"The people of Toledo don’t appreciate natural gas, and we had better pull out of here and take it to some city where they do. Detroit, for instance."
These words, spoken by the president of the Toledo Natural Gas Company, reflect his frustration at a strange experiment: the voters of Toledo had decided to raise taxes to build natural gas pipelines so the city could compete directly with privately owned gas companies. Why did Toledo do this, and how did it turn out?
The story begins in 1884 when huge natural gas reserves were discovered in northwest Ohio. Private companies immediately began supplying inexpensive natural gas to the whole region, and soon to Detroit as well. The gas reserves were so abundant that northwest Ohio was awash in it and homes and businesses enjoyed the serendipitous luxury of cheap fuel. Soon Ohioans began to believe that their natural gas supply was inexhaustible, that it was created spontaneously underground and would last forever.
Just a few decades before, Midwestern states like Ohio and Michigan had learned some painful lessons about state and local governments dabbling in the affairs of private business. Research from the Mackinac Center for Public Policy has shown that so many government-run enterprises were expensive flops in Michigan’s early years that voters overwhelmingly approved a constitutional change in 1851 to get government out of the way. Ohio too had its boondoggles. But apparently those lessons were forgotten in northwestern Ohio by the 1880s.
With gas so plentiful and cheap, some Ohioans came to think it shouldn’t have a cost at all. As historian Chester M. Destler observed, "Free gas was regarded as a natural right which corporate monopoly was denying the public." In that spirit, residents of the city of Findlay took the lead, built their own pipelines, and effectively kicked the private companies out of town. Local leaders even supplied free gas (guaranteed for five years) to factories that relocated to Findlay.
The townsfolk were euphoric at their use of government to supply them with such cheap natural gas. "Why conserve this limitless fuel?" they asked, and they wasted it recklessly for public entertainment. Findlay burned about 1,000,000 cubic feet of natural gas every two days just to light 200 torches that illuminated the city day and night. What was owned publicly was not treated with care, and factory owners and citizens ignited gas wells intentionally to amuse themselves and impress visitors.
The city of Toledo followed suit and undercut local private gas companies. Many local officials supported a referendum to raise taxes and build pipelines that would bring cheap gas to Toledo. According to the Toledo Blade, "there are many scientists who believe that the production is continuous, and the supply will be perennial." With good transportation "and with natural gas as fuel, our city should become the great manufacturing city of the West."
The private gas companies in Toledo, meanwhile, had invested hundreds of thousands of dollars in pipelines and they actively opposed public ownership. The natural gas won’t last forever, they insisted, and charging a reasonable fee for it would force Ohioans to conserve this precious fuel. But they could not overcome the campaign slogan of "free gas," and the popular claim that the local natural gas wells would last thousands of years. In 1889, Toledo began the process of taxing its citizens to bring "free" gas to town.
For about five years the people and businesses of Toledo had some of the lowest fuel bills in the nation. Then, with the huge consumption and wasting of gas throughout northwest Ohio, the wells began to go dry. Natural gas proved to be a limited resource. The city of Findlay, desperate to recoup part of its investment, had sold or leased all of its pipelines to private companies by 1899.
Shortly thereafter, Toledo did the same thing. No one connected with the public company had either the training or the desire to drill and search out new gas wells or other fuel options. They wasted money like they wasted the gas. The estimated loss to the city of Toledo was about $2,000,000. Meanwhile, the privately owned Northwestern Ohio Natural Gas Company took over and supplied Toledo and northwest Ohio with gas at market prices. In 1902, the company built pipelines into West Virginia to bring new discoveries of natural gas into the now depleted state of Ohio. Privatization finally prevailed.
Dr. Burton W. Folsom Jr. is a senior fellow in economic education for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.