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Importance: High Ed/Randy: Attached is the Flint Water Report. Given the volume of information, | have kept the report focused upon the issues germane to the DEQ violation notice and the offer from DWSD. | have tried to keep technical jargon to a minimum, but some inclusion was necessary in order for some items to be clear. (also went back into our records to see what rate projections were assumed to be in order to cross-compare the City’s analysis of the DWSD proposal. However, | kept references to all of this at a minimum. If there are any questions, let me know. Eric Cline | Department Manager State of Michigan | Michigan Department of Treasury | Office of Fiscal Responsibility 430 W. Allegan Street, 3rd Floor | Lansing, MI 48922 Lansing Office (517) 335-2078 | Cell Phone (517) 243-8350 | Traverse City Office (231) 922-5228 E-mail cliner 1 @michigan.gov CONFIDENTIALITY NOTICE: This e-mau, and any attachments, 1s for the sole use of the intended recipient(s) and may contain information that is confidential and protected from disclosure under the law. Any unauthorized review, use, disclosure, or distribution 1s prohibited. If you are not the intended recipient, please contact the sender by reply e-mail, and delete/destroy all copies of the original message and attachments Thank you. 26 xxxEND_PAGE:treasury01_b28_4390_4585_084 72 (Rev 11-13) STATE OF MICHIGAN GOVERNOR LANSING STATE TREASURER SUMMARY REPORT TO: Wayne Workman, Deputy State Treasurer FROM: Eric Cline. Department Manager; Office of Fiscal Responsibility SUBJECT: Summary of Flint Water System Issues DATE: January 22, 2015 Summary On December 16, 2014, the City of Flint received a violation notice from the Michigan Department of Environmental Quality (DEQ). This notice stated that the City water samples were in violation of Maximum Contaminant Levels (MCL), a violation of the Safe Drinking Water Act (PA 399 of 1976). The DEQ considers the violation period to have begun December 1, 2014. The violation was triggered when water sample reports showed that the City’s water quality, on average, exceed the total allowable level of Disinfection Byproducts during the first three quarters of 2014. Further, four of the City’s eight water sample site locations individually exceeded allowable MCL levels during the same period of 2014. These conditions are considered a Tier 2 violation and, as a result, the City was required to notify the public of these contamination levels by January 10, 2015 (which was done) and continue to notify them every three months until the violation is resolved. The City must also update its Operational Evaluation Report, which is on-file with the DEQ, as to how it will correct this issue by March 1, 2015. Causes & Possible Solutions According to information provided by the City, the high levels of Disinfection Byproducts, which resulted in the DEQ violation notice, can be caused by high levels of chlorine. The City is required to perform testing every three months and the yearly average exceeded allowable MCL levels. Some of the potential causes for this high level of chlorine include: Inefficient ozone system operation. A sewer leak discovered upstream of the intake, resulting in the need to increase the chlorine feed. An improper softening process. Unlined cast iron pipes in the distribution system. Recirculating water in the distribution system due to poor configuration of two pump stations. Broken valves resulting in stagnant water. High chlorine demand in filters. PO BOX 30716 » LANSING, MICHIGAN 48809 ww michigan govftreasury e (517) 373-3200 xxxEND_PAGE:treasury01_b28_4390_4585_085 Page 2 e High potential of impurities in the source water. © Less than optimal removal of impurities. The City outlined some potential remedies to this problem in its initial Operational Evaluation Report, dated November 26, 2014. These potential remedies are intended to be implemented in stages. Stage 1 consists of actions that can be implemented without any new construction within the distribution system and are due to be implemented by early March 2015. Stage | actions include: Troubleshooting of the ozone system. Implementation of different testing methods. Operational changes at the Water Treatment Plant. Increase water main flushing efforts to minimize stagnant water. Identify areas with high water age and implement preemptive measures. Stage 2 consists of long term actions that require major system construction and potentially include: Upgrades to the ozone system. Implement the use of polymer aids. Convert to lime and soda ash softening. Change the disinfectant process. Install a new feed at the intake to optimize disinfection. Implement advanced treatment for precursor removal. Increase main flushing based on water modeling results. Continue valve replacements. Emphasize cast iron pipes on water main replacement priority list. The projected cost of these options is unavailable. It should be noted that all of these potential remedies are intended to be utilized only until the KWA pipeline is operational in late 2016. Further, the City will be providing additional potential solutions when it updates the Operational Evaluation Report, which must be submitted to the DEQ by March 1, 2015. Also, the City’s Emergency Manager has committed to hiring an independent external consultant to assess the steps that the City has taken, to make recommendations as to other steps that can be taken, to oversee implementation, and to monitor operations until KWA is online. DWSD Situation Concurrent to the City addressing the aforementioned issues, on January 12, 2015, the Detroit Water and Sewer Department (DWSD) extended an offer to the City to reopen water connections that have been closed since May 2014 and resume supplying the City with drinking water. DWSD has offered waiving a connection charge if the City will consider a long term agreement. DWSD has offered