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entitled 'U.S. Postal Service: Improving Ratemaking Data Quality 
through Postal Service Actions and Postal Reform Legislation' which was 
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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

July 2005: 

U.S. Postal Service: 

Improving Ratemaking Data Quality through Postal Service Actions and 
Postal Reform Legislation: 

GAO-05-820: 

GAO Highlights: 

Highlights of GAO-05-820, a report to congressional requesters: 

Why GAO Did This Study: 

In 1999, the congressionally requested Data Quality Study (the Study) 
found opportunities to improve ratemaking data quality. The U.S. Postal 
Service (USPS) agreed to make improvements, but concerns remained that 
it is still unclear, from an overall perspective, what actions USPS has 
taken to improve data quality. Ratemaking data quality has also 
factored into congressional deliberations to reform postal laws. Thus, 
questions remain about USPSs actions to improve ratemaking data 
quality and how proposed legislation will address long-standing issues 
in this area. GAO was asked to (1) describe key USPS actions that were 
responsive to the Study to improve the quality of ratemaking data and 
(2) discuss possible implications of postal reform legislation for 
ratemaking data quality. GAO did not assess the extent to which USPSs 
actions affected data quality.

In its comments, USPS disagreed with GAOs finding on the need to 
reform the ratemaking structure. USPS also differed on GAOs finding 
that the legislation would likely lead to improving ratemaking data 
quality. It said breakthrough improvements would be unlikely without 
a significant increase in costs. GAO believes reform of the ratemaking 
structure is needed, but the outcome would depend on its 
implementation. Further, the legislative changes would likely lead to 
data quality improvements over time and at some cost.

What GAO Found: 

USPS took several key actions that it reported were responsive to the 
Studys findings. USPS reported that these actions increased the 
accuracy and precision of ratemaking data. First, USPS changed the In-
Office Cost System to improve the quality of data on mail handled by 
postal employees and the activities they are performing. Personnel 
costs represent more than three-quarters of USPS costs; therefore, 
information on postal employees handling of mail is necessary for 
ratemaking purposes. USPS made similar changes to the Revenue, Pieces, 
and Weight System, which produces data on the revenue, volume, and 
weight of each type of mail. Second, replacing ratemaking data that had 
been collected in the 1980s, USPS conducted the City Carrier Street 
Time Study to gather more complete and consistent data on letter 
carrier activities. Third, to increase the precision of ratemaking 
data, USPS collected a larger quantity of data. Fourth, USPS revised 
documentation of the Transportation Cost System, which the Study had 
criticized as inadequate.

Proposed postal reform legislation (H.R. 22 and S. 662) would create 
new oversight mechanisms and enhanced regulatory authority over the 
quality of ratemaking data. The legislation would transform the Postal 
Rate Commission into a new postal regulator that would prescribe what 
ratemaking data USPS must report annually, review these data, and 
determine whether USPS had complied with ratemaking requirements. The 
regulator could initiate proceedings to improve the quality of 
ratemaking data. To carry out its expanded duties, the regulator would 
have enhanced authority, including the authority to subpoena; the 
authority to order USPS to take actions to comply with laws and 
regulations; and the authority to impose sanctions for noncompliance. 

The legislation would address persistent problems under the existing 
ratemaking structure, which has enabled long-standing deficiencies in 
ratemaking data quality and unresolved methodological issues to 
persist. The legislation would eliminate key disincentives for 
ratemaking data quality, including the litigious ratemaking process, 
the break-even requirement that creates incentives to shift costs from 
one type of mail to another, and the lack of adequate oversight 
mechanisms to address data quality issues. Under the current structure, 
regulatory oversight is generally conducted during rate cases that only 
USPS can initiate. The legislation would provide mechanisms for regular 
oversight of ratemaking data and enhance the regulators authority so 
that the necessary transparency, oversight, and accountability could 
take place. Thus, the legislation would likely lead to improvements in 
the quality of ratemaking data over time and at some cost. However, if 
the legislation is enacted, the outcome would likely depend on how the 
regulator would use its discretion to define and implement the new 
ratemaking structure. Key implementation questions would remain, 
including what regulatory criteria and requirements would apply to 
ratemaking data.

www.gao.gov/cgi-bin/getrpt?GAO-05-820.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Katherine Siggerud at 
(202) 512-2834 or siggerudk@gao.gov.

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

USPS Took Action to Improve the Quality of Ratemaking Data: 

Proposed Statutory Changes Could Lead to Better Ratemaking Data: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Postal Rate Commission: 

Appendix III: Selected Ratemaking Requirements in Proposed Postal 
Reform Legislation: 

Tables: 

Table 1: Proposed Requirements for USPS to Report Ratemaking Data: 

Table 2: Proposed Statutory Requirements for the USPS Inspector General 
to Audit Ratemaking Data and Data Collection Systems: 

Table 3: Proposed Compliance Review of USPS Annual Reports: 

Table 4: Proposed Authorization for Regulatory Proceedings to Improve 
Data Quality: 

Table 5: Proposed Authority for the New Postal Regulator and Related 
Provisions: 

Figures: 

Figure 1: USPS Data Collector Using a Laptop Computer and Digital Scale 
to Record Ratemaking Data at a Postal Facility: 

Figure 2: USPS Letter Carrier Activities at Postal Facilities: 

Figure 3: USPS Employees Handling and Sorting Mail in Postal 
Facilities: 

Figure 4: USPS Clerks Performing Retail Activities: 

Figure 5: USPS Data Collector Gathering Ratemaking Data from a Letter 
Carrier Manually Sorting Mail into Pigeonholes for Delivery: 

Figure 6: USPS Data Collector Gathering Ratemaking Data from a USPS 
Clerk Manually Sorting Mail at a Postal Facility: 

Figure 7: Some Mail Piece Characteristics Used to Determine the 
Subclass of Mail: 

Figure 8: Laptop Computer and Digital Scale Used to Record Ratemaking 
Data, Including Mail Piece Characteristics: 

Figure 9: USPS City Carriers Performing Delivery Activities on the 
Street: 

Figure 10: Long-distance Transportation of Mail Using Trucks and 
Airplanes: 

Abbreviations: 

CCSTS: City Carrier Street Time Study: 

IOCS: In-Office Cost System: 

MODS: Management Operating Data System: 

PRC: Postal Rate Commission: 

RPW: Revenue, Pieces, and Weight: 

TRACS: Transportation Cost System: 

USPS: United States Postal Service: 

United States Government Accountability Office: 

Washington, DC 20548: 

July 28, 2005: 

The Honorable Tom Davis: 
Chairman, Committee on Government Reform: 
House of Representatives: 

The Honorable John M. McHugh: 
The Honorable Dan Burton: 
House of Representatives: 

The quality of data used to set postal rates has been a long-standing 
concern of Congress and postal stakeholders, including the U.S. Postal 
Service (USPS); the independent Postal Rate Commission (PRC), which 
reviews USPS proposals to change domestic postal rates; USPS 
competitors; and mailers, including businesses and the general public. 
Postal rates are critical to USPS's financial viability because USPS is 
intended to be self-supporting from postal operations and is mandated 
to break even over time. Ratemaking data are the variety of data that 
are used to establish postal rates. A key statutory ratemaking 
requirement is that each class of mail[Footnote 1] or type of 
service[Footnote 2] must bear the direct and indirect postal costs 
attributable to that class or type, plus that portion of all other USPS 
costs reasonably assignable to that class or type.[Footnote 3] USPS 
accounting systems collect detailed data, but do not collect sufficient 
data for ratemaking purposes. For example, USPS accounting systems 
collect data on the sales of postage stamps, but do not track how 
stamps are used to send different subclasses of mail (e.g., stamped 
First-Class Letters and Sealed Parcels, or Parcel Post items). 
Similarly, USPS accounting systems track employee time and payroll 
costs, but do not track employee time and payroll costs spent on 
handling each subclass of mail (e.g., time spent manually sorting mail 
into the order it is to be delivered). Thus, USPS has established data 
collection systems that gather additional data needed to compile data 
specific to each subclass of mail. These data collection systems are 
highly complex, in part because USPS uses many different postal 
operations and work methods, and in part because original data 
collection is expensive and difficult. Further, these data collection 
systems are highly controversial, in part because there are multiple 
options to collect and analyze the data, and in part because the 
current ratemaking process gives various stakeholders an incentive to 
disagree over options that produce somewhat different results--thereby 
affecting postal rates. The statutory ratemaking process requires PRC 
proceedings called rate cases, which enable any stakeholder to review 
and comment on USPS proposals, including the supporting data and 
analysis. PRC then is required to issue a decision with recommended 
rates, which generally has included PRC's assessment of the supporting 
ratemaking data. 

In 1995, after the PRC Chairman and others raised concerns about the 
quality of ratemaking data in the 1994 rate case, the former House 
Subcommittee on the Postal Service, Committee on Government Reform and 
Oversight, requested a Data Quality Study (the Study). The Study's 
report was issued in 1999 and found opportunities to improve the 
quality of ratemaking data.[Footnote 4] USPS agreed to implement 
improvements and has released information on its follow-up actions. 
However, concerns remained that it is still not clear, from an overall 
perspective, what specific actions USPS has taken to improve ratemaking 
data quality. 

Further, the quality of ratemaking data has factored into ongoing 
congressional deliberations to reform the nation's postal laws to 
enable USPS to better address its formidable financial, operational, 
and human capital challenges. Congress has considered comprehensive 
postal reform legislation over the past decade that, among other 
things, would provide USPS with more flexibility to establish postal 
rates. This flexibility would be balanced by enhanced regulatory 
authority and oversight to protect USPS customers and competitors, 
including new oversight mechanisms for the quality of ratemaking data. 
This legislation is being considered in the 109th Congress (H.R. 22 and 
S. 662, 109th Cong., 1st Sess., both of which are entitled the Postal 
Accountability and Enhancement Act), and was reported by USPS's Senate 
oversight committee on July 14, 2005, and passed by the House on July 
26, 2005, but has not yet been enacted. 

Thus, important questions remain about USPS's actions to improve the 
quality of ratemaking data and how proposed legislation will address 
long-standing issues in this area. Accordingly, as agreed with your 
staff, our objectives were to (1) describe key USPS actions that were 
responsive to the Study to improve the quality of ratemaking data and 
(2) discuss possible implications of postal reform legislation for 
ratemaking data quality. 

To address these objectives, we identified key USPS actions taken that 
were responsive to the Study by reviewing the Study's report that 
prioritized its findings; reviewing USPS and PRC documents, including 
USPS progress reports that prioritized actions and PRC documents that 
summarized concerns about data quality; and interviewing USPS officials 
responsible for collecting ratemaking data. We focused our work 
primarily on USPS's key actions to enhance three of its five major data 
collection systems used for ratemaking because the Study's report noted 
that these systems had opportunities for improvement. These three 
systems include the In-Office Cost System (IOCS), which produces data 
on the time postal employees spend handling each subclass of mail in 
postal facilities; the Revenue, Pieces, and Weight (RPW) system, which 
produces data on the revenue, volume, and weight of each subclass of 
mail; and the Transportation Cost System (TRACS), which produces data 
on long-distance transportation of mail subclasses using trucks, 
airplanes, and freight trains.[Footnote 5] We also focused our work on 
another USPS key action to conduct a new special study to replace four 
USPS special studies because the Study's report identified that the 
four special studies had opportunities for improvement. USPS's new 
special study is called the City Carrier Street Time Study (CCSTS), 
which produced data on the activities of city carriers--that is, letter 
carriers who deliver mail in highly populated urban and suburban areas 
where most deliveries are made to the door, curbside mailboxes, 
centrally located mailboxes, or cluster boxes. To gain an understanding 
of how the ratemaking data are collected, we visited USPS facilities in 
the Capital Metro area to observe data collection operations and 
interviewed employees collecting the data, their supervisors, and 
management. We did not assess the extent to which USPS's actions 
affected the quality of these ratemaking data. To discuss the 
implications of proposed legislation, we reviewed proposed postal 
reform legislation, current postal laws and regulations, and other 
documents. See appendix I for more details on our objectives, scope, 
and methodology. 

We requested comments on a draft of this report from PRC and USPS. PRC 
provided written comments that are also discussed later in this report 
and reproduced as appendix II. USPS provided comments via e-mail that 
are discussed later in this report. We conducted our review at USPS 
headquarters in Washington, D.C., and the Capital Metro area from June 
2004 through July 2005 in accordance with generally accepted government 
auditing standards. 

