RECEIVE11
USPS-T-20
JAN12 305PM’00
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20268-0001
Postal Rate and Fee Changes, 2000
TESTIMONY OF
DENNIS P. STEVENS
ON BEHALF OF THE
UNITED STATES POSTAL SERVICE
Docket No. R2000-1
1
.-
TABLE OF CONTENTS
2
3
AUTOBIOGRAPHICAL
SKETCH
4
5
I.
PURPOSE
AND SCOPE
6
II.
BACKGROUND
7
A.
Discussion
of VMF Operations
8
B.
VMAS Database
9
C.
Motor Vehicle Service (MVS)
10
1. Maintenance
11
2. Parts & Supplies
12
3. Vehicle Hire
13
4. Vehicle Depreciation
14
Ill.
Labor
REVIEW OF BASE YEAR 1996 COST DEVELOPMENT
15
A.
History of MVS Cost Analysis
16
B.
CRA Structure
17
C.
Development
18
D.
Base Year 1996 Costs
19
IV.
DEVELOPMENT
of Costs
OF BASE YEAR 1998 COSTS
20
A.
Construction
21
B.
Changes to CRA Structure
22
C.
Calculation
23
D.
Base Year 1998 Results
24
V.
of Base Year 1998 Costs
CONCLUSIONS
25
A.
Comparison
26
B.
Methodology
27
of Cost Pools
of Base Year 1998 and Base Year 1996 Methodologies
Refinements
1
AUTOBIOGRAPHICAL
1
-
SKETCH
My name is Dennis P. Stevens and I am an economist with the Postal Service.
2
3
have been in postal costing since 1989 and have been a contributor
4
of postal costs as presented
5
R90-1 and subsequent
6
present position in the Postal Service, I worked in mail processing
7
supervisor.
8
finance industries to a stint as an Army pilot.
in testimony and supporting
rate cases.
My non-postal
Virginia Commonwealth
11
a MS in Business with concentrations
12
of the National Achievement
14
Scholarship.
University.
ranges from management
I have a BS in Economics
in Economics
Scholarship,
I was awarded membership
University for academic achievement
I am thoroughly
15
in Docket No.
operations
as a
in the retail and
studies at Harvard University and graduate work at
10
-~ 13
documentation
I joined the Postal service in 1983. Prior to my
experience
I did my undergraduate
9
in the development
(minor Mathematics)
and Finance.
I am a former winner
the Angier B. Duke Scholarship
several years in the Delivery function.
17
methodologies
18
development
and a member of the Dean’s List.
19
broad range of experience
20
insight.
in the last
In the R97-1 case I assisted in the new
presented for CS 8, CS 9, and CS 3. In R90-I,
of library references
and Harvard
in the Phi Kappa Phi Honors Society
versed in all aspects of postal costing, concentrating
16
and
and testimonies
I assisted in the
relating to CS 15 and CS 16. My
has allowed me to view postal economics
with special
I
2
1
I.
2
PURPOSE
AND SCOPE
My testimony details the proposed Postal Service methodological
changes to the
3
development
4
20.2, respectively.
5
presents the new calculation
6
relied on statistical surveys of vehicle usage to determine the disaggregation
7
accrued costs for CS 12 and CS 20.2 into six cost pools (or subcomponents).
8
variabilities
9
and mail class distributions
of motor vehicle service costs and vehicle depreciation
The testimony
and distribution
provides the rationale for these changes and
of these components.
of the users of the vehicles.
the vehicle use were determined
11
accrued costs for vehicle maintenance
12
costs.
13
variability and distribution
14
Previously, the Postal Service had
Volume
For instance, if 20 percent of
to be caused by rural carriers, then 20 percent of the
would be assumed burdened
20 percent of vehicle maintenance
on rural carrier
costs would adopt the volume
key for rural carriers.
The Postal Service’s new approach is to derive the subcomponent
15
total accrued costs using the Vehicle Management
16
compiles vehicle acquisition
17
from all vehicle maintenance
18
can be derived directly from the universe of billings, eliminating
19
survey.
20
1992. It is the Postal Service’s position that the VMAS database,
21
provides a more accurate measure of MVS maintenance
22
of total
keys of the pools were adopted from the volume variabilities
IO
Consequently,
- CS 12 and CS
and maintenance
facilities.
Accounting
share of the
System (VMAS).
cost data emanated
VMAS
from local records
Using VMAS, the subcomponent
user shares
the need for a statistical
Moreover, the last data survey used to develop MVS costs was completed
There are no workpapers
or library references
23
Instead the results of my analysis are incorporated
24
workpapers,
as indicated in this testimony.
in
updated every AP,
costs and depreciation.
directly relating to my testimony.
into Witness Meehan’s
base year
3
1
-2
,-
II.
BACKGROUND
A.
A Discussion
of VMF Operations
3
The USPS operates a fleet of over 200,000 owned vehicles. An additional
4
number of vehicles are leased or hired by the USPS. A number of Vehicle Maintenance
5
Facilities (VMFs) are established
6
manage the vehicle inventory in its assigned area. The VMFs also have the
7
responsibility
to report data concerning
8
procurement
of repair parts, the buying, storing, and issuing of petroleum
9
the oversight of auxiliary garages.
around the country.
