THE IMPACT OF THE LOSS OF ELECTRIC GENERATION AT GLEN CANYON DAM

For a more in depth summary, as well as all three phases of our full report, please follow this link:

Full Study_Power Economic Consulting_7_26_2016

THE IMPACT OF THE LOSS OF ELECTRIC GENERATION AT GLEN CANYON DAM

Summary of Study Findings

Background

The vast Colorado River system of dams, reservoirs, and diversions is facing an unprecedented
water supply crisis. The 1922 Colorado River Compact, the legal foundation of this water
system, was based on flawed assumptions that seriously overestimated Colorado River flow,
underestimated public demand, and could not have foreseen the impacts of climate change. As
a result, more water is allocated today than actually flows in the river. This water deficit is
projected to increase significantly in the years ahead.(1)

The two main Colorado River reservoirs, Lake Powell, behind Glen Canyon Dam (GCD), and
Lake Mead, behind Hoover Dam, are symptomatic of this crisis. These reservoirs have been
hovering around half-full for the past decade. Studies have concluded that they are unlikely to
both ever fill again, and could go dry within the next decade.(2) The stakes are high because the
Colorado River supplies water to 40 million people and 4.5 million acres of agricultural lands.

GCD was authorized in 1956 as a part of the Colorado River Storage Project (CRSP). The
primary purpose of the dam is to store excess water in Lake Powell for the upper basin states of
Wyoming, Colorado, Utah, and New Mexico, which can be released, as needed, to Lake Mead
downstream. A secondary purpose of the dam is to generate hydroelectricity, which is used to
help fund operation of the Colorado River water delivery system and is sold at a discount to
selected contractors.(3) As river flows continue to decline, Colorado River managers are
increasingly concerned about maintaining Lake Powell to elevations that allow hydropower
generation.

Some conservationists have questioned the benefits of attempts to preserve the status quo, and
propose instead, fundamental changes in the management of the Colorado River system. For
example, Glen Canyon Institute (GCI) has put forward the Fill Mead First (FMF) plan which
would change the operation of GCD, allowing water to fill Lake Mead reservoir downstream
before impounding it in Lake Powell. Others, such as former Commissioner of Reclamation,
Daniel Beard, call for decommissioning and tearing down GCD, and permanently draining Lake
Powell. These advocates contend that their plans could conserve large amounts of water now
lost to seepage from Lake Powell, promote the restoration of Grand Canyon ecosystems, and
allow the recovery of once-flooded portions of Glen Canyon.

Colorado River system managers are critical of such proposals because they argue that they
would violate the Colorado River Compact. They also warn that these plans would jeopardize or
eliminate hydroelectric power generation at GCD. They claim that this would cause spikes in
rates for electric power customers and drastically reduce funding for the protection of
endangered Colorado River fish species.(4) These contentions, however, are not well
documented and questions have been raised about their accuracy.

Establishing an understanding of the economic impacts of a potential loss of electric generation
at GCD is vitally important. Water managers and policy makers are now making far-reaching
decisions on the management of the Colorado River, including how to allocate water between
Lake Powell and Lake Mead. They need the best possible information on which to base these
decisions.

The Glen Canyon Dam Hydropower Studies

In an effort to gain a greater understanding of these issues, Power Consulting, Inc. conducted a
detailed analysis of the economic impacts to ratepayers in the region if Glen Canyon Dam
(GCD) were to cease generating hydroelectric power. This research was reviewed by an
independent panel of distinguished economists: David Marcus, Gail Blattenberger, and Spencer
Phillips.(5)

The study was done in three phases:

• Phase I, focuses on the economic value of current production of the electricity at GCD as well
as the impact that not generating electricity at GCD would have on the electric grid and on
the regional economy.

• Phase II, focuses on the impact of the loss of GCD electric generation on the people and
entities who directly or indirectly contract through the CRSP and Western Area Power
Administration (Western) to receive their electricity.

• Addendum to Phase II, focuses on the financial costs and offsetting benefits if GCD were no
longer able to generate hydropower.

Summary of Findings

The study concludes that, if Glen Canyon Dam stopped generating hydropower, it would have a
negligible impact on the western power grid, would raise electric rates by an average of 8 cents
per month for residential customers of hydropower, and could save tens of millions of dollars
each year in taxpayer subsidies and water lost to system inefficiencies.

• The average annual value of Glen Canyon Dam’s electric energy represents less than one
half of one percent of the sales value from electric generation in the western grid, and that
the grid could readily absorb the loss of hydropower from the dam.

• The total impacts would be an increase of $16.31 million in electricity costs for consumers of
Glen Canyon Dam power, but because they would be spread among 3.2 million customers,
the individual impacts would be small in the vast majority of cases.

• The average annual value of the GCD electric energy is $153.3 million. This value is less
than one half of one percent of the close to $31 billion in sales value from electric generation
in the Western Electricity Coordinating Council (WECC).

• Average yearly cost increases would be $.08 per month for residential customers, $.59 per
month for commercial customers, and $6.16 per month for industrial customers of Glen
Canyon Dam electricity.

• A discontinuation of Glen Canyon Dam operations could have offsetting benefits of
approximately $74.8 million annually, including savings of $34.9 million in management costs
and potential earnings of as much as $39.8 million annually due to increased hydropower at
Hoover Dam and conservation of water that would have otherwise seeped into the banks of
Lake Powell.

