GUAM PUBLIC UTILTIES COMMISSION DOCKET NO DIRECT TESTIMONY OF JOHN J. CRUZ ON BEHALF OF GUAM POWER AUTHORITY. Hagatna, Guam.

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1 GUAM PUBLIC UTILTIES COMMISSION DOCKET NO DIRECT TESTIMONY OF JOHN J. CRUZ ON BEHALF OF GUAM POWER AUTHORITY Hagatna, Guam October 04, 2007 Guam PowerAuthority Direct Testimony J. Cruz Page of 69

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3 DIRECT TESTIMONY OF JOHN J. CRUZ Docket No QUALIFICATIONS Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My name is John J. Cruz. My business address is 9 Route 6, Dededo, Guam Q. BY WHOM AND IN WHAT CAPACITY ARE YOU EMPLOYED? A. I am employed as the Manager of Strategic Planning & Operations Research at the Guam Power Authority. Q. WHAT ARE YOUR RESPONSIBILITIES? A. I lead the Authority s Business Strategy and Planning group. This includes responsibilities in the areas of strategic planning, business planning, long range transmission planning, integrated resource planning, information systems planning, quality management planning, outsourcing business model development, engineering analysis, financial analysis, load forecasting, demand-side management, resource planning, information systems studies and project management, IPP and PMC contract management support, engineering and business research, and general support for top tier management. Q. WHAT ARE YOUR RELEVANT QUALIFICATIONS? A. I assisted in the evaluation of the bid for merchant banking services for Guam Power Authority. My group manages the operating side of contracts associated with Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 3 Page of 69

4 paygpa.com, the Authority s Internet Payment Portal. It also acts as the project management organization for the PAYGPA Project. Q. PLEASE DESCRIBE YOUR EDUCATION, EXPERIENCE AND EMPLOYMENT HISTORY. A. My educational background includes a B.S. Electrical Engineering and B.A in Mathematics from Gonzaga University with a minor in business. I am a registered Professional Engineer in the discipline of Electrical Engineering on Guam. Prior to joining the Guam Power Authority in 99, I was employed at Hughes Aircraft Company in the Modes Development Department of the Company s Radar Systems Group. While at Hughes Aircraft Company, I served as a Modes Leader on the B-2 for several radar modes, supported several large combat aircraft proposals and special access projects, performed low probability of intercept studies, developed analysis software for the Magellan space mission, and developed designs and performance analysis for various radar modes including sea surveillance, synthetic aperture array, ground moving target indication, and weather avoidance among others. While at Guam Power Authority, I held the positions of Communications Engineer, System Planning Supervisor, Manager of Strategic Planning & Operations Research, Acting Power System Control Center Manager, Acting Manager of Engineering, and from time to time acted as Assistant General Manager of Operations. My experience at Guam Power Authority includes systems integration and project engineering for the Authority s SCADA/EMS project (99-994), design and project management of a fiber optic campus network at the Cabras-Piti Complex and the T&D Dededo Complex (998), Upgrade of the GPA WAN ( ), functional specifications for the Authority s meteorological monitoring station project, design and project engineering for GPA s Fuel Switching System ( ). Furthermore, I initiated the idea for Performance Management Contracts at Guam Power Authority and assisted in the development of the procurement documents and bid analysis for the first and second Cabras &2 PMC, the Cabras 3&4 PMC, and the Transportation Privatization attempt. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 4 of 69 2

5 While Manager of SPORD, I sponsored the following projects: Guam Power Authority Strategic Plan, VOIP implementation, JDE Gap Analysis, Guam Power Authority and Consolidated Commission on Utilities corporate web sites, PayGPA, the Authority Exchange-Based Mail Service. Principal author and editor for the Authority s 996 and 999 Integrated Resource Plan, the 997 Long Range Transmission Plan, Quality Management Plan for Prudent Fuel Use (2004), Quality Management Plan (QMP) for Cost-Effective Reduction of Unaccounted for Energy ( ), and Quality Management System for Ensuring LEAC Plan Performance Goals (2005). Q. HAVE YOU PREPARED AN EXHIBIT DETAILING YOUR RELEVANT EXPERIENCE? A. Yes. My resume is included as Exhibit JJC-, Appendix A. Q. HAVE YOU PREVIOUSLY TESTIFIED IN A PROCEEDING BEFORE THE GUAM PUBLIC UTILITIES COMMISSION OR ANY OTHER UTILITY REGULATORY AGENCY? A. No, I have not testified previously before the Guam Public Utilities Commission (GPUC). However, I have assisted GPA and its witnesses in developing testimony in prior testimony filed before the GPUC. 2. PURPOSE AND METHODOLOGY Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING? A. The purpose of my testimony is to demonstrate that the Authority s proposed use of convenience fees for this service is prudent, fair, and supported by industry practice. As part of this demonstration, my testimony describes why and how the Authority provides on-line payment service, the costs associated with this operation, the nature of convenience fees, and the practice of charging such fees in the United States electric utility industry. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 5 of 69 3

