1

Middletown Borough Project Overview

June 2015

2

The Value of Water

$1.3 trillion to upgrade our water and waste water systems over the next 25 years

WATER INFRASTRUCTURE RATED D

3

U.S. averages 700 water main breaks daily, say experts

According to the American Society of Civil Engineers, each day, leaking pipes account for an estimated 7 billion gallons of water

According to the EPA, in biggest systems across the country, 30% of water pipes are 40 to 80 years old

There is approximately 184,000 feet of pipe in Middletown. 98,800 feet have been in the ground since before 1961 (over 55 years)

The Value of Water

4

Middletown Water & Sewer System

Water System Sewer System

5

Provides water services in US for over 140 years

Serves 5.7 million people Revenue $900M Total assets $2.5B Three Business lines:

Regulated Services: 20 regulated utilities

Environmental Services: 90+ O&M contracts

Technology Solutions O&M

Indianapolis Wastewater System

O&M West Basin Reuse Facility

Regulated UWNJ

Water Utility

Bayonne Concession

United Water/ Suez Environnement Full Service Management & Operation

6

UWPA abuts it to the West

Middletown

United Water PA serves the following communities:

Harrisburg Bethel Bloomsburg Chambersburg Dallas Mechanicsburg

and now

Middletown!

United Water Pennsylvania

7

Leading investment firm Private Equity, Infrastructure & Natural Resources, Credit & Mezzanine, Public Equity

Global presence Offices in 15 major cities in 11 countries across 5 continents

One-firm culture that evolves, learns, and innovates Adaptive to change

Relationship-driven approach Sourcing investment opportunities Partnering with clients

Aligned with our partners Eat our own cooking

Economic incentives driven by results Focused on managing stakeholder interests

Assets Under Management

As of December 31, 2012 ($ in billions)

Established in 1976, Kohlberg Kravis Roberts & Co. L.P. (KKR) is a leading global investment firm with industry-leading investment experience, in-depth industry knowledge, sophisticated processes for growing and improving businesses, and a strong culture committed to teamwork

KKR Overview

8

Middletown Water and Wastewater System Overview

Population served: 9,400 people

Customers: 2,700

Groundwater Wells: 6

Storage Tanks: 3

WWTP Capacity: 2.2 MGD

Service Area: 2.1 sq-miles

Water Main: 36.2 miles

Sewer Mains: 24.8 miles

9

The Water and Wastewater systems are old, but in relatively good shape for a municipal system

Water System Groundwater source is of sufficient capacity Flood Plain project for elevation of Wells # 1 and 2 and related equipment

out of flood plain 2,500 l.f. of water main replacement projects annually

Sewer System WWTP is new Separate Sewer System with high Infiltration/Inflow Signs of illegal stormwater connections

Staffing 9 full-time employees and 1 part-time employees

Middletown System Overview

10

Unfunded Pension Liability & System-Related Debt

Credit quality: Borough needed funds for other services

While highly qualified staff has managed the utility there is not a lot of bench strength

Mechanisms for guaranteed capital improvements

Improve asset condition and customer service

Strengthen balance sheet and retire debt

Steady and predictable rate rises for consumers

Maintain utility jobs and improve staff training

Challenges Objectives

Project Challenges & General Objectives

11

Upfront payment - $43 Million Annual payments Guaranteed capital funding Borough still owns systems Predictable rates No layoffs Professional system operator

Middletown Transaction Highlights

12

Defined Revenue Requireme

nt

Actual Revenue

Revenue path stabilizes future rate increases and provides flexibility to guarantee ongoing investment

Improved system efficiency reduces operating costs

Capital investment reduces risk of service disruption and protects the environment

Long-term Contract Provisions Provide Customers Greater Reliability And Stability

13

oFlood protection project for wells #1 and #2 and related equipment

oGenerator installations oStructural modifications to the old water treatment plant/

well #1 controls oRt 230/Main Street water main replacement oSpring Street water main replacement

Uncompleted Work (Borough Implemented Pre-Concession)

14

Base CAPEX (Major Maintenance Projects)

o Disinfection Systems - Gaseous chlorine conversion

o Upgrades to Supervisory Control and Data Acquisition (SCADA)

o Hydrant and valve replacements o Geographic Information Systems

(GIS) o Miscellaneous wastewater

equipment (pump replacements) o Customer Service Window

Capital Improvement Projects

15

Major CAPEX oAgreement mandates 2,500 linear feet or water main

replacement per year and other capital improvements as required to maintain the integrity and reliability of the system o Initial capital plan estimates this to be approximately $1.0

million a year o A 5-year capital plan under development as stipulated in

the agreement oProject by Project approval process oThe Boroughs Required Capital Improvements trigger a

Capital Costs Recovery Charge (CCRC)

Capital Improvement Projects

16

Questions?