PB-T-2
WASHINGTON,
POSTAL
D.C.
RATES AND FEE CHANGES,
Direct
20268-0001
2000
Docket
Testimony
Dr. John
No. R2000-
of
Haldi
Concerning
PROPOSAL TO INSTITUTE A DISCOUNT
FOR FIRST-CLASS
SINGLE PIECE METERED
On Behalf
PITNEY BOWES
MAIL
of
INC.
Ian D. Volner
N. Frank Wiggins
Venable, Baetjer, Howard & Civiletti,
1201 New York Avenue, N.W.
Suite 1000
Washington,
DC 20005-3917
Counsel
May 22,200O
for Pitney Bowes Inc.
LLP
1
CONTENTS
Page
I.
II.
Purpose
......................................................
Sketch
Autobiographical
and Conclusions..
.4
.. .; ...............................................
.8
.......................................................................
Introduction..
.6
III.
Stamps are a High Cost Mode of Collecting Revenues
Compared to Meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IV.
Rationale
for Proposed
Discount..
. . .. . .
.
.
.
. . . 15
A. The Evolution of Metering Technology
Has
Dramatically
Reduced Costs for Meter Users,
Including
Small Businesses
and Households
. . . . . . . . . . . . . . . . . . 16
B. Metering Technology
is Now Readily Available
to the Average Household
.. .. . .. .. . .. . .. . .. . .. . . .. . .. . . .. . . . . .
C. The Proposed Discount
Simplicity
of Execution
Would Enjoy
.. . . . . . .
.
.
. . . 18
.20
D. Single Piece First-Class
Mail Is Still the
Postal Service’s Core Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
V.
Revenue
Effect of Proposed
A. Decrease
B. Offsets:
in Revenues..
Avoided
C. Net Revenue
Discount..
.................................
.......................................
Costs and Increased
Volume
.: .......... 23
. . . . . . . . . . . . . . . . . 24
Effect . . ..___...._._...........................................
2
23
25
CONTENTS
Page
Appendices
A.
Cost of Stamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..__.... 27
B.
Cost of Revenues
C.
Revenues
D.
Revenue
from Metered
from Stamps
Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . ._.,.._.. 40
and Meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..__... 46
Effect of Proposed
Discount
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .._. 50
Autobiographical
1
My name is John
2
3
an economic
4
Avenue
5
experience
6
and private
I
legislatures.
8
9
Haldi.
consulting
a wide variety
organizations,
including
In 1952, I received
a Bachelor
with
a major
1957 and 1959, respectively,
11
economics
from Stanford
From
testimony
14
of the Program
15
I was responsible
16
Programming-Budgeting
17
federal
18
of Planning,
United
19
establishing
the Office of Planning
20
O’Brien.
21
hired
the initial
before Congress
and state
in economics.
In
an M.A. and a Ph.D. in
School of Business.
Evaluation
at the Stanford
of the Budget.
implementation
(PPB) system
During
professor
In 1966 and 1967, I was Chief
Staff, U.S. Bureau
for overseeing
in all non-defense
1966 I also served as Acting
an initial
under
research
While there,
of the Planning-
States Post Office Department.
staff.
business
University.
University
I established
My consulting
and a minor
I received
13
government.
Inc.,
of Arts degree from Emory
1958 to 1965, I was an assistant
Graduate
10019.
of areas for government,
in mathematics
10
of Haldi Associates,
firm with offices at 1370
New York, New York
has covered
University,
12
I am President
and management
of the Americas,
Sketch
Postmaster
program,
agencies
of the
Director,
Office
I was responsible
General
Lawrence
and screened
and
for
I have written
1
numerous
2
and co-authored
3
that deal with postal
4
Output
5
of Public Output
(1970);
6
Private Express
Statutes,
7
for Public
8
Mail Delivery,”
9
(1992);
10
Delivery
11
Postal and Delivery
12
“Transaction
13
Systems,”
14
and an article
15
Transaction
16
in Current
17
one book.
articles,
Items included
and delivery
Policy Research
Settled
an article,
Merewitz),
Rural Areas,”
Industries
(1997);
Costs of Alternative
(with John
I have testified
18
Docket
Nos. R97- 1, MC96-3,
19
SS86- 1, R84- 1, R80-1,
20
comments
in Docket
Performance
“Costs and Returns
in Managing
an article
Customer
as a witness
Institute
Change
(with John
from
in the
Schmidt),
and Evidencing
Services
(1999);
Postal Retail
Access to Postal Products,”
(2000).
before the Postal Rate Commission
MC95- 1, R94- 1, SS9 l- 1, R90- 1, R87- 1,
MC78-2
and R77-1.
No. RM9 1- 1.
in
of Postal Delive y Services
“Controlling
in Postal Reform
of
of the
Enterprise
in PostaZ and Delivery
Schmidt),
Costs and Improving
Directions
An Assessment
Postage Payment
Competition
“The Value
in The Analysis
“Measuring
and the Nature
(with Leonard
in Emerging
appeared
by the American
(1974);
in Regulation
to Sparsely
which
studies,
those publications
are an article,
a book, Postal Monopoly:
published
consulting
among
economics
of the Post Office Department,”
an article
published
I also have submitted
in
I. Purpose
1
The purpose
2
3
new worksharing
4
letters
5
Throughout
6
to include
7
postage
8
First-Class
9
and Conclusions
of my testimony
discount
and private
for single-piece
post cards,
this testimony
the term metered
both through
“letters”
The proposal
should
be understood
to adopt a discount
metered
mail, both letters
represents
12
of the avoided
13
transaction
cost between
14
Mail would
support
15
discount.
16
force the rate for the first ounce of First-Class
17
from 34 to 35 cents.
conservative
attributable
a higher
Implementing
As indicated
stamped
be understood
stand-alone
dedicated
19
piece letters
20
mail can be stamped
21
(iii) parcel
cost.
passthrough
a larger discount
and post cards.
No discount
The difference
is proposed
44 percent,
in
single piece First-Class
and a correspondingly
larger
at this time, however,
could
stamped
Mail,
mail to increase
to First-Class
subclasses
(i) Priority
post cards,
approximately
is limited
Three other
or metered:
and the term
flats and IPPs.
and private
and metered
above, the proposal
both
mail should
passthrough,
transaction
mail,
of 1 .O cent per piece for single-
11
a highly
of a
of 1 .O cent per piece.
to include
piece First-Class
post.
metered
devices and PC Postage meter devices,
10
1s
the establishment
First-Class
in the amount
mail that is metered
evidencing
is to propose
single
of single-piece
(ii) Express
in this Docket
Mail,
retail
and
for these other
1
2
subclasses
because
post all are required
1
entered
most Priority
Mail, host
to be entered
at a window,
Only stamped Priority
into a collection box.
Mail weighing
7
Express
Mail, and parcel
*
less than one pound
can be
II.
1
Prior to 1839, postage
2
3
by recipients.
4
deliver
for letters
In 1839, as a result
6
introduced
7
postage
8
innovation
9
facilitated
of efforts
the first prepaid
stamps
postage
reduced
communications,
10
growth
11
to prepay
12
adopted
13
their
14
the history
of postal
stamps
administration
18
evidence
19
in more detail
stamp.
costs.
Hill, the Royal Mail
When printed,
they represented
costs.
of industry
prepaid
a “technological”
This innovation
and, coincidentally,
were so great that all the world’s
post offices rapidly
stamps
method
have played
of further
of paying
a colorful
for postage.
and important
technological
developments
are now the most expensive
of postage.
