flECElVCD
BEFORE THE
POSTAL
RATE AND FEE CHANGES,
2000
DOCKET
:
NO. R2000-1
ANSWERS OF UNITED PARCEL SERVICE WITNESS
DAVID E. M. SAPPINGTON
TO UNITED STATES
POSTAL SERVICE INTERROGATORIES
(USPS/UPS-TG-1
through 5)
(June 22,200O)
Pursuant to the Commission’s
Rules of Practice, United Parcel Service
hereby
files and serves the answers of UPS witness David E. M. Sappington
to the following
interrogatories
through 5.
of the United States Postal Service:
USPS/UPS-TG-1
Respectfully
submitted,
William J. Pinamont
Phillip E. Wilson, Jr.
Attorneys for United Parcel Service
Piper Marbury Rudnick &Wolfe LLP
3400 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2762
(215) 656-3310
(215) 656-3301 (FAX)
and
1200 Nineteenth Street, NW
Washinaton. DC 20036-2430
(202) 861-3900
Of Counsel.
ANSWER OF UNITED
TO INTERROGATORY
USPS/UPS-TG-1
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
Refer to your testimony on pages 4 - 5 where you state:
and large rates increases can be onerous for individual
so should be avoided
a.
whenever
become “onerous”?
explain fully what you meant by “onerous”
being reviewed
b.
and business mailers alike, and
possible.”
At what level does a rate increase
what you mean by “onerous”
“High rates
In your answer, please
in the quoted passage of your testimony,
in the general context of the postal rate proposals
and
currently
by the Commission.
Please describe fully the conditions
under which you believe
it is possible to
avoid high postal rates and large postal rate increases.
C.
Please describe fully the conditions
under which you believe
it is not possible to
avoid high postal rates and large postal rate increases.
RESPONSE
TO USPS/UPS-TG-1:
(a)
The definition
causing hardship.”
Language,
employed
of onerous
is “burdensome,
Webster’s Encyclopedic
Unabridged
Portland House, 1989. This is the meaning
of the English
as it is
on page 5 of my testimony and as it pertains to the rate proposals
currently
by the Commission.
Virtually all rate increases are “onerous”
That is why it is generally
important
rate increase.
to some degree from the standpoint
to insist on credible demonstrations
harm by mailers, rather than unsubstantiated
appropriate
Dictionary
or troublesome;
of the term “onerous”
being reviewed
mailers.
oppressive,
assertions,
before reducing
of
an otherwise
The extent of the hardship that a rate increase causes
-2-
of
ANSWER OF UNITED
TO INTERROGATORY
should be weighed,
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
and that typically varies with the circumstances
of individual
mailers, including their income, the value they derive from the Postal Service product in
question,
and the terms on which they can secure alternative
taking into account whether
remembered
to moderate
that when one rate increase
an assertedly
is moderated,
delivery
onerous
another
services.
increase,
In
it should be
rate increase must be
augmented.
(b)-(c)
avoided
High rates and large rate increases for Postal Service products can be
when the Postal Service’s
large rate increases
increases
costs and cost increases
are low. High rates and
are difficult to avoid when the Postal Service’s
are high.
-3-
costs and cost
ANSWER OF UNITED
TO INTERROGATORY
USPS/UPS-TG-2.
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
Refer to your testimony
disadvantage
competitors
an advantage
to the Postal Service’s
on page 5 where you state: “Rates that
unfairly should be avoided.”
competitors
Do you believe that rates giving
ever should be encouraged?
If so,
under what conditions?
RESPONSE
TO USPS/UPS-T-6-2:
Rates should be set in accordance
the Postal Reorganization
to the Postal Service’s
disadvantage
sufficient
on competitors
costs.
revenue
they do guard against imposing an unfair
in a number of ways.
requires that each Postal Service
to cover its attributable
If the revenues
derived
costs plus a reasonable
of other services
by other services.
(attributable)
Such cross-subsidization
is
It
with the cross-subsidized
product.
