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POSTAL RATE COMMISSION
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Docket No. R2001-1
RESPONSE OF THE UNITED STATES POSTAL SERVICE TO PRESIDING
OFFICERS INFORMATION REQUEST No. 2
The United States Postal Service hereby provides the responses to questions l5 and 7-13 to the Presiding Officer’s Information Request No. 2, dated October 17,
2001. Response to question No. 6 is forthcoming.
The request s are stated verbatim and are followed by the responses.
Respectfully submitted,
UNITED STATES POSTAL SERVICE
By its attorneys:
Daniel J. Foucheaux,, Jr.
Chief Counsel, Ratemaking
Michael Tidwell
475 L’Enfant Plaza West, S.W.
Washington, D.C. 2026Cl-1137
(202) 268-2998 Fax -5402
October 31,200l
RESPONSE OF UNITED STATES POSTAL WITNESS KIEFER
TO PRESIDING OFFICER’S INFORMATION REQUEST 2
QUESTION 1
At page 22 of USPS-T-33, witness Kiefer describes the use of ‘Zoning Factors’ to
counteract the tendency toward anomalous rates due to the fact that non-local
Intra-BMC transportation costs “bear no readily identifiable relationship to the
distances between the origin and destination ZIP codes.” These zoning factors
for zones 1 & 2,3,4, and 5 are 0.99, 1.00, 1.02, and 1.05 respectively. a.
Please describe how these factors were determined? b. Did the Postal Service
explore other means of reducing the tendency for Intra-BMC rates to dictate
DBMC rates? c. If so, please describe in detail and explain why each was
rejected.
RESPONSE
.a.
The values for these zoning factors were determined judgmentally so as to
be initially revenue neutral, while reducing to acceptable levels the
tendency for DBMC rates to be set by Intra-BMC rates. In this context,
“revenue neutral” means that the factor values were selected so that they
did not alter the total amount of revenue collected by the Intra-BMC rates.
b + c. The Postal Service could have used a system of arbitrary or ad hoc
adjustments to the Intra-BMC rate cells to address the rate anomaly. This
approach was rejected in favor of the zoning factor approach, which the
Postal Service believes to be superior because it allows rates to be
adjusted in a systematic and analytically transparent fashion.
Response of United States Postal Service Witness Meehan
to
Presiding Officer Information Request No. 2
POIR/USPS-2. In the transportation workpapers for R2000-1 the Postal Service
distributed empty equipment cost for highway based on all highway costs. It
distributed the empty equipment for rail based on all rail costs. In docket R20001 the Commission recommended adoption of MPA’s proposal to distribute empty
equipment rail costs based on the costs of all surface transportation rather than
just the other rail costs. In this docket the Service appears to have distributed the
empty equ,ipment costs for both highway and rail based on the combined costs
of both surface and air transportation. Please explain this change in distribution
methodology.
Response:
The Postal Service did indeed change the distribution of both highway and ‘rail
costs in its FY 2000 CRA. (It was inadvertently left out of the base year testimony
section on changes in the FY 2000 CRA.) This change was carried over to the
base year. As the question indicates, two changes were made. First, the empty
equipment cost distribution was based on all transportation costs, not just
surface transportation costs. This change was made in recognition of the fact
that the equipment being transported includes mail transport equipment (e.g.,
sacks, letter trays, fiat tubs, pallets,) used in all modes of transportation, not just
surface transportation. Second, the distribution of highwa); empty equipment
costs was changed to recognize that these costs are incurred to transport the
same assortment of empty equipment as is transported on rail.
DECLARATION
I, Karen Meehan, declare under penalty of perjury that the foregoing
answers
Dated:
are true and correct, to the best of my knowledge,
[4/J
/,,h
/
information,
and belief.
RESPONSE OF UNITED STATES POSTAL SERVICE WITNESS XIE TO PRESIDING
OFFICER’S INFORMATION REQUEST NO. 2
3.
