The Alabama-Coosa River System 171 



on the tributaries of the Columbia and some of the other western 

 streams. But there are other streams, particularly in eastern United 

 States, in which the hydroelectric potential of remaining sites rep- 

 resents only a fractional increment to the generating capacity of 

 any electrical system of which the hydroelectricity could become a 

 part. 



Another problem originates in the direct interdependence be- 

 tween headwater storage and the output of generating units down- 

 stream owned by fiscally independent parties. If the ownership of 

 these downstream installations resides with the federal government, 

 the private developer of storage capacity upstream, under present 

 law, cannot recoup from beneficiaries his investment in the extra 

 storage required to provide efficient downstream regulation. How- 

 ever, if the headwater storage reservoirs and the downstream run- 

 of-river installations are integrated into a single system under 

 common ownership — even if exclusively private — incentives will 

 exist to provide the most efficient storage facilities and plan of 

 operation. Integration will not necessarily ensure that an adequate 

 amount of storage will be developed to provide regulation required 

 for economically justified flood control, nor that expenditures will 

 be undertaken for the economical provision of other nonmarket- 

 able water derivatives. Even so, integration would seemingly elimi- 

 nate one of the obstacles to achieving an efficient program design 

 and plan of operation. 



The principal conditions necessary for efficient development are 

 these: First, the hydroelectric units making up the river system 

 need to be small in relation to the electrical system of the intended 

 developer. Second, either (a) the headwater storage would have 

 to be provided by the federal government, which under present 

 law could recoup the cost of providing headwater benefits down- 

 stream, or (b) if the headwater storage were developed by a non- 

 federal source, no federal installations could be located downstream, 

 for under present law the developer would be providing factor serv- 

 ices for which he could not receive compensation. Third, if a part 

 of the development were undertaken by a private party, the license 

 would have to include conditions that nonmarketable water de- 

 rivatives be provided if their value exceeds their opportunity costs; 

 such costs would be met by resort to public revenues. 



One set of conditions required for an efficient development of a 

 river system under private operation appears to be approximated 



