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Modified Adjustment Reflecting Survey Data and Recycling Interests As part of its review of the Crowe Horwath report, the Subcommittee expressed concern that PGS's service cost for residential customers with 35-gallon service is 10.97% above the average for Alameda County cities (Attachment 3) while the service cost for residential customers with 96-gallon service is 44.92% below the average for these cities. This discrepancy results, in part, from the fact that up until the start of the City curbside recycling program implemented in 2009, all Pleasanton residents had 96- gallon service, which was historically below area averages. However, while many cities have shifted some burden of the overall cost of refuse services to users with larger refuse carts as an incentive to recycle and to reflect the anticipated increased disposal costs, Pleasanton has not fully embraced this practice. As such, the 96-gallon service remains low. This issue was also addressed in December 2014 when the City Council approved a lower percentage increase for 35-gallon residential customers. Staff recognizes that maintaining lower 35-gallon can service rates is widely used, but historically, the City Council has decided against this model for a number of reasons including: . The community is comprised of many large homes and families that may not be able to meet their needs with a 35-gallon cart • The cost difference may lead to increased disposal of non-recyclable material in the recycling or green waste carts when 35-gallon can capacity is reached . It may not accurately reflect the cost of collection service since there is not a significant difference between the cost of servicing 35-gallon and 96-gallon carts Notwithstanding the above, PGS indicates that use of the 35-gallon service has increased significantly and currently approximately half of all residential customers are subscribed to this service. As a result, there is more concern with the inequity in rates than has existed previously. Further, and equally as important, is the fact that the City needs to continually increase the emphasis on active recycling and the use of smaller refuse carts can act as a positive incentive to accomplish this goal. As discussed with the Subcommittee, there are two critical components involved in determining the variable rate increase related to these two rate options (across the board vs. variable). The first is simply shifting a portion of the anticipated revenue from the current 35-gallon customers to 96-gallon customers and this is easily accomplished. However, the second requirement is more variable involving estimating the number of customers who may decide to migrate from 96-gallon service to 35-gallon service as a means of realizing cost savings and increasing recycling efforts. This latter step (i.e. migration) is difficult to estimate and led to some of the revenue deficits PGS experienced in 2011 when more than the anticipated number of customers migrated from 96-gallon can service to 35-gallon can service as part of the implementation of the residential curbside recycling program. To address the above migration issue, PGS has estimated a 4% migration of customers to 35-gallon service and this is factored into the rate adjustment amount. If the actual Page 4 of 6