USPS-T-9
OFF,Ch gi THE SFI:!;;
IiiiY
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON DC 20268-0001
POSTAL RATE AND FEE CHANGES,
2000
: Docket No. R2000-1
DIRECT TESTIMONY
OF
WILLIAM P. TAYMAN
ON BEHALF OF
UNITED STATES POSTAL SERVICE
CONTENTS
AUTOBIOGRAPHICAL
SKETCH . . .. . .. .. . .. . . .. . .. . .. . .. . .. . . .. . . .. . .. . .. . . .. . . . .. . .. . .. . .. . . .. .. . .. .. .. .
I.
PURPOSE AND SCOPE OF TESTIMONY AND GUIDE TO
SUPPORTING DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
II.
Ill.
III
1
SUMMARY OF FINANCIAL AND OPERATING RESULTS
AND CURRENT FINANCIAL CONDITION .. . . .. . . .. . .. . .. . .. . .. . .. . . .. . .. . .. . .. . .. .. .. . ..
2
TEST YEAR REVENUE
IO
A.
.. . . . . .
.
..
Base Year.. ...............................................................................
Fiscal Years 1999, 2000 and the Test Year.. ...........................
Sources of Change:
a.
Cost level .........................................................................
b.
Mail volume effect.. .......................................
..- ................
C.
Non-volume workload effect ............................................
d.
Additional workday effect.. ...............................................
Cost reductions.. ..............................................................
;.
Other programs.. ..............................................................
Base year unit cost adjustment.. ......................................
9.
h.
Workyear mix adjustment ................................................
i.
Final adjustments.. ...........................................................
Specific Estimating
1.
2.
3.
C.
. . . ..
Summary of Test Year Cost Estimating
Procedures .. .. . .. . . .. . . .. . .. .. . .. . .. . .. . .. . .. . . .. . .. . . .. . . .. . .. . .. . . .. .. . . .. . .. . .. . .. . .. . .. .. . .. ..
1.
2.
3.
B.
REQUIREMENT
Elements.. ..........................................................
Labor contract ..........................................................................
Other salary and benefit changes ............................................
General price increases ...........................................................
Revenue Requirement..
1.
....................................................................
Accrued costs.. .........................................................................
a.
Postmasters (Segment 1). ...............................................
b.
Supervisors and Technical Personnel
(Segment 2). ...................................................................
C.
Clerks and Mail Handlers CAG A
through J Offices (Segment 3). .......................................
d.
Clerks, CAG K Offices (Segment 4). ................................
City Delivery Carriers (Segments 6 and 7). ......................
F’
Vehicle Service Drivers (Segment 8). ..............................
10
IO
11
12
12
12
13
14
15
16
I,6
18
18
19
20
21
21
22
22
23
25
26
27
28
ii
Special Delivery Messengers (Segment 9) .. . .. . . .. .. . .. . .. .. . . .
Rural Carriers (Segment 10) . .. . . .. . .. . .. . . .. . . .. . .. . .. . .. . .. . .. . .. . .. . .
Custodial and Maintenance Services
(Segment 11) . . . .. .. . .. . .. . .. . .. . .. . . .. . . .. . .. . . .. . .. . . .. . .. . .. . .. . .. . .. .. . .. . .
Motor
Vehicle Service (Segment 12) .. .. . . . .. . .. . .. . .. . .. .. . .. . .. . .
j.
k.
Miscellaneous Local Operations
(Segment 13) . .. . .. . .. . .. . .. . .. . .. . .. . . .. . . .. . . .. .. . . .. . . .. . .. . .. . .. . .. .. . .. . ..
I.
Contractual Transportation of Mail (Segment 14) . .. . .. .. . . ..
m. Building Occupancy (Segment 15) . . .. . .. . . .. . . .. . .. . .. . .. .. . .. . .. . .
n.
Supplies and Services (Segment 16) . . .. . . .. . .. . .. . .. . .. . .. . .. .. . . .
0.
Research and Development (Segment 17) .. . .. . .. . .. . .. .. . .. . ..
HQ & Area Administration & Corporatewide
P.
Personnel Costs (Segment 18) . . .. . . .. . .. . .. . . .. . .. . .. . .. . .. . .. .. . .. .
Equipment
Maintenance & Management
q.
Training Support (Segment 19) .. . .. . . .. . .. . .. . . .. . .. . .. . .. . .. . .. .. . . .
r.
Depreciation, Write-offs, Claims, & Interest
(Segment 20) .. . . .. . .. . .. .. . .. . .. . . .. . . .. . . .. . .. . .. . .. . . . .. . .. . .. . .. .. . .. . .. . ..
Provision for Contingencies.. ....................................................
Recovery of Prior Years’ Losses ..............................................
E
:
i.
2.
3.
IV.
V.
28
29
30
31
32
32
34
35
36
37
41
42
43
46
BEFORE AND AFTER RATES.. ...........................................
48
A.
Mail and Special Services Revenues.. ..............................................
49
B.
Appropriations..
.................................................................................
49
C.
Interest Income .................................................................................
51
REVENUES
TEST YEAR REVENUE
DEFICIENCY..
....................................................
EXHIBITS.. .............................................................................................................
-
52
54
-
iii
Direct Testimony
of
William P. Tayman
AUTOBIOGRAPHICAL
SKETCH
1
2
3
Financial Analysis for the United States Postal Service.
4
position in September
5
development
6
and administration
Prior to this appointment,
of national operating
Budget &
I was appointed
1995 and my primary responsibilities
to this
include the
budgets.
I was Manager, Strategic & International
7
Finance and Manager,
8
with the Postal Service in 1975.
9
Postal Service Training & Development
Revenue, Volume and Cost Analysis.
I began my career
From 1975 through 1978, I held positions at the
10
at Postal Headquarters.
11
employed
12
held the position of Deputy Controller.
13
Institute and in the Accounting
Division
During the period from 1978 through 1980 I was
by the Pension Benefit Guaranty Corporation
(PBGC). At PBGC, I
In 1980, I returned to the Postal Service Headquarters
as General
14
Manager and then Office Director of Accounting.
15
chief accountant
16
Sloan Fellows Program at Stanford University where I received a Masters
17
Degree in Management.
18
Public Administration
19
from the University of Maryland,
20
a regional Certified Public Accounting
21
-~
My name is William P. Tayman, Jr. and I am the Manager,
of the Postal Service.
In this position, I served as
In 1991, I was selected to attend the
I also received a Bachelor Degree in Business and
from the University of Maryland in 1972. After graduation
I was employed at Hoye, Graves, Bailey & Co.,
firm.
I am a licensed Certified Public Accountant
22
also am a member of the American
23
the Maryland Association
24
and R90-I,
25
compensation
26
Postal Service’s revenue requirement
I sponsored
in the State of Maryland.
Institute of Certified Public Accountants
of Certified Public Accountants.
testimony
concerning
and retirement costs.
testimony.
and
In Docket Nos. R87-1
the estimation
In Docket No. R97-I,
I
of workers’
I sponsored
the
1
1
I.
PURPOSE
AND SCOPE OF TESTIMONY
2
DOCUMENTATION
3
My testimony
AND GUIDE TO SUPPORTING
presents the Postal Service’s revenue requirement
Year (TY)‘.
5
of Practice and Procedure
6
Test Year. The attached exhibits and the material included in Library References
7
l-127, and l-128 supplement
9
This testimony was prepared in conformance
for the Test
4
8
with the Commission’s
to support the Postal Service’s revenue requirement
Rules
for the
l-126,
my testimony.
Exhibits A through S are at the end of my testimony
index of Exhibits.
and are preceded by an
These exhibits provide summary components
Library Reference
l-126, “Explanation
of the revenue
10
requirement.
11
Programs,”
12
the cost reduction program savings and other programs expense built into the revenue
13
requirement.
14
detailed calculations
15
“Workers’ Compensation
16
liability and expense.
supplies the narrative descriptions
Library Reference
underlying
of Cost Reductions
and fundamental
l-127, “Rollfonvard
and Other
estimating
elements of
Expense Factors,” supplies the
the revenue requirement.
Library Reference
l-128,
Expense,” supports the projection of Workers’ Compensation
17
My testimony
is organized
18
Chapter I explains the purpose of my testimony.
into five chapters as described
below.
Chapter II, entitled “Summary
19
of Financial and Operating
20
financial and operating
21
of the Postal Service, and (3) service performance
22
chapter shows the recent progress the Postal Service has made in improving its
23
financial position, improving service, and restoring equity.
24
supports a proposed level of rate increases consistent with managements
25
continuing
26
restore equity.
to strengthen
-,
Results and Current Financial Condition,”
describes
(1)
results over the last ten years, (2) the current financial condition
and customer satisfaction.
This
The material presented
goals of
the Postal Service’s financial position, improve service, and
1’ The various fiscal or other periods discussed in this testimony
The Test Year (FY 2001)
- October I,2000 to September
Fiscal Year 2000
- October 1, 1999 to September
Fiscal Year 1999
- October I, 1998 to September
- October I,1997 to September
The Base Year (FY 1998)
include the following:
30.2001
30,200O
30. 1999
30,1998
-
,,-
2
Chapter Ill, entitled “Test Year Revenue Requirement,”
1
(1) describes the specific
2
sources of the changes
in Postal Service costs which are included in the revenue
3
requirement,
4
defines the change in the revenue requirement
5
addresses
6
prior years’ losses required to support the financial integrity and stability of the Postal
7
Service.
8
Service’s testimony on Workers’ Compensation
(2) identifies the assumptions
the basis for estimating
As a departure
by cost segment.
revenue anticipated
11
chapter provides a comprehensive
12
discussion
13
of anticipated
the Postal
expense.
Before and After Rates,” describes the level of
during the Test Year on a before-rates
and after-rates
basis. This
analysis of our revenue estimates by combining a
of the revenue anticipated
from mail and special services with a discussion
revenues from appropriations
and investment
income.
In Chapter V, entitled “Test Year Revenue Deficiency,”
14
and recovery of
from prior rate cases, this section incorporates
10
and (3)
This chapter also
the provisions for contingencies
Chapter IV, entitled “Revenues
9
used to project cost increases,
I calculate the overall
revenue deficiency
and analyze the effect of the proposed
II.
SUMMARY
OF FINANCIAL
18
FINANCIAL
CONDITION
19
In this chapter, I discuss financial results over the last ten years, the current
15
rates on that deficiency.
16
17
AND OPERATING
RESULTS AND CURRENT
20
financial condition of the Postal Service, and recent service performance.
21
otherwise
22
Statements
23
Unless
noted, the data used in this analysis are drawn from the Audited Financial
of the United States Postal Service for Fiscal Years 1989 through 1998.
The financial results for this ten-year period reflect the recent reversal of the
24
difficulties the Postal Service previously
25
time, while providing reliable service and a reasonable
26
much of that previous period, the Postal Service dealt with unprecedented
27
burdens as a result of cost transfers in excess of $13 billion (see Exhibit USPS-SK),
28
resulting from Omnibus Budget Reconciliation
29
additional cost transfers since the Omnibus Reconciliation
30
exception of transferring
the requirement
had in meeting its break-even
requirement
degree of rate stability.
Acts (OBRAs).
over
During
financial
There have been no
Act of 1993, with the
for funding Post Office Department
Workers’
3
1
Compensation
expense in FY 1997 under the Balanced
2
absence of additional
3
of the 1992 restructuring
4
and other resources,
5
revenue, have enabled the Postal Service to reverse the historical pattern of rate cycle
obligations
Budget Act of 1997. This
to the Federal Government,
and debt refinancing,
coupled with the benefits
moderate increases
improved service, and continued
in the cost of labor
growth in mail volume and
6
Most recently, however, the delayed implementation
7
and reduced amount of the
8
Docket No. R97-1 rate increase, is not permitting revenue growth to exceed cost
9
growth.
Costs are estimated to continue to rise more rapidly than revenues.
I will
10
elaborate on the specific reasons postal costs are estimated to continue to rise through
11
the test year later in my testimony.
12
13
Table 1 presents the net income (loss) and equity by year for the ten-year
historical
period.
14
Table 1
15
16
17
Postal Service Net Income/(Loss) and Equity
($ Millions)
1 Net Income/(Loss)
1
Equity
I
Gl I
0
1
I
(1
2
FY 1993
FY 1994
FY 1995
FY 1996
FY 1997
FY 1998
Cumulative Net
Income (Loss)
18
19
Losses occurred
‘7,
in five of the ten years.
,
12
(536)3
(1,765+
(914)
1,770
1,567
1,264
550
/Ana
I4
\‘,” 37*
(2.7 c3,283)
(5,048)
(5,961)
(4,191)
(2.6:
(1 ,r
i.-,
(34’3)
Net incomes have been achieved in
20
each of the last four years, but has declined from a high of $1.770 billion in FY 1995 to
21
$550 million in FY 1998. Fiscal Year 1999 net income dropped to $363 million and
a Includes OBRA 1991 extraordinary retroactive assessment for employee benefits ($1,810 million)
2 Includes restructuring costs of $1 ,010 million.
3’ Includes OBRA 1993 ($857 million) and debt refinancing premium ($536.5 million).
4
1
2
Despite the fact that this ten year period includes this unprecedented
four-year
3
string of net incomes and the three highest net incomes ever earned by the Postal
4
Service, a cumulative
5
Service failed to make ground against its prior years’ losses recovery objective during
6
the last decade.
7
negative $810 million in Fiscal Year 1998. And equity remains negative with the $363
8
million net income reported for FY 1999.
9
-.
Fiscal Year 2000 net income is expected to drop to $66 million.
$346 million net loss was incurred.
This means the Postal
Equity declined from negative $402 million in Fiscal Year 1989 to
The two year period of Fiscal Year 1994 and 1995 is the only time revenue
10
growth has exceeded
11
annual revenues have risen a total of $24.2 billion or 67.3 percent since Fiscal Year
12
1989. This is marginally
13
annual expenses over the same period.
14
cumulative
15
accomplished
16
expense growth in consecutive
gap between
years. As shown in Table 2,
greater than the $23.0 billion or 63.0 percent increase in
The Postal Service has narrowed the
revenues and expenses as a result of the turnaround
in Fiscal Years 1994 and 1995.
While recent results are very favorable,
it is important to recognize that equity
17
remains substantially
negative and well below the capital contribution
of the U.S.
18
Government.
19
growth in Fiscal Year 1998. The negative revenue to expense growth relationship
20
in Fiscal Year 1998 continued
21
likely unless rates are increased.
In addition, for the third straight year, expense growth exceeded
revenue
seen
into Fiscal Year 1999 and indicates that future losses are
5
Table 2 presents the year-to-year
and cumulative
percentage
revenue and expenses for the ten-year period ending September
increases
in total
30,1998.
Table 2
Comparison of Annual Percent Increase in
Revenue and Expense for the Ten Years
FY1989-FYI998
9
10
With the Docket No. R94-1 rate increases effective in January
11
Service’s financial position showed unprecedented
12
trend of rate cycle losses.
13
net income over the current rate cycle, which began on January
14
incomes are expected to be much less substantial
15
Docket No. R94-1 rate cycle.
16
improvement,
1995, the Postal
reversing the previous
The Postal Service also expects to generate a cumulative
Two financial indicators discussed
10, 1999, but these net
than the net incomes during the
in the Docket Nos. R94-1 and R97-1 revenue
17
requirement
testimony as examples of worsening
financial condition are the current
18
ratio and working capital.
19
mainly due to a financial policy change, not a fundamental
20
condition.
21
program that emphasizes
22
meeting current liabilities as they come due. This has reduced cash, reduced debt, and
These indicators have continued
The Postal Service has implemented
the economic
y Includes interest income and appropriations.
@Includes interest expense and all extraordinary,
to decline; however, this is
worsening
a more aggressive
of financial
cash management
use of available cash to reduce debt, while still
unusual, and non-recurring
expenses.
-.
6
1
2
/c
lowered interest expense.
Table 3 compares the ratio of current assets to current liabilities at the end of
3
each fiscal year since 1989. This comparison
indicates that with the exception of Fiscal
4
Year 1995, the Postal Service’s current ratio has declined substantially
5
since Fiscal Year 1989. Table 4 shows that during the period Fiscal Year 1989 to 1992
6
the amount of debt outstanding
7
current ratio and an increasing debt level are often indicative of worsening
8
condition.
9
was mainly the result of changes in debt management,
also increased each year. Taken together, a declining
not worsening
financial
10
condition.
11
growth in the current portion of long-term debt and use of short-term
12
After reducing debt five straight years through FY 1997, debt increased
13
This increase reflects that the most significant opportunities
14
management
15
Postal Service’s capital program.
16
debt required to fund capital programs.
18
19
20
21
financial
However, the decline in working capital that occurred in Fiscal Year 1996
The decline in working capital since Fiscal Year 1995 is primarily due to
have been realized.
revolving credit.
for optimizing
in FY 1998.
cash
Debt financing is once again required to support the
The proposed rate increase will mitigate the level of
17
.-
and consistently
Table 3
Comparison of Current Ratios Since FY 1989
Table 4
Change in Working Capital and Debt
($Millions)
1 Increase//Decrease)
In 1 Increase/(Decrease)
1
Working Capital
In bebt
’
596
318
.(1,447)
Period
FY 1989
FY 1990
FY
FY
FY
FY
FY
FY
FY
1991
1992
1993
1994
1995
1996
1997
(6--’ m
9LU) ,
c
(3,321)
457
(2,601)
(1,245)
11 nl*\
FY IWIA
5
6
(761)
(1,708)
(1,361)
(47)
GAO
The ratio of total assets to total liabilities reflects the recent improvement
7
financial position.
8
1994, this ratio has risen to .90. Public policy changes resulting in reductions
9
revenue forgone appropriations
After declining from Fiscal Year 1989 to a low of .73 in Fiscal Year
and increased
10
expenses
11
in the first half of the ten year period.
12
encouraging,
13
of improvement
14
15
16
17
in
related to restructuring,
in
OBRA payments for annuitant costs,
and the refinancing
of debt contributed
While the improvement
to the decline
in this ratio is
it is important to recognize that the ratio is still less than one and the rate
has slowed.
Table 5
Comparison
of Total Assets to Total Liabilities’
7/ Excludes the asset Deferred Retirement Costs and the long-term liability Amounts Payable for
Retirement Benefits. The current liability portion of Amounts Payable for Retirement Benefits has been
included as a liability.
-~
8
1
The Postal Service has also achieved consistent
2
the recent period of financial improvement.
3
indicators of service performance
4
Measurement
5
1994. In general, the attributes of customer satisfaction
6
Customer
7
time unprecedented
from the Residential
Measurement
during
As reflected in Table 6, key national
System have all shown improvement
Satisfaction
service improvements
Customer Satisfaction
since Quarter II of Fiscal Year
which make up the Residential
System have consistently
improved at the same
financial results have been achieved.
8
Table 6
Customer Satisfaction Measurement System
Combined Excellent I Very Good Percent Trend
PO II N 1994 - PO IV N 1999
9
10
11
12
TIME EACH DAY
13
14
First-Class
Mail service, as measured
15
system (EXFC), has also shown consistent
16
measures service performance
by the External First-Class
improvement
measurement
over this time period.
from the time mail enters the mailstream
EXFC
until it is
9
1
delivered to a household,
2
estimates of destinating
3
Clusters.
4
measurement
5
the nation’s destinating
6
the improvement
Beginning
small business, or post office box. EXFC provides quarterly
First-Class
Mail service performance
for all Performance
in FY 1999, the number of 3-digit ZIP Codes included in the
was expanded
from 301 to 465. This represents
First-Class
approximately
stamped and metered mail volume.
80% if
Table 7 shows
in overnight, two day, and three day service commitments.
