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Revisiting California

Market power after two years.
Fortnightly Magazine - April 1 2002

always calculated assuming drought conditions) and factually (the serious drought started in 2001, not 2000).

It is important to take a moment and explain the nature of planning when a major resource like the Columbia River is to be used to meet the requirements of customers. Unlike thermal resources, hydroelectric systems are energy limited. A useful metaphor is to think of them like a car that has the ability to drive up to 100 miles an hour, but needs to visit the gas station every several hundred miles. Capacity-the ability to operate the machine at its maximum capability-is 100 miles an hour. As anyone who has lived past age 16 can testify, this capability can be demonstrated right up to the moment that an empty tank makes a visit to the gas station a necessity. The rated capacity of the hydroelectric system is always measured using drought conditions. Thus, we measure the speed of the car in the worst case-an empty tank-and report the capacity at zero miles per hour. It would not be prudent to announce an ability to meet load that could not be delivered during a drought year. In 1974, the WSCC recognized this fact by issuing instructions that the capacity of hydroelectric projects should always be calculated assuming drought conditions .14

Thus, the reserve numbers reported above have always assumed drought conditions. Even if the flows on the Columbia River were only at 92 percent of normal, this would not have affected its ability to meet peak loads.

As it happens, Columbia River flows during 2000 did not represent a drought. Flows in 2001 did, however. The emergencies within 2000 took place during a period of roughly average water. Put succinctly, there was a drought, but it started after the first summer of the California crisis.

Figure 2 shows the January through July flows on the Columbia since 1980. While 2000 was less than average, it was not a drought in any real sense. The most recent drought before 2001 was the drought of 1992 through 1994. Unlike 2000, the drought of 1992-1994 led to an announcement of service interruptions to the direct service industrial customers of BPA. The drought of 1987 through 1990 was also a far more serious operational problem for Pacific Northwest hydroelectric utilities.

The very straightforward conclusion that comes from the reserve margin chart when combined with the Columbia River flows is that 2000 was both a better year in terms of resources-22.9 percent reserve margin compared with 15.4 percent in June 1994-and Columbia River inflows-92 percent of normal compared to 71 percent in 1994. If these facts explained the emergencies in 2000, how did the lights stay on in 1994? The answer is that the organization of the industry rewarded meeting load in 1994. In California's complex structures, this incentive had been changed in 2000 and 2001.

When faced with this data, proponents of the resource shortage theory usually fall back on a secondary explanation that low plant operations were caused by local environmental rules. In fact, the environmental authorities granted exceptions, changed