Water supply portfolios must be viable for all partners

April 5, 2022

Drought impacts in California are becoming more frequent and severe due to climate change, population growth, agricultural intensification and regulatory change. In 2020, Governor Newsom announced the Water Resilience Portfolio Initiative, a multi-billion dollar effort that encourages different water utilities and irrigation districts to work together to build shared infrastructure to ameliorate the effects of droughts.

California and the United States federal government are poised to spend hundreds of billions of dollars on water infrastructure in the coming decade. Nonetheless, the vast majority of funding for water systems in California and elsewhere in the U.S. comes from local water providers and their users.

The need to invest in large and expensive new water infrastructure represents a significant challenge for water providers, especially given ongoing water affordability issues and the uncertainties associated with future demands and climate change.  Investment partnerships will play a critical role in funding new infrastructure, but a number of questions remain regarding how best to structure these agreements.

In light of these trends, researchers from the University of North Carolina at Chapel Hill and Cornell University explored three important questions in a new article published online by the journal Earth’s Future:

1. How do variable hydrology, geography and water rights lead to differences in the costs, benefits and risks that different water providers can expect when investing in these partnerships?

2. Which types of infrastructure are most promising when considering costs, benefits and risks for individual providers?

3. Will climate change exacerbate the challenge of designing fair and effective partnerships?

Dr. Gregory Characklis

Co-authors from the UNC Gillings School of Global Public Health are recent alum Andrew L. Hamilton, PhD (now a postdoctoral associate at Cornell); Research Scientist Harrison B. Zeff, PhD; and Gregory Characklis, PhD, W. R. Kenan Jr. Distinguished Professor, all with the Department of Environmental Sciences and Engineering. Characklis also serves as director of the UNC Center on Financial Risk in Environmental Systems. Co-author Patrick M. Reed, PhD, is the Joseph C. Ford Professor in the School of Civil and Environmental Engineering at Cornell.

“Our study explored these questions in the context of the Friant-Kern Canal, which delivers water to irrigation districts and municipal utilities in the southern Central Valley of California,” says Hamilton, the study’s primary author. “The canal has been sinking due to groundwater over-pumping. A partnership of local water providers has begun to make repairs — projected to cost $500 million — in coordination with state and federal agencies. However, benefits to individual providers are highly uncertain. This setting is more broadly representative of the types of infrastructure investment that California and other regions are considering, as well as the challenge of bringing different parties together to collectively fund these projects.”

The team tested thousands of different ways of designing candidate partnerships, to understand the impact of each design (i.e., which water providers are participating, and what share of funding is each responsible for), the type of infrastructure and the climate scenario.

In most cases, performance was very uneven across the different partners — some received significant new water supplies at low cost, while others received negligible benefits relative to their share of project cost. Local performance varied based on a variety of factors, such as the water providers’ location, water rights and local factors. This highlights the importance of detailed models that can capture system dynamics at the level of individual water providers.

These results point to the importance of considering multiple factors so that investment partnerships can be constructed to satisfy all partners. Several points should be of interest to policymakers as they seek to make wise investments that improve California’s water resilience:

1. If the future is drier than the past, there may not be sufficient “capturable” water available to make the investment worthwhile. This climate-related risk may be borne more heavily by some partners than others.

2. Investments in one project (e.g., canal expansion) must often be paired with another (e.g., water storage) if the full benefits of the investments are to be realized and evenly distributed across a partnership.

3. Larger partnerships make it more difficult to please everyone, since it becomes more likely that at least one partner performs poorly. This introduces a trade-off, since larger partnerships are typically viewed more favorably by the public and by policymakers.

The future is highly uncertain due to climate change, regulatory change and other stressors. This study’s results demonstrate how poorly planned partnerships can lead to significant financial risk for water providers under unfavorable future scenarios. The authors posit that financial resilience should be a key aspect of water supply resilience planning in California and other regions.

Learn more about the broader national and global relevance of this California-based analysis in the full open access article.

Contact the UNC Gillings School of Global Public Health communications team at sphcomm@unc.edu.