United States Postal Service: Strategy Needed to Address Aging Delivery Fleet
Published: 2011-05-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States Postal Service (USPS) has the world's largest civilian fleet, with many of its delivery vehicles reaching the end of their expected 24-year operational lives. USPS is subject to legislative requirements governing the federal fleet, including a requirement in the Energy Policy Act of 1992, which provides that 75 percent of USPS's vehicle acquisitions be alternative fuel vehicles, capable of operating on a fuel other than gasoline. USPS is also facing serious cost pressures in maintaining a national network of processing and retail operations. Asked to review USPS's delivery fleet, GAO (1) profiled the fleet; (2) assessed USPS's response to alternative fuel vehicle requirements and described its experiences with these vehicles; (3) identified USPS's approach for addressing its delivery fleet needs, including trade-offs; and (4) determined options to fund a major acquisition of delivery vehicles. GAO analyzed USPS data; visited USPS facilities in three locations; and interviewed officials from USPS, the Department of Energy, and other organizations, including fleet operators and manufacturers.
section_title: What GAO Found
paragraphs: USPS's delivery fleet is largely composed of custom-built, right-hand-drive vehicles designed to last for 24 years, including about 141,000 gasoline-powered vehicles 16 to 23 years old and 21,000 flex-fuel vehicles capable of running on gasoline or 85-percent ethanol (E85) that are about 10 years old. The fleet also includes 22,000 left-hand-drive minivans, many of which are also capable of running on E85, and 3,490 delivery vehicles capable of running on other alternative fuels. Delivery vehicles are driven an average of about 17 miles per day and cost about $1 billion to maintain and fuel in fiscal year 2010. USPS met the 75 percent acquisition requirement for alternative fuel vehicles by purchasing about 40,000 flex-fuel vehicles and minivans that can operate on E85 or gasoline. However, USPS does not always use E85 in these vehicles because E85 is not readily available and can cost more to use due to less fuel efficiency, according to USPS officials. USPS has a variety of limited experiences with other alternative fuel vehicles, such as compressed natural gas and plug-in electric vehicles, most of which have higher life-cycle costs than gasoline vehicles. USPS's approach for addressing its delivery fleet needs is to maintain its current fleet until it determines how to address its longer term needs. USPS has incurred small increases in direct maintenance costs over the last 5 years, which were about $2,600 per vehicle in fiscal year 2010. However, it is increasingly incurring costs for unscheduled maintenance because of breakdowns, which can disrupt operations and increase costs. In fiscal year 2010, at least 31 percent of USPS's vehicle maintenance costs were for unscheduled maintenance, 11 percentage points over USPS's 20 percent goal. USPS's financial challenges pose a significant barrier to a major delivery vehicle replacement or refurbishment, estimated to cost $5.8 billion and (in 2005) $3.5 billion, respectively. USPS and other federal and nonfederal officials see little potential to finance a fleet replacement through grants or partnerships. GAO has reported that Congress and USPS need to reach agreement on a package of actions to move USPS toward financial viability. Depending on the specific actions adopted, USPS's follow-up, and the results, such an agreement could enhance its ability to invest in new delivery vehicles. USPS should develop a strategy for addressing its delivery fleet needs that considers the effects of likely operational changes, legislative fleet requirements, and other factors. USPS agreed with GAO's recommendation.

section_title: Letter
paragraphs: The United States Postal Service (USPS) operates the world’s largest  civilian vehicle fleet, with more than 215,000 vehicles, of which about  192,000 are delivery vehicles. These vehicles are vital to accomplishing  USPS’s mission of delivering mail to about 131 million residential and  business addresses, in most cases, 6 days a week. The majority of USPS’s  delivery fleet is composed of custom-built, right-hand-drive, light-duty  delivery trucks that it refers to as “long-life vehicles” (LLV)—vehicles built  with an aluminum body and other features intended to permit an extended  operational life of 24 years (see fig. 1). Purchased from 1987 to 1994, the  LLVs are now approaching the end of their expected operational lives.
USPS is required to provide efficient mail service and is expected to pay  for its operations through the revenue it receives. USPS also is required to  comply with certain legislative requirements governing the federal fleet.  For example, under the Energy Policy Act of 1992 (EPAct 1992), 75  percent of the light-duty vehicles that USPS acquires must be capable of  using an alternative fuel.
As we previously reported, USPS’s business model is not viable because it  has been unable to reduce costs sufficiently in response to continuing  declines in mail volumes and revenue, and it faces growing financial  challenges for the foreseeable future. Specifically, mail volumes have  declined about 20 percent over the last 4 fiscal years because of the  economic downturn and the public’s changing use of the mail. In addition,  over the same period, USPS’s financial condition has deteriorated, with  cumulative losses of more than $20 billion and rising debt. For fiscal year  2011, USPS projects a $6.4 billion loss and expects to reach the $15 billion  statutory limit on its debt. USPS’s ongoing financial challenges led us to  place USPS’s financial condition and outlook on our high-risk list in July  2009. We have reported that action by Congress and USPS is needed on a  package of actions that will allow USPS to move toward financial viability  by reducing costs, increasing efficiency, and generating revenues.
In view of USPS’s difficult financial condition, you asked us to review  matters related to USPS’s aging delivery fleet. To do so, we addressed the  following key questions: (1) What is the profile of USPS’s delivery fleet?  (2) How has USPS responded to requirements for alternative fuel vehicles,  what experiences has it had with alternative fuel vehicles, and what has it  learned from its experiences? (3) What, if any, approach has USPS  adopted to address its delivery fleet needs, and what are the trade-offs of  this approach? (4) What options exist to help USPS fund a major  acquisition of delivery vehicles?
To address our reporting objectives, we collected and analyzed data on  USPS’s delivery fleet for fiscal years 2006 through 2010, using data from a  custom query of USPS’s Vehicle Management Accounting System (VMAS).  To supplement this information, we also reviewed data from reports  generated by VMAS (VMAS reports) that USPS officials regularly use to  track the agency’s vehicle maintenance and fuel costs. The VMAS reports  categorize vehicles somewhat differently than our custom query, and  therefore the numbers of vehicles identified in these two sources cannot  be compared directly. Through these two sources, we developed a profile  of USPS’s delivery fleet from fiscal years 2006 through 2010, including  most direct costs related to the vehicles’ maintenance, excluding costs  related to accidents. Based in part on electronic testing and interviews  with USPS officials knowledgeable about VMAS system controls and  vehicle data procedures, we determined that the VMAS data were  sufficiently reliable for the purposes of this report. In addition, we worked  with USPS Finance and Vehicle Programs officials to obtain a USPS  estimate of the total maintenance and fuel costs for the agency’s delivery  fleet in fiscal year 2010. We compared this estimate with cost summaries  and other information provided by USPS finance officials that supported  amounts reported in USPS’s audited financial statements for fiscal year  2010 and determined that the agency’s estimate was reasonable. We also  conducted site visits to three states (Florida, Minnesota, and New York),  chosen because they represent a variety of climates and operating  conditions and because USPS operates various types of alternative fuel  delivery vehicles in these locations. During our site visits, we interviewed  a variety of USPS personnel, including facility managers, maintenance  technicians, and letter carriers. We also reviewed prior studies on USPS’s  financial challenges, federal fleet alternative fuel vehicle requirements and  agencies’ experiences with these technologies, federal principles for  capital planning, and documentation on USPS’s environmental  sustainability goals. Finally, we interviewed USPS, Department of Energy  (DOE), and General Services Administration (GSA) officials and a wide  range of officials from companies with large vehicle fleets, such as FedEx  Express and United Parcel Service (UPS); automobile manufacturers;  alternative fuel associations; and environmental organizations.
We conducted this performance audit from February 2010 to May 2011 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives. Appendix I provides additional information  on our scope and methodology.
subsections: section_title: Background
paragraphs: USPS’s mission is to provide reliable, affordable, and universal mail  delivery and postal retail services to the entire U.S. population as nearly as  practicable, regardless of where people live. In the past 5 years, USPS’s  delivery workload has increased on average by about 1 million delivery  points, or addresses, per year—from 126 million in fiscal year 2006 to  about 131 million in fiscal year 2010. USPS organizes its delivery points  into city and rural routes. Most city routes fall into one of three main  types, as shown in table 1.
In its two most recent contracts with the National Rural Letter Carriers  Association, USPS agreed to provide about 40,000 right-hand-drive  vehicles for many of its rural routes from 2004 to 2013. As of December 31,  2010, USPS had provided rural letter carriers with 33,060 of the  contractually required vehicles. According to USPS officials, USPS expects  to provide the remaining vehicles by the end of December 2013. According  to USPS officials, USPS provides the vehicles to rural carriers with low  mileage routes and based on other considerations, such as the vehicle’s  proximity to fuel and a USPS vehicle maintenance facility and the  adequacy of security for the vehicle. While these agreements significantly  expanded the number of rural letter carriers who operated USPS vehicles,  as of March 11, 2011, 41,026 rural letter carriers still used their personal  vehicles for USPS mail deliveries.
USPS is an independent establishment of the federal government, with a  Board of Governors, which has responsibilities similar to a corporation’s  board of directors, that oversees its operations and expenditures,  including those for major capital investments. Over the past 4 years,  capital investments declined from $2.7 billion in fiscal year 2007 to $1.4  billion in fiscal year 2010. According to USPS officials, most capital  expenditures since fiscal year 2008 have been for investments that are  expected to provide cost savings, such as automated mail sorting  equipment, and none of these expenditures have been for delivery  vehicles. However, as a result of appropriations to GSA under the  American Recovery and Reinvestment Act of 2009, USPS received about  6,500 new, more fuel-efficient vehicles from GSA in 2009 and 2010 in a one- for-one exchange for older, less fuel-efficient USPS vehicles.
