168 MULTIPLE PURPOSE RIVER DEVELOPMENT 



plans would be operated under federal auspices, these payments 

 were based on an estimate of 0.5 per cent of investment (see FPC 

 Staff Brief, Appendix B, p. 88). 



Taxes. On the assumption that the alternate plans were oper- 

 ated by a private enterprise unit, taxes were estimated as follows: 

 It was assumed that 50 per cent of the capital structure would 

 represent venture capital on which a rate of return after taxes 

 would be 6.5 per cent. Furthermore, assuming a federal corporate 

 tax rate of 50 per cent on "before tax" net returns, the corporate 

 tax rate would be 3.25 per cent of investment. State and local 

 taxes — which FPC records reveal to approximate 2.5 per cent of 

 investment on the average for electric utilities — were scaled down to 

 differentiate between state and local taxes on the average of pro- 

 duction and distribution systems and the taxes which could be 

 anticipated on the generating facilities alone, more relevant to the 

 current problem. (See John V. Krutilla and John M. Peterson, 

 "Capital Costs of Private v. Public Power for AEC," Journal of 

 Land and Public Utility Economics, February 1956, p. 18, for a 

 discussion of the desirability of distinguishing between the generat- 

 ing and distribution stages.) 



Insurance. An insurance rate of 0.1 per cent of investment was 

 assumed in connection with the operating costs under private 

 ownership consistent with the estimates of the FPC staff. (See Staff 

 Brief, Appendix B, pp. 88-89.) 



Operation and Maintenance. Annual costs were taken directly 

 from the estimate provided by Witness Frogatt of the FPC for 

 reasons justified in the FPC Staff Brief, Appendix B, pp. 89-91, 



3. ANNUAL BENEFITS 



Prime Power. Estimates of witnesses Cotton and Mclntyre were 

 used in the analyses of prime power of high-dam and three-dam 

 plans of development because these were based on (a) a critical 

 period of thirty-two to thirty-four months, which also approximates 

 the average critical period of thirty-one months employed by Riter 

 and judged to be the most reasonable average length of critical 

 period (FPC Decision, p. 45); (b) estimated stream flows based on 

 the most reasonable estimate of additional irrigation acreage, 

 366, 650, provided by Columbia Basin Interagency Committee (FPC 

 Staff Brief, Appendix B, p. 4); (c) data directly related to the esti- 