 

References:

(1) https://www.usbr.gov/lc/region/programs/crbstudy/finalreport/Executive%20Summary/CRBS_Executive_Summary _FINAL.pdf 

(2) https://scripps.ucsd.edu/news/2487

(3) Theses contractors include publicly owned electric utilities, municipalities, irrigation districts, military bases, and
native American tribes

(4) Oritz, K. Western Slope is Refusing to Divert More Water to Front Range. New Channel 5 Grand
Junction, Montrose, Glenwood Springs. Accessed 10.29.2015.
https://web.archive.org/web/20140715021756/http:/www.krextv.com/story/western-slope-is-refusing-todivert- more-water-to-front-range-20140711
more-water-to-front-range-20140711 and Harvey, N. To protect hydropower, utilities will pay
Colorado River water users to conserve. High Country News. 8.4.2014. Accessed on 10.29.2015
https://www.hcn.org/blogs/goat/doi-and-utilities-partner-to-stave-off-colorado-river-power-woes and U.S.
Bureau of Reclamation. Flow Regimes and Glen Canyon. Accessed on 10.29.2015.
http://www.creda.org/Documents/Messaging2.pdf

(5) David Marcus, an independent energy consultant with union, government, and NGO clients

Gail Blattenberger, Ph.D., Professor Emerita at the economics Department of the University of Utah with fields in
Econometrics and Environmental Economics

Spencer Phillips, Ph.D., principal of Key-Log Economics, LLC; lecturer at University of Virginia Department of
Economics and Batten School of Leadership & Public Policy; and adjunct faculty, Goucher College graduate program
in environmental studies.

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Researchers reporting in Nature Climate Change say building the controversial pipeline could lead to the price of oil dropping and the rate of consumption increasing, pouring more emissions into the atmosphere.

By Rebecca Boyle

 

The Cowboy and Indian Alliance protests in Washington, D.C., in April as part of a weeklong series of actions by farmers, ranchers, and tribes against the Keystone XL pipeline.

Getty Images

August 10, 2014 1:04 PM Text Size: A . A . A

President Obama has said he wouldn’t allow the controversial Keystone XL pipeline’s construction unless it does not significantly worsen carbon dioxide emissions. But now a new study in Nature Climate Change says it will, and by a lot: Keystone XL could cause greenhouse gas emissions four times worse than the U.S. government’s projections.

Peter Erickson and Michael Lazarus of the Stockholm Environment Institute in Seattle calculated the project’s potential economic impact and its resulting impact on greenhouse gas emissions. In their model, extra oil flowing through Keystone XL could lower global oil prices, prompting people to buy more and use more. The pipeline would provide oil that would otherwise not be consumed, resulting in carbon dioxide that otherwise would not be belched into the atmosphere.

Erickson says no other researchers have previously done this type of analysis yet for Keystone XL, and that most energy and climate analyses focus on consumer demand and attempts to reduce energy consumption, not necessarily on the supply side.

“There’s been very little attention or analysis, even in policymaking, to ‘What about bringing new fossil fuels into the marketplace?’” he says. “It does perhaps seem obvious, but there is not necessarily a toolkit ready and waiting to do that kind of analysis.”

Erickson and Lazarus used a standard economic model to study the impact of increased oil supply on the market. In their analysis, they assume an increased supply causes competition among producers, which drives down the price. Using oil supply curves from market research firm Rystad Energy, they devised what’s known as an elasticity of supply. Basically, this tool calculates a percent change in oil price given a percent change in supply, Erickson says.

For each barrel of increased production, he says, 0.6 barrels would be new to global markets. That’s oil that wouldn’t have been burned otherwise. The net annual impact could range from adding virtually no extra CO2 to adding 110 million metric tons a year. That spread is four times wider than the U.S. State Department found in its own environmental analysis.

“Just considering these market impacts quadruples the emissions,” he says.

The paper is agnostic on whether Keystone XL would actually lead to expanded development in Canada’s oil sands; that’s a much more complex argument. But Erickson says that his and Lazarus’ key finding—that consumers, given a lower price, would buy more oil and cause additional emissions—has not been done before. Apparently, the U.S. State Department used different models to predict potential emissions, he says.

“It appears as if they didn’t look at the case in which global oil consumption would increase as a result of Keystone helping more oil be extracted,” he says, “so we’re as surprised as you are.”

Donovan Power, a geologist and consultant who has studied the impact of increased coal production in Wyoming’s Powder River Basin (but who was not involved in this study) says that it makes sense people would use more energy if given the opportunity to do so at a lower cost. But, he says, it’s more difficult to predict the real impact of a possible price change, he says. The State Department’s Final Environmental Impact Statement for Keystone XL allows for some growth in production without much of a price increase, Power notes—only about a $10 price change for an increase of 4.5 million barrels per day.

“If you give someone something cheaper, they’re going to use more of it; that’s certainly true on the global scale,” he says. “But it’s such a small change in the amount of oil you’re allowing to go into the system, and the global supply system is so large, I think it’s hard to forecast what the change would be.” He agrees the analysis is important, though, and that it should be part of the conversation.

Erickson says he and Lazarus aren’t making policy recommendations; they want to offer a new method for analyzing proposed projects like Keystone XL. With a few tweaks, their equations could also be applied to new coal mines, drilling platforms, or other fossil fuel project.

“Looking at fossil fuels from the supply side is a very interesting and important new area of research. There’s a need for analytics and for policy development,” he says. “We’re approaching this from a research perspective, but we want to work to have a policy impact as well.”

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