To help address its financial challenges, in March 2010, USPS issued a 10- year action plan, or strategy, in which it proposed, among other things,  reducing mail delivery from 6 days to 5 days a week and enhancing its  ability to close underutilized postal offices. The plan did not include a  strategy for addressing the agency’s delivery fleet needs. USPS also has  made operational changes to reduce costs, such as deploying a new  system that automatically sorts and sequences large envelopes and  magazines into the order in which they are to be delivered. According to  USPS, this system reduces the time letter carriers must spend preparing  mail for delivery and allows for consolidation of delivery routes into  fewer, but longer, routes. USPS is also working to enhance its revenues  through initiatives such as the introduction of flat-rate boxes for Priority  Mail and volume-based rate incentives to stimulate additional mail use.  Operational changes will affect USPS’s future fleet needs.
USPS is subject to certain provisions of EPAct 1992 related to federal  agency vehicle fleets. The act—designed to improve energy efficiency— requires that 75 percent of light-duty vehicles acquired for federal fleets in  major metropolitan areas be capable of using alternative fuels. Alternative  fuel vehicles must be capable of using one of a variety of fuel types, such  as ethanol, natural gas, propane, biodiesel, electricity, or hydrogen.  Legislation subsequently expanded the definition of alternative fuel  vehicles to include hybrid vehicles and any other type of vehicle that can  achieve a significant reduction in petroleum consumption, as  demonstrated by the Administrator of the U.S. Environmental Protection  Agency. Legislation also subsequently required that all dual-fuel vehicles  use alternative fuel unless they have received a waiver from DOE. DOE  grants waivers to agencies that operate vehicles in areas where alternative  fuel is unavailable, not available within 5 miles or 15 minutes of travel, or  more expensive per gallon than gasoline at the same fuel station.
In February 2011, USPS had 306 vehicle maintenance facilities distributed  among its seven area offices. According to USPS officials, the agency also  uses contractors at private maintenance facilities, such as garages, to  perform some of its vehicle maintenance, and their use has increased in  recent years, partly because the number of USPS technicians has declined  under a hiring freeze. USPS tracks its vehicles’ performance and costs,  including maintenance work and costs, through VMAS, according to USPS  officials. Field and headquarters offices get periodic VMAS reports on  various vehicle performance indicators, and data on vehicle accidents are  kept in a separate database.
USPS’s Office of Vehicle Programs, which is under the Vice President of  Delivery and Post Office Operations, is responsible for fleet management,  leasing, maintenance policies and procedures, parts, vehicle research,  development and testing, and new vehicle acquisitions. In addition, USPS’s  Office of Sustainability coordinates and establishes energy and  environmental goals for the fleet. Consistent with legislative requirements,  by fiscal year 2015 (compared with a fiscal year 2005 baseline), USPS’s  goals are to reduce petroleum fuel use by 20 percent and increase  alternative fuel use by 10 percent annually (for an overall increase of 100  percent over the 10-year period).
In its fiscal year 2010 Strategic Sustainability Performance Plan, USPS  reported that it did not expect to meet its 2015 petroleum reduction goal.  Specifically, USPS reported that from fiscal years 2005 through 2009, its  delivery fleet’s use of petroleum increased because of growth in the  number of its delivery addresses. According to USPS, its proposal to  reduce delivery from 6 days to 5 days a week has the largest petroleum  reduction potential, but even if Congress approves the proposal, it would  not be likely to meet its fiscal year 2015 goal. In contrast, USPS reported  that it had already met its second goal because, from fiscal years 2005  through 2009, its use of alternative fuel increased by 114 percent.
section_title: USPS’s Delivery Fleet Primarily Consists of LLVs That Are Approaching the End of Their 24-Year Expected Operational Lives
subsections: section_title: LLVs, Flex-Fuel Vehicles, and Minivans Are the Principal Components of USPS’s Delivery Fleet
paragraphs: The number of half ton and smaller vehicles in USPS’s delivery fleet— mostly LLVs, flex-fuel vehicles (FFV), and minivans—has remained  relatively constant over the past 5 fiscal years, ranging from 182,517 to  189,712 vehicles, despite about 13,400 fewer delivery routes. The number  of delivery vehicles peaked in fiscal year 2008, before falling slightly, and  grew overall by 3,487 vehicles, or about 2 percent, over the 5-year period.
Despite some recent vehicle purchases, the majority of USPS’s fleet  consists of LLVs, which are approaching the end of their 24-year expected  operational lives. Produced by Grumman, the LLVs were acquired from  1987 through 1994, before EPAct 1992’s light-duty vehicle acquisition  percentage requirements went into effect in fiscal year 1996. The LLVs  have light-weight and long-lasting aluminum bodies mounted on a General  Motors chassis and are powered by a 4-cylinder gasoline engine. USPS  acquired the second major segment of the delivery fleet, FFVs, in 2000 and  2001, after EPAct 1992’s acquisition requirements went into effect. The  FFVs have an aluminum body that is similar to that of the LLV. According  to USPS officials, FFVs are mounted on a Ford Explorer platform and are  powered by a 6-cylinder engine that is “flex-fuel” capable, meaning that it  can use gasoline or E85, a mixture of gasoline and ethanol (85 percent).
LLVs and FFVs, which together make up about 84 percent of USPS’s  delivery fleet, are easily identifiable as mail delivery vehicles (see fig. 2).  These vehicles are built on a light truck chassis (light-duty vehicles) and  have a cargo capacity of 1,000 pounds with 108 cubic feet of cargo space.  Key features of both include right-hand drive, an open interior for storing  mail, and sliding doors. According to USPS, right-hand-drive vehicles are  necessary for curbline delivery so that letter carriers can safely deliver  mail directly to mail boxes without leaving their vehicles. Because right- hand-drive vehicles can be used for all routes, they also provide  operational flexibility, allowing managers to move them to any route  when, for example, another right-hand-drive vehicle is out of service for  maintenance. In addition, Vehicle Programs officials told us that a  standardized design minimizes training requirements and facilitates the  establishment of partnerships with part suppliers.
The LLVs’ and FFVs’ bodies were made to withstand harsh operating  conditions. USPS officials explained that the typical delivery operating  cycle is extremely hard on vehicles because of the large number of stops  and starts each day (an average of about 500 stops and starts per delivery  route). In addition, when the letter carrier frequently exits and re-enters  the vehicle, doors are opened and closed, and keys are turned in the door  locks and ignition far more often than in a typical personal vehicle.
The third major segment of the delivery fleet, shown in figure 3, consists of  commercially available minivans. While USPS modified these minivans for  use as delivery vehicles, according to USPS officials, they do not have  right-hand drive and therefore cannot be used on all routes, reducing  operational flexibility. In addition, commercially available vehicles are not  built to withstand the harsh operating conditions of mail delivery and,  consequently, the minivans have an expected operating life of 10 years.  Most of USPS’s minivans are E85-capable, meaning that they can operate  on either E85 or gasoline.
Table 2 provides a profile of the three main types of delivery vehicles that  collectively account for about 96 percent of USPS’s 192,305 delivery  vehicles. Other types of vehicles are used to deliver mail in certain areas.  These vehicles include sport utility vehicles and larger 2-ton trucks, which  typically are used for mail collection, not deliveries.
According to Vehicle Programs officials, USPS leased some delivery  vehicles (minivans) in the past, but it now owns all of its delivery vehicles.  In part, this is because USPS’s custom-built LLVs and FFVs are not  commercially available through leasing programs. However, even when  vehicles are commercially available, Vehicle Programs officials stated that,  according to USPS’s lease-versus-buy analyses for recent purchases, such  as its fiscal year 2008 acquisition of minivans, purchasing these vehicles  has been more cost-effective than leasing them because USPS intends to  own the vehicles for a long time.
section_title: Some of USPS’s Delivery Vehicles Are Capable of Using Alternative Fuels
paragraphs: About 78 percent of USPS’s delivery vehicles use gasoline or diesel  exclusively, while the other 22 percent are capable of operating with an  alternative fuel. As shown in table 3, E85-capable vehicles (FFVs and  minivans) make up about 20 percent of the delivery fleet while,  collectively, the other alternative fuel vehicles—typically, converted  LLVs—account for about 2 percent of the delivery fleet. According to  Vehicle Programs officials, a typical LLV uses an equivalent of about two  gasoline gallons of fuel a day. According to USPS officials, while USPS has  a variety of pilot programs underway to explore other alternative fuel  vehicle technologies (other than E85-capable vehicles), almost all of its  other alternative fuel vehicles are capable of using compressed natural gas  in addition to gasoline.
section_title: USPS Has Acquired Alternative Fuel Vehicles in Response to Requirements, but Has Experienced Challenges
subsections: section_title: USPS Has Acquired E85- Capable Vehicles and Increased E85 Use, but Has Not Always Used E85 because of Logistical and Cost Issues
paragraphs: Since 2000, USPS has consistently purchased E85-capable delivery  vehicles to satisfy the legislative requirement that at least 75 percent of its  vehicle acquisitions be alternative fuel vehicles, and it had a total of 39,149  E85-capable vehicles in its delivery fleet as of September 30, 2010.  According to Vehicle Programs officials, USPS purchased E85-capable  vehicles because even though prior to 2004 each vehicle cost about $300 to  $500 more than a comparable gasoline-only vehicle when they were  acquired, purchasing E85-capable vehicles allowed USPS to meet the  requirements of EPAct 1992 for less than it would have had to spend to  acquire other types of alternative fuel vehicles. In addition, according to  Vehicle Programs officials, the agency expected that E85 eventually would  be widely available throughout the United States. However, according to  DOE data, E85 suppliers are concentrated in a few regions of the country  (see fig. 4.) and, as of December 2009, E85 was not available at 99 percent  of U.S. fueling stations.
USPS increased its use of E85 from about 324,000 gasoline gallon  equivalents in fiscal year 2005 to about 822,000 gasoline gallon equivalents  in fiscal year 2009—an increase of about 154 percent—but the limited  availability of E85 nationwide has hindered its greater use of this fuel. For  example, according to USPS officials, letter carriers who drive the 720  E85-capable vehicles USPS deployed around Minneapolis and St. Paul,  Minnesota, face few problems because E85 is widely available there (see  fig. 5). However, because of operational requirements, many E85-capable  delivery vehicles are used in other areas, such as New England, that  currently have very limited E85 availability. According to Vehicle  Programs officials, to increase E85 use, USPS has redeployed some E85- capable vehicles within local areas so that they could be fueled with E85.  However, Vehicle Programs officials said that USPS has not undertaken  large-scale redeployments of these vehicles because a cross-country move  costs about $1,500 to $2,500 per vehicle.
