USPS-T-17

BEFORE THE

POSTAL RATE COMMISSION

WASHINGTON, D.C. 20268-0001

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

  Postal Rate and Fee Changes, 2000   Docket No. R2000-1

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

DIRECT TESTIMONY

OF

ELIANE VAN-TY-SMITH

ON BEHALF OF THE

UNITED STATES POSTAL SERVICE

## 

## TABLE OF CONTENTS

## AUTOBIOGRAPHICAL SKETCH 3

## I. PURPOSE AND SCOPE 4

**II. DEVELOPMENT OF MAIL PROCESSING SUBCLASS VOLUME-VARIABLE COSTS**

II.A. Disaggregation Of C/S 3 Costs Into Cost Pools

(Part I of LR-I-106) 5

II.B. Volume-Variable Costs And Subclass Distribution Keys For The Mail

Processing Cost Pools.

(Part II of LR-I-106) 7

II.C. Subclass Volume-Variable Costs By Automation And Presort
Categories,

By Cost Pool And By Shape

(Part III of LR-I-106) 20

**III. DEVELOPMENT OF SPECIAL BASE YEAR INPUTS**

III.A. Special Base Year Inputs For The Cost Segments And Components
Report

III.A.1. C/S 3 Base Year Window Service and Administrative Cost Inputs

(Part IV of LR-I-106) 20

III.A.2. Premium Pay Factors and Other Distribution Key Inputs

(Part V of LR-I-106) 21

III.B. Special Base Year Inputs For Costing Studies

III.B.1.Operation-Specific Crosswalk Matrix

(Part VI of LR-I-106) 22

III.B.2.Cost pool Overhead Factors for Modeled Costs

(Part VII of LR-I-106) 22

III.B.3.C/S 3 Base Year Disaggregated Wage Rates

(Part VIII of LR-I-106) 23

Attachments

Table 1. Cost Segment 3 Clerk and Mailhandler Cost Pools 24

Table 2. Proportion of Tallies by Handling ('Direct' and 'Mixed') and

Not-Handling Categories, and by Facility Groupings 26

Talbe 3. Mail Processing Subclass Volume-Variable Costs 27

AUTOBIOGRAPHICAL SKETCH

My name is Eliane Van-Ty-Smith. I am a Mathematical Statistician at the
Postal Service. My education includes a B.A. in Philosophy and
Languages, and a M.Sc. in Mathematical Statistics from Ohio State
University. I have also taken coursework in Administration and
Economics. I have been with the Postal Service since the end of 1989.

Much of my work at the Postal Service has been in support of the CRA,
and rate cases, particularly for Mail Processing and IOCS-based
analyses. During the Docket No. R97-1 rate case, I provided support to
witness Degen's testimony and interrogatories. I also produced LR-H-146
in that docket.

**I. PURPOSE AND SCOPE OF TESTIMONY.**

The purpose of my testimony is to summarize LR-I-106, which documents
the mechanics of the procedures by which the Postal Service proposes to
create cost pools for mail processing operations, and distribute such
costs to subclasses of mail.

USPS LR-I-106 is an updated version of USPS LR-H-146. USPS LR-H-146 was
introduced in Docket No. R97-1 as the focal point for documenting all
procedures used to generate the Postal Service's mail processing
volume-variable costs based on the testimonies of Witnesses Degen and
Bradley. It also documented additional analysis of IOCS data that were
the sources of inputs for the Base Year CRA or for other cost studies.

USPS LR-I-106 fulfills the same role in Docket No. R2000-1 as USPS
LR-H-146 did in Docket No. R97-1. It provides similar information to
that provided in LR-H-146, for the base year in this case. It also
incorporates modifications to the Postal Service's mail processing
method presented in the testimonies of witnesses Degen (USPS-T-16) and
Bozzo (USPS-T-15). The resulting mail processing volume-variable costs,
which now incorporate these changes, are aggregated at the CRA level.
These costs are integrated into witness Meehan's base year costs
(USPS-T-11) and rolled-forward into the test year by witness Kashani
(USPS-T-14).

USPS LR-I-106 also updates other types of information coming out of the
Docket No. R2000-1 methodology for mail processing costs. Such
information is used by other witnesses, such as witnesses Smith
(USPS-T-21), Daniel (USPS-T-28), Crum (USPS-T-27), and Miller
(USPS-T-24) as the source of inputs for some of their cost studies.

USPS LR-I-106 is subdivided into eight parts. The sections correspond to
those in LR-H-146 in Docket No. R97-1. Not included in this library
reference is Part IX of LR-H-146, *IOCS variance estimation,* the update
of which is presented by witness Ramage (USPS-T-2) in this case.

The purpose associated with each part of this library reference is
summarized below. The bulk of the library reference is concentrated in
Parts I-III, which address the development of mail processing subclass
volume-variable costs. Parts IV-VIII focus on the development of various
base year inputs, which represent outcomes from the application of the
mail processing methodology described in Parts I-III. Methods
representing a change from the Postal Service proposed methodology in
Docket No. R97-1 are also itemized below. Additional information on how
these changes are specifically implemented can be obtained from the
detailed description of the SAS program objectives in each section of
LR-I-106. Discussion of the rationale for the modifications can be found
in the testimonies of witnesses Degen and Bozzo in this rate case
(USPS-T-16 and USPS-T-15).

# **II. DEVELOPMENT OF MAIL PROCESSING SUBCLASS VOLUME-VARIABLE COSTS.** 

# **II.A. DISAGGREGATION OF COST SEGMENT 3 (C/S 3) COSTS INTO COST POOLS. (PART I OF LR-I-106)**

Part I of LR-I-106 documents the procedure used to partition C/S 3 clerk
and mailhandler costs into cost pools within each of three facility
groups: BMCs, MODS and non-MODS offices. The cost partition uses the
same method proposed by the Postal Service and recommended by the
Commission in Docket No. R97-1. The cost pools fall into four functions:
mail processing, window services, claims and inquiries, and other
administrative/support services.

C/S 3 clerk and mailhandler expenses are reported by finance numbers and
LDCs (Labor Distribution Codes). For the MODS facilities, labor hours
are clocked into MODS operations, which are then mapped into LDCs.

C/S 3 costs are separated into the BMCs, the MODS and non-MODS offices,
based on finance numbers.

The aggregated cost for the MODS finance numbers is further subdivided
into LDC costs. Each LDC is identified with one of the above four
functions. For the mail processing function,[^1] the LDC costs are
partitioned into operation groupings or cost pools, using the shares of
MODS operation hours by LDC from the MODS file. Some LDCs are not
partitioned into cost pools: they each constitute a cost pool.[^2] For
international-related operations, the pool costs are consolidated across
LDCs into a single cost pool.

