Contrasting risks of high and low growth: inter-utility regional water supply planning under future demand uncertainty

In developed urban areas, supply expansion options for a water utility are often limited by financial and geographic constraints. As a result, water utilities increasingly elect to partner with adjacent utilities to expand the range of development opportunities. Partnerships can offer lower costs via economies of scale, and reduce environmental impact, through shared ownership or use of a reservoir, treatment plant, or other facility. However, cooperation between utility partners to operate or finance a project may also expose each to counterparty risk if partners are unable to satisfy terms of an agreement, which can be a substantial deterrent to such arrangements. Unexpected shifts in demand growth or water availability assumptions, upon which long-term agreements are often designed, can introduce both supply and financial risk to partners. Risks can also be compounded by asymmetric growth (or reduction) in demand across partners or the structure of the agreement itself. This work explores the viability of different agreement structures for finance and operation of a shared water treatment plant in the Research Triangle region of North Carolina, USA, where four regional utilities varying in size, growth expectations, and individual expansion options are currently assessing joint development opportunities. Contrasting water supply and financial performance across partner utilities (with different independent outlooks and planning capabilities) under uncertain future demand and hydrologic conditions, especially when demand is either significantly greater or lower than expected, demonstrates the need for robust planning that can satisfy both individual and regional utility objectives under a broad range of conditions. These results can inform regional decision-makers regarding the supply and financial risks propagated by water supply partnerships due to demand growth uncertainty, and provide general guidance for the development of robust regional strategies for future water supply management in other contexts.