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Good afternoon Mr. Orr: Please find attached a communication from Ed Kurtz. Thank you. Maxine Murray Executive Assistant to Mayor Dayne Walling Edward J. Kurtz, Emergency Manager Michael K. Brown, City Administrator 1101 S. Saginaw Street Flint, MI 48502 810.237.2035 Telephone 810.766.7218 Fax (See attached file: Kevyn Orr - April 26, 2013 pdf)(See attached file: ATT00001 htm) xxxEND_PAGE:treasury01_b04_0379_0503_110 Crry or Detroit 735 RANDOLPH STREET WATER AND SEWERAGE DEPARTMENT Detrorr, Micuiaan 48226 Orrice oF Te Director WIWW,DETROIIMI.GOY RECEIVED APR 2-9 2013 April 24, 2013 Mr. Andy Dillon, Treasurer Michigan Department of Treasury Lansing, Michigan 48922 OFFICE OF THE STATE TREASURER’ Dear Mr. Dillon: Regarding: Rate Proposal for Flint / Genesee County As you are aware, during our meeting on Friday, April 20, 2013, the Detroit Water and Sewerage Department (DWSD) was requested to provide a rate proposal to Flint and Genesee County by today based upon the specifications that Flint provided to DWSD on Monday, April 22, 2013. Early this morning, DWSD responded to that request with several documents that were also provided to your office by electronic communication. In addition to the proposal document, the State of Michigan requested that DWSD include cost figures concerning DWSD’s stranded costs associated with capital investment made by DWSD over the years related to serving both Flint and Genesee County as water customers. This issue of “stranded costs” has received significant media attention over the past several months, and my impression is that the State was looking for a clear figure so that there could be subsequent discussion and negotiation over all costs associated with Flint’s decision on whether to join Karegondi Water Authority (CWA). - As you may know, State law requires that public utilities such as DWSD must base their rates upon the actual cost of service to particular customers. Additionally, state law limits the length of utility contracts to thirty years, while the useful life of capital assets in the water utility can greatly exceed that thirty year term. Unfortunately, the computation of stranded costs for DWSD’s capital investments in capacity and transmission attributable to Flint’s and Genesee’s consumption of DWSD water, is a complex calculation that cannot be performed with any level of certainty over the short time period provided by the State of Michigan for this analysis. Further, I have been advised by DWSD’s General Counsel that it would not be prudent to engage in a process of trying to guestimate a price range for such a complex computation. Iitecstues a Ae ot xxxEND_PAGE:treasury01_b04_0379_0503_111 Mr. Andy Dillon, State Treasurer April 24, 2013 Page 2 Based upon DWSD’s termination of Flint’s existing water contract last week, DWSD has roughly twelve months to determine the appropriate cost structure for Flint and Genesee’s water consumption over the remaining term of their non-contracted water service from DWSD. DWSD will, however, endeavor to finalize the rate impact of the stranded costs by the end of the current calendar year. Please rest assure that DWSD’s computation will be in accordance with State Law which dictates that such rates will not result in a rate structure that would generate a profit for DWSD, Our intent is simply to compute the rates so that costs properly attributable to Flint and Genesee County will not be borne by the remaining DWSD water customers, Sincerely, Sue McCormick Director xe; The Honorable Rick Snyder, Governor State of Michigan Ed Kurtz, Emergency Financial Manager, City of Flint Kevyn Orr, Emergency Financial Manager, City of Detroit James Fausone, Chairman, Board of Water Commissioners William Wolfson, DWSD General Counsel Nicolette Bateson, DWSD Chief Financial Officer xxxEND_PAGE:treasury01_b04_0379_0503_112