Canada’s Public Utility Field Offers Investment Possibilities
BUSINESS & INVESTMENTS
A. W. BLUE
Hundreds of thousands of dollars are lost annually in Canada through careless investment. Fraudulent and worthless securities are being constantly poured on to the market to trap the unwary. A general observance of this simple maxim will assist in the reduction and elimination of this economic waste—
“BEFORE YOU INVEST—INVESTIGATE”
A LARGE number of powerful and prosperous concerns have been built up in Canada, whose principal product is “service” in some form or other. They are the so-called “public utilities,” and embrace the telephone companies, the electric light and power companies, the street railways, and the gas companies. Their services are virtually indispensable to man, and are employed in the home, the office, the factory and on the street. Their securities rank high in the investment scale, and in the past they have brought rich rewards to countless Canadian investors. And the field is still growing, and fresh opportunity being created.
The first type of utility with which the public had an acquaintance was the gas company. The Consumers’ Gas Company of Toronto, was founded in 1848, and is still going strong. In 1817 a system of gas lighting was installed in the City of Baltimore. Thomas Edison gave his invention of the incandescent lamp to the world in 1879, and thereafter sprang up the great electric light industry. The first horse-propelled street railway in America was built in the City of New York in 1832. In 1876 Alexander Graham Bell introduced the telephone, with what magic results we are all familiar.
From these beginnings the great utility industries developed. And in Canada a further group, embracing a number of outstanding corporations, has been built up, namely the companies engaged in the creation and sale of electrical power, utilizing our natural waterpower as the source of energy. Power development has been one of the momentous chapters of our economic history, for it has paved the way for broad industrial development, which in view of our paucity of coal in the central regions would not have been possible without natural power, both abundant and cheap.
A Phenomenal Growth
THE growth of the public utility business in Canada has been phenomenal. The water-power development in this country since 1900 has increased over 2,900 per cent. Canada has invested more than one billion dollars in electrical power projects. This electrical power is used largely for manufacturing; a total of twenty-eight per cent by the pulp and paper mills alone. Of a total of 32,000,000 horsepower in Canada, some 5,238,000 has been developed to date. New installations are being added as rapidly as possible to meet the ever-pressing requirements of industry, and despite the rapid progress in development there seems little likelihood of supply overtaking demand. For power creates industry, creates business, and industrial activity expands in direct relation to power installation. Not only is domestic business stimulated, but industry from foreign sources is attracted by our cheap and unlimited supplies, as witness the important aluminum development at Arvida, Quebec.
This Dominion ranks third among the nations of the world in amount of horsepower developed per 1,000 of population, being preceded by Norway and Switzerland, while Sweden, the United States, France, Italy, Spain, Japan and Germany follow in that order.
The extent to which power is used in Canada is indicated by the fact that at the beginning of 1927 there were 1,337,562 customers for power. Of this total 1,110,637 were customers for domestic light, 188,533 for commercial light, and 38,372 for power.
Canada ranks as one of the largest users of the telephone in the world. There have been numerous consolidations in this field, many smaller concerns being purchased by the larger systems. This is probably as it should be, for the business is necessarily somewhat monopolistic in character, and can operate most effectively when central guidance over a wide area is provided.
Electric railways, alone, have failed to keep pace with their contemporaries in the public utility field. The almost universal use of the automobile, and latterly the encroachment of the motorbus, have proved a medium of competition which has reacted to the disadvantage of the street-railway lines.
The greatest growth of late years has been in the activities of the electric light and power companies, and of the telephone systems. There are certain conditions which place their securities in an advantageous position from an investment standpoint. Like the railroads, they do not have to worry about the possible decline in value of inventories, for merchandise inventories are an inconsiderable, virtually negligible part of their equipment. Furthermore street railways, electric light and gas companies, as a rule, have no competition from similar companies in the same field. They operate under a franchise within a given area, and are usually fully protected from outside encroachments. In the case of a telephone system, notably the Bell Telephone Company, which operates over a wide zone, there is competition in spots only, and usually only of a local and not particularly damaging nature.
TN THE field of power development
Canada records .the greatest progress.
It is of interest to observe that the two provinces, Ontario and Quebec, which have no coal, have 19,000,000 h.p. of the Dominion’s calculated waterpowers. If these two provinces had to import coal to meet the present requirements of industry the annual coal bill would range between $80,000,000 and $100,000,000.
Hydro-power development is a costly operation. The Dominion Water Power Service of Canada estimates that not less than $330,000,000 will be required to finance the developments now under active construction. For every dollar spent in power development, authorities estímate that six dollars are required in its application. On this basis an expenditure of well over two billion dollars throughout the country is in prospect during the next few years.
A feature of Canada’s recent activities in power development is that a number of important operations have been under way in newer territories, and in direct association with large mineral exploitations. A brief survey of developments this year will serve to impress the degree of energy that Canada is expending in the conversion of her natural power resources into a product readily available for and vital to industry. In British Columbia, the B.C. Power Co. is expected to have the first unit of 42,000 horsepower on the Stave River in operation by the autumn of 1930, and another similar unit in 1931. The West Kootenay Power and Light Company has completed its 75,000 h.p. undertaking at South Slocan on the Kootenay River. Other developments are projected.
The Calgary Power Company, in Alberta, is making progress with its development on the Ghost site, on the Bow River, about thirty miles west of Calgary.
