15 - Laserfiche WebLink

BACKGROUND PGS has an exclusive franchise agreement with the City to collect, transport and dispose of refuse and recyclable material produced and accumulated within the corporate limits of the City. The franchise agreement, which was entered into in 1989 and runs through June 2019, grants the City Council the authority to set service rates for refuse and recycling services and provides PGS an annual return on equity (ROE) between 8% and 16%. When reviewing a PGS rate application, 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. In 2011 PGS submitted an application for a 12.18% rate increase and in response, the City Council approved an adjustment of 5% effective January 1, 2013. In addition, as pa.rt of this rate review, the City Council directed staff to meet with PGS in an attempt to mutually resolve a number of the City's Franchise concerns related to the rate setting process, PGS's obligations regarding conducting operations consistent with approved rates, deficit recovery, service levels, rate structure, PGS's relationship with its related parties, and the franchise term. As part of these discussions the Council authorized staff to consider a short term extension to the Franchise as part of an overall agreement. Since that time, these discussions have continued but the parties have not yet reached agreement regarding the full range of issues. After reviewing the limited progress made in these franchise discussions, City Council Subcommittee directed staff to inform PGS of the City's intent to proceed preparing the material required to competitively bid for a new franchise agreement which would become effective immediately after July 1, 2019. During the course of the Franchise discussions, in August 2013 PGS submitted a rate application for a 12.15% increase to existing and recycling services effective January 1, 2014 to cover ongoing operating cost increases. In response to this request, in September 2013, the City approved an amendment to an existing agreement with Crowe Harwath LLP 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 and has presented the City with a report analyzing PGS's rate application. The Subcommittee supported the Crowe report findings and directed staff to inform PGS that it could support a 7.80% increase (-4.35% from PGS's request). PGS has agreed to the Subcommittee's direction and as such, the matter is before the City Council for its review and approval. DISCUSSION Rate Adjustment As indicated, PGS's current rate application requests a 12.15% rate adjustment effective January 1, 2014 to recover operating cost increases and deficits that occurred in 2012 and 2013. The City's response of 7.80% is generally comprised of 2.06% and 0.93% (2.99% collectively) to recover PGS operating deficits that occurred in 2012 and 2013 respectively, and 4.81% to meet anticipated costs for 2014. PGS rate application includes 3.33% for 2012 and 2013 deficits and 8.82% for 2014. Overall, the Crowe report projects 2014 revenue at $22,840,578 and expenses at Page 2 of 4