Risks, Challenges, Tradeoffs, and Opportunities in Dynamic, Adaptive Water Supply Systems

The rising costs and regulatory burdens associated with new water supply infrastructure are making it increasingly difficult to meet growing water demands through the development of new supply capacity. Instead, adaptive techniques such as temporary conservation and water transfers are playing a larger role in the water supply planning. While adaptive techniques have many advantages over infrastructure-centric approaches, they also present municipal water utilities with a number of challenges. This dissertation aims to formulate problems that illustrate the tradeoffs between multiple management objectives and help utilities meet performance criteria through the use of novel tools and methods. While this work focuses mostly on a group of interconnected water utilities in the ‘Research Triangle’ North Carolina, the results are generalizable to water supply problems across many regional scenarios. Adaptive techniques like conservation and the purchase of water transfers introduce substantial and unpredictable reductions in revenue (conservation) and cost increases (transfers). Municipal water provision is extremely capital-intensive with large, fixed costs driven by debt service payments. Increased levels of financial risk may affect the ability of a utility to meet debt service payments, reducing their credit rating and increasing the cost of future borrowing. Chapter 2 explores the role of financial mitigation tools in drought management strategies employing both conservation and water transfer purchases. Using multiple problem formulations, we show how the tradeoffs between financial risk and several other management objectives are affected by self-insurance contingency funds and a novel type of third-party index insurance. Pricing incentives (i.e. drought surcharges) can also serve as a financial mitigation tool while simultaneously promoting more efficient conservation. Chapter 3 examines how the additional revenue raised through surcharges may reduce utility incentives to purchase water transfers, potentially harming overall consumer welfare. In Chapter 4, the short-term management strategies developed in Chapters 2 and 3 are integrated into a long-term infrastructure sequencing model. Important interactions between management and planning decisions are incorporated using an adaptive, risk-based framework. This dissertation demonstrates how the added complexity involved with developing adaptive decision-making tools will be crucial to water resource problems in the 21st century.Doctor of Philosoph