In R2000-1 witness Bradley presented, and the Commission
recommended, a ‘compromise’ method of allocating empty space in
formulating the distribution keys for highway transportation. See R2000-1
USPS-RT-8 for an explanation of this method. Has the Service used this
method to develop the distribution key for highway transportation in this
docket? If not, why not? If so, please provide a cite to the relevant
calculations.
RESPONSE
Yes. For documentation of the “compromise method” please see Postal
Service Library Reference J-32, page 25.
DECLARATION
I, Jennifer J. Xie, declare under penalty of perjury that the foregoing answers are
true and correct, to the best of my knowledge, information, and belief.
JeMer
Dated:
/0 3/ 0 /
/ r
J. Xie u
RESPONSE OF WlTNESS JENNIFER L. EGGLESTON TO PRESIDING
OFFICER’S INFORMATION REQUEST NO. 2. QUESTION 4
POIR-24,
The Parcel Select volumes for zones 3,4, and 5 in witness Eggleston’s LR-J-84,
file 2ptran.xlq page TYBR Pieces, do not match the volumes for Parcel Select
zones 3,4, and 5 in witness Keifer’s LR-J-108. For example, for 10 pounds in
zone 3 witness Eggleston has 541,479 pieces; witness Keifer has 559,470.
Please reconcile these differences.
RESPONSE:
The volume distribution in LR-J-108 is the distribution that should be used in any
further analysis. The discrepancy is due to the fact that the Parcel Select volume
distribution in LR-J-108 was updated late in the preparation of the rate case. At
the time of the update, work further upstream (i.e. cost studies, final adjustments)
were already completed.
It was deemed unnecessary and unduly burdensome
to go back and update this work, given that the impacts on the cost models and
final adjustments are minimal (see Attachments A and B). The only notable
change in the cost estimates that results from using the updated NBR
distribution is the transportation
volume
cost estimate for DBMC Parcel Post, zone 5.
The impact of this cost estimate should be minimal since DBMC zone 5 volume
is only 0.1 percent of total DBMC volume.
.
POIR-2, QUESTION 4
ATTACHMENT A
Parcel Post Cost per Cubic Foot Transportation
Costa
Comparison of Results using different NBR volume distributions
(For POIR-2, question # 4)
Zone
Inter-BMC
l-2
3
4
5
8
7
8
Intra-BMC
Local
l-2
3
4
5
DBMC
l-2
3
4
5
DSCF Costs
DDU Costa
PP Tran Costs per Cubic Foot (with different
LRJ-64
LRJ-106
TYBR volume dlst)
Difference
$3.8911
$4.3242
$5.0351
$6.0798
$7.2837
$8.5923
$11.7408
83.8862
64.3193
$5.0302
$6.0749
$7.2589
$8.5874
$11.7380
-$0.0049
-$0.0049
-$0.0049
-$0.0049
-$0.0049
-$0.0049
-$0.0049
$1.8751
$3.4950
$3.4950
$3.4950
$3.4950
$1.8724
$3.4900
$3.4900
83.4900
$3.4900
-$0.0027
-$0.0050
-$0.0050
-$0.0050
-$0.0050
$1.3061
$2.8166
~$4.1497
$7.8329
$0.8070
$0.1392
$1.3055
$2.7885
$4.0958
$9.8154
$0.8080
$0.1390
-$0.0008
-30.0281
-$0.0539
$1.9828
-$O.OOll
-$0.0002
POIR-2, QUESTION 4
A-ITACHMENT B
Summary of Final Adjustments
by.Cost Segment (000s)
Comparison of Results using different TYBR volume distributions
(For POIR-2, question # 4)
LR-J-64 - TYBR
Parcel Post Trans (c/s 14)
Parcel Post VSD (c/s 8)
Parcel Post Total (all cost
segments)
Total For All Classes
LRJ-106 -7YBR
Parcel Post Trans
Parcel Post VSD (c/s 8)
Parcel Post Total (all cost
segments)
Total For All Classes
Difference
Parcel Post Trans
Parcel Post VSD (c/s 8)
Parcel Post Total (all cost
segments)
Total For All Classes
2001
2002
BR 2003
AR 2003
(18,709)
(4,615)
(48,573)
(53,098)
(8,598)
(113,312)
(78,379)
(11,787)
(183,429)
(87,901)
(12,552)
(184,187)
(317,387)
(484,812)
(800,902)
(832,695)
(18,740)
(53,097)
(87,875)
(12,547)
(184,157)
(632,664)
(46,613)
(113,313)
(78,356)
(11,784)
(163.403)
(317,428)
(484,814)
(600,876)
(4,624)
(8,599)
(31)
(40)
(1)
23
3
26
(40)
(1)
26
(9)
26
5
31
31
DECLARATION
I, Jennifer
answers
Eggleston,
are true and correct,
declare under penalty of perjury that the foregoing
to the best of my knowledge,
information,
and belief.
