OCA-T-500

Docket No. R97-1

DIRECT TESTIMONY

OF

JAMES F. CALLOW

ON BEHALF OF

THE OFFICE OF THE CONSUMER ADVOCATE

DECEMBER 30, 1997

TABLE OF CONTENTS

STATEMENT OF QUALIFICATIONS

I. PURPOSE AND SCOPE OF TESTIMONY

II\. CURRENT POST OFFICE BOX FEES AND FEE GROUPS DO NOT ADEQUATELY
REFLECT THE HIGHER COSTS OF PROVIDING BOX SERVICE IN LARGER CAG POST
OFFICES, NOR THE LOWER COSTS OF SERVICE IN SMALLER OFFICES

A. Postal Service Costs Are Higher In Larger CAG Post Offices Than In
Smaller Offices

1\. Average postal rental costs are higher in larger post offices, as
measured by CAG

2\. Other postal costs are higher in larger CAG post offices

B. The Postal Service's Methodology For Allocating Certain Post Office
Box Volume-Variable Costs Does Not Recognize Higher Costs In Larger Post
Offices And Lower Costs In Smaller Offices

1\. Allocating volume-variable Space Provision costs to post office
boxes using average postal rental costs for fee groups masks widely
different rental costs by CAG in Fee Groups C and D

2\. Allocating an average of All Other volume-variable costs to post
office boxes generates unit box costs that are too low for larger post
offices and too high for smaller offices in all fee groups

C. Post Office Box Fees Based Upon Current Fee Groups And The Postal
Service's Cost Allocation Methodology Results In Unjustifiably Higher
Fees In Smaller Post Offices And Fees That Are Too Low In Larger Offices

III\. CURRENT POST OFFICE BOX FEE GROUPS SHOULD BE RESTRUCTURED TO
BETTER REFLECT DIFFERING COSTS OF LARGER AND SMALLER POST OFFICES

A. Fee Groups C And D Should Be Restructured Based Upon The CAG Of The
Post Offices

1\. Fee Groups C and D are similar in fundamental ways

2\. Restructuring Fee Groups C and D based upon CAGs A-D, E-G and H-L
produces more rent-homogeneous fee groups

B. The Development Of Base Year And Post-MC96-3 Estimates Of The Number
Of Boxes In Use Is Similar To The Approach Followed By The Postal
Service

1\. Development of the Base Year estimates of the number of boxes in use
involves introduction of CAG groupings

2\. The post-MC96-3 estimated number of boxes in use shows CAG groupings

C. The Test Year Before Rates And After Rates Estimates Of The Number of
Boxes In Use And Revenues Reflect The New Fee Groups

IV\. POST OFFICE BOX VOLUME-VARIABLE COSTS SHOULD BE ALLOCATED SO THAT
HIGHER COSTS ASSOCIATED WITH LARGER POST OFFICES ARE DISTRIBUTED TO
BOXES IN THOSE OFFICES

A. Space Provision Costs Should Be Allocated Based Upon Average Rental
Costs For The New Fee Groups To Better Reflect Costs In Larger And
Smaller Post Offices

B. A Portion Of All Other Costs Should Be Allocated To The New Fee
Groups Based Upon Groupings By CAG To Better Reflect Costs In Larger And
Smaller Post Offices

C. Space Support Costs Should Be Allocated Using The Same Methodology
Used By The Postal Service

V. PROPOSED POST OFFICE BOX FEES SHOULD REFLECT THE HIGHER COSTS OF
PROVIDING BOX SERVICE IN LARGER VERSUS SMALLER POST OFFICES, AND ENSURE
A REASONABLE CONTRIBUTION TO INSTITUTIONAL COSTS

A. Proposed Fees And The New Fee Groups Constitute A Transition To
De-Averaged Allocated Costs And Further Restructuring Of Fee Groups

B. The Proposed Post Office Box Fees Satisfy The Pricing Criteria Of The
Postal Reorganization Act

C. The Proposed New Fee Groups Accord With The Classification Criteria
Of The Postal Reorganization Act

VI\. CONCLUSION

DIRECT TESTIMONY OF

JAMES F. CALLOW

# STATEMENT OF QUALIFICATIONS

My name is James F. Callow. I am a Postal Rate and Classification
Specialist. I have been employed by the Postal Rate Commission since
June 1993, and since February 1995 in the Office of the Consumer
Advocate (OCA).

I previously testified before this Commission in Docket Nos. MC96-3 and
MC95-1. My testimony in Docket No. MC96-3 opposed the Postal Service's
non-resident surcharge on post office boxholders, and proposed
alternative box fees designed to equalize inter-group cost coverages and
reduce the disparity in cost coverages by box size. In Docket No.
MC95-1, my testimony summarized the comments of persons expressing views
to the Commission and the Office of the Consumer Advocate on postal
rates and services.

As Special Assistant to former Commissioner Quick, I participated in
Docket Nos. MC93-1, MC93-2 and R94-1. In the latter docket, I was
assigned responsibility for substantive subject areas considered by the
Commission in its Opinion and Recommended Decision. Specifically, I
analyzed quantitative testimony of the Postal Service with respect to
the estimation of workers' compensation costs and evaluated rate design
proposals of the Postal Service and other parties related to special
postal services.

Prior to joining the Commission, I held positions on the legislative
staff of a US Senator and a Member of Congress from Michigan, and served
as an aide to the Governor of the State of Michigan in Washington.

I am an accountant by training. In 1985, I earned an MS degree in
accounting from Georgetown University. My course work included cost
accounting and auditing. In 1977, I obtained my BA degree from the
University of Michigan-Dearborn with a double major in political science
and history and a minor in economics.

# I. PURPOSE AND ScOPE OF TESTIMONY

This testimony addresses the post office box fee proposals of the Postal
Service.[^1] I propose a classification change that would restructure
current Fee Groups C and D into six new fee groups based upon the Cost
Ascertainment Group (CAG) of post offices. Three new fee groups, C-I,
C-II and C-III, would be formed from CAG A-D, E-G and H-L offices,
respectively, in Fee Group C. Three new fee groups, D-I, D-II and D-III,
would also be formed from the same CAG level offices in Fee Group D. The
new fee groups and proposed fees represent a proposed transition to a
further restructuring that would ultimately merge these parallel fee
groups into three fee groups.

The fees I propose are based on a new cost allocation methodology. The
Postal Service's current allocation methodology results in higher
volume-variable unit box costs in smaller offices and lower unit costs
in larger offices than if costs were allocated according to office
location and size, as measured by CAG. Consequently, I propose a new
cost allocation methodology that distributes a portion of
volume-variable post office box costs by CAG. My proposed post office
box fees are virtually the same as or lower than those proposed by the
Postal Service in the new fee groups consisting of CAG E-G and H-L
offices, where allocated costs are lower under the new methodology,
while box fees are higher in fee groups consisting of CAG A-D offices,
where allocated costs are higher.

# II. current post office box fees and fee groups do not adequately reflect the higher costs of providing box service in larger CAG post offices, nor the lower costs of service in smaller offices

The Postal Service proposes to increase fees for all post office boxes
in Fee Groups A-D.[^2] The testimony of witness Needham (USPS-T-39)
describes post office box service and presents justifications for the
Postal Service's proposed fee increases.

The current post office box fee groups, designated A-E, were established
in Docket No. MC96-3 at the behest of the Postal Service.[^3] The
testimony of witness Lion (USPS-T-24) describes the current fee groups
and develops estimates of the number of boxes in use for each group.
According to witness Lion, the five post office box fee groups "are now
defined principally in terms of the fees paid." USPS‑T-24 at 2. Fee
groups generally "depend upon specified ZIP Codes, customer
characteristics, and type of carrier delivery service." Tr. 3/1064
(OCA/USPS‑T24‑2).

The testimony of witness Lion also presents the Postal Service's
methodology for allocating volume-variable post office box costs to
develop test year before rates (TYBR) unit box costs. Witness Lion
describes the allocation methodology generally: "Volume-variable costs
are allocated to post office boxes in three categories: space provision,
space support, and all other using the same methodology as in Docket No.
MC96-3." USPS-T-24 at 3.

The current post office box fee groups, and the Postal Service's
allocation methodology, result in higher volume-variable unit costs for
boxes in smaller post offices, and lower unit box costs in larger
offices, than if costs were allocated to boxes with greater
consideration to office location and size. Consequently, fees based upon
the Postal Service's unit box costs are higher for boxholders in smaller
post offices than would otherwise be necessary if current fee groups
were restructured and volume-variable costs were de-averaged based upon
CAG.

## A. Postal Service Costs Are Higher In Larger CAG Post Offices Than In Smaller Offices

The Postal Service classifies post offices by Cost Ascertainment Group
(CAG).[^4] Post offices are classified from A-L (excluding the letter
"I") based upon the amount of revenue generated, as measured by "revenue
units."[^5] CAG A post offices, defined as offices with 356,250 or more
revenue units, generate the greatest revenues, while CAG L offices, with
35 or fewer revenue units, generate the least.[^6]

For Fiscal Year 1996, the most recent year available, a revenue unit
equals \$306.65.[^7] Consequently, a CAG A post office would generate
revenues of at least \$109,244,063 (\$306.65 \* 356,250 revenue units),
and a CAG L office would generate revenues less than or equal to
\$10,733 (\$306.65 \* 35 revenue units).

### 1. Average postal rental costs are higher in larger post offices, as measured by CAG

Witness Lion acknowledges that average postal rental costs are higher in
CAG A, B and C post offices than average postal rental costs in CAG K
and L post offices. Tr. 3/1173 (OCA/USPS-T24-85). Postal Service data
support this conclusion. In Docket No. R90-1, Postal Service data
revealed:[^8]

> there is a *significant relationship* between the CAG designation of a
> facility and its associated square-foot rent (e.g. CAG A offices have
> higher rents than CAG L offices). \[emphasis added\]

The Postal Service's Library Reference F-183, from that same docket,
further concluded that "CAG A and B offices tend to be located in
higher-rent urban areas, while CAG K and L offices tend to be located in
lower-rent rural areas." Id. at 15. More recently, in Docket No. MC96-3,
when average rental costs were again examined for post offices
classified by CAG, the data revealed an almost uniform decline in the
average rental cost as the size of post office declines.[^9]

### 2. Other postal costs are higher in larger CAG post offices

Aside from average postal rental costs, other costs vary by CAG, and are
higher in larger CAG offices. Two conditions produce this result. First,
certain labor costs are not incurred in smaller post offices. While the
salaries and benefits of mailhandlers are uniform nationwide, there are
more mailhandlers in higher CAG offices, and proportionately more costs,
than in lower offices.[^10] In fact, there are virtually no
mailhandlers, and consequently almost no mailhandler costs, to be found
in CAG F-L offices. Ibid. Similarly, there are virtually no supervisors
in offices CAG H or below. Ibid. Hence, virtually no supervisor costs
are incurred in such offices.

Second, certain other costs, while present in all post offices, are
incurred in proportionally greater amounts in higher versus lower CAG
offices. For example, postmaster salaries and benefits are dependent, in
part, on CAG and therefore vary by CAG. Tr. 13/7069 (OCA/USPS-T24-66b).
In Fiscal Year 1996, the average salary for postmasters in CAGs K-L was
\$39,309, while the average salary for CAG A-G postmasters was \$55,220
\-- 40 percent greater than the average salary of CAG K-L postmasters.
Tr. 13/7061 (OCA/USPS-T5-37).

## B. The Postal Service's Methodology For Allocating Certain Post Office Box Volume-Variable Costs Does Not Recognize Higher Costs In Larger Post Offices And Lower Costs In Smaller Offices

In developing unit box costs, the Postal Service allocates
volume-variable Space Provision costs to post office boxes utilizing an
average postal rental cost for fee groups, and assigns an average of All
Other costs to all boxes. In the case of Space Provision costs, the use
of an average rental cost to distribute such costs does not recognize
the wide variation in rental cost by CAG within Fee Groups C and D. In
the case of All Other costs, assigning an average cost to all boxes does
not recognize the fact that some costs are proportionately greater in
larger CAG post offices, or not incurred at all in smaller CAG offices.

### 1. Allocating volume-variable Space Provision costs to post office boxes using average postal rental costs for fee groups masks widely different rental costs by CAG in Fee Groups C and D

Volume-variable Space Provision costs are allocated to boxes, in part,
upon the average postal rental cost for each fee group. First, the
average rental cost for each delivery group is computed as an average of
the rental cost per square foot for each facility in each delivery
group. Tr. 3/1067 (OCA/USPS‑T24‑5). Second, the average rent for each
fee group is calculated as the weighted average of boxes installed by
delivery group, using the percentages in Table 5 of USPS-T-24.[^11]
Space Provision costs are then allocated in direct proportion to a
measure of box capacity and rental cost per square foot for each fee
group. USPS-T-24 at 20.

In the case of Fee Groups A and B, rental costs are computed from the
average of facilities' rental costs per square foot in designated
high-cost ZIP Codes. Fee Group A consists of ZIP Codes in Manhattan, New
York, and Fee Group B consists of ZIP Codes in eight large cities and
some surrounding suburbs.[^12] By contrast, the city-other and non-city
delivery groups, which form the basis of Fee Groups C and D,
respectively, do not represent rent-homogeneous groupings.

Table 1 shows the average postal rental cost by CAG for city-other and
non-city delivery offices. For both delivery groups, there is a wide
disparity in average rental costs by CAG. In the city-other delivery
group, the average rental cost for CAG A offices (\$8.98) is more than
double that of CAG L offices (\$4.37). In the non-city group, the
average rental cost for CAG C offices is 32 percent (\$7.46/\$5.65-1)
greater than for CAG L offices, while the average for CAG E offices is
more than 49 percent (\$8.43/\$5.65-1) greater when compared to CAG L
offices.

  -------------- -------------- --------------- -------------- ---------------
  **Table 1.                                                   
  Average Rental                                               
  Cost by CAG                                                  
  for City-Other                                               
  and Non-City                                                 
  Delivery                                                     
  Offices**                                                    

  **CAG**        **City-Other   **Average       **Non-City     **Average
                 Offices**      Rental Cost     Offices**      Rental Cost
                                (\$/sq.ft.)**                  (\$/sq.ft.)**

  **A**          1,005          \$8.98          0              NA

  **B**          576            \$9.02          3              \$5.93

  **C**          988            \$9.41          12             \$7.46

  **D**          448            \$8.57          16             \$7.31

  **E**          691            \$7.80          87             \$8.43

  **F**          659            \$7.11          268            \$7.90

  **G**          911            \$6.01          1,166          \$7.07

  **H**          470            \$5.21          2,431          \$6.26

  **J**          142            \$4.77          3,517          \$5.82

  **K**          144            \$4.44          5,971          \$5.70

  **L**          16             \$4.37          699            \$5.65

  **TOTAL**      6,050          \$7.73          14,170         \$6.00
  -------------- -------------- --------------- -------------- ---------------

By contrast, average rental costs by CAG show greater similarity across
delivery groups. Average rental costs vary in a range from 8 percent
(\$8.43/\$7.80-1) for CAG E offices to 29 percent (\$5.65/\$4.37-1) for
CAG L offices. The percentage difference in average rental cost for each
delivery group is also 29 percent (\$7.73/\$6.00-1).

### 2. Allocating an average of All Other volume-variable costs to post office boxes generates unit box costs that are too low for larger post offices and too high for smaller offices in all fee groups

All Other volume-variable costs consist primarily of labor costs.
USPS‑T‑24 at 19. Under the Postal Service's methodology, these cost are
allocated proportionately to the number of boxes since, it is reasoned,
"labor costs do not depend upon box size or location." Id. at 20. This
proportional allocation, without regard to office location or size,
results in \$6.69 (\$104,580,000 / 15,620,769 boxes) being distributed
by the Postal Service to all boxes in the TYBR. Id. at 24.

The Postal Service's proportional allocation of All Other costs to boxes
ignores the fact that certain costs *do* vary by CAG. As discussed
previously, postmasters costs vary by CAG, and it is not reasonable to
expect mailhandler and supervisor costs in offices in which they are not
located. *See supra*, II. A. 2. Nevertheless, the Postal Service's
approach allocates mailhandler and supervisors costs even to those
offices that have no mailhandlers or supervisors working in them. The
effect of allocating an average cost to all post office boxes unfairly
increases unit box costs in smaller CAG offices and reduces such costs
relative to larger CAG offices.

## C. Post Office Box Fees Based Upon Current Fee Groups And The Postal Service's Cost Allocation Methodology Results In Unjustifiably Higher Fees In Smaller Post Offices And Fees That Are Too Low In Larger Offices

The Postal Service's methodology of averaging higher cost, high CAG post
offices with lower cost, low CAG offices has the effect of
inappropriately raising volume-variable unit box costs in smaller
offices and concomitantly lowering volume-variable unit box costs for
larger offices. For Fee Groups C and D, the use of average postal rental
costs for allocating Space Provision costs to boxes masks differences in
average rental costs by CAG. That is, higher CAG offices have higher
average rental costs than lower CAG offices. Similarly, the Postal
Service's methodology of allocating an average of All Other costs to all
post office boxes unjustly increases unit box costs in smaller CAG
offices and reduces such costs for larger CAG offices.

Post office box fees based on these average costs would necessarily mean
that box fees are too high in smaller CAG post offices, while box fees
are too low in larger CAG offices.

# iii. current post office box fee groups should be restructured to better reflect differing costs of larger and smaller post offices

## A. Fee Groups C And D Should Be Restructured Based Upon The CAG Of The Post Offices

I propose to restructure post office box fee groups by creating six new
fee groups. Three new fee groups would be formed from the current Fee
Group C and three from current Fee Group D, based upon CAG. CAG A-D post
offices in Fee Groups C and D would become new Fee Groups C-I and D-I,
respectively. CAG E-G post offices in each fee group would become new
Fee Groups C-II and D-II, respectively. The remaining CAG H-L post
offices in each fee group would become new Fee Groups C-III and D-III,
respectively. This parallel grouping of CAGs from the current fee groups
would serve as a prerequisite to merging the six new fee groups, and
thereby eliminating a separate fee structure for Fee Groups C and D, in
a future proceeding.

### 1. Fee Groups C and D are similar in fundamental ways

There is a general recognition that Fee Groups C and D are fundamentally
similar. In Docket No. MC96-3, the difficulty of pricing post office
boxes with a single rate structure where costs are essentially the same
was stated succinctly:

> When areas are categorized and prices are set to reflect average cost
> differences some of the resulting prices may seem irrational, as when
> a suburban area and a rural area are in close proximity and have
> essentially the same costs, but have different rates.[^13]

In this docket, the Postal Service's fee proposal for Fee Groups C and D
is premised, in part, on a recognition that there are "similarities in
Groups C and D with respect to costs and service . . . ." USPS-T-39 at
65. According to witness Needham, Fee Groups C and D are similar in that
both consist of offices providing carrier delivery service, either city
or rural. Tr. 3/688-89. Moreover, "there really is no difference in the
type of box service and very minimal differences in the type of costs
for these . . . two fee groups." Tr. 3/691. These "minimal differences"
in costs are evident in the testimony of witness Lion, which shows that
Postal Service unit costs for providing box service in Fee Group D are
approximately 10 percent less than in Fee Group C.[^14] Table 1 shows
similarities in cost from another perspective. Average rental costs by
CAG show greater similarity between the city-other and non-city delivery
groups, which form the basis of Fee Groups C and D, than within these
delivery groups. *See supra*, II. B. 1.

