Thursday, April 10, 2014

Oakland County to Study (Again) Alternatives to Remaining with DWSD

Oakland County is reportedly set to spend $500,000 to $3 million for a study of alternatives to remaining with the Detroit Water and Sewerage Department. Crain's Detroit Business published a story here, and the Detroit News reported a similar story here.
 
Reading these stories reminded me that in April, 2007, Oakland County committed $125,000 to study alternatives to DWSD for drinking water. The Oakland County Commission approved funding this study on April 26, 2007.  This was at the time that Genesee County was looking to form its own authority, the Karegnondi Water Authority, which is now a reality; construction of the first phase of a new intake pipeline began in 2013 and the KWA recently sold its first round of water bonds.  

So what became of the 2007 study of alternatives to DWSD?

I don't know if its the same study, but in 2007 the then Oakland County Drain Commissioner published an extensive, 5 volume "Water and Wastewater Master Plan" prepared by URS Engineers. Volume 4 of the Master Plan is a 125 page "Alternatives Analysis." The "alternatives" being being alternatives to DWSD. 




I haven't thoroughly studied this "Alternatives Analysis," but obviously Oakland County didn't join the Karegnondi Water Authority, and didn't leave DWSD in 2007.  If they're serious about doing so now, this report will offer some clues as to why they might (or why it didn't make sense to do so in 2007). 
But this report also begs the question - why spend upwards of $3 million to update a study that already exists? And if this isn't the report that cost $125,000 in 2007, where is that study?

The Oakland County Board of Commissioners is scheduled to meet on April 17, 2014, and the $3 million expenditure is on page 17 of their agenda here
 
For more about DWSD Update, click here.  

Friday, March 28, 2014

Karegnondi Water Authority to Sell $220 Million in Water Bonds for New Pipeline (UPDATED)

The Bond Buyer reported earlier this week [3/26] that the Karegnondi Water Authority (KWA) is making plans for an initial $220 million bond offering to finance its new 63 mile pipeline, which was first proposed in 2009. Bonds could be sold as early as next week [4/1].  

As the Detroit Water and Sewerage Department's bond rating falls deeper into junk territory, the Karegnondi Water Authority has been assigned an initial A2 rating by Moody's in advance of this first bond sale. 

The Bond Buyer article details some of the particulars about the KWA's bonding offering:

"In light of Flint's severe fiscal distress — the city has been under state controlled emergency management since late 2011 — the bonds feature a back-up pledge from Genesee County.

"The governments expect to make their payments from the system's revenues, but the debt carries the limited-tax general obligation pledge of both credits. Genesee has promised to cover Flint's payments within 15 days if the struggling city is unable to make its payments.

* * *

"Flint is set to no longer receive water from the DWSD as early as April 17, relying on its own water treatment plant and water drawn from the Flint River. The city expects to see significant savings from the move.

"Genesee will pursue a separate contract with the Detroit system through at least 2016. The DWSD and Genesee are also negotiating a separate contract that would require Detroit to provide a long-term emergency stand-by service if the new system fails.
The bonds sold by Genesee County will mature in 30 years and are payable from the water supply contracts as well as Long Term General Obligation (LTGO) pledges of the City of Flint and Genesee County.

For more background on the Karegnondi Water Authority, click here

For more about DWSD Update, click here.

Update (4/2): Bloomberg is reporting (here) that KWA completed its $220 million bond sale yesterday.
"The water agency's sale included debt maturing as late as November 2043 that priced to yield 4.89 percent, or about 1.2 percentage points more than benchmark munis. The securities are rated A2 by Moody's Investor Service, five steps below the top."

Thursday, March 27, 2014

Emergency Manager Gives His Account of Failed Negotiations for Regional Water Authority

On March 26, 2014, the Michigan Chronicle published an exclusive interview with Detroit Emergency Manager Kevyn Orr and asked for his take on why negotiations for a regional water authority (have thus far) failed.


