Managing Resource and Financial Volatility

“The world today faces the enormous, dual challenges of renewing its decaying water infrastructure and building new water infrastructure. Now is an opportune moment to update the analytic strategies used for planning such grand investments under an uncertain and changing climate” (Milly et al. 2008).

“A change to freshwater availability in response to climate change poses a more important risk to human societies and ecosystems than warming alone. Changes to the global water cycle and the corresponding redistribution of rainfall will affect food availability, stability, access, and utilization” (Durack et al. 2012).

Three hundred and sixty three million trillion gallons (1.386 billion cubic kilometers) of water can be found within the earth’s hydrologic cycle (Gleick 2000). While that is a seemingly infinite reservoir of water, only 0.7% of this water is available for potential human access (Figure 1), according to the Climate Institute. Throughout history, human civilization has been bounded by the spatial and temporal availability of water. Until the industrial revolution. The advent of massive engineering projects, the availability of cheap power and human ingenuity decoupled our relationship with water. Today, however, intense urbanization (Asian cities alone are expected to grow by 1 billion people in the next 20 years) and population growth (in the last century, world population has tripled, and is expected to increase from 6.5 to 8.9 billion by 2050) have put our engineered systems at risk. Indeed, the spatial and temporal nature of water is again becoming increasingly important for humankind.

Along with mounting water resource pressure, many utilities are suffering the compounding pressures of fiscal austerity and aging infrastructure. Utilities need to invest in critical infrastructure to save money and water, but cannot find the money to do so. And the problem is only getting worse:

* The American Society of Civil Engineers (ASCE) estimates that by 2020, the capital infrastructure funding gap for water and wastewater will be $84 billion–and $144 billion by 2040 (ASCE 2011).

* The United States Geological Survey (USGS) has reported that US water systems experience 240,000 water main breaks annually, resulting in the loss of 1.7 trillion gallons of water every year (USEPA “Addressing the Challenge Through INNOVATION”). EPA has estimated the cost of Non-Revenue Water (NRW) to be $2.6 billion per year (USEPA AWI Research).

* For developed countries, non-revenue water often represents 20% of the total water withdrawn from the environment. In developing nations, NRW can account for as much as 50%, due to distribution system leaks, theft, and poor measurement techniques, according to Pike Research . The World Bank estimates that “the total cost to water utilities caused by NRW worldwide can be conservatively estimated at $141 billion per year” and represents enough water (45 million cubic meters per day) to serve nearly 200 million people (Kingdom et al. 2006).

Notably, resource and financial pressures can tip rapidly, leaving utilities scrambling to address emergency water conditions or suffering intense financial hardship. Unfortunately, most utility solutions are not “rapid response systems.” They cannot be deployed rapidly and effectively to sustain water resources in the face of dramatically reduced runoff, changes in snowmelt timing, increased population, or financial crises. The velocity of these destabilizing influences far exceeds the ability of traditional solutions to react and compensate. In addition, as the degree of interconnectedness of systems and networks increase (in this case, the interconnection of resource and financial networks), they become, in effect, less stable:

Figure 2. Changes in ocean salinity as an indicator of volatility of the water cycle

“Surprisingly, a broader degree distribution increases the vulnerability of interdependent networks to random failure, which is opposite to how a single network behaves” (Buldyrev et al. 2010).

To operate under this new paradigm, utilities must develop a set of practices and systems that are flexible, adaptable, and rapidly deployable in the face of the potential failures.

Supply-Side Water Management
The developed world has been forged on the supply-side. In the past, we’ve assumed that we could engineer our way out of trouble. However, “when we build big, we build wrong” (Pearce 2012). This is because we typically build within a narrow band of expected conditions. Those assumptions, spurred by the relative passivity of the Holocene era, are being proven to be invalid for the future (Milly et al. 2008).

For instance, in the United States, peak spring runoff from the Colorado River occurs an average of three weeks earlier than historic averages, due to the recent five-fold increase in dust events on snowpack. This earlier snowmelt allows for extra snow-free conditions, which increases transpiration of the water (NSF 2010), and also strains the engineered collection systems, which are designed to see a slower release of the stored water over a longer period.

Globally, changes in atmospheric temperature are also driving an increase in the volatility of the water cycle. This volatility is represented by changes in ocean salinity (Figure 2) and the intensification of weather events:

The faster water cycles, the more abundant and more violent…storms might be. And wet places getting wetter can lead to more severe and more frequent flooding. Dry places getting drier would mean longer and more intense droughts”
(Kerr 2012).

Recent research suggests that a 2°C to 3°C increase in atmospheric temperatures will result in a 16 to 24% amplification of the global water cycle (Durack et al. 2012).

Trying to adapt to this increasing volatility through engineering alone is difficult. Large-scale damming activities, pipelines from water-rich areas to water-poor areas, floating bags of water down coastlines, pumping water across the continental divide, and hauling glaciers from the Arctic and Antarctic are not going to be economically or environmentally feasible.

