DOE OSTI2018
The Colorado River Basin is facing an unprecedented drought. In ongoing drought management efforts, limited attention has been paid to hydropower generation. While some studies do exist on hydropower, they are quantitative in nature and focus on calculating the reduction in megawatts generated at dams in the Basin with declining water availability. These studies simplify the complex process of hydropower generation; water availability is but one factor that impacts hydropower generation. At a more fundamental level, formal institutional arrangements, that is, laws, policies, and rules create the framework within which dams are operated and hydropower is generated. This paper conducts a comparative institutional analysis of water, environment, and energy laws and policies and changes therein to understand the constraints and opportunities faced by hydropower generation in the Colorado River Basin. To tease out the nuances in how institutional arrangements affect dam operations and hydropower generation, the comparative analysis focuses on the two largest and strategically important dams in the Basin: Hoover and Glen Canyon. This paper uses Elinor Ostrom’s Institutional Analysis and Development Framework to analyze laws and policies at three levels: constitutional-choice, collective-choice, and operational levels. Constitutional-choice level laws and policies apply to the entire Basin, whereas collective-choice level and operational level laws and policies are dam specific. Hoover and Glen Canyon Dams face similar biophysical challenges by the virtue of their location in the same river basin. Yet, despite the similarity in the biophysical setting, the analysis in this study finds that the differences in the applicability of constitutional-choice level laws along with the differences in dam specific collective-choice and operational level institutional arrangements produce a distinct set of constraints for hydropower generation at Hoover and Glen Canyon Dams. Even without a drought, water and environmental laws at both the constitutionalchoice and collective-choice levels as well as power contracts constrain hydropower generation and limit the flexibility with which Glen Canyon Dam can be operated. Water and environmental laws also impose specific water release requirements that, at times, require off-peak power generation at Glen Canyon Dam. On the other hand, even with a drought, Hoover Dam faces limited hydropower generation constraints and can operate flexibly. This is because constitutional-choice level laws and dam-specific collective-choice and operational level laws pose limited constraints for flexible daily operations at Hoover. The result is that Hoover Dam can generate hydropower at the same level as it did three decades ago and operate flexibly to provide ancillary services and peaking generation. While water and environmental laws and policies pose constraints for hydropower generation, the analysis in this study further finds that specific historic provisions within energyrelated institutional arrangements and recent changes within power contracts have maintained and even enhanced the value of hydropower to power customers. Historic institutional provisions ensure that hydropower is sold ‘at cost’ making this resource economically competitive with wholesale electricity market rates. Recent power contract modifications have resulted in the amendment of an older resale prohibition clause to expand the flexibility available to power customers in using their capacity and/or energy allocation in RTOs, ISOs, and bulk power markets. This amendment has opened up an opportunity for customers, especially Hoover power customers, to use flexible generation and ancillary services in a market environment. In addition, the extension of power contract duration to the legally maximum term has enhanced the reliability and stability of this resource for customers. In the Colorado River Basin, despite the enduring economic responsibility of power customers—where laws require customers to pay for a large portion of construction and O&M costs whether or not they actually receive hydropower— the persistent threat of a drought-induced water shortage, and constraints imposed by water and environmental laws and policies, power customers continue to invest in this resource as energy-related institutional arrangements and power contract provisions protect the reasons why they value hydropower. Lastly, the analysis in this study finds that the consequences of changes in hydropower generation for energy users, irrigators, and environmental programs in the Basin depend on how specific institutional arrangements tie electricity revenues to irrigation aid and environmental programs, and how the power contracts themselves are set up. Collective-choice level institutional arrangements create a higher level of financial dependency of irrigation aid and environmental programs on electricity revenues in the Upper Basin—the legal subdivision of Colorado River where Glen Canyon Dam is located—compared to the Lower Basin—the legal subdivision of Colorado River where Hoover Dam is located. Therefore, changes in hydropower generation or the way its revenue is collected and used will have far reacting detrimental consequences for the Upper Basin. Likewise, differences in the nature of power contracts for Glen Canyon and Hoover Dams also creates differences in the financial impact incurred by energy users when there is a reduction in hydropower generation. While this study identifies the types of impacts on resource users as a result of specific institutional arrangements, the calculation of extent of impact warrants further attention. Hydropower in the United States is in a unique position today. The strategic importance of this resource for the nation’s electricity sector is rapidly growing even as its contribution to overall electricity generation remains fairly small. This strategic importance, however, is built hydropower’s ability to operate flexibly in order to support the integration of intermittent renewable generating sources and the expansion of electricity markets. As this study shows, such flexibility may not be available at certain plants not due to the lack of water availability but because of institutional constraints. Institutional arrangements may also require dam operators to first consider high priority water uses (such as irrigation or environmental needs), which in turn may limit the ability to generate hydropower when it is most valuable or useful. Engineering and quantitative models, such as production cost models, recognize policy constraints for hydropower operations but often inadequately capture or assume away such constraints in the models. A failure to account for policy constraints in these models runs the risk of inaccurate representation of the operational flexibility and capacity available at specific hydropower plants, which can result in over/underestimation of hydropower’s ability to support the integration of variable renewable resources and address grid reliability concerns. Against this background, this paper and the analysis herein serves as an example of how we can systematically identify institutional constraints (and opportunities) that influence the flexibility in not only generating electricity at specific dams but also using this hydropower once it is generated.