BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20266-0001
POSTAL RATE AND FEE CHANGES, 2001
Docket
No. R2001-1
DIRECT TESTIMONY
OF
LARAINE B. HOPE
ON BEHALF OF
UNITED STATES POSTAL SERVICE
TABLE OF CONTENTS
INTRODUCTION
. . . . . . . . . . . . . . . . . . .. .. . .. . . .. . .. . .
CONTENTS . . ..,......................................
,,....................................,,..................................lll
LIST OF TABLES
AUTOBIOGRAPHICAL
SKETCH .. . .. . .. . .. . .. .. . .. . .. . .. . .. . .. . .. . .. . . .. . .. . .. . . .. . .. . .. . . .. . .. . .. . .. . .. . .. . . iv
I.
PURPOSE
II.
PROPOSAL
Ill.
OF TESTIMONY
..,.........,..,..,..,..,..,..,..,..,....,....,..............................
OVERVIEW
A.
Proposed Classification
B.
Average Rate Changes...
STANDARD
1
Change . . . . . .
. . ..
., . . . . . .
MAIL ENHANCED
CARRIER
......
...... .....
. . . . . . . . . . .4
. . . . . . . .. . .. . .4
ROUTE SUBCLASS
A.
Characteristics..
B.
History of Rate Design ...................................................................
.6
C.
Proposed
Classification
.9
D.
Proposed
Rate Design
E.
...........................................................................
Change ......................................................
.5
1.
Rate Design Formula.. ...........................................................
.l 1
2.
Pound Rate ..........................................................................
.l 1
3.
Breakpoint..
.21
4.
Shape Recognition
..........................................................................
.....................................................
22
Differential.. .....................................................
23
a.
Residual Shape Surcharge..
b.
Letter/Nonletter
5.
Automation..
......................................................................................
24
6.
Density Tiers .....................................................................................
25
7.
Destination
Entry .... ...........................................................................
Summary of Proposed
Enhanced
Carrier Route Rates.. ..........................
27
32
ii
IV.
STANDARD
ENHANCED
CARRIER
ROUTE
..........................................................................................
A.
Characteristics
B.
History of Rate Design.. ............................................................................
C.
Proposed
D.
V.
MAIL NONPROFIT
33
34
Rate Design
1.
Rate Design Formula.. ......................................................................
35
2.
Pound Rate and Breakpoint.. ............................................................
36
3.
Shape Recognition
.....................................................
36
Differential.. .....................................................
37
a.
Residual Shape Surcharge..
b.
Letter/Nonletter
4.
Automation..
......................................................................................
37
5.
Density Tiers ....................................................................................
38
6.
Destination
Entry ...............................................................................
38
Proposed
Nonprofit Enhanced
TEST YEAR 2003 FINANCIAL
EXHIBIT USPSQlA
Carrier Route Rates.. ...............................
39
SUMMARY .. .. . .. . .. . .. . . . . .. . .. .. . . . . .. . .. . . . . .. . .. . . . . . 40
Summary of ECR Volume by Density Tier and Destination
of ECR and NECR Presort Tree
APPENDIX
1 Description
APPENDIX
2 Analysis of Proposed Changes by Rate Cell for ECR and NECR
APPENDIX
3 Guide to Workpapers:
WPl (ECR) and WP2 (NECR)
Entry
LIST OF TABLES
Table 1
ECR Volume Profile
Table 2
Pound Rate Proposals and Recommendations:
Table 3
Comparison
Nonletters
Table 4
Summary of ECR Volume by Ounce Increment
Table 5A
Basic Tier - Percentage Change by Ounce Increment
Table 58
High Density Tier - Percentage Change by Ounce Increment
Table 5C
Saturation
Table 6
Calculation
Table 7
Density Cost Passthroughs
- Letters
Table 6
Density Cost Passthroughs
- Nonletters
Table 9
Comparison
R2001-1
Entry Cost Savings in R2000-1 and
Table 10A
Destination
Entry Discounts - USPS Proposal R2000-1
Table 1OB
Destination
Entry Discounts - Governors’
Table 1OC
Destination
Entry Discounts - USPS Proposal R2001-1
Table 11
Increase in Measured Destination
Table 12
Summary of Proposed Rates - Enhanced Carrier Route
Table 13
NECR Volume Profile
Table 14
Summary of Proposed Rates - Nonprofit Enhanced Carrier Route
Table 15
Test Year After Rates, Financial Summary
MC95-1 to R2000-1
of Cost Coverages for Piece-Rated vs. Pound-rated
ECR
Density Tier - Percentage Change by Ounce Increment
of ECR Breakpoints
of Destination
Modification
Entry Passthroughs
R2000-1
(Dollars)
AUTOBIOGRAPHICAL
SKETCH
1
2
My name is Laraine B. Hope.
I am an Economist
3
Product Design at Postal Service Headquarters.
4
for Standard
5
well as research on postal regulatory
6
Mail Enhanced
in the office of Pricing and
My responsibilities
Carrier Route and Nonprofit Enhanced
7
Relations Program Management.
8
Product Design, I was a Program Manager in Strategic Marketing,
9
responsible
10
initiatives.
11
Prior to my current assignment
analysis, and management
I was previously a Senior Associate
12
New York, where I managed
13
including trade magazines,
newsletters,
14
served as an independent
management
15
development
16
Employees
17
Museum.
18
and evaluation.
projects and developed
in Pricing and
of strategic marketing
Consulting
Company
in
business plans for new ventures,
and niche book publishing.
consultant
where I was
specializing
Subsequently,
subsidiary
My clients included Amtrak, Boise Cascade,
of Doubleday
20
positions in the publishing
& Company,
Federal
R. Guggenheim
and have held other management
industry.
I received a Bachelor of Arts degree, magna cum laude, from Wesleyan
University and a Master’s degree in Business Administration
I
in product and service
I began my career as a Marketing Manager at Feffer & Simons, Inc., an
international
22
at the McNamee
in Customer
News Digest, the Museum of Modern Art, and the Solomon
19
21
Carrier Route, as
issues.
I joined the Postal Service in 1998 as a Marketing Specialist
for the development,
include rate design
from Yale University.
1
I.
PURPOSE
OF TESTIMONY
2
3
The purpose of my testimony
4
changes and rates for Standard
5
Enhanced
6
Nonprofit subclasses
7
Reference
8
This library reference is incorporated
9
are presented
developed
11
Schenk (USPS-T-43)
12
been submitted
classification
Carrier Route and Nonprofit
Rates for Standard
Mail Regular and
by witness Moeller (USPS-T-32).
contains workpapers
Rates for the commercial
10
13
Mail Enhanced
Carrier Route subclasses.
USPS-LR-J-131
is to present the proposed
cited throughout
Library
my testimony.
by reference into my testimony.’
subclass,
Enhanced
Carrier Route (ECR), are
using cost data from various cost witnesses,
and Miller (USPS-T-24).
including witnesses
Rate level requirements
have
by witness Moeller (USPS-T-28).
Rates for the preferred subclass, Nonprofit Enhanced
Carrier Route
14
(NECR), also are developed
15
accordance
16
Public Law No. 106-384, 114 Stat. 1460, which was enacted in October, 2000.