6 Q. WHAT ARE THE KEY ISSUES ADDRESSED BY YOUR TESTIMONY? A. My testimony will address the following issues:. Why does the Authority provide an on-line bill payment service that accepts credit cards for payments? 2. How does the Authority provide this service? 3. What are the costs the Authority incurs to provide these services? 4. What is a convenience fee and how is it used? 5. Is the use of convenience fees for use of credit cards prudent, fair, and supported by industry practice? 6. Is the Authority s petition to charge a $2.50 convenience per credit card transaction consistent with the costs the Authority incurs to provide this service? 7. Other? Q. WHAT METHODOLOGY DID YOU FOLLOW TO DEVELOP YOUR TESTIMONY? A. My approach to developing my testimony in this proceeding followed typical procedures for an in-house expert. I drew from my base of experience in performing research projects for other in-house clients, and analyzed information from a number of sources relevant to the issues I am addressing in this proceeding. More specifically, I reviewed the following types of documentation: Verisign transactional records Accounting information Internet based information sources Information from firms providing merchant banking services Guam Public Law. Using my experience base and the information gathered and reviewed, I analyze the data and extract meaningful information for this proceeding. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 6 of 69 4

7 Q. PLEASE OUTLINE THE REMAINING SECTIONS OF YOUR TESTIMONY. A. Section 3 summarizes my recommendations. Section 4 reviews the nature of the on-line payment service provided by GPA to customers. Section 5 explains the allocation of FY 2008 costs to the on-line payment service. Section 6 compares the proposed convenience fee with similar fees paid by electric utility customers in other jurisdictions. 3. RECOMMENDATIONS Q. WHAT ARE THE MAJOR RECOMMENDATIONS THAT YOU DEVELOP IN THIS TESTIMONY? A. I recommend that the Authority charge a $2.50 convenience fee for each credit card transaction. 4. NATURE OF GPA CREDIT CARD PAYMENT SERVICE TO CUSTOMERS Q. DOES GUAM LAW MANDATE THE ACCEPTANCE OF CREDIT CARDS VIA THE INTERNET? A. Guam Public Law 28-5 adds Section 823, Acceptance of Payments, Installation Applications and Service/Repair Requests Via The Internet to Chapter 8, Title 2 in the Guam Code Annotated. This section states the Guam Power Authority shall provide that the following services be made available via the internet: () Acceptance payments via bank cards; (2) Application for installation of new and additional services; and (3) Requests for service and repair. In general, a bank card refers to a plastic card issued by a bank, such as: ATM card, a plastic card only usable at an ATM. Credit card, a plastic card attached to a revolving credit line. Debit card, a plastic card linked to a bank account. Therefore, Guam Public Law requires Guam Power Authority to accept payments via credit card on the Internet. Exhibit JJC-, Appendix B, contains the text from Guam Public Law The URL that publishes Guam Public Law 28-5 is Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 7 of 69 5

