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SAP Value Proposition for WaterOne

SAP's solution offers cost savings, strategic alignment, and long-term commitment to the water utility industry. It provides improvements in customer information, sourcing, work management, finance, and more.

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SAP Value Proposition for WaterOne

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  1. SAP Value Proposition for WaterOne July, 2007 Enabling WaterOne’s Strategy

  2. Statement of Confidentiality and Exceptions No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. The furnishing of this document shall not be construed as an offer or as constituting a binding agreement on the part of SAP to enter into any relationship. SAP provides this document as guidance only to estimated costs and benefits of the predicted delivery project. These materials are: (i) based upon external and assumptions that are subject to change; (ii) illustrations of potential performance and cost savings; (iii) not guaranties of future performance or cost savings; and (iv) provided solely for internal review and use by the subject Company. SAP AG and its affiliated companies ("SAP Group") make no representations or warranties of any kind with respect to these materials, and SAP Group shall not be liable for errors or omissions with respect to the materials.

  3. Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to the Utility Industry Appendix 3: Customer Success Stories

  4. SAP Analysis Approach Understanding of Industry Dynamics • Industry and solution resources • Product development resources • Management consulting resources with Utility industry experience Triangulated Approach to Deliver “Outside-in” Analysis Leveraging of Industry and SAP Benchmarks Analysis ofCompanyIssues • Industry best practices • SAP benchmarks and typical benefit ranges • Customer references • Analyst reports • Executive presentations • Industry research • Recent publications

  5. Water Utility Drivers & Implications Macro-Economic Environment • Fragmented market - most suppliers serving small customer base • Federal funding today for water infrastructure is less than 12% • Aging assets and aging workforce • Large economically disadvantaged populations vs infrastructure challenges Increasing Government Regulations • Security Issues, systems vulnerable to cyber and physical attacks • The 2002 Public Health and Bio-Terrorism Preparedness and Response Act required water utilities to evaluate system-wide vulnerabilities and develop emergency response protocols. • Water infrastructure Security Act • General Accounting Standards Board, part 34 (GASB 34) Technology Issues • “Water Information Sharing and Analysis Center,” provides a secure portal for the communication of sensitive security information, utilities are cooperating closely with one another and appropriate authorities.” • AMR initiatives for more complex billing and leak detection Constrained Revenue GrowthDownward Margin PressureCustomer Value Challenge High Capital Costs • The cost of water infrastructure replacement far exceeds the financial capabilities of local water utilities • New development costs, security upgrades, advanced treatment methods approx. $500B

  6. WaterOne has performed reasonably well in a challenging environment Revenues have increased consistently over the last few years and grew by 11.8% in 2006 However, operating cost per customer is relatively high and is coming under pressure with increasing OM&A expenses1, which increased by 8.7% in 2006 Efficient asset maintenance is also a significant challenge To ensure sustainable growth, the company has articulated a strategy to further enhance its performance Enhancing customer service by ensuring reliable, high quality water supply for current and future customers Pursuing operational excellence by continuously improving business processes Focus on environment by investigating methods to minimize environmental impact Peer group analysis illustrates significant value potential of new strategy WaterOne : Key Findings • SAP believes its solution is distinctly qualified to combine near-term impact with long-term strategic alignment: • Near-term: Capture $2.4M - $4.4M annual savings and $0.2M - $0.3M of one time benefits while providing lowest total cost of ownership through improvements in: • Customer Information System • Strategic Sourcing and Procurement • Work Management, Plant Maintenance and EAM • Project Management • Finance, Accounting and Reporting • Human Capital Management • IT Integration • Long-term: Deep commitment to the Utilities industry ensures continued development and excellence – over 1,100 utilities use SAP, including 17 of the largest 25 worldwide 1 OM&A : Operation, Maintenance & Administration expenses Source: Annual Report 2006; SAP Analysis

