The shutdown of California’s 644 MW Edward Hyatt hydroelectric power plant because of insufficient water levels at the Oroville Dam reservoir is squeezing an already tight power market in the western United States, according to Moody’s Investors Services.

California hydropower

On Aug. 5, the California Department of Water Resources took the plant offline. This has contributed to higher power prices in the region and is fueling concerns about electricity reliability, Moody’s analysts said in a report.

Almost 88% of the western United States is facing severe to exceptional drought conditions, according to the U.S. Drought Monitor. 

Through the first five months of 2021, hydropower generation in California was only 37% of the prior five-year average for the same period. It also fell to its second-lowest level for the period in 20 years. Reservoir levels also have reached critically low levels, Moody’s said.

California’s power prices have surged about 150% from May to July and are at their highest levels since at least 2016.

Meanwhile, natural gas prices in the West are also on the up. In late July, gas prices soared across the Southwest and California when temperatures climbed well above 100 in Nevada and Arizona as well as the deserts of California, where severe drought conditions amplified the intensity of heat.

In addition to the continuation of heat in the region, natural gas spot prices jumped this week after a pipeline blast on Kinder Morgan Inc.’s El Paso Natural Gas Pipeline (EPNGP). Kinder said Monday that a segment of EPNGP near Coolidge, AZ, experienced a pipeline failure and subsequent fire on Line 2000 early Sunday.

The blast sent spot gas prices in the region screaming higher Monday. El Paso S. Mainline/N. Baja next-day gas shot up $3.210 from Friday’s levels to average $7.425 for Tuesday’s gas day.

The California drought’s impact has been more manageable for hydropower generation owners in the Pacific Northwest, Moody’s analysts said. During the first five months of 2021, hydropower generation in the Pacific Northwest was 83% of the prior five-year average for the same period.

However, the outlook for water doesn’t appear to be much better next year either. The U.S. Bureau of Reclamation on Monday formally declared a water shortage at Lake Mead, at the Nevada/Arizona border. 

As such, an updated agreement that sets limits and decides how water from the Colorado River Basin system gets divvied up between California, Arizona and Nevada has been triggered. The 2019 update was part of a drought contingency plan in 2019. Restrictions come into force when the projected water level goes below trigger elevations.

Under the agreement, Arizona would lose 18% of its annual apportionment, while Nevada is to see cuts of 7%. Apportionments to Mexico, which are required under a 1944 treaty, would be cut by 5%. Larger cuts may be required in 2023 and 2024 if water levels drop.

Water cuts will take effect in 2022.

Lake Mead, the largest reservoir in the United States, is currently at about 35% of full capacity, according to the bureau.

Total water storage in the Colorado River system is at 40% of capacity, down from 49% a year ago. Model outlooks for end-of-month elevations for the lake show the lake posting 29% full at the end of calendar year 2022.