We believe it is a problem that can be cured by the State commissions, and we strongly believe they should be given the first chance to cure them.

Insofar as the unregulated segments of the market are concerned, we believe corrective action is needed from other sources.

We think that this investigation, by focusing attention on the problem and consequences of promotional practices, has provided a very important start in this direction.

Thank you.

(The attachments to Mr. Condon's statement follow:)

GAS RANGE SALES IN CHICAGO, 1962-67, BY COMPANY AND DEALERS

GAS DRYER SALES IN CHICAGO, 1962-67, BY COMPANY AND DELAERS

SPACE HEATING ATTACHMENTS IN CHICAGO, BY HEATING EQUIVALENTS, 1963-67

THE PEOPLES GAS LIGHT & COKE CO. SPACE HEATING ATTACHMENTS-EQUIVALENTS, APARTMENT HOUSE MAR

*Retail appliance salesmen began selling gas heating equipment on May 14, 1962. On Feb. 6, 1967, and increased commission schedule became effective. Apartment house salesmen began selling space heating equipment on Feb. 1, 1963 On Nov. 1, 1966, an increased commission schedule became effective.

1 The single family residential market is not included here because it is highly saturated and primarily is a dealers or contractors mark et for replacementof gas equipment.

2 In March of 1966 we began a controlled campaign, calling personally on owners of the smaller apartment buildings. Increased attachments for 1966 reflect that sales promotional effort.

In 1967 we developed a direct mail advertising program for the apratment building market. Sales for that year reflect. the effectiveness of that program and the increase in salesmen's compensation.

Mr. POTVIN. Thank you, Mr. Chairman.

Mr. Condon, there are additional matters I must broach. It seems somehow beneath the dignity of a fifth of a billion dollar firm to engage in a colloquy with you on the point, but it has, as a matter of fact, to deal with the cleaning of flues. As I understand, the North Shore Gas Co. is a wholly-owned subsidiary of Peoples?

Mr. CONDON. That is right.

Mr. POTVIN. The subcommittee has received complaints on the order of several hundred from small businessmen in that area saying that they were making their livelihood in part from the cleaning of flues, and that recently they have been deprived of this business because your utility has been doing it at a price and under circumstances that they could not compete with. Frankly, it seems that on a live and let live basis, a corporation the size of yours perhaps has a duty to use a little more restraint than a small businessman. Have you taken any action to correct this situation, sir?

Mr. CONDON. I was going to cover this in my next point. We believe that the same condition prevails here that prevails in our effort to be sure that the dealers sell gas appliances in the city of Chicago. We knew that a large percentage of the space heating customers in the North Shore territory did not have an annual or every year-to-year contract to have their heating equipment inspected. We think this is a necessary function of any type of heating equipment. But we attempted to do the same thing that we did in Chicago; that is, at any time we become involved in a program of this type, we actually do not

hurt the dealers. We actually ultimately, after it begins to work, the dealer or the heating contractor winds up with a larger volume of business.

The letter of solicitation that we sent out to the North Shore customers, we pointed out in that letter that it is not our intent to take the business away from heating contractors that have service contracts. In the letter I would like to offer as an exhibit, we make the statement, if I may take the time, I would like to read a couple of paragraphs of it, Mr. Potvin.

Mr. POTVIN. Certainly.

Mr. CONDON. "As one of our valued gas heat customers, you are benefitting from the many advantages of clean, dependable, modern service. Because it is so dependable and convenient, some customers literally forget about their heating plants. To maintain that dependability, a furnace, boiler, conversion burner-any heating equipment-should be checked periodically."

Then there is a list of things to be done.

Many customers already have agreements with a contractor for this service. Others have agreements which include the replacement of parts as needed. We think this is excellent and recommend that those customers continue with their service agreements.

We were not attempting to take business away from them.