8 Q. ARE THE COSTS ASSOCIATED WITH ACCEPTING PAYMENTS VIA BANK CARD A NEW COST NOT PREVIOUSLY ACCOUNTED FOR IN BASE RATES? A. Yes. The Government of Guam legally obligates GPA to provide this new service to customers. GPA has not previously requested recovery in rates for the cost of providing this service. Q. DOES GUAM LAW ALLOW GPA TO LIMIT THE ACCEPTANCE OF CREDIT CARDS VIA THE INTERNET TO ANY PARTICULAR CUSTOMER CLASS? A. Guam Public Law 28-5 simply directs GPA to accept payments via bank card over the Internet. It does not provide any guidance that can be used to exclude any customer class from paying via bank card on the Internet. GPA allows any customer to pay via credit card over the Internet but caps the payment amount that can be made in any single month to $0,000. Furthermore, GPA only accepts VISA, MASTERCARD, and ACH transactions via the Internet. Q. WHAT IS GPA S PAYGPA SERVICE? A. GPA s PayGPA service allows customers to view their current electric bills, billing and payment history, and allows them to pay these bills via credit card or ACH transaction over the Internet. Q. WHAT IS THE UTILIZATION OF GPA S PAYGPA SERVICE? A. As of August 3, 2007, there are 4,424 registered users of GPA s PayGPA service. Each registered user may have access to several GPA accounts under the same customer number. Not all registered users pay their bills via credit card each month. Some use the PayGPA service primarily for information about their current and past bills and payments. For the month of August 2007, the number of registered users grew over the previous month by 28 to 4,206. The number of credit card transactions grew by 246 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 8 of 69 6

9 over the previous month to 989. The number of ACH transactions grew by 2 over the prior month to 52. Exhibit JJC, Appendix C, shows that the number of registered users, monthly credit card and monthly ACH transactions are growing. Q. IS GPA S PAYGPA INTERNET PAYMENT THE ONLY MEANS BY WHICH CUSTOMERS MAY USE BANK CARDS TO MAKE ELECTRIC BILL PAYMENTS? A. No. There are several avenues to use bank cards to make GPA bill payments. First, the Authority has recently signed a memorandum of understanding with a third-party vendor to collect payments over the internet for GPA. Exhibit JJC-, Appendix D, provides a copy of this agreement. This vendor may charge GPA customers for this service. GPA does not receive nor does it collect any of this convenience charge. Additionally, GPA does not incur bank card processing fees for these transactions. Customers are free to use this service at their own risk. Second, Citibank has a bill payment program using Citibank issued credit cards. GPA participates in this program. (Exhibit JJC-, Appendix E) Third, GPA customer service offices accept credit and debit cards. However, GPA only accepts residential bill payments at its customer service offices. 5. ALLOCATION OF FY 2008 COSTS TO CUSTOMERS USING THE AUTHORITY S CREDIT CARD PAYMENT SERVICE Q. WHAT IS GPA'S TOTAL COST THAT MUST BE ALLOCATED FOR FY 2008 TO SUPPORT ON-LINE PAYMENTS? A. GPA's total budget to support on-line payment service for FY 2008 is $600,000. (Exhibit RVW, Schedule TBD) Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 9 of 69 7

10 Q. WHAT ARE GPA S HISTORICAL COSTS TO SUPPORT CREDIT CARD PAYMENTS? A. Exhibit JJC, Table, provides GPA's historical costs to support credit card payments. Table, Historical Costs to Support Credit Card Payments TOTAL EXPENSE FOR PROJECT Implementation AMX International Installation/Configuration $0.00 AMX Insternational Ebill/Epay Licenses ~30,000 $0.00 Rackspace Server Setup $ Rackspace Server Monthly for testing $5, Network Solutions paygpa.com domain registration $34.95 Total $6,7.87 Maintenance as of 8/3/07 Rackspace Server Rental 0 months 2/05-09/06 $0, Rackspace Server Rental 4 month 0/06-8/07 $4, RackspaceBandwidth overage/ New Firewall $2, Verisign certificate st year $,46.00 Verisign certificate 2nd year renewal $, Verisign certificate 3rd year renewal $ AMX Support st year $4, Internet Connection 2% bandwidth utilization 2/05-/07 $20.00 Network Solutions paygpa.com domain registration $99.95 Merchant Banking Services Transaction Charges 0/06-08/07 $370,760.8 Total Non-Labor O&M $406, Grand Total $422, Q. HOW ARE INTERNET CREDIT CARD PAYMENTS PROCESSED BY THE AUTHORITY? A. Figure, Credit Card Process Flow, illustrates how credit card payments are processed. Figure was provided by Authority s Merchant Bank Service Provider. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 0 of 69 8

