outcome-based standards in the hydroelectric relicensing ... · outcome-based standards as a...

OUTCOME-BASED STANDARDSin the

Hydroelectric Relicensing Process

Draft

April 22, 2002

Prepared by:Public Utility District No. 1 of Chelan County

Wenatchee, Washington

Water Quality 401 Certification Analysis

Draft Proposal Chelan PUDApril 22, 2002 Page i SS/3681

Outcome-Based Standards

Draft Chelan PUDApril 22, 2002 Page i SS/3681

TABLE OF CONTENTS

INTRODUCTION............................................................................................................................. 1

PERFORMANCE-BASED STANDARDS: AN EMERGING APPROACH TOENVIRONMENTAL PROTECTION................................................................................................ 2

The Private Sector ..................................................................................................................................................2

The Public Sector ....................................................................................................................................................3

The Government Performance and Results Act...................................................................................................3

A Blue Print for New Beginnings ..........................................................................................................................4

State-Level Initiatives .............................................................................................................................................5

Performance-Based Service Contracting..............................................................................................................5

PILOT PROJECT FOR OUTCOME-BASED STANDARDS.......................................................... 6

Outcome-based Standards for Rocky Reach ........................................................................................................7

The Process of Developing and Implementing Outcome-based Standards........................................................8Step One: Identifying the Resources of Concern..................................................................................................8Step Two: Setting the Outcome Standard.............................................................................................................9Step Three: Choosing the Measuring Stick ..........................................................................................................9Step Four: Filling the Toolbox .............................................................................................................................9Step Five: Implementation ................................................................................................................................10Step Six: Monitoring and Performance Review .................................................................................................10

Roles of the State and Federal Agencies and Other Non-Licensee Stakeholders ............................................14

WHY TRY THE OUTCOME-BASED STANDARD APPROACH?............................................... 15

http://www.chelanpud.org/HCP/index.htm


Draft Chelan PUDApril 22, 2002 Page 1 SS/3681

OUTCOME-BASED STANDARDSin the

Hydroelectric Relicensing Process

INTRODUCTION

The Rocky Reach hydroelectric project, located on the Columbia River in central Washington state,has produced clean, inexpensive electricity for Northwest consumers since 1961. In 2006, thelicense for the Rocky Reach project, issued under the authority of the Federal Energy RegulatoryCommission (“FERC”), will expire. As that date approaches, the Chelan County Public UtilityDistrict No. 1 (“Chelan”), the licensee for the Rocky Reach project, is preparing to work with FERCto develop a relicensing proposal that will demonstrate Chelan’s historic, present, and futurecommitment to good environmental stewardship of the Columbia River’s fisheries and otherenvironmental resources.

The comprehensive FERC relicensing process is a rigorous prospect for hydroelectric projects acrossthe nation, particularly in light of natural resource management concerns which must be consideredin conjunction with power generation capabilities. Despite the hurdles, however, history hasdemonstrated that challenge often brings opportunity. Chelan hopes that the FERC relicensingprocess will provide the opportunity for implementation of an innovative pilot program at RockyReach. The proposed pilot program would break new ground by testing the possibility ofsubstituting outcome-based license articles for the current command-and-control license articlestypically developed in the FERC relicensing process. The substitute license articles would takeadvantage of this Administration’s focus on collaboration and market-based environmentalism andwould make the Rocky Reach hydroelectric project the first in the nation to be relicensed usingoutcome-based standards as a measure of success.

Chelan has a record as a leader in innovative environmental management. Over the past severalyears, Chelan worked with the National Marine Fisheries Service, the U.S. Fish and WildlifeService, and other federal agencies and state agencies to establish a Habitat Conservation Plan(“HCP”) for the Rocky Reach project, http://www.chelanpud.org/HCP/index.htm. Under this uniquecooperative agreement, Chelan has developed outcome-based standards for the protection ofendangered and threatened anadromous fish. Moreover, through the HCP process, Chelan hascreated a significant track record of good faith partnership with the federal government. As the 2006Rocky Reach relicensing date approaches, Chelan is now eager to apply that record of success toanother chapter of multi-jurisdictional natural resource management. The proposed approach buildson the increasingly favored concepts of collaborative development, market-based incentives, andlocal initiative which have characterized recent thought on natural resource management.

The concept of outcome-based standards is stunning in its simplicity: instead of forcing a regulatedentity to complete specific tasks intended to yield an environmental benefit, the regulated entity is


Chelan PUD DraftSS/3681 Page 2 April 22, 2002

given a specific environmental standard to meet and is allowed to achieve that standard usingwhatever means it determines are most effective. The implications of this seemingly simpledifference are significant, both in terms of increasing environmental benefits and in terms ofreducing adversarial conflicts among stakeholders. Without outcome-based standards, a regulatedentity might be in full compliance with regulatory requirements, but those regulatory requirementsmight result in little or no actual benefit to the environment. With outcome-based standards, the onlystandard is achievement of the result—a specific level of protection for the resource. Given morefreedom, a concrete goal, and predetermined measures of success, a regulated entity benefits fromcertainty and the cost-effectiveness of its own innovation. At the same time, the environment andother protected resources benefit from more efficient and effective protection.