17
from cost data provided by cost witnesses,
in
with the Revenue Forgone Reform Act (RFRA), as amended
The ECR subclass was created in July 1996, consistent
Recommended
by
with the
18
Commission’s
Decision in Docket No. MC95-1, when the former
19
Third-Class
Mail Bulk Rate Regular subclass was divided into two commercial
20
subclasses,
Regular and Enhanced
Carrier Route.
’ For convenience and ease of reference, the workpapers
the acronym ‘WP” in lieu of the library reference number.
Rate changes for both
in the library reference are cited using
1
subclasses
2
recommended
3
for both subclasses
4
Governors’
5
were implemented
decisions
with the Commission’s
in Docket Nos. R97-1 and R2000-1.
In addition, rates
were changed, effective July 2001, as a result of the
modification
decision following Docket No. R2000-1.
In October, 1996 the NECR subclass was created to mirror ECR. Prior to
6
the NECR designation,
7
RFRA and prior legislation.
8
The Enhanced
9
in accordance
proposals
discussed
nonprofit mail was eligible for preferred
Carrier Route and Nonprofit Enhanced
herein meet the rate level requirements
by witness Moeller.
Carrier Route
(cost coverage
10
specifications)
11
current rate design elements and maintain current rate relationships,
12
limiting individual rate cell increases to less than 10 percent.
13
increases to less than 10 percent allows the rates to vary around the average
14
cost coverage in a manner that reflects costs and maintains current rate
15
relationships,
16
proposed
rates under the
while not disproportionately
In addition, the proposals
commercial
18
consistency,
19
An example of structural consistency
20
that the proposed
21
appropriate
22
higher than the 5-digit automation
and nonprofit subclasses
where appropriate,
destination
rate relationship
while
Limiting rate cell
affecting any single category.
Rate design between the Regular and Enhanced
17
build on
Carrier Route
has been coordinated
and to maintain appropriate
to assure structural
rate relationships.
between the two commercial
entry discounts are identical.
is that the proposed
subclasses
is
An example of an
ECR basic letter rate is slightly
letter rate in the Regular subclass.
This
3
1
maintains the current rate relationship
2
mailers.*
and encourages
* See PRC Op., R97-l , n 5560; PRC Op., R2000-l, n
5381.
the use of automation
by
1
II.
PROPOSAL
OVERVIEW
2
Proposed
Classification
Change
3
A.
4
In this docket, the Postal Service proposes a requirement
5
NECR High Density and Saturation
that ECR and
Letters bear barcodes
6
7
B.
8
The average percentage
9
Enhanced
Average
Rate Changes
change in revenue per piece for Standard
Carrier Route and Nonprofit Enhanced
10
proposal are as follows: 6.19 percent for Enhanced
11
percent for Nonprofit Enhanced
Carrier Route under this
Carrier Route and 6.47
Carrier Route.4
3 See Section IILC. for details.
4 See WPI, p. V and WP2, p V. For percentage changes by rate cell, see Appendix 2.
1
III.
STANDARD
MAIL ENHANCED
CARRIER
ROUTE SUBCLASS
2
3
A.
Characteristics
4
In Docket No. MC95-1, the Postal Service proposed,
5
recommended,
the creation of the Enhanced
6
distinct cost and market characteristics
7
fully and fairly recognized.
8
Enhanced
9
targeted advertisements,
and the Commission
Carrier Route subclass so that the
of mail within this subclass could be more
Carrier Route (ECR) consists primarily of geographicallywhich generally feature widely-used
products or
10
services.
11
and real estate agents, as well as larger mailers who consolidate
12
advertising
13
are limited to merchandise
14
relative to the Regular subclass.
15
concentrated
16
few as 10 pieces per carrier route in the Basic tier.
17
Examples of ECR users include local shops, service establishments,
pieces from local establishments.
geographic
Parcel-shaped
multiple
pieces within ECR
samples and are less prevalent in the ECR subclass
ECR pieces are typically addressed
to a
region, although this subclass includes mailings with as
Total ECR volume in FY 2000 was 32.78 billion pieces.
The following is
18
an overview of the current ECR volume profile, based on FY 2000 Billing
19
Determinants.’
5 Detailed volume and weight information
is in WPl, page A.
Table #l
ECR VOLUME PROFILE IN FY 2000
Percentage of Total
1 Basic
I
1 Auto 1 High Density
I
I
6.0%
1.3%
12.9%
19.2%
NIA
2.6%
2.0%
17.1%
NIA
6.0%
49.2%
5.9%
Letters (PC-rated)
Nonletters(pc-rated)
Nonletters (lb-rated)
Total
Source: Billing Determinants,
Figures are rounded.
1
2
-.
..
1 saturatton
I
-
1
I
lotal
31.3%
41.2%
27.4%
11.1%
19.4%
8.3%
38.8%
100.0%
USPS-LR-J-96.
Detailed revenue, volume, and rate histories are available in Library
References
USPS-LR-J-90
and USPS-LR-J-91.
3
History
of Rate Design
4
B.
5
In Docket No. R90-1, the Postal Service proposed,
adopted, a rate design methodology
7
subclass, which used an equation to calculate rates.
8
the inputs required for the equation included: the selection of a benchmark
9
category from which discounts will be applied, selection of a breakpoint,6
10
11
12
for the third-class
and the Commission
6
Bulk Rate Regular
Prior to Docket No. R97-1,
cost coverage for the subclass, and a piece rate for pound-rated
formula so that the pound rate would be an input to the equation,
a target
mail.’
In Docket No. R97-1, the Postal Service proposed a modification
.
to the
rather than the
’ The breakpoint is the maximum weight for a piece subject to the minimum per-piece rate.
’ Docket No. MC95-l, n 5639.
1
solution.
2
rather than an input. Another output of the formula, before and after the Docket
3
No. R97-1 modification,
4
Commission
5
“distinction
6
Docket No. R2000-1 Recommended
7
Alternatively,
the piece rate for pound-rated
is the basic undiscounted
adopted these modifications,
without a difference.“g
mail would be an output,
piece rate for nonletters.’
noting that the change was a
The Commission
used the same formula in its
Decision.
As noted above, in Docket No. MC95-1, the Commission
of two commercial
subclasses
recommended
8
the establishment
9
and used separate formulas to develop rates for these subclasses
to replace Bulk Rate Regular,
10
MC95-1 15639).
11
of separate
12
recommended
13
High Density tier, and placed the carrier route automation
14
Carrier Route subclass.
15
The
In that same docket, the Postal Service proposed
(PRC Op.,
elimination
rates for letters in the new subclass, but the Commission
retention of the existing letter rates, introduced
The presort free, which was introduced
rate in the Enhanced
by witness R.W. Mitchell in Docket
16
No. R90-1, is the means by which the effective passthroughs
17
cost passthroughs)
18
witness Moeller (USPS-T-32)
19
Standard
20
used to calculate the effective passthroughs
at different presort tiers are calculated.
Regular subclasses.
B PRC op., R97-1,n 5375.
’ PRC Op., R97-1,15376.
explains the implications
For Enhanced
a letter rate for the
(i.e., measured
In this docket,
of the presort tree in the
Carrier Route, the presort tree is
at the three density tiers: Basic,
1
High Density, and Saturation,
2
Docket No. R97-1, the Postal Service proposed the elimination
3
differential
4
category itself, and the Commission
5
means, in practice, that the Basic Letter rate is equal to the Basic Nonletter rate,
6
retention of a separate Basic letter tier facilitates the rate design.