A recent National Resources Defense Council (NRDC) report notes that there are inherent dangers in relying on the supply-side solution approach. There remain “serious questions about the reliability of surface and groundwater sources for proposed pipeline projects, including potential environmental impacts, existing constraints on water sources, and the likely impacts of climate change on these supplies” (Fort and Nelson 2012).

The report concludes:

  • Many of these projects rely on water sources that are far less reliable than past water projects.
  • Some of these projects have the potential to increase conflict and harm other existing water users.
  • By increasing reliance on unsustainable water sources, some of these projects could increase the water supply and economic vulnerability of communities in the long term.

The same arguments can be made with respect to desalination. While the source for desalinated water is vast, serious economic and environmental issues remain. Desalination is extremely power-intensive: an acre-foot of desalinated water (325,851 gallons) consumes 4,000 to 9,000 kWh of energy (Wilkinson 2007).

In Saudi Arabia, desalination plants consume the equivalent of 1.5 million barrels of oil per day to generate the power necessary to operate the production facilities (“Saudi Arabia to Use Solar Energy for Desalination Plants”). That’s 730 gallons of fuel per second. And in the perverse reality of the water/energy nexus, it takes 1850 gallons of water to refine this fuel from a barrel of crude oil.

More importantly, these supply-side projects take years–even decades–to complete, at tremendous environmental and fiscal cost, even when they are not in use. In Melbourne, Australia, despite catchments being full and the state government not ordering any water from a recently completed desalination facility, “up to 40 gigalitres of water will be desalinated during commissioning and testing and will cost Melbourne Water about $176 million, which it will pass on to customers,” according to Weekly Times.

Financial Crisis
The water scarcity crisis is unfolding at a time of intense financial crisis for our municipalities. The municipal sector has experienced a fiscal shortfall of between $56 billion and $83 billion from 2010–2012, driven by declining tax revenues, ongoing service demands, and cuts in state revenues (Hoene 2009). Compounding the current financial crisis for municipalities is the imperative of investment requirements for our aging infrastructure. Since 2002, it has been recognized that municipalities are faced with the challenge of broad-scale infrastructure replacement–at a cost of $300 billion to $1 trillion dollars over the next 20 years (GAO 2002).

Protecting revenue and controlling costs means that we must fundamentally change our passive management

Credit: GLOBAL WATER 2012
Figure 3. Registration improvements by modernizing meter population

of water and utility resources and become active in ensuring we are efficiently monetizing the water cycle. And be able to do so quickly.

Solving the water and financial volatility issues rapidly and effectively will be a key hallmark of sustainable cities, and provide a unique competitive advantage for those cities over other jurisdictions. Both issues can be mitigated through improving the temporal and spatial quality of water data–the tools of the Smart Grid for Water:

A Combined Rapid Response System for Resource and Financial Volatility

  • Fixing the data voids in our systems increases revenue.
  • Actively monitoring the health of the meter population and proactively replacing meters preserves accuracy and revenue.
  • Providing customers with highly granular, instantaneous data increases awareness of water use and decreases consumption.
  • Combining highly granular consumption data with Customer Information System and geo-referenced spatial data, identifies instantaneous water loss.
  • Increased data granularity allows physical and logical disconnects to be identified and corrected automatically, preserving the meter inventory integrity and protecting revenue.
Credit: Global Water 2012
Figure 4. Incremental monthly revenue increases from a Smart Grid for Water installation

In a recently completed Smart Grid for Water installation, replacing meters resulted in a 24.6% increase in billed volumes (6.95 million gallons) over the old meters (Figure 3), reducing apparent water loss and preserving revenue. And as the water bill forms the basis for many other charges, the revenue impacts extend beyond to other municipal operations (Figure 4). Throughout the first six months of operation, as the full benefit of the internal processes and systems was realized, the incremental revenue has been in the order of $1.63 million (Figure 5).

In another utility, a Smart Grid installation resulted in (Morris 2012):

  • a decrease in water loss from 34% to 14%
  • an increase in billed volume of 31.5%
  • an increase in revenue of 40.6%

For the consumer, access to highly granular, time-relevant data, means dramatic changes in consumption.

Credit: Global Water 2012
Figure 5. Revenue increases from a Smart Grid for Water installation

With access to this data, subtle societal pressures can be reinforced and the utility can nudge the consumers’ fundamental understanding of water and their use. In the face of increasing water prices, making consumers intimately aware of the impact their own actions have on their costs will be imperative.

For utilities, the 21st century will see the continued convergence of water scarcity and financial pressures. Highly configurable demand-side management tools are a rapid, flexible, and effective means of reducing pressure on water resources and preserving revenue. In a time where wild variations in natural delivery systems and financial conditions are a constant threat to utility operations, such tools are powerful assets in our arsenal. These systems can be deployed quickly, reliably, and result in an almost instantaneous demand reduction and the corollary benefit of incremental revenue. Contrast that to the decades required to permit and construct new water supplies, or water transfer schemes. The way forward seems clear.