Each has a responsibility
the assigned vehicles, the management
The Vehicle Management
to
and
products, and
Accounting
System
IO
(VMAS) supports these responsibilities.
11
in the discharging
12
of different locations.
13
owned and leased (hired) vehicles.
14
on USPS-owned
15
commercial
16
the operation of the maintenance
17
issue fuel, tires, and repair parts. VMFs also manage employee work hours, scheduled
18
maintenance,
19
of their responsibilities,
The VMFs carry out a wide range of functions
often supporting
vehicles located at a number
The VMFs collect and record data on vehicle usage for both
They perform and record all types of maintenance
vehicles and record the maintenance
(non-postal)
sources.
on owned vehicles performed by
The VMFs manage warranty
programs.
To support
of vehicles, the VMFs procure, store, manage, and
and collect financial data.
Each vehicle owned by the Postal Service has a specific function.
For instance
20
every city carrier motorized regular route has a designated vehicle. When a new route is
21
authorized, the VMF begins the process to acquire a vehicle for the route. A formal
22
request is made for the new vehicle that lists the type of vehicle and its planned function
23
(use). ATTACHMENT
'-‘?4
25
acquired.
1 shows the lists of functions for which new vehicles may be
Postal headquarters
performs the authorization
and purchase (or transfer).
Once the vehicle is delivered to the requesting VMF, the acquisition costs are charged to
4
1
the receiving site. An account is set up in VMAS.
2
and the vehicle ID number form the basis for the record. This record remains in VMAS as
3
long as the vehicle is in service. The records are updated every AP. If the function of the
4
vehicle changes, for instance, from a city carrier vehicle to a rural carrier vehicle, then the
5
VMF manager would make that change to the record. The budgets for the VMFs are
6
monitored and controlled from the Area Oftices. Critical elements are vehicle use and
7
operating costs. When the vehicle requires servicing, all parts or maintenance work that is
8
needed on the vehicle becomes part of the vehicle record.
9
ATACHMENT
Depreciation
dollars, the function code,
2 (Page 1 and Page 2), PS Form 4543 front and back, respectively,
IO
shows the work order form that is used to record maintenance
11
purchased for the vehicle. The form links the employee number (social security number of
12
the employee) which is tied to the employee’s wage and the number of hours that the
13
employee has worked on the vehicle to the vehicles’ history. The data from these forms
14
are inputted into the VMAS database each AP. Therefore, for any and all vehicles in the
15
system, data can be assembled that provide by AP the number and type of vehicles in
16
inventory; what functions those vehicles are assigned; and the vehicles operating
17
expenses.
18
vehicle or aggregated to either VMF or national totals. The VMFs are charged with having
19
a ready source of vehicles and are required to operate their facilities in an efficient and
20
effective manner.
Maintenance,
parts and supplies and depreciation
performed or parts
costs are available by
21
22
23
B.
VMAS Data Base
The Vehicle Management
24
computer-based
25
within the Postal Service.
Accounting
support for the management
System (VMAS) provides improved
and reporting of vehicle maintenance
This includes the collection,
processing,
storing, presentation,
---Y
5
I-
-
1
and communication
of related vehicle maintenance
2
user system operating
3
stations consist of personal computers
4
server with a Windows NT operating
5
network environment.
data. VMAS is a client server, multi-
primarily at VMFs and selected auxiliary garages. The work
operating
1.
7
user interface features.
8
2.
9
information.
into a
system operating under the USPS “Gold Tape”
The following summarizes
6
under Windows 95 networked
the major capabilities
within VMAS:l
Allow VMAS navigation through the use of standard Windows graphical
Provide and control various levels of access to VMAS actions and
IO
3.
Manage Vehicle Information.
11
4.
Manage Parts Information.
12
1.
Manage Employee
13
2.
Manage Fuel/Oil Information.
14
3.
Manage Reference
Information.
Information.
15
Previous to this case VMAS was the source of the Make Model Report that was used to
16
apportion vehicle usage to drivers /users,
17
18
19
-
C.
Motor Vehicle
As indicated
Service
in the Summarv
Descriotion
of USPS Develooment
20
Seaments and Comoonents,
21
related costs of vehicle maintenance
22
used in maintaining
23
maintenance
24
postal operations facilities are maintained at vehicle maintenance
CS 12, Motor Vehicle Service covers salaries, benefits, and
personnel work; expenses for supplies and services
vehicles; expenses for fuel and lubricants; expenses
services;
1 VMAS Training Guide
of Costs by
and expenses
for rented vehicles. Vehicles
for contracted
assigned
to larger
facilities (VMFs) that are
6
Vehicles assigned to outlying stations and
1
under the control of local postal management.
2
branches of those operations
3
contracts with local businesses.
4
(NPOs) service vehicles assigned to smaller oftices that do not have VMFs.
5
facilities may obtain routine maintenance
Contractors
at offices known as non-personnel
costs are to delivered
7
variability
8
determination
9
on the assumption that vehicle maintenance
mail volumes.
and the distribution
Consequently,
key of the drivers
MVS costs adopt the volume
or users
of the vehicles.
is dependent on vehicle use - miles driven or
hours of operation.
11
miles driven by users provided the basis to apportion
12
drivers.
