Great Lakes Water Authority Memorandum of Understanding

SEPTEMBER 10, 2014

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DWSD MEDIATION PROCESS

§  Initial Authority discussions failed -  Based on “monetizing” DWSD assets / revenues to benefit of City of Detroit

General Fund creditors

§  April 2014 Judge Cox resumes DWSD mediation

§  Agreement that lease payment will “stay in the system” for City of Detroit local system or Detroit share of common costs

§  Finance Working Group determination of feasibility of $50 million “control premium” in form of lease payment

§  Memorandum of Understanding / Articles of Incorporation drafted for execution by Principals of counties and City of Detroit -  Pending affirmation by respective local government governing boards -  Multi-track implementation planning process pending

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§  Governance §  Lease §  Key Financial Terms §  O&M of Detroit and Other Local Systems §  Capital Improvements §  Treatment of Existing Contracts §  Evaluation and Transitional/Transactional Costs §  Management of the System for Benefit of Customers §  Termination of Authority or Withdrawal from Membership §  Conditions Precedent to Transfer §  Statement Regarding State Commitments

MEMORANDUM OF UNDERSTANDING OUTLINE  

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GLWA GOVERNANCE

-  Adoption of a procurement policy -  Approval of a lease of the Systems -  Removal of any Board member for

cause.

1  Vo%ng    Board  Member  

1  Vo%ng    Board  Member  

2  Vo%ng    Board  Members  

1  Vo%ng    Board  Member  

1*  Vo%ng    Board  Member  

-  Appointment of General Manager -  Approval of rates and rate-setting protocols -  Issuance of debt -  Annual approval of a rolling 5-Year CIP

§  Board appointed to 4-year terms serving “at will” -  Minimum education and experience requirements; compensation determined by Board

§  Supermajority (5/6) voting requirements for:

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GLWA LEASE & KEY FINANCIAL TERMS

Lease of DWSD Assets §  $50 million per year payments a

“common to all” revenue requirement

§  Held in separate Authority fund used at City’s discretion for: -  Detroit local infrastructure

improvements -  Detroit share of common to all

debt service or debt service for Detroit local improvement

Key Financial Terms §  GLWA has no taxing power §  Incorporating municipalities / GLWA

finances separate §  MFA available to Authority §  “Common to All” rate structure includes: -  Lease payment ($50M) -  $4.5M ratepayer assistance for all retail

users in GLWA system -  “Frozen” $26M recognitions of City

ownership §  Open, transparent financial reporting -  Pension liabilities limited per Bankruptcy,

monitored §  Assumes annual revenue

requirement increases of no more than 4% for each system

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OPERATION AND MANAGEMENT OF DETROIT AND OTHER LOCAL SYSTEMS /

§  City has right to continue to operate and retain employees for the local system in Detroit including to deliver -  Capital improvements -  Billing and collection system -  City to implement water loss practices

§  City may contract for selected operations & capital program delivery -  With GLWA -  With other service providers

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CAPITAL IMPROVEMENTS / EXISTING CONTRACTS

Existing Contracts §  The City will assign all

customer (wholesale) contracts to GLWA

§  GLWA a successor employer to DWSD. Collective Bargaining Agreements (CBAs) assured

§  Existing DWSD vendor contracts assigned to GLWA

Capital Improvements §  State agreement to

facilitate access to State administered financing

§  City of Detroit determines priorities for dispensing local system improvement funds

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IMPLEMENTATION COSTS / MANAGEMENT OF THE REGIONAL SYSTEM

Implementation Costs §  State agrees to give priority

consideration to a CGAP grant application to assist with payment of transactional costs

§  Veolia to undertake Peer Review of System -  No commitment to Veolia for

contract operations -  GLWA may adopt ideas or

recommendations and may engage Veolia selectively

System Management §  GLWA to adopt regional

perspective in water and sewer system management -  Revise Master Planning

§  Best efforts to optimize use of system capacities -  Objective to become provider of

choice in southeast Michigan -  Consider incentives to utilize

system capacities

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TERMINATION, CONDITIONS PRECEDENT & STATE COMMITMENT

§  Termination -  Incorporating Municipalities may terminate but remain liable for all

contractual obligations to GLWA. Governor appoints replacement member. City foregoes lease payment if it terminates.

§  Conditions Precedent to Transfer -  Incorporating Municipalities adopt MOU / Articles of Incorporation -  GLWA and City have negotiated (1) lease agreement, (2) agreements

relating to operation of Detroit local system and (3) transitional services agreement

-  GLWA and City of Detroit have secured necessary permits for systems -  City receives approvals under PA 436 and Plan of Adjustment confirmed -  City receives bondholder and credit enhancer consent

§  State Commitment -  Facilitate transaction, transfer of permits, and grant / loan funding

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SUMMARY OF REVENUES AND REVENUE REQUIREMENTS ($ MILLIONS) *

* All figures (prior to Lease Payment) reflect combined Water and Sewer figures as reflected in Series 2014 Bond Disclosure

** Note that the Lease Payment stays “within the System” and is used to fund capital improvements that would have been System revenue requirements in some form and at some point in time

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FORECASTED UNRESTRICTED CASH VS. LEASE PAYMENT ($ MILLIONS) *

0    

20    

40    

60    

80    

100    

120    

140    

160    

2015   2016   2017   2018   2019  

Unrestricted  Cash  

Lease  Payment  

* Unrestricted Cash figures reflect combined Water and Sewer totals from Series 2014 Bond Disclosure

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SUMMARY & NEXT STEPS