The Role of ADR in the Competitive Electric Power Supply Industry
Vassell, Gregory S., Dispute Resolution Journal
Restructuring in the electric power supply industry has created some profound changes, says author Gregory Vassell. Increased competition brought about by such restructuring has also meant an increase in disputes. In the following article, Vassell maintains that conflicts involving highly complex technical issues call for creative means of resolution. He writes that arbitration, mediation, and other ADR processes offer an effective alternative to costly and time-consuming court litigation. The Federal Energy Regulation Commission (FERC) likewise recognizes this fact and has since launched a number of ADR-related initiatives, including the creation of its Office of Dispute Resolution Service.
The use of ADR in the electric power supply industry generally evolved in a manner quite similar to other industries. In the commercial area, however, ADR use was profoundly affected by the unique structure of the industry.
That structure, until recently, was predicated on the proposition that the supply of electric power and energy to the public at large is "affected with the public interest" because of the essential nature of the service and, therefore, electric power companies needed to be designated as "electric utilities."
It was also predicated on the proposition that electric utilities-which for the most part evolved into vertically integrated entities in terms of their generation, transmission, and distribution facilities-were "natural monopolies" in a given geographical area. So as to protect the consumer from exorbitant prices that otherwise might be imposed by a single power company providing service in such an area, the electric utilities needed to be subject to overview by regulatory commissions with respect to the adequacy and cost of their services.
Under this regulatory scheme-often called a "regulatory compact"-- electric utilities accepted the obligation to serve any customer in their "certified" service area and a limitation on rates of return on their investment dedicated to public service, in return for regulatory promise that they would have the opportunity-not the guarantee-to earn a fair return on that investment.1
The electric power supply industry's structure predicated on the "natural monopoly" concept established a relationship between individual electric utilities and their customers that was quite different from that usually prevailing in most other commercial circumstances. That relationship involved very close scrutiny by the appropriate regulatory commission-a state commission in the instance of retail customers and the Federal Energy Regulatory Commission (FERC) in the instance of wholesale customers.
Thus, most disputes that might arise between an electric utility and one or more of its customers could not be resolved through litigation in the courts or, in the alternative, through entirely voluntary and private processes of mediation or arbitration-as such processes would apply to other areas of commerce-but rather would need to be dealt with, in the first instance, before an appropriate regulatory commission in accordance with the administrative processes established by that commission.
At the federal level, the FERC (and its predecessor, the Federal Power Commission) has a long history of encouraging resolution of cases before it through settlement, as a way of reducing its hearing caseload to a manageable level. Thus, for example, in fiscal year 1980, 47 of the 54 electric cases before the FERC were resolved by settlement.2 Similar informal processes are also used by many state regulatory commissions.
If a settlement could not be reached in a given case before a regulatory commission, a formal adjudicatory process would need to go forward, culminating in a formal decision by the commission. Such decision would then be subject to an appeal in the courts.3
The electric power supply industry's structure predicated on the "natural monopoly" concept also affected the relationship among individual, vertically integrated electric utilities by eliminating most, if not all, competitive considerations in their dealings with each other. …