ASA Adjudication on powerPerfector Ltd
1-10 Praed Mews
16 January 2013
Internet (on own site)
Number of complaints:
Claims on the "Our Solution" section of the website www.powerperfector.com, visited in June 2012, included "To ensure complete trust in the powerPerfector technology, the performance of each and every one of our installations is evaluated to international standards by an independent third party", "The final part of our energy-saving solution is an independent evaluation of powerPerfector's installed performance. This crucial work is carried out by EEVS Insight, the UK's leading provider of energy efficiency performance measurement and verification services", "For our clients, EEVS performance verification provides all-important comfort that they will get value for money. Crucially, if the EEVS analysis shows that the powerPerfector guaranteed level of performance has been missed, powerPerfector are required to make up the cost difference. This helps to significantly de-risk the investment in our technology - ultimately making decision-making much easier for our clients. EEVS adds significant value to our commercial offer through its ability to independently prove our technology's performance - boosting the credibility of our savings claims. This simply could not be attained through in-house analysis alone, however robust. The EEVS service also enables us to stand out from the crowd - as market leaders with the highest levels of service within the sector" and "powerPerfector is believed to be the only technology supplier in the UK to voluntarily submit all of our energy saving projects for independent analysis".
EMSc (UK) Ltd challenged whether the claim to "independence" was misleading, because they understood that powerPerfector Ltd and EEVS Insight Ltd shared a number of major shareholders and operated from the same premises.
CAP Code (Edition 12)
powerPerfector Ltd (PPL) said their business was concerned with the manufacture and supply of voltage power optimisation equipment and that the need to demonstrate, by verification, the utility and effectiveness of their equipment was key to the sales process. They said the value of that verification process was that it was carried out to an objectively measurable standard and that the important thing from the customer's point of view was the integrity and independence of that analysis. They said a formal separation of measurement and verification services from PPL's core business was the logical step to take, particularly as they saw an opportunity for an independent verification organisation to generate revenues by offering its services to a wide range of energy saving device suppliers. EEVS was therefore created as an entirely separate legal entity via a demerger in 2011, following legal advice on how independence could be achieved.
PPL said it was a wholly owned subsidiary of powerPerfector Group Ltd (PPG). They provided a print out of the register of directors of PPL, PPG and EEVS Insight Ltd (EEVS), each certified as true and accurate by the relevant company secretary, and a copy of the details of the directors of each company downloaded from the Company Data Rex website. They also provided certified copies of the share registers of PPL and PPG. They said two of the directors of PPL held shares in PPG, but that the other two did not (and never had), and that PPG had a shareholder base that extended beyond its board of directors. They acknowledged that EEVS had a number of common shareholders with PPL; that a number of senior management had moved from PPL to EEVS and that EEVS and PPL were initially based in the same premises (with EEVs as a subtenant under PPL's lease). They believed that those factors had no bearing on whether EEVS and PPL could be considered to be independent of one another. They also confirmed that EEVS had recently taken on a new commercial office and was in the process of transferring its registered address. They said it was important to look not just at the question of structural independence but also at the independent character of the services which EEVS provided.
They said EEVS’ role was to perform analysis based on the International Performance Measurement and Verification Protocol (IPMVP) that governed the verification of the performance of energy saving measures, not to suggest what products clients should or should not buy. They said a fundamental element of IPMVP was transparency and that as such EEVS must present the analytical methodology used in each case to all parties in an energy saving contract, which effectively eliminated scope for introducing bias into the outcome.
They understood that EEVS currently had five qualified practitioners in IPMVP, all certified by the Association of Energy Engineers, and every document produced by EEVS was subject to an internal peer review before it was issued. They said EEVS had informed them that they would be happy for a random sample of their work to be taken and submitted to a qualified IPMVP practitioner for an independent peer review, to verify that it meets the requirements of IPMVP. Because measurement and verification work was not carried out to a subjective standard and was signed off by two separate analysts, any sort of complicity with PPL would jeopardise EEVS' reputation as a measurement and verification analyst.
They said the unbiased integrity of EEVS' work was fundamental to them and to their customers and that they depended on impartial analysis of project outcomes in order to monitor the ongoing performance of their products and the accuracy of its sales and engineering staff in correctly estimating the level of savings achievable for a particular project.
They said it was common following a demerger that the two demerged entities would have exactly the same shareholders and that, a little more than a year since EEVS and PPG formally demerged, it was not surprising that their shareholder bases remained similar, albeit not identical. They did not believe that a common shareholder base was indicative of the way in which the two companies were governed. Both EEVS and PPG had in place shareholder agreements that governed the way in which the shareholders managed the relationships amongst themselves and were personal to the shareholders, rather than the companies. They did explain that, save for matters regarding the inter-relationship of the shareholders which were reserved to be determined by the shareholders, the shareholders' agreement enshrined the principle that EEVS should be governed independently of its shareholders.
