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reserves to lower the coming rate increase from 5.8 percent to 4 percent in rate period five, the rate payers will need to generate the $500,000 as funded by reserves during the rate period six rate setting process unless the City elects to fund this amount again. This means that there will be an additional $500,000 (1.8 percent) increase that would be applied to the rates in rate period six in addition to the application of the various indices used to increase (or decrease) rates during the Index -based Rate adjustment in rate period six. In effect, the use of reserve funds simply delays the rate impact in that year, as they are recurring annual costs to PGS, and an amount equal to the amount of reserve funds used must be generated by rates in the following year. Table 6 illustrates the impacts the proposed use of reserves described above would have on rate period six rates. Table 6 Rate Period Five Funding Used $ 210,000 $ 500,000 $ 790,000 Rate Period Six Required Dollar Amount $ 210,000 Rate Period Six Required percentage to be applied 0.80% Rate Period Six Residential 35 gallon rate Rate Period Six Residential 96 gallon rate $29.18 1 $50.91 $ 500,000 1.80% $29.18 $50.91 $ 790,000 2.80% $29.18 $50.91 Note: All rate period six figures are shown before any adjustment resulting from the application of the index -based rate adjustment that will occur in rate period six. Additional items for consideration as related to smoothing garbage rates is looking at anticipated future trends and anticipated costs. For rate period six, if gas prices and inflation continue it is anticipated that the Index -based Rate Adjustment will be high as seen in rate period five. Also, as the City and PGS continue to implement SB 1383 there will be additional costs that will be passed onto the rate payers during the next few years. Finally, rate period seven is a Cost -based Rate Adjustment. As outlined in the franchise agreement, the Cost -based Rate Adjustment involves review of PGS's actual cost of operations and operational statistics (staffing levels, routes, route hours, customers and their service levels, etc.) to forecast the total calculated costs for the rate period seven. At this time, it is unknown if the Cost -based Rate Adjustment will be significant. Anticipated future SB 1383 related costs. There are several SB 1383 related costs that will be applied to future rate periods or through a special rate adjustment. Final costs associated with these items still need to be agreed upon by both parties: The addition of a garbage route to provide commercial organics collection service. Implementation of Third Eye camera technology to assist collection vehicles in contamination monitoring. Page 6 of 7