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Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse City, MI June 2009

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Page 1: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Impact of Climate Change on theWater Industry and Water Regulation

David K. Baker, President

Indiana American Water

Michigan American Water

MARC - Traverse City, MI

June 2009

Page 2: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Presentation Overview

• Interrelationship between Water & Energy

• Water Industry Greenhouse Gas Profile

• Impacts of Climate Change on the Water Industry

• Required Water Utility RE-actions to the impact of Climate Change

• Midwestern Burden? Cap and Trade impacts on Water Industry

• Regulatory actions to support consumers and investors

• Climate Change – Exacerbating the Global Water Crisis

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Page 3: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Utility Only

O&M Only

Both

Where We AreWe manage more than 350 individual water systems across the country

Every day we operate and manage:

• 45,000 miles of distribution and collection mains

And more than:

• 80 surface water treatment plants

• 600 groundwater treatment plants

• 1,000 groundwater wells

• 40 wastewater treatment plants

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Page 4: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

American Water Subsidiaries

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Page 5: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Interrelationships Between Water and Energy

5Source: US Department of Energy, Dec 2006

Page 6: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Greenhouse Gas Profile – Water Utilities AW Inventory of GHG Emissions

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Emissions Source Category Fuel Quantity Units

Emissions (Metric Tons

CO2e)

Percent Total

Emissions

Stationary Combustion Natural Gas 5,102,952 therms 26,998 3.60%

  Diesel 341,981 gallons 3,457 0.50%

           

Mobile Combustion Gasoline 2,409,305 gallons 22,591 3.00%

  Diesel 401,922 gallons 4,053 0.50%

           

Purchased Electricity Electricity 1,089,424,091 kWh 691,011 92.40%

           

Total Emissions       748,110 100.00%

Emissions in metric tons CO2e includes CO2, N20 and methane emissions

Emissions from flared methane gas and HVAC were both <0.5%

Page 7: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

• Energy costs (primarily Electricity) can range from 20% to 60% of a water utility’s operating budget

• At INAW/MAW, this translates to over 50% of total

production costs per year

• Most energy is consumed in pumping water

• According to Scientific American: Lake or River Source .37kWh/m3 (cubic meter) Groundwater .48 Wastewater treatment .75 Wastewater reuse 1.75 Seawater 5.54

Costs of Water Production and Distribution Contributing to Greenhouse Gases

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Page 8: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Climate Change – Water Related Impacts:

• Rising Temperatures: 11 of the 12 warmest of the past 150 years have occurred since 1995, with an increase of approx. .6 degrees C

• Increasing Evaporation and corresponding precipitation – regional increases and decreases

• Melting of polar ice caps - rising sea levels range from .2 - .6 m*

• Increased extreme events: intensified hydrogeologic cycle which increases floods, droughts and tropical storms

• Anecdotal evidence abounds recently in Midwest with flooding and droughts

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*Intergovernmental Panel on Climate Change, Fourth Assessment Report, 2007

Page 9: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

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Impacts on the Water Utility Industry

• Water Quantity Impacts: reduced in-stream flows, earlier and more intense seasonal snowmelt, reduced aquifer recharge Major increases in demand with peaks coinciding with periods of restricted

supply

• Water Quality Impacts: increased run-off leads to increased sedimentation and pathogen loading, urban storm water runoff, combined sewer overflows, increased algal blooms

• Unique Coastal Impacts: rising sea levels may lead to salt water intrusion of groundwater

• Infrastructure Impacts: increased main breaks due to soil shrinkage and settling, reservoir management due to runoff timing and intensity flood control and water supply considerations

Page 10: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

• Collaborate, understand, predict: Climate Leaders, a voluntary EPA partnership with US Companies to develop long term, comprehensive strategies

• Reduce energy consumption: increased pump efficiencies – VFD’s, testing SCADA optimization Storage and pumping management Conduct energy audits

• Developing Alternative Water Supplies: Desalinization - more than 50% of the US population lives within 50

miles of seawater Making Desalinization more efficient

Appropriate Water Industry Actions in Response to Climate Change

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Page 11: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Appropriate Water Industry Actions – continued