These similarities in cost suggest that merging Fee Groups C and D, and
establishing three fee groups based upon CAGs A-D, E-G and H-L, would
produce more rent-homogeneous fee groups than the current fee
groups.[^15] However, I did not take this step at this time because of
my concern about substantial fee increases for affected boxholders. *See
infra*, V. A.

### 2. Restructuring Fee Groups C and D based upon CAGs A-D, E-G and H-L produces more rent-homogeneous fee groups

In the alternative, Fee Groups C and D were separately restructured by
CAG, creating more rent-homogeneous fee groups. Table 2 shows the
average rental cost for offices in the city-other and non-city delivery
groups displayed by CAGs A-D, E-G and H-L. The first two columns under
the headings "City-Other" and "Non-City" offices replicate the same
office and average rental cost data by CAG from Table 1. The last column
under each heading shows the "Weighted Average Rental Cost (\$/Sq.Ft.)"
when offices are grouped by CAGs A-D, E-G and H-L.

Average rental costs for each grouping by CAG are more rent-homogeneous
than the average for the delivery group as a whole. For city-other
offices, the

  ------------ -------------- --------------- --------------- ------------- --------------- ---------------
  **Table 2.                                                                                
  Weighted                                                                                  
  Average                                                                                   
  Rental Cost                                                                               
  for                                                                                       
  City-Other                                                                                
  and Non-City                                                                              
  Delivery                                                                                  
  Offices by                                                                                
  CAG**                                                                                     

               **City-Other                                   **Non-City                    
               Offices**                                      Offices**                     

  **CAG**      **Offices**    **Average       **Weighted      **Offices**   **Average       **Weighted
                              Rental Cost     Average Rental                Rental Cost     Average Rental
                              (\$/Sq.Ft.)**   Cost                          (\$/Sq.Ft.)**   Cost
                                              (\$/Sq.Ft.)**                                 (\$/Sq.Ft.)**

  **A**        1,005          \$8.98          \$2.99          0             NA              NA

  **B**        576            \$9.02          \$1.72          3             \$5.93          \$0.57

  **C**        988            \$9.41          \$3.08          12            \$7.46          \$2.89

  **D**        448            \$8.57          \$1.27          16            \$7.31          \$3.77

               3,017                          \$9.07          31                            \$7.24

  **E**        691            \$7.80          \$2.39          87            \$8.43          \$0.48

  **F**        659            \$7.11          \$2.07          268           \$7.90          \$1.39

  **G**        911            \$6.01          \$2.42          1,166         \$7.07          \$5.42

               2,261                          \$6.88          1,521                         \$7.30

  **H**        470            \$5.21          \$3.17          2,431         \$6.26          \$1.21

  **J**        142            \$4.77          \$0.88          3,517         \$5.82          \$1.62

  **K**        144            \$4.44          \$0.83          5,971         \$5.70          \$2.70

  **L**        16             \$4.37          \$0.09          699           \$5.65          \$0.31

               772                            \$4.96          12,618                        \$5.84
  ------------ -------------- --------------- --------------- ------------- --------------- ---------------

weighted average rental cost for the largest offices, CAGs A-D, is
\$9.07, and \$4.96 for the smallest offices, CAGs H-L. This compares to
an average rental cost for all city-other offices of \$7.73. *See* Table
1.

In restructuring Fee Groups C and D, the grouping of offices according
to CAG A-D to form new Fee Groups C-I and D-I was suggested to me by the
same grouping of CAG offices in the "City-B" delivery group. *See*
OCA-LR-2 at 11. I determined the other two groupings of offices by CAG,
which form new Fee Groups C-II and D-II, and C-III and D-III, by
dividing the remaining "Average Rental Costs (\$/Sq.Ft.)" by two dollar
increments.

## B. The Development Of Base Year And Post-MC96-3 Estimates Of The Number Of Boxes In Use Is Similar To The Approach Followed By The Postal Service

### 1. Development of the Base Year estimates of the number of boxes in use involves introduction of CAG groupings

Table 3 shows the estimated number of boxes installed by the type of
carrier delivery service offered. Table 3 is analogous to, and uses the
same definition of carrier delivery group as, Table 1 of USPS-T-24.[^16]

  ------------- ------------ ------------ ---------------- -------------- ------------------ ------------
  **Table 3.                                                                                 
  Estimated                                                                                  
  Number of                                                                                  
  Boxes                                                                                      
  Installed**                                                                                

  **Carrier                                                                                  
  Delivery                                                                                   
  Group**                                                                                    

  **Box Size**  **City-A**   **City-B**   **City-Other**   **Non-city**   **Non-Delivery**   **Total**

  **1**         35,535       58,079       4,201,907        3,577,136      918,567            8,791,224

  **2**         1,987        16,525       2,028,034        1,548,797      323,245            3,918,588

  **3**         1,162        5,899        718,205          411,307        80,017             1,216,590

  **4**         118          1,154        170,547          35,300         5,590              212,709

  **5**         51           747          40,696           6,680          3,680              51,854

  **TOTAL**     38,853       82,404       7,159,389        5,579,220      1,331,099          14,190,965
  ------------- ------------ ------------ ---------------- -------------- ------------------ ------------

Table 4 shows the estimated number of boxes in use by carrier delivery
group, and is analogous to witness Lion's Table 2.

  ----------- ------------ ------------ ---------------- -------------- ------------------ ------------
  **Table 4.                                                                               
  Estimated                                                                                
  Number of                                                                                
  Boxes in                                                                                 
  Use**                                                                                    

  **Carrier                                                                                
  Delivery                                                                                 
  Group**                                                                                  

  **Box       **City-A**   **City-B**   **City-other**   **Non-city**   **Non-Delivery**   **Total**
  Size**                                                                                   

  **1**       26,350       49,829       3,498,063        2,928,396      742,423            7,245,061

  **2**       1,644        11,966       1,483,084        1,217,569      244,690            2,958,953

  **3**       922          4,309        491,133          318,872        58,774             874,010

  **4**       96           674          104,946          25,503         3,907              135,126

  **5**       28           678          21,979           2,829          414                25,928

  **TOTAL**   29,040       67,456       5,599,205        4,493,169      1,050,208          11,239,078
  ----------- ------------ ------------ ---------------- -------------- ------------------ ------------

Table 5 presents the "expansion factors" by carrier delivery group that
are used to estimate the number of boxes in use, pre-MC96-3. Unlike
Table 3 in witness Lion's testimony, however, Table 5 also shows the
expansion factors for each grouping by CAG in the city-other, non-city
and nondelivery carrier delivery groups.

The expansion factors, based on the number of boxes installed from two
data sources, the Delivery Statistics File (DSF) and the Post Office Box
Survey (POB Survey), are calculated as the ratio of column \[a\] to
column \[b\].[^17] These factors are then used to "expand" the number of
boxes in use obtained from the POB Survey in Table 4 to estimate the
number of boxes in use prior to Docket No. MC96-3.

+---------------+------+--------------+----------------+-------------+
| **Table 5.    |      |              |                |             |
| Expansion     |      |              |                |             |
| Factors by    |      |              |                |             |
| CAG by        |      |              |                |             |
| Delivery      |      |              |                |             |
| Group**       |      |              |                |             |
+---------------+------+--------------+----------------+-------------+
| **Carrier     | **C  | **Boxes      | **Boxes        | **Expansion |
| Delivery      | AG** | Installed    | Installed**    | Factor**    |
| Group**       |      | (Sept 97     |                |             |
|               |      | DSF)**       | **(POB         |             |
|               |      |              | Survey)**      |             |
+---------------+------+--------------+----------------+-------------+
|               |      | \[a\]        | \[b\]          | \[c\]       |
+---------------+------+--------------+----------------+-------------+
| **City-A**    | *    | 104,384      | 38,853         | 2.68664     |
|               | *A** |              |                |             |
+---------------+------+--------------+----------------+-------------+
| **City-B**    | **A  | 202,719      | 82,404         | 2.46006     |
|               | -D** |              |                |             |
+---------------+------+--------------+----------------+-------------+
| *             | **A  | 6,608,169    | 3,989,487      | 1.65640     |
| *City-other** | -D** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | **E  | 3,828,343    | 2,890,257      | 1.32457     |
|               | -G** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | **H  | 333,537      | 279,645        | 1.19272     |
|               | -L** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | *    | 10,770,049   | 7,159,389      | 1.50433     |
|               | *Tot |              |                |             |
|               | al** |              |                |             |
+---------------+------+--------------+----------------+-------------+
| **Non-city**  | **A  | 70,428       | 44,937         | 1.56726     |
|               | -D** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | **E  | 2,202,548    | 1,544,979      | 1.42562     |
|               | -G** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | **H  | 4,797,066    | 3,989,304      | 1.20248     |
|               | -L** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | *    | 7,070,042    | 5,579,220      | 1.26721     |
|               | *Tot |              |                |             |
|               | al** |              |                |             |
+---------------+------+--------------+----------------+-------------+
| **            | **A  | 15,983       | 6,633          | 2.40962     |
| Nondelivery** | -D** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | **E  | 336,871      | 231,101        | 1.45768     |
|               | -G** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | **H  | 1,357,016    | 1,093,365      | 1.24114     |
|               | -L** |              |                |             |
+---------------+------+--------------+----------------+-------------+
|               | *    | 1,709,870    | 1,331,099      | 1.28456     |
|               | *Tot |              |                |             |
|               | al** |              |                |             |
+---------------+------+--------------+----------------+-------------+
| **GRAND       |      | 19,857,064   | 14,190,965     | 1.39928     |
| TOTAL**       |      |              |                |             |
+---------------+------+--------------+----------------+-------------+

Table 6 displays the results of applying the expansion factors to the
estimated number of boxes in use from Table 4. Totals are presented for
each CAG grouping within the city-other, non-city and non-delivery
carrier delivery groups, and the total for each carrier delivery group.
This table is analogous to Table 4 in USPS‑T-24, with the addition of
CAG groups.

  ----------------- ------------ ------------ ----------- -----------------
  **Table 6.                                              
  Estimated Boxes                                         
  in Use by CAG by                                        
  Delivery Group,                                         
  Pre MC96-3**                                            

                    **City-A**   **City-B**               

  **Box Size**      **CAG A-D**  **CAG A-D**              

  **1**             70,793       122,582                  

  **2**             4,417        29,437                   

  **3**             2,477        10,600                   

  **4**             258          1,658                    

  **5**             75           1,668                    

  **Total**         78,020       165,946                  

  **City-other**                                          

  **Box Size**      **CAG A-D**  **CAG E-G**  **CAG H-L** **Total**

  **1**             3,174,930    1,927,797    150,137     5,252,863

  **2**             1,450,575    752,140      47,117      2,249,833

  **3**             491,012      240,967      15,241      747,219

  **4**             115,388      44,961       1,598       161,947

  **5**             27,912       6,207        527         34,646

  **Total**         5,259,817    2,972,072    214,620     8,446,508

  **Non-city**                                            

  **Box Size**      **CAG A-D**  **CAG E-G**  **CAG H-L** **Total**

  **1**             33,345       1,166,835    2,511,555   3,711,735

  **2**             20,434       550,702      983,920     1,555,055

  **3**             7,029        147,968      253,237     408,233

  **4**             1,066        16,674       15,785      33,525

  **5**             155          1,860        1,714       3,729

  **Total**         62,029       1,884,038    3,766,211   5,712,278

  **Nondelivery**                                         

  **Box Size**      **CAG A-D**  **CAG E-G**  **CAG H-L** **Total**

  **1**             6,361        200,871      747,141     954,373

  **2**             4,595        62,785       247,869     315,249

  **3**             1,523        16,268       58,311      76,102

  **4**             164          2,294        2,811       5,269

  **5**             53           197          319         569

  **Total**         12,696       282,415      1,056,451   1,351,562

  **GRAND TOTAL**                                         15,754,314
  ----------------- ------------ ------------ ----------- -----------------

Table 7 presents the assumptions for allocating post office boxes to fee
groups resulting from Docket No. MC96-3. As in Table 5 of witness Lion's
testimony, these assumptions are used to estimate the number of
customers in classified post offices and contract stations who are
ineligible for carrier delivery service, and thus entitled to a post
office box at no fee. Table 7 also extends the subgroup naming
convention (e.g., "C" and "E-0;" "D-1" and "E‑1;" "D-2" and "E-2;" etc.)
used by witness Lion to indicate eligible and ineligible customers.

In the non-city delivery group, Table 7 shows the percent of eligible
and ineligible customers in classified offices and contract stations by
CAG groupings. For example, "D-1" represents the subgroup of customers
eligible for delivery from CAG A-D classified offices in the non-city
delivery group, while "D-2" represents the subgroup of eligible
customers from CAG A-D contract stations.

  ---------------- --------- ----------------------- -------------- ---------- -------------- ----------
  **Table 7.                                                                                  
  Assumptions for                                                                             
  Allocation to                                                                               
  Fee Groups**                                                                                

  **Delivery       **CAG**   **Percent               **Eligible                **Ineligible   
  Group**                    Classified/Contract**   Customers**               Customers**    

                                                     **Subgroup**   **Pct.**   **Subgroup**   **Pct.**

                             \[a\]                                  \[b\]                     \[c\]

  **City-other                                       C              99%        E-0            1%
  Offices**                                                                                   

  **Non-city                                                                                  
  Offices**                                                                                   

  **Classified**   **CAG     100.00%                 D-1            98.00%     E-1            2.00%
                   A-D**                                                                      

  **Contract**     **CAG     0.00%                   D-2            0.00%      E-2            0.00%
                   A-D**                                                                      

  **Classified**   **CAG     87.94%                  D-3            86.18%     E-3            1.76%
                   E-G**                                                                      

  **Contract**     **CAG     12.06%                  D-4            1.21%      E-4            10.85%
                   E-G**                                                                      

  **Classified**   **CAG     97.66%                  D-5            95.71%     E-5            1.95%
                   H-L**                                                                      

  **Contract**     **CAG     2.34%                   D-6            0.23%      E-6            2.10%
                   H-L**                                                                      

  **Nondelivery                                      D-7            70%        E-7            30%
  Offices**                                                                                   
  ---------------- --------- ----------------------- -------------- ---------- -------------- ----------

Because offices are grouped by CAG, separate estimates of the percentage
of eligible and ineligible customers from classified offices and
contract stations are necessary. These percentages, shown in column
\[a\] of Table 7, are developed in Table 7A.

  ------------- ----------- ----------- -------------- ------------ ------------
  **Table 7A.                                                       
  Development                                                       
  of                                                                
  Assumptions                                                       
  on Percent of                                                     
  Boxes at                                                          
  Classified                                                        
  Offices and                                                       
  Contract                                                          
  Stations by                                                       
  CAG**                                                             

  **CAG**       **Number of **Boxes in  **Adjustment   **Percent of **Percent of
                Boxes In    Contract    to Number of   Boxes at     Boxes at
                Use at      Stations by Boxes at       Classified   Contract
                Non-city    CAG**       Contract       Offices**    Stations**
                Delivery                Stations**                  
                Offices**                                           

                \[a\]       \[b\]       \[c\]          \[d\]        \[e\]

  **A**         0           0           0                           

  **B**         8,098       0           0                           

  **C**         24,821      0           0                           

  **D**         29,110      0           0                           

  **Total**     62,029      0           0              100.00%      0.00%

  **E**         204,416     5,078       109,733                     

  **F**         468,080     1,305       28,200                      

  **G**         1,211,542   4,130       89,247                      

  **Total**     1,884,038   10,513      227,180        87.94%       12.06%

  **H**         1,483,834   1,469       31,744                      

  **J**         1,287,203   1,393       30,102                      

  **K**         963,414     1,148       24,808                      

  **L**         31,760      60          1,297                       

  **Total**     3,766,211   4,070       87,950         97.66%       2.34%

  **GRAND       5,712,278   14,583      315,131        94.48%       5.52%
  TOTAL**                                                           
  ------------- ----------- ----------- -------------- ------------ ------------

Tables 8A-C show the estimated number of boxes in use, pre-MC96-3. The
tables result from applying the percentages for eligible and ineligible
delivery service boxholders to the estimated boxes in use found in Table
6. Table 8A summarizes the number of boxes in use for Fee Groups A, B
and C. Fee Group C is the sum of three subgroups by CAG. Table 8B
provides the same information for Fee Group D, which is the sum of nine
subgroups. Table 8C shows the same information for Fee Group E.

  -------------- ---------- --------- ----------- -------------- -------------- ----------- ---------------- ---------------- ---------------- -----------
  **Table 8A.                                                                                                                                  
  Estimated                                                                                                                                    
  Boxes in Use,                                                                                                                                
  Pre-MC96-3**                                                                                                                                 

                 **Fee                                                                                                                         
                 Groups**                                                                                                                      

  **Box Size**   **A**      **B**     **C         **C\[E-G\]**   **C\[H-L\]**   **Total C**                                                    
                                      \[A-D\]**                                                                                                

  **1**          70,793     122,582   3,143,180   1,908,519      148,635        5,200,334                                                      

  **2**          4,417      29,437    1,436,070   744,619        46,646         2,227,334                                                      

  **3**          2,477      10,600    486,102     238,557        15,088         739,747                                                        

  **4**          258        1,658     114,234     44,512         1,582          160,328                                                        

  **5**          75         1,668     27,633      6,145          522            34,300                                                         

  **Total**      78,020     165,946   5,207,218   2,942,351      212,473        8,362,043                                                      

                                                                                                                                               

  **Table 8B.                                                                                                                                  
  Estimated                                                                                                                                    
  Boxes in Use,                                                                                                                                
  Pre-MC96-3**                                                                                                                                 

                 **Fee                                                                                                                         
                 Groups**                                                                                                                      

  **Box Size**   **D-1**    **D-2**   **D-3**     **D-4**        **D-5**        **D-6**     **D-7\[A-D\]**   **D-7\[E-G\]**   **D-7\[H-L\]**   **Total D**

  **1**          32,678     0         1,005,613   14,070         2,403,846      5,865       4,453            140,610          522,999          4,130,134

  **2**          20,025     0         474,611     6,640          941,724        2,298       3,217            43,950           173,508          1,665,973

  **3**          6,889      0         127,523     1,784          242,377        591         1,066            11,387           40,818           432,435

  **4**          1,044      0         14,370      201            15,108         37          115              1,606            1,968            34,449

  **5**          152        0         1,603       22             1,640          4           37               138              223              3,820

  **Total**      60,788     0         1,623,721   22,718         3,604,695      8,795       8,887            197,691          739,516          6,266,811

                                                                                                                                               

  **Table 8C.                                                                                                                                  
  Estimated                                                                                                                                    
  Boxes in Use,                                                                                                                                
  Pre-MC96-3**                                                                                                                                 

                 **Fee                                                                                                                         
                 Groups**                                                                                                                      

  **Box Size**   **E-0**    **E-1**   **E-2**     **E-3**        **E-4**        **E-5**     **E-6**          **E-7**          **Total E**      

  **1**          52,529     667       0           20,523         126,629        49,058      52,786           286,312          588,503          

  **2**          22,498     409       0           9,686          59,764         19,219      20,679           94,575           226,830          

  **3**          7,472      141       0           2,603          16,058         4,946       5,322            22,831           59,373           

  **4**          1,619      21        0           293            1,810          308         332              1,581            5,964            

  **5**          346        3         0           33             202            33          36               171              824              

  **Total**      84,465     1,241     0           33,137         204,462        73,565      79,155           405,469          881,494          
  -------------- ---------- --------- ----------- -------------- -------------- ----------- ---------------- ---------------- ---------------- -----------

### 2. The post-MC96-3 estimated number of boxes in use shows CAG groupings

Tables 9A-E show the estimated number of boxes in use resulting from fee
changes in Docket No. MC96-3. The post-MC96-3 estimate is derived by
applying the Commission's elasticities for each box size in each fee
group.[^18] Table 9A shows the results for Fee Groups A and B. Table 9B
presents the estimate for Fee Group C, with the results displayed
separately for each grouping by CAG. Table 9C shows the estimates for
Fee Group D, maintaining separate estimates for the effects of price
increases for each grouping by CAG. Table 9D presents the results for
Fee Group E. Table 9E summarizes the estimates by fee group in terms of
paid and free boxes, and for caller service and reserve call numbers.

