1. The R2006-1 Rate Case PRC Recommendation “Cost-Based Rates”

2. Cost-Based Rates Efficient Component Pricing (ECP) Shape-Based Rates Rate Structures Reflective of Cost Causation

3. ECP Worksharing Discount = Cost Avoided –Sends proper price signal –Results in more efficient processing and transportation practices Many existing rates deviate significantly from ECP rates –Thus, large variation in rate increase

4. ECP Per-Piece Standard Mail DBMC Discount –Current: 2.2 cents –Recommended:3.3 cents New Standard Mail Flat Presort Discounts –MADC to ADC:5.3 cents –3D to 5D:5.7 cents

5. Shape-Based Rates PRC: Same “ECP” principle should be applied to other mail characteristics, including shape –Promotes efficiency –“Fundamentally fair”

6. Shape-Based Rates Standard Regular (USPS Proposal) ShapeRevenueCost“Profit” Letter$0.209$0.086$0.123 Flat$0.342$0.274$0.068 Difference$0.133$0.188($0.055) USPS Proposal Did Not Fully Reflect Cost Differences

7. Periodicals Cost Drivers Entry Point Containerization Bundling Piece Characteristics All of these are reflected to some extent in Periodicals rates today, but not in a way that tracks how USPS costs are incurred.

8. PRC Recommendation “Grid” rate structure reflecting USPS cost incurrence –Editorial Pound Dropship Discounts –Container Charge –Bundle Charges –Machinable/Nonmachinable Rates –Rate for DBMC Entry Deviates from ECP to moderate impact Reduced emphasis on weight

9. PRC Recommendation Per-Container Charge –Entry Point –Container Type –Container Presort Per-Bundle Charge –Container Presort –Bundle Presort Edit Dropship Discount –Retains unzoned editorial pound rate for Zones 1-8 Nonmachinable Rates –For Non-CR Flats