1. 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. 2 PWSA 2008 Revenue Bonds Series A, B, C, D Total Deal = $419 M $$$s for Capital Projects = $98 M

3. 3 Risk: Who owns it? Fixed Rate Bonds Bondholders Variable Rate Demand Bonds Rate Payers

4. 4 Losers Pittsburgh Ratepayers: Exposed to Unconscionable Levels of Risk

5. 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. 6 2008 Variable Rate Demand Bonds & SWAP Structure PWSA Tax Exempt Variable Rate Demand Bonds Bondholders SWAP Providers JPMorgan Merrill Lynch Trustee Remarketing Agents JPMorgan Merrill Lynch Bank Liquidity Facility JPMorgan Dexia Credit Local $ 2.6 Million losses to date

7. 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. 8 Winners: Hand-Picked Firms JP Morgan Merrill Lynch Commonwealth Securities and Investments Dexia Credit Local No competitive bidding

9. 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. 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. 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