ADR Assists Energy Industry Restructuring

By Baker, P. Jean | Dispute Resolution Journal, February 1999 | Go to article overview

ADR Assists Energy Industry Restructuring


Baker, P. Jean, Dispute Resolution Journal


In response to the increasingly competitive and rapidly changing energy marketplace arising out of deregulation, the Federal Energy Regulation Commission held a symposium early last year in order to explore ways in which it could make its complaint procedures more effective. In this article, the author examines how the government has reinvented its approach to energy issues and shows how ADR will play a more vital role in the deregulated energy marketplace.

The need for expeditious, fair, and effective procedures for the handling of complaints is of increasing concern to market participants and to the Federal Energy Regulatory Commission (FERC) as competition in the energy markets grows more intense. To solicit views and recommendations of industry and customer representatives on how its complaint procedures could be made more responsive to the new regulatory environment, FERC held a symposium on March 30, 1998. In attendance were representatives of the oil, gas, and electric power industry, as well as the author, vice president of government programs for the American Arbitration Association (AAA). Chairman Hoecker, in his opening statement, said that one of the major objectives of the commission's self-assessment initiative "FERC First" is "to explore ways to make regulation and regulatory practice more responsive to an ever-changing and competitive energy marketplace."

Background

FERC Order Nos. 636 and 888 require natural gas pipeline companies and electric utilities, respectively, to make their interstate transmissions facilities available for use by all potential shippers on a non-discriminatory basis. With "open access" to the transmission systems of the nation's interstate pipelines and electric utilities, the level of commercial activity in the natural gas and electric markets has been subject to extraordinary acceleration. This, in turn, has magnified the potential for immediate irreparable economic injury to pipeline and electric customers if the commission's open-access rules and policy are violated. As one commentator stated during the March 30 symposium, "once a deal is lost, it's lost forever. Market share is hard to recover."

In the pre-Order 636 and 888 environment, complaints against natural gas pipelines, electric utilities, and oil pipelines generally focus on rate level. In the case of complaints against natural gas pipelines, if the rates are found excessive, the commission may order prospective rate reductions, but may not order refunds. (Unlike its authority to order refunds in complaint cases involving electric utilities and oil pipelines companies, the Natural Gas Act does not grant FERC the authority to order refunds in complaint cases against natural gas pipeline companies.) While rate level complaints may continue in the post-Order 636 and 888 era, the number and nature of complaints on both the gas and electric side of the ledger may rise significantly as the number of the short-term transactions increase to take advantage of newly discovered economic opportunities. At the symposium, Commissioner Bailey observed that in these situations, "the remedy sought isn't necessarily refunds or restructured contracts, but rather the opportunity to compete for market opportunities that, once lost, might never re-emerge."

Seeking a Consensus

Although representatives of the gas, oil, and electric power industries did not agree upon the specific details of the solution, there was consensus concerning the problem. Essentially, it takes too long for the commission to resolve formal complaints, and the informal dispute resolution procedures, such as the FERC Hotline, are not always effective. In addition, rules 604, 605, and 606 contain provisions that impede the voluntary submission of disputes to ADR.

In response to industry concerns, FERC stressed that the energy industry needs to reach consensus concerning the changes that need to be implemented to the complaint process. …

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