MONTREAL’S POWER COLOSSUS
C. L. SIBLEY
VISITING one of the larger downtown offices in Montreal last summer, I encountered the most remarkable demonstration of faith in business leadership that I have ever witnessed.
The office was crowded by men and women of all classes, from prosperous business men to laborers and from fashionably-dressed women to poorly-dressed housewives of the immigrant class, and all of them were there, despite a ruinous stock-market depression, to put money into an investment that had been offered them.
For days that sort of thing had been going on; for days sixty clerks had manned the counters, taking money by the hundreds of thousands of dollars from eager subscribers.
I never saw money received and receipts given so rapidly. The subscribers had to form in lines, but they did not have to wait. Each line kept moving forward, with hârdly a pause. As each person came to the counter he put down a slip of paper and some money. The clerk took both, gave a couple of punches at a machine, from which rolled the change and a receipt. The subscriber swept these off the counter, and in an instant the clerk was performing the same service for another.
So it went on, hour after hour, day after day.
And when the subscriptions closed and the totals were made up, it was found that 60,000 people had paid in no less than one million dollars and had given their promise to pay another $24,000,000 at the rate of one
million dollars a month, to buy common stock on which the interest was three per cent per annum—just the same amount of interest that they would receive if they put their money into savings accounts in the banks!
The Presiding Genius
ON THE day when I visited the office I saw a tall, sturdy man, with a soft felt hat pulled down over one side of his forehead, standing aside and thoughtfully watching these people pay in their money.
None of them seemed to recognize him. It is remarkable how few persons do, though he is by far the wealthiest man in Canada and a leading figure on the directorates of a surprising number of the major industrial concerns in the country.
That man was Sir Herbert S.
A close-up of the giant utility which provides the power that drives the wheels and lights the life of Canadas largest city; a utility which was created by one man, has 60,000 owners, is a monopoly and yet satisfies a customer population of 1,2 y0,000.
Holt, and the company into which these crowds of people were putting their money was Montreal Light, Heat and Power, Consolidated, of which he was the architect and is the presiding genius.
I wondered what his thoughts were as he stood regarding that public demonstration of faith in him and his works. Here was a man who for years had been held up to public view, in newspapers and on numberless platforms, as a soulless arch-conspirator in behalf of Big Business, yet who had gone on his way as irrevocably as fate, as silent and indifferent to praise or blame as the Sphinx, eliminating a competitor here, effecting a merger there, until at last he stood that afternoon in the office the supreme directing head of a consolidation of the principal public utilities in the metropolis of Canada, a monopoly, receiving from these people who did not even know him by sight the most flattering acclaim that they could offer, since they were backing their faith in him and his works by their hard-earned money and by their promise to pay more, month by month, out of future earnings.
One would think he must have felt a thrill of triumph in having at last convinced the people that economic restriction need not be monopolistic repression. But
whether or not he did feel such a thrill, there he was, a detached and thoughtful spectator, and there were the people, coming 60,000 strong, to accept his invitation to become partners with him in his enterprise.
Compared with any of the crowd over which he was gazing, he was a patriarch in years, but not a patriarch in physique. Although in his seventy-fifth year, he is as alert and upstanding as a man in the prime of life, and he still preserves a figure that bespeaks a man in good training. Educated as an engineer in his native Ireland, he emigrated to Canada long before most of the Canadians of today were born, and made his first money carrying out contracts for the building of sections of the main line of the Canadian Pacific Railway.
Somewhere around 1894 he took hold of the Montreal Gas Light Company which dated from 1836, and in 1900, after securing an interest in the Royal Electric Company, which had been a distributor of electricity in Montreal since 1884, he effected a merger between these two concerns and combined them into one organization known as the Montreal Light, Heat and Power Company. He added to them in 1903 the Lachine Rapids Hydraulic and Land Company, which was acquired by stock purchase and which had built a plant at Lachine Rapids for developing power from that cataract. At that time electricity was used mainly for street lighting, store lighting, and power, only residences of the better class using electricity for light.
The merger was an evidence that Sir Herbert Holt was among the few who foresaw the interrelation of the two services of gas and electricity; and the subsequent history of the Montreal Light, Heat, and Power Corn-
pany is evidence also that he saw in these two forms of public utility what is technically known as “a natural monopoly;" that is, a form of public service under which the most efficient results can best be obtained by unified control.
