Heaphy Final Testimony purpose of my testimony is to support the overall level of employee 18...

National Grid Niagara Mohawk Power Corporation INVESTIGATION AS TO THE PROPRIETY OF PROPOSED ELECTRIC TARIFF CHANGES Testimony and Exhibits of: Maureen P. Heaphy Richard F. Meischeid David Lister Book 3 January 29, 2010 Submitted to: New York Public Service Commission Docket No. 10-E-____ Submitted by:

Testim

ony of

Maureen P. H

eaphy

Before the Public Service Commission

NIAGARA MOHAWK POWER CORPORATION d/b/a NATIONAL GRID

Direct Testimony

of

Maureen P. Heaphy

Vice President, U.S. Compensation and Benefits Dated: January 29, 2010

1

Testimony of Maureen P. Heaphy

Table of Contents I. Introduction and Qualifications ...................................................................1 II. Purpose of Testimony ..................................................................................2 III. Overview of National Grid’s Approach to Wages and Benefits..................5 IV. Cash Compensation .....................................................................................9 V. Non-Union Wages .....................................................................................22 VI. Union Wages..............................................................................................25 VII. Benefit Plans ..............................................................................................26 VIII. Pensions and OPEBs..................................................................................33 IX. Conclusion .................................................................................................51

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I. Introduction and Qualifications 1

Q. Please state your name and business address. 2

A. My name is Maureen P. Heaphy. My business address is One MetroTech 3

Center, Brooklyn, New York 11201. 4

5

Q. By whom are you employed and in what capacity? 6

A. I am employed by National Grid USA Service Company, Inc., a 7

subsidiary of National Grid plc (“National Grid”), and currently hold the 8

position of Vice President of U.S. Compensation and Benefits. My 9

responsibilities include overseeing compensation and benefit strategy and 10

policy for all of National Grid’s US operations, including Niagara 11

Mohawk Power Corporation d/b/a National Grid (“Niagara Mohawk” or 12

“Company”). 13

14

Q. Please describe your educational background and business 15

experience. 16

A. I received Bachelor of Science degrees in Accounting and Computer 17

Applications & Information Systems from New York University in 1983. 18

In 1991, I received a Master of Business Administration in Finance from 19

St. John’s University. I joined National Grid’s predecessor, the former 20

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KeySpan Corporation, in 1983 and held several professional and 1

managerial positions in Treasury and Accounting. In 1991, I joined the 2

Human Resources organization where my focus has been on design, 3

strategy, administration, and implementation of compensation and benefit 4

programs for employees and retirees. 5

6

Q. Have you previously testified before the New York Public Service 7

Commission (“PSC” or “Commission”) or any other regulatory 8

commissions? 9

A. I have previously testified before the Federal Energy Regulatory 10

Commission on behalf of National Grid Generation, LLC concerning 11

matters related to employee benefits and compensation. I have not 12

testified before the PSC previously. 13

14

II. Purpose of Testimony 15

Q. What is the purpose of your testimony? 16

A. The purpose of my testimony is to support the overall level of employee 17

compensation and benefits costs reflected in Niagara Mohawk’s electric 18

business unit base rate filing and to demonstrate that National Grid has 19

proactively managed and controlled the costs of its compensation and 20

benefits programs. Specifically, my testimony addresses and supports the 21

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Company’s employee compensation and benefit costs, including those 1

associated with medical, dental, life insurance, 401-K savings, pension 2

and other post-employment benefit (“OPEB”) plans for the test year ended 3

September 30, 2009 and the forecasted rate years ending December 31, 4

2011, 2012 and 2013. The information concerning projected costs 5

changes has been provided to the Revenue Requirements Panel and was 6

used to develop the revenue requirement proposed by the Company in this 7

proceeding. 8

9

I demonstrate that the costs of the total compensation and benefit 10

programs included in Niagara Mohawk’s revenue requirement, which 11

include the costs of base salary and performance-based variable pay and 12

various benefits, are reasonable and necessary and must be incurred by the 13

Company in order to meet its obligations to provide safe and reliable 14

utility service to its customers. I also explain specifically why the costs of 15

the variable pay plan should be reflected in the revenue requirement and 16

how that plan is structured to align the interests of the Company with its 17

customers. Finally, I discuss the Company’s ongoing efforts to monitor 18

and control the costs of various elements of the Company’s employee 19

compensation and benefits package. Certain of the conclusions set forth in 20

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my testimony are supported by the testimony and exhibits of Richard 1

Meischeid of Towers Watson, who is testifying separately. 2

3

Q. Do you sponsor any exhibits as part of your testimony? 4

A. Yes, I am sponsoring the following exhibits, which were prepared or 5

compiled under my direction and supervision: 6

(i) Exhibit __ (MPH-1) National Grid’s Employee Guide To The 7

Annual Performance Plan; 8

(ii) Exhibit __ (MPH-2) Sample “Performance For Growth” forms 9

for Company employees; 10

(vi) Exhibit __ (MPH-3) National Grid Union and Non-Union Wage 11

Increase History (2000-2009); 12

(v) Exhibit __ (MPH-4) National Grid USA - Union Wage 13

Comparisons; 14

(vi) Exhibit __ (MPH-5) National Grid – BENVAL Analysis for 2009 15

Non-Union Benefits; and 16

(vii) Exhibit __ (MPH-6) National Grid – BENVAL Analysis for 17

Legacy National Grid New York Union 18

Benefits. 19

20

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III. Overview of National Grid’s Approach to Wages and Benefits 1

Q. Please briefly describe how the human resources function is 2

administered at National Grid. 3

A. National Grid employs a service company structure to enable it to provide 4

service to its U.S.-based operations in the most efficient manner possible. 5

As a consequence of this structure, the employee compensation and 6

benefits costs included in the Company’s filing in this proceeding 7

originate primarily from one of three entities, Niagara Mohawk itself, 8

National Grid USA Services Company, or KeySpan Services Company. 9

Compensation and benefit costs are administered on a centralized basis 10

and uniform compensation and benefit policies have been instituted for all 11

of National Grid’s U.S.-based operations, including Niagara Mohawk. 12

13

Q. Is a portion of the Company’s workforce unionized? 14

A. Yes. The vast majority of the Company’s employees are members of the 15

International Brotherhood of Electric Workers Local 97 (“IBEW”). The 16

total compensation for these workers is determined by collective 17

bargaining. 18

19

Q. Please describe National Grid’s philosophy relating to employee 20

wages and benefits. 21

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A. In order to provide safe and reliable utility service to its customers, 1

National Grid must attract and retain high-performing, qualified personnel. 2

To accomplish this, National Grid provides a total compensation package 3

that recognizes and rewards excellence, maintains fair and competitive 4

market pay and benefits for employees, and encourages employees to 5

improve skills while providing a safe working environment. Doing so 6

under the cost containment pressures faced by all companies is a critical 7

challenge. To meet this challenge, National Grid has developed a policy 8

called the “Total Rewards Program” to provide employees with an overall 9

compensation and benefits package that is market competitive, offers 10

flexibility and choice, and supports a high performance culture by directly 11

linking performance to rewards. By maintaining a comprehensive and 12

competitive approach to total rewards that establishes appropriate levels of 13

pay and benefits, National Grid can attract and retain a high quality 14

workforce and motivate employees to improve their performance. 15

16

Q. What are the elements of the total compensation package provided to 17

employees? 18

A. The elements of the total compensation package provided to employees 19

are cash compensation, which includes both fixed and variable pay, and a 20

number of benefits, which include medical and dental plans, life 21

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insurance, a 401-K savings plan, pensions and OPEBs, and vacations and 1

holidays. 2

3

Q. Please describe National Grid’s efforts to measure the reasonableness 4

of the cost of the wages and benefits it offers to employees. 5

A. As part of its effort to control the cost of compensation and benefits, 6

National Grid monitors the marketplace to ensure that its cash 7

compensation and benefit programs are both cost-effective and sufficient 8

to enable it to attract and retain the highly skilled workforce needed to 9

deliver excellent customer service and achieve the financial success 10

required by the capital markets. 11

12

Q. Have there been any recent changes in National Grid’s overall 13

approach to employee compensation? 14

A. Yes. The most recent changes to National Grid’s pay and benefits 15

structure were implemented as a result of the merger process associated 16

with the acquisition of KeySpan Corporation (“KeySpan”). As part of the 17

integration process related to that merger, National Grid commissioned a 18

market analysis of its wages and benefits to help align the two companies. 19

While the overall value of the compensation programs at the two 20

companies was roughly equivalent prior to the merger for similar sized 21

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roles and service territories, the relationship between pay and benefits 1

differed, with legacy National Grid providing more value to employees 2

through fixed cost benefit plans and less value through variable pay. The 3

market analysis showed that the legacy KeySpan approach of providing 4

less costly benefit plans but a greater level of variable pay was more in 5

line with what other comparable employers were providing. 6

7

National Grid believed that changing its approach to be more in line with 8

the prior KeySpan approach would be beneficial, not only because it 9

would better position the merged company to be competitive with the 10

compensation structure offered by other similar employers, but also 11

because it would better align the compensation structure with National 12

Grid’s efforts to achieve its goals – goals that National Grid believes are 13

shared by its customers, its regulators, and its shareholders. As a result, 14

National Grid undertook to modify the benefits it offers by reducing the 15

fixed cost components (i.e. medical, dental, life insurance, and other 16

benefits) of those programs, while at the same time increasing the variable 17

component of pay, and tying the achievement of variable pay to stretch 18

objectives. I discuss the modifications to the benefits platform later in my 19

testimony. 20

21

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IV. Cash Compensation 1

Q. Please explain how National Grid establishes the levels of cash 2

compensation provided to non-union employees. 3

A. National Grid’s cash compensation program includes two major 4

components: base pay and variable pay. Both components are necessary 5

elements of a total compensation package needed to attract and retain 6

qualified personnel. Taken together, the two components of cash 7

compensation permit National Grid to offer a level of compensation 8

required by the marketplace, but in a manner that structures a portion of 9

the cash compensation so that it is tied to achievement of goals that are 10

consistent with corporate objectives that benefit the Company and its 11

customers. National Grid’s overall cash compensation, fixed and variable, 12

is designed to be competitive with the median, or 50th percentile, level of 13

cash compensation provided in the marketplace. In other words, the fixed 14

component of National Grid’s cash compensation is not sufficient by itself 15

to be competitive with the marketplace. It is the combination of fixed and 16

variable pay that permits National Grid’s overall cash compensation to 17

reach competitive levels. If National Grid did not provide variable pay, it 18

likely would not be able to attract the type of employees it seeks to hire 19

because its total cash compensation package would not be competitive. 20

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Q. How does National Grid define and determine the median 1

compensation levels for non-union employees? 2

A. National Grid’s total non-union cash compensation is approximately equal 3

to the level, on average, necessary to compensate employees at the median 4

level of salaries for equivalent functions in the geographic region in which 5

the employees work. To determine the median compensation level for 6

non-union employees, National Grid benchmarks positions within each 7

salary level and compares overall compensation (base pay plus variable 8

pay for the benchmarked jobs to the 50th percentile of overall 9

compensation for comparable jobs in similar size companies. The base 10

and variable components of overall compensation for these benchmark 11

positions and those in the same band or level are adjusted periodically to 12

capture actual practices of companies in the survey database. National 13

Grid utilizes market data surveys provided by Towers Watson to 14

determine the 50th percentile of the relevant market. The methodology 15

used to conduct such surveys and the results thereof are discussed by Mr. 16

Meischeid. A copy of the most recent study is attached to Mr. 17

Meischeid’s testimony as Exhibit __ (RFM-1). 18

19

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Q. You mentioned that salaries of employees are intended, on average, to 1

approximate median compensation levels. Do individual employee 2

salaries deviate from these levels? 3

A. Yes. Individual salaries deviate above and below the median levels based 4

on individual performance and length of time in a position. 5

6

Q. Is the officer compensation program similar in philosophy and 7

operation to the non-union cash compensation program? 8

A. Yes. The approach taken with respect to officer compensation is basically 9

the same as I described for the non-union employee program. Overall 10

compensation for officers, including National Grid’s top officers, is 11

benchmarked to the 50th percentile and includes a variable pay component 12

tied to the achievement of individual and Company financial, customer 13

service, reliability, and safety goals, as with the non-union program. For 14

purposes of establishing the revenue requirement in this proceeding, the 15

Company has included payroll expense for only the fixed, base pay 16

component of the officer compensation package. The variable pay 17

component of overall officer compensation for National Grid’s officers is 18

not included in the revenue requirement. 19

20

Q. Please describe National Grid’s variable pay program. 21

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A. National Grid’s variable pay program is known as Performance for 1

Growth (“P4G” or “the Plan”). The Plan was introduced in 2007 with the 2

purpose of ensuring that employees are working towards common goals 3

and that high performance is recognized. The Plan is intended to motivate 4

employees to achieve the highest possible individual performance, while 5

ensuring that at all times, all safety, health, and environmental 6

requirements are adhered to, standards of customer service are achieved, 7

and shareholder expectations are reached. In short, the Plan is designed so 8

that all stakeholders benefit. Stretch financial targets and individual 9

objectives are set, as soon as practicable, after the start of the Plan year 10

(April each year). Fifty percent (50%) of the Plan payout is based on 11

financial measures applicable to National Grid and fifty percent (50%) is 12

based on individual measures (measures that support customer 13

satisfaction, safety, and reliability objectives). 14

15

Q. Please elaborate on the goals established under the Plan. 16

A. The objectives established as part of the variable pay component of the 17

Company’s cash compensation are designed to provide direct and specific 18

incentives to employees to achieve or exceed specified customer 19

satisfaction, reliability, safety, financial, and other operating goals. The 20

financial objectives are tied to earnings per share, net operating profit, and 21

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cash flow at National Grid, not Niagara Mohawk. Individual objectives 1

relate to safety, reliability, and customer satisfaction targets that are 2

aligned with Niagara Mohawk’s service quality standards and vary 3

depending on the part of the business in which an employee works. 4

National Grid believes that the attainment of these objectives provides 5

real, albeit unquantifiable benefits to customers. Exhibit __ (MPH-1) is 6

the Plan guide provided to non-union employees. This guide explains the 7

performance elements of the Plan and the potential value to participants 8

for achieving them. Exhibit __ (MPH-2) is a sample of Performance for 9

Growth Forms that set forth goals and objectives for Niagara Mohawk’s 10

electric business unit employees’ under the Plan. This exhibit provides an 11

example of how Commission-approved safety, reliability, and/or customer 12

satisfaction goals are included in the Plan. 13

14

Q. Please explain why National Grid includes a variable pay component 15

as part of total cash compensation for its employees. 16

A. Variable cash compensation provides direct and specific incentives to 17

employees to achieve or exceed certain operating performance goals of 18

importance to the Company and its customers, including the customer 19

service, safety, and reliability metrics the Commission has approved for 20

Niagara Mohawk, as well as certain financial metrics. Accordingly, the 21

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variable pay component of the Company’s overall employee compensation 1

package aligns the interests of National Grid and Niagara Mohawk to the 2

interests of its customers, and assists the Company in meeting its public 3

policy objectives. Moreover, as noted above, under National Grid’s cash 4

compensation structure, base pay alone is not an adequate level of 5

compensation to allow National Grid to pay salaries at or near the median 6

level of compensation paid by other similarly situated companies, which is 7

the level of cash compensation that National Grid believes it needs to pay 8

in order to recruit and retain well qualified employees to provide safe, 9

reliable, and efficient service to customers. Today’s marketplace dictates 10

that variable pay is a fundamental component of any private sector entity’s 11

efforts to attract qualified employees. Top talent in the market demands 12

compensation that is directly linked to performance. In order for National 13

Grid to compete in this marketplace and be viewed as an employer of 14

choice, a competitive level of variable pay must be a part of the overall 15

compensation package. If National Grid did not have a competitive 16

variable pay component, it would be out of step with the market and likely 17

would not be able to attract the same type of highly motivated employees 18

necessary for the Company to deliver outstanding customer service in a 19

reliable, efficient, and safe manner. In sum, National Grid’s approach to 20

variable pay is designed to ensure that (1) employees’ total compensation 21

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is approximately comparable to average pay for comparable positions and 1

is reasonable after considering base and variable pay on an aggregate 2

basis; (2) variable pay is based on both the overall performance of 3

National Grid and the performance of the individual; and (3) individual 4

and Company performance goals reflect objectives that create benefits for 5

customers. 6

7

Q. Is there objective market data that supports your claim that a cash 8

compensation program consisting of both fixed and variable pay 9

components is necessary to enable National Grid to attract and retain 10

qualified employees? 11

A. Exhibit __ (RFM-2) to Mr. Meischeid’s testimony provides an analysis of 12

National Grid’s base salary and target total compensation compared to the 13

market. This summary was performed by Towers Watson. For each of 14

the market salary bands, a comparison of National Grid’s base salary to 15

the market average base salary indicates comparable levels, but without a 16

variable pay component, National Grid’s base salaries would need to 17

increase in order to offer a competitive compensation package. The data 18

provided in Mr. Meischeid’s testimony demonstrates that (i) the 19

Company’s total cash compensation is consistent with market levels, and 20

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(ii) the use of variable compensation by companies that are equivalent in 1

size to National Grid is almost universal. 2

3

Q. Does compensation for union employees also include a variable pay 4

component? 5

A. Yes. Variable pay gives union employees a stake in the Company’s 6

performance and provides direct incentives for employees to strive to meet 7

or exceed metrics tied to safe, reliable, and efficient performance, which, 8

in turn, results in better service for customers. As with the non-union 9

program, the variable compensation component is part of, not in addition 10

to, the total compensation package designed to link rewards and results. 11

Because this philosophy toward compensation is an important part of 12

National Grid’s effort to deliver value to customers as well as 13

shareholders, including a component of variable pay as a component of 14

compensation even for union employees has been one of National Grid’s 15

priorities in labor negotiations. Under the current collective bargaining 16

agreement with the IBEW, the union workers participate in a variable pay 17

plan with a target payment of 3.5% of total pay. The plan has similar 18

goals to the Plan for non-union workers. 19

20

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Q Is it your testimony that the variable pay plan at National Grid is not 1

a bonus plan? 2

A. Yes, that is correct. National Grid’s variable pay plan is not a bonus plan, 3

as it is designed to be part of a total compensation program; it is a pay-at-4

risk plan, not extra or bonus pay. The variable pay component is labeled 5

“pay at risk” because if performance measures are not achieved, 6

employees will not receive the variable pay component. 7

8

Q. How has the Company determined the level of variable pay expenses 9

included in the revenue requirements proposed in this proceeding? 10

A. Before addressing that question, I want to acknowledge that the Company 11

is aware that in previous rate cases, the Commission and various parties 12

have expressed concerns that if a level of variable compensation is 13

included in rates and then ultimately not paid, the end result will be a 14

windfall for shareholders. To address this concern, the Company proposes 15

that if the variable compensation amounts reflected in rates are not paid to 16

employees for any reason, then the Company will defer any such unpaid 17

amounts plus appropriate carrying costs, so that such unpaid amounts can 18

be returned to customers. 19

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Having said this, the Company is proposing to include approximately 1

$19.2 million of variable compensation expenses in its revenue 2

requirement in this proceeding for the rate year ending December 31, 3

2011; approximately $19.7 million in the revenue requirement for the rate 4

year ending December 31, 2012; and approximately $20.3 million in the 5

revenue requirement for the rate year ending December 31, 2013. The 6

adjustments to the amount included in the second and third rate years 7

reflect the application of an inflation factor as discussed in the testimony 8

of the Revenue Requirements panel. In determining the $19.2 million of 9

variable pay included in the first rate year, which is then adjusted for 10

inflation and carried forward to the second and third rate years, the 11

Company has assumed that: (i) with respect to the fifty percent of the 12

potential variable pay payouts associated with the attainment of financial 13

goals by non-union workers, National Grid will attain targeted levels of 14

performance and payout in each rate year; (ii) with respect to the fifty 15

percent of potential variable pay payouts associated with individual 16

objectives by non-union workers, the Company will attain the 17

performance level and payout realized in the test year; and (iii) with 18

respect to the payouts to union workers, the Company will attain the 19

targeted level of performance and payout realized in the test year. 20

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Q. What do you mean by “target levels?” 1

A. “Target levels” represent a level of performance that is judged to be 2

approximately forty-five percent (45%) of stated maximums. Target 3

performance is best described as an above average level of performance 4

that is consistent with overall expectations. Achieving target performance 5

requires employees to perform at a high, but nonetheless expected level. 6

High performers would exceed “target levels” while average or below 7

average performers would fall below “target levels.” 8

9

Q. Are you aware that certain Commission decisions have stated that 10

variable pay plans that include financial parameters must be self 11

supporting through productivity savings or financed by shareholders? 12

A. Yes, I am. It is my understanding that in prior decisions, the Commission 13

has expressed two broad concerns. The first concern is that if variable pay 14

expenses are reflected in rates, and the variable compensation is not paid 15

to employees, shareholders will receive a windfall at the expense of 16

customers. I have already addressed this concern by proposing that any 17

unpaid variable pay expenses reflected in rates will be deferred for the 18

benefit of customers. 19

20

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The second concern is reflected in the Commission’s July 19, 1991 order 1

in Case 90-G-0734, a proceeding involving National Fuel Gas Distribution 2

Corporation (“National Fuel”) in which the Commission stated: 3

Without regard to whether the Incentive Plan payments 4 constitute a salary increase to management employees, the 5 Incentive Plan will only provide compensation to 6 management employees who meet certain goals. Since, in 7 this case, the goals are related to financial parameters, it is 8 only reasonable to expect that if those goals are met, there 9 will be cost savings, which have not been reflected in the 10 revenue requirement. In that case, the savings would offset 11 the costs of the plan and the plan would be self-supporting. 12 Failure to reflect those savings would provide the Company 13 a windfall at ratepayer expense. 14

