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■ . ■ '.. Managing Tomorrow's Resources Today Becky Hopkins May 17, 2023 Page 2 of 3 2. Review of Rate Application HF&H compared PGS's Rate Application dated March 28, 2023 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 30, 2023 (Worksheet) Rate Period 5 costs Column "Rate Period Five" agreed with 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. C. Due to the special rate adjustment performed for rates effective January 1,2023,a new cost basis of$31,961,907 was established in place of the Rate Period 5 cost basis of$31,727,125. This new cost basis is the amount which the projective revenue requirement must be compared to when calculating the coming increase in rates, as the new cost basis reflects the rate increases, and annualized revenues that the mid-year Special Rate Adjustment is set to generate. This adjustment of the cost basis results in the adjustment being lowered from the requested 8.1%to 7.3% before application of a cap at 6%as allowed by the Agreement. 3. Payment and Billing Audit As described in Section 6.14.2 of the Agreement, the City has the right to conduct audits of PGS's billings and payments to the City during the term of the Agreement to verify that PGS is accurately billing its customers, and that it has calculated and transmitted all fees and payments to the City appropriately. In accordance with Section 6.14.2 of the Agreement, PGS will be responsible for reimbursing the City for the cost of this review, in an amount up to thirty-five thousand dollars ($35,000). These costs have been included in the application for Rate Period 6 as allowed by the Agreement. 4. Index Rate Period Cap Section 6 of Exhibit H gives the City the right to defer(carry forward) the excess of a 6% rate increase to be used in the subsequent rate period.The City may elect to carry forward a portion of or the entire excess increase above 6%. Based on HF&H's review and adjustments above, the current rate increase is 7.30%. Given the 6% cap, the City may carry forward 1.3% for Rate Period Seven. If the City does not want to enforce the cap, the rates will increase by the entire 7.3%. If the City exercises the cap, approximately $417,786 or 1.30% will be deferred to Rate Period Seven. Refer to Table 1 below for a summary of the rates with and without the ap. Based on the final decision regarding the use of reserves, Schedule 4 will be revised to reflect the final rates.