nECElVE[)
BEFORE THE
POSTAL FATED.C.
COMMISSION
WASHINGTON,
20268-0001
OFFICE
0: ,qTj,i iii:,
JOINT TRIAL BRIEF OF AMERICAN
ASSOCIATION
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Docket No. R2.000- 1
POSTAL PATE AND FEE CHANGES, 2000
NATIONAL
4 52 PM '00
.h 29
BANKERS ASSOCIATION
AND
OF PRESORT MAILERS.
(June 29,200O)
The Postal Service is faced with the imminent
diversion
of substantial
threat of electronic
volumes of First Class Letter Mail, particularly
automated
First Class Letter Mail which has extremely high and favorable cost coverages for the
USPS. Inexplicably,
the reaction of the USPS in this case to the threat of electronic
diversion is to hold down (and in real terms &
utilizing
questionable
avoidance.
costing methodologies
This one-sided “low-ball”
mailing public, and represents
volumes of automated
which incorrectly
FCLM by
understate
USPS cost avoidance methodology,
for worksharing,
cost
coupled with
assumes that
sends the wrong signal to the
a missed opportunity
First-Class
for automated
, which significantly
use of a Bulk Metered Mail (BMM) Benchmark
stamped mail is not a candidate
discounts
letter mail through
of the USPS to attract substantial
discounts
which fully reflect the
true cost avoidance of such mail.
The American
Bankers Association
(“ABA”) and the National Association
of Presort Mailers (“NAPM”) have proposed in this case increases in discounts
automated
First Class Letter Mail which are fully supported
of cost avoidance and which would reduce the inequitable
by a reasonable
for
measure
cost coverage currently
borne by automated
FCLM. ABA and NAPM are also recommending
a P-Stamp rate
category, which would enable a broad spectrum
of single piece mailers, including
household
program.
mailers, to share in the worksharing
would greatly benefit the USPS by converting
substantial
stamped mail to the much more efficient automated
This P-Stamp proposal
volumes of single piece
First Class LetterMsil~which
bears a much higher and favorable cost coverage for the USPS.
ABA&NAPM’s
I.
Proposed Rates And Discounts
Set forth below are the rates and discounts
in this case, along with the current rates and discounts.
proposed by ABA and NAPM
and the rates and discounts
proposed by the USPS in this case.
Mail Tvpe
ABA/NAPM
R-20001
Current Rates/
Discount
USPS-R-20001
Automated
FCLM
Basic
6.6 Cents
Discount
6.0 Cents Discount
6.0 Cents Discount
Automated
FCLM
3 digit
7.8 Cents
Discount
6.9 Cents Discount
6.9 Cents Discount
Automated
FLCM
5-digit
9.5 Cents
Discount
8.7 Cents Discount
8.7 Cents Discount
Heavyweight
Discount Automated
FCLM
4.6 Cents
Discount for
2d and 3d
Ounce
4.6 Cents Discount
for 3d ounce
4.6 Cents Discount
3d ounce
Additional
FCLM
22 Cents
Rate
22 Cents Rate
23 Cents Rate
32 Cents Rate
None
None
P-stamp 1
1
Ounce
As described herein, the P-Rate applies to single piece mailed delivered to a PStamp collection box with a P-Stamp, meter imprint, or electronic stamp, and
subsequently upgraded by the workshare mailer to at least basic automated
FCLM.
-2-
for
ABA&NAPM’s
II.
Five-Digit
Proposed Discounts
for Automated
First Class Letter Mail Are Fully Supported
Basic, Three-Digit
and
BY Reasonable Cost Avoidance
Measurements.
USPS cost Witness Miller has presented a radically
methodology
different costing
in this case which results ins artificially~reduced~measurement
avoidance for automated
measurement
FCLM. It is important
to note that this reduced
of cost avoidance is n& due to an actual shrinking
but rather to this new methodology
to reduce measured
.of cost
of cost avoidance,
which appears to be in large part designed simply
cost avoidance, rather than to isolate savings due to worksharing.
Indeed, in response to interrogatories,
USPS Witness Miller was forced to admit, “I do
not have the view that cost avoidance is shrinking”.2
ABA&NAPM
case which demonstrates
a significant
departure
Witness James A. Clifton has provided testimony
in this
that USPS witness Miller’s cost avoidance studies represent
from past USPS methodologies.3
Miller to past USPS methodologies
Most of the changes made by
result in a reduced measure of cost avoidance; yet
little or no effort seems to have been made to identify or measure potentially
significant
cost avoidance features of automated
Dr. Clifton demonstrates
Mail total unit attributable
in his testimony
that the trends in First Class
costs from 1992 to 1999 show a continued
gap between single piece and presort4.
when measured
FCLM.
on any consistent
2
Miller Interrogatory
3071.
