MID-ATLANTIC PETROLEUM DISTRIBUTORS ASSOCIATION COMES NOW the Mid-Atlantic Petroleum Distributors Association (MAPDA), by and through their attorneys, Gary R. Alexander, Chantel R. Ornstein and the law offices of Alexander & Cleaver, P.A., and files these Initial Comments regarding the Commission’s August 6, 2003 Proposed Regulations to establish code of conduct standards.
The Public Service Commission of Maryland (“PSC” or “Commission”) is charged with the long-standing task of examining and regulating, in its discretion, the relationships between Maryland’s public service utility companies and the affiliates of these regulated companies. Because regulated utilities are engaging in a wide range of new business activities, including the cooperatives, the Commission has been forced to examine the effect of such business activities on ratepayers, on the financial integrity of the company, and the effect of those business ventures on other public policy goals and objectives.
Until recently, utilities had monopolies over the traditional “bundle” of services that were provided to the ratepayers, including the supply, transmission, and distribution of the utility’s commodity. A recent major change is the emergence of “unregulated” competitive gas and electricity providers that provide the supply or energy components of the traditional bundle of services that were previously only provided by Maryland’s regulated public service companies.
As the utilities began to expand these unregulated activities, the Maryland Commission joined with many other state and federal regulatory agencies to develop rules, including codes of conduct, to ensure that there was no detriment to utility ratepayers or to others from these new activities. During the past ten years the Commission has had numerous cases for all its regulated gas and electric companies on these issues. In addition the General Assembly has mandated that the Commission take even more stringent action to ensure that utility conduct did not interfere with the legislatively mandated public policy of creating a competitive energy marketplace.
The Maryland General Assembly passed the Electric Customer Choice and Competition Act of 1999 (“Electric Act”)1 with the stated purposes of creating customer choice of electricity supply and electricity supply services and to create competitive retail markets for those supplies and services. Md. Code Ann. PUC §7-504 (“PUC”). The Electric Act provided for deregulation of generation, supply, and pricing of electricity.2
The Electric Act also authorized the Commission to adopt a code of conduct “to prevent regulated service customers from subsidizing the services of unregulated businesses or affiliates of the electric company.”3 The Circuit Court found that the Act provided “justification for total separation between a utility and its affiliates.”4 Additionally, § 7-507(e)(1) requires the Commission to adopt regulations or issue orders to protect electricity suppliers, electric companies and consumers from anti-competitive or abusive practices.
In meeting these mandates, the Commission committed considerable time and expertise in a major proceeding culminating with Order No. 76292, issued in this proceeding on July 3, 2000 (“8820 Order”), modifying the existing rules and codes of conduct to which the gas and electric companies were bound in an effort to assure that ratepayers are protected and that customers and competitors are not disadvantaged. The modifications to the existing codes of conduct were also necessary to assure that public service companies did not gain unfair advantages over competing third-party suppliers of services and that the public policy goals and objectives of the General Assembly to foster a competitive market for energy and energy services were met.
This last concern is of utmost importance to MAPDA. Its members compete in energy-related service business activities against affiliates of the regulated gas and electric companies every day. To demonstrate the day-to-day disadvantage created by such activities the members of MAPDA, along with the members of the Air Conditioning Contractors of America – National Capital Chapter and the Maryland Alliance for Fair Competition, previously submitted numerous letters to the Commission in this proceeding. (Appendix A). Clearly, the activities of the unregulated affiliates and their relationship to continuing obligations of the regulated electric and gas companies are exactly what the General Assembly wanted the Commission to address.
Throughout the 8820 code of conduct case, MAPDA and others argued that the Commission should require complete functional, operational, structural and legal separation between the regulated and unregulated utility business activities. The Commission had the opportunity to extend regulation much farther than it chose to do in the 8820 Order. This Commission now has the opportunity to foster the long overdue development of a competitive market by requiring complete separation between utilities and their supposed unsubsidized affiliates and MAPDA strongly urges the Commission to assert the stringent regulatory oversight provided for in the Electric Act.
On August 6, 2003, the Commission proposed Regulations entitled, Subtitle 49 Electric and Gas Companies – Affiliate Code of Conduct, to establish standards of conduct for utilities and their affiliate relationships. MAPDA provides the following Initial Comments in response to the Commission’s Proposed Regulations and reserves its future right to reply to any issue raised by any other party in this proceeding. Further, all references to utilities and their unregulated affiliates includes the electric cooperatives. The cooperatives have also developed unregulated affiliates and they should not be treated any differently than the investor owned utilities and their unregulated affiliates. Therefore, all code of conduct regulations must apply to cooperatives including the requirement for the filing of a Cost Allocation Manual.
I. The Commission Has The Authority To Impose Complete Separation Upon The Utilities AndTheir Unregulated Affiliates and the Commission Must Implement Regulations That Require Functional, Operational, Structural and Legal Separation Between Utilities And Their Affiliates.
According to the Act, the Commission “shall require, among other factors, functional, operational, structural or legal separation between the electric company’s regulated businesses and its nonregulated businesses or nonregulated affiliates.” PUC § 7-505(b)(10)(iii) (emphasis added). The General Assembly adopted each of these words as a directive to Commission. Each word is separately defined and provides ample authority and insight into what the Commission must do in designing the code of conduct. However, the interpretations of these terms - “functional”, “operational,” “structural,” and “legal”--vary widely. In order to appropriately apply these modifiers to “separation,” “separation” itself, similarly subject to interpretation, must be defined.
