U.S. Postal Service
Vulnerability to Fluctuating Fuel Prices Requires Improved Tracking and Monitoring of Consumption Information Gao ID: GAO-07-244 February 16, 2007The U.S. Postal Service (the Service) is dependent on fuel to support its mail delivery and transportation networks, as well as to heat and operate the over 34,000 postal facilities it occupies. The Service has been challenged by recent fuel price fluctuations, and the Postmaster General stated that gas prices were a primary reason for the proposed 2007 postal rate adjustment. Based on this challenge, Congress asked GAO to review (1) how the Service's fuel costs changed recently and the impact of these cost changes on the Service's financial and operating conditions, and (2) how the Service's actions to control fuel costs and mitigate risk compare to leading practices and federal requirements. GAO collected fuel cost and price information; interviewed Service fuel officials; and compared the Service's actions against leading practices and federal requirements.
The Service's transportation and facility fuel costs have grown in recent years as fuel prices, particularly for gasoline, diesel, and jet fuel have increased. For example, fuel cost growth for its vehicle fleet was due to rising prices rather than consumption. While fuel costs have directly pressured its financial condition, increasing compensation and benefits were the primary driver of the $3.4 billion operating expense increase in fiscal year 2006. The Service absorbed fuel cost increases through costcontainment efforts and increased revenues from the January 2006 rate increase, allowing it to achieve net income for the year. Nevertheless, the Service remains vulnerable to fuel price fluctuations, due in part to its purchasing process, which involves buying fuel as needed, often at retail locations. The Service is challenged to control fuel costs due to its expanding delivery network and inability to use surcharges. GAO found some of the Service's actions to control fuel costs to be generally consistent with procurement and consumption practices advocated by leading organizations and federal requirements for purchasing alternative fuel vehicles. However, GAO also identified areas where more actions could be taken. Taking actions to address data inconsistencies will be important, even as the Service develops a new energy strategy. These inconsistencies will limit the Service's ability to understand consumption changes and impacts and where to target potential cost-saving opportunities. Furthermore, additional progress is needed in reducing reliance on petroleum-based fuels because of the more stringent federal fuel consumption requirements that were recently passed.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-244, U.S. Postal Service: Vulnerability to Fluctuating Fuel Prices Requires Improved Tracking and Monitoring of Consumption Information
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
February 2007:
U.S. Postal Service:
Vulnerability to Fluctuating Fuel Prices Requires Improved Tracking and
Monitoring of Consumption Information:
Impact of Rising Fuel Costs on the Service:
GAO-07-244:
GAO Highlights:
Highlights of GAO-07-244, a report to congressional requesters
Why GAO Did This Study:
The U.S. Postal Service (the Service) is dependent on fuel to support
its mail delivery and transportation networks, as well as to heat and
operate the over 34,000 postal facilities it occupies. The Service has
been challenged by recent fuel price fluctuations, and the Postmaster
General stated that gas prices were a primary reason for the proposed
2007 postal rate adjustment. Based on this challenge, you asked GAO to
review (1) how the Service‘s fuel costs changed recently and the impact
of these cost changes on the Service‘s financial and operating
conditions, and (2) how the Service‘s actions to control fuel costs and
mitigate risk compare to leading practices and federal requirements.
GAO collected fuel cost and price information; interviewed Service fuel
officials; and compared the Service‘s actions against leading practices
and federal requirements.
What GAO Found:
The Service‘s transportation and facility fuel costs have grown in
recent years as fuel prices, particularly for gasoline, diesel, and jet
fuel have increased. For example, fuel cost growth for its vehicle
fleet was due to rising prices rather than consumption. While fuel
costs have directly pressured its financial condition, increasing
compensation and benefits were the primary driver of the $3.4 billion
operating expense increase in fiscal year 2006. The Service absorbed
fuel cost increases through cost-containment efforts and increased
revenues from the January 2006 rate increase, allowing it to achieve
net income for the year. Nevertheless, the Service remains vulnerable
to fuel price fluctuations, due in part to its purchasing process,
which involves buying fuel as needed, often at retail locations. The
Service is challenged to control fuel costs due to its expanding
delivery network and inability to use surcharges.
GAO found some of the Service‘s actions to control fuel costs to be
generally consistent with procurement and consumption practices
advocated by leading organizations and federal requirements for
purchasing alternative fuel vehicles. However, GAO also identified
areas where more actions could be taken (see table).
GAO Assessment of Service's Actions to Control Fuel Costs:
Leading Practices and federal requirements: Aggregate purchases to
leverage buying power and size;
GAO assessment of the Service's relevant actions: Generally consistent:
Aggregated purchases for certain subsets of its fuel purchasing program
have resulted in cost savings.
Leading Practices and federal requirements: Enhance organizational
structure;
GAO assessment of the Service's relevant actions: Generally consistent:
Enhanced fuel management and leadership through commodity-specific
experts and a new energy leadership position.
Leading Practices and federal requirements: Use public/private
partnerships;
GAO assessment of the Service's relevant actions: Generally consistent:
Implemented contracts with private utility providers to install energy
efficient projects aimed at gaining operational efficiencies. The
Service‘s cost savings are deferred to finance the project‘s initial
investment
Leading Practices and federal requirements: Track and monitor fuel
data;
GAO assessment of the Service's relevant actions: Inconsistent with
leading practices: Incomplete data for most of its transportation and
facility fuel consumption.
Leading Practices and federal requirements: Reduce reliance on
petroleum-based fuels as required by federal law;
GAO assessment of the Service's relevant actions: Limited progress:
Although the Service has over 40,000 alternative fuel capable vehicles,
it continues to be unable to reduce its reliance on petroleum-based
fuels due to higher costs and limited availability of alternative
fuels.
Source: GAO.
[End of table]
Taking actions to address data inconsistencies will be important, even
as the Service develops a new energy strategy. These inconsistencies
will limit the Service‘s ability to understand consumption changes and
impacts and where to target potential cost-saving opportunities.
Furthermore, additional progress is needed in reducing reliance on
petroleum-based fuels because of the more stringent federal fuel
consumption requirements that were recently passed.
What GAO Recommends:
GAO recommends that the Postmaster General take actions to improve the
Service‘s tracking and monitoring of transportation and facility-
related fuel consumption data. GAO provided a draft of this report to
the Service for its review and comment. The Service agreed with GAO‘s
findings and recommendation and stated that it will take steps to
improve its information systems that capture consumption data.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-244].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud at
(202) 512-2834 or siggerudk@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Rising Fuel Costs Have Pressured the Service's Financial Condition, but
Have Not Prevented Positive Financial Results:
The Service's Actions to Improve Fuel Costs Are Generally Consistent
With Leading Practices and Legal Requirements, but Issues Remain:
Conclusion:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the U.S. Postal Service:
Appendix III: U.S. Postal Service Definitions:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Issues Remain in the Areas of Tracking and Monitoring and
Reducing Reliance and Use of Petroleum-Based Fuels:
Table 2: Retail Fuel is the Largest Transportation Fuel Expense for
Postal-Owned Vehicles:
Table 3: Summary of Fuel Expenses for the Contracted Vehicle Fleet:
Table 4: Summary of Fuel Expenses for Contracted Air Transportation:
Table 5: Summary of Fuel Expenses for Other Transportation Methods:
Table 6: Summary of Fuel Expenses for the Postal-Owned and Leased
Facilities:
Table 7: Recent Growth in Fuel Costs Dominated by Transportation Fuel:
Table 8: Transportation Fuel Breakdown between 2004 and 2006:
Table 9: Postal Service Transportation Fuel-Related Cost Savings
between 2000 and 2006:
Table 10: Facility Fuel Spending Increased Since 2004:
Table 11: Cost Savings Achieved for All Postal Service Facilities
between 2004 and 2006:
Table 12: Cost-Saving Targets and Totals for Postal Service Facilities
between 2004 and 2006:
Table 13: Costs Have Increased and Recently Exceeded Budgeted Amounts
in Key Fuel-Related Categories:
Table 14: Operating Expense Breakdown:
Table 15: Postal Service Recent Financial Results:
Table 16: The Service Is Aggregating Purchases in a Variety of Ways:
Table 17: Shared Energy Savings Project Summary:
Table 18: Active Shared Energy Savings Projects by Postal Service Area
in 2006:
Table 19: Progress Is Needed in Tracking and Monitoring Fuel
Consumption:
Figures:
Figure 1: Summary of Postal Service Transportation Fuel Expense in
2006:
Figure 2: Key Operating Statistics of the Postal-Owned Vehicle Fleet:
Figure 3: Summary Information on Retail Fuel for the Postal-Owned
Fleet:
Figure 4: Summary Information on Bulk Fuel for the Postal-Owned Fleet:
Figure 5: Summary Information on Mobile Refueling for the Postal-Owned
Fleet:
Figure 6: Recent Price History: Retail Gasoline, Diesel, and Jet Fuel
Prices:
Figure 7: Postal Fleet Fuel Costs Have Grown Faster than Fuel
Consumption:
Figure 8: Recent Price History: Natural Gas Prices:
Abbreviations:
AFV: alternative fuel vehicle:
BPA: Basic Pricing Agreement:
CNG: compressed natural gas:
COLA: cost-of-living adjustment:
DESC: Defense Energy Support Center:
DOD: Department of Defense:
DOE: Department of Energy:
E85: ethanol 85:
EIA: Energy Information Administration:
EMA: Equipment Maintenance Allowance:
EPAct 1992: Energy Policy Act of 1992:
EPAct 2005: Energy Policy Act of 2005:
GSA: General Services Administration:
OIG: Office of Inspector General:
Service: U.S. Postal Service:
SES: Shared Energy Savings:
TAM: Transportation Asset Management:
United States Government Accountability Office:
Washington, DC 20548:
February 16, 2007:
The Honorable Tom Davis:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable John M. McHugh:
House of Representatives:
The U.S. Postal Service (the Service) delivered over 213 billion pieces
of mail to over 146 million delivery points in 2006.[Footnote 1] Almost
$72 billion was spent in providing these and other postal services
required as part of meeting its universal service mandate. The Service
is one of the major users of fuel in the federal government, spending
over $2.3 billion on transportation and facility-related fuel in
2006.[Footnote 2] Its vehicle fleet of over 216,000 vehicles is the
largest civilian fleet and consumed over 123 million gallons of
gasoline and diesel fuel. The Service also incurs fuel expenses as part
of its mail delivery and transportation contracts with highway trucking
companies and air carriers.[Footnote 3] Another area where the Service
incurs fuel expenses is in heating and operating the over 34,000
facilities it occupies. The Service relies primarily on electricity,
natural gas, and heating oil for these operations. The Service is also
subject to certain federal energy conservation requirements as part of
the Energy Policy Acts of 1992 and 2005. The Energy Policy Act of 1992
(EPAct 1992) required federal agencies to increase their purchase of
alternative fuel vehicles (AFV), and the Energy Policy Act of 2005
(EPAct 2005) details requirements for federal fleets to use alternative
fuels in these AFVs.[Footnote 4] EPAct 2005 also requires agencies, to
the maximum extent practicable, to install meter systems at federal
buildings to track energy consumption.
Prices for fuels such as gasoline and diesel spiked in late 2005 due to
Hurricanes Katrina and Rita, and gradually increased until September
2006 when prices began to fall. These fuel price fluctuations have
greatly affected fuel costs for public and private organizations.
Unlike its private-industry counterparts, however, the Service is
unable to make offsetting surcharges for rising fuel prices as part of
its postal rates and fees. The Service continues to identify fuel price
fluctuations as one of its major challenges. The Postmaster General
stated that gas prices were a primary reason for the proposed 2007
omnibus rate adjustment. Furthermore, the Service has recently stated
that a 1-percent increase in fuel and natural gas costs would result in
an, on average, $48 million increase in expenses. Although the Service
has taken actions to help address this challenge, it continues to state
that rising fuel costs are a serious concern and that fuel cost
increases are driving transportation cost increases, which cumulatively
grew by about $745 million over the last 2 years.
In recent years, we have reported and testified on the overall
significant financial and operational challenges facing the Service. In
2001 we placed the Service's transformation and long-term outlook on
our high-risk list, due in part to difficulties it had in controlling
costs.[Footnote 5] The Service has made progress since that time by
improving productivity, achieving record net incomes, and downsizing
its workforce. Additional progress was also made when Congress enacted
comprehensive postal reform legislation in December 2006, which
provides a framework for modernizing the Service's rate-setting
processes and addresses the Service's long-term financial
obligations.[Footnote 6] Thus, in January 2007 we removed the Service's
transformation and long-term outlook from our high-risk list.[Footnote
7] Major challenges continue to exist, however, that will require close
monitoring in the future. These challenges include generating
sufficient revenues as First-Class Mail volume declines and the
changing mail mix provides less revenue contribution; controlling costs
as compensation and benefit costs rise; and providing reliable data to
assess performance.
