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.