,
c
UNITED STATES OF AMERICA
Before The
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20268-0001
Postal Rate and Fee Changes,
2000
Docket No. R2000-1
)
COMMENTS
OF
THE OFFICE OF THE CONSUMER ADVOCATE
ON
REQUEST FOR RECONSIDERATION
TED P. GERARDEN
DIRECTOR
EMMETT RAND COSTICH
SHELLEY S. DREIFUSS
KENNETH E. RICHARDSON
ATTORNEYS
Januarv 12.2001
TABLE OF CONTENTS
TABLE OF CONTENTS
...................................................................................................
i
..............................................................................................
iii
EXECUTIVE
SUMMARY .................................................................................................
1
ARGUMENT
....................................................................................................................
4
TABLE OF AUTHORITIES
I.
THE
COMMISSION’S
RECONSIDERATION
MUST
BE
CONFINED TO THE EVIDENCE CONTAINED IN THE R2000-1
RECORD .. . .. . . .. . .. . .. . . .. . .. . . .. . .. . .. . .. . .. .. . .. .. . .. . .. . .. . . .. . .. . . .. . .. . .. . . .. . .. . .. . .. . .. .. .. . .. .. . .. . 4
II.
THE COMMISSION
SHOULD
REAFFIRM
ITS DECISION
REGARDING
THE
CONTINGENCY
AND
THE
FIELD
RESERVE ,.,.,..,.,.,._._._........................,,..,..,.,.,............................................
6
A.
The Commission Has the Authority To Recommend a
Reasonable Contingency Different from that Requested
by the Postal Service . .. . .. . .. . . . . . . .. . .. . . . . . . . .. .. .. .. . .. . .. 7
B.
The Commission Has Not Substituted Its Judgment for
that of Postal Service Management ____............................................
8
C.
The Commission Has Properly Treated the Field Reserve
As Part of the Contingency .____..___.__._._.......,.,................................. 11
D.
The Commission
Did Not Err in Considering
the
Unprecedentedly
High Proportion of the Contingency in
Relation to the Proposed Rate Increase ._.....................................
14
Use of Updated Costs Does Reduce Test Year Risk
16
E.
Ill.
IF THE COMMISSION
TAKES INTO ACCOUNT
EXTRARECORD ASSERTIONS
BY THE POSTAL SERVICE, THEN
OFFSETTING
FACTS
MUST ALSO
BE TAKEN
INTO
ACCOUNT . . . .. . . .. . .. . . .. . .. . . .. . . .. . .. . .. .. . .. .. . .. .. . .. . .. . . .. . . .. . .. . . .. . .. . .. . . .. . .. .. . .. .. . .. .. . .. . 17
IV.
THE ACTION URGED BY THE GOVERNORS-TO
APPLY A
2.5 PERCENT CONTINGENCY
TO UPDATED
COSTS-IS
UNREASONABLE ._____...........................,,..,...,..........................................
19
Docket No. R2000-1
V.
VI.
TEST YEAR COSTS FOR SINGLE-PIECE
FIRST-CLASS MAIL
SHOULD BE INCREASED TO REFLECT THE DISTRIBUTION
OF ADDITIONAL
OUNCES BASED UPON THE “AS-FILED”
METHODOLOGY ..,,...,......,..,.,.............,.,,.,,.,,...,,....,..,,....,.,.....................
22
THE COMMISSION SHOULD NOT ADJUST STANDARD MAIL
NONPROFIT RATES ,,......,.,..,.,..,.........,,.,,..,..,,....,,..,,..,.,.,..,...................
25
A.
B.
VII.
CONCLUSION
_ ii _
The Commission Has Accurately Set Nonprofit Average
Revenue
Per Piece at 60 Percent of Commercial
Average Revenue Per Piece
26
The Revenue That Would Be Obtained from Bringing the
Rates for Nonprofit Standard Mail into Conformance with
the Postal Service’s Reading of S. 2686 Is Minuscule
27
THE POSTAL SERVICE HAS NOT IDENTIFIED RATES TO BE
INCREASED . .. . .. . .. . . . . . .. . . . . . . . . . . . . . .. . .. . .. . . . .. . . . .. . . . .. .. . . .. 28
.,.,.,,.,.._.__._.._............................,..,.,,.,.,..,..,..............................................
30
- 111-
Docket No. R2000-1
TABLE OF AUTHORITIES
MailOrderAss’n
v. U.S.P.S., 2 F.3d 408 (D.C. Cir. 1993) ._____........................................ 5
Nat’lAss’nofGreetingCardPublishers
Administrative
v. lJ.S.P.S.,462
U.S. 810(1983)
8
Cases
PRC Op. Upon Reconsideration
R80-1 ...........................................................................
PRC Op. and Further Recommended
5
Dec’n R94-1 .......................................................
PRC Op. R97-1, App. G ................................................................................................
PRC Op. R2000-1 ..................................................................................................
.5
29
passim
PRC Op. R2000-1, App. G. ...........................................................................................
29
Federal Statutes
Administrative
Procedure
Act, 5 U.S.C. § 556.. ..............................................................
.4
Administrative
Procedure
Act, 5 U.S.C. !j 556(d) ............................................................
5
Administrative
Procedure
Act, 5 U.S.C.
§556(e) ...........................................................
.5
Administrative
Procedure
Act, 5 U.S.C. § 557 .................................................................
4
Postal Reorganization
Act, 39 U.S.C. § 403 ..................................................................
15
Postal Reorganization
Act, 39 U.S.C. § 3621 ................................................................
15
Postal Reorganization
Act, 39 U.S.C. § 3622.. .........................................................
Postal Reorganization
Act, 39 U.S.C. § 3622(b) ...........................................................
15
Postal Reorganization
Act, 39 U.S.C. § 3622(b)(3) .......................................................
15
Postal Reorganization
Act, 39 U.S.C. 5 3624.. ...............................................................
.8
Postal Reorganization
Act, 39 U.S.C. § 3624(a) .............................................................
4
Postal Reorganization
Act, 39 U.S.C. 5 3625(d) .............................................................
7
Postal Reorganization
Act, 39 U.S.C. § 3626(a)(6)(A)
.7, 15
(S. 2686) ..................... .26, 27, 28
UNITED STATES OF AMERICA
Before The
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20268-0001
Postal Rate and Fee Changes,
COMMENTS
2000
OF THE OFFICE OF THE CONSUMER
ON REQUEST FOR RECONSIDERATION
The Office of the Consumer
hereby submits its comments
reconsideration
Advocate
on the Request
in the
Governors’
1
any error on the Commission’s
to rubber-stamp
of the United States Postal Service for
or the
Postal
part in evaluating
Decision” issued
Service
Memorandum
and acting upon the
While clearly the Postal Service would like
its rate and revenue requests,
“Notice of Request for Reconsideration
11, 2000.
2
to Order No. 1301,’
SUMMARY
Decision
evidence of record in Docket No. R2000-1.
the Commission
pursuant
13, 2000.’