“Together, increased demand and lower supply will place a premium on the industry to find new and more efficient ways of allocating, treating and using water” (Cave 2009).

“It is a choice about the path of water development after a basic built water infrastructure has been provided. Should we try to supply more and more water, or is it time to shift our focus from new physical supply to reassessing how fixed supplies of water can be better used to meet ongoing water-related needs? Should water managers stick with the kinds of projects and techniques they know and continue to fail to meet the water-related needs of some people and many ecosystems? Or is it time to emphasize new approaches that seem more likely to meet these needs?” (Wolff and Gleick 2002).

American Society of Civil Engineers (ASCE).2011. “Failure to Act: The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure.”

Buldyrev, S. V. et al. 2010. “Catastrophic cascade of failures in interdependent networks.” Nature. April 15, 2010: 464, 10251028. doi:10.1038/nature08932.

Cave, M. 2009. “Independent Review of Competition and Innovation in Water Markets: Final Report.” DEFRA. April 2009.

Climate Institute.

Durack, P. J. et al. 2012. “Ocean Salinities Reveal Strong Global Water Cycle Intensification During 1950 to 2000.” Science. 336, 6080, 455. April 27, 2012.

Durack, P. J. and S. E. Wijff els. 2010. “Fifty-Year Trends in Global Salinities and Their Relationship to Broad-Scale Warming.” Journal of Climate. March 18, 2010: 23, 4342.

Fort, D. and B. Nelson. 2012. “Pipe Dreams: Water Supply Pipeline Projects in the West.” Natural Resources Defense Council. June 2012.

Gleick, P. H. 2000. The World’s Water 2000-2001: The Biennial Report on Freshwater Resources. Island Press, Washington, D.C.

Hoene, C. W. 2009. “City Budget Shortfalls and Responses: Projections for 20102012.” Center for Research and Innovation, National League of Cities. December 2009.

Kerr R. 2012. “Th e Greenhouse Is Making the Water-Poor Even Poorer”, Science. April 27, 2012: 405. DOI:10.1126/science. 336.6080.405.

Kingdom, B., R. Liemberger, and P. Marin. 2006. “Th e Challenge of Reducing Non-Revenue Water (NRW) in Developing Countries. How the Private Sector Can Help: A Look at Performance-Based Service Contracting.” World Bank, Water Supply, and Sanitation Sector Board Discussion Series, Paper No. 8. December 2006.

Milly, P. C. D. et al. 2008. “Stationarity Is Dead: Whither Water Management?” Science. February 1, 2008: 573-574. DOI:10.1126/science.1151915.

Morris, S. 2012. “All in One Place: Advanced Metering Infrastructure Helps Enid, Oklahoma Bring in Reads, Revenue.” AWWA ACE Presentation. June 12, 2012.

National Science Foundation (NSF). 2010.“Windborne Desert Dust Falls on High Peaks, Dampens Colorado River Runoff.” Press Release 10-169. September 20, 2010.

Pearce, F. Th e Guardian. February 24, 2012. “Saudi Arabia to Use Solar Energy for Desalination Plants.” Circle of Blue. January 26, 2010.

“Smart Water Meters.” Pike Research.

USEPA. “Addressing the Challenge Through INNOVATION.” Office of Research and Development National Risk Management Research Laboratory.

USEPA. Aging Water Infrastructure (AWI) Research: Water Distribution Systems.

US General Accounting Office (GAO). 2002. “WATER INFRASTRUCTURE: Information on Financing, Capital Planning, and Privatization.” Report GAO-02-764. August 2002.

“Vic desal test water to cost $176m.” Weekly Times. April 2, 2012.

Wilkinson, R. C. 2007. “The Energy Intensity of Water Supplies.” Southwest Hydrology. September/October 2007: 6, 5, 30.

Wolff , G., and Gleick, P. H. 2002. “The soft path for water.” The World’s Water 2002–2003. Washington, DC: Island Press, 1–32. 
About the Author

Graham Symmonds and Trevor Hill

Graham Symmonds is the senior vice president of Regulatory Affairs and Compliance and Chief Technology Officer of GWRI. Trevor Hill is president and CEO at Global Water Resources.

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Photos courtesy Chino Basin Water Reclamation District.
From left: Matt Hacker, Metropolitan Water District of Southern California; Marco Tule, Inland Empire Utilities Agency Board President; Gil Aldaco, Chino Basin Water Conservation District Board Treasurer; Curt Hagman, San Bernardino County Supervisor; Elizabeth Skrzat, CBWCD General Manager; Mark Ligtenberg, CBWCD Board President; Kati Parker, CBWCD Board Vice President; Teri Layton, CBWCD Board member; Amanda Coker, CBWCD Board member.