  --------------- -------- -------- ---------- ---------- --------- ----------------- ------------
  **Table 9A.                                                                         
  Estimated Boxes                                                                     
  in Use by Fee                                                                       
  Group,                                                                              
  Post-MC96-3**                                                                       

  **Fee Groups A                                                                      
  & B**                                                                               

  **Fee Group**   **Box    **Pre    **Post     **Pct.     **Pre     **Elasti-city**   **Post 96-3
                  Size**   96-3     96-3       Change**   96-3                        Boxes**
                           Fees**   Fees**                Boxes**                     

                  1        \$48     \$48       0%         70,793    -0.522            70,793

                  2        \$74     \$74       0%         4,417     -0.601            4,417

  **A**           3        \$128    \$128      0%         2,477     -0.517            2,477

                  4        \$210    \$242      15%        258       -0.517            238

                  5        \$348    \$418      20%        75        -0.517            67

  **Total A**                                             78,020                      77,992

                  1        \$44     \$44       0%         122,582   -0.478            122,582

                  2        \$66     \$66       0%         29,437    -0.603            29,437

  **B**           3        \$112    \$112      0%         10,600    -0.517            10,600

                  4        \$190    \$218      15%        1,658     -0.517            1,532

                  5        \$310    \$372      20%        1,668     -0.517            1,496

  **Total B**                                             165,946                     165,647
  --------------- -------- -------- ---------- ---------- --------- ----------------- ------------

  --------------- --------- -------- -------- --------- ---------- ----------- ----------------- -----------
  **Table 9B.                                                                                    
  Estimated Boxes                                                                                
  in Use by Fee                                                                                  
  Group,                                                                                         
  Post-MC96-3**                                                                                  

  **Fee Group C**                                                                                

  **Fee Group**   **CAG**   **Box    **Pre    **Post    **Pct.     **Pre 96-3  **Elasti-city**   **Post 96-3
                            Size**   96-3     96-3      Change**   Boxes**                       Boxes**
                                     Fees**   Fees**                                             

                            1        \$40     \$40      0%         3,143,180   -0.522            3,143,180

                            2        \$58     \$58      0%         1,436,070   -0.605            1,436,070

  **C**           **A-D**   3        \$104    \$104     0%         486,102     -0.517            486,102

                            4        \$172    \$172     0%         114,234     -0.517            114,234

                            5        \$288    \$288     0%         27,633      -0.517            27,633

  **Subtotal                                                                   5,207,218         
  C\[A-D\]**                                                                                     

                            1        \$40     \$40      0%         1,908,519   -0.522            1,908,519

                            2        \$58     \$58      0%         744,619     -0.605            744,619

  **C**           **E-G**   3        \$104    \$104     0%         238,557     -0.517            238,557

                            4        \$172    \$172     0%         44,512      -0.517            44,512

                            5        \$288    \$288     0%         6,145       -0.517            6,145

  **Subtotal                                                                   2,942,351         
  C\[E-G\]**                                                                                     

                            1        \$40     \$40      0%         148,635     -0.522            148,635

                            2        \$58     \$58      0%         46,646      -0.605            46,646

  **C**           **H-L**   3        \$104    \$104     0%         15,088      -0.517            15,088

                            4        \$172    \$172     0%         1,582       -0.517            1,582

                            5        \$288    \$288     0%         522         -0.517            522

  **Subtotal                                                                   212,473           
  C\[H-L\]**                                                                                     

  **Total C**                                                      8,362,043                     8,362,043
  --------------- --------- -------- -------- --------- ---------- ----------- ----------------- -----------

  ---------------- --------- -------- -------- --------- ---------- ----------- ----------------- -----------
  **Table 9C.                                                                                     
  Estimated Boxes                                                                                 
  in Use by Fee                                                                                   
  Group,                                                                                          
  Post-MC96-3**                                                                                   

  **Fee Group D**                                                                                 

  **Fee Group**    **CAG**   **Box    **Pre    **Post    **Pct.     **Pre 96-3  **Elasti-city**   **Post 96-3
                             Size**   96-3     96-3      Change**   Boxes**                       Boxes**
                                      Fees**   Fees**                                             

                             1        \$8      \$12      50%        32,678      -0.085            31,290

  **D-1**                    2        \$13     \$20      54%        20,025      -0.136            18,561

  **Classified**   **A-D**   3        \$24     \$36      50%        6,889       -0.152            6,364

  **eligible**               4        \$35     \$53      51%        1,044       -0.152            963

                             5        \$55     \$83      51%        152         -0.152            140

  **Subtotal**                                                      60,788                        57,318

                             1        \$2      \$12      500%       0           -0.054            0

  **D-2**                    2        \$2      \$20      900%       0           -0.069            0

  **Contract**     **A-D**   3        \$2      \$36      1700%      0           -0.036            0

  **eligible**               4        \$2      \$53      2550%      0           -0.024            0

                             5        \$2      \$83      4050%      0           -0.015            0

  **Subtotal**                                                      0                             0

                             1        \$8      \$12      50%        1,005,613   -0.085            962,900

  **D-3**                    2        \$13     \$20      54%        474,611     -0.136            439,897

  **Classified**   **E-G**   3        \$24     \$36      50%        127,523     -0.152            117,818

  **eligible**               4        \$35     \$53      51%        14,370      -0.152            13,245

                             5        \$55     \$83      51%        1,603       -0.152            1,479

  **Subtotal**                                                      1,623,721                     1,535,340

                             1        \$2      \$12      500%       14,070      -0.054            10,301

  **D-4**                    2        \$2      \$20      900%       6,640       -0.069            2,507

  **Contract**     **E-G**   3        \$2      \$36      1700%      1,784       -0.036            690

  **eligible**               4        \$2      \$53      2550%      201         -0.024            76

                             5        \$2      \$83      4050%      22          -0.015            8

  **Subtotal**                                                      22,718                        13,582

                             1        \$8      \$12      50%        2,403,846   -0.085            2,301,744

  **D-5**                    2        \$13     \$20      54%        941,724     -0.136            872,844

  **Classified**   **H-L**   3        \$24     \$36      50%        242,377     -0.152            223,931

  **eligible**               4        \$35     \$53      51%        15,108      -0.152            13,925

                             5        \$55     \$83      51%        1,640       -0.152            1,513

  **Subtotal**                                                      3,604,695                     3,413,957

                             1        \$2      \$12      500%       5,865       -0.054            4,294

  **D-6**                    2        \$2      \$20      900%       2,298       -0.069            867

  **Contract**     **H-L**   3        \$2      \$36      1700%      591         -0.036            229

  **eligible**               4        \$2      \$53      2550%      37          -0.024            14

                             5        \$2      \$83      4050%      4           -0.015            2

  **Subtotal**                                                      8,795                         5,405
  ---------------- --------- -------- -------- --------- ---------- ----------- ----------------- -----------

  ----------------- --------- ---- -------- --------- ------- ----------- -------- -----------
  **Table 9C.                                                                      
  Estimated Boxes                                                                  
  in Use by Fee                                                                    
  Group, Post                                                                      
  MC96-3                                                                           
  (continued)**                                                                    

  **Fee Group D**                                                                  

                              1    \$8      \$12      50%     4,453       -0.054   4,334

  **D-7**                     2    \$13     \$20      54%     3,217       -0.069   3,097

  **Nondelivery**   **A-D**   3    \$24     \$36      50%     1,066       -0.036   1,047

  **eligible**                4    \$35     \$53      51%     115         -0.024   113

                              5    \$55     \$83      51%     37          -0.015   37

  **Subtotal**                                                8,887                8,627

                              1    \$8      \$12      50%     140,610     -0.054   136,843

  **D-7**                     2    \$13     \$20      54%     43,950      -0.069   42,313

  **Nondelivery**   **E-G**   3    \$24     \$36      50%     11,387      -0.036   11,182

  **eligible**                4    \$35     \$53      51%     1,606       -0.024   1,586

                              5    \$55     \$83      51%     138         -0.015   137

  **Subtotal**                                                197,691              192,061

                              1    \$8      \$12      50%     522,999     -0.054   508,990

  **D-7**                     2    \$13     \$20      54%     173,508     -0.069   167,046

  **Nondelivery**   **H-L**   3    \$24     \$36      50%     40,818      -0.036   40,081

  **eligible**                4    \$35     \$53      51%     1,968       -0.024   1,943

                              5    \$55     \$83      51%     223         -0.015   222

  **Subtotal**                                                739,516              718,282

                              1                               4,130,134            3,960,696

  **D**                       2                               1,665,973            1,547,132

  **Total**                   3                               432,435              401,341

  **eligible**                4                               34,449               31,865

                              5                               3,820                3,537

  **Total D**                                                 6,266,811            5,944,572
  ----------------- --------- ---- -------- --------- ------- ----------- -------- -----------

  ---------------- -------- -------- --------- ---------- --------- ---------------- ---------
  **Table 9D.                                                                        
  Estimated Boxes                                                                    
  in Use by Fee                                                                      
  Group,                                                                             
  Post-MC96-3**                                                                      

  **Fee Group E**                                                                    

  **Fee Group**    **Box    **Pre    **Post    **Pct.     **Pre     **Elasticity**   **Post
                   Size**   96-3     96-3      Change**   96-3                       96-3
                            Fees**   Fees**               Boxes**                    Boxes**

  **E-0**          1        \$8      \$0                  52,529                     52,529

  **City-other**   2        \$13     \$0                  22,498                     22,498

  **ineligible**   3        \$24     \$0                  7,472                      7,472

                   4        \$35     \$0                  1,619                      1,619

                   5        \$55     \$0                  346                        346

  **Subtotal**                                            84,465                     84,465

  **E-1**          1        \$8      \$0                  667                        667

  **Non-city**     2        \$13     \$0                  409                        409

  **Classified**   3        \$24     \$0                  141                        141

  **ineligible**   4        \$35     \$0                  21                         21

                   5        \$55     \$0                  3                          3

  **Subtotal**                                            1,241                      1,241

  **E-2**          1        \$2      \$0                  0                          0

  **Noncity**      2        \$2      \$0                  0                          0

  **Contract**     3        \$2      \$0                  0                          0

  **ineligible**   4        \$2      \$0                  0                          0

                   5        \$2      \$0                  0                          0

  **Subtotal**                                            0                          0

  **E-3**          1        \$8      \$0                  20,523                     20,523

  **Noncity**      2        \$13     \$0                  9,686                      9,686

  **Classified**   3        \$24     \$0                  2,603                      2,603

  **ineligible**   4        \$35     \$0                  293                        293

                   5        \$55     \$0                  33                         33

  **Subtotal**                                            33,137                     33,137

  **E-4**          1        \$2      \$0                  126,629                    126,629

  **Noncity**      2        \$2      \$0                  59,764                     59,764

  **Contract**     3        \$2      \$0                  16,058                     16,058

  **ineligible**   4        \$2      \$0                  1,810                      1,810

                   5        \$2      \$0                  202                        202

  **Subtotal**                                            204,462                    204,462

  **E-5**          1        \$8      \$0                  49,058                     49,058

  **Noncity**      2        \$13     \$0                  19,219                     19,219

  **Classified**   3        \$24     \$0                  4,946                      4,946

  **ineligible**   4        \$35     \$0                  308                        308

                   5        \$55     \$0                  33                         33

  **Subtotal**                                            73,565                     73,565
  ---------------- -------- -------- --------- ---------- --------- ---------------- ---------

  ----------------- ------ -------- --------- ------- --------- --------- --------- --
  **Table 9D.                                                                       
  Estimated Boxes                                                                   
  in Use by Fee                                                                     
  Group, Post                                                                       
  MC96-3                                                                            
  (continued)**                                                                     

  **Fee Group E**                                                                   

  **E-6**           1      \$2      \$0               52,786              52,786    

  **Noncity**       2      \$2      \$0               20,679              20,679    

  **Contract**      3      \$2      \$0               5,322               5,322     

  **ineligible**    4      \$2      \$0               332                 332       

                    5      \$2      \$0               36                  36        

  **Subtotal**                                        79,155              79,155    

  **E-7**           1      \$8      \$0               286,312             286,312   

  **Nondelivery**   2      \$13     \$0               94,575              94,575    

  **ineligible**    3      \$24     \$0               22,831              22,831    

                    4      \$35     \$0               1,581               1,581     

                    5      \$55     \$0               171                 171       

  **Subtotal**                                        405,469             405,469   

  **E**             1               \$0               588,503             588,503   

  **Total**         2               \$0               226,830             226,830   

  **ineligible**    3               \$0               59,373              59,373    

                    4               \$0               5,964               5,964     

                    5               \$0               824                 824       

  **Total E**                                         881,494             881,494   
  ----------------- ------ -------- --------- ------- --------- --------- --------- --

  --------------- -------- -------- --------- ---------- ---------- ----------------- -----------
  **Table 9E.                                                                         
  Estimated Boxes                                                                     
  in Use by Fee                                                                       
  Group,                                                                              
  Post-MC96-3**                                                                       

  **All Fee                                                                           
  Groups plus                                                                         
  Caller Service                                                                      
  and Reserve                                                                         
  Numbers**                                                                           

  **Fee Group**   **Box    **Pre    **Post    **Pct.     **Pre 96-3 **Elasti-city**   **Post 96-3
                  Size**   96-3     96-3      Change**   Boxes**                      Boxes**
                           Fees**   Fees**                                            

  **Paid Boxes                                                      14,872,820        
  (A+B+C+D)**                                                                         

  **Free Boxes                                                      881,494           
  (E)**                                                                               

  **TOTAL BOXES**                                                   15,754,314        

  **Caller                          \$349     \$451      29%        100,770           -0.398
  Service**                                                                           

  **Reserve                         \$30      \$30       0%         178,717           
  Numbers**                                                                           

  **GRAND TOTAL**                                                   16,033,801        
  --------------- -------- -------- --------- ---------- ---------- ----------------- -----------

## C. The Test Year Before Rates And After Rates Estimates Of The Number of Boxes In Use And Revenues Reflect The New Fee Groups

Table 10 reconfigures the post-MC96-3 fee groups into the proposed new
fee groups. The test year before rates (TYBR) number of boxes in use is
also computed by applying the Postal Service's 1.9 percent growth
factor. *See* USPS‑T‑24 at 16.

  ------------------- ----------- -------------------- -------------------
  **Table 10.                                          
  Estimated Boxes in                                   
  Use, Proposed New                                    
  Fee Groups, TYBY**                                   

  **New Fee Groups**                                   

                      **Growth                         **0.019**
                      Factor =**                       

  **New Fee Groups**  **Box       **Post 96-3 Boxes**  **TYBR Boxes**
                      Size**                           

  **A**               1           70,793               72,138

                      2           4,417                4,501

                      3           2,477                2,524

                      4           238                  242

                      5           67                   69

  **Total A**                     77,992               79,474

  **B**               1           122,582              124,912

                      2           29,437               29,996

                      3           10,600               10,802

                      4           1,532                1,561

                      5           1,496                1,524

  **Total B**                     165,647              168,795

  **C-I**             1           3,143,180            3,202,901

                      2           1,436,070            1,463,355

                      3           486,102              495,338

                      4           114,234              116,404

                      5           27,633               28,158

  **Total C-I**                   5,207,218            5,306,156

  **C-II**            1           1,908,519            1,944,781

                      2           744,619              758,767

                      3           238,557              243,090

                      4           44,512               45,357

                      5           6,145                6,262

  **Total C-II**                  2,942,351            2,998,256
  ------------------- ----------- -------------------- -------------------

  ------------------- ----------- -------------------- -------------------
  **Table 10.                                          
  Estimated Boxes in                                   
  Use, Proposed New                                    
  Fee Groups, TYBR                                     
  (continued)**                                        

  **New Fee Groups**                                   

  **C-III**           1           148,635              151,459

                      2           46,646               47,532

                      3           15,088               15,375

                      4           1,582                1,612

                      5           522                  532

  **Total C-III**                 212,473              216,510

  **D-I**             1           35,624               36,301

                      2           21,657               22,069

                      3           7,411                7,552

                      4           1,076                1,096

                      5           177                  180

  **Total D-I**                   65,945               67,198

  **D-II**            1           1,110,045            1,131,135

                      2           484,717              493,926

                      3           129,690              132,154

                      4           14,907               15,190

                      5           1,624                1,655

  **Total D-II**                  1,740,982            1,774,061

  **D-III**           1           2,815,028            2,868,513

                      2           1,040,758            1,060,532

                      3           264,241              269,261

                      4           15,882               16,184

                      5           1,736                1,769

  **Total D-III**                 4,137,645            4,216,260

  **E**               1           588,503              599,685

                      2           226,830              231,140

                      3           59,373               60,501

                      4           5,964                6,078

                      5           824                  840

  **Total E**                     881,494              898,243

  **GRAND TOTAL**                                      15,431,749
  ------------------- ----------- -------------------- -------------------

Fee Groups A and B are the same as the post-MC96-3 fee groups. Fee
Groups C and D are reconfigured into the proposed new Fee Groups C-I,
C-II and C-III and D-I, D-I, and D-III. C-I and D-I consist of CAG A-D
post offices, representing the largest post offices in the current Fee
Groups C and D, respectively. New Fee Groups C-II and D-II consist of
medium-sized post offices, CAG E-G, while C-III and D-III consist of the
smallest post offices, CAG H-L.

Tables 11A and B show the development of the estimated boxes in use and
revenues in the TYAR. Table 11A shows the proposed fees, and presents
the TYAR boxes in use, revenues, and the change in revenues from the
test year before rates to the test year after rates for the new fee
groups. Table 11B summarizes the estimated boxes in use and revenues in
the TYAR by paid and free boxes, and for caller service and reserve call
numbers. Revenues are estimated to increase \$73 million to a total of
\$690 million.

