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Crowe Horvath Mr. Steven Bocian Page 6 December 2, 2014 trip basis and current RRRS charges in the City's rate reflect charges based on a market-based hourly rate. We have expressed to the City our prior concerns with the use of this comparable rate method used to set the hauling costs paid by City ratepayers, including: .7 There may be a material profit component in RRRS related-party charges which we have been unable to precisely determine through the information provided by PGS The RRRS hourly rate may have no direct relation to RRRS's actual cost of providing the hauling services to PGS D The data used by RRRS is dated (2006), cannot be validated, and is from a limited population of two vendors `.1 There likely is no real market-based hourly rate for the services provided.' In our previous rate review report, dated December 23, 2013, we noted that even though we do not agree with the approach used to set these hauling charges, absent another definitive approach,we attempted to assess the reasonableness of the charges to City ratepayers using the comparable hourly rate method. The average rate charged by ten (10)comparable companies was$110.82 per hour. We used a$125 per hour rate to calculate hauling costs. Our preference for treating this hauling cost item in the City's future rate setting methodology is for PGS to include in City rates an agreed upon allocation of the City's portion of RRRS's actual total costs (as identified in financial statements or similar documentation provided for RRRS). Additionally, like the hauling operations described above, RRRS also charges PGS for wood grinding. RRRS charges PGS a rate of$16.71 per ton to grind the City's greenwaste and wood waste. This activity is performed by RRRS onsite at the Pleasanton Transfer Station. In the past we have requested, but were not provided, the actual costs of this grinding operation so it is difficult to ascertain the reasonableness of this cost. No adjustment to CY 2015 projection. Insurance PGS projected CY 2015 insurance expenses by applying a 13.34 percent increase to the prior year's combined worker's compensation and general liability insurance expense. The adjustments to worker's compensation and general liability are based on estimated premiums. We used an alternative methodology for projecting combined worker's compensation and general liability insurance expense. We annualized year-to-date 2014 worker's compensation and general liability insurance expenses and applied a 7 percent premium increase to worker compensation and the CPI to general liability expense to estimate the 2015 figure.8 Impact(s): ri Reduction in CY 2015 expense by$17,466. 'We make this observation for a number of potential reasons such as(1)RRRS realizes economies of scale due to the ongoing nature of the service provided(that likely would not be available to a third party),(2)RRRS trucks are housed at the same physical location as PGS,(3)RRRS vehicles and equipment may be in use that already have effectively been fully rate-funded by City ratepayers(i.e.,fully depreciated). "California Workers'Compensation Insurance Rating Bureau recommended a 6.7%increase in the state's pure premium workers compensation rate for 2015.