The End of the Concession - June 1933

When, in 1899, the States appointed the Electric Lighting Committee, the regulation of the tariff was not included in its mandate.  The maximum that could be charged for a unit of electricity was set out in the law and no special machinery for dealing with changes was established, and at that time, probably not considered necessary.  In the unlikely event that a change became desirable, the matter would have been considered important enough to justify a States debate.   The application for an upward revision of the maximum that could be charged for electricity, put to the States by the company in 1917, drew attention to the need to set up more flexible procedures for changes in the tariff to meet changing conditions.

In the event of the States and the company being unable to reach an agreement on the level of the tariffs, the changes made to the law in 1917 included arrangements for arbitration. Under this provision, six months before the end of any subsequent period of seven years, the States could give notice that a reduction in the tariff was required in the public interest.  A similar provision was included for the protection of the company. If the parties failed to reach agreement on a requested change, two arbitrators would resolve the matter, one appointed by each party.  In the event of the arbitrators being unable to reach agreement, the decision would be made by a single arbitrator appointed by the President of the Institution of Electrical Engineers. The Electric Lighting Committee had become involved in the pricing structure in 1917, when it supported the company's application for a revision of the maximum charge, and again when it supported the 1919 application.  Consequently as a result of the 1917 amendment the committee became involved in the regulation of the tariff.

As mentioned earlier, the tariff increases, along with the growing number of consumers being connected by overhead lines resulted in an improvement to the financial position of the company.  In 1921, the individual companies of the Edmundsons group had been advised that the low tariffs made it difficult to attract the investment necessary to pay for expansion.  It was contended that the early days of development were over by then, and the attitude of the general public had developed to the point at which electricity supplies were in demand.  As a result, electricity could now be sold for what it was worth.  Unfortunately, this policy did not take account of the deteriorating economic situation in the western world.

In 1922, the first official moves against the alleged high tariffs were made when the Electric Lighting committee was asked to negotiate with the Guernsey Electric Light and Power Company to obtain a reduction in the flat rate lighting rate, from 12d a unit to 10d. When the negotiations took place, the company's representatives requested that a decision should be deferred until the financial results for the year 1922 were available.  This would enable them to know the effect of the last price increase, as well as the effect of the strikes, on their finances.  The results showed that there had been a small profit for the year, after paying all costs and a dividend on the shares.  The committee met representatives of the company again in the spring of 1923.  It was noted that the Electricity Commission in the United Kingdom allowed a maximum charge of 1s 0d a unit in a number of areas, recognising the need for undertakings to make up for poor returns during the war.  Agreement was reached on reductions for Guernsey, and the new tariff came into force later in the year.

The new charges were,

Flat Rate:

Lighting - 10½d per unit, down from 1s 0d

Power - First 100 units-71/2 per unit, down from rd

Next 40,000 units-3d per unit, down from 31/2d

Remainder-2d per unit, down from 21/2d

The price of fuels, both oil and coal, had fallen from the high points reached during the strikes of 1921, resulting in the fuel cost per unit generated stabilising around 0.46d whichever fuel was used.   Output from the Diesel plant was steady at between 1.25 million units and 1.5 million units a year, representing about one half of the total production, with the gas producer plant generating the other half from coal. 

In the following two years demand for electricity rose modestly.  As recorded earlier, in 1925 the number of units generated exceeded three million for the first time. The rise in the price of oil, by about 12s for each ton, was offset by a fall in the price of coal, whilst the industrial unrest in the United Kingdom was having little effect in Guernsey.  The stone trade was in a healthier condition, with the number of employees rising to 705 and, in the spring of 1925, overtime was being worked.  Mowlem's Quarry converted more plant from steam to electricity and Griffith's Yard was expanding.  There were no more official requests for cuts in the tariff, and plans for extending the distribution system and the installation of more generating plant went ahead.

