THERE IS A BETTER WAY

                                REPORT OF THE CAEM ADR FORUM

I.         Introduction1

In the multi-billion dollar electricity, oil, and natural gas industries, the financial stakes of
decisions and business dealings are enormous. We have seen a long history of litigation before
regulatory commissions, administrative agencies, and courts to resolve disputes. Today’s
regulatory and market trends require a different set of approaches to dispute resolution in fast-
paced, increasingly competitive energy markets.

Energy industry stakeholders need better and quicker decisions, enhanced certainty,
more procedural flexibility, cost savings, and other efficiencies. While traditional approaches to
settling regulatory and commercial disputes have proven adequate in some contexts, more
effective, expanded use of Alternative Dispute Resolution (ADR) will deliver major
improvement to energy decision-making processes and their results.

           A.       The Center for The Advancement of Energy Markets

(CAEM) is a non-profit, independent, Washington, DC-based think tank founded in 1999
to promote market-oriented solutions to the challenges that confront the energy industry,
other network industries, and the Nation. CAEM’s expertise covers the entire energy
market, but with a particular focus on electricity and natural gas, both wholesale and
retail. CAEM seeks to develop intellectual capital for moving toward new public policies

    Identify Forum participants and the extent to which they support the findings and recommendations in the Report.
[COMMENT: One general need is to make sure the draft addresses all applications, especially consensus-building in
the context of new policies or regs, and not just dispute resolution. And maybe identifying the "energy industry
participants/entities" early on will help the reader understand the broad range of potential ADR applications (and
participants should include suppliers, users, regulators and others affected by energy
production/transmission/provision activities)..]
and regulation, new business models, and new technologies driven by competitive energy

One aspect of this goal involves ensuring that regulators and others involved in energy industry
decision-making handle their disputes as effectively as possible. CAEM believes that effective
and expanded use of ADR in energy disputes can enhance the efficiency, profitability, and long-
term success of any company, as well as improve the effectiveness and reduce the cost of
regulation. To promote this result, CAEM established an ADR Forum, comprised of
[DESCRIBE: the forum, its members, structure, etc.]

Forum members’ activities included compiling relevant data and materials;2 identifying and
examining success stories; and preparing issues papers aiding Forum members and priority
audiences to explore opportunities and concerns for enhanced ADR use. After working for
nearly a year, Forum members offer the following advice on good practice in employing ADR3
and recommendations as to how energy industry entities ought to:

      •   Create a framework that allows diverse energy industry participants to work together to
          promote fresh approaches for handling conflicts cost-effectively and making difficult
          decisions collaboratively in priority categories of energy-related activity.

      •   Carry out a strategy that enables key industry players—including executives, policy
          makers, regulators, and attorneys who manage or influence significant process and policy
          decisions—to recognize the value of innovative methods of conflict management, assess
          systematically their potential use, and employ them to maximum effect in reaching
          superior outcomes in (1) "upstream" settings (e.g., involving broader planning, policy or
          structural agency resolutions) and (2) "downstream" situations (e.g., contractual, court,
          and administrative proceedings).

          B.       What is ADR?

ADR generally involves a third-party neutral who assists the disputing parties in designing and
conducting a process to find mutually acceptable solutions to their disputes. ADR includes a
series of techniques used to resolve issues without resorting to litigation or other formal
adjudicative processes, and also encompasses consensus-building processes used to develop
policies or regulations or to reach decisions involving many different stakeholders. ADR utilizes
the following kinds of processes: negotiative (negotiation, conciliation, mediation, etc.);
evaluative (early neutral evaluation, fact finding, etc.); and adjudicative (arbitration, minitrials,
etc.).4 Regulators can use ADR to streamline decision-making and conserve scarce resources,

    CAEM established a website at
 ADR Forum members believe that consistent adherence to all of these recommendations will afford all parties the
most satisfactory, productive ADR experience possible, but also recognize that some regulatory agencies and
companies may not be able to implement them fully at all times due to resource constraints or contradictory laws,
rules, or policies.
  [COMMENT: These terms won't necessarily have meaning to inexperienced readers and may be confusing, as it

while industry can use it to avoid the costs and time delay of hearings.

         C.       ADR’s spectrum of problem solving tools meets the conflict resolution needs
                  of industry, policymakers, and regulators better than current approaches5

Each day people and organizations in the energy industry become involved in conflict – whether
by choice, necessity, accident, ignorance, or simply being in the wrong place at the wrong time.
Many reflexively want to sue their adversaries or challenge them before a regulatory agency –
occasionally because litigation may be the best route to resolving their conflict, sometimes
because it is the approach the lawyers are most comfortable with, and often because they are
unaware of other viable options. In fact, many choices may serve them far better than
conventional adversarial approaches. Litigation is costly, often protracted, burdensome to
business operations and highly adversarial, and damaging to commercial relationships. The
outcome is generally uncertain and beyond the parties’ control. Some settlement of lawsuits and
utility proceedings occurs at the federal and state levels (often “at the courthouse steps” after
major expenditures of time and money), but often only after heavy time and cost burdens have
been incurred as litigation takes on a life of its own. Much more can be done.

Resorting to formal processes to set policy at agencies or to resolve commercial disputes imposes
tiresome delays that today’s fast-paced markets cannot tolerate. Business is hampered in its
strategic planning by uncertain outcomes. Commercial relationships are damaged and often
severed over acrimonious litigation, as actual transaction costs soar. All too often judge- or
regulator-imposed solutions are ill-tailored to industry realities.

ADR allows the industry to take more control over its commercial destiny and create workable
solutions fitting individual business circumstances. As energy markets become increasingly
competitive, building collaboration and ADR into processes for making policy and solving
disputes is essential.

Recent years have seen some changes in the way many companies and agencies handle conflict
or set policies. ADR is now used in various proceedings and transactions involving the FERC,
RTOs, ISOs, DOE, EPA, NRC, and state utility/public service commissions. In addition,
contracts which govern business relationships often contain ADR provisions. Nevertheless, most
of these entities have barely begun to explore the many ways to put ADR to good use. There is
a need for education, awareness, and specific actions that energy industry practitioners and
stakeholders can take to use ADR more effectively in the resolution of industry disputes.

If industry entities know their conflict resolution options and can compare alternatives, their

appears these are separate, discrete processes when in fact ADR applications typically involve a blend of at least
negotiation and evaluation processes. The question is, what does the reader need to know about ADR here – in the
introductory part of the paper.]
  [COMMENT: The following feels very one sided, ie from the perspective of energy businesses. Need to describe
the problems with the current approaches for regulators and for other non-business stakeholders, as well.]

resolution choices will serve their interests much more advantageously. They will also be able to
deal with common roadblocks that inhibit effective decisions – e.g., cases where the real
decision-makers are not in the room, or where key parties decide they will be better off taking
their dispute outside of the regulatory arena. This report seeks to assure that, as the energy
industry evolves, ADR methods can help it address the need for decisions that are prompt,
certain, flexible, and substantively sound.

       D.      Benefits of ADR

ADR processes, including consensus building and improved negotiation skills, serve to improve
decisions’ quality, workability, acceptability, and legitimacy, minimize operational delays, and
in many cases yield long run savings in time and money. ADR is not always "quicker and
cheaper" in the short run. But the up-front investment is likely to bear substantial rewards down
the road.

               1.     ADR Promotes Creative Solutions to Commercial Disputes

   •   ADR improves the flow of information among parties to yield creative, technically
       superior outcomes.
   •   Productive solutions can be crafted in ADR that are not within the purview of a judge or
       regulatory agency.
   •   Greater party control over the outcome affords the flexibility to reach policy objectives
       not available through litigation.

