Application of system dynamics for developing financially self-sustaining management policies for water and wastewater systems R. Rehan a , M.A. Knight a, *, C.T. Haas a , A.J.A. Unger b a 200 University Avenue, Department of Civil and Environmental Engineering, University of Waterloo, ON, Canada N2L 3G1 b 200 University Avenue, Department of Earth and Environmental Sciences, University of Waterloo, ON, Canada N2L 3G1 article info Article history: Received 8 December 2010 Received in revised form 16 April 2011 Accepted 3 June 2011 Available online 5 July 2011 Keywords: Waste water collection Water distribution Infrastructure management System dynamics Financial sustainability abstract Recently enacted regulations in Canada and elsewhere require water utilities to be finan- cially self-sustaining over the long-term. This implies full cost recovery for providing water and wastewater services to users. This study proposes a new approach to help water utilities plan to meet the requirements of the new regulations. A causal loop diagram is developed for a financially self-sustaining water utility which frames water and waste- water network management as a complex system with multiple interconnections and feedback loops. The novel System Dynamics approach is used to develop a demonstration model for water and wastewater network management. This is the first known application of System Dynamics to water and wastewater network management. The network simu- lated is that of a typical Canadian water utility that has under invested in maintenance. Model results show that with no proactive rehabilitation strategy the utility will need to substantially increase its user fees to achieve financial sustainability. This increase is further exacerbated when price elasticity of water demand is considered. When the utility pursues proactive rehabilitation, financial sustainability is achieved with lower user fees. Having demonstrated the significance of feedback loops for financial management of water and wastewater networks, the paper makes the case for a more complete utility model that considers the complexity of the system by incorporating all feedback loops. Crown Copyright ª 2011 Published by Elsevier Ltd. All rights reserved. 1. Introduction Municipal water and wastewater systems deliver clean water to residents, businesses, and industries and collect contami- nated water (wastewater) for treatment and disposal. The health and prosperity of cities depend on well-functioning “out of sight” and often “out of mind” water and wastewater networks. In North America the assigned service life of buried distribution and collection pipes is often 50e75 years (Ministry of the Environment Ontario, 2007; CBO, 2002) even though in some cases these pipes have been in service for more than 100 years. In North America, many cities are faced with the challenge of managing aging water and wastewater infrastructure with limited fiscal and personnel resources while ensuring that adequate levels of service are provided to consumers and customers. In Canada, recent federal and provincial government legislation requires public water agencies to be financially accountable by mandating new reporting requirements. New regulations include the Canadian Institute of Chartered * Corresponding author. Tel.: þ1 519 581 8835. E-mail addresses: rrehan@uwaterloo.ca (R. Rehan), maknight@uwaterloo.ca (M.A. Knight), chaas@uwaterloo.ca (C.T. Haas), aunger@ uwaterloo.ca (A.J.A. Unger). Available at www.sciencedirect.com journal homepage: www.elsevier.com/locate/watres water research 45 (2011) 4737 e4750 0043-1354/$ e see front matter Crown Copyright ª 2011 Published by Elsevier Ltd. All rights reserved. doi:10.1016/j.watres.2011.06.001