RECEIVED
SEP24
1 31, PM
‘01
USPS-T-l 1
POSTAL RATE CCHHIS~OR
OFFICEOFTHEWRETARY
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, D. C. 20268-0001
POSTAL RATE AND FEE CHANGES, 2001
Docket No. R2001-1
DIRECT TESTIMONY
OF
KARENMEEHAN
ON BEHALF OF THE
UNITED STATES POSTAL SERVICE
TABLE OF CONTENTS
TABLE OF CONTENTS ..............................................................
I
LIST OF EXHIBITS ....................................................................
ii
LIST OF WORKPAPERS ............................................................
iii
LIST OF LIBRARY REFERENCES ................................................
iv
AUTOBIOGRAPHICAL
SKETCH ... ,_:.............................................
PURPOSE AND SCOPE OF TESTIMONY .................................
I.
II.
1
__:...
POSTAL COSTING CONCEPTS ...........................................
2
A. VOLUME VARIABLE COSTS ..........................................
3
B. OTHER COSTS ...........................................................
3
CHANGES BETWEEN BASE YEAR 1998 AND
FISCAL YEAR 1999, AND FISCAL YEAR 1999 TO
FISCAL YEAR 2000 ...........................................................
3
A. BASE YEAR 1998 TO FISCAL YEAR 1999 .........................
3
B. FISCAL YEAR 1999 TO FISCAL YEAR 2000 .....................
4
1. Recommendations from Docket No. R2000-I... ................
2. The Collapsing of Subclass Information due to Public
Law 106-384 ............................................................
3. Other Changes ........................................................
Ill.
IV.
2
4
4
5
CHANGES BETWEEN FISCAL YEAR 2000 AND
BASE YEAR 2000. ............................................................
6
A. GENERAL REVISIONS TO BASE YEAR 2000 ...................
6
B. NEW STUDIES AND UPDATES ......................................
6
C. COST CONCEPTS .......................................................
8
DEVELOPMENT
OF BASE YEAR 2000 COSTS .....................
I
8
ATTACHMENT A “CROSSWALK BETWEEN FISCAL YEAR 1999
CRAAND FISCAL YEAR/BASE YEAR 2000 CRA CATEGORIES”
ii
10
-.
LIST OF EXHIBITS
A. COST SEGMENTS AND COMPONENTS, BY 2000 ..................
B. FINAL ADJUSTMENTS,
BY 2000 ........................................
C. COST AND REVENUE ANALYSIS, BY 2000 ...........................
USPS-l IA
..USPS-11 B
USPS-l IC
WPA. BASE YEAR 2000 REPORTS
TABLE 1. MANUAL INPUT REQUIREMENT REPORT
TABLE 2. “A” REPORT (WITHOUT PESSA)
TABLE 3. FACTOR REPORT
TABLE 4. “B” REPORT (PESSA DETAIL)
WP-B. BASE YEAR 2000 COST SEGMENT SPREADSHEETS
iv
(l-20)
LIST OF LIBRARY REFERENCES
The following library references are associated, in whole or in part, with my
testimony.
Where a library reference is associated in part with my testimony, the
specific portions so associated are indicated in parentheses following the library
reference title.
USPS LR-J-4
Base Year/Roll Forward, Input Control Files (Section 1)
USPS LR-J-5
Base Year/Rollforward,
(Section 1 and 2)
USPS LR-J-6
Base Year/Rollforward (CD-ROM) (Directories Ir-j6/cntfilefyOOby and lr-j6/datafile/fyOOby)
USPS LR-J-8
Reconciliation of FY 2000 Statement of Revenues and
Expenses to Audited Financial Statements and Reallocation
of Expenses by Component (1 diskette) (Reconciliation to
Audited Financial Statements and Reallocation of Expenses
by Component)
USPS LR-J-57
Diskette of Witness Meehan’s Spreadsheets for Workpaper
B and Exhibit 11 C (USPS-T-l 1)
V
Processing Documentation
Reports
c
1
2
Sketch
My name is Karen Meehan. I am an economist in Cost Attribution,
3
Finance at Postal Service headquarters.
4
November 1994 and have been employed by the Postal Service since 1991.
5
I have been in my current job since
My postal experience includes a number of positions at headquarters.
6
served as a senior economist in the Demand Research Division in 1991 and
7
1992. From 1992 to 1994, I was a principal operations research analyst in the
8
Economic and Analysis Forecasting Group. Since 1994, I have been an
9
economist in Cost Attribution.
10
11
-~
Autobioaraohical
12
I
I was the base year cost witness in Docket No.
R2000-1.
Previous to my employment at the Postal Service, I was a teaching
assistant at the George Washington University in the Economics Department.