EXECUTIVE
demonstrates
(“OCA”),
ADVOCATE
of certain aspects of the “Opinion and Recommended
in this Docket on November
Nothing
Docket No. R2000-1
1
and Order Establishing
that is not the function
Procedures,”
issued December
On December 5, 2000, the Postal Service filed a “Notice of the United States Postal Service of
Decision of the Governors.”
That Notice was accompanied by the December 4. 2000, “Decision of the
Governors of the United States Postal Service on the Recommended
Decision of the Postal Rate
Commission on Postal Rate and Fee Changes, Docket No. R2000-I.” In addition, on December 20, 2000,
the Postal Service filed a “Memorandum of the United States Postal Service on Reconsideration
and
Request for Expedition.”
These documents will be referred to as the “Governors’ Decision” and the
“Memorandum,” respectively.
Docket No. R2000-1
-2.
of the Commission.
recommended
The Commission
rates, and no basis has been presented
should change any of its recommended
The reconsideration
any extra-record
reasonable
of record.
Reliance upon
the validity of the reconsideration
the Commission
recommended
on the
rates in this proceeding.
material would undermine
and properly
decisions
upon which the Commission
must be confined to the evidence
When the record is reviewed,
authority
has reached fully defensible
must conclude
that the contingency
1.5 percent
level, and that the field reserve
Commission
certainly
decision.
that it acted within its
request
be reduced
be considered
to a
part of the
contingency.
The
Governors,
did not substitute
as the Postal Service
responsibility
to recommend
alleges.
a reasonable
The fact is that the record evidence
was far more credible and convincing
its judgment
The Commission
contingency
for that
exercised
supported
of the
its statutory
by record evidence.
of the OCA and other parties on the contingency
than the scant justifications
offered by the Postal
Service.
The Commission
evidence
did not err in its treatment
of the field reserve.
provides credible support for the Postal Service’s
is committed
to expenditures
in the test year.
The Commission
it is a classic example of funds held for uncertainties.
considering
Commission
the relationship
of the contingency
correctly concluded
case was unprecedented
contention
Nothing in the
that this money
correctly concluded
Nor did the Commission
request to the overall rate increase.
that the Postal Service’s
contingency
in relation to the growth in operating costs.
that
err in
The
request in this
-3-
Docket No. R2000-1
A significant
factor
in favor
of reaffirming
level of contingency
the
Commission’s
recommend
a reduced
is the wholesale
Commission
of the Postal Service’s base and test year updates.
decision
acceptance
by the
These updates, which
included both higher index factors and the use of ECI rather than the historical
calculation
for wage increases,
the Postal Service’s
increased
added approximately
filed revenue request.3
the operating
percent contingency
2.5 percent
fund.
The use of more recent cost figures has
rates are based and has
risk, both valid reasons to recommend
Moreover, the Governors’
contingency
ECI-1
5617.5 million, on a net basis, to
costs upon which the recommended
reduced the level of the Postal Service’s
to
a 1.5
request to apply the originally filed
request to the higher cost figures
resulting from the update
process must be rejected.
Turning
distribute
to the other issues raised on reconsideration,
single-piece
methodology
First-Class
as suggested
to a level that requires
problem of forecasting
from a reasonable
recommended
adjusting
3
any First-Class
rates.
based
upon
to the
rates.
Looking
additional
long to avoid short-term
non-profit
The legislation
commendably
rates,
the
the
“as-filed”
to the future,
the
ounces in the test year.
distortions.
Commission
used a methodology
rise
a linear trend
should
maintain
became law quite late in the rate-setting
See PRC Op. R2000-1, App. K. p. 2.
should
This change does not, however,
additional ounces should be resolved by producing
past period of data to forecast
respect
and the Commission
ounces
by the Postal Service.
This period should be sufficiently
With
additional
the Commission
its
process,
intended to achieve the most
-4-
Docket No. R2000-1
accurate
application
standard
of satisfying
Nonetheless,
Postal
rule.
The result
the test “as nearly as practicable”
consideration
Service.
interested
of the new 60 percent
should
That should
meets the statutory
in the context of this case.
be given to the methodology
be done,
however,
suggested
by the
in the next rate case, when
all
parties can address the issue fully.
ARGUMENT
I.
THE COMMISSION’S
RECONSIDERATION
MUST
EVIDENCE CONTAINED IN THE R2000-1 RECORD
Order
No. 1301,
reconsideration
for review:
standards
noticing
the
and a further recommended
“The Commission
applicable
December
decision, establishes
will review the evidentiaty
to each of [the] issues [raised].”
from this statement that the Commission
presented
Governors’
during the course
556 and 557, that are referenced
for
the proper framework
legal
Order No. 1301 At 3. It is plain
of the Administrative
proceeding,
Procedure
pursuant to 39
Act, i.e., 5 USC.
5s
by § 3624(a).
shall not recommend
until the opportunity
for a hearing on the record under Sections
has been accorded
to the Postal Service,
.” Therefore,
request
will (and should) confine its review to evidence
Section 3624(a) provides that “the Commission
Commission
5, 2000,
TO THE
record and the applicable
of the Docket No. R2000-1
U.S.C. § 3624(a) and sections
BE CONFINED
a decision
556 and 557 of Title 5
users of the mails, and an officer of the
the OCA and other R2000-1
to insist that any decision
made
by the Commission,
conform to the requirements
of the Administrative
participants
even
Procedure Act.
upon
have standing
reconsideration,
Docket No. R2000-1
-5
Under part (d) of 5 USC.
5 556, a party (including the OCA)
is entitled to present his case or defense by oral or documentary
evidence, to submit rebuttal evidence, and to conduct such crossexamination as may be required for a full and true disclosure of the facts.
The Commission’s
exclusively
duty, under part (e) of the same section, is to issue a decision based
on the record established
A Commission
under part (d).
decision that strays beyond the APA-conforming
to be found in breach of 39 U.S.C. § 3624(a)
consideration.
This occurred
following
record is liable
by the courts and remanded
an appeal
of the Commission’s
Docket No. R90-1 to implement a new discount for a Public’s Automation
that the court said lacked sufficient
OrderAss’n
ofAmerica
the Court of Appeals
evidentiary
support
to the APA, must base its findings exclusively
like other adjudicatory
acknowledged
4
5
in
Rate (PAR)
In Mail
“MOAA”),
entities subject
upon record evidence:
The evidence
must be found “within the
proceedings
to which it exclusively applies.
requirement should not be underestimated.“4
In the first omnibus
decision
in the R90-1 record.
v. U.S.P.S., 2 F.3d 408 (D. C. Cir. 1993) (hereinafter
held that the Commission,
for proper
record of closed-record
The importance of that
rate case to follow issuance of the MOAA decision. the Commission
the explicit imposition of this duty upon it by the MOAA co~rt.~
2 F.3d at 420 (citation omitted).
PRC Op. and Further Recommended Decision, Docket No. R94-1, issued June 7, 1995, at pages
22, 29, 31. and 35. Nearly two decades earlier, in Docket No. R80-1, the Commission took account of
“the most recent available financial reports of the Postal Service,” i.e., information that became available
after the RBO-1 record had been closed. PRC Op. Upon Reconsideration, issued June 4, 1981, at 9. This
exercise, however, was for the limited purpose of determining whether the record should be re-opened to
consider additional evidence. There was no suggestion that the Commission would use such post-record
information without affording all parties the opportunity to exercise all of their rights under the APA. namely
the right to cross-examine
the bases and soundness of such evidence and the opportunity to offer
(continued on next page)
-6-
Docket No. R2000-1
A careful review of the Governors’
Decision in Docket No. R2000-1 reveals that
the Governors have not relied on extra-record
have they asked that~the Commission
information
in reaching their decision, nor
do so:
In light of our serious concerns about the Postal Service’s financial
condition, as reflected on the record and in our comments above, we urge
the Commission to provide further recommended adjustments
.6
Similarly,
the
proceedings
Postal
Service’s
be conducted
Memorandum
and that the decision
basis of the existing record.’
