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EXHIBIT "B" <br /> <br />The annual return on equity (ROE) is defined as the difference be- <br />tween franchise revenue and allowable franchise expenses. Franchise <br />expenses shall include corporate taxes calculated at prevailing Cali- <br />fornia and Federal tax rates, and shall include expenses and reserves <br />established in accordance with the initial plan put forth in Section 2. <br />of Resolution No. 77-163. The ROE shall be determined annually cover- <br />ing a twelve month fiscal year ending each March 31. <br /> <br />The ROE limitation shall be calculated by multiplying the limitation <br />factor (in this case 10%) times the equity base. The equity base shall <br />be the total of amounts as of the last day of the preceding fiscal year <br />and shall include all stockholder advances to the companies~ capital or <br />common stock, retained earnings and net worth of Pleasanton Garbage Co. <br />and M & M Land Co. The equity base shall be reduced by the adjusted <br />value of any unamoritized covenant or franchise costs deferred as of <br />the last day of each fiscal year. The adjusted value of these deferred <br />costs shall be equal to the book value minus 52.5% representing the com- <br />posite tax effect of Federal and California tax rates. <br /> <br />Any deficiencies in allowable ROE <br />rate increases whereas any excess <br />future rate increases. <br /> <br />shall be recoverable from future timely <br />shall be used as a reserve in lieu of <br /> <br />ii <br /> <br /> <br />