Results in Brief: 

USPS took several key actions that it reported were responsive to the 
Study's findings. USPS reported that these actions increased the 
accuracy and precision of ratemaking data. First, USPS changed IOCS to 
improve the quality of data on the mail subclasses that are handled by 
postal employees and the activities they are performing. Personnel 
costs represent more than three-quarters of USPS costs; therefore, 
information on postal employees' handling of mail is necessary to 
estimate the costs of handling each subclass of mail. Similarly, USPS 
made changes to RPW to improve the accuracy of data on the subclasses 
of mail in the postal system, including data on the revenue, volume, 
and weight of each subclass of mail. Second, USPS conducted CCSTS to 
replace ratemaking data that had previously been collected in the 
1980s, using a different data collection approach to collect more 
complete and consistent data on carrier delivery activities. Data on 
city carrier delivery activities are needed for ratemaking because 
carriers typically deliver multiple subclasses of mail. Third, USPS 
substantially increased the quantity of data collected by RPW and TRACS 
to increase the precision of ratemaking data. Increasing data precision 
can be particularly beneficial to the quality of cost, revenue, and 
volume data for subclasses with smaller volumes. Fourth, USPS revised 
and expanded its documentation of TRACS, which the Study had criticized 
as inadequate. PRC commended the revised documentation, which USPS 
reported enhanced the transparency and administration of TRACS. 

Proposed postal reform legislation being considered in the 109th 
Congress (H.R. 22 and S. 662, 109th Cong., 1st Sess.) would create new 
oversight mechanisms and enhanced regulatory authority over the quality 
of ratemaking data. The proposed legislation would transform PRC into a 
new postal regulator with enhanced authority compared with that of the 
current PRC. The postal regulator would be required to issue 
regulations prescribing what ratemaking data USPS must report on an 
annual basis. The postal regulator would be required to annually review 
USPS ratemaking reports in order to determine whether USPS had complied 
with the requirements of the new ratemaking structure. In addition, 
USPS's Inspector General would be required to regularly audit the data 
collection systems and procedures used in collecting information and 
preparing the USPS annual reports. Further, the postal regulator would 
be provided with the authority to initiate proceedings to improve the 
quality of ratemaking data, including data on the attribution of costs 
and revenues to postal products. The postal regulator also would be 
provided with enhanced authority to carry out its expanded duties, 
including the authority to subpoena USPS documents and officials; the 
authority to order USPS to take appropriate actions to comply with laws 
and its regulations; and the authority to impose sanctions for 
noncompliance, including fines for deliberate noncompliance. The postal 
regulator could obtain court orders to enforce its subpoenas, orders, 
and sanctions. The proposed legislative changes would address 
persistent problems under the existing statutory ratemaking structure, 
which, as we have reported, has enabled long-standing deficiencies in 
ratemaking data quality and unresolved methodological issues to 
persist. The legislation would eliminate key disincentives for 
ratemaking data quality, including the litigious ratemaking process 
(which provides incentives for USPS and others to gain an advantage 
through the collection and analysis of ratemaking data), the break-even 
requirement that creates incentives to shift costs from one subclass of 
mail to another, and the lack of adequate oversight mechanisms to 
address data quality issues. Under the current structure, regulatory 
oversight is generally conducted during rate cases that only USPS can 
initiate, which has limited the frequency, scope, and depth of 
oversight of USPS ratemaking data and its data collection systems that 
generate these data. The legislation would provide mechanisms for 
regular oversight of ratemaking data and enhance the regulator's 
authority so that the necessary transparency, oversight, and 
accountability could take place. Thus, the proposed legislative changes 
would likely lead to improvements in the quality of ratemaking data 
over time and at some cost. However, if postal reform legislation is 
enacted, the outcome would likely depend on how the postal regulator 
would use its discretion to define and implement the new ratemaking 
structure. Key implementation questions would remain, including what 
regulatory criteria and requirements would apply to ratemaking data. 

In commenting on the draft report, USPS disagreed with our findings on 
the ratemaking structure, stating the current process has worked 
"remarkably well" and that the proposed legislation is unlikely to lead 
to "breakthrough improvements" in the quality of its ratemaking data 
systems without a significant increase in costs. In our view, for the 
reasons stated earlier, major changes are needed to the ratemaking 
structure. Further, the proposed legislative changes would likely lead 
to improvements in ratemaking data quality over time and at some cost. 
In our view, the extent of such improvements, and what the associated 
costs may be, would depend on how the legislation is implemented. 

Background: 

USPS is an independent establishment of the executive branch mandated 
to provide postal services to bind the nation together through the 
personal, educational, literary, and business correspondence of the 
people. Established by the Postal Reorganization Act of 1970,[Footnote 
6] USPS is one of the largest organizations in the nation; in fiscal 
year 2004, USPS reported revenues of $69 billion and expenses of $66 
billion. USPS handles more than 200 billion pieces of mail annually. 

The Postal Reorganization Act of 1970 shifted postal ratemaking 
authority from Congress to USPS and the independent PRC. When USPS 
wishes to change domestic postal rates and fees, it must submit its 
proposed changes and supporting material--including supporting 
ratemaking data on USPS costs, revenues, and mail volumes--to PRC. By 
law, PRC must hold a proceeding referred to as a "rate case." Any 
interested party can participate in a rate case by filing a notice of 
intervention with PRC. The notice enables the party to submit material 
to PRC, as well as ask written questions of USPS. PRC also provides an 
opportunity for public hearings in which USPS witnesses appear and can 
be cross-examined by PRC and other interested parties. PRC generally 
must issue a recommended decision on postal rates and fees within 10 
months of the inception of a rate case. USPS Governors may approve, 
allow under protest, reject, or modify PRC's recommended decision. 

Proposed postal rates must be sufficient for USPS to meet its mandate 
to break even, which requires that postal rates and fees shall provide 
sufficient revenues so that USPS's total estimated income and 
appropriations will equal as nearly as practicable USPS's total 
estimated costs.[Footnote 7] In addition, each class of mail or type of 
postal service is required by law to cover its direct and indirect 
costs (attributable costs), as well as make a reasonable contribution 
to covering overhead costs (institutional costs).[Footnote 8] PRC has 
long interpreted this requirement to apply to subclasses of mail. 

USPS maintains data collection systems to help attribute USPS costs to 
various subclasses of mail, in part because USPS employees typically 
handle multiple subclasses of mail every workday. Such cost attribution 
is critical because USPS personnel costs represent more than three- 
quarters of USPS costs. In fiscal year 2004, USPS personnel costs 
included about $22 billion for clerks and mail handlers at mail 
processing and retail facilities, about $18 billion for carriers on 
city routes (predominantly in highly populated urban areas and their 
suburbs), about $5 billion for carriers on rural routes (predominantly 
in rural areas and suburbs not covered by city routes), and about $2 
billion for postmasters, among other things. USPS also collects 
ratemaking data on the revenue, cost, and volume of each subclass of 
mail. 

About 900 USPS employees called data collectors gather ratemaking data 
on a full-time basis and about 2,000 USPS employees collect ratemaking 
data on a part-time basis in addition to their other duties. These 
personnel use laptop computers and digital scales to record ratemaking 
data at postal facilities located across the nation (see fig. 1). USPS 
has estimated that it budgeted about $73 million for the administration 
and collection of ratemaking data in fiscal year 2005.[Footnote 9]

Figure 1: USPS Data Collector Using a Laptop Computer and Digital Scale 
to Record Ratemaking Data at a Postal Facility: 

[See PDF for image]

[End of figure]

Although the quality of ratemaking data has long been recognized as 
critical, as the Study's report noted, there are no definitive quality 
standards for postal ratemaking data. The Study concluded that the 
quality of data accepted by any given regulatory or antitrust entity is 
negotiated between the regulator and the company or companies subject 
to that regulation.[Footnote 10] According to the Study, data quality 
is a subjective issue that regulators judge in every rate review 
process, with the quality of data accepted by regulators depending on 
the availability of data, the cost/benefit of collecting additional 
data, and the seriousness of the issue under review. 

For the purpose of the Study, the criteria for the quality of 
ratemaking data were defined as having data that are "sufficiently 
complete" and "sufficiently accurate" for ratemaking, considering the 
costs involved in providing such data. Sufficiently complete data were 
defined as having enough of the necessary detail to enable the 
determination of each applicable rate. Sufficiently accurate data were 
defined as "free enough from error" to be used for this purpose. Error 
in this context referred to both "sampling error" (i.e., data precision 
associated with random error of data collected from randomly sampled 
employees or pieces of mail) and other sources of error (i.e., 
systematic error). 

The contractor that conducted the Study, A.T. Kearney, primarily 
focused on the five major data collection systems used for ratemaking, 
as well as some special studies used for this purpose. The Study found 
opportunities for improvement in three of the five data collection 
systems. The Study also reviewed the economic and statistical concepts 
that USPS uses for ratemaking and estimated the precision of key cost 
data for certain subclasses of mail, among other things. The Study 
specifically focused on data used to establish rates for subclasses of 
mail. The Study did not perform extensive field testing and data 
gathering, attempt to quantify the extent to which systematic error is 
present in ratemaking data, or review the ratemaking process. 

The Study's report, issued in April 1999, concluded the following: 

"In general, within the scope of the Study, the quality of the data 
provided by the Postal Service for rate making has been sufficiently 
complete and accurate to calculate subclass costs, and thus, enable 
subclass rates to be based on reasonably reliable data, considering the 
costs to collect the data. This conclusion is based on the Study team's 
assessment that the Postal Service asks the appropriate economic 
questions, uses the best available data, and applies an economically 
sound approach grounded in activity based concepts to calculate its 
subclass costs with reasonable statistical accuracy. This assessment is 
based on extensive economic, statistical and simulation analyses 
contained in the Study's supporting Technical Reports." 

At the same time, the Study's report concluded that "improvements and 
enhancements can--and must--be made to ensure future data provided for 
rate making will be sufficiently complete and accurate." The report 
stated that "The Study team has concerns regarding the quality of 
certain best available data used by the Postal Service to calculate its 
subclass costs. In some instances, these best available data were used 
regardless of their inherent level of error or their obsolescence. 
Specifically, the report noted opportunities for improvement in three 
major data collection systems used for ratemaking as well as the need 
to replace ratemaking data from special studies that had been collected 
in the 1980s.[Footnote 11] USPS generally agreed with the Study's 
findings. 

Over the past decade, Congress has debated comprehensive proposals to 
reform the nation's postal laws that would, among other things, 
transform the ratemaking structure and mechanisms for oversight of 
ratemaking data quality. In the last session of Congress, proposed 
postal reform legislation was reported by USPS's oversight committees 
(H.R. 4341 and S. 2468, 108th Cong., 2nd Sess., which were both 
entitled the Postal Accountability and Enhancement Act), but no further 
action was taken. The legislation has been reintroduced in the current 
session (H.R. 22 and S. 662, which are both entitled the Postal 
Accountability and Enhancement Act) but has not yet been enacted. 

As we recently testified, comprehensive postal reform legislation 
continues to be needed in order to address the continuing financial, 
operational, governance, and human capital challenges that threaten 
USPS's long-term ability to provide high-quality, universal postal 
service at affordable rates.[Footnote 12] USPS's core business of First-
Class Mail is declining; compensation and benefits costs are rising; 
and USPS is burdened with roughly $70 billion to $80 billion in 
financial liabilities and obligations, most of which are for unfunded 
retiree health benefits. We and the President's Commission on the 
United States Postal Service (Presidential Commission)--which was 
established by President George W. Bush in 2002 to examine the future 
of USPS and develop recommendations to ensure the viability of postal 
services in the United States--have reported that comprehensive postal 
reform legislation is needed to minimize the risk of a significant 
taxpayer bailout or dramatic rate increases.[Footnote 13] Because 
comprehensive postal reform legislation has not been enacted and USPS 
continues to face formidable competition, cost, and other challenges, 
its transformation efforts and long-term outlook remain on our High- 
Risk List. In this regard, we have reported that USPS progress is 
hindered by limited flexibility and incentives for success, including 
limited flexibility to establish postal rates and poor incentives for 
providing quality ratemaking data.[Footnote 14]

USPS Took Action to Improve the Quality of Ratemaking Data: 

USPS took several key actions that it reported were responsive to the 
Study's findings. USPS reported that these actions increased the 
accuracy and precision of ratemaking data. These USPS actions are 
summarized below: 

* First, USPS made changes to IOCS and RPW to more accurately determine 
subclasses of mail in the postal system, including data on the revenue, 
volume, and weight of each subclass of mail, as well as to collect 
better information on the activities that postal employees are 
performing. 

* Second, USPS conducted CCSTS to replace ratemaking data that had 
previously been collected in the 1980s, using a different data 
collection approach to collect more complete and consistent data on 
carrier delivery activities. 

* Third, USPS substantially increased the quantity of data collected by 
RPW and TRACS to increase the precision of ratemaking data. 

