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Water pricing reform is crucial because it must increase consumers’ well-being and enhance the incentive role of tariff. This paper proposes a scenario-based modeling approach to simulate the impact of water pricing reform and water supply restriction policy on consumers’ welfare. To do so, we estimated the Algerian households’ water demand function using an original survey. The estimation results are used to simulate seven scenarios and calculate the variation in consumers’ welfare. We show that reforming water pricing policy will lead to a significant reduction in consumers’ welfare (i.e., −2.4% of household net income per month). Furthermore, a restriction of daily water supply hours results in a welfare loss equivalent to a water price increase by 10%. However, by increasing the second tariff block to production cost (i.e., 28.45 DZD/m3), welfare loss, in terms of net income, is evaluated at only 52 Algerian dinars, which is the lowest loss compared the other scenarios. The paper calls for the adoption of the policy option that causes the lowest losses in term of consumers’ welfare. [ABSTRACT FROM AUTHOR]