7
as well as the effective shape passthroughs.”
for letters in the Basic tier, without elimination
recommended
the Postal Service and recommended
9
witness Crum’s testimony
the change.
by the Commission.
(Docket No. R97-1, USPS-T-27),
difference
which demonstrated
11
and the costs for the remaining pieces in the nonletter categories
12
and Enhanced
13
proposed,
and the Commission
14
surcharge
for Standard
15
in Regular to encourage
16
shape surcharge
between the costs for flat-shaped
17
Regular parcels and the barcode discount.
pieces
of both Regular
In Docket No. R2000-1, the Postal Service
recommended,
an increase in the residual shape
Mail Regular, and a parcel barcode discount was added
use of automation.
The recommended
was equivalent to the difference
ECR residual
between the surcharge
No structural changes to the basic rate design of the Enhanced
Route subclass were made as a result of Docket No. R2000-1.
20
change is being made in this docket with regard to calculation
21
costs. This change is a result of Public Law No. 106-384, 114 Stat.1460,
22
amending
Separate costs for the Enhanced
However, one
of volume variable
Carrier Route and
” For a more detailed description of the ECR presort tree, see Appendix
on
Carrier
19
the RFRA.
by
This was based on
a significant,
Carrier Route.
Although this
was proposed
10
18
measurable
of a rate
of the letter rate
Also in Docket No. R97-1, a residual shape surcharge
8
In
1,
1
Nonprofit Enhanced
Carrier Route subclasses
are no longer available;
2
one set of costs is provided that combines data for both subclasses.
instead,
Since the rate design formula requires volume variable costs as an input
3
4
for both Enhanced
Carrier Route and Nonprofit Enhanced
5
reasonable
6
each of the two subclasses.
7
determine
8
Route, the ratio of commercial
9
plus NECR costs was determined
Carrier Route, a
estimate had to be developed for allocating the combined
costs to
Data from Docket No. R2000-1 were used to
the cost shares of the respective subclasses.
For Nonprofit Enhanced
For Enhanced
ECR costs to the sum of commercial
and applied to the aggregate
Carrier
ECR costs
volume variable
10
costs.
Carrier Route, the ratio from Docket No. R2000-1
11
of NECR costs to the sum of commercial
ECR costs plus NECR costs was
12
determined
volume variable costs in this docket.
and applied to the aggregate
13
Proposed
Classification
Change
14
C.
15
In this docket, the Postal Service is proposing
that High Density and
16
Saturation
17
other Postal Service requirements
18
existing requirements
19
would be subject to the basic Enhanced
20
nonletter rate, assuming they meet the other requirements
21
letters must bear delivery point (i.e., 1 l-digit) barcodes
for automation
compatibility,
and meet
in addition to the
for the rates. Letters that are not automation-compatible
This proposed
Carrier Route rate or the appropriate
change applies to both Enhanced
in these density tiers.
Carrier Route and
22
Nonprofit Enhanced
Carrier Route.
It promotes fairness and equity by applying
23
uniform automation
criteria to ECR letter rates in these tiers, resulting in a more
24
logical rate relationship
with the nonletter rates. To the extent that this mail is
10
1
merged into the DPS mailstream,
2
(USPS-T-39),
3
therefore
4
Density and Saturation
letters automation-compatible
5
at the Basic Enhanced
Carrier Route rate or at the appropriate
6
it has advantages
an issue addressed
over non-automation
deserves rate recognition.
The proposed
classification
by witness Kingsley
compatible
nonletters
and
(Mailers who choose not to make their High
have the option of mailing
nonletter rate.)
change is desirable from the perspective
of
7
mailers and the Postal Service because it will allow more flexibility and options in
8
mail processing
9
barcoding
and delivery, and increased
has the potential to decrease
reliability.
As noted above,
handling and sortation for DPS mail. In
10
addition, barcoded
pieces will allow automation
equipment
11
assignment
12
current system, mailers must update their software at least three months before
13
the mailing; as witness Kingsley (USPS-T-39)
14
change on a regular basis. Witness Kingsley describes the operational
15
advantages
16
change in her testimony.
17
This classification
updates earlier than would be otherwise
to “catch” carrier
be possible.
Under the
explains, carrier assignments
and potential cost savings implications
of this proposed
classification
change was taken into account in determining
passthroughs
in the High Density and Saturation
the
18
Letter-Nonletter
19
gap between High Density letters and nonletters,
20
widened, from the current 0.3 cent to 0.5 cent, a 66.6 percent increase.
21
Saturation
tier, the gap was widened from 0.4 cent to 0.7 cent, a 75.0 percent
22
increase.
These figures represent significant savings to mailers who barcode
23
their High Density and Saturation
letters.
measured
tiers. The rate
in cents, was
At the
11
1
2
D.
Proposed
1.
3
4
The proposed
Rate Design
Rate Design
Formula
rate design uses the Commission’s
5
design formula from Docket No. MC951
6
modifications
methodology
and rate
along with the recommended
from Docket Nos. R97-1 and R2000-1.
7
2.
8
9
Pound
Rate
The Postal Service is proposing a pound rate of 59.8 cents for Enhanced
10
Carrier Route.
This reduction of 6.3 percent from today’s pound rate of 63.8
11
cents is not as large as the reductions
12
Nos. MC95-1, R97-1, or R2000-1.
13
proposed
14
recommended
reductions
proposed
by the Postal Service in Docket
The table below shows the Postal Service’s
over the past six years as compared
to Commission’s
rates, which were implemented.
Table #2
POUND RATE PROPOSALS AND RECOMMENDATIONS
MC951 to R2001-1
EXISTING
RATE
(cents)
66.7
66.3
66.3
iX&8
USPS
PROPOSAL
(cents)
51 .o
53.0
58.4
59.8
PERCENTAGE
REDUCTION
25.6%
20.1%
11.9%
6.3%
PRC
RECOMMENDATION
(cents)
66.3
66.3
63.8
N/A
PERCENTAGE
CHANGE
-3.49%
0.00%
-3.77%
N/A
12
1
Multiple factors support the proposed pound rate reduction.
Witness
2
Schenk (USPS-T-43)
3
the weight-cost
4
study provides unit cost estimates for each grouping by ounce increment.
5
analysis suggests that, strictly on a cost basis, a lower ECR pound rate would be
6
appropriate.
7
presents a cost study that provides detailed data regarding
relationship
of pound- and piece-rated
pieces.
Witness Schenk’s
This
In addition, these data can be further analyzed to compare the relative
8
implicit cost coverage for piece-rated
9
current (“before”) and proposed
pieces and pound-rated
(“after”) rates.”
10
the unit cost and unit revenue, through calculation
11
for piece-rated
versus pound-rated
pieces, using
The following table compares
of an implicit~cost coverage,
pieces.”
” Although cost coverage is of primary importance at the subclass level, and is not required for
s$bcategories of subclasses, in this instance, estimates of implicit coverage are enlightening.
It is not possible to break the 16 ounce weight range precisely at 3.3 ounces for the
measurement of costs, but it is possible to use 3.0 and 3.5 ounce breaks. Rather than selecting
one “dividing line,” in this analysis, comparisons are presented for both.
