VOLUME 35

NUMBER 4

WINTER 1995 The Magazin e of the National Association of Water Companies

OFFICERS STAFF CONTENTS

CHAIRMAN OF THE BOARD James B. Groff President's Message...... 3 Annual Conference Wrap·Up 4 J. James Barr Executive Director Annual Conference Photos ...... 7 American Water Works Company Sharon L. Gascon New Members ...... 11 Deputy Executive Director 1995 Eastern/Midwestern PRESIDENT Customer Service Conference . ... . 11 Jack E. McGregor Michael J. Horner 1994 Honorary Member Award ...... 12 Bridgeport Hydraulic Company Director of Administration and 1994 Management Innovation Award Contest ...... 14 Membership 1st VICE PRESIDENT NAWC History, 1895- 1920, Louis Jenny by T. Ward Welsh ...... 16 Ronald S. Dungan Remarks at the Deloitte & Touche Director of Congressional Relations General Waterworks Company Northeast Public Utility Conference, Mark D. Planning by J. Jam es Barr ...... 23 GENERAL VICE PRESIDENTS Director of Federal Agency Relations The Clean Water Industry: Change, Robert A. Luksa Customers, and Choice, Philadelphia Suburban Water Company Jean Lewis by Hampton D. Graham ...... 26 Administrative Manager The Reauthorization of the SDWA: Ftoyd E. Wicks Costs and Ri sks, by The Bonita J. Hayden Honorable Diane K. Kiesling ..... 28 Southern California Water Company Finance Manager The Reauthorization of the SDWA: Costs Eugene H. Owen and Risks, by James B. Groff ...... 31 Audra Zellner NAWC Centennial, Baton Rouge Water Company Executive Assistant by Catherine D. Harri s ...... 33 Municipal Utility Val uation: From Robert A. Dotson Phaedra Jones the Municipality's Point of View, Continental Water Company Program Assistant by James S. Kelly ...... 34 Water/Wastewater Privatization, SECRETARY Laura Goodwin by Robert W. Poole ...... 35 James B. Groff Secretary/ Federal and 1994 Water Utility Compensation Congressional Relations and Benefits Survey Re sulrs, TREASURER by Gerry Stoffel ...... 37 Sharon L. Gascon Safe Drinking Water: At What Price?, by Petcr R. vanDernoN, with Nancy Jorgenson ...... 39 Executive Directo r' s Report ...... 43 Regulatory Relations Report ....- . . . . 46 Recent Regulato ry Decisions . .. . 49 Federal Agency Notes ...... 51 Copyright 1989, National Association of Water Quorum Ca ll ...... 53 Companies. Tax Adviser ...... 54 The articles printed in this magazine do not necessar­ ily represent the position of the National Association Pipeline to Small Companies ...... 55 afWater Companies. NAWC disclaims responsibilit y Gerald M. Hill 0941-1994) ...... 57 for all information provided by individual au thors or Company Profile: Bridgeport organizations and published in WATER magazine, About the Cover: Bridgeport Hydraulic Co.'s 12-bil­ Hyd raulic Company ...... 58 including technical information which should be in­ lion-gallon Saugatuck Reservoir, completed in 1942, Corporate Changes ...... 62 dependently verified by separate sources. is the company's largest supply source. Etceter a ...... 65

WATER- Published four times each year by the National Association of Water Companies, Suite 1212, 1725 K Street, N.W., Washington, DC 20006. NAWC is a-nonprofit trade associati on dedicated to serv ing the needs of the investor·owned state·regulated, public water supply industry. WATER is circulated to all Active and Associate Members of the Association, members and staff of public utility commissions, federal and state officials concerned with our industry and will be sent to qualified persons upon written request. Requests and changes of addtess should be sentto NAWC, Suite 1212, 1725 K Stteet, N.W., Washington, DC 20006 (202) 83l8383. The President's Message

by Jack E. McGregor

he rugged desert scenery provided a breathtak­ standard setting process. ing backd rop to NAWC's 1994 Annual Confe rence To accomplish this goal, however, we need to get more T in Scottsdale, Arizo na, held the first week of Octo­ involved. Developing sponsorship in Congress is vitally ber. Appropriately, in NAWC's 100th annive rsary yea r, our important, and nowhere is this mo re evident that here in theme was 21 st Century Excellence, focusing New Engla nd. One of my goa ls t his year is to on four components: legislative and regulatory conv ince the Connecticut congressional delega­ excellence, customer service excellence, em­ tion of the legitimacy of our position and the ployee excellence and financial excellence. need to sponsor this bill. I urge all of our mem­ As this is my first correspondence to you as bers to do the same in their home states and president of the association, I'd like to take this regions. Government relations is not a specta­ opportunity to express my sincere appreciation tor sport. to the over 400 members whose participation The new year means a fresh star t, w ith a new made the conference such a great success. A Congress and with its new legislators and their special note of t hanks should go to our speak­ staffs. We need to bring them up to speed on ers and the panel moderators, all of whom did our position and wo rk with them to develop slich an outstanding job in covering a broad the kind of relationships t hatwililead to their range of topics so concisely and informatively. active support. There are a number of ways to The overriding message of the co nference was that we do this: should do a better job of relating to all of our constituen­ Send congratulatory letters to the returning incom­ cies. In that regard, I'd like to suggest that we begin by ing members, and include a brief mention of the im­ focusing on the legislative arena. While the water utility portance of reforming the drinking water law. in dustry faces a number of issues, the most pressing re­ Visit your Congressio nal representatives in their lo­ mains reauthorization of the Safe Drinking Water Act. We cal offices. Travel to Washington and meet with them as an industry made significant progress in 1994 by forg­ there as well. ing a coalition of 12 leg islative, regulatory and trade as so­ Getto know you r legislators by inviting them and thei r ciations--each with its own set of issues and concerns-to key staff members to your filtration plants for a re­ propose significant changes in the SDWA that would en­ ception and tour. Impress upon them t he need for sure safe, reliable drinking water at a reasonable cost to practical solutions to the problems we face in meet· ollr customers. ing the current SDWA requirements. T hough political considerations killed the resulting com­ promise bill, HR 3392, sponsored by Congressmen Jim Get your employees involved in the process as wel l. Slattery and Tom Bliley, the new year presents a tremen­ As voters and constituents, they can be a strong force in advocating the company's posi tion to their repre­ dous opportunity to benefit all OUf var ious constituencies by advocating a new and improved version that will re­ sentatives in Washington. flect more effecti vely the water utility industry's position The new yea r promises to keep us all busy on other fronts on this issue, particularly as it relates to the "u nholy trin­ as we ll, such as the issues surrounding the pending adop­ ity" of relative risk assessment, the taking of private prop­ tion of the Information Collection Rule and our continu­ erty and unfunded mandates. The association's intentio n ing efforts to repeal the tax on contributions in aid of con­ is to work wit h the coalition to introduce, early in the 104th struction (CIAC). I look fo rward to reporting to you on Congress, a new version that returns to many of the origi­ these and other matters , and I am del ighted and honored nal positions advocated pr ior to the compromise bill, in­ to serve you as president as NAWC begins its next century cluding ensuring that risk is extensively considered in the of excellence . •

WINTER 1995 0 Q 98th nual Conference Wrap-Up

The Scottsdale Princess was the site of Innovative Ratemal(ing eliminate the need for traditional rate NAWC's 98th Annual Conference. The Monday afternoon general session cases. Performance standards would be Sunny, blue skies and picturesque was a panel on innovative ratemaking, fea" developed to measure customer satisfac­ stretches of desert provided the perfect turing as moderator the Honorable tion, safety and reliability. Revenue in­ backdrop for NAWC members and friends Reginald Smith from the Connecticut creases would be tied to CPI adjusted to gather and tackle the topics relating to Department of Public Utility Control and by productivity gains. Utilities would the Conference theme of "21st Century as panelists Jan Beecher, National Regula­ keep any profits from productivity gains Excellence." tory Research Institute; the Honorable P. above the benchmark. Commissioner The Conference got into full swing on Gregory Conlon, California Public Utili­ Conlon believes these changes in regula­ Sunday, with a full slate of tours, the ten­ ties Commissioner, and Al Pak, San Diego tion will lower the cost of service to the nis tournament and a Southwestern Gas and Electric Company. customer as they have in England and Celebration and Dinner. Guests at the din­ Commissioner Smith called on Jan Norway. ncr were quickly eased into the southwest­ Beecher to start off the session by saying Al Pak of San Diego Gas and Electric ern ellvironment, viewing works by South­ that there is government regulation of the stated that the electric industry became western artisans, listening to relaxing water industry at severallcvels- EPA, De­ too bloated under the traditional regula­ music, enjoying delicious food and, most partment of Health Services, Public Ser­ tion. He believes that utilities should be importantly, reuniting with old friends vices, Public Service Commission, etc. She rewarded for excellence with a higher rate and meeting new friends. said that regulation hinders regulatory of return rather than a lower rate of The program began on Monday morn­ oversight and that changes were needed return. Traditional regulation has re­ ing with a presentation by Barry in market orientation which includes re­ warded poor performance with higher Goldwater, a greeting by Conference defined roles with industry specific solu­ rates of return. He cited the need to Chairman Jack McGregor, greetings from tions. These solutions should be proactive decouple sales and profit but to tie AWWA, NARUC and the NARUC Wa­ and have a long term focus. profits to cost controls. He concluded ter Committee and a presentation to Commissioner Conlon from the Cali­ by stressing that there should be service NAWC's latest Honorary Member. Some fornia Public Utilities Commission wants indicators to ensure quality service and of the highlights of the 1994 Conference to implement performance based regula­ that financial incentives for excellence are summarized as follows. tion in the water industry. This would should be continued. o NAWCWATER • Customer Service Excellence­ redefined. Wo rldwide communicatio ns polarized. There are now forty million Views from Outside the hUnited States Secretary of La­ changes of the fami ly. O ld company policies should provide the level ofleadership th

WINTER 19950 Conference Wrap .. Up, continued munications with, analysts and portfolio Alan Manning, chief executive officer of managers. H e suggested that water com­ EMA Inc., introduced six "paradigm" or and the skills of senior management. A panies need to institute active investor rule shifts that can make companies more way has to be found and accomplished to rclations programs: Responsibility for in­ productive and efficient: motivate and reach out to minorities vestor relations should be clearly delin­ Total productive maintenance is replac­ within this country. Corporate America eated. Some companies engage consulting ing operations and maintenance as two can no longer hide when it comes to di­ firms specializing in investor relations to separate organizations; versification. Diversity can be called many guide their efforts and aid interface with things; however, the best name for it the financial community. Planned maintenance ("Fix it before it should just be "America." "What does the investor want?," asked breaks") is supplanting reactive main­ Tirello. "Earnings growth and dividend tenance ("If it ain't broke, don't fix it"); Shareholder Value growth-not high payouts." Tirello added Unattended operations-the optimum Thursday morning, New Jersey Board that the higher payout ratios that charac­ use of automation-is edgi ng out labor of Public Utilities Commissioner Edward terize water companies are "not as bad" intensive attended operations; Salmon moderated a discussion of share­ since competition is limited. holder value. Bill Patterson, managing di­ "Regulation in America is punitive,)) A flexible work force where "everybody rector with Smith Barney's utility group, Tirello said. " I'm always trying to find the does everything" is taking the place of said in the current merger and acquisition least negative regulatory climate." He en­ work separated by skill and craft; environment, transactions between "stra­ couraged rhe audience to think aboutregu­ There's a move from technology as tegic buyers" have re-emerged, replacing lation in non-traditional ways: "Get away "risky" to technology as strategy. Man­ the "fin ancial buyers" that abounded in from return-on-equity, into price-capital ning cited computer networks as a tre­ the 80s. regulation." mendous advance, but cautioned that The water industry has significantly Managements need to get more aggres­ networks must be planned and must be outperformed the other utility groups in sive to be more competitive. Cut costs: accompanied by a rethinking of the way the last 12 months, Patterson said. "As a The savings automatically drop to bottom the organization does business; result, many traditional investors in elec­ line. With the lack of competition, com­ From organization as structure to orga­ tric and gas stocks are taking a renewed panies should be able to earn their autho­ nization as strategy. "We need to start interest in the water industry." rized rates of return by cutting costs and giving up control and allowing people He noted that most water utilities have using price-capital regulation. "Ironically, to think ... and function as an orches­ low growth rates in their core markets, the utility industry's earning ability-as­ tra." high dividend payouts, reduced allowed suming it's just at the ROE authorized­ returns on equity, pricing constraints has been substantially better than almost He cited a case study of Arizona Public from regulators and high ongoing capital any other industrial business," Tirello re­ Service Company, in which a company requirements. marked. used the paradigms to achieve dramatic Patterson named strategies that water Tirello said the water industry, and the improvements in customer focus and prof­ companies can use to enhance shareholder companies themselves, are too small. To itability, and ensure the company's sur­ value: get more recognition, he advised, "You vival. have to step up your acquisitions. Bulk up. Manning said these new paradigms arc stay in a familiar business, such as water You don't have a choice." keys to successfully competing in the and related servicesj Acknowledging that outright acquisi­ changing world water marketplace, and are make prudent acquisitions (but recover tions may be difficult to do because mu­ already in use by several leading European acquisition costs), create synergies nicipalities may not want to sell their sys­ companies in the water industry. through operating and capital cost savings tems, Tirello suggested that companies (but retain the cost savings), seek long-term leases or management con­ Final Notes tracts. "Be creative." He urged the audi­ Other highlights of this Conference and pursue opportunities for privatization ence to think about strategic al liances and included a Wednesday night barbecue­ and public-private partnerships. partnerships, whether it's with domestic cowboy style, a successful golf tournament Edward Tirello, senior global utility or foreign companies. using the TPC Scottsdale Course and the analyst with NatWest Securities, has cov­ People are looking for "specific types first NAWC Expo. As attendees prepared ered the utility industry for 25 years. of securities: environmentally safe utili­ themselves to return to their homes, more "Shareholder value is like space on the ties. They don't know it yet ... you have than a few were heard to say, "See you in supermarket shelf. Analysts have limited to tell them. Value is created in people New Orleans," a reference to NAWC's time: they must focus on several indus­ buying and knowing about the company," 99th Annual Conference, to be held at the tries. Water gets' short shrift' because the said Tirello. H otel Intercontinental in New Orleans, industry is not active enough." from October 29 to November 2. Tirello said that a large component of Paradigm Shifts in the Note, Thanks to the NAWC Public In· shareholder value is management action: Water Industry formation Committee for its contribu­ visiting, and maintaining frequent com- At the final session of the conference, tions to this article .• o NAWCWATER P"" ------

.... Arizona's own Barry Goldwater helped open the Conference.

The Honorable ~ Charles Hughes, Chairman of the NARUC Water Committee.

.... The Honorable John Merchant.

Ann McLaughlin. ~

.... AWWA President-Elect Karl Kohlhoff.

The Honorable ~ Ed Salmon.

WINTER 1995 • -

Alan Manning (! to r) Edward Tirello, Eugene Owen, The Honorable Ed Salmon and Bill Patterson.

(! to r) The Honorable Reginald Smith, janice Beecher, Rich Tompkins presenting a certificate of appreciation to The Honorable P. Gregory Conlon and AI Pak. Gail Brady, outgoing chairman of the Accounting Committee.

Rich Tompkins presenting a certificate of appreciation to Walter Rich Tompkins presenting a certificate of appreciation to john Brady, outgoing chairman of the Employee Relations Committee. Alexander, outgoing chairman of the Small Companies Committee.

• NAWCWATER Rich Tompkins presenting a certificate of appreciation to john Isacke, Rich Tompkins presents a water meter bookend as outgoing chairman of the Government Relations Committee. thanks to Bill Sankpill. Mr. Sankpill will be retiring from the Missouri Public Service Commission.

Rich Tompkins presents a certificate of appreciation to Rich Tompkins, past president of NAWC, jim Good, former Director of Government Relations for NAWC. passes on the gavel to new president jack McGregor. Mr. Good is now a Vice President with California Water Service Co.

jack McGregor presents a gift to outgoing president of Rich Tompkins presents a placque to Bill Holmes, in recognition NAWC Rich Tompkins, in appreciation for his work as president. of Mr. Holmes' service on NAWC's Executive Committee.

WINTER 1995 • Carol Allen, of the Pennsylvania Utility Commission, and Fred A sculptor displays his craft at the Ottavelli, of the Washington Utility Commission, at the NAWC Expo. Southwestern Celebration and Dinner.

.... A sand painter at the Southwestern Celebration and Dinner.

A musician at the ~ Southwestern Celebration and Dinner.

.... A musician at the Southwestern Celebration and Dinner.

NAWC -ers in ~ their finest western attire, enjoying the Reception and Dinner at the Crown P Corral.

• NAWCWATER • WELCOME TO • • •

Our Newest Melllber Our Newest Associate Melllhers COlllpanies Wiley J. Archer Paul Klebahn Back Creek Valley Utilities, Inc. Archer & Associates Donald R. Frey & Co., Inc. Gerrardstown, WV Providence, RI Fort Thomas, KY Herbert Boyer Brian E. Marshall Bright Acre Water Co. Water Privatization Services Cathodic Protection Services/Water Kingston, NY New York, NY Works District Chaparral City Water Co. Jorge A. Caballero Springfield, NJ Fountain Hills, AZ Delaitte & Touche Gregory J. Mizioch Parsippany, NJ SW Services, Inc. Jensen Water Co. Phoenix, AZ Cabazon in Riverside County, CA Peter Conner Cleanwater Ozone Systems Paul R . Moul Lake Suzy Utility, Inc. Fort Wayne, IN P. Moul & Associates Lake Suzy, FL Rick DaSilva Cherry Hill , NJ DaSilve Coatings Co" Inc. Jeremiah O'Connor Mt. Charlie Water Works, Inc. Farmingville, NY Nat West Advisory Group San Jose, CA Bruce Edelston New York, NY Red Mills Water Co. Georgia Power Co. John F. Skadberg Port Arthur, NY Atlanta, GA Pizzagalli Construction Co. Rogina Water Co. James F. Grotton South Burlington, CT Everett]. Prescott, Inc. Talmage, CA Joseph N. Schmidt, Jr., Esq. Concord, NH Drinker, Biddle & Reath SB Water Co. Frank J. Hanley Princeton, NJ Cherry Hill, NJ AUS Consultants-Utility Services John A. Stann Moorestown, NJ Scotsdale Water & Sewer, Inc. A.G. Edwards & Sons, Inc. Fayetteville, NC Brian R. Hass St. Louis, MO Corporate Decisions, Inc. Michael R. Thomassen Seaview Water Co. Boston, MA American Express Longport, NJ David Jones New York, NY Meter Box Covers, Inc. Swann Lake Water Corporation Jeremy N. Townsend White Marsh, MD Huntington, NY Stewart Smith Southwest Inc. Marty M. Judge, Esq. Stephen L. Wilson Valley Water Utility Co. Drinker, Biddle & Reath Deloitte & Touche North Pole, AK Princeton, NJ H ouston, TX

NAWC's 1995 Eastern/ Midwestern Customer Service Conference May 22-24, 1995 Annapolis, MD Start making plans now to attend the 1995 Eastern/Midwestern Customer Service Conference, May 22-24 at th e Annapolis Marriott in Annapolis, Maryland. Planned topics include customer expectations, conservation programs and customer service training, as well as the time-tested Idea Exchange Luncheon and Fred Eckardt Memorial Open Forum. These topics, combined w ith the beauty of the Chesapeake Bay, re sult in a program that you w ill not want to miss. For more information, call Jean Lewis at NAWC, 202/833-8383.

WINTER 1995 e L r NATIONAL ASSOCIATION OF WATER COMPANIES HONORARY MEMBERSHIP AWARD-1994

presented to Chester A Ring, 3rd, by J- James Barr, at the 1994 NAWC Annual Conference

NAWC Chairman of the Board of Directors j. James Barr (r) with Honorary Member Chet Ring and his wife Joan.

The person selected this year for the for everyone, always a joke to telL This by the engineering designs on the front prestigious award of Honorary Member­ man can find humor in any situation, a of some of their covers_ ship in NAWC has been an icon in the lesson I'm sure we could all benefit from Following graduation from the Univer­ water industry for over 40 years_ to reduce our stress level-and as an engi­ sity of Maine in 1950 with a Bachelor of I would guess his first introduction to neer, he was never without his trusted and Science Degree in Civil Engineering, this water can be attributed to his birthplace dependable friend: his slide rule_ One year's awardee began his water works ca­ in a large logging town on the Penobscott would never find a calculator on his desk_ reer with the Pitometer Associates in Pitts­ River. He never lost his New England ac­ Caring and considerate by nature, every burgh as a Field Engineer. cent and at times it's a little hard to un­ year this man would sent his mother roses In 1952 he joined the staff of the Ameri­ derstand him-just ask his secretary who on HIS birthday-to thank her for giving can Water Works Service Company in spent 27 years trying to figure out what him life_ Philadelphia_ He went through the Cadet he was saying during dictation_ Neverthe­ As we grow and progress from infancy Engineering Program, went on to work as l~ss, there is no mistaking this awardee's into adolescence, it has been well docu­ a Construction Inspector and then be­ dedication and devotion to the water util­ mented that our life is pretty much de­ came Assistant Chief Distribution Engi­ ity industry_ fined by the time we reach the age of seven, neer. At American Water Works Service He was an only child and was brought and we spend the rest of our life follow­ Company, he was considered t he up to be a true gentleman-a person who ing that chosen path_ By the time our company's "transmission main specialist," showed his happiness and contentment awardee was seven, he was glancing travelling across the U.S_ to all subsidiary with life by whistling ___ always a smile through Fortune magazines, mesmerized locations solving water transmission prob-

• NAWCWATER lems. When he travelled, he was known the conference of the International Wa­ when he won the Humane Society Award for going out of his way to find a good ter Supply Association in Amsterdam-his for a composition about his dog, Bingo. meal in every small town. Find a restau­ wife excitedly accompanied him. One for From then on, he was on a roll. As a mem­ rant with a good salad and he was a regu­ not extending o r prolonging business ber of AWWA since 1957, he authored lar customer! trips, he completed his business in five numerous articles and papers about wa­ It was while he was in Pittsburgh on days rather than seven so he changed their ter works operations. He has served on assignment with American Water Works plane tickets to return home earlier than various chapter committees, and was ac­ that our awardee met and married his part­ expected. Needless to say, his wife was not tive on the national level. He became a ner fo r life-a partner not only at home, a happy camper. It's rumored that at this trustee of the New Jersey Section AWWA, but on the golf course as well! Their first point El izabethtown Water Company's held the office of vice chairman and be­ encounter in an A&P led to a lifelong com­ Board of Directors was contemplati ng came chairman in 1969. mitment that produced a family with four holding its monthly Board meetings at I n addition, he is a licensed Professional children, the oldest son carrying on the Newark International Airport to accom­ Engineer and past member of the State tradition by becoming the 3rd generation modate his busy travel. Licensing Board for Water Works and engineer. When he wasn't travelling, he was be­ Waste Water Operations in New Jersey. In 1959, our honoree left Philadelphia, ing recognized for his dedication to the He is also active in community affairs­ and the American Water Works Service industry: as previously mentioned he served as Company, and headed to the Garden In 1974 our awardee received the New President of the Fanwood·Scotch Plains State. There he accepted a position at Jersey Section AWWA "Man of the Year" Rotary Club, President of the Fanwood­ Plainfield-Union Water Company as Chief Award. This award is given annually to the Scotch Plains YM CA, served as a mem­ Engineer. Bob Kean fondly remembers the one individual who has given outstanding ber of the Union County Chamber of first time he met with our awardee, who service in the water works field. In 1993 Commerce, was a member of the was late for their meeting at the Park Ho· the Water Resources Association honored Muhlenbetg Regional Hospital Building tel. Bob said it turned out that our him with the Samuel S. Baxter Memorial Fund, and sat on Plainfield Country awardee, with his characteristic New En­ Award for outstanding contributions to C lub's Membership Committee. gland accent, kept asking people how to the water industry. For R&R, our newest Honorary Mem· get to the" Pack" Hotel. During our awardee's tenure with bers has only one form of recreation-golf, In 1961 the Plainfield-Union Water Elizabethtown Water Company, he saw the a love no one will dispute and one that's Company merged with the Elizabethtown company mature and grow through acquisi­ conveniently and happily shared with his Water Company and he became Chief tions and population growth. The wife and daughter. Our awardee had an Engineer of Elizabethtown. In 1967 , he company's franchise area grew and this man exciting experience in 1987 as a marshall went on to become Vice President of Op­ managed the awesome task of keeping the for Plainfield Coun t ry Club when the erations, and in 1978 he was elevated to water flowing. Keeping pace with growth Club hosted the Women's U.S_ Open Golf the position of Executive Vice President meant expansion ... expanding the treat­ Tournament. He and his wife accommo­ of Elizabethtown Water Company, joining ment plants, expanding the operations cen­ dated two international golf pros at their Bob Kean and Henry Patterson in the top ter, expanding the service territory, and ex­ ho me- one from France and onc from management of the company. In 1987, our panding the computer network. Spain. Word has it that evening golf talk honoree became their new President and As we have described, our awardee's at home with the women proved very en­ served in that capacity until retiring in credits extend well beyond the boundaries lightening and improved his handicap tre­ 1992. Henry Patterson fondly recounts an of Elizabethtown Water Company and mendously. In preparation for h is retire­ early t ravelling experience with o ur extend well beyond the United States. ment in 1992, he purchased a home closer awardee. It was a flight by prop plane to His" Presidency" did not start nor stop at to Plainfield Country Club where when an AWWA Conference in Toronto. Elizabethtown. He was also President ofThe the sun rises, our awardee can frequently

(! Lucky for him the plane made frequent Mount Holly Water Company, a subsidiary be seen on the greens, using his infamous stops." remembers Henry. Despite his ear­ in the E'town family; he is the only person slide rule to determine the best route to lier aversion to airplanes, he went on to to have served as president of AWWA and the hole. Some people believe he was born become a seasoned traveller, travelling to NAWC. He was President of the American with a slide rule in one hand and a golf most of the 50 states. He also traveled to Water Works Association, President of the club in the other! When asked who the South America, Europe and Russia, shar­ Water Resources Association, President of better golfer is in the family, one can only ing information abollt American water the National Association of Water Compa­ go to Plainfield Country Club and look treatment methods and technology. nies, President of the Fanwood·Scotch Plains at the six Women's C lub Championship In 1975 our awardee was appointed by YMCA, and Ptesident of the Fanwood­ Awards on the wall all under the name of Russell E. Train, then Administrator for Scotch Rotary Club. It was when he wanted Mary Ring. Her father taught her well. the United States Department of Environ­ to throw his hat into the ring for this Presi­ As you must have all guessed by now, mental Protection, to a IS-member com­ dency that his wife stepped in and put a lid our newest Honorary Member to NAWC's mittee of the National Drinking Water on it! 1994 Hall of Fame is Chet Ring and his Advisory Council. His first venture at writing papers for first lady, Joan. Ladies and gentlemen, As an officer of AWWA, he attended publication goes back to the third grade please join me in welcoming them."

WINTER 1995 CD - 1994 Manage1nent Innovation Contest

This year, there were 10 entries in NAWC's Management In­ novation Contest. Winners were selected by a committee com­ prised of Ron Dungan of General Waterworks Co., Bob Luksa of Philadelphia Suburban Water Co. and Floyd Wicks of Southern California Water Co. The committee selected three winners. New Jersey-American won for its submission "Building Consensus Through Public Information," submitted by Kathleen A. Davis. Southern California Water Co. won for its submission "Employee Suggestion Program," submitted by Randell J. Vogel, and Citi­ zens Utilities Co. of Illinois won for its submission "Partnering with Schools Today," submitted by William Kuzia. A list of all entries submitted follows. If you are interested in receiving copies of the printed materials submitted with any of the entries, please send a list, by number, of the entries that you would like, to Mike Horner, NAWC, 1725 KSt., N.W., Ste.1212, Washington, DC 20006.

Ron Dungan presents Management Innovation Award to Kathleen Davis of New jersey-American Water Co.

1- Customer Welcome Wagon New Rochelle Water Co. 2- Marketing Water Program The Connecticut Water Co. 3- Conservation PSAs Kentucky-American Water Co. 4- Partnering With Schools Today .. . Citizens Utilities Co. ofIL

Ron Dungan presents Management Innovation Award to Marilyn Florance of Southern California Water Co.

5- Water ... Our Most Precious Resource Philadelphia Suburban Water Co. 6- Water Quality Summary Report Citizens Utilities of IL 7- Summary of Multiple Billing California Water Service Co. S- Building Consensus Through Public Information New Jersey-American Water Co. 9- Water Loss Control Southern California Water Co. Ron Dungan presents Management Innovation Award to 10- Employee Suggestion Program William Kuzia of Citizens Utilities Co. of Illinois . Southern California Water Co.

