1. Guam Society of Professional Engineers Presentation John M. Benavente, P.E. Martin L. Roush, P.E. January 25, 2011 Guam Waterworks Authority December 6, 2010

2. Presentation Agenda 1.Introduction 2.Military Buildup 3.GWA Overview 4.Capital Improvement Program 5.Ongoing and upcoming initiatives 6.Conclusion 1

3. Mission Statement: GWA will Provide the community of Guam with outstanding customer service in delivering excellent water and wastewater services in a safe, reliable, responsible, and cost effective manner. GWA recognizes that employees are its greatest asset!! 2

4. 1.Introduction 3

5. Consolidated Commission on Utilities (CCU) The CCU was created by Public Law in 2002 Five members elected at large with staggered four year terms to oversee the Guam Waterworks Authority and the Guam Power Authority Functions like a Board of Directors with fiduciary, strategic and oversight responsibilities –Includes setting of rates subject to the regulatory review and approval of the Public Utilities Commission –The CCU hires GWA’s General Manager, Chief Financial Officer and Attorney and retains contracting authority for GWA The CCU has acted independently to improve GWA performance, obtain federal compliance, and plan for the future The CCU is an independent governing board From Left to Right: Eloy P. Hara, Vice-Chair for GWA, CCU Chairman for the Committee on Customer Relations Joseph T. Duenas, Treasurer Gloria B. Nelson, Secretary, Chair for the CCU Committee for Employee Development and Relations Benigno M. Palomo, Vice Chair for GPA, CCU Chairman for the Committee on Social Welfare Simon A. Sanchez, II, Chairman Current CCU Board Members Simon A. Sanchez, II - Elected and Chairman Since 2003 –Former Vice Chairman of the PUC, Senator and Businessman Benigno M. Palomo - Elected Since 2003 –Former Senator and 30 year Government of Guam Employee Eloy P. Hara - Elected Since 2007 –Former Assistant GM of GPA and PUC Member Gloria B. Nelson - Elected Since 2005 –Teacher and Former Chair of Guam Board of Education Joseph T. Duenas - Elected Since 2008 –Former PUC Chairman and Rev & Tax/DOA Director, Local Businessman 4

6. GWA Overview GWA has faced some challenges over the past few years and has taken significant steps to address those challenges Multi-year rate increases have been put in place to replenish necessary reserves, improve debt service coverage, fund capital needs and provide future liquidity GWA is making prudent capital investments to meet EPA requirements while improving the system in a cost-effective manner GWA is well-positioned to accommodate and benefit from the anticipated military buildup while committing its core resources to the system's generic growth and capital needs GWA possesses the credit fundamentals of an essential island utility with experienced management and strong regulatory support firmly in place GWA’s continues to improve its engineering capacity and the utility is well- positioned for remarkable growth 5

7. 2. Military Buildup and Guam Waterworks Authority 6

8. Military Buildup and GWA: Collaboration GWA and the Department of the Navy signed an MOU in July 2010 detailing broad agreement to upgrade water and wastewater systems to support the buildup while protecting the environment GWA and USEPA worked together to identify $1.14 Billion in projects to insure the buildup and Guam’s resulting growth can be supported for the long term The Record of Decision contained the Department of Defense’s commitment to pursue this funding from Japan and Federal sources The Department of Defense is negotiating with Japan to determine how it will invest its $740 million for water, wastewater and power improvements GWA continues regular meetings with the Department of Defense and USEPA to plan the final scope and timing for upgrades GWA and GPA will be engaging Performance Management Contractors to assist in Buildup and Other infrastructure upgrade needs GWA has been actively involved in all military buildup discussions 7

9. Military Buildup and GWA: Details The Department of Defense to provide loans from the Government of Japan at no cost to GWA rate payers Allocation of $580 Million: –$340 million to upgrade Guam’s two largest wastewater plants, increasing their capacity and changing processing to secondary treatment  This upgrade will provide sufficient treatment capacity to absorb Guam’s growth beyond the buildup –$160 million for a new Northern water system to be connected to existing GWA and Navy water systems, providing greater reliability and enough capacity for all northern customers beyond the buildup –$80 million for upgrades of Guam’s central wastewater collection system Repayment costs related to Japan’s $580 million will be paid by the Department of Defense The recent GWA financing of $118M will be used to upgrade infrastructure that is not related to the buildup The Department of Defense to provide $580M to upgrade GWA infrastructure for civilian and military growth 8

10. 3.GWA Overview 9

11. Background GWA is the sole supplier of civilian island water and wastewater needs www.guamwaterworks.org In 2002, GWA became a Guam public corporation under the control of the Consolidated Commission on Utilities (CCU) GWA facts: –311 full time employees –39,000 customers –$495 million in total assets –$74M O&M Budget 10