13
Table #3
COMPARISON OF COST COVERAGES
FOR PIECE-RATED VS. POUND-RATED ECR NONLETTERS
AmER RATES
BEFORE RATES
Source: WPI, page Y for Revenue and USPS-LR-J-59
Implicit Coverage equals Unit Revenue/Unit Cost.
1
The “Before Rates” information
for Estimated Test Year Costs.
shows that the implicit coverage for
2
pound-rated
3
coverage of the two groupings
4
that a reduction in the pound rate can be made without distorting the relative
5
implicit coverage of the two groupings.
6
between piece- and pound-rated
7
scheme with a lower pound rate (by approximately
8
both the 3.0 and 3.5 ounce dividing lines); however, the implicit coverage for
9
pound-rated pieces is still significant/y higher. It is 29.3 percentage
pieces exceeds that for piece-rated
pieces.
is not strictly necessary,
While equalizing cost
the information
The gap in the difference
pieces narrows somewhat
suggests
in coverage
in the “After Rates”
10 percentage
points under
points higher
10
than piece-rated
pieces under the 3.0 ounce dividing line, and 28.9 percentage
11
points higher under the 3.5 ounce dividing line. If a goal of rate design were to
12
have equal implicit coverage, and the pound rate were the only variable under
14
this suggests that a pound rate even lower than the proposed 59.8
1
examination,
2
cents would be appropriate.
3
In addition, this analysis confirms that there is no risk of a below-cost
4
situation for pound-rated
ECR pieces, as their implicit cost coverage
5
current and proposed
6
surprising.
7
1, high pound rate(s) have historically been supported
8
changing shape mix between flats and parcels as weight increased.13
9
pound rates were advocated
rates exceeds that of piece-rated
As described
pieces.
by witness Moeller (USPS-T-35)
under both
This is not
in Docket No. R2000-
by acknowledgment
of a
Higher
by the Postal Service prior to Docket No. MC95-1,
10
when carrier route was a part of the Bulk Rate Regular subclass.‘4
11
there was one pound rate for the entire Bulk Rate Regular
12
were heavier than flats on average for the subclass.15
13
was split into two commercial
14
be independently
15
proxy for shape.16 Although the pound rate for ECR was reduced slightly when
16
the subclass was created, it still carries traces of this former role.
17
subclasses,
evaluated to determine
Despite the proposed
subclass,
At that time,
and parcels
Since Bulk Rate Regular
Regular and ECR, each subclass can
if the pound rate needs to act as a
reduction in the pound rate, the percentage
18
change for the vast majority of pound-rated
19
below.
price
pieces is positive, as demonstrated
(Although one might suspect that a lower pound rate would result in a
” To the extent that parcels were heavier and cost more to handle, a steep pound rate generated
a higher revenue-per-piece from parcels. See Docket NO. RZOOO-1, USPS-T-35.
l4 At the time of the Commission’s decision for Docket No. MC95-1, the current ECR pound rate
was 70.7 cents. (PRC Op., MC95-1, Table V-3A, p. V-260).
l5 Docket No R84-1, USPS-RT-8 at 21.
” In Docket No. MC95-1, the pound rate was reduced by 2.4 cents. However, ECR rates were
reduced in general. Also, the pound rate was set at a level that resulted in a zero piece rate for
Saturation mail, rather than due to an explicit acknowledgment of the reduced role as proxy for
shape change.
15
price reduction for all pound-rated
by a higher per-piece
rate for pound-rated
price for most pound-rated
ECR volume.)
ounce increment in perspective
proposed
pieces, the lower pound rate is accompanied
pieces, resulting in a net increase in
To put the percentage
changes
and to further illustrate the minimal impact of the
lower pound rate on the overall ECR subclass, an examination
year volume by density tier, destination
This information,
summarized
entry, and ounce increment
Detail is included in Exhibit USPS91A.
Table #4
SUMMARY
OF ECR VOLUME
Ounce
Increment
Under 4.0
04
05
06
07
08
09
10
11
12
13
14
15
16
TOTAL
BY OUNCE INCREMENT
Percentage
of
Total Volume
79.84%
9.30%
5.21%
2.51%
1.26%
0.80%
0.41%
0.21%
0.23%
0.10%
0.06%
0.03%
0.03%
0.00%
100.0%
Source: USPS-LR-J-58.
Figures are rounded.
l7 Library Reference USPS-LR-J-58.
of test
is helpful.
based on data supplied by witness Schenk (USPS-T-43),
below.”
by
is
16
1
The series of tables below (Tables #5A- #5C) details the percentage
2
change by ounce increment for all shapes at 4 ounces and above, at all density
3
tiers, with a// destination
4
the percentage
5
negative.
6
would have to weigh over 10 ounces to realize a net reduction in price.
7
According
a
is 10 ounces and above is projected to be less than 0.7 percent in the test year,
9
which is very small.
10
entry options.
The shaded areas show the cells where
increase in the proposed
rate at that ounce increment
For example, a piece at the Basic level and no destination
to witness Schenk (USPS-T-43),
the percentage
is
entry,
of ECR volume that
The following charts, grouped by Basic, High Density, and Saturation
11
show the percentage
12
calculations
13
and include ounce cells where the change to a decrease
14
some fractional ounces with a positive or zero change.
15
percentage
ia
of performing
changes by ounce increment.
(The percentage
for volume affected at each tier are calculated
of volume affected by a decrease
the analysis.)
tiers,
change
by ounce increment
in rate may also include
This overstates
the
in rate, but is the only feasible way
17
BASIC TIER
At the Basic level, rates start to decrease
in the following ounce increments:
ounces; DSCF and DDU, 8 ounces.
volume presented
at the various destination
No Destination
entries
Entry, 11 ounces; DBMC, 9
Based on the analysis of ECR test year
by witness Schenk (USPS-T-43),
only 1.9 percent of total
ECR volume will be affected by this decrease at the Basic tier. Of all volume at
the Basic tier, 3.4 percent will be affected.
ounce increment
The percentage
rate change by
is given below:
Table #5A
BASIC TIER
Percentage Change by Ounce Increment
1 DESTINATION
11
4
5
6
7
6
9
10
11
12
Source: Calculations utilize rates from WPl, page T and USPS-LR-J-58.
13
14
15
16
1
ia
HIGH DENSITY TIER
At the High Density level, with a deeper destination
start to decrease
in the following ounce increments:
No Destination
ounces; DBMC, 8 ounces; DSCF and DbU, 7 ounces.
ECR test year volume presented
entry discount,
Entry, 9
Based on the analysis of
by witness Schenk (USPS-T-43),
percent of total ECR volume will be affected by this decrease
only 0.9
at the High Density
tier. Of all volume at the High Density tier, 13.1 percent will be affected.
percentage
rates
The
rate change by ounce increment is given below:
Table #5B
HIGH DENSITY TIER
Percentage Change by Ounce Increment
DESTINATION
l=hrrE)”
-......
11 4
5
II
I I
I
I
Source: Calculations
5
I
7
I
I
10
9
6
I
I
11
I
12
I
utilize rates from WPl, page T and USPS-LR-J-58.
13
I
14
I
15
I
16
I
19
1
SATURATION
2
At the Saturation
TIER
level, with the maximum destination
3
start to decrease
in the following ounce increments:
4
ounces; DBMC and DSCF, 7 ounces; DDU, 6 ounces.