Because of E85’s limited availability, USPS has sought annual waivers  from DOE and, according to USPS data for fiscal year 2010, obtained  waivers that permit it to operate 21,495 of its 40,072 E85-capable  vehicles—or about 54 percent—exclusively on gasoline. The remaining  18,577 E85-capable vehicles operate without waivers (unwaived vehicles)  and, thus, are expected to operate exclusively on E85. However, as  described below, because operational costs are higher for using E85 than  for using gasoline, even when E85-capable vehicles are located in areas  where E85 is available, USPS does not always use E85, as acknowledged  by Vehicle Programs officials. According to DOE officials, apart from cost  considerations, DOE will not grant a waiver to the requirement to use  alternative fuel when E85 is available within 5 miles or 15 minutes of  travel. In January 2009, USPS issued a policy stating that vehicles should  be fueled with E85 when (1) E85 is available either to an entire delivery  unit or on a specific route when no deviation from the route or no  additional travel time is required to acquire E85 and (2) E85 costs the  same or less than gasoline. In July 2009, based on DOE’s draft guidance  on E85 waivers, USPS issued a related memo requesting delivery programs  managers to determine where E85 was located within 15 minutes or 5  miles of E85-capable vehicles and priced equal to or less than regular  unleaded gas. The memo advised the managers that E85 must be used if  these conditions were met. However, Vehicle Programs officials  acknowledged that, due to operational requirements and cost issues, this  latter requirement is not always followed. Instead, according to a USPS  official, managers are expected to take into account the language in both  the January 2009 policy and July 2009 memo while considering operational  requirements, such as additional labor costs, that may be incurred by letter  carriers who must deviate from their routes to fuel with E85.
DOE officials are aware that USPS’s E85 policy varies from DOE’s criteria  for approving waivers and that USPS is not fully complying with legislative  requirements to fuel unwaived E85-capable vehicles with E85. However,  they acknowledged that, unlike other agencies that receive appropriations  for fuel expenditures, USPS must pay for its fuel costs through income  earned from its operations.
section_title: USPS’s Use of E85-Capable Vehicles Has Resulted in Higher Fuel Costs
paragraphs: USPS’s use of E85-capable vehicles has resulted in higher operating costs  regardless of whether the vehicles are fueled with E85 or gasoline. First,  when USPS contracted to purchase its FFVs in 2000, E85 capability was  available only in vehicles with 6-cylinder engines. According to USPS  officials, the FFVs’ 6-cylinder engines are heavier and less fuel efficient  than the LLVs’ 4-cylinder engines, resulting in higher fuel consumption and  costs—regardless of the type of fuel used. Second, because of E85’s lower  energy density, USPS’s FFVs are about 27 to 30 percent less fuel efficient  when fueled with E85 than when fueled with gasoline, according to  Vehicle Programs officials. Thus, it takes more gallons of E85 than  gasoline to drive the same number of miles. Furthermore, although E85  generally costs less per gallon than gasoline, the difference in cost  generally has not been sufficient to offset the higher costs associated with  E85’s lower fuel efficiency (see fig. 6). Based on USPS’s information that it  consumed about 587,000 gallons of E85 in fiscal year 2010, we estimate  that USPS incurred about $135,700 more in costs in fiscal year 2010 by  using E85, instead of gasoline.
The reasons that USPS decided to purchase E85-capable vehicles to meet  legislative requirements and the challenges it faces in fueling these  vehicles with E85 are similar to those of many other federal agencies. For  example, according to DOE data, 87 percent of federal alternative fuel  vehicles acquired to meet EPAct 1992 requirements in fiscal year 2009  were E85-capable vehicles. Furthermore, in fiscal year 2010,  approximately 55 percent of E85-capable vehicles acquired to meet EPAct  1992 requirements in all federal fleets received a waiver, allowing them to  operate exclusively on gasoline, according to DOE. In addition, according  to DOE officials, a recent DOE analysis—currently in draft—has found  that the majority of federal agencies are not in compliance with the  requirement to fuel unwaived E85-capable vehicles with E85.
Officials from UPS and FedEx Express—companies with missions similar  to USPS’s—told us that they see few benefits to owning and operating E85- capable vehicles and, as a result, they have not purchased any E85-capable  vehicles. Instead, they said that despite higher acquisition costs, their  companies have purchased small numbers of other alternative fuel  vehicles—electric, hybrid, and compressed-natural-gas-capable vehicles— to lower their companies’ fuel costs, reduce their emissions, and enhance  their corporate image.
section_title: USPS’s Experiences with Other Types of Alternative Fuel Vehicles Demonstrate Cost and Infrastructure Challenges
paragraphs: Apart from its experiences with E85-capable vehicles, USPS has a variety  of limited experiences with other types of alternative fuel delivery  vehicles. Collectively, these vehicles accounted for about 2 percent (3,490  vehicles) of its delivery fleet as of September 30, 2010. These vehicles  include 3,401 LLVs and 2-ton trucks converted to run on compressed  natural gas, 34 LLVs converted to run on propane, 11 conventional hybrid  electric vehicles, 42 plug-in electric vehicles, and 2 hydrogen fuel cell  vehicles.
According to Vehicle Programs officials, while USPS has integrated these  alternative fuel vehicles into its delivery fleet, it has not invested more  heavily in alternative technologies for several reasons. First, the officials  stated that USPS is the only U.S. agency that requires right-hand-drive  vehicles to fulfill its mission and, because these vehicles are not available  commercially, the requirement limits vehicle choices, regardless of how  the vehicles are fueled. Second, USPS officials and other experts  explained that purchasing alternative fuel vehicles instead of gasoline- powered vehicles likely would result in higher estimated lifecycle costs,  largely because their acquisition costs would be significantly higher. While  purchasing some types of alternative fuel vehicles could reduce USPS’s  fuel costs, they said, the fuel savings would be unlikely to offset the higher  acquisition costs of the vehicles over their operating lives because, on  average, USPS’s delivery vehicles travel only about 17 miles a day. Third,  Vehicle Programs officials told us that the limited availability of alternative  fuels and the high costs of installing fueling infrastructure for them—such  as on-site charging stations for electric vehicles—have made it difficult to  elect to invest in or operate these vehicles. Finally, they noted that USPS  has experienced problems obtaining technological support and parts for  alternative fuel vehicles. For example:    High acquisition costs have prohibited larger purchases of hybrid  vehicles. When we conducted our site visits, USPS had 12 hybrid vehicles  in its delivery fleet: two 2-ton hybrid trucks in New York state that were  converted to a hybrid power train that USPS received in 2009, and 10 Ford  Escape hybrids in California that were purchased in 2005. The 2-ton  vehicles were converted to hybrid vehicles through partnerships with  manufacturers at no cost to USPS, and it was able to purchase the 10 Ford  Escape hybrids at a cost of about $27,700 in 2010 dollars. According to  USPS officials, all of these vehicles have significantly better fuel economy  than similar nonhybrid vehicles in its delivery fleet. However, Vehicle  Programs officials stated that because hybrid vehicles typically cost more  to acquire—$9,000 more in the case of a 2011 Ford Escape hybrid  compared to the nonhyrid version of the same vehicle—USPS has not  invested heavily in these vehicles.
Limited fueling infrastructure and difficulty obtaining parts have  caused USPS to scale back its use of compressed natural gas in delivery  vehicles. In the 1990s, USPS converted about 7,300 LLVs to operate on  compressed natural gas. However, because of fueling infrastructure issues  and parts supply challenges, as of September 30, 2010, USPS had removed  this capability from all but 3,372 of these vehicles. At the conclusion of our  review, 42 of these vehicles were being operated in Corpus Christi, Texas,  where the city, to increase the use of this fuel, helped install needed  fueling infrastructure and provided $400 of fuel for each of these 42  compressed-natural-gas-capable vehicles (about 200 days of fuel per  vehicle, according to Vehicle Programs officials). The manager of the local  vehicle maintenance facility told us that operating these vehicles on  compressed natural gas has reduced USPS’s fuel costs and, consequently,  in January 2011, he was in the process of obtaining 37 additional  compressed-natural-gas-capable vehicles from other locations in Texas. In  contrast, USPS’s experience in Huntington, New York, illustrates what  Vehicle Programs officials described as more typical challenges related to  USPS’s use of compressed natural gas. Specifically, in the mid-1990s, all of  the LLVs at the Huntington post office were converted to run on  compressed natural gas. USPS officials said the vehicles were run on this  fuel for only about 6 months because—almost immediately—the vehicles  had reliability issues and they faced challenges obtaining replacement  parts.
Parts supply issues caused Ford to recall 500 electric vehicles soon after  their deployment as USPS delivery vehicles. In 1999, USPS, through a  partnership with DOE and several regional and local agencies in California  and New York state, acquired 500 plug-in electric vehicles from Ford.  However, Ford recalled the vehicles soon afterwards because the vehicle  battery manufacturer stopped making the needed batteries. Ford replaced  them with gasoline-powered minivans.
