CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 2 of 4 of Pleasanton Garbage Service’s actual cost of operations and operational statistics (staffing levels, routes, route hours, customers, and service levels, etc.) to forecast the Total Calculated Costs for the coming rate period. The intent of performing the cost-based adjustment is to examine the actual impact of changes in costs, the number of customers and the service level of customers. The Rate Adjustment Factor is the lesser of 6 percent or the difference (measured as a percentage) between the forecasted Total Calculated Costs for the coming rate period and the Gross Rate Revenues of the most-recently completed 12-month period (adjusted to reflect the most recent rate adjustment). The Rate Adjustment Factor is applied to the then-current rates, with any additional costs factored in, to determine the rates for the coming rate period. DISCUSSION The Seventh Rate Period stipulates the use of a cost-based rate adjustment methodology. PGS submitted its application for a rate adjustment on December 22, 2023. PGS’s application included a total Calculated Cost of $36,536,914 to provide current franchised services for Rate Period Seven. Based on HF&H’s review of the application, and the recommended adjustments to the application, a total revenue requirement of $36,951,004 was determined. HF&H’s adjustments to PGS’s application are described in more detail in Attachment 1. After inclusion of City costs allowed for in the Franchise Agreement and outlined in more detail below, these total adjustments result in a 3.90 percent overall rate increase, roughly equivalent to the current Consumer Price Index (CPI), to provide the services currently required in the Agreement and meet State requirements. New costs in Rate Period Seven include the introduction of City staff costs needed to facilitate compliance with SB 1383, which requires cities and waste facilities to implement, measure, and report organic waste activity to reduce greenhouse gas emissions by diverting organic waste from landfills, as well as the start of incorporating a Vehicle Impact Mitigation Fee into the rate structure to offset street maintenance costs. These new annual costs total $500,000 and $1,329,400 respectively. Approval of this recommended rate increase will bolster the City’s ability to maintain its road system and provide consistent funding for staff to ensure the long-term sustainability of the City’s waste and recycling program. Adding three to five full-time staff to support the City’s waste and recycling program was outlined in the SB 1383 Action Plan adopted by the City Council on July 20, 2021. Currently, the City has 2.30 Full-Time Equivalent (FTE) staff allocated to waste and recycling. This includes a portion of the Assistant to the City Manager position, a full-time Management Analyst and a Recycling Coordinator. With the City's waste and recycling program expanding to comply with new SB 1383 requirements, some of the revenue generated by the proposed cost-based adjustment to garbage rates will be allocated to support a new Waste and Recycling Manager position that will oversee the City’s waste and recycling team and the Franchise Agreement, as well as other waste and recycling related programs and projects. Once all position-related details have been finalized, staff will include a recommendation to add this position, which will be 100 percent funded with non-General Fund dollars, as part of future budget updates. The current Franchise Agreement Section 7.2 also allows for establishment of a Vehicle Impact Mitigation Fee which is currently set at $0 per year. On June 7, 2022, the City Council authorized the Vehicle Impact Mitigation Fee Study as part of the allowable expenses from Fund 171 PGS Reserve Fund. Pursuant to City Council direction, HF&H conducted an analysis Page 26 of 720