p’ST:,I R,!,TC
r!;ill”,i55i:::I
BEFORE THE
C,FF,CE
OFT,ICSFCRET,KI
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20268-0001
POSTAL RATE AND FEE CHANGES, 1997
I
DIRECT TESTIMONY
OF
NORMA B. NIETO
ON BEHALF OF
UNITED STATES POSTAL SERVICE
./-
Doczket No. R97-1
CONTENTS
,-.
CONTENTS.. .......................................................................................................................
I
AUTOBIOGRAPHICAL
ii
I.
PURPOSE AND SCOPE OF TESTIMONY ..............................................................
II.
THE TRANSPORTATION
COST SYSTEM (TRACS) ..........................................
A.
INTRODUCTION
B.
HIGHWAY ..........................................................................................
C.
FREIGHT RAIL ................................................................................
D.
COMMERCIAL
E.
NETWORK AIR ...............................................................................
F.
PASSENGER
Ill. CHRISTMAS
P
SKETCH.. .......................................................................................
.............................................................................
AIR ...................................................
.......................
RAIL (AMTRAK) ..........................................................
NETWORK DISTRIBUTION
KEY DEVELOPMENT .............................
Direct Testimony
of
Norma B. Nieto
AUTOBIOGRAPHICAL
SKETCH
My name is Norma B. Nieto. I am a Consultant
1
2
Price Waterhouse),
3
Price Waterhouse
4
for the United States Postal Service, specializing
5
emphasis on cost systems.
6
areas such as transportation,
7
studies, and capital evaluation
at Price Waterhouse
located at 1616 N. Fort Myer Dr., in Arlington, Virginia.
LLP (hereafter
I have been with
since 1993. During that time, I have worked on many consulting
projects
in financial and statistical analysis, with an
My experience with the Postal Service includes ccrst analysis in
labor, and buildings, product feasibility analysis, marketing
projects.
8
At Price Waterhouse,
9
_-.
I have worked on various transportation
10
Docket No. R94-1 Plant Load Transportation
11
employment
12
(TRACS), and currently oversee the TRACS projects the firm condulcts for the Postal
13
Service.
14
testifying on transportation
15
support to Postal Service witnesses Barker and Steele on TRACS and other related issues.
16
In Docket No. MC951,
at Price Waterhouse,
Costs Study update.
projects, including the
Since I began my
I have been working with the Transportationt
Cost System
I served as a witness on behalf of the Postal Service in Docket No. MC95-2,
unit costs. Also, in Docket No. R94-1, I provided technical
I provided technical support to Postal Service witness Treworgy.
17
18
I have spent a great deal of time in Postal Service field offices observin:g TRACS
19
tests, transportation
operations,
and mail processing operations firstlhand.
20
of numerous projects, I have visited over twenty facilities including Airport Mail Facilities,
21
Airport Mail Centers, Bulk Mail Centers, Sectional Center Facilities, and Assoctate Offices.
22
ii
Over the course
1
2
I received a bachelor’s degree in Industrial Management
Mellon University
and Economics from Carnegie
in 1993, with course work in statistics.
111
--
_-..
1
I.
PURPOSE AND SCOPE OF TESTIMONY
2
The purpose of my testimony is to describe the Transportation
3
4
which generates distribution
5
transportation
6
In addition, I will describe new methodology
7
(CNET) distribution
Cost System (TRACS)
keys, which are in turn used to estimate various purchased
costs by rate category.
My testimony covers the general design of TRACS.
used to calculate the Christmas Air Nefxork
key.
8
9
II.
TRANSPORTATION
COST SYSTEM (TRACS)
IO
11
A.
INTRODUCTION
12
13
~,.--
TRACS is a statistical sampling and data collection system that provides distribution
14
keys for purchased transportation
costs in nine specific cost categories.
These nine
15
transportation
16
highway, intra-BMC highway, inter-BMC highway, commercial air, freight rail tranjsportation,
17
Eagle air network, Western air network, and passenger rail (AMTRAK) transportation.
