BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON,
DC 20268-0001
Docket No. R97-1
POSTAL RATE AND FEE CHANGES,
1997
,-
DIRECT TESTIMONY OF
PAUL M. LION
ON BEHALF OF
UNITED STATES POSTAL SERVICE
U~3?3-T-4, Docket No. R97-1, page il
,-
CONTENTS
CONTENTS
.............................................................................................
TABLES ..................................................................................................
ii
AUTOBlOGR/WHlCAL
iY
SKETCH
I.
PURpOSlE OF THE TESTNlONY
II
ESTIMATION
/--
j
............................................................
..........................................................
OF BASE YEAR BOXES ..................................................
A, REAGGREGATlON
OF POB SURVEY DATA ...............................
B, ESTIMATION
OF pRE..MC96- 3 BOXES ........................................
C. ESTIMATION
OF POST-MC963
BOXES. .....................................
OF TEST YEAR BOXES ...................................
1
4
4
6
‘11
_............. .I6
Ill.
ESTI~~jON
IV
UNIT COSTS FOR POST OFFICE BOXES ...........................................
19
USPS-T-4,
Docket No. R97-1, page ii
I-.
TABLES
1. Number of Boxes Installed (POB Survey Data) ....................................
.5
2. Number of Boxes In Use (POB Survey Data) .......................................
15
3. Expansion
7
Factors by Delivery Group ..................................................
4. Estimated Boxes In Use by Delivery Group, Pre-MC96-3
5. Assumptilons
for Allocation
8
....................
to Fee Groups.. .........................................
9
6. Estimated Boxes In Use by Fee Group, Pre-MC96-3
i-
A. Paid Boxes ..................................................................................
10
B. Free Boxes ..................................................................................
10
C. All E3oxes .....................................................................................
11
7. Estimated Boxes In Use by Fee Group, Post-MC96-3
A. Fee Groups A, B, 8 C ..................................................................
12
B. Fee Group D ................................................................................
13
C. Fee Group E ................................................................................
14
D. All Fee Groups plus Caller Service 8 Reserve Numbers ............. 15
8. Estimatecl Boxes in Use by Fee Group, TYBR.. ...................................
16
9. Estimatecl Boxes in Use by Fee Group, TYAR
,---
A. Fee Groups A-E ...........................................................................
1i
B. Summary plus Caller Service & Reserve Numbers.. ....................
18
USPS-T-4, Docket No. R97-I, page iii
TABLES (continued)
Pane
10.
Il.
Allocatiion of All Other Costs .___.__._...__._._._............................................ 24
Allocation
12. Allocation
of Space Provision
Costs .__._._.___.......................................... 25
of Space Provision Costs .__._._._..._._...._......................,.......... 26
13. Total Volume-Variable
Costs per Box ._.__.,......__.___.......~
._.__.. ,._,....__._. 27
USPST-4 Docket No. R97-1, page iv
--
DIRECT TESTIMONY
OF
PAUL MICHEL LION
~TOBIOGRAPHICAL
SKETCH
My name is Paul Michel Lion. I have over 30 years experience
operations
analysis,
and economics
of large-scale
I am a Vice President with ALK Associates,
consulting
firm in Princeton,
the Washington
subcontractor
office.
systems.
Inc., a systems; development
NJ serving the transportation
For purposes
to Foster Associates,
of the mrk
in the planning,
industry.
presented
and
I am in charge of
in thi:; testimony,
which is a Postal Service contractor.
I am a
I previously
testified on the subject of post office boxes in Docket No. MC96-3.
,--
Prior to joining ALK Associates,
Washington,
consulting
I worked for 10 years with Arthur D. Little, ilnc. in
DC. During this period, I was responsible
services related to technology
projects that I directed were econometric
network anal;ysis of postal operations.
transportation
for managing
and directing
planning for the Postal Service.
Among the
models of postal demand and costs, ancl a
I also testified on the subject of purchased
costs in two rate proceedings
before the Postal Rate Commission,
Docket Nos. R84-1 and R87-1.
From ‘I 981 to 1983, I was a consultant
Associates
transportation
in Washington,
economics
with the firm of Snavely, King and
DC. In that capacity,
and operations
I provided consulting
analysis to a variety of transportation
From 1977 to 1981, I was Director of Operations
/-
United States, Railway Association.
formulation
services in
and Cost Analysis for the
In that capacity, I was concerned
and analysis of rail transportation
alternatives
clients.
with the
for the United States Railway
USPS-T-4,
Association.
In addition,
I was responsible
computer moldels for operations
system.
for the development
Docket No. R97-1, page Y
and implementation
analysis and strategic planning for the northeast
I also directed a study of the effects of impending
on Conrail, based on a computer
undergraduate
operations
network model.
University.
courses in engineering
analysis,
systems.
Transportation
systems, transportation
and applied mathematics
economics,
and
metholds of
In addition, my responsibilities
programs in transportation
included
and in
In 1972, I became the founder and first Director of the Princeton
Program, an interdisciplinary
involving three professional
My educational
and
In that capacity, I taught graduate
the initiation, funding, and direction of research
aerospace
rail
and prloposed rail mer!gers
From ‘1966 to 1979, I was a Professor with the School of Engineering
Applied Science of Princeton
of
program of research
;and teaching
schools.
qualifications
M.A., and Ph.D. in from Princeton
include a B.S. from West Point, and an M.S.E..,
University.
_
USPS-T-24,
1
PURPOSE
I.
