PART III.

ECONOMIC ASPECTS OF THE MANUFACTURED-GAS INDUSTRY.

WHY ECONOMIC ASPECTS ARE CONTROLLING.

Economics is the philosophy of human industry; its function is to explain the "why" in man's efforts to supply his material needs. Every industrial activity must ultimately answer the question "Will or does it pay?" If it does not pay, it must eventually stop and the controlling factor is not engineering but the economic one of cost. Economic selection is, therefore, based on a long-run cost. All permanent future manufactured-gas development-especially in the curtailing of waste-must reckon with this basic principle.

Regardless of the academic conception of the word "cost" and the wide variation in its use, as applied to any enterprise, the word "cost" in the inexorable law of human experience must always include the following:

a. Ordinary routine operating expenses necessary for carrying on the project including the various species of taxes and insurance. b. Provision for the ultimate return to the owners of the value of the services or money put into the enterprise.

c. Rental or hire of the money used in the enterprise, ordinarily called "interest." There is no mysterious reservoir of capital and all money used for the carrying on of an enterprise must ultimately come directly from some individual owner and this owner rightfully has the obvious right to receive a hire or rental for the use of this, his property.18 This rental of capital is a debt which must be paid before there can be a profit and like wages is an element of cost and not a part of profit.

DEFINITION OF PROFIT.

After the above three groups of expenditures have been fully met, then what is left represents profit, but there is no profit until the above three groups have been fully met. On this conception the cost

16 Large capital is steadily becoming more and more a mobilization of the savings of the small holder-the actual people themselves-and its administration becomes at once more sensitive to the moral opinions of the people in order to attract their support.— Herbert Hoover in American Individualism.

of manufactured-gas development must stand or fall. This measures the difference between ultimate success or inevitable failure.

Merely providing for the three groups of expenditures in the preceding section will not yield any profit. Without a fair profit there is no incentive for improvement. Without improvement there can be no progress or development. Therefore an inducing profit is fundamentally necessary to continuously and permanently stimulate development of more efficient utilization methods of our fuel resources and extension of public-utility service.

MISLEADING MANUFACTURED-GAS COST DATA.

Many published data purporting to show the cost, especially the so-called holder cost-that is, the cost of gas delivered into the holder-or burner cost-that is, the cost of gas delivered at the consumers' burners-of manufactured gas includes only the element (a) of the above analysis. That is, provisions (b) and (c) were omitted with the result that many cost figures given are not correct.

SIGNIFICANCE OF FIXED CHARGES.

The rental for the use of the money, provision to ultimately pay the money invested, taxes, insurance, replacements, and repairs due to age or weather conditions, and some of the executive charges are fixed and go on for each of the 8,760 hours of the year and are entirely independent of the volume of the manufactured-gas enterprise's business. Of the total money paid by the public more than one-half must go to meet this fixed-charge situation.

Failure to appreciate the significance of this has been responsible for many manufactured-gas financial difficulties and inability to carry out fuel-conservation measures that were correct from a mere technical viewpoint but unsound from the viewpoint of economics. The economic and not the engineering features are, for this reason, ultimately controlling in all fuel-conservation projects.

CHARACTERISTICS OF HOUSE HEATING.

Wide variation in range of seasonal, daily, and hourly fuel needs are the dominating features of house heating. Atmospheric temperature will determine the consumer's needs and each degree drop in temperature will increase the consumer's demand for heating, as shown in Figure 10.

The consumer will not contract to take a specific amount of gas at a definite time but will expect to get all the gas he needs and to use it as he needs it. Manufactured-gas service for house heating must, therefore, cope with the varying demand, meet the peak-load

requirements, and yet use the capacity of the plant but a small part of the total time, as developed in the next two sections.

WHAT PEAK LOAD MEANS.

Plotting an atmospheric temperature curve, based on Weather Bureau records, upside down, so that a decline in temperature will go upwards, as shown in Figure 10, a graphical index of the consumer's capricious demand for heating service is obtained. The maximum demands are at the peaks of the curve and are, therefore, called peak loads.

Referring to Figure 10, note there are only nine peak demands where temperatures were 15° and only one where temperature was under 9°. The peak demand requires about one-third of the heating equipment and is used only about one and one-half per cent of the total 8,760 hours of the year.

ANALYSIS OF HOUSE-HEATING PROBLEM.

For a number of years an eight-room brick house, 29 feet by 34 feet-which would be an average size-has been heated exclusively with gas. The room-heating equipment is a hot-air furnace with 80 per cent efficiency; the water heater will run about 80 per cent efficiency. For room heating, water heating, cooking, and burning the garbage, this house requires:

Heat units
used.

500,000

280, 000, 000

Equivalent 1,000 cubic feet manufactured gas.

Peak-load demand an hour during extremely cold
weather to keep the entire house warm.
Annual consumption---

1

560

The annual plant capacity for the 8,760 hours in the year just to meet the maximum hourly demand equals 8,760 by " 1,000 cubic feet or 8,760 " 1,000 cubic feet." The 560 " 1,000 cubic feet " actually used, therefore, represents 6 per cent of the total 8,760 "1,000 cubic feet" capacity needed to meet the peak demand. Therefore, the annual sales represent 6 per cent of the total plant capacity that must be held in readiness to serve and meet the peak-load conditions.

The maximum hour peak of 1,000 cubic feet an hour does not occur every winter; in fact, has not occurred for two years. About 600 cubic feet an hour represents the maximum hourly demand of the usual winter, but when the extreme demand does come, if the gas service is unable to meet it, there will be an immediate complaint of the gas shortage and poor service.

VARIATION IN GAS DEMAND FOR HOUSE HEATING.

The average monthly variation in heat used for doing the room heating, water heating, cooking, and garbage burning for the house described in the preceding section, in terms of " 1,000 cubic feet" of manufactured gas, is as follows:

The water heating, cooking, and garbage burning during the summer months average 6 " 1,000 cubic feet " per month. The maximum monthly gas consumption for house-heating purposes is, therefore, 130 less 6 equals 124 "1,000 cubic feet." This shows that the maximum monthly heating load is more than 20 times the average summer load.

UNIVERSAL MANUFACTURED-GAS HOUSE HEATING NOT FEASIBLE.

The actual operating experience gained in the more than 2,000 natural-gas-using towns in complete house-heating service to a limited. number of homes shows clearly the folly of attempting to render universal house heating in any town with manufactured gas because of the peak-load characteristics and the small percentage of the total time that the manufacturing and distributing plant equipment would be used.

Where house-heating service is to be developed with manufactured gas in any community on an extensive scale arrangements must be made for the individual consumer to carry the peak load with auxiliary fuels, like oil or coke, since it will not be economical to make the enormous investment in manufactured-gas-plant equipment in order to render this extreme service.

LIMITATIONS OF LONG-DISTANCE TRANSMISSION OF GAS.

The experience gained in transmitting natural gas through pipe lines indicates clearly the limitations that must be faced in attempting the distribution of manufactured gas from a central plant to a group of towns. No general statement can be made as to the dividing line between feasible distances and distances that will not be feasible since each case must depend on its own economic features. However, enough is known to show clearly that there has been an un