Power Overload

Diana Lynch knows all about California’s move to open its electricity market to competition.

Solicitors have mailed brochures to her Huntington Beach-based business, urging her to switch power suppliers. She has heard radio ads and read newspaper articles about the big transition that was supposed to occur Thursday but which state officials last week pushed back to March 31 because of technical problems.

So what’s Lynch, a home-based tax accountant, doing to gear up for the historic transition?

Nothing. “I’m definitely sitting tight, as are most people I talk to,” she said. “There just isn’t enough reliable information for me to make a decision right now. . . . I can’t see enough savings to justify doing it.”

Long touted as a pro-business measure that should bring competition, choice and lower rates to California companies, electric deregulation so far hasn’t sparked much excitement among the state’s small-business owners, many of whom are skeptical they’ll reap any of the supposed benefits.

The state’s eleventh-hour decision to delay the much-ballyhooed restructuring has only heightened doubts about California’s great leap into the free market. While consumers and some small businesses will be eligible for an automatic 10% rate reduction starting Thursday, those looking to switch suppliers now will have to wait three months thanks to glitches in the complex computer system needed to operate the state’s power grid and a new spot market for electricity.

While giant ratepayers such as McDonald’s Corp. and TRW Inc. have sprinted ahead, signing massive power deals that have made news, small-business owners are still poring over the fine print trying to figure out what’s in it for them.

“There’s a feeling that deregulation is going to benefit large users at the expense of small ones,” said Betty Jo Toccoli, president of the California Small Business Assn. “It remains to be seen whether we’ll end up with as many choices as we would hope for.”

For those who are still in the dark, 1998 marks the beginning of a new era for California’s electricity consumers, who for years have been saddled with rates 30% to 50% higher than the national average.

Residential and business customers of the state’s three giant investor-owned utilities--Southern California Edison Co., San Diego Gas & Electric Co. and Pacific Gas & Electric Co.--will be able to break away from those monopolies and choose new suppliers for their electricity. The utilities will still deliver electricity to homes and businesses, but their customers will no longer have to buy the juice from the big three.

(Because the state legislation governing deregulation doesn’t apply to municipal-owned utilities, customers of the Los Angeles Department of Water & Power and other city-owned utilities will remain captive until those municipalities choose to open their markets to competition.)

So far, more than 200 new competitors have entered the fray, eager to grab a slice of California’s $20-billion electricity market. Many are courting only the biggest of the big-league users. But some are also targeting small businesses and residents.

“We’ve been inundated with deregulation paraphernalia and propaganda,” said Jeanne Brewer, part owner and general manager of Acura of Pasadena, whose city-owned utility won’t open to competition for another two years. “It’s tough for a small business to keep track of it all. I just want to sell cars and parts and service.”

In the face of so many confusing choices, the greatest temptation is to make no change at all. That’s precisely what many of the state’s small-business owners are doing, said Scott Hauge, chairman of the California Small Business Assn.

“For most small businesses, this issue isn’t even on the radar screen,” Hauge said. “It’s not affecting their businesses one way or another right now. And it’s so complex that many are just ignoring it.”

For some small firms, doing nothing may actually be the best decision.

That’s because starting Jan. 1, all residential and small-business customers of the big three utilities will automatically get 10% chopped off their electricity bills, whether they stick with their old utility or choose a new provider. The cut is mandated by law and will take effect Thursday despite the computer woes hampering other steps in the deregulation process. The cut applies to the entire bill, not just the electricity used. The savings could exceed 10% if the new supplier offers additional incentives to switch.

Large businesses won’t get the automatic rate cut, on the assumption they can fend for themselves and cut their own deals. Any discounts they manage to negotiate will apply only to the actual kilowatts of electricity consumed. That “generation” element represents just 20% to 40% of the monthly bill.

But don’t weep for these behemoths, who were the muscle behind the legislation and who have the most to gain from deregulation. That 2% or 3% reduction looks paltry until you realize it’s worth hundreds of thousands of dollars annually to some of the biggest ratepayers.

Still, in percentage terms, small-business owners could do worse than getting a 10% reduction, particularly when they don’t have to spend valuable time shopping around for it. Trouble is, how the new law defines a “small business”--and thus who is eligible for the cut--is radically different from how business owners define a small firm.

The legislation classifies a small business as one that uses 20 kilowatts of electricity or less during periods of peak demand. That might sound like a lot when you consider that the typical home pulls only about 1 kilowatt with all the lights and appliances going.

In reality, the average corner convenience store would use somewhere in the neighborhood of 40 kilowatts with all of its refrigerators, coffee percolators and Slurpee machines running. Thus, many small-business owners who may be expecting the rate cut are in for a rude awakening, says Ken Cleaveland, director of governmental affairs for the San Francisco-based Building Owners and Managers Assn.

“A lot of these businesses are too big for the 10% rate reduction but too small to cut a good deal on their own,” Cleaveland said. “ . . . The answer for many of them is to aggregate.”

“Aggregate” is just a fancy term to describe the process of consumers banding together for more buying clout, as they’ve done in everything from shopping clubs to insurance pools.

One of the easiest ways for small businesses to do this is to organize through existing trade groups. The state’s largest small-business organizations--the California Small Business Assn. and the National Federation of Independent Business--are still studying the matter. But others, such as BOMA and the California Manufacturers Assn., have taken the lead in organizing their members into buying blocs that can negotiate better deals than individual companies could get on their own.

BOMA’s Bay Area organization, which represents 250 building owners around San Francisco, recently cut a deal with PG&E;’s Energy Services subsidiary. The agreement gives members a refund of their association dues, free meters and electricity discounts ranging from 7.5% to 10% off the price of the kilowatts consumed.

Cleaveland said BOMA spent nearly two years and thousands of hours combing through competing offers trying to come up with the best deal.

“I’m not sure how the individual small-business owner would find the time to do all the research and comparison,” Cleaveland said. “It’s extremely complex.”

Hauge of the CSBA is particularly concerned that small businesses will become the target of con artists and hucksters, who tend to crawl out of the woodwork any time an industry is deregulated.

“Unless you spend your life studying this stuff, it’s hard to separate the scams from the real McCoy,” Hauge said. “We’re already seeing pyramid schemes and all sorts of wild claims on the Internet.”

Businessman Ron White has encountered the hype. The owner of the Glacial Garden ice-skating facilities in Anaheim and Lakewood is trying to organize other Southland rink owners into a buying pool to shrink their considerable power bills.

White spends more than $25,000 a month on electricity to power his two rinks. Shaving a few percentage points off that would mean thousands of extra dollars. But he’s finding good information hard to come by.

“I know a lot more about deregulation than many of the salespeople I’ve talked to,” White said. “They all promise savings of 20% to 25%. But a year from now they’ll be selling something else.”

Which is one more reason that small-business owners such as Lynch are staying put for now.

“I don’t like dealing with the unknown,” Lynch said. “Once these new companies have proven themselves, maybe I’ll think about switching.”