1

Pittsburgh Water & Sewer Authority:

A Public Entity

• PWSA provides critical services to the public• PWSA Board of Directors must ensure the

Authority has the resources to perform but with the least possible risk

• PWSA Board must pass on a healthier – both financially and operationally – Authority to our children

• If PWSA Board exposes Authority to excessive risk they undermine the health of the Authority today and down the road for our children

2

PWSA 2008 Revenue Bonds

Series A, B, C, D

Total Deal = $419 M$$$s for Capital Projects = $98 M

3

Risk: Who owns it?

Fixed Rate Bonds

Bondholders

Variable Rate Demand Bonds

Rate Payers

4

Losers

Pittsburgh Ratepayers:

Exposed to

Unconscionable Levels of Risk

5

What are the Risks?

• Variable Rates

• Annual renewal of Liquidity Facility (June 2009)

• Failure could bankrupt PWSA

• SWAPs – Spreads between actual interest rates and index rate (Basis risk)

• Credit rating of the SWAP providers

• SWAP providers fail to pay (e.g., Lehman Brothers)

• Credit Rating of the Bond Insurer

6

2008 Variable Rate Demand Bonds& SWAP Structure

PWSATax Exempt

Variable Rate Demand Bonds

Bondholders

SWAPProviders

JPMorganMerrill Lynch

Trustee

RemarketingAgents

JPMorganMerrill Lynch

Bank LiquidityFacility

JPMorganDexia Credit Local

$ 2.6 Million losses to date

7

Ratepayer Share of Wall Street Indebtedness

$320M Principal amount*/83,322 PWSA Customers

=$ 3,840.52 per Customer

* Plus higher interest and related costs of fixed rate bonds in current credit market.

8

Winners:Hand-Picked Firms

• JP Morgan

• Merrill Lynch

• Commonwealth Securities and Investments

• Dexia Credit Local

• No competitive bidding

9

Churning for Fees?

Total bonds issued

1993 – 2005

(12 Years):

$688 Million

Total bonds issued

March 2007 – June 2008

(15 months):

$ 580 Million

10

Initial Cost of 2008 Deal

• 2007 SWAP Termination -- $ 594,000*

• 2008 SWAP Termination -- 5,036,000*

• FSA Insurance Premium -- 7,801,917

• Surety Premium -- 2,249,610

• Professional Fees -- 2,095,491

• Underwriters Commission -- 1,269,462

TOTAL $19,046,480 or

5% of Total Deal

*Commissions on SWAPs are not included

Source: Schedule C to Closing Receipts of PWSA, dated June 12, 2008, “Settlement Account Reconciliation”, page D-1.

11

Call to Action

• An independent, credentialed third-party auditor must immediately determine:

–What exactly are the full terms of this deal?

–What exactly are all the risks?

–When exactly do these risks occur?

–How do we get out of this situation?

• Full public disclosure of the report and an honest and open discussion of our options