NPPC Survey and the 10-Year Review Presented to NPPC September 22, 2016

Outline NPPC Survey Results 10-Year Review

Survey Outline Background Results

Survey – Total Mail Volume (Last 4 Years) There were 12 respondents that provided data for all 4 years.

Survey – Total FCM Mail Volume (Most Recent Year) 10 Mailers Responded Total Volume: 3.409 billion pieces Mean: 340.9 million pieces Standard Deviation: 281 million Largest Volume: 939.2 million pieces Smallest Volume: 47.8 million pieces

Survey –FCM Mail Volume (Presort Percentages) Presort Level Percent Residual & Single-Piece 2.4% Non-Automation Presort 0.9% MAADC 1.7% AADC 6.3% 3-Digit 37.1% 5-Digit 51.6% The 5-Digit percent lags behind the billing determinant rate of 65%

Survey – Increase in 5-Digit (Last 4 Years) Presort Level Most Rec Yr-3 Most Rec Yr-2 Most Rec Yr-1 Most Rec Yr Residual & Single-Piece 2.4% 2.3% Non-Auto Presort 0.5% 0.4% 1.2% 0.9% MAADC 1.6% 1.5% 1.7% AADC 9.3% 9.9% 6.6% 6.3% 3-Digit 39.2% 44.2% 38.9% 37.1% 5-Digit 47.0% 41.7% 49.4% 51.6%

Survey –FCM Mail Volume (FSIMb Percentages) 78.2% Basic IMb 13.8% None 8.0% The FSIMb percent lags behind the billing determinant rate of 90%

Survey – FCM Mail Volume (Last 4 Years) There were 11 respondents that provided data for all 4 years.

Survey – “Free” Second Ounce (Last 4 Years) Weight Most Rec Yr-3 Most Rec Yr-2 Most Rec Yr-1 Most Rec Yr 0.0 – 1.0 oz. 92.3% 90.3% 90.9% 87.7% 1.1 – 2.0 oz. 6.8% 8.7% 8.1% 11.3% 2.1 – 3.0 oz. 0.8% 0.9% 3.1 – 3.5 oz. 0.1%

Survey – Other Mail Products (Most Recent Year) FCM Flats Standard Letters Competitive Products Incoming RM Responses 12 Total Volume 811,178,593 3,452,124,441 83,645,717 415,092,706 Mean (only those who had the product 81,117,859 383,569,382 8,364,572 59,298,958 Standard Deviation 240,748,521 463,707,769 22,423,939 56,719,565

Survey – Standard Mail Letters (Last 4 Years) Product Most Rec Yr-3 Most Rec Yr-2 Most Rec Yr-1 Most Rec Yr Total Volume 2,788,187,346 3,091,709,037 3,278,047,601 3,452,124,441 Mean 309,798,594 343,523,226 364,227,511 383,569,382 Standard Deviation 365,369,911 425,752,523 435,948,189 463,707,769 There were 9 respondents that provided answers.

Survey – Remittance Mail (Last 4 Years) Product Most Rec Yr-3 Most Rec Yr-2 Most Rec Yr-1 Most Rec Yr Total Volume 502,921,092 466,122,644 439,596,679 415,092,706 Mean 71,845,870 66,588,949 62,799,526 59,298,958 Standard Deviation 72,590,830 65,482,377 59,454,165 56,719,565

Why Use First-Class Mail? Importance Avg. Response (1-10) Legal Considerations 9.57 Customer Preference 8.93 USPS Mail Price 8.71 Mail Service 8.00 Price of Alternatives 7.25 Mail Cost (other than Price) 6.93

Why Use Standard Mail? Importance Avg. Response (1-10) USPS Mail Price 9.63 Mail Cost (other than Price) 7.63 Nature of the Promotion 7.13 Mail Service 7.00 Price of Alternatives Customer Preference 6.71 Demographics 4.71 Targeting Ability 4.57 Seasonal Factors 4.29

What Do You Care Most About FCM? Importance Avg. Response (1-10) My outgoing FCM Letter Mail gets to my customers. 9.7 My remittance mail gets back to me fast. 9.3 My outgoing FCM Flats Mail gets to my customers. 8.8 My outgoing FCM Letter Mail gets to my customers fast. 8.6 My outgoing FCM Flats Mail gets to my customers fast. 8.0 I can tell with great certainty the date my outgoing FCM Letter Mail will get to my customers. 7.0 I can tell with great certainty the date my outgoing FCM Flats Mail will get to my customers. 6.8

10 Year Review

The 10 Year Review Should Not Revisit the CPI Price Cap Mailers will argue “PAEA doesn’t allow it.” If the PRC decides to the contrary, the DC Circuit will likely have the final say. But even if PAEA does allow a CPI cap revisit, the system has worked well to balance the objectives, considering the factors. (2) predictabilty and stability in rates balances very well with … (5) adequate revenue…to maintain financial stability

But If the PRC Allows a Cap Review Resulting in a Price Increase, How Big Could that Price Increase Be? USPS View – How high can you count? Mailers View – Are there numbers less than zero? PRC View – Will need a method to decide

Likely PRC Method Predicting PRC methods always adds a level of uncertainty Chairman Taub has said that the review allows a chance to “clean-up” the balance sheet and the off-balance sheet liabilities. And make sure operating income provides viability. Cost of service rate cases and the exigent case provide a historic precedent to operationalize a “clean-up”

“What Numbers to Use?” Operating Loss Pro Forma Financial Results ($ in billions) Projected – 2017 Total Revenue $70.8 Total Controllable Expenses 71.3 Pro Forma Controllable Income/(Loss) (0.5) RHB Pre-Funding (Default) - FERS Amortization (Not Paid) 0.2 CSRS Amortization Payments 1.5 Retiree HB – Amortization Payments 2.9 Pro Forma Net Income/(Loss) ($5.2)

From Balance Sheet and Income Statement to Revenue Requirement Operating loss RPYL Applied to Balance Sheet – 1/9 Sum these two to produce breakeven revenue Then “gross up” for price elasticity volume loss

Additional Revenue Requirement ($ Billions) Breakeven FY 2017 Prices Additional Revenue Requirement ($ Billions) Balance Sheet Rev Req Prior Year Losses ($22.4) ($2.5) Pro Forma Net Income/(Loss) ($5.2) Total Income/(Loss) ($7.7) % of Revenue 10.9% % W Volume Leakage 13.6%

Any Cleanup of On and Off Balance Sheet Should be Inclusive “The purchase price of Postal Service real estate is $27 billion, but the fair market value is far greater. The Postal Service owns real estate in premium locations. For example, the nearby National Postal Museum has a purchase price of $47 million, but a tax assessed value of $304 million.”

Any Cleanup of On and Off Balance Sheet Should be Inclusive “The current net book value (of real estate) totals only $13.2 billion. The fair market value has been estimated as high as $85 billion….” OIG FT-WP-15-003

Any Cleanup of On and Off Balance Sheet Should be Inclusive So if PRC decides a cleanup is necessary, it should net out property assets. That means there is no RPYL to amortize.

The 10-Year Review has HUGE Price Implications

Questions?