3
Clifton Direct Testimony
increase in the
Dr. Clifton then proceeds to demonstrate
basis, cost avoidance for automated
Response to ABA&NAPM/USPS-T24-26(b)
(ABA&NAPM-Tl)
-3-
at page 24.
that
FCLM rate
at Tr.Vol. 7, page
categories has increased
since the last rate case. In particular,
whether you apply the USPS R2000-1 methodology
Dr. Clifton shows that
to both the Test Year 98 data and
the Test Year 200 1 data, or whether you apply the USPS R97- 1 methodology
Test Year 98 data and the Test Year 2001 data, the result is the same.
avoidance for automated
Dr. Clifton makes reasonable revisions to Miller’s cost
by including
12 of the 35 cost pools which Miller excluded from
the cost avoidance equation as “non-worksharing
included
cost
FCLM is increasing.5~
In his testimony
avoidance calculations
to the
in the refined methodology
related fuced,” all of which were
used by the USPS in the last rate case. Dr.
Clifton then adds USPS Daniel’s delivery costs, and arrives at the following
conservative
measure of cost avoidance: 6
automated
basic FCLM
6.575 Cents
automated
3-digit
1.085 Cents increment
automated
5-digit
1.370 Cents increment
Dr. Clifton correctly
characterizes
narrowly
Indeed, his measure does notinclude
defmed.7
cost savings identified
Mr. MacHarg’s
Continued
his measurement
of cost avoidance as “very
additional
by NAPM witness Dennis MacHarg (NAPM-Tl)
unrecognized
at Pages 2-8 of
testimony.
from
previous
page
4
See Clifton Direct Testimony
(ABA&NAPM-Tl)
5
Clifton Direct Testimony
(ABA&NAPM-Tl)
at Pages 15 and 16, Figures 4 and 5.
6
Clifton Direct Testimony
(ABA&NAPM-Tl)
at Page 33, Table 4 and Exhibit A.
7
Id.
-4-
at page 7, Figure 1.
Dr. Clifton’s narrowly
23 CRA mail processing
behalf of ABA&NAPM.
100% pass through
defined measure of cost avoidance, which excludes
cost pools, fully supports
The 6.6 cents discount
the discounts
for automated
of cost avoidance; the 7.8 cents discount
proposed by him on
basic FCLM represents
for automated
3-digit
represents
a 102% pass through;
and the’9.5 cents discount-forautomated
represents
a 105% pass through.
The establishment
three-digit
and five-digit FCLM slightly above 100% of Dr. Clifton’s measure of their
of discounts
a
,5Ldigit
for automated
cost avoidance is fully merited by the fact that his cost avoidance figures are very
conservative
and that these rate categories are the key automated
the USPS automation
program for which high volume should be encouraged.
In addition
identified
at pages 2-8 of his Direct Testimony,
savings not included
additional
to the extremely conservative
by Dr. Clifton using his very narrow definition
witness MacHarg,
rate categories for
estimate of avoided costs
of cost avoidance, NAPM
identities
additional
in the estimates of either the USPS or Dr. Clifton.
savings which should be reflected in automated
cost
These
FCLM discounts
arise from
(a) reduced capital costs and avoidance of reversion costs, (b) reduced maintenance
costs, (c) reduced UAA costs as a result of the move-update
upon workshare
education
trucking
reductions
mail, (d) cost reductions
efforts made by workshare
attributable
requirements
imposed
to customer service and
mailers, (e) reduced supply costs, (fl reduced
fleet costs as a result of functions
performed by workshare
mailers, and (g)
in activities that the USPS would have to provide during daily peak load
periods were these function
not performed by the presort industry.”
-5-
The Bulk Meter Mail Benchmark
III.
Has Lost Its Usefulness And Sends The
Wrong Signal To Mailers.
There are several deficiencies in the Bulk Meter Mail Benchmark
by the USPS to measure cost savings for automated
not any significant
volume of BMM, particularly
utilized
FCLM. It appears that there is
not ,in the form assumed by the USPS
(i.e., metered mail which is trayed by mailers so it does not require preparation
bundled
metered letters would and which requires no facing or cancehng8).
Perhaps most important,
cost avoidance for workshare
discourages
automated
automated
the use of BMM as a benchmark
mail sends a signal to workshare
to measure
mailers which
them from making an effort to convert stamped single piece mail to
mail.
effectively narrows
mail.
ABA&NAPM’s
The BMM Benchmark
then becomes a self-fulfilling
the field of mail which workshare
The anachronistic
candidates
for conversion
to automated
is truly exposed by
that there are indeed large
FCLM. The BMM benchmark
the concept that stamped single piece mail was not a candidate
worksharing.
was based on
for conversion
be discarded.