Chelan proposes to use the Rocky Reach relicensing proceeding as a pilot project for thedevelopment of outcome-based standards. Chelan does not propose to alter any of the environmentalregulations that apply to the Rocky Reach project, nor does Chelan propose to reduce the level ofprotection for the resources affected by the project. Instead, Chelan proposes to work with thestakeholders to develop license articles that incorporate outcome standards for the Rocky Reachproject that focus on whether and the degree to which the important resources are protected, ratherthan how those resources are protected. Chelan believes that its proposed pilot project can yieldtremendous benefits for the Rocky Reach relicensing and for other relicensing proceedings. To besuccessful, however, the pilot project will require commitment and cooperation from Chelan, FERC,state and federal resource agencies, and other groups with a stake in the Rocky Reach relicensingproceeding. Chelan hopes to work with these potential participants to develop a memorandum ofagreement that will set forth the tasks and objectives for the pilot project and will confirm thecommitment of the participants to setting a new standard in efficient, effective resource protection.

PERFORMANCE-BASED STANDARDS: AN EMERGING APPROACH TOENVIRONMENTAL PROTECTION

The Private SectorThe concept behind outcome-based standards is not original to Chelan or even to the practice ofenvironmental management itself. In fact, the idea of setting “performance-based standards”—tangible, measurable, objective goals—has deep roots in the business community.

Corporations constantly evaluate themselves on the basis of financial and non-financial indicators,ranging from the “bottom-line” to customer service, market share, and technological innovation. Businesses must be successful to survive competition, and have found that the ability to measuretheir own success (or lack of it) gives them an edge in the marketplace. Determining successrequires that businesses set performance standards for themselves. Overwhelmingly, the privatesector has discovered that for these standards to mean something, they must be clear, measurable,and relatively few in number. Even in the field of human resource management, businesses havefound that goal-setting is integral to harmonious employee relations. Employees react poorly tomicro-management, and managers are in danger of wasting time, energy, and money when theyattempt to supervise a task from start to finish. However, when employees are told what to do, nothow to do it, the goal becomes the focus of the effort. Associating employee compensation with the



attainment of clearly defined goals also increases the probability that employees will pursue theresult in the most effective way available to them. The performance-based standards approachdetermines success based on results, rather than the processes used to achieve the results.

The Public Sector Over the past decade, the federal government has begun to demonstrate, through legislative andadministration initiatives, its commitment to embrace the organizational focus of the private sector.The professed goal of “running the government more like a business” is now echoing from the hallsof Congress to the offices of federal agencies. A new focus on customer service and “results,” ratherthan micro-management and “processes” has propelled a government-wide re-evaluation of existingregulatory behavior and government contracting practices. The desire for institutional change hasbeen driven not only by the need for a less antagonistic relationship with regulated entities, but bya genuine frustration with the perceived failure of "command-and-control" regulatory methods toproduce satisfactory and cost-effective environmental results.

Increasingly, the government has begun to recognize several inherent drawbacks to regulatory micro-management. For example, an agency's organizational separation from the regulated entity and itsconstrained budget and staff resources make it impractical for the agency to tailor environmentalfixes. Instead the organizational separation and limited resources generally create a pressure toward“one-size-fits-all” regulation, with little allowance for flexibility and innovation. In addition, thegovernment's lack of profit motive reduces its sensitivity to the existence of alternative mechanismsthat achieve comparable results. This combination creates a situation in which governmentregulations not only mandate the desired outcome, but also the process by which to achieve it. Applied indiscriminately, such tactics waste public and private resources through a variety of means,ranging from monitoring for nonexistent or minimal contaminants to using outdated technologywhen newer, better, cheaper, and even more effective methods are available (or might soon havebeen developed had regulatory policy encouraged and rewarded process innovation).

The Government Performance and Results ActIn the early 1990's, Congress and the Administration passed judgment on the tendency of federalagencies to become embroiled in process rather than results. In an effort to stimulate bettermanagement of agency budgets and increased customer satisfaction among the American public,Congress enacted legislation that would allow agencies to write performance plans for themselvesthat waive administrative procedural requirements and controls in return for specific individual ororganization accountability to achieve a performance goal. On August 3, 1993, the legislation,known as the Government Performance and Results Act (“GPRA”), became law.1 Members ofCongress viewed the GPRA as an avenue to make the executive branch accountable to the Americanpeople—to run the government more like a business, with the public as the customer. The GPRArequires federal entities to establish performance goals for program activities and to define thosegoals in an objective, quantifiable, and measurable form. Former Senator William Roth, the sponsorof the legislation in the Senate, touted the GPRA as the policy vehicle which would allow Congressto give agencies "greater managerial flexibility and discretion—the freedom to be innovative—in

1 Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285.



return for greater results-oriented accountability."2 The law was implemented with the support ofthe Clinton Administration; then-Director of the Office of Management and Budget (“OMB”), LeonPanetta, testified in favor of the GPRA before the Senate Committee on Government Affairs, statingthat the government should "manage for results, and not just to rules and regulations. Thisaccountability both empowers and rewards those who improve performance."3

A Blue Print for New BeginningsWhen President George W. Bush took office, he issued a 10-year budget plan entitled “A Blueprintfor New Beginnings.” The document outlines the new Administration’s plans to reform governmentto be more citizen-centered, result-oriented (not process-oriented), and market-based.4 Under thisframework, the Administration plans to bring accountability to government programs by linkingbudget and management decisions to performance. The blueprint states:

Government must be results-oriented——guided not by process, but by performance.There comes a time when programs must be judged by how well they achieve theirpurpose. Where we find success, we should reward it, and make it the standard.5

The shift away from traditional command and control regulation is also reflected in comments ofEnvironmental Protection Agency Administrator Christine Todd Whitman. In testimony before theSenate, Administrator Whitman announced that this Administration will support the developmentof high standards and clear expectations for environmental protection while placing greater emphasison market-based incentives.6 She has also touted the benefits of EPA programs that focus oninnovative state programs and public/private partnerships. For example, Project XL is a limited testprogram that engages regulated entities in creating and implementing innovative strategies to achievesuperior environmental results in exchange for regulatory flexibility and possible cost savings. Theentities involved range from corporations like Weyerhaeuser and Lucent Technologies to stateagencies like the Massachusetts Department of Environmental Protection. Another EPA effort isthe National Environmental Performance Track, a voluntary public/private partnership thatencourages environmental excellence and involves communities in environmental protection thatfocuses on measurable results.

