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EXHIBIT B <br /> <br />The annual return on equity (ROE) is defined as the difference <br />between franchise revenue and allowable franchise expenses. <br />Franchise expenses shall include corporate taxes calculated at <br />prevailing California and Federal tax rates, and shall include <br />expenses and reserves established in accordance with the initial <br />plan put forth in Section 2. of Resolution No. 78-313. The ROE <br />shall be determined annually covering a twelve ~ month fiscal <br />year ending each March 31. <br /> <br />The ROE limitation shall be calculated by multiplying the limi- <br />tation factor times the equity base. The equity base shall be <br />the total of amounts as of the last day of the preceding fiscal <br />year and shall include all stockholder advances to the companies, <br />capital or common stock, retained earnings and net worth of <br />Pleasanton Garbage Company and M & M Land Company. The equity <br />base shall be reduced by the adjusted value of any unamoritized <br />covenant or franchise costs deferred as of the last day of each <br />fiscal year. The adjusted value of these deferred costs shall <br />be equal to the book value minus 52.5% representing the composite <br />tax effect of Federal and California tax rates. <br /> <br />Any deficiencies in allowable ROE shall be recoverable from future <br />timely rate increases whereas any excess shall be used as a reserve <br />in lieu of future rate increases. <br /> <br /> <br />