Consonant
the Postal Service, the Commission
II.
specifically
asks
on reconsideration
Service
weighed
merely
by the Commission
REGARDING
basis for reducing the contingency
in its supporting
repeat
be made on the
record leads to the indisputable
that no new legal issues have been raised either by the Governors
Postal
further
and
should limit its review to the R2000-1 record.
Review of the Docket No. R2000-1
by the Postal Service
no
with the position taken by the Governors
THE COMMISSION
SHOULD REAFFIRM ITS DECISION
CONTINGENCY AND THE FIELD RESERVE
that there is an ample evidentiaty
that
Memorandum.
arguments
that were
during its deliberations,
conclusion
and, furthermore,
in their Decision nor
Rather, the Governors
raised
during
and rejected
THE
and the
the proceeding,
by the Commission
as unconvincing.
counter-evidence. The OCA notes that neither the Governors nor the Postal Service has asked that the
R2000-1 record be re-opened.
6
Governors’ Decision at 12 (emphasis added).
7
Memorandum at 4. Despite this statement, however, the Postal Service’s Memorandum contains
several extra-record assertions about developments since the close of the Docket No. R2000-1 record.
While these must be ignored, the OCA also addresses the implications
infra.
of these statements in Section Ill,
Docket No. R2000-1
A.
-7-
The Commission
Has the Authority To Recommend
a Reasonable
Continaencv Different from that Requested bv the Postal Service
The Governors
assessment
assert that “the Commission’s
of whether
10. The Commission
the Board’s judgment
sharply disagrees
responsibility
is reasonable.”
is limited to an
Governors’
that its authority is so narrowly
Citing its opinion issued in the first omnibus
rate proceeding,
Decision at
circumscribed.
the Commission
hews to
the view that:
its statutory responsibilities require that the Service’s aggregate cost and
revenue estimates be subjected to the same scrutiny as its rate proposals.
[I]ts independent review of the revenue requirement is necessary to
implement the legislative intent to introduce a system of checks and
balances into the ratemaking process.’
To be sure, the Commission
acknowledges
authority to assure that rates and fees generate
Service to perform its public mission.”
rate increase
requests
modify a further recommended
should
not be forgotten,
requirement
decision
however,
recommended
The Commission’s
Supreme
B
Courts
PRC Op. R2000-1,72146.
of the Commission
that the Governors
is effected
by filing
by the power to
under Section 3625(d).
may
modify
the
It
revenue
only “in accord with the record and the
added.)
view of its role vis-a-vis
declaration
This primacy
§ 3622, and is confirmed
by the Commission
policies of [chapter 361.” (Emphasis
of the Governors’
sufficient revenues to enable the Postal
Id.. 12144.
under 39 USC.
“the primacy
that ratemaking
the Governors’
responsibility
conforms
is divided between
to the
the two
Docket No. RZOOO-1
agencies,
-8-
with the Governors
having the final responsibility
of ensuring
that revenues
and costs are in equilibrium.’
The Commission
exercises
Section 3624 proceedings)
Postal
Service
determinations
disparity
and
B.
other
participants
the Commission’s
authority is succinctly
summarized
to
make
and the Governors’
in the Commission’s
in this area.”
The Commission Has Not Substituted
Service Manaoement
Decision
characterize
the Commission’s
substitution
of the Commission’s
Commission
and
of the evidence
and self-serving
reviewed
and other parties.
judgment
by the
substantive
in this case.
opinion:
“the Commission
The
must
ld., 7 2149.
Its Judgment
of a 1.5 percent
for that of Postal
both incorrectly
contingency
for that of the Postal Service.
and relied on the extensive
(i.e.,
views of the Commission’s
argument that fails to acknowledge
The simple
submitted
and the Postal Service Memorandum
recommendation
process”
independent,
That is what has occurred
agree to continue disagreeing
The Governors’
inaccurate
during the “intermediate
to evaluate the strength
based on the record.
between
respectfully
its authority
This is an
the care with which the
and probative evidence
fact is that this evidence
as
of the OCA
was more probative
and
credible than that of the Postal Service.”
9
Id., 7 2149, citing Nat’/ Ass’n of Greeting Card Publishers
v. U.S.P.S., 462 U.S. 810. 821 (1983)
(NAGCP IV).
It is imperative to keep in mind that the Postal Service bears the burden of proof to support all
facets of its rate increase request, including the contingency. When conflicting evidence is presented, it is
the Commission’s task to evaluate and weigh that testimony to determine which evidence is more credible
and reliable. On the issue of the amount of the contingency, there is no doubt that the OCA’s and the
interveners’ evidence was the more substantial and credible.
Docket No. RZOOO-1
-9-
Postal Service witnesses
followed
in determining
Service
stated
witness
were frank in their descriptions
the size of the contingency.
charged
with supporting
that the Postal Service’s
current
level
of one
percent
assertion
that the Postal
omnibus
rate
cases,
“was
Service
witness
decision
largely
is subject
Tayman
said
of the approach
Witness
Tayman,
the request for a 2.5 percent
to increase
the contingency
subjective.“”
to greater
only
that
When
they
the Postal
contingency,
from its then-
asked
to explain
his
risks
now than
in the previous
two
“[t]he
statement
is subjective
and
intuitive.“”
In short, all that the Postal Service provided for the Commission’s
consideration
was a scant two pages by witness Tayman of vague concerns
about possible adverse
circumstances
was provided,
in the test year.
Postal Service was unbending
led to the management
percent.13
The
No quantitative
information
in its refusal to provide any analysis (if such existed) that
decision to increase the requested
Governors
contingency
choose to ignore the Commission’s
unlike prior cases where there was an “absence
of participants’
subject
in R2000-1
12
13
[of the contingency]
and the
on the record,”
Tayman’s response to interrogatory
OCAIUSPS-T9-43(c)
Tayman’s response to interrogatory
DMAIUSPS-T9-47
from one to 2.5
explicit declaration
that,
initiatives to explore the
“participants
have made
(Tr. Z/385)
(Tr. 2/304).
In fact, the Postal Service adamantly refused to respond to OCA interrogatories seeking Postal
Service documentation
and studies providing foundational support for the 2.5 percent contingency
request.
Rather than make any information available (if indeed there was any such information), the
Postal Service repeatedly objected. The result was a stipulation by the Postal Service that it would not
use any such material oh rebuttal. As far as the OCA can discern, the Postal Service abided by the
stipulation-the
Postal Service’s rebuttal witness, Richard Strasser, was unable to point to any record
evidence that quantitative analyses were ever performed or relied upon. Tr. 46A/20281-82.