Based on the challenges facing the Service, you asked us to review (1)
how the Service's fuel costs changed recently and the impact of these
cost changes on the Service's financial and operating conditions and
(2) how the Service's actions to control fuel costs and mitigate risk
compare to leading practices and federal requirements.
To describe changes in the Service's fuel costs and the impact of these
changes, we collected data on the Service's transportation and facility-
related fuel costs and cost-saving initiatives, as well as fuel price
information from the Department of Energy's (DOE) Energy Information
Administration (EIA). The Service was only able to provide cost data
for most fuel categories for 2004, 2005, and 2006. We conducted
reliability tests on this data and found it to be reliable for the
purposes of our review. We also reviewed the Service's procedures for
documenting, measuring, and reporting cost savings for its purchasing
activities as well as the methodology for specific fuel- related
initiatives. For the purposes of this engagement, the procedures,
methodologies, and cost savings data appeared to be reasonable and
contain appropriate levels of review. We also interviewed various
Postal Service officials, including staff from the Transportation Asset
Management (TAM) group which procures petroleum- based fuels; energy
procurement group; vehicle operations and maintenance; and finance to
gather information on how the Service has been impacted by rising fuel
costs. To assess the effectiveness of the Service's actions to control
fuel costs and mitigate risk, we compared these actions against
practices advocated by leading organizations that could be applied to
the Service's fuel-related activities. We reviewed information from a
variety of sources including our past work on fuel use and consumption,
as well as from reviews of the purchasing efforts at various federal
agencies and private organizations that were recognized as acquisition
leaders (IBM, ChevronTexaco, Bausch & Lomb, Delta Air Lines, and Dell).
We also reviewed the Energy Policy Acts of 2005 and 1992, particularly
the federal requirements and guidance pertaining to alternative fuel
vehicles and facility energy management. We also interviewed federal
officials whose operations focus on fuel use; an expert on purchasing
volatile commodities; as well as various executives and contractors
affiliated with the National Star Route Mail Contractors Association
who represent roughly 17,000 small business men and women who contract
with the Service for the over-the-highway transportation of the mail.
Based on this and other information, we identified key practices
related to (1) purchasing fuel--aggregating purchases to leverage
buying power and size; enhancing organizational structure; utilizing
public/private partnerships; and tracking and monitoring fuel
information and (2) consuming fuel, including reducing reliance and use
of petroleum-based fuels. We also discussed planned actions with the
Service's newly appointed Executive Director for Energy Initiatives.
Appendix I contains a detailed discussion of our scope and methodology.
We requested comments on a draft of this report from the Service, and
its comments, which are reproduced in appendix II, are discussed later
in this report. Our work was conducted from April 2006 to February 2007
in accordance with generally accepted government auditing standards.
Results in Brief:
While recent fuel cost increases have put pressure on the Service's
financial and operational condition, the Service overcame these
increases and achieved a positive net income in 2006 from other cost
efficiency and containment efforts, as well as increased revenues from
the January 2006 rate increase. The Service's transportation and
facility fuel costs grew by almost 26 percent last year. Despite some
growth in consumption due to increasing delivery requirements,
automation, and mail volumes, Postal Service officials stated that
escalating fuel prices were the main driver behind the Service's fuel
cost increases. For example, in 2006:
* Fuel consumption for the Service's internal fleet, which is one
component of its fuel program, decreased by 5 percent over the previous
year, while its related fuel costs increased by 19 percent.
* Prices spiked for the Service's main transportation fuels: gasoline,
diesel, and jet fuel.
The Service remains highly vulnerable to fuel price fluctuations, due
in part to its fuel purchasing process, which involves buying fuel as
it is needed, often at retail locations. The Service is challenged by
the need to meet its universal service requirements--which include the
provision of prompt, reliable mail delivery to a nationwide network
that grows by nearly 2 million deliveries each year--and its inability
to use fuel surcharges. Fuel cost growth has been responsible for the
majority of the Service's recent cost increases in transportation and
heating and operating its facilities. Rising fuel prices have also
pressured compensation and benefit expenses because union contracts
include cost-of-living adjustments (COLA) based on an index that is
partially tied to changes in fuel prices.[Footnote 8] In 2006, although
the Service reported alleviating some fuel cost pressures through fuel-
related initiatives that saved and/or avoided $71 million in fuel
costs, these were not enough to offset fuel-related cost increases that
exceeded budgeted amounts. The Service had to make budget adjustments
and use reserve funding to cover these cost increases. These cost
pressures mirrored those for the Service's overall operating condition.
Although the Service was able to achieve cost savings of nearly $185
million in non-fuel related operational efficiencies, its total
operating expenses cumulatively grew by nearly $3.4 billion from 2005
and exceeded budgeted targets. Rising transportation costs accounted
for roughly 18 percent of the operating expense increase--largely due
to rising fuel costs--while compensation and benefit growth accounted
for nearly 70 percent of this increase. Growing revenues from the 2006
rate increase were able to offset this cost growth, however, and allow
the Service to achieve net income from operations of $900 million.
The Service has taken actions to improve fuel cost and risk management,
and while some of these actions have been generally consistent with
leading practices, we also identified areas where more actions could be
taken to (1) identify further cost-savings opportunities through
improved tracking and monitoring and (2) meet updated federal
requirements regarding reduced consumption of petroleum-based fuels.
The Service's actions generally appear consistent with leading
practices in the following areas:
* Aggregating purchases to leverage buying power and size: The Service
has leveraged its purchasing volume in certain areas to secure
discounts, lower prices, and improve service. Specific efforts include
its Voyager card purchasing program, bulk contracting program, and
consolidating fuel purchases through the Department of Defense (DOD).
* Enhancing organizational structure: The Service established commodity
(fuel) specific experts and an Executive Director for Energy
Initiatives, whose responsibilities include creating and implementing a
plan that will outline the Service's future fuel strategy. This plan is
expected to be completed in mid-2007.
* Using public/private partnerships: The Service has implemented
multiple Shared Energy Savings (SES) contracts whereby private entities
provide initial funding for energy efficient projects at Postal-owned
facilities and the Service reimburses these costs using the energy
savings derived from the project. Although these contracts defer cost
savings for the Service, the Service reports that these projects have
resulted in increased energy and fuel efficiency.
* The plan being developed by the Executive Director for Energy
Initiatives may provide an opportunity to extend some of these efforts
into other types of fuel or with other stakeholders. Issues remain,
however, related to tracking and monitoring fuel consumption data and
reducing reliance on petroleum-based fuels that may hinder the
Service's ability to achieve cost savings and/or meet federal
requirements (see table 1).
Table 1: Issues Remain in the Areas of Tracking and Monitoring and
Reducing Reliance and Use of Petroleum-Based Fuels:
Leading practices/legal requirements: Tracking and monitoring fuel cost
and consumption data;
Issues: Inconsistent with leading practices: The Service has incomplete
information for most of its transportation and facility fuel
consumption. For example, the Service does not know how much fuel is
being consumed in the majority of its facilities, for fuel used to
service nearly 55,000 rural routes, or through most of its air
transportation contracts. The Service currently has metering systems at
only a few of its over 34,000 occupied facilities.
Leading practices/legal requirements: Reducing reliance and use of
petroleum-based fuels as required by federal law;
Issues: Limited progress: Although the Service's new vehicle
acquisitions have complied with EPAct 1992, it has been unable to
reduce reliance on petroleum- based fuels as the majority of its
vehicles continue to operate on petroleum-based fuels.
Source: GAO analysis of Postal Service information.
[End of table]
Although the Service tracks fuel consumption through its Voyager card
and holiday air fuel programs (which account for about 35 percent of
its annual transportation-related fuel expenses), it has incomplete
access to fuel consumption information and there are limited mechanisms
or systems in place to help it monitor fuel usage.[Footnote 9] The lack
of fuel consumption information limits the Service's understanding of
the extent to which consumption is changing, how consumption has
affected overall fuel costs, and potential cost-saving opportunities.
The Service stated its inability to reduce reliance on petroleum-based
fuels and operate its vehicles on alternative fuels is largely due to
financial and operational limitations associated with using alternative
fuels, such as these fuels being generally more expensive, less
efficient, and less accessible compared to traditional petroleum-based
fuels. These limitations have made it difficult for the Service to make
progress in this area and may make it challenging for the Service to
comply with the more stringent 2005 EPAct consumption requirements. A
Postal engineering director stated that the Service has discussed these
limitations with the DOE, automobile, and fuel industry officials, but
progress has been difficult to achieve. The Executive Director for
Energy Initiatives stated that the strategic plan would focus on
improving fuel consumption data tracking and monitoring, as well as
identify strategies to begin addressing the Service's challenges
related to EPAct 2005 and the financial and operational limitations
associated with the Service's use of alternative fuels.
We recommend that the Service take actions to improve its tracking and
monitoring of fuel consumption data. Taking actions to address the lack
of consumption data will be important, even as the Service is
developing a new energy strategy. We provided a draft of this report to
the Service for its review and comment. The Service agreed with our
findings and recommendation and stated that it will take steps to
improve its information systems that capture consumption data.
Background:
The Postal Service is an independent establishment of the executive
branch mandated by the Postal Reorganization Act of 1970 to provide
postal services to the nation. The Service's customers are provided,
regardless of where they live, with postal services that include mail
delivery at no charge and access to postal retail services. The act
also required the Service to be self-supporting from postal revenues
and attempted to eliminate legislative, budgetary, and financial
policies that were inconsistent with efficient modern management and
business practices. Providing the postal services required by the
Postal Reorganization Act requires a significant transportation and
facility network. To support this network, the Service spent
approximately $2.3 billion on fuel in 2006.
Components of the Service's Transportation Fuel Expense:
The majority of the Service's fuel costs--over $1.7 billion--was used
for transportation-related fuel. Figure 1 summarizes key operating
statistics for the Service's transportation network.
Figure 1: Summary of Postal Service Transportation Fuel Expense in
2006:
[See PDF for image]
Source: The Postal Service.
[A] Other includes alternative fuels such as biodiesel, compressed
natural gas (CNG), ethanol, electricity, and liquefied petroleum gas.
[B] Other includes rail and water transportation.
[End of figure]
As shown in figure 1, the Service relies heavily on highway and air
transportation; diesel, gasoline, and jet fuel, all of which are
petroleum-based fuels; and contractors to provide transportation-
related services.
Highway Transportation:
The Service uses its own vehicle fleet as well as other personal and
contractor-owned vehicles to carry out highway mail delivery and
transportation services. Information on these methods is provided
below.
The Postal-Owned Vehicle Fleet:
Key operating statistics for the Service's owned fleet are provided in
figure 2:
Figure 2: Key Operating Statistics of the Postal-Owned Vehicle Fleet:
[See PDF for image]
Source: GAO analysis of Postal Service and General Services
Administration (GSA) data.
[End of figure]
Postal-owned vehicles are typically fueled in one of three ways: (1) at
a retail fuel station using a Postal Service-issued purchasing card,
(2) at a Postal facility using an on-site bulk-fuel tank, and (3) at a
Postal facility using a supplier's fuel truck.
1. Retail Fuel for the Postal-Owned Fleet: The majority of Postal-owned
mail delivery vehicles are fueled primarily at retail fueling stations
nationwide. Purchases are made using a Postal-issued purchasing card--
the Voyager card. Under this program, which is administered through
GSA, a purchase card is assigned to a designated Postal Service vehicle
and can be used at over 200,000 retail locations throughout the United
States. The benefits to using this card, which will be discussed later,
include qualifying for rebates and volume discounts.
Figure 3: Summary Information on Retail Fuel for the Postal-Owned
Fleet:
[See PDF for image]
Source: The Postal Service.
[End of figure]
2. Bulk Fuel for the Postal-Owned Fleet: Postal facilities with fuel
storage tanks can provide on-site fuel for Postal-owned vehicles. Fuel
for these tanks is typically purchased through agreements with the
Department of Defense's Energy Support Center (DESC). Under these
agreements, DESC aggregates the Service's fuel requirements with other
federal agencies and then solicits offers from private fuel suppliers.
After a contract is reached between the Service (via DESC) and the
private fuel supplier, the fuel supplier is responsible for delivering
fuel to the Postal fuel tanks.
The Service also utilizes a limited amount of specialized bulk fuel
contracts and agreements. In typically smaller, more remote locations
where DESC fuel is not available and a fueling tank is located on-site
at a Postal facility, the Service enters into Basic Pricing Agreements
(BPA). The Service enters into a BPA with a fuel supplier to provide
fuel for the on-site Postal tank. The Service spent nearly $800,000 in
BPAs in 2006. Postal contracts are another specialized fueling method,
which are used primarily during peak seasons when demand for postal
services increases beyond normal operating capacities. The Service
spent nearly $1.6 million on these contracts in 2006.
Figure 4: Summary Information on Bulk Fuel for the Postal-Owned Fleet:
[See PDF for image]
Source: The Postal Service.
