[Federal Register Volume 73, Number 174 (Monday, September 8, 2008)]
[Proposed Rules]
[Pages 51983-51990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20694]
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POSTAL REGULATORY COMMISSION
39 CFR Part 3001
[Docket No. RM2008-2; Order Nos. 99 and 102]
Periodic Reporting Rules
AGENCY: Postal Regulatory Commission.
ACTION: Proposed rule; availability of rulemaking petition.
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SUMMARY: Under a new law, the Postal Service must file an annual
compliance report with the Postal Regulatory Commission on costs,
revenues, rates, and quality of service associated with its products.
It has filed documents with the Commission to change some of the
methods it uses to compile the fiscal year 2008 report. In the
Commission's view, these documents constitute a rulemaking petition.
Therefore, it has established a rulemaking docket to allow the public
to comment on potential changes in periodic reporting rules.
DATES: 1. Technical conference: August 27, 2008 at 10 a.m.
2. Initial comments: September 8, 2008.
3. Reply comments: September 15, 2008.
ADDRESSES: Submit comments electronically via the Commission's Filing
Online system at http://www.prc.gov.
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
202-789-6820 and [email protected].
SUPPLEMENTARY INFORMATION: On August 11, 2008, the Commission received
Request of the United States Postal Service for Commission Order
Amending the Established Costing Methodologies for Purposes of
Preparing the FY 2008 Annual Compliance Report (Request). In the
Request, the Postal Service states that it has eight changes that it
would like to make to the methods by which it compiles the FY 2008
version of the annual report that is required by 39 U.S.C. 3652 to
provide to the Commission each year. It cites 39 U.S.C. 3652(a)(1),
which gives the Commission the responsibility to prescribe methods that
are used to produce the information that is compiled in the annual
report. Request at 2. Among other things, the information supplied in
the annual report is used by the Commission to prepare the Annual
Compliance Determination (ACD) that is required by 39 U.S.C. 3653.
The Postal Service references pages 9-10 of the most recent
Commission ACD. FY 2008 Annual Compliance Determination, March 27, 2007
(FY 2007 ACD). There, numerous commenters recommended that the Postal
Service not change methods for collecting and analyzing cost data
unless interested persons have had an opportunity to evaluate and
comment on them. The Commission concurred, stating that it intended to
issue regulations governing periodic reports generally (including the
Postal Service's annual report) that would vet proposed changes in
analytical methods through informal rulemakings in advance of the
filing of the report. FY 2007 ACD at 10.
I. Procedural Expedition
The Postal Service notes that it is already preparing its annual
report for FY 2008. Given the lead time that is required, it observes
that it is unlikely that the regulations that the Commission described
in its FY 2007 ACD can be issued, and public scrutiny of particular
changes in analytical methods could be completed under those
regulations, in time to be incorporated in its FY 2008 annual report.
It therefore asks that an alternative, expedited procedure be used to
vet its proposed changes in analytical methods.
In the Postal Service's view, none of its proposed methodological
changes ``are of sufficient complexity to hinder relatively
straightforward evaluation by both the parties and the Commission.''
Request at 2. It therefore proposes that its filing be treated as a
rule 21 motion for a Commission order approving its proposed changes to
current baseline methods used to analyze costs. Id., n.2. The Postal
Service notes that its Request includes the rationale for each of the
eight methodological changes that it proposes, and estimates the impact
of each change on the costs borne by mail classes. Equipped with this
information, it suggests, the public could provide input in the form of
answers supporting or opposing the motion. It recognizes, however, that
the 7-day period that rule 21 allows for answers to motions should
[[Page 51984]]
probably be lengthened. The Postal Service notes that if interested
parties feel that more elaborate procedures for their input are needed,
they can include those suggestions in their answers. Id. at 2. As
noted, the Postal Service's petition is followed by a description of
each proposal, together with its background, objective, and supporting
rationale.\1\
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\1\ Time Warner Inc. (Time Warner) has responded with a motion
asking that the deadline for answers be extended to September 2,
2008. See Motion of Time Warner Inc. to Extend the Period for
Response to Request of the United States Postal Service for
Commission Order Amending the Established Costing Methodologies for
Purposes of Preparing the FY 2008 Annual Compliance Report, August
14, 2008 (Motion). It argues that the substance of these proposals
is not sufficiently simple and straightforward to be vetted in 7
days. It argues, further, that it needs more time to examine and
comment on the alternative procedures that the Postal Service
proposes, particularly if they are to become standard procedures for
vetting methodological changes. Motion at 3-4. The rulemaking
procedures and extended deadlines authorized in this notice should
meet Time Warner's procedural objections.
