Felton Prevails in Six-Year Fight to Acquire Water System from Cal-Am and RWE

FELTON PREVAILS IN SIX-YEAR FIGHT TO ACQUIRE WATER SYSTEM FROM CALIFORNIA-AMERICAN WATER AND GERMAN MULTINATIONAL CORPORATION RWE

FELTON, California, May 30, 2008 -- The community of Felton, California today prevailed in its six-year fight to acquire its water system from California-American Water, a subsidiary of the German multinational corporation RWE.

Cal-Am and the San Lorenzo Valley Water District (SLVWD) announced a purchase agreement today, less than a week before the planned start of an eminent domain trial where a jury would have set the value of the water system. SLVWD will make a total cash payment of $10.5 million to acquire the water system, including the 250 acres of forested watershed land, which Cal-Am is donating to SLVWD. In addition, SLVWD will assume the $2.9 million loan that Felton residents have been paying for a new treatment plant.

"This is great victory for the the citizens of Felton and should inspire other communities to challenge private water utilities that are extorting huge, unjustified rate increases," said Jim Mosher, who heads up Felton FLOW's legal committee. "The SLV Water District has done an excellent job representing us and we look forward to having them manage the water system for us."

This is the latest in a series of setbacks for the private water utility. RWE announced in late 2005 that it planned to exit the water market and sell its U.S. holdings in American Water. They couldn't find a buyer, and instead opted for an initial public offering (IPO), which they postponed in November 2007 because of poor market conditions. Despite an even worse market they moved forward with the IPO last month. Shares sold at 10% less than RWE predicted and unenthusiastic buyers only picked up 36% of the expected 40% of shares in the company. RWE announced another stock sale earlier this week at a share price $1 lower than the IPO price.

"Cal-Am's 'donation' of the watershed property is a PR ploy that, in reality, gives them a chance to apply for a big tax break," said FLOW steering committee member Barbara Sprenger. "Felton residents were already paying for the bond for a new treatment plant, so Ca-Am's claims are, at best, disingenuous. The bottom line is that Felton residents will have local control of their water system and we won't be saddled with water bills that largely go to pay overhead expenses that do nothing for Felton."

The SLV Water District has agreed to accept restrictions on the Felton watershed property, which will prohibit development and commercial timber harvesting on the land. These restrictions are consistent with SLV Water District’s long-held management policies. Part of Cal-Am's valuation of the property was that they had the right to build large homes and commercially log the forested watershed land.

Felton FLOW will schedule a community meeting at the Felton firehouse to explain the settlement and what it means for residents. The announcement will be posted on the Felton FLOW website (http://www.feltonflow.org shortly.

Felton's water system has been privately owned since the late 1800s. American Water purchased Felton's water system in 2001 as part of its larger acquisition of Citizen's Utilities. Shortly after that acquisition, American Water was acquired by RWE. RWE announced in late 2005 that it was exiting the global water market because it hadn't generated the expected profits, it hadn't done "due diligence" before buying the company and because American Water had failed to maintain the water delivery infrastructure and the required investment would have taken 200 years to complete.