"This study provides a new type of guidance to water managers in the real world"
A growing population, urbanization and economic growth are increasingly putting more and more pressure on urban water supply systems. These facilities are also threatened by the effects of climate change, such as water quality deterioration, longer periods of droughts or more frequent flooding. Are inter-utility agreements the answer to these rising challenges?
Urban water utilities in the United States, but also anywhere in the world that faces similar challenges in supply and demand and in affordably financing infrastructure improvements, are partnering with neighbouring utilities to help mitigate their risks. This cooperation between water utilities was the topic of research chosen by a group of academics from the North Carolina Research Triangle to identify the viability of both fixed and adjustable capacity agreements. David Gorelick, Postdoctoral Research Associate, Center on Financial Risk in Environmental Systems, Institute for the Environment and Department of Environmental Sciences and Engineering, Gillings School of Global Public Health, University of North Carolina at Chapel Hill, was joined by Gregory Characklis, W.R. Kenan Jr. Distinguished Professor, Center on Financial Risk in Environmental Systems, Institute for the Environment and Department of Environmental Sciences and Engineering, Gillings School of Global Public Health, University of North Carolina at Chapel Hill, David Gold, Doctoral Candidate, Department of Civil and Environmental Engineering, Cornell University and Patrick Reed, Joseph C. Ford Professor of Engineering, Department of Civil and Environmental Engineering, Cornell University to carry out this study.
The research used supercomputer allocations on the Stampede2 system of the Texas Advanced Computing Center to develop a computational model along with regional utilities in North Carolina to simulate the utilities’ risk management and long-term infrastructure planning decisions out until 2060. We had the opportunity to speak with the authors to find out about the conclusions of the study and how it could help water utilities looking to form new inter-utility agreements to face rising demands and limited supply expansion options.
Where did the idea of studying water utilities’ cooperation come from?
Our interests in utility cooperation came from two perspectives: conceptual and practical. Academically, we wanted to explore challenges faced by water utilities beyond the service boundaries of a single system. Though agreements between utilities or municipalities for managing water resources are widespread, there are very few existing research efforts to assess their performance in terms of both water supply and financial outcomes. Because every contract and investment a utility makes is reflected in the water bills that we all pay, it’s vital to understand what can make, or break, an effective agreement.
In a practical sense, we became interested in studying water utility cooperation because it is happening in our own backyard
In a practical sense, we became interested in studying water utility cooperation because it is happening in our own backyard. In the North Carolina Research Triangle, where more than 2 million people share the water resources of Raleigh, Durham, Chapel Hill, and other growing communities, utilities are cooperating to develop a regional water treatment plant. How it will be financed and operated, however, remains an open question. From our standpoint, it was a great opportunity to offer timely solutions for a real-world problem.
Since every investment a utility makes is reflected in the water bills we pay, it’s vital to understand what can make, or break, an agreement
What entities collaborated on this research project?
While cooperation was beneficial for the Research Triangle overall, partnering utilities must take care as to how cooperation is structured
This project was a partnership between the Center on Financial Risk in Environmental Systems (CoFiRES) at the University of North Carolina at Chapel Hill (UNC) and researchers of the Department of Civil and Environmental Engineering at Cornell University. Under the direction of Drs. Gregory Characklis (UNC) and Patrick Reed (Cornell), our work also involved engaging with water managers and planning staff at utilities across our study area so that we could receive essential feedback and improve the accuracy of our modelling efforts. This work would not have been possible without input and guidance from staff at the Orange Water and Sewer Authority (OWASA, serving Chapel Hill), City of Durham, City of Raleigh, Town of Cary, Town of Pittsboro, and Chatham County Public Utilities.
For this study, you used TACC’s Stampede2, the supercomputer of the Extreme Science and Engineering Discovery Environment (XSEDE). What role did it play in the study?
The supercomputing resources from XSEDE are what make this work possible. With TACC, we are able to explore millions of potential future scenarios to understand which uncertainties might leave the Research Triangle water supply system vulnerable. That includes possible changes in climate, water demand growth, utility decision-making, and other factors. Doing so allows us to discover robust water management strategies that adapt to changing future conditions. Using XSEDE’s capabilities, we can evaluate millions of future scenarios in a matter of hours. To evaluate these scenarios on a modern laptop would have taken us more than a decade.