Docket Nlo. R97-1, par&? 1
OF THE TESTIMONY
I---
The purposes
2
of this testimony are twofold. The first purpose is to re-
3
aggregate
the results of the most recent survey of post office boxes (“POB
4
Survey”), which was undertaken
5
the new fee groups that were established
by that proceeding.
purpose
costs of post office box service in
for Docket No. MC96-3, in a fol-m appropriate
is to allocate the volume-variable
to
The second
order to estimate the cost per box for different box sizes and fee groups
To avoid confusion
both fees and fee groups),
,-
the effects of these recent changes
(in
it is first important to make clear the Irespective
10
definitions
11
between the two. Prior to MC963,
12
I-C (city delivery offices); II (non-city delivery offices); and Ill (contract offices
13
administered
14
there was effectively no difference
15
With the new definitions,
16
and the distinction
17
18
_,F..
in estimating
of delivery groups and post office box fee groups, and the distinction
delivery groups were designated
by non-city delivery offices), with box fees set for each,
as I-A, I-B,
Thus,
between fee groups and delivery groups.
delivery groups and fee groups do not overlap as much
between the two becomes important.
The Domestic Mail Manual (DMM 5 D910) currently groups post ofl’ices
into three groups defined by the type of carrier delivery provided:
19
City deliven/ office:
20
Non-city deliven/ office: an office with no city routes, but at least one
21
rural or highway contract route.
22
Nondelivery
oftice:
23
Post offices are designated
24
multiple 5digit
an office with at least one city clelivery route.
all other offices.
by a unique finance number and may therefore
ZIP Codes, although
most have just one.
have
USPST-24, Docket No. R97-I, page 2
Some postal customers
1
living within the service areas of some city and
2
some non-city delivery offices are ineligible for carrier delivery.
3
customers
are eligible for a free post office box at their local office, under
4
conditions
prescribed
5
the DMM (DMCS SS-IO; DMM 5 910).
Schedule
(DMCS) and
Post office box fee groups, in contrast, are now defined principally
6
7
in the Domestic Mail Classification
Some of these
in
tems of the fees paid. There are, at present, five different grloups:
8
A. Customers
in designated
ZIP Codes in Manhattan
9
B. Customers
in designated
ZIP Codes in 8 metropolitan
10
C. Customers
eligible for delivery at remaining city delivery offices.
11
D. Customers
eligible for delivery at non-city delivery offices.
12
E. Customers
ineligible for delivery (and meeting the conditions
13
prescribed
14
Boxholders
15
and D
16
paly
areas.
in the DMM).
in Fee Group A pay the highest fees. Customers
progressively
(New York)
in Fee Groups B, C
lower fees, while the fee for those in Group E is zero.
Section II of this testimony
estimates the numbers of boxes in use and
17
revenue ,from these new fee groups.
The starting point is the POB Survey,
18
which inventoried
19
service at Group I or Group II fees.
Using the Delivery Statistics
20
POB Survey results were converted
from grouping
21
to grouping
22
Group E boxes, so that the grouping
23
converted
post office boxes at postal facilities that then offered ‘box
by the type of carrier delivery offered.
into grouping
File (C)SF), t,he
by the former box fee groups
Allowance
is then made for
by type of carrier delivery is further
by the new fee groups.
Section II concludes
with
USPS-T-24,
of the number
1
estimates
2
established
of boxholders
Docket No. R97- 1, page 3
and revenue that will Iresult frorn the flees
T---b
3
(“Post-MC96-3”
Section Ill estimates
year beflore implementation
5
boxes”) ;and applies previously
6
afler implementation
7
The effelct on revenue is also estimated.
9
boxes and revenues).
the growth in numbers of boxes in use during the test
4
8
.T---
in MC963
of the rates proposed
estimated
elasticities
of the rates proposed
10
categories:
space provision,
11
methodology
12
presented
costs are allocated
(“‘TYBR
to estim,ate the number
in this proceeding
Section IV presents unit cost calculations
cost data. Volume-variable
in this proceeding
(“TYAR boxes”).
based on TYBR box counts ,and
to post office boxes in three
space support, and all other using the same
as in Docket No. MC96-3.
Unit costs for post office boxes are
for each box size and fee group.
---
-
USPS-T-24,
1
2
II.
UMATION
Docket No. R97-1, page 4
OF BASE YEAR BOXES
This fsection presents the POB Survey data in a form appropriate
in Docket No. MC96-3.
to the new
3
post office box fee groups established
First, the survey
4
data were reaggregated
5
Delivery Statistics
6
installed nationwide,
7
MC96-3).
8
for delivery in each delivery group were used to estimate the nurnbers of box
9
customers
iln each fee group prior to the MC96-3 increases.
10
boxholders
with respect to fee increases were used to estimate Post-MC96-3
11
customers.
in terms of the delivery groups defined in Section I. The
File (DSF) was used to estimate the current number of boxes
i.e. the number of boxes in each carrier delivery group (Pre-
Second, assumptions
as to the numbers of postal customers
12
A. BEAGGREGATION
13
Table 1 below shows the results of regrouping
ineligible
Fin;ally, elasticities
of
box
OF POB SURVEY DATA
‘---.
the survey data according
14
to the new definitions
cited in Section I. This table is comparable
15
USPS-T-4
16
size are the same. The totals for the new Fee Group A and for the former Group
17
I-A are the :same, since both are defined by the same designated
18
New Fee Group B and former Group I-B are also defined by the same
19
designated
20
correction
21
in the new (Group B. Fee Groups C, D, and E are defined differently
22
be compared
in Docket No. MC96-3.
ZIP Codes.
to Table 3 in
The overall total and the totaUs for each box
ZIP Codes
However, the totals are slightly different due to a
from the previous testimony.
As a result, there are 4,113 more boxes
and cannot
directly to previous groups
-.,
--__-
---
USPS-T-24,
Table 1. Number
of Boxes Installed
Delivery
Docket No. R97-1, page :5
(POB Smvey Data)
Group
I
L
City - A
Box Size
City-B
City other
Non-city
NonDelivery
1
35,535
58,079
4,211,964
3,564,918
976,251
2
1,987
16,525
2,030,453
1544,572
357,141
3
1,162
5,899
719,650
409,758
89,322
4
118
1,154
170,699
35,142
7,807
5
51
747
40,705
6,674
3,985
7,173,471
5,561,064
1,4134,506
38,853
Total
82,404
1
/---
2
Table 2 below shows the survey data on boxes in use, regrouped
This table is comparable
in the
3
same way as described
above.
to Table 4 in IJSPS-T-4
4
in Docket No. MC953.