* Fourth, USPS revised and expanded its documentation of TRACS, which 
the Study had criticized as inadequate. 

USPS Made Changes to IOCS and RPW to More Accurately Determine 
Subclasses of Mail: 

USPS made changes to two major data collection systems used for 
ratemaking--IOCS and RPW--that USPS reported were responsive to the 
Study, in order to more accurately determine subclasses of mail in the 
postal system, including data on the revenue, volume, and weight of 
subclass of mail, as well as to collect better information on the 
activities that postal employees are performing. According to USPS, the 
changes to the data collection methods for IOCS and RPW were among the 
most significant since these data systems were established more than 30 
years ago. To implement the changes, USPS undertook detailed pilot 
testing over a multiyear period, which required substantial efforts on 
the part of both USPS staff and contractors. 

IOCS and RPW data are critical to postal ratemaking because these data 
are needed to estimate the costs for USPS to handle each subclass of 
mail. Although USPS timekeeping systems record the amount of employee 
time spent in each operation or work center, those systems do not track 
the subclasses of mail that employees handle, and also do not track the 
activities they are performing. USPS employees typically handle 
multiple subclasses of mail each workday, such as letter carriers 
preparing their mail for delivery by manually sorting piles of mail 
into pigeonholes corresponding to each address on their route. USPS has 
reported that letter carriers spend 2 to 3 hours each workday in the 
office, with much of that time spent manually sorting mail (see fig. 
2). For example, USPS has estimated that carriers manually sort about 
44 billion flat-sized pieces of mail each year, including such mail as 
catalogs, magazines, and large envelopes.[Footnote 15] This activity 
incurs substantial costs because letter carriers represent about 4 in 
10 USPS career employees. To understand how much time is required for 
letter carriers to manually sort each subclass of mail and perform 
other duties in the office, at randomly selected times throughout the 
year, IOCS records the characteristics of mail that randomly sampled 
carriers are handling and the activities these carriers are performing. 
IOCS uses similar procedures to collect data from postal employees 
working to sort and route mail at mail processing and other facilities 
(see fig. 3), as well as postal employees working to provide window 
service and perform other activities at post offices and other retail 
facilities (see fig. 4).[Footnote 16]

Figure 2: USPS Letter Carrier Activities at Postal Facilities: 

[See PDF for image]

[End of figure]

Figure 3: USPS Employees Handling and Sorting Mail in Postal 
Facilities: 

[See PDF for image]

[End of figure]

Figure 4: USPS Clerks Performing Retail Activities: 

[See PDF for image]

[End of figure]

Once IOCS produces data on the time employees spend handling each 
subclass of mail in various postal operations, these data are combined 
with other data, such as data on employee wages and benefits, to yield 
cost data (i.e., the in-office personnel costs attributable to each 
subclass of mail). USPS incurred $28 billion in personnel costs in 
fiscal year 2004 for employees working in postal facilities (i.e., mail 
processing, retail, delivery unit, and other facilities), which 
represented more than one-third of USPS costs for the fiscal year. In 
addition, IOCS provides data for the calculation of some indirect costs 
that are related to mail handling activities, such as mail processing 
equipment costs. 

USPS data collectors gather IOCS data in person at USPS facilities 
across the country. These data collectors gather information from 
sampled USPS employees about their activities and about the mail that 
they are handling (see figs. 5 and 6). Some IOCS data are gathered by 
data collectors via telephone interviews, generally from smaller 
facilities where it would not be cost-effective to collect data in 
person. IOCS data collection is a major effort, with more than 750,000 
observations/interviews conducted annually. USPS has reported that it 
budgeted nearly $15 million to collect IOCS data in fiscal year 2005. 

Figure 5: USPS Data Collector Gathering Ratemaking Data from a Letter 
Carrier Manually Sorting Mail into Pigeonholes for Delivery: 

[See PDF for image]

[End of figure]

Figure 6: USPS Data Collector Gathering Ratemaking Data from a USPS 
Clerk Manually Sorting Mail at a Postal Facility: 

[See PDF for image]

[End of figure]

The Study had concluded that opportunities existed to improve the 
quality of ratemaking data collected by IOCS, stating that such action 
should be a "first priority." USPS reported that it was responsive to 
this finding by modifying the IOCS data collection instrument to more 
accurately record the subclasses of mail and to collect better 
information on the activities that postal employees are performing. In 
addition, according to USPS, the redesigned IOCS instrument better 
aligns clerk and mail handler activities with current postal 
operations, and thus improves the division of certain postal costs into 
cost pools.[Footnote 17] Formerly, the data collector recorded the mail 
subclass on the basis of observations of certain characteristics of 
each sampled mail piece, such as its shape, weight, and markings (see 
fig. 7). This approach was revised so the data collector records 
detailed characteristics of the mail piece, including its shape, 
weight, and markings. After IOCS data are collected, these data are 
uploaded to a mainframe computer. Then, USPS uses a computer program to 
analyze the combined IOCS data on mail piece characteristics and 
determine the subclass for each mail piece. 

Figure 7: Some Mail Piece Characteristics Used to Determine the 
Subclass of Mail: 

[See PDF for image]

[End of figure]

Because IOCS obtains information on postal employee activities using 
both in-person observation and interviewing and telephone interviewing, 
USPS redesigned the IOCS data collection instrument with a standard 
script to obtain information from postal employees in a more consistent 
manner. Previously, the IOCS data collection instrument listed the 
needed information but did not provide a script that asked questions in 
a standardized manner. Scripting questionnaires has long been 
considered a best practice and is the norm for surveys conducted by 
other organizations. 

On the basis of pilot tests, USPS officials told us that the new IOCS 
approach categorized mail pieces more accurately because it relies less 
on the data collector's judgment and more on objective criteria built 
into the computer program that determines the mail subclass on the 
basis of the characteristics of each mail piece. USPS officials also 
said that pilot testing helped improve the script for IOCS data 
collection. These pilot tests[Footnote 18] are described below: 

* IOCS verification studies: USPS pilot tested new versions of the IOCS 
data collection instrument, recording characteristics of actual mail 
pieces that were being handled by sampled USPS employees. These mail 
pieces were photocopied and sent to a USPS contractor who checked to 
see if the mail subclasses could be correctly categorized according to 
the information that was recorded. USPS staff double-checked this work. 
The results were used to test three versions of the instrument in an 
iterative manner, with each version being tested and the accuracy 
improving each time. 

* IOCS comparison studies: USPS recorded mail piece characteristics 
from predeveloped examples (not actual mail) using different versions 
of the IOCS data collection instrument. USPS compared the results and 
reported that the final revised version of the instrument resulted in 
more accurate mail subclass determinations than the previous versions. 

In addition to changing IOCS, USPS made some similar changes to the RPW 
data collection instrument to better estimate the revenue, volume, and 
weight of each subclass. Although USPS separately tracks postage 
revenues, postage stamps and postage meters can be used to send any 
subclass of mail. Therefore, data collectors observe sampled mail 
pieces at USPS facilities, and, for each mail piece, gather data on its 
characteristics, including the revenue (i.e., the amount of postage) 
and weight.[Footnote 19] RPW data are used to calculate the revenue, 
volume, and weight of each subclass of mail. 

As with IOCS, USPS modified RPW so that the subclass of mail could be 
determined more accurately through computerized analysis of detailed 
mail piece characteristics that are observed and recorded (see fig. 8). 
USPS pilot tested the new RPW approach, collecting RPW data in selected 
areas over a 1-year period using both the old and new data collection 
instruments. USPS compared the recorded data from these side-by-side 
tests and received feedback from field staff to refine the instrument, 
going through approximately 15 to 20 versions of the instrument. USPS 
has reported that this pilot testing method was the first of its kind 
for a major ratemaking data system. 

Figure 8: Laptop Computer and Digital Scale Used to Record Ratemaking 
Data, Including Mail Piece Characteristics: 

[See PDF for image]

[End of figure]

USPS Conducted CCSTS to Replace Ratemaking Data That Had Been Collected 
in the 1980s: 

USPS conducted a new study called CCSTS to help attribute costs of city 
carriers--that is, letter carriers who deliver mail in highly populated 
urban and suburban areas where most deliveries are made to the door, 
curbside mailboxes, centrally located mailboxes, or cluster boxes. Data 
on city carrier delivery activities are needed for ratemaking because 
carriers typically deliver multiple subclasses of mail. USPS incurred 
about $13 billion in employee costs for the street activities of city 
carriers in fiscal year 2004, which represented about one-fifth of USPS 
costs (see fig. 9). CCSTS replaced four special studies on city carrier 
street activities that had been conducted in the 1980s. The Study had 
criticized these special studies as outdated and imprecise. PRC and 
others had also criticized the age of the data collected by these 
special studies and the methodology of the studies. Recognizing the 
need for better data in this area, USPS conducted CCSTS in 2002. USPS 
has reported that CCSTS provided both more current and precise data, as 
well as a better methodological framework for analyzing city carrier 
costs than the four special studies that CCSTS replaced. USPS also has 
reported that CCSTS will be less costly to update than the four special 
studies that CCSTS replaced, thereby facilitating further updating of 
CCSTS in the future. 

Figure 9: USPS City Carriers Performing Delivery Activities on the 
Street: 

[See PDF for image]

[End of figure]

In developing CCSTS, USPS reported that it was mindful of several 
drawbacks of the four former special studies of city carrier street 
activities. First, USPS stated that the former special studies yielded 
inconsistent and incomplete data, explaining that they selectively 
reviewed different aspects of city carrier street activity, collected 
data at different times, and used different data collection methods. 
Therefore, USPS designed CCSTS as a single study to collect more 
complete and consistent data on all city carrier street activities. 
Second, the former special studies collected data that were not well 
suited for use with advanced data analysis techniques needed to produce 
ratemaking data. Therefore, USPS designed CCSTS to be compatible with 
advanced data analysis techniques. Third, the former special studies 
generated imprecise ratemaking data[Footnote 20] for the costs of 
certain mail subclasses, largely because the expense of those studies 
had limited the quantity of data that was collected. Therefore, USPS 
designed CCSTS to collect a larger quantity of data so that its data 
would be more precise. 

To develop CCSTS, USPS conducted a pilot study that tested CCSTS on a 
smaller scale. USPS used the pilot study results to refine CCSTS, which 
was conducted in May and June 2002. CCSTS randomly sampled over 160 ZIP 
Codes nationwide and recorded data during a 2-week period on the 
activities of more than 3,500 city carriers delivering mail to 
addresses in these ZIP Codes. USPS analyzed CCSTS data using advanced 
data analysis techniques involving econometric models and performing 
statistical tests to estimate how changes in mail volume affected city 
carrier street time and the associated costs. As a result of using 
CCSTS to replace the four former special studies, USPS reported that it 
attributed a somewhat higher percentage of city carrier street time 
costs to specific subclasses of mail (37 percent, up from 30 percent), 
thus diminishing the remaining institutional costs (63 percent, down 
from 70 percent). To understand why most carrier costs continue to be 
categorized as institutional, it is important to note that the 
universal service commitment to provide mail delivery requires carriers 
to traverse their routes each day, regardless of whether a particular 
subclass or volume of mail is being delivered. 

USPS Took Actions to Improve the Precision of Ratemaking Data: 

The Study had raised concerns about the precision of ratemaking data, 
which are affected by the quantity of data collected from randomly 
sampled postal employees and pieces of mail, as well as by the 
precision of data on city carrier delivery activities. USPS reported 
that it took responsive actions by increasing the quantity of 
ratemaking data collected by RPW and TRACS, which are two of the five 
major data collection systems used for ratemaking. TRACS randomly 
samples long-distance mail transportation segments, such as airplane 
flights, truck trips, and trips of freight trains that carry mail. Data 
collectors observe a random sample of mail for each segment and record 
its characteristics, including the subclass of mail. TRACS data are 
used to help attribute about $4 billion in USPS long-distance 
transportation costs (see fig. 10). According to USPS, the large 
increase in the quantity of RPW and TRACS data has improved the 
precision of ratemaking data. Increasing data precision can be 
particularly beneficial to the quality of cost, revenue, and volume 
data for subclasses of mail with smaller volumes. 