Docket No. R2000-1
voluminous
-lO-
presentations
on the contingency
proposal on a variety of grounds.”
Among
the
Commission’s
carefully
participant
opinion,
explained
intervenor
testimony
that
was
OCA witnesses
the level of contingency
needed
Rosenberg,
presented
recommended
instability.
Those
conditions
proceeding,
nor is there convincing
and
the Service’s
relied
containing
Rosenberg
But and Haldi, all provided
levels were generally
cited
are several pieces of testimony
for example,
challenging
PRC Op. R2000-1, flfl2150-51.
analyses.
witnesses
provision,
Service
an analysis
and Burns,
as well as
assessments
in the test year.
demonstrating
in the
well documented,
incisive, penetrating
by the Postal
upon
of
Witness
that high contingency
only in times of high inflation and serious economic
did not prevail
during
record evidence
the pendency
of the R2000-1
that such conditions
will prevail
during the test period.
Another
important
tools are available
22/9819
(OCA-T-3
losses.
There
point made by witness
to achieve the desired result of balancing
at 15).
is probably
Among them is the provision
agreement
among
included) that one of the chief cost uncertainties
agreements
bargaining
that will be forged
units.
That uncertainty
between
financial
revenues with costs.
for recovery
Tr.
of prior years’
(the Postal
Service
for the test year is the size of the wage
management
and
several
of the
looms just as large today as it did during the time
was adduced
in the R2000-1
ECI formula
incorporated
by the Commission
revenues,
is that several
the participants
postal
that evidence
insufficient
Rosenberg
proceeding.
If it were to happen that the
into the cost estimates
then the best tool for dealing with this eventuality
generates
is the prior year
-II-
Docket No. R2000-1
loss tool, not the contingency
large opportunity
provision, which may cause postal customers
losses.‘4
The Postal Service relies upon the rebuttal testimony
post hoc justification
The Zarnowitz
of the requested
testimony,
however,
Memorandum
for a
at 19.
was too general and had too mixed a character
never refuted by other postal evidence
1980’s.
of witness Zarnowitz
2.5 percent contingency.
One concession
be of help to the Postal Service.”
experiencing
needlessly
made by witness Zarnowitz that was
is that the U.S. economy
a relatively strong expansion
to
compared
is growing and is still
to the decades
of the 1960’s and
Tr. 41118279, 18286.
Unlike the Postal
evidence
Service,
the Commission
the record
it relied upon, setting forth its findings in a logical, orderly manner so that a
reader could easily discern the reasoning
on the contingency
evidence
cited and described
is a demonstration
was painstakingly
articulated:
those
principles
of the adjudicative
reviewed
were
path. The Commission’s
and weighed;
applied
discourse
process in its best sense:
the principles
to the record
40-page
facts;
the
to be applied were
and the conclusions
reached were clearly stated.
C.
The Commission
Continqencv
The Governors
for allocation
14
15
during
Has Properly Treated the Field Reserve As Part of the
view the Field Reserve as “an amount retained at headquarters
the year to those operations
that are unable
to achieve”
the
filed September
13,
Tr. 2219828 and 9824, respectively.
See discussion
2000, at 47-53.
in the Initial Brief of the Office of the Consumer
Advocate,
-12.
Docket No. RZOOO-1
Breakthrough
Governors’
Productivity
reduction
targets
Decision at 5. The Governors
established
by
postal
management.
add that:
it is predictable that some expenses will occur beyond the levels to which
regional budgets have been reduced [and] furthermore
to the extent
any of the field reserve funds are not needed to fund field operations, they
will be spent on approved investments and programs [] for which they had
previously been budgeted. Id.
This argument
is no more persuasive
after repetition
than it was when made by the
Postal Service in its Reply Brief at 11-36. Citing the testimony
of witness
Strasser,
the
Postal Service argued then, as it does now, that “if the field reserve does not end up
being needed
for field operations,
improvements,
other capital projects, and to increase a reduced advertising
In its opinion,
testimony
“recognizes
the Commission
that the $200
million
Commission
contingency.
The character
contingency
percentage
reserves
Productivity
The Commission’s
the aggressive
against
in that
witness
cost reductions
Without
uncertainty
is simply
as a dollar
with a specific cost reduction
budget.”
Strasser’s
to cost savings
Initiative.“”
it is specified
that
in FY 2001, the
equivocation,
a specific
type of
is only different
figure
the
instead
from
of a
effort, Le., $1 billion
savings.
failure to be swayed
the Field Reserve is money that will definitely
16
is an offset
of the $200 million Field Reserve
figure and is associated
of Breakthrough
took into account
Reserve
Productivity
held that this hedge
funds will be spent on infrastructure
explicitly
Field
the difficulty in achieving
first year of the Breakthrough
other
the reserved
PRC Op. R2000-1, jj 2164, citing Tr. 46D/21595,
by the Postal Service’s
be spent is understandable
n.2.
contention
that
in light of the
Docket No. R2000-1
implausibility
extensively
-13-
of the claim.
In its recently filed Memorandum,
from the testimony
achieve worthy Breakthrough
of witness
Strasser,
the Postal Service quotes
who explained
that in order to
Productivity goals,
field units are going to have to reduce work hours
twice as much as
they have achieved in the reductions this year. In other words, it is going
to be somewhere in the range of 1.5 percent to a 2 percent reduction in
work hours compared to the work hours in this fiscal year.
The Postmaster
General has made numerous
Service’s resolve to cut costs substantially
contingent
nature
expenditures
of the Field Reserve
the Postal
period.17 The uncertain
or
is that field offices may be able to restrain
However, the projected flattening
justifies greater optimism that workhour
Postal management’s
Witness
Strasser
information
until postal management
reductions
of volumes for upcoming
periods
should be possible .”
bluster that the $200 million will assuredly be spent during
the test year on capital projects,
equipment,
over a four-year
concerning
during the test year or they may not. That cannot be known with certainty
at the present time.
credible.
public statements
infrastructure
improvements,
and advertising
claimed that $200 million of investments
platform
infrastructure,
and advertising
is not
for mail transport
will be held in reserve
is convinced that
breakthrough productivity works. If it works and we get indications during
the beginning of the year that it is being achieved, we will spend the $200
million on those specific investments
In the R2000-1 proceeding, this resolution came to be known as Breakthrough Productivity. See
Tr. 38117197and Tr. 46D121595.
17
18
See Tr. 46AI20280. Upon questioning, witness Strasser conceded that in postal management’s
development of its test year budget,
attributable costs.
slowing
volume
growth
could
result in possible
reductions
in
- 14 -
Docket No. R2000-1
This scenario is honeycombed
Productivity
with gaps in logic. Importantly,
program is being launched
made at the beginning
in the test year.
How can the determination
of the test year that “breakthrough
simple truth is that it cannot.
productivity
Of necessity,
many months-likely
elapse before the success of the program
can be assessed.
