Hon. JOHN D. DINGELL, NEW JERSEY POWER & LIGHT CO., Chairman, Subcommittee on Regulatory Agencies, Select Committee on Small Business, House of Representatives of the United States, Washington, D.C. DEAR CONGRESSMAN DINGELL: Our attention has been called to the statements and testimony of Mr. Ken Muller and Mr. Robert Nielsen given before your Committee on February 1, 1968 with reference to the "Old Farm at Tewksbury" subdivision in the area of Chester, New Jersey, served by New Jersey Power & Light Company. We have reviewed this matter and find that the promotional benefits described in this testimony are those which fall within certain of the Company's programs which have been fully described to you in the "Response to Questionnaire, Select Committee on Small Business, Sub-Committee No. 5, United States House of Representatives 90th Congress" of Jersey Central Power & Light Company and New Jersey Power & Light Company, dated September 5, 1967. More particularly, the programs involved are the Company's New Homes Program and its Gold Medallion Service Entrance Purchase Plan, information as to which is set forth at Pages 8 and 11 of thhe Response. Information as to Underground Residential distribution relevant to the Tewksbury development is set forth at Page 15 of the Response and URD Exhibits thereto. The promotional programs with which the above mentioned testimony was concerned are uniformly available and the details of the plans have been submitted by the Company to the State of New Jersey, Department of Public Utilities, Board of Public Utility Commissioners. The requirements of the Board provide that any new plan or any change in an existing promotional practice shall be submitted to the Board at least 30 days prior to its effective date and that a statement of the amount expended for each promotional program during the preceding calendar year shall be submitted to the Board annually on or about March 1st. The Company has complied with these requirements. It is understood that all data submitted pursuant to these requirements is reviewed by the Board which has advised the Company that "to qualify as an acceptable practice under the law, promotional incentives, payments or allowances must be reasonable and must be uniformly available to all members of a reasonably defined class." The Board has not advised the Company that any of its plans fail to qualify as an acceptable practice. The Programs are designed to promote increased acceptance of electric uses in homes to give the Company the benefit of improved load factor, the ability to attain economies of scale and advances in technology in generation and transmission facilities which will thus benefit all the Company's customers. The economic basis for such programs are more fully set forth in testimony which will be given to your Committee by Dr. William J. Baumol and Messrs. Stelzer, Netschert and Gerber of the National Economic Research Associates Inc. on behalf of our Company and certain other utility companies. We would simply add at this point that the promotional payments described by Mr. Nielsen and Mr. Muller are inaccurate as to amounts. For instance, the $11,200 quoted by Mr. Muller in his testimony is inaccurate. Payments to Mr. Muller would, through the presence of Gold Medallion homes in the development, amount to $100 for each of his 56 homes together with a $200 allowance for a single model home, making a total of $5,800. Again, reference is made to the September 5, 1967 Response of this company in connection with this program. Mr. Muller's estimate of $2,000 for advertising is similarly inaccurate, the actual amount of such advertising run in local papers and paid for by the Company being $550. The $28,000 figure (actually $28,060) which Mr. Muller states that the Company has offered to absorb for underground facilities represents the excess investment in underground facilities compared to overhead facilities otherwise necessary to serve this development. Again reference is made to pages 15 through 17 of the Company's September 5, 1967 Response dealing with underground residential distribution. Such reference will demonstrate that like treatment is afforded to all similar developments in our territory. Finally we have noted in the transcript that, following Mr. Muller's prepared statement, some question seems to have arisen as to whether or not this Company would in the future deal fairly with Mr. Muller by reason of his testimony before your Committee. In this regard we would certainly, and most strongly, like to state that the appearance of Mr. Muller or any other witness before any Committee of Congress would never in any way jeopardize his relationships with this Company. The policy of the Company is quite clear in this regard and anything to the contrary would certainly not be tolerated by us. We respectfully request that this letter be made a part of the record of your Sub-Committee's hearings on this matter. Respectfully yours, F. I. SMITH, Vice President. SOUTH CAROLINA ELECTRIC & GAS Co., Hon. JOHN D. DINGELL, Chairman, Select Committee on Small Business on Activities of Regulatory Activi ties Relating to Small Business, Washington, D.C. SIR: We have been following the activities of your Committee with a great deal of interest in that the basic philosophies you are considering concern inequities which may, in some instances, attend payments of incentive bonuses by suppliers of electric energy. Based on the hypothesis that the primary responsi bility of your Committee is to investigate and recommend to Congress corrective measures which must be taken to eliminate such inequities, we call your attention to policies and practices presently being carried on by REA Cooperatives in the State of South Carolina. REA Cooperatives in our State are not under the jurisdiction of the South Carolina Public Service Commission nor any other governmental authority in our State. They operate independently and through a State association. There are no territorial limitations to REA Cooperatives except that they cannot operate in sizable municipalities. This is limited to towns of more than 2500 by State law and towns of more than 1500 by Federal law, although these limitations are not complied with in this State. By far the greatest expansion in residential development in our State today is in the areas immediately adjacent to and surrounding municipalities. Develop ments in these areas account for more than 80% of our customer gain each year and the majority of the developments are constructed by speculative builders. The South Carolina Public Service Commission, although it took no formal action, requested the cessation of incentive bonuses being offered by electric utilities. This action dealt primarily with our Company because it is the major utility operating solely in our State. Duke Power Company and Carolina Power & Light Company both operate in this State, however, they are headquartered in North Carolina. The North Carolina Public Service Commission ordered cessation