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Crowe Horwath. Mr. Steven Bocian Page 3 December 23, 2013 • June 2008—12 percent rate increase(residential and commercial) • 2009-2010— 15.58 to 23.29 percent rate increase(residential), 30.68 percent rate increase (commercial) • 2011 —1.95 percent rate increase(commercial only) • 2013—5 percent rate increase(residential and commercial). In Table 3, we summarize residential rates since 2004. Table 3 Pleasanton Garbage Service Residential Rates (2004 to 2013) Service Level 2004 2008 2009 2013 35-Gallon $22.50 $25.20 $29.13 $30.59 96-Gallon $25.04 $28.04 $34.57 $36.30 On March 23, 2012, PGS submitted a rate application to the City requesting a 12:18 percent rate increase effective January 1,2013. PGS projected this rate increase was needed to cover a$5.9 million estimated accumulated deficit through March 31,2015. Based on newly available financial results, in September 2012, PGS updated its original rate request to reflect a 12.70 percent rate increase effective January 1, 2013. The City engaged NewPoint Group to review this application. NewPoint Group recommended a 7.04 percent rate increase effective January 1, 2013. In November,2012,the City Council approved a 5.0 percent rate increase effective January 1, 2013.2 The City and PGS disagreed on the outcome of this rate setting process. Ultimately, the City wanted to provide PGS with some rate increase in 2013 while the City and PGS continued discussions over the next year on several matters including: (1)modifications to the existing franchise agreement(including a new rate setting process and methodology), (2)an amended rate structure,(3)a franchise extension, or(4) other potential modifications to the franchise(e.g., CARI revenue share,treatment of related party transactions, updates to commercial recycling rate structure to clearly identify recycling options). After this most recent rate review,the City found that: The City has the right to perform a detailed and objective review of PGS's rate application (including all revenues and costs) • The City has the right to make reasonable adjustments to PGS's rate application and PGS should incorporate these adjustments into its future budgets and operations • PGS does not agree with this interpretation, maintaining that the City is required to accept all PGS expenses as presented,that there is no direct relationship between the City's rate setting process and its operations, and that the City is obligated to reimburse PGS for any accumulated deficit that may occur if expenses exceed revenues(e.g.,when PGS presents expenses in excess of prior projected expenses).3 2 This 5.0 percent rate increase included a 1.0 percent increase in City franchise fees.The PGS rate application did not include this 1.0 percent increase in City franchise fees.The NewPoint Group 7.04 percent recommendation did not include this 1.0 percent increase in City franchise fees. 3 Source:City Council agenda report,November 27,2012,pages 2 and 3.