• NAWCWATER 1995 NAWC WESTERN CUSTOMER SERVICE CONFERENCE

WEDN ESDAY. MARCH 22. 1995 CONFERENCE HIGHLIGHTS

7:30-8:30 a.m. Registration As companies move toward the year 2000, their employee numbers will 8:30-9:00 a.m. Introduction & Welcome shrink but those remaining employees will be better trained. Is your com· NAWC and CWA pany going to measure up in the future? Outrageous, thrilling, cohesive are 9:00-10:30 a.m. Training the Trainer expletives which outline the program "Trail/i"g tile Train er" presented by Dan Dell'Osa & Diane Rentfrow Dan Dell'Osa and Diane Rentfrow from Southern California Water Com­ 10:31J.-10:45 a.m. Coffee Sreak pany. This university concept written by Diane Rentfrow escalates the water industry's commitment to excellence in training and assures our industry a 10:45-12:00 p.m. How rate design happens place in the 21st Century. Stan Ferraro 12:00-1:30 p.m. Lunch-Idea Exchange Stan Ferraro with California Water Service Company will lend his expertise on "Ho w Rate DesigJl Happ ells" a program to facilitate the removal of shad­ 1:30-2:30 p.m. Marketing Your Organization for Success owy clouds that obstruct OUI understanding of rate design. Marketiltg YOllr Georgia Messermer Orgall;zatioll For Success by Georgia Messemer is entertaining as well as 2:3()-.4:oo p.m. Water- The Miracle of Delivery instructional on sound customer service response. Moderator: Jim Good Ed Means, Metropolitan Water District Is tl,ere anyone in Ca lifornia who really understands /to w our water gets to Steven Kasower, Dept. Water Resource where it is goiltg? Ed Means, Chief of Operations, Metropolitan Water Dis­ trict of Southern California will provide information on how the Colorado 4:00-4:15 p.m. Coffee Sreak River and the State Water Project mix to deliver our purchased water in South­ 4:15-5:30 p.m. Asking the Questions ern California while Steve Kasower, Dept. of Water Resources will discuss Randy Vogel the Bay Delta, The state water project and water re-use to provide the mix of 6:30 p.m.-till? Cheesecake Factory purchased water and its effect statewide. Jason Lavin and Pate Schuh will challenge our imagination with "Can You TH U RSDAY. MARCH 23. 1995 Picture Service?" One more segment designed to utilize and improve our 7:30-8:30 a.m. Coffee customer service skills. Commissioner Jessie Knight of the California Pub­ 8:30--10:30 a.m. Can You Picture Service? lic Utilities Commission has been invited to address the participants at the Jason Lavin & Pate Schuh brunch which will conclude our event. 10:30-12:00 p.m. Brunch The Conference will conclude with a brunch at 10:30 a.m. on Thursday. This Commissioner J. Knight (invited) will feature awards given to the submittors of the best ideas at the Idea Ex­ CA Public Utilities Commission change. NAWC Customer Service Conferences are always praised for the wealth of information that they provide as well as for sending participants For hotel accommodations, a block of rooms is available at a rate of $109, back with a renewed sense of enthusiasm for their work. Make plans to at­ single or double, with an additional person charge of $20. NAWC's room tend today. block is held until March 1, 1995. Please reserve early. To reserve, contact: Who should attend this year's 1995 Customer Service Conference? Anyone Holiday 1M Crowne Plaza willing to learn, accept new ideas, explore and assimilate better ways to do 300 North Harbor Dr. one's job. The cost will be $200 per person, you can make reservations by Redondo Beach. CA 90277 contacting: Jean Lewis, National Association of Water Companies, 1725 K 310/318-8888 Street, N.W., Ste.1212, Washington, D.C. 20006 (202) 833-8383. Hotel accom­ modations need to made directly with Holiday Inn Crowne Plaza, 300 North Harbor Drive. Redondo Seach. CA 90277 (310) 318-8888.

REGISTRATION FORM: NAWC WESTERN CUSTOMER SERVICE CONFERENCE MARCH 22-23, 1995

Registration Fee: $200 for NAWC Members, $250 for Non-NAWC Members.

Company ______Name ______Title ______

Street Address City. State. Zip ______

Telephone Number _~------First Name for Badge ______Please enclose payment with your registration form. Make checks payahle to NAWC Western Customer Service Conference, and mail to Na­ tional Association of Water Companies, 1725 K St., NW, Ste. 1212, Washington, D.C. 20006, before March 5, 1995. Refunds will not be issued for registrations canceled after March 5, 1995. - WINTER 1995 _ NAWC History: 1895-1920 by T. Ward Welsh

Focus on Fire Protection conduct the water to town. In 1896, there To celebrate NAWC's Centennial, Ward There were probably 600 public water were some well-engineered plants, but a Welsh, formerly 0/ American Water systems in the United States in 1895, most large percentage of the works in the state Works Service Co., has written this his­ of t hem establi shed in the 30 years since had b een constructed in the above tory of NAWC's f irst quarter-century. the C ivil War. The driving force behind method,1I S ubsequent managements The next three quarter- centur ie.~ will be these utilities was not household conve­ would pay dearly in headaches and capital addressed by Mr. Welsh in the next three nience but fire protection and the need to to rebuild these systems, he said. editions of WATER. water the streets to control dust. All across Many a start-u p company failed because the country entrepreneu rs-including pipe homeowners were slow to accept u n­ What a diffe rent world confronted suppli ers-were raising money to put to­ treated surface water. T heir own wells those few dozen men from 16 small Penn­ gether water systems for communities. were fine, thank you. In fact, most early sylvania water companies who gathered in Often a catastrophic downtown fire trig­ public supplies could not match well wa­ 1895 at a mid·state mountain resort to gered business support fo r the venture. ter for clarity and taste. And by the turn form the business association that was to And inva riably the new systems were in­ of the century, the safety of those public become the National Association of Wa­ troduced with great fanfare involving pa­ suppli es was suspect in many cities. ter Companies. rades, speeches and d ramatic demonstra­ As if these business challenges we ren't The United States was a smaller nation tions of fire flows with pumps throwing enough, Pennsylvania's private water sup­ then: 44 states with a population of about plumes of water high over the city park or pliers felt threatened by the very act that 70 million, a quarter of what it is today. lake. The message was that runaway fire provided for their franchises. The Gen­ And about 35 percent of those people would no longer be a major threat to the eral Corporation Act of 1874 had autho· lived in just five states: New York, Penn­ community. rized the fo rmation of companies to sup­ sylvania, Illinois, O hio and Missouri. The Greenwich (Connecticut) Observer ply water to the public and gave such Roads were unpaved. Horse-drawn wag­ noted when the public water supply came companies exclusive geographic fran­ ons, carriages, trolleys and steam trains on line there: "The advantages of this en­ chises. But in 1887 Pennsylvania's legisla­ were the way you got around. Young Henry terprise cannot be overestimated. Insur­ ture passed an act which the State supreme Ford was just starting to tinker in Detroit ance rates will fall 50 percent; dust on the court construed to repeal that exclusive in an experimental gasoline-powered car­ avenues will be no more and the fear of right, at least as it applied to new compa­ ri age. You got news by word of mouth or disastrous fires will be something of the nies. Later, in what came to be known as from newspapers; there were no tele­ past." the Millvale Case, the cou rt held that the phones or radios. Home heating was by Act of 1874 precluded only the incorpor­ wood and coah lighting, by oil lamp, Syste ms a Mixed Bag ation of competi ng private companies and though piped gas was fueling lamps and The systems we re a mixed bag: some did not prevent municipalities from build­ streetlights in America's morc progressive fairly sophisticated, others merely tacked ing water works to compete with existing communities. Most people outside the together to bring water into town as private companies. cities got their water from wells and went quickly and economically as possible. In out behind the house to use the privy. 1916, the president of the Pennsylvania Ruling Could Undo the tndustry Democrat G rover Cleveland had just Water W o rks Association would look The water suppliers who congregated at been elected president for the second time, back, observing: Cresson Spri ngs in 1895 knew that no the only president to serve non-consecu­ "In most towns, the matter of supply­ community that was being taxed to sup­ tive terms. The economy was in the ing water was left to enterprising citizens. port a public system would voluntarily dumps, between 1893 and 1897 more They were good bankers, lawyers and mer­ support a for-profit o ne. Left unchal­ than 15,000 businesses failed-including chants but many were mighty poor build­ lenged, they feared, this ruling would re n­ many fledgli ng water companies. A seven­ ers of water plants. T hey were conserva­ der their securities- and their very enter­ yea r·old organization, the American Wa­ tive men, especia lly so regard ing t he prises-worthless. ter Works Association, was beginning to money t hey themselves had to put up. And so t hey came-by stagecoach or establish operating standards for public They were going to pay no engineer's com­ rail-to the beautiful 1,OOO-room Moun­ suppli ers. (Millions of people in England mission o n so trifling a matter as build­ tain House at C resson Springs, built in and Germany drank filtered water, but ing a water plant. It was merely a matter the 1860s by the Pennsylvania Railroad as only a few hundred thousand Americans of digg ing a hole on some hill, pouring a sLImmer resort and health spa for the in scattered cities enjoyed that protection.) water into it, and lay ing some pipes to well·ro·do. High in the All egheny Moun· e NAWCWATER l'LAINFlELD.UN10N WAfER CO. J dentifie !ttttriCU. [NOVEMBER 5/1892.

PLAlIfFDLD, .N. I" WATER WORKB. to it by a 6 in, pipe. At th" ceJ?ter of the 12 in. pipe ta1li~g down into the stand pipe. This _ in. pipe is An underground river, with the olearest ,and purest are three large valves which turn the water on or off securely braced to the sides ot stand pipe with anlZle ot water, has been discovered near the.city of Plain~ from the pumping statioD, a sml:l.l1 valve being also at- iron bra~98 holted to the sides, and haa two vains, aile field, N. J. A tew mo~tba ago the wate~ , company be· tached to each well. Ea.eh well hft.8 at its bottom 8 at 60 ft. and the otht'r at 100 ft. (rom the ground. wbi('h J{nn to drive wells, and, after going ov~r abOut five 12ft. strainer. The earth through which these wells can he opened and closed trom the out"ide (lr l'tnlHl el'jaare miles of country and strlkJllg .iJ;lterior qua.li· are driven is a hard shale, running down to a dept.h of pipe. 'I'he toundQ.t-ion for the lltnnd pipe i:< HI ft. ill ties of water, they struck pare water at! Netherwood 27 ft. It is so compact tha.t no drainage or surface depth nnd 33 ft. in diameter, and is made of erat'kPI\ Station, on a line with the CeMral Rail.rO&d, two miles water can get through it, and below it is a bed of sand stone and cement, 10 ft. bolts, 2 in. in diameter, Set'UTI" this aide of the city, at the de~h of firty feet. Here and grovel, throua-h 'which the pure and clear water ly fILIli.E'lling the atl\nd pipe to the foundlltion. Thil' t.hey Elunk a number of wells, and then made a. test. flows. The wpllEi rlln down to the depth of 20 ft. into pipe hold II 1515,000 ~all(lns, and hM n prt's-'Illrt' ut tht' After pumping se\'en days and ni~hts, drawing out of this bed, the gravel in which is smooth and polished, bottom of fl2;, lb. There is It fnll of 25 ft. fram tht>

NEW WATER WORKS AT PLAINFIELD, N. J.

t·be elLl'th 2,000,000 gallon~ of pure war·er e~e.ry twenty~ showing tbai the water is constantly ll1oving. The jstation to the city of Plainfield. There are twenty four boul'B, and their test tubes showing no decided natural force of this underground river brings the seven miles of pipe luid in the city. Water tEl also fall, it Wf1,8 concluded that they had f\n inexhaust.ible water up to within 18 ft. of the surface, Two Worth- furnished to the city of Elizabeth, N. J" to t.he ('dent aupply. Twenty I!Ilx·inch \lells were then sunk td the ington compound condensing pumps with 18 in. stroke of 1,000,000 gnl10ns daily. The water nnaly~iR b:: depth ot GO ft., the wells being about 00 ft. apart and are used for drawing water from the wells and forcing 'l'otnl solid, 8'80; chlorine, 0'44; free n.lIllllonin. (1 '001 : SUlik in a zig:.ag manner for 8. dista.nCfI of 1,000 ft. it up into the stand pipe. The pumping capacity of Ialburuenoid, 0'0058; nnd the tempernture of t.ht' Wlltt'!· Running between these wella is a pipe, which is at- these pumps is 6,000,000 ga.llons every 24 houl1l, &8 it comes from the wells is 52 degrees. !ached to the end wells. Thil!l pipe is 6 in. at the ends, a.nd the pumps are run with 80 lb. pre8l!1ure of steam, The cost of the water works is about $450.000. increa.sing in size 8S it runs toward the center up to The stand pipe is 26 n. in diameter and 140 ft. in 12 in., changing in size about every 125 ft. Each sec· height, and is made of wrought iron plates of four A NBW materia.l, called rubber velt'et. is mude by tion of pipe rests on two snddles, the snddles fitting different aizea ~,%, ~,and % in., in tw(·nty.aight tiers sprinkling powdered telt of any color m'er rl1Uhf'T over the top of a P08t 5 ft, in length, which resta on Ii and double bolted. The wa.ter is forced up through fI. cloth while thA In-t,ter iA hot. Itlld 80ft; the resl1lt look~ founuat·ion of lumber 8 ft. square. The wells are 20 in, piI>E'1 running up the center of tltand pipe, to a like Celt cloth, but is elastic, waterproof and exceed· "bout 8 {t. from this pipe on each side and conuected height of 144 ft., the water flowing over the top and ingly light.

(continued on next page)

WINTER 1995 • s

Centennial, continued effective for removing both sediment and hands of Thomas A. Morris, a retired bacteria from surface waters. And, more Civil War general and engineer who had tains, not far from the Pennsy's huge works recently, wood and iron rapid sand, or been instrumental in building Indiana's and yards at Altoona, the hotel offered mechanical, filters, an American innova­ statehouse, its key railroad, its first turn­ clear mountain air, local mineral waters, tion offered in dozens of patented configu­ pike and the city's trolley system. He and riding trails, shooting ranges, tennis and rations, had been installed in Charleston, h is successors, local busi nessmen and bowling. Its commodious meeting and West Virginiaj Belleville, lllinoisj Atlanta, philanthropists Frederick Davis and dining rooms were finished in local cherry Louisville, Cincinnati and other cities. Linnaeus Boyd, could hardly have foreseen and hemlock. ltwas Pennsylvania's answer The association met for one more year that a young and ambitious out-of-towner to the famous Greenbrier 200 miles fur­ at Cresson Springs then moved its meet­ who was then developing small gas and ther sourh in the Alleghenies. ings-for the next 45 years, until World electric properties in Indiana, would, in a The court's Millvale decision was al­ War II-to the Haddon Hall hotel in At· few years, be the absentee owner of the ready under attack. Two petitioners were lantic City, one of the east coast's premier Indianapolis Water Company. He would seeking a reversal. But the water company conference sites. Early on, it established a also eventually own the Philadelphia Sub­ operators who came to Cresson Springs headquarters in Pittsburgh and formed urban Water Company. But more later from as far as Meadville, 120 miles to the committees to monitor all legislation and about Clarence H. Geist. northwest, and York, 100 miles to the court decisions, at first in Pennsylvania, southeast, felt that their rights under vari­ then nationwide. Laws or decisions that Kuhn Brothers Form AWW&G ous charters were not being effectively impacted water suppliers were recorded, A number of the independent water advanced. The situation called for con­ filed and analyzed. Summar ies were companies in Pennsylvania at the turn of certed action ... and greater vigilance mailed to members and the association's the century had been built by Kuhn Broth­ than they had been maintaining to date. counsel and other experts discussed the ers & Company of Connellsville. Kuhn The group organized as the Pennsylva­ most important issues at the annual meet­ Brothers had reorganized in 1886 as nia Water Works Association, formulated ings. American Water Works and Guarantee a constitution and d rafted bylaws which Company of McKeesport to not only build were to serve the association practically Others Were Organizing, Too and purchase water systems but to guar­ unaltered for a generation. They elected The Pennsylvania association was not antee the payment of the principal and ]. Denton Hancock, of the Franklin Wa­ the only water supplier association meet­ interest on their bonds. By 1900 ter Company, their first chairman. And ing at the turn of the century. Operators AWW&G owned a score of companies the association joined the fight to reverse in New England and other parts of the from Pennsylvania to Missouri. It, of the onerous Millvale decision. The follow­ country had formed associations, too. But course, was to evolve, years later, into ing year, the State Supreme Court re­ most groups represented municipal sup­ American Water Works Company. sponded. It ruled that by granting a pri­ pliers. The Pennsylvania group, described In San Jose, Cali fo rnia, a farming com­ vate company a franchise to supply its by its president as "the envy of all other munity midway between San Francisco water, a Pennsylvania municipality fore­ states," was growing by leaps and bounds and Monterey, early water company entre­ closed the option to build a competing and was clearly the pace-setter in advanc­ preneurs had tapped the valley's rich aqui­ system. The water suppliers had reestab­ ing the interests of investor-owned com­ fer and built a wooden flume to import lished a critical principle. panies. the abundant rainfall from the nearby In 1898, the U.S. passed the first laws Santa Cruz Mountains. In the 1890s, the Issues Were Not Unlike Today's barring the dumping of waste into navi­ San Jose Water Company was feverishly Other issues on the association's plate gable waters and the U.S. Supreme Court buying up watershed lands to the west of in those early years were the companies' ruled that utilities were entitled to a fair the city and trying to negotiate water rights to protect water sources, the extent return on their investments. rights to Coyote C reek, east of town. The of their eminent domain powers, the stan­ What of the nation's water companies neighboring Bay City Water Company also dards used by the courts in fixing rates, themselves at the turn of the century? was after those rights so it could sell the municipalities' right to charge fees for One of the largest-perhaps the largest­ water to San Francisco and Oakland. San pipe Ii ne inspection, a fai r way to establish was the 31 -year-old Indianapolis Water Jose eventually prevailed. the valu e of a company being acquired by Company, growing rapidly after some As the 20th century dawned, the 30- a town. They weren't unlike the issues of shaky early years. The company had been year·old Hackensack (New Jersey) Water today. founded and d irected by movers and shak­ Company, which was serving a thriving One big difference, though, was that ers in the state's capital. Three early di­ city and its environs, retained a Massachu­ there were no regulatory commissions. rectors were governors of Indiana in the setts engineer, Allen Hazen, who had been Utilities were regulated by the legislatures 1870s and '80s and an early company law· to Europe to gather information on slow and the courts. So those were the arenas yer, Benjamin Harrison, had been presi­ sand filters and had designed one that had where the battles were joined. dent of the Uni ted States from 1889 to dramatically curbed typhoid in Albany, Treatment technology was evolving '93. In 1900, the year that the Olds com­ New York. Hazen and George W. Fuller, a rapidly by the 1890s. Slow sand filters, in pany started turning out cars at the rate Louisville, Kentucky, engineer who was ex­ use for almost 50 years, were shown to be of one a day, IWC was in the capable perimenting at the time with a rapid sand e NAWCWATER filter, were leading proponents of filtra­ Kean Feels Pressure to tion in America. Hazen recommended Build at E'town that before undertaking a filter plant, the Elizabethtown Water Company, ap­ YORK PUMPIN6 Sl AllON company build a reservoir so it could settle proaching a 50th anniversary at the turn MODEL OF CLEANLiNESS out the suspended matter that plagued its of the century, was pumping close to two source, the Hackensack River. Work was million gallons a day in Elizabeth, New begun immediately on a reservoir at Jersey and had its eye on-and i~vestments Pleasllg Trtbute Paid· by a Gentleman Oradell. A year later, the company sacked in-other companies to the west and south Wbo Visited It Recenlty Hazen and retained Fuller, who had dem­ that eventually became part of the E'town onstrated that he could do with two acres system. The company president, U.S. Sen. WGny ELATED WHAT HE SAW I of filters what Hazen was proposing would John Kean (son of a founder and the ~T I take 125 acres. The key to Fuller's systems grandfather of the current chairman) was ! was chemically-induced coagulation before also under tremendous pressure to find "F_ Parlor.," H. Say., "Present a Cleane,. or More AttraotivD Appear. : filtering. A technique using sulfate of alu­ new water sources to serve the booming _nee Than the Interior of the Engine.' mina as the precipitant had been employed region. Room"-8hould Be Vi.ited successfully in Omaha, Kansas City and In New York, the 15-year-old Long Is­ Chester, Pennsylvania. land Water Company, with 2,100 custom­ ers and 50 miles of mains, was pumping Clipping from York Daily in 7899. York, a Filtration Pioneer 440 million gallons of water a year. It had Hackensack and most other companies survived a financial crisis that almost put were following the lead of The York Wa­ it out of business and, under the manage­ At the 1907 annual meeting, a discus­ ter Company in filtration. York, founded ment of one Franklin B. Lord, was look­ sion arose as to the advisability of read­ in 1816, was the oldest company in Penn­ ing ahead to better days. ing meters monthly or quarterly. C.F. sylvania and among the earliest in the na­ Then, in 1901, when steamships began Drake, of the New Kensington Water tion. The city-like many others-experi­ to outnumber sailing ships in the New Company, cited a case in his company in enced a high incidence of typhoid in 1899. York Harbor, the City of New York an­ which "a customer's water closet had been Nationally, some 40,000 deaths a year nounced plans to build an infiltration gal­ leaking" and "the (quarterly) bill went up were attributed to the disease. The York lery in the company's watershed. The com­ to $16." bacteria was traced to polluted wells, but pany believed the move would jeopardize "We went to that woman and claimed the company, fearing its source was vul­ its own supply so it vigorously bought up the rent," he said. "But on investigation nerable, contracted immediately to build as much land in the area as it could-al­ we found that her husband earned $1 .50 a four-million-gallon a day filter plant. It most 1,000 acres-to keep it out of the a day and that they had five children." was completed in 16 weeks and delivered hands of the city. The Long Island "water "Would you collect water rent from that the city's first filtered water in March war" finally ended in 1909 when the com­ man?" he asked. "If you did, you would be 1899. It was the third filter plant in Penn­ pany and the city signed a contract limit­ rotten-egged out of town. We dropped the sylvania, but the first deemed to be entirely ing the amount of water the city could bill." successful. pump from LIWC's suburban watershed. At the turn of the century, Oberlin, Ohio, built the nation's first Town's low Death Rate Cited Connecticut's Bridgeport Hydraulic Com­ large scale water softening plant in 1903, Later at the same meeting, C. LaRue pany had 14 reservoirs and two distribu­ using lime and soda ash. And copper sul­ Munson, of Williamsport, told the group, t ion tanks, all constructed since the fate was shown to be effective in remov­ now concerned about waterborne bacte­ 1850s. Many of them reflected the vision ing tastes and odors associated with res­ ria spreading disease, that "our city has of the legendary showman P.T. Barnum, ervoir algae. the lowest death rate in Pennsylvania and, who was president of the company from I think, the second lowest in the whole 1877 to 1886. But it was becoming in­ A Business or a Profession? U.S. Whether it's because we live well and creasingly obvious by 1900 that the sys­ In remarks to the Pennsylvania Water behave ourselves or have pure water, I tem would soon be inadequate to supply Association convened in Atlantic City leave that to you to decide." the region, which was in the early stages about this time, Association President Munson later raised the question of of an industrial boom that would make it Murray Forbes, of the Greensburg Water whether a water company, by agreeing to one of the Northeast's major manufactur­ Company, addressed a question still raised provide water for fire protection, makes ing centers by the 1930s. today: What is this work of ours, a busi­ itself an insurer. He thought not, he said, Around this time, BHC hired a young ness or a profession? "but that's a question for a jury to answer." Lehigh University engineer, Samuel P. Se­ "I use the word 'profession' ," Forbes Not mentioned at the meeting was the nior, who would stay with the company said, "for a man who has the management fact that the city of Nice, in France, had 61 years-35 of them as chief executive of­ of a private water company is, indeed, fol­ begun using ozone as a disinfectant, a ficer. Senior envisioned-and brought to lowing a skilled profession, one which practice that would not gain favor in the fr uition-a vast expansion of the company's requires an immense amount of tact, abil­ United States until the 1980s. storage and distribution network. ity and knowledge." (continued on next page)

WINTER 1995 • Centennial, continued retain their refuse on their own premises," profession had been lobbying for more one member warned, "we are going to con­ supervision for yea rs and, after opposi ng In 1908, Henry Ford introduced the tinue to have trouble. Already along the the idea briefly, Pennsylvania's water sup­ Model T and chlorination was introduced rivers we find islands forming solely from pliers were now on the bandwagon . in Albany, New York and Jersey City, New the d ischarge of refuse. We've got to find Engineers might be the appropriate su­ Jersey, leading the way for its widespread representatives with enough courage not pervisors, Pittsburgh civil engineer J.N. u se-and a sharp decline in typhoid to become lackies of these corporations." Chester told the group, "bur, unlike law d eaths- in the next few years. At the and medicine, engineering is not recog­ PWWA meeting that year a discussion "Corporation Is a Public Se rvant" nized as a profession in Pennsylvania." He arose over whether water suppliers might "A corporation is a public servant," called on the association to support legis­ develop an alarm system that would alert another member observed, "and it must lation to change that. personnel in the event of a surge in dc­ answer to the public as a servant to its mand that might indicate a main break. master. That is unquestionably the trend Two Quiet Years One member volunteered that such a de­ of public opinion today." That applies to Things were fairly quiet at the vice might U ring you out of bed several member companie s, too, he said, "and if a association's J 9 11 and 1912 meetings. A times a night" when a large industrial user court or legislature says 6 percent is suffi­ dozen new members were welcomed. Bills opened and closed valves. cient return, we must obey." in Pennsylvania to bar the use of alum as "This would be ver y bad practice," Mr. That year also the association noted the a coagulant and to form a public utility Forbes, of Greenburg, frowned. establishment of a new method of utility commission had been defeated. A Penn­ regulation in Wisconsin, where the first sylvania court had ruled that a municipal­ Association Targets Public Service Commission had been ity couldn't look ata private utility's books "Inspection Fees" formed. The commission was described until it demonstrated that it had the bor­ That year Forbes expressed outrage over as "a body of trained experts which passes rowing power to buy the company. The a $30 a year per mile "inspection fee" on utility matters, thereby securing a uni­ association discussed-for the fifth time in some municipalities were levying on gas formity of decisions" and avoiding the seven years-what compensation was due and water lines. The association scoffed delays preva lent in the courts. property owners when a company appro· at the idea that a police officer or a politi­ In 1910, the year the natio n's first daily priates a stream's water by eminent do­ cian could claim to "inspect" a pipeline radio show was aired and motion picture main. Riparian landowners were claiming by walking above it. And even if they attendance reached a million viewers a that streams had the potential to power could, Forbes said, one company had dem­ week, the Pennsy lvania Water Association mills or generating plants and that they onstrated how long it would take some­ marked its 15th anniversary. President should be compensated for that potential one to walk all its pipelines and had fig­ w.e. Hawley, who was to be either presi­ value. The court found for the utilities, ured, at the prevailing wage rate (1Sc an dent o r chai rman of the group through however, ruli ng that such property own­ hour), that a fair annual fee fo r inspections 1936, noted that 15 ye ars ago, ers should only collect for actual losses, would be $7.20. Pennsylvania's water suppli ers had been "a not theoretical ones. Forbes called the fee a "blatant fraud" very inferior lot ... with scarcely a legal The association rev iewed other states' and the association vowed to fi ght it at leg to stand on." Now, he said, "we arc experiences with their new public utility every t urn. unsurpassed in this or any other country commissions and concluded that members A yea r later, William Howard Taft was in construction, equipment and efficient would benefit from the establishment of elected to succeed Theodore Roosevelt as management." one in Pennsylvania because they would President and the pH system for measur­ then have Hnothing to fear from local poli­ ing acidity or alkalinity was developed. At "Unexcelled Investments" ticians or the shifting of positions by the the meeting in Atlantic City, the member­ "And we now stand on a foundation of courts." Also, they reasoned, Hthe antago­ ship noted how household demand for legal decisions," he said , "that renders us nism between t he people and utilities water was soaring as sinks, water closets morc secure than (companies in) most should be largely removed." and bathtubs grew in popularity. In fact, other states, thus making our stocks stable Members b roached the idea of extend­ one member noted, "since the introduc­ and unexcelled investments." ing thei r two-day meetings another day tion two years ago of running water here "And," Hawley announced proudly, and letting manufacturers join and exhibit at [he Haddon Hall Hotel, there has been "our membership now includes almost all their wares on the third d ay. T hey also an increase of over 30 percent in water of the water companies in the state" and heard a paper, for the first time, on the used (per guest}." that was nothing to sneeze at "when you value of public relations to utilities, no t­ That year members also voiced indigna­ consider that Pennsylvania has more pri­ ing that the elecCT ic power and railroad tion at Pennsylvania's failure to control the vate water companies than all of the New trade associations both had public rela­ discharge of waste by the state's mining England states combined." tions committees. companies and tannerie s. Another topic of discllss ion in 191 0 was "Unless (we can send to the legislature) who should oversee the protection of the Little Discussion of Finance, Rates sufficient members who have the man­ state's water supplies and the adequacy of By and large there was very little dis­ hood.. to compel such companie s to its water treatment plants. The medical cussion of financing or rates in those days,

e NAWCWATER as opposed to operations-treatment tech­ niques, quality control, accounting, etc., valuation methods, and, of course, legis­ lation and litigation. C larence Geist bought Indianapolis Water Company in 1912, then, to the dis­ gust of Indianans, he married a Philadel­ phia debutante and decided to make his home there, nearer his Atlantic City Gas & Electric Company. . In 1913 the association did, indeed, expand its meeting, doubling the volume of its published minutes. It took apart point by point-and ridiculed-a long aca­ demic paper on the 15 reasons municipal ownership of utilities is better than inves­ tor ownership. The point was made how­ ever, that the new PUC would require municipal water departments to keep their books the way the private companies did and that would make cost comparisons more meaningful. The formation of the Pennsylvania PUC was the big story of the year and Chairman Hawley noted that the act would "change the status of water com­ panies in the state," presumably for the better. These were changing times for the na­ tion, too. Woodrow Wilson became presi­ dent. The first electric refrigerators went on the market in Chicago. Stylish sleep­ ers tossed their nightshirts in favor of pa­ jamas. Congress ratified the 16th amend­ ment, providing for the imposition of a federal income tax.

War in Europe Boosts Economy Clarence H. Geist (7866-1938). More important, Germany declared war on Belgium and France igniting a world conflict that triggered unprecedented arms production and mobilization-and an nies who are sued by customers claiming meeting. At several meetings, the chair­ economic boom in the United States' in­ polluted water caused sickness or death. man curtailed discussion of other agenda dustrial centers. War plant hiring ex­ The common defenses at the time were topics to allow time for the Question Box. ploded the populations of East Coast in­ that the water company was performing a dustrial centers like Bridgeport and municipal function and was therefore not Membership Reaches 160 Elizabeth and, once again, water suppli­ liable for lapses in its quality control and In 1916, in a recap of the association's ers were scrambling to meet new demand. that it had little power to curb the causes first 21 years, the executive committee That didn't help American Water of pollution in its watershed. In most cited a number of achievements: protect­ Works & Guarantee Co., however. Angry cases, Grayson noted, the plaintiffs failed ing the legal rights of members, advanc­ bondholders put the company into receiv­ to show conclusively that water was the ing treatment technology and operating ership after investments in irrigation cause of the illness or the courts refused standards and attracting members. The projects in the West went sour. The com­ to hold the companies liable for pollution group had 160 members that year includ­ pany was reorganized as American Water they didn't cause or have the power to pre­ ing American Water Works & Electric, Works & Electric, which owned 32 water vent. which had 70 separate municipal opera­ companies in 15 states in 1915. A popular part of the association's pro­ tions in the state, and Citizens Water At the meeting that year, Theodore grams in early years was the Question Box Company, with 40. Grayson, of Philadelphia, delivered a pa­ in which members submitted written In a 1917 report on the effect of the per on the predicament of water compa- questions they wanted addressed at the (continued on next page)

WINTER 1995 • c:

Springfield Water Company's first pumping station on Crum Creek, west of Philadelphia (7892) predecessor to Philadelphia Suburban Water Co.

