19196
 1                             BEFORE THE
 2                       POSTAL RATE COMMISSION
 3    - - - - - - - - - - - - - - - X
 4    In the Matter of:             :
 5    POSTAL RATE AND FEE CHANGES   :   Docket No. R97-1
 6    - - - - - - - - - - - - - - - X
 7
 8                             Third Floor Hearing Room
 9                             Postal Rate Commission
10                             1333 H Street, N.W.
11                             Washington, D.C.  20268
12
13                             Volume 36
14                             Friday, March 20, 1998
15
16              The above-entitled matter came on for hearing,
17    pursuant to notice, at 9:30 a.m.
18
19    BEFORE:
20              HON. EDWARD J. GLEIMAN, CHAIRMAN
21              HON. W. H. "TREY" LeBLANC, III, COMMISSIONER
22              HON. GEORGE W. HALEY, COMMISSIONER
23              HON. GEORGE A. OMAS, COMMISSIONER
24
25

                                                             19197
 1    APPEARANCES:
 2    On behalf of the United States Postal Service:
 3              SUSAN DUCHEK, ESQUIRE
 4              ERIC KOETTING, ESQUIRE
 5              RICHARD COOPER, ESQUIRE
 6              MICHAEL TIDWELL, ESQUIRE
 7              ANNE REYNOLDS, ESQUIRE
 8              DAVID RUBIN, ESQUIRE
 9              KENNETH N. HOLLIES, ESQUIRE
10              SCOTT L. REITER, ESQUIRE
11              ANTHONY ALVERNO, ESQUIRE
12              United States Postal Service
13              475 L'Enfant Plaza West, SW
14              Washington, D.C.  20260
15
16    On behalf of American Business Press:
17              DAVID STRAUS, ESQUIRE
18              Thompson Coburn
19              700 14th Street, NW, Suite 900
20              Washington, D.C.  20005
21              (202) 508-1013
22              fax (202) 508-1010
23
24
25

                                                             19198
 1    APPEARANCES:  [continued]
 2    On behalf of the Association of Alternate Postal Systems:
 3              BONNIE S. BLAIR, ESQUIRE
 4              Thompson Coburn
 5              700 14th Street, NW, Suite 900
 6              Washington, D.C.  20005
 7              (202) 508-1003
 8              fax (202) 508-1010
 9
10    On behalf of Nashua Photo, Inc.; District Photo, Inc.;
11    Mystic Color Lab; Seattle FilmWorks, Inc.; ValPak Direct
12    Marketing Systems, Inc.; ValPak Dealers' Association; Carol
13    Wright Promotions:
14              WILLIAM J. OLSON, ESQUIRE
15              ALAN WOLL, ESQUIRE
16              JOHN S. MILES, ESQUIRE
17              JOHN F. CALLENDER, JR., ESQUIRE
18              William J. Olson, P.C.
19              8180 Greensboro Drive, Suite 1070
20              McLean, VA  22102-3823
21              (703) 356-5070
22              fax (703) 356-5085
23
24
25

                                                             19199
 1    APPEARANCES:  [continued]
 2    On behalf of Readers Digest Association, Parcel Shippers
 3    Association:
 4              TIMOTHY J. MAY, ESQUIRE
 5              Patton Boggs, LLP
 6              2550 M Street, NW
 7              Washington, D.C.  20037
 8              (202) 457-6050
 9
10    On behalf of Advertising Mail Marketing Association:
11              IAN D. VOLNER, ESQUIRE
12              Venable, Baetjer, Howard & Civilletti
13              1201 New York Avenue, NW
14              Washington, D.C.  20005
15              (202) 962-4814
16              fax (202) 962-8300
17
18    On behalf of the Dow Jones & Company, Inc.:
19              SAM BEHRENDS, ESQUIRE
20              MICHAEL F. McBRIDE, ESQUIRE
21              LeBoeuf, Lamb, Greene & Macrae
22              1875 Connecticut Avenue, NW
23              Washington, D.C.  20009
24              (202) 986-8018
25              fax (202) 986-8102

                                                             19200
 1    APPEARANCES:  [continued]
 2    On behalf of the Major Mailers Association:
 3              RICHARD LITTELL, ESQUIRE
 4              1220 19th Street, NW, Suite 400
 5              Washington, D.C.  20036
 6              (202) 466-8260
 7
 8    On behalf of the Office of Consumer Advocate:
 9              SHELLEY S. DREIFUSS, ESQUIRE
10              KENNETH E. RICHARDSON, ESQUIRE
11              Office of the Consumer Advocate
12              Postal Rate Commission
13              1333 H Street, NW, Suite 300
14              Washington, D.C.  20268
15
16    On behalf of the United Parcel Service:
17              JOHN E. McKEEVER, ESQUIRE
18              Piper & Marbury
19              3400 Two Logan Square
20              18th and Arch Streets
21              Philadelphia, PA  19103
22              (215) 656-3310
23              fax (215) 656-3301
24
25

                                                             19201
 1    APPEARANCES:  [continued]
 2    On behalf of Hallmark Cards, Incorporated:
 3              DAVID F. STOVER, ESQUIRE
 4              2070 S. Columbus Street, Suite 1B
 5              Arlington, VA  22206
 6              (703) 998-2568
 7              fax (703) 998-2987
 8
 9    On behalf of ADVO, Inc.:
10              JOHN M. BURZIO, ESQUIRE
11              THOMAS W. McLAUGHLIN, ESQUIRE
12              Burzio & McLauglin
13              1054 31st Street, NW, Suite 540
14              Washington, D.C.  20007
15              (202) 965-4555
16              fax (202) 965-4432
17
18    On behalf of Time Warner, Inc.:
19              JOHN M. BURZIO, ESQUIRE
20              TIMOTHY L. KEEGAN, ESQUIRE
21              1054 31st Street, NW, Suite 540
22              Washington, D.C.  20007
23              (202) 965-4555
24              fax (202) 965-4432
25

                                                             19202
 1    APPEARANCES:  [continued]
 2    On behalf of the Direct Marketers Association:
 3              DANA T. ACKERLY, II, ESQUIRE
 4              MICHAEL D. BERGMAN, ESQUIRE
 5              Covington & Burling
 6              1201 Pennsylvania Avenue, NW
 7              Washington, D.C.  20016
 8              (202) 662-5296
 9              fax (202) 778-5296
10
11    On behalf of the Newspaper Association of America:
12              WILLIAM B. BAKER, ESQUIRE
13              ALAN R. JENKINS, ESQUIRE
14              MICHAEL YOURSHAW, ESQUIRE
15              Wiley, Rein & Fielding
16              1776 K Street, NW
17              Washington, D.C.  20006
18              (202) 429-7255
19              fax (202) 429-7049
20
21              ROBERT J. BRINKMANN
22              Newspaper Association of America
23              529 14th Street, NW, Suite 440
24              Washington, D.C.  20045-1402
25

                                                             19203
 1    APPEARANCES:  [continued]
 2    On behalf of the McGraw-Hill Companies, Inc.:
 3              TIMOTHY W. BERGIN, ESQUIRE
 4              Squire, Sanders & Dempsey
 5              1201 Pennsylvania Avenue, NW, Suite 500
 6              P.O. Box 407
 7              Washington, D.C.  20044
 8              (202) 626-6608
 9              fax (202) 626-6780
10
11    On behalf of the Mail Order Association of America:
12              DAVID C. TODD, ESQUIRE
13              Patton Boggs, LLP
14              2550 M Street, NW
15              Washington, D.C.  20037
16              (202) 457-6410
17              fax (202) 457-6513
18
19    On behalf of David B. Popkin:
20              DAVID B. POPKIN
21              P.O. Box 528
22              Englewood, NJ  07631-0528
23              (201) 569-2212
24              fax (201) 569-2864
25

                                                             19204
 1    APPEARANCES:  [continued]
 2    On behalf of the Magazine Publishers of America:
 3              JAMES R. CREGAN, ESQUIRE
 4              Magazine Publishers of America
 5              1211 Connecticut Avenue, NW, Suite 610
 6              Washington, D.C.  20036
 7              (202) 296-7277
 8              fax (202) 296-0343
 9
10    On behalf of the Alliance of Nonprofit Mailers:
11              JOEL T. THOMAS, ESQUIRE
12              11326 Dockside Circle
13              Reston, VA  20191
14              (703) 476-4646
15              fax (703) 620-2338
16
17    On behalf of the National Newspaper Association:
18              TONDA F. RUSH, ESQUIRE
19              King & Ballon
20              P.O. Box 50301
21              Arlington, VA  22205
22              (703) 534-5750
23              fax (703) 534-5751
24
25

                                                             19205
 1    APPEARANCES:  [continued]
 2    On behalf of the National Newspaper Association: 
 3    [continued]
 4              SENNY BOONE
 5              National Newspaper Association
 6              1525 Wilson Boulevard, Suite 550
 7              Arlington, VA  22209
 8              (703) 907-7900
 9
10    On behalf of the National Federation of Nonprofits:
11              CAROLYN EMIGH, ESQUIRE
12              Nonprofit Service Group
13              815 15th Street, NW, Suite 822
14              Washington, D.C.  20005
15              (202) 628-4380
16
17    On behalf of the Florida Gift Fruit Shippers Association:
18              M.W. WELLS, JR., ESQUIRE
19              Maxwell W. Wells, Jr., P.A.
20              105 E. Robinson Street, Suite 201
21              Orlando, FL  32801
22              (407) 422-8250
23              fax (407) 422-8262
24
25

                                                             19206
 1    APPEARANCES:  [continued]
 2    On behalf of the Recording Industry Association of America,
 3    and Advertising Mail Marketing Association:
 4              N. FRANK WIGGINS, ESQUIRE
 5              Venable, Baetjer, Howard & Civiletti, L.L.P.
 6              1201 New York Avenue, NW
 7              Washington, D.C.
 8              (202) 962-4957
 9
10    On behalf of Edison Electric Institute:
11              R. BRIAN CORCORAN, ESQUIRE
12              Oliver & Oliver, P.C.
13              1090 Vermont Avenue, NW, Suite 800
14              Washington, D.C.  20005
15              (202) 371-5656
16              fax (202) 289-8113
17
18    On behalf of American Business Press:
19              STEPHEN FELDMAN, ESQUIRE
20              Ramsey, Cook, Looper & Kurlander
21              c/o Thompson Coburn
22              700 14th Street, NW, Suite 900
23              Washington, D.C.  20005
24              (202) 508-1022
25              fax (202) 508-1010

                                                             19207
 1    APPEARANCES:  [continued]
 2    On behalf of Douglas F. Carlson:
 3              DOUGLAS F. CARLSON
 4              P.O. Box 12574
 5              Berkeley, CA  94712-3574
 6              (510) 597-9995
 7
 8    On behalf of the Alliance of Non Profit Mailers:
 9              DAVID M. LEVY, ESQUIRE
10              Sidley & Austin
11              1722 I Street, NW
12              Washington, D.C.  20006-3704
13              (202) 736-8214
14
15    On behalf of the National Association of Presort Mailers:
16              HENRY HART, ESQUIRE
17              Hazel & Thomas
18              P.O. Box 820
19              Alexandria, VA  22313
20              (703) 838-5153
21              fax (703) 836-8062
22
23
24
25

                                                             19208
 1    APPEARANCES:  [continued]
 2    On behalf of Brooklyn Union Gas Company:
 3              MICHAEL HALL, ESQUIRE
 4              Cullen & Dykman
 5              1225 19th Street, NW
 6              Washington, D.C.  20036
 7              (202) 223-8890
 8
 9    On behalf of Niagara Telephone Company:
10              TIMOTHY E. WELCH, ESQUIRE
11              Hill & Welch
12              1330 New Hampshire Avenue, NW, Suite 113
13              Washington, D.C.  20036
14              (202) 775-0070
15              fax (202) 775-9026
16
17    On behalf of the Coalition of Religious Press Associations:
18              JOHN STAPERT
19              Associated Church Press
20              18653 N. 41st Place
21              Phoenix, AZ  85024-3759
22              (602) 569-6371
23              fax (602) 569-6180
24
25

                                                             19209
 1    APPEARANCES:  [continued]
 2    On behalf of the Greeting Card Association:
 3              ALAN R. SWENDIMAN, ESQUIRE
 4              Jackson & Campbell, P.C.
 5              1120 20th Street, NW, Suite 300 South
 6              Washington, D.C.  20036-3437
 7              (202) 457-1645
 8              fax (202) 457-1617
 9
10    On behalf of LabOne, Inc., Osborn Laboratories, Inc., and
11    Clinical Reference Laboratory, Inc.:
12              JOSEPH C. BENAGE, ESQUIRE
13              Hillix, Brewer, Hoffhaus, Whittaker & Wright
14              2420 Pershing Road
15              Kansas City, MO  64108-2574
16              (816) 221-0355
17              fax (816) 421-2896
18
19
20
21
22
23
24
25

                                                                 i
 1                           C O N T E N T S
 2    WITNESS                  DIRECT   CROSS   REDIRECT   RECROSS
 3    RITA D. COHEN
 4      BY MR. CREGAN           19212                             
 5      BY MR. McKEEVER                 19235                     
 6      BY MR. KOETTING              19250/19272                  
 7    HALSTEIN STRALBERG
 8      BY MR. BURZIO           19276                             
 9      BY MR. KOETTING                 19295                     
10      BY MR. BURZIO                            19308            
11    CARL G. DEGEN
12      BY MR. KOETTING         19310                             
13      BY MR. WIGGINS                  19367                     
14      BY MR. STRAUS                   19373                     
15      BY MR. KEEGAN                   19455                     
16      BY MR. KOETTING                           19467           
17      BY MR. KEEGAN                                       19469 
18    STEPHEN E. SELLICK
19      BY MR. McKEEVER         19472                             
20      BY MR. GOLD                     19491                     
21    ROGER C. PRESCOTT
22      BY MR. TODD             19503                             
23      BY MR. OLSON                    19547                     
24      BY MR. TODD                               19580           
25      BY MR. OLSON                                        19581 

                                                                ii
 1                     C O N T E N T S [continued]
 2    WITNESS                  DIRECT   CROSS   REDIRECT   RECROSS
 3    LESLIE M. SCHENK
 4      BY MR. REYNOLDS         19583                             
 5      BY MR. LEVY                     19649                     
 6    GARY M. ANDREW
 7      BY MR. TODD             19661                             
 8      BY MR. CORCORAN                 19730                     
 9      BY MR. LITTELL                  19772                     
10      BY MR. BAKER                    19778                     
11      BY MR. COOPER                   19806                     
12      BY MR. BAKER                    19808                     
13    JOHN L. CLARK
14      BY MR. OLSON            19810                             
15      BY MR. McKEEVER                 19823                     
16      BY MR. OLSON                              19849           
17      BY MR. McKEEVER                                     19852 
18      BY MR. OLSON                              19854           
19      BY MR. McKEEVER                                     19854 
20
21    DOCUMENTS TRANSCRIBED INTO THE RECORD:                  PAGE
22    Rebuttal Testimony and Exhibits of Rita 
23      D. Cohen, MPA-RT-1                                   19215
24    Cross-Examination Exhibit No. USPS/MPA-RT-XE-1         19260
25

                                                               iii
 1    DOCUMENTS TRANSCRIBED INTO THE RECORD:  [continued]     PAGE
 2    Rebuttal Testimony and Exhibits of Halstein 
 3      Stralberg, TW-RT-1                                   19278
 4    Rebuttal Testimony and Exhibits of Carl G. 
 5      Degen, USPS-RT-6                                     19312
 6    Cross-Examination Exhibit No. ABP-XE-1                 19422
 7    Cross-Examination Exhibit No. ABP-XE-2                 19427
 8    Cross-Examination Exhibit No. ABP-XE-3                 19437
 9    Cross-Examination Exhibit ABP-XE-4                     19451
10    Rebuttal Testimony and Exhibits of 
11      Stephen E. Sellick, UPS-RT-1                         19474
12    Revised Response of UPS Witness Sellick to 
13      POIR-16                                              19487
14    Rebuttal Testimony and Exhibits of Roger
15      C. Prescott, MOAA-RT-1                               19505
16    Rebuttal Testimony and Exhibits of Leslie
17      M. Schenk, USPS-RT-22                                19587
18    Rebuttal Testimony and Exhibits of Gary M.
19      Andrew, MOAA, et al.-RT-1                            19663
20    Cross-Examination Exhibit No. ABA/EEI/NAPM-XE-1        19769
21    Cross-Examination Exhibit No. ABA/EEI/NAPM-XE-2        19770
22    Cross-Examination Exhibit No. ABA/EEI/NAPM-XE-3        19771
23    Cross-Examination Exhibit No.
24      NAA/MOAA et al.-RT-1-XE-1                            19797
25

                                                                iv
 1    DOCUMENTS TRANSCRIBED INTO THE RECORD:  [continued]     PAGE
 2    Cross-Examination Exhibit No.
 3      NAA/MOAA et al.-RT-1-XE-2                            19798
 4    Rebuttal Testimony and Exhibits of John L.
 5      Clark, CTC-RT-1                                      19813
 6    Excerpt from the United States Postal
 7      Service Household Diary Study, Fiscal
 8      Year 1996, Executive Summary                         19845
 9
10                           E X H I B I T S
11    EXHIBITS AND/OR TESTIMONY               IDENTIFIED  RECEIVED
12    Rebuttal Testimony and Exhibits of 
13      Rita D. Cohen, MPA-RT-1                 19214      19214  
14    Cross-Examination Exhibit No. 
15      USPS/MPA-RT-XE-1                        19258      19258  
16    Rebuttal Testimony and Exhibits of 
17      Halstein Stralberg, TW-RT-1             19277      19277  
18    Rebuttal Testimony and Exhibits of 
19      Carl G. Degen, USPS-RT-6                19311      19311  
20    Cross-Examination Exhibit No. ABP-XE-1    19420      19421  
21    Cross-Examination Exhibit No. ABP-XE-2    19426      19426  
22    Cross-Examination Exhibit No. ABP-XE-3    19436      19436  
23    Cross-Examination Exhibit ABP-XE-4        19450      19450  
24    Rebuttal Testimony and Exhibits of 
25      Stephen E. Sellick, UPS-RT-1            19472      19472  

                                                                 v
 1                     E X H I B I T S [continued]
 2    EXHIBITS AND/OR TESTIMONY               IDENTIFIED  RECEIVED
 3    Revised Response of UPS Witness 
 4      Sellick to POIR-16                      19486      19486  
 5    Rebuttal Testimony and Exhibits of
 6      Roger C. Prescott, MOAA-RT-1            19504      19504  
 7    Rebuttal Testimony and Exhibits of
 8      Leslie M. Schenk, USPS-RT-22            19585      19585  
 9    Rebuttal Testimony and Exhibits of
10      Gary M. Andrew, MOAA, et al.-RT-1       19662      19662  
11    Cross-Examination Exhibit No.
12      ABA/EEI/NAPM-XE-1                       19739             
13    Cross-Examination Exhibit No.
14      ABA/EEI/NAPM-XE-2                       19742             
15    Cross-Examination Exhibit No.
16      ABA/EEI/NAPM-XE-3                       19750             
17    Cross-Examination Exhibit No.
18      NAA/MOAA et al.-RT-1-XE-1               19785      19795  
19    Cross-Examination Exhibit No.
20      NAA/MOAA et al.-RT-1-XE-2               19788      19795  
21    Rebuttal Testimony and Exhibits of
22      John L. Clark, CTC-RT-1                 19811      19811  
23
24
25

                                                                vi
 1                     E X H I B I T S [continued]
 2    EXHIBITS AND/OR TESTIMONY               IDENTIFIED  RECEIVED
 3    Excerpt from the United States
 4      Postal Service Household Diary
 5      Study, Fiscal Year 1996,
 6      Executive Summary                       19844      19844  
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19210
 1                        P R O C E E D I N G S
 2                                                     [9:30 a.m.]
 3              CHAIRMAN GLEIMAN:  Good morning.
 4              Today should be our final day of hearings on this
 5    case, unless, of course, we go beyond midnight, in which
 6    case tomorrow will be our final day of hearings. 
 7    Unfortunately, I'm afraid it may come to that, but hopefully
 8    not.
 9              We're scheduled to receive testimony in rebuttal
10    to the direct cases of participants other than the Postal
11    Service from Magazine Publishers of America Witness Cohen,
12    Time-Warner Witness Stralberg, United States Postal Service
13    Witnesses Degen and Schenk, United Parcel Service Witness
14    Sellick, Mail Order Association of America Witness Prescott,
15    and Mail Order Association of America, et al., Witness
16    Andrew, and then, finally, CTC Distribution Services
17    Witnesses Clark.
18              I have several procedural matters to mention
19    before we begin this morning.
20              There is one outstanding procedural issue still to
21    be resolved.
22              On March the 17th, the Alliance of Non-Profit
23    Mailers filed a motion to compel production of mail
24    acceptance logs underlying USPS-RT-22 or, in the
25    alternative, to strike portions of that testimony.

                                                             19211
 1              The Postal Service filed a response in opposition
 2    at noon yesterday, and last night, during breaks of the
 3    basketball game, I reviewed that response and also had an
 4    opportunity to leaf through Library Reference H-353, the
 5    survey forms that are at issue, used by Witness Schenk in
 6    preparing her testimony.
 7              I'm going to have some questions to ask Ms. Schenk
 8    before I rule on the ANM motion, but I am not going to do
 9    that until all the appropriate counsel are in the room,
10    perhaps when Ms. Schenk comes to the stand later today.
11              Mr. Koetting, would you inform Postal Service
12    counsel who is representing Ms. Schenk that I will be asking
13    her questions concerning the use of actual copies of Form
14    8075, the so-called disqualification logs referred to in her
15    testimony that have now become the subject of the ANM motion
16    to compel production?
17              MR. KOETTING:  I'd be happy to do that, Mr.
18    Chairman.
19              CHAIRMAN GLEIMAN:  During Tuesday's hearing, I
20    addressed the issue of incorporating additional materials
21    into the evidentiary record and set March 27th as the
22    deadline for filing such motions.
23              If you have additional materials for inclusion in
24    the record, please file the appropriate motion, accompanied
25    by two copies of the designations by close of business

                                                             19212
 1    Friday, March the 27th.
 2              March the 27th is also the date for filing
 3    transcript corrections for this round of hearings.
 4              As I mentioned earlier, if a transcript correction
 5    is related to the final round of hearings and is central to
 6    an argument in an initial brief, please identify that
 7    situation in the text or in footnote to the brief.
 8              Does any participant have a procedural matter that
 9    they would like to raise at this point in time?
10              [No response.]
11              CHAIRMAN GLEIMAN:  If not, then we'll move on to
12    our first witness.
13              Our first witness today is appearing on behalf of
14    the Magazine Publishers of America, and Ms. Cohen is already
15    under oath in this proceeding.
16              Mr. Cregan, if you would introduce your witness
17    and enter her rebuttal testimony into the record.
18              MR. CREGAN:  Thank you, Mr. Chairman.
19    Whereupon,
20                           RITA D. COHEN,
21    a rebuttal witness, was called for examination by counsel
22    for the Magazine Publishers of America and, having been
23    previously duly sworn, was further examined and continued to
24    testify as follows:
25                         DIRECT EXAMINATION

                                                             19213
 1              BY MR. CREGAN:
 2         Q    Ms. Cohen, I'm handing you two copies of a
 3    document designated MPA-RT-1, Rebuttal Testimony of Rita D.
 4    Cohen on Behalf of Alliance of Non-Profit Mailers, American
 5    Business Press, Coalition of Religious Press Associations,
 6    Doe-Jones and Company, Inc., Magazine Publishers of America,
 7    the McGraw-Hill Companies, Inc., National Newspaper
 8    Association, and Time-Warner, Inc.
 9              Are you familiar with this document?
10         A    Yes, I am.
11         Q    Was it prepared by you or under your supervision?
12         A    Yes, it was.
13         Q    Do you have any corrections or revisions today?
14         A    No, I do not.
15         Q    If you were to testify today orally, would your
16    testimony be the same?
17         A    Yes.
18              MR. CREGAN:  Mr. Chairman, I will hand two copies
19    of Ms. Cohen's testimony, designated MPA-RT-1, to the
20    reporter and ask its admission into evidence.
21              CHAIRMAN GLEIMAN:  Are there any objections?
22              [No response.]
23              CHAIRMAN GLEIMAN:  Hearing none, Ms. Cohen's
24    testimony and exhibits are received into evidence, and I
25    direct that they be transcribed into the record at this

                                                             19214
 1    point.
 2                             [Rebuttal Testimony and Exhibits of
 3                             Rita D. Cohen, MPA-RT-1, was
 4                             received into evidence and
 5                             transcribed into the record.]
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19235
 1              CHAIRMAN GLEIMAN:  Two participants have requested
 2    oral cross examination of Witness Cohen, United Parcel
 3    Service and United States Postal Service.
 4              Does any other participant wish to cross examine
 5    the witness?
 6              [No response.]
 7              CHAIRMAN GLEIMAN:  If not, then Mr. McKeever, when
 8    you're ready, you can begin.
 9              MR. McKEEVER:  Thank you, Mr. Chairman.
10                          CROSS EXAMINATION
11              BY MR. McKEEVER:
12         Q    Good morning, Ms. Cohen.
13         A    Good morning.
14         Q    Ms. Cohen, could you turn to page 1 of your
15    testimony, please?  On that page, at lines 20 to 21, you
16    state that Mr. Sellick's proposed distribution method cannot
17    be used without also using Witness Bradley's results.  Do
18    you see that?
19         A    Yes, I do.
20         Q    Is it also true that it doesn't make sense to use
21    Dr. Bradley's variability results without, at the same time,
22    using Mr. Degen's proposed distribution methods?
23         A    Well, I think that the attribution and
24    distribution methodologies used must be consistent.  I think
25    Dr. Christensen put it pretty well in his testimony on

                                                             19236
 1    rebuttal.  I would say that you have to use a similar
 2    framework.
 3              I don't think -- as you know, in my direct
 4    testimony, I have suggested revisions to Witness Degen, but
 5    -- so, I don't think it had to be done exactly as Witness
 6    Degen had proposed it, but with the changes that I
 7    recommend, I do believe that those two would be acceptable
 8    together.
 9         Q    It is your testimony that certain LIOCATT
10    distribution methods can be used while also using Witness
11    Bradley's variability results.  Is that right?
12         A    I did not advocate going back to the LIOCATT
13    method.  We advocated using Witness Degen as a starting
14    point, making the necessary modifications, and then we had a
15    consistent set of attribution and distribution.
16         Q    Don't you use some of the LIOCATT methods to
17    distribute at least some costs?
18         A    Well, for the mixed mail, where you really have to
19    make a determination of the contents, we were unhappy with
20    the item distribution, and we really substituted what was
21    the basic function and CAG approach from the LIOCATT system,
22    but within the same framework that Witness Degen had
23    proposed.
24         Q    What do you mean by "within the same framework"?
25         A    Well, we didn't ignore the cost pools -- I mean,

                                                             19237
 1    in terms of setting up the variabilities, the cost pools,
 2    the consistency with cost drivers, all that would stay the
 3    same, but there are obviously, as you go forward in your
 4    distribution process, points where you have to make
 5    assumptions in terms to get to sub-class, and we felt using
 6    the basic function and CAG was a better approach at the
 7    current time.
 8         Q    Okay.  Thank you.
 9              Could you turn to page 4, please?
10         A    Yes.
11         Q    There, in footnote 2, you state that you cannot
12    quantify -- this is at the end of the footnote -- that you
13    cannot quantify how fast it has been increasing.  What is
14    the "it" that you are referring to there?
15         A    Well, the particular grouping, they made some
16    changes this time in terms of some things moving from not
17    handling into mixed and some things moving from mixed to not
18    handling.  So, it was slightly different.
19              I did notice that Witness Degen, in his rebuttal,
20    did examine another subset other than the one I had, which
21    was overhead, and he looked at the set of the shape-specific
22    and mixed shapes not handling category and showed the growth
23    in that, as well.
24              So, I think we have that information on the
25    record, also.

                                                             19238
 1              But in terms of the particular movement, where
 2    things that involved an item in container moved from not
 3    handling to mixed and something else moved back, which I
 4    will think of in a minute, but it's slightly different.
 5         Q    I apologize, Ms. Cohen, but I lost in there what
 6    the "it" is.  What is it that you could quantify that you're
 7    referring to in that sentence?
 8         A    That the not handling category, as we're using it
 9    in this case, is somewhat different than the not handling
10    category that we used in the preceding case in terms of what
11    codes are in there and what parts of codes.
12         Q    Okay.
13              So, you couldn't identify the difference between
14    not handling in the last case and not handling in the case? 
15    Do I understand you correctly?
16         A    You can identify comparable pieces, okay?  So,
17    like what Witness Degen did is he looked at the 5610 to 5750
18    series.  So, you can look at that.
19              And I had shown what happened with what was
20    traditionally called overhead, which included the breaks and
21    the clocking in and out and the moving empty equipment, but
22    there are changes that -- with regard to empty equipment and
23    the not handling that make this category this time slightly
24    different, and my direct testimony -- I know it's confusing,
25    and it was confusing -- tried to make it as clear as

                                                             19239
 1    possible -- I explained what, this time, the category had,
 2    but it's somewhat different.
 3              I don't know how better to do it.
 4         Q    Okay.  I'll just ask you one more question.  You
 5    said the category, you tried to identify what the category
 6    included.  What is the category?
 7         A    The not handling as defined by Witness Degen in
 8    this proceeding.
 9         Q    Okay.  Thank you.
10              Still on page 4, at lines 11 to 15, you mention,
11    among other things, sorting outside sacks mechanically, that
12    activity.
13         A    Actually, that should say outsides and sacks, but
14    -- sorry.
15         Q    Outside?
16         A    Outsides and sacks.
17         Q    Okay.  That's helpful.  Could you tell me -- could
18    you describe for me that activity?
19         A    Well, it is -- well, actually, it depends on where
20    it is.  Witness Bradley, actually, for this, used a proxy
21    from the BMCs, but I think that, at MODS facilities, there
22    are not that many, actually, that have this operation, but
23    some do have sack sorting and outside sorting.
24              It is -- it can have a few different
25    configurations, but it can be mostly a conveyor system to

                                                             19240
 1    get the sacks and outsides to a few different locations in
 2    the facility or more traditional sack sort of the type at a
 3    BMC.
 4         Q    Now, you note in lines 11 to 15 that not handling
 5    costs are 50-percent higher in the mechanical sack sorting
 6    activity than they are in the mechanical parcel sorting
 7    activity.  Is that right?
 8         A    Yes.
 9         Q    And then, in the BMC operations that you discuss
10    at lines 20 to 21, it's again the case that not handling
11    costs are 50-percent higher in the case of the sack sorting
12    machine than in the case of the parcel sorting machine.  Is
13    that right?
14         A    Yes.  I did notice that those are actually in
15    comparable directions.  I'm not sure that that makes me feel
16    anymore comfortable about it.
17              I think we found -- I tried to illustrate a few
18    cases.  There are certainly others.  In your own
19    interrogatory to me, we compared LSMs and small parcel and
20    bundle sorters, which had very different not handling
21    percents, as well.
22              These were some examples, but there are others.
23         Q    And they move in the same direction at about the
24    same -- with about the same difference.
25         A    No, not necessarily.

                                                             19241
 1         Q    In the examples you cite.
 2         A    In the two -- the BMC and the MODS, which have
 3    similar kinds of mechanical sorting here, yes, it is in the
 4    same direction.
 5         Q    Okay.
 6              Ms. Cohen, could you turn to page 6 of your
 7    testimony, please?
 8         A    Okay.
 9         Q    And in particular, lines 19 to 23.
10         A    Okay.
11         Q    There you criticize Mr. Sellick for not mentioning
12    in his written testimony the conclusion of the 1992 Foster
13    Associates report that, quote, "additional field operating
14    data are necessary to determine the proper causative
15    attribution of the break and sub-class costs in question and
16    those other costs which are presently attributed as mixed
17    mail or overhead activities," and you cite pages 14256 to
18    14258 of Mr. Sellick's oral cross examination there.  Is
19    that correct?
20         A    Yes.
21         Q    Isn't it a fact that, despite your counsel's
22    attempt to cut Mr. Sellick off in this middle of his answer
23    to your counsel's question on that point, Mr. Sellick later
24    went on to state, in the next page, after the ones you cite,
25    that IOCS was modified to gather more information about

                                                             19242
 1    exactly the question raised in that part of the 1992 study?
 2              I do have the transcript here if you would like to
 3    refer to it.
 4         A    That doesn't affect the field operating data.
 5         Q    Modifications to IOCS to collect data?
 6         A    Oh, that was clearly not what was intended here.
 7         Q    What was not intended where?
 8         A    Well, modifications to IOCS is not what this talks
 9    about.  It talks about getting into the field and looking at
10    operating data to determine what's actually going on in
11    terms of staffing, operations.  You would look at the IOCS
12    as part of that.  It's actually pretty similar to what I
13    think we're going to start, hopefully, soon, to look at for
14    periodicals.
15         Q    Isn't it, in fact, the case that IOCS was modified
16    to ask some additional questions to obtain data associating
17    breaks with the activity that the employee was on break
18    from?
19         A    Yes.
20         Q    And that was done after the 1992 report.  Is that
21    right?
22         A    I don't remember exactly when that was -- when
23    that went in.
24         Q    Well, there is a variable F94-19.  Are you
25    familiar with that at all?

                                                             19243
 1         A    Okay.  I've got it in my book.  Do you want me to
 2    look at it?
 3         Q    Yes, please.
 4         A    92-19?
 5         Q    94-19.
 6         A    Okay.  Which question is it for IOCS?
 7         Q    It's in 18, I believe, but I'll have that for you
 8    in just one moment.  Actually, this is -- you're looking at
 9    the IOCS booklet?  What library reference do you have?
10         A    Twenty-three.
11         Q    Twenty-three.  Okay.
12         A    IOCS dictionary.
13         Q    If you look at a page -- it's actually page 38 of
14    that document, but it's labeled page 20 of 36 on the bottom
15    of the page.  That refers to F94-19.
16         A    Okay.
17         Q    And that says title of item, type distribution on
18    break from?  Is that correct?
19         A    Yes.
20         Q    Okay.
21              Now, do you know what the structure of that SAS
22    item number means?  Does the 94 symbolize anything?
23         A    I am not a SAS programmer.  I'm sorry.
24         Q    Doesn't that -- let me see if I can help you a
25    little bit, and if you don't know, you don't know.  Doesn't

                                                             19244
 1    the 94 indicate when that question or when that particular
 2    item was put into the program, the year, 1994?
 3         A    I'll accept it subject to check.
 4         Q    Okay.  You don't know one way or the other.
 5         A    No.  I didn't use those codes.  I mean they're
 6    used by my people, but I don't know.
 7         Q    Okay.
 8              Ms. Cohen, is it your testimony that Mr. Degen's
 9    distribution keys are piece handlings for the various
10    sub-classes in the various cost pools he deals with?
11         A    That his distribution keys are?
12         Q    Yes.
13         A    No.
14         Q    Is that your testimony?
15         A    No.
16         Q    Pardon me?
17         A    No.
18         Q    Okay.
19              Now, allied operations handle pre-sorted mail, do
20    they not?  Or I should say pre-sort mail is handled in
21    allied operations.  Is that correct?
22         A    It can be.
23         Q    Well, you say it can be.  It is on occasion, at
24    least?
25         A    Yes.

                                                             19245
 1         Q    Okay.
 2              So, it's more than it theoretically can be.  It
 3    actually is at times.  Is that what we're saying?  I want to
 4    make sure we're understanding each other.
 5         A    Well, I mean mail that is pre-sorted will
 6    sometimes be handled in various ways at allied operations.
 7         Q    Okay.
 8              Piece sortation operations do not generally handle
 9    pre-sorted mail.  Is that correct?
10         A    Well, frequently you'll have an incoming
11    secondary.  It would mostly bypass outgoing operations. 
12    Some to carrier route would bypass the incoming secondary at
13    all.  It really depends on the pre-sort.
14         Q    Okay.  It is handled in piece sortation operations
15    to a lesser extent than non-pre-sorted mail.  Isn't that
16    true?
17         A    Yes.
18         Q    Now, if an IOCS data collector at an allied
19    operation observes mixed pre-sorted mail, do you know what
20    activity code would be assigned to that observation in IOCS?
21         A    I'm sorry.  Tell me again?
22         Q    Sure.  If an IOCS data collector takes a tally at
23    an allied operation and he observes mixed pre-sorted mail,
24    do you know what activity code would be assigned to that
25    observation?

                                                             19246
 1         A    Well, do you mean that the employee is clocked
 2    into the allied operations or he's actually at the allied
 3    operations?
 4         Q    Let's assume they're the same for purposes of this
 5    question, that he's clocked in to that operation and that's
 6    what he's actually doing.
 7         A    So, you are assuming he is clocked in and he is
 8    there.
 9         Q    Yes.
10         A    Okay.  They -- well, it would depend on what the
11    mixed mail was.  It probably could get a mixed all shapes of
12    5750.
13         Q    5750.  Could it get a 5610?
14         A    Not if he is at the allied operations.  That's
15    only used if there is a predominant shape association.  You
16    would get that if the employee was at the distribution
17    operations.
18         Q    Only if he was at the distribution operations?
19         A    Yes.
20         Q    Am I correct that Mr. Degen's distribution method
21    distinguishes large CAG offices which are in MODS from
22    smaller CAG offices which are not MODS offices?
23         A    He separates the MODS and non-MODS offices.
24         Q    And aren't large CAG offices MODS offices and
25    smaller CAG offices non-MODS offices?

                                                             19247
 1         A    Well, there's some overlap, but all the CAG A
 2    offices are in his MODS category.
 3         Q    Do you know what proportion of the MODS pool of
 4    the MODS -- let me start over.
 5              Do you know what proportion of the MODS pool costs
 6    are in CAG A?
 7         A    A substantial portion; I don't know the exact
 8    number right now.
 9         Q    Could it be 90 percent or more?  Do you know?  Is
10    that the right order of magnitude?
11         A    I think we were talking about 85 percent for MODS
12    offices in general.  I don't know.  I'd say it's a lot.  I
13    don't know the number.
14         Q    Okay.  Mr. Degen treats BMC costs separately,
15    doesn't he?
16         A    Yes, he does.
17         Q    And in LIOCATT, BMCs are their own CAG or cost
18    ascertainment grouping, aren't they?
19         A    Yes.
20         Q    Now I'd like to ask you a question about non-MODS
21    offices.  Do you know what percentage of total cost segment
22    3 costs non-MODS offices account for?
23         A    I think if I'm remembering the right number that
24    that was roughly the 85-15 split, but I'd have to check
25    that.

                                                             19248
 1         Q    So you think to the best of your recollection now
 2    it's about 15 percent?
 3         A    I think so.
 4         Q    Okay.  Do you know what activity code is assigned
 5    by the IOCS system to an employee who is handling mixed
 6    mail?
 7         A    Is this a general question?  I mean --
 8         Q    Yes.
 9         A    Let me ask the context.
10              Any IOCS data --
11         Q    How about -- well, let me ask you this one.  Yes,
12    any IOCS data collector I assume --
13         A    Okay.
14         Q    That -- I'm looking for the IOCS system, okay?
15         A    Okay.
16         Q    Do you know what activity code is assigned under
17    the IOCS system to not handling mail at an OCR machine?  If
18    an employee is at an OCR machine but not handling mail, do
19    you know that activity code that would be assigned there? 
20    Is that possible to say?
21         A    5610, which is the shape-specific letters.
22         Q    Okay.  And what shapes of mail -- maybe you've
23    just answered it, but let me make it clear.  What shapes of
24    mail are the basis of LIOCATT's distribution key for mixed
25    mail activity code 5610?  Do you know that?

                                                             19249
 1         A    The 5610 is letter-shape; 5620 is flat; 5700 is
 2    parcels.
 3         Q    So for 5610 it would be all letter activity codes
 4    would be the basis of the LIOCATT distribution key?
 5         A    Right, all letter shapes.
 6         Q    Okay.  Do you know if that includes Priority Mail
 7    letters?
 8         A    To the extent that there are letters for Priority
 9    in the direct keys, yes.
10         Q    Do you know if in fact that happens?
11         A    I'd have to look at my numbers, but -- I could
12    check for you.  It would take a few minutes.
13         Q    Could you please?
14         A    Actually, I don't have it by shape here so I would
15    have to -- well, no, I don't.  I would have to go back and
16    check.  Sorry.
17         Q    Okay.  Are you able to check with respect to
18    Express Mail letters?
19         A    Yes, I can check for you.
20         Q    I mean you can't do it now though, in other words?
21         A    No.
22         Q    Okay -- and I take it you are not in a position to
23    check now for presorted letters?
24         A    Well, we know that there are letters.  I mean I
25    think all these categories, to the extent there is letter

                                                             19250
 1    mail in the direct tallies there will be an assignment of
 2    the letter 5610.
 3              MR. McKEEVER:  That's all I have, Mr. Chairman.
 4              CHAIRMAN GLEIMAN:  Mr. Koetting.
 5              MR. KOETTING:  Thank you, Mr. Chairman.
 6                          CROSS EXAMINATION
 7              BY MR. KOETTING:
 8         Q    Good morning, Ms. Cohen.
 9         A    Good morning.
10         Q    I would like to start looking at Footnote 25 on
11    page 13 of your testimony and if you could look at that in
12    your --
13         A    My cryptic footnote?  Okay.
14         Q    Right, and I don't want to belabor this but the
15    footnote cites to LR-146 and earlier this week you filed a
16    Work Paper 1.
17         A    Yes.
18         Q    Would you agree that your work paper does not
19    contain any citations to data that are presented in H-146?
20         A    The data itself is in H-23.  That is where the raw
21    data is and the programs are in 218 which you need to read
22    146 to work with 218.
23              It's kind of not fun for people who don't do SAS,
24    but --
25         Q    I assume we can agree that actually now that

                                                             19251
 1    PMA-RT-1 Work Paper 1 is available that the footnote would
 2    now probably be more accurate and informative if it referred
 3    to that work paper, correct?
 4         A    Sure.
 5         Q    And would you agree that even before that work
 6    paper was available that a reference MPLR-1 might have been
 7    a little more helpful than 146?
 8         A    Well, I mean LR-1 pulls the data from 23, using
 9    146.  I mean I'm sorry because there's a lot of Library
10    References and it has the same data and that's why on the
11    work paper I explained it could be gotten from either place.
12         Q    Let's turn to the substance.  I am still on page
13    13 of your testimony, lines 5 through 9.
14              You are discussing Witness Sellick's proposals and
15    presentations.  Would it be a fair paraphrase of what you
16    are saying on lines 5 through 9 there that you find Witness
17    Sellick's distribution method significantly overstates the
18    volume variable cost of Priority Mail, periodicals and
19    Standard B relative to what you would consider a correct
20    distribution method?
21         A    Yes.
22         Q    And are you drawing that conclusion from your
23    analysis presented at Table 1 there on the bottom of the
24    page?
25         A    That's one of the reasons I say that.

                                                             19252
 1         Q    Well, let's look at that table for a moment.
 2              Does this analysis hold the variabilities constant
 3    between the two allied cost distributions that are
 4    presented?
 5         A    Yes.  I mean in trying to do this illustration I
 6    used Witness Sellick's assumption that all costs were
 7    variable, and so I used the tally costs but reweighted them,
 8    but didn't do the variability adjustment.
 9         Q    Okay.  The first column with numbers in it is
10    labelled as the Allied Distribution on Allied Cost Pools,
11    correct?
12         A    Well, actually the first column is -- oh, I'm
13    sorry.  Are we looking at the work paper or the table?
14         Q    I am sorry.  I am looking at the table, Table 1.
15         A    Right, okay.
16         Q    Is the methodology, the allied distribution on
17    allied cost pools methodology that is reflected in that
18    first column, is that the same methodology as Witness
19    Sellick's proposed method?
20         A    No.  This is a simplification.  I mean I did not
21    have Witness Sellick's work papers fully loaded.  I really
22    couldn't go through and do an exact calculation but I
23    thought it was an important illustration to make, so I made
24    some simplifying assumptions and I used the term
25    "rudimentary" to describe what I had done.

                                                             19253
 1              I simply said if you looked at allied and only
 2    distributed on itself compared to if you distributed it on
 3    everything.  In fact, he did it within cost pools for most
 4    of that.  There were a couple of exceptions across pool but
 5    he would have done it within allied and he also would have
 6    used the items which I didn't play with here.
 7         Q    I think that's the basic point we're trying to get
 8    at, but just to make sure, the second column with numbers in
 9    it, the allied distribution across all costs, would you
10    agree that that isn't actually being -- doesn't actually
11    reflect your proposal or Witness Stralberg's either?
12         A    Oh, I do propose that allied distribution should
13    be done across all cost pools.  Yes, that is exactly what I
14    proposed.
15         Q    But is this derived from your actual distribution
16    keys for mixed mail and not handling mail?
17         A    No, this is derived doing a comparison for Witness
18    Sellick.  I think that the points are -- can be generalized. 
19    I think the conclusions would hold no matter if you used
20    mine.
21         Q    If you could refer to your testimony at page 16. 
22    We're looking at lines 4 through 6, please, specifically
23    where you state no severe distortions result from
24    distributing costs within CAG and basic function because
25    CAGs and basic function are cleaner separations. 

                                                             19254
 1    Individuals do not often move between CAGs or between basic
 2    functions during a work shift.
 3              I think we can all pretty readily agree that
 4    individuals don't often move between CAGs during work
 5    shifts, so if we can put that side of it aside for a moment,
 6    would you agree that basic function is an IOCS concept?
 7         A    Well, not really.  I mean, I know Witness Degen
 8    said that in his rebuttal, but the concept of incoming and
 9    outgoing is certainly integrated in MODS as well.  I think
10    it's a well-known concept throughout the postal system.  So
11    perhaps the measurement, you know, as we define it there in
12    the two pages he talks about, but I don't think it's an
13    alien concept just used for IOCS.
14         Q    Given IOCS sampling procedures, is it possible for
15    an employee to be tallied twice during the same work shift?
16         A    I think it is possible, but I don't think it
17    happens.
18         Q    Okay.  So whether it's theoretically possible or
19    not probably isn't a relevant question, but it doesn't
20    happen.
21         A    Right.
22         Q    And doesn't that imply that there's no IOCS data
23    with which your hypothesis -- your hypothesis being that
24    employees do not often move between basic functions during a
25    work shift -- there's no IOCS data that you could test your

                                                             19255
 1    hypothesis with.  Is that correct?
 2         A    Well, it's not really as if that's an important
 3    idea.  I think we were just trying to do a distinguishing. 
 4    The fact that in the cost pools we know that people move
 5    pretty readily, whereas in basic function certainly at a
 6    certain point in the shift you may switch, you go from doing
 7    outgoing mail to incoming mail, but it's not the same
 8    fluidity that I think you might find in MODS, and that's
 9    what we were trying to distinguish.  So I'm not saying I
10    would test it or have a hypothesis that one could not find
11    someone doing both on the same shift.
12         Q    Well, let's explore that a little bit.  In support
13    of your statement down in the footnote you cite transcript
14    page 26, 13826, which is page 12 of Witness Stralberg's
15    direct testimony.  Do you happen to have that with you?
16         A    Yes, I do.
17         Q    If you would look, please, at lines 6 through 8 on
18    that page and footnote 5.
19         A    Okay.
20         Q    Would you agree that Witness Stralberg's argument
21    is based on the postulation that there is a limited
22    concurrency of the basic functions?
23         A    I think he's talking about the general trends and
24    the fact you know the cycle of the day, you know when the
25    outgoing mail is, the period of time, then the switch to

                                                             19256
 1    incoming, you know, you see more transit during the day.  I
 2    think that concept is what he's going for.
 3         Q    As you were preparing your testimony or any of
 4    your -- you know, I don't want to focus exclusively on your
 5    rebuttal testimony.  I know you've been working on direct
 6    and everything.  Did you ever attempt to verify this point
 7    using IOCS data?
 8         A    To look at whether you have different basic
 9    functions on the same tour?
10         Q    Correct.
11         A    I didn't look at it to see.
12         Q    Okay.  And we sent you some cross-examination
13    exhibits --
14         A    Yes, you did.
15         Q    That I believe you received.  And let me
16    distribute those now.
17         A    Okay.
18         Q    Obviously I could well understand if you haven't
19    had any opportunity to try to replicate these exhibits, but
20    I take it you understand the basic source data that we
21    worked with to come up with the exercise that's --
22         A    Yes, you also used the same sources I did.
23         Q    So would you accept for purposes of these
24    discussions that these tables are an accurate representation
25    of IOCS tally costs by basic function and time of the

                                                             19257
 1    reading?
 2         A    I'll accept that subject to check.
 3         Q    Now the statement from Witness Stralberg's
 4    testimony that you cited to that appears on that transcript
 5    page 13826 is -- there obviously is overlap.  He says
 6    outgoing and incoming operations in postal facilities are
 7    mostly done on separate shifts.  Would you agree that while
 8    his description may be technically accurate depending on how
 9    you interpret words like "mostly," that there is in fact a
10    significant amount of concurrency of the basic functions
11    except at the non-MODS offices?
12         A    Well, if I look at the chart that's all office
13    types, I would say I see a significant difference between
14    them in terms of the outgoing being largest on tour 3,
15    incoming predominant in tour 1, and a combination of
16    incoming and transit on tour 2, which is exactly what he
17    suggested.
18         Q    Nevertheless you would agree that there are
19    also -- is a significant amount of overlap.
20         A    There is overlap.
21         Q    And would you agree that at BMCs, for example,
22    which is chart B, that there's nearly as much incoming as
23    outgoing processing taking place at BMCs at nearly all times
24    of the day?
25         A    Well, I would like to back up one minute and say

                                                             19258
 1    one other thing also.  It is a little hard to draw
 2    conclusions from this because this is really the aggregate
 3    data, and different facilities could have different cutoffs
 4    at times when they switch from one set of processing to
 5    another.  So it's a little hard to tell when you look at the
 6    aggregate.  I mean, you could have a cleaner break at
 7    particular facilities.  But that said, looking at the BMCs,
 8    I would say that not surprisingly they have a more
 9    consistent mix.
10              MR. KOETTING:  Mr. Chairman, at this point I would
11    like to move that these Charts A through D be designated as
12    USPS/MPA-RT-1 Cross-Examination Exhibit Number 1, and I
13    would request that they be transcribed and I believe it
14    would also be appropriate for them to be moved into
15    evidence, since they do contain summations of information
16    that is already on the record in a fairly well accepted
17    format.
18              MR. CREGAN:  Mr. Chairman, we would note that the
19    sources are rather cryptic but we, subject to Ms. Cohen's
20    acceptance of these charts subject to check, we have had no
21    opportunity to analyze them obviously, we have no objection.
22              CHAIRMAN GLEIMAN:  And I will direct that
23    Cross-Examination Exhibit Number 1 be transcribed into the
24    record and admitted into evidence.
25                             [Cross-Examination Exhibit No.