For the BMCs and the non-MODS finance numbers, the aggregated cost for
the finance numbers in each facility group, obtained from the C/S 3
labor expenses, is further partitioned into operations, based on the
dollar-weighted tallies associated with the IOCS Uniform Operation
Codes. Each IOCS Uniform Operation code is identified with one of the
four functions. For the mail processing function,[^3] the
dollar-weighted tallies are partitioned into cost pools, using the
responses from IOCS questions 18 and 19.

A list of all the pools and their costs is provided in Table 1[^4] in
the Attachment. The derived pool costs in Part I of LR-I-106 are the
starting points for the development of other costs in subsequent
sections of the library reference. (see the testimonies of witnesses
Kingsley, USPS-T-10, and Degen, USPS-T-16, for an operational
description of the cost pools).

There are some variations to the Docket No. R97-1 procedures:

1\. The pool costs now include their share of the uniform allowance and
the lump sum costs. Thus the total cost for Cost Segment 3 is the same
as in the Trial Balance of LR-I-9 of this docket. In Docket No. R97-1,
the total cost for Cost Segment 3 excluded the uniform allowance and the
lump sum.

2\. The non-MODS mail processing operations are now subdivided into
eight mail processing cost pools. In Docket No. R97-1, the non-MODS mail
processing was a single cost pool.

II.B. VOLUME-VARIABLE COSTS AND DISTRIBUTION KEYS FOR THE MAIL
PROCESSING COST POOLS (PART II OF LR-I-106).

Part II of LR-I-106 describes the method used to distribute the
volume-variable mail processing pool costs, obtained in Part I, to the
CRA subclasses. The volume-variable subclass costs, generated in this
section, are further increased by the mail processing portions of the
BMC and non-MODS clocking in/out costs in W/S 3.1.1a of Witness Meehan's
B Workpapers (USPS-T-11). The resulting W/S 3.1.1 costs are subsequently
adjusted in the Cost Segments and Components Report to reflect the
redistribution of the volume-variable premium pay costs to the pref
mail.

In Part II of LR-I-106, the total cost for each of the mail processing
pools is multiplied by a volume-variability factor to obtain the
volume-variable cost for each cost pool. A pool-specific distribution
key is then applied to the volume-variable cost to obtain costs in that
pool for each subclass. The resulting subclass costs are summed over all
the cost pools to obtain subclass volume-variable mail processing costs
(before clocking in/out and premium adjustments -- see preceding
paragraph).

Table 3 in the attachment lists the subclass volume-variable costs
(before clocking in/out and premium adjustments) and distribution
factors (Col Pct) for all mail processing cost pools for the BMC, MODS
1&2 and non-MODS facilities.

The method used to derive mail processing volume-variable costs by
subclasses can be expressed by the following formula:

# *Mail Processing Subclass Volume-Variable Cost =*

# *Σ~pool~ Cost~pool~ X Volume-Variability Factor~pool~ X Subclass Distribution Key Factor~pool~*

The first term in the formula comes from the pool costs in Part I of
LR-I-106, over 70 percent of which are generated independently of IOCS,
from labor expense and MODS operational data. The second term in the
formula comes from two sources: for certain cost pools, the
volume-variability factors are derived from Witness Bozzo's econometric
studies (USPS-T-15); for other cost pools, they are computed from IOCS
activity data. The third term in the formula relies totally on IOCS
data: neither the MODS system nor any other system has subclass
information for these cost pools. By sampling points of time of
employees' activities and the mail they process, the IOCS provides more
detailed information about these cost pools.

The process used to generate the non-econometric volume-variability
factors and the distribution keys for the cost pools is summarized
below. It is based on the procedures described in LR-H-146 in Docket No.
R97-1, but incorporates five modifications to these procedures, one of
which is the computation of the IOCS-based volume-variability factors.

1\. In this docket, as in Docket No. R97-1, the IOCS sample cost pools
are constructed to be consistent with those in Part I of the library
reference: the MODS and BMC cost pools in this docket are similar to
those in Docket No. R97-1; however, the non-MODS mail processing
activities, which were one single cost pool in Docket No. R97-1, are
further partitioned into eight cost pools in this docket.

> A first step in generating the IOCS-based volume-variable cost factors
> and distribution keys is to associate the tallies with the mail
> processing cost pools implicit in the derivation of those two terms.
> The process used to assign the IOCS tallies to the cost pools
> parallels the procedure outlined for Part I of LR-I-106 (see the
> preceding section II.A).
>
> The IOCS tallies are grouped into the BMCs, MODS and non-MODS
> facilities, based on the finance numbers sampled in IOCS.
>
> For the MODS sampled finance numbers, the tally contains information
> on the MODS operation codes the sampled employee is clocked into at
> the time of the IOCS reading.[^5] The MODS operation code recorded
> with each IOCS tally is then used to assign the tallies to the MODS
> cost pools. The tally assignment to the MODS cost pools in IOCS[^6]
> uses the mapping of MODS operation codes to cost pools from Part I of
> LR-I-106. Each cost pool is assigned to an LDC. The LDCs are grouped
> into the four C/S 3 functions: mail processing, window services,
> claims and inquiries, and other administrative/support services. It
> should be noted that most RBCS (LDC 15) costs are incurred in remote
> encoding centers, which are not sampled in IOCS. Therefore, the
> tallies in the LDC 15 cost pool are not used to represent the
> activities in that cost pool.
>
> For the BMC and non-MODS sampled finance numbers, the cost pool tally
> mapping, which relies on the IOCS Uniform Operation codes and
> Questions 18 and 19 responses, is the basis for partitioning the total
> BMC and non-MODS costs into cost pools in Part I of LR-I-106.
>
> In Docket No. R97-1, there was only one non-MODS mail processing cost
> pool. In this docket, the non-MODS mail processing activities are
> further partitioned into eight cost pools, similarly to the BMCs and
> the MODS offices. The eight cost pools consist of: one pool for the
> automated/mechanical operations, three shape-related pools for the
> manual distribution operations, one pool for the allied operations, a
> registry pool, an express mail pool, and a cost pool for all other
> miscellaneous operations. Information from IOCS Questions 18 and 19
> form the basis for assigning the tallies to the various pools.[^7]

2\. In Docket No. R97-1, all the volume-variability factors presented by
the Postal Service were derived independently of IOCS. In this docket,
except for twelve cost pools, the volume-variable cost factors are based
on the IOCS tally activities in the cost pool.

