Electricity supplies in hydropower-dominated regions are particularly vulnerable to drought which reduces generation and revenues for power producers at intermittent times and severity levels. Managing these financial risks can be more efficiently achieved via strategies that employ a combination of actions that include risk reduction (tariff adjustment), risk retention (reserve funds) and risk transfer (index insurance).

Drought impacts both water and power availability in California, imposing financial risks that are a function of linked natural-engineered-economic systems. Integrated systems models allow for a improved characterization of both supply- and financial-risks, as well as for the development of strategies for better managing them.

The Central Arizona Project (CAP) pumps Colorado River water through a system of aqueducts and reservoirs to 80% of the state’s residents, but drought results in less pumping and forces the CAP to increase its delivery prices to meet its fixed costs. Price increases vary with hydrology, and are disruptive to customers, but can be offset through the use of alternative mechanisms.

Low water levels impose financial risks on both shipping firms and hydropower producers in the Great Lakes. Index insurance linked to water level behavior can be used to effectively manage these risks.

Drought lowers water levels in the Mississippi River, disrupting barge traffic that serves as the most efficient means of transporting many bulk goods (e.g., corn, soybeans). This results in a combination of reduced revenues for shippers and higher costs for producers moving products to market. An understanding of these financial risks allows for improved decisions on how best to manage them.

Hurricanes lead to contaminant releases that are extremely expensive to remediate. Developing strategies for managing the resulting financial risks can facilitate quicker, more effective cleanup that protects public health.

An important measure of power utilities' financial exposure to drought is how utilities' investors (shareholders and bond holders) are impacted, with changes in power generation mix playing an important role.

Water utilities are subject to considerable long-term financial risk due to uncertainties in demand growth and climate, which can result in excess costs for infrastructure when demand growth lags, or reductions in supply reliability if water availability declines relative to historic patterns. New strategies for coordinated management of supply risk and financial risk can improve a utility’s ability to meet its performance goals.

From water transfers to index insurance to infrastructure sequencing, a wide variety of physical and financial tools can help water utilities combat the financial risks of water scarcity.

Designing risk management tools to protect hydropower producers against drought involves an understanding of both hydrological risk and electricity price risk.

Healthcare facilities must often resort to extreme measures during infectious disease outbreaks, such as canceling elective procedures, to ensure sufficient capacity to accommodate the surge of infected patients. This can be effective for maintaining public health, but often results in large losses for hospitals which must be managed if they are to maintain financially stability during these events.

Drought in the Colorado imposes financial risks on both urban and agricultural water users. Novel financial instruments and water market transfer mechanisms can reduce these risks by facilitating more rapid and less expensive re-allocation of water during periods of scarcity.