RESPONSE OF THE UNITED STATES POSTAL SERVICE
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
5. Please provide the electronic version of the spreadsheets used to forecast
international mail volume and revenue for FY 2001, FY 2002, FY 2003 (test year
before rates), and FY 2003 (test year after rates). Exhibits USPS28A, USPS-288
and USPSQBC. Please show the quarterly volume forecasts of international mail
for 2001Q4-2004Q4 in the same manner witnesses Tolley (USPS-T-7) and
Musgrave (USPS-T-g) have presented before- and after- rates quarterly volume
forecasts of domestic mail.
RESPONSE:
-Please see USPS-LR-159.
RESPONSE OF U.S. POSTAL SERVICE WITNESS MOELLER TO PRESIDING
OFFICER’S INFORMATION REQUEST NO. 2
If there are any planned rate changes for international mail between the
base year and the test year, please provide the average percentage change for
each year in which there are planned changes and the effective date of each
change.
7.
RESPONSE:.
The financial calculations in this Request anticipate that international rate
changes will be implemented in conjunction with the implementation of the
resulting domestic rates. Although specific rates have not been developed, an
assumption of a nine percent increase was used in the TYAR scenario. Such an
assumption (i.e., an increase similar to the system-average increase for domestic
mail) is consistent with previous requests, and helps project the institutional cost
burden that will be borne by international mail in the Test Year. The rates
developed for domestic mail to meet the revenue requirement, therefore, reflect
this added international revenue.
It is my understanding that proposed changes to three commercial categories of
international mail have been published in the Federal Register, with an
implementation date of January 13, 2002. The rate adjustment for these
categories is 5.6 percent, which results in an increase in overall outbound
revenues of less than one half of one percent.
RESPONSE OF UNITED STATES POSTAL WITNESS KIEFER
TO PRESIDING OFFICER’S INFORMATION REQUEST 2
QUESTION 8
In discussing the possibility of mailers converting machinable parcels to
nonmachinable parcels in order to take advantage of the proposed NM0 DSCF
rate witness Kiefer states, ‘The Postal Service intends to develop implementation
rules that will forestall any such conversions.” Please describe the factors and
considerations that will be used in developing these implementation rules and
discuss how they will forestall conversions.
RESPONSE
The Postal Service has proposed the new 3-digit nonmachinable DSCF rate to
.offer mailers a way to avoid paying the DBMC nonmachinable surcharge on
parcels that cannot practically be prepared in a way that will allow them to be
processed on the Postal Service’s parcel sorting equipment. In developing this
rate proposal, the Postal Service had no desire to divert parcels that could be
sorted on its parcel sorters, located in BMCs, to SCFs where they would have to
be manually sorted. In consideration of these factors, the Postal Service expects
that it will not alter the rules that define what is a machinable parcel and what is
nonmachinable so as to make it easier for parcels to bypass mechanized parcel
sorting at BMCs. Current rules require machinable parcels deposited at the
DSCF to be sorted to 5-digit ZIP Codes. These rules will not be changed.
Machinable parcels sorted to 3-digit ZIP Codes will not be eligible for DSCF
entry, with or without payment of the 3-digit nonmachinable DSCF surcharge.