The verb “separate” is defined:
To divide, to disunite: To place in different places; to keep apart;
Divided; distributed. Disconnected; independent; not a part of something else; distinct
Ballentine’s Law Dictionary (3d Ed.); Merill v. Pepperdine, 36 N.E. 921, 9 Ind. App. 416, (1894).
Neither definition implies any sort of togetherness or joint activity by the separated components, or any artificiality of separation. Regardless of the modifier placed in front of it, to “separate” means, “kept apart”.
Having defined the meaning of “separate,” the modifiers set forth in the Electric Act from which the Commission must choose and implement must similarly be defined. First, “functional” has been interpreted as follows:
Having or performing a function. Affecting the purpose, action, or performance of goods, or the facility or economy of processing, handling, or using them.
Ballentine’s Law Dictionary (3d Ed.); J.C. Penney Co. v. H.D. Lee Mercantile Co., 120 F.2d 949 (8th Cir. Mo.1941);
A feature of goods is “functional” if it affects purpose, action or performance, or facility or economy of processing, handling or using. Ballentine’s Law Dictionary (3d Ed.); Vaughan Novelty Mfg. Co. v. G.G. Greene Mfg. Corp., 105 F.Supp. 595 (D.C. Pa.1952).
The term “operate” from which “operational” is derived has been defined in the
“Operate” means to effect, to produce, to accomplish, to set or keep in operation or activity, to superintend, to put in action, to cause to function, to supervise the working of, to run, to act or work continuously. Ballentine’s Law Dictionary (3d Ed.); People v. Hill, 192 N.Y.S.2d 342 (1959);
[t]he ordinary usual meaning of the word “operate” is to put into, or to continue in operation or activity; to manage, to carry out or through; to work; as to operate a machine or motor vehicle. Ballentine’s Law Dictionary (3d Ed.); Big Three Welding Equipment Co. v. Crutcher, Rolfs, Cummings, Inc., 229 S.W.2d 600 (Tx. 1950);
Finally, “legal” has been interpreted as meaning:
[O]f or pertaining to law; arising out of or by virtue of, or included in law; based on or governed by law; Ballentine’s Law Dictionary (3d Ed.); Roberts v. Love, 333 S.W.2d 897 (Ark. 1960);
[D]one according to law, conforming to law, required or permitted by law, good and sufficient in law... Ballentine’s Law Dictionary (3d Ed.); Lewis v. Holden, 99 A.2d 758 (Vt. 1953).
By applying the modifiers as defined above to the term “separation,” the following
impacts are obtained:
“Functional Separation”: Divided, independent and distinct action, or performance of goods, or the facility or economy of processing, handling, or using them.
“Operational Separation”: Divided, independent and distinct activities, management, accomplishment and work.
“Structural Separation”: Divided, independent and distinct separation of entities, components, facilities or divisions which is permanent, obstructive and overarching, i.e., not simply incidental to the operation of the business.
“Legal Separation”: Divided, independent and distinct separation of those aspects of a business that are formulated and operated in accordance with applicable law, such as business form, articles of incorporation, partnership agreements, and the like.
The Commission was required by the General Assembly to adopt a code of conduct that would provide for these types of separation and to meet the strong legislative statutory direction. “Legal separation” is the least definable and ambiguous of the four types. It requires that the aspects of separation be pre-defined in law. This is less a type of separation than a description of another type of separation that has been implemented properly and is being correctly carried out. “Functional separation” indicates separation and distinctness in the performance of the business of the companies separated and their respective products, but implies that functions and operations beyond the rendering of the goods of products of the companies would not be impacted. “Operational separation,” is very similar to “functional separation”, but goes slightly further, requiring that management and execution of production also be separate.
The Proposed Regulations do not implement the Commission’s statutory authority to the fullest extent provided by the Electric Act or other provisions of the PUC Article governing the Commission’s jurisdiction. Despite the varying interpretations of those terms, the Electric Act plainly mandates separation. The monopoly service providers and their affiliates should not be permitted to utilize their inherent business advantages as monopolies to the disadvantage of the ratepayers, the public, and competing businesses that lack the monopolies’ ability to utilize an exclusive, captive customer base.
Throughout the 8820 proceeding, MAPDA and others have argued for the implementation of “structural separation” and the Commission has not attempted to impose such a stringent requirement. MAPDA still favors structural separation, as it is the most complete form of separation, ensuring that the various business components of the utilities are entirely and permanently separate in each and every aspect of their businesses. The separation standards described in the Proposed Regulations are far less stringent than the Electric Act permits, and should be amended to require functional, operational, structural and legal separation.
By requiring appropriate levels of separation, the Commission will establish a framework that makes it more difficult for the utilities to convey any competitive advantage upon their unregulated affiliates. Utilities have had the benefit of virtually guaranteed streams of revenue from ratepayers for decades upon decades and unregulated utility affiliates cannot be permitted to benefit from the utility structure. No unaffiliated, unregulated competitor has ever had such support, but has instead been required to roll with the punches in the competitive markets and to meet customer demands through expense, effort and innovation. The regulations proposed by the Commission should be amended to prevent the utilities from providing ratepayer dollars, manpower and equipment to their unregulated affiliates in order to drive other competitors from the market.
