I~ECEIVCLI
UNITED STATES OF AMERICA
Before The
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20268-0001
Postal Rate and Fee Changes
Docket No. R2000-1
)
NOTICE OF THE OFFICE OF THE CONSUMER ADVOCATE
CONCERNING
ERRATA TO THE TESTIMONY OF OCA
WITNESS: JAMES F. CALLOW OCA-T-6
(June 29,200O)
The Office of the Consumer
following
revisions
to the testimony
filed on May 22, 2000.
Advocate
hereby gives notice of the filing of the
of James F. Callow (OCA-T-6,
The changes to the testimony
are set forth below.
pages are attached
Respectfully
submitted,
TED P. GERARDEN
Director
EMMETT RAND COSTICH
Attorney
1333 H Street, N.W.
Washington, D.C. 20268-0001
(202) 789-6830; Fax (202) 789-6819
Parts I, II and Ill),
The revised
Docket No. R2000-1
OCA-T-6,
-2.
Purpose and Scope
Pane
&
Correction
3
4
Delete “and cards”
4
2
Delete “and cards”
OCA-T-6,
6
Part I
Note 3
Insert “attributable”
after “exceed”
13
Replace Table 4 and Figure 4 to reflect change in
1998. Change “1.308” to “1.310”
14
Replace Table 5 and Figure 5 to reflect change in
1998. Change “1.1 IO” to “1.112”
18
14
Delete “four” and insert “five”
18
14
Delete “1997” and insert “1998”
18
15
Delete “through” and insert “in”
19
Replace Table 8 and Figure 8 to reflect changes in
1998. Change “1.308” and “0.949” to “1.310” and
“0.899,” respectively
20
Replace Table 9 and Figure 9 to reflect changes in
1998. Change “1.1 IO” and “0.982” to “1.112” and
“0.963,” respectively
21
Note 9
After the last period insert “See also PRC Op
MC951, ~1019.”
23
Note 12
After “LR-” insert “I-”
OCA-T-6,
Part II
31
Note 21
Delete “the new single-piece First-Class” and insert
“a “First-Class Mail” endorsement, followed by the
numeric basic”
37
5
Delete “and”
Docket No. R2000-1
-3-
37
6
Delete “cards”
42
4
Delete “93” and insert “89”
45
4
Delete “per year”
OCA-T-6,
Part Ill
53
Note 48
Delete “Id.” and insert “USPS-T-24
59
Note 65
Delete the first “T-24” and insert “T24”
62
Note 70
After “LR-” insert “I-”
63
2
Delete “in the same manner as”
63
3
Delete “standard-size
letter mail”
(Miller) at 20.”
OCA-T-6
Revised 6-29-00
Docket No. R2000-1
1
II.
PURPOSE
2
AND SCOPE OF TESTIMONY
This testimony
examines three issues related to First-Class
3
cost burden on First-Class
4
Class
5
mail. The testimony
rate
6
for
letters,
Letter Mail, a new approach
and
the
nonstandard
surcharge
for
33 cents in order to mitigate the growing
8
Mail.
9
burden
institutional
During the past 12 years, First-Class
of the institutional
more prominent
11
Service
12
growth
13
declined.
14
increased
certain
First-
nonstandard
is divided into three parts.
7
15
for setting the single-piece
In Part I, I propose that the current rate for First-Class
10
Mail: the institutional
data using several
in institutional
Similarly,
This conclusion
common
institutional
relative to the institutional
The institutional
measures
and that burden
of institutional
cost
burden
the institutional
17
recent recommended
18
$6.2 billion more than intended
19
Postal Service since FY1988,
and this additional
20
billion through
Mitigation
of the institutional
21
Letter Mail should
involve consideration
of the additional
22
costs above that intended
the test year.
by the Commission,
As a result, First-Class
by the Commission
by the Commission.
-3-
of ~Postal
Moreover,
the
Letter Mail has
Letter
Mail
has
(A) Regular Mail.
