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A Crowe Horwath. Mr. Steven Bocian Page 4 December 2, 2014 3.Scope of Review Our scope of services included the following seven (7)tasks: 1. Review financial material submitted by PGS 2. Provide assistance regarding rates structures and adjustment amounts 3. Attend meeting (as requested by City) 4. Review the current rate structure for consistency with services delivered 5. Survey rates in similar service areas 6. Prepare report 7. Participate in City Council preparation and meeting (as requested by City). The City entered into a contract with Crowe on September 17, 2013 to provide these services. Crowe did not perform a financial audit, but relied on financial results presented by PGS. We submitted detailed data requests to PGS on September 12, 2014. We met with PGSs internal auditor Walt Lupeika, CPA, to discuss and clarify aspects of the data request on September 22,2014. We subsequently received a response to our data request on October 17, 2014. In most cases, PGS furnished the information we requested. 4. Rate Setting Adjustments In this section, we present our adjustments to the PGS rate application for calendar year 2015. Our adjustments are organized to generally match the organization provided in PGS's rate application. For expenses,the PGS rate application is organized consistent with the allowable expense categories contained in the Exhibit B of the Refuse Collection Agreement. Revenues PGS estimated calendar year(CY)2014 residential and commercial revenues by annualizing the actual revenue from the three months of CY 2014 actual data following implementation of the April 1, 2014 rate increase (the months of April, May, and June). PGS also estimated transfer station revenue by annualizing the actual revenue from the three months of April to June, 2014. Revenues for CY 2015 in each of these categories were held constant at their respective CY 2014 levels. We found these projections reasonable. We verified the sources of other income, including the curbside supplemental payment. Impact(s): No adjustment to CY 2015 projection. Expenses Consumer Price Index For purposes of projecting inflationary costs, as shown in Table 4, PGS used a 3.00 percent Consumer Price Index (CPI)equal to the percent change from June 2013 to June 2014 in the Bureau of Labor Statistics' Consumer Price Index-All Urban Consumers for the San Francisco-Oakland-San Jose, CA area. We verified this calculation was correct.