               2.     ADR Promotes Efficient Decision-making by Agencies

   •   Moving from hearings to ADR cuts regulatory lag.
   •   Scarce agency resources are more efficiently utilized, and agencies can expand market
       oversight functions.
   •   Agencies can shift from win-lose outcomes to consensus-based policies more workable in
       today’s markets.
   •   Implementation of policies will be easier due to buy-in of affected interests.

               3.     ADR Preserves Relationships

   •   While a court fight will yield a “winner” and a “loser” and often damages a business
       relationship, ADR fosters a more “solution-oriented” atmosphere to solve the immediate
       problem and continue working together.
   •   ADR enhances party commitments to comply with agreements they have developed.
   •   ADR reduces future litigation and instills greater long-term trust and understanding.
   •   ADR increases the ability and willingness of joint venture parties to work together in a
       way that optimizes the value of existing and future projects.

               4.     ADR Is Good for Business

   •   ADR means less disruption for managers.
   •   When disputes are resolved peacefully, employee morale and public relations benefits

      •   Commercial disputes can be resolved outside the public eye. Mediation and other forms
          of ADR can be private, confidential processes.6
      •   Rather than putting resources into litigation, corporations can focus on future business
      •   ADR enhances the regulatory compact by fostering more productive and cooperative
          relations between the industry and regulators.

                  5.       ADR Can Save Time and Money

      •   ADR can minimize regulatory costs passed on to customers and saves agency budget
          dollars allocated to hearing support.
      •   ADR minimizes delays in operations and the associated erosion of project economics.
      •   ADR avoids lengthy and expensive litigation that requires large allocations of internal
          resources that must be diverted from other corporate opportunities.
      •   Many companies routinely use mediation within 30 to 90 days of a claim, rather than
          taking a year or more to get to court and engaging in costly discovery battles.

                  6.       Even Unsuccessful ADR Provides Benefits

      •   Even when the parties don’t sign an agreement in ADR, the vast majority report gaining
          some benefit from engaging in the process.
      •   Parties may agree on issues which can be dropped, streamlining the issues taken forward
          in the courts or before agencies.
      •   Parties often gain a clearer understanding of their case and others’ positions and
          underlying interests, leading to more efficient hearings.
      •   Neutral’s insights into the issues can give a fresh perspective on hearing strategy.

II.       Energy Related Issues and Disputes Amenable to ADR

          A.      Typical energy disputes and issues

Energy related issues and disputes amenable to ADR can occur in numerous arenas, as the
following chart indicates:7


First, they occur “upstream,” when regulators, legislators, and other policymakers are
formulating new policies, laws, and programs that govern how energy is produced, distributed,

  [COMMENT: it will be public if a settlement comes before a Commission, but if its based on an agreement rather
than a contested case, the public eye is usually less intense or less probing.] (NOTE: If regulatory still generally
reviewed by agency so come into public eye.)
 [COMMENT RE REVISED IECR CHART: We probably need to massage the IECR spectrum a bit to add biz
disputes to the right, and have rate cases and facility siting closer together.]

consumed, and broadly paid for. Recently, this has included a wide array of issues focusing on
restructuring electricity and natural gas industries. In the middle of the spectrum are
“midstream” cases that usually involve the application of policy and law to specific situations.
These cases include rate cases for individual companies, the siting and permitting of new energy
facilities, and other disputes whose resolution are likely to have a broader public impact.

At the “downstream” end of the spectrum are more individual, business type disputes between
two or more energy-related businesses and or between businesses and consumers. These
disputes are often focused on contractual or tariff-based arrangements among parties. As such,
these disputes far less often fall under the jurisdiction of state and federal regulators, and more
often under the jurisdiction of the courts or independent system operators.

Each of these three categories of energy disputes involves different substantive issues and
decisional processes:

   •   Policy-making/Rulemaking to Implement Policy//Major Facility Siting (e.g.,
       establishing a regulatory framework and policies for a new or evolving market such as
       retail gas and electric competition; creating strategies to encourage development of
       renewable energy sources; addressing large-scale environmental conflicts). These cases
       generally involve many parties (stakeholders), with many and diverse interests, and
       issues of the widest impact (e.g., natural resource and environmental justice issues).
       Here, commissions and other policy-makers have sometimes used an array of ADR
       mechanisms in which collaborative problem solving, often with the assistance of a
       facilitator or mediator, is used to reach consensus among the participants. These range
       from facilitated technical sessions and workshops to formal negotiated rulemakings
       utilizing a mediator.

   •   Adjudicatory Proceedings to Apply Rules (e.g., large-scale licensing decisions,
       traditional rate or service proceedings often requiring hearings). These conflicts often
       involve application of a policy or regulation. Some, but not all of them, tend have a more
       circumscribed number of parties and issues (often defined by statute), and usually require
       the approval of the regulatory authority for a binding resolution. They range from large
       scale conflicts associated with licensing large scale facilities such as hydro-electric or
       CNG operations to smaller-scale service or rate cases. In these cases, regulators and
       other responsible government agencies, have sometimes employed mediation, technical
       conferences, advisory opinions, and even, on occasion, early neutral evaluation, binding
       or non-binding arbitration, arbitration have been successfully employed.

   •   Transactional and Other Individual Disputes (e.g., business transactions; retail customer
       v. utility or ESCO, disputes among ESCOs, utilities or direct ISO customers, and other
       market participants). The resolution of these cases may or may not require approval of
       the regulatory authority (depending, in some cases, on the resolution of the dispute). This
       category of disputes can be roughly subdivided into simple and complex cases. Simple,
       discrete cases usually involve two or three parties and limited issues, and are often based
       on contractual relationships, the application of tariffs to a particular customer, or the
       enforcement of consumer protection rights (usually residential). Success resolving these

           cases has been achieved using mediation, informal or formal arbitration, early neutral
           evaluation, and other processes. More complex cases involve three or more parties, with
           more complicated and numerous issues, and usually involve greater stakes for the parties.
           Even in these complex proceedings, mediation, early neutral evaluation, binding and non-
           binding arbitration and other techniques have been very successful.

                                       DISPUTE RESOLUTION SPECTRUM

Parties Control                                                    Third-Party Assisted ADR
 Outcome and

     Unassisted         Facilitation              Mediation                   Med-ARB               Third-Party Advice           Binding Arb
    Negotiations                               (incl. Reg-Neg)                                     (incl. ENE, mini-trial)

                   Parties lose (Neutral gains) control of process then substance

                                       Best Opportunity to Preserve/Improve Long Term Relationships

                                       Best Opportunity for Win-Win Solutions

    Third Party      Listening    _      Clarifying        _             Assisting             _           Advising          _       Contr

B.        There are a range of available options

As the above chart makes clear ([see the separate attachment], a wide array of ADR options exist that
regulators, policy-makers, and stakeholders should consider in tackling important energy-related issues.
At a minimum, stakeholders can work together without third-party assistance in settlement negotiations,
and other collaborative processes. But, such processes can often be greatly enhanced by engaging third-
party, neutral assistance, particularly where there are multiple stakeholders involved and complex issues.

As this chart (and the ADR glossary set forth in Appendix 1) demonstrate, there is a range of options for
third-party assistance that should be carefully weighed to appropriately match what is needed in a given
case. Generally, the third party options and their applicability are as follows:8

 [COMMENT - I like these definitions – they identify the key processes in simple language. I'd drop the bullet
which follows since it confuses by implying that collaborative problem solving & consensus building, for example,
are alternatives to facilitation/mediation/arbitration, etc. rather than a different application.]