  ----------- -------- ----------- ------------ -------- ----------- ----------------- ----------- --------------- --------------- ---------------
  **Table                                                                                                                          
  11A.                                                                                                                             
  Estimated                                                                                                                        
  Boxes in                                                                                                                         
  Use by New                                                                                                                       
  Fee Groups,                                                                                                                      
  TYAR**                                                                                                                           

  **New Fee                                                                                                                        
  Groups**                                                                                                                         

  **New Fee   **Box    **Current   **Proposed   **Pct.   **OCA TYBR  **Elasti-city**   **OCA TYAR  **OCA TYBR      **OCA TYAR      **Change in
  Groups**    Size**   Fees**      Box Fees**   Chg.**   Boxes**                       Boxes**     Revenues**      Revenues**      Revenues**

                       \[a\]       \[b\]        \[c\]    \[d\]       \[e\]             \[f\]       \[g\]           \[h\]           \[i\]

  **A**       1        \$48        \$75         56%      72,138      -0.522            50,960      \$3,462,625     \$3,822,014     \$359,389

              2        \$74        \$110        49%      4,501       -0.601            3,186       \$333,056       \$350,447       \$17,390

              3        \$128       \$190        48%      2,524       -0.517            1,892       \$323,090       \$359,568       \$36,478

              4        \$242       \$330        36%      242         -0.517            197         \$58,595        \$64,891        \$6,296

              5        \$418       \$550        32%      69          -0.517            57          \$28,713        \$31,617        \$2,903

  **Total A**                                                        79,474                        56,293          \$4,206,080     \$4,628,536

  **B**       1        \$44        \$65         48%      124,912     -0.478            96,390      \$5,496,107     \$6,265,339     \$769,232

              2        \$66        \$95         44%      29,996      -0.603            22,055      \$1,979,763     \$2,095,190     \$115,427

              3        \$112       \$160        43%      10,802      -0.517            8,410       \$1,209,804     \$1,345,605     \$135,802

              4        \$218       \$290        33%      1,561       -0.517            1,295       \$340,285       \$375,429       \$35,144

              5        \$372       \$485        30%      1,524       -0.517            1,285       \$566,923       \$623,133       \$56,210

  **Total B**                                                        168,795                       129,434         \$9,592,883     \$10,704,697

  **C-I**     1        \$40        \$56         40%      3,202,901   -0.522            2,534,252   \$128,116,026   \$141,918,088   \$13,802,061

              2        \$58        \$81         40%      1,463,355   -0.605            1,112,183   \$84,874,580    \$90,086,804    \$5,212,224

              3        \$104       \$146        40%      495,338     -0.517            391,986     \$51,515,132    \$57,229,916    \$5,714,784

              4        \$172       \$240        40%      116,404     -0.517            92,628      \$20,021,558    \$22,230,648    \$2,209,090

              5        \$288       \$402        40%      28,158      -0.517            22,399      \$8,109,453     \$9,004,508     \$895,054

  **Total                                                            5,306,156                     4,153,447       \$292,636,749   \$320,469,963
  C-I**                                                                                                                            

  **C-II**    1        \$40        \$46         15%      1,944,781   -0.522            1,792,531   \$77,791,222    \$82,456,416    \$4,665,194

              2        \$58        \$67         16%      758,767     -0.605            687,515     \$44,008,463    \$46,063,521    \$2,055,058

              3        \$104       \$120        15%      243,090     -0.517            223,768     \$25,281,331    \$26,852,110    \$1,570,780

              4        \$172       \$198        15%      45,357      -0.517            41,815      \$7,801,448     \$8,279,348     \$477,900

              5        \$288       \$331        15%      6,262       -0.517            5,779       \$1,803,345     \$1,912,715     \$109,370

  **Total                                                            2,998,256                     2,751,407       \$156,685,809   \$165,564,111
  C-II**                                                                                                                           

  **C-III**   1        \$40        \$40         0%       151,459     -0.522            151,459     \$6,058,375     \$6,058,375     \$0

              2        \$58        \$58         0%       47,532      -0.605            47,532      \$2,756,864     \$2,756,864     \$0

              3        \$104       \$104        0%       15,375      -0.517            15,375      \$1,598,978     \$1,598,978     \$0

              4        \$172       \$172        0%       1,612       -0.517            1,612       \$277,319       \$277,319       \$0

              5        \$288       \$288        0%       532         -0.517            532         \$153,165       \$153,165       \$0

  **Total                                                            216,510                       216,510         \$10,844,702    \$10,844,702
  C-III**                                                                                                                          

  **D-I**     1        \$12        \$24         100%     36,301      -0.054            34,356      \$435,608       \$824,544       \$388,936

              2        \$20        \$40         100%     22,069      -0.069            20,542      \$441,377       \$821,698       \$380,320

              3        \$36        \$72         100%     7,552       -0.036            7,279       \$271,869       \$524,117       \$252,247

              4        \$53        \$106        100%     1,096       -0.024            1,070       \$58,107        \$113,378       \$55,270

              5        \$83        \$166        100%     180         -0.015            178         \$14,978        \$29,495        \$14,517

  **Total                                                            67,198                        63,425          \$1,221,940     \$2,313,232
  D-I**                                                                                                                            

  **D-II**    1        \$12        \$18         50%      1,131,135   -0.054            1,100,837   \$13,573,626    \$19,815,069    \$6,241,444

              2        \$20        \$30         50%      493,926     -0.069            476,845     \$9,878,524     \$14,305,338    \$4,426,814

              3        \$36        \$54         50%      132,154     -0.036            129,769     \$4,757,533     \$7,007,536     \$2,250,003

              4        \$53        \$80         51%      15,190      -0.024            15,001      \$805,088       \$1,200,115     \$395,027

              5        \$83        \$125        51%      1,655       -0.015            1,642       \$137,377       \$205,283       \$67,907

  **Total                                                            1,774,061                     1,724,095       \$29,152,148    \$42,533,342
  D-II**                                                                                                                           

  **D-III**   1        \$12        \$15         25%      2,868,513   -0.054            2,830,096   \$34,422,158    \$42,451,433    \$8,029,276

              2        \$20        \$25         25%      1,060,532   -0.069            1,042,194   \$21,210,646    \$26,054,849    \$4,844,202

              3        \$36        \$45         25%      269,261     -0.036            266,832     \$9,693,407     \$12,007,445    \$2,314,038

              4        \$53        \$66         25%      16,184      -0.024            16,087      \$857,763       \$1,061,762     \$203,999

              5        \$83        \$104        25%      1,769       -0.015            1,762       \$146,827       \$183,260       \$36,433

  **Total                                                            4,216,260                     4,156,971       \$66,330,801    \$81,758,749
  D-III**                                                                                                                          

  **E**       1        \$0         \$0                   599,685                       599,685     \$0             \$0             \$0

              2        \$0         \$0                   231,140                       231,140     \$0             \$0             \$0

              3        \$0         \$0                   60,501                        60,501      \$0             \$0             \$0

              4        \$0         \$0                   6,078                         6,078       \$0             \$0             \$0

              5        \$0         \$0                   840                           840         \$0             \$0             \$0

  **Total E**                                                        898,243                       898,243         \$0             \$0
  ----------- -------- ----------- ------------ -------- ----------- ----------------- ----------- --------------- --------------- ---------------

  ----------- -------- ----------- ------------ -------- --------- ----------------- --------- ------------ --------------- ---------------
  **Table                                                                                                                   
  11B.                                                                                                                      
  Estimated                                                                                                                 
  Boxes in                                                                                                                  
  Use by Fee                                                                                                                
  Groups,                                                                                                                   
  TYAR**                                                                                                                    

  **All Fee                                                                                                                 
  Groups plus                                                                                                               
  Caller                                                                                                                    
  Service and                                                                                                               
  Reserve                                                                                                                   
  Numbers**                                                                                                                 

  **New Fee   **Box    **Current   **Proposed   **Pct.   **OCA     **Elasti-city**   **OCA     **OCA TYBR   **OCA TYAR      **Change in
  Groups**    Size**   Fees**      Fees**       Chg.**   TYBR                        TYAR      Revenues**   Revenues**      Revenues**
                                                         Boxes**                     Boxes**                                

                                                                                                                            

  **Paid                                                           14,826,709                  13,251,582   \$570,671,113   \$638,817,332
  Boxes**                                                                                                                   

  **Free                                                           898,243                     898,243      \$0             \$0
  Boxes (E)**                                                                                                               

  **TOTAL                                                          15,724,952                  14,149,825   \$570,671,113   \$638,817,332
  BOXES**                                                                                                                   

  **Caller                         \$451        \$550    22%       90,747            -0.431    82,161       \$40,926,917    \$45,188,468
  Service**                                                                                                                 

  **Reserve                        \$30         \$40     33%       182,113           -0.517    150,749      \$5,463,379     \$6,029,976
  Numbers**                                                                                                                 

  **GRAND                                                          15,997,812                  14,382,735   \$617,061,409   \$690,035,776
  TOTAL**                                                                                                                   
  ----------- -------- ----------- ------------ -------- --------- ----------------- --------- ------------ --------------- ---------------

# iv. Post office box volume-variable costs should be allocated so that higher costs associated with larger post offices are DISTRIBUTED to boxes in those offices

## A. Space Provision Costs Should Be Allocated Based Upon Average Rental Costs For The New Fee Groups To Better Reflect Costs In Larger And Smaller Post Offices

In developing unit box costs, I allocate Space Provision costs in direct
proportion to both a measure of box size (capacity) and the particular
average rental cost per square foot for each respective fee group. This
is the same general approach followed by witness Lion. *See* USPS-T-24
at 20. However, my allocation is formed by the *product of the average
postal rental cost for each fee group and the equivalent capacity* by
box size.

Table 12 shows the allocation of Space Provision costs to derive the
total cost by box size and the unit box costs in the TYBR. The
distribution key is shown in column \[e\], "Rent x Equivalent Capacity."

  ------------ -------- ----------- ------------ -------------- ----------- ------------ ------------ ----------
  **Table 12.                                                                                         
  Allocation                                                                                          
  of Space                                                                                            
  Provision                                                                                           
  Costs by New                                                                                        
  Fee Groups,                                                                                         
  TYBR**                                                                                              

  **New Fee                                                                                           
  Groups**                                                                                            

  **New Fee    **Box    **TYBR      **Capacity   **Equivalent   **Average   **Rent x     **Total      **Cost Per
  Groups**     Size**   Boxes**     Factor**     Capacity**     Rent        Equivalent   Costs        Box**
                                                                (\$/sq.     Capacity**   (\$000)**    
                                                                ft.)**                                

                        \[a\]       \[b\]        \[c\]          \[d\]       \[e\]        \[f\]        \[g\]

  **A**        1        72,138      1            72,138         \$23.49     1,694,558    \$2,269      \$31.45

               2        4,501       1.5          6,751          \$23.49     158,588      \$212        \$47.17

               3        2,524       3            7,572          \$23.49     177,880      \$238        \$94.35

               4        242         6            1,453          \$23.49     34,126       \$46         \$188.69

               5        69          12           824            \$23.49     19,363       \$26         \$377.39

  **Total A**                       79,474       1.12           88,739      \$23.49      2,084,516    \$2,791

  **B**        1        124,912     1            124,912        \$16.74     2,091,401    \$2,800      \$22.42

               2        29,996      1.5          44,995         \$16.74     753,348      \$1,009      \$33.62

               3        10,802      3            32,405         \$16.74     542,566      \$726        \$67.25

               4        1,561       6            9,366          \$16.74     156,810      \$210        \$134.49

               5        1,524       12           18,288         \$16.74     306,195      \$410        \$268.99

  **Total B**                       168,795      1.36           229,965     \$16.74      3,850,319    \$5,155

  **C-I**      1        3,202,901   1            3,202,901      \$9.07      29,044,275   \$38,884     \$12.14

               2        1,463,355   1.5          2,195,032      \$9.07      19,904,807   \$26,649     \$18.21

               3        495,338     3            1,486,013      \$9.07      13,475,342   \$18,041     \$36.42

               4        116,404     6            698,426        \$9.07      6,333,412    \$8,479      \$72.84

               5        28,158      12           337,894        \$9.07      3,064,061    \$4,102      \$145.68

  **Total                           5,306,156    1.49           7,920,267   \$9.07       71,821,898   \$96,155
  C-I**                                                                                               

  **C-II**     1        1,944,781   1            1,944,781      \$6.88      13,379,446   \$17,912     \$9.21

               2        758,767     1.5          1,138,150      \$6.88      7,830,094    \$10,483     \$13.82

               3        243,090     3            729,269        \$6.88      5,017,130    \$6,717      \$27.63

               4        45,357      6            272,144        \$6.88      1,872,257    \$2,507      \$55.26

               5        6,262       12           75,139         \$6.88      516,934      \$692        \$110.53

  **Total                           2,998,256    1.39           4,159,483   \$6.88       28,615,862   \$38,311
  C-II**                                                                                              

  **C-III**    1        151,459     1            151,459        \$4.96      751,983      \$1,007      \$6.65

               2        47,532      1.5          71,298         \$4.96      353,990      \$474        \$9.97

               3        15,375      3            46,124         \$4.96      229,004      \$307        \$19.94

               4        1,612       6            9,674          \$4.96      48,030       \$64         \$39.88

               5        532         12           6,382          \$4.96      31,686       \$42         \$79.76

  **Total                           216,510      1.32           284,938     \$4.96       1,414,692    \$1,894
  C-III**                                                                                             

  **D-I**      1        36,301      1            36,301         \$7.23      262,432      \$351        \$9.68

               2        22,069      1.5          33,103         \$7.23      239,317      \$320        \$14.52

               3        7,552       3            22,656         \$7.23      163,788      \$219        \$29.04

               4        1,096       6            6,578          \$7.23      47,557       \$64         \$58.07

               5        180         12           2,165          \$7.23      15,655       \$21         \$116.14

  **Total                           67,198       1.50           100,803     \$7.23       728,749      \$976
  D-I**                                                                                               

  **D-II**     1        1,131,135   1            1,131,135      \$7.29      8,241,234    \$11,033     \$9.75

               2        493,926     1.5          740,889        \$7.29      5,397,976    \$7,227      \$14.63

               3        132,154     3            396,461        \$7.29      2,888,539    \$3,867      \$29.26

               4        15,190      6            91,142         \$7.29      664,044      \$889        \$58.53

               5        1,655       12           19,862         \$7.29      144,708      \$194        \$117.05

  **Total                           1,774,061    1.34           2,379,490   \$7.29       17,336,501   \$23,210
  D-II**                                                                                              
  ------------ -------- ----------- ------------ -------------- ----------- ------------ ------------ ----------

  --------------- ---- ----------- ------------ ----------- ------------ ------------ ------------- -----------
  **Table 12.                                                                                       
  Allocation of                                                                                     
  Space Provision                                                                                   
  Costs by New                                                                                      
  Fee Groups,                                                                                       
  TYBR                                                                                              
  (continued)**                                                                                     

  **New Fee                                                                                         
  Groups**                                                                                          

  **D-III**       1    2,868,513   1            2,868,513   \$6.07       17,410,496   \$23,309      \$8.13

                  2    1,060,532   1.5          1,590,798   \$6.07       9,655,382    \$12,927      \$12.19

                  3    269,261     3            807,784     \$6.07       4,902,860    \$6,564       \$24.38

                  4    16,184      6            97,105      \$6.07       589,382      \$789         \$48.76

                  5    1,769       12           21,228      \$6.07       128,844      \$172         \$97.51

  **Total D-III**                  4,216,260    1.28        5,385,429    \$6.07       32,686,964    \$43,761

  **E**           1    599,685     1            599,685     \$6.98       4,185,123    \$5,603       \$9.34

                  2    231,140     1.5          346,709     \$6.98       2,419,640    \$3,239       \$14.01

                  3    60,501      3            181,502     \$6.98       1,266,678    \$1,696       \$28.03

                  4    6,078       6            36,467      \$6.98       254,498      \$341         \$56.06

                  5    840         12           10,080      \$6.98       70,344       \$94          \$112.12

  **Total E**                      898,243      1.31        1,174,442    \$6.98       8,196,283     \$10,973

  **GRAND TOTAL**                  15,724,952               21,723,555                166,735,784   \$223,226
  --------------- ---- ----------- ------------ ----------- ------------ ------------ ------------- -----------

The development of the "Average Rent (\$/sq.ft.)" in Table 12 is shown
in Tables 12A-B. Table 12A presents, based upon the estimated number of
boxes installed, the conversion of the average postal rental costs by
delivery group into the weighted average rental costs for the new fee
group. Table 12B develops the number of boxes installed for each new fee
group, using the percentages shown in Table 7. The average rents for the
new fee group are simply the weighted average of boxes installed by
delivery group, which are shown on the last row of Table 12A.

  ----------------- --------- ----------- --------- ----------- ----------- --------- -------- ----------- ----------- ----------- ------------ ---------
  **Table 12A.                                                                                                                                  
  Weighted Average                                                                                                                              
  Rental Cost for                                                                                                                               
  New Fee Groups**                                                                                                                              

                              **Boxes                                                                                                           
                              Installed                                                                                                         
                              by Delivery                                                                                                       
                              Groups and                                                                                                        
                              New Fee                                                                                                           
                              Groups**                                                                                                          

                              **NEW FEE                                                                                                         
                              GROUPS**                                                                                                          

  **CARRIER                                                                                                                        **A**        **B**
  DELIVERY GROUPS**                                                                                                                             

                                                                                                                                   \[a\]        \[b\]

  **CITY-A**                  104,384                                                                                              104,384      \$23.49

  **CITY-B**                              202,719                                                                                  202,719      \$16.74

  **CITY-OTHER**                                                                                                                   10,770,049   

                    **CAG                           6,542,087                                                                      6,542,087    \$9.07
                    A-D**                                                                                                                       

                    **CAG                                       3,790,060                                                          3,790,060    \$6.88
                    E-G**                                                                                                                       

                    **CAG                                                   330,202                                                330,202      \$4.96
                    H-L**                                                                                                                       

                    **E-0**                                                                                            107,700     107,700      \$7.19

  **NON-CITY**                                                                                                                     7,070,042    

  **Classified**    **CAG                                                             69,019                           1,409       70,428       \$7.24
                    A-D**                                                                                                                       

  **Contract**      **CAG                                                             0                                0           0            \$7.24
                    A-D**                                                                                                                       

  **Classified**    **CAG                                                                      1,898,222               38,739      1,936,961    \$7.30
                    E-G**                                                                                                                       

  **Contract**      **CAG                                                                      26,559                  239,028     265,587      \$7.30
                    E-G**                                                                                                                       

  **Classified**    **CAG                                                                                  4,591,342   93,701      4,685,042    \$5.84
                    H-L**                                                                                                                       

  **Contract**      **CAG                                                                                  11,202      100,821     112,024      \$5.84
                    H-L**                                                                                                                       

  **NONDELIVERY**                                                                                                                  1,709,870    

                    **CAG                                                             11,188                                       11,188       \$7.19
                    A-D**                                                                                                                       

                    **CAG                                                                      235,810                             235,810      \$7.19
                    E-G**                                                                                                                       

                    **CAG                                                                                  949,911                 949,911      \$7.19
                    H-L**                                                                                                                       

                    **E-7**                                                                                            512,961     512,961      \$7.19

  **TOTAL**                   104,384     202,719   6,542,087   3,790,060   330,202   80,208   2,160,591   5,552,455   1,094,359   19,857,064   

  **AVERAGE RENT                          \$23.49   \$16.74     \$9.07      \$6.88    \$4.96   \$7.23      \$7.29      \$6.07      \$6.98       
  PER SQ.FT., NEW                                                                                                                               
  FEE GROUP**                                                                                                                                   
  ----------------- --------- ----------- --------- ----------- ----------- --------- -------- ----------- ----------- ----------- ------------ ---------

  --------------- ---------- --------- ----------- -------------- -------------- ------------ ---------------- ---------------- ---------------- -----------
  **Table 12B.                                                                                                                                   
  Estimated Boxes                                                                                                                                
  Installed by                                                                                                                                   
  CAG by Fee                                                                                                                                     
  Group**                                                                                                                                        

                  **Fee                                                                                                                          
                  Groups**                                                                                                                       

                  **A**      **B**     **C         **C\[E-G\]**   **C\[H-L\]**   **Total C**                                                     
                                       \[A-D\]**                                                                                                 

  **Boxes**                                                                                                                                      

  **Installed**   104,384    202,719   6,542,087   3,790,060      330,202        10,662,349                                                      

                                                                                                                                                 

                  **Fee                                                                                                                          
                  Groups**                                                                                                                       

                  **D-1**    **D-2**   **D-3**     **D-4**        **D-5**        **D-6**      **D-7\[A-D\]**   **D-7\[E-G\]**   **D-7\[H-L\]**   **Total D**

  **Boxes**                                                                                                                                      

  **Installed**   69,019     0         1,898,222   26,559         4,591,342      11,202       11,188           235,810          949,911          7,793,253

                                                                                                                                                 

                  **Fee                                                                                                                          
                  Groups**                                                                                                                       

                  **E-0**    **E-1**   **E-2**     **E-3**        **E-4**        **E-5**      **E-6**          **E-7**          **Total E**      

  **Boxes**                                                                                                                                      

  **Installed**   107,700    1,409     0           38,739         239,028        93,701       100,821          512,961          1,094,359        

                                                                                                                                                 
  --------------- ---------- --------- ----------- -------------- -------------- ------------ ---------------- ---------------- ---------------- -----------

## B. A Portion Of All Other Costs Should Be Allocated To The New Fee Groups Based Upon Groupings By CAG To Better Reflect Costs In Larger And Smaller Post Offices

I allocate a portion of All Other costs to boxes by CAG. Table 13
summarizes the allocation of All Other costs and the development of TYBR
unit box costs.

