FTC cracks down on energy-efficiency ads, including some by firms Obama touted

McClatchy NewspapersOctober 2, 2012 

— The Federal Trade Commission is cracking down on what officials say is deceptive advertising by energy-efficient window manufacturers, including two companies that President Barack Obama lauded as part of his administration’s “green stimulus” initiative.

The FTC filed complaints earlier this year against five companies in California, Kentucky, Pennsylvania and Maryland for making “exaggerated and unsupported claims about their windows’ energy efficiency.” All five denied any wrongdoing, but they agreed to settle with the FTC, which followed up in August by issuing warning letters to 15 more companies nationwide.

The letters don’t accuse the companies of breaking any laws, but they cite “unsubstantiated claims” similar to those challenged in the previous five FTC complaints.

“These weren’t bad companies,” said Josh Millard, an FTC staff attorney. “These weren’t fraud cases. People got windows. But I think it can be fair to say that they made poor decisions in promoting windows with claims that weren’t substantiated.”

The FTC actions shine a spotlight on an industry that benefited from millions of dollars in “green” tax credits offered as part of the 2009 economic stimulus, and they reveal some of the pitfalls of zealous marketing, in business and in politics.

The complaints and letters from the FTC are part of a larger effort by the agency to deter marketers who sell “environmentally friendly” products without the scientific evidence to back up their claims. The FTC on Monday issued the latest version of its Green Guides, publications designed to help businesses ensure that their ads stay on the right side of the law.

“Because you have a lot of firms that are competing in this marketplace, unfortunately we have seen in the past something of a race to the bottom,” Millard said. “If one marketer makes a particularly bold claim that consumers can save with their windows, other marketers feel the need to match those claims, regardless of whether they can back those claims or not.”

The barriers to entry for window dealers are relatively low, and the result is hundreds of companies vying in the same market, said Rick Wuest, the president and CEO of Thompson Creek Window Co., a Maryland manufacturer that received a visit from Obama last year, followed by one of the FTC’s warning letters in August.

“Some of this can be attributed to companies trying to keep up with or outdo each other,” Wuest said.

Among those targeted by the FTC was Serious Energy, a Sunnyvale, Calif., company that Obama hailed early in his term for “producing some of the most energy-efficient windows in the world.” In remarks touting investments in clean energy and new technology on March 23, 2009, Obama pointed to Serious as an archetype for green-job creation, citing the company’s decision to reopen a bankrupt plant near Pittsburgh.

Obama was introduced at the event in Washington by Paul Holland, a venture capitalist whose firm, Foundation Capital, backed Serious and who’s listed as a member of Serious Energy’s board of directors.

Holland and his wife, Linda Yates, are generous donors to Obama and the Democratic Party. Holland gave $44,100 and Yates $33,800 to Democratic candidates in local and national races from 2007 to 2010. Holland also donated $5,096 to the National Venture Capital Association political action committee and $1,000 to Republican Sen. Scott Brown of Massachusetts.

In January 2010, Serious received a $548,100 tax credit as part of the Obama administration’s plan to invest $2.3 billion in clean-energy manufacturing projects across the U.S. Other clean-tech companies funded by Holland’s firm got a total of more than $8 million in Department of Energy grants.

Two years later, Serious has gone from exemplar to embarrassment. The company announced in February that it would shut down one of its factories in Chicago and it closed another in Winnipeg, Manitoba, after a fire in January gutted the plant. Then the company got hit with the FTC lawsuit.

The FTC alleged that Serious had distributed “false or misleading” promotional materials, including brochures that said its windows were “guaranteed to reduce your heating and cooling use by up to 49 percent.” The FTC contends that most homeowners aren’t likely to see such big savings.

Serious Energy and Holland didn’t respond to calls or emailed questions.

A few months after Serious settled with the FTC, another company once praised by Obama received one of the FTC’s 15 warning letters. The letter to Thompson Creek Windows took issue with a claim on its website that customers would save up to 30 percent on their energy bills.

“We were surprised when we received the letter because we reviewed all of our advertising materials after the FTC settlement with five other companies in February, and we determined that the energy savings claims we included in our advertising were factual and substantiated,” CEO Wuest said. The company responded by modifying one sentence on the website, changing the promise to “measurable savings,” he said.

Thompson Creek hasn’t received any grants, loans or tax credits from the DOE, Wuest said.

In a speech last year at the company’s plant in Landover, Md., Obama said Thompson Creek had seen a 55 percent boost in sales thanks to a tax credit for consumers who buy energy-saving windows.

The American Recovery and Reinvestment Act of 2009 allowed taxpayers to qualify for credits of up to $1,500 toward the cost of installing energy-efficient windows and other environmentally friendly home improvements. That credit has since expired.

When the tax credit began, “the marketing arm of Thompson Creek got busy,” Obama said to laughter. “And that’s the right – that’s exactly what we intended. That’s exactly what we wanted to see, is explaining to the American people you can save money on your energy bill, this is a smart thing to do, take advantage of it.”

The company added an endorsement on its website: “Even President Obama loves Thompson Creek!”

The White House referred written questions to the DOE, which issued a statement.

“There is no question that the windows produced by these companies can, in many cases, help consumers realize significant energy savings, but we welcome the actions of the FTC in ensuring that all of the advertising claims being made are accurate,” the statement reads. “That doesn’t change the fact that the tax cuts in the Recovery Act have helped save and create thousands of jobs for American workers in clean energy manufacturing.”

The department has made 15,000 competitive awards to more than 5,000 recipients as part of the American Recovery and Reinvestment Act.

The Obama administration wanted to hit two birds with one stone by addressing environmentally friendly initiatives along with job creation, said Tyson Slocum, the director of the energy program for Public Citizen, a national consumer-advocacy group.

“Largely the government record has been pretty solid, but there’s no question there’s been a couple of stumbles,” Slocum said.

The FTC doesn’t dispute the potential benefits of new windows, “but we don’t want people get an exaggerated idea of how much they can save,” said Millard, the FTC attorney.

If homeowners decide to purchase energy-efficient windows, they shouldn’t to expect recoup the investment anytime soon. Given that it costs $7,000 to $20,000 to outfit an average home, it could take 20 years or more to break even, according to Consumer Reports magazine.

Email: lwise@mcclatchydc.com; Twitter: @lindsaywise

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