Transforming A Mega-utility I

Why NRDC Chose Collaboration Over Confrontation

One of the articles in We Can Do It! (IC#33)
Originally published in Fall 1992 on page 50
Copyright (c)1992, 1996 by Context Institute

Over the last few years, some of the largest electric and gas utilities in the US have taken a radically new approach to their business, one that would be unrecognizable to utility executives of the early 1980s. These utilities have dropped plans for large coal, nuclear, and hydroelectric plants, and instead are relying on energy savings from existing and future customers to supply new demands for energy. The tremendous financing and organizational capabilities of these large corporations are making possible some of the most ambitious energy efficiency efforts ever undertaken in the US.

How did this transformation occur? Much of the credit can go to organizations like the Rocky Mountain Institute, which has demonstrated that it’s cheaper to save energy than to generate it. So, on one level, the economics just make sense.

But utilities have been lukewarm about this approach, principally because the benefit of serving customers less expensively (and in a way that is good for the environment) has frequently not benefited the utility shareholders.

In 1989, Ralph Cavanagh, a senior attorney for the Natural Resources Defense Council, proposed a "collaborative process" aimed at finding a way to allow everyone to win by getting on the conservation bandwagon. Representatives of California’s huge gas and electric utilities, rate payers, regulators, and environmentalists met outside the normal adversarial forums of the courts and the public utilities commission’s hearing rooms, making decisions by consensus.

The result was An Energy Efficiency Blueprint for California, one of the most ambitious plans for saving energy ever undertaken. Another result was an atmosphere of mutual trust and respect, which has spilled over into other projects.

IC managing editor Sarah van Gelder interviewed Ralph Cavanagh, who is widely credited with launching the California Collaborative. Ralph has been with the Natural Resources Defense Council since 1979, working principally on energy and water policy and responses to the threat of global warming.

Sarah: Why did you choose to work cooperatively with Pacific Gas & Electric and other California utilities rather than using the courts or regulators to compel them to focus more on energy efficiency work?

Ralph: Because the utilities in California had largely lost their commitment to energy efficiency. There was no management enthusiasm. There were no resources. The programs were being dismantled. Rebuilding these was going to take the cooperation and support of management, and I didn’t think it would be likely that we could get that through an adversarial process even assuming we won – and I thought we had a good chance of winning.

I didn’t simply want to hit people over the head with a two-by-four; I wanted to create a sustained incentive to excel at these programs. What history taught me was that simply going in and asking public utility commissions to force utilities to do the right thing was not a formula that generated sustained momentum for energy efficiency. Sometimes you’d get a temporary victory; more often you had the regulators simply shrinking back from the awesome task of micro-managing the design and deployment of very complex programs. The objective, after all, is cost-effective energy savings, not victories in court or victories before regulatory bodies.

I also didn’t see any fundamental reason why we shouldn’t be able to reach agreement. If they did well, they had reason to hope that the regulators would reward them, which had not been there in the past. In the past, the only thing that was operating was the fear of sanctions. And the opportunity for reward is, in the final analysis for enterprises like this, a more productive motivator than the fear of sanctions.

Sarah: So would you say, then, that this approach is particularly effective when dealing with regulated industry?

Ralph: Sure. But all industries are regulated industries in this era. And I think, Sarah, you can always find some way of rewarding people who do well.

If the environmental community in its overall strategy and tactics of the last decade has a failing, it is in too seldom recognizing the importance of rewarding people who do well and, perhaps, in putting too much emphasis on penalizing and punishing people who do badly.

Sarah: Is this an approach that the Natural Resources Defense Council is likely to stick with or do you anticipate ending up back in court?

Ralph: NRDC’s principal focus is on building attractive models for sustainable development. It’s very hard to do that without the active cooperation of the institutions that are involved in building that future.

And so I’m always at some pains to try to find projects that the relevant industrial community can be part of and can feel some ownership of, and the same for the regulators and the same for the consumer groups. All those constituencies working together is part of what it’s going to take to make some of these visions happen.

The adversarial model is a great way of stopping things, but a lousy way of building them. Right now, I’m more interested in building things. It’s worked well for energy efficiency; it’s starting to work for renewables, also.

And yeah, absolutely, I think it’s the way we’re going to do things in the future.

Sarah: How were you able to bring together people from so many different backgrounds into a consensus-building process?

Ralph: I think it is a testament to the remarkable unifying power of the energy efficiency concept. It is one in which a remarkable array of constituencies can find common ground with a little creativity. It’s not the kind of divisive, zero-sum issue that prevents progress in other areas. And so part of the credit goes to the very compelling nature of the subject matter. Opportunities to save energy more cheaply than producing it can attract a very wide constituency.

I think it was also extremely important that all of the stakeholders recognized that the regulators were anxious to see something done. So there was a cost associated with inaction in the form of potentially unpleasant action by the regulatory body, which we could all preempt by coming up with a settlement ourselves.

Sarah: Did anything happen before you began this process that established a level of trust that contributed to your success?

Ralph: No [laughing]. No, I think that happened during the process itself. Before, the parties were used to dealing with each other in adversarial forums. It was probably helpful that NRDC and some of the other participants were reasonably strongly and eloquently in favor of a collaborative effort. And if you’ve got people coming to you and essentially urging an alternative to an adversarial forum, it is sometimes hard to resist.

