Inside the Current Postal Rate Case

The discovery phase of the R2000 rate case has begun. To those not familiar with the process or the type of questions and answers, it can often seem like “inside baseball.” To those more experienced, this case seems to be following a fairly normal pattern. And some things never change, including the usual sparring between the United Parcel Service and the U.S. Postal Service and sprinklings of sarcasm throughout many of the interrogatories and motions.

First let’s begin on a lighter note and touch on the sarcasm.

The USPS has responded to a series of interrogatories requesting information about data collection on a specific project, by saying that the postal witness had worked on many similar projects. Therefore, to answer a question about the specific project in this situation was a problem “because of the difficulty inherent in attempting to unscramble this egg.” In other words, to avoid responding to this interrogatory the postal service has relied on a novel “scrambled-egg” defense. Time will tell whether the scrambled-egg defense becomes famous in the annals of juris prudence.

Other questions posed to the USPS can bring a chuckle of incredulity to almost all. For example, there was an interesting question about postal letter carrier activity: “Please explain what possible actions or inaction in which a carrier might be engaged during the time period between accessing the mailbox and loading the mailbox.” Presumably, “checking to ensure that there were no letter carrier-attacking dogs getting ready to bite” is probably not an acceptable answer.

Now back to reality. As in previous rate cases, we have a battle for disclosure between the UPS and the USPS. In a recent interrogatory, the UPS asked for details of the relationship between the USPS and Emery Worldwide Airlines, the contractor for much of Priority Mail processing. This is just one example of the aggressive questioning that the UPS always poses in rate cases. As one would expect, the USPS has objected to answering on the grounds that the request asks for information that is “either privileged, confidential or information that under good business practice would not be publicly disclosed.”

As an aside, there are many in the postal scene who consider the UPS the largest unregulated monopoly in the country. UPS would surely deny that, by pointing out the many governmental organizations that regulate it. However, I’d sure bet that UPS would not want to answer the types of contract questions that it’s asking the USPS to answer, prior to raising its own rates.

Continuing with the inside-baseball theme, there are always a number of terms and acronyms that are raised during rate cases. Three of significance are IOCS, MODS and Ramsey pricing. IOCS (in office costing system) and MODS (management operations data systems) are two methods the USPS uses to keep track of and report cost by source of expenditure. One issue raised, as a result of costing data, is “not handling tallies.” That is, are workers displaced through letter mail automation staying on the payroll and “not handling”? This is not a whimsical question. The amount of money involved in not handling tallies is in the billions – yes, billions of dollars.

Ramsey pricing discussions, which often cause one’s eyes to glaze over, deal with the demand elasticity of prices the USPS has recommended. Before your eyes begin to shut, I’ll move on to another topic.

A more understandable subject, revealed in the filing, is the number of deliverable addresses in the United States. The USPS is estimating that in 2001 there will be more than 132 million deliverable addresses. This total is made up of 83.5 million city deliverable addresses, 30.7 million rural deliverable addresses and 18.0 million deliverable post office box addresses. Clearly as mail volume growth begins to slow or even decline, the volume that remains is being spread over a growing number of deliverable addresses. This is a serious issue that has gotten little attention, and one the USPS needs to be able to efficiently deal with.

Some of you are aware that the Postal Rate Commission can also ask questions of both the USPS and the intervenors. In this case, the commission has asked a rather basic question concerning the data being presented by the USPS. That question, to all parties, concerns the fact that the USPS has chosen to use FY 1998 as the “base year” in this rate case. The base year is the starting point, or ground zero, for almost all data to be analyzed in this rate case. In other words, it’s the year upon almost all projections are based. The commission has properly asked, should FY 1998 be used as a basis for projecting costs and revenues in FY 2001, the “test year”? The test year is the year that the USPS is using as its break-even year, balancing projected higher costs against the higher revenues (and prices) it’s requesting.

The commission has asked the intervenors to comment on whether there should be a three-year gap between the base year and the test year, particularly since we are about 1 1/2 years past the end of FY 1998 (the postal year begins on Oct. 1), almost six months past the end of FY 1999 and almost halfway into FY 2000. This is not just an accounting exercise. The worst-case scenario for the postal service would be for the commission to reject all data presented and tell the USPS to start the case all over again using FY 1999 data.

Lastly, an issue has been raised in the case that is often off-limits to postal rate payers. What benefits, are we, the rate payers, getting out of the Office of Inspector General? The office of an independent Postal Inspector General was established by Congress in late 1996. You may note that many governmental agencies and departments have similar independent IGs. However, in those governmental agencies the IG is funded through general tax revenues. In the USPS’ case, the IG is funded by rate payers. This funding is in addition to funding the Postal Inspection Service. For FY 2000 the IG has a staff of 648 and a budget, approved by the Board of Governors, of $72 million.

In its semi-annual report to Congress, submitted on Oct. 31, 1999, the IG claimed that through its efforts, reports were issued “representing over $1.1 billion in savings and potential cost avoidance during the current and future years.” If the claim is valid it’s a great return on the $72 million investment.

As you might expect, one of the intervenors picked up on this claim and asked the USPS if it agreed with the claim, and furthermore if the IG’s savings and cost avoidance were reflected in the USPS request for higher rates?

We’ll all be interested in the answer. n

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