The study found the cooperation between utilities is good; however, the type and manner of cooperation is very important for water utilities. Can you tell us a bit more?
Our study focused on the different types of cooperative agreement that utilities can enact, while also describing the financial mechanisms that enable them. In the case of the Research Triangle, this was a contract that coordinated the ways in which partner utilities would pay for and allocate capacity in a new regional water treatment plant. Under a more flexible agreement structure, which allows partners to renegotiate their treatment capacity and financial shares over time, cooperating utilities benefit from an ability to dynamically respond to changing environmental and financial conditions.
Infrastructure investments on the scale we’re studying cost hundreds of millions and are expected to provide reliable water for decades
However, when agreements are updated over time, a utility can also be exposed to the risks and uncertainties of their partners, including the possibility that a neighbouring utility cannot meet its financial obligations. This result was in contrast to outcomes under fixed agreements that do not update over time, where utilities are limited to the mitigation of their own risks and more insulated from the concerns of other partners. So, while cooperation was beneficial for the Research Triangle overall, partnering utilities must take care as to how cooperation is structured to avoid taking on unnecessary risks.
Water systems are facing increasing challenges including changing climate and population growth. How did this study take these factors into consideration?
Infrastructure investments on the scale we’re studying cost hundreds of millions, or even billions, of dollars and are expected to provide reliable water for decades. But predicting what the future will look like decades from now is incredibly difficult. So, rather than trying to guess what the future will look like decades from now, we shift the question. Instead of developing a water management strategy meant to work perfectly in our best guess of the future, we search for a strategy that will perform well across a broad set of future conditions. Our study evaluated each potential management strategy across millions of possible future conditions incorporating different climate and weather projections, water demand growth trends, and more. By including these uncertainties in our evaluation, we feel confident that this study provides a new type of guidance to water managers in the real world.
For the research, you developed a computational model together with regional utilities in North Carolina. Will you be looking to export this study to other parts of the U.S.? What about the rest of the world?
Our goal was that the results of this work would be applicable far beyond North Carolina. Inter-local agreements between municipalities, of which inter-utility agreements are a subset, exist in many places across the U.S. and the world. Though every region and water supply system is different, the modelling framework we developed can serve as a general template for effective risk assessment of cooperation in other contexts.
Though every region and water supply system is different, the modelling framework we developed can serve as a general template
We continually work to communicate our results directly with water managers and utility finance personnel. It is vital to share these insights with practitioners and industry decision-makers, as more utilities begin to consider inter-utility agreements. Anyone who drinks municipal water could benefit from this work – we hope that it helps identify best management practices in regional utility cooperation, we found economies of scale that will save utilities money and slow, or even halt, increases in consumer water bills.
What are some of the risks you found of inter-utility agreements?
There are two sides to this: risks that may imperil the success of an agreement, and risks that an agreement may exacerbate.
Anyone who drinks municipal water could benefit from this work – it helps identify best management practices in regional utility cooperation
Because inter-utility agreements are often equivalent to long-term contracts to build and/or operate infrastructure that lasts decades, they are subject to numerous environmental and social uncertainties. If water demand and the consequent water sales, the primary revenue source for a utility, does not grow as projected over that time period, an agreement could become a financial risk as a utility earns insufficient revenue to pay off bonds used to finance utility infrastructure. That financial risk is often passed to customers, in the form of higher water bills. Climate change, drought, or weather volatility can also threaten the reliability of an agreement; if water is not available to be treated or transported to customers, or if future water availability is more difficult to forecast, the risk of water supply failure rises. This is especially true for neighbouring utilities that share the same climatic and weather conditions.
On the other hand, an agreement itself may have consequences. Utilities accustomed to independent planning and operation can become exposed to risks of non-performance by their agreement partners. For instance, if one utility suffers a financial crisis and cannot honour its end of an agreement to provide water during drought, other partners may be impacted and forced to compensate for the reduced revenues and/or increased cost. In extreme cases, this could lead to legal concerns as well.