Letter Mail has also grown relative to
16
decisions.
cost.
on First-Class
cost burden on Standard
intended
Letter
has become
is based upon an analysis
as the cost of First-Class
cost burden on First-Class
cost burden
at
Letter Mail has been carrying an increasing
costs has occurred
the
cost burden on First-Class
costs of the Postal Service,
in recent years.
Letters be maintained
as expressed
Letter Mail has contributed
to the institutional
revenue
in several
is expected
costs of the
to reach $11.2
cost burden on First-Class
contribution
to institutional
Docket No. R2000-1
1
OCA-T-6
Revised 6-29-00
In Part II, I propose that the Postal Service adopt a new approach
2
single-piece
3
business
4
every two years, in response
5
predictable
6
to
7
accommodate
8
Under
9
First-Class
mailers.
rate
determined
letters
that
The Postal Service appears
rate changes.
household
for
and
to the concerns
However,
smaller-volume
the
benefit
more frequent
mailers,
household
and
plans to adjust rates
mailers for smaller,
rate changes
The
single-piece
both
to have adopted
of business
the differing interests of household
my proposal,
would
for setting the
more
can be inconvenient
approach
I propose
would
and business mailers.
First-Class
without regard to the “integer constraint.”
(“SPFC”)
rate
would
be
The rate paid by households,
by
10
contrast, would be set at a whole cent, as in the past. The SPFC integer rate would be
11
set so that sufficient
12
single-piece
13
approximately
14
proceeding,
15
deficiency
16
greater
17
predictable
revenues
in a “reserve
account”
to permit the
rate to remain the same for a period of two rate proceedings,
four years.
In effect, the SPFC rate would be changed
with revenue
generated
in the second
rate stability,
rate period.
while
allowing
a duration
every other rate
during the first rate period covering
In this manner,
business
household
mailers
smaller,
of
any revenue
mailers would enjoy
more frequent
and
rate adjustments.
Accommodating
18
would accumulate
the differing interests of household
19
manner
20
respect to rate changes,
21
date of new rates.
22
issue in every case.
23
case period would permit the single-piece
can be achieved
while
preserving
Postal
and business
management’s
mailers in this
prerogatives
with
including the timing of the filing of rate cases and the effective
It would also preserve the right of every participant
The only difference
is that revenues
First-Class
-4-
generated
to litigate any
in the first rate
to remain in effect over two rate
Docket No. R2000-1
OCA-T-6
Revised 6-29-00
1
2
3
PART I
I.
4
THE INSTITUTIONAL
INCREASING
First-Class
COST
BURDEN
ON FIRST-CLASS
Letter Mail has been carrying an increasing
5
costs of the Postal Service.
6
cost and revenue data over the past twelve years.
7
an analysis of several common
8
prominent
in recent years, and is expected
9
continued
growth in the burden on First-Class
10
other subclasses
11
12
A.
13
Several measures
This conclusion
measures
LETTER
MAIL IS
burden of the institutional
is based upon a review of Postal Service
Moreover,
of institutional
to continue
of mail, most notably Standard
this trend, evident from
cost, has become even more
into the test year.
Also, the
Letter Mail is evident by comparison
with
(A) Regular.
Common Measures of Institutional Cost Show a High and Rising Burden
Beina Borne bv First-Class Letter Mail
of institutional
14
Commission
15
various classes of mail over time.’
16
Beginning
17
Commission
cost burden are commonly
relied upon by the
and the Postal Service to analyze the relative institutional
with
its opinion
introduced
and
The cost coverage
recommended
a “mark-up”
index.3
1
is one commonly
decision
in Docket
cost burden on
used measure.*
No. R87-1,
the
In recent years, the Postal Service has
Institutional costs represent the amount of total costs remaining
directly “attributable” to each class or type of mail service.
after subtracting
costs that are
2
See PRC Op. R97-1, Appendix G, Schedule 1 at 1. The cost coverage, for example, is calculated
by dividing revenues by attributable costs.
3
See generally PRC Op. R67-1, Appendix G, Schedule 3. at 33. A mark up index is obtained by
dividing the “mark-up” (the percentage by which the revenues exceed attributable costs) of a class or
subclass by the total “mark-up” for all mail and special services.