5
ECR test year volume presented
6
percent of total ECR volume will be affected by this decrease
7
tier. Of all volume at the Saturation
6
percentage
No Destination
by witness Schenk (USPS-T-43),
Table #5C
DENSITY TIER
utilize rates from WPl, page T and USPS-LR-J-58.
only 3.0
at the Saturation
tier, 7.6 percent will be affected.
SATURATION
Entry, 9
Based on the analysis of
rate change by ounce increment is given below:
Source: Calculations
entry discount, rates
The
20
1
As demonstrated
above, the proposed
reasonable,
reduction in the pound rate of 4
2
cents is eminently
in terms of bringing the piece and pound implicit
3
coverages closer in line, and has a minimal impact on overall ECR volume.
4
also supported
5
Commission
6
R2000-1, which represented
7
arguments
a
R2000-1, 15453-5531).
by the Commission’s
recommended
of intervenors
decision in Docket No. R2000-1.
It is
When the
a 2.5~cent reduction in the pound rate in Docket No.
a 3.6 percent change, the Commission
outlined the
on both sides of the pound rate issue (PRC Op.,
The Commission
concluded
that it found:
9
10
11
12
13
14
no persuasive evidence on this record that a reduction in the pound
rate, at the Commission’s recommended level, will unduly interfere with
competition. The Commission’s recommendation
must also consider the
impact on mailers (and their customers) who pay the pound rate. (PRC
Op., R2000-l,n
5532).
15
The pound rate proposed
in this docket likewise balances the concerns of
16
those who contend that they may be disadvantaged
17
the pound rate with cost evidence that strongly suggests that the current pound
ia
rate is out-of-line with the actual costs incurred.
19
above, an examination
20
businesses
21
clearly highlights a discrepancy,
22
to the Postal Service and the pound rate paid by mailers, who are both large and
23
small businesses.
24
pound rate has been moderated
25
26
by a significant
reduction in
As the Commission
of the pound rate must also balance the interests of all
whose mailing expenses are directly affected.
Current cost evidence
even under the current proposal,
between costs
In this docket, however, the request for a reduction
in the
for several reasons,
In addition to the Commission’s
regard to the competitive
explained
environment
conclusions
in the past rate case with
and the ECR pound rate, two additional
21
1
factors were considered
in the Postal Service’s decision not to request a
2
decrease greater than 4 cents.
3
relationships,
4
considered.
5
which would make it more difficult to maintain current rate relationships
6
moderate the percentage
7
concerns of alternative
a
into account and balanced with the concerns of businesses
9
lower pound rate.
First, the guideline of maintaining
which is an important concern in Standard
A further decrease
current rate
Mail rate design, was
in the pound rate would drive up piece rates,
or
increase for individual rate cells. Second, the
providers of saturation
advertising
services were taken
that would prefer a
10
11
12
Breakpoint
3.
The proposed
breakpoint
weight, which is incorporated
13
design formula is 3.3 ounces.
14
applies across the standard subclasses,
15
(USPS-T-35)
16
The Commission
17
ia
19
20
21
22
23
24
25
26
A standardized
into the rate
3.3 ounce breakpoint,
was proposed
in Docket No. R2000-1 and recommended
which
by witness Moeller
by the Commission.
explained:
As witness Moeller indicates, the introduction of destination entry
discounts has effectively eliminated the application of a single breakpoint
to the entire Standard A subclass. Therefore, the use of a breakpoint with
four decimal places, which was adopted in the interest of providing a
smooth transition, has lost essentially all of its original significance.
Simplicity and practicality are a/so valid considerations in rate
administration. (PRC Op., R2000-l,n5401,
emphasis added).
The 3.3 ounce designation
cell, as demonstrated
is near the actual breakpoint
by the following chart, using current rates:
weights by rate
22
I
Table #6
CALCULATION OF ECR BREAKPOINTS
Minimum
per Piece
(Dollars)
Pound-rated
Per piece
(Dollars)
None
0.176
DBMC
DSCF
DDU
0.159
0.154
0.149
0.046
0.046
0.046
0.046
pieces
Per pound
(Dollars)
Calculated
Breakpoint
(Ounces)
0.636
0.545
0.524
0.496
3.3103
3.3174
3.2977
3.3092
Source: WPl, page Z.
As demonstrated
1
above, a standardized
3.3 ounce breakpoint
2
rate design and is, in fact, very close to actual calculated
3
change in the breakpoint
4
docket, as in Docket No. R2000-1, the 3.3-ounce
5
Standard
simplifies
breakpoints.
as it affects ECR rate design is proposed.
breakpoint
No
In this
applies across all
Mail subclasses.
6
7
4.
Shape Recognition
a.
a
9
Residual
Shape Surcharge
As noted above, in Docket No. R97-1, the Postal Service proposed
10
surcharge
11
parcels.
12
subclass, the proposed
surcharge
13
surcharge
This ECR surcharge
14
Regular parcels eligible for the proposed
15
testimony of witness Moeller (USPS-T-32).)
a
for pieces that are neither letter- nor flat- shaped, or are prepared as
This proposal was recommended
is 20 cents.
by the Commission.
In the Regular
is 23 cents, and in ECR, the proposed
is equivalent to the net surcharge
barcode discount of 3 cents.
(See
on
23
1
Parcels are a small portion of ECR volume, comprising
According
less than 0.07
2
percent of total ECR nonletters.‘*
to Witness Schenk (USPS-T-43),
3
parcels will comprise only 0.05 percent of ECR volume in the test year.lg
4
parcel-shaped
5
samples.
6
Address Labels (DALs); thus, merchandise
7
surcharged
a
therefore are not surcharged.
The
pieces allowed to be mailed at ECR rates are merchandise
Pieces of these dimensions
are also required to use Detached
samples with DALs are the only
pieces in ECR. Some merchandise
samples are mailed as flats and
9
b.
10
11
LetterhVonletter
Differential
In Docket No. MC95-1, the Postal Service proposed
elimination
of
Enhanced
Carrier
12
separate
13
Route subclass.
14
shape, recommended
15
and extended
16
Docket No. R97-1, the Postal Service did not propose elimination
17
letter categories,
ia
differential
19
passthrough
20
other tiers, was proposed to balance the Commission’s
rates for letters at all density tiers in the proposed
The Commission,
citing data showing a cost difference
the continuation
of the existing rate categories
by
for letters
letter rates to High Density (formerly 125-piece walk sequence).
but it did propose a passthrough
of zero percent for the Basic tier.”
In
of all ECR
for the letter/nonletter
A zero percent shape
at the Basic tier, combined with rate distinctions
for letters at the
concern for recognition
of
” See WPl, page I.
” Library Reference USPS-LR-J-56, Section 2, at 1.
“The proposal did not include the elimination of the Basic letter rate category; however, since the
rate is equal to the nonletter rate, letters and nonletters were subject to a single rate.
24
1
cost differences
2
program.”
3
with the Postal Service’s concern regarding
The Commission
recommended
the proposal.
In Docket No. R2000-1, the Postal Service proposed
4
passthrough
5
Density tier, and 95 percent at the Saturation
6
same as those used by the Commission
7
Decision.
at the Basic tier, along with a passthrough
a
the passthroughs
9
effective cost basis (see discussion
The Commission’s
a zero percent
of 65 percent at the High
tier. These passthroughs
were the
in its Docket No. R97-1 Recommended
recommendation
on a percentage
its letter automation
in Docket No. R2000-1 changed
basis and increased the passthroughs
on an
under Section 6, “Density Tiers,” below).