For additional information on USPS’s experiences with various types of  alternative fuel vehicles, see appendix II.
section_title: USPS’s Approach for Addressing Its Delivery Fleet Needs Has Financial, Operational, and Environmental Trade- offs
subsections: section_title: USPS’s Approach Is to Maintain Its Current Vehicles While Planning How to Address Its Longer Term Delivery Fleet Needs
paragraphs: USPS’s current approach is to sustain operations of its delivery fleet— through continued maintenance—for the next several years, while  planning how to address its longer term delivery fleet needs. The current  approach also anticipates purchasing limited numbers of new,  commercially available minivans, as necessary, to meet its operational  requirements. According to Vehicle Programs officials, USPS adopted its  current approach in December 2005 after senior management and a Board  of Governors subcommittee decided not to initiate a major replacement or  refurbishment of the delivery fleet. At that time, USPS estimated that fleet  replacement—one of the five options considered—would cost $5 billion  for about 175,000 vehicles. Planning and executing a custom-built vehicle  acquisition would take 5 to 6 years from initially identifying the vehicles’  specifications and negotiating with manufacturers through testing and  deploying the vehicles, according to Vehicle Programs officials. USPS also  elected not to refurbish its fleet, another option considered. According to a  USPS contractor, the agency could have delayed purchasing new vehicles  for at least 15 years if it refurbished its existing LLVs and FFVs (i.e.,  replaced nearly all vehicle parts subject to the effects of wear and aging)  over a 10-year period. In 2005, the contractor estimated that refurbishing  these vehicles would cost $20,000 per vehicle—a total cost of about $3.5  billion, assuming that 175,000 vehicles were refurbished. According to  Vehicle Programs officials, USPS chose to sustain its operations through  continued vehicle maintenance pending operational and financial  developments and evolving advancements in vehicle technologies. Several  senior USPS officials told us the agency does not intend to begin a major  vehicle acquisition until 2018 at the earliest, largely because of financial  constraints.
As discussed earlier, USPS’s financial condition has since declined  substantially and although USPS issued a 10-year action plan in March  2010 for improving its financial viability, the plan did not describe a  strategy for addressing its delivery vehicle needs. Federal capital planning  principles emphasize the importance of    strategically linking agency goals and objectives, such as those outlined in  USPS’s action plan, to an agency’s capital investment needs;    evaluating the capacity of existing agency assets; and  identifying alternatives to bridge gaps between current and needed  capabilities.
USPS has not analyzed how operational changes proposed in its 10-year  plan, including a potential shift in delivery from 6 days a week to 5 days,  would affect its fleet needs or the consequences of its decision to delay the  fleet’s replacement or refurbishment. In addition, it has not developed a  plan for financing the strategy it eventually chooses. However, without the  inclusion of this major capital investment need in its action plan or other  documented analysis, USPS’s future fleet needs are unclear, as is USPS’s  assessment of how urgently it should replace, or refurbish, much of its  aging delivery fleet and how it can finance such a major capital  investment.
According to Vehicle Programs and senior USPS officials, the Vehicle  Programs office is in the early stages of developing a new proposal for  addressing the agency’s delivery fleet needs. These officials stated that the  proposal will likely explore several alternatives, including continuing to  maintain the current fleet, refurbishing the LLVs and FFVs, or, possibly,  undertaking a major acquisition of new vehicles. The proposal also is  expected to address a June 2010 USPS Office of Inspector General  recommendation that USPS replace about 20,000 delivery vehicles whose  maintenance costs exceeded $5,600 during each of 2 consecutive fiscal  years. Furthermore, Vehicle Programs officials stated that the proposal  will discuss strategies for incorporating alternative fuel capabilities into  USPS’s next major fleet acquisition. According to Vehicle Programs  officials, USPS expects to present its proposal for consideration by the  USPS Capital Investment Committee later this fiscal year.
section_title: USPS Is Uncertain How Best to Incorporate Alternative Fuel Vehicles into Its Next Major Delivery Fleet Acquisition
paragraphs: While USPS intends to examine ways to comply with EPAct 1992’s  acquisition requirements in its next large-scale acquisition of vehicles,  according to Vehicle Programs officials, life-cycle costs are significantly  higher for nearly all currently available alternative fuel vehicles than for  gasoline-powered vehicles. This is largely because, given the delivery  fleet’s low annual mileage, the savings on fuel associated with alternative  fuel vehicles would not be sufficient to offset the vehicles’ higher  acquisition costs. Consequently, these officials told us a large-scale  acquisition of alternative fuel vehicles (other than E85-capable vehicles) is  not likely to be financially viable for USPS. In addition, as discussed  earlier, USPS has concerns about undertaking a large-scale acquisition of  most alternative fuel vehicles because of their potentially higher  infrastructure and operating costs and uncertainties about the availability  of parts and long-term support for rapidly evolving alternative vehicle  technologies. For example, USPS expressed concern about two recent  bills introduced in Congress. One of these bills would have authorized  about $2 billion for, among other purposes, the purchase of at least 20,000  electric delivery vehicles and the installation of 24,000 charging stations,  while the other bill would have required USPS to ensure that within 5  years at least 75 percent of its fleet would consist of electric vehicles but  did not authorize funding. USPS stated that it is concerned about  operating a large portion of its fleet exclusively on electricity because of  the potential for mail delivery disruptions if local electric grids fail. In  addition, USPS expressed concerns about the availability of parts and  potentially high vehicle acquisition, infrastructure, and battery- replacement costs. Because of these concerns, USPS commented that if  legislation related to the electrification of its fleet is enacted, it would  prefer funding for a pilot program of roughly 1,000 electric vehicles that it  would conduct in consultation with DOE.
USPS may be able to meet EPAct 1992’s light-duty vehicle acquisition  requirements in future vehicle acquisitions by purchasing E85-capable  vehicles without incurring the additional costs that it faced in its previous  acquisitions of these vehicles. According to DOE officials, more E85- capable vehicles are now available with 4-cylinder engines, and these  engines now can be acquired commercially for little to no additional cost.  However, as discussed earlier, USPS and other federal agencies often have  faced challenges fueling vehicles with E85.
Other federal agencies also face challenges complying with fleet  requirements. As we recently reported, conflicting statutes limit federal  fleet managers’ flexibility to reduce their fleets’ petroleum use and  greenhouse gas emissions. For example, we reported that federal  requirements to purchase alternative fuel vehicles can undermine the  requirement to reduce petroleum consumption because the fuels’ limited  availability results in agencies using gasoline to fuel alternative fuel  vehicles. In other work, we reported that federal fleet requirements do not  provide agencies with a means to set priorities between conflicting  requirements. As a result, we recommended that the Secretary of Energy,  in consultation with other federal agencies, propose legislative changes to  resolve the conflicts and set priorities for complying with the multiple  federal fleet requirements and goals for reducing petroleum consumption,  reducing emissions, managing costs, and acquiring advanced technology  vehicles. DOE and GSA are working with other federal agencies to create  a broader, performance-based approach to improve fuel efficiency and  thereby reduce petroleum consumption and greenhouse gas emissions.  The new performance-based approach is intended to provide federal  managers with greater flexibility in improving the fuel efficiency of their  agencies’ vehicle fleets.
Vehicle Programs officials stated that, in their view, the best way for USPS  to meet national sustainability requirements for reduced emissions  without incurring significant costs may be to invest in highly fuel-efficient  gasoline-powered vehicles. Such an outcome could be possible for future  USPS delivery fleet acquisitions given increased legislative flexibility in the  definition of what constitutes an alternative fuel vehicle. Specifically, the  National Defense Authorization Act of 2008 expanded this definition by  permitting federal agencies to meet EPAct 1992’s fleet acquisition  requirements for light-duty-alternative-fuel vehicles by purchasing vehicles  that the Environmental Protection Agency has demonstrated would  achieve a significant reduction in petroleum consumption. Based on the  agency’s demonstration, any low-greenhouse-gas-emitting vehicle in  locations that qualify for a DOE waiver would be considered an alternative  fuel vehicle.
According to manufacturers, environmental organizations, and other  experts we interviewed, gasoline-powered vehicles are becoming more  fuel efficient and producing fewer emissions. As a result, newer gasoline- powered vehicles are likely to be more fuel-efficient than USPS’s LLVs and  FFVs. In addition, purchasing highly efficient gasoline vehicles would  eliminate the fueling infrastructure and parts supply challenges USPS has  faced with some alternative fuel vehicles. However, because the  Environmental Protection Agency evaluates only commercially available  vehicles, at present, there are no low-greenhouse-gas-emitting right-hand- drive vehicles available that have been determined to meet EPAct 1992’s  fleet acquisition requirements for light-duty vehicles. Consequently, if  USPS decides to pursue such a vehicle in its next acquisition of custom- built delivery vehicles, it would need to work with the manufacturer and  the Environmental Protection Agency to determine if such a vehicle could  meet its operational needs while being considered a low-greenhouse-gas- emitting vehicle.
Recognizing that vehicles have become more fuel efficient, in February  2011, USPS issued two solicitations to “repower” two existing LLVs by  installing new fuel efficient engines; new transmissions; and all related  equipment, such as new cooling and exhaust systems. One of the  solicitations is for the repowerment of an existing LLV with a fuel-efficient  gasoline engine, while the other is to replace another LLV’s existing  gasoline engine with a fuel-efficient diesel engine. According to the  solicitations, each of the two repowered vehicles must have (1) one of the  best fuel economy ratings possible compared to similar commercially  available vehicles and (2) operate on commercially available fuel. A  Vehicle Programs official told us that USPS expects to award these  contracts in April 2011 and to receive the vehicles in late 2011. According  to a Vehicle Programs official, through operating these vehicles, USPS  hopes to gain experience on how new, more fuel efficient engines would  affect the agency’s fuel efficiency and delivery operations.
section_title: Current Approach Allows USPS to Defer a Major Capital Investment but Entails Some High Maintenance Costs, Operational Challenges, and Delayed Improvements
subsections: section_title: USPS’s Maintenance Program and Parts Supply Have Enabled USPS to Meet Its Delivery Mission While Avoiding Capital Costs
paragraphs: USPS’s well-established maintenance program has allowed it to continue  to meet its delivery mission with its current fleet of delivery vehicles. The  program requires a minimum of two preventive maintenance inspections  annually for each of USPS’s delivery vehicles. Parts that are determined to  be sufficiently worn or are not expected to last until the next inspection  are expected to be replaced. In addition to regularly scheduled  maintenance, unscheduled maintenance occurs on the vehicles when  needed to (1) resolve problems discovered when letter carriers perform  daily inspections of vehicles prior to beginning their routes or (2) fix  vehicles that break down while carriers are delivering mail. So that letter  carriers have vehicles available to use while their vehicle is being serviced,  about 3 percent of USPS’s delivery vehicles are held in a maintenance  reserve. According to USPS Finance officials, USPS incurred about $1.05  billion in maintenance and fuel costs for its delivery fleet in fiscal year  2010—which comes to about $18 per vehicle per day. This estimate  includes about $750 million in maintenance costs and about $300 million in  fuel costs.
