CRITICAL INFRASTRUCTURE PROJECT IMPLEMENTATION A WATER PERSPECTIVE

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CRITICAL INFRASTRUCTURE PROJECT IMPLEMENTATIONA
WATER PERSPECTIVE

• NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND
  FINANCE SPRING MEETING
• New Orleans
• April 2, 2008
• Walton Hill and Sameet Master

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United Water at a Glance

• 139 years in the US water market
• 2000 Became wholly owned subsidiary of Suez
  Group
• Key Highlights
• Revenues 600M
• Total assets 2.0B
• 2,000 employees
• Active in 20 States
• 6.5 Million people served
• Two Business Segments
• Regulated and Contract Services
• 21 Regulated utilities
• 138 OM contracts

Strategy Develop a balanced portfolio of
Regulated and Contract Services operations that
generate value in line with their risk profiles
includes 2007 Aquarion and AOS Acquisitions
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The New York Experience

• Established and evolving regulatory framework and
  practice since 1977
• History of normal rate cases, regulatory
  improvements
• New era of greatly increasing capital
  requirementstwo examples
• A new approach that works for major capital
  projects for water supply and/or water quality,
  not revenue producing

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United Water New RochelleDelaware
Interconnection Project
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Key Statistics - United Water New Rochelle

• Regulated by
• New York Public Service Commission (PSC)
• New York Department of Health (DOH)
• Population served 145,000
• Service Area Westchester County, NY
• Average daily production 21 mgd
• Max. daily production 36 mgd
• Total peak hour production 50 mgd

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UWNR Service Area

• New Rochelle
• North Pelham
• Pelham
• Pelham Manor
• Tuckahoe
• Seasonal Supply Briarcliff Manor

• Communities Served
• Ardsley
• Bronxville
• Dobbs Ferry
• Eastchester
• Greenburgh
• Hastings

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Water Supply
UWNR
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Water Supply
Central Avenue PS
Catskill Supply
Little Catskill PS
Delaware Supply (Shaft 22)
Distribution System
Delaware PS
Croton Supply Eliminated
Croton Supply
Croton PS
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Project Drivers/Constraints

• Regulatory requirements
• Project is required by New York State Department
  of Health
• Croton supply no longer meets EPA regulations
• Deficiencies in water supply reliability
• Heavy reliance (90 of supply) is on Catskill
  Aqueduct source
• New York City has defined plans for aqueduct
  repairs with sustained shutdowns
• Catskill shutdown from September to May from 2010
  2014
• Delaware shutdown continuously as early as 2013
• Lack of adequate storage in the system
• Poor supply pressure at times of peak demands
• Deficiencies in asset conditions
• Minimum redundancy, constant speed pumps,
  outdated controls
• Aged equipment causing deficiencies in chemical
  storage, handling, spill containment, controls,
  and safety

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Project History/Key Events

• 1989 US EPA promulgated the Surface Water
  Treatment Rule (SWTR), adopted by DOH
• Established criteria for avoiding filtration
• Established source water quality requirements
• Established disinfection requirements
• Established filtration requirements if avoidance
  criteria not met
• Established monitoring and reporting requirements
• 1991 UWNR notified by DOH that the Croton
  Supply does not meet the SWTR
• Provide filtration or discontinue use
• 1992 UWNR began planning for treatment or
  replacement of the Croton supply
• 1993 DOH requires UWNR to eliminate Croton
  supply and develop new source of supply, a
  connection to the Delaware
• UWNR developed concept of the DIP with new pump
  station at UWNR property located in the Town of
  Eastchester, NY, initiates engineering and
  permitting
• 1995 - 2005 UWNR is in prolonged litigation
  with the Town, public resistance ongoing (not in
  my backyard)

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Project History/Key Events, continued

• May 2005 Application to connect to NYC Delaware
  Aqueduct filed with NYC
• Dec. 2005 UWNR and Town settle litigation,
  construction of the Delaware Pump Station begins
• April 2007 Approval from the City of Yonkers to
  construct the Shaft 22 Transmission Main is
  obtained
• May 2007 Construction of the Transmission Main
  begins