Figure 10: Long-distance Transportation of Mail Using Trucks and 
Airplanes: 

[See PDF for image]

[End of figure]

First, USPS increased the number of RPW tests from about 56,000 in 
fiscal year 2003 to about 136,000 in fiscal year 2004--an increase of 
142 percent.[Footnote 21] USPS also revised the RPW sampling 
methodology, which according to USPS, resolved some technical issues 
identified by the Study and further contributed to data precision. 
According to USPS, these changes improved the precision of all RPW data 
as well as the precision of key ratemaking data for each subclass of 
mail. Second, USPS increased the number of transportation segments 
randomly sampled by TRACS each fiscal year from about 10,000 in fiscal 
year 2000 to about 17,000 in fiscal year 2004--an increase of 65 
percent. USPS also reallocated the quantity of data collected for each 
mode of transportation (i.e., air, highway, and rail) to further 
increase the precision of subclass cost data. According to USPS, this 
change was responsive to the Study, which had found that the limited 
quantity of TRACS data collected for the highway transportation mode 
resulted in less precise ratemaking cost data, particularly for some 
subclasses of mail, such as Regular Rate Periodicals (e.g., news 
magazines) and Parcel Post.[Footnote 22]

In addition, as previously described, USPS designed CCSTS to yield more 
precise data by collecting a larger quantity of data than the data that 
CCSTS replaced. USPS noted that this change was responsive to the 
Study, which found that the four former special studies were highly 
imprecise. 

USPS Took Actions to Enhance TRACS Documentation: 

USPS revised, updated, and expanded the documentation for TRACS, which 
USPS reported was responsive to the Study and was an area that USPS 
recognized needed improvement. According to USPS, the revised TRACS 
documentation improved the transparency and administration of this data 
collection system. The Study's report had found TRACS documentation to 
be deficient, particularly with respect to the documentation of TRACS 
sampling and estimation methodology. Consequently, the Study's team 
reported that, within the Study's time frame (June 1997 through April 
1999), the team did not have the opportunity to understand some parts 
of the sampling design. The Study's report observed that the 
availability of improved documentation of TRACS estimation procedures 
is important and noted the need for clear and complete documentation on 
the TRACS sample design. The report further noted that once the TRACS 
sample design is completed, USPS should evaluate and adjust the sample 
to improve the precision of TRACS data. 

USPS proceeded to expand TRACS sampling and estimation documentation 
and rewrote the handbook for TRACS data collection. The redone 
documentation was used in the 2000 rate proceedings, providing greater 
transparency of this data collection system, and was commended by PRC. 
USPS further revised TRACS documentation for the 2005 rate case. In 
addition, as previously described in this report, USPS also evaluated 
and adjusted the TRACS sample to improve the precision of TRACS data. 
Thus, USPS reported that the revised TRACS documentation enhanced the 
transparency and administration of this system. 

Proposed Statutory Changes Could Lead to Better Ratemaking Data: 

The Presidential Commission and we have found that major changes are 
needed to the ratemaking process. In particular, the Presidential 
Commission found that the current ratemaking process is far too 
cumbersome and time consuming, with rate changes taking as long as 18 
months.[Footnote 23] The Presidential Commission concluded that the 
current ratemaking process creates "an impossible situation for an 
institution charged with the responsibility of acting in a businesslike 
manner."[Footnote 24] Our past work also reached a similar conclusion 
that "major changes are needed in this area," and that improvements in 
the postal ratemaking structure will be a "fundamental component of a 
comprehensive transformation."[Footnote 25]

Proposed postal reform legislation being considered in the 109th 
Congress (H.R. 22 and S. 662, 109th Cong., 1st Sess.) would create new 
oversight mechanisms and enhanced regulatory authority over the quality 
of ratemaking data. The postal regulator would be required to prescribe 
what ratemaking data USPS must annually report and review that data in 
order to determine whether USPS had complied with the requirements of 
the new ratemaking structure. The postal regulator would be provided 
with the authority to initiate proceedings to improve the quality of 
ratemaking data; the authority to subpoena USPS documents and 
officials; the authority to order USPS to take appropriate actions to 
comply with laws and its regulations; and the authority to impose 
sanctions for noncompliance, including fines for deliberate 
noncompliance. The postal regulator could obtain court orders to 
enforce its subpoenas, orders, and sanctions. The proposed legislative 
changes would address persistent problems under the existing statutory 
ratemaking structure, which, as we have reported, has enabled long- 
standing deficiencies in ratemaking data quality and unresolved 
methodological issues to persist. Thus, the proposed legislative 
changes would likely lead to improvements in the quality of ratemaking 
data. However, if postal reform legislation is enacted, the outcome 
would likely depend on how the postal regulator would use its 
discretion to define and implement the new ratemaking structure. Key 
implementation questions would remain, including what regulatory 
criteria and requirements would apply to ratemaking data. 

Major Changes Are Needed to the Ratemaking Process: 

The Presidential Commission concluded that for USPS to operate in a 
more businesslike fashion, its managers must have greater flexibility 
to manage and innovate, including in the ratemaking area. However, the 
Presidential Commission also stated that with this latitude comes the 
need for enhanced oversight from an independent postal regulator 
endowed with broad authority. Thus, the Presidential Commission 
concluded that the current ratemaking process should be abolished and 
replaced with a more streamlined structure that continues to impose 
rigorous ratemaking standards through independent regulatory oversight 
that would ensure that the outcome cannot be unduly influenced through 
the selective provision of information to the regulator. The 
Presidential Commission stated that the postal regulator must have 
access to the most reliable and current information possible to ensure 
financial transparency and enable the postal regulator to make fully 
informed determinations. To this end, the Presidential Commission 
recommended that the postal regulator have the authority to request 
accurate and complete financial information from USPS, including 
through the use of subpoena powers, if necessary. 

We have also reported on how the statutory structure has led to 
persistent problems and issues regarding the quality of ratemaking 
data. Specifically, we found that the current ratemaking structure has 
poor incentives that impede progress in improving data quality, 
including the incentives described below:[Footnote 26]

* Poor incentives to provide quality data: Current law gives USPS 
opportunities to seek advantage in litigious rate cases by controlling 
what data are collected and how they are analyzed and reported. PRC 
cannot subpoena USPS or order USPS to collect or update data. For 
example, the Study found that key ratemaking data had not been updated 
for many years, but these data were used regardless of their 
obsolescence. 

* Poor incentives for resolving recurring issues: Statutory due process 
rules have enabled parties to repeatedly litigate complex data quality 
and cost attribution issues that have previously been considered. In 
addition, as we have reported, the zero-sum nature of the break-even 
requirement provides powerful incentives for parties to repeatedly 
attempt to shift postal costs in ways that serve their self- 
interests.[Footnote 27] Specifically, we have reported that when USPS 
proposes changes to domestic postal rates and fees, USPS (1) projects 
its "revenue requirement" for the "test year" (a fiscal year 
representative of the period of time when the new rates will go into 
effect), based on the total estimated costs plus a provision for 
contingencies, and a provision, if applicable, for the recovery of 
prior years' losses[Footnote 28] and (2) proposes rates and fees that 
are estimated to raise sufficient revenues to meet USPS's revenue 
requirement. Thus, as the Institute of Public Administration reported 
more than a decade ago, "The current ratemaking structure is premised 
on the concept of a static pie, which represents the revenue 
requirement, and focuses on who is going to pay what share of the money 
(i.e., ratemaking is treated as a zero-sum game)."[Footnote 29] The 
institute further reported that various interest groups have been 
organized that represent certain classes of mail in rate cases. These 
groups typically advocate cost attribution methods that are in their 
immediate self-interest, such as alternative methods that would result 
in fewer costs attributed to the class of mail they represent. USPS and 
private delivery firms have taken opposing positions on cost 
attribution methods for subclasses of mail, such as Priority Mail and 
Parcel Post. As a result, the same cost attribution issues have been 
debated for many years. Cost attribution issues are often a key reason 
why rate cases are so lengthy and litigious because these issues are 
complex and their disposition can directly affect postal rates. 
Although cost attribution issues are central to postal ratemaking, we 
have reported that the need to address such issues in every rate 
proceeding is inconsistent with providing USPS with greater flexibility 
to change rates under a streamlined ratemaking process.[Footnote 30]

Poor incentives to appropriate cost attribution: USPS has a 
disincentive to maximize the attribution of costs to specific 
subclasses of mail that must cover their costs because USPS loses 
pricing flexibility as more costs are attributed. Because ratemaking 
data and analyses of these data are necessary to attribute costs, the 
quality of ratemaking data can affect the degree of cost attribution. 
In this regard, the PRC Chairman recently testified that the proposed 
postal regulator should have the means to examine all of the costs 
currently treated as institutional to assure Congress, USPS, and the 
public that all costs that can be attributed, are attributed. He 
concluded that "I believe there is room for improvement and would 
welcome the responsibility and authority to achieve it."[Footnote 31]

Proposed Requirements for Reporting Ratemaking Data: 

Proposed postal reform legislation would transform PRC into a new 
postal regulator mandated to issue regulations for USPS to annually 
report ratemaking data that would be audited by the USPS Inspector 
General and then reviewed by the regulator. Key provisions include the 
following: 

USPS Reporting: 

The postal regulator would be required to issue regulations prescribing 
what ratemaking data USPS would be required to report (see table 1). 
Despite the quantity of material submitted in rate cases, PRC has 
reported that its ability to carry out its responsibilities has been 
hindered in some rate cases because of deficiencies in the completeness 
and accuracy of ratemaking data provided by USPS. For example, PRC 
reported that its ability to consider USPS proposed rates in the 1994 
rate case was hindered because the supporting ratemaking data were 
deficient. PRC said USPS omitted data that had previously been provided 
in rate cases, such as new or updated studies of the sort that were 
necessary to develop rates for worksharing discounts that mailers 
receive in exchange for performing activities that are estimated to 
reduce USPS costs.[Footnote 32] As a result, PRC reported it was unable 
to develop worksharing discounts that tracked the associated USPS cost 
savings, which PRC reported should be based on current data to set 
appropriate discounts. PRC said that the absence of these studies was 
particularly significant because USPS operations had been in a state of 
major transition since the past rate case, but the former worksharing 
cost studies--and the worksharing discounts that had resulted-- 
reflected former mail processing methods. In this regard, the proposed 
legislation would specifically require USPS to provide worksharing data 
on an annual basis--a requirement not included in current law. Further, 
the proposed legislation would provide the postal regulator with 
enhanced authority to obtain these data if USPS does not initially 
provide them. Specifically, the postal regulator would be provided with 
subpoena power and the power to obtain court orders to compel USPS 
compliance with the reporting requirements--powers not provided to PRC 
by current law. The proposals for enhanced regulatory authority are 
discussed further later in this report. 

Table 1: Proposed Requirements for USPS to Report Ratemaking Data: 

Citation: H.R. 22, Sec. 204, 3652; and S. 662, Sec. 204, 3652; 
(similar provisions: differences noted in italics); 
Summary provision: USPS shall file annual reports with the Postal 
Regulatory Commission (the Commission) no later than 90 days after the 
end of each fiscal year that, for all permanent postal products: 
* analyze costs, revenues, and rates for all products using such 
methodologies as the Commission shall by regulation prescribe (House 
bill) in sufficient detail to demonstrate that the rates in effect for 
all products during such year complied with all applicable 
requirements; 
* provide product information (Senate bill) provide market information 
(House bill) and mail volumes, for each market-dominant product; and; 
* provide for each worksharing discount to market-dominant products: 
(1) the per-item cost avoided by USPS by virtue of such discount, (2) 
the percentage of such per-item cost avoided that the per-item discount 
represents, and (3) the per-item contribution made to institutional 
costs; For experimental postal products in market tests (e.g., new 
products being tested), USPS's annual report may include summary data 
on the costs, revenues, and quality of service by market test and 
service agreement (Senate bill) and such data as the Commission 
requires; The Commission shall, by regulation, prescribe the content 
and form of the annual reports, including any nonpublic annex and 
supporting matter, giving due consideration to; 
* providing the public with timely (Senate bill) adequate information 
to assess the lawfulness of rates charged, 
* avoiding unnecessary or unwarranted administrative effort and expense 
by USPS, and; 
* protecting the confidentiality of commercially sensitive information; 
The Commission shall have access, in accordance with such regulations 
as it shall prescribe, to the working papers and any other supporting 
matter of USPS and its Inspector General in connection with any 
information submitted in the above reports. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

[End of table]

Another benefit of the proposed reporting requirements would likely be 
the end of a long-standing methodological dispute in which USPS 
prepares two sets of cost data for each regulatory proceeding--one 
according to its preferred methodology for analyzing mail processing 
costs, and one according to PRC's preferred methodology for analyzing 
these costs.[Footnote 33] The different methods produce different 
estimates for USPS savings resulting from worksharing discounts that 
currently apply to three-quarters of total mail volume, and thus the 
choice of analysis method could affect these discounts. The current 
statutory ratemaking structure allows this dispute to continue because 
it provides due process by enabling all interested parties to raise 
whatever issues they wish, regardless of how many times the same issues 
may have been considered in the past. USPS can repeatedly raise issues 
by building them into its initial proposals for changes to postal 
rates. For example, USPS has repeatedly submitted proposed rates based 
on its preferred analysis method for mail processing costs into its 
rate proposals, even though PRC has repeatedly rejected USPS's method. 
In each rate proceeding, USPS also submitted parallel data using the 
PRC analysis method, and both sets of data were considered by PRC and 
other stakeholders participating in the rate cases. The proposed 
requirements could resolve similar situations by mandating that the 
postal regulator issue regulations for how USPS cost, revenue, and rate 
data are to be analyzed in order to demonstrate compliance with 
ratemaking requirements, including newly proposed statutory 
requirements for worksharing discounts (see app. III for a listing of 
proposed ratemaking requirements). In this regard, the House bill is 
the most specific in that it requires the postal regulator to prescribe 
methodologies for analyzing ratemaking data. Further, both bills would 
eliminate current statutory rules for due process and stakeholder 
involvement in rate proceedings; the postal regulator would be given 
the flexibility to establish new rules in this area under its 
regulatory authority. 

