money could not be found for their execution. If all the expenses for the greatly-needed improvements were to be raised by taxation, the burden would become intolerable. The purchase of the gas works and the transfer of the profits from the shareholders to the city treasury would relieve this burden and allow the city to proceed with the needed public improvements. The union of the two undertakings would permit of many economies, such as the substitution of a single for the double set of mains, the reduction of management expenses, and of fixed charges. Complete jurisdiction over the streets would also be secured to the city. Mr. Chamberlain further assured the council that preliminary conferences with the two companies had already been held, and that they were willing to sell their undertakings if satisfactory terms could be arranged. The resolution that negotiations be opened was adopted by a vote of 54 to 2. The agreement finally reached with the Birmingham Gas Light & Coke Company provided for the transfer of the undertaking to the city, including all assets, rights, funds and undivided profits, and also the assumption of all contracts, agreements and accounts. In return the company was to receive £450,000, or annuities payable half-yearly of £22,500 per annum. The agreement with the Birmingham & Staffordshire Gas Light Company provided for a similar transfer of all assets and liabilities, except their reserve fund and undivided profits. In payment the company was to receive £10,906 (premium upon sale of shares) and perpetual annuities payable half-yearly, equal to the maximum dividends payable by the company on their capital, amounting to £58,290, equivalent to 10 per cent on £320,400 and 72 per cent on £350,000. While the negotiations were under way accountants were appointed to examine the records of the companies, and reported their status on December 31, 1873, to be as follows: The Birmingham Gas Light & Coke Company. Loans bearing interest at 5 per cent per annum 250 78,350 5,100 £386,876 The Birmingham & Staffordshire Gas Light Company. Capital Raised— Bearing dividend at the rate of 10 per cent per annum. £320,400 Bearing interest at the rate of 72 per cent per annum. 287,500 Premiums on Shares not bearing dividend.. Loans bearing interest at 4 per cent per annum. Capital Outlay 10,906 61,975 £680,781 £618,746 Cost of Works From these reports it appears that the two companies had a combined capital outlay of £965,361 for which the city finally paid £509,701 in cash, and perpetual annuities payable semiannually amounting to £58,290 per annum. The capitalized value of the annuities can only be estimated, but on a 4 per cent basis it would be £1,457,250; if capitalized upon a 3 per cent basisapproximately their present market value, the amount would be £1,943,000. In other words, for plant and equipment carried upon the books of the companies at £965,361 the city paid in cash or its equivalent, £1,966,951 upon a 4 per cent. basis for the annuities, or £2,452,701 upon a 3 per cent basis. The resolution approving the agreement was adopted by a vote of 46 to 1 in the town council and at a meeting of the ratepayers 2,567 to 1,264. A bill confirming the agreement was introduced at the following session of Parliament in 1875, and met with opposition from the local authorities of certain outside areas supplied by the companies, and from a few large consumers in Birmingham. The former asked that they be given power to purchase the portions of the undertakings in their areas, or that the profits should be given to the districts in which they were earned, or applied to the reduction of the price of gas; that a maximum price of 3s. 6d. should be fixed, and that certain other provisions of less importance should be inserted in the bill. They also objected to the clause for a reserve fund of £100,000 as being excessive, and to the price paid the Staffordshire Company as being too high. The consumers who appeared asked for a maximum price, a differential scale, so that the consumer would get a low rate and a high candle power. The bill was finally amended, authorizing purchase by local authorities (see inquiry D 8 below), fixing a uniform price within and without the city of Birmingham (see inquiry D 15 below), and making certain other changes as requested. The bill so amended was passed by both houses of Parliament and received Royal assent on August 2d, 1875. The transfer of the undertakings of the two companies took place on September 1st. Several of the outside local authorities subsequently exercised the power of purchase and took over the mains and pipes in their areas. Glasgow. The first gas company was the Glasgow Gas Light Company, incorporated by act of Parliament in 1817. The Act of 1825, which authorized the company to increase its capital, limited its dividends to 10 per cent until another company should be established. The company did not use its powers to suit the public, and it was generally believed that it made more than 10 per cent. Five persons appointed by a public meeting in 1835 reported that a large