II. The Regulations Should Prohibit A Regulated Utility From Any Loan Or Transfer Of Money To Affiliates; Any Guarantee Of Loans For Affiliates; And Any Other Financial Arrangement That Will Give Utility Affiliates An Unfair Advantage In The Market. In an era where utility rate proceedings have become rare, the Commission has fewer available methods of ensuring that management activities do not impair the financial health of the utility. While the Proposed Regulations do attempt to place restrictions on loans and guarantees, MAPDA is not confident that such restrictions can ever operate effectively. Even with the requirement that utilities file an annual report of all loans or guarantees, by the time the loan is reviewed by the Commission, it is very likely that the harm will have been done and cannot be remedied in a meaningful fashion (Proposed Regulations 49.02.04(E)). MAPDA respectfully contends that the restrictions are comforting to read but inadequate to protect against the potential harm that can result from this continued subsidization and therefore, the Proposed Regulations should be modified to prohibit utilities from making a loan, providing a debt guarantee, or entering into any other financial transaction with its affiliate.
In the alternative, if the Commission declines to prohibit this type of subsidization, MAPDA asks the Commission to amend the Proposed Regulations and require prior approval of all loans, loan guarantees, and other financial transactions from utilities to affiliates. The standard that the Commission devises – a utility shall not issue a loan or guarantee the debt of an affiliate if it “creates a reasonable likelihood that the utility’s cost of capital, credit worthiness or ability to provide regulated services will be adversely affected” (Proposed Regulations 49.02.04(B)) – is too vague to be of much use in and by itself. Instead, it must be coupled to a defined process allowing for scrutiny of each proposal prior to its effectuation, with notice to all interested persons and opportunity for discovery and hearing. Absent such process, an inadequate review of each proposal is a likely result. Therefore, in addition to requiring prior Commission approval for loans, guarantees, and other financial transactions, MAPDA also requests the Commission establish procedural rules allowing for notice to interested parties of a financial transaction application, a meaningful period for review and discovery, and an opportunity to be heard prior to the Commission’s decision.
III. The Regulations Should Prohibit Affiliates Of Utilities Use Of Utilities’ Names And Logos.
a. Names and Logos.
Use of the utility’s name or logo by an affiliate leads to customer confusion and allows the affiliate to trade on the utility’s name or logo, established and maintained by a captive customer base. Use of the utility’s name or logo is absolutely detrimental to competition and to the ability of non-affiliated competitors to exist in competitive markets.
U.S. Supreme Court Chief Justice William Rehnquist has commented on the special position of utilities, and by extension their affiliates:
The state-created monopoly status of a utility arises from the unique characteristics of the services that a utility provides. As recognized in Cantor v. Detroit Edison Co., 428 U.S. 579, 595-596, 96 S.Ct. 3110, 3120, 49 L.Ed.2d 1141 (1976), public utility regulation typically assumes that the private firm is a natural monopoly and that public controls are necessary to protect the consumer from exploitation.
Central Hudson Gas & Electric Corp. v. Public Service Commn of New York, 447 U.S. 557, 100 S.Ct. 2343, 2362 (1980).
Use of the utility’s name or logo by the affiliate leads to questions by consumers as to the exact nature of the entity with whom they are dealing. Customers may not know if the service provider is their regulated utility or its unregulated affiliate. Customers may think “Pepco” has changed its name to “Pepco Energy Services”, or “Washington Gas Light” is the same entity as “Washington Gas Energy Services”. Even though the service is being provided by an affiliate, customers may think this Commission regulates the rates being charged for competitive services. Customer confusion is even more concerning when dealing with hybrid affiliates, such as BGE Home, that mix core and non-core activities within one corporate body. It is bad enough that customers are likely to make energy purchasing decisions thinking that they are dealing with a regulated entity with regulated prices, but they may also believe that the Commission regulates the hourly rate of the person installing their windows, and otherwise assume the existence of certain customer protections where they do not exist. Such confusion is even more likely when affiliates are using the utility name and logo, but not including a disclaimer notifying the customer that they are not a regulated entity. For example, BGE Home does not indicate that they are not a regulated entity on their web site. (Appendix B). It is confusing enough for customers to know that BGE and BGE Home are separate entities, but BGE Home’s failure to comply with the disclosure requirements only adds to the confusion. The very little protection that the disclaimer requirement provides to competitive businesses is completely outweighed by the fact that the affiliates often do not even bother to comply with the requirement. Competitors have been forced to endure such flagrant anti-competitive tactics from utility affiliates for years. Who knows when BGE Home removed the disclaimer from the web page, or if it was ever there at all, but the only remedy currently available is for competitors to incur the significant cost of filing a complaint with the Commission and trying to convince the Commission to initiate an investigation. This Commission has the obligation to truly create a level playing field by prohibiting the use of utility names and logos and we urge the Commission to do so.
