Queens the total number of feet of street mains over three inches in size within the limits of Greater New York; the total number of hydrants in service; the number of feet of mains per hydrant, and the annual hydrant rental paid by the city:

Prof. Bemis called attention to the fact that the Queens County Water Company, under its former hydrant rental contracts, was required to provide without additional charge water for street sprinkling, for flushing sewers. four times a year, for testing fire apparatus and for use in all buildings used exclusively for municipal purposes. The value of this water, even at the city meter rate, was estimated by the engineers of this department at $2.600 per annum, or the equivalent of $6.65 per hydrant on the basis of the number of hydrants then in service. He also stated that the cost of repairs of hydrants on the Queens company's service was greater than in most sections because many of them were set in sand saturated with salt. He estimated this maintenance cost at $1.50 per hydrant per annum. He also stated that the life of the hydrants in the Rockaway district was estimated by the department's engineers at only about twelve years, and using $55 as the estimated original cost of each hydrant installed, he allowed six per cent for interest on the investment and another six per cent for depreciation, making a total of $6.60 per hydrant for these two purposes. The items of cost thus far included footed up $14.75 per hydrant. To this he added the following: "Interest and depreciation on additional street mains, fully $5.25." This brought the hydrant rental figure up to $20. He stated that any small increase of expense at the pumping stations for pumping water used for fires and for keeping up the pressure had not been included in the estimate; also, that there was room for much discussion and investigation as to the amount of extra investment needed in branch mains on the side streets in order to supply fire pressure. He had seen many estimates of engineers but none

which placed the interest and depreciation charges on the extra mains necessary for fire service as low as the $5.25 per hydrant assumed in his computation. He therefore concluded that the rate of $20 a year per hydrant was not unreasonable in the case of the Queens County Water Company, stating that this rate was much lower than in the case of most private water companies of this size. He went on to say, however, that more hydrants were needed in the Rockaway district, and to recommend that as soon as the number of hydrants furnished by this company reached a number equivalent to one hydrant for every 427 feet of main over three inches in size, which would make the number of hydrants furnished by the Queens company relatively the same as the number furnished by the Jamaica company, the annual charge should be reduced to $18 per hydrant. The actual number of hydrants required to put the Queens company on a par with the Jamaica company would be 576, and Prof. Bemis suggested that it might be possible to reduce the hydrant rental charge when the number of hydrants on the Queens company's service reached 500. "There is not a corresponding increase of investment in street mains," said he, "and scarcely any increase of water for other public purposes with the increase in the number of hydrants. The company could therefore afford to reduce the charge by $2 with the increase in the number of hydrants which the needs of Far Rockaway seem to demand in the immediate future."

Referring to Prof. Bemis's report, the comptroller's engineers called attention to the fact that the Citizens company in 1914 had 1,300 hydrants, and that the character of the soil, the number of domestic consumers and other conditions encountered in the district supplied by the Citizens company were all more favorable to the company than the corresponding conditions in the district served by the Queens company. Subsequently, after recommending payment of hydrant bills for the Queens County Water Company at the $20 rate, the comptroller's engineers called attention to the fact that the latter company maintained one source of primary supply while the Citizens company maintained several stations, and stated that "therefore the relative cost of fire protection must be greater" in the case of the Citizens company than in the case of the Queens company. They concluded that the $20 rate should be allowed to the Citizens company.

CHAPTER VI

METHODS OF DETERMINING THE COST OF FIRE PROTECTION

(a) Hydrant rentals in New York heretofore based upon guesswork and bargaining.

The action of the board of public improvements in 1898, the Bemis report, the reports of the comptroller's engineers, the figures submitted early in 1914 by Mr. Meyer of the Citizens company, and the estimates of our own engineers in connection with the need for better fire protection in the Second Ward of Queens, already referred to, show how far the matter of hydrant rentals in the past has been one of guesswork and bargaining in New York City. The idea of a uniform price everywhere, as embodied in the board of public improvements resolution, seems to have been based upon the assumption that the fire hydrant itself and the amount of water delivered through it are the only elements entering into the cost of the service. A moment's thought will show how erroneous such an assumption is. It ignores the allimportant item of the portion of the plant necessary for fire service whether the hydrants be few or many. The amount of water used in the extinguishment of fires, as well as the immediate cost of pumping it, are but small items in the total cost of fire service.

