EEI/AGA DataSource Best Practices Workshop
Louisville, Kentucky ▪ October 25-27, 2006
– How to Convert Paper Checks into Savings
Jeff Feudner
Senior Business Analyst, Treasury Department
Presenter
Jeff Feudner
Senior Business Analyst Treasury Department
FirstEnergy Corp.
330-384-5767 feudnerj@firstenergycorp.com
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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Presentation Agenda
Introduction Background: FirstEnergy Corp
What is ARC and the Rules
Evaluation Provider Selection
Project and Implementation
Benefits Realization Lessons Learned Additional Information Q&A
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006 ARC – How to Convert Paper Checks into Savings
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Introduction
Implementing ARC (Accounts Receivable Conversion) at an electric utility remittance processing center This presentation will:
– – – – – – Describe FirstEnergy and its remittance operations Explain what ARC is, the process, and the rules Describe the evaluation and provider selection Detail the project and implementation Identify benefits achieved Discuss lessons learned
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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Headquartered in Akron, Ohio
Seven electric utility operating companies
5th largest investor-owned electric system in the U.S.
Ranked 184 among Fortune 500 companies in 2006
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
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» More than $12 billion in annual revenues and more than $31 billion in assets
Rankings among Electric Utilities
» 4.5 million customers
9 5 8 7
Assets Customers Revenues Market Cap
» 20 generating plants » 128,000 transmission & distribution miles » Approx. 13,800 employees in electric utility operations
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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FirstEnergy’s Customer Mix
Customer Base
Electric Customers – 5th Largest
Ohio 2.1 million
Balanced Sales Mix
Commercial 32%
Residential 35%
New Jersey 1.1 million
Pennsylvania 1.3 million
Industrial 33%
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
FirstEnergy Remittance Statistics
Volume
– Process on average nearly 3 million checks per month – Average of $40.5M deposited per day – On largest single day, processed 336,000 items – $91.7M
Equipment
– Unisys RPS software version 7.4.1 – Two Opex 150s with IEM, open and image 18,000 envelops per hour – Unisys NDP 500 & NDP 850
Processing
– Two overlapping shifts with 38 full-time and 7 temporary employees – RPS processes data in 2 passes
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006 ARC – How to Convert Paper Checks into Savings
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What is ARC?
Accounts Receivable Conversion (ARC) –
Consumer checks received by the Remittance Processing Center are converted into an electronic ACH (automated clearing house) for improved collections and reduced operating costs. MICR line data is captured and transmitted to financial institution Data is converted to an ACH transaction and sent through the ACH network for normal processing Check is imaged and destroyed within 14 days Image is retained for 2 years
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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History of ARC
March 2002, the National Automated Clearing House Association (NACHA) instituted a new ACH application, (accounts receivable entry and identified by the code ARC) specifically designed to convert consumers’ checks received at lockboxes and remittance centers into electronic ACH debits Key to ARC is the Federal Reserve Board interpretation that if prior notice is given to a consumer that their check will be converted, then the check that the consumer subsequently submits to the biller constitutes a source document authorizing conversion of that check into an ACH debit
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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Why ARC?
Reduced processing costs
– Deposit and return item processing fees much lower than paper – Reduced number of returns
Improved collection percentage/loss reduction
– ACH priority posting – Earlier presentment vs. paper for accelerated funds availability – Earlier notification of returns
More efficient process at remittance
– Early conversion in processing cycle – Reduced paper handling and supplies expense
Compete for consumer dollars
– Other billers ARC (e.g., credit card, phone, etc.)
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006 ARC – How to Convert Paper Checks into Savings
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ARC vs. Check 21
ARC is the conversion of a consumer’s paper check into an electronic settlement (ACH debit)
– No longer considered a check – Consumer checks only – Payee receives notice on bank statement that check was converted to an ACH (check not returned)
Check 21 is the process of capturing an image of a paper check to create a substitute check that is used in place of the original paper document
– Substitute check still considered a check – All checks eligible – Substitute check image can be returned to payee
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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ARC Process Flow
MICR information captured & ARC decisioning performed
Check mailed to RPC
API
George W. Bush 3100 Rocky Brook Drive Crawford, TX 50605 Pay to the order of _______________________________________ _______
1234 Date: _________
Not ARC Eligible
Amount:
___________________________________________________________ _____
Memo: ________________ Signed: t113001064t o0440132629o 1234 ____________________________
Biller notifies Consumer
Opex 150/Unisys Transport
ARC Eligible
Deposit Prep
Note: API = Application Programming Interface ERF = Electronic Remittance File
Checks converted to ACH Checks destroyed
ERF
Non-ARC cash letter deposit
Consumer’s/ FirstEnergy’s Bank Statement
ACH Network for ARC
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
Financial Institution
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ARC Rules
Legal framework:
– NACHA rules on check conversion – Governed by Regulation E transaction (legislation on consumer EFT)
Key NACHA Rules provisions:
– – – – – Biller must provide notice of conversion Image/copy of check must be retained for 2 years Original check must be destroyed within 14 days Must provide ability for consumer to ―opt out‖ Ineligible items:
– Corporate checks with specific field – Traveler’s checks/cashier’s checks/money orders – Credit card access checks, third party checks
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
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ARC Rules
Notice about Electronic Check Conversion
When you provide a check as payment, you authorize us to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction. In an ARC environment, the notice must be provided with the billing statement and must be clear and readily understandable.
