TITLE



PACIFIC GAS AND ELECTRIC COMPANY

CHAPTER 7

BILLING, REVENUE, AND RECORDS

Introduction

1 Scope and Purpose

The purpose of this chapter is to demonstrate that Pacific Gas and Electric Company’s (PG&E or the Company) expense and capital expenditure forecasts for its Billing, Revenue, and Records (BR&R) programs are reasonable and should be adopted by the California Public Utilities Commission (CPUC or Commission). The BR&R activities described in this chapter include the issuance of customer bills, maintenance of customer account information, payment processing and revenue reporting. In 2004, PG&E issued over 66 million customer bills and 10 million late payment notices.

Commission adoption of forecasted BR&R expense and capital expenditures is necessary to continue to provide accurate, timely and efficient service to customers in 2007.

2 Summary of Dollar Request

PG&E requests that the Commission adopt its 2007 expense forecast of $92.1 million for BR&R programs.[[1]] This request is less than 3 percent higher than recorded adjusted BR&R expenses of $89.8 million in 2004, which reflects that BR&R is generally able to offset labor and non-labor escalation and other cost increases with technology advancements and process improvements. PG&E further requests that the Commission approve the 2004 recorded capital expenditures for BR&R of $0.1 million and adopt the 2005 through 2007 forecast capital expenditures of $6.7 million to replace billing-related equipment.

3 Support for Request

PG&E’s expense and capital expenditure forecasts are reasonable and fully justified because BR&R:

• Continues efficient operations management;

• Complies with all regulatory and legislative mandates;

• Seizes opportunities to implement process improvements and automation to control expenses and improve overall performance; and

• Anticipates a 6 percent increase in 2006 postage expenses.

4 Organization of Remainder of This Chapter

The remainder of this chapter is organized as follows:

• Program Management Process;

• Estimating Method;

• Activities and Costs by Major Work Category (MWC);

• Translation of Program Expenses to Federal Energy Regulatory Commission (FERC) Accounts; and

• Cost Tables.

In addition, Appendix 7A to this chapter provides a report on various commitments made by PG&E in the area of billing, revenue and records in the 2003 GRC (D.04-05-055) and other regulatory proceedings.

Program Management Process

PG&E manages its BR&R programs—both expense and capital expenditures—using a centralized program approach administered by an individual program manager. This program manager is responsible for activities reflected in three expense MWCs and two capital MWCs. Nearly 600 employees perform work in these MWCs (see Table 7-1).

Table 7-1

pacific gas and electric company

BR&R Program Employees – 2004

|Line No. |Section/Department |MWC |Employees |

|1 |Bill Print, Mail and Payment Processing |DA/DB |121 |

|2 |Records |FT |246 |

|3 |Billing |DA |123 |

|4 |Revenue Control |DA |24 |

|5 |Business Systems and Application Requirements |DA |57 |

|6 |Directors Office |DA |2 |

|7 |Total | |573 |

| | | | |

The programs in BR&R include a wide variety of activities, such as:

• Calculating, producing and mailing customer bills;

• Billing of direct access customers for energy service providers (ESPs);

• Receiving and processing customer payments;

• Reporting revenue and paying utility user taxes and franchise fees;

• Maintaining customer billing records; and

• Planning and analyzing system business requirements that support billing and payment activities described above.

All of these activities are discussed below by MWC.

Table 7-2 displays the MWCs that are managed under the BR&R Program. At the end of this chapter, Table 7-6 shows the 2004 recorded capital expenditures and 2007 forecasted capital expenditures for MWCs 80, 87 and 88. Table 7-7 shows the 2004 recorded expenses and 2007 forecasted expenses for BR&R MWCs.