Previous postal statistical surveys that showed vehicle use by hours or
1. Maintenance
total national vehicle use to the
Labor
The maintenance
activities in this segment involve tuning, lubricating,
15
washing, repairing, and fueling fleet vehicles (including experimental
16
by postal employees including city delivery carriers, special delivery messengers,
17
vehicle service drivers, the Postal Inspection Service, postmasters,
18
administrative
19
subcomponent
20
The
of the share of CS 12 costs between the users of the vehicles is predicated
IO
14
offices
I assume that MVS costs are related to mail volume in the same way that street
6
13
services through
employees.
vehicles) used
managers, and
Statistical surveys supported the classification of six
categories based on vehicle usage:
Citv Delivery Vehicles
- Letter Routes.
These vehicles are used on carrier
21
motorized routes such as park and loop routes, curbline routes and business and
22
mixed motorized routes. Vehicle maintenance
23
correspondence
24
elemental load, and coverage-related
25
use associated with these components.
costs are apportioned
with city delivery carrier components
in
(office, route, access,
load) on the basis of the portion of vehicle
These apportioned
vehicle maintenance
7
1
corresponding
-2
3
individual components in Cost Segments 6 and 7.
Citv Deliverv Vehicles
- SDecial-Pumose
Routes.
These vehicles are
4
used on parcel relay, parcel delivery, collection, and other support-type
5
Costs are classified as variable to the same degree as the special purpose route
6
costs of city delivery carriers.
7
Rural Deliverv Vehicles.
routes.
These vehicles are used on both “evaluated” and
8
“other” rural routes. Costs are classified as variable to the same degree as mral
9
carrier salary costs. 2
IO
SDecial Deliverv Vehicles.
Costs for these vehicles, which are used on
11
special delivery routes, are classified as variable to the same degree as special
12
delivery messenger street time costs.
-13
Vehicle Service Vehicles.
These vehicles are used on routes within a city
14
and between various postal facilities including post offices, stations, branches,
15
Processing and Distribution Centers/Facilities,
16
Mail Centers.
17
service driver costs.3
18
C
costs are classified as variable to the same degree as the costs of the
Air Mail Centers/Facilities,
and Bulk
Costs are classified as variable to the same degree as vehicle
Other Vehicles.
These vehicles are used for administrative
19
management
20
inspectors, Postal Inspection Service personnel, postmasters,
21
administrative
and
work by various categories of employees including the carrier route
employees.
managers, and other
Because the number and use of these vehicles are
2 Separate street time costs for rural carriers are not available.
3 Separate street time costs for vehicle service drivers are not available.
8
1
determined by requirements
2
classified as institutional.
3
2.
4
of management,
the costs of this subwmponent
Parts & Supplies
The costs in this component are for parts, supplies, and services used in
5
vehicle maintenance work performed by motor vehicle service personnel as
6
described for maintenance
7
costs for analysis into six subwmponents
8
3.
9
are
Vehicle
labor. The classification of costs and the grouping of
are the same as for personnel costs.
Hire
The costs covered by component
12.3 are for rental of privately-owned
and
IO
GSA vehicles and exclude equipment maintenance
11
delivery messengers and rural carriers for use of their vehicles.
12
rented vehicles, used to supplement Postal Service owned vehicles for which
13
maintenance
14
dependent
15
volume consistent with total employee time. Therefore, both office and street time
16
of the employees that use them were used to develop volume variability and mail
17
distribution keys for vehicle hire. Based on the statistical surveys only four of the
18
subcomponent
19
hire for rural carriers and for city carriers on special purpose routes were
20
inconsequential;
21
costs are covered by components
allowances
paid to special
The costs for these
12.1 and 12.2, were assumed
upon the number of employees using them and thus were related to
categories used for vehicle maintenance
were significant.
Vehicle
therefore those hires were included in other vehicles.
Citv Deliverv Vehicles
- Letter Routes.
Costs are apportioned
to city delivery carrier components
among
22
delivery functions corresponding
in Cost
23
Segments 6 and 7 (office, route, access, elemental load, and coverage-related
24
load) on the basis of the costs of those individual components
25
routes. These apportioned
on motorized letter
costs are separately classified as variable to the same
9
1
-2
degree as the costs of the corresponding
individual components
in Cost Segments
6 and 7.
SDecial Delivetv Vehicles.
3
4
degree as special delivery messenger salary costs.
Vehicle Service Vehicles.
5
6
8
institutional.
9
4.
Vehicle
The costs of this subcomponent
are classified as
Depreciation
For motor vehicle depreciation
11
methodology
12
relying on the relationship
costs, CS 20.2, I use the same
to determine volume variable costs and distribution
function) of the vehicles.
-13
Costs are classified as variable to the same
degree as vehicle service driver costs.
Other Vehicles.
IO
Costs are classified as variable to the same
keys, i.e.,
between mail volume and the users (underlying
For vehicle depreciation
five subcomponents
are
14
considered:
city carrier vehicles, rural carrier vehicles, special delivery
15
messenger
vehicles (expedited delivery), vehicle service drivers vehicles, and
16
other (administrative)
17
vehicles.
IO
1
Ill.
REVIEW OF BASE YEAR 1996 COSTS
2
A.