11 Figure, Credit Card Process Flow Diagram Q. DOES GPA PAY A SINGLE RATE FOR THE PROCESSING OF CREDIT CARDS? A. No. There are many different kinds of credit cards issued by VISA and MASTERCARD. Each has a different charge rate that is applied to payments received using that card. Web Payments/Credits are charged a discount rate. This discount rate is charged to GPA for the acceptance and clearing of each payment. This discount rate is paid to the Merchant Billing Services Provider. This rate is either 2.35% (Qualified) or 3.85% (Non-qualified) for web payments. The EXHIBIT JJC-, Appendix F, [Non-Qualified Qualified Transaction Literature.PDF], describes how credit cards are classified into Qualified to Non-Qualified transactions.. All online payments are directly deposited in batches into GPA bank account. 2. The discount rate will later be debited from GPA s bank account. 3. The discount rate for all payments debited immediately from GPA s bank account is 2.35%, regardless if it is a Qualified or Non-Qualified transaction. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page of 699

12 The Non-qualified charge (3.85%) is invoiced later by the Merchant Banking Service provider where an adjustment is made reflecting the portion of the 3.85% charges not debited from GPA s account. Q. SINCE GPA DOES NOT PAY A SINGLE RATE FOR THE PROCESSING OF CREDIT CARDS, HOW IS THE PER INTERNET TRANSACTION COST CALCULATED? A. The transaction cost for processing credit card payments over the internet is calculated as the total credit card processing fee payments made to the Merchant Banking Service divided by the total number of processed credit card transactions. It is not based on the discount rate applied to each transaction. The total number of Internet transactions from January 2006 to August 2007 is approximately 27,556 based on the Merchant Billing Services invoices. The total payments made to the Merchant Banking Services for processing internet credit card payments is $370, The average transaction cost for processing internet credit card payments is approximately $3.45. SINCE GPA DOES NOT PAY A SINGLE RATE FOR THE PROCESSING OF CREDIT CARDS, HOW IS THE PER FACE-TO-FACE TRANSACTION COST CALCULATED? A. The transaction cost for processing face-to-face credit card payments is calculated as the total credit card processing fee payments made to the Merchant Banking Service divided by the total number of processed credit card transactions. It is not based on the discount rate applied to each transaction. The total number of face-to-face transactions from February 2006 to August 2007 is approximately 46,870 based on the Merchant Billing Services invoices. The total face-to-face payments made to the Merchant Banking Services for processing face-to-face credit card payments is $245, The average transaction cost for processing face-to-face credit card payments is approximately $5.23. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 2 of 0 69

13 PROPOSED GPA CONVENIENCE FEE Q. WHAT IS A CONVENIENCE FEE AND HOW IS IT USED BY UTILITIES? A. GPA is providing the convenience of credit card payments to the customer. However, this convenience comes with a cost in the form of credit card processing fees that are based on a percent of the customer payment. A convenience fee is a charge to the customer for using this credit card payment service and is used to offset the added costs. Q. WHAT RESOURCES DID GPA USE TO CONSIDER WHETHER CHARGING A CONVENIENCE FEE IS CONSISTENT WITH UTILITY INDUSTRY PRACTICE? A. GPA used several sources to investigate the use of convenience fees by utilities in the United States. These include:. A survey of information on the Internet and via performed by GPA staff (Exhibit JJC-, Table 2) 2. The National Regulatory Research Institute (NRRI) paper Survey to Determine if States Have Rules or Laws Profiting or Curtailing the Charging of Convenience Fees for Customers Who Pay Utility Fees with Credit Cards (Exhibit JJC-, Appendix G) 3. Credit Card Acceptance: Driving Customers to Paperless Billing Among the Challenges Facing Utility Organizations by Dennis Smith, Vice President, Research and Information Delivery, Chartwell Inc. found at the URL: (Exhibit JJC-, Appendix H) Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 3 of 69

14 Table 2, GPA Convenience Fee Survey 2 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 4 of 2 69

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22 Q. IS CHARGING A CONVENIENCE FEE CONSISTENT WITH INDUSTRY PRACTICE? A. Yes. Charging a convenience fee is consistent with industry practice. Many utilities outsource credit card payments to third-party vendors who charge the convenience fee for the use of the service. Some utilities charge the convenience fee directly. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 22 of 20 69

