ALJ/MFG/hkr Mailed 5/4/2007

Decision 07-05-031 May 3, 2007

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of California-American Water Company (U-210-W), a California Corporation, RWE Aktiengesellschaft, a Corporation Organized Under the Laws of the Federal Republic of Germany, Thames Water Aqua Holdings GmbH, a Corporation Organized Under the Laws of the Federal Republic of Germany, and American Water Works Company, Inc. for an Order Authorizing the Sale by Thames GmbH of up to 100% of the Common Stock of American Water Works Company, Resulting in a Change of Control of California-American Water Company and For Such Related Relief as May be Necessary to Effectuate Such Transaction.

Application 06-05-025
(Filed May 22, 2006)

Steefel, Levitt & Weiss, by Lenard G. Weiss, Lorie A. Dolquiest, and Sarah E. Leeper, Attorneys at Law, for California-American Water Company, RWE Aktiengesellschaft, Thames Water Aqua Holdings GmbH, and American Water Works Company, Inc., joint applicants.

Mark West Area Community Services Comm., by James M. Bouler; Utility Workers Union of America, by Carl Wood, and Bernardo R. Garcia; Davis Wright Tremaine, LLP, by Edward W. O'Neill, Attorney at Law, for the San Lorenzo Valley Water District; County of Santa Cruz, by Dana McRae; and, Felton Flow, by James F. Mosher, interested parties.

Selina Shek, Attorney at Law, for Division of Ratepayer Advocates.

OPINION APPROVING A CHANGE OF CONTROL

TABLE OF CONTENTS

Title Page

OPINION APPROVING A CHANGE OF CONTROL 2 2

I. Summary 2 2

II. Jurisdiction 2 2

A. Section 854(a) 3 3

B. Section 854(b) and (c) 4 4

C. Section 854(d) 4 4

III. Parties 4 4

A. Cal-Am 6 6

B. American Water 6 6

C. Thames GmbH 6 6

D. RWE 7 7

IV. Proposed Transaction 7 7

V. Public Interest and Ratepayer Benefit 9 9

A. Applicants' Position 10 10

1. Capital Structure 10 10

2. Access to Capital 11 11

3. Publicly Traded Company 11 11

4. Local Control 12 12

5. Employee Relations 12 12

6. Ratepayer Transparency 12 12

B. DRA's Position 13 13

C. Discussion 13 13

1. Undisputed Conditions 14 14

2. Condition Number 8 15 15

3. Condition Number 9 17 17

4. Condition Number 10 20 20

5. Condition Number 11 22 22

6. Condition Number 13 22 22

7. Condition Number 14 24 24

8. Condition Number 15 26 26

9. Condition Number 16 27 27

10. Condition Number 17 28 28

D. Conclusion 29 29

VI. Environmental Assessment 29 29

VII. Confidential Information 29 29

VIII. Categorization and Need for Hearings 30 30

IX. Comments on the Proposed Decision 30 30

X. Assignment of Proceeding 31 31

Findings of Fact 31 31

Conclusions of Law 36 36

ORDER 39 39

APPENDIX A: California-American Water Company
Conditions on Transfer of Indirect Control

APPENDIX B: Joint Applicants' Position on Conditions Proposed
by Division of Ratepayer Advocates (As of December 13, 2006)

APPENDIX C: Conditions Imposed in Decision 02-12-068

OPINION APPROVING A CHANGE OF CONTROL

I. Summary

By this decision, we approve the proposed transaction as described in the application, which involves: (1) a transfer of indirect control of California-American Water Company (Cal-Am), wholly owned by American Water Works Company, Inc. (American Water), through the sale of up to 100% of the shares of common stock of American Water through an Initial Public Offering (IPO), and any subsequent public offerings to be listed on the New York Stock Exchange by American Water's parent company, Thames Water Aqua Holdings GmbH (Thames GmbH); and (2) prior to the closing of the IPO, the merger of Thames Water Aqua U.S. Holdings, Inc. (TWAUSHI), the intermediate holding company for all of RWE's water and wastewater businesses in the United States and a wholly owned subsidiary of Thames GmbH, with and into American Water. This approval is subject to the conditions set forth in Appendix A of this order.