THE CONSUMERS' GAS COMPANY LTD. History

Company History:

The Consumers' Gas Company Ltd. distributes natural gas to over 1 million residential, commercial, and industrial customers in south central and eastern Ontario, western Quebec, and northern New York State. Consumers Gas also explores for and produces oil and gas, maintains underground storage facilities, and contracts well drilling for oil and gas.

The roots of Consumers Gas date back to 1841, when predecessor gas company the Toronto Gas Light and Water Company Ltd. erected a gas works in Toronto and began distributing 50,000 feet of gas daily. That was enough to light 12 street lamps and gradually, the facilities of a number of manufacturers and merchants.

The company sold gas at $5 per thousand feet--a price eventually judged too high by consumers. A public hearing was held on September 17, 1847, for disgruntled customers. As those in attendance filed out of the hearing, they were urged to purchase stock in a new gas company at £12 10s. a share. Many did, and so was born The Consumers' Gas Company of Toronto.

On October 29, 1847, the company, led by city postmaster Charles Berczy, earned a charter from the City Hall of Toronto to supply the city with light. The charter, which incorporated the company on March 23, 1848, stated that 'the great demand for a cheap and effective mode of lighting the streets and places of the said City, as well as the houses and shops, that more than one company should be established.'

The nascent Consumers Gas hired a gas engineer, purchased the lighting interests of the Toronto Gas Light and Water Company for £22,000, and contracted a host of machinery from the west coast of Scotland. In 1848, its first year of business, the company served 200 customers and charged $4 per thousand feet for its gas product, 20 percent less than the price charged by the Toronto Gas Light and Water Company. In 1850 a further 16.5 percent cut in price was effected. A year later, an additional 10 percent reduction occurred. In 1854 Consumers Gas had 700 consumers, a 40 percent increase over the previous year.

In 1873 the company doubled its plant capacity, building new purifiers, condensers, and coal sheds. Three years later, Consumers erected new headquarters at 17-19 Toronto Street. The five-story structure, designed by architects Grant and Dick, was built by Brown and Love Builders Ltd.

In 1887, by which time the company had 9,000 customers, the capital worth of Consumers Gas stood at just under $1 million. By 1904 that figure had doubled, and it climbed still further--to $8 million--by 1924. Expansion of Toronto's population during the 1930s brought the company's capital worth to $14 million by 1936.

Consumers Gas first encountered competition from electricity in 1880. That year the City of Toronto was granted a franchise for electric lighting. This led to the uprooting of 2,000 gas lamps, which were replaced by electric lights. In response, Consumers Gas began in 1879 to market gas as a fuel rather than as an illuminant.

Consumers Gas's first salvo against electricity came in 1902, when it introduced gas water heaters for homes. Six year later, the company opened a branch salesroom at 12 Adelaide Street in Toronto. To meet residential demand, the manufactured gas plant 'Station B,' as the branch salesroom was dubbed, was opened to produce four million cubic feet of gas a day. In 1914, though the Canadian economy had softened directly preceding World War I, demand for gas--to fuel war factories--climbed. By 1918 Consumers Gas's output stood at 4,720,502,000 cubic feet of gas for the year.

When the electric range became popular among consumers in the 1920s, the company responded with an improved gas model, including an insulated oven and automatic controls. The gas refrigerator was introduced in 1928.

By 1931 Consumers Gas recognized that, while low-pressure transmission of gas was fine for the city of Toronto, a more dependable system was needed to serve outlying settlements. In April of that year the company received permission from the Ontario provincial legislature to extend its services to other municipalities. A new, medium-high-pressure system of distribution required that 305 miles of new mains be laid that year.

Expanding outside Toronto by 1938, the company's gas system stretched a distance of 17 miles east and west of the city's harbor and eight miles north. More than 9,000 new customers were added during World War II, bringing the 1947 total to 177,839. Though gas appliances were scarce in postwar Toronto, the city's population continued to grow along with its economic core; the company's future looked bright.