13
I hold a Bachelor of Science, with honors, in industrial and systems
14
engineering from the Georgia Institute of Technology and a Master in Economics
15
from George Washington University.
2
1
PURPOSE AND SCOPE OF TESTIMONY
2
This testimony presents the development of Base Year 2000 costs. A
3
number of changes in the treatment of costs are introduced in this proceeding,
4
resulting in differences between the Fiscal Year 2000 Cost and Revenue
5
Analysis (CRA) and Base Year 2000 costs. My testimony and related
6
workpapers provide a brief overview of these changes and report their results.
7
However, a more thorough treatment of these changes is addressed in the
8
testimony of other witne%ses.
9
This testimony is divided into four sections. The first section defines the
10
postal costing concepts used in the identification and development of base year
11
costs. The second section summarizes the changes in the treatment of costs
12
between Base Year 1998 and Fiscal Year 2000. In the third section, I describe
13
the changes in the treatment of wsts between Fiscal Year 2000 and Base Year
14
2000. The last section of my testimony provides an overview of the development
15
of Base Year 2000 costs. I present these costs as a series of exhibits, which
16
follow this narrative.
17
18
19
20
I. Postal Costina Conceots
Base Year costs are classified as either volume variable or other in the base
year cost presentation.’
’ Exhibit USPS-l 1C also includes a column called Incremental Cost which is discussed by
witness Kay, USPS-T-21.
3
1
2
3
A. Volume Variable Costs
As in Dockets No. R97-1 and R2000-1, the term “volume variable costs”
refers to wsts that change (increase or decrease) in response to a small change
in mail volume. The degree of variability is the ratio of the percentage change in
costs to the corresponding
percentage change in volume. The degree of
variability is usually referred to as the “variability” and is commonly expressed as
a percentage.
8
B. Other Costs
9
The term “other costs” refers to all costs that are not volume variable.
10
They represent the difference between total accrued costs and total volume
11
variable costs.
12
13
14
15
16
17
18
II, Chanaes Between Base Year 1998 and Fiscal Year 1999. and Fiscal Year
1999 to Fiscal Year 2000
A. Base Year 1998 to Fiscal Year 1999
The Fiscal Year 1999 CRA was a continuation of the Base Year 1998
19
CRA methodology, except for housekeeping changes. For example, Special
20
Delivery Messenger costs were shown in Cost Segment 3.4 as
21
clerk/messengers,
22
Special Delivery Messenger craft to the clerk/carrier craft.
rather than in Cost Segment 9 due to the change of the
4
1
B. Fiscal Year 1999 to Fiscal Year 2000
2
The changes between the Fiscal Year 1999 CRA and the Fiscal Year 2000 CRA
3
are as follows:
4
1. Recommendations
from Docket No. R2000-1
5
The recommendations
from the Postal Rate Commission Recommended
6
Decisions in Docket No. R2000-1 generally were implemented, with some
7
exceptions including the treatment of variability in cost segment 3, where we
8
maintain the Postal Service’s Base Year 1998/FY 1999 methodology; and the
9
treatment of single subclass costs in cost segment 7 as incremental.
See
10
witness Kay’s testimony, USPS-T-21.
The PRC’s treatment of IOCS coding
11
methods affecting the cost of automation rate mail and Media Mail was
12
implemented.
13
methods.
See the testimony of witness Shaw, USPS-T-l, for IOCS coding
14
15
2. The Collaosing of Subclass Information due to Public Law 106384
16
In accordance with Public Law 106-384, the following revenue, volumes
17
and costs have been combined: Nonprofit Periodicals, Classroom Periodicals,
18
and Regular Periodicals are combined and renamed “Outside County”; Standard
19
A Nonprofit and Standard A Regular are combined and renamed “Regular”;
20
Standard A Nonprofit ECR and Standard A ECR are combined and renamed
21
“Enhanced Carrier Route”; Library Rate and Media Mail (formerly Special
22
Standard B) are combined and renamed “Media Mail”. Attachment A shows the
23
former categories and the new categories.
5
,1
3. Other Chanaes
2
Standard A single piece is eliminated from the Fiscal Year 2000 CRA
3
presentation since it was eliminated as of January 1999.
The CRA shows First-Class Presorted Letters and First-Class
4
5
Nonpresorted
6
Computations used to develop the premium deduction key and the
7
adjusted mail processing key were removed from the mainframe CRA model and
8
are now performed in the testimony and workpapers of Witness Van-Ty-Smith
9
USPS-T-l 3.
11
1996 CRA audit, we separated the costs of programs clearly related to existing
12
products where possible. The new program identified as affecting products in
13
Fiscal Year 2000 was the International Service Centers. Please see the
14
testimony and workpapers of Witness Van-Ty-Smith, USPS-T-l 3, for the
15
associated computations.