[End of figure]
3. Mobile Refueling for the Service's Fleet: Mobile refueling is a
method of fuel procurement used to refuel the Service's internal fleet
vehicles during non-delivery hours and is used primarily in the
Southeastern United States. Mobile refueling occurs on-site at Postal
Service facilities, where its delivery vehicles are filled from mobile
bulk tanks by contractors. A Voyager fuel card is used for these
transactions. This is the most expensive refueling option primarily
because of the additional service requirements.
Figure 5: Summary Information on Mobile Refueling for the Postal-Owned
Fleet:
[See PDF for image]
Source: The Postal service.
[End of figure]
Table 2 summarizes fuel expenses for the Postal-owned fleet.
Table 2: Retail Fuel is the Largest Transportation Fuel Expense for
Postal-Owned Vehicles:
(Dollars in millions).
Retail fuel;
Description: Fleet vehicles without access to bulk fuel storage
capabilities use fuel purchased from retail locations using a Voyager
purchasing card;
Amount spent in 2006: $247.4.
Bulk fuel;
Description: The Service purchases some of its fuel in bulk through the
Defense Energy Support Center (DESC). DESC aggregates federal
government purchases, using economies of scale to achieve cost savings.
The Service also uses Basic Pricing Agreements in areas where DESC fuel
is not available and Postal contracts for short-term fuel needs;
Amount spent in 2006: 67.8.
Mobile refueling;
Description: A fuel provider is contracted to bring fuel to a Postal
location and fill all the vehicles during non-work hours;
Amount spent in 2006: 32.2.
Total;
Description: [Empty];
Amount spent in 2006: $347.4.
Source: GAO analysis of the Service's data.
[End of table]
Postal Employees Using Personal Vehicles:
The Service stated that the majority of its nearly 126,600 rural mail
carriers use their own personal vehicles to carry out their postal
responsibilities. Because these carriers do not operate Postal-owned
vehicles, they are not eligible to use the Voyager fuel card for
refueling (the Voyager card system is used for the over 20,000 Postal-
owned vehicles operated by rural mail carriers). The rural mail
carriers not in the Voyager program purchase fuel for their vehicles at
retail fueling locations and then are reimbursed as part of the
contractually agreed upon Equipment Maintenance Allowance (EMA). In
addition to fuel, the EMA also includes certain vehicle maintenance and
repair costs. The most recent EMA was set at $0.52 per mile for routes
over 40 miles long (routes under 40 miles are paid a higher EMA per
mile). In 2006, the Service spent nearly $163 million in fuel on these
rural routes.
Contracted Vehicle Fleet:
The Service also utilizes contracted vehicle fleet services to carry
out some of its surface transportation needs. These contractors range
from major trucking companies that provide mail transportation between
the Service's larger facilities to smaller box contractors who provide
home mail delivery in rural areas. As shown in table 3, the Service
spent $648 million through (1) retail fuel, (2) quarterly adjustments
for fuel purchases for its contracted vehicle fleet, and (3) bulk fuel
in 2006.
Table 3: Summary of Fuel Expenses for the Contracted Vehicle Fleet:
(Dollars in millions).
Method: Retail fuel;
Description of users: Contractors whose personal vehicles are dedicated
to Postal transportation but do not have access to bulk fuel storage
capabilities;
Amount spent in 2006: $326.8.
Method: Quarterly adjustments and manual;
Description of users: Contractors who use their own personal vehicles,
but do not qualify for the retail fuel/Voyager program;
Amount spent in 2006: 207.9.
Method: Bulk fuel;
Description of users: Contractors that maintain fuel storage tanks and,
through agreements with the Postal Service, use these tanks to fulfill
contractual obligations;
Amount spent in 2006: 113.3.
Total;
Description of users: [Empty];
Amount spent in 2006: $648.0.
Source: GAO analysis of Postal Service data.
[End of table]
The following is additional information on each of the contracted
vehicle fleet categories:
* Retail Fuel for the Contracted Vehicle Fleet: Retail fuel purchased
for the contracted vehicle fleet is bought in the same manner as retail
fuel for the Postal-owned fleet using the Voyager fuel purchasing card.
Again, like the Postal-owned fleet, Voyager fuel cards are assigned to
individual vehicles and can be used at over 200,000 retail locations
throughout the United States. The Service has aimed to increase the
number of highway contractors using the Voyager fuel card to purchase
retail fuel, as the Service can secure rebates and discounts with a
great number of Voyager card transactions.
* Quarterly Adjustments for the Contracted Vehicle Fleet: The Service
utilizes quarterly adjustments for highway contractors who do not
qualify for the Voyager card program. Contractors may not qualify for
the program due to reasons such as an inability to reasonably estimate
the annual gallons used during a contract or that personal vehicles are
used instead of Postal-owned vehicles. According to Postal Service
officials, since these personal vehicles are not dedicated to Postal
transportation, there is no reliable way to separate out the gallons
used for Postal-related work versus the gallons used for personal
travel. Under this adjustment system, gallon projections are negotiated
between the Service and the individual contractor. The contractor is
responsible for the initial fuel payment that he/she makes at the fuel
pump. The Service then reimburses the contractor for these fuel costs
based on an indexing system that adjusts for changes in fuel prices on
a quarterly basis using a Department of Energy fuel index. Compensation
rates are set at the beginning of the quarter and readjusted every 3
months based on the average price of fuel at the beginning and the end
of the quarter. Highway contractors have raised concerns about the 3-
month lag between adjustments and have stated that they would prefer a
monthly adjustment. The Service is considering converting to a monthly
DOE fuel indexing system to more accurately reflect actual fuel prices.
* Bulk Fuel for the Contracted Vehicle Fleet: Under the Service's
contracted bulk fuel purchasing program, the Service acts as a contract
administrator between fuel suppliers and highway contractors who
qualify (e.g., they are required to provide and maintain their own bulk
fuel storage tanks). The Service combines the volume of its contractor
bulk purchases and solicits and awards agreements with fuel suppliers.
Fuel suppliers directly bill the highway contractors for the fuel, and
the Service subsequently reimburses the highway contractors for the
fuel used in fulfilling their obligations with the Service. In 2006
there were 83 locations nationwide where contractor bulk fuel tanks are
located, with Texas, Michigan, and California having the most sites--8,
6, and 6 respectively.
Contracted Air Transportation:
The Service relies solely on contractors for its air transportation
services, and as part of those contracts, estimated that it spent over
$551 million on fuel in 2006. The majority of this annual cost is for
jet fuel, which is included in the contracts and adjusted monthly
according to changes in the Producer Price Index.
Table 4: Summary of Fuel Expenses for Contracted Air Transportation:
(Dollars in millions).
Method: FedEx;
Amount spent in 2006: $434.7.
Method: Commercial airlines[A];
Amount spent in 2006: 71.3.
Method: International airlines;
Amount spent in 2006: 33.6.
Method: Holiday fuel[B];
Amount spent in 2006: 11.6.
Total;
Amount spent in 2006: $551.2.
Source: GAO analysis of Postal Service data.
[A] This includes fuel used in the transportation and delivery of mail
throughout the continental United States and to and from Hawaii and
Alaska.
[B] Holiday fuel is jet fuel used during the peak holiday season, which
is contracted for separately by the Service.
[End of table]
Rail and Water Transportation:
The Service also had limited fuel spending, about $14 million, on rail
and water transportation.
Table 5: Summary of Fuel Expenses for Other Transportation Methods:
(Dollars in millions).
Method: Rail;
Amount spent in 2006: $12.7.
Method: Domestic water;
Amount spent in 2006: $1.1.
Method: International water;
Amount spent in 2006: $0.2.
Total;
Amount spent in 2006: $14.0.
Source: GAO analysis of Postal Service data.
[End of table]
As illustrated in the examples above, the Service uses a variety of
fuel procurement methods for transportation fuels. According to Service
officials, they select procurement methods depending on various factors
such as price, availability, supply, and location. A Service official
stated that the various fuel procurement methods in order of cost-
effectiveness are:
1. Bulk fuel purchased through DESC is the least expensive method
because of DESC's ability to aggregate purchases, and the fuel is
purchased without any taxes included.
2. Bulk fuel purchased for the highway contract routes because it is
bought wholesale.
3. Voyager retail purchases because of the associated volume discounts,
rebates, and state excise tax exemptions.
4. Fuel purchased as part of the rural carrier Equipment Maintenance
Allowance because it is tied to a contractually-agreed upon a mileage
reimbursement.
5. Mobile refueling, which tends to be $0.30 to $0.40 more expensive
per gallon than fuel bought at a retail station due to additional costs
associated with having the fuel delivered to Postal facilities.
Components of the Service's Facility Fuel Expense:
The remaining portion of the Service's $2.3 billion fuel costs--about
$610 million--was used to heat and operate the over 34,000 facilities
it occupies nationwide. While the majority of this expense was for
electricity, other fuels such as natural gas, heating oil, and propane
also were used (see table 6).[Footnote 10]
Table 6: Summary of Fuel Expenses for the Postal-Owned and Leased
Facilities:
(Dollars in millions).
Method: Electricity;
Amount spent in 2006: $512.0.
Method: Natural gas;
Amount spent in 2006: $81.0.
Method: Heating oil;
Amount spent in 2006: $10.0.
Method: Propane and steam;
Amount spent in 2006: $7.0.
Total;
Amount spent in 2006: $610.0.
Source: GAO analysis of Postal Service data.
[End of table]
Postal Service officials stated that most of its 34,000 facilities it
occupies are post offices under 2,500 square feet, and that the
majority of its energy use is in its larger processing plants.
Additional information on the Service's efforts to control facility-
related fuel cost is provided in the following section.
Rising Fuel Costs Have Pressured the Service's Financial Condition, but
Have Not Prevented Positive Financial Results:
While recent fuel cost increases have pressured the Service's financial
condition, the Service was able to overcome these increases and achieve
net income from operations. Rising fuel prices--particularly for
gasoline, diesel, jet fuel, and natural gas--have been the primary
driver of the Service's recent transportation and facility fuel costs
increases. The Service remains highly vulnerable to fuel price
fluctuations, due in part to its fuel purchasing process, which
involves buying fuel as it is needed, typically at retail locations.
The Service is challenged by the need to meet its universal service
requirements and its inability to use fuel surcharges. Rising
transportation costs accounted for roughly 18 percent of the operating
expense increase in 2006--largely due to rising fuel costs--while
compensation and benefit growth accounted for 68 percent of this
increase. Growth in compensation and benefit costs was also tied to
fuel costs, which are included in the calculation of cost-of-living
adjustments contained in union contracts. The Service was able to
absorb these cost pressures through cost containment efforts inside and
outside of the fuel program, as well as from increased revenues from
the January 2006 rate increase, allowing it to achieve a positive net
income from operations.
The Service's Fuel Costs Have Risen:
Over the last 2 years, the Service has experienced a significant
escalation in its fuel costs (see table 7)[Footnote 11].:
Table 7: Recent Growth in Fuel Costs Dominated by Transportation Fuel:
(Dollars in millions).
Transportation fuel;
2004: $1,004.8;
2005: $1,322.4;
Percentage growth (04-05): 31.6%;
2006: $1,723.3;
Percentage growth (05-06): 30.3%.
Facility fuel;
2004: 519.1;
2005: 537.4;
Percentage growth (04-05): 3.5%;
2006: 610.0;
Percentage growth (05-06): 13.5%.
Total;
2004: $1,523.9;
2005: $1,859.8;
Percentage growth (04-05): 22.0%;
2006: $2,333.3;
Percentage growth (05-06): 25.5%.
Source: GAO analysis of Postal Service data.
[End of table]
Transportation Fuel Costs Rose Due to Increasing Prices, but Related
Cost Savings Helped Offset These Increases:
Fuel costs for each of the Service's transportation areas have
continued to increase over the last 2 years (see table 8). Highway and
air transportation costs continue to be responsible for the majority of
this increase.
Table 8: Transportation Fuel Breakdown between 2004 and 2006:
(Dollars in millions).
Fuel expense: Highway Transportation Fuel;
2004: $704.4;
2005: $909.4;
Percentage change (04-05): 29%;
2006: $1,158.2;
Percentage change (05-06): 27%.
Fuel expense: Domestic Air Transportation Fuel;
2004: 257.2;
2005: 363.9;
Percentage change (04-05): 41%;
2006: 517.6;
Percentage change (05-06): 42%.
Fuel expense: International Air Fuel;
2004: 32.2;
2005: 36.1;
Percentage change (04- 05): 12%;
2006: 33.6;
Percentage change (05-06): -7%.
Fuel expense: Rail Transportation Fuel;
2004: 2.4;
2005: 11.9;
Percentage change (04- 05): 396%;
2006: 12.7;
Percentage change (05-06): 6%.
Fuel expense: Water Transportation Fuel;
2004: 0.9;
2005: 1.1;
Percentage change (04- 05): 22%;
2006: 1.3;
Percentage change (05-06): 19%.
Total;
2004: $996.9;
2005: $1,322.4;
Percentage change (04-05): 33%;
2006: 1,723.3;
Percentage change (05-06): 30%.
