Correspondence between

The rate we offerred Flint is a bit different than what we calculate for our contract customers. We adjusted the rate of return to reflect the short term, terminated contract status. In other words, the outstanding investment, that we made to serve Flint somewhat recently, will not be recovered without a long term contract. This differential tate of return is now being utilized by Genesee County who was served through the Flint contract, so add to the the additional complications. If we want to get to a lower rate for emergency ‘short term’ service, we can evaluate our options - but we would have to differentiate it somehow from Genesee or have additional revenue loss or legal exposure there and without a questions there will be huge political issues with our other customers. Sue F. McCormick, Director Detroit Water and Sewerage Department 735 Randolph, Room 506 Detroit, Michigan 48226 Office (313)224-4701 Fax (313)224-6067 [email protected] VVVVVVV VV VV VV VV VV VV VV VV VV OV Vv

Bateson <[email protected]> > > The rate we offerred Flint is a bit different than > what we calculate for our contract customers. We > adjusted the rate of return to reflect the short > term, terminated contract status. In other words, > the outstanding investment, that we made to serve > Flint somewhat recently, will not be recovered > without along term contract. This differential > rate of return is now being utilized by Genesee > County who was served through the Flint contract, so > add to the the additional complications. If we want > to get to a lower rate for emergency ‘short term' > service, we can evaluate our options - but we would > have to differentiate it somehow from Genesee or > have additional revenue loss or legal exposure there > and without a questions there will be huge political > issues with our other customers. > > Sue F. McCormick, Director xxxEND_PAGE:executiveofficeemails19_b214_519_521_1 VVVVV VV Vv VVVVV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV OV Detroit Water and Sewerage Department 735 Randolph, Room 506 Detroit, Michigan 48226 Office (313)224-4701 Fax (313)224-6067 [email protected]

> The rate we offerred Flint is a bit different than what we calculate for our contract customers. We adjusted the rate of return to reflect the short term, terminated contract status. In other words, the outstanding investment, that we made to serve Flint somewhat recently, will not be recovered without a long term contract. This differential rate of return is now being utilized by Genesee County who was served through the Flint contract, so add to the the additional complications. If we want to get to a lower rate for emergency ‘short term’ service, we can evaluate our options - but we would have to differentiate it somehow from Genesee or have additional revenue loss or legal exposure there and without a questions there will be huge political issues with our other customers. Sue F. McCormick, Director Detroit Water and Sewerage Department 735 Randolph, Room 506 Detroit, Michigan 48226 Office (313)224-4701 Fax (313)224-6067 [email protected] VVVVVVVVV VV VV VV VV VV VV VV VV Vv Vv xxxEND_PAGE:executiveofficeemails19_b185_436_438_1 VVVVVVVVVVV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV VV

The rate we offerred Flint is a bit different than what we calculate for our contract customers. We adjusted the rate of return to reflect the short term, terminated contract status. in other words, the outstanding investment, that we made to serve Flint somewhat recently, will not be recovered without along term contract. This differential rate of return is now being utilized by Genesee County who was served through the Flint contract, so add to the the additional complications. If we want to get toa lower rate for emergency ‘short term' service, we can evaluate our options - but we would have to differentiate it somehow from Genesee or have additional revenue loss or legal exposure there and without a questions there will be huge political issues with our other customers. Sue F, McCormick, Director Detroit Water and Sewerage Department 735 Randolph, Room 506 Detroit, Michigan 48226 Office (313)224-4701 Fax (313)224-6067 [email protected]

