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City of   Chattanooga Vows to End American Water Works' Franchise ... So It Can Outsource!

CHATTANOOGA, Tenn., April 23, 1999 - Attorneys for the City of Chattanooga met in Chancery Court today to schedule proceedings to resolve a 1977 lawsuit that charged the 99-year franchise granted to Tennessee-American Water Company by the state of Tennessee expired in 1967. The Chancellor set a hearing for August 13, 1999 on the matter.

"I believe that this decision will seriously impact the valuation of the water system. A water system with no franchise to use the city streets would have minimal value," said Mayor Jon Kinsey. TAWC is owned corporately by American Water Works Company, Inc. (NYSE:AWK) of Vorhees, New Jersey. American Water Works also owns Illinois-American Water Company.

The 1977 litigation was filed by Tennessee-American in an effort to prohibit the City from granting local manufacturers the right to obtain water for their manufacturing processes from sources other than Tennessee-American. These manufacturers had drilled wells to provided needed water for their factories in response to very large Tennessee-American rate increases in the 1970s, rate increases which were as high as 36 percent in a single year.

In November of 1998, Chattanooga's nine-member City Council unanimously authorized Mayor Kinsey to acquire the system assets, either through a negotiated purchase or through eminent domain. Additionally, the Council appropriated funds for consultant and legal fees associated with the acquisition. Tennessee American has refused to negotiate with the City and eminent domain proceedings are being readied by City attorneys.

"When I began looking into the possibility of acquiring Water Company assets, I learned of the 1977 lawsuit and the counterclaim by the City. The City's attorneys have determined that there have been a number of new legal developments since the 1981 trial, and I have instructed them to promptly bring these matters to the attention of the Chancery Court and to request that a decision be rendered in the City's favor," Mayor Kinsey stated.

"The City of Chattanooga has never granted Tennessee-American Water Company a franchise to use City streets to deliver its water product. The 1868 franchise was granted by the State Legislature without any local input into the decision. Tennessee-American has never bothered to come to the City of Chattanooga to obtain a renewal of the State franchise, following its expiration in 1967," the Mayor said.

"It is important that this long-standing legal issue be resolved. In the course of its resolution, the City will take whatever steps are necessary to ensure that water supply to our citizens is not interrupted," Mayor Kinsey said.

For more information, please call Ken Hays, Chief of Staff at 423/757-5152.

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