Auditing by the Inspector General: 

The proposed legislation would require the USPS Inspector General to 
audit the ratemaking data included in the USPS annual reports (see 
table 2). For example, under the House bill, the USPS Inspector General 
would be required to regularly audit USPS data collection systems and 
procedures used to prepare the annual reports. In contrast to the 
proposed requirements for regular Inspector General oversight of these 
USPS data collection systems, the current ratemaking structure relies 
on ad hoc regulatory oversight conducted during rate cases that only 
USPS can initiate. Specifically, since the Postal Reorganization Act of 
1970 was enacted, USPS has initiated 13 rate cases in the past 34 
years, including the 2005 rate case. For example, the 2005 rate case 
was preceded by the 2001 rate case that resulted in a negotiated 
settlement, which resulted in limited regulatory review of USPS 
ratemaking data and its data collection systems. When USPS filed the 
2005 rate case, it requested expedited review to consider a proposed 
settlement, which, if accepted, could again result in limited 
regulatory review of USPS ratemaking data and data collection systems. 

Thus, the case-by-case approach to reviewing ratemaking data quality 
under the current ratemaking structure, combined with the infrequency 
of these reviews, has limited oversight of USPS ratemaking data and its 
data collection systems that generate these data. When oversight has 
occurred, the 10-month statutory deadline for rate cases, combined with 
the time and expense of litigating data quality issues, has limited the 
scope and depth of the data quality issues reviewed in rate cases. In 
our view, such limited external oversight is one reason why problems 
with the quality of ratemaking data have persisted. For example, in the 
1994 rate case, PRC called for an examination of USPS costing systems 
used for ratemaking, especially IOCS, citing methodological concerns, 
reductions in the quantity of ratemaking data that USPS collected, and 
major changes in USPS operations, among other things. In spring 1995, 
then PRC Chairman Edward Gleiman testified before the former House 
Subcommittee on the Postal Service about his concerns regarding the 
quality of ratemaking data. This led to the Chairman of that 
Subcommittee, Representative John M. McHugh, requesting the Data 
Quality Study. The request for the Study, its progress, and USPS follow-
up have been the subjects of continuing congressional oversight over 
the past decade. The Study validated the need for improving IOCS and 
other USPS data collection systems and special ratemaking studies. To 
USPS's credit, USPS reports making major efforts that were responsive 
to the Study. However, the congressional oversight provided by the 
Study was not envisioned by the Postal Reorganization Act of 1970, 
which separated Congress from the ratemaking process.[Footnote 34] The 
Study was a unique event that required extraordinary involvement by 
Congress, USPS, PRC, and the contractor that conducted the Study. 

Table 2: Proposed Statutory Requirements for the USPS Inspector General 
to Audit Ratemaking Data and Data Collection Systems: 

Citation: H.R. 22, Sec. 204, 3652(a); 
Summary provision: The USPS Inspector General (USPS IG) must regularly 
audit the data collection systems and procedures used in collecting 
information and preparing the USPS annual reports (described in table 
1), including any annex to these reports and the required information 
relating to worksharing discounts included in the reports. The results 
of any such USPS IG audit shall be submitted to USPS and the Postal 
Regulatory Commission. 

Citation: S. 662, Sec. 204, 3652(a); 
Summary provision: Before submitting an annual report (described in 
table 1), including any annex to the report and the required 
information relating to worksharing discounts, USPS shall have the 
information contained in such report and annex audited by the USPS IG. 
The results of any such audit shall be submitted along with the report 
to which it pertains. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

[End of table]

Compliance review: 

Under the proposed legislation, the postal regulator would be required 
to annually review USPS ratemaking data reports and determine whether 
USPS had complied with the requirements of the new ratemaking structure 
(see table 3). In cases of noncompliance, the postal regulator would be 
required to order USPS to take appropriate action. Regulatory 
compliance reviews would be a critical element of the new ratemaking 
structure, which is intended to balance increased USPS ratemaking 
flexibility with enhanced transparency, oversight, and accountability. 

Specifically, under the proposed legislation, the postal regulator 
would be charged with developing a new, streamlined ratemaking process 
that provides USPS with additional flexibility. The mandated compliance 
reviews would (1) verify that USPS rates are in compliance with 
applicable requirements on an annual basis and (2) require regulatory 
action to correct any instances of noncompliance. For example, the 
proposed legislation would require each USPS competitive product (e.g., 
Express Mail and Priority Mail) to cover its attributable costs. In 
order for the postal regulator to verify compliance with this cost- 
coverage requirement, data would be needed on the attributable costs 
and revenues of each USPS competitive product. The quality of this 
ratemaking data would be vital because the regulator would be required 
to address instances of noncompliance through certain actions, such as 
ordering USPS to adjust the rate of a competitive product that was not 
covering its costs or even to discontinue providing the loss-making 
product. 

In contrast with current law, which depends on having USPS initiate 
rate cases for regulatory action to occur, the proposed compliance 
process triggers annual regulatory action based on actual results for 
each fiscal year. For example, under current law, the requirement that 
each subclass of mail cover its costs is addressed in rate cases--which 
can be years apart from each other. Because postal revenues and costs 
change over time, a subclass of mail may not cover its costs in some 
years between rate cases. This situation may not be addressed until the 
next rate case. As previously described, the proposed legislation 
specifies that if a subclass of mail fails to cover its annual costs as 
required, the postal regulator would be required to order USPS to take 
appropriate action to come into compliance. The postal regulator would 
have the specific authority to order USPS to change the postal rates 
for that subclass of mail so that its revenues would begin to cover its 
costs. 

Table 3: Proposed Compliance Review of USPS Annual Reports: 

Citation: H.R. 22, Sec. 204, 3653; and S. 662, Sec. 204, 3653; 
(Similar provisions: differences noted in italics); 
Summary provision: After receiving the USPS annual reports with 
ratemaking data (see table 1), the Postal Regulatory Commission (the 
Commission) shall promptly provide an opportunity for comment on such 
reports by users of the mails, affected parties, and an officer of the 
Commission who must represent the interests of the general public. No 
later than 90 days after receiving these reports, the Commission shall 
make a written determination as to whether any rates or fees in effect 
during the year (for products individually or collectively) were not in 
compliance with applicable laws or regulations; 
* If no instance of noncompliance is found, the written determination 
shall be to that effect; 
* If a timely written determination of noncompliance is made, the 
Commission shall take appropriate remedial (Senate version) action as 
if a complaint averring such noncompliance had been duly filed and 
found to be justified. (See table 5 for actions that would be available 
to the Commission.)

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

[End of table]

Proposed Requirements for Data Quality Proceedings: 

Proposed postal reform legislation would authorize the postal regulator 
to initiate proceedings to improve the quality of ratemaking data, 
including data on the attribution of costs and revenues to postal 
products (see table 4). This mechanism would be needed because the 
legislation would abolish the current statutory ratemaking process, 
which has been the primary mechanism for oversight of data quality 
issues.[Footnote 35] Authorizing the postal regulator to initiate data 
quality proceedings as needed would shift from reactive oversight in 
USPS-initiated rate proceedings to proactive oversight by the postal 
regulator. 

Table 4: Proposed Authorization for Regulatory Proceedings to Improve 
Data Quality: 

Citation: H.R. 22, Sec. 204, 3652(e)(2); and S. 662, Sec. 204, 
3652(e)(2); (same provision in both bills); 
Summary provision: The Postal Regulatory Commission (the Commission) 
may, on its own motion or on request of an interested party, initiate 
proceedings--to be conducted in accordance with regulations that the 
Commission shall prescribe--to improve the quality, accuracy, or 
completeness of USPS data required by the Commission in USPS's annual 
reports (see table 1) whenever it shall appear that; 
* the attribution of costs or revenues to products has become 
significantly inaccurate or can be significantly improved; 
* the quality of service data has become significantly inaccurate or 
can be significantly improved; or; 
* such revisions are, in the judgment of the Commission, otherwise 
necessitated by the public interest. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

[End of table]

The proposed statutory mechanism to consider data quality and related 
cost attribution issues has a number of potential benefits, including 
the following: 

* Providing a mechanism for considering data quality issues with 
adequate time and attention: In rate cases, PRC reviews comprehensive 
proposals, voluminous documents, and complex issues, leaving limited 
time to consider data quality and related cost attribution issues. As 
USPS's General Counsel has acknowledged, it is difficult for rate case 
participants to handle cost attribution issues involving ratemaking 
data and other issues within the statutory 10-month time frame for rate 
cases. 

* Revisiting data quality issues as needed: Data quality is a moving 
target as postal operations, data needs, and data collection 
technologies evolve over time.[Footnote 36] Thus, it is natural for 
data quality issues and opportunities for improvement to arise over 
time. 

Proposed Enhancement of Regulatory Authority and Enforcement Powers: 

Providing the postal regulator with enhanced authority and enforcement 
powers is consistent with the overall intent of the proposed postal 
reform legislation to balance providing USPS with greater pricing 
flexibility with enhancing transparency, oversight, and accountability 
to protect USPS customers and competitors. Under the proposed postal 
legislation, the postal regulator would be provided with enhanced 
authority and enforcement powers compared with those of PRC. 
Specifically, the postal regulator would be provided with the authority 
to order USPS to take appropriate actions to comply with laws and its 
regulations and could impose sanctions for noncompliance, including 
fines for deliberate noncompliance (see table 5). 

Table 5: Proposed Authority for the New Postal Regulator and Related 
Provisions: 

Citation: H.R. 22, Sec. 502; and S. 662, Sec. 602; (same provision in 
both bills); 
Summary provision: Subpoena power: The Chairman of the Postal 
Regulatory Commission (the Commission), any of the Commissioners 
designated by the Chairman, and any administrative law judge appointed 
by the Commission could subpoena USPS officers, employees, contractors, 
and agents to require attendance, presentation of testimony and 
production of documents, and order depositions and responses to written 
interrogatories. Any subpoena would require the written concurrence of 
a majority of Commissioners then holding office in advance of its 
issuance. 

Citation: H.R. 22, Sec. 205, 3663-3664, Sec. 502; and S. 662, Sec. 
205, 3663-3664, Sec. 602; (same provision in both bills); 
Summary provision: Appellate review: Within 30 days after the 
Commission issues a final order or decision, parties that are adversely 
affected or aggrieved may appeal to the U.S. Court of Appeals for the 
District of Columbia; Enforcement of orders: U.S. district courts have 
jurisdiction to enforce, enjoin, and restrain USPS from violating any 
order issued by the Commission; Enforcement of subpoenas: In case of 
contumacy or failure to obey a subpoena, upon application of the 
Commission, the district court of the United States for the district in 
which the person to whom the subpoena is addressed resides or is served 
may issue an order requiring such person to appear at any designated 
place or provide documentary or other evidence. Any failure to obey the 
court may be punished by the court as a contempt thereof. 

Citation: H.R. 22, Sec. 205, 3662; and S. 662, Sec. 205, 3662; (same 
provision in both bills); 
Summary provision: Regulatory authority for rate and service 
complaints: When the Commission finds that rate and service complaints 
(which also can submitted by an officer of the Commission representing 
the interests of the general public) are justified, it shall order USPS 
to take such action as the Commission considers appropriate in order to 
achieve compliance with the applicable requirements and to remedy the 
effects of any noncompliance, such as ordering unlawful rates to be 
adjusted to lawful levels, ordering the cancellation of market tests, 
ordering USPS to discontinue providing loss-making products, or 
requiring USPS to make up for revenue shortfalls in competitive 
products; Regulatory authority to impose fines: In cases of deliberate 
USPS noncompliance with regulatory requirements, the Commission may 
order, based on the nature, circumstances, extent, and seriousness of 
the noncompliance, a fine (in the amount specified by the Commission) 
for each incidence of noncompliance. Fines resulting from the provision 
of competitive products shall be paid out of the USPS Competitive 
Products Fund.[A] All receipts from fines imposed shall be deposited in 
the general fund of the U.S. Treasury. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

[A] The Competitive Products Fund would fund the costs related to 
USPS's competitive products (H.R. 22, Sec. 301; and S. 662, Sec. 401). 
For a list of these competitive products, see H.R. 22, Sec. 202, 3631; 
and S. 622, Sec. 202, 3631. 