History
3
of MVS Cost Analysis
The base year 1996 (BY96) development
of MVS costs was the result of a
4
succession
5
regarded as partly volume variable because of its link to city carrier activities in the
6
R76-1 rate filing. City carrier costing was developed on a functional
7
analysis recognized
8
vehicles and that it was (and still is) customary for each motorized
9
individually
of refinements
that were incorporated
into the analysis since CS-12 was first
basis. Part of the
that city delivery carriers were the main users of postal-owned
route to be
assigned a vehicle to be used exclusively for that route. Thus the operating
IO
cost for a motorized city delivery route inherently includes a direct vehicle cost as well
11
as a direct labor cost and both costs can be treated identically with regard to variability
12
analysis.
13
institutional
14
proportionately
15
vehicle expenses
16
for a motorized
17
labor cost components.
18
classes of mail for each labor cost component.
19
In other words, the total cost (consisting
components)
burdened
of both volume variable and
of a motorized route effectively consists of the carrier cost
by the vehicle cost.
If carrier wages amount to $50,000 and
amount to $5,000, then the volume variable portion of vehicle costs
route can be estimated as ten percent of each of the volume variable
As such, the volume variable vehicle costs can be distributed
It should be noted that this treatment
to
results in a vehicle cost burden on carrier
20
office costs as well as on carrier street costs, essentially
reflecting the fact that the
21
vehicle belongs to the carrier even when it is not actually in use.
22
total system level, the number of carrier vehicles, and hence the aggregate
23
varies identically with the number of motorized carrier routes - the so-called “system
24
variability”.
25
allocating the portion of total CS-12 cost associated
Accordingly,
at the
vehicle cost,
In the original R76-1 tiling, this identical variability was approximated
by
with city carrier vehicles among the
?
11
,-
1
five types of motorized
2
these route types.
3
estimated from available accounting
4
p
The portion of CS-12 costs associated
The R76-1 treatment
with city delivery vehicles was
data.
as just outlined effectively dealt with the volume variable
5
costs of city carrier vehicles, by far the majority of CS-12 costs.
6
filings, similar treatments
7
vehicles used for special delivery messengers,
8
routes, and for vehicle driver routes.
9
functions were treated similarly to the costs of postal-owned
were applied to other postal-owned
In subsequent
rate
vehicles: specifically,
for collection and other special purpose
In addition, the costs for vehicles leased for these
vehicles.
In each instance,
IO
vehicle costs were considered
11
costs of the corresponding
12
the burden method.
13
functions were regarded as institutional.
14
12 costs were distributed
among the different types of vehicles, and the types of
15
vehicles were distributed
among the operating functions (city carriers, rural carriers,
16
etc.). These distributions
were based on two reporting systems: the Make-Model
17
Report and the Form 811 Survey (see below).
18
-
routes in proportion to the total carrier cost ascribed to each of
as volume variable as the volume variable direct labor
operating functions.
This procedure
Costs for vehicles dedicated to managerial
has become known as
and administrative
To determine the appropriate
In the R90-1 rates filing, Witness Barker proposed a refinement
cost pools, CS-
of the city carrier
19
vehicle cost treatment that took acwunt
of the differing amounts of use of vehicles
20
among business and residential
21
relied on available data (from the 1986 STS survey) to show, for example, that vehicles
22
were being driven 80 percent of the time on curbline routes and 28 percent of the time
23
on loop routes.
24
direct proportion to the amount of use. The Commission
25
which remains in the existing BY96 workpapers.
and loop and curbline route types.
He then allocated their operating
Witness Barker
costs (but not their depreciation)
adopted this methodology,
A set of vehicle-use
factors is
in
12
1
developed for this purpose in the CS-7 workpapers
2
used in CS-12 to determine the proportion
3
variable for the carrier components.
However, the BY96 workpapers
4
use allocation to vehicle depreciation
as well as to vehicle operating
5
allocation is an apparently
6
R90-1 refinement
7
delivery.
9
the operations
of vehicle costs to be treated as volume
result of a workpaper
apply the vehicle
This
costs.
error. Witness Barker’s
Report provides summary statistics derived from a census of
and maintenance
of all postal-owned
vehicles.
It currently relies on the
IO
VMAS, an ongoing and largely automated
11
Form 811 system, now discontinued,
12
type of postal owned vehicle with respect to the various operating functions of concern.
13
Given the data from these two sources, allocating costs among operating
14
a two-step process: first determine
15
determine
reporting system embracing
all VMFs.
The
provided statistics on the hours of use of each
functions was
costs for the different vehicle types, and then
how the various vehicle types were used.
16
17
18
B.
-,
did not affect the costs of vehicles used for functions other than city
The Make-Model
8
unintentional
and the values of these factors are
CRA Structure
BY 1996 CRA workpapers
cover the costs associated
19
Services (MVS) in CS-12 and CS-20.
20
Vehicle Maintenance
21
for maintenance
22
offices), the depreciation
23
VMF operating
24
materials, and overheads,
25
maintenance
MVS costs arise from the operation
Facilities (VMS’s) operated
services performed
with USPS Motor Vehicle
by the Postal Service, the expenses
under commercial
contracts
(so-called NPO
of postal owned vehicles, and the expenses
costs., considered
of certain
in terms of postal employee
for vehicle hire.
labor, supplies and
are treated in CS-12 together with the other vehicle
and vehicle hire contract expenses.
