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Detroit bankruptcy judge revives concept of regional water plan

DETROIT, April 17 (Reuters) - The federal judge overseeing Detroit's historic bankruptcy case brought the idea of a regional water authority back to life on Thursday, ordering the city and three counties to mediate over the issue.

The order by Judge Steven Rhodes comes after Detroit said in a court filing earlier this week that it had dropped the concept of a Great Lakes Water Authority from its plan to adjust $18 billion of debt and other obligations and exit from the biggest municipal bankruptcy in U.S. history.

Detroit provides water and sewer services to millions of customers in its home county of Wayne and neighboring Oakland and Macomb counties.

The proposal pushed by Detroit's emergency manager, Kevyn Orr, to lease the city's water and sewer departments to a regional authority for a hefty annual fee and using that money for unrelated purposes drew objections by officials in Macomb and Oakland counties.

But Rhodes said the concept had merit.

"The creation of a regional water authority is not only in the best interest of the city but in the best interest of the customers of the water department," Rhodes said.

The city's bankruptcy presents a "unique opportunity" for a regional authority that may be otherwise lost forever, Rhodes said.

Oakland County Executive L. Brooks Patterson said the county will participate in mediation and will insist on protections for suburban Detroit rate-payers.

"Any solution that may be found in mediation cannot merely divert funds from water and sewer customers to Detroit's general fund so the city can meet its obligations," he said in a statement. "Revenue from all rate-payers must remain in the water and sewer system to pay for critical upkeep and rehabilitation."

There was no immediate reaction to the judge's decision from the two other county executives.

Detroit had solicited entities interested in bidding to operate and manage the services and received 41 initial responses earlier this month.

Rhodes is holding a hearing on Thursday mainly on unresolved objections by Detroit creditors to a key supporting document for the city's debt adjustment plan.

(Reporting by Cherie Curry; Additional reporting by Karen Pierog in Chicago; Editing by Leslie Adler)