The USPS Office of Inspector General, which frequently reports on the  vehicle maintenance program, recently reported that USPS’s approach of  continuing to maintain its current delivery fleet is operationally viable and  generally cost-effective, given USPS’s financial circumstances. Similarly,  our custom query of USPS’s VMAS found that delivery vehicles’ direct  maintenance costs (costs that can be directly attributed to work on a  particular vehicle) have risen only slightly over the past 5 fiscal years,  from a low of about $2,453 per vehicle in fiscal year 2007 to a high of  $2,587 per vehicle in fiscal year 2010 (see fig. 7). These direct  maintenance costs are somewhat understated because, according to USPS  data, about 6 percent of USPS’s total maintenance costs—all due to  maintenance performed by contractors—are not entered into VMAS.
USPS’s success in keeping its aging delivery fleet operational is also due to  a steady supply of parts for its LLVs and FFVs, according to Vehicle  Programs officials. Since USPS owns more than 160,000 of these vehicles,  it has worked with suppliers to ensure that parts for these vehicles  continue to be available. During our site visits, USPS’s vehicle  maintenance managers and technicians routinely informed us that this  steady parts supply will enable them to maintain both types of vehicles  well into the future. According to Vehicle Programs officials, because of  the age of the vehicles, nearly all the LLVs have had their engines and  transmissions replaced at least once, and often twice, and some of the  LLVs have had nearly all their parts replaced, including their frames. USPS  officials stated that it is more cost-effective to replace delivery vehicle  parts as they are needed than to undertake a general vehicle  refurbishment, in which all major parts are replaced at one time, because  replacing parts as needed avoids costs resulting from premature  replacements. While none of the other fleet operators we spoke with keep  their vehicles as long as USPS plans to keep its LLVs and FFVs, most  agreed that replacing parts as needed can keep vehicles operational at less  cost than purchasing new vehicles.
According to numerous USPS headquarters and field officials at vehicle  maintenance facilities and post offices, as well as letter carriers, USPS’s  vehicle maintenance program has thus far supported USPS’s requirements  to deliver mail 6 days a week. In part this is because, according to officials  at a number of vehicle maintenance facilities, the LLV is a well-designed,  highly functional vehicle that is easy for mechanics to work on, and its  long-lived aluminum body has held up well. While some vehicle  maintenance facility officials noted problems with the FFVs—such as  engine issues that led to the early replacement of some engines—in  general, they stated that the FFVs also continue to be reliable and  operational. USPS employees at a majority of the eight vehicle  maintenance facilities and some post offices we visited told us that the  delivery vehicles in their locations are in good condition and that, in their  view, the vehicles can continue to deliver mail without major operational  interruptions for at least several more years. Vehicle maintenance facility  managers, technicians, and letter carriers routinely stressed that they had  no safety concerns about the vehicles despite their advanced age.
section_title: One Trade-off of Current Approach Is High Maintenance Costs for Some Vehicles
paragraphs: The primary advantage of USPS’s current approach for addressing its  delivery fleet needs is that it has allowed USPS to avoid a near-term, major  capital expenditure that it cannot afford. However, this approach has a  number of trade-offs. One trade-off is that USPS has incurred high costs to  maintain some of its delivery vehicles. Our custom query of VMAS showed  that, while most delivery vehicles (about 77 percent) incurred less than  $3,500 in annual maintenance costs in fiscal year 2010, about 3 percent  (or 5,349) of these vehicles had more than $7,000 in maintenance costs. In  addition, 662 vehicles had more than $10,500 in maintenance costs in fiscal  year 2010—more than one-third the $31,000 per vehicle replacement cost  USPS currently estimates (see fig. 8). According to USPS officials, in most  cases, they repair an LLV or FFV rather than replace it with a  commercially available minivan because of the continuing need for right- hand-drive vehicles, which are not commercially available.
Another reason that some vehicles are incurring high maintenance costs is  that USPS is replacing the frames of LLVs that have significantly corroded,  especially in locations with severe winter weather, such as the Midwest. In  2008, USPS began requiring that the frames of all LLVs in high-corrosion  locations be visually inspected and measured annually, using an ultrasonic  device that determines the thickness of the frames at certain points.  Frames with holes through the metal were to be replaced immediately,  while frames with less than a desired thickness at certain key points were  expected to be replaced within 6 months. According to Vehicle Programs  officials, at least 4,489 LLV frames have been replaced from fiscal years  2008 through 2010. Replacing a frame is relatively expensive, not only  because of the cost of the frame but also because a replacement is labor- intensive, since every part of the vehicle must be removed and reinstalled  (see fig. 9). According to Vehicle Programs officials, it typically costs  about $5,000 to replace an LLV frame. None of the other nonpostal fleet  managers we spoke with have replaced their vehicles’ frames, and some of  these managers suggested that the need to do so is a key indication that it  is time to replace—not repair—a vehicle.
In addition to its overall maintenance costs, USPS’s unscheduled  maintenance costs have increased steadily, according to data from its  VMAS reports. Unscheduled maintenance can result in delays in mail  delivery and operational costs, such as overtime expenses. To reduce  operational costs, USPS, like other fleet operators, attempts to minimize  unscheduled maintenance. USPS’s goal is to ensure that no more than 20  percent of its total annual maintenance costs are for unscheduled  maintenance. However, according to a September 30, 2010, VMAS report,  about 31 percent of USPS’s annual maintenance costs were for  unscheduled maintenance—11 percentage points more than USPS’s goal.  Furthermore, USPS has not met its unscheduled maintenance goal in any  of the last 6 fiscal years. USPS’s unscheduled maintenance costs also are  likely to be higher than the amounts reflected in VMAS because, according  to headquarters officials and some vehicle maintenance facility managers  we spoke with, nearly all of the 6 percent of maintenance costs that are  currently not captured in VMAS are for unscheduled maintenance. Thus,  for fiscal year 2010, USPS’s unscheduled maintenance costs could have  been as high as about 37 percent of its total maintenance costs. During our  site visits, several local postal officials told us they are experiencing more  operational issues due to vehicle breakdowns, which can lead to increased  overtime costs. USPS could not provide us with the costs of these  operational issues because USPS’s time-keeping systems do not link costs  such as overtime incurred by postal supervisors and letter carriers to  vehicle breakdowns. We discussed the feasibility of capturing these costs  with Vehicle Programs officials.  They said that VMAS performance  indicator reports track unscheduled maintenance, and management is  aware of the operational impacts and costs.
In addition to the increasing rate of unscheduled maintenance, we  identified some instances of maintenance issues during our site visits. For  example:    We saw two rusted and partially missing body mounts on an LLV in  Florida, which was on a lift when we visited in October 2010. While the  frame bolts, which hold the frame to the vehicle, were intact, the lower  half of the body mounts and retaining washers were missing. A  maintenance assistant at the site indicated that, given the severity of the  rust (see fig. 10), the problem could not have occurred in the 5 months  since the LLV’s last scheduled inspection in May 2010. Additionally, while  we did not observe this issue, this individual told us that nearly all 31 LLVs  at his post office had bald tires when he assumed the maintenance  assistant position in 2009.
When we visited a vehicle maintenance facility in New York state,  technicians were replacing two severely corroded LLV frames with holes  through the metal. The manager of this facility informed us that frames in  this condition (see fig. 11) should have been replaced during a previous  preventive maintenance inspection. According to the manager, this did not  occur, possibly because the inspections were done by contractors who did  not follow USPS’s requirements for inspecting frames. According to the  manager, the vast majority of the 2,800 delivery vehicles at this vehicle  maintenance facility are sent to contractors for maintenance because he  has chosen to focus his facility’s limited resources on servicing USPS- owned tractor trailers used for hauling mail.
Similarly, officials at a Minnesota vehicle maintenance facility told us that  they are not following USPS’s requirements for replacing frames whose  thickness in key spots indicates weakness; instead, they said, facility  personnel replace frames only when they have one or more holes through  the metal. According to officials at this facility, given the state’s severe  winter weather, the facility has a large number of vehicles with thin  frames. While these vehicles meet USPS’s frame replacement  requirements, officials at the maintenance facility told us that they do not  have the resources (typically $5,000 per vehicle) to replace them all in the  short term.
section_title: Minivan Purchases Have Provided USPS with Needed Vehicles, but Have Also Decreased Standardization, Resulting in Operational and Other Challenges
paragraphs: USPS’s current approach for dealing with its aging delivery fleet has  significantly increased the number of left-hand-drive vehicles in the  delivery fleet over time. Specifically, because USPS does not currently  have the funds available to acquire new custom-built, right-hand-drive  vehicles, it now has 22,100 left-hand-drive minivans in its delivery fleet.  According to Vehicle Programs officials and officials at two post offices  that had a mix of minivans and right-hand-drive vehicles, minivans can  pose a problem because, since they cannot be effectively used on the more  than 50,000 delivery routes that require right-hand drive, they reduce  USPS’s operational flexibility. Furthermore, during our site visits, officials  at several vehicle maintenance facilities stated that, unlike for LLVs and  FFVs, USPS has encountered maintenance challenges for its minivans.  According to these officials, maintaining the older minivans—some of  which have met or exceeded their expected 10-year operating lives—has  become increasingly difficult, and they are experiencing problems  securing parts. According to Vehicle Programs officials, manufacturers  typically produce parts for commercially available vehicles for 10 years,  and officials told us that USPS does not have sufficient numbers of  minivans to maintain its own market for parts for subsequent years, as it  does for the LLVs and FFVs. Consequently, some of the older minivans are  being used as salvage for parts for operational vehicles (see fig. 12).
