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Pyramid Schemes A Black Eye for Power Retailing?

Fortnightly Magazine - May 1 1998

price, terms and conditions of service, and employ a standard billing format.

The question remains, however: Will these new requirements affect multilevel marketers, or make it more difficult to conduct a pyramid scheme in retail electricity markets?

In asking that question, remember California state law allows the PUC to require registration by ESPs but not much else: "Registration with the commission is an exercise of the licensing function of the commission, and does not constitute regulation of the rates or terms of conditions of service offered by registered entities. Nothing in this part authorizes the commission to regulate the rates or terms and conditions of service offered by registered entities." (Calif. Public Utilities Code sec. 394(e), as added by Senate Bill 477, Stats. 1997, ch. 275.)

The PUC enjoys surprisingly little authority to control how ESPs engage in marketing activities (em whether directly or through Amway-style, multilevel marketing arrangements. The PUC acknowledged the problem: "We are aware that some ESPs will undertake marketing activities 'in-house' with their own employees, while others may contract thus function out or establish agency-type relationships." (See, Decision 98-03-072, March 26, 1998, p. 11.)

The PUC has added, however, that while these types of multilevel marketing entities "need not register as an ESP," any ESP using them must give notice of that fact to any customer, explaining that the sales agent acts on behalf of the ESP. That its registration process for ESP's might give it at least some leverage over sales agents was a fact not lost on the commission: "Should any of these marketing entities violate any of these provisions, we will hold the ESP accountable."

Will the Boston-Finney experience elicit further commission rules to supervise multilevel marketers?

"Certainly that will be something to look at," says Richard Bilas, California PUC president, contacted while the PUC deliberated its new rules. "However, it is important to keep in mind that multilevel marketing is a perfectly legitimate business. Amway is a classic example of a totally aboveboard operation." (See sidebar, "A Major Endorsement.")

Enforcement:

Utilities as Police Officer?

In Washington state where complaints were received against Future Electric Networks, but where electric deregulation isn't expected for at least another two years, spokeswoman Janice March reports that the state attorney general is deferring to the FTC, rather than taking action on complaints filed by consumers.

"As deregulation becomes a reality and products can be sold in Washington state, we will be carefully evaluating aggressive marketing tactics that cross the line," she says. "However, to define what will be sold and how can it be sold at this point would be premature."

Meanwhile, the FTC disavows any big plans for preemptive strikes against potential pyramid schemes. "We're a small office, " notes the FTC's Bourne-Farrell. "Any future action we take will be on a case-by-case basis."

Should the electric industry itself do some policing of its own?

In its recent decision, the California PUC proposed UDCs (electric utilities) track and provide reports of calls from consumers regarding complaints against registered or unregistered ESPs. The PUC asked for comment on the