  ------------ -------- ----------- ---------------- -------------- --------------- ----------- ---------- ----------
  **Table 13.                                                                                              
  Summary of                                                                                               
  Allocation                                                                                               
  of All Other                                                                                             
  Costs by New                                                                                             
  Fee Groups,                                                                                              
  TYBR**                                                                                                   

  **New Fee                                                                                                
  Groups**                                                                                                 

  **New Fee    **Box    **TYBR      **Post-masters   **Supervisor   **Mailhandler   **Non-CAG   **Total    **Cost per
  Groups**     Size**   Boxes**     Costs (000)**    Costs (000)**  Costs (000)**   Costs       (000)**    Box**
                                                                                    (000)**                

                        \[a\]       \[b\]            \[c\]          \[d\]           \[e\]       \[f\]      \[g\]

  **A**        1        72,138      \$0              \$52           \$154           \$375       \$582      \$8.07

               2        4,501       \$0              \$3            \$10            \$23        \$36       \$8.07

               3        2,524       \$0              \$2            \$5             \$13        \$20       \$8.07

               4        242         \$0              \$0            \$1             \$1         \$2        \$8.07

               5        69          \$0              \$0            \$0             \$0         \$1        \$8.07

  **Total A**                       79,474           \$0            \$58            \$170       \$414      \$642

  **B**        1        124,912     \$2              \$91           \$268           \$650       \$1,010    \$8.08

               2        29,996      \$0              \$22           \$64            \$156       \$243      \$8.08

               3        10,802      \$0              \$8            \$23            \$56        \$87       \$8.08

               4        1,561       \$0              \$1            \$3             \$8         \$13       \$8.08

               5        1,524       \$0              \$1            \$3             \$8         \$12       \$8.08

  **Total B**                       168,795          \$3            \$122           \$361       \$878      \$1,365

  **C-I**      1        3,202,901   \$105            \$2,321        \$6,859         \$16,667    \$25,951   \$8.10

               2        1,463,355   \$48             \$1,060        \$3,134         \$7,615     \$11,857   \$8.10

               3        495,338     \$16             \$359          \$1,061         \$2,578     \$4,013    \$8.10

               4        116,404     \$4              \$84           \$249           \$606       \$943      \$8.10

               5        28,158      \$1              \$20           \$60            \$147       \$228      \$8.10

  **Total                           5,306,156        \$173          \$3,845         \$11,363    \$27,611   \$42,993
  C-I**                                                                                                    

  **C-II**     1        1,944,781   \$336            \$1,409        \$0             \$10,120    \$11,865   \$6.10

               2        758,767     \$131            \$550          \$0             \$3,948     \$4,629    \$6.10

               3        243,090     \$42             \$176          \$0             \$1,265     \$1,483    \$6.10

               4        45,357      \$8              \$33           \$0             \$236       \$277      \$6.10

               5        6,262       \$1              \$5            \$0             \$33        \$38       \$6.10

  **Total                           2,998,256        \$518          \$2,172         \$0         \$15,602   \$18,292
  C-II**                                                                                                   

  **C-III**    1        151,459     \$80             \$0            \$0             \$788       \$868      \$5.73

               2        47,532      \$25             \$0            \$0             \$247       \$272      \$5.73

               3        15,375      \$8              \$0            \$0             \$80        \$88       \$5.73

               4        1,612       \$1              \$0            \$0             \$8         \$9        \$5.73

               5        532         \$0              \$0            \$0             \$3         \$3        \$5.73

  **Total                           216,510          \$114          \$0             \$0         \$1,127    \$1,241
  C-III**                                                                                                  
  ------------ -------- ----------- ---------------- -------------- --------------- ----------- ---------- ----------

  --------------- ---- ----------- ------------ --------- --------- ---------- ---------- -----------
  **Table 13.                                                                             
  Summary of                                                                              
  Allocation of                                                                           
  All Other Costs                                                                         
  by New Fee                                                                              
  Groups, TYBR                                                                            
  (continued)**                                                                           

  **New Fee                                                                               
  Groups**                                                                                

  **D-I**         1    36,301      \$2          \$26      \$78      \$189      \$294      \$8.11

                  2    22,069      \$1          \$16      \$47      \$115      \$179      \$8.11

                  3    7,552       \$0          \$5       \$16      \$39       \$61       \$8.11

                  4    1,096       \$0          \$1       \$2       \$6        \$9        \$8.11

                  5    180         \$0          \$0       \$0       \$1        \$1        \$8.11

  **Total D-I**                    67,198       \$3       \$49      \$144      \$350      \$545

  **D-II**        1    1,131,135   \$133        \$820     \$0       \$5,886    \$6,839    \$6.05

                  2    493,926     \$58         \$358     \$0       \$2,570    \$2,986    \$6.05

                  3    132,154     \$16         \$96      \$0       \$688      \$799      \$6.05

                  4    15,190      \$2          \$11      \$0       \$79       \$92       \$6.05

                  5    1,655       \$0          \$1       \$0       \$9        \$10       \$6.05

  **Total D-II**                   1,774,061    \$208     \$1,285   \$0        \$9,232    \$10,725

  **D-III**       1    2,868,513   \$1,108      \$0       \$0       \$14,927   \$16,034   \$5.59

                  2    1,060,532   \$410        \$0       \$0       \$5,519    \$5,928    \$5.59

                  3    269,261     \$104        \$0       \$0       \$1,401    \$1,505    \$5.59

                  4    16,184      \$6          \$0       \$0       \$84       \$90       \$5.59

                  5    1,769       \$1          \$0       \$0       \$9        \$10       \$5.59

  **Total D-III**                  4,216,260    \$1,628   \$0       \$0        \$21,940   \$23,568

  **E**           1    599,685     \$358        \$0       \$0       \$3,121    \$3,478    \$5.80

                  2    231,140     \$138        \$0       \$0       \$1,203    \$1,341    \$5.80

                  3    60,501      \$36         \$0       \$0       \$315      \$351      \$5.80

                  4    6,078       \$4          \$0       \$0       \$32       \$35       \$5.80

                  5    840         \$1          \$0       \$0       \$4        \$5        \$5.80

  **Total E**                      898,243      \$536     \$0       \$0        \$4,674    \$5,210

  **GRAND TOTAL**                  15,724,952   \$3,183   \$7,531   \$12,039   \$81,827   \$104,580
  --------------- ---- ----------- ------------ --------- --------- ---------- ---------- -----------

There are two types of costs to be allocated. One type of cost is
allocated by CAG. The second type of cost, which cannot be allocated by
CAG, is allocated proportionately to the number of boxes in the same
manner as performed by witness Lion. *See* USPS-T-24 at 24.

Postmaster costs are allocated according to the distribution of
postmasters by CAG. Table 13A presents the allocation of postmaster
costs.

  -------------- ----------- --------------- ------------- -------------------
  **Table 13A.                                             
  Distribution                                             
  of Postmaster                                            
  Costs to                                                 
  Boxes**                                                  

  **New Fee      **Box       **TYBR Boxes**  **Percent of  **Postmaster Costs
  Groups**       Size**                      Fee Group**   (000)**

                             \[a\]           \[b\]         \[c\]

  **A**          1           72,138          90.77%        \$0

                 2           4,501           5.66%         \$0

                 3           2,524           3.18%         \$0

                 4           242             0.30%         \$0

                 5           69              0.09%         \$0

  **Total A**                                79,474        100.00%

  **B**          1           124,912         74.00%        \$2

                 2           29,996          17.77%        \$0

                 3           10,802          6.40%         \$0

                 4           1,561           0.92%         \$0

                 5           1,524           0.90%         \$0

  **Total B**                                168,795       100.00%

  **C-I**        1           3,202,901       60.36%        \$105

                 2           1,463,355       27.58%        \$48

                 3           495,338         9.34%         \$16

                 4           116,404         2.19%         \$4

                 5           28,158          0.53%         \$1

  **Total C-I**                              5,306,156     100.00%

  **C-II**       1           1,944,781       64.86%        \$336

                 2           758,767         25.31%        \$131

                 3           243,090         8.11%         \$42

                 4           45,357          1.51%         \$8

                 5           6,262           0.21%         \$1

  **Total C-II**                             2,998,256     100.00%

  **C-III**      1           151,459         69.95%        \$80

                 2           47,532          21.95%        \$25

                 3           15,375          7.10%         \$8

                 4           1,612           0.74%         \$1

                 5           532             0.25%         \$0

  **Total                                    216,510       100.00%
  C-III**                                                  

  **D-I**        1           36,301          54.02%        \$2

                 2           22,069          32.84%        \$1

                 3           7,552           11.24%        \$0

                 4           1,096           1.63%         \$0

                 5           180             0.27%         \$0

  **Total D-I**                              67,198        100.00%
  -------------- ----------- --------------- ------------- -------------------

  --------------- ----------- --------------- ------------- -------------------
  **Table 13A.                                              
  Distribution of                                           
  Postmaster                                                
  Costs to Boxes                                            
  (continued)**                                             

  **New Fee                                                 
  Groups**                                                  

  **D-II**        1           1,131,135       63.76%        \$133

                  2           493,926         27.84%        \$58

                  3           132,154         7.45%         \$16

                  4           15,190          0.86%         \$2

                  5           1,655           0.09%         \$0

  **Total D-II**                              1,774,061     100.00%

  **D-III**       1           2,868,513       68.03%        \$1,108

                  2           1,060,532       25.15%        \$410

                  3           269,261         6.39%         \$104

                  4           16,184          0.38%         \$6

                  5           1,769           0.04%         \$1

  **Total D-III**                             4,216,260     100.00%

  **E**           1           599,685         66.76%        \$358

                  2           231,140         25.73%        \$138

                  3           60,501          6.74%         \$36

                  4           6,078           0.68%         \$4

                  5           840             0.09%         \$1

  **Total E**                                 898,243       100.00%

  **GRAND TOTAL**                             15,724,952    
  --------------- ----------- --------------- ------------- -------------------

Table 13B begins the process of allocating postmaster costs by CAG.
Column \[a\] displays the number of offices by CAG in each fee group,
and column \[b\] computes the percent of offices by CAG in each fee
group to the total number of offices by CAG. For example, the data show
29 CAG A offices in Fee Group A, which represents 2.55 percent
(29/1,138) of the total number of offices in CAG A. The percentages
computed in column \[b\] are used to distribute the number of employees
in each CAG to the CAG levels in each fee group. Continuing the example
for postmasters, I estimate that there are two CAG A postmasters in Fee
Group A, as shown in column \[c\]. This represents 0.01 percent
(2/26,403) of all postmasters. The resulting percentages, displayed in
column \[d\], of postmasters at each CAG level are then used to
distribute total postmaster costs of \$3,183,000 to each CAG level in
the fee groups. The amounts so distributed are totaled by fee group and
transferred to Table 13A, where the totals are allocated proportionately
by box size in each fee group.

  -------------- ----------- ----------- ----------- ----------------- ----------- --------- ----------------- ------------------
  **Table 13B.                                                                                                 
  Distribution                                                                                                 
  of Postmasters                                                                                               
  Costs by CAG,                                                                                                
  and Index of                                                                                                 
  Supervisors                                                                                                  
  and                                                                                                          
  Mailhandlers                                                                                                 
  by CAG**                                                                                                     

                                                     **Postmasters**                         **Supervisors**   **Mailhandlers**

  **New Fee      **CAG**     **Number of **Percent   **Number by CAG   **Percent   **Total   **Index of        **Index of
  Groups**                   Offices**   of Total    Level**           at CAG      Costs     Employment at CAG Employment at CAG
                                         CAG Level**                   Level**     (000)**   Level**           Level**

                             \[a\]       \[b\]       \[c\]             \[d\]       \[e\]     \[f\]             \[g\]

  **A**                                                                                                        

                 **CAG A**   29          2.55%       2                 0.01%       \$0       1                 1

                 **Total**   29                      2                             \$0       1                 1

  **B**                                                                                                        

                 **CAG A**   56          4.92%       4                 0.01%       \$0       1                 1

                 **CAG B**   42          6.13%       11                0.04%       \$1       1                 1

                 **CAG C**   9           0.73%       5                 0.02%       \$1       1                 1

                 **CAG D**   2           0.30%       2                 0.01%       \$0       1                 1

                 **Total**   109                     21                            \$3       1                 1

  **C-I**                                                                                                      

                 **CAG A**   1,053       92.53%      68                0.26%       \$8       1                 1

                 **CAG B**   637         92.99%      163               0.62%       \$20      1                 1

                 **CAG C**   1,213       97.74%      661               2.50%       \$80      1                 1

                 **CAG D**   638         96.96%      545               2.06%       \$66      1                 1

                 **Total**   3,541                   1,437                         \$173     1                 1

  **C-II**                                                                                                     

                 **CAG E**   1,228       91.23%      1,334             5.05%       \$161     1                 0

                 **CAG F**   1,264       79.25%      1,456             5.51%       \$176     1                 0

                 **CAG G**   1,238       50.82%      1,505             5.70%       \$181     1                 0

                 **Total**   3,730                   4,295                         \$518     1                 0

  **C-III**                                                                                                    

                 **CAG H**   520         17.22%      620               2.35%       \$75      0                 0

                 **CAG J**   130         3.15%       148               0.56%       \$18      0                 0

                 **CAG K**   136         1.68%       151               0.57%       \$18      0                 0

                 **CAG L**   23          2.04%       28                0.11%       \$3       0                 0

                 **Total**   809                     946                           \$114     0                 0
  -------------- ----------- ----------- ----------- ----------------- ----------- --------- ----------------- ------------------

  --------------- ----------- -------- -------- -------- -------- --------- ------------ ------------
  **Table 13B.                                                                           
  Distribution of                                                                        
  Postmasters                                                                            
  Costs by CAG,                                                                          
  and Index of                                                                           
  Supervisors and                                                                        
  Mailhandlers by                                                                        
  CAG                                                                                    
  (continued)**                                                                          

  **New Fee                                                                              
  Groups**                                                                               

  **D-I**                                                                                

                  **CAG A**   0        0.00%    0        0.00%    \$0       1            1

                  **CAG B**   5        0.73%    1        0.00%    \$0       1            1

                  **CAG C**   14       1.13%    8        0.03%    \$1       1            1

                  **CAG D**   17       2.58%    15       0.05%    \$2       1            1

                  **Total**   36                23                \$3       1            1

  **D-II**                                                                               

                  **CAG E**   106      7.88%    115      0.44%    \$14      1            0

                  **CAG F**   294      18.43%   339      1.28%    \$41      1            0

                  **CAG G**   1,049    43.06%   1,276    4.83%    \$154     1            0

                  **Total**   1,449             1,729             \$208     1            0

  **D-III**                                                                              

                  **CAG H**   2,186    72.38%   2,604    9.86%    \$314     0            0

                  **CAG J**   3,284    79.59%   3,748    14.20%   \$452     0            0

                  **CAG K**   5,759    70.98%   6,375    24.15%   \$769     0            0

                  **CAG L**   640      56.89%   777      2.94%    \$94      0            0

                  **Total**   11,869            13,505            \$1,628   0            0

  **E**                                                                                  

                  **CAG A**   0        0.00%    0        0.00%    \$0       1            1

                  **CAG B**   1        0.15%    0        0.00%    \$0       1            1

                  **CAG C**   5        0.40%    3        0.01%    \$0       1            1

                  **CAG D**   1        0.15%    1        0.00%    \$0       1            1

                  **CAG E**   12       0.89%    13       0.05%    \$2       1            1

                  **CAG F**   37       2.32%    43       0.16%    \$5       1            0

                  **CAG G**   149      6.12%    181      0.69%    \$22      1            0

                  **CAG H**   314      10.40%   374      1.42%    \$45      0            0

                  **CAG J**   712      17.26%   813      3.08%    \$98      0            0

                  **CAG K**   2,219    27.35%   2,456    9.30%    \$296     0            0

                  **CAG L**   462      41.07%   561      2.12%    \$68      0            0

                  **Total**   3,912             4,445             \$536     0            0

  **GRAND TOTAL**                      25,484            26,403             \$3,183      
  --------------- ----------- -------- -------- -------- -------- --------- ------------ ------------

The allocation of supervisor and mailhandler costs by CAG is based on a
different method. Table 13C shows the allocation of supervisor and
mailhandler costs. In order to allocate such costs, however, I used an
index to represent the employment, or the absence thereof, of
supervisors and mailhandlers at certain CAG levels. This "Index of
Employment," consisting of a "1" to indicate employment, and a "0" to
indicate no employment, is shown in Table 13B, columns \[f\] and \[g\].
Where a 1 is assigned to all CAG levels in a fee group, a 1 is also
assigned to the fee group. Similarly, where a 0 is assigned to all CAG
levels in a fee group, a 0 is also assigned to that fee group. The index
number for each fee group is multiplied by the TYBR number of boxes in
each fee group to determine the number of "supervisor" boxes and
"mailhandler" boxes, as shown in columns \[b\] and \[d\] of Table 13C.
The percent of total "supervisor" boxes in column \[c\] is used to
allocate volume-variable supervisor costs of \$7,531,000. With respect
to mailhandlers, I determined volume-variable mailhandler costs to be
\$12,039,000, or 16.83 percent, of Cost Segment 3 volume-variable post
office box costs of \$71,527,000.[^19] Volume-variable mailhandler costs
are then allocated based upon the percent of total "mailhandler" boxes
shown in column \[e\].