Second, 5 3622(b)(4)
states that the effect of rate increases
the private sector of the economy
letters” should be considered.
advantages
share of institutional
who must make up the shortfall in net revenue.
is also unfair to firms who supply a service in competition
Postal Service
mail subclass generate
from a service fall below its incremental
cost, the service will be cross-subsidized
unfair to customers
in § 3622(b) of
Act. While these criteria do not include “giving an advantage
competitors,”
First, § 3622(b)(3)
with the nine criteria specified
engaged
in the delivery
Such consideration
on “enterprises
in
of mail matter other than
is appropriate
in light of the many
that the Postal Service enjoys because of its status as a public enterprise.
Some of these advantages
are listed in footnote
-4-
14 on page 14 of my testimony.
As
ANSWER OF UNITED
TO INTERROGATORY
explained
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
there, these artificial advantages
efficient producers
from the market.”
may allow the Postal Service “to drive more
To guard against this undesirable
outcome,
wise to ensure that each service for which the Postal Service faces competition
meaningful
portion of institutional
costs.”
“it is
bears a
ANSWER OF UNITED
TO INTERROGATORY
USPS/UPS-TG-3.
Refer to your testimony on page 5 where you state:
can obtain comparable
Service,
a.
services
at reasonable
cost from suppliers
high postal rates impose few hardships
Please provide
UPS services)
all rate tables (including
that demonstrate
Priority Mail “at a reasonable
b.
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
Are the services
respects to the services
provided
other than the Postal
on those mailers.”
published
and discounted
that “mailers can obtain comparable
cost from suppliers
provided
“When mailers
rate tables for
services”
to
other than the Postal Service.”
by the United Parcel Service (UPS) comparable
by the Postal Service,
including Priority Mail?
in all
If not,
please explain fully.
C.
Are Postal Service
price levels considered
in setting UPS’s published
rates?
If
so, please explain how and to what extent.
d.
Does UPS compete for some customers
with the Postal Service?
e.
Does UPS consider the Postal Service’s
prices in determining
what price to offer
any of it customers?
f.
Please confirm that if UPS considers
what price to offer some customers,
the Postal Service’s
a 40.3% average
prices in determining
rate increase for Priority Mail
could allow UPS greater latitude to increase the prices it charges these customers.
If
you do not confirm. please explain fully.
55
Please confirm that a 40.3% average
other things equal, improve
Service.
the competitive
rate increase for Priority Mail would, all
position of UPS with respect to the Postal
If you do not confirm, please explain fully.
-6-
ANSWER OF UNITED
TO INTERROGATORY
RESPONSE
TO USPS/UPS
(a)
UPS-LR-4
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
T6-3:
contains UPS’s published
rates for all of its services, including
a number of services that compete with Priority Mail. I do not have any other rate
schedules.
(b)
The two-day and three-day
delivery
services offered
Service are not identical to Priority Mail. For example,
delivery
by United Parcel
Priority Mail includes Saturday
in its base price, while the UPS services do not. Priority Mail may also be
delivered
at no extra charge on Sunday during peak delivery
do not provide
Sunday delivery.
up to $100, an on-time guarantee,
seasons; UPS’s services
The UPS products include automatic
coverage
for loss
and track and trace in their base prices, while Priority
Mail does not.
(4
published
I do not know what factors UPS considers
when it establishes
rates.
(d)
Yes.
(e)
Please see my answer to part (c), above.
(f )
Confirmed
that a Priority Mail average
rate increase of 40.3% would
increase Priority Mail rates relative to UPS’s current rates.
(9)
its
Confirmed.
-7-
ANSWER OF UNITED
TO INTERROGATORY
USPS/UPS-T64
Refer to your testimony
higher cost coverage
the First-Class
long-standing
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
on pages 18 - 19 where you state that a
for Priority Mail (as compared
Mail cost coverage)
emphasis
is appropriate,
on protecting
to the systemwide
cost coverage
or
in part, given “. .the Commission’s
users of monopoly
mail services”
(footnote
omitted).
a.
