The Postal Rate Commission (PRC) has issued its “Advisory Opinion Concerning A Proposed Change In The Nature of Postal Services” - Evolutionary Network Development (END) Service Changes -Docket No. N2006-1).

Overview of the advisory opinion issued by PRC:

The United States Postal Service proposes a program — which it has designated the Evolutionary Network Development (END) strategy — to review and realign its mail processing and transportation networks for the purpose of adapting them to the current and anticipated future needs of the nation’s postal system. The program’s objectives include enhancement of operational flexibility and efficiency, capture of resulting cost savings, and preservation of current service standards. The Commission finds these goals to be fully consistent with the policies and criteria of the Postal Reorganization Act, and endorses them.

The Commission has carefully considered the evidence presented by the Postal Service to explain how END is designed to achieve these goals, as well as the contributions of other participants in this proceeding. The Presiding Officer solicited supplemental evidence from the Postal Service through eight detailed information requests in order to further elucidate this program. The Commission finds that the resulting evidentiary record does not provide assurance that the proposed realignment program, as currently envisaged, will meet its declared goals. In particular, the record reflects flawed or absent information on certain crucial aspects of the Postal Service’s plan for network realignment. The Commission advises the Governors to obtain and integrate reliable information in these areas before proceeding with full implementation of the contemplated program.

The Postal Service intends to use its existing Area Mail Processing (AMP) review to assure that every change “makes sense” locally before it is implemented. Recent AMPs conducted by the Postal Service do not comport with applicable guidelines. They do not reflect systematic, consistent, or replicable projections of costs; they provide limited review of service impacts; and they utilize no discernable standards for evaluating or balancing cost and service impacts. Furthermore, required post implementation reviews have not been done. The Commission recommends that management be directed to assure that AMP reviews document the use of appropriate cost and service data to evaluate both the potential and actual impact of realignment,and that a process for promptly correcting any unexpected negative impacts be established.

An important function of the realignment process is to identify and capture cost savings associated with reducing redundancy and inefficiency. The Postal Service’s primary means for estimating systemwide mail processing costs savings is its END models. These models are used to guide consolidations of mail processing operations. The Postal Service presentation does not attempt to quantify expected
savings, and the Commission was unable to develop any reliable estimates.

 First, the opportunities for mail processing cost savings may be limited by the Postal Service’s universal service mandate. Because of this mandate, incoming secondary sort schemes cannot be easily consolidated. Incoming secondary sortation
accounts for the majority of mail processing costs. Consolidating outgoing sorts is feasible and may result in economies of density. However, outgoing sortation accounts
for only a minority of mail processing costs so the opportunity for cost savings is relatively limited.

Second, the Postal Service does not assume that facilities will be closed after mail processing operations are consolidated. If, in fact, facilities are not closed, the Postal Service will continue to incur the fixed cost of maintaining them.
Third, key model inputs are averages, rather than facility-specific data, which may lead to inefficient operations. This point is discussed in detail in the following
sections.

(Docket No. N2006-1).