Since
role in
post office.
has for collecting
payment
transaction
to
this new technolog\
of every national
17
incentive
paid
of using
stamps
As a result
was universally
a strong
by Sir Rowland
The advantages
as the standard
introduction,
first introduced,
substantial
transaction
growth
systems.
postage
16
provided
were first introduced,
that greatly
and packets
arrangement
the item, but it also created
5
15
This “COD”
Introduction
revenues
method that a postal
and enabling
As developed
below, the Postal Service’s
since they were
customers
in Appendix
attributable
to
A and discussed
cost of printing
and
1
2
distributing
revenues
stamps
to the public
amounts
4
Pitney
invented
the postage
5
prepay
postage
and indicate
6
inception,
7
postal
8
convenience
9
and a substantial
postage
meters
administrations,
10
printed
11
increasingly
12
various
13
Examples
14
Personal
payment
reduction
of ,the
a low cost method
benefits
for the average household
are introduced
low cost dedicated
revenue
that must
be
to be
and small business
into the market
devices
customer
of collecting
continue
to
upon
enhanced
of stamps
Postage meters
Arthur
Since their
on envelopes.
substantial
in the number
stamp,
way for mailers
secure payment,
annually.
low cost solutions
include
thereof
have conferred
and satisfaction,
affordable
of the prepaid
meter as an alternate
including
and distributed
15
6.7 percent
collected.2
In 1920, 71 years after introduction
3
to about
as
place.
(such as the Pitney
Bowes
Post) and PC Postage devices.
Although
widespread
adoption
of postage
16
extensive
17
borne
the full cost of leasing
postage
18
when
mailers
and perform
19
Postal Service costs, postage ,meters probably
benefits
incur
on the Postal Service,
expense
meters
meter users
meters.
has conferred
nevertheless
Since worksharing
activities
that directly
represent
have
occurs
reduce
the earliest
form
This percentage reflects attributable costs only, and excludes many
of the fuced costs of operating retail counters; see Section III and Appendix A,
infra, for further details.
2
9
1
of organized
worksharing,
2
recognition
3
testimony,
it is proposed
4
recognition
by adopting
5
metered
long before such efforts
in the rate structure.
For reasons
explained
that some of these benefits
a new worksharing
mail.
10
received
discount
formal
in this
now be given formal
for single piece
III.
1
2
3
4
Stamps
The stamp
5
(including
6
transportation,
7
destruction
8
both attributable
9
cost of stamps
Are a High Cost Mode of Collecting
Compared
to Meters
program
the selection
begins with commissioning
committee
distribution,
of unused
stamps.
Stamps
and non-attributable
has rarely,
11
service time, including
indirect
12
(iii) fees for managing
the stamp
13
card purchases,
14
other
costs associated
15
items,
are classified
16
stamp
program
window
Attributable
with
costs.
miscellaneous
Details
cost associated
paper
(iv) fees for credit
items.
of many
All
miscellaneous
on the total cost of the
A.
with meters
require
of
windon
and accountable
of small,
in Appendix
service time (i.e., meters
to (i) clerks’
consist
full
the exception
program,
as institutional.
are presented
with
consignment
which
to incur
The Postal Service’s
costs, (ii) stamps
stamps,
and
cause the Postal Service
costs are limited
and (v) a number
The attributable
fees), then printing,
if ever, been compiled,
one earlier
18
study.3
of new designs
etc., and ends with the return
10
17
and artist
Revenues
is limited
no USPS supplies).
to clerks’
All other
John Haldi and John Schmidt, “Transaction Costs of Alternative
Postage Payment and Evidencing Systems,” in Emerging Competition in Postal
and Delivery Systems, edited by M. A. Crew and P. R. Kleindorfer. Boston:
Klewer Academic Publishing Co., 1999.
3
li
1
2
costs associated
with meters
the cost of meters
Summary
3
4
stamps
5
The attributable
is shown
in Appendix
data on both revenues
and meters
during
as institutional.
cost of stamps
was substanti&
greater
7
million)
in Table 1.
Details
on
B.
(Appendix
the Base Year, M
6
as shown
are classified
C) and costs from
1998, are shown
and accountable
than the attributable
paper
in Table
($754 million)
cost of meters
($6.3
8
9
10
11
12
13
14
Table 1
Postal Service Revenues
and Cost of Revenues. by Source
Fiscal Year 1998
($. millions)
15
16
17
1s
(1)
19
20
Revenues
(2)
Attributable
cost
(3)
Institutional
cost
(4)
Full
cost
21
22
23
24
25
26
27
28
29
30
Stamps & accountable paper
11,181
754.168
791.212
1.545.380
Meters
21,076
6.286
8.989
15.275
Sources:
Stamp costs, Appendix A.
Meter costs, Appendix B.
Revenues. Appendix C: revenues shown here exclude metered postage
generated at Postal Service windows.
31
32
33
34
Postal Service costs to collect
collected,
are shown
revenues,
in Table 2. As indicated
12
as a percent
by the bottom
of revenues
row of this
1.
1
table, as a percentage
stamps
of revenues,
the attributable
2
from using
exceeds the cost of meters
3
The full cost of stamps
4
percent.4
5
from stamps,
the Postal Service incurs
6
times greater
than the costs incurred
7
meters.
8
declining
9
be incurred
Moreover,
to the point where
in the future.
of postage
to collect
percent
meters
11
meters...[which]...involve
12
customer
13
operational
14
such settings.“j
each $1 billion
to collect
relatively
Witness
in revenue
are more than
net cost associated
insignificant
with
accounting
and the meter manufacturer.
180
from
meters
is
costs will
Davis notes that “Currently,
an electronic
13.7
the same revenue
in use are remote-set
over 90
electronic
transaction
between
the licensed
The Postal Service has no
role in such transactions,
Postal administrations,
by more than
costs which
the Postal Service’s
10
4
perspective,
cost
by more than 6.7 percent.
exceeds the cost of meters
From another
transaction
and therefore
including
incurs
no dost for
the USPS, recognize that selling
stamps through postal counters consumes a far too high percentage of revenue
collected, and can be inconvenient
as well. Accordingly
they have implemented
other low cost and more convenient methods for customers to purchase stamps;
e.g., stamps can be ordered by mail or telephone, or purchased at grocery stores
through a consignment
program.
Regardless of hoti inexpensively
stamps may
be distributed
through other channels, however, they still represent a high cost
form of postage payment.
5
USPS-T-30,
pages 15-16 (emphasis
13
added).
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Table 2
Costs of Stamps and Meters
as Percent of Revenues
FY 1998
(1)
Attributable
cost
(2)
Full
cost
Stamps & accountable
paper
Meters
DIFFERENCE
In terms
of the 34-cent
24
Class Mail in this Docket,
25
cents.6
6.745%
13.821%
0.030%
____-----6.715%
0.072%
__________
13.749%
rate proposed
transaction
for the !irst ounce
costs of 6.7 percent
of First-
amount
to 2.3
For simplicity,
the discussion here focuses on the rate for the first
ounce of letter mail. In FY 1998, the average revenue from each piece of FirstClass single piece nonpresort
letter mail was 40.2 cents, and the projected
average revenue in Test Year (after rates) is 43.5 cents. Applying a 6.7 percent
transaction
cost to average revenue figures instead of the first ounce,rate would
increase the average transaction
cost attributable
to an average single piece of
stamped First-Class
Mail from 2.3 to 2.9 cents, and reduce the passthrough
to
35 percent.
6
14
IV.
1
Businesses
2
Rationale
always
find high transaction
3
are particularly
4
product
5
declining.
Transaction
6
or friction
in a mechanical
7
when
resistence
8
work
more efficiently
9
problematic
or service,
for Proposed
where
costs troublesome.
the demand
costs are like resistence
system.
when
transaction
The very high transaction
cost from using
and evidence
postage
is an avoidable,
11
following
subsections
explain,
technology
12
postage
13
provides
14
recognize,
15
technology
16
encourage
and reward
by those who originate
In order to survive
17
market,
18
methods
to change.
reason
systems
likewise
stamps
to collect
recurring
has evolved,
expense.
causing
The evolution
As the
the
in technology
should
the use of more cost-effective
single-piece
and remain
possible,
more efficiently
why the rate structure
competitive
the Postal Service needs to reduce
wherever
system,
costs are reduced.
revenue
the fundamental
work
Economic
10
paradigm
Mail, is flat or
in an electrical
Such systems
are reduced.