23 Q. WHAT IS THE INDUSTRY AVERAGE CONVENIENCE FEE AMOUNT? A. The article by Dennis Smith (Exhibit JJC-, Appendix H) states: The industry average is more than $4 a transaction. 8. CONCLUSIONS Q. WHAT ARE YOUR CONCLUSIONS ON THE CENTRAL ISSUES ADDRESSED IN YOUR TESTIMONY? A. My conclusions are as follows:. The acceptance of bank cards via the Internet is mandated by Guam Public Law and is a new expense not formerly anticipated for under base rates. 2. The average credit card processing cost per transaction for providing this service via the Internet is $ The average credit card processing cost per transaction for providing this service through customer services representatives is $ The average credit card processing cost per transaction for providing this service via face-to-face and the Internet is $ The use of convenience fees for use of credit cards is prudent, fair, and supported by industry practice. 6. The Authority s petition to charge a $2.50 convenience per credit card transaction is less than the costs the Authority incurs to provide this service. But as a matter of policy, the Consolidated Commission on Utilities has chosen to use $2.50 as the convenience fee for each credit card transaction. GPA expects that it will recover only about $240,800 of its credit card processing costs through the convenience fee. Q. DOES THAT CONCLUDE YOUR PREFILED TESTIMONY? A. Yes, it does. Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 23 of 2 69

24 APPENDIX A (RESUME FOR JOHN J. CRUZ) Guam PowerAuthority Direct Testimony J. Cruz Page 24 of 69

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27 APPENDIX B (PUBLIC LAW 28-5) Guam PowerAuthority Direct Testimony J. Cruz Page 27 of 69

28 2 APPENDIX B GUAM PUBLIC LAW Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 28 of 24 69

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31 APPENDIX C (MONTHLY & DAILY CREDIT CARD TRANSACTON STATISTIC) Guam PowerAuthority Direct Testimony J. Cruz Page 3 of 69

32 2 APPENDIX C MONTHLY AND DAILY CREDIT CARD TRANSACTION STATISTICS 3 New Registered Accounts (users) per Month Accounts (users) GPA Rate Schedules SCHS SCHP SCHJ3 SCHJ SCHH5 SCHH4 SCHH SCHH SCHG3 SCHG RRES January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2007 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 6 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 32 of 27 69

33 Monthly Credit Card Transactions Transactions GPA Rate Schedules SCHS SCHP SCHJ3 SCHJ SCHH5 SCHH4 SCHH SCHH SCHG3 SCHG RRES January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2007 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2 3 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 33 of 28 69

34 Monthly ACH Transactions GPA Rate Schedules RRES Transactions Date RRES 2007 June July August June 2007 July 2007 August Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 34 of 29 69

35 APPENDIX D (MEMORANDUM OF UNDERSTANDING BETWEEN GPA & MCB) Guam PowerAuthority Direct Testimony J. Cruz Page 35 of 69

36 2 3 APPENDIX D MEMORANDUM OF UNDERSTANDING BETWEEN GPA AND MCB (PAYGUAMBILLS) 4 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 36 of 30 69

37 APPENDIX E (CITIBANK ONE BILL AGREEMENT & AMENDMENT ONE) Guam PowerAuthority Direct Testimony J. Cruz Page 37 of 69

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58 APPENDIX F (NON-QUALIFIED, QUALIFIED TRANSACTION LITERATURE.PDF) Guam PowerAuthority Direct Testimony J. Cruz Page 58 of 69

59 2 APPENDIX F NON-QUALIFIED QUALIFIED TRANSACTION LITERATURE.PDF 3 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 59 of 5 69

60 APPENDIX G (SURVEY FROM VARIOUS STATES) Guam PowerAuthority Direct Testimony J. Cruz Page 60 of 69

61 2 3 4 APPENDIX G SURVEY TO DETERMINE IF STATES HAVE RULES OR LAWS PROFITING OR CURTAILING THE CHARGING OF CONVENIENCE FEES FOR CUSTOMERS WHO PAY UTILITY FEES WITH CREDIT CARDS 5 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 6 of 52 69

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65 APPENDIX H (ARTICLE FROM ENERGY PULSE ON CREDIT CARD ACCEPTANCE) Guam PowerAuthority Direct Testimony J. Cruz Page 65 of 69

66 2 3 APPENDIX H CREDIT CARD ACCEPTANCE: DRIVING CUSTOMERS TO PAPERLESS BILLING AMONG THE CHALLENGES FACING UTILITY ORGANIZATIONS 4 Guam PowerAuthority Direct Direct Testimony Testimony J.J. Cruz J. Cruz Page 66 of 56 69

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