Power Grab

California’s record drought may be a boon to power companies

Back Bloomberg Sep 9, 2015 By Jonathan N. Crawford & Kelly Gilblom

The dry spell that began in 2012 is depleting easy-to-reach surface water, forcing growers in the country’s largest fruit- and vegetable-producing state to almost double reliance on underground supplies. Pumping water from wells as deep as 3,000 feet is energy intensive, boosting electricity demand by hundreds of millions of dollars.

“We are using about two-and-a-half times more power than we would in a normal year,” Kole Upton, co-owner of the 3,000- acre Lost Wagon Wheel Ranch northwest of Fresno, said in a phone call Sept. 1. “It’s been a huge hit.”

California is in the fourth year of an unprecedented drought, with rivers and reservoirs running dry. The energy needed to help grow crops, including about 2 billion pounds of almonds annually, may reach a record this year, according to Edison International. Utilities are responding by building new transmission lines and substations to handle the additional electricity.

Farmers in the Central Valley, the state’s main agricultural region, may tap groundwater for more than 60 percent of their needs in 2015, up from one-third in a normal year, according to Josue Medellin-Azuara, a senior researcher at the University of California at Davis Center for Watershed Sciences. At that rate, the increased usage would boost power bills for pumping by 77 percent, or $600 million, over a year with average precipitation, Medellin-Azuara said. California farmers may pump 2 trillion gallons more water in 2015 than in a normal year, he continued. That’s enough to fill 3.1 million Olympic swimming pools.

Central Valley farmers are bucking a statewide trend. Electricity use in California through late August fell to the lowest since 2003, according to data from an Aug. 26 Edison Electric Institute report. Regulations that promote energy efficiency are behind the decline, according to Frank Loge, an engineering professor at the University of California at Davis and director of the Center for Water-Energy Efficiency.

The drought conditions have forced Upton’s farm in Chowchilla, 40 miles (64 kilometers) northwest of Fresno, to use well water to irrigate corn, wheat, pistachios and almonds. Power costs for pumping have soared to about $350,000 a year, accounting for up to 30 percent of the farm’s operational expenses, up from about 15 percent in a year with normal conditions, he said.

About half of California, including most of the Central Valley, is experiencing exceptional drought conditions, the most severe category reported, according to a weekly analysis issued Thursday by the National Drought Mitigation Center in Lincoln, Nebraska.

Energy needed to pump groundwater has increased by as much as 90 megawatt-hours, enough to power about 90,000 homes, said R.O. Nichols, senior vice president of regulatory affairs for Southern California Edison Co., a subsidiary of Edison International.

“When there are a string of dry years, each successive year we will see an uptick in energy requirements,” said Nichols. Power demand for water pumping and transmission this year “will probably be above historic highs,” he said.

The utility built the $190 million San Joaquin Cross Valley Loop transmission project in November to meet farmers’ rising demand. Pacific Gas & Electric Co. has proposed a 230-kilovolt transmission line through the Central Valley where the amount of power needed by growers surged about 40 percent over the average levels for 2008 to 2011.

Those are bright spots for the power producers who have watched demand slide over the last decade as homes and businesses become more energy efficient.

“The way utilities make money is through investment,” said Paul Patterson, a New York-based energy analyst at Glenrock Associates LLC. “If they have to build a new transmission line or substation to facilitate higher demand within a specific region, the more they earn.”

Spot wholesale power for the California market’s SP15 hub, serving Los Angeles and San Diego, gained $1.02, or 4.4 percent, to average $23.97 a megawatt-hour during the hour ended at noon local time on Thursday from the same time a day earlier, grid data compiled by Bloomberg showed.