©2004 InfoNetrix LLC All Rights Reserved Worldwide 2-1 PART TWO Marketplace Characteristics Market Horizons™ Report Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace ( )

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-2 About This Report InfoNetrix LLC, an independent technical research and consulting firm specialized in utility automation and information technology (Utility Automation/IT) markets conducted the research for this report. InfoNetrix reports are available for subscription by any and all interested parties, foreign and domestic (except as prohibited by law), in accordance with the pricing and terms set forth in the prospectus, provided separately. This report addresses Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace. Other reports in the Market Horizons™ Series provide similar analyses of Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace and Geospatial & Field Automation Solutions (GFAS) in the North American Utilities Marketplace. Please visit for more information about these and other InfoNetrix Advisory Services. InfoNetrix LLC, an independent technical research and consulting firm specialized in utility automation and information technology (Utility Automation/IT) markets conducted the research for this report. InfoNetrix reports are available for subscription by any and all interested parties, foreign and domestic (except as prohibited by law), in accordance with the pricing and terms set forth in the prospectus, provided separately. This report addresses Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace. Other reports in the Market Horizons™ Series provide similar analyses of Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace and Geospatial & Field Automation Solutions (GFAS) in the North American Utilities Marketplace. Please visit for more information about these and other InfoNetrix Advisory Services.

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-3 General Information & Notifications PURPOSE The information contained in this document is for the sole use of InfoNetrix clients and is not to be distributed outside client organizations. No part of this publication may be reproduced, transcribed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any electronic storage and retrieval system, without permission in writing from the copyright owner. DISCLAIMER This publication has been prepared with care, however, no guarantee of accuracy, completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix be liable to any user of the publication or any portion(s) hereof for any direct or indirect damages, expenses, costs or losses of any kind resulting from its use. COUNTRY OF ORIGIN United States of America PURPOSE The information contained in this document is for the sole use of InfoNetrix clients and is not to be distributed outside client organizations. No part of this publication may be reproduced, transcribed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any electronic storage and retrieval system, without permission in writing from the copyright owner. DISCLAIMER This publication has been prepared with care, however, no guarantee of accuracy, completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix be liable to any user of the publication or any portion(s) hereof for any direct or indirect damages, expenses, costs or losses of any kind resulting from its use. COUNTRY OF ORIGIN United States of America

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-4 Research Standards & Methodology The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed. The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study. The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed. The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study.

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-5 Research Reliability & Acceptance The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material. For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely. By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services. (Detailed company contact information is provided on the web at: The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material. For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely. By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services. (Detailed company contact information is provided on the web at:

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-6 Market Horizons™ Report Contents 1.Executive Market Summary 2.Marketplace Characteristics 3.Market Drivers, Issues & Trends 4.Market Analysis & Future Outlook 5.Supplier Environment

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics Marketplace Characteristics Marketplace Overview Marketplace Structure & Composition Principal Market Segments Applications & Configurations Geographical Market Distribution

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-8 Marketplace Overview North American Water/Wastewater Utilities Marketplace The North American Water/Wastewater Management Solutions Real-time Automation & Controls (WWMS-RTAC) Marketplace

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-9 Marketplace Overview Water/Wastewater Utility Marketplace Pre-2003Pre-2003: Reductions in municipal tax base caused by the economic downturn have constrained automation project planning and budgets…  Municipal liquidity crisis ensued  Unpopular to spend money for automation when basic services were in economic jeopardy  Un-funded mandates (e.g, GASB- 34, Sarbanes-Oxley, etc.) placed new financial burdens on utilities  Security vulnerability audits paid for with EPA funding created new funding & implementation issues; funding now depleted but threat mitigation needs still exist

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-10 Marketplace Overview W/WW Utility Marketplace (Cont’d) : Economic recovery will gradually replenish municipal coffers, allowing a return to capital spending projects amid rising consumer awareness of the need and value of automation…  Security vulnerability assessments funded by the US EPA were to have been completed by mid-2004, but funding has been depleted; also, no funds available for implementation of mitigation measures among many smaller utilities  Widespread acquisitions of small public and private water companies will continue but at a somewhat slower pace than in prior years  Privatization initiatives have been stalled due to absence of promised benefits; some privatization contracts being reversed/rescinded

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-11 Water Treatment Plant Booster Pumps Sewage Treatment Post Treatment Storage Water Pipes Sewer Pipes Reservoir Ground Water Wells River Source Treatment Distribution Sewer/Treatment Discharge SOURCE: Sandia National Laboratories, Albuquerque, NM Marketplace Structure & Composition Water/Wastewater Market Environment