  -------------- -------- ----------- ------------------ ------------- ------------------- ------------- -------------- --------------- ----------
  **Table 13C.                                                                                                                          
  Distribution                                                                                                                          
  of Supervisor                                                                                                                         
  and                                                                                                                                   
  Mailhandler                                                                                                                           
  Costs to                                                                                                                              
  Boxes**                                                                                                                               

  **New Fee      **Box    **TYBR      **\"Supervisor\"   **Percent**   **\"Mailhandler\"   **Percent**   **Supervisor   **Mailhandler   
  Groups**       Size**   Boxes**     Boxes**                          Boxes**                           Costs (000)**  Costs (000)**   

                          \[a\]       \[b\]              \[c\]         \[d\]               \[e\]         \[f\]          \[g\]           

  **A**          1        72,138      72,138             0.69%         72,138              1.28%         \$52           \$154           

                 2        4,501       4,501              0.04%         4,501               0.08%         \$3            \$10            

                 3        2,524       2,524              0.02%         2,524               0.04%         \$2            \$5             

                 4        242         242                0.00%         242                 0.00%         \$0            \$1             

                 5        69          69                 0.00%         69                  0.00%         \$0            \$0             

  **Total A**                         79,474             79,474        0.76%               79,474        1.41%          \$58            \$170

  **B**          1        124,912     124,912            1.20%         124,912             2.22%         \$91           \$268           

                 2        29,996      29,996             0.29%         29,996              0.53%         \$22           \$64            

                 3        10,802      10,802             0.10%         10,802              0.19%         \$8            \$23            

                 4        1,561       1,561              0.02%         1,561               0.03%         \$1            \$3             

                 5        1,524       1,524              0.01%         1,524               0.03%         \$1            \$3             

  **Total B**                         168,795            168,795       1.62%               168,795       3.00%          \$122           \$361

  **C-I**        1        3,202,901   3,202,901          30.82%        3,202,901           56.97%        \$2,321        \$6,859         

                 2        1,463,355   1,463,355          14.08%        1,463,355           26.03%        \$1,060        \$3,134         

                 3        495,338     495,338            4.77%         495,338             8.81%         \$359          \$1,061         

                 4        116,404     116,404            1.12%         116,404             2.07%         \$84           \$249           

                 5        28,158      28,158             0.27%         28,158              0.50%         \$20           \$60            

  **Total C-I**                       5,306,156          5,306,156     51.05%              5,306,156     94.39%         \$3,845         \$11,363

  **C-II**       1        1,944,781   1,944,781          18.71%        0                   0.00%         \$1,409        \$0             

                 2        758,767     758,767            7.30%         0                   0.00%         \$550          \$0             

                 3        243,090     243,090            2.34%         0                   0.00%         \$176          \$0             

                 4        45,357      45,357             0.44%         0                   0.00%         \$33           \$0             

                 5        6,262       6,262              0.06%         0                   0.00%         \$5            \$0             

  **Total C-II**                      2,998,256          2,998,256     28.85%              0             0.00%          \$2,172         \$0

  **C-III**      1        151,459     0                  0.00%         0                   0.00%         \$0            \$0             

                 2        47,532      0                  0.00%         0                   0.00%         \$0            \$0             

                 3        15,375      0                  0.00%         0                   0.00%         \$0            \$0             

                 4        1,612       0                  0.00%         0                   0.00%         \$0            \$0             

                 5        532         0                  0.00%         0                   0.00%         \$0            \$0             

  **Total                             216,510            0             0.00%               0             0.00%          \$0             \$0
  C-III**                                                                                                                               

  **D-I**        1        36,301      36,301             0.35%         36,301              0.65%         \$26           \$78            

                 2        22,069      22,069             0.21%         22,069              0.39%         \$16           \$47            

                 3        7,552       7,552              0.07%         7,552               0.13%         \$5            \$16            

                 4        1,096       1,096              0.01%         1,096               0.02%         \$1            \$2             

                 5        180         180                0.00%         180                 0.00%         \$0            \$0             

  **Total D-I**                       67,198             67,198        0.65%               67,198        1.20%          \$49            \$144
  -------------- -------- ----------- ------------------ ------------- ------------------- ------------- -------------- --------------- ----------

  --------------- ---- ----------- ------------ ------------ ---------- ----------- ------- --------- --------- ---------- --
  **Table 13C.                                                                                                             
  Distribution of                                                                                                          
  Supervisor and                                                                                                           
  Mailhandler                                                                                                              
  Costs to Boxes                                                                                                           
  (continued)**                                                                                                            

  **New Fee                                                                                                                
  Groups**                                                                                                                 

  **D-II**        1    1,131,135   1,131,135    10.88%       0          0.00%               \$820     \$0                  

                  2    493,926     493,926      4.75%        0          0.00%               \$358     \$0                  

                  3    132,154     132,154      1.27%        0          0.00%               \$96      \$0                  

                  4    15,190      15,190       0.15%        0          0.00%               \$11      \$0                  

                  5    1,655       1,655        0.02%        0          0.00%               \$1       \$0                  

  **Total D-II**                   1,774,061    1,774,061    17.07%     0           0.00%             \$1,285   \$0        

  **D-III**       1    2,868,513   0            0.00%        0                      0.00%   \$0       \$0                  

                  2    1,060,532   0            0.00%        0                      0.00%   \$0       \$0                  

                  3    269,261     0            0.00%        0                      0.00%   \$0       \$0                  

                  4    16,184      0            0.00%        0                      0.00%   \$0       \$0                  

                  5    1,769       0            0.00%        0                      0.00%   \$0       \$0                  

  **Total D-III**                  4,216,260    0            0.00%      0                   0.00%     \$0       \$0        

  **E**           1    599,685     0            0.00%        0                      0.00%   \$0       \$0                  

                  2    231,140     0            0.00%        0                      0.00%   \$0       \$0                  

                  3    60,501      0            0.00%        0                      0.00%   \$0       \$0                  

                  4    6,078       0            0.00%        0                      0.00%   \$0       \$0                  

                  5    840         0            0.00%        0                      0.00%   \$0       \$0                  

  **Total E**                      898,243      0            0.00%      0                   0.00%     \$0       \$0        

  **GRAND TOTAL**                  15,724,952   10,393,939   100.00%    5,621,622           100.00%   \$7,531   \$12,039   
  --------------- ---- ----------- ------------ ------------ ---------- ----------- ------- --------- --------- ---------- --

The remaining costs, referred to as "non-CAG costs," are allocated
proportionally to the total number of boxes, as shown in Table 13D.
Non-CAG costs include \$59,488,000 of clerk costs from Cost Segment 3.
The allocation of non-CAG costs is consistent with the methodology used
by witness Lion for All Other costs.

  -------------- ---------- ---------------- -------------- ----------------
  **Table 13D.                                              
  Distribution                                              
  of Costs by                                               
  Box Size**                                                

  **New Fee      **Box      **TYBR Boxes**   **Percent**    **Non-CAG Costs
  Groups**       Size**                                     (000)**

                            \[a\]            \[b\]          \[c\]

  **A**          1          72,138           0.46%          \$375

                 2          4,501            0.03%          \$23

                 3          2,524            0.02%          \$13

                 4          242              0.00%          \$1

                 5          69               0.00%          \$0

  **Total A**                                79,474         0.51%

  **B**          1          124,912          0.79%          \$650

                 2          29,996           0.19%          \$156

                 3          10,802           0.07%          \$56

                 4          1,561            0.01%          \$8

                 5          1,524            0.01%          \$8

  **Total B**                                168,795        1.07%

  **C-I**        1          3,202,901        20.37%         \$16,667

                 2          1,463,355        9.31%          \$7,615

                 3          495,338          3.15%          \$2,578

                 4          116,404          0.74%          \$606

                 5          28,158           0.18%          \$147

  **Total C-I**                              5,306,156      33.74%

  **C-II**       1          1,944,781        12.37%         \$10,120

                 2          758,767          4.83%          \$3,948

                 3          243,090          1.55%          \$1,265

                 4          45,357           0.29%          \$236

                 5          6,262            0.04%          \$33

  **Total C-II**                             2,998,256      19.07%

  **C-III**      1          151,459          0.96%          \$788

                 2          47,532           0.30%          \$247

                 3          15,375           0.10%          \$80

                 4          1,612            0.01%          \$8

                 5          532              0.00%          \$3

  **Total                                    216,510        1.38%
  C-III**                                                   

  **D-I**        1          36,301           0.23%          \$189

                 2          22,069           0.14%          \$115

                 3          7,552            0.05%          \$39

                 4          1,096            0.01%          \$6

                 5          180              0.00%          \$1

  **Total D-I**                              67,198         0.43%
  -------------- ---------- ---------------- -------------- ----------------

  --------------- ---------- ---------------- -------------- ----------------
  **Table 13D.                                               
  Distribution of                                            
  Costs by Box                                               
  Size                                                       
  (continued)**                                              

  **New Fee                                                  
  Groups**                                                   

  **D-II**        1          1,131,135        7.19%          \$5,886

                  2          493,926          3.14%          \$2,570

                  3          132,154          0.84%          \$688

                  4          15,190           0.10%          \$79

                  5          1,655            0.01%          \$9

  **Total D-II**                              1,774,061      11.28%

  **D-III**       1          2,868,513        18.24%         \$14,927

                  2          1,060,532        6.74%          \$5,519

                  3          269,261          1.71%          \$1,401

                  4          16,184           0.10%          \$84

                  5          1,769            0.01%          \$9

  **Total D-III**                             4,216,260      26.81%

  **E**           1          599,685          3.81%          \$3,121

                  2          231,140          1.47%          \$1,203

                  3          60,501           0.38%          \$315

                  4          6,078            0.04%          \$32

                  5          840              0.01%          \$4

  **Total E**                                 898,243        5.71%

  **GRAND TOTAL**                             15,724,952     100.00%
  --------------- ---------- ---------------- -------------- ----------------

Table 14 shows the development of the TYAR All Other costs by box size,
and the TYAR unit box costs. I assumed a volume variability for All
Other costs in the TYAR of 1.002067747. *See* Tr. 13/7338-39.

  ------------ -------- ----------- -------------- ----------------- -------------- -------------- --------------
  **Table 14.                                                                                      
  Allocation                                                                                       
  of All Other                                                                                     
  Costs to                                                                                         
  Boxes in New                                                                                     
  Fee Groups,                                                                                      
  TYAR**                                                                                           

  **New Fee                                                                                        
  Groups**                                                                                         

                                    **Elasticity   **1.002067747**                                 
                                    =**                                                            

  **New Fee    **Box    **OCA TYBR  **OCA TYAR     **TYBR Total      **TYBR Cost    **TYAR Total   **TYAR All
  Groups**     Size**   Boxes**     Boxes**        (000)**           per Box**      All Other      Other Cost per
                                                                                    Costs**        Box**

                        \[a\]       \[b\]          \[c\]             \[d\]          \[e\]          \[f\]

  **A**        1        72,138      50,960         \$582,342         \$8.07         \$411,028      \$8.07

               2        4,501       3,186          \$36,333          \$8.07         \$25,696       \$8.07

               3        2,524       1,892          \$20,376          \$8.07         \$15,267       \$8.07

               4        242         197            \$1,955           \$8.07         \$1,587        \$8.07

               5        69          57             \$555             \$8.07         \$464          \$8.07

  **Total A**                       79,474         56,293            \$641,561      \$8.07         \$454,042

  **B**        1        124,912     96,390         \$1,009,877       \$8.08         \$778,810      \$8.08

               2        29,996      22,055         \$242,513         \$8.08         \$178,173      \$8.08

               3        10,802      8,410          \$87,330          \$8.08         \$67,953       \$8.08

               4        1,561       1,295          \$12,620          \$8.08         \$10,462       \$8.08

               5        1,524       1,285          \$12,321          \$8.08         \$10,383       \$8.08

  **Total B**                       168,795        129,434           \$1,364,661    \$8.08         \$1,045,781

  **C-I**      1        3,202,901   2,534,252      \$25,951,183      \$8.10         \$20,522,318   \$8.10

               2        1,463,355   1,112,183      \$11,856,686      \$8.10         \$9,005,466    \$8.10

               3        495,338     391,986        \$4,013,425       \$8.10         \$3,174,294    \$8.10

               4        116,404     92,628         \$943,155         \$8.10         \$750,108      \$8.10

               5        28,158      22,399         \$228,146         \$8.10         \$181,391      \$8.10

  **Total                           5,306,156      4,153,447         \$42,992,595   \$8.10         \$33,633,577
  C-I**                                                                                            

  **C-II**     1        1,944,781   1,792,531      \$11,864,885      \$6.10         \$10,934,106   \$6.10

               2        758,767     687,515        \$4,629,149       \$6.10         \$4,193,554    \$6.10

               3        243,090     223,768        \$1,483,063       \$6.10         \$1,364,937    \$6.10

               4        45,357      41,815         \$276,719         \$6.10         \$255,063      \$6.10

               5        6,262       5,779          \$38,201          \$6.10         \$35,248       \$6.10

  **Total                           2,998,256      2,751,407         \$18,292,018   \$6.10         \$16,782,908
  C-II**                                                                                           

  **C-III**    1        151,459     151,459        \$867,950         \$5.73         \$867,950      \$5.73

               2        47,532      47,532         \$272,387         \$5.73         \$272,387      \$5.73

               3        15,375      15,375         \$88,106          \$5.73         \$88,106       \$5.73

               4        1,612       1,612          \$9,240           \$5.73         \$9,240        \$5.73

               5        532         532            \$3,048           \$5.73         \$3,048        \$5.73

  **Total                           216,510        216,510           \$1,240,731    \$5.73         \$1,240,731
  C-III**                                                                                          
  ------------ -------- ----------- -------------- ----------------- -------------- -------------- --------------

  --------------- ---- ----------- ------------ -------------- --------------- -------------- -------------- --------
  **Table 14.                                                                                                
  Allocation of                                                                                              
  All Other Costs                                                                                            
  to Boxes in New                                                                                            
  Fee Groups,                                                                                                
  TYAR                                                                                                       
  (continued)**                                                                                              

  **New Fee                                                                                                  
  Groups**                                                                                                   

  **D-I**         1    36,301      34,356       \$294,463      \$8.11          \$278,656      \$8.11         

                  2    22,069      20,542       \$179,018      \$8.11          \$166,610      \$8.11         

                  3    7,552       7,279        \$61,260       \$8.11          \$59,044       \$8.11         

                  4    1,096       1,070        \$8,893        \$8.11          \$8,676        \$8.11         

                  5    180         178          \$1,464        \$8.11          \$1,441        \$8.11         

  **Total D-I**                    67,198       63,425         \$545,098       \$8.11         \$514,427      \$8.11

  **D-II**        1    1,131,135   1,100,837    \$6,838,511    \$6.05          \$6,654,958    \$6.05         

                  2    493,926     476,845      \$2,986,132    \$6.05          \$2,882,648    \$6.05         

                  3    132,154     129,769      \$798,962      \$6.05          \$784,516      \$6.05         

                  4    15,190      15,001       \$91,836       \$6.05          \$90,692       \$6.05         

                  5    1,655       1,642        \$10,006       \$6.05          \$9,928        \$6.05         

  **Total D-II**                   1,774,061    1,724,095      \$10,725,448    \$6.05         \$10,422,742   \$6.05

  **D-III**       1    2,868,513   2,830,096    \$16,034,333   \$5.59          \$15,819,143   \$5.59         

                  2    1,060,532   1,042,194    \$5,928,133    \$5.59          \$5,825,414    \$5.59         

                  3    269,261     266,832      \$1,505,109    \$5.59          \$1,491,502    \$5.59         

                  4    16,184      16,087       \$90,466       \$5.59          \$89,923       \$5.59         

                  5    1,769       1,762        \$9,888        \$5.59          \$9,850        \$5.59         

  **Total D-III**                  4,216,260    4,156,971      \$23,567,929    \$5.59         \$23,235,832   \$5.59

  **E**           1    599,685     599,685      \$3,478,273    \$5.80          \$3,478,273    \$5.80         

                  2    231,140     231,140      \$1,340,649    \$5.80          \$1,340,649    \$5.80         

                  3    60,501      60,501       \$350,914      \$5.80          \$350,914      \$5.80         

                  4    6,078       6,078        \$35,252       \$5.80          \$35,252       \$5.80         

                  5    840         840          \$4,872        \$5.80          \$4,872        \$5.80         

  **Total E**                      898,243      898,243        \$5,209,959     \$5.80         \$5,209,959    \$5.80

  **GRAND TOTAL**                  15,724,952   14,149,825     \$104,580,000   \$6.65         \$92,540,001   \$6.54
  --------------- ---- ----------- ------------ -------------- --------------- -------------- -------------- --------

## C. Space Support Costs Should Be Allocated Using The Same Methodology Used By The Postal Service

I allocate Space Support costs on the basis of equivalent capacity. This
is the same allocation methodology as presented by witness Lion in
USPS-T-24, and in Docket No. MC96-3. Table 15 shows the allocation of
Space Support costs and the development of TYBR unit costs.