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Project Current Status

• Delaware Pump Station
• Construction substantially complete,
  commissioning and testing underway.
• Final completion expected in June 2008
• Shaft 22 Connection/Pipeline
• Construction of the transmission main is
  underway, completion expected in June 2008
• Approval of from NYC to connect to Delaware
  Aqueduct is imminent, construction expected to
  begin in May 2008, and completion is expected in
  September 2008
• System Improvements
• Construction substantially complete,
  commissioning and testing underway.
• Final completion expected in June 2008

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Project Current Status, continued
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Project Budget Summaries

• UWNR DIP Expenditures prior to construction
  include
• Costs incurred since 1992 through July 2005
• Legal, engineering, and company overheads

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United Water New YorkHudson River Desalination
Project
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Key Statistics - United Water New York

• Regulated by
• New York Public Service Commission (PSC)
• New York Department of Health (DOH)
• Population served 266,000
• Service Area Rockland County, NY
• Average Day 30 mgd
• Peak Day 46.5 mgd

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UWNY Service Area
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Water Supply - Current

• Existing Sources of Supply
• Peak sustainable supply 45.5 mgd
• Short-term peak supply 48.5 mgd
• Additional 3 mgd from RVWF, during peak demand
  periods, based on Ramapo River flow
• Four sources of supply
• System Wells (20.5 mgd)
• Ramapo Valley Well Field (4 mgd/7 mgd)
• Lake DeForest WTP (20 mgd)
• Letchworth Village WTP (1 mgd)
• System Demands growing 5 - 7.5 per year
• Growth rate includes significant conservation
  measures implemented over the years

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Water Supply - Planned
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Project Drivers/Constraints

• 2006 Rate Case settlement requires UWNY to
  achieve Average Supply Increases to be
  implemented in two phases
• Short-Term 3 5 years
• Long-Term 6 8 years
• 2006 Rate Case established milestones that UWNY
  must meet
• Project Description to PSC January 15, 2007
  (Filed)
• Preliminary conceptual design September 30,
  2007 (Filed)
• Submit DEIS and all required environmental permit
  applications September 30, 2008
• Complete pilot plant studies, if required
  December 31, 2009
• Obtain Environmental Permits September 30, 2010
• Complete 50 design September 30, 2011
• Begin Construction May 31, 2013
• In-service December 31, 2015
• Failure to achieve these milestones will result
  in financial penalties
• State of New York Public Service Commission,
  Case 06-W-0131, Exhibit 11

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Project Budget Summaries

• UWNR DIP Expenditures prior to construction
  include
• Costs incurred since 1992 through July 2005
• Legal, engineering, and company overheads
• UWNY LTWSP Expenditures prior to construction
  include
• Land purchase, legal, and engineering costs to be
  incurred from 2007 through 2012

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NYPSCs Policy Statement

• Established regulatory framework in 1977
• Consistently employed since then (for water)
• Unsuitability of historic test years
• Goal of ratemaking to ascertain as much as
  possible revenue, expenses and conditions in the
  year the new rates will be in effect
• Basic framework historic base year, bridge
  period fully forecasted rate year
• Year end 12-31-07, plus 14 months bridge, to
  date of PSC decision, 2-28-09 begin rate year

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NARUC Best Practices

• NAWCs 2005 Water Policy Forum
• NARUCs July 2005 Best Practices Resolution
• Prospective test years
• DSIC
• CWIP (rate base/surcharges)
• Pass-throughs
• Consolidation
• Streamlined rate process
• Mediation and settlement
• Integrated resource management
• Fair return
• Improved communication

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Rate Year As A Platform For Continued
Improvement

• Revenue reconciliation (decoupling)
• Plant reconciliation
• Cost reconciliations r/e taxes, purchased
  water, power and chemicals
• Earnings sharing provisions
• Multiyear rate plans
• Collaborate or dieregulatory efficiency

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Recent Developments

• Distribution System Improvement Charge (DSIC-PA),
  LTMRP, UIRP
• NYPSC Water Supply Surcharge
• Regulatory reactions to greatly increasing
  infrastructure investment requirements

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How They Work

• Preconstructionannual filings, primarily to
  avoid continued AFUDC compounding
• During construction, semiannual filings for
  capital costs
• Depreciation, property tax and personnel after
  closing until next base rate case
• (CE-AD-ADIT) x RORDPPT
• R
• Percentage applied to customer bills, annual
  reconciliation
• NY NWSS tied to construction milestones