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Managing Tomorrow's Resources Today Ms. Becky Hopkins May 15, 2020 Page 2 of 3 2. Scope of Work HF&H compared PGS's Rate Application dated March 27, 2020 to the Agreement (specifically Exhibit H — Index-Based Rate Adjustment Mechanism, and Exhibit F — Contractor's Total Proposed Costs for Rate Period One) dated March 5, 2018: A. PGS's Index Based Rate Adjustment Application Worksheet dated March 27, 2020 (Worksheet) Rate Period 2 Column annual costs agreed in total to the annual costs from the prior year's approved requested rate increase. B. PGS's Worksheet Adjustment Index Column (showing the indices to be used in the adjustment) agrees to Exhibit H Table 2 with one exception for the Adjustment Index for Landfill Maintenance/Closure. Exhibit H, Section 3.C.9 provides that the "Landfill Maintenance and Closure Costs for each Rate Period shall mean the amount to which Contractor is entitled for the prior Rate Period pursuant to the terms of that certain 'Agreement Approving an Expenditure of Funds to Close Former Landfill between the City and the Contractor' dated October 7, 1986 and attached as Exhibit 0". PGS has included $141,766 of expenses for Rate Period Three which represents actual expenditures from January to December 2019 including: engineering services; gas monitoring; and, State Water Resources Control Board permit fees. This represents a decrease of$61,003 compared to Rate Period Two which appears to be reasonable and allowable under the Landfill Closure Agreement. C. The calculations in the PGS Worksheet Rate Period Three column were reviewed and agreed to with one exception. In the City Fees cost category, PGS included $60,000 for a Performance Review in Rate Period Three, however the amount for a Performance Review was previously included in Rate Period Two and no additional funds related to the review are required by the City in Rate Period Three. As background, Section 6.14 of the Agreement provides the City the ability to conduct a detailed review of PGS's performance, and establishes a budget for such review ($60,000), which is to be funded by PGS. The Agreement further establishes that this expense is an allowable cost which may be recovered through the rates. D. The Current Monthly Rates and Proposed Monthly Rates (effective July 1, 2020) (Schedule 4 Current and Proposed Customer Collection Rate Schedules)were reviewed and updated to reflect the adjusted proposed increase of 1.7% (see Attachment C for revised Schedule 4). E. PGS did not include in its Application an amount for the line item "[0.50% Franchise Fee funded by Prepaid Rate Reserve Credit]". Section 3.e.i of the Reserve Agreement between PGS and the City made as of March 20, 2018 permits, but does not require,the City to"apply from the Reserve an amount equal to 0.5% of the sum of the actual Gross Rate Revenues and Transfer Station Revenues each rate year to supplement the 3.5% franchise fees required under the New Collection Agreement".As of the completion of this review the City has not elected to utilize any of the Reserve funds in Rate Period Three.