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NewPoint Group` .onager-^eni Ccrsultors Mr. Steven Bocian Page 2 February 23, 2012 A. Background PGS has an exclusive franchise agreement with the City to collect, transport, and dispose of refuse produced in the City. In 1990, the City amended the Franchise Agreement to include a residential recycling program, including the addition of the Materials Recovery Facility(MRF) at the Pleasanton Transfer Station(located at Busch Road). At that time, the City extended the franchise term with PGS to June 30, 2019. This leaves seven(7) years remaining on the franchise. The franchise grants the City Council the authority to set service rates for refuse and recycling services. The City has a City Council Waste Management Subcommittee, composed of two members from the City Council. Primary PGS services provided to the City include: • Residential and commercial refuse collection services ■ Recycling services • Operations of the Pleasanton Transfer Station • Green waste program services ■ Food scrap program services. In accordance with the Franchise Agreement, allowable PGS expenses for rate setting include: ■ Insurance • Maintenance • Rents • Salaries • Vehicles • Other operating expenses. The City's rate setting methodology uses a return on equity calculation, and the City's Franchise Agreement specifies that the intent is to provide the hauler with a"fair rate of return."The City rate setting methodology also allows for truing up of past results against actual results in the form of a"prior year(deficit)/credit carry forward." PGS maintains the following ten (10) cost centers, or"reserves," that PGS maintains separate accounting for in order to capture the revenues and costs of service associated with each reserve: 1. Refuse collection services 2. Existing refuse deficit 3. Vineyard Avenue Landfill closure 4. Vineyard Avenue Landfill litigation