Title: Cost Recovery for Private Utilities in Florida
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/WL00001550/00001
 Material Information
Title: Cost Recovery for Private Utilities in Florida
Physical Description: Book
Language: English
Publisher: Florida Water Services
 Subjects
Spatial Coverage: North America -- United States of America -- Florida
 Notes
Abstract: Cost Recovery for Private Utilities in Florida By: Carolyn H. Kowalsky -Florida Water Services
General Note: Box 8, Folder 7 ( Vail Conference, 1997 - 1997 ), Item 28
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
 Record Information
Bibliographic ID: WL00001550
Volume ID: VID00001
Source Institution: Levin College of Law, University of Florida
Holding Location: Levin College of Law, University of Florida
Rights Management: All rights reserved by the source institution and holding location.

Full Text






S-FIorida
o"r Water
SIS E R V I C E S P.O. Box 609520 Orlando, Florida 32860-9520
phone(407)880-0058 fax: (407)880-1395


Cost Recovery for Private Utilities in Florida
Carlyn H. Kowalsky
Florida Water Services
Orlando, Florida

Outline of Discussion

1. Cost Recovery for Florida Private Utilities
a. problems
b. used & useful

2. Profit = Retained Earnings
3. Benefits of private operation of utilities

Background Materials

1. Cost Recovery Methods for Private Utilities in Florida

2. Rate making Terms

3. "Precious Fluids" Article from Barron's, August, 1996
Internet Articles

4. Water Privatization and Investment Study, by Brian Browne
5. Consumers Water Company: "FAQ About Privatization"


3.4.1








Cost Recovery Methods
for Private Utilities in Florida


I. Costs Elements

Capital costs: plant, lines, meters
Expenses: operating costs, taxes
Depreciation
Rate of Return for Investors

II. Sources of Cost Recovery


RATES


CIAC
Contributions in
Aid of Construction


Imputed CIAC


AFPI
Allowance for Funds
Prudently Invested


paid by existing customers consisting of a
fixed base facility charge + gallonage charge.

contributions from developers, government
grants, and impact fees from customers which
offset the costs of a facility recovered in rates.


contributions which the FPSC assumes will
be made from future customers.

A regulatory mechanism designed to recover
the carrying costs (interest, depreciation and
taxes) on the non-used and useful portion of
a facility. These costs, which accumulate over
time, are collected from new customers at
hookup.


III. 18 Month Margin Reserve -- Used & Useful Policy

The FPSC allows a utility to recover from current customers only that portion of the
utility's cost for facilities that are currently "used and useful" in the delivery of
services based on anticipated flows from utility customers within 18 months.

The FPSC's philosophy is that future customers, rather than existing customers,
should pay for facilities needed beyond 18 months.

Here is how the used and useful policy works:


Plant Size

0.5 MGD
1.0 MGD


Flows w/in
18 Months

0.5 MGD
0.5 MGD


Cost


Cost
% Used & Useful Recovery


$2,900,000
$3,100,000


100%
50%


$2,900,000
$1,550,000


prepared by: Carlyn H. Kowalsky
Florida Water Services


3.4.2


Option A
Option B







RATEMAKING TERMS


Allowance for Funds Prudently Invested (AFPI): A regulatory mechanism
designed to recover the carrying costs (interest, depreciation and taxes) on the non-
used and useful portion of a facility. These costs, which accumulate over time, are
collected from new customers at hookup.
AFPI = Rate of Return, Depreciation, & Taxes on Non-Used & Useful facilities

Accumulated Depreciation: To-date total depreciation on plant

Contributions-in-aid-of-construction (CIAC): Contributions from developers,
government grants, and impact fees from customers which offset the costs of a facility
recovered in rates.

Expenses = Operations & Maintenance Expense + Administrative & General
Expense + (Annual Depreciation x Used & Useful %) + Taxes

Margin Reserve: The additional time frame beyond what is considered currently
"used & useful" which the PSC says will be needed to expand facilities to
accommodate growth. PSC allows an 18 month margin reserve period on water
withdrawal, water treatment, and wastewater treatment facilities and a 12 month
margin reserve period for water and wastewater lines.

Plant-in-service: Dollars invested in water and wastewater facilities; fixed assets
recorded on books at original cost.

Rate Base: The portion of dollars invested in water and wastewater facilities upon
which the utility earns a rate of return; the depreciated principal invested in the
utility facilities.
Rate Base = (Plant-in-service Accumulated Depreciation Contributions-in-
aid-of-construction) x Used & useful % + Working Capital

Rate of Return: a weighted average % return on all debt, equity, etc. after capital
components are reduced pro rata to equal total Rate Base.

Rates: A vehicle for collecting the Revenue Requirement allocated as a fixed charge
plus a gallonage charge.

