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National Drought Mitigation Center

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Cost-benefit analysis can help utilities manage drought proactively

October 5, 2015

 

A new report reviews how a cost-benefit analysis may be used in drought planning and the challenges that drinking water utilities face in implementing drought management practices. It includes an example cost-benefit analysis for a hypothetical utility, case studies describing utilities’ experiences with drought, and general information about how drought affects utilities.

“Cost-benefit analysis is a powerful tool that can help utilities identify cost-effective drought management practices,” said Richard Krop, an economist with the Cadmus Group who was one of the report’s authors. “By measuring the effect of drought management practices on the triple bottom line, utilities can evaluate the implications of their plans for the environment, society as whole, as well as their bottom line. The cost-benefit analysis can also help utilities communicate the value of their drought management plans to their customers and other stakeholders.”

The report, “Drought Management in a Changing Climate: Using Cost-Benefit Analyses to Assist Drinking Water Utilities,” can help utilities better understand their drought risk and identify measures to reduce vulnerability, and focuses on ways to evaluate and compare measures to reduce vulnerability. It provides a basic framework for a cost-benefit analysis that includes an evaluation of the triple-bottom line, considering economic, ecological, and social effects of decisions. It also provides examples of actual costs that utilities have incurred related to drought management, although each utility’s needs are unique and costs are variable.

The report is the result of a collaborative effort by The Cadmus Group, the National Drought Mitigation Center, several water utilities, and a project advisory committee, and was supported by a grant from the National Oceanic and Atmospheric Administration’s Sectoral Applications Research Program to the Water Research Foundation and by the WRF.

Luis Generoso, City of San Diego Public Utilities Department, said his organization contributed what it learned from the 2009-2011 drought to the report. “We were able to see the results, the impact, the efficiency of the messaging that we created back then,” he said. “We hope that the agencies who are looking for ideas on how to message for drought and how to impact usage through messaging can utilize the information that was presented in the report.”

Kathy Nguyen, senior project manager with the Cobb County Water System, was another contributor to the report. “In the past, the industry has been extremely reactive when it comes to drought management,” she said. The new report “puts drought management and fiscal issues in a proactive stance rather than a reactive stance.” She noted that big projects such as augmenting supplies and building connections with other systems cost money, but that it’s much better to incur the expenses when water supplies and revenue are good, rather than during a drought, when supplies and revenues are reduced. “The best time to talk about drought is when it’s raining,” Nguyen added. “You’re going to have an infinitely better conversation.”

The report is available to download from the Water Research Foundation’s website: http://www.waterrf.org/Pages/Projects.aspx?PID=4546

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