Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Pyramid Schemes A Black Eye for Power Retailing?

Fortnightly Magazine - May 1 1998

to buy from, some salesperson or someone you know personally?" asks Alan J. Setlin, chairman of the Future Group, which includes FutureNet Inc. and Future Electric Networks, both targets of a pyramid scheme investigation.

"When you develop a personal relationship with people, they're more likely to take a look at what you have to offer," Setlin notes.

"[Conventional wisdom says] you can't sell green power, for example, because it's going to be more expensive¼ California is the land of conservation. And when you tie that into the one-on-one relationships our distributors develop, I think a lot of people are going to be surprised about the choices consumers will make."

Telecom Sales: Lessons for Energy?

The multilevel marketing strategy is seen frequently in telecommunications, where the Federal Trade Commission has been active of late.

In March, the FTC announced that it had (File No. 972 3230) charged FutureNet, Inc., of Valencia, Calif., with violating federal law by allegedly promoting a pyramid scheme disguised as a legitimate business marketing Internet access devices ("Web TVS," or set-top boxes that provide Internet connections and health and beauty aids). In February, attorneys for the FTC had filed a complaint against FutureNet Inc., FutureNet Online Inc., in U.S. District Court for the Central District of California (Western Division) seeking an injunction, restitution, and appointment of a receiver for an alleged pyramid scheme that involved selling two types of distributorships for Internet consulting. The FTC reported that the court had issued a temporary restraining order on Feb. 23, freezing assets and appointing a receiver for the corporate defendants.

Though FutureNet had also formed a business called Future Electric Networks to market electricity, the FTC action against FutureNet concerned only the company's Internet access services. Spokeswoman Claudia Bourne-Farrel said the FTC's action stemmed from the fact that distributor income didn't depend on sales, but on recruitment (em the typical profile of an illegal pyramid scheme. (See sidebar, "Guilty by Association?")

Pennsylvania's attorney general thinks this profile also fits NuSkin International, of Provo, Utah, a multilevel marketer of beauty products endorsed by celebrity Christie Brinkley, which, along with its affiliate Big Planet, has been linked by some to marketing activity in energy sales.

In a previous settlement, NuSkin paid $20,000 and signed an "Assurance of Voluntary Compliance" order to end pyramid operations. But the latest complaint (Docket No. 147 MD 1998, Pa. Commonwealth Court) accuses NuSkin Utah of violating this agreement by recruiting distributors to sell nonexistent electric and high-tech products.

Mark Calkins, Big Planet's marketing vice president, attributes the company's missteps to the "over enthusiasm" of independent NuSkin distributors who recruited before the program was operational. Calkins points out that while Big Planet may offer electricity services in the future, it doesn't now. And it has explicitly warned distributors not to make any claims otherwise. Big Planet also maintains that commissions are paid for product sales only (em not recruitment.

Of course, the energy business is different from telecommunications. A national telecom reseller might deal with only one or two long-distance companies, but electricity marketing can involve many power producers.