Allowing flexibility for states and local communities to craft solutions that meet their uniquesituations is also a priority of the Department of the Interior under Secretary Gale Norton. Intestimony before the Senate Appropriations Subcommittee on Interior and Related Agencies,Secretary Norton emphasized the importance of expanded consultation, communication, and

2 139 CONG. REC. S3078 (daily ed. March 17, 1993 ) (statement of Senator Roth).3 Improving Government Organization and Performance: Hearing Before the Senate Committee on Governmental

Affairs, 103rd Cong. 88 (1993) (prepared statement by Leon E. Panetta, Director, Office of Management and Budget).4 A Blueprint For New Beginnings. A Responsible Budget for America’s Priorities, U.S. Government Printing Office,

Washington, 2001. 5 Ibid, IX6 Statement of Governor Christine Todd Whitman, (Nominee to be Administrator of the Environmental Protection

Agency), before the United States Senate Committee on Environment and Public Works Washington, DC, January 17,2001



collaboration with stakeholders in order to “increasingly benefit from their creativity and capacityto innovate.”7

State-Level InitiativesThe concept of allowing flexibility in meeting regulatory standards is attractive to many state, tribal,and local governments as well. The Western Governor’s Association, for example, developed aninitiative called the “Enlibra Doctrine” which reflects the idea of a balanced approach to successfulenvironmental and natural resource management. Among the principles that make up the EnlibraDoctrine are preferences for "national standards but neighborhood solutions" and the use ofcollaborative processes to find solutions to environmental challenges. In addition, the EnlibraDoctrine calls for movement toward a performance-based system in environmental regulation thatrewards results, not programs. The Western Governors' Enlibra Doctrine recognizes the potentialfor innovation when stakeholders are given the flexibility to seek and implement the best solutionsfor environmental problems.

Performance-Based Service ContractingA component of the Bush Administration’s “Blueprint for New Beginnings” is the renewedgovernment-wide focus on Performance-based Service Contracting. According to the Office ofFederal Procurement Policy, Performance-based Service Contracting is designed “to ensure thatcontractors are given freedom to determine how to meet the Government's performance objectives,that appropriate performance quality levels are achieved, and that payment is made only for servicesthat meet these levels.”8 While Performance-based Service Contracting has existed for many years,it had not been widely used until recently. Under the Clinton Administration, the Office of FederalProcurement Policy met with major contracting agencies and several industry associations to discussthe creation of a Performance-based Service Contracting pilot project. The pilot project waslaunched in October of 1994. The results of the pilot project clearly reflect the advantages of using Performance-based ServiceContracting. For example, under Performance-based Service Contracting, an “average 15% pricereduction and comparable increase in agency satisfaction with contractor performance occurredacross all price ranges and type of service for the contracts surveyed.”9 Moreover, customersatisfaction rose by 18%.10 After the publication of the Performance-based Service Contractingreport, the Office of Federal Procurement Policy released its final edition of the "Information on BestPractices for Performance-based Service Contracting." This guide offers numerous examples ofimprovements over a variety of government agencies—from the Department of Health and HumanServices to the Department of Defense—as a result of Performance-based Service Contracting. Inaddition to outlining avenues for reducing contract costs through incentives, the guide specificallyrecommends that when issuing a “performance work statement,” agencies should “structure the

7 Statement of Gale A. Norton, Secretary of the Interior, before the Senate Appropriations Subcommittee on Interior

and Related Agencies, April 24, 20018 Office of Federal Procurement Policy, Executive Office of the President, Information on Best Practices for

Performance-Based Service Contracting 4 (1998)9 Office of Federal Procurement Policy, Executive Office of the President, A Report on the Performance-Based Service

Contracting Pilot Program (forward) (1998)10 Ibid, 3



[performance work statement] around the purpose of the work to be performed, i.e., what is to beperformed, rather than how to perform it.”11

The Office of Federal Procurement Policy Guide illustrates this concept with the following example:“[T]he Air Force found that it saved 50 percent by specifying that floors must be clean, free of scuffmarks and dirt, and have a uniformly glossy finish, rather than requiring that the contractor strip andrewax the floors weekly." Thus, only an outcome is specified, not how the contractor will achievethe outcome. This approach allows the contractor to tailor its approach to the particular project, andprovides sufficient flexibility for the contractor to use innovative and creative methods withoutpenalty, provided the required result is achieved.

During the development of the Performance-based Service Contracting project, the Office of FederalProcurement Policy found that contractors who are free to determine the best and most cost-effectiveway to fulfill the stated need—those contractors that are paid for results, not effort or process—aregenerally the ones that achieve cost efficiencies. Just like businesses with a profit motive andemployees rewarded on the basis of performance, such contractors have every incentive to meet thestated goal in the most efficient way, since it is the results that are rewarded, not the level of effortor complication involved.

