-90 are apparently maintaining our share of the new home market, and we believe we have shown a slight increase when compared with the totals of gas and electricity for 1966. ". stated that 681 More recently, the association [o]f paramount importance is the fact that the number of And oil-company refiners have had a very favorable profits experience in recent years. Between 1960 and 1966 major oil company gross operating income rose from $32, 1 billion to $48. 8 billion, a gain of 52.0 per cent. Earnings on average borrowed and invested capital rose by even more, 68.8 per cent, to $5.4 billion, and return 70/ rose from 9.2 per cent to 11. 4 per cent. 681 691 70/ NOFI Report, address by George D. McDaniel, President, "Annual Review and Forecast" of National Oil Fuel Institute, issued by its president, George D. McDaniel, "speaking on behalf of the industry as a whole." The Oil Daily, January 29, 1968, p. 34. Chase Manhattan Bank, Petroleum Industry 1960, pp. 32 -91 3 If and when evidence appears that any of the competitors for the energy market is being seriously injured or driven from the market to the detriment of the consumer, it will be time to re-examine the issues. It is interesting in this regard that no protection was afforded the coal industry to assist it in holding the space-heating market against the inroads of oil and gas. Nor should such protection have been provided. However, electric heating has provided the coal industry with the vehicle to compete effectively in the space-heating market; and the coal industry, recognizing this opportunity to expand its markets with "coal by wire," has been actively participating in the promotion of electric space heating. Thus, in effect, electric heating has restored coal as a competitive element in the heating market. It is this ebb and flow of competitive advantage which should not be eliminated as a factor in the energy market. We would like now to summarize what we believe are the essential points of this presentation. 1. Energy consumption and electric power production have grown rapidly. This has been accompanied by cost and rate reductions, particularly in the period since World War II. 2. The decreasing-cost nature of the electric utility in dustry is dependent on growth and this means that expansion is vital to 91-056 O-69-65 -92 continued cost reduction. Expansion has historically led to rate reduction and, even if inflation continues, should in some degree offset the inflationary increase of costs, thus limiting any increase in rates to an amount less than the increase in the average price level or even conceivably permitting a further reduction. 3. There has always been competition between electri city and the fuels, but in recent years it has changed in nature and intensity. The fuels and electricity are invading each other's markets, with the result that consumers are now being offered choices and rates not hitherto available. The new competition, moreover, is likely to intensify. 4. Competition in other utility fields such as transportation, communication and gas distribution has compelled those utilities to improve service, innovate and adopt competitive pricing policies. 5. Competitive ratemaking for electric heating and allelectric installations is economically justified and, indeed, called for, provided incremental costs are properly defined and the rates appropriately reflect them. These costs should be recognized and treated as estimates which are nevertheless necessary and useful for the purpose of establishing rate floors. 6. Rates cannot be based on costs alone; demand characteristics, too, must be considered if rates to all customers are to be kept at the lowest possible levels. -93 7. Allowances and other competitive practices are also economically justified on the same condition, that they are properly costed. They have, in fact, been required to withstand the scrutiny of state regulatory agencies. 8. The impact of competitive pricing by the electric utilities on their fuel competitors is something that need not be feared, so long as rates and practices meet the criteria herein described. The competition is between strong adversaries who have access to, and make use of, similar competitive practices and devices, both price and nonprice. Competitive practices of the utilities do not restrain competition, but on the contrary provide it. Indeed, all competitors in the heating-cooling markets seem to be in good economic health, despite (or perhaps because of) intensified competition, and there can be no doubt that the consumer is benefiting. APPENDIX A QUALIFICATIONS Page 1 of 4 Irwin M. Stelzer, Bruce C. Netschert and Abraham Gerber are, respectively, President, Director of the Washington Office, and Senior Consultant, of National Economic Research Associates, Inc., a firm of consulting economists specializing in the fields of public utility economics, antitrust economics, energy and mineral economics, and pricing policy and costing methods. Dr. Stelzer has served as consultant in the gas, electric, communications, transportation, petroleum, electronics and other industries. He received his undergraduate education at New York University and a doctorate in Economics from Cornell University, and has taught at Cornell University, the University of Connecticut, The City College of New York and New York University. He has participated in economic studies prepared for submission to the Interstate Commerce Commission, the Civil Aeronautics Board, and the Federal Power Commission. These studies have involved revenue and cost forecasting, determination of methods of allocating joint costs, and the recommendation of regulatory techniques and methods. He has also appeared before various Congressional committees to present statements on the effects of price discrimination practices in industry, the adequacy of natural gas reserves, and |