18
These nine cost categories fall into five modes of transportation:
19
commercial air, network air, and passenger rail. Because each of these modes is
20
associated with different operational
21
different sample design and estimation
22
sample design and estimation
cost categories covered by TRACS are: intra-SCF highway, inter-SCF
and infonation
methodology.
methodology
highway, freight rail,
considerations,
each mode has a
The sections that follow discuss the
for each mode.
23
24
B.
HIGHWAY TRANSPORTATION
25
26
27
)‘W
28
The highway sample design develops separate distribution
purchased transportation
cost accounts:
keys for four highway
2
.
.
1
2
3
4
5
Intra-SCF,
Inter-SCF,
Intra-BMC,
Inter-BMC.
l
l
Account
Account
Account
Account
Number
Number
Number
Number
53121
53124
53127
53131
The universe under study is all mail moved on contracts whose costs accrue to these
6
7
four accounts.
The sample design consists of two stages.
Contract route destination-days
8
are randomly selected, at the first stage, from a list of all destinations
9
information
on all trips whose route
is available in the National Air and Surface System (NASS) and whose contract
10
route costs are listed in the accounting files. For each selected route destination-day,
11
offloaded at the test site facility is randomly selected, at the second stage, for detailed
12
sampling.
mail
13
Information
14
on weight and volume by rate category is recorded for the contents of
15
sampled containelrs and items. In order to develop estimates of cubic-foot-miles,
16
collectors also record the facility where the mail was loaded onto the test truck (to establish
17
miles traveled) and the percent of the floor space of the truck occupied by each container
18
type (to establish cubic-feet utilized).
19
microcomputers
20
Guides, field operating instructions,
21
in Library Referensces H-60, H-61 and H-62. Data collection instructions
22
are contained in Docket No. R94-1, LR-G-112.
data
Data are recorded directly into portablls
under the Computerized
On-Site Data Entry System (CODEiS).
and information
User’!s
on the CODES software! are contained
specific to TRACS
23
24
Confidence
25
a more detailed description
26
methodology.
27
H-82.
28
limits of major estimates are shown in Library Reference H-78, along with
of the T!?ACS highway sample design and estimation
Programs for computing confidence limits are contained in Library Reference
--
3
C. FREIGHT RAIL TRANSPORTATION
1
./-
2
The freight rail sample design provides a distribution
3
4
key for tlie inter-BMC freight rail
cost account, account number 53143.
5
The universe under study is all mail traveling on movements whose costs accrue to
6
7
this account.
The sample design consists of two stages.
8
selected, at the first stage, from a list of all rail movements whose information
9
Management
Information
System (RMIS).
Destination-days
are randomly
is; in the Rail
At the second stage, a specific rail van is
10
randomly selected from a movement-destination-day.
For each selected rail van, mail
11
offloaded at the test site facility is randomly selected, at the third stage, for detailed
12
sampling.
13
Information
14
on weight and volume by rate category is recorded for the contents of
In order to develop estimates of cubic-foot-miles,
data
15
sampled containers and items.
16
collectors also record the facility where the mail was loaded onto the rail van (to establish
17
miles traveled).
18
Computerized
19
instructions,
20
60, H-61 and H-62. Data collection instructions
21
No. R%1,
Data are recorded directly into portable microcomputers
On-Site Data Entry System (CODES).
and information
under the
Users Guides, field operating
on the CODES software are contained in Library References
H-
specific to TRACS are contained in Docket
LR-G-112.
22
23
Confidence
24
a more detailed description
25
methodology.
26
H-83.
27
limits of major estimates are shown in Library Reference H-78, along with
of the TRACS freight rail sample design and estimation
Programs for computing
confidence limits are contained in Libra?/ Reference
4
1
D.
COMMERCIAL
AIR TRANSPORTATION
2
3
4
The commercial
(passenger)
air sample design provides a distribution
air purchased transportation
key for the commercial
cost component.
5
6
The universe under study is mail moved on passenger airlines travelilng from a
7
domestic origin to a domestic destination
under air transportation
a
accrue to the accounts 53501, Loose Sack Line Haul and 53511, Loose Saclk Terminal
9
Handling.
