PROMOTIONAL PRACTICES BY PUBLIC UTILITIES AND THEIR IMPACT UPON SMALL BUSINESS

APPENDIX

SURVEY OF UTILITY SUBSIDY PRACTICES AND THEIR EFFECT ON THE NATION'S FUEL OIL DEALERS CONDUCTED BY THE NATIONAL OIL JOBBERS COUNCIL, SUMMER 1967

PART I. SUMMARY, CONCLUSIONS, AND TABLES

Objectives of the Survey

This survey concerning Utility Subsidy practices was conducted in June-July, 1967, by the National Oil Jobbers Council (NOJC) among some 5,600 of its members. The New England Fuel Institute (NEFI), with some 1,400 members, also cooperated. Questionnaires were mailed to these 7,000 fuel oil dealers, and 509 (or 7.3%) responded.

The purpose of the survey was to determine:

1. The extent of Utility Subsidies in the 23 states surveyed;

2. The types of subsidies offered by the Utilities in those states, to builders and/or homeowners;

3. The names of the Utilities engaged in these subsidy practices;

4. The fuel oil dealer's own estimate of gas, oil and electricity's share of the new installation market for various years;

5. The fuel oil dealer's actual number of oil heat installations for several previous years;

6. The fuel oil dealers' own comments as to how Utility Subsidy practices are affecting them directly;

7. To collect all possible documentation of various types of Subsidies (from newspaper ads offering cash allowances, discounts and the like, Utility brochures describing such allowances, etc., Utility sales programs, etc.).

Conclusions

1. The average fuel oil dealer is presently witnessing a tremendous decline of heating oil as an energy source in all new construction. If present trends continue, by 1975 or 1980 at the latest this market will be negligible. To a significant extent this great decline of oil as an energy source for space heating in new construction can be attributed to Utility Subsidies.

2. Fuel oil as an energy's share of the total space heating market is also undergoing a steady sharp decline (by conversions of presently oil heated dwellings to gas and electricity plus the loss of the new construction market). Projection of this trend indicates fuel oil's share of the total market will decrease at an ever increasing rate. Again, Utility Subsidies are a major cause of this decline in the overall space heating market according to the average fuel oil dealer.

3. The average fuel oil dealer is not financially able to compete with these huge, supposedly regulatated monopolistic Utilities in their Subsidy and give away programs. In their zeal to capture all of the new construction market and convert as many of the existing plants utilizing competitive fuels to their own energy source, the Utilities Subsidy practices have precluded non-utility competitors from competing for new business. Utilities have even started litigation amongst themselves to stop each other from some such practices. Not by any stretch of the imagination can some of these flagrant subsidies be called reasonable "promotional expenses" or usual "advertising campaigns."

- (A1)

4. If some recourse is not forthcoming from either the activities of Utilities themselves, the Department of Justice or the Federal regulatory agencies regarding these unfair subsidy practices, the number of small, independent heating oil dealers will grow smaller and smaller. Because of the fact new oil heat installations have shown a steady decrease, and many present oil heat users are being lured away by various subsidy schemes, this continued drop in the number of customers by the average heating oil dealer will cause them to find it less desirable even to stay in business, or find it economically impossible to do so. Thus, they will either go out of business, be acquired by a larger firm or be forced to sell out to their supplier. The total number of oil heat dealers will decrease significantly, causing reduction in the number of competitors in many areas, and a loss of a viable part of the economy to the United States generally.

Background of the survey

In anticipation of hearings before the Select Committee on Small Business of the House of Representatives concerning "Promotional Practices by Public Utili ties and their Effect Upon Small Business," the National Oil Jobbers Council conducted a Survey among many of its members regarding these practices. Also, members of the New England Fuel Institute participated in this Survey.

A copy of the questionnaire which was sent to all of these heating oil dealers is included as an Attachment in this Report. A more detailed description of the Survey (i.e. number of questionnaires mailed, returns by State, detailed answers to the questions, etc.) is included in the Appendix to this Report.

All respondents were asked to describe, in their own words, how these Subsidy practices are affecting them individually, and to name the Utilities involved. These verbatim comments are, in the aggregate, quite lengthy and are included in a separate report. Though many are of a general nature, we felt they would be of sufficient interest to the Members and Staff of this Committee that they should be included in the record. Their remarks paint a grim picture for the small, independent fuel oil distributor, to say the least. Names of all Utilities mentioned are also included in that report.

Also, all respondents were requested to include with their questionnaire upon returning it any documentation they had in their possession of these Utility Subsidy practices (newspaper ads, brochures and other evidence of Subsidies). Sixty-two (62) respondents included some such material and this will also be presented to the Committee in the form of a separate Exhibit.

The scope of this part of the Report will concern itself with the types of Subsidies these Utilities are engaged in, as reported by members of NOJC and NEFI, and their estimates of fuel oil's decline in the space heating market as compared to the rise of electricity and gas for various years, and in the declining number of oil heat installations made over the past 8 years. This decline, to repeat, can sig nificantly be attributed to the Utilities' massive Subsidy programs.

