April 9, 2002

PNW Water Institutional Development

Richard Slaughter, Ph.D.Don Reading, Ph.D.Climate Impacts GroupUniversity of Washington

QuickTime™ and aPhoto - JPEG decompressor

are needed to see this picture.

QuickTime™ and aPhoto - JPEG decompressor

are needed to see this picture.

April 9, 2002

The Question

Does it require crisis?

April 9, 2002

Alternative ModelsMiles, et al.

• Dependent variable

- Regime effectiveness

- outcomes: changes in human behavior

• Independent variables

- problem structure (malign)

- institutional (regime) setting

- distribution of power

-quality of leadership

April 9, 2002

Alternative ModelsMiles, et al.

• Dependent variable- Regime effectiveness

- outcomes: changes in human behavior

• Independent variables- problem structure (malign)- institutional (regime) setting- distribution of power

-quality of leadershipMissing: Linkage between policy and outcomes

April 9, 2002

The Question

How quickly and completely do existing institutions translate social costs into private costs?

April 9, 2002

The Question

How quickly and completely do existing institutions translate social costs to private costs?

Hypothesis: the more effective the linkages between social and private costs, the more efficient the institution

April 9, 2002

The QuestionHow quickly and completely do existing

institutions translate social costs to private costs?

Hypothesis: the more effective the linkages between social and private costs, the more efficient the institution

Linkage (transactions costs):

1. Specification of property rights

2. Information

April 9, 2002

Alternative ModelsNorth

• Dependent variable- outcomes: changes in human

behavior• Independent variables

– institutional structure– transactions costs° cost of acquiring knowledge, negotiating agreements ° cost of enforcing agreements

April 9, 2002

Alternative ModelsNorth

• Assumption: Market reflects all human economic interaction, will reflect existing marginal costs as constrained by transactions costs

– Corollary 1: If policy directs a particular outcome (indirectly changing cost relationships), the market will reflect the change, producing unintended and sometimes perverse side-effects.– Corollary 2: The market will, at best, recognize only the

discounted present value of future costs.

April 9, 2002

Institutional Innovation

April 9, 2002

When Do Innovations Occur? Increased demand/Resource constraint

— changes price relationships

New technology

— allows use of a technology previously not feasible; reduces costs

Change in social priorities

— new public policy; changes prices

April 9, 2002

Case Studies Snake River

2000 - 2001 energy crisis

Klamath Basin

April 9, 2002

Klamath River Basin 2001

April 9, 2002

Expected Findings (Klamath)

Appropriation rights not defined in constitution or statues

Tribal rights

ESA and related statutes

Irrigation rights assigned by Bureau - Administrative allocation

Crisis continues …

April 9, 2002

Snake River 1850 - 2002

April 9, 2002

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1918

1921

1924

1927

1930

1933

1936

1939

1942

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

0

1

Fish Flush Irrigated Acres Drought Milner CFS Brownlee CFS Plus 1 SD Minus 1 SD

Snake River Development HistoryUpper Snake: 345 diversions, 41 reaches, 700 water rights, 9 reservoirs

April 9, 2002

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1918

1921

1924

1927

1930

1933

1936

1939

1942

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

0

1

Fish Flush Irrigated Acres Drought Milner CFS Brownlee CFS Plus 1 SD Minus 1 SD

Ground Water Development/Desert

Land Act 1877

Committee of Nine

National Reclamation Act

Jackson Lake 1911 - 16

Milner/Twin Falls Project

American Falls

Carey Act 1894

Snake River Development HistoryUpper Snake: 345 diversions, 41 reaches, 700 water rights, 9 reservoirs

April 9, 2002

April 9, 2002

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1918

1921

1924

1927

1930

1933

1936

1939

1942

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

0

1

Fish Flush Irrigated Acres Drought Milner CFS Brownlee CFS Plus 1 SD Minus 1 SD

Ground Water Development/Desert

Land Act 1877

Committee of Nine

National Reclamation Act

Jackson Lake 1911 - 16

Milner/Twin Falls Project

American Falls

Carey Act 1894

Snake River Development HistoryUpper Snake: 345 diversions, 41 reaches, 700 water rights, 9 reservoirs

April 9, 2002

Snake River Development HistoryUpper Snake: 345 diversions, 41 reaches, 700 water rights, 9 reservoirs

April 9, 2002

California Electricity Market 1990 - 2010

April 9, 2002

In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of The mode of production of material life conditions the general production of material life conditions the general process of social, political and intellectual life. process of social, political and intellectual life.