   •   Facilitation is where a third party assists with process management often including
       process design, communications and document management, and running meetings. All
       substance remains with parties. Facilitators are often used to run workshops and
       technical sessions, focused on education and structured feedback, rather than reaching
       formal agreements.
   •   Mediation is where a third party provides all the “facilitation” services to run good
       meetings and also actively assists parties in reaching agreements on the substance. In
       addition to smaller two-party cases, mediators are often used in negotiated rulemakings
       and complex settlement negotiations.
   •   Arbitration is the regulatory equivalent of court litigation, but without formal court
       processes or evidentiary rules. In arbitration a third party hears the arguments made by
       each side and then renders a decision which is typically binding on the participants, but
       can sometimes can be non-binding or advisory (if so specified or agreed ahead of time).
       Arbitration is often used with limited parties and narrow issues.
   •   Early neutral evaluation is an example of a type of non-binding arbitration, where a
       third party renders an expert opinion of likely litigation outcomes, based on presentations
       and initial filings.
   •   Med-Arb is a hybrid process where mediation is automatically followed by arbitration
       (binding or non-binding), if necessary.
   •   A minitrial is a structured settlement process in which the parties seek to reframe issues
       in controversy from the context of litigation to the context of a business problem.
       Typically, attorneys for each party make summary presentations to a panel consisting of a
       neutral minitrial advisor and non-lawyer party representatives who possess settlement
       authority. The representatives then attempt to negotiate a resolution, often with the aid of
       the advisor’s expert opinion or mediative assistance.

       C.     Use of ADR and consensus methods is growing in energy and related settings

[ADR success stories – identify and summarize one or two examples in each of the above
categories of innovative, collaborative approaches to addressing recurrent frictions. Possibilities

•Electric and natural gas restructuring (federal, state [TX, MD], regional)
•Electric and natural gas procurement and energy efficiency policies
•Certain state rate freezes ending and new
•State rates being developed
•Affiliate codes of conduct
•Competitive supply procurement via RFPs and other processes
•Default or standard offer service
•“Redistribution” of merchant energy sector assets
•Standardized contacts

•Hydroelectric relicensing
•RPS rulemaking in RI, MA
•Other competition issues
•Commercial disputes
•Public policy development re: renewable energy sources, conservation, environmental
•RTO development in New England
•Employment and HR disputes (Kansas)
•BGE/Constellation Energy Group’s systematic program from 1998-2000
•NRC Pilot Program]

[Some Possible Examples:9

[1. As a result of the California energy crisis, Pacific Gas and Electric Company filed for
bankruptcy reorganization, then the largest bankruptcy case ever. The judge ordered the
California PUC and PG&E to work with a mediator. All outstanding issues between the state
and PG&E were successfully settled and the CPUC adopted a formal settlement agreement with
the utility. PG&E was able to emerge from bankruptcy much more quickly and avoid years of
appellate litigation. Among other things, PG&E agreed to a shareholder-funded venture capital
fund for renewable technologies and a land stewardship council through which it is giving
thousands of acres of parkland to the state of California. The Commission agreed to allow
PG&E to recover the bulk of its power costs from its ratepayers.

[2. The Rhode Island PUC launched a negotiated rulemaking to develop the rules to implement
Rhode Island’s Renewable Energy Standards (aka Renewable Portfolio Standards) law. Passed in
2004, the law requires electricity suppliers to rely on an increasing percentage of renewable
energy resources (up to 16% in 2020) to supply Rhode Island consumers. The rulemaking
included over 15 stakeholder organizations and covered a wide range of issues. Raab Associates
was selected by the stakeholders to mediate the process This diverse group met 8 times over six
months and developed a 41 page report plus appendices, reaching a consensus on all but a few
issues. The final report to the PUC contained the proposed rules and a discussion of the
alternatives proposed on the few non-consensus issues. The PUC then held a technical session
with the negotiating group to better understand the proposed rules and non-consensus issues. It
then made tentative decisions on the non-consensus issues, essentially issuing the Group’s
proposed rules as its own draft rules for the required notice and comment period. After holding
one hearing, it plans to issue final rules by December.

[3. Dr. Raab completed the facilitation of the New England Disclosure Project that included over
50 major stakeholders throughout the region. The stakeholders, who met for half a year, came
together at the request of the six public utility commissions to explore options for uniform
electricity price, fuel type, and emission labeling and tracking mechanisms for New England.
The Regulatory Assistance Project then wrote a final set of recommendations for the

 [COMMENT: My assumption is that we might have a few stylized cases in the body of the text and hopefully an appendix
with a few dozen short cases cross-referenced by different types (e.g, mediation vs arbitration, in-house vs. outside, policy vs.
business, consensus seeking vs. sounding board etc.)]

Commissions. Click here to see that report (link to
Subsequently, most of the six New England states adopted similar disclosure requirement and the
region in 2000 endorsed a uniform tag-based tracking system through the Independent System
Operator to support the states’ disclosure requirements.

[4. Demand Response Initiative ('NEDRI') was created to develop a comprehensive, coordinated
set of demand response programs for the New England regional power markets. NEDRI’s goal
was to outline workable market rules, public policies, and regulatory criteria to incorporate
customer-based demand response resources into New England’s the electricity markets and
power systems. The Initiative promoted best practices and coordinated policy initiatives, but
was not intended to replace the functions that the ISO and other organizations must perform to
design and implement demand-side programs. The Initiative studied a full range of Demand
Response (DR) resource options, including short-term price-responsive load, retail pricing and
metering strategies, reliability-driven DR, and longer-term energy efficiency investments.
NEDRI was a broad-based, facilitated process funded by US EPA, US DOE, ISO-New England,
the New York ISO, and the Energy Foundation that involved the region's ISO, state and federal
utility and environmental regulators, power generators and marketers, utilities, consumer and
environmental advocates, and other stakeholder groups(see Membership). Working groups met
at various junctures to develop proposals for review in plenary sessions. In September 2002,
NEDRI and FERC jointly convened a national workshop on DR resources and policy options,
with a focus on the practical needs of DR providers and end-sue customers. Throughout the
process, a team of highly-skilled technical consultants provided the Stakeholders with scoping
papers, draft program designs, meeting summaries and agendas, and a final report at the end of
the process including 38 major recommendations for incorporating demand response in retail
and wholesale markets.]

[5. A great deal of excitement and controversy has arisen over a proposal to develop the nation’s
first offshore wind farm on Horseshoe Shoal in Nantucket Sound. This offshore wind project,
comprised of 130 wind turbines, would be the largest offshore wind farm in the world,
generating over 400 MW of power. The Massachusetts Technology Collaborative (MTC)
convened a stakeholder group process of over 40 key individuals representing the interests of the
Cape & Islands as well as state and federal agencies, and elected officials participated in this
dialogue, which was designed to identify and begin to address some of the outstanding issues
surrounding the Cape Wind project and offshore wind development in general. The goal of the
process was not to reach agreement on the fate of the proposed project, but to better educate
everyone on the potential benefits and impacts of the proposal, and better prepare everyone to
participate in the Environmental Impact Statement process run by the Army Corps of Engineers.
Each meeting covered different topics (e.g., visual impacts, avian impacts, electricity reliability,
etc.) in great detail, presenting studies from a range of experts and allowing time for stakeholders
to both ask questions and express their opinions on the various topics.

[6. Market Restructuring – In 1994, the New York Commission opened a proceeding to identify
the regulatory and ratemaking practices that would best assist in the transition to a more
competitive electric industry. In commencing the proceeding, the Commission urged the parties
to work collaboratively to identify a few comprehensive principles to guide the transition. The
collaborative efforts were not confidential settlement negotiations, but could be described as a

                                               - 10 -
consensus building and seeking effort.