The problems in England were, however, developing to the point where Guernsey would become affected, in particular from the reduction in government grants to local authorities for road works, which would depress the demand for stone. The pressure on electricity undertakings to reduce tariffs was mounting.  Early in 1926 the unrest on the mainland developed into the General Strike.  By the middle of the year the price of coal was beginning to rise.   In June the Electric Lighting Committee was again asked to negotiate a reduction in the price charged for electricity.   The following month the committee met with the company's representatives, Mr Rye and Major Barritt Hills.   A range of cost statistics were produced including graphs showing the fixed, operating and capital costs, and also production costs incurred in supplying various classes of consumer.  These demonstrated the financial effect of having many small users and a low system load factor.   The committee accepted that the company had a case against a reduction in its charges and asked that further talks should be held as soon as the strike was over.

By the autumn the strike was still in progress, but the stocks of coal from pre-strike days were exhausted.  Imported supplies from Germany were of poor quality, and excessively priced to the extent that the coal needed to produce one unit of electricity rose in price to 0.64d, an increase of approximately 40%.  In November the company requested a surcharge of 10% on all tariffs to cover the increased costs.  This was held to be outside the provisions of the law and the company withdrew its request, having been accused of making its case on the price of coal when, in fact, most of the generation was from oil.  It was pointed out that the Diesel plant had been run to the greatest possible extent and the committee offered to consider any reasonable application for a revision of the tariff.  However, the strike came to an end in November and by December coal was again available from the United Kingdom.  The company therefore decided that an application was not necessary.

The financial position of the stone industry became critical.  In mid-1926 Fry's Quarry had closed adding to the numbers of unemployed.  Pressure for cheaper electricity continued, now spearheaded by the Guernsey Chamber of Commerce.  Statistics were produced showing the price of electricity in Guernsey to be higher than in several towns in England.  The company countered these accusations by drawing attention to the freight charges, the difference in the size of some of the undertakings when compared with Guernsey, and the density of consumer connections.  In some towns, it was contended, there was a consumer every 20 yards of distribution network, whilst in Guernsey it was one every 100 yards.  Nevertheless, the company offered to reduce its charges by 1d per unit, and if the conditions in the stone trade became settled, when the results for the year 1927 were available, it would hope to make a further reduction.  Accordingly, with effect from July 1^st some minor adjustments were made to the tariff.  A year later, further modifications resulted in the abolition of the high rate charged on the power tariff for the first 100 units used each quarter.  There was also a reduction to 1½d in the charge for units consumed in excess of 40,000; further, the lighting flat rate unit charge was reduced to 8d.

These tariff adjustments did not satisfy the Chamber of Commerce and it continued to put pressure on the Electric Lighting Committee to negotiate for cheaper electricity.   At the same time the chamber sent a petition to the Lieutenant Governor requesting that the accounts of the company for the last few years, should be sent to the States auditor, Mr. Geoghegan, for his advice as to whether the company's profit had exceeded 10% of its capital.  Under the provisions of the original electricity law, any profit in excess of 10% on sales of electricity had to be shared equally with the States.  The petition further requested that the concession should be either amended or withdrawn with the States taking over the running of the undertaking.  In May 1928, the Electric Lighting Committee reached the conclusion that the company had in fact, made a profit in excess of 10%, and asked the States Supervisor to refer the accounts of the undertaking's operations in recent years, to Mr. Geoghegan for his comments.

The items for discussion, at the States meeting in the same month, included a request for supplemental credit of £2,000 for the relief of unemployment, presented by Mr Tom Ozanne, the President of the Unemployment Relief Committee.   He was also Secretary of the local branch of the National Union of Quarrymen, and consequently, had a good knowledge of the quarries' problems and the effect of them on the employees.  He made a considerable impression on members of the States with a brief history of the stone trade that, he said, had employed 712 men in 1922.  Although there had been fluctuations in the numbers in between, in 1928, only 380 men were employed.  The causes of the slump were summarised, they centred on the fact that despite a boost in sales of stone during the previous few weeks, the major problem of the high price charged for Guernsey stone remained. He claimed this was due in no small measure to the high cost of electricity which made the price of Guernsey stone too high for it to compete with stone from continental quarries.  District councils in the United Kingdom had now turned to those countries for their supplies.