They said some of the staff from PPL, who were engaged in measurement and verification work, were transferred at the moment of demerger into EEVS. They said this was not only common but that it was a natural operation of law under the Transfer of Undertaking (Protection of Employment) Regulations 2006. They said one member of their board had until recently been on the board of EEVS on a temporary basis to help bed down the demerger. They said she had not been a director of PPL before taking up the post at EEVS and that her role was on the administrative and financial side, which meant she had no role in the provision of measurement and verification services.
They said in the immediate aftermath of the demerger, EEVS received business support services from PPL but that those services had been costed and EEVS was charged for them on a quarterly basis. They said PPL was EEVS' most significant client but that they offered measurement and verification expertise to a range of clients. They said EEVS provided measurement and verification services to PPL on the basis of an agreement for services put in place at the time of the demerger under which EEVS provided services to PPL and in exchange PPL paid EEVS' quarterly operating costs. They said the importance of that arrangement was that it ensured the provision of an unbiased verification service, whereby the analyst providing the service was not positively or negatively incentivised to arrive at a particular conclusion. EEVS was never remunerated by PPL according to the results of a particular evaluation and fees were agreed up-front which ensured that there was no financial incentive for either the company or the analyst to produce a particular outcome.
PPL reiterated that independent, unbiased analysis was key for potential customers and for them, that adherence to the IPMVP was a critical element of that and that they had taken great pains to establish an operating structure for EEVS which allowed it to operate that protocol on an independent basis. They said demerger was the logical and necessary step both to protect that independence and to enable EEVS to grow as a standalone organisation.
EEVS provided a list of their shareholders, a project pipeline report and information about their purchase orders for the period 1 January to 31 October 2012.
The ASA noted that the website referred to "an independent evaluation of powerPerfector's installed performance … carried out by EEVS", amongst several other claims about EEVS' role in the evaluation of their projects. We considered that the claim to "independence" in that context implied that, because only PPL ensured the objectivity of project analysis by instructing an independent third party, potential customers could have greater confidence in achieving the claimed energy savings. To determine whether or not the relationship between PPL and EEVS made the claim to "independence" misleading, we considered the relationship between the two companies and the nature of the evaluation process.
We noted that EEVS was formed following a demerger from PPL and that, immediately following that demerger, the two companies shared the same directors and shareholders and operated out of the same premises. We understood that all directors of EEVS who also held a position on the board at PPL had resigned their directorship of EEVS on 30 September 2011. However, we understood that both of the directors of EEVS remaining after that date had previously been employees of PPL and that one had subsequently become a director of PPL (while remaining a shareholder in EEVS), while the other remained a shareholder in PPG. Furthermore, we understood that PPL was wholly owned by PPG and that the list of shareholders in PPG and EEVS remained largely the same. Indeed, we understood that the common shareholders controlled sufficient shares to enable them to remove some or all of EEVS' directors, should they wish to do so. We recognised that the directors of EEVS must comply with their statutory duties, including to "exercise independent judgement", but we nevertheless considered that the constitution of EEVS was such that its board of directors was not independent of PPG, and, by extension, PPL.
We noted that agreements had been produced to structure the sale of assets during the demerger; to include EEVS as a subtenant on PPL's lease of the shared premises; to set out the terms upon which administrative services would be provided by PPL to EEVS and to set out the terms upon which PPL would pay EEVS’ operating costs. We also noted that EEVS had now taken on a new commercial office.
We understood that the analysis carried out by EEVS was done in accordance with the established methodology of the IPMVP standard and we accepted that EEVS' analysts were not financially rewarded for a positive report. However, we were conscious that PPL was required by the terms of the agreements signed to pay EEVS' operating costs, irrespective of the volume and quality of the service EEVS provided. We also noted that their income from PPL far exceeded their income from non-PPL contracts.
We considered that PPL and EEVS remained closely associated by virtue of the connected interests of their directors and shareholders following the demerger. Furthermore, we considered that EEVS' working relationship with PPL was not what potential customers would expect of a company that was claimed to provide "independent evaluations" of PPL's products. Because we considered that the claim implied that the independence of EEVS ensured the objectivity of its analysis of PPL's products, and because we considered that EEVS had not yet achieved that independence, we concluded that the claim was likely to mislead.
The claims breached CAP Code (Edition 12) rules 3.1 (Misleading advertising) and 3.7 (Substantiation).
The claim must not appear again in its current form. We told PPL not to refer to the services provided by EEVS as being provided "independently" in future unless they can substantiate that independence has been achieved.