[A series of meetings were held for the purpose of narrowing and reframing issues regarding
proposals for wholesale and retail competitive models. Those meetings ran from March 20 to
November 3, 1995 and were opened to the public; minutes from all meetings were circulated to
all parties summarizing progress. An ALJ was assigned to oversee the process, although the
responsibility for each meeting rested on one or more of the parties.

[Due to the complex natures of the issues, a substantial portion of the effort was educational,
directed at creating a common understanding. During the process, experts were brought in by a
number of parties, including the Department Staff, to discuss a number of different subject areas.
A number of those experts commented that the tone and interactive nature of the proceedings
was more constructive than formats used in other jurisdictions.

[Ultimately, the parties agreed on three different models and evaluated the risks and benefits of
each. The Commission concluded that the collaborative approach was an effective way to bring
parties with disparate interests together to discuss issues of critical importance to all. While a
complete agreement or consensus was not reached, the Commission noted that significant
progress was made in narrowing differences, and in developing a common understanding of the
complexities involved in any restructuring of the electric industry. As a result of these efforts,
the Commission concluded (Opinion No. 96-12) that opening wholesale and retail electric
markets to competition was in the public interest. In the absence of this ADR effort, the
litigation required to reach this conclusion could have taken years.

[7. Street Lighting Complaint – A proceeding was commenced in the 1990s to investigate
complaints from a large number of municipal customers that they had been over-charged for
years for street lighting services. The Commission urged the parties to negotiate settlements of
the complaints with assistance from Staff, and the case was assigned to an Administrative Law
Judge for trials, if necessary. The ALJ met with the parties on a number of occasions over a
period of 3-5 years to ascertain the progress of negotiations and to encourage the parties to move

[Many parties settled out, but there came a time when the ALJ concluded that the parties needed
guidance on issues such as the statute of limitations for back billing of overcharges versus
undercharges. Accordingly, the ALJ issued a recommended decision on these narrowly-defined
issues, which was subsequently approved by the Commission. With those aspects of the parties'
litigation risks more clearly defined, private settlement negotiations were successful in all other
cases, except one.

[One city was unwilling to settle and the matter was presented on a formal evidentiary record to
the ALJ. After the trial, it was decided that a last attempt would be made to get the parties to
settle. A Settlement Judge and a technical expert were assigned as mediators, and, recognizing
that the parties had already expended significant efforts in litigation, the mediators only asked
the parties to participate in two formal mediation sessions. If an agreement could not be reached
in two sessions, the analysis of the trial record would be acted upon by the Commission.

                                               - 11 -
An agreement was reached at the second mediation session and that agreement went beyond the
street lighting issues to settle other disputes that had arisen between the parties. Between the
first and second session, the mediators frequently met individually with the parties, often
ferrying offers and counteroffers. This post-trial success supports the proposition that ADR can
be a useful tool regardless of the procedural status of the proceeding.]

          D.       Agency Scope of Review of ADR Outcomes

An issue that often arises is the extent to which a regulatory agency, such as FERC, will review
an ADR outcome and the degree of deference an agency will afford an ADR outcome. An
analysis of key FERC actions under the Federal Power Act and the Natural Gas Act is attached
as Appendix ___.

III.      Making better use of ADR in energy settings

          A.      General advice for regulatory agencies and participants in proceedings

       1) A regulatory agency should require, and the parties should engage as a matter of course
           in, good faith negotiation as early as possible and considered assisted forms of
           negotiation such as mediation from the outset
       2) Attorneys should initiate discussion of possible ADR processes upon first being
       3) Regulators should screen filings and, when issuing investigations or rulemakings, send
           them to ADR.
       4) Include all legitimate stakeholders in all ADR discussions in order to foster
           communication and cooperation.
       5) Secure direct involvement of regulatory agencies in resolution of policy-making and
           policy-implementation conflicts whenever possible.
       6) Provide adequate resources to the ADR effort.
       7) Do not exclude contentious or sensitive issues from consensus building or dispute
           resolution processes and look for opportunities to maximize joint gains in these
       8) Consider using third parties (e.g., mediators) to assist negotiation.
       9) Structure ADR processes to supplement or supplant traditional adjudicatory and
           rulemaking procedures.
       10) Modify traditional procedures better to accommodate regulatory agencies’ ADR

          B.      Sound ADR practice

                  1.     Regulatory agencies’ involvement in contested adjudicatory
                         proceedings (See also “Using Third Parties to Assist Negotiation”
                         section below)

                                                - 12 -
Regulators should encourage parties to attempt to negotiate settlements of contested adjudicatory
proceedings wherever possible.10

To increase the likelihood that these settlements will reflect regulators’ policies and preferences,
regulators should consider including members of agency staff as parties in settlement
negotiations. These staff negotiators should not then be able to advise regulators in the same
proceeding. Instead, other staff, who do not confer with negotiating staff, should advise

Staff that will negotiate in contested adjudicatory proceedings should have subject-matter
expertise and should be trained in “mutual gains”11 negotiation techniques whenever possible.12

                   2.      Regulatory agencies’ involvement in rulemaking and policy
                           development (other than adjudicatory proceedings)

Regulators should seek ways to engage stakeholders meaningfully in policy development
through a variety of ADR processes. These may range from:

       •   Informal processes such as technical sessions, workshops, and stakeholder groups that
           function essentially as sounding boards or advisory groups to generate options and gauge
           convergence and divergence among stakeholders,

all the way to:

       •   Formal, consensus-seeking processes, such as negotiated rulemaking, where regulatory
           agencies can publish proposed settlements reached during ADR which then go through a
           notice-and-comment process before being adopted as final rules.

Regulators should generally articulate basic goals and boundaries and pose questions they want
answered when initiating a policy proceeding.

Regulators should find ways to involve stakeholders prior to regulators releasing fully fleshed-
out proposals.

Regulatory agency staff should also be involved as formal parties or active observers whenever

Agencies considering use of ADR in a policy-making or other large-scale setting that involves
complex, contentious issues should consider sponsoring a preliminary assessment (or

     [COMMENT: Consider attaching in appendix CA or other policy statements encouraging ADR.]
  Mutual gains negotiation is called by other names, such as win-win negotiation etc. to represent an approach to
negotiation first captured in Fisher and Ury’s Getting to Yes.
  We recommend that regulatory staff and all stakeholders who will participate in proceedings before regulatory
agencies be trained in “mutual gains” negotiation.

                                                       - 13 -
“convening”) by a third party who confers in confidence with all identifiable interests. Using
interview results and other data, this “convenor” can identify goals and issues, find affected
interests whose stake is initially difficult to identify or not be immediately apparent, recommend
whether ADR is appropriate and timely, and if so, advise on such things as representation, the
"shape of the table," and process design. If acceptable to the stakeholders, the convenor may
also become the mediator for any ensuing process.