The Postal Service intends to strictly enforce existing rules to avoid any such
diversion of machinable parcels to DSCFs unless they are sorted to 5-digit ZIP
Codes.
DECLARATION
I, James M. Kiefer, declare under penalty of perjury that the foregoing answers
are true and COtTeCt,to the best of my knowledge, information, and belief.
Dated:
~0-3l-t3P
RESPONSE OF UNITED STATES POSTAL SERVICE
WITNESS PATELUNAS
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
9. There are discrepancies between the Rollforward’s BEN2FACT and its VBL5
and VBL8 control strings. For example, the distribution key on line 236 of
FY2001 BEN2FACT file indicates that cost reduction dollars are distributed to
component 43 using component 1449, whereas the VBL5 of the Rollforward
Model is actually using component 1469 to distribute costs to component 43.
Please compare the FY2001, FY2002, and FY2003 before rate and after
rates BEN2FACT files with their corresponding VBL5 and VBL6 control
strings, report any discrepancies and for each discrepancy indicate which is
correct, the BEN2FACT file or the VBL control strings, Include a detailed
explanation of each difference and its impact on the Rollforward, if any, for FY
2001, FY 2002, FY 2003 before rates and after rates.
Response:
Please refer to Attachment 1 that accompanies this response. The first
column of eighteen digits preceded by a plus or minus sign is the multiplicative
or additive amount applied to the rollforward. Each amount is applied by the use
of control strings found in the VBL files 1 through 6 for each execution of the
rollforward. These amounts and the directions contained in the VBL control
strings define the calculations and results of executing the model. As such, the
correct factor amounts and distribution keys are those defined in the VBL control
strings.
The second through seventh columns of Attachment 1 are for information
purposes only; they have no impact on the results generated by executing the
rollforward program. As such, the information provided in these columns is not
always properly updated under certain time constraints. Attachment 1 properly
updates columns two through seven to reflect the instructions defined in the
VBL5 and VBL6 files. The first column in Attachment 1 is for Fiscal Year 2001
only, but wlumns two through seven apply to all the rollforward years.
+000000000025492000
1
+000000000025492000
2
l 000000000025492000
3
+000000000022604000
4
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+000000000075109000
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11
+000000000028700000
12
l 000000000054540000
13
r000000000056997000
14
+000000000046542000
15
+000000000042500000
16
+000000000048100000
17
+000000000023500000
18
+000000000026800000
19
+000000000033100000
20
+000000000056161000
21
.000000000042500000
22
+000000000042500000
23
+000000000006100000
24
+000000000026800000
25
+OOOOOOOOOOOOOOOOOO
26
+000000000017235000
27
-000000000000000000
28
+000000000006100000
29
+oooooooooooooooooo
30
+000000000026400000
31
+000000000044400000
32
+000000000013700000
33
+000000000026800000
34
-000000000005100000
3s
r000143412000000000
36
+000000000033100000
37
+000000000042500000
3s
+000000000309583000
39
+000000000054500000
40
+000000000052800000
41
+000000000052600000
42
+000000000026800000
43
+000000000039294000
44
+000000000023500000
4s
+000000000023500000
46
l 000000000023500000
47
+000000000023500000
48
+000000000007000000
49
+000000000007000000
50
+000000000007000000
51
t000000000023S00000
52
+000000000023500000
53
+000000000020326000
54
+000000000045817000
5s
r000000000017401000
56
l 000000000045715000
57
1
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Attaclment
1
POIR 2
Question 9
1
2
3
252
253
254
256/2Sl
258
61
62
75
73
72
14
79
81
90
99
108
12s
110
111
112
113
117
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Page 1 of 5
JO 58
+0000000000163
-000000000000190000
59
+OOOOOOOOOOOOOOOOOO 60
-000017400000000000
61
+000000000040034000
62
+000000000033100000
63
+000000000023500000
64
+OOOOOOOOOOOOOOOOOO 65
+000000000033100000
66
+000000000007000000
67
+000000000015844000
68
+000000000033100000
+000000000033100000
+000000000033100000
+000000000033100000
+oooooooooooooooooo
69
70
71
72
73
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+000000000006220000
+000000000028430000
l 000000000023050000
+000000000035300000
-000000000028970000
74
75
76
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78
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+000000000033100000
+000000000000000000
+000000000000000000
SO
81
82
+000000000022000000
+oooooooooooooooooo
83
84
+000000000033100000
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+000000000006940000
+000000000023050000
+000000000023050000
+000030993000000000
l 000084,12000000000
-000000176000000000
+000007732000000000
-000004484000000000
+000001706000000000
86
87
88
89
90
+000000001000000000
+000109942000000000
+000006814000000000
95
96
97
r000000185000000000
-000000000000000000
98
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91
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+OOOOOOOOOOOOOOOOOO
100
+OOOOOOOOOOOOOOOOOO
101
-000000000000000000
102
+oooooooooooooooooo