> The volume-variability factors determine what portions of the pool
> costs vary with the mail volume, and therefore what portions of the
> pool costs are to be distributed to the subclasses.
>
> In Docket No. R97-1, all the volume-variability factors presented by
> the Postal Service were derived independently of IOCS (See witness
> Bozzo's testimony for further discussion - USPS-T-15).
>
> In this docket, the volume-variability factors are derived
> econometrically by Witness Bozzo for twelve MODS cost pools,[^8]
> representing about 41 percent of the total C/S 3 mail processing
> costs. In the remaining pools, which include the remaining MODS cost
> pools, and all of the BMC and non-MODS cost pools, the volume-variable
> fractions of the pool costs are generated from the IOCS tally
> activities.
>
> The procedure used to derive volume-variable cost fractions in this
> docket is based on the Postal Service's pre-R97-1 method, but is
> applied by cost pool. This method separates non-overhead tally
> activities into those that are non-volume-variable and those that are
> 100 percent volume-variable. The percent of the pool volume-variable
> cost is determined by the percent of the dollar-weighted tallies
> associated with the activities in the cost pool which are classified
> as volume-variable. Costs associated with 'overhead'[^9] activities
> are considered volume-variable to the same degree as non-overhead
> activities.
>
> The volume-variability factors and the volume-variable costs for the
> mail processing cost pools are listed in Table 1 in the attachment.
> The asterisks flag the volume-variability factors based on econometric
> analyses.

3\. Apart from the MODS support cost pools and the RBCS operations[^10],
all distribution keys are based on the combined direct tallies,
distributed mixed-mail tallies, and distributed not-handling tallies.
The distribution keys are derived using the procedures described by the
Postal Service in Docket No. R97-1. The R97-1 procedures are however
modified in this docket, to provide for a broadened basis for the
distribution of the not-handling tallies in the allied cost pools.

> The mail processing distribution factors indicate the proportions of
> the volume-variable costs associated with each cost pool to be
> assigned to each subclass. The individual subclass percentages for any
> cost pool distribution key sum to one. The distribution key for a cost
> pool represents the percentages of dollar-weighted tallies by
> subclasses in that pool. These percentages are derived through
> successive steps, as described below.
>
> In this docket, as in Docket No. R97-1, the distribution factors are
> based entirely on the IOCS tallies.[^11] All tallies in a cost pool
> are used to form the cost pool distribution key. The tallies are
> classified into three types of tallies: direct, mixed and not-handling
> tallies. This classification is based on the type of information
> observed and reported by the data collector when conducting a reading.
> The level of detail of the collected information varies with the
> observed activity. When an IOCS data collector is asked to sample an
> employee at a specific time, the employee may or may not be handling
> mail. When handling mail, the employee may be observed to handle one
> or many pieces of mail, an "item" or a "container". [^12] An item or a
> container may have identical mail, many kinds of mail in it or be
> empty at the instant of observation. When not handling mail, the
> employee may be observed to be between handlings at the instant of
> observation, monitoring the operation of the equipment, on the way to
> obtain empty equipment, on break, or performing incidental
> administrative duties, to cite a few examples.

The 'direct' tallies are piece, item, or container readings with
recorded subclass or mail class information. [^13] The 'mixed' tallies
are item or container handling tallies with no recorded subclass or mail
class information.[^14] Mixed tallies contain information, such as mail
shapes or item types, that can be associated with subclasses (see
Witness Degen's testimony, USPS-T-16). Not-handling tallies convey no
such information. Mixed tallies and not-handling tallies are
subsequently *distributed* to subclasses or mail classes, using all
available tally information based on operational associations, from
which the subclass or mail class distribution mix can be reasonably
inferred. That information includes, for both mixed and not-handling
tallies, the tally cost pool identification. For the mixed tallies, it
also includes the recorded piece shapes and item types being processed
in that cost pool. The distribution of mixed and not-handling tallies is
as follows.

a\. Distribution of Mixed Tallies to Subclasses.

In this docket, as in Docket No. R97-1, mixed tallies are proposed by
the Postal Service to be distributed to subclasses by first partitioning
the direct and mixed-mail tally dollar weights into the same categories
of piece shapes, item types, and container types, recorded by the data
collector. Mixed item tallies are partitioned into item types. Mixed
non-empty container tallies are further partitioned into piece shapes
and item types, using information based on the data collector's recorded
percentage of the container's volume (cube) occupied by shapes of loose
mail pieces and/or types of items. Mixed empty container tallies are
partitioned into container types.

Mixed item and non-empty container tallies are then distributed to
subclasses by 'filling' the mixed/empty single items and the
pieces/items in non-empty containers in proportion to the direct tally
subclasses from the same item types

and piece shapes.[^15] Empty container tallies are distributed to
subclasses by 'filling' the empty containers in proportion to the
subclasses from the direct and 'filled' container tallies of the same
container types.

Except for platform operations, the 'filling' of the mixed-mail items
and non-empty containers is with direct piece and item subclasses from
the same cost pool. If there are no direct items of the same type in the
cost pool, the distribution of direct-item tallies of the same type
across all cost pools within a facility grouping is employed. [^16]

> For platform operations, a broader across-pool subclass distribution
> key is used for the mixed tallies. For the MODS platform pool, the
> 'filling' of non-empty containers is with direct piece and item
> subclasses from all MODS allied labor pools.[^17] For the BMC platform
> pool, the 'filling' of items and non-empty containers is with direct
> piece and item subclasses from all BMC cost pools. For the new
> 'Allied' cost pool in the non-MODS facilities, the 'filling' of
> non-empty containers is with direct piece and item subclasses from all
> non-MODS cost pools, excluding the 'Registry' and the 'Miscellaneous'
> pools.

b\. Distribution of Not-Handling Tallies to Subclasses.

> In this docket, as in Docket No. R97-1, the not-handling tallies for
> *non-allied* cost pools are proposed by the Postal Service to be
> distributed to subclasses using the direct and distributed mixed
> tallies within the same cost pool. Consequently, for non-allied cost
> pools, it is not necessary to include the not-handling tallies in the
> pool-specific distribution key. The same volume-variable costs could
> be obtained by multiplying the volume-variable cost fraction of the
> pool by a distribution key based simply on handling tallies.
>
> In this docket, however, as a departure from the within-pool
> distribution method employed by the Postal Service in Docket R97-1,
> the not-handling tallies for the *allied* cost pools are distributed
> to subclasses, based on the aggregated handling tallies in all
> distribution and allied operations for each of the BMC, MODS and
> non-MODS facility groupings.
>
> For the MODS facilities, the broadened basis for the distribution key
> consists of all handling tallies for the Function 1 (LDC 11-18)
> operations and the LDC 79 "Bulk Mail Acceptance" unit, excluding the
> Registry and Business Reply Units. The Allied cost pools include the
> LDC 13 "Mechanical Sorting of Sacks and Outsides" units and all LDC 17
> operations, except for the "Cancellation/Metered Mail Preparation"
> group.[^18] The not-handling tallies in these allied cost pools
> represent about 38 percent of all not-handling tallies for the mail
> processing non-support cost pools in the MODS facilities.
>
> For the BMCs, the same distribution key for the not-handling tallies
> on the Platform is now extended to the "Allied Labor and Other Mail
> Processing" Cost Pool. The not-handling tallies in the Platform and
> Allied cost pools represent about 49 percent of all not-handling
> tallies for the mail processing cost pools in the BMCs.
>
> For the non-MODS, the distribution key for the not-handling tallies in
> the new Allied cost pool is based on all non-MODS mail processing
> handling tallies, which exclude those in the "Registry" and the
> "Miscellaneous" cost pools. For the Miscellaneous cost pool, it is
> based on all handling tallies in all non-MODS cost pools. The
> not-handling tallies in the Allied and Miscellaneous cost pools
> represent about 60 percent of all not-handling tallies for the mail
> processing cost pools in the non-MODS facilities. In Docket R97-1, the
> Postal Service's distribution of the not-handling tallies to
> subclasses paralleled the pre-R97-1 LIOCATT distribution method.
> Not-handling mail processing tallies were distributed on handling
> tallies either by basic function or by IOCS operation code, based on
> the tally activity codes.