Here are excerpts from that interview:

MICHIGAN CHRONICLE: What really happened in the deal involving the Detroit Water and Sewerage Department that made Oakland and Macomb counties balk?

KEVYN ORR: We tried to design a proposal for them that was responsive in a number of ways. First, it was responsive to their request for decades that they have increased governance control and management of the water department. Suburban communities make up over 65 percent of our revenue. We appreciate that and we want to be responsive. Secondly, it was to make sure that citizens of Detroit continue to own the water department. So the pipes, the lines, switches, the sewerage system, all of that is still going to be owned by the City of Detroit. You can’t replace that overnight. No matter what happens it will be owned by the City of Detroit. Number three, it was to generate sufficient cash from interest rate savings by having a better credit rating department.

Number four, capital improvements. The concerns about capital improvements were going to be addressed, provide a reserve for delinquent accounts that would be replenished yearly. That there will be no delinquencies, rate pressures on the counties customers or city customers and result of rate pressures. And generate a revenue stream of 47 million dollars a year for 40 years for Detroit’s creditors. We thought it was an ideal solution that was going to benefit all parties and be responsive to the requests that people have been talking about.

* * * 


MICHIGAN CHRONICLE: Can you explain what you meant by leasing as an option?

KEVYN ORR: We were going to create an authority, which would essentially lease the department and operate it and pay the city a lease payment. That would be $47 million a year. Our county partners don’t want to do that. That’s fine. So we are going to move away from the lease concept more to a contract. There are operating contractors out there who would bring greater efficiency to the system. That’s what they do. We would also entertain requests for information about an outright purchase. I said when I first came in here I did not want to sell the water department. I still do not want to sell the water department.
But I think because our expectation was that we were going to have an authority deal in fairly short time, that’s what everybody wanted. But I think in order for me to be responsive to our creditor class now that the authority proposal appears to be slipping away, we have to be able to say we explored every avenue to rationalize the key assets of the city. And when I came in I said there are 15 buckets of assets. We’ve dealt with most of them.
Click here to read the full interview with Mr. Orr at the Michigan Chronicle

Photo Credit: Reuters


For more about DWSD Update, click here  

Wednesday, March 26, 2014

With No Regional Authority in Sight, Emergency Manager issues RFP for Private Operation of DWSD

On March 21, 2014, Detroit Emergency Manager Kevyn Orr issued an RFP seeking proposals from potential private operators for the Detroit Water and Sewerage Department. This RFP comes after negotiations with Oakland and Macomb County stalled. Proposals are due April 7, 2014.

  
Given the size and complexity of the DWSD system, there are only a few companies that will likely respond to the RFP. I would look for responses from:
The RFP can be viewed or downloaded below. 

For more about DWSD Update, click here  

Update (3/31): The Detroit News is reporting here that Kevyn Orr's office has been in contact with 41 companies who are interested in operating and managing DWSD. The EM's office must be using a loose definition of "interest" as there are only a handful of companies that could qualify to operate a utility as large and complex as DWSD and respond to this RFP in 2 weeks.




Monday, February 24, 2014

Detroit’s Plan of Adjustment, and DWSD’s Future: More Work to Be Done

Last Friday [2/21], Detroit’s Emergency Manager published his long-anticipated “Plan for the Adjustment of Debts of the City of Detroit.” These two documents, weighing in at over 600 pages, outline how Kevyn Orr plans to restructure the City’s debts.


The Plan of Adjustment (below) outlines two alternatives for DWSD, but otherwise does not present anything that hasn't already been reported here and here.

Under the first alternative, DWSD would remain part of the City of Detroit. The second alternative would involve the formation of a regional authority. If agreed upon, the Great Lakes Water and Sewer Authority (GLWA), which would lease and operate the assets of DWSD.

How much money the new authority would pay the City has been hotly contested, and remains the subject of on-going negotiations with Oakland and Macomb Counties. The Emergency Manager’s original $200 million per year offer quickly dropped to$49 million per year over 20 years.