I guess, Sarah, the utility people knew who I was, and had some fundamental sense that I was someone whom they could trust and deal with on some sort of basic level of mutual respect and mutually recognized integrity. But it was the process itself that built the trust, not anything that happened in advance of it.

Sarah: What factors have to be in place for these collaboratives to work?

Ralph: First of all, again, there has to be the possibility of a mutually beneficial outcome. That’s very important. It is helpful to have credible deadlines, so that the talking doesn’t go on forever, and the parties feel some pressure to reach closure.

There has to be some minimum level of mutual trust, which I think can develop in the process, but which ultimately have to be there. And, over time, there has to be enough attractive models emerging from this kind of activity to convince people it’s worth doing.

But there are some types of subject matter that lend themselves to collaborative effort, or perhaps cooperative effort is a better word. (Collaboration still has overtones of Vichy, France.)

The point is that there is, within the realm of environmental problems, a vast array of areas where it is clear that solutions will demand the cooperation of everyone involved; where, in the final analysis, it’s pretty clear that if the industrial sector is brought in kicking and screaming, you’re not going to get as good a result as if they feel some ownership and some commitment to the result. And that is understood by a lot of people at the moment.

So I think that there is less demonizing of industry by the environmental communities than there used to be, and a greater willingness to praise and support positive initiatives that help solve problems.

Sarah: I’ve noticed, Ralph, that when you speak at energy industry conferences, you set up an atmosphere that seems to make everybody feel like they’re on the same side of an issue. It’s a very different way of framing an environmentalist’s challenge to corporate leaders.

Ralph: You’re trying to convey the notion that we have to do this together. That, in some sense, we will all either succeed or fail together. It is like with the shutdown of the Trojan nuclear plant near Portland, OR. (See story on page 55.) The environmental community in the Northwest now understands that it has a stake in the success of Portland General Electric in replacing that facility with reliable and environmentally friendly resources. And there is this sense of shared purpose that really has to be there. The job of people like me is trying to create that.

Sarah: How do you make sure you get more than a high-minded document out of this kind of a process?

Ralph: By relentless follow-up. Again, you have to be in this for the long haul. I’ve been doing this for 13 years. You have to set up a process that has regular reporting, some kind of continuous oversight. You have to set up institutions that stay on top of the issue and pay attention to it long after the agreement is inked.

And if the agreement does not have that kind of sustained monitoring and involvement, then you’re right, there’s reason to question its effectiveness. And the California Collaborative was acutely aware of that.

Sarah: Do you think that same approach can be applied outside the energy realm?

Ralph: The same approach can be applied, sure, wherever there is some capacity to work together on a mutually beneficial outcome. That’s the key. This is not a good way of settling fundamental differences of principle. It’s a very good way of working together to solve environmental problems.

I hope that we will see some successful collaborative work on improving vehicle fuel economy and creating market-based incentives for doing that, although that hasn’t happened yet. I think you’re seeing in the recycling arena a lot of cooperative activity going on.

And we are seeing more collaborative models. For example, the Environmental Defense Fund’s work with McDonald’s to reduce waste comes to mind. NRDC has done a number of successful negotiations with industry on issues like reformulating gasoline, promoting reduced emissions in fuels, and developing strategies for reducing carbon dioxide emissions.

Sarah: Can you give me an example of successful efforts to reduce carbon dioxide emissions?

Ralph: The NRDC worked with both Southern California Edison and the Los Angeles Department of Water Power on their path-breaking commitment to reduce carbon dioxide emissions by 20 percent. We were able, along with a number of other environmental groups, to convince some major industrial leaders to write to the president in advance of the Earth Summit and urge him to join in the international effort to set targets and timetables for carbon dioxide emission reduction.

Sarah: What advice would you give to someone thinking of pursuing this kind of approach?

Ralph: There has to be a sense that the group is in it for the long haul, that it has the staying power to both negotiate an agreement and stay with it as it emerges in the field. It’s critical to have a detailed understanding of the subject matter, or to be able to bring in someone who has it. These are complex problems, they require a level of technical understanding and expertise in order to develop sound solutions. If you don’t have it, there are ways of getting it.

In New England, for example, a fund was established to bring in independent experts the environmental groups trusted who could work with the utilities to design and develop the efficiency programs and the solutions.

And finally, people have to be acutely aware of the importance of human relationships. Something that may be more important than anything else in making these things work is precisely the quality of the relationships between the individuals who, in the final analysis, have to make the decisions and take responsibility for the thing succeeding. Part of what it means to be successful at this is making a determined effort to know not just the institutions, but the people.


COLLABORATIVE PRINCIPLES OF PRACTICE

Participants agreed at the outset:

  • to make decisions by consensus

  • to see the process through

  • to adhere to a set meeting schedule

  • to speak with one voice

  • not to use the process as a lever in other proceedings to undercut other participants’ interests.

The participants developed a method for either agreeing or agreeing to disagree. During the six-month period, they reached consensus on seven of eight policy statements and 12 of 15 principles of energy conservation policy. When consensus could not be reached, they formed alternative proposals to submit to regulators.

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