The Battle for Control
IN THE matter of gas, two other companies once existed, but since early in its history, Montreal Light, Heat and Power has been supreme in its own field. But it was a different story in regard to electricity. Competing companies sprang up like mushrooms, and it was war to the death between them. Some were squelched or taken over by others before they ever got to the producing stage. Others had their day and ceased to be, meanwhile engaging Montreal Light, Heat and Power in every sort of conflict, from petty skirmishes to battles royal that raged in the Legislature, in the
City Council, in the law courts, in the streets, and even in the homes. Always the stronger company was pictured as a soulless corporation, grinding the people down by exorbitant rates and practices and robbing the widow of her mite. Much of this criticism was sincere and public-spirited; much of it dictated by ulterior motives. Certainly no man out to get votes in Montreal was ever at a loss for a topic so long as there remained a single competitor of the Montreal Light, Heat and Power Company. He had only to picture that Company as a rapacious monster, ruthlessly destroying competitors in order to batten on the life-blood of the people, and he had a whole city for an audience.
By 1909, seventeen light and power companies in Montreal had merged into two—Montreal Light, Heat and Power, and Quebec-New England Hydro-Electric Corporation, the latter a newlyadopted name for the Montreal Public Service Corporation. These two waged a bitter fight for years, entailing a needless duplication of service and obliging consumers to sign contracts of such extraordinarily restrictive nature and of such interminable complexity and verbosity, that the customers, after they had attached their names, felt as though they had mortgaged themselves body and soul. But that was the price of service. You got certain terms from the Public Service Corporation through a signed agreement that left you with a frightful sense of misgiving; you got special discounts by taking a “dual service" of gas and electricity from Montreal Light, Heat and Power only on condition that you signed a similarly formidable document for them.
When at length the inevitable took place and the Quebec-New England Hydro-Electric Corporation finally passed into the ownership of the Montreal Light, Heat and Power Company, the latter stood high in the esteem of investors and low in the esteem of the public. The people, whose imaginations had for years been inflamed by the bitter controversies that had prevailed, were critical and distrustful of the giant organization that had at last secured full control throughout the city of Montreal, and in many of the surrounding districts, of the essential services of gas and electricity. This critical and distrustful attitude was fed from time to time by clashes between the company and various suburban municipalities which had established electric lighting services of their own.
These local municipal systems were more or less successful at first, but their sponsors soon discovered that the capital cost of keeping pace with the demand
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was beyond their resources. One by one they had to go to the Public Service Corporation, or to the Montreal Light, Heat and Power Company for supplies of electric energy. Due to competition between these two companies, they were able to secure blocks of power on contract at very low prices. When the Public Service Corporation disappeared there was, of couse, none of this compétition. But the contracts remained, and as each came up for renewal the old controversies flamed up again.
Here is the sort of thing that happened: A municipality would buy power in bulk at as low as one and a fraction of a cent per kilowatt hour. This it retailed at a profit, in some cases charging as much as fifteen cents per kilowatt hour. There were even municipalities which sold power thus obtained to consumers in other municipalities. Of course the municipalities made fine profits, which went in relief of the taxes. Since competition has been eliminated, Montreal Light, Heat and Power has naturally been reluctant to sell power at non-profitable prices in order to enable municipalities to supply people who would otherwise be customers of the company. On the other hand, municipalities making a profit from the current thus retailed have been reluctant to forego a source of revenue, the alternative to which was an increase in direct taxation. Arguments not flattering to the company have therefore taken place, but as the contracts expire one by one the municipal systems are being bought out by the company.
From the moment when the Public Service Corporation disappeared, Montreal Light, Heat and Power appears to
have laid itself out to demonstrate to the public the advantages of a single service. For one thing, those formidably exclusive contracts disappeared, to be replaced by a simple form of contract compiled by the Quebec Public Service Commission, a Provincial Government body. For another thing, streets ceased to be lined by two sets of poles and wires. One of the sets was promptly dismantled, and people, looking with approval at the immensely improved appearance of their streets, began to say to one another that it was a good thing after all to have only one company. Then, despite the fact that the company had eliminated competition, there came the announcement of a decrease in the price of electricity.
pOSSIRLY sensing the latent hostility that remained, the company made another bid for goodwill. It inaugurated a “customer-ownership” campaign. That was in the year 1926. Requiring new capital for extensions, it decided to offer to its customers 70,000 of the 80,000 shares to be issued, at $50 a share, with the privilege of paying for the shares by monthly installments spread over two yea*s. The remaining 10,000 shares were reserved for its employees on the same terms.