Alternative 1

If DWSD remains part of the City of Detroit, the Department would retain FY 2015 rate setting protocols for a minimum of 5 years, but immediately following the Effective Date of the Plan of Adjustment the City would begin planning a “rate stability” program for City residents. This plan would be taken into account in the development of wholesale rates across the system.

Comment: There is no detail provided as to the "rate stability" program mentioned in the Plan. It sounds to me like a cap on future rate increases for City residents, that will be factored into by the wholesale (suburban) customer base. Is this a good thing, like an insurance pool where the healthy subsidize the sick, or is it just a subsidy? Does it matter when we're talking about something as fundamental as water? 

In addition, there would be an adjustment of DWSD’s bond debt and the issuance of new bonds. Unlike other bond holders, water and sewer debt would be paid off in full. The “New Existing Rate DWSD Bonds” would also allow for the lease or transfer to a new authority. Thus, even if the Emergency Manager can’t make a deal with suburban communities in the short term, there’s room made for a regional authority down the road. 

Alternative 2

If the Emergency Manager can strike a deal with DWSD’s suburban customers, this would lead to the formation of the Great Lakes Water and Sewer Authority. 


This alternative is Kevyn Orr’s preferred alternative, but it must overcome mounting suspicion that the suburbs are being rushed into buying a dilapidated water and sewer system with huge unknown costs and future liabilities. 

For more about DWSD Update, click here    




http://www.scribd.com/doc/208441216/2014-02-21-Plan-of-Adjustment-Re-Detroit-Chapter-9

Saturday, February 8, 2014

State of Michigan to Join Stalled Negotiations for New Regional Water Authority (UPDATED)

The Bond Buyer* reported on Friday (here) that representatives of Governor Snyder and the City of Detroit's investment banking firm, Miller Buckfire, will meet next Tuesday, February 11th, with representatives of Oakland County in an effort to jump-start stalled negotiations for the creation of a regional water authority.


Robert J. Daddow
"The state has not stepped up to deal with the issues, though they have been at the table," Oakland County deputy executive Robert Daddow said in an interview Friday "I am hopeful that this Tuesday meeting coming up will solve the issues or set in motion something to solve them."
The state and Detroit, represented by the city's investment banking firm Miller Buckfire, are expected to address the county's two top concerns Tuesday, Daddow said. That includes lack of adequate financial information and the county's worry that several of the governments in the system won't have the money to pay their bills or the large capital needs looming in the next decade.
Oakland County is one of three suburban counties that have balked at Emergency Manager Kevyn Orr's proposal citing a lack of information with which to evaluate the costs and risks associated with taking over the DWSD system. 

Comment: I'm glad to see Governor Snyder's office getting involved in this process.  The State of Michigan needs to participate, and contribute financially in order to get the Great Lakes Water Authority off the ground. 

* The Bond Buyer is a subscription based publication. This article is available through Westlaw at 2014 WLNR 3489653, and other databases, such as Gale's Infotrac. 

Update (2/12): The Detroit News reports here that Oakland, Macomb and Wayne Counties met on Tuesday, but the article does not mention anyone from the State of Michigan. Does anyone know whether the State participated in the meeting? And if not, why not?
 
For more about DWSD Update, click here

Friday, February 7, 2014

Oakland County to Study Plans for Regional Water Authority

On February 6, 2013, the Oakland County Board of Commissioners formed a study committee to evaluate the plans for a regional water authority offered by Detroit Emergency Manager Kevyn Orr.
The committee will gather information about DWSD's finances, consider the impact on water and sewer rates, hold a series of public meetings to gather public feedback. Commissioner Robert Gosselin will chair the study committee.   

For more about DWSD Update, click here.

Tuesday, February 4, 2014

Guest Editorial: Emergency Manager's Plan for New Water Authority Falls Short

By: James Lang*
A gross inequity exists in the plans to disentangle Detroit from debt, in part by reorganizing the Detroit Water and Sewerage Department (DWSD).

