ARGOS O/C 38, NOAA

Agenda Item G.1-2 Prepared by: S. Auer

Date: June 22, 2004

**STATUS OF U.S. PROCESSING AGREEMENT**

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**[EXECUTIVE SUMMARY]{.underline}**

This describes the U.S. portion of the Argos Joint Tariff Agreement
(JTA). In 2003, the U.S. used 1505.5 Platform Years (Ptt/yr) and 45,476
Active Platform Months. For 2004, the U.S. has agreed to purchase 975.0
Ptt/yr and expects to use 1800 Ptt/yr and 54,000 Active Platform Months.
The total User Costs for the U.S. JTA have risen appreciably increasing
39% the past 3 years (\$2.5M in 2000 to \$3.5M in 2003); these costs
will increase 15% more in 2004 to \$4.0M.

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**[ACTION REQUIRED]{.underline}**

Adjust JTA tariff burden and user cost structure -- Discuss and approve
a plan containing reasonable, logical, and verifiable steps to revise
the JTA tariff burden and structure. The resulting tariff should reduce
both individual user and total country costs. The service provider basis
(cost elements) for this cost must be examined closely and adjusted as
appropriate to create a more cost-efficient service, i.e., cost basis
verifiably corresponds to [real]{.underline} and [required]{.underline}
JTA services and the ability of users to cover these costs. The JTA
tariff cost basis should also be verifiably preferential in comparison
with the growing non-JTA user community cost income; and this
JTA/non-JTA cost basis should be adjusted annually as appropriate.

ARGOS O/C 38, NOAA

**[STATUS OF U.S. PROCESSING AGREEMENT]{.underline}**

Although the U.S. Argos Joint Tariff Agreement is negotiated in
conjunction with, and therefore nearly identical to, the global
agreement, the actual costs are computed based on the U.S. dollar since
payment is made directly to Service Argos, Inc. (at the rate of \$0.926
per Euro).

In 2003, the U.S. contracted for 790.0 platform years (Ptt/yr) and
actually used 1505 Ptt/yr, thereby enjoying a bonus of 665 Ptt/yr (79%).
The U.S. use showed an increase of 7% over 2002. The total U.S. JTA cost
for 2003 was \$3.5M. The percentage of total use by service category was
Standard Location 74%, Limited Use 20%, Standard Collection (only) 4%,
and Backup & Inactive 2%.

For 2004, the U.S. committed to 975.0 Ptt/yr and expects to use 54,000
Active Platform Months. The U.S. projects 1,800 Ptt/yr 20% above the
2003 usage for a total estimated JTA cost of \$4.0M. For future years,
the U.S. is anticipating continued growth in the biologist research
community and within NOAA for building a sustained ocean observing
system for climate.

The U.S. Representative of Country (ROC) and Service Argos Inc., are
continuing their collaboration/partnership toward delivering a
responsive efficient user service. The new JTA invoice collection option
of SAI direct quarterly billing implemented in 2003 is working smoothly.
Under this option, users "pay as they go" and avoid the second billing
cycle (ROC annual invoice). This is particularly attractive to small
users and users with highly uncertain/problematic use. SAI now handles
about 60% of the JTA user invoicing in collecting over \$500K from 200
users. The ROC still invoices and collects the vast majority of costs
(\$2,900K - 72% of total) from the largest 100 predominately Federal
users. The SAI collection has helped the ROC cope with the dramatic JTA
user growth and its associated administrative burdens. This also
virtually eliminates the risk of a SAI quarterly invoice payment delay
as the SAI-invoiced users now pay promptly whereas before they were
typically paying more than a year in arrears. This is a win-win
situation for all \-- users "pay as they go", users have only one
billing party to deal with, the ROC has less administrative
responsibility, and SAI is in a healthier financial position.

A further increase in the SAI collection responsibility to all non-NOAA
users is being planned to largely reduce the NOAA administrative
overhead associated with the ROC user invoicing. This transition in user
invoicing/collection responsibility is past due as NOAA has provided it
at no cost to the users or CLS/SAI for over 25 years!

The global JTA costs have increased 21% the past 3 years and this cost
burden and impact has been almost entirely on the U.S. and predominantly
on NOAA. In contrast, the operating costs for CLS/SAI have not
increased. The JTA debt has been fully paid. In addition, the non-JTA
usership and its associated user fees have grown significantly. The
international JTA body expects its unit costs to decrease in proportion
to its use increase. In addition, the JTA body expects its cost share to
decrease as the non-JTA use increases. The JTA has been proclaimed to
have a preferential, non-profit rate, while the non-JTA is proclaimed to
have its unit costs set at a significantly higher rate than the JTA. If
these are true, then the JTA cost share should decrease at a faster rate
than the non-JTA use increase! This has not appeared to happen.

The U.S. JTA User Cost has "skyrocketed" in recent years increasing 39%
the past 3 years (\$2.5M in 2000 to \$3.5M in 2003). In contrast, the
non-U.S. countries have seen a 2% cost reduction the past 3 years. U.S.
JTA costs will increase 15% more in 2004 while the non-U.S. countries
will decrease a further 2%.

NOAA has borne the biggest JTA cost-growth burden. NOAA cots in 2004
will be 87% more then three years ago an additional \$1M! NOAA's Office
of Climate Observations expects its cost to increase 44% this year
alone, and NOAA's ARGO program expects its cost to increase 166%. These
cost trends are ominous as total NOAA Argos use could increase by 43%
more the next 3 years. In the face of budget reductions and shifting
priorities, NOAA has determined that it must significantly reduce its
future JTA cost participation, and the NOAA cost basis for this must be
appreciably less than its CY 2003 cost. A favorable, bulk-user rate for
NOAA is proposed. It is fair as NOAA is an operational, known quantity
user; the biggest JTA user by far (more than the next 10 countries
combined); and it requires little if any customer support. For the above
reasons, an across-the-board JTA cost reduction is clearly required.

The JTA has resolved to adjust its tariff burden and user cost
structure. The Argos Operating Committee should discuss and agree upon a
plan that contains reasonable, logical, and verifiable steps toward
revising the JTA tariff burden and structure. The resulting tariff
should reduce both individual user and JTA country costs. The JTA
working group established to consider and propose a new JTA plan should
examine the service provider basis (cost elements) for this cost and
adjust it as appropriate to create a more cost-efficient service, i.e.,
cost basis verifiably corresponds to [real]{.underline} and
[required]{.underline} JTA services, and the [ability]{.underline} of
users to cover those costs. The JTA tariff cost basis should also be
verifiably preferential in comparison with the growing non-JTA user
community cost income; this JTA/non-JTA cost basis should be adjusted
(annually) as appropriate.