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Crowe Horvath. Mr. Steven Bocian Page 13 December 23, 2013 Employee Benefits Union Benefits PGS estimated CY 2013 union pension and health and welfare costs by doubling the actual first three months of data for the first half of the year and applying 4.59 percent increase to this figure for the second half of the year.13 PGS estimated CY 2014 union pension and health and welfare costs by applying the 4.59 percent increase to the CY 2013 estimates.We found the use of the 4.59 percent escalation assumption for CY 2013 and CY 2014,. which is based on actuals from July 2012 to July 2013, reasonable.There was a minor adjustment in our model as a result of this rate being applied to lower salaries(due to the adjustment to Salaries and Wages noted above). Non-Union Benefits PGS estimated non-union pension costs by calculating the prior year's ratio of Simplified Employee Pension Plan(SEP)contributions to wages and applying this percentage(4.72 percent)to CY 2013 and CY 2014 non-union wages to project non-union pension costs for CY 2013 and CY 2014.We found this method reasonable. PGS estimated non-union health and welfare costs by using actuals from the first quarter of CY 2013 and applying a 6.45 percent increase to the balance of CY 2013 and the 6.45 percent was used to escalate the non-union health and welfare costs for CY 2014.We find the 6.45 increase,which is based on historical HMO cost increases from the past four years,to be a reasonable assumption. Impact(s): 3 Decrease in non-union and union benefits costs by$18,957 in CY 2013 and$20,788 in CY 2014. Postage and Office PGS estimated CY 2013 postage using the method of doubling the first quarter and escalating the second half of the year by the CPI. PGS applied the CPI index to the CY 2013 estimate to project the CY 2014 expense. We found this method reasonable; however we used our adjusted CPI index of 2.56 percent and found some minor calculation/rounding differences between our calculation and PGS's calculation. Imoact(s): Increase in postage and office expenses by$1,379 in CY 2013 and$258 in CY 2014. Fuel and Oil PGS projected fuel and oil expenditures to be$894,595 for CY 2013 and$921,433 for CY 2014. PGS derived these estimates by applying the CPI factor of 3.00 percent to the prior year's expense. We believe fuel and oil costs should be projected using actuals from first three months of 2013. Consistent with other cost categories, we estimated the first half of CY 2013 by doubling the actual three months of data and applied the CPI index for the second half of the year We projected CY 2014 expenses by applying our CPI index to the prior year's estimate.This method yields fuel expenditure estimates that are lower than the fuel expenditures in CY 2012.We believe this is reasonable given slight decline in diesel prices over the previous year and PGS's shift toward more trucks running on natural gas. "The 4.59 percent figure represents a blending of the previous year's escalations for driver wages,pension benefits,and health and welfare benefits.