Regulatory Best Practices for Small Water Companies

1. Regulatory Best Practices for Small Water Companies May 6, 2009 John Hoy Chief Regulatory Officer

2. About Us • 43 years old • Operations in 15 states • Serving over 1 million people • 90 subsidiary companies • Provide water, wastewater and reuse water services

3. Reuse Water • 18 public access reuse plants in FL, NC, GA & NV (#19 planned for AZ) • Reuse customers include golf courses, nurseries, car washes and residential • 10 million gallons per day of reuse capacity

4. Water Utility Landscape • Fragmented • Over 52,000 Utilities in the US • Regional/Local in Nature • 85% Municipally owned • Minority regulated by State Commissions • 20% compared to 80% Electric • Product is Ingested • Stringent EPA regulation • Capital intensive

5. Relative Utility Bills • However, water is priced the lowest of the major household utilities. Source: U.S. Bureau of Labor Statistics

6. Community Water System Breakdown 83% of the total systems serve just 9% of the total population Source: EPA 2008 Drinking Water Factoids

7. Aging Water Infrastructure • The EPA is projecting $320 billion will need to be invested in community water systems over the next 20 years. • Similar need on the wastewater side Source: EPA 2007 Needs Survey

8. Aging Water Infrastructure • The burden will be greatest on small system customers

9. Small System Infrastructure Needs Source: EPA 2007 Needs Survey

10. Small Water Utility Issues • Deteriorating infrastructure • Meeting growing environmental regulations • Access to capital • Spreading costs over small customer base • Regulatory lag and cash flow • Rate case expense

11. The Perfect Storm • Fragmented Industry • + Capital Intensive • + Aging Infrastructure • + Increased Public Health Requirements • + Tight Credit Markets • + Scarce Supply • + Security Concerns

12. NARUC is Focused on Best Practices • Resolution Supporting Consideration of Regulatory Policies Deemed as “Best Practices” • (Excerpt) • WHEREAS, Small water company viability issues continue to be a challenge for regulators, drinking water program administrators and the water industry; best practices identified by Forum participants include: a) stakeholder collaboration; b) a memoranda of understanding among relevant State agencies and health departments; c) condemnation and receivership authority; and d) capacity development planning; • _______________________________________________ • Sponsored by the Committee on Water • Adopted by the NARUC Board of Directors July 27, 2005 • Product of the 2005 NAWC Water Policy Forum

13. Other Regulatory Objectives • Safe and adequate service at just and reasonable rates • Financially stable utilities • System consolidation • Infrastructure replacement • Minimal rate shock • Streamlined rate proceedings • Conservation Need Picture Source: National Draught Monitor Mitigation Center

14. Best Practices • Consolidation • Limit new utilities • Incentives to acquire troubled systems • Incentives for efficiency improvements • Single tariff pricing • Combining water, wastewater and reuse water

15. Best Practices • Alternative Ratemaking • Future Test Years • Indexes/Trackers • DSICS • Surcharges • Phased-in Rates • Expedited Rate Proceedings • Limited Proceedings • Mediation and Settlement Procedures • Small Company Filings

16. Best Practices • Promoting Conservation • Tiered Rates • Repression Adjustment • Reuse Incentives • Decoupling • Communication, Education and Collaboration

17. Regulatory Best Practices for Small Water Companies May 6, 2009 John Hoy Chief Regulatory Officer