Public Utility Securities a Popular Investment Medium

A. W. BLUE March 15 1931

Public Utility Securities a Popular Investment Medium

A. W. BLUE March 15 1931

Public Utility Securities a Popular Investment Medium



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”

OF ALL the varied forms of Canadian business endeavor, the hydro-electric power industry most closely approaches that standard of industrial perfection conveniently described as “depression proof.” Throughout the past year of economic chaos and distorted security markets, investors who pinned their faith to the senior issues of well-established utilities have had no cause for regret. Securities of this type have displayed a degree of stability exceeded only by members of the so-called gilt-edged group. Annual reports now coming to light indicate that the power and light industry has not only fully maintained earnings in 1930, but in many cases substantial increases over 1929, the banner year of commercial progress, are shown.

The testimony of these annual reports supports the axiom that a period of business depression reacts upon the power industry in no more serious measure than serving to retard temporarily the rate of earning’s growth. The Montreal Light, Heat and Power Consolidated reports an increase in both gross and net earnings for 1930, thus continuing its almost unbroken record of nearly thirty years for consistent annual growth in earning power. Gross revenues from all sources for last year amounted to $23,484,080 as compared with $22,286,284 for 1929. Despite larger amounts charged to depreciation reserves and taxes, net income for the year stood higher at $8,943,584 as against $8,737,638 for the preceding year.

The Shawinigan Water and Power Company, another leading utility, will show earnings approximating $2.65 per share as compared with $2.34 for 1929. Directors of Canada Northern Power have increased the dividend on the common stock of the company from sixty to eighty cents per annum. This Is one of the conspicuously few dividend increases authorized by any company during the past twelve months. The Quebec Power Company also reports growth in earnings, net profits for the past year amounting to $1,630,999 as compared with $1,502,527 in 1929 and $1,199,724 in 1928.

Water-power development has become established as one of Canada’s most profitable basic industries. The commercial utilization of favorably located natural water powers has contributed directly to Canada’s tremendous expansion during recent years. In fact, our commercial growth appears to be regulated in direct ratio to the amount of power developed and available. The mining and newsprint industries are directly dependent upon the availability of power, and in the industrial centres cheap power has contributed to facilitate industrial expansion.

In the past ten years hydro-electric installations have increased by 140 per cent, from 2,515,000 h.p. to 6,125,000 h.p. Of this increase 1,787,000 h.p. has been

developed during the last five years. New installations brought into operation during 1930 aggregated 397,850 h.p., and construction work is proceeding on a number of projects in various parts of the country, several of these being of outstanding magnitude. Their completion within the next two or three years will add another 1,500,000 h.p. to the Dominion’s total. Other important projects are under investigation, with their development probable.

New Installations

npiIE present power construction completed last year involved an estimated expenditure of $80,000,000, and during the next two or three years $300,000,000 will be required to finance the work now under way.

A brief survey of undertakings in this field during the past year indicate that Ontario led in new installations with a total of 136,000 h.p. Quebec followed with 122,700 h.p., British Columbia,

71.000 h.p., Saskatchewan, 42,000; New Brunswick, 21,000 and Nova Scotia, 5,100 h.p.

Among the more important projects undertaken during the year may be listed the following:

The British Columbia Power Corporation, through a subsidiary, The Vancouver Island Power Company, placed in operation a new unit of 18,000 h.p. in its Jordan River station. Through another subsidiary, the Western Power Company of Canada, a 47,000 h.p. unit was brought into operation at Ruskin on the Stave River. The West Kootenay Power Company, the Powell River Company, and the Northern British Columbia Power Company were actively engaged in development programmes.

The Calgary Power Company in Alberta installed a transmission line over a distance of 175 miles to Edmonton from its recently completed 36,000 h.p. development on the Bow River. The Churchill River Power Company, in Saskatchewan, brought into operation its

42.000 h.p. installation at Island Falls on the Churchill River. In Manitoba, The Northwestern Power Company has a 37,500 h.p. development under way at the Seven Sisters site on the Winnipeg River, j The City of Winnipeg is engaged on its ! second development at Slave Falls, where

The Hydro-Electric Power Commission of Ontario brought into operation unit No. 10 of 58,000 h.p. in the Queenston : plant on the Niagara River. The Comi mission also completed a development on the Nipigon River. At Chats Falls, on the ¡ Ottawa, the Commission, in association ! with the Ottawa Valley Power Company, ! is installing a plant of 224,000 h.p. i capacity. The Ontario Power Service ¡ Corporation, a subsidiary of the Abitibi ' Power and Paper Company, has com-1

meneed the development of its canyon site on the Abitibi River, where 330,000 h.p. will be installed.