There is no validity to the utilities previous claims in this proceeding that restrictions on an affiliates use of the utility name and logo, including disclaimer requirements, are unconstitutional. In April 1998, the affiliated natural gas marketer of Atlanta Gas Light Co. (AGLC), a natural gas utility regulated by the Georgia Public Service Commission (GPSC), served notice that it would change its name from The Energy Spring, Inc. to Atlanta Gas Light Services, Inc. (AGLS). Previously, AGLC had notified the GPSC, pursuant to the Georgia Natural Gas Act, of its intention to open its service territory to retail competition for natural gas supply. By electing to open its territory to market competition, AGLC became subject to certain provisions governing its conduct and that of its affiliates. Subsequent to the announcement of AGLSs name change; several marketers filed a complaint with the GPSC. The Final Decision of the GPSC regarding that complaint included, among other things, an order that:
Defendant Atlanta Gas Light Services, Inc. immediately discontinue use of the name Atlanta Gas Light Services, Inc. and cease and desist from referring to its heritage, reliability and trustworthiness with respect to its affiliation with AGL Resources, Inc.5 and Atlanta Gas Light Company, or any other subsidiary or affiliate of AGL Resources, Inc., and refrain from making any statements, representations, or suggestions that utilize its affiliation with AGL Resources, Inc. and its subsidiaries or affiliates to promote its anticipated entry into the natural gas market in Georgia.
Docket No. 9156-U, Final Decision at 11 (7/16/98)(emphasis added).
In reaching the aforementioned conclusion the GPSC made certain findings, set forth below:
* By changing the name of the affiliated marketer from The Energy Spring, Inc. to Atlanta Gas Light Services, Inc. the public will be misled as to with whom it will be dealing. Contrary to the arguments that have been made, the similarity in names of the present retail supplier, Atlanta Gas Light Company and the marketer, Atlanta Gas Light Services, Inc. is so close that confusion of the identity of the two is assured". Final Decision at 8.
* [U]se of a disclaimer by AGLS will not adequately level the playing field in the same manner as restricting AGLS from the using [sic] the phrase Atlanta Gas Light in its name". Final Decision at 9.
* By outright prohibiting the use of the name AGLS, AGLCs affiliate will not have name recognition advantage among Georgia natural gas consumers. AGLS will be on equal footing with other marketers who will be doing business in Georgia in this regard". Id. * Although AGLS argues that marketers such as Fina Natural Gas Company and Shell Energy Services will have an advantage with regard to name recognition, such name recognition afford [sic] Fina and Shell comes from a competitive environment and not the existing retail natural gas monopoly environment". Id. * Requiring AGLS to change its name will increase the level of natural gas competition in Georgia and go towards fulfilling the intent of the Georgia Natural Gas Act. Id. * The marketing affiliate [AGLS] will rely on the reputation it builds as a separate entity and its own business acumen to secure customers in Georgia, just as all other marketers". Id. Much as the Maryland utilities have done throughout this proceeding, Atlanta Gas Light argued that the First Amendment precluded the Commission from restricting the affiliates use of the utility name. These arguments are invalid, as the utilities’ claims do not meet the four-part test for restricting commercial speech that has been established in Central Hudson Gas & Electric Co. v. New York Public Service Commn, 447 U.S. 557 (1980).
In order to receive any level of First Amendment protection, a threshold issue must be satisfied, that is that the commercial speech at issue must concern lawful activity and not be misleading". 447 U.S. at 566. Assuming this first hurdle is successfully crossed, the restriction must arise from a substantial government interest. Id. If the first two inquiries yield positive responses, then it must be determined whether the restriction directly advances the governmental interest asserted and whether the restriction is more extensive than is necessary to serve that interest”. Id. This four-part test has been repeatedly affirmed and applied since 1980 to a variety of commercial speech restrictions. See Adventure Communications, Inc. v. Kentucky Registry of Election Finance, 191 F.3rd 429 (4th Cir., 1999)(Although Central Hudson is appropriate for determining propriety of restrictions on commercial speech, speech at issue deemed not to be commercial.); U.S. West, Inc. v. Federal Communications Commission, 182 F.3rd 1224 (10th Cir., 1999)(Telecommunication carrier's use of customer information for marketing purposes was commercial speech and FCC regulations did not advance asserted interest and were not narrowly tailored to further the asserted interest.).
Maryland Courts have also had the opportunity to recognize and apply the Central Hudson test to claims of First Amendment protection of commercial speech. In Jakanna Woodworks, Inc. v. Montgomery County, 344 Md. 584, 689 A.2d 65 (1997), the Court applied Central Hudson in its finding that a Montgomery County ordinance was invalid as overly broad regulation of protected commercial speech. Also, in a series of cases related to prohibitions by the City of Baltimore upon outdoor advertising of alcoholic beverages, Central Hudson was applied by the Fourth Circuit Court of Appeals to uphold the Citys regulations of commercial speech. SeePenn Advertising of Baltimore, Inc. v. Mayor and City Council of Baltimore, 63 F.3d 1318 (4th Cir., 1995); Anheuser-Busch, Inc. and Penn Advertising v. Curran, et al., 63 F.3d 1305 (1995); cert. granted, 517 U.S. 1206, 116 S.Ct. 1821(1996); Anheuser-Busch, Inc. and Penn Advertising v. Mayor and City Council of Baltimore City, 101 F.3d 325 (4th Cir., 1996); cert. denied, 520 U.S. 1204, 117 S.Ct. 1569 (1997)(Finding that the City restrictions on outdoor advertising of alcoholic beverages constituting protected commercial speech were valid and no more restrictive than necessary to achieve the City asserted interests.). Clearly, the continued use by the affiliates of the utilities names and logos is misleading, is not protected commercial speech and renders the further application of the Central Hudson test unnecessary.