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Although it does not have all of the changes to baseline analytical
methods that it hopes to incorporate in its 2008 annual report ready to
submit for public comment, the Postal Service observes that the process
should begin. It notes that these proposed changes would be part of the
core cost and revenue analysis process, which must be finalized before
other changes, such as those from new special studies, can be added to
its cost and revenue analysis. It says that other proposed changes will
be submitted for public scrutiny as they are developed. Id. at 3.
The Commission agrees that the process of vetting proposed changes
in the methods by which cost incurrence will be analyzed in the Postal
Service's FY 2008 annual report should begin now with those proposals
that are sufficiently refined to be submitted for public comment. The
Request suggests that it should be procedurally sufficient for the
Commission to adopt an order ruling on its proposed methodological
changes. The Commission, however, prefers at least initially to
interpret the definition of a ``rule'' in the Administrative Procedure
Act (APA) to include analytical methods that affect the way costs or
revenues are accounted for in a rate setting regulatory regime. The APA
requires that notice be given in the Federal Register and an
opportunity for public comment be provided before substantive rules
take effect. See 5 U.S.C. 551(4) and 553. For this reason, the
Commission will treat the Postal Service's August 11, 2008 filing as a
petition to initiate an informal rulemaking consistent with section 553
of the APA.
The Commission hereby grants the Postal Service's petition. Since
time is of the essence in vetting these proposed methodological
changes, the Commission is tentatively scheduling a technical
conference in which Postal Service experts would be available to answer
questions related to these proposals. The technical conference will be
held on August 27, 2008 at 10 a.m. in the Commission's hearing room.
The Postal Service should also arrange for the possibility that a
follow-up technical conference could be held on the afternoon of
September 3, 2008, if needed. Interested persons may file written
comments on the Postal Service's proposals on or before September 8,
2008. Reply Comments may be filed on or before September 15, 2008.
II. Substance of Postal Service Proposals
The Postal Service proposals, see Request at 5 et seq., are
described below.
Proposal One. Proposed Group Specific Cost Change (Cost Segment
18).
Objective: A methodology change is proposed for the manner in which
headquarters Finance Number (FN) Cost Segment 18 costs are categorized
in the FY 2008 Cost & Revenue Analysis (CRA) Report.
Background: In FY 2007, and for years before, almost all Cost
Segment 18 costs for headquarters Finance Numbers were treated as
institutional costs. With the enactment of the Postal Act of 2006,
however, there is a need to define a new category of cost--``group-
specific'' cost. Group-specific costs are those costs which cannot be
attributed to individual products, but which are caused by either the
competitive or market-dominant products as a group. The remaining
business sustaining or common fixed costs are ``institutional.'' An
example of a competitive product group-specific cost would be a HQ
organization unit that only supports competitive products. Pursuant to
Commission rule 3015.7(a), the Commission is currently using
competitive products' attributable costs, supplemented to include
causally related, group-specific costs, to test for cross-subsidies.
Competitive products also must cover an ``appropriate share'' of
institutional cost. In addition to the identification of competitive
product group-specific costs, the identification of market-dominant
group-specific costs is also important, as the value of the
institutional cost will be the residual of postal costs that are not
attributable to products and are not group-specific to either group. To
the extent costs are group-specific costs, the remaining
``institutional cost'' will be a smaller amount than it would be
otherwise.
Proposal: The new taxonomy for costs places a new requirement to be
able to identify group-specific HQ administrative and program costs for
market-dominant and competitive product groups. The Postal Service
captures costs for administrative activities and programs using a cost
center designation of the ``Finance Number.'' Administrative
organization units and programs are assigned a Finance Number and all
expenses are charged to the Finance Number. Most Headquarters
activities and programs support the entire enterprise or support all
products. However, the cost in some Finance Numbers may be associated
with either competitive or market-dominant product groups.
To facilitate the identification of group-specific costs in
Headquarters, the Postal Service has created a new attribute for
Finance Numbers called the Product Activity Attribute. The value of the
Product Activity Attribute will indicate which of the following
describes the activities and costs of the Headquarters Finance Number:
Market-Dominant--Activity in Finance Number only supports Market-
Dominant Products.