If you have not had your heating equipment checked lately, and do not have a contractor available to perform such work, the North Shore Gas will provide such service. Just fill out the enclosed postcard and mail it at your convenience. Subsequently, we sent a letter to all of the heating contractors in the North Shore territory explaining all the work we discontinued at the time we instituted this program. We cited our experiences in Chicago where we undertake programs of this type. Actually, the volume of business of the heating contractors or dealers go up.

I would like to submit a copy of the letter we sent to dealers or heating contractors, also. I would like to say that seriously, since then, we have not had a letter of complaint from the dealers.

Mr. CONTE. Both letters will be made a part of the record. (The documents referred to follow :)

NORTH SHORE GAS Co., Waukegan, Ill., February 5, 1968. DEAR CUSTOMER: As one of our valued gas heat customers, you are benefiting from the many advantages of that clean, dependable and modern service. Because it is so dependable and convenient, some customers literally forget about their heating plants. To maintain that dependability, a furnace, boiler, conversion burner any heating equipment-should be checked periodically.

An inspection of your heating equipment should include the following services: 1. Cleaning and adjusting the pilot and burner, if necessary.

2. Checking the operation of all controls.

3. Resetting the gas input rate to the burner, if necessary.

4. Inspection of the combustion chamber and flue passages in the appliance and their cleaning if needed.

5. Examination of the flue pipe and chimney.

6. Oiling of the valves, motors and bearings where required.

Many customers already have agreements with a contractor for this service. Others have agreements which include the replacement of parts as needed. We think this is excellent and recommend that those customers continue with their service agreements.

If you have not had your heating equipment checked lately, and do not have a contractor available to perform such work, North Shore Gas will provide such service. Just fill out the enclosed postal card and mail it at your convenience.

91-056-69-36

Our servicemen are trained to perform a general inspection of your heating equipment including all the services listed above. A charge of $10.00 will be made for inspecting a central heating plant. Gas-fired room heaters will be inspected for $5.00. For each additional room heater inspected at the time of your general heating inspection, our charge will be $2.50.

These charges apply only if the work is done during our regular working hours-8:30 A.M. to 4:00 P.M. on Mondays through Fridays. These charges will be added to your regular gas bill after the work is completed.

When any parts need replacement, our serivcemen will tell you about them and recommend that you have a contractor supply and install those parts.

We are limited in the number of inspections we can perform. For that reason, we may not be able to complete an inspection of your heating equipment before the start of the next heating season unless your request is received by us before March 15, 1968.

NORTH SHORE GAS Co., Waukegan, Ill., May 6, 1968.

GENTLEMEN: North Shore Gas Company has always regarded the plumbing and heating contractors in its area as its strongest allies in promoting gas. We are, therefore, greatly concerned that certain contractors took exception to our recent letter to some residential customers offering to perform general heating inspections. Such inspections are only one minor facet of our Company's recently revised program and policies to more aggressively promote the sale and utilization of gas and gas appliances to the mutual benefit of the Company and the contractors.

The policies that are now being applied in North Shore Gas Company's service territory are those which have been developed over long years of close association and cooperation with heating and plumbing contractors by Peoples Gas in Chicago. We are convinced that as time passes these policies will prove just as beneficial to heating and plumbing contractors in North Shore's service area as they have in Chicago.

As a gas utility, we firmly believe that the sale and installation of gas heating equipment is the primary responsibility of heating contractors. We also believe that as a gas utility we have a responsibility to contractors to create the customer's desire to buy gas heating and a responsibility to customers to see that adequate service is available for gas heating equipment. It has been our experience in Chicago that the most effective way to interest customers in using modern gas equipment and thus increase activity for you in the gas heating market is to provide a sales promotional program having the following elements:

1. A cooperative advertising program available to all heating contractors and dealers regardless of size. Last year we spent $4,230 on this program in North Shore's service territory.

2. Sales engineering services available to contractors to provide technical assistance on the application of gas to specific pieces of equipment and information about the availability of gas in the North Shore service area. We now have 10 sales engineers helping to stimulate gas equipment sales in North Shore's service territory.

