Mr. PATMAN. That may be done. Mr. ERICKSON. The letter is as follows: RURAL ELECTRIFICATION ADMINISTRATION, Washington, D. C. CURTIS POLE CO., Helena, Mont., July 29, 1948. (Attention: Mr. J. K. O'Shaughnessy, Chief Design and Construction Division; Mr. W. J. Neal, Deputy Administrator; Mr. Joe O'Brien, Chief Technical Standards Division.) GENTLEMEN: It was a great satisfaction and pleasure to meet with you gentlemen in Butte on July 1. We feel that a great deal of good was accomplished and that more frequent contacts would result in harmony and a better understanding of the problems of the pole producers and pole distributors. The main points of discussion at this meeting were as follows: First. That, all the pole-treating plants in Montana were built as a result of continuous and vigorous propaganda by REA expediters in this territory. Mr. Oaas, Sr., produced a notebook in which were estimates given him by Expediter Daugherty and by Major Kelly, of Missoula. In these notes, figures were mentioned to show the tremendous continuous need of poles by REA for several years to come. Mr. Roger Oaas, superintendent of the Anaconda Copper Mining Co. mines at Butte, after talking with Expediter Daugherty and Major Kelly, was, therefore, so impressed with the needs of REA that he started his son in business under the name of Montana Pole & Treating Plant at Butte, Mont. Timbermen were urged to produce lodgepole pine poles in Montana to meet this demand. After seven pole yards were established in Montana at a cost of several hundred thousands of dollars, the dealers were confronted with the fact that REA engineers throughout the Northwest were instructing various co-ops that only pressure-treated poles could be used. As a result of this preference and favoritism for pressure-treated southern pine, two treating plants in Montana have discontinued business and all others are operating only part time, and at a loss. Mr. Oaas, Sr., stressed the unfairness of this action by field engineers of REA, who were evidently acting on the instructions of REA officials in Washington, D. C Second. Discussion brought out the fact that engineers are now and have been designing REA lines which specify the use of practically all one size of pole, viz, class 735. Trees, in the woods, do not grow all of one size and a producer could not economically produce all of one size, nor would the Forest Service of the Department of Agriculture permit the cutting of trees that would make only class 735's. A dealer, therefore, is compelled to buy woods run poles or not at all. The result is that the dealer eventually has his money tied up in many sizes that, under the above-mentioned circumstances, he cannot sell. To relieve this situation, the suggestion was made that poles of various sizes and lengths be used. Mention was made that 35-foot poles were specified to allow for ground clearance of the sag in wire. Suggestion was made that a relative sag allowance could be provided for by using a silghtly greater number of poles per mile where 30-foot poles are used and likewise a less number of poles per mile, if 40-foot poles were used. Also, it was suggested that a greater variety of sizes should be used, viz, classes 8, 7, 6, and 5 in 30-and 35-foot lengths and classes 6, 5, and 4 in 40-foot lengths. Third. Considerable discussion was devoted to the fact that REA field engineers have discouraged the use of poles treated by nonpressure method. Many instances of this practice were cited of engineers in Kansas, Nebraska, and Colorado, We were informed that subsequent to J. Oscar Blew's research work in the Northwest, all field engineers were notified by the head office of REA at Washington that nonpressure poles, if properly treated, were acceptable. Regardless of any such notice some engineers are still advocating the use of pressure treatment only. The following quotation from a letter from Cam-Wall Electric Corp. of Selby, S. Dak., under date of July 26 is a recent example: "In reply to your letter of July 19, your bid was rejected because of the nonpressure method." Also quotation from another letter dated July 27, 1948, from North Central Electric Cooperative, Inc., at Bottineau, N. Dak.: "It is our intention to construct section E with full pressure-treated Douglas fir poles. Earlier we had planned on using butt-treated larch." Mr. O'Shaughnessy made the statement in the meeting that, in his opinion, it made no difference by what method the penetration and retention of preservative was secured. Mr. Neal and Mr. O'Brien concurred in this opinion. The pole dealers feel that they are entitled to some conclusive evidence and proof that field engineers have been definitely instructed and notified that nonpressure treatment is acceptable to REA, provided the penetration complies with requirements. The new specifications for lodgepole which were to have been mailed out about July 10 have not yet been received. It is our understanding that these new "specs" will not be effective before January 8, 1949. However, we understand that, on new contracts, special permission to use the new "specs" will be granted. We assume that field engineers will be instructed accordingly. Fourth. Some discussion occurred on the subject of the use of Douglas fir poles treated by nonpressure method. As quoted above, the consensus of opinion seemed to be that if the same penetration and retention were secured as is required by pressure method, such poles would be acceptable