The Guernsey Electric Light and Power Company held the view that it could not afford any useful reduction in its charges.  It drew attention to the fact that the company had been unable to pay the 5% dividend on preference shares in all but five years up to 1920, and had not reached a profit of 10% in any year; neither had a dividend been paid on the ordinary shares.  It was also pointed out that, in the early years after the commissioning of an electricity supply undertaking, it was not possible to put aside any money for depreciation of the physical assets.  Consequently, disproportionately large sums had to be put away in later years to make up the shortfall.  With the new higher tariff introduced in 1920, the financial position had changed so that from 1921 to 1925, profits were sufficient to allow for payment of dividends on both the 5% preference shares and on ordinary shares.  In 1903, Edmundsons had introduced a bonus scheme for staff when certain targets, including a 10% profit, were met.  The staff of the Guernsey Electric Light and Power Company did not participate in this scheme until the end of 1920, due to the failure of the company to meet the financial target.   From 1920 bonuses had been paid totalling around £420 per annum

Later in the year, during the meeting of the States in October 1928, the depressed state of the stone industry was again discussed.  Tom Ozanne repeated his claim that their collapse was, in part, due to the refusal of the Guernsey Electric Light and Power Company to reduce its charges.  All members did not hold these views, as some considered that it was only reasonable to suppose that the company would have gone to great lengths to avoid losing such large customers.  Nevertheless the majority of States members were in favour of action, and it was resolved to give the company notice that a reduction in the charges levied by the company was required, in the public interest.  However other events overtook the States decision and no immediate action was taken to start proceedings.

Mr. Geoghegan's comments on the company's accounts were received during the following month of November.  They expressed the opinion that the level of profit had exceeded 10% in several years.  They criticised the way the accounts had classified"debentures" as"capital", and also claimed that, after taking account of the fact that the plant was in a good state of repair, the balance in the Reserve for Renewals Account was too high.  This reserve represented a little under 21% of the value of the assets at cost price, a percentage that in later years would be considered far from excessive.  In the light of the auditor's comments the Electric Lighting Committee requested the States Supervisor to present a claim to the company, for payment of the half-share in the profits from the sale of electricity that were in excess of 10% of the capital employed. 

The States Supervisor, in January 1929, reported that the company had resisted the claim for a share of the profits.  At this point the Board of Administration, to whom the States Supervisor was accountable, assumed control of negotiations with the company.  The Crown Officers advised the Board that it was entitled to sue the company in the courts for recovery of the amount considered to be due, but that if it wished to pursue the alternative course and institute arbitration proceedings, the approval of the States would be necessary.  At its meeting in October 1930 the States had before it a letter from the Board of Administration explaining the situation and recommending arbitration. This letter set out the different interpretations put upon the words 'capital' and 'depreciation', which had led to the impasse.  The board further notified the States that it had been agreed with the company that the decision of the arbitrator would be used for future calculations of profit, as well as for the past.  It also attached a draft agreement for the appointment of Sir William Plender, the late President of the Institute of Chartered Accountants, to be the sole arbitrator.  The States approved the proposals.   In accordance with the procedure set out in the agreement, the arbitrator was supplied, in March 1931, with copies of the company's accounts from 1908 to 1929, the 1898 Law and statements from each of the parties, setting out the grounds on which they based their respective claims.   Sir William Plender held talks with each of the parties and their advisors on April 14^th 1931 and delivered his ruling at the end of that month.

On the question of the interpretation of the word 'capital', the most significant area of dispute concerned the classification of debentures.   The States claimed that debentures were in fact loans, whereas the company claimed that they were capital, being money raised for the purpose of running the undertaking.   If the company's contention was accepted it would have the effect of increasing the capital employed and consequently the 10% level of profit that would be wholly retained by it.  The arbitrator ruled that capital comprised shares and debentures as well as the balances in reserve accounts. 