As in the AGLC case, the use in Maryland by utility affiliates of utility names is misleading and confusing to consumers. The GPSC relied upon Reis v. Ralls, 301 S.E.2d 40 (Ga., 1983)6 to support its contention that the AGLC/AGLS names were so close that confusion of the identity of the two is assured”. Final Decision at 8. The test applied in Reis was whether the resemblance [between trade names] is so great as to deceive the ordinary customer acting with the caution usually exercised in such transactions so that he may mistake one for the other”. Reis, 301 S.E.2d at 725 citing Prosser, The Law of Torts 130, pp. 957-58 (4th Ed., 1971).
Maryland has developed its own case law addressing what is misleading to consumers and what constitutes unfair and deceptive trade practices. In the recent decision of Luskins Inc. v. Consumer Protection Division, 353 Md. 335, 726 A.2d 702 (1999), the Court of Appeals held that the standard for deception applied by the FTC in Cliffdale Associates7 and succeeding cases is the standard for determining deception now applied by the federal court”. Luskins, 726 A.2d at 710. The Cliffdale standard states:
Consistent with its Policy Statement on Deception issued on October 14, 1983, the FTC will find an act or practice deceptive if, first, there is a representation, omission, or practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and third, the representation, omission, or practice is material. These elements articulate the factors actually used in most earlier [FTC] cases identifying whether or not an act or practice was deceptive, even though the language used in those cases was often couched in such terms as a tendency and capacity to deceive.
The requirement that an act or practice be likely to mislead, for example, reflects the long established principle that the [FTC] not find actual deception to hold that a violation of Section 5 has occurred.
Cliffdale at 164-165.
The 1983 FTC policy statement, provided at Congress request, and referenced in Cliffdale, explained:
The total impression test still forms the basis of the deception standard, but the FTC supplemented the test with additional requirements. Under the standard elucidated in 1983, deception requires not only a representation or omission this likely to mislead, but also that: (1) the practice is likely to mislead the consumer who is acting reasonably in the circumstances; and (2) the representation or omission is material, that is, the consumer is likely to have chosen differently but for the deception.
Consumer Protection Div. v. Luskins, 120 Md. App. 1, 706 A.2d 102, 115 (1998), quoting, Deception: FTC Oversight: Hearings Before the Subcomm. on Oversight and Investigations of the House Comm. on Energy and Commerce, 98th Cong., 2nd Sess. 183-210 (1984).
In recognizing and adopting the FTC standard of reasonableness, the Court modified the unsophisticated consumer standard relied upon by the Office of the Attorney Generals Consumer Protection Divisions (CPD) established in Golt v. Phillips, 308 Md. 1, 517 A.2d 328, 332 (1986). Nevertheless, the Court clarified that a consumer may be both reasonable and unsophisticated”. Luskins, 726 A.2d at 712. The Court continued: Sophistication relates to the consumers expertise in a particular area, not to that persons reasonableness”. Id.
The Court also found that the Consumer Protection Act includes the FTCs description of materiality. Id. at 713. The FTC found in Cliffdale that a material misrepresentation . . . involves information that is important to consumers and, hence, likely to affect their choice of … a product”. Id., citing, Cliffdale at 165-166.
The Consumer Protection Act (CPA) sets forth the definitions of unfair and deceptive trade practices in 13-301(1-13). Section 13-301(1) states:
Unfair or deceptive trade practices include any:
(1) False, falsely disparaging, or misleading oral or written statement, visual description, or other representation of any kind which has the capacity, tendency, or effect of deceiving or misleading consumers. (Emphasis added).
Section 13-301(9), elaborates on the definition of unfair or deceptive trade practices:
Deception, fraud, false pretense, false premise, misrepresentation, or knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same in connection with:
(i) The promotion or sale of any consumer goods, consumer realty, or consumer service. (Emphasis added).
Importantly, 13-302 expressly states that it is not required for a violation of a prohibited practice that any consumer in fact has been misled, deceived, or damaged as a result of that practice”.
It cannot be disputed that each of the utilities in Maryland have structured the relationship among the regulated and unregulated entities in such a way as to deliberately create and capitalize upon the confusion created in the minds of consumers by the affiliates use of the utilities names. Clearly the same grounds exist in Maryland as did in Reis upon which the GPSC was able to find that confusion of the identity of the two [regulated and unregulated entities] is assured”. Final Decision at 8.
In addition to the misleading and deceptive characteristics of affiliate advertising under the utility name, which are violations of the Consumer Protection Act, the Lanham Act, 15 U.S.C. 1125(a) establishes an action for unfair competition that includes the following:
(I) Any person who, on or in connection with any good or services, or any container for goods, uses in commerce any work, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which
(A) is likely to cause confusion, or to cause mistake, or to deceive as to affiliation, connection, or association of such person with another person, or as to origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another persons goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
Motor City Bagels, L.L.C. v. American Bagel Co., 50 F. Supp. 2d 460, 484 (D. Md., 1999), citing, 15 U.S.C. 1125(a) (emphasis added).
In Motor City Bagels, the Courts resolution of cross-motions for summary judgment found that the Plaintiff had violated the unfair competition provisions of the Lanham Act despite significant measures to eliminate the former-franchisors service marks from the store. Id. at 486. One factor, however, that the Court found to contribute to consumer confusion was the continued use of the former-franchisors cash register receipts. Id. This is analogous to the present situation in which the utilities, would at most, apply a disclaimer to an affiliates use of the utility name. Despite such measures to de-identify8 the affiliate from the utility, the continued use of other identifying features, the use of the utility name by the affiliate would continue to confuse, or at least be likely to cause confusion sufficient to fulfill the definition of an unfair trade practice under the Lanham Act, providing additional grounds upon which the Commission can justify precluding affiliates uses of utility names.
