Electronic Banking
ACH or ICL?
In-House vs. Out-Source
Payment Processing
Utility Payment Conference

Electronic Banking
ACH or ICL?
• Arizona Public Service (APS) is Arizona’s largest and oldest utility, serving since 1886
• More than 1.1 million customers in 11 of the state’s 15 counties, about 35,000 sq miles
• Current Payment Processing Distribution:
– 55% Electronically
– 35% US Mail
– 10% Business Offices

Electronic Banking
ACH or ICL?
In-House or Out-Source?
Our Considerations:
– Current system was 13 years old
– Mailed-in payments dropped from 72% to 38% of total payment volume between 1990 to 2008, but still significant
– Replace armored car pickup with electronic banking
– Leverage technology to process more than payments; anticipating continued payment volume decrease
– Centralize data input to better utilized skilled customer service representatives to address customer needs

Electronic Banking
ACH or ICL?
Banks
- JP Morgan Chase
- Wachovia
- Bank of America
- Wells Fargo
Options
Non-Banks
- CDS Global
- Regulus Group
- First Data Corp
In-House
BancTec (Unisys)
Wausau Financial Systems
J & B Software

Electronic Banking
ACH or ICL?
Quantitative Results
Outsourcers:
– Competitive process pricing for:
• singles
• clean payments
– Less competitive pricing for:
• non-clean payments (white mail, checks only)
• exception payments (research, correspondence)
• non-payment transactions

Electronic Banking
ACH or ICL?
Quantitative Results
In-House:
– Over an 8 year period projected payment processing costs were competitive
– Advantage is gained in managing exception transactions

Electronic Banking
ACH or ICL?
Qualitative Results
Out-Source Advantages
– As volume decreases over time so would costs
– Technology remains current
– Built-in Disaster Recovery

Electronic Banking
ACH or ICL?
Qualitative Results
In-House Advantages
– Maintain control of customer data
– Same day exception processing (Customer PR)
– Timely exception transaction processing
– Reduce costs by leveraging technology for nonpayment transactions

Electronic Banking
ACH or ICL?
Decision
In-House with Wausau Financial Systems
– System was justified on payments alone
– Non-payment transaction processing was icing on the cake!
– Ability to capture and store non-payment images at the
Customer Account level
– Timeliness and control of postings
– Automation of Non-Payment processing leverages the technology and improves accuracy and performance

Electronic Banking
ACH or ICL?
Banking Options
Automated Clearing House (ACH)
V s.
Image Cash Letter (Check 21)

Electronic Banking
ACH or ICL?
RFP for ACH/ICL Services
• Submitted to 3 banks
– JP Morgan Chase
– Bank of America
– Wells Fargo
• Assumptions
– Compare using Bank vs. APS decisioning
– Percentage of ARC Eligible Items 80.0%
– Percentage of ICL Eligible Items 8.0%
– Percentage of IRD Eligible Items 12.0%

Electronic Banking
ACH or ICL?
Bank Results
Total Costs
Per Item
ICL & ARC -
Bank Decision
Bank 1.
$0.034
Bank 2.
Bank 3.
$0.040
$0.029
ICL and ARC –
APS Decision
$0.034
$0.030
$0.029
* Banks in no particular order

Electronic Banking
ACH or ICL?
Bank Decision
• APS will perform decisioning to control costs
• We chose all 3 banks to:
– Maintain our relationship with each Bank
– Keep competitive pricing in play
– Overall projected annual savings $57,000

Electronic Banking
ACH or ICL?
Major Project Initiatives
• Configuration & changes of WFS System to our needs
• Testing with each Bank for ICL and ACH files
• Enhancements to APS Customer System for multiple payment files and non-payment transactions
• Leverage new B2B processes

Electronic Banking
ACH or ICL?
Payment Transactions
• Single Check, Single Stub
• Multiple Checks, Single Stub
• Single Check, Multiple Stubs
• Multiple Checks, Multiple Stubs
• Checks Without Payment Stubs
• Accounts Receivable Lists
• Money Orders
• Process bank NSF Files and systematically reverse payments

Electronic Banking
ACH or ICL?
Payment Transactions
• All payments are compared to Hot Files for:
– Cash Only Id and Rejection
– Pending Shut Off Orders
– ARC Opt-Out (Process as Image)

Electronic Banking
ACH or ICL?
Non-Payment Transactions
• SurePay, SHARE Pledges & E3 Low Income Enrollment
– from Bill Stub (marksense detection)
– from Application form (full page scans)
• Undeliverable Refund Checks and Bill Statements
• Change of Address (marksense detection)
• On-Demand Images for CIS at Customer Account level
• Systematic Customer Account Note Updates

Electronic Banking
ACH or ICL?
Bill Stub Samples
SurePay on Page 2 Address/Phone change
Based on mark sense detection

Electronic Banking
ACH or ICL?
SurePay Application

Electronic Banking
ACH or ICL?
Share on Stub
Name
Address
City, State, Zip

Electronic Banking
ACH or ICL?
Share Card

Electronic Banking
ACH or ICL?
E3 Application

Electronic Banking
ACH or ICL?
E3 Recertification

Electronic Banking
ACH or ICL?
Lessons Learned
• Bank Validation Process takes time
– ACH and ICL are different groups within each bank
• “To thine own system be true”
• Test, Test, and Test some more
– Include all interfaces
– Include all jobs, even if you think they do not apply

Electronic Banking
ACH or ICL?
Results Since Installation
Deposit Distribution
Percentage of ARC Eligible Items 78.9%
– 2,157,904 checks
Percentage of ICL Eligible Items 21.0%
– 573,249 checks
Percentage of Paper Checks 0.1%
– 3,026

Electronic Banking
ACH or ICL?
Results Since Installation
Non Payment Transactions
SurePay
• Back of Bill
• Applications
E3 Low Income
CIS Refund Checks
Returned Mail
8,000
20,044
28,044
103,504
11,369
103,731
We met our Financial Goals

Electronic Banking
ACH or ICL?
Q & A

William Dow
Sr. Project Manager
Arizona Public Service
602-250-2110
William.dow@aps.com