Deregulation: What Happens Now?

After a three-month delay, California is finally ready to throw open its electricity market to competition.

Question is, do consumers really care?

Fewer than 1% of eligible customers are set to switch to new electricity providers today, the first day of the new era of deregulation.

It’s not surprising that residential consumers and small-business owners are hesitant, given the bewildering array of choices and relatively low incentives they have to switch. And the recent crackdown on a power marketer accused of operating an illegal pyramid scheme hasn’t done much to convince consumers that all new competitors have their best interests at heart.

For those mulling over the big switch, here are answers to some of the most frequently asked questions about electricity deregulation.

Q: Deregulation was originally scheduled for last Jan. 1. What happened?

A: Bugs and glitches plagued the complex computer systems needed to operate the state’s power grid and the new spot-market where electricity will be bought and sold. In late December, agencies responsible for operating the systems announced a three-month delay so the problems could be fixed.

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Q: Are the computers working properly now?

A: Officials say they are. Beginning today, we’ll find out for sure.

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Q: What exactly does deregulation mean?

A: It simply means you’ll have a choice of where to purchase your electricity. A new state law has made more than 70% of California consumers eligible to make the switch. Most are customers of three major utilities: Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

The legislation also required existing investor-owned utilities and new competitors to cut rates 10% for all residential and small-business consumers. (Consumer watchdogs argue it’s not a “real” reduction because the cut is being financed with bonds whose repayment will be factored into electricity rates.) The reduction went into effect Jan. 1 for those customers of the Big Three utilities and will remain in place during a four-year transition period, after which the market will be fully deregulated.

None of these changes apply to municipal-owned utilities such as the Los Angeles Department of Water & Power, which are exempt from the law. Customers of those providers will have to wait a few years until market pressures force the providers to join the fray.

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Q: If I switch, will the way I get my electricity change?

A: No. Your current utility will continue to deliver your electricity over the power lines it now uses. What’s changing is that utilities are losing their monopoly over the “generation” or production of the energy. Starting April 1, you’ll be able to choose the source of your electricity before it’s shipped. Your current utility will still bring it to your home and handle service.

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Q: Can homeowners and small businesses save more than the mandated 10% if they switch from their old utilities?

A: Yes, but probably just a few dollars more a month.

Part of the reason rates won’t go down much is that ratepayers are still on the hook to pay off obsolete power plants, unprofitable energy contracts and other long-term investments made by the utilities. These charges aren’t new, but they’ll continue to chew up 25% to 30% of the average electricity bill over the next four years, the period allowed by law for the utilities to recover these so-called stranded costs.

Small fry who switch will most likely be motivated either by dissatisfaction with their current utility or by a desire to use “clean” energy, which could actually cost more.

The biggest savings will go to large businesses that use a lot of electricity and have leverage to negotiate the best deals. They are being aggressively courted with rate reductions of as much as 25%.

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Q: Is there a way for residential users and small businesses to get the large rate cuts offered the big guys?

A: Yes. The industry term is “aggregation.” Just like insurance pools or food cooperatives, electricity users can band together to wield more clout.

A few cities, such as Palm Springs, have announced plans to turn their municipalities into buying pools to get lower rates for residents. Some small businesses are teaming up by industry or in geographic clusters.

Professional “aggregators” are also out there trying to herd residents and businesses into buying blocs. But be cautious. Hucksters tend to come out of the woodwork any time an industry is deregulated. (Recall the 900-number scams and pay-phone rip-offs in the telephone industry.) Your best bet may be sticking with an organization you know and trust.

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Q: Is that the only potential scam I have to worry about?

A: Unfortunately, no. So many energy service providers have set up shop in the state that the California Public Utilities Commission was forced just last week to tighten its regulations to clamp down on fraud and market abuses.