Reserve
cannot
to investment
Possibly
in FY 2002 the monies could be redirected
not in FY 2001.
be immediately
The Commission
applied
the Breakthrough
works”?
be
The
the entire year-
must
It follows that the Field
programs
and advertising.
in the way Strasser suggests,
but
rightly decided that for the period of the test year it
would be correct to view the Field Reserve
as a contingent
amount that might not be
spent.
D.
The Commission Did Not Err in Considering the Unprecedentedly
High
Prooortion of the Continqencv in Relation to the Proposed Rate Increase
One of the many factors considered
contingency
request constituted
revenue increase.
Governors’
an unprecedented
This, the Governors
rates test year revenues
by the Commission
is that the $1.68 billion
60 percent
of the total requested
argue, “would suggest that equipoise
and operating
costs would justify
in before-
no contingency
at all.”
Decision at 11.
While the argument
is less than clear, it appears
that the Governors
absolute
right to file (and be granted) a request for increased
purpose
of generating
sections
in question is not supportable.
test year contingency
Of course, this suggestion
has never requested
funds.
postal rates solely for the
This novel view of the statutory
has never been tested because
a rate increase
exclusively
claim an
to generate
the Postal Service
contingency
funds.
If it
-15-
Docket No. R2000-1
were to do so. the OCA is of the view that such a rate increase
“reasonable”
under
Section
reaching this conclusion
3621 nor under
is found in Section 3622.
is, by its very nature speculative
exercise the Section
Section
3622(b)
and uncertain,
requirement
would be impossible
the Commission
would
impossible
to determine
to be imposed
key to
Since the amount for contingencies
causation
would
ever arise during the test year.
would be unable to
with even the smallest
placed upon it by Congress
degree
class of mail
important,
of assurance
be
that particular
The nature of subsection
necessary
such
it would
strongly indicate that rate increases
upon the public only when absolutely
classes of mail only when the Commission
by particular
not even know whether
Equally
classes of mail would cause such costs to come about.
and the importance
One important
that each class of mail bear the direct and
to it. Establishing
exigencies
not be
the Commission
indirect postal costs attributable
because
403.
would
(b)(3)
are
and upon particular
is satisfied that they have been caused, at
least in part, by those particular classes.
This is essentially
the reasoning
articulated
by the Commission
in limiting the
contingency:
the Service’s proposed allowance represents a majority of the total
requested revenue increase, an unprecedented
proportion of revenue
burden to distribute to the classes of service without attribution on the
basis of cause.”
An additional
of the contingency
19
concern
is articulated
by the Commission
to the proposed rate increase:
PRC Op. R2000-IIn
2166 (emphasis added)
in limiting the proportion
Docket No. R2000-1
- 16-
large forecast error is more likely
example in a period of rapid inflation)
(for example during stable economic
small, gradual increases in operating
when projecting large changes (for
than when projecting small changes
times). The Postal Service projects
expenses.
.*O
It thus follows that a fairly low risk of incorrectly projecting
with the Postal Service’s expectation
operating
that a relatively low increase
costs is associated
in costs is expected
in the test year.
In short,
contingency
the Commission
has sound
reasons
in relation to the overall size of the increase
for limiting
the size of the
in operating
costs in the test
year
E.
Use of Updated Costs Does Reduce Test Year Risk
The Governors
and the Postal Service continue to insist that “use[] [of] updated
costs does not reduce
risk.”
Memorandum
at 20. This view was flatly contradicted
by the Postal Service’s own expert witness Zarnowitz,
time for estimating
costs reduces
Witness Strasser also conceded
the uncertainty
who testified that shortening
of the estimates.
the
Tr. 41/18234.
that updating ECI costs gave a more “realistic” picture
of labor costs in the test year, that updating
COLA payment
information
made that
element of the cost update more certain and that, in general, more recent forecasts are
more “accurate.”
Tr. 46A/20275-77
The Governors’
by the Commission
Id. at 1[ 2167.
and 20361.
position is simply untenable.
in its decision-that
The tautology
implicitly adhered to
use of updated costs reduces the uncertainty
of
-17-
Docket No. R2000-1
cost
estimates,
reasonably
in turn
making
possible
a reduction
be ignored.
The Postal Service also persists in discounting
at the Commission’s
the requested
projections
request.
The Governors
2.5 percent contingency,
variance analyses
that it provides
argue that the Commission’s
rejection of
which falls outside all of the test year variance
of -2.2 percent to 2.3 percent, gives the Postal Service only “even odds on
achieving
a surplus or a deficit.”
Governors’
Decision at 9. This claim is unfounded
since it is evident from the cited range of variances,
contingency
surplus
in the contingency-cannot
would give the Postal Service
or deficit.
probability
The recommended
i.e., -2.2 to 2.3 percent, that a zero
approximately
contingency
even odds of achieving
of 1.5 percent
produces
a
a high
that the Postal Service will break even in the test year and a good chance
that it will end the test year with a surplus.
Ill.
IF THE
COMMISSION
TAKES
INTO
ACCOUNT
EXTRA-RECORD
ASSERTIONS
BY THE POSTAL SERVICE, THEN OFFSETTING FACTS MUST
ALSO BE TAKEN INTO ACCOUNT
As noted in argument
Commission
evidence
Service
of record
makes
particularly
Commission
to furnish
must
make
Section
its reconsideration
in this proceeding.
several
I, supra, the OCA is firmly of the view that the
extra-record
about the outcome
the Commission
solely with
reference
The OCA notes, however,
assertions
of FY 2000.
may treat these assertions
decision
in the course
Because
to the
that the Postal
of its Memorandum,
the OCA is uncertain
how the
by the Postal Service, the OCA wishes at least
a more balanced
picture about FY 2000.
The following
-18-
Docket No. R2000-1
discussion,
however,
the Commission
should in no way be viewed as an endorsement
base its decision upon reconsideration
on extra-record
by the OCA that
information.
The Postal Service argues that actual FY 2000 revenue is $236 million less than
the amount
estimated
Memorandum
expenses
at 7, n.7.
Request
However,
and used
wholesale
test year, are overstated
by witness
by the Commission
by nearly
in the Recommended
the Postal Service
for FY 2000 that were estimated
which were adopted
conclusion
in the
$400
million.
neglects
Patelunas
Decision.
to mention
that the
in Exh. ST-44A,
in rolling forward expenses
The following
shows
and
to the
how this
was reached.
p
In its Memorandum, the Postal Service states that actual FY 2000 revenue is
$236 million less than the amount estimated in the initial Request, i.e., $64.8174
billion. Therefore, actual FY 2000 revenues must have been $64.5814 billion.
>
In a Postal Service press release dated December 5, 2000, coinciding with the
issuance of the Governors Decision, Ernst & Young reported a net loss for FY
2000 of $199 million.
k
For a $199 million net loss to be correct, total FY 2000 expenses must have
been $64.7804 billion, i.e., $199 million more than actual FY 2000 revenues of
$64.5814 billion.
k
Witness Patelunas, in the supplemental testimony that the Commission adopted
as the basis for its roll-forward calculation, estimated FY 2000 expenses to be
$65.1715 billion. This figure is $391,100,000
higher than FY 2000 expenses
actually incurred.