Table 7-2

Pacific Gas and Electric Company

Billing, Revenue, and Records

major work categories

|Line No. | | |

| |MWC |Title |

|1 |Expense MWCs |

|2 |DA |Process Customer Bills |

|3 |DB |Receive and Assure Revenue |

|4 |FT |Customer Services Office Transactions |

| | | |

|5 |Capital MWCs | |

|6 |80 |Computer Network Facilities |

|7 |87 |Office Equipment |

|8 |88 |Office Furniture |

1 Program Activities

1 Process Customer Bills (MWC DA)

1 General Activities

Within MWC DA there are four major activities: (1) printing and mailing customer bills that have been calculated in PG&E’s main customer information system (known as CorDaptix, CDx, or the Customer Care and Billing (CC&B) system); (2) calculating complex customer bills via the Advanced Billing System (ABS); (3) reporting revenue and managing cash and tax/franchise payments; and (4) analyzing and planning future billing business system requirements.

1 Bill Printing and Mailing

PG&E’s Bill Print, Mail and Payment Processing (BPM&PP) Center, located in West Sacramento, prints and mails customer bills and credit notices, prints checks (payroll, accounts payable, and customer refunds), and prints and distributes performance and control reports such as lists of customers not billed, meters with zero usage, and accounts needing rate analysis.

In 2004, the center processed 66.6 million customer bills (264,347 per day) and issued 10.2 million late payment notices (40,329 per day), which notify customers that their accounts are delinquent.

2 Calculating Complex Bills

The Billing section of the BR&R department is responsible for calculating bills for customers taking service under complex rate schedules and non-energy related services. The Billing section includes the following groups:

Technical Support Group: A Technical Support group maintains the ABS, which calculates bills for customers with non-standard metering (e.g., interval) or complex rates schedules (e.g., E-19 and E-20 Non-Firm, E-NET, Standby, and noncore gas rate schedules).

Industrial Power Billing Groups: The Electric Industrial Power Billing group is responsible for managing electric bills (using the ABS) for: (1) PG&E’s largest full-service electric customers (Schedules E-19 and E-20); (2) direct access electric customers taking service under PG&E’s consolidated bill service for energy service providers; and (3) full-service electric customers on specialized tariffs (including Non-Firm, Standby, E-NET, E-9, E-BIO, Departed Load, Critical Peak Pricing, and Community Choice Aggregation). The Gas Industrial Power Billing group is responsible for managing gas bills for PG&E’s noncore gas customers. Additionally, within the Gas Industrial Power Billing group, there is a group that manages PG&E’s Electronic Data Interchange (EDI) process, which replaces bill printing and mailing with electronic transactions.

The following table summarizes customers and revenues billed via the Industrial Power Billing groups:

Table 7-3

pacific gas and electric company

Billing Section Customers and Revenues Billed – 2004

|Line No. |Group |Customers Billed |Revenues Billed |

|1 |Electric Industrial Power |17,542 |$2.0 billion |

|2 |Gas Industrial Power |2,246 |0.4 billion |

|3 |Total |19,788 |$2.4 billion |

Non-Energy Billing (NEB) group: The NEB group is responsible for billing charges not directly related to the sale or delivery of electricity and gas service. These services include third-party damage claims (vehicle or facility damage), special facilities charges (per Rule 2, Section I), rentals, leases, and non-energy related ESP service fees. In 2004, the non-energy group issued 80,926 bills and collected $469 million.

3 Reporting Revenue, Managing Cash and Computing Tax/Franchise Fee Payments

The Revenue Control and Statistical Reporting section includes three units: Revenue Reporting, Cash, and Taxes and Fees/Customer Refunds.

Revenue Reporting Unit: The Revenue Reporting unit is responsible for the balancing of approximately $1.0 billion per month of revenues, cash, and sundry adjustments and the calculation of certain accounts receivable reserves. This unit is also responsible for calculating daily remittances to the Department of Water Resources (DWR). It also supports the monthly revenue closing process by providing revenue data to PG&E’s Corporate Accounting Department and other internal departments.