10
11
12
5.
Automation
In Docket No. MC95-1, the Commission
letters in the Enhanced
recommended
a discount for
13
Basic automation
14
the Postal Service proposes a passthrough
of 76 percent of the cost differential,
15
or a discount of 2.3 cents. This represents
a 0.2 cent increase over the discount
16
recommended
17
Commission
ia
which netted to a 2.1 cents discount.)
by the Commission
recommended
Carrier Route subclass.
in Docket No. R2000-1.
a 100 percent passthrough
In this docket,
(In that docket, the
off of a different base,
” In Docket No. MC95-1, the Commission acknowledged the Postal Service’s concern that lower
rates for carrier route letter mail would be counterproductive to the Postal Service’s letter
automation program, but on balance determined that it could not ignore cost differences of the
magnitude presented by Postal Service witnesses. PRC Op., MC95-1, fl 5593.
25
1
2
6.
Density
Tiers
Prior to Docket No. R97-1, density discounts were based solely on
3
delivery cost differences.
In that proceeding
4
proposed
were based on the combined
5
delivery cost differences.
6
rate differentials
and in Docket No. R2000-1, the
and
This docket closely follows the design of the Docket No. R2000-1
7
proposal and subsequent
a
presented
9
help ascertain the relevant mail processing
Commission
recommendations.
by witness Schenk (USPS-T-43)
An updated study
uses In-Office Cost System data to
cost differences
10
density tier rate differentials.
11
calculated
12
order to facilitate the desired rate relationship
13
automation
14
mail processing
that underlie the
The High Density and Saturation
letter rates are
off of the Basic letter rate, which is set to equal the nonletter rate in
with Regular subclass 5-digit
letters.
In this proposal, close attention was paid to the measured
15
amounts (in cents), with the goal of maintaining
16
discounts,
17
percent, resulting in a difference of 3.0 cents, between Basic and High Density,
ia
and 85 percent, resulting in a difference of 1 .l cents, between
19
Saturation.
20
High Density Letter tier and 0.3 cent at the Saturation
21
following chart summarizes
if feasible.
The proposed
or increasing
passthrough
the absolute
letter density tier passthroughs
are 80
High Density and
This results in an increased cost savings to mailers of 0.5 cent at the
tier for letters.
The
the current Postal Service proposal for letters, as
26
well as the proposal in Docket No. R2000-1 and the Commission’s
recommendations
in Docket No. R2000-1, which were implemented.**
4
Table #7
DENSITY COST PASSTHROUGHS
Letters
5
6
7
Basic
High
Density
Saturation
R2001,-1
USPS: ;
Proposed
PRC Op.,
R2000-1
0.8 cent
2.5 cents
:
10
11
Application
of the rate design formula, specifically,
12
in passthroughs
of 73.8 percent, or a difference
13
High Density nonletters,
14
High Density and Saturation
15
measured
of 2.5 cents, between
and 108.3 percent, or a difference
cost passthroughs
nonletters.
the presort tree, results
Basic and
of 0.9 cent, between
The following chart summarizes
the
for nonletters.
22 Density discounts per se were not changed by the modification
modification affected all of the piece rates in a uniform manner.
to Docket No. R2000-1.
The
27
Table #8
DENSITY COST PASSTHROUGHS
Nonletters
Basic
2.2 cents
PRC Op.,
R2000-1
1
Saturation
High
Density
In summary, the proposed
passthroughs
0.7 cent
for ECR density discounts
2
remain sensitive to the rate increases for individual rate categories
3
relevant rate relationships
4
R2000-1.
Where possible, savings to mailers using the High Density and
5
Saturation
tiers have been increased, without unduly raising the basic rates.
as recommended
by the Commission
and preserve
in Docket No.
6
7
a
9
Destination
7.
Destination
Entry
entry discounts were first proposed
in Docket No. R90-1 and
offered in 1991. They reflect a significant portion of the savings realized by the
10
Postal Service when mailers dropship their bulk mail deep into the postal
11
operational
12
for Standard
13
use barcodes.
system.
(Other worksharing
Mail include an automation
incentives offered by the Postal Service
discount, which encourages
mailers to
In this docket, current estimates of the savings due to destination
28
1
entry are presented
by witness Schenk (USPS-T-43).
2
compares
3
with those presented
the current measured
The following chart
cost savings in dollars presented
in Docket No. R2000-1 by witness Crum (USPS-T-27).
4
Table #9
5
COMPARISON OF DESTINATION ENTRY
COST SAVINGS IN R2000-1 and R2001-1
6
7
Cost Savings Per Pound
RZOOl-1
RZOOO1
a
by Schenk
DBMC
DSCF
DDU
Difference
(Cents)
(Percentage)
0.117
0.147
0.185
0.114
0.140
0.173
2.6%
5.0%
6.9%
0.003
0.007
0.012
9
1:
12
13
Source for R2000-1: Moeller, WP lat 7
Source for RZOOl-1: USPS LR-J-131 at. G.
To maintain the integrity of the rate design, and to facilitate a smooth
14
transition from minimum-per-piece-rated
15
must be uniform destination
16
pieces at each of the respective destination
17
breakpoint,
18
rated discounts.
19
BMCs is x percent, then the per piece passthrough
20
also be x percent, and the discount must assume a 3.3 ounce piece.
21
docket, the Postal Service proposes an 85 percent destination
22
for all subclasses
23
Schenk’s cost savings analysis and results in increased savings for mailers at a//
24
destination entry points.
25
26
rates to piece-pound-rated
delivery passthroughs
entries.
for pound- and piece-rated
Also, a standardized
3.3 ounces, must be used as the weight for calculating
In other words, if the per pound passthrough
of Standard
Mail. This percentage
It is difficult to compare the passthrough
pieces, there
the piece-
at destination
at destination
BMCs must
In this
entry passthrough
is applied to witness
percentages proposed by the
Postal Service in Docket No. R2000-1 with those recommended
by the
29
Commission
in that docket.
The calculated
used as the basis for the passthrough
the two analyses.
meaningful.
A straightforward
costs and, thus, the cost savings
percentages,
were somewhat
different in
of measured savings is more
comparison
The following series of charts summarize
the calculated
destination
entry cost savings, on a per pound and per piece basis for ECR. They compare
the underlying
cost differences
with destination
entry discounts
proposed
or
adopted in Docket No. R2000-1 and this docket.
Table #lOA
DESTINATION ENTRY DISCOUNTS
USPS PROPOSAL R2000-1
Cost Savings (Dollars)
Perpound
DBMC
DSCF
DDU
0.114
0.140
0.173
Perpiece
0.024
0.029
0.036
Source: Docket No. R2000-1, Moeller WPI at 9.
Passthrough
Percentage
73.0%
77.0%
77.5%
Net Discount (Dollars)
Perpound
0.083
0.108
0.134
Perpiece
0.017
0.022
0.028
30
Table #lOB
DESTINATION ENTRY DISCOUNTS
GOVERNORS’ MODIFICATION R2000-1
Cost Savings (Dollars)
DBMC
DSCF
DDU
Per piece
0.023
0.026
0.035
Perpound
0.111
0.136
0.171
Passthrough
Percentage
64.0%
64.0%
62.0%
Net Discount (Dollars)
Perpound
0.093
0.114
0.140
Per piece
0.019
0.024
0.029
Source: PRC Op., R2000-1, GOVS-LR-8 at 9.
