3. Request

Cal Am seeks authorization to issue, sell, and deliver up to $85 million of Debt Securities until the aggregate principal amount authorized has been fully utilized to meet its future financing needs based on a long-term forecast covering the three-year period 2010 through 2012. Cal Am plans to use the proceeds to discharge existing debt, reimburse its treasury for capital expenditures, and fund construction, completion, and improvement of facilities.

Cal Am proposes to issue the majority of the Debt Securities requested in the current application pursuant to its Financial Services Agreement¹ (Agreement) with American Water Capital Corporation (Capital Corp.), another subsidiary of AWWC, whose purpose is to provide financing to AWWC and its regulated subsidiaries. The terms of borrowing under the Agreement are as follows:

1. Debt Securities may be issued up to the aggregate authorized amount.

2. Maturities will be not more than 30 years from the date of issue, with the expectation that the maturity dates can be from 5 to 30 years, depending upon market conditions.

3. Interest rates will be determined by market conditions.

4. Interest will be payable on the same business day on which Capital Corp. must pay its corresponding interest payments on the borrowings from which the proceeds of the loan were derived. This is expected to be monthly, quarterly or semiannually and is subject to final negotiation.

5. No taxes on Debt Securities are assumed by issuer.

6. The Debt Securities will be unsecured.

7. The Debt Securities will have the same callability and redemption features that Capital Corp. obtains in connection with its borrowings from which the proceeds of the loans are derived. The Debt Securities will have no conversion features.

8. There are no maintenance and depreciation requirements unless the borrowings are made on a tax-free basis.

9. The Debt Securities will reflect whatever terms Capital Corp. can obtain from its lenders.

10. Normally there will be no sinking or other fund provisions.

If Cal Am issues Debt Securities to an entity other than its affiliate Capital Corp., the contract will be between Cal Am and the issuer. Cal Am also proposes that it may obtain tax-exempt financing through Capital Corp. or directly through government entities. As discussed above, issuances of Debt Securities through Capital Corp. will be unsecured, while tax-exempt financing issued through Capital Corp. or obtained directly from a government entity may be issued on a secured or an unsecured basis. In general, each series of long-term Debt Securities is expected to have a maturity of between 5 and 30 years. Cal Am also seeks exemption from the Commission's Competitive Bidding Rule.

¹ Financial Services Agreement dated June 15, 2000.