Source: GAO analysis of Postal Service data.
Note: Totals may not add due to rounding.
[End of table]
While some of the fuel cost increase can be attributed to volume and
delivery point increases, Postal officials stated that rising fuel
prices were the primary driver behind this cost increase. Postal
Service transportation relies heavily on diesel, gasoline, and jet
fuel, and over the course of the last 3 years, prices for these fuel
types have generally increased (see fig. 6).
Figure 6: Recent Price History: Retail Gasoline, Diesel, and Jet Fuel
Prices:
[See PDF for image]
Source: Department of Energy, Energy Information Administration (EIA).
Note: Prices noted here are refiner petroleum product prices sold to
end users. 'Gasoline' above refers to the EIA category 'U.S. Total
Gasoline Retail Sales by All Refiner and Gas Plant Operators (cents per
gallon).' 'No. 2 Diesel' above refers to the EIA category 'U.S. No. 2
Diesel Sales by All Refiner and Gas Plant Operators (cents per
gallon).' 'Jet Fuel' above refers to the EIA category 'U.S. Kerosene-
Type Jet Fuel Retail Sales by All Refiner and Gas Plant Operators
(cents per gallon).'
[End of figure]
Analysis of the Postal-owned fleet's fuel cost and consumption history
contained in GSA's annual Federal Fleet reports confirms that price
increases, rather than consumption, drove fuel cost increases. As shown
in figure 7, fuel costs for the Postal-owned vehicle fleet increased 19
percent from 2005 to 2006, while consumption decreased by 5 percent.
Figure 7: Postal Fleet Fuel Costs Have Grown Faster than Fuel
Consumption:
[See PDF for image]
Source: GAO analysis of GSA's Federal Fleet Report.
[End of figure]
The Service has cost reduction, savings, and avoidance programs in
place that have helped it offset these rising fuel costs.[Footnote 12]
Some of these programs, such as the Voyager program, have been in place
for a few years, but others have developed more recently. Descriptions
of some of the Service's cost-savings initiatives are provided below:
* Tax exemption and recoupment: Fuel purchased by Service employees for
Postal-owned vehicles at retail fueling stations is exempt from state
taxes where allowed by law. Largely through the Voyager card program,
which began in 2000, the Service has been able to more effectively
apply its exemption from paying the taxes at the pump and recoup tax
payments where taxes either were inadvertently paid or the tax
exemption was not allowable at the pump according to the applicable
state law.
* Highway contractor bulk fuel: Savings are derived in one of two ways:
(1) the savings achieved when getting a contractor into the bulk fuel
program--having them purchase fuel in bulk is less expensive for the
Service compared to purchasing it at retail; and (2) the costs that are
avoided when the Service finds that a highway contractor uses fewer
gallons than what is listed in its contractual agreement--the Service
does not pay for the gallons that are not used, and thus avoids that
fuel cost.[Footnote 13]
* Highway contractor retail: Savings are achieved in one of two ways,
the first of which is through a contract adjustment that occurs when
the Service brings highway contractors into the Voyager card program.
Under the previous system, these contractors claimed gallons as part of
their fuel expense line. The Service claims the gallons that they are
no longer paying for as part of this line item as savings. The second
cost containment strategy is similar to that for the highway contractor
bulk fuel program, in that the Service claims cost avoidance when
highway contractors using the Voyager card use fewer gallons than what
was originally estimated in their contractual agreement.
* Voyager rebates and discounts: The Service is able to achieve cost
reductions in two ways for its Postal-owned vehicle fleet fuel
purchases made using the Voyager card. First, the Service is able to
qualify for rebates from the GSA portfolio of government-sponsored
credit cards through the use of the Voyager card. These rebates are
based on the volume of fuel purchases and the promptness of the
Service's repayment. Second, the Service is able to secure discounts
with participating retailers due to the large amounts of fuel that are
needed for use by the Postal fleet.
* Holiday fuel savings: During the peak holiday season, the Service
contracts separately for the fuel needed for its dedicated air network.
In doing so, the Service consolidates fuel volumes to gain a lower
price. The savings amount reflects the price difference.
The table below shows that the Service reported transportation-fuel
related savings of over $53 million in 2006, with the majority of these
savings achieved through the tax exemption and recoupment
efforts.[Footnote 14]
Table 9: Postal Service Transportation Fuel-Related Cost Savings
between 2000 and 2006:
(Dollars in millions).
Fiscal year: 2000;
Tax exemptions/ recoupment: $0.17;
Highway contractor bulk fuel savings: n/a;
Highway contractor retail fuel savings: n/a;
Voyager rebates & discounts: n/a;
Holiday fuel savings: n/a;
Other[A]: n/a;
Total: $0.17.
Fiscal year: 2001;
Tax exemptions/ recoupment: 8.62;
Highway contractor bulk fuel savings: n/a;
Highway contractor retail fuel savings: n/a;
Voyager rebates & discounts: $0.29;
Holiday fuel savings: n/a;
Other[A]: n/a;
Total: 8.92.
Fiscal year: 2002;
Tax exemptions/ recoupment: 11.39;
Highway contractor bulk fuel savings: n/a;
Highway contractor retail fuel savings: n/a;
Voyager rebates & discounts: 0.61;
Holiday fuel savings: n/a;
Other[A]: n/a;
Total: 12.00.
Fiscal year: 2003;
Tax exemptions/ recoupment: 13.72;
Highway contractor bulk fuel savings: $1.11;
Highway contractor retail fuel savings: n/a;
Voyager rebates & discounts: 1.06;
Holiday fuel savings: $4.10;
Other[A]: n/a;
Total: 19.99.
Fiscal year: 2004;
Tax exemptions/ recoupment: 20.62;
Highway contractor bulk fuel savings: 3.21;
Highway contractor retail fuel savings: n/a;
Voyager rebates & discounts: 1.60;
Holiday fuel savings: 0.63;
Other[A]: n/a;
Total: 26.05.
Fiscal year: 2005;
Tax exemptions/ recoupment: 22.84;
Highway contractor bulk fuel savings: 12.88;
Highway contractor retail fuel savings: $9.17;
Voyager rebates & discounts: 3.51;
Holiday fuel savings: 0.55;
Other[A]: n/a;
Total: 48.95.
Fiscal year: 2006;
Tax exemptions/ recoupment: $27.77;
Highway contractor bulk fuel savings: $9.92;
Highway contractor retail fuel savings: $8.48;
Voyager rebates & discounts: $4.97;
Holiday fuel savings: $1.09;
Other[A]: $1.04;
Total: $53.27.
Source: GAO analysis of Postal Service data.
Notes: n/a represents not applicable and totals may not add due to
rounding.
[A] Other includes savings derived from Department of Energy Crude Oil
and Mobile Refueling Reverse Auction efforts.
[End of table]
Facility Fuel Costs Have Risen, but Cost-Savings Targets Have Been Met:
The Service's facility-related fuel costs have also increased recently.
Spending on these fuels--which include electricity, natural gas,
heating oil, propane, and steam--increased each of the last 2 years
(see table 10).
Table 10: Facility Fuel Spending Increased Since 2004:
(Dollars in millions).
Electricity;
2004: $441.0;
2005: $453.0;
Percentage change (04-05): 3%;
2006: $512.0;
Percentage change (05-06): 13%.
Natural gas;
2004: 58.6;
2005: 65.6;
Percentage change (04-05): 12%;
2006: 81.0;
Percentage change (05-06): 24%.
Heating oil;
2004: 7.9;
2005: 9.2;
Percentage change (04-05): 16%;
2006: 10.0;
Percentage change (05-06): 9%.
Other;
2004: 6.1;
2005: 6.8;
Percentage change (04-05): 11%;
2006: 7.0;
Percentage change (05-06): 3%.
Total;
2004: $513.6;
2005: $534.6;
Percentage change (04-05): 4%;
2006: $610.0;
Percentage change (05-06): 14%.
Source: The Postal Service.
Note: Other includes propane, steam, coal, and wood.
[End of table]
While a Service facility official stated that consumption of utilities
and heating fuel may have increased due to operational requirements
such as new equipment and safety and security concerns, the official
attributed most of the increase due to rising prices. In particular,
the expenses for natural gas were responsible for the largest
percentage growth. For example, figure 9 shows that the price for
natural gas peaked in November 2005.
Figure 8: Recent Price History: Natural Gas Prices:
[See PDF for image]
Source: Department of Energy, EIA.
Note: Prices noted here refer to the price of Natural Gas Sold to
Commercial Consumers in the United States.
[End of figure]
To help offset these rising costs, the Service has reported achieving
nearly $18 million in costs savings in 2006 from various facility fuel-
related initiatives.[Footnote 15] As shown in table 11, most of these
cost savings were achieved in one of two ways: (1) SES Contracts--a
type of public-private partnerships used to promote energy conservation
and achieve cost savings that will be explained in more detail in the
subsequent section--or (2) aggregated utility purchases. In select
locations (e.g., within a specific local utility service area or within
a particular state), the Service has achieved economies of scale and
lower rates by aggregating electricity and natural gas purchases.
Outside of these two main areas, the Service has achieved savings
through other actions such as installing occupancy sensor light
switches, which the Service reported saved over $45,000 a year.
Table 11: Cost Savings Achieved for All Postal Service Facilities
between 2004 and 2006:
(Dollars in millions).
2004;
SES contracts: $13.10;
Aggregated utility purchases: $8.69;
Other: $3.42;
Total: $25.22.
2005;
SES contracts: 12.72;
Aggregated utility purchases: 2.95;
Other: 2.05;
Total: 17.72.
2006;
SES contracts: 2.42;
Aggregated utility purchases: 14.40;
Other: 0.92;
Total: 17.73.
Total;
SES contracts: $28.24;
Aggregated utility purchases: $26.04;
Other: $6.38;
Total: $60.67.
Source: GAO analysis of Postal Service data.
Note: Other includes savings from Internal Auditing, Tax Recoupment,
and other efforts.
[End of table]
Table 12 shows that the Service's facility-fuel related cost-savings
targets have been met and exceeded each of the last 3 years. A Postal
Service energy official stated that the targets decreased over that
time due to sustained volatility in the electric and natural gas
markets as well as declining opportunities within these deregulated
markets.
Table 12: Cost-Saving Targets and Totals for Postal Service Facilities
between 2004 and 2006:
(Dollars in millions).
2004;
Cost-savings target: $16.00;
Cost-savings total: $25.22;
Amount over target: $9.22.
2005;
Cost-savings target: 12.10;
Cost-savings total: 17.72;
Amount over target: 5.62.
2006;
Cost-savings target: 5.50;
Cost-savings total: 17.73;
Amount over target: 12.23.
Total;
Cost-savings target: $33.60;
Cost-savings total: $60.67;
Amount over target: $27.07.
Source: The Postal Service.
[End of table]
The Postal Service Is Vulnerable to Fuel Price Volatility:
Recent fluctuations in transportation and facility fuel prices have
revealed the Service's vulnerability to fuel price volatility. The
Service remains highly vulnerable to fuel price fluctuations, due in
part to its fuel purchasing process. A fuel procurement official at the
Service stated that price does not factor into a reduced consumption of
fuel and provided the following example--if the Service needs 1 million
gallons of fuel to meet its universal service requirements, it will
need that amount regardless of whether the fuel price is $2 a gallon or
$3 a gallon. Furthermore, the Service does not have fuel storage
facilities available to purchase large quantities of fuel when the
price is lower and hold them in reserve. The Service is also vulnerable
to rising fuel prices through the cost-of-living adjustment calculation
used in its union contracts. These COLAs are based on changes in the
Consumer Price Index which contain a fuel component. Another key
component of its fuel program that increases vulnerability is that
other businesses may use fuel surcharges to help offset rising fuel
prices, but the Service can not. As such, the Service must absorb cost
increases due to growing prices while meeting its universal service
requirements.
Despite Rising Fuel-Related Transportation and Facility Costs, the
Service Still Achieved Positive Financial Results:
While fuel cost increases pressured overall fuel-related transportation
and facility costs, the Service was able to still achieve positive
financial results in 2006. Fuel expense is a key component for the
following transportation and facility cost categories included in its
monthly Financial and Operating Statements:
* Transportation: The fuel component of the Transportation category
includes gasoline, diesel, and other transportation-related fuels used
to support the air, rail, and water transportation networks, as well as
a significant portion of its highway transportation needs. Fuel
expenses accounted for nearly 21 percent of these Transportation
expenses in 2006. The non-fuel component includes related contractual
payments and terminal dues.
* Vehicle Maintenance Services: The fuel component includes some fuel
purchased at retail locations. Fuel expenses accounted for about 50
percent of Vehicle Maintenance Services expenses in 2006. The non-fuel
component is the expenses associated with maintaining Postal vehicles
(e.g., oil changes, repairs, etc.)