4\. In Docket No. R97-1, the four MODS support cost pools had their own
distribution keys, based on the IOCS dollar-weighted tallies. In this
docket, they are consolidated into two "piggyback" cost pools. The
volume-variable costs for the "piggyback" cost pools are distributed to
subclasses in proportion to the volume-variable costs for subclasses in
the cost pools they support.

> The four MODS support cost pools are quasi-administrative pools
> characterized by a high percentage of not-handling-mail
> activities.[^19]
>
> In Docket R97-1, the handling tallies, as well as the not-handling
> tallies were included in the distribution keys for the four support
> cost pools by both the PRC and the Postal Service. The PRC, however,
> excluded the "migrated" tallies from the not-handling tallies. The
> mixed handling tallies were distributed on the direct handling tally
> subclasses in the support cost pools. The not-handling tallies,
> however, were distributed in proportion to the handling tally
> subclasses in the mail processing supported cost pools: the
> not-handling tallies for the 1SUPPORT and 1MISC pools were distributed
> on Function 1 handling tally subclasses; the not-handling tallies for
> the LD48 OTH and the LD48 ADM[^20] pools were distributed on Function
> 4 mail processing handling tally subclasses, excluding the Window
> Service activities.

In this docket, the "Mail Processing Support" and "Miscellaneous" cost
pools (1SUPPORT and 1MISC) are now combined into a Function 1 support
cost pool. The "LDC 48 Administrative Support" and "LDC 48 Other" cost
pools (LD48 ADM and LD48 OTH) are now combined into a Function 4 support
cost pool. The volume-variable cost fraction for each of the pools is
derived from IOCS data (see Part II.2 above). However, the handling
tallies in these pools are no longer used in the distribution keys (see
Witness Degen's testimony). Instead, the distribution key shares for
these cost pools are the subclass shares of volume-variable costs in the
supported operations. Thus, the volume-variable cost for the Function 1
support pool is distributed in proportion to all Function 1 and LDC 79
volume-variable costs. The volume-variable cost for the Function 4
support pool is distributed in proportion to all Function 4
volume-variable costs, including the MODS window service costs.

5\. In this docket, the "encirclement" rules are modified to ensure
appropriate distribution of volume-variable costs to Special Services.

The "encirclement" rules examine the mail processing cost pool and the
mail subclass to determine when it is appropriate to assign a Special
Service cost to the piece of mail being processed.

Special Service costs are now assigned when the mail pieces with paid
special services are processed by employees clocked into the Special
Service-related cost pools. [^21] In the distribution and allied
operations, the same mail pieces are processed as ordinary mail pieces
of the same subclasses; therefore they are assigned the underlying
subclass costs rather than the Special Service costs.

The exceptions are when the mail pieces are themselves detached Postal
Service forms used in the provision of special services. [^22] With
those forms, Special Service costs are incurred in any cost pool in
which the forms are processed. Another exception is the Special Handling
service cost which is incurred in any cost pool, provided the underlying
subclass is eligible to receive the service, i.e. the subclass must be
either Standard A Single Piece or Standard B.

In the context of these new "encirclement" rules, the Special Service
handling tallies are treated like any other subclass handling tallies.
They are now included in the distribution keys for mixed-mail and
not-handling tallies in all cost pools where Special Service costs are
incurred, the majority of which occurred by definition, in the Special
Service cost pools.

The resulting procedure streamlines the Docket No. R97-1 Postal Service
costing procedure, in particular for Registered Mail. It eliminates the
need for the Docket No. R97-1 W/S 3.1.1 'normal feature' adjustment;
this RPW-based adjustment removed the mail processing costs from the
costs attributed to the Registered Mail Services in any cost pool. It
also eliminates the need for the "Registry adjustment" in W/S 3.1.1 to
make the data consistent between the Registry IOCS and RPW categories.

# **II.C. DEVELOPMENT OF SUBCLASS VOLUME-VARIABLE COSTS BY AUTOMATION AND PRESORT CATEGORIES, BY COST POOL AND BY SHAPE (PART III OF LR-I-106)** 

In Part II of LR-I-106, the mail-processing volume-variable costs are
generated at the IOCS class activity code level, but aggregated at the
CRA subclass level. In Part III of LR-I-106, the costs are aggregated by
shape and specific automation categories within each cost pool, for
specified classes.

The specified classes are First-Class, Periodicals, Standard A and
Standard B. The shapes are letter/card, flat and IPP/parcel. The
automation and presort categories are considered only for the
letter/card shape. They include the Automation Carrier-Route for Presort
First Class, and the Automation Non-Carrier-Route, as well as the
Non-Automation Non-Carrier Route for both Presort First Class and
Standard A, Regular and Non-Profit. For First-Class, Single Piece, the
mail processing volume-variable costs are aggregated by metered and
non-metered indicia.

The disaggregated subclass volume-variable costs are used by Witness
Smith (USPS-T-21) to develop test year costs by shape. These costs are
then used by other witnesses to reconcile model costs to the Base Year
CRA.

III\. DEVELOPMENT OF SPECIAL BASE YEAR INPUTS.

III.A. SPECIAL BASE YEAR INPUTS FOR THE COST SEGMENT AND COMPONENT
REPORT.

III.A.1. C/S 3 Base Year Administrative And Window Service Cost Inputs
(PART IV OF LR-I-106).

Part IV of LR-I-106 partitions the Administrative and Window Service
costs into activities based on IOCS data. These costs are inputs into
W/S 3.2 and W/S 3.3 of Witness Meehan's B Workpapers, and subsequently
to the Cost Segments and Components Report which generates
Administrative and Window Service volume-variable costs by subclasses.

In W/S 3.2, the inputs enable the Window Service activities to be
classified into various pools where respective volume-variability
factors and distribution keys are applied to the costs to obtain
subclass volume-variable costs. The Window Service inputs also include
the Window Acceptance costs. In Docket No. R97-1, the Window Acceptance
costs were in Part V of USPS-LR-H146.

