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For comparison, it is assumed that both sites are financed with 80 percent debt at 13 percent interest (tax free industrial development bonds) for 30 years. Project A has gross revenues of $438,000. If a royalty of ten percent of gross revenues ($43,800) is paid to the owner, $394,200 remains to service the debt and pay operating and maintenance costs. Debt service is $373,500, leaving $20,700 to pay taxes, insurance, and maintenance which normally total about one percent of project costs, or $35,000. Revenues may not be sufficient to cover all these costs and some renegotia- tion of the royalty may be needed. In Project B, there clearly is not sufficient cash flow even to pay both debt service and operating and maintenance costs. For this project to be profitable, royalty payments and costs must be delayed until utility buy-back rates rise high enough to provide the needed revenues. Generally, only the most attractive projects can support a royalty payment of ten percent or above. These sites will have low costs per installed kW and provide enough initial cash flow to pay all costs in addition to the royalty. Every site factor must be favorable. The site must have a high head, substantial flow, an existing powerhouse with a dam in good condition, minimum environmental problems, clear access for electrical transmission, and be located in a utility service area heavily dependent on oil with high buy-back rates. Most sites however, don't meet all of these criteria and thus can't support payment of a royalty above ten percent. In fact, most developments may require some form of deferred or reduced royalty payments during the ini- tial years until buy-back rates rise sufficiently to cover costs. The only other alternative is to increase the equity contribution and reduce the debt level to bring yearly debt service requirements in line with 16