The old way of setting a standard and prescribing the method of compliance can be inflexible anddefy common sense by requiring great costs for small returns. Furthermore, a process-based approachto regulation can discourage technological innovation that can lower the costs of regulation orachieve environmental benefits beyond compliance. As economist Ludwig von Mises once said,“Progress is precisely that which the rules and regulations did not foresee.”12

PILOT PROJECT FOR OUTCOME-BASED STANDARDS

The current hydroelectric relicensing process is widely recognized to be protracted, inefficient, andhotly adversarial. Licenses forged in this troubled process are criticized on one hand as being ahindrance to the economic and efficient operation of the licensed project, and on the other hand forproviding only ineffective or insufficient protection for the recreational, cultural, and naturalresources affected by the project. Rather than undergo a contentious licensing process that promisessuch limited rewards, Chelan proposes to test a new approach to the relicensing process that willbuild on this Administration’s interest in promoting market-based environmentalism. The use of anoutcome-based approach to environmental regulation, rather than a command-and-control approach,does not mean that environmental goals and standards cannot be established. Instead, it means thatthe regulatory agencies will set the environmental standards, and then considerations of efficiencyand effectiveness will drive how the regulated entity meets those standards. Process-orientedregulations interfere with the incentive and opportunity for businesses to innovate. Outcome-basedstandards, on the other hand, allow stakeholders to set clearly defined goals, and then reach them byusing innovative, efficient solutions. Chelan looks forward to demonstrating that much of the

11 Best Practices for PBSC, 1712 LUDWIG VON MISES, Bureaucracy 67 (1944. Libertarian Press, 1983)



conflict associated with natural resource management derives not from the process of settingenvironmental standards, but from the debate about which methods the regulated community can orshould use to meet those standards.

As discussed above, outcome-based approaches to regulatory oversight have allowed regulatoryagencies to maintain or improve the protection of public resources, while lowering the cost ofcompliance for the regulated community. This approach represents a shift from micro-managementto macro-management, with a focus on whether the relevant resources of concern are protected,rather than how such resources are protected. As the Rocky Reach hydroelectric facility preparesto undergo the FERC relicensing process, Chelan is eager to demonstrate the environmental andeconomic benefits associated with a performance-based management approach called “outcome-based standards.” Chelan believes that the upcoming relicensing proceeding presents an opportunityfor FERC, Chelan, the state and federal resource agencies, and other interest groups to work togetherto assess the feasibility and potential success of a relicensing process built around the collaborativedevelopment of outcome-based license articles that are objectively measurable and enforceable. Tothis end, Chelan is proposing a pilot project in which outcome-based standards would be integratedinto license articles as a substitute for the articles typically included in a FERC hydroelectric license.

Outcome-based Standards for Rocky ReachThe Rocky Reach relicensing proceeding offers an excellent opportunity for the type of pilot projectthat Chelan is proposing, because Chelan and the resource agencies have already developed afoundation of knowledge, experience, and trust on which the pilot project can build. For the lastseveral years, Chelan has worked with state and federal resource agencies to develop outcome-basedstandards as part of a Habitat Conservation Plan (“HCP”) for anadromous fish species affected bythe Rocky Reach project. The HCP protects steelhead, chinook salmon, sockeye salmon, and cohosalmon that are listed for protection under the Endangered Species Act (“ESA”).

Chelan first asked the resource agencies for help in developing the HCP several years ago, whenChelan recognized the need to protect the anadromous fishery resources affected by the Rocky Reachproject. Chelan and the resource agencies agreed that the anadromous fish species which migrateannually through the project reach were a resource of primary concern due to pending petitions tolist certain of those species under the ESA. In the process of developing the HCP, however, Chelanand the resource agencies realized that, while there was complete agreement about which resourceneeded to be protected and general agreement that a high degree of protection was appropriate, therewas substantial disagreement about which methods should be used to ensure such protection. Basedon that realization, Chelan proposed a new approach to designing the HCP. Chelan proposed toreplace the typical myriad of technique-specific and command-and-control protection provisions—such as fish ladder design requirements, water temperature requirements, lake elevationrequirements, turbine intake screen requirements, and instream flow requirements—with a simpleoutcome-based standard: 100% No Net Impact on anadromous fish passage through the projectreach. Anadromous Fish Agreement and Habitat Conservation Plan, Rocky Reach HydroelectricProject at § III.1, FERC Project No. 2145.



By replacing the multiple technique-specific and command-and-control protection provisions withan outcome-based standard, Chelan acquired the flexibility needed to use its own judgment andinnovation to minimize the cost of protecting the fish. In return for this flexibility, Chelan waswilling to accept an outcome-based standard of 100% No Net Impact. And, more importantly,Chelan was willing to accept the responsibility for ensuring that the methods used to protect thespecies of concern will be effective. Under the HCP’s outcome-based standard, if the resource isnot protected, Chelan will be required to develop a solution.

Chelan proposes to use the experience, knowledge, and trust developed during the development ofthe HCP to design outcome-based standards for the license for the Rocky Reach project (“Project”)to address all ongoing Project impacts. Chelan proposes to replace some or all of the manycommand-and-control resource protection provisions typically found in new hydroelectric licenseswith a few simple, straightforward outcome-based standards.