7
8
9
10
Table 7
EXFC Performance
PQIIFY1994-PQIVFY1999
92.66
93.51
93.02
92.78
93.15
93.54
93.74
PQOZFY1998
PQ 03 FY 1998
PQc4FY1998
PQOl FYI999
PQ 02 FY 1999
PQ03FY1999
PQO4FY1999
11
12
78.70
86.06
87.66
86.47
83.36
86.89
08.37
74.24
83.68
86.44
86.69
79.18
86.87
88.12
76.56
84.85
87.03
86.58
81.25
86.88
88.25
In addition to the costs that are already reflected in the Fiscal Year 1998 results
13
additional cost increases,
more fully described
14
Reference
15
Service’s financial condition.
16
current negotiated
17
major program initiatives designed to continue service improvements,
l-127, are anticipated
later in my testimony
to have a near term adverse impact on the Postal
These include: (1) increased
and arbitrated
and in Library
labor contracts;
labor costs specified in
(2) increased costs associated
improve
with
‘7
1
responsiveness
to customers,
maintain and improve our infrastructure,
and reduce
2
costs in the future; (3) increases in health benefits; and, (4) increases due to general
3
inflation in the cost of goods and services.
4
impact on the amount of cash available for debt reduction, which results in higher
5
interest expense.
Higher costs generally also have an adverse
In my testimony that follows, I project the expected results for the Test Year and
6
I
discuss the need for a provision for contingencies.
8
proposed
9
prior years’ losses recovery.
rates are not implemented,
The Test Year deficiency,
will be approximately
$3.7 billion, which includes
In my opinion, the Postal Service should not allow a
10
deficiency of this magnitude to occur.
11
moderate
12
of financial position.
13
meet the Board of Governors’
14
difficult to fund expenditures
15
levels of borrowing would be required and would add significantly
Instead, the Postal Service should opt for a
increase in rates, and a continuation
Without the proposed
of equity restoration
and strengthening
rate increase, the Postal Service cannot
policy on equity restoration*,
and will find it increasingly
critical to the future viability of the Postal Service.
Planning to operate at a loss, to defer equity restoration,
16
if the
would be to plan for financial failure.
High
to interest expense.
and to borrow for
17
operations
18
costs which I discuss below, and my financial projections for the Test Year, I conclude
19
that the most responsible
20
through a general increase in rates.
In light of the increasing additional
course of action is to increase Postal Service revenues
21
22
23
Ill.
TEST YEAR REVENUE
REQUIREMENT
The revenue requirement
is developed
by estimating
changes from a Base Year
24
in which costs and revenues are known.
25
development
26
Interim Years (Fiscal Years 1999 and 2000) and the Test Year (Fiscal Year 2001).
2-l
28
A.
There are three periods involved in
of the revenue requirement:
The Base Year, (Fiscal Year 1998). the
Summary of Test Year Cost Estimating
1.
Base Year
B Docket No. MC96-3, Library Reference SSR-112.
Procedures
11
The Base Year employed
1
2
this case is Fiscal Year 1998.
3
items developed
4
published financial statements
5
2.
throughout
by me and by postal cost witnesses
Revenues, expenses,
in
net income and balance sheet
my testimony are consistent
with those in the audited and
for that year.
Fiscal Years 1999,200O
and the Test Year
Three estimated fiscal years, i.e., Fiscal Years 1999 and 2000, and
6
7
the Test Year, will be treated separately
8
estimating
9
direct steps in the development
procedures
in my testimony,
not in the aggregate.
Cost
have been applied to each of these years, as necessary
of Test Year costs.
and
Final, audited Fiscal Year 1999
10
data were available very shortly prior to the filing of Docket No. R2000-1,
11
available sufficiently
12
However, the Fiscal Year 1999 estimates presented
13
actual financial results.
14
net income of $363 million. Actual FY 1999 revenues of $62.755 billion were used in
15
this filing. Estimated expenses
16
percent of the actual FY 1999 expenses of $62.363 billion. The correspondence
17
projected and actual FY 1999 financial results confirms the viability of FY 1998 as the
18
base year and supports the reliability of the cost estimating
19
testimony.
3.
20
in advance to be incorporated
Projected
but were not
fully into cost estimating
herein are extremely
procedures.
close to the
net income was $355 million as compared
to actual
of $62.400 billion used in this filing were within 0.06
procedures
of
used in this
Sources of change
Sources of change are classified as base year unit cost
21
22
adjustment,
cost level, mail volume effect, non-volume
23
workday
24
adjustments.
25
explaining total cost differences
26
and the Test Year in order to establish the basis for the revenue requirement.
27
testimony
28
base year unit cost adjustments,
29
mix adjustment.
30
rollforward
effect, cost reductions,
workload
other programs, workyear
These sources of change were individually
effect, additional
mix adjustments
computed
and final
for purposes of
between the Base Year, Fiscal Years 1999 and 2000,
My
explains the derivation of sources of change factors with the exception of
model.
mail volume, and final adjustments,
including the mail
The rollfonvard witness utilizes sources of change factors to run the
My Exhibit 9B contains rollforward
model change reports that
-
1
summarize
each of the sources of change for FY 1999, FY 2000 and the Test Year that
2
result from the factors developed
3
Test Year revenue requirement
4
contingency,
5
reflected on the after rates rollforward
6
adjusted for the workyear
by adding final adjustments’the
model test year change report which has been
mix.“’
Cost level
Estimating the increase in the cost of current year resources
8
9
is determined
The total
and the amount included to recover prior years’ losses, to the amount
a.
7
by me and other Postal Service witnesses.
produces cost level changes for the subsequent
year. Year-to-year
10
primarily consist of increases
11
and the cost of the previous years level of non-personnel
12
Exhibit 9Q, cost level changes in salaries are estimated to average 3.1% in FY 1999,
13
3.0% in FY 2000 and 4.0% in the test year. Cost level changes in benefits are
14
estimated to average 4.8% in FY 1999, 6.5% in FY 2000 and 6.4% in the test year.
15
The derivation of cost level factors is explained
16
Library Reference
b.
17
in the unit cost of personnel
price changes
compensation
resources.
and benefits
As detailed in my
in detail in Chapters VIII and IX of
l-127.
Mail volume effect
Mail volume effect is cost changes due to increases or decreases
18
19
in mail volume and special services volume.
20
effect is detailed in the testimony
21
C.
Non-volume
Cost variability due to the mail volume
and workpapers
workload
of witness Kashani (USPS-T15).
effect
These are cost changes that result from variation in measurable
22
characteristics
other than mail volume.
For example, city carrier street costs
23
workload
24
vary with the number of possible deliveries.
25
financial impact are the number of possible city deliveries, the number of rural boxes
26
and route miles, and the amount of facilities square footage.
27
factors are summarized
The most significant of these in terms of
in Table 8. The computation
Non-volume
of non-volume
9 Final adjustments are calculated by other witnesses and summarized
Exhibit USPS-151.
’ Exhibit 9B, page 9.
workload
workload
factors is
and sourced in witness Kashani’s
13
1
explained
in Chapter IVd of Library Reference
2
Postal Service costs is explained
3
(USPS-T15).
l-127. The application
in the testimony and workpapers
-
of these factors to
of witness Kashani
4
Table 0
Non-Volume Workload Factors
% Change from Previous ’fear
1 FY 1999 1 FY 2000
1~~
I n ?A”
NO. of Posi .r-rrnces 11
Possible City
1 Rural Rout,
3.0%
Rural Boxe
35%
Contract Si
(2.8)%
Cag L Post OftIces
Facilities Sq. Footage (Leased)
1 2.1%
2.1%
3.8%
Facilities Square Footage (Interior)
1 3.1%
5
6
7
8
9
d.
Additional
1 Test Year 1
3.0%
3.3%
(2.9)%
2.1%
1.8%
workday effect
Some costs vary according to the number and composition
10
11
in each Government
Fiscal Year.
For example, costs are higher on weekdays
12
holidays) than Saturdays,
13
additional workday factor is detailed in Chapter VII of Libra,ry Reference
14
application
15
workpapers
16
shown in Table 9.
and lowest on Sundays and holidays.
of these factors to Postal Service costs is explained
of witness Kashani.
(except
The derivation of the
l-127 and the
in the testimony and
The number of days in each of the relevant years is
17
18
19
of days
Table 9
Analysis of \tiork Days by Fiscal Year
I, C”.nna
I
1 FY 1999 1 FY 2000 1 Test Year
rl
lJJ0
250
Weekdays
251
1 251
1 251
52
52
52
Saturdays
53
I
I
I
I
53
52
52
52
Sundays
IO
10
10
10
Holidays
292.40
293.27
293.94
Workday Equivalents
293.27
365
365
365
366
Total Days
20
” Weighted by Postmaster salaries by class,
” Weighted average.
-
14
e.
1
Cost reductions
Numerous
2
management-initiated
cost reduction
programs are
3
currently in progress or planned which will result in significant cost savings.
4
Headquarter’s
5
and Plant personnel,
6
projects and activities aimed at reducing operating expenses.
7
reduction savings impacting FY 1999, FY 2000 and the Test Year derive from
8
automation
9
programs in the interim years and the Test Year by cost segment.
financial and operating
managers, with the assistance
of Area, District,
develop and implement plans and monitor performance
and other equipment.
Table 10 summarizes
10
the major personnel
11
workyear
12
listing of the major non-personnel
13
Chapter Vg of Library Reference
14
the basis for the resource savings is contained
of specific
Most of the cost
the impact of cost reduction
A detailed listing of
cost related cost reduction programs and the calculation
and dollar cost savings is included in Library Reference
of the
l-127, Chapter Va. A
cost related cost reduction programs is included in
l-127. A narrative description
of these programs and
in Library reference
l-126.
15
Table10
Cost Reductions
16
17
18
/-~
19
20
Unlike in Docket No. R97-I,
21
between the base year and the test year. It is the Postal Service’s position that these
22
are the only appropriate
23
savings should be estimated.
24
volume and should not be piggybacked.
25
additional supervisory
26
service, and to ensure operating
27
is addressed
significant cost savings are projected for supervisory
cost savings projections for supervisors
costs
and no additional cost
Cost reduction programs have different impacts than
Frequently,
cost reduction programs require
time and attention in order to capture cost savings, to maintain
efficiencies.
The potential for supervisory
in the FY 2000 cost savings program.
cost savings
f.
1
Other Programs
This category includes changes in costs associated
2
actions other than cost reductions
with
3
management-initiated
4
(e.g., improve service or satisfy administrative
or legal requirements).
Some programs
5
satisfy a one-time need and are not intended to continue indefinitely,
while others will
6
add additional
7
reduction programs are included under Other Programs.
8
changes in expenses
9
and corporatewide
costs that continue indefinitely.
The resource costs associated
not directly linked to operations,
personnel
that change the status quo
costs such as annuitant
with cost
This category also includes
such as interest, depreciation
costs and workers’
10
compensation.
Other Programs also includes the impact of accounting
11
changes and other miscellaneous
12
other rollfoward
13
Programs on the interim years and the Test Year by cost segment.
14
major Headquarters
15
and nationally accrued personnel
16
Chapters
17
amount included under the Other Program column and the basis for the estimated cost.
adjustments
change categories.
Administered
IV-VI. Library Reference
and reporting
that are not appropriate
Table 11 summarizes
for inclusion in
the impact of Other
Summaries
Other Programs and the calculation
of depreciation
related costs are included in Library Reference
l-126 provides a narrative description
Table 1 I
Other Proarams
Segment
2. Supervisors and Technical Personnel
3. Clerks and Mail Handlers, CAG A-J
_ ._, -nclivcrv
_., _. , Crwriers
__. ._. _
6_._
P.7 Cifv
10. Rural Carriers
11. Custodial and Maintenance Services
12. Motor Vehicle Service
22
FY 1999
FY 2000
13,917
-8,493
209,083
59,839
,!T?.
.__,___
977 ,
12576
._,_
20,631
22,870
31,994
-,?f
-5,000
l-127,
of each
18
19
20
21
of the
Test Year
9,808
19,797
29,358
-
16
The Other Programs expense growth for FY 2000 and the Test
1
2
Year are $0.4 billion and $1 .I billion respectively,
3
substantially
4
FY 1997 and the Test Year in Docket No. R97-1.
5
Year is concentrated
6
remaining expense growth for these two years is more than offset by cost reductions
7
reflected in Table 8.
8
control costs. There is long term risk, however, in this strategy, as it requires deferral
9
and cancellation
less that the $3.7 billion in Other Programs expense growth estimated for
in corporatewide
11
infrastructure.
9.
to customers,
to
be planned to improve the quality of
and build and maintain our
of witness Kashani.
in the composition
mix adjustments
changes
18
2001.
19
of new hires as part of the workyear
20
savings related to new hires is now calculated
21
reflected as part of cost level changes.
22
including the new hire impact of rural carriers and other bargaining
23
previously were not estimated.
24
calculates
25
their replacements’
26
savings as the difference
27
the overall average personnel cost.
The methodology
of workyears
represent the dollar impact of
17
expected to occur during Fiscal Years 1999-
used in the Docket R97-1 filing, which reflected the lower cost
mix adjustment,
has been changed. The cost
as an offset to step increases which are
This approach
improves the estimate by
employees
that
The new method is also more accurate because it
the savings as the difference between employees’
retiring at the top step and
being hired at the bottom step. The old method calculated
between the average cost of an extended
Changes in the workyear
28
commitment
Workyear Mix Adjustments
The workyear
16
and interest. The
applies to Fiscal Year 1999 only and is
in the testimony and workpapers
h.
15
costs, depreciation
Base Year Unit Cost Adjustment
This adjustment
13
documented
personnel
of programs that would otherwise
service, increase responsiveness
14
The growth for FY 2000 and the Test
Reduced program expense reflects managements
10
12
or a total of $1.5 billion. This is
the net
step employee and
mix are estimated to result in greater
29
personnel
costs for Fiscal Years 1999 through 2001 before rates, and a slight decrease
30
in costs for the Test Year after rates. These amounts are relative to the personnel
1
costs that would have resulted if the workyear
mix was assumed to remain the same in
2
each estimated
3
calculated
by the rollfomard
4
calculated
for Fiscal Years 1999 through 2001 before rates are $41.3 million, $33.9
5
million, and $0.6 million, respectively.
6
rates is a decrease
year as it was in Fiscal Year 1998 (i.e., the amount of personnel
model before this adjustment).
cost
The net increases
The amount calculated
for the Test Year after
of $2.7 million.
City carrier and mail handler overtime is assumed to decrease
7
8
slightly in FY 1999 and continue at the FY 1999 level through the Test Year.
Clerk
9
overtime is assumed to continue at the FY 1998 level through the Test Year.
Clerk
10
Remote Encoding
Center (REC) transitional
workyears
are assumed to decline through
11
the Test Year as REC’s are closed.
12
increase in FYs 2000 and 2001 in automation
13
transitionals
14
becomes more effective.
15
level as FY 1998 through the Test Year. The lower number of clerk transitionals
16
Fiscal Years 1999 and 2000 is the main cause of the increased
17
carrier and mail handler workyear
18
largely offsetting.
19
clerks, city carriers, and mail handlers.
Non-REC transitional
workyears
impacted facilities.
City carrier
are assumed to continue to decline, as Delivery Point Sequencing
Casuals are assumed to continue to be used at the same
Workyear
in
cost in those years. City
mix changes in Fiscal Years 1999 and 2000 are
mix changes in the Test Year are largely offsetting for
The net impact of the changes in workyear
20
are assumed to
21
adjustment
to the dollar estimates
generated
by the rollfonvard
22
deliver carriers, and mail handlers.
23
greater detail in Chapter X of Library Reference
The workyear
mix is reflected as an
model for clerks, city
mix adjustment
l-127.
is explained
in
18
Table 12
1
2
3
Workvear
..- . . .. --. Mix Exoressed
-..r-----..-- As a
Percentage of Straight Time Workyears
FY 1998
FY 1999
FY 2000
Estimate
Actual
Estimate
4
5
Test Year
BR Est.
Final Adjustments
i.
FY 1998 costs reflect the mail volume mix that existed prior to the
6
7
Docket No. R97-1 rate structure changes that went into effect on January
8
order to reflect the cost changes due to those rate structure changes,
9
made. The derivations
of these adjustments
are explained
10
References
of witness Daniel. Additional final adjustments
11
testimonies
and Library References
12
Test Year
AR Est.
B.
Specific Estimating
of witnesses
adjustments
in testimony
were
and Library
are documented
in the
Davis, Kashani, and Robinson.
Elements
In order to predict costs in a prospective
13
10, 1999. In
year in a complete
manner, all
14
known and certain cost changes must be acknowledged.
15
on reasonable
16
change are not precisely known) must be made. Examples of known and certain cost
17
changes are depreciation
18
already outstanding,
assumptions
In addition, estimates based
(for costs which will certainly change but for which rates of
on existing plant and equipment,
interest expense on debt
and the effect of the major labor agreements
now in place.
19
1
Additional estimating
2
price increases.
1.
3
procedures
cover other salary and benefit changes,
and general
Labor Contract
The provisions of labor contracts are used to estimate increases
4
5
through the end of the contract periods.
6
made thereafter,
I
Employment
8
(ECI minus 1) for bargaining
9
The National Rural Letter Carriers’ Association
setting bargaining
Reasonable
and conservative
assumptions
unit test year salary expense increases
at the
Cost Index for Wages and Salaries for Private Industry, less one percent,
units that do not have contracts effective in the test year.
in FY 2000.
contract was assumed to track the
10
NALC and APWU contracts
11
from the previous contract are netted from ECI minus 1 for all bargaining
12
NALC whose contract extends through the Test Year. This method results in an
13
effective wage cost increase equal to one percent less than ECI minus 1 in the test
I.4
year.
For the Test Year, carryover cost increases
units except
-
The contract with the National Rural Letter Carriers’ Association
15
16
expired November
17
the National Postal Mail Handlers Union expire November 20, 2000.
18
1999, an arbitration
19
Letter Carriers’ (NALC) contract that had expired on November 20,1998.
For the first
20
year of the NALC contract, most carriers will receive lump-sum
in lieu of a
21
retroactive
22
November 20, 2002, will receive a retroactive
23
effective on November 20, 1998. The arbitrator also granted a pay schedule upgrade
24
for NALC employees
25
maintain the existing salary differential
26
upgrade is effective November
27
November 20,200l.
28
are
20, 1999. Contracts with the American
decision was announced
pay adjustment.
Postal Workers Union and
On September
relative to the National Association
However, NALC employees
payments
19,
of
who are eligible to retire by
pay adjustment,
making the pay increase
from Level 5 to Level 6, and ordered the Postal Service to
between
18.2000.
Level 5 and Level 6 employees.
The three-year
The
NALC contract expires
The derivation of an FY 2001 Test Year revenue requirement
29
required that the financial impact of wage changes scheduled
30
current labor contracts
be estimated.
to take effect under the
The annual and effective base wage impacts
4
20
1
driving personnel
2
details on the derivation of personnel
3
lump sum payments, and cost of living allowances,
4
Library Reference
5
revenue requirement
6
changes in wages and benefits which might be negotiated
7
costs could also result from various initiatives including wage restraint, reductions
8
workforce,
in my Exhibit 90.
Additional
unit cost changes, which include pay increases,
can be found in Chapter VIII of
l-127. The wage and benefit costs estimated in developing
the
are not intended to imply that these costs are reflective of
changes in workforce
composition,
in the future.
Equivalent
in
and increases in productivity.
Other Salary and Benefit Changes
2.
9
Bargaining
10
,-
cost level increases are summarized
unit employees
receive periodic longevity (step)
11
increases that affect their average compensation.
Similarly, performance-based
12
increases,
13
compensation
14
included in appropriate
15
Library Reference
16
increase amounts are offset by savings for new hires who start at the lowest step of the
17
salary schedule.