Competitive--Activity in Finance Number only supports Competitive
Products.
Common/Enterprise Sustaining--Activity in Finance Number supports
both groups of products, or supports the Enterprise as a whole.
In the analysis to support the Annual Compliance Report beginning
in FY 2008, the Postal Service proposes to use the value of the Product
Activity Attribute for Headquarters Finance Numbers to help identify
group-specific costs (and possibly some product-specific costs) for
competitive and market-dominant products. That is, expenses in Finance
Numbers deemed ``Market-Dominant'' would be candidates for market-
dominant group-specific costs and expenses in Finance Numbers deemed
``Competitive'' would be candidates for competitive product group-
specific costs. Costs in Finance Numbers deemed ``Common/Enterprise
Sustaining'' would be candidates for Institutional Cost. The analysis
of group-specific costs by Finance Number would not replace, but rather
would supplement, existing volume-variable and product-specific
analysis of expenses in Headquarters Finance Numbers.
[[Page 51985]]
Approach To Determine Value of the Product Activity Attribute
A. Existing Finance Numbers
The Postal Service is conducting a survey of the owners of the
Headquarters Finance numbers to obtain information on the type of
activity or program performed in the Finance Number. Responses to the
survey will be used to help ascertain whether the activity supports a
specific product group or is Common/Enterprise Sustaining. The Cost
Attribution unit in Corporate Financial Planning will analyze the
results of the survey and conduct further research as necessary to
determine the appropriate value of the Product Activity Attribute for
each Finance Number. The value of the Product Activity Attribute will
be populated in the Finance Number Control Master File.
B. New Finance Numbers
The Postal Service will modify its current business process for the
creation of new Finance Numbers to include a step for the requestor of
the new Finance Number to respond to the Product Activity Survey
Questions. The Cost Attribution unit in Corporate Financial Planning
will serve as the gate-keeper for review and approval of the value of
the Product Activity Attribute in the official Finance Number Control
Master File.
Impact: The proposed approach is designed to position the Postal
Service to identify group-specific costs as the organization and
strategies for Mailing Services (i.e., Market-dominant products) and
Shipping Services (i.e., Competitive products) evolve. The Postal
Service does not have survey data to estimate the impact of the
proposed approach on FY 2007 costs and, because of the substantial
amount of HQ organizational restructuring which has taken place this
fiscal year, believes that historical information from FY 2007 would
have limited value in projecting future group-specific costs. The
typical FN at headquarters usually contains several million dollars,
however, so depending on the numbers of FNs determined to be Market-
Dominant or Competitive Product, something between tens of millions to
perhaps as much as several hundreds of millions of dollars would be
expected to move out of institutional costs and into group specific
costs.
Proposal Two: Proposed Group-Specific Cost Change (Cost Segment
16).
Objective: A methodology change is proposed for the manner in which
advertising costs (Cost Segment 16) for Click-N-Ship and Carrier Pickup
are assigned in the FY 2008 Cost & Revenue Analysis (CRA) Report.
Background: In the FY 2007 CRA, the advertising costs for Click-N-
Ship and Carrier Pickup were treated as institutional, even though
these costs related to specific products (Express Mail, Priority Mail,
International packages, International Express Mail, and International
Priority Mail), all of which are Competitive Products.
Proposal: In FY 2008, it is proposed that advertising costs for
Click-N-Ship and Carrier pickup be assigned as a group-specific cost to
competitive products, as the advertising for these services relates
specifically to products that are competitive.
Impact: In FY 2007, approximately $40 million was spent on
advertising for Click-N-Ship and Carrier Pickup, together. Therefore, a
similar amount of group-specific costs to competitive products might be
expected in FY 2008.
Proposal Three: Proposed In-Office Cost System (IOCS) Mixed Mail.
Coding Changes. Objective: changes are proposed to the IOCS coding of
mixed mail that better support shape-based costing by the Postal
Service.
Background: Currently, readings observed on employees handling
wheeled containers, pallets, and empty containers are assigned mixed
mail activity codes that depend only on the operation where the sampled
employee was assigned. While this approach works well for employees in
operations that handle a single shape of mail, it is fairly imprecise
for allied operations such as platform.
