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Optimal Water Allocation under Short-Run Water Scarcity

in the South Saskatchewan River Basin


Ioan-Marius Cutlac1 and Theodore M. Horbulyk2
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Abstract: This paper examines the effect on economic welfare of alternative surface water allocations in the Alberta portion of the South
Saskatchewan River Basin in Canada. Growing demands for urban and instream water uses add to significant irrigation withdrawals, all
contributing to relative water scarcity. A computational model optimizes the annual value derived from spatially diverse water withdraw-
als, fully respecting their hydrologic and economic linkages. The model simulates current allocation practices and defines optimal
allocations under alternative demand and supply scenarios. The use of the publicly developed Aquarius modeling software illustrates its
comparative strengths relative to other models that optimize explicitly with respect to economic values. The model’s numerical estimates
support the conclusion that there are sufficient surface water resources for users to adapt to a range of alterations in water supply or water
demand, but that substantial short-term reallocations of water among users might be required to achieve the greatest benefit.
DOI: 10.1061/共ASCE兲WR.1943-5452.0000092
CE Database subject headings: Economic factors; Optimization; Water shortage; Decision support systems; River basins; Canada.
Author keywords: Economics; Optimization; Water allocation; Aquarius model; Decision support system; South Saskatchewan River
Basin.

Introduction The objective of this paper is to develop a computational


model that optimizes the annual value derived from alternative
Water managers and water policymakers face an increasing chal- water allocations in the Alberta portion of the SSRB. The princi-
lenge in allocating available surface water flows among compet- pal contribution of the paper is to characterize the effect on eco-
ing uses in a river basin. Land use changes and climate variability nomic welfare of a small number of specific changes in both
can alter surface and groundwater hydrology, whereas population water supply and water demand, and to do so in a way that fully
growth and industrial and agricultural expansion can modify the reflects the hydrologic and economic linkages among competing
patterns of water demand and relative water scarcity. Computa- water uses in the basin.
tional models of basin-wide water allocation can help integrate An important feature of the current research is its use of pub-
the spatial and intertemporal influences of both economic and licly developed and freely available modeling software, Aquarius
physical forces. These models can provide valuable insight into 共Diaz et al. 2000兲, whose application has not been widely re-
effects currently being experienced as well as to those to be an- ported in the literature. Another contribution of this paper is to
ticipated in future under current or revised water policies. provide an illustration of the strengths of this modeling platform
In the South Saskatchewan River Basin 共SSRB兲 of Alberta, relative to alternative models that optimize explicitly with respect
Canada, irrigated agriculture is a large seasonal user of surface to economic values of water use. The Aquarius modeling platform
water and the urban population is growing rapidly. Urban and brings economic values into this analysis in a manner that is
rural residents have an increasing awareness and appreciation of well-supported methodologically and that is more amenable to
water quality and of water flows used to meet instream and rec- third-party replication and validation than would be other custom-
reational needs. Recent policy reforms allow some water licenses ized algorithms.
and entitlements to be reallocated through marketplace transac- The principal conclusions with respect to the SSRB are that
tions. Historically, few computational models have been devel- there appear to be sufficient surface water resources in the SSRB
oped for this region that incorporate the market value of water for users to adapt to a range of alterations in water supply or
allocations or the nonmarket values of “unallocated” water used water demand, but substantial short-term reallocations of water
for environmental needs. among users might be required to achieve the greatest benefit.
The institutions and methods for encouraging short-term water
1
Resource Economist, Alberta Innovates-Technology Futures, 250 reallocation have historically not been required to make adjust-
Karl Clark Rd., Edmonton AB, Canada T6N 1E4. E-mail: marius.cutlac@ ments as large as those modeled here. The results show the po-
albertainnovates.ca tential economic benefit from using this flexibility when needed.
2
Associate Professor, Dept. of Economics, Univ. of Calgary, 2500
Univ. Dr. NW, Calgary AB, Canada T2N 1N4 共corresponding author兲.
E-mail: horbulyk@ucalgary.ca
Note. This manuscript was submitted on May 20, 2009; approved on
Water Allocation in the South Saskatchewan River
April 3, 2010; published online on May 4, 2010. Discussion period open Basin
until June 1, 2011; separate discussions must be submitted for individual
papers. This paper is part of the Journal of Water Resources Planning Surface water and groundwater in the SSRB are allocated under
and Management, Vol. 137, No. 1, January 1, 2011. ©ASCE, ISSN authority of the Alberta government through the Water Act and
0733-9496/2011/1-92–100/$25.00. the Irrigation Districts Act 共Alberta 1996, 2000兲. A system of