To serve increased demand, the company in 1949 sought to buy gas from elsewhere rather than refine it at company plants. The 1952 annual report hinted that this supply could come from the United States. What's more, that supply would be natural gas--not manufactured gas (or coal gas). In 1954 Consumers Gas announced that natural gas would, in fact, be transported from Texas and Louisiana to its Ontario market. This would require the conversion of customers' gas-burning appliances to the use of natural gas, a task also begun that year.

The switch to natural gas brought real changes to Consumers Gas; a new general manager, Oakah Jones, a veteran of the Oklahoma natural gas fields, was ushered in. In 1958, the company was reincorporated under the name The Consumer's Gas Company (It wasn't until 1990 that the firm became The Consumers Gas Company Ltd.). Fuel started flowing from the United States in November of 1954 after a natural gas pipeline was constructed from Niagara to Sheridan, Ontario, just west of Toronto. That same year, Consumers Gas acquired Niagara Gas Transmission Ltd., which had formerly been jointly owned by Consumers Gas and the Tennessee Gas Transmission Company.

At that time Consumers Gas faced public criticism for its continued purchase of United States natural gas, which it undertook despite a domestic supply available in Alberta. So when Calgary-based TransCanada Pipe-Lines Ltd. announced in 1955 that it would build a pipeline to carry natural gas from western Canada to Ontario, Consumers Gas began talks with the new company.

With Oakah Jones at the helm, Consumers Gas also decided at this time to expand the company through acquisition of rival gas concerns. In 1956 the company acquired Provincial Gas Co. Ltd. and thus its roughly 21,000 customers in the Niagara Peninsula. A year later, Consumers bought Inter-Provincial Utilities Ltd., which served the Ottawa, Eastview, and Rockcliffe Park markets.

In October of 1958 the first natural gas from western Canada reached Toronto via the TransCanada Pipe Line facility. Consumers Gas quickly closed off its United States supply line. In September of 1962 Consumers Gas piped natural gas across the American-Canadian border near Cornwall to its subsidiary St. Lawrence Gas Co. Inc., which served the Massena-Ogdensburg area of New York State. The pipeline was attached to the bridge span over the Cornwall Canal and the St. Lawrence River.

By 1966 Consumers Gas served 340,000 customers in 167 communities throughout Ontario, Quebec, and New York State. The annual report of 1967 offered the first glimpse of the company's new marketing message: natural gas was nonpolluting and an efficient and convenient fuel. Oakah Jones was quoted as saying: 'Your company is aware of the present public concern about air pollution in large cities. For this reason in part, we have contracted for availa-bility of much increased quantities of natural gas since it is clean burning and a pollutant-free fuel of the highest order.'

In 1968 Jones, who was already president, also became chairman of the board of Consumers Gas after the sudden death of Arthur Bishop, the previous chairman. Two years later, after western Quebec had become yet another market that Consumers Gas was able to serve with its Niagara pipeline, the company's shares were listed on the Montreal Stock Exchange. Expansion for Consumers Gas continued on April 22, 1971, when it purchased 52.5 percent of Cygnus Corp Ltd., which in turn owned 43.5 percent of Home Oil Company Ltd. The hope was that by taking a stake in Home Oil, a prominent player in the Alberta oil market, Consumers Gas could attract capital for more expansion.

Then, in November of 1971, the company purchased a further 275,506 Class B voting shares of Home Oil, keeping the oil and gas concern firmly within its sights for ultimate ownership. Home Oil had been headed since the 1950s by Bobby Brown, a well-known oil man from Calgary. A series of poor investments by Brown in the 1960s--including expensive land purchases made in Prudhoe Bay, in Canada's Arctic north--led to a steep fall in Home Oil's share price by 1970. This enabled stock purchases by Consumers Gas. In 1972 Consumers offered to purchase the remaining shares in Home Oil; it managed to acquire 96 percent of the outstanding shares, giving the company 46.6 percent control of Home Oil.

