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CRITICAL INFRASTRUCTURE PROJECT IMPLEMENTATION— A WATER PERSPECTIVE

CRITICAL INFRASTRUCTURE PROJECT IMPLEMENTATION— A WATER PERSPECTIVE. NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE SPRING MEETING New Orleans April 2, 2008 Walton Hill and Sameet Master. United Water at a Glance. 139 years in the US water market

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CRITICAL INFRASTRUCTURE PROJECT IMPLEMENTATION— A WATER PERSPECTIVE

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  1. CRITICAL INFRASTRUCTURE PROJECT IMPLEMENTATION—A WATER PERSPECTIVE NARUC STAFF SUBCOMMITTEE ON ACCOUNTING AND FINANCE SPRING MEETING New Orleans April 2, 2008 Walton Hill and Sameet Master

  2. United Water at a Glance • 139 years in the US water market • 2000: Became wholly owned subsidiary of Suez Group • Key Highlights • Revenues $600M • Total assets $2.0B • 2,000 employees • Active in 20 States • 6.5 Million people served • Two Business Segments: • Regulated and Contract Services • 21 Regulated utilities • 138 O&M contracts* Strategy: Develop a balanced portfolio of Regulated and Contract Services operations that generate value in line with their risk profiles * includes 2007 Aquarion and AOS Acquisitions

  3. The New York Experience • Established and evolving regulatory framework and practice since 1977 • History of “normal” rate cases, regulatory improvements • New era of greatly increasing capital requirements—two examples • A new approach that works for major capital projects for water supply and/or water quality, not revenue producing

  4. United Water New RochelleDelaware Interconnection Project

  5. Key Statistics - United Water New Rochelle • Regulated by: • New York Public Service Commission (PSC) • New York Department of Health (DOH) • Population served: 145,000 • Service Area: Westchester County, NY • Average daily production: 21 mgd • Max. daily production: 36 mgd • Total peak hour production: 50 mgd

  6. UWNR Service Area • New Rochelle • North Pelham • Pelham • Pelham Manor • Tuckahoe • Seasonal Supply – Briarcliff Manor • Communities Served: • Ardsley • Bronxville • Dobbs Ferry • Eastchester • Greenburgh • Hastings

  7. Water Supply UWNR

  8. Water Supply Central Avenue PS Catskill Supply Little Catskill PS Delaware Supply (Shaft 22) Distribution System Delaware PS Croton Supply Eliminated Croton Supply Croton PS

  9. Project Drivers/Constraints • Regulatory requirements • Project is required by New York State Department of Health • Croton supply no longer meets EPA regulations • Deficiencies in water supply reliability • Heavy reliance (90% of supply) is on Catskill Aqueduct source • New York City has defined plans for aqueduct repairs – with sustained shutdowns • Catskill shutdown from September to May from 2010 – 2014 • Delaware shutdown continuously as early as 2013 • Lack of adequate storage in the system • Poor supply pressure at times of peak demands • Deficiencies in asset conditions • Minimum redundancy, constant speed pumps, outdated controls • Aged equipment causing deficiencies in chemical storage, handling, spill containment, controls, and safety

  10. Project History/Key Events • 1989 – US EPA promulgated the Surface Water Treatment Rule (SWTR), adopted by DOH • Established criteria for avoiding filtration • Established source water quality requirements • Established disinfection requirements • Established filtration requirements if avoidance criteria not met • Established monitoring and reporting requirements • 1991 – UWNR notified by DOH that the Croton Supply does not meet the SWTR • Provide filtration or discontinue use • 1992 – UWNR began planning for treatment or replacement of the Croton supply • 1993 – DOH requires UWNR to eliminate Croton supply and develop new source of supply, a connection to the Delaware • UWNR developed concept of the DIP with new pump station at UWNR property located in the Town of Eastchester, NY, initiates engineering and permitting • 1995 - 2005 – UWNR is in prolonged litigation with the Town, public resistance ongoing (“not in my backyard”)

  11. Project History/Key Events, continued • May 2005 – Application to connect to NYC Delaware Aqueduct filed with NYC • Dec. 2005 – UWNR and Town settle litigation, construction of the Delaware Pump Station begins • April 2007 – Approval from the City of Yonkers to construct the Shaft 22 Transmission Main is obtained • May 2007 – Construction of the Transmission Main begins