1. Number of respondents

Summary of Results

Of the 509 total returns received, 405 were usable, or about 6% of those mailed out. Returns were received from 23 states generally in the Northern, MiddleWest, Middle-Atlantic and New England areas. Returns by state are listed in Table VIII. All respondents answered questions 1, 3 and 4 relating to types of Subsidies. Fewer respondents answered questions 5 and 6 which pertain to estimates of the shares of the space heating market of oil, gas and electricity for various years, and the number of new oil heat installations made over the past several years. This is attributable to the fact a detailed knowledge of the space heating situation was required, and also that a somewhat detailed recordcheck was involved. These results are shown in Tables II and III in this Report. 2. Oil heat's rapidly declining share of the space heating market

Fuel oil distributors estimated their share of new installations in the space heating market decreased from 85% in 1947 to 62% in 1957 and to 24% in 1966. We estimated that electricity's share in 1947 was practically nothing. The re spondents estimated that in 1957 electricity got 4% of the new installation market, and in 1966 this rose to 22%. Natural gas, including some LPG, increased from 15% in 1947 to 34% in 1957 and to 54% in 1966. It should be remembered that these estimates were from fuel oil distributors in 23 states, and returns from 9 states accounted for 73% of all of the returns. If other geographic areas of the U.S. were included, the above estimates would be different, depending on the type of fuel historically used for space heating purposes and other factors. (See Table VIII for the state by state analysis of returns.)

3. Decreasing number of oil burner installations

From 1957 through 1966 the number of new oil heat installations decreased an average of 12% for those firms providing that service. (See Table III.)

4. Types of subsidies by utilities to builders

The most prevalent types of subsidies to builders were, in order of the total number of times indicated, as follows: Cash payments (59%), free trenching (48%), free appliances (22%), financing of builder's projects (21%), free fuel for models (19%), and "Other" (18%-61 "other" types were noted-they run the gamut-and are listed in Exhibit I). Additional types of Subsidies are also included in Table IV. Percentages total more than 100% because most responddents indicated more than one type of subsidy.

5. Types of subsidies by utilities to homeowners

Again, the most prevalent type of subsidy indicated was cash payments (54%), then free installation (44%), selling equipment at or below cost (44%), free appliances (29%), and "Other" (4%). Also, some additional types of Subsidies are included in Table VI. For a listing of "other" types mentioned, see Exhibit II. TABLE 1.-ANALYSIS OF SURVEY RETURNS

TABLE II-ESTIMATES OF NEW HEATING INSTALLATIONS GOING TO GAS, OIL, AND ELECTRICITY, 1947, 1957, 1966

Note: New oil installations actually decreased 27 percent from 1947 to 1957, and have decreased 72 percent from 1947

to 1966.

New gas installations increased 226 percent from 1947 to 1957, and have increased 360 percent from 1947 to 1966. Electrical installations increased 550 percent from 1957 to 1966.

TABLE III.-NUMBER OF OIL BURNER INSTALLATIONS MADE FROM 1959 TO 1966

1 Total respondents who indicated their installations for the years 1959 through 1966 was 138.

2 No change.

Note: Decrease in number of installations from 1959 through 1960 was 590 units. This is a decrease of 11.7 percent over the 8-year period.

TABLE IV.-TYPES OF SUBSIDIES TO BUILDERS BY NUMBER OF TIMES INDICATED

Free installation or installation allowance.

Free advertising (including radio, TV, billboards, newspapers).

61

17.8

24

6.9

Free trips to Acapulco, Nassau, Jamaica, Canada, California, Las Vegas, Bermuda. Plus prizes and contests.

12

3.5

Free insulation or insulation allowance.

10

Sell equipment or appliances at or below cost.

10

Free wiring or wiring allowance..

9

1 Total respondents indicating subsidies to builders: 347. This figure was used to determine percentages. 2 "Other" types of subsidies are listed in exhibit I.

TABLE V.-SUBSIDIES TO BUILDERS, BY TYPE(S), BY INDIVIDUAL RESPONDENTS

1 Categories are as follows: 1-Free trenching; 2-Cash payments; 3-Free appliances; 4-Free fuel for models; and 5-Financing of builder's projects.

Note: Those indicating "other" types of subsidies only: 23.

(1) Color TV.

EXHIBIT I

"OTHER" TYPES OF SUBSIDIES TO BUILDERS

(2) Open House Costs.

(3) Special Commercial Gas Rates.

(4) Buying Fuel Oil Tanks and Fuel and Taking to Dumps.

(5) Technical Assistance.

(6) Nothing would Surprise Us.

(7) Architectural Subsidy.

(8) Model Financing, Property Financing.

(9) Gas Dryer and Gas Lamp Post for Home.

(10) Panels, Etc.

(11) Carry Mortgages.

(12) Will Supply Personnel for Model Opening.

(13) Well Drilling for Heat Pump Installation for a School.

(14) Free Service Entrance, $100-$150.

(15) Free Underground Cable-If All Electric.

(16) Their Equipment is Quoted Considerably Cheaper than Same Oil Equipment-$300-$1,000 depending on Size of Installation.

(17) Finance Equipment on Homeowner's Monthly Bill.

(18) Kickbacks to Builders.

(19) We believe the builders can buy appliances through utility at cost.

(20) Free Maintenance and Free Service.

(21) Allowances. $6,400 for 40-unit Apartment Building.

(22) Free Gas in Unsold Homes.

(23) $200 Drying Out Allowance for Heat on New Homes.

(24) Equipment.

(25) Free Hook-Up.

(26) Guarantee Cost for 3 Years. Install Insulation or Stipulated Amount to

Apply on Cost.

(27) Free Cables and Free Hook-Up.

(28) Entertain.