To what extent do the arrangements between the Nation's largest industry and the large equipment manufacturers work to exclude competitive types of heat from the market, or put the competitors, many of them small businessmen, at a distinct disadvantage? The answer, I would think, is pertinent to your investigation. And to what extent is the Federal Government subsidizing unfair competition through the urban renewal program? That is another area you may wish to look at. The power industry has not been noted for enthusiasm over many Federal-grant programs. Urban renewal is an exception. Electrical World, trade journal of the I.O.U.'s, told why in an editorial in its February 12, 1968, issue. "It is the utility," said Electrical World, "that stands to gain handsomely by accelerating urban renewal projects that now drag on for years, and selling these projects the all-electric concept." Now there are good points about urban renewal. In those instances where electric heat can compete, without subsidy, with alternative types of heat, all-electric living may be the best answer in renewal projects. I think we should be on guard, though, lest urban renewal be used as a cover to raze areas now heated by oil or gas. They would then be all electrified, through arrangements made among equipment manufacturers, power companies, and the private interests who develop urban renewal companies and the private interests who develop urban renewal projects, even though electric heat may be more expensive. Basic to sound regulation is the necessity for information on utility expenditures, so that items which fall into the payola category are not included in the operating expenses or the rate base. Every utility, of course, wants to put everything in the rate base that it can. One of the main reasons why power companies are collecting $1 billion more than they should each year is because they have been allowed to put all sorts of expenses in the rate base, on which they receive a percentage. Let me tell a little story to make the point about what happens when utilities pad the rate base. Three men were having lunch, not far from the Capitol. One was a wealthy businessman, the second a cost-plus defense contractor, the third a utility official. It was a good lunch, and a big check. The first man reached for the check and said, "I'll take it. I'm in the 70-percent bracket. It will only cost me 30 percent of the total." "Don't be silly," said the cost-plus contractor. "I can cover it all in my expenses. The utility official took the check, paid it, turned to his companions and said: "Boys, it's my pleasure, I'll slip it in the rate base and earn 13 percent on it forever." Mr. Chairman, I have here some documents which may be of interest to the subcommittee. They are invoices of payments made to 91-056-69-14 builders, equipment suppliers, an advertising firm, to the National Electrical Manufacturers Association, to a television station, and others, as part of its electric and gas promotion and cooperative advertising programs, by a multi-billion-dollar west coast utility, Pacific Gas & Electric Co. I believe that the public has a right to know whether these expenses, aimed at decreasing competition from alternative sources of energy, are included in the rate base or operating expenses. Customers of the utility have a right to know whether they are paying for a subsidy. I do not believe P.G. & E. will object to your use of this material. Utilities claim that they live in a goldfish bowl. P.G. & E. even helps finance a canned editorial service, the Industrial News Review, which tells how every act of utilities is subject to public observation and local, State, or Federal regulation. And so, Mr. Chairman, I submit for your hearing record these several hundred P.G. & E. invoices. I ask consent to insert for the record also an article, "P.G. & E. Profits Called Too High," which appeared in the March 13, 1968, Argonaut, and another article in the March 15th issue of the San Francisco Chronicle, entitled "Suit Charges Excess P.G. & E. Profits." Because of the reference to Industrial News Review, which supplies 11,000 editors each week with two editorials lauding the utilities and their goldfish bowls, I am also submitting for the record two typical editorials, along with a P.G. & E. invoice which shows that the company pays Industrial News Review $191.66 a month-that is $2,299.92 a year-for these self-serving editorials. I think it would be worth while to determine whether such expenses are also part of the cost of getting the lights on and the gas lit in California and in other States where editorial payola is dispensed. Mr. DINGELL. Without objection, the documents referred to will be inserted in the record. Senator METCALF. It may be that all of the invoices would not be wanted. The staff can examine them, though, and find out which ones