The?
for the underlying
in this case single piece First-Class
and friction
evidencing
Discount
and as quickly
First-Class
Mail.7
in its core business
its high-cost
ineffidient
as possible.
The Commission
The entire approach to retail distribution of postal services needs
to be revamped in ways that take full advantage of the technology that is both
available now and is rapidly evolving. For further discussion on this subject, see
Haldi and Schmidt, “Controlling Postal Retail Transaction Costs and Improving
Access to Postal Products” in Current Directions in Postal Reform, edited by M. A.
Crew and P. R. Kleindorfer, Klewer Academic Publishing; Boston, (2000).
7
15
1
should
assist
the Postal Service to lessen
2
on stamps
for postage
3
encourage
retail
4
evidencing.*
5
6
7
8
9
10
A.
payment
customers
customers,
its dependence
and instead
to use low cost, automated
forms of postage
The Evolution
of Metering
Technology
Has Dramatically
Reduced
Costs for Meter Users, Including
Small Businesses
and Households
This section
provides
11
metering
technology
12
discount
for single-piece
pertinent
that supports
Postage meters,
13
by retail
substantially
metered
which
information
the rationale
First-Class
concerning
for the proposed
Mail.
have been a preferred
14
payment
by businesses
for many years,
15
mailings
that receive worksharing
16
presortation
17
efficiency
18
Indeed,
19
the low costs associated
modern
method
of postage
are used to meter both large
discounts
for barcoding
and
and for single piece mail that pays the full rate.9
and cost-effectiveness
the First-Class
of metering
rate structure
already
with accepting
The
are long-established.
has discounts
and processing
that reflect
mailings
above a
8
The Postal Service has not undertaken any studies or other
initiatives to reduce its costs of collecting revenue through the sale of stamps;
see response to PB/USPS-Tll-11(c),
Tr. 6/2619.
9
Full-rate First-Class metered mail includes both single pieces that
may be deposited individually in collection boxes and bulk metered mail (BMM)
that is tendered to the Postal Service already faced and in trays.
16
1
2
minimum
discount
size that are barcoded
is proposed
and/or
presorted.
here for such mail.
In the case of single piece nonpresorted
3
4
mail with
5
costs are averaged
6
ounce
7
averaging,
8
using
9
receiving
10
high transaction
First-Class
costs and metered
each single piece mailer
any recognition
Historically,
ounce.
of this rate
the cost of obtaining
the Postal Service’s
that used meters
and
cost without
to be those firms which
tended
12
correspondence
13
with differing
14
a meter was long a significant
15
medium-size
16
volume/low
17
substantially
reduced
rates to customers.
Additionally,
18
in computer,
printing
and communications
technology
to justify
capabilities
generated
for single piece mail
11
have different
deterrent
With recent
cost meters
a sufficiently
the cost of renting
a postage
large volume
meter.lO
rates, but the lowest
to most smaller
advancements
are being introduced
Postal Service regulations
meters. hence all meters are rented.
10
33 cents for the first
or benefit.
businesses
firms.
stamped
low transaction
Because
who incurs
device helps reduce
Mail,
mail with
in the single piece rate, currently
plus 22 cents for each additional
a metering
No additional
in meter
Meters
.
rate to rent
and many
technology,
to the market
low
at
recent
advances
have provided
do not permit firms to own postage
17
of
the
1
capability
for PC Postage,
2
month,
thus providing
3
4
5
6
B.
7
beyond
traditional
stand
8
enabled
postage
evidencing
which
an affordable
option
for as little
through
In 1998, Forbes magazine
10
approximately
11
Infomzation
12
of those households,
13
2003,
14
with an internet
15
restricted
16
benefit
17
worksharing
IS
proposed
19
will encourage
postage
a personal
estimated
estimates
to business
to tens of millions
discounts
discount
discount
from the Postal Service.
large numbers
signal
or
or 38.8 million
connection.12
By
homes will have a computer
mailers
will send the right
households,
had at least one PC.”
It has the potential
of individual
options
and has
that 50 million
13 The proposed
firms.
meters
with an internet
that some 59.8 million
connection.
customer
that 77.6 percent,
have a computer
it is estimated
of households.
computer.
one out of every two households,
Week magazine
per
Available
of PC Postage has extended
alone dedicated
as $1.50
for millions
Metering
Technology
is Now Readily
to the Average Household
The development
9
is available
thus
is not
to provide
a direct
who otherwise
receive
Recommending
to the mailing
public,
no
the
and
of people to adopt and use this technology,
II
Forbes, May 3 1, 1999, page 7 1.
12
Information
13
Id.
Week, October 18, 1999, page 97.
t8
1
which
is a far more cost-efficient
2
the sale of stamps.
3
Finally,
4
a dramatic
since widespread
increase
will help promote
6
7
8
9
10
11
12
13
President
in customer
way to collect
adoption
for Strategic
Planning,
than
of meter technology
convenience
usage of the mail.
revenue
Robert
recognized
while
Reisner,
through
can provide
restraining
costs. it
USPS Vice-
this in a recent
article:‘-’
In a networked
world, entrepreneurs
have been exploring the
opportuniv
to offer digital postage online for a number of
years....The
potential for these ventures is enormous.
When
customers
do not have to go to the Post Office to fill their
postage meters, they may even use more postage simply
because the new technology has made it easier for them to do
so. New customers may be drawn in. (Emphasis
added.)
“Strategy and the Posts: the Case of the USPS,” in Current
Directions in Postal Reform, ed. by M. A. Crew and P. R. Kleindorfer. Boston:
Klewer Academic Publishers, 2000.
I4
19
1
2
3
4
The Proposed
Discount
Would
Enjoy Simplicity
of Execution
c.
This is not the first proposal
5
single piece First-Class
6
receives
a lower rate in recognition
7
delivery
cost, but pays an additional
8
high transaction
9
Mail.
cost involved
to recognize
Qualified
cost differences
Business
within
Reply Mail (“QBRM”)
of its lower mail processing
fee that explicitly
in counting
and
recognizes
the
pieces and collecting
revenue.
For QBRM the Postal Service charges 30 cents postage plus a fee of 3.0 cents
10
per piece to cover the transaction
11
exceeds 2.3 cents, the average cost of collecting revenue
12
ounce of single piece First-Class
13
be considered
14
delivery costs.
Mail.
to include transaction
A reduced
15
costs. The QBRM accounting
rate for Courtesy
costs as well as mail processing
Reply Mail (“CRM”)
recommended
17
instance
IS
Among
reasons
which
19
mailing
public
(i) would
20
denominations
of stamps,
21
amount
they put on CRM and non-CRM
22
Service could
the Governors
which
in two prior
have declined
the Governors
for the first
dockets,
and
has been
and in each
to adopt the recommendation.
cited for their action
need to maintain
and (ii) would
have a serious
via stamps
For retail mail, total system cost should
16
by the Commission
fee slightly
problem
an inventory
of two
need to be vigilant
protecting
20
is that the
about
mail, else the Postal
its revenues.
the
The problems
1
which
2
CRM do not arise under
3
would
4
denomination.
5
people to quit using
6
metering
7
the Governors
the discount
not need to maintain
proposed
any inventory
In fact, an important
stamps
have cited with respect
of stamps
purpose
altogether,
here.
The mailing
to
public
of any
of the discount
is to induce
in favor of more cost-effective
technology.
Further,
those mailers
who opt to continue
using
stamps
8
pay only one rate for the first ounce of single piece mail, just
9
now.