Sue / Nikki - today | chatted with Rich Baird on the Flint matter given that they continue to have on- going water quality problems. Numerous articles are being written on this matter and | suspect it is getting a bit tense in Flint over this critical issue. They are balking at the cost of the DWSD water — which | understand may be a bit more expensive for them simply because of the distance and elevation — completely understandable. The attached letters indicate $847K per month at a standard commodity rate (which | now am beginning to realize is one of the volume flow issues giving rise to the situation we are in with all communities; but we'll leave that alone for the moment). The attached letter suggest that they can re-connect to the DWSD using the same rates offered to other communities through June 30, 2015. This seems fair and would not exacerbate the already sensitive issue of the sizable rate increases the suburban and retail customers are now facing. Notwithstanding that matter, Mr. Baird inquired of some means of lowering the rate to encourage Flint to return to the DWSD fold on a marginal costing approach that covers some portion of the fixed costs but may be slightly lower than the amount offered in the letter. The optics of this matter to the suburban customers now facing a 9% to 14% rate increases are troublesome (sans any provision for the balance sheet issues and with little or no provision for the Detroit retail customers likely collection issues arising from these rate increases — which is going to make this summer even more troublesome when the shut offs start circa March / April). How cana reduction occur in the Flint rate covering fixed costs such that additional volumes actually would serve to reduce what would otherwise be the present proposals on the table? Theoretically, it can be justified but it is steeped in cost accounting but if we can’t seem to differentiate ‘rates’ versus ‘revenue 2 xxxEND_PAGE:treasury01_b27_4112_4389_154 requirement’ how the heck can we justify something even more complicated to the residents or suburban customers? Perhaps | have answered my own question — it might be able to done and prove to be beneficial, but politically its DOA. The political barrier seems to be too high a hurdle — and the approach already taken of offering to reconnect at the rates and flow previously charged is the only rational approach possible without sending what is already a very sensitive public off the deep end. Just musing on a Friday afternoon, but | think | answered the question that Rich and | chatted about in the last part of the paragraph above. DWSD - Email Filter EMT Rule: Message Allowe *-*-*-*-*-* #244 48 # xxxEND_PAGE:treasury01_b27_4112_4389_155 72 {Rev 11-19) STATE OF MICHIGAN RICK SNYDER DEPARTMENT OF TREASURY R KEVIN CLINTON GOVERNOR LANSING STATE TREASURER DATE: February 11, 2015 TO: Tom Saxton, Chief Deputy Treasurer i FROM: Wayne Workman, Deputy State Treasuri " ws SUBJECT: City of Flint Water Rates Attached and below is information regarding the increase in water and sewer rates for the City of Flint since 2010. © The data shows the significant deficit position of the water fund which was not rectified until 2013 when water rates were increased by 26%. The data also shows the lack of capital investment for a system as old as Flint. ¢ This condition is acknowledged in the City’s recently adopted Capital Improvements Plan which identified approximately $50M in needed capital improvements over the next several years. This deficiency was also noted in the rate study commissioned by the City of Flint in 2014. ° Roneetinas ae the ue f Flint recon! ted - the next 18 mont e esti onth! : $1 totalin; a 8M. This includes a fixed monthly charge of $846, 700 sie the cost of wctial water ae, wnlaus the cost of operational expenditures at the Water Treatment Plant. Even with the elimination of future capital improvements, most of the additional cost would need to be funded with an additional increase to existing rates. Such an increase could approach 30%. e The option of purchasing DWSD water from the County would be on parity with purchasing water directly from DWSD. « The KWA previously advised the City that the connection to KWA may take place in mid-2016, but has now stated that weather conditions permitting, the connection could be made as early as December 2015. The $8M capital costs to upgrade the Water Treatment Plant was made to be able to treat both river water and KWA water. This upgrade has been funded with the cost reduction in operating costs achieved by not buying water from DWSD during the interim period. As you are aware, the City has retained Veolia as an outside water consultant to assist in maintaining the safety and improving the quality of water produced by its water system, and their initial analysis is due to be completed within the next two weeks. In addition, the City’s current budget includes $2M for replacement of a 2-mile pipeline segment that is anticipated to significantly address some of the current water issues. 430 WEST ALLEGAN STREET « LANSING, MICHIGAN 48922 wav. michigan.govitreasuty ¢ (517) 373-3200 xxxEND_PAGE:treasury01_b27_4112_4389_156 Page 2 Average monthly bill in 2015 - note that water and sewer are not billed separately; the charges are included within the same bill regardless of water usage. Water service charge $22.90 Sewer service charge $34.48 Total service charge $57.38 Per unit rate: Water $ 7.92 Sewer $ $5.17 Total per unit $13.09 Average family of four uses 7 units per month. Their bill for usage would be: 7 x 13.09 = 91.63 + 57,38 service charge = $149. If additional information is desired, please let me know. 430 WEST ALLEGAN STREET e LANSING, MICHIGAN 42922 wow. michigan.gov/treasuty » (617) 373-3200 xxxEND_PAGE:treasury01_b27_4112_4389_157 TOR BOd PN PaDLIsaTa oaPOny 2336 AK Ar10ysog avery 19124 JOILY Jo AN xxxEND_PAGE:treasury01_b27_4112_4389_158 Pleyte, Beth (T: reasury)