16
Computations used to develop the Cost Segment 14 Alaska air
17
adjustment were performed in the mainframe CRA model as was done in the
18
Base Year 1998 CRA model. The adjustment factor is developed in USPS
19
Library Reference J-40 and discussed in the testimony of witness Pickett, USPS-
20
T-l 7.
21
,,-
in
In continuing the response to a recommendation from the Fiscal Year
10
-.
Letters separately.
Certain costs were reported on different lines to keep in synchronization
22
with RPW reporting. Starting in Fiscal Year 2000, the RPW report showed
23
International special services separately from domestic special services.
6
1
Therefore, the Fiscal Year 2000 cost systems and CRA make a corresponding
2
change to report International special services separately from domestic special
3
services and include International special services with International mail.
4
Workpaper B, USPS-T1 1, worksheets 16.1.2 and 20.2.2, were modified to
5
include International special service costs with International mail. The RPW
6
system is discussed in the testimonies of witnesses Pafford, USPS-T-3 and
7
Hunter, USPS-T-4.
8
9
10
11
12
Ill. Chanaes Between Fiscal Year 2000 and Base Year 2000
The following changes were made between the Fiscal Year 2000 CRA
and the Base Year 2000.
13
A. General Revisions to Base Year 2000
14
First, RPW stamped and metered volumes inputs replaced ODIS inputs
15
for window service distribution of costs (I-Forms stamped and metered
16
percentages
17
Cost Segment 3).
The general ledger, an input into the Base Year 2000 CRA, was adjusted
18
to move an inadvertent charge of $5.85 million from postage printing costs to
19
stamped envelope printing costs, Accordingly, this change is reflected in the
20
Base Year 2000 CRA.
21
22
The density for International Other became available after the Fiscal Year
2000 CRA and was updated accordingly in Workpaper B, 8.1.2, cell d57.
23
8. New Studies and Updates
24
A number of updates affecting the volume variability of selected segments
7
,-,
1
and components are introduced in the Base Year costs. The following is a
2
summary of these new updates, as well as a reference to their respective
3
sponsoring witness.
4
In response to the PRC’s request to separate the cost of special services
5
from their ancillary services, elemental load calculations in cost segment 7 were
6
updated to remove return receipt costs out of the special service volume variable
7
cost. The changes to elemental load are discussed in the testimony of witness
8
Bradley, USPS-T-16.
9
c.
The rural carrier yearly route evaluations were updated, affecting cost
10
segment 10, Rural Carriers. The update is developed in USPS Library
11
Reference J-70’.
12
Updates to mail processing variabilities and to the subclass distribution of
13
volume-variable
14
Processing, are presented by witnesses Bouo, USPS-T-14 and Van-Ty-Smith,
15
USPS-T-l 3.
16
mail processing labor costs, affecting cost segment 3, Mail
The testimony of witness Smith, USPS-T-15 provides the methodology
17
and inputs necessary to determine the volume variable equipment and facility-
18
related costs by subclass for the Base Year in cost segments 11, 15, 16 and 20.
’ The updated analysis now includes four prior years of rural mail counts so that more rural
routes are represented.
8
1
2
C. Cost Conceots
3
Previous to Docket No. R97-1, the Base Year cost presentation included
4
identification of specific-fixed costs. The Base Year 2000 cost presentation,
like
Base Year 1996 in Docket No. R97-1 and Base Year 1998 in Docket No. R20001, is limited to the estimation of volume variable costs for each category of mail
and special service. Estimates of product specific costs are still developed and
8
allocated to categories of mail and special services in the estimation and
9
application of incremental costs. These are included in the workpapers of
10
witness Kay, USPS-T-24
11
12
13
IV. Development of Base Year 2000 Costs
Base Year 2000 wsts are based on the established wst segments and
14
components.
Accrued costs for Base Year 2000 are grouped into 18 cost
15
segments structured along costs for craft activities (e.g., rural carriers), work
16
activities or major functions (e.g., purchased transportation).
17
are disaggregated
18
component or subwmponent
19
then applied to the accrued costs for that component or subcomponent
20
at the level of volume variable cost. An appropriate distribution key is then
21
employed to distribute this cost to the classes and subclasses of mail and types
22
of special service.
into cost components and subwmponents.
The cost segments
For each
a determination of cost variability is made, and
to arrive
9
1
2
that underlie the costs presented in Exhibit USPS-l IA. These cost systems are
3
IOCS, TRAM,
4
Xie for TRACS, USPS-T-2, and witness Harahush for CCS and RCS, USPS-T-5.