Regarding 'depreciation' the States claimed that assets should be depreciated over their life, at a fixed annual percentage of their reducing value.  The company had been putting aside for depreciation such sums as it could afford, but contended the correct method was to put aside each year a fixed percentage of the original cost.  It also made the point that the States Income Tax Authority had accepted its method of framing the accounts, and had taxed it accordingly.   Over the years, the aggregate profit would not be materially affected, but the method preferred by the States would be likely to produce a profit in excess of 10% in a greater number of years.   The arbitrator ruled that depreciation should be dealt with by the sinking fund method, assuming 3% interest.  In this system a fixed percentage of the initial cost of each asset, along with interest, would be set aside each year in the sinking fund.  It would start in the year after the assets were acquired, and continue until the amount reserved for each asset equalled its purchase price.  Once these points were settled the mammoth task began of reconstructing the accounts of the company, in the format required by the Plender award, starting from 1908.

A few months later in June 1931, the States, on the recommendation of the Board of Administration, reverted to its earlier decision to give the company notice in accordance with Article 11 of the Electricity Law.  This would require the company to reduce the tariff, in the public interest.  The following September, a meeting was convened by the Electric Lighting Committee to discuss the future of the undertaking.  Representatives of the Board of Administration, the Attorney General, the State's auditor and H.M. Comptroller were also present.  The alternative courses of action, that would lead to a long-term solution to the problems surrounding the concession, appeared to be either to amend the concession and make it more workable, or to terminate it.  In the latter case the States would have to take it over.  The outstanding question of a reduction in the tariff was also raised. The State's auditor expressed the view that the company was over capitalised and reiterated his view that the renewals reserve was inflated.  The meeting agreed that provided the concession could be re-negotiated, to include adequate safeguards to avoid exploitation, and also the company could be persuaded to reduce the tariff, there would be no need for the States to acquire the undertaking.   If these two objectives could not be attained, then the States should take over.

The United Kingdom had been forced off the Gold Standard in June 193I and in the following year, austerity measures were introduced in order to balance the budget.  These measures included cutting £16 millions from the grants to local authorities for road works, a measure, it was claimed, that cost the jobs of 20,000 men in England.  In September of that year with exports of stone to England falling, Manuelles quarry staff were working reduced hours and, by the end of the year, the quarry closed completely until the following May.  Exports of stone for the year 1931 totalled a mere 138,000 tons (in 1913 it had been 454,000 tons) and by the spring of 1932 the number of unemployed was more than 700.  Conditions in Jersey and Alderney were no better, Ronez in Jersey announced that their output was down by a half.  Here it is relevant to note that the stone industries in Jersey and Alderney did not draw their power from the public electricity supply.

Another attempt by the Electric Lighting Committee to negotiate a reduction in the tariffs was unsuccessful, despite growing complaints as evidenced by the correspondence columns of the newspapers.  One story, that was circulating, alleged that stone prices on the continent were so much cheaper that ships were loading stone at a port in Spain for delivery to England, despite the fact that freight charges to England from Spain were approximately 5s per ton higher than from Guernsey. 

The report of the Finance Committee on the accounts of the Guernsey Electric Light and Power Company was presented to the States at its December 1931 meeting.  It was announced that the amount due, as a result of the Plender report, would be applied to reducing the States unfunded debt, after payment of the expenses incurred in the arbitration.  The full report of the arbitrator was tabled in the States on March 16^th 1932.   The lengthy calculations that had been made since the report was received revealed that the amount due, being one half of the profit earned in excess of 10% of the capital employed, was £20,306 and had already been paid.   The costs incurred by the States amounted to £1,505.   Before the arbitration was started it had been estimated in some quarters, that the amount due would amount to about £60,000.

