Testimony of 

John Waller, Director of Office of Accountability and Compliance 

On Behalf of the 

Postal Regulatory Commission 

Before the 

U.S. House of Representatives 

Committee on Oversight 

And Government Reform 

Subcommittee on Federal Workforce, 

Postal Service and the District of Columbia 

July 24, 2008 
Good afternoon. 

Chairman Davis, Ranking Member Marchant, and members of the 

Subcommittee, thank you for the opportunity to testify. I am pleased to discuss 

the Commission’s views on the Postal Service’s Network Plan. 

To the Commission’s benefit, we have had previous involvement in the 

Service’s plans for network realignment. Under section 3661 of title 39 of the 

U.S. Code, the Postal Service is required to seek the Commission’s advice 

before implementing nationwide service changes. In 2006, the Service 

requested an advisory opinion from the Commission on its planned nationwide 

realignment, then known as the “Evolutionary Network Development” (END) 

process. 

When the Commission’s proceeding started as Docket No. N2006-1, very 

little was known publicly about the overall END process, and the Service’s vision 

of its future network was unclear. The Commission believed then, and continues 

to believe now, that the Postal Service should have the flexibility and authority to 

adjust its operations and networks to meet its business needs and create cost 

savings and efficiencies. However, the Postal Service must be accountable and 

transparent to postal customers and be sensitive to the needs of the communities 

it serves. 

The Commission’s proceeding brought transparency to the Postal 

Service’s network development plans. Questioning by Commissioners and 

participants in the case shed needed light on the END program. The opening of 

the END program to outside scrutiny identified several areas of concern some of 

which have been addressed in the network realignment process incorporated in 

the current Network Plan. In particular, the public participation process seems to 

have been clarified and expanded. 

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In early 2007, the Postal Service and the Commission entered into what 

has become a monthly consultation between the two agencies. This process 

implemented a major initiative of the Postal Accountability and Enhancement Act 

(PAEA) to ensure that the Commission is involved in the development of certain 

required improvements in Postal Service operations. Specifically, the Act directs 

the Postal Service and Postal Regulatory Commission to consult with each other 

on the development of a modern system of performance standards, the 

measurement of actual performance, the setting of performance goals, and the 

adjustment of the postal network to meet those goals in light of changing mailer 

demands. 

The Commission appreciates the Service’s ongoing commitment to the 

consultation requirement. The Service has been most forthcoming with 

information on current operations and planned changes. They have been 

responsive to questions from the Commission and considerate of observations 

by the Commission. 

Much of the success of this process goes to the involvement of top Postal 

Service management in the main activity of the consultative process. These 

monthly meetings include the five Commissioners and a team headed by Deputy 

Postmaster General Patrick Donahoe. Over the past months, the Service has 

provided presentations on the key elements contained in the Network Plan 

submitted to the Congress. Through this process, the Commission has had the 

opportunity to make suggestions, some of which are incorporated into the final 

version of the Network Plan. The process has also allowed the Postal Service to 

understand the Commission’s requirements as a regulator. 

On June 9, 2008, the Service presented to the Commission, for formal 

comment, its final draft of the Network Plan. On June 16, 2008, the Commission 

submitted its formal comments on the draft plan in a letter to Deputy Postmaster 

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General Donahoe. At the request of the Commission, the letter was submitted to 

Congress along with the final version of the Network Plan. 

 As background to reviewing the document presented to Congress, it 

should be noted that the Postal Accountability and Enhancement Act section 

302(b) requires the Postal Service’s Network Plan to: (1) establish performance 

goals; (2) describe network changes necessary to meet those goals; (3) describe 

how the new performance goals change previous submissions to Congress; and 

(4) describe the Postal Service’s long-term vision for its infrastructure and 

workforce. Additionally, the Postal Service’s plan must include detailed 

information on the costs, cost savings, impacts, time frames, and processes for 

rationalizing its facilities network. 

In its letter to Deputy Postmaster General Donahoe, the Commission 

stated that the final draft of the Network Plan lacked specific performance goals 

for most postal products, and thereby lacked a vision of how the activities 

described in the plan would meet certain performance goals. During the 

consultative meetings with the Service, the Commission has made clear its view 

that the PAEA requires that service performance goals, expressed as specific 

percentages of on-time achievement of service standards, should be part of the 

June network plan. Corporate goals already exist for First-Class single-piece 

mail, such as 95 percent achievement of on time delivery for all First-Class Mail 

subject to overnight delivery standards. The Commission has consistently urged 

the Service to adopt such explicit percentage goals for all classes of mail and 

urged the Service to include such goals in the plan submitted to Congress. 