-6.
Docket No. R2000-1
OCA-T-6
Revised 6-29-00
I
I
1.350
%
E
g
1.300
if
g
1.200
/.
L
1.250
+Recom'd
+Average
/;
<
/
1.150
1.100
1.050
1.000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Y.?WS
1
Table 5 shows the actual First-Class
2
recommended
3
Commission
4
recommended
5
actual
6
presented
7
Letter cost coverage
8
During
9
Letter cost coverage
10
First-Class
opinions
in Table
recommended
cost
coverage
index,
index compared
derived
from
issued during the period covered by this analysis.
First-Class
First-Class
Letter
Letter cost coverage
cost coverage
Letter cost coverage
index is also calculated,
index.
5 on the recommended
indices and the actual First-Class
the 12 year period,
FY 1988 through
index is above the recommended
First-Class
Letter
cost
coverage
-13-
compares
recommended
cost coverage
the data
index
First-Class
index for all but two years.
from
to the
First-Class
FY 1999, the actual
index
four
The average
and compared
Figure 5 visually
and average
the
to the
Docket
If the
No. R97-1
is
Docket No. R2000-1
OCA-T-6
Revised 6-29-00
extended
through
FY 2001, the actual First-Class
expected
to remain
higher
Letter
than the recommended
cost coverage
index,
Letter cost coverage
index.
index is also
By comparison
the actual
average
First-Class
coverage
index remains above the average index for six of the 12 years from FY 1988
through FY 1999. The actual First-Class
Letter cost coverage
be higher than the average index through
FY 2001.
First-Class
to the
Letter
cost
index is also expected to
Figure 5: Comparison of First-Class Letter Cost Coverage
Recommended
and Average
Index to
1.200
1.180
%
1.160
= 1.140
&
% 1.120
%
2 1.100
s
+ First
+Recom'd
+-Average
1.080
1.060
I
1.040 1
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
YWrS
The Institutional Cost Burden on First-Class Letter Mail Is Increasing
Relative to the Institutional Cost Burden on Standard IA) Reaular Mail
7
8
B.
9
First-Class
10
institutional
Letter
Mail has long contributed
more
in absolute
terms
to the
costs of the Postal Service than the next largest class of mail, Standard
-14-
(A)
OCA-T-6
Revised 6-29-00
Docket No. R2000-1
1
indices reveals a widening
2
Standard
3
gap in the relative contributions
by First-Class
Letters and
(A) Regular mail
Table 8 and accompanying
4
Standard
(A) Regular
5
index for each subclass,
6
Commission
7
for Table 8 for First-Class
8
The actual First-Class
9
recommended
opinions
mark-up
Figure 8 compare
the actual First-Class
indices to the Commission’s
and the average
recommended
issued during the period covered
recommended
index calculated
with respect to Table 4.
index until FY 1994, falling below the recommended
years.
From FY 1995 through
11
increases,
FY 1999, the actual First-Class
12
actual First-Class
13
mark-up
14
below the recommended
15
then returns
16
Regular mark-up index follows the same pattern by comparison
17
index.
rising above the recommended
index.
Letter mark-up
By contrast,
below
The analysis
Letter mark-up index roughly tracks, albeit somewhat
10
mark-up
for the four
by this analysis.
Letters is the same as presented
Letter and
higher, the
index for three
Letter mark-up
index during the last three fiscal years.
index
The
index follows a similar pattern vis-a-vis the average
the actual Standard
mark-up
index remains
index for all but five years, FY 1994 through
FY 1998, and
the recommended
(A) Regular
index in FY 1999.
-16.
The actual
Standard
(A)
to the average mark-up
Docket No. R2000-1
OCA-T-6
Revised 6-29-00
Figure 8: Comparison of First-Class Letter and Standard (A) Regular
Mark-Up Indices to Recommended
and Average
1.600
I
1.400
E
=
+ First
+ First, Rec.
-First,
Ave.
* Std (A)
- .- ~ ., - -.
- Std (A), Ave.
