DIRECT PRE-FILED TESTIMONY OF WAGES, SALARY AND BENEFITS PANEL

Transcription

1 BEFORE THE LONG ISLAND POWER AUTHORITY IN THE MATTER of a Three-Year Rate Plan Case - DIRECT PRE-FILED TESTIMONY OF Date: January 0, 0

2 TABLE OF CONTENTS I. WITNESS QUALIFICATIONS AND DESCRIPTION OF TESTIMONY II. PSEG LI S ASSUMPTION OF THE NATIONAL GRID WORKFORCE III. UNION WAGES AND BENEFITS IV. MANAGEMENT SALARIES AND BENEFITS 0 V. EXECUTIVE COMPENSATION

3 0 0 I. WITNESS QUALIFICATIONS AND DESCRIPTION OF TESTIMONY Q. Please state the names of the members of this Wages, Salary and Benefits Panel (the Panel ). A. We are Robert Greenbaum, Mark D. Pepe, and Stephanie Olexson. Q. Mr. Greenbaum, please state your employer and business address. A. I am employed by PSEG Long Island LLC ( PSEG LI or the Company ) and my business address is Earle Ovington Blvd, Suite 0 Uniondale, NY. Q. In what capacity are you employed by the Company? A. I am employed by the Company as Senior Manager, Employee & Labor Relations and HR Business Partners. My responsibilities are to provide direct oversight for the HR Business Partner, Labor Relations and Employee Relations functions for PSEG LI; provide overall leadership for on-site Human Resources ( HR ) on Long Island; and participate in the development, implementation, communication, and administration of the Company s employee benefits programs. Q. Please summarize your educational background and professional experience. A. I have years of experience in the utility industry, including more than 0 years in Human Resources. The majority of my time has been spent managing the employee and labor relations functions at the Long Island Lighting Company, Marketspan, KeySpan and National Grid. I have served as the chief spokesperson for numerous collective bargaining agreements for the aforementioned combination electric and gas utilities as well as affiliated HVAC subsidiary companies. In addition to having held the position of Compensation Manager at the Long Island Lighting Company, I have - -

4 0 also managed the Human Resource Business partners at KeySpan and have been responsible for all employee investigations at National Grid. I hold a Bachelor s degree in Management from the State University of New York and an MBA from Dowling College. I have served on various panels at the Cornell School of Industrial Relations in Manhattan and have completed a program on negotiation at Harvard Law School. Q. Do you belong to any professional societies or organizations? A. Yes. I am a member of the Society of Human Resource Management and am currently the Chairman of the Edison Electric Institute and American Gas Association Labor Relations Committee. Q. Mr. Pepe, please state your employer and business address. A. I am employed by PSEG Services Corporation ( PSEG Services ), located at 0 Park Plaza (T-0), Newark NJ 00. Q. In what capacity are you employed by the PSEG Services? A. I am employed as the Director of Compensation and HRIS (Human Resources Information Systems). My responsibilities include developing and administering 0 Public Service Enterprise Group Incorporated s ( PSEG ) compensation programs for non-represented employees including Officers, providing strategic direction for implementing systems that best support delivery of HR products and services, and ensuring protection of employee data. - -

5 0 0 Q. Please summarize your educational background and professional experience. A. I have years of work experience including experience in accounting and finance, auditing and human resources. My human resources experience includes the last seven years working as an HR professional, specializing in the area of Compensation and HR Systems. I have experience working in industries that include governmental, healthcare and energy services. I have been employed at PSEG Services since November. I hold a Bachelor of Science degree in Accounting and Master of Business Administration degree with a concentration in Management Information Systems, both from Saint Peter s University in Jersey City, NJ. Q. Do you belong to any professional societies or organizations? A. Yes. I am a member of the Society of Human Resource Management and World at Work which is focused on total rewards. Q. Ms. Olexson, please state your employer and business address. A. I am employed by PSEG Services located at 0 Park Plaza (T-0), Newark NJ 00. Q. In what capacity are you employed by PSEG Services? A. I am employed as Director of Employee Benefits. My responsibilities are to provide strategy, delivery and communication of all employee benefit programs at Public Service Enterprise Group ( PSEG ) and PSEG LI. Q. Please summarize your educational background and professional experience. A. I have years of experience working as an HR professional, specializing in the area of Employee Benefits. I have experience working in industries that include - -

