Business Interruption Impacts of a Terrorist Attack on the Electric Power System of Los Angeles: Customer Resilience to a Total Blackout

TLDR

Regional economies depend heavily on electricity, making power supply systems attractive terrorist targets. The study estimates the largest category of economic losses—business interruption—from a total Los Angeles blackout, advancing the estimation of indirect effects and resilience. The authors develop improved estimation methods for indirect effects and resilience to assess business interruption losses. Indirect effects are moderate, but resilience can reduce losses by up to 86% and dampen general equilibrium impacts.

Abstract

Regional economies are highly dependent on electricity, thus making their power supply systems attractive terrorist targets. We estimate the largest category of economic losses from electricity outages—business interruption—in the context of a total blackout of electricity in Los Angeles. We advance the state of the art in the estimation of the two factors that strongly influence the losses: indirect effects and resilience. The results indicate that indirect effects in the context of general equilibrium analysis are moderate in size. The stronger factor, and one that pushes in the opposite direction, is resilience. Our analysis indicates that electricity customers have the ability to mute the potential shock to their business operations by as much as 86%. Moreover, market resilience lowers the losses, in part through the dampening of general equilibrium effects.