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BACKGROUND PGS has an exclusive franchise agreement with the City of Pleasanton to collect, transport and dispose of refuse and recyclable material produced and accumulated within the corporate limits of the City. In accordance with franchise terms, PGS and/or its subsidiaries provide all residential and commercial refuse collection and recycling services, operates the Bush Road Transfer Station, and monitors the closure of the Vineyard Avenue landfill. Recycling services include the operating the material recovery facility (MRF) at the Bush Road Transfer station, the green waste program and the food scrap program. This franchise agreement runs through June 30, 2019. PGS also operates the Bush Road buyback center. PGS service rates, which recover salaries, rents, maintenance, vehicles, insurance and other operating expenses, were last adjusted fully in July 2004 by 12.28% to reflect "projected" increases in operating expenses through fiscal year ending March 31, 2007 and costs not recovered from the previous rate increase that occurred in 2000. In June 2008, the City approved an interim rate adjustment of 12%. As a result, since 2000, collection and service rates have increased by 24.28% or 2.6% annually. This adjustment has been generally consistent with inflation that has been 22.61% over the same time frame. The Franchise establishes that the City Council approves refuse and recycling service rates with a primary responsibility to analyze PGS's rate proposal and determine if it is accurate, consistent with the terms of the Franchise and appropriate for the services provided. Due to the overall complexity of the proposal, the Council has established a subcommittee to review the information and to provide a recommendation to the City Council. PGS also submits an annual audit of its expenses to assure that its financial practices are consistent with Franchise terms. PGS has submitted a rate adjustment proposal for existing refuse and recycling services of approximately 32.84% for current services to cover increased operating costs resulting from basic inflationary pressure on the industry, the cost of new equipment including the purchase of compressed natural gas (CNG) vehicles, operational revenue that did not meet projections due to the overall state of the economy, increased landfill charges, and increased regulatory fees from governmental agencies (none of these are from the City). As a result of the review of PGS's rate adjustment request for existing services, staff is recommending an increase of 13% for residential customers and 14.71% or commercial customers. The impact of this adjustment is outlined in Attachment 2. To better reflect additional operating costs and to be more competitive with surrounding landfills and transfer stations such as Davis Street and Vasco Road, Transfer stations rates for Pleasanton residents will increase a total of 28.19%, while non Pleasanton resident and commercial rates will increase by approximately 45%. In addition to the rate adjustments noted above, the Subcommittee is proposing that City assess PGS a franchise fee of 1 % of gross revenues that will yield approximately $180,000 annually to be used for environmental programs. Currently, the PGS franchise fee is based on a per units fee resulting in approximately $31,000 annually. The average refuse collection franchise fee in Alameda County is approximately 5%. To Page 2 of 9