Developing outcome-based standards for the Rocky Reach license will require the participation andcooperation of FERC, Chelan, the state and federal resource agencies, and the other stakeholders. Already Chelan and the State of Washington have signed onto a memorandum of understandingoutlining their intent to move forward with the state portion of relicensing using outcome-basedstandards. Chelan is currently seeking a similar commitment to use outcome-based standards forthose resources under the jurisdiction of federal agencies.

The Process of Developing and Implementing Outcome-based StandardsFor purposes of the proposed pilot project, Chelan envisions that the outcome standards aroundwhich a new license would be developed would be target levels of performance for a resource,expressed as clear benchmarks against which actual achievement can be objectively compared. Anoutcome-based standard simply sets a standard of achievement; it does not dictate what methodsmust be used to reach the standard.

Step One: Identifying the Resources of ConcernThe first step in simplifying the license and creating the opportunity for creative, cost-effectiveapproaches to resource protection would be to identify the particular resources of concern that maybe affected by the Rocky Reach Project. Chelan proposes to work with the resource agencies andthe other interested stakeholders—such as tribal governments and community groups—to identifythe resources of primary concern. These resources could include fish and wildlife, water quality,plants, historical and cultural sites, recreation, power generation, community development, and soforth. One of the important considerations in identifying resources of concern will be determininghow a resource is affected by the Project, and whether the impact of the Project on the resource isongoing and requires mitigation. The challenge will be to distinguish the resources of primaryconcern from the protection, mitigation, and enhancement measures that are only the means forprotecting such resources. While developing the HCP, for example, Chelan and the resourceagencies recognized that it did not matter what type of fish ladder was constructed at the Project (oreven whether a fish ladder was constructed), so long as the fish were able to migrate safely upstreampast the Project. The parties recognized that their objective was to protect the fish, not to constructa fish ladder.



Chelan, FERC, the state and federal resource agencies, and the other interested parties would allparticipate in identifying the resources of concern. Identification of the resources of concern wouldbe a cooperative effort, while also recognizing that there may be debate among the participantsregarding the appropriate degree of protection to be accorded to each resource, particularly whereprotection of one resource may interfere with the protection of another. Such debates would beresolved in the second step of the process: setting the outcome standard.

Step Two: Setting the Outcome StandardOnce the primary resources of concern have been identified, Chelan would work with the resourceagencies and the other stakeholders to develop an outcome-based standard for each such resource. The outcome-based standard would reflect what Chelan, the resource agencies, and the otherstakeholders believe to be a fair and appropriate objective for the particular resource. Where, forexample, the parties together identify a particular type of ecosystem as a primary resource of concern,the parties might agree that the outcome-based standard for that ecosystem should be to maintain theecosystem’s stability and size. The outcome-based standard need not be articulated in quantitativeterms, but it should identify clear goals.

Step Three: Choosing the Measuring StickHaving agreed upon an outcome-based standard, Chelan, the resource agencies, and the otherstakeholders would then work together to identify a simple and objectively measurable indicator ofthe status of the particular resource of concern. This indicator or measuring stick would beincorporated into the license as part of the outcome standard, and would allow Chelan, the resourceagencies, and the other stakeholders to objectively verify whether the outcome-based standard hasbeen met. Identification of the appropriate measuring stick would require technical insight and anunderstanding of the resource of concern. Chelan, the resource agencies, and the other stakeholderswould also develop milestones for progress and time frames within which the milestones andoutcome-based standards would need to be met.

Step Four: Filling the ToolboxFor the outcome-based approach to succeed, the parties must allow the licensee as much flexibilityas possible in selecting the best strategies and methods to meet the outcome standards for the Project.Outcome-based standards will not be successful if the licensee is subject to both outcome-basedstandards and command-and-control standards. A licensee might find itself subject to suchredundant requirements where a resource agency believes that the outcome-based standards provideinadequate protection against the possibility of non-compliance, or leave too much flexibility for thelicensee to meet the letter of the standards without providing adequate protection for the resourcesof concern. Where a resource agency believes that the outcome-based standards provide inadequateprotection, such issues should be addressed by negotiating to modify the outcome standard, ratherthan by imposing duplicative command-and-control requirements. If such duplicative standards areimposed, the licensee will lose flexibility in operating the project and, more importantly, may besubject to potentially conflicting obligations.

In certain situations, however, it may be appropriate to place some restrictions on the methods or“tools” available to the licensee to meet its outcome standard, where the use of certain methodswould necessarily run contrary to the objectives that the parties are trying to achieve. Chelan and



the resource agencies agreed to include such “sideboard” provisions in the Rocky Reach HCP, forexample. Chelan and the resource agencies agreed to limit the percent of the fishery populationderived from hatcheries and restocking, in an attempt to protect the genetic diversity of the fishery. These sideboard provisions provide additional protection for the fishery without interferingsignificantly with Chelan’s operational flexibility. Where the parties decide that sideboards areappropriate, they would be incorporated into the outcome standard.

Step Five: ImplementationOnce the outcome-based standards have been established, in conjunction with the appropriate“measuring sticks” and “toolboxes”, the outcome-based standards would be incorporated as licensearticles into a proposed license for the Project. The proposed license would be filed at FERC forreview and approval, supported by the concurrence of FERC Staff, the resource agencies, and theother stakeholders that participated in the pilot project. Once the license has been issued, Chelanwould be responsible for meeting the outcome standards set forth in the license. Chelan would alsobe solely responsible for designing and implementing its compliance strategy, using any of the toolsavailable under the license.