                                                             19259
 1                             USPS/MPA-RT-XE-1 was marked for
 2                             identification, received into
 3                             evidence and transcribed into the
 4                             record.]
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19264
 1              BY MR. KOETTING:
 2         Q    And while we are on this same general topic, I
 3    would like to ask is it possible for someone to move to
 4    another basic function without moving between cost pools as
 5    cost pools are developed and utilized by Witness Degen?
 6         A    Well, the cost pools are an aggregation of
 7    individual three-digit codes, which include some outgoing
 8    and some incoming, and so you do have a combination of
 9    outgoing and incoming mail in each of the cost pools, and I
10    think one of the nice things about using the basic function
11    information is it allows you to distinguish that.
12         Q    For example though, an employee working at a BCS
13    for the duration of the shift could be processing on the
14    outgoing scheme for part of the shift and processing on the
15    incoming scheme for the remainder of the shift, is that --
16         A    I think so.
17         Q    -- a not infrequent occurrence?
18         A    Could be.  That could happen.  I don't know the
19    frequency.
20         Q    Under the circumstances they would be staying
21    within the same cost pool but they would be changing basic
22    function?
23         A    Right, and what I am saying is if you use basic
24    function as part of the distribution you can capture that.
25         Q    Well, let's go back to the statement in your

                                                             19265
 1    testimony on page 16 that we started with.
 2              You say that basic functions, CAGs and basic
 3    functions are cleaner separations, and I guess if you could
 4    clarify cleaner separations than what?
 5         A    Than the MODS cost pools in terms of the ability
 6    of people or the frequency with which people can be moving
 7    between MODS cost pools.
 8         Q    Are you suggesting that there is no ambiguity in
 9    basic function when that is recorded by the IOCS data
10    collector?
11         A    They have been using it for 25 years.  I think
12    it's pretty clean.
13         Q    Let's move to a topic that I think was covered
14    briefly by Mr. McKeever but try to avoid rehashing exactly
15    the same points.
16              Is the MODS CAT a stratum employed by you and
17    Witness Stralberg an aggregate of multiple IOCS sampling
18    strata?
19         A    The MODS A, the CAG A facilities you're saying,
20    including BMCs I guess, is that what you are asking me
21    about?
22         Q    Not including BMCs.
23         A    Okay.  Well, then what sense do you mean strata?
24         Q    Are you aware for example that there are separate
25    strata for the large mail processing plants and the customer

                                                             19266
 1    service facilities like stations and branches?
 2         A    Well, the Function 4 are the station and branches
 3    which are part of the MODS, yes.
 4         Q    Right, and the labor at mail processing plants,
 5    what is referred to in MODS and the NWRS is Function 1
 6    labor, correct?
 7         A    Right.
 8         Q    And the stations and branches is Function 4 labor?
 9         A    Right.
10         Q    And is it your understanding that Witness Degen
11    has separate cost pools for Function 1 and Function 4 labor
12    in the MODS office groups?
13         A    He separates those into different cost pools, yes.
14         Q    Would you agree, on the other hand, that you and
15    Witness Stralberg employ no directly comparable separation
16    because despite the fact -- let me start over again.
17              Would you agree that you and Witness Stralberg
18    employ no directly comparable separation despite the fact
19    that there is a separate IOCS CAG A stratum for the large
20    customer service operations?
21         A    Well, you know, when Witness Bradley does his
22    analysis he doesn't have separate variabilities for those
23    either, so I think, yes, I would say that we treat those
24    together but it is consistent with what Witness Bradley did.
25         Q    For distribution purposes, does this make your

                                                             19267
 1    MODS CAG A group a less clean separation than it could be?
 2         A    Well, no, because people are not moving between
 3    them.  I think that's what we were talking about, the fact
 4    that people could be clocked into one MODS operation and
 5    working in another or clocked into a MODS operation but
 6    functioning in some other place, but they are not going to
 7    be in a MODS facility and at the station and branch.
 8         Q    But doesn't this mean that you are basically
 9    pooling the handling categories at plants and at stations
10    and branches?
11         A    I am treating them together when I do the
12    distribution with the IOCS codes.
13         Q    So you are not keeping them within the same
14    facility necessarily?
15         A    Right.  The tallies are distributed.  Their
16    tallies would go into the general pool that are distributed.
17         Q    Still on page 16, lines 8 through 10 --
18         A    Okay.
19         Q    -- you note that there are variations in the
20    percentages of mixed mail and not handling mail tally
21    observations between the largest and the smallest CAGs.
22              By the smallest CAG do you mean CAG H?
23         A    Yes.
24         Q    Is it your understanding that the MODS, BMC,
25    non-MODS distinction used by Witness Degen separates the

                                                             19268
 1    analysis of cost for the small CAGs from that of the largest
 2    CAGs?
 3         A    Yes.
 4         Q    If we could turn now to page 3 of your testimony,
 5    lines 27 through 28.
 6              And I'm referring to the statement that reads:  In
 7    spite of the significance and magnitude of not handling
 8    costs, the record in this case contains no evidence
 9    pertaining to the causality of these costs.
10              Is it your position that investigating the causal
11    relationship between it's cost driver TPH and cost in the
12    cost pool that Dr. Bradley somehow omitted what you call not
13    handling cost from his cost pool?
14         A    No, that's not what I said.
15              Don't you want me to elaborate?
16         Q    No.
17         A    I didn't think so.  I have a good answer.
18         Q    Well, I'm sure your counsel can handle that on
19    redirect.
20              I think this is my last line, hopefully.  On page
21    11, lines 6 through 15, again I think there's a little bit
22    of overlap here through -- with what Mr. McKeever went
23    through, but maybe we can move through it quickly. 
24    Basically in that paragraph on page 11, you're emphasizing
25    how the allied operations support direct distributions;

                                                             19269
 1    correct?
 2         A    Yes.
 3         Q    And isn't it true that there is a component of the
 4    allied operation workload that relates to mail that does not
 5    require piece distribution in that particular facility?
 6         A    Yes.
 7         Q    And would that mail specifically tend to be
 8    presorted mail?
 9         A    Yes.  The reason that I proposed doing it over all
10    distributions and not just -- over all operations and not
11    just the distribution is recognition that there is in fact
12    workload.  Witness Christensen talked about that as well. 
13    He said you'd have to include the workload at the allied as
14    well as the distribution.  And that I propose to do.
15         Q    On line 15 there on page 11 you're stating that
16    that should be distributed across distribution operations.
17         A    I mean to include across all operations.  I'm
18    sorry.  That wasn't clear.
19              MR. KOETTING:  That's all we have, Mr. Chairman.
20              Thank you, Ms. Cohen.
21              CHAIRMAN GLEIMAN:  Is there followup?
22              Questions from the bench?
23              Ms. Cohen, I have a couple of questions I need to
24    ask you.  When I go through these proceedings I kind of move
25    back and forth between looking at trees and trying to see

                                                             19270
 1    the forest, and I'm at a point where I've moved away from
 2    some trees and I need to look at the forest a little bit. 
 3    Perhaps you can help me understand.
 4              Earlier on Mr. McKeever asked you some questions,
 5    and your response made reference to Witness Christensen and
 6    his endorsement of the immutable link as it appears to be
 7    between Witness Bradley and Witness Degen.  You endorsed
 8    Bradley's attributions flat out and Degen's distributions,
 9    but only if they're modified.  That is, in my mind you found
10    some fault with Witness Degen, but not with Witness Bradley. 
11    Is that correct?
12              THE WITNESS:  Yes.
13              CHAIRMAN GLEIMAN:  Okay.  Now again, having moved
14    back from the -- maybe the buds on the trees to the forest,
15    as I understand Bradley now, after all the discussion we've
16    had in the hearing room, his attributions basically lower
17    the level of the sea for everybody.  Is that pretty much the
18    case?
19              THE WITNESS:  He shows lower attribution for mail
20    processing costs.  Yes.  But it differs at different
21    operations.
22              CHAIRMAN GLEIMAN:  But everybody's attribution is
23    basically good.
24              THE WITNESS:  Well, some are close to 100 percent,
25    but most of them are lower.

                                                             19271
 1              CHAIRMAN GLEIMAN:  When one does this, that is,
 2    lowers the level of the sea, those closer to the margin,
 3    that is, those with the lowest markups, tend to benefit the
 4    most, do they not?
 5              THE WITNESS:  Well, if you continue the same
 6    markup, I mean I guess you have to accept that everything
 7    else stayed the same.
 8              CHAIRMAN GLEIMAN:  If you continued the same rate
 9    and you lowered the level of the sea.
10              THE WITNESS:  Right.  Those people who had less
11    of -- received less of the institutional costs would
12    benefit.
13              CHAIRMAN GLEIMAN:  Would have a higher markup, and
14    if someone then argued -- I don't mean to confuse you.
15              THE WITNESS:  Okay.
16              CHAIRMAN GLEIMAN:  If you lowered the attribution
17    level on mail processing --
18              THE WITNESS:  Right.
19              CHAIRMAN GLEIMAN:  Those parties who are closest
20    to the margin, if you kept the same markup would wind up
21    with a lower rate.
22              THE WITNESS:  Well --
23              CHAIRMAN GLEIMAN:  No?
24              THE WITNESS:  You have to adjust the markup if
25    you're going to recover all the costs.  I mean, you would

                                                             19272
 1    have a higher markup across the board.
 2              CHAIRMAN GLEIMAN:  But the parties, if you --
 3    let's take publications, for example.  If the markup on
 4    publications was five percent, and you decided you wanted to
 5    continue a five-percent markup on publications, and you
 6    adopted Bradley's attribution levels --
 7              THE WITNESS:  Then rates would go down.
 8              CHAIRMAN GLEIMAN:  So people who are closer to the
 9    margin would benefit the most under that example.
10              THE WITNESS:  Well, if you chose to keep the cost
11    coverage the same and you lowered the attributable cost,
12    everybody would have that same situation.
13              CHAIRMAN GLEIMAN:  Let me ask you now a
14    hypothetical.  If the current level of attribution was .5
15    and Bradley's econometric model raised the level of the sea
16    to .9, would you still endorse the use of Bradley flat out?
17              THE WITNESS:  Well, if Witness Bradley did a
18    credible, good job on the variability and I accepted that he
19    represented what the variability was, I would accept it.
20              CHAIRMAN GLEIMAN:  Okay.
21              Thank you.  That's what I needed to know.  I have
22    no further questions.  Do you?
23                      FURTHER CROSS EXAMINATION
24              BY MR. KOETTING:
25         Q    Just to follow up on the Chairman's question, Ms.

                                                             19273
 1    Cohen, he was talking about changes in the overall level of
 2    variability and then he was talking about the results for
 3    specific cost coverages.
 4              Somehow implicit in that question must be
 5    something about distributions if we are going to talk about
 6    specific subclasses, isn't there?
 7         A    Distribution of the attributable costs or the
 8    institutional?
 9         Q    Correct.
10              [Laughter.]
11              BY MR. KOETTING:
12         Q    Distribution of the attributable costs, I'm sorry.
13         A    Right.  Somehow when you take a new attribution
14    level you will have presumably a new distribution of cost
15    that goes with it.
16         Q    The same distribution -- but I mean if you are
17    going to start talking about subclasses my point is you
18    can't just talk about overall changes in variability without
19    either implicitly or explicitly including the distribution
20    methodology in there, correct?
21         A    That's correct.
22              MR. KOETTING:  Thank you.
23              CHAIRMAN GLEIMAN:  By the way, Ms. Cohen, did you
24    do as detailed an examination of Witness Bradley's
25    attributions as you did Witness Degen's distributions?

                                                             19274
 1              THE WITNESS:  No.  I mostly worked on Witness
 2    Degen.  Witness Higgins, who testified on our behalf, picked
 3    up the ball for me and did a more credible job or an
 4    extensive job on Witness Bradley.
 5              CHAIRMAN GLEIMAN:  Extensive.
 6              THE WITNESS:  Extensive, right.  I was correct.
 7              CHAIRMAN GLEIMAN:  Okay.  That brings us to
 8    redirect, counsel.
 9              MR. CREGAN:  Can we have a few minutes?
10              CHAIRMAN GLEIMAN:  Certainly.  Let's take our
11    10-minute break now and then] we'll pick up from there.
12              [Recess.]
13              CHAIRMAN GLEIMAN:  Mr. Cregan, do you have any
14    redirect?
15              MR. CREGAN:  No redirect, Mr. Chairman.
16              CHAIRMAN GLEIMAN:  No redirect.  Well, Ms. Cohen,
17    if that is the case then that ends your testimony before us,
18    hopefully for this case.  We appreciate your appearance here
19    today and your contributions to the record.
20              I would like to note for the record that Diogenes
21    is probably spinning in his grave.  We found an honest
22    person here -- not that everyone else isn't honest, but you
23    are a seeker of the truth, it was clear from your answers to
24    my last question there.
25              THE WITNESS:  Thank you.

                                                             19275
 1              CHAIRMAN GLEIMAN:  And if there is nothing
 2    further, you are excused.
 3              THE WITNESS:  Thank you.
 4              [Witness excused.]
 5              CHAIRMAN GLEIMAN:  Our next witness is appearing
 6    on behalf of Time Warner.  Mr. Stralberg is already under
 7    oath in the proceeding and I have no doubt that Diogenes
 8    would be happy to have Mr. Stralberg on the stand also --
 9    lest we show prejudice towards one witness or another.
10              Counsel, as soon as you are ready, you can proceed
11    to introduce Mr. Stralberg's testimony.
12              MR. BURZIO:  Good morning, Mr. Chairman.  I am
13    John Burzio, appearing on behalf of Time Warner.  Appearing
14    with me at counsel table is Timothy Keegan, and Time Warner
15    calls Halstein Stralberg.
16    Whereupon,
17                         HALSTEIN STRALBERG,
18    a rebuttal witness, was called for examination by counsel
19    for Time Warner, Inc., also on behalf of Alliance of
20    Nonprofit Mailers, American Business Press, Coalition of
21    Religious Press Associations, Dow Jones $ Company, Inc.,
22    Magazine Publishers of America, the McGraw-Hill Companies
23    Inc., and National Newspaper association and, having been
24    previously duly sworn, was further examined and testified as
25    follows:

                                                             19276
 1                         DIRECT EXAMINATION
 2              BY MR. BURZIO:
 3         Q    Would you please identify yourself for the record?
 4         A    My name is Halstein Stralberg.
 5         Q    Do you have with you at the table, Mr. Stralberg,
 6    a document that has been marked for identification as
 7    TW-RT-1 and entitled, "Rebuttal Testimony of Halstein
 8    Stralberg on behalf of Alliance of Nonprofit Mailers,
 9    American Business Press, Coalition of Religious Press
10    Associations, Dow Jones & Company, Inc., Magazine Publishers
11    of America, the McGraw Hill Companies, Inc., National
12    Newspaper Association, and Time Warner, Inc."?
13         A    Yes, I do.
14         Q    Did you prepare that testimony?
15         A    Yes, I did.
16         Q    If you were to deliver your testimony orally
17    today, would it be the same as contained in this document?
18         A    Yes, it would.
19              MR. BURZIO:  Mr. Chairman, I move that TW-RT-1 be
20    received in evidence and transcribed in the record, and let
21    the record show that I am handing two copies to the
22    reporter.
23              CHAIRMAN GLEIMAN:  Are there any objections? 
24    Hearing none, Mr. Stralberg's testimony and exhibits are
25    received into evidence and I direct that they be transcribed

                                                             19277
 1    into the record at this point.
 2              I apologize for misidentifying the witness. 
 3    Sometimes we get a little lost in all the papers and I did
 4    not say Time Warner, et al. and I appreciate the correction
 5    for the record, Mr. Burzio.
 6                             [Rebuttal Testimony and Exhibits of
 7                             Halstein Stralberg, TW-RT-1, was
 8                             received into evidence and
 9                             transcribed into the record.]
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19295
 1              CHAIRMAN GLEIMAN:  Two participants requested oral
 2    cross examination of Witness Stralberg -- United Parcel
 3    Service and the United States Postal Service.
 4              Does any other participant wish to cross examine
 5    the witness?  If not, then Mr. McKeever, when you are ready
 6    to begin.
 7              MR. McKEEVER:  We have no questions, Mr. Chairman.
 8              CHAIRMAN GLEIMAN:  Mr. Koetting?
 9              MR. KOETTING:  Thank you, Mr. Chairman.
10                          CROSS EXAMINATION
11              BY MR. KOETTING:
12         Q    Good morning, Mr. Stralberg.
13         A    Good morning.
14         Q    I would like to start on page 6 of your testimony,
15    lines 26 and 27.
16         A    Okay.
17         Q    You state that mail that bypasses piece
18    distribution produces mostly directly IOCS tallies, correct?
19         A    Yes.
20         Q    What is the basis for that statement?
21         A    Generally what is called direct mail in the mail
22    processing facilities, mail that because of its presort can
23    bypass sorting in that particular facility.  This generally
24    is mail that comes from the mailers and therefore it
25    contains identical pieces.

                                                             19296
 1         Q    So what you are stating at least as one of the
 2    bases for your statement is that it is primarily identical
 3    pieces?
 4         A    Yes, that is one way that you would produce direct
 5    tallies.
 6         Q    Okay.  Now for an identical mail item or
 7    container, to turn into an identical mail tally doesn't the
 8    data collector have to be able to identify the mail as
 9    identical?
10         A    When you say "identical mail tally" you mean for
11    him to identify it as being identical mail?
12         Q    Correct -- yes.
13         A    So by definition he has to identify it as
14    identical mail.
15         Q    If the item is subject to the top piece rule, is
16    there any reason why a mailer-prepared item would be more
17    likely to receive a direct tally than a Postal Service
18    prepared item?
19         A    Yes -- as far as letter in flat trays and bundles
20    are concerned, most of those are subject to the top piece
21    rule and so they would also produce direct tallies.
22         Q    But if it is an item that is subject to the top
23    piece rule, is there any reason why a mailer-prepared item
24    would be more likely to receive a direct tally than a Postal
25    Service prepared item?

                                                             19297
 1         A    In the case of the top piece rule items you are
 2    not talking about items in containers.  You are talking
 3    about individual items being handled, so in those, in the
 4    case of individual items being handled that are subject to
 5    the top piece rule the chances are about the same.
 6         Q    Let's go back to the question I had earlier about
 7    the necessity to be able to identify identical mail as
 8    identical in order for it to be tallied as such.
 9              If the data collector is trying to determine
10    whether in fact the mail is identical, wouldn't that task be
11    harder, for example, if the item is shrink-wrapped?
12         A    shrink-wrapped?  Are you talking about the pallet
13    for example or a bundle or --
14         Q    Anything that would be shrink-wrapped -- pallets I
15    suppose would certainly be an example.
16         A    Well, yes.  If he cannot clearly see through the
17    shrink-wrap, if he sees a bundle of magazines inside the
18    shrink-wrap, he will generally know that it's one magazine.
19         Q    If an item is being cross-docked, do you think it
20    is more or less likely that the shrink-wrap would be broken
21    relative to the case where the item is destined for a direct
22    operation in the plant?
23         A    First of all, you are talking about an item in a
24    strict IOCS sense now, an individual sack being
25    cross-docked?

                                                             19298
 1         Q    I apologize.  Let's say a pallet is being
 2    cross-docked.
 3         A    A pallet is being cross-docked.  And what was the
 4    question about it?
 5         Q    Right -- let's assume we are talking about a
 6    shrink-wrapped pallet.
 7         A    Yes.
 8         Q    And the question is is it more or less likely that
 9    the shrink-wrap will be broken if it is being cross-docked
10    relative to a shrink-wrapped pallet where the item is
11    destined for direct operations in the plant?
12         A    Generally if it is being cross-docked in most
13    cases that would be -- well, it could be shrink-wrapped
14    sacks also, which the IOCS clerks have no ways of
15    identifying, but if it is a -- so that would be a mixed
16    tally, but if it is let's say a pallet with Time Magazine it
17    would be pretty easy for the data collector to see what it
18    is through the shrink-wrap.
19         Q    Since you mentioned Time magazine, let's imagine a
20    pallet with Time magazine and Sports Illustrated on the same
21    pallet.  Would that properly be recorded as identical mail
22    tally?
23         A    Well, I don't believe that ever occurs.  If could
24    happen in the case of copalletization, which is practiced to
25    some extent by some periodicals.  As far as Time and Sports

                                                             19299
 1    Illustrated, first of all, they publish at different times
 2    of the week, and they would in any case not appear together.
 3         Q    Okay.  Well, let's leave my more colorful perhaps
 4    but artificial hypothetical and move to a more general
 5    hypothetical, as you mentioned, just two periodicals that
 6    are being copalletized and appear on a shrink-wrapped
 7    pallet.  You I believe did just suggest that that in fact
 8    can occur.
 9         A    It does occur, although it's a fairly limited
10    extent at this point in time.
11         Q    And when that does occur, would that properly
12    generate an identical mail tally?
13         A    It could if the data collector thinks it's only
14    one magazine, but if he sees there's two, then it should --
15    or if he doubts if they're all the same he should generate a
16    mixed pallets tally.
17         Q    If a sampled employee's driving a tow motor and
18    pulling one or more rolling containers across the platform
19    at the time the data collector is making the observation, do
20    you think it is more or less likely that the data collector
21    will be able to obtain the identical mail information
22    necessary to record it as an identical mail tally relative
23    to the case where the employee is handling a single rolling
24    container manually?
25              Do you understand my question?

                                                             19300
 1         A    Yes.  I am not sure what the rule is in that case,
 2    if he's pulling multiple containers.  I think there is rules
 3    about taking the first container in that case.  In other
 4    words, when he's handling more than one, looking at only a
 5    single container.  In any case, there are very few
 6    containers with identical mail on them.  At least they
 7    represent a very small portion of the IOCS samples.
 8         Q    Would you say that the mail we're talking about
 9    here that bypasses the piece distributions would usually be
10    either on a pallet or on a rolling container?
11         A    That's most likely except in a -- if you have a
12    facility with a sack sorter machine.  It might actually go
13    on a sack sorter and end up at some other part of the dock
14    or a different platform.
15         Q    But it would arrive as either a pallet of sacks or
16    a rolling container of sacks probably?
17         A    Well, generally in that case it comes out in a
18    sorters area, and they put it on the -- they usually do some
19    distribution of the sacks there.  It comes out in what they
20    call a sorters area, which is an area where they do a
21    further distribution to individual trucks.
22         Q    But I believe you did agree that it would more
23    frequently be either on pallets or in rolling containers.
24         A    Most of the stuff that gets crossed up nowadays is
25    pallets or rolling containers.  Yes.

                                                             19301
 1         Q    Let's talk about rolling containers first then. 
 2    In general, do you know how often observations of rolling
 3    containers result in direct tallies?
 4         A    Well, as I mentioned earlier, it's fairly
 5    infrequent.
 6         Q    Would you agree, however, that there is a fair
 7    amount of presorted mail that arrives in rolling containers?
 8         A    Presorted letters do; yes.
 9         Q    I'm staying on this general topic, but I would
10    like to refer you to Exhibit 4 of your direct testimony.  It
11    appeared at transcript 26 page 13863, and if you don't have
12    it or if it's inconvenient --
13         A    I do have my direct testimony.  Give me a minute
14    to find it.  Exhibit 4, you said?
15         Q    That's correct, and I will distribute copies to
16    anybody else who might not have that in front of them.
17         A    And that exhibit has four pages.  Which page did
18    you say?
19         Q    Table 4-1 on the first page.
20         A    Okay.
21         Q    Okay?
22         A    Okay.  I've got it.
23         Q    On that table there are a number of columns, and
24    there's one column -- actually there are two columns that
25    have the phrase mixed over them, and underneath that there

                                                             19302
 1    is a counted column and an uncounted column.  And I would
 2    like to direct your attention to the what I will refer to as
 3    the mixed uncounted column, which would be the third column
 4    of numbers on the table.
 5              Are you with me?
 6         A    Yes.
 7         Q    Would it be correct to say that that mixed
 8    uncounted column reflects nonempty item tallies which have
 9    mixed mail activity codes?
10         A    Yes, they have mixed mail activity codes.
11         Q    And let's look at the pallet line on that table. 
12    In that mixed, you know, counted column, do you see the
13    number of 4374?
14         A    Four million; yes.
15         Q    And in the same line, total nonempty pallet costs
16    are 15099 million; correct?
17         A    Yes.
18         Q    If we were to divide the first number, 4374, by
19    the second number, 15099, I get approximately 29 percent.
20              You can either, if you prefer, accept that subject
21    to check, or I have a calculator here if you'd like to do
22    the division, or --
23         A    You're dividing the uncounted by the counted, by
24    the total.
25         Q    Exactly, the mixed uncounted of 4374 by the total

                                                             19303
 1    nonempty of 15099.
 2         A    Yes, the mixed pallets that were not counted.
 3         Q    And so uncounted pallets then, if that number is
 4    properly calculated at 29 percent, the uncounted mixed
 5    pallets number is about 29 percent of the total nonempty
 6    pallet costs.  Correct?
 7         A    That's what it appears; yes.
 8         Q    Now let's look at the total items line, which is
 9    the very last line on the bottom of the page.  And I
10    basically would just like to do the same exercise in the
11    total uncounted column.  See the number of 66,012?  Correct?
12         A    Yes.
13         Q    And in the total nonempty column we see the number
14    of 1139820; correct?
15         A    Yeah, that's when you include the top piece rule
16    items as well.
17         Q    Correct.
18         A    Okay.
19         Q    And if we do the -- obtain the same percentage, we
20    divide the 66 number by the 1139 number and according to my
21    calculation that's about 5.8 or 6 percent.  Does that seem
22    to be a --
23         A    Well, I'll accept that.
24         Q    Based on your exhibit, doesn't this therefore
25    suggest that pallets are more likely to result in a mixed

                                                             19304
 1    mail tally in the IOCS relative to all items?
 2         A    Well, I think this comparison really makes very
 3    little sense.  As I indicate in my direct testimony, pallets
 4    would more probably be considered with containers.  They --
 5    a pallet is a container that can contain sacks, trays, or
 6    bundles.  And for a shrink-wrapped pallet, for example, to
 7    compare that with an individual letter tray really doesn't
 8    make too much sense.  But I'll agree with your arithmetic.
 9         Q    Isn't the calculation we have done simply an
10    exercise to show the proportion of times that pallets
11    receive mixed mail tallies relative to all items?
12         A    Well, like I said, I agree with your arithmetic.
13         Q    Say that pallets were treated as containers, would
14    they be more or less likely to receive mixed mail tallies
15    under the current IOCS rules?
16         A    They would probably be more likely to receive
17    mixed mail tallies, like other containers who receive almost
18    all mixed mail tallies.
19              If you take a comparison of an APC with a letter
20    tray, although the individual -- the container as a whole
21    may be mixed, if you take an individual letter tray on it,
22    it would probably be a direct tally.
23         Q    I would like to go to page 5 of your testimony. 
24    Here I am back with your rebuttal testimony.
25         A    Okay.

                                                             19305
 1         Q    And I am looking at the first paragraph, in
 2    general, if you want to take a look at that.
 3         A    Okay.
 4         Q    On lines 5 through 9, you describe a scenario in
 5    which the peak of activity in the platform operation in a
 6    major mail processing facility would be in the late
 7    afternoon and be relatively -- a relative level of
 8    inactivity on the platform two or three hours later.  Is
 9    that a fair characterization of what you say on those lines?
10         A    That is what I am saying, yes.  I maybe shouldn't
11    have said major because it, in fact, occurs -- is even more
12    clear in smaller mail processing facilities.  But that is
13    what I am saying here.
14         Q    So you would say that this would hold true at
15    major and small facilities?
16         A    Mail processing plants, yes.
17         Q    Do you know if there are peaks on the platforms at
18    any other times of the day?
19         A    Well, there tends to be peaks on the platform. 
20    This, of course, depends on the facility.  But there is also
21    generally a peak when they have to distribute the mail to
22    the stations and branches and associate offices later in the
23    morning, during Tour 1, there tends to be more activity. 
24    Individual facilities may, of course, have minor peaks at
25    other times.  But, really, the one associated with outgoing

                                                             19306
 1    mail -- with originating mail, in my opinion, is the most
 2    dominant.
 3         Q    You mentioned a peak in the early morning as mail
 4    is dispatched to the stations and branches, correct?
 5         A    Yes.
 6         Q    What about a peak later in the night, that is
 7    relative later, relative to when the collection mail that
 8    you are talking about comes in?  Might there might not be a
 9    peak later in the night that is related to the incoming mail
10    processing windows?
11         A    To the incoming mail processing windows.  Incoming
12    mail, this all depends on truck schedules, of course. 
13    Trucks arrive at facilities from many places and, for the
14    most part, they are spaced out.  It depends on driving
15    distances and so on.  A star route, for example, may have to
16    stop at several facilities.  What is most concentrated is,
17    again, the peaks that I am referring to.
18         Q    Did you attempt to use the IOCS tally information
19    that was available to plot out platform tallies by time of
20    day?
21         A    No.  I would have the same comment to that as on
22    the basic function chart you showed Ms. Cohen, that
23    individual facilities really have different schedules.  So
24    if you try to test that kind of information with IOCS, which
25    really may only have a few samples from each facility, it is

                                                             19307
 1    not clear that the information will be meaningful.  It may
 2    be very clear in an individual facility.
 3         Q    But it is your opinion that employees working
 4    platform operations are the ones that handle collection mail
 5    in most plants?
 6         A    In the processing plants, they generally -- the
 7    platform people are the ones that pull the mail off the
 8    trucks, and usually, there has to be a lot of staging at
 9    that point, and they then bring it inside to the
10    cancellation area, where other employees will take over.
11         Q    So, it's not -- in your understanding, the
12    collection mail is mostly unloaded by employees -- by either
13    the truck drivers or the employees working the cancellation
14    mail prep operation 010.
15         A    It all depends on the facility.
16              Generally speaking, we have mail handlers on the
17    platforms, at least in the larger facilities, who will do
18    that.
19              In smaller facilities, they may not necessarily
20    have mail handlers; it may be the same people who will go
21    out and get the mail and also take it inside and start
22    preparing it.
23         Q    Are there mail handlers assigned to the
24    cancellation mail prep operation for that purpose?  Do you
25    know?

                                                             19308
 1         A    Yes, I believe there may be.
 2              MR. KOETTING:  That's all we have, Mr. Chairman.
 3              Thank you, Mr. Stralberg.
 4              CHAIRMAN GLEIMAN:  Is there any follow-up?
 5              [No response.]
 6              CHAIRMAN GLEIMAN:  Questions from the bench?
 7              [No response.]
 8              CHAIRMAN GLEIMAN:  Would you like some time with
 9    your witness before rebuttal?  Five minutes?
10              MR. BURZIO:  Yes.
11              [Recess.]
12              CHAIRMAN GLEIMAN:  Mr. Burzio?
13              MR. BURZIO:  Thank you, Mr. Chairman.
14                        REDIRECT EXAMINATION
15              BY MR. BURZIO:
16         Q    Mr. Stralberg, in your colloquy with Mr. Koetting
17    about your Exhibit 4 from your direct testimony, do you
18    recall he asked you some questions about the item under the
19    mixed, uncounted table where the number of 4374 appears for
20    pallets, and I believe that, in the course of your answers,
21    you indicated that pallets would be less likely to be
22    treated as a direct tally than other containers.  Did you
23    mis-speak?
24         A    Well, we were talking about the hypothetical case,
25    if pallets were treated like other containers, which I

                                                             19309
 1    believe would be more appropriate, and I may have mis-spoken
 2    and said they would be less likely to produce direct
 3    tallies.  Compared to other containers, they would be much
 4    more likely to produce direct tallies.
 5              MR. BURZIO:  That's all we have, Mr. Chairman.
 6              CHAIRMAN GLEIMAN:  Thank you, Mr. Burzio.
 7              Is there any recross?
 8              [No response.]
 9              CHAIRMAN GLEIMAN:  If there's no recross, then I
10    want to thank you, Mr. Stralberg.  We appreciate your
11    appearance here today and contributions to our record, and
12    if there's nothing further, you're excused.
13              THE WITNESS:  Thank you.
14              [Witness excused.]
15              CHAIRMAN GLEIMAN:  Appearing next is Postal
16    Service Witness Degen.  Mr. Degen is already under oath in
17    these proceedings, and as soon as everybody gets settled in,
18    Counsel, you can proceed to introduce his rebuttal
19    testimony.
20    Whereupon,
21                           CARL G. DEGEN,
22    a rebuttal witness, was called for examination by counsel
23    for the United States Postal Service and, having been
24    previously duly sworn, was examined and testified as
25    follows:

                                                             19310
 1                         DIRECT EXAMINATION
 2              BY MR. KOETTING:
 3         Q    Mr. Degen, could you please identify yourself
 4    formally for the record?
 5         A    Yes.  My name is Carl Degen.
 6         Q    I'm handing you a copy of a document entitled
 7    "Rebuttal Testimony of Carl G. Degen on Behalf of the United
 8    States Postal Service," which has been designated as
 9    USPS-RT-6.  Are you familiar with that document?
10         A    Yes, I am.
11         Q    Was it prepared by you or under your supervision?
12         A    Yes, it was.
13         Q    Does the copy that I have handed you exclude the
14    materials on pages 31, 32, and 33 that were stricken by the
15    presiding officer's ruling earlier this week?
16         A    Yes.  As far as I understood the order, I think
17    that's all been excluded.
18         Q    If you were to testify orally today, would this be
19    your testimony?
20         A    Yes, it would.
21              MR. KOETTING:  Mr. Chairman, I'm going to hand the
22    two copies of USPS-RT-6, Rebuttal Testimony of Carl G. Degen
23    on Behalf of the United States Postal Service, to the
24    reporter and request that they be accepted into evidence in
25    this proceeding.

                                                             19311
 1              CHAIRMAN GLEIMAN:  Are there any objections?
 2              [No response.]
 3              CHAIRMAN GLEIMAN:  Hearing none, Mr. Degen's
 4    testimony and exhibits are received into evidence, and I
 5    direct that they be transcribed into the record at this
 6    point.
 7                             [Rebuttal Testimony and Exhibits of
 8                             Carl G. Degen, USPS-RT-6, was
 9                             received into evidence and
10                             transcribed into the record.]
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19367
 1              CHAIRMAN GLEIMAN:  Three participants requested
 2    oral cross examination of the witness -- the Advertising
 3    Mail Marketing Association, the Alliance of Non-Profit
 4    Mailers, and the American Business Press.
 5              Does any other party wish to cross examine the
 6    witness?
 7              MR. KEEGAN:  Yes, Mr. Chairman.  Timothy Keegan
 8    representing Time-Warner, Inc.  We did not file a notice of
 9    intent to cross examine, but we would like to reserve the
10    right for follow-up cross examination.
11              CHAIRMAN GLEIMAN:  Certainly.  That's not a
12    problem.
13              There is no other party, as best I can tell.
14              So, in that case, Mr. Wiggins, if you're ready,
15    you can proceed.
16              MR. WIGGINS:  Thank you, Mr. Chairman.
17                          CROSS EXAMINATION
18              BY MR. WIGGINS:
19         Q    Mr. Degen, Frank Wiggins for the Advertising Mail
20    Marketing Association.
21              You discuss in the section of your testimony --
22    your capacious testimony -- marked as Roman numeral XXIII,
23    beginning in page 44, the testimony of Gary Andrew.  Do you
24    have that handy?
25         A    Yes, I do.

                                                             19368
 1         Q    And over on page 45, beginning on line 3, you say
 2    Witness Andrew argues that one also needs to distribute
 3    non-MODS costs by sub-groups.
 4              You go on to say, down at the end of that
 5    paragraph, Witness Andrew's criticism may have theoretical
 6    validity, but in this instance, the empirical results show
 7    that it is not a problem, and you then, in the course of
 8    that, refer to Table 7, which shows up on page 46 of your
 9    testimony.
10         A    Yes.
11         Q    I take it that it's your belief that Table 7
12    demonstrates why it is that Dr. Andrew's theoretically valid
13    objection to the distribution of mail processing costs from
14    non-MODS offices is not a problem.  Is that right?
15         A    Yes.
16         Q    I'm having a little difficulty making the
17    connection, and maybe you can help me out.  Witness Andrew
18    testified that, if you redistributed the mail processing
19    costs of the non-MODS offices, the thing that you said is
20    theoretically valid, it would result in a decrease in the
21    measured cost of parcels of 2.3 cents.  Was that your
22    understanding of his testimony?
23         A    I'm afraid I don't have the ability to recall it
24    at this point.  I'd be happy to look at it.
25         Q    Do you have his testimony handy?  If not, I do. 

                                                             19369
 1    If this will be quicker, I'll just hand you Tables 4 and 5
 2    of his testimony, which demonstrate --
 3         A    That would be fine.
 4         Q    -- his development of that.
 5              MR. WIGGINS:  If I may approach the witness, Mr.
 6    Chairman.
 7              CHAIRMAN GLEIMAN:  You certainly may, sir.
 8              BY MR. WIGGINS:
 9         Q    Have you had a chance to look at Tables 4 and 5 of
10    Witness Andrew's testimony, which I believe demonstrates his
11    redistribution of the non-MODs office costs and, at Table 5,
12    demonstrates a restated parcel cost which is 2.33 cents less
13    than what resulted from the Postal Service analysis
14         A    Yeah, I mean I haven't replicated his analysis or
15    gone into it in depth, but that appears to be what he is
16    doing here.
17         Q    Do you have a problem with his calculation?  In
18    your analysis, is the 2.33 cents of decrease in parcel costs
19    an accurate application of his theoretically valid objection
20    to what the Postal Service did?
21         A    No, I am really not comfortable with drawing that
22    parallel.  My impression from reading his testimony, and not
23    specifically these tables, was that he was theorizing that
24    the distribution of costs, if the distribution of costs was
25    done by subgroups within the non-MODs offices, we would get

                                                             19370
 1    a very different distribution of mail.  And my statement in
 2    my testimony is that might be true, but I tried it and it
 3    didn't change.
 4              I really didn't mean to offer a specific opinion
 5    to any of his tables here, and I am not comfortable with you
 6    saying that what I said might have been theoretically
 7    correct has anything to do with these tables.  When I was
 8    talking about his theory, I was talking specifically about
 9    my interpretation of what he was saying, which is that the
10    distribution of costs within subgroup for non-MOD offices
11    would be different than it is in the aggregate, and I showed
12    that it wasn't, and that's -- that's as far as I went.  I
13    can't endorse the theory behind these tables, I really
14    haven't studied that.
15         Q    You can't endorse it, but you can't specifically
16    dispute it, is that correct?
17         A    No, and I don't think I have attempted to in my
18    testimony.
19         Q    What Dr. Andrew did here was a redistribution of
20    the non-MODs office cost by shape, correct?  Distinguishing
21    between parcels and flats.
22              MR. KOETTING:  I think this is getting beyond the
23    scope of Witness Degen's rebuttal testimony.  He
24    specifically cites one page of Dr. Andrew's testimony, which
25    is in fact an Interrogatory response.  And, again, as he

                                                             19371
 1    just stated, his analysis was limited to that particular
 2    statement as illustrated in that Interrogatory response by
 3    Dr. Andrew, and he responded to that point and he didn't
 4    address the substance of Dr. Andrew's direct testimony at
 5    all.
 6              MR. WIGGINS:  Well, the testimony to which the
 7    citation -- there are two citations, I believe.  The first
 8    of them on lines 16 through 18 of page 44 of Witness Degen's
 9    testimony says, "The impact of interaction between
10    individual cost pool variabilities and distribution key can
11    distort the differences between shapes."  And the witness
12    goes on to say, "The empirical results show that it is not a
13    problem."
14              I am citing him to the portions of Dr. Andrew's
15    testimony that show the results of Dr. Andrew's shape
16    redistribution, and I am just trying -- I don't see in Table
17    7 a shape redistribution or a contest with Dr. Andrew's
18    results.  I am just trying to bridge that gap, Mr. Chairman.
19              CHAIRMAN GLEIMAN:  I think you can continue with
20    your line of questioning.
21              BY MR. WIGGINS:
22         Q    What Dr. Andrew does in the two tables that I have
23    put in front of you is to demonstrate the redistribution of
24    non-MODs mail processing costs by shape, is it not, Mr.
25    Degen?

                                                             19372
 1         A    Well, I think I have already said, and I just want
 2    to say this very clearly, --
 3         Q    Sure.
 4         A    -- I am not familiar with what he did with respect
 5    to redistribution by shape at all.
 6         Q    Okay.  And you don't offer any redistribution by
 7    shape?
 8         A    Well, inasmuch as he alleged that the shape
 9    effects were related to the failure or to not do sub-cost
10    pool distribution -- distribution of costs within subgroups
11    of non-MODs, I went through the exercise of doing that
12    distribution by subgroup and non-MODs and, from the point of
13    view of the overall subclass distribution, I don't see a
14    chance.  To the extent his theory regarding shape relies on
15    the fact that that subclass distribution is different, that
16    is the point I have addressed.
17              I am not addressing his specific alternative shape
18    redistribution in my testimony and, to the extent it is
19    independent of the fact that I have shown that the subclass
20    redistribution doesn't change, then it would stand on its
21    own.  To the extent it relies on that fact, then I guess I
22    am disagreeing with it.
23         Q    Understood.  Thank you.
24              MR. WIGGINS:  Mr. Chairman, I have nothing
25    further.

                                                             19373
 1              CHAIRMAN GLEIMAN:  The Alliance of Nonprofit
 2    Mailers.
 3              [No response.]
 4              CHAIRMAN GLEIMAN:  That moves us to the American
 5    Business Press.
 6                          CROSS EXAMINATION
 7              BY MR. STRAUS:
 8         Q    Good morning, Mr. Degen, I am David Straus for
 9    American Business Press.  How many non-handling codes are
10    there?
11         A    Could you be more specific?  You mean how many
12    different activity codes can be assigned to a person who is
13    not observed handing a piece of mail or an item?
14         Q    Yes.
15         A    I don't know off the top of my head.  There would
16    be several classes of such codes.
17         Q    Are you familiar with the major codes?
18         A    Perhaps you could direct me to what you consider
19    to be the major codes and I will tell you if I am familiar
20    with them or not.
21         Q    How about 5610, 5620, 5670 and 5040?
22         A    I need a little refreshing on what 5040 is.
23         Q    But you know what 5610 and 5620 are?
24         A    I believe those are letter and flat shape,
25    respectively, in the case of someone who is observed not

                                                             19374
 1    handling mail but in a shape dominant operation.
 2         Q    And 5700?
 3         A    I understand that to be all shapes, all classes,
 4    the most general mixed mail activity code.
 5         Q    Would you have any way to check what you
 6    recollection of 5700 is, because I believe it is parcel
 7    shape?
 8         A    Yes, I think you are right, I'm sorry.
 9         Q    And the mixed would be 5750?
10         A    Yeah, I think I had those backgrounds.  I'm sorry.
11         Q    And 5620, did we do that one?
12         A    Yeah.  Wasn't that flats?
13         Q    Yes.
14         A    Yeah.
15         Q    Well.  Okay.  So --
16         A    And there is one in there you asked me about that
17    we haven't repeated, 5740.
18         Q    5040.  Well, let's just move on.
19         A    Okay.  All right.
20         Q    If an employee is seen near a flat case, but is
21    not handling, will that result in a 5620 tally?
22         A    I am not comfortable with the characterization of
23    seen near a flat case.  I mean is he --
24         Q    If the IOCS observer observes him standing next to
25    a flat case but he is not handling mail, what kind of a

                                                             19375
 1    tally would produce?
 2         A    Okay.  Can I assume that the data collector has
 3    determined that he is working there?  Or is this somebody
 4    walking by?
 5         Q    He's just there.
 6         A    I am not comfortable with that kind of question. 
 7    I mean --
 8         Q    Well, why not?  I mean is the data collector any
 9    more comfortable with it?
10         A    I believe so.  I think the data collector has the
11    wherewithal to reasonably ascertain whether this person is
12    working there.  For instance, if they are standing in front
13    of the case, it would make a difference than if they are
14    standing behind it.  I mean I think data collectors do have
15    the sense to determine whether or not somebody appears to be
16    working in the flat operation.
17         Q    If the data observer saw that he had just
18    delivered mail to that flat opening unit, and now is doing
19    nothing, having just delivered that mail, then how would
20    that observation be recorded?
21         A    Is it the instant he is let go and he is about
22    ready to turn around and go back, or --
23         Q    Yes.
24         A    I mean the data collector understands that this
25    mail has been delivered to the operation and that he had

                                                             19376
 1    been functioning to deliver mail to that operation?
 2         Q    Yes.
 3              I am trying to find the tally in that case.
 4         A    Yeah.  I don't believe it would be 5620.  Was this
 5    a flat case?
 6         Q    Yes.
 7         A    Yeah.  I don't believe it would be 5620.  I don't
 8    think he would be associated with the flat operation at that
 9    point.
10         Q    Even though the data collector knew he just
11    delivered flats to the flat case?
12         A    Right.  I mean if he knew his purpose there was to
13    bring them from the platform, I don't believe they would
14    associate that under the 5620 rule.
15         Q    What would it be?
16         A    I think the 5750.  Well, no, I'm sorry, I think it
17    would be straight not handling.
18         Q    With no shape reference at all?
19         A    I don't think so.  If he is on his way back from
20    having delivered mail, I don't think they would force that
21    shape connection.
22         Q    What -- you said straight not handling.  What
23    activity code do you have in mind?
24         A    5750, no shape connection.
25         Q    Are any employees logged into opening units

                                                             19377
 1    recorded as 5620 entries?
 2         A    I'm not sure.  I would have to check that, and
 3    even if they were that would not necessarily counter your
 4    example inasmuch as the data collector may have mistakenly
 5    determined that the employee was working in that operation
 6    rather than just delivering mail to it?
 7         Q    Maybe you should explain to me why an employee who
 8    the data collector knows has just been handling flats,
 9    brought them to a flat case, and is about to return would
10    not be recorded with a flat-shaped indicia of 5620?
11         A    My understanding of the 5620 activity code is that
12    it specifically handles cases where a person is working in a
13    shape-dominant operation but not specifically handling mail
14    at the time of sampling, but if the data collector doesn't
15    determine that this person is working in that operation, but
16    rather sees him in transit from that operation I don't know
17    that that is what was intended by that rule.
18         Q    What functions are typically performed by opening
19    unit employees?
20         A    Opening units generally have responsibility for
21    processing containers and items that are entering or leaving
22    the facility.  In terms of an incoming opening unit, their
23    function would be to look at sacks and trays and determine
24    whether that needs to be sorted for direct outgoing dispatch
25    and determine which of those containers or items need to be

                                                             19378
 1    directed to piece sortation operations or bundle handling
 2    operations within the plant.
 3         Q    Would an opening unit employee be traying letter
 4    mail and putting the trays on an APC?
 5         A    Certainly when letter mail was bundled, you saw
 6    some of that.  Now that, you know, bundles are essentially
 7    gone, that is a relatively infrequent activity.
 8              They would be handling whole trays of letter mail. 
 9    They certainly wouldn't be traying up any collection mail or
10    loose letter mail.  I mean that is not the function of the
11    opening unit.
12         Q    But they could be loading trays onto an APC?
13         A    Yes.  They could be loading whole trays onto an
14    APC.
15         Q    And then pushing that APC to another station?
16         A    Possibly yes.
17         Q    And while pushing that container, while the
18    employee is pushing that container would that be a mixed
19    mail cost?
20         A    If the -- well, it would fall into that area if
21    the contents of the container are counted.  It would be a
22    counted item cost that would be distributed based on the
23    proportion, the item proportions inside of it.
24         Q    But he is pushing an entire container.
25         A    Yes, he is.

                                                             19379
 1         Q    And typically that would be -- you said if they
 2    are counted, but typically that would be a mixed mail cost,
 3    wouldn't it?
 4         A    Yes, mixed mail in the broadest sense, but it is
 5    not the same as mixed -- we don't have any idea what is
 6    going on here.  It is mixed in the sense of we have a
 7    container, we know what kind of items are inside of it, and
 8    we'll distribute those items in proportion to the kind of
 9    mail we find in those items.
10         Q    So if you have two employees in an opening unit,
11    one has letters in trays, one has flats in trays, and they
12    both -- the letter employee puts the letter trays in an APC
13    and the flat guy puts the flat trays in an APC and they both
14    start pushing their APCs off to the next station, would you
15    distinguish those costs by container type in your approach?
16         A    I would to the extent the data collector counts
17    the container in each case.  We would distribute the
18    container containing the letter trays according to the kinds
19    of mail we find in letter trays, and we would distribute the
20    costs associated with the flat tubs, if you will, according
21    to the kind of mail we find in flat tubs.
22         Q    So the answer is at times yes, you would
23    distinguish, so that the letter cost would be imposed upon
24    letter mail and the flat cost on flat mail?
25         A    Well, I think more than "at times" -- to the

                                                             19380
 1    extent the contents of those containers are counted it would
 2    always happen.
 3         Q    Okay.  Now let's assume that these two employees
 4    reach their station as we discussed before and they let go
 5    of the cart and they are standing there talking to the
 6    person at the next station or just getting ready to move
 7    back to the loading dock, or maybe they are waiting for an
 8    empty cart to bring back to the loading dock.
 9              Is this wasted time in your opinion or is it
10    associated with a function?
11         A    Well, you slipped in a new wrinkle there in that
12    he is standing there chatting with the guy at the case.
13         Q    Forget the chatting part.
14         A    Okay.  No, I don't view that as wasted time.  I
15    view that as productive time.
16         Q    And how again would that time be recorded?
17         A    I believe 5750.
18         Q    Do you know the extent of the 5610 costs in
19    opening units?
20         A    No, I don't.  Not off the top of my head.
21         Q    What about in pref. opening units?
22         A    No, I don't have those data in front of me.
23         Q    What would account for the 5610 costs in a pref.
24    opening unit?  What kinds of activities?
25         A    I believe it would be the data collector's

                                                             19381
 1    understanding that at the point such an employee was
 2    observed that they were associated with a letter sortation
 3    operation.
 4         Q    At an opening unit.
 5         A    Well, or if they're delivering mail and the data
 6    collector misinterprets them as actually working in that
 7    unit and gives them a 5610 code, I believe that's where that
 8    would come from.
 9         Q    So if there are say $30 million of 5610 costs at
10    pref. opening units, 5610 not handling costs -- we're still
11    on not handling.
12         A    Right.
13         Q    Again, what kinds of activities would that be?
14         A    If at the time that tally was taken the data
15    collector associated that employee with one of the
16    operations for which they're instructed to classify not
17    handling as 5610.
18         Q    Right.  But you're telling me what the observer
19    does.  And what kinds of observations by -- of the employees
20    would lead the collector to record a 5610?
21         A    I think that's what I just answered.
22         Q    No, I think you gave me a general description, and
23    I'm asking for a specific activity.  You said if he thought
24    it was associated with a letter-opening activity.  I'm
25    saying what specifically -- what kinds of activity.