Prior to the new rules, just about anyone who paid $100 and filled out a registration form was free to market electricity in the state--as evidenced by the nearly 300 firms that have signed up so far. The issue came to a head in February, when the PUC revoked the registration of a Pennsylvania-based power marketer headed by a 19-year-old whom the California attorney general’s office has accused of running a pyramid scheme.

The new registration rules now require energy service providers to demonstrate their credit-worthiness and technical ability to sell electricity in California.

They also must have a valid service agreement with the utility that will be delivering the power to consumers. The PUC has also instituted a background check and a 30-day wait for approval of new registrations.

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Q: How can I ensure that my electricity provider is legitimate?

A: Even the beefed-up consumer protection rules aren’t foolproof. But at a minimum, the company you choose must meet the new state requirements. So far, only about 55 of the approximately 300 firms that originally registered have secured service agreements with the Big Three utilities. For a list of these companies, as well as others that have had their licenses suspended or revoked, check the PUC’s Web site at https://www.cpuc.gov or call the PUC’s deregulation hotline at (800) 555-7809.

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Q: That’s still a lot of choice. How am I supposed to make a valid comparison?

A: Power providers are required to disclose, in writing, the price of the electricity, expressed in a standard format that allows an apples-to-apples comparison. The companies also must disclose any additional fees, terms or conditions of service, as well as your right to rescind the contract or change providers.

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Q: The last thing I need is more solicitors calling at dinner time. Is there any way to prevent this?

A: Yes. Consumers who don’t want electricity marketers calling them at home can be placed on the state’s “Don’t Call Me” list. Companies that call you more than once will have to pay you $25 for each additional solicitation if your name is on the list. Mail your written request to the California Public Utilities Commission, Consumer Affairs Branch, 505 Van Ness Ave., Room 2003, San Francisco, CA 94102. Include your name, address and telephone number.

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Q: What’s to prevent one of these new companies from switching me over to their service without my consent?

A: To prevent such “slamming,” California will require all electricity service switches to be approved by consumers in writing, then verified by an independent source.

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Q: Does it cost anything to switch?

A: No.

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Q: Can I switch back if I don’t like my new provider?

A: Yes. But you may have to pay a penalty or wait a minimum period. Be sure to read the fine print in your contract.

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Q: What if my electricity supplier goes out of business?

A: Your current utility is required by law to keep supplying you with electricity until you choose another provider.

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Q: Will my bill look different?

A: Yes. Over the next several months, the utilities will be required to give you a lot more information about where your electricity dollar goes. Later in 1998, your bill will be “un-bundled” to show what you’re paying for a variety of services.

These will include charges for generation, transmission, delivery, public purpose programs (such as low-income ratepayer assistance) and the competition transmission charge, or CTC.

The CTC represents the amount ratepayers must shell out to reimburse utilities for their “stranded” costs for power plants and other facilities that will become obsolete in a competitive environment.

Your bill could come from a different place as well. If you choose a new provider, that company may send you an all-inclusive bill, or it could let your utility bill you for all services.

Or you could get two separate bills, one from your electricity provider for the generation portion, another from your local utility for everything else. If you stick with your local utility, you’ll continue to receive a single bill for all services.

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Q: Who do I call if I have a complaint about service or a question about my bill?

A: In general, you’ll direct questions about service to your local utility. That’s a good place to start for billing issues as well, though your electricity provider may handle that, depending on how your bill is split up.

If you’re experiencing chronically poor service, receiving suspicious bills or you suspect other abuses, contact the PUC’s Consumer Services Division at (800) 649-7570.

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Q: What’s to prevent electricity rates from going up again when the four-year transition period is over?

A: Nothing. Although legislators and market experts believe deregulation will cause the price of electricity to drop, there are no guarantees.

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Getting Plugged In * The market for electricity opens today in most of the state, affecting roughly 10 million customers. A1

* Internet users can plug into deregulation information on the Web. D4

* Dozens of independent power marketers hope offering extras will spark sales. D4

* With all the new names surfacing, it’s hard to keep track of who’s who and watt’s what. D4