Average residential outage cost estimates for the lower 48 states in the US

Highlights: • Discuss residential outage cost estimation methodologies. • Develop a market-based formula for estimating residential electricity outage costs. • Find cost estimates of US$0.12 to US$0.34/kWh for the lower 48 states in the US. • Document these estimates are well below those based on contingent valuation data. • Discuss the pricing and planning implications of low electricity outage costs. Motivated by diverse residential electricity outage cost estimates and possible hypothetical bias of contingent valuation (CV) survey data, this paper proposes a simple formula for market-based estimation of residential outage costs. Its key finding is that average residential outage cost estimates for the lower 48 states of the US range from US$0.12 to US$0.34 per kWh unserved, below the regional CV-based estimates of US$1.0 to US$4.2 per kWh unserved found by a national study. It makes three contributions to the literature of residential outage cost estimation. First, it obviates collecting and analysing CV survey data for estimating average residential outage costs. Second, its proposed formula has minimal data requirements and is applicable to any city, state, region, or country. Finally, it details the policy implications of our newly found empirics in electricity pricing, resource planning, resource procurement, electricity product differentiation, and performance-based regulation of electricity reliability.