* Utilities and Heating Fuel: The fuel component is the fuel used to
heat and operate Postal facilities (e.g., electricity, natural gas,
heating oil, etc.) Fuel expenses accounted for over 90 percent of
Utility and Heating Fuel expenses in 2006. The non-fuel component is
expenses for sewer services and trash removal.
* Rural Carrier Equipment Maintenance Allowance (EMA): The Service
reimburses rural carriers outside of the Voyager program for fuel
expenses as part of the EMA. Fuel expenses accounted for nearly 26
percent of the EMA in 2006. The vehicle equipment and maintenance
expense are the non-fuel components of the EMA.
Table 13 shows that costs have continued to increase for the three
major fuel-related line-items, all of which were over budget in 2006.
Table 13: Costs Have Increased and Recently Exceeded Budgeted Amounts
in Key Fuel-Related Categories:
(Dollars in millions).
Post Cost category: Transportation.
Actual cost;
2004: $4,969;
2005: $5,437;
2006: $6,045.
Budgeted cost;
2004: 5,121;
2005: 5,272;
2006: 5,773.
Variance to budget;
2004: 152;
2005: [165];
2006: [272].
Post Cost Category: Vehicle Maintenance Services.
Actual cost;
2004: $518;
2005: $586;
2006: $709.
Budgeted cost;
2004: 454;
2005: 559;
2006: 672.
Variance to budget;
2004: [64];
2005: [27];
2006: [38].
Post Cost Category: Utilities and Heating Fuel.
Actual cost;
2004: $562;
2005: $585;
2006: $671.
Budgeted cost;
2004: 532;
2005: 590;
2006: 614.
Variance to budget;
2004: [30];
2005: 6;
2006: [57].
Post Cost Category: Rural Carrier EMA.
Actual cost;
2004: $404;
2005: $449;
2006: $485.
Budgeted cost;
2004: 395;
2005: 479;
2006: 480.
Variance to budget;
2004: [10];
2005: 30;
2006: [5].
Source: The Postal Service.
Note: Numbers surrounded by brackets indicate an unfavorable variance
to budget, and numbers may not add due to rounding.
[End of table]
Rising fuel prices were the significant driver of the recent cost
growth in these categories, and why the Service stated that it was
unable to offset Transportation cost increases. In setting the budgets
for 2006, the Service set aside funding in the event that fuel prices
or other unplanned events had an adverse impact on Postal finances. As
these officials were monitoring the impact of rising fuel costs
throughout the year and seeing that costs for the fuel-related costs
components were exceeding budgeted targets, the Service had to utilize
these reserve funds and make budget adjustments nationwide.
Similar cost growth also occurred for the Service's overall operating
expenses. The Service's operating expenses grew by $3.4 billion in
2006, which was the third consecutive year of growth. While rising
transportation costs accounted for roughly 18 percent of the operating
expense increase in 2006--largely due to rising fuel costs--
compensation and benefit growth accounted for 68 percent of this
increase (see table 14).
Table 14: Operating Expense Breakdown:
(Dollars in billions).
Expense category: Compensation and benefits;
2005 Expense: $53.9;
2006 Expense: $56.3;
Growth: $2.3;
Percentage of growth in total operating expenses: 68%.
Expense category: Transportation;
2005 Expense: 5.4;
2006 Expense: 6.0;
Growth: 0.6;
Percentage of growth in total operating expenses: 18%.
Expense category: Other;
2005 Expense: 8.9;
2006 Expense: 9.4;
Growth: 0.4;
Percentage of growth in total operating expenses: 13%.
Total Operating Expense;
2005 Expense: $68.3;
2006 Expense: $71.7;
Growth: $3.4;
Percentage of growth in total operating expenses: [Empty].
Source: GAO analysis of Postal Service data.
Note: Totals and percentages may not add due to rounding.
[End of table]
Postal officials attributed a portion of the increase in compensation
and benefits to Cost-of-Living Adjustments (COLA) tied to increases in
fuel costs. This expense growth, however, was (1) somewhat tempered by
the Service's ability to achieve productivity improvements throughout
the year and (2) offset by the growth in revenues largely from the
January 2006 rate increase. In addition to the $71 million in costs
avoided through the previously mentioned fuel-related initiatives, the
Service reported avoiding over nearly $185 million due to other cost
savings and productivity improvement efforts, which included various
operational efficiencies as well as automation and equipment
enhancements. Operating revenue growth was the primary reason behind
the Service's financial success in 2006. These revenues grew by 4.0
percent ($2.7 billion) largely due to the January 2006 rate increase.
This increase followed operating revenue growth in the previous 2
years, largely due to growing mail volumes.
In each of the last 3 years, the Service was able to report net income
from operations. In 2004 and 2005, the Service benefited from a
transitory boost provided by 2003 pension reform legislation that
changed its pension obligations. As table 15 shows, the Service
achieved net incomes of $3.1 billion and $1.4 billion during that time.
This past year was the first in which the Service was required to make
annual escrow payments as part of the 2003 pension legislation.
Although the Service's net income was $900 million, the Service
reported a $2.1 billion overall deficiency after the $3.0 billion
escrow payment. The Service borrowed $2.1 billion, in part to cover the
required escrow payment. The Postal Accountability and Enhancement Act
enacted in December 2006 repealed the escrow requirement and designated
that funds would instead be allocated to prefund retiree health
benefits.
Table 15: Postal Service Recent Financial Results:
(Dollars in millions).
Accounts: Total operating revenues;
2004: $68,996;
2005: $69,907;
2006: $72,650.
Accounts: Total operating expenses;
2004: 65,851;
2005: 68,283;
2006: 71,684.
Accounts: Income from operations;
2004: 3,145;
2005: 1,624;
2006: 966.
Accounts: Other[A];
2004: (80);
2005: (179);
2006: (66).
Accounts: Net income (loss);
2004: 3,065;
2005: 1,445;
2006: 900.
Accounts: Escrow;
2004: n/a;
2005: n/a;
2006: (2,958).
Accounts: Ending balance;
2004: n/a;
2005: n/a;
2006: (2,058).
Source: Postal Service financial statements.
Note: n/a represents not applicable because no escrow payment was
required.
[A] Other includes interest and investment income; interest expense and
deferred retirement; and, other interest expense.
[End of table]
The Service's Actions to Improve Fuel Costs Are Generally Consistent
With Leading Practices and Legal Requirements, but Issues Remain:
The Service has taken actions in certain areas, such as implementing
its Voyager fuel card program, bulk purchasing, and SES contracts, that
have improved its fuel procurement and consumption, as well as its
ability to manage fuel cost and risks. Some of these actions appear
generally consistent with practices (1) advocated by leading
organizations related to aggregating purchases, improving
organizational structure, and utilizing public-private partnerships and
(2) federal conservation requirements contained in EPAct. We also
identified areas where more actions could be taken to identify further
cost-saving opportunities and meet updated federal fuel consumption
requirements related to reducing reliance on petroleum-based fuels. For
example, the Service does not have information on the fuel consumed as
part of its air transportation contracts or fuel consumed as part of
heating and operating the majority of its over 34,000 occupied
facilities. This lack of information is inconsistent with tracking and
monitoring practices advocated by leading organizations in that it
inhibits the Service's understanding of the extent to which consumption
is changing, how consumption has impacted overall fuel costs, and
potential opportunities to reduce costs and/or consumption.
Furthermore, financial and operational limitations related to
alternative fuel usage may limit the Service's ability to reduce
reliance on petroleum-based fuels as required by EPAct 2005. Addressing
these issues, as well as continuing to look for additional cost-saving
and risk mitigation opportunities, will be important to assist the
Service in managing its vulnerability to fuel price volatility.
Key Practices Applied by Leading Organizations and Applicable EPAct
Requirements:
Based on information gathered from fuel officials at DOD, GSA, and DOE;
discussions with an expert on purchasing price-volatile commodities;
and our past work, we identified key practices advocated by leading
organizations that can be applied to the Service's fuel-related
activities. We also reviewed the federal energy conservation
requirements applicable to the Service as part of EPAct 1992 and 2005.
We grouped these practices into two major areas: (1) procurement and
(2) consumption.
Procurement-Related Practices:
We have issued a number of reports discussing the actions that leading
private-sector organizations have taken to improve their purchasing,
and how some of these actions can be effective for federal
agencies.[Footnote 16] We have also issued a framework for assessing
the acquisition function at federal agencies.[Footnote 17] Many of
these actions we reported on revolve around implementing a strategic
approach to procurements--one that includes the following key
practices/principles:
* Aggregating purchases to leverage buying power and size:
Organizations should look for opportunities to aggregate purchases
which would allow them to leverage buying power and size and may result
in better prices, due to volume discounts, more stable prices, and
improved service. In a 2003 report, we noted that leading private-
sector organizations reported saving hundreds of millions of dollars
due to leveraging their spending. Furthermore, vehicle fleet and
facility energy managers from the General Services Administration and
fuel procurement specialists at DESC stated that aggregating purchases
has resulted in better prices and service from fuel and energy
suppliers.
* Enhancing organizational structure: We reported that leading
companies found it necessary to change their business processes,
organizational structure, and employee roles and responsibilities to
effectively manage and coordinate their purchases. Leading
organizations provide clear and strong leadership through such
mechanisms as establishing goals and prioritizing initiatives that will
enhance accountability for performance. We have also reported on the
importance of establishing commodity-specific managers. Considering the
fluctuations of fuel and utility prices, it is important to have
officials who are consistently monitoring and tracking the market
changes for these goods to make informed purchasing decisions.
* Use public/private partnerships: We have reported that leading
organizations have found that more cooperative business relationships
with suppliers have improved their ability to respond to changing
business conditions and have led to lower costs. Over 20 years ago,
federal government agencies were encouraged to utilize an alternative
source of funding investments aimed at promoting energy-efficient
projects. Under these projects, a private contractor would identify,
design, install, and finance energy conservation measures in federal
buildings in exchange for a share of the resultant energy cost savings
that would be paid back to the contractor over a set period of time.
These alternative funding mechanisms take advantage of public/private
partnerships to provide incentives for cost savings and reduce energy
consumption. These contracts have been advocated by the President and
the Department of Energy as an effective energy conservation measure,
and EPAct 2005 recently extended the authority for these financing
mechanisms through 2016.
* Tracking and monitoring: A key principle applied by leading companies
is obtaining improved knowledge on what is being spent by an
organization. This knowledge is gained through the implementation of
processes and systems to collect, maintain, and analyze data. This data
would provide the organization the ability to track and monitor
performance over time as well as to identify cost saving opportunities.
We have reported on how leading private-sector companies have focused
on gaining knowledge about how much is being spent for what goods and
services, who are the buyers, and who are the suppliers, thereby
identifying opportunities to leverage buying, save money, and improve
performance, and how these principles can apply to federal entities. A
key benefit derived from tracking and monitoring is gaining an
understanding of an organization's fuel consumption: what types of fuel
are being consumed, how much, how these fuels are used (i.e., for
transportation or facilities), and when they are needed (i.e.,
throughout the year or seasonally), etc. EPAct 2005 contained specific
provisions aimed at improving the tracking and monitoring of energy
usage at federal facilities. Agencies are to begin taking actions to
implement electric metering systems throughout their facilities, with
the goal of having this technology in all federal buildings by October
1, 2012.
Consumption-Related Federal Requirements and Guidance:
The federal government, through legal requirements contained in EPAct
1992 and 2005 and other guidance, continues to promote actions aimed at
reducing federal fuel consumption. EPAct 1992 and 2005 established
federal energy conservation efforts that target, among other things,
the need for federal agencies to take steps to reduce reliance on and
use of petroleum-based fuels. Key provisions in EPAct 1992 were aimed
at reducing the nation's dependence on foreign oil by promoting
alternative fuel vehicles (AFV) in the federal government's various
vehicle fleets and fuel diversification. EPAct 1992 required federal
agencies, including the Service, to increase their AFV purchases when
buying new vehicles and EPAct 2005 details requirements for alternative
fuels to be used in these vehicles.
EPAct 2005 also sought to set conservation goals for all federal
agencies, including the Postal Service. Provisions within EPAct related
to facility energy consumption include:
* Federal agencies are to reduce their annual energy consumption by 2
percent per year from 2006 to 2015, based on the baseline year of 2003,
resulting in an overall energy reduction of 20 percent by 2015;
* New federal buildings must be designed to achieve energy consumption
levels that exceed industry or international standards by at least 30
percent, provided the standards would be life-cycle cost-effective for
the facility.
In addition to these legal requirements, other federal guidance exists
to reduce fuel consumption. For example, in January 2007, President
Bush issued Executive Order 13423 to strengthen federal agencies'
environmental, energy, and transportation management. Major provisions
of this order included:
* Vehicles: Use certain hybrid vehicles when commercially available at
a reasonable cost.
* Petroleum conservation: Reduce total petroleum consumption in vehicle
fleets by 2 percent annually through 2015.
* Alternative fuel use: Increase alternative fuel consumption by 10
percent annually.
* Energy efficiency: Improve energy efficiency by 30 percent by 2015.