Also probative in this discussion of confusion are those factors that have been established as causing or likely to cause confusion. Such factors are set forth in detail in A.C. Legg Packing Company, Inc. v. Olde Plantation Spice Company, Inc., 61 F. Supp. 2d 426 (D. Md., 1999). In determining the existence of confusion, or a likelihood of confusion, adequate to support a claim of trademark infringement, the Court set forth the following:
The strength or distinctiveness of the marks;
The similarity of the marks;
The similarity of the goods and services the marks identify;
The similarity of the facilities the two parties use in their businesses;
The similarity of advertising used by the two parties;
Defendants intent; and
Id. at 430 citingLone Star Steakhouse and Saloon, Inc. v. Alpha of Virginia, Inc., 43 F.3d 922, 933 (4th Cir., 1995).
In the A.C. Legg case, the Plaintiff, possessing the Olde Plantation trademark brought suit for infringement against the Defendant who had subsequently registered the Olde Plantation Spice mark. Both companies were engaged in the packaging and sale of spices and seasonings. Although the Court did not find that each and every factor of the Lonestar test produced a finding of confusion, the Court found in the Plaintiffs favor. Some of the Courts findings would doubtless be the same were, for example, BGE and BGE Home analyzed under the same test:
The Plaintiffs mark was inherently distinctive in that it did not suggest or describe a particular product, much like the slanted, bright green BGE.
Plaintiffs market had market strength having existed since 1927 and been used in a variety of advertising and in business ever since. BGE is a monopoly that has been in existence even longer and although the distinctive bright green logo it shares with BGE Home is relatively new, the company has taken great pains through advertising to ensure that customers were aware of its relationship to Baltimore Gas & Electric Company.
Regarding similarity, Lonestar merely requires that the marks need only be sufficiently similar in appearance, with the greater weight given to the dominant or salient portions of the marks”. Obviously the dominant, slanted, bright green BGE is identical in both the utilitys and the affiliates names and advertising. The Court added that when the dominant portions are identical, there is a strong likelihood of confusion. Furthermore, with little weight given to generic words, the addition of the word spice [in this example home] to the [defendants] mark does not detract from the similarity between the marks[.]
Regarding similarity of goods, the Court stated: While there may not be a total overlap of products as between the companies, exact identity is not required. Confusion may result if the product lines are sufficiently similar or the product of the later user [of the mark] is a natural extension of the product line of the prior user. (Emphasis added).
Although the Court found similarity of facilities almost inapplicable to the Old Spice case, it found that the two companies had quite similar channels of trade. This certainly brings to mind the virtually identical vehicles used by BGE and BGE Home.
Regarding intent, the Court stated that infringement can be found even if a party acted in good faith. In the BGE example, however, it is clearly BGEs intent that BGE Home utilize and capitalize upon the BGE name.
Actual confusion need not be shown by the Plaintiff in an infringement case. The Court did state, however, that any evidence of actual confusion, even anecdotal evidence, may bolster a finding of a likelihood of confusion suggested by the other factors.
A.C. Legg, 61 F. Supp. 2d at 430-32.
In holding that Plaintiffs trademark had indeed been infringed, necessarily incorporating a finding of at least a likelihood of confusion, the Court stated that its own judgment in the matter . . . is also that confusion is likely, given the virtual identity of name, sound, and general product line of the parties. Indeed, the likelihood of confusion has increased as [the Plaintiff] has moved into a specific product line identical to that of [the defendant] . . . . Id. at 432.
Using the tests set forth above9 and applying the facts of the Maryland utilities affiliates uses of the regulated utility name, the Commission must reach the conclusion that such use of the name must now be prohibited.
It is instructive to apply the strikingly similar facts of Atlanta Gas Light case to those in the case of BGE and BGE Home:
* The GPSC found that [b]y virtue of this monopoly status, the name Atlanta Gas Light Company has a high recognition factor among the consumers in Georgia. Use of Atlanta Gas Light by AGLS carries with it the association and recognition of the AGLC. The association will be even stronger during the time that both will be providing service to end use customers. Final Decision at 7. (emphasis added).
The name Baltimore Gas & Electric Company and the slanted, bright green BGE logo are no less recognizable in Maryland as the AGLC name and logo in its Georgia service territory, carrying with it the same high recognition factor among customers. The association between the names of the utility and the unregulated affiliates, particularly those engaged in energy marketing or other similar product lines10 will be no less strong in Maryland.
* Prior to the advent of retail natural gas competition in the AGL territory, the marketing affiliates name was changed to retain the dominant portion of the AGLC name. Subsequent to The Energy Springs name change to AGLS, AGLC (the utility) changed the name referenced on its customer billing statements to read Atlanta Gas Light rather than Atlanta Gas Light Company. Initial Decision at 5 (emphasis in original).
On October 28, 1982, the BGE Corp. was incorporated in the State of Maryland. On February 1, 1994, BGE (the utility) filed a trade name amendment with the State Department of Assessments and Taxation (SDAT) registering the trade name BGE. On April 19, 1994, BGE Home Products & Services, Inc. (emphasis added) was incorporated in Maryland. Finally, on December 3, 1999, BGE Home Products and Services, Inc. filed a trade name amendment with SDAT registering the trade name BGE Home. Thus, just as in the Atlanta Gas Light case, as retail competition was approaching in the electric industry and already underway for natural gas BGE and BGE Home changed their respective names appear as similar as possible, dropping to the greatest extent possible other distinguishing portions of their names.