While new USPS delivery vehicles could potentially provide environmental  benefits such as reduced emissions and increased fuel efficiency, it is not  possible to quantify these benefits because USPS has not decided when,  what type of vehicles and how many it may acquire, or how many old  vehicles it may replace. Furthermore, such an analysis would depend on  other factors, such as the relative extent to which USPS uses these new  vehicles compared to the retired vehicles. Nevertheless, it is likely that  new delivery vehicles would (1) be more fuel efficient than the LLVs and  FFVs, and thus to some extent produce lower greenhouse gas emissions,  and (2) meet more stringent federal light-duty emissions standards for  carbon monoxide and other particulate matter.
According to Vehicle Programs officials, USPS’s current fleet approach  also makes it more challenging and costly to incorporate design  improvements into its fleet that could provide operational benefits. Such  improvements could include design features that could increase letter  carriers’ comfort and safety, such as features designed to reduce blind  spots when the carriers merge from the right side of the road.
section_title: Without Significant Improvement in USPS’s Financial Condition, There Are No Clear Options to Fund a Major Vehicle Replacement
subsections: section_title: USPS’s Financial Condition Poses a Significant Barrier to Funding a Delivery Fleet Replacement
paragraphs: USPS’s financial condition poses a significant barrier to its ability to fund a  major acquisition of its delivery fleet—a cost USPS recently estimated  would be about $5.8 billion to replace about 185,000 delivery vehicles with  new gasoline-powered custom-built vehicles, at a cost of about $31,000 per  vehicle (in 2011 dollars). As we have reported, continuing operational  losses have constrained funding for USPS’s capital investments. USPS’s  annual purchases for property and equipment have steadily declined over  the past 4 years, from $2.7 billion in fiscal year 2007 to $1.4 billion in fiscal  year 2010. For fiscal year 2011, USPS budgeted $1.3 billion for capital  investments and reported that expenditures for these investments will  continue to decline as USPS seeks to conserve its cash. USPS projects an  end-of-year cash shortfall of $2.7 billion for fiscal year 2011, meaning that  it does not expect to have sufficient cash to meet all of its financial  obligations, jeopardizing its operations. At the same time, while federal  capital planning principles emphasize the importance of, among other  actions, evaluating the capacity of existing assets and identifying  alternatives to bridge the gap between current and needed capacities, as  discussed previously, USPS has not developed a strategy for how and  when it will invest in a major acquisition of new delivery vehicles.
In the past, USPS funded major capital investments through a combination  of (1) net income from its earnings from postage and other postal products  and services, (2) rate increases designed to increase its income, or (3) debt  financing. However, these methods are likely to be inadequate to finance a  major delivery fleet replacement in the foreseeable future, for the  following reasons:    Net income. Although USPS can retain earnings that could be used to  finance a major acquisition of delivery vehicles, such earnings appear  unlikely because it projects a $6.4 billion loss for fiscal year 2011 and  continuing large financial losses for the foreseeable future. USPS expects  revenues to stagnate in the next decade with losses due to continued  declines in mail volumes—particularly for profitable First-Class Mail, its  core product. This means that USPS can no longer rely, as it once did, on  growth in mail volumes to help cover its costs. Meanwhile, USPS’s  progress in reducing its costs through rightsizing its operations and  realigning its workforce is limited by a combination of stakeholder  resistance and statutory requirements, as we have previously reported.
Rate increases. Rate increases also appear unlikely to generate sufficient  revenues to fund a major delivery fleet replacement because under the  Postal Accountability and Enhancement Act of 2006, such increases are  now generally limited by an inflation-based price cap on USPS’s market- dominant products—products that generate close to 90 percent of its  revenue. Moreover, even if the price cap did not constrain rate increases,  large rate increases could be self-defeating because they could potentially  trigger large, permanent declines in mail volumes.
Debt financing. USPS’s outstanding debt at the end of fiscal year 2010 was  $12 billion, and it expects to use the remaining $3 billion of its $15 billion  in borrowing authority in fiscal year 2011 to fund non-vehicle-related  expenditures.
section_title: USPS and Others See Little Potential to Finance a Fleet Replacement through Grants or Partnerships, Including Joint Procurements
paragraphs: By statute, USPS is generally not subject to federal contracting and  budgeting laws. As a result, USPS officials told us that USPS has the  authority to accept grant funding and to enter into joint procurements and  other partnerships to assist in a major delivery fleet replacement.  However, USPS’s use of federal or state grants could have public policy  implications, because USPS is supposed to be self-sustaining and to cover  its operating costs with post-related revenues. In addition, fair competition  issues or concerns about sharing sensitive procurement information could  arise if USPS actively pursued a partnership or joint procurement.
USPS and DOE officials stated that there are few opportunities for USPS  to receive federal grant funding to help it purchase vehicles, in part  because federal grants are typically targeted to state, local, or city  governments, or to nonprofit or educational organizations. In the past,  USPS has obtained state or local grants for limited numbers of alternative  fuel vehicles or related infrastructure, and in one case it received some  financial assistance from DOE. Specifically, in 1999, USPS partnered with  a number of entities, including the California South Coast Air Quality  Management District, DOE, and others, on an agreement formed to reduce  air pollution in California. This agreement included about $9 million in  funding subsidies from these entities to purchase 500 electric vehicles  from the Ford Motor Company (Ford) as well as to install charging  stations for these vehicles. USPS paid an additional $11.6 million to Ford  for these vehicles. According to USPS officials, the $9 million in outside  funding—a small fraction of the estimated $5.8 billion to replace the  largest portion of its delivery fleet—is the largest amount of outside  funding USPS has received for vehicle acquisitions. The project was  terminated after about 2 years because of battery problems, as discussed  previously in this report.
Senior USPS officials also stated that there is little likelihood that a joint  procurement arrangement could help finance a delivery fleet replacement.  According to USPS, UPS, and FedEx Express officials, a primary barrier to  a joint procurement is USPS’s need for customized, right-hand-drive  delivery vehicles similar in size to the LLV and FFV (UPS and FedEx  Express typically use larger vehicles and do not need right-hand-drive  capability). Officials from DOE, private companies related to vehicle  manufacturing and fuel, and an environmental organization that works on  vehicle fleet issues confirmed USPS’s assessment, indicating that it is  unlikely that USPS would be able to obtain financial help through existing  mechanisms for acquiring new delivery vehicles. USPS officials also stated  that they are not actively pursuing grants, joint acquisitions, or other  partnership agreements.
Finally, according to a senior USPS attorney, it is unlikely that it would be  feasible for USPS to enter into an energy savings performance contract to  help finance a major delivery fleet acquisition. Such contracts are used to  privately finance improvements in energy efficiency. Under an energy  savings performance contract, federal agencies enter into a long-term  contract (up to 25 years) with a private energy services company under  which the company installs energy-efficiency improvements financed from  private funds. The agency then repays the company out of the estimated  annual savings expected to be generated from the improvements. USPS  officials stated that the agency used this type of financing for building  improvements and has considered their applicability to a major fleet  acquisition. However, USPS officials said that USPS has largely stopped  using these contracts. Furthermore, given the low annual mileage of  USPS’s delivery fleet, USPS and DOE officials stated that it is unlikely that  the fuel savings generated from a more efficient fleet (whether consisting  of gasoline-only vehicles or alternative fuel vehicles) would be sufficient,  compared with the acquisition cost of the vehicles, to interest a private  investor.
section_title: Congressional Actions to Improve USPS’s Financial Condition Could Help USPS Fund a Delivery Fleet Replacement but Present Difficult Policy Issues and Trade-offs
paragraphs: In April 2010, we reported that Congress and USPS need to reach  agreement on a package of actions so that USPS can become financially  viable, and we recommended that in doing so, Congress consider  providing financial relief, such as by revising its retiree health benefit  funding and requiring any binding arbitration to take USPS’s financial  condition into account, as well as consider all cost cutting options.  Agreeing on a package of actions will involve difficult public policy issues  and trade-offs. However, depending on the specific actions adopted,  USPS’s follow-up, and the results, such an agreement could help enable  the funding of a major acquisition of delivery vehicles.
Although USPS is authorized to request appropriations for costs related to  “public service,” it has not received an appropriation for operational  costs since fiscal year 1982. USPS receives annual appropriations to fund  statutorily required mail services at free or reduced rates, such as free mail  for the blind and overseas voting, but these funds represent a very small  percentage of its revenues. However, USPS has benefited from taxpayer  funding in special circumstances. For example, Congress appropriated  $587 million in 2002 and $507 million in 2004 to help pay for safety  measures after letters containing anthrax contaminated the mail in 2001.
Providing appropriations would be another alternative to fund the multi- billion-dollar replacement of USPS’s delivery fleet. Such appropriations  could ensure the future viability of USPS’s delivery fleet, and—if  alternative fuel vehicles are specified by legislation or chosen by USPS— could potentially yield additional benefits, particularly for manufacturers  and suppliers of alternative fuel vehicles. In addition, regardless of the  technology selected, new vehicles likely would be more fuel efficient and  produce lower environmental emissions than USPS’s current vehicles.  However, this option also has difficult public policy trade-offs and would  raise questions about whether the economic benefits would be sufficient  to justify the costs. For example, appropriations would raise the federal  budget deficit, would reduce incentives for USPS to be self-supporting,  and could further limit USPS’s flexibility in determining the best vehicles  for its fleet.
section_title: Conclusions
paragraphs: USPS faces severe financial challenges and, for the foreseeable future,  cannot afford to replace or refurbish a large portion of its aging fleet.  USPS’s March 2010, 10-year action plan for addressing its financial  challenges did not (1) describe a strategy for addressing its delivery fleet  needs or (2) identify how the operational changes proposed in this plan  would affect its future fleet needs.
