Vol. 14, No. 1 January 1996 CPR Institule for Dispute Resolution Alternatives 3

Mediation Helps Balance Regulatorv Interests By Scott Brown and Penny Rubin As telecommunications and electricity markets become more open and corn- petitive, state regulators face increased pressure to reform their regulatory regimes. Traditional litigation is ill- suited to reconcile the competing in- terests of all the stakeholders.

Combined litigation expenses for the participants can easily top several million dollars for a single case. Final resolution may take many years, with changes in the market outstripping the litigation result. What’s more, litiga- tion produces poor results-a patch- work of individual compromises, rather than a coherent, forward-look- ing regulatory policy.

Mediation of these complex cases offers an attractive alternative. The Public Service Commission of New York recently approved a mediated settlement involving a new regulatory framework for Rochester Telephone Company or RTC. The settlement pro- cess, a combination of facilitated dis- cussion and mediation, balanced the interests of ratepayers, shareholders, competitors, and the public.

The plan, which became effective in January 1995, serves as a model for other utilities negotiating the tight- rope between a heavily regulated mo- nopoly environment and a lightly regulated competitive market. It also has been integrated into the telecom- munications legislation in Congress.

Under the agreement, RTC created a holding company and two operating companies: a heavily-regulated com- pany to provide monopoly network functions, and a lightly-regulated com- pany to offer competitive services. Com- peting local carriers will have access to Rochester’s network functions, services and databases, which are still provided only by one company and are essential to all competitors. Not only does the plan allow RTC to respond to a com-

Scott Brown is president of the Conjlict Man- agement Group i n Cambridge, Mass. Penny Rubin is assistant counsel with the New York State Public Service Commission. Both au- thors participated i n the case they describe in this article.

petitive marketplace but it also protects consumers by lowering rates, and freez- ing them for five to seven years.

Mediation Barriers When RTC filed its original plan for reorganization in February 1993, the Public Service Commission staff con- cluded that the traditional litigation process would be ineffective in deal- ing with diverse interests of more than 20 interested parties. At the same time, the staffworried about complying with the Public Service Commission’s Settlement Guidelines, which usually require open negotiations. As a rule, the guidelines prohibit small group ne- gotiations, and require notice to all parties of any negotiations.

The Department of Public Service contacted the Conflict Management Group in Cambridge, Mass. about the possibility of mediating the dispute while honoring the intent of the guide- lines-protecting interested parties from closed-door deals between more powerful parties. Not all the parties were initially enthusiastic.

Some worried that various partici- pants would intentionally delay the re- organization plan, or capitalize on sensitive information disclosed during negotiations. Others worried about losing control over plan revisions. There was also skepticism about the mediator: could a facilitator without telecommunications experience get the parties’ respect?

Mediation S tep-by-S tep Discussions began at the end of Octo- ber 1993, with the parties identifying the key issues and exchanging views about the company plan. Later, CMG facilitated meetings between the com- pany and each of the other parties to brainstorm settlement options on ne- gotiable issues; and highlight issues on which disagreement persisted.

These meetings produced break- throughs on some of the most difficult issues. Several parties noted possible areas of agreement that they had not been willing to identify in plenary ses- sions. The informal and intimate na-

ture of the meetings allowed partici- pants to drop defenses that had previ- ously thwarted candid discussions.

When subsequent plenary sessions proved ineffective, CMG proposed a week of intensive negotiations. These discussions, in April 1994, took the form of party caucuses, with the facili- tators shuttling back and forth to de- liver inquiries and options. In advance, the parties decided to pursue each is- sue until they agreed, agreed to dis- agree, or agreed to defer agreement because the resolution of the issue depended on resolution of a related issue. After a week of intensive nego- tiations, RTC, the PSC staff, and two other significant parties reached an “agreement in principle.”

During subsequent telephone con- versations and brief meetings, the par- ties worked out the details. When discussions deadlocked twice during the following two weeks, CMG media- tors stepped in to help resolve the re- maining issues. As details were resolved, additional parties signed on. Signate ries to the final agreement included: the Department of Public Service, RTC, Time Warner Communications, Inc., the Communication Workers of Amer- ica, the Public Utility Law Project, the New York State Department of Eco- nomic Development, and the New York State Telephone Association.

What Made Mediation Work? Several conditions improved the pros- pects of success. First, by the time the mediation started, all parties had en- dorsed the process. Second, the tele- communications community generally regarded RTC as an efficient and re- spected competitor that “lived by the rules.”Third, RTC was flexible enough to develop new approaches to regula- tion. The structure of the process also facilitated agreement.

Early on, in non-adversarial plenary sessions, the parties were able to express concerns. In small meetings with the company, they explored specific op- tions for compromise. Later, during intensive negotiations, the parties inte- grated those options into a settlement. (continued on back page)

( P R Institurr for Disputr Rrwliitioii Vol. 14, No. 1 ,J.muan I996 _ _ _ _ _ ~ 12 Altrrnatives

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Neutral facilitators helped defuse ten- sion and encouraged the parties to be open-minded about creative options.

When the agreement came up for approval by the Public Service Com- mission, some parties to the proceed- ing requested changes, but none argued that the Commission should reject the agreement. Having found that the agreement balanced the in- terests of the parties and the public, the Commission approved it without substantial revision. So far, no lawsuits have been filed to contest the settle- ment. That alone is a substantial achieve- ment for a case of this magnitude and importance.

An ancillary benefit was that media- tion improved the working relationship among the parties. Many of them will need to continue negotiating dramatic changes in the telecommunications industry during the next decade.

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