6 0 0 manufacturing, communications and healthcare. I have been employed at PSEG Services since January 0. I hold a Bachelor of Arts degree in Human Resource Administration from Saint Leo University of Florida. Q. Do you belong to any professional societies or organizations? A. Yes. I am a member of the Society of Human Resource Management, actively involved in the National Business Group on Health, and hold a life, health and accident insurance license from the New Jersey Department of Banking and Insurance. Q. What is the overall purpose of the Panel s testimony in this proceeding? A. The purpose of this Panel s testimony is to support the calculation of wages, salaries and benefits that underlie the budgets presented in this filing. In that effort, we will briefly explain the employment arrangements that PSEG LI assumed when it took over the operation of the Long Island Power Authority ( LIPA ) on January, 0 pursuant to the Amended and Restated Operating Services Agreement dated as of December, 0 ( OSA ). We will describe the compensation and benefits plans for PSEG LI s employees, both union and management, and explain the structure of those wages, salaries and benefits in the 0 base year and the escalation factors employed to project wages, salaries and benefits through the end of the 0-0 Rate Plan period. - -

7 0 0 Q. Do you distinguish between the terms benefits and compensation? A. Yes. In our testimony, the term benefits includes retirement programs (that is, the cost of 0K and pension programs), active and retiree health insurance, life insurance, and disability benefits, as well as vacation and sick pay. Compensation includes base salary and wages, plus the variable component of management pay, and the gain-sharing component of pay to represented employees. Q. How is this Panel s testimony organized? A. First, we discuss the role that we played in the process of providing the underlying cost information for wages, salaries and benefits in the budgets that underpin this rate filing. Next, we will briefly give the background of how individuals who were previously employed by National Grid Companies USA or its affiliates (collectively, National Grid ) or LIPA came to be employed by PSEG LI. We then describe the terms and conditions of employment of PSEG LI union and non-union employees that govern their compensation and benefits levels in the 0 base year budgets. In the sections of our testimony addressing union and non-union employment, we will discuss the escalation factors for both union and non-union management, administrative, supervisory and technical ( MAST ) employees that are used to develop their compensation and benefits costs in the 0, 0 and 0 Rate Plan years. Finally, we discuss Executive Compensation. Q. What role did the Human Resources ( HR ) Department play in the process under which the various budgets were developed? A. Staffing levels were developed by Transmission and Distribution ( T&D ), Customer Service and Business Services groups that were aggregated into the PSEG LI or - -

8 0 0 Service Provider budgets. It was the responsibility of the HR Department to provide information on the labor and benefit costs to be applied to the staffing developed by those groups. The costs, with applicable escalation factors, were developed and assembled by the HR Department and made available to the personnel working on the budgets. We helped develop those costs for the 0 base year budget process by providing escalation factors to use for employee compensation and benefits for 0 and for the 0 through 0 budgets. Some assumptions were used when developing the benefit budget which will be discussed later in this testimony. II. PSEG LI S ASSUMPTION OF THE NATIONAL GRID WORKFORCE Q. When did PSEG LI assume responsibility for running LIPA s electric operations? A. Under the OSA, PSEG LI and PSEG LI s subsidiary ServCo (referred to interchangeably herein as PSEG LI) agreed to provide the day-to-day management and supervision of the operations of the LIPA T&D system and related services and functions, starting January, 0. Q. Did the OSA affect PSEG LI s staffing of the ServCo operations? A. Yes, it did. The OSA specifically addresses ServCo s hiring of union and MAST employees, as well as the terms and conditions of that employment. Q. How does the OSA address the hiring of National Grid s union employees? A. The OSA required PSEG LI to offer employment to National Grid s union employees in order to provide the same level of services that National Grid had been providing to LIPA. The OSA also required PSEG LI to follow the collective bargaining - -