                                                             19382
 1         A    If it looked like the employee was working there.
 2         Q    Like what?  Doing what?
 3         A    Sorting mail, moving mail from the container onto
 4    ledges, for instance.  In your example we're leaving the
 5    container --
 6         Q    Aren't those handling costs rather than not
 7    handling costs?  I'm looking for the 5610 not handling costs
 8    at the pref. opening unit.
 9         A    Well, they're not all handling costs.  If you're
10    unloading a container when you have the piece you're taking
11    out of the container and putting it to the ledge, you're
12    handling.  If you're going back to container, you're not
13    handling.  There's a lot of opportunity to observe someone
14    not handling, even though they're in an operation that we
15    would all generally associate with handling mail.
16         Q    So you're saying then that if somebody is moving
17    back from the ledge to get more letter-shaped mail it would
18    be a 5610.  But if someone --
19         A    No, I'm not saying that.  I'm saying if the data
20    collector believes that employee is working in that
21    operation, they correctly associate the fact that that
22    person isn't handling mail with the 5610 activity code,
23    because they believe them to be associated with a
24    piece-handling operation.
25         Q    But if that same employee is seen delivering that

                                                             19383
 1    tray or having just delivered that mail to an opening
 2    unit -- from an opening unit -- that would not be a 5610.
 3         A    No, if it's clear you're on the way back, I don't
 4    believe so.
 5         Q    But if you are on the way back from the ledge to
 6    the container it would be?
 7         A    Because in some cases the unloading of containers
 8    would be performed by employees working in that operation,
 9    and in other instances, time permitting, the opening unit
10    person may be helping out.
11         Q    Okay.  So, the employee who has just delivered
12    letters from the opening unit, his time would not be
13    recorded as a letter cost.
14         A    Could you be more specific?
15         Q    For example, if the man -- the employee -- excuse
16    me -- who delivered the cart, the APC, dropped it off and is
17    starting his return trip.
18         A    And a portion of his time will be recorded as
19    letter cost to the distribution of mixed mail within the
20    opening unit operation.
21         Q    But unrelated to his activity at the time, though. 
22    It wouldn't matter what he was doing at that time, it still
23    would have been distributed the same way.
24         A    No.  We use the fact that he's clocked in to the
25    opening unit to distribute his time into proportion of the

                                                             19384
 1    kinds of mail that are handled in the opening unit.  So, his
 2    activity is very much taken into account.
 3         Q    His activity in delivering letters to a letter
 4    sorter is not taken into account, is it?
 5         A    Inasmuch as -- I would say that, to the extent
 6    that that activity is a certain proportion of general
 7    opening unit activities, it would be precisely taken into
 8    account.
 9         Q    Yes, but you only take into account on the basis
10    in proportion to the direct tallies, don't you?
11         A    Yes, specific to that opening unit.
12         Q    So, the ratio of direct tallies would tell you how
13    you would distribute all of the costs of bringing mail from
14    the opening unit to processing stations.
15         A    No.  It would only tell you how to distribute the
16    costs associated with the return trip when the employee is
17    not observed with an item or container in his hand.
18         Q    What about the trip going if it's a mixed mail
19    cost?
20         A    Well, if it's a mixed mail cost, then I'll assume
21    for purposes of this discussion that it's a counted
22    container that he's using.  Then we use the fact that that
23    -- are we talking a flat case here or a letter case --
24    letter case.
25         Q    Letter case.

                                                             19385
 1         A    If he's observed pushing a pie cart, if you will,
 2    full of trays and we know that it's full of trays, those
 3    costs are all basically going to go to the kind of mail
 4    that's in trays, which is letters.
 5         Q    Please look at page 1 of your testimony.
 6         A    Yes, I have it.
 7         Q    On line 10 and 11, you use the phrase "economic
 8    marginal cost."  Could you define that, please?
 9         A    I understand marginal cost to be the cost
10    associated with producing an additional unit of volume.
11         Q    I asked about the phrase "economic marginal cost."
12         A    Perhaps "economic" is a little redundant in that
13    phrase.  I'm not sure people outside of economics talk about
14    marginal cost.
15         Q    You aren't using -- you didn't mean economic
16    marginal cost as opposed to some other kind of marginal
17    cost.
18         A    No, I did not.
19         Q    So that sentence means that you must distribute
20    processing costs the way you've proposed here in order to
21    determine the marginal cost?
22         A    There's a couple elements to my distribution
23    methodology perhaps that maybe have not been adequately
24    distinguished to this point.
25         Q    Is this in response to my question?

                                                             19386
 1         A    Yes, it is.
 2         Q    Okay.
 3              One element of my distribution methodology is what
 4    to do with mixed mail, and how you estimate, you know, what
 5    the underlying sub-class detail of mixed mail is certainly
 6    not dictated by the desire to get marginal cost.
 7              When I'm referring to my distribution methodology,
 8    I'm specifically referring to the fact that Dr. Bradley has
 9    estimated for me the portion of each cost pool that is
10    volume variable, and I need to keep those costs associated
11    with the mail that's being handled in that particular cost
12    pool, and in that sense, my distribution methodology needs
13    to be done the way I do it independent of my mixed mail
14    distribution.
15              And that is the only way to determine marginal
16    costs?
17         A    The sentence I have in lines 9 and 10 says, "I
18    will explain why the distribution of mail processing costs
19    must be done the way the Postal Service has done it in order
20    to provide economic marginal cost."
21              What I am really saying there is given the cost
22    pool framework and Dr. Bradley's variability estimates, my
23    distribution methodology is the piece that completes that
24    puzzle.
25              I do not mean to say that there is not some

                                                             19387
 1    completely different approach that might get to you to
 2    marginal cost.
 3         Q    Please turn to page 3 of your testimony, the
 4    sentence beginning on line 5.  You say, "Under the new
 5    method not handling tallies are effectively ignored in most
 6    cost pools."
 7              What happens to those tallies?
 8         A    The tallies themselves are not used.  The costs
 9    associated with those tallies -- well, all the costs
10    associated with the cost pool are part of the pool of costs
11    to which I apply Dr. Bradley's variability.
12              Dr. Bradley's variability analysis for the pool as
13    a whole segregates nonvolume variable costs from volume
14    variable costs.  Some of those nonvolume variable costs may
15    be not handling.  Some of the nonvolume variable costs may
16    be direct.  But he has done the causality test to determine
17    that some portion of that pool's costs are not volume
18    related and in terms of what happens to those, we do not
19    distribute them to classes of mail but my understanding is
20    they are collected in the form of markup on the final
21    attributed costs.
22         Q    But you do distribute the nonhandling costs?
23         A    No, that is not an accurate statement.
24              I distribute the portion of costs that Dr. Bradley
25    has associated with volume variable -- the portion of costs

                                                             19388
 1    that Dr. Bradley has identified as volume variable.
 2              Some of those may be not handling.  Some of those
 3    may be direct.
 4         Q    When you say they are effectively ignored, you
 5    mean they are not part of the distribution key?
 6         A    No.  I mean more than that.
 7              Under LIOCATT the formation of cost pools uses the
 8    not handling tallies to determine the size of the cost pool.
 9              My cost pool costs are independently determined
10    through use of NWRS and MODS data so I don't need to rely on
11    the not handling costs to measure that portion of my cost
12    pool.
13         Q    On that same page you discuss the growth in the
14    not handling and mixed mail costs and say that it is in part
15    due to a change in the IOCS Question 20 instruction in 1992.
16         A    Yes.
17         Q    Do you see that?  And that instruction was that
18    collectors should not ask an employee to pick up mail?
19         A    That's correct.
20         Q    How much did that change affect the mixed mail
21    costs?
22         A    I don't know off the top of my head.
23         Q    You wouldn't expect it to be large, would you?
24         A    I'd have to think about it to offer an opinion
25    either way.

                                                             19389
 1         Q    Well, it is true, isn't it, that prior to that
 2    change instruction there was no contrary instruction?  They
 3    were not asking people to pick up a piece of mail.  They
 4    just more or less in 1992 clarified that they should not do
 5    it.
 6              MR. KOETTING:  Could I get a clarification on what
 7    I think is the question that is still under discussion here?
 8              You asked about the effect of the change on not
 9    handling costs or on mixed mail costs?
10              MR. STRAUS:  I don't remember, but the witness
11    heard the question and gave me an answer so I don't --
12              MR. KOETTING:  I would like for the record to be
13    clear as to what the question was so that the witness can
14    make sure that he heard the question correctly.
15              MR. STRAUS:  I am sure the record is clear.  My
16    memory is not.
17              MR. KOETTING:  Well, then I would ask that it be
18    read back -- if counsel doesn't remember what the question
19    was.
20              CHAIRMAN GLEIMAN:  Can you read the question back?
21              [The reporter read the record as requested.]
22              MR. KOETTING:  I think the question really was
23    phrased in terms of a mixed mail cost when the previous
24    conversation had been in terms of a not handling cost.
25              CHAIRMAN GLEIMAN:  Well, I am glad that you now

                                                             19390
 1    understand what the question was.  You can move on now, Mr.
 2    Straus.
 3              BY MR. STRAUS:
 4         Q    Do you know how much of a change in not handling
 5    costs resulted from the instruction in 1992?
 6         A    If you mean can I specifically quantify the change
 7    in not handling costs associated specifically with that
 8    change in instruction, the answer is no, I cannot.
 9         Q    Was that instruction then reversed in 1996?  Your
10    footnote at page three.
11         A    I would not characterize it as a reversal.  I
12    believe additional instructions were given so that employees
13    could associate a piece of mail with a sampled employee in a
14    non-subjective manner.
15         Q    Even with the 1992 change, didn't the not handling
16    costs increase from less than 20 percent in 1986 to about 28
17    or 29 percent in 1991, which is before the change in
18    instruction?  I'm looking at your graph on page four.
19         A    Yes, that's approximately correct.  I don't have
20    the actual specific numbers associated with each bar, but
21    that's approximately correct.
22         Q    That's about a 40 percent increase in not handling
23    costs?
24         A    Well, to go from, what did you say, 20 to about
25    30, is about ten points.

                                                             19391
 1         Q    From 20 to about 28.
 2         A    So it'd be about eight points.
 3         Q    About 40 to 50 percent increase in not handling
 4    costs prior to the change in instruction?  I'm not saying
 5    percentage point increase.  I'm saying a percentage
 6    increase.  I understand it's --
 7         A    You are looking at the percentage change in the
 8    percentage?
 9         Q    Yes.  If it goes from 20 percent to 30 percent,
10    that's a 50 percent increase in the percentage; isn't that
11    right?
12         A    Yes, that's the percentage change in the
13    percentage; yes.
14         Q    So we could then say that between 1986 and 1991,
15    as a percentage, the not handling costs increased in excess
16    of 40 percent?
17         A    Well, the percentage went up about eight points
18    and the percentage increase in the percentages,
19    approximately 40 percent.
20         Q    From 1986 to 1996, they about doubled; right?
21         A    The percentage of not handling approximately
22    doubled; yes.
23         Q    On page eight of your testimony, the sentence
24    beginning on line six.
25         A    I have it.

                                                             19392
 1         Q    My high school English teacher would charge you
 2    for dangling that participle there, and the reason is you
 3    can't understand what it means.  You say "instead of
 4    rejecting the new method," who are you talking about there,
 5    the Postal Rate Commission, the Postal Service?  Who would
 6    be doing the rejecting in that sentence?
 7         A    Anyone.  I basically mean to say no one should
 8    reject the new method because it makes different assumptions
 9    in LIOCATT, that there should be different criteria used to
10    evaluate it.
11         Q    Are you suggesting that the Rate Commission or the
12    Postal Service should test the assumption underlying your
13    method?
14         A    No, I think I'm much more along the lines of Mr.
15    Stralberg when he invokes the application of common sense
16    and our operational knowledge to the evaluation of the
17    assumptions.
18         Q    So you think that a comparison of assumptions is
19    just as good as a testing of assumptions?
20         A    I think I've tried to make it clear in my
21    testimony that these aren't really the kinds of assumptions
22    you are testing.  There doesn't seem to be a dispute in this
23    record that the sub-class distribution across cost pools
24    differs, and I find that's sufficient information to say
25    that costs should be distributed -- mixed mail costs should

                                                             19393
 1    be distributed within the cost pool.
 2              I've seen testimony from several Intervenors
 3    making it very clear that when you find a tray in the
 4    collection operation, it's probably going to have first
 5    class single piece in it, and to me, that tells me that if I
 6    take the mixed mail costs associated with collection mail
 7    and distribute them on a broader key, that is not as good an
 8    assumption as saying a tray in collection that we don't know
 9    the contents of is more likely going to have the contents of
10    the other trays we do know the contents of within the
11    collection operation.
12         Q    Again, I mean that's a nice answer and it's long,
13    but you are relying still on comparing the common sense of
14    assumptions rather than testing those assumptions, and you
15    say Mr. Stralberg did not test assumptions.  He's not in a
16    position to conduct those tests, is he?
17         A    I'm not sure really any of us are in a position to
18    conduct those tests, and your earlier characterization that
19    I rely only on common sense is not true.  I thought my
20    answer made it clear that I'm also relying on what I believe
21    is the consensus in the record that the sub-class
22    distributions do differ by cost pool.  I mean that's an
23    important point.  If there were a dispute about that, we
24    might want to test it, but my understanding is there is
25    agreement about that, and given that, I don't think it's a

                                                             19394
 1    big leap of faith to say that cost distribution should be
 2    done within the cost pool.
 3         Q    You do testify on page 9 that the proportions and
 4    composition of direct mixed and not handling tallies vary
 5    across cost pools.  Isn't that right?
 6         A    Yes.
 7         Q    Does the extent of clocking into one pool and
 8    working in another pool also vary across cost pools?
 9         A    To the extent that I think that's a negligible
10    amount, I think it's a negligible amount in all cost pools,
11    and to that extent I wouldn't say it varies -- the variation
12    in it would matter.
13         Q    Your conclusion that it's a negligible amount, is
14    that common sense or is that an assumption or is that
15    tested?
16         A    It's tested to the extent that Dr. Bradley's
17    estimates are robust in terms of his ability to explain the
18    hours associated with a particular cost pool by the cost
19    drivers he uses for that pool.
20         Q    Do you agree with Postal Service Witness Steele
21    that a good manager shifts employees around to maximize
22    productivity?
23         A    Yes, I do.
24         Q    And do you know whether those shifted employees
25    reclock every time they're shifted?

                                                             19395
 1         A    My understanding is they don't reclock every time
 2    they're shifted, but to the extent we're talking about cost
 3    pools, my understanding is that they do reclock when they're
 4    shifted, so that you may move from one three-digit MODS
 5    operation to another within a general group of operations. 
 6    Maybe, you know, you've switched from incoming to outgoing
 7    within a manual distribution operation.
 8              My understanding is that that reclocking is not
 9    always done, but those employees are generally under the
10    supervision of a single supervisor.  I think supervision is
11    closely aligned with the cost pool definitions we've
12    created, so that I would find it unusual for people to move
13    among supervisory domains without reclocking.
14         Q    What are brown sacks supposed to be used for?
15         A    In general they're used for periodicals.
16         Q    And you understand that not everything in brown
17    sacks is periodicals?
18         A    Yes, I do.
19         Q    Do you understand that some periodicals are not in
20    brown sacks?
21         A    Yes, I do.
22         Q    Have you ever discussed sack shortages with
23    printers or Postal Service field personnel?
24         A    I must have, because I'm certainly aware of the
25    problem.

                                                             19396
 1         Q    And to the extent there are sack shortages, you
 2    might find stuff in the wrong-color sacks.
 3         A    That could be a possible reason; yes.
 4         Q    You say, beginning on line 8 of page 11, something
 5    I think you expounded upon before in one of your answers,
 6    which is that you say there's no evidence that mixed mail
 7    costs would not have the same subclass distribution as
 8    direct costs in a pool defined by operation group and item
 9    or container type.  Is there any evidence that they would?
10         A    Yes.
11         Q    And what is that evidence?
12         A    Well, I'll go back to my earlier example about
13    collection mail, that when we observe a tray in a collection
14    operation and for whatever reason we don't invoke a top
15    piece rule or we associate a non-handling tally with it, the
16    evidence is clear that presort mail should not be passing
17    through cancellation.  I mean, it may happen, but most of
18    the time, it doesn't, and so there is strong operational
19    evidence that the containers observed in that cost pool have
20    a very focused, a very specific distribution, if you will,
21    related to the kinds of mail that are handled in that cost
22    pool, just the same way that I would not expect, you know,
23    the time spent in letter sorting operations to be related to
24    flats or vice versa.
25              I mean, it may happen, but there's clearly a

                                                             19397
 1    dominant subclass distribution in cost pools that differs
 2    from other cost pools.
 3         Q    But the extent of that domination differs among
 4    cost pools, and you have given some examples in which your
 5    conclusion, you believe, is strongly reinforced.  There are
 6    others where the relationship is less dominant; isn't that
 7    the case?  Such as opening units.
 8         A    No, I -- I think I have given examples that are
 9    very clean, you know, for illustrative purposes.  That
10    doesn't mean to suggest that I don't believe that the
11    underlying subclass distribution in any cost pool isn't
12    strong enough to warrant distributing costs within it.
13              I mean, I gave an example where there would be a
14    pattern of a single underlying subclass, but if you had a
15    pattern of three or four, that would not weaken my assertion
16    at all.
17         Q    Your assertion is based I think you said on your
18    belief.
19         A    No.  The operational realities of the work room
20    floor was my basis.
21         Q    That could be tested, though, couldn't it, by
22    counting the mixed mail samples at the same cost pools where
23    the direct tallies are observed?
24         A    I think we went through this when I testified on
25    direct, that, you know, once you count them, they're not

                                                             19398
 1    mixed anymore.  I mean, my understanding is, for whatever
 2    reason the mixed aren't countable, to test that, you somehow
 3    have to override those or predict, absent the presence of
 4    your testing people, which ones, in fact, would have been
 5    mixed.  I think you have to make a lot of assumptions to try
 6    and create such a test.
 7         Q    Well, you say uncountable.  That's uncountable in
 8    the terms of interfering with the ongoing mail processing,
 9    but a special test to determine the validity of your thesis,
10    anything is countable, isn't it?
11         A    I think that's technically true, but I have never
12    been aware of the Postal Service's willingness to tolerate
13    holding up the mail.  I mean, my understanding is they've
14    never compromised that.
15         Q    As the old joke goes, it happens all by itself?
16         A    It's an old joke.
17         Q    Getting back to common sense and assumptions, on
18    page 12 of your testimony, on line 11, you list the first of
19    what you call a straightforward assumption, which is that
20    the subclass distribution of uncounted items is the same as
21    the subclass distribution of counted items within the cost
22    pool.  Are you recommending that the Commission reverse the
23    determination it made in R94-1?
24         A    If it's contrary to that, I am.
25         Q    And then after stating your second assumption, you

                                                             19399
 1    say that common sense tells you that the assumptions are
 2    true or more nearly true than the alternative.  Are mail
 3    processing costs 100 percent variable?
 4         A    I do not believe they are.
 5         Q    Didn't common sense tell us for about 25 years
 6    that mail processing costs were 100 percent variable?
 7         A    I think that may have been more of convenience
 8    than common sense.
 9         Q    And Dr. Bradley tested that conclusion and found
10    it to be wrong, didn't he?
11         A    Dr. Bradley tested the volume variability of costs
12    within cost pool.  The previous assumption of 100 percent
13    variability applied generally to mail processing costs but
14    did not apply specifically to the cost pools as I have
15    defined them.
16         Q    Well, wait a minute.  If it's 100 percent across
17    all cost pools, how can it be something other than 100
18    percent within each individual cost pool?
19         A    I can explain that.
20         Q    Okay.
21         A    And the reason is because under LIOCATT, not
22    handling mail costs were not distributed within cost pools. 
23    In essence, not handling mail costs were treated as variable
24    with respect to all mail processing, but not variable with
25    respect to a specific cost pool, and that's an important

                                                             19400
 1    difference.
 2         Q    Nevertheless, Dr. Bradley's conclusion about less
 3    than 100 percent variability would require, if adopted, the
 4    Commission to cast aside what everyone assumed to be the
 5    case for 25 years.
 6         A    Well, my recollection is that previous dockets are
 7    filled with people questioning that assumption, so your
 8    characterization that everyone assumed it to be true I think
 9    is wrong.
10         Q    Well, the Postal Service assumed it to be true.
11         A    I am not even sure that's true.  I mean they used
12    it because it was there.  I mean it was the best assumption
13    they could make.
14         Q    Even though they didn't -- and they didn't think
15    it was a valid assumption but they used it anyway?
16         A    They didn't have any evidence to the contrary.
17         Q    Did they try to develop evidence to the contrary?
18         A    I am not in a position to address that other than
19    the work with which I am familiar that supports their
20    proposal in this docket.
21         Q    Is Dr. Bradley's work dependent upon some new
22    invention or theory that was developed only in the past year
23    or two, or could that study have been done 10 or 15 years
24    ago?
25         A    It would have been very difficult to do it 10 or

                                                             19401
 1    15 years ago.
 2         Q    It was difficult to do it now, wasn't it?
 3         A    I don't think so, I think it was very
 4    straightforward.
 5         Q    I would like to direct your attention to page 16
 6    of your testimony.
 7         A    I have it.
 8         Q    You say that employees and the Postal Service have
 9    strong incentives to have the clock ring data correct.  Do
10    you see that?  Line 9.
11         A    Yes, I do.
12         Q    What do you mean by employees there?
13         A    Well, I mean that if employees want to get paid,
14    they need to be clocked into an operation.
15         Q    But they don't need to be clocked into the right
16    operation, do they?
17         A    Not in terms of getting paid.
18         Q    So their real incentive is to clock in as quickly
19    as possible, not to clock in as accurately as possible,
20    isn't that right?
21         A    I don't believe that is true.  I think they are
22    penalized for clocking in too early or too late from a
23    designated start time.
24         Q    Are they penalized for clocking into the wrong
25    operation?

                                                             19402
 1         A    Not in terms of their pay, but I would expect that
 2    if they were found clocked into the wrong operation, it
 3    would bring some kind of supervisory reprimand.
 4         Q    So if there's -- if the start time is exactly 8:00
 5    o'clock a.m. and there's one place to clock in that's two
 6    feet away, another that is 200 yards away, in neither case
 7    would that employee be clocking in too early, -- never mind,
 8    I'll withdraw that.
 9              You call, on line 19, you call MODS an accounting
10    system.  Could you tell me what you mean by that?
11         A    Yes.  When I refer to it as an accounting system,
12    I am really referring to the underlying time and attendance
13    system from which MODS hours are derived.
14         Q    So you are saying the data are from an accounting
15    system?
16         A    The hours data, yes.
17         Q    Was the MODS system designed to relate costs of
18    operations to subclasses?
19         A    Not directly.
20         Q    I would like to direct you to page 21 of your
21    testimony, specifically, the statement beginning at line 13. 
22    You saw that both Witnesses Stralberg and Cohen recommend
23    that all not handling costs be treated as institutional.  Is
24    that a correct statement?  Is your testimony correct?
25         A    Given the way you are asking it, I am sure there

                                                             19403
 1    is some detail I have overlooked, so --
 2         Q    Well, let me ask you about your reference.  What
 3    did you read from which you concluded that?
 4         A    I don't have a specific reference and you will
 5    probably make me wish I had put the word "essentially" in
 6    there somewhere.
 7         Q    No, I wish you had put "not all" instead of "all".
 8         A    Yeah.  Okay.
 9         Q    I am just wondering, you know, you reach this
10    conclusion that they recommend all not handling costs.  Do
11    you have their testimony with you, that you are rebutting?
12         A    Yeah, I think I have both of theirs here.
13         Q    Could you make take a quick look at, say, Ms.
14    Cohen's testimony and see what you might have had in mind
15    with that statement?
16         A    Well, I can explain what I had in mind with that
17    statement.
18         Q    I know what you had in mind by explanation.  I
19    want to know what in her testimony you relied on for your
20    conclusion.
21         A    I relied on the recommendation that not handling
22    costs be removed from the cost pools.  And I don't think we
23    need specific citations for that, I think that is pretty
24    clear in both of their testimonies, that we not distribute
25    not handling costs within a cost pool.

                                                             19404
 1         Q    Let me read you from Ms. Cohen's testimony, page
 2    36, beginning at line 15.
 3         A    This is her rebuttal testimony or the direct
 4    testimony?
 5         Q    No, the testimony that you rebutted from which you
 6    drew this conclusion.
 7         A    What page were you on, sir?
 8         Q    Page 36.
 9         A    Okay.
10         Q    She says, "I recommend that the Commission
11    similarly use its statutory discretion in this case to
12    refrain from attributing to classes and subclasses of mail
13    the portion of volume variable mixed mail and not handling
14    costs that is due to inefficient operations.  Do you
15    translate the portion that is due to inefficient operations
16    to mean all?
17         A    No, I do not.
18         Q    Do you know what portion she was talking about
19    there?
20         A    Well, I think there has been considerable
21    discussion in this docket that we -- that she -- I think,
22    and I can't quote the exact spot, but at one point she says
23    I don't know what the number for not handling is.  So I
24    don't think I can say proportion she was referring to, and I
25    believe she has admitted in her testimony that she doesn't

                                                             19405
 1    know what the number is.
 2         Q    Do you know what she actually used?
 3         A    No.  But that does not change the conclusion of
 4    the sentence to which you originally directed me.
 5         Q    Does Witness Stralberg distribute the same costs
 6    as you do?
 7         A    Could you be more specific?
 8         Q    The same segment 3 costs as you do, the same
 9    amount of costs.
10         A    In total?
11         Q    Yes.
12         A    Yes.
13         Q    So does he -- he distributes them, but he treats
14    them as institutional, is that what you are saying?
15         A    Perhaps my phraseology there as institutional was
16    misleading.  But the point I was trying to make there is the
17    point that I made earlier, and that is, under the LIOCATT
18    method, even though it is nominally an assumption of 100
19    percent variability, that is 100 percent variability with
20    respect to mail processing as a whole, and while he does
21    distribute all those costs to subclass, he does not do it
22    within cost pool.  And it would be wrong to do it after we
23    have applied Dr. Bradley's variabilities which serve the
24    function of telling us what the correct number is in terms
25    of which costs should stay in the cost pool and which should

                                                             19406
 1    not.
 2         Q    Let me direct you to Ms. Cohen's testimony on page
 3    38.
 4         A    I have it.
 5         Q    Have you read that before?
 6         A    The page?
 7         Q    Yes.
 8         A    Yes, I have.
 9         Q    If you look at the top half of that page, does
10    that refresh your recollection on the amount or the
11    percentage of costs that Ms. Cohen recommends be treated as
12    institutional?
13         A    Yes.
14         Q    And that is about 20 percent?
15         A    Yes.  But I don't agree with it.
16         Q    No, but it is certainly not -- 20 percent isn't
17    the same all.
18         A    That is correct.
19              CHAIRMAN GLEIMAN:  Mr. Straus, do you have a sense
20    of how much longer you are going to go?
21              MR. STRAUS:  Half an hour.
22              CHAIRMAN GLEIMAN:  I think we will take a 10
23    minute break now then.  It is my intention to finish up with
24    this witness, and then when we finish up with this witness,
25    we will take a lunch break.  So parties who are interested

                                                             19407
 1    in witnesses who come later in the day can plan accordingly. 
 2    My guess is we are looking at lunch around 1:00 o'clock,
 3    coming back around 2:00 and picking up with Witness Sellick
 4    at that time, give or take a little bit.  Either 20 percent
 5    or all.
 6              [Recess.]
 7              CHAIRMAN GLEIMAN:  Mr. Straus, are you ready to
 8    pick back up?
 9              MR. STRAUS:  Yes.
10              BY MR. STRAUS:
11         Q    Mr. Degen, we are now on page 22 of your
12    testimony.
13         A    I have it.
14         Q    On line 18 you use the phrase, to describe your
15    firsthand experience, "hundreds of work floor situations". 
16    I am not exactly sure what you mean, so could you explain
17    what hundreds of work floor situations means?
18         A    They would be the situations you observe in
19    spending hundreds of hours on work room floors looking at
20    what people are doing.
21         Q    You are not contending, are you, that you have
22    more firsthand observation experience than Mr. Stralberg?
23         A    I am not familiar with his, but I would give you
24    even money on it.
25         Q    My question remains, are you contending that you

                                                             19408
 1    do?
 2         A    No.
 3         Q    Are you contending that you have more experience
 4    than Ms. Cohen?
 5         A    No.
 6         Q    Are you, in essence, a full-time Postal
 7    employee/consultant?
 8         A    Not quite.
 9         Q    Over the past five years, how much of your time do
10    you suppose you have devoted to Postal matters?
11         A    Do we just want to do five?
12         Q    So far.
13         A    Ninety percent.
14         Q    When you say that nearly all non-handling costs
15    are associated with productive activities, are you including
16    or excluding break time?
17         A    Excluding break time, given that it is a
18    contractual requirement.  It's just the cost of doing
19    business.
20         Q    How do you explain the increase in break time?
21         A    I don't know, I haven't studied that.
22         Q    Do your observations tell you anything?
23         A    I don't have any theories developed to the point
24    that I would care to share them now.
25         Q    Please turn now to page 26 of your testimony. 

                                                             19409
 1    There you have Table 4 which shows increases in the
 2    percentage of not handling time for both allied and,
 3    separately, non-allied operations.  What is your most
 4    important, or most significant explanation for the increase
 5    in allied not handling time?
 6         A    I believe that the -- well, in general, the
 7    increase in not handling time reflects a changing technology
 8    of processing the mail, an increased move to
 9    containerization, increased use of automation, floor
10    layouts, et cetera.  I believe it is a manifestation of
11    changes in the underlying technology for both allied and
12    non-allied.
13         Q    So you don't distinguish between the two, you
14    don't have any different explanations for allied growth or
15    non-allied growth?
16         A    If I spent some time, I could probably come up
17    with, you know, with has affected each differently, but not
18    off the top of my head.
19         Q    I'd like to turn to a different subject now, which
20    is the disagreement over the importance of and the results
21    of comparing the costs of handling periodicals with the
22    Postal Service's wage costs.
23              One of your conclusions at page 27, line 5, based
24    upon your analysis is that by 1996 periodicals' costs were
25    slightly higher in real terms than they had been in 1989, do

                                                             19410
 1    you see that?
 2         A    That is not really a conclusion of mine.  That is
 3    a conclusion reached from the graphs that are being
 4    discussed in the section above it.  I don't -- I believe I
 5    go on to explain why I think that is not quite true because
 6    of the illegitimacy of the comparison.
 7         Q    By saying it was a conclusion of yours, I was
 8    simply trying to explain that.  I don't necessarily agree.
 9         A    Okay.
10         Q    Have their been changes between 1989 and 1996 in
11    the amount of work-sharing done by periodicals mailers?
12         A    Yes, I believe there have.
13         Q    Isn't it true that there's been a significant
14    increase in the amount of barcoding?
15         A    Yes, I believe there has.
16         Q    In fact, isn't it true that between fiscal year
17    1993 and fiscal year 1996 the amount of Level A barcoding
18    has more than doubled and the amount of Level B barcoding
19    has nearly doubled?
20         A    I am a little concerned that I have given an
21    impression here that I am saying that this barcoding
22    represents work-sharing -- I mean in the order you have
23    asked these questions.  I wouldn't want that implication to
24    be made.
25         Q    All right.  Forgetting about the characterization,

                                                             19411
 1    isn't it true that barcoding has about doubled between --
 2    just between fiscal year '93 and fiscal year '96?
 3         A    I am not comfortable saying that.  I don't really
 4    have those numbers at my fingertips.
 5         Q    Well, will you accept it subject to check?
 6         A    I will agree that it has increased.
 7         Q    Well, will you accept that it has nearly doubled
 8    based upon the Postal Service's own mail characteristics
 9    data?
10         A    If I accept it, then it is my responsibility to go
11    check it?
12         Q    Yes, it is.
13         A    No.
14         Q    To the extent that it has increased and you have
15    admitted it is increased, that would reduce mail processing
16    costs by the Postal Service, would it not?
17         A    To some extent, yes.
18         Q    How big is the barcode discount for Level A?
19         A    I don't know off the top of my head.
20         Q    Well, can you accept subject to check --
21         A    Can I correct my earlier answer?
22              We were talking specifically about barcoding and
23    its ability to reduce costs.
24         Q    Yes.
25         A    I think that is an open question -- you know?  I

                                                             19412
 1    know that there are machines out there deployed with barcode
 2    readers but there are certainly contentions that at this
 3    point there isn't full enough deployment to warrant
 4    segregating barcoded mail and so I can't agree that that has
 5    necessarily resulted in decreasing costs.
 6         Q    You are saying that the Postal Service does not
 7    segregate prebarcoded periodicals from non-prebarcoded
 8    periodicals?
 9         A    Not in every instance, and there is also the issue
10    of whether or not the barcode is on a piece that is from a
11    practical standpoint machinable.
12              My understanding is there are some issues out
13    there like that and I have not studied it so I am not
14    comfortable agreeing with you.
15         Q    I'll accept that you haven't studied it.
16              Doesn't the Postal Service offer a discount in the
17    neighborhood of 3 cents apiece for prebarcoded periodicals?
18         A    That sounds reasonable.
19         Q    And don't you think they do that because they
20    think they save about 3 cents apiece in processing costs?
21         A    I am sure that was the plan when the discount was
22    offered.
23         Q    What is the average processing cost for a
24    periodical?
25         A    I don't know off the top of my head.

                                                             19413
 1         Q    Give me an estimate.  Is it 15 cents or a buck and
 2    a half or how much do you think it is?
 3         A    Closer to 15 cents than a buck and a half.
 4         Q    Do you know what the average postage per
 5    periodical is?
 6         A    Closer to 15 cents than a buck and a half.
 7         Q    Do you think it's maybe in the low 20s?
 8         A    Seems reasonable.
 9         Q    And so a three cent discount is a pretty hefty
10    percentage of the total postage and therefore an even bigger
11    percentage of the processing costs, isn't that right?
12         A    That is not how I usually use the phrase "pretty
13    hefty."
14         Q    Has there been an increase in the amount of
15    presortation, the depth of presortation between 1989 and
16    1996?
17         A    Are you referring to presort level of bundles or
18    containers?
19         Q    Pieces for periodicals.
20         A    I believe there has been an increased depth of
21    sort.
22         Q    Would you accept that the amount of Level C
23    presort has increased 50 percent in that period?
24         A    I'll accept that it has increased.
25         Q    But you won't -- I guess you won't accept subject

                                                             19414
 1    to check because you don't want to check whether it is 50
 2    percent?
 3         A    That's right.
 4         Q    Well, Mr. Degen, you have got testimony here which
 5    tries to explain the trends between mail processing costs
 6    and wage costs and you point to -- and we will get to this
 7    in a minute -- palletizing practices, which you apparently
 8    have gone into in some depth, and you even hypothesized
 9    about truckers wanting to fill up trucks.
10              I am curious as to why you -- why neither you nor
11    anyone else has investigated these other cost driving
12    factors -- the amount of presort, the amount of barcoding,
13    to get a complete picture of where costs are going and
14    should have gone compared to wage rates.
15              Can you explain that to me?
16         A    The focus of my analysis has been more recent than
17    what you have given me, and most of the examples you are
18    giving me are over a longer time period than I looked at.
19              We have looked at some of the billing determinants
20    in recent years and they have not changed to the extent you
21    are indicating they have changed since 1989, so my analysis
22    was focused on a more narrow period than most of the numbers
23    you have put out here today.
24         Q    The barcoding numbers I gave you began in 1993,
25    didn't they?

                                                             19415
 1         A    I don't remember.
 2         Q    Well, they did.
 3         A    Okay.
 4         Q    When does your pallet analysis begin?
 5         A    In '93.
 6         Q    So you looked at the pallet changes since 1993,
 7    what you believe them to be, but you didn't look at the
 8    barcode changes since 1993?
 9         A    No, I accepted that the barcoding had increased
10    quite a bit, but I expressed some doubt as to whether those
11    costs had been fully realized over that period.
12              I thought I addressed that pretty squarely.
13         Q    Does Postal Service management share your view
14    that there is significant doubt that the barcode discounts
15    make any sense?
16         A    I didn't characterize them as not making any
17    sense.
18         Q    Well, if there's no savings they make no sense,
19    right?
20         A    The timing of realizing savings can be a difficult
21    thing.  You have to generate mail flows of that type so that
22    you can deploy automation and operating procedures that
23    capture them, and all I am saying is that I am not sure that
24    the instant barcoded mail appeared that it achieved those
25    savings.

                                                             19416
 1         Q    There were a billion barcoded pieces, prebarcoded
 2    periodicals, in 1993.  Isn't that enough to start realizing
 3    some cost savings?
 4         A    You have to know a lot more about it than that.
 5              You have to know about the practical machinability
 6    of the pieces and the way they are deployed.
 7              To the extent some of those pieces are in delivery
 8    units it wouldn't even matter.
 9         Q    Let me go to the pallets then for a minute.
10              Your hypothesis, and we will get to it again, is
11    that mail has shifted from five-digit pallets to three-digit
12    pallets and that has increased costs.
13         A    Yes.
14         Q    And am I correct that the increase in costs is
15    limited to one additional bundle handling?
16         A    No.
17         Q    Well, have you calculated what the additional cost
18    is of a three-digit pallet on a per piece -- that is, a per
19    magazine, basis?
20         A    No, I have not.
21         Q    Do you know whether it is less than or more than 3
22    cents apiece?
23         A    No, I do not.
24         Q    So you haven't quantified this pallet shift at
25    all?

                                                             19417
 1         A    No.
 2         Q    But you have hypothesized that this is a
 3    significant contributing factor to the handling cost of
 4    periodicals?
 5         A    Well, I think "hypothesized" doesn't do it
 6    justice.
 7              I have met with a number of field operating
 8    personnel who when asked about why periodicals' costs appear
 9    to be rising talk about the increased handling associated
10    with more aggregate pallets and the resulting piece
11    handlings from breakage of those bundles due to additional
12    handlings.
13              This analysis is not presented here to be a
14    complete explanation of why periodicals' costs have risen,
15    and I don't hold myself up as an expert in that.  This was
16    done for rebuttal in a very limited timeframe, and what I am
17    saying is there is a makeup trend that does seem to coincide
18    closely with both the decline in periodicals' unit costs and
19    their subsequent rise in the 1990s.
20         Q    Let's turn now to your analysis of the
21    relationship between periodical processing costs and wage
22    rates.
23              Now what you have done, as I understand it, is you
24    have used in Figures 2 and 3, you have compared regular rate
25    periodicals' mail processing costs with all clerk and mail

                                                             19418
 1    handler wages and you have indexed them in Figure 2 to 1986
 2    and in Figure 3 to 1989, is that right?
 3         A    That's correct.
 4         Q    Have you had a chance to examine the various
 5    similar charts provided to you yesterday as a potential
 6    cross examination exhibit?
 7         A    Yes, I have.
 8         Q    Do you have that with you?
 9         A    Yes, I do.
10              MR. STRAUS:  Mr. Chairman, I'd like to distribute
11    copies of that.
12              To save time, I'm going to be distributing two
13    charts, one with the weighted and one with un-weighted clerk
14    and mail handler costs, and we'll do them separately.
15              CHAIRMAN GLEIMAN:  Mr. Straus, you'd better
16    distribute faster.  This is counting against your half-hour.
17              BY MR. STRAUS:
18         Q    Mr. Degen, please look at the chart marked
19    "Comparison of Regular Periodicals Mail Processing Cost and
20    Clerk and Mail Handler Wages."  Have you had a chance to
21    verify the accuracy of those graphs?
22         A    I didn't know I was supposed to.
23         Q    Does that mean you've had a chance but didn't do
24    it or didn't have a chance and didn't do it?
25         A    My attorney gave them to me yesterday, and I

                                                             19419
 1    looked them over, and they're reasonable, but I'm not
 2    prepared to attest to their accuracy.
 3         Q    Well, when you compare starting points of '86
 4    through '93, as these graphs do, with your two graphs which
 5    are indexed at two of those years, '86 and '89, do you see
 6    any differences?
 7         A    No.  I think all the plots on this chart are
 8    consistent with my verbal description of, year by year,
 9    what's happened to periodical costs relative to inflation.
10         Q    What's your explanation for the very rapid
11    increase shown on the bottom two charts, the one beginning
12    in '92 and the one beginning in '93?
13         A    I can't say with certainty that I know why those
14    costs have changed, but I observed that, in general, there
15    has been a move toward less aggregate pallets during that
16    period.
17              In fact, I think if you look at the third plot
18    down in the left-hand column, that shows you a very good
19    picture of costs declining in '92, when I understand there
20    was a significant movement toward pallets but, you know, a
21    relatively large percentage of five-digit pallets, and my
22    understanding from discussions with field personnel and just
23    comparing mail characteristics data is that, since 1992,
24    there's been a movement away from those five-digit pallets
25    in favor of three-digit or SCF pallets.

                                                             19420
 1              So, I offer that as an explanation.  I can't say
 2    for certainty that that's what's happened, but it's a more
 3    plausible explanation than costs are just out of control.
 4              MR. STRAUS:  Mr. Chairman, I'd like to ask that
 5    this document be copied into the -- identified as ABP --
 6    these have been done several different ways in this case. 
 7    The simplest way would be ABP-XE-1, but some parties have
 8    identified them with the party.
 9              CHAIRMAN GLEIMAN:  Your marking is fine.  Do you
10    want to mark both of these that way and have both of them
11    in?
12              MR. STRAUS:  No, let's just do the first one
13    first.
14              CHAIRMAN GLEIMAN:  I think the reporter can mark
15    the copies, if he's sure he knows which of the two you're
16    making reference to.
17                             [Cross-Examination Exhibit No.
18                             ABP-XE-1 was marked for
19                             identification.]
20              MR. STRAUS:  And I'd ask that it be admitted into
21    evidence.
22              MR. KOETTING:  No objection.
23              CHAIRMAN GLEIMAN:  Thank you, Mr. Koetting.  I
24    appreciate that.
25              BY MR. STRAUS:

                                                             19421
 1         Q    Now, Mr. Degen, turning to your Figure 4 --
 2              CHAIRMAN GLEIMAN:  Excuse me, Mr. Straus.  I'll
 3    direct that the cross examination exhibit designated as
 4    ABP-XE-1 be transcribed into the record and entered as
 5    evidence.
 6                             [Cross-Examination Exhibit No.
 7                             ABP-XE-1 was received into evidence
 8                             and transcribed into the record.]
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19423
 1              BY MR. STRAUS:
 2         Q    Turning to your Figure 4, Mr. Degen, I'm confused,
 3    because I guess I don't understand the terminology.  You
 4    describe it at page 27.  You say that index is based to the
 5    overall clerk and mail handler wage index in 1993.  But the
 6    index shown on Figure 4 is 1989.  Is one of those numbers
 7    wrong, or am I just not understanding the line in the
 8    testimony?
 9         A    Could you direct me to the line on page 27 you
10    want me to look at?
11         Q    It begins at the very bottom on page 20 and runs
12    over to the top of page 21 -- excuse me -- line 1 on page
13    28.  I'm reading the testimony that it's a '93 index, but
14    I'm reading the chart that it's an '89 index, and I may just
15    not understand what you're saying in the testimony.
16         A    Okay.  What I mean to say there is that we only
17    did the LDC-based index from '93 forward.
18              So, the '93 index was based to the -- the LDC
19    index was scaled so that its '93 value was equal to the
20    value corresponding to an overall clerk and mail handler
21    index that's based to one in 1989.
22              If you will, we pasted on those last four years,
23    using the same number for 1993 and then growth rates based
24    on the LDC index going forward.
25         Q    It's safe to say, isn't it, that in 1996, for

                                                             19424
 1    example, you show that the two points are virtually on top
 2    of each other, both for mail processing costs and for wages.
 3         A    Yes.
 4         Q    And have you had a chance to look at the cross
 5    examination exhibit provided to you yesterday that was
 6    titled "Comparison of Regular Periodicals Mail Processing
 7    Costs and LDC-Weighted Clerk and Mail Handler Wages"?
 8         A    Yes, I have.
 9         Q    And are those charts, those graphs, the equivalent
10    of yours, but rather than a 1989 index, using various
11    indices other than 1989, in addition to 1989.
12         A    That, along with changing scales to make the
13    differences more pronounced as you use shorter and shorter
14    time periods.
15         Q    Do those -- by using a different index here from
16    1989, do those graphs typically show a different result?
17         A    Well, it's not really a different result.  What
18    you achieve in the bottom two graphs, for instance, is you
19    take out the big decline in periodicals' costs between 1991
20    and 1992, and that's really what's going on here, that cost
21    -- let's look at the left-hand column, the third one down I
22    think is a good illustration.
23              In 1991 and 1992, periodicals' unit costs actually
24    declined relative to inflation, and then since 1992, they
25    have risen relative to inflation.  That basic story doesn't

                                                             19425
 1    change no matter how you plot it, and that issue is
 2    explicitly stated in my testimony.
 3         Q    What about from 1986 to 1989, how do those costs
 4    do during that time period?
 5         A    Let me go back to my --
 6         Q    Can't we just look at the upper left-hand chart?
 7         A    I'd prefer mine.  They're a little more readable. 
 8    The other one was a fax.  Between 1986 and 1989, mail
 9    processing unit costs rose relative to inflation.  Between
10    1989 and 1990, they were pretty constant, relative to
11    inflation; between 1990 and 1991, they declined slightly;by
12    1992, they declined considerably and then they rose relative
13    to inflation in the remaining years.
14         Q    What was the percentage increase between 1986 and
15    1989?
16         A    Percentage increase in what?
17         Q    Mail processing unit costs.
18         A    Mail processing unit costs?  About 30 percent.
19         Q    And in wages, LDC weighted wages?
20         A    About 20 percent, maybe a little less.
21         Q    You can't explain that difference with the pallet
22    changes you believe occurred in the 1990's; right?
23         A    Well, unfortunately, what I found is even trying
24    to look back to 1993 is an extremely difficult proposition
25    and I didn't even attempt to go back to 1989, just because

                                                             19426
 1    data on mail preparation are very hard to obtain.
 2              MR. STRAUS:  Mr. Gleiman, I'd like to have marked
 3    as ABP-XE-2, this chart we were just discussing with various
 4    alternative ways to graph the comparison of periodicals'
 5    mail processing costs against LDC weighted clerk and mail
 6    handler wages, and ask that it be copied into the record and
 7    admitted into evidence.
 8                             [Cross-Examination Exhibit No.
 9                             ABP-XE-2 was marked for
10                             identification.]
11              CHAIRMAN GLEIMAN:  It is so directed.
12                             [Cross-Examination Exhibit No.
13                             ABP-XE-2 was received into evidence
14                             and transcribed into the record.]
15
16
17
18
19
20
21
22
23
24
25

                                                             19428
 1              BY MR. STRAUS:
 2         Q    Finally getting to pallets.  What do you mean by
 3    an aggregate pallet?
 4         A    By a more aggregate pallet.  I specifically mean,
 5    and I think I indicate somewhere in my testimony that by
 6    more aggregate, I mean, for example, a three digit pallet
 7    rather than a five digit pallet, something with a lower
 8    level of presortation.
 9         Q    The theory that more aggregate pallets is a
10    contributor to the cost increases for periodicals, was that
11    a theory that you developed or that somebody at the Postal
12    Service suggested to you?
13         A    I mean you could say I developed it but it was
14    based on discussions.  Actually, it wasn't an issue so much
15    that I was raising as just feedback that I was getting from
16    people in the fields complaining about getting mail on more
17    aggregate pallets and how it was driving their costs up. 
18    You know, subsequent to my suggesting that as a possible
19    explanation, we had more structured discussions with field
20    personnel.  It seemed to be generally confirmed by people
21    who were even more familiar with operations than I am.
22         Q    Which drop shippers did you -- with which drop
23    shippers did you discuss their wanting to improve the cube
24    utilization of trailers?
25         A    Most of that is probably secondhand from DMU

                                                             19429
 1    personnel.  DMU is detached mail units.  So, it would have
 2    been obtained secondhand from talking to postal acceptance
 3    clerks associated with printing plants.  Some of that would
 4    have been my own discussions.  Some of that would have been
 5    discussions of my associates with such people.
 6         Q    These are discussions with Postal people, not with
 7    the truckers or the printers or publishers?
 8         A    I don't think I've personally had any discussions
 9    with the printers themselves.  Some of my associates may
10    have.
11         Q    You blamed some of the -- "blamed" isn't the right
12    word.  You attribute some of the increase in periodical
13    processing costs to what you claim is a trend of mail moving
14    from five digit pallets to three digits; is that right?
15         A    That's correct.
16         Q    And that leads to more bundle handlings as a
17    result of having to open those pallets at a three digit
18    unit?
19         A    That's correct.
20         Q    And the Postal Service performed three studies
21    that you have examined on the -- there was an 1989 study and
22    a 1993 study of pallet make up?
23         A    I think I looked at 1993 and 1996.
24         Q    Was there one for 1989?
25         A    My understanding is that there was, and we

                                                             19430
 1    obtained data from that docket but could not in the time
 2    available feel comfortable using it, so we did not use it.
 3         Q    Now your claim is that the 1993 study shows 43
 4    percent five-digit pallets; is that right?
 5         A    No, my claim was that our corrected numbers from
 6    1993 show that.  When we looked at the 1993 data, we
 7    observed that there was an apparent inconsistency with
 8    billing determinants from 1993 because the mix of sack mail
 9    and pallet mail in that study seemed to be out of line to
10    us, and actually our understanding of how those data were
11    collected confirmed that it did not do a good job of
12    estimating the relative proportions of sack versus pallet
13    mail.
14              So in order to deem those -- in order to use those
15    data, we felt compelled to reweight the sack pallet volumes
16    such that they would accurately reflect the billing
17    determinants we had available, and the 43-percent number is
18    the result of that process.
19         Q    Have you reviewed the potential cross-examination
20    exhibit provided to your counsel yesterday marked USPS
21    Periodical Pallet Volumes 1993?
22         A    Yes, I have.
23              MR. STRAUS:  Mr. Chairman, I'd like to distribute
24    copies to the relevant parties.
25              CHAIRMAN GLEIMAN:  Certainly, Mr. Straus.