sum-over £50,000-belonged to the gas consumers, and warned the company that if it persisted in its attitude a new company would be formed. The company paid no attention to this warning and in 1843 a new company was created by Parliament. This remedy afforded only very temporary relief, and soon the public was dissatisfied with both companies, maintaining that the quality of the gas was bad and the price high. An investigation was made after a public meeting at which the lord provost presided in 1859, and it developed that the loss of gas by leakage (unaccounted for) had been about 23 per cent each year for the last three years in the system belonging to the old gas company. The report prepared suggested a new company -a third competing company-as the remedy. After much continued discussion, the town council took the matter up and attempted to reach an agreement with the companies for the purchase of their plants, but without success; and it was finally settled by Parliament when the bills of the companies for authority to issue more capital and of the town council for the establishment of a new municipal plant were before it. Evidently Parliament saw better than Glasgow did the futility of further competition; it had been through the question of competition in the case of the London companies and knew what bad results it had produced there. Parliament refused, therefore, to approve competition by a third company or by the city, but urged the companies to accept the terms offered by the city and sell out. An agreement was finally reached, a bill drawn and passed by Parliament validating the transfer as of date June 1, 1869. The reasons for municipalization were that the people were generally dissatisfied with the management of the two companies. They thought the prices were too high and objected to the frequent tearing up of streets and the duplication of pipes in the streets supplied, for each company had laid its pipes practically to the same buildings. It was foreseen that if one plant were substituted for two, there would be great saving in many directions and less inconvenience to the public. There was also a growing opinion that monopolistic services and those using the streets should be managed by the public. Financial reasons did not seem to be prominent. According to the terms of the Act of 1869, Glasgow gave to the shareholders of the two companies perpetual annuities amounting to £34,762 10s. being at the rate of 9 per cent upon £300,000 of stock, which might receive a maximum dividend of 10 per cent yearly, and of 634 per cent upon £115,000 of 712 per cent maximum dividend stock. In addition the city assumed all the liabilities, including mortgages amounting to nearly £120,000. It received in return all the property, rights and other assets. In view of the fact that the shareholders were virtually guaranteed for all time a rate of profit within 1 per cent on the 10 per cent stock and 34 of 1 per cent on the 712 per cent stock of the maximum rate allowed by their acts, one must conclude that they were very liberally treated and the city burdened with a heavy capital charge at the very beginning. Compared with the structural value of the property as indicated by the cash balance sheets of the companies, the amount paid is shown to be considerably in When the transfer was made, the original cost of the property taken over as shown by the books and by the above balance sheets was £532,317, for which the city gave £34,762 in annuities and mortgages of £119,265. The cash value of these annuities can only be estimated, but if they were capitalized upon a 4 per cent basis, the entire payment would be equivalent to about £988,315; and upon a 3 per cent basis-approximately the present market rate of capitalization-£1,278,000. Since 1869 two other companies have been purchased, both in outlying districts. One grew out of the plan adopted by the city of charging slightly more for gas outside of the city boundaries than within. When the city took over the companies in 1869 it obtained power, as a result of this transfer, to supply areas beyond its boundaries and fixed the price within at 4s. 2d. and without at 4s. 412d., or 22d. more. This aroused dissatisfaction among the outsiders, and a company was formed to supply gas in one area outside of Glasgow, but within the area of compulsory supply. This resulted in duplication, waste and bad blood, of course. The company could not get Parliamentary authority, but the outside local authorities gave it permission to tear up the streets and lay mains so that the city of Glasgow could not prevent its operations. Glasgow justified its course upon the grounds that the outside areas were not responsible for the success or failure of the undertaking and therefore should pay more, and that they would not get gas at such a low figure as supplied by Glasgow if they had their own independent plant; and the experience of the competing company seemed to support this claim. Glasgow sought to end matters by annexation, which would have brought the rates down ipso facto, but the company fought it. |