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time, staff raised a number of concerns regarding interpretation of the agreement and the Council directed staff to attempt to negotiate with PGS to resolve their differences. To date, these discussions have not been successful and in August PGS approached staff indicating that its financial reports showed that another 12.15% rate increase was warranted effective January 1St The Council's Refuse and Recycling Committee, comprised of Councilmembers Brown and Cook- Kallio, have been working with staff and the city's consultants from Crowe Horwath to assess the information provided. The analysis indicated, and staff agrees, that PGS is entitled to a 7.8% rate adjustment and that additional information regarding PGS related parties that provide service and profit from the franchise is warranted. The committee expressed concern regarding the overall lack of progress on the franchise discussions and lack of financial information provided by PGS. Mr. Bocian reviewed several slides comparing the city's calculation (4.81%) to PGS' request (8.82%), which is comprised of an increased rate for service as well as two increases for deficit recovery. He explained that the franchise is set up around a concept of balancing accounts, which indicate that in the event that PGS does not reach the targets set forth in the agreement it is entitled to request those throughout the rate setting process. The 4.81% calculated by the city's consultants includes a return on equity of 8%, a 1% increase related to the salaries and benefits as well as new employees, and an overall inflation rate of approximately 2.5%. PGS has agreed to operate throughout 2014 within the allowable revenue, which will address all of the existing deficit recovery and yield no further deficit for the year. As the Council knows, the mandatory commercial recycling ordinance based on the efforts of Alameda County Waste Management is now in place but the full financial impacts of conforming with that ordinance have likely not yet been realized. He reviewed monthly rates for the city's most common users and discussed how those compare to other cities within the region. The proposed rates for Pleasanton are just below the area average of $27.63 for a 32-gallon bin and $69 for a 96-gallon bin. He noted that PGS has historically been relatively low for 96-gallon service and higher on the 32-gallon side. Moving forward, staff would like to talk with PGS about moving more in line with the rest of the county and increasing 96-gallon rates while creating more relief on the 32-gallon side. Mayor Thorne asked if these rates are per bins, noting that most households have three different bins. Mr. Bocian clarified that the rate is based on the size of the garbage can, but includes recycling and green waste service. Mr. Bocian stated that while staff has had good discussions with PGS regarding the franchise, several issues have not been satisfactorily addressed. Staff would like to transition from a return on equity model to a cost-plus profit model that sets rates by adding a set profit to the overall cost of providing service. Staff presented a comprehensive model to PGS, who indicated a general agreement with the concept but also acknowledged several issues. Specifically, staff proposed eliminating the balancing accounts in favor of an agreement that PGS lives within a three year rate model with the exception of some regulatory or other unusual adjustments. PGS expressed concern that if it failed to meet revenue projections, an operating deficit may be unavoidable regardless of what efforts it makes on the expense side of things. With regards to related party transactions, staff feels that these are fundamental to the overall rate structure and the city is entitled to all related financial information. PHS maintains that the city benefits from it providing those services and does so at a lesser rate than if they were to be provided in the open market. Staff also believes that PGS should allocate a portion of its from those companies to the franchise and that it should not benefit from a profit on top of a profit. PGS has indicated that these are separate business entities and that using a survey approach which provides a discount on what other competing companies would charge to provide these services should be sufficient assurance for the city. Recently however, PGS has indicated that it is open to discussing alternatives. City Council Minutes Page 15 of 18 March 18, 2014