they wish to use. I am submitting them for staff and further examination. Mr. DINGELL. The committee will instruct the staff to review those and insert such portion of them as deemed appropriate in the record. Senator, the Chair wishes to commend you for a very fine statement. Have you found any problems with industrial competition by the large utilities with the small businessmen in your area in connection with appliance sales, and matters of this kind? Senator METCALF. Mr. Chairman, I have not found so many problems in my area. This was rather a special dividend that came from the study of the utility activities in my own area, where the Montana Power Co. is both the dominant electric and gas utility. After the work and research that Mr. Reinemer and I did on "overcharge," we found in many areas of the United States there was this payola, this subsidizing of contractors, insistence on contractors installing an all-electric heat, and if such were installed, there would be free installation of all the wiring-if such heat were not installed, the wiring would be at a prohibitive expense. Things of that sort began to develop in various areas. As a result of our research, we have acquired such documents as were submitted to us by someone who knew about the Pacific Gas & Electric activity. Mr. DINGELL. The committee will review those matters with a great deal of care. Mr. Potvin. Mr. POTVIN. Mr. Chairman-Senator Metcalf, I think that you are in a sense almost uniquely qualified to make a judgment on the issue that is developing in these hearings, because of your very extensive work in this area. What we seem to be finding here is a branching out, as it were, on the part of utilities. We have had complaints that they have beenoh, as an example, Baltimore Gas & Electric very aggressively retails appliances. In other States we find that they install-the local utility installs heating and cooling equipment. I have here a letter from the National Society of Professional Engineers, objecting to the fact that the utilities, on an in-house basis, without charge, perform the services which the professional engineers perform in earning their livelihood. It seems to me, sir, that one question emerges with stark clarity. These utilities have been given a lawful monopoly to dispense a given kind of energy in a given hunk of geography. Does it strike you, sir, that they are perhaps seeking to extend either monopoly, or at the very least market dominance, beyond the terms of their original grant? Senator METCALF. I think in your question you phrased it better than perhaps I could. Here is a monopoly that is selling the most valuable and the most valued product in America today, and that is electricity. Everyone needs it to make his home function and his life work. They go into competition against oil dealers, coal dealers, appliance dealers, and very aggressively, and somewhat unfairly, and often with the subsidy that goes out of the overcharge to their customers-they will, for instance, loan money for the purchase of electric furnishings in an apartment house at a rate that is below the going interest rate. Now, that subsidy has to come from the customers' rates in other areas. Or they will promise to install free of charge electric furnishings, and thereby have a locked-in customer. In the appliance business, in the guise of expanding their utility activity, they will give away or repair free appliances, and drive small appliance dealers out of business completely. Now, that was an area in Montana that was completely under the domination of electric utility until the Montana Railroad and Public Service Commission, very commendably, ordered the utility to divorce itself from the appliance business. But each time we have this utility, with risk-free, built-in, cost-plus profit, expanding into areas where there should be competition from essentially small business. Oil dealers in these communities, coal dealers, are highly competitive. you If you cannot get your oil from one man in the middle of the winter, all have to do is call up the man across the street, and another service station is there with a truck and a hose to service you. But if you get the utility locked in, it may be several days before you can get that kind of service, because they are risk-free and competitive free. Mr. POTVIN. Do you feel, sir, that the social consequences of this attempted extension of monopoly or market dominance is undesirable? I am asking it in this context. We live, after all, in an age where television networks own baseball teams and publishing companies and a whole host of other interlocking interests. We live in an age when the corporate conglomerate type of merger is seemingly on the march. What do you feel this might forebode for the small businessman in national terms? Senator METCALF. Well, perhaps the small businessman is going to