The Alabama-Coosa River System 187 



analysis reveals that the added cost of incremental storage at Kelly 

 Creek exceeds the value of the storage for flood control (a benefit- 

 to-cost ratio of 0.59:1). On the other hand, additional storage for 

 flood control is recommended by the Corps, consistent with provi- 

 sions of Section 5, to ensure realization of benefits equivalent in 

 amount to those provided by the plan of development for Howell 

 Mill Shoals. The inference seems plain: The incremental benefits 

 from the authorized federal Howell Mills Shoals flood control 

 storage, above the amount provided in the Alabama Power Com- 

 pany proposal for Kelly Creek development, do not justify the cost. 

 If this is true, the last provision of Section 5 requires a less efficient 

 plan of development than is consistent with rational economic 

 behavior. 



Some explanation of this conclusion is possible when we reflect 

 how imprecisely the variables in the analysis above have been 

 defined. Unlike conditions implicit in our competitive model in 

 Chapter II, two quite different estimates of costs were employed 

 in evaluating the incremental costs and gains under the federally 

 authorized plan and the applicant's plan of development. The 

 different manner in which those making investment decisions in 

 the public and private sectors of the economy perceive the relevant 

 cost of capital can be illustrated concretely. 



Let us assume two alternate scales of development for the Howell 

 Mill Shoals site. Plan I contemplates a maximum power pool 

 elevation at 470 feet, a rated power head of 59 feet, and 119,000 

 kilowatts of installed capacity with no provision for flood control 

 storage. The plan is assumed to cost $68.8 million if interest is 

 computed at 2.5 per cent on an average of one-half the construction 

 cost during a construction period of five years. ^^ Plan II contem- 

 plates a maximum power pool elevation of 490 feet, a 71-foot head, 

 200,000 kilowatts of installed capacity, and a controlled surcharge 

 storage for flood control of 180,000 acre-feet in addition to 272,000 

 acre-feet seasonally available in the power pool. The second plan 

 is assumed to be available at a net investment of $97.7 million, if 

 interest during construction also is charged at 2.5 per cent on an 

 average of one-half the construction cost during a five-year construc- 

 tion period. 



^A rate of 2.5 is assumed since it has been used, and recommended for use, 

 in evaluating river basin projects undertaken by the federal government. 



