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

Approx. $2.2B in revenues

Serving 18 million people in 29 states and Canada

7,100 employees

Industry leader in water related research

American Water – the largest water services provider in North America

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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

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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

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Diversified Municipal Services

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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

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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

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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.

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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.

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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

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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.