  7. WaterOne’s Performance in Recent Years Revenue and Operating Margin1 Revenue Break-up (2006) 2003 2004 2005 2006 Revenue increased by 11.8% in 2006 to $76.1M from $68.2M in 2005, mainly due to increased demand because of warm, dry weather in 2006 and addition of 2070 new customers OM&A expenses increased 8.7% in 2006 from 2005 primarily due to a 31.8% increase in transmission and distribution expenses in 2006, and increasing power and chemical costs Operating margin increased to 46.1% in 2006 from 45.6% in 2005, despite increase in OM&A expenses during 2006 WaterOne’s capital assets reached $589.9M in 2006, up 5.9% from 2005, due to a capital plan for the expansion of facilities, which will be taken forward with the Phase V Master Plan for the utility’s expansion Through 2006, Johnson County has experienced significant local job creation, steady population growth, and steady new home construction and this growth is likely to continue in the future, which will fuel future demand for WaterOne Note 1: Operating Margin = (Revenue – OM&A Expenses)/Revenue Source: Annual Report 2006; SAP Analysis

  8. Our Understanding of WaterOne’s Corporate Strategy EnhanceCustomer Service Ensure reliable, high quality water supply for current and future customers through long-range master planning for resources and infrastructure to keep pace with future customer demands Continuously improve internal and external customer satisfaction by cultivating a strong customer service mindset “…To provide a safe, reliable, and high-quality water supply with superior service and value…” Continuously improve business processes by utilizing new technology, reducing waste and eliminating non-value added activities Manage water supply and distribution assets to minimize cost and maximize service levels through methodologies for life cycle cost analysis, prioritization, and funding for asset maintenance Manage the utility to optimize financial resources by practicing accountability in maintaining and meeting budgets Pursue Operational Excellence Increase customer education to promote efficient water use Investigate alternative methods of performing activities to minimize the environmental impact and use of environment friendly materials Develop programs to reduce, recycle, and reuse material where feasible Focus on Environment Source: WaterOne Budget 2007, Company Website; SAP Analysis

  9. Move the Needle – WaterOne vs. Peers What Moving the Needle Could Mean to WaterOne: Peer Worst Peer Best Revenue Growth 2005-06 Denver Water • Every additional point of revenue growth ~ $0.4M in operating income • Every 1% improvement in OM&A ~ $0.4M in operating income • Every 1% improvement in asset utilization~ $5.9M in free cash flow • Every day of improvement in day sales outstanding ~ $0.2M in free cash flow • Every 1% improvement in operating cost per customer ~ $0.3K in operating income GCWW 7.4% 11.8% 21.1% OM&A1 as a % of Revenue SDWA 88.0% 53.9% ImperialIrrigation District Asset Utilization Denver Water 7.91 7.76 4.59 Day Sales Outstanding SDWA Denver Water 110 38 35 Operating Cost per Customer2 SDWA $304 $88 Companies included in the peer analysis above are Denver Water, Dallas Water Utilities, San Diego Water Authority (SDWA), Imperial Irrigation District (Water Department) and Greater Cincinnati Water Works (GCWW) Analysis based on 2006 fiscal year data for Denver Water, SDWA and Imperial Irrigation District and 2005 fiscal year data for Dallas Water Utilities and GCWW 1 OM&A : Operation, Maintenance & Administration expenses 2 Operating Cost per Customer = OM&A Expenses/# of Customers ; Imperial Irrigation District does not report customer numbers Source: Annual Report 2005,2006; SAP analysis

  10. WaterOne Peer Analysis: Operating Cost per Customer Relative to Peers Operating Cost per Customer1 Key Observations ($, 2006) • In the regulated utilities market, significant discipline in containing costs and improving overall operating efficiencies is required to counter the impact of unfavorable regulatory decisions • Operating cost per customer has increased from $278 in 2005 to $304 in 2006 and WaterOne lags behind all its peers: • OM&A expenses increased 8.7% in 2006 from 2005 primarily due to a 31.8% increase in transmission and distribution expenses in 2006, and increasing power and chemical costs • Optimization of enterprise assets, improved supplier pricing and reduction of maintenance/repair and overhead costs are critical to decrease costs • Process automation, efficient management of the billing processand self service in human resource management can help reduce OM&A expenses • Potential areas of opportunity • Customer Information System • Strategic Sourcing and Procurement • Work Management, Plant Maintenance and EAM • Project Management • Finance, Accounting and Reporting • Human Capital Management 1% improvement in operating cost per customer translates to ~$0.3K in operating income 1 Operating Cost per Customer = OM&A Expenses/# of Customers ; Imperial Irrigation District does not report customer numbers Analysis based on 2006 fiscal year data for Denver Water, SDWA and Imperial Irrigation District and 2005 fiscal year data for Dallas Water Utilities and GCWW Source: Annual Report 2005,2006; SAP analysis