Revenue Requirement: The total costs the utility must recover to provide safe and
reliable service and remain a viable business enterprise; the dollar amount necessary
for a utility to earn a return on its investment in property used to provide utility
service and to recover its reasonable expenses.
Revenue Requirement = (Rate Base x Rate of Return) + Expenses

Used & useful: That portion of a facility the PSC claims is currently utilized for the
delivery of water and wastewater services. In addition to the portion that is
currently utilized, the PSC allows recovery for the cost of facilities which will be
serving customers for the next 18 month margin reserve period.
Plants = (plant flow + margin reserve) plant capacity
Transmission Lines = (lots connected + margin reserve) + total lots

Working Capital = (Current Assets Current Liabilities) x Allocation Factor
October, 1996


34.3












reclous


BARRON'S




Fluids


Water stocks'offer hefty dividends, plus solid growth prospects

BY HARLAN S. BYRNE When media tycoon Ted Turner was asked where he would invest if
he were trying to match his phenomenal success in. cable TV, his answer was surprising simple
and surprisingly low-tech. Water, he.said. Turner went on to explain to his audience, a 1992-
seminar at Harvard Business School; that the water business in many ways resembled the cable


TV industry 20 years ago. Hard to
fathom at first, perhaps, but true.-The
U.S. water business has a fragmented
structure, steady demand (from the
dawn of humanity, in fact), lots-of local
monopolies, and fairly manageable regu-
latory requirements Turner, now inthe
embrace of Time Warner, hasn't in any.
obvious way gone beyond mere conjec-
turing about water, but others are acting
on his hunch.
With designer water from Europe
0 being sold on U.S. supermarket shelves
at $1.50 a quart, it's easy to see why.
Americans are more concerned than ever
about their water supply. They know.
how important the stuff is for health and
well-being, and they're willing to pay for.
it. The appeal of owning a renewable.
source of H20 is obvious. How to get a
piece of the action is less so..

Baiing Out
Right now about 80% of the water
systems in America are owned by cities,.
counties and towns, so investors' interest
has been concentrated for the most part-
on the remaining 20%. But as cities and
towns feel pressure to upgrade their.
pipes and pumping stations, the expense
will likely drive many of them to consider
selling off their water systems to new
owners. The same goes for smaller,'
privately owned water outfits.
And make no mistake, there's plenty
of room for consolidation. Today there
are nearly 60,000 water systems supply-.
ing 220 million people in the U.S., and
90% of them serve only about 3,000
people each. One-half of the population
Receives water from the 280 largest
systems, mainly municipal affairs.
As for publicly traded water stocks,.
there are only 17. For investors, these
stocks offer not only a bet on long-term


growth through acquisitions,-but also a
highly dependable income stream 'and
healthy dividend yields, some as high as
6%. Now that the stock market is looking
increasingly volatile, such characteristics
are sure to attract attention. Among the
water companies analysts are following
closely are American Water Works,.
United Water Resources, Philadelphia
Suburban, California Water Service..
and Southern California Water.
Among the more aggressive ac-
quirers is Philadelphia Suburban Corp.,
which reports making 13 acquisitions of
smaller companies over the'past three
Years, with another six likely to be added
S.before year-end. "We look for this trend
:to accelerate," predicts Chairman.Nicho-
las DeBenedictus.. His company cur-.
rently serves more than 850,000 cus-
: tomers in-an area covering 400 square
miles'and more than 80 municipalities in
suburban Philadelphia.
.While many companies gladly scoop
up the industry's minnows, the country's
largest publicly traded water firm,
'AmericanWater Works, is concentrating
on the biggest deals, having-made about
:.40 smaller acquisitions in the past six
years. Based in Voorhees, N.J., not'far
from Philadelphia, American.. Water
;Works in .February completed a $409
million acquisition, calling it the "largest
asset purchase in the history of the water
Industry in the U.S." The acquired com-
pany serves 400,000 people in the
Wilkes-Barre and Scranton areas of
northeastern Pennsylvania.-
American* now serves about seven
.million people in 21 states including.
Pennsylvania,' New Jersey, Tennessee,
Indiana and California. George W. John-
stone, president and chief executive offi-
cer, sees many more deals ahead. -


" The potential for growth by the
biggerU.S. companies hasn't gone unno-
ticed overseas. French and British com-
panies are now busy setting up U.S.
.water operations. Particularly notewor-
thy haie been the activities of two
French giants: Compagnie Generale
des Eaux and Lyonnaied des Eaux.
General des Eaux owns more than 14%
of Philadelphia Suburban, 20% of Con-
sumers Water of Portland, Maine, and
42% of Air & Water Technologies, which
Sis actively involved in management of
water-and waste-water systems. Lyon-
naise, meanwhile, has a 26% stake -in
United Water Resorurce of.Harrington
Park, N.J., the nation's second-largest
water company. Lyonnaise also holds a
major stake in a water engineering and
operations group known asJMM.
Both of the French companies also
are said to have smaller investments in
other U.S. water companies. At this
* stage, the French show no interest in
complete takeovers of U.S. companies,
perhaps because they want to avoid
tangling with U.S. regulators.
. Probably. the biggest allure in the
U.S. .water industry, for foreigners as
.well as Americans, is the prospect that
many of the big municipal water utilities
will be privatized. On a limited basis, it's
already happening. Examples include'
Philadelphia Suburban's takeover of two
Pennsylvania municipal systems, one
covering the'Borough of Media, the other
in the Borough of Bristol.
Far bigger was the recent transac-
tion American Water Works struck with
Howell Township, N.J., where voters'and
elected officials agreed to sell the water
system for $35 million.-

Page 1 of 2


...-.








