LxXXET SECTION ..,y;‘;:,.. BEFORE THE POSTAL RATE COMMISSI WASHINGTON, D.C. Postal Rate and Fee Changes, 1997 1, ;~,I~:-- _,; % ., i ‘* 3 .,~ *~~~~ ,_/;.~ “. Docket No. R97-1 ) OFFICE OF THE CONSUMER ADVOCATE NOTICE OF THE FILING OF ERRATA TO OCA-T-600, OCA 602, and OCA 603 TESTIMONY OF J. EDWARD SMITH, JR. (February 13, 1998) The Office of the Consumer to OCA-T-600. Testimony Advocate of J. Edward Smith, Jr. (revised pages attached), Exhibits OCA 602 (revised pages attached) The specific changes hereby gives notice of the filing of Errata and and OCA 603 (revised palges attached). are as follows. OCA-T-600. Page 16, line 8 Delete “capital and” Page 27, line 13 Delete “I have previously Page 27, line 14 Delete “proportionality” pointed out that” and insert “variability approaching Page 28, Delete footnote 38 and substitute approaching 100 percent between “Such plots substantiate in a pooled model.” The electronic files are “Page16” a variability hours and TPH. “ Page 29, line 1 Delete “of a pooled nature.” Insert “approaching as could be obtained 100 percent” and “PG27-29” 100 percent variability, Docket No. R97-1 2 EXHIBIT 602 Page 4. A new graph is substituted; the previous one was inadvertently a new one in logs has been substituted to be consistent not in logs, and with the rest of the exhibit. The electronic file is rota-t602exh. EXHIBIT 603 Page 2. Delete “Graphs were chosen based on their appearances purposes; accordingly, different mail handling locations were chosen across activities.“; Page 2. Add the highlighted effects regression response words in “a plot that is in good agreement such as presented to the Presiding Officer’s by but not endorsed Information Request Page 2. Add “as found in POIR #4” in “Plot for IDNUM=242: Effects as found in M”; Consistent with Pooled Consistent with Pooled in POIR Sk”; Consistent with Pooled in POIR W’; Page 3. Add “as found in POIR#4” in “Plot for IDNUM=2375: Effects as found Bradley in POIR #4.“; Page 3. Add “as found in POIR #4” in “Plot for IDNUM=621: Effects as found with a pooled by witness Page 2. Add “as found in POIR #4” in “Plot for IDNUM=5255: Effects as found for illustrative Consistent in POIR W’; Page 3 Delete “the logs of” in the last line; Page 4. Delete “DATA ARE IN LOGS,” as found in the heading; Page 5. Delete “DATA ARE IN LOGS,” as found in the heading; Page 6 Delete “DATA ARE IN LOGS,” as found in the heading; with Pooled Docket No. R97-1 3 Page 7. Delete “DATA ARE IN LOGS,” as found in the heading; Page 8. Delete “DATA AREIN LOGS,” as found in the heading; Page 9. Delete “DATA ARE IN LOGS,” as found in the heading; Page 10. Delete “DATA ARE IN LOGS,” as found in the heading; Page 11. Delete “DATA ARE IN LOGS,” Page 12. Delete as found in the heading; “DATA ARE IN LOGS,” as found in the heading; Page 13. Delete “DATA ARE IN LOG FORM,” as found in the heading; Page 14. Delete “DATA ARE IN LOG FORM,” as found in the heading; Page 15. Delete “DATA ARE IN LOG FORM,” as found in the heading; Page 18. Delete “DATA ARE IN LOG FORM,” as found in the heading; Page 17. Delete “DATA ARE IN LOG FORM,” as found in the heading; Page 18. Delete “DATA ARE IN LOG FORM,” as found in the heading; Page 19. Delete “DATA ARE IN LOG FORM,” as found in the heading. The electronic file is rota-t603exhs. Respectfully submitted, ‘Kenneth E. Richardson Attorney 1 looking at essentially 2 short-run four week time frames he nevertheless 3 run considerations. 