92 / JOURNAL OF WATER RESOURCES PLANNING AND MANAGEMENT © ASCE / JANUARY/FEBRUARY 2011

J. Water Resour. Plann. Manage. 2011.137:92-100.


appropriative rights is based on the seniority date of each license. sonal volumes of water supply, and lower-bound values for
Even in times of scarcity, all senior licensees are to be allocated monthly instream flows in specific reaches of the rivers. The ob-
their full annual entitlement before water is provided to succes- jective function is nonlinear since the benefits to be maximized
sively more junior licensees, independent of the uses to which the are equivalent to areas reflecting consumers’ and producers’ sur-
water will be put. Some of the largest and most senior licenses are plus under nonlinear demand functions.
held by 13 irrigation districts as well as by towns and cities, The model solution, reached through sequential quadratic pro-
although numerous licenses are also held by individual irrigators. gramming, characterizes volumes of water held in storage reser-
Since 1996, legislative provisions 共Alberta 1996, 1998兲 have voirs and their controlled releases, as well as estimating the
been developed for permanent transfers of water licenses from spatial pattern of water allocated to irrigation, municipal use, and
one licensee to another, such as through open-market sales of a instream flows on a monthly basis. The economic parameters
license. There are also provisions for short-term reallocations of show values of benefits derived in aggregate 共basin wide and at
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water from one licensee to another. Procedural restrictions each node兲 and estimate the dollar value of marginal changes for
coupled with monetary and nonmonetary transactions costs tend each month at each node.
to limit the actual use of these transfer provisions in practice. The The objective of the current modeling exercise is to examine
current and forecast demand for water resources is so large that, optimal water allocations within a single 12-month period, as
under recent policy directives, the authorities have effectively would be relevant for decisions involving water management and
closed the basin by deciding not to issue new or expanded li- short-term water trading prior to making cropping and irrigation
censes. commitments. Within-year optimization can efficiently deploy
The approximate area of the SSRB watershed is 120,000 km2, water storage reservoirs to reallocate water between months, but
and the average annual precipitation is in the range of 34–53 cm/a there is no scope in the current model to reallocate across years.
共Alberta Environment 2002, 2005; Bow River Basin Council This implies that closing balances in reservoirs are constrained to
2005兲. Calgary is the largest of the four principal cities in the return to their opening levels. Although the Aquarius software
basin, and these cities’ combined population 共1,325,000兲 共Statis- does have some capacity to model multiple-year decision periods,
tics Canada 2008兲 represents about 75% of the SSRB population. those features are not explored here. A move to explore multiple
The principal irrigated crops are grains, forages, oilseeds, and year versus single-year optimization periods not only influences
some specialty crops, which typically receive 39–68 cm/a of irri- the optimal use of storage capacity, it also requires careful cali-
gation water, applied mainly by central pivot irrigation systems bration of the corresponding increase in water users’ flexibility
with some continuing use of wheel-move sprinklers and other 共demand elasticity兲 as the time horizon lengthens.
methods 共Irrigation Water Management Study Committee 2002兲. Prior studies that seek to optimize economic gains from alter-
Historically, there has been little use of drip or microirrigation native water allocations in the SSRB include Horbulyk and Lo
technologies and there is little use of groundwater for irrigation. 共1998兲 and Mahan et al. 共2002兲. Using customized solution algo-
rithms other than Aquarius, those models operate with a seasonal
time step, and are unable to characterize a month-by-month pat-
Optimization of Economic Values Using Aquarius tern of water allocations or values. Nor can they characterize the
interplay of water storage and instream flows outside the irriga-
To investigate the effects on economic welfare of alternative tion season. The principal computational modeling tool that is
water allocations using computational optimization, the current used by Alberta’s government resource managers for the SSRB is
research strategy assigns dollar values to competing water uses, the water resources management model 共WRMM兲, as employed
where these dollar values vary according to location, time of the by Ilich 共2008兲. The WRMM does not incorporate economic cri-
year, and quantity of water allocated, among other factors. With teria reflecting dollar values of benefits, but simulates alternative
maximization of aggregate dollar benefits over a 1-year optimiza- allocations based on a system of rules and penalty points.
tion period as the algorithm’s objective function, one solves for Prior research from other watersheds that captures water val-
optimal water allocations in a series of hypothetical scenarios, ues and hydrology within a comprehensive optimization frame-
each reflecting specified changes within the watershed. Each so- work includes numerous applications of the CALVIN model
lution simulates the level and distribution of economic gains and developed for California 共Jenkins et al. 2004兲. Tilmant et al.
losses “as if” water resources were perfectly managed in each 共2008兲 modeled the economic benefits from alternative water al-
such case. locations in the Euphrates River Basin using a computational
The Aquarius software package used here 共Version 10兲 共Diaz model that also includes stochastic elements. No similar models
and Brown 1997; Diaz et al. 2000兲 is a publicly developed and yet exist for the SSRB.
freely distributed modeling platform designed for such analyses
关see: http://www.fs.fed.us/rm/value/aquariusdwnld.html.兴 Other Calibration of the Base Model
studies reporting its use include Brown et al. 共2002兲, Alfieri et al.
共2006兲, and Cutlac et al. 共2006兲. The researcher chooses the desired degree of spatial detail when
The computational model developed here employs Aquarius to compiling and entering physical and economic data for each lake,
represent the SSRB as a network of approximately 40 demand river, demand node, or storage site in the basin. To reduce both
and supply nodes for surface water. Using a monthly time step to the data and computational requirements, the present representa-
optimize the benefits derived in a single year, quantitative data tion of the study area 共Fig. S1兲 has grouped together a series of
describe the physical characteristics of these demand and supply smaller reservoirs and adjacent hydroelectric generation facilities
nodes, including the spatial relationships among upstream uses, as if they formed a “composite” regional reservoir and hydroplant
return flows, and downstream outcomes. Economic data describe in a specific subbasin. This abstraction process is also reflected
the demand curves and social marginal benefit for allocations of temporally, where daily and weekly flow data are captured as
water to various uses. Constraints that are imposed on the opti- monthly means, minima, or maxima. Data requirements include
mization process include limits on reservoir storage capacity, sea- water supply from headwater catchments, hydroelectric power