15

As I have discussed previously, the financial goals reflected in National 16

Grid’s variable pay Plan are not tied directly to the financial performance 17

of Niagara Mohawk; they are tied to the financial performance of National 18

Grid. As a consequence, it is not the case, as it apparently was in the 19

National Fuel decision, that Niagara Mohawk must achieve savings that 20

are not reflected in the revenue requirement in order for National Grid to 21

achieve its enterprise-wide financial goals. On the contrary, to the extent 22

that the performance of Niagara Mohawk ultimately contributes to the 23

attainment of National Grid’s financial goals, this result likely will be 24

achieved because the Company is able to realize the tremendous synergy, 25

productivity, and efficiency savings that are already built into Niagara 26

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Mohawk’s revenue requirement in this case. National Grid has no 1

expectation that Niagara Mohawk can realistically expect to achieve 2

savings beyond the level that the Company proposes to reflect in rates. 3

Moreover, imputing additional savings in order to offset the costs of the 4

variable pay Plan would do nothing more than deprive the Company of the 5

opportunity to recover a necessary and legitimate business expense 6

associated with a market-based level of cash compensation. 7

8

The broad financial goals reflected in National Grid’s variable pay Plan 9

are intended to ensure that employees do not forsake cost effectiveness 10

and efficiency while pursuing their individual goals. This is consistent 11

with Commission policy that encourages the Company to pursue a variety 12

of customer service, safety, and reliability goals in a cost effective manner. 13

14

The financial parameters reflected in National Grid’s variable pay Plan are 15

not dominant goals that will cause Niagara Mohawk personnel to focus on 16

the attainment of financial objectives to the exclusion of other goals. 17

Instead, the National Grid Plan reflects a reasonable balancing of financial 18

objectives with individual safety, reliability, customer service, and other 19

worthwhile goals. 20

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Q. You mentioned before that the Company is proposing to refund to 1

customers any variable pay amounts that are reflected in rates but 2

ultimately not paid to customers. Are you concerned that such a 3

“downward only” reconciliation could lead management to be less 4

than rigorous in evaluating performance and making variable pay 5

awards? 6

A. No. Assuming that there is a legitimate basis for this concern -- and there 7

is not -- as I stated before, the Company is not proposing to recover in 8

rates the portion of variable pay expense that may be paid to officers. 9

Because the same basic criteria are applied in determining whether 10

variable pay is provided to officers or other employees, the Company has 11

no incentive to authorize variable pay that has not been earned. Moreover, 12

the criteria for determining whether variable pay is earned are primarily 13

objective. 14

15

V. Non-Union Wages 16

Q. Did the Company increase non-union wages in the test year ending 17

September 30, 2009? 18

A. Yes. Consistent with the Commission’s orders that encouraged austerity, 19

the Company revised its plan to increase non-union wages downward from 20

what was originally forecast in 2009. The Company increased non-union 21

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wages by only 1.5% effective July 1, 2009, with increases generally 1

limited to promotions or employees whose existing levels were below 2

market. Thus, the majority of the non-union workforce received no 3

increase in 2009. The benefits of this reduction in the non-union wage 4

increase are reflected in the revenue requirement proposed in this 5

proceeding. 6

7

Q. Is the Company projecting additional non-union wage increases in the 8

period covered by its rate filing in this proceeding? 9

A. Yes. The Company is projecting the following increases: 10

Effective Date Percentage 11

July 1, 2010 3.0% 12

July 1, 2011 3.0% 13

July 1, 2012 3.0% 14

July 1, 2013 3.0% 15

The forecast of proposed increases in non-union wages is based on the 16

market studies that are currently available to the Company, including the 17

information set forth in Exhibit __ (RFM-1) to Mr. Meischeid’s testimony. 18

These increases are also in line with market-driven management wage 19

increases in the years prior to 2009, which are set forth on Exhibit __ 20

(MPH-3). Nonetheless, the Company will continue to monitor market 21

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information and may revise its projections if market conditions require 1

such adjustments. 2

3

Q. Does the Company believe that its projected non-union wage increases 4

are consistent with the Commission orders that have encouraged 5

austerity? 6

A. Yes. My understanding of the Commission’s orders directing the State’s 7

utilities to continue to identify austerity measures is that the Commission 8

is encouraging utilities to hold discretionary spending to the lowest 9

possible level. National Grid follows this policy in administering its 10

human resources function as a matter of normal business practice. At the 11

same time, however, if the Company fails to keep pace with market 12

conditions, its ability to attract and retain qualified personnel will be 13

unreasonably jeopardized. Thus, National Grid must continue to provide 14

employee compensation at levels consistent with market conditions. 15

National Grid can best comply with the Commission’s directives 16

concerning austerity by continuing to monitor market conditions closely 17

and ensuring that no expense is increased beyond the level needed to meet 18

the requirements of the marketplace. 19

20

21

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VI. Union Wages 1

Q. Does National Grid follow the same compensation philosophy with 2

regard to its union employees as it does for its non-union employees? 3

A. Yes. However, the compensation provided to the IBEW workers is the 4

result of collective bargaining with the union. In August 2009, the 5

Company and IBEW entered into an agreement extending the existing 6

contract through March 31, 2014. Pursuant to the agreement, union 7

workers were provided a base wage increase of 3% on April 1, 2009, and 8

will be provided base wage increases of 3% on April 1, 2010, and 2.5% on 9

April 1, 2011, April 1, 2012, and April 1, 2013, respectively. 10

11

Q. What steps does National Grid take to ensure that the union wages it 12

pays are reasonable? 13

A. For union employees, National Grid obtains information regarding hourly 14

pay rates from surrounding utilities to measure the competitiveness of 15

union pay levels. Exhibit __ (MPH-4) shows a recent comparison of pay 16

levels for key union jobs among a number of New York utilities. As the 17

exhibit shows, National Grid’s wage rates are within the range of these 18

other utilities. In addition, the Company established a new wage schedule 19

for newly hired employees who belong to IBEW Local 97, in an effort to 20

contain costs in the customer contact center. The new wage scale creates a 21

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center that can operate competitively compared to the call center 1

marketplace. As of this filing, 127 employees are working under the new 2

wage scale agreement. In addition, the benefits afforded to this population 3

do not include pensions, so each new hire creates no new pension cost. 4

5

VII. Benefit Plans 6

Q. Please describe the benefit package that is offered to employees of 7

National Grid. 8

A. National Grid provides a variety of employee health and welfare and 9

pension and OPEB plans to its union and non-union employees. Benefit 10

plans are offered for medical coverage, dental coverage, life insurance 11

coverage, and long-term disability coverage. There are also paid vacations 12

and holidays. In addition, employees are offered a defined benefit pension 13

plan, a defined contribution or 401-K plan, and post-retirement benefits. 14

15

Q. How does National Grid ensure that its benefit programs are 16

reasonable and competitive? 17

A. National Grid monitors the marketplace to ensure that its benefit programs 18

are both cost-effective and sufficient to attract and retain the highly skilled 19

workforce needed to deliver excellent customer service and achieve 20

National Grid’s financial goals. 21

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Q. Please describe how National Grid monitors the marketplace. 1

A. National Grid participates in both industry groups and benefit councils to 2

learn best practices and stay abreast of market developments. National 3

Grid also seeks new ideas and suggestions from its vendors. Periodically, 4

National Grid commissions a study by outside consultants to benchmark 5

the value of the benefit programs offered by National Grid to comparable 6

companies in the marketplace. The consultant, Towers Watson, collects 7

benefit plan provisions from hundreds of employers in all sectors of the 8

economy and uses its proprietary software to measure the value of these 9

programs. National Grid utilizes these studies to determine the 10

competitiveness of the benefits being offered and assist in managing and 11

controlling the cost of these benefit programs. 12

13

Q. Did Towers Watson perform recent studies to assess the 14

competitiveness of National Grid’s benefit programs? 15

A. Yes. The recent studies conducted by Towers Watson were performed in 16

late 2009 and were based on the benefit programs and coverage levels that 17

were in effect as of January 1, 2009. These studies reflected the re-18

alignment of most, but not all of the National Grid and legacy KeySpan 19

benefits. Separate studies were conducted for the union and non-union 20

benefit plans. The results of the study for the non-union benefits are 21

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submitted as Exhibit __ (MPH-5) and the results of the study for the union 1

benefits are set forth in Exhibit __ (MPH-6). The study or analysis is 2

conducted for each benefit separately as well as on an entire-program 3

basis. It is not unusual for results to vary by benefit due to unique factors 4

associated with each company’s history and priorities. The entire-program 5

analysis combines all values and allows for a comparison among 6

companies’ benefit programs. It should be noted that a condition of 7

participation in the study is that the link between the participating 8

company and the value of the benefits it provides must not be disclosed. 9

The studies included with this testimony, therefore, mask which 10

companies correlate with which data, other than for National Grid. 11

However, the names of the participants are provided in the reports, so the 12

Commission will be aware of the companies to which National Grid’s data 13

was compared. As is evident from both sets of charts, National Grid’s 14

benefit plans for both union and non-union employees are very close to the 15

median. 16

17

Q. What efforts has National Grid undertaken to control costs associated 18

with its benefit programs? 19

A. National Grid self insures its health and welfare benefit plans, which 20

affords it a greater ability to control costs than it would have under third 21

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party insurance programs. Because these plans are self-insured, the costs 1

for the programs are directly linked to the utilization of benefits. National 2

Grid’s medical plans also provide extensive health and wellness programs 3

designed to reduce health risks and reduce the occurrence of costly 4

diseases. These programs combined with coverage for preventive check-5

ups and screenings, provide a benefit structure that, over time, should help 6

to mitigate costs and improve employee wellness. 7

8

National Grid has also implemented cost containment measures in its 9

disability benefit program, which protects employees from the loss of 10

income as a result of sickness or disability. To ensure that these benefits 11

are paid only to legitimately sick and/or disabled employees, National 12

Grid teams up its internal nurse practitioners with a third party – Matrix – 13

to monitor employee care, verify situations with treating physicians, find 14

alternative light duty work where it is feasible, and ensure as rapid a return 15

to regular duty as reasonably possible. 16

17

Q. What efforts have been made to control the cost of union benefit 18

plans? 19

A. National Grid also self insures the union benefit plans and has successfully 20

encouraged union employees to opt for managed care plans. National 21

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Grid has made the managed care plans for the union employees the 1

preferred choice by offering them at a lower cost than other plan designs. 2

In the context of the negotiated benefit packages that are offered to union 3

employees at this time, we believe that the managed care plans achieve the 4

lowest reasonable cost. 5

6

Q. Did National Grid make changes to the benefit programs following 7

the merger of National Grid and KeySpan? 8

A. Yes. As of January 1, 2009, all non-union employees were brought under 9

a common benefit platform across National Grid. This common benefit 10

platform reduced the number of vendors, which helped to stabilize and 11

reduce administrative expenses through economies of scale. The health 12

and welfare providers were selected through a competitive bidding process 13

and the successful results of those solicitation processes, with continuing 14

modifications and improvements, has assisted the Company in managing 15

the increasing cost of the benefit plans. 16

17

Q. Please describe the specific changes that were made during 2009. 18

A. National Grid made a number of changes in its medical, dental, and life 19

insurance programs to reduce costs. Among other things, National Grid 20

made the following changes: 21

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• Co-pays for office visits and prescription drugs under the health 1 care program were increased, a deductible/coinsurance 2 arrangement was implemented for in-patient hospital care, and 3 waiver credits for opting out of medical coverage were reduced to 4 $750.00 per year; 5

• The prescription drug program was carved out of each medical 6 plan and, after a competitive bid process, was replaced in its 7 entirety with a CVS Caremark plan. This approach made it 8 possible for National Grid to generate savings by leveraging a 9 volume discount with one national vendor; 10

• In the dental program, employee premium sharing was increased 11

from 20% to 35%, benefits in the major restorative category were 12 reduced to 50% from 60%, the annual benefit maximums were 13 reduced both for major restorative work and total benefits, and 14 adult orthodontia was eliminated; 15

• In the life insurance program, the coverage level was reduced from 16

two times annual base bay to one times annual base pay. 17 18

Q. Please describe any adjustments to the test year expense for employee 19

medical and dental benefit plans that the Company is including in its 20

proposed revenue requirement. 21

A. National Grid is projecting eight percent (8%) annual increases in the 22

costs associated with healthcare benefits over the three rate years. These 23

projected increases are consistent with our actual experience and also 24

consistent with national projections for health care trends and the 25

projections gathered by our own health care consultant, Towers Watson. 26

Despite the fact that health care costs have increased consistently above 27

the general rate of inflation for many years, we applied a general inflation 28

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rate to the test year level of expense in order to determine the level of 1

medical and dental expenses included in the rate year revenue 2

requirement, consistent with Commission precedent. Although we are 3

following Commission precedent, the use of a general inflation factor to 4

project health insurance increases likely will deprive the Company of the 5

ability to fully recover anticipated healthcare costs in the three rate years. 6

7

Q. Please describe any adjustments to the test year expense for other 8

employee benefit plans that the Company is including in its proposed 9

revenue requirement. 10

A. The forecasted rate year revenue requirements for other employee benefit 11

plan expenses (life insurance, the thrift plan, and other active benefits) 12

were also developed by applying the general inflation rate to the test year 13

level of expense, consistent with Commission precedent. For group life 14

insurance, the general inflation rate was applied to the test year expense 15

level as adjusted by $33,931 to reflect the lower costs associated with 16

reducing the basic life insurance benefit from two times annual base pay to 17

one time annual base pay for active non-union employees. 18

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VIII. Pensions and OPEBs 1

Q. Please describe National Grid’s efforts to analyze changes to OPEB 2

benefits. 3

A. The process of ensuring fair, competitive, and efficient benefit programs 4

for employees and retirees is one of the core activities of National Grid’s 5

Corporate Compensation and Benefits department. Compensation and 6

Benefits staff continually undertake efforts to ensure proper vendor 7

performance and compliance with federal and state laws and regulations. 8

Trends in benefit and compensation plan design are also continually 9

monitored. 10

11

On an annual basis, National Grid analyzes the funding, recording, and 12

administration of OPEBs. Less frequently, but on a consistent basis, we 13

consider more significant changes designed to reduce the overall cost of 14

the OPEB plan. 15

16

Q. What challenges does National Grid face in considering fundamental 17

structural changes to retirement benefits on a frequent basis? 18

A. Retiree programs are unique among the collection of employee benefits. 19

Unlike medical and disability programs for which employees derive 20

current value, retiree programs represent promises for the future. As such, 21

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their value tends to accrue over a longer period of time. Due to these long 1

accrual periods, significant changes in retiree programs are difficult to 2

adjust to when they occur close to or during retirement. Preparation for 3

retirement involves assessing one’s financial preparedness provided 4

through benefit plans, Social Security, and individual savings. Given the 5

fixed benefits payable under the Company’s pension plan, and the 6

potential for significant health-care expense as participants age, promised 7

health insurance benefits are one of the key factors in reaching the 8

conclusion that one can retire. This is demonstrated by the retirement 9

behavior of Company employees. Practically no one leaves the Company 10

voluntarily after the age of 55, unless they are eligible for postretirement 11

medical benefits. Therefore, and as further outlined below, the Company 12

has reached the conclusion that changes to OPEB benefit levels are only 13

feasible in connection with major benefit alignments either following 14

corporate transactions or in connection with labor negotiations. Any 15

OPEB benefit change will usually be done in connection with other 16

benefit alignments and will generally be carefully constructed to affect 17

only those employees who have sufficient time to adapt to the changes 18

before reaching retirement age. 19

20

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Another reason retiree programs are unique is the wide geographic 1

dispersion of the plans’ participants. Unlike active employees, who live 2

geographically proximate to the Company’s business operations, retirees 3

move to other parts of the United States and other countries. This makes 4

communication with them and implementation of changes to their benefits 5

administratively burdensome and costly. 6

7

Q. Are there particular challenges involved in modifying OPEB benefits 8

for union employees? 9

A. With respect to OPEBs for union employees, the Company is bound by 10

law to negotiate with IBEW Local 97 for these benefits, and having 11

reached agreement on them, to hold those benefit levels until the current 12

collective bargaining agreement expires, unless they are renegotiated 13

earlier by mutual consent. A discussion of the results of recent 14

negotiations with the union is provided below. 15

16

Q. Is there a relationship between the Company’s ability to make 17

changes to the OPEB benefits provided to non-union employees and 18

the benefits provided to union employees? 19

A. Non-union employee benefits can be changed at any time. However, the 20

existence and substantial size of the union work force and the need to 21

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recruit future managers from the union ranks creates a significant 1

connection here. It would be shortsighted to design benefits and 2

implement changes to benefits without fully evaluating the impact on this 3

connection. In the case of OPEB benefits in particular, a union employee 4

would be unlikely to accept, let alone seek, a nonunion job that provides 5

either significantly fewer or less valuable benefits than he or she is eligible 6

for under the union contract. Many of the best union management recruits 7

are rank-and-file employees who have worked many years in a physical 8

field work position and seek to move into supervision. Employees like 9

these are highly valued by our management team, as they can ably and 10

immediately contribute to meeting the Company’s objective of providing 11

safe and reliable service at a reasonable cost. Forcing union employees to 12

accept benefit reductions to move to management would be a significant 13

impediment to any such moves taking place. The Company’s desire to 14

facilitate the promotion of union employees manifests itself in a three to 15

five year cycle of OPEB benefit level reviews for both union and non-16

union employees absent a major triggering event such as a merger. This 17

cycle generally corresponds to the length of the collective bargaining 18

agreement with the unions. 19

20

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Q. Please explain the OPEB-related analyses performed on an annual 1

basis. 2

A. The annual process to examine OPEBs focuses on the following three 3

categories: (i) actuarial assumptions around plan expense in funding, (ii) 4

general vendor performance reviews, and (iii) Medicare prescription drug 5

program refund administration. 6

7

Actuarial assumptions for expense and funding: Each year, working with 8

its actuary, Hewitt Associates, National Grid evaluates the proper level of 9

several actuarial factors used to determine plan expense and funding, 10

including discount rate, trend rate, and mortality rate. Depending on 11

economic information and trends at the time, rates are either continued or 12

modified as appropriate. In addition, National Grid evaluates various 13

funding options to ensure optimal funding of these benefits. 14

15

Also, National Grid has commenced an asset liability modeling study to 16

determine whether any changes are appropriate for our investment strategy 17

for all of the union and non-union retiree welfare plans. The outcome of 18

the studies is expected to either affirm the current asset allocations or 19

justify a slight shift in overall investment strategy taking into 20

consideration the characteristics of the liabilities of the OPEB plan. In the 21

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first part of the study, the investment strategy of the Union Voluntary 1

Employee Beneficiary Association (“VEBA”) will be reviewed, taking 2

into consideration factors such as its tax exempt status, type of assets (e.g. 3

tax exempt municipal bonds, inflation-linked bonds, equity), and inflation 4

(general vs. medical). The next stage of the study will be to review the 5

VEBA funding of OPEB liabilities for the non-union employee 6

population. Ultimately, the goal of the study is to develop an optimal 7

investment strategy for the retiree welfare plan assets after consideration 8

of factors such as tax position, category of investments available, and plan 9

liabilities. 10

11

General vendor performance reviews: Each year, National Grid’s benefits 12

staff meets with the third parties who are responsible for claims payments 13

and administration of these benefits to review each vendor’s performance. 14

These vendors are the same vendors delivering services for active 15

employee programs. National Grid’s arrangements with these vendors are 16

for administrative services only, so the focus is on transaction 17

performance and participant satisfaction. National Grid continuously 18

reviews the delivery and administration of the benefits under the retiree 19

medical plan with the ultimate objective to reduce administration costs and 20

improve the delivery of services. During 2010, the administration of the 21

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legacy KeySpan retiree medical plans will be consolidated with the same 1

provider that administers the medical benefit coverage for active 2

employees. 3

4

Medicare prescription drug refund administration: Each year, National 5

Grid supplies the Federal Government with extensive documentation and 6

certification to obtain a sizable refund of retiree drug benefits. We take 7

this opportunity very seriously and vigorously pursue maximum refunds, 8

thereby lowering our OPEB benefit expenses. In addition, National Grid 9

closely monitors the current debate on healthcare reform to assess any 10

impact it could have on the design and cost of the retiree medical plans it 11

sponsors. 12

13

Q. Is the OPEB plan the same for all employees? 14

A. The Company has two OPEB plans – the OPEB plan applicable to union 15

employees and the OPEB plan applicable to non-union employees. In 16

terms of the overall cost of these plans, the cost of the union plan is greater 17

because the union workforce is much larger. Niagara Mohawk’s 18

workforce consists of approximately 3,130 full-time equivalent (“FTE”) 19

union personnel and 1,283 FTE non-union personnel, per the most recent 20

actuarial report available (April 1, 2008-March 31, 2009). In terms of the 21

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Accumulated Post-Retirement Benefit Obligation values for the union and 1

non-union plans, the relationship is 67% union and 33% non-union. 2

3

In terms of the OPEB benefits offered to each workforce, the broad 4

categories of benefits are the same. Both union and non-union personnel 5

receive retiree medical benefits and may receive life insurance benefits 6

depending on their hire date. 7

8

As discussed earlier in this testimony, there is a significant relationship 9

between the union OPEB plan and the non-union OPEB plan. While the 10

non-union OPEB plan can be changed at any time, the Company must be 11

mindful of the impact that changes to the non-union OPEB plan may have 12

on its ability to recruit managers from the union workforce. The union 13

OPEB plan as it relates to current active employees can only be changed 14

through negotiations with the union. 15

16

Q. What post employment medical benefits are provided to non-union 17

employees? 18

A. The Company maintains a retiree medical plan for employees who meet 19

certain age and service conditions. The benefits provided are generally 20

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equivalent to the benefits provided to active employees. However, at age 1

