The Hells Canyon Case 155 



built by some public body with investment funds available at 2.5 

 per cent.^^ While this may be an appropriate estimate for use in 

 comparing the economics of different plans, it has no particular 

 significance for estimating returns on investment by an electric 

 utility. Rates for utility companies are traditionally established 

 by public regulatory agencies by means of a cost-plus formula. The 

 rates at which Idaho Power Company could expect to market its 

 output, within the territory it has been franchised to serve, would 

 be such as to compensate it for all operating expenses plus a reason- 

 able return on prudent investment. However, there is a serious 

 complicating factor involved in this instance. 



The market which Idaho Power Company is franchised to serve 

 is very small in relation to the power potential in the Hells Canyon 

 Reach. The 783,400 kilowatts of planned initial generating capacity 

 in the Hells Canyon Reach is more than double the present gener- 

 ating capacity of the Idaho Power Company's total system. Such a 

 large block of new capacity would not be fully utilized for two 

 decades if its use were restricted to servicing the Idaho Power 

 Company's franchised territory.^* However, the surplus power 

 relative to its marketing area could not be sold in the remainder 

 of the Northwest Power Pool at a rate which would return full 

 costs, in spite of conditions of tight power supply. The Northwest 

 has a public power tradition in which agents of state and local 

 governments can provide supplies of power at lower rates than can 

 a private utility. Largely, this stems from the doctrine of inter- 

 governmental tax immunity, which derives its justification outside 

 of economic considerations. Supplies of power developed by such 

 public bodies, accordingly, would be more attractive to users than 

 the potential Hells Canyon surpluses of Idaho Power Company.^^ 

 Moreover it seems unlikely that the Idaho regulatory authority 



" FPC, Decisio7i, op cit., pp. 21-22, 25. Whether or not this appears to be 

 the most appropriate manner by which to estimate the value of prime power 

 per kilowatt, the figure of $41.58 appears defensible on other grounds. Power 

 sells for from $17.50 per kilowatt-year in some sub-markets in the Northwest 

 to well over $70.00 for other portions of the regional market. If we assume that 

 this represents discriminatory pricing under a linear demand function, the 

 average value can be approximated by a figure midway between, or somewhat in 

 excess of the $41.58 employed. 



=* Ibid., pp. 23 ff. 



« Ibid., p. 25, and Finding No. 23, p. 35. 



