California American Water Files Application for the Monterey Peninsula Water Supply Project

California American Water has filed its much-anticipated application with the California Public Utilities Commission (CPUC) to construct the Monterey Peninsula Water Supply Project, the company’s proposed water solution to replace its current draw from the Carmel River in compliance with state-ordered pumping reductions.

The Monterey Peninsula Water Supply Project includes the development of a desalination plant in North Marina and expansion of the company’s current Aquifer Storage and Recovery (ASR) program, conducted in cooperation with the Monterey Peninsula Water Management District. In addition, the company proposes to purchase water from the Groundwater Replenishment Project (GWR) currently proposed by the Monterey Regional Water Pollution Control Agency and the Monterey Peninsula Water Management District.

“This project will require a significant investment on behalf of our customers,” said California American Water President Rob MacLean. “But getting off the Carmel River is a matter of extreme urgency. If we cannot develop a replacement water supply, the community, which already has residential per capita water consumption of less than 50 gallons per day, will face devastating cutbacks. Our team has put remarkable energy into creating this proposal that we believe is the best option in terms of cost and environmental benefit. We also believe our proposal offers the least risk in terms of legal and permitting delays.”

The introduction of groundwater replenishment as a major supply component is a new feature of the California American Water’s proposed solution. Also new is the manner in which the company proposes to finance the desalination facility. The company plans to keep financing costs to a minimum with a combination of State Revolving Fund (SRF) loans and a proposal to fund a portion of the capital investment through a customer surcharge rather than through the company’s rate base – the assets upon which regulated utilities are permitted to earn a rate of return.

Key features of the company’s new proposal, the Monterey Peninsula Water Supply Project, include:

• A 5,500 acre-foot per year (5.4 million gallons per day) desalination plant located in North Marina that will employ Energy Recovery Devices to lower the plant’s power consumption and slant well technology. Slant wells, which will draw water from under the sea floor past the average high tide line, avoid the impacts to marine life posed by open ocean intakes.
• As part of its application, California American Water proposes to permit the desalination facility for 9,000 acre-feet of water per year (9 million gallons per day) in case the GWR is delayed and unable to deliver water in time to meet state-ordered cutbacks. The company anticipates the decision of whether the desalination facility will be built to the 5,500 acre-foot per year or the 9,000 acre-foot per year level will be made in the last quarter of 2014 and will be based on how far the GWR has come in terms of its environmental review and other permitting work. Construction for the desalination and groundwater replenishment facilities would need to begin by the first quarter of 2015.
• The company plans to add two additional ASR wells, which would add an average capacity of 900 acre-feet per year.

California American Water’s application also discusses projected customer rate impacts for the proposed desalination facility and related infrastructure, which the company estimates will cost between $320 and $370 million, depending on which size facility is constructed. The company proposes implementation of a 30-percent surcharge in 2013 that would increase to 60 percent by the third quarter of 2014. The surcharge will not be subject to the company’s authorized rate of return and both the surcharge amount and the SRF loans would be exempt from real property taxes providing customers an estimated annual savings of $2.5 million. Over the next several years, the company estimates it will need to approximately double its annual revenues in order to fund the Monterey Peninsula Water Supply Project. The average bill is expected to increase by $26.50 to $38.50 per month to pay for the project. When taking into account additional known future rate impacts such as the removal of San Clemente Dam, costs associated with the Sand City desalination plant and other needed water system infrastructure improvements, customer bills are expected to increase from an average monthly amount of $34 to between $64 or $93, depending on how revenue requirements are ultimately approved for apportionment among various customer classes, such as commercial, residential, public authority and industrial. Bill impacts will also depend on actual construction costs and final interest rates. More detailed estimates on the project’s impact to customers’ bills will be developed as part of the CPUC review process.

Submission of the Monterey Peninsula Water Supply Project application to the CPUC begins an approximate 12-month process, which will include public participation hearings, held by the CPUC, to solicit input on the proposal. Environmental review of the company’s proposal will be managed by the CPUC. As part of the CPUC approval process, parties to the application, which include non-governmental organizations, citizens groups, local water agencies and the Division of Ratepayer Advocates, an independent arm of the CPUC, will participate in hearings before an Administrative Law Judge. Customers of California American Water on the Monterey Peninsula will receive an official notice of the company’s application in the coming weeks and will be directly notified of CPUC Public Participation Hearings when scheduled. Anyone interested in receiving email updates on the project can sign up at www.watersupplyproject.org.

Certain statements in this press release are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are predictions based on American Water’s current expectations and assumptions regarding future events and may relate to, among other things, its ability to obtain necessary regulatory approval for, and to finance and complete the Monterey Peninsula Water Supply Project, as well as rate adjustments related to the Project. Actual results could differ materially because of factors such as California American Water’s inability to obtain regulatory commissions’ approval of the Project and changes in rates, or, if approval is obtained, the timeliness of such approval; terms of financing or inability to obtain necessary financing for the Project; inability to secure any necessary modifications to laws, ordinances and regulations to enable construction of the Project; opposition to the Project by local water agencies, consumer, environmental and other governmental and non-governmental groups, and other parties; and adverse changes in laws, governmental regulations and policies, including environmental, health and water quality, and public utility regulations and policies. For further information regarding risks and uncertainties associated with American Water’s business, please refer to American Water’s annual, quarterly and other SEC filings. The company undertakes no duty to update any forward-looking statement.

California American Water, a wholly owned subsidiary of American Water (NYSE: AWK), provides high-quality and reliable water and/or wastewater services to approximately 600,000 people.

Founded in 1886, American Water is the largest publicly traded U.S. water and wastewater utility company. With headquarters in Voorhees, N.J., the company employs approximately 7,000 dedicated professionals who provide drinking water, wastewater and other related services to an estimated 15 million people in more than 30 states, and parts of Canada. More information can be found by visiting www.amwater.com.