65, the plan’s costs are offset by the Federal Medicare program. 2

3

Q. Please describe the efforts undertaken to control the cost of retiree 4

medical benefits. 5

A. Since the mid-1990’s, Niagara Mohawk, both as a stand-alone entity and 6

later as a part of National Grid, has attempted to find ways to control the 7

costs of medical benefits in a manner that is fair to the Company, its 8

employees, and retirees. The first efforts in this area resulted in the 9

establishment of “cap type” programs in which the Company’s 10

contribution to retiree medical costs was set at certain capped levels and 11

retirees were required to pay all increases above those levels. 12

13

At the time of the National Grid-Niagara Mohawk merger, the eligibility 14

requirements for non-union retiree medical benefits were changed. The 15

Company recognized that because of the continuing escalation of medical 16

costs at three to four times the rate of general inflation, the cap type 17

programs were simply not sustainable from the standpoint of providing a 18

meaningful ongoing benefit to retirees. During a period in which the 19

Company was transitioning its previous pension plans to lower cost, cash 20

balance pension plans, the capping of the Company’s contribution to 21

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retiree medical costs, coupled with forecasted continuing escalations in 1

those costs at levels well in excess of the rate of general inflation, created 2

the prospect that an unreasonable portion of both present and future 3

retirees’ income would need to be used to fund medical benefits during 4

retirement. As a consequence, the Company made certain changes to its 5

OPEB program in 2002 to both implement a meaningful and sustainable 6

program to control retiree medical costs and to effectuate an alignment of 7

benefits within the entire National Grid family of companies. Those 8

changes were as follows: 9

10

First, while employees previously had been eligible for benefits at age 55 11

with five years of service, these eligibility requirements were changed so 12

that, in order to obtain benefits, an employee was required to be: (1) age 13

55 or older with a combination of age and service of at least 85, or (ii) age 14

61 or older with at least 10 years of the service. At the non-union level, 15

this eligibility change produced modest savings because, for pension 16

reasons, the practice of most Niagara Mohawk employees was to retire 17

only upon reaching an 86 point combination of age and service. 18

19

Second, non-union employees were made subject to a service-based 20

contribution formula that results in an 80% contribution by the Company 21

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for employees with 30 years of service. Fewer years of service result in a 1

lower percentage contribution by the Company. In addition, all employees 2

hired after July 1, 1992 are eligible only for a maximum 50% contribution 3

with 30 years of service. 4

5

The Company’s non-union retirees predominately enroll in self-insured 6

managed health care plans. These plans seek to maximize medical care at 7

the lowest possible costs. The Company’s medical plans encourage 8

employees to enroll in wellness and disease management control programs 9

in order to promote long term cost control efforts. While the Company 10

cannot project specific identified OPEB savings from these efforts, it is 11

believed that these efforts will produce savings in the long run. 12

13

Q. What has the Company done to manage non-union post employment 14

life insurance? 15

A. In 2002, following the Niagara Mohawk/National Grid merger, the 16

Company modified its non-union retiree life insurance benefit to provide a 17

flat $20,000 benefit to most non-union employees effective as of 18

retirement date. In addition, the pre-existing benefit to certain legacy 19

Niagara Mohawk employees was reduced from 1.25 times final base pay 20

to one-half of final base pay. This had the overall effect of reducing the 21

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cost of the post-retirement life insurance benefit to Niagara Mohawk by 1

approximately $1 million annually. 2

3

In addition, in the same way as medical benefits, the eligibility rules were 4

revised to require retirees to be either (i) age 55 or older with a 5

combination of age and service of at least 85 points, or (ii) age 61 with at 6

least ten years of service. This change had a very modest cost reduction 7

impact on expenses because Niagara Mohawk non-union employees 8

typically retire with a combination of age and service of 86 points. 9

10

The changes to this benefit have resulted in a lawsuit filed on behalf of the 11

legacy Niagara Mohawk employees. This lawsuit is pending. 12

13

Q. What has the Company done to control non-union OPEB costs since 14

the merger with KeySpan. 15

A. National Grid has commenced a process of reevaluating the OPEBs that 16

will be made available to all non-union employees, including Niagara 17

Mohawk’s, in the future. All retiree benefits are being considered as part 18

of this process including pension plans, post retirement medical, life 19

insurance, and 401-K plans. Given the number of employees affected and 20

the number of benefit plans involved, this is a significant undertaking that 21

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commenced in 2009. It is a complex study that attempts to reach a 1

balance between the cost of the plans to the Company, and ultimately to its 2

customers, and the competitiveness of the benefits offered to the 3

employees of National Grid. 4

5

In addition, the Company will implement a new design to provide its non-6

union population of retirees with prescription benefits. These benefits will 7

be carved out of the medical plans and provided through a national 8

vendor, which will reduce administrative expenses through economies of 9

scale, and deeper discounts negotiated with the new vendor. The change 10

will be implemented effective January 1, 2010 and it is estimated to 11

generate $4 million of ongoing savings on a Financial Accounting 12

Standards (“FAS”) 106 basis. 13

14

Q. What has the Company done to manage union post-employment 15

medical costs? 16

A. The primary effort to contain costs in the retiree medical area since 2004 17

has been directed at getting the union to agree to the full array of changes 18

that have been made to the non-union medical benefit. 19

20

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At the time of the National Grid-Niagara Mohawk merger, legacy Niagara 1

Mohawk employees who retired as of May 1, 1996 were also subject to a 2

fixed cap contribution toward the cost of retiree medical benefits. The 3

Company’s cost was to be set at the cost levels as of December 31, 2002 4

and retirees were required to pay all costs over the 2002 base cost. All 5

future increases in costs were to be borne by retirees who retired on or 6

after May 1, 1996. This cap structure was modified June 1, 2001. 7

Beginning January 1, 2003, all retirees as of May 1, 1996 were required to 8

pay the first $100 above the 2002 Company contribution amount towards 9

medical premiums, and, for amounts in excess of the first $100, the retiree 10

was required to pay 10% of future premium increases until December 31, 11

2009. Effective January 1, 2010, 100% of all future premium increases 12

above the 2009 Company premium contribution amount would be borne 13

by all retirees who retired after May 1, 1996. 14

15

The first opportunity after the Niagara Mohawk/National Grid merger to 16

address these benefits was during the 2004 contract negotiations. During 17

those negotiations, the Company sought to make the same changes to the 18

union plan as had been made to non-union retiree medical benefit in 2002. 19

Had the Company been successful, the projected savings in the cost of 20

union retiree medical benefits would have approximated $7.7 million 21

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annually. However, during the negotiations, the union both opposed these 1

changes and sought elimination of the fixed cost contribution cap. 2

Following very difficult and contentious negotiations, the cap was 3

replaced with an 80%/20% cost sharing formula for prospective retirees 4

from and after September 30, 2004. However, the eligibility changes and 5

the post-July 1, 1992 hired employee program implemented for the non-6

union employees were not acceptable to the union. The impact of the cap 7

removal was an increase in annual OPEB expense. However, as described 8

above, given the likelihood of regular and significant cap increases in 9

future years, the Company believes that these increases will be no larger 10

than what would ultimately have been experienced if the cap program had 11

been maintained and subjected to changes over time. Moreover, the 12

80%/20% sharing program ensures that future increases in retiree medical 13

costs will be more predictable and manageable. 14

15

The labor agreement reached in 2004 was scheduled to expire March 31, 16

2008. During early 2007, the union indicated its interest in extending the 17

agreement in order to resolve concerns related to the KeySpan merger. 18

During the negotiations concerning the extension, the Company sought to 19

achieve the retiree medical benefit changes that could not be achieved in 20

2004. Had the Company been successful, the estimated annual savings 21

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would have been approximately the same $7.7 million determined in 2004. 1

However, these efforts were not successful. Instead, the Company ended 2

up extending the agreement to March 31, 2011. 3

4

As previously mentioned in this testimony, in August 2009 the Company 5

and Local 97 reached an agreement to extend the Local 97 labor contract 6

until March 31, 2014. As part of the contract extension, significant 7

changes in the post retirement medical benefits were made. First, 8

employees hired on or after July 1, 1998, or who did not meet an age and 9

service criteria at that date, will be covered by a Medicare supplement 10

plan after age 65. Second, new hires on or after the ratification date will 11

have an entirely different retiree medical plan. 12

13

The eligibility criteria for pre-Medicare (age 65) medical coverage were 14

changed to require a longer tenure. In order to receive pre-Medicare 15

medical coverage, employees will have to be either a minimum of age 60 16

with 85 points of service or a minimum of age 61 with 10 years of service. 17

These new rules apply for employees hired after August 14, 2009. 18

Employees hired prior to that date are eligible upon reaching a minimum 19

of age 55 with at least five years of service. In addition, under the new 20

rules the cost payable by a retired employee will depend on the 21

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employee’s length of service. Specifically, the Company’s share of the 1

cost will be equivalent to 2.67% per year of service to a maximum of 80%. 2

This compares to rules covering pre-August 14, 2009 employees, where 3

the Company’s share of the cost of the pre-65 medical benefit coverage is 4

set at 80% irrespective of the service period of the retired employee. Once 5

an employee is eligible for Medicare medical coverage (at age 65), the 6

Company provides for a Medicare supplement type of plan. Under the 7

new agreement covering employees hired on or after August 14, 2009, the 8

Company’s share of the cost to provide this benefit is limited to $4.50 9

($9.00 if married) per month per year of service. For employees hired 10

prior to August 14, 2009, the Company is responsible for 75% of the cost 11

of this benefit. Under the new cost sharing terms, the cost to the Company 12

is fixed in dollar terms. The August 2009 agreement changes in the post 13

retiree medical plan will lower the plan obligations by $12.4 million on a 14

FAS 106 basis. 15

16

Q. What has the Company done to control the cost of life insurance 17

provided to union retirees? 18

A. In the 2004 union negotiations, the Company sought to make the same 19

changes to the union life insurance benefit that were made to the non-20

union benefit. It is estimated that these changes would have reduced costs 21

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by approximately $3.0 million annually. However, the Company was not 1

successful in its negotiations. However, the retiree life insurance benefit 2

was terminated for union employees hired on or after October 1, 2004. 3

While this change only produces very modest savings initially (estimated 4

to be less than $100,000 annually), over time it will ultimately eliminate 5

the cost of this plan. 6

7

Q. What has the National Grid done to control pension costs? 8

A. National Grid reviews, on a continuous basis, the pension plan benefits it 9

offers to employees, with a dual objective of offering benefits that are in 10

line with market practices and controlling plan costs. National Grid 11

implemented a common cash balance plan design for all new hires 12

effective for non-union new hires on or after July 15, 2002 and for union 13

new hires effective on or after July 1, 1998. This cash balance pension 14

plan is significantly less costly than the previous pension plan because of 15

its smaller annual benefit accruals and flatter cost curves over the working 16

life of an employee. At the same time, the cash balance plan is market 17

competitive. National Grid has combined modifications to its pension 18

plan with an aggressive participation and investment management 19

campaign in our 401-K plan so that employees can both save more and 20

invest more wisely and end up with sufficient retirement income. 21

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In addition, National Grid attempts to control the cost of the pension plans 1

by optimizing the investment returns generated by the assets held in a trust 2

for each plan. The pension plan investment strategy is reviewed regularly 3

in light of the evolving demographic of the beneficiaries and experience of 4

the plans, among other factors. 5

6

IX. Conclusion 7

Q. Does this conclude your direct testimony? 8

A. Yes it does.9

53

Exhibits of

M

aureen P. Heaphy


Index of Exhibits

Exhibit __ (MPH-1) National Grid’s Employee Guide to the Annual

Performance Plan Exhibit __ (MPH-2) Sample “Performance for Growth” forms for

Company employees Exhibit __ (MPH-3) National Grid Union and Non-Union Wage Increase

History (2000-2009) Exhibit __ (MPH-4) National Grid USA - Union Wage Comparisons Exhibit __ (MPH-5) National Grid – BENVAL Analysis for 2009 Non-

Union Benefits Exhibit __ (MPH-6) National Grid – BENVAL Analysis for Legacy

National Grid New York Union Benefits

54

Exhibit __ (M

PH-1)


Exhibit __ (MPH-1)

National Grid’s Employee Guide to the Annual Performance Plan

55

Exhibit __ (MPH-1) Page 1 of 9

EMPLOYEE GUIDE TO

THE

ANNUAL PERFORMANCE PLAN

US – Band C, D, E and F

2009/2010

56


Dear Colleague

Performance for Growth (P4G) has been in operation now for two years and is being embedded in the Company. In the recent Employee Opinion Survey employees informed us they didn’t fully understand the Company direction and how their role contributes to the Company’s success. The line of sight framework aims to provide clarity and building on this, together with the P4G framework, will ensure we are all working towards a common goal whilst ensuring we reward high performance.

This guide provides information about how the Annual Performance Plan will operate this year and your Manager will discuss this further with you over the next few weeks.

Steve Holliday Chief Executive

1 Introduction

This guide summarises the main provisions of the National Grid Annual Performance Plan 2009/10 (the “Plan”) and highlights the general operation of the plan. The Plan has been approved by the Executive Directors and they have absolute discretion over the operation and design of the Plan (see section 7 for further detail).

The Plan is intended to motivate employees to achieve the highest possible financial and individual performance, whilst ensuring that at all times, all safety, health and environment requirements are adhered to, all standards of service are achieved and shareholder expectations reached. In short, all our stakeholders should benefit from the Plan.

Stretching financial targets and individual objectives will be set, as soon as practicable, after the start of the Plan year (April each year). These objectives should be input into the performance part of the Global Performance and Compensation System (GPCS)

2 Plan Summary

50% of the maximum Plan opportunity is based on financial targets and 50% is based on individual objectives.

2.1 Financial Targets Within the 50% for financial targets, 20% is based on Group Earnings per Share (Group EPS) and the remaining amount for the financial element of the Plan will be based on appropriate Line of Business/Executive Directorate e.g Shared Services/IS etc targets e.g. operating profit or any other appropriate targets set by the relevant Executive Director.

2.2 Individual objectives Four or five key individual objectives are set. They should be stretching, measurable and achievable.

The performance assessment will result in a rating using a scale of 1 to 5 (see Appendix 1).

57


When assessing achievement of the individual objectives, equal importance is attributed to performance against the Leadership Qualities using a scale of 1 to 3 (see attached Appendix 2).

3 Performance Reviews

Your manager will discuss performance against targets and objectives with you on a regular basis throughout the year. An interim review will be undertaken part way through the year to formally assess progress and a year end review will be undertaken to assess final performance. It is both your responsibility and your Manager’s to ensure these discussions take place. They can be effective only by clearly articulating progress and expectations; and by providing an opportunity for constructive two way dialogue. Assessment of performance against individual objectives is based on the what and how ratings as shown below.

4 Worked Example – for an LOB employee

The attached example shows how the assessment process works. The example is based on an employee who has a maximum Plan opportunity of 20% of salary. 50% of the Plan is based on financial targets and 50% on individual objectives.

On this basis, 10% of salary is based on financial targets and 10% of salary is based on individual objectives. See Appendices 3 and 4 and read in conjunction with the following notes.

4.1 Notes to Example

The Company achieves stretch performance (4%) for Group EPS and target (2.70%) for LOB Operating Profit. See Appendix 3.

58


4.00% - Group EPS +

2.70% - LOB Operational Profit

6.70% - Total

In this example, the manager determines the employee frequently exceeds expectations with regard to performance objectives and demonstrated the Leadership Qualities. The manager therefore determines the employee will be in a 2/2 position overall (i.e. Performance “v” Leadership Qualities) and that 80% of the maximum available for individual performance will be paid. See Appendix 4.

As such 80% x 10% = 8%. This is then added to the total for financial targets (6.70%). Consequently, 14.70% is achieved out of a Plan maximum of 20%. Therefore, the employee will receive 14.70% of their salary as a performance award.

Note: There is discretion to reduce payments to take account of significant safety, service standard incidents and environmental issues.

5 Performance Payments

Your award is payable in June and is subject to tax withholdings.

The award is calculated as a percentage of eligible earnings1 paid during the annual plan year.

6 Ceasing to be employed

If you cease to be an employee during the Plan year, a discretional cash payment may be paid to you, but this will depend on the circumstances of your leaving.

7 Limitations of the Plan

The Company may amend, suspend or terminate all or any part of the Plan at any time.

Participation in, and the operation of, the Plan will not form part of or affect your contract of employment or your employment relationship, nor will they give you the right to continued employment. Participation in one year of the Plan does not indicate that you will participate, or be considered for participation, in any future years. You are not entitled to any compensation or other benefit in respect of the Plan.

1 For the avoidance of doubt other earnings such as overtime and shift premium are not included.

59


APPENDIX 1

Performance Rating Definitions (the “what”)

Creates Exceptional Value (1) — to achieve a rating in this category means the employee creates exceptional value in most, if not all, business objectives, frequently exceeding expectations, and achieving maximum measures of success. Employees in this category:

♦ Frequently achieve stretch levels of performance ♦ Drive optimal results

Frequently Exceeds Expectations (2) — to achieve a rating in this category means the employee frequently exceeds expectations in most, if not all, business objectives, achieving above target measures of success. Employees in this category:

♦ Excel at contributing to achievement of targeted goals within their job role and frequently achieve above target levels.

♦ Deliver strong results.

Consistently Meets Expectations (3) — to achieve a rating in this category means the employee consistently meets expectations and has exceeded in a few business objectives. Employees in this category:

♦ Consistently contribute to achievement of the success of the business unit by meeting all goals and exceeding some.

♦ Are reliable and dependable in the performance of day-to-day and stretch objectives.

Meets Most Expectations (4) — to achieve a rating in this category means the employee meets most expectations in business objectives, achieving some target measures of success. Employees in this category:

♦ Contribute to achievement of goals and success of the immediate business area.

♦ Have one or more business objectives that have not been fully realised.

More Is Expected (5) — to receive a rating in this category means that more is expected of the employee in order to achieve target measures of success and/or to improve a significant shortcoming in one or more business objectives. Employees in this category:

♦ Meet minimum requirements of the job; and have required job skills. ♦ Deliver results asked for, but do not demonstrate strong initiative to contribute

to the success of the team or the work without direction. ♦ Deliver limited added value to the business area.

60


APPENDIX 2

Leadership Qualities (the “how”)

♦ Lives the National Grid values

♦ Creates the future

♦ Consistently delivers great performance

♦ Builds relationships

♦ Develops self and others

Full details of the Leadership Qualities are included in the Performance For Growth Guidelines.