of the bonus payments in that State. We, together with the other utilities, voluntarily withdrew our incentive bonuses-ours effective December 31, 1965. We are in direct competition with the REA Cooperatives operating within the service area allocated to this Company by the South Carolina Public Serv ice Commission. The Cooperatives are offering incentive and bonus programs throughout the area. We are enclosing herewith letters and/or other material showing the offerings of Mid-Carolina Electric Cooperative, Lexington, South Carolina; Aiken Electric Cooperative, Aiken, South Carolina; and Coastal Elec tric Cooperative, Walterboro, South Carolina. We have a letter in our files which is an offer from Berkeley Electric Cooperative, Moncks Corner, South Carolina. making the identical offer as that of Coastal Electric Cooperative. In fact, the smaller Cooperative located in Walterboro actually purchases baseboard heating systems through Berkeley Electric Cooperative. You will see from the enclosures that the programs vary from actually furnishing house heating equipment to its equivalent in cash or a mere cash outlay. These bonuses vary in amount with an average of approximately $150.00 extending in some instances as high as $400.00 or more. Such bonuses are primarily designed for payment to the owner of the residence. The REA Cooperatives now operate on the premise that the best method to obtain territory is to make payments to the developers of residential subdivisions. Mid-Carolina Electric Cooperative began by offering $50.00 per lot to a developer for a right-of-way to supply the service. This was in addition to any other proffered bonuses. This Cooperative has steadily increased its bonus plan to approximately $300.00 per lot. This program is designed to place the bonus money in the hands of the developer. April 30th I was informed by one of our larger developers (although he had previously given us right-of-way easements in two subdivisions-Woodland Hills and Woodland Hills West and extensions thereof) that he would be forced to allow a Cooperative to supply service in these Subdivisions in which we are presently supplying service to 274 residences. He stated to me that the Cooperative offer was unbelievable and that he could not turn it down. In the immediate area of the aforementioned Subdivisions, which is a very short distance from the City of Columbia, South Carolina, a 196 unit apartment complex will be constructed by Cauthen-Parker, Incorporated. The developers, in negotiating with us for service, advised of an offer by the same Mid-Carolina Electric Cooperative to finance the appliances for the apartments. We offered to pledge the credit of our Company to the local banks for a loan to the CauthenParker group with the going interest rate of 61⁄2% for a loan of approximately $200,000.00. On May 1st we received the enclosed letter from Mr. Grover C. Cauthen, III, President of the Company, indicating that he was turning down our proposal and stating that we should realize that the situation is "extremely competitive." As to how competitive—Mid-Carolina Electric Cooperative offered him a loan at 4% interest. This is some of the money that the Federal Government borrows at 6% interest and, in turn, loans it to Cooperatives at 2%. It is quite strange to us that this money is available since the Cooperatives have informed our Governor that they are so poor that they cannot pay normal business taxes in our State comparable to those we pay. Certainly you and other men of wisdom on your Committee can quickly recognize this as unfair competition. The attitude of the Cooperative representatives presents an alarming picture for the free-enterprise system and is one of the primary reasons that their programs should be prohibited by law. It is well exemplified in a statement made by Marion B. Holman, Esquire, Attorney for Mid-Carolina Electric Cooperative, to me when he said: "I told Mr. Gittleman (Manager of Mid-Carolina Electric Cooperative) to lose a million dollars but not to lose a customer." At the time of Mr. Holman's statement to me he probably had knowledge of the application for the million dollar loan which has been approved by REA Washington and announced in The State newspaper this morning. Please see the attached clipping. The general philosophy of the Cooperatives is to extend their lines anywhere regardless of the location of the lines of tax paying utilities. In the case of Cauthen-Parker, mentioned above, our lines completely transverse the property while the Cooperative's facilities are a considerable distance from the property. In the case of the Woodland Hills and Woodland Hills West Subdivisions our facilities are located within the Subdivisions while those of the Cooperative are a considerable distance outside of them. This is mentioned merely to further prove the inequity of this type incentive bonus and the underhand practices being carried on by Cooperatives to unfairly obtain customers within the territory already served by our Company in areas prescribed by the South Carolina Public Service Commission. It certainly is inappropriate for the Congress to allow the wanton waste of public funds in the cases cited herein when the President of our Country has made it so crystal clear that an income tax surcharge is absolutely necessary to stabilize our economy. Under present laws the tax exempt Cooperatives will not share this additional burden but certainly monies from the additional burden should not be passed on to such organizations. We are certain that you and your Committee know that the Federal Government anticipates issuing 6% bonds to be ableto loan the REA money at 2%. We have not done any research in other States to determine whether or not the Cooperatives there are conducting this same type of unfair practices, but we do know such practices are going on in Florida and Louisiana. In fact, Mr. A. H. Hines, Jr., Executive Vice President of Florida Power Corporation, appeared last spring before the Sub-Committee of the Department of Agriculture and Related Agencies of the Senate Appropriations Committee of the U.S. Senate and cited to that group certain unorthodox practices being carried on in that State by the REA Cooperatives. Your Committee undoubtedly will hear from a Louisiana utility which has documented proof that the REA's are engaged in land clearing and drainage, without cost to the developer, in residential subdivision developments and installing facilities beyond the meter-all of which are subsidies or bonuses and evidence unorthodox practices in the utility business. We understand that your Committee has not yet heard any of the testimony of investor-owned utilities, however, we beg that you place this writing in the records for consideration by your Committee and the other members of Congress. If you desire testimony from those quoted herein, we shall be glad to furnish the names and addresses so that they can be invited to appear before your Committee. Very truly yours, ALLAN C. MUSTARD, 91-056 O-6958 |