In W/S 3.3, the inputs enable the Administrative Service activities to
be classified with those directly associated with subclasses, or with
other not-handling-mail activities, some of which are determined to be
non-volume variable. The Administrative costs are thus partitioned into
components in W/S 3.3 and uploaded to the COBOL CRA base year model
where they are applied to component-specific distribution keys to obtain
volume-variable mail class costs by cost segments and components.

III.A.2. Base Year Premium Pay Factors and Other Distribution Key
Inputs.

> (PART V OF LR-I-106).

Part V of LR-I-106 provides various base year inputs to complete the
development of the subclass volume-variable costs by cost segments and
components. They include:

1.  The Sunday and Night Differential Pay factors and distribution keys
    to adjust the mail processing subclass volume-variable costs for
    premium pay.

> The Premium Pay factors are applied to the National Payroll Premium
> Costs to obtain non-BMC mail processing premium costs for Platform and
> Non-Platform operations (see W/S 3.0.13 of Witness Meehan's B
> Workpapers, USPS-T-11). These costs are then applied to the
> distribution keys to back out the premium costs from the mail
> processing volume-variable costs for non-preferred mail and attribute
> them to the preferred mail.

2.  The Platform distribution key to distribute the facility space and
    equipment costs in Cost Segment 15.

> The only change to the distribution key from Docket No. R97-1 lies
> with the platform distribution key for the MODS offices in terms of
> the treatment of the not-handling costs (see Part II.3 above).

3.  The volume-variability factor and distribution key for the "Central
    Mail Mark-Up and Computer Forwarding System" operations to
    distribute Cost Segment 2 supervisor and technician costs associated
    with these operations.

> The methodology incorporates whatever new procedures are implemented
> in Parts I and II. It reflects the IOCS-based volume-variability
> factors and the non-MODS cost pools.

III.B. SPECIAL BASE YEAR INPUTS FOR COSTING STUDIES.

III.B.1. Operation-Specific Crosswalk Matrix (PART VI OF LR-I-106).

Part VI of LR-I-106 generates a matrix that distributes clerk and
mailhandler mail processing volume-variable costs for each of the
MODS-based cost pools to the IOCS-based space and equipment categories.
The information is used to produce conversion factors to crosswalk
operation-specific piggyback factor categories to the MODS-based cost
pools. It is incorporated in Witness Smith's derivation of piggyback
factors by major functions (USPS-T-21).

# **III.B.2. Cost Pool Overhead Factors For Modeled Costs (PART VII OF LR-I-106).**

Part VII of LR-I-106 develops pool-specific overhead factors to be
applied to modeled costs. In this section, the BMC and non-MODS
volume-variable portions of the clocking in/out costs, obtained from W/S
3.1.1of Witness Meehan's B Workpapers (USPS-T-11), are distributed
proportionately to the total pool volume-variable costs obtained in Part
II.

III.B.3. Base Year C/S 3 Disaggregated Wage Rates (PART VIII OF
LR-I-106).

Part VIII of LR-I-106 provides disaggregated wage rates for Cost Segment
3. The wage rates are based on the costs from Part I and the
corresponding hours, reconciled to the GFY hours. The wage rates for the
Mail Processing and Other categories include those for Cost Segment 9
Special Delivery Messengers. This particular grouping is made to provide
for consistency between the Base Year and the Test Year after the
Special Delivery Messengers are consolidated into Clerk Messengers.

The basic methodologies for Parts III -- VIII remain unchanged relative
to those parts of LR H-146, except to the extent that they incorporate
whatever new procedures are implemented in Parts I and II. Thus,
modifications to these procedures are automatically reflected in the
data for Parts III -- VIII.