61

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62

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63

Exhi

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64

Exhibit __ (MPH

-2)


Exhibit __ (MPH-2)

Sample “Performance for Growth” forms for Company employees

65


66


67


68


69


70


71


72


73


74


75


76


77


78

Exhibit __ (M

PH-3)


Exhibit __ (MPH-3)

National Grid Union and Non-Union Wage Increase History (2000-2009)

79


National Grid Union and Non-Union Wage Increase History (2000-2009)

Non-Union Non-Union Non-Union Union Merit Prom/Equity Total Gen Wage Increase* 2009 0.00% 1.50% 1.50% 3.00% 2008 3.40% 0.50% 3.90% 3.00% 2007 3.15% 0.50% 3.65% 3.00% 2006 3.00% 0.40% 3.40% 3.25% 2005 3.50% 0.35% 3.85% 0.00% 2004 2.60% 0.70% 3.30% 2.50% 2003 0.00% 2.00% 2.00% 3.75% 2002 3.20% 0.80% 4.00% 3.25% 2001 4.00% 1.00% 5.00% 3.25% 2000 3.00% 0.60% 3.60% 3.00% * Excludes progression step increases which are similar to non-union job family promotions

80

Exhibit (M

PH-4)


Exhibit __ (MPH-4)

National Grid USA - Union Wage Comparisons

81


NATIONAL GRID USA

UNION WAGE COMPARISONS

COMPANY

CABLE SPLICER

CUSTOMER SERVICE

REP

DISPATCHER

LINE MECHANIC

FLEET TECHNICIAN

RELAY TESTER

STOCK HANDLER

Central Hudson $39.05 $35.41 $39.05 $40.62 $38.08 $40.62 $34.04

Con Ed IBEW Local 3

38.58 31.33 38.47

41.69 36.77 37.78 36.77

Orange & Rockland

N/A 30.30 N/A 44.59 38.25 42.69 36.50

National Grid IBEW Local 1049

36.33 29.33

34.26 39.19 34.26 36.33 39.81

PSE&G IBEW Local 94

35.90 28.44

42.21 40.87 33.41 37.24 32.16

JCP&L IBEW U-3

35.63 26.56 N/A 38.73 31.01 33.17 27.88

National Grid Local 97

33.21 24.19 32.92 31.40 31.40 32.92 28.73

Average Rate

$36.45 $29.37 $37.38

$39.58 $34.74 $37.25 $33.70

Maximum Rate

$38.38 $35.41 $42.21 $44.59 $38.25 $42.69 $39.81

12/09

82

Exhibit __ (MPH

-5)


Exhibit __ (MPH-5)

National Grid – BENVAL Analysis for 2009 Non-Union Benefits

83

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_ (M

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Nat

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nefit

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re a

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ank Sc

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Rank

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Val

ue

Lega

cy N

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rid93

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Lega

cy K

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Tota

l Val

ue

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valu

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Bas

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30-y

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Em

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on

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mpl

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of 1

to 8

x pa

y in

mul

tiple

s of

1x

pay

with

a m

axim

um

of $

4,00

0,00

0

Spo

use

life

bene

fits

are

belo

w c

ompe

titiv

e no

rms

as o

ther

com

pani

es o

ffer s

pous

e be

nefit

s in

ex

cess

of $

100,

000

(Nat

iona

l Grid

’s h

ighe

st le

vel)

Chi

ld li

fe is

in li

ne w

ith n

orm

s al

thou

gh m

ost o

ffer a

two

optio

n ($

5,00

0 or

$10

,000

) ins

tead

of a

th

ree

optio

n pl

an

The

aver

age

AD

&D

ben

efit

amou

nt is

1x

pay;

Nat

iona

l Grid

’s is

2x

pay

with

a lo

wer

than

av

erag

e m

axim

um

Exhi

bit _

_ (M

PH-5

) Pa

ge 3

0 of

44


113

©20

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ower

s Pe

rrin

30P

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nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Act

ive

Life

Ins

uran

ce a

nd A

D&

D B

enef

it

The

bar c

hart

furth

er

illust

rate

s ho

w N

atio

nal

Grid

and

Key

span

co

mpa

re to

thei

r pee

rs

both

in te

rms

of g

ross

be

nefit

val

ue o

f life

in

sura

nce

and

AD

&D

, as

wel

l as

empl

oyer

-pro

vide

d va

lue

(i.e.

, net

of e

mpl

oyee

co

ntrib

utio

ns)

B

M

N

T

E

A

S

P

I

H

D

F

C

O

J

Q

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L

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B

M

N

E

A

T

P

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HC

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R

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D

G

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bit _

_ (M

PH-5

) Pa

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1 of

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114

©20

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s Pe

rrin

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nd C

onfid

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lN

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r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

and

Key

span

’s c

ompe

titiv

e po

sitio

ning

rela

tive

to

thei

r pee

r gro

up in

term

s of

STD

pro

gram

sIn

term

s of

Tot

al V

alue

, bot

h N

atio

nal G

rid a

nd K

eysp

an’s

ove

rall

desi

gns

are

belo

w a

vera

ge

rela

tive

to th

eir c

ompe

titor

s (e

.g.,

both

Nat

iona

l Grid

and

Key

span

pro

vide

100

% o

f pay

for

one

wee

k at

one

yea

r of s

ervi

ce, a

nd fi

ve w

eeks

at f

ive

year

s of

serv

ice)

, com

pare

d to

the

com

petit

or a

vera

ge o

f tw

o an

d se

ven

wee

ks a

t 100

%, r

espe

ctiv

ely

Bot

h N

atio

nal G

rid’s

and

Key

span

’s E

mpl

oyer

Val

ue c

ompe

titiv

e po

sitio

ning

impr

oves

slig

htly

re

lativ

e to

the

Tota

l Val

ue d

ue to

the

fact

that

two

empl

oyer

s (P

and

Q) i

n th

e co

mpa

rato

r gr

oup

requ

ire e

mpl

oyee

con

tribu

tions

for t

he s

alar

y co

ntin

uanc

e pl

anS

TD re

sults

on

thei

r ow

n ca

n be

ske

wed

by

the

bene

fit p

erio

d (i.

e., t

he b

enef

it pe

riod

varie

s fro

m th

ree

mon

ths

to o

ne y

ear a

mon

gst t

he g

roup

), as

a re

sult,

it is

impo

rtant

to re

view

STD

an

d LT

D o

n a

com

bine

d ba

sis

(refe

r to

page

37)

Sho

rt Te

rm D

isab

ility

Sco

re a

nd R

ank

Scor

eRa

nk/2

2Em

ploy

er V

alue

Lega

cy N

atio

nal G

rid10

5.7

12/2

2

Lega

cy K

eysp

an98

.817

/22

Tota

l Val

ue

Lega

cy N

atio

nal G

rid99

.215

/22

Lega

cy K

eysp

an92

.620

/22

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bit _

_ (M

PH-5

) Pa

ge 3

2 of

44


115

©20

09 T

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rrin

32P

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r use

or d

iscl

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e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty C

ompa

riso

n

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

and

Key

span

’s p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

sign

s

Sho

rt T

erm

Dis

abili

ty

Leg

acy

Nat

iona

l Gri

d L

egac

y K

eysp

an

Rang

eAv

erag

eM

ode

Sic

k Pa

y1s

t day

of d

isab

ility

1s

t day

of d

isab

ility

1s

t day

of d

isab

ility

N/A

1st d

ay o

f dis

abili

tyS

alar

y C

ontin

uanc

eE

nd o

f Sic

k pa

yE

nd o

f Sic

k pa

yE

nd o

f sic

k tim

e - 1

st

day

of d

isab

ility

End

of s

ick

time

Ben

efit

Am

ount

Sic

k Pa

yW

eeks

at 1

00%

Wee

ks a

t 100

%W

eeks

at 1

00%

Wee

ks a

t 100

%W

eeks

at 1

00%

Yea

rs o

f Ser

vice

11

11-

102

25

55

1-26

710

1010

101-

3011

815

1515

1-45

1426

2020

201-

6016

2625

2525

1-75

1726

3030

301-

9019

2635

3535

1-10

520

26

Sal

ary

Con

tinua

nce

70%

of p

ay le

ss p

rimar

y S

ocia

l Sec

urity

, les

s de

pend

ent S

ocia

l S

ecur

ity

50%

of p

ay in

clud

es

sick

ness

& a

ccid

ent;

paya

ble

per d

isab

ility

No

sala

ry c

ontin

uanc

e -

100%

of p

ay 5

2 w

eeks

pe

r dis

abili

ty

N/A

YO

S S

ched

ule

(sal

ary

cont

inua

nce

varie

s fro

m

dolla

r val

ue to

pe

rcen

tage

of p

ay)

Yea

rs o

f Ser

vice

152

135

5213

1052

1315

5213

2052

1325

5213

3052

1335

5213

Com

para

tor

Gro

up

Exhi

bit _

_ (M

PH-5

) Pa

ge 3

3 of

44


116

©20

09 T

ower

s Pe

rrin

33P

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty

The

bar c

hart

furth

er

illust

rate

s ho

w N

atio

nal G

rid

and

Key

span

com

pare

to th

eir

peer

s bo

th in

term

s of

gro

ss

bene

fit v

alue

of S

TD p

lans

, as

wel

l as

empl

oyer

-pro

vide

d va

lue

(i.e.

, net

of e

mpl

oyee

co

ntrib

utio

ns)

M

F

G

E

O

B

U

A

T

R

HS

C

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F

G

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B

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HS

C

I

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D

J

Exhi

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_ (M

PH-5

) Pa

ge 3

4 of

44


117

©20

09 T

ower

s Pe

rrin

34P

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ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Long

Ter

m D

isab

ility

Ben

efit

Sco

re a

nd R

ank

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

and

Key

span

’s c

ompe

titiv

e po

sitio

ning

rela

tive

to th

eir p

eer g

roup

in te

rms

of L

TD p

rogr

ams

Tota

l Val

ue re

sults

for L

TD a

re la

rgel

y dr

iven

by

the

bene

fit c

omm

ence

men

t dat

e, d

urat

ion

of th

e be

nefit

, the

per

cent

of p

ay c

over

ed, a

nd m

axim

um b

enef

itA

lthou

gh b

oth

Nat

iona

l Grid

and

Key

span

offe

r a b

asic

ben

efit

of60

% o

f pay

, whi

ch is

hi

gher

than

the

aver

age

of 5

0%, c

omm

ence

men

t dat

es a

nd d

urat

ion

driv

e co

mpe

titiv

e po

sitio

ning

As

men

tione

d w

hen

revi

ewin

g S

TD b

enef

its, f

or th

is re

ason

it is

impo

rtant

to lo

ok a

t S

TD a

nd L

TD c

ombi

ned

Em

ploy

er V

alue

s sh

ift m

ore

favo

rabl

y fo

r Nat

iona

l Grid

and

Key

span

sin

ce n

o em

ploy

ee

cont

ribut

ions

are

requ

ired

Onl

y tw

o em

ploy

ers

(C a

nd D

) req

uire

em

ploy

ee c

ontri

butio

ns fo

r bas

ic L

TD

Long

Ter

m D

isab

ility

Sco

re a

nd R

ank

Scor

eRa

nk/2

2Em

ploy

er V

alue

Lega

cy N

atio

nal G

rid11

5.9

8/22

Lega

cy K

eysp

an10

3.2

12/2

2

Tota

l Val

ue

Lega

cy N

atio

nal G

rid92

.613

/22

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cy K

eysp

an82

.418

/22

Exhi

bit _

_ (M

PH-5

) Pa

ge 3

5 of

44


118

©20

09 T

ower

s Pe

rrin

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ieta

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nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Long

Ter

m D

isab

ility

Com

pari

son

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

and

Key

span

’s p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

sign

s

Long

Ter

m D

isab

ility

Leg

acy

Nat

iona

l Gri

d L

egac

y K

eysp

an

Rang

eAv

erag

eM

ode

Com

men

cem

ent

Afte

r exh

aust

ion

of s

hort-

term

di

sabi

lity

bene

fits

Late

r of 9

0 ca

lend

ar d

ays

of

disa

bilit

y or

exh

aust

ion

of

shor

t-ter

m d

isab

ility

ben

efits

1 ye

ar -

13 w

eeks

of

disa

bilit

yN

/A26

wee

ks o

f di

sabi

lity

Dura

tion

Men

tal H

ealth

/Che

mic

To a

ge 6

52

year

s12

mon

ths

to a

ge 6

5N

/A24

mon

ths

Amou

nt

Max

imum

Fro

m a

ll So

urce

s70

% o

f pay

, les

s pr

imar

y S

ocia

l Sec

urity

, les

s de

pend

ent S

ocia

l Sec

urity

$15,

000

per m

onth

$3,0

00 -

$17,

500

$11,

696

/ mon

th$1

0,00

0 / m

onth

60%

of p

ay, l

ess

prim

ary

Soc

ial S

ecur

ity60

% o

f pay

, les

s pr

imar

y S

ocia

l Sec

urity

, dep

ende

nt

Soc

ial S

ecur

ity, l

ess

pens

ion

bene

fits

Com

para

tor G

roup

35%

less

prim

ary

soci

al

secu

rity

- 70%

less

pr

imar

y S

ocia

l Sec

urity

58%

; les

s pr

imar

y S

ocia

l Sec

urity

, les

s de

pend

ent S

ocia

l S

ecur

ity, l

ess

pens

ion

60%

les

s pr

imar

y S

ocia

l S

ecur

ity

Exhi

bit _

_ (M

PH-5

) Pa

ge 3

6 of

44


119

©20

09 T

ower

s Pe

rrin

36P

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nd C

onfid

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lN

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or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Long

Ter

m D

isab

ility

Ben

efit

The

follo

win

g ba

r cha

rt fu

rther

illu

stra

tes

how

Nat

iona

l Grid

an

d K

eysp

an c

ompa

re to

thei

r pe

ers

both

in te

rms

of g

ross

be

nefit

val

ue o

f LTD

pla

ns, a

s w

ell a

s em

ploy

er-p

rovi

ded

valu

e (i.

e., n

et o

f em

ploy

ee

cont

ribut

ions

)

J

P

A

R

I

S

OQ

L

D

G

E

N

F

T

H

C

B

U

M

F

B

U

ML

G

E

N

J

D

T

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P

A

C

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O

Exhi

bit _

_ (M

PH-5

) Pa

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7 of

44


120

©20

09 T

ower

s Pe

rrin

37P

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ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty a

nd L

ong

Ter

m D

isab

ility

As

prev

ious

ly m

entio

ned,

be

caus

e di

fferin

g el

imin

atio

n pe

riods

can

ske

w re

sults

w

hen

look

ing

at S

TD a

nd

LTD

ben

efits

indi

vidu

ally

, it i

s al

so im

porta

nt to

look

at t

he

entir

e di

sabi

lity

cont

inuu

m

T

F

Q

M

P

A

O

I

H

R

D

B

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M

A

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121

©20

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e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Vac

atio

n an

d H

olid

ay B

enef

it S

core

and

Ran

k

The

follo

win

g ta

ble

illus

trate

s N

atio

nal G

rid’s

com

petit

ive

posi

tioni

ng re

lativ

e to

thei

r pee

r gr

oup

in te

rms

of v

acat

ion

and

holid

ay p

rogr

ams

In te

rms

of T

otal

Val

ue a

nd E

mpl

oyer

Val

ue, N

atio

nal G

rid’s

ove

rall

desi

gns

are

mor

e ge

nero

us th

an th

e av

erag

e

Vaca

tion

and

Holid

ay S

core

and

Ran

k

Scor

eRa

nk/2

2Em

ploy

er V

alue

Lega

cy N

atio

nal G

rid10

5.4

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cy K

eysp

an10

5.4

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l Val

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gacy

Nat

iona

l Grid

105.

4

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cy K

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_ (M

PH-5

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9 of

44


122

©20

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s P

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and

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n an

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olid

ay B

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its

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pari

son

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follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

and

Key

span

’s p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

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s

Ove

rall

vaca

tion

days

per

yea

r of s

ervi

ce a

re in

-line

/slig

htly

mor

e ge

nero

us th

an th

e co

mpe

titor

ave

rage

Nat

iona

l Grid

pol

icie

s on

vac

atio

n ca

rryov

er, b

uyin

g an

d se

lling

are

mor

e ge

nero

us th

an

com

petit

or c

ompa

nies

Vaca

tion

and

Holid

ay P

ract

ices

Nat

iona

l Gri

d R

ange

Ave

rage

Mod

e Am

ount

of V

acat

ion

(day

s)Y

ears

of S

ervic

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to 1

50-

179.

47U

p to

10

115

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129.

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23

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para

tor G

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bit _

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ge 4

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123

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As

note

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this

doc

umen

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ere

are

som

e be

nefit

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visi

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are

mor

e ge

nero

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an th

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at a

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ntire

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th

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for 1

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mm

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New

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opul

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at a

pply

to n

ewly

hire

d em

ploy

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efit

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ram

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on a

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valu

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empl

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aver

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n a

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asis

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Thro

ugho

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“Tot

al V

alue

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of t

he b

enef

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ms

incl

udin

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e va

lue

of e

mpl

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pro

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Exhi

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_ (M

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4©

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8©

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9©

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of p

ay

1 co

mpa

ny h

as n

o m

atch

1 co

mpa

ny v

arie

s its

mat

ch b

ased

on

age

5 co

mpa

nies

hav

e st

ock

purc

hase

pla

ns (J

, K, I

, D, a

nd E

)

Nat

iona

l Grid

New

Yor

k Un

ion

Defin

ed B

enef

it Pl

an

Bas

ic F

orm

ula

4%-8

% p

ay c

redi

ts b

ased

on

serv

ice

Pla

n Ty

peC

ash

Bal

ance

Ear

ly R

etire

men

t Sub

sidy

NA

Lum

p S

umY

es, a

t any

age

Oth

erTh

ree

Tier

ed R

ate

Defin

ed C

ontri

butio

n Pl

anE

mpl

oyer

Mat

ch50

% o

n up

to 6

%P

rofit

Sha

ring

NA

Oth

er6%

aut

o en

roll,

100

% im

med

iate

ve

stin

gS

PP

Yes

Key

Plan

Des

ign

Feat

ures

- D

efin

ed B

enef

it an

d De

fined

Con

tribu

tion

Plan

s

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

0 of

47


138

10©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Def

ined

Ben

efit

■A

ll bu

t tw

o co

mpe

titor

uni

ons

prov

ide

a de

fined

ben

efit

plan

as

part

of it

s re

tirem

ent p

rogr

am; n

one

of th

e pl

ans

requ

ire a

ny e

mpl

oyee

con

tribu

tion

■Th

e pl

ans

vary

in d

esig

n −

four

offe

r a tr

aditi

onal

fina

l pay

and

five

offe

r a h

ybrid

acc

ount

-bas

ed d

esig

n (c

ash

bala

nce

or p

ensi

on e

quity

); on

ly o

ne u

nion

pro

vide

s a

flatd

olla

r (no

n-pa

y re

late

d) d

esig

n■

Nat

iona

l Grid

’s N

ew Y

ork

Uni

on p

lan

is ra

nked

at t

he c

ompe

titor

gro

up a

vera

ge

DL

CM

FJ

HA

NB

EG

IK

DL

CM

FJ

HA

NB

EG

IK

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

1 of

47


139

11©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Def

ined

Con

trib

utio

n: I

nclu

ding

Sto

ck P

urch

ase

Pla

n

■A

ll of

the

com

petit

or re

tirem

ent p

rogr

ams

incl

ude

a de

fined

con

tribu

tion

plan

; mos

t inc

lude

onl

y an

em

ploy

er s

avin

gs p

lan

mat

chin

g co

ntrib

utio

n, b

ut a

few

als

o pr

ovid

e a

com

pany

aut

omat

ic o

r pro

fit s

harin

g el

emen

t in

the

savi

ngs

plan

■Th

e tw

o hi

ghes

t com

pani

es (N

and

I) in

clud

e a

prof

it sh

arin

g el

emen

t and

gen

erou

s em

ploy

er m

atch

ing

cont

ribut

ions

■Fi

ve o

f the

com

petit

or p

rogr

ams

also

incl

ude

a se

para

te s

tock

pur

chas

e pl

an w

ith a

sm

all p

urch

ase

disc

ount

■Th

e N

ew Y

ork

Uni

on p

lan

prov

ides

a lo

wer

em

ploy

er m

atch

ing

cont

ribut

ion

(50%

on

6% o

r max

. of 3

% e

mpl

oyer

) whi

ch

plac

es it

bel

ow th

e co

mpe

titor

gro

up a

vera

ge■

Like

Nat

iona

l Grid

’s s

avin

gs p

lans

, six

of t

he c

ompa

nies

pro

vide

for i

mm

edia

te v

estin

g of

em

ploy

er c

ontri

butio

ns; s

ix p

rovi

de

for a

uto-

enro

llmen

tNI

EJ

BL

AK

GM

DF

HC

IN

EL

FD

CJ

GA

MB

HK

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

2 of

47


140

12©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Def

ined

Ben

efit

and

Def

ined

Con

trib

utio

n: I

nclu

ding

Sto

ck P

urch

ase

Pla

n

■A

ll bu

t tw

o of

the

com

petit

or u

nion

retir

emen

t pro

gram

s in

clud

e bo

th a

def

ined

ben

efit

and

defin

ed

cont

ribut

ion

com

pone

nt, s

imila

r to

the

desi

gn o

f Nat

iona

l Grid

’s u

nion

pro

gram

s

LD

FH

JK

AI

EG

BC

MN

DF

KH

LE

NJ

GA

BI

MC

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

3 of

47


141

13©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Def

ined

Ben

efit

and

Def

ined

Con

trib

utio

n: E

xclu

ding

Sto

ck P

urch

ase

Pla

n

■N

atio

nal G

rid’s

NY

Uni

on’s

DB

and

DC

val

ue d

rops

to b

elow

ave

rage

whe

n th

e st

ock

purc

hase

plan

is e

xclu

ded

L

F

C

D

J

K

N

I

A

G

B

M

E

H

F

L

C

J

K

DN

A

I

B

M

G

E

H

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

4 of

47


142

14©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Pos

t-re

tire

men

t M

edic

al S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

rela

tive

to th

eir p

eer g

roup

in te

rms

of p

ost-r

etire

men

t med

ical

Pos

t-Ret

irem

ent M

edic

al S

core

and

Ran

k

Sco

reR

ank/

15Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

40.0

12/1

5

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

62.2

13/1

5

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

5 of

47


143

15©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Pos

t-re

tire

men

t M

edic

al C

ompa

riso

n

Key

Pla

n De

sign

Fea

ture

s - P

ost-r

etire

men

t Med

ical

Nat

iona

l Grid

New

Yor

k Un

ion

Pre

-65

Type

of P

lan

PO

SP

lan

Des

ign

Sam

e as

act

iveP

artic

ipat

ion

Req

uire

men

tsA

ge 6

1 &

10

YO

S o

r Age

60

and

&

Age

+Ser

vice

= 85

Def

ined

Dol

lar B

enef

itN

one

Pos

t-65

Type

of P

lan

Med

icar

e S

uppl

emen

tP

artic

ipat

ion

Req

uire

men

tsA

ge+s

ervic

e =

85 o

r 10

YO

SP

lan

Des

ign

Sam

e as

act

iveD

educ

tible

Per

son:

$10

0; F

amily

Max

: non

eO

ut-o

f-poc

ket m

axim

umP

erso

n: n

one;

Fam

ily M

ax: n

one

Pre

scrip

tion

Dru

gs (r

etai

l)G

ener

ic10

0%B

rand

80%

Coo

rdin

atio

n w

ith M

edic

are

Med

icar

e P

art '

A'

100%

of P

art '

A' d

educ

tible

, 100

% o

f Par

t 'A

' co

-pay

bef

ore

dedu

ctib

leM

edic

are

Par

t 'B

'10

0% o

f Par

t 'B

' ded

uctib

le, 1

00%

of P

art '

B'

coin

sura

nce

befo

re d

educ

tible

Med

icar

e P

art '

B' P

rem

ium

Non

eD

efin

ed d

olla

r Ben

efit

Ret

iree:

$54

x s

ervic

e; R

etire

e +

Spo

use:

$1

08 x

ser

vice

The

follo

win

g ta

ble

outli

nes

Nat

iona

l Grid

’s N

ew Y

ork

Uni

on’s

pla

n de

sign

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

6 of

47


144

16©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Pos

t-re

tire

men

t M

edic

al

■Th

e N

atio

nal G

rid N

ew Y

ork

Uni

on p

ost-r

etire

men

t med

ical

pla

n is

rank

ed s

igni

fican

tly b

elow

av

erag

e. T

his

is th

e re

sult

of th

e re

cent

cha

nges

in th

e re

tiree

med

ical

pro

gram

suc

h as

: ■

Pre

-Med

icar

e el

igib

ility

lim

ited

to a

ge 6

1 &

10

YO

S o

r age

60

and

& a

ge+s

ervi

ce =

85

■P

ost-6

5 el

igib

ility

lim

ited

to a

ge+s

ervi

ce =

85

or 1

0 Y

OS

■M

edic

are

supp

lem

ent d

esig

n fo

r pos

t-65

cove

rage

■C

aps

on e

mpl

oyer

con

tribu

tion

FD

BE

JG

HL

AN

IK

MC

DF

CA

IL

MH

GB

JN

KE

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

7 of

47


145

17©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Pos

t-re

tire

men

t D

eath

Sco

re a

nd R

ank

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

re

lativ

e to

thei

r pee

r gro

up in

term

s of

pos

t-ret

irem

ent d

eath

Sin

ce a

ll co

vera

ge e

nds

at re

tirem

ent,

ther

e is

no

valu

e at

tribu

ted

to th

is b

enef

it

Four

oth

er c

ompa

nies

in th

e co

mpa

rato

r gro

up d

o no

t offe

r thi

s be

nefit

Pos

t-Ret

irem

ent D

eath

Sco

re a

nd R

ank

Scor

eRa

nk/1

5

Empl

oyer

Val

ueN

atio

nal G

rid N

ew Y

ork

Uni

on0.

