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Commodity Cost Adjustment Clauses Steve L. Klick Manager-Rates and Regulation Pennsylvania American Water

NARUC Staff Committee on Accounting and Finance October 10, 2007. Commodity Cost Adjustment Clauses Steve L. Klick Manager-Rates and Regulation Pennsylvania American Water. Facts at a Glance. Wholly-owned subsidiary of American Water Works Company, Inc.

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Commodity Cost Adjustment Clauses Steve L. Klick Manager-Rates and Regulation Pennsylvania American Water

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  1. NARUC Staff Committee on Accounting and FinanceOctober 10, 2007 Commodity Cost Adjustment Clauses Steve L. KlickManager-Rates and RegulationPennsylvania American Water

  2. Facts at a Glance • Wholly-owned subsidiary of American Water Works Company, Inc. • Largest regulated water and wastewater service provider in Pennsylvania • Communities Served: 378 in 35 counties • Customers Served • 628,000 water • 92% residential • 7% commercial • 1% institutional/other • 14,500 wastewater • Population Served: 2.1 million

  3. Facts at a Glance • Treatment Facilities • 36 surface water • 28 facilities received 5-Year Directors Award from Partnership for Safe Water • 63 groundwater treatment plants • 4 wastewater plants • Avg. daily delivery: 215 MGD • Source of supply: 92% surface, 6% wells and 2% purchase • Distribution system: over 9,200 miles • Customer Assistance: H2O - Help to Other program

  4. What Are Commodity Cost Adjustment Clauses? Rate mechanisms to pass-through periodically increases or decreases in the per unit cost of producing water

  5. What Commodities May Be Included? Power Water Chemicals Residuals Handling

  6. Commodity Cost Adjustment Clauses Are Not… Not a pass through of the cost of increased units of the commodity. For example, increases in greater sales of water requiring greater power, chemicals or sludge hauling. Not a pass through of increases in commodity costs because of growth. Not a pass through of commodity costs if the water company is earning in excess of its last allowed rate of return. Not a pass through of Administrative and General Costs (A&G) or affiliate charges

  7. 2005 NAWC O&M Expense Source: 2005 NAWC F&O Statistics

  8. Who Cares About Commodity Cost Adjustment Clauses? Rating Agencies (S&P, Moody's, Fitch) Investors Commissions

  9. Commissions Which Permit Commodity Cost Adjustment Clauses Connecticut Delaware Florida Illinois Indiana Missouri • Ohio • Pennsylvania • New Jersey (PWAC and PSTAC) • New York • Texas

  10. What is the Incentive to Keep These Costs As Low As Possible? Purchased Water and Power Rates are typically set by the same utility commission that regulates the water company Chemicals, Sludge Hauling and Property Taxes Pass through only a portion (85%/15%) to provide incentive to challenge costs. (NY PSC and property taxes)

  11. Thank you Steve L. Klick, Manager-Rates and RegulationPhone: (717) 531-3253E-mail: steve.klick@amwater.com

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