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plant characteristics and operational rules, allowable capacities of activities 共Table S5兲. Specific area storage and elevation-storage
storage reservoirs, as well as the seasonal patterns of municipal, curves describe the monthly fluctuation in the volume of water
industrial, and agricultural uses and return flows. stored and are derived from data from Mitchell and Prepas 共1990兲
On the supply side, only surface water is considered, as the 共Table S6兲. Positive rates of the net evaporation indicate that
level of groundwater resource use in the SSRB has not been sig- evaporation exceeds precipitation 共Table S7兲 and evaporation es-
nificant historically. Thus, an important consideration in interpret- timates alter the monthly stored-water volumes.
ing the optimization results is that the model ignores any potential Surface flows retained in the watercourse to protect aquatic
effects related to the substitution of groundwater. For the base species and habitats are specified as constraints on minimum al-
model, the supply of water follows an average hydrologic regime lowable flow volumes each month. The values employed here are
as reflected in 2004 data from the Water Survey of Canada 共En- based on Alberta Environment 共1984兲 共Table S8兲. These specified
vironment Canada 2004兲. These input data are summarized in
minima are, by definition, lower than those that might be needed
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Table S1, one of the 13 supplemental tables available with the


to meet other environmental criteria, such as maintenance of spe-
online version of this journal.
cific riparian vegetation 共e.g., cottonwood trees兲, or for dynamic
The modeled water demands include instream and off-stream
river channeling, such as through periodic flooding events.
uses. The instream uses include storage reservoirs, hydropower
generation, reservoir recreation, and water flows reserved for in- An important constraint on allowable flows derives from the
stream flow protection. For off-stream uses, the model includes interprovincial compact on water sharing in the larger
withdrawals for agricultural irrigation as well as municipal and Saskatchewan River-Nelson River basin in which the SSRB is
industrial demands. situated. To comply with the terms of this Master Agreement on
Water consumption for urban centers is derived from per per- Apportionment 共Prairie Provinces Water Board 1969兲, one-half of
son consumption data and estimates, and includes domestic, in- the inflows in the basin must be passed downstream to the prov-
dustrial, and general use, assuming that for each of these uses the ince of Saskatchewan, with the exceptions that Alberta is entitled
raw water charges are the same 共Table S2兲. These charges are to divert, store, or consume a minimum of 2,590 million cubic
used as estimates of users’ willingness to pay for current volumes. meters 共MCM兲 in any year and can divert, store, or consume more
Reported return flows from urban centers vary between 70 and than one-half of the apportionable flow as long as a flow rate of
95% of the withdrawal amounts for the four cities in the basin. By 42.5 m3 / s is maintained at the Saskatchewan border 共the required
assumption in this calibration, 30% of the water diverted by urban flow values are reported in Table S9兲. Although there has been a
centers is consumed and the rest is returned immediately to the custom or historical practice for each river subbasin to contribute
surface watercourse where it is available for downstream users. relatively equally to the aggregate apportionment requirement, the
For the irrigation districts, consumption figures and charges agreement allows considerable flexibility in how and where the
are determined from the annual irrigation diversions, assessment specific flows are provided.
roll acreages, and annual water rates, accounting for different Tables S10–S12 provide a technical description of the network
cropping patterns and agroclimatic zone characteristics 共Table created using Aquarius, showing the set of nodes and linkages,
S3兲. Irrigation diversion volumes are intended to reflect usage in a
and describing the origin and destination of flows at each node.
“normal year” and associated return flows are multiyear weighted
averages that reflect the historical mix of irrigation methods and
irrigation water-use efficiencies. Month-by-month variation in Water Demand Functions and Economic Data
water use is taken from Alberta Environment 共2002兲 for urban on Water Values
uses and for agricultural use is extrapolated across irrigation dis-
tricts 共Table S4兲. The value of water that is to be maximized in the objective func-
Hydroelectric power generation is based on water use factors tion is derived from summing across a series of demand func-
共Prairie Provinces Water Board 1982兲, which indicate energy pro- tions, each of which relates the marginal value of successive units
duction in MWh/ m3 of water. For the Bow River, a series of of water in a specific use to the volume of water allocated there
upstream hydroplants’ physical and economic characteristics is per month. Important, the use of water to meet instream flow
aggregated into one generic facility, having 325 MW of installed needs and interprovincial apportionment requirements is not
capacity and an estimated design discharge of 245 m3 / s. Power treated in this optimization as a source of value or benefit, per se,
generation is a function of the optimized release flows, and, in but as a set of rigid 共lower bound兲 constraints that each optimi-
this model, does not vary with the amount of water stored in the zation must respect. If, in the future, comprehensive estimates of
upstream reservoir. By assumption, there are no seasonal interrup- the 共quantity dependent兲 dollar value and spatial pattern of in-
tions in energy production such as due to maintenance activities.
stream and apportionment flows were to become available, one
Four virtual lakes or reservoirs are included in this model, one
could include these flow values into the objective function in a
in each major river subbasin, as a modeling simplification. These
manner that is comparable with other uses. Until then, interpreta-
lakes allow water diversion for consumptive use, hydropower
production, irrigation, and for recreational activities. The “Upper tion and comparison of results across scenarios and cases will
Bow Lake” accounts for the aggregate storage capacities of the quantify but not value explicitly the degree to which some solu-
lakes and reservoirs in the upper Bow River Subbasin 共including tions might provide relatively more water flows for these uses.
Spray Lakes, Upper Kananaskis Lake, Lower Kananaskis Lake, Demand curves represent the relationship between the value of
Lake Minnewanka, and Barrier Lake兲. The model adopts a virtual water 共Y兲 and the monthly volume 共X兲 of 共gross兲 water withdraw-
“Waterton-St. Mary Lake” to accumulate the storage capacities of als for specific urban and irrigation water uses and of water used
the Waterton Lakes and St. Mary Reservoir. for hydropower production 共these demands exclude water used
Model data for these lakes include the initial and final storage for instream flows, apportionment, or for enhancement of recre-
volumes, minimum and maximum storage capacities, and the up- ation activities on the reservoirs兲. The specific form of this rela-
per and lower bounds on reservoir storage that permit recreational tionship is the default specification provided by Aquarius