to REA. Without a doubt, field engineers will be instructed accordingly so that these engineers will no longer tell the co-ops that if Douglas fir poles are used they must be pressure-treated. The use of Douglas fir poles should greatly add to the available supply of sizes suitable for REA construction. We might add that the larger utility companies show a preference for Douglas fir poles treated by nonpressure method, for the reason that these poles do not bleed and linemen do not rebel against climbing them. We have attempted herewith to summarize the main points of our discussion with you. If any statements herewith are not correct, we will appreciate word from you advising us to the contrary. We trust that some of these suggestions can be put into effect immediately before it is too late to solve some of the problems with which the pole men have been confronted and over which they have had no control. If by this time you gentlemen have any new suggestion that may help solve our probelms, we will appreciate same. Very sincerely yours, CURTIS POLE CO. OMAR C. CURTIS, President. ROBERT R. CURTIS, Secretary-Treasurer. Mr. PATMAN. The committee will recess until 2:30 p. m. (At 12:30 p.m. the committee recessed until 2: 30 p. m. of the same day.) AFTERNOON SESSION (The committee reconvened at 2:30 p. m.) Mr. PATMAN. The committee will come to order. STATEMENT OF SAM D. GOZA Mr. BALLINGER. Give your name for the record. Mr. Goza. Sam D. Goza. Mr. BALLINGER. What is your business? Mr. Goza. I am counsel for the Montana Trade Commission. Mr. BALLINGER. What is the Montana Trade Commission? Mr. Goza. The Montana Trade Commission is a commission set up by the legislature for the purpose of administering the provisions of the Unfair Trade Practices Act. Mr. BALLINGER. The Unfair Trade Practices Act? Mr. Goza. Yes, sir. Mr. BALLINGER. When was that act passed? Mr. Goza. In 1937, originally. I have here a copy of the act and its amendments and the regulations of the commission. Mr. BALLINGER. Who were the parties behind the passage of the act? I am asking this because of a previous investigation. Mr. Goza. The independent merchants of Montana. Mr. BALLINGER. From whom? Mr. Goza. Principally from the larger operators. Mr. BALLINGER. By "larger operators," what do you mean? Mr. Goza. The chain-store group, principally. Mr. BALLINGER. Would you describe briefly to the committee this act? Mr. Goza. The act has for its purpose the prevention of what had become a most vicious competitive practice in the small-business field. That was the loss-leader business, where a certain item would be selected by a large operator for an extremely low price, a price his competitors could not possibly beat, while at the same time other merchandise was either selling at a decent profit or at an excessive profit. Mr. BALLINGER. You mean that they did this to get the people into the store? Mr. Goza. Yes, sir. Mr. BALLINGER. You heard the testimony this morning of grocers and meat men who said that they have suffered from loss of leaders. Why does not this law apply? Mr. Goza. It does. I do not understand their attitude in that respect, because the law itself has been very successfully administered. The procedure is relatively simple. Under the statute, 10 or more merchants in any retail business can come in and petition the commission for a cost survey in any particular trade area. In Montana, the areas were divided geographically. As the applications were received, the machinery provided by the statute was put into effect. That was simply this: After the petition had been received, notices were published in the papers in each county to be affected. Everyone was advised, both by the public press and by personal letter, to attend the hearings. At the hearing, the commission had testimony from all of the merchants and they were questioned specifically as to their cost of doing business. The statute establishes what shall be considered in establishing that cost. After the commission had taken it under advisement, it established in each trade area what it considered the lowest efficient cost of doing business. As a specific example of that, there is docket 247 in which a cost survey was actually established. That establishes the cost of doing business at 10 percent. Now, the Unfair Trade Practices Act works in this fashionMr. BALLINGER. You mean the cost of doing business at 10 percent above inventory? Mr. Goza. Inventory out of our replacement cost, whichever is lower. The cost of doing business was at least 10 percent. Any merchant in that area finding a competitor advertising a product for sale, or advertising it for sale at a cost which the merchant knows is less than the inventory or replacement cost to the vendor, plus the minimum of 10 percent for doing busines, can file a complaint with the commission. The offender is cited to appear before the commission, a hearing is had and if, in the opinion of the commission a violation was intentional for the purpose of harming competitors it can issue and have issued in many instances, a cease-and-desist order. Under our statute, after three cease-and-desist orders have become effective, the merchant who has three of them is no longer in business. He is denied the right to a license. Mr. BALLINGER. After what? Mr. Goza. After the third offense. Mr. BALLINGER. How does this law work? Is it a 10-percent increase in the price above the cost of inventory? Mr. Goza. Yes, sir. Mr. BALLINGER. How