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 with fixed or adjustable treatment capacities, coupled with structured financing for partner utilities, are found to significantly improve regional supply reliability and financial outcomes.Regional improvements in performance, however, mask tradeoffs among individual agreement partners. Adjustable treatment capacity allocations add flexibility to inter-utility agreements but can compound the financial risk of 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 development of water supply partnerships.