1. October 15, 20081 SMALL WATER SYSTEMS CHALLENGES AND RECOMMENDATIONS PRESENTED BY DAVID R. MONIE, PE, PRESIDENT GPM ASSOCIATES & SBW&S CORP. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

2. October 15, 20082 WHAT IS A SMALL SYSTEM? EPA – Less than 3,300 Population (1,000 Service Connections) Reality – Less than 500 Service Connections – >500 Can Support a Family Extreme Reality – Less than 100 Service Connections NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

3. October 15, 20083 SMALL SYSTEMS Will continue to be part of the the industry and will be an on-going concern to Regulators and the Industry – Some have said, The only good small system is the one that was just been acquired – the only good small system is the dead small system. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

4. October 15, 20084 NOT ALL SMALL SYSTEMS ARE BAD Many have maintained a high standard of regulatory compliance and service Even Extremely Small Systems can be Good Small Systems – Example of 2 systems with <30 customers each with significant need for capital expenditure that will remain viable NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

5. October 15, 20085 GOOD OR BAD SMALL SYSTEMS DO OFFER A CHALLENGE TO BOTH THE REGULATOR AND WATER INDUSTRY The issue has been on the agenda of many NAWC and NARUC conferences over the past years It also occupies much of the time of the Regulators Without much having been accomplished NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

6. October 15, 20086 ATTRIBUTES OF GOOD SMALL SYSTEMS An Owner Who Cares Access to Capital NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

7. October 15, 20087 WHAT IF THE OWNER DOESN’T CARE? Regulations Need to be Enforced May Force Attention to the Water System and Improvement May Motivate a Sale to Another System May Cause Bankruptcy Encourage Consolidation Jawbone Larger Regulated System if Available – Need to Offer Incentives (Acquisition Adj., Higher ROE, STP, etc.) Consolidation of Several Small Systems Can Work Institute Small System Takeover Where Available –Must be Fair Appoint a Receiver NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

8. October 15, 20088 WHAT IF THERE ISN’T ACCESS TO CAPITAL If Rates are Sufficient, Access to Capital Should Follow Drinking Water SRF – Small System Set Asides Owner’s MasterCard Equipment Lease Deals NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

9. October 15, 20089 MAKE RATE INCREASES EASY FOR SMALL SYSTEMS Talked About for Decades, Not Done in Most Jurisdictions Rate Case Costs of $100 - $500 per Customer do NOT Benefit Anyone Automatic Cost of Living Adjustments Easy Access to Adequate Rates Should Allow for Access to Capital and Attention by Owner Service Conditions on Rate Increases May be Required NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

10. October 15, 200810 NAWC SMALL COMPANIES COMMITTEE BEST PRACTICES WORKGROUP The NAWC SCC is Undertaking a Workgroup to Identify Best Practices for Regulating and Managing Small Systems Will Build on Previous White Papers Will Work with NARUC, NASUCA and NRRI to Pilot Best Practices NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING

11. October 15, 200811 QUESTIONS AND COMMENTS For Questions or Comments Following this Meeting: David R. Monie, P.E., President G.P.M. Associates Inc. 1920 Frontage Road, Suite 110 Cherry Hill, New Jersey 08034 Dave@gpmwater.com NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING