**BEFORE THE**

**POSTAL RATE COMMISSION**

**WASHINGTON, D.C. 20268-0111**

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# POSTAL RATE AND FEES CHANGES, 2006 Docket No. R2006-1

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#  

**FIRST INTERROGATORIES OF PARCEL SHIPPERS ASSOCIATION**

**TO**

**UNITED PARCEL SERVICE**

**WITNESS RALPH L. LUCIANI (PSA/UPS-T2-1-10)**

The Parcel Shippers Association (PSA) requests United Parcel Service to
respond fully and completely to the following interrogatories and
requests for production of documents pursuant to Rules 25 and 26 of the
Commission's Rules of Practice and Procedure.

> Respectfully submitted,
>
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Timothy J. May
>
> Patton Boggs, LLP
>
> 2550 M Street, NW
>
> Washington, DC 20037
>
> Tel: 202 457 6050
>
> Fax: 202 457 6315
>
> <tmay@pattonboggs.com>
>
> Counsel for Parcel Shippers Association

Dated: September 26, 2006

**PSA/UPS-T2-1.** Please refer to your discussion of the CRA adjustment
factor on pages 9 through 11 of your testimony and USPS-LR-L-46 Addendum
Revised 8/2/06, page 1, columns \[5\] and \[6\] and page 3.

(a) Please confirm that USPS-LR-L-46 adds the unit cost in fixed CRA
    cost pools to each category of Parcel Post to estimate the "adjusted
    unit cost" for each category. If not confirmed, please explain
    fully.

(b) Please confirm that, in USPS-LR-L-46, the unit cost for MODS cost
    pools that are classified as fixed total 15.59 cents. If not
    confirmed, please provide the correct figure.

(c) Do you believe that, on average, DDU parcels will incur 15.59 cents
    per piece in costs in MODS cost pools in the Test Year? If so,
    please explain your response fully.

(d) Would you agree that, as a general rule, DDU parcels avoid incurring
    costs at MODS 1&2 facilities? If not, please explain your response
    fully.

**PSA/UPS-T2-2.** Please refer to page 14 of your testimony where you
estimate the cost of a manual parcel sort at the DDU to be 24.0 cents.

(a) Please confirm that 24.0 cents is the unit Parcel Post cost for the
    non-MODS ManP cost pool for the incoming basic function. If not
    confirmed, what is it?

(b) Do you agree that, as a general rule, DDU parcels avoid outgoing
    costs at Non-MODS facilities? If not, please explain your response
    fully.

(c) Do you agree that, as a general rule, mail processing costs incurred
    at DDUs are non-MODS costs for basic functions other than the
    outgoing basic function? If not, please explain your response fully.

**PSA/UPS-T2-3.** Please refer to USPS-L-82, WP-PP-28. Please refer
further to your discussion of the extent to which USPS-proposed rates
deviate from preliminary rates on lines 1 through 4 of page 13 of your
testimony.

(a) Please confirm that more than 99% of DDU parcels weigh 46 pounds or
    less. If not confirmed, please provide the correct figure.

(b) Please confirm that, for every DDU rate cell from 1 pound to 46
    pounds, the proposed rate differs from the preliminary rate by less
    than two percent. If not confirmed, please explain fully.

(c) Taking into account your response to subparts (a) and (b) of this
    interrogatory, please confirm that, on average, DDU rates are less
    constrained than the average Parcel Post rate? If not confirmed,
    please explain fully.

**PSA/UPS-T2-4.** Please refer to lines 5 through 9 on page 16 of your
testimony where you state:

> 1\. Based on better data being available, the no-fee electronic
> delivery confirmation cost in the Parcel Post rate design model for
> Parcel Select parcels (applied on USPS-LR-L-82, WP-PP-20, lines \[t\],
> \[u\] and \[v\]) should be 14.67 cents per piece (rather than 10.73
> cents per piece) and should be applied to 85.9% of the Parcel Select
> volume rather than 80%.

Please refer further to USPS-LR-L-82, WP-PP-28 and to USPS-LR-L-59,
Final Adjustments2008-USPS.xls, worksheet "DC Worksheet." Finally,
please refer to USPS-LR-L-82, WP-PP-20, lines \[w\] and \[x\] where
witness Kiefer applies a markup to the electronic delivery confirmation
unit cost.

(a) Please refer to USPS-LR-L-82, WP-PP-28 and confirm that the Postal
    Service estimates that there will be 244.1 million TYAR Parcel
    Select (excluding PRS) pieces. If not confirmed, please provide the
    correct figure.

(b) Please confirm that you recommend that the Parcel Post rate design
    model apply the no-fee electronic delivery confirmation cost to
    85.9% of Parcel Select pieces. If not confirmed, please explain
    fully.

(c) Please confirm that 85.9% of 244.1 million pieces is 209.7 million
    pieces. If not confirmed, please explain fully.

(d) Are you aware that, in its Final Adjustment, the Postal Service
    estimated a TYAR Parcel Select no-fee electronic delivery
    confirmation volume of 267.8 million?

(e) Taking into account your responses to subparts (a)-(c) of this
    interrogatory, do you believe that the TYAR Parcel Select no-fee
    electronic delivery confirmation volume will be 267.8 million
    pieces? Please explain your response fully.

(f) Please provide your best estimate of the TYAR Parcel Select no-fee
    electronic delivery confirmation volume and all of your underlying
    calculations.

(g) Do you believe that the Postal Service should apply a markup to the
    electronic delivery confirmation unit cost when determining the
    "Additional Parcel Select Piece-Element Revenue Target" on
    USPS-LR-L-82, WP-PP-20, line \[x\]? Please explain your response
    fully.

**PSA/UPS-T2-5.** Please refer again to lines 5 through 9 on page 16 of
your testimony where you state:

> 1\. Based on better data being available, the no-fee electronic
> delivery confirmation cost in the Parcel Post rate design model for
> Parcel Select parcels (applied on USPS-LR-L-82, WP-PP-20, lines \[t\],
> \[u\] and \[v\]) should be 14.67 cents per piece (rather than 10.73
> cents per piece) and should be applied to 85.9% of the Parcel Select
> volume rather than 80%.

Please refer further to USPS-LR-L-59, DC-TY2008(AR).xls, worksheets
"W-4e" and "I-8e".

(a) Have you developed any independent estimates of the unit cost of
    Parcel Select no-fee electronic delivery confirmation? If so, please
    provide them.

(b) Please confirm that the Postal Service's 14.67 cent per piece cost
    estimate for Parcel Select no-fee electronic delivery confirmation
    includes 2.85 cents of Window Service costs and that this cost is
    incurred for "customers that print and adhere an electronic label
    but submit their item(s) at the window." If not confirmed, please
    explain fully.

(c) Please confirm that the Postal Service estimates that the unit TYAR
    Window Service costs for Priority Mail electronic delivery
    confirmation, First-Class Mail electronic delivery confirmation,
    Package Service electronic delivery confirmation, and Standard Mail
    electronic delivery confirmation are 2.85 cents per piece. If not
    confirmed, please explain your response fully.

(d) In your opinion, are Parcel Select no-fee electronic delivery
    confirmation pieces more likely or less likely than other pieces
    with electronic delivery confirmation to be entered at postal
    "windows"? Please explain your response fully.

**PSA/UPS-T2-6.** Please refer to Table 4 on Page 12 of your testimony
and the response to UPS/USPS-T37-10 (Tr. 8/2148-51). In particular,
please refer to where witness Kiefer stated, "I do not know how close
these assigned costs are to the actual costs of Inter-BMC, DBMC, and
DSCF parcels."

(a) Please confirm that you produced the "Contribution per Piece"
    figures in this table by subtracting the Postal Service's estimates
    of the assigned unit costs by rate category from the Postal
    Service's estimates of the unit revenues by rate category. If not
    confirmed, please explain fully and provide the unit cost and
    revenue figures for each of the Parcel Post rate categories shown in
    Table 4 and all of your underlying calculations.

(b) Please confirm that the Postal Service's estimate of the assigned
    costs and revenues for inter-BMC Parcel Post exclude the costs and
    revenues of pieces referred to on page 4 of UPS/USPS-T37-10 as
    Dim-Weight Pieces. If not confirmed, please explain fully.

(c) Please provide your understanding of what "Dim-Weight Pieces" are.

(d) Please confirm that including the costs and revenues of these pieces
    in the calculation of the unit contribution of inter-BMC parcels
    would reduce the estimated unit contribution of inter-BMC parcels
    from what is shown in Table 4.

(e) Have you performed any analysis to determine how close assigned
    costs by rate category are to actual costs by rate category? If so,
    please provide the results of your analysis and all of your
    underlying calculations.