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• Reduce Non-Revenue Water: enhanced pressure management leak surveys, cost benefit analysis enhanced leak detection activities, acoustic technologies

• Maximize Reuse Opportunities: reuse of gray water and wastewater for sanitary and irrigation needs continued research and special projects (Sullair Building, Gillette

Stadium)

• Water Conservation: customer education, in-home water saving devices Indiana’s first state-wide comprehensive wise water use plan promote low-use appliances

Page 12: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Appropriate Water Industry Actions – continued

• Construction of facilities with enhanced Sustainability: lower energy use design reduced waste disposal efficient, regional approaches maximization of existing infrastructure

• Energy Efficiency “Starts at Home”: Increase efficiency/decrease use of mobile combustion – vehicles Fugitive Emissions: Refrigeration and Air Conditioning Stationary Combustion: Water Heaters, on-site generators, pumps

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Page 13: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

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Results of Previous Energy Audits (2003-2006)Recommended Improvements

(E.g. replace impellars, install VFD's, install high efficienty lighting)

PAAW System Capital Cost ($) Annual Savings ($/yr) Payback (years)

PITTSBURGH $673,500 $197,561 3.4

MECHANICSBURG $148,500 $64,305 2.3

NEW CASTLE $17,400 $58,454 0.3

MILTON/WHITE DEER $78,000 $40,777 1.9

INDIANA $32,000 $31,460 1

HERSHEY $12,000 $28,700 0.4

ELLWOOD $33,500 $24,569 1.4

BUTLER $3,000 $12,249 0.2

Page 14: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

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The “Midwestern Burden?”

• The controversy is “on” in the Hoosier State – Cap and Trade legislation

• Production of Midwestern energy is carbon based: 94% of Indiana’s energy is coal produced

• Impact on electricity rates may be as much as 40%

• Dependent upon purchase of emissions allowances – dramatic impact on water utility costs

Page 15: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Regulatory support of Climate Change related Utility Actions and Investments

• Economic support of research and climate change planning• Support of NRW reduction studies and leak detection capital• Collaboration and support of long-term sustainable infrastructure• Expansion of Infrastructure Surcharge Recovery programs to

include necessary replacement capital to support response programs

• Continued and enhanced support of industry consolidation and related efficiencies

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Page 16: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

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Regulatory support of Climate Change related Utility Actions and Investments

• Support of Conservation Programs Appropriate Cost recovery for program investments Customer rate restructuring to curb demand (inclining blocks,

irrigation rates)

• Revenue levelization to deal with flood/drought cycles• Appropriate surcharges/trackers for energy cost recovery between

rate cases• Long range comprehensive planning rate treatment• Establish appropriate rates of return on equity to support new

infrastructure investment

Page 17: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

The Water Industry is the most Capital Intensive of All Utility types

Capital Intensity

$3.48

$1.36

$0.82$1.15

$1.63

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

1-Water 2-Electric 3-Comb E&G 4-Gas Dist. 5-Tel Cos

Source: AUS Utility Reports

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Page 18: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Levelization of RatesEssential to attraction of appropriate investment

Fixed 75%

Variable25%

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Fixed28%

Variable 72%

COST REVENUE

Fixed Cost vs. Fixed Revenue – The Quest for Balance

Page 19: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Climate Change will exacerbate the Global Water Crisis

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• Water is the basic key to life – human and economic sustainability

• Water resources are the foundation of economics – arid countries battle for

the water resource

• Our Nation’s Security is directly linked to water

• Worldwide, 1.1 Billion people lack access to safe drinking water

• 2.6 Billion people lack access to proper sanitation

• Water related illnesses kill over 2 million people per year, most of them

children

Page 20: Impact of Climate Change on the Water Industry and Water Regulation David K. Baker, President Indiana American Water Michigan American Water MARC - Traverse

Impact of Climate Change on the Water Industry and Water Regulation

- - - END OF PRESENTATION - - -

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