Proposal: For FY 2008, it is proposed to use additional information
on the shape (letter, flat, or parcel) of the contents in a wheeled
container or pallet when assigning IOCS mixed mail codes. If the
contents are all of the same shape (for example, all loose letter-
shaped mail and letter trays), it is proposed to assign the mixed mail
code to the corresponding shape. For empty equipment, it is proposed to
assign a shape-based mixed mail code that corresponds to the equipment
type; for example, empty letter trays would be assigned a letter-shape
code. Containers that contain multiple shapes or no shape information
would continue to be assigned as they are now.
Impact: There would be a decrease in the IOCS dollar-weighted
tallies associated with IOCS activity codes for mixed mail all shapes
and empty equipment of approximately 28 percent, and a corresponding
increase in shape-specific mixed mail codes of 86 percent. These
changes, when incorporated in the mail processing model, would slightly
increase unit costs for parcel-shape mail, slightly decrease them for
letter-shape mail, and leave costs for flat-shape almost unchanged.
Proposal Four: Proposed City Carrier Collection Cost Change.
Objective: A change is proposed to identify an additional $60 million
of First-Class Mail product specific cost in collection costs for city
delivery carriers.
Background: In the FY 2007 CRA, the Postal Service attributed the
non-volume variable portion ($60 million) of the city carrier time,
associated with picking up mail in blue collection boxes, to First-
Class single-piece letters. However, in the Commission's FY 2007 Annual
Compliance Determination Report, the Commission rejected this
treatment.
Proposal: For FY 2008, the Postal Service again proposes that this
$60 million be attributed to First-Class single-piece letters. These
costs represent a portion of the labor costs for collecting mail at
``blue'' collection boxes. The Commission correctly noted in its FY
2007 Annual Compliance Determination that the boxes do not state that
their use is solely for the collection of First-Class single-piece
letters. Still, over 90 percent of collection box mail is First-Class
single-piece letters. (Moreover, in the new regime, single-piece
letters and single-piece cards are now both components of the same Mail
Classification Schedule ``product'' to which these costs will be
treated as product specific, which is a change from the old regime in
which cards and letters were separate subclasses.) Collection boxes are
put into service for collecting First-Class single-piece letters,
though a small amount of other products are sometimes deposited there.
Furthermore, as of July 2007, the Postal Service prohibited stamped
mail over 13 ounces from being deposited in these collection boxes, for
security reasons. This would exclude some classes of mail that would
have been there previously. Finally, with Carrier Pickup, competitive
products such as Express and Priority Mail now have an alternative to
using collection boxes. Therefore, the non-volume variable labor costs
of sweeping collection boxes are reasonably treated as product specific
to First-Class single-piece letters. Of course, to the limited extent
that other types of mail are deposited in collection boxes, they will
continue to get a proportionate distribution of the volume-variable
costs, based on the existing distribution key.
Impact: The impact is $60 million of attributable cost for First-
Class single-piece letters, which would be institutional otherwise.
[[Page 51986]]
Proposal Five: Proposed Express Mail Processing Changes. Objective:
The purpose of this document is to propose addressing and implementing
the changes recommended in the Commission's FY 2007 Annual Compliance
Determination Report for (1) the distribution key for the costs of the
mail processing activity called ``out of office, delivering Express
Mail,'' and (2) the treatment of the non-volume variable portion of the
cost for the same mail processing activity.
Background: In the FY 2007 CRA, the distribution key used for the
costs of the mail processing activity called ``out of office,
delivering Express Mail'' were the costs of the mail processing
activities that the clerks were performing when they were ``in
office.'' However, in the Commission's FY 2007 Annual Compliance
Determination Report, the Commission suggested using Revenue, Pieces,
and Weight (RPW) volumes of domestic and international Express to
distribute the ``out of office, delivering Express Mail'' costs. Thus,
the Postal Service is proposing adoption of the Commission's
suggestion.
In the FY 2007 CRA, the non-volume variable portion (57 percent) of
the costs for the ``out of office, delivering Express Mail'' activity
was treated as institutional. In the Commission's FY 2007 Annual
Compliance Determination Report, the Commission suggested the Postal
Service review this variability/treatment and return with further
suggestions.
Proposal: For FY 2008, the Postal Service proposes adopting the
Commission's suggestion to use the relative RPW volumes of domestic and
international Express Mail to form the distribution key.
For FY 2008, since the Postal Service does not have a new study to
update the variability, it is proposing continuing with the 43 percent
variability (with the remaining 57 percent non-volume variable), and
also proposing to treat the 57 percent non-volume variable amount as
group-specific to Competitive Products, as these costs are solely for
domestic and international Express Mail, which are both Competitive
Products.