Meter users likewise
10
iirst ounce.15
11
while
12
within
providing
Simplicity
would
single piece First-Class
as they do
pay only one rate (1 cent less) for the
of the existing
a way to reward
would
system would
and promote
thus be preserved,
more efficient
methods
Mail.
Mailers who pay postage on their CRM by use of a meter strip
would receive a discount under the proposal advanced here. Most CRM is
stamped mail which, when stamps are used as the means of collecting revenue
and evidencing postage, causes the Postal Service to incur high transaction
costs.
15
21
1
2
3
4
Single Piece First-Class
Mail Is
Still the Postal Service’s
Core Product
D.
Single piece First-Class
5
Service’s
most important
6
of USPS witness
Fronk,
Mail is without
single product.
question
the Postal
This is noted in the testimony
who states thatI
Of the $33.9 billion in first-Class
Mail revenue in FY 1998,
approximately
$2 1.8 billion came from nonpresorted
letters,
flats and parcels, emphasizing
the continuing
importance
of
single-piece
mail in the First-Class
Mail stream.
Cards
generated $1.0 billion, or 3.0 percent, of First-Class
Mail
revenue..
*
*
*
7
8
9
10
11
12
13
14
1s
The basic one-ounce rate is the most visible and
important
rate in the eyes of the general public.
In 1998, the
basic rate (first-ounce
only) accounted
for about 30 percent
of domestic mail revenue, far more than any other rate
category in any other class of mail.
19
20
The proposed
15
16
17
21
retain
22
mail highly
23
diversion.
discount
its core product,
16
profitable,
will help the Postal Service
single piece First-Class
it also is increasingly
Mail.
subject
USPS-T-33, pages 8 and 2 1, respectively.
22
to promote
Not only is this
to electronic
and.
1
V.
Revenue
Effect
2
3
The proposed
discount
represents
4
costs.
The revenue
5
when
6
averaged.
7
effects are to reduce
8
offsetting
of Proposed
effects are similar
other worksharing
discounts
One effect is to reduce
a de-averaging
to those which
were implemented
revenues,
costs or increase
effects are summarized
Discount
while
revenues.
of transaction
have occurred
and rates de-
the other,
offsetting
The results
of these
here; see Appendix
D for a full analysis.
9
10
A.
11
Decrease
Mailers
in Revenues
who now meter their single piece First-Class
12
already
13
discount
for savings
14
Service.
For existing
15
implementation
16
$245 million.
17
engaged
in worksharing,
that they are already
metered
of the proposed
In addition,
generating
mail, the revenue
discount
will receive a
for the Postal
reduction
will amount
from
to approximately
the Postal Service will also lose 1 cent for each piece
18
that converts
from stamps
19
Heisler,
20
originating
21
households,
22
from use of stamps
PB-T-3,
hence these mailers
Mail are
estimates
3.518
billion
originating
to metered
postage.
that about
1.119 million
pieces of mail annually,
1.436 billion
to metering
Testimony
small
by witness
businesses,
and 5.3 million
pieces of mail annually,
if a 1 -cent discount
is adopted.
will switch
1
Conversion
2
reduction
3
$294.5
of these 4.954
of $49.5
million.
billion
pieces will result
The gross revenue
in a further
reduction
thus
revenue
amounts
to
million.
4
5
B.
Offsets:
Avoided
Costs
The gross reduction
6
7
(1) cost savings
8
(2) increased
As indicated
9
in revenue
from adoption
volume
and utilization
mail will convert.
11
per piece, this conversion
12
Service
At a savings
is conservatively
in attributable
of metering
effects:
technoloa,
and
rate.
above, it is estimated
stamped
Volume
is offset by two separate
from the reduced
10
$114 million
and Increased
that some 4.954
in attributable
estimated
transaction
billion
pieces of
costs of 2.3 cents
to save the Postal
costs each year. 17
The estimated savings are for attributable cost only, and are based
on the estimated savings on the rate for the first ounce of First-Class
letters. As
indicated in footnote 7 supra, the projected average revenue for letters in the
Test Year is about 43.5 cents, and on that basis the projected savings per letter
is somewhat greater, about 2.9 cents per piece. Continued
substantial
conversion to metering technology could, over the long-run,
help the Postal
Service save some incremental
costs as well as attributable
costs, but any such
additional
savings are excluded from this analysis.
li
24
Witness
1
Tolley estimates
2
reduce
the volume
3
million
pieces.
The proposed
4
million
letters
and 16.6 million
5
volume
of 197.6 million
6
million
annually
I
here is limited
8
respect
9
increased
that the’proposed
of single piece First-Class
discount
letters
cards,
thereby
institutional
to the rate effect as analyzed
approach.
associated
10
in new customers,
11
Postal Service products
(section
by 386
this loss of
an estimated
cost.
by witness
customers
and in that
previously,
technology
to increase
$24.1
The analysis
Tolley,
As discussed
with metering
or lead existing
and cards
avoiding
contributes
to the Postal Service’s
convenience
will
will negate the rate effect for 181
pieces, which
it takes a conservative
rate increase
could
the
draw
their usage of
IV-B, supra).
12
13
C.
Net Revenue
Effect
The net effect from implementation
14
15
for metered
16
reduction
17
follows
single piece First-Class
in revenue
during
letters
of the proposed
and cards amounts
Test Year of $156.5
(millions):
25
l-cent
million,
discount
to a net
computed
as
1
2
Gross revenue
reduction
Less offsets:
3
Transaction
costs avoided
4
Contribution
from volume
5
($ 294.5)
’
Net reduction
in revenue
113.9
24.1
retention
$W
6
26
Appendix
1
A
COST OF STAMPS
2
The Postal Service’s
3
4
includes
5
stamps
6
destroying
7
revenues
and manufacturing
stamps,
the cost of creating
to some 35,411
8
channels:
9
carriers.
selling
outlets,rs
excess stamp
For decades
In recent
introduced
11
by phone,
the Postal Service sold stamps
12
utilizes
13
Costs
other retail
Attributed
During
distributing
and recalling
and
for distributing
channels
through
stations;
only three
and (iii) rural
the Postal Service has creativel:
by mail, and a stamp
stamps.
These include:
consignment
program
such as grocery
stamps
that
stores and bank ATMs.
to Stamps
FY 1998, the attributable
15
(ii) stamped
16
these costs, 96.3 percent,
17
alone.
envelopes
costs of (i) stamps,
and cards amounted
or $726.6
The cost to manufacture
18
(ii) contract
years, however,
new channels
stamps
stamps,
from stamps
inventory.
(i) post office windows;
10
14
total cost of obtaining
million
stamps
Response to PB/USPS-T-11-14,
to some $754.2
were attributable
was $183 million,20
million.
19 Of
to stamps
while
the
Tr. 21/9256.
19
Details on volume variable costs are contained
and workpapers of USPS witness Meehan (USPS-T-l 1).
20
For additional information pertaining
responses to OCA/USPS-47-50,
Tr. 21/9068-9081,
9105; also OCA/USPS-T9-16-17,
Tr. 2/359-360.
27
and
in the testimony
to the cost of stamps, see
and 60-62, Tr. 21.9102-
1
cost of selling
2
$358 million
3
piggyback
stamps
(i.e., window
of window
costs.
service labor .costs) amounted
clerk time, and $519 million
Details
are shown
including
to
indirect
in Table A- 1.
4
5
Institutional
Cost of Stamps
In addition
6
to those stamp-related
7
Table A- 1 that are distributed
8
mail,
9
stamps,
a number
of institutional
to the various
are not distributed
to the classes
11
institutional
12
considered
to vary with volume,
13
on stamps
were substantially
expenses
represent
costs shown
can be associated
to vary with the volume
and subclasses
incremental
but which
scaled back.
