ADVERTISING RETAIL ELECTRICITY

AND NATURAL GAS

A POWER-FUL OPPORTUNITY FOR SUPPLIERS

FEDERAL TRADE COMMISSION

WWW.FTC.GOV

TOLL-FREE 1-877-FTC-HELP

FOR THE CONSUMER

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 organizations 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 thats 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 1
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 FTCs 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

2 the supplier does use nuclear and coal generation sources
when its wind turbines dont 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 ads

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 disclaimers effectiveness before

you run the ad.

Comparative Advertising

Its legal for a company to compare its product or service to

another companys in an ad  as long as the comparison is

truthful and accurate. However, an ad that declares that Company

As natural gas is 25 percent lower in price than Company Bs

natural gas would be deceptive if the statistics arent reasonably

current and the situations under which the prices are offered

arent comparable.

Its 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 competitors power

doesnt. 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 FTCs Comparative Advertising Policy Statement (www.ftc.gov/bcp/policystmt/adcompare.htm).

Pricing

Good pricing practices are important for both customer satisfaction and your companys bottom line.

Its illegal to mislead consumers about pricing by hiding

fees, such as those for switching the service. If theres 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 companys service if the states

restructuring plan provides this reduction to all consumers. 3
Finally, its 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 doesnt

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 FTCs 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 companys 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

4 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 FTCs Guides for the Use of

Environmental Marketing Claims (Green Guides), (www.ftc.gov/

bcp/conline/pubs/buspubs/epaclaims.htm), and the FTCs 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 FTCs

Dot Com Disclosures (www.ftc.gov/bcp/conline/pubs/buspubs/

dotcom/index.html).

Telemarketing

Claims made through telemarketing must be truthful and substantiated. The FTCs 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 customers decision to purchase the goods or services theyre offering.

For more information, see the FTCs 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

5
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 consumers 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, its 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 FTCs 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 didnt read the fine print that detailed the financial obligations they were committing to. Practices like these are

6 against the law.
Bait and Switch

Its 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 dont 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 FTCs 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 cant 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 endorsers 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 FTCs 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. 7
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 FTCs Warranties

(www.ftc.gov/bcp/conline/pubs/products/warrant.htm), and A

Businesspersons 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 FTCs 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.

8
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 agencys 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?

✺ Whats 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 Im 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? 9
10

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

competitors 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 companys 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 agencys responsiveness to small business. To comment on

FTC actions, call 1-888-734-3247.
FEDERAL TRADE COMMISSION

FOR THE CONSUMER

TOLL-FREE 1-877-FTC-HELP

WWW.FTC.GOV

December 2000