As above, the overall total and the totals by box size are
5
the same.
6
whereas
7
Group I-13.
New Fee Group A and former Group I-A again have identical totals,
new Fee Group B is, as indicated
above, slightly larger than former
USPS-T-24,
Table 2. Number
Docket No. R97-1, page 6
of Boxes In Use (POB Survey Data)
Delivery
Group
Non-city
City other
NOJJDeliveqy
3,505,859
2,919,274
790,924
l&4,143
1,215,255
271,560
492,129
317,831
65,283
105,050
25,395
5,320
21,988
2,823
606
5,609,169
4,480,578
1,133,6’93
1
1
OF PRE-MC963
.- .,
2
B. ~TIMATION
BOXES
3
The Delivery Statistics File (DSF) was used in April 1997 tcl count the
4
numbers of boxes installed in each of the five carrier delivery groups described
5
in DMM § 910 (i.e., the three city delivery groups, one non-city delivery group,
6
and one nondelivery
7
Table 3 belovv. In the adjoining column are the corresponding
8
survey data, t,aken from the last row of Table I.
9
group).
The results are shown in the first data column of
There is no information
must therefore
totals from the
in the DSF on boxes in use or on box size. An
10
assumption
be made as to the occupancy
rate in order to
11
estimate the Pre-MC96-3
1.2
occupancy
13
taken in late 1995) and is constant across box sizes. However,
14
proceeding,
boxes in use. The basic assumption
is that the
rate in early 1997 is the same as that shown in the survey (which was
the expansion
factor is calculated
in this
by carrier delivery group, in
USPST-24,
1
contrast to MC963
2
factors are calculated
3
second column.
4
the “higher’
Docket No. R97-1, page 7
in which a single overall factor was used. These expansion
/-~
in the last column of Table 3 as the ratio of the first to the
As Table 3 shows, this results in larger expansion
delivery groups
Table 3. Expansion
Delivery
Group
Boxes Installed
(DSF 97)
Factor by Delivery
Boxes Installed
Group
Expansion
104,371
38,853
2.69
City-B
201,628
82,404
2.45
10,731,828
7,173,471
1.50
Non-city
7,013,282
5,561,064
1.26
Nondelivery
1,724,907
1,434f&6
1.20
19,776,016
14,290,298
1.38
Total
Factor
(F’OB Survey)
City-A
City - other
,__-
factors for
5
Note that the total number of boxes counted in the DSF in April 1997 is
6
7
19,776,016,
8
represents
9
runs.
10
.-.
as compared with the total of 19,541,497
used in MC96-3.’
This
growth of about 1.2% (with no fee change) between the two DSF
In Table 4 below, the expansion
factors are applied to the corresponding
11
delivery group to estimate the total numbers of boxes in use prior to the
12
implementation
13
14 in my testimony
of the fee changes
in that docket.
’ See USPS LR-SSR-93
at page 1
in MC96-3.
This table is comparable
to Table
USPS-T-24, Docket No. R97-1, page 8
Table 4. Estimated
Carrier
Bores in Use, PreMC96-3
Delivery
Group
1
2
In order to estimate the effect of the fee changes establislhed
in MC96-3,
3
it is next necessary
4
opposed to delivery groups), since this is now how fees are prescribed.
5
Groups City-A and City-B, both defined in terms of specific ZIP Codes, translate
6
directly into Fee Groups A and B, respectively.
7
groups each have some customers
8
who are thus entitled to a post office box at no fee. The numbers of these
9
ineligible customers
10
Presiding
11
3. The midpoints
12
13
to regroup the boxes in Table 4 into the new fee groups (as
were estimated
Officer’s Information
in the Postal Service’s response to the
No. 6, Question 4, in Docket No. MC96-
have been used in these calculations.
TablIe 5 below presents the assumptions
Several new subgroups
are defined.
However, the thlree “lower”
who are ineligible for carrier delivery and
Request
of those estimates
Delivery
for Fee Groups NC,D, and E.
These subgroups
must be kept distinct
USPS-T-24, Docket No. R97-1, page ‘9
/-
1
when the elasticities
2
changes.
are applied, because
Table 5. Assumptions
they face different percentage
for Allocation
fee
to Fee Groups
--
Delivery
Group
Eligible
Customers
Subgroup
City Delivery
Non-city
Offxes
Delivery
Nondelivery
Oflices
3
4
Pet.
1%
-
Classified
94%
D-l
98%
Contract
6%
D-2
10%
I
Clustomers
99%
Pet.
I
Ineligible
Pet..
-
C
Offices
-
I
D-3
70%
I
2%
90%
-
30%
-
Table 6A below shows the results of applying the percentages
in Table 5
5
to the bo:x counts in Table 4 for fee groups A-D. Note that Group D is the sum of
6
three subgroups.
7
the sum of four subgroups.
8
paid boxes, free boxes, and the overall total.
Table 6B provides the same information for Group E, whicr81 is
The totals are summarized
in Table 6C, in terms of
USPS-T-24,
Table 6A. Estimated
Docket ND. R97-1, page 10
--
Bores in Use, Pre-MC96-3
--
I
-
Paid Boxes
-Fee Group
-65,727
Table 6B. Estimated
4,079,320
--
Boxes in Use, Pre-MC96-3
Free Boxes
Box Size
E
1
605,782
2
231,738
3
60,093
4
5.822
5
807
Total
I-
904,241
.--X
USPS-T-24, Docket ‘No. R97-1, page 1’1
/-
Table 6C. Estimated
Boxes in Use, Pre-MC9ti3
AU Boxes
Box Size
Paid Boxes
Free Boxes
1
9,464,496
605,782
2
3,881,442
231,738
3
lJ68503
60,093
4
191,668
5,822
5
38,111
807
Total
904J41
14,744,220
1
2
C. ESTIMATION
OF POST-MC96-3
BOXES
3
Thle final step is to apply price elasticities
/--
This information
to estimate thle effect of the new
4
fees on each subgroup.’
is presented
in Tablles 7A-D on the
5
next four pages.
