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A second reform with interesting implications for endangered species pro- tec tion is to improve--some would say create--markets in water rights. In principle, the Western approach of prior appropriation allows for the transfer of water rights, but several prac tical difficul ties limit the functioning of these markets. Most important of these is the fact that water transactions are characterized by virtually pervasive externalities, and in every state, a sys- tem of administrative safeguards has evolved to protect the interests of third parties. Many states have, in addition, determined legislatively that certain uses of water are intrinsically more valuable than others and restrict trans- fers from lower- to higher-valued uses. In particular, agriculture is usually considered a "higher" use than industry. The prob~em with these restrictions is that they tend to sanctify the status quo at a time when the status quo is increasingly inappropriate. The entire West is at present under intense pressure to increase energy production. The value of water--measured by wil1ingness-to-pay-is greater by an order of magnitude in energy production than in agriculture, and improved opportunities to transfer water from agriculture to energy would blunt the impetus for new water resource development to meet the demands of the energy industry.* Less water resource development, of course, means a reduced threat to endangered species from depletion as well as inundation at reservoir sites. II. GRAYROCKS DAM: A CASE STUDY OF THE APPLICATION OF THE ENDANGERED SPECIES ACT Grayrocks Dam is a part of the Missouri Basin Power Project (MBPp) , a venture of a collection of publicly owned utilities serving customers in nine western states. MBPP consists of the Laramie River Station (three 500 MW steam electric generating units), associated transmission facilities, and the Gray- rocks Dam and Reservoir, to be used primarily for water storage to meet the plant's cooling requirements. Project manager and owner of the largest share of the project is Basin Electric Power Cooperative headquarterd in Bismarck, North Dakota. The dam is located on the Laramie River, about 10 miles above its confluence with the North Platte in southeast Wyoming. *In fact, evidence is beginning to accumulate that this gross discrepancy in value is already causing water to flow from agriculture into industry. See Abbey (1979). 26