18
are shown in Table 13 below.
incurred as merit increases and lump sum payouts, affect the average
of non-bargaining
employees.
cost level computations
l-127. As discussed
Estimated effects of these actions are
and are detailed in Chapter VIII of
in the Workyear
Mix section above, the step
The estimated net step amounts for selected categories
of employees
19
Table 13
Step Increase Unit Costs Summary
FY 1999
FY2000
$146.17
$155.24
Clerks CAG A-J, Barg.
$172.93
City Carriers, Barg.
$94.92
Mail Handlers. Barg.
$565.96
$459.80
20
21
22
23
24
25
Federal Employee
increased
Test Year
$182.75-
$188.56
$488.06
Health Benefit premiums for active employees
an average of 3.6 percent in January 1998 and 8.7 percent in January 1999.
Premium increases of 9.3 percent and 10.0 percent are expected
26
January 2001, respectively.
27
the methodology
28
new weighted
In addition, most employees
in January 2000 and
will benefit from a change in
for computing the employer share of health insurance
expense.
The
average formula, required under the labor contracts, will shift about 2
21
1
percent of the insurance
2
January 2000.
3
Chapter VIII of Library Reference
Cost level computations
3.
4
premium expense from employee to employer effective
based on these assumptions
l-127.
General Price Increases
The Postal Service is a significant
5
6
operations
7
changes for these items are based upon projections
8
USSlMITrendlong
9
as the basis for computation
and maintenance,
purchaser
of supplies for
and services such as transportation.
1199, and CISSIM/Control
contained
Most cost level
in the DRllMcGraw
HiIll
1199. CPI-W estimates from DRI served
of cost of living adjustments
(COLA) for Fiscal Year 1999,
10
Fiscal Year 2000 and the Test Year under the existing agreements
11
unit employees.
affecting bargaining
Major indices used in this case are summarized
12
are detailed in
in the Table 14.
13
Table 14
Selected DRI Forecast Factors
(Percent Change From Previous Year)
FY 1996
FY 1999
FY 2000
1.41
1.90
2.73
CPI-W’4
3.56
4.28
3.22
ECV5
(1.46)
(1.35)
3.14
Supplies & materials
14
15
16
I.
Test Year
2.02
3.67
0.48
17
18
A more detailed list of the indices used, along with the specific factors for Fiscal Years
19
1998 through the Test Year, can be found in Chapter IX Library Reference
20
21
C.
l-127.
Revenue Requirement
The Test Year revenue requirement
is presented
in the testimony of witness Kashani.
in the same cost
22
segment format employed
23
requirement is the sum of accrued costs for nineteen (19) cost segments, plus workyear
24
mix and final adjustments
25
9R), a provision for contingencies,
calculated outside the rollforward
The total revenue
model (see USPS Exhibit
and an amount for recovery of prior years’ losses.
m DRllMcGraw Hill is a leading economic forecasting service.
r4, CPI-W is the Consumer Price Index for all Urban Wage Earners & Clerical Workers
l” ECI is the Employment Cost Index for Wages and Salaries, Private Industry. The ECI growth factors
used in this testimony reflect the September index over the previous September index, with a one-year
lag.
,,c.
22
1
Test Year revenue requirements
before and after rates are:
2
Table 15
3
4
5
Test Year Revenue Requirement
($000)
Before Rates
Total Cost Segments
Provision for Contingencies
Recovery of Prior Years’ Losses
Total Revenue Required
After Rates
66,046,556
1,701,164
268,257
70,015,977
67,190,634
1.679.768
268,257
69,138,657
6
1.
7
Costs for the nineteen (19) cost segments for the Base Year
8
9
Accrued Costs
through the Test Year are:
10
Table 16
11
12
13
Total Cost Segments”
14
A summary analysis of cost changes is presented
15
16
cost segment.
17.
increases or decreases.
18
for a more detailed description,
19
Descriotion
here for each
Included in the analyses are specific reasons for significant
A brief description
of the costs in each segment is provided;
please refer to Library Reference
of USPS Develooment
cost
of Costs bv Seaments
l-l, the Summary
and Comoonents.
20
21
22
a.
Postmasters
(Segment
1)
Costs of this segment for the Base Year through the Test Year are:
‘6 Includes workyear mix and final adjustments. Excludes contingency and recovery of prior years’ losses
23
Table 17
Postmasters Cost
1%nnn\
1
2
3
4
Costs of the segment are the personnel
5
6
costs for the following
employees:
7
Postmasters
8
District manager/postmasters
9
Some Bulk Mail Center Managers
of customer service districts
Officers-in-Charge
10
Also included is the compensation
11
of postmasters.
and benefits for relief or
12
replacement
As reflected in Table 20, Postmaster
13
impacted by cost level increases that result from estimated
14
benefits unit costs.
15
1999 and 2000.
16
2001 and lump sum payments drive the pattern of cost increases.
17
level assumptions
18
l-127.
costs are mainly
changes
in salaries and
Costs grow more rapidly for Fiscal Year 2001 than for Fiscal Years
Primarily the merit pay program adopted for Fiscal Years 2000 and
and calculations
More detailed cost
can be found in Chapter VIII of Library Reference
19
20
Table 18
2
Significant Changes in Cost
Postmasters
($000)
23
I
I
FY 1999
Cost Level - Personnel Costs
Mail Volume Effect
Additional Workday Effect
Non-volume Workload
24
25
26
b.
Supervisors
and Technical
36,903
5,807
FY 2000
4,453
34,678
8,410
3,224
-626
Personnel
(Segment
1 TestYear
1
After
Rates
73,615
825
-7.779
-729
2)
Costs for this segment for the Base Year through the Test Year
,--
24
1
are:
2
3
4
5
Table 19
and Technical Personnel Cost
($000)
Amount
% Change
I
3,512,445 ’
, Ff 1998
1
3.606.616
2.7
N 1999
-.____
I
3.665.493
1.6
fY 2000
3.821.995
4.3
Test Year before rates 1
3,782,609
3.2
Test Year after rates
Supervisors
6
7
.-
Costs of this segment include the compensation
8
supervisors,
professionals
9
Postal installations
(non-bargaining,
non-supervisory
and benefits of
personnel),
managers of
other than post offices, and some Bulk Mail Center managers.
As
10
reflected in Table 19, Supervisor
11
which result from estimated changes in salaries and benefits unit costs, mail volume,
12
non-volume
13
less than FY 1999 costs mainly due to the impact of significant cost reductions targeted
14
in FY 2000.
15
affect the pattern of cost increases.
16
find new efficiencies
17
mix toward less costly categories.
18
calculations
workload,
costs are mainly impacted by cost level increases
cost reductions
and other programs.
The merit pay program, lump sum payments and mail volume effects also
in supervision
Cost reductions
costs.
reflect a management
Final adjustments
can be found in Chapter VIII of Library Reference
24
Table 20
Significant Changes in Cost
Supervisors and Technical Personnel
challenge to
reflect a shift in the mail
More detailed cost level assumptions
19
20
21
22
23
FY 2000 costs increase
l-127.
and
25
-
1
2
Clerks and Mail Handlers, CAG A through J Offices (Segment 3)
C.
Costs for this segment for the Base Year through the Test Year
3
4
are:
5
6
7
Table 21
Clerks and Mail Handlers, CAG A through J Offices
E”I 9,I*”ooT(
FY 1999
FY 2000
Test Year before rates
Test Year after rates
I
8
9
($000)
I Amount
I
-
,774,‘)EK
a,,,
,,+I
I
% Change
16,316,646
lg~nli
If,.?
19
19
Costs of this segment include the personnel
costs of clerks and
10
mail handlers at CAG A through J offices, including Processing
11
and Bulk Mail Centers.
12
impacted by cost level increases which result from estimated
13
benefits unit costs. Other significant increases result from mail volume workload
14
and other programs.
15
reductions
16
programs and the mail volume effect reduce costs.
17
actually decrease
18
to automation
19
Initiatives.
20
Fiscal Year 1999 base adjustments.
21
toward less costly categories.
22
Chapter Va of LR l-127.
As reflected in Table 22, Clerk/Mail
Volume related workload
in Fiscal Years 1999 and 2000.
Plants
Handler costs are mainly
changes
in salaries and
growth
growth is more than offset by cost
In the Test Year, both cost reduction
Clerk and mail handler workyears
between the base year and test year.
and other equipment.
and Distribution
Cost reductions
Cost reductions
also reflect Local Management
Other program increases relate mainly to non-operational
Final adjustments
Cost reductions
primarily relate
programs and
reflects a shift in the mail mix
and other programs
are detailed in
-
26
1
2
3
4
Table 22
Significant Changes in Cost
Clerks and Mail Handlers, CAG A through J Offices
($000)
FY 1999
5
6
d.
Costs for this segment for the Base Year through the Test Year
I
8
Clerks - CAG K Offices (Segment 4)
are:
9
10
11
Table 23
Clerks, CAG K Offices Cost
I
I
8,758 1
Test
.--. Year
.-_.-- hefnre
._._._.rater
-_
Test Year after rates
12
13
Costs of this segment include the personnel
14
assigned to CAG K offices.
15
impacted by cost level increases which result from estimated
16
benefits unit costs.
costs for clerks
As reflected in Table 24, CAG K Clerk costs are mainly
changes
in salaries and
17
18
19
20
21
Table 24
Significant Changes in Cost
Clerks, CAG K Offices
($000)
FY 1999
Cost Level - Personnel Costs
Mail Volume Effect
Additional Workday Effect
22
370
29
FY 2000
424
82
7
Test Year
After
Rates
433
-47
-16
27
e.
City Delivery Carriers (Segments
-
6&7)
Costs for this segment for the Base Year through the Test Year
3
are:
4
5
6
Table 25
Citv Deliverv Carriers Cost
I
8
9
Costs of this segment include the personnel
costs of city delivery
carriers. As reflected in Table 26, City Carrier costs are mainly impacted by the Fiscal
10
Year 1999 base cost adjustment,
11
increases, which result from estimated
12
Fiscal Year 2000 and the Test Year After Rates, there is a projected
13
Carrier workyears.
14
phases 4 and 5 of Delivery Bar Code Sorter deployment
15
Initiatives.
16
categories.
17
provisions of the arbitrated
18
carriers from Grade Level 5 to Level 6 pay.
Aggressive
The final adjustments
The increased
as reflected in Other Programs,
and cost level
changes in salaries and benefits unit costs.
cost reductions
reduction in City
targeted for FY 2000 are driven by
and Local Management
reflect a shift in the mail mix toward less costly
rate of growth in costs in the test year relates to the
NALC contract, and in particular, the advancement
19
20
21
Table 26
Significant Changes in Cost
Citv Delivers Carriers
I
ionnel Costs
.-.-...- -..st
:_^^, %A,__,_
lay Effect
llume Workload Increases
I .eductions
r Programs
Ariilstmen&
24
FY 1999
FY 2000
430,711
__ _ _
126,939
28,’
-123,
153,
-22,. ._ ,
In
_-_,.-.
,
13,862 1
-.
-:
of
.-
28
f.
1
2
3
4
5
6
Costs for this segment for the Base Year through the Test Year
are:
Table 27
Vehicle Service Driver Costs
($000)
Amount
% Change
FY 1998
457,268
FY 1999
469,566
2.7
FY 2000
497,568
6.0
Test Year before rates
523,034
5.1
Test Year afler rates
511,885
2.9
7
8
9
Vehicle Service Drivers (Segment 8)
Costs of this segment include the personnel
costs of Vehicle
Service Drivers. As reflected in Table 28, Vehicle Service Driver costs are mainly
10
impacted by cost level increases that result from estimated changes in salaries and
11
benefits unit costs and by mail volume workload
12
shift in the mail mix toward less costly categories.
growth.
The final adjustments
reflect a
13
Table 28
Significant Changes in Cost
Vehicle Service Drivers
14
15
16
($000)
ii
FY 1999
Cost Level - Personnel Costs
Mail Volume Effect
Additional Workday Effect
Final Adjustments
18
19
9.
22
23
24
-8,520
18,201
10,818
439
-1,456
Test Year
After
Rates
18,769
3,961
-1,056
-7,357
(Segment 9)
Costs for this segment for the Base Year through the Test Year
20
21
Special Delivery Messengers
15,646
5,446
FY 2000
are:
Table 29
Special Delivery Messenger Cost
($000)
% Change
Amount
FY 1998
71,133
FY 1999
0
-100.0
FY 2000
0
Test Year before rates
0
Test Year after rates
0
-
29
Costs of this segment include personnel
1
2
Messengers.
3
separately
4
Year Special Delivery Messenger
5
Clerks and Mail Handlers,
costs for Special Delivery
As reflected in Table 30, Special Delivery Messenger
identifiable
ceased to exist as a
craft by the end of FY 1998. To accommodate
costs were combined with Cost Segment Three,
beginning
6
7
8
9
10
this change, Base
in FY 1999.
Table 30
Significant Changes in Cost
Special Delivery Messengers
($000)
FY 1999
FY 1998
FY 2000
Test Year
After
Rates
71,132
Transfer To Cost Segment 3
11
h.
12
10)
Costs for this segment for the Base Year through the Test Year
13
14
Rural Carriers (Segment
are:
15
16
17
18
Table 31
Rural Carrier Costs
I
FY 1998
Amount
zxf,78~71~ I
% Change
19
Costs for this segment include the personnel
20
maintenance
allowance
costs of rural carriers
21
and the equipment
(EMA) they receive for their vehicles.
As
22
reflected in Table 32, Rural Carrier costs are mainly impacted by cost level increases,
23
which result from estimated changes in salaries and benefits unit costs and estimated
24
changes in the CPI-U for Private Transportation,
25
delivery workload
growth, and a base adjustment
26
Other Programs.
The final adjustments
21
categories.
mail volume growth, non-volume
in Fiscal Year 1999 as reflected in
reflects a shift in the mail mix toward less costly
4
30
Table 32
Significant Changes in Cost
Rural Carriers
($000)
1
2
3
4
FY 1999
I
Cost Level - Personnel Costs & EMA
Mail Volume Effect
.--.
Additional Workday Effeci I
Non-volume Workload Effects
rams
tments
1
I
I
I
I
Test Year
After
1 Rates
156.751 1 154,882
51
- , 519
- - I,
-959
5771 I
-1:3,010
60,369 1
64,550
FY 2000
I
101,635 1
liA?.cll
- -, - I
I
56,l 57 1
20,631 1
-7,573 1
5
6
Custodial and Maintenance
7
Costs for this segment for the Base Year through the Test Year
8
Services (Segment
11)
are:
9
Table 33
Custodial and Maintenance
10
11
12
1 Test Year after rates
13
14
-.
Services Cost
2,780,OC12 1
I
Costs of this segment include the personnel
equipment,
and building and plant equipment
I
5.5
costs for custodial,
15
operating
maintenance.
Also included
16
are expenses for contract cleaning services.
17
Maintenance
18
estimated changes in salaries and benefits unit costs and the DRI index for rent.
19
Custodial and maintenance
20
mail volume, facilities floor space (non-volume
21
related to the maintenance
As reflected in Table 34, Custodial and
costs are mainly impacted by cost level increases which result from
services costs are also significantly
of automation
workload),
impacted by growth in
and other programs mostly
and other equipment.
31
-
Table 34
Significant Changes in Cost
Custodial and Maintenance Services
($000)
1
2
3
4
FY 1999
78,838
11,787
40,829
Cost Level Changes
Mail Volume Effect
Non-volume Workload Effects
Additional Workday Effect
Cost Reductions
Other Programs
j.
92,371
16,930
53,579
4,293
-13,299
31,994
-8,084
22,870
Motor Vehicle Service (Segment
Test Year
After
Rates
101,467
-1,861
27,854
-10,493
-1,873
29,358
FY 2000
12)
Costs for this segment for the Base Year through the Test Year
8
are:
Table 35
Motor Vehicle Service Cost
IP nnn,
9
10
11
12
13
Costs of this segment include the personnel
and maintenance
personnel and their supervisors,
costs of vehicle
14
operating
vehicle operating
15
and vehicle hire. As reflected in Table 36, Motor Vehicle Service costs are mainly
16
impacted by cost level increases.
17
in salaries and benefits unit costs, and the forecasted
18
materials and transportation
Cost level increases result from estimated
supplies,
changes
DRI indices for supplies and
services.
Table 36
19
Significant Changes in Cost
Motor Vehicle Service
($000)
I FY 1999 I FY 2000
20
21
22
I
I TestYear
-,
Cost Level Changes
Mail Volume Effect
Non-volume Workload Effects
A#:*:---'
%1,__1_2-_.
?,z
Eer
rrograr
GOon, I
1,117 1
2~647 I
23.382
1,693
7~7f5d
.“.
I
. . .
15,086
379
7~822
--
3‘
k.
1
Local Operations
13)
are:
4
5
6
Table 37
Miscellaneous Local Operations
IC ““s-l,
Amount
303,683
304,885
314,707
327,993
327,831
FY 1998
FY 1999
FY 2000
Test Year before rates
Test Year after rates
7
8
9
(Segment
Costs for this segment for the Base Year through the Test Year
2
3
Miscellaneous
%Change
0.4
3.2
4.2
4.2
This segment includes the personnel costs for the Mail Equipment
Shops, and Facilities and Purchasing
Service Centers.
Also included are the cost of
10
contract stations, rental allowance
11
field operations
12
Table 38, Miscellaneous
13
non-volume
14
changes in salaries and benefits unit costs for the Mail Equipment
15
Service Offices and Purchasing
16
stations, carfare, tolls and ferriage, field operations
17
miscellaneous
18
changes in the number of CAG L post offices and contract stations.
employee
workload,
for CAG L postmasters,
carfare, tolls and ferriage,
awards, and other miscellaneous
expenses.
As reflected in
Local Operations
are mainly impacted by cost level increases,
and other programs.
Cost level increases result from estimated
expenses.
Shops, Facilities
Service Centers, and general inflation on contract
Non-volume
workload
employee
awards, and other
changes relate to the impact of
19
Table 38
Significant Changes in Cost
Miscellaneous Local Operations
‘$000)
FY 1999
20
21
22
23
6,354
150
-1,903
Cost Level Changes
Mail Volume Effect
Non-volume Workload Effects
Additional Workday Effect
Other Programs
24
25
P
26
I.
Contractual
-3,394
Transportation
FY 2000
8,481
212
2,431
183
-1,485
of Mail (Segment
Test Year
After Rates
10,042
12
2,513
-433
990
14)
Costs of this segment for the Base Year through the Test Year are:
33
1
Table 39
Contractual Transportation of Mail
($000)
Amount
% Change
FY 1998
4,242,170
FY 1999
4,279,550
0.9
FY 2000
4,559,054
6.5
Test Year before rates
4,755,068
4.3
Test Year after rates
4,619,553
1.3
2
3
4
5
This segment includes the cost of non-Postal
6
resources
used to transport domestic mail between
7
United States of America.
8
between the United States and foreign countries,
9
international
Transportation
11
cost reductions,
12
inflation forecasted
13
new efficiencies
14
International
15
Other programs
16
new or upgraded
17
adjustments
18
Daniels.
Postal Service facilities within the
Also included are the costs of transporting
currency conversion
10
exchange
and other programs.
in Air System Contracts,
24
in
mail volume workload,
result from the level of
relate to Priority Mail Processing
Mail Transport
Equipment
Centers,
Centers, Prior Year
parcel dropship savings and a challenge to absorb inflation.
relate mainly to initiatives that improve the quality of service by adding
transportation
links. In Fiscal Years 1999 through the Test Year, final
reflects mail mix adjustments
as calculated
by witnesses
19
20
21
22
23
mail
rates. As reflected in Table 40, Contractual
Cost level changes
by DRI. Cost reductions
international
and the impact of fluctuations
costs are mainly impacted by cost level changes,
Adjustments,
Service contractual
Table 40
Significant Changes in Cost
Contractual Transportation of Mail
Robinson and
-
34
m.
