Weather, war, drought – there are numerous such events that could affect the supply and demand for energy in the Southwestern U.S.

Central Arizona Project (CAP) delivers Colorado River water to central and southern Arizona. Water is heavy, and so moving it across the state requires a lot of energy. CAP has developed a diversified power portfolio to add the flexibility that would allow us to continue delivering water at a reasonable price, even in the event of any of these uncertain occurrences. The goal is to secure adequate power for CAP to fulfill its mission to deliver water in a stable, cost-effective manner.

What are some of the primary issues monitored by CAP’s power programs staff?

Here are a few.

Natural gas supply

As a major fuel source for power generation, the natural gas supply can have a dramatic impact on CAP energy costs. Wholesale power prices tend to mirror those of natural gas, so when a disruption to the availability of gas occurs, it often has the effect of increasing power prices. The opposite is also true: an abundant supply of gas often leads to low-cost power.

Global events

There are many global events that can impact commodities, including oil and natural gas, which in turn can indirectly impact CAP.

Some examples:

• War. Russia’s 2022 invasion of Ukraine increased demand for non-Russian natural gas, as Western Europe attempted to move away from the traditional Russian supply. In turn, the U.S. has been supplying more natural gas into Europe, contributing to elevated prices domestically.
  
  
• Extreme weather events. Heat waves cause increased demand for electricity here in the Southwest, primarily because air conditioning units run longer to support indoor comfort. Record high temperatures have further driven up energy demand and prices. For example, in early October 2024, the increased demand and temperatures resulted in Palo Verde on-peak day-ahead prices jumping nearly 40-percent from the prior seven-day average.
  
  From the 2021 Texas power crisis, to rolling blackouts in California, weather constantly impacts power prices. How do these out-of-state issues impact CAP? CAP’s power programs team adjusts its pumping strategy based on market conditions throughout the year, reducing pumping during periods of elevated pricing, mainly during the summer months.
  
  Conversely, we increase pumping when demand, and pricing, is particularly low during the spring and fall seasons.
  
  In general, CAP witnesses a spike in prices during heatwaves in densely populated southern California that skyrocket demand for power.
  
  Drought conditions also can reduce the availability of hydroelectric generation, particularly in the Southwestern U.S., potentially increasing reliance on other power sources.
  
  
• Renewable energy growth. The majority of new generation resources being connected to the high-voltage grid are renewable: solar, wind and batteries. A greater supply of available energy can help to mitigate extreme price spikes during events like heat waves, or power plants unexpectedly going offline.

Technology expansion

“Big tech” companies are bringing their operations to the Valley, and with that, the demand for energy and the associated infrastructure is increasing.  Local electric utilities are projecting to see their customer load grow significantly during the next 10 years.

Looking ahead

Although periods of high supply-and-demand constraints could lead to temporary price spikes, CAP has developed a diversified power portfolio, which includes renewable supplies and a combination of long-term and market purchases, in order to support deliveries in a cost-effective manner. 

CAP will continue to use flexibility and coordination to provide the best rates for CAP water users. This includes continuing to develop this power portfolio, our Power and Water Operations staff collaborating to use flexibility in our power acquisition strategy to modify the amount of energy required annually to match our pumping need, and moving water when energy costs are cheaper and regional power demand is lower, generally during the winter/spring months and evening hours.

It’s a strategy used to buffer against unforeseen circumstances whether they occur within the Valley or on a global scale.