THE COST PRICE OF GAS.

Evening Star, Issue 11893, 22 May 1903, Page 7

THE COST PRICE OF GAS.

TO THE EDITOR. Sir,—l take it that you and I are anxious for the truth. Now, I proved that coal alone represented 2s 6d per 1,000 cubic feet. ( Your cost, then, of "2s 6d in the bolder " cannot be the total cost any more than the landed price of goods is their total cost when they reach the public. Warehousing, managing, handling, rent, and clerical expenses must be added, and the profit must cover the whole. The easiest method, then, of calculating the cost of gas is to divide the total expenditure (including unking fund and depreciation) by the Quantity of cubic feet sold and that in the holder. This gives 6s the expenditure for the year ended March 31, 1903, being £32,117, and the production of gas 103,603,000. This does not allow for renewals and extensions, £1,789 charged to capital account. Moreover, a document just issued by the Gas Department confirms my figures from a. different standpoint.' Thus:—

Total £29,567 211 68.491 d Or 5s B£d per 1,000 cubic feet. If -we add depreciation, which represents 53d, it makes 6s 2Jd, just what my figures make. Deduct from this for residuals, and it makes 5s 3|d. Now, how can we sell at ss? We can if we exclude depreciation, or borrow for renewals and improvements, but no, the interest on the latter would bring up the price again. Further, to oblige you we will deduct from 5s 3|jd the sinking fund, interest, and bank charges and depreciation, in all Is Bid, and it still leaves 3s as the cost price of gas, which is Is lid more than your estimate. But this Is Bid must be met. In other words, the selling price of gas must meet it. You s>ay " that a capital expenditure of £24,531 was paid out of profits for 1900, 1901. 1902," and yet you admit the profits were only £17,000! This is like trying to get more water out ,of a cistern than it holds. But only £20,063 was capitalised, and this was partially met by the profits, and the balance was paid by increasing the overdraft. I thank you for pointing out I correctly included the annual payment of £920 to the sinking fund in the cost of gas. However, my contention is that the profits for the three years, which I originally were £17,000, were only £12,604, through £4,396 "accrued interest on the sinking fund" appearing as a credit on the dibit side of the profit and loss account. £12,604, then, and not £17,000, was paid out of profits towards the £20,063 capitalised.

Again, if the "cost of gas was 2s 6d" the profit for the three years on gas sales and residuals would be over £65,000, and not £12,604. Including residuals, the profits last y«ar were only £3,847. Now, if the 66,846,000 cubic feet of gas sold at 6s 3d had been sold at Ss there would have been a shrinkage in the receipts of £4,188, or a loss on the year's business of £341! Really, you are in a tight corner; and if the works were up to-date there would be no need for the costly gasholder you say is necessary, or for other improvements I previously referred to. Further, you say coal and oil "are properly capital charges, and do not affect profit and loss." The mains for Woodhaugb extension are properly capital charges, but oil and coal are converted into gas, and form its main cost, therefore must affect profit and loss, and not capital account. I am content to leave my criticism of your statements on gas v. electricity to your readers.

Finally, I treated gas sales separately from residuals, because the revenue from the first was certain, while that of the last was very uncertain. 'However, I have allowed the residuals, and the total cost of gas is-stfll 3j(d over the 5s and 2s 9|d over what yon made it. —I am, etc., Joseph Bbaithwatte. May 22.

Expenditure in pence per 1,000 cubic feet. Manufacture ...£20,115 13 1 46.598d Distribution ... 1,083 16 6 2.510d General charges... 2,035 4 2 4.714d Interest and bank 5,360 18 11 12.419d Sinking fund ... 920 0 0 2.131d Sundries 51 10 3 0.119d