STATEMENT OF BEN A. BURNETTE, KNOXVILLE, TENN. On behalf of the National Association of Plumbing-Heating-Cooling Contractors and its 8,500 members, I want to thank you for permitting me to testify on this problem of Public Utility Subsidies. My name is Ben A. Burnette, President of Temperature Control, Incorporated, of Knoxville, Tennessee. Our company is engaged in the plumbing, heating and air conditioning business and operates in Eastern Tennessee. I have been aware of utility subsidies offered by both gas and electric utilities for a number of years. For a period of six years, 1961-1967, I served on the Board of Directors of our Contractors Association and served as the President of the National Association from July 1, 1965, through June 30, 1966. Our Association is comprised of some 8,500 contractor members in the United States. A large portion of these contractors depend upon repair, remodeling and residential work to stay in business and exist as an independent business enterprise in today's very competitive market. For the six years I served on the Board of Directors of the National Association, our contractor members continuously complained and protested about the public utility encroachment into their field of work using give-away promotions and gimmicks that the contractors were unable to cope with on the competitive market. This unfair competitive situation brought about by the utilities selling and giving away products normally furnished and installed by the plumbing and heating contractors, was brought forcibly to my attention the year I served as President of the Association. After considerable research, our executive committee authorized our attorney to prepare and file a complaint on behalf of our association with the Federal Trade Commission in the matter of certain monopolistic practices of public utility companies. This complaint was filed November 14, 1966. Our contractors find themselves caught in a vise between the gas and electric utility giants, competing one with the other for the sale of their fuels, slowly but surely destroying the contractor from competing in his normal marketplace. Public utilities enjoy a quasi- and governmental-sponsored monopoly of the sale of gas and electricity with a consequent statutory rate structure that assures them a minimum return or profit such as may be provided by applicable law. In Chattanooga, Tennessee, utility competition in the plumbing and heating field became so deplorable and unfair that the Chattanooga Contractors through Southern Blowpipe and Roofing Company went to the District Court seeking relief from the method the Chattanooga Gas Company used in competing with and against the local contractors for the sale and installation of plumbing, heating and air conditioning equipment. In my home town of Knoxville, "The Battle of the Fuel" rages between the gas and electric utilities. According to reliable information I have received, the local gas utility has over 600 gas water heaters on rental at $1.00 a month, or $12.00 per year added to your gas bill. Rental for ten years would amount to $120.00. A plumbing contractor would have to receive between $150.00 and $200.00, depending on conditions, to furnish and install and guarantee a water heater for a ten-year period. It is quite evident the rental of water heaters in this instance is subsidized in some manner by the gas company. I recently received, through the mail, dealer charges for residential job work performed by the local gas utility. One charge listed states that the local gas utility will install up to 150 feet of service line for a residence for $1.00 providing the customer is using four gas appliances. According to their own charges to the dealer, this job is worth $150.00. It is quite evident the service line in this instance is subsidized by the gas company. East Tennessee Natural Gas Company, who supplies gas to the local utility, operate a local retail outlet for the sole purpose of promoting the sale and use of gas. It is my understanding that the revenue derived from the sale of equipment is used for promotion and advertising, and that the company is not required to show a profit after promotional expenses are deducted. This kind of competition was instrumental in our company making a decision to withdraw from competing in this particular field of work, and in recent years we have specialized in commercial, industrial and institutional work. Now we find the utilities very active in this field of work offering incentives to builders and promoters of shopping centers and high-rise apartments to use their respective fuels. Just recently a promoter and builder of a shopping center was offered $35,000 to apply on a $60,000 cost for an electrical contractor to go underground with all electric service lines. The utility company would absorb the $35,000 providing the builder would use all electric services including the heating. Gentlemen, it appears to me that the small