The sample design consists of two stages.
Flight-days
contracts, whose costs
are randomly selected, at
10
the first stage, from a list of flights listed in the Air Contract Support System (ACSS) and the
11
Official Airline Guide (OAG) planned route file. For each selected flight-day, mail dispatched
12
for that flight at the origin is randomly selected, at the second stage, for detailed sampling.
13
14
Information on weight and volume by rate category is recorded for the contents of
15
sampled containers
and items. Data are recorded directly into portable microcomputers
16
under the Computerized
17
operating instructions,
18
References
‘19
contained
On-Site Data Entry System (CODES).
and information
on the CODES sofhvare are contained in Library
H-60, H-61 and H-62. Data collection instructions
in Docket No. R94-I,
User’s Guides, field
specific to TRKS
are
LR-G-112.
:20
:21
Confidence
limits of major estimates are shown in Library Reference H-78, along with
22
a more detailed description
23
methodology.
,24
H-79.
of the TRACS commercial air sample design and estimation1
Programs for computing confidence
limits are contained
in Library Reference
125
-.
1
r’
E.
EAGLE AND WESTERN NETWORK
2
The Eagle sample design provides two distribution
3
4
which has a hub in Indianapolis,
5
Oakland. CA.
keys: one for the Eagle network,
IN, and one for the Western netwo’rk, which is based out of
6
The universe under study is all mail moved on these networks, whose costs accrue to
7
0
the following accounts:
9
.-“-
10
11
12
13
14
l
15
The sample design consists of two stages.
l
l
.
53541,
53543,
53545,
53546,
Domestic
Domestic
Domestic
Domestic
Air
Air
Air
Air
Mail
Mail
Mail
Mail
- Network
- Network
- Western
-Western
Line Haul
Terminal Handling
Network Line Haul
Network Terminal Handling
Network city-days are chosen from
16
records contained in the National Air and Surface System (NASS) in the first stage.
17
second stage, mail dispatched
18
detailed sampling.
In the
at the origin for the specified flight is randomly selected for
16
Information
20
on weight and volume by rate category is recorded for the contents of
21
sampled containers and items. Data are recorded directly into portable microcomputers
22
under the Computerized
23
operating instructions,
24
References
25
contained
On-Site Data Entry System (CODES).
and information
User’s Guides, field
on the CODES software are contained in Library
H-60, H-61 and H-62. Data collection instructions
speciific to TRACS are
in Docket No. R94-1, LR-G-112.
26
27
Confidence
28
a more detailed description
29
methodology.
30
H-81.
:-
limits of major estimates are shown in Library Reference H-78, along with
of the TRACS network air sample desigli and estimation
Programs for computing confidence limits are contained in Library Reference
6
1
2
In this docket, there are several changes in the air network’s distribution
Previously,
the Eagle and Western Network distribution
key
3
methodology.
keys were calculated
4
on a cubic-foot mile basis. Consistent with the incremental
5
this docket, the Eagle and Western Network distribution
6
pound-mile
7
calculated as the difference between the respective network costs and the total costs of
8
flying the mail at the commercial
cost methodology
proposed in
keys are now calculated on a
basis. In addition, the Eagle and Western Network premiums, which are
air rate, are treated as costs incremental
to Express Mail’.
9
10
The Postal Service also makes an adjustment for TNT product flown on the Eagle
11
Network.
12
numerous international
13
allows TNT to use the Eagle Network to move its product between Ealgle Network cities
14
within the U,nited States.
TNT is an international
express company which has made jcoint agreements
postal administrations.
with
TNT has an agreemerlt with USPS that
15
16
TNT product is tendered to the Postal Service directly by TNT (officials, wiho bring it to
17
the origin AMC/AMF.
18
retrieved by TNT staff.
At the destination
AMFIAMC,
TNT product is separated out and
19
20
TNT product travels in distinctive white sacks, which are not eligible for sampling in a
21
TRACS test. Instead, TNT pound-miles
are estimated from manifest rlecords detailing
22
pounds and origin and destination
23
Eagle Network pound-miles
24
Reference H-104 for the details of the TNT adjustment.
information.