12. GWA’s Water System Three water systems –Extensive facilities –108 operable wells, 2 springs –1 treatment plant –29 reservoirs –26 booster stations –800 miles of pipe Population served –156,000 (civilian) –Department of Defense maintains separate system –GWA buys some of its water from the U.S. Navy for its needs GWA provides all water service to the civilian population on Guam 11

13. Existing GWA and Navy Water Systems 12

14. GWA’s Wastewater System 7 service basins Extensive facilities –145 miles of pipe –72 pumping stations –7 treatment plants –3 ocean outfalls Population served –100,000 (civilian) –Treats all Air Force and part of Navy wastewater GWA will add the new Marine base to join Anderson Air Force base as two large military wastewater customers GWA collects and treats wastewater throughout the island 13

15. Existing GWA and Navy Wastewater Systems 14

16. 4. Capital Improvement Program 15

17. FY 2011 Budget Sources and Uses of Funds 16 FY 2011 Income Sources:Percentage Base Rate Water/Wastewater78% Surcharge8% System Development Charge4% Grants11% Total:100% FY2011 Uses of Funds:Percentage Labor22.9% Power17.6% Debt Service ( 2005 Bond, BOG ST)16.2% CIP ( Grants, Cash)14.8% Other13.1% Surcharge (GPA, Navy, Retiree)8.2% Purchased Water7.2% Total:100.0%

18. GWA’s Capital Improvement Program Only 65% of the CIP is being funded with revenue bonds Future bond issue size may decrease substantially with additional sources from the military buildup anticipated GWA’s CIP represents funding of necessary improvements unrelated to the buildup GWA's Capital Improvement Program: Sources and Uses ($000s) Fiscal Year Ending September 3020102011201220132014Total Capital Improvement Program (1) Water Production, Treatment and Distribution$9,212$24,112$34,032$16,951$25,146$109,453 Wastewater Collection and Treatment4,00010,6354,29917,85615,51852,308 Electrical, Including Monitoring and Control663,7842,3504,6141,75012,564 Miscellaneous1018,2136,4008,4003,83526,949 Total$13,379$46,744$47,081$47,821$46,249$201,274 Sources of Funds Current Revenues (2) $0$500$2,000$2,500 $7,500 Proceeds form the 2005 Bonds4,7304,7970009,527 Proceeds from the 2010 Bonds027,79836,43219,872084,102 Proceeds from Future Bonds (3) 00016,80020,50037,300 Proceeds from Loans (4) 05,000000 System Development Charges (5) 000014,600 Grants8,649 43,245 Total$13,379$46,744$47,081$47,821$46,249$201,274 1.Escalated to future dollars using an assumed annual rate of escalation of 4%. 2.Revenues available for capital improvements after paying operating expenses and debt service. 3.Assumes bonds are issued in FY2013 to fund approximately $37.3 million of the remaining CIP through FY2014. 4.Amount in FY2011 represents a portion of the proceeds from the $30 million Bank of Guam loan obtained in June 2010. 5.Represents expenditure of amounts collected annually starting in 2010. 17

19. Potable Water CIP Summary ( x 1,000) CIP #Name20112012201320142015 PW 05-01Ground Water Disinfection$727 PW 05-02Water Reservoir Condition Assessment$439 PW 05-03Booster Pump Rehabilitation, Phase II$303$125 PW 05-04Ugum Water Treatment Plant Refurbishment$200 PW 05-05“A” Series Well Transmission Line$745$600$59 PW 05-06Water Booster Pump Station$500$3,766 PW 05-07Meter Replacement Program$3,500$6,000 PW 05-08Barrigada Tank Repair/Replacement$2,000 PW 05-09Leak Detection / Line Replacement$3,077$364 PW 05-10Potable Water System Planning$200$500$800 PW 05-11Implement Ground Water Rule PW 05-12Brigade II (Ugum Lift) BPS Upgrade$1,200 PW 05-13Deep Well Rehabilitation$548 PW 05-14New Deep Wells at Down Hard Well Sites$3,773 PW 05-15Rehabilitation of Asan Springs Ground Reservoir$900 PW 05-16Master Meters$100$1,500 PW 09-01Ugum Water Treatment Plant Intake Modifications$1,470$2,200 PW 09-02Water Wells$2,356$1,000$9,500$5,500 PW 09-03Water Distribution System Pipe Replacement$1,848$5,384$3,500$5,698$5,520 PW 09-04Pressure Zone Realignment/Development 2005 Impr.$1,150$2,400$1,400 PW 09-05Northern System Water Distribution System 2005 Impr.$2,425$300$875$500 PW 09-06Central Water Distribution System 2005 Improvements$600$300$600 PW 09-07Southern Water Distribution System 2005 Improvements$500$650$1,300 PW 09-08Mechanical/Electrical Equipment Replacement$500$430$860 PW 09-09Water Reservoir Internal/External Corrosion Asmt.$500 PW 09-10Water Reservoir Internal/External Corrosion Rehb.$800 $400 PW 09-11Water System Reservoirs 2005 Improvements$3,697$8,000$5,000$3,000$12,503 PW 11-01Distribution System Upgrades$1,500$1,682$618 PW 11-02Ugum Water Treatment Plant Reservoir Replacement$1,322$2,350 Total$26,112$34,032$16,951$25,146$31,823 18