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Price ($CAD/Mcm) For hydropower production, the maximum willingness to pay
800,000 for incremental water flows is given by the next-best energy pro-
700,000 Choke price: $780,000 duction alternative, assumed here to be $80/MWh across the
SSRB. The corresponding exponential function parameter 共b兲 that
600,000 is consistent with the average annual energy production of
1,040,500 MWh to be delivered at $60/MWh is ⫺616.29. The
500,000 Initial equilibrium
price of $60/MWh is derived from the regulated rate tariff
allocation
400,000 charged in January 2004 to residential customers and small busi-
ness consumers 共Enmax Corporation 2004兲.
300,000
The value of benefits derived from water retained for reservoir
200,000 recreation is assumed to depend on the volume of water stored.
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Unlike the other demand curves 共1兲, the Aquarius specification for
100,000
recreational benefits follows a hyperbolic tangent function de-
0 scribed by Diaz et al. 共2000兲. The benefits from reservoir recre-
- 25 50 75 100 125 ational activities are assumed to vary with the volume of water
Quantity (Mcm)
stored 共as governed by size of the lake兲, and with access and the
CS+PS Initial demand Increased demand
extent of possible recreational activities. The maximum recre-
Fig. 1. Exponential water demand function. Areas under each expo- ational benefit is reached at maximum storage. Whereas the total
nential demand function up to the volume of monthly usage provide annual value of recreational benefits can be varied according to
a measure of economic benefits 共in dollars/month兲 representing the alternate assumptions about travel costs and resulting visitor days
sum of consumers’ surplus 共CS兲 and producers’ surplus 共PS兲. The to each site, it is the change in these valuations across alternative
dashed line shows the relative position of a new demand curve when water allocations that will influence water management. Some
demand increases. features of the Aquarius model, such as the ability to model in-
stream recreation benefits 共boating, fishing兲 as a function of flows
in each reach of the river, are not employed here due to a lack of
data. Foreshadowing the optimization results reported below, the
Y = a expX/b 共1兲 optimal allocation results do not appear to be highly influenced by
changes in these recreational benefits or by plausible alternative
where Y = water price, in dollars per MCM, in the case of urban specifications of reservoir characteristics.
and agricultural irrigation water demand, and dollars per MWh in
the case of hydropower production 共all dollar values are in Cana- Modeling Strategy and Alternative Allocation
dian currency兲; X = quantity of water demanded per month, in Scenarios
MCM 共or in MWh for hydropower兲; and a , b = functional param-
eters, where a ⬎ 0 and b ⬍ −1. The valuation of water volumes in the SSRB and the simulation
This exponential functional form causes each demand curve to of alternative optimized water allocations provide a means of
intersect with the price 共vertical兲 axis, indicating that, if price is comparing outcomes that are counterfactual to the status quo,
high enough, consumption for this use ceases, such as by users specifically in terms of when and where various water volumes
finding an alternative source of supply 共Fig. 1兲. This specification are withdrawn from surface flows. After the water is withdrawn,
enables estimation of consumers’ and producers’ surplus for any each type of user 共e.g., a town or city, an irrigation district, a
quantity of water use 共CS+ PS area in Fig. 1兲. The own-price producer of hydroelectricity兲 is expected to incur specific costs
elasticity of demand is variable along these exponential demand for further pumping, treatment, storage, wastewater processing,
curves. These exponential functions can be calibrated using as and so on. Important for the analysis that follows, there are no
few as two price-quantity combinations: one that characterizes no significant quantity-dependent costs of supply prior to the point of
consumption 共i.e., at the vertical intercept兲, and one at the market water abstraction. There are numerous fixed or annual costs that
equilibrium. are incurred to operate, oversee, and maintain the entire system,
To calibrate the model to replicate the status quo, these but these costs are essentially independent of which user with-
monthly demand curves plot the estimated choke prices and the draws relatively more or less water than another. Thus, the current
combination of the actual price and volume of raw water typically approach to estimate social values across alternative allocations is
allocated. For urban demand, satiation prices are similar to values based only on the demand curves that reflect the relative values of
derived by Lo 共1995兲. Choke prices for irrigation usage are in- water. There is no analytical role here for average and marginal
ferred from Mahan 共1997兲 who plotted agricultural production cost curves for flows at each demand node.
functions for major irrigation districts. Water prices and volume When water is allocated from the SSRB without the payment
estimates are inferred from the estimated monthly consumption of volumetric fees by users, all of the imputed value for a given
and the price actually paid in 2003 共excluding sewage charges兲 allocation can be characterized as consumers’ surplus. Under an
for urban consumption 共$0.86/ m3 in Calgary, $0.44/ m3 in Leth- alternative policy where a price is charged to each user by the
bridge, $0.40/ m3 in Medicine Hat, and $0.41/ m3 in Red Deer兲, government at the point of 共bulk兲 surface water withdrawal, the
and from the equilibrium prices estimated by Mahan 共1997兲 for values in a given allocation will reflect a combination of consum-
irrigation 共values range between $0.026/ m3 and $0.053/ m3兲. er’s and producers’ surplus. With or without specific water ab-
Under such an approach, and in the absence of other major straction fees, the sum of these surpluses across all users is
distortions in these markets, the height of these demand curves is reflected in the maximized value of the model’s objective func-
interpreted to reflect the social marginal benefit 共in dollars兲 for tion. Changes in this value across scenarios monetize the relative
incremental allocations in each use. Table S13 shows specific social gains or losses.
parameters. The initial calibration of the Aquarius model provides a solu-

