Evaluating the Impact of Alternative Hydro-Climate Scenarios on Transfer Agreements: Practical Improvement for Generating Synthetic Streamflows

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[1] As developing new supply capacity has become increasingly expensive and difficult to permit (i.e., regulatory approval), utilities have become more reliant on temporary demand management programs, such as outdoor water use restrictions, for ensuring reliability during drought. However, a significant fraction of water utility income is often derived from the volumetric sale of water, and such restrictions can lead to substantial revenue losses. Given that many utilities set prices at levels commensurate with recovering costs, these revenue losses can leave them financially vulnerable to budgetary shortfalls. This work explores approaches for mitigating drought-related revenue losses through the use of thirdparty financial insurance contracts based on streamflow indices. Two different types of contracts are developed, and their efficacy is compared against two more traditional forms of financial hedging used by water utilities: Drought surcharges and contingency funds (i.e., self-insurance). Strategies involving each of these approaches, as well as their use in combination, are applied under conditions facing the water utility serving Durham, North Carolina. A multireservoir model provides information on the scale and timing of droughts, and the financial effects of these events are simulated using detailed data derived from utility billing records. Results suggest that third-party index insurance contracts, either independently or in combination with more traditional hedging tools, can provide an effective means of reducing a utility's financial vulnerability to drought.

Section: Methodssupporting

confidence: 52%

Managing water utility financial risks through third‐party index insurance contracts

Zeff

Characklis

2013

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“…Here we synthetically generate correlated monthly streamflows on the five tributaries,

q_{t}^{D a}, q_{t}^{T h a o}, q_{t}^{C h a y}, q_{t}^{L o}

, and

q_{t}^{G a m}

using the method of Kirsch et al . []. This method uses Cholesky decomposition to preserve autocorrelation, and a simultaneous resampling of historical flows at each site to preserve spatial correlation.…”

Section: Red River Contextmentioning

confidence: 99%

Rival framings: A framework for discovering how problem formulation uncertainties shape risk management trade‐offs in water resources systems

Quinn

Reed

Giuliani

et al. 2017

117

103

Managing water resources systems requires coordinated operation of system infrastructure to mitigate the impacts of hydrologic extremes while balancing conflicting multisectoral demands. Traditionally, recommended management strategies are derived by optimizing system operations under a single problem framing that is assumed to accurately represent the system objectives, tacitly ignoring the myriad of effects that could arise from simplifications and mathematical assumptions made when formulating the problem. This study illustrates the benefits of a rival framings framework in which analysts instead interrogate multiple competing hypotheses of how complex water management problems should be formulated. Analyzing rival framings helps discover unintended consequences resulting from inherent biases of alternative problem formulations. We illustrate this on the monsoonal Red River basin in Vietnam by optimizing operations of the system's four largest reservoirs under several different multiobjective problem framings. In each rival framing, we specify different quantitative representations of the system's objectives related to hydropower production, agricultural water supply, and flood protection of the capital city of Hanoi. We find that some formulations result in counterintuitive behavior. In particular, policies designed to minimize expected flood damages inadvertently increase the risk of catastrophic flood events in favor of hydropower production, while min‐max objectives commonly used in robust optimization provide poor representations of system tradeoffs due to their instability. This study highlights the importance of carefully formulating and evaluating alternative mathematical abstractions of stakeholder objectives describing the multisectoral water demands and risks associated with hydrologic extremes.

“…Each model evaluation is performed over 1000 realizations of these synthetic time series to compute expected (baseline) performance accounting for hydrologic uncertainty within historical bounds. The synthetic series are generated using a modified Fractional Gaussian Noise method, which aims to reproduce the standard moments and seasonal variation in autocorrelation that define the dynamics of extreme events [ Kirsch et al ., ]. Each term of the water balance is described in detail in the supporting information to this paper.…”

Section: Model and Study Areamentioning

confidence: 99%

Beyond optimality: Multistakeholder robustness tradeoffs for regional water portfolio planning under deep uncertainty

Herman

Zeff

Reed

et al. 2014

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195

139

While optimality is a foundational mathematical concept in water resources planning and management, ''optimal'' solutions may be vulnerable to failure if deeply uncertain future conditions deviate from those assumed during optimization. These vulnerabilities may produce severely asymmetric impacts across a region, making it vital to evaluate the robustness of management strategies as well as their impacts for regional stakeholders. In this study, we contribute a multistakeholder many-objective robust decision making (MORDM) framework that blends many-objective search and uncertainty analysis tools to discover key tradeoffs between water supply alternatives and their robustness to deep uncertainties (e.g., population pressures, climate change, and financial risks). The proposed framework is demonstrated for four interconnected water utilities representing major stakeholders in the ''Research Triangle'' region of North Carolina, U.S. The utilities supply well over one million customers and have the ability to collectively manage drought via transfer agreements and shared infrastructure. We show that water portfolios for this region that compose optimal tradeoffs (i.e., Pareto-approximate solutions) under expected future conditions may suffer significantly degraded performance with only modest changes in deeply uncertain hydrologic and economic factors. We then use the Patient Rule Induction Method (PRIM) to identify which uncertain factors drive the individual and collective vulnerabilities for the four cooperating utilities. Our framework identifies key stakeholder dependencies and robustness tradeoffs associated with cooperative regional planning, which are critical to understanding the tensions between individual versus regional water supply goals. Cooperative demand management was found to be the key factor controlling the robustness of regional water supply planning, dominating other hydroclimatic and economic uncertainties through the 2025 planning horizon. Results suggest that a modest reduction in the projected rate of demand growth (from approximately 3% per year to 2.4%) will substantially improve the utilities' robustness to future uncertainty and reduce the potential for regional tensions. The proposed multistakeholder MORDM framework offers critical insights into the risks and challenges posed by rising water demands and hydrological uncertainties, providing a planning template for regions now forced to confront rapidly evolving water scarcity risks.