Building Occupancy
(Segment
15)
Costs of this segment for the Base Year through the Test Year are:
Table 41
Building Occupancy
I
- .-r after rates
7
8
9
Cost
)--- (
1.633,711
I
1
“-
4.5
Costs of this segment include the non-capital
personnel
costs of occupying
and maintaining
related non-
Postal Service owned and rented
10
facilities.
11
utilities such as gas, electricity, water, and voice telephone
12
reflected in Table 42, Building Occupancy
13
increases,
14
estimated changes in general inflation as forecasted
by DRI. Non-volume
15
results from changes in rented facilities floor space.
Other programs relate to changes
16
in Field and HQ Administered
17
occupancy
18
Call Management
19
base adjustment
20
programs are included in Chapters V and VI of Library Reference
21
description
22
in Library Reference
23
24
25
26
21
Such costs include rent, heating fuel, building repairs and alterations,
non-volume
workload,
include environmental
and Associate
As
costs are mainly impacted by cost level
and other programs.
Programs.
communications.
and
Cost level increases result from
workload
Programs with changes that impact building
programs, OSHA reform, Point of Service, Corporate
Office Infrastructure.
for building projects expense.
Segment
15 also receives a
Major non-personnel
cost related
l-127. A narrative
of these programs and the basis for the resource requirements
is contained
l-126.
Table 42
Significant Changes in Cost
Building Occupancy
($000)
FY 1999
Cost Level Changes
Non-volume Workload Effects
Additional Workday Effect
Other Programs
8,980
27,200
31,382
FY 2000
40,974
32,351
1,511
-18,084
Test Year
After Rates
41,760
24,761
-3,656
7,116
35
n.
are:
Table 43
Supplies and Services Cost
($000)
Amount
FY 1998
3.221.612
FY 1999
3,629,009
FY 2000
3,550.632
3,814,183
Test Year before rates
Test Year after rates
3,807,497
4
5
6
7
8
9
-
16)
Costs for this segment for the Base Year through the Test Year
2
3
Supplies and Services (Segment
% Change
12.6
-2.2
7.4
7.2
Costs of this segment include the personnel
the Label Printing Units and Material Distribution
Centers.
cost of employees
Also included are most of
10
the supplies and contractual
11
and reproduction
services utilized by the Postal Service, including printing
12
and 18 are identified and are discussed therein.
13
Services costs are mainly impacted by cost level increases,
14
reductions
15
salaries and benefits unit costs for the Label Printing Units and Material Distribution
16
Centers and general inflation on supplies and contractual
17
forecast for supplies and materials and paper and paper products.
18
result from the opening of Mail Transportation
19
programs relate to changes
20
changes that impact Supplies and Services include Point of Service,. Corporate
21
Management,
22
Maintenance
23
Management,
24
Priority Mail Redesign.
25
an inflation absorption
26
supplied by witness Robinson.
27
in Chapters V and VI of Library Reference
and postage stock. Supplies and services included in segments
and other programs.
Associate
Technical
at
As reflected in Table 44, Supplies and
Cost level increases
mail volume workload,
result from estimated
Equipment
in Field and HQ Administered
Office Infrastructure,
Cost Segment
challenge.
cost
.-
changes in
services based on the DRI
Cost reductions
Support Centers.
Programs.
Other
Programs with
Call
MEI Postal One, Stamp Manufacturing,
Support Centers, Delivery Confirmation,
OWCP cost reductions,
14
Nurses Coordinator
Core Process
Program, Advertising
16 also receives a base adjustment
Final adjustments
Major non-personnel
and
and reflects
reflect mail mix adjustments
cost related programs are included
l-127. A narrative description
of these
~-
36
programs and the basis for the resource requirements
is contained
in Library Reference
l-126.
Table 44
Significant Changes in Cost
Supplies and Services
($000)
FY 1999
Test Year
After
..-. R&S
.-.
nnn. I I
I.9
15.509
9 L,LJ
^ ,^.
- ^*^
D/WI
-J,“~I 0
503
-1,103
FY 2000
I^
-33,185
i ,837
’ eve1 Changes
llume Effect
‘nal Workday Effect
‘-A”‘-“-ls
a
9
Research
and Development
(Segment
235~204
-894
17)
Costs for this segment for the Base Year through the Test Year
10
11
-183~822
13 74s I
439,173
-.IS
are:
12
Table 45
Research and Development Cost
($000)
Amount
% Change
FY 1998
77,137
FY 1999
63,445
-17.7
FY 2000
45,207
-28.7
Test Year before rates
45,342
0.3
Test Year after rates
45,342
0.3
13
14
15
16
17
Costs of this segment include contracts for new and existing
18
technology
development
19
and other indirect costs are included in other cost segments.
20
other programs impact Research
21
these programs and the basis for the resource requirements
22
Reference
l-126.
and applications
engineering.
and Development
Personnel
and related costs
As reflected in Table 46,
costs. A narrative description
is contained
in Library
of
37
1
2
3
4
Table 46
Significant Changes in Cost
Research and Development
($000)
FY 1999
FY 2000
Other Programs
I
-13,692 1
Test Year After
Rates
-18,238 I
135
5
6
HQ & Area Administration
P.
& Corporatewide
Personnel Costs
7
(Segment
a
Costs for this segment for the Base Year through the Test Year
9
18)
are:
Table 47
& Corporatewide
($000)
Amount
FY 1998
4,575,721
FY 1999
4.998,999
FY 2000
5,414,740
Test Year before rates
5,767,208
Test Year after rates
5,767.208
10
11
12
HQ & Area Administration
13
14
% Change
9.3
a.3
6.5
6.5
The costs of this segment include personnel
15
Headquarters
16
Area Administration,
17
personnel-related
ia
Liability Principal, Workers’ Compensation,
19
Compensation,
20
Personnel Costs
and Headquarters
costs for
related field service units, the money order function,
and Law Enforcement.
Also included are the Corporatewide
costs of annual leave repricing, Civil Service Retirement
Unfunded
Annuity Protection
Program, Unemployment
Retiree Health Benefits, and CSRS Annuitant
COLA principal expense.
Remaining costs are supplies and services related to Headquarters
activities and
21
miscellaneous
support costs. As reflected in Table 48, HQ & Area Administration
22
Corporatewide
Personnel
23
programs.
24
Corporatewide
personnel
25
the derivations
of Corporatewide
26
Reference
27
explained below.
28
Amounts
Costs are mainly impacted by cost level increases,
included as other programs are mainly the year-to-year
and other
change in
costs. With the exception of workers’ compensation
l-127. The calculation
personnel
costs are explained
of Workers’ Compensation
Cost level increases
8
costs,
in Chapter VI of Library
expense is further
result from estimated changes in salaries and
38
Pi
1
benefits unit costs for Headquarters
and Headquarters
related field service units, the
2
money order function, Area Administration,
3
on supplies and contractual
4
Headquarters
5
consumer
6
supplies and services and includes an inflation absorption
and Law Enforcement,
services and other miscellaneous
and general inflation
items related to
activities based on the DRI forecast for supplies and materials and the
price index.
Cost Segment 18 also includes a FY 1999 base adjustment
challenge
in
in FY 2000.
The Postal Service is projecting an expense of $764.3 million for
7
a
workers’ compensation
costs in the Test Year. Comparable
9
1998 were $759.9 million.
expenses
for fiscal year
Estimated expenses for 1999 and 2000 are $633.4 million
10
and $735.9 million, respectively.
11
Office Department
12
July 1, 1971.
employees
These amounts exclude all costs attributable
injured prior to the establishment
to Post
of the Postal Service on
The Postal Service is subject to the Federal Employees’
13
14
Compensation
Act (FECA).
Accordingly,
the Office of Workers’ Compensation
15
Programs (OWCP) of the Department
16
compensation
17
annually by the OWCP for reimbursement
ia
Postal Service workers’ compensation
19
“chargeback
20
also charges the Postal Service a pro-rata share of its estimated administrative
of Labor (DOL) manages the workers’
program for Postal Service claimants.
The Postal Service is billed
of all payments made to, or on behalf of,
claimants over the course of the prior OWCP
year” (July 1 through June 30). With its reimbursement
The annual Postal Service workers’ compensation
21
of three components:
billing, the OWCP
costs.
expense is
22
comprised
(1) the net present value of the total estimated
long-
23
term liability for those claims which first become active during the current chargeback
24
year, (2) adjustments
25
active in prior years, and (3) the pro-rata share of OWCP administrative
26
Adjustments
27
claims, cash outlays per claim, and the estimated future duration of claims.
28
liability estimations
29
as compensation
30
and (2) costs arising from future medical payments on behalf of injured postal claimants
to the estimate of the existing liability for claims that first became
expenses.
in the estimated liability result from changes in the number of active
Separate
are made for (1) future costs arising from payments to be provided
to injured postal claimants and their survivors (“compensation”
claims)
39
1
-
(“medical” claims).
As noted above, Postal Service workers’
2
compensation
3
estimated to be $764.3 million in the Test Year. This amount represents
4
of a trend towards moderation
5
trend towards reductions
6
reflects the effects of cost reduction efforts undertaken
7
as a response to the increases in our workers’ compensation
a
period of fiscal years 1988 through
9
OWCP.
expense is
a continuation
that has been seen from fiscal year 1994 forward.
This
in, and the leveling off of, this volatile expense component
Efforts undertaken
by Postal Service management
expense seen in the
1993. This trend also reflects actions undertaken
by
by the Postal Service include the National Workers’
10
Compensation
Task Force, the Nurse Coordination
Program, the Duplicate Medical Bill
11
Payment Project, contractor
12
Duty Task Force.
13
management
14
these efforts have mitigated the trend towards escalation
15
compensation
review of in-patient hospital expenses,
and the Limited
DOL efforts include their nurse case manager program, Periodic Roll
review teams, and quality case management
initiatives.
Taken together,
in postal workers
expense.
In reporting its financial results, the Postal Service uses the
16
17
workers’ compensation
estimation
la
in that liability relative to the end of the prior fiscal year represent an expense
19
component.
20
OWCP.
21
prepare summary data by year of injury and severity of injury. These summary OWCP
22
data, including paid claims, average costs per claim, and a distribution
23
at time of injury, are used as estimation
In its estimations,
model to determine
the year-end
liability.
Changes
the model uses payment data provided on tape by the
These data are processed
at the Minneapolis
Accounting
Service Center to
of claimant age
model input.
Since Fiscal Year 1991, the Postal Service has used the “extended
24
25
age” estimation
model.
This model uses actual historic claimant transition
26
derivations
27
estimate “surviving” claims that will be paid in future years.
28
used to estimate surviving claims for the first twenty-five
29
five years of payment, claims are deemed to be permanent
30
subsequent
of the mathematical
ratios, or
likelihood of claims being paid in the next year, to
surviving claims are estimated
These transition
ratios are
payment years. After twentyand the numbers of
using life annuity tables in conjunction
with
-
40
1
the claimant age at time of injury distribution.
2
age“ model, the Postal Service used a model that assumed all claims became
3
permanent
after eight payment years.
An important component
4
of the workers’ compensation
liability and
5
expense estimation
6
estimated future payments.
7
factors of 0.1% for medical claims and 3.0% for compensation
8
1999, the Postal Service is using a discount rate of 1.4% for medical claims and a
9
discount rate of 3.0% for compensation
is the net discount factor used to determine the present value of
For Fiscal Year 1998 the Postal Service used net discount
claims.
claims.
For Fiscal Year
Adoption of the 1.4% discount rate for
10
medical claims resulted in a decrease of $131 million in the Fiscal Year 1999
11
compensation
12
return for five to ten year notes rather than relying exclusively
13
day t-bills.
14
reflects the excess of rates of return on government
15
terms relative to expected
and benefits expense.
Postal management
The analysis used placed emphasis
on rates of
on rates of return for 90-
feels that this change in the net discount rate better
debt instruments
of comparable
medical inflation.
The Postal Service conducts a review of the discount factors on an
16
-
Prior to the adoption of the “extended
17
ongoing basis to validate their appropriateness.
18
for medical and compensation
19
USPS-9S page 1 and 5. Our most recent historical and prospective
20
analyses for medical and compensation
21
pages 2 through 4 and 6 through 8. These analyses are based on data published
22
Standard & Poor’s DRI The U.S. Economy,
23
DRIIMcGraw-Hill’s
24
postal management,
25
claims represent a reasonable
difference
26
rates of return on government
debt instruments
27
likely lives of medical and compensation
28
currently used accurately
29
the value of the workers’ compensation
30
Summaries
of discount rate analyses
claims over the last ten years are included as Exhibit
Review offhe
discount
rate
claims are included as Exhibits USPS 9S
and its predecessor
U.S. Economy,
Long-Range
in
publication,
Focus.
In the opinion of
the discount rates currently used for medical and compensation
between medical and societal inflation and the
claims.
of terms comparable
to the approximate
It is our opinion that the factors
reflect the value of the two individual liability components
liability as a whole.
and
41
1
2
3
4
Table 48
Significant Changes in Cost
HQ & Area Administration & Corporatewide Personnel Costs
($000)
FY 1999
13,893
Cost Level
Additional Workday Effect
Other Programs (all other not itemized below)
rent Compensation
ve
13,913
-17,561
-13,508
7j 286
LL,~ 631
31,122
-126,511
87,~Rx
--116,~030
224,357
Retiree Health Benefits
itant COLA - Principal
- Impensation
Service Unit Pers. Cost
Id Services
Test Year
, ,t.fk.r
.. .-. kl+es
.-.
34,078 1
37,710
24 1
-58
1,770
-335
9,600
2,800
35,294
-5,522
111,424
60,159
145,458
108,826
79,593
74,910
102,516
28,390
FY 2000
1
I
1
1
I,
1
1
-10,417 1
-93,599 I
6,411
39,177
5
6
Equipment
7
(Segment
8
Costs of this segment for the Base Year through the Test Year are:
Maintenance
& Management
Training Support
19)
9
Table 49
8 Management Training Support
($000)
Amount
% Change
36,090
FY 1998
46,652
29.3
FY 1999
46,762
0.3
FY 2000
48,522
3.7
Test Year before rates
48,522
3.7
Test Year after rates
10
11
12
Equipment
13
14
Maintenance
Included in this segment are the personnel
15
Maintenance
Technical
Support Center and contractual
16
equipment
maintenance
and management
17
Equipment
Maintenance
& Management
18
cost level increases
19
changes in salaries and benefits unit costs for the Maintenance
20
Center and general inflation on contractual
21
consumer
and other programs.
price index.
training.
costs for the
services in support of
As reflected in Table 50,
Training Support costs are mainly impacted by
Cost level increases
result from estimated
Technical
Support
services based on the DRI forecast for the
Other program changes
relate to changes in Headquarters
-
42
1
Administered
2
Center.
Programs and personnel
resources
at the Maintenance
Technical Support
Table 50
Significant Changes in Cost
Equipment Maintenance
& Management
($000)
FY 1999
Cost Level
Other Programs
8
9
r.
1,213
-1,083
Write-Offs, Claims, and Interest (Segment 20)
Costs of this segment for the Base Year through the Test Year are:
10
11
12
13
14
Table 51
Write-Offs, Claims, and Interest
($000)
Amount
% Change
3,533.151
FY 1998
33718,581
5.2
FY 1999
3,794,562
1.8
FY 2000
4,274,769
13.0
Test Year before rates
Test Year after rates
4,150*035
9.7
Depreciation,
15
16
17
Test Year
After Rates
1,018
722
FY 2000
674
9,888
Depreciation,
Training Support
In addition to depreciation
on equipment
and buildings, this
segment includes the following costs:
18
Domestic and foreign mail indemnities
19
Insurance and tort claims
20
Uncollectible
21
Interest expense
receivables
and other write-offs
As reflected in Table 52, Depreciation,
22
Write-Offs,
Claims, and
23
Interest costs are mainly impacted by cost level increases, and other programs. Cost
24
level increases
25
claims and losses based on the DRI forecast for the consumer
price index. Other
26
programs consist mainly of estimated
interest on debt, and
27
interest on retirement liabilities.
28
estimated can be found in Chapters V and VI of Library Reference
result from estimated
changes in general inflation on indemnities
changes in depreciation,
Detailed explanations
of how these costs were
l-127.
and
43
1
2
3
Sianificant
4
5
2.
Table 52
Chanaes in DeDreCiatiOn.
Write-Offs. Claims. and Interest Cost
Provision for contingencies
Consistent
6
with the statutory requirement,
a provision for
7
contingencies
8
billion in the Test Year before rates and $1.680 billion in the Test Year after rates.
9
These amounts are equal to two and one-half percent of the total segment expense
10
has been included in the Test Year. The amounts included are $1.701
including final adjustments.
This is greater than the one and two percent amounts included in
11
12
the previous two omnibus rate cases and less than the three and one-half percent
13
included in the previous several cases.
14
Postal Service’s desire to keep rate increases as low as possible with managements
15
assessment
16
also keeps the cumulative
17
cumulative
rate of general inflation.
18
unforeseen
events and forecasting
19
operations
20
in the mid 1990’s.
21
short of its revenue plan, with revenue more than $600 million below plan. To achieve
22
our net income plan for the year required significant cost cutting.
23
to funding greater than expected costs associated
24
transition and higher than planned labor costs.
25
This mid-range contingency
balances the
of the degree of financial risk that currently faces the Postal Service.
and expenses.
It
rate increases over the last two rate cycles below the
This amount is judged as reasonable
errors, given the magnitude
Recent financial performance
Specifically,
against
of the Postal Service’s
has not been as favorable as
in Fiscal Year 1999, the Postal Service fell significantly
This was in addition
with the year 2000 computer
The outlook for the future is even more challenging.
Volume
26
growth is below historical norms and projections
of Fiscal Year 2000 require workyears
27
be held at the Fiscal Year 1999 level while mail volume and the delivery network
44
1
continue to grow.
2
projected.
3
exist and there also appear to be significant new pressures on salary and benefit cost
4
levels.
It will be a challenge to achieve this reduction.
reduction is
Many other uncertainties
At the time of the last rate case, health benefit costs had been
5
6
decreasing.
Health benefit cost increases have now returned to near double digit rates.
7
Also, the labor contracts which have become effective since the last rate tiling are
8
significantly
more costly than previous contracts.
When the Postal Service proposed a one percent contingency
9
P
In the Test Year after rates, a 1.5 percent workyear
10
the last rate case, I indicated that this did not represent
11
managements
12
protect against unforeseen
13
circumstances
in the future, it may very well be necessary
14
of contingency
historically deemed prudent to provide the protection
15
provision for contingencies.“”
judgment
concerning
a permanent
change in
the level of coverage generally necessary to
events and forecasting
errors.
I said, “[IIn different
to return to the higher levels
intended by the
In this case, we are moving closer to the historically
16
normal
17
contingency
of 3.5 percent.
18
competitive
environment
19
Internet appears to be making inroads into the Postal Service’s transaction
20
correspondence
21
from the Postal Service as well. Our more traditional
22
aggressively
23
a business-like
24
expanding
25
implemented
26
contingency
27
28
in
Further supporting
this judgment
is the increasingly
in which the Postal Service operates.
mail volume and may be diverting advertising
In particular, the
and
and marketing revenues
competitors
appear to be more
pursuing legislative limitations on the Postal Service’s ability to operate in
manner.
their operations
In addition, foreign postal administrations
into the United States.
have been
Finally, the earliest that rates can be
is in January of the Test Year. The rates which include the 2.5 percent
will not begin until the second quarter of the test year.