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J. Water Resour. Plann. Manage. 2011.137:92-100.


tion that reflects the allocations of water based largely on repre- as when crop prices or irrigated productivity increases. In these
sentative 共2003–2004兲 data. Recall that the current and historical cases, any increase or decrease affects all demand nodes in each
water allocations are constrained by the prior appropriation li- time period by the same relative amount. 共The new demand func-
censing system, with few reported transactions to reallocate water tion could take the position of the dashed line in Fig. 1兲. The
beneficially among users. There are two main modeling ap- magnitude of the hypothesized changes 共30%兲 is in line with
proaches commonly employed to generate these suboptimal allo- variations in supply that have been experienced in recent decades
cations as the result of a constrained optimization process— and in line with urban population increase projections. See Cutlac
modify the constraints or modify the objective function. et al. 共2006兲 for an examination of the distinction between short-
One approach, and the one employed here, is to impose addi- term responses to an unanticipated change and long-term re-
tional quantity constraints in this “current allocation” scenario sponses to gradual or anticipated change, where those writers
that restrict the volumes of allocated water not to exceed those only examine this issue for the Bow River Subbasin of the SSRB.
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actually taken. That is, to replicate the current situation as a con- As configured for these six scenarios 关i.e., the current alloca-
strained optimum, the analyst prevents the model’s optimization tion, the optimized base case plus Scenarios 共1兲–共4兲 described
algorithm from reallocating some water from lower-valued to above兴, the solution of each optimization problem is the surface
higher-valued uses, causing the current allocation to be recovered water allocation that maximizes total economic benefits to users
as the “best” outcome. From there, one may then remove those by choosing values for 126 decision variables. These allocations
restrictions to solve for an optimized “base case.” This optimized correspond to flows every month to the four types of water users
allocation shows how much more value could be gained from the represented by demand functions 共urban use, irrigation, hydro-
available water resources, if only the water could be used in those power, and reservoir recreation兲. This optimization is subject to
times and places where its value is highest. Under this approach, 412 constraints 共including 72 monthly constraints for minimum
this optimized base case can now be compared to what would be instream flows, 12 monthly constraints on interprovincial appor-
optimal under other cases of interest, such as those with alternate tionment, eight constraints on minimum and maximum reservoir
levels of water supply or demand. storage capacity, eight constraints on initial and final reservoir
A second approach to simulating current 共suboptimal兲 practice storage volumes, 144 diversion node constraints, and 168
as the outcome of computational optimization is to alter the ob- monthly constraints characterizing the SSRB inflows兲. The objec-
jective function through changes in the value of water at various tive function is nonlinear, and the computational algorithm em-
times and locations. This approach maintains the assumption that ploys sequential quadratic programming to iterate to each
the current agents and allocation processes are indeed optimizing, solution.
but allows that, individually or collectively, users may face other A model solution includes the optimized value of the objective
costs or barriers not readily observed by the modelers. For ex- function and the levels of each of the 126 decision variables, such
ample, various transactions costs and information costs could be as hydropower and reservoir releases, and flows of water to irri-
the reason that the current outcome is suboptimal. Accordingly, gators and to each city. One can aggregate these data temporally
additional costs to users would be introduced through an econo- and spatially to see the allocations and values of water to users at
metric calibration exercise—effectively reducing some demands each demand node or in each sector. The solution values also
in the objective function. describe the “shadow value” of water at each demand node,
This second calibration methodology is presented by Howitt which can be interpreted as the potential increase in the dollar
共1995兲 as “positive mathematical programming,” and it would value of the objective function from increasing any one of the 412
remove the need to distinguish between the so-called current al- model constraints, holding all else constant.
location and the base case 共or “optimized” current allocation兲.
This approach cannot be implemented directly with the Aquarius
software. Fortunately, both methodologies ultimately allow a rela- Results
tive comparison between the same counterfactual scenarios and a
共suboptimal兲 base case, although the two approaches’ cost as- Table 1 presents the aggregate economic benefits obtained in each
sumptions will differ. scenario, and Table 2 reports the corresponding allocations of
In the analysis that follows, the current allocation and the op- annual water volumes. The current value of economic benefits
timized base case are computed and compared to four alternative 共estimated as consumers’ surplus兲 is about $930 million per year,
scenarios. The first three counterfactual scenarios are imple- which could be increased to about $1,123 million per year if
mented one at a time, holding constant all other data and assump- water could be moved freely and costlessly to its highest valued
tions in the optimized base case. These scenarios are 共1兲 holding uses. The allocated annual volumes are about 10,800 MCM in the
constant the vertical intercepts, the demand curves for all urban current allocation and would increase to about 14,100 MCM in
demanders have a 30% higher valuation of the current allocated the optimized base case, where these figures include the reuse of
volume; 共2兲 holding constant the vertical intercepts, the demand return flows. Since the spatial scope of the valuation estimates is
curves for all irrigation demanders have a 30% higher valuation the province of Alberta, only the value of changes affecting Al-
of the current allocated volume; and 共3兲 holding constant the ini- berta residents is considered, as in the examination of water
tial demand valuations, the inflow water supplies to the basin are policy alternatives at the province level. Subject to meeting the
decreased by 30%. For the fourth scenario, all of the changes existing water sharing agreement in each scenario, further de-
共1兲–共3兲 occur together. That is, in 共4兲, a water basin with consid- creases in water allocations to downstream jurisdictions do not
erably increased water valuations 共relative to now兲 faces a 30% diminish economic benefits to Alberta.
decline in water supply. Both Tables 1 and 2 describe the changes in outcomes between
These scenarios represent the adjustments that might be made, pairs of scenarios in absolute terms and as percentages of the
if, for example, there were to be higher consumptive demands for optimized base case values. In these tables, the annual values
water, either due to growth in population or irrigated acreage, or have been aggregated over the calendar year, although the model
because there were a desire for more water by existing users, such output includes full month-by-month details. In the optimized