6
Tables 713 and 7C show the results for Fee Groups D and E respectively;
7
7D summ,arizes the results for all fee groups, plus caller servic.e and reserve
8
numbers.
9
resulting
Table 7A shows the results for Fee Groups A, B, and C
In addition to the Post-MC96-3
box counts, these tables estimate the
revenue change. Because of the fee increases,
revenue for post office
10
boxes is projected to increase by $16.9 million to $595.7 million annually
11
percent).
12
percent).
The total box count decreases
Table
(or 2.9
from 16.0 million to 15.6 million (or 2.0
/--
The elasticities used are from Postal Rate Commission’s O~)inion and
Recommended
Decision in Docket No. MC96-3, Appendix D, Schedule 3, pags
‘I 7.
Table 7A. Estimated
Boxes in Use by Fee Group, Post-MC96-3
Fee Groups
Box
I
Size
i2
3
4
-5
I
Pre 96-3
Post 96-3
Pet.
Fees
Fees
Change
$48 I 0%
I
$48 I
$74
0%
$74
$126
$126
0%
$210
$242
15%
Pre 96-3
Boxes
70,764
4,416
2.477
256
A, 8, & C
155,588
32,566
I\-,uw.
WI7 ,-Ius.I
Pre 96-3
Revenues
$3.397,638
$326,605
$317,027
$54,156
$26,175
4,121,602
$5364,601
$1,932,393
$I,li30,856
$313,340
$514,273
$9,305,463
$207,698,800
$127,492,105
$75303,952
$26,761,106
$9,379,027
$.+$7,X400"
, ." .,"""
Post 96-3
Revenues
$3,397,636
$326,605
$317,027
$57.495
$26:173
4,127,136
$5,364.601
$1,932.393
$1,180,856
$332,143
$553,359
$9,363,353
$207,696.600
$127,492.105
$75.803.952
$26,761.106
$9,379,027
c&47
m,, ,?A
a-,l”Veon
6,550.711
$460,562,255
$460.625.461
Elasticity
Post 96-3
Boxes
I
2
3
4
-5
-0.603
-0.517
-0.517
29;279
10,543
1.524
-
1
2
3
4
-5
$172
$266
loxes in City Offices
$172
$266
0%
0%
USPS-T-24,
Docket
No. R97-1, page 12
Table 78. Estimated
Boxes in Use by Fee Group, Post-MC96-3
Fee Group D
Fee Group
D-i
Noncity
Classified
eligible
Subtotal
D-2
Noncity
Contract
eligible
Subtotal
D-3
Nondelivery
eligible
Subtotal
D
Toiai
eligible
Total D
Box
Pre 96-3
Size
1
2
3
4
5
Fees
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Post 96-3
5::
524
535
555
Fees
$12
$20
536
553
583
Pet.
Change
50%
54%
50%
51%
51%
;;
52
$2
52
512
520
536
553
583
500%
900%
1700%
2550%
4050%
5::
524
535
555
$12
520
536
553
563
50%
54%
50%
51%
51%
512
$20
$36
553
583
Pre 96-3
Elasticity
Boxes
-0.085
3,391,503
-0.136
1,411,830
-0.152
369,244
-0.152
29,503
3,280
-0.152
5.205,367
-0.054
22,090
9,196
-0.069
2,405
-0.036
192
-0.024
21
-0.015
33,904
-0.054
665,727
-0.069
220,574
54,949
-0.036
4,478
-0.024
510
-0.015
954,238
4,079,320
1,649.607
426,596
34,173
3,811
6,193,509
USPS-T-24,!h&etNn,
Post 96-3
Boxes
3,247,450
1.308,573
341,143
27,194
3,026
4,927,385
16,173
3,471
930
73
8
20,654
647,695
220,061
53.958
4,422
506
926,642
3,911,518
1,532,105
396,031
31,688
3,640
5,074,061
!?g?-?,pqe
I:!
Pre 96-3
Revenues
$27,132,023
$18.353.889
$8,861,859
51,032,604
5180.381
$55,560,756
544,179
518,391
54,810
5384
543
567,808
55,325,815
52,971,464
51,318,781
$156,726
528,054
59,800.EMl
$27,176,203
5w372.281
58,&X,669
51,032,988
5180,424
$55,626,564
Post 96-3
Revenues
$38,969,400
$26,171,457
512.281,164
51,441,257
5251,119
579,114,397
$194,074
569,427
$33,465
53,845
$669
5301,479
$7.774,739
54401.225
51.942,478
5234,348
542,005
514,394.796
$39,163,473
526,240,864
$12,314.629
$1,445,102
5251,760
579,415,877
Change in
Revenues
$11,837,376
57,017,560
53,419,306
5408,664
$70,738
523,553,641
5149,894
551,036
528,655
$3,460
$627
5233,672
52,448,924
51,429,761
5623,697
577,622
513,951
54,593,955
511,987,271
57.868,604
$3,447,960
5412,114
571,364
523t767.313
Table 7C. Estimated
Boxes in Use by Fee Group, Post-MC96-3
Fee Grouo E
Fee Group
Pre 96-3
Fees
Post 96-3
Fees
Pet.
