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Fortnightly Magazine - December 1997

and logos, are not included in calculations of the utility's cost of service for utility ratemaking purposes. Intangible assets do not belong to the ratepayers.

The other argument is that "customers will be confused" into making an incorrect assumption of favoritism. There is no evidence supporting this argument. Further, to avoid such confusion, marketing affiliates could be required to disclose that they will not receive any preferential treatment from the utility. Giving more information to the customer, not less, is the appropriate cure for this concern.

Customers are entitled to know which marketing companies are affiliated with the utility so they can consider their past experiences in deciding whether they want to do business with an affiliate of the utility. Of course, this cuts both ways. Customers who have had a positive experience with their utility may want to do business with an affiliate of that utility. But customers who have had negative experiences with the utility may make the opposite decision.

Regulators in other industries have rejected restrictions on common names and logos between regulated and unregulated affiliates. In telecommunications, when local exchange carriers received cellular licenses, they used a common name for both their monopoly wires businesses and their competitive cellular businesses. Today, as the local phone companies branch into long-distance service, they fully expect to use a common name for their local and long distance businesses. Similarly, in the financial services industry, the concern arose that customers would become confused when banks with customer deposits insured by the FDIC were allowed to affiliate with companies offering uninsured products. After considering the issue, the regulators recognized that consumers are smart - if given more information, not less, they can manage their own affairs. As a result, we can now open both an uninsured mutual fund account through Citicorp Investment Services, for example, and an insured bank account in Citibank.

Advertising Restrictions

Others have proposed rules to bar marketers from advertising themselves as a utility affiliate. The arguments supporting such a restriction parallel the complaints against common names and logos: cross-subsidization, customer confusion and the expectation of preferential treatment. And these arguments are just as wrong in this context. But there is an additional fatal flaw for this proposed prohibition - it is unconstitutional.

Advertising, otherwise known as commercial speech, is protected under the First Amendment to the Constitution. The Supreme Court has determined that restrictions on commercial speech, unlike political speech, are not always subject to strict scrutiny, and thus the state is permitted to regulate commercial messages to protect consumers from misleading, deceptive or aggressive sales practices. The state may also require disclosure of beneficial consumer information. However, as the Supreme Court stated last year in 44 Liquormart Inc. v. Rhode Island, rigorous review of state action is required when the state "entirely prohibits the dissemination of truthful, non-misleading commercial messages for reasons unrelated to the preservation of a fair bargaining process."

This rigorous review has led the court to hold that a state's "paternalistic assumption" that the public will use truthful, non-misleading commercial information "unwisely" violates the First