Although the Service is not subject to the executive order, this
federal policy provides guidance on goals and practices that could be
replicated to improve transportation and facility energy efficiency.
DOE has also provided guidance aimed at improving vehicle fleet fuel
efficiency and, in general, reducing petroleum-based fuel consumption.
Some examples of these practices include:
* observing posted speed limits;
* removing excess weight from the vehicle;
* avoiding excessive idling;
* keeping tires properly inflated; and:
* performing regularly-scheduled preventative maintenance.
We also reported in 2003 that the use of bypass filters in conjunction
with traditional oil filters are another option to improve vehicle
fleet efficiency by substantially reducing the number of oil changes
for certain federal agencies, including the Service.[Footnote 18]
Many of the Service's Actions Are Generally Consistent with Leading
Practices and Selected EPAct Requirements, but Issues Remain:
We assessed the Service's actions to control fuel costs and mitigate
fuel cost risk against these leading practices and EPAct requirements.
The Service's actions generally appear to be consistent with the
leading practices for aggregating purchases, organizational change, and
utilizing public-private partnerships. Furthermore, the Service has
generally complied with the legal provisions contained in EPAct 1992
regarding the purchase of alternative fuel-capable vehicles. Issues
remain, however, related to tracking and monitoring fuel consumption
data and reducing reliance on petroleum-based fuels that may hinder the
Service's ability to achieve cost savings and/or meet updated federal
requirements contained in EPAct 2005.
Aggregating Purchases Are Consistent with Leading Practices:
The Service's actions related to aggregating its purchases and
leveraging its buying power appear consistent with practices advocated
by leading organizations. As table 16 illustrates, the Service has
implemented multiple actions aimed at aggregating fuel purchases, both
internal and external to the Postal Service.
Table 16: The Service Is Aggregating Purchases in a Variety of Ways:
Postal Service action: Transportation - Postal-owned fleet: Voyager
card;
How the Service is aggregating purchases and/or leveraging buying
power: The Service has consolidated most retail transactions for Postal-
owned vehicles onto the Voyager purchasing card. The Service is able to
leverage fuel purchasing volume to secure discounts with participating
retailers and qualify for rebates from the use of the card.
Postal Service action: Transportation - Postal-owned fleet: Group
purchasing;
How the Service is aggregating purchases and/or leveraging buying
power: The Service continues to take advantage of the DESC fuel program
that aggregates selected federal fuel requirements to achieve price
discounts. According to a DESC official, this effort has led to a
better response and price from the fuel industry due to larger volume
purchases and consolidating purchases into a single procurement effort
(when compared to multiple smaller purchases from various agencies).
Postal Service action: Transportation - Highway contractors: Voyager
card;
How the Service is aggregating purchases and/or leveraging buying
power: The Service has extended the Voyager card program to selected
highway contractors with dedicated vehicles for the transportation of
mail. Similar to that for the Postal-owned fleet, the Service is able
to leverage fuel purchasing volume and qualify for rebates from the use
of the card.
Postal Service action: Transportation - Highway contractors: Bulk
purchasing;
How the Service is aggregating purchases and/or leveraging buying
power: The Service leverages the combined volume of the fuel needed by
contractors who maintain fuel storage tanks. The Service stated that it
is able to achieve savings of $0.15 on average per gallon for every
gallon purchased by contractors. The Service reported almost $9.8
million in cost savings in 2006.
Postal Service action: Transportation - Air contracts: Holiday fuel;
How the Service is aggregating purchases and/or leveraging buying
power: During the peak 2-week holiday season, the Service has
contracted separately for the fuel needed for the dedicated air network
and to leverage fuel needs during this period to obtain cost savings.
The Service reported cumulative savings of over $6 million since 2002.
Postal Service action: Facilities: Electricity contracts;
How the Service is aggregating purchases and/or leveraging buying
power: The Service aggregated requirements in 7 states and the District
of Columbia for the supply of electricity generation. The Service
reported cumulative savings of $14.4 million from these actions in
2006.
Source: GAO analysis of Postal Service data.
[End of table]
Organizational Structure Appears Consistent with Leading Practices:
The changes that the Service has made to its organizational structure
appear consistent with leading practices because it reorganized to
include commodity (fuel) specific experts and established a leadership
position to develop and coordinate the implementation of the Service's
energy strategies. In 2002, the Service created its fuel purchasing
organization as part of its efforts to incorporate Supply Chain
Management principles. A 2001 report by the Service's Office of
Inspector General (OIG) recommended that the Service reexamine its fuel
management systems.[Footnote 19] A consultant-produced Fuel Management
Business Plan study completed in response to the OIG audit recommended
the Service centralize its procurement and management of fuels. The
Service thus created the Transportation Asset Management group, which
is dedicated to managing and conducting the Service's transportation-
related fuel purchasing activity--for both the Service and its
transportation contractors--as well as for heating oil. Although
heating oil is used in facility operations, since it is a petroleum-
based fuel the Service included it in the Transportation Asset
Management group. During 2001, a procurement team focused on the
utilities was also created. The Office Products and Utilities Category
Management Center was developed to manage utility procurement for
Postal facilities throughout the United States. The main energy sources
this group is responsible for are electricity, natural gas, water, and
steam. This group also manages all of the Service's SES contracts with
private contractors.
The Service's recent organizational changes related to its energy
management also appear consistent with leading practices related to
enhancing leadership and establishing an organizational strategy. In
July 2006, the Service appointed an Executive Director for Energy
Initiatives. The current Executive Director stated that her
responsibilities will include:
* Developing and managing the Service's energy management strategy. The
Executive Director anticipates completing the Service's energy
management strategic plan by mid-2007, which is expected to focus on
three key areas: (1) fuel purchasing using supply management, (2) fuel
demand for the Service's facilities and its transportation networks,
and (3) risk management.
* Serving as the Service's primary point of contact for all other
government agencies--federal, state, and local--and the private sector
regarding the Service's fuel and energy usage. The relationships built
between the Service, other government agencies, and private-sector
organizations are designed to keep the Service apprised of any
opportunities or leading practices that exist to reduce overall energy
consumption.
Public-Private Partnerships Appear Generally Consistent with Leading
Practices:
The Service's continued utilization of public-private partnerships
through Shared Energy Savings contracts appear consistent with some
elements of leading practices and with federal policies in this area.
These contracts are an alternative source of funding for energy-
efficient investments. Under these contracts, a private entity
(typically an energy company) would fund the initial installation of an
energy savings project at a Postal facility. Energy officials at the
Service stated that it has advocated the use of these contracts since
1992 as an effective alternative financing method and energy
conservation program, and that these projects are an investment aimed
at reducing consumption. The savings achieved as a result of these
projects would initially be used to pay back the private entity for the
installation costs--typically over a 10-year period. According to the
Service, savings could accrue (1) at the end of this pay back period,
(2) when the outstanding balance is paid prior to the contract's
expiration by the Service using funding from other areas, or (3) during
the payback period as consumption is being reduced, actual energy
prices exceed the forecasted prices. Table 17 summarizes the Service's
SES contract program, while table 18 shows that many 2006 SES projects
are occurring at sites in the Pacific and Southeast areas.
Table 17: Shared Energy Savings Project Summary:
Description: Number of projects;
2003: 15;
2004: 28;
2005: 39;
2006: 15.
Description: Contract value (in millions of dollars);
2003: $47.6;
2004: $61.9;
2005: $72.7;
2006: $38.1.
Description: Cost savings (in millions of dollars)[A];
2003: $5.4;
2004: $5.1;
2005: $5.7;
2006: $2.2.
Description: Energy savings (in millions of kWh);
2003: 32.1;
2004: 39.0;
2005: 43.6;
2006: 27.2.
Source: The Postal Service.
[A] Energy dollar savings, which reflect the cost reductions that
remain net of any required contractor payments.
[End of table]
Table 18: Active Shared Energy Savings Projects by Postal Service Area
in 2006:
(Dollars in millions).
Area: Pacific;
Number of contracts/ task orders: 8;
Number of sites: 112;
Value: $20.6.
Area: Western;
Number of contracts/ task orders: 1;
Number of sites: 2;
Value: 1.3.
Area: New York Metro;
Number of contracts/ task orders: 1;
Number of sites: 1;
Value: 0.5.
Area: Southeast;
Number of contracts/ task orders: 2;
Number of sites: 174;
Value: 6.3.
Area: Capital Metro;
Number of contracts/ task orders: 3;
Number of sites: 3;
Value: 9.4.
Total;
Number of contracts/ task orders: 15;
Number of sites: 292;
Value: $38.1.
Source: The Postal Service.
[End of table]
Some of the Service's SES projects have been nominated for DOE's
Federal Energy Efficiency Awards, and DOE has recognized that benefits
have been derived from the Service's contracts. Our past work on
similar energy savings contracts for other federal agencies reaffirmed
that these types of contracts can offer various benefits including
energy savings and more reliable equipment, but noted attention is
needed when evaluating the contracts expected cost savings.[Footnote
20] We also noted that financing energy savings projects through these
alternative funding mechanisms may be more expensive than up-front
funding and that the performance of these third-party participants
should be carefully monitored and verified.[Footnote 21]
Inconsistencies Remain in the Service's Tracking and Monitoring of Fuel
Information:
The Service's limited tracking and monitoring of fuel consumption
information for the majority of its fuel spending is inconsistent with
leading practices (see table 19). This lack of information results in
the Service not having the necessary fuel information to gain a
complete understanding of the extent to which consumption is changing,
how consumption has impacted overall fuel costs, and identify potential
opportunities to reduce consumption. On the transportation side, the
Service has no mechanisms or systems in place to monitor fuel usage,
except for fuel purchases through its Voyager and holiday jet fuel
programs (these purchases combined account for about 35 percent of its
annual transportation-related fuel expenses). For example, the Service
does not have consumption information for its nearly 55,000 delivery
routes served by its rural carriers who use their own personal
vehicles. The Service stated that it estimates fuel usage in some of
these instances. Furthermore, the air transportation contracts pose
greater difficulties in this area because fuel purchases are tied to a
contract measure such as cubic feet or pounds of cargo. These measures
are needed to estimate fuel consumption for the Postal-related cargo
because these flights may not be dedicated to Postal Service
transportation. The Service also does not centrally track the amount of
fuel used to heat and operate its nationwide facility network. For
example, the Service currently has metering equipment at only 25 of its
over 34,000 facilities. The Service tracks and monitors the costs that
are paid for its electricity, natural gas, and heating oil, but does
not track consumption amounts.
Table 19: Progress Is Needed in Tracking and Monitoring Fuel
Consumption:
Postal Service program: Postal-owned fleet;
Consistent with leading practices: Description: Voyager card program
provides significant amounts of transactional data such as cost,
location, fuel type, timing, quantity, and taxes;
Consistent with leading practices: Percentage of program fuel spending
(est.) 80%;
Inconsistent with leading practices: Description: No consumption data
for Postal- owned bulk fuel purchases;
Inconsistent with leading practices: Percentage of program fuel
spending (est.) 20%.
Postal Service program: Postal employees using personal vehicles;
Consistent with leading practices: Description: None available;
Consistent with leading practices: Percentage of program fuel spending
(est.) 0%;
Inconsistent with leading practices: Description: No consumption data;
Inconsistent with leading practices: Percentage of program fuel
spending (est.) 100%.
Postal Service program: Highway contractors;
Consistent with leading practices: Description: Highway contractors
under the Voyager card program;
Consistent with leading practices: Percentage of program fuel spending
(est.) 50%;
Inconsistent with leading practices: Description: No consumption data
for highway contractors using bulk fuel or quarterly adjustments;
Inconsistent with leading practices: Percentage of program fuel
spending (est.) 50%.
Postal Service program: Air contracts;
Consistent with leading practices: Description: Holiday air program;
Consistent with leading practices: Percentage of program fuel spending
(est.) 2%;
Inconsistent with leading practices: Description: Outside of the
holiday air program, no consumption data;
Inconsistent with leading practices: Percentage of program fuel
spending (est.) 98%.
Postal Service program: Other transportation;
Consistent with leading practices: Description: None available;
Consistent with leading practices: Percentage of program fuel spending
(est.) 0%;
Inconsistent with leading practices: Description: No consumption data
for rail or water transportation;
Inconsistent with leading practices: Percentage of program fuel
spending (est.) 100%.
Postal Service program: Facilities;
Consistent with leading practices: Description: The Service has
installed 25 electric metering systems;
Consistent with leading practices: Percentage of program fuel spending
(est.) n/a;
Inconsistent with leading practices: Description: Little consumption
data available;
Inconsistent with leading practices: Percentage of program fuel
spending (est.) n/a.
Source: GAO analysis of Postal Service data.
Note: n/a represents not available.
[End of table]
The Service has shown that in areas where it tracks and monitors fuel
information, positive results can be achieved. For example, the Service
has been able to increase its tracking and monitoring through the use
of the Voyager program and holiday jet fuel on the transportation side.
