Advertising Retail Electricity and Natural Gas |
Introduction
Deregulation of public utilities is reshaping the electricity and
natural gas industries. As a competitive supplier, chances are you will rely on
advertising to help consumers make educated purchasing decisions. Advertising offers a
powerful opportunity to show - and tell - your organization's story. It can convey
information, increase consumer confidence and ultimately, boost your bottom line. Your
advertising claims, and those of your competitors, can determine how consumers evaluate
factors like price, environmental impact, customer service and name recognition.
The Federal Trade Commission is a law enforcement agency that works to prevent fraud,
deception and unfair business practices in the marketplace. The Federal Trade Commission
Act gives the Commission the tools it needs to act in the interest of all consumers to
prevent deceptive and unfair acts or practices, including prohibiting unfair or deceptive
advertising in any medium.
The FTC has prepared this guide to give you an overview of some of the rules and
guidelines that protect businesses and consumers, as well as some of the laws it enforces.
Truth in Advertising
In a nutshell, the FTC Act prohibits unfair or deceptive advertising in
all media and holds you responsible for backing up all the claims you make about your
products and services.
It requires you to tell the truth in your advertising and not to mislead consumers. It
also requires you to provide relevant information that, if left out, might mislead
consumers or imply something that's not true.
If your ad promises "no sign-up fee," it may be misleading if you bill
consumers undisclosed charges when they enter into a contract. Similarly, an ad that
promises, "you can always return to your previous utility service whenever you
like," might be misleading if you require your customers to meet a lot of conditions
or pay a fee to cancel their contract.
As an advertiser, you must have evidence to back up the claims your advertising makes
or implies. Before you run an ad, you must have a reasonable basis for your claims. That
means you must have objective evidence that supports your claim. The kind of evidence
depends on the type of claim: Letters from satisfied customers are not enough to support a
claim that requires objective, scientific or technical evidence. At the very least, you
must have the level of evidence your ad says you have.
If your ad says that "our electricity sources produce 20 percent fewer CO2
emissions than the national average," you must have valid scientific studies to
support the claim before you run the ad.
You also must be able to substantiate all claims that a reasonable consumer may take
from your ads, whether you intended to make those claims.
Consumers are likely to interpret an ad that says "save 10 percent on your
electricity bill" to refer to the entire bill, including utility company charges. If
the 10 percent savings refers only to the generation portion of the bill, the ad should
make that clear.
For more information, see the FTC's Policy Statement Regarding Advertising
Substantiation (www.ftc.gov/bcp/guides/ad3subst.htm).
Disclosures and Disclaimers
Sometimes, disclosures and disclaimers are necessary to clarify
statements in an ad. However, they are effective only if they are clear and prominent
enough for reasonable consumers to see, hear and understand them. There is no
hard-and-fast rule about the type size for a disclaimer, its location on a page, or the
length of time it must appear on a television screen. But the FTC has taken action when a
disclaimer or disclosure is too small, flashes across the screen too quickly, is buried in
other information, or otherwise is hard for consumers to notice and understand.
An advertisement that uses giant type to promise a $50 rebate or credit for
consumers who sign up for your service would be deceptive if significant disclaimers and
conditions were disclosed only in tiny type on the back of the ad.
Still, no disclaimer or disclosure is enough to "undo" the damage created by
an express false or deceptive claim.
It would be deceptive for an electricity supplier to advertise the source of its
product using words like "No Nukes, No Coal" if the supplier does use nuclear
and coal generation sources when its wind turbines don't produce enough power. A
disclaimer elsewhere in the ad stating that "power sources may differ when conditions
limit production of wind power" would not undo the deception because it contradicts
the ad's main message.
If you are concerned that a disclaimer or disclosure may be necessary to clarify a
claim you make in an ad, evaluate your ad copy and substantiation carefully. You may want
to conduct consumer research to judge the disclaimer's effectiveness before you run the
ad.
Comparative Advertising
It's legal for a company to compare its product or service to another
company's in an ad - as long as the comparison is truthful and accurate. However, an ad
that declares that Company A's natural gas is 25 percent lower in price than Company B's
natural gas would be deceptive if the statistics aren't reasonably current and the
situations under which the prices are offered aren't comparable.
It's also illegal to mislead through an implied comparison. A statement in your ad that
your power is more reliable because it flows through the same transmission lines as the
utilities' own power lines may deceptively imply that the competitor's power doesn't.
