Optimal Use and the Value of Water Resources in Electricity Generation

Econometric and dynamic programming analysis is used to derive optimal operating rules for water resources used in electricity generation. The methodology is applied to an actual mixed power system with interconnected thermal and hydro plants. Results obtained are compared with the electricity utility's operating practices. Short-run marginal costs and water values are also derived. The implications of these to efficient pricing of both electricity and water supply are discussed and net effective costs for new generating plants are derived. These costs are important in determining the optimal plant mix.