TNT pound-miles
is used as the distribution
as a percentage
key. Please refler to Library
25
’ Please refer to USPS-T41
for a discussion
of incremental
cost methodology.
of total
7
,.--.
F. PASSENGER
1
RAIL (AMTRAK)
2
The Amtrak sample design provides a distribution
3
4
key for Costs accruing to the
passenger rail service account, 53142.
5
The universe under study is all mail moved on Amtrak passenger rail service.
6
7
Amtrak sample design consists of two stages.
a
of train segment-days.
9
facility is randomly selected, at the second stage, for detailed sampling.
The
The first stage consists of a random selection
For each train-segment
day selected, mail offloaded at the test site
10
11
Information
on weight and volume by rate category is recorded for the contents of
12
sampled containers and items.
In order to develop estimates of square-foot-miles,
13
collectors also record the facility where the mail was loaded onto the train (to establish miles
14
traveled).
15
On-Site Data Entry System (CODES).
16
information on the CODES software are contained in Library References
17
62. Data collection instructions
18
G-112.
Data are recorded directly into portable microcomputers
data
under the Computerized
,L-.
User’s Guides, field operating instructions,
and
H-60, H-61 and H-
specific to TRACS are contained in D,ocket No. R94-1, LR-
19
Confidence limits of major estimates are shown in Library Reference H-76, along with
20
21
a more detailed description
22
methodology.
23
H-60.
of the TRACS Amtrak sample design and estimation
Programs for computing confidence
limits are contained in Library Reference
24
25
Ill. CHRISTMAS
NETWORK DISTRIBUTION
KEY
26
27
I-
28
The Postal Service contracts for dedicated aircraft to transpotit the additi’onal mail
volumes associated with the Christmas holidays.
Prior to this filing, Christmas Network
6
1
(CNET) costs were allocated using the TRACS commercial
2
we have amended this approach.
air distribution
key. In this filing,
3
4
CNET is needed for two reasons: (1) uncertainty
5
(2) the increase in cube from parcels in the Priority Mail stream.
6
the uncertainty
7
thus, a separate distribution
of commercial
airlift for all mail and
This latter reason leads to
that the mix of mail on CNET is the same as that on commercial air, and
key was developed.
a
9
Using payment records for FY96, we determined
the pound-miles
by air class Ion
10
CNET based on the ACT tag designation
11
Other) of each item. The pound-miles
12
historical air class distribution
keys for commercial air and Eagle Network for PQ2, FY96. A
13
pound-mile
basecl distribution
key was then calculated for CNET. The new CNET
14
distribution
key for volume-variable
15
16
(F for First, P for Priority, E for Exlpress, or C) for
by air class were mapped to rate catcegories using
costs is presented in Table 2.
9
,C.
Table 2 - CNET BY96 Distribution
1
1c L&P
1C Presort L&P
1C Postal Cards
1C Private Postcards
1C Presort Postcards
Priority Mail
Express Mail
2C Periodicals
3C Single Piece Rate
3C BRR CR Presort
3C BRR Other
3C BRN CR Presort
3C BRN Other
4C Parcel Post
4C Bound Printed Matter
4C Special Rate
4C Library Rate
4C USPS Penalty
Free for the Blind
International Mail
KeE
0.131380
0.118845
0.000120
0.000658
0.000438
0.723394
0.000978
0.006037
0.000239
0.000083
0.002773
0.000011
0.001469
0.000516
0.000165
0.000132
0.000175
0.000300
0.000246
0.012042
1.11”“““”
In addition, parallel to the treatment of premium costs of the Eagle and Western
Networks, a CNET premium percentage
is calculated as the differenice in the CNET costs
and the costs incurred for flying the CNET volume at commercial air rates, expressed
as a
percentage
of total CNET costs for BY96. The CNET premium percentage for FY96 was
79.745%.’
Please refer to Library Reference H-85 for the details of ,the distribution
key and
premium development.
2 Please refer to USPS-T41
incremental costs.
for a description
of the treatment of CNET premium costs as