Impact: Using the RPW volume of domestic and international Express
Mail shifts about $4.346 million away from domestic Express Mail and
into international Express Mail (using FY 2007 cost information in C/S
3.1 inputs to the spreadsheets).
Treating the 57 percent non-volume variable costs as Group Specific
to Competitive Products shifts about $33.882 million from Institutional
Costs to Attributable Competitive Group Specific (using FY 2007 cost
information).
Proposal Six: Proposed Change to Distribution of Empty Equipment
Costs
Objective: For FY 2008, the Postal Service proposes a change in the
methodology by which attributable empty equipment Cost Segment 14
(Purchased Transportation) costs are distributed to products.
Background: Accrued purchased transportation empty equipment costs
are contained in two general ledger accounts, 53191 and 53192, for
highway and rail empty equipment costs, respectively. Empty equipment
costs are generally incurred when empty equipment items, i.e. letter
trays, flat tubs, sacks, rolling stock, etc., are transported between
mail processing facilities and Mail Transport Equipment Service Centers
(MTESC), or from MTESC directly to large mailers.
The attributable costs are computed by applying the variability
factor to the accrued costs. The variability for transporting empty
equipment by highway is the average cost weighted variability from all
contracted highway transportation (approximately 80 percent). The
variability for transporting empty equipment by rail is equal to the
freight rail variability (approximately 99 percent). The Postal Service
is not proposing any change in the variability factor applied to either
highway or rail accrued empty equipment costs.
Currently, after the highway and rail attributable empty equipment
costs are computed, they are distributed to products in the same
proportions as the aggregate of all non-amphibious (that is, with the
exception of inland and offshore water) Cost Segment 14 costs, using a
simple three-step process. First, all other attributable Cost Segment
14 costs are distributed to products based on the distribution keys and
distribution factors for the various other Cost Segment 14 components.
Second, based on the results of the first step, the cumulative
proportion of all non-amphibious Cost Segment 14 costs that have been
distributed to each product is calculated. Third, each product then
receives the same proportion of empty equipment costs as it received of
total of all non-amphibious Cost Segment 14 costs. This methodology has
been utilized in PRC versions of the CRA since FY 2000.
Proposal: In the second step of the distribution process described
above, the Postal Service is proposing to exclude a portion of Cost
Segment 14 costs mapped to component 828 (Total International) when
calculating the cumulative distribution factors used to distribute
highway and rail empty equipment attributable costs to products.
Specifically, it proposes to exclude costs from accounts 53261, 53262,
53263, and 53268 before calculating the distribution key that
attributes empty equipment costs to products. In FY07, those four
accounts totaled $472.4 million.
Rationale: The Postal Service believes the current method of
allocating attributable empty equipment costs to products should be
refined to compute the distribution factors after excluding the portion
of costs mapped to component 828 (Total International) that are not
transportation related. The accounts recommended to be excluded from
the distribution factor calculation are for terminal dues (accounts
53262, 53263, 53268) and for internal conveyance charges (account
53261). These costs are largely the result of settling foreign postal
transactions, and are not transportation related. Since there is no
apparent causal relationship between variations in non-transportation
component 828 costs and empty equipment costs, these non-transportation
costs should be eliminated from the distribution factor calculation.
In the current domestic Cost Segment 14 model, all component 828
costs are mapped to the International Mail product group. As a result,
including all component 828 costs (transportation and non-
transportation) in computing the empty equipment distribution factors
causes International Products to be assigned an inequitable proportion
of empty equipment costs. Computing the distribution factors after
excluding the non-transportation related portion of component 828 costs
will result in a fairer distribution of highway and rail empty
equipment costs to products. Of course, international mail products are
sampled as they travel via the various modes of domestic
transportation, and they will therefore continue to be assigned an
appropriate share of empty equipment costs on that basis.
Impact: The following table which shows the impact of the proposed
change on products (using FY07 mail categories and costs). The proposed
methodology results in International Products receiving $9 million less
in empty equipment costs, while First Class Mail and Priority Mail each
receive $3 million in additional highway and rail empty equipment
costs, respectively.