                    3.      Use of ADR by Independent System Operators and Regional
                            Transmissions Organizations13

Many independent system operators and regional transmission organizations (ISO’s and RTO’s)
already have procedures in place that route commonly occurring disputes into ADR. (See
Appendix ___, chart comparing a number of energy entities’ ADR provisions) While some of
these processes appear to be working well, we see opportunities for improvement in several of
them and suggest that these entities encourage disputing parties to attempt to negotiate
agreements in contested cases wherever possible, pursuant to the following principles:14

       •   ADR should be required for disputes related to “ISO/RTO Agreements,” either between
           ISO/RTO members or between members and the ISO/RTO.
       •   Parties should undertake good faith negotiations and consider from the outset whether it
           makes sense to engage a third party neutral.15
       •   Parties should engage in mediation prior to the initiation of arbitral, regulatory, or other
           dispute resolution procedures.
       •   To aid in prompt selection of able neutrals, ISOs/RTOs should have, and make widely
           known and accessible, a roster of qualified neutrals (see Section __, below); any entity
           that do not have such a roster should consider adopting one. ISOs/RTOs should update
           mediation, arbitration, and advisor rosters according to an established schedule (e.g.,
           every 3 years).
       •   The chair of the ISO’s/RTO’s ADR Committee should distribute a panel of several
           mediators from a roster of mediators and/or advisors, with parties selecting by using a
           reverse strikeout process The mediator can select a technical advisor from advisor list if
           the dispute is highly technical, and the mediator needs technical assistance.
       •   Mediation should begin promptly after selection. If a resolution is not reached within one
           to two months after the mediator is appointed (or a later date mutually agreed to by the
           parties) and is under a specified amount (e.g., $1 million), it must go to binding
           arbitration. Parties could also agree to submit larger disputes to binding arbitration.
       •   ISOs/RTOs should avoid requiring or expecting mediators routinely to provide parties
           with mediators’ evaluations at the end of unsuccessful or partially successful mediation

     [COMMENT: should indicate for resolution of what type of disputes]
  [NOTE: Reflects PJM’s processes, with a few massages and suggested revisions – make sure we acknowledge
and cite the source and emphasis this is an example process]
  [COMMENT: I’m now thinking that it’s not a best practice to always try to negotiate unassisted first and only
then to consider mediation, but the best practice is probably to consider mediation and other forms of assistance
from the outset.]

                                                        - 14 -
         proceedings, even if confidential and non-binding; they may wish to explicitly afford
         parties the option to seek an assessment on a case-by-case basis, which might be
         delivered jointly or separately according to parties’ wishes.
     •   Parties should generally split the cost of the mediation.
     •   The parties should then have a brief period (e.g., 14 days) to select an arbitrator by
         agreement from a roster of arbitrators. If they cannot agree, then each party should pick
         one arbitrator and those two arbitrators should choose a third one.
     •   The arbitrator should set a schedule, means of discovery, etc. and hold an evidentiary
         hearing. Cross examination of witnesses should be allowed, unless parties agree to allow
         resolution based on a written record. Confidentiality rules should apply.
     •   The arbitrator should issue a written decision based on the evidence, agreements, and the
         law within a specified time (e.g., 3-4 months, extendable for good cause) after selection.
         If the issue affects matters subject to jurisdiction of FERC under Section 205 of the
         Federal Power Act, the decision must be filed at FERC.
     •   Parties should split the cost of the arbitrator unless the arbitrator recommends a different
         allocation, and parties have a limited time after the arbitral decision to appeal the decision
         to the appropriate body having jurisdiction over the matter.16


                  4.        Using ADR in Individual Disputes and Business Transactions

        The nature and extent of potential disputes that can arise from a variety of differing
energy transactions should dictate the ADR form and processes chosen by the parties that will be
attempting to resolve such disputes. Industry participants involved in all aspects of energy
transactions should be cognizant of the array of possible scenarios that can occur if, or when, a
dispute materializes between the transacting parties. It is the goal of the ADR Forum to assist
industry participants by providing them with the most recent ADR processes available and a
practical understanding of exactly how these various ADR processes function in their application
to the broad spectrum of energy and energy related transactions. By understanding the ADR
processes available to transacting parties, and the best practices currently being utilized in the
industry, these participants will be better informed in their ability to create and tailor specific (or
general) ADR processes that are both effective and efficient for their particular energy
transaction and the potential disputes possibly lurking within those transactions.

Broad Range of Energy Transactions

  [COMMENT: This is a statute of limitations issue that will vary widely, and few will have any choice in the
matter. Therefore I do not believe this should be a best practice -- and if we still want to make a recommendation
here, I'd go with a shorter time frame. The delay of a year before an appeal is taken, not to mention the year(s) for
appeal itself, could negatively affect system reliability.]

                                                         - 15 -
Purchase and Sale of Energy Commodities and/or related Financial Energy Transactions
(Standardized Agreements)

       EEI Master Agreement
          EEI Gas Annex
          EEI Master Netting Agreement
          EEI Collateral Annex
          Optional Provisions for Use with EEI Master Agreement

       ISDA Master Agreement
          ISDA Gas Annex
          ISDA/EEI Power Annex
          ISDA Energy Agreement Bridge (cross-agreement netting)
          ISDA Margin Provisions/Credit Support Annex

       WSPP Master Agreement
         WSPP Netting Agreement (Exhibit A)
         WSPP Collateral Annex
         WSPP Security Agreement
         Mediation and Arbitration Procedures (Exhibit D)

       NAESB Base Contract for Sales/Purchase of Natural Gas
         NAESB WGQ Trading Partner Agreement (Natural Gas)
         NAESB WGQ Funds Transfer Agent Agreement (Natural Gas)
         NAESB WGQ Model Credit Support Addendum
         NAESB WEQ Funds Transfer Agent Agreement (Electric Power)
         American Arbitration Association Proposal to NAESB
         GasEDI Base Contract for Sale and Purchase of Natural Gas
         GasEDI Base Contract for Short Term Sale and Purchase of Natural Gas

Tolling Transactions/Agreements

Fuel-Supply Transactions/Agreements

Off-Take and Power Purchases Transactions/Agreements

Transmission and Transportation Transactions/Agreements

Operations & Maintenance (O&M) Transactions/Agreements

Engineering, Procurement and Construction (EPC) Transactions/Agreements

Energy Project Development Financing Transactions/Agreements

Traditional Energy Asset Acquisition and Divestiture Transactions/Agreements

                                      - 16 -
       Energy Risk Management Service Transactions/Agreement

       Renewable Energy Transactions/Agreements

ADR Processes Available for Participants in Energy Transactions

        There is not a “one-size” fits all ADR solution to every energy transaction dispute. The
particular risk profiles and business objectives of the transaction participants should determine
the ADR process as well as the best practices tools ultimately chosen for their particular
transaction and drafting of related agreements. Industry participants are increasingly requesting
alternatives to lengthy and cost-prohibitive litigation for resolving their particular disputes. The
search for more efficient and effective solutions to resolving energy disputes presents the perfect
opportunity for industry participants to become more familiar with recommended ADR best
practices. The ADR Forum is confident that the more informed and educated the energy industry
becomes with current ADR best practices, the more an ADR “industry standard” will develop to
address energy disputes.

        Participants in energy transactions, ranging from fairly simply standardized commodity
agreements to large transactions involving several layers of complex agreements, need ADR
processes that provide those participants with the ability to quickly and appropriately resolve
disputes in a consensus driven and facilitative manner. In the event disputing parties are
unsuccessful in resolving their disputes through the negotiation or mediation processes, the ADR
best practices offer the parties a binding process, if necessary, with the proper due process
protections. The ADR best practices affords the parties a process or choice of processes that is
more preferable than a “full-blown” litigation proceeding. It is this growing energy industry
need for alternative approaches to conflict resolution that afforded the ADR Forum the
opportunity to gather ADR information from many cross-sections of the industry to create a
comprehensive set of best practices that can be individually tailored to address the unique
characteristics and specific needs of a broad spectrum of energy transactions.

               [Insert Specific Best Practices for Transactions]

               5.      Using Third Parties to Assist Negotiation -- Facilitation and

   •   Regulators should generally encourage parties engaged in negotiations to use a mediator
       or facilitator to assist when negotiations involve many issues, have contentious issues,
       have numerous parties, or have stalled.

   •   Regulators should use third parties (either in-house or from outside) as a matter of course
       to aid negotiations, especially in policy formation stakeholder processes, which will
       almost always involve multiple parties and issues.