28
in
classes and subclasses
costs (i) clearly
but (ii) are not considered
10
attributable
of mail.
of
with
of mail,
hence
These
costs that are not
might
be reduced
if reliance
1
Table A-l
32
4
5
6
;
9
;:
12
13
14
Attributable Cost of Stamps
Fiscal Year 1998 ($. millions)
16.
16.
;;
19
16, 18 Artists
18 & 20
;z
2
29
30
:1
33
it
36
16.
--357.730
Supplies/stamps B
accountable paper
;z
::
22
23
24
(2)
Stamped
_--____cost segment ---___
No.
Description
__-____
--3.
Clerks/window service
Mgt of stamp consignment
183.398
prog
Stamp Advisory Committee
Credit card fees
9.123
(3)
Stamped
Cards
_____
7.098
(4)
Total
Attributable
-__-_
367.877
195.729
3.208
4.646
4.646
0.306
0.306
0.065
0.065
19.449
.165
20.000
2
565.602
12.329
10.692
588.623
Indirect costs, at 0.45 x
clerks/window service costs
160.962
1.368
3.194
165.545
Total attributable costs
726.564
13.697
13.886
754.168
SUBTDTAL
Sources:
Window service costs (stamps), response to PBIUSPS-Tl l-26, Tr. 6/263;
envelopes and cards, respectively, Meehan W.S. 3.2.6, column 4. W.S.
3.2.2, column 8.
Cost of stamps, envelopes and cards, response to PBIUSPS-Tl
and 29, Tr. 612617. 2634-2635.
l-7.28
ii
Stamp consignment
2
41
42
43
::
46
47
48
49
50
51
costs, response to PBIUSPS-Tl
l-8, Tr. 612618.
Artists and stamp advisory committee, response to PBIUSPS-Tl l-5 & 23,
Tr. 6/2615. 2629-2650, using volume variability of 59.8 percent applied to
pertinent account numbers,
Credit card fees, response to PBAJSPS-Tl l-3 (referred to USPS, revised
3/13/00). Tr. 21/9250-9257, estimated at $20 million for stamps and
accountable paper.
Piggyback factor for indirect costs, response to PSIUSPS-Tl
Tr. 6/2621,
I-12,
It has not been possible
1
2
associated
with creating
3
costs that could
4
Table A-2.
and selling
be quantified
In addition
5
to the dollar
Service incurs
a number
7
use of stamps,
but which
8
precision.
Those items marked
9
elaborated
on here.
Costs
mail program,
which
12
program
13
forms
14
class permit],
15
use the BRM envelope.
16
and/or
17
filled by clerks
18
represents
19
stamps
20
are reported
21
however,
include
to postal
“n.a.”
by mail.
order forms,
the
in Table A-2 are
(ii) distributing
distributed,
for stamps
other than window
by mail
such order
and bear a first
are segregated
To the extent
that orders
the cost of their
stamps.
the Postal Service did not explicitly
may be
time
Some costs of the
in the Postal Service
As indicated
30
that
by mail are filled by clerks
service clerks,
cost of selling
in row 5 of Table A-2.
by
reply mail fees for all customers
in local post offices.
a net additional
with
Costs of the stamps
(these are widely
Orders
in
here with any degree of
(not available)
internally.
and (iii) the business
by mail program
costs associated
The Postal Service has a stamps
it manages
customers
as shown
in Table A-2, the Postal
could not be quantified
(i) printing
supervisors
to $79 1.2 million,
costs shown
cost
In Fiscal Year 1998, those
of other incremental
for stamps
11
every institutional
stamps.
amounted
6
10
to quantify
records,
and
in rows 6 and 7,
record
any cost (either
the
1
2
rate charged
million
First-Class
order forms via direct
Costs
3
for stamps
4
stamps
5
charged
6
net cost of this program
7
by phone
9
transportation
mail during
TRACS distinguishes
11
First-Class
Mail.
12
throughout
the country
13
proposition.
Registry
who order
stamps
by phone
are
to the face value of the stamps.
Stamps
to 35,411
is not charged
10
1998.21
The
is not known
cost.
via truck
some 64
The Postal Service also has a
Customers
fee in addition
Transportation
transported
A mail) for distributing
by phone.
program.
a handling
8
14
or Standard
(and accountable
postal
outlets.
to “stamps,”
costs.
Uncancelled
stamps
16
registered
17
a result,
18
Service itself, and much
mail, which
a substantial
provides
portion
of registered
Registered
or
is not an inexpensive
are easily negotiable.
the Postal Service
the highest
whether
secure transportation
of stamps
post offices need to be resupplied,
The cost for such
from other
for billions
15
are
and it is not known
items such asstamps
In any event, providing
paper)
available
When
sends them via
form of security.
As
mail usage is by the Postal
of that usage is for internal
transmission
of
21
See response to OCA/USPS-58 and 60 for additional information
on saturation mailings by the Postal Service to the general public, Tr. 2 l/9099,
9102.
31
1
stamp
stock.
Charging
the stamp
2
as the Postal Service charges
3
annually,
4
1998 volume
program
others
would
but data were not available
variable
with the same registry
result
in a significant
for the computation.
cost for registry
fees
sum
The total FY
was $99,336,000.
5
6
Cost of Obtaining
7
Revenues
From
Stamps
In FY 1998 the total attributable
8
paper
(stamped
9
revenues
envelopes
from stamps
10
million.
Thus,
11
envelopes
12
$67,400
and cards) amounted
and accountable
to collect
and accountable
to $754 million,
paper amounted
$1 ,OOO,OOO in revenue
while
to $11,18
from stamps,
and cards the Postal Service incurred
attributable
1
stamped
costs of
or 6.74 percent.
On a full cost basis,
13
cost for stamps
14
another
$791 million
15
of stamp
16
collect
17
the Postal Service incurred
the recurring
institutional
to the cost of stamps.
and accountable
paper exceeded
$1 ,OOO,OOO in revenue
Conservatively,
$1,545
from stamps,
full costs of about
32
costs added
million.
stamped
$138,100
the full costs
Thus,
envelopes
to
and cards
or 13.61 percent.
1
Table A-2
32
4
Postal Service Institutional Costs
Associated with Stamps
FYI998
i
7
;
10
11
Row
___-
12
13
14
15
16
17
la
lb
;i
3
2
22
4
;:
28
29
:‘:
32
33
54
3
Amount
____-_----SALES AND REVENUE COLLECTION
Non-variable window service cost
Piggyback
$417.930.000
188.068.500
USPS stamp vending machines
82.859.143
10
Rural carrier stamp sales
24.853.491
13
Stamp sales at contract stations
24,943,lOO
5a
Cost of stamps by mail
36.000.000
5b
Management
6
Cost to distribute 64 million order forms
n/a
7
Mailing fees to distribute stamps (registry & penalty)
n/a
2
;:
25
cost
segment
-_---_-_
2.3,15.20
of Consignment
3.123.414
Program
STAMP CREATION
8
16.18
9
15, 16, l&20
Artist costs
217.829
Stamp Advisory Committee
203.893
2
i’s
39
40
41
42
43
44
45
46
47
10
18
INTERNAL DISTRIBUTION
Stamp Distribution Network personnel
11
14
Surface transportation
12
3
Registry labor cost
13.012.831
n/a
cost to distribute stamps
n/a
$791.212.200
TOTAL
Sources for Table A-2
it
2’:
la.
1b.
Non-volume variable labor cost, response to PWUSPS-Tll-26,
Tr. 612631
Piggyback factor, response to PBIUSPS-Tl I-12 (b), Tr. 6/2621.
2.
Stamp vending machine costs.
33
Service (Sag. 3. PBIUSPS-Tll-12(a),
revised 3/21/00),
Tr. 6/2620-2621.
Mileage PBIUSPS-Tll-12(b).
Tr. 6/2621.