plumbing-heating-cooling contractor has been placed in a deplorable position due to this fight "for the fuel" between the utility companies. All our contractors are asking for is an even break on the competitive market. The only reason our association filed a complaint with the Federal Trade Commission and the only reason we are appearing before this Committee today is that we feel many of the promotional programs offered by the utilities are not legal, giving an unfair advantage to the utility companies protected by a government granted franchise. Thank you, gentlemen, for your consideration. Mr. DINGELL. Our next witness is Mr. Robert L. Horovitz, who is the treasurer, National Association of Plumbing-Heating-Cooling Contractors of Cleveland, Ohio. Mr. Horovitz, we are most pleased to have you with us this morning. The Chair notes that your Congressman is our good friend Charles Vanik from Ohio, who is most highly regarded by the Chair and by the members of the committee. The Chair is happy to welcome you for such statement as you choose to make. TESTIMONY OF ROBERT L. HOROVITZ, TREASURER, NATIONAL ASSOCIATION OF PLUMBING-HEATING-COOLING CONTRACTORS, ACCOMPANIED BY RICHARD A. MEHLER, COUNSEL Mr. HOROVITZ. Thank you, Mr. Chairman, members of the committee. And I thank you for permitting me to come before you to testify this morning. Without a question, your interest in our testimony here today, and your concern as congressional representatives points out the validity of our democratic system of government and reassures the small businessman that his Government is willing to listen to him. My name is Robert L. Horovitz and I am president of the Republic Plumbing & Heating Co., 19499 Miles Avenue, Cleveland, Ohio. After attending college and spending a year in the Air Force, during World War II, I chose a plumber's apprenticeship as my start in this industry. Upon completion of my apprenticeship and receipt of my journeyman and master plumber's license, I pursued my career by the development of Republic Plumbing & Heating Co. During my first year in business we had an annual gross volume of approximately $40,000 and in 1967 our annual volume was approaching $12 million. In addition to my own personal pursuits, I have been very active in our plumbing and heating contractors' association activities. I have been president of the Cleveland Plumbing Contractors Association, active in our Ohio State Contractors Association and on a national level I have served as chairman of our national association legislative committee, as well as having served as vice president, treasurer and president of the National Association of Plumbing-Heating-Cooling Contractors-with a membership of close to 8,500 contractors in the United States. You may or may not be aware that on November 14, 1966, our national association filed a 35-page complaint before the Federal Trade Commission of the United States, seeking institution by the Commisison of remedial proceedings under the Federal Trade Commission Act, and charging certain monopolistic practices of the public utility companies. Now, 15 months later, we come before your committee with the identical problems, only greater, and seek not only your understanding, but your action. In having discussed this matter with several of our colleagues in Congress, I have found that their first reaction, quite naturally, is "Why don't you handle this in the individual States with the State utility commission?" The answer to this question is that it would be a "herculean" job to prepare and present the case in all 50 States with a financial cost that would be unbearable. Some of our State associations have the courage, ingenuity and financial backing to do just this and in some cases have been successful. For example, at a general session of the Public Service Commission of Nevada, held at Carson City, April 19, 1965, Chairman J. G. Allard did issue an order, in case No. 1318, ordering the South West Gas Corp, to cease and desist from the present practices engaged in through its marketing program in northern Nevada. He further ordered that all expenditures incurred in the promotion of said marketing program be excluded from the utility companies rate base. I enclose a copy of that order for your information. Mr. DINGELL. Without objection that will be included in the record at the appropriate point. (The document referred to follows:) BEFORE THE PUBLIC SERVICE COMMISSION OF NEVADA (Case No. 1318) In the matter of the investigation and hearing, ordered by this Commission, on the reasonableness of Tariff Schedule G-10, Page 3, and to review accounting procedures and practices conducted in the Marketing Program by Southwest Gas Corporation in its Northern Nevada Division. At a general session of the Public Service Commission of Nevada, held at its offices in Carson City, Nevada, April 19, 1965. Present: Chairman J. G. Allard, Commissioner Noel A. Clark, Secretary William E. Mooney. ORDER Pursuant to the foregoing