1.000
0.900
0.800
/
0.700
0.600
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
1
Table 9 and Figure 9 compare
the actual First-Class
2
Regular cost coverage
3
index,
4
opinions.
5
Table 5. Table 9 shows the actual First-Class
6
the recommended
7
from
8
recommended
9
coverage
10
indices against the Commission’s
and the average
The analysis
recommended
index
recommended
calculated
of Table 9 for First-Class
Letter and~standard
(A)
cost coverage
for the four
Commission
Letters is the same with respect to
Letter cost coverage
index falls below
index in only two years, FY 1995 and FY 1996, during the 12 years
FY 1988 through
FY 1999.
From FY 1995,
index during the last three years.
index is above the average
it increases,
The actual
rising above
First-Class
the
Letter cost
index during six of the 12 year period, FY 1988
through FY 1999, and rises high above the average in the last three years.
-19-
By contrast,
OCA-T-6
Revised 6-29-00
Docket No. R2000-1
Table
9 shows
recommended
Standard
the actual
Standard
index for all but four years
(A) Regular cost coverage
the average
latter years,
recommended
(A) Regular
cost coverage
index.
as the Standard
cost coverage
from FY 1988 through
index
below
FY 1999. The
index follows the same pattern when compared
Again, the widening
(A) Regular
trend is most apparent
cost coverage
the
index declines
to
in the
from the
and average indices.
Figure 9: Comparison
Cost Coverage
of First-Class Letter and Standard (A) Regular
Indices to Recommended
and Average
4
+
+
A
.*
+
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-2o-
First
First, Rec.
First, Ave.
Std (A)
Std (A), Rec.
Std (A), Ave.
OCA-T-6
Revised 6-29-00
Docket No. R2000-1
II.
THE INCREASING
FIRST-CLASS
LETTER INSTITUTIONAL
COST BURDEN
HAS
RESULTED
IN FIRST-CLASS
LETTER
MAIL
CONTRIBUTING
REVENUES IN EXCESS OF THE AMOUNT INTENDED BY THE COMMISSION
That the institutional
5
1988 through
substantial
FY 1999, and at an accelerating
additional
revenue contributed
has exceeded
In
9
Opinion
Commission
11
mark-up
12
“setting
13
systemwide
14
factors.“’
15
mark-up relationships
16
ratemaking
17
factors.”
and
suggested
indices
target
coverages
average
Moreover,
than
Table
Recommended
rates.
in
Docket
the Commission
the
on the role of cost coverages
and
No.
expressed
the prior
10 presents
the belief that
of the
section
that, in the determination
near the
3622(b)
of rates, the
in Docket No. R90-1 were a better guide to sound
rate relationships,
the systemwide
and the cost coverage
20
recommended
by the Commission
21
average
for purposes
average
recent opinions.
See also PRC Op. MC95-1,nlO19,
-21-
3622(b)
for all mail classes
index for First-Class
by the Commission
/d.n4043.
of the section
cost coverage
and mark-up
in several
recommended
PRC Op. R94-1,74041.
accommodation
concluded
recommended
costs
R94-1,
the Commission
the best
and services,
10
Decision
it placed
There,
19
9
institutional
[for First Class and third class mail] reasonably
represents
cost coverage
the additional
intended by the Commission
the importance
in setting
has produced
More significantly,
Letter Mail to the Postal Service’s
the revenue contribution
its
Letter Mail has risen from FY
rate in recent years,
revenues for the Postal Service.
by First-Class
10
18
cost burden on First-Class
Letters,
Using the systemwide
as a “benchmark,”
it would
Docket No. R2000-1
FY 1999.
OCA-T-6
Revised 6-29-00
This excess
amount of net additional
contribution
has accelerated
revenues to be contributed
in recent years.
Moreover,
the
from FY 1988 through the test year
is expected to reach $11.2 billion.
Table
institutional
intended
11 summarizes
the annual contribution
costs of the Postal Service,
by the Commission,
index benchmark.
based
The amounts
higher level of costs attributed
of First-Class
Letter Mail to the
both greater than and less than the amount
upon the average
reported
First-Class
Letters
in Table 11 take into account
by the Commission
to mail classes
mark-up
the generally
than that of the
Postal Service.”