  11. WaterOne Peer Analysis: Asset Utilization Relative to Peers Asset Utilization Key Observations (2006) • WaterOne’s capital assets increased by 5.9% in 2006 from 2005 to reach $589.9M • Additions to WaterOne’s capital assets reflect a capital plan to replace, maintain and expand existing facilities • Master Plan Phase V of the utility’s master expansion plan follows this trend of increased capital expansion in 2007 • Despite strong investment in capital assets, efficient asset utilization at WaterOne is lacking with respect to its peers • Sub-optimal asset utilization in a capital intensive water utility business critically hurts profitability and competitive standing • Maximizing asset utilization shall ensure better cash balance and improving fund position for the company • Considering the current business scale and future growth plans, optimization of enterprise assets and reduction in overhead cost is critical • Potential areas of opportunity • Work Management, Plant Maintenance and EAM • IT Integration 1% improvement in asset utilization translates to ~$5.9M in free cash flow Analysis based on 2006 fiscal year data for Denver Water, SDWA and Imperial Irrigation District (Water Department) and 2005 fiscal year data for Dallas Water Utilities and GCWW Source: Annual Report 2005,2006; SAP analysis

  12. Key Opportunities for SAP to Support WaterOne’s Strategy Key Strategies Key Opportunities Key Value Drivers • Improve cost structure through streamlined service operations • Leverage a complete view of the customer to improve service and grow revenue • Encourage customers to use lower cost and self serve form of sales and support • Analyze data to better understand customer needs 1. Customer Information System • Reduce procurement costs through streamlined and standardized processes such as auctions and contract negotiation • Avoid expedited shipping through better forecasting and visibility • Reduce purchasing cost through further automation and supplier collaboration 2. Strategic Sourcing and Procurement Enhance Customer Service • Improved Work Management & Plant Maintenance • Improved equipment and asset utilization • Improved scheduling capabilities and resource utilization • Decreased approval time through the use of automated workflow • Integrated project controls for management of distributed projects 3. Work Management, Plant Maintenance and EAM Pursue Operational Excellence 4. Project Management • Increase visibility into projects across entire enterprise for better monitoring • Identify and deploy the right resources at the right time • Determine the impact that project slippage has on other projects across the portfolio • Reduce past due accounts through better targeting of customers • Accounts receivable personnel efficiency gains • Increase efficiency of reporting, consolidation and analytics • Increase transparency and improve documentation procedures 5. Finance, Accounting and Reporting Focus on Environment • Enable self service to provide timely, cost-effective access to information • Provide a single place to access all standard HR transactions • Standardize compensation and benefit administration • Enable managers to easily access employee information and make changes 6. Human Capital Management • Lower technology delivery costs by leveraging common platforms • Support company operations with robust information sharing • Enable business process flexibility to promote business owned modeling and analytics • Improve standardization and integration across the organization 7. IT Management

  13. $0.17 M $0.25 M WaterOne’s Estimated Annual Benefit is between $ 2.4M – $ 4.4M and One Time Benefits between $ 0.2M – $ 0.3M $2.41 M $4.35 M Potential Annual Benefits: Conservative Estimate Likely Scenario $0.17 M $0.25 M Potential One-time Benefits: One-time benefit $6.6 M $9.9 M Note 1: Analysis is directional in nature; Access to specific data will be required to develop more accurate estimates

  14. Imperial Irrigation District

  15. Marin Municipal Water District “[With SAP] we have much better information and can make better business decisions. We have not increased our rates in the last four years. With the information we are gathering now, we can control costs and still provide a quality product.” Terry Stigall, Finance Manager, Marin Municipal Water District

