Market Mechanics 61 



costs for treatment of effluents discharged into the river. Since 

 financial returns to investment which provide uncompensated 

 returns to third parties understate economic returns, profits of such 

 enterprises would not be the relevant guide to investment decisions 

 if efficiency criteria were to govern. 



HYDROELECTRIC POWER 



One of the most significant departures from the divisibility and 

 independence assvmiptions appears in the case of hydroelectricity. 

 An excellent dam site in some cases will provide for more than a 

 million kilowatts of power; Grand Coulee on the Columbia pro- 

 vides roughly two million. Until very recently, an increment to 

 generating capacity of this magnitude would have exceeded the 

 total generating capacity of all but the very largest power systems 

 in the country. ^^ The Shasta and Keswick sites of the Central 

 Valley projects, along with the thermal station to firm up the 

 hydroelectric generation, with but 600,000 kilowatts, would have 

 represented approximately a third of the total generating capacity 

 of the Pacific Gas and Electric system, one of the nation's largest 

 systems at that time, and practically the sole supplier of the 

 Northern California power market. 2° For the more sparsely popu- 

 lated areas with small power systems, excellent hydroelectric sites 

 might represent an embarrassment of riches. The Hells Canyon 

 site on the Snake River, for example, with a power potential of 

 close to a million kilowatts, represents an increment to capacity 

 of about three times the amount of the Idaho Power Company's 

 total system capability. ^^ 



Since transmission losses restrict the size of an area in which 

 power can be marketed economically, the inability to expand 

 capacity by increments which are relatively small in relation to the 

 market to be served is likely to depress rates at which the total 

 block of energy can be marketed. Moreover, power markets differ 

 from markets of the competitive model where spot transactions 



'* Until about 1950, even the largest power systems in the country had gener- 

 ating capacity of less than three million kilowatts. 



^° U. S. Department of Interior, Bureau of Reclamation, Central Valley Proj- 

 ect Studies; Economic Ejects Problem 2-f, 1940, p. 42. 



°' Federal I'ower Commission, In the Matlrrs of Idaho Power Company; Proj- 

 ect No. 1971, No. 2132, and No. 2\2>^— Decision, pp. 23, 46. 



