In contrast, hydroelectric power plants have few variable costs of any kind. Instead, essentially all the costs are fixed costs associated with buying the land that will be flooded, constructing the dam, and purchasing the huge electrical generator equipment. Thereafter, the only variable inputs required are a few lubricants and maintenance workers. Consequently, a hydroelectric power plant has long-run average total costs that decline continuously as the company spreads its enormous fixed cost over additional sales by supplying power to more and more households. Similarly, electric distribution lines (the high-tension power grids and neighborhood electrical conduits) are a high-fixed-cost and lowvariable-cost operation. In the electrical utility industry, large-scale operations therefore incur lower unit cost than small-scale operations, as demonstrated in Figure 9.2. “Freewheeling” in the electrical utility industry has similar effects. When industrial and commercial electricity buyers (e.g., a large assembly plant or hospital) were allowed in January 2003 to contract freely with low-cost power suppliers elsewhere in the state or even several states away, the local public utility experienced “stranded costs.” That is, the high initial fixed costs of constructing dams, power plants, and distribution lines were left behind as sales volume declined and local customers opted out. If the costs