The Lives of Water Works Structures

Abstract

This subject is more or less familiar to all water works men. The operating and construction men encounter it when additions to plant are in prospect and a decision has to be made involving consideration of relative cost and probable length and reliability of service. It is one of the most important elements in the financial side of the business where the useful life of the various component parts of the plant is expressed in the depreciation reserve, affecting the rate which must be charged for service as well as the value of the plant at any given time. The financial aspect of the subject while equally important to both publicly and privately owned utilities receives more attention and discussion in the case of the privately owned companies because depreciation is one of the controversial factors in the fixing of rates, and in determining values either for a rate base or for sale purposes. The expression of useful lives of structures in financial terms has developed several accounting methods for recognizing depreciation. All are based on assumed lives presumably derived from experience. The more prominent, because most used, are the so-called straight line method which presupposes that the structure in question deteriorates at a regular annual rate requiring setting aside the same percentage of cost each year which will at the end of the assumed life period, without interest, equal the original expenditure; the sinking fund plan which provides for the annual setting aside of a sum of money which at a predetermined rate of compound interest will amount to the original cost at the end of the life period. Obviously either method will give the same result if carried through to completion, and from an accounting point of view both would be equally satisfactory for a plant in continuous ownership. It should be definitely recognized however that at any given time during the life of the structure, the deduction of such accrued depreciation funds from either original cost or present reproduction cost, does not necessarily