Centennial, continued The appeal failed. the sale of alcoholic beverages and gave After the war, the association meeting women the right to vote. war on water suppliers, Association Presi­ focused for the first time on rates, specifi­ By 1920, President Hawley was even dent ].H. Purdy, of AWW&E, noted that cally on the need to adjust rates to meet more concerned about the impact of the operations were disrupted at the worst inflated costs and to permit the mainte­ Pennsylvania PSC on member companies. possible time, when water demand was nance and construction that had been put In seven years, it had had 21 members (in­ growing apace. Construction and mainte­ off during the conflict. In addition, mem­ cluding only a few with utility experience) nance were being delayed by a shortage of bers noted that the establishment of the because the turnover was so high. And a coal, oil, chlorine, iron pipe, valves and Public Service Commission, which they new governor had just appointed new com­ machinery and by the soaring costs of had anticipated would strengthen the po­ missioners who had to be brought up to these materials when you could get them: sition of water companies, had, in fact, speed on pending business. So much for up to 300% increases for coal and cast iron undermined their securities because inves­ the "body of trained experts." pipe; 175% for valves; 200% for iron fit­ tors were wary of the PSC's "arbitrary" Even more serious, Hawley said, t he tings, and 150% for machinery and boil­ power to control earnings. PSC law had made it "exceedingly diffi­ ers. cult" to procure capital because utility Labor was impossible to find, Purdy PSC Chairman Speaks bonds were paying considerably more than noted, so companies were finding it nec­ In 1919, the Chairman of the Pennsyl­ the 7 percent allowed rate of return which essary "to pick from the ranks of strag­ vania Public Service Commission (Will­ had prevailed since before the war. "The glers and the unreliable, to pay 30c to 50c iam Ainey) addressed the association for commission must act before a disaster over­ an hour (twice the prewar rate) and to pay the first time. He chastised members for takes the industry," he warned. off every night" to keep them. Additional blaming the commission for all their prob­ Water companies began to merge for burdens were put on companies in lems, then assured the group that the PSC economic advantage and to buy water­ warplant or shipyard communities, when would work with their companies to over­ sheds in outlying areas against the day the government built hundreds of thou­ come the setbacks caused by the recent their nearby sources would be inadequate sands of rowhomes to accommodate work­ war. or unfit for use. And, as the association ers. These were fast-changing times. The marked its 25th year, the U.S. Supreme population of the U.S. had grown by 50% Court entertained Bluefield Water Works Appeal Fails since the formation of the Association. Case, which was to provide guidelines fo r The association cited the wartime emer­ Telephones were in use nationwide; the determining an appropriate rate of return gency in appealing to the Pennsylvania radio was becoming a universal household for water suppliers. PSC to postpone the imposition of a new appliance. A Navy pilot completed the first Next issue: The Depression, the Murdoc k uniform system of accounts for utilities. transAtlantic flight. Congress outlawed years ... and another war. ,

• NAWCWATER r

at· the Deloitte & Touche Northeast Public Utility Conference Absecon, NJ August 15, 1994

by J. Jallles Barr Vice President and Treasurer Alllerican Water Works COlllpany

Recently there arrived on my desk a I can't help but note that buried in this an emerging shift in the basic foundation summary of industry news articles that media summary, in keeping with the for water service in this country. struck me as a reasonably accurate illus­ prominence it received in the newspaper I appreciate this opportunity to address tration of certain forces at work in Uthe was a hardly noticeable summary of our these issues for just a few minutes and of­ world of water service." The headlines 2nd quarter earnings announcement. fer a perspective of what is happening in read: I beg your indulgence to my sensitivity. our industry. For those of you in the audi­ "Study Questions Safety of Water Across We had just reported the highest 2nd quar­ ence who are with energy or communica­ US" ter earnings per share ever achieved and tions utilities, you will no doubt recognize "Under Treated Water Flows to 50 year-to-date income which was above last what is perhaps an ironic contrast to forces Million" year. But, I had to u~e a magnifying glass at work in your business. "Officials Defend Quality of NJ Drinking to find that report obscurely included on First, let's talk about water quality. Qur Water" the last page of the financial section of the customer opinion research indicates wa­ "Congress May Dilute Water Laws" newspaper. ter quality is a significant issue on the "Severe Ancient Droughts: A Warning to I am certain it is obvious I am not the minds of our customers. No doubt the re­ California" least bit upset by this. cent headlines, and many other like them "In Towns Just Miles Apart the Water In all seriousness, that media summary over the past several years, have contrib­ Supplies Differ Sharply" did a pretty fair job of highlighting at least uted to this consciousness. Recently, those and finally, the one that really made my some of the dynamics of the "world of headlines have been prompted by a news day, water service." I say some of the dynam­ conference in Washington during which "Toilet Makers Flush with Water Saving ics because, for this particular summary, the Natural Resources Defense Council Ideas" by coincidence, there was no reference to (continued on next page)

WINTER 1995 _

• Deloitte & Touche Remarks, continued The NRDC does a disservice to the extremely challenging debate to keep ra­ public. They cause concern when it is u n­ tionai. d iscussed their conclusions about drink­ warranted by generalizing as they do with Several years ago, EPA announced its ing water quali ty drawn from data re­ their reports which are sensationalized by conclusion that people could afford to ported to EPA by various state agencies. editors who write headlines. The real trag­ spend about 2% of their income for water By way of background, the federal leg­ edy in all of this is that there is a problem service. It didn't take the NARUC Water islation entitled the Safe Drinking Water with the process of regulating drinking Committee very long to figure out what Act is undergoing the torturous process water quality that goes unresolved while that meant in the way of rate increases that of reauthorizatio n. That act, which was the {

_ NAWCWATER include your personal chief financial of­ eliminate annual spending requirements. otherwise have been sold to municipali­ ficer. In mday's world, that can't be said The basic questions they consider-If ties. for most other things we buy and use daily. the city of Indianapolis or San Jose or United Water Resources merged with The fau lt here lies with the water util­ Baton Rouge or Chattanooga or Peoria can General Water Works Company with ity industry. We simply have failed to de­ live with a "privately owned" water util­ the expressed view of enhancing both velop an appreciation for the true worth ity, why can't we do the same thing? Obvi­ utilities' ability to grow. That transac­ of the ability to llse or consume water ously, we and others think they can. tion was reportedly worth $200 mil­ whenever we choose to do so. Given the fact that 80% of the market lion. Now let me shift gears for a couple of share is now not a part of the investor­ And in May of this year, our subsidiary minutes and comment upon that funda­ owned water supply industry, I believe you in California announced its proposal to mental shift in the foundation of our in­ can sense the potential for a shift in the acquire, for about $300 million, a pub­ dustry 1 mentioned earlier. Unlike other fundamental nature of the water business. licly owned water district in Orange utility services, by a large margin through­ As you examine recent developments not County, California. out t his country, water service is a func­ only in the United States but internation­ This is a unique and complex proposal. tion of government rather than business. ally, you will note what has been called Frankly, it is unsolicited and was triggered In fact, about 80% of the population is "the leading edge of a wave" which is likely, by the reaction of loca I residents to the served by municipal water utilities. over time, to significantly shift the orga­ way the district has been managed. In or­ The industry I represent is small and nizational arrangement of the business of der to go forward, a local government highl y diverse to the extent of size and ter­ water service. agency other than the district's board of ritory. There are only 18 water utility com­ Strange as it may seem, other countries directors, and the California Public Utili­ panies regularly traded on one of the three around the world have moved more rap­ ties Commission, must approve the trans­ major stock exchanges. Ameri can Water idly in this direction than we have so far action. Currently, a signifLcant portion of Works Company recorded revenues in right here in the home of capitalism. But, the revenue stream of the district is a re­ 1993 of just over $700 million and has nevertheless, we are moving. sult of its ability to impose taxes on land­ about $3 billion in total assets. Conse­ On the government side, we have seen owners. Our proposal seeks to convert quently, we are, in terms of size, two times Indianapolis privatize the operation of that revenue stream to customer charges larger than the next largest water utility. their wastewater treatment facilities . Right which arc regulated by the PUC and, in By these benchmarks, though, we are the here in New Jersey recently, Hoboken the process, put in place the discipline of smallest utility represented in the room turned to United Water Resources for the a business mind set. Public opinion today tonight, water excluded, of course. operation of their water system, and shore indicates a preference for this classic Our business is highly capital intensive; communities like Allenhurst have sold privatization initiative. must contend with fixed costs which ap­ their water system to New Jersey-Ameri­ Each one of those three transactions proach 80% of total costj and operates on can Water Company. either was or is the largest in the industry's a technology base which is largely un­ In southern New Jersey, our subsidiary, history. Let me conclude, as is perhaps my changed from that our predecessors uti­ at the direction of state government, is compulsion as a financial officer, by go­ li ze d generations ago. Primarily as an out­ constructing a $165 million regional wa­ ing back to the bottom line. growth of this economic environment, ter supply project to supplement water There is change evolving in the water water systems have evolved over time supplies that have been depleted by area business. It is perhaps ironic that the dy­ which typically serve well defined, al­ growth and development. This project is namics of these trends are, in certain re­ though limited, areas. quite similar in concept to the regional spects, just the opposite of what those of Notwithstanding the dominance of gov­ water supply operation E'town Water you in the gas, electric and communica­ ernment in the business, there are many Company has operated for years in north­ tions industry are dealing with today. examples throughout the country of daily ern New Jersey. We tend to be moving toward the ex­ water service that is provided by business In West Virginia, state government has pansion of the role of rate base and cost enterprise albeit a monopoly service in the moved to enhance water service through­ of service regulation while you face com­ truest sense. Regulation can and does pro­ out the state by facilitating a regional sup­ petition and deregulation. All that really tect the public interest. plier-West V irginia-American Water means is that we manage different busi­ With the benefit of this track record and Company's ability to absorb public water ness enterprises. the fiscal pressures which are developing districts. And the federal government has I wish you well as you tackle the chal­ in the municipal sector, government offi­ agreed to help fund water service lenges before you-ask for your prayers as cials are beginning to seriously consider privatization in West Virginia. we tackle ours-and seek the guidance and alternatives. One of those alternatives is, On the industry side, in the last 12 expertise of those who provide consulta­ "Why are we in the water service busi­ months: tion in these endeavors. ness?" In the final analysis, we must never lose Given the economic environment of American and its subsidiaries in Indi­ sight of the awesome responsibility we water service and the limits on resources ana, Missouri, and Ohio completed a share-that is to create value for investors municipal officials face, they are looking $ 125 million acquisition of water sys­ by providing essential public services that for ways to convert assets to cash and tems which, in certain situations, might people can depend on and enjoy.•

WINTER 1995 e THE CLEAN WATER INDUSTRY: CHANGE, CUSTOMERS, AND CHOICES

by Hampton D. Graham Chairman of the Board and Chief Executive Officer jamaica Water Supply Co.

Excerpts from the text of a speech presented at the AIC Conference "Privatization and Consolidation Opportunities in the Water Industry," San Francisco, California, Septem­ ber 8, 1994

At conferences and industry meetings, in articles and speeches, we have examined and re-examined the remarkable changes that have taken place in our industry in just the last few years_ Dramatic shifts in the dynamics of the water and wastewater business-what I call the clean water in­ dustry-have taken place, changing the face of the industry in the process_ While once we would have described our business as a simple, monopolistic enterprise com­ prised chiefly of pumping water and read­ Hampton D. Graham ing meters, now we find ourselves discuss­ ing competition and consolidation, strategic alliances and privatization_ Ours these opportunities, and I'm assuming I believe that there is one, fundamen­ has become a stimulating, complex indus­ that those in attendance at this conference tal factor driving the change in our indus­ try and inherent in its complexity is a intend to, we need to get behind the try and further believe that we've been whole new world of challenges and oppor­ change, understand what's driving it and myopic in identifying the cause behind tunities_ If we are to take advantage of harness it for our benefit. these shifts. It is, simply, the customer.

• NAWCWATER Our industry has been shrouded for so These are traditional, cost-driven re­ the process, that brought about the remak­ long in its protective monopoly shell that sponses to change: whatever it costs to ing of Jamaica Water-changes in manage­ the voice of the customer has gone un­ make changes, we, the industry managers, ment, an organizational restructuring, a heard. As Dr. Robert Hurd of Apogee have sought to increase rates to recover 21st-century collective bargaining agree­ Market Strategies, who authored the 1993 those costs. But the customer- the price ment and the adoption of new processes­ AWWA/AWWARF customer perception conscious, quality-conscious customer-is all leading to improved productivity and, survey, summed it up: demanding that they receive va lue for their more importantly, improved value for cus­ money, that unexplained rate increases tomers. The settlement we reached with nOne thing I've learned is that rate stop, that we become more accountable, our customers and regulators to resolve payers need to be treated as custom­ and that we contain costs while still deliv­ the contentions and misunderstandings ers, All of our polling shows that con­ ering the highest quality prodm:t. It isn't allowed us to avoid costly litigation and sumers are much more sophisticated the regulators who are deciding the per­ provided customers with more stable rates today and have higher expectations missible rates to charge. It's the cllstomer. and credits, instead. Also in response to than ever before, , , , And they have the collective voice of our customers, we come to expect from government and The Customer: are now taking steps to change the owner­ public services the same kind of treat­ Cardinal Change Motivator shi p of our company, ment they expect from consumer New laws and regulations and the re­ Undeniably, our experience in righting products and other services, ... They lated economic implications are not in these perceived wrongs was at times diffi­ arc almost always willing to pay for themselves the drivers of changes; they are cult, but, in the end, vastly rewarding for products and services, but they want the result of customer (a.k.a., voter) atti­ all involved. Jamaica Water is a better com­ to know exactly what they are getting tudes and actions. The profound changes pany for having involved its customers. We and they expect a high va lue. Why we are witnessing today in our industry made a concerted effort to reach out to should, , , your local water utility be are coming from customers, either directly our customers via public forums, one-on­ any d ifferent?" or through their intermediaries, Our busi­ one meetings with local leaders and the ness is selling clean water and returning press, customer roundtables and frequent I f we are to take advantage of the myriad clean water to the environment after use. written communications, We listened and opportunities now available to us we must And, it's the customer who decides what's what we learned is that, above all else, it adopt a different approach to doing busi­ "clean," not the legislators or regulators, is the customers who drive the change pro­ ness. That means abandoning traditional not the environmental agencies and not cess. views of what causes change in our indus­ even LIS, the industry managers. Admit­ try, listening to our customers and devis­ tedly, our customers can't simply switch New type customer ing new and creative structures to respond "brands" the way they might switch tooth­ participation: diagram to fresh challenges. To provide perspec­ paste or other consumer products. But, if This is not a lesson we will soon forget. tive, I'd like to identify the factors that they aren't satisfied with the value of the In fact, we've institutionalized the process traditionally motivate change in our indus­ product we're selling, they will speak up at Jamaica Water. Our collaborative ap­ try and explore how we can understand and, thus, become catalysts of change, We proach to solving problems-with the cus­ them better and benefit from them. have evidence of that at Jamaica Water. tomer as our partner- provides us with the Traditional motivators of change, the When I joined the company two-and-a­ information we need to make the best factors we're used to dealing with, include: half years ago, I was met by angry custom­ business decisions and allows us to reach water quality issues: contamination, ef­ ers and regulators who suspected that mis­ consensus with customers. What better fluent quality, reclamation efforts management was at the root of the way to seek approval from regulators than laws and regulations: the Safe Drinking company's escalating rates and sub-par to approach them in partnership with your Water Act and Clean Water Act service, In fact, the real problem was that customers who, through the collaborative industry economics: supply, treatment the company had not communicated with process, trust and support your propos­ and distribution costs, labor costs, lo­ its customers, had not asked them how als? As I've illustrated, the attitudes and actions of our customers can and do have cal taxes and the cost of capital. they rated their water service and had not involved them in the steps it was taking­ a substantial impact on the way we do How has our industry reacted to the some of them costly- to protect water qual­ business in the form of new laws and regu­ changes brought about by these traditional ity by complying with increasingly strin­ lations, price resistance, management and motivators? Predictably, we have reacted ge nt environmental standards. There were ownership changes. with traditional responses: allegations of "overcharging" and a de­ It is the customer, the cardinal change changes in operations to meet regula­ mand for "refunds" in extraordinary motivator, who is driving the consolida­ tory, economic and supply challenges amounts. Our complaint rate was above­ tion and privatization process thus creat­ more construction and the attendant average and our employees were demoral­ ing business opportunities for entrepre­ capital expenditures ized. Our customers were making them­ neurial and innovative management teams more rate cases or, for the municipals, selves heard, loud and clear. of companies in the clean water industry. tax increases to recover these addi­ We thus began a dialogue with our cus­ We are proud to serve at Jamaica Water tional costs. tomers, along with other "intervenors" in Supply . •

WINTER 1995 e I. p The Reauthorization of the Safe Drinking water Act: Costs and Risks

remarks by The Honorable Diane K. Kiesling, Commissioner Florida Public Service Commission

at the NARUC Annual Conference November 15, 1995 Reno, NV

In preparing a presentation on the costs dieting the effects of regulation on water posal, and the number of possible con­ and risks associated with the SDWA, I systems and taking action before the pub­ taminants (Le., new chemical waste prod­ found very little actual cost data relative lic is harmed either physically or economi­ ucts which may be carcinogenic). Detect­ to small water systems. One rcason for cally. Specifically, I believe that a small ing contaminants usin g sophisticated this, at least based on our experience in system viability assessment program detection and remediating violations is ex­ Florida, is that the small water companies, should be used to determine whether a pensive and can be exorbitant. Thus, the about 2,000 of them in Florida, are only water system can survive on a going-for­ cost/benefit analysis included in the re­ just beginning to feel the brunt of costs ward basis, knowing that water service will cently defeated legislation was offered as related to the current SDWA. But, I have become increasingly more costly to pro­ a reasonable solution to measure the need reached the conclusion that there is an­ vide. The Association of State Drinking for detection and treatment versus the other reason for the difficulty in obtain­ Water Administrators estimated in a re­ cost. At present, in Florida, the utilities ing even projected cost data. That reason cent publication that the cost of drinking must test for the identified contaminants is that there are societal costs associated water will increase from an average of and then they must use the best available with safe drinking water which cannot be $100 to $250 per year per household to treatment method for achieving compli­ measured. Unmeasured costs reflect the $500 to $600 per year per household. ance before any variance may be consid­ costs to society from pricing necessary I would also note that with water con­ ered. Of course EPA has authorized the commodities beyond the reach of the im­ servation also becoming imperative, par­ states' primary agencies to be flexible in poverished or people on fixed incomes, ticularly in Florida, some of the costs as­ the granting of exceptions and variances, from failing to detect and protect the pub­ sociated with the SDWA are not but as a general rule, most of those state lic from water-borne diseases and illnesses necessarily bad because economists will primary agencies are reluctant to deviate whieh could or should be detected, and tell you that the rise in cost of drinking from the strict EPA mandates ... some­ from allowing small non-viable water sys­ water should reduce consumption to some thing about liability if someone became tems to be created and to linger while degree. We have not found that to be uni­ ill. The more proactive methodology slowly going toward their fiscal death. As versally true in Florida, but that is attrib­ would be to first measure the costs of the regulators we must keep these utable to water having been a very abun­ regulation versus the benefit to be derived unmeasurable costs in mind when evalu­ dant, underpriced commodity until from it. ating the costs and risks associated with recently. Whether you use EPA's estimated an­ providing safe drinking water. I have prepared my remarks with a nual cost of over 1 bil lion dollars or in­ I also find it difficult to discuss the costs small system viability assessment program dustries' latest estimates of 4 billion dol­ of the SDWA on small systcms without in mind. lars, a recent AWWA ]ouTnal article by also considering related solutions, so, as Why is there such an interest in the Robert S. Raucher,1 under the 1986 11 a part of my responsibility as a regulator SDWA and in the failed reauthorization SDWA amendments, concluded that to identify adequate solutions to very real legislation? One reason is that our ability nearly 99% of the total carcinogenic risk problems, I am gratuitously including to monitor drinking water expands as reduction is attained for about 60% of the some possible solutions. 1 have concluded more sophisticated detection equipment total cost; the other 40% of the cost that, although we may not be able to ad­ is developed. In addition, the potential achieves only 1 % of the risk reduction. equately determine all of the costs of regu­ has increased for contamination from The article further states that if the regu­ lation, we can be more proactive by pre- growth in population, industry, waste dis- lations wcre focused on systems serving

_ NAWCWATER = T 550 or more, almost 90% of the total can· visions, this cost is ultimately borne by then causes an unacceptable increase in cer risk reduction would occur at only 43% utility customers. For example, data we the amount of lead and copper found in of the cost. 2 received from North Carolina indicates the water. Approximately 25% of Florida Some costs associated with any safe significant increases in customer's bills in systems are already expected to fail the drinking water regulation 3rc readily iden­ 1994 due to current SDWA requirements. lead and copper standards wi thoutconsid­ tifiable, if not readily quantifiable. First, The increases range from 5% to 133%, eration of the effects of treatment for ra­ there are the costs associated with testing, depending on number of customers and don at current levels. So much for some which are quantified by what is being entry points. These increases result from of the costs. tested for, how often testing is done and the cost of testing only, and do not include In measuring ri sks, the EPA uses esti­ the equipment required. Additionall y, any plant improvements or modifications mates related to the number of incidences there are the costs of monitoring levels of to correct any problems reflected th rough of an illness that are avoided. That is, in certain contaminants and of treatment testing. measuring the risk of carcinogens in drink· as sociated with what is found during test­ In Florida, we have a statutory provi­ ing water, the EPA makes a determination ing. The cost of treatment is driven by the sion which allows utilities to pass-through of the number of individuals who are ex­ chemicals, equipment, duration, and even certain expenses, such as SDWA testing pected to be spared from cancer thanks capital improvements required to provide costs, without having to file a full rate to regulation. They also consider how adequate treatment. There atc also asso­ case. That is, the agency has given staff much money people are willing to pay to ciated maintenance costs. administrative authority to approve test­ red uce thc ri sks. Years ago, treatment of Florida has approximately 7,200 water ing costs requested by utilities. The Stat· water reduced or eliminated the risk of systems, half of which are non-commu nity; ute also provides pass·throughs fo r in· cholera, typhoid, dysentery and hepatitis 1,200 are non-transient. Of the 2,400 com­ creases in expenses fo r electric power, ad at a very low cost_ However, as I mentio ned munity systems, 85% serve less than 300 valorem taxes and regulatory assessment earlier, the cost of treatment has risen with . people and even fewer ERes. [n 1993, the fees; however, in Florida the amount of t he sophistication of the equipment to S DWA mo nitoring req uirements were the allowcd testing expense is amortized identify contaminants and the growth in applied to the 350 systems with more than based upon testing frequency. Therefore, the number of contaminants. In t he 10,000 customers. More stringent testing utilities are forced to pay the full amount AWWA Journ al article which I referred to for ground water became effe ctive in 1994. of the test in the initial year even though earlier, several tables analyzing cost-effec· The source of 95% of Florida's drinking they will not recover the amount until the tiveness and risk avoidance of cancer wcre water is groundwater. Therefore, we are end of the amortization period. For ex­ published. Using the data in the tables, now just realizing the financial impact of ample, a test done every three years is the authors of the Jou rnal article conclude the mandates of the SDWA. [n February amortized over three years. The Commis­ that a significant portion of the risk re­ of 1994, Fl orida's Department of Environ­ sion processed 33 pass-throughs for wa­ ductio n can be achieved through the regu­ mental Protection did a massive maHout ter testing costs. In North Carolina, utili­ lation of a limited number of contami­ to the approximately 2,000 small systems ties are all owed to collect the full amount nants that account fo r a relatively modest serving 25 to 10,000 customers, advising of testing in the year it is incurred through share of the total compliance costs) and of the testing requirements due by Decem­ a surcharge. The amount of the surcharge that using a cost benefit analysis can help ber 3[ of 1994. It is expected that these would, of course, change from year to year. give decisio n make rs more meaningful testing requirements wi 11 cost systems This surcharge would be difficult to pass choices. from $6,000 to $6,500 for the first year on to Florida consume rs and Florida's This is where small systcm viability as· and $500 for the two following years. So unique demographics have made such sessment comes in. Approximately two far o nly 35% of those small systems have volatility in rates unacceptable_ According thirds of the water systems in the United submitted the required monitoring re­ to 1980 data, over 40% of Florida resi­ States serve 500 or fewer people. Small sults. The response rate, with only two dents were retired and 1 of every 6 citi­ systems have problems with meeting rcg u· months left to achieve compliance is in­ zens receiv ed a Social Security check. By latory standards (due to small size , dete­ dicative of the many small water systems' 1989 almost 1 in 5 Florida residents were riorating physical infrastructure, lack of limited ability to meet these regulatory retired and 1 of every 6 citizens received access to capital, and lack of techn ical and requiremcnts. (This may suggest that these a Social Security check. By [ 989, almost managerial capabilities). O f special con­ systems are unable to provide safe and 1 in 5 Flodda households had retirement cern rega rding compli a nce with the reliable service at affordable rates.) It is income and by Deccmber 31, 1991, SDWA is its impact on very small water anticipated that many of these systems will 1,868,801 retirees in Florida were receiv­ utilities, for which environmental/regula­ be abandoned or forced into bankruptcy ing Social Security and 2,728,646 Florid· tory compliance iss ues are elusive, espe­ if not absorbed by other utilities . Florida, ians werc receiving some kind of check cially in comparison to issues of basic ceo· with its thousands of small systems, will from Social Security. nomic a nd regulato r y s urvival a nd be particularly hard hit. Therefore, it is We also know, since the failu re of rcau­ financial viability. SDWA has added an· important to inject reason into the stan­ thorization, that approximately 90% of the other layer of concern for utilities and dard setting process and consider the cost Florida systems will fail the radon testing. regulators due to the mandated cost of of compli ance. Witho ut the SDWA Treatment for radon usually consists of compliance. The SDWA is enforced byen- reauthorization's state revolving fund pro- aeration. Aeration causes corrosion which (continued on next page)

