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Iowa Utilities Board. William D. Rogers Vice President and Treasurer. Agenda. American Water’s Debt Structure Comments on Double Leverage American Water’s Investment Philosophy and Governance Effective Allowed ROE’s at American Water Subsidiaries.

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Iowa utilities board

Iowa Utilities Board

William D. Rogers

Vice President and Treasurer


Agenda
Agenda

  • American Water’s Debt Structure

  • Comments on Double Leverage

  • American Water’s Investment Philosophy and Governance

  • Effective Allowed ROE’s at American Water Subsidiaries


Debt structure of american water and subsidiaries
Debt Structure of American Water and Subsidiaries

American Water Works (“Parent”)

Iowa

American Water

American Water

Enterprises

$1,016mm in

Promissory Notes

$1,016mm in

Long-Term Debt

Pennsylvania

American Water

Missouri

American Water

$2,396mm in

Promissory Notes

$3,412mm in

Indentures / Agreements

American Water

Capital Corp.

(“AWCC”)

Long-term

Debt Lenders

$2,396mm in

Long-Term Debt

$3,412mm in

Long-Term Debt

Illinois

American Water

Indiana

American Water

New Jersey

American Water

Other Regulated

Utility Subsidiaries

  • In 2011, AWCC interest obligations were satisfied by $142.2mm (66%) from Regulated Utility Subsidiaries and $73.1mm (34%) from the Parent.

  • There were no capital contributions by the Parent to AWCC in 2011.

In addition to borrowings from AWCC, utility subsidiaries borrowed $1,756 million from other third party lenders as of September 30, 2012.


Comments on double leverage
Comments on Double Leverage

  • The mere existence of debt at the parent and an equity infusion to a subsidiary utility does not necessarily mean the debt proceeds were utilized to contribute equity to the utility.

  • Borrowings at the holding company level do not imply abuse of the utilities by the parent.

  • The capital structure analysis for the regulated utility should focus on the capital structure and financial integrity of that utility subsidiary, not that of the subsidiary’s affiliates.

  • A double leverage adjustment reduces the opportunity for earning the allowed return on equity, thereby reducing the utility subsidiary’s attraction as investment when compared to other alternatives.


American water s investment philosophy and governance
American Water’s Investment Philosophy and Governance

  • American Water’s utility subsidiaries invest $800 to $1,000 million annually.

  • After approval by the subsidiary board of directors, the subsidiaries submit their investment proposals and plan of financing to American Water.

  • American Water segregates investment opportunities into two broad categories.

  • First, American Water approves investments necessary for safety, compliance and system integrity.

  • Second, additional investments are then presented for approval based upon the investment’s ability within a regulated utility jurisdiction to earn a fair and competitive rate of return.

  • The fair and competitive rate of return is evaluated against other potential returns, American Water’s availability of capital, and American Water’s cost of capital.

  • Investments within this second category, to include acquisitions within a regulated jurisdiction, are ranked according to the above criteria.


Effective allowed roe s at american water subsidiaries

The Double Leverage adjustment is a substantial reduction in the effective allowed ROE in Iowa.

Effective Allowed ROE’s at American Water Subsidiaries


American water the premier water services provider in north america
American Water: The Premier Water Services Provider in North America

  • $12.4 Billion Enterprise Value

  • 1 Million Average Volume Shares Traded

  • $6.6 Billion Market Cap

  • $2.7 Billion in Revenues

  • 28.77% Total Shareholder Return for Last 12 Months

  • Current Dividend Yield: 2.7%

  • 15 Million People Served

  • 46,000 Miles of Pipeline

  • 7,000 Employees

  • 1,100 Communities

Market Statistics*

Resources

* Data as of September 24, 2012


Continued commitment to quality and reliability hurricane sandy
Continued Commitment to Quality and Reliability America – Hurricane Sandy

Hurricane Impact

Affected AW operations in NJ, PA, MD, VA, NY, WV

Population served: 6 million people

Numerous AW treatment, pumping, SCADA systems lost power

Minimal loss of water service

Estimated less than 2000 in all states

No employee injuries

Keys to mitigating impacts

Investment in infrastructure

Effective/updated emergency

preparedness and disaster planning

Committed, highly skilled employees

Mobilization of cross system resources

Coordination with federal, state,

local authorities, health agencies, PUCs

Customer communications

Facebook, Website, News Media, Twitter

Fire Hydrant at intersection of Route 35 and Herbert St., Mantaloking, NJ

NJ American Storm Command Center

American Water crews at work during storm


Quality control and research laboratory in belleville il
Quality Control and Research Laboratory in Belleville, IL America

  • Opened in 1981 and known as one of the most comprehensive water chemistry laboratories in the world

  • Run over 1 million sophisticated tests and measurements annually

  • Continuous monitoring of the quality and security of our water supplies, treatment facilities and distribution pipe networks

  • Achieve drinking water compliance level of 99.99%

  • Realize cost savings with a central laboratory – 30%

  • Recipient of nearly 100 awards for research and detection

  • Collaboration with prominent researchers, universities and the United States Environmental Protection Agency to provide input to federal standards pursuant to the Safe Drinking Water Act


Research program

Address emerging water quality or regulatory issues America

Evaluate and recommend new technology to enhance existing operations

Support operations with technical and operational expertise

Support Corporate Business Development

Support Innovation Development Process

Enhance Corporate brand through industry Thought Leadership

Research Program


Research program1
Research Program America

  • Environmental Compliance / Stewardship

  • Research

  • Innovation Development Program

Engineers

Chemists

Microbiologists

Environmental Scientists

8 PhDs

5 Masters

4 interns


Research program2

Scope America

Strategic: Wastewater, reuse, desalination, drinking water

Operational: Infrastructure, treatment, analytical methods, energy efficiency

Collaborations /Funding

USEPA, various state programs, research agencies

Competitive funding brings in about $600,000 per year

Forms partnerships with leading universities, consultants, other leading utilities

Thought Leadership

Staff, on average, gives at least one presentation per week at local, regional, national or international conferences

Staff members serve in leadership positions on over a dozen water industry committees or workgroups

Scientists serve as editors or peer reviewers for most of the major water publications

In 2010-2011, published nine papers in peer reviewed journals, and 5 books or book chapters

Research Program