The first hydro-electric development in Saskatchewan is under way at Island Falls, on the Churchill River, where the Churchill, River Power Company, a subsidiary of the Hudson Bay Mining and Smelting Company, is constructing a power station of six units of 14,000 h.p. each. A transmission line, thirty-five miles long, will carry the power to the Flin Flon Mine in Northwestern Manitoba.
In Manitoba two large hydro-electric operations are in progress on the Winnipeg River. The Northwestern Power Company, a subsidiary of the Winnipeg Electric Company, plans a total development of 225,000 h.p. at Seven Sisters Falls. At Slave Falls the City of Winnipeg will develop 100,000 h.p.
The Ontario Hydro-Electric Power Commission is constructing the addition of a tenth unit of 58,000 h.p. to its Queenston Station on the Niagara River. Other operations are in progress at Nipigon River, at Ear Falls of Lac Seul, and smaller programmes elsewhere.
Installations already completed during the present year in Quebec include an addition to the Gatineau Power Company’s capacity; the addition of unit No. 8 of 43,000 h.p. to the Shawinigan Falls development of the Shawinigan Water & Power Company. Construction is being rapidly pushed at Chute à Caron, Saguenay River, where the ultimate development is designed for 1,000,000 horsepower and the Montreal Island power operation near Montreal. Other equally important developments are planned, including the much-discussed Beauharnois operation.
In New Brunswick and Nova Scotia important power activities are under way. The St. John River Power Company is proceeding with a development at Grand Falls on the St. John River, and new installations are being made on the Mersey River by the Nova Scotia Power Commission.
Canadians believe that the power industry has been elevated definitely beyond the speculative stage, and for this reason soundly sponsored offerings of' power securities meet with a ready response. To those who question the ability of the market to absorb the steadily growing capacity of the power companies it may be pointed out that recent developments have been largely initiated to meet a direct want to serve a new field or enter-
prise. The mining industry of the country is steadily enlarging its demand for power. And in the Province of Ontario, where power developments are largely publicly owned, and where immense strides have been made in harnessing the water powers, the Ontario Hydro-Electric Power Commission, faced with a shortage some time ago, found it necessary to arrange a contract with the Gatineau Power Company, for the delivery of 220,000 h.p. to Toronto.
Other Utility Companies
IET us consider briefly a number of the J leading utility companies whose securities are largely held by private investors. In the telephone field, the Bell Telephone Company occupies a dominant position in Ontario and Quebec. During the next few years this company will have to spend $120,000,000 for expansion. The stock of Bell Telephone carries an eight per cent dividend, and while there is little likelihood of any upward revision of the dividend rate the stock has speculative possibilities in view of the fact that the company from time to time offers new stock to shareholders on attractive terms. For example, only recently a new issue of stock was announced at a price of $125 to shareholders on a basis of one new share for every five held. As the old stock was selling around 175 the rights involved have considerable value. As the bulk of the capital requirements of the next few years may be raised in this manner, the outlook for Bell Telephone shareholders is promising. The common stock is a high-grade security in its own right.
The Consumers’ Gas Company, of Toronto, incorporated in 1848, is the leading gas company, whose shares are publicly held. This company has only one class of security outstanding, on which an annual dividend of ten per cent is regularly paid. The stock ranks high as an investment, for the dividend is fully assured by the agreement which the company holds with the city.
In the power field there has been a tendency toward concentration of control into comparatively few hands. The central management idea has worked out well, as strong financial backing and expert engineering direction are usually available under such circumstances. Two or three very large investment pyramids have been created, more especially in the Province of Quebec, and it is noteworthy that in each case they are resting on a very broad and firm basis.
The Montreal Light, Heat & Power Consolidated commands the respect of conservative investors and conservative speculators alike. Those who have had the foresight to hold the common stock of this enterprise for the past few years have fared very profitably, and there is no reason to doubt that the company will continue to expand, and its securities to grow in value. The company is an example of the “pyramid” above referred to. It controls the entire gas, electric light and power business of Montreal and suburbs. Subsidiaries entirely owned and operated are Montreal, Light, Heat & Power Company, Cedar Rapids Manufacturing & Power Company, and the Quebec-New England Hydro-Electric Power Company. The extreme ramifications of this company are indicated through its joint control of United Securities, which in turn owns the majority of the stock of the Consolidated Securities, Limited, which again owns Montreal Development and Land Company and Montreal HydroElectric Company, and holds over fifty per cent of the stock of the Montreal Tramways Co.
Shawinigan Water & Power occupies a similar position, and in a number of its activities is closely associated with Montreal Power. It serves a territory with a population of 1,750,000 people, one of the most progressive areas of the Dominion. Shawinigan shares over the past few years have shown progressive and substantial appreciation, and the stock continues to present attractive longhold possibilities.
Power Corporation is another member of this group which has been signally successful. This company embraces within its organization such enterprises as East Kootenay Power Company, Canada Northern Power Company, the latter controlling through stock ownership several important power units; it also holds a substantial interest in British Columbia Power Corporation, Winnipeg Electric Company, Dominion Power & Transmission, Foreign Power Securities Corporation, Southern Canada Power Company, and Montreal Island Power Company, as well as a large stock interest in several of the leading utility companies on the continent.
To undertake a detailed analysis of these corporations is impossible in the space allotted, but the foregoing should impress upon investors the great opportunities for profitable investment presented by the great public utility corporations of the country.