4 The reason that short-run/longer-run 5 cost incidence will be different, depending 6 run) one is attempting 7 processes 8 amounts of labor. However, the appropriate 9 volumes increase or decrease 10 11 12 13 14 15 16 17 18 19 20 21 measured. “monthly” or, more precisely, four-week to measure. intermingles Revised February 13, 1998 periodsZ3 Given the short-run and longer- issues are so important is that estimates on which type of cost (short-run It is generally recognized will permit a slight increase or decrease is the longer-run cost-which or longer- that most production with proportionately mail processing of lower cost to measure as witness Bradley has not Witness Bradley states that: ...economists define the long-run as a situation in which all inputs are flexible and can be adjusted. The short-run would exist when any of those inputs would not be perfectly adjusted.*4 In commenting on the longer-run/short-run issue, witness Bradley indicated: I am informed that once an automated machine has been accepted from the manufacturer, it will typically only take one or two accounting periods to reach the minimum threshold for normal operations. *’ Based on witness Bradley’s comments, mail processing activities under consideration it appears that the longer-run is approximately for the a ‘year, given the 23There are thirteen time periods in a year, so data are close to, but not exactly, monthly. ” Tr. 1115547. *’ Tr. 1115356. 16 Revised February 13. 1998 Question 3 or 4, where I produced known as a pooled model. econometric results for what is Econometric results for the pooled model give you a variability of one, or in most cases a little bit greater than one, which could be consistent with this plot. ” The plots of the underlying 9 pooled approach data tend to substantiate the conclusion that the Compelling, Leading is correct 10 11 12 13 The data presented 14 variability approaching 15 to assess empirically 16 additional data analyses on the activities and facilities. 17 Flats, Manual Letters, OCR, and LSM. I first plotted the data on ai site specific 18 basis. This resulted in hundreds 19 IDNUM (site location) for each type of activity. 20 in exhibit OCA 603. All plots are presented 21 are three types of plots. The first type of plot substantiates 22 form in Diagram 1. This array of plots would be expected 23 specific facilities. B. The Actual Data Plots By Facility Also Are Visually To A Pooled Regression Model Conclusion in exhibit OCA 602 are visually compelling 100 percent between in (demonstrating labor hours and mail volume. witness Bradley’s selection of a regression I chose the activities Manual by an A selection of the plots is presented in library reference OCA-LR-9. The second type of plot corresponds 27 In order line, I performed of plots, i.e., one for each locaticln denoted 37Tr. 1115581-82. a There the A/B/C/D equation in the short term for to the line E in Revised February 13, 1998 1 Diagram 1. If witness Bradley’s theory were correct, this array of plots would not be 2 expected.3B Finally, some plots resemble a random “blob” of data. These “blob” 3 plots do not substantiate 4 Since I have plotted actual data rather than having computed 5 the conclusions 6 underlying 7 regressions are visually compelling but not precise. data plotted on a site by site basis substantiate regressions, It is clear, however, that the both fixed effects and pooled regressions.40 Exhibit OCA 603 also includes plots denoted as IDNUM 9999 for each 6 9 either a fixed effects model or a pooled rnodel.39 activity. IDNUM 9999 is not a specific location. a summation Rather, each point in IDNUM 9999 10 for a specific activity represents 11 data for a given location. 12 activity is representative 13 of all of the points together 14 sites for a given activity. 15 or above capacity, then total data for a site should be representative 16 operations Accordingly, of all of the logs of the hours and TPH a point on the IDNUM 999!3 plot for a specific of the total hours and total TPH at a given site. The plotting is representative Assuming of hours as a function of TPH, across that a specific facility may operate either below of overall at the site. The plot of the summed data shows that the expansion path 38Such plots substantiate a variability approaching 100 percent between hours and TPH. 3gA model can be forced through such plots, but such an exercise does not necessarily establish a relationship. 