Effectively, this gives the Postal Service a cushion of
approximately $410,000,000 to cover test year costsZ’
The effect of basing test year costs on an FY 2000 figure $410 million higher
than the actual figure is to award the Postal Service a revenue
increase even higher
Since inflationary factors are used to roll forward FY 2000 costs to FY 2001, the $391 million
overstatement is actually somewhat higher in the test year. To illustrate, witness Patelunas estimated that
FY 2000 costs, when rolled forward, would increase by roughly 4.89 percent ($68,357.5 billion 65,171.5/65,171.5, from Exh. USPS ST-44A). The $391 million overstatement rolled forward is
approximately $410 million ($391 million x 104.89 percent). For this reason, the OCA shall refer to the
cost overstatement in the test year as approximately $410 million.
21
-19-
Docket No. R2000-1
than that originally
(12168)
requested
discussed
Commission
by the Service.
by the Postal
allowed an increase
the Postal Service.
Service
in its Memorandum,
in revenue
$130
million
higher
requested
at the commencement
than
the
indicates
opinion
that the
$280 million less than that requested
In fact, the Commission
increases
Table 2-2 of the Commission’s
has designed
amount
the
by
rates that allow revenue
Postal
Service
would
have
of the case had it known its actual FY 2000 expenses.
Thus the Postal Service has available to it in the test year $1.012 billion in contingency
funds (at 1.5 percent) plus the unexpected
$410 million windfall,
i.e., $1.422 billion, to
act as a buffer against costs higher than projected or revenues less than projected.
Another
witness
important
point to consider
Patelunas-$325.5
million**-proved
loss of $199
million
Commission’s
recommendation
also was overstated.
the overstatement
recommended
IV.
officially
reported
in December
2000.
on the amount for the recovery
was $14 millionz3
which
by
higher than the actual
This
means
that the
of prior years’ losses
over a nine year period, the amount of
effectively
increases
the buffer in the
rates to $1.436 billion.
THE ACTION URGED BY THE GOVERNORS-TO
APPLY
CONTINGENCY
TO UPDATED COSTS-IS
UNREASONABLE
demand that the proposed
applied to the updated costs furnished
23
to be substantially
Since RPYL is amortized
The Governors’
22
is that the FY 2000 net loss projected
2.5 percent
A 2.5 PERCENT
level of contingency
be
in response to Order No. 1294 must be rejected.
USPS-ST-44A.
$325.5 million - $199 million + 9 = $14 million.
-2o-
Docket No. R2000-1
The Commission’s
full acceptance
of all of the updated
which were higher than equivalent
including
the Postal
Service’s
percent, dramatically
The contingency
cost estimate
Opinion, the Commission
significantly
error.”
furnished
reduced
has been substantially
use of ECI rather than ECI minus one
level (2.5 percent) to the higher level of
unreasonable.
proposed
had accepted
the cost update
by the Postal
witness
of $67.191
underscores
Patelunas’
Service
reduced.
reflects
cost updates,
that “recognition
PRC Op. R2000-1, fi 2159.
by witness
recommended
billion (TYAR) to $67.642
Patelunas,
since the possibility
The best illustration
in lieu of the
the fact that the
which
raised
witness
billion (TYAR).
In its
of updated test year costs
As a consequence
the contingency
of misestimation
of accepting
provision
could be
of test year accrued
costs
Id.
of the unfairness
of the Governors’
factors that shape the final labor cost estimates.
24
into the initial presentation),
of $1 billion that the Commission
$1.7 billion contingency
reduces forecasting
controversial
the same contingency
the updated costs is manifestly
Tayman’s
incorporated
reduces the risk that revenues will be insufficient to cover costs in
the test year.24 Applying
Commission
factors
economic factors (almost all of
demand
is seen in the
When the Postal Service first filed its
The Postal Service contends that the Commission erred in incorporating all of the revenues from
co-branded advertising, retail sales, and e-commerce programs, claiming that such programs “are highrisk initiatives much less certain to produce the targeted revenue
_” Memorandum at 6-7. This is
certainly a new argument. The Postal Service was invited to make any and all changes it believed were
appropriate in furnishing the update. Order No. 1294, issued May 26, 2000 (“The Postal Service may
incorporate with this information such other updates as it believes will more accurately forecast test year
results”).
If the Postal Service doubted these revenues, it could have qualified them or at least had
witness Patelunas address them in supplemental testimony when he first introduced these revenue
figures. USPS-ST-44 at 8. Having failed to do so at the time the record was being developed, the Postal
Service cannot now complain about the Commission’s justifiable reliance on the data presented.
The
Commission must reject the Postal Service’s current contention as an untested, extra-record assertion.
Docket No. RZOOO-1
-21.
request on January 12, 2000, witness Tayman testified that he employed
and conservative
assumptions”
year.
at 19.
USPS-T-9
to estimate
This included
bargaining
unit salary increases
using the November
would be limited to ECI minus one.
Tr. 35/16672;
USPS-T-9
that the 2.5 percent
he proposed
was
“significant
new pressures
possibility
that bargaining
estimate.
USPS-T9 at 44.
on salary
employed a substantially
figure of 3.87 percent).
estimate
by $185.6
the labor cost estimate
purposes
of the initial contingency
cost increases
to protect
allowance-on
in other words,
any
1999 ECI-1
however, witness
the test year labor cost
Abandonment
of the ECI-1 constraint
$245 million.
Id. One of the explicit
request of $1.7 billion was to protect against these
incorporation
of these ECI
should allow a commensurate
the order of $430 million.
This, together
in the use of more recent cost estimates,
recommended
against
This increased
by an additional
into the accrued cost estimates
of risk inherent
Commission’s
cost levels,”
In fairness to the public, the Commission’s
in the contingency
reduction
adequate
higher ECI figure (4.63 percent instead of the initial
Tr. 46A/20267.
increased
two eventualities.
at 19. Tayman believed
to update test year cost estimates,
Exh. USPS-ST-44AB.
million.
Cost
that the salary increase
unit salaries would be higher than his November
When given the opportunity
Patelunas
and benefit
in the test
1999 Employment
Index for Wages and Salaries (ECI) and a further assumption
contingency
“[rleasonable
reduction in the contingency.
reduction
with the
easily justifies the
Docket No. R2000-1
v.
-22.
TEST YEAR COSTS FOR SINGLE-PIECE
FIRST-CLASS
MAIL SHOULD BE
INCREASED
TO REFLECT THE DISTRIBUTION
OF ADDITIONAL
OUNCES
BASED UPON THE “AS-FILED” METHODOLOGY
The Postal Service maintains that the Commission’s
final adjustment
cost model
should be revised to recognize the distribution
of single-piece
additional
upon a consistent
methodology.
Memorandum
According
application
of the “as-filed”
to the Postal Service,
incorporating
entailed by the “as-filed” methodology
the distribution
The OCA concurs
Commission’s
forecasting
in the reasoning
conclusions
as to the appropriateness
the number of additional
revised or “historical”
Commission’s
ounces as determined
Service.