Vehicle depreciation
is treated along
-
13
1
with other capital expenses
2
expenses, the present development
3
Personnel, comprising
4
includes contract services; Vehicle Hire; and Capital, comprising
5
and interest expenses.
6
initially developed
7
they are eventually
a
accounts and labor sub-accounts.
in (X-20.
Reflecting these several distinct sources of
incorporates
four major cost components:
VMF direct labor and supervision;
Supplies and Materials, which
vehicle depreciation
In common with other cost segments, while CS-12 costs are
with regard to operating expenses and related information
reconciled
of record,
on an FY basis with the pertinent USPS expense
9
10
11
C.
Development
Citv Carrier
of Costs for BY 1996
Deliverv
Vehicles:
Delivery by city carriers uses virtually all types of
12
vehicles.
13
purpose routes.
14
and 90 percent of NPO costs, while special purpose routes account for about 6 percent
15
in each case. Vehicle cost distributions
16
volume variability analysis in CS-7 for carrier labor costs, as specially modified to reflect
17
the time usage of vehicles in motorized delivery operations.
ia
Cost pools are formed for these vehicles for (1) letter routes and (2) special
For BY96, letter routes account for almost 70 percent of VMF costs
are based on the distributions
established
4
Time usage of vehicles for letter route delivery is found from the functional
19
proportions
20
of the CS-7 workpapers.
21
special purpose routes the proportion
22
associated
23
assumed as 100 percent for travel time.
by
(STS)
in w/s 7.0.4 and, for special purpose routes, from survey results in w/s 7.0.5
This provides for each of five motorized letter routes and for
with the functional
of driving activity (as distinct from all other)
components
route time and access time. The usage is
For letter routes the accrued cost associated
*
4 The time-usage basis for allocating vehicle maintenance costs was originated by
Postal Service witness Barker and accepted by the Commission in Docket No. R90-1.
14
1
with each of these components
2
0.24 for loop routes) to obtain a representative
3
time and access time and, independently,
4
considered
5
time, a vector can be developed
6
the five route types.
7
to produce a vector of “final vehicle proportions”
a
w/s 7.0.4.3):
is multiplied by the appropriate
time usage factor (e.g.,
vehicle use cost corresponding
to route
for travel time. As travel time cost is
a burden on all other accrued carrier costs, including load time and office
representing
the accrued time usage costs for each of
The five vectors are added across route types and then normalized
(see R97-1, USPS-T-20,
Workpapers,
9
IO
Final Vehicle Proportions
Total Motor (see below)
11
12
Access
0.3821
0.2200
13
Route
0.4967
0.2742
14
Load
0.0374
0.1566
15
Offlce
0.0838
0.3492
16
Total
1 .oooo
1 .oooo
17
ia
To distribute costs associated
with vehicles used on letter routes, a single
19
distribution
vector (identified herein as the “vlr” vector) is constructed
20
Final Vehicle Proportions
21
time, route time, load time, and office time.
22
developed
23
and total motor routes (see R97-I,
24
special purpose routes vector is used to develop a distribution
25
on special purpose routes; the total motor routes vector is used to develop a distribution
separately
respectively
by applying the
to the existing (CS-7) cost distributions
for access
Similar vectors of vehicle proportions
are
for letter motor routes, letter foot routes, special purpose routes,
USPS-T-20,
W/S 7.0.4.3 and W/S 12.0.3).
The
vector for vehicles used
15
-
1
vector
2
vector is used to develop the distribution
3
-
In the BY 1996 USPS treatment,
of costs for carfare and driveout agreements.
as already indicated, the vlr vector is used to
4
distribute the cost pools associated
5
vehicle depreciation.
6
vector that is similarly developed
7
“total motor” vector shown above.
a
proportions
9
volume variable costs is much lower for the vehicle use distribution
with VMF personnel,
supplies and materials, and
In contrast, vehicle hire costs are distributed with the vhr vector, a
from CS-7 carrier cost distributions
but based on the
Because the vlr vector reflects much smaller
of office and load costs than the vhr vector, the resulting proportion of
This effect can be seen in the BY96 Segments
than for the vehicle
10
hire distribution.
11
report (page 36) and in my TABLE 1: volume variable costs are about 20 percent of
12
total for VMF personnel
13
the total for vehicle hire costs.
14
understates
15
of vehicles for carriers, including both letter routes and special purpose routes, together
16
with vehicle costs for messengers
17
components
ia
this same figure applies to VMF personnel
19
(component
20
P
(identified herein as the “vhr” vector) for vehicle hire costs. The letter foot routes
and Components
costs and supplies and materials costs but about 45 percent of
the difference
Indeed, the 20 percent variability substantially
in these distributions
and drivers.
because it reflects the combined costs
Examining the relevant CPA
shows that the vehicle cost variability for carriers is less than 20 percent;
96) and depreciation
(component
(component
67) supplies and materials
226).
With regard to the existing treatment of other vehicle-dependent
21
volume variability of VMF costs associated
22
percent, that for drivers (component
23
directly from the corresponding
24
drivers (in CS-6).
25
development
with messengers
545) is 60 percent.