0tie

d fo

r las

t

Tota

l Val

ueN

atio

nal G

rid N

ew Y

ork

Uni

on0.

0tie

d fo

r las

t

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

8 of

47


146

18©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Pos

t-re

tire

men

t D

eath

■L

and

F, w

hich

are

rank

ed fi

rst a

nd s

econ

d re

spec

tivel

y, o

ffer a

deat

h be

nefit

that

onl

y gr

adua

lly re

duce

s af

ter r

etire

men

t, un

til th

e be

nefit

reac

hes

a m

axim

um o

f 25%

of t

he

pre-

retir

emen

t dea

th b

enef

it

LF

AN

JK

IG

MC

DB

HE

LF

AN

GB

KJ

MD

CI

HE

Exhi

bit _

_ (M

PH-6

) Pa

ge 1

9 of

47


147

19©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Ret

irem

ent

Eve

nt S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

re

lativ

e to

thei

r pee

r gro

up in

term

s of

tota

l ret

irem

ent e

vent

s

Ret

irem

ent E

vent

Sco

re a

nd R

ank

Scor

eRa

nk/1

5Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

77.7

11/1

5

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

100.

38/

15

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

0 of

47


148

20©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Ret

irem

ent

Eve

nt

■Th

e R

etire

men

t Eve

nt c

ompa

rison

pro

vide

s an

ass

essm

ent o

f all

ofth

e be

nefit

s av

aila

ble

upon

re

tirem

ent (

defin

ed b

enef

it/de

fined

con

tribu

tion

bene

fits

and

post

-retir

emen

t med

ical

/dea

th b

enef

its)

■B

ased

on

tota

l val

ue, t

he N

atio

nal G

rid N

ew Y

ork

Uni

on p

rogr

am is

at t

he c

ompe

titor

gro

up a

vera

ge

FD

LE

JK

IN

HG

AC

MB

DF

CA

LN

JB

HK

MI

GE

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

1 of

47


149

Act

ive

Ben

efit

s

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

2 of

47


150

22©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Act

ive

Med

ical

Pla

n D

eliv

ery

Mod

els

All

com

pani

es, e

xcep

t A, C

, and

E o

ffer t

heir

empl

oyee

s a

choi

ceof

pla

n ty

pe

Mos

t com

pani

es th

at o

ffer p

lans

with

an

in-n

etw

ork

and

out-o

f-net

wor

k fe

atur

e of

fer a

PP

O

rath

er th

an a

PO

S p

lan

Eig

ht c

ompa

nies

hav

e a

PP

O p

lan

as th

eir h

ighe

st e

nrol

led

plan

—

One

com

petit

or c

ompa

ny h

as a

PO

S p

lan

as th

eir h

ighe

st e

nrol

led

plan

—Fi

ve c

ompe

titor

com

pani

es h

ave

an H

MO

pla

n as

thei

r hig

hest

enr

olle

d pl

an

J an

d K

are

the

only

com

pani

es to

offe

r the

ir em

ploy

ees

a co

nsum

er d

riven

hea

lth p

lan

For p

urpo

ses

of th

e B

EN

VA

L, w

e ev

alua

ted

only

the

optio

n w

ith h

ighe

st e

nrol

lmen

t

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

3 of

47


151

23©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Act

ive

Med

ical

Ben

efit

Sco

re a

nd R

ank

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

rela

tive

to th

eir p

eer g

roup

in te

rms

of a

ctiv

e m

edic

al p

rogr

ams

Nat

iona

l Grid

’s N

ew Y

ork

Uni

on is

rank

ed 5

thin

term

s of

em

ploy

er a

nd to

tal v

alue

Activ

e M

edic

al S

core

and

Ran

k

Scor

eRa

nk/1

5Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

105.

45/

15

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

103.

95/

15

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

4 of

47


152

24©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

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e To

wer

s P

errin

and

its

clie

nts

Act

ive

Med

ical

Ben

efit

s C

ompa

riso

n

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

sign

s

Key

Plan

Des

ign

Feat

ures

- M

edic

al

Nat

iona

l Grid

New

Yor

k Un

ion

Rang

eAv

erag

eM

ode

In-n

etw

ork

Ded

uctib

leN

one

Per

Em

ploy

ee: $

0-$3

00, F

amily

M

ax: $

0-$6

00P

er E

mpl

oyee

: $92

.86,

Fam

ily

Max

: $14

2.86

Non

e

Coi

nsur

ance

100%

80%

-- 1

00%

98%

100%

Out

-of-p

ocke

t max

imum

Non

eP

er E

mpl

oyee

: $0-

$150

0, F

amily

M

ax: $

0-$3

000

Per

son:

$90

8, F

amily

Max

: $1

,817

(am

ongs

t pla

ns th

at h

ave

an O

OP

max

)

Non

e

Inpa

tient

hos

pita

l10

0%80

% --

100

%N

/A10

0%E

mer

genc

y ro

om10

0%, $

35 c

o-pa

y/vis

it (w

aive

d if

adm

itted

)90

% --

100

%99

%, $

36 c

o-pa

y10

0%, $

50 c

o-pa

y/vis

it (w

aive

d if

adm

itted

)O

ffice

vis

itsP

rimar

y: 1

00%

, $10

co-

pay;

S

peci

alis

t: 10

0%, $

15 c

o-pa

y10

0% $

10 c

o-pa

y/vis

it --

100%

$2

5 co

-pay

/vis

it10

0%, $

16 c

o-pa

y10

0%, $

10 c

o-pa

y

Pre

scrip

tion

drug

s (R

etai

l)G

ener

ic80

%, $

5 m

in, $

15 m

ax80

% --

100

%, $

5 co

-pay

97%

, $7

co-p

ay10

0%, $

5 co

-pay

Bra

nd80

%, $

5 m

in, $

15 m

axFo

rm: 7

5%, $

15 m

in, $

25 m

ax

co-p

ay --

100

% $

10 c

o-pa

y; N

on

Form

: 50

-- 1

00%

, $25

co-

pay

Form

: 95%

, $18

.50

co-p

ay; N

on-

Form

: 81

%, $

32 c

o-pa

yFo

rm: 1

00%

, $20

co-

pay;

Non

-Fo

rm: 1

00%

, $50

co-

pay

Out

patie

nt m

enta

l hea

lth10

0%, $

10 c

opay

per

vis

it50

%, 5

0 vis

its/y

ear -

- 100

%, $

15

co-p

ay/v

isit

(no

limit)

89%

, $15

.50

co-p

ay/v

isit,

34

visits

/yea

r10

0%, n

o m

ode

for v

isits

Out

-of-n

etw

ork

Ded

uctib

leP

erso

n: $

250,

Fam

ily M

ax: $

500

No

OO

N c

over

age

-- P

erso

n:

$150

, Fam

ily M

ax: $

300

Per

son:

$39

2, F

amily

Max

: $92

5N

o O

ON

cov

erag

e (a

mon

gst a

ll pl

ans)

Coi

nsur

ance

80%

No

OO

N c

over

age

-- 80

%76

% (a

mon

gst p

lans

with

an

OO

N o

ptio

n)80

%

Out

-of-p

ocke

t max

imum

Per

son:

$1,

250,

Fam

ily M

ax: $

2,50

0 (in

clud

es d

educ

tible

)N

o O

ON

cov

erag

e --

Per

son:

$1

,500

, Fam

ily M

ax: $

3,00

0 (in

clud

es d

educ

tible

)

Per

son:

$2,

411,

Fam

ily M

ax:

$5,3

44N

o O

ON

cov

erag

e

Mon

thly

Em

ploy

ee C

ontri

butio

nsE

mpl

oyee

onl

y$8

1.81

$4

6.19

-- $

133.

69$9

1.35

N

/AFa

mily

$233

.17

$86.

67 --

$47

0$2

42.4

9 N

/A

Com

para

tor G

roup

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

5 of

47


153

25©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Act

ive

Med

ical

Ben

efit

s

The

New

Yor

k U

nion

falls

in li

ne w

ith th

e co

mpe

titor

gro

up fo

r pro

visi

ons

such

as

dedu

ctib

les

(non

e), c

oins

uran

ce (1

00%

), O

OP

(non

e), a

nd in

patie

nt h

ospi

tal (

100%

), th

ere

are

diffe

renc

es

whe

n it

com

es to

the

othe

r ben

efits

The

New

Yor

k U

nion

is ra

nked

slig

htly

hig

her t

han

othe

r com

petit

or c

ompa

nies

bec

ause

thei

r of

fice

visi

t cop

ay o

f $10

($15

spe

cial

ist)

is lo

wer

than

the

aver

age

of $

16

Add

ition

ally

, the

pre

scrip

tion

drug

ben

efit

(80%

with

a m

inim

um o

f $5

and

max

imum

of $

15

rega

rdle

ss o

f dru

g tie

r) is

rich

er th

an th

e co

mpe

titor

mod

e of

a$2

0 co

pay

for b

rand

form

ular

y dr

ugs

and

a $5

0 co

pay

for b

rand

non

-form

ular

y dr

ugs

The

outp

atie

nt m

enta

l hea

lth b

enef

it is

als

o m

uch

riche

r tha

n th

e co

mpe

titor

gro

up’s

out

patie

nt

men

tal h

ealth

ben

efit −

100%

with

a $

10 c

opay

/vis

it w

ith n

o nu

mbe

r of v

isit

limita

tions

,as

com

pare

d to

the

com

petit

ors’

aver

age

bene

fit o

f 89%

cov

erag

e w

ith a

$15

.50

copa

y fo

r a

max

imum

of 3

4 vi

sits

per

yea

rA

lthou

gh th

e N

ew Y

ork

Uni

on’s

lack

of v

isit

limits

for m

enta

l hea

lth b

enef

its is

gen

erou

s, w

e ex

pect

it to

be

in li

ne w

ith th

e av

erag

e as

oth

er u

nion

pla

ns m

ove

to c

ompl

y w

ith th

e re

cent

ly

pass

ed M

enta

l Hea

lth P

arity

law

effe

ctiv

e in

201

0

Of t

he c

ompe

titor

com

pani

es th

at o

ffer a

n ou

t-of-n

etw

ork

bene

fit, t

he N

ew Y

ork

Uni

on p

lan

is

com

para

tivel

y ric

her i

n te

rms

of d

educ

tible

s an

d ou

t-of-p

ocke

t max

imum

s

Con

tinue

d…

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

6 of

47


154

26©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Act

ive

Med

ical

Ben

efit

s

The

bar c

hart

abov

e fu

rther

illu

stra

tes

how

Nat

iona

l Grid

’s N

ew Y

ork

Uni

on’s

pla

n co

mpa

re to

thei

r pee

rs b

oth

in te

rms

of g

ross

ben

efit

valu

e of

med

ical

pla

ns, a

s w

ell a

s em

ploy

er-p

rovi

ded

valu

e (i.

e., n

et o

f em

ploy

ee c

ontri

butio

ns)

LF

IB

EK

DN

MJ

AG

CH

KL

JB

HI

GD

EN

CA

MF

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

7 of

47


155

27©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Den

tal B

enef

it S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

rela

tive

to th

eir p

eer g

roup

in te

rms

of a

ctiv

e de

ntal

pro

gram

s

In te

rms

of b

oth

Em

ploy

er V

alue

and

Tot

al V

alue

, the

New

Yor

k U

nion

is a

bove

ave

rage

Den

tal S

core

and

Ran

k

Scor

eRa

nk/1

5Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

107.

36/

15

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

103.

46/

15

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

8 of

47


156

28©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Den

tal B

enef

its

Com

pari

son

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

sign

s

Dent

al B

enef

it

Nat

iona

l Grid

New

Yo

rk U

nion

Ra

nge

Aver

age

Mod

eAn

nual

Ded

uctib

le*

Per

son:

$50

, Fam

ily

Max

: Non

eP

erso

n: $

0-$1

25;

Fam

ily M

ax: N

one-

$150

Per

son:

$45

; Fam

ily

Max

: $11

8P

erso

n: $

50; F

amily

M

ax: $

150

Annu

al M

axim

umP

reve

ntive

& B

asic

: $1

,500

/per

son,

Maj

or:

$2,0

00/p

erso

n (e

xclu

des

orth

odon

tia)

$1,0

00/p

erso

n --

$2,5

00/p

erso

n (e

xclu

des

orth

odon

tia)

$1,6

14 (e

xclu

des

orth

odon

tia)

$1,5

00 (e

xclu

des

orth

odon

tia)

Clea

ning

100%

, 2 c

lean

ings

/yea

r75

% --

100

% (4

2 cl

eani

ngs/

year

)97

%, 2

cle

anin

gs/y

ear

100%

, 2 c

lean

ings

/yea

r

Non-

Gol

d Fi

lling

80%

60%

- 80

%76

%80

%Cr

owns

60%

50%

eve

ry 8

yea

rs --

70

%55

%, e

very

3.6

yea

rs50

%, e

very

5 y

ears

Orth

odon

tia C

over

age

100%

Not

cov

ered

-- 1

00%

63%

(am

ongs

t pla

ns

that

incl

ude

orth

o.

cove

rage

)

50%

Orth

odon

tia M

axim

um$1

,800

per

life

time

$750

-- $

2,50

0$1

,779

$2

,000

M

onth

ly E

mpl

oyee

Con

tribu

tions

Em

ploy

ee$7

.48

$0 --

$17

.33

$7.2

1N

/AFa

mily

$20.

32

$0 --

$55

.40

$18.

35N

/A

Out

of N

etw

ork

Ded

uctib

leN

/AP

erso

n: $

25 --

$250

, Fa

mily

Max

: $50

--

$450

Per

son:

$95

, Fam

ily

Max

: $27

5N

o O

ON

cov

erag

e

Ann

ual M

axim

umN

/A$1

,000

-- $

2,00

0 (e

xclu

des

orth

odon

tia)

$1,6

00

$1,5

00

* Fo

r pur

pose

s of

cal

cula

ting

aver

ages

, we

assu

med

3X

for f

amily

max

imum

if th

ere

is n

o lim

it

Com

para

tor G

roup

Exhi

bit _

_ (M

PH-6

) Pa

ge 2

9 of

47


157

29©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Den

tal B

enef

its

The

com

petit

ive

posi

tioni

ng fo

r New

Yor

k U

nion

’s d

enta

l pla

n as

com

pare

d to

the

com

petit

or

grou

p is

larg

ely

driv

en b

y th

eir a

vera

ge to

bet

ter-t

han-

aver

age

plan

pro

visi

ons

The

New

Yor

k U

nion

den

tal p

lan

falls

in li

ne w

ith th

e co

mpe

titor

grou

p’s

aver

age

and

mea

n fo

r pro

visi

ons

such

as

the

$50

empl

oyee

ded

uctib

le, 1

00%

pre

vent

ive

cove

rage

, and

80%

ba

sic

serv

ices

cov

erag

eTh

e N

ew Y

ork

Uni

on p

lan

offe

rs a

sep

arat

e an

nual

max

imum

of $

2,00

0 fo

r maj

or s

ervi

ces,

an

d $1

,500

for p

reve

ntiv

e an

d ba

sic

serv

ices

, whi

ch n

o ot

her c

ompa

ny o

ffers

; all

othe

r uni

on

bene

fit p

rogr

ams

have

a s

ingl

e ca

lend

ar y

ear m

axim

um fo

r all

serv

ices

(exc

ludi

ng

orth

odon

tia)

Add

ition

ally

, the

New

Yor

k U

nion

pla

n co

vers

maj

or s

ervi

ces

at 6

0%, w

hile

the

maj

ority

of

com

petit

or c

ompa

nies

cov

er th

ese

serv

ices

at 5

0%Th

e pl

an c

over

s or

thod

ontia

at 1

00%

, and

onl

y th

ree

othe

r com

petit

or c

ompa

nies

(J, K

, and

H

) als

o co

ver o

rthod

ontia

at 1

00%

; the

maj

ority

of c

ompa

nies

that

cov

er o

rthod

ontia

cov

er

the

bene

fit a

t 50%

—Al

thou

gh th

e 10

0% o

rthod

ontia

ben

efit

appe

ars

mor

e ge

nero

us, t

helif

etim

e or

thod

ontia

m

axim

um d

rives

val

ue s

ince

alm

ost a

ll m

embe

rs re

ceiv

ing

orth

odon

tia s

ervi

ces

will

reac

h th

e m

axim

um; t

he N

ew Y

ork

Uni

on’s

orth

odon

tia m

axim

um is

$1,

800,

as

com

pare

d to

the

com

petit

or g

roup

’s a

vera

ge o

f $2,

000

Con

tinue

d…

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

0 of

47


158

30©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Den

tal B

enef

its

F’s

posi

tioni

ng is

driv

en b

y its

hig

h ($

2,50

0) li

fetim

e or

thod

ontia

max

imum

G’s

pla

n ha

s no

ded

uctib

le, g

ener

ous

(85%

) bas

ic c

over

age

and

low

em

ploy

ee c

ontri

butio

ns

FG

LN

CH

AJ

IM

BK

DE

FG

KB

DE

LA

CN

IJ

MH

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

1 of

47


159

31©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Life

Ins

uran

ce/A

D&

D B

enef

it S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

re

lativ

e to

thei

r pee

r gro

up in

term

s of

life

insu

ranc

e an

d A

D&

Dpr

ogra

ms

The

Nat

iona

l Grid

New

Yor

k U

nion

life

Insu

ranc

e/A

D&

D p

lan

is c

ompe

titiv

e as

com

pare

d to

pe

ers,

and

sco

res

wel

l abo

ve th

e av

erag

e pl

an

Life

Insu

ranc

e/AD

&D -

Activ

e Sc

ore

and

Rank

Scor

eRa

nk/1

5Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

174.

33/

15

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

134.