The company was amazed to find that it had made far greater progress in capturing the public esteem than it had dreamed. Subscriptions were sent in from almost 20,000 customers, calling not for
70.000 shares but for 262,000. As a result the issue was increased from 80,000 to
100.000 shares, and these were allotted pro rata, the result being that the number
of shareholders was increased from 5,816 to nearly 27,000. Subsequent issues have brought the number of shareholders up to 60,000.
Not only was this concession to customers made, but coincident with it was the announcement of another decrease in the price for service.
The customers who bought shares had good reason to feel satisfied with their investment. They saw the price of the company’s shares steadily rise on the Stock Exchange, and by the time that their payments were concluded and the final certificates in their possession, the shares for which they had paid $50 were quoted in the stock market at several times $50.
Thus the public was given a striking example of the declared policy of the company to share its success and prosperity with its customers through reductions of rates and through customer ownership in its securities.
The business of the company has grown amazingly, due first to the extraordinary growth of the city, and secondly to the greater use of gas and electric devices in homes, business establishments and factories generally. The population of the territory it serves is now approximately one and a quarter millions. Its gross revenue has nearly doubled in the past ten years. That is to say, it has risen from $12,748,409 in 1920 to $22,286,284 in 1929. The net income available for dividends rose from $3,804,506 in 1920 to $8,737,638 in 1929, and this despite the fact that in that period the electric light rate has been reduced from 4.8 cents to three cents, the latter graduating down to 1.50 cents for quantity consumption. The
company’s assets at the end of 1929 were $106,575,670.
Affiliated Subsidiary Companies
/CONTRARY to the general idea, Montreal Light, Heat and Power, Consolidated is a separate organization from the Montreal Light, Heat and Power Company. Montreal Light, Heat and Power, Consolidated is the outgrowth of a holding company, the Civic Investment and Industrial Company, formed in 1916 for the primary purpose of consolidating the business of the Montreal Light, Heat and Power Company and the great power plant of the Cedars Rapids Manufacturing and Power Company on the St. Lawrence River, which plant has a capacity of over 200,000 h.p. Today the subsidiaries owned by Montreal Light, Heat and Power, Consolidated include Montreal Light, Heat and Power Company, Montreal Gas Company, Cedars Rapids Manufacturing and Power Company, Royal Electric Company, Lachine Rapids Hydraulic and Land Company, Provincial Light, Heat and Power Company, Standard Light and Power Company, Montreal and St. Lawrence Light and Power Company, Imperial ElectricLight Company, Merchants Light and Power Company, Citizens Light and Power Company, and Quebec-New England Hydro-Electric Corporation.
The company also has large investments in a number of other important concerns. For instance, it owns a half interest in the Montreal Coke and Manufacturing Company, the other half interest being owned by the Koppers Company, specializing in coking plants. Montreal
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Light, Heat and Power obtains gas from this plant, and a large and rapidlygrowing business is done in the manufacture of coke and other by-products of coal, such as sulphate of ammonia, used for fertilization of crops; tar, used for roofing, as a road oil, and for creosoting; benzol, and sulphur. The company also controls, jointly with the Shawinigan Water and Power Company, a holding company with majority stock' interests in the Montreal Tramways Company, the Canadian Light and Power Company, the Montreal Land and Development Company, and the Montreal HydroElectric Company. In addition, it controls the Keystone Navigation Company, the vessels of which are used to bring coal to its gas plant.
Reference has been made to the fact that the company’s service extends to forty-three municipalities besides Montreal. All these municipalities enjoy the same rates as Montreal, as a cardinal feature of the company’s policy is the sale of gas and electricity at uniform rates throughout the territory served, regardless of the fact that in new districts investments are away ahead of returns. Extensions into such territories are regarded as investments in “futures.” An instance of what this entails is supplied by the old-established town of St. Laurent, some five miles from Montreal. The company installed a gas system there at a cost of $100,000. The people, used to cooking by coal and woodburning ranges, did not show any hurry to change to gas, and in the first full year of the company’s operation there the gross return was around $2,600. Yet customers in St. Laurent got their gas just as cheaply as though they lived in the centre of Montreal.
As showing what this investment in “futures” entails, the company in 1929 laid thirty-six miles of gas-distributing mains in new territory, these mains being unproductive in part at the present time but extending an essential utility to many people heretofore without service of any kind. Then new sub-stations and power distributing lines were also built in 1929, the additions and betterments altogether entailing an expenditure of upwards of $3,000,000. A gas main, to be carried by the new Harbor Bridge across the St. Lawrence to thç municipalities on the South Shore, is a project contemplated for the future.