the City a fixed monthly rate of $846,700/month ($10,160,400/year) plus a commodity rate of $14.92/Mef. DWSD stated that these rates will be guaranteed until June 30, 2015. Any future rate increases beyond the June 30 date are not identified, however, prior projections indicated that DWSD rates would exceed $16-million in 2015. xxxEND_PAGE:treasury01_b28_4390_4585_086 Page 3 The City’s analysis of this offer indicates that the total cost of purchasing water from DWSD would exceed $12- million annually (before any rate increases beginning July 1, 2015). These costs are supported by projections utilized by the City when the original decision to switch to KWA was made. The City’s current water system expenditures are approximately $11.7-million, with operations and capital upgrades currently running below projections. Therefore, the Emergency Manager has made the determination that the City will not be acting upon the offer extended by DWSD. If further information on this issue is needed, please let me know. Copy: Edward Koryzno, Director; Bureau of Local Government Services Randall Byrne, State Administrative Manager; Office of Fiscal Responsibility Oak Township\Consent Agreement\2015 Budget\State Treasurer Action Letter to Township.2015 Budget.v2.12-15- 14.doc xxxEND_PAGE:treasury01_b28_4390_4585_087 Stanton, Terry A. (T reasury)

All: I spoke with Mr. Craig at the DEQ and he was working on the current version of the Consent Order when I called. Mr. Craig indicated that the order is intended to temporarily reopen the lime disposal area so the WTP upgrades can go forward. In the future the area would be evaluated for clean-up or capping (or other measures after an environmental assessment occurs). Mr. Craig stated that he hopes to send his comments back to the City’s attorney at Werner, Norcross & Judd either tomorrow or Monday. I requested periodic updates on the status of this project but if anyone wishes any follow-up, please let me know. Eric Cline | Unit Operations Specialist - Office of Fiscal Responsibility State of Michigan | Michigan Department of Treasury 430 W. Allegan Street, 3rd Floor | Lansing, MI 48922 (517) 335-2078 | clinerl @michigan.gov CONFIDENTIALITY NOTICE: This e-mail, and any attachments, is for the sole use of the intended recipient(s) and may contain information that is confidential and protected from disclosure under the law. Any unauthorized review, use, disclosure, or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply e-mail, and delete/destroy all copies of the original message and attachments Thank you. xxxEND_PAGE:treasury01_b19_2589_2633_07 CITY OF FLINT OFFICE OF THE EMERGENCY MANAGER Darnell Earley, 1CMA-CM, MPA Emergency Manager ELECTRONIC COMMUNICATION March 7, 2014 Ms. Sue McCormick Detroit Water and Sewer Department Detroit, Michigan RE: DWSD Water Rates Dear Ms. McCormick: Thank you for the correspondence dated February 12, 2014 which provides Flint with the option of continuing to purchase water from DWSD following the termination of the current contract as of April 17, 2014. Following DWSD’s April 17, 2013 notice of termination of the water service contract between the City of Flint and DWSD, the City of Flint has actively pursued using the Flint River as a temporary water source while the KWA pipeline is being constructed. We expect that the Flint Water Treatment Plant will be fully operational and capable of treating Flint River water prior to the date of termination. In that case, there will be no need for Flint to continue purchasing water to serve its residents and businesses after April 17, 2014. We are aware that Genesee County has been in negotiations with DWSD to purchase water from DWSD following the termination of our contract, and we understand that an agreement may be imminent. Should that occur, there would be no further need for the City to discuss with DWSD any continuing purchase of water. Should that not occur, however, we would be interested, if Genesee County were to so request, to purchase water from DWDS for some period of time. In such an event, our demand for water would be only for the amount necessary to provide Genesee County with water. That amount would be approximately half of the amount Flint is currently purchasing from DWSD. City of Flint ¢ 1101 S. Saginaw Street + Flint, Michigan 48502 www.cityofilint.com ¢ (810) 766-7346 « Fax: (810) 766-7218 xxxEND_PAGE:treasury01_b19_2589_2633_08 Ms. Sue McCormick March 7, 2014 Page 2 However, in the very unlikely event that the City of Flint is not able to draw water from the Flint River no later than April 17, 2014, then the City would like the option of continuing to purchase water from DWSD for a period of time, up to the time water is available from KWA. Consequently, I am requesting that you clarify your proposal for the City of Flint to continue purchasing water from DWSD under the following scenarios: e Flint, upon the request of Genesee County, purchases water for sale to Genesee County for up to 3 years, beginning April 17, 2014, in an amount approximately 50% of the volume currently purchased by the City; « Flint purchases water from DWSD in approximately the same volume as currently, for up to 3 years, beginning April 17,2014, with the ability to reduce that volume by up to 50% during that period, upon 30 days notice to DWSD e Flint purchases water from DWSD in approximately the same volume as curtently, for up to 3 years, beginning April 17, 2014, with the ability to reduce that volume by up to 50% during that period, upon 30 days notice to DWSD, and further, to terminate the reduced volume purchase should Genesee County and DWSD reach an agreement whereby Genesee County directly purchases water m DWSD. Thank you and please contact me if you have any questions. I look forward to your response. Sincerely, Darnell Earley, ICMA-CM, MPA. f Emergency Manager City of Flint xxxEND_PAGE:treasury01_b19_2589_2633_09 Koryzno, Edward (T reasury)