20. Wastewater CIP Summary ( x $1,000) CIP #Name20112012201320142015 WW 05-01Old Agat Wastewater Collection (Phase II)$1,200 WW 05-02Collection Line Upgrade/ Collection System Upgrades* WW 05-03NDWTP Diffuser Installation* WW 05-04Wastewater System Planning$1,500 WW 05-05Wastewater Vehicles$235 WW 05-06Wastewater Pump Station Upgrades* WW 05-07NDWWTP - Chlorine Tanks$250 WW 05-08Umatac-Merizo STP Improvements* WW 09-01LS Priority 1 Upgrades* WW 09-02Moratorium$5,000 WW 09-03Old Agat Collection Continuation (Phase III)$1,200 WW 09-04Manhole Frame Seal Repair* WW 09-05Agat Manhole Rehabilitation WW 09-06Wastewater Collection System Repl./Rehabilitation* WW 09-07Sewer Upgrades$100 WW 09-08Facilities Plan/Design for STP Repl.$2,575 WW 09-09Facilities Plan/Design for the N. District STP Bio-solids* WW 09-10Facilities Plan/Design for Agat-Santa Rita STP Repl.$600$1,624 WW 09-11WWTP Priority 1 Upgrades$6,751 WW 11-01Priority 1 Sewer Upgrades – Agat District$2,500 WW 11-02Priority 1 Sewer Upgrades – Baza Garden District$650 WW 11-03STP Replacement$3,567$6,267$12,078 WW 11-04Facilities Plan/Design for the Umatac-Merizo STP Impr.$140 WW 11-05Facilities Plan for Hagatna STP Impr. & Effluent WWPS* WW 11-06Hagatna STP Improvements and Effluent WWPS* WW 11-07Northern District STP Expansion – Biosolids Electrical* WW 11-08Agat/Santa Rita STP Replacement$14,289 Total$10,635$4,299$17,856$15,518$12,218 19

21. Electrical and General Plant CIP Summary ( x $1,000) CIP #Name20112012201320142015 EE 05-01Well Electrical Protection$134 EE 05-02SCADA Pilot Project$300 EE 09-01Wastewater Pumping Station Electrical Upgrade$614 EE 09-02Electrical Upgrade - Water Wells$500 $2,000$500 EE 09-03Electrical Upgrade - Water Booster Pump Stations$650 EE 09-04Electrical Upgrade -Water Booster Pump Stations$350 EE 09-05Electrical Upgrade - Other Water Booster Pump Stations$250 EE 09-06SCADA Improvements – Phase 1$250 EE 09-07SCADA Improvements – Phase 2$1,100 EE 09-08SCADA Improvements – Phase 3$1,500$1,000 EE 09-09SCADA Improvements – Phase 4$850$750$1,250 Total$3,784$2,350$4,614$1,750 CIP #Name20112012201320142015 MC 05-01Laboratory Modernization$400 MC 05-02Land Survey$743$500 $493 MC 09-01General Plant Improvements / Water Distribution System$7,070$5,500$7,500$3,342$997 Total$8,213$6,400$8,400$3,835$997 20

22. 5. Ongoing and upcoming initiatives 21

23. Current Major Initiatives  Compliance with the current Stipulated Order and negotiation of a consent decree or a second Stipulated Order  Implement the recommendations of the management audit  Implement the capital improvement programs to improve operation reliability, production capability and reduce overall operational cost  Continue the training and certification programs to insure having adequate personnel to effectively and efficiently run the systems  Continue our CTP compensation program to attract and retain qualified and experienced employees  Continue to work with DoD to upgrade infrastructure utilizing federal family funding  Continue to work towards compliance with the Safe Drinking Water Act and the Clean Water Act 22

24. 6. Conclusion 23

25. Conclusion Utility is poised for significant growth due to military buildup Elected CCU governance structure is working Positive actions taken by the PUC has led to a return to financial health and credit rating agencies confidence Experienced management and engineering team Stable and increasing revenue base 2010 $118M bonds to trigger major infrastructure upgrades Working collaboratively with USEPA on new Consent Decree to reflect the impact of military buildup Military buildup to fund $580 Million in improvements at no cost to GWA ratepayers Substantial engineering help needed in the Horizon GWA’s has improved dramatically and is poised for even stronger performance in the coming years 24