The unit generates and distributes monthly billed revenue reports to the U.S. Department of Energy, the CPUC, the California Energy Commission (CEC), the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), and to city and county governments. In 2004, the Revenue Reporting unit produced and delivered 37 revenue and statistical reports to assist in compliance requirements by internal PG&E departments. Finally, the unit develops and distributes eight annual financial and sales reports to various city and county governments and to regulatory agencies.

Cash Unit: The Cash unit is responsible for the cash account reconciliation for the Company’s four primary customer depository cash accounts. Through these accounts, the Company collects approximately $1.0 billion per month.

Taxes, Fees/Customer Refund Unit: The Taxes, Fees/Customer Refund unit calculates and remits approximately $200 million in annual utility users taxes to 69 city and county governments (paid in monthly installments) and approximately $125 million in annual franchise fees to 279 city and county governments. This unit is also responsible for monitoring and reconciling the customer refund liability general ledger account.

4 Analyzing and Planning Billing Business Systems and Application Requirements

The Business Systems and Application Requirements (BSAR) Department assesses various legislative and regulatory changes on the measurement, billing, and payment process. BSAR also supports CDx and revenue reporting system development and maintenance, the teleprocessing system (TP), the On-Line Billing History System (OLBH), the Automated Rate Analysis Program (ARAP), the Balanced Payment Plan (BPP), the Automated Payment Service (APS), and the Medical Baseline Program. The BSAR Department verifies the accuracy of rates in the billing system, ensuring that rates match the approved tariffs whenever rate changes occur; provides quality assurance; and provides bill design expertise.

2 Service and Process Improvements

1 Improved Efficiencies

PG&E’s efficiency at the West Sacramento Bill Print, Mail and Payment Processing Center is improving. Although there was a small decrease in efficiency during 2003 during the stabilization period after the roll-out of CDx in late 2002, the numbers of bills processed per FTE are well above 2002 levels. This performance is shown in Table 7-4 below.

Table 7-4

Pacific Gas and Electric Company

Bills Processed PER FTE PER MONTH

|Line No. |Measure |2002 |2003 |2004 |

|1 |Bills processed per FTE per month |226,803 |203,309 |246,012 |

| | | | | |

The improvements in 2004 were partly attributable to PG&E’s installation of a replacement print server that uses Hewlett-Packard hardware and software. This replacement was necessary because the original server system was out-dated and no longer supported by its vendor. The replacement print server allows faster downloads of data and provides backup in the event of a network failure. This new server was fully operational in July 2004.

2 Bill Redesign

In 2007, with Commission approval, PG&E will implement a redesigned customer bill. The objective of the bill redesign effort is: (1) to examine customers’ current comprehension of their monthly bill; and (2) to incorporate customer feedback on what information will best meet their energy management needs.

In 2004, PG&E conducted several focus groups among residential, commercial, agricultural, and large business customers to obtain qualitative customer feedback and recommendations regarding the energy statement.

Customers indicate that the energy statement is confusing, hard to understand, and does not provide useful energy consumption information. The key findings from the surveys identified several recommendations below:

Residential customers prefer: a one-page bill; a tear-off payment stub at the bottom; summary information on the front page in a column or “box” as well as detailed information, if possible; graphs of 12 (or 13) months’ usage for both gas and electricity; useful, brief messages (e.g., alerts regarding rate changes, rebates, saving money); explanation of key utility terms such as baseline, therm multiplier, and tiers; and “customer-friendly” descriptions of the items on the back of bill.

Mid-sized, large and agricultural customers prefer: a bill on 8-1/2 X 11” sized paper with a stub on the bottom to increase ease of bill storage and filing; a business-sized return envelope to accommodate larger checks; special account representative business contact telephone numbers on the front of the bill; line-item calculations for fixed charges (e.g., meter, customer); graphs of 12 (or 13) months’ usage for both gas and electricity; additional summarized information to help them manage multiple accounts, if the customer had service at multiple premises; and “customer-friendly” descriptions of the items on the back of bill.