                                                             19431
 1              BY MR. STRAUS:
 2         Q    Did you examine this?
 3         A    Yes, I did.
 4         Q    After examining it, have you concluded that the
 5    43-percent total is correct?  Remains correct?
 6         A    Yes.
 7         Q    Do you -- have you determined whether the data on
 8    this chart are -- accurately portray the data that were on
 9    the sources shown?
10         A    No, I haven't really had time to do that.  I mean,
11    we got this when we were out here, and our office is in
12    Madison, so we weren't in a position to replicate the
13    analysis.
14         Q    Well, the data come from Postal Service library
15    references, do they not?
16         A    Well, they do.
17         Q    You must have access to those while at the Postal
18    Service.
19         A    I do, but I don't have access to all of my staff
20    and the computer facilities to do it.
21         Q    Well --
22         A    I mean, I just didn't have time to do it.
23         Q    Let me give you my hypothesis.  You can tell me
24    where I'm making a mistake.  You see the presort code D?
25         A    Yes.

                                                             19432
 1         Q    On the left.  And that's marked three-digit
 2    carrier route, and if you -- and that's 390 million pieces. 
 3    Right?
 4         A    That's correct.
 5         Q    Now do you consider the three-digit carrier route
 6    pallet to be a five-digit pallet?
 7         A    I don't believe we did for purposes of calculating
 8    the 43-percent number, but I'd have to check that.
 9         Q    Well, can you tell me how you got to the
10    43-percent number without it?
11         A    I can't off the top of my head.  I mean, I'm not
12    that familiar with the spreadsheet.
13         Q    What's a carrier route pallet?  That's presort
14    code B.
15         A    I believe it's a pallet with carrier route bundles
16    on it.
17         Q    Is there such a thing as a carrier route pallet? 
18    Other than a five-digit carrier route or a three-digit
19    carrier route, which are separately identified?
20         A    The study would seem to indicate there are, but
21    I'm not sure that that's a legitimate makeup.
22         Q    This study you're referring to is what?
23         A    The 1993 mail characteristics study.
24         Q    Have you seen the instructions for completing
25    record of pallet contents, form C, from that pallet study?

                                                             19433
 1         A    Not recently.
 2         Q    Let me hand you a copy.
 3         A    Okay.
 4         Q    Now, would you confirm that the pre-sort codes
 5    listed there, A through K, are consistent with those shown
 6    on this cross examination exhibit?
 7         A    Yes.
 8         Q    And for pre-sort code A, firm, it says not
 9    applicable, does it not?
10         A    Yes.
11         Q    And then this exhibit would show a zero.  Is that
12    right?
13         A    That's correct.
14         Q    And what does it say for pre-sort code B, carrier
15    route?
16         A    Not applicable.
17         Q    But the study showed how much volume on pre-sort
18    code B pallets?
19         A    Three hundred and seventy-six million.
20         Q    Can you explain why, if it's not applicable, there
21    are 376 million pieces on such pallets?
22         A    No, I cannot.
23         Q    Can you explain why -- well, never mind.
24              MR. STRAUS:  Mr. Chairman, we believe that the
25    witness has made an arithmetic mistake and that adding up

                                                             19434
 1    the five-digit pallets from these numbers, from this study,
 2    don't produce the 43 percent he said but produce 35 percent.
 3              CHAIRMAN GLEIMAN:  I'm not sure why you're
 4    addressing me on this matter at this point in time, Mr.
 5    Straus.
 6              MR. STRAUS:  All right.
 7              CHAIRMAN GLEIMAN:  I think you ought to continue
 8    with your cross examination.
 9              BY MR. STRAUS:
10         Q    Mr. Degen, would you check your math and see
11    whether the 43 percent is -- whether the five-digit
12    percentage is 43 percent or some lower number and report
13    back?
14         A    Do I have to?
15         Q    You swore that your testimony was the truth, and
16    if you made a mistake, I think you'd want to correct it.
17              CHAIRMAN GLEIMAN:  Postal Service does have an
18    obligation, if there are errors that they discover or that
19    are pointed out to them, to correct their testimony, and you
20    know, we have a continuing flow of corrections flowing in --
21    coming into this place on almost a daily basis.
22              MR. KOETTING:  I guess my objection, if it has to
23    be an objection, is asked and answered.  It was asked if the
24    43 percent came directly from the study and, as I recall,
25    the witness said no, the data from the study were adjusted

                                                             19435
 1    to reconcile them with billing determinate information.
 2              MR. STRAUS:  That's not the adjustment I'm talking
 3    about.
 4              MR. KOETTING:  Okay.
 5              CHAIRMAN GLEIMAN:  If there is an error, I expect
 6    the witness to report back on a piece of paper to the Postal
 7    Rate Commission in response to this cross examination that
 8    there is an error and to provide the corrected figures --
 9    figure or figures.
10              The Postal Service has an obligation to do that. 
11    We have to understand what the numbers are.  You're the only
12    people that have the numbers.
13              You can proceed with your cross examination.
14              MR. STRAUS:  Thank you.
15              BY MR. STRAUS:
16         Q    Mr. Degen, when you do that, I would like you to
17    examine both the three-digit carrier route pallet entry in
18    this study from which you derived your 43 percent and the
19    pre-sort code B carrier route pallet entry to determine
20    whether those are -- either of those or both of those are
21    appropriately included within five-digit pallets.
22              MR. STRAUS:  At this point, I would like this
23    document entitled "USPS Periodical Pallet Volumes, 1993" to
24    be marked, copied into the record, and admitted into the
25    evidence marked as ABP-XE-3.

                                                             19436
 1              CHAIRMAN GLEIMAN:  It is so directed.
 2                             [Cross-Examination Exhibit No.
 3                             ABP-XE-3 was received into
 4                             evidence, and transcribed into the
 5                             record.]
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19438
 1              BY MR. STRAUS:
 2         Q    Are you pretty confident in your number that the
 3    number of five-digit pallets by 1996 was 11 percent of total
 4    palletized mail?
 5         A    With respect to that, I'm confident that there has
 6    been a significant decline in the percentage of palletized
 7    mail on five-digit pallets, and that's the extent to which I
 8    rely on those numbers.  I don't mean to offer it as
 9    necessarily accurate, you know, right to the last digit.
10         Q    But you've forecast a 75 -- you've forecast a
11    decline from 43 percent to 11 percent in only three years. 
12    That's a 75-percent decline, isn't it?
13         A    In terms of the change in the percentages, yes,
14    but again, I didn't forecast that.  I believe -- I mean
15    those are the numbers that I have obtained looking at this
16    study, and even -- and my point is the same.  Even if it's
17    35 percent to 11 percent, I'm simply observing that there
18    has been what I believe to be a significant increase in
19    five-digit pallet use in '92 and '93 and then a decline
20    therefrom in subsequent years.
21         Q    Is Time-Warner one of the biggest palletizers of
22    periodicals?
23         A    In terms of today?
24         Q    Yes.
25         A    Yes.

                                                             19439
 1         Q    Did you look at the Time-Warner numbers
 2    introduced, the palletization numbers for Time-Warner
 3    introduced in the pallet case and introduced in this case to
 4    see what kind of five-digit volumes they were producing and
 5    what their trend was?
 6         A    I've seen them.  You gave them to me as a cross
 7    examination exhibit.  I hadn't gone back and looked at them,
 8    but I don't find them relative, because they're lacking they
 9    key element, which is what was the pallet profile in 1992
10    and '93.
11         Q    Did you ask for 1993 data?
12         A    Last night I offered to personally buy dinner for
13    anybody on my staff who could find a Time Warner pallet
14    profile for '92 or '93.  That's how bad I wanted one.
15              MR. KOETTING:  I would add for the record, Mr.
16    Chairman, that the Postal Service has exactly the kind of
17    information the Postal Service sought to obtain through the
18    discovery process in the earlier phase of the case.  So the
19    information has been requested.
20              MR. STRAUS:  And Time Warner provided some
21    information, as did some of the other publishers, about
22    palletized data, but not everything that was requested.  Is
23    that right?
24              MR. KOETTING:  I would believe that's correct, and
25    I'm sure that the record will show whether or not it

                                                             19440
 1    included any information from 1993 or not.
 2              MR. STRAUS:  Well, let me state that it did not,
 3    but that when Mr. Degen's rebuttal testimony began to be
 4    analyzed, 1993 data have now been dug out for some of the
 5    periodicals, the major ones, and if the Postal Service would
 6    like to see it as badly as Mr. Degen says, I'd be happy to
 7    offer into evidence an affidavit by Mr. James O'Brien from
 8    Time Warner.  I believe Mr. O'Brien is in the room and could
 9    personally swear to the veracity of this data.
10              MR. KOETTING:  The Postal Service would most
11    vehemently object to that at this late date in this
12    proceeding.
13              MR. STRAUS:  That's what I thought.
14              CHAIRMAN GLEIMAN:  Do I take it then that you're
15    not trying to move that in, and that I don't have to rule on
16    the objection?
17              MR. STRAUS:  I don't like to lose.
18              BY MR. STRAUS:
19         Q    What's the biggest -- what's the
20    highest-circulation periodical in the country?
21         A    I believe it's TV Guide.
22              MR. KOETTING:  Was that question circulation by
23    mail or total circulation?
24              BY MR. STRAUS:
25         Q    By mail.  Your answer is still TV Guide, I assume.

                                                             19441
 1         A    Yes, that was the context with which I was
 2    answering.
 3         Q    And that would be about 8 million a week or about
 4    400 million a year?
 5         A    Oh, I don't have those numbers at my fingertips. 
 6    I just have a general sense of the ordering.
 7         Q    Well, you don't have them at your fingertips.  Do
 8    you have your stricken testimony?
 9         A    No, it was stricken.
10         Q    And you threw it away?
11              Well, let's assume subject to -- will you assume
12    subject to check that it's about 8 million a week?  That's
13    not a hard one to check.
14         A    I'd just as soon not check it, but sounds
15    reasonable to me.
16         Q    Well, I think I'm going to ask you again, or maybe
17    ask counsel, will you accept subject to check that TV Guide
18    has a circulation of 8 million a week?
19              CHAIRMAN GLEIMAN:  I think you need to ask the
20    witness subject to check, not counsel subject to check.
21              MR. STRAUS:  Well, maybe counsel's willing to
22    check it if the witness isn't.
23              CHAIRMAN GLEIMAN:  Would you ask the question of
24    the witness, please, so that we can move on.
25              BY MR. STRAUS:

                                                             19442
 1         Q    Assume that it's eight million a week, okay?  Is
 2    TV Guide predominantly palletized on five-digit pallets?
 3         A    That's my understanding.  I wouldn't say
 4    predominantly, but it's -- it uses a higher proportion of
 5    five-digit pallets than most other large publications I'm
 6    familiar with.
 7         Q    You wouldn't say predominantly?
 8         A    I'm not -- I don't have the numbers at my
 9    fingertips.  I am comfortable at this point saying that they
10    are -- their proportion of five-digit pallets is higher than
11    most large publications.
12         Q    Do you ever recall writing something that said
13    that said that TV Guide's five -- is predominantly a
14    five-digit palletizer?
15         A    Yes.
16              MR. KOETTING:  Mr. Chairman, at this point I'm not
17    sure exactly on what basis I want to interject here, but
18    there are a couple of things going on.  Having moved to
19    strike portions of Mr. Degen's testimony, Mr. Straus now
20    seems intent on conducting oral cross-examination of it
21    nonetheless, and he obviously is venturing into territory of
22    mailer-specific information, which is exactly the area that
23    the Postal Service had concerns about, which led fairly
24    directly I believe to that testimony being stricken.
25              So therefore I'm -- I can't say that I have a

                                                             19443
 1    specific objection or anything, but I do want to point out
 2    that there are some problems with this line of inquiry on
 3    that basis.
 4              CHAIRMAN GLEIMAN:  If you didn't make a specific
 5    objection, I guess I don't have anything specific to say
 6    about it.  And my string of untarnished procedural rulings
 7    will continue.
 8              [Laughter.]
 9              MR. KOETTING:  I raise it, Mr. Chairman, merely to
10    set the background for whenever there is an objection, we
11    don't have to go into it again.
12              [Laughter.]
13              CHAIRMAN GLEIMAN:  Thank you, sir.  I appreciate
14    that help.
15              BY MR. STRAUS:
16         Q    Mr. Degen, would you accept, subject to check,
17    that TV Guide is 6.72 percent of all regular-rate Second
18    Class pieces?
19         A    No.  I mean, I don't want -- I don't want
20    homework.
21         Q    Did you check to see what percentage of the total
22    pallets in this -- in 1996, the total five-digit pallets are
23    TV Guide pallets?
24         A    No, that's not a -- well, let me ask you to ask
25    that again.  Maybe I'm missing --

                                                             19444
 1         Q    Let me go through some arithmetic that you won't
 2    accept subject to check.
 3         A    Okay.
 4         Q    Let's assume that TV Guide is 6.72 percent of all
 5    regular-rate periodicals and that as you say 56 percent of
 6    all periodicals were palletized -- no, not five digits -- 56
 7    percent of all periodicals were palletized to any extent in
 8    1996.  Then TV Guide would be 11 to 12 percent of all
 9    palletized mail.
10         A    Where did I say the 56 percent?
11         Q    Isn't that what you say for the total
12    palletization for 1996?
13         A    Could you point me to that?
14         Q    Library Reference 190 -- are you --
15         A    Library Reference what?
16         Q    190.
17         A    What's the name of that one?
18         Q    It's Christensen Associates study of
19    palletization.
20         A    Okay.  All right.  Okay.
21         Q    Mail Characteristics Study.
22         A    Yes.
23              MR. KOETTING:  I would point out that that wasn't
24    entered into evidence by this witness.
25              BY MR. STRAUS:

                                                             19445
 1         Q    Okay.  But does it say 56 percent of the
 2    periodicals are palletized?
 3         A    I'll accept that subject to check.
 4         Q    Is Meredith a big palletizer?
 5              MR. KOETTING:  Mr. Chairman, at this point, I am
 6    going to inject an objection because Mr. Degen, as a
 7    consultant for the Postal Service, has limitations imposed
 8    on the use with which he can make of the information that he
 9    examines from Postal Service records.  It's not clear to me
10    that he can really proceed without having some problems in
11    that regard.
12              BY MR. STRAUS:
13         Q    Well, let me ask you, Mr. Degen.  Did you review
14    the information provided by Mr. Littell of Meredith to the
15    Postal Service in response to its discovery requests?
16         A    Yes, I did.
17         Q    Do you have any reason to believe that has to
18    remain confidential?
19         A    No.
20         Q    Is Meredith a heavy palletizer?
21         A    I am not comfortable subjectively characterizing
22    people as heavy or big, and the truth is because this
23    portion of my testimony was stricken, I have not recently
24    familiarized myself with the statistics to which you are
25    trying to point me.  I'm just not comfortable making the

                                                             19446
 1    kinds of characterizations you are asking me to make.
 2         Q    The statement that only 11 percent of the
 3    palletized mail is five digit was not stricken, was it?
 4         A    No, it was not.
 5         Q    Yet, we have data in the record from Time Warner
 6    showing that 11 percent of their pallets, roughly 11/12
 7    percent, for their major magazines, are five digit.  We have
 8    T.V. Guide, which is the biggest mailer in the country,
 9    which you admit is predominately five digit.  We have Mr.
10    Littell submitting discovery responses from Meredith saying
11    that 35 percent of Better Homes and Gardens is five digit.
12              I'm asking you whether in light of all those
13    facts, you still contend that only 11 percent of the pallets
14    are five digit pallets?
15         A    Yes, there is a lot of other periodicals out
16    there.
17         Q    Do you know what percentage of the total
18    periodicals consist of Time Warner periodicals -- total
19    number of pieces are published by Meredith, Time Warner and
20    T.V. Guide?
21         A    Not off the top of my head.
22         Q    Do you think it's half?
23         A    I don't have an opinion.
24         Q    What's the minimum pallet weight?
25         A    I believe it's currently 250 pounds.

                                                             19447
 1         Q    How long has it been 250 pounds?
 2         A    I think somewhere in the early '90s.
 3         Q    Is it easier or harder to make up a 5-Digit
 4    pallet -- well, let me back up.
 5              Before it was 250 pounds, how many pounds was it?
 6         A    I believe before that it was 500 and 650 before
 7    that.
 8         Q    So as the weight reduced, did it become easier or
 9    more difficult to make up 5-Digit pallets?
10         A    Easier in what sense?
11         Q    Easier to accumulate enough weight to make up a
12    pallet to a 5-Digit zip code?
13         A    Yes, one would need fewer pieces to make up a 250
14    pound pallet than they would for a 500 pound pallet.
15         Q    What pallet options are available to a mailer with
16    at least 500 pounds to a 5-Digit zip?
17         A    They should be making up a 500 pound pallet.
18         Q    To a 5-Digit zip?
19         A    To a 5-Digit zip, yes.
20         Q    You say they should be.  Are they required to?
21         A    You mean in practice or in the regs?
22         Q    The Domestic Mail Manual is the regulations.  Does
23    the Domestic Mail Manual require you to prepare a 5-Digit
24    pallet when you have 500 pounds?
25         A    I believe it does.

                                                             19448
 1         Q    You know how the average weight of periodicals in
 2    1996 compares with 1993?
 3         A    No, not as I sit here right now.
 4         Q    Do mailers have incentives to make up 5-Digit
 5    pallets?
 6         A    What kind of incentives did you have in mind?
 7         Q    I am asking you whether you know whether -- but I
 8    had in mind for example service, better service.
 9         A    Service is certainly an incentive that would argue
10    for smaller pallets.
11              I think, you know, savings in make-up and
12    transportation might argue for larger pallets, so there
13    might be other incentives.
14         Q    When you say smaller and larger, are you saying --
15         A    More aggregate.  I am equating the notion of a
16    more aggregate pallet with a heavier and bigger pallet.
17         Q    Isn't it true that effective January 1, 1997 the
18    Postal Service implemented rules that could reduce the use
19    of 5-Digit pallets?
20         A    I think that is true but I am not real familiar
21    with those.
22         Q    Why do they do that?
23         A    I am not sure.
24         Q    To increase costs, do you think?  To decrease
25    costs?  You have no idea?

                                                             19449
 1         A    I am not familiar with the reasoning for the
 2    change in regs.
 3         Q    To the extent that mail has shifted from sacks to
 4    pallets, would that increase or decrease processing costs?
 5         A    I think there's really not enough information in
 6    that statement for me to offer an opinion.
 7              If you mean to the extent that used to be in
 8    5-Digit sacks is now in 5-Digit pallets, I believe that
 9    should decrease costs, processing costs.
10              If mail that was in 5-Digit sacks is now on all
11    mixed pallets, I don't think it would.
12         Q    Has the Postal Service encouraged mailers to move
13    out of sacks and onto pallets?
14         A    I believe they have.
15         Q    Do you know why?
16         A    I believe they expect That to lower costs.
17         Q    You don't share that expectation?
18         A    I do.  I don't think anywhere here I have said
19    that I think 5-Digit mail or a 5-Digit pallet is more costly
20    to handle than a 5-Digit sack.  I believe my testimony and
21    my discussion here has all been with respect to the change
22    in the make-up of the container.
23         Q    Please look at page 34.
24         A    I have it.
25              MR. STRAUS:  Well, before we do that, maybe we

                                                             19450
 1    ought to put into the -- get marked an exhibit we discussed.
 2         Q    You had I guess on your own mentioned that we had
 3    provided you with Time Warner palletization data from 1991
 4    and 1997.  You said that you wished you had had the 1993,
 5    but the 1991 and 1997 data we did provide you a cross
 6    examination exhibit, did we not?
 7         A    That's correct.
 8         Q    And the source of that data is contained in the
 9    records and the Postal Rate Commission proceedings, isn't
10    that right?
11         A    That is what the table indicates.
12         Q    Do you have any reason to doubt the validity of
13    the data?
14         A    No, I do not.
15              MR. STRAUS:  Mr. Chairman, I would like to
16    distribute this document and have it marked as ABP-XE-4,
17    transcribed into the record and admitted into evidence.c
18              MR. KOETTING:  No objection.
19              CHAIRMAN GLEIMAN:  It is so ordered.
20                             [Cross-Examination Exhibit ABP-XE-4
21                             was received into evidence and
22                             transcribed into the record.]
23
24
25

                                                             19452
 1              CHAIRMAN GLEIMAN:  Mr. Straus, what was the page
 2    number you were referring to in the testimony?
 3              MR. STRAUS:  34 is where we are going next.
 4              CHAIRMAN GLEIMAN:  Thank you.
 5              BY MR. STRAUS:
 6         Q    There you are critical of MPA Witness Little for
 7    comparing, for relying on a comparison of costs of classes
 8    of mail, isn't that right?
 9         A    Yes, that's correct.
10         Q    Isn't it true that Mr. Little not only compared
11    between classes but also compared costs with wage rates?
12         A    I believe that's true.
13         Q    Isn't it also true that in R94-1 Postal Service
14    Witness Barker did a cross-class comparison of processing
15    costs by class?
16         A    I am not familiar with that.
17         Q    Again revisiting a subject you had discussed
18    earlier in your testimony -- we did some cross examination
19    on it -- page 34, lines 16 through 18 -- where you say that
20    presortation, drop shipping and mail piece readability can
21    have a substantial impact on the observed trend and
22    aggregate costs.
23              Now you confirmed, did you not, that there is more
24    presortation of periodicals than there used to be?
25         A    With respect to pieces in bundles, yes, I did.

                                                             19453
 1         Q    And there is more -- is there more drop shipping?
 2         A    I believe that's true.
 3         Q    And what did you mean by mail piece readability?
 4         A    I probably should have said machinability there is
 5    a broader term, but what I meant was, you know, the ability
 6    of machines to read the barcode.
 7         Q    And there is more of that as well?
 8         A    You are talking about periodicals?
 9         Q    Yes.
10         A    Certainly it's the case that there are more
11    barcodes on mail.
12         Q    And so in each of these three respects, these
13    factors should have led to a reduction in aggregate unit
14    costs, should they not, taken in isolation?
15         A    Yes, taken in isolation I would expect that to
16    have been true.
17         Q    And again, you did not attempt to quantify either
18    the degree of change or the cost effect of any of these
19    changes, did you?
20         A    No, I did not.
21         Q    On page 38, beginning on line 3, you discuss the
22    Postal Service Governors' approval of the addition of
23    barcode readers to the FSM-1000 sorters, flat sorters.  This
24    is underneath a heading that says that the Postal Service
25    has initiatives underway that will improve service, control

                                                             19454
 1    costs, and work with mailers for further improvements.
 2         A    Yes.
 3         Q    So the barcode readers on the FSM-1000s, will they
 4    control costs?
 5              In other words, will they reduce costs?
 6         A    I believe that is the expectation.
 7         Q    And when will the mailers see the benefits of
 8    those reduced costs?
 9         A    My understanding is that the component of the
10    roll-forward in this case accounts for additional FSM
11    deployments.  I don't have any first-hand knowledge as to
12    whether an element of that is the deployment of barcode
13    readers or not, so I am not really in a position to say.
14         Q    Well, the deployment of barcode readers doesn't
15    affect the rates paid by mailers, does it?
16         A    I think to an extent that an adjustment is made in
17    the roll-forward process to determine test year costs, I
18    believe it does have an impact.
19         Q    Let me be more direct then.  When will there be a
20    presort discount associated with these barcode readers on
21    the FSM-1000s?
22              MR. KOETTING:  Mr. Chairman, that is clearly
23    beyond the scope of this witness's testimony, to predict
24    when there is going to be a presort discount in the future.
25              CHAIRMAN GLEIMAN:  Sustained.

                                                             19455
 1              MR. STRAUS:  I'm finished.
 2              CHAIRMAN GLEIMAN:  Does that mean you don't have
 3    any other questions?
 4              [Laughter.]
 5              MR. STRAUS:  I've got Bonnie Blair coming to
 6    finish for me.
 7              CHAIRMAN GLEIMAN:  Is there any follow-up?
 8              MR. KEEGAN:  Yes, I'm sorry to say there is, Mr.
 9    Chairman.
10              CHAIRMAN GLEIMAN:  It's okay.  We spend more than
11    90 percent of our time on postal matters.
12              [Laughter.]
13                          CROSS EXAMINATION
14              BY MR. KEEGAN:
15         Q    Good afternoon, Mr. Degen.  I am Timothy Keegan,
16    representing Time Warner.
17         A    Good afternoon.
18         Q    I just want to follow up on several of Mr.
19    Straus's lines of cross examination.  I expect this will be
20    brief.  I will try to make it so.
21              You mentioned that mail processing, periodicals
22    mail processing costs, had declined relative to postal wages
23    in 1992, is that correct?
24         A    Yes.
25         Q    Do you know whether that decline may be due in any

                                                             19456
 1    part to changes in the IOCS in that year or do you have an
 2    opinion on that?
 3         A    I don't have the exact timing but I am aware of
 4    some changes to IOCS that have improved the identifications
 5    of periodical mail that may be more accurately measuring
 6    periodicals' costs, but I am not prepared to discuss the
 7    details of that or the exact timing or its impact.
 8         Q    Would you refer to page 3 of your testimony at
 9    line 8, where you are discussing a change in the IOCS and
10    you say beginning in FY 1992.
11         A    Yes.
12         Q    And then describe the change.  Do you happen to
13    know whether the changes were made all at the same time, as
14    opposed to a series of changes at different times?
15         A    I don't know the exact timing of the changes.  I
16    don't think they were as one big change.  It may have been
17    ongoing.
18         Q    Okay.  A different subject, and this is from very
19    early on in Mr. Straus's cross examination you were
20    discussing 5610 tallies, which are, as I understand it,
21    letter-specific mixed-mail tallies, and in particular you
22    were discussing -- I'm sorry letter-specific tallies, and in
23    particular, Mr. Straus was asking about 5610 not handling
24    tallies and the circumstances in which one might have such a
25    tally.  Is that correct?

                                                             19457
 1         A    I believe that was the gist of the conversation.
 2         Q    Just to follow up on that a bit, I would like you
 3    to assume that an employee is clocked into an opening unit
 4    and that that employee is recorded by IOCS with a 5610 not
 5    handling tally.
 6         A    Okay.
 7         Q    In that instance, would you characterize that as a
 8    case of mis-clocking?
 9         A    No.
10         Q    Would you say that the employee in that instance
11    -- let me go back one step.  Let me stipulate -- I think I
12    did -- the employee is clocked into an opening unit
13    operation.
14         A    That's correct.
15         Q    In that case, would you say that the employee was
16    properly clocked into the operation but nevertheless, he was
17    recorded at a letter operation not handling mail?
18         A    Well, it's your hypothetical, so I have to say,
19    you know, was he or was he not properly clocked in.  Which
20    would you like me to assume?
21         Q    This hypothetical involves about $100 million, and
22    which we have such tallies.  Let me ask if it is one of the
23    possibilities that in that case, the employee is properly
24    clocked into an opening unit, but is in fact observed by the
25    IOCS data collector at a letter operation not handling mail?

                                                             19458
 1         A    What's the question?
 2         Q    The question is if you assume that the employee is
 3    clocked into an opening unit and is recorded with a 5610 not
 4    handling tally, is it possible that what that situation is
 5    recording is an employee who is properly clocked into the
 6    opening unit but who is observed by the IOCS data collector
 7    at a letter opening operation not handling mail?
 8         A    Yes, that's a possibility under your hypothetical.
 9         Q    Well, can you tell me what other possibilities
10    there are?  You have said mis-clocking is not -- you would
11    not conclude there is mis-clocking, so in addition to those
12    two --
13         A    I didn't say mis-clocking wasn't a possibility.  I
14    said I wouldn't necessarily conclude that.
15         Q    In addition to those two possibilities then, what
16    other possibilities do you think are covered by the
17    assumptions that I have given you?
18         A    Well, that the data collector incorrectly applied
19    the 5610 rule in terms of incorrectly determining that the
20    person was really working in that operation, but in terms of
21    does that create an error, I don't think it presents a
22    problem in terms of my mixed mail distribution because in
23    fact, it has the effect of associating that employee with
24    the shape of mail with which he was working.
25         Q    Would you turn to page nine of your testimony, and

                                                             19459
 1    I'd like to ask you about lines five through seven, which
 2    Mr. Straus also asked you about, and I just wanted to follow
 3    up a bit.
 4              You state starting at line five on page nine, "We
 5    know that the proportions and composition of direct, mixed
 6    and not handling tallies vary across the MODS based cost
 7    pools.  This fact alone would argue definitively for the use
 8    of these cost pools."  Is that a correct reading of your
 9    testimony?
10         A    Yes, it is.
11         Q    Would you again hypothetically for me just assume
12    that you take all your MODS cost pools and put them into a
13    blender and turn on the blender and then turn it off and
14    come out of the blender with a set of random cost pools,
15    covering the same total costs, but randomly organized.  In
16    that event, would you expect that the proportions and
17    composition of direct, mixed, and not handling tallies would
18    vary across the resulting cost pools?
19         A    If I understand your hypothetical correctly, you
20    are just introducing random variance into these cost pools
21    which essentially destroys what we know about the cost
22    pools, as I use them from an operational basis.
23         Q    That's correct.
24         A    I think you are saying if you make these things
25    completely random, am I going to be surprised that they are

                                                             19460
 1    completely random, and I think the answer is no.
 2         Q    I'm not asking you that.  I'm asking you whether
 3    you would expect that the proportions and composition of
 4    direct, mixed and not handling tallies would vary across
 5    those random cost pools.
 6         A    I think if your blender does a good job and the
 7    sample is large enough, they wouldn't.
 8         Q    They would not?  All right.
 9         A    If I understand your hypothetical properly, I
10    don't believe they would.  If by your blender, you mean that
11    you distribute them so that the cost pools are homogeneous,
12    I'm expecting they will be homogeneous.
13         Q    That's fair.  I accept that.  Let's change the
14    hypothetical and throw in only half the MODS cost pools into
15    the blender.  Same question.  Would you expect that the
16    resulting set of pools would show proportions -- for the
17    resulting set of pools, the proportions and composition of
18    direct, mixed and not handling tallies would vary across the
19    pools?
20         A    I would expect there would be a variation that is
21    dampened by having homogenized half of the tallies in the
22    cost pools, but the underlying operation based variation, I
23    think, would still be present.
24         Q    In that case, would you conclude that the mere
25    fact of that variation argued definitively for the use of

                                                             19461
 1    those pools?
 2         A    Yes, even the fact that half of these things
 3    hadn't been tossed into that blender means there is some
 4    information there based on our operational breakdown, and I
 5    think that argues definitively for their use.
 6         Q    The pools in which half are entirely random and
 7    half for your original pools?
 8         A    Yes, because there is still information there.  I
 9    think you want me to say we should chuck it all back
10    together, but until you put the whole thing in the blender,
11    there's no point to that.
12         Q    Is the implication of what you are saying that the
13    set of pools that displayed the greatest possible degree of
14    variation would be the set of pools to be preferred over all
15    others?
16         A    No, I don't think that's what I'm saying at all. 
17    If you mean that the pools with the largest single sub-class
18    association should be preferred over the others, no, I don't
19    think so.  I mean that's just the operational reality of
20    that pool versus another that doesn't have such a strong
21    sub-class association, but I don't believe I've relied on
22    sub-class -- individual sub-class association as a criterion
23    in any of my discussion.
24         Q    Nor did I ask you about it.  I asked you simply
25    about variation in terms of the proportions and composition

                                                             19462
 1    of direct, mixed and not handling, however you wish -- those
 2    are your words, however you wish to interpret them.
 3              My question is would variation of that sort, with
 4    the greatest possible extent of the variation of that sort
 5    mean you had the optimal cost pools?
 6         A    No, unless -- the important thing is that the
 7    variation is not the result of a blender.  The important
 8    thing is that to the extent that we know there are strong
 9    operational differences among cost pools that give us a
10    strong a priori reason to believe that the underlying
11    sub-class distribution in that pool is different from
12    another pool, then we should separate them.
13         Q    One final line of questions, and this has to do
14    with the possibility of testing your assumptions, which as
15    you rightly pointed out, did come up on your cross
16    examination on your direct testimony.  Correct me if I'm
17    wrong, I think you indicated that with respect to testing,
18    for example, assumptions about counted items and the
19    representativeness of counted items, of uncounted items,
20    that's really not a testable assumption, as you see it?
21         A    I haven't put a lot of effort into studying that,
22    but I see a problem in trying to discern a priori which
23    would have been counted and which wouldn't have.  You'd need
24    some kind of hypothesis to say, you know, but for us doing
25    this test, this one would have been counted and this one

                                                             19463
 1    wouldn't have.  I see that as very problematic.
 2         Q    Let me give you a scenario and tell me what's
 3    wrong with it.  Suppose that for the next three months,
 4    random selection of mail processing facilities that you were
 5    satisfied was representative, you had two sets of data
 6    collectors and as soon as the first data collector decided
 7    that we have here a mixed mail tally for a container, and at
 8    that point, the second data collector would come along and
 9    count it.  At the end of those three months, you would
10    compare the actual counts with the proportion between the
11    counted and the uncounted mixed tallies and see whether they
12    were comparable.  Could that be done?
13         A    I think once you've done the first one, the word's
14    out that you're there, and the behavior of the data
15    collectors could be modified by the fact that the study's
16    going on.  That's one of my concerns.
17              Another of my concerns is that there are reasons
18    why some items are not counted, and as I pointed out
19    earlier, an important one is the exigency of dispatch of the
20    mail, and clearly Mr. Straus didn't think that was that
21    important.  But I think the Post Office takes that very
22    seriously, and if you're sampling an employee at a point in
23    time that he's wheeling the last container on a truck and
24    they want to close that door, I can tell you from firsthand
25    experience, it's very difficult from an operations

                                                             19464
 1    standpoint to be able to count that mail.  We've tried.
 2         Q    So that such a test in your view is simply an
 3    impossible sort of dream and not worth investigating or --
 4         A    Well, I think I've fully explained why I don't
 5    think it's necessary, since we seem to have consensus that
 6    the underlying subclass profiles differ.  I don't see the
 7    point to it, and I'm sure that if I came in here offering
 8    such a test, these are the kind of criticisms I'd face for
 9    it.  So I'm not sure that we'd gain a whole lot doing it.
10         Q    I misspoke when I asked you about counting
11    containers, did I not?  Isn't it items that are counted?
12         A    Well, we talk about counted containers in terms of
13    estimating the proportion of the container that is related
14    to each item type, so I was willing to let you go.
15         Q    But in fact containers -- containers themselves
16    are never counted.
17         A    Well --
18         Q    The pieces in containers are not counted when you
19    have a container tally?
20         A    The items in containers are counted.  The pieces
21    inside of the items in containers are not counted.
22         Q    Thank you.
23              MR. KEEGAN:  That's all, Mr. Chairman.  Thank you.
24              CHAIRMAN GLEIMAN:  There are no questions from the
25    bench.

                                                             19465
 1              That brings us to redirect.  Mr. Koetting, would
 2    you like an opportunity to consult with your witness before
 3    determining whether you want to do redirect?
 4              MR. KOETTING:  Yes, Mr. Chairman.
 5              CHAIRMAN GLEIMAN:  In that case you can have an
 6    hour and 15 minutes to consult.  And we'll come back --
 7    gosh, it's quarter to two.  That'll make it three o'clock
 8    when we get back here from lunch.  You all should be
 9    prepared for a long evening.
10              [Whereupon, at 1:45 p.m., the hearing was
11    recessed, to reconvene at 3:00 p.m., this same day.]
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19466
 1                          AFTERNOON SESSION
 2                                                     [3:00 p.m.]
 3    Whereupon,
 4                           CARL G. DEGEN,
 5    the witness on the stand at the time of the recess, having
 6    been previously duly sworn, was further examined and
 7    testified as follows:
 8              CHAIRMAN GLEIMAN:  Yes, sir, Mr. Koetting, do you
 9    have some rebuttal?
10              MR. KOETTING:  Redirect.
11              CHAIRMAN GLEIMAN:  Redirect, I'm sorry.
12              MR. KOETTING:  Mr. Chairman, I'm afraid that an
13    hour and 15 minutes was not sufficient time.  With another
14    half an hour I think we would have been down to no redirect.
15              [Laughter.]
16              We got stuck in the middle with a few questions.
17              CHAIRMAN GLEIMAN:  Well, let's do a cost-benefit
18    analysis here.  How much redirect do you think you have?  Is
19    it more than a half-hour?  Because if it's more than a
20    half-hour, we'll let you have another half-hour to talk, and
21    we'll come out ahead on this, as I understand the way things
22    work.
23              MR. KOETTING:  I agree with your analysis, but I
24    think I can assure you that I'm not going to be doing a half
25    an hour of redirect.

                                                             19467
 1              CHAIRMAN GLEIMAN:  I can only hope that you'll
 2    agree with my analysis when we issue our decision.
 3              MR. KOETTING:  Hope springs eternal.
 4              [Laughter.]
 5              CHAIRMAN GLEIMAN:  Doesn't it, though.  For lots
 6    of folks in the room.
 7              [Laughter.]
 8              Why don't you fire away, Mr. Koetting.
 9                        REDIRECT EXAMINATION
10              BY MR. KOETTING:
11         Q    Mr. Degen, in your conversations with counsel for
12    ABP and Time we had a lot of talk about different types of
13    tallies being coded under a variety of very specific fact
14    situations.  I'd just like for you to try to clarify for the
15    record, do the data collectors on the scene make the
16    assignment to the activity codes such as those
17    shape-specific not handling activity codes that were
18    discussed at some length this morning?
19         A    No.  In fact, none of the activity codes are
20    assigned by the data collector.  They're assigned by
21    programs contained in Library Reference H-21.  I think one
22    of them that does a significant number of assignments is ALB
23    40.  But the data collectors report or answer the questions
24    such as 18 and 19 that ask questions about the activity, and
25    then the coding is done by the computer program.

                                                             19468
 1         Q    Could you turn to page 21 of your rebuttal
 2    testimony, line 14.
 3         A    I have it.
 4         Q    Again, there was some conversation this morning
 5    regarding your statement regarding the recommendation about
 6    Witnesses Stralberg and Cohen treating not handling costs as
 7    institutional.  I would like -- do you have Dr. Stralberg's
 8    direct testimony with you?
 9              I would like you to look at the bottom of page 39
10    of that, starting around line 27.
11         A    Yes, I have it.
12         Q    Could you read the statements made by Mr.
13    Stralberg at that point in his testimony?
14         A    Yes.  It begins:  In particular, little is known
15    about what really causes the $3,727 million accrued, and
16    then parenthetically, 2,733 million in volume variable, end
17    of parentheses, costs referred to above as general overhead
18    or not handling costs.  All that can be said with certainty
19    about these costs is that they grew anomalously during the
20    past ten years, when the automation program was being
21    implemented.  The Commission should seriously consider
22    treating these costs as institutional until the Postal
23    Service provides more reliable information about what causes
24    them.
25         Q    Was that the type of statement you had in mind

                                                             19469
 1    when you wrote your testimony on page 21 that we were just
 2    discussing at line 14 and following?
 3         A    Yes.  While I wasn't able to point to it
 4    specifically, it certainly created the impression in my mind
 5    that he was calling for institutionalization of all of these
 6    costs.
 7         Q    Moving to another topic, does your methodology
 8    assume that the tallies associated with the handling of
 9    brown sacks will always be entirely associated with
10    periodicals?
11         A    No.  We do -- you know, brown sacks is one of the
12    item types that we define, but the actual distribution of
13    those costs is based on the -- what the exact class --
14    subclass distribution that is observed in those brown sacks. 
15    I think there's quite a bit of information in this record
16    that indicates that it is not 100 percent periodicals, but
17    it is a very high percentage, and again we use the strong
18    association as a reason for delineating that item type, but
19    the actual distribution reflects what's actually found in
20    those sacks.
21              MR. KOETTING:  Thank you, Mr. Degen.  That's all.
22              COMMISSIONER HALEY:  Did the redirect generate any
23    further cross exam?
24              MR. KEEGAN:  Yes, Commissioner Haley.  Thank you.
25                         RECROSS EXAMINATION

                                                             19470
 1              BY MR. KEEGAN:
 2         Q    Mr. Degen, would you return to page 39 of Mr.
 3    Stralberg's testimony, from which you read a sentence a
 4    moment ago?
 5         A    I have it.
 6         Q    Could you read that sentence again, please?
 7         A    All of the sentences that I read?
 8         Q    The sentence beginning at line 27 with the words
 9    "In particular."
10         A    "In particular, little is known about what really
11    causes the 3727 million accrued, 2733 million volume
12    variable costs referred to above as general overhead not
13    handling costs."
14         Q    Were you aware the first time you read that
15    sentence, you read it as general overhead or not handling
16    costs?
17         A    No, I was not.  I am sorry.
18         Q    Is it your understanding that Mr. Stralberg uses
19    the term "general overhead not handling costs" synonymously
20    with the term "not handling costs?"
21         A    No, I don't believe he does.
22              MR. KEEGAN:  That's all.  Thank you.
23              COMMISSIONER HALEY:  Very good.  Mr. Koetting?
24              MR. KOETTING:  Nothing, Commissioner Haley.  Thank
25    you.

                                                             19471
 1              COMMISSIONER HALEY:  All right.  Well, then, Mr.
 2    Degen, we certainly appreciate your appearance here today
 3    and your contributions to the record.  If there is nothing
 4    further, then you are excused.
 5              THE WITNESS:  Thank you.
 6              [Witness excused.]
 7              COMMISSIONER HALEY:  I'm sure you thank us.
 8              Our next witness is appearing on behalf of the
 9    United Parcel Service, Mr. Sellick.  I believe he's already
10    been sworn in.
11              MR. McKEEVER:  That's correct, Commissioner Haley.
12              COMMISSIONER HALEY:  Mr. McKeever, will you
13    introduce your witness?
14              MR. McKEEVER:  United Parcel Service calls to the
15    stand Stephen E. Sellick.
16              COMMISSIONER HALEY:  Mr. Sellick, since you have
17    been sworn, we'll just get together today.
18    Whereupon,
19                         STEPHEN E. SELLICK,
20    a rebuttal witness, was called for examination by counsel
21    for the United Parcel Service and, having been previously
22    duly sworn, was further examined and testified as follows:
23              COMMISSIONER HALEY:  We will enter his rebuttal
24    testimony into evidence.
25              MR. McKEEVER:  Thank you, Commissioner Haley.

                                                             19472
 1                         DIRECT EXAMINATION
 2              BY MR. McKEEVER:
 3         Q    Mr. Sellick, I've just handed you a copy of a
 4    document entitled Rebuttal Testimony of Stephen E. Sellick
 5    on behalf of United Parcel Service, and marked as UPS-RT-1. 
 6    Was that document prepared by you or under your direction
 7    and supervision?
 8         A    Yes, it was.
 9         Q    And if you were to testify orally here today,
10    would your testimony be as set forth in that document?
11         A    Yes, it would be.
12              MR. McKEEVER:  Mr. Chairman, I move that the
13    rebuttal testimony of Stephen E. Sellick on behalf of United
14    Parcel Service and marked UPS-RT-1 be admitted into evidence
15    and transcribed into the record.  I do have two copies for
16    the Reporter.
17              CHAIRMAN GLEIMAN:  Are there any objections?
18              [No response.]
19              CHAIRMAN GLEIMAN:  Hearing none, Mr. Sellick's
20    testimony and exhibits are received into evidence and I
21    direct that they be transcribed into the record at this
22    point.
23                             [Rebuttal Testimony and Exhibits of
24                             Stephen E. Sellick, UPS-RT-1, was
25                             received into evidence and

                                                             19473
 1                             transcribed into the record.]
 2
 3
 4
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19486
 1              CHAIRMAN GLEIMAN:  On March 17th, Witness Sellick
 2    filed a revised response to Presiding Officer's Information
 3    Request No. 16, and I'm going to hand two copies of the
 4    revised response to the Reporter and ask that it be included
 5    in the record at this point.
 6
 7                             [Revised Response of UPS Witness
 8                             Sellick to POIR-16 was received
 9                             into evidence and transcribed into
10                             the record.]
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19491
 1              CHAIRMAN GLEIMAN:  Two participants have requested
 2    oral cross examination of Witness Sellick, Magazine
 3    Publishers of America and United States Postal Service. 
 4    Does any other party wish to cross examine the witness?
 5              [No response.]
 6              CHAIRMAN GLEIMAN:  If not, Mr. Gold, please
 7    proceed when you are ready.
 8              MR. GOLD:  Thank you, Mr. Chairman.
 9                          CROSS EXAMINATION
10              BY MR. GOLD:
11         Q    Good afternoon, Mr. Sellick.
12         A    Good afternoon.
13         Q    I'd like to begin with page four of your
14    testimony.
15         A    I have that.
16         Q    Specifically, table one.
17         A    Yes.
18         Q    In that table, you show certain sack types that
19    are associated with certain mail classes; is that correct?
20         A    Yes, it is.
21         Q    The source of this table is Ms. Cohen's table four
22    from MPA-T-2; is that correct?
23         A    In part, yes.
24         Q    You prepared this table, this is not her
25    testimony, this is your table; correct?

                                                             19492
 1         A    That's correct.
 2         Q    In fact, Ms. Cohen did not distribute the costs
 3    this way, did she?
 4         A    No, she did not.
 5         Q    Basically, this is an implicit distribution that
 6    you have derived from various sources?
 7              MR. McKEEVER:  Mr. Chairman, may I ask for
 8    clarification?  There are two columns of numbers there.  May
 9    I ask which column Mr. Gold is referring to?
10              MR. GOLD:  Well, my questions went to the table,
11    but specifically to the last column where it says Cohen,
12    mixed mail distribution to associated classes.
13              MR. McKEEVER:  Thank you, Mr. Chairman.
14              BY MR. GOLD:
15         Q    Mr. Sellick, do you know the general magnitude of
16    not handling and mixed mail costs in this record?
17         A    Not handling and mixed mail together?  Something
18    on the order of $2 to $3 billion.
19         Q    Isn't it more on the order of $7 billion?
20         A    That's I believe if you count overhead as well,
21    but mixed mail and not handling separately I think are two
22    to three.
23         Q    Of course, overhead is part of not handling; is it
24    not?
25         A    Overhead is typically defined as the break -- the

                                                             19493
 1    on break, the clocking in and out, and I believe moving
 2    empty equipment time.  In past cases, it's been treated a
 3    bit separately and differently from mixed mail and not
 4    handling mail costs.  In this case, they are treated a bit
 5    more together.
 6         Q    But what I'm trying to focus on, the pool of costs
 7    that Ms. Cohen was focusing on included the large number,
 8    did they not, including the overhead?
 9         A    Yes, all of those have to be distributed on some
10    basis to sub-classes of mail.
11         Q    Do you know the general magnitude of the uncounted
12    sack costs represented by this table?
13         A    Not off the top of my head, no, I don't.
14         Q    Would you accept subject to check that it's
15    approximately $45 million?
16         A    Sure.
17         Q    Does that sound right?
18         A    That sounds fine.
19         Q    Therefore, the amount of cost discussed in this
20    section as a percentage of the mixed mail and not handling
21    costs is approximately .7 percent, if you accept my
22    arithmetic.  Does it sound about right?
23         A    .7 percent of the total amount of moneys
24    distributed like that?
25         Q    My numerator's 45 million and my denominator is 7

                                                             19494
 1    billion.
 2         A    I'm not sure that's an appropriate way of looking
 3    at this, because the overhead costs are distributed on top
 4    of direct and mixed and counted mixed and distributed mixed
 5    costs, so it isn't necessarily that order.  But this amounts
 6    to $45 million.
 7         Q    Well, Mr. Sellick, I wasn't suggesting that this
 8    table implies any distribution of those overhead costs. 
 9    What I'm trying to establish is the general magnitude of the
10    cost that you're focusing on with the pool of costs that Ms.
11    Cohen was focusing on, and in that light is my .7 percent
12    about right?
13         A    I'll accept the calculation.
14         Q    And if we looked just at mixed mail costs, the --
15    would you accept that those are approximately $1-1/2
16    billion?  Does that sound about right?
17         A    For mixed mail?
18         Q    For mixed mail.
19         A    All mixed mail, not limited to items.
20         Q    Correct.
21         A    I'll accept that number.
22         Q    And again doing the arithmetic, that's
23    approximately three point -- this table represents
24    approximately 3.1 percent of the total pool of costs that
25    she was discussing with respect to mixed mail.

                                                             19495
 1         A    Again, I'll accept the calculation, but again
 2    point out that the discussion might be appropriately more
 3    limited to item type distribution, which is the basis of
 4    sacks.
 5         Q    Now this table was first derived and discussed in
 6    UPS/MPA-2-T-1.  Is that not correct?
 7         A    I believe that's correct.  Yes.
 8         Q    Do you have a copy of that interrogatory?
 9         A    I don't believe I do with me; no.
10              MR. GOLD:  Does counsel?
11              And for the record, that's at transcript 26,
12    14091.
13              MR. McKEEVER:  Do you want me to give it to him?
14              MR. GOLD:  Go ahead, unless you want me to.
15              THE WITNESS:  I have that citation now.
16              BY MR. GOLD:
17         Q    Okay.  And would you look at question B under that
18    interrogatory?
19         A    I have that.  Question B or answer B?
20         Q    Well, first question B.  In that question UPS
21    asked her to confirm the distribution of the costs.
22         A    Yes.
23         Q    Is that not correct?
24         A    Yes.
25         Q    And her answer was I cannot confirm -- cannot

                                                             19496
 1    confirm, because I do not know how you calculated the
 2    percentages in the Cohen distribution to associated class
 3    column.  I did not perform such a calculation because I
 4    distributed mixed mail costs by activity code, not by mail
 5    type.
 6              And then she goes ahead and gives a table
 7    comparing the direct and mixed mail costs and shows that
 8    they're closely associated, does she not?
 9         A    Yes, she does.
10         Q    And looking at question C in that interrogatory --
11         A    Yes.
12         Q    The question was please confirm that with the
13    exception of green sacks your distribution methodology would
14    result in a significantly reduced proportion of mixed mail
15    sacks, sack costs being distributed to their associated
16    classes relative to Witness Degen's distribution.
17              Is that a correct reading of that interrogatory?
18         A    Yes, I believe it is.
19         Q    And would you look at her answer to that?
20         A    I have that.
21         Q    And there she suggests that there is strong
22    evidence on the record that such associations would be far
23    weaker in mixed mail sack tallies than in direct sack
24    tallies, particularly identical sack tallies.
25              Do you see that in her answer?

                                                             19497
 1         A    I do see that.  I recall her response and I see it
 2    here.  Yes.
 3         Q    Do you have any reason to disagree with that?
 4         A    No.  Identical sack tallies would tend to, when
 5    combined with accounted mixed, would tend to increase the
 6    proportion, as I believe I point out in a footnote in my
 7    rebuttal testimony, that the association on page 5, footnote
 8    5, the association between sack type and mail class is
 9    slightly less strong for counted sacks alone, as opposed to
10    counted and direct sacks together, but the conclusion
11    remains the same.
12         Q    And getting to the broader question in this
13    regard, doesn't she say that the question seems to suggest
14    that there is a known association between classes and sack
15    type for mixed sack tallies, and she seems to believe that
16    there's not.
17         A    She -- yes, she does believe that there is not.  I
18    do not agree with that belief.
19         Q    In essence your table is based on an average, is
20    it not, an aggregation across 50 cost pools?
21         A    I'm not sure I understand your question.
22         Q    Well, did the Postal Service distribute these
23    costs in this way?  Didn't they do it within cost pools?
24         A    They did it within cost pool by item type where
25    appropriate.  Yes.

                                                             19498
 1         Q    Would you turn to your testimony that begins on
 2    the bottom of page 7?
 3         A    I have that.
 4         Q    From page seven to page eight, you spend
 5    approximately 21 lines on this area of testimony; is that
 6    correct?
 7         A    That seems about the right number of lines.
 8         Q    Is this the summary of all your criticisms about
 9    this area?
10         A    It says what it says.  It represents points I wish
11    to make on rebuttal testimony.
12         Q    Specifically looking at lines eight to 14, page
13    eight, would you look at that?
14         A    I have that.
15         Q    That says whether one believes that differing
16    degrees of not handling mail costs by mail processing
17    operation, in this case, MODS cost pools, are the result of
18    shifting employee assignments or instead, a manifestation of
19    evolving mail processing environments, increased
20    containerization and other factors, the fact remains that
21    not handling mail costs are higher in certain proportions
22    than in others.  That's your testimony, is it not?
23         A    Actually, with one small correction, certain
24    operations than in others.
25         Q    I'm sorry.

                                                             19499
 1         A    Yes.
 2         Q    Certain operations than in others.  Is it your
 3    position that the various sub-classes of mail that are
 4    "handled in an operation" should bear those costs regardless
 5    of whether they caused those costs?
 6         A    That is the effect of distributing those costs,
 7    that they bear the overhead costs in those pools.
 8         Q    When you say they bear those costs, does that
 9    necessarily mean they cause those costs?
10         A    It is not necessarily the conclusion that they
11    cause those costs, no.
12         Q    Would you turn to your section on data thinness?
13         A    I have that.
14         Q    Do you agree that there needs to be five
15    observations for each cell in a distribution?
16         A    I'm not sure -- I have not put that out as a
17    standard.  I am commenting on Ms. Cohen's previous standard
18    that she established in that regard.
19         Q    Do you have an opinion in that regard?
20         A    Actually, having reviewed Mr. Degen's rebuttal
21    testimony and looking at his calculations on the coefficient
22    of variation, I believe that's a good way of looking at
23    determining whether the distribution method results in
24    significantly more variance than the LIOCATT system.
25         Q    Does this mean that if there are six classes of

                                                             19500
 1    mail observed in an item type, there would need to be 30
 2    observations for there to be adequate data to do the
 3    distribution?
 4         A    I'm sorry.  Could you repeat the question?
 5         Q    We established that you need five observations for
 6    each cell; correct?
 7         A    Well --
 8              MR. McKEEVER:  Objection, Mr. Chairman.  Mr.
 9    Sellick indicated that was Ms. Cohen's test.  If Mr. Gold, I
10    believe, is now trying to ask him what is Ms. Cohen's test.
11              MR. GOLD:  I withdraw the question.
12              BY MR. GOLD:
13         Q    You do agree that coefficient of variation is the
14    proper way to address this issue, do you not?
15         A    In reviewing Mr. Degen's rebuttal testimony, it
16    seems to me that it's a good way to look at it.
17         Q    In fact, the record in this case reveals that for
18    coefficients that she examined, for 70 percent of the
19    numerators, the coefficient of variations were so large that
20    there is no basis to suggest that the numerators are not
21    zero?  Do you recall that testimony?
22         A    I do recall some testimony to that effect, but I
23    was specifically referring to Mr. Degen's point that the
24    best measure, as I recall his testimony, is the final cost
25    estimates and the coefficient of variation of those final

                                                             19501
 1    cost estimates, which are ultimately the numbers that are
 2    used.
 3         Q    Would you turn to page ten of your testimony?
 4         A    I have that.
 5         Q    And at the very end of your testimony you state: 
 6    I strongly urge the Commission to adopt the cost
 7    distributions provided in my supplemental testimony which
 8    result from Mr. Degen's approach and are based on returning
 9    the variability assumptions to those previously determined
10    by the Commission.
11              Is that your testimony?
12         A    Yes, it is.
13         Q    Is it your position that you can implement the
14    Degen approach if all cost pools are assumed to have the
15    same variability?
16         A    The -- my position is that you can use the
17    approach I have taken, and that is taking costs using Mr.
18    Degen's approach with the previous Commission assumptions of
19    volume variability.  I only state that -- restate that
20    slightly, in that although the cost pools for purposes of
21    running the SAS programs are returned to 100-percent
22    variability, implicitly some of them are not, because they
23    are treated as fixed mail processing and so on as discussed
24    in some of my work papers.  But yes, I do believe that Mr.
25    Degen's approach can be used as I have used it.

                                                             19502
 1         Q    Do you have an opinion about whether this distorts
 2    the cost distributions to allied activities?
 3         A    Distorts in what regard?
 4         Q    The fact that the -- all the cost pools are
 5    assumed to have the same variability.
 6         A    I don't -- I'm sorry.
 7         Q    Do you have any opinion about the effect of that
 8    on allied activities?
 9              MR. McKEEVER:  Objection, Mr. Chairman.  I believe
10    that's beyond the scope of the rebuttal testimony, which
11    does not deal with allied operations at all, it deals with
12    two very narrowly defined subjects.
13              CHAIRMAN GLEIMAN:  I believe Mr. Gold just nodded
14    his head in agreement.
15              MR. GOLD:  I withdraw the question.
16              That's all I have, Your Honor -- Mr. Chairman.
17              CHAIRMAN GLEIMAN:  The Postal Service?
18              MR. KOETTING:  We have no questions, Mr. Chairman.
19              CHAIRMAN GLEIMAN:  And?  Is there any followup to
20    Mr. Gold's cross-examination?
21              No.
22              And there are no questions from the bench that I'm
23    aware of.
24              That brings us to redirect.  Would you like some
25    time with your witness?

                                                             19503
 1              MR. McKEEVER:  Yes, Mr. Chairman, I'd appreciate
 2    just a few minutes.
 3              CHAIRMAN GLEIMAN:  Okay.  Why don't you take five
 4    minutes?
 5              MR. McKEEVER:  Thank you.
 6              [Recess.]
 7              CHAIRMAN GLEIMAN:  Mr. McKeever.
 8              MR. McKEEVER:  We have no questions, Mr. Chairman.
 9              CHAIRMAN GLEIMAN:  Inasmuch as there's no
10    redirect, I want to thank you, Mr. Sellick.  We appreciate
11    your appearance here today and your contributions to the
12    record.  And if there's nothing further, you're excused.
13              [Witness excused.]
14              CHAIRMAN GLEIMAN:  Mr. Todd, I believe -- I
15    thought I saw you over there somewhere.  I believe your
16    witness is the next witness.  If you could identify him, so
17    that I can swear him in.
18              MR. TODD:  The Mail Order Association of America
19    would like to present as its witness Mr. Roger C. Prescott.
20    Whereupon,
21                         ROGER C. PRESCOTT,
22    a witness, was called for examination by counsel for the
23    Mail Order Association of America and, having been first
24    duly sworn, was examined and testified as follows:
25                         DIRECT EXAMINATION

                                                             19504
 1              BY MR. TODD:
 2         Q    Mr. Prescott, do you have in front of you a
 3    document entitled Rebuttal Testimony of Roger C. Prescott,
 4    which has been marked as MOAA-RT-1?
 5         A    Yes, I do.
 6         Q    And was this testimony prepared by you or under
 7    your direction?
 8         A    Yes, it was.
 9         Q    And do you adopt it today as your testimony in
10    this case?
11         A    Yes, I do.
12              MR. TODD:  Mr. Chairman, I am handing two copies
13    of the identified testimony to the reporter with a request
14    that it be admitted into evidence and transcribed into the
15    record at this time.
16              CHAIRMAN GLEIMAN:  Are there any objections?
17              Hearing none, Mr. Prescott's testimony and
18    exhibits are received into evidence, and I direct that they
19    be transcribed into the record at this point.
20                             [Rebuttal Testimony and Exhibits of
21                             Roger C. Prescott, MOAA-RT-1, was
22                             received into evidence and
23                             transcribed into the record.]
24
25

                                                             19547
 1              CHAIRMAN GLEIMAN:  Only one participant, Val-Pak
 2    Marketing -- excuse me, Val-Pak Direct Marketing Systems,
 3    Inc., Val-Pak Dealers Association, Inc., and Carol Wright
 4    Promotions, Inc., filed a request for oral cross-examination
 5    of the witness.
 6              Does anyone else wish to cross-examine this
 7    witness?
 8              If not, Mr. Olson, you can begin when you're
 9    ready.
10                          CROSS-EXAMINATION
11              BY MR. OLSON:
12         Q    Mr. Prescott, William Olson, representing Val-Pak
13    and Carol Wright.
14              And I want to ask you to begin by turning to
15    Appendix B of your testimony.
16         A    Yes, I have it.
17         Q    Okay.  And the purpose of your testimony is to
18    rebut the testimony of Dr. Haldi on behalf of Val-Pak, Carol
19    Wright, VPCW-T-1; correct?
20         A    Yes, it is.
21         Q    And this is where you set out the errors and
22    assumptions in Witness Haldi's procedures in his what -- in
23    his presentation of ECR rates; correct?
24         A    In this appendix and in my text; yes.
25         Q    Okay.  Well, what does the appendix -- the

                                                             19548
 1    appendix says errors and assumptions, and then it says it
 2    has theoretical errors, mathematical errors, faulty
 3    assumptions -- aren't most of those in the appendix, or do
 4    you have some division between what's in the text and what's
 5    in the appendix?
 6         A    Well, I would describe the text as being an
 7    overview of the theory and my explanation of the steps
 8    followed by Dr. Haldi, and Appendix B is intended to
 9    highlight some of the specific problems that occur in his
10    procedures.
11         Q    The mathematical errors and the faulty
12    assumptions.
13         A    Yes.
14         Q    Okay.  And in your testimony on page 1 you start
15    by saying at line 11:  While the correction of mathematical
16    errors apparently would have little impact on the rates
17    proposed by Witness Haldi, I have identified all errors that
18    I have found in order to provide as complete a record as
19    possible.  Correct?
20         A    Yes.
21         Q    Do you have an idea as to what the impact would be
22    of the correction of all of the errors that you have found
23    in terms of an order of magnitude of the effect on rates?
24         A    The mathematical errors referenced in that
25    sentence?

                                                             19549
 1         Q    Yes.
 2         A    There were three specific mathematical errors that
 3    I identified, and those were in table A-8, A-15, and table
 4    C-2.  And if you were to make those corrections only, it
 5    would have the impact of approximately a tenth of a cent on
 6    the rate structure.
 7         Q    Okay.  And just for clarity, where do you discuss
 8    the errors in A-8 in your appendix?
 9         A    The errors in Table A-8 would be discussed in
10    pages 4 and 5 of my Exhibit 1-B or the Appendix B.
11         Q    And then E-15 is page 9?
12         A    That's correct.
13         Q    And the C-2 problems are on page 12?
14         A    The C-2 mathematical error is discussed on pages
15    12 and 13.
16         Q    Okay.  Those are mathematical errors.
17              Now you also say there are faulty assumptions and
18    theoretical errors.  Have you attempted to quantify the
19    degree of error from the theoretical errors and the faulty
20    assumptions?
21         A    I have not restated the faulty assumptions or
22    provided my own assumptions, no.
23         Q    So you don't know whether that would have little
24    impact on the rates proposed by Dr. Haldi or great impact on
25    the rates proposed by Dr. Haldi?

                                                             19550
 1         A    Well, it would depend on how you would change
 2    those assumptions.  For example, his assumption in Table
 3    C-2, which has a weighting of 90 percent and 10 percent, if
 4    you changed that weighting to 50/50, for example, assumed
 5    that instead, you would get quite different results.
 6         Q    Actually you would get very much higher basic
 7    rates, would you not, and much lower saturation rates?
 8         A    I believe that to be correct, yes.
 9         Q    Okay.  Let me say then as you discuss these errors
10    and assumptions, mathematical errors, faulty assumptions,
11    that you discuss them table by table and then you, wherever
12    a number is rolled from one table into the next table, you
13    then say it's an error in that table because of the prior
14    analysis, correct?
15              That's the approach you took?
16         A    As a general statement I would say yes.
17         Q    Okay.  So it is not just identified in the table
18    where the error is made according to your testimony, but
19    then wherever it rolls forward into a subsequent table you
20    have tried to point that out also, correct?
21         A    That's correct.  Dr. Haldi's structure to his
22    calculations are each table will build on a prior table.
23         Q    Right.
24         A    Right.
25         Q    Let me ask you to take a look at your page 2 and

                                                             19551
 1    your analysis of Table A-1, and there your criticism as I
 2    understand it is that Dr. Haldi in Table A-1 relies on
 3    overall average volume for letters and flats combined, for
 4    transportation, and "other" -- correct?
 5         A    What line would you be referring to?
 6         Q    From your testimony, you mean?
 7         A    Yes.
 8         Q    4 and 5, page 2.t
 9              MR. TODD:  Page 2 of the Appendix, counsel?
10              MR. OLSON:  Yes.  Everything will deal with the
11    appendix.
12              THE WITNESS:  Yes, I see that.  Yes.
13              BY MR. OLSON:
14         Q    Okay, and so do you have Dr. Haldi's Table A-8
15    there -- A-1 on page A-8?  Do you happen to have his
16    testimony?
17         A    Yes, I have that.
18         Q    Okay.  So what you are criticizing, are you not,
19    is that in the transportation column for example he uses
20    .1877 for automation, basic, high density and saturation,
21    correct?
22         A    For both letters and nonletters, yes.
23         Q    Exactly -- irrespective of whether it is a letter
24    or nonletter and irrespective of condition of sortation,
25    correct?

                                                             19552
 1         A    That's correct.
 2         Q    Do you understand what the purpose of Table A-1 in
 3    Dr. Haldi's analysis was?
 4              Do you understand Table A-1 and A-2 to be the
 5    development of a benchmark from which later analysis would
 6    be derived, but that was not the totality of the analysis?
 7         A    That is not the totality of the analysis.
 8         Q    Okay, so for example, what Table A-1 and A-2 does,
 9    correct me if I'm wrong, is attempt to extract from the
10    Postal Service's case unit costs for mail processing,
11    delivery, transportation and other and then multiply it by
12    test year after rates volumes, correct?
13         A    Yes.
14         Q    Okay, and then he comes up with test year --
15    excuse me, Dr. Haldi compares that to CRA costs derived from
16    Witness Patelunas at the end of Table A-2, correct?
17         A    He compares it to the CRA costs in total.  In
18    Table A-2 he also develops the costs separately between
19    letters and nonletters.
20         Q    Okay.
21         A    And that is the point at which the costs are no
22    longer valid because of the assumptions that he has made in
23    Table A-1.
24         Q    Okay, but when he goes -- when he runs his numbers
25    and compares it to CRA costs, do you have a problem with his

                                                             19553
 1    analysis and how far it is away from CRA costs?
 2              Have you looked to see how close this benchmark
 3    got him?
 4         A    In Table A-2, the CRA costs are quite close to the
 5    costs developed by Dr. Haldi.  The problem is that in Table
 6    A-2 he is separating the total costs between letters and
 7    nonletters and the problem is in that separation, and those
 8    numbers, those aggregate costs for letters and nonletters
 9    are used later on in his analyses to develop his rates.
10         Q    Okay, but when you criticize him for using the
11    same transportation number, an average transportation number
12    in Table A-1, you are not saying, are you, that that is
13    where his analysis ends, but rather does he not develop
14    shipping, unit shipping costs at a later point in his
15    analysis?
16         A    Yes, he does.
17         Q    Okay.  So the Postal Service did not provide --
18    isn't it true the Postal Service did not provide information
19    from which to be able to put in -- information from which
20    Dr. Haldi could have drawn -- unit costs for transportation
21    and others -- to put different numbers into this first
22    table?
23         A    The Postal Service did not provide numbers
24    separated between letters and nonletters, that's correct.
25         Q    Okay.  Let me ask you to turn to the next page, to

                                                             19554
 1    page 3 and specifically Section D, where you discuss Table
 2    A-6.
 3         A    Okay.
 4         Q    You say that Witness Haldi, and I'm reading from
 5    lines five through seven here, Witness Haldi's separation of
 6    total pieces for ECR pound rated mail by destination entry
 7    profile in Table A-6 is based on the UPS' separation of the
 8    pounds by destination entry profile; correct?
 9         A    Yes.
10         Q    There, we are talking about Witness Moeller's
11    workpaper one, page 20; correct?
12         A    Yes.
13         Q    Witness Moeller in that workpaper or anywhere else
14    in this case, I think you will confirm, did not provide
15    piece break outs for pound rated pieces, whether they be
16    flats -- whether they be in the standard A regular or ECR
17    sub-class, he didn't provide a piece break out for pound
18    rated pieces, correct, by point of entry, BMC, SCF or DDU?
19         A    Witness Moeller did not; that's correct.
20         Q    Therefore, those numbers had to developed;
21    correct?
22         A    Well, I don't know if they had to be developed. 
23    Dr. Haldi developed them.
24         Q    The way that he developed them was using the
25    percentages that appear in columns three, four and five of

                                                             19555
 1    that workpaper; correct?
 2         A    Yes.
 3         Q    He multiplied the percentage that was drop shipped
 4    to BMC's, SCF's and DDU's as against total pieces and put
 5    those numbers into columns six, seven and eight, in essence,
 6    where there are blanks; correct?
 7         A    Yes.
 8         Q    And the problem you have with that I take it is
 9    that -- could you state the problem you have with that?
10         A    The problem with distributing pieces for pound
11    rated non-letters based on the distribution of the pounds is
12    that it assumes that all pieces have the same weight, the
13    same average weight.
14         Q    Same average weight; correct.
15         A    The data available shows that's not true.
16         Q    Is there any data available for test year?  There
17    obviously isn't.  You are talking about base year 1996 data;
18    correct?
19         A    Yes.  That would be the same data that Dr. Haldi
20    relied on in developing his weight for letters and piece
21    rated non-letters.
22         Q    Let's get to that in a second.  Let's just deal
23    with this.  Do you know of another way to develop the
24    numbers of pieces for pound rated pieces, other than to use
25    the approach Dr. Haldi used, which does make the assumption

                                                             19556
 1    that you stated, that the pieces have an average -- the same
 2    average weight?
 3         A    Yes.
 4         Q    What's the other way?
 5         A    There are a number of other ways.  An easy way, I
 6    think, would be to assume the same type of distribution that
 7    occurred in base year 1996.
 8         Q    If you use the distribution in base year 1996 as
 9    between BMC entry, SCF entry and DDU entry, have you ever
10    tried to do that, do you know any way to be able to
11    aggregate to the numbers that appear in Witness Moeller's
12    workpaper?
13         A    You could aggregate to those numbers, yes.
14         Q    Have you ever tried to do that?
15         A    No, I have not done it.
16         Q    Do you realize that implicit in -- strike that.
17              Now this is one of your criticisms of Dr. Haldi, I
18    take it, about a theoretical assumption I guess you could
19    call it.
20              Would you call this an error about a theoretical
21    assumption?
22         A    Yes.
23         Q    Where does Dr. Haldi use these numbers in
24    developing rates?
25         A    Are we referring to Table A-6 now?

                                                             19557
 1         Q    We are referring to Table A-6 and your analysis,
 2    your criticism of it.
 3         A    Do you want me to go through and list the tables
 4    that rely on the values that are in A-6?  I am not sure I
 5    understand the question.
 6         Q    Well, I am asking you is it your position that Dr.
 7    Haldi uses these numbers in developing his rates for
 8    pound-rated pieces?
 9         A    Not directly, no.
10         Q    Okay, so he doesn't even use these numbers to
11    develop rates, correct?
12         A    No, not directly.  That's correct.
13         Q    In lines 14 through 16, you say, "Comparison of
14    the implicit average weights used by Witness Haldi in Table
15    A-6 with the average weights using actual 1996 billing
16    determinants, Table A-5, indicates large disparities."
17              I would ask you if you could turn to that Table
18    A-5?
19         A    Yes.
20         Q    The large disparity that you point out has to do
21    with high density where there is -- you say which has an
22    average weight of .21 pounds.
23              Where do you get that number from?
24         A    The .21 on line 17 should be .24.
25         Q    In fact, shouldn't it be .2417?

                                                             19558
 1         A    I was rounding to the nearest hundredths.
 2         Q    Okay, so that is an error?
 3         A    That is a typographical error, yes.
 4         Q    Now you are saying that the 1996 billing
 5    determinants should have been used to develop these
 6    separations, correct?
 7         A    I am saying that that is a way of doing it.
 8         Q    Okay.  Take a look at pound-rated nonletters for a
 9    second on Table A-5 in Dr. Haldi's testimony and tell me for
10    saturation mail, for example, what systematic variation do
11    you see of average weight depending on point of entry?
12         A    I don't see one.
13         Q    And in fact those numbers are fairly close, aren't
14    they, for saturation -- .28, .29, .31 and .28.
15         A    Excuse me, I was comparing saturation to high
16    density.  Could we go back?
17         Q    Sure.  Let me ask you if you see any kind of
18    systematic variation among the average weight of the
19    pound-rated nonletters for the saturation tier.
20         A    The range is from .28 pounds to .32 pounds.
21         Q    Okay.  Any systematic variation?
22         A    Maybe I am having a problem with the word
23    systematic.
24         Q    Well, as you get -- as you drop into the system
25    closer to the customer, does it become heavier, typically a

                                                             19559
 1    heavier weight piece or a lighter weight piece?
 2         A    No.
 3         Q    It just varies randomly, correct?
 4         A    I don't have a basis to say that that's a random
 5    variation.
 6         Q    You don't have an explanation for the variation
 7    though, correct?
 8         A    Well, yes, I have an explanation.  It's based on
 9    the Postal Service's pounds and pieces and you divide one by
10    the other and you get --
11         Q    Sure.  It's what happened -- it's what happened to
12    have happened in Fiscal '96, correct?
13         A    It's actual data.
14         Q    Actual data as to what happened to have happened
15    that year?
16         A    Yes.
17         Q    And there happens to be more density -- excuse me
18    -- more variation, I guess, in the high density,
19    specifically the number you pulled out to use, which you now
20    corrected to be .24, there seems to be more variation in
21    high density, correct, than there is in basic or saturation?
22         A    The variation in high density is between .24 and
23    .33.
24         Q    Correct.  That's much greater than it is for basic
25    or saturation; correct?

                                                             19560
 1         A    I don't know that it's much greater.  It's
 2    different.
 3         Q    It's greater, right?
 4         A    It's greater, yes.
 5         Q    Do you know how much of total volume is high
 6    density within ECR?
 7         A    The 1996 billing determinants would show that high
 8    density is 287 million pieces out of 6.6 billion pieces.
 9         Q    A fairly small percentage compared to certainly
10    saturation and basic; correct?
11         A    It's smaller; yes.
12         Q    You said before that there might be other ways to
13    make the allocation that you criticized Dr. Haldi for using,
14    the percentage of pounds and applying those to volume, you
15    said there might be other ways, one you said was to use the
16    fiscal 1996 billing determinants.  Anything else you can
17    think of?
18         A    You could do a time series.  You could test the
19    values over time.  You could do a regression.  You could
20    take the test year pieces and adjust them based on the test
21    year pounds but recognizing variation in weight.
22         Q    Do you know if you can do any of those with the
23    information that's been provided so far in this case by the
24    Postal Service?
25         A    I don't know.

                                                             19561
 1         Q    Have you tried to do any of those?
 2         A    No.
 3         Q    Let me ask you to look at your testimony at page
 4    four, your discussion of table A-7.  There you criticize Dr.
 5    Haldi, I think, for -- I'll start at line nine.  You say
 6    "However, in developing the pounds for automation letters,
 7    Witness Haldi assumed that these automation letters have the
 8    same average weight as basic presort letters."  Then you say
 9    that assumption is false; correct?
10         A    Yes.
11         Q    Would you take a look at his table A-3, which is
12    1996 billing determinant data, and for automation, does the
13    Postal Service provide a break out of automation letters by
14    BMC, SCF or DDU?
15         A    There is no break out in table A-3.
16         Q    In fact, there is no break out as part of the
17    record in this case; correct?
18         A    I'm not sure.
19         Q    Do you know why there was no break out provided? 
20    I'll ask you to assume there was none for the purpose of the
21    question.  Do you know why automation might not have a break
22    out where the others do?
23         A    No.
24         Q    Are you familiar with the implementation date of
25    the rates in Docket No. MC95-1, the rate class case?

                                                             19562
 1         A    Yes.
 2         Q    And the fact that these automation ECR rates went
 3    into effect during the course of fiscal 1996?
 4         A    Yes.
 5         Q    In fact, we have probably a quarter's worth of
 6    data for those automation letters?
 7         A    I don't know.
 8         Q    Otherwise, those letters -- where do those letters
 9    appear for the other three-quarters of the year in that
10    chart?
11         A    I'm not sure.
12         Q    If I were to suggest they are in the basic
13    category and in fact, I believe that is a response to an
14    interrogatory, which I'll reference for the record, which I
15    think is USPS-ValPak-Carol Wright-T1-18 and 19, and I don't
16    have a page reference.  I can correct that if necessary. 
17    That's what my notes indicate here.
18              Automation was a subset of basic letters for most
19    of the year in the 1996 billing determinants.  Would you
20    accept that subject to check?
21         A    Yes.
22         Q    If that's so, if automation was in fact a subset
23    of basic, is it irrational to assume that they might have
24    the same average weight, that might be the best proxy that's
25    available to determine the average weight of automation

                                                             19563
 1    pieces?
 2         A    It still wouldn't explain the variation in the
 3    average weight for the automation letters that are shown.
 4         Q    Do you think it's a good proxy or a reasonable
 5    proxy?
 6         A    No.
 7         Q    It's because of your numbers in table A-5?
 8         A    Yes.
 9         Q    There, the numbers are for the pieces that have no
10    destination entry; correct?  Or they are put in that column
11    anyway for no destination entry?  Do you see that?
12         A    In table A-5?
13         Q    Yes.
14         A    Yes.
15         Q    Do you see that the Postal Service did not provide
16    average weight in the billing determinants for letters,
17    based on point of entry?  I guess they are all just under no
18    destination entry.  We just talked about how in table A-3,
19    they did not provide BMC entry, SCF entry or DDU entry break
20    out; correct?
21         A    Yes.
22         Q    You can't tell what the -- they are all lumped
23    under no destination entry, irrespective of point of entry;
24    correct?
25         A    The only place that automation letters appear is

                                                             19564
 1    under no destination entry; that's correct.
 2         Q    Let me ask you to look at the bottom of page 4
 3    where you talk about table A-8.
 4         A    Yes.
 5         Q    And there you say the -- line 17, and going to the
 6    next page -- the transportation cost for SCF shown by
 7    Witness Haldi equals 0.72 cents per pound and is not
 8    correct.  The actual value from USPS Library Reference
 9    LRH-111 equals 0.73 cents per pound.  Correct?
10         A    Yes.
11         Q    Okay.  Where did you get that number from the
12    library reference?
13         A    Appendix C, table 1, revised November 20, 1997.
14         Q    Okay.  Let me ask you if you can look at page 2 of
15    the library reference for a moment.
16         A    This would be Library Reference 111?
17         Q    Yes.
18         A    I don't have the entirety of that library
19    reference with me.
20         Q    Okay.  Well, let me just read you one sentence for
21    the library reference.  Actually, let me read from page 6. 
22    The nontransportation cost avoidances is what we're talking
23    about.  It says the cost avoidances are 2.71 cents for DDU,
24    1.99 cents for DSCF, and 1.35 cents for DBMC.
25              Based on those numbers, what would be the

                                                             19565
 1    nontransportation costs for SCF?  Would it not be the DSCF
 2    2.71 minus the DDU 1.99?
 3         A    The 1.99 was revised.
 4         Q    To 2.0 or to 1.98?
 5         A    Yes.
 6         Q    Okay.  Do you have the date of that?
 7         A    Appendix C, table 1, revised November 20, 1997.
 8         Q    Okay.  That's what your criticism is then, the
 9    failure to recognize the revision?
10         A    Yes.
11         Q    By the penny.
12         A    Yes.
13         Q    And you do realize that the number you cite, you
14    do have that page from Appendix C that you cited; correct?
15         A    Yes.
16         Q    The bottom of table 7?
17         A    The page that I have doesn't have a table 7 on it.
18              I'm looking at Appendix C, table 1.
19         Q    Right.  Appendix C, table 7 has a number carried
20    out to more decimal points.  It's .007264.  Dr. Haldi used
21    .72.  You used .73.  Correct?
22         A    Yes.
23         Q    Let me ask you to turn to your analysis there of
24    table A-10.
25              You say at the beginning of line 11:  In addition

                                                             19566
 1    Witness Haldi's analysis assumes that shipping costs for
 2    piece-rated mail, i.e., below 3.3 ounces, varies in direct
 3    proportion to weight.
 4              Are you familiar with the way in which Library
 5    Reference 111 determines drop ship savings for Standard A
 6    mail?
 7         A    Generally, yes.
 8         Q    Okay.  Is it on a piece -- per-piece or a
 9    per-pound basis?
10         A    It's on a per-pound basis.
11         Q    Okay.  Every single drop ship savings is on a
12    per-pound basis; correct?  In that library reference?
13         A    I don't know if every single one is.  Generally --
14    the answers are expressed on a per-pound basis.  The Postal
15    Service in developing their discounts for piece-rated mail
16    develops the discount based on 3.3 ounces.
17         Q    And you say that the assumption has not been shown
18    to be valid.  Can you explain that to me?
19         A    Dr. Haldi has assumed that the destination entry
20    cost savings are linear with changes in weight, when in fact
21    it's not been shown that those changes are linear, and the
22    Postal Service doesn't apply it that way.
23         Q    Do you have a problem with Library Reference 111
24    in the way they develop their drop ship savings?
25         A    No.

                                                             19567
 1         Q    But those are purely on a pound basis, are they
 2    not?
 3         A    Yes.
 4         Q    Okay.  So they're directly -- in direct proportion
 5    to weight, are they not?
 6         A    There's no savings developed on a per piece basis,
 7    so there's no -- the issue of the cost savings being
 8    proportional to changes in weight is not addressed in that
 9    library reference.
10         Q    You say that this is refuted by the data shown in
11    Witness Haldi's Appendix D.  Could you turn to his Appendix
12    D?
13         A    Yes.
14         Q    Can you tell me what you're referencing?  I guess
15    it's the footnote 4 on that page, where you say that a --
16    Dr. Haldi's Appendix D -- that says a carrier route letter
17    weighing one ounce costs more than letters weighing two to
18    four ounces.  Is that what you're referring to.
19         A    Yes.
20         Q    That would be in Table D3?
21         A    Yes.
22         Q    Okay.  And so, you say that this assumption about
23    shipping costs varying in direct proportion to weight is
24    refuted by this table, correct, in Dr. Haldi's own
25    testimony.

                                                             19568
 1         A    Yes.
 2         Q    Okay.  Did you read Dr. Haldi's description of
 3    these tables, D1 through 3?
 4         A    Yes, I did.
 5         Q    Okay.  And on page D9, do you see that Dr. Haldi
 6    discusses Table 3, which is -- Table 1 and 2 were provided,
 7    Table 3 he calculated, and he says inspection of Table 3
 8    shows that, for carrier route mail, the results are
 9    obviously absurd?  Do you see that?
10         A    Yes.
11         Q    And so you're saying that he's inconsistent and
12    that his assumption has been proved to be false by data that
13    he presents in his testimony which he describes as obviously
14    absurd?
15         A    Well, the statement's equally valid to Tables D1
16    and D2 in his appendix.
17         Q    But D1 and D2 are provided by the Postal Service,
18    and it's D3 that shows that all the data are obviously
19    absurd.  Isn't that correct?
20         A    I'm not sure that Dr. Haldi was claiming that all
21    the data in Table D3 is absurd.  If you look at the data in
22    those three tables, they are uniform in that, for carrier
23    route mail, the cost for a one-ounce piece is greater than a
24    cost for a two-ounce, three-ounce, or four-ounce piece.
25         Q    Okay.  Well, take a look at his analysis at the

                                                             19569
 1    end of page D9.  He says serious weight cannot be given to
 2    data for flats when the residual produces results such as
 3    these.  The data for flats are in Table D2, correct?
 4         A    Yes.
 5         Q    Okay.  So, certainly, at least Table D2 and D3 he
 6    said were absurd and could not be given serious weight,
 7    correct?
 8         A    Yes.
 9         Q    Let me ask you to turn to page 8, where you
10    discuss Table A14, and there, beginning on line 14, you say
11    Witness Haldi assumes that 2.33 cents per piece should be
12    considered weight-related for all non-letters.  Is that an
13    accurate statement of what you believe Dr. Haldi does?
14         A    Yes.
15         Q    So, you think he is of the view that 2.33 cents
16    per piece should be considered weight-related.
17         A    In purposes -- for purposes of the calculations
18    that he's made in his appendices, yes.
19         Q    Okay.  And what were the purposes of those
20    calculations that he made in his appendices?
21         A    Well, this gets into the inputs into the rate
22    design versus the calculations that he's made.
23              When he developed his aggregate cost true-ups and
24    his tests of the distribution of the costs, he assumed a
25    weight piece of 2.33 cents.

                                                             19570
 1              In his actual rate design for non-letters, it
 2    never appears.
 3         Q    Absolutely.  He did not use 2.33, correct?  But
 4    rather --
 5         A    But he has.  He uses that number in many of his
 6    tables, and because my exercise here in this appendix was to
 7    critique the issues and the problems with each of the
 8    tables, I needed to address the 2.33 cents.
 9         Q    Okay.  Well, take a look at Table A14 very
10    quickly, if you could, in his testimony.  Do you see that he
11    describes the 2.33 cents as case one?
12         A    Yes.
13         Q    And case one finishes with table A-19 and then it
14    goes to case two, and at case two, a very different
15    assumption is made, of .5825 cents per piece treated as
16    weight related costs?
17         A    The case two analysis is never brought forward to
18    his Appendix C, though, just the case one analysis.
19         Q    You criticize him on page 12 for having assumed, I
20    guess, or you say for conducting a mathematical exercise
21    regarding this .5825 cents, and it was just a number, and
22    you said it's arbitrary and not supported by the workpapers.
23              I would just ask you, if you didn't get the drift
24    of what Dr. Haldi was doing, saying that since no one knew
25    what the weight cost relationship was, he would take two

                                                             19571
 1    extreme cases and assume that it was somewhere in between,
 2    and that one of the cases was 2.33 cents per piece, that's
 3    case one, and case two was 0.5825 per piece and that was
 4    case two, and then he compared the two, and isn't that what
 5    he was doing with those two numbers rather than vouching for
 6    those numbers?
 7         A    Well, when he went to this Appendix C to develop
 8    or finish his analysis, for example, table C-8 is based on
 9    the 2.33 cents per piece.  There is no comparable table to
10    C-8 based on the .5825.  I would assume that he's giving
11    more credibility to the 2.33, since he's using that in the
12    later steps in his analysis.
13         Q    In your own testimony, on the last line of this
14    page, you say Witness Haldi's analysis of the costs
15    associated with rate as utilized in Table A-14 or subsequent
16    tables, have no bearing on the ultimate rate design for
17    pound rate mail; correct?
18         A    They have no bearing on the rates that he shows in
19    his table C-10.  It has a bearing on the costs that he shows
20    in his table C-9, his costs in his table C-8, those two
21    tables.
22         Q    But it has no bearing on his proposed rates;
23    correct?
24         A    Yes.
25         Q    And that he accepted Witness Moeller's .53 pounds

                                                             19572
 1    -- excuse me -- .53 cents per pound -- 53 cents a pound as
 2    the pound rate; correct?
 3         A    Yes.
 4         Q    Do you have any difference of opinion with the
 5    concept that there are -- I don't mean to have that long a
 6    pause in the question.  Just strike what I've said and let
 7    me start over again.
 8              Do you have a problem with Dr. Haldi's analysis
 9    that we need to know more about the effect of weight on cost
10    with respect to non-letters?
11         A    I've not addressed that in my testimony.
12         Q    Do you believe there is a cost component of weight
13    for non-letters, that cost varies with weight?
14         A    In some regard, yes.
15         Q    Do you have an opinion as to whether the proper
16    weight cost relationship lies within or without the
17    parameters of his case one and case two?  The 58 cents and
18    the --
19         A    I don't have a basis to say that it's within those
20    parameters or outside of those parameters.
21         Q    Take a look, please, at your testimony on page
22    nine regarding A-16, table A-16.  There you say at line 16,
23    for the pound portion of pound rated mail, Witness Haldi
24    assumes that costs do not vary with sortation or destination
25    entry; is that correct?

                                                             19573
 1         A    Yes.
 2         Q    Do you have A16 before you?
 3         A    Yes.
 4         Q    Okay.  The e.g. you give for that proposition is
 5    that the pound rated portion -- excuse me, the pound portion
 6    of pound rated mail for basic sortation without drop
 7    shipping is the same as another rate cell, correct?  What is
 8    the pound portion of pound rated mail for basic sortation
 9    without drop shipping, according to the chart?
10         A    For basic mail it is .257.
11         Q    Then you compare that to the pound portion for
12    saturation mail drop shipped to the DDU.  And what is that
13    number, from Table A16?
14         A    The DDU number for saturation is .1191.
15         Q    Okay.  So the first number that you use there, the
16    pound portion of the pound rated mail for basic sortation
17    without drop shipping is 25.7 cents, and you say that is the
18    same as the pound portion for saturation mail drop shipped
19    to the DDU, which you said is 11.91 cents.
20         A    I think the statement -- my statement in the text
21    is not very clear.  The point that I was trying to make in
22    that statement was if you are in Table A16, you see two
23    things.  First, that for pound rated mail, the per pound
24    amount is the same regardless of sortation.  In other words,
25    basic equals high density equals saturation.

                                                             19574
 1              The second thought that I was trying to get across
 2    here was that for the piece portion of pound rated mail, the
 3    values are the same across all -- regardless of destination
 4    entry.  So that if you are, and this is one section up on
 5    Table A16, if you are basic mail, the assumption is that the
 6    cost is 5.90 cents for no destination entry but it also 5.90
 7    cents for destination entry at the DDU.
 8         Q    And isn't it correct that Dr. Haldi has been
 9    critical of the Postal Service for failure to develop these
10    weight cost relationships any quicker than they have -- than
11    they have done so, and that he is attempting to further the
12    analysis?
13         A    Well, Dr. Haldi stated the purpose of his
14    testimony was to develop bottom up costs.
15         Q    And with respect to weight, he notes serious
16    deficiencies in the available data, does he not?  Isn't that
17    what Appendix D is about?
18         A    His Appendix D discusses deficiencies in the data
19    related to weight and cost.
20         Q    The entire topic of the section, isn't it?
21         A    Yes, it is.
22         Q    Okay.  Well, so just to clarify, let me just make
23    sure, you are not contending, are you, that the first
24    number, 25.7 cents, is the same as 11.91 cents?
25         A    No, I not.

                                                             19575
 1         Q    So this is an error?
 2         A    Well, the statement is not very articulate.
 3         Q    Well, isn't it just in error?  Just wrong?
 4         A    Well, yes.
 5         Q    Let me ask you to turn to page 12, and there you
 6    talk about the 90 percent margin, 10 percent markup that Dr.
 7    Haldi uses in his recommended rates, do you recall that?
 8         A    Yes.
 9         Q    Okay.  You first say on line 16 that Witness Haldi
10    only relies on the results of BMC mail in his rate proposal. 
11    In other words, you are being -- you are criticizing him, I
12    take it, that he didn't develop a separate analysis for SCF
13    and DDU and no destination entry, correct?
14         A    Separate analysis meaning rates, yes.  His rates
15    for the other destination entry are based on the Postal
16    Service's discounts.
17         Q    Right.  Have you attempted to do the analysis for
18    SCF, DDU, no destination entry and compare it to the way
19    that it comes out with Dr. Haldi's analysis using BMC?
20         A    No.
21         Q    Okay.  Secondly, you say the 90-10 allocation is
22    arbitrary and not supported.  Does that mean that you don't
23    believe it is supported in his testimony?
24         A    It appears in his testimony.  There's no rationale
25    for the 90 percent/10 percent split versus any other split.

                                                             19576
 1         Q    Okay.  Let me ask you to turn to page 40 of Dr.
 2    Haldi's testimony.
 3         A    Okay.
 4         Q    On page 40, Dr. Haldi starts an analysis of target
 5    margins versus target mark-ups.  You have read this,
 6    correct?
 7         A    Yes.
 8         Q    Okay.  And he first says, and I am reading from
 9    line 13 here, "The extent to which either of these two
10    approaches, margins or mark-ups, is more appropriate for any
11    given class or subclass depends on the competitive
12    environment for postal services as explained below."
13              Do you have any problem with that statement?
14         A    Yes.
15         Q    You have a problem with it?
16         A    Yes.  I don't believe that either of these two
17    approaches is appropriate from the standpoint of his
18    analysis.
19         Q    Okay.  Well, first, let's go through his analysis
20    to make sure we are clear on that and then I'll ask you
21    that.
22              First he discussed target margin at the bottom of
23    page 40, going on to 41, and he talks about assumptions
24    which underlie a pricing strategy of relying on margin are
25    when the Postal Service faces perfect or near-perfect

                                                             19577
 1    competition for sortation and shipping but has a perfect or
 2    near-perfect monopoly of the delivery function.
 3              Do you see that?
 4         A    No.
 5         Q    Lines 9 through 14 on page 41.
 6         A    Yes.
 7         Q    Okay, and then when he discusses mark-up at the
 8    bottom of 41 and on to 42, he talks about how that would --
 9    and I am referring now to line 8 on page 42 -- how that
10    would implicitly treat all postal services being subject to
11    fairer competition.
12              Do you see that?
13         A    I see the statement, yes.
14         Q    Okay.  Do you have any problem with his analysis
15    there?
16         A    Yes.
17         Q    Okay, well, we will get to that.  Then on page 43
18    he does an assessment of the competitive environment, which
19    according to his way of looking at it is very significant in
20    determining whether these are mark-ups or margins, and he
21    does an assessment or the competitive environment for
22    delivery -- at the bottom of page 43, correct?
23         A    Yes.
24         Q    It goes on to 44 and then he goes into the
25    analysis of the competitive environment for sorting and

                                                             19578
 1    shipping, correct?
 2         A    Yes.
 3         Q    Okay, and then he goes on to 46 and he leaves the
 4    issue and then he goes to page 49 where he says -- he picks
 5    up this discussion and he says, line 15, "First initial
 6    target rates were derived by adding to unit costs a constant
 7    mark-up of 7.379 plus a mark-up of 10 percent.  The 10
 8    percent mark-up is a conservative recognition of the fact
 9    that the Postal Service faces competition from alternative
10    delivery in a number of markets."
11              Is it fair to say that Dr. Haldi did not provide
12    support for the 90-10 allocation, as you have just said?
13         A    It appears in his text but there is no
14    quantitative analysis here that says when you look at
15    competitive positions for advertising mail that you should
16    use 90 percent on a fixed margin and 10 percent on a
17    mark-up.
18              His analysis that you have pointed to in this
19    testimony doesn't have any quantitative support for a 90-10.
20         Q    If the number were lower, if it were 80-20, it
21    would result in higher basic rates, correct?
22              Anything lower than 90 would result in higher
23    basic rates of the sort used by catalogs?
24         A    Do you mean basic rates or initial target rates?
25         Q    Basic rates.

                                                             19579
 1         A    I don't know because of the impact of the true-up
 2    that he uses in Table C-3.
 3         Q    Okay, but if -- I guess I will do the rest of this
 4    in brief, but if -- the only question I want to ask you is
 5    isn't it true that when you move down from a 100 percent to
 6    90 percent you put at least some of the mark-up on
 7    processing and transportation and not all of it on delivery?
 8              Is that one way to look at it?
 9         A    I don't think so.
10         Q    Is the -- when you move from 100 to 90 is it true
11    that you are favoring the classes of mail that have higher
12    unit cost by giving them less of a mark-up?
13         A    Well, let me answer that by using his table.
14              In his Table C-2, his part A of C-2 reflects a
15    constant mark-up of 8.19 cents.  Part B of his Table C-2
16    uses a constant percentage mark-up of -- a ratio of 2.44.
17              He then weights Part A with Part B to get his
18    rates.
19              Now, within the framework of those values, if you
20    assume that the values he's got in that table are correct,
21    as you decrease the constant piece and increase the ratio
22    piece, Part C of his Table C-2, the basic rate, would
23    increase.
24              MR. OLSON:  Mr. Chairman, that's all we have. 
25    Thank you.

                                                             19580
 1              CHAIRMAN GLEIMAN:  Is there any followup?
 2              Questions from the bench?
 3              If not, that brings us to redirect.
 4              Mr. Todd, would you like some time with your
 5    witness?
 6              MR. TODD:  Mr. Chairman, please, yes.
 7              CHAIRMAN GLEIMAN:  I think we'll take ten then,
 8    and make it a break.
 9              [Recess.]
10              CHAIRMAN GLEIMAN:  Yes, sir.  Mr. Todd, did you
11    have any redirect?
12                        REDIRECT EXAMINATION
13              BY MR. TODD:
14         Q    Mr. Prescott, are you ready?
15         A    Yes.
16         Q    Could you state what your understanding is of what
17    Dr. Haldi was attempting to do in the testimony which is the
18    subject of your rebuttal testimony?
19         A    The purpose of Dr. Haldi's testimony was to
20    develop what he called bottom-up costs, to look at the
21    Postal Service's rate design and to propose a rate design
22    which in his opinion followed the logic of bottom-up costs.
23         Q    Do you believe that he was able to develop rates
24    based upon bottom-up costing in his testimony, valid
25    bottom-up costing in his testimony?

                                                             19581
 1         A    No.
 2         Q    And why do you think that he failed in his
 3    attempt?
 4         A    The data isn't available for him to do the
 5    bottom-up cost analysis that he wanted to do and from there
 6    to develop rates based on bottom-up costs.  And because of
 7    that he had to make a series of assumptions, and ultimately
 8    when he went to his rate design he utilized the Postal
 9    Service's rate design except for a modification to the
10    sortation discounts and the discount for the base rate --
11    excuse me, and the rates for base rates.
12         Q    Thank you, Mr. Prescott.
13              MR. TODD:  That's all I have, Mr. Chairman.
14              CHAIRMAN GLEIMAN:  Is there any recross?
15              Mr. Olson?
16                         RECROSS-EXAMINATION
17              BY MR. OLSON:
18         Q    Mr. Prescott, you say that the data isn't
19    available to do the kind of bottom-up analysis Dr. Haldi set
20    out to do; correct?
21         A    Yes.
22         Q    Are all of the data insufficiencies that you know
23    of set out in your testimony?  In other words, you're not
24    referring to something new now that isn't already in your
25    rebuttal testimony; correct?