5
_-.
Ongoing statistical sampling systems collect data and produce estimates
CCS, and RCS. See witness Shaw for IOCS, USPS-T-l,
witness
Cost segments and components for Base Year 2000 are presented as
6
Exhibit USPS-l 1A to my testimony.
7
USPS-l 1 B, and a Cost and Revenue Analysis report for Base Year 2000 is
8
provided as Exhibit USPS-l 1C.
Final adjustments are reported in my Exhibit
10
ATTACHMENT A
1
CROSSWALK
BETWEEN FISCAL YEAR 1999 CRAAND FISCAL YEAR/BASE
YEAR 2000 CRA CATEGORIES
The following table shows the Fiscal Year 1999 CRA categories and a
cross walk to the new Fiscal Year/Base Year 2000 CRA categories.
7
1999 CRA Cateaories
2000 CRA Cateaories
8
First-Class
Letters
First-Class Single Piece Letters
9
First-Class
Letters
First-Class Presort Letters
10
First-Class Cards
First-Class Single Piece Cards
11
First-Class Cards
First-Class Presort Cards
12
In-County Periodicals
In-County Periodicals
13
Nonprofit Periodicals
Outside County Periodicals
14
Classroom Periodicals
Outside County Periodicals
15
Regular Periodicals
Outside County Periodicals
16
Standard A single piece
_-
17
Standard A Regular
Standard Regular
18
Standard A Nonprofit
Standard Regular
19
Standard A ECR
Standard ECR
20
Standard A Nonprofit ECR
Standard ECR
21
Parcel Zone Rate
Parcel Post
22
Bound Printed Matter
Bound Printed Matter
23
Special Standard
Media Mail
24
Library Rate
Media Mail
c.
?
IOS
204
62
381
170
585
2 780
2 220
so00
17s
585
647
21s
865
28
6
3s
901
440
204
644
511
872
383
027
***************t.***************~*********************************************~****~**.***********~*.*
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1
***
SPECIAL
SERVICES:
REGISTRY
CERTIFIED
INSURANCE
coo
MONEY
OllDERS
STAMPED
CARDS
STAMPED
ENVELOPES
SPECIAL
HANDLING
POST
OFFICE
eox
OTHER
TOTAL
TOTAL
VOLUME
SPECIAL
_.
._
3
--,
BI
400
85
WCS
VARIABLE
OTHER
TOTAL
COSTS
J
. . -
1
SOURCE
FOR
AND
COLUMN
TITLE
C/S-l
~COMPONENT
COST
SEGMENTS
COMPONENTS
251)
PAGES
23-24
COLUMN
2
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25
423
448
67
73
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MAIL
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62
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PAGE 52.1
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.-_
__
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A
229
3
64
3
718
6
378
33,
-_
540
__
873
_.
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63
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._
._
._
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2
283
3
54,
12
3
__
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64
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66
***
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i
,,,
*******t*****t**t************************************************************************************.****************************
PAGE 66.1
*******t*****************~*********~**********.‘~*********************************************~***~*~********~********************
PERIODICALS:
IN-COUNTY
OUTSIOE
COUNTY
TOTAL
PERIODICALS
._
__
__
2
OTHER
EXPENSES
(COMPONENT
399,
3
TOTAL
CIS
(COMPONENT
20
475,
AN0
CREDITS
WORKPAPER
A-2,
SUMMATION
PAGES
PAGES
AN0
PAGES
65-55
W-68
153-154
COLUMN
ALL
COLUMNS
COLUMNS
1-2
3
-.
.
_ _ _.
O”TSlOE
COUNTY
TOTAL
PEOI001CALS
FREE
MdIL
6 SERYICEHEN
BLIND.
HNOCPO.
*****l***~**********.***********************************.***********.****~************~*******..******
.**
PAGE
*ff*ft*******.l***************.****..********.******************~*..***************.*******.******.***
69
f.f
USPS
b.LA43‘
I
‘30
OEVELOPMENT
COST
SEGMENT
PLANT,
OF
EOUIP.
COST
BY
,ENT
SERVICEYlOE.
eiN0
SELECTED
SPECIhL
SERVICES:
REGISTRY
CERTIFIEO
COO
MDNEY
ORDERS
STAMPED
CbROS
STAMPEO
ENVELOPES
SPECIAL
HANDLING
POST
OFFICE
BOX
OTHER
TOTAL
TOTAL
VOLUME
SPECIAL
svcs
VARIABLE
OTHER
TOT&L
COSTS
*l*******t******..*l********~***************.**.***~****.*****.********.*.*.**.*.***********.,***.****
l *1
PACE
**.***********.*************~***~*********.**.************.*****.**.***.***~*******..***.*..*~***~.***
70
l **
CoMPONeNT
dOMIN
-
BASE
COSTS
YEAR
2occ
)
i:,,..j
1
SOURCE
FOR
AND
COLUMN
TITLE
EMPLOYEE
(COMPONENT
&
cosr
SEGMENTS
COMPONENTS
LABOR
RELATIONS
(2.5)
PLANT.