Based on such customer feedback, PG&E will develop new bill prototypes that will undergo further customer review in 2005 and 2006 before implementation efforts of a redesigned bill commence.

2 Receive and Assure Revenue (MWC DB)

1 General Activities

Approximately 62 percent of PG&E’s customers mail payments to the Company. Activities falling under this MWC include: (1) removing the payments from envelopes and preparing bank deposits; (2) applying payments to individual customer accounts; (3) researching and responding to payment inquiries; and (4) reconciling payments deposited with amounts credited to customers’ accounts.

In 2004, PG&E processed 37 million payments by mail representing $8.6 billion in incoming revenue, a daily average of more than $34.0 million. Currently, PG&E deposits 99.6 percent of these customer payments within 24 hours of receipt and posts payments to these customers’ accounts within 48 hours of receipt.

2 Service and Process Improvements

PG&E continues to create new and convenient options for customers to pay their monthly bills. Although a majority of PG&E customers pay with checks via the U.S. Postal Service, PG&E offers a broad range of convenient payment alternatives. The following table shows the variety of customer payment options that are available to meet customers’ differing preferences:

Table 7-5

Pacific gas and Electric company

2004 Customer Payment OpTions

|Line No. |Payment Option |Description |Transaction Volume |Customer Use (%) |Amount Collected |

| | | |(000s) | |(000s) |

|1 |US Mail (PPC) |Payments mailed by customer. |37,214 |62.20 |$8,638,665 |

|2 |Local Office Front |Payments made at local office |5,267 |8.80 |1,950,120 |

| |Counters |front counters. | | | |

|3 |Pay Stations |Payments received at authorized |5,110 |8.50 |696,330 |

| | |retail locations throughout PG&E | | | |

| | |service territory. | | | |

|4 |APS |Automatic Payment Service-Payments|4,326 |7.20 |511,643 |

| | |deducted from customer checking | | | |

| | |account automatically. | | | |

|5 |EDI |Electronic Data Interchange-bank |654 |1.10 |554,606 |

| | |to bank payment type used by | | | |

| | |business customers. | | | |

|6 |Pay-By-Phone |Payments made by phone through |501 |0.80 |88,428 |

| | |Call Center utilizing debit card. | | | |

|7 |Wire Transfer |Money wired by large customer to |1 |>0.01 |27,692 |

| | |PG&E bank account followed by | | | |

| | |account listing of payment detail.| | | |

|8 |ACH |Automated Clearing House-Money |19 |0.03 |552,808 |

| | |wired by customer to PG&E bank | | | |

| | |account followed by account | | | |

| | |listing of payment detail. | | | |

|9 |E-Bill (12 month |Payments made by personal computer|1,170 |2.00 |135,528 |

| |projection) |via internet directly to . | | | |

|10 |Home Banking |Payments made by personal computer|5,587 |9.30 |637,341 |

| | |through customer's internet | | | |

| | |provider. | | | |

|11 |Total | |59,851 |100.00% |$13,793,160 |

While E-Bill payment processing costs are slightly higher than processing payments arriving via U.S. Mail, customers who choose E-Bill service have opted for paperless billing. Consequently, the overall cost of providing this service is less expensive than other options.

3 Customer Services Office Transactions (MWC FT)

1 General Activities

In 2004, PG&E completed a consolidation of customer account records maintenance activities, which were previously performed at 22 different locations. These activities are now located at a centralized operation at the Records Center located in Stockton. The centralization objectives included improved controls, consistency and quality of customer transactions, and consistent training of a centralized workforce.