In deference
to the Commission’s
desire to evaluate forecast errors
and their sources, I have included historical variance analyses similar to those included
I’ Docket No. R97-1, witness Tayman USPS-T-g. page 38, revised 8/22/97.
45
1
in past filings.
2
sets of historical weighted
3
through 4 of USPS EXHIBIT 9J, to Docket No. R2000-1 Test Year before and after
4
rates cost and revenue estimates.
5
ranging from -2.2 percent, or -$I 5 billion to 2.3 percent, or $1.5 billion.
Pages 5 through 8 of my Exhibit 9J reflect the results of applying the four
average cost and revenue variances
calculated
These produce hypothetical
on pages 1
Test Year variances
I believe historical variance analyses should not be the basis for
6
7
determining
8
performance
9
than it was at the time of the last two omnibus rate cases.
the need for a contingency
or its size. The Postal Service’s financial
is under much greater pressure and is subject to substantially
historical variance analysis produces,
it is not appropriate
11
determine
in lieu of management’s
12
future.
the size of the contingency
These calculations
13
greater risks
No matter what results an
10
to use historical data to
judgment
are included for informational
about the
purposes only.
14
To conclude from any historical variance analysis that a certain level of unforeseen
15
events will occur in the Test Year would be both irresponsible
16
predict the future, but the evidence clearly suggests that management’s
17
regarding the size of the contingency
and illogical.
No one can
past judgment
required has been good.
I am convinced that variance analysis cannot be relied upon in a
18
19
vacuum as the basis for determining
20
analysis can only show us what happened
21
upon exclusively
22
events in the Test Year.
23
allowed to assume its responsibility
24
most appropriate
25
,-
to determine
an appropriate
contingency
level.
Variance
in the past, and should not be relied
the prudent amount of cushion against unforeseen
Regardless
of what history shows, management
must be
to determine the amount of contingency
for achieving its goals.
It is also important to realize that the variance analyses
reflected in
26
pages 5 through 8 of my Exhibit 9J attempt to show hypothetically
how future costs and
27
revenues would behave if the individual segment variances experienced
28
were to be precisely repeated in the Test Year. I8 Since this does not allow for
in the past
‘* General ledger account classifications were realigned in FY 1995. Material shifts were made among
segments 16, 18. and 20. Weighted average historical percentage variances which are impacted by FY
.-,
46
1
management’s
judgment
regarding the future and the influence of management’s
2
subsequent
actions, these types of analyses can only serve as information
3
considered
by management
4
Postal Service’s goals and the risks involved, a contingency
5
has been used for the purpose of estimating this revenue requirement.
in setting Postal Service policy.
to be
In consideration
of the
of two and one-half percent
6
3.
7
Recovery of Prior Years’ Losses
8
The revenue requirement
9
incurred prior to the Test Year, in accordance
provides for the recovery of losses
with the break-even
requirement
Act and previous Postal Rate Commission
of the
10
Postal Reorganization
11
Decisions.
12
of recovering
13
operating
income (loss) for all periods from the inception of the Postal Service to the
14
beginning
of the Test Year, deducting the funds received under Public Law No. 94- 421,
15
and amortizing the total amount over nine years.
16
in the revenue requirement
The Test Year revenue requirement
prior years’ losses.
includes $268.3 million for the purpose
This amount has been computed
Computation
by summing the net
of the amount included
for recovery of prior years’ losses is shown in Table 53.
The nine-year amortization
17
Recommended
Recommended
period is consistent
18
Commission’s
19
R94-1 and R97-1. In management’s
20
short as to unduly increase the revenue requirement
21
recovery of losses.
with the
Decisions in Docket Nos. R80-1, R84-I,
judgment,
it is a reasonable
R87-I,
R90-1,
period: it is neither so
nor so long as to unduly delay
Despite recent progress in restoring equity, the Postal Service’s
22
23
equity position remains negative and below the capital contribution
24
Government.
25
decline in equity over most rate cycles since Postal Reorganization.
26
following the Docket No. R80-1 rate change from 1981-1984,
27
cycles have been the exceptions.
28
when it began operations
29
1994. The Postal Service has reversed this trend.
of the United States
Historically, the Postal Service incurred net losses and experienced
a
The period
and, the last two rate
Postal Service equity declined from $1.7 billion,
on July I, 1971, to a negative $6.0 billion at the end of FY
Much equity has been restored over
1995 data were therefore based on the variances for these three segments in total.
47
1
the past two rate cycles.
Our interim year projections
2
will continue up to the Test Year. As shown in my Exhibit 9L, which depicts historical
3
net incomes, losses, and equity, a fifth straight net income was realized in FY 1999,
4
and a net income of $65.6 million is estimated for Fiscal Year 2000. This will improve
5
equity to a negative $389 billion by the end of FY 2000.
6
Notwithstanding
7
growth will tend to undermine
8
In this regard, the Board of Governors
9
Service’s commitment
also show that equity restoration
this progress, rising cost levels and weak revenue
the Postal Service’s equity position in Fiscal Year 2001.
of the Postal Service has affirmed the Postal
to restoring and maintaining
equity over time. In Resolution
No.
10
95-9. adopted on July 10, 1995, the Board issued a policy statement outlining a goal of
11
restoring equity between general rate increases cumulatively
12
included for recovery of prior years’ losses in the most recent rate case.”
13
with that goal, the resolution further stipulates that, whenever
14
restoration
15
will take action to reduce costs and/or increase revenues.
16
restoration
17
significant advice as background
18
recommended
19
commitment
20
Postal Service’s equity position.“2’
in relation to the amount
it is projected that
of equity as specified might not be met, the Board and the Postal Service
prepared
by Price Waterhouse
A report on equity
LLP for the Board of Governors
to the Board’s policy Resolution.”
that “the Board of Governors
provides
The Report
adopt a Policy Statement
affirming a
to the goals of breaking even over time and taking actions to improve the
A Fiscal Year 2001 before rates Test Year with a projected net loss
21
22
of $1.7 billion indicates the need for additional
23
9N, the Postal Service projects it will fall short of the Board of Governor’s
24
restoration
25
In connection
net revenue.
As reflected in my Exhibit
equity
goal if rates are not increased during Fiscal Year 2001.
Although
in the past two rate cycles significant
equity was restored,
26
the Postal Service’s current equity position is still negative.
27
provision for recovery of prior years’ losses, however, the erosion of equity would have
I%’Docket No. MC96-3, Library Reference SSR-112.
a’ Id.
a1 id.
If there had been no
-
48
1
been even more severe.
Without the provision for recovery of prior years’ losses, the
2
Postal Service would have no mechanism
3
to break even.
I believe that the recovery of prior years’ losses is essential to the
4
5
ultimate, long-term improvement
6
condition.
My judgment
7
restoration
prepared by Price Waterhouse
a
above.
9
essential to continuing
10
to ultimately meet the statutory requirement
and maintenance
of the Postal Service’s financial
in this matter is further supported
by the report on equity
LLP for the Board of Governors
The provision for recovery of prior years’ losses proposed
and the Board of Governors.
Computation
Table 53
of Prior Years’ Loss Recovery
1 Deficit from Operations since commencement
July 1.1971 through September 30,1998
Less: Actual net income in FY 1999
Less: Estimated net income in FY 2000
Less: Funds from Public Law No. 94-421
Total Recovery Ret luired
1 Annual Incremc ent (l/9)
15
16
in this case is
the Postal Service’s progress in restoring equity and meeting the
goals set by management
11
12
13
14
referred to
on
1
I
I
3,843,327,
363,411
65,603
1 ,ooo,r2!,414,ij
268,257 J
The prior years’ loss recovery amount has declined from $936
17
million in Docket No. R94-1 to $377 million in Docket No. R97-1 and $268 million in this
18
filing demonstrating
that the prior years’ loss recovery concept is working as intended.
IV.
BEFORE AND AFTER RATES
19
20
21
REVENUES
The three sources of postal revenues are operating
22
interest income.
23
Test Year:
revenue, appropriations,
Table 64 provides total revenues, actual and estimated through the
and
49
1
2
3
.-->
Table 54
Total Revenues
($000)
I
60,116,759
63 7!
1
4
5
A.
Mail and Special Services Revenues”
The mail classes, together with special and other services provided to the
6
7
public, yield the largest portion of total operating
8
special services revenue is explained in the testimony
9
individual pricing witnesses
10
Revenues
and workpapers
in the Testimony
of mail and
of each of the
of witness Mayes
for mail and special services through the Test Year are shown
in the following table:
13
14
15
16
17
18
The derivation
(USPS-T-30).
11
12
and summarized
revenues.
Table 55
Mail and Special Services Revenue
B.
Appropriation?
Prior to Fiscal Year 1983, the Postal Service received annual
19
20
appropriations
21
revenue has been for revenue forgone only. Currently, revenue forgone results from
22
providing free mail for the blind and for overseas voters.
23
for public service costs. However, since Fiscal Year 1982, appropriation
The appropriation
revenue included in this filing consists of two
w Volumes by class of mail and the attendant revenues for FY’s 1999,2000, and the Test Year before
and after rates are shown in my Exhibits 9C and 9D. The development of volume estimates is included in
the testimonies and workpapers of witnesses Tolley, Thress, and Musgrave (USPS-T-6,7, & 8). After
rates volume adjustments that result from market research or special studies are explained in the
testimony of the appropriate pricing witness and are summarized in the testimony of witness Mayes
(USPS T-30).
-
50
1
components.
2
and visually handicapped
3
amounts to $66.473
4
adjustment
the estimated cost of providing free mail for the blind
5
amount that would have been authorized
6
(The FY 1998 appropriation
7
of $10 million relating to earned but unpaid revenue as higher rates were phased in for
8
certain previously subsidized
and overseas voting.
As reflected in my Exhibit 9E, this
million for the test year. The second component
is a $0.620 million
relating to Fiscal Year 1998 to reconcile the appropriation
received to the
if based on the final audited mail volume.
revenue in my Exhibit 9E also includes a third component
categories
of mail.)
During Fiscal Years 1991-1993,
9
-
The first represents
the amounts appropriated
were not
10
sufficient to fund the services provided by the Postal Service.
11
Reform Act of 1993, authorized the appropriation
12
million payments through Fiscal Year 2035, to reimburse the Postal Service for earned
13
but unpaid revenue forgone for Fiscal Years
14
forgone during the period Fiscal Year 1994-l 998. During FY 1994 -1998, the revenue
15
forgone appropriation
16
increased
17
rates charged to users for all previously subsidized
18
for the blind and absentee
19
remaining one-half of the shortfall is passed on to all mail users through
20
that result from the rate-making
21
Postal Service can adjust the rates of the subsidized
22
the shortfall.
was gradually
The Revenue Forgone
of $1.218 billion in 42 annual $29
1991-1993,
and for the estimated
revenue
phased out and reduced rates were gradually
until half of the amount necessary to provide full funding was provided by the
In recognition
23
categories
of mail except free mail
overseas voters, which remain fully subsidized.
process.
The
higher rates
Should any amount not be appropriated,
of the 42-year extended
enough to Offset
payment cycle of the Revenue
24
Forgone Reform Act of 1993, on September
25
receivable the present value of earned and unpaid revenue forgone appropriations
26
FY 1991-1993.
27
receivable to recognize earned but unpaid revenue as the higher rates were phased-in
28
for certain categories
During FY 1994-1998
of subsidized
ZJ My Exhibit 9E shows the components
30.1993,
mail categories
the
the Postal Service recorded as a
for
additional amounts were added to this
mail. As each of the annual $29 million
of appropriation
revenue for the relevant years.
51
1
appropriation
payments
2
(because the account receivable
3
and the remainder
5
details regarding the calculation
of these amounts can be found
The following table shows revenue forgone appropriation
revenue through
the Test Year:
Table 56
Appropriation
C.
Revenue
Interest Income
Interest income has two components:
13
14
investment
income and imputed
interest.
Investment
15
income earned by the Postal Service in any period depends
16
upon prevailing short-term
17
Postal Service has adopted a zero cash balance goal as one of its financial
18
management
interest rates and the amount of cash invested.
Because the
policies, minimal investment income is projected through the test year.
Imputed interest results from the calculation
19
20
present value of future payments
21
calculation
22
detail in Chapter Xlc of Library Reference
at 7 percent interest of the
related to the Revenue Forgone Act of 1993. The
of these amounts is discussed above under appropriations
and explained
l-127.
The following table shows Interest income for Fiscal Year 1998 through
23
24'
at 7%)
as a partial collection of the account receivable.
8
9
10
11
12
was recorded at a present value discounted
in Chapter Xlb and Xlc of LR l-127.
6
7
is recorded
Additional
4
is received, a portion is recorded as imputed interest income
the Test Year:
in
-
52
Table 57
Interest income 24
‘$000)
1 Investment
1
lmuted
Income
I
I
17~fXrl I
1
2
3
Total Interest
4
5
6
7
v.
TEST YEAR REVENUE
DEFICIENCY
The Postal Service’s total revenue deficiency
$3.688 billion. Changes
in the Test Year at present rates
8
would be approximately
in postal rates and fees proposed in
9
this filing will eliminate the deficiency as illustrated below:
10
P
14
15
16
F
Table 58
Test Year Revenue Deficiency *’
11
12
13
The financial impact of present and proposed
represented
rates in the Test Year, as
in the equity section of the balance sheet, is demonstrated
in Table 59.
2” Estimated cash flows for FY 1999, FY 2000 and the Test Year before and after rates, along with
projected investment income, are shown in my Exhibits 9F and 9G.
Z! An analysis of changes in income and expenses comparing before and after rates is included in my
Exhibit 9H.
Z?JFrom Table 15, the Test Year revenue requirement before and after rates reflects, total accrued cost
segment expense, final adjustments, contingency and recovery of prior years’ losses.
3~ From Table 54. revenues for the Test Year at present rates.
53
1
2
3
4
Table 59
Analvsis of Chanaes in Eauitv *’
FY 1999
Beginning Balance
Net Income/(Loss)
1
(8(19,403) 1
63.411 I,
3...~~.
(445,992) II
r
1 D?:!y,“’
iemre mares
(445.992)
(380,389)
(3,419,319)
65,603
(380,389)
(3,800.158)
FY 2000
Test Year
After Rates
(380,389)
246,419
(133,970)
w The contingency is included and the prior year loss recovery is excluded from test year costs when
determining net income (loss) and equity.
-
54
EXHIBITS INDEX
STATEMENTS OF REVENUE AND EXPENSE
FY 1998 - TEST YEAR AFTER RATES
USPS-9A
ROLLFORWARD
SOURCE OF CHANGE SUMMARIES,
FY 1998 THROUGH THE TEST YEAR AFTER RATES
USPS-9B
MAIL VOLUME, FY 1998 THROUGH
AFTER RATES
USPS-SC
THE TEST YEAR
MAIL AND SPECIAL SERVICES REVENUE, FY 1998
THROUGH THE TEST YEAR AFTER RATES
USPS-SD
APPROPRIATION
REVENUE,
THE TEST YEAR
USPS-SE
FY 1998 THROUGH
STATEMENT OF CASH FLOWS, FY 1999 THROUGH
TEST YEAR AFTER RATES
INTEREST INCOME, FY 1999 THROUGH
TEST YEAR AFTER RATES
REVENUE REQUIREMENT,
SUMMARY
OF INCOME AND EXPENSES
THE
COMPUTATION
OF WEIGHTED AVERAGE
REVENUE AND COST VARIANCES
BUDGET RECONCILIATION
USPS-SF
USPS-9G
ANALYSIS
COMPARATIVE STATEMENTS OF REVENUE AND
EXPENSE, TEST YEAR VS. ACTUAL (DOCKET
OMNIBUS
THE
USPS-9H
R97-1)
PERCENTAGE
ACT (OBRA) COSTS
USPS-91
USPS-9J
USPS-SK
SUMMARY
OF NET INCOME (LOSS) & EQUITY
USPS-9L
SUMMARY
OF CHANGES
USPS-9M
NET INT~Ot#LOSS)
IN ACCRUED
COSTS BY SOURCE
GAP FROM EQUITY RESTORATION
USPS-9N
SUMMARY OF UNIT LABOR COSTS FOR MAJOR
EMPLOYEE GROUPS
USPS-90
SUMMARY
OF CHANGES
IN WORKYEARS
USPS-9P
ANALYSIS
OF CHANGES
IN PERSONNEL
BY SOURCE
COSTS
USPS-9Q
ADJUSTMENT OF ROLLFOWARD COST FOR WORKYEAR
MIX AND FINAL ADJUSTMENTS
USPS-9R
WORKERS’
USPS-9s
COMPENSATION
DISCOUNT
RATE ANALYSES
STATEMENTS
OF REVENUE AND EXPENSE
(8 IN MILLIONS)
USPS SA
TEFTYEAR
BP.
6.787.2
4274.8
13.868.2
3.0
TESTYEAR
Am
i
Exhibit
USPS 9B
Page 1 of 9
USPS IO-4730
10-4730
NISDC
AL?.46OPl
*
C/S-l
c/s-2
c/s-3
C/S-4
C/S-6
c/s-7
C/S-8
c/s-9
C/S-l0
C/S-l1
C/S-l2
c/s-13
c/s-14
C/S-l5
C/S-l6
c/s-17
C/S-l8
c/s-19
c/s-x
TOTAL
1710409
0251
0252
3512445
0253 17717255
0254
8359
07.56
3815816
o-257
8260365
0258
457268
0259
.
0260
3678215
0261
2304302
0262
673105
0263
303683
0264
4242170
0265
1439416
0266
3221612
0267
77137
O-268 4575721
0269
36090
0270
3533151
0271 59566519
36903
67839
685308
370
136093
294618
15646
5807
30063
240396
29
70995
55944
5446
I.01635
78838
5901
6354
93325
8980
-33185
38391
11787
1117
150
59900
13893
674
2418
1515610
4453
2119
686
-407770
-123368
28461
56157
40829
2647
-1903
-8084
-130985
27200
1837
2120
523982
160649
-670207
13917
209083
44837
109085
20631
22870
-136
-3394
46392
31382
439173
-13692
409385
9888
180931
1520352
1757572
3626383
18444958
8758
3944373
8748473
478360
3895029
2450542
682634
304890
4310802
1506978
3629437
63445
4998999
46652
3718620
62616905
Exhibit
USPS 9B
Page 2 of 9
USPS 10-4730
NlSDC
ALA460Pl
+
C/S-l
c/s-2
c/s-3
us-4
c/s-s
C/S-l
C/S-E
us-9
C/S-l0
C/S-l1
c/s-12
c/s-13
c/s-14
C/S-l5
C/S-l6
c/s-17
C/S-l8
c/s-19
c/s-z0
TOTAL
0251
1757572
0252
3626383
0253 18444958
O-254
8758
-495
-1976
-22080
-853
-811
-274
-208
-844
-134
-5
-49597
-428
-39
-77744
3943520
8747662
478086
3894821
2449698
682500
304885
4261205
1506978
3629009
i
Exhibit
USPS 9B
Page 3 of 9
“SW 10-4730
I
NISDC
ALA46OPl
l
C/S-l
c/s-*
us-3
c/s-4
US-6
CIS-7
39578
536
1184
C/S-16
C/S-l7
C/S-l8
c/s-19
c/s-20
TOTAL
..
-.
--
41298
-
-;.