(component
66) is 47
Both these figures derive
labor cost variabilities for messengers
In these cases, there is no consideration
of VMF costs.
activities, the
(in CS-9) and
of time usage in the
16
1
We have used volume variabilities
to indicate differences
in distributed
2
the components
3
respect to the costs allocated to particular mail classes, as may be appreciated
4
considering
5
costs as two of the constituents
6
cost distribution)
the differences
Vehicle
7
in the interests of simplicity.
The differences
in class of mail distributions
are also substantial
with
-.
by
between oftice costs and route
of the vlr vector (reflecting
about 6 percent of the office
and the vhr vector (reflecting about 35 percent).
Demeciation:
As noted above, city carrier vehicle depreciation
a
CS-20) in the BY96 were distributed
9
usage, for both letter routes and special purpose routes.
on the vlr vector and therefore
however, ” . . . the city-carriers
11
depreciation,
12
carrier carfare expenses
13
depreciation
14
is not supported
15
of recent workpaper
16
correct) distribution
17
the logic that the number of vehicles, and hence their depreciation
ia
same way as the number of vehicle route carriers.
19
reflect the total system variability.
delivery routes distribution
costs (in
reflect vehicle time
The R90-1 testimony stated,
10
20
costs for
developed
for vehicle hire,
and interest [i.e., the vector vhr noted above] is also used to distribute city
in Cost Segment 13.” This change in distribution
of vehicle
costs from the defining R90-1 testimony (vhr) to the BY96 (vlr) workpapers
by testimony and appears to be the unintended
(and erroneous)
The original (and
changes made to BY96 for other purposes.
of depreciation
costs on the basis of the vhr vector corresponds
carrier comprises
the cost for equipment
22
carriers
23
vehicle depreciation
24
and its cost distribution
25
the burden treatment.
to
costs, varies in the
In other words, depreciation
Another way of looking at this is to see that the operating
21
result
costs
cost of a motorized
in addition to the direct labor cost. Thus if the
annual pay is $40,000 and the annual vehicle depreciation
is $4,000, the
can be calculated as a ten percent burden on the carrier labor cost
is the same as the carrier labor cost distribution
consistent with
-.
17
1
Base Year 1996 Costs
D.
,F~
Volume Variable costs for BY 1996 are shown below in TABLE 1.
2
3
TABLE 1
4
cs
Volume
Variable
OTHER
TOTAL
COSTS
Percent Vehicle Hire Percent Total CS 12
Maintenance
Percent
parts &
Supplies
Percent
$51,466,000
19%
$57,712,000
19%
$12,031.000
45%
$121,209,000
20%
$220,078,000
61%
$271,544,000
100%
$245346.000
$303,058.000
81%
100%
$14,800,000
$26,831,000
55%
100%
.$480.224,000
$601,433.000
80%
100%
ia
1
IV.
DEVELOPMENT
2
A.
Construction
3
OF BASE YEAR 1996 COSTS
of Cost Pools
A causal connection
is necessary for determining
volume variable costs.
4
connection
5
function and the vehicles are not bundled with the service itself as with purchased
6
transportation.
7
the functions that rely on postal-owned
a
vehicle service, rural delivery, and certain management
9
to disaggregate
Such a
clearly exists where vehicles are necessary to perform a postal operating
There is thus a causal basis for attributing CS-12 costs on the basis of
or leased vehicles: city delivery, special delivery,
CS-12 costs in accordance
activities.
It is thus necessary
with the relative amounts associated
with
10
each of these functions.
11
in accordance
with functional
12
separations.
The VMAS function codes provide a ready basis for this disaggregation
13
and can effectively replace the existing two-step allocation process that uses the
14
Make/Model
15
most of the conceptual
16
carrier vehicles, both because this function accounts for most of the CS-12 total, and
17
because the detail afforded to allocating carrier labor costs provides both a basis and a
ia
rationale for a corresponding
As stated earlier, the VMAS provides costs and operating
(user/driver)
Report and Form 611 results.
separations
as well as with make-model
Once the CS-12 costs are disaggregated,
issues arise in considering
the proper treatment
of costs for city
detail in the CS-12 treatment.
19
20
21
B.
Changes
to CRA Structure
ATTACHMENT
22
Make/Model
23
subcomponents.
data
3 shows the output of the VMAS database
Report as the basis for the apportionment
that replaces the
of CS 12 and CS 20.2 into
These changes were made to the calculation
of MVS and vehicle
19
,-
1
depreciation
2
workpapers.
3
1.
as shown in Witness Meehan’s (USPS-T-l
The Make/Model
functions or subcomponents.
5
disaggregation
6
costs, maintenance
7
delivery and vehicle service driver costs.
2.
9
1) base year
Report was not used to apportion the components
4
a
-
spreadsheets,
of maintenance
Instead ATTACHMENT
4 shows the
and vehicle dollars into functions: other
costs, city carrier costs, rural carrier costs, expedited
Office costs for city carriers were eliminated
subcomponent.
into
as a function or
Nothing from my examination
of MVS and vehicle
IO
depreciation
11
underlying
12
though our analyses for rural carriers and vehicle service drivers do not
13
allow us to exclude office time, it is nonetheless
14
correct in city carriers to exclude office time where we have identified
15
those costs separately.
16
3.
leads to any justification
for the inclusion of office time as an
cause of volume variable costs for these components.
The disaggregation
preferable
Even
and more
of parts and supplies and vehicle hire rely on the
17
maintenance
ia
analysis but is not our best treatment for these costs.
