Second Annual Pennsylvania Infrastructure Summit David R' Kaufman Vice President of Engineering Penn

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Second Annual Pennsylvania Infrastructure
SummitDavid R. KaufmanVice President of
Engineering Pennsylvania American Water

• April 28, 2009

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Who is American Water?Largest investor-owned
water and wastewater service provider in U.S.

• Water service provider to approximately 15
  million people in 32 states and in Ontario,
  Canada
• Industry leader in water quality, testing and
  research
• More than 7,000 dedicated employees nationwide
• Treat and deliver more than 1 billion gallons of
  water daily
• Listed on New York Stock Exchange (NYSE AWK)

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Our Company

• Founded 1886 Subsidiary of American Water Works
  Co. Inc.
• Largest regulated water and wastewater service
  provider in PA
• Serving more than 2 million people in 35 counties
• More than 1,000 employees
• Customer base
• 630,000 water customers
• 92 residential
• 7 commercial
• 1 institutional/other
• 17,300 wastewater customers

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Our Pennsylvania Infrastructure

• SOURCE OF SUPPLY
• 65 regulated dams
• 85 groundwater well stations
• 93 surface water
• 5 groundwater
• 2 purchased water
• TREATMENT FACILITIES
• 36 surface water plants
• 27 facilities received 5-Year Directors Award
  from Partnership for Safe Water
• 6 wastewater plants

• STORAGE TRANSMISSION
• Approx. 250 water storage tanks
• Approx. 260 booster stations
• DISTRIBUTION SYSTEM
• 9,600 miles of pipe
• WATER CAPACITY
• 216 MGD average daily delivery
• WASTEWATER CAPACITY
• 8 MGD permitted

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Our Service Areas
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U.S. Water Industry Inefficient Business Model

• More than 50,000 community water systems
• In PA, 2,200 community water systems
• 84 percent of U.S. water systems serve less than
  3,300 people
• Less than 1 percent of the water systems serve
  more than 100,000 people
• 86 percent of water systems controlled by
  government (Wastewater - 98 percent of
  systems are municipally owned)
• Highly fragmented industry Few providers of
  scale

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Infrastructure Crisis Looming

• PA water and wastewater systems need 36.5
  billion for capital repairs and upgrades over
  next 20 years
• PA also needs 77.1 billion for OM and debt
  service over next 20 years
• Source Governors Sustainable Water
  Infrastructure Task Force Report, October 2008

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Capital Investments
(Dollars in Millions)
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Sustainable Water Infrastructure Task Force

• Recommendations
• Full-cost pricing for water/wastewater service
• Require asset management
• Implement Collection System Improvement Charge
  (CSIC)
• Regionalization
• Effective system management
• Greater operational efficiency (e.g. reduce
  leaks)
• Maximize non-structural solutions (e.g.
  conservation, water reuse, infrastructure
  planning)
• Improved customer education

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Move Pennsylvania Toward Full-Cost Pricing

• Ensure utilities are meeting operations and
  capital needs
• Push systems to gradually impose rates that
  reflect full cost of providing service
• Remove responsibility of raising rates from
  elected municipal officials
• PUC would monitor systems to ensure compliance
• Ensure fees collected are reinvested in
  water/wastewater operations

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Require Asset Management

• Ensure all utilities maintain inventory of
  physical assets
• Monitor assets conditions
• Understand risk/impact of asset failure
• Provide the appropriate OM
• Develop long-term plan for rehabilitation/replacem
  ent of major assets

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Implement Collection System Improvement Charge

• Based on Distribution System Infrastructure
  Charge (DSIC), enabling water companies to
  recover qualified system improvements between
  rate cases (Started in 1997)
• Accelerate replacement of deteriorating
  wastewater infrastructure
• Reduce lag in recovering capital expenditures
  through small surcharge, avoid rate shock for
  customers
• Recover fixed costs of revenue-neutral collection
  system improvement projects completed/in-service
  between rate cases
• New legislation needed (HB 194)

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Promote Regionalization

• Regional management and staffing
• Integrated planning
• Shared purchasing and equipment
• Physical interconnection of systems (where
  practical)
• Encourage privatepublic partnerships
• Eliminate non-viable systems

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Small Company Acquisitions in 2007/2008

• Redstone Water Company (water)
• Closed March 20, 2007 (SW)
• Mountain Top Estates (water)Closed 5/30/2008
  (NE)
• Claysville-Donegal Joint Municipal Authority
  (water and wastewater) Closed 7/31/2008 (SW)
• Three Lane Utilities (water)Closed 9/10/2008
  (NE)
• Clarion Area Authority (wastewater)Closed
  10/30/2008 (NW)

Company Proprietary and Confidential Information
NOT for External Distribution
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Claysville Wastewater Treatment Plant
Walkway and Safety Grating
BEFORE
AFTER
Note grating completely missing in several
sections.
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Improved Customer Education

• Understand the value of water service
• Critical to public health protection, fire
  protection, economic development and quality of
  life
• Quality water delivered directly to customers
  tap for about one penny per gallon
• Avg. household uses 150 gallons per day 1.50
• Bottled water 1.69 per gallon
• Gasoline 2.05 per gallon