Table #lOC
DESTINATION ENTRY DISCOUNTS
USPS PROPOSAL R2001-1
Cost Savings (Dollars)
DBMC
DSCF
DDU
Per pound
0.117
0.147
0.165
Per piece
0.024
0.030
0.038
Passthrough
Percentage
85.0%
65.0%
85.0%
Net Discount (Dollars)
Perpound
0.100
0.125
0.157
Per piece
0.021
0.026
0.032
Source: WPl, page G.
1
In this docket, the following per pound increases are proposed:
0.7 cent
2
for DBMC entry; 1 .l cents for DSCF entry; and 1.7 cents for DDU entry.
3
piece increases of 0.2 cent for DBMC and DSCF destination
4
along with an increase of 0.3 cent for DDU. The increase in measured
5
destination
entry passthrough
Per
entry are proposed,
amounts, in dollars, is summarized
below.
31
Table #ll
INCREASE IN MEASURED
DESTINATION ENTRY PASSTHROUGHS
(Dollars)
Per Pound
R2000-1 USPS
From:
Per Piece
1 PRC Op. 2000-l
7
PRC Op. 2000-l
To:
R2001-1 USPS
DBMC
DSCF
DDU
Source: Calculations
1
derived from Tables #lOA - #lOC.
The proposed
destination
entry discounts across the Standard
Mail
2
subclasses
continue to recognize the cost savings due to dropship, while limiting
3
increases in the basic rates. For example, ceteris paribus, if all of the destination
4
entry passthroughs
5
piece rate increase in ECR would be 11.8 percent, rather than 9.0 percent.
6
non-destination
7
than 8.9 percent, and the Saturation
8
percent and 10.7 percent, respectively,
9
under the current proposal.
were increased to 100 percent, the basic letter/nonletter
Basic automation
The
letter rate would increase 12.1 percent, rather
letter and nonletter increases would be 9.0
rather than 5.5 percent and 7.4 percent
Many individual rate cells would increase over 10
10
percent, including Basic letters and nonletters, with no destination
entry discount
11
and with BMC destination
nonletters with
12
no destination
13
In short, passing through more than 85 percent of the destination
entry discount.
Piece-rated
saturation
entry discount would increase over 10 percent at all density levels.
entry cost
32
1
savings would drive up basic and other rates. Although the specific examples
2
differ, this principle applies across other Standard
Mail subclasses
as well.
3
4
E.
Summary
of Proposed
Enhanced
5
Below is a summary of the proposed
Carrier
Enhanced
Route Rates
Carrier Route rates:
Table #12
SUMMARY OF PROPOSED RATES
ENHANCED CARRIER ROUTE
(Dollars)
Entered at Destination
BMC
SCF
DDU
Letters
Basic
Auto
High Density
Saturation
0.194
0.171
0.164
0.153
0.173
0.150
0.143
0.132
0.168
0.145
0.138
0.127
0.162
0.139
0.132
0.121
Nonletters (pc-rated)
Basic
High Density
Saturation
0.194
0.169
0.160
0.173
0.148
0.139
0.168
0.143
0.134
0.162
0.137
0.128
Nonletters (lb-rated)
Per piece:
Basic
High Density
Saturation
0.071
0.046
0.037
0.071
0.046
0.037
0.071
0.046
0.037
0.071
0.046
0.037
Per pound:
Basic
High Density
Saturation
0.598
0.598
0.598
0.498
0.498
0.498
0.473
0.473
0.473
0.441
0.441
0.441
The proposed
Source: WPl,
Residual Shape Surcharge
Page T,
is 20 cents.
33
1
IV.
STANDARD
MAIL NONPROFIT
ENHANCED
CARRIER
ROUTE
2
3
A.
Characteristics
4
In October 1996, Nonprofit Classification
Reform was implemented.
5
new structure for nonprofit mail mirrored the structure implemented
6
for commercial
7
(NECR) subclass was created to mirror the Enhanced
8
Nonprofit Enhanced
9
information
10
Standard
Mail (A). The Nonprofit Enhanced
The
in July 1996
Carrier Route
Carrier Route subclass.
Carrier Route consists primarily of requests for funds or
regarding nonprofit organizations.23
Total NECR volume in FY 2000 is 2.92 billion pieces.
The table below
11
provides an overview of the current NECR volume profile, based on FY 2000
12
Billing Determinantsz4
Table #13
NECR VOLUME PROFILE IN FY 2000
Percentage of Total
Basic
Letters (PC-rated)
Nonletters(pc-rated)
Nonletters (lb-rated)
Total
Source: Billing Determinants,
Figures are rounded.
16.1%
29.2%
5.2%
50.5%
Auto
10.2%
N/A
N/A
10.2%
High Density
2.6%
0.3%
0.1%
3.0%
Saturation
24.0%
9.3%
2.9%
36.2%
USPS-LR-J-96.
*3 Examples of NECR users include churches and both local and national philanthropic
wganizations.
Detailed volume and weight information is in WP2, page A.
Total
52.9%
38.8%
8.3%
100.0%
34
1
A more detailed history of nonprofit rate design and recent reform is
2
presented
in Section IV.&, below.
3
available in Library References
Revenue, volume, and rate histories are
USPS-LR-J-90
and USPS-LR-J-91.
4
History
of Rate Design
5
B.
6
Prior to enactment
of the Postal Reorganization
Act of 1970, Nonprofit
7
Standard
Mail (A) was eligible for preferred rates under former title 39, United
8
States Code, former sections 4452(b) and (c). Under the Postal Reorganization
9
Act, Nonprofit Standard
(A) Mail was required to cover only its attributable
10
Nonprofit Standard
Mail (formerly Third-Class
11
contribute
12
made up through annual congressional
13
In 1993, the Revenue Foregone
to the Postal Service’s institutional
costs.
Mail) was not required to
costs; the difference
appropriations
was to be
for the “revenue forgone.”
Reform Act (RFRA) was enacted.
14
RFRA mandated
15
Nonprofit Standard
16
It provided for a six-year phase-in, each year representing
17
to ultimately allow a markup of 50 percent of its corresponding
18
subclass of mail. This phase-in period ended in FY 1999. As noted in section I,
19
this was amended
20
Stat. 1460.
21
that the markup for each preferred subclass,
The
Mail (A), be tied to its corresponding
including
commercial
counterpart.
a “step” in the process
commercial
in October 2000 by passage of Public Law No. 106-384, 114
One reason for the amendment
22
and various rate anomalies
23
Classroom
24
could lead to mandated
Periodicals.
appeared,
was that extraordinarily
large increases
particularly
ECR mail and
In some instances,
in Nonprofit
markups for the nonprofit subclasses
nonprofit rates that were significantly
higher than their
35
1
corresponding
commercial
subclass rates. The new law provides that the
2
average revenue per piece in the nonprofit subclasses
3
nearly as practicable”
4
corresponding
5
piece is mandated
6
revenue per piece from ECR. [See Sen. Rpt. No. 468, 106’h Congress,
7
Session, at p. 3 (2000)]
is mandated
to be “as
to 60 percent of the average revenue per piece from its
commercial-rate
subclass.