During the implementation phase, Chelan would build in flexibility to ensure that its compliancestrategies meet the needs of the resources of concern. Chelan would use the measuring sticks tomonitor the status of the resources and assess the success of the compliance strategies on an ongoingbasis. If Chelan’s self-monitoring indicates that the compliance strategies are not as effective asanticipated, Chelan would be responsible for promptly developing and implementing a moreeffective alternative—adapting its compliance strategies as the need arises. Thus, added flexibilitywould be a management approach used by the licensee to meet the outcome standard; it would notbe a method for revisiting or altering the outcome standard.

So long as Chelan continues to meet the outcome-based standards within the time frames requiredin the license, the role of the resource agencies and the other non-licensee stakeholders would belimited to monitoring and performance review during the implementation phase (discussed belowin further detail). The resource agencies and other non-licensee stakeholders would not participatein developing or approving Chelan’s implementation approach, absent a request by Chelan for adviceor assistance.

Step Six: Monitoring and Performance ReviewChelan, the resource agencies, the other stakeholders, and the general public would all be responsiblefor monitoring Chelan’s compliance with the outcome-based standards. Monitoring would beconducted on three levels and would take place concurrently with the implementation phase. First,as explained above, Chelan would continually self-monitor its progress toward achieving theoutcome standards and would promptly make adjustments in its compliance strategy as appropriate. Second, Chelan, the resource agencies, and the other stakeholders would form a CoordinatingCommittee, composed of representatives of the parties, to provide technical advice and to monitorprogress and compliance. The composition and membership of the Coordinating Committee wouldbe negotiated during the development of the proposed license (as part of step three, “choosing themeasuring stick”) and incorporated into the license for FERC’s review and approval. The



Coordinating Committee would receive periodic briefings from Chelan regarding proposedcompliance strategy, progress toward meeting the outcome standards, and the anticipated timelinefor achieving the standards. The Coordinating Committee would not have the authority to approveor disapprove the methods used by the licensee, but could offer technical advice or assistance whereappropriate.

Third, Chelan, the resource agencies, and the general public would be responsible for bringing to theattention of the Coordinating Committee any allegations that Chelan had been unable to comply withthe outcome-based standards. Where the data and other information brought before the CoordinatingCommittee show that Chelan had not met an outcome standard, the Coordinating Committee woulddevelop and recommend to FERC an appropriate remedy. As explained above, Chelan would beresponsible for meeting the outcome standards within the time frames established in the license. Where the outcome-based standards are measured immediately and on an ongoing basis, Chelan andthe other stakeholders would be responsible for bringing any deviations from the outcome-basedstandards to the attention of the Coordinating Committee, to allow for a quick remedy. However,where the outcome-based standards are not applicable until a particular date, deviations from theoutcome standard would not be brought to the attention of the Coordinating Committee until afterthat date. If a resource agency or other stakeholder were concerned that Chelan’s compliancestrategy would not enable it to meet the outcome standards by the applicable deadlines, thestakeholder could raise its concerns with Chelan and the Coordinating Committee during the periodicbriefings.

The parties and the Coordinating Committee would endeavor to resolve all disputes aboutcompliance. In most cases, significant disputes about compliance would be avoided by the fact thatthe parties would have invested substantial insight and expertise into developing accurate andappropriate outcome-based standards and “measuring sticks”. However, in the event that a disputecould not be resolved by the Coordinating Committee, it could be brought before FERC. FERCwould review and resolve the dispute, giving deference to the expertise and findings of theCoordinating Committee.

The Coordinating Committee would have the authority to recommend that FERC recognize andreward Chelan for meeting and exceeding the outcome-based standards and would have theresponsibility to recommend that FERC apply appropriate remedies where Chelan did not meet theoutcome-based standards. The Project license should therefore include clear incentives anddisincentives designed to encourage Chelan to meet and exceed the outcome-based standards. Theseincentives and disincentives could take various forms, including, for example, financial penalties orawards, or the reversion to command-and-control standards.

Example: The Shoreline EcosystemThe process of developing outcome-based standards is illustrated in the following example, whichis based on potential resource concerns at Rocky Reach. In the context of the Rocky Reach project,suppose that Chelan, the resource agencies, and the other stakeholders were to determine that theoperation of the Project could affect the shoreline ecosystem on the banks of the forebay and thereach of the river downstream of the Project. Under a traditional approach to resource protection,Chelan, the resource agencies, and the other stakeholders might attempt to protect the shoreline



ecosystem, or particular species of plants or animals within the ecosystem, through a combinationof license articles and conditions. Articles imposed by FERC might include lake elevationrequirements, instream flow requirements, dredging requirements for the forebay and thedownstream and bypass reaches of the river, limits on ground-disturbing activities, requirements toconstruct nesting boxes at particular locations, population control programs for particular non-nativeor noxious species, or requirements to restrict recreation near sensitive habitat. In addition, theshoreline ecosystem might be protected, directly or indirectly, by state requirements associated withwater quality certification under section 401(a) of the Clean Water Act, federal resource agencyconditions associated with section 4(e) of the Federal Power Act (“FPA”), and requirements basedon recommendations from the state fish and game agencies under section 10(j) of the FPA.