[End of table]

Regulatory orders could result from the required annual compliance 
reviews of ratemaking data conducted by the postal regulator, 
previously discussed, or from complaints that could be initiated by the 
regulator or any interested party. The federal courts would enforce the 
postal regulator's orders and sanctions. The postal regulator would be 
provided with subpoena power. The regulator's subpoenas would be 
enforced by federal courts, which could punish noncompliance as a 
contempt of court. 

In contrast to the proposed legislation, PRC has limited authority and 
enforcement powers under the current statutory structure. PRC cannot 
unilaterally order USPS to take actions to comply with its regulations, 
cannot fine USPS, and does not have subpoena power to compel USPS to 
provide PRC with documents and data or to compel the testimony of USPS 
officials. Absent such explicit statutory authority, PRC has resorted 
to repeatedly requesting that USPS take action to improve the quality 
of ratemaking data, but its efforts have been met with mixed results. 
As PRC Chairman George Omas recently testified: 

"Past Postal Rate Commission decisions have frequently contained 
requests for additional data and analysis in specific areas. Sometimes 
these requests were honored but all too often they have been ignored. 
Under the existing statute the Commission does not have the authority 
to compel USPS to collect specific data or perform needed 
studies."[Footnote 37]

Possible Implications of Proposed Postal Reform Legislation for the 
Quality of Ratemaking Data: 

The proposed legislative changes previously described would address 
persistent problems under the existing statutory structure, which, as 
we have reported, has enabled long-standing deficiencies in ratemaking 
data quality and unresolved methodological issues to persist.[Footnote 
38] Under the current structure, regulatory oversight is conducted 
during rate cases that only USPS can initiate, which has limited the 
frequency, scope, and depth of oversight of USPS ratemaking data and 
its data collection systems that generate these data. The legislation 
would eliminate key disincentives for ratemaking data quality, 
including the litigious ratemaking process (which provides incentives 
for USPS and others to gain an advantage through the collection and 
analysis of ratemaking data), the break-even requirement that creates 
incentives to shift costs from one subclass of mail to another, and the 
lack of adequate oversight mechanisms to address data quality issues. 
The legislation also would enhance regulatory authority so that the 
necessary transparency, oversight, and accountability can take place 
regarding ratemaking data quality. Thus, the proposed legislative 
changes would likely lead to improvements in the quality of ratemaking 
data over time and at some cost. 

However, if postal reform legislation is enacted, the outcome would 
likely depend on how the postal regulator would use its discretion to 
define and implement the new ratemaking structure. Key implementation 
questions would remain, including what regulatory criteria and 
requirements would apply to ratemaking data. Should the legislation be 
enacted, implementation will be critical to achieving the intended 
results because the legislation would provide the postal regulator with 
great flexibility to establish the new ratemaking structure and 
implement provisions relating to data quality. This flexibility would 
enable the postal regulator to deal with changing circumstances, but it 
also creates substantial uncertainty and risks. Key implementation 
questions might include the following: 

* What criteria would the new postal regulator use for evaluating the 
quality, completeness, and accuracy of ratemaking data?

* To what extent can USPS costs be rationally attributed to postal 
products and services, in accordance with sound economic principles?

* How would the postal regulator balance the need for high-quality 
ratemaking data with the time and expense involved in obtaining the 
data?

* How would any proceedings to improve the quality of ratemaking data 
be structured by the postal regulator? How could USPS and other 
stakeholders participate in such proceedings?

* Could the postal regulator use its enhanced authority over ratemaking 
data to require USPS to collect and/or update specific ratemaking data? 
If so, would that include regulatory authority over the quantity of 
data collected and the methods of data collection (e.g., in-person data 
collection v. telephone data collection)?

Agency Comments and Our Evaluation: 

We received written comments on a draft of this report from the 
Chairman of the Postal Rate Commission in a letter dated July 18, 2003, 
and the Controller and Vice President of the U.S. Postal Service via e- 
mail on the same date. Their comments are summarized below, and the PRC 
Chairman's comments are reproduced as appendix II. In addition, PRC and 
USPS officials provided technical and clarifying comments, which were 
incorporated where appropriate. 

USPS's Controller did not comment on the draft report's findings in the 
section on key USPS actions to improve the quality of ratemaking data, 
but she noted that USPS has a long history of working to improve data 
quality. She explained that USPS has worked to develop and improve its 
data systems in ways that have been beneficial to improving the overall 
quality and reliability of ratemaking data. However, she made some 
comments that disagree with the draft report's findings in the section 
on the possible implications of postal reform legislation for 
ratemaking data quality. First, she said that: "The Postal Service 
considers that its current ratemaking process has worked remarkably 
well for the past 30 years, since the Postal Service's first postal 
rate change" under the Postal Reorganization Act of 1970. Second, she 
said that USPS ratemaking data systems produce data of "world-class 
quality," explaining that "no other postal system's rates are better or 
more extensively supported by reliable and objective financial and 
operations data." Third, she concluded that: 

"In light of the record of success under the current system, the 
proposed legislation relating to the requirements for reporting 
ratemaking data in practice is not likely to lead to the breakthrough 
improvements in the quality of the ratemaking data systems without a 
significant increase in costs to the stakeholders. [USPS is] concerned, 
furthermore, that the proposed legislative changes may sacrifice the 
checks and balances and the effective process of data review and 
refinement that have evolved under the current system."

We disagree with USPS's first comment that the current ratemaking 
process has worked "remarkably well" since postal reorganization. We 
continue to believe that major changes are needed to the ratemaking 
structure. As described in our report, the current ratemaking structure 
has enabled long-standing deficiencies in ratemaking data quality to 
persist. Further, we have reported that the ratemaking process is a 
litigious, costly, and lengthy process that can delay needed new 
revenues. In this regard, USPS's comments appear to be inconsistent 
with the April 14, 2005, testimony of the Postmaster General that 
"today's ratemaking process is both costly and time consuming" and 
needs major change, as well as the numerous criticisms that USPS has 
made of the ratemaking process over the years. We continue to believe 
that comprehensive postal reform legislation is urgently needed, 
including improvements to the regulation and oversight of postal rates. 
Second, we believe the need for reform is not diminished by comparisons 
of ratemaking data quality with that of foreign postal administrations, 
which have different regulatory environments. Indeed, some foreign 
countries that are implementing postal reform are grappling with the 
need to improve ratemaking data quality. In our view, it is more 
appropriate to consider what level of ratemaking data quality is 
appropriate for the United States. 

Third, regarding USPS's views about achieving "breakthrough 
improvements" in ratemaking data quality, in our view, the proposed 
legislative changes would likely lead to improvements in the quality of 
ratemaking data over time and at some cost. The extent of such 
improvements, and what the associated costs may be, would depend on how 
the legislation is implemented. In our view, enhanced regulatory 
authority over ratemaking data would enable the necessary transparency, 
oversight, and accountability in this area. Ratemaking data are 
fundamental to setting postal rates that touch the lives of all 
Americans and affect the financial viability of USPS and the mailing 
industry. These data are essential to establishing fair and equitable 
rates. 

In comments on our draft report, the PRC Chairman said that the report 
had clearly presented USPS actions taken with respect to the Study 
recommendations. He commended USPS for taking steps to improve its 
ratemaking data systems and the data upon which postal rates are based. 
At the same time, he expressed concerns about ratemaking data quality 
and said that USPS can and should be taking more action to improve the 
quality of ratemaking data. He also said that the report aptly 
summarizes the potential of postal reform legislation to improve 
ratemaking data quality. 

The PRC Chairman said USPS had not addressed many significant potential 
sources of systematic error in its ratemaking data systems, including 
IOCS. He explained that USPS had not addressed issues of systematic 
error in IOCS data that have been a major concern in prior rate cases. 
He also said that IOCS data had become less precise due to reductions 
in the quantity of IOCS data implemented prior to the Study. He also 
expressed concerns regarding the precision of TRACS data, while 
complimenting USPS for improving the precision of RPW data. On another 
matter, he expressed concerns regarding the quality of mail processing 
data produced by the Management Operating Data System (MODS) that the 
Study did not assess. Regarding postal reform, he said that the 
proposed legislation reflects a consensus within the postal community 
that new tools are needed to increase USPS's financial transparency. He 
concluded that PRC agreed that the proposed legislative changes would 
likely lead to improvement in the quality of ratemaking data. 

To put PRC comments about the IOCS data precision into context, the 
Study found that the reductions in IOCS sample size resulted in a 
minimally lower level of precision in overall subclass cost estimates 
and made no recommendations on the quantity of IOCS data that should be 
collected in the future. However, the Study did raise concerns about 
the precision of some ratemaking data, and USPS's responsive actions 
are described in our report. Looking ahead, we encourage USPS and PRC 
to work together--as they did during the Study--to better understand 
technical issues regarding data precision, using a statistical model 
that the Study developed to assess data precision that USPS is working 
to refine. More generally, we encourage USPS and PRC to use every 
opportunity to maximize progress on improving the quality of ratemaking 
data, such as working to improve data quality outside the ratemaking 
process. As the Study concluded: "Providing sufficiently complete and 
accurate data for ratemaking is an evolutionary process that requires 
the Postal Service to continually improve the quality of its ratemaking 
data and related data systems."

Regarding PRC's comments on MODS data issues, they were outside the 
scope of our report, which focused on ratemaking data systems, city 
carrier cost data, documentation, and data precision that were assessed 
by the Study. These issues are part of a broader set of mail processing 
cost issues that PRC and USPS have long disagreed over. Current law 
allows this disagreement and others to continue by enabling all 
interested parties to raise whatever issues they wish in rate cases, 
regardless of how many times the same issues may have been considered 
in the past. However, as previously discussed, the legislation would 
likely lead to resolution of this long-standing methodological dispute. 

We are sending copies of this report to the Ranking Minority Member of 
the House Committee on Government Reform, the Chairman and Ranking 
Minority Member of the Senate Committee on Homeland Security and 
Governmental Affairs, Senator Thomas R. Carper, the Postmaster General, 
the Chairman of the Postal Rate Commission, and other interested 
parties. We will make copies available to others on request. This 
report will also be available on our Web site at no charge at 
http://www.gao.gov. 

If you have any questions about this report, please contact me at (202) 
512-2834 or at siggerudk@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report included Gerald P. 
Barnes, Assistant Director; Kenneth E. John; Anna Bonelli; Kevin 
Bailey; Jay Cherlow; Karen O'Conor; Richard Rockburn; and Walter Vance. 

Signed by: 

Katherine A. Siggerud: 
Director, Physical Infrastructure Issues: 

[End of section]

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to (1) describe key U.S. Postal Service (USPS) 
actions that were responsive to the 1999 Data Quality Study (the Study) 
to improve the quality of ratemaking data and (2) discuss possible 
implications of postal reform legislation for ratemaking data quality. 

To address the first objective, we identified key USPS actions taken 
that USPS reported were responsive to the Study by reviewing the 
Study's report that prioritized its findings; reviewing USPS and Postal 
Rate Commission (PRC) documents, including USPS progress reports that 
prioritized actions and PRC documents that summarized concerns about 
data quality; and interviewing USPS officials responsible for 
collecting ratemaking data. We focused our work primarily on USPS's key 
actions to enhance three of its five major data collection systems used 
for ratemaking because the Study's report noted that these systems had 
opportunities for improvement. The three systems include the In-Office 
Cost System (IOCS), which produces data on the time that postal 
employees spend handling each subclass of mail in postal facilities; 
the Revenue, Pieces, and Weight (RPW) system, which produces data on 
the revenue, volume, and weight of each subclass of mail; and the 
Transportation Cost System (TRACS), which produces data on long- 
distance transportation of mail subclasses using trucks, airplanes, and 
freight trains.[Footnote 39] To put IOCS into context, as previously 
noted, in fiscal year 2004, USPS incurred about $28 billion in 
personnel costs for employees working in postal facilities (mail 
processing, retail, delivery unit, and other facilities), which 
comprised more than one-third of USPS costs of about $66 billion for 
the fiscal year. To put TRACS into context, TRACS was used to help 
attribute about $4 billion in fiscal year 2004 costs for long-distance 
transportation of mail using trucks, airplanes, and freight trains. We 
also focused our work on another USPS key action to conduct a new 
special study to replace four USPS special studies because the Study's 
report found that data collected by these studies needed improvement. 
USPS's new special study is called the City Carrier Street Time Study 
(CCSTS), which produced data on the activities of city carriers--that 
is, letter carriers who deliver mail in highly populated urban and 
suburban areas where most deliveries are made to the door, curbside 
mailboxes, centrally located mailboxes, or cluster boxes. We did not 
assess the extent to which USPS's actions affected the quality of these 
ratemaking data. Aside from these ratemaking data, we included some 
USPS data in this report for background purposes, such as audited USPS 
accounting data on total USPS costs and revenues for fiscal year 2004, 
data on USPS personnel costs, and USPS estimates of budgeted costs for 
collecting ratemaking data in fiscal year 2005. 

