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Crowe Horvath Mr. Steven Bocian Page 5 December 23, 2013 4. Rate Setting Adjustments In this section, we present our adjustments to the PGS rate application for calendar year 2014. The Refuse Collection Agreement between the City and PGS does not specify an exact method by which the parties project revenues and costs for rate setting purposes.The Refuse Collection Agreement provides general guidance that the rate increase request submitted to the City Council"take into consideration previous cost and rate experience of the Collector."Attachment B includes the rate model with Crowe's rate adjustments summarized. Our adjustments are organized to generally match the organization provided in PGS's rate application. For expenses,the PGS rate application is organized consistent with the allowable expense categories contained in the Exhibit B of the Refuse Collection Agreement. Revenues PGS estimated calendar year(CY)2013 residential and commercial revenues by annualizing the actual revenue from the first five months of CY 2013. PGS estimated transfer station revenue by annualizing the actual revenue from the first six months of CY 2013. Revenues for CY 2014 in each of these categories were held constant at their respective CY 2013 levels. We found these projections reasonable. We made a minor adjustment to commercial recycling revenues based on year-to-date 2013 commercial recycling revenues provided by PGS in response to our data request(annualized six months of revenues ($72,310.54 x 2 =$144,621 versus$134,948)).We believe this higher revenue figure is reasonable in light of the slightly increasing prices received for the cardboard material over the course of the year-to- date as well as the program continuing to grow following its first full year in operation. Impact(s): Increase in other revenues by$9,434 in CY 2013 and $9,673 in CY 2014. Expenses Consumer Price Index For purposes of projecting inflationary costs,as shown in Table 5,we used a 2.56 percent Consumer Price Index(CPI)equal to the percent change from June 2012 to June 2013 in the Bureau of Labor Statistics' Consumer Price Index All Urban Consumers for the San Francisco-Oakland-San Jose, CA area We rounded the CPI increase to the nearest hundredth given its material effect on the projections and for consistency with prior rate reviews. PGS rounded this change in the CPI to 3.0 percent. Table 5 Consumer Price Index(CPI) Used by Crowe for Rate Setting Purposes Description Index June 2012 239.806 June 2013 245.935 Percent Change 2.56%