Change
Pre 96-3
Boxes
Elasticity
Post 96-3
Boxes
Pre 96-3
Revenues
Post 96-3
Revenues
--
I
I
50
SO
(5419,594)
(5288,645)
(5176~699)
I_ .,_._
(555,006)
(518,092)
(5958,035)
(5553,715)
($374,569)
(5180,854)
(521.074)
‘($3:681)
($1 ,I 33,893)
(5397,614)
(5165,522)
(543,290)
(53,459)
($385)
($610,269j
(52,282.492)
(51,273,485)
(5565,192)
(567,168)
'$I2 02;
231
513
524
58
50
22,203
52,449
7,362
22,203
52,449
7,362
5288,645
5419,594
5176,699
4
5
535
555
50
50
1
2
3
4
5
58
513
524
535
555
::
Subtotal
E-2
Noncity
Contract
1
2
3
:;
$2
ineligible
Subtotal
4
5
52
52
1,572
329
83,916
69.214
28,813
7,536
602
67
106,232
198,807
82,761
21,645
1,729
305,134
192
1,572
329
83,916
69.214
28,813
7,536
602
67
106,232
198,807
82,761
21,645
1,729
305,134
192
$55,006
518,092
5958,035
5553,715
$374,569
5180,854
521,074
53,681
51,133,893
5397,614
$165,522
543,290
53,459
5385
$310,269
E-3
Nondelivery
ineligible
1
2
3
4
5
58
$13
$24
535
$5.5
285,312
97,960
23,550
1,919
219
285.312
97,960
23,550
1,919
219
50
50
408.959
605,782
231,738
408,959
605,782
231,738
$2,282.492
$I,2738485
5565,192
567,168
Q.47 "31
TIL,YLY
54,200,360
53.653,415
52,102,220
5,822
60,093
807
^504,24i
5,822
60,093
807
5146,706
$966,035
534.181
;:
50
($4,200:360)
(53,653.415)
($2,102,220)
(5966,035)
($146,706)
($34,181)
$0
@3,902,558)
W
E-a
I ineligible
I
Box
Size
Subtotal
E-l
Noncity
Classifled
I ineligible
Subtotal
E
Total
lne!lgfble
Tota.; E
50
50
50
::
50
50
50
:i
50
1
2
50
43
5
50
50
50
USPS-T-24,
Docket
%X,Zi
No. R97-1, page 14
*^ ^^^ --^
W,U"L,XJO
50
50
::
;:
50
50
:i
::
50
50
50
;:
$0
$0
50
50
Table 7D. Estimated
All Fee Groups
j
g Fee Group
Box
Size
Pre 96-3
Fess
Paid Boxes (A+B+C+D)
Free Boxes (E)
Total Boxes
Caller Service
Reserve Numbers
Grand Total
5451
530
Post 96-3
Fees
5451
$30
Pet.
Chan e
0%
0%
Boxes in Use by Fee Group, Post-MC96-3
plus Caller Service and Reserve
Pre 96-3
Boxes
Post 96-3
14,744,220
904,241
15,648,462
110,370
195,742
15,954,574
14,425,267
904,241
15,329,509
110,370
195,742
15,635,621
USPS-T-24,
Docket
No. R97-1, page
Numbers
Pre 96-3
Revenues
5516,190,819
56,902.558
5523,093,377
549,776,870
55,872,260
5578,742,507
15
Post 96-3
Revenues
Change in
Revenues
5540,041,358
50
5840641,358
549,776.870
$5,872.260
5595,690,488
523,850,539
($6,902,558)
516,947,981
50
516.947.9::
USPS-T-4, Docket No. R97-1. page 16
1
2
III.
ESTIMATION
OF TEST YEAR BOXES
In this section, the estimated
box count for the test year before rates
3
(TYBR) is derived, and price elasticities
4
number of box customers
5
The effect on revenue is also estimated.
6
TYBIR boxes are estimated
7
Post-MC983
8
shown in Table 8 below.
are applied to estimate the effect on the
of the fees proposed
box counts presented
by applying
in this proceeding
(-WAR boxes;t.
a 1.9 percent growth factor to the
in the last section (Table 7). The results are
Table 8. Estimated
Boxes in Use, TYBR
Fee Group
9
10
TYAFl boxes are estimated
using the same elasticities
in Tables 9A and 9B on the following pages.
as before.
The
11
results are &own
12
the results for all five fee groups.
13
of paid boxes and free boxes and includes caller service and reserve numbers.
14
The revenue from post office boxes is estimated to increase $71 million to a total
15
of $888 million (or slightly under 12 percent).
Table 9B summarizes
Table 9A shows
this information
in terms
\
?
Table 96. Estimated
Boxes In Use b v Fee Grow.
,ct.
qgj+?%
2
3
4
5
B
$66
$112
$218
$372
$57
$40
$50
$104
$172
SubtotalB
1
2
3
4
c
I
D
I
I3
i
TotalE
1
I
4
5
$36 t
$90
$150
$290
$435
$77
$45
$65
$115
$195
42%
45%
34%
.-,
4.500
2,524
242
36%
34%
33%
29,635
10,744
1,553
12%
11%
13%
2,239,904
742,733
158.544
$55
i
$0 i
$0
$0
I
$0 I
I
\
I
236,141
61,234
5,933
--l-m%
USPS-T-24,
Docket
Elasticity
-!I522
-0.601
-0.517
-0.517
-0.517
-0.527
-0.478
-0.603
-0.517
-0.517
-0.517
-0.516
-0.522
-0.605
-0.517
-0.517
-0.517
-0.546
-0.054
-0.069
-0.036
-0.024
-0.015
-0.056
TYAR
g$Lg&&
3
,-,3.368
$333,014
$323,050
1,943
$58.587
199
57
$28,708
60,443
$4,205,554
$5,466,528
102,625
23,298
$1,969,109
8,860
$1,203,293
$338,454
1,288
1,383
$563,673
137,454
$9,541.257
4,945,941
$211,645,07a
2,076,309
$129,914.455
702,145
$778244.227
147,591
$27,269,567
30,982
$9,557.228
7,902,968
$455,630,555
3.879,073
$47.830.039
$31,224,309
1,507,223
395,869
$14,527.993
31,888
$1.711.360
$299,375
3,579
5,817,633
$95393,076
617.292
$0
236,141
$0
61,234
$0
5,933 1
$0
a22 I
$0
921,422 !