  16. Suppliers & Partners Water Exploitation & Preparation Transmission & Distribution Meter Operation Retail & Services Customers & Channels Asset Lifecycle & Resource Management Plant Engineering & Construction Plant Maintenance & Operations Decommissioning Mobile Asset Management for Utilities Supply Operations Grid Engineering & Construction Grid Maintenance & Operation Connection & Device Management Installation Service Mobile Asset Management for Utilities Customer Engagement Lifecycle Account & Contact Management Service Processes for Utilities Service Order Management Service Contract & Entitlement Management Electronic Customer Services Consumption Data Acquisition Consumption Data Collection Billing Services Billing for Residential Customers Billing for Commerical & Industrial Customers Billing of Unmetered Services Customers Financial Management Customers Financial Management Receivables & Collections Management Receivables & Collections Management Reconciliation and Closing Reconciliation and Closing Auditing Auditing Enterprise Management & Support Analytics Financials Human Capital Management Corporate Services Operations Support Solution Map Utilities – Water Suppliers & Partners Water Exploitation & Preparation Transmission & Distribution Meter Operation Retail & Services Customers & Channels Asset Lifecycle & Resource Management Plant Engineering & Construction Plant Maintenance & Operations Decommissioning Mobile Asset Management for Utilities Supply Operations Grid Engineering & Construction Grid Maintenance & Operation Connection & Device Management Installation Service Mobile Asset Management for Utilities Customer Engagement Lifecycle Account & Contact Management Service Processes for Utilities Service Order Management Service Contract & Entitlement Management Electronic Customer Services Consumption Data Acquisition Consumption Data Collection Billing Services Billing for Residential Customers Billing for Commerical & Industrial Customers Billing of Unmetered Services Enterprise Management & Support Analytics Financials Human Capital Management Corporate Services Operations Support

  17. SAP’s Value Proposition for WaterOne Enabling the Needs of Utility Companies 1. SUCCESS IN A DYNAMIC BUSINESS ENVIRONMENT • Real time decision support to enable quick response to regulatory, market, organizational and customer demands • Measurable business value (reductions in integration costs, working capital, O&M costs, etc.) • Ability to deliver repeatable templates based on best business practices 2. TRANSFORMATION Ability to deploy new market models without additional investment in new technologies Complete end to end industry specific solution Flexibility to coexist with many of your world-class applications while migrating to an enterprise-wide technology strategy Four Reasons for an SAP Strategic Partnership 4. MITIGATE BUSINESS RISKS • Over 1100 Utilities worldwide have deployed the SAP solution in 72countries • Over 550 Utilities using our utility industry solution for customer care • Leverage the knowledge of over 20 years of delivering Utility Industry specific solutions, expertise of over 8,000 developers, and over $1 billion in annual R&D spend 3. LOWER TOTAL COST OF OWNERSHIP Reduce IT costs by 30-50% by shifting responsibility for software development back to the solution provider Eliminate 50+% of interfaces (interfaces cost on average $16-32K to develop and $4-8K/yr to maintain) $2.4M - $4.4M of benefits using SAP solutions, with potential for further benefits

  18. Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to the Utility Industry Appendix 3: Customer Success Stories

  19. SAP Today SAP 2006 revenues: $11.8 billion USD • More than 38,000 companies run SAP software • Providing 29 industry solutions • 39,355 SAP employees (December, 2006) 12 million users in 120+ countries team with us to… • Integrate their business processes • Extend their competitive capabilities • Get a better return on investment at a lower total cost of ownership Unique partner ecosystem • More than 2,200 partners • Overall more than 180,000 SAP partner certificates

  20. Revenue € Employees Operating Income € SAP's Performance in the Last 10 Years • >38,000 companies in 120 countries run SAP • Strong focus on R&D with~9,500 developers • Strategic vertical solutions for 29 industries • Business Week – ranks SAP #35 among the Top 100 brands 39,355 35,873 9,402 32,205 CAGR total revenues 1997-2006: 13% CAGR operating income* 1997-2006: 15% 8,513 29,610 28,797 28,410 7,514 7,413 7,341 7,025 24,178 20,975 6,265 19,308 2,705 5,110 2,410 2,086 12,856 4,316 1,880 1,688 1,471 3,022 1,244 901 796 775 796 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

  21. 2006: Transformed to Outperform Increasing Market Share • Three years of double digit license growth • Peer group share up: • 2005: 62% (#2: 25%) • 2006: 63% (#2: 24%) • Organic growth continued with co-innovation and smart acquisitions 2006 2003 2004 2005

  22. SAP’s Focus on Applications Applications is in Our DNA: SAP has a Solid Track Recordof Enabling Customers to become Best-run Businesses