The Electric Lighting Committee met, in May 1932, with representatives of the Board of Administration, to consider the results of the discussions the Board had held with the company's representatives. The Board expressed the view that the recommendations in the Plender report were unworkable, but that any arbitration concerning the prices charged by the company would need to take them into account.  Consequently, to proceed with the States resolution of June 1931, to start arbitration proceedings for a price reduction, would lead to protracted negotiations, but do nothing towards resolving the long-term difficulties with the concession.  The Board therefore recommended that the proceedings for a price reduction should be abandoned.  The negotiations with the company had resulted in an agreed draft for submission to the States, on the points to be included in a revised concession.  The Board considered that these were very satisfactory from the consumers' point of view, and in supporting it the Electric Lighting Committee expressed the opinion that the proposals constituted a good agreement.  Both committees agreed to support the recommendations in the States.

The salient points of this agreement were -

1. The concession would not be terminated before August 1940.
2. Action to force the company to revise the tariff downwards would be abandoned.
3. The company would make an immediate reduction in its charges in respect of the year 1932.
4. Article 19 of the Concession, that provided for the company to pay half of any excess profit over 10% to the States, would be deleted.  It would be replaced by a new clause under which any excess profit would go back to consumers, who were the persons entitled to it, by way of a reduction in the tariff for the following year.

During the debate in the States on June 15^th the Acting President of the Board of Administration expressed the view that the concessions made by the company in agreeing to these proposals were material.  He re-iterated the major problem with the existing concession.  This, he said, made application of the excess profit formula complicated whilst leaving some points open to alternative interpretations.  He expressed the wish to disabuse the minds of the public of the idea that the company could, at once, reduce its charges by a matter of pence.  The proposal to revise the concession had drawn a mixed response from the public in the days leading up to the States debate.   The Chamber of Commerce, supported by the quarry industry, was in favour of the States buying the undertaking, but other correspondents to the newspapers adopted the alternative view.  Some did not favour the States purchasing the company on the grounds that the record of State's run businesses was not a good one.

 

At the meeting of the States there was a long debate, some members considering that it was too risky to spend so much money on the purchase of the undertaking.  Those in favour of terminating the concession were mainly influenced by the need to reduce unemployment, which it was claimed could be done most effectively by improving the prospects of the stone trade.  At the end of the debate it was clear that many members needed to know the likely cost of the acquisition before they could make up their minds, and it was therefore decided to defer a decision until an estimate of the likely cost of buying the undertaking could be obtained.

The States and the company each appointed a consultant to produce an estimate of the cost of the purchase, the valuation to be in accordance with the formula contained in the 1898 Law.  The figures they arrived at ranged from £260,000 to £270,000.   As was to be expected, the publication of the Billet D'Etat containing these figures, on July 16^th, gave rise to a flurry of comment and more correspondence in the newspapers.  Some favoured the purchase of the undertaking on the grounds that interest rates were low, so that money for the purchase could be borrowed cheaply.  Others favoured it as a means of reviving the island's economy. During the debate in the States, on July 26^th, attention was drawn to the fact that the assets of the company had cost £291,000 whereas the estimated value, given by the consultants, including the 15% addition required by the law, was considerably less.  It was further reported that Mr Geoghegan had given as his opinion that, under States management, the tariffs could be reduced by one penny a unit.  The discussions were animated, prompting H.M. Comptroller to say that, whilst he agreed with the proposal to purchase the undertaking, members should not allow themselves to be carried away by the press campaign.  This would be the largest single item of expenditure ever incurred by the States.  By a majority of 32 to 14 the States agreed to purchase the undertaking. 