Opinion, which is hereby referred to and made a part hereof, It is ordered, That Southwest Gas Corporation shall cease and desist from the present practices engaged in through its marketing program in Northern Nevada. It is further ordered, That all expenditures incurred in the promotion of said marketing program be excluded from the utility's rate base. It is further ordered, That Page 3, Schedule No. G-10, of Southwest Gas Corporation's Tariff not be approved. It is further ordered, That the Commission retains jurisdiction in the premises for the purpose of correcting any errors which might have occurred in the drafting of this Order. CARSON CITY, NEV., APRIL 23, 1965. BY THE COMMISSION, Chairman. Mr. HOROVITZ. Unfortunately, our contractors are not able to muster the courage, know-how and finances, in all 50 States, that our contractors were able to do. Neither are they assured of finding a commission as understanding as Chairman Allard's Commission in Carson City. Let me use my own State of Ohio for example. On February 29, 1968, Julian Krawcheck, a writer for the Cleveland Press (a ScrippsHoward paper) had a paragraph in his column as follows: For all practical purposes Ohio's Public Utilities Commission might as well not exist. The utilities can get almost anything they want from the PUC-the utilities know it and the PUC knows it-and the public knows it. All this in the wonderful Tomato Land of James A. Rhodes. Consequently, our national association has decided to petition the Federal Trade Commission and now chooses to seek assistance from the subcommittee on activities of regulatory agencies relating to small business. In as brief a way as possible, let me try and put into a nutshel what the problem of our industry is, how it has come about and why we need your assistance. Let me quote from our Federal Trade Commission complaint: *** With relentless force the public utility companies, both gas and electric, are inundating marketplaces which, historically, have been outside their areas of direct commercial interest. These markets, long thought to be the natural markets for the plumbing, heating, cooling contractors, are now being eclipsed by the public utility companies through practices which are quickly reaching and which in some cases have reached monopolistic structure. In the past, the plumbing-heating-cooling contractors have fairly met and in the best traditions of the American business way of life have waged competition in the sale and installation of plumbing-heating-cooling equipment and home appliances *** but, the great majority of these contractors are small businessmen, and they find themselves unable to cope with the awesome merchandising struggle that has developed between the utilities. Ironically, the utilities have invaded the contractors' markets, not necessarily to capture the business as such for themselves, but rather as a means of competing one with the other for the sale of their fuels. These giants have embarked upon a collision course which is destroying the plumbing-heating-cooling contractor and which in its wake will leave remaining true monopolies, possessed and to be aggrandized by the utilities. The function of the utilities is to supply raw energy to the consumer; and it is true that such end utilities are franchised by the public to operate as legal monopolies. But, though lawfully acquired, this monopoly power is being used in a manner which is substantially foreclosing the plumbing-heating-cooling contractor from competing in his normal and, indeed his only marketplace. Now, what are these practices we are complaining of the quest of the utilities to load their systems has led to subsidy programs limited only by the ingenuity of their sponsors. Promotional allowances, rebates, free service, no-cost long term financing and free installation. Sales at cost, or below cost or at unreasonably low prices-these are but a few of the ways in which the utilities have indulged themselves in their momentous efforts to expand their sales. The lengths to which the utilities have gone in order to secure these captive consumers seem to have no bounds our witnesses here today will document firsthand many of these instances. No plumbing contractor in the United States could possibly compete with the budget of these giant utilities in the dollars they could expend for full-page newspaper ads, radio and TV advertising, promotional allowances, giveaway programs and outright subsidy, for the use of their fuels. The utility company is able to recapture its losses as an expense, on which its rate structure is based. Plumbing-heating-cooling contractors are not the beneficiary of this public largess and he must look to his own resources to realize a profit or to absorb a loss. The law provides that a public utility is guaranteed a return upon its public utility business; consequently, the utility company is able to allocate the costs of its operations and its losses in the sale and instal |