WINTER 1995 fit Reauthorization, continued and other state agencies involved in safe comprehensive, viability programs and drinking water programs, I would envision adopting a Small Drinking Water System vironmental agencies, while the economic one of the first steps to be to evaluate the Viability Policy Statement. regulatio n is done by the PSC. Environ­ number of existing small systems in your When systems are merged or acquired mental and economic regulators need to state and their financia l condition (look by a viable utility, there can exist separate adopt viabili ty assessment policies, agen­ at capitaC revenues, annual reports, needs rates for each system. T he issue of rate cies must work together to regionalize fa­ for system expansion or repair due to equalization or uniform rates for all sys­ cilities, encourage interconnections with growth or regulatory compliance). Viabil­ tems should be addressed by regulators in or sales of small nonviable systems, and ity assessment models have been devel­ order to fully realize the benefits of the discourage creation of new utilities, espe­ oped to measure the fiscal viabili ty of sys­ viable utility, such as economies of scale cially small underfunded systems, which tems and would be a useful tool in making and sharing of capital improvements should be the subject of viability analysis preliminary assessments. After analyzing among systems. prior to permitting. The intent of viabil­ the existing systems, a plan should be de­ In implementing uniform rates for ex­ ity analysis is to identify small systems veloped which addresses the needs of the isting systems, regulators should anticipate that are getting into trouble so that their small drinking water systems and alterna­ adverse reaction from customers due to problems can be worked on before they tives for those systems which are troubled the short run perception of "winners and are entirely non-v iable, abandoned or or non-viable. T he plan should consider losers." That is, some customers will see bankrupt. This also provides an earlier legislative changes, as well as internal an immediate increase in rates and some opportunity for them to be absorbed by policy changes and agreements with other a decrease. For instance, an often-men­ larger, viable systems. A viable utility is regulatory agencies necessary to imple­ tioned concern of customers is that the one which is self-sustaining and has the ment the plan. Initiatives already imple­ im pact of CIAC charges is diluted due to commitment and the financial and tech­ mented in some states to improve via bil­ the inherent averaging in uniform rates. nical ability to meet the regulatory stan­ ity of small systems include special rate However, while uniform rates may be cre· dards on a long-term basis. We need to case assistance, accelerated depreciation, ating an immediate subsidy for some sys· look for incentives which regulators can emergency funding, simplified reporting, terns, at some point all customers will reap offer to viable utilities to encourage such and emergency as sistance. For nonviable the benefits of uniform rates at the time acqu isitions or transfers. systems the following have been used: ini­ their system needs some improvement or Recognizing that many small drinking tiating voluntary mergers/acquisitions/ modification to meet environmental re­ water systems will fail as the provisions receivershipsj allowing positive acquisi­ quirements and these costs are spread of the SDWA are implemented, we, as tion adjustments; approving higher than among the total customer base. The bot­ regulators, must develop comprehensive normal rates of return for certain acquisi­ tom line is that inequities occur in any rate viability assessment programs to insure tion and improvementcostsj interconnect­ structure and whether a system is a "win_ that the public continues to receive safe ing with other systems. In fact, New York ner or loser" will change from time to time drinking water at a reasonable price. We issued a Statement of Policy on Acquisi­ as conditions change. must coordinate with state environmen­ tion Incentive Mechanisms for Small In summary, as economic regulators, we tal regulators to develop workable viabil­ Water Companies on August 8, 1994, and, have a significant role in ensuring that ity plans. This was the thrust of the reso­ among other things, made acquisition in­ utilities can continue providing safe, reli­ lution passed by NARUC at the summer centives ava il able in appropriate circum­ able water service at an affordable price. meeting.~ Many states already have mecha­ stances. Among t hose incentives are ad­ We must urge Congress to include the nisms in place to measure the viability of justments to rate base, accelerated cost-benefit analysis requirement in the new systems which apply for permits from depreciation, amortization of acquisition next reauthorization of the SDWA. We the state regulatory agency. In Florida, costs, and to a lesser degree, departures must also coordinate with the various state where we have had a MOU with our state from traditional rate making such as us­ environmental agencies to develop viabil­ Environmental Protection Department, ing a ratio of revenues to O&M costs to ity policies and programs. And finally, we new systems must first obtain a certificate determine revenue requirements, allowing must take a proactive role in the restruc­ from the PSC, which determines whether a premium on the rate of return, and de­ turing of drinking water regulation and the owner has the financia l and technical laying or phasing in recovery of costs. the related changes in the water industry. ability necessary to provide adequate ser­ Some states have actually assumed re­ Thank you. vice. This is the type of inter-agency in­ sponsibility for operating fa iled systems. teraction necessary to insure that new sys­ There are many tools available for us to NOTES tems are viable. However, in developing a control the failure of systems and to in­ lRobert S. Raucher et aI., ~Cos t·cffcctivcncs s of viability assessment policy, we must also sure the continuous provision of safe SDWA Regulations," Journal AWWA, August examine the viability of existing systems. drinking water to the public at reasonable 1994, p. 28. In adopting a Small Drinking Water rates. The key element, however, is for 2Rauchcr et aL, p. 28. System Viability Assessment Program and commissions to act now and to take a 3Raucher Ct aI. , p. 35. 11 1 Resolution Regarding Small Drinking Water Sys­ entering into an interagency memoran­ proactive role in safeguarding the finan­ tem Viability," sponsored by the Committee on dum of understanding to facilitate coordi­ cial integrity of drinking water systems in Water, adopted July 27,1994, reported NARUC nation of the state public utility agencies this country by developing meaningful, Bulletin, No. 32-1994, p. 12. fit NAWCWATER + • The Reauthorization of the Safe Drinking water Act: Costs and Risks

remarks by James B. Groff, Executive Director National Association of Water Companies

presented at the NARUC Annual Conference November 16, 7994 Reno, NV

Today we have been asked to focus on There have been significant increases chemical contaminants, that only may be the Safe Drinking Water Act (SDWA), its in the costof drinking water already. Ernst manifested after consuming two liters of costS and risks. The cost of drinking wa­ and Young report that between 1988 and contaminated water per day for 70 years: ter is important, for that cost has risen and 1992, the average monthly residential bill To address affordability, the law must give will rise even more dramatically over the for water and sewer increased 23.4 percent management greater flexibility to address next ten years. Can the cost of drinking for over 140 cities. They we nt on to note such differences, to federal and primacy water rise to the point where this sub­ that Los Angeles' rates had increased 73.9 agencies. stance, so necessary for life itself, is percent, while Chicago and Boston's rates Now to focus on the increasing cost of unaffordable for large segments of the increased 79.2 and 106.5 percent respec­ drinking water as it affects the customer's population? While some argue that the tively. NAWC's own data indicates rate disposable income and hence. I will ad­ poor and those o n fixed incomes are al­ increases ranging from 25 to 35 percent mit that this focus provides an opportu­ ready facing a crisis in this regard and over a comparable period. nity that I simply cannot forego. having to decide which other necessities , As is discussed in more detail later, the During the deliberations on the reau­ such as food, clothing and medicine, are questions of risk cannot be simply charac­ thorization of the Safe Drinking Water Act sacrificed in order that increases in the terized as a one in a million or one in one­ (SDWA), the industry was frequently, and cost of water are accommodated, I believe hundred thousand chance of an occur­ in my view unfairly, accused of attempt­ that as long as government prudently regu­ rence. Certainly ifit is affordable, everyone ing to weaken existing law. Nothing could lates, municipal and investor-owned sys­ in this country should be able to ingest be further from the truth. The industry's tems alike will find ways to ensure that water from their community water suppli­ involvement was simply to ufix" legislation the costof drinking water remains reason­ ers' distribution systems with the confi­ that everyone, including the environmen­ able and affordable. dence that they stand no more than a one tal community, agreed was "broken," and In the water quality area particularly, in ten-thousand or perhaps one in one­ make that legislation more practical, cost government needs to regulate those con­ hundred thousand risk of an adverse effective and efficient_ taminants that are known to have adverse health cffect. But remember that 25 per· Most are aware that SDWA compliance health effects at low exposure levels (Le., cent of the population h ave depressed costs must be passed through to the cus­ microbials, human carcinogens and con­ immune systems. That's one reason why tomer, since there is no other source of fi­ taminants with acute health effects) and we boil baby formula. What confidence in nancing required facilities. But most are not stop regulating contaminants believed to drinking water should that 25 percent be aw:;\re that it is concern for the impact of the have safe exposure levels, and low risk. provided, and at what cost to everyone? rising costs of drinking water on the cus­ A 1993 study commissioned by the The answer lies in striking a balance, dif­ tomer that drives industry involvement in American Water Works Association con­ ficult as that may be, between affordable, the legislative and regulatory proceedings cluded that about two·thirds of the 84 high quality water, and low risk of an ad­ addressing water quality. Without this con­ contaminants currently regulated by the verse health effect. cern, there is little motivation for the indus­ EPA do not pose a major threat to publi c Also to be weighed is the risk of imme­ try to be involved in what are frequently health. In addition to consuming signifi­ diate or acute adverse health effects, pre­ stormy debates and, in the process, risk ex­ cant resources, however, the current stan­ dominately from microbiological or viral posure to charges that it's objective is to dard setting process ends up frightening contaminants such as those that affected weaken public health protection. and even misleading consumers, many of 400,000 people in Milwaukee last year, whom are uneducated, indigent or elderly. and the longer term risk from primarily (continued on next lJage)

WINTER 1995 e Reauthorization, continued ure, and pretty soon we're starting to talk costs of treatment (and ultimately, the real money. additional costs to the consumer) required Yet insofar as the investor-owned indus­ Now some municipalities may be able to meet each more rigorous MCL The try is concerned, there has been little to conceal these increases in property Coalition knew of no other mechanism, acknowledgement of the efforts the indus­ taxes, but for the investor-owned indus­ as imperfect as that mechanism might be, try, supported by the NARUC, have put try, and many cities that charge custom­ given today's knowledge of science and forth. Those efforts included advocating ers the true cost of drinking water, the processes, to ensure that "Meaningful inclusion of risk reduction analysis and potential for consumer rate shock is sig­ public health protection" is obtained for other reforms that will save consumers nificant. the dollars diverted. money. If one adds (lers split the $1.4 -$4.1 bil­ Few will argue that assessing the addi­ I find this alleged lack of concern for lion difference) $2.7 billion to the $4.6 tional risk to exposed populations of the customer particularly ironic in the in­ billion for infrastructure and divides the higher, less stringent MCLs and evaluat­ stance of the investor-owned indu~try, result ($7 .3 billion) by 242.7 million ing the funds to be saved or the ancillary since the investor-owned industry stands people, we find an increase of a little over benefits to be achieved, is a burdensome to earn higher rates of return by incorpo­ $30 ($30.08) per year for every man, and a difficult task. Regardless, I agree rating any and every requirement the gov­ woman and child served by a community with Scott Rubin that there is significant ernment, by fiat, demands. Further, I per­ water system. Said another way, at 2.7 per­ potential for greater harm to public health sonally wonder why the industry found so sons per household, that's over $80 if regulation drives the cost of water so few consumer advocates in its corner dur­ ($81.27) annually, if-and it's a big if-the high that the public is forced to reduce ing deliberations of this consumer issue. costs are spread evenly among every home their expenditures for food, heat and But our focus today is on costs and risk. in the country. But, alas, costs are infre­ medical care, in order to consume water In this regard, you should be aware that quently, if ever, spread equally. Certainly that reduces their ri sk of an adverse health the NAWC is now embarking on an ef­ the economics of scale prevail in this in­ effect from one in 100,000 to one in fort that may, and 1 emphasize the word dustry, which is 30 to 40 percent more cost 10,000. Such tradeoffs must result in posi­ "may," suggest that the cost ofSDWA com­ intensive than any other utility. tive net benefits, to the extent that they pliance pales in comparison to those costs At the Great Lakes Conference of Pub­ can be quantified. the industry will face to rehabilitate, im­ lic Utility Commissioners last July, Scott The question then becomes, as elo­ prove and extend its infrastructure, an Rubin, a leading public utility consultant, quently articulated by Dr. Graham, Direc­ infrastructure we take for granted and observed: tor, Harvard Center for Risk Analysis, depend upon continuously. (1) "Providing safe drinking water is an "Can we afford to devote enormous atten­ Recently, one of our members analyzed absolutely essential public health pro­ tion to tiny, and in some cases, specula­ its distribution system costs and found gram. The safety of our drinking wa­ tive and/or phantom risks, and neglectthe that pipe that was o riginally placed at ter must be assured ...." larger risks that can be reduced at rela­ $2.88 a foot, was being replaced in 1993 (2) "Public health protection is not free, tively modest costs to citizens?" at $94.36 a foot. (Yet another member's drinking water is not our only impor­ Unfortunately, there is both a public analysis of SDWA versus infrastructure tant public health program and as we perception, and a political evaluation of costs revealed the former to be 26% of the all know, there is not enough money risk. Dr. Graham points out that the combined total over the past five years.) to go around." public's perception that life is becoming These replacement costs excursions, He concluded thatwhen the federal and more risky is not well grounded in actu­ which are far above inflation rates, relate state government require poor people to arial facts. Since 1950, life expectancy at not only to the intricacies of abandoning divert meager resources from one public birth has increased from 65 to 72 years old pipe and installing new, but also to health need to another, government has for males, and from 75 to 79 years for fe­ the complexities occasioned by the need the responsibility to insl.!-re that it's obtain­ males. Dr. Graham continues that while for t raffic control, maintaining service, ing meaningful public health protection it is difficult to validate or invalidate the environmental and safety concerns and for the dollars diverted. If government public's perception that the overall qual­ similar. In just the past three years, distri­ does not, it is simply harming the health ity of the environment is worse today than bution system replacement costs have es­ of the public. it was 5 or even 20 years ago, the best avai 1- calated by over 20 percent and many of Organizations representing governors, able evidence suggests that the quality of our members anticipate these costs to in­ mayors, county and city officials and state air, water and food has improved steadily crease by a factor of 10 or more over the health agencies were active participants in since 1970. Regardless, the public's under­ next five years. a "Coalition" that included regulators, the standing of relative risk is imperfect, and The Association's initial attempt to NAWC and other drinking water organi­ he concludes that, " If we are to make fur­ quantify the national costs for infrastruc­ zations. The Coalition strongly advocated, ther strides against premature deaths and ture replacement and improvement sug­ as part of the SDWA reauthorization, pro­ impaired health status, it is critical that gests an amount approaching $4.6 billion visions that would require EPA to compare citizens and policy makers focus our (j m­ a year. Add this to EPA's $1.4 billion the health benefit to be achieved by pro­ ited attention span and scarce resources SDWA compliance cost figure, or gressively more stringent maximum con­ on the big risks." AWWA's $4.1 billion compliance cost fig- taminants levels (MCLs), to the additional And what are those big risks? Accord-

fa NAWCWATER • ing [0 Dr. Graham, the number of li fe fying their relative threat and establish­ children, will benefit from t he investment years lost before age 65 are about compa­ ing cost effective MeLs, the public will they are making in their drinking water rable for injury, cancer and heart disease. be truly served. To accomplish this, how­ system. But it is injury that is the dominant cause ever, current law requires significant revi­ In summary, I believe this country of lifelong crippling conditions, such as sion. needs to shift its priority from attempt­ paraplegia and quadriplegia. He states We need to understand the fundamen­ ing to purify water to the point that it's a that, HAs a society, we frequently refuse tal tenant of toxicology, that ltdose makes little more than H20, to so und health to invest $50,000 per life year saved in poison" and how that applies to each con­ effects research that allows quantification trauma prevention when much larger in­ taminant found in drinking supplies. We of the ri sk posed by those substances vestments per life year saved are routinely also need to ensllre that each federal which sophisticated analytical techniques made to prevent various environmental agency makes use of the best available sci­ are now finding to exist in both raw and and occupational callses of cancer." He ence in the performance of risk analysis finished drinking water. Only byestablish­ further notes that recent reviews of epi­ and the results are available to the cus­ ing such a process, can we continue to as­ demiological and toxicological literature tomer in terms laymen comprehend. sure that limited resources arc cost effec­ suggest that considerably less than 5 per­ People must understand that they are pay­ tively spend for the benefit of the public, cent of human cancer can be traced to ing more to avoid a real risk and that they, and that the cost of drinking water reo causes that are within the jurisdiction of and their children and their children's mains reasonable for all Americans. 6 the U .S. Environmental Protection Agency. From a political standpoint, policymakers are insisting that incremen­ NAWC Centennial tal risk of cancer be reduced to less than one chance in a million lifetimes. While by Catherine Gibbs Harris, APR it is a fact that we know too little about West Virginia-American Water Co. the causes of cancer as they relate to pol­ Chair, Public Information Committee lution and/ or contamination, and there­ fore should be concerned about these in­ Viva la 1995! Let's welcome the new year with open arms and local plans to cursions into our pristine lifestyle, Dr. celebrate the t OOth birthday of the National Association of Water Companies. Much Graham points out that it is also true that has happened in the water industry during this century and even more will occur a baby born today has a four in a million in the near future. chance of being killed on the ground by a The focus on drinking water is at an all-time high level of exposure and scrutiny, crashing airplane during his or her life­ and we must not understate the tremendous scope of our responsibility to provide time. quality drinking water and quality water service to a population of 20,384,861 In considering risk, benefits and cost, across the United States. As we all know, our responsibility includes a serious li­ Dr. Graham states that increasing the fre­ ability as well. quency of screening for cancer causes the Clean, safe drinking water is an emotional issue. Our product is ingested by marginal cost per life year saved to in­ children, babies, the elderly and the chronically ill. As water purveyors, we should crease from less than $10,000 to over all be proud of what we do and not shy away from telling others that we do it well $250,000 and comments that it is .hard to and with great sincerity and expertise. argue that we should be investing much We are asking NAWC members to take a moment and reflect on the advances more than $250,000 per life saved, since made over the past 100 yea rSj the growth the industry has experienced, and the a similar level of investment in prevention many changes you've survived and that will continue to challenge your companies of heart disease, trauma or AIDS would and your personnel. Then, please take some quality time and look at the future of be considered extravagant. In this regard, your company and service areas to prepare yourselves for the most intense decade in I understand that EPA's water quality regu­ the history of the water industty-1995 to 2005. lations are based on a $3 million to $8 NAWC will conduct a year-long celebration of the investor-owned water indus· mil lion investment per life year saved. try which will consist of several items. To help commemorate our accomplishments, Now what can we do to bring some ra­ NAWC will sponsor a Centennial Dinner in Washington, DC, in February; WATER tionality to all of this? In my view, the Magazine will publish a historical feature in each of the four 1995 issues; and, the most important thing is to convince the Centennial Celebration will peak at the Annual Conference in New Orleans in late federal government and particularly the October. Congress, that a greater share of available The Public Information Committee has developed a "To Do Li st" of ideas to resources has to be devoted to basic health implement during the year. You can promote the centennial theme on your letter­ effects research that addresses the con­ head, in advertisements and bill inserts, on company vehicles, and in many other taminants that arc found to occur in drink­ low cost ways. Let's step forward and remind our customers what a great job the ing water supplies today. By identifying investor-owned water industry has done and will continue to do to provide the those contaminants that present the great­ most valuable resource and service-qualit y drinking water and quality service. est risks to exposed populations, quanti-

WINTER 1995 8) • MUNICIPAL UTILITY VALUATION: From the Municipality's Point of View

by james 5. Kelly, Financial Manager Madison Water Utility, Madison, WI

Municipal officials throughout the rates of return will be found, primarily parent here. Municipal utilities typically United States are, by and large, conscien­ because municipal officials are unfamil­ have no access to equity funding beyond tious in their role as custodians of public iar with these concepts. that of their own retained earnings. An­ assets. However, because of the nature of Basic utility operating practices may be other major difference lies in the lack of the municipal beast, it can be difficult for missing. Standard maintenance proce· incentive to accomplish these goals. Real: a municipal official to make the transition dures, infrastructure replacement poli­ istically, utility goals are often lumped to viewing a utility as a profitable entity. cies, and even dependable maps of the together with other municipal goals and Indeed, the perception of value is often system may not exist. then suffer from lack of attention. expressed in more qualitative terms (rang­ Utility goals many be secondary to Another dimensio n comes from the ing from "omigod, not that again!" to municipal policies. Such non-related role of the municipal official as politician. "Well! What have we got herd") rather notions as annexation policies and zon­ Wearing this hat will invariably lead to the than as a concept of asset value or return ing requests could find their way into question, "What about the people?" Inevi­ on investment. The "Bottom Line" for a utility operations and planning. Other tably the pr~vate concern will strive to do municipality is often quite different from unspoken policies may result in the the job with fewer people. As a selling that of an investor owned utility. mayor's nephew finally finding a job in point to stockholders this is an excellent A municipality will often have a com­ the water department. tool. However, the municipal "stock· fort level in ignoring its utility unless is­ Small wonder, then, that it takes some­ holder" will often be the person in the sues of annexation or zoning occur. But, thing like the Safe Drinking Water Act to job being targeted. as the realities of complying with the Safe help officials "re-engineer" the municipal The municipality, then, looks at these Drinking Water Act are brought into fo­ organization chart. Some states have rec­ issues: cus, attention of an unwelcome sort oc­ ognized the problem. The New York State 1) The utility as an annexation or zoning curs. It is under these circumstances that Public Service Commission has recently tool; opportunities for changes in utility orga­ set up a plant to aid acquisition of small 2) The utility as a repository for person­ nization can develop. water utilities by means of rethinking tra­ nel problems; Here is the paradox: A well-run munici­ ditional views of valuation and rate mak­ 3) The utility as a supplier of "free" ser­ pal utility can provide a positive value to ing. Their Acquisition Incentive Mecha­ vices, the costs of which don't find their the community, whereas a utility that has nism (AIM) provides for alternative ways way to the tax roll, significant problems less attractive to a to value small utilities. New York hopes 4) The utility as a source of cash under the potential purchaser ca n be a negative factor. to provide an incentive for very small in· guise of charges that mayor may not be let's look at some ofthe perceptions of dependent firms to be acquired by larger based on cost. municipal utilities. Unfortunately, many firms. Modern planning and land use ap­ of these perceptions are often true. On the other hand, a well run munici­ proaches minimize the usefulness of the "Cigar Box" accounting: Municipal utili­ pal utility can be a distinct asset. A utility water utility as a tool to control annex­ ties very often have fu nd accounting more that has fully costed water, good utility ation or zoning. As the trend to effective suited to tax generated cash flows than operating practices, and an infrastructure land use planning develops, municipal enterprise activities. Concepts such as replacement policy can have the result of officials will become aware that this tool book value and depreciation are given not only being able to absorb overheads is meaningless. nominal recognition, if at all. Even in and provide a reasonable return, but also In a serendipitous situation, a combi­ those few states that regulate municipal to deal with the SDWA. One of the major nation of early retirement, attrition, and water utilities, unrealistic depreciation differences between the municipal utility other jobs in the municipality will nullify schedules and artificially low allowed and investor owned utilities becomes ap- the effect of any lay-offs involved in a

_ NAWCWATER privatization bid. The problem may well exist that the mayor's nephew would be out of a job; no one ever said it would be easy. The price elements for a municipality WATER/WASTEWATER will then include: The cost of "free" services; The values of charges made to the util­ ity; Capital recovery of the investment in PRIVATIZATION the utility. T hese elements must be balanced against the real value of the utility as a going concern composed of working assets by Robert W Po ole, jr. The Reason Foundation providing an appropriate return. If done properly, this view of a utility will enable the municipality to find whether or not it is deriving real value from its investment. Nineteen-ninety-th ree marked a con­ the Franklin Area Wastewater T reatment By holding the value of the investment up tinuation of the trend toward water and Plant to Wheelabrator EOS (WEOS). The to scrutiny, two major questions develop: wastewater treatment privatization . Do­ 4.5·mgd facility, which is owned by the ] ) Is the investment providing a real re- mestically, the most notable developments Miami Conservance District, has been turn to the owner? were the utilization of contract operations operated by W EOS since 1987. If com­ (Note that fully costed rates must be by larger cities and the increasing scope pleted in mid-1994 as expected, the trans­ included in the analysis. A utility with of services (e,g" entire public works de­ action will mark the first full privatization superficial pricing policies is passing partments) under contract, of a grant-funded wastewater treatment along an unknown subsidy every time I n November 1993, legislation to plant ever, or of a municipal plant since a bill is presented to a customer.) amend the Clean Water Act to provide a the 1986 Tax Reform Act. 2) Is this capital best invested in a utility definition of a "publicly owned treatment The city of Silverton, Oregon, the site or in another municipal venture or in­ work" based on purpose rather than own­ of the third pilot project, has made less vestment? Long term treasury securities ership was introduced by Senator Frank p rogress given that its plan relies on may be considered as a bench mark. Lautenberg (D-NJ). By holding privately changes in the tax code, In terms of T he water industry in the United States owned treatment plants to the same treat­ privatization beyond contract operations, is leery of change. One of the reasons is ment standards as publicly owned treat­ two other projects are noteworthy, that the quantum changes affecting the ment works (rather than more stringent The EPA has given the city of Petalum a, energy and telecommunication utilities standards), the bill is expected to remove Californ ia, a $30,000 grant to document have been slow to arrive at the water util­ an impediment to private investment in the city's progress in structuring a service ity. Another is the structure of the indus­ municipal wastewater treatment plants. agreement for the design, construction, try-large numbers of small municipally Two of the EPA's three pilot projects on operation, and possible finance of a new owned utilities, The major difference be­ infrastructure privatization moved for­ $25-million wastewater facility, The city's tween other utilities and water is t h at the ward in 1993. experience with a turnkey-private ope r a~ product is ingested. T he Safe Drinking In November 1993, Indianapolis tion is expected to offer a viable Water Act, then, provides much the same awarded a 5-year, $87 million contract for privatization modeL As of early 1994, the incentive fo r change as the other utility the operations and maintenance of its two city was drafting a service agreement and industries. A large, well run, municipal advanced wastewater treatment plants to preparing to issue RFP's by April. 1 utility will be able to deal with t hese the White River Environmental Part ner­ The city of Laramie, Wyoming, is pre­ changes. Other communities may well ship, The contract will cut the city's an­ paring RFQs for t he upgrade and opera­ 1 find an answer in having a proven inves­ nllal wastewater treatment operating bud­ tion of its $13-million wastewater treat­ tor owned utility provide water services. get from $30 million to $18 million, or ment plant. T he project will be notable James S. Kelly is the Financial Manager of 40 percent. The city's facilities (combined because the turnkey portion of the con­ the Madison Water Utility, Madison, Wiscon­ capacity of 243-mgd) will be the largest in tract will be financed with State Revolv­ sin. He has over 17 years experience in the t he country to come under private man­ ing Fund loans. The city was encouraged utility industry, and has authored the Wiscon­ agement. to adopt this privatization strategy by an sin Section, AWWA, policy on "Privatization, Another EPA pilot project advanced in August 1993·CH2M Hill study which Consolidation, and RegionaUzation of Water 1993 and in early 1994. The villages of indicated that, compared with the tradi­ Utilities in Wisconsin." Mr. Kelly is the 1991 Germantown and Carlisle, and the city of tional procurement approach, privatiza· recipient of the George Warren Fuller Award, Franklin, Ohio, passed resolutions aut ho­ tion could reduce total project costs by at and holds an M.B.A. in Finance from Loyola rizing a consultant to negotiate a 20-year least 10 percent and accelerate project de· University . • service agreement to sh ift ownership of (continued on next page)

WINTER 1995 fa Privatization, continued year contracts by Moore, O klahoma, and Generale des Eaux. Phase 1 of the contract Wakulla, Florida, wh ich include respon­ includes census of users and installation livery. sibility for a wide range of functions be­ of meters, phase 2, establi shing billing In addition to a large number of O&M yond only wastewater treatment. These sys tems, phase 3, infrastructure rehabili· contracts awarded by small- and medium­ broader·scoped contracts join Pikeville, tation and expansion. siz ed cities, a few large ci ties either Kent ucky (PSG); Mustang, Oklahoma C uernavaca, Mexico, awarded u.S. Fil­ awarded O&M contracts or began review­ (PSG), and Hinesville, Georgia (OMI). ter a 12-year concession to design , build, ing privatization options in 1993. own and operate a 14-mgd secondar y In April 1993, Newark, New Jersey, Majo .. International Developments wastewater treatment plant. awarded Profession Services Group (PSG) Britain's North West Water was very In late 1993, Well ington, New Zealand a five-year contract to manage the city's active around the globe in 1993. T he U.K. (pop. 160,000) issued an RFQ for the de· 80-mgd Pequannock Water Treatment water company led a consortium that was sign, construction, and operation of a Planr, which serves 500,000 people. The awarded a 20·year $2.43·billion contract wastewater treatment plant. The city is contract is expected to save the city $1 to build, upgrade, and operate Malaysia's interested in Build-Own-Operate-Transfer million annually, or near 40 percent. national sewage system. proposals offering private finance options. In 1993, the Philadelphia Water Depart· In Bangkok, T hail and, North West Price Waterhouse and Black and Veatch ment made two significant moves toward Water's consortium won a $260-million we re selected for privatization studies of privatization. Following a report by Camp turnkey contract fo r a 1 35-mgd wastewa­ water-supply systems in Jamaica and Chile, Dresser McKee indicating that the Phila­ ter treatment plant, 51 -kms of interceptor respectively. The Asian Developmen t delphia Water Department could secure sewers, and a 5-km tunnel. And the firm Bank is funding a study of the significant savi ngs by privatizing its sludge was awarded a $9-million contract to de· privatization options for the water-supply management operations, in October 1993 sign, build, and operate a wastewater treat­ systems serving industrial and resort ar· the department issued an RFP for those ment pl ant for the Portuguese territory of cas in Thailand_ services. Macao. Mr. Poole is President of the Los Angeles, In ea rly 1994, the department selected North West Water also led a consor­ California-based Reason Foundation. The Camp Dresser McKee to prov ide assis· tium which was one of the four to be Reason Foundation expressly retains the copy­ tance in procuring a contract operator for awarded a 10-year contract to modernize right to this material. Any requests for per· the city's Southwest Water Pollution Can· Mexico City's water and wastewater treat­ mission to reprint the article should be di· trol Plant, a 200-mgd advanced secondary ment systems. Other winning consortium rected to the undersigned. wastewater plant. leaders include: Lyo nnaise des Eaux­ Major sludge management contracts Dumez, Severn T rent, and Compagnie Copyright © 1994, T he Reason Foundation included Waterbury, Connecticu t, Naussau County, New York, and San Di· ego, California. One notable trend in 1993 was the in­ r--·------\ creasing scope of management contracts to include entire water and wastewater I Not Enough WATER? systems as well as en tire public works de­ I partments. I Are there other people within your company that shou ld be getting Swainsboro, Georgia, expanded its ser­ I vice contract with O MI to include the re­ WATER magazine, but are not? NAWC will be glad to add any maining public works department func· I I number of employees from Active Member companies to the WA­ tions. a MI is now responsible for t he TER mailing list. Just call the office at 202/833-8383, or clip this city's street, vehicle and cemetery mainte· I ad out and mail it to: nance, and building inspection, and ad­ I ministration. I National Association of Water Companies Roanoke, Alabama, awa rded a three· I 1725 K St. , N .W. , Ste . 1212 year contract to PSG fo r operations of I Washington , DC 20006. entire water, wastewater, and natural gas I systems. The $300,000 per yea r contract will reduce the city's utility costs by about I WATER should be mailed to: 30 percent. I Alton, Illinois (pop. 33,000), iss ued an I Name ______RFP for a contract for the ci ty's public I works department, which includes water I Company ______and wastewater systems, garbage collec­ I I tion, street maintenance, and golf course. Simil arly, PSG has been awarded five- ~ddress ______~ e NAWCWATER po

1994 Water Utility Compensation and Benefits Survey Results

by Gerry Stoffel, Managing Principal, Saje Consulting Group

The 3rd Annual Investor-Owned Water Util­ showed a scrong correlation between sal­ make $16 an hour would receive a 10% ity Compensation and Bene/its Survey con­ ary level and various measures of position higher salary than a supervisor whose s ub ~ sisted 0/ the following two parts: responsibili ty (i.e., revenues, customers, ordi nates make $13 an hour. assets, pumpage and employees). Gener­ Part 1: 1994 Investor·Owned ally, management at larger water compa­ 2. AnnlLal Incentives Water Utility Compensation nies are paid more than their counterparts Two·thirds (12 of l 8) of the survey par· and Benefits Snrvey at smaller utilities. This relationship is ticipants provid e annual cash incentives The traditional compensation and ben­ most pronounced for senior management to at least one executive position. The efits survey was published and distributed (e. g., Chief Executive Officer, Top Finan· prevalence and size of incentives decreases to participating companies in late July. The cial Executive, etc.). A CEO moving from as we move lower into the organization. survey analyzed annual cash compensa­ a company with $25 million in revenues For example. the median target incentives tion (Le., salary and annual incentives) for to a company with $100 million in rev· for a C hief Executive Officer and Top Fi­ 21 executive, managerial, supervisory and enues could expect a salary increase of nancial Executive are 25 percent and 15 professional positio ns covering 322 in­ 4 2%. A CEO moving from a company percent respectively. cumbents at 18 water utilities. The survey with $100 million in revenues to a com· was conducted over a three month period pany with $200 million in revenues could B. 401(k) Practices between April and July 1994. In addition, expect a salary increase of 19%. A top fi­ the survey gathered general policy and nancial executive moving from a company Prevalence and Participation practice information concerning 401(k) with $25 million in revenues to a com­ 16 ofl 8 survey participants have 401(k) plans. pany with $ 1 00 million in revenues could plans. O n average, 80 percent of eligible expect a salary increase of 36%. A similar employees participate in the plan. Part 2: Customized Position Analysis executive moving from a company with This year, a number of utilities re­ $1 00 million in revenues to a company ContriblLtion quested a morc detailed competitive analy­ with $200 million in revenues could ex· 1. Employee Contribution, lOaf the 16 sis of their company's positions. The cus­ pect a sa lary increase of 17%. companies allow the employee to con­ tomized analysis lets companies request a For lower level, non-supervisory, mul· tribute more than 10% (8 companies) detailed review for individual positions tiple incumbent positions (e.g.) engineers), or have no stated maxi mum contribu­ from a li st of 48 positions. The positions the size of this company has minimal af­ tion (5 companies). Note, the 1994 limit covered in the "custom" analysis include fect on salary. However, for some super­ by the IRS is $9,240. the 21 positio ns from Part 1 and 27 addi· visory positions (e.g., C ustomer Service 2. Company Match: 9 of the 16 companies tional positions. Supervisor). we found a strong relation­ match 50% of the employee's contribu­ s hip between salary a nd the average tion. 10 of the 16 companies provide PART 1: hourly rate of subordinates. A customer maximum contributions between 2% 1994 SURVEY IDGHLIGHTS service supervisor whose subordinates and 4%. The type of company match make $13 an hour would receive a 14% most frequently used is company stock A. Compensation higher sa lary than a supervisor whose sub· (1 0 of 16 companies). L Salary ordinates make $10 an hour. A customer As with previous surveys, our analysis service supervisor whose subordinates (continued on next page)

