Originally from Dispute Resolution Journal

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.