Because utilities will continue to deliver electricity and gas through existing wires and
pipes, no supplier can say it provides "more reliable" gas or electricity than
another.
For more information, see the FTC's Comparative Advertising Policy Statement (www.ftc.gov/bcp/policystmt/ad-compare.htm).
Pricing
Good pricing practices are important for both customer satisfaction and
your company's bottom line.
It's illegal to mislead consumers about pricing by hiding fees, such as those for
switching the service. If there's a monthly fee for service, that should be stated
clearly. And if you advertise an introductory price for your services that will increase
within a short period of time, your ad must disclose that information clearly and
conspicuously. It also could be deceptive to advertise a price reduction and imply that
the reduction is available only if the customer switches to your company's service if the
state's restructuring plan provides this reduction to all consumers.
Finally, it's important to convey accurate information about the price, especially if it
varies by season or time of day or according to variable fuel and other costs. If the
price doesn't include charges that consumers may assume are included, like balancing
charges or regulatory fees, the ad must make that fact clear.
For more information, see the FTC's Guides Against Deceptive Pricing (www.ftc.gov/bcp/guides/decptprc.htm).
Many pricing issues involve local practices, so you may want to contact the Attorney
General and the public utility commission where you plan to advertise.
Automatic Renewal
Contracts for utility services usually state the length of time they
are in effect - generally one or two years. A contract also may provide that at the end of
the stated term, the contract will renew automatically unless the customer takes some
affirmative steps to cancel it.
If you use such a contract term, you should be careful to communicate to the consumer
all important terms and conditions of the automatic renewal before the contract
is signed. For example, you should disclose that the renewal will occur automatically
without prior notification to the customer, whether renewals will occur indefinitely, the
cost or range of costs for renewal periods, any other terms that will change in the
renewal period, the procedure a customer must follow to prevent an automatic renewal, and
the company's refund policy.
To minimize customer dissatisfaction and complaints related to automatic renewals, it
is best to provide a written reminder to customers before the renewal date.
Environmental Advertising
Deregulation allows consumers to choose to buy from providers who
generate power from nuclear, coal, oil, hydro, solar, wind or other sources. Some
customers may base their decision on a preference for power produced from non-fossil fuels
and renewable energy. Marketing environmental benefits may be a powerful advertising
theme, but it requires careful review.
An electricity supplier that claims to sell "environmentally clean" power
must be able to substantiate that its product creates no harmful environmental impact -
not just that it creates fewer emissions than another product.
You must have evidence to back up your claims before you run the ad. That is, if the ad
promises, "your choice can contribute to the construction of new wind
turbines," you must have a reasonable basis to support the claim, such as a
realistic plan to build new wind turbines to accommodate your customers' energy needs.
For more information, see the FTC's Guides for the Use of Environmental Marketing
Claims (Green Guides), (www.ftc.gov/bcp/conline/pubs/buspubs/epaclaims.htm),
and the FTC's Complying With The Environmental Marketing Guides (www.ftc.gov/bcp/conline/pubs/buspubs/greenguides.htm).
Environmental Marketing Guidelines for Electricity Advertising, produced by the National
Association of Attorneys General, offers guidance for enforcement of state advertising
laws (www.naag.org/features/legis.html).
Marketing
Internet Advertising
Many power providers use the Internet to advertise their products and services.
Online advertising, like offline advertising, must be truthful and substantiated, and
disclosures and disclaimers must be clear and conspicuous. For more information, see the
FTC's Dot Com Disclosures (www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html).
Telemarketing
Claims made through telemarketing must be truthful and substantiated. The FTC's Telemarketing
Sales Rule requires companies to make specific disclosures in their telephone
calls and prohibits telemarketers from being deceptive. The rule also prohibits calls to
consumers before 8 a.m. or after 9 p.m., and calls to consumers who have previously asked
that they not be called again.
Before a customer pays for goods and services, telemarketers must disclose certain
information, orally or in writing, that is likely to affect the customer's decision to
purchase the goods or services they're offering.
For more information, see the FTC's Complying With the Telemarketing Sales Rule (www.ftc.gov/bcp/conline/pubs/buspubs/tsr/index.htm).
Door-To-Door Sales
Some power providers promote their services and products by sending salespeople
out to ring doorbells. Marketers who sell anywhere other than their own place of business
must honor the Cooling Off Rule, which gives consumers three days to
cancel a transaction made in their home or at a trade show, shopping mall or other public
venue.
