Public Power Credit Unaffected by Glen Canyon Dam Drought Measures: Fitch

May 14, 2022

by Paul Ciampoli
APPA News Director
May 14, 2022

Against the backdrop of recent urgent drought response actions at Lake Powell, which are intended to preserve water levels and power generation at the Glen Canyon Dam, the credit effect of generation shortages is limited because the dam constitutes only one of multiple generation sources for public power utilities rated by Fitch Ratings, the rating agency said on May.

Fitch noted that the U.S. Bureau of Reclamation (BOR) recently announced urgent drought response actions at Lake Powell, which are designed to preserve water levels and power generation at the Glen Canyon Dam, the second-largest hydroelectric power source in the Southwest.

“The announced actions will preserve minimum levels of power supply from this low-cost, carbon-free hydroelectric resource for regional public power utilities in the short term. Still, consensus is needed among the entities that rely on Lake Powell for water and power to address declining hydrology in the Colorado River Basin if power generation is to be sustained longer term,” said Fitch.

Reduced hydroelectric output, as a result of the Colorado River Basin drought, is driving replacement power supply of purchasing utilities higher, but the increases are manageable, the rating agency said.

The BOR increased project energy and capacity rates charged to purchasing utilities by 8% and reduced available allocations in December 2021, given the region’s increasingly severe drought conditions.

The BOR indicated it would no longer purchase power in order to firm deliveries to purchasing utilities, given increasing market energy prices in the western U.S., Fitch said.

Utilities rated by Fitch “are absorbing the incremental cost caused by reduced supply in 2022 by replacing the lower generation with additional purchased power costs, increased output from other owned generation, or reduced off-system (optional, non-customer) sales. To the extent the project’s power supply remains curtailed, the replacement costs in relation to overall power supply costs for Fitch-rated public power issuers are expected to be recovered through rate adjustments.”

The Colorado River Storage Project (CRSP), which includes the 1,320-megawattt Glen Canyon Dam power plant, provides cost-based energy supply at typically below market prices to 130 public entity customers: 53 native American tribes, 60 municipalities, cooperatives and irrigation districts, and 17 other entit

Four Fitch-rated utilities receive between 5% and 18% of their total power supply from the project: Colorado Springs, Colorado; Platte River Power Authority, Colorado; Tri-State Generation and Transmission Association, Inc., Colorado; and the Utah Municipal Power Agency, Utah. Two additional rated systems, Fort Collins, Colorado and Provo, Utah, purchase power from these utilities.

“The Glen Canyon Dam constitutes only one of multiple generation sources for the Fitch-rated utilities, limiting the credit effect of generation shortages, even in the event of full cessation of power from the facility,” Fitch said.

But the rating agency said that the reduction of low-cost power supply from Glen Canyon “is just one example of the sector’s broader operating cost pressures. “Additionally, lower generation from Glen Canyon reduces carbon-free electricity as the sector is pursuing cleaner, non-emitting electric sources.”

Glen Canyon Dam, Lake Powell, and the Glen Canyon Dam power plant together form the largest project of the CRSP and are collectively owned and managed by the BOR. The project controls water releases from the Upper Colorado River Basin to the Lower Basin and generates hydroelectric power, accounting for approximately 75% of CRSP’s generating capacity.

Fitch noted that the entire Colorado River Basin is experiencing progressively worse drought conditions since 2000.

The BOR in early May announced drought response actions that it said would help prop up Lake Powell by nearly 1 million acre-feet of water over the next 12 months (May 2022 through April 2023).

On May 3, Lake Powell’s water surface elevation was at 3,522 feet, its lowest level since originally being filled in the 1960s.

A critical elevation at Lake Powell is 3,490 feet, the lowest point at which Glen Canyon Dam can generate hydropower. “This elevation introduces new uncertainties for reservoir operations and water deliveries because the facility has never operated under such conditions for an extended period. These two actions equate to approximately 16 feet of elevation increase,” BOR said.

BOR invoked its authority to change annual operations at Glen Canyon Dam for the first time. The measure protects hydropower generation and the water supply for the city of Page, Arizona, and the LeChee Chapter of the Navajo Nation, it said.