A year later, Oakah Jones died and Douglas Gibson was appointed chairman of the board and Joseph McCarthy, president. Their main task in 1974 was to deal with the OPEC (Organization of Petroleum Exporting Countries) 'oil shock,' the result of rising oil costs worldwide and an energy shortage in the United States. The company's fear was that the Alberta government might realize the worth of its gas reserves and raise the wellhead price of its fuel. Consumers Gas responded to this concern by becoming a partner in the Canadian Arctic Gas Study Group. This consortium began looking at building a new pipeline from the Mackenzie Delta and Alaska to Alberta, where the fuel would connect to TransCanada's existing line to eastern Canada.

Nonetheless, the dreaded price hike was eventually effected, in November of 1975, when natural gas purchased from TransCanada went up from $.82 per Mcf to $1.25 per Mcf. Consumers Gas immediately complained that too large a slice of the price increase would go toward royalties and taxes paid to the Alberta government and the federal government in Ottawa. Then, on July 4, 1977, the National Energy Board, Ottawa's fuel regulatory agency, denied the Canadian Arctic Gas Study Group permission to build their proposed pipeline.

On December 29, 1979, during the decade's second 'oil shock,' Consumers' Gas took full control of Home Oil, making it a wholly owned subsidiary. The company reasoned that Canada had rich natural gas resources but was still a net importer of crude oil. It was believed that Ottawa, valuing Alberta's rich oil reserves, would make it easier for energy exploration and development in western Canada. Home Oil would be an effective vehicle by which Consumers Gas could obtain a larger slice of the Alberta oil market. The subsidiary owned rich oil and gas reserves and was engaged in potentially lucrative projects like the Elk River coal project and the Athabasca oil sands project.

In 1980 Consumers Gas completed another large acquisition: On April 9 the company purchased Hiram Walker-Gooderham & Worts Ltd., a liquor company. This necessitated a name change--from Consumers' Gas Company to Hiram Walker-Consumers' Home Ltd., which reflected the combination of the companies. Hiram Walker had earlier been a takeover target, so it turned to Consumers Gas as a defensive partner. Linking the companies' liquor, gas, and petroleum businesses to create a company with worldwide assets of $3.6 billion and revenues of $2.6 billion produced the fifth-largest profits of any Canadian corporation.

But, early on, the marriage was not a merry one. In 1981 Home Oil paid far too much for the Davis Oil Company, purchased for US$759 million from Texas oil man Marvin Davis. It became clear in 1983 that the fallout from the Davis Oil acquisition had contributed to the poorer-than-expected profit line posted by the company that year.

In 1982 Consumers' created a separate company, Congas Engineering Canada Ltd., to administer consulting worldwide. In 1988, for example, a national feasibility study was undertak en in Malaysia to develop a gas distribution system among 17 large cities in that country.

Meanwhile, Paul Reichmann, head of the Toronto-based real estate empire Olympia & York Developments Ltd. (O&Y), had been eyeing Hiram Walker--Gooderham & Worts for some time. In 1983 0&Y took a small stake in Hiram Walker-Consumers' Home Ltd. Reichmann waited until March 14, 1986, however, to make a $1.2 billion bid for the company's outstanding shares, through O&Y's newly purchased Gulf Canada subsidiary.

Reichmann reasoned that Hiram Walker's association with Consumers' Gas and Home Oil had been the root of its ill-conceived purchase of Davis Oil, which had weakened the company and made it ripe for takeover. The Gulf Canada bid, nonetheless, met with stiff and ultimately hostile resistance. By March 26, 1986, Hiram Walker-Consumers' Home Ltd. had lined up a white knight in Allied Lyons PLC; the British liquor and food giant agreed to buy the Hiram Walker liquor business, the heart of the company, for $2.3 billion. Hiram Walker-Consumers' Home Ltd. would essentially be split up.