On the following day notice was given to the company in accordance with Article 17 of the Electricity Law to hand over and relinquish to the States its concession, including all real and personal estate, on August 5^th 1933.  In payment the company would receive a sum deemed to be a just and reasonable valuation of the assets, as assessed by two arbitrators, plus an additional 15%.  The States appointed Sir Arthur Preece, of engineering consultants Preece Cardew and Rider, as one arbitrator while the company appointed an accountant as the other.  The amount to be paid would not include the value of any non-intrinsic assets such as goodwill, nor the value of any works carried out after the date of the notice, unless the company obtained prior approval from the Electric Lighting Committee.

In the latter months of 1932, the States approved the appointment of the States Electricity Board and nominated as its first members;

Mr. Frederick T. Hill-Cottingham,

Mr. R. H. Johns,

Mr. B. Bartlett,

Mr. F. H. de la Rue,

Mr. H. G. Wheadon,

At the same time the States set out the powers and responsibilities of the Board, which were subsequently included in the Loi Relative a la Fourniture de L'Electricité Par Les Etats, 1933.

From the date of its appointment, the new Board was busy making arrangements to ensure that the transfer of the undertaking to States control was accomplished without disruption to its services.  There was good co-operation between the Board and the directors and management of the company.  They agreed to simplify the take-over by bringing forward the date of relinquishment of the concession from August 5^th 1933, to the end of the half-year, June 30^th.  Agreement was also reached on the matter of collection, after the take-over, of debts due to the company and the transfer of outstanding amounts under hire purchase agreements.  In the case of the former, the States Electricity Board - generally known by its initials SEB - would be paid 5% of the amount collected on behalf of the company, while the hire purchase debts would be taken over by the SEB at a discount of 15%.

Although the last few years of the concession was dominated by friction over the tariff and the arbitration proceedings, development continued with no apparent signs of interruption. To meet the expected increase in the load it was decided to double the output from new generating sets.  This led to the commissioning in 1931 of a Fraser and Chalmers Diesel generator coupled to a GEC alternator with an output of 975 kilowatts.  New substations were commissioned at St. George's and St. Andrew's, and the 6.6kV ring main was laid to link the Park Street substation with the substation at 25 High Street.  In all, 24 km of extensions were installed, including overhead lines, which by this time totalled 11 km.  The number of consumers increased by 1,000 and the connected load by about 1½ megawatts.  However, the depressed conditions still existed, particularly in the stone trade, therefore these developments did little more than maintain sales at their earlier level.  The number of units generated during 1932 was only one quarter of a million more than the number generated during 1929; the maximum demand remained the same.

The overhead lines erected included an extension to St. Andrew's Brickfield and others at La Villette, Braye Road, Jerbourg, Albecq, La Moye and Les Sages.  Longer lengths were installed from King's Mills to Mont Saint and from Les Landes to Les Bigard.  An application from Boots the chemists, for permission to erect a neon sign, led to the installation inspector, preparing regulations for the installation of this new type of external lighting.  He considered that there was a potential risk that, in the event of fire, water might be sprayed over the fittings.  Consequently he introduced a requirement that a switch capable of isolating the neon sign, should be installed eight feet above the pavement, outside the building.

In the absence of a complete understanding of the conditions that existed at the time, it is difficult to assess the performance of Edmundsons, and the Guernsey Electric Light and Power Company, over the third of a century during which they operated the undertaking. The exceptional conditions of operating in Guernsey make comparison with the performance of undertakings in England unrewarding.  With the benefit of hindsight, it is easy to identify factors that hindered development.  Despite this, at the end of the period the island had a healthy industry and the condition of the physical assets of the undertaking at the take-over date was considered to be first class. As part of the study to value the assets of the company, Sir Arthur Preece, one of the arbitrators, opened up for inspection a section of 0.073sq.in. underground cable that was laid in 1899. The outer sheathing of steel tape armour showed a few pin holes where it had rusted through, but the inner armour and lead sheath were practically as new.

All in all, it would seem that Edmundsons brought sufficient expertise to the running of the electricity supply industry in Guernsey, to justify the decision of the States in 1898 to award the concession to them.  In 1933 the States certainly had good cause to congratulate themselves on the general condition of their acquisition.

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