3. Newspaper, television, radio and direct mail advertising to create customer interest in gas suggesting they see their dealer, contractor or the Gas Company. In 1967 we spent $154,974 on this advertising, not counting cooperative advertising. North Shore area dealers and contractors also benefit from nearly $1,500,000 spent by Peoples Gas for radio, TV and metropolitan newspaper advertising in Chicago.

4. Door-to-door representatives having the responsibility of telling the story of gas to customers and endeavoring to get them to "act now" to install gas heat. We have 12 of these representatives on the street selling gas.

5. Assurance that adequate service for customers' gas appliances is available from dealers and contractors, supplemented by gas-air adjustment service from the Gas Company for which a charge is made.

Experience has shown that contractors are able to do local advertising and selling but need the benefits of an over-all sales promotional program which provides a focus for all of the individual promotional efforts of the contractors. We think that our program adds up to substantial support of heating and plumbing contractors. We also think it has done a lot to insure your success as contractors and therefore ours as a gas utility.

We are sometimes asked why we engaged in the merchandising of gas heating equipment. I suspect that on first blush it is only natural for a heating contractor to feel that if the Gas Company stopped selling heating equipment, he would have more sales. The following table shows how very few gas heating appliances are sold by the Gas Company:

HEATING SALES IN NORTH SHORE AREA (NOT INCLUDING GAS HEAT REPLACEMENTS)

: Each equivalent represents the heating equipment required to heat a single-family residence.

As you can see, contractors would gain only a few jobs in the event that we should decide to get out of the merchandising business.

On the other hand, and most importantly, we think heating contractors would have a lot to lose if North Shore stopped selling heating equipment. Putting it bluntly, our merchandising efforts "stir the pot" and result in more sales for everybody. This effect is pretty clearly demonstrated by the table which I am attaching to this letter concerning sales of gas heating equipment in Chicago. As this table shows, once we initiated a more aggressive effort to sell gas space heating equipment, our sales of space heating equipment increased so did the sales of heating contractors. The reason for this effect is simple. Our salesmen create the desire for gas heating equipment; when the customer is ready to buy that equipment, however, he usually goes to a heating contractor.

Because we so firmly believe in the heating contractors, we have had some long established policies under which we operate:

1. We will not knowingly sell any gas equipment that is not available to contractors.

2. Our purchases are made at the same prices that are offered to contractors as shown on manufacturer or distributor price lists.

3. Gas heating equipment sold by the Gas Company is installed by qualified heating contractors.

As you know, the installed prices we charge for heating equipment are higher than yours. Also, we make no installations of the equipment we sell; instead we hire contractors such as yourself.

I think some heating contractors have the impression that our new policy of providing a limited number of general heating inspections is a one-way street through which dollars move out of the contractors' pockets into the Gas Company's. This is not the case.

First, we doubt that very many of our heating customers will abandon an existing relationship with a heating contractor to have an inspection performed by our Company. Our letter was very careful to state:

"Many customers already have agreements with contractors for this service. Others have agreements which include the replacement of parts as needed. We think this is excellent and recommend that those customers continue with their service agreements."

We suspect that as in the case of our merchandising efforts our efforts to encourage general heating inspections will result in more, not less, inspection business for contractors.

Moreover, as part of the recent change in our servicing policy, we have discontinued the performance of certain functions which dealers and contractors will now have the sole opportunity to perform. For example, on May 1, 1967, we discontinued the replacement of parts on ranges, dryers, water heaters and heating equipment except those in warranty on our own sales. For the period of May 1, 1966 to May 1, 1967, we replaced 2,393 parts of all kinds during that period. By contrast, we estimate that from May 1, 1967 to May 1, 1968, only 819 parts will have been replaced. This represents an indicated increase of 1,574 parts replacement jobs for dealers and contractors as a result of our change in policy.

In addition, on May 1, 1967, North Shore Gas discontinued connecting customers' appliances and repairing customers' fuel lines. Based upon our previous