$0
No. R97-1, page 17
$3531648
$20,634
$359,485
$36,435
$64,739
$6,152
$31,663
$2,955
$4,650,797
$445,243
$6,157,524
$690,996
$2,096,806
$127,697
$1,329,057
$125,764
$373,409
$34,955
$601,674
$37,801
$10,558,471
$1,017,214
$222,567.349
$10,922,271
$134,960,112
$5,045,656
$aO,746.711
$3,502,4a3
$26.780,156
$I,51 0,589
$10,069.197
$511,969
$477,123,524
$21,492,969
$69.823.315
$21,993,277
$45,216,703
$13,992,394
%21,772,811
t.7,244,ala
$2.551,060
$839,700
$4471359
$147,984
$13Q,a11,24a
SO
.
I
!
::
$0
$0
SO
1
f
Table 9B. Estimated
Summary
Fee
Group
Box Size
Paid Boxes
Free Boxes (E)
Total Boxes
Caller Service
Reserve Numbers
Grand Total
Current
Fee
New Fee
Boxes In Use by Fee Group, TYAR
plus Caller Service & Reserve Numbers
Pet.
Change
Number of
Boxes
14.699,347
921,422
15,620,769
102,185
182,113
$38
$45
34%
$36
$451
$30
$43
$550
$40
34%
22%
33%
USPS-T-24,
Elasticity
-0.155
-0.146
-0.517
-0.517
Number of
Boxes
I 3,918,49a
921,422
14,839,920
90,596
150,749
Docket No, R97-1; page IA
TYBR
Revenues
TYAR
Revenues
$564,970,441
$632,144.039
$0
$0
$564,970,441
$632,144,039
$46,085,579
t4QJ27.932
$5,463,379
$6,029,976
$616,519,399
$688,001,947
Change in
Revenues
$67,173,596
$0
$67,173,598
$3,742,353
$566,598
$71,482,549
USPS-T-t, Docket No. R97-1, page 19
1
/-
T,he purpose
3
costs in order to calculate
4
to that u!sed in Docket No. MC953.
5
are taken from USPS-T-5,
6
from Section Ill of this testimony.
7
costs by fee group.
8
188.
of this section is to allocate post office box volume-variable
unit costs per box. The methodology
Volume-variable
used is identical
cost data for the test year
WP E, Tables C and D. TYBR box counts are taken
The only other input is the average rental
The derivation
of these data is presented
There are three main categories
“Space Provision”,
in USPS LR-H-.
of post office box volume-variable
costs:
10
“Space Support”,
11
I. Space Support costs are for (1) custodial supplies and services, (2) building
and “All OtheT, defined as follows
12
supplies and services, (3) maintenance
13
elevators,
14
(5) pr’otection activities, internal audits, and special investigations.
15
attributed
16
11.12,
17
heating, and air conditioning),
of plant and building equipment
(4) fuels, electricity,
(e.g.,
and water, alid
The costs
to post office boxes are normally reported in cost segments
11 .I .I,
11.3, 15.2, 16.3.1, and 18.12
2. Space Provision costs are (1) rents, (2) interest expenses,
18
depreciation
19
attributed
20
20.3. and 20.5.
21
/-
UNIT COSTS FOR POST OFFICE BOXES
2
9
r-
IV.
costs for floor space located in postal facilities
and (3)
The costs
to post office boxes are normally reported in cost segments
15.1,
3. All Other costs are primarily labor wsts for window service, and related
22
supervisory
and personnel
23
are all1cost groupings
24
space provision
costs. The costs attributed
to post office boxes
other than the ones listed above for :space support and
(i.e., in -cost segments
1, 2, 3, 6, 7, 18, and 20)
USPS-T-4,
1
Total 1PfBR costs attributed
2
million.
The breakdown
3
thousands):
Docket No. fi!97-1, page 20
to post office boxes were approximately
among the three categories
$608
is (with dollars in
4
5
SpaceSupport
6
Space Provision
223,226
7
AH Other
104.580
8
Total Volume-Variable
t6 279,928
Costs
$607,734
~
9
The basis of allocation
11
the All Other category are allocated
12
reason is that labor costs such do not depend upon box size or location.
13
for each of these categories
Costs for
10
proportionately
is different.
to the number of boxes.
The
-..
Space Support costs, in contrast, depend on box size. For this category,
14
costs are allocated
15
example, a size 5 box, which has 12 times the capacity of a size 1 box, would be
16
assigned
17
were presentled in Docket Nos. R90-1 and MC96-3.
18
on the basis of capacity (measured
12 i:imes the volume-variable
The allocation
of Space Provision
in cubic feet).
cost for space support
For
Similar analyses
costs also reflects box capacity.
19
Moreover,
since Space Provision costs include rent paid for leaseid space or
20
imputed rent ,for ov.ned space, they vary also with location and, therefore,
21
fee group.
22
box capacity
23
there are 10C1boxes of a given size in a given office where rent is $4 per square
24
foot, and 100 boxes of the same size in another office where rent ik $8 per
Space Provision
costs are thus allocated
in direct proportion
and rental cost per square foot for the location.
with
to both
For example,
if
USPSTa, Docket No. R97-1 j page 2 1
1
square foot, the Space Provision costs allocated
to the boxes in the second
2
office till be twice those allocated
3
given location, a box with twice the capacity of another will be allocated
4
Space Provision costs.
P
5
The estimated
Similarly, for a
twice the
number of post office boxes in the test year before rate:s
(TYBR), as presented
Determination
to boxes in the first office.
in Table 8, is the beginning
point for the cost allocation
of costs per box in each of the three cost categories
in Tablets 10, 11, and 12 on the following
pages.
is presemed
Total unit costs are presented
in Table 13.
10
,/-
is derived by applying the!
11
percentage
12
variable costs in this category
13
is constant for all fee groups, as shown in ,Table 10.
14
T--
Cost per box in the All Other category
of boxes in a particular fee group and box size to the total volume($104.6 million).