Rather, the Commission
distribution
methodology
of additional
Despite
this proceeding,
“historical”
in the final adjustment
the Commission’s
it should
justifiable
be noted
reliance
Under
of
by the Postal
additional
ounces based
produced
to the
The resulting
the First-Class
Letter Mail
First-Class rates.
on the “as-filed”
that both the “as-filed”
are problematic.
the
developed
model should be changed
and should have no effect on single-piece
methodology
the distribution
use of the distribution
costs would reduce infinitesimally
for
to the
However,
ounces based upon the “as-filed” methodology.
$20.7 million in additional
cost coverage,
The Commission’s
The
methodology
by comparison
does not contain
appears to have distributed
of
of $59.387 million.
by the record.
by the “as-filed” methodology
methodology.
final adjustment
of the “as-filed”
are fully supported
ounces
of the Postal Service.
in this proceeding,
model evidently
additional
by the “historical”
ounces
methodology,
final adjustment
upon the “historical”
final adjustment
and analysis
at 26-28.
of additional
would result in a single-piece
$80.053 million, as compared to the Commission’s
ounces based
methodology
methodology
both methodologies,
in
and the
the ratio of
-23-
Docket No. R2000-1
additional
ounces to pieces for single-piece,
base year is used to forecast
workshare,
the number of additional
and total letters from a given
in the test year.
The
ratio for each, or the number of additional ounces per piece, is simply a “snapshot”
from
the base year applied to the test year.
is, in the case of the “as-filed”
assumed to be constant,
ounces.
The only difference
methodology,
producing
pieces is assumed
between the methodologies
the ratio of workshare
and total letters is
an increase in the number of single-piece
In the case of the “historical”
workshare
ounces
methodology,
to be constant,
additional
the ratio of single-piece
producing
an increase
and
in the number of
total additional ounces.
Similarly,
“back
tested”
to historical
methodology,
supported
data.
to the historical
of single-piece
very closely
“conclusion
nearly matches the long-term
base year is evidenced
with respect
is
to the “as-filed”
in the test year
1990 through
1999.
A linear
forward to the test year revealed that
line.
by the “as-filed”
methodology
Tr. 46B120593.
This finding
that the initial forecasting
method provides
PRC Op. R2000-1, fi 5118.
a
However, the fact
additional ounces forecast by the “as-filed” methodology
trend appears almost accidental-a
That the number
by the “as-filed”
trend
of both methodologies
ounces forecasted
ounces forecast
with the projected
that the number of single-piece
year selected.
additional
data projected
additional
the Commission’s
ounces
In this proceeding,
better reflection of the long-term trend.”
forecast
of additional
trend for the period
through the historical
the number
tracked
number
the number of single-piece
was compared
regression
the forecast
of single-piece
methodology
by comparison
additional
is significantly
affected
function of the base
ounces
in the test year
by the selection
of the
to the forecast using the hybrid base year (e.g.,
Docket No. RZOOO-1
- 24 -
FY99 Q3 - FYOO Q2).
fewer additional
By selecting
ounces in the test year than the Postal Service’s
than its revised forecast.”
ounces
was compared
forecasts
initial filing, but more
Id., fi 5119.
With respect to the “historical”
additional
the hybrid base year, “the Commission
methodology,
caused by the constant
the forecast number of single-piece
ratio between the base year and test year
with a very limited recent period (seven quarters) of historical data. That
data revealed very little change in the number of additional ounces, and thus compared
favorably
with the number of single-piece
methodology
ounces forecast
by the “historical”
for the test year.
Since
dependent
additional
both
the “as-filed”
and the “historical”
largely upon the selection
methodology
produce
of the base year, with validation
results
by reference to
some period of historical data, it would seem that a more rigorous methodology
upon greater use of historical data should be adopted.
a linear regression
Such a methodology
based
would use
of some number of prior years projected forward from the base year
to the test year to forecast the number
of single-piece
additional
would eliminate forecasts based upon the base year alone.
over which the irregular increase in the number of additional
ounces.
Doing so
Using a longer time period,
ounces from year-to-year
would smooth out, would give more weight to the earlier data used in the regression,
and be consistent
period
would
regression
Service.
with the Commission’s
give more weight
projected
view.
Id., 7 5117.
However,
to the latter years used in the development
forward to the test year, and respond to concerns
The OCA recommends
a shorter time
that this approach
improve the forecast of additional ounces.
of the
of the Postal
be explored in the next rate case to
-25-
Docket No. R2000-1
VI.
THE COMMISSION
RATES
The Governors
subclasses
of Standard
the Commission
generated
ask the Commission
Mail.
Governors’
billing determinants
request
interpretation
Accordingly,
STANDARD
to “reconsider”
Decision
at 14.
rates for the nonprofit
The Governors
command
to demonstrate
MAIL NONPROFIT
allege that
when it used test year
that its recommended
nonprofit
an average revenue per piece (“ARP”) that was 60 percent of the ARP
by its recommended
Governors’
NOT ADJUST
had failed to follow a new statutory
after rates (‘WAR”)
rates produced
SHOULD
commercial
for reconsideration.
of new legislation,
the Commission
rates.
Memorandum
while plausible,
The Postal Service
at 22.
repeats
the
The Postal Service’s
is not the only possible interpretation.
should leave resolution
of this dispute to the next rate
case.
The statute referred to by the Governors
S. 2686 during the course of proceedings
refers to it as such in its opinion.
new Section 3626(a)(6)
nonprofit
regular-rate
Standard
subclasses.
in Docket No. R2000-1.25
PRC Op. R2000-1,
of Title 39. Subsection
Mail subclasses
Subsection
and the Postal Service was known as
7 5556.
3626(a)(6)(A)
be 60 percent
3626(a)(6)(B)
The Commission
The statute creates a
requires that the ARP for
of the ARP for corresponding
reads, in relevant part:
[Tjhe estimated average revenue per piece of each regular-rate subclass
shall be calculated on the basis of expected volumes and mix of mail for
such subclass at current rates in the test year [i.e., test year before rates
billing determinants].
(Emphasis added.)
25
Enacted es Pub. L. No. 106-384, _
Stat. _
(2000).
Docket No. R2000-1
-26-
The Postal Service interprets
this subsection
(“TYBR”)
for both nonprofit
billing determinants
Commission
Service’s
is required
interpretation
to use TYBR
makes sense.
to require use of test year before rates
and commercial
billing determinants
However,
the precise wording
only for commercial
the literal wording
the Commission’s
determinants
is reasonable,
practicable”
test in subsection
A.
and its recommended
determinants
as suggested
The
multiplying
use of TYAR billing
Set Nonprofit Average Revenue
Averaqe Revenue Per Piece
Memorandum
does require
of the statutory
at 32-33.
to ignore
requirement
for
At first glance, it would
the use of test year before
rates billing
the use of TYBR billing
means that the actual ARP of nonprofit Standard
Mail will certainly not be
Postal
by the Postal Service.
Per
However,
60 percent of commercial
Standard
Service
Mail.
has demonstrated,
TYBR billing determinants
ARP to commercial
billing determinants.
sense
Mail rates,
that the new statute
Since
rates certainly meet the “as nearly as
The Postal Service has provided a description
determinants,
subclasses.
should hesitate to read into a statute an instruction
setting nonprofit Standard
appear
of the statute
3626(a)(6)(A).
