Good Afternoon,
This winter brought to the Northwest both frigid temperatures and buckets of precipitation. The year kicked off with a bang in October with a series of storms that left the Northwest, and California, flush with water. Those storms never quit and, in the northwest, most of the precipitation came down as snow. The inevitable warm up in March began melting much of that low-level snow, and the rivers are now overflowing. But unlike prior big water years, a majority of the March largesse was not used to generate power; instead, the water was diverted over the dam’s spill gates.
March Spill
The last dam on the Columbia River, Bonneville, is spilling an astounding 240,000 cubic feet per second (CFS) and all of the other projects are operating in a similar fashion. In fact, most federal projects are spilling more water than is being used for generating electricity:
The spill currently exceeds the generation in all six of these projects. Typically, that is not something which raises an eyebrow; after all, these dams have a limited capacity to pass water through their turbines (green line) which is the dam’s maximum usable water and is called “hydraulic capacity. ” When inflows exceed a project’s hydraulic capacity one of two things must occur:
- Fill the reservoir
- Spill the water
None of these projects have more than a few days of storage in their reservoirs, so they frequently divert water to the spill gates during the runoff. What makes this year singular is that each of these projects dumped water without reaching hydraulic capacity. We distinguish this type of spill as “optional” since the dam operator could divert the water through the turbines. The optional spill is the difference between the green line and dark blue. Also note that this spill is occurring during March, not in the April to August period where the spill is mandated to hurry the smolt to the Pacific Ocean.
Take a look at Bonneville Dam, the last on the Columbia River:
The plot summarizes how BPA managed the project. Typically there are three metrics used to measure flows:
- QR – Total Outflows (red line)
- QG – Generation Outflows, the water that passes through the power plant (light green line)
- QS – Spill; the water that flows through the dam’s spill gates (yellow line)
Ansergy takes the last item, Spill, and splits into two:
- Mandatory Spill – The quantity of inflows which exceed hydraulic capacity plus what can be stored in the reservoir. In this example, Bonneville’s hydraulic capacity is 258,000 cfs. Any outflows greater than level must be spilled (light yellow line)
- Optional Spill – This is the difference between Total Spill and Mandatory Spill and reflects the amount of water “unnecessarily” spilled; water which was wasted. Think of taking half the gasoline in your car and pouring it onto the street (white line)
All eight of the Lower Columbia and Snake dams have employed Optional Spilling, and so have a few others:
This table summarizes the optional spill by each project. One operator, Bonneville Power Authority, is remarkably more aggressive about sending water over the spill gates, even when there is available capacity to generate power. Why would a plant operator “waste” fuel? Why wouldn’t a generator want to maximize its generation? The answer lies in the nature of how power markets set price.
Mechanics of the Wholesale Power Market
We would have to travel back in time about fifteen years to find a similar situation where the price was being artificially set by a generator; back to the days of the California Energy Crisis. The State of California’s Attorney General sued many generators for doing exactly what the Hydro Operators are doing in the Northwest: intentionally withholding generation for the sole objective of driving a higher power price. To understand how, and why, they can impact power prices we need to understand how wholesale power prices are set in a market.
A power grid, which is also known as a hub, will turn on exactly enough generation to meet its net demand. Net demand is the total load net of imports/exports. If a hub needs 5000 MW, it will turn on exactly that amount of generation in ascending price order. The least cost units are selected first, and ever more expensive generating units are added until the 5000th MW of capacity is online. The cost of that last unit, the marginal unit, sets the price for all power plants. This type of market is also called a dutch auction – the last bid sets the price for all bidders.
The markets work well when there are clear price signals, and one party is not in a dominant position. It takes little imagination to envision a scenario where it would make economic sense to withhold a small amount of generation to drive a higher price, a price that is shared for all generation. This is especially true given the asymmetrical price distribution of the generation stack.
The above is a plot of Mid-Columbia’s stack for March 2017. This is also called a price duration curve and demonstrates how much net demand is needed to change a power price. At current market prices, just a 500 MW decrease in supply, or increase in demand, will drive prices up 50%. A similar situation happens on the right tail, but the current Mid-C market is mired in the left-side because of big water. Contrast the current stack with next year:
April 2018 is currently trading in what is called the “deep part of the stack” because it would take a substantial shift, either to the left or right, to move prices. 2018 would be much more difficult to “move price,” than 2017, given where that market is within the price stack. Volatility is the highest whenever the market finds itself on either the left or right side and the temptation to withhold generation is also the greatest on both ends. A generator can achieve a 50% higher price for its product by spilling just enough water, and everyone wins, right?
No, not everyone benefits, just the Operators of the hydro plants and others that are long power. Sacrificing 15% of the water to force a 50% higher price is a good trade, for those that are selling. For those who are buying, which happens to be every consumer in the Western United States, it is an awful trade. If any other entity attempted this the FERC, and perhaps the CFTC, would have indictments flying like confetti at a Broadway parade.
Costs of Wasting Water
We have broken down the costs of the March Spill campaign into two types:
- Cost to Ratepayers
- Environmental Cost
The unit cost to ratepayers is the difference between the price power cleared at because of the Optional Spill versus the price power would have cleared at had the system used all possible water. In the last day or two, the spot market for day-ahead power cleared at about $5.00 which is the price this study used as the baseline. That baseline price was compared to the actual cleared Day-Ahead price; the delta is multiplied by total demand since all power is priced at the marginal unit.
In total, Ansergy estimates the combined cost of wasting water was around $450 million. WE define cost as the difference between where spot power traded and where it would have traded had there been no “Optional Spill.” This cost was borne solely by the Northwest ratepayers. The real cost to all of the WECC may be even higher if you factor in the impact of withheld generation on power prices inside California and other inter-connected markets. The cost is further mitigated by the simple fact that wholesale prices are already low, and note how the Optional Spill cost dropped to $0 in the last few days due to the spot market crashing to near zero.
Another way to look at the amount of energy wasted by this Optional Spill regime is to calculate the number of homes which could have been served by the wasted energy. Assuming an average home consumes 33 kWh per day, the wasted energy from the optional spill could have served millions of homes with emissions-free energy:
Imagine receiving free power for a day? Millions could have; had the operators simply re-directed the water through its turbines, instead of letting it flow over the spill gates. What would all of those people done with the windfall, that free day of power? Most likely they would have bought something, like dinner or maybe paid their power bill. The true impact of the operator’s self-serving actions would need to be significantly grossed to account for this economic multiplier.
There remains one more dirty little impact of this wanton spilling of our precious water – that is the effect of unnecessarily running coal and natural gas power plants on our air. Ansergy tracks the fuel consumption for most western USA gas power plants so computing the incremental emissions associated with Optional Spill is easy. We won’t bore you with another chart, just a table with three numbers reflecting the incremental emissions emitted into the air due gas staying on the margin over the last 30 days:
- 1.8 million pounds of Sodium Dioxide
- 5.7 million pounds of Nitrous Oxide
- 4 billion pounds of carbon
All of those emissions would not have been released with just an additional 1000 MWs of hydro energy.
Conclusions
We don’t chastise the Operators; they are merely following their internal directives. Their primary objective is to maximize the cash transfer back to the “owners.” In the case of the federal operators, we believe they forgot who the actual owners are. It is the ratepayers, not Washington DC, who own those projects. A much greater aggregate economic benefit could have been realized had the plants been operated to serve the true owners.