2.5.2 Conceptual basis. 



(a) The conceptual basis for evaluating the bene- 

 fits from energy produced by hydroelectric power 

 plants is society's willingness to pay for these out- 

 puts. If this is not possible or cost effective, benefit 

 information may sometimes be obtained through 

 examination of market prices. Although utility pric- 

 ing of electricity is complex and usually based on 

 average cost rather than marginal cost, in cases 

 where it can be determined that market price to the 

 final consumer is based on marginal production 

 costs, this may be used as a measure of benefits. 

 When using market price as a measure of benefits 

 the increment in supply should ordinarily be rela- 

 tively small compared to the total (i.e., little change 

 would be expected in market price due to the incre- 

 mental supply). Continued movement of retail elec- 

 tricity pricing towards marginal cost approximations 

 (e.g., seasonal rates, time of day rates, etc.) may 

 make market prices more relevant for benefit evalu- 

 ation in the future. In the absence of such direct 

 measures of marginal willingness to pay, the benefit 

 from energy produced by hydroelectric powerplants 

 is measured by the resource cost of the most likely 

 alternative to be implemented in the absence of the 

 alternatives under consideration. Non-federal in- 

 vestment analysis generally does not provide an 

 adequate basis for evaluation of potential invest- 

 ments of Federal resources in hydroelectric power. 

 This is because non-federal investments reflect fi- 

 nancial conditions, insurance, and tax incentives 

 that differ from those applying to Federal invest- 

 ments. The procedure that follows allows the plan- 

 ner to construct an NED benefit estimate based on 

 real resource cost of the most likely non-federal al- 

 ternative. Simplifications are encouraged for small- 

 scale hydropower projects. An alternative hydro- 

 power benefit evaluation procedure is provided for 

 single-purpose projects that are to be 100 percent 

 nonfederally financed, provided that there are no 

 significant incidental costs. 



(b) The real resource cost of the most likely alter- 

 native can also be used to compute benefits from 

 nonstructural measures. However, the net benefits 

 of certain nonstructural measures that alter the 

 electric power load cannot be measured effectively 

 by the alternative cost procedures for the following 

 reasons: (1) structural measures and many non- 

 structural measures (except those that alter the 

 load) result in similar plan outputs, whereas load-al- 

 tering measures (e.g., revised rate structures) may 

 change levels of output; and (2) load-altering meas- 

 ures may have fewer direct resource costs than 

 measures based on higher levels of output. Be- 

 cause of this lack of comparability, the benefits 

 from such load-altering nonstructural measures 

 should not be based on the cost of the most likely 

 alternative. Attempts to measure the benefits of 



load-altering nonstructural measures on the basis 

 of direct willingness to pay are encouraged. 



2.5.3 Planning setting. 



(a) Without-project condition. The without-project 

 condition is the most likely condition expected to 

 exist in the future in the absence of a project, in- 

 cluding any known changes in law or public policy. 

 The without-project condition includes the following 

 specific assumptions: 



(1) Existing resources. Existing generating re- 

 sources are part of the without-project condition. 

 Make adjustments to account for anticipated plant 

 retirements and changes in plant output due to age 

 or environmental restrictions associated with exist- 

 ing policy and regulations. 



(2) Existing institutional arrangements. Existing 

 and reasonably expected future power system and 

 water management contracts, treaties, and non- 

 power river operating criteria are part of the with- 

 out-project condition. If revision of these arrange- 

 ments is part of an alternative plan, the new ar- 

 rangement (revised contract, criteria, etc.) would be 

 considered in the with-project condition. 



(3) Alternative actions anticipated or under way. 

 The without-project condition includes those gener- 

 ating resources that can reasonably be expected to 

 be available in the forecast period. 



(4) Nonstructural measures and conservation. 

 The without-project condition includes the effects of 

 implementing all reasonably expected nonstructural 

 and conservation measures. 



(b) With-project condition. (1) The with-project 

 condition is the most likely condition expected to 

 exist in the future with the plan under consideration. 

 Examples of alternative plans include: alternative 

 combinations of projects in a basin study; alterna- 

 tive sites in a reach study; alternative plant sizes at 

 a specific site; alternative reservoir sizes at a reser- 

 voir site; use of reregulation and/or pumpback to 

 increase firm capacity; and reallocation of storage 

 to increase firm energy output. 



(2) Nonstructural alternatives to hydropower may 

 be used alone or in combination with structural 

 measures. Nonstructural measures include but are 

 not limited to reducing the level and/or time pattern 

 of demand by time-of-day pricing; utility-sponsored 

 loans for insulation; appliance efficiency standards; 

 education programs; inter-regional power transfers; 

 and increased transmission efficiency. 



42 



