Northwest Electricity Markets in 2001: Status and Proposed Actions

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Western electricity markets are headed for a difficult summer and possibly a difficult winter of 2001-02 as well. Current poor water conditions translate into continued tight electricity supplies for the rest of 2001. The accompanying high electricity prices could combine with a general slowdown in economic activity to create difficulties for many of the region's businesses and citizens. This paper does not focus on conditions beyond 2001, and no inferences regarding the future adequacy and reliability of power supplies should be drawn beyond this time frame. Longer-term issues will be addressed in future analyses.

In order to meet regional loads this winter, the region has had to rely on emergency operation of the hydrosystem, drawing down reservoirs below the levels established by the 2000 Biological Opinion on Operation of the Federal Columbia River Power System issued by the National Marine Fisheries Service. It is a virtual certainty that these emergency operations also will be necessary during this spring and summer to keep the electricity system from suffering outages. In addition, it is likely that substantial reductions in spill will be necessary.

The use of emergency hydro and spill reduction and their possible effects on fish can be at least partially mitigated by taking actions to reduce demand, increase in-region generation and purchasing power that may be available from the market during the spring. However, the latter, in particular, may have a high cost to the region's utilities and economy. As we approach the end of summer, restoring reservoirs to levels called for in the Biological Opinion (BiOp) is important for reliability in the fall and winter as well as for meeting salmon targets for flows in 2002. Achieving this is likely to require reductions in the spill called for in the BiOp. The difficult tradeoffs facing the region involve electricity reliability, salmon recovery goals and costs to the region's utilities and the regional economy. To the extent that additional generation and demand reduction can be achieved this summer at costs lower than expected market prices, this trade-off will be more manageable.