WINTER 1995 e

tr •

Compensation, continued pany (e.g., revenues, customers) and the representative participants. This approach competitive salary level for executive helps ensure that the survey positions and Investments and upper middle management posi­ topics are relevant for all participants. 1. 14 of the 16 companies have the em­ tions. The customized analysis will take Participants represented a wide array of ployees direct the investment of their into account your position's size and investor-owned water utilities with respect 401 (k) assets. scope in developing the overall competi­ to size, business diversity and organization 2.14 of the 16 companies provide guar­ tive salary level. structure. anteed income contracts as well as mu­ 3. Utility and general industry data (when The annual survey is intended to pro­ tual funds. The most frequently men­ applicable). For example, a General Ac­ vide management and their Boards with tioned (7 companies) number of mutual counting Manager position is one that timely and useful compensation related funds offered is 5 funds (7 companies). can be found in both utilities as well as information which will assist them with Also, no participant provides more non-utility firms. Therefore, the cus­ either auditing their current compensation than 5 funds. tomized analysis would present the com­ practices or developing new programs. petitive salary being paid in compara­ PART 2: bly sized utilities as well as comparably ABOUT SAJE CUSTOMIZED ANALYSIS sized general industry firms. CONSULTING GROUP HIGHLIGHTS 4. Significant responsibility differences Saje Consulting Group is a human re­ The customized analyses provides a between your company's position and source consulting firm based in greater level of detailed analysis for a the survey position. For example, if your Langhorne, Pennsylvania. Saje principals " company's individual positions. The analy­ customer service manager is also re­ have consulted and worked with NAWC il sis takes into account: sponsible for management information member companies on compensation and 1. Local salary levels for the geographic systems, an adjustment should be made benefits related issues since 1984. area in which your positions are located. to the General Accounting Manager Saje is currently planning the 1995 sur­ The local labor market in which you competitive market data to take into vey. If you are interested in participating compete for workers can significantly account the additional responsibilities. in the 1995 surveyor would like to receive influence salary levels of lower level ex­ detailed information on a Customized Po· empt and non-exempt positions. For ex­ The following exhibit illustrates how the sition Analysis for positions within your ample, secretaries and supervisors in Customized Analysis is presented. company, please contact Gerry Stoffel or northern New Jersey or Los Angeles are Tom Howitt at Saje: Saje Consulting paid differently than in Maine. . SURVEY METHODOLOGY Group, Inc., 390 Middletown Blvd., Ste. 2. Relevant size or scope. There is a direct The survey was developed through a #602, Langhorn, PA 19047; telephone: correlation between the size of the com- series of discussions and meetings with 215/741-2669; fax: 215/ 752-2299. ,

1994 COMPETITIVE COMPENSATION DATA( 1 } (Compensation in $ Thousands) Company Survey Position/ Saje Ecs Conf'l Ecs Initial Market Adjustment Final Market Position Scope Industry (2) (3) (4) (5) Consensus (6) Consensus Vice President Operations Top Operations Exec./ Utility $xxx $xxx $xxx +10%(a) $xxx $90MM Revenues; 200,000 Customers General Industry No Comparable Position Accounting Manager General Acctng. Mgr./ Utility yy yy yy -5%(b) yy $90MM Revenues; 200,000 Customers General Industry yy yy yy -5%(b) yy Customer Service Customer Service Supv./ Utility zz zz zz zz Supervisor Northern New Jersey General Industry zz zz zz zz

(I) Compensation survey data has been updated to rellect competitive levels as 01 January I, 1995. (2) Soje, Inc., 1994 Investor·Owned Water Utility Compensation and Benefits Survey. (3) Executive Compensation Ser~ces, Inc.: Utility Industry survey providing scope related and geogrpahic pay data. (4) Confidential Survey within Saje's library: General ind ustry survey providing executive and middle management pay data. (5) Execu ti ve Compensation Services, Inc.: General Industry survey providing scope related and geographic pay data. (6) Adjustments: (a) +I 0% adjustment rellects the additional responsibility associated with managing the Human Resources lunction. (b) .%% adjustment rellects not being responsible lor the general ledger.

• NAWCWATER $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Safe Drinking Water: At What Price?

Water Leaders Discuss Critical Issues and Trends in the Water Industry as Part of a CoBank Water Leadership Survey

by Pe ter R. van Dernoot with Nancy Jorgenson

CoBank executives recently interviewed 33 percent of the executives beli eve t he Given anticipated Congressional rcau­ water industry Leaders throughout the United economy will improve through 1995, and thorization of the Safe Drinking Water Act Stares representing all facets of the water in­ 29 percent think it will remain essentially (SDWA), and the growing list of regulated dustry. This is their report. the same. All anticipate increased rev­ contaminants, it's not su rprising to see "T he publi c is willing to pay more fo r enues in the short term, although coupled regulation and financi ng ranked at the water that meets new safety standards," with increased plant and testing expenses. top_ "There has been a quantum leap in says James Groff, executive director of the Virtually all expect to hire additional the regulation of contaminants," says Jack National Association of Water Compa­ employees." Hoffbuhr, deputy executive director of nies. "The question is, how much more?" American Water Works Associatio n Ie's clear to rural water industry lead­ Critical Issues (AWWA). "Regulations on lead alone ers that everyone wants good drinking wa­ When asked to name the three mostcriti­ grew from three pages to 500 pages_" ter. It gets murky when you try to answer cal issues facing the water industry, James That's going too fa r, contend some re­ questions about how to provide quality Groff, executive vice president of the Na­ spondents. "SDWA doesn't respect local water: tional Association of Water Companies conditions," says Jan Wick, president, How safe is safe? (NAWC), bluntly expresses the view of Avion Water Co., in Bend , Oregon . At what price? many: "Regulation. Regulation. Regulation!" "Their view needs to be moderated." Adds Can rural water providers, especially In fa ct, 55 percent of the interviewees G roff: "EPA admi ts they have regulated smal l providers, meet tougher health identified "increased regulation" as the contaminants without hav ing all the nec­ standards and survive increased federal number one issue. "Regulations will drive essary scientific background." regulation? everything, and regulation is here to stay," While SDWA testing requirements are What structural changes must water says Tom Duck, executive d irector of the burdensome, some believe they are neces­ companies make? Texas Rural Water Association. sary to provide safe water. "We must suc­ W hat type of systems can provide the Another 23 percent tag the closely re­ ceed in making logic out of the regu la­ best water service? lated issue of financing as their principal tions," says Jim La Plant, manager of the What financing alternatives are avail­ concern. Funding regulatory compliance Central Iowa Water Association in New­ able? es pecially worries smaller company lead­ ton, Iowa. "New research and develop­ Ken Hide, vice president and manager ers as they have fewer customers to share ment, technology and financial resources of eoBank's Rural Water Department, the cost. will make this possible." observes that water leaders are deeply con­ David Monic, manager of the Logan cerned about resolving these issues. "De_ Most Critical Issues Wells Water Co. in Cherry Hills, New spite the tough issues, each executive in­ 55o/o-Increased regulation Jersey, says, "Testing costs have become terviewed remains optimisti c about his 23%-Financi ng much less of an issue than a few years ago company, the industry and even the na­ 22%--Restr ucturing, ag ing plants, avail­ because of competition to get the testing tional economy," he reports. l' In fact, 64 able sources of water (continued on next page)

WINTER 1995 fit •

At What Price? continued are smart, t hey'll realize the financial ad­ tions. Our Environmental Policy Commit­ vantages of size," he says. "Economies of tee at NCFC works on those solutions. business. It will get better for the water scale ease costs such as anorney fees, com­ And some of our member co·ops take a industry, not worse." pliance and general operation." ho li stic approach to dealing with these Still, the regulatory price tag steepens. But changes won't come easily notes problems," EPA estimates compliance costs for new Nelson Stader, a retired water company regulations at $14.6 billion, of which $8.6 manager and a member of CoBank's board Funding Sources billion wi ll fall on the shoulders of small of directors, " It will be hard for some com· New regulations and the inevitable water companies. "When yo u see water panies and managers to give up their his· structural changes and rising costs pose bills go from $20 to $50 a month, will torical turf, but the need is there," he says. another concern for water companies, as the public be able to pay?," asks Charles Rich LaRochelle is legislative director Ken Petersen su ccinctly summarizes: Hughes, commissioner, North Carolina for the National Rural Electric Coopera· "Where is the money going to come Utilities Commission. tive Association (NRECA). "Some small from?" systems may be hesitant to merge with Financing needs include both increased Structural Changes Expected another system," he says. "Yet the reality compliance costs and upgrades as well as To deal with regulations and their costs, is that envi ronmental regulations and plant expansion and line extensions. Esti­ industry leaders expect major structural economies of scale will drive a move to· mates of the amount of capital as a per­ change. "New regulations are driving in­ ward consolidation. Everyone believes centages of existing plant required during frastructure changes," says Eddie Daniel, there wi ll be fewer systems and that these the next three years range from 10 per­ general manager of Cash Water Supply larger systems will be able to better serve cent to 400 percent, most of it long-term Co., in Greenville, Texas. their communities." debt. Ofthose interviewed, 35 percent expect LaRochelle represents the nation's ru­ Traditional financing sources include their own organizations to experience an ral electric co-ops, which have become Farmers Home Administration grants and acquisition soon, and 69 and 64 percent, more interested in the water industry. He loans, state bond banks, community block respectively, expect more mergers and con­ says a significant portion of people served grants, and a few dedicated private sector solidations. by rural electric co-ops are not served by sources such as Co Bank. However, fund· water systems. "NRECA's marketing sur­ ing does not come as easily or quickly as structure Changes veys show that 25 percent of all electric the leaders would like, Water company 69%- mergers co·ops in the nation will do something on executives would love to see faster ap· 64%-consolidations the water issue," he adds. liTwenty percent proval of loans and more availability of 35%-acquisitions say they will own or operate a water sys· both short- and long-term loans. They also More water companies will look for tern in the future." prefer fixed rates for debt financing in ways to share the expense of billing, meter States will compel change as well. Ac­ order to better calculate costs, though a reading and other activities, "I see forma­ cording to Hoffbuhr, states won't have the few want the option of both fixed and vari­ tion of major water wholesalers," says Rob resources to regulate 1,000 water systems able. Johnson of the National Rural Water As­ each. Watch for state commissions forcing Eddie Daniel of Cash Water Supply cites sociation. "That's the way of the future, developers to work with existing systems. the need fo r fa ster turn-around: "It's un­ the way EPA is pushing us." "The days of providing a silent serv ice are realistic to tie down the engineering for a Consolidation cannot be avoided, over," says Hoffbuhr. "The industry will project today when you can't get federal agrees Ken Peterson, a lawyer with Craig, have to be far more involved with the pub­ financing for two years." Small and Werkenthin, a law firm in Aus­ li c to communicate increasingly complex Charl es Hughes of the North Carolina tin, Texas. "SDWA compliance will im· issues." Utilities Commission points out a com­ pose higher costs on the public water sup· Environmental concerns continue to be mon complaint among small system bor­ ply, which consumers will resist," he says. complex and controversial issues for the rowers. "Most banks still require water "Economies of scale just don't apply in industry. As water demand increases, so company owners to use their personal as· small companies." will conflict between agricultural and sets as collateral," he says. AWWA encourages co-op arrangements environmental interests. Water companies Of those interviewed, 67 percent think on equipment and supplies. AWWA's are caught in between. "There is a natu· federal assistance should help finance the Hoffbuhr notes that small systems them­ ral tension between farmers and their co­ impact of the SDWA and the Clean Wa· selves arc beginning to see that they can't operatives and their water companies," ter Act. Additionally, 75 percent feel that afford specialized personnel and compli­ comments Tom Va n Arsdale, vice presi· state revolving funds should be available. ance. "As state regulators find small sys­ dent of environmental policy for the Na­ "If the government mandates programs tems out of compliance, they will urge the tional Council of Farmer Cooperatives such as the SDWA and the Clean Water companies to hook up with a neighbor/' (NCFC). "Environmentalists promote leg­ Act, the government needs to pay for he says. islation in areas of wellhead protection them," says Fred Curry, chief of the Wa­ Mark Safty, an attorney with Holland plans, irrigation, runoff, watershed and ter Utilities Branch of the California Pu b­ and Hart of Denver, works with water sys­ groundwater. It's an opportunity for us all lic Utilities Commission. "Otherwise, it tems across the West. "If water operators to work together toward rea I world solu- will keep on mandating more and marc

CD NAWCWATER rules. State revolving funds have to be Phil Sherman, a C PA at Sherman, Bar­ quality water. The question is, how much there to bail out the extreme situations. ber and Mullikin in Mad ison, Indiana, more? Water is a health and welfare issue." notes that while financial options have Several suggest t hat the monthly cost Stan Patty, manager of Newcastle Pub­ increased, more options are needed. "Wa· of cable TV is a good upper benchmark. li c Works Authority in Oklahoma, agrees: ter companies are just beg inning to learn But many feel rates could easily double, "I f the federal government puts the mon­ about commercial loans," he says. and others foresee rate hikes as high as key on our back. they should make the NAWC's Groff explains a benefit of 200 to 300 percent where aging plant in· money available." private financing: "Yo u get funds fa ster, frastructure requires replacement. Hoffbuhr says t hat, t rad itionally, and time is money." "It's what you're used to," concludes AWWA is opposed to revolving funds, but Mark Safty at Holl and and Hart repre· Hoffbuhr. "It may not be the rate as much some state grant funds may be needed to sents many public water systems that is­ as the percentage increase that sets people keep rates acceptable: "We need some SO rt sue their own debt. "The public debt mar­ off." of revolving fund to help basket cases, but ket is bound up with rules; a company has there won't be enough for all systems. We to go to thousands of bond holders to get Who Can Provide the need a variety of financial mechanisms." things changed," he says. "The flexibility Best Water Service? In Scottsdale, Arizona, Gary Goodman, provided by private banks can save public Unce rtainty about the price of a glass president of Bermuda Water Co., echoes systems hundreds of thousands of dol­ of water raises yet another question: the sentiment. "Without state revolving lars." Which delivery system provides a quality funds, testing alone could bankrupt some But can- and will- private lenders put glass of water at the most economica l of the very small companies," he says. up the money? While many leaders say price? Those interviewed arc evenly split But not everyone wants public assis­ they'll rely on local and regional banks for in their preference of consumer·owncd co­ tance, state or federal. financing, they' re wary about local bank­ operatives or investor-owned utilities

II U you· have a debt, you should pay it," ers' willingness to lend to the industry. (IOUs). At AWWA, Hoffbuhr maintains Nelson Stader says. "Revolving funds Pennvest is the bond underwriting arm a neutral stance: "The key is publi c in­ should be a last resort." Lawrence Rider of the state of Pennsylvania. "There is in­ volvement, from the people who drink the of Nittany Water Co. in H oward . Penn­ adequate credit available to finance the water." sylvania, adamantly opposes a revolving water industry in rural America," says fund: "It will just get burned up in admin· Pa ul Marchetti, execlltive director at The Futnre? istration and won't help people." Pennvest. "We can't meet demand-we As water companies, regulators, finan­ Jan Wick at Avion Water Co. says, "Pub· have very little capacity to fund private cial institutions and ultimately the paying lic assistance funding disguises the cost of systems." consumer struggle with these tough is­ SDWA, and the citizenry needs to know Ifprivate lenders step fo rward, will they sues, what does the future of drinking the real cost of government programs." understand local industry needs? "There water look like in this country? Jim Gallagher, chief financial officer of is a Nebraska way of doing things and O ne thing is certain: demand for qual· Southern California Water Co. in San there is a Wall Street way," says Joh n ity water will only increase, particularly Di mas, fires a final vo lley: "Better govern­ Trecek, vice president and general coun­ in rural America. A March 8, 1994, ar­ ment is less government." sel of Municipal Bond Underwriters in ticle in The Wall Street lournaL noted that The debate may be moot. Listen to Bob Omaha. "It's best when yO ll know what several of the 20 fa stest-growing counties Nash, U.S. Department of Agriculture will work." in America are rural. li The shift reflects undersecretary for Small Community and the restructuring of corporate America," Rural Developmen t: "There will never be What Price Water? the lournal reports. "Businesses, to slash enough money for what we want to accom­ Wherever funding comes from, a glass costs, are moving large chunks of their pl ish without the active involvement of the of water is going to cost more in the fu· operations from downtown office build­ private sector. Government cannot, and ture. "Texans are used to cheap water," ings and suburban office parks to more should not, serve as the main funding says Eddie Daniel of Cash Water Supply, rural areas." Sou rce for economic revitalization. I'd like "but the price is going up. Water is our Those businesses, and homes that will to see more public-private partnerships most essential commodit y." Tom Duck ri se with them, will need water. where our rural development agencies predicts rate shock: "Some water systems "It's vital," says Rob Johnson ofNRWA. work with lending institutions to leverage haven't raised rates in 20 years- and brag "If you don't have water and waste man­ federal resources." about it." agement, industry won't move in." That's Clearly, private financing will play a Gene Whatley, executive director of the one reason the nation's rural electric co· larger role. "Federal guarantees would Oklahoma Rural Water Associati on, ex­ operatives are carving out a niche in the help," Rich LaRochelle comments. pands. "Since water fa lls from the sky, water industry. "Electric cooperatives rec­ "USDA's current policies don't encourage people think it should be free. Well, it ognize water development as an opporru­ effective use of private fu nding sources. costs a lot to deliver. People don't under­ nity to serve their communities," says We need to make sure there's a private stand the impact of SDWA." NRECA's LaRochell e. component to stretch available federal Water leaders believe consumers will Many leaders emphas ize educating the dollars." pay much more than they do now for good (continued on next page)

WINTER 1995 CD At What Price? continued results. "The good news is that quality lead­ Please send more ership is in place. Weare confident that good information about public and regulators about water issues. water will continue to be available to con­ NAWC to: "We have to get better orga nized to edu­ sumers. The challenge will be explaining the cate regulators who aren't familiar with cost of quality to the public." local water issues," suggests Jim LaPl ant. Name ______NAWC's Jim Groff adds, "Educational Peter R. van Demoot is a consultant for efforts must focus on the impact of regu­ CoBank) Rural America)s Cooperative Bank) Position ______lation and how it's driving up costs." which provides financing to creditworthy Company ______AWWA sees a need to educate the pub­ water and waste disposal syS[ems serving lic as much as regulators. "Technicians largely incorporated areas or communities of Address ______cannot make the decisions on their own 20)000 or less population. Nancy Jorgensen about the critical is sues of the industry," is manager of customer communications for Hoffbuhr says. "The public must be in· the bank. CoBank provides more than $159 volved." Just as crucial-educating and at· million in loans and commitments to systems Tel ephone ______tracting high-quality employees. "Utilities in 18 states. The bank also provides financ­ have focused on treatment, not mainte­ ing to rural electric co-ops, rural telecommu­ nance," he says . "Keeping systems main­ nications systems) agricultural cooperatives • Type of business : tained and clean will be increasingly im­ and ocher businesses serving rural America) o Regulated water utility portant." and finances exports for the benefit of U.S. The public's role and public perception agricultural cooperatives. For more informa­ o Under $1 mi llion revenues of the water industry will be key, reflects tiDn on CoBank, call Denver, 1 (800) 542- CoBank's Ken Hide, in summarizing survey 8072, or Atlanta, 1 (800) 255·7429 . • D Over $1 million revenues

o Water service company An EPA Perspective o Equipment mfr./supplier o Financial services

by Peter Shanaghan o Consulting Small Systems Coordinator U.S. Environmental Protection Agency o Engineering o Legal services We believe the answer for small systems with another system. is fundamental structural change-not nec­ Practical, appropriate technologies are o Other ______essarily shared pipes, but shared manage­ available, and more are being developed, ment. While a single small system might for use by small systems needing treat· not be able to afford the services of a quali­ ment. These technologies) coupled with fied operator, a group of systems probably . remote rnonitoring and control of the can. technology, offer great promise for provid­ • I have particular interests or There are about 20,000 community ing safe, reliable service to small systems, questions, as below: water systems which serve populations of even ifthe systems are geographically iso­ less than 100 persons. There are another lated. Some state drinking water program 20,000 systems that serve 100-500 per­ are embracing these new technologies sons. Many of these systems are weak in­ while others are more conservative. EPA stitutions and will be hard pressed to pro­ hopes to gain new authority through vide safe, reliable service and comply with SDWA reauthorization to better facilitate SDWA standards. the use of lower cost technology. Many of these systems could improve Many in the water industr y have de­ their performance through restructuring. voted great energy to seeking reduced Restructuring can take many forms. Some regulation of water systems. r believe the systems can "pull themselves up by their public interest would be better served by Return to : bootstraps" by raising rates, installing focusing this energy on addressing the National Association of meters and adopting financial and man­ fundamental, underlying problems in the Water Companies agement discipline. Others will need to industry. Many creative solutions are ava il­ Suite 1212 contract out for operations and manage­ able. Coll ectively, we need to stop talking 1725 K Street, N .W. ment services. Still others will find it best about it and start acting to improve small Washington, DC 20006 to physically or administratively merge system performance. • 1202) 833-8383

CD NAWC WATER >

Executive Director's Report

by James B. Groff

It's difficult to believe that another year meetings) and annual Congressional "Fly­ has drawn to a close. It has been an in" with this first observance of the extremely busy one, replete with m any Association's centennial. new ideas and initiatives. Successes in­ Complicating staff efforts, however, is clude the Annual Confere n ce in contractor work in connection with t he Scottsdale, the "Fly-In" in February, renovation of the A ssociation's office heightened small company activ ities, spaces in down town Washington , D C. greater interface with the federal agencies The renovation is being undertaken as a and water programs at each NARUC meet­ part of the Association's renewal of its ing, to name but a few. office space lease for fi ve years. Certainly there was much to provide en­ One of the first issues to claim t he cou ragement, but there were also frustra­ Association's attention in 1995 will be tions. Predominantly, the lack of success, reauthorization of the Safe Drinking Wa­ despite a great deal of hard work by many, ter Act in the 104th Congress. In addi­ in repealing the tax o n C IAC and reau­ tion, however, si nce the Republicans con­ thorizing the Safe Drinking Water Act trol Congress and have promised a middle (SDWA). Nevertheless, something is amiss. At income tax cut as part of their "Contract The failure to repeal the tax on CIAC this point in t he year, life in the NAWC with America/' there shoul d be an excel­ was particularly frustrating, because de­ offices should not be nearl y as hectic. Af­ lent opport unity to repeal the tax on spite the IRS position not to oppose re­ ter a very successful conference, staff CIAC. Both of these issues wi ll be at the peal of the tax, the strong support of Rep. should be engaged in wrapping up its de­ core of the Governme nt Relations Bob Mats ui (D-CA), Andy Jacobs (D-IN), tails and planning and initiating 1995's Comminec's deliberatio ns as we enter a and many others, and the agreement of the efforts. potentially bountiful Congressional ses­ C hairmen of the Finance and Ways and However, that is not the casco Not only sion. Look, however, for a different Con­ Means Committees not to oppose repeal are preparations already underway for the gress, particularly in the H Oll se where not of the tax, the necessary provisions were Association's 99th Annual Conference in o nly will committee ch airs ch ange from never carried to the House or Senate floor New O rleans) staff is also enmeshed in Democrats to Republicans, committee because there was not tax legislation that developi ng the details of several special names may ch ange from (for example) could act as a vehicle to carry these provi­ ac tivities) the first of which is scheduled "Ways and Means" to "Revenue" and uEn_ SiOllS . for Feb ruary 28, 1995, commemorating ergy and Commerce" to "Commerce and Nor did the Safe Drinking Water Act the Association's l Oath anniversar y. This Health." Environmental issues (e.g., reauthorization fare any better. Despite date allows the Association to invite com­ SDWA, CWA, etc.) apparently will be many, many hours of negoti ations between missioners and commission staff attend· under the jurisdiction of the new "Envi­ Coalition members and Senate and House ing the National Association of Regulatory ronment and Natural Resources" commit­ staff members, which ultim ately resulted Utility Commissioners winter meetings in tee, whose ch ai rperson has yet to be in compromise bills being en acted in each Washington, D.C., to the event. In order named. Further, not only are there a nllm­ house, time ran out before differences to reduce travel, the Board wisely decided ber of defeated incumbents and their staff could be resolved and a compromise b ill to combine the Association's mid-year looking for employment, there are also passed for the President's signature and meetings (Nominating Committee, Execu­ committee staff vying for new and/or rc- enactment into law. tive Committee and Board of Directors (continued on next page)

WINTER 1995 CD - •

Execu tive Directors Report, continued tees to undertake. During that meeting it A health care benefit/cost (as a percent was agreed that, in general, committees of payroll) survey will be distributed in organized committees' positions. Never a should be asked to pursue specific issues, early 1995 by the Employee Relations dull moment in your nation's capital. as well as encouraged to develop responses Committee. Committee members have Along with its H il l efforts, the Asso­ to concerns raised by committee members. particularly gained from discussions of a ciation will continue to pursue with Trea­ It was also agreed the committee chairs wide variety of employee related issues, sury lengthening the terms of O&M con­ should discuss committee activities dur­ which are in many instances unique to tracts of government assets funded with ing an Executive Committee hosted break­ water utilities, during comm ittee meet­ tax exempt financing, and broadening the fast for committee chairmen at each an­ ings. The committee is seeking additional definition of "for the public good" as it nual conference. In Scottsdale, the members and is pursuing the development applies to exemption from the tax on Executive Committee·Comm ittee Chair of a system to collect, and subsequently C IAC. breakfast revealed that almost all of the disseminate, additional information on The new format, began last year, fo r the NAWC's standing committees were in­ health care matters, as well as issLLes relat­ annual meeting of the Association's Board volved in activities that will provide sig· ing to labor laws. of Directors in Scottsdale, Arizona, gen­ nificant benefit to the Association's mem­ The primary mi ss ion for the Finance erated interesting discussion and many bers. Committee is to expedite commission ap­ conscrucrive ideas. Subsequent to opening Because of space constrai nts, only a few proval of financing of capital intensive fa· remarks by Board Chairman Barr, Board of the committees' plans can be reported cilities. They also hope to proceed with members discussed, over lunch, staff pro­ here. Regardless, the following will give the development of a financial database vided summaries of the meeting's action some idea of the scope of committee ac· and participate in m eetings with the items as well as other relevant issues. Of. tivities envisioned in 1995 and beyond. NARUC Water and Technology Commit­ ficers at each table then summarized the The Accounting Committee worked tee that address financial matters. New exchanges after President Tompkins' and extensively on reformatting the projects for 1995 will consist of review­ the Executive Director's synopses of As· Association's F&O report. This allows ing company insurance needs for major sociation activities for the year. separately listing holding company infor­ risks, such as catastrophic coverage, and At this meeting, the NAWC's Board of mation and adds consistency to the report. en h ancing the image of t he investor­ Directors approved an infrastructure Committee members, principally Gail owned industry within the financial com­ white paper, revised the subsidy policy fo r Brady, also extenSively investigated, for munity. small company participation in Associa· accuracy, the data submitted for the report The focLLs of the Government Relations t ion events, approved the Flo rida by member companies. In addition to Committee will be to pursue federal leg­ C hapter's bylaws revisions and a 1995 making presentations at various NARUC islation and regulations that are burden· Association budget totalling $1.6 millionj meetings, this committee is attempting to some to the industry o r impede elected officers and the 1995 Nominating make itself more accessible to both exter­ privatization, including repeal of the tax Committee and reviewed standing com· nal organizations and to the Association's on C IAC and revisions to the SDWA, that mittees', regulatory relations', government membersh ip. Positive response to these will make the law more cost effective, effi­ relations' and the W ICC's activities. efforts is beginning to give the committee cient and practical to implement. The Board approved budget for 1995 greater recognition within the utility in­ In addition to investigating possible anticipates expenses exceeding projected dustry. improvements to WATER magazine, the income by $116,000. Expenses reflect a The Association's Committee on Chap· Public Relations Committee is participat­ continuing increase in Association activi­ ters is striving to make all chapters more ing in the development of events designed ties and a commitment to recognize 100 ac tive by coordinating the exchange of of­ to recognize the 100th anniversary of the years of achievement. They also reflect the ficers at chapter events, exchanging infor­ Association. Association taking advantage of an oppor­ mation and hosting a meeting of chapter The Rates and Revenues Committee tunity to lease adjoining office space. Had chairpersons to share information and has completed a draft paper on "Construc· the Association not taken advantage of promote organizational initiatives. tion Work in Process and Post-In Service this opportunity, it would have forfeited The Customer Service Committee will Property." The committee plans to submit its chance to expand during the remain­ coordinate both an Eastern and Western this paper for approval to the Executive der of its five-year tenure in this building. Customer Service Conference; distribute Committee and subsequently discuss it Nevertheless, operating with a deficit de­ a customer service survey and develop an with the NARUC Staff Committee on pletes reserves, and, accordingly, the As· "idea booklet" that will ultimately be pro­ Water. In addition, the committee is ask­ sociation may need to consider a modest vided to the membership. The results of a ing chapters to report recent rate decisions

dues increase in 1996. customer service survey, which is designed and is pursui ng a U regulatory event" noti· During his presidency. Bill Holmes ini­ to give each company a chance to evaluate fication process that would allow the com­ tiated a program designed to revitalize the itself as well as evaluate its performance mittee to participate in such events in Association's committees. Subsequently, against other companies, will be entered pursuit of the Association's goals. In this in early March 1993, members of the Ex­ into a database at the NAWC's Washing­ regard, staff was asked to investigate the ecutive Committee met to discuss and. ton office for subsequent use by Associa­ need for a fax hotline, which could be used frame issues for the Association's commit- tion members. to inform members of upcoming meetings,

