Measuring Welfare Losses from Urban Water Supply Disruptions

The paper evaluates welfare losses from urban water supply disruptions for a sample of 53 urban water utilities in California collectively providing service to over 20 million customers. The analysis accounts for the fact that most water utilities engage in a form of average cost pricing where volumetric rates are used to finance fixed expenses. We estimate utility-specific price elasticities for use in the welfare analysis, which are derived from a demand estimation based on a panel data set of 37 California water utilities. Welfare losses for an annual disruption range from an average of $1,458 per acre-foot of shortage for a 10% supply disruption to an average of $3,426 per acre-foot of shortage for a 30% supply disruption. The results indicate a household-level willingness to pay to avoid an annual disruption of approximately $60-$600 depending on the shortage size and location.