#### Table 1: Cost Segment 3 Clerk and Mailhandler Cost Pools - Part 1 of 2

+-----------+----------------------------+--------+---------+--------+
|           | ### MODS 1 & 2 FACILITIES  |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            | Pool   | Pool    | Pool   |
|           |                            | Total  | Volume- | V      |
|           |                            |        |         | olume- |
+-----------+----------------------------+--------+---------+--------+
| **SAS     | Cost Pool Title            | Cost   | V       | Va     |
| code**    |                            |        | ariable | riable |
|           |                            |        | Factor  | Cost   |
+-----------+----------------------------+--------+---------+--------+
|           | **Automated Equipment**    |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| BCS/      | BCS, BCS on OCR            | 1,0    | .895\*  | 9      |
|           |                            | 43,841 |         | 34,238 |
+-----------+----------------------------+--------+---------+--------+
| OCR/      | OCR                        | 2      | .751\*  | 1      |
|           |                            | 19,070 |         | 64,522 |
+-----------+----------------------------+--------+---------+--------+
|           | **Mechanized, Letters &    |        |         |        |
|           | Flats**                    |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| FSM/      | SPFSM, FSM & FSM/BCR       | 1,0    | .817\*  | 8      |
|           |                            | 42,369 |         | 51,615 |
+-----------+----------------------------+--------+---------+--------+
| LSM/      | LSM,MPLSM & SPLSM W/BCR    | 78,765 | .954\*  | 75,142 |
+-----------+----------------------------+--------+---------+--------+
|           | **Mechanized, Other**      |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| 1SACKS_M  | Mechanical Sort - Sack     | 55,538 | .941    | 52,261 |
|           | Outside                    |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| MECPARC   | Mechanized Parcels         | 8,743  | .990    | 8,656  |
+-----------+----------------------------+--------+---------+--------+
| SPBS OTH  | SPBS -- Non Priority       | 2      | .641\*  | 1      |
|           |                            | 83,275 |         | 81,579 |
+-----------+----------------------------+--------+---------+--------+
| SPBSPRIO  | SPBS -- Priority           | 82,447 | .641\*  | 52,848 |
+-----------+----------------------------+--------+---------+--------+
|           | **Manual Distribution      |        |         |        |
|           | Operations**               |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| MANF      | Manual Flats               | 4      | .772\*  | 3      |
|           |                            | 59,933 |         | 55,068 |
+-----------+----------------------------+--------+---------+--------+
| MANL      | Manual Letters             | 1,5    | .735\*  | 1,1    |
|           |                            | 63,963 |         | 49,513 |
+-----------+----------------------------+--------+---------+--------+
| MANP      | Manual Parcels             | 60,593 | .522\*  | 31,630 |
+-----------+----------------------------+--------+---------+--------+
| PRIORITY  | Manual Priority            | 2      | .522\*  | 1      |
|           |                            | 59,762 |         | 35,596 |
+-----------+----------------------------+--------+---------+--------+
| **LD15**  | **LDC 15 -- RBCS**         | 4      | 1.005\* | 4      |
|           |                            | 57,253 |         | 59,539 |
+-----------+----------------------------+--------+---------+--------+
|           | **Allied Operations**      |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| 1SACN     | Air Contract DCS and       | 50,434 | .908    | 45,794 |
|           | Incoming                   |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| 1BULK PR  | Bulk Presort               | 13,309 | .890    | 11,845 |
+-----------+----------------------------+--------+---------+--------+
| 1CANCMPP  | Cancellation & Mail        | 2      | .549\*  | 1      |
|           | Preparation -- metered     | 95,957 |         | 62,480 |
+-----------+----------------------------+--------+---------+--------+
| 1SACKS_H  | Manual Sort - Sack Outside | 1      | .953    | 1      |
|           |                            | 76,003 |         | 67,731 |
+-----------+----------------------------+--------+---------+--------+
| 1OPPREF   | Opening Unit - Preferred   | 7      | .960    | 6      |
|           | Mail                       | 11,487 |         | 83,028 |
+-----------+----------------------------+--------+---------+--------+
| 1OPBULK   | Opening Unit -- BBM        | 3      | .961    | 2      |
|           |                            | 05,417 |         | 93,506 |
+-----------+----------------------------+--------+---------+--------+
| 1PLATFRM  | Platform                   | 1,0    | .896    | 9      |
|           |                            | 52,585 |         | 43,116 |
+-----------+----------------------------+--------+---------+--------+
| 1POUCHNG  | Pouching Operations        | 4      | .963    | 4      |
|           |                            | 46,331 |         | 29,817 |
+-----------+----------------------------+--------+---------+--------+
|           | **Other Operations**       |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| BUSREPLY  | Business Reply / Postage   | 30,749 | .968    | 29,765 |
|           | Due                        |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| REWRAP    | Damaged Parcel Rewrap      | 14,865 | .817    | 12,144 |
+-----------+----------------------------+--------+---------+--------+
| 1EEQMT    | Empty Equipment            | 59,757 | .718    | 42,906 |
+-----------+----------------------------+--------+---------+--------+
| EXPRESS   | Express Mail               | 81,409 | .567    | 46,160 |
+-----------+----------------------------+--------+---------+--------+
| MAILGRAM  | Mailgram                   | 340    | .969    | 329    |
+-----------+----------------------------+--------+---------+--------+
| 1SUPPORT  | Mail Processing            | 1      | .260    | 47,848 |
|           | Support^1/^                | 84,031 |         |        |
+-----------+----------------------------+--------+---------+--------+
| 1MISC     | Miscellaneous Activity^1/^ | 1      | .568    | 77,789 |
|           |                            | 36,953 |         |        |
+-----------+----------------------------+--------+---------+--------+
| REGISTRY  | Registry                   | 1      | .373    | 46,691 |
|           |                            | 25,176 |         |        |
+-----------+----------------------------+--------+---------+--------+
| INTL      | International              | 98,986 | .846    | 83,742 |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD41      | LDC 41 -- Unit             | 33,829 | .960    | 32,476 |
|           | Distribution -- Automated  |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD42      | LDC 42 -- Unit             | 1,105  | .967    | 1,069  |
|           | Distribution -- Mechanized |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD43      | LDC 43 -- Unit             | 5      | .932    | 5      |
|           | Distribution -- Manual     | 63,203 |         | 24,905 |
+-----------+----------------------------+--------+---------+--------+
| LD44      | LDC 44 -- Post-Office Box  | 1      | .944    | 1      |
|           | Distribution               | 38,383 |         | 30,634 |
+-----------+----------------------------+--------+---------+--------+
| LD48 EXP  | LDC 48 -- Customer Service | 3,322  | .475    | 1,578  |
|           | / Express                  |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD48_ADM  | LDC 48 -- Customer Service | 1      | .534    | 86,120 |
|           | / Admin^2/^                | 61,274 |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD48_SSV  | LDC 48 -- Customer Service | 1      | .566    | 59,408 |
|           | / Spec.Servc.              | 04,961 |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD48 OTH  | LDC 48 -- Customer Service | 1      | .673    | 94,324 |
|           | / Other ^2/^.              | 40,154 |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD49      | LDC 49 -- Computerized     | 2      | .976    | 2      |
|           | Forwarding Syst.           | 64,671 |         | 58,319 |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| LD79      | LDC 79 -- Mailing Req\' &  | 1      | .299    | 42,369 |
|           | Bus. Mail Entry            | 41,702 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | MODS 1 & 2 Subtotal        | 10,9   | .804    | 8,8    |
|           |                            | 51,945 |         | 08,098 |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | LDC 45 -- Window Service   | 7      |         |        |
|           |                            | 25,420 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | LDC 75 -- Claims/Inquiries | 21,204 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | All other LDCs:            | 7      |         |        |
|           | Administrative Services /  | 76,957 |         |        |
|           | Other                      |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | **Total for MODS 1 & 2     | **     |         |        |
|           | Facilities**               | 12,475 |         |        |
|           |                            | ,526** |         |        |
+-----------+----------------------------+--------+---------+--------+

