Consumer Confusion Ahead

While electric deregulation may sound appealing - with its prospect of lower rates - in practice it could prove bewildering.

You've been through the telephone wars that fill your mailbox with confetti and your dinner hour with sales pitches from people selling low long-distance rates.

Choosing electricity providers promises to be at least as confusing, but less financially rewarding. Where the phone wars slashed your bill, electric deregulation may offer only marginal savings.

To ensure that the change puts some change in consumers' pockets, some of the first states to deregulate, such as Massachusetts and California, are mandating rate cuts of 10 percent or more (see list of state activity, left).

But as such mandates are phased out during a transition period dictated by the states, some consumer advocates predict rate cuts will stall - at least in the short term.

"The reality is, there is not going to be anything cheaper available for residential and small business customers," says Rob Sargent of the Massachusetts Public Interest Research Group (MassPIRG) in Boston.

One reason: Power generation, the part of your power bill that's being opened up to free-market competition, accounts for less than 20 percent of a typical residential bill.

The bigger costs are for transmission and distribution - and that part of your bill will still be set under the old regulated-monopoly rules.

So, even if new power providers cut in generating costs by 10 percent, it will shave less than 2 percent off your total bill.

Nobody knows for sure how the prices will shake out. And they will vary by region.

What is certain is that more and more Americans will be besieged with offers. Some companies may bundle electric power with Internet service or frequent-flier miles or cash back, for instance.

In California, some new electric-service providers offer "green energy" - power produced mostly from hydro, wind, and solar sources - at a premium price.

Users should be cautious of such claims.

Just because you sign up with a company that offers environmental energy production doesn't mean that's where the electrons come from when you turn on your toaster.

Therein lies the confusion.

Officials admit it's impossible to know what power comes from what sources.

"It's more like owning an environmental mutual fund," says Linda Sherry of Consumer Action, a San Francisco-based watchdog group. Your money supports the environmental cause, but perhaps indirectly.

In most states, electric bills will have a section labeled something like "competition transition cost." This will pay for investments utilities made in unprofitable nuclear and other power plants.

Old rules made utilities responsible for providing enough power to meet peak demand at any cost, and these plants arguably made sense. But they add up to as much as 40 percent of current electric bills. And it will take as long as 10 years to pay for them.

The one state that refused to reimburse utilities for these debts, New Hampshire, has seen its deregulation efforts stymied in court.

To get lower rates, consumers could turn to "power brokers," wholesalers who combine small power users into groups large enough to negotiate discounts. Apartments in a building or houses in a neighborhood could use these middlemen. And while individuals could choose another provider, the power brokers will likely offer the lowest rates.

Another strategy, Ms. Sherry recommends, is finding companies that offer lower rates for off-peak usage.

It's too early to know what advice to give consumers, Sherry says. But consumer groups will be paying close attention to states that implement deregulation first.

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