Greetings, PNWGuy. The Esri Water Team looked at your question and we have these thoughts: You don’t need to create ghost junctions between the sections of pipe as long as they are the same asset group/asset type. Connections between lines with the same asset group/asset type don’t require a junction in the utility network. To maintain the changing material types along the lines you will still need to split them into segments and attribute as needed. Changes in diameter typically have some kind of real world junction feature, that could be captured in the utility network but does not have to be as long as you have the same asset group/asset type between the line segments. There is no industry standard for when you should or should not split your pipe segments. If you choose to spit the lines less often you will have fewer features in your data set which can be beneficial in that you limit the overall size of the dataset. However, if you choose to split the lines more often, you will have more granularity in your data and have more detailed (accurate) results when running analysis such as traces or reports on pipe defects based on material, diameter, pressure rating, etc... Regarding establishing a linear referencing system to model pipe events: This would be extremely complicated to manage in a water distribution network. If it were a couple large transmission mains it might not be that bad, but otherwise we would not recommend this.
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