As owner of DWSD, the City of Detroit is responsible for capital investments, including major improvements and replacements.  If that responsibility were being met, then perhaps the City would be justified in requiring lease payments from ratepayers as part of the conversion of DWSD to a regional authority.

But the city doesn’t have the cash or credit to rebuild DWSD, the city’s (purported) capital asset.

It appears to me that Emergency Manager Kevyn Orr and other city leaders want to rely on the ratepayers’ credit worthiness to pay for capital improvements and replacements (as if the ratepayers were the owners), as well as requiring ratepayers to make lease payments to the city (as if they were renters).  Bear in mind that the system was never intended to be a cash cow for the City of Detroit. Rates were not supposed to include a profit margin.

Let’s face it, DWSD's infrastructure is old and worn out, with negative or negligible value.  No sooner is one cluster of belt presses, incinerators or water mains replaced than another one breaks down.  Nick Carey of Reuters on December 16, 2013 quoted an Oakland County official [Gerald Poisson, deputy executive for Oakland County] who said he had seen estimates of $20 billion to upgrade the system in coming years.

The only value in this whole scenario is the revenue stream flowing from city (20%) and suburban (80%) ratepayers.

It’s one thing to require that ratepayers take over the responsibility to rebuild DWSD.  It’s something entirely different to also require that they make lease payments to the city for the “privilege” of assuming ownership responsibilities.

If conversion to a regional authority goes through, the savings realized by refinancing debt and cutting costs should accrue to the ratepayers without being offset by so-called lease payments to the city.


* James Lang earned his undergraduate degree from  Case Western Reserve University (B.A.) and his law degree from the University of Michigan Law School (J.D.). Mr. Lang practiced law in Flint for many years, and formerly served as a Board Member of Legal Services of Eastern Michigan. In 2012 and 2013, Mr. Lang was a guest lecturer at MSU’s Knight Center for Environmental Journalism. His interests include the Great Lakes, water quality and transparency in government. You may contact James Lang at  -- michigan.clean.natural@gmail.com



For more about DWSD Update, click here

Oakland County, Brooks Patterson Still Not Buying EM's Plan for Regional Water Authority (UPDATED)

The Detroit Free Press reports this morning that Oakland County Executive, L. Brooks Patterson is still sounding pessimistic about the Emergency Manager's revised plan for a regional water authority.  

“I tell my team no deal is better than a bad deal — and right now it’s a bad deal, so we’re probably going to walk,” Patterson told a crowd of public officials at Governing magazine’s Outlook in the States & Localities conference.

Question: So, if Oakland County doesn't want to participate in a new regional water and sewer authority, what's Plan B look like?   

Update (2/5): The Detroit News reports this morning that suburban leaders are still asking DWSD and the Emergency Manager for "more information" to evaluate the the proposed new authority. What's missing, and why can't DWSD fill in the gaps? Are Oakland and Macomb Counties seeking answers, or a degree of certainty that does not exist? I think we can agree there are "known unknowns" that will have to be addressed (and paid for) as they arise.

Update (2/19): MLive.com is reporting here that Detroit officials delivered some of the long-awaited financial data to Oakland County officials earlier this week. Suburban officials had been seeking the 2013 audited financial reports for DWSD. The article does not indicate whether that's the specific data that was produced, and DWSD's website is still only showing the 2012 report.      

For more about DWSD Update, click here  

Friday, January 31, 2014

Amended Plan Emerges for New Regional Water Authority, Emergency Manager Slashes Proposed Payments to City of Detroit

The Detroit News is reporting here today on a revised plan to convert DWSD into a regional water authority that would require dramatically lower payments to the City of Detroit and cede control of the governing board to the suburban customer base. 