9 0 0 agreements ( CBAs ) that were in effect with IBEW Local 0 and required PSEG LI to abide by the terms and conditions of the CBA until its expiration. In February 0, PSEG LI reached an agreement with the union that extended the contract that would have expired February, 0 through November, 0. Q. What about National Grid s former MAST employees? A. Under the OSA, ServCo was also required to offer employment to National Grid s non-union employees as necessary for ServCo to provide Operations Services under the OSA. Q. Were the hiring prescriptions in the OSA limited to the hiring of National Grid employees? A. No. The OSA also stated that PSEG LI could hire additional employees necessary to supplement the transitioned National Grid employees. The number of employees fitting this category was relatively small compared with the transitioned union and MAST employees. Q. Did the OSA cover the wages, salaries and terms and conditions of service for the Transitioned Employees that PSEG LI hired to satisfy its ServCo obligations? A. Yes it did. Under the OSA, offers of employment to National Grid s union employees were made at initial terms and conditions comparable to those set forth in the existing CBA, with recognition given to each union employee s seniority. Union employees were also entitled to the benefits required under the applicable collective bargaining agreements. For example, all pension/0(k) benefits for union employees were continued with the same pricing, vendors, plan designs, and administrative provisions. - -

10 0 Q. How were offers of employment to National Grid s former MAST employees handled? A. Offers of employment to MAST employees were also made at the same terms and conditions as salaries and benefits previously paid by National Grid. For MAST employees, however, we are transitioning them in due course from the former National Grid plan to the PSEG compensation structure. Consequently, as we will explain further below, the wages and benefits of union employees are governed by the existing CBA until its expiration, and we have made assumptions regarding union wage and benefits escalation factors for the remainder of the Rate Plan. For MAST employees, salaries and benefits included in the budgets have also been escalated based on certain assumptions described below. III. UNION WAGES AND BENEFITS Q. What does this section of your testimony address? A. In this section, we will discuss the wages and benefits of the Transitioned Union Employees and the escalation of those rates during the Rate Plan years. Q. What portion of PSEG LI s work force is unionized? A. Approximately % percent of our approximately 00 employees are members of IBEW Local 0. The total wages and benefits for these workers are determined by collective bargaining. - -

11 0 0 Q. When does the existing CBA with IBEW Local 0 expire? A. As mentioned previously, the CBA will run through November, 0. Until then, the contract remains in full effect and PSEG LI is obligated under the OSA to honor its terms and conditions. Q. Please describe the wage increases provided for in the CBA. A. The following wage increases will be granted to each eligible employee who is on the active weekly payroll on the effective date of that increase. Effective February, 0, there will be a % general wage increase for all regular employees, in addition to a lump sum bonus of $00 to all IBEW Local 0 represented employees on the property as of February, 0. Effective February, 0, there will be a.% general wage increase for all regular employees covered by the CBA. Q. You mentioned that the CBA will run through November, 0. Are there requirements in the OSA that relate to the continuation of the CBA? A. The OSA provides that prior to commencing negotiations with the IBEW regarding amendment or extension of the CBA, PSEG LI will advise LIPA of its negotiating objectives and any financial terms to be contained in the CBA, and will keep LIPA informed on the status of any negotiations. Q. Because the existing CBA will expire in November 0, have you escalated the union wage rates during the remaining period in 0-0? A. Yes we have. Of course, it is not possible to know exactly how the results of the collective bargaining process will turn out. Consequently, we have applied the forecasted rate of inflation to the collective bargaining wage levels that will be effective on November, 0, November, 0 and November,

12 Q. Have you also escalated the cost of unionized employees benefits over the Rate Plan years at the general rate of inflation? A. No. The cost increases that were used for the administrative fees associated with benefits programs were escalated based on vendor contracts and fee agreements in place. With regard to medical and dental claims, we used a.% increase for medical and a.% increase for dental. The trend we are using is attributed to projections based on limited claims data for 0 and the fact that we are operating with no historical data for these employees. These escalation factors are discussed further below. 0 IV. MANAGEMENT SALARIES AND BENEFITS Q. Did you provide the current and projected MAST salaries and benefits to other groups preparing the budgets in a manner similar to that performed for the union employees? A. Yes. In the same way that we provided the wage and benefit effects for unionized employees to the T&D, Customer Service, and Business Services organizations for use in preparation of their budgets, we provided information on salaries and benefits for all MAST and other non-union employees, including former National Grid and LIPA employees hired by PSEG LI, to those budgeting teams for the preparation of the budgets for the 0 base year and for 0, 0 and