Quebec installations in 1930 totalled 122,700 h.p., while projects under way involve an initial installation of 805,000 h.p. and a final installed capacity of 2,013,000 h.p. These include the Beauharnois on the St. Lawrence River, Rapide Blanc on the St. Maurice, Chute-à-Caron on the Saguenay, Chats Falls on the Ottawa, and Masson and High Falls sices on the Lièvre River by the MaclarenQuebec Power Company.

In New Brunswick, the St. John River Power Company commenced last October the construction of a new plant at Second Falls, on the Green River. The Avon River Power Company completed last September a development of 4,500 h.p. on the Black River in Nova Scotia.

Rapid as has been the growth of electric power installation during the past ten years, the prospect for the future absorption of power, according to competent authority, points to the necessity of providing for growth not only on the scale of the past but on an accelerated scale commensurate with the probable more rapid future increase in population.

Increasing Demand

rT"'HE stability of electric power con-*• sumption under a condition of economic depression, and the rapid growth in demand over a period of years, explain the high favor in which securities of the established companies are held by the investing public. Factors responsible for the growth in the demand for electrical energy are largely independent of the cyclical tendencies in business. In the first place, in a young country such as Canada there is an inevitable steady growth in population, necessitating erection of new homes, new commercial buildings, etc., thus automatically increasing the market for power. There is also a broader use for electrical appliances in the home. Commercial establishments are appreciating the value of superior lighting. New and improved uses of electrical power are being found in existing manufacturing industries. The central portion of the Dominion, entirely lacking in domestic sources of coal, is entirely dependent upon hydro-electric power. The growth in the general wealth of the country is reflected in increased ability to purchase services of this type. Even in times of depression there is an increasing demand for electricity, which is explained by the increasingly diversified character of the services supplied.

The growth in the economic activities of the country and the growth in demand or electrical services closely parallel each other. Is the present huge programme of power development justified by the probable course of economic growth of the country? One can only judge the future by the past. Authoritative data from Government sources in Canada and United States electrical energy generated by central stations in Canada and by public utility power plants in the United States indicate the following:

Since 1919 there has never been a year in which an installation of fifty per cent greater than the then existing water power installation has not been required within six years in Canada. The average fiveyear increase over the last twenty years was fifty-eight per cent. With respect to kilowatt hours generated by Canadian central electric stations, there has never been a year since 1920 in which an output


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fifty per cent greater than the then existing output has not been required within four years— in several eases three years or less. The average four years for the period 1919-29 was sixty-one per cent, and for the period 1922-29 the average four-year increase was seventy-five per cent and the average three-year increase fifty-two per cent.

In the United States a similar record of growth in demand is recorded. Since 1918 there has never been a year in which an output of fifty per cent greater than the then existing output has not been required within five years—in several cases tour years or less. The average five-year increase for the period Í902-1929 was seventy-four per cent, and for the period 1919-1929 the average five-year increase was fifty-eight per cent.

The present situation in Canada is this: Total hydro-electric installations of the Dominion aggregate approximately 6,125,000 h.p. The developments under actual construction total 1,500,000 h.p. and will soon reach 2,000,000 h.p., an increase of thirty per cent above the total of present installations.

Future Growth Assured

TN VIEW’ of the fact that the records

outlined above cover periods of depression as well as of prosperity, the averages present a true picture of the consistent growth of the markets for electrical energy. Can it be said today that projected installations amounting to thirty per cent of the actually installed power capacity of the country are excessive, especially when it is obvious to all that the country is about to embark on a renewed period of prosperity which may well eclipse all records of the past? By the nature of her basic resources, and her general economic state of health, Canada has established a condition which normally attracts both population and capital, and these are factors which will influence the future growth of the power industry.

Canada is dependent upon her natural water powers for electrical power. More than ninety-seven per cent of the central station output in Canada is derived from water powers. The development of water powers has been particularly aggressive in provinces which are deficient in native fuel supplies.

Large forward development programmes are necessary to meet the natural increased requirements ol the markets. Hydro-electric energy cannot be generated and supplied on short notice. The ordinary large development requires from two to four years to install. St. Lawrence River installations will take from five to eight years to complete because of the magnitude of the work. It is not permissible, therefore, to defer action until the actual need develops. Future requirements must be anticipated.

Public utility securities have for many years provided both a profitable and popular field for investment in Canada. The investment qualities of Issues of representative companies have been thoroughly demonstrated during the late period of excessive market strain. The ratio of future growth of the industry as a whole may be somewhat slower than in the past, but there is no evidence of an approaching stage of overproduction. Our commercial and industrial centres are steadily growing. More and more attention is being paid to the commercial exploitation of our natural resources and the fabrication of our raw materials into the finished product in our own plants and factories.

The granting of power rights is subject to legislative control, which should ensure sane and economical operation of the industry as a whole. The power situation, so far as the investor is concerned, seems to be of a character to inspire confidence. Here, as in all other investment fields, however, he must exercise the keenest discrimination, and when in doubt consult an authority on utility investments.