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U.S. Conference of Mayors Urban Water Council Gulf Coast Water System Disaster Recovery

U.S. Conference of Mayors Urban Water Council Gulf Coast Water System Disaster Recovery. June 29, 2006 Walter Howard, SVP. This document does not constitute an offering. American Water – the largest water services provider in North America. Approx. $2.2B in revenues

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U.S. Conference of Mayors Urban Water Council Gulf Coast Water System Disaster Recovery

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  1. U.S. Conference of MayorsUrban Water CouncilGulf Coast Water System Disaster Recovery June 29, 2006 Walter Howard, SVP This document does not constitute an offering

  2. American Water – the largest water services provider in North America • Approx. $2.2B in revenues • Serving 18 million people in 29 states and Canada • 7,100 employees • Industry leader in water related research

  3. Ownership Scale • 285 water systems • 25 wastewater systems • 285 distribution pipe networks • 40,000 miles of distribution mains • 3 million water meters • 175,000+ fire hydrants • Over 1,000 water tanks • 115+ surface water sources, 625 ground water sources, and 100 dams Public/Private Partnerships • 185 contracts of all sizes • Overseeing the DBO of the largest water treatment facility in North America

  4. Water Works • Regulated by Public Utility Commissioners in each state where we own a utility • American Water bears responsibility for EPA compliance • Capital infusion for municipalities • Extensive community involvement

  5. Diversified Municipal Services

  6. Current situation • Extensive damage to existing infrastructure • Cities have diminished revenues from water and wastewater operations • Amount of reconstruction funds are less than desired • ‘Grant’ funds are limited • Reconstruction and enhancement strategies under discussion • Critical to tap FEMA loan program, but a clear path to repay loans is needed

  7. How does a Regulated Utility function? • An Investor Owned Utility (“IOU”) takes on the “obligation to serve” in a franchise territory • The company invests to construct facilities • A regulated return on equity of approximately 10% is currently allowed by a regulatory bodies (depending on level of interest rates) • Operations are transparent

  8. A method to access and repay FEMA loans • City forms W&S authority with powers to borrow, contract and grant a franchise. BOD appointed, not elected. • W&SA contracts with AW on cost plus basis to design system for not to exceed price. • AW designs system and forms IOU. AW commits to buy system (or parts thereof) as parts go commercial. D/E, required debt ratings and ROE agreed at outset. • City accepts design and applies to FEMA for loan and fast track permits & approvals. W&SA grants franchise to AW.

  9. A method to access and repay FEMA loans(continued) • AW builds system using cost plus, open book approach. Maximum use of local content. City pays on % completion basis. • AW buys back parts of system as they become commercial. • City repays FEMA with proceeds of sales to AW. • AW owns and operates system under local W&S Authority regulation or state DPU, as preferred.

  10. Results • City gets fast tracked system • FEMA gets superior US project management and highest likelihood of repayment • AW provides world-class water and wastewater services

  11. American Water is well positioned • Custom municipal research in 2005 reveals distinct segments with distinct needs which American Water can address • Addressable market is attractive • Nearly $1 trillion needed for water-related infrastructure across the USA • Our size, scope, and experience both as an owner and operator enables American Water to readily address marketplace needs.

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