A CONTRIBUTION TO THE CRITIQUE OF POLITICAL ECONOMY, Karl Marx, 1859

April 9, 2002

On-Peak

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

$650

$700

$750

$800

Jun-97 Jun-98 Jun-99 Jun-00 Jun-01

Mid-C Prices

$2,125

$3,322

Fill-up $25

Fill-up $50,000

Fill-up $8,500

April 9, 2002

FERC 888, 889 - 1996

Open Access Transmission

Separate Transmission/Generation

Merchant Plants

WHOLESALE DEREGULATIONWHOLESALE DEREGULATION

April 9, 2002

California Retail Deregulation

Separate Generation and Distribution (Retail) – Market, not Utility Commission, Determines Supply

Freeze Retail Rates – No Link Between Supply & Demand

Utilities Must Buy in Pool – No Bilateral Contracts

Uncertainty – No Generation Built Despite Demand Increases

April 9, 2002

‘‘Causes’Causes’ of Price Spikes

Supply & Demand Imbalance

Drought – Northwest/California Exchange

Natural Gas Prices

Market Manipulation

April 9, 2002

April 9, 2002

WSCC Power Area

70

90

110

130

150

170

190

210

230

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

YEAR

MW

500

600

700

800

900

1000

1100

1200

1300

1400

GW

H

WSCC Generation WSCC Peak WSCC Energy

April 9, 2002

ImpactsPrice Spikes

Demand Side (Conservation) Purchase Demand Elasticity

Supply Side Planned Generation (Natural Gas – CC’s, CT’s) Dam Operations to Maximize Power Output Not for Fish ‘Temporary’ Generation Contracts

FERC Rules Change July 2001 Price Caps, Generation Sale Requirement California Eliminated Perverse Rules

April 9, 2002

California-Mexico Power Area

20

30

40

50

60

70

80

90

100

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

YEAR

MW

150

200

250

300

350

400

450

500

550

600

650

GW

H

CA-MX Generation CA-MX Peak CA-MX Energy

April 9, 2002

WSCC Power Area

70

90

110

130

150

170

190

210

230

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

YEAR

MW

500

600

700

800

900

1000

1100

1200

1300

1400

GW

H

WSCC Generation WSCC Peak WSCC Energy

April 9, 2002

WSCC Generation 2001

41%

38%

6%7% 5% 3%

Hydro Steam

Nuclear Combustion Turbine

Combined Cycle Other

April 9, 2002

WSCC Generation Additions 2001-2010

Hydro

Combustion Turbine

Combined Cycle

Other

Nuclear

Steam

(10,000) - 10,000 20,000 30,000 40,000 50,000 60,000 70,000

MW

April 9, 2002

WSCC Generation 2010

30%

26%4%8%

29%

3%

Hydro Steam

Nuclear Combustion Turbine

Combined Cycle Other

April 9, 2002

WSCC 2001-2010 Generation Additions

2% 10%10%

78%

Utility Under Construction

Independent Power Producter Under Construction

Utility NOT Construction

Independent Producer NOT under Construction

April 9, 2002

MARKET ADJUSTMENTS THROUGH MARKET ADJUSTMENTS THROUGH PRICEPRICE AND AND INSTITUTIONAL DECISIONSINSTITUTIONAL DECISIONS

April 9, 2002

On-Peak

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

$650

$700

$750

$800

Jun-97 Jun-98 Jun-99 Jun-00 Jun-01

Mid-C Prices

$2,125

$3,322

Fill-up $25

Fill-up $50,000

Fill-up $8,500