WESTERN WATER ISSUES

Thomas Broderick, American Water

NARUC SUBCOMMITTEE ON ACCOUNTING & FINANCE

May 6, 2009

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Water Issues

• Regulated water rates are increasing much faster than general inflation for a number of reasons.

• Statewide single tariffs are a solution to many issues including avoiding large local rate increases driven by large local investment.

• Even though expensive, it’s time to treat available renewable surface water and stop using scarce groundwater.

• There are significant water shortages developing in specific geographies – case study from New Mexico.

• Water conservation is growing in importance.

• Federal stimulus $$$ arriving shortly for water projects – case study from Arizona.

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U.S. Water Rate Increases Outstrip Overall InflationCumulative % Increase Since 1996

0%

10%

20%

30%

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60%

70%

Year

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cen

tag

e In

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CPI for AllItems

CPI forWater &Sewer

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Example of Rate Increase Requested - 73%(in a Small Water District)

$49.38

$85.29

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Residential monthly bill based on 11,767gallons water use in Tubac, AZ

Current

Proposed

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Range of Impact of a Single Residential Water Tariff

Presently, eight separate and unique water tariff districts in Arizona-American’s territory.

Approximate changes in revenue requirement by district if a single water tariff was established for residential water customers in 2010:

# residential customers

• Anthem (48%) rate reduction 8,670

• Tubac (47%) rate reduction 588

• Havasu (43%) rate reduction 1,645

• Agua Fria (18%) rate reduction 35,928

• Sun City West (16%) rate reduction 15,434

• Paradise Valley 3% rate increase 4,889

• Mohave 37% rate increase 16,045

• Sun City 136% rate increase 22,935

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Anthem

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Sun City

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White Tanks Regional WTP

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Treatment Filters

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Groundwater Shortage Developing in Clovis, NM

Exhibit CNew Mexico American Water - Clovis District

Total Well Capacity Compared to Maximum and Average Day Demand

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1992 1994 1997 2000 2002 2005 2008 2011 2013 2016

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Average Day Demand

Maximum Day Demand

Total Well Capacity

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Possible Solutions to Groundwater Shortage (Clovis, NM)

• Drill a test well 2000+ feet deep into new aquifer.

• Build an expensive pipeline from the UTE reservoir.

• Curtailment and conservation.

• Continue to rehabilitate agricultural wells into the same depleting aquifer.

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Water Conservation & Best Management Practices

• Audits & System leak detection

• Meter repair or replacement

• Efficient toilet replacement and rebates

• Landscape conversion rebates and watering restrictions (e.g., time of day)

• Hot water recirculation devices

• Limitations on water features at new developments & water use plan

• Conservation rates

• Plumbing codes for new developments & requirements for retrofit on home resale

• Car wash water recycling

• High water use notification to a customer

• Public awareness

• Many more BMP’s identified

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Federal Stimulus $$$ for Arsenic Removal in Tubac

• Federal US EPA mandate to reduce arsenic from 50 to 10 parts per billion of drinking water beginning 2006.

• Unsubsidized cost in Tubac, AZ is $2.3 m for 535 customers – significant rate increase.

• Company sought an exemption on economic hardship – denied – must comply in 2010.

• Recent application for federal grant via Arizona’s state revolving fund.

• Preliminary approval for $1.15 m forgivable principle – cuts rate impact in half.

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ABOUT AMERICAN WATER

• Founded in 1886.

• Regulated operations in 20 states with more than 7,000 employees serving approximately 15 million people.

• Headquartered in NJ just east of Philadelphia.

• USA’s largest private investor owned water & wastewater utility.

• Publicly traded again since 2008 on NYSE symbol AWK.