Space cost (S.eg.15. PBIUSPS-TII-12(b)).
Tr. 6/2621
Depreciation (Seg. 20, PBIUSPS-Tl l-9(b)(referred to
USPS), Tr. 21/2621.
.Total cost
Share assigned to stamps
Cost assigned to stamps
:
3
4
5
6
s’
$54.245.804
999,973
30.727.971
6.091,966
$92.065.714
90%
562.659.143
1:
N.B. Some non-stamp products are sold through vending machines, and the amount of
such items is estimated at 10 percent.
13
3.
tz
16
17
Time allowance for sale of stamps:
20
Per week/route (Postal Bulletin No. 21952, dtd 6/14/97)
17.33
Per year/route
60.731
Rural routes, Financial 8 Operating Statements, A/P 7, PFY 1996
1.052.671
Rural carrier hours for stamp sales
Total rural carrier hours (Nat’1 Payroll Hours
155790,953
Summary Report, 9/l 1198)
0.675694
Percent of total hours for stamp sales
$3,678,215.000
Total rural carrierlabor cost, USPS-T-I 1. Exh. W.S. 10.0.1
$24.853.491
Rural carrier stamp sales cost
;i
z':
22
23
24
25
z4
28
29
Costs associated with stamp sales by rural carriers are estimated as follows:
4,
Costs associated with stamp sales at contract stations are estimated as follows:
Total window service costs, USPS-T-l 1, Exh USPS-1 1A, p. 20
Cost of window service stamp sales,
response to PBIUSPS-Tl l-26, Tr. 6/2631.
Percent of window service cost attrib. to stamp sales
Total contract station costs, response to PBIUSPS-Tll-6
(Referred to USPS), Tr. 6/2616.
Cost of stamp sales at contract stations, at 37.04%
:7
$2.040.353.000
$755..668.000
37.04%
$67.348.000
$24.943.100
36
5a.
:i
39
40
5b.
6.
::
7.
Stamps by mail, response to PBIUSPS-Tll-IO
and 12. Tr. 21/9254.
Tr. 6/2620-2621.
Response to PB/USPS-TI I-8 (revised 3/21/00). Tr. 6/2618.
Order form distribution, Response to PBIUSPS-TI l-10. (Referred to USPS),
Tr. 2119254
Mailing fees to distribute stamps (registry 5 penalty) are
contained in Revenue Segmentl.Account4lll8.
34
minutes
hours
routes
hours
hours
percent
Sources for Table A-2 (con?)
1
-Row
32
4
0.
Artist costs, response to PBIUSPS-Tl
2630.
2
7
9.
Costs for the Stamp Advisory Committee, response to PBIUSPS-Tl
and 23, Tr. 6/2613,2629-2630.
10.
Costs for stamp distribution
Tr. 6/2613.
11.
Surface transportation
6/2626.
12.
Stamps are distributed to (and returned from) 35,411 outlets via registered mail; response
to PB/USPS-Tl l-21, Tr. 6/2627.
i
10
;.’
15
14
:z
17
l-5 (revised 3/21/00) and 23, Tr. 612615, 2629-
network personnel. PB/USPS-Tl
l-5 (revised 3/21/00)
l-5 (revised 3/21/00) and 23.
is used to distribute stamps; response to PBIUSPS-Tl
35
l-22, Tr.
1
2
Outlook
for the Cost of Stamps
The costs for stamps
in prior years have not been developed
3
this analysis.
In absolute
4
have exhibited
continued
5
Service costs; see Table A-3.
6
represented
7
costs have grown
8
past experience
9
the cost of manufacturing
10
11
12
13
14
15
16
17
18
19
20
21
22
13
24
25
26
27
28
29
30
31
32
33
34
a constant
least in absolute
amount,
growth,
however,
total window
service costs
more or less in line with
If costs attributable
percentage
of window
in tandem
with window
to the future,
it would
and selling
other
to stamps
appear
stamps
Postal
have
service costs, then
service costs.
for
stamp
Extrapolating
reasonable
will continue
to project
to grow, at
amount.
Table A-3
Cost Segment 3, Window Service Costs
(Selected Years, 000)
Fiscal
Year
1980
1986
1990
1995
1998
2001
l
**
(1)
(2)
(3)
Total
Attributable
Percent
Attributable
$ 296,675
554,667
829.372
1,173.979
9%3,225.*
1.ol39,oo1.**
$ 626,049
1,150,209
1,462.003
2.041,047
2vO40.353
2,308.118
Volume variable (actual)
Volume variable (projected)
36
that
47.4%
48.2
56.7
57.5
47.0
47.2
1
e
L
Cost of Sales by Marketing
The cost of selling
3
stamps
and stamped
4
channels
5
attributable
and institutional
6
respectively,
have been distributed
7
used to market
Costs of creating
8
distribution
9
marketing
stamps
sold via the various
in Table A-4.
In this table,
costs shown
in Tables A-l
and A-2,
to the appropriate
and manufacturing
network,
paper
is shown
stamps,
are distributed
marketing
the
channel.
as well as the stamp
according
to revenues
of each
channel.
The total cost of each channel,
10
’
Channel
11
collected
from each channel,
12
column
5 reveals
13
stamp
consignment
14
little
15
average account
16
versus
17
windows.22
is shown
that the lowest
program.
more than 3 percent
in column
cost method
Revenues
(including
for about
14 to 15 percent
as a percent
of sales revenue
5. Mere perusal
of distribution
collected
cost a
which’on
of the value of stamps
via most other methods
by far is the
via this channel
cost of the stamps,
1.7 percent
of
of distribution,
sold),
including
See response to OCA/USPS76(b)
& (c), where the Postal Service
estimates a transaction cost (excluding the cost of printing stamps) for Stampsby-Mail and StampsOnline of 11.4 and 9.8 percent, respectively. Tr. 2 l/9 12 1
22
37
In a recently
1
launched
experimental
2
Etc., the Postal Service has entered
3
commission
4
channel
5
is still far above the cost of collecting
of 5 percent
promises
23
program
into a contract
for all stamp
sales.23
LR-I-231,
Attachment
4.
38
Mail Boxes;
whereby
Although
to be lower than most methods
revenues
with
it will pay a
the cost of this
used to sell stamps,
via metering
technology.
it
1
2
-
3
4
5
6
7
8
9
10
Table A-4
Revenues and Costs of Stamps and Stamped Paper
By Sales Channel
FY 1998
(% 000)
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
77
Source of Sales:
Counters (includes
rural carriers)
Contract stations
Vending machines
By mail
Consignment:
Local
Amplex contract
TOTAL
Source:
(1)
(2)
(3)
Stamps &
Stamped
Paper
Sales
Attributable
cost
Institutional
cost
8,857.771
705,519
641,495
1,347.014
586,210
630.876
325,312
10,281
11,064
8,956
25,647
83,617
36,391
35,929
94,682
45,349
6.1
15.0
13.9
172.971
606,129
3,034
15,312
208
3.854
3,241
19,166
1.9
3.2
11.161.269
754,168
791.212
WE A.4.1
39
(4)
(5)
Total
cost
Total
cost
as %
of Sales
1545,380
15.2%
13.8%
Appendix
1
Cost of Revenues
2
3
Costs
4
Attributed
In FY 1998, window
costs, amounted
6
window
service costs were primarily
7
meters,
but they also included
8
re-set meters
9
remote
11
Metered
Mail
service costs attributed
indirect
to $7.7 million,
and electronic
and, perhaps,
to meters,
as shown
time spent inspecting
are phased
these window
to disappear
(volume
variable)
13
Directly
offsetting
14
collected
15
examination
16
net attributable
24
costs for on-site
out entirely
$8.8 million
of attributable
and examinations.
costs, in FY 1998 the Postal Service
meters.
cost of about
in favor of
altogether.24
in fees from meter users for on-site
of mechanical
As manual
service costs can be expected
meter resetting
these attributable
mechanical
meters.