CD NAWC WATER and initiate a system of indexing the vari­ leave to attend to matters associated with Jack McGregor. Not to be overlooked is ous white papers and position papers that his father's sad and untimely death, the the resourcefulness of Audra Zellner of have been developed to date. conference "came off without a hitch." NAWC's staff, who stepped in and took In addition to presentations to the That fact is not only a tribute to Mike's over many of Mike's responsibilities. As NARUC Attorney's Conference, the vision and planning, but also a tribute to an unusually involved participant in this Regulatory Law Committee is pursuing a the dedicated individuals at Bridgeport particular conference, I commend each white paper on the distribution of the gain Hydrau li c Co. ([he host for this confer­ and all for their superb work, and thank of sales o n utility property. The ence), and particularly Dan Neaton and them for their outstanding efforts .• committee's efforts on the paper have been his "tcam," all of whom were guided by delayed, but it should be complete by year end. The Regulator y Relations Committee will use infrastructure and privatization NRRI Report on as the principle issues to be discussed during the various NARUC regional con­ Revenue and Conservation ferences in 1995. Now that the Small Companies Com· The National Regulatory Research In­ reductions in costs. Moreover, revenue mittee has an insurance program, a short stitu[e (NRRI) recently released the re­ uncertainty for water utilities can be an­ form bookkeepi ng program and a financ­ port, "Revenue Effects of Water Conser­ ticipated and quantified, and coping strat­ ing program underway, it is looking to vation and Conservation Pricing: Issues egies can be developed through improved provide a computerized bookkeeping sys­ and Practices." The report was written by utility planning. tem for small systems. This committee is Dr. Janice A. Beecher, NRRl Senior Re­ Commission policies and practices in also investigating expansion of the search Specialist; Dr. Patrick C. Mann, the area of water conservation are evolv­ Association's insurance and financing pro­ NRRl Associate and Professor ofEconom­ ing, as revealed through a de[ailed NRRI grams in order to improve their availabil­ ics, West Virginia University; Dr. Youssef survey of commission staff members. Gen­ ity to members, and exploring the poten­ Hegazy, NRRI Senior Research Associate, erally, commission policies and prefer­ tial for allocating state revolving funds on and John D. Stanford, NRRI Graduate ences in the area of energy conservation a regional basis. Research Associate. have not been transferred to the water The Taxation Committee believes that Water conservation can be exceedingly sector. Although commission experience it would be advantageous to develop a link beneficial to the environment, society, in the water conservation area remains to NARUC and participate in various and consumers, but not necessarily to somewhat limited, staff members are NARUC meetings. The committee will water supply utilities (especially in the highly aware of conservation and planning provide support to the rcpeal of the tax short term). Philosophical support for issues and their potential relevance to on C IAC effort and to the Association's water conservation invariable encounters water utility regul ation. Commission in­ attempt to lengthen O&M contract terms the practical issues of water utility eco­ terest in efficiency pricing and conserva­ to 25 years, establish a clearinghouse of nomics. Conservation behavior and con­ tion-oriented rate structures appears to be tax rulings and continue to pursue the servation pricing affect the balance be­ growing. In several states, policies related consolidated tax adjustment issue. tween the price of water and the quantity to water conservation and planning were Last but not least, the Water Technol­ of water demanded. Depending on a under development at the time of the ogy Committee provides technical support utility's predetermined revenue require­ NRRl survey. However, some state com­ on an "as needed" basis. The committee ment, changes in quantity or in price may missions clearly have not embraced the plans to become more involved in OSHA or may not result in revenue deficits , sur­ idea of water conservation. In general, util­ (specifically proposed federal sentencing pluses, or consequential instability. ity conservation programs must be shown guidelines for corporate environmental T he disincentive for water utilities to to be cost-effective before cost recovery is crimcs), and analyze reports that misrep­ promote conservation appears to be allowed by regulators. Like other utility resent the drinking water industry. strong. Traditional economic regulation activities, conservation activities involve 1994 was an active year and 1995 prom­ tends to reinforce the disincentive for util­ a degree of regulatory risk. ises cven greater activities. We look for­ ity-sponsored conservation. Regulated Developing industry-specific policies wa rd to the new year and its challenges utilities generally are more motivated to on conservation and conservation pricing and wish each and everyone of you the invest in supply-side resources and in­ is a formidable challenge. In meeting this best for 1995. crease sales than to engage in demand challenge, water utilities and regulators P.S. management. Reductions in utility sales have begun to recognize efficiency as a through conservation can cause revenue viable resource option for the water sec­ The success of the Association's 98th erosion and uncertainty, which in turn tor. Many of the concerns about the ef­ Annual Conference in Scottsdale, A ri­ can reduce profits to investors and in­ fects of conservation on water utility rev­ zona, has been widely acclaimed. Despite crease perceived ri sks. However, reduc­ enues can be addressed by taking a the fact that the Association's staff con­ tions in revenues may be accompanied by long-term, efficiency·oriented perspective. ference coordinator, Mike Horner, had to

WINTER 1995 CD • Regulatory Relations Report I, by Sharon L. Gascon

The NARUC Water Committee met in panel was moderated by Water Commit· mid·November during the NARUC's tee Vice Chairman David Williams. (A l 06th Annual Conference and addressed copy of Commissioner Kiesling's and Jim a host of regulatory issues including wa' Groff's articles can be found beginning ter research needs, small system viability on page 28 and 31, respectively.) and communication with ratepayers on Discussions by this panel were also fo· the rising cost of water. T he ever growing cused on risk assessment considerations ' interest by regulators in water issues has debated during the Safe Drinking Water caused this hard working committee to ex­ Act reauthorization. EPA's representative, pand the length of its future committee Peter Shanaghan, took the opportunity to meetings and request more water specific sian at NARUC's Annual Conference on express h is opinion that the reauthoriza· economic research. the subjectof"Making Sense of Risk." Dr. tion seemed to be entirely too focused on On the committee's agenda is a semi­ Graham reflected on the degree of pro­ cost· benefit issues. Observers, however, nar on privatization, to be held on Sun­ tection EPA is seeking with drinking wa­ predict that the debate over acceptable risk day, February 26, 1995, at the j.W. ter standards, as compared to the amount levels and the cost of protection will con· Marriott in Washington, D.C., during the of cost and ri sk that are associated with tinue to be an important factor in future NARUC Winter meetings. If any of our other envi ronmental and health risks. He SDWA deliberations. members are interested in attending this pointed out that the public's perception In response to questions and concerns seminar, NAWC will be publishing more that li fe is becoming more risky is simply from regulators regarding the inability of information in NewsFlow as it becomes not well grounded in fac ts. Dr. Graham small systems to meet SDWA standards available. The Staff Committee on Water went on to say that since 1950, life expect­ and monitoring requirements, Mr. will also undertake, in the near future, a ancy at birt h has increased from 65 to 72 Shanaghan offered that waivers were avail· survey to determine what viability pro­ years for ma les and from 75 to 79 for fe· able through state primary agencies for grams exist in states that economicall y males. He also pointed out that the small systems. Commissioner Kiesling regulate water, as well as the legal author­ public's perception of the overall quality pointed out that in her state waivers were ity for such programs. of the environment is worse today that it not readily available and, in fact, the pri· The Water Committee is pursuing ad­ was five or even 20 years ago. However, mary agency was not granting them due ditional water research support f rom the best available evidence suggests that to the possible liability associated with NRRI. Chairman Charles H. Hughes the quality of air, water and food has im­ such a decision. praised the va lu e and quality of past NRRl proved steadily since 1970. Regardless, the research efforts in the water area over the pu blic's understanding of relative risk is REGULATORY HIGHLIGHTS past several years, and expressed to far from perfect and he concluded that if NRRI's Director, Dr. Douglas jones, that we are to make further strides against pre­ NARUC Officers Elected at the growing water issue agenda adopted mature death and impaired health status, 106th Annual Conference by the committee suggests that additio nal it is critical that citizens and policy mak­ The National Association of Regulatory research would be needed. ers focus their limited atten tion span and Utility Commissioners (NARUC) elected The NARUC Water Committee and scarce resources on the big risks. its officers duri ng its annual convention Subcommittee on Public Information, in The NARUC Water Committee also in Reno, Nevada, in mid-November. cooperation with the U.S.E.P.A., has pro­ sponsored a panel on the reauthorization Montana Public Service Commission duced a brochure that discusses why the efforts of the Safe Drinking Water Act. Chairman Bob A nderson was elected cost of drinking water is rising. The bro­ Panelists included, jim Groff, NAWC's unanimously as the 104th President of chure will be avail able to commissions for Executive Director; Diane Kiesling, Com­ NARUC. He succeeds Commissioner distribution to ratepayers after the first of missioner, Florida Public Service Commis­ Keith Bissell of the Tennessee Public Ser­ the year. sio n; Diane VanDe Hei, Executive Direc­ vice Commission. He was elected to t he Dr. John D. G r aham, Director of tor, Association of Metropolitan Water commission in 1990, for a fo ur year term, Harvard Center for Risk Analysis, ad­ Agencies, and Peter Shanaghan, Small and was recently elected to another fOllr dressed regulators during a general ses- Systems Coordinator, U .S.E.P.A. The year term. Prior to joining the commis-

CD NAWC WATER • 4

sian, he was a consulting engineer. Com­ support these efforts through establishing and Nebraska Public Service Commis­ mi ssioner Anderson has also been the education partnerships in their commu­ sions agreed to begin funding the NRRI. President of the Western Conference of nities which will effect systemic change in With the addition of those two commis­ Public Service Commissio ners. He is a America's education system. One of the sions, every state public service commis­ member of NARUC's Committee on En­ most important factors in developing these sion in the nation has agreed to fund the ergy Conservation. partnerships is to create a sense of owner­ NRRl. Elected to the office of First Vice Pres i· ship and collaborative spirit by involving State-provided funding of the NRRI dent was Commissioner Edward Salmon, utility employees, teachers, administra· was begun in 1982 after the NARUC at a commissioner w ith the New Jersey Board tors, parents, students and other commu­ its 93rd Annual Meeting in 1981 voted of Public Utilities. Commissioner Salmon nity members. The awards program is ad­ to approve a funding formula designed to is a member of the NARUC Committee ministered and coordinated by the allow the NARUC member states to fund on Communications. He was appointed to National Association of Partners in Edu­ NARUC's own research arm. For the early the New Jersey BRe by Governor Florio cation, Inc., in Alexandria, Virginia. years of NRRI existence, the U.S. Depart­ in July, 1991, for a term that runs until Commiss ioner Keith Bissell, during the ment of Energy provided NRRI's financial March 1997. Before his appointment to National Association of Regulatory Com­ support. Since 1982, the number of state rhe commission, he held elected office for missioners Annual Conference, presented commissio ns funding the N RRI has more than twenty years, having been the T homas P. Harwood , Jr., Excellence grown from one which had ag reed to fund elected twice to the New Jersey General in Education Award to the Florida Power by the end of FY 1982, to twenty-two in Assembly and serving as the chairman of Corporation- for their partnership with 1983. and to fifty-one. (including the Di s­ the Assembly's Economic Growth Com­ the Pinnelas County School District. The trict of Columbia) at present. mittee. He has also served as a freeholder, utility had a lo ng-term commitment to the mayor and municipal commissioner in school district to address five of the eight New Commissioner charge of public works. Commissioner National Education Goals: readiness for AJ>J>ointed to Florida PSC Salmon has also spent 27 years as an edu­ school; high school completion; student Commissio ner Joe Garcia was ap­ cator where he held t he positions o f ach ievement; teacher education , and pa­ pointed by Governor Lawton Chiles to teacher, administrator and coach in three rental involvement. Through creative, re­ complete former Florida Public Service sports. sults oriented programming, the partner­ Commission Luis J. Jauredo's term end­ Commissioner Bruce Ell sworth, with ship has helped ach ieve the following ing in January 1998, and took office Au­ the New Hampsh ire Public Utilities Com­ milestones: gust 19. 1994. mission, was elected to the office of Sec­ 70 Pinellas public schools have a Door­ Prior to his appointment to the PSC, ond Vice President of the Association. He ways Program that provides college he served as Executive Director of the was first appointed as a commiss ioner in scholarships, tuto ring, m entoring, Cuban Exodus Relief Fund. a project of 1986 by then Governot John Sununu. He health and support services for at-risk the Cuban American National Founda­ was appointed to another six year term in children; tion, since 1988. The organization is reo 1986 by Governot Judd Gregg. Commis­ 380 ch ildren have received the commit­ sponsible for initiating and developing the sioner Ellsworth first joined the commis­ ment of full-tuition college scholar­ fi rst private sector refugee resettlement sion as a Gas Safety Engi nee r in 1972. He ships; program in U.S. history. is an active member of NARUC and a 130 schools have received training in Before joining the foundation, Commis­ member of the Association's Executive and Total Quality Schooling; sioner Garcia was the Assistant Director Gas Committees. 800 students participate in tutoring and for the Salvadoran American Foundatio n, mentoring ac tivities; where he coordinated fund raising efforts NARUC Awards Utility the school district has revised its tech­ for humanitarian relief campaigns. Companies for Excellence in nical education curriculum, and Commissioner Garcia received a Bach­ Education Through school dropouts have decreased from elor of Arts degree in Politics and Public Community Partnerships 12 percent to 4 percent during the past Affairs, as well as a law degree from the NARUC established the Excellence in five years. University of Miami. Education Awards program three years ago The selection of the Thomas P. to provide national recognition to exem­ Harwood, Jr., Excellence in Education IndianaJ>olis Water plary utility/education partnerships that award was made by a panel of judges, with Customers To Get Refund showed signifi cant progress in achieving representation from NARUC, Florida The Indiana Utility Reg ulatory Com· the original six National Education Goals. Power & Light Company, (last year's award mission ordered a $325,794 refund to This past year, with the passage of the recipient) Fairfax County Public Schools, customers of the Indianapolis Water Co. Ooals 2000: Educate America A ct, NYNEX and Baltimore City Schools. at the request of the utility. The refund, NARUC expanded the focus to recognize which will result in customers receiving a those partncrships that targct significant NRRI Reaches Funding Milestone one-time credit of about $1.46 per meter results for school refo rm an d system T he National Regulatory Research In­ on their bill s, was unanimously approved change in schools. stitute (N RRI) reached a funding mile­ by the commission. NARUC encourages local utilities to stone late this summer when the Georgia (continued on next page)

WINTER 1995 G Regulatory Re1ations Report, continued the widespread need in the water indus­ increase the established goals of 15% for try to replace aging infrastructure while minority and 5% for women owned busi­ The utility sought the refund to prevent at the same time upgrading treatment fa­ nesses, the commission ruled that public double recovery of certain taxes as a re­ cilities to meet increasingly stringent en­ agencies working under the same state pro­ sult of a policy change undertaken by vironmental standards. Furthermore, the gram had achieved a 30% total in awards to lWC. The policy change involved taxes commission said that statistical analyses qualified firms. It urged the utilities to "re­ placed on developers that install new lines performed by its staff showed no correla­ think their reluctance" to voluntarily in­ and equipment which are eventually taken tion between significant cost factors and crease compliance. Nevertheless, the com­ over by the utility. Under lWC's previous revenues that might support individual mission warned the utilities that any policy, the utility paid those taxes and system rate adjustments. (Docket No .. technical or economic assistance offered as recouped that money through rates. 940391-EI, Order No. PSC-94-1106-FOF­ part of outreach activities should be admin­ Because the policy took effect in 1993, EI, Sept. 7, 1994.) istered on a voluntary and "race-neutral" lWC sought the refund to alleviate any basis to avoid attacks on constitutional concern regarding double recovery of the Strategic Planning grounds. (Decision 94-08-027, R. 93-09-026, taxes. The refund amount includes an in­ The New York commission has directed Aug. 3, 1994.) terest rate of six percent from the date of all large water utilities in the state (those collection until the date the refunds will with annual revenues in excess of$l mil­ New York Citizens' Utility Board be made. lion) to file long-range strategic plans on A New York appeals court has over­ a yearly basis. It found that formal plan­ turned an executive order by Governor Massachusetts Investigating ning requirements were necessary to en· Mario Cuomo directing the state commis­ Incentive Regulation sure that the utilities and ratepayers are sion to certify a single Citizens' Utility The Massachusetts Department of Pub­ adequately prepared to finance construc­ Board (CUB) to represent the interests of lic Utilities is conducting an investigation tion to meet Safe Drinking Water Act and residential utility customers throughout into the potential impacts of replacing tra­ Surface Water Treatment rules as well as the state. The New York Supreme Court, ditional cost-of-service regulation with other corrective actions to an aging infra­ Appellate Division, 3rd Department performance-based incentive alternatives. structure necessary to maintain high qual­ found t hat the governor violated the prin­ Utilities and others have been asked to it y service. (Case No. 94-W-0066, Aug. 31, ciple of separation of powers by exceed­ provide recommendations on perfor­ 1994.) ing the legislature's policy on ratepayer mance-based incentives which will pro­ representation in utility proceedings. Ac­ mote the following objectives: Gain on Sale of Property cording to the court, state law charges the control costs of service; Ratepayers and shareholders of Califor­ commission, the state Consumer Protec­ increase operating efficiencies; nia Water Service will split the gain earned tion Board and the state Attorney Gen­ reduce regulatory burdens; by the utility on the sale of 26 properties eral to protect consumers in such utility ensure innovation, and during the 1980s. The California commis­ commission cases. (No. 760499, July 14, strengthen utilities' financial integrity. sion has ruled that the customer portion 1994.) of the $881,125 gain will be used to off­ Uniform Rate Structure set plant outlays for the next five years. It PSC Approves Water The Florida Public Service Commission found that the water utility had incorrectly Planning Agreement bas allowed Southern States Utilities, Inc. allocated the entire proceeds to sharehold­ The Nevada PubLic Service Commission to implement statewide uniform rates for ers and directed the application of inter­ approved a settlement agreement involv­ water services, finding the averaged rate est to the gain account from the date of ing Sierra Pacific Power Company's appli­ structure superior to stand-alone charges the sale of each parceL While stressing cation for approval of its 1995-2015 Wa­ for individual service districts. The com­ that the sharing policy it had upheld in ter Resource Plan. The decision will allow mission also rejected alternative rate struc­ the order applied only to water utilities, Sierra to spend between $4.9 million and tures including: uniform rates with sub­ which commonly hold significant $5.3 million on water conservation and sidy cap; stand-alone rates adjusted by a amounts of undepreciable property, the water resource management activities over uniform company-wide amount; uniform commission noted that such a formula the next four years, depending on drought rates excluding return on investment; would also work to encourage utilities to conditions. The agreement also delays ac­ stand alone rates with residential rate cap, seek the highest sales price possible to tion on several issues relating to a pro­ and county-wide rates_ depreciable property. (A92-11 -001 et. al. posal to drill bedrock wells, with hearings The commission found that while the Sept. 1, 1994.) on these issues expected in late January uniform rates involved the greatest level 1995. of subsidies between service districts, the Utility Procurement and The agreement includes a plan to pay rates structure produced charges that are Affirmative Action fo r installing water meters in homes cur­ affordable for all of the utility's ratepayers, The California commission has issued a rently without meterSj under state law no even those at the poverty level. It also series of policy determinations concerning meter retrofit customer would be involu11" added that spreading costs among all its affirmative action procurement program tarily billed at the metered rate until 90 ratepayers was an important factor given for the state's utilities. While declining to percent of the system is metered .•

CD NAWC WATER R q

fi{ecent Regulatory Decisions

by Stephen B. Genzer and Mark L. Mucci LeBouef, Lamb, Greene & MacRae, L.L.I'

Pennsylvania Court Rules De Facto vice could charge for service, and termi­ customers during the application process. Utilities May Not Charge Rates nate service for non·payment of bills. On However, the court nevertheless con­ In a decision issued August 19, 1994, the October 13, 1992, the PUC issued an cluded that this was a gap in the statutory Commonwealth Court of Pennsylvania opinion stating that a de facto utility could scheme which could only be remedied by ruled that the Pennsylvania Public Utility continue to charge rates in effect during the legislature. Commission (PUC) may not approve rates the pendency of an application for an ini· for a de facto public utility, only for utilities tial tariff, and could terminate customers Approval of Single-Tariff Rates wh ich comply with the statutory require­ for non-payment. Upheld by Illinois Appellate Court ment for a certificate of public convenience The appellate court consid ered first the The Appellate Court of Illinois has af­ and necessity. In Popowsky 1/. Pennsylvania OCA's contention that Public Service was firmed a decision of the Illinois Commerce PUC, Case No. 2151 C.O. 1993 (August 19, operatin g illegally. The PUC contended Commission (Commission) approving 1994), the Pennsylvania Office of the Con­ that Public Service's operations were not single-tariff pricing for Illinois·American sumer Advocate (OCA) had challenged the illegal, but that as a de facto utility it was Water Company. Monsanto Company, et af. legality of rates charged by Public Service subject to PUC regulation. The appellate 1/. Illinois Commerce Commission, Appellate Water Company (Public Service) to 610 cus­ court disagreed, concluding that the lan­ Court No. 5-93-0213 (May 16, 1994). The tomers in an area of Pike County known as guage of Pennsylvania's public utility stat· Court concluded that the Commission The Escape. Public Service had commenced utes required a utility to hold a certificate had the authority to conclude that single­ water service on July 1, 1992, but had not of public convenience and necessity before utriff pricing was appropriate, and that filed for a certificate of public convenience rendering service. Since under the law a sLlch pricing was not unfair to customers. or an initial tariff until August 1, 1991. The utility could only charge its tariff rate, and The Commission had approved single-tar­ OCA filed an intervention in that proceed­ Public Service did not have a tariff, the iff rates for the company's Southern Divi­ ing, and raised the issue of the legality of rates which it was attempting to charge sion, consisting of its Alton, Cairo and rates then being charged by Public Service. were not lawful. Thus, the PUC could not Interurban districts. The Commission W hen Public Service subsequently at­ require a customer to pay bills due under had concluded that the single tariff both tcmpted to terminate service to 22 custom­ the invalid tariffs. provided benefits to all of the company's crs for non-payment, the issue of the legal· Finally, the court acknowledged the dif­ customers in those districts, through rates ity of such terminations was included in the ficulties inherent in its ruling. In deter· stability, and was consistent with proper proceeding. The matter was considered mining that the PUC could not authorize cost-of-service principles. along with similar proceedings for a related tariff charges during the pendency of an The Appellate Court noted that, under sewer company, with the same result. application for a certificate of public con· the Illinois public utility law, only "unrea­ The decisions of the PUC and the ap­ venience and necessity, the court recog· sonable" differentiation in rates between pellate court both addressed the issue of nized that the PUC had an interest in en· customer classes was prohibited. Thus, the whether, as a defacto utility, Public Ser· suring that service was rendered to (continued on next page)

W INTER 1995 CD m Recent Regulatory Decisions, continued (P UC) denied a request for a rehearing of va lue. The PUC stated that, under its re­ its determination that California Water quirement that Uo riginal cost" be deter­ Court concluded that the Commission Service Company could only include the mined at the time land is placed into ser­ could properly conclude that the single original acquisition cost of land purchased vice, t hat such original cost would not tariff pricing was appropriate, due to the in 1963, but only recently placed into ser­ include simple appreciation in value during lack of a material d ifference in the cost of vice, in the company's rate base. Re CaLi­ the time the land was held by the utility. service, and due to a recognition of the fornia Water Service Company, Applicatio n benefits of broader-based tariff rates. No. 91·09·016 et seq., Decision No. 94-08· Illinois Commission Approves 31 (August 3, 1994). The company had not Accelerated Accounting Treatment Illinois Commerce Commission included t he land, which was used as a for Facilities Retired as a Result of Authorizes Post-In Service AFUDC parking lot, in a request for rate base treat­ Safe Drinking Water Standards and Deferred Depreciation ment until 1990, when the company first In a decision dated July 7, 1994, the In a decision dated August 24, 1994, dedicated the land to public service. The Illinois Commerce Commission (Commis­ the lllinois Commerce Commission (Com­ company had not previously received any sion), as part of its approval of a purchase d miss ion) has authorized Indiana-American reg ulatory treatment of the land as plant water adjustment, an accounting treat­ Water Company to continue the capitali­ held for futu re use. The company had nev­ ment for Eldorado Water Company for zation of the Allowance for Funds U sed ertheless requested that, in addition to plant which Eldorado proposed to retire, During Const ruction (AFUDC), and to original cost, carrying charges incurred instead of upgrading to meet new water defer the accrual of depreciation, for t wo since the original acquisition in 1963 be quality standards. Illinois Commerce Com­ construction projects in the company's included in the ca lculation of the rate base mission 1.1. Eldorado Water Company, Case Kokomo and Seymour d istricts. Petition of va lue of the land. No. 93-0219 Quly 7, 1994). Eldorado pro­ In diana-American Water Company, Case T he PUC noted t hat the treatment posed to retire a reservoir, treatment plant No. 39924 (August 24, 1994). The com· which the company had requested would and surrounding land, contending that it pany had requested that the Commission give the company more relief than if the would be prohibitively expensive to up­ authorize the con tinued capitalization of land had bee n treated as plant held for grade the treatment plant in order to uti­ AFUDC for treatment plant improve­ future use. The PUC also criticized the lize water from the reservoir. While the ments, and improvements to a pump sta­ company for delaying its request for rate Commission Staff d id not disagree with t io n, pending the inclusion of such base treatment of the value of t he land the proposal to retire the plant, and for projects in the company's rates as part of until after the PUC had already approved Eldorado to instead purchase additional rate base. The company had provided tes­ the cost of constructing the parking lot on water from another source, there was a timony that t he capital expense associated the property for inclusion in rate base. disagreement as to the proper accounting with the two projects was very significant The PUC expressed the view that it treatment. to a utili ty the size of the company. The should have been apprised of the full cost Eldorado requested that the cost of the reli ef requested by the company repre­ of the parking lot up front, instead of be· reservoir and land, and the value of the sen ted approximately 15% o f the ing informed of an additional cost only undepreciated plant, be retained in rate company's pretax earnings level. The com­ after issuing its approval. base, that the ongoing costs to maintain pany represented to the commission that The PUC reiterated its policy that only the reservoir be included as an operating it would be fi ling a full rate proceeding in actual purchase price, and not fair market expense, and t hat the remaining plant be the near future. va lue at the time the land is placed into amorti zed over a 10 year period. The Com­ The Commission approved a settlement service, could be placed into rate base. mission Staff proposed to exclude the implementing the company's proposal. Among t he reasons cited by the PUC was plant from rate base, and have the loss The Commission found that the earnings that such treatment would bypass the incu r red by the company recove red erosion which would result from denial prudency review which would be engaged through an amortization. of the company's request would be signifi­ in by the PUC, when acquired plant would The Commiss ion concluded that, as the cant. T he Commiss ion also found that the be included in an account fo r plant held plant was no longer in service, it would impact on individual customers would be fo r fu ture use. The PUC noted its skepti­ not include the land or the undepreciated small. The Commission concluded that cism regarding the cost-effectiveness of plant in rate base. However, the Commis­ the accounting t reatment requested by the utility acquisitions of property far in ad­ sion did agree with the 10 ye ar amortized company wou ld benefit both the company vance of the proposed use of property. recovery proposed by Eldorado. The Com­ and its cll stomers, by improving the The PUC concluded that, consistent mission also agreed with Eldorado that the company's ability to obtain or attract fi­ with its policy as expressed in prior cases, utility plant in question would have no nancing at favorable terms. only the original cost and not the appreci­ salvage value, and thus approved full re­ ated va lue of the land could be used for cover y of the remaining va lue. California PUC Confirms Decision the inclusion of the land in rate base. It Thanks to S. B. Givens of American Wa­ Limiting Rate Base Inclusion of rejected any arguments made by the com­ ter Works Service Company, Louise A. Knight Property to Original Cost pany on equitable grounds, on the basis of Malatesta, Hawke & McKeon, and Frank In a decisio n iss ll ed August 3, 1994, the t hat the company had chosen to delay re­ J. Miller of Hu ber, Lawrence & Abell, for Cali forn ia Public Utilities Commission questing rate base treatment for the land's sending in items of interest. ' e NAW C WATER •