[[Page 51987]]
Impact of Proposed Changes
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FY 2007 FY 2007
FY 2007 Proposed Highway FY 2007 Rail Proposed rail Rail Highway + rail
Class, subclass, or special service Highway empty highway empty difference empty empty difference difference
equipment equipment (proposed- equipment equipment (proposed- (proposed-
costs costs current) costs costs current) current)
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First-Class Mail:
Single-Piece Letters................ $10,259 $11,193 934 $4,839 $5,272 433 1,368
Presort Letters..................... 9,863 10,750 887 4,676 5,090 414 1,301
Single-Piece Cards.................. 126 137 11 61 66 5 16
Presort Cards....................... 297 324 27 143 156 13 40
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Total First-Class............... 20,545 22,405 1,860 9,719 10,584 865 2,725
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Priority Mail........................... 24,157 26,393 2,236 11,156 12,169 1,012 3,248
Express Mail............................ 1,799 1,964 165 837 912 75 240
Periodicals:
Within County....................... 2 2 0 1 1 0 0
Outside County...................... 3,633 3,963 330 1,716 1,870 153 483
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Total Periodicals............... 3,635 3,965 330 1,717 1,870 153 484
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Standard Mail:
Enhanced Carrier Route.............. 1,361 1,485 124 636 693 57 181
Regular............................. 6,591 7,183 593 3,125 3,402 277 869
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Total Standard Mail............. 7,951 8,668 717 3,761 4,094 334 1,050
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Package Services:
Parcel Post......................... 5,045 5,508 462 2,355 2,567 212 674
Bound Printed Matter................ 1,197 1,305 108 568 618 50 159
Media Mail.......................... 1,695 1,849 154 806 878 72 226
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Total Package Services.......... 7,938 8,662 724 3,729 4,064 334 1,059
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U.S. Postal Service..................... 567 620 53 265 289 24 77
Free Mail............................... 79 86 7 38 41 3 10
International Mail...................... 14,409 8,31 (6,091) 6,73 3,930 (2,802) (8,893)
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Total Volume Variable........... 81,079 81,079 (0) 37,953 37,953 (0) (0)
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Proposal Seven: Proposed Change in Distribution Key for Vehicle
Service Driver (VSD) Costs.
Objective: A methodology change is proposed for FY 2008 in the
distribution key for Cost Segment 8 (Vehicle Service Drivers) costs.
Background: Cost Segment 8 includes the salaries, benefits, and
related costs of vehicle service driver (VSD) labor. VSD workload
involves transporting mail using postal-owned and leased vehicles.
Transportation runs are made between post offices, branches, Processing
and Distribution Centers/Facilities, Air Mail Centers/Air Mail
Facilities, Bulk Mail Centers, depots, and certain customer locations.
The attributable costs are calculated by applying the variability
factor of 60.44 percent to the accrued costs (approximately $660
million in FY 2007). The volume variability factor was developed in
R97-1 (USPS-T-20, Exhibit 2 Revised, page 22). This proposal does not
address changing the volume variability factor. In FY 2007, there were
approximately $400 million in VSD attributable costs. Currently, after
the attributable costs are calculated, they are distributed to products
in the same proportions as cubic feet of originating mail obtained from
Revenue, Pieces and Weight (RPW) Statistics.
Proposal: The Postal Service is proposing to distribute the
attributable costs to products in the same proportions as the estimated
cubic-foot miles of mail sampled on Intra-SCF routes. The relevant
proportions are developed through the Transportation Cost System
(TRACS).
Rationale: The Postal Service submits that the current method of
distributing attributable costs to products incorrectly assigns Vehicle
Service Driver labor costs to mail that originates at the Destination
Delivery Unit (DDU). Presumably, this mail is entered at the DDU for
delivery on routes from that office, and thus avoids VSD costs. The
current methodology, however, treats all originating mail, regardless
of entry point, as incurring the same amount of these labor costs.
Absent a specific VSD distribution key, the Postal Service takes the
view that a distribution key consisting of the cubic-foot-mile
proportions on Intra-SCF runs provides a reasonable proxy for
distributing attributable VSD costs to products. Relative proportions
of mail transported by Intra-SCF contracts are much more likely to be
representative of VSD mail
[[Page 51988]]
than relative proportions of originating cube, which necessarily
include DDU mail that VSD drivers are unlikely to transport. Intra-SCF
highway contracts, by definition, provide local transportation and
include some trips from mail processing facilities to delivery units.
Impact: The following table which shows the impact of the proposed
change on products (using FY 2007 costs).