40 In each case where I have summarized the form of a dat:a plot, I have used informed judgment as to its shape. 28 1 for a specific activity appears to be approaching 2 obtained 3 relationship 4 one of the exogenous 5 relationship in a pooled model. In performing Revised February 13, 1998 100 percent variability, as could be additional analysis of the hours/TPH witness Bradley should consider the design capacity for each facility as drivers of hours, examining the impact on the hours/lPH as facility size changes. 29 OCA 602 Page 4 of 8 Revised 2113198 LSM; DATA IN LOGS Plot of HRS*TF’H. Legend: A = 1 obs, B = 2 ohs, etc. 12. CBA BIZZZJ lWZZZ1 FZZZZZ GZZZZZD czzzzzz AVZZZZZD xzzzzzc HZZZZZZ BZZZZZZ AQZZZZZH JZZZZZZ BYZZZZZ lZZZZZ CMZZZZH BKP.ZZZJ BFWZZC ABMHZA CCHEDA BCBB AA BEB D AA AA A IO" 8’ His, A 0’ 0 2 4 6 8 TPH NOTE: 17382 obs hidden. IO 12 14 OCA 603 Page2of19 Revised 2/l 3198 Each computer program run for an activity resulted in hundreds of graphs--one generated for each of the sites. For each activity I present four of the graphs by the computer graphs generated program. I selected representative graphs. for an activity along with the relevant computer this exhibit are presented All programs for in OCA-LR-9. For each of the four types of activities presented for the selection of the four graphs is as follows. in this exhiibit the basis Three of the graphs for each activity are for specific locations and illustrate that a variety of data1 patterns form the underlying data used in the study. The three types of plots by location include, a plot that is in good agreement l with a fixed effects regression. a “blob” type of plot, indicating that for the location under consideration there does not appear to be a clear data relationship; and l . a plot that is in good agreement with a pooled effects retgression such as presented by but not endorsed by witness Bradley in response to the Presiding Officer’s Information Request #4. A summary of the three types plots mentioned above follows: Manual Letters Plot for IDNUM=8195: Consistent with Fixed Effects. Plot for IDNUM=3361: Consistent with Blob. Plot for IDNUM=242: Consistent with Pooled Effects as found in POIR#4. Manual Flats Plot for IDNUM=1374: Consistent with Fixed Effects. Plot for IDNUM=3593: Consistent with Blob. Plot for IDNUM=5255: Consistent with Pooled Effects as found in POIR#kI. OCA 603 Page3of19 Revised 2/l 3198 OCR Plot for lDNUM=9961: Consistent with Fixed Effects. Plot for IDNUM=2467: Consistent with Blob. Plot for IDNUM=621: Consistent with Pooled Effects as found in POIR#4. LSM Plot for IDNUM=7346: Consistent with Fixed Effects. Plot for IDNUM=4347: Consistent with Blob. Plot for IDNUM=2375: Consistent with Pooled Effects as found in POIR#4. The fourth graph for each activity is designated graph of this type has been printed for each activity. location cited for IDNUM 9999. per site-are plotted in the graph of IDNUM 9999 are therefore set of data. Each point summarizes of the logs of total hours of mail processing a specific site. All of the data points-one One There is, however, no Rather, IDNUM 9999 is a computed The plot for IDNUM 9999 has a number of points. summation as IDNUM 9999. the labor and the total TPH at then plotted. The data based on all of tlhe sites for a specific activity data set, with hours and TPH summed for each sik OCA 603 Page 4 of 19 Revised 2/l 3198 MANUAL LElTER OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSlLAG MODEL Plotted by Site __-__-___ -___- __________________ -__ IDN,,,t,,=242 ______________________ - ____________-____ Plot of HRS’TPH. Legend: A = 1 obs, B = 2 obs, etc. HRS , 25ObO ^ A A zoobo ^ A A A A AA AAAAA B AAABA ACAA A AAB BBABA B AACCBBAABB B A BCAACADABAA AA AA A AACCCAA A A A AAAABBABA A 15060^ IOObO . 