SMALL WATER SYSTEMS CHALLENGES AND RECOMMENDATIONS

1. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING SMALL WATER SYSTEMSCHALLENGES ANDRECOMMENDATIONS PRESENTED BY DAVID R. MONIE, PE, PRESIDENT GPM ASSOCIATES & SBW&S CORP.

2. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

3. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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.

4. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

5. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

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

7. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

8. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

9. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

10. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE 2008 FALL MEETING 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

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