  12. Project Current Status • Delaware Pump Station • Construction substantially complete, commissioning and testing underway. • Final completion expected in June 2008 • Shaft 22 Connection/Pipeline • Construction of the transmission main is underway, completion expected in June 2008 • Approval of from NYC to connect to Delaware Aqueduct is imminent, construction expected to begin in May 2008, and completion is expected in September 2008 • System Improvements • Construction substantially complete, commissioning and testing underway. • Final completion expected in June 2008

  13. Project Current Status, continued

  14. Project Budget Summaries • UWNR DIP Expenditures prior to construction include: • Costs incurred since 1992 through July 2005 • Legal, engineering, and company overheads

  15. United Water New YorkHudson River Desalination Project

  16. Key Statistics - United Water New York • Regulated by: • New York Public Service Commission (PSC) • New York Department of Health (DOH) • Population served: 266,000 • Service Area: Rockland County, NY • Average Day: 30 mgd • Peak Day: 46.5 mgd

  17. UWNY Service Area

  18. Water Supply - Current • Existing Sources of Supply • Peak sustainable supply: 45.5 mgd • Short-term peak supply: 48.5 mgd • Additional 3 mgd from RVWF, during peak demand periods, based on Ramapo River flow • Four sources of supply • System Wells (20.5 mgd) • Ramapo Valley Well Field (4 mgd/7 mgd) • Lake DeForest WTP (20 mgd) • Letchworth Village WTP (1 mgd) • System Demands growing 5% - 7.5% per year • Growth rate includes significant conservation measures implemented over the years

  19. Water Supply - Planned

  20. Project Drivers/Constraints • 2006 Rate Case settlement requires UWNY to achieve Average Supply Increases to be implemented in two phases: • Short-Term: 3 – 5 years • Long-Term: 6 – 8 years • 2006 Rate Case* established milestones that UWNY must meet: • Project Description to PSC – January 15, 2007 (Filed) • Preliminary conceptual design – September 30, 2007 (Filed) • Submit DEIS and all required environmental permit applications – September 30, 2008 • Complete pilot plant studies, if required – December 31, 2009 • Obtain Environmental Permits – September 30, 2010 • Complete 50% design – September 30, 2011 • Begin Construction – May 31, 2013 • In-service – December 31, 2015 • Failure to achieve these milestones will result in financial penalties • * State of New York Public Service Commission, Case 06-W-0131, Exhibit 11

  21. Project Budget Summaries • UWNR DIP Expenditures prior to construction include: • Costs incurred since 1992 through July 2005 • Legal, engineering, and company overheads • UWNY LTWSP Expenditures prior to construction include: • Land purchase, legal, and engineering costs to be incurred from 2007 through 2012

  22. NYPSC’s Policy Statement • Established regulatory framework in 1977 • Consistently employed since then (for water) • “Unsuitability of historic test years” • Goal of ratemaking: to ascertain as much as possible revenue, expenses and conditions in the year the new rates will be in effect • Basic framework: historic “base year”, “bridge period” fully forecasted “rate year” • Year end 12-31-07, plus 14 months “bridge”, to date of PSC decision, 2-28-09 begin “rate year”

  23. NAWC’s 2005 Water Policy Forum NARUC’s July 2005 Best Practices Resolution Prospective test years DSIC CWIP (rate base/surcharges) Pass-throughs Consolidation Streamlined rate process Mediation and settlement Integrated resource management Fair return Improved communication NARUC Best Practices

  24. “Rate Year” As A Platform For Continued Improvement • Revenue reconciliation (decoupling) • Plant reconciliation • Cost reconciliations: r/e taxes, purchased water, power and chemicals • Earnings sharing provisions • Multiyear rate plans • “Collaborate or die”—regulatory efficiency

  25. Recent Developments • Distribution System Improvement Charge (DSIC-PA), LTMRP, UIRP • NYPSC Water Supply Surcharge • Regulatory reactions to greatly increasing infrastructure investment requirements

  26. How They Work • Preconstruction—annual filings, primarily to avoid continued AFUDC compounding • During construction, semiannual filings for capital costs • Depreciation, property tax and personnel after closing until next base rate case (CE-AD-ADIT) x ROR+D+P+PT R • Percentage applied to customer bills, annual reconciliation • NY NWSS tied to construction milestones

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