1. WESTERN WATER ISSUES Thomas Broderick, American Water NARUC SUBCOMMITTEE ON ACCOUNTING & FINANCE May 6, 2009

2. 2 Water Issues Regulated water rates are increasing much faster than general inflation for a number of reasons. Statewide single tariffs are a solution to many issues including avoiding large local rate increases driven by large local investment. Even though expensive, it’s time to treat available renewable surface water and stop using scarce groundwater. There are significant water shortages developing in specific geographies – case study from New Mexico. Water conservation is growing in importance. Federal stimulus $$$ arriving shortly for water projects – case study from Arizona.

3. 3 U.S. Water Rate Increases Outstrip Overall Inflation Cumulative % Increase Since 1996

4. 4 Example of Rate Increase Requested - 73% (in a Small Water District)

5. 5 Range of Impact of a Single Residential Water Tariff Presently, eight separate and unique water tariff districts in Arizona-American’s territory. Approximate changes in revenue requirement by district if a single water tariff was established for residential water customers in 2010: # residential customers Anthem (48%) rate reduction 8,670 Tubac (47%) rate reduction 588 Havasu (43%) rate reduction 1,645 Agua Fria (18%) rate reduction 35,928 Sun City West (16%) rate reduction 15,434 Paradise Valley 3% rate increase 4,889 Mohave 37% rate increase 16,045 Sun City 136% rate increase 22,935

6. 6 Anthem

7. 7 Sun City

8. 8 White Tanks Regional WTP

9. 9 Treatment Filters

10. 10 Groundwater Shortage Developing in Clovis, NM

11. 11 Possible Solutions to Groundwater Shortage (Clovis, NM) Drill a test well 2000+ feet deep into new aquifer. Build an expensive pipeline from the UTE reservoir. Curtailment and conservation. Continue to rehabilitate agricultural wells into the same depleting aquifer.

12. 12 Water Conservation & Best Management Practices Audits & System leak detection Meter repair or replacement Efficient toilet replacement and rebates Landscape conversion rebates and watering restrictions (e.g., time of day) Hot water recirculation devices Limitations on water features at new developments & water use plan Conservation rates Plumbing codes for new developments & requirements for retrofit on home resale Car wash water recycling High water use notification to a customer Public awareness Many more BMP’s identified

13. 13 Federal Stimulus $$$ for Arsenic Removal in Tubac Federal US EPA mandate to reduce arsenic from 50 to 10 parts per billion of drinking water beginning 2006. Unsubsidized cost in Tubac, AZ is $2.3 m for 535 customers – significant rate increase. Company sought an exemption on economic hardship – denied – must comply in 2010. Recent application for federal grant via Arizona’s state revolving fund. Preliminary approval for $1.15 m forgivable principle – cuts rate impact in half.

14. 14 ABOUT AMERICAN WATER Founded in 1886. Regulated operations in 20 states with more than 7,000 employees serving approximately 15 million people. Headquartered in NJ just east of Philadelphia. USA’s largest private investor owned water & wastewater utility. Publicly traded again since 2008 on NYSE symbol AWK.