Great Lakes Water Authority Memorandum of Understanding SEPTEMBER 10, 2014

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1 Great Lakes Water Authority Memorandum of Understanding SEPTEMBER 10, 2014

2 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 2

3 MEMORANDUM OF UNDERSTANDING OUTLINE 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 3

4 GLWA GOVERNANCE 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 Board appointed to 4-year terms serving at will - Minimum education and experience requirements; compensation determined by Board Supermajority (5/6) voting requirements for: - Appointment of General Manager - Approval of rates and rate-setting protocols - Issuance of debt - Annual approval of a rolling 5-Year CIP - Adoption of a procurement policy - Approval of a lease of the Systems - Removal of any Board member for cause. 4

5 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 5

6 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 6

7 CAPITAL IMPROVEMENTS / EXISTING CONTRACTS Capital Improvements State agreement to facilitate access to State administered financing City of Detroit determines priorities for dispensing local system improvement funds 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 7

8 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 8

9 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 9

10 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 10

11 FORECASTED UNRESTRICTED CASH VS. LEASE PAYMENT ($ MILLIONS) * Unrestricted Cash Lease Payment * Unrestricted Cash figures reflect combined Water and Sewer totals from Series 2014 Bond Disclosure 11

12 SUMMARY & NEXT STEPS 12