19
limitations on our ability to manipulate the VMAS database
20
concerns and the timetable for the development
21
able to develop parts and supplies and vehicle hire based on the records
22
for these components.
23
VMAS.
,-’ 24
25
4.
vector.
The proportions
This approach
is consistent with the BY 1996
Because of
due to Y2K
of BY 1996, we were not
Starting in FY 1999, we will use data directly from
provided from ATTACHMENT
accrued cost pools for these components
4 are applied to the
to develop BY 1996 costs.
20
1
2
3
4
c.
Calculation
of Base Year 1996 Costs
ATTACHMENT
4 shows the disaggregation
of maintenance
dollars into the subcomponents.
1.
OTHER (MAINT) Personnel
costs, as shown in ATTACHMENT
5
29, are not used to develop the subcomponent
6
costs for either MVS or vehicle depreciation.
7
vehicles owned by maintenance
a
for future treatment.
9
2.
ALL CITY CARRIERS
10
are redistributed
11
CARRIERS
12
and depreciation
3.
to C/N
shares of the accrued
These costs represent
to perform their duties.
costs, as shown in ATTACHMENT
CARRIERS
4, Line
See Section V.B.
4, Lines 36-37,
LETTER ROUTES and GIN
SPR ROUTES.
The new total for ClTY CARRIERS
LEmER
ROUTES is distributed
to its
I
13
subcomponents
14
weighting,
15
12.2, and 20.2.
using BY96 STS Proportions.
as shown in TABLE 2. These results are applied to CS 12.1,
TABLE
16
This results in the following
2
17
Given no new evidence to indicate that rural carriers or city carriers on
ia
4.
19
special purpose routes require rental vehicles at a higher rate than in the past,
21
-
1
vehicle hire costs, CS 12.3, rely on the same subcomponent
2
workpapers.
3
12.0.3 and 12.3. VMAS data in this area exists but not available prior to the
4
construction
5
enhancements
6
Using the percentages
7
depreciation
8
ATTACHMENT
The inputs are shown in USPS T-l 1 Workpaper
of the base year workpapers.
B at worksheets
See Section V.B. where future costing
are discussed.
developed
in TABLE 2, the recalculated
and MVS costs are then inputted in T-l 1 Workpaper
5.
shares as the BY96
proportions
B as shown in
for
22
1
D.
2
Base Year 1996 Results
Volume Variable costs for BY 19965 are shown below in TABLE 3.
3
4
TABLE 3
5
6
7
v.
6
A. Comparison
9
CONCLUSIONS
of Base Year 1996 and Base Year 1996 Methodologies
The vehicle-use
basis and the total system basis represent two distinct concepts
10
for allocating VMF costs to city carrier activities.
11
material costs are directly proportional
12
assumes that VMF labor and material costs are proportional
13
This methodological
14
directly from accounts as they are charged.
15
16
Secondly,
5 USPS-T-l
to the time-use of vehicles while the second
question is eliminated
the BY 1996 methodology
service, changing functions,
1 Workpapers
The first assumes that VMF labor and
to the number of vehicles.
in the BY 1996 treatment
is self-updating.
as we take costs
Vehicles coming into
and being taken out of service are reflected in the database
23
1
1996 costing and sampling error.
-2
3
Lastly, the BY 1996 methodology
The Make/Model
required many assumptions
report was apportioned
as to the functions
4
of vehicles.
5
assumed use of vehicles.
6
actual function assigned to each vehicle.
7
superior, leading to more accurate costing of motor vehicle service and vehicle
a
depreciation.
9
B. Methodology
10
.-
each A/P. This removes the issue of the timeliness of the sampling used in the BY
The new methodology
based on the survey and
bypasses this complexity
by using the
Clearly in all aspects the new methodology
is
Refinements
As stated earlier, Y2k limitations on manipulations
of the database
and the
11
timeliness of the base year limited our total use of the VMAS data to develop these
12
costs. Starting with FY 1999 Cost Revenue Analysis (CRA), the computation
13
hire, CS 12.3, and parts and supplies, CS 12.2, will be calculated
14
own vectors of costs by function code. This will enhance the treatment
15
This improvement
16
maintenance
17
number of vehicles as addressed
will deflate any arguments
directly using their
immeasurably.
that stem from using CS 12.1,
dollars to allocate other components,
in Section
on vehicle
V.A.
e.g., issues relating to usage vs.
24
ATTACHMENT
1
VMAS FUNCTION CODES
USPS-T-20
-~
4,
25
ATTACHMENT
2, PAGE 1 of 2
USPS-T-20
VMAS WORK ORDER FORM FRONT
26
ATTACHMENT
USPS-T-20
2, PAGE 2 of 2
VMAS WORK ORDER FORM BACK
1121
I
I-ililil
l
1s
1141
I
Iililil
I
L
)
)
27
ATTACHMENT
3
USPS-T-20
DATE:06/15/1999
78;586;298.49
2.473.381.30
2.168.398.84
54.332.73
.
-
.-
.