8
are real
Since this concept is no longer accurate, the BMM benchmark
The P-Stamp
F’roposal
Fronk Direct Testimony
(USPS-T33) at Page 18, Footnote 2.
-6-
which
mailers will attempt to convert to
nature of the BMM Benchmark
proposed P-Rate, which demonstrates
prophecy,
volumes of single piece stamped mail which under a P-Rate environment
IV.
that
to
should
Dr. Clifton has proposed, at pages 35-42, a 32 cent “P” rate which would
allow individual
mailers and businesses to receive a discounted
Letter Mail which would otherwise be mailed at full rates.
upgraded
reducing
by worksharing
to at least the automated
Postal Service costs by increasing
proposal would allow households
participate
rate on First Class
Such P-Rate mail would be
basic FCLM level, thereby
the amount of workshared
mail.
and businesses mailing single piece stamped mail to
in the USPS workshare
program, and would also address, head-on, the
Postal Service’s concerns about the electronic diversion of First-Class
providing
a lower cost option to First-Class
V.
The ABA&NAPM
Mail by
mailers.
Extra Ounce and Heavvweight
Discount
Pro~osd
ABA and NAPM have presented, in Dr. Clifton’s testimony
lines l- 11, proposals
at page 57,
to retain the First Class extra ounce rate at 22 cents and to
extend the 4.6 cent heavy weight discount
ounce of First Class automated
demonstrated,
This
to the second ounce, as well as the third
presort mail. As Dr. Clifton’s testimony
these proposals would more accurately
extra ounces of First-Class
has
reflect Postal Service costs for
presort mail and would reduce the cost coverage for First-
Class Mail to more equitable levels than the rates proposed by the Postal Service.
NAPM witness MacHarg also testifies that Dr. Clifton’s heavyweight
would provide a much-needed
discount
incentive to increase the volume of automated
proposal
flats
delivered to the USPS.
VI.
Comments
on Pitney Bowes, Stamps.com,
ABA and NAPM are still evaluating
have interrogatories
still pending to Stamps.com
-l-
and E-Stamp
Proposals
the cases of interveners,
since we
and E-Stamp witnesses
(for which
responses are not due until July 3,200O);
cross-examination
following
of any intervener
concerning
and we have not yet had the benefit of
witnesses.
However, at this point we do note the
proposals made by Pitney Bowes, Stamps.com
Pitney Bowes witness Haldi proposes a discount
on cost savings compared to stamped mail.
discount
for mail bearing the Information
compared to mail preparation
benchmark.
Automated
Bowes and Stampscorn
is not reflected in current
for metered mail based
witness Heselton proposes a
Based Indicia (“IBI”), based on costs avoided
and address deficiencies costs of a handwritten
letter
FCLM avoids the same costs, as those relied upon by Pitney
for their proposed discounts;
or proposed discounts
use of the BMM benchmark.
BMM benchmark
Stsmps.com
and E-Stamp.
however such
for automated
costs avoidance
FCLM because of the
We submit that this is yet another reason not to use the
to measure cost avoidance of automated
FCLM.
E-Stamp witnesses Jones and Prescott propose a discount
which is based on an erroneous
calculation
which confuses automation
with cost avoidance due to 3-digit and 5-digit presortation,
to isolate the cost savings for a single piece prebarcoded
Respectfully
for PC Postage
cost avoidance
and which otherwise
fails
letter.
submitted,
AMERICAN BANKERS ASSOCIATION
NATIONAL ASSOCIATION OF PRESORT MAILERS
Henry A. Hart, Esq.
Reed Smith Shaw & McClay LLP
1301 K Street N.W.
Suite 1100 - East Tower
Irving D. Warden
Assoc. General Counsel
American Bankers Association
1120 Connecticut Ave., NW
Washington, DC 20005
Ph: 202-414-9225
Washington, DC 20036
Ph: 202-663-5027
-8-
Fax: 202-4 14-9299
Fax: 202-828-4548
Counsel for
National Association
of Presort Mailers
Counsel for
American Bankers Association
June 29,200O
Washington, D.C.
-9-
CERTIFICATE
OF SERVICE
I hereby certify that I have this date served the instant
participants
document
on all
of record in this proceeding in accordance with Section 12 of the Rules of
Practice.
Irving D. Warden
American Bankers Association
1120 Connecticut Ave., N.W.
Washington, D.C. 20036
Phone (202) 663-5027
Fax (202) 828-4548
email: [email protected]
June 29.2000
-lO-
DECLARATION
I, James A. Clifton, declare under penalty of perjury that the foregoing answers are
true and correct, to the best of my knowledge, information, and belief.
Dated: 06s
2 ?-
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