Lee J. Achenbach Sr. IT Analyst October 19, 2007 ARC - A Case Study 2007 Joint Payment Conference

2 PGE Quick Facts 790,000 total customers 668,830 Residential customers 93,008 Commercial customers 52 cities served – Largest are Portland and Salem 4,105 square-mile service area 1,975 MW of generation 2,700 employees

3 SCE Quick Facts 13 million people 430 cities and communities in 50,000 square miles of service area, encompassing 11 counties in central, coastal and Southern California Commercial industrial and nonprofit customers, including: 5,000 large businesses 280,000 small businesses 13,000+ employees

4 What is ARC? ARC stands for Accounts Receivable Conversion ARC is a process that converts a consumer checks from a paper deposit to an electronic ACH deposit. Available in 2002, PGE & SCE are a few of the utilities in the U.S. to have implemented ARC.

5 Eligible ARC Checks Contains a pre-printed serial number No Auxiliary On-Us Field in the MICR line $25,000 or less Completed and signed

6 On-Us Courtesy of Electronicpayments.org

7 Ineligible for ARC Checks that contain an Auxiliary On-Us Field in the MICR line Checks greater than $25,000 Third-party checks, Money Orders, Travelers, cashier’s, and official checks

8 Auxiliary On-Us Courtesy of Electronicpayments.org

9 Opt Out Option: NACHA rules require that customers be given an opt-out choice from having their checks processed through ARC channels PGE & SCE informed customers by placing a message on the bill Each bill displays a message that payments by check authorizes a conversion to electronic debit

10 Opt Out Option cont. Customer’s that opt-out are marked in the Customer Information System (CIS) A nightly notification file is sent and loaded into a Cash Remittance Opt Out table As checks are process they are identified as either OPT Out or ARC payments

11 Opt Outs Cont. PGE Opt Out: –Multiple checks & one payment stub –Multiple payment stubs & one check

12 SCE Opt Out Opt out profile on customer account Indicator in scanline for customers who opt out Indicator is read and check is sorted to opt out pocket and sent to bank as paper Check only and other ineligible items are processed under Check 21 law

13 PGE’s ARC ACH file is electronically transmitted to the bank of deposit via the EDI IT group PGE doesn’t ARC multiples or online cashiering payments due to our automatic reversal process

14 SCE’s ARC Business checks are processed as paper in separate job – clearing house discount fees and some same day availability All others are sorted in Job 2 where decisioning is made and 2 files are created – ARC and Image (50% of ARC file is same day availability) CheckFree processes ARC file and sends to bank – handles Admin returns and NOCs Image file sent directly to bank

15 PGE Check Retention Checks are securely stored on-site and then destroyed within the month An electronic image of each check will remain in the company’s records for at least 7 years.

16 SCE Check Retention Checks are securely stored on site for up to 14 days Double cut shred on site by vendor 2 year online archive of images 7 year DVD back up of images

17 System Flow Cash Remittance Bank Customer Information System Payment Opt Out Notification Opt Out Remittance ARC Remittance ARC ACH Payments (Includes Adjusted) ARC ACH Returns (Automated) Balancing

18 Cash Remittance System Unisys NDP 500 Transports Access Database Application Server Data Server Windows Operating System based 2 Pass Process 1 st Capture, 2 nd Encode

19 Customer Information System Ventyx Banner® heavily customized (formally Indus, SCT) Oracle forms 5 Oracle 9i database AIX Operating System 3 IBM P570 servers (A,B,C) AppWorx 6.1 Enterprise Job Scheduler

20 SCE Operational Environment Agissar Extraction Equipment 1.1 Mail Sorter – envelopes are sorted according to contents – 40,000 items per hour 2.2 ACE TRIOs – correctly oriented, single doc, single stub auto extractor. 9,000 items per hour per Trio 3.6 RVs – low speed auto extractor – multis, metal (coin, staples, paperclips). 1,000 items per hour per RV 4.1 Omation mail opener (used strictly for business mail) Banctec Image Processing 1.2 E-Series Transports 2.ReadFirst OSA software 3.ARC with PayCourier Archive w/2 yr online storage 4.CheckFree decisioning 5.HP Server 6.24 keying stations 7.Integrated with SCE customer information database

21 Automatic Reversals ACH Returns go directly into the CIS System How the return is processed is determined by a systems rule table Notice of Change (NOC) returns are ignored by the system but manually changed in the Unisys decisioning table

22 System Level Rules

23 Auto Reverse cont. Two files – ACH & Remittance each carry the same reversal key. ACH File the key is stored on Individual Named Field on Type 6 Record Remit File key is stored as a composite of three fields Key Stored with the payment record in CIS

24 Auto Reverse cont. Return process uses key to find the payment, reverse it, and charges a fee Updates credit history when a fee is charged Generates a returned payment letter to the customer

25 $$ Savings $$ Decreased bank fees for paper items being processed through ARC Decreased bank fees for current ACH items Averaging 82% of paper checks processed converted to ARC (Target 75%)

26 Savings cont. Elimination of courier fees (PGE special deal with our bank) Priority ACH posting helps decrease return activity and float time Typically the lowest cost per payment

27 Savings cont. Electronic payments allow for 3 re- presentments Over 50% of checks re- presented 2 nd time clear (3 rd try) ½ FTE Savings to date (Auto Reverse)

28 $$ SCE Savings $$ Retained clearing house discounted bank fees and availability for paper items – business checks Decreased bank fees for ARC items 45% savings in supplies Averaging 82% of paper checks processed converted to ARC (Target 85%) Increased availability by approximately 23%

29 Lessons Learned Adjustments (encoding/keying corrections) need to be resent as an ACH Use multiple sample check amounts for testing Find out if you are the bank’s guinea pig

30 Lessons Learn cont. The description of “Lockbox” was showing up on customers bank statements which caused confusion. ( Bank was able to change description quickly to PGE PYMT) Get key players in joint meetings early and often in the process

31 Lessons Learn cont. Lots of time spent up front pays off on a better product Better prep Customer Service Reps (CSR) on what questions to expect and answers to give to customers Have subject matter experts attend the CSR training meetings with the trainers

32 SCE Challenges & Lessons Learned Unbundled RFP lengthened contract review process Not allowing concurrent contract negotiations caused delays in moving project forward Test docs/checks – order far in advance, use vendor for assistance to ensure checks meet micr requirements for decision testing Automated transmissions – tight timelines make file failure resolution difficult Invalid transactions (out of sequence transaction in single batch type – automatic rejects – have to be physically pulled) Assumptions made by SCE and Financial Institution regarding handling imperfect image files (Upside down/backward images, corrupted images, foreign drawn items) 5000 item per file/hour limitation on Image file

33 Summary Very complex especially the auto reversal piece but worth the effort 17 separate internal and external groups involved in the project Significant short term and long term cost savings Reduced staffing hours that have been redeployed to other critical areas

34 Testimonial PGE Manager of Revenue Collection & Community Offices – Wes Friesen "ARC has been a great project for PGE. Opt-outs have been less than.02%, and our conversion rate has exceeded 80%.” “ It's been seamless to our customers, and is saving PGE over $125,000 annually".

35 Questions?

36 Contacts Lee’s Phone: (503) Yeun's Phone: (626)