During the course of consultations this spring, however, the Service indicated 

development of such goals would be delayed. The draft Network Plan - given to 

the Commission 10 days before the delivery date to Congress - stated that such 

goals would not appear until early 2009. 

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The Commission is pleased to see, however, that the final version of the 

document presented adopts a more aggressive schedule and the Commission 

now expects to see proposed achievement percentage goals for all services 

before the end of the fiscal year. Such changes in the final document exemplify 

the progress and results that can be achieved via the consultative process that is 

a major component of the new regulatory environment envisioned by the PAEA. 

Consultations with the Service also involve service performance 

measurement. The PAEA requires that the Service develop a system of external 

measurement of delivery performance for all mail products unless the 

Commission gives permission for the use of internal, Postal Service-generated 

data, such as can be obtained from scans of barcodes on mail pieces. The steps 

described by the Postal Service in its Network Plan under the heading of 

“Operationalizing Service Standards” are examples of the diagnostic benefits that 

can be gained from a robust internal performance measurement system that 

tracks the progress of mail through the postal network. Such information is not 

as available with external measurement systems that just captures the times of 

mailing and delivery. Also, a full external system would be significantly more 

expensive than an internal system. Thus, the Commission is being patient with 

the Service’s evolution of the internal system but still expects expanded 

measurement results to begin to appear with the start of the next fiscal year. 

In the final version of the Network Plan, the Commission sees evidence 

that the Postal Service responded to concerns raised in the Commission’s review 

of the previous realignment effort in the 2006 docket, and discussed in my 

testimony before this Subcommittee on July 26 last year. For example, a 

criticism of the previous network modeling, and possibly still present in the 

current efforts to consolidate processing facilities, is the use of national average 

productivities. As demonstrated in Government Accountability Office (GAO) 

reports and Commission documents, the productivities of mail processing 

equipment vary widely among facilities. 

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Another assumption not supported by available data is that productivity 

necessarily improves as the size of processing facilities increases. If network 

planning decisions are based on flawed productivity assumptions they can 

produce costly reductions in service and efficiency. Thus, the efforts described in 

the Service’s current network realignment document to standardize processing 

plant operations are a hopeful sign. The Commission will monitor the results of 

these standardization efforts if assumptions of standardized productivity are to be 

a basis of consolidation analysis. Also, it is a challenge for the Service to 

maintain delivery performance and control transportation costs as consolidations 

expand the distance between processing plants and delivery locations. 

 The document presented to the Congress describes many of the 

processes by which the network will change. These include the revamped Area 

Mail Processing (AMP) guidelines for analyzing potential processing plant 

consolidations, obtaining community inputs and eventually assessing impacts 

when consolidations do occur. Also, the document describes recent changes in 

the airport facilities and how employees will be impacted. Once performance 

goals are established, the Commission expects to see more details of the 

Service’s vision for its network, what the facility configurations and transportation 

links will involve, and a quantification of the cost and performance benefits. 

Since the late 1990s, the Commission has been concerned about the 

costs of handling flat mail and, in particular, Periodicals. Despite numerous 

automation attempts, productivity results achieved from letter mail automation 

have been elusive for flats. The Flats Sequencing System (FSS) now being 

implemented is intended to increase productivity and reduce carrier costs. The 

FSS holds great promise, yet continued oversight is required in order to verify the 

impact on costs and delivery performance. The Commission hopes to be able to 

see the projected benefits verified. 

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The Service makes a case that the Bulk Mail Center (BMC) network, as 

currently structured, may not efficiently meet the future needs of the Service. 

The Service’s transportation outsourcing plan as outlined in the Network Plan 

and in the draft Request for Proposals for a Time-Definite Surface Network may 

have merit. However, the Commission is cognizant of the problems experienced 

outsourcing Priority mail operations a few years back with the Emery contract. 

This demonstrates the need for continued Commission oversight. 

The Commission will continue to monitor the progress as the Service fills 

in the details of its network realignment plan. Further, we intend to review 

carefully the impacts on delivery performance. Any proposed network 

realignments by the Service that may have significant nationwide impacts on 

delivery standards will be subject to review by the Commission through an 

advisory opinion per section 3661 of title 39 of the U.S. Code. A full report on 

these service impacts will be included in the annual reports of the Commission. 

In closing, the Commission takes very seriously this consultation role 

tasked to it by Congress. We do understand that the Postal Service faced a tight 

deadline for development of performance goals and a network plan. We look 

forward to continuing our consultation with the Service on both issues as the 

Service provides more details on the network realignment. 

The Commission appreciates the continuing interest of the Committee in 

these areas and is prepared to regularly present results to the Congress either 

through annual reports, special studies or hearings such as this. Again, thank 

you Chairman Davis for inviting me to testify. I welcome the opportunity to 

answer any questions members of the Subcommittee may have.