We obtained information to describe the key actions taken by USPS by 
reviewing relevant documents, including USPS documents previously 
listed and additional USPS documents not submitted in rate cases, such 
as documentation of IOCS changes that were implemented in October 2004. 
We also requested and received USPS documentation of many of the 
reported improvements made to IOCS, RPW, and TRACS as well as 
interviewed USPS officials responsible for these systems. To gain an 
understanding of how the ratemaking data are collected, we visited some 
USPS mail processing facilities and post offices located in the 
Washington, D.C., area to observe the collection of ratemaking data, 
including IOCS, RPW, and TRACS data. These locations were judgmentally 
selected on the basis of the availability of USPS data collection 
personnel and their geographic proximity to our headquarters in 
Washington, D.C. Further, at post offices, we observed activities of 
letter carriers picking up their mail and organizing it for delivery, 
as well as delivering the mail on the street. 

To address the second objective, we reviewed proposed postal reform 
legislation, current postal laws and regulations, and other documents. 
Specifically, we drew from our past work in this area, reviewed the 
proposed legislation (H.R. 22 and S. 662, 109th Cong., 1st Sess., both 
entitled the Postal Accountability and Enhancement Act) and documents 
pertinent to legislative intent, such as records of hearings and past 
versions of the legislation with accompanying committee reports. We 
reviewed current federal postal laws and regulations, including USPS 
and PRC regulations pertinent to ratemaking data quality, and other 
relevant documents, including documents submitted in past rate cases 
and other PRC proceedings on data quality issues. We also reviewed the 
report of the President's Commission on the United States Postal 
Service, past studies of the ratemaking process by other organizations, 
and books and articles on ratemaking data quality issues. 

We conducted our review at USPS headquarters, in Washington, D.C., and 
the Capital Metro area from June 2004 through July 2005. 

[End of section]

Appendix II: Comments from the Postal Rate Commission: 

POSTAL RATE COMMISSION: 
Washington, DC 20268-0001: 

George A. Omas: 
Chairman: 

July 18, 2005: 

Ms. Katherine A. Siggerud: 
Director, Physical Infrastructure Issues: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Siggerud: 

Thank you for the opportunity to review your proposed report U.S. 
Postal Service: Improving Ratemaking Data Quality Through Postal 
Service Actions and Postal Reform Legislation (GAO Draft Report). The 
quality of rate setting and the speed with which it can be 
accomplished, depends to a large degree on the quality and availability 
of data. Your report clearly presents the actions taken by the United 
States Postal Service in response to some of the recommendations made 
in the April 1999 Data Quality Study (Study) prepared in response to a 
request of the House of Representatives Committee on Government Reform 
Subcommittee on Postal Service. It aptly summarizes, as well, the 
potential of postal reform legislation to improve ratemaking data 
quality. 

Your report focuses on four specific data systems used in ratemaking: 
the In-Office Cost System (IOCS); the Revenue, Pieces, and Weight 
system (RPW); the new City Carrier Street Time Study (CCSTS); and the 
Transportation Cost System (TRACS). The Postal Service is to be 
commended for taking steps to improve these systems and the data upon 
which postal rates are based. 

In Office Cost System. Regarding the IOCS, the Study focused on the 
problem of the large proportion of ambiguous tallies on which the 
system has come to rely. It concluded that: 

[t]he major difficulty with IOCS is the allocation of the time spent 
processing mixed-mail and non-handling tasks. This issue has grown 
rapidly in recent years to become very substantial because of the 
increase in automation. 

Data Quality Study Technical Report #2 - Statistical Analysis of Data 
Quality Issues, April 16. 1999, at 43. The Study recommended two 
alternative ways to deal with this problem: (1) replace the IOCS with a 
new sampling system designed to provide subclass distribution keys that 
are specific to each MODS cost pool, or, (2) retain IOCS with 
additional sub-sampling of mixed mail and non-handling tallies. 

The Postal Service has rejected the first alternative, concluding that 
piece handlings is the appropriate cost driver/distribution key for 
each modeled MODS pool, and that the IOCS tallies are an adequate proxy 
for piece handlings. While it has not ruled out the second alternative, 
it apparently has not yet pursued sub-sampling of mixed mail and not- 
handling tallies. See Docket No. R2005-1, Institutional Response of 
United States Postal Service to Interrogatory of Valpak Direct 
Marketing Systems, Inc. and Valpak Dealers' Association Inc., 
Redirected from Witness Shaw (VP/USPS-T2-30). For now, the Postal 
Service has chosen to refine the traditional IOCS approach by 
implementing a standardized script for its survey instrument, and by 
utilizing computerized analysis to better identify the subclasses 
sampled. These changes focus on making direct tallies more accurate, 
but they do not address the system's reliance on mixed-mail and not 
handling tallies. Nor do they address significant issues of non- 
sampling errors in the administration of the IOCS that have been a 
major concern in prior rate cases. 

The refinements to IOCS discussed in your report apparently did not 
take effect until fiscal year 2005 and therefore are not reflected in 
the historical data that supports the current rate filing (Docket No. 
R2005-1). Although it did provide two briefings to Commission staff as 
changes were being studied, the Postal Service has not informed the 
Commission or the public of the specific nature of the refinements to 
the IOCS that it ultimately put in place. As a result, the Commission 
does not have the information necessary to verify that improvements in 
accuracy and precision have actually been achieved. 

If the Postal Service expects that its refinements to the IOCS will 
make mail processing cost estimates more precise, the results should be 
put in context. The Study used percentage coefficients of variation 
(CVs) as the preferred measure of precision in cost estimation. For 
claims of improvement to be properly assessed, it is important to 
identify the benchmark from which the improvements in precision are 
measured. In 1993, the Postal Service greatly reduced the number of 
IOCS tallies (by 35 to 40 percent, see Docket R94-1, Opinion and 
Recommended Decision, paragraph 3023). This action was one cause of the 
mailing community's concern about data quality that led to the 
commissioning of the Study itself. 

The effect of reducing the size of the IOCS sample can be seen by 
comparing the CVs associated with IOCS tallies in FY 1989, before the 
sample was reduced, with CVs associated with FY 1993 tallies, after the 
sample was reduced. 

COMPARISON OF CLERK-MAILHANDLER IOCS PERCENTAGE COEFFICIENTS OF 
VARIATION: 

[See PDF for image] 

[End of table] 

To facilitate comparison, the subclasses and mail categories listed in 
the above table existed in the same form in the years shown. 

The deterioration of the CVs was general and substantial by FY 1993. As 
of FY 2004, they generally had not recovered. It is too soon to assess 
the degree of improvement that may result from the 2005 refinements 
that the Postal Service has made to the IOCS, since only the Postal 
Service has access to that data at this time. Since the refinements 
will be fully implemented for the first time in 2005, it may be 
appropriate for GAO to report in 2006 on the effect the changes have on 
the precision of IOCS-based cost estimates. When the degree of 
improvement is assessed, however, it should be with reference to the 
CVs that were obtained before 1992 as well as after. 

Revenue, Pieces, and Weight. Your report states that the Postal Service 
made changes to the RPW that were similar to the changes made for IOCS, 
and that it also increased the size of the RPW sample by 142 percent. 
As you note this increase in the sample size reflects the merger of the 
RPW system with the Origin-Destination Information System, which had 
been a separate probability sampling system that estimated mail volume 
and transit time. In the current rate case the Postal Service's witness 
that presents information on the RPW asserts that the increased sample 
size and other improvements have led to reductions in CVs relative to 
the values presented in Docket No. R2001-1. A comparison of the CVs 
presented in each docket confirms this assertion. The Commission 
welcomes this improvement. 

City Carrier Street Time Study. You report that the new CCSTS was 
conducted in 2002. Despite being used in the development of the Postal 
Service's FY 2002 and FY 2003 Cost and Revenue Analysis (CRA) reports, 
the CCSTS is undergoing its first detailed public examination in the 
current omnibus rate case. This examination has raised issues regarding 
the conduct of the study and its results. It remains to be seen how the 
study will be viewed once the record is complete in the rate case. 
However, it should be noted that the current rate case might be 
proceeding more expeditiously if interested parties had been able to 
gain a better understanding of the details of the study procedures and 
the nature of the new data when the Postal Service first used it to 
produce its annual CRA. 

Public knowledge of the details of the completed study well ahead of 
the current rate case might have generated useful input from interested 
parties and the Commission concerning the design of the special data 
collection effort that the Postal Service undertook in 2004 to update 
the 2002 study. It would have been much easier to properly evaluate the 
study in the current, accelerated rate case, and it would have improved 
the chances that parties could respond with alternatives, or at least 
offer useful proposed refinements to the 2002 study. While the Postal 
Service provided a broad overview of the study and some of the 
available data prior to the current rate case, it criticized the 
Commission for posting the data on the Commission's website, and 
refused requests for detailed information on the 2002 study. The 
restrictions placed on access to this major new study created a missed 
opportunity to have affected mailers contribute to the evolution of the 
analysis of city carrier costs. If the Postal Service were complying 
fully with the Commission's periodic reporting rules, it would improve 
transparency and promote cooperative improvements in data quality. 

Transportation Cost System. Your report identifies actions taken to 
improve TRACS. These include better documentation, and a 65 percent 
increase in the number of transportation segments sampled by TRACS. A 
comparison of CVs from fiscal year 1998, before the improvements were 
implemented, to those from fiscal year 2004, after the improvements had 
been implemented, shows mixed results. While 75 percent of the CVs have 
improved, some CVs have deteriorated substantially, and the TRACS CVs 
continue to be rather high in general. 

Other Data Quality Issues. Your report points out that the Study urged 
the Postal Service to identify the sources and the significance of 
systematic error in its sampling systems generally (what the Study 
called "non-sampling" error). Judging from your report, the Postal 
Service has introduced changes to deal with several of the potential 
sources of non-sampling error. Many significant potential sources of 
non-sampling error, however, remain unaddressed. 

Your report does not mention some of the Study's most important 
recommendations since these are beyond the scope of your report. For 
example, the Study considered improving the attribution and 
distribution of mail processing costs to be the first priority for 
improving data quality. To that end, the Study recommended that the 
Postal Service evaluate the quality of data produced by the Management 
Operating Data System (MODS) on which mail processing costs depend, and 
identify the sources and evaluate the significance of potential 
measurement errors in that system. 

The Postal Service's position is that no further action on this 
recommendation is needed. In previous status reports to Congressman 
McHugh it argues that the quality of MODS data is monitored on an 
ongoing basis and its volume variability analysis is "robust to 
potential errors in the MODS workhour data." USPS 7/16104 detailed 
Status Report on follow-ups on Data Quality Study Recommendations. 
After reviewing the MODS data and the Postal Service's analysis in 
prior rate cases, however, the Commission concluded that errors in the 
data are of the kind that raises doubts about the process by which MODS 
data are collected and audited, and that the Postal Service's analysis 
raises the prospect that cost estimates based on the data will be 
flawed. For example, in rejecting the Postal Services proposed mail 
processing variability estimates in its Docket No. R2000-1 Opinion and 
Recommended Decision, at 90, the Commission stated that the supporting 
analyses are based on MODS data in which obvious errors are common, but 
whose source cannot be identified. This strongly implies that errors 
that are not obvious, and therefore are not detected, are also common. 
This presents a substantial risk that data errors have biased [the] 
results. 

Further, the Postal Service has begun using MODS data to evaluate and 
compare the performance of its mail processing plants. The Commission 
has long seen the need for special safeguards when self-reported data 
that are used to evaluate performance are also used to estimate costs. 