does your cost survey fit into that? Mr. Goza. The cost survey establishes the cost of doing business by the most efficient operator in the trade area. Mr. BALLINGER. You mean on a particular product? Mr. Goza. No, on everything he handles. Mr. BALLINGER. You mean to say that in connection with a grocery store you get down to the cost of selling oranges and the cost of selling eggs? Mr. Goza. No; but we can find out what it cost him to sell eggs, cereal, and other sales by a relatively simple process. He is called in and put on the witness stand. He is asked to state from his record how much his overhead is on all of the various items that go into the cost of his doing business. Mr. BALLINGER. In the grocery business there are certain items known as staples that move at a very much lower market. Mr. Goza. That is not taken into consideration. No attempt is made to segragate dry cereals or dry foodstuffs, as you have said, from the canned goods and everything else. Mr. BALLINGER. They all get a uniform mark-up? Mr. Goza. They all get a uniform mark-up so far as the commission is concerned. Mr. BALLINGER. Does not that raise the cost of living to the poor? Mr. Goza. On the contrary it does not. Mr. BALLINGER. Why? Mr. Goza. Because the most efficient operator is not operating at 10 percent. He is operating at a great deal more than 10 percent. Mr. BALLINGER. Îf in normal times in a grocery store staples move at a 1-percent mark-up under competition, and you are going to apply a 10-percent mark-up, there is going to be a hike to the cost of living, is there not? Mr. Goza. That is not the way it operates. A grocer does not mark up every item in his store, acording to his overhead. He cannot. For instance, he cannot sell a package of cornflakes at his inventory cost plus his cost of doing business, because the people will not buy it. So he takes a lesser mark-up on that item. He has to make it up on some other foodstuffs all in a competitive situation, which brought this thing about. He is not permitted to buy coffee at 57 cents and attract customers to his stores by selling it at 57 cents. Mr. BALLINGER. That still does not answer the point I have in mind. The Federal Trade Commission made many surveys of these unfair practices acts and it was the conclusion of the commission that they tended to raise the cost of living. Mr. Goza. They cannot tend to do that. Mr. BALLINGER. Why not? Here you allow an over-all 10-percent mark-up under competition, whereas your staples might move at a lower mark-up. You are now grading them all down so they all move at a 10-percent mark-up? Mr. Goza. But they do not. That is precisely what I am getting at. Let us take, for example, the practice that this thing was designed to prevent. A large operator, a large chain operator, for instance, can buy two carloads of oranges and bring them in and sell them at 12 cents a dozen, we will say, whereas the small independent merchant is lucky if he gets five crates. All right. He cannot possibly meet that price. The chain operator is not going to take a loss on those two carloads of oranges. He is going to sell something at a sufficiently high profit to make up the difference in the profit. Consequently, he is going to draw more customers in his store with 12-cent oranges than the corner grocer can with 85-cent oranges. The equalization of price has nothing to do with the mark-up. The thing was designed to prevent the large, highly capitalized chain operator from driving everybody out of business by selling their stuff at a loss. They could come in and give it away for 1, 3, or 4 months or however long it would take to put their competitors out of business. Mr. BALLINGER. I do not want you to think my questions are hostile. One of the purposes of the inquiry is to find out whether something can be done in the field of Federal legislation, either in the enactment of a Federal Unfair Practice Act or otherwise. We are exploring the whole field. We do not know the answer, and I am asking these questions all around the lot to assemble as much information as possible for the committee. Mr. Goza. The effect of the act is not to raise the cost at all. It is designed to keep the small, independent merchant in business who, in the absence of this law, would be out of business. Mr. PATMAN. And to restrain the chiseler and the racketeer? Mr. Goza. That is right. It is the loss-leader system or the tie-up system and all of these devices that a large operator can resort to to taking customers away from his competitors, and, of course, the instant he has competition on a business he is no longer a benevolent monopoly. Mr. PATMAN. What do you do in the case of a chain store that owns its own manufacturing plant and sells at any price it wants to in retail outlets? Mr. Goza. We do not have that situation. Mr. PATMAN. You do not have that? Mr. Goza. No; the only thing we do have is the chain operator who wholesales. The Commission has by a definition and after a hearing held that a chain that wholesales to its own outlets is a wholesaler. Mr. PATMAN. You do not have the chain retail stores here? Mr. PATMAN. Is it not a fact that Safeway owns its own manufacturing plants? Mr. Goza. No, not in Montana. Mr. PATMAN. They ship into Montana? Mr. Goza. Of course, they do. Mr. PATMAN. Where they ship goods from their own manufacturing plant and dump them here at below cost, manufacturing cost into this market, what do you do? Mr. Goza. We cannot do anything. |