17570-n
3624407
18462456
8758
3944056
8748846
478086
3894821
2449698
682500
304885
4261205
1506978
3629009
63445
4998999
46652
3718581
62580459
"SW IO-4730
NISDC
AIA460Pl
DE"ELoPMENT
OF COSTS BY SEGMENTS AND COMPONENTS
SUMMARY TABLE
FY 00
Exhibit
USPS 9B
Page 4 of 9
(PREMIX)
($ 000)
********t+**+**+*****t*+************”**”******~~***********~*”””~.~***~**~~*~*************
l
FY99RCC
COST
MAIL
*
COSTS
LEVEL
“OLIJME
l
NONVOLUME
ADDITIONAL
WORKWAD
EFFECT
EFFECT
OTHER
WORKDAY
COST
EFFECT
PROGRAMS
FYOO
PREMIX
RED”cTIONS
***++*+**********tt+**t********ltllt~~~*****,*****“““““*~****************************““**“””
l
C/S-l
c/s-*
c/s-3
c/s-4
US-6
c/s-7
c/s-*
c/s-9
C/S-l0
C/S-l1
c/s-1*
c/s-13
C/S-l4
c/s-15
C/S-16
c/s-17
C/S-l8
c/s-19
c/s-*0
TOTAL
0251
0252
0253
0254
0256
0257
0258
0259
0260
0261
0262
0263
0264
0265
0266
0267
0268
0269
0270
0271
17570-n
3624407
18422878
8758
3943520
8747662
478086
34878
64826
761133
424
149157
330877
18201
8410
44648
351894
82
92815
88969
10818
3894821
2449698
682500
304885
4261205
1506978
3629009
63445
4998999
46652
3718581
62539161
156751
92371
23382
8481
86349
40974
92291
51519
16930
1893
212
165954
34078
1213
3596
1898982
-628
2211
765
30092
60369
53579
2764
2431
32351
6481
3224
3400
7
1010
12852
439
5271
4293
1055
183
1290
1511
503
441793
-8493
59839
311466
-88888
13876
-13299
-79225
24
-1365
839260
183934
44308
980577
31994
-5000
-1485
56100
-18084
-183822
-18238
381639
-1083
63750
370993
1802961
3685093
19163962
9271
3875036
9135440
507544
4168731
2635566
706594
314707
4491673
1563730
3544462
45207
5414740
46782
3784562
64896061
l
f
/I
Exhibit
USPS 9B
Page 5 of 9
t
C/S-l
c/s-*
C/S-3
c/s-4
C/S-6
C/S-l
C/S-8
us-9
c/s-10
C/S-l1
C/S-l2
C/S-l3
C/S-l4
C/S-l5
C/S-M
us-17
C/S-l8
c/s-19
c/s-20
TOTAL
30437
1019
2407
0259
0260
0261
0262
0263
0264
0265
0266
0267
0268
0269
0270
0271
4168731
2635566
706594
314707
4491673
1563730
3544462
45207
5414740
46782
3784562
64896061
33863
1802961
3685093
19194399
9271
3876055
9137847
507544
4168731
2635566
706594
314707
4491673
1563730
3544462
45207
5414740
46782
3784562
64929924
Exhibit
USPS 9B
Page 6 of 9
USPS 10-4730
NISDC
ALA460Pl
l
C/S-l
c/s-*
c/s-3
c/s-4
c/s-s
c/s-7
US-8
us-9
C/S-l0
c/s-11
C/S-l2
c/s-13
C/S-l4
c/s-15
c/s-x
c/s-17
C/S-18
c/s-19
c/s-20
TOTAL
0251
0252
0253
0254
0256
0257
0258
0259
0260
0261
0262
0263
0264
0265
0266
0267
0268
0269
0270
0271
1802961
3685093
19163962
9271
3875036
9135440
507544
73615
135486
763832
433
234171
552062
18769
7687
33117
249962
44
60784
85019
12601
4168731
2635566
706594
314707
4491673
1563730
3544462
45207
5414740
46782
3784562
64896061
154882
101467
15086
10042
44297
41760
19509
42634
9838
1955
174
151093
37710
1018
2708
2206847
-733
2226
658
31925
64550
27854
2827
2513
24761
2866
-7779
-8058
-21951
-18
-2355
-31465
-1056
-13010
-10493
-2495
-433
-2981
-3656
-1103
475374
9808
121443
-29931
19797
-1673
29358
-25526
-58
-1152
656622
156581
-106911
653947
990
18829
7116
235204
135
314816
722
488651
1125426
1875751
3847864
19690897
9730
4046193
9762847
537858
4417787
2791917
723967
327993
4677385
1633711
3800938
45342
5767208
48522
4274769
68280679
Exhibit
USPS 9B
Page 7 of 9
USPS IO-4730
NISDC
ALA46OPl
II
C/S-l
c/s-*
c/s-3
c/s-4
C/S-6
C/S-l
C/S-8
c/s-9
;;g:y
us-12
c/s-13
c/s-14
c;s-17
c/s-1s
C/S-l9
c/s-*0
TOTAL
0251
0252
0253
0254
0256
0257
0258
0259
0260
0261
0262
0263
0264
0265
0266
0267
0268
0269
0270
0271
1875751
3847864
19690897
9730
4046193
9762847
537858
4417787
2791917
723967
327993
4677385
1633711
3800938
45342
5767208
48522
4274769
68280679
-6148
1965
4743
560
1875751
3847864
19684749
9730
4048158
9767590
537858
4417787
2791917
723967
327993
4677385
1633711
3800938
45342
5767208
48522
4274769
68281239
Exhibit
USPS 9B
Page 8 of 9
USPS 10-4730
NISDC
ALA460Pl
l
C/S-l
c/s-*
c/s-3
c/s-4
C/S-6
:;;I;
c/s-9
c/s-10
C/S-l1
c/s-12
c/s-13
c/s-14
C/S-E
c/s-u
C/S-l,
C/S-18
c/s-19
c/s-*0
TOTAL
0251
0252
0253
0254
0256
0257
0258
0259
0260
0261
0262
0263
0264
0265
0266
0267
0268
0269
0270
0271
1802961
3685093
19163962
9271
3875036
9135440
507544
73615
135486
763832
433
234171
552062
18769
825
-4291
-56578
-47
-6439
8712
3961
4168731
2635566
706594
314707
4491673
1563730
3544462
45207
5414740
46782
3784562
64896061
154882
101467
15086
10042
44297
41760
19509
-959
-1961
379
12
31093
37710
1018
2708
2206847
-729
2222
658
31884
64550
27854
2822
2513
24761
-3016
-7779
-8058
-21951
-18
-2355
-31465
-1056
-13010
-10493
-2495
-433
-2981
-3656
-1103
-475374
9808
-121443
-29931
19797
-1673
29358
-25526
-58
-1886
-30195
156535
106911
-653947
990
18829
7116
235204
135
314816
722
364651
1001426
1868893
3810452
19384357
9639
3978970
9686499
529218
4374194
2780118
722386
327831
4557385
1633711
3795056
45342
5767208
48522
4150035
67469816
I
Exhibit
USPS 9B
Page 9 of 9
USPS
USPS 10-4730
10-4730
NISDC
NISDC
AIA46OPl
f
C/S-l
c/s-2
C/S-3
C/S-4
C/S-6
C/S-l
c/s-e
c/s-9
C/S-l0
0251
0252
0253
0254
0256
0257
1868893
3810452
19384357
9639
3978970
9686499
-9109
1878
4573
::g::
C/S-l3
c/s-14
c/s-15
C/S-16
c/s-17
c/s-z0
TOTAL
-7.658
1868893
3810452
19375248
9639
3980848
9691072
529218
4374194
2780118
722386
327831
4557385
1633711
3795056
45342
5767208
48522
4150035
67467158
1
Mail Volume
Line
No.
1
2
3
4
5
5
7
8
9
10
11
FY 1998 - Test Year
(Millions)
1998
Actual I/
CbSS
2000
Estimate
1999
Actual II
100,434
1,174
55
4
10,317
82,508
1,023
380
63
944
195,905
First Class
Priority
Express Mail
Mailgrams
Periodicals
Standard Mail (A)
Standard Mail (Bl
U.S.Postal Service
Free for the Blind
International
Total Mail Volume
USPS SC
Test Year
Before Rates 2/
2/
104,235
1,218
70
4
10,397
88,578
1,092
359
65
1,049
207,058
101,935
1,189
59
4
10,274
85,552
1,043
382
53
953
201,675
Test Year
After Rates 2/
105,847
1,331
72
3
10,429
90,832
1,158
349
57
1,057
211,144
105,298
1,250
72
3
10,321
88,104
1,133
349
57
1,032
207,519
I/ FY 1999 Revenue, Pieces, and Weights Report dated 11/19/99
2/ Workpapers off T. Thress (USPS-T-71 and 0. Musgrave (USPS-T-E).
-
-
..
-
_
..
-
-
.,
_
.”
.-
^.
,
-
_
Mail and Special Services Revenue
Fiscal Year 1998 - Test Year
(Dollars in Millions)
Class
First Class
PrioritY
Express Mail
Mailgrams
Periodicals
Standard Mail IA1
Standard Mail (Bl
U.S.Postal Service
Free for the Blind
International
Total Mail Revenue
Special Services
Other Income
Appropriation
Total Operating
Revenue
1998
Actual I/
1999
Actual
1I
USPS SD
2000
Estimate
21
Test Year
Before Rates 2/
Test Year
After Rates 21
35,172
5,230
1,019
37,284
5,542
1,059
33,851
4.187
855
2
2,072
13,702
1,754
0
0
1,500
58,033
34,933
4,533
942
2
2,115
14,435
1,828
0
0
1,528
50,418
35,753
4.741
994
1
2,229
15,035
1,959
0
0
1,590
52,404
1
2,243
15,381
2,087
0
0
1,741
53,854
0
0
1,748
55,334
1,572
344
57
1,795
472
71
1,895
453
54
1,995
411
87
2,304
411
57
50,117
I/ FY 1999 RPW Report dated 1 l/19/99
and FY 99 USPS Financial
2/ Workpapers of Virginia Mayas (USPS-T-321.
82,755
84,817
1
2,499
15,040
2,152
88,328
59,117
Statements.
1
- - - - .._
. ~~
- -
EXHIBIT
USPS-SE
APPROPRIATION
REVENUE
FY 1998 - TEST YEAR
( $ in thousands)
ublic Service Costs
istimates
After
Rates
0
FY 1998
Actual
0
FY 1999
Actual
0
FY 2000
Estimate
0
Test Year
Before
Rates
0
55,296
68,710
70,880
65,473
66,473
1,978
2,485
(6,444)
620
620
10,000
67,274
0
67,093
0
57,093
67,274
67,093
57,093
wenue Forgone on Free and
Reduced-rate Mail:
Free for the Blind and
Overseas voters II
Reconciliation
Adjustment
II
Second, Third 8 Fourth Class
Total Revenue Forgone
otal Appropriation
II Estimated
Revenue
2/
values reflect amounts requested in FY 2001 President’s Budget.
P
2l Reflects the discounted present value of revenue earned but unpaid in FY 98. Higher rates
pursuant to the Revenue Forgone Refon Act of 1993 were phased in during the period FY 94 to FY 98,
Imputed interest resulting from the $29 million annual revenue forgone appropriation
interest income.
is included with
Exhibit
USPS 9f
U.S. Postal Service
Statement of Cash Flows
FY 1998 - FY 2001
(dollars in millions)
I
1999
1998
Net Income (Loss)
Adjustments to reconcile net income to
to cash provided by operating activities:
Depreciation and amortization
All other differences (net)
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
All other (net)
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing
Net (decrease) increase in cash
Source: USPS LR l-127, Chapter Vlb.
activities
2000
2001 BR
2001 AR
550
363
66
(3,419)
246
1,578
316
2,447
1,795
754
2,912
1,664
292
2,221
2,154
1,307
42
2,154
1,465
3,855
(3,055)
(3,917)
(3,564)
(3,745)
(3,746
(3,O::)
(3,788)
(3.56:)
(3,74:)
(3.74:
549
496
1,343
3,704
(360)
0
(8)
(0)
(120
0
Exhibit
USPS 9G
Investment Income
(Amounts in dollars)
Principal
Item Amount
Minority CD Program
Treasury Security 9.125%. 5/15/2009
Postal Service Fund @ Fiscal Year End
Postal Service Fund - one day per A/P
Total Investment Income
Rounding
(1)
(2)
(3)
(4)
(5)
(6)
,-
(1)
6,700,OOO
100,000
(3) 808,900,OOO
(4) 200,000,000
(2)
Item Rate (5)
(5)
(6)
(5)
(5)
5.5000%
9.1250%
5.5000%
5.5000%
FY 2000
FY 2001 BR FY 2001 AR
368,500
9,125
121,889
391,781
891,295
368,500
9,125
121,889
391,781
891,295
368,500
9,125
121.889
391,781
891,295
$900,000
$900,000
$900,000
Minority Bank CD Program - Balance as of A/P 13 from Auditor Balance Sheet
Postal Service Fund investment held as collateral for Real Estate
Postal Service Fund Balance as of Q/30/99 - assumed to be the same at the end of each fiscal year
Assume one overnight investment per A/P at the end of each AIP
The rate is assumed to be the same rate as the short term borrowing rate.
The rate of the treasury Security was fixed at the time of acquisition @ 9.125%. maturity 5/15/2009
For several years now the USPS has reduced the amount of cash kept on hand for liquidity purposes.
Excess cash from operations is used to repay debt outstanding. This keeps both cash
and debt at minimum levels. By borrowing only when necessary, average debt outstanding
and net interest expense are minimized. Investment income should be minimal and should not change much from
year to year. regardless of changes in net income.
USPS-OH
REVENUE REQUIREMENT SUMMARY
ANALYSIS OF INCOME AND EXPENSES
I$ 0001
Line No.
Refiling Before Rates)
Mail and Special Sewices
Appropriations
Interest Income
Total
Total Revenue Requirement
Net Surplus IDeficiency
Test Year
Estimate
66234,108
67.093
27,200
86.328.401
70.016.977
(3.6875761
With Proposed Rates
8
9
10
11
12
13
14
Revenues and Operating Receipts:
Mail and Special Services
Appropriations
Interest Income
Total
Total Revenue Requirement
Net Surplus (DeficiencyI
69.022.527
67,093
27,200
69.116.820
69,138,657
(21.837)
Change from Refiling to Proposed Rates
15
18
17
18
19
20
21
22
23
23
24
25
26
27
28
29
30
31
Changes in Revenue:
Revenue increass from proposed rates (with volume
et befwa rate levels)
Increase in special services revenue
Increas* in interest income
Subtotal
Revenue loss from decrease in volume
Subtotal
lncrsassd revenue from revenue forgone appropriations
Increase in revenue
Changes in Costs:
Decrease
Decrease
Decrease
Decrease
Decrease
All other
in costs from lower mail volume
in final adjustments
in interest on debt
due to increase in workyear mix adjustment
in provision for contingencies
changes
Decrease in costs
Net change in revenues and costs
Net Surplus IDeficiency
3.605.923
308,708
0
3.914.631
i1.126.212)
2.788.419
0
2.788.419
(686.8171
(41.641)
( 124,000)
13,218)
(21.3981
1461
(877.3201
3.665.739
~21.8371
USPS 91
Page 1 of 2
BEFORE RATES
COMPARATIVE STATEMENTS OF REVENUE AND EXPENSE
DOCKET R97-1 TEST YEAR FROM OCTOBER 1.1997, TO SEPTEMBER 30.1998
(f MILLIONS)
RS7-1
TEST
A.
REVENUE
AND
OPERATING
RECEPTS
CPERATlNO
APPROPRIATIONS
67
3
INTEREST
34
REVEWE
REVENUE
59.327
INCOME
REVENUES
& OPERATING
59.428
POSTMASTERS
MANAGERS. S”PERvlScRs & TECHN,CN. PERSONNEL
CLERKS * MAILHANDERS
CLERKS. CAG K POST OFFICES
3
4
es7
crrf
DELlVERY
ec.005
6,
44
678
ec.11,
es9
VEHICLE
SERVICE
e
SPECIAL
DELlVERY
(0,
11
It
MOTOR
13
MlscELLANE0”S
LOCAL
14
CcNTRAtTURAL
TRANSP0KrATl0N
15
BUlLDINt
17
RESEARCH
19
EWIPMENT
& MANTENANCE
VEHICLE
18
HO
20
DEPRECIATION,
(L AREA
21
SU8TCTAL
22
FNAI.
23
tcN”NGENCY
- 1 s,
18,
20
4,242
1.541
1,439
SUPPORT
CLAIMS,
PERSONNEL
COSTS
3,
,101,
20
77
3s
se
& INTEREST
12
,123,
ml
3,530
3.222
4.596
4.5x
4.1 se
3,533
,622,
11.331
1951,
12.281
13081
1201
63
ACCRUED
COSTS
60,820
59.587
,1.253,
5e.!is,
Il.8611
608
COSTS
OF PRIOR
61.428
YEAR
LOSSES
@OS,
61.428
447
REWIREMEt
61.875
REVENUE
DEFltlmCY
12.4471
NET
#COME
LOSS,
W”Y
NET
INCOME
noss,
WlTHO”T
of William
P. Twman.
SJ,
1 0‘ 8.
Paw
304
4.365
ADJ”STf.lENTS
RECCWERY
Exhibit
TRAlNlNG
& CCRPCRPirEWlDE
WRITE-OFFS.
TOTAL
From
16,
25
673
57
ADMIN.
TOTAL
2,
I521
2,304
292
a MANAGEMENT
WI
3.678
CPERATlCNS
a SERVICES
5
71
2.311
.s 05”s.0mlENT
MAIN-r.
45,
S4S
OF MAIL
121
89
3.731
SERVICES
CCCVPANCY
S”PPLEs
Tesdrm””
SERWCES
121
Wll
8
11s
CARRIERS
141
12.076
453
RURAL
1,
77.646
MESSENGERS
C”sTCDlAL
RNENUE
17.708
DRIVERS
11
24
1.710
3,512
11 ,S88
10
16
1.715
3,515
10
CARRlERS
8
TOTAL
RECEIPTS
CR
,“NDER,
REOUUIREMENT
1
P
ACTUAL ,2
1,
1
2
c.
FlUNO
OVER
2
TOTAL
s.
ACTUAL
YEAR
Docbt
New
mtea
No.
were
CONTlN’XNCY
Fw-1,
not
USPS
implemented
560
i2.0001
CONTINGENICY
ea
2.550
1,942
11.392,
09 Rm4w.i
Yntil
Janua?y
S,ZZ,S,.
,0.1ess.
Eadmatea
reflect
Tea,
Year
,FY
88,
sefas
Rata.
USPS 91
Page 2 of 2
DOCKET
A.
WER
RATES
COMPARATIVE
STATEMENTS
OF REVENUE AND EXPENSE
R97-1 TEST YEAR FROM OCTOBER 1.1997.
TO SEPTEMBER 30.1998
(8 MILLIONS)
RW-1
TESTYEAR
RUN0 I,
REYENUE
AN0 CFeRA-nNG
RECElrn
1
:
OPERATING
REVENUE
APPROPRIATION*
NrsREST
lNCCME
s.
c.
TOTAL REVENUEREWlAEMENT
RN5NUE S”RRUS ,CEAclENcY,
NET INCOME,LCSS, wT”4 CcMlNeMcv
NET lNccME ,LCss, wmicw WNnNOEN(?I
e,,.51.%1
ACTUAL
OVER CR
ACTUAL12
6o.c-x
67
44
,1,625,
10,
,lC,
60,117
u.535,
BEFORE HATES
COMPUTATION OF WEIGHTED AVERAGE PERCENTAGE
REVENUE AND COST VARIANCES
.
USPS 9J
Page 2 Of 8
AFTER RATES
COMPUTATION OF WEIGHTED AVERAGE PERCENTAGE
REVENUE AND COST VARIANCES
((I IN MILLIONS1
Fv lee7
POICENT
ACT”AL
ESTIMATED Acr”M
OVWOR
WT.I,FY rew TEST“Em
NSTW
RATES
EsTlMNW
ACTUAL
-.