Under an outcome-based approach, however, Chelan, the resource agencies, and the otherstakeholders would begin by testing whether the resource of concern is the shoreline ecosystem orsome other resource associated with the shoreline ecosystem. The process would be iterative,requiring the parties to analyze and identify the underlying reasons for their interest in the ecosystem. For example, Chelan, the resource agencies, and the other stakeholders might determine thatprotection of the shoreline ecosystem is important because of the support that the ecosystem providesto a particular plant or animal species. In such case, the parties might identify those particular plantor animal species as the primary resources of concern, rather than the ecosystem itself. Or the partiesmight determine that such plant or animal species are themselves important because they are acritical part of the diet of some other, perhaps threatened or endangered, species. In such case, theparties might identify that other species as the primary resource of concern. Similarly, the partiesmight determine that the shoreline ecosystem is primarily important as an aesthetic resource tosupport recreation. In such case, the parties might identify recreation, or the economic developmentthat accompanies such recreation, as the primary resource of concern. Where the parties determinethat the protection of the shoreline ecosystem is important for multiple reasons, the parties mightidentify the ecosystem itself as the primary resource of concern.

Having identified the primary resource of concern, the parties would then set the standard for thatresource. For example, if the resource of primary concern were a particular species of shoreline bird,the objective might be to maintain a stable, healthy, long-term population of the species, within aspecified range. If, however, the resource of primary concern were the shoreline ecosystem as awhole, the objective might be to maintain the stability, diversity, and size of the ecosystem.

Once the outcome standard has been set for the primary resource, the parties would select a gaugeor indicator that directly reflects the condition of the resource and that would allow the parties tomeasure the status of the resource relative to the outcome-based standards for the resource. Usingthe example of the shoreline birds again, the gauge might simply be the number of healthy adultbirds in the area, as measured pursuant to annual population surveys, or the number of live offspringproduced annually per adult bird. Or, if the primary resource has been identified as the shorelineecosystem as a whole, the parties might identify one or more indicator species, healthy populationsof which would reflect the health of the whole shoreline ecosystem. By correlating the outcomestandard as closely as possibly to the ultimate objective for the resource of concern, the parties wouldprovide Chelan with as much flexibility as possible, while at the same time making Chelanresponsible for ensuring the effective protection of the primary resource.



Having identified the primary resource, established the outcome standard for that resource, and thenselected an appropriate gauge for the status of the resource, the next step would be to determinewhether there should be any limitation placed on the methods and techniques available to thelicensee to meet the outcome standard. Such limitations should be imposed only sparingly but maybe appropriate where the use of a particular method or technique would undermine or conflict withthe objectives for the resource. For example, if one of the purposes of protecting the shorelineecosystem is to maintain the genetic diversity and continuity of the constituent populations, it mightbe appropriate to limit the number of birds or other animals in the ecosystem that are bred or raisedin captivity and then reintroduced to the ecosystem, even though such captive breeding might be amore efficient and effective way of maintaining the relevant populations.

The outcome-based standard, once developed, would be incorporated into the proposed license forthe Project and submitted to FERC for approval. Once the license is issued, the licensee would besolely responsible for designing and implementing the strategy for meeting the outcome-basedstandard. FERC, the resource agencies, and the other stakeholders would monitor Chelan’scompliance with the outcome standard and, when appropriate, bring any issues or disputes beforethe Coordinating Committee for resolution.

Example: RecreationOutcome-based standards can also be developed for resources other than plants and animals. In thecontext of the Rocky Reach Project, for example, the parties might identify recreational opportunitiesas a resource of concern, in which case the parties would use the steps described above to developoutcome-based standards for recreation. Under a traditional approach to promoting or protectingrecreational opportunities, the parties would most likely include in the license a requirement todevelop a detailed recreational plan that would then be subject to the review and approval by FERC. The license might also require the recreational plan to include specific design and constructionfeatures, such as the construction or extension of a boat ramp, the construction and maintenance ofpicnic facilities, or the construction of parking facilities. The license most likely would not requirethe recreation plan to achieve any particular level of actual effectiveness, however.

On the other hand, under an outcome-based approach, the parties would begin by identifying theprimary resource of concern, which, in the case of recreation, might be recreation in general orspecific types of recreation. The parties would then set a standard for the licensee to achieve withregard to the resource. For example, the parties might agree that the licensee should promoteunlimited public access to boating and swimming within the project area, without jeopardizingpublic safety or interfering with the other outcome-based standards for the Project (such as those toprotect fish and wildlife). The parties would then select a gauge to monitor whether such unlimitedpublic access is being maintained. In the case of recreation, the gauge might comprise severalfactors, such as the average waiting time at the boat launch during periods of peak use, or the numberof visitor-days at the project per year. Finally, the parties may place sideboards on the tools availableto Chelan to promote recreation at the project, if appropriate.



Roles of the State and Federal Agencies and Other Non-Licensee StakeholdersSince outcome-based standards represent a departure from the traditional approach to hydroelectricrelicensing, the first step in this new process will be to request the participation of FERC, theapplicable state and federal resource agencies, and other interest groups in an experimental pilotproject for relicensing the Rocky Reach facility. As discussed above, under the proposal, Chelan,FERC , the state and federal resource agencies, and the other stakeholders would participate in thedevelopment of the outcome-based standards and their incorporation into the terms of a proposedlicense for the Project. The proposed license would be submitted to FERC for review and approval,with the support of the resource agencies and other stakeholders. Following issuance of the license,the resource agencies and other stakeholders would participate, through a Coordinating Committee,in monitoring and reviewing Chelan’s compliance with the outcome-based standards. Chelan wouldbe solely responsible, however, for developing and implementing a compliance strategy. FERCwould retain the authority to review and resolve any disputes that cannot be resolved by theCoordinating Committee.