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J. Water Resour. Plann. Manage. 2011.137:92-100.


Table 1. Benefits Accruing to Each Water Use across Six Allocation Scenarios
Municipal Agricultural Hydropower Reservoir Total
and industrial irrigation generation recreation annual benefits
Benefits accruing to each water use Millions of dollars per year
Current allocation scenario 337.9 511.4 73.9 6.244 929.706
Benefits distribution 36.4% 55.0% 8.0% 0.7% 100.0%
Base model 504.7 538.5 72.6 6.538 1,123.144
Benefits distribution 44.9% 47.9% 6.5% 0.6% 100.0%
共1兲 Increased population scenario 655.6 537.9 73.4 6.548 1,273.617
Benefits distribution 51.5% 42.2% 5.8% 0.5% 100.0%
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Absolute value change 150.9 ⫺0.6 0.8 0.01 150.473


relative to the base model
Percent change relative to the base model 29.9% ⫺0.1% 1.1% 0.2% 13.4%
共2兲 Increased agricultural irrigation 504.2 693.0 72.8 6.558 1,276.580
scenario
Benefits distribution 39.5% 54.3% 5.7% 0.5% 100.0%
Absolute value change relative ⫺0.5 154.5 0.2 0.02 153.436
to the base model
Percent change relative to the base model ⫺0.1% 28.7% 0.3% 0.3% 13.7%
共3兲 Low hydrologic regime scenario 503.6 532.8 54.1 6.558 1,096.910
Benefits distribution 45.9% 48.6% 4.9% 0.6% 100.0%
Absolute value change relative ⫺1.1 ⫺5.7 ⫺18.5 0.02 ⫺26.234
to the base model
Percent change relative to the base model ⫺0.2% ⫺1.1% ⫺25.5% 0.3% ⫺2.3%
共4兲 Increased population, 652.0 668.8 54.0 6.498 1,381.265
increased agricultural irrigation
and low hydrologic regime scenario
Benefits distribution 47.2% 48.4% 3.9% 0.5% 100%
Absolute value change relative 147.3 130.3 ⫺18.6 ⫺0.04 258.121
to the base model
Percent change relative to the base model 29.2% 24.2% ⫺25.6% ⫺0.6% 23.0%

base case in Table 1, urban and agricultural uses of water account 共220%兲, as measured by gross withdrawals, as do the urban 共i.e.,
for the largest share of benefits 共45 and 48%, respectively兲, municipal and industrial兲 water users. Fig. 2 illustrates the key
whereas the shares to hydropower 共7%兲 and reservoir recreation allocation results.
共⬍1%兲 are relatively small. Table 2 shows that to achieve these In the hypothetical Scenario 共1兲 where the urban demand in-
relatively similar levels of benefits in the optimized base case, creases, the urban withdrawals increase by about 18.5%, yet the
agricultural water users use more than twice as much water decline in withdrawals for irrigation is only about 4%. This real-