5060 ^ 0 ‘^ 0 2000 4000 6000 TPH 8000 10000 12000 14000 16000 OCA 603 Page5of19 Revised 2/l 3198 MANUAL LETTER OPERATIONS/ HOURS ON TPIH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSJLAG MODEL Plotted by Site ___________________________ - ____________ ,,,N,,M=336, Plot of HRS’TPH. __________-_______-_-------~.------ Legend: A = 1 obs, B = 2 obs, etc. HRS , 140bo ^ A 120bo ^ A A AA A 1oobo ^ A A AA BA A A A A A A k%B AAAA AA A A A 8060 ^ AA A AA BA A AAA A 6060 ^ 40do ^ 2060 - 0 '. 0 1000 2000 3000 TPH 4000 5000 6000 7000 8000 OCA 603 Page6of19 Revised 2/l 3198 MANUAL LETTER OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OWLAG MODEL Plotted by Site -_--- -__- _--__ IDNUM=8195 Plot of HRS’TPH. Legend: A = 1 obs, B = 2 obs, etc HRS , 100000 - A 750bo ” A A AAA AB A A A AA A BBAAAAB AABAAAA B EAAA C AB AAA ACB A AA 500bo _ A A A DA ABA CAA ADDB BAE ABBHC A BA 250bo _ 0’. 0 5000 10000 15000 TPH 20000 25000 30000 35000 40000 OCA 603 Page7of19 Revised 2113198 MANUAL LE-ITER OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSlLAG MODEL Plotted by Site ______.__________________ -_-_- _______ ,,,,,,,J,,=gggg Plot of HRS’TPH. _______________-_- _____________..___--. Legend: A = 1 obs, B = 2 obs, etc. HRS , 1750d000 A 1500d000 ^ A 125OdOOO ” A 1 ooodooo ^ A A A A A 7500boo ^ A A AA AA A A A AA 5000b00 ” AAA B A AAAAA AC AA9 BAA ABABBAAB A 25OObOO ^ ACBCB A AAFFBAA A EFJDADAAA : IZZPBBB 0 ^ CZTB 0 1000000 2000000 3000000 TPH NOTE: 56 obs hidden. 4000000 5000000 6000000 8000000 OCA 603 Page8of19 Revised 2/l 3196 MANUAL FLAT OPERATIONS USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSllAG MODEL Plotted by Site _---____ - _________ -___I___-___-___ ,,,N,,M=,374 Plot of HRS’TPH. _________- ____ - _____--__-__ - ____I Legend: A = 1 obs, B = 2 obs, etc HRS , 1 oobo ^ A A 8060 ^ AAAA A A B AAAA A A AB AA A A A A AAAABAA A BBBC B AADCBB AAC ABDCDBBBA A AABBABA ACABBAA AAB AAAAA A A 6060 ^ 4060 ^ 2060 ^ 0 ‘^ 0 1000 2000 3000 TPH 4000 5000 6000 OCA 603 Page 9 of 19 Revised 2/l 3198 MANUAL FLAT OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSllAG MODEL. Plotted by Site ___________ ---___- I____- _________ - IDNlJM=3593 Plot of HRS’TPH. ____________________----.----..-------- Legend: A = 1 obs, B = 2 obs, etc HRS , 17go A A A AA 1560” A AA A AB 12go ^ A lOdO” AA AAAA ABAA A AAA ACAA AAAAAA A AA A A 75b ^ AA 50b ^ A 25b ^ 0’- 0 200 400 TPH 600 800 1000 OCA 603 PageR;v;f;; 2113198 MANUAL FLAT OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSlLAG MODEL. Plotted by Location IDNUM=5255 __________-__ __--------- - ..__-----__- ____________-________ - _____ - _______ Plot of HRS*TPH. Legend: A = 1 obs. B = 2 obs. etc. HRS , 3560 ^ A 3060 ^ 2560 ^ AA A A? BA A AC DBD ABABA AA A ABA AA 20do ^ 1560 - A A CCBAA ABBAEBA 1060" A A A 50b ^ 0 '^ 0 500 1000 1500 TPH 2000 2500 3000 OCA 603 Paae 11 of 19 - Revised 2/l 3198 MANUAL FLAT OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSILAG MODEL Plotted by Location _________________-_- _______ - ___I___ Plot of HRS’TPH. _____-_-_- ,,,N,,,,,,=gg99 ______- _____- ________-_ Legend: A = 1 obs, B = 2 obs, etc. HRS , .9oooboo A A A 6OOObOO^ A A 4000b00 AA BA AAA A; A AA AA 2000b00 ^ AAABA AA AAABAA AAAA A AADAAABC A A ABCBAAB AA : AAAHGIDB B FTVPCC 0’. AZZTA A 0 500000 1000000 TPH NOTE: 48 obs hidden A 1500000 2000000 2500000 3000000 OCA 603 Paga12of19 Revised 2/i 3198 OCR OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 6601-9613 INCLUDING OFFICES @ LEAST 39 OBSlLAG MODEL Plotted by Location .-........