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+000000000000000000
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+000002371000000000
+000000001000000000
106
107
+000000025000000000
108
+OOOOOO~~~OOOOOOOOO
109
-000034530000000000
110
+000098612000000000
111
+000017000000000000
112
-000004100000000000
113
+000041517000000000
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+000073474000000000
115
+000014397000000000
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166
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Page 2 of 5
+0000066960000
JO 119
+oooooooooooooooooo
120
-000000577000000000
121
+00014*22*000000000
122
-000019928000000000
123
+000045717000000000
124
+000022364000000000
125
-000005646000000000
126
-000002911000000000
127
-000000000000000000
128
-000004937000000000
129
-000034000000000000
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+oooooooooooooooooo
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+000000000052800000
132
-000078000000000000
133
+oooooooooooooooooo
134
-000000000000000000
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136
+000130000000000000
137
-000000237000000000
138
+000000396000000000
139
+000000005000000000
140
+000003639000000000
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+oooooooooooooooooo
142
+000000138000000000
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-000081000000000000
144
+oooooooooooooooooo
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+oooooooooooooooooo
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+000000000000000000
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-000040000000000000
148
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-000040069000000000
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-000011624000000000
152
+000000669000000000
153
+oooooooooooooooooo
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155
-000001326000000000
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+000000571000000000
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+000000000000000000
158
+oooooooooooooooooo
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+000100000000000000
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14
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231
232
238
245
241
246
173
541
144
144
171
142
681
143/1410
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143
242
249
81
117
135
143
146
142
168
228
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3511469
3511468
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184
411446
411451
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110
74
189
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Question 9
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l 0001,7402000000000
198
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208
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-000094906000000000
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230
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232
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19
6
16
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6
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20
20
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142/1454
143/1454
193
213
195
1430
1435
182
187
1426
196
75/1469
75/1460
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248
177
179
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194
191
1438
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3511469
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43/1447
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1437
587
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Page 4 of 5
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+000146800000000000
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-000000000000000000
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-000000121000000000
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-000000065000000000
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-000000000000000000
265
-000000147000000000
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-000025948000000000
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+OOOOOOOOOOOOOOOOOO 268
+000000406000000000
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+OOOOOOOOOOOOOOOOOO 272
+000002902000000000
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11
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+000000528000000000
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+000014685000000000
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POIR 2
Question 9
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Page 5 of 5
RESPONSE OF UNITED STATES POSTAL SERVICE
WITNESS PATELUNAS
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
lO.The FY 2000 mail volumes for International, Registry, Certified, Insurance.
and Other Special Services in Witness Patelunas’ Exhibit 12A at page 15
differ from those fisted in Witness Meehan’s Workpaper A, pages 125 and
126. Please explain these differences and indicate which volumes should be
used in the rollforward and discuss the impact, if any, on FY 2001, FY 2002,
FY 2003 Before Rates, and FY 2003 After Rates costs.