'Other examples abound, and the logic
behind such deals is pretty apparent.
Municipalities. have to keep the water
flowing freely and cleanly, but they are
strapped for cash to keep the systems in
top shape. Expect the trend toward
privatization to grow'as the federal
government tightens. the spigot of aid
dollars to'citiesand towns.
Environmental-mishaps are another
concern. In fact, several municipal water
systems.in recent years have had inci-
dents of water supplies becoming con-
taminated, often with fatal consequences.
A notorious' case was' the Milwaukee
watei system, which ini1993 was blamed
for more'than 100 deaths because of
suspected contamination from farm ani-
mal waste4Investor-owned water compa-
nies, .by contrast,-'have recieved high
marks for water quality..
Nonetheless, privatization is coming
slowly. True, there has been a-tre-
mendous amount of talk about it and
much legislative effort to push it, too.
Municipal leaders,-including New York
Mayor Rudolph Guiliani and Chicago
Mayor Richard Daley, have ,given lip
service to privatization' of municipal
operations. As'yet, however, not much
has happened.
A A piece of legislation that would have
made privatization easier got stalled in
Congress recently. But it stands a good
chance of passage next year, according to
Debra G. Coy, environmental analyst for
HSBC Securities, an arm of the giant
Hong Kong & Shanghai Bank. Among
other things, the legislation would do
away with strings attached to federal
grants given to water systems for im-
provements.
It's worth noting that the U.S. has
lagged many other countries in privatiza-
tion. The French water system is 75%
privatized, while the United Kingdom
network of water plants was completely
privatized by Margaret Thatcher's gov-
ernment in 1989. That privatization, inci-
dentally, has been highly profitable" fori
the private British water companies, but
has raised widespread protest from con-
sumers complaining about higher prices;
and poorer service. .!
"Probably the biggest barrier to pri-
vatization in the U.S. is politics," bluntly.
states Coy. "Local politicians fear losing'
control and the loss of jobs." Longstand-
ing relationships between local officials
S* and suppliers is also a factor. So is the
r grip that labor unions have on many of
the systems. In some instances'where
companies have succeeded in persuading
municipalities to sell, the companies have


had to avoid layoffs and instead reduce
jobs through attrition.
American Water Works ran into un-
expectedly sharp opposition when it
sought last year to acquire the Santa.
Margarita Water District in Orange'
County, Calif., for $300 million, and had
to back away. George Johnstone ofAmeri-'
can Water Works concedes that the pace.
of privatization has been frustratingly
slow, but he flatly predicts, "It will hap-
pen."

Maintenance Contracts
One area where private companies
are making headway is in getting con-
tracts to operate and maintain municipal.
water systems. For one thing, there are
fewer legal barriers than there would be
if a private company acquired a munici-
Spality's water system. Most of the pub.
licly traded water companies are increasi-
ingly involved in such contracts, and they,
view the deals as a nice source of added
revenues. A problem for the U.S. compa-
nies, though, has been the entry of French
and British companies. In some instances,
the foreigners are accused of cutting their.
bid prices below cost just to win operating
contracts from cities and towns..:' "
While gas and electric utility stocks.
generally have performed poorly this year.:
as interest rates have climbed, the Ed-
ward Jones Index of 15 water utilities has
shown at least a slight gain in total return'
through the end of July, while the Stan-
dard & Poor's utility index has dipped (see
chart). :
Many of. the publicly traded water
companies expect modest earnings gains'
this year, yet they manage to command:
Sprice-to-earnings multiples in the. mid-
teens,'in' part because. they are the orily
natural monopolies stillin existencee in the
U.S. From a regulatory standpoint, the
experience of'water utilities has been lest.
!cont ftious'thin thatof the.electri6iuti-,i
ties." Consumers seldoi .sqiuawk' bout
increased water rates" it seems. Increases
in rates, granted by iate-setting commis-
..sions,.,have- come through on a fairly'
predictable timetable.
.The publicly traded water outfits are
Scomparatively- small in ternis of stock-
market value, so institutional investors
Haven't been big players. But. enthusiasm
for the shares seems.to be on the increase.
Clearly the favorite is American Water
Wbrks, partly because of its size, but also
because of a strategy aimed at significant
growth through acquisitions, along with an
annually increasing flow of dividends for.
21 consecutive years. The shares.boast a


Dividend yield just under 4%, And they
have had an average annual rate of return
Sof 24% the past fiv years. The company
rates a number of buy recommendations,
Including those: of Edward Jones, A.G.
Edwards and PaineWebber. .' .
Water shares could get an added boost
if electric utilities decide to buy into the
water business. At least three utilities,
Edison International, Southern Co. and
Northern States Power,'are reported to
have looked into the possibility. Southern
Co. publicly has acknowledged as much. At.
least one, Minnesota Power & Light Co,
has owned a water utility for some time...
;''Amn~?crui:Water Works 'would be an
obvious target if an electric utility desired
to get into the business, owing partly to its
size, with 'annual revenues of around $900
million. Though he says nothing is immi-
nent, *Johnstone. of 'American Water
Works, sees 'the possibility someday of
electric or other' utilities joining with a
Company like.American in a venture to run
water systems. It might take that kind of
added financial firepower if the time
comes when a major city decides to private;
ize its water system and American decides
to buy a major stake or nab the operating
contract As the big privatizations begin to
occur, investors in today's acquisitive wa-
ter 'companies are likely to feel re-
freshed. :


