Wired has a good article on the need for a smart grid. This excerpt could easily be written about the water industry:

For its first century, then, the electricity industry was a simple affair. Most states anointed a single utility to provide all the power to its citizens. These utilities owned the plants that generated the electricity, the transmission lines that carried it to substations, and the wires that distributed it to customers. When more power was needed, they simply built another coal-fired plant and spliced it onto the grid. Rates had to be approved by a public-service commission, but otherwise the utilities were autonomous… Electricity was inexpensive and abundant, and the system’s reliability was the envy of the world.

What it wasn’t? Efficient. Since the utilities had a captive market and seemingly unlimited access to cheap fossil fuels, they had no incentive to upgrade their leaky old plants. No one complained as long as energy was seen as plentiful and harmless. Then came the fuel crisis of the 1970s, along with the rise of environmentalism. In 1978, Congress began chipping away at the utilities’ dominance by forcing them to buy electricity from independent generation companies that met efficiency goals. Fourteen years later, the government went much further, ordering the utilities to open their transmission lines to all comers.

The result was utter chaos.

The last part (”independent generation”) can be applied to water if we consider the impact of water sales on the management and operations of top-down, bureaucratic water conveyance systems.

Right now, we are seeing a water “grid” meltdown as past abundance gives way to present scarcity. Managers are trying to build more dams and import more water (”more generating capacity”), but the financial and environmental barriers are high.

They need to add demand management (higher prices) and flexibility (water markets) to their set of tools if they are to get their jobs done well.

The trouble is that few water managers were trained in markets and prices, and institutional inertia (long careers and hierarchy) makes it hard for those who DO understand such paradigms to get any traction.

Bottom Line: Water supply can no longer be engineered — it has to be economized. Until then, all we are going to get is politicization and legalization, i.e., endless fights over who takes what from who.