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Crowe Horwath. Mr. Steven Bocian Page 3 December 2, 2014 U Conduct base year(detailed) rate reviews every three years r,° Allow interim year adjustments, equal to 85 percent of the CPI plus recovery of changes in landfill costs rt Use the operating ratio (OR) methodology to determine profit(with an OR ranging from 88 to 92 and a target of 90 percent)2 ci Define allowable, non-allowable, and pass through expenses ■o■ Disclose and provide sufficient supporting documentation for related party transactions i Eliminate revenue"true up" mechanism (balancing account)from prior methodology • Eliminate the CART revenue share o Eliminate ROE and corporate tax equivalent profit mechanism.3 Rate setting has generally followed an approximately three to four year cycle. Recently approved rate changes granted to PGS include: o July 2004— 12.28 percent rate increase(residential and commercial) O June 2008— 12 percent rate increase (residential and commercial) El 2009-2010— 15.58 to 23.29 percent rate increase(residential), 30.68 percent rate increase (commercial) • 2011 — 1.95 percent rate increase(commercial only) U 2013—5 percent rate increase (residential and commercial) 2 2014—7.8 percent rate increase (residential and commercial). In Table 3, we summarize residential rates since 2004. Table 3 Pleasanton Garbage Service Residential Rates (2004 to 2014) Service Level 2004 2008 2009 2013 2014° 35-Gallon $22.50 $25.20 $29.13 $30.59 $32.98 96-Gallon $25.04 $28.04 $34.57 $36.30 $39.13 PGS Requested Rate Increase,January 1, 2015 On August 1, 2014, PGS submitted its 2015 rate application which is the subject of this report. PGS requested a 5.47 percent rate increase effective January 1, 2015. With this submission, PGS included a Schedule of Annual Revenue and Expenses Applicable for Rate Setting Purposes for the Base Year 2014 and Projected Period 2015. PGS developed its 2015 projection by"applying a combination of inflationary indexes and"true up" adjustments to the 2014 base year data. Effectively, this application represents a hybrid relying on the 2014 base year data combined with use of an index methodology for 2015. 2 A profit is allowed,based on a targeted operating ratio ranging between 88 and 92 percent. In the base year,if residential rates remain unchanged at an OR within the range of 88 to 92 percent,and the franchise hauler actually realized an OR within this range,then that same OR resulting in no rate change is used,and no rate change occurs. Otherwise,a 90 percent OR is used for the base year calculation. This new rate setting methodology is still in draft form and has not yet been formally incorporated by reference into the franchise agreement. 4 Effective April 1,2014.