THE LEASE OF THE PHILADELPHIA GAS

WORKS.

Ar a time when it was supposed the cities of the United States were about to enter into a period of greatly increased municipal activity, the third city of the Union has leased its gas-works for thirty years. This lease was made after the gas-works had been under full municipal control for more than ten years, and under partial municipal control during almost the entire existence of the works. The incident, while of first importance to the people of Philadelphia, has also led thoughtful persons to inquire whether the action of this city was not an indication of what is about to happen in relation to the gas and water works of other cities. If the Philadelphia lease is but an exceptional incident, it has no importance outside the city limits. But this is not the case, if the lease is significant of a new tendency in municipal development. The object of this paper is not to examine the relative merits of public and private management of gas-works. My object is to point out the facts regarding municipal management in Philadelphia, the nature of the lease, the way in which the proposition appealed to different classes of people, the arguments used, and the character of the legislative body which made the lease. I shall leave the reader to draw what conclusions he may regarding the general question of public control of gas-works, the advisability of this particular lease, and whether the conditions and feelings of the people of Philadelphia towards the lease and the character of her Councils are like or unlike the conditions which exist in his own city.

In March, 1835, the city invited subscriptions to the stock of a corporation to be incorporated for the purpose of the manufacture of gas, reserving to itself the right to elect the trustees, and also reserving the right to take possession of the gas-works upon converting the stock into city loans. This last option was exercised in 1841, but for the protection of the loan holders it was provided that the gas-works should be

managed by a board of trustees. This restrictive clause was construed by the Supreme Court of the State to preclude the city from all interference with the control of the trustees until the maturity and payment of the loan.* The trustees managed the works until July, 1885, when the last of the gas loans subject to the restrictive clause matured. Since 1885, therefore, the city has had full control of the works; and since 1887 the manufacture and distribution of the gas have been under the control of what has been known as the Bureau of Gas, a branch of the Department of Public Works. Under a contract made in 1888 the Philadelphia Gas Improvement Company began supplying the city with water gas, the price of this water gas at the time of the lease being 37 cents per 1,000 cubic feet in the holder.

The water gas has been mixed with the coal gas manufactured by the city. Every year the amount and also the proportion of water gas have increased. Beginning in 1889, with 919,647,000 cubic feet of water gas, in 1896 the city purchased 1,916,396,000 cubic feet. During the same period the quantity of coal gas manufactured had only increased from 2,231,509,000 to 2,997,065,000 cubic feet. Corresponding to the increase in amount of water gas used, the sum appropriated in payment to the Philadelphia Gas Improvement Company rose from $300,000 in 1889 to $700,000 in 1896. The Philadelphia Gas Improvement Company is one of the numerous subordinate companies organized by the United Gas Improvement Company. The latter is the company with which the present lease has been made.

During the discussion of the lease in Councils there was considerable question and confusion in the public mind as to whether the city gas-works had been conducted at a profit or loss to the city. The figures given in the annual reports to Councils by the successive directors of public works, and in the reports of the chiefs of the subordinate bureaus having to do with the manufacture, distribution, and sale of gas, and the care of lamps, tell a plain story. The figures in the reports before 1894 are of comparatively little interest, because on the 6th of January of that year the city passed an ordinance re

* Western Savings Fund v. Philadelphia, 3 Pa. 175.

ducing the price of gas from $1.50 to $1 per 1,000 cubic feet. During the "dollar gas" period the profits, according to the reports of the Bureau of Gas, were:

For 1894

For 1895

For 1896

In the reports of the Bureau, however, while all the receipts from gas-works are mentioned, the expenses for book-keeping, rentals, and care of gas street lamps are not included. These items during the years named amounted to $280,625, $281,566, and $281,569, respectively. Deducting the amounts from the reported surplus, we have for the three years a net loss of $74,442.23. During this period there was expended for extensions and improvements $1,235,208. The largest expenditure was in 1894,-$545,866. Thus in three years the net cash loss to the city was $1,249,080. In thirty years at the same rate the loss would be $12,352,000. This calculation does not give any credit for the lights used in and around the plant itself, in the public buildings, and on the streets. If we credit the city with this gas at the rate charged to consumers, we more than counterbalance the loss. The free gas furnished the city in 1894, not used in the works, amounted to 623,313,751 cubic feet; in 1895, 638,494,000 cubic feet; and, in 1896, 674,031,512 cubic feet.

