1. USPS Response to Hill Request Overview The Request – USPS to “submit a workable plan to fund the key capital investments needed to ensure long- term viability of the Postal Service” Environment Capital Investment Plan Financing the Capital Plan Cost Reduction Efforts –Traditional Approaches –Network Rationalization –Workforce Implications Current Success

2. Environment Declining FCM volume and contribution 1.9 new delivery points per year Volume has become more difficult to forecast – less dependent on economy, more diversion. Worksharing has increased bringing more mail to destination, bypassing origin processing and transportation

3. Capital Investment Plan Total Draft Capital Plan 2004-2010 - details to GAO –$2.4 – 3.2B per year, almost $19B over 7 years Categories: –Auto/Mech – letters, flats, parcels, material handling, and infrastructure support (IT) sub-categories –Vehicles – maintain existing fleet –Retail Equip – POS and Automated Postal Centers –Facilities – customer service/admin, building improvement, major processing sub-categories –Postal Support and Emergency Preparedness – IT

4. Financing the Capital Plan Depreciation is primary source Part of test year revenue requirement Capital freeze focused on facilities due to volume and workload declines, not generative capital Limited Options: Sell Assets – Many smaller facilities are leased. C onsistently selling assets. Yet need facilities where the mail and people are. Any one want to buy Chicago? Borrow – statutory annual limits

5. Cost Reduction Efforts Traditional Approaches Capital Equipment – PARS, OCR replacement, auto tray handling systems, etc. BPI and standardization that does not require capital The type of equipment is not dependent upon the network – shape related

6. Cost Reduction Efforts Network Optimization and Rationalization 80% of large facilities are < 30 years old Networks have changed many times over the years as mechanization / automation have improved – MSCs, BMCs, SDCs, ADCs, AADCs, PMPCs Need for Change – multiple shape-based networks A Promising Alternative – one network from many Validate model – IG suggested review Stakeholder input Test concept(s) – those w/ and w/o facility changes Incremental approach – do not want a PMPC repeat

7. Cost Reduction Efforts Workforce Flexibility Attrition Rates: 5.8 - 4.4 percent/year Retirement Eligibility –110,000 now, another 125,000 by 2007 Down over 80,000 career from 1999 peak - down 10,000 this year so far Flexibility from OT usage and 11,000 plant casuals

8. Current Success Committed to $1 billion per year in savings with BPI and Transformation $11.8 billion in cumulative savings since end of 1999 Service improvements Closed over 70 RECs and annexes Reduced over 80,000 career employees USPS outstanding debt down to $2.25 billion

9. Summary USPS can continue to reduce costs, moderate rate increases, and further improve service while generating funds through traditional means. The escrow requirement should be repealed.