Table 2. Water Flows Allocated to Each Water Use across Six Allocation Scenarios
Municipal Agricultural Hydropower Reservoir Total annual
and industrial irrigation generation releases allocated flows
Allocated flows to each water use Millions of cubic meters per year
Current allocation scenario 238.9 2,051 2,462.3 6,046.3 10,798.50
Base model 1,624.3 3,579.3 2,462.3 6,436.9 14,102.80
共1兲 Increased population scenario 1,924.2 3,439.1 2,462.3 6,445.8 14,271.40
Absolute value change relative to the base model 299.9 ⫺140.2 0 8.9 168.6
Percent change relative to the base model 18.5% ⫺3.9% 0.0% 0.1% 1.2%
共2兲 Increased agricultural irrigation scenario 1,424.7 3,821.6 2,462.4 6,447.1 14,155.80
Absolute value change relative to the base model ⫺199.6 242.3 0.1 10.2 53
Percent change relative to the base model ⫺12.3% 6.8% 0.0% 0.2% 0.4%
共3兲 Low hydrologic regime scenario 1,433.0 3,283.1 1,723.6 5,184.2 11,623.90
Absolute value change relative to the base model ⫺191.3 ⫺296.2 ⫺738.7 ⫺1252.7 ⫺2,478.9
Percent change relative to the base model ⫺11.8% ⫺8.3% ⫺30.0% ⫺19.5% ⫺17.6%
共4兲 Increased population, increased agricultural irrigation and 1,573.0 3,247.9 1,723.6 5,346.9 11,891.40
low hydrologic regime scenario
Absolute value change relative to the base model ⫺51.3 ⫺331.4 ⫺738.7 ⫺1,090 ⫺2,211.4
Percent change relative to the base model ⫺3.2% ⫺9.3% ⫺30.00% ⫺16.9% 0%

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J. Water Resour. Plann. Manage. 2011.137:92-100.


Allocated water (Mcm) is clearly a “once only” short-term response consistent with the
15,000
1-year optimization interval. A multiyear model would likely
12,500 store more water for future use.
10,000 Scenario 共4兲 combines the increased valuations in water with a
supply shortfall, so that the optimized reallocations depend
7,500
largely upon the relative valuations or own-price elasticities of
5,000 demand. The resulting percentage declines in water use are about
2,500 3, 9, and 30% for urban, agricultural, and hydropower users, re-
spectively. The increased benefits to urban users and to agricul-
ture 共29 and 24%, respectively兲 are lower than without a shortage.
0
Current Base model Increased Increased Low Increased
allocation population agricultural hydrologic demand - The decrease in benefits to hydroproduction 共25.6%兲 is slightly
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scenario irrigation regime reduced


Scenarios
supply greater than when the shortfall was not accompanied by increased
Municipal and industrial Agricultural irrigation Hydropower generation Reservoir Releases demands in the other two sectors.
The model’s results for marginal water valuations in each
Fig. 2. Allocated flows across water uses and scenarios, measured in water use vary markedly within the 1-year optimization horizon.
millions of cubic meters per year These values play a crucial role in the water allocation mecha-
nism, as the model is built to transfer water from low-valued uses
to high-valued uses. Since the allocation is subject to such a large
location pattern illustrates the strength of the spatial analysis in
number of physical, operational, and institutional constraints, it is
Aquarius. The largest urban center withdraws and returns water
not possible to achieve perfect equality in marginal water values
upstream of the main agricultural intakes, so that additional urban
across all uses.
use does not significantly crowd out other uses downstream.
The required apportionment flows from Alberta to
In terms of aggregate economic benefit associated with this in-
Saskatchewan are lowest in the case of the increased demand-
creased urban water use, Scenario 共1兲 sees urban benefit increase
reduced water supply scenario 共3,870 MCM/a兲 compared to esti-
by 30%, with insignificant decline in the value of irrigation
mated flow volumes of 6,430 MCM/a in the current allocation
benefits.
scenario. The monthly pattern of these transboundary flows shows
In Scenario 共2兲 there is an increased demand for irrigation
that as seasonal water demands increase, peaking in the summer
water, and gross irrigation withdrawals increase by about 7% rela-
months, the allocated apportionment flows approach the mini-
tive to the optimized base case. Urban uses are cut back by about
mum required values. Table 3 provides specific figures for the
12% to accommodate these demands. This pattern reflects, in part,
transboundary apportionment flows, along with an indication of
the lower base levels of use in the urban centers from which to
those months when this constraint would be binding under the
make reductions. The resulting benefits from agricultural use of
alternative scenarios.
water increase by about 29% compared to the optimized base
The instream flow requirements appear to play an important
case, with insignificant reduction in urban benefits. In both Sce-
role in the optimized water allocations. These graphs show that,
narios 共1兲 and 共2兲, there is no reallocation of water away from
especially at the beginning and the end of the year and more
hydropower generation, and only a small 共⬍1%兲 increase in res-
evidently in scenarios where there is an increased pressure from
ervoir releases.
demand or supply changes, allocated flows equal the required
Scenario 共3兲 leaves demand unchanged and examines optimal
ones 共i.e., the instream flow constraints are binding兲.
responses to a decrease in basin inflows. In this case, a consider-
able part of the adjustment comes from a reduction in allocations
to hydropower generation, reservoir volumes, and reservoir rec-
reation. For example, water that might have otherwise been stored Conclusions
through the summer months to generate electricity in winter is
now released in summer when it has higher value for agricultural For the set of counterfactual scenarios considered here, there ap-
and urban users. To accommodate this simulated water shortfall, pears to be sufficient surface water resources in the SSRB of
urban users would withdraw about 12% less water than in the Alberta for users to accommodate significant short-term alter-
optimized base case, and agricultural users would withdraw about ations in either water supply or water demand. However, substan-
8% less. The estimated decline in resulting benefits is negligible. tial short-term reallocations of water among users might be
The use of the reservoir storages to respond to a supply shortfall required to achieve the greatest benefit in any such circumstance.