Response:
The amounts shown in my Exhibit 12A at page 15 should be used in the
rollfonvard because they are consistent with the amounts shown in the volume
forecast. An explanation of the differences between my Exhibit 12A and witness
Meehan’s Workpaper A, pages 125 and 126 follows, and these differences have
no impact on any of the rollfonvard years. Also, there is no mail volume effect
applied to Other Special Services; therefore, the Exhibit 12A effect is correct.
Please refer to Attachment 1 that accompanies this response. The first
column shows the amounts appearing in my Exhibit 12A. The last column shows
the amounts appearing in witness Meehan’s Workpaper A at page 125. As the
equation explains, the last column is the result of adding column (1) and (2)
subtracting columns (3), (4) and (5), and adding column (6).
RESPONSE OF UNITED STATES POSTAL SERVICE
WITNESS PATELUNAS
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
11. Please provide the Excel spreadsheet associated with USPS-T-12. Appendix
A, Mail Processing Cost Reduction Explanation and Display.
Response:
Please see USPS-LR-J-48, Diskette of Witness Patelunas’s Spreadsheets
for Appendices A and B and Exhibit USPS-12A (USPS-T-12), filed September
24,200l.
RESPONSE OF UNITED STATES POSTAL SERVICE
WITNESS PATELUNAS
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
12. Witness Patelunas’ Exhibit 12A at pages 15 through 18 shows the derivation
of the mail volume cost effect factors which are input into the file RAT2FACT
for use in the cost rollforward process, Column 2, labeled CRA Line, shows
the CRA line number for each of the classes and subclasses of mail in the
CRA cost matrix. These line numbers should correspond to the line numbers
shown in the file AHEAD, in Library Reference J-6 at \FyOl h\control\AHEAD.
Exhibit 12A shows the CRA line number for Insurance and Certified to be 164
and 165, respectively. However, the file \FyOl h\Control\AHEAD, shows the
line numbers to be just the opposite, line 165 for Insurance and line 164 for
Certified. An examination of the mail volume effect in the rollforward for FY
2001,2002, and the Test Year Before Rates and Afler Rates shows that
Certified costs are increased by the RAT2FACT factor apparently intended for
Insurance and Insurance costs are increased by the RAT2FACT factor
apparently intended for Certified. If necessary, please provide appropriate
corrections. Include corrections to the cost rollforward workpapers and
Exhibits of Witness Patelunas, and all corrections to Exhibits and/or
Workpapers of any other witness who are affected by the correction to the
rollforward. Additionally, please provide all corrections to the cost rollforward
workpapers for the PRC version in Library Reference J-75.
Response:
The hypothesis posed in this Information Request is correct - for each of the
rollforward years, Certified costs are increased by the RAT2FACT factor intended
for Insurance and Insurance costs are increased by the RAT2FACT factor
intended for Certified. In addition to the error identified in the Information
Request, two other errors were found in the Postal Service version and the
corrections are incorporated in the revisions. One, the FY 2002 D Report in
ExhibitUSPS-12Ecalculateda contingencyand there is no contingencyin that
year. Second, the Test Year Final Adjustment intended for Certified was applied
to Insurance. These corrections have been made and the rollforward has been
rerun. The results are shown in the errata filed separately today, 10/31/01, for
the following documents:
RESPONSE OF UNITED STATES POSTAL SERVICE
WITNESS PATELUNAS
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
USPS-T-12
USPS-T-12
USPS-T-12
USPS-T-12
Exhibit A
Exhibit E
Exhibit I
Workpaper WP-H
TYAR Total Costs
FY02G with Mix D Report
NO3 After Rates with Mix D Report
Table E TY03AR with Mix D Report
Additionally, Attachment 1 that accompanies this response shows the test year
impact on classes, subclasses and special services of correcting for the mail
volume effect and final adjustments on Certified and Insurance; the FY 2002 D
Report adjustment has no impact on the test year figures.
IO
,
DECLARATION
I, Richard Patelunas, declare under penalty of perjury that the foregoing answers to
interrogatories
are true and correct to the best of my knowledge, information, and
belief.
Dated:
,+,#/
-_
.