EO”TPMENT,
COLUMN
SOURCE
SERVICE
PAGES
WOE
S-6
AND
COLUMN
SELECTED
WORKPAPER
A-4,
SUMMATION
WORKPAPER
WORKPAPER
A-4.
PAGES
I-2
COLUMN
3
WORKPAPER
A-4.
PAGES
I-2
COLUMN
4
WORKPAPER
A-4.
PAGES
I-2
COLUMN
5
WORKPAPER
A-4.
PAGES
17-18
COLUMN
1
AOMIN
2
4271
A-4.
AN0
PAGES
PAGES
s-5
7-8
COLUMN
COLUMN
1
1
COSTS
572
175
748
22
5
27
775
95
20
-_
._
-_
-_
__
_.
46
2
._
6:
7
2
__.
3
89
92
71
2
6
20
2
I
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3
31
I
521
(23
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7,
a**
2
680
._
__
-.
-.
._
1
._
263
12
21
316
-_
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I
96;
87
26
2
358
1 837
149
13
704
1 837
149
13
704
1
._
--
.
...
1
i
3 CIVIL
.
-.
-
SERVICE RETIREMENT
.
“-_,
-
. . -.
_- -
__
52
54
1 634
550
184
1 267
22
1 212
918
483
1
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COLUMN TITLE
COLUMN SOURCE
EXHIBIT
A:
PAGES 7-6
COLUMN 1
1 TOTAL VOLUME VARIABLE
(COMPONENT 0460)
USPS-T-II,
2 FINAL ADJUSTMENTS
(COMPONENT 0501)
us POSTAL
REMAINING
SERVICE VOLUME VARIABLE
COSTS FROM COLUMN t REDISTRIBUTED
ADJUSTMENTS
FROM WORKPAPER A-l.
PAGE 149 COLUMN 1
3 ADJUSTED VOLUME VARIABLE
(COMPONENT 0604)
SUMMATION
COLUMNS
4 CONTINGENCY
(COMPONENT 0603)
COLUMN 3 * CONTINGENC”
6 VOLUME “ARlABLE
TOTAL
INCLUDING
CONTINGENCY
(COMPONENT 0642)
SUMMATION
TO “OTHER”
1-2
COLUMNS 3-4
FACTOR -
NOTE FACTOR
= 00.0%
FOR BASE YEAR 2000
COSTS
h
-.
UNITED STATES
POSTALSERVKE
COST AND REVENUE ANALYSIS
BASE YEAR 2000
FINANCE
SUMMARY OF REVENVE AND COST FOR MAJOR SERVICE CATEGORIES
Sam -fear 2wo
W pie@
(in millions)
Classes and Sub-Classes
(note 1)
of Mail
CO&
(not= 2 a
4)
s
First-Class Mail:
Single-Piece Letters .............................
Presoli Letters.. ...................................
TOtal Letters.. ...................................
Single-Piece Cards.. ............................
Presort cards.. .....................................
T&al car&. ......................................
Fees (note 2). ........................................
Total Flmt-class.. ............................
Volume
Variable Cost
(note 2,
C
Yaminal
cost f
s
D
Contribution
Cost
coverage
E
f
(notez)
P-E)
174.51%
281.94%
202.76%
106.95%
326.35%
1546lK
(note
("0te2)
Km
$21,774.1
12,553.o
34.327.1
5J9.4
446.7
1,009.1
162.7
35.515.9
113.053.7
4.645.5
18.143.8
527.1
137.4
665.3
612.477.5
4,457.r
16.935.2
513.5
137.3
680.6
$0.416
0.275
0.356
0.206
0.1%
0.184
66.236
0.0%
0.173
0.189
0.0%
0.119
60.176
0.177
0.177
0.017
0.112
0.0%
19,0%.4
17,566.o
0.343
0.170
0.173
Ml.%%
Mail.. ............................................
4.637.1
3A46.6
3,144.6
3.957
2.572
1.365
153.62%
Express Mail.. ...........................................
gs6.1
666.7
373.4
8.779
266.77%
Mailgram.. .................................................
1.5
0.8
0.7
0.415
0.193
0.223
215.46%
Perfcdicals:
I” county.. ............................................
Outside County (note 2). .....................
Fees (nob 2). ........................................