The result is a cost per box that
Space Support costs per box are derived by first multiplying
the number of
15
boxes in each fee group and box size by a factor reflecting the relative capacity
16
of each box size. For example, box size 2, which is half again as large as box
17
size 1, h;as a capacity factor of 1.5. The product is termed “equivalent
18
in that it represents
19
capacity over all box sizes and fee groups gives the total equilvalent capacity
20
The percentage
21
is then alpplied to the volume-variable
22
The result is a wst per box that varies with box size, but not vvith fee group, as
23
shown in Table 11
the equivalent
number of size 1 boxes.
of the total equivalent
capacity’
Summing equivalent
capacity for each fee group and box si:ze
costs in this category ($279.9 million).
USPS-T-4,
As discussed
box size (capacity)
can be expressed
Docket No. R97-1, ,,a9e 22
above, Space Provision costs vary proportionately
and with location (average rent).
In mathematical
with both
-,
terms, this
as:
ACjk = C (Rj) ( ECjk)
ACjk is the volume-variable
(‘I )
5
where
cost for fee group j and box size k, Rj is
6
average cost per square foot for fee group j, and ECjk is the equivalent
7
for fee group j and box size k. The constant of proportionality
8
so as to make the sum over all fee groups and box sizes equal the volume-
9
variable cost for space provision
($223.2 million).
rapacity
(c) is determined
Since the average rents are
10
the same for all box sizes in a given fee group, this constant can be calculatecl
11
from the expression:
-,
c = ($179,233,000)/
12
13
where Q= RA EA+ Re Ee +
14
equivalerrt
15
in wntain’ed
16
“basic” unit of capacity and, in this case, equals $1.52.
17
+ RE EE. In this expression
Ej reft?rs to the total
capacity for fee group j ( Ej = Ck ECjk ). The corresponding
in Table 12. The constant “c” can be interpreted
The cost per box is calculated
that fee group and box size. Therefore,
19
the expression:
as the cost for a
it can also be calculated
aCp = C (Rj) (CFk)
is the volume-variable
rents alre
by dividing ACjk by the number of boxes l,n
18
20
(Z!)
Q
21
where a+
22
CFk is the capacity factor for box size k. The resulting
23
box size and fee group, as shown in Table 12.
directly from
(3,)
cost per box for fee group j and box size k, and
unit costs vary with both
USPS-T-4, Docket hlo. R97-1, page 23
..--
1
Total unit costs by fee group and box size are shown in Table 13.
USPS-T-4.
Table 10: ALLOCATION
OF ALL
Docket No. R97-1, page 24
OTHER
‘otal Costs
thousands)
72.129
0.46%
S483
S6.69
2
4500
0.03%
S30
56.69
3
2.524
0.02%
S17
56.69
4
242
0.00%
St
S6.69
5
69
0.00%
so
S6.69
Total
19.464
0.51%
S532
56.69
1
124.239
0.80%
S832
S6.69
2
29835
0.19%
szoo
$6.69
3
10,744
0.07%
$72
$6.69
4
1553
0.01%
SlO
S6.69
5
1516
0.01%
SlO
S6.69
TOW
167,886
1.07%
S1.124
S6.69
1
5291.127
33.87%
S35.424
S6.69
2
2.239304
14.34%
S14,9%
Sk69
3
742.733
4.75%
s4973
S6.69
4
158544
1.01%
$1.061
S6.69
5
33,185
0.21%
5222
S6.69
TOhI
8.465.493
54.19%
S56.676
S6.69
1
3385.837
25.52%
S26.685
S6.69
2
1561215
9.99%
SlOA52
S6.69
3
403555
2.58%
$2,702
S6.69
4
32.290
0.21%
S216
S6.69
5
3.607
0.02%
S24
S6.69
5986504
38.32%
MO,079
S6.69
1
617292
3.95%
S4.133
$6.69
2
236,141
1.51%
Sl,581
S6.69
3
61,234
0.39%
S410
S6.69
4
5333
0.04%
S40
S6.69
5
822
0.01%
S6
56.69
921,422
5.90%
S6.169 --
S6.69
100.00%
S104580 _-
S6.69
B
C
D
Total
-
E
m
_
Grand Total
t::osrs Per Ba L
1
A
-
-I
COSTS
-x 5.620.769
.
_
USPS-T-4.
Table 11. ALLOCATION
Dock&No.
OF SPACE SUPPORT
R97-1,
p'age 25
COSTS
-
T
Fee Groop
Box Si
No. of Boxes
I
A
Capacity
Factor
Equivalent
P ercentage
of
Eauivalerrt
Total Costs
(thm
l:csts Per
. Box
I1
72.129
1
72.129
n.33sl%
S93R
s13.01
2
4500
1.5
6.750
0.0314'%
$88
$19.51
3
2524
3
7571
O.O35Z%
S98
S39.02
242
6
1.453
0.0067%
SlP
$78.04
69
12
824
0.0038%
Sll
$156.08
79,464
1.12
88,728
0.41'%
124.239
1
124.239
0.5773'%
X.616
S13.01
29,835
1.5
44,752
0.2079%
S582
$19.51
10,744
3
32,231
0.1498'%
%41!)
$39.02
1553
6
9315
0.0433'%
$121
S78.04
1,516
12
18,189
0.0845'%
S237
S156.08
167.886
1.36
228.728
1.06'%
S2975
.%17.72
5291.127
1
5291.127
X5846'%
S68.819
s13.01
2239,904
1.5
3359.857
15.6112’%
$43,700
SIP.51
742,733
3
2.228.199
10.3531'%
s2s,981
$39.02
158,544
6
951,264
4.419Y%
$12,373
$78.04
33.185
12
398,218
1.8503'%
s5.179
S156.08
8465,493
1.44
12228,664
56.82%
s159.052
3385.837
1
3385.837
18.5197%
S51.842
s13.01
1561,215
1.5
2341,823
10.8810%
S30.459
s19.51
403555
3
1310,666
5.6252%
s15.747
S39.02
32290
6
193.739
0.9002%
S2520
S78.04
3,607
12
43.283
0.2011%
S56:J
Sl56.08
5988504
1.30
7,775,348
36.13%
s101.130
S16.89
617.292
1
617.292
2.8682%
S8.029
S13.01
236.141
1.5
354,211
1.6458%
S4.607
s19.51
61,234
3
183,703
0.8536%
S2,389
S39.02
5,933
6
35597
0.1654%
S463
S78.04
822
12
9.865
0.0458%
S128
Sl56.08
921,422
1.30
1,200,668
Grand ToWL
15.620.769
1.38
21 522.135
5.58%
100%
51,154
515.617
S279.928
.%14.52
.Sl8.79
S16.95
.m
USPS-T-l,
r
Table 12. ALLOCATION
-.