Page 2 of 2


3.4. 5






http://www.consumerswater.comwhat.html#FA


C ISUI8O I
WAT EI1 8MP A


CONTENTS INCLUDE:
What We Do -Water Resource Management Diagram
Operational S maon
Request for Information


CONSUMERS VALUE MANAGEMENTm
Water Resource Management


Waw

6V I tdenaus
DIM 0. 1ktf- UM-mii


N&b SWrnu


Operations at a Glance


As of 12/31/95:
Customers:
Population Served:
Ownership:
Fiscal Year:
Annual Budget:


222,865
approximately 825,000
Private/investor-owned
December 31
$103.1 million


Revenue by class: Residential 64%


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Revenue by class:


Residential
Commercial
Industrial
Fire
Other


64%
13%
9%
7%
6%


1995 Capital Expenditures
Annual Production
Average Daily Production
Miles of Main
Special Systems Used
Types of Metering Systems


Source of Supply:



Storage Capacity


$37.5 million
29,076 billion gallons
80MGD
3,137
SCADA
Encoder Meters


Surface 66%
Wells 30%
Purchased 4%
104MG


_j



FAQ: Answers To Your Questions About The Private Water Option

What is a private water system?
A private water system is a water utility whose physical assets are owned by an individual or a group of individual
shareholders. Private water systems are operated as tax-paying corporate entities. Typically, they have franchises
granted by local municipalities. Since they enjoy local monopolies, the rates and charges of private water systems
are usually regulated by state commissions.
Structurally, private water systems are similar to investor-owned electric utilities that serve major cities. Examples
are Consolidated Electric (New York City); Detroit Edison; and Public Service Electric & Gas (Newark, New
Jersey).
_J

What Are Some Examples Of Cities Served By Consumers Water Company?
Areas served by Consumers' water systems: Mentor, Ohio; Massillon, Ohio; Shamokin, Pennsylvania; Sharon,
Pennsylvania; Kankakee, Illinois; Danville, Illinois; Hudson, New Hampshire; Phillipsburg, New Jersey;
Skowhegan, Maine; Camden, Maine; and Rockland, Maine are only a few examples.


What Are Some Examples Of Privatization Agreements With Municipalities?
The most commonly known privatization agreement option is the purchase of an entire water system. Other
options include:


12/27/96 13:49;34
3.4.7


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consumers Water-What We Do






http://www.consumerswater.com/what.html#FA


Single-purpose investment, where a city contracts with a private company that builds, owns, and services
the plant;
Public-private partnership; and
a Specific contracts for operation, maintenance, billing and/or other services.


How Does A Private Water System Finance Its Operation?
An investor-owned water utility uses private capital to build and expand its system. Access to private capital
eliminates the need to issue municipal bonds and reliance on limited public capital to maintain a reliable and safe
water supply. Operational costs are covered by rates or fees for service.
-J

Why Would A Municipality Be Interested In Selling To A Private Water Company?
The advantages most commonly cited are that privatization:
Provides cash to the community;
Creates a new tax source;
Takes advantage of economies of scale; and
Provides access to capital.
Municipalities also are interested in privatization as a means of alleviating the administrative burdens associated
with operating a utility. This allows them to have more time and resources to govern.
In addition, privatizing a municipal water system shifts the risk of supplying drinking water from the municipality to
the private water company.


What Profits Do Communities Realize From Privatization?
SCustomers of investor-owned water systems receive dependable service and a safe, clean supply of quality water,
and in many cases, a reduction in their monthly water bills. Private water companies are constantly working with
state and federal officials to ensure that all standards are maintained, and that drinking water is clean and safe.
In addition, privatization provides cash to the community. It can turn a municipality's hidden equity into cash. This
is capital that can be put to use for other beneficial community needs or that can be invested for a long-term
revenue source.
Also, privatization may create a new source of tax revenue to support municipal services. It offers a way for
municipalities to utilize private sector resources and incentives to maintain, upgrade or expand existing systems.
_J

Can Private Water Systems Provide Lower Operational Costs?
Because many private water systems are regionalized, they have the ability to provide economies of scale and a
high level of efficiency. The purchase of a municipally owned water system by an investor-owned water utility will
most likely result in lower costs for materials, employee benefits, insurance and administration. Nationwide
affiliations and mass purchasing power may result in saving as much as 50 percent on the cost of items such as
fire hydrants, valves, pipes and meters.


What Are The Operational Benefits Of Privatization?
Private and investor-owned water systems provide municipalities, suburban areas and other entities with the
professionalism, staff training, and advanced technology required to operate water systems under today's
stringent water quality standards.
Private companies are well positioned to address proposed water quality regulations. They often have better
access to capital that's needed to construct newer, improved facilities, leaving the municipality's limited capital free
, for other purposes.