Total Periodicals.. ...........................
76.7
2.676.3
17.7
2.170.7
76.2
2.218.1
76.3
2162.3
0.636
0.219
0.084
0.232
0.002
(0.012)
101.91%
64.71%
2396.0
2267.6
0.206
(O.aoo)
65.73%
Standard Mail:
Enhancsd Carrier Route (note 2) ........
F%gu,ar (note 2). ..................................
Fees (note 2). ........................................
Total Standard Mail .........................
5,095.a
10.015.7
01.8
15,193.3
2.420.7
7.565.1
2,265.0
7,366.4
0.143
0.1%
0.094
0.136
0.076
0.048
233.01%
135.41%
10267.3
6,661.4
0.1%
0.106
0.061
1%.93X
Package Services:
Parcel Post.. ........................................
Sound Printed Matter.. ........................
Media nlai, (note 2, ...............................
Fees (note 2) .........................................
Total Package Services.. ................
1,041.o
502.6
365.1
2.4
1,912.3
046.0
454.1
321.2
3.214
2.921
0.811
1.316
0.293
0.067
0.180
110.04%
110.76%
113.65%
1.526
0.168
111.04%
Priority
See accompanying
notes.
953.8
456.5
322.1
1,744.0
I.7222
SUMMARY OF REVENUE AND COST FOR MAJOR SERVKZE CATEGORIES
Base Year 2000
Classes and Sub-Classes
(note 1)
of Mail
Re”*““e
(note 1)
A
Free Mail -blind, handicapped a
servicemen.. ............................................
InternatIonal
see
Mail (note 2). ......................
1,700.Z
Total Mail.. ...............................................
62.326.9
Special Services:
Registry ..............................................
Ancillary Services.. .............................
Total Reglstly ...................................
cemtied ..............................................
Ancillary Sewlces ...............................
Total Certified ...................................
Insurance.. ...........................................
Ancillary Services.. .............................
Total Insurance.. ..............................
COD .....................................................
Ancillary Services.. .............................
Total COD.. .......................................
Money Orders (note 2). ....................
Stamped Cards (note 5) ...................
Stamped Envelopes.. .......................
Special Handling.. ............................
Post Office BOX................................
other.. ...............................................
Total Special Services.. ................
Miscellaneous
items (note 2) .......
Total Mail and Services.. ........................
72.3
3.2
75.5
377.4
301.4
679.9
105.2
2.2
107.4
21.5
0.0
21.5
271.5
2.0
13.4
0.1
664.2
17.1
1.971.5
277.9
64,479.l
Appropriations:
Revenue Forgone ........
Total Operating Revenue.. ..................
Investment Income.. ................................
Total (note 3) .......................................
54.2
64.54g.3
40.7
64,581.O
(in millions)
Incremental
GXt
(n0tes 2 a 4)
s
Variable Cost
(note 2,
c
COSt
coverage
(note 2,
(DIE)
333.3
1,352.3
1.294.5
1.544
1.167
0.379
132.36%
36,933.J
0.300
0.174
0.1%
172.66%
64.7
84.6
9.113
9.494
(1.391)
96.45%
369.0
346.2
1.410
1.293
0.117
1%.04%
88.8
69.7
1.652
1.562
0.290
ll(I.M)%
14.3
14.3
5.198
3.463
1.736
150.09%
215.5
3.0
12.0
1.9
545.6
157.2
3.0
12.0
1.9
545.3
163.6
1.417.0
1.174
0.690
0.494
172.71%
1,580.z
0.714
NIA
0.00%
37,510.6
37.510.6
27,270.3
Total Costs (note 3) ............................
64.780.8
notes
cost$
533.4
All other costs .........................................
accompanying
Re”*““e
s
D
(per pi*-)
Maminal
Contribution
I
(note 2,
(note 2)
E
P-E)
2
I
SUMMARY OF REVENUE AND COST FOR MAJOR SERVICE CATEGORIES
Baee Year 2000
VOLUME
Classes and Sub-Classes of Mail
(note 1)
First-Class Mail:
Singba-Plece Letters.. .............................
PreWrt Let&n .......................................
Total Letters.. .....................................
SinglcPke
Cards.. ..............................
Plusorl cams.. .......................................
Total Cards.. .......................................
Total Fbst Class.. ...........................
Priority
Mail.. ..............................................
Expreu
Mail.. .............................................
Mailgram.. ...................................................
