The main function of a municipal storage reservoir is to balance differences in supply and demand. Reservoirs have traditionally been designed for three components: balancing, fire and emergency storage. In this paper a stochastic analysis method is proposed to model both the deterministic and probabilistic components of consumer demand, fire demand and pipe failures in water distribution systems. A number of reliability criteria are determined as functions of reservoir capacity, including the failure rate, failure duration and annual fail time. These criteria provide a site-specific way of determining the required reservoir capacity based on user-defined reliability criteria. The method is illustrated by applying it to a simple water supply system. The reservoir failure rate was found to be very sensitive to reservoir capacity and can be described with an exponential function.