  ------------ -------- ----------- ------------ -------------- ------------ ----------- -----------
  **Table 15.                                                                            
  Allocation                                                                             
  of Space                                                                               
  Support                                                                                
  Costs to                                                                               
  Boxes by New                                                                           
  Fee Groups,                                                                            
  TYBR**                                                                                 

  **New Fee                                                                              
  Groups**                                                                               

  **New Fee    **Box    **TYBR      **Capacity   **Equivalent   **Percent of **Total     **Cost Per
  Groups**     Size**   Boxes**     Factor**     Capacity**     Equivalent   Costs       Box**
                                                                Capacity**   (\$000)**   

                        \[a\]       \[b\]        \[c\]          \[d\]        \[e\]       \[f\]

  **A**        1        72,138      1            72,138         0.3321%      \$930       \$12.89

               2        4,501       1.5          6,751          0.0311%      \$87        \$19.33

               3        2,524       3            7,572          0.0349%      \$98        \$38.66

               4        242         6            1,453          0.0067%      \$19        \$77.32

               5        69          12           824            0.0038%      \$11        \$154.63

  **Total A**                       79,474       1.12           88,739       0.41%       \$1,143

  **B**        1        124,912     1            124,912        0.5750%      \$1,610     \$12.89

               2        29,996      1.5          44,995         0.2071%      \$580       \$19.33

               3        10,802      3            32,405         0.1492%      \$418       \$38.66

               4        1,561       6            9,366          0.0431%      \$121       \$77.32

               5        1,524       12           18,288         0.0842%      \$236       \$154.63

  **Total B**                       168,795      1.36           229,965      1.06%       \$2,963

  **C-I**      1        3,202,901   1            3,202,901      14.7439%     \$41,272    \$12.89

               2        1,463,355   1.5          2,195,032      10.1044%     \$28,285    \$19.33

               3        495,338     3            1,486,013      6.8406%      \$19,149    \$38.66

               4        116,404     6            698,426        3.2151%      \$9,000     \$77.32

               5        28,158      12           337,894        1.5554%      \$4,354     \$154.63

  **Total                           5,306,156    1.49           7,920,267    36.46%      \$102,060
  C-I**                                                                                  

  **C-II**     1        1,944,781   1            1,944,781      8.9524%      \$25,060    \$12.89

               2        758,767     1.5          1,138,150      5.2392%      \$14,666    \$19.33

               3        243,090     3            729,269        3.3570%      \$9,397     \$38.66

               4        45,357      6            272,144        1.2528%      \$3,507     \$77.32

               5        6,262       12           75,139         0.3459%      \$968       \$154.63

  **Total                           2,998,256    1.39           4,159,483    19.15%      \$53,599
  C-II**                                                                                 

  **C-III**    1        151,459     1            151,459        0.6972%      \$1,952     \$12.89

               2        47,532      1.5          71,298         0.3282%      \$919       \$19.33

               3        15,375      3            46,124         0.2123%      \$594       \$38.66

               4        1,612       6            9,674          0.0445%      \$125       \$77.32

               5        532         12           6,382          0.0294%      \$82        \$154.63

  **Total                           216,510      1.32           284,938      1.31%       \$3,672
  C-III**                                                                                
  ------------ -------- ----------- ------------ -------------- ------------ ----------- -----------

  --------------- ---- ----------- ------------ ----------- ------------ ---------- -----------
  **Table 15.                                                                       
  Allocation of                                                                     
  Space Support                                                                     
  Costs to Boxes                                                                    
  by New Fee                                                                        
  Groups, TYBR                                                                      
  (continued)**                                                                     

  **New Fee                                                                         
  Groups**                                                                          

  **D-I**         1    36,301      1            36,301      0.1671%      \$468      \$12.89

                  2    22,069      1.5          33,103      0.1524%      \$427      \$19.33

                  3    7,552       3            22,656      0.1043%      \$292      \$38.66

                  4    1,096       6            6,578       0.0303%      \$85       \$77.32

                  5    180         12           2,165       0.0100%      \$28       \$154.63

  **Total D-I**                    67,198                   100,803      0.46%      \$1,299

  **D-II**        1    1,131,135   1            1,131,135   5.2070%      \$14,576   \$12.89

                  2    493,926     1.5          740,889     3.4105%      \$9,547    \$19.33

                  3    132,154     3            396,461     1.8250%      \$5,109    \$38.66

                  4    15,190      6            91,142      0.4196%      \$1,174    \$77.32

                  5    1,655       12           19,862      0.0914%      \$256      \$154.63

  **Total D-II**                   1,774,061                2,379,490    10.95%     \$30,662

  **D-III**       1    2,868,513   1            2,868,513   13.2046%     \$36,963   \$12.89

                  2    1,060,532   1.5          1,590,798   7.3229%      \$20,499   \$19.33

                  3    269,261     3            807,784     3.7185%      \$10,409   \$38.66

                  4    16,184      6            97,105      0.4470%      \$1,251    \$77.32

                  5    1,769       12           21,228      0.0977%      \$274      \$154.63

  **Total D-III**                  4,216,260                5,385,429    24.79%     \$69,396

  **E**           1    599,685     1            599,685     2.7605%      \$7,727    \$12.89

                  2    231,140     1.5          346,709     1.5960%      \$4,468    \$19.33

                  3    60,501      3            181,502     0.8355%      \$2,339    \$38.66

                  4    6,078       6            36,467      0.1679%      \$470      \$77.32

                  5    840         12           10,080      0.0464%      \$130      \$154.63

  **Total E**                      898,243      1.31        1,174,442    5.41%      \$15,134

  **GRAND TOTAL**                  15,724,952               21,723,555   100%       \$279,928
  --------------- ---- ----------- ------------ ----------- ------------ ---------- -----------

Table 16 summarizes the unit volume-variable box costs for the fee
groups in the test year before rates.

  ----------------- -------- ------------ ------------- ----------- --------- -------------
  **Table 16. Total                                                           
  Volume-Variable                                                             
  Costs Per Box by                                                            
  New Fee Groups,                                                             
  TYBR**                                                                      

  **New Fee                                                                   
  Groups**                                                                    

  **New Fee         **Box    **TYBR       **Space       **Space     **All     **Cost Per
  Groups**          Size**   Boxes**      Provision**   Support**   Other**   Box**

                             \[a\]        \[b\]         \[c\]       \[d\]     \[e\]

  **A**             1        72,138       \$31.45       \$12.89     \$8.07    \$52.41

                    2        4,501        \$47.17       \$19.33     \$8.07    \$74.58

                    3        2,524        \$94.35       \$38.66     \$8.07    \$141.08

                    4        242          \$188.69      \$77.32     \$8.07    \$274.08

                    5        69           \$377.39      \$154.63    \$8.07    \$540.09

  **Total A**                             79,474        \$35.12     \$14.39   \$8.07

  **B**             1        124,912      \$22.42       \$12.89     \$8.08    \$43.39

                    2        29,996       \$33.62       \$19.33     \$8.08    \$61.04

                    3        10,802       \$67.25       \$38.66     \$8.08    \$113.99

                    4        1,561        \$134.49      \$77.32     \$8.08    \$219.89

                    5        1,524        \$268.99      \$154.63    \$8.08    \$431.70

  **Total B**                             168,795       \$30.54     \$17.56   \$8.08

  **C-I**           1        3,202,901    \$12.14       \$12.89     \$8.10    \$33.13

                    2        1,463,355    \$18.21       \$19.33     \$8.10    \$45.64

                    3        495,338      \$36.42       \$38.66     \$8.10    \$83.18

                    4        116,404      \$72.84       \$77.32     \$8.10    \$158.26

                    5        28,158       \$145.68      \$154.63    \$8.10    \$308.42

  **Total C-I**                           5,306,156     \$18.12     \$19.23   \$8.10

  **C-II**          1        1,944,781    \$9.21        \$12.89     \$6.10    \$28.20

                    2        758,767      \$13.82       \$19.33     \$6.10    \$39.25

                    3        243,090      \$27.63       \$38.66     \$6.10    \$72.39

                    4        45,357       \$55.26       \$77.32     \$6.10    \$138.68

                    5        6,262        \$110.53      \$154.63    \$6.10    \$271.26

  **Total C-II**                          2,998,256     \$12.78     \$17.88   \$6.10

  **C-III**         1        151,459      \$6.65        \$12.89     \$5.73    \$25.26

                    2        47,532       \$9.97        \$19.33     \$5.73    \$35.03

                    3        15,375       \$19.94       \$38.66     \$5.73    \$64.33

                    4        1,612        \$39.88       \$77.32     \$5.73    \$122.93

                    5        532          \$79.76       \$154.63    \$5.73    \$240.13

  **Total C-III**                         216,510       \$8.75      \$16.96   \$5.73

  **D-I**           1        36,301       \$9.68        \$12.89     \$8.11    \$30.68

                    2        22,069       \$14.52       \$19.33     \$8.11    \$41.96

                    3        7,552        \$29.04       \$38.66     \$8.11    \$75.81

                    4        1,096        \$58.07       \$77.32     \$8.11    \$143.50

                    5        180          \$116.14      \$154.63    \$8.11    \$278.89

  **Total D-I**                           67,198        \$14.52     \$19.33   \$8.11
  ----------------- -------- ------------ ------------- ----------- --------- -------------

  ----------------- ------ ------------ ------------ ---------- --------- ------------- ---------
  **Table 16. Total                                                                     
  Volume-Variable                                                                       
  Costs Per Box by                                                                      
  New Fee Groups,                                                                       
  TYBR                                                                                  
  (continued)**                                                                         

  **New Fee                                                                             
  Groups**                                                                              

  **D-II**          1      1,131,135    \$9.75       \$12.89    \$6.05    \$28.69       

                    2      493,926      \$14.63      \$19.33    \$6.05    \$40.01       

                    3      132,154      \$29.26      \$38.66    \$6.05    \$73.97       

                    4      15,190       \$58.53      \$77.32    \$6.05    \$141.89      

                    5      1,655        \$117.05     \$154.63   \$6.05    \$277.73      

  **Total D-II**                        1,774,061    \$13.08    \$17.28   \$6.05        \$36.41

  **D-III**         1      2,868,513    \$8.13       \$12.89    \$5.59    \$26.60       

                    2      1,060,532    \$12.19      \$19.33    \$5.59    \$37.11       

                    3      269,261      \$24.38      \$38.66    \$5.59    \$68.63       

                    4      16,184       \$48.76      \$77.32    \$5.59    \$131.66      

                    5      1,769        \$97.51      \$154.63   \$5.59    \$257.73      

  **Total D-III**                       4,216,260    \$10.38    \$16.46   \$5.59        \$32.43

  **E**             1      599,685      \$9.34       \$12.89    \$5.80    \$28.03       

                    2      231,140      \$14.01      \$19.33    \$5.80    \$39.14       

                    3      60,501       \$28.03      \$38.66    \$5.80    \$72.49       

                    4      6,078        \$56.06      \$77.32    \$5.80    \$139.18      

                    5      840          \$112.12     \$154.63   \$5.80    \$272.55      

  **Total E**                           898,243      \$12.22    \$16.85   \$5.80        \$34.86

  **GRAND TOTAL**                       15,724,952   \$14.20    \$17.80   \$6.65        \$38.65
  ----------------- ------ ------------ ------------ ---------- --------- ------------- ---------

# v. proposed post office box fees should reflect the higher costs of providing box service in larger versus smaller post offices, and ensure a reasonable contribution to institutional costs

Under my proposal, post office box fees would increase for Fee Groups A,
B, C-I, C-II, D-I, D-II and D-III. No fee increase is proposed for Fee
Group C-III, or the \$0 fee for Fee Group E boxholders. Proposed fee
increases for boxholders in Fee Group A range from 32 to 56 percent, and
from 30 to 46 percent in Fee Group B. Proposed fees for new Fee Groups
C-I and C-II would increase by 40 percent and 15 to 16 percent,
respectively. For new Fee Group D-I, fees increase by 100 percent. For
new Fee Groups D-II and D-III, fees increase 50 to 51 percent and 25
percent, respectively.

I propose fee increases for caller service averaging 22 percent, and I
propose a 43 percent increase for reserve call numbers. Table 17
presents the current annual fees, the fees proposed by the Postal
Service, and my proposed fees. The percentage change in fees is also
presented.

  -------------- -------- ----------- ---------- ---------- ------------ ------------
  **Table 17.                                                            
  Post Office                                                            
  Box Fee                                                                
  Comparison**                                                           

  **New Fee      **Box    **Current   **USPS     **OCA      **USPS       **OCA
  Groups**       Size**   Box Fees**  Proposed   Proposed   Percent      Percent
                                      Box Fees** Box Fees** Change**     Change**

                          \[a\]       \[b\]      \[c\]      \[d\]        \[e\]

  **A**          1        \$48        \$70       \$75       46%          56%

                 2        \$74        \$105      \$110      42%          49%

                 3        \$128       \$185      \$190      45%          48%

                 4        \$242       \$325      \$330      34%          36%

                 5        \$418       \$550      \$550      32%          32%

  **Total A**                                                            

  **B**          1        \$44        \$60       \$65       36%          48%

                 2        \$66        \$90       \$95       36%          44%

                 3        \$112       \$150      \$160      34%          43%

                 4        \$218       \$290      \$290      33%          33%

                 5        \$372       \$435      \$485      17%          30%

  **Total B**                                                            

  **C-I**        1        \$40        \$45       \$56       13%          40%

                 2        \$58        \$65       \$81       12%          40%

                 3        \$104       \$115      \$146      11%          40%

                 4        \$172       \$195      \$240      13%          40%

                 5        \$288       \$325      \$402      13%          40%

  **Total C-I**                                                          

  C-II           1        \$40        \$45       \$46       13%          15%

                 2        \$58        \$65       \$67       12%          16%

                 3        \$104       \$115      \$120      11%          15%

                 4        \$172       \$195      \$198      13%          15%

                 5        \$288       \$325      \$331      13%          15%

  **Total C-II**                                                         

  **C-III**      1        \$40        \$45       \$40       13%          0%

                 2        \$58        \$65       \$58       12%          0%

                 3        \$104       \$115      \$104      11%          0%

                 4        \$172       \$195      \$172      13%          0%

                 5        \$288       \$325      \$288      13%          0%

  **Total                                                                
  C-III**                                                                

  D-I            1        \$12        \$18       \$24       50%          100%

                 2        \$20        \$30       \$40       50%          100%

                 3        \$36        \$55       \$72       53%          100%

                 4        \$53        \$80       \$106      51%          100%

                 5        \$83        \$125      \$166      51%          100%

  **Total D-I**                                                          
  -------------- -------- ----------- ---------- ---------- ------------ ------------

  --------------- ------ --------- ---------- ---------- ------------ ------------
  **Table 17.                                                         
  Post Office Box                                                     
  Fee Comparison                                                      
  (continued)**                                                       

  **D-II**        1      \$12      \$18       \$18       50%          50%

                  2      \$20      \$30       \$30       50%          50%

                  3      \$36      \$55       \$54       53%          50%

                  4      \$53      \$80       \$80       51%          51%

                  5      \$83      \$125      \$125      51%          51%

  **Total D-II**                                                      

  **D-III**       1      \$12      \$18       \$15       50%          25%

                  2      \$20      \$30       \$25       50%          25%

                  3      \$36      \$55       \$45       53%          25%

                  4      \$53      \$80       \$66       51%          25%

                  5      \$83      \$125      \$104      51%          25%

  **Total D-III**                                                     

  **E**           1      \$0       \$0        \$0        0%           0%

                  2      \$0       \$0        \$0        0%           0%

                  3      \$0       \$0        \$0        0%           0%

                  4      \$0       \$0        \$0        0%           0%

                  5      \$0       \$0        \$0        0%           0%

  **Total E**                                                         
  --------------- ------ --------- ---------- ---------- ------------ ------------

Collectively, these changes result in a cost coverage of 116 percent and
net revenues of \$94.3 million. The before rates and after rates
revenues, costs and cost coverage for my proposal are shown in Table 18.

  ----------- -------- ----------- ----------- ------------ ----------- --------------- --------------- --------------- --------------- --------------- -------------- ------
  **Table 18.                                                                                                                                                          
  Summary of                                                                                                                                                           
  Revenues                                                                                                                                                             
  and Costs,                                                                                                                                                           
  Proposed                                                                                                                                                             
  New Fee                                                                                                                                                              
  Groups,                                                                                                                                                              
  TYBR and                                                                                                                                                             
  TYAR**                                                                                                                                                               

  **New Fee                                                                                                                                                            
  Groups**                                                                                                                                                             

  **New Fee   **Box    **OCA TYBR  **Current   **Proposed   **OCA TYAR  **TYBR          **TYAR          **OCA TYBR      **OCA TYAR      **OCA TYAR TTL  **OCA TYAR     
  Groups**    Size**   Boxes**     Fees**      Box Fees**   Boxes**     Revenues**      Revenues**      Total Costs**   Total Costs**   Rev - TTL       Cost           
                                                                                                                                        Costs**         Cover-age**    

  **A**       1        72,138      \$48        \$75         50,960      \$3,462,625     \$3,822,014     \$3,780,583     \$3,609,269     \$212,745       1.06           

              2        4,501       \$74        \$110        3,186       \$333,056       \$350,447       \$335,645       \$325,008       \$25,438        1.08           

              3        2,524       \$128       \$190        1,892       \$323,090       \$359,568       \$356,100       \$350,991       \$8,578         1.02           

              4        242         \$242       \$330        197         \$58,595        \$64,891        \$66,363        \$65,995        -\$1,105        0.98           

              5        69          \$418       \$550        57          \$28,713        \$31,617        \$37,100        \$37,010        -\$5,393        0.85           

  **Total A**                      79,474                               56,293          \$4,206,080     \$4,628,536     \$4,575,792     \$4,388,273     \$240,264      1.05

  **B**       1        124,912     \$44        \$65         96,390      \$5,496,107     \$6,265,339     \$5,419,447     \$5,188,379     \$1,076,960     1.21           

              2        29,996      \$66        \$95         22,055      \$1,979,763     \$2,095,190     \$1,830,893     \$1,766,553     \$328,638       1.19           

              3        10,802      \$112       \$160        8,410       \$1,209,804     \$1,345,605     \$1,231,292     \$1,211,915     \$133,690       1.11           

              4        1,561       \$218       \$290        1,295       \$340,285       \$375,429       \$343,241       \$341,084       \$34,346        1.10           

              5        1,524       \$372       \$485        1,285       \$566,923       \$623,133       \$657,910       \$655,973       -\$32,839       0.95           

  **Total B**                      168,795                              129,434         \$9,592,883     \$10,704,697    \$9,482,783     \$9,163,904     \$1,540,794    1.17

  **C-I**     1        3,202,901   \$40        \$56         2,534,252   \$128,116,026   \$141,918,088   \$106,108,004   \$100,679,139   \$41,238,949    1.41           

              2        1,463,355   \$58        \$81         1,112,183   \$84,874,580    \$90,086,804    \$66,790,269    \$63,939,049    \$26,147,755    1.41           

              3        495,338     \$104       \$146        391,986     \$51,515,132    \$57,229,916    \$41,202,875    \$40,363,743    \$16,866,173    1.42           

              4        116,404     \$172       \$240        92,628      \$20,021,558    \$22,230,648    \$18,422,200    \$18,229,153    \$4,001,495     1.22           

              5        28,158      \$288       \$402        22,399      \$8,109,453     \$9,004,508     \$8,684,387     \$8,637,632     \$366,875       1.04           

  **Total                          5,306,156                            4,153,447       \$292,636,749   \$320,469,963   \$241,207,734   \$231,848,716   \$88,621,247   1.38
  C-I**                                                                                                                                                                

  **C-II**    1        1,944,781   \$40        \$46         1,792,531   \$77,791,222    \$82,456,416    \$54,837,586    \$53,906,806    \$28,549,610    1.53           

              2        758,767     \$58        \$67         687,515     \$44,008,463    \$46,063,521    \$29,778,194    \$29,342,599    \$16,720,922    1.57           

              3        243,090     \$104       \$120        223,768     \$25,281,331    \$26,852,110    \$17,597,305    \$17,479,179    \$9,372,931     1.54           

              4        45,357      \$172       \$198        41,815      \$7,801,448     \$8,279,348     \$6,290,119     \$6,268,463     \$2,010,885     1.32           

              5        6,262       \$288       \$331        5,779       \$1,803,345     \$1,912,715     \$1,698,513     \$1,695,560     \$217,155       1.13           

  **Total                          2,998,256                            2,751,407       \$156,685,809   \$165,564,111   \$110,201,717   \$108,692,607   \$56,871,504   1.52
  C-II**                                                                                                                                                               