Your report observes that postal reform legislation is likely to affect 
the quality of the data used in ratemaking. The legislation reflects a 
consensus within the postal community that new tools are needed to 
increase the financial transparency of the Postal Service. The report 
further observes that under the current system the Postal Service has 
an incentive to restrict the amount of data provided to the public. 
Rather than providing the mailing community with enough cost and volume 
information on a regular basis to allow it to help develop a rational 
set of rates, the Postal Service prefers to.restrict access to the 
details of cost databases and new cost studies until the start of a 
rate case. A more useful approach would be to publicly document new 
studies and to share basic data with the mailing community through the 
Commission's periodic reporting mechanism. In this way, the mailing 
community could provide input into the design of special studies and 
the analysis of the costs of collecting, processing, transporting, and 
delivering mail. 

The GAO report comments that, on the one hand, it takes too long to 
litigate rate cases (GAO Draft Report at 20), and on the other, that it 
is difficult to analyze cost attribution issues within the limited time 
that a rate case allows (GAO Draft Report at 28). The Commission's 
periodic reporting rules were intended to mitigate these problems. By 
providing basic data to interested parties on an ongoing basis, the 
Postal Service would reduce the delay and burden associated with 
discovery in rate cases. So far, the Postal Service has decided that 
the pursuit of maximum litigation advantage is more important than its 
duty to comply with these rules. This illustrates the extent to which 
rate setting under the current law depends on the Postal Service's 
willingness to be cooperative, proactive and transparent in providing 
financial information. The Commission agrees with the conclusion in 
your report that "the proposed legislative changes would likely lead to 
improvement in the quality of ratemaking data." See GAO Draft Report at 
30. 

If I can be of further assistance, please contact me. 

Sincerely, 

Signed by: 

George Omas: 
Chairman: 

[End of section]

Appendix III: Selected Ratemaking Requirements in Proposed Postal 
Reform Legislation: 

Citation: H.R. 22, Sec. 202, 3633; and S. 662, Sec. 202, 3633; 
(similar provisions); 
Summary provision: Competitive products: The Postal Regulatory 
Commission (the Commission) shall issue regulations for competitive 
products (such as Priority Mail and Express Mail) to prohibit the 
subsidization of competitive products by market-dominant products, 
ensure that each competitive product covers its attributable costs, and 
ensure that all competitive products collectively make a reasonable 
contribution to USPS institutional costs. 

Citation: H.R. 22, Sec. 201, 3622; and S. 662, Sec. 201, 3622; 
(somewhat different provisions); 
Summary provision: Market-dominant products: The Commission shall by 
regulation establish a modern system for regulating rates and classes 
for market-dominant products (such as First-Class Mail, Standard Mail, 
Periodicals, and Special Services (such as post office boxes, money 
orders, and delivery confirmation); House version: In establishing this 
system, the Commission must take various factors into account, 
including the attributable costs for each class of mail or type of mail 
service, plus that portion of institutional costs reasonably assignable 
to such class or type. The average rate of any subclass of mail cannot 
increase at an annual rate greater than the comparable increase in the 
Consumer Price Index for All Urban Consumers (CPI-U), unless the 
Commission has, after notice and opportunity for a public hearing and 
comment, determined that such increase is reasonable and equitable and 
necessary to enable USPS, under best practices of honest, efficient, 
and economical management, to maintain and continue the development of 
postal services of the kind and quality adapted to the needs of the 
United States; Senate version: In establishing this system, the 
Commission must take into various factors into account, including the 
requirement that each class of mail or type of mail service cover its 
attributable costs, plus that portion of institutional costs reasonably 
assignable to such class or type. The regulatory system for market-
dominant products shall (1) require the Commission to set annual 
limitations on the percentage changes in rates based on the CPI-U 
unadjusted for seasonal variation over the 12-month period preceding 
the date USPS proposes to increase rates and (2) establish procedures 
whereby rates may be adjusted on an expedited basis due to unexpected 
and extraordinary circumstances. 

Citation: H.R. 22, Sec. 203, 3641; and S. 662, Sec. 203, 3641; (same 
provision in both bills); 
Summary provision: Market tests: USPS may conduct market tests of 
experimental products provided that the product is, from the viewpoint 
of the mail users, significantly different from all products offered by 
USPS within the 2-year period preceding the start of the test; the 
introduction or continued offering of the product will not create an 
unfair or otherwise inappropriate competitive advantage for USPS or any 
mailer, particularly in regard to small business concerns; total 
revenues anticipated, or in fact received, by the tested product do not 
exceed $10 million[A] in any year, unless the Commission has increased 
the limit to $50 million;a and the market test does not exceed 24 
months, unless the Commission has approved an extension of its total 
duration up to 36 months. 

Citation: H.R. 22, Sec. 206, 3687; and S. 662, Sec. 201, 3622(e); 
(same provision in both bills); 
Summary provision: Worksharing discounts: The Commission shall 
establish rules for worksharing discounts as part of its regulations 
for regulating market-dominant products that shall ensure that 
discounts do not exceed the cost that USPS avoids as a result of 
worksharing activity, unless; 
* the discount is (1) associated with a new postal service, a change to 
an existing postal service, or a new workshare initiative related to an 
existing postal service and (2) necessary to induce mailer behavior 
that furthers the economically efficient operation of the Postal 
Service and the portion of the discount in excess of the cost that the 
Postal Service avoids as a result of the workshare activity will be 
phased out over a limited period of time; 
* a reduction in the discount would (1) lead to a loss of volume in the 
affected category or subclass of mail and reduce the aggregate 
contribution to the institutional costs of the Postal Service from the 
category or subclass subject to the discount below what it otherwise 
would have been if the discount had not been reduced to costs avoided, 
(2) result in a further increase in the rates paid by mailers not able 
to take advantage of the discount, or (3) impede the efficient 
operation of the Postal Service; 
* the amount of the discount above costs avoided (1) is necessary to 
mitigate rate shock and (2) will be phased out over time; or; 
* the discount is provided in connection with subclasses of mail 
consisting exclusively of mail matter of educational, cultural, 
scientific, or informational value. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

[A] Limits for market tests would be annually adjusted for inflation 
according to the change in the Consumer Price Index. 

[End of table]

[End of section] 

FOOTNOTES

[1] The four major classes of mail are: First-Class Mail (mainly bills, 
bill payments, correspondence, advertising, and Priority Mail); 
Standard Mail (mainly bulk advertising and direct mail solicitations); 
Periodicals (mainly magazines and local newspapers); and Package 
Services Mail (e.g., parcels, merchandise, catalogs, media mail, 
library mail, and books). Another class of mail is Expedited Mail 
(i.e., Express Mail). 

[2] Postal services include such services as post office boxes, money 
orders, and delivery confirmation. 

[3] 39 U.S.C. 3622(b)(3). PRC has long interpreted this requirement to 
apply to subdivisions of mail classes called subclasses. For example, 
Parcel Post and Library Mail are subclasses of the Package Services 
class. 

[4] A.T. Kearney, Inc., Data Quality Study (Alexandria, VA: Apr. 16, 
1999). 

[5] The Study identified only a few minor concerns regarding the other 
two major ratemaking data systems, which are the City Carrier Cost 
System and the Rural Carrier Cost System. These systems produce data on 
the volume of mail subclasses that are delivered and collected by 
carriers. 

[6] The Postal Reorganization Act of 1970 (Pub. L. No. 91-375) 
reorganized the former U.S. Post Office Department into the U.S. Postal 
Service and created the Postal Rate Commission. 

[7] 39 U.S.C. 3621. 

[8] 39 U.S.C. 3622(b)(3). 

[9] This estimate does not include associated overhead costs, such as 
travel, office space and related costs, and computer operations and 
support, which USPS reported could not easily be determined; costs 
associated with accounting and operational data collection systems that 
are also used in ratemaking; and other costs associated with collecting 
data on international mail. 

[10] The Study reviewed postal ratemaking in the United States; 10 
industrialized countries with postal administrations that have 
operating processes similar to USPS; and some U.S. industries subject 
to regulation, such as local telecommunications, natural gas, and 
railroads. 

[11] Kearney, Data Quality Study: Summary Report, pp. 5-7. 

[12] GAO, U.S. Postal Service: Despite Recent Progress, Postal Reform 
Legislation Is Still Needed, GAO-05-453T (Washington, D.C.: Apr. 14, 
2005). 

[13] GAO, U.S. Postal Service: Key Elements of Comprehensive Postal 
Reform, GAO-04-397T (Washington, D.C.: Jan. 28, 2004); U.S. Postal 
Service: Bold Action Needed to Continue Progress on Postal 
Transformation, GAO-04-108T (Washington, D.C.: Nov. 5, 2003); 
President's Commission on the United States Postal Service, Embracing 
the Future: Making the Tough Choices to Preserve Universal Mail Service 
(Washington, D.C.: July 31, 2003). 

[14] GAO-04-397T and GAO-04-108T. 

[15] Carriers also sort some letter mail into the order it is to be 
delivered, although USPS automated equipment sorts most letter mail 
into delivery order. 

[16] IOCS also provides data on employee time spent on some special 
services, such as window service, time spent with customers purchasing 
postal money orders, and delivery confirmation, among other things. 

[17] USPS costs are divided into cost pools that have common 
characteristics, so that, based on analysis of ratemaking data, each 
cost pool can be further divided into attributable and institutional 
costs. 

[18] USPS did not use data collected for pilot tests for ratemaking. 

[19] RPW data gathered by data collectors are merged with computerized 
data on business mailings, such as large mailings of bills, statements, 
catalogs, and magazines. These computerized data include information 
for each mailing on the subclass, revenue, volume, and weight. USPS 
refers to these combined data as RPW data. 

[20] Imprecise data are subject to a relatively high degree of random 
error, such as data that are imprecise because they are generated by 
data collected from a small random sample. 

[21] The increase in RPW sample size was enabled by USPS's concurrently 
merging RPW with an operations-oriented data system called the Origin- 
Destination Information System, which also collected data from sampled 
pieces of mail. 

[22] The reallocation plan was developed with the aid of a statistical 
model to estimate data precision. This model had originally been 
developed for the Study. 

[23] The 18-month time frame for rate changes includes time for USPS to 
prepare its rate proposal, for PRC to review the proposal and issue its 
recommended decision (which the law generally limits to 10 months), and 
for USPS to consider PRC's recommended decision and implement new 
postal rates. 

[24] President's Commission on the United States Postal Service, 
Embracing the Future. 

[25] GAO-04-108T. 

[26] GAO-04-397T and GAO-04-108T. 

[27] GAO-04-108T, p. 23. 

[28] USPS did not include a provision for the recovery of prior years' 
losses in the 2005 rate case because USPS had no such losses by the end 
of fiscal year 2004. 

[29] Institute of Public Administration, Report to the Board of 
Governors of the United States Postal Service: The Ratemaking Process 
for the United States Postal Service (New York, NY: Oct. 8, 1991), p. 
55. 

[30] GAO-04-108T, p. 25. 

[31] Testimony of George Omas, Chairman, Postal Rate Commission, before 
the U.S. Senate Committee on Governmental Affairs (Washington, D.C.: 
Apr. 7, 2004), p. 10. 

[32] Mailer worksharing activities include barcoding mail, presorting 
mail by ZIP Code, and transporting mail so it is entered closer to the 
final destination. See GAO, U.S. Postal Service: A Primer on Postal 
Worksharing, GAO-03-927 (Washington, D.C.: July 31, 2003). 

[33] As we have reported, USPS and PRC differ over the level of mail 
processing costs that should be attributed, which can affect postal 
rates, particularly for types of mail priced at cost (e.g., the 
Periodicals class that includes mailed magazines and newspapers). See 
GAO-04-108T, p. 32. 

[34] Congress directly established postal rates prior to enactment of 
the Postal Reorganization Act of 1970 (Pub. L. No. 91-375). 

[35] Some data quality issues have also been considered during 
classification cases, which consider establishing or changing the 
groupings of mail that are subject to ratemaking requirements, as well 
as authorizing market tests of experimental products and negotiated 
service agreements (39 U.S.C. 3623 and 39 C.F.R. Part 3001, subpart 
C). Aside from rate and classification cases, USPS has opposed separate 
proceedings on issues of cost attribution methodology, and PRC has not 
conducted such proceedings. 

[36] Kearney, Data Quality Study: Summary Report, p. 5. 

[37] Testimony of George Omas, Chairman, Postal Rate Commission, before 
the U.S. Senate Committee on Governmental Affairs (Washington, D.C.: 
Apr. 7, 2004), p. 9. 

[38] GAO-04-108T and GAO-04-397T. 

[39] The Study identified relatively minor concerns regarding the other 
two major data collection systems used for ratemaking, which are the 
City Carrier Cost System and the Rural Carrier Cost System. These 
systems produce data on the volumes of mail subclasses that are 
delivered and collected by carriers. 

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