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-12 Marketplace Structure & Composition Largest Water Service Companies World Rank Name of CompanyName of Parent Organization HQ Country 1US FilterVeolia Environnment (formerly Vivendi Environnment; a unit of Vivendi Universal) France 2United Water Services (formerly United Water Resources) SuezFrance 3American Water (formerly American Water Works Corp.) RWE/Thames WaterGermany The world’s three largest water service companies each have extensive holdings among North American utilities and private operating companies in addition to equipment manufacturing and related services activities. Notably, the efforts of these companies to privatize water/wastewater facilities in North America have been plagued by consumer and political resistance, project failures and contract litigation. The previously brisk pace of water/wastewater system acquisitions has also been slowed.

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-13 Over 53,000 Community Water Systems (CWS)  Are year-round operations  Serve well over 90% of the US population  Represent about 1/3 of all water systems in the US About 17,000 Non-transient, Non-CWS (NTNCWS):  Serve buildings, factories, etc.  Operate ≤ 6 months per year  Represent about 12% of all water systems; serve ~ 2% of population Almost 90,000 Transient, Non-CWS (TNCWS):  Serve campgrounds, gas stations, etc.  Operate only for short durations  Represent ~50% of all water systems; serve ~ 5% of population Marketplace Structure & Composition Water/Wastewater Market Composition There are over 160,000 public water systems in the U.S. alone

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-14 Populations Served by CWS Large Community Water System Utilities (by Population Served) SOURCE: US EPA There are over 53,000 CWS - but communities having populations above 10,000 are served by only about 3,300 water systems Marketplace Structure & Composition CWS Market Composition Detail

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-15 Marketplace Structure & Composition Canadian Water Policy & Legislation Canada passed the Canada Water Act in 1970 and created the Department of the Environment in 1971, entrusting the Inland Waters Directorate with providing national leadership for freshwater management. Federal government is responsible for fisheries, navigation and external affairs, but the provinces are the “owners” of the water resources and have broad responsibility for day-to-day management. Canada released its Federal Water Policy in 1987, which provides focus to water-related activities of all federal departments.

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-16 WWMS Real-time Automation and Controls (RTAC) D&C Plant System Solutions PAS Field Data Devices (FDDs) SCADA-Supervisory Control & Data Acquisition PAS-Process Automation Systems D&C-Distribution & Collection SCADA Hybrid Systems Marketplace Structure & Composition WWMS-RTAC Market Organization Model Water/Wastewater Management Solutions (WWMS) RTAC Market Organization

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-17 System Solutions Segment  SCADA Systems -  SCADA Systems - Generally applied in water distribution and wastewater collection (e.g., lift station monitoring) applications. May either be integrated or simply interfaced (often at the host data level) with PAS in cases where water purification and/or wastewater treatment plants are included in the automation scope.  Process Automation Systems (PAS) -  Process Automation Systems (PAS) - Generally involves real- time process measurement and control for water purification and/or wastewater treatment plants. May be integrated or interfaced with SCADA. In some cases, the PAS host system may also serve as the SCADA host or vice versa to form a hybrid.  Hybrid Systems -  Hybrid Systems - Combined (i.e., interfaced or integrated) SCADA and PAS systems. Applications & Configurations Principal WWMS-RTAC Market Segments

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-18 Field Data Devices (FDD) Segment  Plant FDDs  Plant FDDs may be any of several types, including traditional remote terminal units (RTUs); programmable logic controllers (PLCs); or other distributed control system (DCS) nodes consisting of a computing element, communications interface and a complement of analog/digital input-output devices. Plant FDDs are most commonly PLCs or DCS nodes operating over a hi-speed communications network such as Ethernet, Fieldbus, Modbus Plus or other standard. Units inside the plant perimeter tend to have larger amounts of I/O than their remotely located counterparts.  Distribution & Collection FDDs  Distribution & Collection FDDs may be traditional RTUs, but PLCs are increasingly popular for both in-plant and remote applications, the latter offering potential gains in compatibility, standardization, initial cost and support. Applications & Configurations (Cont’d) Principal WWMS-RTAC Market Segments

©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 2: Marketplace Characteristics 2-19 Geographical Market Distribution US-Canada WWMS Spending Ratio US-Canada Annual WWMS Expenditures Ratio ( ) WWMS expenditure ratios have remained between 90/10 & 85/15 for several decades ratio expected to remain at 90/10 (i.e., after currency normalization); no strong change agents are apparent at this time