USPS 9J
Page
,,
.,, ,,,,, ,., ., ,, ,,,, ,,,,,,~,,,,, ,,,,, ., ,, ,,,,,,,,,,,, ..,
3 of
8
-
-.
..
USPS 9J
Page
4 of
8
USPS 9J
1
2
3
4
5
6
7
8
9
10
11
12
13
TEST YEAR
ESTIMATE
COST
SEGMENT
WEIGHTED I/
AVG. % VAR.
1,869,428
3,782,609
19,118,127
9,643
13,638,050
511,885
0
4555,648
2,780,002
722,705
327,831
4,619,553
1,633,711
45,342
48,522
3,807,497
5,767,208
4,150,035
1
2
3
4
6&7
8
9
10
11
12
13
14
15
17
19
16
18
20
1.0078
0.4279
0.4705
(11.6162)
0.3810
1.3765
(22.7635)
(1.3673)
0.5623
4.4404
4.4499
(2.1481)
(6.2820)
30.6104
(13.5279)
(10.3645)
(2.1297)
(6.3682)
(1.2215) 41
Final Adjustments
15
TOTAL COST
67,190,634
16
69,116,820
2338
REVENUES
TOTAL FAVORABLE
0.9620
IMPLIED
TEST YEAR
VARIANCE
18,841
16,187
89,954
(LW
51,965
7,046
(5955:)
15,632
32,091
14,588
wwl)
(102,629)
13,879
65a4)
(394,626)
(122821)
(264,284)
(35)
(790,682) 21
664,875 31
(1,455J57)
VARIANCE
17
19
1, COMPUTATlON
20
SHOWN
OF WEIGHTED
IN EXHIBIT
2/ ACTUAL
EXPENSE
LOWER
3, ACTUAL
REVENUE
HIGHER
4/ OVERALL
AVERAGE
PERCENTAGE
COST AND REVENUE
USPS-9J PAGE 1 OF 8.
COST VARIANCE
THAN
ESTIMATED.
THAN
APPLIED
ESTIMATED.
TO FINAL
ADJUSTMENTS.
VARIANCES
IS
USPS 9.1
Page 6 of 8
4
5
6
7
8
9
10
11
12
13
COST
EGMENT
TEST YEAR
ESTIMATE
1
2
3
4
6&7
8
9
10
11
12
13
14
I5
17
19
16
18
20
IMPLIED
TEST YEAR
VARIANCE
WEIGHTED
II
AVG. 7’. VAR.
1.0676
0.3812
0.3202
(11.6162)
0.4959
1.8130
(22.0733)
(1.2456)
0.4484
4.4899
4.4682
(1.7051)
(6.2820)
30.6104
(13.5279)
(10.3903)
1,869,428
3,782,609
19,118,127
9>13,638,050
511,885
0
495,648
2,780,002
722,705
327,831
4,619,553
1.633.711
45,342
48,522
3,807,497
S,767,208
4,150,035
19,958
14,419
61,216
W20)
67,626
9,281
(54f5k
12,466
32,448
14,648
c1%W
(102,629)
13,879
G-4)
C395,6W
n.1297)
(122,821)
(5.6841)
CW=W
Find Adjustme&
TOTAL COST
2,838
67,1PO,634
(1.0070) 4/
15
09)
(751,751) 21
16
REVENUES
69,116,820
(0.9165)
(633,472) 3/
.-
TOTAL
FAVORABLE
VARIANCE
(118,279)
19
20
1, COMPUTATION
OF WEIGHTED
AVERAGE PERCENTAGE
SHOWN IN EXHIBIT
USPS-9.l PAGE 2 OF 8.
2, ACTUAL
EXPENSE
3, ACTUALRBVBNUE
4, OVERALL
LOWER
THAN
LDWERTHAN
COST VARIANCE
COST AND REVENUE
EmIMATED.
ESTIMATED.
APPLIED
TO FINAL
ADJUSTMENTS.
VARIANCES
IS
USPS PJ
4
5
WEIGBTED
AVG. % VAR
TEST YEAR
ESTlhlATE
0.0149
2.4589
1.6958
(33.3297)
0.5209
1.4450
(13.9105)
3.4960
(3.9749)
0.2253
10.7334
0.5133
(3.8325)
42.7107
17.9370
16 2/
18 2l
20 21
Subtotal 2/
Final Adjustments
15
TOTAL COST
1,869,428
3,782,609
19,118,127
9,643
13.638.050
Sll,ssS
0
4,355,648
2,780,002
722,705
327,831
4,619,553
1,633,711
45,342
48,522
3.807.497
5,767,208
4,150,035
13,724,740
2,838
67,190,634
16
69.116.820
(0.1367)
6
I
8
9
10
11
12
.-
COST
SEGMENT
1
2
3
4
6&7
8
9
10
11
12
13
14
15
17
19
13
REVENVES
TOTAL
UNFAVORABLE
0.5322
0.9401
I/
IMPLIED
TEST YBAB
VARIANCE
218
93,009
324,208
0,214)
71,047
7,397
0
152,272
(110,504)
1,628
35,187
23,714
(62,612)
19,366
8,703
5/
73,046
27
633,552 31
VABJANCE
19
1, COMPWATTON
20
,F~
OF WBIGBTED
AVERAGE PERCENTAGE
COST AND REVENUE V-CES
IS SHOWN IN EXBlBlT USPS-9.TPAGE 3 OF 8.
21
5, *cTuAL
EXPENSE BIGBEB TBAN F.srlMATED.
22
4/ ACIIJAL REvENuEs LOWER -
ESTIMATED.
s/ OVERALL COST VABIANCE APPLIED TO FlNAL ADJUSTMENTS
USPS 9.1
PageSof
3
4
coal
EGMENT
5
TEST YEAR
ESTIMATE
1
2
3
4
6&7
8
9
10
11
12
13
14
15
17
19
16 21
18 2,
20 21
Subtotal 2/
Final Adjmtmemts
15
TOTAL COST
1,869,428
3,782,609
19,118,127
9,643
13,638,050
511,885
0
4255,648
2,780,002
722,705
327,831
4619,553
1,633Jll
45,342
48,522
3,807,497
5,767,208
q150.035
13,724,740
2,838
67,1PO,634
16
69,116,820
6
7
8
9
10
11
12
13
REVENUES
IMPLIED
TESTYEAR
VARIANCE
WEIGHTE
I,
AVG. % VAR.
0.0481
2.4324
1.6068
03.3297)
0.5864
1.7144
(13.5295)
3.5792
(4.0377)
0.2534
10.7458
0.8061
(3.8325)
42.7107
17.9370
0.68%
I.0715
900
!n,OOP
307,186
(394)
79,969
8,776
0
155,897
WWQ
1,831
35,228
37*9
(62,612)
19266
8,703
94644
30
663,706 3/
5/
(1.2301)
(850,183) 4/
TOTALUNFAVOBABLEVARIANCE
1,513,889
17
19
l/
20
COMPUTATION
OF WEIGRTED
AVERAGE PERCENTAGE
IS SHOWN IN EXHIBIT
USPS-RI PAGE 4 OF 8.
COST AND REVENUE
VARJANCES
2/ ACCOUNT
RECLkSSIFICATIONS
MADE IN FY 95 “AD A MATERIAL
EFFECT ON SEGMENTS
AND 20. INDIVIDUAL
FY 95 PERCENTAGE
VARIANCES
FOR THESE SEGMENTS MAY NOT
MEANINGFUL
WEIGHTED
AVERAGE PERCENTAGE
VARIANCE8
ARE APPLIED IN TOTAL
THESE 3 SEGMENTS ONLY.
21
3/ ACTUAL
EXPENSE
22
4, ACTUAL
REVENUES
5/ OVERALL
HIGHERTHAN
LOWER
COST VARIANCE
ESTIMATED.
THAN
APPLIED
ESTIMATED.
TO FINAL
ADJUSTMENTS.
16,18,
FOR
OBRA Costs
EXHIBIT
( S in billions 1
OBRA
1985
FISCAL
YEA6
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
OBRA
1987
OBRA
1989
___
___
___
-__
0.510
0.270
___
0.074
a/
a/
al
a/
aI
aI
al
al
al
a/
a/
0.780
al
Enactment
bl
cl
Source:
Source:
al
al
al
al
al
al
al
a/
a/
a/
al
0.074
CURRENT
USPS 9-K
OBRA 90
RETRO
___
___
___
_-_
__.
-__
__.
-_-
OBRA
1993
___
_-_
___
___
___
___
TOTALS
ANNUAL
CUM.
__.
__.
__.
__.
0.857
0.043
0.045
0.047
0.032
0.016
___
___
___
0.010
0.563
0.370
0.240
2.650
0.952
1.988
1.236
1.291
1.294
1.397
1.457
1.505
1.728
1.921
2.140
1.041
18.602
0.749
0.871
1.061
1.139
1.212
1.247
1.365
1.440
1.505
1.728
1.921
1.901
0.081
0.070
0.054
0.034
___
___
14.237
of the OBRA 1990 superceded prior OBRAs, therefore all costs are
now identified as OBRA 1990.
USPS 1998 Comprehensive
Statement and USPS financial records.
Library Reference
l-127
bl
bl
bl
bl
b/
b/
b/
bl
bl
bl
bl
bl
cl
cl
cl
0.010
0.573
0.943
1.183
3.633
4.785
6.772
8.009
9.300
10.594
11.991
13.448
14.953
16.681
18.602
US Postal Service
Summary of Net Income (Loss) & Equity
FYq971
EXHIBIT
USPS 9L
-FY2000
Dollars in Millions
Fiscal
Year
1971
1972
1973
1974
1975
1976
TQ
1977
1978
1979
1980
1981
1982
1983
1984
1985
1988
1987
1986
1989
1990
1991
1992
1993
1994
1995
1996
1997
1996
1999
2000 Est
otal 72-O
Net
Income
(175.435;
(186.399:
(626.758:
(1,615.516;
(2,791.318:
(2,776.148:
(3,463.997:
(175.435)
(12.964)
(438.359)
(988.758)
(1 ,I 75.802)
15.170
(687.849)
(379.428)
1,565.552
1,146.782
190.267
(955.358)
(428.830)
(587.534)
(945.222)
(443.692)
(718.931)
(1,306.700)
(505.146)
111.770
310.739
58.364
361.868
138.227
(460.434)
(401.629)
(1,277.666)
(2,746.936)
(3.283.116)
(51047.700)
(5,961.500)
469.836
13.679.961’
(306.392)
(587.739)
801.576
616.326
117.352
(3,466.144)
(2,849.818)
(2,732.466:
(2,983.946:
(251.480)
304.608
(222.686)
(596.910)
60.719
(873.578)
(1,468.614)
(536.462)
(1.764.915)
(913.600)
1.770.255
13567.177
1,264.382
550.243
363.411
65.603
7.966.658
(8,061.784: )
(8,995.38$
(5,657.952‘
(4,393.570:
1
(3.479.916
Source: FY 96 and prior years taken from R97-1, USPS-T-O, Exhibii 9L. FY 97 - FY 99 taken
from USPS Financial Statements.
Note: The period FY 95-98 includes 3 months of R90-1 rates. The period
of R94-1 rates.
FY 99-N
2000 includes 3 months
.-
EXHIBIT
USPS-9M
Summary of Changes in Accrued Costs by Source
$ in Millions
Prior Yr. cost
cost Level
Mail Volume Effect
Non-Volume Workload
Additional Workday
Cost Reductions
Other Programs
Base Year Unit Cost Adi.
Workyear Mix Adj. 21 .
Final Adjusbnents 2l
Total Chg. Before Contingency
contingency
Total Chg. After Contingency
Fiscal Year 1999
Percent of
Amount Prior Yr. ITotal Chg.
59,568s 1
Fiscal Year 2QOG
Percant of
Amount Prior Yr. ITotal Chg.
62,400.4 1
Test Year Before Rates
Percent of
Amount Prior Yr. [Total Chg. I/
64,751.E I
Test Year After Rates
Percent of
Amount Prior Yr. ITotal Chg. II
64751.6 (
(670.2)
1.520.4
(77.71
‘41.3’
(160.1)
1 2.933.9 1
2.5%
0.9%
0.3%
0.0%
-1.1%
2.6%
0.1%
0.1%
-0.3%
4.6%1
53.5%
16.5%
5.7%
0.0%
-23.6%
53.7%
-2.7%
1.5%
-6.4%
lOO.O%l
1.693.0
639.3
183.9
44.3
(g60.6)
371.0
(7.4)
1.9
2351.4 1
2.9%
1.3%
0.3%
0.1%
-1.5%
0.6%
0.0%
0.0%
0.0%
3.6%1
57.6%
25.5%
5.6%
1.3%
-29.6%
11.3%
0.0%
-0.2%
0.1%
71.4%1
2206.6
656.6
166.6
(106.9)
(653.9)
1,125.4
(33.3)
(56.5)
3.294.6 1
3.4%
1 .O%
0.2%
-0.2%
-1.0%
1.7%
0.0%
-0.1%
-0.1%
5.1%1
67.0%
19.9%
4.6%
-3.2%
-19.6%
34.2%
0.0%
-1 .O%
-1.7%
lOO.O%I
2,2066
(30.2)
156.5
(1069)
(653.9)
1,001.4
(36.6)
(96.4)
2.436.7 [
3.4%
0.0%
0.2%
-0.2%
-1 .O%
1.5%
0.0%
-0.1%
-0.2%
3.6%1
90.5%
-1.2%
6.4%
-4.4%
-26.6%
41.1%
0.0%
-1.5%
-4.0%
100.0%
I
1 2.633.9 I
4.6%1
lW.O%I
2.351.4 1
3.6%1
1
lOO.O%l
1.701.2 1
4.9960 1
2.6%]
7.7%1
51.6%1
151.6%1
1,679.6 1
4,116.5 1
2.6%1
6.4%1
68.9%
166.9%
1,515.6
524.0
160.6
II BefOre contingency
2/The workyear mix and final adjustments are relative to FY 99. The changer from FY 1999 and FY 2Mx) am therefore calculated
by subtracting the FY 1999 and FY 2000 adjustments from the FY 2oM) and FY 2001 adjustments.
USPS 9N
Net Income (Loss)
GAP From Equity Restoration
($millions)
2
Actual or
Estimate
(914
1,770
1,567
1,264
550
363
(1 ,,::I
(3,419:
3
‘deeded to Meet
BOG Target
(I.3441 I
936
936
936
936
517
377
377
377
Target
*
mulative Amt.
)ver/(Under)
Column 2 - FY 94 - 99 are actual results reflected on Exhibtt 9L. FY 2000 and FY 2001
are before rates estimates reflected on Exhibit 9A.
Column 3 - Reflects R94-1 and R97-1 Decisions. FY 95 - 98 reflects annual average net income
needed to meet the R94-1 target. FY 1999 is a proration of the R-94-l and R-97-l targets based
on the timing of new rate implementation.
FY 2000 and FY 2001 reflects annual average net
income needed to meet the R97-1 target.
II Excludes contingency
2l Includes contingency
Exhibit 90
Summary
Pay Increases
IClerks
City Carriers
Mail Handlers
Rural Carriers
Non- Bargaining
Cl&S
City Carriers I/
Mail Handlers
Rural Carriers
Non- Bargaining
Clerks
City Carriers 21
Mail Handlers
Rural Carriers
Non- Bargaining
Clerks
City Carriers 3/
Mail Handlers
Rural Carriers
Non- Bargaining
Lump Sums
City Carriers 51
Rural Carriers
Non- Bargaining 41
COLA’S
IClerks. Ml-l’s, Rural. Citv
Rural Carriers
Clerks, MH’s, Rural
Clerks, MH’s, City
Rural Carriers
Clerks, MH’s. City
of Unit Labor Costs for Major
Employee Groups
1 Effective
Date
lllZl97
1.2c
lll22l97
lll22l97
1.24
1.3c t llml97
1.W
2.oc
2.oc
2.07
2.1c
1.4E
1.4c
1.4c
1.45
1.5c
3.14
1.74
4.1c
1.6f
2.1r
-3.2d
%
1.2c
I
$
$
$
8
Annual lRate
Y 1996
408.94
6 350.68
404.50
6 346.87
386.44
b 331.38
443.99
6 380.74
6 702.01
$ 2.70632
Effective
;
i
;
;
;
;
;
57.63
55.05
63.25
243.50
610.95
71.16
588.22
238.95
541.20
$ 726.63
$ 400.00
$2.711.82
$
$
$
5
$
$
$
75.04
197.17
34.31
3.97
103.49
18.25
2.11
,mount
=I=
$
99.23
$
118.61
$1.88576
5
27.69
$
3.20
5
83.51
$ 314.75
5
36.37
5 209.02
$
34.56
5
17.49
5
17.55
II Retiree eligibles only. Effective amounts reflect the proportion of city carriers that are
retiree eligible (approximately
12%).
2/Effective amount includes 11/21/98 pay increase, 3/13/99 cola, and g/11/99 cola, for non-retiree
and 1 l/20/99 pay increase for all NALC employees.
3/ Includes impact of upgrade to level 6.
41 Includes Economic Value Added and lump sum portion of Merit.
51 Non-retiree eligibles only.
Source - Chapter VIII of Library Reference I 127.
$1.667.32
5 165.98
$
27.44
5 273.51
$ 274.45
5 116.82
5
20.98
eligibles,
--
EXHIBIT
COST SEGMENT SUMMARY
SUMMARY OF WORKYEARS AND CHANGES
13
“a”C.2
I
I
I
I
et-yCarriers
..-3
10 Rural Car+=
.“.-_.“. 8 Maintenance
NIL Motor Vehicle Service
13 Miscellaneous
.-~ ^^
c
1s Administration &Area Operations
19 Maintenance ! 8. Technical Support
.-em..
Total Workb=.,=
1 Proiected
I
I
I
I
1
I
I
Source: Chapter X of Library Reference l-127
--
I
FY 2000
Cost Segment
1 Postmadnra
‘)L “.y”
!a,noni,.,SOrs
^ ^.
i & Mail Handlers
--CAGK
-
”
[
1
_,___
._ ..___. _ _..._._ __. Jice
I
R
3QqJLO 1
214 1
--- --- I
(C,,W,
1
. --
88,658
49,101
6,261
845
,I70
14:
561
1,922
9.
21
_
e-1
,
-
Chanoefrom
1
USPS-QP
Page 2 of 2
FY 2000
1 ProieotedChannafrnml
L __,._.
”
.
_,...
,
.,...
,
I
-..--”
1
I
‘^
I
I
2.2 ._,_ ,
91,793 1
I
:. . ,
I
.,-.-
--,
I
5,, I
I
__
I
l..,
.--
I
. I
I
I?
I
.,_-.
I
I
.
I
-
-
I
.”
I
01
.^^I
01
.^^I
66
I
I
7.7331
I
I
1
3, 1
49.M, 1
_“^^ I
6.:
161
1281
28,lQQI 172.97,1
“.” I
-^-^ I
7.9%
r ^..
9.9%
i
._
..,
.-
I
l..-l.,,l”-.,_,.--l__,l.-_.,-_;
,,,..
-“,~..,~,-F,~.l~.ll-I_
,,_;
--
----
-------
__.__
._
- -. -. -
-
_ ._ ._
---
2.336
2.336
1334.408,
)
i
. ._
.
.-
_
.”
