Colorado River Hydropower Output Plummets as Data Center Demand Surges, Setting Up Cost Crisis

The Aspinall Unit’s 30% Output Drop and the Ripple Effects Across the Grid

The Wayne N. Aspinall Unit—Colorado’s only piece of the sprawling federal Colorado River Storage Project—is on track to generate nearly 30% less electricity this year than its average dating back to 1978, according to the Bureau of Reclamation. The unit’s three dams on the Gunnison River feed Blue Mesa Reservoir, the state’s largest body of water, which is expected to end the year at just 17% of its live storage capacity.

The shortfall is not an isolated problem. The Aspinall Unit’s output is pooled with other major dams such as Glen Canyon and Flaming Gorge. As river flows shrink under climate-driven drought, every drop lost means less pressure through the turbines, requiring more water to generate the same amount of power. At Glen Canyon Dam, for example, it now takes roughly 2.9 acre‑feet of water to produce one megawatt‑hour, compared with 1.9 acre‑feet at full pool. Reclamation projects that without further action, Lake Powell could fall below the minimum power‑pool elevation and stop generating altogether.

At the same time, the West is bracing for an electricity demand surge from data centers built to power artificial intelligence. On June 18, the Federal Energy Regulatory Commission (FERC) issued an order designed to accelerate the connection of large energy users to the grid. Xcel Energy, Colorado’s largest utility, expects big industrial customers—mostly data centers—to drive roughly two‑thirds of its new demand. Nationally, data centers already consumed an estimated 4.7% of U.S. electricity; that figure could reach nearly 12% by 2030.

The squeeze is already showing up in dollars. The Western Area Power Administration (WAPA), which markets the federal hydro output to municipal utilities, cooperatives, tribes and irrigation districts at cost‑based rates, has been forced to buy expensive replacement power. From fiscal 2023 through 2025, WAPA paid more per megawatt‑hour for that replacement power than it charged customers. Rate increases for Colorado’s preference customers—some of whom may face jumps exceeding 50% by the end of the decade—are now a pressing concern.

Why Blue Mesa’s Decline Pits Data Centers Against Households

The Hydropower Math: Less Water, Costlier Power

Blue Mesa’s current elevation of about 7,446 feet has already cut the dam’s generating capacity by roughly 18% below its design level. Reclamation’s power manager for the Upper Colorado Basin confirms that electricity generation stops entirely at 7,393 feet. As the reservoir drops, WAPA must cover the shortfall with higher‑priced grid purchases. The agency spent $18.9 million in 2024 and $6.5 million in 2025 on replacement power tied to a bypass protocol that protects native fish downstream—costs that ultimately ripple into the rates paid by local utilities and their customers.

Data Centers Enter a Stretched Grid

FERC’s June 18 order explicitly seeks to “transform the way large energy users access the grid.” But it arrives at a moment when the supply side—especially in Colorado—is visibly decaying. Xcel Energy already expects data‑center demand to dominate its new load growth. While that could bring investment, it also risks a politically charged dynamic: If rising power costs from shrinking hydro supply are borne disproportionately by households and small businesses, the narrative of expensive digital infrastructure pushing out established consumers could intensify. A Colorado bill that would have imposed accountability requirements on data centers was killed before the legislature adjourned in May, but the issue is unlikely to disappear.

Why La Plata Electric Association Is Better Positioned Than Platte River

The impact of WAPA’s rising rates and reduced deliveries is not uniform. Platte River Power Authority, which serves Fort Collins, Loveland, Longmont and Estes Park and holds a direct WAPA allocation, recently cited decreased federal deliveries and escalating WAPA rates as adverse financial factors in its budget. The utility has not yet publicly specified the customer impact. In contrast, La Plata Electric Association, a rural cooperative in southwest Colorado, gets only about 3% of its supply from a WAPA‑linked allocation. CEO Chris Hansen says that even if that small slice doubled in cost, the effect on total power purchase costs would be minimal. For other cooperatives with heavier WAPA reliance, the exposure is far greater.

The Compact Call Wildcard

A deeper risk sits in the legal framework of the Colorado River Compact. A “compact call” from Lower Basin states demanding more water from Colorado, New Mexico, Utah and Wyoming has never occurred, but if it did, it could increase pressure on Western Slope water and power as Front Range cities lease senior water rights across the Continental Divide. University of Wyoming law professor Jason Robison points to this as a unresolved long‑term threat. While no one predicts an imminent call, the mere possibility adds a layer of regulatory uncertainty that could influence project financing and utility planning.

Navigating the New Power Reality for Colorado Utilities and Consumers

• Utilities with heavy WAPA exposure, like Platte River Power Authority, should quantify and publicly communicate how reduced federal deliveries and rising WAPA charges flow through to customer bills. The utility’s own budget has already flagged these as adverse factors; doing so now would build regulatory and public support ahead of rate case filings.
• Data center developers siting facilities in Colorado must price electricity cost escalation into their site‑selection models. With Xcel projecting that large industrial loads will drive two‑thirds of new demand, and with FERC accelerating interconnection, the cost of power could become a decisive differentiator between regions.
• State policymakers should prepare for renewed debates on data‑center accountability legislation. The killed Senate Bill 26‑102 signaled concern over who pays for grid upgrades; as household bills rise, similar bills will likely return.
• Preference customers should engage early in WAPA’s rate‑setting process. The agency’s replacement‑power spending and bypass costs (over $25 million in two years) signal that future rate adjustments are likely; proactive participation can shape how costs are allocated.
• Reclamation’s Glen Canyon Dam infrastructure study, with initial findings due in 2027, is a timeline to watch. Any physical fix could alter the long‑term reliability of the entire Colorado River Storage Project, making it a critical milestone for resource planners across the West.