Regulatory Best Practices for Small Water Companies May 6, 2009 John Hoy Chief Regulatory Officer May 6, 2009 John Hoy Chief Regulatory Officer

2 43 years old Operations in 15 states Serving over 1 million people 90 subsidiary companies Provide water, wastewater and reuse water services About Us

3 Reuse Water 18 public access reuse plants in FL, NC, GA & NV (#19 planned for AZ) Reuse customers include golf courses, nurseries, car washes and residential 10 million gallons per day of reuse capacity

4 Water Utility Landscape Fragmented ―Over 52,000 Utilities in the US Regional/Local in Nature ―85% Municipally owned Minority regulated by State Commissions ―20% compared to 80% Electric Product is Ingested ―Stringent EPA regulation Capital intensive

5 Relative Utility Bills However, water is priced the lowest of the major household utilities. Source: U.S. Bureau of Labor Statistics

6 Community Water System Breakdown System Size (by population served) < ,300 3, ,000 10, ,000>100,000 % of Systems56%27%9%7%1% % of Population2%7%10%36%46% Source: EPA 2008 Drinking Water Factoids 83% of the total systems serve just 9% of the total population

7 Aging Water Infrastructure System SizeNeed ($Bil) Large (>100,000) $116.3 Medium (3, ,000) $145.1 Small (<3,000) $59.4 Total$320.8 Source: EPA 2007 Needs Survey The EPA is projecting $320 billion will need to be invested in community water systems over the next 20 years. Similar need on the wastewater side

8 Aging Water Infrastructure The burden will be greatest on small system customers

9 Small System Infrastructure Needs Source: EPA 2007 Needs Survey

10 Small Water Utility Issues Deteriorating infrastructure Meeting growing environmental regulations Access to capital Spreading costs over small customer base Regulatory lag and cash flow Rate case expense

11 The Perfect Storm Fragmented Industry + Capital Intensive + Aging Infrastructure + Increased Public Health Requirements + Tight Credit Markets + Scarce Supply + Security Concerns

12 NARUC is Focused on Best Practices Resolution Supporting Consideration of Regulatory Policies Deemed as “Best Practices” (Excerpt) WHEREAS, Small water company viability issues continue to be a challenge for regulators, drinking water program administrators and the water industry; best practices identified by Forum participants include: a) stakeholder collaboration; b) a memoranda of understanding among relevant State agencies and health departments; c) condemnation and receivership authority; and d) capacity development planning; _______________________________________________ Sponsored by the Committee on Water Adopted by the NARUC Board of Directors July 27, 2005 Product of the 2005 NAWC Water Policy Forum

13 Other Regulatory Objectives Safe and adequate service at just and reasonable rates Financially stable utilities System consolidation Infrastructure replacement Minimal rate shock Streamlined rate proceedings Conservation Need Picture Source: National Draught Monitor Mitigation Center

14 Best Practices Consolidation ―Limit new utilities ―Incentives to acquire troubled systems ―Incentives for efficiency improvements ―Single tariff pricing ―Combining water, wastewater and reuse water

15 Best Practices Alternative Ratemaking ―Future Test Years ―Indexes/Trackers ―DSICS ―Surcharges ―Phased-in Rates Expedited Rate Proceedings ―Limited Proceedings ―Mediation and Settlement Procedures ―Small Company Filings

16 Best Practices Promoting Conservation ―Tiered Rates ―Repression Adjustment ―Reuse Incentives ―Decoupling Communication, Education and Collaboration

Regulatory Best Practices for Small Water Companies May 6, 2009 John Hoy Chief Regulatory Officer May 6, 2009 John Hoy Chief Regulatory Officer