Colorado River Running Out of Water

By Leonard Hyman & William Tilles - Aug 20, 2025

• Lake Powell risks hitting “dead pool” by year-end, threatening water releases to 40M people and up to ~3,000 MW of hydropower from Glen Canyon/Hoover.
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• Low water imperils hydropower and cooling for thermal/nuclear plants, complicates data-center siting and fracking.
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• As the U.S. grid already faces a big capex build-out, drought drives operating costs higher
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That the Colorado River’s flow has been declining is not new in water circles. Truth is that the states bordering the Colorado divided up the water supply on the basis of a wet year, a century ago, and have been fighting over the diminishing supply for some time. (From a negotiating standpoint this made a lot of sense at the time. Dividing relatively scarce water resources among various political bodies is like slicing up a pie among hungry people and everyone wants a big piece. Except here government officials were able to essentially riff on the old economist’s joke and simply assume a bigger pie. And this policy, based on faulty data, worked until recently. Now reality and droughts have returned.)

Something like 40 million people depend of Lakes Mead and Powell for drinking water. But what made the headlines recently is the announcement that the water in Lake Powell, a main reservoir, could fall to “dead pool” levels by December, thereby preventing the release of water to downstream, and that would stop hydroelectric generation that serves seven western states. These hydroelectric facilities in the Glen Canyon and Hoover Dams can produce over 3000 megawatts which is both relatively cheap and obviously, environmentally benign although both facilities have been producing power below maximum capacity due to water constraints. We’re not used to thinking about water as an intermittent resource but that may be our new reality. So now do we face a water and an electricity shortage simultaneously?

Water shortages are becoming common, resulting from overuse, groundwater pollution, negligent agricultural practices, and changing climate conditions. Water supply constraints could affect the siting of data centers (water for cooling) and prospects for fracking. In addition, hydropower still plays an important role in power generation and in some countries (Brazil, Norway, Canada, and parts of Africa) a dominant role. We have argued that the US electric grid has not spent enough to modernize, let alone keep up with new demand. So a new deficit of generation resources, caused by water shortages, comes at the wrong time. Water storage in the electricity business is like a gigantic battery you can turn on and off. Except in this case, it’s water behind a dam spinning turbines to generate electricity.

Low water levels mean more than hydro generation loss. Generators require cooling water to run huge nuclear and fossil fuel units. French utility EDF had to curtail power generation at nuclear plants due to jellyfish clogging water intakes. (The jellyfish bloom is attributable to warmer water temperatures.) And in August 2022, they had to curtail generation at five nuclear stations due to excessive temperatures in river water. The water industry has, for a long time, been concerned with climate change. There is some irony in the fact that the electric industry, which continues to hasten climate change through its policies and actions, might have to face the consequences of a water shortage. Wait a minute! The electric company’s customers will face the adverse financial consequences via accelerated rates, not the electric company.  And remember that a power short in the southwest will suck in power from elsewhere. It might become everyone’s shortage.

Let’s conclude with the financial consequences of water shortages. First, the power industry is in the early stages of a massive capex boom to accommodate a broad societal move to electrification. This will drive up power prices as new facilities cost far more than those installed decades ago. These are capital costs. Now, with a looming water shortage, utility operating costs are poised to escalate as well as water generation is replaced by much higher cost fossil fuel powered generators. To sum up, watch the southwest for the rest of the year because a water crisis, if the pools reach bottom, could turn into an energy crisis and an affordability crisis.

By Leonard Hyman and William Tilles for Oilprice.com