Highlights of the leaked confidential proposal reportedly include: 
  • Payments to Detroit would be $47 million per year for 40 years -- $1.88 billion. This is a far cry from the $70 million per year, up to $9 billion in total, that the Emergency Manager originally floated in proposals with Wayne, Oakland and Macomb Counties. 
  • Detroit would retain ownership of DWSD facilities, but operations and control would be transferred to a new nine-member board that would include two members each from Wayne, Oakland and Macomb Counties, two city appointees, and one member appointed by Governor Rick Snyder. 
  • The new authority would be called the "Great Lakes Water and Sewer Authority," rather than the "Metropolitan Area Water and Sewer Authority." 
  • Detroit would become a wholesale customer of the newly created authority.
Question: Is the new name of the proposed authority, "Great Lakes Water and Sewer Authority" -- which sounds more inclusive than "Metropolitan Area Water and Sewer Authority" -- meant to serve as an olive branch of sorts to the City of Flint and Genesee County? They left DWSD last year to start their own water authority and plan to spend $360 million or more just for the pipeline.  

If this plan is adopted, it will be interesting to see who Governor Snyder appoints as the ninth member of the Board. However, it doesn't make sense to appoint someone unless they're part of the customer base, right? 

What do you think? 

I'd like to hear your thoughts, either by online comment or privately

For more about DWSD Update, click here  

Wednesday, January 22, 2014

Detroit Emergency Manager Reportedly Considers a "Regional Authority" Minus 2/3 of the Region

The Detroit Free Press reports this morning that Emergency Manager Kevyn Orr is contemplating a regional water authority without Oakland and Macomb Counties if they don't get on board with his plan that would have the suburban communities pay the City $9 billion over 40 years to operate DWSD under the auspices of a new authority. That would leave the City of Detroit and Wayne County, whose finances are not much better than Detroit's, to form the core of a new authority.  



Comment: Huh, what?!?  Cut off about 2/3 of your paying customer base, and go it alone with Wayne County? You can't be serious? The old expression - "cutting off your nose to spite your face" comes to mind when I read this story. 

For more about DWSD Update, click here.

Sunday, January 19, 2014

Sinkhole Hits Close to Home (UPDATED)

On January 18, 2014, an 8-foot wide sinkhole appeared at the corner of East Jefferson Ave. and Randolph Streets in Downtown Detroit.  The Detroit Water and Sewerage Department is located just a few blocks north of the sinkhole at 735 Randolph; the Coleman A. Young Municipal Center is in the immediate background; and General Motors is right across Jefferson in the Renaissance Center. 

Sinkholes are created when the surface layer of earth collapses, which can occur due to water erosion or the failure of man-made infrastructure, such as the collapse of a sewer main.  

This story was first reported here by MLive.com. 

Update (1/20):  The story of this sinkhole has gone international. The British newspaper, The Independent, is reporting on the story (here), and included a video of repair efforts. Repairs could take a week to complete.



For more about DWSD Update, click here.  
 

Tuesday, December 31, 2013

Detroit Ordered to Disclose Details of Plan of Adjustment to Water and Sewer Bond Holders

Earlier today [12/31], the Judicial Mediator in Detroit's Chapter 9 bankruptcy case, Judge Gerald Rosen, ordered Detroit's Emergency Manager to disclose to bond holders the details of the City's plan to convert DWSD into a regional authority.  Specific details of the City's plan have thus far been kept secret.

In a two-page order, Judge Rosen ordered the City of Detroit to disclose to water and sewer bond holders by the close of business on Thursday, January 2, 2014 detailed information including the following:
  1. The amount that the City expects to receive if the water and/or sewer systems are leased, sold, or transferred, including a summary of how those amounts will be paid.
  2. Payment terms, including interest rate, treatment of existing call provisions, and any proposed make whole provisions. and how the payments will be treated relative to the bond payments.
  3. The amount of legacy pension, other post-employment benefits (OPEB) and certificate of participation (COP) liabilities the City intends to assess to the water and sewer systems under all potential approaches being addressed by the plan including, without limitation, those being assumed by the City as part of the lease/transfer payment, those being assumed by the lessee/transferee, and those being assessed to the water and sewer systems as operating and maintenance (O & M) expenses if the City retains the water and sewer systems.
Judge Rosen has also scheduled two mediation sessions in New York with bond holders for January 6 and January 7, 2014.