       •   When the goal of an ADR process is simply education about the substance and
           stakeholders perspectives on the substance, rather than formal agreement, the third

                                               - 17 -
              party typically acts as a “facilitator” charged with planning and running effective
              meetings and managing communications and document flow.
         •    When the goal of an ADR process is agreement or consensus, the third party typically
              acts as a “mediator” or in an evaluative role.17
         •    Mediators must do all the things that “facilitators” do as well as assist parties in
              reaching agreements.

     •   Facilitators should be trained in managing communications and running good meetings, ;
         mediators will require, in addition, expertise in mutual gains negotiation and in other
         mediation skills.

     •   All mediators and all third parties who serve in evaluative roles should be acceptable and
         accountable to all parties and should have latitude to act independently of the sponsoring
         entity or employer. All third parties (except arbitrators, once selected) should serve at the
         pleasure of the parties,1819

     •   Qualifications for all mediators should include:

         •    Mediation process skills, including gathering background information,.
              communicating information to others, analyzing information, assisting with
              exploration of options and agreement, managing cases, and helping document any
              agreement by the parties
         •    Ability to act in an [impartial and non-partisan] manner, with no substantive stake in
              the outcome
         •    Compliance with applicable ethical standards20
         •    Adequate substantive knowledge in the issues and type of dispute to help manage
              communication, help parties develop options, and alert parties to relevant
              information. The amount of substantive knowledge that is necessary will depend on

  Some agencies blur these distinctions by using terms like “Settlement Judge” for ALJs doing any form of ADR
except arbitration.
  [COMMENT: Yes, neutrals should have latitude to act independently, but complete independence is not possible.
This is a difficult issue and I think hard to explain. Employees, even when acting as neutrals, have some obligation
to protect the public interest and to dissuade parties from settling on a basis that would violate well established
Commission policies.]
  [COMMENT: Not sure that mediators should have to serve at the pleasure of all parties either. For instance, often
the regulator or agency will select the mediator first and the mediator will help select the parties (this is common for
instance in negotiated rulemakings). For those cases, the Mediator is really serving at the pleasure of the agencies.
In other cases, where there are many parties, the mediator is often not the first choice of one or more parties or if the
negotiations are not going well for one or more parties they may take it out on the mediator and even seek their
dismissal. In those cases it probably doesn’t serve the majority of the parties to dismiss the mediator. So we need to
nuance this.]
   E.g., the attached Model Standards of Conduct for Mediators (Appendix ___) recently revised by the Association
for Conflict Resolution, American Bar Association, and American Arbitration Association, as well as other
professional or ethical codes applying to those wearing more than one "hat" in an ADR proceeding (e.g., mediator,
attorney, judge).

                                                          - 18 -
             the nature of the dispute, and mediators with little substantive knowledge in a
             complicated technical or policy case probably should be paired with a technical
             expert to serve most effectively.

     •   In-House vs. Outside Professional Mediators

             o Consistent with party control of ADR processes, all mediators and other neutrals
               should [ideally] be acceptable to all parties and be selected by the parties.
               However, there are instances, such as negotiated rulemaking or other agency-
               driven proceedings where the agency will pick the mediator (either in-house or
               outside) ahead of identification of the stakeholders to help convene and then run
               the process,.
             o Regulatory agencies, including those that have qualified in-house third parties,
               should never require the use of in-house neutrals, but always also offer parties the
               options of unassisted negotiation or of using an outside mediator (whose cost
               parties may have to cover).21
             o Regulators should consider, on a case by case basis, whether they want to offer an
               in-house mediator.22
             o Whether an in-house or outside professional mediator is selected, the individual
               should meet all the qualifications set forth above.
             o Agencies initiating policy-making and other large scale consensus-building
               processes that involve complex, contentious issues, should weigh explicitly the
               relative benefits of employing an experienced in-house third party against using
               an outside professional, to serve as convenor and to lead any subsequent
               negotiations. Factors to consider include whether parties are likely to find an
               insider acceptable and to offer candid views to an inside convenor.

     •   If an in-house third party is selected, that person should seek solely to assist party
         negotiations and should never attempt to negotiate on behalf of the regulatory agency or
         any other participant. Other internal staff negotiators are responsible for representing the

                  6. Using Third Parties to Assist Decision-making -- Arbitration

Arbitration should generally be used, only after mediation has first been tried, except in specific
pre-defined cases (e.g., small amounts of money are at stake, decision deadlines are very tight,
issues and options are very narrow,).

  Note states should consider making funding available for outside mediators in cases where this makes sense, as
they would fund outside consultants brought in on specific cases. Note both the RI PUC for reg-neg on the states
renewable portfolio standard and the VT PSB for transmission policy and planning case have both recently funded
an outside mediator.
  Many regulatory agencies, especially in smaller states, will not have qualified mediators on staff. At other times,
the appropriate staff mediator may not be available, or for certain cases outside mediators may be preferred or better
suited for a variety of reasons.

                                                        - 19 -
            a. Baseball type arbitration, when the arbitrator is required to pick one party’s
               position in its entirety should probably be avoided in a regulatory setting. (Note:
               baseball arbitration would preclude arbitrators for still seeking mutual gain
               outcomes.) If the parties have tried mediation first and cannot find a mutual gain
               outcome, does the arbiter have an obligation to seek such an outcome? Or, should
               BB arbitration be prohibited for such a reason – especially if the parties have so
               agreed? (I assume arbitration is voluntary as to the agreed-upon process)
            b. Arbitrators (like a good mediator) should be skilled, impartial , and with
               substantive knowledge (although its possible for the arbitrator to have access to a
               consultant with substantive expertise) plus need to be able to conduct hearings,
               write decisions, etc.23
            c. Arbitrators could again be in-house or outside professional arbitrators, and other
               qualification requirements for mediators should apply to arbitrators as well.

“We think binding arbitration will be appropriate for a narrow range of regulatory cases, such as…”?]

                7.     Energy Policy Act of 2005 --

              A new energy law was passed in August 2005.I t is possible that ADR could be useful in
implementation of certain provisions, such as the electric reliability rules and back stop sitting.
[Add discussion]

                8.       Analyzing conflicts and choosing appropriate ADR approaches


                9.       Other Advice on Effective Use of ADR practice

[Further specific advice – if any – on using ADR to maximum advantage, e.g.:

     •   procedural rules, contract terms, models
     •   selection and use of neutrals
     •   scope of review, deference, and settlement procedures
     •   role of management in the ADR process
     •   assigning responsibility for ADR advice and decisions
     •   mandatory or voluntary use or consideration of ADR
     •   possible areas for amendment of laws or policies

  [COMMENT: does this mean have a law degree? COMMENT 2: Many states use non-attorney, substantive staff
to run certain technical hearings.]

                                                  - 20 -
      •   regulatory incentives and integrating ADR into traditional regulatory processes
      •   teleconferencing and web-based DR tools]

IV.       Recommendations for Achieving “Success”: Systematically integrating ADR into
          industry regulation, policymaking and decision-making

          A.     Promoting ADR use systematically

        Agencies, companies, law firms, and other energy industry entities24 should adopt explicit
policies that strongly encourage voluntary ADR use and that:

      •   Identify personnel responsible for advising on implementing ADR to further
          organizational goals and for making decisions to approve the use of ADR in specific
      •   Identify personnel to act as points of contact for those interested in exploring ADR use in
          specific settings,
      •   Provide for systematic review of all conflicts for appropriateness and viability or
          opportunity for ADR, signal explicit executive support for reasonable agreements
          reached in ADR, and
      •   Offer negotiation training and guidance on documenting negotiations or justifying

These entities should also:

      •   Assure an appropriate level of ADR education and awareness among those who influence
          process decisions for handling conflicts, and
      •   Offer ADR and consensus building routinely in specified settings.