13 0 0 Q. You previously stated that PSEG LI s MAST employees are being transitioned from the National Grid compensation plans to the PSEG compensation plans. What consideration was given to the levels of salaries and benefits of the MAST employees when they were initially transitioned over to PSEG LI from National Grid? A. As we observed previously, the salaries and benefits paid to MAST employees were the same as were paid by their previous employer National Grid. In this, PSEG LI was guided by the OSA. Offers of employment were made at terms and conditions designed to attract and retain the employees necessary to provide the services required by the OSA, considering among other things each Non-Union Employee s years of service, salary or wage level and bonus opportunity to which they were entitled immediately prior to January, 0. Given the OSA requirement that ServCo provide competitive offers that both maximized the continuity of the workforce and considered existing salaries and bonuses, continuing the existing compensation structure of National Grid was the most appropriate way to satisfy that requirement. Q. How did you determine compensation levels for newly hired employees? A. For newly hired employees, we examined market data to ensure market competitiveness for the position in question. We also looked at similar positions within PSEG LI. Finally, we looked at inter-company equity within PSEG, to ensure, for example, that PSEG LI newly hired employees compensation did not unduly differ from that paid to other PSEG employees in comparable roles. - -

14 0 Q. Please describe the compensation philosophy of PSEG LI. A. PSEG LI s compensation philosophy is to establish competitive compensation opportunities for employees that align with compensation levels provided by other employers for similar roles and responsibilities. The primary objective of this philosophy is to enable the Company to attract and retain the services of a highly qualified workforce. This philosophy is consistent with that of many other utilities. Q. Does the total compensation for PSEG LI s MAST employees include both base salary and a variable pay component? A. Yes. PSEG LI s compensation philosophy is to measure and set a competitive total cash compensation opportunity (base salary plus variable pay) to levels found at other companies for similar roles and responsibilities. The variable portion of total compensation is considered pay at risk, in that it must be re-earned each year based on meeting pre-determined goals and operating targets. Q. Is this compensation philosophy unusual in its inclusion of a variable pay component as part of total compensation? A. No. Tying a portion of employees total compensation to performance is commonplace both in American business generally and for public utilities, as well. The variable pay component of total compensation paid to PSEG LI s management employees is directly linked to specific measurable standards consistent with PSEG 0 LI s goal of providing safe and reliable service to LIPA s customers. These performance goals encompass reliability, safety, customer service performance indicators, operating and capital budgets, and the timely completion of high priority capital and operating projects and programs. - -

15 Q. Please briefly describe the major elements of this incentive compensation plan. A. The 0 PSEG LI Performance Incentive Plan ( PIP ) for MAST employees plan is designed with 0% linked to performance against the PSEG LI Balanced Scorecard, 0% attributed to the PSEG LI business plan operating earnings and 0% to the PSEG-wide strategic goal known as People Strong. The Balanced Scorecard is based on reliability, safety, operational measures and adherence to budgets, which are the primary metrics applicable to PSEG LI under the OSA. Our People Strong goal is designed to support a diverse and inclusive culture and measures retention, inclusion, diversity supplier spending and employee engagement. Such customer-centric 0 0 metrics are used by many utilities in their incentive plans, as they are designed to reward employees for achieving goals around customer satisfaction, system reliability and availability, and operational excellence and align the interests of our employees and our customers. The 0 PSEG LI PIP is aligned with the Company s vision and strategic business model and with the terms of the OSA, incorporating reliability, safety, operational, and financial goals. Q. How do employees achieve incentive compensation under the PIP? A. A participant s target payout is based on his or her Band/Grade, under which a target payout is modified by both the Company s and an individual s performance. Eligible employees must achieve satisfactory or better performance in order to participate. The size of the target bonus pool is the sum of all awards at target The Balanced Scorecard is presented in the Metrics Panel Testimony. - -

16 0 0 payout, i.e., participants eligible base salaries, multiplied by their target percentages. Actual pool size will vary from target based on final goal results for the year. Q. You mentioned that the PSEG LI PIP is aligned with the Company s vision and strategic business model. Are most of the compensable metrics under the PIP also metrics under the OSA? A. Yes. Eighteen of the compensable metrics (more than 0%) listed on the 0 PSEG LI Balanced Scorecard are also OSA metrics and are, accordingly, directly related to PSEG LI performance. The remaining three metrics that are not OSA metrics are nonetheless aligned with and support customer benefits: Availability Illness; Forced Automatic Outage Rate (Transmission); Damage Costs and Environmental Audit and Assessment Remediation Rate. Q. Are such plans typical for utilities, including those regulated by the New York Public Service Commission? A. Yes, they are. It is our understanding that the Public Service Commission has emphasized that it is not necessary to maintain an artificial distinction between compensation in the form of traditional pay and benefits and compensation that is incentive based, and has recognized that variable compensation and incentive plans are common management tools aimed at encouraging performance improvements. Q. Please explain how you projected management salary expense for the three-year rate period 0-0. A. We began with the MAST salary levels in the calendar year 0, which were increased by an annual escalation factor of three percent for the years 0, 0, 0 and

