The National Regulatory Research Institute

Alternative Dispute Resolution for Utility Regulators Robert E. Burns, Esq. The National Regulatory Research Institute University of Buenos Aires Buenos Aires, Argentina November 2003

History – One Hundred Years In 1986, NARUC celebrated being one hundred years old In other words, in 1986, there had been over one hundred years of state public utility regulation in the United States The traditional regulatory process during the first hundred years of regulation was based on adjudicatory procedure

History – continued The adjudicatory process was used for ratemaking and other regulatory decision-making The traditional adjudicatory processes are particularly good in the context of retrospective, fact-driven decision- making The traditional adjudicatory process is also good for determining the outcome of zero-sum games

History – continued The Standard Administrative Procedures Act / Model State Administrative Procedures’ Notice-and-Comment Rulemaking does not solicit the type or quality of information needed by regulators to properly balance competing interests polycentric disputes are highlighted by the process, but not resolved

History – continued But, other than in water cases, how many of us are doing rate cases any more? Regulatory lag currently favors the utilities financially because of the decline in the cost of capital and the lack of new investment

The Problem Increasingly, state public utility commission are faced with prospective policy issues These prospective policy issues require them to make decisions that are more legislative in nature

The Problem - continued For example, they may be called upon to be progressive planning bodies that are called upon to balance economic development and environmental concerns with the likelihood of future rate impacts This is true, not just in the United States, but also internationally; new established public utility commissions all face similar forward-looking problems.

The Problem - continued Traditional adjudicatory procedures are long and tortuous and make it difficult to bring progressive policy issues into focus Traditional adjudicatory procedures were never meant to bring prospective policy issues to resolution

The Need What is needed is a process that allows agency decision-makers to: Become more involved in forming prospective policy Consider Policy Option in a More Complete, Thorough, and Coherent Fashion To Cut Through the Chaff To Allow the Parties to Find Win-Win Solutions So Long As They Are In the Public Interest

The Need - continued Procedures are needed that can improve the quality of regulation, particularly progressive regulation that make prospective policy Procedures are needed that can help decision-makers gather, organize, and consider pertinent and complete information necessary for proactive policy-making

The Evolution of ADR in Administrative Procedures Some elements of alternative dispute resolution have been in the legal process for some time. Mediation and arbitration in labor disputes The use of pre-trial settlement conferences Fisher and Ury, Getting to Yes win-win solutions the principles of principled negotiation

The Evolution - continued Several state agencies and federal agencies were using Alternative Dispute Resolution techniques (ADR) very early on New York Public Service Commission, the Federal Energy Regulatory Commission, and both state and federal environmental protection agencies were using ADR in the 1980s.

The Evolution - continued Example #1: Negotiated Rulemaking Differs from the typical notice-and- comment rulemaking The agency attempt to convene representative of the interested parties to negotiate what “ought” to be in a proposed rule before a Notice of Proposed Rulemaking is issued

The Evolution - continued Negotiated Rulemaking - continued Uses “Principled Negotiations” to facilitate a successful negotiation process:  By focusing on the respective interests of the parties (not their initial positions)  By seeking options that allow mutual gain, the so-called win-win solution  By defining objective criteria

The Evolution - continued Negotiated Rulemaking - continued The ADR process in negotiated rulemaking is used up-front before the NOPR is ever issued in the hopes of minimizing areas of conflict or coming to a win-win resolution This process has also been successfully used by the Philippine Energy Regulatory Commission and the Philippine Department of Energy

The Evolution - continued Example #2: Joint Problem-Solving Workshops or Task Forces Often called a collaborative process Requires the use of a facilitator Often it is best that the facilitator has some technical background Otherwise, the Eric Von Loon Problem

The Evolution - continued Joint Problem-Solving Workshops - continued Like a negotiated rulemaking, but differs in that the objective is to solve a problem Works best when technical experts representing the major interested parties tackle a problem jointly Get at the parties real interest, not their stated positions

The Evolution - continued Joint Problem-Solving Workshops - continued Frequently used by state commissions in the context of integrate resource planning Also used for electric industry restructuring plans Requires the use of a common data base or common knowledge to avoid information asymmetry

The Evolution - continued Joint Problem-Solving Workshops - continued Ideally produces a joint solution If no joint solution is produced, its role is to clarify and narrow the areas of disagreement To allow the commission to be presented with sharper, better designed issues The Joint Problem-Solving Workshop was widely used in telecommunications unbundling proceedings, particularly at the Oregon Public Utility Commission

The Evolution - continued Task Forces Like a joint-problem solving workshop but more resource intensive Used to tackle complex or polycentric (many centered) problems, where there are many potential solutions that impact the interested parties and groups differently Sometimes problem-solving workshops used to tackle individual issues

The Evolution - continued Joint Problem-Solving Task Forces - continued Non-technical representatives of groups of parties (grouped by common interest) who have the authority to bind the parties on the main task force, with technical members on joint-problem solving workshops working beneath them Again, focus on coming up with win-win solutions that serve the mutual interests of the parties The Electric Utility Restructuring Task Force of the Pennsylvania Public Utilities Commission is an example of a successful use of this technique

The Evolution - continued Example #3: Technical Conferences The primary function is to collect and organize information for the agency or decision-maker It is particularly useful when the prospective policy issues have technical aspects It is also useful for an agency that wants an early preview of the parties’ positions It allows the commission to interact with technical experts during the early policy formulation stage

The Evolution - continued Technical Conferences - continued It can be organized into panels of technical witnesses for  Concise presentation  Questioning by the decision-makers  Comments by technical witnesses on each others’ views Technical Conferences have been widely used by the Federal Energy Regulatory Commission, the California Public Utilities Commission, and the Ohio Public Utilities Commission

The Evolution - continued Advisory Committees Informal Used to solicit one constituency’s views Example: Scientific Advisory Committees, Consumer Advisory Committees

Three Special Problems Best alternative to a negotiated agreement (BATNA) Single issue true believers Staff as party cannot be the mediator/ arbitrator/ etc. However, initial decision- makers, such as hearing examiners or administrative law judges make ideal mediators or arbitrator. The special problem of two parallel tracks, the use of mediation judges by the New York Public Service Commission & the Federal Energy Regulatory Commission

Due Process There are eight guidelines for alternative procedures to incorporate fairness, due process, and avoid delegation of authority problems

The Eight Guidelines #1: Have a rational choice of procedure #2: Issue an initial notice of the process #3: Provide for representation of all interested parties #4 Have or obtain the necessary data or information

The Eight Guidelines - continued #5: Have a record of advisory report of the outcome #6: Issues a final notice and provide a final opportunity to be heard #7: Make the agency the ultimate decision-maker (but be careful not to undermine the process) #8: Announce the policy determination in a judicially reviewable format

A Few Potential Applications for Argentina The development of unfair trade practices and codes of conduct consumer complaints Transmission expansion planning and siting Gas pipeline expansion planning and siting International coordination – regional integration in the southern cone

Two NRRI Resources The model settlement guidelines contained in the NARUC ALJ Handbook Administrative Procedures for Proactive Regulation, NRRI #87-18