1. Houston Area Water Corporation Northeast Water Purification Plant Houston Area Water Corporation Northeast Water Purification Plant October 13, 2000 CDM

2. Agenda Background Information Project Understanding Project Development

3. CDM 10 8 45 610 59 288 290 8 59 Lake Houston East Water Treatment Plant Southeast Water Treatment Plant Existing Water Treatment Facilities

4. CDM 10 8 45 610 59 288 290 8 59 Lake Houston Projected Subsidence (1995-2030) Affects Structures and Drainage 2 3 4 5 5 5 5 4 3 3 3

5. CDM AREA 3 10 8 45 610 59 288 290 8 59 Lake Houston

6. CDM Subsidence District Requires Conversion to Surface Water 30% 70% 80%

7. CDM 10 8 45 610 59 288 290 8 59 Lake Houston Groundwater Quality Will Likely Decline Deteriorating Quality Deteriorating Quality

8. CDM Area 3 Population Growth Increases Need for Conversion

9. CDM 2030 System is Extensive and Complex 10 8 45 610 59 288 290 59 Lake Houston Proposed Southwest Treatment Plant NEWPP Treatment Plant 300+ mgd 8 Proposed Existing

10. CDM 10 8 45 610 59 288 290 8 59 Lake Houston NHCRWA is a Large Potential Customer NHCRWA

11. CDM NHCRWA NEWPP Treatment Plant 300+ mgd Proposed Southwest Treatment Plant NHCRWA May Develop Their Own Transmission System 10 8 45 610 59 288 290 8 59 Lake Houston Proposed Existing

12. CDM 2020 System Provides Broad Coverage NHCRWA NEWPP Treatment Plant 200-265 mgd Proposed Southwest Treatment Plant 10 8 45 610 59 288 290 8 59 Lake Houston Proposed Existing

13. CDM 2010 System Meets Subsidence District Requirements 10 8 45 610 59 288 290 8 59 Lake Houston NEWPP Treatment Plant 100-150 mgd Proposed Existing NHCRWA

14. CDM Initial Phase (2003) Initiates Regional Solution 10 8 45 610 59 288 290 8 59 Lake Houston NEWPP Treatment Plant 80-100 mgd Proposed Existing NHCRWA

15. CDM Market Needs Excess Capacity Provides Multiple Benefits Perception/ Legislative Incremental Cost #3 More cost-efficient to build with the future in mind #2 North Harris County is counting on this project — a smaller plant sends the wrong signal #1 Azurix believes that the market will exist for excess capacity by 2003

16. CDM Excess Capacity Lowers Cost to Customers $/Gallon Capital Cost

17. CDM Filters Filter Gallery (Pipe Gallery Below) Flash Mixers Flocculators Distribution Channel Sedimentation Basins (2 Tray - Stacked) Distribution Channel Settled Water Channel Future Ozone Contactor if Necessary Treated Water To LLPS Collection Channel Raw Water Treatment Module 100 mgd FUTURE MODULE Design Anticipates Expansion and Regulatory Changes

18. CDM Northeast Water Purification Plant Illustration

19. CDM Step 1: Form LGC Formation of LGC Director Appointments City of Houston Local Government Corporation Transfer of NEWPP Procurement Process Board of Directors 6/200020036/20032002 2001 10/13 Created: 8/23

20. CDM Step 2: Select Partner Houston Area Water Corporation Houston Area Water Corporation 6/200020036/20032002 2001 10/13 Azurix / CDM Team Azurix / CDM Team 11/15 1/15 Design Construction Operation Financing Marketing

21. CDM Step 3: Purchase/Sell Water with COH City of Houston Azurix / CDM Team in association with Houston Area Water Corporation Azurix / CDM Team in association with Houston Area Water Corporation Sale of Raw Water Sale of Treated Water $ 6/200020036/20032002 2001 10/13 1/15 $

22. CDM Step 4: Market Excess Capacity Sale of Treated Water 6/200020036/20032002 2001 10/13 1/15 North Harris County North Harris County Azurix / CDM Team in association with Houston Area Water Corporation Azurix / CDM Team in association with Houston Area Water Corporation

23. CDM Step 5: Lease NEWPP Site Lease of Site Land 6/200020036/20032002 2001 10/13 1/15 Azurix / CDM Team in association with Houston Area Water Corporation Azurix / CDM Team in association with Houston Area Water Corporation City of Houston

24. CDM 6/200020036/20032002 2001 10/132/15 Step 6: Obtain Financing Interim Financing Interim Financing Excess Capacity Financing Excess Capacity Financing Long-Term Tax-Exempt Financing Long-Term Tax-Exempt Financing Azurix / CDM Team in association with Houston Area Water Corporation Azurix / CDM Team in association with Houston Area Water Corporation

25. CDM Funding Availability Includes Several Options Near Term (0-6 months) Bonds Excess Capacity  Tax-exempt revenue-based financing on volumes purchased by COH and some excess capacity  Texas Water Development Board State Participation Program  Un-rated tax-exempt bonds  Team purchase of capacity  Provided by Azurix / CDM team members

26. CDM Skills Required Azurix Pepper-Lawson Others Salomon Smith Barney Smith Graham & Co. CDM Others Azurix Thacker Vinson & Elkins Mayor Day Houston Area Water Corporation Houston Area Water Corporation Lobbying Local Legal Marketing Operation Financing Design Construction All

27. CDM Questions and Answers