In respect both to gas and electricity, the company’s policy is to keep well ahead of requirements. It boasts, for instance, that Montreal and environs have never suffered from a power shortage, and this is true. The company is looking to the future in this respect. It has contracted for 150,000 h.p. from the power development which the Beauharnois Power Corporation is constructing on the St. Lawrence twenty-two miles above Montreal, for delivery in stipulated quantities beginning in 1932. Moreover, it has acquired a substantial interest in the Beauhamois power project, which will undoubtedly become one of the major power developments in Canada, the present objective being 500,000 h.p., and the ultimate objective 2,000,000 h.p. Incidentally, the operating power for the construction of these works is being supplied by Montreal Light, Heat and Power. Then during the past year delivery has begun from a plant on the Rivière des Prairies, which is the river running on the north side of the Island of Montreal and joining the St. Lawrence at the foot of the
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island. This plant, jointly controlled with the Power Corporation of Canada, is designed for an ultimate installed capacity of 120,000 h.p., for the whole production of which the company has contracted. In the total, the company’s present power resources and reserves amount to over 600,000 h.p. against present requirements of 350,000 h.p.
FOR the distribution of electricity the company has a double belt line entirely surrounding the city. It is fed from eleven hydro-electric plants. This belt line in turn is connected with fifteen substations in which the current is stepped down and from which it is sent through the city, the current being stepped down once more in transformers according to the requirements of customers. One effect of all this is that should there be an interruption in service at any one of the eleven hydro-electric plants, other plants in the ring are stepped up to replace the one whose service is interrupted. Then again, should the “ring” break, the line can be fed from both ends.
For its gas service, the Company’s main plant was at Hochelaga, in the eastern part of the city. This was supplemented by one in the western part, at Ville Lasalle. Since the building of the huge coking plant at Ville Lasalle, however, the supply has been coming from that source, and the Hochelaga site is being used solely as a storage and distribution station.
To provide for this development the company has built underground a thirtyinch main—a large one in gas practice— through which to send gas at high pressure throughout the territory from Ville Lasalle to Hochelaga, a distance of about seven miles. It has another high pressure main going right around the mountain and distributing gas on laterals in every direction.
Until the year 1913 power wires in Montreal were all overhead. What a forest of poles and a network of wires this entailed on the principal streets may be judged from the fact that no fewer than thirty separate organizations at one time had power to erect poles and wires. Some years prior to 1913 the city had employed C. E. Phelps, chief engineer of the Electrical Commission of Baltimore, to make a report on a system for underground wires, with the ultimate result that by authority of a provincial statute, a civic Electrical Commission was formed in Montreal, composed of three engineers, one appointed by the city, one by the power companies, and the third by the Quebec Public Service Commission, which latter, by the way, has the power to control the rates charged for gas and electric current. This Electrical Commission was authorized on behalf of the city to construct, administer and maintain a system of underground conduits, and it began work in 1913.
Construction was started on a comprehensive system to accommodate, with certain exceptions, the wires of Montreal Light, Heat and Power, Montreal Tramways Company, Canadian National Telegraphs, Dominion Electric Protection Company, City Street Light Department, City Fire Alarm Department, City Police Department, and Montreal Quotation Company (ticker service). All the companies pay a rental for the use of the conduits, based on sinking fund, interest and maintenance. The Commission has the power to change the rate of rental when required, all the accounts being subject to independent auditing.
When the war broke out the civic conduit system had only been constructed on seven miles of streets. The war halted construction, but since the armistice the work has proceeded vigorously, and now conduits are laid, and the wires of Montreal Light. Heat and Power and other organizations are underground, on about sixty miles of streets, covering all
the important sections in the centre of the city, and in addition most of the lengths of the leading through thoroughfares.
The work is proceeding at the rate of about 400,000 duct feet per year, and as there are 500 miles of permanent paving in the city, there is still a large field for construction.
Rates and Profits
V\ 7ITH the financial growth of the W company in mind, I asked a financial friend to tell me how I would have stood if, say, in 1920 I had bought 100 shares of the company’s stock and had held on to them and taken up all the rights. He figured it out on paper, and then told me that my original investment would have been $8,000, that $2,000 of this would have been returned in a bonus, that I would now be holding 660 shares, and that these, at a current value of say $55 per share, would be worth $36,300 an appreciation of $30,300, or over 500 per cent profit.
It is knowledge of this sort of thing, plus consumer goodwill, that accounts for the extraordinary scene I described at the opening of this article.
Viewed in the light of these profits, it might be assumed that the company’s charges for service are high. But the remarkable thing is that, with the disappearance of competition, complaints on this score have also disappeared, and the public appear to agree with the company’s claim that it has been singularly successful in its declared policy to supply light, heat and power to consumers at the lowest economic cost.
