Water Industry Today

1
Water Industry Today

• Current Trends, Future Challenges
• Mid-America Regulatory Conference
• Terry L. Gloriod
• June 18, 2008

2
Where We Are
3
American Water

• Largest investor owned water services provider in
  the United States
• Serves 15.6 million people
• Operations in 32 states and Canada
• 7,000 employees
• Operating Highlights
• 1,600 communities
• 44,000 miles of distribution mains
• 94 surface water treatment plants
• 624 groundwater treatment plants
• 40 wastewater treatment plants
• Operating Revenues in 2007 2.21B
• Plant Property and Equipment 2007 9.32B

4
Water Industry Characteristics

• Fragmentation of the Industry
• Capital Intensity of Water Systems
• Stringent Water Quality Standards
• Declining Water Use by Residents
• Infrastructure Replacement Increasing
• Increasing Rates

5
Drinking Water Industry Fragmentation

• Water and Wastewater
• 53,000 community water systems
• 16,000 wastewater systems
• By Comparison
• 3,200 electric 2,700 gas
• Location
• 86 of small systems (lt10,000 people) within 5
  miles of another system
• 100 within 20 miles

6
Drinking Water Industry Ownership

• 43 of CW Systems are publicly owned
• 90 of large systems (gt 10,000) are publicly
  owned
• 10 of large systems (gt 10,000) are privately
  owned
• 3,000 CWSs collectively serve 81 of the
  population,
• 50,000 systems collectively serve 19 of the
  population

Source US EPA
7
Drinking Water Systems and Population
Source USEPA
8
Capital Intensity Utility Plant/Operating
Revenue
9
Safe Drinking Water Act Regulations Raising the
Quality Bar

• Number of potential contaminants currently
  requiring monitoring and/or treatment
• Inorganic chemicals 16
• Organic chemicals 53
• Microbiological 9
• Disinfection by-products 14
• Radionuclides 6
• Total 98
• USEPA has recently issued a list of 105 new
  contaminants from which candidates for new
  monitoring and/or treatment regulations may be
  developed

10
Changing Water Use Patterns

• Overall Declining Use of Water
• Active conservation where water is in short
  supply
• Passive conservation everywhere else
• Replacement water appliances
• Housing turnover
• 1 to 2 per year decline in residential use

11
InfrastructureNeeds Assessment by USEPA

• 2002 Needs Survey
• Drinking Water 154 billion - 446 billion
  through 2019
  (point estimate 274 billion)
• Clean Water 331 billion - 450 billion
  through 2019
  (point estimate 388 billion)
• Total 485 billion - 896 billion through
  2019
  (point estimate 662 billion)
• __________________________________________________
  _____________
• 2005 Assessment
• 20 year water wastewater infrastructure needs
  could exceed 1 Trillion

12
Utility Plant In Service
Source CE States 2005
13
Out of Sight Infrastructure
Transmission Main Relocation for Roadway
14
American Water 1980 - 2005
Index 1980 1.0
Net Plant Investment per customer
Unit Price of Water
Inflation Index
Water Use per customer
15
OUR STRATEGY

• Regulatory Compliance Water Quality Service
  Quality
• Continue Capital Spend For Infrastructure Renewal
• Keeping Rates Current
• Increased Attention to Efficiency and Reliability
  Through BOPs in a number of operating areas
• Enhanced Focus on Customer Satisfaction and
  Stakeholder Communication
• Growth Through Consolidation or Tuck-Ins
• Public Private Partnerships via Win - Win
  Arrangements
• Balancing Employee Accountability, Performance
  and Rewards (Key to Success)

16
The Replacement of Distribution Systems
Cost per mile / Customers per mile NEW
investment per customer

• Ultimate Impact
• If Customer Density is approximately 72 customers
  per mile
• and Replacement Cost is 100 per foot,
• Each customer equates to approximately 73 ft. of
  main
• Investment per customer is 7,300 for an entire
  system replacement
• Compare to existing average investment per
  customer
• AW 2,800 MAWC 2,125

17
The BIG Question

• How Rapidly Do We Move?
• Ability to Acquire Capital
• Ability to Manage Capital Program Spend
• Ability or Willingness of Customers to Accept
  Increases
• Infrastructure is Out of Sight
• Service Deficiency May Not Be Apparent
• Water is Free

18
The Outlook

• Infrastructure Renewal and Environmental Regs
  will result in increased investment by Water
  Industry
• Rate Relief Requests will become more frequent
  with sharper increases Price of water will
  continue to go up
• Pressures on Small Systems will foster
  consolidation
• Pressure for efficiency and innovation will
  increase
• Pressures on Municipalities will encourage public
  private partnerships however,
• Change in the Basic Structure of the Industry
  is long term

19
Conclusion

• Key To Success
• Customer Communication
• Public Official Involvement
• Engaged Employees
• Sound Asset Management Programs
• Securing Capital - Rate Recovery
• A Measured Approach