This is the accessible text file for GAO report number GAO-07-244 
entitled 'U.S. Postal Service: Vulnerability to Fluctuating Fuel Prices 
Requires Improved Tracking and Monitoring of Consumption Information' 
which was released on February 16, 2007. 

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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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