'Just like with stock portfolios, if you buy diverse stocks, you diversify your risk,' said Patrick Reed, associate professor of civil engineering, Penn State. 'Right now, cities don't necessarily diversify their risk through the ways in which they buy water.'
Reed and his colleagues are trying to understand the benefits and trade-offs associated with buying water using a mix of market instruments in the Lower Rio Grande Valley of southern Texas. Those models incorporated the various purchasing options, along with variables such as cost, amount of surplus water and the probability of water shortages.
The researchers found that when cities in the region rely solely on permanent rights, they could incur high costs -- $13 million a year -- and require lots of surplus water yet still face significant supply failures in drought years. Alternatively, a careful mix of permanent rights, options and leases can dramatically lower costs -- $10 million a year -- increase water available to the environment and avoid supply failures during droughts.
A major focus of the research is to provide decision-makers with water planning models that graphically illustrate how options, leases and permanent rights affect cost, surplus water and probability of water shortages.
'This work not only demonstrates how we can combine multiple objectives to solve a problem, but also visualize the problem and learn from it,' said Reed. 'It is an innovative hybrid between engineering and policy to create highly adaptive and resilient water supply systems.'
Most cities that buy water rely on permanent rights to ensure reliable water supply. It is like buying a percent of the water flowing into a reservoir.
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