Table 11
ANNUAL CONTRIBUTION TO INSTITUTIONAL COSTS BY FIRST-CLASS LETTERS
IN EXCESS OF THE AVERAGE FIRST-CLASS MARK-UP INDEX
(amounts in millions)
1 Estimated
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
5116
$555
5908
5522
5698
$685
5117
(5747)
($364)
5599
$1,769
12
1999 ) 2000
$1.964
52,682
2001
$1,729
TOtal
1
I
,968-99
1966.2001
56,833
511,245
The specific adjustment factors and use of the Commission’s version of the CRA that produce the
higher level of attributable costs can be found in Table 6. located in Part I of OCA-LR-I-3.
-23-
I
1
OCA-T-6
Revised 6-29-00
Docket No. RZOOO-1
1
The response
2
adjustments
A.
of the Postal
on a more frequent
Households
Rate
a stable
confusion,
First-Class
is to propose
of a Stable Single-Piece
Mail, households
First-Class
have an interest
(“SPFC”) rate as long as possible.”
of convenience
and economy,
in
Maintaining
and can minimize
mailers.
in the SPFC rate can be inconvenient
12
in the single-piece
rate is accompanied
13
New stamps are issued for both the new single-piece
14
the old and new single-piece
15
requires
16
unnecessary
17
often been crowded
the purchase
rate
basis.
Periods
of First-Class
interests
Longer periods of rate stability reduce inconvenience
mailers
2.
Changes
and predictable
rate is a matter
for household
9
10
11
users
the single-piece
SPFC
to these differing
Prefer Longer
As less frequent
preserving
Service
by new postage
of the rate change.
by household
mailers.
A change
stamps related to First-Class.
rate and the difference
rates, e.g., the “make-up”
of the new denomination
in the absence
to household
for household
stamp.”
of stamps
between
The rate change
that would
otherwise
be
In the past, retail post offices have
(and smaller-volume)
mailers seeking to obtain the
20
Some non-household smaller mailers whose volumes do not qualify for worksharing discounts, or
whose volumes while sufficient, mail infrequently, may also view a more stable single-piece first-class rate
favorably.
21
Traditionally, the postal service has printed new first-class stamps bearing alphabetic rather than
numeric denominations in advance of the commission’s opinion, assigning a value once the decisions of
commission and board of governors is known. This practice is being discontinued.
After Docket No.
R2000-1, the Postal Service will issue stamps bearing a “First-Class Mail” endorsement, followed by the
numeric basic rate. Tr. 21/9104-05 (USPS Response to OCWJSPS-62).
-31.
Docket No. R2000-1
1
single-piece
2
must be changed,
OCA-T-6
Revised 6-29-00
integer rate and the discounted
1.
The single-piece
rate oroceedina
As envisioned
here,
the
rates for presorted
First-Class
rate should
single-piece
First-Class
be changed
(“SPFC”)
would be established
7
remain in effect during the period following
8
rate would
be determined
9
compliance
with the test year break-even
10
proceeding,
11
subclass,
12
by households,
13
remain the same for the time period covered by the two rate proceedings,
14
approximately
four
15
determination
of First-Class
16
“calculated”
rates for First-Class
by contrast,
requirement,
with one exception.
Letters, based upon an appropriate
non-integer
assuming
rate cases
are filed
rates other than single-piece
and
The First-Class
as in past proceedings,
would be set at a who/e cent.
years,
including
In each rate
mark-up for each
The rate actually paid
This “integer
rate” would
a duration of
every
two years.
would
be based
The
on the
rate in each rate proceeding.29
The difference between the “whole cent” integer rate and the noninteger “calculated” rate would be used to maintain the single-piece
rate durina the period followinq the second rate case
The SPFC integer
so as to generate
rate established
21
selected
22
used for SPFC mail. The additional
29
the next rate proceeding.
manner
every other
(such as Docket No. R2000-I),
would be set without regard to the “integer constraint.”