54/

15

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

2 of

47


160

32©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Life

Ins

uran

ce/A

D&

D C

ompa

riso

n

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

sign

s

Life

Insu

ranc

e/A

D&

D B

enef

it

Nat

iona

l Gri

d N

ew

York

Uni

on R

ange

A

vera

ge

Mod

eB

asic

2.5

x pa

y$5

,000

-- 2

x p

ay; i

f ag

e+se

rvic

e=85

: 4 x

pay

N/A

1 x

pay

Max

imum

$6

25,0

00

$5,0

00 --

No

Max

$495

,000

$1

,000

,000

S

uppl

emen

tal

Em

ploy

ee o

ptio

n1

to 5

x p

ay in

mul

tiple

s of

1 x

pay

Non

e --

$10,

000

to

$2,0

00,0

00 in

mul

tiple

s of

$1

0,00

0 (M

ax: 5

x p

ay)

N/A

1 to

5 x

pay

in m

ultip

les

of 1

x p

ay

Max

imum

$1

,000

,000

N

one

-- C

ombi

ned

with

Bas

ic

Life

: $1,

600,

000

N/A

Com

bine

d w

ith B

asic

Li

fe: $

1,60

0,00

0D

epen

dent

Spo

use

Non

e --

$10,

000

to $

100,

000

in m

ultip

les

of $

10,0

00N

/A$2

5,00

0 or

$50

,000

or

$100

,000

Opt

ion

I: $2

5,00

0 O

ptio

n II:

$5

0,00

0 C

hild

ren:

Non

e --

$10,

000

or $

15,0

00

or $

30,0

00N

/A$5

,000

or $

10,0

00

Opt

ion

I: $2

,500

O

ptio

n II:

$4,0

00

Opt

ion

III:

$10,

000

Acc

iden

tal D

eath

-Act

ive

Par

ticip

atio

n R

equi

rem

ents

Non

e6

mon

ths

of s

ervic

e --

Non

eN

/AN

one

Mon

thly

Em

ploy

ee C

ontri

butio

nsN

one

Non

eN

one

Non

eA

ccid

enta

l Dea

th B

enef

it A

mou

nt1

x pa

y +

$5,0

00; M

ax:

$25,

000

No

plan

-- 3

x p

ay, M

ax:

$500

,000

1.66

x p

ay,

Max

: $37

8,00

01

x pa

y

Com

para

tor

Gro

up

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

3 of

47


161

33©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Life

Ins

uran

ce/A

D&

D B

enef

its

The

key

fact

or d

rivin

g N

atio

nal G

rid’s

New

Yor

k U

nion

life

insu

ranc

e an

d A

D&

D p

rogr

ams

to b

e ric

her t

han

som

e of

its

com

petit

ors

(rank

ed 3

rd) i

s th

e hi

gh b

asic

life

am

ount

: 2.5

x pa

y as

co

mpa

red

to th

e av

erag

e/m

ode

of 1

x pa

y fo

r the

com

petit

or g

roup

Onl

y F,

J, K

and

L o

ffer b

asic

life

at 2

x pa

y

The

New

Yor

k U

nion

’s b

enef

it m

axim

um is

$62

5,00

0, w

hich

is g

reat

er th

an th

e co

mpe

titor

gro

up

aver

age

of $

495,

000,

thou

gh lo

wer

than

the

com

petit

or g

roup

mod

eof

$1,

000,

000

Nat

iona

l Grid

’s N

ew Y

ork

Uni

on’s

sup

plem

enta

l life

ben

efit

com

pare

s w

ell w

ith th

eir c

ompe

titor

san

d of

fers

a s

epar

ate

bene

fit m

axim

um o

f $1,

000,

000

for t

hese

ben

efits

, whe

reas

the

maj

ority

of

thei

r com

petit

ors

offe

r a c

ombi

ned

basi

c an

d su

pple

men

tal b

enef

it m

axim

um o

f $1,

500,

000

The

New

Yor

k U

nion

offe

rs c

ompe

titiv

e de

pend

ent l

ife b

enef

its, a

lthou

gh th

e m

ajor

ity o

f co

mpe

titor

com

pani

es o

ffer a

n ad

ditio

nal s

pous

e be

nefit

opt

ion

of $

100,

000,

whe

reas

the

Nat

iona

l Grid

Uni

ons

only

offe

r a m

axim

um $

50,0

00 b

enef

it op

tion

The

New

Yor

k U

nion

offe

rs th

ree

child

life

opt

ions

: $2,

500,

$4,

000,

and

$10

,000

, whe

reas

the

maj

ority

of t

he c

ompe

titor

com

pani

es o

nly

offe

r a $

5,00

0 an

d $1

0,00

0 op

tion

The

AD

&D

ben

efit

is b

elow

the

com

petit

or c

ompa

nies

−th

e A

D&

D a

mou

nt is

1x

pay

plus

$5,

000

to a

max

imum

of $

25,0

00, v

ersu

s a

com

petit

or g

roup

ave

rage

of 1

xpa

y to

a m

axim

um o

f $3

78,0

00

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

4 of

47


162

34©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Life

Ins

uran

ce a

nd A

D&

D B

enef

it

L an

d J

rank

hig

her t

han

the

New

Yor

k U

nion

due

to m

ore

gene

rous

spou

se a

nd d

epen

dent

life

an

d A

D&

D b

enef

its

LJ

BG

EF

NM

IA

DK

CH

LJ

FC

IB

HA

EN

DK

GM

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

5 of

47


163

35©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

rela

tive

to th

eir p

eer g

roup

in te

rms

of S

TD p

rogr

ams

In te

rms

of b

oth

Em

ploy

er V

alue

and

Tot

al V

alue

, the

New

Yor

k U

nion

des

ign

is s

light

ly

abov

e av

erag

e Sho

rt T

erm

Dis

abili

ty S

core

and

Ran

k

Sco

reR

ank/

15Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

103.

88/

15

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

103.

88/

15

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

6 of

47


164

36©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty C

ompa

riso

n

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

New

Yor

k U

nion

pla

n de

sign

s re

lativ

e to

thei

r pee

r gr

oup

plan

des

igns

The

New

Yor

k U

nion

’s s

ick

pay

bene

fit is

less

rich

than

thos

e of

the

com

petit

or g

roup

at e

arlie

r ye

ars

of s

ervi

ce a

nd m

ore

gene

rous

at l

ater

yea

rs o

f ser

vice

The

sala

ry c

ontin

uanc

e be

nefit

is p

rovi

ded

at 6

0% o

f pay

for t

heba

lanc

e of

26

wee

ks a

s co

mbi

ned

with

the

sick

pay

ben

efit,

whi

ch is

less

gen

erou

s th

an m

ost o

f the

oth

er c

ompe

titor

co

mpa

nies

: 80%

to 1

00%

of p

ay fo

r a ra

nge

of w

eeks

at y

ears

of s

ervi

ce b

ands

Shor

t Ter

m D

isab

ility

Nat

iona

l Gri

d N

ew

York

Uni

on

Rang

eAv

erag

eM

ode

Sic

k P

ay1s

t Day

of D

isab

ility

If ill

ness

, 7th

cal

enda

r da

y of

dis

abili

ty; i

f ac

cide

nt, 1

st d

ay o

f di

sabi

lity

-- 1s

t day

of

disa

bilit

y

N/A

1st d

ay o

f dis

abili

ty

Sala

ry C

ontin

uanc

eE

nd o

f Sic

k P

ayLa

ter o

f 8th

wor

king

day

of

dis

abili

ty o

r end

of

Sic

k P

ay --

End

of S

ick

Pay

N/A

End

of S

ick

Pay

Bene

fit A

mou

ntS

ick

Pay

Yea

rs o

f Ser

vice

Wee

ks a

t 100

%

Wee

ks a

t 100

%

Wee

ks a

t 100

%

Wee

ks a

t 100

%1

12-

42

15

52-

107

510

102-

2011

1515

152-

3015

1520

202-

4020

2325

252-

5025

2630

302-

6029

3035

352-

6031

32

Sala

ry C

ontin

uanc

e60

% o

f pay

; Les

s P

rimar

y S

ocia

l Sec

urity

; Le

ss D

epen

dent

Soc

ial

Sec

urity

; Pay

able

for

bala

nce

of 2

6 w

eeks

per

ye

ar

No

sala

ry c

ontin

uanc

e --

100%

of p

ay, l

ess

Prim

ary

Soc

ial S

ecur

ity,

paya

ble

for 5

2 w

eeks

per

di

sabi

lity

N/A

YO

S S

ched

ule

Yea

rs o

f Ser

vice

Wee

ks a

t 60%

126

526

1026

1526

2026

2526

3026

3526

Com

para

tor G

roup

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

7 of

47


165

37©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Sho

rt T

erm

Dis

abili

ty

Ove

rall,

ther

e is

littl

e di

ffere

ntia

tion

in th

e de

sign

of S

TD p

lans

and

ther

efor

e th

e va

lue

does

not

var

y w

idel

y

The

outli

er in

the

grou

p is

E, w

hich

onl

y ha

s a

defin

ed d

olla

r ben

efit

paya

ble

for 2

6 w

eeks

per

dis

abili

ty

JM

BE

DN

FG

LI

AK

CH

JM

BE

DN

FG

LI

AK

CH

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

8 of

47


166

38©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Long

Ter

m D

isab

ility

Ben

efit

Sco

re a

nd R

ank

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

re

lativ

e to

thei

r pee

r gro

up in

term

s of

LTD

pro

gram

s

The

New

Yor

k U

nion

doe

s no

t offe

r the

ir em

ploy

ees

an L

TD p

lan,

so

they

are

tied

for l

ast

plac

e un

der t

he T

otal

Val

ue w

ith th

ree

othe

r com

petit

or c

ompa

nies

(C, E

, and

G) t

hat a

lso

do n

ot o

ffer L

TD p

lans

Long

Ter

m D

isab

ility

Sco

re a

nd R

ank

Scor

eRa

nk/1

5Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

0.0

tied

for l

ast

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

0.0

tied

for l

ast

Exhi

bit _

_ (M

PH-6

) Pa

ge 3

9 of

47


167

39©

2009

Tow

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Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Long

Ter

m D

isab

ility

Com

pari

son

The

follo

win

g ta

ble

outli

nes

Nat

iona

l Grid

’s N

ew Y

ork

Uni

on p

lan

desi

gn re

lativ

e to

thei

r pe

er g

roup

pla

n de

sign

s Nat

iona

l Gri

d Ne

w

York

Uni

on\

Rang

eAv

erag

eM

ode

Com

men

cem

ent

No

LTD

Pla

n --

Afte

r ex

haus

tion

of S

TD

bene

fits

N/A

Afte

r 6 m

onth

s of

di

sabi

lity

Dur

atio

nM

enta

l H

ealth

/Che

mic

al

Dep

ende

ncy

No

LTD

Pla

n --

to a

ge

65N

/AFo

r 24

mon

ths

Am

ount

Max

imum

Fro

m a

ll S

ourc

esN

o LT

D P

lan

-- $1

4,58

3/m

onth

$7,5

65/m

onth

$10,

000/

mon

th

Long

Ter

m D

isab

ility

Com

pany

doe

s no

t pr

ovid

e an

LTD

pla

n.

Dis

able

d em

ploy

ees

who

mee

t elig

ibili

ty

requ

irem

ents

rece

ive

bene

fits

from

: C

ompa

ny p

aid

disa

bilit

y re

tirem

ent

Pen

sion

Pla

n.

Com

para

tor G

roup

No

LTD

Pla

n --

70%

of

Pay

, Les

s P

rimar

y S

ocia

l Sec

urity

56%

of p

ay, L

ess

Soc

ial S

ecur

ity, L

ess

Pen

sion

Ben

efits

60%

of p

ay, L

ess

Prim

ary

Soc

ial

Sec

urity

Exhi

bit _

_ (M

PH-6

) Pa

ge 4

0 of

47


168

40©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Long

Ter

m D

isab

ility

Ben

efit

A’s

pla

ns h

as th

e hi

ghes

t ben

efit

amou

nt a

nd m

axim

um o

f all

of th

eco

mpe

titor

s’pl

ans

AL

FG

NI

MK

EH

CJ

DB

AL

IG

NJ

BK

EM

HD

CF

Exhi

bit _

_ (M

PH-6

) Pa

ge 4

1 of

47


169

41©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Vac

atio

n an

d H

olid

ay B

enef

it S

core

and

Ran

k

The

follo

win

g ta

ble

illust

rate

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s c

ompe

titiv

e po

sitio

ning

re

lativ

e to

thei

r pee

r gro

up in

term

s of

vac

atio

n an

d ho

liday

pro

gram

s

Vaca

tion

and

Holid

ay S

core

and

Ran

k

Scor

eRa

nk/1

5Em

ploy

er V

alue

Nat

iona

l Grid

New

Yor

k U

nion

103.

13/

15

Tota

l Val

ue

Nat

iona

l Grid

New

Yor

k U

nion

103.