How do the company’s rates actually compare with the rates in other cities? That indeed is hard to say, for in no two cities do the conditions or the basis of charges appear to be the same. Official figures published by the National Electric Light Association, however, show that in the cities of the United States the charges for electricity are much higher, and that, whereas in Montreal the initial rate for small users is three cents per kilowatt hour, with a rate decreasing to one and a half cents for domestic cooking, the average rate for the same class of users in the United States for all domestic uses is 6.18c. The fact that so much of the hydro-electric current in the United States is generated by steam from coal that often must be hauled from long distances, whereas that in Montreal is generated by water power, may account for this.
Taking the use of electricity for all purposes, the average revenue per kilowatt hour sold in the United States in 1929 was 2.58c, as against an average for all uses in Montreal of 1.3691c. It would take too long to go into complicated comparisons of the rates for the different classes of service in various large cities in the United States, as compared with those in Montreal. But a few of the initial rates for domestic and other small consumers are: New York, seven cents; Boston, eight and a half cents; Cleveland, five cent«; Pittsburgh, nine cents; Chicago, nine cents; Buffalo, six cents.
Of course somebody will ask: “How does the charge for electricity in Montreal compare with that in Toronto?” A question like that can always be depended upon to start a controversy.
It is extremely difficult to arrive at a comparison, especially as the initial rate for domestic users in Toronto is two cents per kilowatt hour as against three cents in Montreal and as the bases of the service charges differ. However, I put the question squarely to an official of the company.
“You claim,” I said, “that your company has an unrivalled position in regard to minimum rates. Does that mean that your rate is actually lower than Toronto’s?”
“Certainly,” he replied. “We have worked the thing out to the last fraction.
What you have to consider is the average rate for the supply of electricity for all purposes, including the domestic, commercial and industrial use, and the use for pumping water, for electric traction, and for street lighting. Putting all these together, the actual average cost to the consumer in Montreal in 1929 was 1.3691 cents per kilowatt hour, and in Toronto 1.492 cents. This average rate is arrived at by taking the combined revenue and dividing it by the combined sale or output. But,” he added, “remember this. Costs are not the same in any two places. Each place or district is a local entity, with conditions only roughly, not absolutely, comparable. We claim that we give Montreal the fullest benefit of such physical advantages as it has, plus the benefits of unified control and highly efficient operation, and, that being so, we have an unrivalled minimum rate. Whether such advantages are obtained and passed along to the consumer in the same measure in other places is not for us to say.”
Reasons for Financial Success
AND now, to conclude, what are the -4*reasons for the great financial success of this colossus among utility companies in Canada, and the goodwill it now enjoys among the customers it serves? The company’s officials maintain that there are three main reasons which have made its name so potent alike with its customers and the investing public. These reasons are:
1. The economies which are made possible by unified control, and the policy of passing along the benefits of those economies in generous measure to the customers it serves.
2. Excellent relations between the company and its employees.
3. A system which makes for efficiency, and also for economy, on the part of every employee, from the executive to the office boy.
Labor troubles or disturbances are practically unknown. Approximately 100 per cent of the employees are owners of stock bought on the deferred payment plan. There is also a Pension Fund, all contributions to which are made by the company. This fund provides that employees may retire from service at the age of sixty-five, receiving annually thereafter a sum equal to one per cent of the previous ten years’ annual average wage for each year of service. The employees have the further advantage of group life insurance and group occupational accident and sickness insurance.
To sum up, the company appears to be firmly entrenched in the control of the distribution of gas and electricity within the area of Greater Montreal, which means that its services cover not only oneeighth of the total population of the Dominion, but an aggregation of indusj trial and commercial organizations ex| ceeded on this continent only by a few of the larger American cities. That it is I giving an efficient service, and is keeping its service ahead of requirements, there is no question. In regard to the cost of that service, the company boldly challenges comparison with any city on the continent in respect of the rates it charges for gas and electricity. Then again, the profits are derived not alone from the supply of Í these utilities, but in important degree j from allied subsidiaries and investment j securities. And no fewer than 60,000 of | its customers own common stock which j makes them partners in the concern and j participants in its prosperity.
Such is the present status of the colossus known as Montreal Light, Heat and Power, Consolidated. The thought of what its status may be ten years from now is a challenge to the imagination, for the industries within its territory are constantly expanding, the population constantly growing, and both electricity and gas being applied in increasing measure to new uses all the time.