Impact of Inter‐Utility Agreements on Cooperative Regional Water Infrastructure Investment and Management Pathways

Abstract

Urban water utilities, facing rising demands and limited supply expansion options, increasingly partner with neighboring utilities to develop and operate shared infrastructure. Inter‐utility agreements can reduce costs via economies of scale and help limit environmental impacts, as substitutes for independent investments in large capital projects. However, unexpected shifts in demand growth or water availability, deviating from projections underpinning cooperative agreements, can introduce both supply and financial risk to utility partners. Risks may also be compounded by asymmetric growth in demand across partners or inflexibility of the agreement structure itself to adapt to changing conditions of supply and demand. This work explores the viability of both fixed and adjustable capacity inter‐utility cooperative agreements to mitigate regional water supply and financial risk for utilities that vary in size, growth expectations, and independent infrastructure expansion options. Agreements formalized for a shared regional water treatment plant are found to significantly improve regional supply reliability and financial outcomes, despite highly correlated weather and climate across neighboring supply systems (e.g., concurrent drought events). Regional improvements in performance, however, mask tradeoffs among individual agreement partners. Adjustable treatment capacity allocations add flexibility to inter‐utility agreements but can compound financial risk to each utility as a function of the decision‐making of the other partners. Often the sensitivity to partners' decision‐making under an adjustable agreement degrades financial performance, relative to agreements with fixed capacities allocated to each partner. Our results demonstrate the significant benefits cooperative agreements offer, providing a template to aid decision‐makers in the development of water supply partnerships.

Evaluating Implementation Uncertainties and Defining Safe Operating Spaces for Deeply Uncertain Cooperative Multi‐City Water Supply Investment Pathways

“…The Borg MOEA also employs randomized restarts and ϵ-dominance archiving to prevent search stagnation and avoid converging to local optima. The Borg MOEA has an established record of successfully addressing challenging water policy pathways management and investment pathway applications (Bell et al, 2022;Gorelick et al, 2022;Trindade et al, 2019Trindade et al, , 2020. More broadly, the algorithm has been carefully diagnosed on its ability to meet or exceed the performance of other state-of-the-art MOEAs across a wide range of mathematically challenging water resources applications (Gupta et al, 2020;Reed et al, 2013).…”

“…Despite these benefits, regionalization can expose utilities to financial risks driven by the intermittent use of short‐term water transfer purchases (Zeff & Characklis, 2013). Furthermore, cooperating utilities within a regional water system have different levels of perceived risk (Bell et al., 2022), which may lead to potential failure to cooperate (Gorelick et al., 2022; Hansen et al., 2020).…”

“…Implementation uncertainty raises the question of how much variation in decision variables can be tolerated for policy actions to retain acceptable performance (Beyer & Sendhoff, 2007). Implementation uncertainty can be a contributing factor to counterparty risk (Gorelick et al., 2022), which is the risk that a cooperating utility faces due to uncertainty in the actions of cooperating partners with whom they share investment and operational ties (Feiock, 2013; Gold et al., 2022; Hansen et al., 2020). To date, most studies do not account for implementation uncertainty in water policy pathways, tacitly assuming the perfect deployment of all adaptive action rule systems.…”

Resilient water infrastructure partnerships in institutionally complex systems face challenging supply and financial risk tradeoffs

“…Moreover, water supply systems in many regions are increasingly interconnected, which can lead to complex emergent behaviors within the coupled network because each water providers' future supply reliability depends not only on its own actions and capabilities, but also on the actions and capabilities of other water providers in the network [30][31][32] . Collaboration ampli es this challenge because it requires understanding not only the total aggregate bene ts and costs of an infrastructure investment, but also the uncertain distribution of these bene ts and costs to individual partners over time [33][34][35] .…”

Designing Water Utility Cooperative Agreements: Lessons Learned in North Carolina

“…In particular, four of the region's utilities, serving hundreds of thousands of residents, plan to jointly construct, finance, and operate a shared water treatment plant. The following sections explore our findings on cooperative infrastructure financing for water utilities, work initially published in Journal AWWA in 2019 (Gorelick et al 2019) and followed up by a study published in Water Resources Research (Gorelick et al 2022), which offer lessons learned and reveal sometimes surprising outcomes arising from joint long-term development.…”