2.
20
in the same
mail
rate for letters
6
17
18
19
in an initial rate proceeding
and automation
during the first rate proceeding
revenues greater than if the calculated
revenues
generated
non-integer
would
be
rate were
would permit maintenance
of
For purposes of this testimony, I refer to estimation of costs and application of the pricing criteria
as the “calculated”
single-piece
non-integer
rate, as distinguished
- 37 -
from the integer rate.
Docket No. RZOOO-1
less than
the
OCA-T-6
Revised 6-29-00
calculated
single-piece
rate
and the effective
workshare
discount
becomes
5.2 cents, there is an 1.8 percent increase in SPFC volume, and a 2.2 percent
decrease
in workshare
volume.
Total First-Class
in 2003 and by 89 million in 2004.
volume would decrease
volume would decrease
by 54 million
Over the entire four year period, total First-Class
by 89 million.
The resulting changes
in SPFC and workshare
volume can be seen in Part C of Table 14.
ILLUSTRATIVE
CHANGE IN ESTIMATED SINGLE-PIECE AND WORKSHARE
VOLUME DURING TWO RATE CASES
(Wl”nm and amO”nts in nlillions. except rates,
PART A: SPFC INTEGER RATE
Calculated NonInteger Rate
Si”gle-Ph?C~
WOhShrB
Year 2000
Rat*
VOlWlW
so.33
53.378
$0.27
45.253
Year 2000
Vc.l”tlw
Percent
SPFC
W.XlSh~,~
75
(21)
2.
7
8
9
Mail
(5-v
(89)
(89)
The shifting of volumes between single-piece
and workshare
results from changes in the “calculated” single-piece non-integer
rate and the size of the workshare discount
volumes
shifting
11
increase
and decrease
12
calculated
single-piece
13
discount
compared
2001-2004
TOtal
207.1s4
184.990
PART c: CHANGE IN VOLUME AND PERCENT BETWEEN SPFC AND WORKSHARE
2001-2004
YeS,1001
YeaT 2002
Year 2003
Year 2004
“Ol”nw
Percent
“ohne
Percent
Vo,“me
Percent
Volwne
Percent Vol”me
Percent
-3.2%
-3.2%
1.8%
(1,431) -0.70%
948
1.8%
899
(1.628)
(1.651)
3.5%
-2.2%
1.3-l*
0.72%
w29
3.5%
1.704
-2.2%
(1.002)
(989)
NBf Change
10
PART 8: CALCULATED SINGLE-PIECE NON-INTEGER RATE
“ear mm
Year 2002
“ear 2003
Year 2004
*a**
VOl”lll~
Rate
Vol”me
VOlYWl*
Rate
VOlWlW
Rate
$0.330
53.378
160.330 52,651
SO.348
51.898
SO.348 49,238
so.270
45,253
$0.270
47.320
$0.288
46.529
SO.288 45,887
between
with changes
single-piece
and
in the workshare
rate and SPFC rate.
A change
workshare
rate relative
will
alternately
to changes
in the size of the workshare
to the SPFC rate shifts volumes to and from SPFC and workshare
- 42 -
in
OCA-T-6
Revised 6-29-00
Docket No. R2000-1
the price difference
is -2 cents, the largest net percentage
volume is negligible
at well under one percent, i.e., 0.103 percent
Nevertheless,
some
impact
on
could shift between
change
in total First-Class
the shift in volumes to and from SPFC and workshare
Postal
the two.
Service
As
operations.
However,
much
as
3.4
such shifts can be anticipated
With respect to presort mailers, changes
8
will create cycles causing volumes and revenues
9
between
the SPFC rate and the calculated
higher volumes
11
between the SPFC rate and calculated
12
operate with lower volumes and revenues and potentially
As proposed
higher
single-piece
here, the first cycle would
discount
to rise and fall. When the difference
single-piece
and potentially
pieces
in mail volume.
in the size of the workshare
10
13
and revenues,
billion
and planned for,
and are likely to be smaller and more gradual than seasonal fluctuations
7
would have
rate is positive, mailers will see
profits.