* The Complainant marketers in the AGL case based their actions on two code of conduct provisions in the Georgia Natural Gas Act that state as follows:
Neither the electing distribution company11 nor any marketer which is an affiliate of the company nor any other marketer may represent that any advantage accrues to customers or other in the use of the electing distribution company services as a result of that customer dealing with the marketer. O.C.G.A. 46-4-159(b)(7).
The electing distribution company must not preferentially provide sales leads to any marketer and must refrain from giving any appearance that the electing distribution company speaks on behalf of a marketer that is an affiliate of the company. If a customer requests information about marketers, to the extent the electing distribution company responds to the request, the electing distribution company should provide a list of all marketers on its system but shall not express any preferential recommendations for a marketer that is an affiliate of the company. O.C.G.A. 46-4-159(b)(8).
This Commission implemented similar code of conduct provisions in PSC Case No. 8747, and the Proposed Regulations include similar provisions. The corresponding Proposed Regulations are as follows:
A utility may not represent to a customer or potential customer that any advantage or superior service will accrue because of the utility and affiliate relationship (Proposed Regulations 49.02.01(A)(1)).
A utility may not provide sales leads to an affiliate that provides core services to the public; or speak for or appear to speak on behalf of an affiliate that provides core services. (Proposed Regulations 49.02.01(B)(4)&(5).
If a customer requests information from the utility about competitive core-services and the utility responds, the utility shall provide a list of all similar licensed electricity or gas suppliers of the core-service on its system to the customer. (Proposed Regulations 49.02.03(A)(1)).
Marylands Case No. 8747 code of conduct provisions and the Proposed Regulations are virtually identical to those upon which the GPSC based its decision to preclude the affiliates use of the utility name. In the AGL case, the GPSC found that:
By changing the name of the affiliated marketer from The Energy Spring, Inc. to Atlanta Gas Light Services, Inc., Atlanta Gas Light Service, Inc. and Atlanta Gas Light Company have violated O.C.G.A. 46-4-159(b)(7) by representing that the customers of the affiliated marketer will accrue an advantage in the use of Atlanta Gas Light Companys facilities and services. Final Decision at 9.
The GPSC also found a violation of O.C.G.A. 46-4-159(b)(8):
Atlanta Gas Light Company has violated O.C.G.A. 46-4-159(b)(8) by changing to Atlanta Gas Light as the name to which it refers to itself on billing statements. This action, along with the change in name of its marketing affiliated, has created the appearance that AGLC speaks on behalf of AGLS. An appearance is also created that AGLS may speak on behalf of AGLC. The violation that results from this conduct can be eliminated by changing the name of the affiliated marketer to one that does not contain either the phrase Atlanta Gas Light or the acronym AGL, and by the affiliated marketer discontinuing its use of logos, marks and designs associated or identifiable with AGLC. Final Decision at 9-10.
Marylands statutory provisions lend equal support as the Georgia code provisions to precluding affiliates use of utility names. In the case of each of the Maryland utilities and their sharing of names and logos with unregulated affiliates, whether under the Luskins line of Consumer Protection Act related cases addressing and defining what is misleading, the A.C. Legg line of cases defining in detailed fashion those factors that will lead to at least a determination of a likelihood of confusion, or the Motor City Bagel unfair competition Lanham Act standard, the Commission is absolutely justified, and in fact obligated by its duty to serve the public interest, to preclude affiliates use of regulated utility names. Furthermore, such action by the Commission will withstand any First Amendment challenge because misleading commercial speech, such as the misleading and confusing use of the utility name and logo by unregulated affiliates, is not even entitled to First Amendment protection under Central Hudson.
MAPDA supports the requirement of a royalty payment for an affiliate’s use of a utility name or logo as a second-best solution. The better solution is to forbid affiliate use of a utility name or logo; however, a royalty payment requirement is at least a step toward leveling the playing field. It should be noted, that while the imposition of royalties addresses the issue of compensating the captive ratepayers of the regulated utility for the value of the utility name and logo created, in large part, by the payment of rates by those captive customers to the monopoly utility, it does not address the issue of unfair competition resulting from affiliate use of that ratepayer-funded asset.
IV. The Regulations Should Prohibit The Sharing Of Employees And/Or Services Between The Utility And Its Affiliates. MAPDA proposes to prohibit all sharing and transferring of personnel among utilities and their unregulated affiliates. MAPDA supports the imposition of some restrictions in the areas of employee and services sharing as evidenced in the Proposed Regulations. However, our concern remains that the transactions covered by these rules are intrinsic to daily corporate activities, and thus are difficult (and potentially costly) to detect and police. The Commission also should be concerned with the transfer of value from the regulated utility to affiliates that occurs when, after training at the utility at ratepayer expense, the by-now experienced employee moves over to the affiliate while the utility goes and hires one or two or three inexperienced employees and begins the cycle yet again. Allowing such transfers undermines the ability of the utility to provide satisfactory service at a reasonable cost to the customer.