          B.     Promoting private sector ADR

        Regulatory agencies should review the areas that they regulate to determine the potential
for the establishment and use of ADR mechanisms as an alternative to direct agency action.
Where such use is appropriate, the agency should:

      •   Encourage regulated parties to pursue ADR mechanisms to resolve disputes that would
          otherwise be handled by the agency;
      •   Specify minimal procedures that will be acceptable to be approved;
      •   Establish a specific burden of proof or other review standard by which settlement
          agreements will be judged (when a review is necessary). That standard should be
          tempered by the recognition that ordinarily adversarial parties have reached a mutual

  [COMMENT: Might offer 2 categories of advice, one to agencies and other entities that have done little and
another to those with more well-established ADR programs.]

                                                      - 21 -
     •    Oversee the general operation of ADR processes to ensure they are fair and effective;
          ordinarily, it should not review individual decisions or should endorse and follow the
          policy of reviewing proposed agreements with a light hand; and
     •    Provide incentives to employ ADR, such as expedited review or forestalling other
          regulatory action.

          C.     Documentation and accountability in ADR

          To encourage effective use of ADR, agencies and energy companies should:

     •    Provide means by which all appropriate decision-makers are involved in, or regularly
          apprised of, the course of major negotiations. Agencies should also endeavor to
          streamline intra-agency review of settlements. These efforts should serve to ensure that
          the concerns of interested segments are reflected as early as possible in negotiations, and
          to reduce the likelihood that tentative agreements will be upset.
     •    This might include using a formal notice of ADR discussions, served on the parties,
          outlining any issues, concerns, or boundaries that the agency wishes to convey to parties.
          Commissioners’ and staff’s initial input should be gathered prior to formal notice,
          wherever possible.
     •    Offer guidance to agency staff on the degree of documentation that is appropriate to
          justify settlements reached via ADR. Such guidance should emphasize the needs for
          flexibility without undermining accountability. For instance, the agency guidance could
          require the principal representing the agency in negotiations or his or her advisor to set
          down factors taken into consideration, the principal elements of the negotiation, and
          other significant facts or considerations justifying any significant differences between
          pre-negotiation objectives and negotiated result25 This documentation should not exceed
          what would ordinarily be used to justify negotiated agency settlements.

          D.     Assuring confidentiality of ADR negotiations

          Agencies, corporations, ADR programs, and parties in cases where ADR is employed

     •    recognize that confidentiality of dispute resolution communications promotes the
          integrity of ADR processes and allows parties to engage freely in candid, informal
          discussions that yield superior outcomes;
     •    provide maximum protection of communications made during ADR processes,
          consistent with applicable statutes;26 and

  [COMMENT: presumably, each party has it's own objectives, and the negotiation has produced an acceptable
agreement, so why the need for such justification?]
  e.g., Administrative Dispute Resolution Act, 5 U.S.C. 574. [COMMENT: suggest citing applicable examples of
state statutes]

                                                     - 22 -
       •    include provisions in any agreement to employ ADR that specify confidentiality
            expectations, including any possible exceptions or any need to disclose details of a
            proposal to superiors or reviewers in order to obtain approval.

           E.      ADR programs’ design and credibility

          Agencies and other entities that establish ADR programs have responsibilities to provide
fair, high-quality processes. If agencies and other entities planning and implementing ADR
activities seek to obtain the input of all appropriate stakeholders in the design process, they will
have a greater probability of acceptance and long term satisfaction. These entities should
undertake early, meaningful outreach to affected interests, as well as systematically explore and
carry out the following tasks:27
    • raise awareness of, and obtaining buy-in for, ADR programs and activities among
         decision-makers and program users who are key to success.
    • obtain resources to sustain an ADR program.
    • develop an ADR training and outreach program.
    • employ the services of internal and/or outside third parties to assist negotiations,
         including issues of mediator roster management, selection and evaluation.
    • find an ideal location for the ADR program, whether inside or outside the agency, that
         will maximize acceptability to potential users.
    • understand the various ethical duties facing ADR third parties and program managers.28
    • seek meaningful user feedback, evaluate outcomes and administration in order to gauge
         how well ADR is working and to make improvements over time, and disseminate
         evaluation results to maximum effect.

           F.      Mandatory ADR

         ADR processes should be voluntary and controlled by the parties. Regulatory agencies
should make mediation and other forms of ADR available to stakeholders in appropriate
circumstances, and require stakeholders to consider participating in ADR processes. While
agencies can strongly encourage stakeholders to participate in mediation, they should not require
it, unless mandated by law (such as arbitration in certain circumstances under the Telecom Act).

           G.      Use of Settlement Judges.

       A presiding judge often cannot help the parties' settlement negotiations in any
comprehensive way without risking the appearance of impropriety. In many cases, a separate
settlement judge or an agency or outside mediator should be used to assist parties in confidential
settlement discussions. If the settlement judge is unsuccessful in settling any or all issues, they
should be forwarded to the presiding judge to resolve. [OTHER ADVICE?]

     [COMMENT: these recommendations should be integrated and made consistent with those previously espoused]
     [COMMENT: what specifically?]

                                                      - 23 -
         H.        Improving conflict management skills and awareness.

         In addition to taking advantage of assisted negotiation, agencies, energy companies, and
other entities should assure that their attorneys, consultants and other key participants engaged in
settling cases and issues receive education and hands-on training in interest-based negotiation in
both assisted and unassisted negotiation and in related conflict management skills. This training
can be obtained from any of a variety of sources, including using standardized outside trainings,
tailoring sessions to the organization’s needs, or training staff members as negotiation trainers.29

All attorneys and consultants should be sufficiently knowledgeable in ADR to advise clients on
the pro's and con's of each ADR process.30

How lawyers and others can be better advocates when using ADR [ADVICE?]

NARUC should establish a Committee to focus on ADR issues, and also employ its Training Committee
to address ADR education; the Energy Bar Association and state bar associations could take similar
actions as appropriate.

                   1.      Governmental/Regulatory Agencies

     •   Agencies must be aware of the broad scope of benefits associated with the use of ADR to
         resolve disputes.

     •   Those responsible for deciding the dispute resolution process for the agency should have
         specific training or expertise in mutual gains negotiations, mediation, early neutral
         evaluation, and other forms of ADR.

     •   Agencies should offer the parties a broad variety of voluntary ADR services (supplied by
         staff and/or outside consultants).

     •   If the agencies have the resources to develop in-house expertise, a training program
         should be undertaken to maintain appropriate skills and to permit practitioners to stay
         abreast of developments in ADR. (It may be useful in this regard to encourage staff
         mediators and arbitrators to volunteer in local dispute resolution centers to maintain and
         improve their ADR skills).

              [COMMENT: Should we do a resources appendix?]
   [COMMENT 1: Is this a realistic expectation – that all attorneys and consultants in essence have sufficient
training in all types of ADR to be advisors? COMMENT 2: I believe attorneys who cannot advise on the
merits/demerits of each ADR approach (or cannot otherwise impart that knowledge to a client, such as through an
ADR expert in the office) are not fully representing that client. Lack of knowledge in the bar is one of the stumbling
blocks to the wider use of ADR.]

                                                        - 24 -
       •   To the extent staff of the agency is an active party in cases, those staff should also be
           trained in the use of ADR processes similar to the training and knowledge-based
           requirements for attorneys and companies as noted above.

       •   Agencies should consider making funds available to retain outside ADR experts, where
           the use of such experts seems reasonable. In addition, agencies should develop lists of
           in-house and outside ADR professionals from which the parties may choose (subject to
           staffing limitations).