.
RESPONSE OF POSTAL SERVICE WITNESS KAY
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
12.
Witness Patelunas’ Exhibit 12A at pages 15 through 18 shows the derivation of
the mail volume cost effect factors which are input into the file RAT2FACT for use in
the cost rollforward process. Column 2, labeled CRA Line, shows the CRA line
number for each of the classes and subclasses of mail in the CRA cost matrix.
These line numbers should correspond to the line numbers shown in the file
AHEAD, in Library Reference J-8 at \FyOl h\control\AHEAD. Exhibit 12A shows the
CRA line number for Insurance and Certified to be 164 and 165, respectively.
However, the file \FyOl h\ControhAHEAD, shows the line numbers to be just the
opposite, line 165 for Insurance and line 184 for Certified. An examination of the
mail volume effect in the rollforward for FY 2001, 2002, and the Test Year Before
Rates and After Rates shows that Certified costs are increased by the RAT2FACT
factor apparently intended for Insurance and Insurance costs are increased by the
RAT2FACT factor apparently intended for Certified. If necessary, please provide
appropriate corrections. Include corrections to the cost rollforward workpapers and
Exhibits of Witness Patelunas, and all corrections to Exhibits and/or Workpapers of
any other witness who are affected by the correction to the rollforward. Additionally,
please provide all corrections to the cost rollforward workpapers for the PRC version
in Library Reference J-75.
RESPONSE:
Please see witness Patelunas’s response to this item. The corrections he
describes to the mail volume effect factors affect the inputs to my incremental cost
analysis.
Using the corrected inputs, the TYAR incremental costs reported in my
testimony change as shown on the attached sheet. As can also be seen on the
attached sheet, the changes are immaterial for all products except Certified and
Insurance. Errata to Tables 1A and 2A of my testimony will be filed separately.
-.
_
_-..-
-
--.._
-
-
_.
_.
-
c-
CHANGE IN TEST YEAR 2003 (AFi) INCREWNTM
COST FOR SUBCLASSES AND
CLASSES. CORRECTED A!3 PER PDIR 2
-
.-
DECLAFtATlON
I. Nancy R. Kay, declare under penalty of pejury that the foregoing answers are
tme and cmrect, to the best of my knowledge, informetion. and beliif.
RESPONSE OF UNITED STATES POSTAL SERVICE
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
12. Witness Patelunas’ Exhibit 12A at pages 15 through 18 shows the derivation
of the mail volume cost effect factors which are input into the file RAT2FACT
for use in the cost roltforward process. Column 2, labeled CRA Line, shows
the CRA line number for each of the classes and subclasses of mail in the
CRA cost matrix. These line numbers should correspond to the line numbers
shown in the file AHEAD, in Library Reference J-6 at \FyOl h\controhAHEAD.
Exhibit 12A shows the CRA line number for Insurance and Certified to be 164
and 165, respectively. However, the file \FyOl h\Control\AHEAD, shows the
line numbers to be just the opposite, line 165 for Insurance and line 164 for
Certified. An examination of the mail volume effect in the rollforward for FY
2001,2002, and the Test Year Before Rates and Afler Rates shows that
Certified costs are increased by the RAT2FACT factor apparently intended for
Insurance and Insurance costs are increased by the RAT2FACT factor
apparently intended for Certified. If necessary, please provide appropriate
corrections. Include corrections to the cost rollforward workpapers and :
Exhibits of Witness Patelunas, and all corrections to Exhibits and/or
Workpapers of any other witness who are affected by the correction to the
rollforward. Additionally, please provide all corrections to the cost rollforward
workpapers for the PRC version in Library Reference J-75.