                                                             19582
 1         A    That's correct.
 2         Q    All data insufficiencies of which you are aware
 3    are in your rebuttal testimony; correct?
 4         A    Yes.
 5              MR. OLSON:  That's all I have, Mr. Chairman.
 6              CHAIRMAN GLEIMAN:  Any further redirect?
 7              MR. TODD:  No.
 8              CHAIRMAN GLEIMAN:  If that is the case, we want to
 9    thank you, Mr. Prescott.  We appreciate your appearance here
10    today and your contributions to our record, and if there's
11    nothing further, you're excused, but your counsel isn't.  He
12    has to stay around for a while.
13              [Witness excused.]
14              CHAIRMAN GLEIMAN:  I take it you do have another
15    witness.  Right?
16              MR. TODD:  Yes, and it would be helpful, Mr.
17    Chairman, if there could be some indication of how long the
18    next witness is likely to take.  I'm not sure who that is
19    offhand, but --
20              CHAIRMAN GLEIMAN:  Well, I'm about to --
21              MR. TODD:  You're going to do that.
22              CHAIRMAN GLEIMAN:  Apprise you, and then we'll all
23    find out.
24              Our next witness is appearing on behalf of the
25    United States Postal Service.  Ms. Schenk is already under

                                                             19583
 1    oath in the proceeding.  Ms. Reynolds is counsel.
 2              MS. REYNOLDS:  Yes, the Postal Service is calling
 3    its next witness, Leslie M. Schenk.
 4    Whereupon,
 5                          LESLIE M. SCHENK,
 6    a witness, was called for examination by counsel for the
 7    United States Postal Service and, having been previously
 8    duly sworn, was examined and testified as follows:
 9              CHAIRMAN GLEIMAN:  If you could proceed to enter
10    Witness Schenk's rebuttal testimony, and while you're on
11    your way over there -- well, let's wait a moment before we
12    find out from Mr. Levy.  Why don't you proceed, Ms.
13    Reynolds.
14                         DIRECT EXAMINATION
15              BY MS. REYNOLDS:
16         Q    All right.  Dr. Schenk, I've handed you two copies
17    of a document entitled the Rebuttal Testimony of Leslie M.
18    Schenk on Behalf of the United States Postal Service, and
19    designated USPS-RT-22.
20              Are you familiar with these documents?
21         A    Yes, I am.
22         Q    Were they prepared by you or under your direction?
23         A    Yes.
24         Q    And if you were to testify orally here today,
25    would this be your testimony?

                                                             19584
 1         A    Yes, it would.
 2         Q    Do you have any changes you wish to make to these
 3    documents?
 4         A    Yes.  There are a couple of errata to announce
 5    from the filed version.  On page -- and these corrections
 6    are made in the version that we're presenting today.
 7              On page 3, line 3, it should read 0.228 billion
 8    for FY '96, not million.
 9              On page 12, line 2, the phrase in parentheses
10    should be deleted.
11              And then in Appendix B, Exhibit 2, on page 29, we
12    are filing the testimony with a revised version of that
13    exhibit.  The difference between the old version and the new
14    version is that we received three additional responses after
15    the filing of the testimony.  Those responses are included
16    in the new version of the exhibit, but the inclusion of
17    those responses does not change the magnitude of the
18    estimate derived substantially, so -- and there was also one
19    correction to one of the formulas.  It was just a
20    typographical error.  So those are included in this revised
21    version of the exhibit.
22              MR. LEVY:  May I inquire, Mr. Chairman, of the
23    witness which lines of the table are changed?
24              THE WITNESS:  The lines would be lines 15, line
25    19, and -- I can't find the other one here right away.

                                                             19585
 1              MR. LEVY:  244 and 249, perhaps?
 2              THE WITNESS:  Oh -- and 20.  Oh -- and the
 3    typographical error in the formulas would be the formulas
 4    for lines 5 and 6.
 5              BY MS. REYNOLDS:
 6         Q    That's inflation factor strata 1 and inflation
 7    factor strata 2.
 8         A    Yes.
 9              MS. REYNOLDS:  At this time, Mr. Chairman, I've
10    got two copies of the testimony for the reporter, and we ask
11    that they be moved into evidence.  The revisions are marked
12    in the documents that the reporter is receiving.
13              CHAIRMAN GLEIMAN:  Almost afraid to ask.  Are
14    there any objections?
15              MR. LEVY:  Other than the pending motion, no, Mr.
16    Chairman.
17              CHAIRMAN GLEIMAN:  Okay.  Recognizing that there
18    is a pending motion and it does raise an objection, I'm
19    going to direct, for the moment, that the testimony and
20    exhibits of Witness Schenk be received into evidence, and I
21    direct that they be transcribed into the record at this
22    point.
23                             [Rebuttal Testimony and Exhibits of
24                             Leslie M. Schenk, USPS-RT-22, was
25                             received into evidence and

                                                             19586
 1                             transcribed into the record.]
 2
 3
 4
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19636
 1              CHAIRMAN GLEIMAN:  I have some questions I need to
 2    ask Witness Schenk before we proceed.
 3              Witness Schenk, on page 25, at lines 4 and 5 of
 4    your testimony, you describe disqualification logs
 5    maintained by acceptance units.  You then describe a survey
 6    undertaken by LRCA which you present in your testimony.
 7              THE WITNESS:  Yes.
 8              CHAIRMAN GLEIMAN:  I've looked at the survey
 9    forms.  I have the Library Reference H353 here.  These forms
10    reflect information provided by Postal Service employees at
11    the sample -- the 30 samples offices.  Is that correct?
12              THE WITNESS:  That's correct, the sites that
13    responded to our survey.
14              CHAIRMAN GLEIMAN:  Is that number now 33?
15              THE WITNESS:  That number is now 27 of the
16    original 30.  Exhibit 2 in my appendix clearly indicates
17    that there are some sites that we have not received
18    responses from yet.
19              CHAIRMAN GLEIMAN:  You'll have to bear with me.
20              THE WITNESS:  Uh-huh.
21              CHAIRMAN GLEIMAN:  Now, I couldn't determine very
22    easily from the library reference whether Postal Employees
23    who were providing information on the possibility that mail
24    with non-profit standard indicia paid standard A regular
25    rates were actually taking information from Form 8075.  Did

                                                             19637
 1    you ask the employees at each office whether they were using
 2    actual Form 8075 data for 1996?
 3              THE WITNESS:  They indicated whether those forms
 4    were available, whether they had discarded them yet, or
 5    whether they were able to obtain them from storage if they
 6    had not been discarded yet.  They indicated whether they had
 7    them or not and were able to use them to give us -- to
 8    provide us that information.
 9              CHAIRMAN GLEIMAN:  I understand that you ask all
10    those but questions, but my questions is, did you ask the
11    employees at each office whether they were using actual Form
12    8075 data for 1996?
13              THE WITNESS:  Yes.
14              CHAIRMAN GLEIMAN:  Did you note on the survey
15    forms contained in the Library Reference H-35 -- did you
16    note that on the survey forms contained in the Library
17    Reference?  And, if so, could you show me where the
18    notations of that fact are made?
19              THE WITNESS:  I don't recall if we noted that
20    explicitly, but the information on the survey forms would
21    indicate that.  If you would bear with me for a minute, I'll
22    find those responses.  I believe there were only two sites
23    that were able to obtain the FY '96 logs and use them to
24    provide the information.
25              The first site would the Survey Numbered 1 in the

                                                             19638
 1    Library Reference, and what indicates that they actually did
 2    look at the disqualification -- or the acceptance logs, was
 3    that we received a list of the mailings that were sent
 4    regular rate but with nonprofit indicia, we received a list
 5    of those from the survey -- from the site themselves and
 6    that list is included in the Library Reference at the end of
 7    that Survey No. 1.
 8              CHAIRMAN GLEIMAN:  Do I understand you correctly
 9    that two sites actually used the data from Forms 8075 that
10    they had in hand?
11              THE WITNESS:  Yes.
12              CHAIRMAN GLEIMAN:  And the others did not?
13              THE WITNESS:  Yes.
14              CHAIRMAN GLEIMAN:  Okay.
15              THE WITNESS:  The other one would have been site
16    No. 4.
17              CHAIRMAN GLEIMAN:  Did you inquire whether Form
18    8075s were still in existence at each of the offices, the
19    other offices?
20              THE WITNESS:  Yes.  And their response would have
21    been indicated on question No. 3 of the survey form.
22              CHAIRMAN GLEIMAN:  And can you tell me how many of
23    the offices who did not provide information from 8075s told
24    you those forms were still in existence?
25              THE WITNESS:  I don't recall offhand, I did not

                                                             19639
 1    quantify that.  But it would be in question No. 3.
 2              CHAIRMAN GLEIMAN:  Okay.  Did you ever ask Postal
 3    Service employees to go get Form 8075 before responding to
 4    the survey questions?
 5              THE WITNESS:  We did attempt to -- we did ask them
 6    that if they knew that they existed, to try to find them and
 7    to get the information from them.  But since they were from
 8    FY '96, this is quite a number of years ago, the sites
 9    indicated that these were in storage and they -- it would
10    take some time to find them.  In fact, one of the sites that
11    did -- both sites that found them, in took several days in
12    order to find the boxes that had the forms in them.
13              The other sites could not spare the personnel to
14    try to find them in the time frame that we needed to provide
15    them for -- or get that information for rebuttal testimony.
16              CHAIRMAN GLEIMAN:  Page 29 of your testimony, you
17    list in the table 30 offices in your survey.  It's the table
18    that you have just offered us in revised form.
19              THE WITNESS:  Yes.
20              CHAIRMAN GLEIMAN:  Would you please identify which
21    of those entries reflect the actual?  As I understand it,
22    it's No. 1 and No. 4?
23              THE WITNESS:  It was No. 1 and No. 4 in the -- the
24    way they are listed in the table, it would have been No. 10
25    in strata 1 and No. 52 in strata 2.

                                                             19640
 1              CHAIRMAN GLEIMAN:  Okay.  Did you give
 2    instructions to any Postal employees who provided
 3    information as to how they should treat any of the notes or
 4    forms they may have used to develop the information for you? 
 5    Or to put it another way, did you ask those people who had
 6    access to Form 8075 to keep those forms available?
 7              THE WITNESS:  The only sites that were able to
 8    obtain them in time to provide the information for rebuttal
 9    testimony were the two sites that I have already listed.  I
10    did not ask them to retain those forms nearby.
11              CHAIRMAN GLEIMAN:  I have got to go back to one of
12    my earlier questions now, and make sure I understand.  I
13    asked you earlier about whether you made an inquiry about
14    Form 8075s and whether they were still in existence at each
15    office.
16              THE WITNESS:  Yes.
17              CHAIRMAN GLEIMAN:  And you told me that that is in
18    question -- I could find that information in question No. 3.
19              THE WITNESS:  Yes.
20              CHAIRMAN GLEIMAN:  We are going to take a break in
21    a moment, and I am going to ask you to go through the
22    Library Reference and tell me how many offices indicated
23    that the 8075s still existed, separate and apart from the
24    two who we have established actually used that form to
25    provide data for you.  Okay.

                                                             19641
 1              Before we take the break, though, in the interest
 2    of accommodating others, Mr. Levy, assuming for the sake of
 3    discussion that we proceed on the basis of the testimony
 4    that is in the record now, can you give me a worst case
 5    scenario on how long you might cross-examine?
 6              All right.  No one else has been --
 7              MR. LEVY:  Two hours.
 8              CHAIRMAN GLEIMAN:  I beg your pardon?
 9              MR. LEVY:  Two hours.
10              CHAIRMAN GLEIMAN:  Two hours.  Okay.  That is an
11    outside worst case scenario, but it could be shorter.
12              MR. LEVY:  It could be shorter.  It is a lawyer's
13    worst case scenario.
14              CHAIRMAN GLEIMAN:  All right.  At this point we
15    are going to take a 10 minute break and Witness Schenk,
16    during the break, I would like you to go over the Library
17    Reference and tell me how many question No. 3 answers
18    indicate the continued existence of Form 8075.
19              [Recess.]
20              CHAIRMAN GLEIMAN:  When last we met and before we
21    went into shock at the prospect of two hours of cross
22    examination by Mr. Levy and crew, I had asked you to count
23    up question number three responses from your library
24    reference to let me know how many other of the offices you
25    surveyed said they actually still had 8075's.

                                                             19642
 1              THE WITNESS:  Of the 27 responses we have received
 2    so far, there were 11 responses that had a "yes" to the
 3    question as to whether the FY'96 logs were available, but I
 4    want to clarify what that means.
 5              This means that they have not destroyed those
 6    logs.  It does not mean that they had them available on
 7    hand.  These often were -- I noticed as I was going through
 8    it, we have written it clearly in some of the responses that
 9    these are logs that are kept in boxes in storage, and it may
10    be difficult to find.
11              Like I said for one of the sites where they were
12    able to find those logs, it took several days and many hours
13    of a supervisor's time in finding those logs.
14              A "yes" response to that question means they
15    haven't been destroyed.  It doesn't necessarily mean they
16    are readily available for us to look at and may take days to
17    look --
18              CHAIRMAN GLEIMAN:  I understand you.  We are not
19    dealing with -- you surveyed 30 sites.
20              THE WITNESS:  Right.
21              CHAIRMAN GLEIMAN:  You had 27 responses?
22              THE WITNESS:  Uh-huh.
23              CHAIRMAN GLEIMAN:  We have two who for sure have
24    8075's in hand because they use them?
25              THE WITNESS:  Yes.

                                                             19643
 1              CHAIRMAN GLEIMAN:  We have 11 who think they have
 2    them in a box somewhere?
 3              THE WITNESS:  Right, and there were an additional
 4    four that said maybe.  The other thing I would like to
 5    clarify is you characterized this information as data.  I
 6    wanted to clarify that on the acceptance logs, they do not
 7    necessarily have listed what the volumes or even the revenue
 8    deficiencies related to these entries are.  That information
 9    is kept in files for particular mailers, and getting that
10    information would take even longer, a much longer time to
11    get.
12              CHAIRMAN GLEIMAN:  Well, I have three choices.  I
13    can rule to compel disclosure of what we know exists for
14    sure and ask that you, "you" the Postal Service, make a
15    concerted effort on the probables and the maybes, 11 and 4,
16    and in the alternative, we can strike -- the problem I'm
17    faced with is I never like to strike anything.  I think it's
18    always better to have a fuller record than not.
19              We are starring at a mid-May delivery date for a
20    recommended decision.  I am going to leave it up to the
21    Postal Service.  Counsel, you have a choice.  You, the
22    Postal Service, have a choice.
23              Since only a limited number of forms were actually
24    used and we know we can get two of them, and 11 more are
25    maybe in boxes and four, we are not even sure they are in

                                                             19644
 1    boxes, you can have a week to get the forms.  That is I'll
 2    compel disclosure with respect to that 13, 17 forms, with
 3    the understanding that four of those may not exist, and
 4    direct that a concerted effort be made and that a response
 5    to my ruling be provided by close of business next Thursday,
 6    or in the alternative, we will strike Witness Schenk's
 7    survey.
 8              MS. REYNOLDS:  Could I clarify?
 9              CHAIRMAN GLEIMAN:  You bet.
10              MS. REYNOLDS:  If it turns out that one of these
11    sets of forms, which may be in a box in deep storage
12    somewhere, turn out to be indeed irretrievable, how would
13    the Chairman like to handle that?
14              CHAIRMAN GLEIMAN:  You find what you can find
15    between now and next Thursday.  We know that you should be
16    able to find two of them.  At that point, we will have what
17    I hope would be a relatively short hearing, at which Ms.
18    Schenk would reappear and ANM would have an opportunity to
19    cross examine on the materials that were uncovered pursuant
20    to the ruling in favor of the motion to compel, and if there
21    are only two forms, then the Commission will give
22    appropriate weight to Ms. Schenk's survey, based on where we
23    know the data came from for sure versus where it may have
24    come from, may it have been hidden in a box.
25              That's the best I can do.  I'll give you about

                                                             19645
 1    five minutes to talk it over with your team, and the choices
 2    are come up with the forms that you can, two of them for
 3    sure, and whatever else out of that 11 plus 4 by next
 4    Thursday, close of business, or we will strike.
 5              Five minutes.
 6              MS. REYNOLDS:  Mr. Chairman, another quick
 7    clarification?
 8              CHAIRMAN GLEIMAN:  You bet.
 9              MS. REYNOLDS:  You prefaced your comments by
10    saying we had three options.  So far, I only heard to.
11              CHAIRMAN GLEIMAN:  No, I said we had three
12    options.  My option is if we have a motion to compel and you
13    don't respond, then you'd be in violation of the lawful
14    order and I'd ask my fellow Commissioners in joining me in
15    issuing a C(2) order.
16              MS. REYNOLDS:  Good enough.
17              [Recess.]
18              CHAIRMAN GLEIMAN:  Just let me say that I didn't
19    mean to be cavalier throwing around reference to a C(2)
20    order, because none of us want anything like that to come to
21    pass.
22              We know from yesterday's hearing that the Postal
23    Service is in dire financial straits, and it's getting worse
24    every minute, and we wouldn't want to do anything to
25    endanger their situation, but I just wanted to clarify for

                                                             19646
 1    the record that that's, you know, a last resort, far, far
 2    out, and hopefully on a horizon that none of us ever have to
 3    come to.
 4              Ms. Reynolds, you have a decision to tell me
 5    about.
 6              MS. REYNOLDS:  Yes, we do.  We are going to take
 7    your option whereby we will make every effort to obtain the
 8    information that you're looking for by next week and recall
 9    Dr. Schenk to respond to questions on it at that time.
10              CHAIRMAN GLEIMAN:  Okay.  Let's just make sure we
11    understand one another.
12              We know we're going to get two forms, or at least
13    we think we know we're going to get two forms, and we may
14    get a number more, and we're -- they're going to be
15    submitted by close of business next Thursday, and we will be
16    in touch with both the Postal Service and counsel for ANM
17    about scheduling what hopefully will be a, relatively
18    speaking, short hearing to allow oral cross examination on
19    the material that is provided.
20              MS. REYNOLDS:  I have a procedural question.
21              Regarding the filing of these documents, they are
22    likely to be considerably voluminous, and I am wondering if
23    we might waive the Commission's filing requirement whereby
24    we are required to file 30 copies of them?
25              CHAIRMAN GLEIMAN:  I believe we can do that.

                                                             19647
 1              MS. REYNOLDS:  What would be an appropriate number
 2    of copies?
 3              CHAIRMAN GLEIMAN:  Well, I think that, if you can
 4    provide a copy to ANM, which has a seemingly deep-seated
 5    interest in these documents, and two additional copies, that
 6    would probably suffice for all of our purposes, and I
 7    suspect that the volume of the documents will depend upon
 8    the success of the search through all those boxes out there. 
 9    So, we'll see what we get.  Okay.
10              Now, let me ask you a question, Mr. Levy.  Would
11    you like to reassess the probable length of your cross
12    examination today?
13              MR. LEVY:  Yes, Mr. Chairman.
14              CHAIRMAN GLEIMAN:  Again, this is not to put
15    pressure on you.  It's to help some others who have been
16    sitting around and are going to have to be here late
17    tonight.
18              MR. LEVY:  My answer will depend on a question I
19    would like to pose to you and you may not be in a position
20    to answer, which is, for the sites in the list of 27 that
21    don't have these disqualification logs, is the chair -- is
22    it the chair's intention to disregard those sites?  I assume
23    the Commission probably doesn't know at this point.
24              CHAIRMAN GLEIMAN:  I will tell you what I think I
25    said earlier, when I was giving Ms. Reynolds the options and

                                                             19648
 1    some clarifications, and that is, if she chose the option
 2    that she did choose on behalf of the Postal Service, that we
 3    would await the material and we would determine the
 4    appropriate weight to give it based on what came in.
 5              MR. LEVY:  In that event, then I'm afraid the
 6    ruling doesn't reduce my estimate very much, because I think
 7    I need to protect my position, to ask about sites where it
 8    appears that the witness may argue that she is relying on
 9    independent judgement of local field personnel.
10              CHAIRMAN GLEIMAN:  Well, it will be difficult, I
11    think, to parse out at this point -- I'm sure that it's
12    possible, but it might be difficult to parse out at this
13    point which parts of the survey we're going to get a
14    response to and which parts of the survey we're not going to
15    get a response to, and I would respectfully suggest that we
16    could reserve your rights and you could question on the
17    survey in toto when we receive a response to the order to --
18    in response to your motion to compel.
19              MR. LEVY:  If I can defer questions about the
20    survey methodology, that would cut it way down.  I could
21    probably do about half-an-hour.
22              CHAIRMAN GLEIMAN:  It's not that we want to get
23    out of here early tonight, but I think that that's a prudent
24    course.  The survey is a package, and conceivably, questions
25    could occur to you or responses may become -- information

                                                             19649
 1    become -- may become evident to you once you see the
 2    material that's produced or not produced.
 3              So, do we understand and agree that the survey
 4    --all aspects of questioning on the survey, in essence, will
 5    be reserved for that hearing that we're going to have
 6    sometime shortly after next Thursday?
 7              My guess is we're looking probably at March the
 8    30th, would be a good guess, because that would give you an
 9    opportunity to review the material that came back in.  I
10    believe that's a Monday.
11              But we're not firm on that.  We'll talk with the
12    parties to make sure that everyone can --
13              MR. LEVY:  Then, if the questions about the survey
14    can be deferred until then, then my time estimate goes down
15    to 15 to 30 minutes, because I will be asking only about the
16    witness' criticism of Dr. Haldi's survey.
17              CHAIRMAN GLEIMAN:  Well, we'll proceed on that
18    basis, and you can begin your cross examination.
19              MR. LEVY:  If I may have a moment to reorganize my
20    notes.
21              CHAIRMAN GLEIMAN:  Whenever you're ready.
22                          CROSS-EXAMINATION
23              BY MR. LEVY:
24         Q    Good evening, Dr. Schenk.  As you know, I'm David
25    Levy for the Alliance of Non-Profit Mailers.

                                                             19650
 1              Would you turn to page 5 of your testimony?
 2         A    Yes.
 3         Q    Now, on lines 10 to 11, you have the following
 4    statement.  Quote, "In addition, the ANM survey responses do
 5    not indicate how the volumes for these mailings were
 6    recorded in Postal Service's databases."  Do you see that?
 7         A    Yes.
 8         Q    How would the ANM survey respondents be in a
 9    position to know the answer to such a question?
10         A    I did not imply that the ANM survey respondents
11    should know, and that is exactly my point is that that is
12    the inference that Dr. Haldi was making in his analysis was
13    that the volumes and cost data were not consistent with one
14    another but the survey responses do not in any way show how
15    the volumes were recorded.
16         Q    Well, how is ANM at the time we filed Dr. Haldi's
17    testimony to indicate how the volumes for these mailings
18    were recorded in Postal Service databases?
19         A    I'm sorry, I didn't catch your question.
20         Q    How was the Alliance of Nonprofit Mailers at the
21    time we filed Dr. Haldi's testimony supposed to find out how
22    the volumes for these mailings were recorded in Postal
23    Service's databases?
24         A    I don't know, but Dr. Haldi makes inferences about
25    how those volumes are recorded in the Postal Service

                                                             19651
 1    databases without that information, and that is one of my
 2    criticisms of his analysis.
 3         Q    So he shouldn't have filed his study at that
 4    point?
 5         A    I believe he does not have the information
 6    available to make his conclusions.
 7         Q    Are you aware that at the time we filed his
 8    testimony we had an outstanding request to the Postal
 9    Service for that information?
10         A    Yes, I am aware of that request.
11         Q    And the Postal Service's response at that time was
12    they didn't know?
13         A    I don't believe that that was -- my understanding
14    of the Postal Service response was that the information
15    would take a lot of time to get if it were available at all.
16              I am not sure I am characterizing that correctly,
17    but that was my understanding of the Postal Service
18    response, and also I believe part of that response had to do
19    with the timing of the filing for that request.
20         Q    In your testimony you attach a document that was
21    previously filed as an interrogatory answer?  Is that
22    correct?
23         A    Yes, that's correct.
24         Q    And that appears starting on page 30 of your
25    rebuttal testimony, is that correct?

                                                             19652
 1         A    Yes.
 2         Q    That is the Postal Service's response to
 3    ANM/USPS-28, is that correct?
 4         A    Yes.
 5         Q    And that was prepared by you?
 6         A    Yes, it was prepared by me and my colleagues.
 7         Q    And that was filed after the filing date for the
 8    Intervenors' testimony, wasn't it?
 9         A    Yes.
10         Q    Would you turn to page 8 of your rebuttal
11    testimony?
12         A    I'm there.
13         Q    Starting on line 15, you state, "The survey
14    responses provided in ANM-LR-1 do indicate that at least
15    one-third of survey responses were received from members of
16    the American Association of Museums.  It is highly unlikely
17    that one-third of all nonprofit Standard A volumes are
18    associated with this group."
19              Have you seen any information in the course of
20    preparing your testimony that museums have a higher
21    incidence of nonprofit mail rejection than other nonprofit
22    mailers on average?
23         A    No, I have not seen any information of that sort.
24         Q    Would you turn to page 9 --
25         A    And I do want to clarify that my sentence in that

                                                             19653
 1    section was referring to the way that the sample was drawn
 2    and whether the sample was representative of nonprofit
 3    mailers in general, and that is what my statement was
 4    referring to.
 5         Q    I understand that, but an unrepresentative sample
 6    can give correct results if the different populations being
 7    surveyed -- if the sample population doesn't have traits
 8    that are significantly different from the rest of the
 9    universe.  Isn't that correct?
10         A    But there was no analysis in either the ANM survey
11    responses or in Dr. Haldi's analysis that showed whether the
12    respondents were representative of the universe or whether
13    the nonrespondents were -- had similar or different
14    characteristics to the respondents.  And that is generally
15    accepted methodology in survey methodologies to show that,
16    especially with such a high nonresponse rate.
17         Q    Dr. Schenk, you answered my question with the word
18    "but."  Could you first answer my question, which was, if
19    there is not a significant difference between the sample
20    population in its traits and the traits of the universe as a
21    whole, then even an unrepresentative sample can produce
22    accurate results.  Isn't that correct?  If.
23         A    Could you restate that again?  I just want to make
24    sure that I'm understanding your question.
25         Q    Yes.  If hypothetically American museums

                                                             19654
 1    experience disqualification of mail tendered at nonprofit
 2    rates at the same frequency as the rest of the universe of
 3    nonprofit mail, then overweighting of museums in the sample
 4    shouldn't distort the results.  Isn't that correct?
 5              I'm not asking you --
 6         A    I believe if -- I believe given your hypothetical
 7    that that would be correct.
 8         Q    And then you added:  but we have offered no
 9    evidence that the hypothetical is correct.
10              And my question to you is:  Have you offered any
11    evidence that the hypothetical -- that the population --
12    that American museums experience mail rejection at a greater
13    rate than the average nonprofit mailer?  You being
14    Christensen Associates or the Postal Service.
15         A    I have no evidence to that, but also there has
16    been presented no evidence that they are representative, and
17    that is standard procedure in a survey like this to show
18    that the respondents are representative when there's a high
19    degree of nonresponse.
20         Q    Representative of the universe.
21         A    Of the universe.
22         Q    Do you know whether any other organization or
23    entity in the world besides the Postal Service knows who the
24    whole universe of its nonprofit mailers are?
25         A    There are a number of people who study nonprofit

                                                             19655
 1    organizations, and in fact I spent a year as I was a
 2    graduate student as a research assistant studying nonprofit
 3    organizations under a professor who studies these.  So yes,
 4    there are people who know about the population of nonprofit
 5    organizations.
 6         Q    And those people know how much mail each nonprofit
 7    organization enters at nonprofit rates in fiscal year 1996?
 8         A    I do not know if anyone has studied that issue.
 9         Q    In fact, isn't it illegal for the Postal Service
10    to disclose the volumes of individual mailers to the public?
11         A    I'm not sure about the legality.  Generally we do
12    not provide that information in our studies to maintain
13    confidentiality.
14         Q    Would you turn to page 10 of your testimony,
15    starting at the very first line?
16              There you state that for 26 of the survey
17    responses the data recorded in the exhibit ANM-T1-1 do not
18    match the answers provided in the survey forms provided in
19    ANM-LR-1.  Do you see that?
20         A    Yes, I do.
21         Q    Now do you know whether the data recorded in the
22    Exhibit ANM-T1-1 includes information that was recorded
23    directly into a computer data base or spreadsheet rather
24    than on an intermediate basis onto the survey forms?
25         A    What I'm referring to in that paragraph is the

                                                             19656
 1    fact that some of the responses were misinterpreted, not
 2    that they were recorded incorrectly in terms of data entry,
 3    but that they were misinterpreted.  And that, as I explain
 4    later in that paragraph, that it was interpreted that if the
 5    mail was sent with a nonprofit permit, question 2(b), then
 6    it was assumed that it had nonprofit indicia.  But in fact
 7    in question 2(c) they asked specifically for what indicia
 8    the pieces were sent at.  And for these 26 survey responses,
 9    I noted that those volumes were indeed according to question
10    2(c) sent with regular rate indicia.  So there would be no
11    discrepancy between the volumes recorded and the indicia on
12    the piece.
13         Q    I'm sorry, could you repeat the last sentence of
14    your answer.  I didn't follow that.
15         A    According -- for these 26 survey responses, the
16    volumes that were noted in the original exhibit, ANM-T1-1,
17    indicated that these pieces were sent at regular rate with
18    nonprofit indicia, but in fact question 2(c) indicated that
19    they had nonprofit indicia -- or, I'm sorry, regular rate
20    indicia on them, and therefore those pieces would have been
21    recorded as regular rate volumes, and also if they were
22    sampled in IOCS would have been recorded with regular rate
23    indicia.
24         Q    Now --
25         A    But they were marked incorrectly in the exhibit,

                                                             19657
 1    at least I assume because question 2(b) said they were sent
 2    with a non-profit permit, which doesn't really indicate what
 3    the indicia on the piece was.
 4         Q    Did it occur to you that if there was an ambiguity
 5    of that sort, that Dr. Haldi or someone under his direction
 6    might have done a follow up telephone call to the people
 7    that answered the surveys?
 8         A    But there is nothing indicated on those survey
 9    forms that I could tell that indicated that additional
10    information.
11         Q    One wouldn't see information, additional
12    information entered on the survey forms if the information
13    was entered directly in the spreadsheet, would you?
14         A    But the library reference was provided as evidence
15    and I assume if you are following the evidence rules -- I
16    could recreate the numbers in the exhibit from this library
17    reference, and that's what I was going on.
18         Q    Just as we could recreate your numbers from your
19    library references?
20         A    Yes.
21         Q    Did it occur to you to see if somebody could ask
22    Dr. Haldi through his counsel to explain the discrepancy
23    before you filed your rebuttal testimony?
24         A    I was going by -- this was provided.  It was
25    provided -- I can't remember the exact date, but it was

                                                             19658
 1    provided at the end of February.  We didn't have very much
 2    time to follow up.  You know, we had to spend some time
 3    getting survey responses that were missing out of it, and
 4    trying to get the information together, but since this was
 5    filed as the supporting evidence to his testimony, I assume
 6    the numbers here could be used to recreate the numbers in
 7    his exhibit.
 8         Q    Did you suggest to anyone on your team that Dr.
 9    Haldi be questioned about this on cross examination?
10         A    I don't recall.
11         Q    Line 11 on the same page, you say 22 of the 108
12    responses are marked with two numbers on a single response
13    form?
14         A    Yes, I see that.
15         Q    It goes onto say nothing in ANM-LR-1 indicates any
16    reason for this, the double numbering does not appear to
17    correspond to mail, who mailed it, both commercial and
18    non-profit rates.  Do you see that?
19         A    Yes, I see that.
20         Q    Again, did it occur to you to ask anyone to
21    explain it?
22         A    Actually, the wording of that second sentence was
23    in response to some information that Ann Reynolds had gotten
24    for me from your office.  I was trying to determine why
25    there were 108 responses listed, but it didn't appear to me

                                                             19659
 1    there were 108 separate survey forms.  I was trying to
 2    determine that, and that was the only information that we
 3    had received from your office, and it didn't appear to me
 4    that was the case because there were other survey forms with
 5    only one number on them that had both mailed at commercial
 6    rates and non-profit rates.  That didn't seem to answer the
 7    question, but as I said before, we did not receive the
 8    library reference until the end of February and there was
 9    not much time available to follow up with further questions.
10         Q    Would it surprise you if the double numbering
11    refers to mail entered at both commercial and non-profit
12    indicia?
13         A    It would surprise me, yes, because there are forms
14    in there, as I recall, that have one number on them, that
15    have mailed with regular rate and non-profit indicia.
16              MR. LEVY:  That's all I have, Mr. Chairman, at
17    this time.
18              Thank you, Dr. Schenk.
19              CHAIRMAN GLEIMAN:  Is there any follow-up?
20              [No response.]
21              CHAIRMAN GLEIMAN:  There's no follow-up.  That
22    brings us to redirect.  Would you like some time with your
23    witness?
24              MS. REYNOLDS:  Just a few minutes, please.
25              CHAIRMAN GLEIMAN:  Certainly.

                                                             19660
 1              [Recess.]
 2              CHAIRMAN GLEIMAN:  Ms. Reynolds.
 3              MS. REYNOLDS:  The Postal Service does not have
 4    redirect.  However, given that Mr. Levy's intended
 5    cross-examination was going to be considerably longer, the
 6    Postal Service thinks that our future hearing would probably
 7    be expedited if Mr. Levy could share with us any
 8    cross-examination exhibits that he had prepared regarding
 9    Dr. Schenk's survey.
10              CHAIRMAN GLEIMAN:  Mr. Levy?
11              MR. LEVY:  I can tell counsel exactly what they
12    are.  The survey forms and Ms. Reynolds' letter and
13    attachments to me dated March 13th and March 16th of this
14    year.  I believe she has possession of all of those, but I
15    can make duplicate copies if that is desired.
16              MS. REYNOLDS:  No, I think I can dredge those up.
17              CHAIRMAN GLEIMAN:  They are not hidden away in
18    boxes somewhere in some Postal facility.
19              MS. REYNOLDS:  I don't assume.
20              CHAIRMAN GLEIMAN:  Well, if there is no redirect,
21    then, Ms. Schenk, we want to thank you.  We appreciate your
22    appearance today and your contributions to the record.  I am
23    sorry that we are going to have to have you come back, but
24    --
25              THE WITNESS:  I will enjoy another visit to D.C.

                                                             19661
 1              CHAIRMAN GLEIMAN:  We sure hope it will be
 2    enjoyable.  I really do want to thank you and also your
 3    counsel for cooperating in this exercise today.  It is, you
 4    know, in the furtherance of having as complete a record as
 5    we possibly can to make a decision on.  And I think all of
 6    us do appreciate that you are being cooperative and helping
 7    us achieve that.  So, thank you, if you have nothing
 8    further, you are excused.
 9              [Witness excused.]
10              CHAIRMAN GLEIMAN:  Our next witness is appearing
11    on behalf of the Mail Order Association of America et al. 
12    Mr. Andrew is already under oath in this proceeding.
13    Whereupon,
14                           GARY M. ANDREW,
15    a witness, was called for examination by counsel for the
16    Mail Order Association of America, and also on behalf of the
17    Advertising Mail marketing Association, and The Direct Mail
18    Marketing Association, Inc. and, having been first duly
19    sworn, was examined and testified as follows:
20              CHAIRMAN GLEIMAN:  So, Mr. Todd, if you would
21    introduce your witness and enter his rebuttal testimony into
22    the record, we can, hopefully, get out of here at a
23    reasonable hour tonight.
24                         DIRECT EXAMINATION
25              BY MR. TODD:

                                                             19662
 1         Q    Mr. Andrew, do you have before you a document
 2    entitled "Rebuttal Testimony of Gary M. Andrew" which has
 3    been presented on behalf of the Mail Order Association of
 4    America, the Advertising Mail Marketing Association and the
 5    Direct Mail Marketing Association, Inc., which has been
 6    identified as MOAA, et al.-RT-1?
 7         A    Yes, I do.
 8         Q    And do you adopt this testimony today as your
 9    testimony as having been prepared by you or under your
10    direction and control?
11         A    Yes.
12              MR. TODD:  Mr. Chairman, I move that this
13    testimony be admitted into evidence and transcribed into the
14    record at this point.
15              CHAIRMAN GLEIMAN:  Are there any objections?
16              [No response.]
17              CHAIRMAN GLEIMAN:  Hearing none, Mr. Andrew's
18    testimony and exhibits are received into evidence and I
19    direct that they be transcribed into the record at this
20    point.
21                             [Rebuttal Testimony and Exhibits of
22                             Gary M. Andrew, MOAA, et al.-RT-1,
23                             was received into evidence and
24                             transcribed into the record.]
25

                                                             19730
 1              CHAIRMAN GLEIMAN:  Three participants have
 2    requested oral cross-examination and we have not been able
 3    to wear them out today, so here they are, the American
 4    Bankers Association, Edison Electric Institute, and the
 5    National Association of Presort Mailers, Major Mailers
 6    Association and the Newspaper Association of America.
 7              Does any party -- is any other party still
 8    standing?  Does any party wish to cross-examine?
 9              [No response.]
10              CHAIRMAN GLEIMAN:  If not, then counsel for the
11    Bankers Association, et al. can proceed when ready.
12              MR. CORCORAN:  Thank you, Mr. Chairman.
13                          CROSS-EXAMINATION
14              BY MR. CORCORAN:
15         Q    Dr. Andrew, I am Brian Corcoran.  I represent EEI
16    in this proceeding.
17         A    Good evening.
18         Q    I would like to begin with a few, I guess what I
19    would call matters of language with your testimony.  Could
20    you turn to page 25, please?
21         A    Yes.
22         Q    At lines 22 to 23 you indicate that Dr. Clifton
23    proposes a reduction for presort business cards between 1
24    and 1.6 cents.  Do you see that?
25         A    Yes.

                                                             19731
 1         Q    Those lines?
 2         A    Yes, sir.
 3         Q    And as support for that, you cite Dr. Clifton's
 4    answer to a USPS Interrogatory 20.  Did you review that
 5    Interrogatory?
 6         A    Yes.
 7         Q    Is it true that, in response to that
 8    Interrogatory, Dr. Clifton specifically states, quote, "The
 9    rates for First Class work-shared cards have been kept at
10    their current rates instead of being set at the rates in the
11    USPS proposal.  I am not adopting this as part of my formal
12    proposal."  Wasn't that his testimony?
13         A    That was his testimony, but in his final
14    statements of accounts in Technical Appendix D, he included
15    these reductions, implicitly?
16         Q    It wasn't abundantly clear to you that, when he
17    said I am not adopting this as part of my formal testimony,
18    that he was using it simply to complete his technical
19    appendices, and they were for illustrative purposes only?
20         A    Well, that's how he got his whole system to
21    balance from terms of the revenue -- meet the revenue
22    requirements, so I assume they are in there implicitly. 
23    They being the reduction from the USPS proposed rates, or
24    stating another way, keeping the -- maintaining the same
25    rates as they are today.

                                                             19732
 1         Q    Well, that's fine.
 2              Let me move to one other area briefly.  Is it
 3    correct that the current bench-mark used to set discounts
 4    for first class work-shared mail is the first class single
 5    piece rate?
 6         A    Today?
 7         Q    The current bench-mark, correct.
 8         A    The bench-mark that's used in this case or the
 9    bench-mark that was used in '95?
10         Q    I'll repeat the question.  Is it correct that the
11    current bench-mark used to set discounts for first class
12    work-shared mail is the first class single piece rate?
13         A    I don't know what you mean by "current."
14         Q    It's the one that the discount -- the current
15    discounts are based upon.
16         A    Okay.  That's all I needed to know.  The one that,
17    today's date, is based on the single piece, but it was used
18    as a proxy because the bench-mark or the data necessary to
19    do the bulk rate metered mail that was proposed was not
20    available in '95, but it is available today.
21         Q    Excuse me.  Was the answer to your question -- and
22    your explanation is fine -- was the answer to the question,
23    yes, that's the current bench-mark?
24         A    That's correct, with modifications.
25         Q    And is it correct that Dr. Clifton uses the

                                                             19733
 1    current bench-mark for purposes of setting discounts for
 2    first-class work-shared mail in his testimony?
 3         A    It is true.
 4         Q    At page 24, line 7 of your testimony, you've
 5    chosen to characterize Dr. Clifton's use of the current
 6    bench-mark as representing an increase in the bench-mark
 7    used to determine cost savings for work-shared discounts. 
 8    Do you see that language?
 9         A    State the line, please?
10         Q    I believe it's line 7 on page 24.
11         A    Yes.
12         Q    It's correct, therefore, to state, is it not, that
13    Dr. Clifton has not proposed to increase the bench-mark.
14         A    Over the existing or over what the USPS has
15    proposed?
16         Q    He's using the current bench-mark as you
17    previously testified.  Isn't that right?
18         A    That's correct.
19         Q    And it's correct to state, therefore, that Dr.
20    Clifton has not proposed to increase the bench-mark.  Isn't
21    that correct?
22         A    That's correct.
23         Q    Are you an economist?
24         A    I consider myself an economist.  I don't have a
25    Ph.D. in economics, but I've taken all the courses

                                                             19734
 1    necessary.  My Ph.D. is in operations research.
 2         Q    I see.  At page 24 of your testimony, you
 3    criticize Dr. Clifton's reduction in cost coverage for first
 4    class work-shared mail as being based upon considerations of
 5    efficiency and equity.  Do you see that?
 6         A    On 24?
 7         Q    Correct.  Line 11, specifically.
 8         A    Got it.
 9         Q    Is it correct that a Ramsey price is more
10    economically efficient that a price set in excess of a
11    Ramsey price?
12         A    Yes.
13         Q    Is it correct that an improvement in efficiency
14    occurs when the departure from Ramsey price is lessened?
15         A    Yes.
16         Q    Is it correct in this case the Postal Service has
17    proposed rates for work-shared first class yielding cost
18    coverage of 283 percent?
19         A    Say again?
20         Q    Is it correct that, in this case, the Postal
21    Service's proposed rates for work-shared first class mail
22    yield a cost coverage of 283 percent?
23         A    That is correct.
24         Q    Is it correct that had the Postal Service set
25    rates for work-shared first class mail based upon Ramsey

                                                             19735
 1    pricing, the cost coverage would have been 245 percent?
 2         A    I'd have to look that up.  I don't know -- don't
 3    have it at my fingertips.
 4         Q    Did you read Witness Bernstein's testimony?
 5         A    A long time ago, yes.
 6         Q    Isn't it true that his testimony would result in
 7    that 245 percent or don't you recall?
 8         A    I said I'd have to check.
 9         Q    Okay.  Well, let's assume for purposes of my next
10    question that's the case.
11         A    Subject to check.
12         Q    Thank you.
13              Therefore, since Dr. Clifton has proposed to
14    reduce the cost coverage for first class work-shared mail,
15    the result must be, under Ramsey pricing, more efficient
16    than the Postal Service's, correct?
17         A    With respect to Ramsey pricing, yes.
18         Q    Is it also correct that economists deem Ramsey
19    pricing criteria to be objective and not subjective?
20         A    Yes.
21              [Whereupon, at 6:00 p.m., the hearing continued in
22    evening session.]
23
24
25

                                                             19736
 1                           EVENING SESSION
 2                                                     [6:00 p.m.]
 3              BY MR. CORCORAN:
 4         Q    So much for language.  Let's move to your mail
 5    mix.  This is Section A of your testimony.  That begins on
 6    page 27, I believe.  Is it your testimony that changes in
 7    mail mix are the principal reason for decline in unit costs
 8    for first class work shared mail?
 9         A    One of the principal reasons, yes.
10         Q    Doesn't your testimony at 27, the heading, say the
11    primary reason?
12         A    Yes.
13         Q    Now, in effort to demonstrate your conclusion that
14    mail mix is the primary reason for decline in unit costs,
15    you include several tables in your testimony, including
16    table 10, which is on page 29 of your testimony, and which
17    shows the percentage shares of non-automation and automation
18    work shared first class mail for the years 1994 to 1996;
19    correct?
20         A    Yes.
21         Q    It's your testimony, I take it, that a shift of
22    this magnitude, the 12.7 percent, would cause a reduction in
23    overall unit costs in the CRA; is that correct?
24         A    It can; yes.
25         Q    Excuse me.  Look at your testimony on lines 13 to

                                                             19737
 1    15.  I've paraphrased it, but that's specifically what you
 2    say there, isn't it, a shift in volume within work shared
 3    mail of this magnitude, i.e., 12.7 percentage points, from a
 4    higher cost rate category to a lower cost category would
 5    cause a reduction in overall unit costs?  That's your
 6    testimony; correct?
 7         A    Yes.
 8         Q    To demonstrate your contention, if you would turn
 9    to page 30, please, of your testimony, to demonstrate your
10    contention, you developed table 11, in which you show a
11    hypothetical example where a decrease in average costs for
12    presort first class mail is consistent with increases in
13    unit costs for each rate category, due to volume mix shifts
14    from higher cost non-automation to lower cost automation;
15    correct?
16         A    Yes.
17         Q    As a somewhat preliminary matter, does your
18    testimony provide data showing the unit costs for rate
19    categories within work shared first class mail for the
20    period 1994 through 1996?
21         A    Not in this table.
22         Q    As to the -- you don't have any data in here, do
23    you, specifically with respect to unit costs for rate
24    categories within first class mail for the period 1994 to
25    1996, do you?

                                                             19738
 1         A    No, I do not.
 2         Q    Now, as to the hypothetical, and you do label this
 3    as a hypothetical example, the unit costs for non-automation
 4    and automation work shared first class mail are made up,
 5    aren't they?
 6         A    Yes, the costs.
 7         Q    Yes, exactly.  In addition, the relationship
 8    between the unit costs of non-automation to automation,
 9    i.e., with non-automation being 100 percent higher, is made
10    up; correct?
11         A    Yes.
12         Q    In fact, they bear no relationship to the historic
13    cost relationship between the two types of mail; is that
14    correct?
15         A    That's correct.
16         Q    Similarly, the percentage shares that you show --
17    excuse me.  I've lost myself.  Similarly, the percentage
18    share of the mail stream represented by non-automation and
19    automation is made up; correct?
20         A    Yes.
21         Q    Further, as you demonstrated on table 10 where you
22    did use the actual percentage shares, the percentage of
23    shares you employ in table 11 represent a complete departure
24    from the actual results for the time period; correct?
25         A    Yes.

                                                             19739
 1              MR. CORCORAN:  I have a cross examination exhibit
 2    I would like to show you.
 3                             [Cross-Examination Exhibit No.
 4                             ABA/EEI/NAPM-XE-1 was marked for
 5                             identification.]
 6              BY MR. CORCORAN:
 7         Q    Do you have what I have labelled ABA/EEI/NAPM
 8    Cross-Examination Exhibit 1 before you?
 9         A    Yes.
10         Q    Let me just identify the source of the data.  For
11    1994, do you see that we have -- it's an attempt to
12    replicate your Table 11.  That cost of nonautomation and
13    automation, do you see that? -- 4.8 cents for automation?
14         A    Yes, sir.
15         Q    Do you see that?  That comes from Witness Smith's
16    testimony in MC-95-1 and represents the cost of automation
17    for 3-Digit mail and we have rounded for the 4.7 cents to
18    4.8 and the nonautomation share represents the difference,
19    as you can see in the footnote, between a 3-Digit automation
20    share and nonautomation mail, as provided by Witness Smith
21    in that case and that difference is calculated to be 47
22    percent.
23              So this --
24         A    Say again?
25         Q    The difference between automation and

                                                             19740
 1    nonautomation is 47 percent.  That is how I derived the 7.1
 2    cents.  Okay?
 3         A    All right.
 4         Q    Are you with me?  All right, and the share, as
 5    noted in the Footnote 2, is the share of nonautomation and
 6    automation mail in 1994 -- 42 percent for nonautomation and
 7    58 percent for automation as compared to what you have used
 8    in Table 11, 75 percent and 25 percent, respectively.  Okay?
 9         A    Yes.
10         Q    Now is it correct that under this example, given
11    more realistic unit cost figures, and a more realistic
12    spread between the two categories, and using actual mail mix
13    changes that the mail mix change, assuming no change in
14    costs, causes the average unit cost to decrease by 5.2
15    percent?
16         A    That is exactly what we were trying to show in
17    Table 11 but we wanted to stay away from any real numbers so
18    we wouldn't have any arguments about details.
19         Q    Wait a minute.  Table 11 shows an increase, a 10
20    percent increase in costs, does it not?  That is not what
21    my --
22         A    Say again?
23         Q    Your Table 11 -- does that have a --
24         A    Sure --
25         Q    -- a 10 percent increase in costs?

                                                             19741
 1         A    It has a 10 percent increase in costs --
 2         Q    Yes, sir.
 3         A    -- and it has an 11.4 decrease in cost on a
 4    average basis.
 5         Q    Right.
 6         A    The actual costs of each individual rate category,
 7    those costs were going up by 10 percent, but because of the
 8    mix change the overall average made a decrease and that is
 9    what we were trying to show.
10         Q    That's fine, but in -- we will get to that
11    assumption about the increase momentarily, but bear with me
12    on Cross-Examination Exhibit 1.
13              That table, given more realistic cost figures, a
14    more realistic spread between the two rate categories, and
15    assuming -- and actual mail mix, and assuming no change in
16    costs causes the average unit cost to decrease by 5.2
17    percent, isn't that what this table shows?
18         A    Yes.
19         Q    And isn't it correct that Dr. Clifton's analyses
20    demonstrate mail processing costs for work-shared First
21    Class mail declined in excess of 5.2 percent over the period
22    1994 to 1996?  Correct?
23         A    Yes.
24              MR. CORCORAN:  We have another cross examination
25    exhibit for you.