On April 18 Paul Reichmann ostensibly emerged the victor after much boardroom negotiation and considerable posturing amid the media glare surrounding the takeover bid. O&Y, however, found itself saddled with a $3.3 billion price tag for 69 percent of Hiram Walker, minus the liquor business Reichmann insisted had been the main prize all along. Long-term planning for Consumers Gas had now moved well beyond considerations of the world energy picture and technological progress at the wellhead. Now the fortunes of Paul Reichmann's O&Y empire were inextricably added to the pot.

In May of 1986 Interprovincial Pipeline paid $1.1 billion for Home Oil, leaving Consumers Gas effectively under the control of Gulf Canada. A year later, Toronto-based GW Utilities Ltd., the Reichmann family's oil and gas sub-sidiary and holding company, purchased 87 percent of Consumers' Gas shares from Gulf Canada to take ultimate control.

Government regulatory policy had long proven a thorn in the side of the Consumers Gas board. In June of 1988 the company asked the Ontario government for a 14.37 percent return on common equity from its provincial business. This compared with an allowable rate of return at that time of 14 percent. In December the Ontario Energy Board responded by approving a 13.5 percent rate of return.

In 1987 the company had founded Arbor Living Cen-ters Inc. to own and operate nursing and retirement homes. Two years later, Consumers established Telesis Oil and Gas to carry out all energy exploration and development work.

In 1990 British Gas plc., Britain's gas distributor, announced a $34-a-share bid for Consumers Gas, valuing the company at $1.1 billion. British Gas sought to diversify its business beyond its home market. Its interest in Consumers raised concern that the company would end up in foreign hands. In November of 1990 a formal bid was made. With GW Utilities pledging its 82 percent stake in Consumers to British Gas, the bid seemed assured of success.

Investment Canada, a federal agency in Ottawa reviewing all foreign takeovers of Canadian companies, ruled that the British Gas bid could proceed only if 15 percent of Consumers' shares were sold to Canadians by September 30, 1992, with the additional requirement that over the next ten years 50 percent of all additional equity financing be made available to the public. What's more, Consumers was required to sell the assets of Telesis, its upstream oil and gas subsidiary, within three years. British Gas agreed to these terms, and the deal was completed on December 28, 1990. Soon after, Robert Martin, chief executive of Consumers, was made director, president, and chief executive of British Gas Holdings (Canada) Ltd., the British Gas subsidiary that bought Consumers.

In 1991 British Gas announced it would spend $30 million over the next ten years on research and development of non-polluting natural gas use. Then, in February of 1992, British Gas disclosed that it was selling roughly 15.2 percent of the company to the public for approximately $170 million. The deal called for an offering of around 10 million shares.

Looking toward the future, the hold that Consumers Gas has on the Canadian natural gas market--the world's largest--is expected to grow. According to the Geological Survey of Canada, about 80 tcf, or around 40 percent of potential natural gas reserves in western Canada, are still undiscovered. Even if OPEC never again holds the world oil market for ransom, Consumers Gas should experience healthy growth, especially since natural gas exports to the United States are expected to increase; in 1990 the Department of Energy in Ottawa forecast that Canadian exports headed south would grow by 4.9 percent during the decade.

Principal Subsidiaries: St. Lawrence Gas Company Inc.

Further Reading:

• Clarkson, Geoffrey, A Gas Grievance and a Remedy, Toronto, Claremont Press, 1860.
• 'First Century of Consumers Gas: 1848-1948,' Consumers Gas 1948 Annual Report, Toronto, Consumers Gas Company Ltd..
• Foster, Peter, The Master Builders, Key Porter Books, 1986.
• 'British Gas to Buy Into Consumers Gas,' Petroleum Economist, April 1990.
• 'Consumers Gas Taps Former Shareholders,' Globe and Mail, March 29, 1991.

Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.

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