Is it your understanding
Postal Service’s
b.
that a portion of Priority Mail volume
statutory monopoly?
Please explain fully.
If so, how are these Priority Mail customers
coverage?
is subject to the
“protected”
by a higher cost
Please explain fully.
RESPONSE
TO USPS/UPS-T64
(a)
Yes. Postal Service witness Mayes cites an estimate (by an unidentified
source) that in 1998, “approximately
the Private Express Statutes.”
contrast, virtually
one-fourth
Response
of Priority Mail volume was protected
to APMUIUSPS-T32-4(b),
all of First Class Mail is protected
Tr. 1 l/4220.
by
In
by the Private Express Statutes.
ODIS reports that in FY1998, less than 1% of First Class Mail consisted
of packages.
See USPS-LR-I-170.
(b)
As noted in your question,
Commission’s
long-standing
the accompanying
footnote
emphasis
I cite on pages 18-19 of my testimony
on protecting
users of monopoly
15 indicates, this emphasis
is on protecting
Class Mail, where letter mail users are much more numerous
proportion
of users compared
“the
services.”
users of First
and represent
a greater
to Priority Mail. In the passage cited in the footnote,
-8-
As
the
ANSWER OF UNITED
TO INTERROGATORY
Commission
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
states that “care must be taken to avoid unfairly penalizing
Mail, which is the basic means of written personal and business
First-Class
communication
in this
country, yet is subject to a statutory monopoly.”
The Senate Report on the Postal Reorganization
with protecting
the users of First Class Mail. As indicated
on page 5, ,the Senate Report states:
problems
“The temptation
of the Post Office by charging
Act reflects a similar concern
in footnote
3 of my testimony
to resolve the financial
the lion’s share of all operational
class is strong; that’s where the big money is. The necessity for preventing
imposition
upon the only class of mail which the general
reasons why the Postal Rate Commission
management.”
S. Rep. No. 912,91st
that
public uses is one of the
should be independent
of operating
Cong., 2d Sess. (1970) at 13.
-9-
costs to first
I.
ANSWER OF UNITED
TO INTERROGATORY
USPS/UPS-TG-5.
a.
Regarding
PARCEL SERVICE WITNESS SAPPINGTON
OF THE UNITED STATES POSTAL SERVICE
the proposals
Confirm that you are proposing
not confirmed,
explicit or implicit in your testimony:
a 40.3% average
please explain fully.
b.
Confirm that $3.20 * (1 + 40.3%) = $4.49.
C.
Are you proposing
for 2-pound
If not confirmed,
that the Postal Rate Commission
pound Priority Mail rate (currently
proposing
$3.20) increase to $4.49?
please explain fully.
recommend
Please provide
e.
Please explain fully all of the rate implications
If not, what rate are you
a rate table showing your proposed
Priority Mail rates.
of your testimony.
In your
describe each of the specific rates that you believe the Commission
recommend.
RESPONSE
that the 2-
Priority Mail pieces?
d.
response,
rate increase for Priority Mail. If
TO USPS/UPS-TG-5:
(4
Confirmed.
@I
Confirmed.
(c)
No. My testimony
(4
Please see my answer to part (c), above.
(e)
Please see my answer to part (c), above.
does not address rate design issues.
-1 o-
should
DECLARATION
I, David E. M. Sappington,
that the foregoing
information,
Dated:
answers
and belief.
hereby declare under penalty of perjury
are true and correct to the best of my knowledge,
CERTIFICATE
OF SERVICE
I hereby certify that I have this date served the foregoing
mail, postage prepaid, in accordance
document
with Section 12 of the Commission’s
by first class
Rules of
Practice.
i/
Phillip E. &ilson, Jr.
Attorney for United Parcel Service
Dated: June 22,200O
Philadelphia, Pa.
64315