For the pilot project to be successful, FERC must be willing to defer in large part to the compromisesreached by the participating parties during the development of the outcome-based standards. Noneof the parties has a strong incentive to participate in the development process if each party knowsthat the other parties will have additional opportunities to influence FERC’s review. If the partiesknow that FERC is willing to defer in large part to the results of the stakeholder process, parties willbe encouraged to participate in good faith.

In addition, participating resource agencies must be willing to channel their respective statutoryauthorities into the development of the outcome-based standards. Pursuant to sections 4(e) and 18of the FPA and section 401 of the Clean Water Act, certain resource agencies can impose licenseconditions without FERC’s review or consent. The relevant resource agencies must agree to exercisethis authority during the collaborative process used to develop the outcome-based standards. Any“mandatory conditions” need to be incorporated into the outcome-based standards. Otherwise, thelicensee will have little incentive to negotiate environmentally superior outcome-based standardswith the resource agencies.

Chelan expects to ask FERC and the resource agencies to help develop a memorandum of agreementbetween FERC, the resource agencies, and Chelan that will provide the legal and proceduralunderpinning for participation in the proposed pilot project. In particular, a memorandum ofagreement may be necessary to enable the resource agencies to commit to using their “mandatoryconditions” authority under the Clean Water Act, Federal Power Act, and Coastal Zone ManagementAct during the collaborative development process, without risk of subsequent judicial challenge. Such a memorandum of agreement would be developed at the outset to define the scope and purposeof the pilot project and will serve as the catalyst for the collaborative process to encourage all partiesto participate actively and in good faith.



WHY TRY THE OUTCOME-BASED STANDARD APPROACH?

The use of outcome-based standards at Rocky Reach would benefit the environment and the otherresources affected by the project, Chelan, the state and federal resource agencies, and the otherstakeholders. Chelan, the state and federal resource agencies, and the other stakeholders thereforehave an incentive to participate in a test of the outcome-based approach. For Chelan, the incentiveto participate comes from the flexibility that outcome-based standards would allow and theaccountability that they would demand. Under outcome-based standards, the cost of compliancecould be lower, and Chelan would have greater flexibility in how to meet the needs of the protectedresources. The combination of lower costs and increased flexibility could allow Chelan to achieveeven greater protection for the resources of concern than the outcome-based standards require. Bymanaging costs and protecting the resources at Rocky Reach, Chelan would maintain its reputationfor taking care of both its customers and the environment.

For the state and federal resource agencies and the other stakeholders, the incentive to participate inthe outcome-based approach comes from the likelihood that the licensee would be willing to accepthigher standards of protection for the resources at the project in return for the flexibility to meetthose standards at a reduced cost. In addition, by developing the outcome-based standards througha collaborative process, the resource agencies and the interest groups avoid a protracted and costlyformal relicensing proceeding.

The use of outcome-based standards would also reduce the difficulty and delay associated withmonitoring and compliance review. By using clear, accurate, and objective “measuring sticks” togauge Chelan’s performance, the Coordinating Committee would be able identify more quickly anyoutcome standards that had not been met, so that a remedy could be imposed promptly. Prompt andobjective review could reduce the costs of monitoring and would reduce the possibility of furtherharming the protected resource through delay.

Another advantage of the outcome-based approach is that it would allow Chelan to rapidlyimplement new technology at the Rocky Reach project for the protection of the environment andother resources affected by the project. Licenses are issued under the FPA for terms of at least 30years, and neither Chelan nor the resource agencies nor the other stakeholders are in a position topredict what new technologies will be developed during that time span. The outcome-basedapproach would allow Chelan to assess the costs and benefits of new technology as it becomesavailable and implement that new technology when it offers a better way to meet the outcomestandards.

More generally, however, an outcome-based approach to the relicensing process would be the firststep in creating a license in which both rewards and penalties are directly tied to the licensee’ssuccess in protecting the resources of concern. The approach outlined in this proposal would createa role for stakeholders in developing appropriate outcome standards and would provide the resourceagencies and the other stakeholders with responsibility for monitoring, compliance review, andtechnical consultation once the license is issued. From Chelan’s perspective, the outcome-basedapproach would set high standards and offer rewards for innovation. Under this proposal, the useof the outcome-based approach would both save costs and increase environmental benefits. As a



safety net, the proposal also offers “off-ramps” for FERC in the event that the licensee is unable tomeet the outcome standards it committed to achieve.

The Rocky Reach pilot project would give FERC the opportunity to experiment with a regulatoryapproach that has been positively received, even touted, in both the Administration and Congress. The Rocky Reach pilot project would also provide a useful complement to the current proposals anddebate regarding hydroelectric licensing reform. Chelan proposes the Rocky Reach pilot project asa compatible alternative and additional avenue for investigation, not as a competing reform proposaland expects that the results of the pilot project would inform and assist the ongoing effort.

Chelan’s record illustrates that the utility is a prime candidate for testing implementation of thispromising approach to relicensing. Indeed, Chelan expects that the process for developing outcome-based standards for incorporation into a hydroelectric license, if successful, could serve as a modelfor similar efforts in other relicensing proceedings. To this end, Chelan presents this proposal withthe understanding that its implementation will provide new options while requiring the utility toundertake significant new responsibilities. Chelan welcomes the challenge, and looks forward to theopportunity to work with FERC and other stakeholders to make outcome standards for the RockyReach hydroelectric project a reality.

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