The trade-offs of continuing to maintain USPS’s delivery fleet until USPS  decides how to address its longer term delivery fleet needs are numerous  and include somewhat higher maintenance costs overall. For each of 662  delivery vehicles in fiscal year 2010, USPS incurred maintenance costs of  more than $10,500—more than one-third the $31,000 per-vehicle  replacement cost USPS estimates as of 2011. Furthermore, these high  vehicle costs were experienced in each of the four prior fiscal years that we  analyzed. These costs largely arise from USPS’s need for right-hand-drive  vehicles at a time when it cannot purchase these vehicles, yet remains  contractually required to supply thousands of them to rural letter carriers.  Related to this, delays in acquiring new delivery vehicles have caused USPS  to replace about 4,500 thin and, in some cases, severely corroded LLV  vehicle frames in fiscal years 2008 through 2010—at a cost of $5,000 per  vehicle. If not for the critical need for right-hand-drive vehicles, the need to  replace these frames may have caused USPS to replace—not repair—them.  USPS’s approach also has resulted in increasing unscheduled maintenance  costs, which create operational difficulties. Finally, delays in acquiring  custom-built, right-hand-drive vehicles have increased the number of left- hand-drive vehicles in the delivery fleet by more than 19,000 since 2006,  even though these vehicles cannot effectively operate on more than a  quarter of USPS’s delivery routes.
Despite these operational impacts, USPS’s approach of continued  maintenance has been reasonable given its pressing need to defer an  estimated $5.8 billion capital outlay for a major vehicle replacement or a  major refurbishment, estimated at $3.5 billion in 2005. However, the time  soon will come when the cost and operational consequences of this  approach will not allow further delays. When that time comes, USPS will  need to know how it can best comply with federal requirements for  acquiring alternative fuel vehicles while also meeting its operational  requirements. Consequently, USPS must develop a comprehensive strategy  for dealing with this inevitability.
As we have reported, Congress and USPS need to reach agreement on a  package of actions to restore USPS’s financial viability, which will enable  USPS to align its costs with revenues, manage its growing debt, and  generate sufficient funding for capital investment, including the inevitable  replacement or refurbishment, of its delivery fleet. However, until USPS  defines its strategy for a major capital investment for its delivery vehicles,  neither USPS nor Congress has sufficient information to fully consider its  options.
section_title: Recommendation for Executive Action
paragraphs: Given USPS’s need to ensure that its delivery fleet remains operationally  viable and maintain its legal mandate to purchase alternative fuel vehicles  and use alternative fuel in them, we recommend that the Postmaster  General develop a strategy and timeline for addressing USPS’s delivery  fleet needs. This effort should address:  the effects of USPS’s planned operational changes and continuing changes  in customers’ use of the mail on future delivery fleet requirements;  the range of strategic options available (including continuing to maintain,  not replace, its fleet), as well as the costs and time frames for these  options;    an analysis of any safety consequences associated with extending the  vehicles’ operational lives; and    alternative ways to comply with federal fleet requirements, including an  analysis of how USPS can best meet these requirements, given its budget  constraints.
section_title: Agency Comments
paragraphs: USPS provided written comments on a draft of this report by letter dated  April 13, 2011.  These comments are summarized below and are reprinted  in appendix III. USPS agreed with our findings and recommendation to  develop a strategy and timeline for addressing its delivery fleet needs. In  commenting on our recommendation, USPS stated that it is developing a  strategy to address the immediate and long-term needs of its delivery fleet,  and that it planned to complete the strategy and timeline by the end of  December 2011. USPS also stated that, while many alternatives exist for  future delivery vehicles, ultimately, operational requirements and the total  cost of ownership—including investment costs, infrastructure, life cycle  maintenance, and support costs—will be the drivers behind any  technology selection decision. In addition, USPS emphasized that given its  current financial condition, the availability of capital funds also will be a  primary factor in any investment decision. USPS also provided minor  technical comments via email, which we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to appropriate congressional  committees and USPS. We will also make copies available to others on  request. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at herrp@gao.gov or (202) 512-2834. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: In response to interest in issues related to the United States Postal  Service’s (USPS) vehicle fleet, the objectives of this report were to answer  the following key questions: (1) What is the profile of USPS’s delivery  fleet? (2) How has USPS responded to requirements for alternative fuel  vehicles, what experiences has it had with alternative fuel vehicles, and  what has it learned from its experiences? (3) What, if any, approach has  USPS adopted to address its delivery fleet needs, and what are the trade- offs of this approach? (4) What options exist to help USPS fund a major  acquisition of delivery vehicles?
The following sections describe the procedures we undertook to answer  these questions. In addition, we conducted background research to inform  our review. We reviewed prior GAO reports, including our work on USPS’s  financial condition and options Congress could consider to address  USPS’s financial condition; federal vehicle fleets; alternative fuel vehicles;  capital planning; internal controls; and energy savings performance  contracts. We analyzed financial and operating information from USPS,  including its annual reports, audited financial reports, 10-year action plan,  strategic sustainability performance plan, contractual obligation to  provide right-hand-drive vehicles to rural carriers, and fleet management  handbook. We reviewed analyses of USPS’s fleet conducted by USPS  officials, private consultants to USPS, and the USPS Office of Inspector  General. In addition, we reviewed documents prepared by the Department  of Energy (DOE) and the General Services Administration on issues  related to federal vehicle fleets as well as presentations and reports  provided at an annual federal fleet conference and at monthly meetings of  federal fleet managers. We reviewed USPS and DOE data on the number of  waivers USPS applied for and received exempting it from fueling its  alternative fuel vehicles with alternative fuel. Furthermore, we reviewed  federal legislation that establishes requirements related to federal fleets,  including the Energy Policy Act of 1992, the Energy Policy Act of 2005, the  Energy Independence and Security Act of 2007, and the National Defense  Authorization Act of 2008. In addition, we reviewed executive orders  related to federal vehicle fleets.
subsections: section_title: Analysis of Data from USPS on Its Vehicle Fleet
paragraphs: To determine the profile of USPS’s delivery fleet, the fleet’s maintenance  costs, and the trade-offs of the agency’s approach for addressing its  delivery fleet needs, we obtained and analyzed data from a custom query  of USPS’s Vehicle Management Accounting System (VMAS), the database  the agency uses to manage its vehicle fleet. We assessed the reliability of  the data by    performing electronic testing and visual review of data elements for  obvious errors and inconsistencies,  reviewing reports related to VMAS, and  interviewing agency officials knowledgeable about VMAS system controls  and vehicle data procedures.
Through discussions with knowledgeable USPS and USPS Office of  Inspector General officials, we learned that USPS staff enter data manually  into VMAS and, as a result, some contractor costs for maintenance are not  entered into VMAS, which has the effect of understating USPS’s vehicle  maintenance costs in VMAS. USPS and USPS Office of Inspector General  officials agreed that manual data entry is a major limitation of VMAS.
To identify the contractor costs that were not reported in VMAS, and were  therefore missing from our custom query of this database, we compared  the total contractor costs reported in VMAS with the total contractor costs  reported in another USPS data system, the Enterprise Data Warehouse  system. According to USPS finance officials, the Enterprise Data  Warehouse captures data from accounts payable, feeds into the general  ledger, and is used to supply information to the financial reporting system  USPS uses for its audited financial statements. Thus, according to these  officials, it provides the most reliable information available on USPS’s  costs. To assess the reliability of the Electronic Data Warehouse’s data, we  (1) interviewed officials knowledgeable about the data and (2) compared  our results to those of the USPS Office of Inspector General, which had  previously reported on discrepancies between data in the Electronic Data  Warehouse and VMAS. Based on this assessment, we determined that the  VMAS data were sufficiently reliable for the purposes of this report, as  long as we clearly noted the percentage of maintenance costs missing  from VMAS as determined by comparing the total maintenance costs  recorded in VMAS with the total maintenance costs recorded in the  Electronic Data Warehouse.
Using a custom query, we obtained VMAS data for all USPS vehicles for  fiscal years 2006 through 2010, including the vehicles’ annual maintenance  costs. To analyze information on the delivery fleet, we defined this fleet as  all vehicles with one of eight function codes based on the advice of  knowledgeable USPS officials. USPS officials agreed that the universe  established through this process resulted in an accurate representation of  its delivery fleet.
In addition to analyzing the VMAS data we obtained through a custom  query, we reviewed reports generated by VMAS (VMAS reports) and other  USPS documentation, including information on the number of alternative  fuel vehicles in USPS’s delivery fleet. USPS officials stated that they  typically use VMAS reports to manage the fleet. Because these reports  categorize vehicles by make and model rather than by function, the total  universe of delivery vehicles represented in these reports is slightly  different from the universe we obtained through our analysis of the  custom query and, thus, the numbers cannot be directly compared. USPS  officials recommended that we use the information from the agency’s  VMAS reports, rather than our custom query, to determine the number of  delivery vehicles in past fiscal years, because the accuracy of the VMAS  reports has been tested over time whereas the custom query was a new  capability. Consequently, we used data from the VMAS reports to analyze  changes in the numbers of delivery vehicles for fiscal years 2006 through  2010. On the other hand, Vehicle Programs officials agreed that the  information we obtained through the custom query was sufficiently  reliable to develop average per vehicle maintenance costs over the past 5  fiscal years and to analyze the number and maintenance costs of delivery  vehicles in fiscal year 2010.
Using both the data obtained through our custom query and the data  provided by USPS from its VMAS reports, we developed a profile of  USPS’s delivery fleet from fiscal years 2006 through 2010, including  maintenance costs. To analyze maintenance costs, we excluded costs  related to fuel and accidents. To exclude costs related to accidents, we  obtained information on the number and causes of vehicle accidents from  USPS’s accident reporting database for fiscal years 2006 through 2010. We  assessed the reliability of these data by (1) performing electronic testing  and visual review of data elements for errors, (2) reviewing existing USPS  information about the accident reporting database, and (3) interviewing  agency officials knowledgeable about the data. We determined that these  data were sufficiently reliable for the purposes of this report. Because  USPS’s accident reporting database and VMAS use unique vehicle  identification numbers to identify each vehicle, we were able to cross  match these numbers in the two databases to identify vehicle maintenance  costs due to accidents. We subtracted these costs from USPS’s total  maintenance costs to obtain the total maintenance costs not related to  accidents, as reported in VMAS.