Records work activities within MWC FT consist of account maintenance, billing exception processing, and help ticket processing. Account maintenance refers to any type of billing change (e.g., medical baseline increase, meter changes and removals, unaccounted for usage, direct access service requests (DASRs) to move customers to and from direct access service). Billing exceptions can occur for a variety of reasons, such as when a meter reading is missed. An exception can also be created when meter change transaction data is missing or the meter information is not current. Each year PG&E processes approximately 1 million exceptions to customers’ accounts. “Help tickets” result from customer initiated requests, which may include rate schedule changes, account set up inquiries, and new “landlord agreement” set up. Corrections made to customers’ accounts are posted in CDx on a real-time basis.

2 Service and Process Improvements

1 Delayed Bill Reduction

PG&E continues to improve its billing performance and timeliness. Since the implementation of CorDaptix in late 2002, PG&E has driven down the number of delayed bills to new record lows.

The significant progress that has already been made in reducing the backlog of delayed bills, as well as the process improvements put in place, allowed for the closure of the Sacramento Records Center in August 2004. This satellite center was established in 2003 to help handle the increase in delayed bills resulting from the installation of CorDaptix. In addition to this reduction in staffing, Records was also able to absorb the records work performed in the Customer Billing section, which had previously been performed by 12 employees.

Despite these significant improvements, BR&R is taking the following steps to drive this percentage lower:

• Continuing to improve office and field work procedures;

• Obtaining missed meter reads;

• Continuing to implement enhanced work processes to improve account set up processes; and

• Ensuring CorDaptix and other information system programming is implemented to enhance system fixes.

2 “To Do” Work Management

As described above, PG&E processes the vast majority of the Company’s 5.5 million bills per month on time and without calculation error. A small portion of these bills—called “exceptions”—require employee intervention to complete the billing process. The CorDaptix system identifies “exceptions” as “To Do” items, which are placed in a queue and resolved by revisions to customer information records or bill calculations. This work queue has limited ability to assign, prioritize, and track exceptions.

PG&E is conducting a thorough review of the current billing exceptions and working with programmers to improve CDx “To Do” functionality. Forthcoming CorDaptix “To Do” functionality will include enhanced capability to manage all incoming exception work and improve the following work management tasks:

• Automate the work assignment process;

• Schedule and prioritize work;

• Manage multiple user interfaces (that is, exceptions from systems other than CorDaptix); and

• Track and pass work between operating units.

These improvements will allow Records employees to expedite and efficiently resolve billing exceptions when they occur.

2 Business Transformation Initiatives

Of the service and process improvements described above, the Delayed Bill Reduction Initiative[[2]] and the “To Do” Work Management Initiative are part of PG&E’s Business Transformation effort. From these initiatives, PG&E expects to save approximately $3.28 million annually. These savings, consequently, reduce PG&E’s 2007 expense forecast.

Estimating Method

PG&E’s 2007 estimate for BR&R expenses was developed using recorded adjusted 2004 expenses as a base. The 2007 estimates were made by adjusting the base to reflect changes in program activity as described in Section B above.

Estimated capital expenditures were developed for 2007 at each program level. Estimates were made based on routine equipment upgrades and additional equipment needs.

Activities and Costs by MWC

The cost estimates for each MWC are described below.

1 Expense MWC

Estimated customer accounts expenses (MWCs DA, DB, and FT) were developed for 2007 at each program level, using recorded adjusted 2004 expenses as a base.[[3]] Specifically, PG&E estimated the 2007 customer accounts expense and associated activities by removing one-time and non-recurring costs from recorded 2004 expenditures, adding planned or anticipated cost increases (including labor escalation), and deducting planned 2007 cost-saving initiatives.

The activities in each of these expense MWCs are set forth in detail in Section B of this chapter. The corresponding recorded amounts, and forecasts, are set forth in the cost tables presented in Section F of this chapter.

2 Capital MWCs

1 MWC 80 – Computer Network Facilities

No expenditures in this MWC are recorded for 2004. Forecast 2005 through 2007 expenditures are approximately $0.2 million for replacement of various billing-related computer equipment.

