YOU ARE HERE: LAT HomeCollections

A New Era in Electricity | Q&A

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.


Q: Are the computers working properly now?

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


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.


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.


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%.


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.


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.

Los Angeles Times Articles