Absent more extensive auditing, reporting and compliance requirements, which will consume as much of the Commission’s time as that of the utilities time, sharing and transferring of employees simply cannot be permitted. There is no way of knowing how much customer information, marketing data, and other valuable information that utilities have compiled over the years regarding its customers may be provided to unregulated affiliates through the shared use of employees, or the damage that may result to the unaffiliated competitors in the market. These transactions should, therefore, be prohibited.
V. The Regulations Should Provide For Complaint And Enforcement Provisions That Protect The Public And Insure Timely And Effective Redress And Review PUC § 7-505(B)(10)(II)(3) unambiguously requires the Commission to implement appropriate complaint and enforcement procedures. MAPDA suggests that the appropriate penalties should be modeled upon other penalty provisions contained in the Electric Act. With regard to penalties that the Commission may assess against electric suppliers for violations, the Electric Act states in pertinent part:
(1) An electricity supplier or person selling or offering to sell electricity in the state in violation of this section, after notice and an opportunity for a hearing, is subject to:
(I) a civil penalty of not more than $10,000 for the violation; or
(II) license revocation or suspension.
(2) Each day a violation continues is a separate violation.
(3) The Commission shall determine the amount of any civil penalty after considering:
(I) the number of previous violations of any provision of this article;
(II) the gravity of the current violation; and
(III) the good faith of the electricity supplier or person charged in attempting to achieve compliance after notification of the violation.
PUC § 7-507(l).
Violations of code of conduct regulations can have extremely detrimental impacts on competitive market development, unaffiliated companies, and ratepayers. The Commission should provide no opening for argument by utilities and affiliates who violate code of conduct regulations that they should face less severe penalties for infractions than competitive suppliers of electricity. To ensure clarity of the Commission’s enforcement power, the Proposed Regulations should be modified to reflect the penalties specified in PUC § 7-507(l) and applied to code of conduct violations by utilities and affiliates.
Additionally, the regulations should include an expedited process for handing complaints. Complaint proceedings before the Commission can currently take up to two-years before matters are resolved. For example, in Case No. 8899, a complaint filed against Southern Maryland Electric Cooperative and Choptank Electric Cooperative, the complaint was filed with the Commission on July 10, 2001 and the Commission did not issue an Order until July 23, 2003 – the case took over two years! Aside from the significant expense of such a process, a complaint process that takes two-years before reaching resolution is not an efficient process, nor does it protect the public interest. The regulations should provide for a clear and expedited complaint process that includes a reasonable timeline for resolution and appropriate enforcement measures.
MAPDA appreciates the opportunity to participate in these proceedings and to be heard, once again, on these issues that it and its members believe are literally, in a business sense, matters of life and death. MAPDA is as acutely aware as any party and the Commission itself of the constraints of money, time and personnel that are required to engage in code of conduct litigation at the Commission and in the Courts. By promulgating standards of conduct that are unambiguous and not subject to a wide variety of interpretations, the Commission will provide the ratepayers and the competitors of the utility affiliates a great service.
MAPDA has suggested modifications to the Proposed Regulations that will enable utility affiliates to compete on an equal footing with those companies that are not affiliated with utilities. Additionally, MAPDA supports the proposed restrictions relating to utility and affiliate advertising, marketing, promotions and the sharing of information and respectfully requests the Commission implement Regulations that:
Require functional, operational, structural and legal separation between utilities and their affiliates;
Prohibit a regulated utility from any loan or transfer of money to affiliates; any guarantee of loans for affiliates; and any other financial arrangement that will give utility affiliates an unfair advantage in the market;
Prohibit affiliates of utilities use of utilities’ names and logos;
Prohibit the sharing of employees and/or services between the utility and its affiliates;
Provide for complaint and enforcement provisions that protect the public and insure timely and effective redress and review;
Prohibit joint utility and affiliate advertising, marketing, promotions and the sharing of information; and
(7) Apply to the cooperatives and investor owned utilities, including the requirement for the filing of a Cost Allocation Manual.
ALEXANDER & CLEAVER, P.A.
GARY R. ALEXANDER
CHANTEL R. ORNSTEIN
54 State Circle
Annapolis, MD 21401
Counsel to the Mid-Atlantic Petroleum Distributors Association
CERTIFICATE OF SERVICE I HEREBY CERTIFY that copies of the foregoing Initial Comments of the Mid-Atlantic Petroleum Distributors Association were mailed, first class postage prepaid, and emailed this 22nd day of October 2003 to all parties on the service list.
CHANTEL R. ORNSTEIN
1 The Electric Act is Md. Code Ann. PUC §7-501 to §7-518.
2 PUC §7-505 provides:“(b)(3) The Commission shall order an electric company to adopt policies and practices reasonably designed to prevent:(i) discrimination against a person, locality, or particular class of service or give undue or unreasonable preference in favor of the electric company’s own electricity supply, other services, divisions, or affiliates, if any; and (ii) any other forms of self-dealing or practices that could result in noncompetitive electricity prices to customers.
3 PUC §7-505 (b)(13)(ii).
4 Delmarva Power & Light Company d/b/a Conectiv Power Delivery, et al. v. Public Service Commission ofMaryland, et al, Civil Action No. C00-0906 (Donald C. Davis, Judge)
5Atlanta Gas Light Resources, Inc. (AGLR) is the parent corporation of both AGLC and AGLS.
6Reis involved a dispute between two competing refrigeration companies, Atlanta Refrigeration Company and Atlanta Refrigeration Service Company.