Successful Water Reuse Programs

Chris BulsVice President of FinanceAmerican WaterNational Association of Regulatory Utility CommissionerStaff Subcommittee on Accounting and Finance

October 14, 2008

2Confidential – For Internal Use Only

Forward Looking Statement

Certain matters discussed in this presentation are forward-looking statements. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives, estimates or goals are also forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements.

3Confidential – For Internal Use Only

American Water is the largest investor-owned water and wastewater services provider in North America, headquartered in Voorhees, NJ.

American Water serves approximately 15 million people in 32 states and Canada, and employs more than 7,000 water professionals.

American Water owns or operates over 870 water treatment plants & wells and 270 wastewater facilities.

The company conducts over one million water quality tests each year for over 100 regulated parameters, and up to 50 types of water-related tests each day.

www.amwater.com

American Water reuses nearly 2 billion gallons per year

4Confidential – For Internal Use Only

Reuse of Treated Wastewater

Water reuse in the U.S. is a large and growing practice

Nationally, an estimated 1.7 billion gallons per day is reused.

Reclaimed water use on a volume basis is growing an estimated 15% per year.

In 2002, Florida reclaimed 584 mgd. California ranked a close second with 525 mgd used every day.

Florida has an official goal of reclaiming 1 billion gallon per day by the year 2010.

5Confidential – For Internal Use Only

Types of Reuse

Urban Reuse Irrigation of parks, highway

medians, golf courses, etc. Commercial uses such as

vehicle washing, window washing, etc.

Fire protection Dust control and concrete

production Toilet and urinal flushing

Groundwater recharge

Augmentation of potable supplies

Industrial ReuseCooling waterBoiler make-up

waterIndustrial process

water

Agricultural reuse

Environmental and recreational

To create, restore, and/or enhance wetlands

Recreational and aesthetic impoundments

Reclaimed wastewater is an increasingly important source of supply

6Confidential – For Internal Use Only

Current Regulations & Guidelines

Currently there are no federal regulations directly governing water reuse practices.

25 states have regulations regarding the use of reclaimed water

16 states have guidelines or design standards

9 states have no regulations

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Example: Membrane Bioreactors

American Water operates nearly 30 membrane bioreactors (MBRs), to treat wastewater and provide the potential for water reuse.

MBR Advantages: - Increased Reliability- High Quality Effluent

- Free of Suspended Solids- Increased Pathogen

Removal- Easily Automated- Reduced sludge - Reduced Footprint

American Water has experience with different membrane configurations (flat sheet and immersed membranes) and cost models.

Solaire, Battery Park

Wrentham Mall

New Jersey

Antham

Foxboro

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What is a “Membrane”?

In essence it is a sieve that strains out undesirable particles.

It can come in either sheets or fibers.

The membrane has tiny holes; water molecules pass through but larger particles are kept out.

Some membranes are designed to trap larger particles such as bacteria, protozoa and “suspended solids”

Others stop even the tiniest particles such as salts, viruses and pharmaceuticals.

9Confidential – For Internal Use Only

Solaire in Building Recycling Battery Park City, NY

293 Unit Building 25,000 GPD Reclaimed Water Treatment Plant Located in the Basement of a Luxury Apartment Building Gold LEED Certified

10Confidential – For Internal Use Only

Beneficial Reuse: SolaireRecycles up to 25,000 GPD:

9,000 GPD toilet flush water 11,500 GPD cooling tower make-up 6,000 GPD landscape irrigation

Advanced membrane bioreactor system: 35% less overall energy consumption

65% less energy at peak demand 50% less potable water used than other high- rise buildings of same size Rainwater collection system irrigates 10,000 square feet of rooftop gardens

Treated Effluent Storage Tanks in Basement Equipment Room

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MBR Technology

12Confidential – For Internal Use Only

Anthem Arizona

Initial Service Date: 1999 Design Capacity: 7 million GPD (water)

3 million GPD (wastewater)

Population Served: 13,000 Treatment:

Prescreening MBR

– Anoxic– Aerobic– ZenoGem membranes

UV disinfection Chlorine residual

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Orange County Groundwater Replenishment System

Treats 70 MGD wastewater to a vey high level using microfiltration, reverse osmosis membranes and ultraviolet and hydrogen peroxide oxidation

Replenish the groundwater basin, to protect from seawater intrusion, and for industrial uses

Reduces the amount of wastewater released into the ocean and delays the need for another ocean outfall

Decreases reliance on imported water from northern California and the Colorado River

Helps reduce mineral build up in the groundwater.

Total program cost of $480.8 million

Anticipated Operating costs of $29 million a year

14Confidential – For Internal Use Only

Economics of Beneficial Reuse

Upfront capital costs can be quite steep

Handling “Environmental” benefits is difficult

Comparative pricing versus cost of alternate supplies is not always valid

Which customer pays and benefits; Water, Wastewater or Both?

One size does not fit all, work with your local water and waste water utilities to create an environment for success

15Confidential – For Internal Use Only

Conclusions

Wastewater reuse is an increasingly important element of the water cycle.

Drivers for reuse include lack of alternative water supplies, groundwater replenishment, barrier to saltwater intrusion, pollution management

Lack of federal regulations and varied applications makes defining reuse difficult

MBR technology perfect for reuse: compact, effective, automated

Pricing of reuse water is difficult – need to account for all the environmental benefits and the cost of the alternative supplies.

Solaire, Battery Park

Wrentham Mall

New Jersey

Atham

Foxboro