2 MWC 87 – Office Equipment

Recorded 2004 capital expenditures were $0.1 million for a Pitney Bowes inserter for bill printing and mailing. Forecast 2006 and 2007 expenditures are $6.6 million to replace existing bill printing equipment. The equipment scheduled for replacement primarily consists of high speed printers, which will be at the end of their expected useful life. The new equipment will increase print resolution, measured in dots per inch (DPI). The Company’s current printers are at 240 DPI, however, the current industry standard is 300 DPI and the next generation of Postal Bar-coding may require 300 DPI.

In addition, the current efforts under statement redesign may require enhanced print capabilities in order to produce graphs, charts and other customer-requested information on our bills. Depending on the complexity of the redesign, our current printers may not be able to accommodate these enhancements.

3 MWC 88 – Office Furniture

No expenditures in this MWC are recorded for 2004. Forecast 2005 expenditures are $65,000 for furniture related to the remodel of the Credit and Records Center in Stockton.

Translation of Program Expenses to FERC Accounts

As discussed in Chapter 4 of Exhibit (PG&E-1), PG&E’s program managers manage their program costs using the SAP view of cost information, not the FERC account view. Thus, for presentation in this GRC, certain SAP dollars must be translated to FERC dollars. This is not an issue for capital costs where the SAP and FERC view are identical. For operations and maintenance (O&M) expenses, however, the SAP dollars include certain labor-driven adders such as employee benefits and payroll taxes that are charged to separate FERC accounts. These labor-driven adders must be removed from the SAP dollars for O&M expenses to present them by the FERC account.

Tables 7-8 and 7-9 show how the SAP expense dollars translate to the appropriate FERC accounts. Table 7-8 shows dollars stated in nominal dollars (i.e., current year dollars). Table 7-9 shows dollars stated in base year dollars (i.e., 2004 dollars). The calculations used to deflate the nominal dollars to 2004 dollars (which requires segregating them into their labor and non-labor components) are shown in the workpapers supporting this chapter.

The expenses shown in Table 7-9 are summarized in the Distribution Results of Operations Exhibit (PG&E-2), Chapter 4, Customer Accounts Expense.

Cost Tables

The capital and expense requests for the BR&R Program are summarized in the following tables:

• Table 7-6 lists the capital MWCs, showing 2004 recorded expenditures and 2005, 2006 and 2007 forecasted expenditures by MWC;

• Table 7-7 lists the expense MWCs, showing 2004  recorded expenses and 2005 through 2009 forecasted expenses in SAP dollars, stated in current year dollars;

• Table 7-8 displays the translation of the expense MWCs to appropriate FERC accounts, showing 2004 recorded expenses and 2005, 2006, and 2007 forecasted expenses, stated in current year dollars; and

• Table 7-9 displays the translation of the expense MWCs to appropriate FERC accounts, showing 2004 recorded expenses and 2005, 2006, and 2007 forecasted expenses, stated in 2004 base year dollars.

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[[1]] On February 25, 2005, CPUC President Peevey issued an Assigned Commissioner Ruling (ACR) launching an investigation of various aspects PG&E’s billing and collection practices. The investigation is procedurally part of the companion Order Instituting Investigation (OII) in PG&E’s 2003 General Rate Case (GRC) (I.03-01-012).

The issuance of the OII creates a degree of uncertainty around PG&E’s forecast of expenses and capital expenditures presented in this chapter. Regulatory requirements that may arise from the OII may directly affect the expenses and capital expenditures necessary to meet those requirements.

Accordingly, if the OII, or for that matter, any other pending regulatory proceeding, requires changes to PG&E’s BR&R practices, PG&E’s expense and capital expenditure requirements may need to be increased.

[[2]] In some Company materials, the Delayed Billing Reduction Initiative is described as the “No Bill” Reduction Initiative.

[[3]] The 2004 MWC DA expense includes a postage expense of $22.8 million. The U.S. Postal Service is proposing an additional postage increase for 2006, which is expected to further increase costs by 6.0 percent, or nearly $1.41 million.

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