  **C-III**   1        151,459     \$40        \$40         151,459     \$6,058,375     \$6,058,375     \$3,826,400     \$3,826,400     \$2,231,976     1.58           

              2        47,532      \$58        \$58         47,532      \$2,756,864     \$2,756,864     \$1,665,052     \$1,665,052     \$1,091,813     1.66           

              3        15,375      \$104       \$104        15,375      \$1,598,978     \$1,598,978     \$989,052       \$989,052       \$609,926       1.62           

              4        1,612       \$172       \$172        1,612       \$277,319       \$277,319       \$198,200       \$198,200       \$79,119        1.40           

              5        532         \$288       \$288        532         \$153,165       \$153,165       \$127,705       \$127,705       \$25,461        1.20           

  **Total                          216,510                              216,510         \$10,844,702    \$10,844,702    \$6,806,408     \$6,806,408     \$4,038,294    1.59
  C-III**                                                                                                                                                              

  **D-I**     1        36,301      \$12        \$24         34,356      \$435,608       \$824,544       \$1,113,576     \$1,097,768     -\$273,224      0.75           

              2        22,069      \$20        \$40         20,542      \$441,377       \$821,698       \$925,982       \$913,575       -\$91,877       0.90           

              3        7,552       \$36        \$72         7,279       \$271,869       \$524,117       \$572,479       \$570,264       -\$46,147       0.92           

              4        1,096       \$53        \$106        1,070       \$58,107        \$113,378       \$157,328       \$157,111       -\$43,733       0.72           

              5        180         \$83        \$166        178         \$14,978        \$29,495        \$50,327        \$50,304        -\$20,809       0.59           

  **Total                          67,198                               63,425          \$1,221,940     \$2,313,232     \$2,819,693     \$2,789,022     -\$475,790     0.83
  D-I**                                                                                                                                                                
  ----------- -------- ----------- ----------- ------------ ----------- --------------- --------------- --------------- --------------- --------------- -------------- ------

  --------------- --- ----------- ------------ ------- ----------- -------------- --------------- --------------- --------------- --------------- ---------------
  **Table 18.                                                                                                                                     
  Summary of                                                                                                                                      
  Revenues and                                                                                                                                    
  Costs, Proposed                                                                                                                                 
  New Fee Groups,                                                                                                                                 
  TYBR and TYAR                                                                                                                                   
  (continued)**                                                                                                                                   

  **New Fee                                                                                                                                       
  Groups**                                                                                                                                        

  **D-II**        1   1,131,135   \$12         \$18    1,100,837   \$13,573,626   \$19,815,069    \$32,447,603    \$32,264,050    -\$12,448,981   0.61

                  2   493,926     \$20         \$30    476,845     \$9,878,524    \$14,305,338    \$19,759,988    \$19,656,504    -\$5,351,166    0.73

                  3   132,154     \$36         \$54    129,769     \$4,757,533    \$7,007,536     \$9,774,906     \$9,760,461     -\$2,752,925    0.72

                  4   15,190      \$53         \$80    15,001      \$805,088      \$1,200,115     \$2,155,308     \$2,154,163     -\$954,049      0.56

                  5   1,655       \$83         \$125   1,642       \$137,377      \$205,283       \$459,678       \$459,600       -\$254,317      0.45

  **Total D-II**                  1,774,061                        1,724,095      \$29,152,148    \$42,533,342    \$64,597,483    \$64,294,778    -\$21,761,436

  **D-III**       1   2,868,513   \$12         \$15    2,830,096   \$34,422,158   \$42,451,433    \$76,306,951    \$76,091,761    -\$33,640,328   0.56

                  2   1,060,532   \$20         \$25    1,042,194   \$21,210,646   \$26,054,849    \$39,353,669    \$39,250,949    -\$13,196,101   0.66

                  3   269,261     \$36         \$45    266,832     \$9,693,407    \$12,007,445    \$18,478,102    \$18,464,495    -\$6,457,050    0.65

                  4   16,184      \$53         \$66    16,087      \$857,763      \$1,061,762     \$2,130,823     \$2,130,280     -\$1,068,518    0.50

                  5   1,769       \$83         \$104   1,762       \$146,827      \$183,260       \$455,926       \$455,888       -\$272,627      0.40

  **Total D-III**                 4,216,260                        4,156,971      \$66,330,801    \$81,758,749    \$136,725,470   \$136,393,373   -\$54,634,624

  **E**           1   599,685     \$0          \$0     599,685     \$0            \$0             \$16,808,809    \$16,808,809    -\$16,808,809   0.00

                  2   231,140     \$0          \$0     231,140     \$0            \$0             \$9,047,734     \$9,047,734     -\$9,047,734    0.00

                  3   60,501      \$0          \$0     60,501      \$0            \$0             \$4,385,562     \$4,385,562     -\$4,385,562    0.00

                  4   6,078       \$0          \$0     6,078       \$0            \$0             \$845,883       \$845,883       -\$845,883      0.00

                  5   840         \$0          \$0     840         \$0            \$0             \$228,933       \$228,933       -\$228,933      0.00

  **Total E**                     898,243                          898,243        \$0             \$0             \$31,316,921    \$31,316,921    -\$31,316,921

  **TOTAL**                       15,724,952                       14,149,825     \$570,671,113   \$638,817,332   \$607,734,000   \$595,694,001   \$43,123,331

  **Caller                        90,747       \$451   \$550       82,161         \$40,926,917    \$45,188,468                                    \$45,188,468
  Service**                                                                                                                                       

  **Reserve                       182,113      \$30    \$40        150,749        \$5,463,379     \$6,029,976                                     \$6,029,976
  Number**                                                                                                                                        

  **GRAND TOTAL**                 15,997,812                       14,382,735     \$617,061,409   \$690,035,776   \$607,734,000   \$595,694,001   \$94,341,775
  --------------- --- ----------- ------------ ------- ----------- -------------- --------------- --------------- --------------- --------------- ---------------

Table 19 compares the revenues, costs and cost coverage for the Postal
Service's proposal and my proposal.

  --------------------- --------------------- ----------------------------
  **Table 19.                                 
  Comparison of Postal                        
  Service and OCA                             
  Proposals, TYAR**                           

  **Post Office Box and **USPS Proposal**     **OCA Proposal**
  Caller Service**                            

                                              

  **Revenues**          \$683,362,079         \$690,035,776

                                              

  **Costs**             \$589,954,455         \$595,694,001

                                              

  **Net Revenues**      \$93,407,624          \$94,341,775

                                              

  **Cost Coverage**     116%                  116%
  --------------------- --------------------- ----------------------------

## A. Proposed Fees And The New Fee Groups Constitute A Transition To De-Averaged Allocated Costs And Further Restructuring Of Fee Groups

The proposed fees for boxes in new Fee Groups C-I, C-II and C-III and
D-I, D-II and D-III constitute a transition to a uniform fee by box size
for each CAG grouping comprising the new fee groups. As stated
previously, combining Fee Groups C and D to create three fee groups out
of CAG A-D, E-G and H-L offices was tabled for the present. To propose a
uniform fee for each box size for such combined fee groups would cause
large percentage increases for boxholders from Fee Group D. For example,
if a new fee group, comprised of boxes in CAG A-D offices from Fee
Groups C and D, were formed, a uniform fee of \$56 for all size 1 boxes
would represent a 40 percent (\$56/\$40-1) increase for size 1
boxholders from Fee Group C. However, a \$56 fee for a size 1 box from
Fee Group D would represent a 367 percent (\$56/\$12-1) increase.
Because of my concern about "rate shock" for Fee Group D boxholders, I
decided to move toward merging Fee Groups C and D in separate stages.

Consequently, I formed three new fee groups from Fee Group C and three
from Fee Group D. This permits differential fee increases for boxes by
CAG within Fee Groups C and D until such time as Fee Groups C and D are
merged and restructured by CAGs A-D, E-G and H-L. In so doing, the
proposed fees result in more gradual fee increases for boxholders in
CAGs A-D, E-G and H-L from current Fee Group D.

## B. The Proposed Post Office Box Fees Satisfy The Pricing Criteria Of The Postal Reorganization Act

The pricing criteria for postal rates and fees are enumerated in Section
3622(b), paragraphs 1 through 9, of the Postal Reorganization Act. In
developing the proposed fees for post office boxes, I considered the
relevant pricing criteria. The proposed fees reflect my judgment as to
the application of those criteria.

Criterion number one refers to "the establishment and maintenance of a
fair and equitable schedule." The proposed fees are fair and equitable.
Proposed fees for Fee Groups A and B are higher than those proposed by
the Postal Service, reflecting the higher allocation of All Other costs
to boxes in the larger CAG offices that comprise these fee groups.

For the other fee groups, current post office box fees are misaligned
with costs. Under current fees, boxholders who are similarly situated in
terms of CAG pay vastly different rates. That is, boxholders with size 1
boxes in CAG A-D offices in Fee Group C pay much higher rates than size
1 boxholders in Fee Group D, i.e., \$40 and \$12, respectively.
Nevertheless, unit box costs in the TYBR for size 1 boxes are much
closer together, i.e., \$33.13 and \$30.68, respectively.

The proposed fees begin to reduce this inequity with higher fees for
boxholders in CAG A-D offices from Fee Group D, forming new Fee Group
D-I. These boxholders face a 100 percent increase. In comparison,
boxholders in CAG A-D offices from Fee Group C face a smaller increase
of 40 percent. Similarly, boxholders in CAGs E-G and H-L offices from
Fee Group C, which form new Fee Groups C-II and C-III, respectively,
face smaller increases than boxholders in CAGs E-G and H-L offices from
Fee Group D, which form new Fee Groups D-II and D-III, respectively.
Fees for boxholders in new Fee Groups C-II and C-III would increase by
15 to 16 percent and 0 percent, respectively, while fees in new Fee
Groups D-II and D-III would increase 50 to 51 percent and 25 percent,
respectively. By contrast, the Postal Service's proposed fees increase
between 11 and 13 percent for all boxholders in Fee Group C, and between
50 and 53 percent for all boxholders in Fee Group D.

Moreover, the proposed fees permit a more gradual transition to a
further restructuring of the classification schedule. Higher box fees
for new Fee Groups D-I, D-II and D-III, and comparatively lower fees for
new Fee Groups C-I, C-II and C-III would, over time, ease the transition
for boxholders into fee groups consisting of CAG A-D, E-G and H-L
offices from merged Fee Groups C and D in a future proceeding.

The second criterion directs that consideration be given to "the value
of the mail service actually provided." Post office box service is an
alternative form of delivery service that is valued by some customers.
Box features such as privacy, security and the generally earlier
availability of box mail vis-à-vis carrier delivery service are valued
features. The value of service to boxholders is explicitly recognized in
the elasticities adopted by the Commission in Docket No. MC96-3, and
utilized in developing my after rates volumes and revenues.

The third criterion \-- recovery of attributable costs \-- requires that
revenues for each mail class or service be at least equal to the
attributable costs for that class or service. My proposed fees for post
office boxes alone results in an implicit cost coverage of 107
percent.[^20] Including caller service and reserve call numbers results
in combined net revenues of \$94.3 million, with a cost coverage of 116
percent (without the 1 percent contingency). This cost coverage is
identical to the Postal Service's proposed cost coverage for post office
boxes, caller service and reserve call numbers, i.e., 116 percent
(without the 1 percent contingency).

Criterion number four concerns "the effect of rate increases" on the
general public. Considerable attention was given to the effect of
proposed fee increases on boxholders. Combining Fee Groups C and D to
form three new fee groups by CAG was tabled at this time because of the
significant percentage fee increases that could attend a uniform fee by
box size for certain boxholders now in Fee Group D.

In order to limit such percentage fee increases, three new fee groups
were created from Fee Group D, with proposed fee increases limited to
100 percent for boxholders in CAG A-D offices in Fee Group D \--
boxholders in the larger (CAG A-D) offices that comprise the new Fee
Group D-I. In all, fee increases of this magnitude are limited to only
63,425 boxholders. Similarly, proposed fee increases for boxholders in
CAG E-G offices in Fee Group D, which comprise new Fee Group D-II, are
limited to 51 percent, nearly the same percentage fee increase as
proposed by the Postal Service. At the same time, fee increases for all
boxholders in the smallest offices (i.e., CAG H-L) in Fee Group D, which
comprise new Fee Group D-III, are limited to 25 percent.

Boxholders in new Fee Groups C-III and D-III experience the lowest
percentage fee increases, as compared to other boxholders from current
Fee Groups C and D, respectively, because of the lower allocated costs
to boxes in the smaller offices that comprise new Fee Groups C-III and
D-III.

The fifth criterion directs consideration to the role of available
alternatives at reasonable cost. For boxholders subject to the proposed
box fee increases, the most feasible alternative is free carrier
delivery service, if the proposed box fees are considered too high or
private sector alternatives prohibitive.

Criterion number seven refers to the "simplicity of \[the\] structure
for the entire schedule and simple, identifiable relationships between
the rates or fees charged." For Fee Groups A, B and E, there is no
change in the fee structure. However, the proposed fee group structure
is more complex than the current fee group structure for Fee Groups C
and D. Fee Groups C and D are proposed to be replaced by six new fee
groups, C-I, C-II and C-III, and D-I, D-II and D-III, as a transition to
a further restructuring of the fee schedule. Consequently, the proposed
fee schedule represents a balance between substantial fee increases for
certain boxholders and a temporarily more complex fee structure for the
Postal Service to administer.

## C. The Proposed New Fee Groups Accord With The Classification Criteria Of The Postal Reorganization Act

The classification criteria for changes in mail and special service
classifications are found in Section 3623(c), paragraphs 1 through 6, of
the Postal Reorganization Act. I have considered the relevant
classification criteria in relation to my development of the proposed
new fee groups. Establishment of the new fee groups reflect my judgment
as to the application of those criteria.

Classification criterion one refers to the "establishment and
maintenance of a fair and equitable classification system for all mail."
The proposed new fee groups are fair and equitable in that they maintain
the basic distinction in the existing fee group structure, i.e., that
between boxholders eligible for carrier delivery service and those not
eligible for carrier delivery, with boxholders eligible for delivery
paying box fees, and those not eligible paying no box fees. Establishing
three new fee groups by CAG from Fee Group C that parallel three new fee
groups from Fee Group D begins the process of eliminating the dichotomy
between Fee Groups C and D, where boxholders pay differing fees
depending upon their eligibility for city or "rural" delivery,
respectively, and explicitly recognizes the similarities between these
groups in terms of box service, the availability of carrier delivery
service, and costs.

Classification criterion five concerns "the desirability of special
classifications from the point of view of both the user and the Postal
Service." From the point of view of boxholders, the new fee groups
better reflect the costs of providing box service in post offices of
comparable size. From the point of view of the Postal Service, the fact
that boxholders in Fee Groups C and D are eligible for delivery services
provided by either city or rural carriers would, in the future, no
longer lead to significantly different post office box fees.

# vI. Conclusion

Current post office box fees and the existing fee groups do not
adequately recognize the higher costs of providing box service in larger
offices nor the lower costs in smaller offices. The existing fee group
structure and the Postal Service's methodology for allocating certain
post office box costs results in unfairly high costs for boxholders in
smaller offices and inappropriately low costs to boxholders in larger
offices. As a result, current fees, and the Postal Service's proposed
fees, produce fees that are too high in smaller CAG offices and too low
in larger CAG offices.

The restructured post office box fee groups and the new cost allocation
methodology proposed herein provide a more reasonable cost-basis for
setting fees. Restructuring Fee Groups C and D based upon CAG produces
more rent-homogeneous fee groups that better reflect cost in larger and
smaller offices. Similarly, my new cost allocation methodology, that
distributes a portion of volume-variable post office box costs by CAG,
better reflects costs in larger and smaller offices.

The proposed post office box fees satisfy the relevant statutory pricing
and classification criteria. My proposed box fees, combined with caller
service and reserve call number fees, provide virtually the same net
revenues as proposed by the Postal Service, and a reasonable
contribution to institutional costs. The proposed classification changes
establish a more fair and equitable classification for post office boxes
by creating a more rational structure of fee groups based upon CAGs.

[^1]: My testimony consists of this document, OCA-T-500, and workpapers
    which contain spreadsheets showing the development of my post office
    box fee proposal, filed as library reference OCA-LR-10. In addition,
    I sponsor the library reference OCA‑LR‑2.

[^2]: USPS-T-39, Table 11, at 59. Fee Group E boxholders, those
    ineligible for any type of carrier delivery service, "pay" a fee of
    \$0, and no fee increase is proposed by the Postal Service for these
    boxholders.

[^3]: *See* PRC Op. MC96-3 at 47-48.

[^4]: Glossary of Postal Terms, Publication 32, April 1988, at 16.

[^5]: A revenue unit is "\[T\]he average amount of revenue per fiscal
    year from postal rates and fees for 1,000 pieces of originating mail
    and special service transactions." Id. at 54.

[^6]: *See* U.S. Postal Service Handbook F-4, June 1992, at 22, for the
    range of revenue units defining each CAG.

[^7]: Postal Bulletin 21940, February 27, 1997, at 51.

[^8]: Docket No. R90-1, USPS Library Reference F-183, at 2, n. 2.

[^9]: Docket No. MC96-3, Tr. 8/2916. Response of United States Postal
    Service to Interrogatory of the Office of the Consumer Advocate,
    OCA/USPS-88.

[^10]: Tr. 13/7040-46. OCA/USPS-T5-11-13, Attachment 1, at 1, revised
    September 25, 1997. The cited material isn't limited to information
    on mailhandlers, but includes information on postmasters and
    supervisors, too.

[^11]: *See* USPS LR-188, at 15, 15A and 15B, revised August 11, 1997.

[^12]: *See* Section D910.5.3., DMM 52, July 1, 1997.

[^13]: Docket No. MC96-3, Tr. 7/2296-97, Direct Testimony of OCA Witness
    Roger Sherman, OCA-T-100.

[^14]: USPS-T-24, Table 13, at 27, revised October 1, 1997.

[^15]: *See* OCA-LR-2 at 15, which shows the average rental costs when
    the city-other and non-city delivery offices are combined by CAG.

[^16]: The totals by box size and for each carrier delivery group are
    similar to the figures in Table 1 of witness Lion's testimony. I
    used data contained in Postal Service Library Reference H-278, which
    was provided in response to OCA/USPS-T24-86, Tr. 3/1174. The data in
    LR-H-278 reflects the September 1997 Delivery Statistics File (DSF),
    the most recent data available. Consequently, the data by box size
    and delivery group are different from those contained in the
    testimony of witness Lion, who utilized the June 1997 DSF. *See*
    USPS LR-H-278 at 2.

[^17]: *See* USPS-T-24 at 6-7.

[^18]: *See* PRC Op. MC96-3, Appendix D, Schedule 3, at 17. *See also*
    Docket No. R97-1, USPS-T-24, Tables 7A-D, at 12-15.

[^19]: *See* USPS LR-H-9 at 19-20. Total costs for Cost Segment 3 are
    \$16.456 billion, of which 16.83 percent (\$2.770/\$16.456) are
    mailhandler costs.

[^20]: Under the Postal Service's proposal, witness Needham claims post
    office box revenues "make a small contribution with a 106 percent
    proposed implicit cost coverage." USPS-T-39 at 66.