Pieces
(thousands)
52,369.535
46,675,472
aa,o45,007
2,719,298
2,16+,497
5.4ao.705
103,525.712
STATISTICS
Weight in
Pounds
(thousands)
Weight pr
Piece
(ounces)
2601,381
1,751,435
4,352,616
17,001
22,202
39,2o3
4.392.oia
0.1)
0.6
0.7
0.1
0.1
0.1
0.7
Cubic Feet
(thousands)
Weight per
Cubic Foot
(@+I
176.258
17.0,002
2911,240
12%
i.ses
2,993
301,233
14.6
14.6
14.6
13.1
13.1
13.1
14.6
iat.
12.3
2.352.320
30.6
70,935
60,017
18.0
10.073
7.9
3,656
0
0.0
0
0.0
I,222454
Pedodids:
I” cwnty.. ..............................................
o*kle
cowlty (note 2). .......................
Total Per,od,cals.. .............................
897.069
9.467.716
10,364,785
2at.991
4.456.267
4,720,258
4.7
7.5
7.3
14.346
244.127
256,473
19.3
18.3
16.3
Standard Ma,,:. ...........................................
Enhanced Carrier Route (note 2). .........
Regular (note 2). ....................................
Total Standard Mail
35.700.637
54.356,510
90.057.147
5.332.509
5,610,lM
11,142,647
2.4
1.7
2.0
299.5ol
327.663
627.164
17.6
17.7
17.6
PackagE Servkas:
Parcel Post.. ...........................................
Sound Printed Matter.. ..........................
Media Mail (note 2). ................................
Total Package Services.. ..................
324,167
%4l,218
244.946
1,126,431
2,Mo,970
1*393,631
349,272
3,773,773
100.7
39.5
22.9
53.5
290.8%
97,514
31,623
419,925
7.0
14.2
11.1
a.0
see accompanying
notes.
SUMMARY OF REVENUE AND COST FOR MAJOR SERVICE CATEOORIES
Base Year 2000
VOLUME
Classes and Sub-Classes of Mail
(note 1,
(thousands)
STATISTICS
Weight in
Pounds
(thousands)
Weight per
Piece
(ounces)
Cubic Feet
(thousands)
Weight per
Cubic Foot
(pounds)
US Postal Service.. ....................................
362,913
95,307
4.2
6,734
14.2
Free Mail -blind, handicapped 8
ServIcemen.. ...............................................
46,639
25,134
8.6
2,455
10.2
Yell.. .....................................
1.101.024
259,140
3.8
24.516
10.6
207,663.695
26.640,623
2.1
1.841.689
14.6
international
Total Mail.. ..................................................
Special Services:
Registly .................................................
Ancillary Services.. ................................
Total Registry ......................................
Certified .................................................
Ancillary Sew&s.. ................................
Total Certified.. ...................................
insurance ................................................
Ancillary Services.. ................................
Total Insurance.. .................................
COD .......................................................
Ancillary Services.. ................................
Total COD.. ..........................................
Money Orders (note 2) ........................
Stamped Cards.. .................................
Stamped Envelopes.. ..........................
Special Handling. ................................
Post Office Box.. .................................
Other.. ..................................................
Total Special Services.. .....................
See accompanying
notes.
6.913
N/A
NIA
N/A
N/A
N/A
NIA
N/A
N/A
N/A
N/A
NIA
NIA
NIA
NIA
N/A
NIA
NIA
NIA
NIA
NlA
NIA
N/A
N/A
NIA
NIA
N/A
NIA
N/A
N/A
NIA
NIA
N/A
N/A
NIA
N/A
N/A
NIA
N/A
NIA
N/A
N/A
NIA
NlA
N/A
2.444
11.357
267,635
231,660
499,495
55.790
1.671
58.461
4,131
0.0
4.131
231.213
0.0
0.0
a.0
0.0
123,942
927,708
UNITED STATES POSTAL SERVICE
NOTES TO COST AND REVENUE ANALYSIS
Base Year 2000
1.
Cost
and Revenue
Analyris
The U.S. Postal Service (Postal Service) annually prepares the Cost and Revenue Analysis (CRA) covering the period from October 1 through
September 30. The CRA aids us in determining
that we am meeting the statutmy requirements
under Title 39 U.S. Code. that “each class of mail
or type of mail service bear the direct and indirect costs attributable
to that class or service....”
me CR.4present9 management’s estimates of the
total and per unit revenue by category of mail or service. It also presents each category’s
estimated incremental
and marginal costs. Thesa
estimates are considered
BI one element of the post91 rate making pmceos.
The postal system of accounts
is the basis for CRA data; however, the postal system of accounts generally does not accumulate
financial data by
class and subclaw
of mail. Apportionment
factors, derived from various postal operational
and statistical
information
sources. are requlrsd for
developmwd
of the data for CRA purposes.