## Table 1: Cost Segment 3 Clerk and Mailhandler Cost Pools - Part 2 of 2

+-----------+----------------------------+--------+---------+--------+
|           | ### BMC GROUP              |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            | Pool   | Pool    | Pool   |
|           |                            | Total  | Volume- | V      |
|           |                            |        |         | olume- |
+-----------+----------------------------+--------+---------+--------+
| SAS Code  | Cost Pool Title            | Cost   | V       | Va     |
|           |                            |        | ariable | riable |
|           |                            |        | Factor  | Cost   |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| PLA       | Platform                   | 2      | .946    | 1      |
|           |                            | 07,947 |         | 96.718 |
+-----------+----------------------------+--------+---------+--------+
| OTHR      | Allied Labor & all other   | 2      | .987    | 2      |
|           | Mail Processing            | 51,839 |         | 48,565 |
+-----------+----------------------------+--------+---------+--------+
| PSM       | Parcel Sorting Machine     | 92,698 | 1.000   | 92,698 |
+-----------+----------------------------+--------+---------+--------+
| SSM       | Sack Sorting Machine       | 34,213 | 1.000   | 34,213 |
+-----------+----------------------------+--------+---------+--------+
| SPB       | SPBS & Irregular Parcels   | 64,180 | 1.000   | 64,180 |
|           | (IPP & 115)                |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| NMO       | Non-Machinable Outside     | 33,824 | 1.000   | 33,824 |
|           | (NMO)                      |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | BMCs Subtotal              | 6      | .979    | 6      |
|           |                            | 84,702 |         | 70,198 |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | Window Service             | 965    |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | Claims & Inquiries         | 2,439  |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | Administrative Services^3^ | 1      |         |        |
|           |                            | 05,394 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | **Total for BMC            | **793  |         |        |
|           | Facilities**               | ,500** |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | **NON-MODS GROUP**         |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
| AUTO/MEC  | Automated/Mechanical       | 1      | .999    | 1      |
|           | Operations                 | 54,792 |         | 54,637 |
+-----------+----------------------------+--------+---------+--------+
| MANL      | Manual Letters             | 7      | .999    | 7      |
|           |                            | 63,214 |         | 62,450 |
+-----------+----------------------------+--------+---------+--------+
| MANF      | Manual Flats               | 5      | .999    | 5      |
|           |                            | 16,567 |         | 16,051 |
+-----------+----------------------------+--------+---------+--------+
| MANP      | Manual Parcels             | 1      | .997    | 1      |
|           |                            | 36,669 |         | 36,259 |
+-----------+----------------------------+--------+---------+--------+
| ALLIED    | Allied Operations          | 6      | .917    | 5      |
|           |                            | 09,324 |         | 58,750 |
+-----------+----------------------------+--------+---------+--------+
| EXPRESS   | Express                    | 20,657 | .328    | 6,775  |
+-----------+----------------------------+--------+---------+--------+
| REGISTRY  | Registry                   | 32,050 | .281    | 9,006  |
+-----------+----------------------------+--------+---------+--------+
| MISC      | Miscellaneous              | 2      | .699    | 1      |
|           |                            | 78,733 |         | 94,834 |
+-----------+----------------------------+--------+---------+--------+
|           | Non-MODS Subtotal          | 2,5    | .931    | 2,3    |
|           |                            | 12,006 |         | 38,764 |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | Window Service             | 1,3    |         |        |
|           |                            | 00,146 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | Claims & Inquiries         | 13,059 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | Administrative             | 5      |         |        |
|           | Services^3/^               | 51,889 |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | **Total for non-MODS       | *      |         |        |
|           | Facilities**               | *4,377 |         |        |
|           |                            | ,100** |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           | **Total C/S 3              | **     |         |        |
|           | (Clerk/Mailhandlers)**     | 17,646 |         |        |
|           |                            | ,126** |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+
|           |                            |        |         |        |
+-----------+----------------------------+--------+---------+--------+

Footnotes:

\* Econometrically derived volume-variability factors.

> 1/ These support cost pools are combined into the piggyback cost pool
> 1SUPP_F1
>
> 2/ These support cost pools are combined into the piggyback cost pool
> 1SUPP_F4
>
> 3/ All Clocking in/out activities are included in the Administrative
> Services.
>
> Table 2: Proportion of Tallies by Handling ("Direct" and "Mixed") and
>
> Not-Handling Categories, and by Facility Groupings.

+-------------------------+---------+-----------+-----------+---------+
| Percentage of           | BMCS    | MODS 1&2  | Non-MODS  | Total   |
| Dollar-Weighted         |         |           |           |         |
| Tallies, by Handling    |         |           |           |         |
| Categories              |         |           |           |         |
+-------------------------+---------+-----------+-----------+---------+
| Direct Tallies          | 19.69%  | 31.70%    | 50.64%    | 34.40%  |
|                         |         |           |           |         |
| Pieces                  | 9.69%   | 9.73%     | 10.95%    | 9.95%   |
|                         |         |           |           |         |
| Items                   | 0.72%   | 0.33%     | 0.23%     | 0.33%   |
|                         |         |           |           |         |
| Containers              | 30.10%  | 41.76%    | 61.82%    | 44.68%  |
|                         |         |           |           |         |
| Total Direct            |         |           |           |         |
+-------------------------+---------+-----------+-----------+---------+
| Mixed Tallies           | 1.20%   | 0.61%     | 0.33%     | 0.59%   |
|                         |         |           |           |         |
| Mixed Item Tallies      | 3.69%   | 2.66%     | 1.58%     | 2.52%   |
|                         |         |           |           |         |
| Uncounted Item          | 4.89%   | 3.27%     | 1.91%     | 3.11%   |
|                         |         |           |           |         |
| Empty Item              | 4.63%   | 1.41%     | 1.64 %    | 1.61%   |
|                         |         |           |           |         |
| Total Item              | 2.50%   | 3.09%     | 1.27 %    | 2.74%   |
|                         |         |           |           |         |
| Mixed Container Tallies | 7.13%   | 4.50%     | 2.91%     | 4.35%   |
|                         |         |           |           |         |
| Identified Container    | 1.81%   | 0.19%     | 0.45%     | 0.31%   |
|                         |         |           |           |         |
| Loose Pieces            | 7.81%   | 4.20%     | 3.16%     | 4.20%   |
|                         |         |           |           |         |
| Items                   | 16.75%  | 8.89%     | 6.52%     | 8.86%   |
|                         |         |           |           |         |
| Subtotal                | 21.64%  | 12.16%    | 8.43%     | 11.97%  |
|                         |         |           |           |         |
| Unidentified Container  |         |           |           |         |
|                         |         |           |           |         |
| Empty Container         |         |           |           |         |
|                         |         |           |           |         |
| Total Container         |         |           |           |         |
|                         |         |           |           |         |
| Total Mixed             |         |           |           |         |
+-------------------------+---------+-----------+-----------+---------+
| Not-Handling Tallies    | 48.26%  | 46.08%    | 29.75%    | 43.35%  |
+-------------------------+---------+-----------+-----------+---------+

[^1]: ^?^ The LDCs for the mail processing function are defined as
    follows: 11-14 (automated, mechanized and manual distributions at
    mail processing facilities); 15 (RBCS); 17-18 (allied and other at
    mail processing facilities); 41-43 (automated, mechanized and manual
    distributions at Customer Service Facilities); 44 (Post Office Box
    Distribution); 48 (Administrative or Miscellaneous activities at
    stations, branches and associate offices); 49 (Computerized
    Forwarding System); and 79 (Mailing Requirements and Business Mail
    Entry).

[^2]: ^?^ The LDCs representing individual cost pools are: 15, 41-44,
    49, 79.

[^3]: ^?^ The IOCS Uniform Operation Codes for the mail processing
    function are: 01 (preparation of mail); 07-08 (platform work and
    mail acceptance); 02-05 (outgoing and incoming distributions); 11
    and 20 (post office box distribution); 15-16 and 27-29 (distribution
    to carriers); and the miscellaneous operation codes 00 (business
    reply), 06 (nixie), 12-13 (caller service), 14 (central mail mark
    up), 18 (registry only), 21-23 (express mail and other accountable
    work).

[^4]: ^?^ Note that in Table 1, all the clocking in/out costs for the
    BMC and the non-MODS facilities are included in the administrative
    costs. The mail processing cost pools for the BMC and the non-MODS
    facilities do not include their shares of the clocking in/out costs.
    These costs are allocated by function in W/S 3.0.1 of Witness
    Meehan's B Workpapers. The clocking in/out costs thus obtained are
    subsequently distributed to the subclasses within each of the three
    facility groupings in W/S 3.1.1a and 3.1.1.