The Voyager program's ability to gather, track, and monitor data has
resulted in direct fuel cost savings for the Service. The card provides
significant amounts of transactional data such as cost, location, fuel
type, timing, and quantity that is fed into two information systems--
the eFleet program for the Postal-owned fleet and the eFuel system for
the highway contractor fleet. According to Service officials, these
systems require the monthly reconciliation of all purchases and
programs designed to monitor potential fraud and abuse. These
mechanisms contribute to cost savings and avoidance. Furthermore, data
collected from these systems has been used by the Service to increase
the accuracy of data for highway contractor fuel consumption. Improved
data tracking and monitoring for the Service's holiday jet fuel has
resulted in improved and more accurate contracting and reported costs
savings.
On the facility side, the SES program requires specific tracking and
monitoring of the overall performance (costs, savings, and changes in
consumption) from these contracts. Furthermore, utility companies in
the Pacific and New York areas have provided the Service metering
equipment to track its fuel usage at designated Postal Service
facilities. As discussed earlier, the Service has set annual facility
fuel-related cost-saving targets that have allowed the Service to
monitor and evaluate the performance of these initiatives.
Considering the positive results associated with the tracking and
monitoring under the Voyager card and SES programs, similar efforts
could be beneficial in obtaining additional fuel-related cost saving
opportunities. For example, a GSA building official stated that its
efforts to track consumption data showed that nearly 60 of its owned or
leased facilities accounted for almost half of its energy costs. GSA
was able to target these facilities for their energy efficiency
investments. The upcoming EPAct metering systems installation
requirements provide an opportunity for the Service to make additional
progress in tracking and monitoring its facility fuel consumption. The
Executive Director for Energy Initiatives stated that financial and
operational considerations need to be made due to the composition of
the Service's facility network--34,000 facilities nationwide, many of
which are less than 2,500 square feet.[Footnote 22] The Executive
Director stated that the Service has some fuel information that
provides guidance on which facilities are key candidates for energy
efficiency investments. Specifically, the Service has identified 543 of
its largest consuming facilities and is performing further reviews of
these facilities. The Executive Director acknowledged, however, that
improvements to the Service's fuel information are needed and will be
included as part of the Service's upcoming energy strategy. More
complete fuel cost and consumption information at its facilities would
allow the Service to gain a better understanding of where investments
could be made to reduce costs and improve fuel efficiency.
The Service Has Been Unable to Reduce Reliance on Petroleum-Based
Fuels:
Although the Service has purchased thousands of AFVs to comply with
provisions of EPAct 1992 aimed at reducing reliance on petroleum-based
fuels, financial and operational limitations have hindered the
Service's ability to use alternative fuels in these vehicles. The
Service has increased its AFV fleet by nearly 20 percent from 2000 and
currently possesses one of the largest alternative-fuel capable fleets
in the federal government with nearly 40,000 AFVs. The majority of
these vehicles are capable of operating on ethanol or compressed
natural gas (CNG), and also include some that operate on electricity
and liquefied petroleum gas. Most of the Service's AFVs, however, do
not operate using alternative fuels, but primarily use gasoline and
diesel fuel. Alternative fuels accounted for roughly 1.5 percent of the
total fuel consumed by the Service's internal fleet in 2006.
Financial and operational limitations associated with higher fuel and
vehicle prices, lower fuel efficiencies, and an insufficient nationwide
alternative fueling infrastructure have limited the Service's use of
alternative fuels. Postal Service officials stated these issues made
operating its fleet on alternative fuels cost prohibitive. For example
these officials stated that:
* The Service found that the cost for a gallon of ethanol 85 (E85) is
typically 17 percent more expensive than gasoline, is 26 percent less
efficient, and may result in higher maintenance costs because it is
corrosive.
* There is a limited supply of AFVs available for purchase by the
Service, and those that are available to the Service that meet the
EPAct requirements contain larger engines than generally needed for
delivery operations. As such, these unnecessarily large engines lower
fuel efficiency when using gasoline or alternative fuels, and reduce
the Service's miles per gallon.
* The limited nationwide alternative fuel infrastructure has hindered
some of its previous alternative fuel efforts. For example, the Service
converted some of its vehicles to operate on CNG in the early 1990s.
While this was successful in the short term, manufacturers that the
Service worked with to produce the CNG vehicles went out of business or
simply stopped producing the vehicles, and many fueling stations that
had provided CNG stopped selling it, leading to a shortage in the fuel.
Furthermore, even where alternative fuel pumps are available, their
distance from a Postal Service facility may be too great to justify the
costs to refuel at that pump. Service officials stated that only 0.6
percent of service stations across the country offer alternative fuels.
Our past work, as well as officials from DOE and GSA have raised
similar financial and operational limitations. We recently issued a
report on the challenges associated with using alternative fuels,
including that the nationwide alternative fuel infrastructure is poor
to nonexistent throughout most of the country.[Footnote 23] For
example, we reported that there are a limited number of E85 fueling
stations nationwide (mostly concentrated in the upper Midwest), and
that E85 cannot use the same infrastructure as gasoline because it is
more corrosive. As of January 2007, the DOE Website indicates that only
1,003 E85 stations are located throughout the country. Recent studies
conducted by DOE have found similar decreased fuel efficiency and
increased cost results for ethanol.[Footnote 24] DOE is currently in
the process of finalizing guidance on a waiver to EPAct for federal
fleets based on factors that may include alternative fuel price and
travel distance.
A Service engineering director stated that discussions with DOE,
automobile, fuel industry officials, and the Service about these
financial and operational limitations have taken place, but progress
has been difficult to achieve. This official stated that the Service's
demand for AFVs and alternative fuels is not large enough to result in
significant changes to the availability and price of AFVs or to the
nationwide alternative fuel infrastructure. We are continuing to look
at issues surrounding the nationwide alternative fuel infrastructure
and plan on issuing a report in the middle of 2007.
Service officials also noted that they continue to look at alternative
fuel vehicles and other options to improve vehicle fuel efficiency. For
example, the Service has recently focused testing on hybrid vehicles.
These officials noted, however, that while the mail delivery tests
using hybrid vehicles are going very well and are conducive to the stop-
and-go driving of mail delivery routes, hybrid vehicles are not
considered AFVs and are ineligible for EPAct 2005 credit because they
are powered primarily by standard gasoline. Nevertheless, the use of
hybrids is consistent with the President's recent executive order
requiring federal agencies to cut their energy consumption by, among
other actions, using hybrid cars. Officials also noted that the Service
takes other actions to increase fuel efficiency, such as having
regularly scheduled vehicle maintenance (oil changes, tire pressure
checks, etc.) that is consistent with the specifications of the vehicle
manufacturer. Another fuel efficiency option noted by a vehicle
operations official is that most of the larger vehicles in the
Service's fleet were installed with bypass filters to minimize the
intervals between oil replacements. However, he stated that using
bypass filters on the smaller, delivery vehicles would not be cost-
effective due to more expensive installation costs.
Conclusion:
Although the Service has taken some actions to mitigate fuel risk and
contain costs that are generally consistent with practices advocated by
leading organizations, it continues to be vulnerable to fuel price
fluctuations and challenged to meet the more stringent 2005 EPAct
requirements. The Service recognizes these challenges and is in the
process of developing a strategic plan to guide future actions in this
area. Immediate action is needed, however, to address deficiencies
related to insufficient consumption data in some transportation and
facility areas. Without sufficient consumption data, the Service will
have difficulty understanding fuel consumption changes and identifying
opportunities for additional cost savings.
Recommendation for Executive Action:
We recommend that the Postmaster General take actions to improve
tracking and monitoring of transportation and facility-related fuel
consumption data. Taking immediate actions to address the lack of
consumption data will be important, even as the Service is developing a
new energy strategy.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Service for its review and
comment. The Service provided its comments in a letter from the Senior
Vice President, Operations, dated January 19, 2007. These comments are
summarized below and included in appendix II. The Service agreed with
our findings and recommendation, and stated that it has started the
process to improve the information systems needed to capture fuel
consumption information. In its comments, the Service stated that it
plans to increase the number of Postal-owned vehicles used by rural
carriers. These efforts should increase the Service's ability to track
and monitor fuel usage due to the use of Voyager cards in Postal-owned
vehicles. The Service also stated that it will be challenged by the
EPAct 2005 requirements. For example, the Service commented on the
limited availability of alternative fuel, and in particular, the
increased cost and decreased efficiency associated with E85. We
recognized these issues in our report and we are currently conducting
additional work on alternative fuel infrastructure issues that is
scheduled to be completed in mid-2007. The Service also commented on
the financial challenges associated with the EPAct 2005 advanced
metering requirement. It stated that many of its facilities are less
than 10,000 square feet and requiring meters at all locations would not
provide a reasonable return on investment. EPAct 2005 established a
process for agencies to seek waivers to the metering requirements, DOE
has established criteria for doing so, and the Service has indicated
that it may seek waivers for certain facilities.
Although we recognize that these financial and operational challenges
exist, the Service has an opportunity to build on its positive efforts
and make additional progress in meeting these requirements. For
example, the Service reported installing metering systems at only 25 of
its 34,000 facilities, and the Service could extend this practice to
other facilities. Service officials stated that they have identified
543 of the Service's largest energy consuming facilities, and the
information gathered from analyzing these facilities may lead to
practices that can also be applied to smaller facilities. Furthermore,
the recent attention from the Administration and Congress on
alternative fuel and energy conservation issues may provide an impetus
for addressing some of these limitations that have hindered the
Service's progress. The Service stated in its comments that it would be
pleased to contribute to a national strategic plan for meeting the
EPAct alternative fuel consumption requirement.
We are sending copies of this report to the Chairman of the House
Committee on Oversight and Government Reform; the Chairman and Ranking
Member of the House Subcommittee on the Federal Workforce, Postal
Service, and the District of Columbia; the Chairman and Ranking Member
of the Senate Committee on Homeland Security and Governmental Affairs;
the Chairman and Ranking Member of the Senate Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security; the Postmaster General; and other interested
parties. We also will provide copies to others on request. In addition,
the report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at siggerudk@gao.gov or by telephone at (202) 512-2834.
Contact points for our Office of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff that
made key contributions to this report are listed in appendix IV.
Signed by:
Katherine Siggerud:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
For this report, our objectives were to review (1) how the Service's
fuel costs changed recently and the impact of these cost changes on the
Service's financial and operating conditions and (2) how the Service's
actions to control fuel costs and mitigate risk compare to leading
practices and federal requirements.
To describe how the U.S. Postal Service's (the Service) fuel costs
changed recently and what has been the impact of these cost changes on
the Service's financial and operating conditions, we first defined what
would be included as fuels. For our analysis, we established the
following two categories:
1. Transportation-related fuel, which included fuel used for highway,
air, rail, and water transportation. The types of fuel included in this
category were gasoline, diesel, jet fuel, biodiesel, ethanol,
compressed natural gas, liquefied petroleum gas, and electricity.
2. Facility-related fuels, which included fuel used to heat and operate
Postal Service facilities. The types of fuel included electricity,
natural gas, heating oil, propane, steam, coal, and wood. In regards to
including electricity as a type of fuel, we felt it was necessary
because it was used both in transportation and facility heating and
operations.
We also analyzed trends in fuel prices from information available from
the Energy Information Administration's Web site, as well as through
other Department of Energy (DOE) sources consistent with guidance from
DOE officials. We also collected data on the following areas:
* Fuel cost data from the Service regarding its various fuel types,
purchasing methods, and transportation methods. Due to data system
issues from an organizational change in 2003, the Service was only able
to provide this data for most areas for 2004, 2005, and 2006. The
Service stated that it needed to estimate fuel costs for multiple
purchasing methods because that data is not available to them. For
example, the Service had to estimate fuel costs for air transportation
contracts.
* Transportation and facility-fuel cost-saving initiatives. Although
the Service has specific definitions for its strategies to reduce,
avoid, or save costs (which are explained in Appendix III), for the
purposes of this review, we considered them all cost-saving
initiatives.
* Statistics from GSA's Federal Fleet Report.
* Specific information on its internal vehicle fleet from standardized
vehicle operations reports as well as its Shared Energy Savings
projects from detailed presentations.
* Other financial and operating data from various Postal Service
financial reports including its audited year-end Annual Reports and
Comprehensive Statements, monthly Financial and Operating Statements,
Quarterly Reports, and Integrated Financial Plan.
We assessed the reliability of the fuel cost and savings data provided
by the Service for inconsistencies and missing values. In those cases
where we found discrepancies, we worked with the Service to address the
problems. We determined that the data were sufficiently reliable for
our review. We also reviewed the Service's procedures for documenting,
measuring, and reporting cost savings for its purchasing activities as
well as the methodology for specific fuel-related initiatives. For the
purposes of this engagement, the procedures and methodologies appeared
to be reasonable and contain appropriate levels of review.
