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BACKGROUND PGS has an exclusive franchise agreement (Franchise) with the City to collect, transport and dispose of refuse and recyclable material produced and accumulated within the corporate limits of the City. The Franchise, which was entered into in 1989 and runs through June 2019, grants the City Council the authority to set service rates for refuse and recycling services. When reviewing a PGS rate application, the Council's primary responsibility is to analyze PGS's rate proposal and determine if it is accurate, consistent with the terms of the Franchise and appropriate for the services provided. To assist with that process, the City utilized Crowe Horwath to review the proposal and its report is included as Attachment 3. The City's last approved rate adjustment was in March 2014 for an amount of 7.80% which was generally comprised of 2.99% to recover PGS operating deficits that occurred in 2012 and 2013 and 4.81% to meet anticipated costs for 2014. As part of that rate agreement, PGS agreed that the rate adjustment would cover all outstanding operating deficits and that it would operate during 2014 without incurring additional deficits. PGS has adhered to that commitment and as such, there are no deficit costs in the rate adjustment. (It should be noted that the current Franchise allows PGS to include incurred unrecovered costs or deficits as part of its rate proposal and that it includes a "true-up" provision for recovering these costs.) Over the past year, staff has held discussions with PGS regarding amendments to the Franchise and the status of these discussions are provided in more detail later in the report. However, critical to these discussions is an agreement to move from a current profit/rate model based on a Return on Equity (ROE) with a true-up provision as mentioned above to a "cost plus profit" model used in the majority of municipal franchise agreements. The cost plus methodology generally involves an annual adjustment based on an agreed upon CPI index and a base year adjustment involving a thorough review of rates every approximately three years. In recognition of both parties interest in moving to the new rate methodology, the current rate proposal moves closer to the cost plus model. However, to move completely to this model, the City and PGS will need to agree to a franchise amendment and as mentioned, these discussions are currently ongoing. DISCUSSION Rate Adjustment Unlike recent rate adjustments, this adjustment addresses only the impact of estimated expenditures and revenues for the 2015 calendar year; not the "trueing-up" of costs incurred in previous years. In addition, while the City has typically approved rates for a period of three years, this adjustment is for a period of one year (calendar year 2015) and it is anticipated that a rate analysis will again be conducted prior to January 2016. The full analysis of the rate adjustment request is detailed in the Crowe Horwath report (Attachment 3) which analyzes the reasonableness of expenses and the revenue projections and makes a recommendation of a supportable rate adjustment. In general, the purpose of this rate adjustment is to provide revenue to fill the gap between Page 2 of 6