In FY 1998 the Postal Service also had $7.5 million
12
including
in Table B- 1. These
for time spent resetting
meters
re-set (CMRS) meters,
to diminish
from
to Meters
5
10
B
resetting
Thus the Postal Service incurred
$6.3 million,
See USPS-T-30, pp. 15-17.
40
as shown
in Table B- 1.
and
a
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Table E-1
Costs Attributed to Meters
Fiscal Year 1998
(millions)
No.
_-_
3.
---- Cost Segment --Description
---_-___
Clerks/window service
Meters
---_
$ 5.267
Indirect costs, at 0.45 x clerk/
window service costs
2.379
Subtotal
7.666
2 & 3 On-site meter resetting and
examination cost
GROSS ATTRIBUTABLE COSTS
2 & 3 Less: fees paid by meter users (includes
$853.916 for check in/check out service)
NET ATTRIBUTABLE COSTS
Source:
W-S B.l.1
41
7.455
15.121
- 8.835
$ 6.286
1
2
Institutional
Costs
of Meters
The Postal Service incurs
(dealing
additional
3
expenses
with different
4
$9.0 million.
These costs include
5
and tracking,
and other miscellaneous
6
the information
7
institutional
based indicia
aspects
identifiable
of meters)
non-attributable
totaling
the meter approval
meter-related
program
(“IBIP”).
costs for FY 1998 are shown
approximateh
process,
programs,
Details
licensing
including
of these
in Table B-2.25
Costs of the Information Based Indicia Program (“IBIP”) are
institutional;
see response to DFC/USPS-16(a)-(c)
(referred to USPS), Tr.
2 l/8822-8824.
Costs of some engineering personnel who assist in meter
evaluation and approval process are not tracked separately; response to
PB/USPS-Tl l-30, Tr. 612636-2637.
25
42
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Table B-2
USPS Institutional Costs Associated with Meters
FY 1998
cost
Segment
Meter approval process:
RSE personnel costs
Other costs:
Carnegie Mellon contract;
Planning Research Corp. contract;
CMLS (Memphis/Minneapolis centers);
MATS and IBIP
$ 1 .ooo.ooo
7.200.000
789,000
Booz Alien contract
$ 8,989.OOO
Total Institutional Cost
Sources:
Cost of Obtaining
2s
Costs, response to PBIUSPS-Tl I-30; USPS-T-30, page 18.
Revenues
In FY 1998, revenues
29
approximately
30
meters
31
meters,
32
about
33
Amount
Item
From
Meters
from mailer-operated
$2 1.1 billion,
were only $6.3 million.
meters
while net costs attributed
To collect
the Postal Service incurred
amounted
to mailer-operated
$1 ,OOO,OOO in revenues
attributable
to
from
costs of only $300,
or
0.03 percent
Institutional
34
Service’s
35
(attributable
costs of meters
cost of meters.
added $9.0 million
The full cost of meters
plus institutional
to the Postal
costs) came to about
43
to the Postal
$15.3
Service
million.
Thus,
1
2
the full cost of collecting
$725,
or about
$l,OOO,OOO in revenue
from meters
was or-ii>
0.07 percent.
3
4
5
Outlook
for Meter
The phase-out
6
re-set/CMRS
7
substantial
s
Service.
9
dramatically
As a result
in postage
postage
12
customer
13
operational
14
functions)
15
of $2 million,
16
generous
meters
the outlook
an electronic
and the meter manufacturer.
role in the re-setting
and therefore
including
for the current
which
incurs
for meter costs is
Remote
transaction
in a
by the Postal
By Test Year 2001,
be reset at post office windows.
involve
in favor of remote
This has resulted
meter costs incurred
from that for stamps.
The cost of on-site
Table B-l),
principally
complete.26
of this transition,
different
11
meters,
is now virtually
reduction
will no longer
18
of mechanical
meters,
10
17
Costs
meters
re-settings
between
of
the licensed
The Postal Service has no direct
process
(other than audit
and control
no cost for such settings.2’
the piggyback
factor
for indirect
An estimate
costs,
seems
environment.
meter resetting
(shown
in the fourth
is now offset by fees paid by mailers
26 USPS-T-30, Page 15,ll. 9-16.
27 Id. Pages 15-16.
44
(shown
row of
in the
1
2
penultimate
altogether
row of Table B-l),
should
(along with the fees).
45
also diminish
and disappear
Appendix
1
Revenues
2
3
USPS Revenues
From
Stamps
and Meters
By Source
Postal Service revenues
4
C
1 contains
summary
by source
5
Column
6
The Postal Fiscal Year does not coincide
7
(“GFY”), and operating
8
operating
revenues
9
revenues
to correspond
are shown
in Table C- 1.
data for Postal Fiscal Year (“PFY”)
revenues
in GFY 1998.
with the Government
in PFY 1998 were slightly
Column
2 adjusts
1998.
Fiscal Year
less than
the PFY 1998
with GFY 1998 total revenues.
10
11
12
Mailer-Applied
Meter
The revenues
13
distinguish
14
meter strips
15
important
16
from different
17
revenues.
for metered
between
generated
distinction,
Postage
mail shown
mail that is metered
in Table C- 1 do not
by mailers
by Postal Service window
since the analysis
forms of evidencing
and mail that has
clerks.
This is an
here seeks to compare
with the cost of obtaining
46
revenues
those
In FY 1998 the Postal Service applied
1
2
metered
postage
3
into account
4
follows
to mail accepted
provides
additional
by window
just
over $3.7 billion
service clerks.28
detail on FY 1998 revenues
of
Taking
by source
this
as
(millions):
$ 24,795.0
5
Total metered
postage
6
USPS-applied
metered
7
Total mailer-applied
postage
metered
- 3,719.3
postage
$ 21,075.7
8
9
Stamp
10
Revenues
By Source
Table C-2 shows the revenues
11
stamps
12
used by the Postal Service.
and accountable
that are derived
paper through
the various
from sales of
marketing
channels
2s Response to PB/USPS-Tll-25
(referred to USPS). Tr. 21/9261Meters
owned by the Postal Service can, in theory, be used to evidence postage
for virtually
any mail accepted by a window service clerk. When window
service clerks use a meter to apply postage to a piece of mail, however, it
is believed that such mail is usually something other than a simple FirstClass letter, at least entailing extra postage; e.g., certified mail or
registered mail, Priority Mail, Express Mail, parcel post, insured mail,
First-Class
flats or parcels, etc.
4;
Table C-l
1
2
3
4
5
6
7
8
9
10
USPS Revenue by Source
PFY & GFY 1998
($, millions)
11
12
13
14
15
16
(1)
(2)
MD
through
A/P 13
PFY
1998
YTD through
NP 13
Adj’d to
CRA Total
FY 1998
$24,696.4
$24,795.007
Operating Revenue:
17
Metered Postage
18
Stamps and Stamped Paper
11.1366
11,181.269
19
Permit Imprint
14.741.6
14.800.459
20
Periodicals & Standard A
2,114.5
2.122.943
21
Official Mail
780.2
703.315
22
Presort 1st~Class & Std B/Permit Imprint
23
Box Rents
610.6
613.038
24
Money Order Fees
209.5
210.336
25
Other
1.193.0
1.197.763
67.1
67.368
26
4.283.4
4.300502
Government Appropriations:
27
Revenue Forgone
28
Total Operating Revenue
$59,833.1
30
CRA Total Operating Revenue
$ 60.072.0
31
CRA Op. Revenue as % of Alp13
$60.072.000
29
100.3993%
32
33
34
Source: Column 1, USPS, Financial & Operating Statements, Accounting
Period 13, PFY 1998, Revenue by Source, page 5, Year-to-Date Actual,
4s
Table Ci2
1
2
3
4
5
6
I
8
9
Revenues from Stamps and Stamped Paper
By Sales Channel ’
FY 1998
($1
(1)
10
11
12
13
14
15
16
17
IS
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Sales
(percent)
Source Of Sales:
Counters
Contract Stations
Vending Machines
By Mail
Consignment:
Local
Amplex Contract
TOTAL
Sources:
(2)
(3)
Distribution
Stamps &
Stamped
Paper
8,598,083.719
569,023.632
612,380,OOO
315.774,590
79.22%
5.24%
5.64%
2.91%
8.857.771.600
586.209,850
630,875,710
325,311.928
167,900.000
590.300.000
1.55%
5.44%
-
172.971.083
608,128.828
10,853.461,941
100.00%
11.181,269.000
Stamp
Sales
Column (I), response to PBIUSPS-Tll-12.