Additional REQUIRED Disclosures
When we use information from your check to make an electronic fund transfer, funds may be withdrawn from your account as soon as the same day we receive your payment, and you will not receive your check back from your financial institution. In an ARC environment, the notice must be provided with the billing statement and must be clear and readily understandable
The requirement to provide this additional disclosure expires December 31, 2009
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006 ARC – How to Convert Paper Checks into Savings
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ARC Rules
Business Check Conversion
Approved November 2005; Effective September 2006 Use Auxiliary/On-Us field to determine eligibility — checks with this field are ineligible for conversion (see examples, below) 60-day return timeframe available to businesses for improper conversion
Sets dollar threshold of $25,000 for ARC transactions
Businesses can opt out similar to consumers that choose to opt out
Typical Corporate-style Check:
Aux/On-Us Field (check number) Bank Routing Nbr. Payor’s Account Nbr.
Typical Consumer-style Check:
Bank Routing Nbr.
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
Payor’s Account Nbr.
Check Number
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ARC Evaluation
FirstEnergy is committed to improving efficiency of its Remittance Processing Center (RPC) Bank fees were analyzed to determine opportunity for cost savings and improved efficiency
– Depository services account for largest portion of bank fees – Per item check clearing fees – Re-presentment and returned item fees
Potential for increased funds availability
Reduce operational costs at RPC Leverage existing infrastructure at RPC
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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ARC in the Utility Sector
Several large utilities have implemented ARC
– Dominion – FPL Group – FirstEnergy – SCANA
Key drivers:
– Cost savings – Improved return item processing – Accelerated collections
Eligibility rates of 80–90% of total paper items
Opt out rates less than 0.25%
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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ARC Impact Points
Planning
– – – – – – Operations Financial/Treasury Legal Communications Customer service IT infrastructure
– Customer System – Opt-out
Production
– Revised document handling – Dual balancing – Daily file transmissions
– Electronic remittance file (ERF), returns, database updates
Installation
– Install ARC functionality from Unisys and Opex
– ARC modules, image archive
– – – –
Image storage Opt-out Check destruction Check storage
– File transfer process
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
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Major Steps to Implementing ARC
Submit business case to senior management Prepare RFP for ARC provider Prepare project timeline for scheduling of IT resources Organize a cross-functional project team Define clear project milestones
Pilot and final implementation
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
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ARC Provider Selection Criteria
Previous ARC implementation experience Quality of proposal Price of ARC services Remittance Processing integration Award fee-based compensation to major credit bank Excellent customer service
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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ARC Project – Goals & Objectives
Leverage existing infrastructure Establish a common vocabulary Ground rules established early and enforced by all Weekly project status call Accountability across all organizations Deliver early anything that can be delivered early A sense of urgency and focus on results A carefully choreographed end-to-end test plan Define clear project milestones, we all succeed together or we all fail together
ARC – How to Convert Paper Checks into Savings
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
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Project Roles & Responsibilities
FirstEnergy
– – – – – – – – – – – – – Project Lead RPC process alignment Business decisions SAP configuration Coordinate new technologies/upgrades Manage testing process Training Communications Legal review Audit review Contract administration System acceptance Production migration
Unisys
– Project management – RPS solution – Archive solution
Wachovia
– – – – – Project management ARC decision engine ARC MICR conversion file ARC Admin returns service ACH originator
OPEX
– OpenIEM for ARC decision – Stub rules file for opt out – Enhancements to rules file format
ARC – How to Convert Paper Checks into Savings
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
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Project Milestones
Define Project (1 month)
Develop project milestones Develop resource plan Finalize SOW/contracts Open new bank accounts for ARC receipts Define requirements Statement changes Opt-out decision Handling of admin returns SAP configuration changes Electronic file exchange strategy ACH file format Submit final plan & scope to sponsor
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006 ARC – How to Convert Paper Checks into Savings
Requirements Analysis (1 month)
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Project Milestones
Design, Construct, Test (2 months)
RPS development/coding/testing New technology process alignment at RPC Integration testing Consumer notification Perform training (operations, CS, etc.)
Implementation (1 month)
User acceptance testing Responsibility transfer Migrate Systems Into Production
Post-Implementation (1 month)
Production support Turnover documentation Lessons Learned
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006 ARC – How to Convert Paper Checks into Savings
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Project – Ingredients for Success
Cross-departmental Team
– Dedicated to a common purpose and performance objective – Members are responsible and accountable for managing their portions of the work – Members work together to improve their operations, planning and controlling their work and handling day-to-day problems, including all decision making within their defined boundaries – Frequent communications
Leveraged relationships
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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ARC Benefits at FirstEnergy
Payment Processing
– – – – 85% of all checks are ARC processed $600K annual reduction in bank fees RPC able to handle more check volume Opt-out rate less than 0.20%
Returns
– ACH return item cost approximately 86% less than a paper check return – Quicker notification on returns (re-present every Friday) – An ACH re-presentment cost substantially less than paper re-presentment
Accelerated Funds Availability
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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Lessons Learned
RPC workflow changes Ensure sufficient internal controls on payment process flow once payments converted at RPC
Engage Customer Contact Center early
Opt out Emphasize training and documentation
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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Additional Information
NACHA– www.nacha.org – Check Conversion Education www.checkconversioneducation.org – information and tools about check conversion, consumer information, training videos, etc. – NACHA Electronic Check Council – www.ecc.nacha.org TAWPI Remittance Processing Check Conversion Council – www.tawpi.org – operations and business focused
Electronic Check – www.electronic-check.org – a site for consumers with check conversion information and common questions
Remittance Directory – www.remittancedirectory.com – a site dedicated to remittance processing information
EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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EEI/AGA DataSource Best Practices Workshop Louisville, KY ▪ October 25-27, 2006
ARC – How to Convert Paper Checks into Savings
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