Response:
The hypothesis posed in this Information Request is correct - for each of the
rollforward years, Certified costs are increased by the RAT2FACT factor intended
for Insurance and Insurance costs are increased by the RAT2FACT factor
intended for Certified. In addition to the error identified in the Information
Request, two other errors were found in the PRC version and the corrections are
incorporated in the revisions. First, the test year contingency was calculated at
one percent, and it should have been at three percent. Second, the Test Year
Final Adjustment intended for Certified was applied to Insurance. These
corrections have been made and the rollforward has been rerun. The results are
shown in the errata filed separately today, 10/31/01, for the following document:
USPS-LR-J-75
Volume H
Table E PRC TY03AR with Mix D Report.
RESPONSE OF UNITED STATES POSTAL SERVICE
TO PRESIDING OFFICER’S INFORMATION REQUEST NO. 2
Response continued:
Additionally, Attachment I that accompanies this response shows the test year
impact on classes, subclasses and special services of, first, changing the
contingency to three percent, and, second. correcting for the mail volume effect
and final adjustments on Certified and Insurance.
RESPONSE OF,U.S. POSTAL SERVICE WITNESS MOELLER TO PRESIDING
OFFICER’S INFORMATION REQUEST NO. 2
13. This question concerns prebarcoded letter-shaped mail pieces that weigh
more than 3.3 ounces, but not more than 3.5 ounces and that meet all other
automation requirements for letters. Witness Moeller refers to this mail as heavy
automation letters. USPS-T-32 at 4.
a.
In USPS-T-32 at 4-5, witness Moeller states that ‘[t]his proposal is alS0
advantageous to the Postal Service, since automated letter processing (even
for pieces of this weight) is more cost-effective than manual letter or
automated flat processing,” Are heavy automation letters currently
processed in the letter mail processing stream or the flat mail processing
stream? If heavy automation letters are currently processed as automated
letters, is the Postal Service currently benefiting from the cost effectiveness
of processing these mail pieces as automated letters rather than as
automated flats or manual letters?
b. In USPS-T-32 at 4, witness Moeller states that “the proposed change is
intended to permit automation letter mailers to avoid the substantial rate
increase for letter-shaped pieces exceeding 3.3 ounces.” Will the proposed
pound rate applicable to heavy automation letters cover their additional costs
compared to the costs of other automation letters?
c. Does the Postal Service expect some mailers to convert from flat-shaped
automation pieces to heavy weight automation letters to take advantage of
the lower rate?
RESPONSE:
a.
Under the current rates and mail preparation guidelines, there are no “heavy
automation letters” in Standard Mail. Automation pieces that weigh more
than 3.3 ounces are deemed nonletters for rate and preparation purposes.
They are likely to be prepared as automation flats, since that is the best rate
available for pieces of this weight. As such, they are typically processed in
the flat automation mailstream. Therefore, there is currently little or no
benefit because they are not typically processed as automation letters.
RESPONSE OF U.S. POSTAL SERVICE WITNESS MOELLER TO PRESIDING
OFFICERS INFORMATION REQUEST NO. 2
RESPONSE to POIR 2. Question 13 (continued):
b.
No explicit cost data are available that isolate the added cost of an additional
0.2 ounce for an automation letter. It is assumed that any added cost is
covered by charging the incremental pound rate that would be charged to
any other pound-rated mailpiece that experiences an increase in weight of
0.2 ounce.
c.
Although no estimates are made of any conversion from automation flats to
automation letters, it seems that such conversion might occur. However,
mailers of automation flats that weigh in the vicinity of 3.3-3.5 ounces have
incentive today to reconfigure as letters if their marketing goals can be
achieved with a letter-size format, and if the weight can be limited to 3.3
ounces. The slight increase in the automation letter weight limit might make
such conversion somewhat more likely; however, the mailer would still have
to weigh the benefit of the lower rate against the potential costs of converting
flat mail to letter-shaped mail and the perceived marketing impact (either
positive or negative).
DECLARATION
I, Joseph D. Moeller, declare under penalty of perjury that the foregoing
answers are true and correct, to the best of my knowledge, information, and
CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing document upon all
participants of record in this proceeding in accordance with section 12 of the Rules of
Practice.
Michael Tidwell
475 L’Enfant Plaza West, S.W.
Washington, D.C. 20260-l 137
October 31,200l