Finally, we worked with USPS Finance and Vehicle Programs officials to  get an agency estimate of the total costs attributable to delivery fleet  maintenance and fuel in fiscal year 2010. USPS officials used a  combination of VMAS reports and data in the Enterprise Data Warehouse  to develop this estimate, which includes all direct costs and some indirect  costs related to the delivery fleet’s maintenance and fuel use in fiscal year  2010. We compared this estimate with cost summaries provided by USPS  Finance officials and other USPS documentation supporting amounts  reported in the agency’s audited financial statements for fiscal year 2010  and determined that the agency’s estimate of $1.05 billion in total  maintenance and fuel costs for its delivery fleet in fiscal year 2010 was  reasonable.
USPS’s estimate of $1.05 billion includes about $750 million in identifiable  direct and indirect maintenance costs, or a total of about $3,900 in  maintenance-related costs per vehicle. Our custom query of VMAS  showed about $497 million in direct maintenance costs in fiscal year 2010,  or about $2,600 per vehicle. Several factors account for the difference in  costs between the agency’s estimate and the results of our custom query.  First, VMAS does not capture indirect maintenance costs and, instead,  tracks only costs that can be directly associated with the vehicles’  maintenance. Thus, the lower maintenance cost figure produced from our  analysis does not include costs that can not be specifically allocated to  maintenance on a delivery vehicle. For example, VMAS includes costs for  parts and direct labor to inspect a vehicle and replace brakes and other  equipment, but does not include supervisory and management labor costs,  or the benefits it pays to these employees. Second, while VMAS includes a  large portion of its direct labor costs for technicians who service delivery  vehicles, unlike USPS’s estimate, VMAS does not account for these  employees’ full labor costs. Third, according to USPS data, about 6  percent of USPS’s total maintenance costs—all due to maintenance  performed by contractors—are not entered into VMAS, but are included  in the agency’s $750 million estimate of total maintenance costs for fiscal  year 2010. Finally, while costs related to accidents are contained in USPS’s  total cost estimate, we removed these costs from our analysis of  maintenance costs.
section_title: Site Visits
paragraphs: To inform our understanding of USPS’s delivery fleet profile, its  experiences with alternative fuel vehicles, and its approach to its aging  fleet, we conducted site visits to three regions: Minneapolis and St. Paul,  Minnesota; New York City, New York; and southern Florida. We  judgmentally selected these regions because they are geographically  diverse and their climates vary—two of the three regions experience  severe winter weather. In addition, the three regions use different types of  alternative fuel vehicles and a variety of gasoline-fueled delivery vehicles.  During each site visit, we visited a combination of vehicle maintenance  facilities and post offices. We toured facilities, observed the maintenance  activities occurring on vehicles at the facilities, and interviewed managers,  supervisors, mechanical technicians, and carriers about their experiences  with the delivery fleet. Finally, while we did not visit the vehicle  maintenance facility in Corpus Christi, Texas, we selected this site for a  telephone interview because, according to Vehicle Programs officials, it is  one of the few areas where compressed natural gas is still being used in  delivery vehicles that have been converted to use this fuel.
section_title: Interviews
paragraphs: To inform all of our objectives, we interviewed a wide range of USPS  officials as well as officials from DOE, General Services Administration,  and the Postal Regulatory Commission. In addition, we interviewed  representatives from 22 nonfederal entities, including alternative fuel  associations, automobile manufacturers and associations, environmental  groups, companies that operate large delivery fleets, and consulting firms  with experience evaluating vehicle fleets. To identify appropriate parties  to interview, we spoke with knowledgeable GAO staff, USPS officials, and  others about which entities would have information most relevant to our  objectives. Table 4 identifies the nonfederal organizations whose  representatives we interviewed.
We conducted this performance audit from February 2010 to May 2011 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: USPS’s Experiences with Non- E85-Capable Alternative Fuel Vehicles
paragraphs: USPS has had the following experiences with alternative fuel vehicles  (other then E85-capable vehicles).
subsections: section_title: Compressed Natural Gas Vehicles
paragraphs: USPS currently has more compressed-natural-gas-capable vehicles than any  other kind of alternative fuel vehicle (except E85-capable vehicles), but its  use of these vehicles has greatly diminished in recent years. Beginning in  1990, USPS began converting long-life vehicles (LLV) in selected locations to  run on both compressed natural gas and gasoline. USPS converted about  7,300 LLVs over 6 years at a cost of about $2,000 each in the 1990s. Local  utility companies, DOE’s Clean Cities program, and others installed the  fueling infrastructure. According to a Vehicle Programs official, only in  limited instances did USPS actually fund any portion of these costs.  However, because of parts supply challenges, limited fuel availability, and  expiring compressed natural gas fuel tanks, USPS removed this capability  from all but about 3,400 of these LLVs. About 1,000 of these LLVs are  currently running on compressed natural gas.
According to USPS, 42 of the approximately 1,000 compressed-natural-gas- capable vehicles are being operated in Corpus Christi, Texas, because the  city created the necessary fueling infrastructure and helped pay USPS’s  fuel costs. For example, according to a local vehicle maintenance facility  official, the city built a gas line connecting a nearby compressed natural  gas station to the city’s post office and provided the post office with $400  worth of free compressed natural gas (about 200 days of fuel, according to  a Vehicle Programs official) for each of the vehicles there. According to an  official at the local vehicle maintenance facility, these vehicles have been  reliable and have reduced USPS’s fuel costs because (1) the city provided  free fuel and (2) compressed natural is cheaper than gasoline for those  vehicles that have already used their supply of free fuel. According to this  official, because of USPS’s fuel cost savings, as of January 2011, the  official was in the process of swapping 37 of the facility’s gasoline-only  LLVs for compressed-natural-gas-capable LLVs (from other USPS  locations) increasing the number of LLVs operating on this fuel to a total  of 79 vehicles at two post offices in Corpus Christi, Texas. In contrast,  USPS’s experience with compressed natural gas in Huntington, New York,  highlighted challenges that led USPS to abandon its use of compressed  natural gas in this area. In the mid-1990s, USPS converted all of the LLVs at  the Huntington post office to run on compressed natural gas and installed  associated fueling infrastructure (one pump per vehicle). However, within  6 months of using these vehicles, USPS experienced vehicle reliability  problems, two of the three manufacturers of vehicle conversion kits went  out of business, and USPS experienced difficulties in obtaining parts  needed for maintenance and repairs. As a result the fueling infrastructure  is unused (see fig. 13). While Vehicle Programs officials recognize that the  use of compressed natural gas has been successful in some parts of Texas,  they stated that they see limited potential for USPS’s future use of this fuel  in delivery vehicles, largely because the natural gas infrastructure is not  available in much of the United States and parts supplies remain  uncertain.
section_title: Propane Vehicles
paragraphs: As of September 30, 2010, USPS operated 34 LLVs in Key West, Florida,  that are capable of running on propane in addition to gasoline. According  to USPS local officials, these vehicles have been well received by the  community because of their reduced emissions and USPS has faced few  challenges operating and fueling the vehicles. However, according to USPS  officials, USPS did not expand its use of propane because of the lack of  propane infrastructure.
section_title: Plug-in Electric Vehicles
paragraphs: USPS has been using limited numbers of plug-in electric vehicles for many  years. In 1999, for example, USPS entered into a partnership with DOE and  several state, regional, and local agencies in California and New York state  and invested $11.6 million to purchase 500 plug-in electric vehicles from  Ford. However, Ford recalled the vehicles about 2 years later because the  vehicle battery company stopped manufacturing the batteries. As of  September 30, 2010, USPS operated about 30 plug-in electric 2-ton vehicles  in New York City, New York, as well as 12 T-3 plug-in electric personal  mobility delivery vehicles that USPS purchased in 2008 at an average cost  of about $11,200 in 2010 dollars (see fig. 14). While USPS reports that the  T-3 vehicles cost less than 5 cents per mile to operate, operational  challenges, such as letter carrier exposure to the elements, a tendency to  stall in the rain, and low operating speed limit their applicability on USPS  routes. Furthermore, USPS is currently testing four neighborhood electric  vehicles and recently initiated a program called the Electric LLV Program  under which five suppliers are converting gasoline LLVs to plug-in electric  LLVs that USPS intends to use for deliveries.
section_title: Conventional Hybrid (Hybrid) Vehicles
paragraphs: When we conducted our site visits, USPS’s use of hybrid vehicles was  limited to 12 vehicles, including two 2-ton hybrid trucks in New York state  that it had received in 2008 and 2009 at no cost to USPS because the  manufacturers agreed to provide these vehicles to USPS in order to obtain  information on their use on the delivery cycle (see fig. 15). In addition,  USPS had 10 Ford Escape hybrids in California that it purchased in 2005 at  an average cost of about $27,700 in 2010 dollars. However, hybrid vehicles  typically have much higher up-front costs than the nonhybrid version of  the same vehicle—about $9,000 more in the case of a 2011 Ford Escape  hybrid. As a result, USPS officials said that the increased costs that likely  would be associated with acquiring a custom-built hybrid vehicle  (compared with a comparable nonhybrid vehicle) would, in all likelihood,  far outweigh the potential fuel cost savings given a delivery vehicle’s low  annual mileage.
section_title: Hydrogen Fuel Cell Vehicles
paragraphs: USPS is currently piloting two hydrogen fuel cell Chevrolet Equinox  vehicles on delivery routes. Both vehicles were provided by General  Motors in 2008 with funding from DOE. As part of the pilot program, USPS  is assessing the vehicles’ potential usefulness as delivery vehicles.  According to USPS, the two vehicles are meeting the demands of USPS’s  daily operational drive cycle as delivery vehicles. However, according to  Vehicle Programs officials, hydrogen fuel cell technology is in the early  stages of its development and, consequently, it likely will be a number of  years before such vehicles are available in large quantities.
section_title: Appendix III: Comments from the United States Postal Service
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Kathleen Turner (Assistant Director),  Nicola Clifford, Bess Eisenstadt, Laura Erion, Tim Guinane, Kenneth John,  Alexander Lawrence, Joshua Ormond, Robert Owens, Matthew Rosenberg,  Kelly Rubin, Karla Springer, James Ungvarsky, Crystal Wesco, and  Alwynne Wilbur made key contributions to this report.