7 Federal Agency Notes by Mark Planning Looking Back at 1994

As 1994 closed, legislators, regulators Because many of the standards have and local elected officials were examining only recently gone into effect, most com· with greater interest than ever the several munities are just beginning the initial hundred examples of where private com­ monitoring to determine whether certain panies are operating and maintaining pub­ contaminants are present in their water. lic-owned water supply and treatment fa­ Two major regulations, which regulate 38 ci lities, or where local officials have sold contaminants, took effect during the past their facilities to private partners. It is not two years: the Lead and Copper Rule and difficult to understand why. the Phase II Rule. The Phase V Rule, also Strict environmental regulations result­ promulgated recently, established regula­ ing from federal water laws, combined tions for 23 contaminants. But what about with cutbacks in or the total lack of fed­ terns to pay about $1.4 billion per year the standards for contaminants currently eral assistance to comply with these man­ through 1995 to comply with the rules for listed for regulation? These contaminants, dates, is driving municipal interest in pub­ the 83 contaminants that are currently which include disinfection by· products, lic-private partnerships. In August, Victor regulated. Industry estimates, by radionuclides, arsenic and sulfate are Ashe, President of the U.S. Conference comparision, run as high as $4 billion per among the most expensive to regulate. of Mayors, said the Safe Drinking Water year. As many as 112 contaminants could Requirements to meet the proposed radio· Act (SDWA), the Clean Water Act and the be regulated by next year. nuclides rule, t he proposed disinfection Resource Conservation and Recovery Act In 1986, Congress also required EPA by· products rule and the anticipated ar· (RCRA) cost local governments more to set standards for a minimum 25 addi­ senic rule will require local officials to money than any other federal statutes. In tional contaminants every three years spend billions over the next few years. In fiscal year 1993, the C lean Water Act costs starting in 1991. This mandate, if retained fact, compliance with these three rules cities with populations over 30,000 $3.6 by Congress during next 1995's reautho· alone is estimated to cost more than billion . The SDWA cost these cities $600 rization, will require public water systems double the EPA estimate of $1.4 billion million. to test, monitor and treat their water for to meet standards already in place. In 1986, the last yea r the SDWA was over 200 contaminants by the year 2000. Although EPA remains severely reauthorized, Congress specifically re­ In addition to promulgating 25 new stan­ underfunded, its newly centralized en­ quired EPA to set standards for 83 con­ dards every three years, EPA is prohibited forcement structure is taking more en· taminants but included no provision in from setting standards based on public forcement actions against SDWA and the Act to allow EPA to refrain from regu­ health risk reduction benefits. This re­ Clean Water violators. According to the lating the contaminants if they are not striction has resulted in expensive regula­ FY 1993 Enforcement and Compliance fou nd in drinking water supplies. The reo tions that too often provide little or no Assurance, the number of civil cases reo suIt is that EPA expects public water sys· health benefits to the public. (continued on next page)

WINTER 1995 _ - •

Federal Agency Notes, continued structure h ave been al lowed to decay be­ for its 100 members of $32.4 billion for cause repairs and mainten ance are fre­ the period 1993 to 1998. AMSA states fer red by EPA to [he Department of Ju s~ quently the first thing to go when munici­ that rehabilitation costs reflect a growing rice for v iolations of water laws increased pal budgets get tight. Mainten ance can emphasis on the repair and replacement during FY 1993. EPA referred 338 civil always be put off, or so it seems, until the of existi ng t reatment systems, many of judicial cases, down 6 percent from FY next year. But it is now eviden t to local which were built in the early years of the 1992, but program-specific increases were officials and the t rade groups that repre­ Clean Water Act. According to t he report, recorded for Safe Drinking Water Act and sent their interests in Washington, that federal assistance is expected to finance Clean Water Act programs, wh ich, when t hey must start looking at public-private only $2 .3 billion, or 7.9 percent of the combined, rose 9 percent from FY 92. partnerships and other innovative solu­ co[al $32 billion . Currently, local govern· Enforcement actions drive compliancc---or tions to pay for the costs of repairi ng and rn.ents, through rates and taxes, carry 84 they should-but as new regulations take replacing failing infrastructure. percent or more of the capital burden, in effect, compliance for many systems is dif­ Last year the Water Environment Fed­ addition to 100 percent of the sharply in· ficult, if not impossible to ach ieve, because eration (WEF) surveyed p u b licl y~ owned creaSing operation, maintenance and re­ of insufficient financial resources, techni­ treatment works (POTWs) of all sizes placement costs. Projected funding in­ cal expertise, or both. As new regulations about t heir equipment (e.g., pumps), ser­ cludes State Revolving Loans, which arc are implemented the number ofvioiations vice (e.g., mechanical and process designs) ultimately repaid with local fu nds, increas­ will continue to rise fo r many small a nd treatment chemical (e.g., disinfec­ ing the real burden to local governments systems. tants) needs for 1994 and 1995. Total to over 90 percent of the total wastewater Another reason behind the growing needs for ongoing treatment efforts were capital costs. AMSA estimates new con­ interest in public-private partnerships is found to be about $1.9 billion for 1994 struction needs for small and medium the infrastructure cri sis, or the capital and $2 billion fo r 1995. About halfofthis municipalities, which are not represented requirements cities face to restore theif amount is for equipment replacement or by the Association, at over $30 billion. water infrastructure. In July, the National upgrades, with the remainder fo r services The AMSA report states, "the message League of Cities announced that infra­ and chemicals. These needs do not repre­ is clear ... t he call is for a bold, new di­ structure needs are the second most ad­ sent new facilit y construction. They rep· rectio n for our future clean water efforts." verse factor affecting local budgets this resent only o ne part of the operations and Testifying before Congress in May, WEF past year, just behind the ri sing costs of maintenance funding needs for t he 15,700 urged Congress to remove statutory and health care and ranking even w it h the POTWs currently operating throughout regulatory barriers to encourage publici costs of complying with unfunded federal the country. The survey estimates that private partnerships. and state mandates_ For sm all cities, the demand from new facilities would increase For the first time in several years, policy. single most unfavorable factor causing fis­ the t reatment product needs by 10 to 15 makers, regulators and elected officials arc cal problems comes from infrastructure percent annuall y. looking to public-private partnerships for and capital needs, much more than crime, A similar survey released recently by the assistance wit h their compliance needs health care or mandates. Association of Metropolitan Sewerage and capital requirements. 1994 saw lots Distribution lines and related infra- Agencies (AMSA) estimates capital needs of activ ity. 1995 may see even more."

Quorum Call, continued from page 53 must cut taxes first in order to spur busi­ the President's and Congress's best inter­ ness so we can grow out of the deficit in est to work together as much as possible. rization legislation in the House will be the long run. Like it or not, they both need each other in a significantly stron ger position to Similarly, we can expect a difference of if they want to get anything done. H ow­ champion t hese issues. Bliley will either opinion from Republicans when it comes ever, Presidential politics is already reu­ be chairing the Subcommittee with pri­ to environmental legislation. There will ing its head, and as the 1996 Presidential mary jurisdiction over environmental leg­ be t hosc who want to rewrite environmen· election moves into high gear later in islation, or maybe even chairing the Full tal law in order to assure that resources 1995, you will see more and more postur­ Committee on Energy and Commerce, arc focused on areas which can affect the ing and less and less co-operation. which has fi nal review of environmental greatest public safety, and those who w ill T his means, if nothing else, that t he legislation before it goes to the floor of advocate turning marc of the responsibil­ coming months should be very interest­ the H ouse. ity over to states and getting t he federal ing. The 104[h Congress could offer great Though Republicans wi ll rlln the show, government out of such minutia alto­ opportunities for the investor-owned wa· they all don't agree. We can expect sharp gether. ter industry, but at the same time the rules divisions within the Republican caucus are changing and we must be ready to between the deficit hawks and the supply· ••• adapt to a changed and changing land­ siders when it comes to fiscal year budget· How President C linton responds to t he scape. .. ing and taxation. That is, between those New Majority remains to be seen. We can who feel we must get the deficit down be­ expect to see the as yet unused veto pen • As of this writing, some results from races .

e NAWCWATER Quorum Call

by Louis Jenny The 1994 Congressional Elections

What Happened li can will be running every Committee Earthquake. Hurricane. Tsunami. Sea­ and Subcommittee in Congress. On the change. These terms have all been used floors of both chambers of Congress, the [0 describe the 1994 Congressional Elec­ Republicans will be setting the agenda, tions. And they might be inadequate meta­ controlling the debate, and calling t he phors to t ruly convey what happened to shots. Newt Gingrich (R·GA) wil l be the Washington that day. O n Tuesday, No­ new Speaker of the House and that prom­ vember 8, the American people (not some ises not only very different policies but mindless geological force) returned the also a very different style from that body power of the entire Congress to the Re­ than we are used to. Gingrich will un­ publicans after forty yea rs. Many had doubtedly be more confrontational, out­ guessed that the Republicans would take elude: the convention that a President's spoken, and partisan than any Speaker in over the U.S. Senate, but few guessed the party loses Congression al seats in non­ recent times. As a t rue economic and cul­ House would go G,O.P. However, when Presidential election yearsj some expected tural conservative, we can expect bills and the 104th Congress convenes in January Republican gains brought about by redis­ initiatives moving through the House of next year, in fact Republicans will run tricting which didn't fully take affect in which will challenge the C linton Admin­ both the House and Senate-though by 1992 due to C linton's win; Clinton's own istration to its core. Bob Dole (R·KS) will slim margins as compared to those enjoyed unpopularity; general anti-incumbency; be the Majority Leader in the Senate, and by the Democrats in recent years. The Sen­ the Healthcare Reform Initiative debacle though the agenda of that chamber will ate will have 53 Republicans and 47 which made Congress look so wasteful be the Republican's to set, the style will Democrats, and the House will have 231 and ineffectual; in the Sen ate, a coinci­ likely not change as radically as we can Republicans, 203 Democrats and one In­ dence th at many more Democrats than expect in the House. Senator Dole was dependent. * Republicans were li p for election (21 briefly majority leader in the 1980s, and The enormity of this can't be over­ Democrats, 13 Republicans); and, simi­ has a much more t raditional style than stated. It has been forty years since Repub­ larly, the fact that more Democrats than Gingrich. licans controlled the House. The Senate Republicans chose to retire or seek other The Tax Committees will be chaired by has been in Democratic hands for those office bringing "opcn" seats into play (34 Senator Packwood (R·WA) in the Senate, same forty years except six from 1981 to Democrats, 20 Republicans). These and and Congressman Bill Archer (R-TX) in 1987. What started as an anti-incumbent dozens of local and regional factors led to the House. From Packwood, we expect year clearly turned into an anti-Demo­ the Republicans sweep which saw not one little departure from what we have seen cratic year-a year in which we saw for the incumbent Republican lose his or her bid in recent years, However, the House has first time since 1862 a sitting Speaker of for re-election. primary jurisdiction over tax legislation, the House fail to win his re-election bid. and soon-to-be Chairman Archer has let Members with huge amounts of seniority, What It Means it be known that nothing is sacred. This power and money (Foley [D-WAJ. The 1 04th Congress convening in Janu­ extends into the basics of our tax code. Rostenkowski [D·ILI, Brooks [D-TXJ) went ary of 1995 will be younger, and more fi s­ Archer has mentioned that his Commit­ down in this odd year. Younger members cally and socially conservative, yet ironi­ tee may consider doing away wi th income with bright futures also failed (Sasser [D· ca lly with less reverence for the traditions tax as we know it, replacing it with a pro­ TNI, Sy nar [D·OKJ). Exactly why the elec· of Congress, particularly in the House. gressive consumption tax. Though noth­ torate turned so savagely against Demo­ That Congress- again particularly in the ing this grandiose will happen in the first crats is a s u bject of vastly different House- wil l also feel that it has a mandate 100 days, it does indicate that potentially imerpretations. However, it was not just to change not only the way Congress does everything is on the block. one factor which caused this Democratic business, but will also feel free to exam­ On envi ronmental issues: Congress­ meltdown, but rather many different ine and reconsider many federal programs man Bliley, who co·sponsorcd the NAWC forces, some lo ng festering, some short­ and statutes long considered sacrosanct. endorsed Safe Drinking Water Reautho­ term, which coalesced in 1994. These in- For the first time since 1953, a Repub- (continued on page 52)

WINTER 1995 e • •

Tax Adviser

Planning for Non-Taxable Contributions

by W. Frank Morgan Price Waterhouse LLP, Stamford, Connecticut

Over the past twelve months, the In­ sian of services earlier than would taxable transfer of utility property where ternal Revenue Service (the "IRS") has have been the case had the property the transfer was intended to benefit the continued to rule in favor of taxpayers not been received, or if the receipt of public at-large. In this ruling, a public with respect to contributions based upon the property otherwise causes the water supply system was transferred, not the "public benefit" exceptions outlined transferer to be favored in any way," for the direct benefit of any particular cus­ in IRS Notice 87-82. The published rul­ tomers, but to improve the fire protection ings summarized below provide examples However, where the contribution ben­ system for the town. While the residents of the non-taxability of contributions to efits the public as a whole, IRS Notice 87- could have decided to connect to the pub­ capital under IRC Section lI8 (a) as op­ 82 exempts such receipts from taxation, lic water system, there was no assurance posed to the taxable treatment imposed The Committee Reports state that "it is of any expansion in the number of water by the Tax Reform Act of 1986 (the "Act"). clearly shown that the benefit of the pub­ customers. While the Act expressly provided that a lic as a whole was the primary motivating A similar conclusion was reached in contribution in aid of construction factor in the transfers." It is this public PLR 9411 007. In that ruling, paymenrs by n (UCIAC ) made by a customer or a poten­ benefit exception that utilities should con­ mobile home park owners to a natural gas tial customer is taxable, the IRS has ruled sider in avoiding the taxation of contribu­ utility to convert a master meter customer in specifi c situations that certain pay­ tions. to an individual meter system were not for ments are contributions to capital and ex­ the provision and/or expansion of ser­ cluded from gross income. A review of 1994 Pri vate Letter Ruli ngs ("PLR" ) vices, but were to improve the safety and these rulings may serve as examples in In 1994, the IRS has continued to is­ the operation of the natural gas distribu­ sttucturing the receipt of future contri­ sue rulings where the public benefit ex­ tion facilities pursuant to the state's pub­ butions, ception has been cited. The first PLR lic policy. Compliance with the state's (9401 035) issue in early 1994 on the is­ safety guidelines was also cited as a ben­ Background sue of CIAC ruled that state grants to an efit to the surrounding community, The legislative history to the Act indi­ electric cooperative for the design and Another example of the public good cates that the receipt of CIAC by utilities construction of a power transmission in­ exception was in PLR 9427008. The IRS is a prepayment for future services to cus­ tertie between various towns were non­ ruled the purchase and upgrade of a group tomers_ Since passage of the Act, the IRS taxable. The IRS ruled the grant re­ of cities' street light systems was a non­ has ruled on the taxability of contribu­ sembles the public benefit motivation taxable CIAC. The IRS found that the tions by whether such prepayments result outlined in the most prominent case on contributions would benefit the public in in an increase in services and/or a ben­ the subjecr, Brown Shoe Co., Inc. The IRS general through the increased safety pro­ efit to the person receiving the prepay­ concluded that the grant was provided to vided by better lighting, and would not ments. As guidance, the IRS and taxpay­ enhance thc local economy and the reli­ directly benefit any particular customer. ers have looked to the Committee Reports ability of the whole system. The IRS also Any additional lighting would be treated for the Act which state: concluded the grant satisfied the criteria as the provision of a new service, and for a non-shareholder contribution to capi­ therefore would be taxable as CIAC. This "A utility is considered as having re­ tal as described in Chicago, Burlington & ruling also addressed the cities' contribu­ ceived property to encourage the pro­ Quincy R. Co. tions in the t ransaction and concluded the vision of services if the recei pt of the The second PLR, 9410018 (see the Tax payments were non-shareholder contribu­ property is a prerequisite to the pro­ Advisor column in the Fall 1994 issue of tions. vision of the services, if the receipt WATER for a more extcnsive analysis), af. And finally, PLRs 9448005 and of the property results in the provi- fi rmed that a utility may receive a non- 9448006 indicated that rhe cou nty's con-

_ NAWCWATER • rrihutions to a utility for relocation of ex~ following the guidelines set forth in IRS the line owners to replace o r modify the isting power lines would d early benefit the Notice 88-129 concerning certain pay­ circuit breakers, income was recognized public as a whole. The IRS ruled that the ments or transfers of property to a regu­ from the construction in the same man­ improvements would not be made for the lated public utility by a qualifying facil­ ner as any other taxpayer constructi ng direct benefit of any particular customers ity. similar property under contract (IRC Sec­ of the utility in their capacit y as custom­ In the final example (PLR 9443019) for tion 460). ers. Furthermore, t he relocation was un­ 1994, the IRS ruled that a regulated pub­ dertaken for either reason of community lic utility did not receive taxable C IAC Conclusion aesthetics, o r in the interest of public when the line owners transferred replace­ The above published rulings we re de­ safety. ment or modified circuit-breakers in which cided on their specific facts and circum­ As an alternative to the public good the utility had an ownership interest. The stances. Whil e their individual circum­ exception to avoid taxation, PLR 9420012 IRS ruled that the upgrade and reinforce­ stances are differen t , they represent provides another example. In this fuling, ment of the transmission system were nec­ examples of what should be considered in a utility and an unrelated partnership essary only for the acceptance and trans­ structuring the receipt of contributions co agreed to develop a waste to energy facil­ mission of electricity. As a result, there avoid taxation of such amounts. Structur­ ity. Under the agreement, the partnership was no increase in the net capacity of the ing a t ransaction to benefit the overall upgraded and refurbished the generating co-generated faci li ty, and, therefore, the public good while not increasing the over­ facility .. As the transaction permitted the receipt of the facilities would not be all provision of services, should be re­ sale of power by a non-customer, the IRS treated as a taxable C IAC. However, viewed and evaluated as contributions are held the upgrades were not taxable C IACs, where the util ity received payments from received . •

IPipeline to Small Companies

NAWC and Donald R. Frey & Company Form Computer Software Alliance

by Donald R. Frey Donald R. Frey & Co., Inc.

The NAWC recently formed an alliance was of poor quality and expensive because twenty years. Then contrast our current with Donald R. Frey & Co., Inc. As a part of writing it was very complex and laborious. offering with those available in-house or this pace, Frey and Company will provide Documentation was almost nil since it had from customer providers. Two important accounting and utility billing software to to be prepared on a typewriter. Support issues, Open Systems and Graph ical User NAWC members at exclusive price;.;. was weak. Programs were usually written Interfaces, will be briefly discussed. The systems offered are designed for inves· by one or two individuals. When the pro­ Since 1974, Donald R. Frey and Com­ tor owned water comlJanies. All operate on grammers left the project, the knowledge pany has been developing and selling spe­ generic Open Systems like UNIX (TM), left with them. cialized software for utility billing and MSDOS (TM) and local area networks. They Technology has changed. Alternative accounting appli cations in national and feature real time, interactive processing. The application software solutions are avail­ international markets. Actually, the firm accounting accepts the NARUC chm"t-of-a c­ able. Their design is accomplished by pro­ sells more than programs. It offers over counts. fessionals. More powerful computers have thirty-five years of computer experience, The following was prepared to provide the permitted greater program flexibility. twenty of those serving the specialized membership with a profile of the company and Quality support is available. Documenta­ needs for a multitude of customers. irs extensive background in specialized appli­ tion is robust. The cost of a software pack­ Donald R. Frey & Co.'s staff is exposed cation software. age has become very attractive. to many operations each year via product In order to compare alternatives, it inquiries, customer support and trade as­ Twenty years ago, very little packaged would be helpful to describe evolution of sociation meetings. Annual user meetings software was ava il able. What was available Frey & Company's operation over the last (continued on next page)

WINTER 1995 e - Pipeline to Small Companies, continued were primarily the venue of hobbyists. up information on-the-fly as they process Tandy Corporation introduced a micro­ their work. For example, if one doesn't are held and surveys are conducted to de­ computer called the Tandy 6000 which know the accollnt number for a customer, termine the needs of clients. This makes offered a variant of the UNIX operating you can search for it based o n just a few us a valuable resource for ideas and prob­ system called XENIX (TM). It also sup­ letter of their name. If the customer's ac­ lem solving techniques. The staff can of­ ported the generic programming language count doesn't exist, yo u can create one ten provide fresh insight into problems we were using. XENIX was a multi-user while YOll are in the midst of processing and their solutions. Our service goes well system that could support multiple termi­ an order for them. Press a key and the User beyond just writing programs. nals and printers. Thesc capabilities com­ Guide appears on the screen, turned to In the early days of the business, soft­ pared favorably with minicomputers cost­ the correct page. Good software is now ware was designed and written for specific ing five times more. Soon, major vendors consistent in the way it operates and ap­ makes and models of computers. We were like NCR and Sperry began offering larger pears. compell ed to do this because each system systems supporting UNIX. In the early age of computers, the ex­ had unique programming languages, op­ In the mid-eighties, IBM announced a pert was often the one who knew how to erating systems, etc. Each time a new line new personal computer using an operat­ program the machine. That was thei r sale of computers was released, a major con­ ing system called MSDOS (TM). It be­ specialty. They relied on the customer for version of the software was necessary. It came an overnight success. These systems application knowledge. This was often a was like IIreinventing the wheel." Problems also supported the generic programming hit or miss method of development. C riti­ also arose if a machine was not success­ language. Our software became available cal details of design were often not in the ful. The software conversion investment on them almost immediately. Over the program because they were overlooked. As might not be recovered. Generic program­ next five years, these systems became more designs became more elaborate, it became ming languages, operating systems and powerful and useful. Later, they were ex­ clear that the computer expert needed a machine designs were needed to make the panded with the introduction oflocal area second discipline in order to do a good software business practical. networks (LAN). T hey were now capable job. Today, software developers are faced A search was begun for a generic pro­ of being multiu ser systems. with the additional requirement of provid­ gramming language. That is, one that The nineties have started the beginning ing human factor engineered user inter­ would work in the same fash ion on almost of the demise of mainframe computers, as faces. That is, they have to design pro­ any computer. In the early 1980's a com­ well as proprietary operating systems and grams that are consistent in behavior and pany was located that offered a truly ge­ languages. Most computer hardware has are easy to use. neric programming language. One could become a commodity product. This is the Microsoft Windows and other CUI design and write software on one com­ cra of Open Systems. (Graphical User Interface) products are puter and install it on an entirely differ­ What are Open Systems? They are a becoming more common. They have both ent machine. The only requirement was a concept. They offer the buyer the flexibil­ good and bad points_ These CUI's try to special program ca lled a runtime. The ity to mix and match hardware, operating Simplify the use of a computer by provid­ runtime caused the software to work prop­ systems, programming languages and ap­ ing a consistent interface (i.e, means of erly with almost any computer. Frey & Co. plication software to suit their needs. communicating with the user). They make could now focus on developing more pow­ Don't be misled! If the system doesn't have it easier to control devices like printers. er ful and versatile software. The burden all of these capabilities, it isn't tfuly Open. They provid e on-line help and allow the of conversions had been eliminated. Some companies are calling their sys tems use of pointing devices like a mouse, These In 1982, a generic computer operating Open. However, they are only open in the features can be useful when working with system was being touted by AT&T called sense that they can communicate with a documen t (e.g., word processing) or UNIX (TM). A n operating system is a other systems of their own brand using graphical (e.g., Paintbrush) application. If large complex program that manages a proprietary software and/or hardware. you arc doing procedural applications like computer's resources (i.e. , memory, print­ This is ca ll ed interoperability. It is not an accounting, GUl's can get in your way and ers, storage, space, communications, etc.). Open System. may even slow you down. A mouse is not The OS, as we call it, is a vital part of any Another major change is coming about. a helpful tool for order entry and general modern computer system. A lot of time It is the way software is being designed. accounting. The software industry has and training is required to master each Years ago, software developers fought con­ introduced so many icons (those little pic­ OS. New operating sys tems also take many stant battles debugging software being tures)) that one almost needs a book on years to become fully developed and rea­ converted from one computer to another. icon identification. They have become sonably error free. AT&T designed UNIX When that problem was el iminated, they overused. to make it easy for its employees to work looked for ways to improve the product's Additionally, there is a lack of consis­ on a variety of computers. This operating design. T hey also wanted to make soft­ tency in the implementation of many GUI system has been around since the early ware easier to use. Improved programming standards. IBM, Apple, Microsoft and 1970's as an internally used system. languages and more powerful machines UNIX all have differing approaches. They In this time period, microcomputers have led to many major improvements. all have good and bad features. These in­ began evolving into viable systems for Today, quality applications provide pop­ terfaces are also difficult to carry out and commercial usc. Up to that point they up windows that allow the user to look maintain. GUT standards are still evolv- e NAWCWATER ing. They are an important part of the soft­ port may not be a major problem. If that latory requirements. However, before re­ ware process. They have raised the soft­ is not the case, employee turnover or ill­ signing yourself to a total customer system, ware developer's awareness of the impor­ ness can create a support disaster. examine the cost of a packaged system with tance of consistent, user friendly Documentation of in-house systems is modifications. A rough rule of thumb is interfaces. something that is typically done when ten percent. If you can find a package that Before leaving the issue of GUI's, a things get slow. If you dispute this, visit a can be modified to meet your needs and word is in order about the amount of com­ computer store. Select any quality appli­ the changes constitute ten percent or less puter power needed to use them. In the cation package and compare its documen­ of the total software code, do it. Change days before the GUI, a 386 based PC tation to yours. The comparison normally beyond that level tends to be so great the would operate comfortably with a million speaks for itself. conflicts develop with the original design bytes of memory and a forty-million byte Cost is important. Commercially devel­ of the package. hard disk. With the advent of a GUI sys­ oped software costs about one-fifth of an A concluding comment needs to be tems, typical requirements now dictate a in-house developed system. Don't be mis­ made about software acquisition. Don't minimum of two-hundred million bytes of led by estimates offered by an in-house fall prey to the "I have a friend who knows disk space. They also need eight-million staff. Their figures are usually a fraction how to program" trap. The worst decision bytes of memory to operate efficiently. Is of what it will take to do a complete job, that can be made is to contract with a part the GUI interface worth the added cost? including thorough testing and documen­ time programmer who has no application Another change coming is multimedia. tation. knowledge to develop software. It's here now and is growing rapidly in the New software contains many errors. Out of necessity, this discussion has education and entertainment market. In These are largely avoided with established been brief. However, it does provide a rea­ the next few years, it will find a multitude packaged software. sonable reference point for management of applications in the commercial market­ Time is an important commodity. It to begin an evaluation. place. Why not have a picture of the meter comes in limited quantities and there is Frey & Company welcomes the oppor­ location appear on the meter reader's hand never enough of it. Packaged solutions are tunity to discuss your current operating held unit? Why not get the customer to usually available almost immediately. environment. We also would be glad to authorize automatic utility bill payments Compare this with the months or years offer suggestions on how we can serve your from their bank accounts? Why not record required to develop systems. There is also future needs and interests. customer complaint or service request calls the cost associated with the delay in mak­ For more information, call Frey & on the computer for playback? ing these improvements available. Company toll free at 1/800/ 659-3739. In view of the foregoing, it's appropri­ Some situations may need a custom pro­ Their hours are 8:00AM-5:00PM EST, ate to consider how to go about satisfying gram or system. These may be legitimate. Monday-Friday. , software needs now and in the future. The An example might be unusual state regu- approach will depend, to a great extent, on one's level of expectation. Does your firm contract with someone to write software based on the design you dictate? Does this individual have the ap­ Gerald M. Hill ( 1941 -1 994) plication, programming, and user inter­ face expertise to provide a state-of-the-art Gerald M. Hill, director of rates for result? Is it going to be cost effective? United Water Resources Management If your firm has a data processing staff, and Services Company, died on Novem­ the impulse may be to write your own soft­ ber 21 as the result of injuries sustained ware. Be careful not to become trapped in an automobile accident. Hill, 53, by this apparent solution. A lot of baggage joined General Waterworks Corpora­ comes with this approach. tion in 1970 as senior rate analyst. He The staff may be attuned only to the represented the company's utilities with way the work is now done in your office. regulatory agencies in the 14 states They may lack the broad industry expo­ where they operate. Hill had recently sure and multiple disciplines that are advanced to his position at United Wa­ needed when considering different ap­ ter, which merged with General Water­ proaches. If this is the case, the resulting works. software may be lacking. It may not con­ "Gary will be greatly missed both as A resident of Springfield, Pennsylva­ tain the hardware, software and industry a friend and for his contributions to the nia, Hill is survived by his wife Rita, improvements that might be useful to your company," said Ronald Dungan, presi­ and their daughter, Jennifer. Hill gradu­ operation. dent of General Waterworks. "Gary was ated from Villanova University in 1964 Support is a problem routinely associ­ an energetic person with a positive atti­ with a B.S. in economics. He was ac­ ated with in-house and custom program tude who was well liked by everyone." tive in the Lions Club. development. If you have a large staff, sup-

WINTER 1995 • Company Profile The story of Bridgeport Hydraulic Co.