17 0 0 Q. What was the basis for your use of the three percent escalation factor? A. The escalation factor was developed through a review of various compensation surveys of projected merit and total salary increase budgets, as well as a review of past history. Q. Please describe the method used for escalating employee benefit costs for the Rate Plan years. A. Given the lack of historical data, based on input from our consulting and vendor partners, the benefit projections were based on a few key assumptions: Medical and Prescription Drug: The 0 medical and prescription drug costs were projected utilizing actual costs for the first six months of 0 and estimating the claims for the second six months of 0. The 0 projections were based on the actual costs for the first six months of 0 annualized to a full year and projected at an annual cost increase of.%; increases for 0 0 were also projected at an annual cost increase of.%, assuming no changes to employee contributions or plan design. Dental: The 0 dental costs were projected using actual costs for the first six months of 0 and estimated costs for the second six months of 0. The 0 projections were based on the 0 renewal rate increase of % received from the vendor. For 0, following the expiration of the existing vendor contract and based on the actual six months of claims experience presented, we assumed an increase of % based on an existing agreement. Increases for 0-0 were projected at an annual cost increase of.%. - -

18 0 0 Ancillary Benefits: We assumed a % increase for benefits administrative services at the expiration of the existing contract, beginning in 0. For life and disability insurance costs and benefit consulting services, we assumed no increases. For the thrift saving 0(k) plan, which provides a Company match to management employees for a portion of their plan contributions, we used the labor escalation factor of %. Q. Does the employee benefit expenses projection include any program changes? A. No. The budgets prepared in this case assume no benefit plan design changes due to the existing CBA. Q. Are escalation rates based on inflation assumptions likely to be accurate for escalation in health care costs? A. No, they are not. Generally we expect health care cost inflation to outpace general inflation by a considerable margin. This is compounded by the fact that, for these particular employees, we are working with a very immature claim year and do not have sufficient historical claim data to determine the utilization or health profile of our employee population on Long Island. This makes it difficult to project our medical/rx trend. We are, however, seeing larger increases due to our geographical location, and we know that increases in health care costs are being driven by increased utilization of medical procedures as well as the availability of new medical procedures, treatments, and devices. We also know that there are regulatory changes set to occur under the Affordable Health Care Act ( AHCA ) in 0, which may - -

19 0 0 impose a 0% excise tax on our health plans. The projections that we provide do not factor in this tax or the impact of the AHCA on our benefit program. Unfortunately, the final regulations regarding the calculation of the tax are not even expected to be available until 0, so any projections we make at this time will be premature. Given the change in healthcare delivery and the regulatory environment, it is difficult to project trends over the next few years. Therefore, in light of the immature claims experience and the political uncertainties discussed above, it is difficult to develop a more accurate estimate of the increase in health care costs at this time. Consequently, we would need to adjust our actual experience when more data is available to us and the political and regulatory uncertainty surrounding the AHCA becomes settled. Q. Does the projection for health care costs include known changes to the health plans as a result of the federal AHCA? A. Yes, all of the required plan changes under the AHCA that are known to date have been addressed in the budget. The financial impact of the AHCA on the Company s health care costs assumes that there will be no additional plan changes to this legislation during the Rate Plan period. It is important to note that if the excise tax under the AHCA is imposed in 0, the health care plans as they exist today would be subject to this 0% tax. This is our projection based on the limited direction provided under the regulations to date. Again, final direction will not even be provided until

20 V. EXECUTIVE COMPENSATION Q. Previously you have discussed both union and MAST compensation but have not addressed Executive Compensation. Why is that? A. Under the OSA, the term Senior Management means the senior management level personnel employed by [PSEG LI]. This category comprises PSEG LI s President, Vice Presidents and Directors of the various organizations within PSEG LI and numbers approximately individuals. The cost of Senior Management 0 Compensation under the OSA is included in the fixed, annual Management Services Fee, which does not vary based on compensation paid to this group. Q. Does this conclude the Panel s direct testimony at this time? A. Yes, it does. - -