By law, the salesperson must tell the consumer about these cancellation rights at the
time of sale. The salesperson also must give the consumer two copies of a cancellation
form (one to keep and one to return) and a copy of the contract or receipt. The contract
or receipt should be dated, show the name and address of the seller, and explain the
consumer's right to cancel. The contract or receipt must be in the same language used in
the sales presentation.
"Free" Offers
When you tie a "free" offer to the purchase of another
product or service, it's deceptive to increase the regular price of the purchased product
to cover the cost of the free item.
It would be deceptive to lure consumers with an offer of "free electricity for
the first month" of a contract if the cost of the electricity would be factored into
the following months' bills.
For more information, see the FTC's Guides Concerning Use of the Word "Free"
and Other Representations (www.ftc.gov/bcp/guides/free.htm),
and Guides Against Deceptive Pricing (www.ftc.gov/bcp/guides/decptprc.htm).
You also may want to check with the Attorney General in the state(s) where you plan to
advertise. In addition, the Better Business Bureau has voluntary standards about when to
use "free" in advertising.
Contests and Sweepstakes
Some advertisers use sweepstakes and other contests to promote their
products and services. When they do, they must make clear that the consumer does not have
to pay or buy anything to enter or win the contest.
When the telecommunications industry was deregulated, some unscrupulous marketers used
prize promotions to get consumers to unknowingly switch their long-distance service or
sign up for services they would charge to consumers' telephone bills. Thinking they were
simply filling out a sweepstakes application, many consumers didn't read the fine print
that detailed the financial obligations they were committing to. Practices like these are
against the law.
Bait and Switch
It's illegal to advertise a product or service when you actually plan
to sell the consumer something else, usually at a higher price.
It would be illegal to run an ad promising that you will provide 100 percent wind
power if you don't have sufficient supplies to do so - and try to sell something else,
such as appliance repair services, to customers who inquire about the wind power service.
For more information, see the FTC's Guides Against Bait Advertising (www.ftc.gov/bcp/guides/baitads-gd.htm).
Testimonials and Endorsements
Testimonials and endorsements must reflect the typical experiences of
consumers, unless your ad clearly and conspicuously states otherwise. Testimonials and
endorsements should not be used to make a claim that can't be substantiated.
A statement like "I saved 30 percent on my electricity bill when I switched
providers" would be misleading if most consumers are likely to save far less or
nothing at all.
If you rely on a "celebrity" or "expert" endorsement in your ad, it
must reflect the endorser's honest experience or opinion. To give an expert endorsement, a
person must have sufficient qualifications to be considered an expert in the field, and
must have evidence to support the endorsement.
In addition, you must disclose any relationship between your company and the person
endorsing your product or service that might affect the weight or credibility of the
endorsement.
For more information, see the FTC's Guides Concerning Use of Endorsements and Testimonials
in Advertising (www.ftc.gov/bcp/guides/endorse.htm).
Guarantees
If your ad mentions that your product or service comes with a
guarantee, you must clearly disclose how consumers can get the details. Any conditions or
limits on the guarantee, such as a time limit, also should be clearly disclosed in the ad.
If your ad promises "we will credit your account $20 if you find a lower price
than ours within six months," it also must tell consumers all the conditions that
apply to receiving the credit.
For more information, see the FTC's Warranties (www.ftc.gov/bcp/conline/pubs/products/warrant.htm),
and A Businessperson's Guide to Federal Warranty Law (www.ftc.gov/bcp/conline/pubs/buspubs/warranty/index.htm).
Credit
Because suppliers of electricity and natural gas provide a service
before billing for it, they essentially extend credit to their customers. As creditors,
these suppliers are subject to several laws designed to protect consumers from unfair or
discriminatory lending practices.
For example, if your company provides services on credit, you may be required to meet
certain billing standards under the Fair Credit Billing Act. If your company provides
information about customer accounts and delinquencies to a credit reporting agency, you
must take certain steps to ensure the information is accurate and private. In addition,
the Equal Credit Opportunity Act prohibits companies from discriminating in granting
credit on the basis of sex, marital status, age, race, national origin or receipt of
public income assistance. Other laws also may apply.
For more information, see the FTC's publications on Fair Credit Billing (www.ftc.gov/bcp/conline/pubs/credit/fcb.htm);
Fair Credit Reporting (www.ftc.gov/bcp/conline/pubs/credit/fcra.htm);
and Equal Credit Opportunity (www.ftc.gov/bcp/conline/pubs/credit/ecoa.html).
