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Crowe Horwath. Mr. Steven Bocian Page 7 December 23, 2013 Impact(s): ffi Decrease in dump/tip/diversion costs of$21,054 for CY 2013 and$42,994 for CY 2014. Hauling/Grinding/Processing Hauling Refuse and Wood PGS projected CY 2013 refuse and wood hauling expenses by doubling the actual first three months of data for the first half of CY 2013 and then applying the 3.00 percent CPI index to this figure for the second half of the year. PGS applied a 3.00 percent CPI index to the CY 2013 projection to estimate the CY 2014 expense. Recycling&Resource Recovery Systems, LLC(RRRS)provides material hauling services to PGS. RRRS is a related party to PGS,with the same ownership structure as PGS. RRRS charges PGS for hauling services on a per trip basis. To determine the 2012 per trip hauling charge, RRRS charged PGS$145 per hour.With an estimated round trip time of 1.50 hours from the Pleasanton Transfer Station to Vasco Road Landfill in Livermore, for 2012 RRRS charged PGS a round trip hauling rate of$217.50 per load ($145 per hour x 1.50 hours). RRRS based the 2012$145 per hour hauling rate on a comparable hourly rate that RRRS believes would be charged by a third party for similar hauling services. The calculation of this$145 per hour hauling rate is shown in Table 6 below. Table 6 Recycling&Resource Recovery Systems LLC Calculation of Related Party Hauling Rate Charged to PGS for Refuse Hauling Services (Calendar Year 2012) Date of Service Provider Quote Hourly Rate 1. Colorscape II (Chowchilla) 4/26/06 $132.00 2. Richie Lest Farms (Madera) 4/26/06 $127.50 Average $129.75 Escalation (Based on change in CPI)6 12.07%_ Estimated Average $145.4.1 Average Used by RRRS (2012) $145.00 We have concerns with the use of this comparable rate method used to set the hauling costs paid by City ratepayers, including: There is a material profit component in RRRS related-party charges which we have been unable to precisely determine through the information provided by PGS.This return is in addition to the return on equity provided to PGS in accordance-with the franchise agreement 3 The RRRS hourly rate has no direct relation to RRRS's actual cost of providing the hauling services to PGS 6 The change in CPI was based on the change in San Francisco-Oakland-San Jose CPI from April,2006(208.900)to April,2011 (234.121).