                   2.      Attorneys

       •   Attorneys should have a professional level knowledge of ADR options and must advise
           their clients of the options available, including the benefits and drawbacks of each.31

       •   Attorneys should always seek to resolve disputes by agreement, and in every case should
           consider assisted negotiations or mediation prior to litigation or arbitration.

       •   Attorneys should strongly consider the use of ADR clauses in contracts or agreements to
           reduce the cost of disagreements that might arise in the future.

                   3.      Companies

       •   Company executives and those involved in deciding litigation strategy should have
           expertise in ADR processes, or at least have it available to them.

       •   Companies should always seek settlement via negotiations and should seriously consider
           the use of assisted negotiations or mediation before considering litigation or binding

       •   Companies should, wherever reasonably possible, include contract provisions for the
           resolution of disputes using appropriate ADR processes.

V.         Further recommendations to other specific stakeholders. [ANY?]32

               o Public agencies
               o ISOs/RTOs – Provisions for tariffs, generator interconnection agreements, service
                 agreements, etc.
               o Clients33
               o Other audiences – ADR provisions for standardized contracts

  [COMMENT: In my view this is or should be an ethical responsibility, but I have not had the opportunity to
research the question]
     [COMMENT: No! Too long already]
     [COMMENT: Address how we get clients to demand ADR from their attorneys]

                                                      - 25 -
VI.       Conclusion: What Next?

An action plan

What can we reasonably expect ADR to accomplish? [ELABORATE BRIEFLY ON “NEW

Reaching these goals involves [BRIEF DESCRIPTION]

A strategy for outreach, education, and follow-up to this report


      •   [Probably want to include some sample state guidelines like CA, or maybe we want to
          develop a model.]

      •   Appendix 1: ADR Glossary

      •   Appendix : ABA/ACR/AAA, Model Standards of Conduct for Mediators

      •   Appendix : Chart comparing various RTO/ISO ADR provisions

      •   Appendix : Model agreements for using ADR

      •   Appendix : Legal analyses (FERC Scope of Review and ADR outcomes) and other
          background documents

      •   Appendix : Revised IECR Upstream/Downstream Chart [WILL GO IN TEXT]

      •   Appendix : Stockholm/Raab ADR Process Spectrum Chart [WILL GO IN TEXT]

                                               - 26 -
Appendix 1

ADR: A Glossary
Alternative means of dispute resolution (or ADR). Any procedure emphasizing creativity and
cooperation in place of adjudicative means of problem solving. ADR typically involves a neutral
and is used as an alternative to a hearing, trial, or other more formal procedure to resolve an issue
in controversy. ADR includes but not limited to, facilitation, mediation, fact-finding, minitrials,
arbitration, or any combination. ADR processes.

Arbitration. An ADR process in which the disputing parties present their case to one or more
neutrals (“arbitrators”), who hear evidence and argument and render a decision or award on the
merits (binding or non-binding). Arbitration differs from mediation and other ADR processes in
which the neutral helps the disputing parties develop a solution on their own.

Caucus. A private meeting or series of separate meetings in an ADR proceeding that take place
between the neutral and one or more, but not all, participants. Many mediators and other ADR
neutrals sometimes work in private caucuses with parties to give them a chance to explore
acceptable resolution options, develop or clarify proposals and interests, or move closer to
resolution. A “joint session,” by contrast, includes all parties and the ADR neutral.

Dispute resolution (DR) communication. Any oral, written, or electronic communication
prepared for the purposes of a dispute resolution proceeding, including memoranda, notes or
work product of the neutral, parties or non-party participant. “DR communications” are
generally protected by statute or agreement to promote candor and creative problem-solving.

Facilitation. A collaborative process involving the use of techniques to improve the flow of
information in a meeting. In it, a neutral facilitator seeks to assist a group to discuss issues
constructively and provides procedural direction to help the group move through a problem-
solving process to arrive at a jointly agreed-on goal. While facilitation bears many similarities to
mediation, and while facilitation techniques may be applied to decision-making meetings where
a specific outcome is desired (e.g., resolution of a conflict or dispute), the neutral in a facilitation
process (the “facilitator”) often plays a less active role than a mediator. The term "facilitator" is
often used interchangeably with the term "mediator," but a facilitator typically does not become
as involved in the substantive issues.

Fact-finding. An ADR process in which a neutral fact-finder receives information and
arguments from the parties about the issues and facts in a controversy (and may conduct
additional research to investigate the issues in dispute), and then submits a report with findings
of fact and perhaps recommendations based on those findings.

Joint session. A meeting in an ADR proceeding that (unlike a caucus) includes all parties and
the ADR neutral.

Mediation. An ADR process in which a neutral third party (a “mediator”) with no decision-

                                                 - 27 -
making authority seeks to assist the parties in voluntarily reaching an acceptable resolution of
issues in controversy. While mediators differ in their methods of assisting disputing parties, the
mediator typically enables the parties to initiate progress toward their own resolution. A
mediator enhances negotiations by improving communication between parties, identifying
interests, and exploring possibilities for a mutually agreeable resolution.

Minitrial. A structured ADR process in which the parties seek to reframe issues in controversy
from the context of litigation to the context of a business problem. Typically, attorneys for each
party make summary presentations to a panel consisting of a neutral minitrial advisor and non-
lawyer party representatives who possess settlement authority. The panel then attempts to
negotiate a resolution of the issues in controversy.

Negotiated rulemaking. A multi-party consensus process used as an alternative to the
traditional notice-and-comment approach to issuing regulations, in which agency officials and
affected private representatives meet under the guidance of a neutral to engage in negotiation and
draft a proposed agency rule, policy, or standard. The public is then asked to comment on the
resulting proposed rule. By encouraging participation by interested stakeholders, the process
makes use of private parties' perspectives and expertise, and can help avoid subsequent litigation
over the resulting rule.

Negotiation. A process of discussion and give-and-take in which disputants communicate their
differences to one another through conference, discussion and compromise, in order to resolve

Neutral (or ADR Neutral). An individual who functions specifically to aid the parties in a DR
proceeding to resolve an issue in controversy. Depending on his or her function at a given time,
an ADR neutral may be an administrative neutral/program neutral, a session neutral, or a
convening neutral:

   •   An administrative neutral (or program neutral) typically conducts the day-to-day
       administration of an ADR program, including intake, assistance in identifying and
       obtaining session neutrals, record-keeping, establishment of evaluation mechanisms, and
       offering parties aid and advice.

   •   A session neutral assists the parties during and between negotiation sessions in exploring
       options, identifying common interests, and resolving their dispute.

   •   A convening neutral (or convenor) typically confers with potentially interested persons
       regarding a situation involving conflict to: identify the issues in controversy and all
       affected interests, determine whether direct negotiations would be suitable, educate
       parties about the ADR process, design the structure of an ADR process to address the
       conflict, and possibly bring the parties together to negotiate.

Early neutral evaluation. An ADR process in which the parties and their counsel present the
factual and legal bases of their case to a neutral evaluator—often someone with specifically
relevant legal, substantive, or technical expertise or experience—who then offers a non-binding

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oral or written evaluation of the strengths and weaknesses of the parties’ cases. This evaluation
can form the basis for settlement discussions facilitated by the neutral evaluator if the parties so

Non-party participant. Experts, friends, support persons (including lawyers), potential parties,
and others who participate in the mediation or other ADR proceeding but are not parties.

Settlement judge. An ADR process in which a judge—different from the presiding judge in the
case—meets with the parties jointly and separately, acting as a mediator or neutral evaluator in a
case             pending                    before                 a             tribunal.

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