                                                             19742
 1                             [Cross-Examination Exhibit No.
 2                             ABA/EEI/NAPM-XE-2 was marked for
 3                             identification.]
 4              BY MR. CORCORAN:
 5         Q    Do you have it in front of you, Dr. Andrew?
 6         A    Exhibit 2.
 7         Q    Yes, sir, marked ABA/EEI/NAPM Cross-Examination
 8    Exhibit 2, and it's the same table, essentially, as number
 9    1, except that we've increased the costs by 10 percent in
10    1996.  Do you see that?
11         A    Yes.
12         Q    Now, under these conditions and contrary to the
13    conclusion you draw from your Table 11 that volume exchanges
14    would cause average unit cost to decrease, here we see
15    average unit costs actually increase by 4.3 percent,
16    correct?
17         A    Given the conditions you have here, that is
18    correct.
19         Q    Right.  And in his testimony -- well, you've
20    already answered that.
21              Now, given our Cross-Examination Exhibit 1, which
22    shows that actual volume mix shift accounts for a
23    5.2-percent decline in average costs, what, in your view,
24    accounts for the balance of the decline in unit costs that
25    are included in Dr. Clifton's analyses -- i.e., the

                                                             19743
 1    difference between the 5.2 percent and his decline of
 2    approximately 13 percent?
 3         A    It could be a number of factors.
 4              One, it could be a difference in the change of the
 5    costs by rate category going from '94 to '96.  It could be a
 6    -- that's a relative change between the two.
 7         Q    Isn't that your mail mix argument?
 8         A    No.  I'm talking about the cost -- the unit cost
 9    of the category, not the mixes of the category, but the unit
10    costs of the category.  So, your 7.1 and 4.8 -- those may
11    not change uniformly through time.
12              So, there could be a change in the level of those
13    costs relative to one another, and there could be a change
14    in the base -- in other words, they move up together or they
15    -- so, there's two things operating -- the relative
16    difference between the actual costs of the non-automated
17    versus the automated and the relative level or base of the
18    two, and given whatever happens in there, you can get all
19    sorts of numbers down on the right-hand side at the bottom.
20              I also want to know on the 7.1 -- if we're going
21    to -- are you going to ask anymore questions on this, sir?
22         Q    Perhaps.
23         A    I need to know the source of your 10-percent
24    increase.  Since we're using actuals --
25         Q    That's easy.  I just attempted to have replicated

                                                             19744
 1    your Table 11, and when you use more realistic numbers, when
 2    you use actual volume shifts, when you use costs that are --
 3    where the spread is more comparable to the actuals, you get
 4    a result that is completely at odds with your Table 11.
 5         A    It's not at odds at all, because in the first
 6    case, where there's no change, you're having a decrease
 7    that's strictly a function of mix, and that's what the whole
 8    exercise in 11 was to show.
 9         Q    Right.  You claim that it's solely volume mix that
10    causes the costs to go down.
11         A    No, I didn't say that.
12         Q    That's your -- that's what you started out in your
13    heading to this testimony, that changes in mail mix
14    categories are the primary reason for declining unit costs.
15         A    Primary, but they're --
16         Q    Nowhere in your -- excuse me -- nowhere in your
17    testimony do you say that there may be some other factors
18    such as the items you just were elaborating on.
19         A    Okay.
20         Q    True?
21         A    I haven't read my testimony today.  I thought I
22    had, but if I didn't, I didn't.
23         Q    And isn't it possible that -- besides the mail
24    mix, isn't it possible that attributable costs were actually
25    dropping and that's the difference between the 5.2 that we

                                                             19745
 1    show in Exhibit 1 and Dr. Clifton's results, which show
 2    minus -- negative 13 percent?  It's because the costs are
 3    dropping.  It's not mail mix.  The mail mix is 5.2 percent,
 4    correct?
 5         A    The mail mix, with your numbers, give a
 6    5.2-percent decrease.
 7         Q    And if the results that Dr. Clifton shows is, for
 8    example, 13 percent, the difference would have to be, at
 9    least in part, dropping attributable costs, correct?
10         A    Not necessarily.
11         Q    In part, they wouldn't have to be, even?
12         A    No.  I can construct you an example, if you would
13    like me to -- I won't do it on the stand --
14         Q    Well, thank you.
15         A    -- but I'll give it to you.
16         Q    And I would note you didn't do it in your
17    testimony.  You just said mail mix was the primary reason.
18              MR. TODD:  I would like an opportunity for the
19    witness to complete his answer, Mr. Chairman.
20              THE WITNESS:  I would be glad to make a
21    counter-example or an example that would show the situation
22    where this will go farther negative and the costs will at
23    least stay the same or they certainly won't decrease.
24              BY MR. CORCORAN:
25         Q    Well, let's move on.

                                                             19746
 1         A    I take it that's a negative on the offer.
 2         Q    Even if it wasn't 6:30, it would be a negative.
 3              Now, you also criticize -- and I'll find it here
 4    -- at page 31 -- and I believe it's lines 4 and 5.  In this
 5    section A of your testimony, you characterize Dr. Clifton's
 6    use of only two years of change in historical -- i.e., CRA
 7    data -- from '94 to '96 as suspect.  Do you see that on
 8    lines 4 and 5?
 9         A    Yes.
10         Q    And by this, is it your testimony that Dr. Clifton
11    should have considered a longer historical period?
12         A    He definitely should have done that and/or modeled
13    -- done a model of this system he was working with.
14         Q    Now, given your criticism of the historical time
15    period used by -- excuse me, I'll start again.  Isn't your
16    criticism of the historical time period used by Dr. Clifton
17    irrelevant given your contention that the change in mail mix
18    is the principal reason for the declining unit costs for
19    First Class work-shared letter mail?
20         A    Not at all, because the change in mail mix may not
21    continue, and that is another reason for the criticism of
22    using only the two year without a modeling of the migration
23    from higher cost to lower cost categories.
24         Q    Well, I was going to get to this later, but to
25    keep it in one spot in the transcript, because it will be

                                                             19747
 1    riveting reading, I know, isn't it the case that -- and I'll
 2    get to it momentarily -- isn't it the case that Witness
 3    Tolley projects a decline of 13.1 percent of non-automation
 4    share before rates from a 28.76 percent in the base year?
 5         A    I don't remember those numbers.  If you will give
 6    me the citation, I have --
 7         Q    That's fine.  If you don't remember, that's fine.
 8         A    Okay.
 9         Q    His testimony will speak for itself.  And you
10    also, is it correct that Witness Thress -- Thress --
11    whatever -- projects an interim year, i.e., '97, decline in
12    non-automation share before rates of 14.9 percent?
13         A    I will have to take that subject to check.
14         Q    See, what I don't understand then, Doctor, you
15    just said -- don't those -- if those two are accurate,
16    that's projecting a decline into the interim year and into
17    the test year, correct?  So the decline is, by the Postal
18    Service, is projected to continue, correct?
19         A    Not at the level in the test year that has been in
20    the past.
21         Q    You mean the 12.7?  It declined 12.7 percentage
22    points.
23         A    Would you cite that for me in --
24         Q    Well, that was your testimony on page 10, your
25    Table 10.

                                                             19748
 1         A    Say again?
 2         Q    You show on Table 10 a decline, those are actual
 3    mail mix shifts.  It's a percentage change, percentage point
 4    change of 12.7 percent, correct?
 5         A    That's correct.  But you are talking about going
 6    into the test year after rates.
 7         Q    Right.  And just bear with me, if the numbers I
 8    quoted were correct, and Witness Tolley projects a decline
 9    to 13.10 percent from the base year of 28.7 percent, that's
10    a larger decline that you show in Table 10, correct, in
11    terms of percentage points?
12         A    In the interim year.
13         Q    No, sir.  Assume with me that I have read Tolley
14    correctly.  Then he projects a decline to 13.1 percent from
15    the base year, which you have got right here, of 28.7. 
16    That's a decline in percentage point terms greater than what
17    you show in Table 10, correct?
18         A    Would you please give me the citation from which
19    you are reading?  And then I can follow it with you, sir,
20    because I have the documents here.
21         Q    You'll have to take it subject to check, I don't
22    have a page number for Tolley.  So assuming that I am right,
23    the projection --
24         A    Well, I have it, it's in -- it's reproduced in
25    Table 8 of Witness Clifton's, on page 10 -- I'm sorry, page

                                                             19749
 1    19.
 2         Q    Nineteen.
 3         A    Now if you care to go ahead, I'll follow with you.
 4         Q    My question was, and I thought this would be easy
 5    to keep it all in one spot, but the question is, if Witness
 6    Tolley projects a decline in the nonautomation share for the
 7    test year to 13.1 percent, that's a decline that's greater
 8    than in terms of percentage points, given that the base year
 9    is 28.7, it's a decline that's greater than the 12.7 percent
10    you show in your table 10.  Correct?
11         A    That is correct, but you've got to look at the
12    progression that's taking place.  In '97, the interim year,
13    the total is 14.9 percent, so that's a reduction of 13.8. 
14    And then from 14.9 in '97 it goes to 13 even in '98, or a
15    1.9-percent decrease.  So we've got a definite leveling off
16    which one would expect because there's only so much shift
17    that can take place in these migrations.  We've experienced
18    that in Standard A mail over the years.  And you've
19    experienced it in your own --
20         Q    Sure.
21         A    Systems.
22         Q    But your table 11 -- excuse me, your table 10 --
23    shows the decline for two years.
24         A    That's correct.
25         Q    And from the base year to the test year is a

                                                             19750
 1    decline greater than you show in table 10.  I think you've
 2    agreed.  Is my math correct?
 3         A    Yes.  Yes.
 4         Q    Okay.  Let's go back.  I didn't mean to --
 5         A    But the dynamic is the importance here, because
 6    the dynamic changes through time.
 7         Q    Let's go back to the -- where I left off, which
 8    was your criticism of Dr. Clifton concerning the time period
 9    he used, and your testimony was that your criticism is not
10    irrelevant -- notwithstanding your reliance that the
11    principal cause for the decline in unit costs is first -- is
12    the mail mix shift.  Just setting the table here just to set
13    us back.
14              MR. CORCORAN:  Let me show you or provide to you
15    another exhibit.
16                             [Cross-Examination Exhibit No.
17                             ABA/EEI/NAPM-XE-3 was marked for
18                             identification.]
19              BY MR. CORCORAN:
20         Q    Preliminarily, Dr. Andrew, if you would turn to
21    page 32.
22         A    Yes.
23         Q    Is the purpose of this table -- and I guess I said
24    Table 32, I apologize -- page 32, Table 12 -- is the purpose
25    of this table to demonstrate that Dr. Clifton's use of the

                                                             19751
 1    CRA data from the period '94 to '96 was too short a period
 2    to be representative?
 3         A    That and the fact that it's the most negative --
 4    largest decrease of the whole period.  In fact, it's the
 5    only decrease in the whole period.
 6         Q    And -- well, that's not quite true, is it? 
 7    Doesn't '93 go down slightly for a one-year period?
 8         A    Yes, on the one-year period, you're right.
 9         Q    Now, your Table 12 shows the cost per piece and
10    percentage change for one year and two years for work-shared
11    first class mail, correct?
12         A    Yes.
13         Q    And now we can go to what I've labeled ABA/EEI
14    Cross-Examination Exhibit 3, and it was handy that you
15    pointed to Dr. Clifton's Table 8, because as you note, we've
16    attempted to replicate your Table 12 for the years 1988
17    through '96.
18              The non-automation share, column two, comes from
19    Dr. Clifton's Table 8.  The percentage change is just the
20    calculation of the difference between the years, and the
21    automation share also comes from Dr. Clifton's Table 8, and
22    again, the percentage point change is simply the difference
23    in the year, and the costs in item -- excuse me -- row 6 are
24    yours, from your Table 12, as is the percent change.  Do you
25    see that?

                                                             19752
 1         A    Yes.
 2         Q    Now, given your testimony about the -- that mail
 3    mix would cause -- caused the decrease, let me direct your
 4    attention, for example, to 1992.  You see the automation
 5    share from the period from '91 to '92, okay?  You see that
 6    the automation share in '92 is 62.3 percent, correct?
 7         A    Yes.
 8         Q    And that's a drop from '92 of 16.2 percentage
 9    points, correct?
10         A    No.
11         Q    What is it?
12         A    You said it was a drop from '92?  Drop from '91.
13         Q    Thank you.  I mis-spoke, and I apologize.
14         A    Yes, from '91 to '92, the change is 16.2 percent.
15         Q    And the automation share went up by an equal
16    amount.
17         A    Correct.
18         Q    And the unit cost you show went up by 3.6 percent,
19    correct?
20         A    That's correct.
21         Q    And in fact, Dr. Clifton -- excuse me -- Dr.
22    Andrew, in year 1989, there's a volume shift; in 1990,
23    there's a volume shift; in 1991, there's a volume shift; and
24    in each of those years, the costs go up, correct?
25         A    That's correct, and in each of those years we had

                                                             19753
 1    higher rates of inflation that we do currently.  So, your
 2    base -- when I talked about what could change -- what can
 3    change the average cost of the piece within that work-shared
 4    mail, it can be the general level of cost, as well.
 5         Q    When you refer to inflation, are you referring to
 6    postal costs specifically or just your general sense of how
 7    inflation was at the time?
 8         A    Well, the one I looked at was transportation, I
 9    think.  I just looked at it to see what was happening back
10    there, and most costs in that period were more than they are
11    today, in terms of the indices.
12         Q    I see.  And did you look at that after I sent you
13    this cross-examination exhibit yesterday?
14         A    Yes, but I looked at it specifically again just to
15    make sure.
16         Q    Sure.  And if -- could --
17         A    By the way, I didn't get this till this morning,
18    but that's okay.
19         Q    Well, I knew we wouldn't be up till --
20              Is it possible that the decline that's shown, say,
21    in '96, the decline in cost there, due to inflation being
22    reduced?
23         A    It could.
24         Q    And also, you notice those costs go down in '95
25    and '96.  Classification reform was implemented in '95,

                                                             19754
 1    perhaps?  Do you know?
 2         A    Ninety-six.
 3         Q    I see.  Were mailers taking steps in '95 in
 4    anticipation of the classification reform?
 5         A    I do not know.
 6         Q    If they were, would that have influenced costs
 7    during that period?
 8         A    I do not know.  It could have, I suppose.
 9         Q    Okay.  Classification reform was in effect in '96.
10    Could that cause these costs to be reduced?
11         A    You just asked that question, didn't you?
12         Q    In '96, not '95.  You said -- I thought you told
13    me that classification reform became effective in '96.
14         A    Yes.
15         Q    Could that be a contributing factor to the reduced
16    costs shown in the last column here?
17         A    I do not know.  I haven't analyzed those changes.
18         Q    Okay, that's fine.
19              Turning to a different topic, do you understand
20    that Dr. Clifton's negative 3.6 roll-forward factor applies
21    to mail processing costs for First Class work-shared mail?
22         A    Yes.
23         Q    Do you agree that Dr. Clifton's volume forecasts
24    reflect the regression methodology and equations developed
25    by Witnesses Thress and Tolley?

                                                             19755
 1         A    Would you repeat the question, please?
 2         Q    Do you agree that Dr. Clifton's volume forecasts
 3    reflect the regression methodology and equations developed
 4    by USPS Witnesses Thress and Tolley?
 5         A    Yes.  They purport to do that.
 6              I have not checked them in great detail, however,
 7    because we were never able to obtain a machine-readable form
 8    other than the hard-wired copy with the numbers in it of Dr.
 9    Clifton's workpapers.
10         Q    Did you request from counsel any assistance?
11         A    Yes.
12         Q    Which -- I don't mean yours.  I mean me or Mr.
13    Warden, who is at my right.
14         A    It was my understanding that there had been two or
15    three iterations of it and we finally gave up and did it by
16    hand, what we could do.
17         Q    Well, I will just say that it wasn't passed on to
18    me.
19              Your Table 9, which is on page 26, shows the
20    combined effects of Dr. Clifton's proposal concerning First
21    Class mail, correct?
22         A    Yes.  All of his proposed changes that are
23    reflected in the combination, namely Technical Appendix D as
24    in "dog."
25         Q    Right, and his Technical Appendices break out his

                                                             19756
 1    proposals separately, correct?
 2         A    Yes.
 3         Q    So for example with respect to what he has called
 4    his discount proposal, that is in Technical Appendices C-1?
 5         A    I believe that is correct.
 6         Q    Okay.  Did you examine -- well, let me phrase it
 7    this way.
 8              Under his discount proposal, isn't it correct that
 9    revenues for First Class work-shared mail increased by $205
10    million?
11         A    That is what your exhibit -- potential
12    Cross-Examination Exhibit page 2 says and we checked it and
13    the answer is yes.
14         Q    And isn't it also correct that there is no impact
15    on Standard A commercial mail?
16         A    That's right.
17              It is also true that the revenue is in imbalance
18    inn First Class and you are -- you have used up $152 million
19    that you don't have.
20         Q    Well, let me see if I understand your position. 
21    Your testimony addresses his combined proposals.  Is it also
22    your testimony or the position of your clients that you
23    object to Dr. Clifton's discount proposal, which has no
24    impact on Standard A mail?
25         A    I can't speak for counsel.

                                                             19757
 1         Q    Okay -- never mind your clients.  Let me limit
 2    it -- let me limit it to you and I will rephrase it.
 3              Your testimony addresses the combined effects.  As
 4    we just discussed, his discount proposal has no impact, no
 5    revenue impact, on Standard A mail.
 6              Do you or is it your testimony that you object to
 7    this portion of his analyses or is it only the combined
 8    presentation?
 9              MR. TODD:  May I -- Mr. Chairman, even there I
10    suppose the witness can speak for himself.  It seems to me
11    that the question of what this testimony does is contained
12    in the testimony.  I don't believe that asking a witness in
13    the abstract whether he objects to a certain result within a
14    given class of mail is a proper question.
15              I think the question should be focused on the
16    analysis which has been done by the witness and whether that
17    analysis -- whatever questions he may want to ask about the
18    analysis, but getting back to the question of what is the
19    ultimate result of this and whether he thinks it's a good
20    idea or a bad idea I think is well beyond the scope of his
21    testimony.
22              CHAIRMAN GLEIMAN:  Mr. Corcoran, do you want to
23    comment before I rule?
24              MR. CORCORAN:  Okay.  His testimony is -- he had
25    Dr. Clifton's testimony in front of him.  Dr. Clifton's

                                                             19758
 1    testimony consists of three proposals.  He has combined all
 2    of them, I am attempting to examine one portion of that
 3    testimony.  I think it is proper and the witness should
 4    answer.
 5              CHAIRMAN GLEIMAN:  I'm not sure that I follow.
 6              MR. CORCORAN:  I am examining -- he has combined,
 7    in his Table 9, and throughout his analyses, Dr. Clifton's
 8    various proposals with respect to First Class mail.
 9              My client is only interested in the discounts
10    testimony and that is what I am focusing on at the moment. 
11    The discount proposal has no impact in terms of increased
12    revenues on standard mail.  So the question to the witness
13    was simply, do you object to that proposal?
14              MR. TODD:  If I may just perhaps clarify things,
15    or perhaps not.  But, as is stated on page 1, a note to
16    footnote 1 of the testimony of Mr. Andrew, the reason he
17    combined this is because Dr. Clifton chose to combine it
18    and, therefore, there wasn't any other intelligent way of
19    putting the matter.
20              Now, if Mr. Corcoran would like to know whether
21    the Mail Order Association of America or the other parties
22    submitting this testimony are particularly concerned, at
23    least insofar as this analysis goes, as to what happens
24    within the First Class mailstream so long as it doesn't
25    negatively affect Standard A, the answer is we really don't,

                                                             19759
 1    as a general matter.  It doesn't mean that in certain areas
 2    we may not take positions pro or con particular issues.
 3              But, again, Mr. Andrew's testimony is an analysis,
 4    in part, of Dr. Clifton's testimony, and it seems to me that
 5    any cross-examination concerning that analysis is proper. 
 6    But going beyond to say whether he likes the end rate
 7    results or not is not proper.
 8              CHAIRMAN GLEIMAN:  I am afraid I am going to have
 9    to ask you to reconsider your question or rephrase your
10    question, or withdraw your question, Mr. Corcoran.
11              MR. CORCORAN:  Okay.  I will deem it withdraw.
12              BY MR. CORCORAN:
13         Q    Switching topics, is it your testimony that the
14    cost characteristics of automation work-shared First Class
15    mail and Standard A mail are not similar?
16         A    The cost characteristics?
17         Q    Yes.
18         A    Yes, it is my testimony that they are not similar.
19         Q    That they are not similar.  I see.  Did you bring
20    USPS Exhibit 29(c) with you?
21         A    Yes.
22         Q    Could you take that out, please?
23         A    I have it, sir.
24              CHAIRMAN GLEIMAN:  Actually, Mr. Corcoran, I think
25    it's best that you identify what they are on the record, so

                                                             19760
 1    that the record shows what it is you are talking about.
 2              MR. CORCORAN:  Sure.  Thank you, Mr. Chairman.
 3              BY MR. CORCORAN:
 4         Q    Dr. Andrew, do you have before you USPS Exhibit
 5    29(c), page one, which is first class unit cost estimates?
 6         A    That's page one of six?
 7         Q    Yes, sir.
 8         A    Yes, sir.
 9         Q    And page two, which is standard regular unit cost
10    estimates?
11         A    Yes, sir.
12         Q    The columns there show mail processing and
13    delivery costs for various types of first class mail and
14    standard A mail; is that correct?
15         A    Yes.
16         Q    Would you agree that the mail processing and
17    delivery costs, for example, for first class automation
18    three digit and standard A automation three digit, are
19    similar?
20         A    They are within two-tenths of a cent, yes, on a
21    base of eight.
22         Q    I'm sorry.  Your answer was yes, they are similar?
23         A    Yes.
24         Q    Are the mail prep requirements for these two types
25    of mail similar, that is automation presort, first class

                                                             19761
 1    presort and standard A automation?
 2         A    I am not familiar with standard A.
 3         Q    Are they processed on the same machines by the
 4    Postal Service?
 5         A    Some of the materials are, yes.
 6         Q    Letter shaped mail?
 7         A    Yes.  That's my understanding.
 8         Q    Except for perhaps certain air transportation, are
 9    they transported in the same vehicles?
10         A    Oh, definitely not, because standard A mail is
11    heavily drop shipped and first class mail does not drop
12    ship.
13         Q    Once they get to the destination facility, whether
14    it's a SCF or DDU, whatever it happens to be, aren't they
15    commingled at that point and transported together?
16         A    But you are trying to make an identification that
17    the costs are so similar between these two and they
18    definitely are not when it comes to transportation.
19         Q    But overall, the costs, as you just noted, between
20    automation, work shared, first class, three digit and
21    standard automation are remarkably similar; correct?
22         A    For those two functions, yes, for mail processing
23    and delivery.
24         Q    Is it correct that in the Postal Service's
25    analyses, Witness Daniel and Witness Hatfield used the same

                                                             19762
 1    productivities for standard A mail and work shared first
 2    class mail?
 3         A    I did not check standard -- first class.
 4         Q    Is it correct that standard A letter mail weighs
 5    approximately 50 percent more than first class automation
 6    work shared letters?
 7         A    Would you repeat that?
 8         Q    Is it correct that standard A letter mail weighs
 9    approximately 50 percent more than first class automation
10    work shared letters?
11         A    That's what the exhibit showed that you gave me
12    and we checked it and the answer is yes, according to the
13    Postal Service's information, it's actually 63 percent, but
14    it turns out --
15         Q    That's what I had, too.
16         A    But it turns out that the cost is a J shaped curve
17    in that area of weight and as you get lighter and lighter
18    pieces, the costs have been shown to go up.
19         Q    Pardon me?  Could you repeat that, please?
20         A    Yes.  If you draw a graph and on the horizontal
21    axis, show weight in ounces, and on the vertical axis, you
22    show costs, unit costs of mail, as the piece gets lighter in
23    the area of two to one to zero or 6.66, which I think is
24    your average, the costs go up, not down.
25         Q    What costs are they?  What costs go up?

                                                             19763
 1         A    The processing costs.
 2         Q    Mail processing costs?
 3         A    Yes.
 4         Q    That's not born out by the USPS Exhibit 29(c),
 5    pages one and two.
 6         A    You don't have weights in here.
 7         Q    You have the average weights that I forwarded to
 8    you.  Aren't those reflected in this data by the Postal
 9    Service in 29(c)?
10         A    Yes, but you have different handling
11    characteristics of each one of them.  Take and compare one
12    to one.
13              May I confer with counsel a moment?
14         Q    This could be done on redirect, perhaps.  I'm
15    willing to move on, given the hour, and if they want to do
16    it on redirect, that's fine.
17         A    I have references to Library Reference 182 on this
18    matter.
19              CHAIRMAN GLEIMAN:  Well, if Mr. Corcoran is
20    willing to withdraw whatever question it was he was asking
21    you --
22              MR. CORCORAN:  Yes.
23              CHAIRMAN GLEIMAN:  -- then we don't have to worry
24    about that right now.
25              THE WITNESS:  Thank you.

                                                             19764
 1              BY MR. CORCORAN:
 2         Q    You talk about, at page 36 of your testimony --
 3    and this follows up on the cost characteristics issues, and
 4    you talk about first class letters have a higher value and
 5    that's demonstrated by certain specific characteristics
 6    which you detail on lines 6 through 11 on that page,
 7    correct?
 8         A    Yes.
 9         Q    Now, in Witness Hatfield's analysis, isn't it
10    correct that he employed a paid premium adjustment to
11    reflect the fact that first class mail is being accorded
12    expeditious handling and a higher delivery priority?
13         A    Would you repeat that and give me a reference in
14    --
15         Q    Page 13 -- Appendix 1, page 13 of USPS-T-26. 
16    Isn't it correct that, in his analysis, he employs a paid
17    premium adjustment that reflects first class mail being
18    accorded expeditious handling and delivery priority?
19         A    Give me your cite again, please.
20         Q    It's page 13 of Appendix 1.
21              MR. CORCORAN:  May I approach the witness just to
22    show him the page?
23              THE WITNESS:  I've got it.
24              MR. CORCORAN:  And just for the record, we
25    indicated in correspondence to Mr. Todd that we would -- we

                                                             19765
 1    may use this material, that's all.
 2              BY MR. CORCORAN:
 3         Q    Do you have it?
 4         A    I have it.
 5         Q    Do I need to repeat the question?
 6         A    No.  Just give me your reference on the page. 
 7    There's a lot of numbers on the page.
 8         Q    It's column six, premium pay adjustment.
 9         A    Yes.
10         Q    All right.
11              Now, isn't it the case that Witness Hatfield
12    increased unit costs by 1.1 percent to reflect that or do
13    you know?
14         A    He changed it with the premium pay, but the
15    premium pay does not reflect all of the costs associated
16    with that.  That's a proxy.
17         Q    It's a proxy for what?
18         A    For the correction that your question asked.
19         Q    Doesn't it relate -- the premium pay relates to
20    expeditious handling and delivery, does it not?
21         A    Yes.
22         Q    Now, isn't it also true that Witness Daniel also
23    reflected a negative premium pay adjustment with respect to
24    standard A mail?
25         A    Yes, I recall that.

                                                             19766
 1         Q    And these are both cost items.  That's your item
 2    -- line 7, first class mail is accorded expeditious handling
 3    and delivery?
 4         A    Yes.
 5         Q    Isn't it true, therefore, that those costs are
 6    already reflected in the attributable costs for this mail?
 7         A    Only part of them.
 8         Q    Isn't it also true that with respect to your line
 9    9, item D, First Class mail benefits from free forward and
10    return, that that too is a cost item reflected in the
11    attributable costs of First Class mail?
12         A    Yes, but it's not in the model.  I do not believe
13    it's in the model used by Witness Daniel for First Class.
14         Q    Witness Daniel didn't do the First Class, did she?
15         A    No, she used somebody else's.  But she made no
16    correction in there.
17         Q    Isn't it also true that the attributable costs for
18    First Class work-shared mail reflect the benefits of
19    dead-letter operations which you cite on line 10 of your
20    testimony?
21         A    Yes, I believe it does.
22         Q    And isn't it also true that the attributable costs
23    for First Class mail reflect what you cite at line 6, the
24    long-distance mailings are transported by air?
25         A    No.

                                                             19767
 1         Q    That's not an attributable cost item?
 2         A    It is an attributable cost item, but if you look
 3    at how the -- I take that back.  Yes, it is in the total
 4    cost.
 5         Q    Thank you.  So isn't it true of the five items you
 6    identify here, only the sealed against inspection is a value
 7    item?
 8         A    No, they're all value items.  Some of them have
 9    had some accounting for the additional costs, but not all.
10         Q    Some have attributable costs associated with them,
11    and some don't.  Is that your testimony?
12         A    And the ones that do, we have no guarantee that
13    all the attributable costs are accounted for.
14         Q    And would that be -- if they're counted as
15    attributable costs and then they're counted as a value item,
16    would that be in the parlance of regulatory terms a double
17    counting of the same factors?
18         A    Yes.  If they both had the total.
19         Q    Thank you, Dr. Andrew.
20              MR. CORCORAN:  Mr. Chairman, thank you very much.
21              Can I move the transcription of the
22    Cross-Examination Exhibits 1 through 3, please?
23              CHAIRMAN GLEIMAN:  I'll direct that ABA et al.
24    Cross-Examination Exhibits 1, 2, and 3 be transcribed into
25    the record at this point.

                                                             19768
 1                             [Cross-Examination Exhibit Nos.
 2                             ABA/EEI/NAPM-1 through
 3                             ABA/EEI/NAPM-3 were transcribed
 4                             into the record.]
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

                                                             19772
 1              CHAIRMAN GLEIMAN:  I think I'd like to take a
 2    ten-minute break right now.
 3              [Recess.]
 4              CHAIRMAN GLEIMAN:  Mr. Littell?
 5                          CROSS-EXAMINATION
 6              BY MR. LITTELL:
 7         Q    Mr. Andrew, are you ready?
 8         A    Yes, sir.
 9         Q    In my notice of intent to cross examine you, I
10    asked that you bring with you all your work papers and
11    computer runs relating to Dr. Clifton and MMA Witness
12    Bentley's proposals on automation discounts.  Do you recall
13    that?
14         A    Yes, sir.
15         Q    In response to my request, didn't I meet this
16    afternoon with you and your attorneys to look through all
17    those back-up materials?
18         A    Yes, sir, you did.
19         Q    Isn't it true that those back-up materials do not
20    include any computer runs or computations concerning Mr.
21    Bentley's testimony or exhibits?
22         A    No computer runs, and the only computations were
23    verifications in the margins of his values, that is true.
24         Q    Now, your testimony includes, in addition to the
25    written text, three exhibits denominated as MOA --

                                                             19773
 1    MOAA-RT-1A through RT-1C.  Is that right?
 2         A    That is correct.
 3         Q    Exhibit MOAA-RT-1A discusses the testimony of
 4    Witness Chown and not Mr. Bentley.
 5         A    That is correct.
 6         Q    And Exhibit MOAA-RT-1B also discusses the
 7    testimony of Witness Chown and not Mr. Bentley.
 8         A    That is true.
 9         Q    And the third and last exhibit, MOAA-RT-1C,
10    compares proposals of Mr. Clifton and Witness Hatfield and
11    not Mr. Bentley.
12         A    That's true, but what Mr. Bentley was working on
13    was the same thing as in -- or parts of the same material
14    that this flow chart shows.
15         Q    Thank you for that qualification.
16              Now, let's turn to your testimony rebutting MMA
17    Witness Bentley.  That testimony begins on page 44 of your
18    rebuttal testimony and continues for three lines on page 45,
19    correct?
20         A    That is correct.
21         Q    And your entire rebuttal to Mr. Bentley is four
22    paragraphs long.  That's correct, too, isn't it?
23         A    That is correct.
24         Q    Now, isn't the first of those four paragraphs just
25    an introductory description of Mr. Bentley's testimony

                                                             19774
 1    without any specific criticism?
 2         A    Yes.
 3         Q    Now, please look at the second and third
 4    paragraphs of your testimony.
 5              In those paragraphs, isn't your only criticism of
 6    Mr. Bentley that he used the Commission's traditional
 7    methodology that classifies mail processing labor costs as
 8    100-percent variable instead of the Service's proposed
 9    methodology?
10         A    That's what the second paragraph says, yes.
11         Q    And the third does, too, including your
12    affirmation that you prefer the Service's methodology.
13         A    That's correct.
14         Q    All right.
15              Now, please turn to page 24 of your testimony.
16         A    Yes.
17         Q    There, didn't you state four criticisms of Dr.
18    Clifton's adjustments to automation discounts with which you
19    disagree?
20         A    Yes.
21         Q    Now, looking at lines 5 and 6 on that page, isn't
22    one of your criticisms of Dr. Clifton directed at Dr.
23    Clifton's reduction in first class work-share letter mail
24    processing costs that manifests itself as a reduced
25    roll-forward factor in USPS Witness Hatfield's model?

                                                             19775
 1         A    That's correct.
 2         Q    Incidentally, did Mr. Bentley recalculate the
 3    Service's roll-forward factor?
 4         A    I do not believe he did.
 5         Q    Looking at lines 6 and 7 of that page, isn't your
 6    second criticism of Dr. Clifton that he proposes a test year
 7    reduction in First Class work-sharing letter delivery costs?
 8         A    Yes.
 9         Q    Did Mr. Bentley propose any reduction in the
10    Service's deliver costs?
11         A    I do not recall precisely.
12              MR. LITTELL:  Mr. Chairman, with your permission,
13    I would like to approach the witness and show him some pages
14    from a transcript.  And his counsel already has a copy of
15    that.
16              CHAIRMAN GLEIMAN:  Please proceed.
17              THE WITNESS:  Okay.
18              BY MR. LITTELL:
19         Q    Why don't we switch?
20         A    Okay.  Good.  Thank you.
21         Q    Looking at transcript page 11236 from Volume 21,
22    didn't Mr. Bentley respond to a Postal Service Interrogatory
23    by conceding that the only change he made in deriving his
24    discount figures was one change from the Postal Service's
25    presentation and that was to assume that labor costs vary

                                                             19776
 1    100 percent with volume?
 2         A    Yes.
 3         Q    So he didn't make any change, did he, in the
 4    delivery costs?
 5         A    Delivery costs.
 6         Q    Are we agreed that he did not make a change in
 7    delivery costs?
 8         A    Yes.  That was my recollection, but I wasn't going
 9    to say it without checking.
10         Q    Thank you.  Now, looking at lines 7 through 8 of
11    your rebuttal testimony on page 24, isn't your third
12    criticism of Dr. Clifton that he proposed a test year
13    increase in the benchmark that Witness Hatfield used to
14    determine cost savings for work-shared discounts?
15         A    Yes.
16         Q    Did Mr. Bentley propose any increase or change in
17    the benchmark that USPS Witness Hatfield used?
18         A    I haven't figured that out.
19         Q    Perhaps I can help you.  Would you look again at
20    the excerpts from transcript Volume 21 in this case, page
21    11235.  Do you see that the Postal Service asked Mr. Bentley
22    whether he didn't in fact use the same bulk metered mail
23    benchmark as did the Postal Service?
24         A    But be also conditions that by saying, "For this
25    reason, I did not specifically accept or reject the Postal

                                                             19777
 1    Service's use of the bulk metered mail as the appropriate
 2    benchmark for measuring First Class automated letter cost
 3    savings.
 4         Q    Yes.  But wasn't the question, and I quote,
 5    "Please confirm that in developing your letter automation
 6    proposals, you used bulk metered mail as the benchmark, as
 7    did Witness Fronk, in developing the Postal Service
 8    proposal."  And his answer, to begin with, was, --
 9         A    Confirmed.
10         Q    -- quote, "Confirmed." close quote.
11         A    Confirmed.
12         Q    So you would agree, he used the same benchmark?
13         A    Yes.
14         Q    Looking at line 9 on page 24 of your rebuttal
15    testimony, isn't your fourth criticism of Dr. Clifton based
16    on his reduction in the cost coverage for First Class
17    work-shared letter mail, that you say is based on subjective
18    considerations of efficiency and equity?
19         A    I'm sorry.  I missed the question.
20         Q    Please look --
21         A    Line 9, fourth adjustment --
22         Q    Yes, look at line 9 through line 11 on page 24 of
23    your testimony, beginning with the last two words on line 9. 
24    Isn't your, quote, "fourth" criticism of Dr. Clifton based
25    on his reduction in the cost coverage for First Class

                                                             19778
 1    work-shared letter mail which you say is based on subjective
 2    considerations of efficiency and equity?
 3         A    Yes.
 4         Q    Did Mr. Bentley derive his proposed discounts by
 5    first making a reduction of cost coverage based on
 6    subjective considerations of efficacy and equity?
 7         A    No, he did not.
 8              MR. LITTELL:  Mr. Chairman, I want to thank
 9    Witness Andrew and his counsel for being very cooperative
10    and showing me his workpapers this afternoon and allowing me
11    to confer with him.
12              That concludes my cross examination.
13              CHAIRMAN GLEIMAN:  Mr. Baker.
14              MR. BAKER:  Thank you, Mr. Chairman.
15                          CROSS-EXAMINATION
16              BY MR. BAKER:
17         Q    Good evening, Mr. Andrew.  Let's turn to page 12
18    of your testimony on the paragraph that appears at the top
19    of that page.  Are you there?
20         A    Yes, sir.
21         Q    And focusing on lines 3 and 4 where you discuss
22    Ms. Chown's use of the piggyback factor to allocate indirect
23    costs to identifiable institutional costs, do you see that?
24         A    Yes.
25         Q    Are you familiar with the concept of piggyback

                                                             19779
 1    costs?
 2         A    Yes.
 3         Q    Could you state your understanding of them,
 4    please?
 5         A    It's the portion of the costs that are considered
 6    volume variable that vary with the labor but they are not
 7    labor itself, so it is supervision that changes as the
 8    amount of labor required changes and similar kinds of they
 9    are costs that are attributable or volume variable, but they
10    are not, excuse me, measured -- I shouldn't say they are not
11    measured.
12              They are added to the labor costs or piggybacked
13    on top of the labor costs.
14         Q    They are indirect costs in other words?
15         A    Yes.
16         Q    Do you know --
17         A    But they are not fixed costs, they are --
18         Q    Do you know whether they include employee
19    benefits?
20         A    I believe they do.
21         Q    Do they include a portion of costs such as space
22    and utilities that are used to provide the functions that
23    the employee is engaged in?
24         A     I believe they do.
25         Q    Okay.  Let's take a look at mail processing, for

                                                             19780
 1    example, for each dollar of attributable labor cost of mail
 2    processing is it your understanding that the Postal Service
 3    also computes a piggyback factor that measures these
 4    additional indirect costs that are added to the directly
 5    attributable costs?
 6         A    Yes.
 7         Q    Okay -- and so let's assume for example that for
 8    every dollar of mail processing costs 90 cents are
 9    attributed.
10         A    Yes.
11         Q    For example -- and would each of those 90 cents of
12    direct labor costs cause the Postal Service to incur these
13    indirect supervisory and employee benefit and other costs?
14         A    Well, the 90 cents wouldn't but the labor that's
15    associated with that 90 cents would.
16         Q    Now let's consider the remaining 10 cents of labor
17    costs that are deemed institutional.
18              Does the mail processing employee get paid
19    benefits on the basis of his or her salary -- full salary --
20    or only based upon the portion of his efforts that are
21    attributable?
22         A    Full salary, I believe.
23         Q    Okay, and does his or her supervisor supervise the
24    mail processing employee only when the employee is
25    performing work that can be attributed or does the

                                                             19781
 1    supervisor supervise the employee at other times as well?
 2         A    I don't know.
 3         Q    If the portion of mail processing costs that were
 4    attributable declined so that 80 cents out of every dollar
 5    is attributable instead of the 90 cents we assumed
 6    previously, but total labor costs remained the same, would
 7    the cost of the employee benefits decline?
 8         A    No.
 9         Q    Do you know whether the amount of supervisory time
10    would decline?
11         A    I don't know.
12         Q    Okay.  Thank you.
13              Mr. Andrew, could you please turn to your Exhibit
14    MOAA et al. RT-1B.
15         A    Page?
16         Q    1.  Do you have it?
17         A    Yes, sir.
18         Q    At the -- let's see -- do you show here a
19    calculation of institutional cost contributions using a
20    marginal cost metric and assuming equal markups at the top
21    part of that exhibit?
22         A    Yes.
23         Q    And setting aside the assumed equal markups, is it
24    your testimony that the method shown in the top half of this
25    exhibit matches the current method of assigning

                                                             19782
 1    institutional costs?
 2         A    Subject to your caveat that it's not equal
 3    markups, it's up to these gentlemen here to make the
 4    markups, yes.  This was just an illustrative example.
 5         Q    I understand.  Right.  And under the current
 6    method the Commission would look at the attributable costs,
 7    select what it believes are reasonable markups, and apply
 8    those markups to the attributable costs.  Correct?
 9         A    That's my understanding.  Yes.
10         Q    Okay.  And if the Commission were to do that in
11    this example here on the page of your exhibit, it would
12    assign the total amount of institutional costs which are if
13    I am correct 150?
14         A    Yes, sir.
15         Q    Okay.  Now directing your attention to the bottom
16    half of the exhibit, here you show how the institutional
17    cost contributions are calculated using the Chown method as
18    drawn from her testimony.  Correct?
19         A    Yes.
20         Q    And in this example using weighted attributable
21    costs once again -- well, have you applied equal markups
22    here as well?
23         A    Yes.
24         Q    And under the proposed Chown method that you used
25    here, is the sum of the weighted attributable costs equal to

                                                             19783
 1    the sum of the unweighted attributable costs?
 2         A    It is forced to do that by the nature of her
 3    metric.
 4         Q    Right.
 5         A    As we proved in the --
 6         Q    Yes.  So under the --
 7         A    Exhibit.
 8         Q    Proposed Chown method the Commission would
 9    continue to assign the total amounts of institutional costs
10    which in this example still come to 150; correct?
11         A    Yes.
12         Q    Okay.  So in each method the Commission would
13    decide on the markup and assign total amount of
14    institutional costs based on its consideration of the
15    relevant factors; correct?
16         A    Starting from what point?
17         Q    Well, starting from either point.  Wouldn't the
18    Commission --
19         A    Okay.  That's what I wanted to make sure that we
20    understood, that one of them would be starting from true
21    marginal cost or a proxy, namely attributable costs.  The
22    other one would be this weighted attributable costs.
23         Q    Okay.
24         A    That we don't know what it is.
25         Q    Could you please turn to page 17 of your

                                                             19784
 1    testimony?
 2         A    Yes.
 3         Q    I have a question on table two that appears on
 4    that page.  Is this a modification of one of Ms. Chown's
 5    examples?
 6         A    Yes.  We added $100 of system-wide institutional
 7    costs to see what impact it would have.  That's the only
 8    modification.
 9         Q    Is this based on -- I hate to flip you back and
10    forth -- back to Exhibit RT-1-B, is this based on page two
11    of that exhibit?
12         A    Yes.
13         Q    Could we compare this, back on page 17, table 2,
14    with table one on page 15, to see how the institutional cost
15    contributions change as a result of the addition of the $100
16    of system-wide institutional costs that you have added to
17    table two?
18         A    I'm sorry.  You are fading, sir.
19         Q    Can I compare table two on page 17 to table one on
20    page 15 to see how the institutional cost contributions
21    change as a result of your adding $100 of system-wide
22    institutional costs?
23         A    Yes.
24         Q    Previously, I had distributed to your counsel a
25    proposed cross examination exhibit by the cumbersome name of

                                                             19785
 1    NAA/MOAA et al-RT-1-XE-1.  Did you receive that?
 2         A    Yes, I have that.  Comparison of institutional
 3    cost contributions?  Base case, case one?
 4         Q    Yes, sir.
 5                             [Cross-Examination Exhibit No.
 6                             NAA/MOAA et al.-RT-1-XE-1 was
 7                             marked for identification.]
 8              MR. BAKER:  Thank you, Mr. Littell, for your
 9    assistance.
10              BY MR. BAKER:
11         Q    Referring you to my exhibit that was just handed
12    to you, at the top of this page, this exhibit shows
13    institutional cost contribution for each class of mail under
14    the base case of your Exhibit RT-1-B, using the marginal
15    cost method and the Chown method; correct?  You might take a
16    look at our Exhibit 1-B, page one.
17         A    I'm sorry.  I missed the question.
18         Q    Could you turn to Exhibit 1-B, page one of four?
19         A    Yes.
20         Q    Where you have behavioral characteristics of the
21    Chown metric base case.
22         A    Sir, I'm sorry.  I cannot -- I'm a little bit hard
23    of hearing.
24         Q    I apologize.
25         A    I'm sorry.

                                                             19786
 1         Q    Looking at Exhibit RT-1-B, page one, which is the
 2    base case, and my question is whether you are able to verify
 3    that the mark up or institutional cost contribution figures
 4    on my cross examination exhibit correspond with those
 5    provided on your Exhibit 1-B, page one?
 6         A    Yes, they do.
 7         Q    Is one difference that my exhibit uses percentages
 8    and yours uses cost coverages?
 9         A    Yes.  Well, yours uses percentage of the --
10         Q    I stand corrected.
11         A    -- of the marginal costs or the attributable
12    costs.
13         Q    I have shown on my cross examination exhibit the
14    percentage of institutional costs born by each sub-class of
15    mail under both the marginal cost method and the Chown
16    method; correct?
17         A    Yes.
18         Q    Again, assuming equal mark up's?
19         A    Yes.
20         Q    Now, on the bottom half of the cross examination
21    exhibit labeled case one, it shows the institutional cost
22    contributions assuming an additional $100 of system-wide
23    institutional costs; correct?
24         A    Yes.
25         Q    And do these figures correspond with those

                                                             19787
 1    provided in your Exhibit 1B, page 2?
 2         A    Yes, they do.
 3         Q    And, again, have I shown on my cross-examination
 4    exhibit, the percentage of institutional cost contributions
 5    borne by each subclass of mail under each method?
 6         A    Yes, except your Chown method, the percentage
 7    totals 100, not zero.
 8         Q    I accept that correction.  Now, I notice that
 9    under each method, each -- on my cross-examination exhibit,
10    each subclass pays the same percentage of the institutional
11    costs both before and after the additional $100 of
12    institutional costs, is that correct?
13         A    That is correct.
14         Q    So does this exhibit show that the use of either
15    method, with equal markups, results in no change in the
16    share of institutional costs borne by each subclass of mail,
17    is that correct?
18         A    That is correct.  With the assumptions that this
19    example has.
20         Q    Now, if we compare my cross-examination back to
21    your Table 2 on page 17, on Table 2 has your -- does Table 2
22    show a change in the markups or coverages of the classes of
23    mail after the system-wide increase of $100 of system-wide
24    institutional costs?
25         A    Yes.

                                                             19788
 1         Q    Okay.  And those markups, those cost coverages
 2    differ, correct?
 3         A    That is correct.
 4         Q    Okay.  Is it one of the points of Ms. Chown's
 5    testimony that markups based on unweighted attributable
 6    costs may be misleading, at least in her opinion?
 7         A    I think that's one of the things she is concerned
 8    about, yes.
 9         Q    Now, I would like to move to a slightly different
10    example that I have worked up in my next cross-examination
11    exhibit which has the similarly awkward label, NAA/MOAA et
12    al.-RT-1-X-XE2.
13         A    Is that page 1 of 2, or page --
14         Q    It's a two page exhibit.
15         A    Okay.
16              MR. BAKER:  I need to make sure Mr. Todd has his.
17                             [Cross-Examination Exhibit No.
18                             NAA/MOAA et al.-RT-1-XE-2 was
19                             marked for identification.]
20              BY MR. BAKER:
21         Q    Do you have that before you, Mr. Andrew?
22         A    Yes, sir.
23         Q    Okay.  This is a two page exhibit in which the
24    second page attempts to show how some of the numbers on the
25    first page were derived.  Were you able to follow that?

                                                             19789
 1         A    Yes, sir.
 2         Q    Okay.  Now, is this a variation of your Case 1
 3    from RT-Exhibit 1B, page 1, with the difference that the
 4    increased $100 of institutional costs are directly related
 5    to the provision of function 2?
 6         A    Yes.
 7         Q    And so this is a bit different from your Case 1?
 8         A    Yes.
 9         Q    Have you reviewed the figures in this Exhibit 2
10    and the related page in which we derive these results using
11    the Chown method?
12         A    Yes.
13         Q    Are the figures calculated correctly?
14         A    I believe so.
15         Q    And referring to page 1 of that exhibit, Exhibit
16    2, I notice that under the marginal cost --
17         A    Would you hold --
18         Q    Page 1.
19         A    No, would you hold just a minute?
20         Q    Oh, excuse me.
21         A    I'm ready, sir.  Thank you.
22         Q    And I notice that on page 1 of Exhibit 2 under the
23    marginal cost method the rates for each subclass rise by 25
24    percent compared to the base case when the additional $100
25    of institutional costs were incurred associated with

                                                             19790
 1    Function 2, is that correct?
 2         A    Yes.
 3         Q    And I notice that under Ms. Chown's method the
 4    rates for Class A rise 25 percent and the rates for Class C
 5    rise by 45.5 percent but the rates for Class B remain
 6    unchanged, is that correct?
 7         A    That's correct.
 8         Q    Now is the reason why the rates for Class B remain
 9    unchanged under Ms. Chown's method that the institutional
10    costs we have added are related to the provision of Function
11    2 only and Class B does not use Function 2?
12         A    Mathematically that is what happens, yes.
13         Q    Referring you to the marginal cost side of this
14    exhibit, do you believe it is equitable for Class B to pay
15    25 percent more to cover an increase in cost for a function
16    that the class does not use?
17         A    Yes.  When you have economies of scale and scope,
18    yes.
19         Q    Do you regard this as an area where you and Ms.
20    Chown will simply disagree?
21         A    Yes.
22         Q    And I will not be able to talk you out of your
23    position tonight?
24         A    I doubt it.  It's early in the evening though.
25              [Laughter.]

                                                             19791
 1              BY MR. BAKER:
 2         Q    All right.  Could you turn now to page 20 of your
 3    testimony and look at Table 5?
 4         A    Yes?
 5         Q    This changes the hypothetical analysis that we
 6    have been following because here you show the effect of a
 7    reduction of attributable costs, correct?
 8         A    Yes.
 9         Q    Okay, and that reduction occurs because our Class
10    A engages in work-sharing in Function 2, correct?
11         A    That's correct.
12         Q    And are we still using an assumption of equal
13    mark-ups?
14         A    Yes, we are.
15         Q    And just as an aside, can we agree that that is as
16    an unreasonable assumption now as it was all along?
17         A    Yes, but it's something to look at.  I have done
18    these with varying rates but it gets messy, so --
19         Q    Okay, and I notice that under your marginal cost
20    method on the left side of Table 5 the rates for Class B
21    increased by 4 percent because Class A has changed its use
22    of Function 2, is that correct?
23         A    That is correct.
24         Q    Now in this hypothetical example, Class B is the
25    class that does not use any of Function 2, correct?

