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BACKGROUND In 2018 when setting rates for rate period one (FY 18/19), the City Council voted to increase the 35-gallon residential solid waste cart rate above the original staff recommendation to offset PGS's expressed concerns regarding potential lost revenue due to migration of residential customers from the 96-gallon cart to the 35-gallon cart. It was determined that the City and PGS would meet at some time after rate period one to determine if significant migration had occurred because of the lower rates and if PGS would need additional income generated by the higher rate, or if the additional revenue should be remitted back to the City and its ratepayers. On June 7, 2022, the City Council agreed that the PGS Reserve Account could be used for the following purposes: 1 . Implementation of SB 1383 2. Nexus Study not to exceed $25,000 to determine Vehicle Impact Mitigation Fee 3. Smoothing of garbage rates 4. Landfill related issues. DISCUSSION PGS has been holding the revenues resulting from the higher 35-gallon residential customer rate set by the City Council in a liability account to ease concerns of customers migrating to this lower rate and PGS potentially facing detrimental impacts to their revenues. The 35-gallon residential rate has been continually adjusted through the index-based rate adjustment process, and the amount of revenue above the staff recommended rate has accrued to $622,093 as of June 30, 2022. After one year under the new Franchise Agreement, 329 or 3.6 percent, of PGS's 96- gallon residential customers migrated to the less expensive 35-gallon cart resulting in a loss of revenue of $52,602 which is less than 0.25 percent of PGS's projected annual revenues. In the PGS Statement of Income and Retained Earning Year Ending June 30, 2019, the company's Gross Rate Revenue earned was $31 ,708,377, Operation Expenses were $27,458,764, and Income taxes were $58,853 producing a net income of $4,190,760. Based on the analysis in the report by the City's consulting firm, HF&H Consultants, Inc. (HF&H) as provided in Attachment 1 , it does not appear that migration resulted in significant revenue loss in rate period one. City staff, HF&H, and PGS leadership have met several times to discuss the 35-gallon cart migration liability account. City staff and HF&H have concluded that no additional revenue is due to PGS and that the revenues in the liability account belong to the City and its ratepayers. At the City Council Waste and Recycling subcommittee meeting on May 4, 2023, PGS acknowledged that there was not agreement between the City and the company on the original intent of the direction provided by the City Council in 2018; nevertheless, PGS agreed with the City staff recommendation to remit all revenue in the liability account at the conclusion of rate period six back to the City, and to eliminate the account in rate period seven during the cost-based adjustment. Page 2 of 3