We also interviewed various Service officials, including staff from the
Transportation Asset Management group who procure petroleum-based
fuels; the Office Products and Utilities Category Management Center who
procure most facility-related fuels; Vehicle Operations; Vehicle
Maintenance at Merrifield, VA; Engineering at Merrifield, VA;
Environmental and Energy Management; and finance department to gather
information on how the Service has been impacted by rising fuel costs.
To assess the effectiveness of the Service's actions to control fuel
costs and mitigate risk, we compared these actions against practices
advocated by leading organizations that could be applied to the
Service's fuel-related activities. We reviewed information from a
variety of sources. These included our past work on fuel use and
consumption and procurement leading practices, which included reviewing
the purchasing efforts at various federal agencies (Departments of
Defense, Veterans Affairs, Health and Human Services, Agriculture,
Justice, and Transportation, and the U.S. Postal Service) as well as
leading private organizations that were recognized for their
acquisition services (IBM, ChevronTexaco, Bausch & Lomb, Delta Air
Lines, and Dell). We also reviewed the Energy Policy Acts of 2005 and
1992, particularly the federal requirements and guidance pertaining to
alternative fuel vehicles and facility energy management.[Footnote 25]
We also interviewed officials from Department of Defense's Defense
Energy Support Center, General Services Administration, and Department
of Energy whose operations focus on fuel use; a procurement expert
affiliated with the Center for Strategic Supply Research who published
a report on fuel procurement practices; various executives and
contractors affiliated with the National Star Route Mail Contractors
Association; as well as Postal Service officials. We also conducted a
review of current literature on these topics. Based on this
information, we identified key practices that focused on purchasing and
consumption activities. The purchasing-related leading practices we
identified were aggregating purchases to leverage buying power and
size; enhancing organizational structure; utilizing public/private
partnerships; and tracking and monitoring fuel information. The
consumption-related leading practices we identified were reducing
reliance and use of petroleum-based fuels and conserving energy use in
facilities.
We also discussed opportunities for further actions consistent with
leading practices with the Service's newly appointed Executive Director
for Energy Initiatives. Our work was conducted from April 2006 to
February 2007 in accordance with generally accepted government auditing
standards.
[End of section]
Appendix II: Comments from the U.S. Postal Service:
William P. Galligan:
Senior Vice President:
Operations:
United States Postal Service:
January 19, 2007:
Ms. Katherine A. Siggerud:
Director, Physical Infrastructure Issues:
United States Government Accountability Office:
Washington, DC 20548- 0001:
Dear Ms. Siggerud:
Thank you for providing the United States Postal Service the
opportunity to review and comment on the draft report, U.S. Postal
Service: Vulnerability to Fluctuating Fuel Prices Requires Improved
Tracking and Monitoring of Consumption Information (GAO-07-0244).
The findings and recommendation of the draft report are reflective of
the high level of communication and cooperation between the Government
Accountability Office (GAO) and the Postal Service. The GAO reached
similar conclusions to those we have identified, including the need for
better information regarding fuel consumption. The draft report also
highlights the impact of the recent fluctuations in fuel costs on our
financial results.
We agree with the recommendation for better tracking and monitoring of
transportation and facility-related fuel consumption data and we have
started the process to improve our information systems to capture these
critical numbers.
One finding referenced in the draft report involves the lack of fuel
usage data for our 75,000 rural routes. Rural carriers typically use
their own vehicles to deliver mail and are reimbursed according to the
contractually agreed upon Equipment Maintenance Allowance (EMA) based
on the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W). The EMA also includes maintenance and replacement vehicle
costs. Over 20,000 postal-owned vehicles are now used by rural carriers
for which fuel usage is fully documented. By 2008, that number will
exceed 25,000 vehicles with a commitment to place an additional 15,000
postal-owned vehicles on rural routes by 2013.
The Energy Policy Act (EPAct) of 1992 required federal agencies to
increase the number of alternative fuel vehicles (AFVs) purchased. In
the spirit of the Act, we acquired a fleet of over 37,000 AFVs.
However, the aggressive alternative fuel consumption requirement of the
EPAct of 2005 imposes significant challenges. As you are aware,
alternate fuel has very limited availability (less than 0.6 percent of
all fueling stations). The dominant alternative fuel, ethanol 85 (E85),
is more costly and is less efficient. A national strategic plan-to
which we would be pleased to contribute-needs to be developed to
address this requirement.
An additional finding indicates that only a small number of our 34,000
facilities have advanced metering systems. That total includes
approximately 20,000 facilities which are less than 10,000 square feet.
The majority of energy use comes from a few hundred of our larger
processing and distribution facilities. The EPAct of 2005 requirement
for advanced metering systems could help us better realize energy cost
savings at these larger locations, but requiring them on all locations
would not provide a reasonable return on investment.
If you or your staff wishes to discuss any of these comments further, I
am available at your convenience.
Sincerely,
Signed by:
William P. Galligan:
[End of section]
Appendix III: U.S. Postal Service Definitions:
The Service's purchasing organization, Supply Management, has specific
procedures for documenting and evaluating the actions it takes to
improve its financial condition. These procedures include actions that
are taken to achieve cost savings, cost avoidance, or cost reductions.
The following represent the definitions and methodology behind these
three cost categories used by the Service.
Cost Savings: Identifiable and measurable reduction in expenditures or
costs that is the result of planned and deliberate supply chain
management actions that return quantifiable dollar savings to the
Service's bottom line. Cost savings are the difference between baseline
spend (historical, current market price or initial suppliers bid)
accounted for in a prior or current year budget and actual spend
achieved through planned and deliberate supply chain management actions
for the same or comparable supplies, equipment, services, facilities or
other supply chain activities. Cost savings are only recorded in the
first year of supply chain management impact. After the budget has been
adjusted to reflect the cost savings, all subsequent years of supply
chain management impact related to these efforts are counted towards
cost avoidance (see the definition for cost avoidance below.)
Examples of cost savings include the following:
* Example A: A purchase cost reduction achieved over a historical or
previously paid cost for the same products or services.
* Example B: An actual staffing or headcount reduction, which reduces
planned or actual budgets, the result of outsourcing an administrative
or business function. (Note: Actual savings must be evident in the
functional area budget).
* Example C: An ownership cost reduction resulting from the elimination
of expenses associated with receiving, holding, and/or distributing
inventory.
Savings related solely to general market trends, supplier price
changes, or reduced expenditures do not qualify as supply chain
management impact. Although these savings may have a bottom line
benefit that is identifiable and measurable, they do not result from
the planned and deliberate action or substantial involvement of supply
management organizational area enabling or leading the supply chain
management initiatives.
Cost Reductions: Cost reductions are identifiable and measurable cost
savings that are the result of a planned and deliberate supply chain
management action that returns measurable savings to the Service's
bottom line. However, instead of reducing the bottom line, the Service
has determined that these savings can be retained by the internal
client/program office and reinvested to enhance related or new program
initiatives.
Cost Avoidance: Identifiable and measurable elimination of a new cost
that would have otherwise occurred except for planned and deliberate
supply chain management action. In all cases, cost avoidance results
where a contractual obligation on the part of the Service has not yet
been made. Cost avoidance is the difference between the average quoted,
relevant market price or other acceptable industry pricing benchmark or
baseline and the price paid, which could be more or less than the
initial proposed price. The relevant market price is the price the
Service would expect to pay in the absence of planned and deliberate
supply chain management action. Cost avoidance captures the value of
those initiatives that reduce the need for an expense or capital
expenditure, which unless the supply chain management action were
taken, would have resulted in a higher expense or capital cost to the
Service. Examples of cost avoidance include:
* Example A: A price reduction for a unique or first time purchase, as
well as for a purchase for which there is inadequate price history.
* Example B: A total cost of ownership analysis supporting the reuse of
excess property and supplies versus purchasing new.
* Example C: A published supplier price increase that is negated or
lowered through a particular supply chain management technique.
Cost avoidance does not qualify as cost savings because the avoided
cost is a "new" cost and, by definition, not included in prior year
spend (or prior or current year budgets) and the avoidance has no
direct dollar-for-dollar impact on the bottom line. Supply chain
management impact is still created, however, because the cost avoidance
minimizes or eliminates the negative impact on current or future year
spend.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Katherine Siggerud (202) 512-2834:
Acknowledgments:
In addition to the individual named above, Teresa Anderson, Joshua
Bartzen, Kathy Gilhooly, Brandon Haller, Carol Henn, Daniel Paepke,
Emily Rachman, and Karla Springer made key contributions to this
report.
FOOTNOTES
[1] Year references are for the fiscal year unless otherwise noted.
[2] For the purposes of this review, we are categorizing electricity,
natural gas, heating oil, propane, steam, coal, and wood as facility
fuels.
[3] Entities who contract with the Service for the over-the-highway
transportation and/or delivery of mail are referred to as highway
contractors.
[4] Energy Policy Act of 1992: Pub. L. 102-486 and Energy Policy Act of
2005: Pub. L. 109-58.
[5] The high-risk list identifies federal programs or operations that
are highly vulnerable to waste, fraud, abuse, and mismanagement or that
require urgent attention to ensure that the government functions in the
most economical, efficient, and effective manner possible. GAO, U.S.
Postal Service: Transformation Challenges Present Significant Risks,
GAO-01-598T (Washington, D.C.: Apr. 4, 2001) and GAO, U.S. Postal
Service: Financial Outlook and Transformation Challenges, GAO-01-733T
(Washington, D.C.: May 15, 2001).
[6] The Postal Accountability and Enhancement Act, P.L. 109-435.
[7] GAO, High Risk Series: An Update, GAO-07-310 (Washington, D.C.:
Jan. 2007).
[8] The COLAs used as part of the Service's union contracts are based
on changes in the Consumer Price Index that contains a fuel component.
[9] During the peak holiday season, the Service contracts separately
for fuel needed for its air transportation network.
[10] Heating oil for facilities is a petroleum-based fuel similar to
standard diesel used in surface transportation.
[11] Service officials stated that complete data on transportation fuel
costs prior to 2004 is not available.
[12] The Service's description of cost reduction, cost savings, and
cost avoidance are provided in appendix III. For the purposes of this
report, we have categorized all of these programs as cost-savings
initiatives.
[13] When establishing a highway contract, the Service and the
contractor estimate the maximum number of gallons that can be used to
serve the route.
[14] The Service's Supply Management organization has policies and
procedures in place for calculating and verifying cost-savings figures.
After being reviewed by internal Supply Chain Management officials,
these figures are submitted to the Controller's office within Finance
for a final review for reasonableness and acceptance. We reviewed these
policies, as well as the methodologies for specific fuel-related
initiatives, and found them to be reasonable for the purposes of this
engagement.
[15] The Service's method for calculating and verifying facility-
related cost-savings results is similar to that as described earlier
for its transportation initiatives. For descriptions of cost reduction,
cost savings, and cost avoidance, please see appendix III.
[16] GAO, U.S. Postal Service: Purchasing Changes Seem Promising, but
Ombudsman Revisions and Continued Oversight Are Needed, GAO-06-190
(Washington, D.C.: Dec. 15, 2005);
Best Practices: Using Spend Analysis to Help Agencies Take a More
Strategic Approach to Procurement, GAO-04-870 (Washington, D.C.: Sept.
16, 2004);
Postal Service: Progress in Implementing Supply Chain Management
Initiatives, GAO-04-540 (Washington, D.C.: May 17, 2004);
Best Practices: Improved Knowledge of DOD Service Contracts Could
Reveal Significant Savings, GAO-03-661 (Washington, D.C.: June 9,
2003);
and Best Practices: Taking a Strategic Approach Could Improve DOD's
Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002).
[17] GAO, Framework for Assessing the Acquisition Function at Federal
Agencies, GAO-05-218G (Washington, D.C.: Sept. 2005).
[18] GAO, Environmental Protection: Information on the Purchase, Use,
and Disposal of Engine Lubricating Oil, GAO-03-340 (Washington, D.C.:
Jan. 2, 2003).
[19] U.S. Postal Service, Office of Inspector General, Bulk Fuel
Purchase Plan, TR-AR-01-004 (Arlington, VA: July 27, 2001.
[20] GAO, Energy Savings: Performance Contracts Offer Benefits, but
Vigilance Is Needed to Protect Government Interests, GAO-05-340
(Washington, D.C.: June 22, 2005).
[21] GAO, Capital Financing: Partnerships and Energy Savings
Performance Contracts Raise Budgeting and Monitoring Concerns, GAO-05-
55 (Washington, D.C., Dec. 16, 2004).
[22] EPAct 2005 contains a process for agencies to seek waivers to the
metering requirements, and DOE has established the criteria for doing
so.
[23] GAO, Department of Energy: Key Challenges Remain for Developing
and Deploying Advanced Energy Technologies to Meet Future Needs, GAO-07-
106 (Washington, D.C.: Dec. 20, 2006).
[24] DOE, Clean Cities Alternative Fuel Price Report - June 2006
(Washington, D.C.: June 2006).
[25] Energy Policy Act of 1992: Pub. L. 102-486 and Energy Policy Act
of 2005: Pub. L. 109-58.
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