(f) In calculating assigned costs by rate category, did the Postal
    Service take into account the carrier (C/S 7 and 10)
    collection/acceptance cost difference between rate categories?
    Please explain your response fully. If not, please provide your best
    estimate of unit Parcel Post collection costs by rate category and
    provide all of your underlying calculations.

**PSA/UPS-T2-7.** Please refer to Table 1 on page 5 of your testimony
and confirm that the "average transportation-related attributable costs"
shown in this table include Vehicle Service Driver (C/S 8) costs (and
associated piggybacks) and Purchased Transportation (C/S 14) costs. If
not confirmed, please explain fully.

**PSA/UPS-T2-8.** Please refer to line 15 on page 16 through line 2 on
page 17 of your testimony where you state:

> The Window Service worksharing cost avoidances should be calculated
> using PRS pieces counted as non-dropship pieces since PRS pieces are
> not eligible for dropship rates, and henceforth the window service
> costs for PRS should be separately identified and analyzed in
> calculating Window Service savings.

Please refer further to the Postal Service's response to
UPS/USPS-T21-14(c), which states:

> It is my understanding that PRS mail would likely be treated as
> "dropship" mail in the IOCS activity codes. It is also my
> understanding that it is not possible to distinguish between any
> PRS-Related tallies and non-PRS Parcel Select tallies at this time.

(a) Please confirm that PRS Window Service costs are likely counted as
    costs for "dropship" mail. If not confirmed, please explain fully.

(b) Is it your testimony that the Postal Rate Commission should count
    PRS pieces as non-dropship pieces in calculating the Window Service
    worksharing cost avoidance in this case even though the Window
    Service costs for PRS pieces are likely being counted as costs for
    dropship pieces? Please explain your response fully.

(c) Do you believe that the percentage of PRS pieces that will incur
    Window Service costs in the Test Year will be larger, smaller, or
    the same as the percentage of non-PRS Parcel Select pieces that will
    incur Window Service costs in the Test Year? Please explain your
    response fully.

**PSA/UPS-T2-9.** Please refer to Table 42 on page 178 of USPS-T-7,
which shows a long-run own price elasticity of -0.374 for
non-destination entry Parcel Post, and Table 44 on page 185 of USPS-T-7,
which shows a long-run own-price elasticity of -1.399 for destination
entry Parcel Post.

Please also refer to lines 4 through 5 on page 181 of USPS-T-7, which
list "Price of competitor products (in this case, UPS and FedEx Ground)
\[and\] Price of destination entry Parcel Post mail" as the variables
that principally affect destination entry Parcel Post volume.

Finally, please refer to lines 4 through 5 on page 173 of USPS-T-7 which
lists "Price of UPS Ground delivery \[and\] Price of non-destination
entry Parcel Post" as the variables that principally affect
non-destination entry Parcel Post volume.

(a) Please confirm that, according to the elasticity estimates developed
    by USPS witness Thress (USPS-T-7), Parcel Select volume is much more
    sensitive to the price of Parcel Select than the volume of
    non-destination entry Parcel Post is to the price of non-destination
    entry Parcel Post. If not confirmed, please explain fully.

(b) Have you performed any studies of the variables that affect
    non-destination entry and destination entry Parcel Post volume
    and/or the extent to which each variable affects non-destination
    entry and destination entry Parcel Post volume? If so, please
    provide them.

**PSA/USPS-T2-10.** Please refer to lines 19 through 20 on page 7 of
your testimony where you state, "The number of pieces per container
affects the productivity used in determining the avoided costs." Please
refer further to footnote 14, which runs from page 7 to page 8 of your
testimony where you state,

> "The possibility that a small number of Parcel Post pieces may be
> entered at a DDU is not as unrealistic as Postal Service witness
> Miller suggests in this interrogatory response. Mailers may drop more
> than one subclass of mail at the DDU, so that Parcel Post parcels may
> be only a small fraction of the total dropshipment."

Please also refer to USPS-LR-L-46 at 21-23.

(a) Please confirm that the only activity modeled by the USPS for DDU
    parcels that requires an estimation of the number of pieces per
    container is "Move Containers From Dock." If not confirmed, please
    explain your response fully.

(b) Can multiple subclasses of parcels be moved from the dock in the
    same container? If not, please explain your response fully.

(c) In FY 2005, did Parcel Select DDU parcels comprise "only a small
    fraction" of the total volume of parcels entered at the DDU? Please
    explain your response fully and provide all of your underlying
    calculations.

(d) In FY 2005, what percentage of parcels entered at the DDU were
    Parcel Select DDU parcels? Please provide all of your underlying
    calculations.