13/

15

Exhi

bit _

_ (M

PH-6

) Pa

ge 4

2 of

47


170

42©

2009

Tow

ers

Perr

inP

ropr

ieta

ry a

nd C

onfid

entia

lN

ot fo

r use

or d

iscl

osur

e ou

tsid

e To

wer

s P

errin

and

its

clie

nts

Vac

atio

n an

d H

olid

ay B

enef

its

Com

pari

son

The

follo

win

g ta

ble

com

pare

s N

atio

nal G

rid’s

New

Yor

k U

nion

’s p

lan

desi

gns

rela

tive

to th

eir

peer

gro

up p

lan

desi

gns

A m

ajor

ity o

f the

com

petit

or c

ompa

nies

offe

r ver

y si

mila

r vac

atio

n an

d ho

liday

ben

efits

; the

refo

re,

the

rang

e of

sco

res

is c

lose

for a

ll

The

New

Yor

k U

nion

ove

rall

desi

gn is

slig

htly

mor

e ge

nero

us th

anso

me

of th

e ot

her c

ompe

titor

co

mpa

nies

Whi

le th

e N

ew Y

ork

Uni

on v

acat

ion

bene

fit is

less

rich

than

thos

e of

the

com

petit

or g

roup

at

earli

er y

ears

of s

ervi

ce, t

he b

enef

it ca

tche

s up

to th

e co

mpe

titor

ave

rage

at l

ater

yea

rs, a

nd

surp

asse

s th

e co

mpe

titor

gro

up m

ode

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175

Testimony of

Richard F. M

eischeid



Direct Testimony

of

Richard F. Meischeid

Of Towers Watson

Dated: January 29, 2010

176

Testimony of Richard F. Meischeid

Page 1 of 12

Q. Please state your name and business address. 1

A. My name is Richard Meischeid. I am employed by Towers Watson 2

(formerly Towers Perrin) at Centre Square East, 1500 Market Street, 3

Philadelphia, Pennsylvania 19102. 4

5

Q. Please describe your education and professional background. 6

A. I have been with Towers Watson for over 30 years, and during that time 7

have held a number of positions. Currently, I am responsible for 8

managing the firm’s compensation practice in the east region and leading 9

Towers Watson’s Energy Services compensation practice. I received an 10

MBA from the Wharton School of the University of Pennsylvania. A 11

more extensive statement of my qualifications is included as part of 12

Exhibit __ (RFM-1). 13

14

Q. Please provide a brief overview of Towers Watson. 15

A. Towers Watson is one of the world’s largest management and human 16

resources consulting firms, helping organizations manage their investment 17

in people to achieve measurable performance improvements. The firm’s 18

compensation practice is one of the largest in the world. Towers Watson 19

has dedicated energy and utility industry practitioners specializing in 20

compensation, human resources, and benefits. 21

177


Page 2 of 12

Q. Please summarize what Niagara Mohawk retained Towers Watson to 1

do. 2

A. Towers Watson was asked to provide competitive practice information on 3

the subject of annual incentives in the energy services industry. We were 4

also asked to compare Niagara Mohawk and National Grid’s 5

compensation levels to the competitive market with and without variable 6

pay. Finally, we were asked to provide information concerning market 7

increases in wages forecast for calendar year 2010. 8

9

Q. Do you sponsor any exhibits as part of your direct testimony? 10

A. Yes. I am sponsoring the following exhibits, which were prepared under 11

my supervision and direction: 12

(i) Exhibit __ (RFM-1) is entitled “National Grid USA, Competitive 13

Assessment of Non-Union Compensation,” and 14

(ii) Exhibit __ (RFM-2) is entitled “National Grid USA, Target 15

Compensation as a Percent of Market Assessment.” 16

17

Q. What specific tasks did you perform? 18

A. I performed the following work: (1) assessed the prevalence of variable 19

pay programs in the energy services industry; (2) analyzed National Grid’s 20

2009 target compensation opportunity relative to the energy services 21

178


Page 3 of 12

industry with and without variable pay amounts; and (3) analyzed data 1

concerning forecasts of wage increases in the energy services industry for 2

calendar year 2010. 3

4

Q. What was the purpose of your analysis of variable pay prevalence? 5

A. I attempted to discern how widespread the use of variable pay has become 6

in the energy services industry and therefore the degree to which variable 7

pay has become a standard part of the typical compensation package 8

offered to employees today. 9

10

Q. On what sources of compensation data did you rely? 11

A. Competitive compensation information was collected from Towers 12

Watson’s 2009 Energy Services Middle Management and Professional 13

Compensation Database. 14

15

Q. Is this the most current survey source available? 16

A. Yes. The Towers Watson database reflects compensation in effect as of 17

March 1, 2009. 18

19

Q. Is this the most comprehensive survey of energy services industry 20

positions? 21

179


Page 4 of 12

A. Yes. The Towers Watson database reflects the practices of approximately 1

129 energy services companies and includes both staff (e.g., human 2

resources, information technology, finance, etc.) and line (e.g., nuclear, 3

generation, transmission and distribution, etc.) positions. The database 4

includes data for over 400 non-executive, exempt positions common 5

among energy services companies. 6

7

Q. For the purpose of assessing energy services market practices, how 8

was the competitive market defined? 9

A. For this study, we analyzed market data relative to two market reference 10

points: 11

(1) We compared relative to the broader energy services industry by 12

analyzing the practices of approximately 129 energy services 13

companies in Towers Watson’s database. 14

2) Additionally, consistent with the standard practice of controlling 15

for size, we also compared relative to a sample of companies 16

similar in size to National Grid. Specifically, we used 40 energy 17

services companies having annual revenues of $6 billion or greater 18

participating in Towers Watson’s database for this portion of the 19

analysis. 20

180


Page 5 of 12

Q. What were your findings with respect to the prevalence of variable 1

pay in the energy services industry? 2

A. I found that variable pay is used by the vast majority of companies, with 3

98 percent of the similarly sized energy services companies and 90 percent 4

of the broader energy services industry sample maintaining formal 5

variable pay plans for their non-executive, exempt populations. The 6

results of our analyses are set forth on Exhibit __ (RFM-1). 7

8

Q. How broadly do energy services companies use annual incentives? 9

A. To assess how broadly variable pay is used within these organizations, we 10

analyzed eligibility on a position-by-position basis among all of the 11

benchmark positions included in Towers Watson’s database. We found 12

that the majority of positions surveyed are eligible for variable pay. 13

Specifically, we found that 99 percent of positions for the similarly sized 14

energy services companies and 92 percent of positions for the broader 15

energy services sample are eligible for variable pay. 16

17

Q. Does National Grid need to offer variable pay in order to provide a 18

competitive compensation package? 19

A. Yes. To attract and retain talented employees in today’s highly 20

competitive market, companies, including National Grid, must offer a 21

181


Page 6 of 12

competitive total rewards program, including base salary, variable pay, a 1

retirement program, health and welfare benefits, and learning and 2

development opportunities. As the prevalence data provided above shows, 3

variable pay is used widely in the energy services industry and is a 4

standard component of the compensation package provided to employees. 5

Thus, variable compensation is not “additional” or “optional” 6

compensation that National Grid provides to employees, but a required 7

element in the compensation program and a necessary cost of doing 8

business. 9

10

Q. In addition to delivering a competitive compensation package to 11

employees, what other reasons make it important to provide variable 12

pay? 13

A Multiple groups (e.g., customers, employees, community groups, 14

shareholders, etc.) have a vested interest in utilities’ operations and 15

performance. Variable pay programs play a critical role in focusing 16

employees on key organizational, business unit, and individual goals. The 17

use of both financial and non-financial goals is common practice among 18

utilities. Non-financial measures are designed to focus employees on 19

achieving superior operational, safety, and customer service results, while 20

financial measures help focus employees on achieving those results in an 21

182


Page 7 of 12

efficient and cost effective manner. National Grid’s approach of using 1

both financial and non-financial measures is consistent with sound 2

compensation practice and helps provide balance so that excellence in one 3

area is not achieved at the expense of other areas. 4

5

Q. Why did you perform a competitive analysis of National Grid’s base 6

salary, target variable pay opportunity, and target total cash 7

compensation levels? 8

A. I studied the competitiveness of National Grid’s base salary, target annual 9

variable pay opportunity, and target total cash compensation levels to 10

ascertain: (1) whether the level of variable pay being used by National 11

Grid is consistent with the competitive market practice; and (2) whether 12

National Grid’s total cash levels including variable pay opportunities are 13

competitive with market levels. 14

15

Q. What types of positions were included in your review? 16

A. I analyzed competitive market data for 428 National Grid positions 17

covering over 4,200 incumbents. 18

19

Q. At what level were competitive data analyzed? 20

183


Page 8 of 12

A. Competitive compensation data were analyzed using the market median 1

(50th percentile) as a measure of central tendency. One half of the 2

companies in the reference group provide pay in excess of the median and 3

one half provide compensation that is less than the median. 4

5

Q. Did you make any subjective adjustments to the data in your 6

analysis? 7

A. No. While companies consider a number of factors (e.g., experience, 8

internal equity) in setting compensation levels, I did not make any 9

adjustments to the market data. 10

11

Q. What types of compensation were included in your compensation 12

analysis? 13

A. My analysis of competitive data included the following elements of pay: 14

(1) base salary; (2) target annual variable pay opportunity; and (3) target 15

total cash compensation (the sum of base salary and target variable pay 16

opportunity). 17

18

Q. How do National Grid’s base salaries compare to market salary 19

levels? 20

184


Page 9 of 12

A. Base salary paid by National Grid is aligned with the 50th percentile of the 1

similarly sized energy services group and slightly above the median of the 2

broader energy services industry sample. 3

4

Q. How do National Grid’s target annual variable pay opportunities 5

compare to market levels? 6

A. National Grid’s target annual variable pay opportunities are below market 7

levels. On average, target annual variable pay opportunities provided by 8

National Grid are two percent of salary below the 50th percentile of the 9

similarly sized energy services group and one percent of salary below the 10

broader energy services industry sample. 11

12

Q. How do National Grid’s target cash compensation levels compare to 13

competitive market levels when including both the value of target 14

annual variable pay and base salaries? 15

A. When target annual variable pay opportunities are included, National 16

Grid’s target total cash compensation levels are in line with median 17

market levels. Specifically, on average, National Grid’s target total cash 18

compensation is two percent below the 50th percentile of the similarly 19

sized energy services companies and two percent above the median of the 20

broader energy services sample on a target total cash basis (base salary 21

185


Page 10 of 12

plus target annual variable pay). The comparison of National Grid’s target 1

total cash compensation to similarly sized energy services companies is set 2

forth on Exhibit __ (RFM-2). 3

4

Q. Does National Grid need to offer annual variable pay opportunities in 5

order to provide a competitive compensation package? 6

A. Yes. To answer this question, I compared National Grid’s base salary 7

levels to market levels of target total cash compensation (salary plus target 8

annual variable pay). This analysis shows how National Grid’s pay levels 9

would compare to energy services industry levels if National Grid did not 10

offer annual variable pay opportunities. My analysis found that, in the 11

aggregate, National Grid’s base salaries would average eleven percent 12

below median market levels of similarly sized energy services companies 13

and seven percent below median levels of the broader energy services 14

sample if it did not provide variable pay. 15

16

Q. What do these findings demonstrate? 17

A. My findings demonstrate that given the Company’s current salary levels, 18

National Grid would not provide its employees with competitive levels of 19

target total cash compensation if the Company did not provide a variable 20

pay opportunity. 21

186


Page 11 of 12

Q. Could National Grid raise its base pay levels to the market levels 1

instead of providing annual variable pay opportunities to stay 2

competitive? 3

A. Yes, it could, but it would result in a higher level of fixed costs. 4

Moreover, paying compensation solely in salary would remove incentives 5

for employees to provide superior service to customers and the other 6

constituencies that National Grid serves. Incentives ensure that 7

individuals have an element of “at risk” compensation that allows National 8

Grid to align pay with performance and allocate compensation to those 9

employees that are most deserving. 10

11

Q. Based on the results of your analysis, what is your recommendation 12

with respect to the Company’s request in this rate case? 13

A. Based on my analysis and information provided by Company witnesses, 14

the overall cost of National Grid’s total rewards program is reasonable. 15

This being the case, allowing the Company to determine the allocation 16

between the different components of the total rewards program is critical 17

to the Company’s ability to manage the business to the benefit of its 18

customers, shareholders, and employees. The Company’s track record 19

over the past several years in managing the total cost in a prudent, 20

thoughtful manner demonstrates both the importance and success of 21

187


Page 12 of 12

permitting the Company to allocate compensation between fixed and 1

variable components. 2

3

Q. Did you examine market data concerning the likely increases in wages 4

that will be offered in the energy services industry in calendar year 5

2010? 6

A. Yes. 7

8

Q. What did this analysis show? 9

A. Based on current forecasts, it appears that National Grid’s forecast of three 10

percent annual increases in wages in 2010 is reasonable and in line with 11

what the market is projecting. These forecasts are subject to change as 12

economic conditions change and it would be reasonable to update these 13

projections near the time that the Commission issues its decision in this 14

case. 15

16

Q. Does this conclude your testimony? 17

A. Yes.18

188

Exhibits of

R

ichard F. Meischeid


Index of Exhibits

Exhibit __ (RFM-1) National Grid USA, Competitive Assessment of

Non-Union Compensation Exhibit __ (RFM-2) National Grid USA, Target Compensation as a

Percent of Market Assessment

189

Exhibit __ (R

FM-1)


Exhibit __ (RFM-1)

National Grid USA, Competitive Assessment of Non-Union Compensation

190

Exhibit __ (RFM-1) Page 1 of 12

National Grid USA 0

1

National Grid USA

Competitive Assessment of Non-Union Compensation

Outline Prepared by Towers Perrin Richard Meischeid

December 4, 2009

191


National Grid USA 0

2

Table of Contents COMPETITIVE ASSESSMENT OF NON-UNION COMPENSATION........................3 Introduction..................................................................................................................3 Approach to Assessing Pay Competitiveness and Determining the Prevalence of Incentive Compensation..............................................................................................3 Findings – Competitiveness of Pay.............................................................................4 Findings – Prevalence of Incentive Compensation…..................................................5 Observations................................................................................................................6 APPENDIX I: DESCRIPTION OF TOWERS PERRIN ...............................................8 APPENDIX II: BIOGRAPHY: RICHARD MEISCHEID ..............................................9 APPENDIX III: 2009 TOWERS PERRIN MIDDLE MANAGEMENT AND PROFESSIONAL SURVEY – PARTICIPANTS WITH REVENUES GREATER THAN $6 BILLION ...................................................................................................10 APPENDIX IV: 2008 TOWERS PERRIN MIDDLE MANAGEMENT AND PROFESSIONAL SURVEY – PARTICIPANTS WITH REVENUES GREATER THAN $6 BILLION ………………………………………………………........................11 APPENDIX V: 2007 TOWERS PERRIN MIDDLE MANAGEMENT AND PROFESSIONAL SURVEY – PARTICIPANTS WITH REVENUES GREATER THAN $6 BILLION ………………………………………………………........................12

192


National Grid USA 0

3

COMPETITIVE ASSESSMENT OF NON-UNION COMPENSATION Introduction National Grid asked Towers Perrin to conduct a competitive assessment of the Company’s

compensation relative to the energy services marketplace. The analysis was focused on the

exempt non-union workforce with salary levels ranging from $40,000 to approximately

$190,000. The research addressed the competitiveness of base salary and base salary plus

target incentive compensation relative to the marketplace.

In addition to reviewing the competitiveness of National Grid pay, we were also asked to

research the prevalence of incentive compensation in energy services companies for

employees at these levels. Thus, the second section of this outline addresses the prevalence

of incentive compensation in the marketplace.

Towers Perrin’s research was conducted by Richard Meischeid, a Principal of the firm. A

description of Towers Perrin and a biography of Richard Meischeid are contained in

Appendix I and II, respectively.

Approach to Assessing Pay Competitiveness and Determining the Prevalence of Incentive Compensation Market pay information was gathered from Towers Perrin’s 2009 Energy Services Middle

Management and Professional Compensation Database. This survey is the most

comprehensive middle management and professional compensation database for the U.S.

electric and gas industry. Selected descriptive information about the database follows below:

2009

Participating companies 129

193


National Grid USA 0

4

Number of incumbents reported 126,140

For this specific analysis, market pay data, including base salary and target annual incentives,

was gathered for a cross-section of over 400 National Grid positions covering over 4,200

incumbents. National Grid compensation was compared with surveyed levels among energy

services companies participating in Towers Perrin’s database with revenues over $6 billion

(40 participants).

The comparison with larger utilities provides a snapshot of Company competitiveness against

companies of similar size. Lists of participating companies included in the 2009 survey

sample are included in Appendix III.

We assessed the overall competitiveness of pay for all National Grid positions combined, but

also arrayed our findings by salary level to illustrate competitiveness at relevant

organizational levels within National Grid. We compared National Grid compensation to

median market levels.

Market data reflects survey participants’ salaries in effect as of March 1, 2009 and incentives

largely reflect 2009 target awards. National Grid data reflect salaries in effect as of July 1,

2009 and incentives reflect target 2009 awards.

Incentive compensation market prevalence information was gathered from Towers Perrin’s

2007, 2008 and 2009 Energy Services Middle Management and Professional Compensation

Databases.

Three years’ data (2007-2009) on bonus practices was gathered to not only capture practices

in 2009, but to also detail trends in bonus practices over the last three years. We have arrayed

annual incentive prevalence information for energy services companies with revenues over

$6 billion. Names of participating companies in the 2007, 2008 and 2009 surveys are

provided in Appendices III, IV and V.

194


National Grid USA 0

5

Findings – Competitiveness of Pay The analysis shows that on average National Grid salaries plus 2009 target incentives are

competitive with the sample of energy companies with revenues greater than $6 billion.

Given that National Grid is among the largest energy services companies, we believe the

most appropriate comparison is with companies of similar size (in terms of revenue)

National Grid’s competitiveness, when viewed by salary level, generally follows the trend of

the findings illustrated above.

Salary Salary Plus Target Incentive

$40,000 - 60,000 112% 110%

$60,000 - 80,000 102% 100%

$80,000 - 100,000 99% 98%

$100,000 - 120,000 100% 98%

$120,000 - 140,000 92% 93%

$140,000 - 160,000 89% 84%

>$160,000 90% 86%

Average 100% 98%

Market Salary Bands

National Grid Target Compensationas a Percent of Market

Findings – Prevalence of Incentive Compensation The data in Towers Perrin’s Energy Services surveys clearly demonstrate that incentive plans

are prevalent in U.S. energy services companies and have become a standard component of

the compensation package provided to employees. The results show that the large majority of

the participants have incentive compensation programs and offer incentive pay to their

employees.

195


National Grid USA 0

6

# of Incs. % Eligible

% Receiving # of Incs. %

Eligible%

Receiving # of Incs. % Eligible

% Receiving

$40,000 to $45,000 488 87% 85% 712 97% 96% 526 99% 98%$45,000 to $50,000 1,086 94% 92% 1,286 97% 95% 826 100% 99%$50,000 to $55,000 1,747 98% 96% 1,875 98% 93% 1,656 99% 97%$55,000 to $60,000 2,673 98% 95% 2,725 98% 94% 2,338 100% 98%$60,000 to $65,000 3,625 99% 95% 3,696 99% 97% 2,765 100% 99%$65,000 to $70,000 4,427 99% 97% 4,259 99% 97% 4,027 99% 98%$70,000 to $75,000 5,599 99% 97% 5,516 99% 98% 5,352 100% 99%$75,000 to $80,000 6,804 99% 97% 6,863 99% 98% 6,201 100% 99%$80,000 to $85,000 7,786 99% 97% 7,481 99% 98% 7,262 100% 99%$85,000 to $90,000 8,270 99% 98% 8,114 98% 98% 6,948 100% 99%$90,000 to $95,000 7,632 99% 98% 7,382 99% 98% 6,382 100% 99%$95,000 to $100,000 6,824 99% 98% 6,240 99% 99% 5,169 100% 100%$100,000 to $105,000 5,582 99% 98% 5,138 99% 99% 3,924 100% 99%$105,000 to $110,000 4,099 100% 98% 3,883 99% 99% 2,853 100% 100%$110,000 to $115,000 3,276 100% 98% 2,861 99% 99% 1,999 100% 99%$115,000 to $120,000 2,422 99% 98% 2,117 99% 99% 1,513 100% 100%$120,000 to $125,000 1,929 99% 98% 1,633 100% 99% 1,066 100% 100%$125,000 to $130,000 1,390 99% 98% 1,250 99% 99% 736 100% 100%$130,000 to $135,000 1,066 99% 98% 910 99% 99% 557 100% 100%$135,000 to $140,000 817 100% 99% 715 99% 99% 409 100% 100%$140,000 to $145,000 593 99% 98% 547 99% 99% 283 100% 100%$145,000 to $150,000 506 99% 98% 391 99% 99% 205 100% 100%$150,000 to $155,000 350 98% 96% 308 99% 99% 181 100% 99%$155,000 to $160,000 349 98% 98% 283 99% 99% 146 100% 100%$160,000 to $165,000 283 100% 99% 199 98% 98% 100 100% 100%$165,000 to $170,000 210 100% 100% 154 99% 99% 74 100% 100%$170,000 to $175,000 175 98% 95% 107 99% 99% 72 100% 100%$175,000 to $180,000 135 99% 97% 98 97% 96% 49 100% 100%$180,000 to $185,000 105 99% 98% 78 100% 100% 32 100% 100%$185,000 to $190,000 61 98% 98% 40 98% 98% 25 100% 100%

20082009

Base Salary Range

2007

The chart below captures the prevalence of incentive compensation eligibility at different pay

levels among energy services companies with revenues greater than $6 billion. The chart

details the number of incumbents reported by participants, the percentage of these

incumbents eligible at different salary levels as well as the percentage of incumbents actually

receiving awards.

Percentage of Incumbents Eligible For and Receiving Incentive Awards: Similar-Sized Energy Services Participants

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National Grid USA 0

7

Observations Based on the analysis of the market data we conclude that National Grid compensation (both

salaries and target incentive awards) are competitively aligned with market levels at energy

services companies of similar size. The data also shows that incentives are prevalent at the

pay levels we examined and are almost universal. Today, nearly all utilities use annual

incentives as a component of their total cash compensation program.

To attract and retain talented employees in today’s highly competitive market, companies

must offer a competitive total rewards program, including compensation, retirement program,

health and welfare benefits, and learning and development opportunities. Annual incentives

are used widely in the utility industry and have become a standard component of the

compensation package provided to employees. The increased use of incentives reflects a shift

in the overall mix in compensation in the industry to emphasize pay for performance. Thus,

incentive compensation is not “additional” or “optional” compensation that employers

provide to employees, but a required element in the compensation program and a necessary

cost of doing business. Moreover, incentive compensation offers businesses a vehicle to

maintain a portion of compensation in variable form, that is paid only if results are delivered,

rather than increasing fixed costs by delivering all elements of cash compensation in the form

of salary.

197


National Grid USA 0

8

APPENDIX I: Description of Towers Perrin

Towers Perrin is a global professional services firm that helps organizations around the world optimize performance through effective people, risk and financial management.

Our Human Capital Group helps organizations forge the critical link between business performance and people performance. Drawing on comprehensive data and informed insights about what drives organization value and what engages people to perform, we help business leaders make appropriate decisions in these key areas: Who: Which people, with what skills, do we need to run the organization effectively and deliver sustained growth? How Much: How much should we invest in our people, and how should we allocate that investment to achieve desired results — a highly engaged workforce focused on the right behaviors and performance — at an appropriate cost? How can we manage our total costs most effectively — including the costs associated with compensation and benefits?

How: How should we manage our people programs to optimize business performance while limiting risk?

DEVELOPING WORKFORCE INSIGHTSEmployee engagement Culture alignmentLeadership alignmentSafety process and cultureOrganization well-beingHuman capital metrics

MANAGING PEOPLEHuman capital strategyTalent managementEmployee engagementCareer managementChange management Leadership developmentOrganization and reward communicationBusiness performance management and linkage analysisTotal Rewards Optimization

MANAGING PAYExecutive compensation strategy and program designDirector compensation and plan designBroad-based reward strategyand program design Performance managementSales compensation Compensation administration

MANAGING BENEFITSRETIREMENT

Benefit strategy and program designRetirement risk and financial managementActuarial servicesGovernance and complianceAsset consulting and forecasting

HEALTH AND WELFAREHealth care strategyActuarial and financial modeling Program governance and measurement Design and pricingCare/disease managementPharmacy consulting and group purchasingAbsence and disability managementDental and life insurance consultingFull insurance brokerage services

BUILDING AN EFFECTIVEHR ORGANIZATION

Global HR function strategyand design Broad-scale HR transformationHR sourcing strategyHR service delivery strategyHR technology strategy and design

Web portal design and developmentEmployee/manager self-service

MANAGING MERGERS,ACQUISITIONS AND OTHERCORPORATE TRANSACTIONS

Target evaluationDue diligenceIntegration planning and implementation

LeadershipCultureWorkforce planStaffing and selectionRewardsTalent managementHR service delivery

Change management and communication

USING DATA FORDECISION SUPPORT

Comp Online™Comp AgilityExecutive Compensation Resources (ECR)™Benefits Online™Benefit plan design and actuarial valuation data (through Employee Benefit Information Center)Discount Data Warehouse of National Health PlansWorkforce analytics

How do we develop a high-performing management team, an aligned organizational structure and engaged employeesto ensure a win/win approach in running a successful organization?Where: Where do we need to deploy people geographically — within a single country or across the globe — to create better results?

We approach all our work from a single perspective: Does it help deliver measurable business results to your organization?

Understanding how workplace programs affect employee behavior, and how to size and allocate workforce invest-ments to achieve desired business results, guides everything we do. Our services are focused on helping organizations manage people costs and risk, enhance employee and organizational performance, deliver HR services more efficiently, and manage small- and large-scale change, particularly in a merger, acquisition or divestiture.

www.towersperrin.com

HUMAN CAPITAL GROUP

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National Grid USA 0

9

APPENDIX II: BIOGRAPHY RICHARD F. MEISCHEID

Richard Meischeid is a Managing Principal with responsibility for directing Towers Perrin’s

compensation consulting practice in the east region. He joined Towers Perrin in 1978 and

was elected a Principal of the firm in 1983.

Richard has over thirty years experience in working with public and private sector Boards

and management on executive compensation issues. He has long-term relationships with

several clients where he serves as the executive compensation consultant to the board and

management including: American Electric Power, AmeriSource Bergen, Equitable

Resources, Exelon, NICOR, NRG, NV Energy, PPL Corporation, Princeton University,

PSEG Enterprises, The Southern Company, Tyco Electronics and UGI Corporation.

Richard has extensive experience preparing and presenting testimony in support of utility rate

case proceedings. He has worked with utility clients on rate cases in the following

jurisdictions: Illinois, Florida, Georgia, Kentucky, Nevada, New Jersey, Minnesota,

Pennsylvania, Wisconsin and Utah.

Before joining Towers Perrin, Richard was associated with The Wharton School of the

University of Pennsylvania, where he served as a graduate teaching assistant. He was a

founding member of The Wharton Entrepreneurial Center.

Richard graduated from St. Francis College in 1970 and earned an M.B.A. from The Wharton

School in 1978.

199


National Grid USA 0

10

APPENDIX III: 2009 U.S. CDB Energy Services Middle Management and Professional Database Participant Listing – Companies with Revenues Greater than $6 Billion Company AEI Services Ameren American Electric Power Atmos Energy BG US Services CenterPoint Energy CMS Energy Consolidated Edison Constellation Energy DCP Midstream Dominion Resources DTE Energy Duke Energy Edison International Enbridge Energy Energy Future Holdings Entergy EPCO Exelon FirstEnergy

Company FPL Group Integrys Energy Group Knight McDermott Mitsubishi Nuclear Energy Systems NiSource NOVA Chemicals NRG Energy ONEOK Pacific Gas & Electric Pepco Holdings PPL Progress Energy Public Service Enterprise Group Reliant Energy Sempra Energy Southern Company Services Tennessee Valley Authority Williams Companies Xcel Energy

200


National Grid USA 0

11

APPENDIX IV:

2008 U.S. CDB Energy Services Middle Management and Professional Database

Participant Listing – Companies with Revenues Greater than $6 Billion Company Ameren American Electric Power Calpine CenterPoint Energy CMS Energy Consolidated Edison Constellation Energy DCP Midstream Dominion Resources DTE Energy Duke Energy Edison International Enbridge Energy Energy Future Holdings Entergy EPCO Exelon

Company FirstEnergy Fluor FPL Group Integrys Energy Group NiSource NOVA Chemicals ONEOK Pacific Gas & Electric Pepco Holdings PPL Progress Energy Public Service Enterprise Group Reliant Energy Sempra Energy Southern Company Services Williams Companies Xcel Energy

201


National Grid USA 0

12

APPENDIX V: 2007 U.S. CDB Energy Services Middle Management and Professional Database Participant Listing – Companies with Revenues Greater than $6 Billion Company Ameren American Electric Power Atmos Energy Calpine CenterPoint Energy CMS Energy Consolidated Edison Constellation Energy Dominion Resources DTE Energy Duke Energy Edison International Enbridge Energy Energy Future Holdings Entergy EPCO Exelon

Company FirstEnergy FPL Group KeySpan Northeast Utilities ONEOK Pacific Gas & Electric Pepco Holdings PPL Progress Energy Public Service Enterprise Group Reliant Energy Sempra Energy Southern Company Services Tennessee Valley Authority Williams Companies Xcel Energ

202

Exhibit __ (RFM

-2)


Exhibit __ (RFM-2)