28
ATTACHMENT
4-
MAINT & DEPREC DOLLARS
LlNE
BY SUBCOMPONENTS
FUNCTION CODE
Maintenance
USPS-T-20
Demeciation
y&i&
NUMBER
1
2
3
4
5
6
8'
9
IO
11
12
13
14
15
16
17
18
19
20
21
22
23
24
24
26
27
28
29
I
NO
Al
I AM
A0
AV
CA
IA
IE
IS
MP
MS
DD
PM
ss
vs
IWR
DS
EX
.z?
PS
I
NO FUNCTION CODE
ACCIDENT INVESTIGATION
ADMINISTRATIVE
FIELD MAINT OPERATION
AMF VEHICLE
CUSTOMER ACCT REP
INSPECTION SVC (ADMIN)
INSPECTION SVC LAW ENF
INSPECTION SVC (OTHER)
MOBILE POTRAILER
MOBILE SELF-POWERED PO
DELIVERY DIST MAINT
PLANT MAINT SERVICE
STREET SUPERVISION
VENDING SERVICE
WRECKERS
DEAD STORAGE
EXPERIMENTAL
NON-POSTAL VEHICLE
PREPARED FOR SALE
30
31
32
DM
PL
CD
33
34
35
‘c”s
CITY CARRIERS LEITER ROUTES
DISMOUNT ROUTE
PARK AND LOOP
CURBLINE DELIVERY
CITY CARRIERS SPR ROUTES
COLLECTION
INTRA CITY NON-VMS
SERVICE
PP
PARCEL POST
36
37
CP
DT
ALL CITY CARRIERS
COMBINATION
DRIVER TRAINING
38
TOTAL CARRIERS
39
40
RR
RURAL ROUTE
41
42
ED
EXPEDITED
43
44
45
46
47
48
SP
MV
BT
MT
ST
VEHICLE SERVICE DRIVER
SPOITER
MOTOR VEH SVC (MVS) VEH
BMC VEHICLE (TRAILERS)
MOTOR VEH SVC (MVS) TRL
NON-ROAD USE TRAILERS
49
l-r
TOTALS:
DELIVERY
554314.16
34419.36
3.805.359.11
314,177.29
296.236.02
109.375.67
56,198.99
717,949.44
540.970.56
16.651.99
2551467.57
21,612.OO
2,473.381.30
351.439.16
171.970.68
9,722,343.30
156.020.91
18.961.83
'565.94
10349.18410
110,110.14
1.645,632.26
274.001.69
1.051.265.35
2.595.181.99
13.158.65
1.904.04
54:332.73
16.470.M5.65
1.032.128.00
26.1Q?J.00
1,776
36 I
2.256.659.00
1,349,515.00
458.756.00
3.102,496.00
167.776.00
206.479.00
75.665.00
1.352.00
1,422.OO
4,469,758.00
54.055.00
1.004.125.00
'174;541.00
993.995.00
741.036.00
114.906.00
849
4,604.OO
7.636.532.00
92
,I
;
5,907
61
971
340
409
9.076
65
*
so
17.021.00
10.4W.226.97[
78.566.296.49
45.696.779.04
6,707,967.00]
77.295.123.00
34.228.957.00
10,591
91,263
41,669
427.970.27
5.160.235.66
2.166.396.84
1.029.055.00
5.477.019.00
1.691.707.00
270
3,626
1.194
14.223.793.53
347.571.86
11.946.059.00
34771.00
12.591
472
157,213,276.67
140.927,658.00
161,666.OO
12.795.646.84
12.795.648.84
10,441.509.00
10.441.509.00
11.241
11,241
2.333.633.04
2.333.633.04
3,712,012.00
3,712.012.00
2.449
2.449
1,245,865.24
17.772.315.95
145.416.72
4.664.641.43
20,739.31
23.669.000.65
2.037,223.00
21,966,674.00
260.397.00
2.601.777.00
17.653.00
27.103,724.00
420
4,171
321
3,974
233
9,119.oo
$222,464,648.55
5205,089,504.00
215,898
.4
29
ATTACHMENT
5
USPS-T-20
MVS BASE YEAR INPUTS
Base Year 1998 - USPS Version
C/S 12 MOTOR VEHICLE SERVICE INPUTS
C/S 20.2.2 VEHICLE DEPRECIATION INPUTS
COLUMN
NUMBER
(2)
(1)
(3)
(4)
(5)
(6)
(7)
5(000)
5(000)
5(000)
S(OO0)
CALCULATIONS
UNITS
COLUMN
SOURCE/NOTES
S(OO0)
5(000)
$(OOO)
r
From Stmt of Rev & Exp subacct. 141
12.1.1
TOTAL PERSONNEL
306,653
221,374
12,730
3,475
35,543
19,054
14,477
12.2.1
TOTAL SUPPLIES AND
MATERIALS
333,769
240.963
13,657
3,762
36,688
20.740
15,759
COLUMN
NUMBER
(2)
(1)
(3)
(5)
(6)
5(000)
5(000)
CALCULATIONS
UNITS
COLUMN
SOURCUNOTES
12.3.1
TOTAL VEHICLE HIRE
5(000)
S(OO0)
b(000)
I
I
From Stmt of Rev 8 Exp Acct 52459
5(000)
32.664
25,142
1,446
395
4,037
I.644
205.7771
140.3291
9,1631
3,6Q61
26.9691
10,397
CALCULATIONS
20.2.2
1TOTAL DEPRECIATION
15,203