When
rate is negative,
the difference
however,
they will
lower profits.
occur when the difference
between
volumes
14
SPFC and calculated
rate is positive, resulting in a period of higher workshare
15
and mailer revenues.
This, in turn, should permit presort mailers to establish
16
base with which to offset lower volumes following the second rate case.
17
four year period, these cycles could induce greater efficiency,
18
new capital equipment
19
the period of lower volumes.
a financial
Over the entire
as some firms invest in
during the period of higher volume in order to compete
Adjusting the Single-Piece Rate Every Other Rate Proceeding
Circumscribed Under Certain Circumstances
during
Should be
20
21
C.
22
Holding the SPFC rate constant for a period of two rate cases creates a risk that
23
the SPFC Reserve Account
may prove insufficient
-45.
to cover the likely revenue deficiency
Docket No. R2000-1
OCA-T-6
Revised 6-29-00
1
Sorters (“BCSs”) that read letter mail with barcodes
2
mailers,
3
Sorters (“DBCSs”)
4
barcoded
including
Mail Processing
Bar Code Sorters
and Carrier Sequence
mail into the delivery sequence
increasing
applied by Postal Service OCRs or
(“MPBCSs”)
Delivery
Bar Code Sorters (“CSBCSs”)
The
sophistication
6
nonstandard
7
processed
8
there is no feature of the AFCS (or other mail processing
9
cull out such maiL4’ The result is that some “mail pieces with nonstandard
mail,
on the automated
10
will be processed
correctly
11
automation
12
are square in shape (aspect
13
automated
14
15
B.
16
In its
operations.“48
Opinion
rejected
18
nonstandard
surcharge
49
unsuited
equipment,
for
equipment
mechanized
permits
certain
processing,
to
be
In the case of low aspect ratio letter mail,
equipment)
on the AFCS and will therefore
that is designed
be routed to downstream
In fact, it has been shown that some seasonal greetings
ratio of 1:l) are processed
to
aspect ratios
either partially, or entirely,
The Commission’s
Opinion in Docket No. R97-1 Found
Reasons To Doubt the Basis for the Nonstandard Surcharae
Commission
48
automated
that
on
equipment.49
17
47
of
previously
that can sort
followed by the carrier.
5
letter
Bar Code
and
the
Recommended
Postal
Service’s
for single-piece
Decision
in
Docket
proposed
45 percent
No.
Important
R97-I,
increase
the
in the
mail, from 11 cents to 16 cents, and the 120
Tr. 512076
USPS-T-24
(Miller) at 20.
See Docket No. R97-1, Testimony
Reference LR-NDMS-1.
of NDMS witness
- 53 -
Haldi (NDMS-T-l),
at 11-12, and Library
Docket No. R2000-1
1
higher
2
equipment.
3
OCA-T-6
Revised 6-29-00
percentage
of letters will be forwarded
For purposes
of estimating
for further
processing
the volume of low aspect
on automated
ratio letters suitable
4
automated
5
of letters having an aspect ratio of 1:1.3, will be forwarded
to downstream
6
processing
operations.
does
7
percentage
of low aspect ratio letters forwarded
8
I have
9
operation
increases
10
selected
percentages
11
letter volumes
12
model in order to calculate
13
mail.
14
mail processing,
assumed
I assume that 50 percent of square letters, and 100 percent
However,
that the
letter mail by aspect
16
automated
probability
between
Postal
Service
to automated
of additional
not
know
processing.65
processing
beyond
the
true
Therefore,
the AFCS
I use
50 percent and 100 percent to allocate low aspect ratio
automated
Table 16 presents
15
the
automated
in a linear fashion as the aspect ratio of a letter increasese6
between
for
and manual processing
a range of mail processing
the linear probabilities
ratio that I assume
in the mail processing
cost
unit costs for low aspect ratio
(and, therefore,
will be advanced
the percentages)
for further
processing
of
on
equipment,
Tr. 7/3132
(OCA/USPS-T24-5(f)).