Thus far, the specific details of the Emergency Manager's plan for regional authority have been confidential, and shared only with the suburban counties  that would comprise the new regional authority and their advisers. The general outline of the EM's plan, however, is not a secret and follows the plan first adopted by the Board of Water Commissioners on March 13, 2013.

Under the proposed "Metropolitan Area Water and Sewer Authority," the City would either lease the assets of the DWSD system to the authority for up to 40 years, sell it to the newly created body, or operate under a concession agreement. The authority would collect water bill payments and pay the City a monthly fee. How much of a fee, of course, is one of the major sticking points.

A self-imposed December 20th deadline for reaching a deal with Wayne, Oakland and Macomb Counties passed without a deal.

For more about DWSD Update, click here.

Update (1/2): As of 5:20 p.m. today, no documentation related to the Plan of Adjustment had been filed with the bankruptcy court. Judge Rosen did not specifically order that the City file its information with the Court, but I thought there might be a proof of service indicating compliance with the Court's order. 

Monday, December 16, 2013

Wally's Wastewater Treatment Plant

I've seen kids make some amazing things with Lego, but I've never seen a wastewater treatment plant, nor one built by such an impressive 4 year old!

 
Update: Click here to see the video at YouTube where you can view it full screen. I realize that the right side of this video is cut off the way I embedded it on this site.  

(Hat tip to Kari Stuart for posting this first on the Wastewater Professionals forum on LinkedIn.) 

Sunday, November 24, 2013

City of Detroit Sues Highland Park for Unpaid Water and Sewer Bills, Seeks Treble (3X) Damages

On Friday, November 22, 2013, the Detroit Water and Sewerage Department filed suit against the City of Highland Park over unpaid water and sewer bills totaling $17.7 million.  Highland Park's annual general fund budget is about $12 million per year. The Detroit News first reported this story here, and here

The lawsuit, filed in U.S. District Court, alleges that DWSD was forced by the State of Michigan to begin furnishing wholesale water services in 2012, and water treatment services in January, 2013 as Highland Park's long-running financial crisis  deepened and it was unable to maintain its water system in compliance with MDEQ standards.  

In addition to seeking payment under breach of contract and breach of implied contract theories, DWSD is alleging conversion and seeking treble damages under MCL 600.2919(a).  Under this statute,  

(1) A person damaged as a result of either or both of the following may recover 3 times the amount of actual damages sustained, plus costs and reasonable attorney fees:

(a) Another person's stealing or embezzling property or converting property to the other person's own use.

(b) Another person's buying, receiving, possessing, concealing, or aiding in the concealment of stolen, embezzled, or converted property when the person buying, receiving, possessing, concealing, or aiding in the concealment of stolen, embezzled, or converted property knew that the property was stolen, embezzled, or converted. 
Note: If you write me (here), I would be glad to e-mail you a copy of DWSD's lawsuit against the City of Highland Park, Case No. 2:13-cv-14827.  Just put "Highland Park" in the subject field. I'll try to get it posted next week.
 
For more about DWSD Update, click here.


Wednesday, November 6, 2013

Ric-Man Submits Low Bid on 24 Mile Road Water Main Project, DWS-681

Earlier today, Ric-Man Detroit submitted a low bid of $29,738,418 for the project known as “42-Inch Parallel Water Main in 24 Mile Road, Romeo Plank Road to Rochester Station,” DWSD Contract WS-681.

There were five (5) bidders on this project. The as-read bids are as follows:
  1. Ric-Man Detroit . . . . . . . . . . . . $29,738,418 
  2. L. D’Agostini & Sons . . . . . . .   $31,600,827
  3. D-4/Barton Marlow, JV . . . .   $32,883,417
  4. Oscar Renda Contracting . . .   $35,642,621
  5. Dan’s Excavating . . . . . . . . . .  $36,383,460
For more about DWSD Update, click here.