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of 1


204

Testim

ony of

David Lister



Direct Testimony

of

David Lister

Chief Information Officer

Dated: January 29, 2010

205

Testimony of David Lister

Table of Contents

I. Introduction and Qualifications ...................................................................1

II. Purpose of Testimony ..................................................................................1

III. IS Services ...................................................................................................2

IV. Rate Year IS Projects and Initiatives ...........................................................8

V. Back Office Project....................................................................................12

VI. Conclusion .................................................................................................22

206


Page 1 of 22

I. Introduction and Qualifications 1

Q. Please state your name and business addresses. 2

A. My name is David Lister. My business address is St Catherine’s Lodge, 3

National Grid Control Centre, Sindlesham, United Kingdom. 4

5

Q. By whom are you employed and in what capacity? 6

A. I am employed by National Grid plc as Chief Information Officer. 7

8

Q. Please briefly describe your educational background. 9

A. I attended Daniel Stewarts College and the University of Edinburgh. 10

11

Q. What is your professional background? 12

A. During the past twenty years I have held Chief Information Officer / 13

Information Technology Director roles with companies operating across a 14

wide range of industries, including Reuters, Glaxo Welcome, Diageo and 15

Royal Bank of Scotland. 16

17

II. Purpose of Testimony 18

Q. What is the purpose of your testimony? 19

A. The purpose of my testimony is to describe the information services (“IS”) 20

strategy of National Grid plc (“National Grid”) and specifically as it 21

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Page 2 of 22

relates to Niagara Mohawk Power Corporation d/b/a National Grid (the 1

“Company” or “Niagara Mohawk”). I will also identify major IS projects 2

and discuss the Enterprise Resource Planning project (“ERP” or the “Back 3

Office Project”). 4

5

Q. How is the testimony organized? 6

A. First, I will discuss IS and the services provided. Next, I will discuss how 7

restructuring IS enables National Grid to deliver superior services to 8

Niagara Mohawk and its customers. Finally, I will identify the new 9

systems that IS will deliver, including the Back Office Project. 10

11

III. IS Services 12

Q. Please provide a brief description of IS. 13

A. The IS organization provides services to all National Grid operating 14

companies, including Niagara Mohawk. The IS organization consists of 15

six core functions: (i) service delivery; (ii) solution delivery; (iii) strategy 16

and architecture; (iv) relationship management; (v) finance and human 17

resources and (vi) security and risk. These core functions are intended to 18

capture the breadth of services provided by National Grid IS, including 19

promotion of business innovation; regulatory planning and control 20

reviews; business/IS planning and investment; financial management and 21

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Page 3 of 22

reporting; IS project portfolio management; service design and strategy; 1

service management; infrastructure planning and cyber and digital risk 2

management. 3

4

Q. What types of services are provided to Niagara Mohawk by IS? 5

A. National Grid IS provides a full range of IS services to Niagara Mohawk 6

ranging from critical electric transmission, distribution and gas support 7

systems to standard office desktop applications. 8

9

The IS systems underpin the safe, reliable and secure physical and 10

commercial operation of the Niagara Mohawk electric and gas businesses. 11

They are an integral part of the Niagara Mohawk business and require the 12

same levels of resilience as primary network assets. In addition, Asset and 13

Work Management systems enable efficient capital planning, construction, 14

maintenance and repair of network assets. 15

16

Q. Please explain the benefits these services provide to Niagara Mohawk 17

customers. 18

A. The role of National Grid IS is to deliver cost effective solutions and 19

services with transparency, flexibility and scalability. These services are 20

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Page 4 of 22

aligned to business objectives, including providing safe, reliable and cost 1

effective service to customers, and are achieved through: 2

• A drive to a low-cost operating model based on best practices and 3

process efficiency; 4

• Common infrastructure and tools that leverage technology to deliver 5

business requirements most effectively and with economy of scale; 6

• Right level of standardization and rationalization; 7

• Development and execution of green IT strategies; 8

• Flexibility in response to demands for change; 9

• Enhanced ability to meet regulatory standards through targeted 10

investment in IS and 11

• Delivering reliable Critical Infrastructure System performance. 12

13

IS also supports Niagara Mohawk’s commitment to enhancing the 14

customer experience. The IS customer strategy is to provide high quality 15

customer service through standardized processes and consolidation of 16

customer systems (including the Customer Service System (“CSS”), 17

Customer Accounting System (“CAS”), Customer Relations Information 18

System (“CRIS”), and Advantage) onto a common platform. 19

20

Q. What effort is IS currently making to improve delivery of services? 21

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Page 5 of 22

A. As part of an on-going effort to drive efficiency within the business, 1

National Grid is currently seeking to transform its IS services. This 2

transformation vision includes the restructuring and rationalization of IS to 3

provide more responsive and adaptable services that better meet business 4

needs. The purpose of the transformation effort is to establish a market 5

leading IS delivery model in order to deliver increased value. One 6

element of this transformation is the recently completed strategic 7

application architecture and road map. When implemented, it will provide 8

a common systems platform that exploits economies of scale, and provides 9

standardization that eliminates rework and duplication. This strategy will 10

leverage industry leading integrated software packages that will provide 11

single solutions across National Grid and enable a more efficient and 12

streamlined service delivery organization to support these applications. 13

Transformation will drive the optimization of National Grid’s IS, 14

delivering operating cost and service level benefits. Transformation is 15

intended to improve efficiency and ultimately reduce costs for customers 16

through improved business capabilities. Niagara Mohawk and its 17

customers will ultimately benefit from the consistency, rationalized 18

applications and scale leverage of suppliers and infrastructure. National 19

Grid acknowledges that selected investment will be required in order to 20

unlock these benefits and costs to achieve these additional efficiency 21

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Page 6 of 22

initiatives in the Historical Test Year provide the means to achieve 1

productivity savings. In addition, certain transformation initiatives were 2

identified as synergy or efficiency initiatives in the KeySpan merger 3

proceeding and included in the revenue requirement. For example 4

consolidation of the back office systems will result in synergy savings 5

credits to customers, as discussed later in my testimony. The 6

transformation initiatives do not include the projects identified in Schedule 7

4 of Exhibit __ (RRP-2), which are also discussed later in my testimony. 8

9

Q. Does National Grid have a long-term strategy for improving the 10

application services it delivers to Niagara Mohawk? 11

A. Yes. National Grid has a step by step plan to address various business and 12

system limitations and maximize opportunities in priority order over the 13

next several years. This comprehensive strategic roadmap for National 14

Grid’s US operations addresses limitations in business operations that the 15

SAP business suite can address now and in the future. The purpose is to 16

improve business capability at lower costs. The key stages of the strategy 17

roadmap include implementation of the National Grid Back Office Project 18

in late 2011, implementation of the Gas Operations Front Office Project in 19

2011 to 2013 and implementation of the Electric Front Office Project in 20

2013 to 2014. Niagara Mohawk’s Front Office systems such as STORMS 21

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Page 7 of 22

and MWORK will be maintained until the Electric Front Office Project is 1

completed. The existing systems will interface with the Back Office 2

Project described later in my testimony to achieve optimal value. 3

4

Q. How does National Grid identify the projects necessary to serve 5

Niagara Mohawk? 6

A. Under National Grid’s IS Governance framework, all IS investment 7

proposals are subject to a formal review, prioritization and sanctioning 8

process. As part of this process a number of economic, asset health and 9

risk factors are considered in the appraisal of investment viability. 10

The asset health appraisal is a process to evaluate the current status of the 11

applications from available health check information with regard to 12

“toleration” of risks arising from factors such as security, age, 13

obsolescence and withdrawal of supplier support. All IS investment 14

proposals are also subject to financial evaluation. The economic case for 15

IS investment depends on the benefits to be delivered in the business. 16

IS Investments are categorized into one of three types: 17

• Asset Health – Investments critical to ensuring reliability at acceptable 18

levels of risk. Such investments can also contain security components. 19

• Mandatory – Either specific to the industry (for example, code 20

compliance) or legal or regulatory compliance requirements. 21

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Page 8 of 22

• Investments that deliver sufficient business value to justify the spending. 1

2

The Niagara Mohawk IS investment portfolio contains projects from all 3

the above categories. Investment plans are made for the lifetime 4

management of all application and infrastructure assets. The plans reflect 5

our professional judgment by balancing investment and maintaining risks 6

at an acceptable level for the business and are informed by external best 7

practice. 8

9

IV. Rate Year IS Projects and Initiatives 10

Q. What major projects or new initiatives has the Company included in 11

the Rate Years? 12

A. Information Services is supporting the business with a number of 13

initiatives in the Customer Service and Electric Operations areas that will 14

improve the Niagara Mohawk customer experience, enhance electricity 15

network reliability, and reduce operating costs. Some of these projects 16

address the replacement of aging assets and are essential to maintaining 17

current levels of customer service and electricity network reliability. All 18

IS projects are presented in Exhibit __ (RRP-2), Schedule 4. I will discuss 19

four significant projects including the implementation of a new Back 20

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Page 9 of 22

Office Project and identify other major projects and the witnesses that will 1

discuss those projects. 2

3

Q. Please explain the most significant projects in the Customer Service 4

area. 5

A. The most significant projects in the Customer Service area are the 6

Customer Systems Agent Desktop project and the Phase 2 – Interactive 7

Voice Response project. These projects are discussed in detail in the 8

testimony of Company witness Rudolph Wynter. 9

10

Q. Please explain the most significant projects in the Electric Operations 11

area. 12

A. The most significant projects are the Distribution/Outage Management 13

System, the Electric Distribution Legacy Grid Mobile Expansion project, 14

the Radio Console Standardization project and Transformation KPI 15

project. These projects are discussed in detail in the testimony of the 16

Company’s Infrastructure and Operations Panel. 17

18

Q. Is the Company planning any additional major projects? 19

A. Yes. We are planning the Data Center Rationalization Project, the 20

Employee Remote Access Project, the Enterprise Content Management 21

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Page 10 of 22

and Data Archive Project and the Back Office Project. The costs 1

associated with these projects are shown in Exhibit__(RRP-2), Schedule 4. 2

3

Q. Please explain the Data Center Rationalization Project. 4

A. National Grid currently has four primary production data centers. These 5

centers are currently located in Syracuse, Albany, Hicksville and Melville. 6

National Grid has additional smaller data centers located throughout its 7

service territories. The objective of the Data Center Rationalization 8

Project (“Data Center Project”) is to consolidate the current data centers 9

into two regional centers to be located at the current Syracuse and 10

Hicksville facilities. The final configuration will consist of one production 11

data center and one disaster recovery/development data center. This 12

multi-year, multi-stage integration project was initiated to standardize 13

operations including hardware and software and to achieve expected 14

synergy savings through the consolidation of facilities. 15

16

Q. Please explain the Employee Remote Access Program. 17

A. The Employee Remote Access Program (“Program”) calls for the 18

provision of a flexible work environment to improve employee 19

productivity, reduce our carbon footprint and reduce operational costs. 20

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Page 11 of 22

The objectives of the Program are: 1

• To develop a system and implementation roadmap to enable users 2

to seamlessly access resources like E-Mail, SharePoint, Instant 3

Messaging and Shared Files in order to realize the benefits of 4

improved collaboration; 5

• to upgrade and consolidate the MicroSoft Exchange E-Mail 6

environment; 7

• to design, build and /or enhance collaboration and productivity 8

tools including Instant Messaging and Desktop Video 9

Conferencing; and 10

• to decommission obsolete collaboration applications and 11

infrastructure (for example, Lotus Notes Database). 12

13

Q. Please explain the Enterprise Content Management and Data Archive 14

Project. 15

A. The objective of the Enterprise Management and Data Archiving 16

Project is to implement standardized and comprehensive content 17

management and data archive capability. 18

19

Historically, National Grid has implemented a number of content 20

management solutions to address specific business systems. There is, 21

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Page 12 of 22

however, no standardized content management and data archive solution. 1

This project will enable business driven management of data through more 2

efficient mechanisms and procedures for managing, storing, archiving and 3

retrieving data. It will also support legal and regulatory compliance 4

activities. This project will allow optimal use of infrastructure and 5

software licenses as well as reduced operational costs. 6

7

V. Back Office Project 8

Q. What is the Back Office Project? 9

A. We are planning to implement a new Enterprise Resource Planning 10

solution that will make improvements in Supply Chain, Finance and 11

Human Resources functions at National Grid. This Back Office Project 12

represents the first major phase for implementing the strategic application 13

roadmap referenced earlier. 14

15

Q. Is the Company proposing to recover the costs associated with the 16

Back Office Project in the Rate Years? 17

A. The Back Office Project was identified during the KeySpan Merger 18

proceeding as a synergy/efficiency integration initiative. As shown in 19

Exhibit __ (RRP-2), the costs associated with the Back Office Project are 20

offset by the associated synergy savings in the Rate Years ended 21

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Page 13 of 22

December 31, 2011, December 31, 2012 and December 31, 2013 1

(collectively, the “Rate Years”). 2

3

Q. When is the Back Office Project expected to be placed in service? 4

A. IS anticipates that the Back Office Project will be placed in service in 5

October 2011. For ratemaking purposes however, the Company has 6

reflected the in service date as January 1, 2012 as shown in Exhibit __ 7

(RRP-2), Schedule 8. The Company is therefore not proposing recovery 8

of any costs associated with the Back Office Project in 2011. The 9

Company is however providing customers with the synergy savings credit 10

associated with the Back Office Project beginning in the Rate Year ending 11

December 31, 2011. 12

13

Q. Following the Commission’s Order on austerity, why is National Grid 14

undertaking this program now? 15

A. This is part of our continual efforts to improve efficiency and service to 16

customers. National Grid reviewed the activities of employees to 17

determine what tools would enable them to better perform their duties. At 18

the same time, National Grid evaluated the ability of some of today’s most 19

widely implemented and thoroughly proven information technologies to 20

determine what would most enhance the service levels and cost 21

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Page 14 of 22

effectiveness of our business processes. National Grid believes it would 1

be unwise to postpone this investment that will enable Niagara Mohawk to 2

serve its customers more effectively. 3

4

Q. Please explain the Back Office Project. 5

A. This project is a replacement of the current Finance, Human Resources 6

and Supply Chain systems in the US. It is a critical step in the strategic 7

applications roadmap that is designed to improve US business operations. 8

This investment in back office systems establishes the required foundation 9

for future investments in the US application portfolio to replace and 10

consolidate work management, asset management and potentially 11

customer applications. 12

13

Q. Please describe National Grid’s overall objectives for the Back Office 14

functions. 15

A. National Grid’s objectives for Back Office functions are to: 16

• Improve employee productivity by eliminating the need for most 17

paper-based processes and requests; 18

• Move to a system where data is entered once into the system at the 19

point of data origination and is immediately available to all authorized 20

users throughout the system; 21

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Page 15 of 22

• Standardize data to support effective and efficient reporting and 1

eliminate costly manual reconciliation work; 2

• Improve financial processing and management capabilities; 3

• Improve supply chain controls and capabilities, including seamless 4

integration among purchasing, inventory management, warehousing 5

and accounts payable; 6

• Reduce IT infrastructure costs by creating common processes and 7

systems; 8

• Establish the common platform/foundation for additional consolidation 9

of legacy applications that will generate economies of scale; 10

• Enhance human resource and benefits applications to provide more 11

efficient employee self-service; and 12

• Improve the periodic planning and budgeting systems to reduce total 13

cycle times. 14

15

Q. What are the limitations of the current National Grid Back Office 16

systems with respect to Niagara Mohawk? 17

A. Niagara Mohawk’s Back Office processes are supported by the PeopleSoft 18

system. PeopleSoft was acquired by Oracle in January 2005, seven 19

months after Niagara Mohawk’s implementation of PeopleSoft. Oracle’s 20

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current strategy is to develop a new set of Enterprise Applications named 1

Fusion that, notwithstanding Oracle’s commitment to support older 2

versions of PeopleSoft, we believe will become the focus for future 3

investment in new functionality. As a consequence, we don’t consider the 4

current PeopleSoft system to be a sound long term systems platform for 5

Niagara Mohawk or a viable base upon which to build a common systems 6

platform. The STORMS Work Management system, which is heavily 7

integrated into PeopleSoft, and which supports our field workforce in 8

managing work orders that address customer requests, has no forward 9

upgrade path and cannot therefore be considered to be a long term 10

strategic solution for Niagara Mohawk. 11

National Grid will maintain STORMS during the initial phases of the 12

Back Office Project; however, it is critical for National Grid to migrate to 13

long-term strategic solutions that will remain viable for supporting service 14

to our customers and business operations in the future. 15

16

There are many Back Office operational issues that exist with PeopleSoft 17

and STORMS that will be improved by migration to a strategic solution. 18

Many of today’s ERP Back Office functions have manual reconciliation 19

processes that add time and cost. National Grid current systems also lack 20

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an integrated and consistent view of inventory, which adds time to 1

complete work orders, drives higher inventory levels, and presents 2

complex planning challenges to accurately forecast inventory 3

requirements for purchasing. From a workforce management perspective, 4

our current HR systems are unable to provide capabilities required for us 5

to operate more effectively as discussed later in my testimony. In 6

addition, National Grid’s current financial information system 7

infrastructure does not support the most efficient use of National Grid’s 8

financial analysis tools and results in more time spent in the business 9

planning and monthly reporting process. 10

11

Q. Did IS consider continued utilization of or implementation of 12

upgrades to National Grid’s existing systems? 13

A. Yes, however we believe that the current ERP system does not provide the 14

foundation or functionality necessary to meet the long-term needs of 15

Niagara Mohawk or our other operating companies. Further, the 16

complexity and business risk associated with continued utilization or 17

implementation of upgrades to the existing platform could compromise 18

our ability to achieve the required Back Office benefits. National Grid 19

cannot deliver the expected savings or operate effectively without 20

replacing the Back Office systems as a matter of priority. 21

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Q. Please describe the benefits of the Back Office Project. 1

A. This is National Grid’s first major step in establishing strategic, common 2

platforms that will improve operations and customer service. The package 3

solution we plan to implement will drive a greater level of standardization 4

that will significantly improve quality and efficiency across the business 5

functions supported. This solution will also be less complex to maintain. 6

Another primary benefit will be to migrate to systems that are not 7

becoming technically obsolete. Providing an integrated solution will 8

enable elimination of many manual activities that are performed today. 9

An integrated solution will also enable better management of National 10

Grid inventory levels thereby lowering carrying costs and make us more 11

responsive to customer requests by ensuring the right inventory is 12

available at the right time to complete customer work orders in a timely 13

and efficient manner. 14

15

An integrated Back Office system will also enable future improvements in 16

Front Office, customer, and other business functions. These other 17

functions will be integrated with Back Office after the rate plan period 18

proposed in this proceeding; however, they cannot be effectively 19

implemented without the Back Office foundation being in place first. 20

21

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Q. How did IS approach the development of the business case for the 1

Back Office Project? 2

A. The business case for the Back Office Project investment centered around 3

understanding the opportunities to improve customer experience and 4

operate more efficiently based on more integrated business processes and 5

corresponding information technology. It was important to consider how 6

well the software solution alternatives supported the desired improvements 7

in business processes. Most of today’s widely implemented packaged 8

applications support process workflows that are considered by many to be 9

“best practice” processes. For National Grid, the processes supported by 10

our choice of technology solutions represent the processes necessary to 11

achieve our goals of improved customer service and reduced capital and 12

operating costs. 13

14

Q. Did National Grid consider any alternatives to the Back Office 15

solution described above? 16

A. Yes. Throughout the analysis and planning phases of the project, various 17

implementation alternatives were considered, including different 18

technology solutions for Back Office. An extensive “fit” analysis was 19

performed to determine how well the alternatives would address National 20

Grid’s requirements. National Grid also compared the Back Office 21

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Project to the option of continuing to utilize all, or major portions, of our 1

current systems and process platforms. The primary considerations 2

involved in these analyses were whether the desired cost-of-service and 3

customer service benefits could be achieved at a lower cost and at a lower 4

risk. 5

6

Q. What distinguished SAP from the other options considered? 7

A. SAP was selected as the Back Office Project solution because SAP is 8

known for its ability to provide functionality to an organization the size of 9

National Grid and has a long history of providing reliable service to large 10

enterprises. It has been implemented by many of the world’s leading 11

utilities. SAP is under constant research and development to maintain its 12

position as a leader in the industry. The SAP for Utilities solution 13

portfolio is comprised of an integrated set of solution components that lie 14

within SAP ERP. The ERP solution is comprised of software that will 15

enable National Grid to manage the entire value chain of its operation. A 16

variety of scenarios and processes that are critical to utilities are delivered 17

within SAP. National Grid will implement business applications for the 18

Back Office functions first. This will provide the foundational building 19

blocks for the Front Office and customer solutions that will be 20

implemented later as part of the strategic roadmap. 21

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Q. Please explain how the Back Office Project will improve Niagara 1

Mohawk’s Human Resources, Finance and Supply Chain functions. 2

A. The Back Office Project will provide a fully integrated system that will 3

automate transactional processes and make employees accountable for 4

their own time and attendance record-keeping and personal data. This will 5

result in: 6

• Improved HR ability to research, process and report HR-related 7

information; 8

• Increased accuracy and consistency of HR information; 9

• Increased visibility of HR information to employees and management; 10

• Ability of employees to revise their own HR data; 11

• Ability of HR to track employees from application to termination and 12

to fully implement succession planning; and 13

• Reduction in paper forms and creation of standardized processes. 14

15

With respect to Finance functions, the Back Office Project will create 16

synergies with existing and proposed software to reduce the time required 17

to prepare budgets. It will increase business modeling capabilities and the 18

timeliness and consistency of financial reports resulting in streamlined 19

financial processes and improved management reporting. In addition, an 20

integrated Back Office system will also facilitate the eventual 21

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consolidation of the National Grid and KeySpan Service Companies as 1

identified in the Niagara Mohawk Management Audit and explained in the 2

testimony of Company witness Andrew F. Sloey. 3

4

With respect to Supply Chain, the Back Office Project will provide real-5

time inventory transactions across the National Grid supply chain, will 6

enable operational inventories to be maintained at optimal levels at all 7

locations, both mobile and permanent, and will establish minimum and 8

maximum reorder points by type of inventory and related carrying costs. 9

Increased material availability will shorten the total repair time for 10

customer repairs required in the field. 11

12

By achieving Back Office objectives, National Grid will be able to better 13

support the overall program goals of enhanced customer service and 14

reduced cost of service. 15

16

VI. Conclusion 17

Q. Does that conclude your testimony? 18

A. Yes it does. 19

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Heaphy Final Testimony purpose of my testimony is to support the overall level of employee 18...

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