The Commission Has Accurately
Piece at 60 Percent of Commercial
The Commission
reality.
is imprecise,
If the
at all, then the Postal
requires the use of TYBR billing determinants
of the statute
subclasses.
ARP produces
and the
OCA
by new rates to calculate
has confirmed,
the ratio of nonprofit
a result different from that obtained
This is hardly surprising.
The real question
that
by using TYAR
is whether
it makes
Docket No. R2000-1
The
designers.
passage
-27-
Postal
Service
Memorandum
of the legislation
implementation
suggests
its approach
makes
at 33. This is no doubt the case.
and the lack of any opportunity
on this record, the Commission
suggested
by the Postal Service.
consistent
billing determinants
methodology
that
life easier
However,
given the late
for the parties to address
its
should be leery of adjusting the rates as
The fact that the Commission
and rates in its workpapers
urged by the Postal Service
for rate
does not produce
was able to use
suggests
that using the
a significant
benefit
in
setting Docket No. R2000-1 nonprofit rates,
B.
The Revenue That Would Be Obtained from Bringing the Rates for
Nonprofit Standard Mail into Conformance
with the Postal Service’s
Reading of S. 2686 Is Minuscule
The OCA estimates
Commission
Postal
nonprofit
produce
Service’s
Standard
that the nonprofit
Standard
Mail rates recommended
by the
$26.574 million less than the amount needed to comply with the
interpretation
Mail would
Postal Service has not proposed
of S. 2686.*6
require
Raising
an average
this amount
1.5 percent
a new nonprofit rate schedule.
of money
from
rate increase.
The
It has not even shown
that it is possible to adjust nonprofit rates in such a way that anomalies are avoided and
the ratios of nonprofit to commercial
can do so, the nonprofit
ARPs are closer to 0.6. Unless the Postal Service
rates recommended
satisfy the “as nearly as practicable”
by the Commission
would
appear
to
test of S. 2686.
The OCA obtained this estimate by replacing current rates with recommended
and 7 of workpapers 1 and 2 of library reference PRC-LR-15.
rates on pages 6
Docket No. R2000-1
Moreover,
change
- 28 -
the Commission
in the nonprofit
increase
give consideration
of again reprogramming
mail personnel.
recommended
to the burden
a small
Mail rates would place on all nonprofit mailers.
in the rate would be only about 1.5 percent,
incur the expense
retraining
Standard
should
The
practical
rates and to address
but each nonprofit mailer would
meters, scales,
solution
The
and software
to the problem
the implementation
methodology
as well as
is to retain the
in the next rate
case.
VII.
THE POSTAL SERVICE
HAS NOT IDENTIFIED
In Order No. 1301, the Commission
views on the appropriate
should contribute”
portions
RATES TO BE INCREASED
directed the Postal Service to “present
of total revenues
that each subclass
and invited the Postal Service to “suggest
achieve these subclass and service specific revenue goals.”
its
and service
specific rates that would
Order No. 1301 at 3. The
Postal Service has failed to do so.
Instead of responding,
undertake
a comprehensive
evidence
“provide[s]
Although
the Postal Service
translation
guidelines
None of these
already
recommended.
markups.”
any responsibility
did then single out Money ,Orders, First-Class
for adverse comments.
to
into specific rates” but that Postal Service
for establishing
the Postal Service abdicated
said that it is “not in a position
Memorandum
at 23.
for revising rates upwards,
Cards, and First-Class
it
additional ounces
Id. at 24-25.
comments
It seems
provides
a sufficient
basis for changing
ironic that the Postal Service
about the slight rate reduction for Money Orders.
the rates
would first complain
The 5-cent reduction will lower Postal
Docket No. R2000-1
Service
-29.
revenues
by less than $12 million.
given the Commission’s
personnel,
isolated
checking
accounts.”
17.93
percent
Commission’s
rural residents,
or people
increased
lacking
increase
access
Memorandum
other revenues
at 24.
resulting
When
costs noted
the fee while still maintaining
the Commission
a very substantial
The Postal Service also comments
ounces, although
are the
reconsideration.
recommended
rates that
Memorandum
together
27
is inconsistent
with
in Appendix
considered
J to the
overlooks
which
also
the total revenues
a modest 5-cent reduction
153 percent overall cost coverage,
PRC Op. R2000-I,7
negatively
the
in
quite
6153.
on First-Class
cards and First-
the Postal Service again stops short of suggesting
should
at
be raised
24-26.
No
in response
comments
to its request
are
made
on
for
the
rates for other classes of mail.
It would be shortsighted,
additional
and
from its Money Order service,
close to the system average cost coverage.
these
to “military
cards
But the Postal Service
related to Money Order service, it was able to recommend
that
to credit
a Money Order rate reduction
in unit attributable
by 9.7 percent.”
Class additional
importance
however,
PRC Op. R2000-1, n 6152.
Decision.
very substantial
is appropriate,
finding that this service is of particular
The Postal Service complains
the
The reduction
revenue
contributions.
however,
to expect First-Class
As matters
stand,
mail to make significant
First-Class
letters
and cards
have a cost coverage of 177.1 percent, far in excess of the system average of
Compare Docket No. R97-1, Appendix G, p. 24 with Docket No. R2000-1, Appendix G, p. 25
(Money Order float interest, outstanding Money Orders taken into revenue. and Money Order international
commissions).
- 30 -
Docket No. R2000-1
158.7 percent.
$16,016,035,000
63 percent.
institutional
Under the Commission’s
recommended
to the Postal Service’s
PRC Op. R2000-1,
cost contribution
rates, together
$25,453,171,000
Appendix
of First-Class
G, p. 1.
they contribute
of institutional
The already
costs-some
high and growing
mailers was well-documented
and was noted by the Commission. ‘a There is no basis to increase
in the record
this burden yet
further.zg
CONCLUSION
For all of the foregoing
Governors’
reasons,
request for reconsideration
the OCA urges the Commission
of the recommended
to deny the
rates in this proceeding.
OFFICE OF THE CONSUMER
ADVOCATE
Ted P. Gerarden
Director
Emmett Rand Costich
Shelley S. Dreifuss
Kenneth E. Richardson
Attorneys
1333 H Street, N.W.
Washington, D.C. 20268-0001
202) 789-6830; Fax (202) 789-6819
28
29
PRC Op. R2000-I,7
5059-5064.
See a/so Tr. 22/10104-121,
The Postal Service also comments obliquely on the additional ounce rate, evidently suggesting
that the Commission shifted revenue burdens from First-Class to other categories of mail. Memorandum
at 25. But a comparison of the recommended rates in this case and Docket No. R97-1 shows that the unit
contribution of other large categories of mail to institutional costs has not changed much, and in many
cases has been reduced-in
the case of Periodicals, to an almost infinitesimal level.
CERTIFICATE
OF SERVICE
I hereby certify that I have this date served the foregoing
participants
of record in this proceeding
Practice.
Washington, D.C. 20268-0001
January 12,200l
in accordance
document
upon all
with Section 12 of the Rules of