                                                             19792
 1         A    That's correct.
 2         Q    Why should the rates for Class B be affected in
 3    any way by the use Class A makes of Function 2?
 4         A    Because it was changing the overall institutional
 5    cost of the system.
 6         Q    How are we changing the institutional costs of the
 7    system?
 8         A    Because there -- well, I should say we are
 9    changing the base on which they're distributed.  We are
10    reducing the amount of attributable cost in the system.
11         Q    Right.  The change from this example -- the
12    difference between this table and the ones we have discussed
13    previously is this one we have reduced attributable costs in
14    the system?
15         A    That's right.
16         Q    And as a consequence of this reduction of
17    attributable costs, Class B sees a rate increase, is that
18    correct?
19         A    Yes.
20         Q    In a sense is class B being made to pay a share of
21    the institutional costs associated with function 2 that
22    class A is no longer paying?
23         A    Yes.
24         Q    Okay.  And under Ms. Chown's method on the right
25    side of table 5 of your page 20, I see that if class A

                                                             19793
 1    reduces its use of function 2, the rates for class B are not
 2    affected.  Is that correct?
 3         A    That's correct.
 4         Q    And that's because -- again because class B does
 5    not use function 2.  Correct?
 6         A    That's correct.  But you also have a major
 7    increase in class C, and even a more drastic decrease in
 8    class A, which was what she was trying to improve upon.
 9         Q    Well, now, class C, after this reduction in
10    attributable costs, isn't it true that class C will be the
11    heaviest user of function 2?
12         A    Yes.
13         Q    Now we've walked through a comparison of the Chown
14    metric and the marginal cost metric in a number of examples. 
15    And I notice that you -- well, on page 23 of your testimony
16    you conclude that the marginal cost metric responds to
17    changes in a reasonable and predictable manner.  Is that
18    correct?
19         A    Yes.
20         Q    And you contend that the Chown approach does not?
21         A    It does not.
22         Q    For each of the changes we have discussed, do you
23    think one could have predicted the results that have been
24    achieved using the Chown method?
25         A    Not the major variations that have occurred; no.

                                                             19794
 1         Q    You don't think so?  Well, that may be another
 2    area where you and she will have to agree to disagree?
 3         A    I think so.
 4         Q    Okay.
 5         A    Because through time it would be very difficult to
 6    track these as changes occur in the base attributable costs
 7    and the institutional costs.
 8         Q    All right.  Could you turn now, shifting topics,
 9    to page 37 of your testimony, where you have some testimony
10    regarding Dr. Clifton.
11              And just quickly I'd like to refer your attention
12    to lines 15 and 16.
13              MR. BAKER:  Actually, Mr. Chairman, I suppose
14    before I do that I should move into the record my
15    cross-examination exhibits.
16              CHAIRMAN GLEIMAN:  Do you want them transcribed?
17              MR. BAKER:  Yes, sir.
18              CHAIRMAN GLEIMAN:  Are you going to provide copies
19    to the reporter?
20              MR. BAKER:  I believe -- has Mr. Littell done
21    that?
22              CHAIRMAN GLEIMAN:  Can I ask you a question with
23    respect to Cross-Examination Exhibit No. 1?
24              MR. BAKER:  Yes.
25              CHAIRMAN GLEIMAN:  My recollection is that the

                                                             19795
 1    witness pointed out that there may have been an error in the
 2    last --
 3              MR. BAKER:  Yes.
 4              CHAIRMAN GLEIMAN:  Number on the bottom right-hand
 5    side.  Did you correct that, or we'll just assume that it's
 6    corrected in the transcript?
 7              MR. BAKER:  It has been corrected in the
 8    transcript, but I would be happy to mark it if --
 9              CHAIRMAN GLEIMAN:  I think that that would make
10    the record clearer.
11              And with that change on Cross-Examination Exhibit
12    No. 1, then we'll have Cross-Examination Exhibit No. 1 and
13    Cross-Examination Exhibit No. 2 transcribed into the record
14    at this point.
15              MR. BAKER:  Thank you.
16              CHAIRMAN GLEIMAN:  There was no motion to
17    introduce?
18              MR. BAKER:  Oh, I'm sorry.  I'd like to move them
19    as evidence as well.
20              CHAIRMAN GLEIMAN:  Without objection, transcribed
21    and entered into evidence.
22                             [Cross-Examination Exhibit Nos.
23                             NAA/MOAA et al.-RT-1-XE-1 and
24                             NAA/MOAA et al.-RT-1-XE-2 were
25                             received into evidence and

                                                             19796
 1                             transcribed into the record.]
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10
11
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13
14
15
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17
18
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20
21
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23
24
25

                                                             19800
 1              MR. BAKER:  My apologies, Mr. Chairman.
 2              Back to page 37 of the witness' testimony.
 3              BY MR. BAKER:
 4         Q    You state there by definition cost coverage for a
 5    given subclass of mail is the ratio of revenue to volume
 6    variable cost.  That's not exactly correct the way the
 7    Commission has done it, is it?
 8         A    Well, are you quibbling with volume variable
 9    costs?
10         Q    Yes.  They use --
11         A    It's attributable cost, yes, right.
12         Q    Which is not under the Commission's practice
13    necessarily the same as volume variable.
14         A    Not exactly.
15         Q    Okay.  To the next page, page 38, and beginning in
16    this section but in the text at line 21 you are discussing
17    the arithmetic phenomenon that cost coverages for mail
18    increase as work-sharing increases.  And I want to draw your
19    attention to the sentence beginning on page 23, where you
20    state that this increase in cost coverage for First Class
21    work-shared mail is not an issue of equity and efficiency as
22    suggested by Witness Clifton.  Rather, it's a matter of
23    arithmetic.
24         A    Where are you?
25         Q    Page 38, line 23.  I'm sorry.

                                                             19801
 1              Do you see that sentence?
 2         A    Yes.
 3         Q    Okay.  Now Dr. Clifton's testimony contended that
 4    the second and third ounces of work-shared First Class mail,
 5    that the current extra ounce charge works out to a markup
 6    of -- or cost coverage of approximately 920.  Do you recall
 7    that part of his testimony?
 8         A    Yes.  That was using his cost.
 9         Q    His analysis.
10         A    His analysis of cost.
11         Q    Yes.  That is -- do you have an opinion of whether
12    when a cost coverage approach is 920 there, an equity issue
13    may arise?
14         A    Generally, the cost coverages are not used except
15    at the class or sub-class level.
16         Q    You would say there is no equity issue there?
17         A    I don't have an opinion.
18         Q    Do you think that when a cost coverage approach is
19    920 in the context in which Dr. Clifton discussed it, any
20    efficiency issue arises?
21         A    Not necessarily.  It depends on the conditions. 
22    Remember, that 920 comes out of using his costs and the
23    current rates.
24         Q    Is there any percentage point or cost coverage
25    level at which you would begin to be concerned that an

                                                             19802
 1    equity or efficiency issue does arise?
 2         A    Yes, it would be contextual though.
 3         Q    Contextual.  Can you give me a number?
 4         A    No, not without the context.
 5         Q    It's your testimony that in the context in which
 6    Dr. Clifton calculates the 920, that there is not an equity
 7    or efficiency issue; is that correct?
 8         A    I can't agree with the 920 because of his
 9    calculation of costs.
10         Q    If his 920 were correctly calculated, would you
11    think there was an equity or efficiency issue?
12         A    I would be concerned if I was him, yes.
13         Q    Would you be concerned if you were you?
14         A    Yes.
15         Q    Turn to page 42 of your testimony.  At the section
16    beginning under the caption subheading B, you are
17    criticizing here Dr. Clifton's use of the term "incremental
18    costs and revenues" in the context of the proposal; correct?
19         A    Yes, sir.
20         Q    I will agree with you that the second ounce of a
21    piece of first class mail is indeed part of a two ounce
22    piece of mail, and it's not a separate thing.  However, the
23    second ounce does pay a separate charge, 23 cents, that is
24    above that paid for an one ounce piece.  Can one think of
25    that 23 cents charge as an incremental charge or a marginal

                                                             19803
 1    charge?
 2         A    No, sir.
 3         Q    You would not?
 4         A    No, sir.
 5         Q    If I increased the weight of a mailing from first
 6    class letter from one ounce to two ounce and I go to the
 7    Post Office and discover that I must add a 23 cents stamp, I
 8    have not incurred an incremental charge?
 9         A    You now have a two ounce letter instead of an one
10    ounce letter.  These incremental charges are product --
11    incremental costs are product related.  You have to consider
12    the entire product.  The method of Clifton's computing
13    incremental costs, as I've shown on table 15 on page 43,
14    when he's making a comparison with standard A, will never
15    ever pass the cross subsidy test because he's got it loaded,
16    because in the case of standard A mail, the incremental
17    revenue, if you like, of that second ounce, we don't charge
18    any more.  The first ounce picks up the entire cost.  No
19    matter how much difference between revenue and costs there
20    are in standard A, it would always show a subsidy, the way
21    he has used to calculate it.
22         Q    You are now talking about subsidy.  I was asking
23    still back on whether the charge for the second ounce is an
24    incremental revenue or not.
25              Is an one ounce letter a different product from a

                                                             19804
 1    two ounce letter?
 2         A    Yes.
 3         Q    Will you accept, subject to check, that a first
 4    class carrier route automation one ounce letter today in the
 5    current rates is charged 23 cents a piece?
 6         A    Yes, subject to check.
 7         Q    And can you confirm that the second, the extra
 8    ounce rate for that piece would be 23 cents, or would you
 9    need to take that subject to check?
10         A    No, that's accepted.
11         Q    That you know.  Okay.  So this is an instance
12    where the rate of piece doubles with its weight, correct?
13         A    Yes.
14         Q    So when the First Class letter that we just
15    discussed moves from its one ounce to -- it got heavier, it
16    became a two ounce piece, it paid an extra ounce of 23
17    cents.  That's an incremental revenue, if you will, when you
18    go from the once to the two ounce.  Is that correct?
19         A    No.
20         Q    No?  There is not an incremental revenue if you go
21    --
22         A    It's a different product.
23         Q    It's a different product you say.  Is there, at
24    least in theory, a marginal or cost difference between the
25    one ounce piece and the two ounce piece?

                                                             19805
 1         A    There is a cost difference, in theory.
 2         Q    Now, a Standard A mailer can not mail a second
 3    ounce without mailing the first ounce as well, correct?
 4         A    Correct.
 5         Q    Okay.  And is it your testimony that the one ounce
 6    Standard A piece and the two ounce Standard A piece are
 7    different products?
 8         A    Yes.
 9         Q    And because of the difference in the rate
10    schedules between First Class and Standard mail, when the
11    First Class mailer moves to a two ounce piece, he pays an
12    extra 23 cents, but while the Standard A moves to a two
13    ounce piece, he will continue to pay the same rate as he
14    pays for the one ounce piece, is that correct?
15         A    That is correct.
16         Q    Could you --
17              MR. BAKER:  I have one more line of questions and
18    then I am done, Mr. Chairman.
19              BY MR. BAKER:
20         Q    Dr. -- or Mr. Andrew, could you turn to page, back
21    to page 40?
22         A    Yes.
23         Q    And here you will educate me.  Because on line 17,
24    you use a ratio of revenue to cost to test cross-subsidy. 
25    Do you see that?

                                                             19806
 1         A    Yes.  yes.
 2         Q    Why do you use the ratio rather than simply the
 3    difference between revenue and cost?
 4         A    Because it gives me an idea statistically of how
 5    much error I can have in the data that is going into this
 6    thing and still be free of subsidy?
 7         Q    And then can you tell me why the ratio minus one,
 8    expressed as a percent, is positive, indicates that the
 9    amount can be tolerated.  Is that a statistical concept?
10         A    Yes, it's a statistical concept.
11              MR. BAKER:  Mr. Chairman, that concludes my
12    questions.
13              CHAIRMAN GLEIMAN:  Is there any follow-up?
14              MR. COOPER:  Yes, Mr. Chairman, I have a few
15    questions.
16              CHAIRMAN GLEIMAN:  Mr. Cooper.
17                          CROSS-EXAMINATION
18              BY MR. COOPER:
19         Q    Would you refer to Mr. Baker's Cross-Examination
20    Exhibit Number 2?  I'll skip the lengthy title.  It's the
21    two page exhibit.
22         A    Yes, sir.
23         Q    Now would you agree with me that in this example
24    Class B does not cause the cost, the additional cost
25    associated with Function 2?

                                                             19807
 1         A    Yes, I would agree.
 2         Q    Would you also agree with me that Class A doesn't
 3    cause the additional cost associated with Function 2?
 4         A    Yes.
 5         Q    And similarly, Class C does not cause them?
 6         A    Yes.
 7         Q    I think you mentioned along the way that you were
 8    not troubled by the fact that under the marginal cost method
 9    each of these three classes bears some of the burden of
10    these additional institutional costs, is that correct?
11         A    That is correct.
12         Q    And you mentioned that the presence of economies
13    of scope was one reason why you weren't troubled by that
14    outcome, is that right?
15         A    Yes, and scale also.
16         Q    With respect to the economies of scope, are you
17    saying that Class B benefits from the presence of Classes A
18    and C?
19         A    Yes.
20         Q    How does it benefit?
21         A    Well, as a practical matter, it benefits from the
22    overall organization and the functions that it does share --
23    the functions that are shared.
24              Now this is a toy example when you look at the
25    entire spectrum of the Postal Service.  You have a lot of

                                                             19808
 1    economies of scope with products, with the multiproduct
 2    production.
 3         Q    And you also mentioned economies of scale a few
 4    moments ago.
 5         A    Yes.
 6         Q    How did the economies of scale enter into this?
 7         A    Because of the more overall activity.
 8         Q    Does Class B benefit from the economies of scale?
 9         A    Yes.
10         Q    How does it benefit?
11         A    If there were less units of A and C, for example,
12    it's likely that one or more of the functions could not
13    afford to have as much automation.  That would be an
14    example.
15         Q    So you are saying that the unit costs of Class B
16    are affected by the economies of scale?
17         A    Yes.
18              MR. COOPER:  I have no further questions.
19              CHAIRMAN GLEIMAN:  Mr. Baker?
20                      FURTHER CROSS-EXAMINATION
21              BY MR. BAKER:
22         Q    Were you in the exchange with counsel for the
23    Postal Service or -- when you referred to the unit costs of
24    B, were you referring to attributable costs or total -- you
25    know, basically the price of B?

                                                             19809
 1         A    Would you restate it?
 2         Q    Yes.  Where you just referred to unit costs of B. 
 3    Is that attributable cost?
 4         A    Yes, attributable cost.
 5              MR. BAKER:  I think I will stop here, Mr.
 6    Chairman.
 7              CHAIRMAN GLEIMAN:  Is there any further follow-up? 
 8    There are no questions from the bench.
 9              That brings us to redirect.  Mr. Todd, would you
10    like an opportunity to consult with your witness?
11              MR. TODD:  Yes, please, Mr. Chairman.
12              CHAIRMAN GLEIMAN:  All right.  Ten minutes?
13              MR. TODD:  That should be ample -- or at least
14    sufficient.
15              [Recess.]
16              CHAIRMAN GLEIMAN:  Yes, sir.
17              MR. TODD:  Mr. Chairman, and not just because only
18    you of the Commissioners have come back, we have no
19    redirect.
20              CHAIRMAN GLEIMAN:  I hadn't noticed.  That's what
21    happens when you control the buzzer.  They never know when
22    it's going to happen.
23              If that is the case then, Mr. Andrew, that wraps
24    it up for you tonight.  We appreciate your appearance here
25    today and your contributions both the first time around and

                                                             19810
 1    this time for our record, and if there's nothing further,
 2    you're excused.
 3              THE WITNESS:  Thank you.
 4              [Witness excused.]
 5              CHAIRMAN GLEIMAN:  Our last and very patient
 6    witness, appearing on behalf of CTC Distribution Services,
 7    Mr. Clark, is already under oath in this proceeding, and,
 8    Mr. Olson, if you want to introduce your witness and enter
 9    his rebuttal testimony, we can hopefully move right along.
10              I notice that after counsel finishes with their
11    last witness of the day they seem to move out of the room
12    faster than they move in.  I don't understand that.
13              Mr. Olson, whenever you and your witness are
14    ready.
15              MR. OLSON:  Mr. Chairman, we would call John Clark
16    to the stand, and I guess we can proceed.
17    Whereupon,
18                           JOHN L. CLARK,
19    a witness, was called for examination by counsel for CTC
20    Distribution Services, L.L.C. and, having been previously
21    duly sworn, was examined and testified as follows:
22                         DIRECT EXAMINATION
23              BY MR. OLSON:
24         Q    Mr. Clark, I'd like to present you two copies of
25    what has been entitled the Rebuttal Testimony of John L.

                                                             19811
 1    Clark on Behalf of CTC Distribution Services, LLC,
 2    designated CTC-RT-1, and ask you if you can review those and
 3    tell us whether they were prepared by you or under your
 4    supervision.
 5         A    They were prepared under my supervision.
 6         Q    And do you have any changes to that testimony?
 7         A    Upon review I'd like to eliminate or delete one
 8    sentence from the testimony.  It's on page 8, lines 7 and 8. 
 9    UPS -- it says in quotes, UPS has offered no sound basis for
10    questioning the cost estimates in this proceeding, end of
11    quote.  I feel that might have overstated my position with
12    regard to cost estimates, so I'd like to delete that
13    sentence.
14         Q    And with that change, do you adopt this as your
15    testimony?
16         A    Yes, I do.
17              MR. OLSON:  Mr. Chairman, we'd move the admission
18    of this testimony into evidence.
19              CHAIRMAN GLEIMAN:  Are there any objections?
20              [No response.]
21              CHAIRMAN GLEIMAN:  Hearing none, Mr. Clark's
22    testimony and exhibits are received into evidence, and I
23    direct that they be transcribed into the record at this
24    point.
25                             [Rebuttal Testimony and Exhibits of

                                                             19812
 1                             John L. Clark, CTC-RT-1, was
 2                             received into evidence and
 3                             transcribed into the record.]
 4
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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25

                                                             19823
 1              CHAIRMAN GLEIMAN:  The only participant who has
 2    requested oral cross-examination of Witness Clark is the
 3    United Parcel Service, and there's nobody else left in the
 4    room.  So I think -- except for OCA and the Postal Service,
 5    of course.
 6              MR. OLSON:  And the Commission.
 7              CHAIRMAN GLEIMAN:  I suspect we can proceed with
 8    cross-examination at this point, Mr. McKeever.
 9              THE WITNESS:  Before we begin I'd like to thank
10    Mr. McKeever and the Commission for allowing me to change my
11    date of appearance to accommodate my personal schedule.  I
12    appreciate it very much.
13              CHAIRMAN GLEIMAN:  Mr. Clark, you were one of the
14    easy ones when it came to changing schedules.
15                          CROSS-EXAMINATION
16              BY MR. McKEEVER:
17         Q    Mr. Clark, could you turn to page 6 of your
18    testimony, please?
19         A    Rebuttal testimony.
20         Q    Yes, your rebuttal testimony.  And I'd like you to
21    take a look at lines 15 to 20.
22         A    Okay.
23         Q    There you state that while you have not received
24    any formal education as an economic or financial analyst,
25    you believe that much of what UPS Witness Luciani has said

                                                             19824
 1    about the Postal Service's cost estimates is, to use your
 2    words, subject to question.  Is that right?
 3         A    Yes.
 4         Q    You've given as an example there his statement
 5    that 100-percent passthroughs of estimated avoided costs
 6    assume perfect execution, which to use your words is
 7    impossible to attain.  Is that right?
 8         A    Yes.
 9         Q    You then say that, assuming that is so, could not
10    the same be said about every cost estimate?  Is that
11    correct?
12         A    Yes.
13         Q    So I take it that your testimony is that every
14    cost estimate is uncertain, or do you believe that the
15    Postal Service's avoided cost estimates are 100-percent
16    accurate?
17         A    Well, since this case began, I have received all
18    of the testimony of all of the witnesses, I've done my best
19    to review that, I've looked at mostly those cases that have
20    to do with anything related to parcels and the things that
21    I'm interested in.  But this whole proceeding by its very
22    nature is kind of a war of estimates, even tonight as we sit
23    here listening to the various parties go back and forth
24    interpreting the meaning of statistical data, the
25    applications of statistical data and so forth.  So it's up

                                                             19825
 1    to the Commission apparently to decide who has the greatest
 2    ability to accurately portray the reality of the situation
 3    you're dealing with.
 4              I found in Luciani's testimony a number of
 5    instances that didn't comply with what I believe to be
 6    reality, and that's why I thought this rebuttal testimony
 7    would just point out a few of those.
 8              Now I presume that the Commission's role in these
 9    rate hearings is to decide who has the most valid analysis
10    in its application.  Now the Postal Service has submitted,
11    and I have read the information that they have submitted,
12    and they really have a better track record than UPS
13    witnesses have all the way going back to 1990.
14              I know I'm kind of getting off the track here, but
15    I just wanted to kind of put my, you know, where I'm coming
16    from in putting this together.
17         Q    I think you did that in your rebuttal testimony,
18    but I'd like to get down to some specifics.
19         A    Okay.
20         Q    Do you believe that the Postal Service's avoided
21    cost estimates are 100-percent accurate?
22         A    It seems to me they have the best chance of being
23    accurate because they are the ones that are operating the
24    system, and I guess I find it very difficult to believe I
25    read for example Luciani says in his testimony that he

                                                             19826
 1    visited an ASF, he visited this place and that place, but
 2    how could his ability surpass the ability of the Postal
 3    Service to really know what their costs are?
 4         Q    So your basis for your testimony is that the
 5    Postal Service must know more than anybody else about it and
 6    so that therefore when it makes a cost estimate, that should
 7    be accepted?
 8         A    Well, the whole approach of Luciani is to create
 9    an air of uncertainty and that is the basis for him, for
10    example, saying that we don't think you can execute this to
11    perfection and we think that parcels that come in from DBMC
12    are less dense, we think that transportation costs are
13    affected by DBMC.
14              All of these things are designed to create an air
15    of uncertainty that would cause the Rate Commission to
16    recommend some different kind of an approach.
17              I say I believe that the Postal Service is more
18    certain of their proposals.
19         Q    Well, do you believe that there is certainty about
20    their avoided cost estimates?
21         A    I would say that if I had to -- if I were sitting
22    in a seat up here I would be more inclined to accept their
23    proposals than any others that I have seen.
24         Q    And that is because they are the Postal Service,
25    right?

                                                             19827
 1              Is that what you said a few minutes ago?
 2         A    Well, assuming that they are not dishonest, which
 3    I think is appropriate --
 4         Q    They can't make mistakes?
 5         A    -- that they make an honest approach to it.  They
 6    are more qualified and have a better record of performance
 7    than anybody that I have seen in this case.
 8         Q    Is it your testimony that they can't make
 9    mistakes?
10         A    Absolutely not.  In fact, in some of the rebuttal
11    testimony they have come forth and said, you know, here is
12    where we made a mistake in the past and here is how we are
13    correcting it.
14              Now Luciani doesn't bother to do that, by the way. 
15    I mean he made the most colossal mistake you could imagine
16    in 1990 with Witness Hall, talking about, you know, that the
17    DBMC is a total disaster --
18              MR. McKEEVER:  Mr. Chairman, I move to strike any
19    remarks about Mr. Luciani in R90.  He was not even a witness
20    in that case.
21              THE WITNESS:  But he put into his
22    qualifications --
23              MR. McKEEVER:  It is nonresponsive, Mr. Chairman,
24    and it is certainly inaccurate.  Mr. Luciani wasn't even a
25    witness in that case.

                                                             19828
 1              I move to strike.
 2              MR. OLSON:  Mr. Chairman, I think it is
 3    responsive.  I think counsel asked the question and is stuck
 4    with the answer and it certainly is that Witness Luciani has
 5    testified that he assisted with --
 6              CHAIRMAN GLEIMAN:  Was Mr. Luciani a witness in
 7    R90?
 8              MR. OLSON:  He testified that he assisted the UPS
 9    in presenting and preparing their testimony.
10              MR. McKEEVER:  Mr. Chairman, may I also mention
11    that the question was is the Postal Service capable of
12    making a mistake.
13              CHAIRMAN GLEIMAN:  As everybody who has been
14    around these proceedings knows, the Commission is generally
15    reluctant to strike and I will deny the motion to strike in
16    this case.
17              However, we will read the testimony and it will be
18    given the appropriate weight in light of the facts of the
19    R90 case.
20              Now I am going to ask the witness to -- I know he
21    has strongly held views.  All of us probably do on one
22    subject or another, but I think it is important to try and
23    confine your responses, to the extent practicable, to the
24    questions that are asked by counsel who is doing the cross
25    examining.

                                                             19829
 1              There is an opportunity under redirect if your
 2    counsel and you decide that there is other information you
 3    want to get in that follows up on cross examination, and I
 4    think that is the appropriate place for it to come.
 5              THE WITNESS:  I apologize.
 6              CHAIRMAN GLEIMAN:  There is no need for an
 7    apology.  This is -- you know, this goes on in here.  It's
 8    not only a war of estimates, it's a war of a lot of
 9    different natures, and, you know, we'll sort it all out and
10    hopefully come up with something that makes sense to most
11    people before it is all over.
12              Could you please continue, Mr. McKeever?
13              MR. McKEEVER:  Thank you, Mr. Chairman.
14              BY MR. McKEEVER:
15         Q    Mr. Clark, in fact, didn't you testify that in the
16    real world, cost estimates rarely hit the mark?
17         A    Well, an estimate by definition is an estimate.
18         Q    And they rarely hit the mark; isn't that correct? 
19    Isn't that what you stated in your testimony?
20         A    That would be a fair statement; yes.
21         Q    On page seven at lines seven to nine, you refer to
22    Mr. Luciani's testimony, that the DBMC entry savings
23    estimated by the Postal Service are high, and you state
24    there that he offers no contrary proof or explanation.  Do
25    you see that?  Page seven, lines seven to nine.

                                                             19830
 1         A    Yes, I see it.
 2         Q    You cite two pages of Mr. Luciani's testimony in
 3    support of that statement.  Did you read all of his
 4    testimony?
 5         A    Well, I know he put in a couple of supplements. 
 6    He had his original and then he had his corrections that
 7    came later on.
 8         Q    Did you read all of his direct testimony?
 9         A    I think so; yeah.
10         Q    Now, did you read his testimony -- matter of fact,
11    Mr. Chairman, may I approach the witness and furnish him a
12    copy of the transcript in which Mr. Luciani's testimony is
13    reproduced?
14         A    I think I have that.
15         Q    You do have it?  Okay.  Thank you.  Did you read
16    his testimony -- you do not have the transcript version; is
17    that correct or do you?
18              CHAIRMAN GLEIMAN:  It appears as though the
19    witness has the version that was submitted and not the
20    transcript version.
21              BY MR. McKEEVER:
22         Q    Did you read his testimony beginning on page seven
23    as it was originally submitted and now appears at transcript
24    page 14293, that the Postal Service double counted platform
25    acceptance costs in estimating the costs avoided by DBMC? 

                                                             19831
 1    Did you read that?
 2         A    Yes, I read it at some time.
 3         Q    Did you read his testimony on pages 12 to 14,
 4    which appears in the transcript at pages 14298 through
 5    14300, that the Postal Service overestimated the costs
 6    avoided by DSCF by overstating the number of parcels that on
 7    average on in a sack or in a general purpose mail container? 
 8    Did you read that?
 9         A    Yes.
10         Q    Did you read his testimony on page 15, which
11    appears at transcript page 14301, that the Postal Service
12    overstated DSCF avoided costs by assuming that Postal
13    Service personnel would not assist drop shipping mailers in
14    unloading drop shipments?  Did you read that testimony?
15         A    You're on page 15?
16         Q    I'm on page 15, yes.
17         A    Yes.
18         Q    In fact, you testified when you were here
19    previously, at transcript page 10195, that when CTC drop
20    ships to a BMC or, in fact, to a SCF, you testified at page
21    10194, the Postal Service employees unload the vehicle,
22    assisted by the driver when requested, isn't that correct?
23         A    Yes.  I might comment, I am not sure --
24              MR. McKEEVER:  Mr. Chairman, I am going to move to
25    strike if -- he has responded to the question.  He has

                                                             19832
 1    completed an answer.  An appreciable amount of time passed. 
 2    And if we are going to get out of here at a reasonable hour
 3    tonight, --
 4              CHAIRMAN GLEIMAN:  Well, I am not all that
 5    concerned about the reasonableness of the hour, and I can be
 6    cavalier about it on everybody else's behalf.  I think that
 7    we have to operate with a rule of reason here.  On the one
 8    hand, I have admonished Mr. Clark about going on to speak
 9    about matters that weren't the subject of the question, and
10    I would respectfully request that we give Mr. Clark an
11    opportunity to give a complete answer within the confines of
12    my earlier admonition.  I think it is not unreasonable.
13              You know, this gentleman is not a professional
14    witness.  To his credit, he is probably not an economist or
15    an econometrician or any of the other kind of people that we
16    see coming through here.  And, you know, let's just try and
17    take a deep breath and calm down, and I think we'll -- I'll
18    stop talking, then we will get out of here at a reasonable
19    hour.
20              THE WITNESS:  So could I make a comment on that?
21              CHAIRMAN GLEIMAN:  A short one.
22              THE WITNESS:  When I read this part of the
23    testimony, I recall in the original, at the original times,
24    at the times when the times when these were being originally
25    proposed, in talking with Virginia Mayes, that the whole

                                                             19833
 1    assumption was that anybody that utilized Destination
 2    Sectional Center Facilities or DDUs would be required to
 3    deliver packages in the same way that they were presently
 4    being received from the Bulk Mail Centers, that was the
 5    premise of the program.
 6              So when you start to bring in all of these
 7    considerations about shaking out sacks and helping with
 8    unloading and so on, we are to do no more or no less than is
 9    presently being done by a Bulk Mail Center.  It is supposed
10    to be transparent to the system who brings those packages
11    in.  And so that was, you know, part of the perspective that
12    I had.
13              CHAIRMAN GLEIMAN:  Mr. Clark, I am going to offer
14    another comment here that might be helpful.
15              THE WITNESS:  Yes.
16              CHAIRMAN GLEIMAN:  And that is that, you know,
17    discussions that took place during the developmental phase
18    of Postal Service proposals are not a matter of record here. 
19    And, as a matter of fact, in most cases, and as a matter of
20    fact, many of the kinds of issues that you just spoke to
21    aren't matters before us.  The Postal Service has reserved
22    unto itself a great deal of flexibility as to how it
23    actually goes about implementing.
24              And, consequently, it is not unreasonable for
25    counsel to ask questions that go to different views of how

                                                             19834
 1    things are actually going to work.  Because, quite frankly,
 2    it is not all locked up with every little I dotted and T
 3    crossed when the proposal comes to us from the Postal
 4    Service.
 5              Now, let's -- counsel, if you want to move on now.
 6              BY MR. McKEEVER:
 7         Q    It is currently the case that when you bring a
 8    drop shipment to the Postal Service, the Postal Service
 9    employees unload the vehicle, assisted by the driver when
10    requested?
11         A    That is correct?
12         Q    Okay.  Incidentally, have you ever testified
13    before in any proceeding?
14         A    I was here in '95.
15         Q    Have you ever testified in any other forum before?
16         A    Regulatory?
17         Q    No.  Any forum, ever, any court?
18              MR. OLSON:  Mr. Chairman, I think I would object
19    to that as being irrelevant.  If it is regulatory and as a
20    witness, that is one thing.  But in any time, on any matter,
21    I would object to that.
22              CHAIRMAN GLEIMAN:  Would you like to modify your
23    question or limit to something that might relate --
24              MR. McKEEVER:  No, Mr. Chairman, I think it is
25    relevant, the extent to which this witness has testified

                                                             19835
 1    before.  I think he knows what testifying is about.
 2              THE WITNESS:  Well, I apologize if I have offended
 3    you.
 4              MR. McKEEVER:  No, you haven't offended me.
 5              THE WITNESS:  You can go ahead.
 6              MR. McKEEVER:  Mr. Clark, I do this for a living,
 7    I don't get offended by it.
 8              THE WITNESS:  Okay.
 9              CHAIRMAN GLEIMAN:  Mr. McKeever, do you --
10              MR. McKEEVER:  Mr. Chairman, I'll withdraw the
11    question.
12              CHAIRMAN GLEIMAN:  Thank you.
13              BY MR. McKEEVER:
14         Q    Mr. Clark, you state in your rebuttal testimony,
15    and you indicated this earlier this evening, too, that Mr.
16    Luciani made an argument that DBMC parcels are different
17    from other parcels.  Do you remember that?
18         A    Yes.
19         Q    That's in your rebuttal testimony on page 7 at
20    lines 10 to 11, is that right?
21         A    Yes.
22         Q    And, again, as I said, you made reference to that
23    really earlier tonight.  In your rebuttal testimony, you say
24    that Mr. Luciani's statement is, quote, "simply posited with
25    no proof or quantification of any kind".  Do you see that?

                                                             19836
 1         A    Yes.
 2         Q    Did you read Postal Service Witness Hatfield's
 3    testimony on transportation costs in this case, by the way?
 4         A    I probably just glanced through it.
 5              MR. McKEEVER:  Mr. Chairman, with your permission,
 6    I'd like to supply the witness with a copy of page 14 from
 7    Mr. Hatfield's transportation testimony, USPS-T-16, I
 8    believe.
 9              CHAIRMAN GLEIMAN:  Please proceed.
10              BY MR. McKEEVER:
11         Q    Mr. Clark, I've handed you, as I mentioned, a copy
12    of page 14 from Postal Service Witness Hatfield's testimony
13    which shows a cube weight relationship by rate category for
14    parcel post for intra-BMC, inter-BMC and DBMC.  Do you see
15    that?
16         A    Yes.
17         Q    Do you notice the DBMC line is the one at the top?
18         A    Yes.
19         Q    It's different from the other two; is that
20    correct?
21         A    Yes.
22         Q    Thank you.  Does the Postal Service accept
23    shipments at CTC plants or is the acceptance done at a
24    Postal facility?
25         A    At our plants.

                                                             19837
 1         Q    Postal people go to your plant?
 2         A    DMU, yes; detached mail unit.  Your question was
 3    parcels, right?
 4         Q    Yes.
 5         A    We have other types of mail as well.  We have some
 6    advertising mail, some letter mail that we commingle, so to
 7    the extent that we pay the postage on that, it would be
 8    included as well.
 9         Q    Mr. Clark, could you turn to page four of your
10    testimony, rebuttal testimony?  There you state at lines 15
11    to 16 that UPS "is still far and away the dominant player in
12    the parcel delivery market."  Do you see that?
13         A    Yes, sir; I do.
14         Q    Is it your testimony that UPS is the dominant
15    carrier in the case of residential deliveries?
16         A    Residential deliveries?
17         Q    Yes.  Is that your testimony?
18         A    Yes, for what's defined as a parcel.
19              MR. McKEEVER:  Mr. Chairman, I would like to
20    provide the witness with a copy of the Postal Service's
21    Household Diary Study, Fiscal Year 1996, the Executive
22    Summary, which is a document published by the Postal
23    Service.
24              CHAIRMAN GLEIMAN:  Please approach the witness.
25              BY MR. McKEEVER:

                                                             19838
 1         Q    Mr. Clark, could you turn to page 28 of that
 2    document, please?
 3         A    I have it.
 4         Q    Now that page is headed, "Packages," is that
 5    correct?
 6         A    Yes.
 7         Q    There is a Section B entitled "Overall Volume and
 8    Carrier Used" -- do you see that?
 9         A    Yes.
10         Q    And the first sentence in that paragraph says,
11    quote, "There was an increase in the number of packages
12    received per household per week during 1996."
13              Do you see that?
14         A    Yes.
15         Q    And then the third sentence in that paragraph
16    states, quote, "Of all packages received, 85.1 percent were
17    delivered by the Postal Service, which represents a
18    relatively large increase over the 1987 figure of 77.7
19    percent."
20              Is that correct?
21              MR. OLSON:  Mr. Chairman, may we have time to
22    examine whether there is a definition of package in the
23    document before the witness has to answer all these
24    questions about this, which he hasn't seen?
25              MR. McKEEVER:  Mr. Chairman, the witness can take

                                                             19839
 1    as much time as he would like.
 2              CHAIRMAN GLEIMAN:  Yes, you can have time to
 3    examine whether there is a definition.
 4              Quite frankly, I don't know whether there is a
 5    definition in the summary.  We do have the entire study if
 6    you find it necessary to look through that.
 7              MR. McKEEVER:  And I would be happy to have the
 8    entire document here as well, Mr. Chairman.
 9              THE WITNESS:  My own personal experience is that
10    this -- that this doesn't relate to the market we are
11    talking about here at all.  This would include all Third
12    Class, books --
13              BY MR. McKEEVER:
14         Q    It includes all packages.
15         A    Priority mail.  It's not Fourth Class Parcel Post.
16         Q    I see.  Your testimony is only with respect to
17    Fourth Class Parcel Post?
18         A    That's what I made clear -- yes -- in the original
19    testimony.
20         Q    Well, that is not what you say in your rebuttal
21    testimony and I don't have your original testimony available
22    right now but you say, "It is far and away the dominant
23    player in the parcel delivery market."
24              Now you are only talking about some parcels, is
25    that correct?  Is that your statement?

                                                             19840
 1         A    Well, I think you are quibbling here over what we
 2    are talking about.
 3              We are talking about work-sharing discounts. 
 4    That's the context of the whole rate hearing.  Why bring in
 5    issues about Third Class records, books, all kinds of
 6    packages?
 7         Q    Mr. Clark, you stated in your testimony that UPS
 8    is far and away the dominant player in the parcel delivery
 9    market.
10         A    That's my opinion.  Yes, sir.
11         Q    And that is the reason I brought this document up.
12         A    Well, my own opinion is it's not an appropriate
13    representation or comparison for this case.
14         Q    You don't believe that a package -- you don't
15    believe that a package is a package?
16         A    Well, I guess we could ask another question.  Does
17    UPS compete for the delivery of Third Class packages?
18         Q    Do you know -- first of all, I ask the questions,
19    Mr. Clark.  I apologize, but that is how it works.
20         A    Well, I am just trying to get to the truth here.
21         Q    Is it your testimony that UPS will refuse to
22    deliver a package under one pound?
23         A    No, it's not.
24         Q    Okay.  They will, won't they?
25         A    They sure do.

                                                             19841
 1         Q    And they will deliver books and records, is that
 2    correct?
 3         A    Absolutely.
 4         Q    They also deliver packages as part of Second Day
 5    Air, is that correct?
 6         A    I presume so.
 7         Q    They also deliver packages that could be sent by
 8    the Postal Service as First Class mail; is that correct?
 9         A    That could be sent as First Class?
10         Q    Could be sent as First Class mail by the Postal
11    Service; yes.
12         A    I would imagine they do; yes.
13         Q    Is it your -- how was this diary put together, by
14    the way?
15         A    All I can tell you, Mr. Clark, is it's an official
16    publication of the United States Postal Service.
17              MR. McKEEVER:  Mr. Chairman, that concludes my
18    examination.  I would like to move that the executive
19    summary of the household diary study be transcribed in the
20    record and also admitted into evidence as an official
21    document of the United States Postal Service.
22              CHAIRMAN GLEIMAN:  Mr. Olson?
23              MR. OLSON:  Mr. Chairman, I guess I would think
24    that page 28 would be an appropriate page, since that's what
25    we discussed, and perhaps even 29 and 30, which deal with

                                                             19842
 1    packages, but I can see no reason for including the whole
 2    document.  If it's an official postal document, it can
 3    probably get in some other way besides cross-examination of
 4    this witness.
 5              MR. McKEEVER:  Mr. Chairman, I have no objection
 6    to moving into evidence only the cover page and the three
 7    pages mentioned by Mr. Olson.
 8              MR. OLSON:  I'd certainly object to it being moved
 9    into evidence.  As a cross-examination exhibit I have no
10    problem.
11              CHAIRMAN GLEIMAN:  You -- I'm not quite sure I
12    understand.  You object to it moving into evidence --
13              MR. OLSON:  Yes.
14              CHAIRMAN GLEIMAN:  Period.  You object to it
15    moving into -- being transcribed and admitted into evidence.
16              MR. OLSON:  I think it being transcribed as a
17    cross-examination exhibit is a good idea.  I would object to
18    putting into evidence.  I cannot testify as to authenticity
19    or Mr. McKeever certainly cannot.
20              MR. McKEEVER:  Mr. Chairman, that's exactly why
21    there is an exception for public documents, so that you
22    don't need someone to testify as to authenticity.  Rule
23    31(d) of the Commission's rules specifically indicates that
24    a public document such as an official report -- go ahead,
25    Mr. Chairman, I apologize.

                                                             19843
 1              CHAIRMAN GLEIMAN:  Mr. McKeever and Mr. Olson, you
 2    had an exchange before about the extent to which you would
 3    limit the number of pages.  I just want to make sure before
 4    I direct that certain pages be transcribed into the record
 5    and admitted into evidence that we have the right pages. 
 6    Did we have an agreement on the cover page and pages 28, 29,
 7    and 30?
 8              MR. McKEEVER:  That's acceptable to us, Mr.
 9    Chairman.  I was putting the whole document in just for the
10    sake of having the complete document in, because of course
11    in the case of a public document when a party offers part,
12    anyone else is free to put it all in, and so I was
13    attempting to put the entire executive summary in.  But I'm
14    happy to have only those three pages put in, together with
15    the cover page.
16              CHAIRMAN GLEIMAN:  You want to stick by your
17    request that we limit it to the cover page and the three
18    pages, Mr. Olson?
19              MR. OLSON:  At this time I do.  I would say that
20    not knowing this was going to be put into the record, I'd
21    have to review it and see if there was some reason to burden
22    the record with more pages, and if there was, I guess I'd
23    make an appropriate motion, but at this time I don't.
24              CHAIRMAN GLEIMAN:  Well, in that case I'm going to
25    direct that four pages, the cover page and pages No. 28, 29,

                                                             19844
 1    and 30 of the Executive Summary of the Household Diary Study
 2    for Fiscal Year 1996 -- the Executive Summary, I did say, of
 3    the United States Postal Service, which was apparently
 4    issued, it's got a date of September 1997 on it, be
 5    transcribed into the record and admitted into evidence at
 6    this point.
 7                             [Excerpt from the United States
 8                             Postal Service Household Diary
 9                             Study, Fiscal Year 1996, Executive
10                             Summary, was received into evidence
11                             and transcribed into the record.]
12
13
14
15
16
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                                                             19849
 1              MR. McKEEVER:  That concludes our
 2    cross-examination, Mr. Chairman.  I can furnish the court
 3    reporter with two copies of those pages in just a few
 4    moments.
 5              THE WITNESS:  Can I make a comment here?  You
 6    asked about the definition, the top of page 29.
 7              CHAIRMAN GLEIMAN:  We'll have a chance to do that
 8    on redirect.
 9              Is there any followup?
10              There's no followup.
11              That brings us to redirect.  Mr. Olson, would you
12    like a few minutes with your witness?
13              MR. OLSON:  Yes, Mr. Chairman.
14              CHAIRMAN GLEIMAN:  Five, ten?
15              MR. OLSON:  Five.
16              CHAIRMAN GLEIMAN:  Five.  Okay.
17              [Recess.]
18              CHAIRMAN GLEIMAN:  Mr. Olson, you have some
19    redirect, I take it?
20              MR. OLSON:  Yes, Mr. Chairman.
21                        REDIRECT EXAMINATION
22              BY MR. OLSON:
23         Q    Mr. Clark, I would ask you to look at your
24    testimony on page 7.  I believe it is line 7 through 9,
25    although I don't have it in front of me.  Mr. McKeever had

                                                             19850
 1    asked you some questions with respect to your criticism of
 2    Witness Luciani about certain inexplicable changes, and I
 3    wonder if you can tell us what you meant by that testimony.
 4         A    Well, I was really referring to line 16, line 16
 5    through 21 on page 26, where he simply commented that the
 6    Postal Service had changed the cost of -- the magnitude of
 7    cost estimates is unexplained.  In fact, I thought that they
 8    did explain that.  So just because it is unexplainable
 9    doesn't mean it is -- in his opinion, unexplainable, doesn't
10    mean it was uncertain.  It doesn't create necessarily an
11    uncertainty.
12         Q    So that part of your testimony dealt with that
13    particular point that Witness Luciani reference, right. 
14    What page of Witness Luciani's testimony is that?
15         A    On page 26.  And it follows, you know, the first
16    comment that he made about imperfect execution, it's all in
17    that area.
18         Q    And, in fact, those are the pages, 26 and 27, that
19    are cited in your testimony right after your point, correct?
20         A    That is correct.
21         Q    And so when Mr. McKeever walked you through
22    Witness Luciani's criticisms of the Postal Service costing
23    in the early part of his testimony, that was not what you
24    were referencing, correct?
25         A    That's right.

                                                             19851
 1         Q    And, in fact, you did have a line that you deleted
 2    at the beginning of the testimony.  Can you tell us why you
 3    deleted that?
 4         A    Well, I didn't -- you know, I don't -- I feel that
 5    I overstated my position as far as my qualifications.  I
 6    really -- I am not qualified to war -- be at war with the
 7    cost estimates in the proceedings, I never pretended to be
 8    that.
 9         Q    Okay.  Secondly, let me ask you to take a look at
10    the pages of the Household Diary Study which counsel for UPS
11    asked you some questions about, particularly 28 and 29, and
12    ask you if you have any further thoughts about UPS being the
13    dominant carrier with respect to residential delivery?
14         A    Well, I think that the question came up as to what
15    the definition, the appropriateness of this comparison was,
16    and on page 29, it says the percentage of packages delivered
17    by the Postal Service includes parcels delivered at all
18    rates.  The largest share of parcels was Third Class bulk
19    rate, 32.8 percent of the total, following by First Class
20    mail and priority, which was a combined 26 percent.
21              Later on, on that same page, it goes by content. 
22    The Postal Service delivered 92.4 percent of records, tapes
23    and CDs, 94.6 percent of books, reflecting the use of
24    special Fourth Class and Bound Printed Matter rates.  UPS
25    was a preferred -- UPS was preferred by many mailers.  It's

                                                             19852
 1    largest shares of delivery were in the catalog order and
 2    store order categories, respectively, 27.1 percent, 29.9
 3    percent.
 4         Q    Okay.  And let's go back to page 4 of your
 5    testimony, which was the quotation that I believe counsel
 6    for UPS used to set up the question.  Can you tell us what
 7    you mean the phrase "parcel" on line 15 and 16 of page 4?
 8         A    Well, throughout my testimony, I talk about parcel
 9    post, on line five, line seven, line 11.  I talk about the
10    DBMC program on line 14.  Line 15, nationwide parcel
11    delivery.  Line 16, parcel delivery market.  I pretty well
12    limited my testimony on comparisons in this case to that
13    marketplace, and that considered books, records, tapes, CD's
14    and all those different things.
15              MR. OLSON:  Thank you, Mr. Chairman.  That's all
16    we have.
17              CHAIRMAN GLEIMAN:  Recross?
18              MR. McKEEVER:  Yes, Mr. Chairman.
19                         RECROSS-EXAMINATION
20              BY MR. McKEEVER:
21         Q    In your rebuttal testimony, you didn't use the
22    term "parcel post" when you were talking about the parcel
23    delivery market, did you?
24         A    I just cited on page four, the number of times I
25    did use that.

                                                             19853
 1         Q    In your rebuttal testimony?
 2         A    Yes, sir.
 3         Q    You said "parcel."  You didn't say "parcel post."
 4    That's my recollection.
 5         A    Well, look on page four, line five, line seven,
 6    line 11.
 7         Q    But that's not where you were talking about the
 8    delivery market; is that right?  When you were talking about
 9    the delivery market, you said the parcel delivery market.
10         A    Imperfect syntax, I guess.
11         Q    As the household diary summary sentence that you
12    pointed out states, the packages being talked about there
13    includes parcels delivered at all rates; is that correct?
14         A    That's what it says; yes, sir.
15         Q    So those figures include among packages delivered
16    in third class, it includes parcel post packages as well; is
17    that right?
18         A    I think so; yes.  It says that in section C there.
19         Q    Right.  In fact, the Postal Service has a
20    significantly large -- has a significantly large share of
21    packages carried in third class and books and records,
22    because their rates are far cheaper than United Parcel
23    Service's rates; isn't that the case?
24         A    I would think that would be the primary driver;
25    yes.

                                                             19854
 1         Q    Did you read Mr. Jellison's testimony in this
 2    case?
 3         A    Yes.
 4         Q    He gave some figures about parcel post shipments
 5    to residences and the share delivered by UPS and the share
 6    delivered by the Postal Service; is that correct?
 7         A    I don't recall it specifically.  I'll take your
 8    word for it.
 9              MR. McKEEVER:  That's all I have, Mr. Chairman.
10              CHAIRMAN GLEIMAN:  Is there any further redirect?
11              MR. OLSON:  Just one, Mr. Chairman.
12                    FURTHER REDIRECT EXAMINATION
13              BY MR. OLSON:
14         Q    Mr. Clark, isn't it true when Mr. McKeever just
15    identified the items that were packages sent -- received,
16    according to the household diary study, that perhaps he
17    should have also listed first class mail and priority mail?
18         A    It's in there; yes.
19              MR. OLSON:  Nothing else.
20              CHAIRMAN GLEIMAN:  Mr. McKeever?
21                     FURTHER RECROSS-EXAMINATION
22              BY MR. McKEEVER:
23         Q    Taking into account all those markets, the
24    household diary study shows that the Postal Service by far
25    delivers more packages than anyone else to residences; is

                                                             19855
 1    that correct?
 2         A    That's what it reports.
 3              MR. McKEEVER:  Thank you, Mr. Chairman.
 4              CHAIRMAN GLEIMAN:  Anyone else?
 5              [No response.]
 6              CHAIRMAN GLEIMAN:  If there is nothing else, then
 7    Mr. Clark, I want to thank you.  We appreciate your
 8    appearance here today and your contributions to our record,
 9    and if there is nothing further, you are excused.
10              [Witness excused.]
11              CHAIRMAN GLEIMAN:  I was supposed to have a short
12    ending sentence here saying these hearings are adjourned. 
13    They are adjourned pending Postal Service response to my
14    ruling on ANM motion to compel, and the scheduling of the
15    hearing on Witness Shenk's survey relating to the documents
16    in question, that hearing is tentatively scheduled for
17    Monday, March 30th.
18              I hope you all have a good evening and a nice
19    weekend.
20              [Whereupon, at 8:57 p.m., the hearing was
21    recessed, to reconvene at 9:30 a.m., Monday, March 30,
22    1998.]
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