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BACKGROUND PGS has an exclusive franchise agreement with the City of Pleasanton to collect, transport and dispose of refuse and recyclable material produced and accumulated within the corporate limits of the City. This franchise agreement was entered into in 1989 and runs through June 2019. PGS service rates, which cover salaries, rents, maintenance, vehicles, insurance and other operating expenses were last adjusted during 2009 by an amount ranging from $3.93/mo to $6.53/mo for residential customers depending on service type and by $5.58/mo per cubic yard for commercial accounts. These adjustments covered operational cost increases as well as the cost of implementing the new curbside recycling program. The commercial cubic yard rate was more recently adjusted in April 2011 by $0.49 to reflect the cost of implementing the new commercial recycling program. The Franchise grants the City Council the authority to set service rates for refuse and recycling services and guarantees PGS an annual return on investment (ROE) between 8% and 16%. The Council's primary responsibility is to analyze PGS's rate proposal and determine if it is accurate, consistent with the terms of the Franchise and appropriate for the services provided. PGS submits an annual audit of its expenses to assure that its financial practices are consistent with Franchise terms. In March of 2012, the City entered into an agreement with NewPoint Group, Inc. to provide technical and financial analysis concerning PGS's rate request. The firm has been actively involved with all phases of the rate review discussions, including meeting with PGS to review financial and operational matters. The value of the agreement is $43,000. DISCUSSION PGS current rate proposal for existing and recycling services includes an increase of approximately 12.7% covering the four year period from April 1, 2011 to March 31, 2015. However, as indicated, the parties, including the City Council Subcommittee have been unable to reach agreement on both the proposal itself and other fundamental franchise issues that are of concern in the face of a potentially expiring franchise. A summary of these issues are as follows: 1. Develop agreement regarding the City's rate setting process and, if necessary, amend the franchise agreement to clarify the process and F'GS' obligations regarding approved rates. Section 18 Collection Rates and Billing, of the Refuse Collection Agreement, sets forth the process for setting refuse collection rates. Section 18.2 (i) states, in part, "Allowable expenses of Collector for rate-setting purposes are set forth in Exhibit B, attached hereto and incorporated herein for reference. The City may amend the allowable expenses in said Exhibit in order to reflect future changes necessary to provide Collector with a fair rate of return and to protect the public from unnecessary rate increase." Based on staff review, this section allows (1) the City Council to review PGS' rate request and allowable expenses, and (2) PGS to operate within the available revenues consistent with the approved collection rate. Page 2 of 6