See also USPS-T-24 at 21
66
Other probability distributions could, of course. be assumed. The probabilities of acceptance for
further automated processing could be distributed exponentially; that is, probabilities would rise more
dramatically as the aspect ratio approaches 1:1.3. Conversely, the probabilities could be distributed in a
logarithmic fashion, resulting in a more rapid rise nearer the aspect ratio 1:l.
- 59 -
OCA-T-6
Docket No. R2000-1
Revised 6-29-00
1
ratios shown
in Table 16.
2
requires several adjustments
3
all 10,000
4
consistent
with his assumption
5
percentage
of low aspect
6
unknown,
7
the
8
respectively,
9
Moreover,
10
associated
11
presented
12
the unit costs for low aspect ratio letter mail are presented
mailpieces
available
of this range of mail processing
in the manual cost model.
are entered
at the
“Outgoing
of 100 percent
ratio
letter
As presented
volume
Primary
manual processing.
receiving
unit cost
by witness Miller,
Manual”
operation,
Because
automated
the true
processing
is
I enter 100 percent, 75 percent, and 50 percent of the 10,000 mail pieces at
“Outgoing
70
The derivation
RCR.”
of mailpieces
The
remaining
are entered
the rates for “acceptance”
with each aspect
ratio.
0 percent,
at the “Outgoing
and “upgrade”
These
changes
in Table 17. The specific adjustments
Electronic copies of the spreadsheets
in OCA-LR-I-3, Part III.
25
containing
- 62 -
percent,
and
Primary
Manual”
are multiplied
produce
50 percent,
operation.
by the probabilities
the range of unit costs
to the manual model used to develop
in my workpapers.“’
the “adjusted”
manual
processing
model are
Docket No. R2000-1
OCA-T-6
Revised 6-29-00
Table 17
UNIT COSTS FOR LOW ASPECT RATIO NONSTANDARD
LETTER MAIL FOR SELECTED VOLUMES ALLOCATED
TO AUTOMATED MAIL PROCESSING
Probability
(Percent)
Percent of Volume Allocated to
Automated and Manual Processing
100/o
1
75125
50 I50
Unit Cost
1 Unit Cost
1 Unit Cost
Aspect
Ratio
PI
111
0.500
0.521
0.542
0.563
0.583
0.604
0.625
0.646
0.667
0.667
0.708
0.729
0.750
0.771
0.792
0.812
0.633
0.654
0.675
0.696
0.917
0.937
0.958
0.979
1.000
(31
19.346
19.177
19.000
18.615
18.633
16.435
16.226
16.014
17.791
17.571
17.330
17.060
16.820
16.549
16.266
15.989
15.685
15.366
15.039
14.696
14.340
13.967
13.601
13.200
12.763
1
1.0125
1.025
1.0375
1.05
1.0625
1.075
1.0675
1.1
1.1125
1.125
1.1375
1.15
1.1625
1.175
1.1875
1.2
1.2125
1.225
1.2375
1.25
1.2625
1.275
1.2675
1.3
141
20.496
20.366
20.235
20.097
19.960
19.811
19.656
19.496
19.329
19.163
16.983
16.795
16.600
18.397
18.166
17.977
17.749
17.511
17.264
17.007
16.740
16.475
16.186
15.685
15.572
El
21.644
21.559
21.470
21.376
21.267
21.168
21.065
20.977
20.666
20.756
20.635
20.510
20.380
20.245
20.104
19.965
19.813
19.655
19.490
19.319
19.140
18.964
18.771
16.570
18.362
In the case of letters having an aspect ratio of 1:1.3 (e.g., standard-size
mail)
the
that
are
model
mail
processed
processing
cost is not significantly
entirely
unit
cost
on
is
automated
12.783
cents.
equipment,
This
unit
different from the average test year mail processing
-63-
letter
unit cost of
CERTIFICATE
I hereby
participants
OF SERVICE
certify that I have this date served the foregoing
of record in this proceeding
in accordance
Practice.
L&&W
EMMETT RAND COSTICH
Washington, D.C. 20268-0001
June 29,200O
document
upon all
with Section 12 of the Rules of