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How Do Private Water Companies Benefit Local Economies?
Private water companies contribute to a community's economic base by providing quality water and dependable
service which entices new businesses to the area. The companies also help the local economy by paying state
gross receipts, property and other business taxes. These taxes assist in the support of community services and
facilities.


What Does The EPA Think About Privatization Of Water Systems?
The EPA supports the regionalization and consolidation of drinking water systems for the public sector as a means
of dealing with the many financial and regulatory challenges it faces. In fact, U.S. EPA Administrator, Carol
Browner, has stated in a letter to a NAWC member company, "We find that communities throughout the nation are
taking the lead in reinventing government and acknowledging the ability of private capital to enhance public
investment The EPA is committed to supporting these communities and allowing them flexibility in financing the
infrastructure systems needed to achieve the environmental protection our citizens demand."
_J

What Is The Outlook For Privatization?
Privatization is becoming an increasingly attractive and viable option for the public sector as it struggles with ways
to deal with a growing number of financial and regulatory challenges. The Clinton Administration's focus on
"Reinventing Govemment" also will help contribute to increased interest in privatization options.
-_

Can Private Water Companies Help Rural Communities Obtain Access To Water?

Several private water companies are expanding to provide water to many rural areas throughout the country. This
benefits thousands of customers who previously did not have water service, or who were receiving an
unacceptable quality of water. It also provides fire protection capabilities for many customers who previously had
no connection to an adequate water supply.

Additional sources of information: American Water Works Association

--j


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The Flexibility and Creativity of Public/Private Partnerships


Private
(with public
participation)


Private Equity &
Sources of Finance Taxable Debt


PubliclPrivate
Partnership


Private Equity, Taxable
Debt, Gov't Incentives,
Land, and Infrastructure
and Contributions


Public
(Traditional Process)


GO Bonds or
Revenue Bonds


Public/Public
Partnership
(inter-govenmental
Agreement)


GO Bonds or
Revenue Bonds


Equity, Investor, Equity, Investor, Government and Government and
Financing Structure Lender, Gov't and Lender, Special Govt Bond Underwriter Bond Underwriter
Finanig Struure Developer Entity and Developer
Local Corporation
Ownership Private Public and/or Private Public Public
i Private (High) Fair and Reasonable Public (High) Public (High)
k Public (Low ) Split Private (Low)
Responsibilities for: I
Finance Private Private and/or Public Public Public
Design Private Private and/or Public Public Public
Development Private Private or Public Public or Private Public or Private
Operation Private Private or Public Public or Private Public or Private
Economic Return
None Depends on Ownership All, but at Risk for All, but at Risk for
Project income for Govt Structure Deficit Operations Deficit Operations
Profit Participation for ..
Pro participation for Low to Moderate Moderate to High NA NA

Property Tax Revenue for Hih Depends on Ownership None None
Gov't H Structure NNone
Level of Control
Low to Moderate Moderate High High
Government
Private High Moderate Low Low
Implementation Private Financing Creative Financing and Limited by Limited by Traditional
Schedule and Procurement Enhancing Operating Traditional Funding Funding and
Accelerates Performance and Procurement Procurement
Process Accelerates Process Methods Methods
Voter Approval or
Referendum |No Depends on Deal
ReferendumStructure Yes No


Request For More Information

1. Are you a municipality? Private water company?
2. What is the size of your customer base?
3. Are you looking to privatize or looking for contract operations/management?
4. What other information would you like us to include on our web page?
If you would like more information about Consumers Water Company, a copy of the Annual Report, or would like
us to contact you personally, please use our email option below!

Consumers Water Home


12/27/96 13:49:34
3.4.10


? ._


--


I


consumerss Water-What We Do





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13g


9~i


DWho We Ar1. ... What We Dol. ... [ Subsidiariesl .... [ Investor Relations.. ... [ Newsstandl .... ai ...

You've found: www.conumerswater.com
Consumers Water Company
Three Canal Plaa, P.O. Box 599
Portland, Main 04112-0599
Phone (207) 773-438
Fax (207) 761-7903

Kristin Knapp, Administrator
Shareholder Services
kknappMconsumerswater.com
1-800-292-2925


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December 1994 Exculve Summary of Rport on Investmet OpportunHdlm fobtrcl tiWYlM In Waw and Wuwasft
WATER PRIVATIZATION AND INVESTMENT STUDY
Brian Browne