I
-
..- _
-
-
--
Exhibit
USPS 9s
Page 1 of 8
Workers’ Compensation
Discount Rate Analysis
Summary Table of Results of Medical Discount Rate Analyses
Derived from DRI Data
1987- 1999
Without
Date
Summer, 1987
Winter, 1987-88
Summer, 1988
Winter, 1988-89
Summer. 1989
Winter. 1989-90
Summer. 1990
Winter, 1990-91
Summer, 1991
Winter, 1991-92
Summer, 1992
Nnter. 1992-93
Summer. 1993
Wtnter. 1993-94
Winter. 1994-95
Summer, 1995
Winter, 1995-96
Summer, 1998
Winter, 1996-97
Summer. 1997
FallAMnter, 1997
Winter. 1999
Averages
Trend
Rate
Cyclical
Rate
1.83%
1.78%
1.59%
1.51%
1.07%
1.23%
1.73%
1.99%
1.99%
1.74%
1.50%
2.22%
2.07%
2.21%
2.40%
1.11%
0.58%
1.25%
1.35%
1.53%
1.26%
2.03%
1.&I%
Without
1988
1989
1990
1991
1992
1993
1994
1995
1998
1997
1998
With
PO-Day
Average
Rate
2.27%
2.17%
1.78%
1.38%
1.48%
3.52%
3.34%
2.04%
2.33%
1.32%
1.28%
2.13%
2.12%
2.01%
2.13%
1.12%
0.92%
1.81%
1.54%
1.86%
1.11%
1.71%
1.87%
OO-Day
1.37%
1 .M%
1.52%
1.54%
1.55%
1.44%
1.59%
1.84%
2.15%
2.48%
2.59%
2.05%
1.98%
1.69%
1.44%
1.28%
2.38%
2.54%
2.02%
2.16%
1.53%
1.39%
2.18%
2.10%
2.11%
2.27%
1.11%
0.75%
1.43%
1.45%
1.70%
1.19%
1.87%
1.75%
Trend
Rate
1.23%
1.I556
1.02%
1.06%
0.60%
0.67%
1.18%
1.44%
1.40%
1.18%
0.78%
1.40%
1.32%
1.48%
1.78%
0.88%
0.41%
0.83%
0.92%
1.20%
1.10%
1.80%
1.13%
W-Day
Cyclical
Rate
1.70%
1.55%
1.18%
0.90%
0.98%
2.98%
2.80%
1.52%
1.73%
0.73%
0.55%
1.28%
1.34%
1.25%
1.50%
0.79%
0.52%
1.05%
1.02%
1.54%
1.05%
1.47%
1.34%
0.92%
1 .OO%
1.06%
1.07%
1.06%
0.91%
1.02%
1.29%
1.58%
1.90%
2.08%
Average
Rate
1.47%
1.36%
1.10%
0.98%
0.79%
1.83%
1.98%
1.48%
1.57%
0.98%
0.67%
1.34%
1.33%
1.37%
1.84%
0.83%
0.47%
0.94%
0.97%
1.37%
1.08%
1.84%
1.23%
1.82%
1.73%
1.45%
1.25%
1.08%
2.16%
2.31%
1.80%
1.92%
1.30%
1.10%
1.84%
1.79%
1.81%
2.02%
1.OO%
0.84%
1.23%
1.26%
1.57%
1.14%
1.78%
1.54%,
EzdItiti
USPS 9s
Page 2 of 8
WORKERS COMPENSATION
DISCOUNT RATE ANALYSIS - MEDICAL
(HISTORICALTRENDS)
YC?W
(1)
(2)
Medical
lkl%tiOll
1OYr.
U.S. Bonds
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1998
1997
1998
8.60
11.30
11.60
9.60
7.20
6.70
5.80
4.80
5.80
6.80
6.80
5.50
6.50
5.50
5.10
4.00
3.80
1.90
2.30
2.20
9.40
11.50
13.90
13.00
11.10
12.40
10.70
7.70
8.40
8.90
8.50
8.55
7.88
7.01
5.87
7.08
6.58
6.44
6.35
5.26
AVERAGE ALL
2.08
AVERAGE W/OUT 90 DAY
2.59
Source
Source
Source
Source
Source
Source
Source
Source
Source
Source
Source
Source
0.80
0.20
2.30
3.40
3.90
5.70
4.90
3.10
2.80
2.10
1.70
3.05
1.36
1.51
0.77
3.08
2.78
4.54
4.05
3.06
(4)
3-5 Yr.
U.S. Bonds
9.60
11.50
14.30
13.00
10.60
12.10
9.90
7.20
7.80
8.40
8.53
8.32
6.96
6.18
5.13
8.88
6.38
6.17
6.22
5.15
(5)
NET
6-l
*
+
+
+
+
+
+
+
2.75
AVERAGE
NOTES:
(3)
NET
4-1
(6)
90 Day
T-Bills
1.oo
0.20
2.70
3.40
3.40
5.40
4.10
2.80
2.00
1.80
1.73
2.82
0.48
0.68
0.03
2.88
2.58
4.27
3.92
2.95
10.10
11.40
14.00
10.60
8.60
9.50
7.50
6.00
5.80
6.70
8.11
7.49
5.38
3.43
3.00
4.35
5.85
5.14
5.26
4.78
Focus,
Focus.
Focus,
Focus.
Focus,
Focus,
Focus,
Focus,
Focus,
1.50
0.10
2.40
1.00
1.40
2.80
1.70
1.40
(0.10)
1.31
1.99
(1.12)
(2.07)
(2.10)
0.35
1.85
3.24
2.98
2.58
1.06
2.43
* = 3-5 year bond index discontinued; 4 year bond index used instead.
+ = 4 year bond index discontinued; 5 year bond index used instead.
1998 data: Standard 8 Poor’s DRI The U.S. Economy, Winter 1999
1997 data: DRI/McGraw-Hill Review of tie U.S. Economy, Long-Range
1996 data: DRIIMcGraw-Hill Review df the U.S. Economy, Long-Range
1995 data: DRI/McGraw-Hill Review ofthe U.S. Economy, Long-Range
1994 dsta: DRI/McGrav.-Hill Review of the U.S. Economy, Long-Range
1993 data: DRIIMcGrav-Hill Review of the U.S. Economy, Long-Range
1992 data: DRUMcGrsv-Hill Review of the U.S. Economy, Long-Range
1991 data: DRI/McGraw-Hill Review of tie U.S. Economy, Long-Range
1990 data: DRI/McGraw-Hill Review ofthe U.S. Economy, Long-Range
1989 data: DRI/McGrw-Hill Review of the U.S. Economy, Long-Range
1987-88 data: DRIIMcGraw-Hill U.S. Long-Term Review. Spring, 1988
1977-86 data: DRI/McGraw-Hill U.S. Long-Term Review, Fall, 1986
(7)
NET
8-1
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
1989-90
Exhibit
USPS 9s
Page 3 of
Workers'
Discount
Rate
Trend
(1)
Medical
Inflation
(2)
10 Year
U.S. Bonds
2.10
2.40
3.10
3.30
3.50
3.30
3.30
3.30
3.30
3.40
3.60
3.70
3.70
3.90
4.10
4.20
4.30
4.50
4.80
5.10
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
4.93
5.27
5.38
5.40
5.35
5.35
5.39
5.42
5.56
5.64
5.65
5.78
5.87
6.01
6.14
6.26
6.35
6.46
6.61
6.76
(4)
5 Year
U.S. Bonds
2.83
2.87
2.28
2.10
1.85
2.05
2.09
2.12
2.26
2.24
2.05
2.08
2.17
2.11
2.04
2.06
2.05
1.96
1.81
1.66
4.87
5.23
5.30
5.27
5.22
5.17
5.19
5.21
5.37
5.43
5.44
5.54
5.61
5.72
5.85
5.98
6.07
6.19
6.34
6.49
2.13
Averages:
Average
All:
Average
w/out
Source
(3)
NET
4 -1
Compensation
Analysis
- Medical
Projection
:
(5)
NET
6 -1
(6)
90 Day
T-Bills
2.77
2.03
2.20
1.97
1.72
1.87
1.89
1.91
2.07
2.03
1.84
1.84
1.91
1.82
1.75
1.78
1.77
1.69
1.54
1.39
4.61
4.74
4.73
4.70
4.72
4.70
4.70
4.70
4.93
4.94
4.96
4.96
4.93
4.94
5.06
5.19
5.30
5.41
5.54
5.65
1.93
2.03
Standard
h Poor's
Trend Projection
DRI The U.S.
Economy,
Winter
2.51
2.34
1.63
1.40
1.22
1.40
1.40
1.40
1.63
1.54
1.36
1.26
1.23
1.04
0.96
0.99
1.00
0.91
0.74
0.55
1.33
1.80
90 D
(7)
NET
8 -1
1999
8
Exhibit
Workers'
Discount
Rate
Cycle
(1)
Medical
Inflation
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(2)
10 Yr.
U.S. Bonds
2.30
2.90
3.80
4.30
4.60
3.60
2.90
3.00
3.20
3.60
3.70
2.90
3.50
4.20
5.10
4.80
3.80
4.20
4.70
5.30
4.88
5.12
5.40
5.58
5.36
5.10
4.93
5.11
6.08
6.22
5.50
5.21
5.15
6.12
6.61
6.27
5.95
5.84
6.00
6.33
Averages:
All:
Average
w/out
(4)
5 YT.
U.S. Bonds
2.58
2.22
1.60
1.28
0.76
1.50
2.03
2.11
2.88
2.62
1.80
2.31
1.65
1.92
1.51
1.47
2.15
1.64
1.30
1.03
4.85
5.18
5.43
5.36
5.03
4.73
4.63
4.93
5.84
5.88
5.25
5.01
5.05
5.92
6.26
5.92
5.64
5.61
5.80
6.18
:
(5)
NET
4-1
(6)
90 Day
T-Bills
2.55
2.28
1.63
1.06
0.43
1.13
1.73
1.93
2.64
2.28
1.55
2.11
1.55
1.72
1.16
1.12
1.84
1.41
1.10
0.88
4.66
5.03
5.28
4.47
3.77
3.57
3.78
4.57
5.34
4.93
4.60
4.59
5.02
5.56
5.28
4.97
4.82
5.00
5.33
5.83
1.71
Standard
& Poor's
Cycle
Projection
4 of
DRI The U.S.
Economy.
Winter
(7)
NET
6-1
2.36
2.13
1.48
0.17
-0.83
-0.03
0.88
1.57
2.14
1.33
0.90
1.69
1.52
1.36
0.18
0.17
1.02
0.80
0.63
0.53
1.00
1.61
1.47
90-
9s
Page
Compensation
Analysis
- Medical
Projection
1.82
Average
source
(3)
NET
2-1
USPS
1999
8
Exhibit
USPS 9s
Page 5 of
-
Summary
Table
of
Workers'
Compensation
Discount
Rate Zmalysis
Results
of Compensation
Discount
Derived
from DRI Data
1987 - 1999
Prospective
Publication
Date
/--
Summer,
Winter,
Sumner,
Winter,
Sumner,
Winter,
sunrmer,
Winter.
sunrmer,
Winter,
summer,
Winter,
smer,
Winter,
Winter,
summer,
Winter,
Surraner,
Winter,
Sumner,
Pall/Winter,
Winter,
Averages
1987
1987-88
1988
1988-89
1989
1989-90
1990
1990-91
1991
1990-91
1992
1991-92
1993
1993-94
1994-95
1995
1995-96
1996
1996-97
1997
1997
1999
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Analyses
Trend
Rate
Cyclical
Rate
2.92%
3.14%
2.82%
2.97%
2.57%
2.88%
3.00%
3.27%
3.47%
3.41%
2.96%
3.42%
3.23%
3.00%
3.30%
1.88%
1.69%
2.78%
2.89%
2.74%
2.39%
3.10%
2.90%
Historic
Rate
3.37%
3.20%
2.95%
3.04%
2.87%
4.96%
4.50%
3.22%
3.82%
2.83%
3.04%
3.36%
3.36%
2.89%
3.11%
2.02%
2.13%
3.17%
3.11%
3.10%
2.29%
2.79%
3.14%
Analyses
2.65%
2.77%
2.86%
2.96%
3.02%
3.14%
3.53%
3.78%
3.87%
4.04%
4.19%
Analyses
8
Exhibit
USPS QS
Page 6 of 8
WORKERS COMPENSATION
DISCOUNT RATE ANALYSIS - COMPENSATION
(HISTORICAL TRENDS)
1979-l 998
(1)
Urban Wage 8
Clerical Workers
11.40
13.50
10.30
6.00
3.00
3.40
3.50
1.50
3.60
4.00
4.60
5.30
4.00
2.90
2.60
2.50
2.80
2.90
2.20
1.40
1979
1980
1981
1982
1983
1964
1985
1986
1967
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
(2)
(3)
NET
2-l
20 Years
U.S. Bonds
9.30
11.40
13.70
12.90
11.30
12.50
11.00
7.90
8.70
9.10
0.44
8.61
8.14
7.67
6.60
7.37
6.88
6.70
6.61
5.56
*
*
*
*
*
*
*
*
(2.10)
(2.10)
3.40
6.90
8.30
9.10
7.50
6.40
5.10
5.10
3.64
3.31
4.14
4.77
3.80
4.87
4.08
3.80
4.41
4.16
AVERAGE
4.43
AVERAGE ALL
4.19
NOTES:
Source
Source
Source
Source
Source
Source
Source
Source
Source
Source
Source
Source
(4)
1OYr.
U.S. Bonds
(5)
NET
4-1
9.40
11.50
13.90
13.00
11.10
12.40
10.70
7.70
6.40
8.90
8.50
8.55
7.86
7.01
5.67
7.06
6.56
6.44
6.35
5.26
(2.00)
(2.00)
3.60
7.00
8.10
9.00
7.20
6.20
4.80
4.90
3.70
3.25
3.66
4.11
3.07
4.50
3.70
3.54
4.15
3.86
(6)
3-5 Yr.
U.S. Bonds
9.60
11.50
14.30
13.00
10.60
12.10
9.90
7.20
7.80
8.40
8.53 6.32 6.96 ‘6.18 +
5.13 +
6.66 +
6.38 +
6.17 +
6.22 +
5.15 +
4.24
Focus,
Focus,
Focus.
Focus
Focus,
Focus,
Focus,
Focus,
Focus,
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
(1.80)
(2.00)
4.00
7.00
7.60
6.70
6.40
5.70
4.20
4.40
3.73
3.02
2.96
3.28
2.33
4.16
3.58
3.27
4.02
3.75
3.92
* = 20 year bond index discontinued; 30 year bond index used instead.
_ = 3-5 year bond index discontinued; 4 year bond index used instead.
+ = 4 year bond index discontinued; 5 year bond index used instead.
1998 data: Standard 8 Poor’s DRI The U.S. Economy, Winter 1999
1997 data: DRI/McGrawHill Review of the U.S. Economy, Long-Range
1996 data: DRIIMcGraw-Hill Review of tie U.S. Economy, Long-Range
1995 data: DRIIMcGraw-Hill Review ofthe U.S. Economy, Long-Range
1994 data: DRIIMcGraw-Hill Review ofthe U.S. Economy, Long-Range
1993 data: DRUMcGraw-Hill Review of the U.S. Economy. Long-Range
1992 data: DRIIMcGraw-Hill Review of the U.S. Economy, Long-Range
1991 data: DRI/McGrawHill Review of the U.S. Economy, Long-Range
1990 data: DRI/McGraw-Hill Review of the U.S. Economy, Long-Range
1969 data: DRIIMcGrav-Hill Review ofthe U.S. Economy, Long-Range
1987-88 data: DRIIMcGraw-Hill U.S. Long-Term Review, Spring, 1968
1977-86 data: DRIIMcGraw-Hill U.S. Long-Term Review, Fall, 1986
(7)
NET
6-l
1997-98
1996-97
1995-96
199485
1993-94
1992-93
1991-92
1990-91
1989-90
-
Exhibit
USPS 9s
Page 7 of
Discount
(2)
Wage &
30 Year
Worker6U.S.
Bonds
(1)
Year
,-
Urban
Clerical
2.00
2.30
2.30
2.40
2.50
2.60
2.60
2.50
2.50
2.50
2.50
2.60
2.60
2.60
2.70
2.80
2.90
3.10
3.20
3.40
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Averages
:
Average
All:
Source:
5.29
5.43
5.47
5.51
5.49
5.48
5.51
5.51
5.60
5.67
5.68
5.79
5.90
6.04
6.16
6.28
6.35
6.45
6.60
6.75
8
Workers'
Compensation
Rate Analysis
- Compensation
Trend Projection
(3)
NET
2 -1
3.29
3.13
3.17
3.11
2.99
2.88
2.91
3.01
3.10
3.17
3.18
3.19
3.30
3.44
3.46
3.48
3.45
3.35
3.40
3.35
(4)
10 Year
U.S. Bonds
4.93
5.27
5.38
5.40
5.35
5.35
5.39
5.42
5.56
5.64
5.65
5.78
5.87
6.01
6.14
6.26
6.35
6.46
6.61
6.76
3.22
(5)
NET
4 - 1
(6)
5 Year
U.S. Bonds
2.93
2.97
3.08
3.00
2.85
2.75
2.79
2.92
3.06
3.14
3.15
3.18
3.27
3.41
3.44
3.46
3.45
3.36
3.41
3.36
3.15
4.87
5.23
5.30
5.27
5.22
5.17
5.19
5.21
5.37
5.43
5.44
5.54
5.61
5.72
5.85
5.96
6.07
6.19
6.34
6.49
(7)
NET
6 - 1
2.87
2.93
3.00
2.87
2.72
2.57
2.59
2.71
2.87
2.93
2.94
2.94
3.01
3.12
3.15
3.18
3.17
3.09
3.14
3.09
2.94
3.10
Standard
& Poor's
DRI The U.S. Economy,
Winter
Trend Projection
Urban Wage & Clerical
Workers
Index
from Table
Interest
Rates from Table
21, "Interest
Rates,
Variables"
1999
15, "Inflation
Money Flows,
and Productivity"
and Other
Financial
Discount
Year
Urban
Clerical
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Workers'
Compensation
Rate Analvsm
- Conmensation
Cycle P,ojection
-
(1)
(2)
Wage & 30 Yr.
W0rkeB.S.
Bond
2.00
2.80
3.30
3.20
2.80
2.90
2.70
2.90
2.80
1.90
2.30
2.70
3.00
3.40
2.60
2.20
2.80
3.10
3.20
3.40
5.24
5.22
5.39
5.71
5.70
5.43
5.20
5.19
6.03
6.32
5.60
5.24
5.07
5.98
6.65
6.31
5.98
5.93
5.93
6.21
Averages:
Exhibit
USPS 9s
Page 8 of
(3)
(4)
NET
10 Yr.
2 - 1 U.S. Bond
3.24
2.42
2.09
2.51
2.90
2.53
2.50
2.29
3.23
4.42
3.30
2.54
2.07
2.58
4.05
4.11
3.18
2.73
2.73
2.81
2.91
4.88
5.12
5.40
5.58
5.36
5.10
4.93
5.11
6.08
6.22
5.50
5.21
5.15
6.12
6.61
6.27
5.95
5.84
6.00
6.33
(5)
NET
4 -1
(6)
5 YT.
U.S. Bonds
2.88
2.32
2.10
2.38
2.56
2.20
2.23
2.21
3.28
4.32
3.20
2.51
2.15
2.72
4.01
4.07
3.15
2.74
2.80
2.93
4.85
5.18
5.43
5.36
5.03
4.73
4.63
4.93
5.84
5.88
5.25
5.01
5.05
5.92
6.26
5.92
5.64
5.61
5.80
6.18
2.84
Average
All:
Source
Standard
& Poor's
DRI The U.S. Economy,
Winter
Cycle
Projection
Urban Wage & Clerical
Workers
Index
from Table
Interest
Rates from Table
21, 'Interest
Rates,
Varie.blesn
-8
(7)
6yTl
2.85
2.38
2.13
2.16
2.23
1.83
1.93
2.03
3.66
3.72
2.84
2.51
2.60
2.78
2.63
2.79
1999
15, "Inflation
Money Flows,
and Productivity"
and Other
Financial