be absorbed into a group of huge conglomerates, as you mention. But the small businessman at least should be permitted to occupy a competitive area, in a competitive economy. We have on the one side the utilities which are different-they are always different. They have ability in monopoly that is given to them by the Government. And they should be confined within the area of that monopoly where of course you cannot have duplicating lines or duplicating generators or things of that sort. But in our business economy, in our free enterprise system, we must protect the people who do have competition, and do take risks, and do participate in the business enterprise system, from inroads from that lockedin monopoly. And so I feel that if maybe one fuel oil dealer cannot compete, or one oil company cannot compete, he may be merged and absorbed. But there is always going to be competition between these various sources of energy. And we must confine this source of energy that is given a special privilege and a special monopoly to the special type of service that it is supposed to supply. Mr. POTVIN. That is all I have. Thank you, Mr. Chairman. Mr. DINGELL. Senator, the committee is most grateful to you for your presence this morning. We are most appreciative for your very helpful testimony. We certainly wish to commend you for the work that went into your presentation, for the information that you have given the committee. Senator METCALF. I am delighted to be here. I am honored to be before this committee. Mr. DINGELL. Senator, we look forward to seeing you many many times, and to having a pleasant visit with you socially, too. Mr. Reinemer, thank you very much for your presence. (The following was ordered to be inserted at this point:) Hon. JOHN D. DINGELL, U.S. SENATE, COMMITTEE ON FINANCE, Washington, D.C., March 25, 1968. Chairman, Subcommittee on Regulatory and Enforcement Agencies, Select Committee on Small Business, Washington, D.C. DEAR MR. CHAIRMAN: Since testifying before your Subcommittee, I have received the enclosed Philadelphia Inquirer article concerning Philadelphia Electric's plans to move into non-utility areas in a big way. This illustrates the point which we were discussing, the extent to which utility corporations, chartered for a specific purpose, are moving into new areas of competition with risk industries. You may wish to incorporate this article in the hearing record. Very truly yours, Enclosure. LEE METCALF. [From the Philadelphia Inquirer, Mar. 16, 1968] PHILADELPHIA ELECTRIC IS PLANNING TO DIVERSIFY Philadelphia Electric Co. is taking steps which will permit diversifications o its business. Management has proposed an amendment to its corporate charter allowing it to move into new and far-ranging fields and will present the plan for a vote at the April 10 shareholders meeting. NO INDICATIONS A proxy statement detailing the revisions gave no indications of just what new businesses the utility planned and the PE said no merger plans are under way. Under the changes, PE could move into manufacturing, processing, owning, using and dealing in personal property of every class and description." In effect, this would enable PE to enter any field authorized under Pennsylvania's corporation laws. SUPPORTS CHANGE In support of the change, R. G. Rincliffe, chairman, said it would allow the utility to engage in business activities, supplementary or additional to those in which it is now engaged." PE also will propose to shareholders an amendment removing a requirement that preferred shareholders meet on proposed mergers where approval of common stockholders is not required. The utility was incorporated in 1924 as Susquehanna Water Power Co. and adopted its present name in 1926. Its operations include generation and sale of electricity, gas and steam in the Philadelphia area and parts of central Pennsylvania. Mr. DINGELL. The committee is happy to welcome as its next witness Mr. James E. Ray. Mr. Ray, the Chair notes that you are speaking on behalf of the Sheet Metal and Air Conditioning Contractors National Association. Counsel advises me that you are under subpena, is that correct? Mr. RAY. Yes, sir, that is correct. Mr. DINGELL. The Chair will afford you the right of having counsel present with you if you so desire. Do you have counsel present? Mr. RAY. Yes. I have Mr. James H. Ferguson with me. He is not counsel. He is a representative of the organization which we are speaking for. Mr. DINGELL. I see. Since you are here under subpena, Mr. Ray, it will be necessary for the Chair to administer the oath to you. If you will raise your right hand. Do you solemnly swear that the testimony you are about to give, today, is the truth, the whole truth, and nothing but the truth? Mr. RAY. I do. Mr. DINGELL. If you will be seated, Mr. Ray. The Chair will be most pleased at this time to receive your state ment. |