When it is empty you aren't using any electricity at all, but when you start plugging stuff in, the wattage used starts climbing. You pay for exactly the amount of electricity that you use. None is wasted.
A generator or alternator is exactly the same, except that it is very inefficient. If a generator is just idling it is 100% wasted energy, with no demand no energy is being produced. And here is where the rub is, just hooking up an alternator to an engines wastes about 2 hp, it actually gets more efficient as as it produces electricity up to about 10 - 20 amps. Basically what I am trying to say is that the first few amps that the alternator produces are essentially free (if you don't use them you lose them). Then as the amp demand increases the alternator starts to demand more hp, up to 8 to 10 hp.
So basically what I am trying to say is that both of your are correct, Yes there is some 'free or wasted' electricity but it is only because the system is so inefficient and the 'free' electricity is only in very limited amounts any thing beyond a tiny amount is very expensive.
Let me illustrate the problem. A typical auto engine is lucky to get 20% to 40% of the energy in a gallon of gas, most of the energy escapes as wasted heat. An alternator is lets be generous 50% efficient and electrolysis is lets be generous again, 50% efficient. So if a gallon of gas has 100,000 BTU's (it has more but I am mathematically challenged) that means that this hydrogen/oxygen produced by the engine is (100k x .4 x .5 x .5) = 10,000 BTU's. So essentially what these people are doing is taking 100k BTU's and converting them to 10k BTU's.
This kind of reminds me of the time I bought a trailer. I asked the seller how much it would hurt our gas mileage towing the trailer, the seller said oh about 10 miles to the gallon. I looked at my brother in confusion, because our truck only got 10 miles to the gallon, we wondered if we would be better off just pouring the gasoline on the ground. As it turned out it didn't affect the trucks gas mileage at all.
I think that the idea of reducing gasoline consumption with supplementation of brown gas has significant merit to it if enough can be produce from excess electrical energy provided by a vehicle's alternator. That's my take whether folks agree or disagree.