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Money, Power and Trade: What You Never Knew About the Western Energy Crisis

Fortnightly Magazine - May 1 2001

for everyone, not just for Californians. Attempts by each state to husband local supplies are myopic and counterproductive.

Only a year ago California was cited as a leader in energy market restructuring. Now politicians from Japan to Italy are rethinking their position on market liberalization, because obviously something has gone terribly wrong. They and others see the rolling blackouts and wrangling as evidence of a complex and imperfect market, yet nothing could be further from the truth.

The problem, in a manner of speaking, is very simple. On one hand, the richest state in the richest country in the world does not want to pay its bills. But the feeling is mutual, since it appears California's neighbors will be only too happy not to sell.

Virtually no one was prepared for the rapid demand growth experienced by western states in 2000. Yet the total power generation, as measured by the Edison Electric Institute (EEI), actually increased 7.6 percent in one year. %n3%n

The pace was more than double the year before and radically different from the 1 to 2 percent growth rates that had been both the historic norm and the planned growth for the next 10 years. Several reasons explain the rapid growth.

First, the summer of 2000 was hotter than the previous year, particularly in Nevada, Arizona, New Mexico, and Utah; the early winter in December was much colder than normal. Yet it takes more than abnormal weather to explain the sky-high growth rate. It turns out that electricity growth rates have been higher than usual even in off-peak periods, driven by an overheated high-tech economy. The rapid creation of jobs has accelerated population growth at the same time that the breakneck installation of servers, routing stations, and assorted communication facilities to support the Internet has kindled a rapid increase in power demand. This reflected a booming economy for the whole region: Rough estimates of regional GDP growth from 1999 to 2000 are around 8 percent for all the western states, with much of the growth centered in California. %n4%n

The general tightening of the West's power supplies had also been obscured by much better than average hydroelectric generation in recent years. The combined Canadian/U.S. WSCC region is unique in North America for its dependence on hydropower. The resource supplies about 40 percent of the region's generation capacity %n5%n and in most years more than one-quarter of the energy. Most of the capacity is located in British Columbia and the Pacific Northwest, where hydro supplies over three-quarters of the energy. Capacity figures by themselves can be misleading, because the actual energy generated from the system is limited by annual water flow. The energy extracted varies substantially, depending on the level of snow pack and reservoir fill that accumulates during winter months. In the banner year of 1997, total U.S. and Canadian WSCC hydro generation was 299 Terawatt hours (TWh) (em 99 TWh higher than generation in 1992. %n6%n This difference is nearly half of California's electricity energy demand and the equivalent output of more than a dozen nuclear power stations.