Bridgeport's first distribution reservoir, depicted in this 7872 illustration, was actually a masonry tank

Imagine Bridgeport, Connecticut, at the community's streets all the way to the would not soon be forgotten. the turn of the 19th century. It was not waterfront. There the water flowed into a About eight years later, the city's Com­ yet a city, merely a borough of the neigh­ trough providing fresh running water to mon Council granted "Nathaniel Green boring town of Stratford. Horse-drawn the ships's crews. Rev. Waterman had de­ and his assigns" the exclusive privileges wagons moved through its streets. The vised Bridgeport's first water delivery sys­ of laying water pipes in the community. finest houses were those of the ship cap­ tem. Green was to furnish Bridgeport with "an tains who called the community home. Bridgeporter Lewis C. Segee carried abundant supply of pure water for all do­ And the busiest "center" was the water­ forward Rev. Waterman's enterprise, and mestic and commercial uses." front, where local farmers and merchants next came a group of entrepreneurs who Green and his associates formed the hawked produce and wares to the crews formed The Bridgeport Golden Hill Aq­ Bridgeport Water Company and set about of sailing vessels that put into port to trade ueduct Company. That company pur­ to fashion a water system that would live and replenish supplies. chased the Waterman-Segee pipeline in up to the Council's expectations. They One of the items most in demand was 1826, a decade before Bridgeport was in­ built Bridgeport's first distribution reser­ water, which was for sale by the cask. It corporated as a city. voir, a masonry tank into which water was was fresh water from nearby springs and In 1845, a pre-Christmas fire demon­ pumped from nearby Factory Pond. They lakes. No one could tell exactly how long strated the necessity for further improve­ laid water mains beneath the city's pri­ the water had been in the casks, but, then ments in the city's water delivery system. mary streets and completed Bunnell's again, no one knew of any other way to The fire broke out in George Well's Oys­ Lower Reservoir, formed by construction deliver it to the sailors. And then, in 1818, ter Saloon on Bank Street and spread rap­ of an earthen dam on the Pequonnock the Reverend Elijah Waterman had a bet­ idly from building to building in the River. ter idea. community's main business district on the Perhaps the young company had taken Rev. Waterman's property atop waterfront. Fire fighters tried to combat on more than it could handle, for after Bridgeport's Golden Hill contained the fire with water pumped from the har­ only two years in business its bonds went springs of excellent water that had been bor, but the tide was low and an adequate into default, and its property was taken used for centuries by the Pequonnock In­ flow could not be maintained. When the over by the bondholders through foreclo­ dians who had lived in a village on the flames finally burned themselves out, 49 sures. It was out of business by 1855. southern slope of the hill. The enterpris­ wooden structures had been destroyed. Under the leadership of Joseph ing pastor cleaned and deepened the The business district was rebuilt along Richardson, a new water utility proposed springs and laid hollow log pipes under Main Street, but the "Great Fire of 1845" to pick up where the short-lived Bridge-

• NAWCWATER

R - works in good order immediately_ and out of the city on regular schedules. Two years later, another fire dramati­ About the same time, trolley lines were cally underscored the city's need for an being installed in Bridgeport to replace ample and reliable supply of water. Again, the "horse railroad," and coal and wood water supply proved inadequate to control stoves began to give way to a newfangled the blaze_ This time, in addition to de­ idea called "cooking with gas." stroying property, the fire claimed 11 In response to a rising demand for wa­ lives. That same year, Barnum got his ter, several small water companies were chance to "put the company's works in formed, each attempting to serve a seg­ good order." He was elected its second ment of the Greater Bridgeport area. Little president. water utilities seemed to be popping up Phineas T Barnum served as BHC everywhere. Eventually, BHC acquired president for nine years_ Under his per­ these small companies as it broadened its sonal direction, the company constructed service area. additional reservoir capacity at higher el­ With Bridgeport growing by leaps and evations_ This move was calculated to cor­ bounds, it became essential to plan ahead The legendary showman P.T. Barnum, president rect the low-pressure problems that had ... way ahead .. . half a century or more! of BHe from 7877 to 7886, played a key role in plagued the city's fire fighters since the Leading this effort was a young Lehigh the company's early expansion efforts. earliest days_ University graduate named Samuel P. Se­ With the panache that marked his show nior. He joined BHC in 1901, at the age port Water Company had left off. Estab­ business ventures, Barnum applied his of 27, as engineer and superintendent. He lished through a special act of the Con­ energies to the public water business. was destined to stay with BHC for 61 necticut General Assembly, it was incor­ Horse Tavern Reservoir and Trumbull years-35 as chief executive officer. porated as an investor-owned company in Pond were placed in service during his ten­ Senior envisioned a vast expansion of 1857, assuming the assets of Green's de­ ure. And, Easton No.1 Reservoir was con­ the existing water storage and network and funct organization_ The new utility was structed by the Citizens Water Company, distribution system, and with the bless­ n amed "the Bridgeport Hydraulic Com­ another water utility for which Barnum ing of company management, he led in the pany," subsequently shortened to "Bridge­ was president. The 76-year old Barnum, planning and execution of a program that port Hydraulic Company," or BHC. meanwhile, returned to his first love: would anticipate the demands of the grow­ With little fanfare, BHC went about the show business. He began immediately to ing industrial area. business of expanding the rudimentary prepare his circus for a tour of London. The new supply system would be com­ distribution system it had inherited_ Ma­ By 1889, the once-sleepy fishing village prised of" a large watershed with large stor­ jor projects were out of the question dur­ on the Pequonnock River had become a age reservoirs at higher elevations," and ing the Civil War, so it wasn't until the vibrant industrial center with a popula­ interconnected for safety. Senior person­ 1870s that the company turned to its first tion of 70,000_ Factories hummed with ally explored and surveyed reservoir sites program of supply system expansion_ By activity, turning out clocks, corsets, sew­ that were sufficiently removed from urban 1876, BHC had completed its Island ing machines, cartridges, and boxes; pas­ environs, and therefore less subject to Brook Supply System, which more than senger and freight railroads chugged in (continued on next page) tripled its reservoir capacity_ Meanwhile, the famous showman Phineas T Barnum was in the wings await­ ing his opportunity to influence the for­ tunes of the company_ Yes, the same Barnum who had successfully exhibited "General Tom Thumb" and the original Siamese twins, and masterminded "The Greatest Show on Earth"-that Barnum was about to take center stage in BHC's business affairs. PT_ Barnum was a bona fide resident of Bridgeport_ His interest in the company had intensified during his one-year term as mayor of Bridgeport in 1875. The mayor felt that the water rates were too high, and in a rather badgering letter to the company's Board of Directors, he sug­ gested that BHC sell itself to the city or BHe water quality control lab, 7974. Although lacking today's sophisticated technology, BHe even else assure the city that it would put all its then supplied exceptionally high-quality water. - WINTER 1995 • BHC, continued forefront of the nation's industrialized cit­ ies, filling war contracts for fighter planes pollution. Furthermore, the minimum size and helicopters, submarines and ammu­ of pipe in the distribution system was set nition, valves and uniform buttons. The at eight-inch diameter; virtually all out­ population of the metropolitan area had moded four- and six-inch pipe was re­ grown to about 200,000. The company placed by larger pipe. was in a race against time; the 11.9-billion­ The new policy began to take shape in gallon Saugatuck Reservoir was badly 1905, the year the 2.3-billion-gallon Trap needed to augment the existing water sup­ Falls Reservoir was placed in service. It ply. was the first of BHC's four great reser­ The project was mammoth! Land had voirs, which are still considered the back­ to be cleared of trees and houses. A mass bone of the region's water supply. Senior of 80,000 cubic yards of concrete would planned them all. He directed their con­ be used to construct the dam. The surface struction, and they stand today as a trib­ area alone to be occupied by the great body ute to his foresight and initiative. of water would be 870 acres. Six miles of By 1914, the demand for water in the new roads and four new bridges were to rapidly growing Greater Bridgeport area Samuel P. Senior, be built. A series of pipelines and tunnels had reached eight billion gallons a year. president of BHC from 1920-1955. would connect Saugatuck Reservoir to Then came the "war to end all wars." Aspectuck Reservoir. It was a big job, and Bridgeport's arms and munitions factories the company held its own. In fact, Greater it was handled with the expertise and ef­ were pressed to the limits of their capa­ Bridgeport managed the hard times ex­ ficiency that had become a mark of the bilities. Local automobile, submarine, and tremely well: Major industries remained company and its chief executive officer. brass companies received war contracts, open, and only two banks failed. Never­ In January 1942, the Saugatuck Dam too. And the city began to swell with new· theless, it was not the most opportune was completed; the reservoir was allowed comers who came to work on the war con­ time to begin work on a major capital to fill; and in July of that year, the new tracts. The population exploded by project, so construction was postponed for facility was placed in service. The reser­ 60,000 between 1914 and 1916. And ev­ the duration of the depression. voir approximately doubled the capacity eryone needed water. By the mid-1930s, Senior had overseen of BHC's surface supply. By the time the war ended in 1918, the acquisition of 4,500 acres of the wa­ The company grew steadily after the water demand had surged to 13 billion tershed land needed to create the war, mirroring the growth of suburbia. To gallons a year. But Senior's foresight had company's largest reservoir, the Saugatuck. serve its enlarged franchise area, the com­ paid off. The 3.8 billion-gallon Aspetuck­ Before the decade ended, BHC had ob­ pany extended existing water lines and Hemlock Supply System and several small tained the additional acreage and rights­ installed miles and miles of new water reservoirs and river diversions were of-way needed, and at long last began the mains. Still, the demand for water contin­ brought on line during the war, averting a construction of a dam on the east branch ued to grow. potential water shortage in the metropoli­ of the Saugatuck River. The creation of additional large reser­ tan area. During the Second World War, the voirs became a problem. Post-war residen­ In 1920, Sam Senior was elected presi­ Greater Bridgeport area was again in the tial and commercial development made it dent of the company. For the next two decades, Senior led the company through periods of dramatic change-change for the nation, as well as for the water utility. In the 1920's, BHC concentrated on its reservoir construction program. Obsolete, low-elevation reservoirs were decommis­ sioned, and the property was sold to raise capital for expansion. Construction of the 5.8-billion-gallon Eason Lake Reservoir, which had been postponed during World War I, was finally completed in 1926. Meanwhile, the company was proceeding with the acquisition of land for the huge reservoir planned for the Saugatuck River Valley. And then came the Great Depres­ sion. During the financial crises that swept throughout he United States and Europe, BHC's back-office operations, 1929 .

• NAWCWATER - impractical and expensive to assemble the gallons, approximately 50 percent above million plant at Hemlocks Reservoir in large blocks of land that would be neces­ average daily demand. This ample reserve Fairfield, Connecticut. When completed sary. But groundwater sources held prom­ makes it possible for BHC to still help in 1997, the new facility will employ dis­ ise. meet the needs of other neighboring wa­ solved air flotation and will have a 50 mgd BHC's utilization of wells that tap the ter utilities. In 1989, BHC completed the capacity. underground reservoirs known as "aqui­ Southwestern Regional Pipeline Intercon­ The company that began three years fers" introduced a new, efficient, and eco­ nection, a cooperative effort among BHC, before the Civil War to meet the needs of nomical source of water. Several well fields SWC and two other water companies to a growing community is now the seventh were already in operation when, in 1952, augment the water supply to the lower largest (based on revenues) investor-owned the company opened its Housatonic Well Fairfield County towns of Norwalk, New water utility in the nation. A wholly Field in Shelton. This well field taps one Canaan, Darien and Greenwich. owned subsidiary of Aquarion Company, of the largest supplies of potable under­ That same year, BHC sold a 382-acre a New York Stock Exchange-listed com­ ground water in all of New England. tract of land, known as the Pequonnock pany with interests in public water supply The company celebrated its 100th an­ River Valley, for below-market value to the and environmental testing laboratories, niversary in 1957. The communities it Connecticut Department of Environmen­ BHC serves a population of nearly a half served at the time had a total population tal Protection and the Town of Trumbull, million in 22 communities in three Con­ of more than 270,000. They were using Connecticut, to be preserved in perpetu­ necticut counties. Believed to be the larg­ an average of 45 million gallons of water ity as open space and for passive recre­ est private landholder in the state, BHC every single day-a far cry from the days ation. For its "initiative and cooperation owns about 20,000 acres of watershed of P. T. Barnum! in the conservation of lands along the land. It also has approximately 2,700 acres Frederick B. Silliman was BHC presi­ Pequonnock River," BHC received the of surplus, off-watershed land-most of it dent from 1956-1973, during which time 1991 Governor's Environment/ 2000 Rec­ in Fairfield County-which it intends to the Northeast suffered one of its most se­ ognition Award. sell on a gradual basis as market condi­ vere droughts on record, lasting from The 1986 amendments to the SDWA, tions dictate. The proceeds will be used 1962 to 1966. Serious water shortages in particular the Surface Water Treatment to help finance the estimated $125 mil­ developed in neighboring communities, Rule, further tightened water quality regu­ lion in filtration construction and other but BHC customers had no need for con­ lations, and it was soon determined that water system improvements from 1995 cern. Not only were its own customers the balance of BHC's surface water sup­ through the year 2000. unaffected by the drought, but BHC was plies would need to be filtered. In 1993, As it approaches the 21 st century, BHC able to help other water utilities meet their the Easton Lake Reservoir Water Treat­ renews its commitment to provide its cus­ requirements. ment Plant was placed into service, a $27 tomers with an abundant supply of qual­ Silliman presided over further expan­ million facility with a 20 mgd capacity. ity water and to continue the high level of sion of the company's service area with In 1994, BHC began construction of two service and record of environmental stew­ acquisition of five small water companies smaller filtration systems in northwestern ardship that have been the hallmarks of in Litchfield County in the early 1960s. Connecticut, and broke ground on a $50 the company's remarkable past. ' In 1963, BHC acquired the Seymour Wa­ t er Company, adding three lower N augatuck River Valley Communities­ Seymour, Oxford and Beacon Falls-to its franchise area. In the 1970s, the federal Safe Drink­ ing Water Act set stringent standards for water quality. When it was determined that water from the Trap Falls Supply Sys­ tem did not consistently comply with all of the new standards, the company set about to create a state-of-the-art treatment plant to be built on 10 acres of land near Trap Falls Reservoir in Shelton, Connecti­ cut. A complex undertaking, the project required three years and $18 million to complete and was placed in full operation in January 1981. BHC's supply sources, which include four reservoir systems with a total short­ age capacity of24.5 billion gallons supple­ mented by substantial well field capacity, Cutting a one-half mile tunnel through solid rockto connect provide a safe daily yield of 109 million BHC's Saugatuck and Aspetuck Reservoirs, 7940.

WINTER 1995 • •

corporate changes Promotions at 5JWC

San Jose Water Co. recently announced the promotion of W. Richard Roth to President and Chief Operating Officer. Roth joined San Jose Water Co. in 1990 as the Chief Financial Officer and Trea­ surer and has worked as both the Vice President-Finance and Senior Vice Presi­ dent. Roth received his M.B.A. in Ac­ counting and Finance as well as his B.S. in Microbiology from Montana State Uni­ versity. He is a member of the American Institute of Certified Public Accountants, California State Society of Certified Pub­ lic Accountants and a Trustee, San Jose Cleveland Ballet. Prior to working for San Jose Water Co., Roth was the Senior Man­ Treasurer. Yip joined San Jose Water Co. Concordia University in Montreal and a ager, KPMG Peat Marwick, San Jose, Cali­ in 1986 and has worked in both the Fi­ Masters Degree in Accounting from the fornia. nance and Regulatory Affairs Depart­ Golden Gate University in San Francisco. San Jose Water Company has also an­ ments. Yip is a Certified Public Accoun­ Prior to joining San Jose Water, Yip nounced the promotion of Angela Yip to tant and has a Bachelor's Degree in worked in public accounting firms and the position of Chief Financial Officer and Business Administration from the private industry.

Advancements at UWR

United Water Resources has broadened opportunities in its core water utility busi­ eral Waterworks' utilities. the responsibilities of four executives, ac­ ness, and to achieve synergies from its re­ With their new responsibilities, Hill cording to an announcement by Donald cent merger with the parent firm of Gen­ and Iacullo will form a team to strengthen L. Correll, chairman and CEO. Ronald eral Waterworks Corporation. United Water's involvement with regula­ S. Dungan and Frank J. De Micco were Dungan will be responsible for United tory commissions in the 14 states where elected senior vice presidents of United Water's efforts to assess investment and its utilities operate, Correll said. Iacullo, Water Resources Management and Ser­ acquisition opportunities in the water ser­ who was previously vice president-rate vices Company. Walton F. Hill has ad­ vice industry, and will continue to serve development for Hackensack and Spring vanced to vice president-regulatory law, as president of General Waterworks Cor­ Valley water companies, will oversee all and Robert J. Iacullo was elected vice poration, which is now a United Water rate development activity. Hill, who was president-rates for the management and subsidiary. De Micco, who had been vice vice president-rates with General Water­ services company. president-operations for Hackensack and works, will direct the legal aspects of the Correll said the moves are designed to Spring Valley Water Companies, will also regulatory process for all of the compa­ sharpen United Water's focus on growth assume operating responsibility for Gen- nies .

• NAWCWATER New ews Officers Wharton

At its monthly meeting on October 19, Promoted 1994, the Board of Directors of Califor­ n ia Water Service Company elected at Iwe Gerald F. Feeney and Calvin L Breed of­ ficers of the company effective November Martha L Wharton has been promoted 1, 1994_ to vice president of customer service of the Feeney was elected Vice President, Indianapolis Water Co. Prior to her pro­ C hief Financial Officer and Treasurer. motion, she had been serving as the Feeney replaces Harold C. Ulrich, who company's vice president and manager of retired November 1 after 32 years with the customer relations. Wharton joined the company_ Prior to his election to CFO, company in 1966 as an executive secretary_ Feeney served as Controller for the com­ She has been active in the Indiana Sec­ pany since 1976_ Before joining Cal Wa­ Gerald F. Feeney tion of the American Water Works Asso­ ter, he was 'an account manager with ciation (AWWA), serving in a series of KPMG Peat Marwick_ Feeney, a CPA, was leadership positions including secretary­ graduated from San Jose State University treasurer in 1983. In 1991, she was in 1969 with a B.S. in Accounting_ Feeney awarded the Fuller Award for distin­ is married and has two children. guished service in the water industry by Elected to fill Feeney's prior position AWWA. Wharton was the first woman to as Controller, Assistant Secretary and be honored with this award in the Indi­ Assistant Treasurer, was Breed. Breed is ana section_ a new addition to the company having moved from TCI International-a defense contractor-where he worked since 1984, most recently as Treasurer. From 1980 to 1983, Breed worked as an auditor for Senior VP Arthur Andersen & Co., San Jose. Breed, a CPA, was graduated from California Calvin L. Breed atUWR Polytechnic State University, San Luis Obispo, in 1977 with a B.S_ in Account­ Joseph Simunovich has been elected ing. Breed is married and has one child_ senior vice president-external affairs and marketing for United Water Resources Management and Services Company, a subsidiary of United Water Resources_ Chairman and chief executive officer Donald L Correll said Simunovich's ad­ Russo Elected to Middlesex BoD vancement is part of an overall strategy to strengthen United Water's focus on Middlesex Water Company has an­ growth opportunities in its core water ser­ nounced the election of Richard A. Russo vices business. to its Board of Directors, effective Decem­ In his new role, Simunovich will over­ ber 1, 1994. Russo has served as Vice see a nationwide marketing initiative by President-Operations of the company, United Water for opportunities to expand with responsibility for the administration its core water business in innovative new and management of the engineering, pro­ ways, Correll said. The chairman cited duction, treatment and distribution main­ Simunovich's central role in creating tenance departments since August 1989. United Water's recent precedent-setting In 1994, he was named President of Tide­ contract to manage the water system for water Utilities, Inc., a wholly-owned sub­ the city of Hoboken, New Jersey, as an sidiary which serves over 5,000 custom­ example of the public-private partnerships ers in Delaware. Russo was formerly that are dramatically changing the nation's General Superintendent and Chief Engi­ water industry. He will also provide stra­ neer of Trenton Water Works. He gradu­ tegic direction and oversight for United ated from Villanova University in 1968 Water's legislative and government rela­ with a degree in civil engineering_ tions efforts_

WINTER 1995 • UWR Taps McGlynn Hartelius

Richard B. McGlynn will join United some of the most dynamic periods in our Promoted at Water Resources Management and Ser­ history," Correll said. "During the late 70s vices Company as vice president-general and early 80s Fred oversaw the legal NJ-American counsel. McGlynn was elected to the po­ aspects of approvals and construction of sirion by the company's board of directors, the Wanaque South project, a complex Paul V. Hartclius, III, assumed the re­ McG lynn wil l oversee the corporate construction program in which we in­ sponsibilities of manager of New Jersey­ legal affairs of United Water and its key vested more than a quarter of a billion American Water Company's Short Hills utility subsidiaries, Hackensack Water dollars in water supply and purification operation in July. In this capacity, Company and General Waterworks Cor­ facilities. " Hartelius is responsible for the manage­ poration, and will advise the board of di· McGlynn is a partner in the law firm ment of the company's Short Hills operat­ rectors and senior management on corpo­ of LeBoeuf, Lamb, Greene and MacRae, ing center, which provides water service rate matters as general counsel, Correll and heads the firm's New Jersey utility to more than 240,000 people in 34 com· said. dcpartrnent, based in Newark. Previously, munities throughout Essex, Morris, Correll said, uRich McGlynn has ac­ he was a partner in the Newark law firm Somerset, Union, Warren, Passaic, and quired broad experience in utility law, of Stryker, Tams and Dill. From 1976 to Hunterdon counties. both in his private law practice and in his 1980 he served as commissioner on the Hartelius joined the company in 1981 tenure as a regulatory commissioner and New Jersey Board of Public Utilities. as a resident engineer. He has held increas­ a member of the judiciary. This back­ Lau rino, who retired December 1, ingly responsible positions, including ground, coupled with his enormollS in­ headed the legal staff fo r United Water and management of engineering, production, sight into the workings of business and Hackensack Water Company for most of and distribution activities at the Short government, make him a welcome addi­ the last 26 years. In 1993, his responsi­ Hills operating center. Prior to 1981, tion to our management team as United bilities as vice president-legal affairs were Hartelius was employed as a principal en­ Water pursues its aggressive growth strat­ broadened when he was named general gineer for the New Jersey Board of Public egy," counsel. From 1985 to 1993, he was also Utilities. "Fred Laurino has counseled United president of Rivervale Realty Company, a He holds his bachelor's and master's Water's senior man agement team during United Water subsidiary. degrees in civil engineering from the New Jersey Institute of Technology and is a reg· istered professional engineer. Hartelius is married and has two children. Utilities, Inc. New CWS Management Changes Director On July 18, 1994, Perry Owens, Chair· nomics and later received his Master of man of Utilities Inc., announced two Business Administration degree from Linda Randall Meier was elected to the changes in the company's organizational Carnegie·Mellon University. Board of Directors of California Water structure. He appointed Jim Camaren to Schumacher has been employed with Service Company, as of December 1, 1994. the position of Vice Chairman and Larry Utilities, Inc., since 1992. Formerly as She replaced L. V. "Bill" Lane, Jr., who Schumacher to the position of President. Vice President of Finance, his duties in­ retired November 30 after serving as a Camaren joined Utilities, Inc., in 1987 cluded total responsibility for the Corpo­ Director since 1989 and previously from as the Vice President of Business Devel­ rate Finance Department, financial report­ 1967 to 1985. opment. In his role as Executive Vice Presi­ ing, coordination of branch office Meier is on the Board of Directors, dent, his duties included the evaluation accounting issues and management of trca­ Stanford Health Services Hospital, where of investment opportunities, negotiation sury functions. In his new role as presi­ she has served as a Director since 1978 of acquisition candidates, and the cOOl·di­ dent, he will continue his previous duties and C hair since 1992. She also serves as nation of in-house legal activities. in his and become involved in the oversight of a Director of Stanford University, Univer· new role as Vice Chairman, Camaren wil l operations and regulatory activities ofthe sity Ba nk & Trust Company, Lucile Salter work with Perry Owens in an expanded company, as well as aSSllme responsibility Packard Children's Hospital at Stanford position of responsibility to focus the com­ for personnel related areas. Schumacher and the Stanford University Athletic pany on appropriate di rections and goals received his Master of Business Adminis­ Board , serving as its first woman chair for the future. Camaren graduated from t ration degree from DePaul University from 1984 to 1985. Meier is also active UCLA with a Bachelor's degree in eeo- and is a Certified Public Accountant. in a number of local community activities.

_ NAWCWATER .....

etcetera etcetera etcetera Middlesex Releases Book on its History

Middlesex Water Co. recently cel­ ebrated the release of its new book­ Middlesex Water Company, A Business History-with a Heritage Day and book signing at its Iselin, NJ, headquarters. The 234-page hard cover book, written by his­ torian and central Jersey resident, Mark Lender, chronicles the company's growth from its modest beginnings in 1897 to the present time. It describes the company's role in fostering economic growth as it developed new supply sources, explored new technologies, faced stringent legal regulations and financial requirements, and met the increasing demands on its J. Richard Tompkins (r), with water supply through a remarkable period Mark Edward Lender, author of the newly published book, of change and challenge. Middlesex Water Company, The book is a corporate biography of A Business History. Middlesex Water Co. in the context of regional history. Written over a period of Officers, and employees-for their coopera­ in our history, we have a solid foundation five years, it offers the reader an overview tion, insights and recollections," added on which to build. Ours is a story of vi­ of the development of Middlesex County, Tompkins. Copies of the book will be dis­ sion and growth and we have every rea­ NJ, in the early 1900s and the need for tributed to libraries and other business son to view the past with pride and our community water supplies. It also demon­ reference sources in the company's service future with great promise," added strates how a private enterprise can main­ area. Tompkins. Anyone interested in learning tain its independence while serving the "As we approach our centennial anni­ more about the book can call Bernadette public welfare. More specifically, it details versary in 1997 and begin a new chapter Sohler 908/634-1500. Middlesex Water Company's organization, struggles and achievements through the age of regulation, the Depression, wars ,' and droughts, and demonstrates its ongo­ ing commitment to customer service and George Johnstone Honored the highest water quality standards as it nears its second century of service. The Pennsylvania State University no­ designated alumni provide outstanding "The book is fascinating not only from tified George W. Johnstone that he is role models for current engineering stu­ a company historical standpoint, but also one of fourteen individuals in 1995 to dents. from the perspective of economic devel­ receive the "Outstanding Engineering Johnstone and his fellow 1995 addi­ opment," said Richard Tompkins, Chair­ J. Alumnus" award from Penn State's Col­ tions to the Outstanding Engineering man of the Board and President of lege of Engineering. Alumni will receive their awards at a M iddlesex Water Company. "Utilities The title "Outstanding Engineering special ceremony and dinner at the Uni­ have and will continue to play an impor­ Alumnus" is a permanent designation versity on March 31,1995. Outstand­ tant role in advancing the economic which recognizes exceptional Penn State ing Engineering Alumni receive a growth of the communities they serve," engineering alumni for their success as placque and have their name and like­ said Tompkins. leaders in their field and for the impact ness engraved on the Outstanding En­ "We're grateful to all of those who were they have had and will continue to have gineering Alumni Awards plaque which consulted during the writing of this on society and their profession. These hangs in Kunkle Lounge at Penn State. book-our past and present Directors,

WINTER 1995 • hrn WV-American Holds Indiana Groundbreaking Merger Approved

In an order issued November 9, 1994, the Indiana Utility Regulatory Commis­ West Virginia Governor sion granted permission for Indiana Cit­ Gaston Caperton and G.c. Smith, Senior Vice ies Water Corporation to merge into In­ President of the diana-American Water Company, Inc. American Water System. Following the merger, the company will serve 160,000 customers in 18 Indiana On November 2, ground was officially had been meeting since June, 1991, to find communities including Crawfordsville, broken for the largest water project in West a solution to the water supply problems Franklin, Greenwood, Jeffersonville, Virginia in 22 years and what may be the in the Pipestem area. Pipestem Resort Clarksville, New Albany, Kokomo, first public/private partnership of its kind State Park was turning away customers and Muncie, Newburgh, Noblesville, in the United States. Governor Gaston needed to expand, but an adequate water Shelbyville, Somerset, Summitville, Rich­ Caperton, Congressman Nick Joe Rahall, supply to support economic development mond, Seymour, Sullivan, Terre Haute West Virginia Senator Leonard Anderson, was not available. So Senator Anderson, and other dignitaries commemorated the the Region One staff, both county com­ and Wabash. long-awaited Mercer/Summers Regional missions, WV-American Water, and the An operational combination took effect Water Supply Project under blue skies and Mayors of Princeton and Hinton met to on December 1, 1994, at which time all amid fall foliage. discuss alternatives. Their forward look­ Indiana Cities locations began using the State, county and federal officials; WV­ ing attitudes and enthusiasm to name Indiana-American Water Company, American Water Company officers and strengthen southern West Virginia gave Inc. To simplify year-end-closing, the for­ representatives; and citizens of the Four birth to the public/private partnership mal merger of the two companies took Seasons area came together to mark the called the Mercer/Summers Water Supply place on January 1, 1995. Indiana Cities beginning of future expansion for south­ Project. no longer exists as a separate entity. ern West Virginia. The event was attended Everyone in both counties, as well as "Indiana Cities customers will begin to by approximately 200 people. Governor Caperton and his staff and Con­ see the new name and logo on bill forms, Chris Jarrett, WVAWC President, gressman Rahall and his staff, has made company vehicles, uniforms and other served as Master of Ceremonies for the tremendous efforts to support this project items. The logo, a sun rising over flowing 45-minute program held at the site of and make the dream a reality, but the ex­ water, symbolizes the universal and time­ where the intake building will be con­ citement is really just beginning. Phase less nature of the water cycle," said Rich­ structed. G.c. Smith, Senior Vice Presi­ One will take approximately 20 - 24 ard Hargraves, president of Indiana­ dent of Operations for the American Wa­ months to complete. Phase Two includes American and Indiana Cities. ter System, was the first of four speakers extending branch lines to 600 more cus­ The merger will allow the company to followed by Congressman Rahall, Sena­ tomers. It is very possible that both phases take full advantage of operating efficien­ tor Anderson and Governor Caperton. could be completed and placed in-service cies. For example, the two companies cur­ Phase One will meet the immediate simultaneously. Total cost of both phases rently maintain separate accounting needs of 45,000 people in Mercer and is estimated at $36.9 million. records. Following the merger, only one Summers counties and includes building Jarrett says, "The beauty of this pub­ set of books will be necessary. The merger a five million gallon a day water treatment lic/private partnership is we can duplicate will also reduce the required number of facility near True, a raw water intake in it anywhere in West Virginia and we the Bluestone Lake, and a booster station should. Water quality is evolving to the corporate proceedings, such as financing near Athens; installing 8,000 feet of 24- point that the bigger you are, the better and related record keeping. With its in­ inch water main, 107,000 feet of 24-inch you can handle new drinking water stan­ creased size and diversified service areas, main, and 27,000 feet of 8-inch mains; and dards. It is best to have one treatment the company will be more attractive to erecting a 500,000 gallon storage tank at plant and a lot of pipe serving lots of investors, ultimately lowering its financ­ Pipestem. people, than to have a lot of small treat­ ing costs. These benefits should provide The idea for this public/ private partner­ ment facilities serving pockets of consum­ reduced costs that will be shared with ship was born in mid-1992; local officials ers around the state." customers .

• NAWCWATER 15th ANNUAL WESTERN !!!!• • •=: RATE SCHOOL Basics of Rate Setting April 2-7, 1995 San Diego, California

Learn the basics of utility rate-making at our week-long school in California. For additional information, please call (904) 644-7547 or (904) 644-7541.

Sponsor The National Association of Regulatory Utility Commissioners Water Committee (NARUCj

Co-sponsors• California Public Utilities Commission

Florida State• University Center for Professional Development and Public Service BULK RATE U.S. POSTAGE PAID Permit No. 8846 Washington, D.C.

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NAWC Executive Committee and Chairman of the Board: (top row, I to r) j. james Barr, j. Richard Tompkins, Floyd Wicks and Eugene Owen; (lower row, I to r) Robert Luksa, Robert Dolson, jack McGregor, Sharon Gascon, james Groff and Ronald Dungan.