  23. % Small companies (< $200M) 50 Midsize companies ($200M - $2.5B) Large companies (> $2.5B) 40 30 24% 21% 20 16% 16% 14% 9% 10 0 < 3 4 - 6 7 - 9 10 - 12 13 - 15 > 15 months months months months months months Implementation Time Fast Implementations = Lower TCO 61% of all SAP Implementations are Accomplished in Less than Nine months

  24. Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to the Utility Industry Appendix 3: Customer Success Stories

  25. SAP for Utilities – Customer Base 1110 600 +11% CAGR (2000 – 2006) Steadily growing customer base with 11% CAGR

  26. SAP for Utilities – Facts & Figures 1100+ electricity, gas, and water utilities in 70 countries run SAP 600+ utilities managing 450+ million supply contracts with SAP 200+ municipality utilities run SAP 350+ utilities managing assets with SAP 120+ power generation companies run SAP 150+ water utilities run SAP 21 of top 25 utilities run SAP 100+ partners co-innovate with SAP in Utilities Leader in peer-group: 65% CIS and 33% ERP market share (Gartner) More than 1100 utility customers and CIS market share leader with 65%

  27. 1. SAP 2. Oracle 3. First Data Corp. 4. Vyntex TVAM Municipalities Overall Ranking, May 2007 TVAM Tier 1 Overall Ranking, May 2007 Gartner Magic Quadrant for Utilities Customer Information Systems, 1H07 Leadership Ranking in Utilities Source: Energy Insights, 2007

  28. The Worlds Leading Utility Enterprises 32 of the Top 50 Utilities in Forbes 2000* Run SAP *Public listed companies on any publicly accessible stock exchange; see http://www.forbes.com/lists/2006/18/Utilities_Sales_1.html

  29. SAP – Utility Customers ... just some of more than 1,150 customers.

  30. A few municipal and water customers… Newport News

  31. SAP Delivers Value SAP ERP Work Clearance Management "SAP has a stronger commitment to the utility industry and to building their utility practice than other companies. Through their vertical market focus on utilities and on Industry Business Unit dedicated to that sector, they have an excellent understanding of the utility business." “Since we started using SAP integrated software, we have reduced costs and been able to respond far more quickly to new business opportunities and challenges.” Gary Overbeck, Director, SAP Program Management Dennis Doll, Vice President and Controller FERC Reporting Asset Work Management "The bar is continually being raised in customer service. SAP enables us to serve our almost 500,000 customers with better, more efficient processes.” “After attending the Sarbanes Oxley conference in Washington DC, I was thoroughly impressed on the thought and care SAP has put into developing the Management of Internal Controls (MIC). ... In Energy of this, PG&E would like to become a pilot for the MIC tool” Brunson White, Vice President and Chief Information Officer Peter Tam

  32. SAP Thought Leadership in Utilities Industry • ASUG groups for Utilities • More than 75% of SAP Americas' customers belong to ASUG • 35 geographic chapters in the United States • The Utilities Industry Group (UIG) represents around 100 SAP-using utility businesses in the energy production, transmission and distribution, as well as the water delivery and waste management industries. • Working within the framework of ASUG, along with the close relationship ASUG has with SAP, this group provides utility users with education, networking, and Influence opportunities on the SAP Industry Solution for Utilities. • Multiple industry forums each year • National Energy Marketers Assoc. Executive Board Member • Contributor to Edison Electric Institute (EEI) • Contributor American Public Power Association (APPA) • Contributor American Water Association (AWA)

  33. Executive Summary – SAP Value Proposition Appendix 1: SAP Background Appendix 2: SAP Commitment to the Utility Industry Appendix 3: Customer Success Stories

  34. Fairfax County Water Authority “Service calls, billing questions and customer information updates can be handled with a single call. Now, call center agents have seamless access to relevant data, allowing them to respond to calls more quickly, increasing call center productivity.” “The SAP CCS project was on time and on budget.” David Rasmussen Director Support Services, Fairfax County Water Authority

  35. Confidential Municipal Utility Company Confidential

  36. Confidential Municipal Utility Company Confidential

  37. Energen Corporation “With commodity price volatility in the natural gas industry, we are under constant pressure to keep other costs as low as possible. In SAP for Utilities, we have an industry-specific suite of solutions with a comprehensive template for utility company business processes that enables us to introduce automation and eliminate inefficiencies to reduce costs.” Brunson White, VP and CIO, Energen Corporation

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