[Electricity Deregulation] Advertising and Fines

Anyone else notice how much more agressive the ad campaigns have been as of late? I know the fines for misleading or questionable advertising are probably just a drop in the bucket, but you'd think that the companies would start being more careful when they see how much more closely the ads are being watched by the PUC.

Sparks fly in electric advertising

http://www.bizjournals.com/industries/energy/electric_utilities/2005/06/06/houston_story1.html

New campaign full of shock and awe as TXU invades Reliant turf
Christine Hall

Houston Business Journal

TXU Energy isn't pulling any power punches in a new advertising campaign aimed directly at Reliant Energy Inc.

Incumbent Houston provider Reliant is skewered in billboard, television and print ads by the Dallas-based retail energy provider.

"Reliant is proud to call Houston home. Apparently, it's a collect call," declares one billboard.

"There is no TXU Stadium. We pass the savings on to you," trumpets another.

Adding fuel to the fire, TXU has recruited a hometown Houston Tom to compete with Reliant's familiar video character of the same name.

Folksy spokesman "Tom" has long plugged Reliant's products to local viewers, and was used in a pilot program when the Houston utility entered the Dallas-Fort Worth market in the summer of 2001.

TXU now has responded on Reliant's own turf by rolling out Tom Tynan -- the local home repair guru on KILT-AM SportsRadio 610 -- who appears in the new commercials relaying his story of how he switched over to the Dallas side of the force.

Tynan is touted as the most trustworthy Tom by Jim Burke, senior vice president of consumer markets for TXU Energy.

"We wanted to position our Tom as an expert versus Reliant's Tom, who was just talent hired as a spokesperson," says Burke.

Aggressive marketing on multiple fronts is designed to win the hearts, minds and pocketbooks of electric consumers.

"We want to give Reliant a run for its money," says Burke.

Jim Robb, senior vice president of retail marketing for Reliant Energy, isn't surprised to see TXU competing heavily for customers, but is surprised by the Dallas company's methods .

"The ads are so negative in tone," he says. "It feels like a political campaign is going on."

The edgy campaign is an effort by TXU to bulk up the company's customer base beyond the Metroplex.

TXU entered the Houston market in 2001 following deregulation of retail electricity.

The company's 2004 annual report shows 2.5 million customers in the Texas market. But total customer counts were down 2.3 percent compared to 2003, and retail sales volume was off 12 percent.

"Last year, TXU was not profitable in the markets outside its incumbent territory," says Burke.

Crossing the line

Healthy competition among electric companies is good for the market, according to Terry Hadley, a spokesman for the Public Utilities Commission of Texas in Austin.

The original legislation provided funding for consumer education, but that dried up in 2003, leaving the public to pick and choose among electricity providers based on market performance.

"The competitive nature displayed by the companies is encouraging," Hadley says. "Texas, in terms of retail electric, is the most competitive."

Hadley considers TXU more aggressive, but points out that Reliant has the same opportunities in the Dallas market.

On occasion, the advertising can get overly aggressive.

In two separate instances in 2004, TXU Energy Retail was penalized for crossing the line on advertising.

In July, the company was fined $220,000 for a marketing campaign that promised $25 movie gift certificates as incentives to customers who would switch back to TXU.

In December, TXU was fined $530,000 for advertising that claimed the utility's retail electric customers would get "better transmission and distribution service than customers of other retail electric providers."

The fine followed an investigation by the utilities commission related to radio commercials aired by TXU earlier in 2004. The audio spots compared monthly bills and claimed that TXU's was under the amount charged by a competitor. The commission found that TXU's price was low-balled while the rival's was exaggerated.

But TXU is not the only company to pay a state fine for questionable advertising.

In January 2004, Energy America -- now Direct Energy -- paid a fine of $750,000 after a review of complaints related to the company's sales practices, including telemarketing, door-to-door vending and Internet offers.

The investigation also covered the company's print, broadcast and billboard advertising.

As part of the penalty, Energy America was required to allow the state utilities commission a chance to review advertising materials prior to public distribution.

chall@bizjournals.com 713-960-5939