Column (3) total from Table C-l, column 2, distributed by percentages in
column 2.
49
Appendi.%
1
Revenue
2
Effect
D
of Proposed
For FY 200~1 Before Rates, witness
3
4
of single piece letters,
5
while
6
additional
7
Tables
the volume
2.405
D-l
Tolley estimates
flats and IPPs will amount
of single piece private
that the volume
to 53.2 14 billion
cards will amount
pieces. 2s These volumes
billion
pieces.
to an
are shown
in Part A of
and D-2, respectively.
8
ODIS data indicate
9
Class single piece letters
10
the remaining
11
of all First-Class
12
metered,
13
distributions
14
Part A of Tables
15
of First-Class
16
million,
17
assumption
18
the proposed
19
$245.0
that in FY 1998 (i) 48.5 percent
were stamped,
6.7 percent
were permit
44.8 percent
or “other;“30
single piece cards were stamped,
and the remaining
20.5 percent
are used to compute
metered
letters
amounts
that every metered
discount,
12 million
the respective
during
and cards
of all First-
were metered,
and
and (ii) 52.0 percent
27.5 percent
were permit
D- 1 and D-2, respectively.
respectively]
29
Discount
were
or “other.”
volumes,
These
as shown
in
The Before Rates total volume
(23,839.795
to 24,50 1.2 million
and 661.382
pieces.
On the
letter and card were to take advantage
the cost of a 1 .O cent discount
would
amount
of
to
Test Year 200 1.
USPS-T-6, Table 1, page 5.
30
Response to PB/USPS-T33-3.
Tr. 21/9264-9265.
First-Class
single piece permit mail includes Business Reply Mail, Government mail, and
residual pieces from bulk permit mailings.
50
For Test Year 2001 After Rates, witness
1
2
volume
of single piece First-Class
3
decrease
4
as shown
5
discount
6
would
7
or (ii) for stamped
by a combined
total of about
in Part A of Tables D-l
would
and private
386 million
and D-2.
that the
post cards will
pieces,
or 0.7 percent,
Since the effect of the
be to leave the rate unchanged
for eligible
pieces,
there
be no after rates effect (i) on single piece mail that is now metered,
Witness
8
letters
Tolley projects
mail that converts
Heisler,
a substantial
PB-T-3,
9
induce
number
10
adopt
11
anticipated
12
from stamped
13
Service a gross savings
14
costs which
projects
31
to metered
metering
million
status.
that a 1 .O cent discount
of small businesses
and use more cost-effective
that some 4.954
to metered
and households
technology.
status. 31 This shift would
it otherwise
would
See W.S.D.l,
Part B.
incur
In total,
pieces of First-Class
of approximately
6.7 percent
on account
51
will
to
it is
Mail will convert
give the Postal
of the transaction
of those mailers.
The revised
1
2
assuming
3
Table D-1.32
4
approximately
5
the proposed
6
assuming
7
Table D-2.
8
approximately
volume
the proposed
discount
from implementation
is shown
in
of the discount.
for single piece First-Class
were to be recommended,
cards from implementation
to institutional
10
Class single piece letters
11
million,
12
combined
32
were to be recommended,
letters,
cards.
is shown
in
in part C, the Postal Service will retain
The contribution
elasticities
letters
forecast
16.6 million
respectively,
for single piece First-Class
in part C, the Postal Service will retain
181 million
As shown
forecast
discount
As shown
The revised
9
volume
total is $24.059
costs from the volume
and cards retained,
is computed
of the discount.
$23.175
in Part D of Tables
of First-
and $0.884
D- 1 and D-2.
million.
The volume forecast here is based solely on the data and
provided in the testimony of witness Tolley, USPS-T-6.
52
The
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
Table D-l
Retention of Volume of First-Class Single Piece Letters
From l-Cent Discount for Metered Mail
A. Tolley
Distri(%I
TOTAL
Subtotal
Metered44.8
Other
TOTAL
to change
change:
l-cent discount
no discount
PW
TYAR
Volume
PO)
(000)
48.5
44.8
-6;Z
25.808.707
23.839.795
-3.565~.326
25645.664
23.689.191
~3.542.803
163.042
100.0
53.213.828
52.877.658
336,170
B. Revised Forecast
Stamped
Not likely
Likely fo
With
With
Reduction
I”
VOlUn-le
TYBR
bution
Stamped
Metered
Other
Forecast
Based on l-Cent Discount
for Metered
150.604
22,523
Mail
Distribution
Volume
TYBR
TYAR
Reduction
I”
Volume
6)
WJ)
(000)
(000)
39.5
20.855.843
20.988.434
132.591
8.4
0.6
4.486.531
333,741
4.486.531
333,741
0
0
48.5
25.808.707
25.676.115
132,591
23.839.795
23.839.795
6.7
100.0
C. Volume
0
3.565.326
3.542.803
53.213.828
Saved by Virtue
Net volume saved: Tolley forecast reduction (Part A)
less revised forecast reduction (Part B. 000)
53.058.713
22,523
155,115
of Discount
181.055
D. Contribution
to Institutional
Costs from Single Piece Letters
:
3
4
5
6
Unit TYAR revenue after l-cent discount. first ounce
Less: unit TY cost of first ounce. USPS-T-27, Table 1. page 11
FY 2001 Contribution
per letter
Total FY 2001 Contribution from letters not lost (B. 000)
54
0.330
-0.202
0.126
23.175.1
Table D-2’
Retention of Volume of First-Class.Single
Piece Cards
From l-Cent Discount for Metered Mail
A. Tolley
Forecast
Reduction
Stamped
Metered
Other
TOTAL
Distribution
Volume
TYBR
TYAR
Volume
W)
Pm
WJ)
(000)
I”
52.0
27.5
20.5
1.250.614
661.382
.493~.031
1.224.553
647,600
482,757
26.061
13.782
10.274
100.0
2.405.027
2.354.910
50.117
B. Revised Forecast
Based on I-Cent
Discount
for Metered
Mail
Reduction
I”
Distribution
Volume
TYBR
TYAR
Volume
(%I
(000)
PO)
PW
46.4
1.116.814
1.093.541
23,274
5.2
124,469
124.469
0.4
9.259
9.259
52.0
1.250.614
1.227.340
23,274
661.382
20.5
661,382
493.031
0
482,757
10,274
100.0
2.405,027
Stamped
Not likely to change
Likely to change:
With l-cent discount
With no discount
Subtotal
Metered 27.5
Other
TOTAL
2.371.480
0
0
33,548
C. Volume Saved by Virtue of Discount
Net volume saved: Tolley forecast reduction (Part A)
less revised forecast reduction (Part B, 000)
D. Contribution
to Institutional
16.569
Costs from Single Piece Cards
55
.
FY 1998 Contribution
per card, Exh USPS 11-B
FY 2001 Contribution
per card (l/1.2)
Total FY 2001 Contribution from cards (9, 000)
01064
0.053333
883.7
56