-. --_--___-_-__--_ ,,,,,,,,,t,,=62, Plot of HRS’TPH. -- ----_- Legend: A = 1 obs. B = 2 obs, etc HRS , 7000 ^ A A A A AA AA A AB AA AB A A AA A A AAAAAA A BBA A A AAAA B AA A BAA A” B A AA AABB A BACABA AA4 AACCACAA ABB 6060 ^ A sod0 ^ 4000 ^ 3060 ” A C AA 2060 ^ 1060 ^ AAA BA A O’- A 0 10000 20000 TPH 30000 40000 50000 OCA 603 Page13of19 Revised 2113198 OCR OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 6601-9613 INCLUDING OFFICES @ LEAST 39 OBSlLAG MODEL Plotted by Location - ____ -___-__- _____ - _______________ ,,,N,,,t,,=2467 Plot of HRS’TPH. - __________ -_-__-___- _____. - ______ - Legend: A = 1 obs. B = 2 obs, etc. HRS , 2060 ^ A A A A AA A AA+?M A 1560 ^ AA E AAtB AA A AAA AA 1060 ^ AA A A AAA AAAAA AAB A A A 0 A A A 50b ^ 0'0 1000 2000 3000 TPH 4000 5000 6000 7000 OCA 603 Paae14of19 Revised 2/l 3198 OCR OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-981:~ INCLUDING OFFICES @ LEAST 39 OBWAG MODEL Plotted by Location _-___---_-_- _____- __________I___-_ Plot of HRS’TPH. ,,,N,JM=g96, _________________________-- ____-_- Legend: A = 1 obs, B = 2 obs, etc. HRS, 2500 A AA A BA AAA A AAAA AM 0 AA A A A A AA AA A AAA A A A ABhA BA A AAAAA A BAA A AABAA AAABAAA 2060 ^ 1560” AA A lodo- 50b ^ 0 '" 0 2000 4000 8000 TPH 8000 10000 12000 14000 OCA 603 Page15of19 Revised 2/l 3196 OCR OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 6601-9613 INCLUDING OFFICES @ LEAST 39 OBSllAG MODEL Plotted by Location IDNUM=9999 Plot of HRS’TPH. - -- _-. Legend: A = 1 obs. B = 2 obs, etc. HRS , 1200000 - A 1oooboo _ A A A A A 6OOdOO~ A” BA AAA A A 600dOO _ A A AA AA A A BAB A ABA B AA AA AA AA AB AAA A 400doo BAAA A AAC BAAB B BAAA A AC AAA AA AAAA AA BABABA 200000 _ AAABABABBAB CAACDA A DEBBC A : AGGDKC AJZKC 0’0 1000000 2000000 TPH NOTE: 3 obs hidden. 3000000 4000000 5000000 OCA 603 Page16of19 Revised 2/l 3198 LSM OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSliAG MODEL. Plotted by Location ____- _____- ___________ - _______ -_-_ IDN,J,,,=23,5 Plot of HRS*TPH. ____ -- _____________-_---.-- ------- Legend: A = 1 obs. B = 2 obs, etc HRS , A IOObO ^ A A AA 8060 ^ A/&PA A BA Ahi A A A ABAA 6060 - AC A AAAAA A A 40cio A A A A 2060 A A 0'- 0 2500 5000 7500 10000 TPH 12500 15000 1.7500 OCA 603 Page 17of 19 Revised 211398 LSM OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBSlLAG MODEL Plotted by Location ---_-___-_____________ -___--__--I ,,,N,J,,,=&,, Plot of HRS*TPH. --- ____. -___- __________.__________ Legend: A = 1 obs, B = 2 obs, etc. HRS , 7060. A 6OdO- AA 50do^ ABA A A A AB AiAA A ABA?? BAABAAA A BA A AB A A AAAA B BA A 40do- 3060. 2060" A 1060 ^ 0’- 0 2000 4000 TPH 6000 8000 10000 OCA 603 Page 18 of 19 Revised 2113198 LSM OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-9613 INCLUDING OFFICES @ LEAST 39 OBWIAG MODE,L Plotted by Location _-__________-___ -__- ________________ - ____ -,Df.,,J,,,=73~,6 ______________ Plot of HRS’TPH. ____-_-_____ Legend: A = 1 obs, B = 2 obs. etc HRS 30000 *- A 250bo ^ ~?AA AA AAAABA AAAAA BAA0 A AABABA CBAAAA A AABAAA AAAAA A BAA AAAAA A BDA A00 0CA AA A 200bo ~ 1sob0 - ABA?4 c0 1oobo BC A A 50do^ 0 '^ 150000 5000 250 0 10000 TPH 30000 35000 OCA 603 Page19of19 Revised 2/13/98 LSM OPERATIONS/ HOURS ON TPH USING ONLY CONTINUOUS DATA FROM 8801-981:3 INCLUDING OFFICES @ LEAST 39 OBWAG MODEL Plotted by Location -_-----____--_-_-- IDNUM=gggg -I_____ -___---__-_ Plot of HRS’TPH. Legend: A = 1 obs, B = 2 ohs. etc HRS , , 8OOObOO. A A A A soooboo - A A A A BA A 4000600 ” BAAAA% BA A AAABAA ACABA A ADAAAA BAAAABA 2000b00 ^ AACBBBA A B BAAEAAA A CB : Gk%: AZZMB 0’. H 0 2000000 6000000 4000000 TPH NOTE: 18 obs hidden 8000000 10000000 12000000 CERTIFICATE OF SERVICE I hereby certify that I have this date served the foregoing participants of record in this proceeding in accordance upon all with section 12 of the rules of ‘Kenneth E. Richardson Attorney Washington, D.C. 20268-0001 February 13,1998 document
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