At the time the bill was before Councils, no closer analysis was made of the actual cost to the city of its gas. Had this been done, a much more unfavorable showing of the city's management could have been made. Let us make such an

examination for 1894. In giving the figures for 1894, it is proper to point out that these probably exhibit a loss to the city slightly in advance of 1895 and 1896. My reason for taking this year will appear presently.

The total amount of gas manufactured for private and public use was 4,110,401,000 cubic feet. Of this amount 2,605,278,000 are credited to the city's plant, and 1,505,123,000 to the plant of the Philadelphia Gas Improvement Company. The actual amount of gas which was burned in public lamps or reached private consumers was only 3,106,544,071; no less than 1,003,858,929, or more than one-quarter of the entire

amount manufactured, being unaccounted for. I am informed that it is impossible to attribute this loss, as is done in the reports, to leakage. The city would have been uninhabitable. While a great deal of the loss is due to leakage, much was due to the imperfect methods for testing the gas, testing at different pressures, and, more important, at different temperatures.*

The gas manufactured by the city was, as stated, 2,605,278,000 cubic feet. The average proportion of loss being about one-quarter, the actual amount of gas manufactured by the city which reached the consumer or the public lights was 1,953,958,000 cubic feet. We find there was expended for the manufacture of gas $2,014,454.43. In order to obtain the cost to the city of the coal gas, we must deduct from this amount the sum of $557,428.38 paid for gas purchased. This leaves $1,457,026.05. To this sum we should add the item of $324,616.12 given in the report as "expenditure on works." Part of this was spent on ordinary repairs, the greater part in improvements; but the item does not represent any extraordinary expenditure or improvements. We may fairly charge it, as we have not charged for the annual depreciation of the plant. We ought also to add the sum of $326,782.72, shown in the report as "repairs," though it is difficult to ascertain whether part of this item might not be more properly placed under the head of distribution. Thus the city spent $2,108,424.89 in the manufacture of gas; and, as a result, the public and private consumers obtained, after the city paid for distribution, 1,953,958,000 cubic feet. This makes a cost to the city for manufacture alone of $1.078 per 1,000.

The cost of distribution per cubic foot is somewhat more difficult to obtain from the reports, but can be arrived at with substantial accuracy. The amount of gas actually distributed, both that made and that sold, was 3,106,544,011 cubic feet. The items of expense were as follows:

*This last applies especially to the gas furnished by the Improvement Company, which on its receipt was tested at a higher temperature than the average temperature of the mains, and, therefore, the volume of the gas contracted before reaching consumers. This fact may render the figures more unfavorable to the city than is just, as, in the absence of exact information, we have been obliged to consider the loss in the city's coal gas by so-called leakage the same as in the case of water gas. Yet any possible correction for this error would only slightly affect the result.

To this perhaps ought to be added most of the items in the official report under the head "Miscellaneous," amounting to $393,229, making a total of $803,605 for distributing slightly over 3,000,000,000 cubic feet, or 25.8 cents per 1,000. It may be that a closer scrutiny would apportion the cost somewhat differently as between distribution and manufacture. The important fact will remain, however, that it cost the city about $1.34 to supply the consumer with every 1,000 feet of gas it had manufactured. In this calculation we have not taken into consideration the cost of selling the gas and keeping the accounts, which in 1894 amounted to $91,519, or an average of nearly 3 cents for every thousand feet. The total cost of the city gas, therefore, was $1.37. The only reason why the department was not compelled to exhibit a large deficit for this year, as well as for 1895 and 1896, was that the city received over 1,500,000,000 feet of gas manufactured by the Philadelphia Gas Improvement Company, for which it paid that company 37 cents per 1,000. The city also made in 1894 about $360,000 out of the sale of the by products of coal gas.

Essentially the same conclusion is reached from an investigation of the purchase of water gas and of the cost of the gas supplied for city use. The amount of gas received from the Philadelphia Gas Improvement Company in 1894 was 1,505,123,000 cubic feet. One-fourth of this amount, or 376,280,750, was lost in the mains. Therefore, the amount of gas received from the Improvement Company and used was 1,128,842,250 feet. The amount paid the company during the year was $557,428.38. We can therefore consider the real price paid the company as 49.4 cents per 1,000. It cost to distribute this gas 25.8 cents per 1,000, and to sell it 2.93 cents. Therefore, on every thousand cubic feet of water gas sold at $1 the cost was 78.13 cents, and the profit 21.86 cents. But all the gas received from the Improvement Company was not sold. The total amount of gas of two kinds consumed was 3,106,544,071 cubic feet. The gas used at the