Executive Summary

Many U.S. investor owned electric utilities companies have been pursuing investment diversification programs.
These ventures have been in both traditional and non-traditional areas of operation.
The main catalysts for these diversification programs have been capital accumulation from plant rate base
depreciation coupled with a decrease in investment opportunities for traditional electric utility plant Electric utility
core market share has been eroded due to the proliferation of independent power producers (IPPs) and
cogeneration plants, the implementation of demand side management programs, technological changes, shifts in
regional economic changes, triggered by global competition and the recent economic slump. These factors have
contributed to a "crowding out" effect of the historical investment areas for investor owned electric utilities.
Out of economic necessity, local governments will most likely turn increasingly to private sector financing of water
and wastewater facilities. Private sector involvement will vary from outright purchase of publicly owned water and
wastewater facilities to degrees of public-private shared partnerships. Whatever the ownership format,
diversification opportunities in water and wastewater industries for investor owned utilities should be available.
There are numerous foreign and domestic models of water and wastewater privatization, which suggests how the
U.S. water industry might re-structure. In the U.S., the example of Minnesota Power and its Florida subsidiary,
Southern States Utilities (SSU) stands as a successful example of how a company, with diminished traditional
core customer base, mainly due to foreign steel imports and a weakened local economy, was motivated to seek
alternative utility investment opportunities in private water companies. Initially a combination of six small Central
Florida companies were rolled up into Southem States Utilities (SSU). SSU has grown to a water/wastewater
company with nearly 150 systems serving 160,000 customers and employing over 500 people.
In recent years, particularly in the U.K. and France, privatization of water and wastewater facilities has been the
solution of choice in providing quality services without placing additional hardships on the public purse. A number
of other countries, most notably Australia in 1992, have turned to the private sector for financing in providing safe
and environmentally sound water/wastewater services.
In-house staff and operating experience will prove beneficial to electric utilities involved in the water industry.
Investor owned water and wastewater facilities in the U.S. are subject to similar regulatory controls as those which
govern the electric utility industry. The experience base of investor owned electric utilities of operating in a
regulated environment will be an enhanced managerial attribute for the acquisition and operation of water and/or
wastewater facilities. The ready transfer of management and operating skills and relatively low learning costs
related to acquiring and operating a water or wastewater facility versus a completely new competitive investment,
could provide electric utilities with a potentially attractive investment opportunity.
In addition to the operating synergism, water and wastewater facilities are low risk, high capital requirement
enterprises, which may be well suited to electric utility investment strategies. The regulatory control of the water
and wastewater industries ensures, in degree, a guarantee of market share and full cost recovery, through
commission supervised rate designs. Electric utility water/wastewater facilities will provide, within their own service
areas, additional economies in the form of a highly correlated customer base, in-depth knowledge of the local
regulatory environment, and an understanding of the many nuances of the local economy.
There is already a very viable investor owned water utility industry in the United States. This industry has, on
aggregate, provided investors with rates of return on investment and stock appreciation that have equalled or
i-, outperformed many other market sectors, including other utilities.

1993 Average Annual Total Shareholder Return (%)



1 of 3 12/30/96 16:54:19
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iATER STUDY EXECUTIVE SUMMARY






http://www.hooked.net/users/bb2/water.html


o Water Utilities 27.17%
o Electric Utilities 19.30%
'\ [ Natural Gas Utilities 12.17%
o All Utilities 16.46
See fa for additional financial factors


Electric utility investment in the water and wastewater industry should also have a complementary impact on local
economic growth. Expansion on an electric utility's customer base can be enhanced or constrained by the
availability or lack thereof of water and wastewater facilities. Thus an investor owned electric utility, by investing in
the water and wastewater infrastructure of the service area community; 1.) be making a prudent, stand alone
investment and 2.) encouraging community economic growth and hence, in the longer-term, an expansion of its
traditional electric customer base. These npple or secondary effects will increasingly be an incentive for electric
utilities to consider investment in water and wastewater facilities, especially in their own service areas.
Other findings of this brief study were:
o Currently water systems appear to be more attractive (easier to enter) investments
o Rate shock (caused by regulatory driven investments)experienced by some investor owned water utilities has
led to customer pressure for public annexation.
o A critical issue in public systems is the cross subsidization of using taxes to obscure the true cost of services to
customers.
o Other issues that need to be considered are corporate structures, including the issues of public-private
partnerships


Executive Summary
Chapter 1 Water and Wastewater Systems
A. Summary
ri, B. Water Systems
C. Wastewater Facilities
Chapter 2 Trends Toward Privatization USA and Abroad
A. Summary
B. Privatization
C. Public-Private Partners
D. USA Case Studies of Privatization
E. Increased Pace of Foreign Privatization
F. Differences Between US and European Community Approaches
Chapter 3 Financial Overview
A. Summary
B. Major Features of US Water Service Operators
C. Comparisons
Major Water and Wastewater Companies
o Aggregate Foreign and Domestic Water Companies
o All 106 US A1-A3 Investor Owned Water Companies
Chapter 4 Rates and Prices
A. Summary
B. Ratemaking in the US Regulated Utility Industries
C. Price Sensitivity Rate Elasticities
Chapter 4 Appendix
Chapter 5 Infrastructure Financing Problems and Solutions
A. Summary
B. Infrastructure Expenditures Private and Public Sectors
Appendix A Slides
"SS Appendix B Communities in Distress: Coping with the Clean Water Funding Crisis of the 1990s

Appendix C Financing the Future Report on the Commission to Promote Investment in America's Infrastructure



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WATER STUDY EXECUTIVE SUMMARY





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Appendix D Meeting Water Utility Revenues Requirements: Financing and Ratemaking Altematives
i i- -
Additional Notes April 14, 1996

0 Key Aggreaate Water Statistics Click here
o US Investor Owned Water Companies Names. Revenues. Affiliation. Trading Status (oublic/private) Stock
Exchange. and Trading Symbol
o This site is somewhat pre-dated, but basically still very relevant I am in the process of updating. Copies of
this study can be obtained from Myron Jones at 415-855-2993.