For NECR, the average revenue per
to be as close as possible to 60 percent of the average
2”d
8
9
C.
Proposed
1.
10
11
Rate Design
Rate Design
Formula
In keeping with the effort to mirror the commercial
subclasses,
the
12
proposed
rate design uses the same formula to develop the rates for the NECR
13
subclass.
The markup selected for the formula produces
14
applied to the after-rates volume forecast with the other variables,
15
average revenue per piece of 10.06 cents. The average revenue per piece in
16
commercial
17
meets the mandated
18
the estimated average revenue per piece to be received from the most closely
19
corresponding
20
21
ECR is 16.78 cents.
relationship
regular-rate
rates that, when
result in an
This leads to a ratio of 59.9 percent, which
of “as nearly as practicable,
to 60 percent of
subclass of mail.”
In this docket, cost studies presented
provide estimates of differences
by witness Schenk (USPS-T-43)
in mail processing
and mail delivery costs by
36
1
rate categories
2
subclasses.25
in Enhanced
Carrier Route commercial
and nonprofit
3
2.
4
Pound
The proposed
5
Rate and Breakpoint
pound rate for NECR is 37 cents. This is the pound rate
6
recommended
by the Commission
7
breakpoint
8
mirrors the breakpoint
9
was proposed
by Postal Service witness Moeller in Docket No. R2000-1 and was
10
recommended
by the Commission.
weight incorporated
in Docket No. R2000-1.
The proposed
into the rate design formula is 3.3 ounces.
weight used for the other Standard
(PRC Op., R2000-l,nn
This
Mail subclasses.
It
5401-02).
11
12
3.
13
Shape Recognition
a.
14
Ffesidual
Shape Surcharge
In order to mirror the commercial
subclasses,
the Postal Service proposes
15
a residual shape surcharge
of 20 cents for residual shapes or items prepared
16
parcels.
17
and fiat rates, because there are relatively few parcels in NECR.
18
than 0.2 percent of NECR nonletters are parcels.26
The projected surcharge
revenue does not significantly
as
lower the letter
In fact, less
*5 This situation differs from that of Standard Regular and Nonprofit, where one set of costs is
used for both commercial and nonprofit subclasses. See testimony of witness Moeller (USPS-T32).
26 see WP2, page I.
37
LetteriWonletter
b.
1
As in its commercial
2
Differential
counterpart,
in NECR the Basic tier rate design helps
3
to establish a rate relationship
between the Basic and 5-digit automation
4
that favors 5-digit automation.
Thus, following the recommendation
5
Commission
6
proposed.
in Docket No.R2000-1,
of the
a zero percent letter-flat passthrough
The High Density and Saturation
7
rates
shape passthroughs
is
are proposed
at
8
110 percent (0.8 cent) and 100 percent (0.9 cent), respectively.
Although these
9
percentages
in Docket No.
are lower from the Commission’s
cost passthroughs
recommendation
10
R2000-1, the measured
11
the Commission
12
proposed
13
design in this docket: to preserve or increase the measured
14
wherever feasible, without unduly raising the overall rate increases
15
established
calculated
its passthroughs
shape passthroughs
are each 0.1 cent higher, because
from a different base.
These
illustrate a basic tenet of the proposed
rate
cost passthroughs
or changing
rate relationships.
16
4.
17
The proposed
18
Automation
passthrough
for the Automation
discount is 65 percent.
19
This results in a discount of 1.5 cents, an increase from the current level of 1.3
20
cents.
21
automation
(In Docket No. R2000-1, the Commission
passthrough,
which translated
recommended
a 24 percent
to a discount of 1.3 cents.)
38
1
2
Density
5.
Tiers
Given the shape passthroughs
described
above, the resulting density
3
passthroughs
4
and 95.1 percent between High Density and Saturation.
5
for nonletters are 55.4 percent between Basic and High Density,
This translates
into measured cost passthroughs
for nonletters
of 1.6
6
cents for the High Density tier and 0.6 cent for the Saturation
7
can be compared
8
1, of 44.1 percent, or 1.6 cents, for the High Density tier, and 118.2 percent, or
9
0.5 cent, for the Saturation
to the Commission’s
recommendations
tier. (These figures
in Docket No. R2000-
tier.)
10
11
12
Destination
6.
Destination
Entry
entry discounts are determined
13
manner as the other standard subclasses.
14
Schenk (USPS-T-43),
15
measures savings for all subclasses
16
subclass, since the passthroughs
which was discussed
*’ See discussion of Destination
for this subclass in the same
The cost study presented
by Witness
above in the Section lll.D.7,
combined.
Discounts do not vary by
selected are the same for each: 85 percent.27
Entry discounts in ECR, Section lll.D.7.
39
1
D.
2
Below is a summary of proposed
3
Proposed
Nonprofit
Enhanced
Carrier
Route Rates
rates for Nonprofit Enhanced
Carrier
Route:
Table #14
SUMMARY
NONPROFIT
OF PROPOSED RATES
ENHANCED CARRIER ROUTE
(Dollars)
Entered at Destination
BMC
SCF
DDU
Letters
Basic
Auto
High Density
Saturation
0.126
0.111
0.102
0.095
0.105
0.090
0.081
0.074
0.100
0.085
0.076
0.069
0.094
0.079
0.070
0.063
Nonletters (cc-rated)
Basic
High Density
Saturation
0.126
0.110
0.104
0.105
0.089
0.083
0.100
0.084
0.078
0.094
0.078
0.072
Nonletters (lb-rated)
Per piece:
Basic
High Density
Saturation
0.050
0.034
0.028
0.050
0.034
0.028
0.050
0.034
0.028
0.050
0.034
0.028
Per pound:
Basic
High Density
Saturation
0.370
0.370
0.370
0.270
0.270
0.270
0.245
0.245
0.245
0.213
0.213
0.213
The proposed
Residual Shape Surcharge
Source: WP2, Page T.
is 20 cents.
40
1
V.
TEST YEAR 2003 FINANCIAL
SUMMARY
2
3
The following table summarizes
the financial implications
of the Standard
4
Mail commercial
5
contribution
6
revenue per piece relationship
7
the legislative mandate of Public Law No. 106-384, 114 Stat. 1460, the October
8
2000 amendment
9
result of this law, costs (and therefore,
10
combined
ECR and Nonprofit ECR proposals.*’
figures are in millions of dollars.
23
and nonprofit ECR meets
Also as a
cost coverage) are calculated
for the
ECR and Nonprofit ECR subclasses.
Table #15
Enhanced
TEST YEAR AFTER RATES
FINANCIAL SUMMARY
Carrier Route and Nonprofit Enhanced
Carrier
Route
_________________
In Millions ____________________
ECR
Nonprofit
TOTAL
::
21
22
above, the average
to the Revenue Foregone Reform Act (RFRA).
Revenue
:i
As discussed
between commercial
11
12
13
14
15
16
The revenue, cost, and
ECR
$5,555.7
325.2
$5,880.9
cost
$2,700.7
Contribution
Coverage
$3,180.4
217.8%
Source: WPI, page R.
Figures are rounded.
The coverage for the ECR and NECR subclasses
witness Moeller (USPS-T-28).
‘a WPl and WP2, page R.
meets that proposed
by