Table 3. Allocated Apportionment Flows across Scenarios


Apportionment flow
Total inflows Number of months
106 m3 共%兲 when constraint is binding
Current allocation scenario 6,431.5 76.6 2: 共June, July兲
Base model 5,177.1 61.7 3: 共May, June, July兲
共1兲 Increased population scenario 5,186.1 61.8 3: 共May, June, July兲
共2兲 Increased agricultural irrigation scenario 5,060.3 60.3 4: 共May, June, July, August兲
共3兲 Low hydrologic regime scenario 3,881.7 66.05 1: 共July兲
共4兲 Increased population, increased agricultural irrigation, and 3,870.4 65.9 1: 共July兲
low hydrologic regime scenario

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J. Water Resour. Plann. Manage. 2011.137:92-100.


The institutions and mechanisms for encouraging short-term Alberta Environment. 共2002兲. South Saskatchewan River Basin non-
water reallocation have historically not been asked to make ad- irrigation water use forecasts, Hydroconsult EN3 Services Ltd., Ed-
justments as large as those modeled here. The changes in annual monton, Alta.
benefit levels estimated across scenarios illustrate the potential Alberta Environment. 共2005兲. “Alberta climate model 共ACM兲 to provide
economic gain from exercising this capacity and flexibility when climate estimates 共1961–1990兲 for any location in Alberta from its
needed. geographic coordinates.” 具http://environment.gov.ab.ca/info/library/
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The Aquarius computational modeling platform brings eco-
Alfieri, L., Perona, L. P., and Burlando, P. 共2006兲. “Optimal water allo-
nomic values into this analysis in a manner that is well supported
cation for an alpine hydropower system under changing scenarios.”
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and validation. This software is capable of incorporating numer- Bow River Basin Council. 共2005兲. “Nurture, renew, protect: A rep. on the
ous spatial and temporal relationships that simpler models could state of the Bow River Basin.” Calgary, Alta., 具http://www.brbc.ab.ca/
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not address, such as for basin hydrology and for the benefits from issues2.asp典.
water use. For instance, in a basin where the relatively high rate Brown, T. C., Diaz, G. E., and Sveinsson, O. G. B. 共2002兲. “Planning
of urban return flows upstream makes water available water allocation in river basins—Aquarius: A system’s approach.”
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irrigation—the characterization of each sector’s optimal water al- Office of Water Quality, Advisory Committee on Water Information,
locations depends on specific economic tradeoffs that are too nu- Reston, Va., 具http://www.fs.fed.us/rm/value/docs/planning_water_
merous to analyze by simpler methods. allocation_river_basins.pdf典.
Some analysts may feel constrained by their inability to re- Cutlac, I. M., He, L., and Horbulyk, T. M. 共2006兲. “Integrated modeling
for river basin management: The influence of temporal and spatial
place or to program around some of the hypotheses, assumptions,
scale in economic models of water allocation.” Water Sci. Technol.,
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For example, there is no evident capacity with this software to Diaz, G. E., and Brown, T. C. 共1997兲. “AQUARIUS: A general model
employ alternative demand specifications, or to examine deci- for efficient water allocation in river basins.” Proc., 27th Congress of
sions about the relative roles of alternative crops and irrigation the Int. Association for Hydraulic Research, Theme A: Managing
technologies as potential responses to changing water flows or Water: Coping with Scarcity and Abundance, ASCE, New York,
policies. However, in watersheds such as this one, where more 具http://www.fs.fed.us/rm/value/docs/aquarius_general_model_water_
specialized economic allocation models have not yet been devel- allocation_river_basins.pdf典.
oped and calibrated, the use of the Aquarius platform offers a Diaz, G. E., Brown, T. C., and Sveinsson, O. 共2000兲. “AQUARIUS: A
valuable and accessible analytical platform, against which the re- modeling system for river basin water allocation.” General Technical
sults of any more highly specialized future approaches might be Rep.RM-GTR-299-revised, USDA Forest Service, Rocky Mountain
compared. As illustrated here, in jurisdictions with diverse water Forest and Range Experiment Station, Fort Collins, Colo. 具http://
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The writers acknowledge research funding support from the Ca-
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Saskatchewan River Basin: Irrigation in the 21st Century.” Summary
Excellence of Canada. Rep., Vol. 1, Alberta Irrigation Projects Association, Lethbridge, Alta.
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