Please email me with your comments on this oaper.
Click here to return to my main Website.


12/30/96 16:54:19
3.4.14


3 of 3


,TER STUDY EXECUTIVE SUMMARY






http://www.hooked.net/users/bb2/stat2.html


1994 Individual Companies by Revenues, Parent, Trading Status, Exchange, and Tradi


CALIF AMERICAN
CONNECTICUT AMERICAN
HAMPTON WATER CO
ILLINOIS AMERICAN
INDIANA AMERICAN
IOWA AMERICAN
KENTUCKY AMERICAN
MARYLAND AMERICAN
MASS AMERICAN
MISSOURI CITIES
MISSOURI AMERICAN
NEW JERSEY AMERICAN
NEW MEXICO AMERICAN
NEW YORK AMERICAN
OHIO AMERICAN
OHIO SUBURBAN
PARADISE VALLEY
PENN AMERICAN
SALIS- BURY
TENESSEE AMERICAN
VIRGINIA AMERICAN
WEST VA AMERICAN
BRIDGEPORT HYDRAULI(
STAMFORD WATER
ARTESIAN WATER
FLORIDA CITIES
CITIZENS UTIL / II
CITIZENS UTIL / O1
CITIZENS UTIL HOMI
CITIZENS UTIL / C1
SUN CITY WATER
LONG ISLAND
NORTHERN ILLINOIS
ST LOUIS COUNTY
CONSUMERS OHIO
CONSUMERS PA-ROAR.
CONSUMERS PA-SHENAI
CONSUMERS MAINE
CONSUMERS ILLINOIS
CONSUMERS PA-SUSQUE
CONSUMERS NEW JERSI
INTER- STATE
SOUTHERN NEW HAMP.
DOMINGUEZ WATER
ELIZABETH- TOWN
MOUNT HOLLY
ADELPHIA
AVON WATER
CALIFORNIA WATER CO


jL
I







CK
YGO


5.
3Y


COLLEGE UTIL CORP
COLUMBIA WATER
CONNECTICUT WATER SERV
CONSOL. WATER UTIL
DECCA UTIL
GULF UTILITY
HEATER UTILITIES
HYDRA- LICS
LOUIS- VILLE
NEW YORK WATER SER
NEWTOWN ARTESIAN
NORTHERN MICHIGAN
NORTHWEST INDIANA
PALM COAST
PENN GAS & WATER


Parent
Company Revenues
AM 56,080,386
AM 17,106,924
AM 3,180,700
AM 58,978,539
AM 56,567,993
AM 17,012,586
AM 30,643,257
AM 2,246,974
AM 5,773,792
AM 9,955,792
AM 12,882,905
AM 160,168,648
AM 5,825,196
AM 8,668,836
AM 16,305,870
AM 3,791,718
AM 2,744,451
AM 172,618,818
AM 1,656,771
AM 28,546,625
AM 26,237,925
AM 55,988,050
AQ 61,064,528
AQ 12,458,650
AR 18,937,425
AV 24,770,559
CI 9,539,540
CI 2,131,694
CI 2,795,922
CI 14,583,081
CI 6,090,674
CN 33,233,190
CN 19,589,895
CN 83,144,177
CS 26,355,141
CS 5,584,452
CS 6,665,404
CS 6,264,706
CS 11,410,151
CS 1,405,608
CS 10,206,531
CS 7,177,724
CS 5,306,089
DS 24,471,778
ET 99,256,966
ET 2,775,542
IND 1,096,471
IND 1,653,786
IND 157,270,787
IND 1,909,855
IND 2,225,690
IND 38,129,000
IND 2,376,265
IND 528,832
IND 2,011,761
IND 5,711,839
IND 1,389,458
IND 68,963,169
IND 18,683,286
IND 3,073,183
IND 766,051
IND 18,782,640
IND 8,003,279
IND 66,730,883