The past attitude of most city officials having to do with the matter of hydrant rentals has been that of bargainers seeking to secure the rendition by the private water companies of fire protection service for the city at the cheapest possible rate, without reference to the effect of such rate upon the cost of water service to private consumers. It is not unnatural that this should be the attitude of officials and employees of the city who have no responsibility for the regulation and reasonableness of the companies' rates to domestic consumers, and no other interest than to secure as much for the city for as small a price as possible. This attitude, so far as the engineers and officials of this department are concerned, has been modified by the recognized necessity of inducing or compelling the private water companies to reinforce their distribution systems and extend their plants so as to be able to render adequate fire service upon demand of the fire department. Accordingly, all computations or estimates of the cost of fire protection. furnished by the private water companies in New York City prior to your determination of the case of the Queens County Water Company last year, were based on the assumption that the companies' rates to domestic consumers were to be left undisturbed, no matter how excessive they might be, and that the price to be paid by the city for hydrant service was to be determined by sharp bargaining, guesswork and custom, plus such additional amount as might be necessary, not to compensate the companies for investments already made, but to influence them to make additional investments in the larger mains and better facilities necessary to meet the increasing demands for fire protection in their respective districts. The problem of determining on its merits the actual cost of the fire protection service fur

nished by one of the private water companies appears never to have been squarely met by any commissioner of this department or any other official of the city of New York until it was met by you in the rate case against the Queens County Water Company instituted by property owners in May,

1914.

(b) City's policy as regards the water department compared with its policy toward the private water companies.

The city of New York makes no appropriation to this department to cover the cost of the facilities and water furnished for fire protection or for any other public use. If all the expenses properly chargeable to this department, including interest on the investment in water works, a reasonable allowance for depreciation, and other adequate charges, were paid out of water revenues, it could be said that the private consumers were bearing the full cost of the municipal water works system, including the cost of fire protection. The financial operations of the city are so complicated, however, and its accounts with reference to the actual cost of maintaining and operating the water works are so imperfect, that no one can tell with certainty at the present time just where the burden of carrying the cost of the fire protection furnished by the city falls. But, theoretically at least, the city appropriates no money out of taxation to pay this department for the service it renders in connection with the extinguishment of fires. On the other hand, in the districts supplied by the private water companies the city has all along followed the policy of paying hydrant rentals and thus compensating the companies for what was assumed to be the fair cost of the service rendered. Whatever the policy of the city may be with reference to its own service, obviously it has no power to compel the private water companies to furnish fire protection free, and it is apparent also that the commissioner in exercising the power vested in him by the state legislature to regulate the rates and charges of the private water companies, subject to an appeal to the courts in case of controversy, could not properly impose upon private consumers in the territory supplied by the companies the cost of the service rendered to the public, no matter what the policy of the city. of New York may be in connection with its own water plant. Nevertheless, the unscientific and possibly unjust policy followed by the city of New York renders it somewhat embarrassing to adjust the rates of the private water companies on a basis that is sound and reasonable. The commissioner in performing the function of fixing rates must recognize his responsibility to the private consumers as well as to the city, and at least in those sections where the rates charged by private water companies for domestic consumption have been in excess of the rates for similar service charged by the city itself, must in fixing just and reasonable rates distribute the burdens of the service as between private consumers and the public on a basis approximating the cost of the respective services rendered.

The only rates which the commissioner is by section 472 of the Greater New York Charter authorized to fix are "just and reasonable" rates, such as will stand the test of a review by the courts, to which they may be subjected. His duties are analogous to those of a public service commission, which must dispense even-handed justice to all that come before it, not favor some at the expense of others. There are three parties concerned; the company, its private consumers and the city. Obviously, the commissioner would never be able to establish rates that comply with the requirements of the statute if he were to begin by endeavoring to secure the rendition of serv