[^5]: ^?^ The MODS operation codes are stored in Field F114 in the IOCS
    file.

[^6]: ^?^ Less than one percent of the tallies from the sampled MODS
    offices in IOCS either do not have MODS codes or have "invalid" MODS
    codes which are not listed in the MODS manual. These tallies are
    then remapped into cost pools, based on the responses to IOCS
    questions 18 and 19, the IOCS Uniform Operation code. The remapping
    also uses a value stored in F1 which identifies if the finance
    number is a mail processing or customer service facility: this
    information is used to assign the responses to IOCS Question 19 to
    either a Function 1 or a Function 4 cost pool.

[^7]: ^?^ IOCS Question 19 was used to assign the tallies to the
    automated/mechanical and to the manual operations. Both Questions 18
    and 19 were used to assign the tallies to the allied, special
    service and miscellaneous operations. The automated/mechanical
    operations include the Mail Processing, Delivery, and Carrier
    Sequence BCS, the LSM, the FSM, the Parcel Sorting Machine, the
    SBPS, the NMO, and the RBCS. The manual distribution operations
    include the Letter Case, Flat Case and Parcel Piece distributions.
    The allied operations include all other manual non-distribution
    operations identified in Question 19: the Collection Mail Canceling
    and Meter Mail Preparation units, the Presort Mail, Opening,
    Pouch/Rack units, the Platform and other manual units. The remaining
    allied operations include any activities other than those enumerated
    above, which are associated with the Platform, the Collection and
    Preparation of Mail and the allied labor activities identified in
    Question 18. All other tallies (other than those assigned to the
    Registry and Express Mail operations based on the IOCS operation
    codes) are assigned to a Miscellaneous cost pool.

[^8]: ^?^ They include the following cost pools: automated (BCS, OCR),
    mechanical letter and flat (FSM, LSM), manual distributions for
    letter, flat, parcel and priority mail ( MANF, MANL, MANP,
    PRIORITY), priority and non-priority SPBS (SPBSPRIO, SPBS OTH), and
    the 'Canceling and Meter Mail Preparation' cost pool (1CANCMPP). Dr.
    Bozzo proposes the use of the RBCS (LD 15) volume-variability factor
    presented in Docket No. R97-1.

[^9]: ^?^ 'Overhead' activities comprise IOCS activity codes 6521-6523,
    i.e., breaks/personal needs, clocking in/out, and empty
    equipment-related work. The handling portion of the IOCS empty
    equipment activity, however, is not included as 'overhead' here
    since the tallies are treated as mixed-mail tallies.

[^10]: The distribution key for the RBCS cost pool is based on direct
    tallies in the BCS-OSS operations 971-978.

[^11]: The term "tallies", throughout this testimony, refer to the
    dollar-weighted tallies, using the weight in IOCS field F9250 (see
    LR-I-12, section VII).

[^12]: ^?^ .The term "item" refers to the IOCS single item categories
    listed in Question 21B. Items are defined as bundles, trays,
    pallets, con-con and sacks of various colors. The term "container"
    refers to the IOCS container categories listed in Question 21C.
    Containers are defined as APCs, OTRs, hampers, nutting
    trucks/dollies, utility carts, wiretainers, postal paks, and
    multiple items handled by the sampled employee.

[^13]: A single subclass (and its shape) is recorded when the sampled
    employee is observed handling a single piece of mail, an item or a
    container with identical pieces of mail, an item where the top piece
    rule applies (i.e. a bundle, a letter or flat tray). A subclass is
    also recorded when mail is processed at piece-sorting equipment.
    Many subclasses are recorded for an item where the piece contents
    are counted by subclasses and shapes (i.e. a sack, a pallet, a small
    parcel tray, a concon). In subsequent processing of the IOCS data,
    each counted item tally is subdivided into as many tallies as there
    are subclasses by shape recorded for the item. The dollar weight for
    the item tally is then prorated over the subdivided tallies on the
    basis of the piece counts in the item.

[^14]: More specifically, these include tallies associated with
    uncounted mixed-mail items, mixed-mail containers, and empty
    items/containers. The content of a mixed-mail container is
    'identified' by the percentages of volume occupied by shapes of
    loose mail pieces and/or types of items. A mixed-mail container is
    'unidentified' if the volume contents are unknown or partially
    recorded. For subclass distributing purposes, uncounted items are
    grouped with empty items, and unidentified containers with empty
    containers: only the type of containerization (either item type or
    container type), is known for these tallies. See Table 2 in the
    attachment for the proportion of tallies in these various
    categories.

[^15]: ^?^ The same direct item distribution keys are used, *by item
    types*, for uncounted item tallies, empty item tallies, or items in
    non-empty container tallies. In the same cost pool, for example,
    mail subclasses identified with direct yellow sack tallies are used
    to 'fill' the tally portions of containers occupied by yellow sacks,
    as well as the tally uncounted or empty yellow sacks not in
    containers.

[^16]: ^?^ The percent of dollar-weighted item tallies distributed
    across all cost pools within a facility grouping is: 2.46 percent
    for MODS, 1.24 percent for BMCs, 4.90 percent for non-MODS.

[^17]: ^?^ Not all containers are 'worked' on the platform. Some are
    rolled directly to other allied operations where they are 'worked'.
    Therefore, the direct piece and item subclasses used to fill
    non-empty containers on the platform are extended to those in all
    allied operations.

[^18]: ^?^ Under this method, the same distribution key is used for the
    not-handling costs in each of the affected allied cost pools.

[^19]: For the base year 1998, the percentage of not-handling-mail
    activities ranges from 95 percent for the Function 1 "Mail
    Processing Support" cost pool (1SUPPORT), to 85 percent for the
    Function 4 "LDC 48 Administrative" cost pool, to 76 percent for the
    Function 1 "Miscellaneous" cost pool, and 70 percent for the
    Function 4 "LDC 48 Other" cost pool.

[^20]: ^?^ In Docket No. R97-1, the Postal Service's proposed
    volume-variability factor for the LD48 ADM cost pool was 0. Thus,
    there were no volume-variable subclass costs associated with the
    LD48 ADM pool.

[^21]: .The special service-related cost pools for the MODS facilities
    are the special service cost pools in LDC 18, 48, 49. For non-MODS
    facilities, they consist of the Registry and Miscellaneous cost
    pools.

[^22]: The detached forms are:

    > \- Form 3811 (Return Receipt),
    >
    > \- Form 3547 (Notice to Mailer of Correction in Address) in
    > conjunction with Form 3579 (Undeliverable 2^nd^, 3^rd^ or 4^th^
    > Class Matter),
    >
    > \- Form 3804 (Merchandise Return),
    >
    > \- Form 3806 (Registry Receipt),
    >
    > \- Form 3849d (Undeliverable COD).