Company
American






















Aquarian

Artesian
Avatar Yes
Citizens




Continental


Consumers








Dominquez
E'Town Yes


Publicly Stoc
Traded Exch


Yes





















Yes


NYSE





















NYSE


YesNASDAQRTN
NASDAQ AVTR
Yes NYSE




No


NASD


Yes NASD
NYSE ETW


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3.4.I5


C


Q






http://www.hooked.net/users/bb2/stat2.html


RANIER VIEW IND 1,327,060
SHORE- LANDS IND 7,529,271
SOUTHERN CALIFORNIA IND 112,087,000
TOURING -TON IND 2,590,343
YORK WATER CO IND 14,755,707
INDIAN- APOLIS IWC 68,860,460
JAMAICA WATER CO JA 63,017,862
SOUTHERN STATES MP 32,466,681
MIDDLESEX WATER CO MW 34,545,308
TIDE- WATER MW 1,577,167
VALENCIA WATER CO NH 6,677,000
PENNI- CHUCK PE 10,162,896
PHILA. SUBURBAN PS 106,801,579
SAN JOSE WATER CO SJ 92,962,762
NEW MEXICO UTILITIES SW 1,815,229
SUBURBAN WATER SYS SW 26,739,992
BATON ROUGE UH 28,675,170
UNITED IDAHO UW 19,062,785
UNITED ILLINOIS UW 2,373,936
UNITED MISSOURI UW 2,767,182
UNITED FLORIDA UW 6,472,770
UNITED NEW JERSEY UW 117,583,854
UNITED NEW MEXICO UW 7,021,276
UNITED NEW ROCH. UW 16,699,766
UNITED W LAFAYETTE UW 2,031,557
UNITED PENNA. UW 17,508,377
UNITED NEW YORK UW 35,719,820
UNITED SOUTH GATE UW 1,783,446
UNITED TOMS RIVER UW 12,306,907
UNITED CONN. UW 2,703,303
UNITED RHODE IS. UW 2,084,653
UNITED DELAWARE UW 13,255,012
UNITED ARKANSAS UW 5,356,852
SInd No information available.
All data 1994, based on NAWC information


IWC Res.
JWP Yes
Minnesota
Middlesex

Newhall Yes
Pennichuck
Philadelphia
SJW Corp.
Southwest

Utility Holdings
United Yes


Yes
NYSE
Yes
Yes

NYSE
Yes
Yes
Yes
Yes


NASD
JWP
NYSE
NASD

NHK
NASD
NYSE
AMEX
NASD


No
NYSE UWR


Visit Paoe with summary symbols and "hot link" to some market quotes


Click here to go to the Aggreaate Table
Click here to go to the Home Pace
Click here to go to the Water Page


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3.4. 1 t


2 of 2







atistics for water and waste water companies


Aggregate Statistics of US Inverstor Owned Water Companies with Revenues in Excess of $1 Million


Table 1

All Stocks, Utilities, and Water*

Comparative Statisics

1990 1991 1992 1993 1994 1995


DIV/YLD

All

Utils.

Water

P. INDEF

All

Utils

Water

PR/BK

All

Utils

\ Water

PR/EARN

All

Utils

Water


1 of4


3.16

6.38

6.69

Jan.

286.01

228.53

213.54

Ratio

1.75

1.44

1.15

Ratio

13.20

11.58

11.04


2.73

6.12

6.40

L980=100

333.59

249.71

269.50



1.83

1.56

1.28



15.29

12.92

12.02


2.53

5.74

6.23



417.49

270.41

329.74



1.94

1.67

1.40



17.39

14.18

11.96


2.41

5.18

5.50



429.17

315.94

400.24



2.31

1.86

1.55



17.84

15.55

14.40


2.51

5.97

5.94



427.95

270.66

381.58



2.33

1.58

1.36



16.33

13.42

12.30


2.45

5.76

6.41



485.65

279.34

363.57



2.49

1.63

1.40



15.65

13.61

12.81


* 12 Month average and/or average of available data
----------------------------------------------------------

Table 2

Number of US Investor Owned Water Companies Studied 1991-1994

With Revenues Greater than $1MM



1991 1992 1993 1994

Number 96 98 103 96

Annual % Change NA 2.08% 5.10% -6.80%





Table 3

Total Dollar Value in Plant of Companies Studied


12/30/96 17:02:32
3.4.17


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.atistics for water and waste water companies


(\ Residential

Commercial

Industrial

Wholsale

Fire Service

Other

Total


1991

$1,340

410

131



132

176

$2,187


Average Charges

($/Th.

Customer Class 1991

Residential 1.78

Commercial 1.51

( Industrial 0.95

Wholesale 0.00

Fire Service 10.88

Other 1.45

Total 1.69


1992

$1,411

430

133



127

173

$2,274


1993 1994

$1,526

439

142



131

184

$2,421


Table 6

by Customer Class

Cubic Ft.)

1992 1993

1.96 1.99

1.63 1.67

1.00 1.14

0.00 0.00

25.17 44.46

1.43 1.57

1.83 1.90


1994

2.10

1.75

1.18

0.97

58.44

1.65

1.97


Table 7

Annual Percent Change in Water Rates by Customer Class

and Average

(%.)

1991 1992 1993 1994

Residential NA 9.87% 1.67% 5.57%

Commercial NA 7.87% 2.17% 5.08%

Industrial NA 5.42% 13.18% 3.78%.

r Wholesale NA NA NA NA*

Fire NA 131.28% 76.61% 31.45%

Other NA -1.40% 9.67% 5.20%


12/30/96 17:02:32
3.4.1 8


$1,596

494

146

56

135

96

$2,524


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Statistics for water and waste water companies


Total


NA 8.42% 3.56% 3.51%


Sources DSC & NAWC

Computations and presentations are mine and any errors should reflect on me, not the sources.
Errors could develop because of computations and transcribing. Please bring these to my attention bb2aix.netcom.com.


Click here to go to the Revenue/Company Page
Click here to go to the Home Page
Click here to go to the Water Page
I I .. .... ....... .... -....... ...... .......... ... ..... .............. .......... .. .. .. . . .. .. .. . .. .. .. .. .. . . .. . . .. . . . .. .. .


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