Some of these souses
(e.g., In-Offfce Cost System and Revenue, Pieces and Weight (RPW) System)
are dedicated to this pu-e
and involve extensive statistical sampling of postal activity during the year. We cornpam and scale calculated
amounts to actual data in the postal system of accounts. as appropriate.
With mspact to the RPW system, while calculated sample rowwe
should approximate
actual Postal Service rwenue, the RPW system has been designed to accommodate
and adjust far any differences.
Although
the accuracy of the RPW system does not necessarily
depend on how close calculated
rewnue is to actual rwenue, we are investigating
masons
for an increased difference
between the two In Base Year (BY) 2000.
In the BY 2000 CfL4, we reverted to a pm-1999 method for computing city carrier costs to conform our CRA methodology
to the Postal Rate
Commission
(PRC) approach.
Other methods we proposed that hsve not been adopted by the PRC am stfil used in the CRA development
For
example, w attribute mail pmcsssing
costs dlffemntly
from the PRC, generally assuming that casts Vary less than proportionately
with Volume.
The methods employed in developing
CRA data an described In the Summary Description
and In testimony we flied before the PRC. These
documents are available from Product Cost Analysis in finance.
2. Definitions
--An
estimate of the cost we incur as
Incremental
cost of a subclass of mail or ser~iw can be
seervice, assuming that all other products continue to be
whether the customers
of one subclass of mail (or group
subclass of mail (or group of SUMSSSSS.)
a result of providing the entire annual quantity of a subclass of mail or service.
determined
by esthnating the cost avoided by eliminating
that particular subclass of
provided at their current volumes.
The purpose of this determination
is to indicate
of subclasses)
may be subsidizing
(or contributing
revenue to) customers
of another
volume
Costi - We estimate the marginal cost of a subclass or mail category as the change
alone, when the volumes of other subclasses
or mail degOrieS
remain constant.
Volume
Variable
&rain&
CQ&
- Volume
times Marginal
in cost that results
from a small change
in itr
Cost.
5
Contribution-Revenue
per piece minus
cost
Coveraae
- Revenue
&66
- Fess associated
Marginal
Cost per piece.
per unit as a percentage
with a specific
International
Mail -International
include foreign origin mail.
of Marginal
class or subclass
mail costs
include
Contribution
Cost.
indicates
the rate at which
Unit Revenue/Marginal
of mail are included
costs of both U.S. origin
offsets
all other costs.
Cost times 100.
in the reported
and foreign
a given subclass
revenue
origin
for that class or subclass.
mail and special
services.
Volume
statistics
do not
Miscellaneous
Items-Miscellaneous
items include philatelic sales, fees, fines, unclaimed money from dead letters, sales of services performed
for government
agencies and private contractors.
They do not include the $48.6 million in revenue earned from the money order float, which is
included In special services and international
mall revenue in the CRA.
Combined
27,200O):
Mail Categgci#.6-
The following
mall categories
include
more than one subclass
due to the enactment
of Public
Law X&3&6
(October
“Outside County” contains Nonprofit Periodicals,
Classmom Periodicals
and Regular Periodicals.
“Enhanced
Carrier Route” (ECR) contains Standard A Nonprofit ECR and Standard A Regular ECR.
“Regular”
contains Standard A Nonprofit and Standard A Regular.
“Media Mail” contains Library Rate and Special Standard.
3.
~isclellaneous
A)
Mortgage
Adiustments
income
of SO.6 million
Operating Revenue per Annual
Mortgage Income
Other Interest Income
Annual Report Revenue
CRA Report
6)
Interest expense
Expenses.
was included
)
-...”-........
_.,..
_..-- -_-.-...
_-_..
-.___
Expenses
in the Annual
Report
and is reported
as miscellaneous
revenue
in the CRA.
A
s!2k%zm
Revenue
on borrowings
income
(In millions)
S64340.0
Report
and unfunded
Operating Expenses per Annual Report
Interest expense on borrowings
Interest expense on unfunded retirement
Annual Report Expenses
CRA Report
with interest
retirement
liabilites
liabilities
shown
(in millions)
$62,992
220
rci4sen
&!2%?@
1
separately
in the Annual
Report is reported
as part of CRA Report
4.
Product
SDecific
Product specific
of overall costs,
Cost6
costs represent a portion of the incremental
cost of certain subclasses
of mail. Though
they are a significant
part of certain subclasses,
as shown below (in millions):
Priority Mail
Express Mail
International
Mail
5.
&IQ&
Volume
variable
All figures in
Percents am
- Denotes
( ) Denotes
,,, ,,
$276.7
264.3
64.5
costs are for the printing
costs related to stamped
the CRA are rounded and may not add to totals.
rounded to the nearest decimal.
zero values.
negative values.
cards.
these costs
make
up a very small potion