L
SEL
A
No. R97-1,
OF SPACE PROVISION
Box
-ttiizc.
No. of
Bores
page 26
,.-
COSTS
-
--
Cap.
Eqoivalent
-1Egdp
Percentage olI
&uivalent
AVerage
-Bu!L
--
iota, cosl 3
IhousanQ! L
Costs Per
-Box
1
72.129
1
72.129
0.3351%
S23.49
S2.576
S.35.71
2
4500
1.5
6,750
0.0314%
s23.49
S241
%:j3.56
3
2524
3
7571
0.0352%
x3.49
S270
SlO7.12
4
242
6
1,453
0.0067%
S23.49
S52
S2fl4.24
5
69
12
824
0.0038%
523.49
$29
S4.28.49
Total-
79,464
1.12
88,728
0.41%
1
124.239
1
124.239
2
29835
1.5
3
10,744
4
S23.49 _
$3,168
0.5773%
S16.74
S3.161
s:25.45
44,752
0.2079%
S16.74
s1.139
S.38.17
3
32,231
0.1498%
$16.74
S820
S'76.34
1553
6
9315
0.0433%
S16.74
S237
S352.68
5
1516
12
18,189
0.0845%
S16.74
S463
5305.36
Total!
167,886
1.36
228.728
1.06%
1
5391.127
1
5391.127
2
2239,904
1.5
3
742,733
4.
-A
S,39 87
S16.74 _
%5,820
24.5846%
S7.71
S62.012
511.72
3359,857
15.6112%
s7.71
S39378
S17.58
3
2228,199
10.3531%
s7.71
S26.115
$35.16
158,544
6
951,264
4.4199%
S7.71
s11.149
$70.32
5
33,185
12
398,218
1.8503%
$7.71
S4.667
S3140.64
TotalL
8.465.493
1.14
12.228664
56.82%
57.71 _
s143321
S16.93
1
39851137
1
3385.837
18.5197%
S6.00
S36.354
S9.12
2
1561,215
1.5
2341,823
10.8810%
56.00
$21359
S13.68
3
403,555
3
1210.666
5.6252%
56.00
S11.042
$27.36
4
32.290
6
193.739
0.9002%
S6.00
s1.76'7
S51.72
5
3.607
12
43.283
0.2011%
S6.00
s395
SlO9.45
1.30
7.775348
36.13%
S6.00
S70.916
Qtal
&AND
Docket
5986,504
--
--
%,34.67
Sl1.85
1
617.292
1
617.292
2.8682%
S7.19
$6.747
510.93'
2
236.141
1.5
354,211
1.6458%
s7.19
S3.871
S16.39
3
61,234
3
183,703
0.8536%
s7.19
S2.008
5,32.79
4
5,933
6
35597
0.1654%
s7.19
S389
S,65.58
5
822
12
9.865
0.0458%
s7.19
SlO8
Sl31.16
Total
921.422
1.M
1,200,668
5.58%
$7.19
Sl3.123
-bS:l4 24
[5.620.769
LXL
21522.13$
100%
$223.2'26
si14.29
TOTAL-
--
--
-,
USPS-T-4,
,-
Table 13. TOTAL
Fee Gtnmp
1Box Sin
A
B
C
E
/--
TOTAL
space
SODMfi
S6.6!1
SSS.41
2
4500
S53.56
s19.51
S6.69
$79.77
3
2,524
S107.12
S39.02
S6.69
S152.84
4
242
S214.24
S78.04
S6.69
S298.98
5
69
S428.49
S156.08
S6.69
$591.26
79.464
539.87
S14.52
s6.691
1
124239
S25.45
s13.01
S6.69’
s45.15
2
29,835
$38.17
s19.51
S6.69
S64.37
3
10,744
S76.34
s39.02
S6.69’
$122.05
4
1,553
S152.68
S78.04
S6.69
S237.4.1
5
1,516
$305.36
S156.08
S6.69
$468.13
167.886
S34.67
S17.72
%6.64-
I
5291.127
S11.72
s13.01
S6.69
S31.42
2
2.239904
S17.58
s19.51
S6.69
S43.78
3
742.733
$35.16
S39.02
S6.69
$80.8’7
4
158544
S70.32
$78.04
S6.69
5155.05
5
33,185
s140.64
S156.08
S6.69
$303.41
8,465,493
S16.93
S18.79
%6.69-
1
3.985.837
59.12
$13.01
S6.69
$28.82
2
1561,215
S13.68
s19.51
S6.69
S39.89
3
403555
S27.36
s39.02
S6.69
S73.08
4
32290
S54.72
S78.04
S6.69
S139.46
5
3.607
5109.45
S156.08
S6.69
S272.22
5.986504
S11.85
S16.89
s6.69-
1
617.292
S10.93
S13.01
$6.69
S30.63
2
236,141
S16.39
S19.51
S6.69
S42.60
3
61,234
S32.79
s39.02
$6.69
S78.50
4
5.933
S65.58
S78.04
$6.69
S150.31
5
822
S131.16
S156.08
56.69
s293.93
921.422
S14.24
S16.95
%6.69-
537.89L
&slEu-
-2zL!2?-
%2&9L
Total
4 PANI)
1
--ill ottte costsl?c
*
--
S13.lll
m
--
COSTS PER BOX
1635.71
m
D
SpXe
povision
page 27
12.129
m
,-.
No. of Boxes
No. R97-1,
1
x
--
VOLUME-VARIABLE
Docket
15.620.769
%14.29
s61.09
s59.08
a
M