Multi-Level Marketing
Multi-level marketing, also known as "network" or
"matrix" marketing, involves selling goods and services through distributors.
These plans typically promise that people who sign up as distributors will get commissions
based on their own sales and on the sales their recruits have made.
Pyramid schemes are an illegal form of multi-level marketing that involve paying
commissions to distributors only for recruiting other distributors. Pyramid schemes are
illegal because the plans inevitably collapse when no new distributors can be recruited.
When a plan collapses, most people - except perhaps those at the top of the pyramid - lose
their money.
Advertising Agencies
Ad agencies or other third parties used in your advertising efforts can
be held legally responsible for misleading claims in your ads. Agencies or website
designers are responsible for reviewing the information used to substantiate the claims.
That is, they should not rely on your assurance that you have adequate and appropriate
substantiation for the claims.
In determining whether an ad agency should be held liable, the FTC looks at the extent
of the agency's participation in the preparation of the ad it is challenging, and whether
the agency knew or should have known that the ad included false or deceptive claims.
Questions
What questions should my advertising address to help consumers make
their choices?
Consumers are likely to have a wide range of questions regarding their choice of an
electricity or natural gas provider. Among them are:
- Is there a sign-up fee?
- Is there a fee to switch if I decide to resume service with my current supplier or
switch to another supplier?
- How long am I obligated to stay with this supplier?
- How much would I pay for electricity or natural gas from another supplier?
- What's included in the price? Are there any incentives or special rates?
- Does the company offer a fixed price or flat rate, or will the price fluctuate?
- What other charges may appear on the bill?
- Is this price negotiable?
- Does the company offer any package deals or discounts?
- What types of budget payment programs or options does the company offer?
- Where does the power I'm buying come from? How much does this source pollute?
- How many bills will I receive?
- If the company provides a separate bill, does it offer an automatic payment service?
- Who should I contact if I have a billing problem?
- What are my obligations if I sign a contract?
- What happens if I decide to relocate before the contract expires?
What can my company do if a competitor is running an ad that I think is deceptive? You
can:
- Explore your legal options under federal and state statutes that protect businesses from
unfair competition. For example, the Lanham Act gives companies the right to sue their
competitors for making deceptive claims in ads.
- File a complaint with the National Advertising Division (NAD) of the Council of Better
Business Bureaus (www.bbb.org/advertising),
if your competitor's ad is running nationally or regionally. The NAD is a private,
self-regulatory group affiliated with the BBB. It investigates allegations of deceptive
advertising and gives advertisers a mechanism for resolving disputes voluntarily.
- Call or file an online complaint with the BBB if the ad is local. Many BBBs have
procedures for resolving disputes between businesses.
- Contact the radio station, television station or publication where you heard or saw the
ad to report that it may be deceptive.
- Contact your state Attorney General or your city, county or state Office of Consumer
Affairs. Their phone numbers are in the Blue Pages of your telephone directory.
- Contact the Federal Trade Commission by phone (Division of Enforcement), 202-326-2996;
online, www.ftc.gov; or by mail, Federal Trade Commission, Division of Enforcement, 600
Pennsylvania Avenue NW, Washington, DC 20580.
If my company files a complaint with the FTC about a competitor, will the FTC resolve
the dispute?
The FTC is authorized to act when it appears that a company's advertising is deceptive
and when FTC action is in the public interest. Although the FTC cannot intervene in an
individual dispute between two companies, the agency relies on many sources, including
complaints from consumers and competitors, to find out about ads that may be deceptive.
The FTC carefully reviews complaints from companies alleging that competitors are
advertising deceptively. Because investigations are confidential, however, the staff
cannot tell you whether an investigation of a particular company is under way unless and
until the FTC takes formal action.
Your Opportunity to Comment
The Small Business and Agriculture Regulatory Enforcement Ombudsman and
10 Regional Fairness Boards collect comments from small business about federal enforcement
actions. Each year, the Ombudsman evaluates enforcement activities and rates each agency's
responsiveness to small business. To comment on FTC actions, call 1-888-734-3247.
The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a
complaint or to get free information
on consumer issues, visit
www.ftc.gov or
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
complaints into
Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
|
FEDERAL TRADE COMMISSION |
FOR THE CONSUMER |
1-877-FTC-HELP |
www.ftc.gov |
|
December
2000 |