Impact of Proposed Change on Products
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Proposed FY
FY 2007 Class, subclass, or special Highway intra- Highway cubic Current 2007 rail Proposed minus Current Rail proposed
service SCF highway feet highway 2007 costs using proposed rail percent percent
CS8 costs intra-SCF current costs
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First-Class Mail:
Single-Piece Letters................ $145,729 109,232 $23,408 $69,963 $46,555 5.89 17.60
Presort Letters..................... 56,127 129,637 27,781 26,946 (835) 6.99 6.78
Single-Piece Cards.................. 2,718 971 208 1,305 1,097 0.05 0.33
Presort Cards....................... 4,857 2,852 611 2,332 1,721 0.15 0.59
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Total First-Class............... 209,431 242,692 52,008 100,546 48,538 13.08 25.29
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Priority Mail........................... 216,478 398,040 85,298 103,929 18,631 21.46 26.15
Express Mail............................ 11,041 8,334 1,786 5,301 3,515 0.45 1.33
Periodicals:
Within County....................... 112 10,277 2,202 54 (2,148) 0.55 0.01
Regular............................. 90,696 145,187 31,113 43,542 12,429 7.83 10.95
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Total Periodicals............... 90,807 155,464 33,315 43,596 10,281 8.38 10.97
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Standard Mail:
Enhanced Carr Rte................... 50,726 226,200 48,473 24,353 (24,120) 12.19 6.13
Regular............................. 116,008 263,241 56,411 55,694 (717) 14.19 14.01
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Total Standard Mail............. 166,734 489,441 104,884 80,047 (24,837) 26.39 20.14
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Package Services:
Parcel Post......................... 70,236 302,504 64,825 33,720 (31,105) 16.31 8.48
Bound Printed Matter................ 24,648 149,015 31,933 11,833 (20,100) 8.03 2.98
Media Mail.......................... 16,447 47,026 10,077 7,896 (2,181) 2.54 1.99
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Total Package Services.......... 111,331 498,545 106,835 53,449 (53,386) 26.88 13.45
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U.S. Postal Service..................... 8,352 21,612 4,631 4,010 (621) 1.17 1.01
Free Mail............................... 1,808 3,024 648 868 220 16 0.22
International Mail...................... 11,985 37,770 8,094 5,754 (2,340) 2.04 1.45
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Total Volume Variable............... 827,968 1,854,922 397,499 397,499 .............. 100.00 100.00
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Proposal Eight: [Proposed change to bundle-based mapping for First-
Class Mail Automation flats]
Objective: A change in Mail Characteristics Study methodology is
proposed to correct an error in the procedure used to map First-Class
Mail Automation flats pieces to rate elements in the FY2007 ACR and the
two previous rate cases (Docket Nos. R2006-1 and R2005-1).
Background: The methodology used for mapping preparation
characteristic to rate element for First-Class Mail Automation flats in
R2005-1, R2006-1, and the 2007 ACR was incorrect. These previous Mail
Characteristics Studies (e.g., in the 2007 ACR, FY07-14) included a
scheme to map automation flats pieces from preparation characteristic
to rate element that used a container-based mapping. In fact, however,
a bundle-based mapping should apply for automation flats. For example,
an automation piece in a 5-digit bundle that is placed in a 3-digit
container is assessed the 5-digit rate, and not the 3-digit rate that
would be consistent with the presort level of the container. (To give a
slightly more complete background, the current container-based mapping
scheme was appropriate when designed in anticipation of adoption of a
container-based rate structure. The error, so to speak, occurred when
the container-based rate structure was never implemented, but, through
oversight, the container-based mapped scheme was nonetheless maintained
in the spreadsheets, rather than being adapted to a bundle-based
mapping scheme to reflect the actual bundle-based rate structure. The
intent of this proposal is to correct that oversight.)
Rationale: The bundle-based rates are in effect for automation
First-Class Mail flats. Pieces are assessed postage based on the
presort level of the bundle, not the presort level of the container.
Impact: The correction of the mapping of preparation characteristic
does not alter the aggregate volume of pieces by rate element because
RPW rate
[[Page 51989]]
element volumes are used as control values. The correction, however,
will alter the distribution of pieces across preparation characteristic
within rate elements. The effect of the correction will increase the
modeled cost for all First-Class Mail Automation flats rate elements.
The costs for 5-digit automation pieces increase because the 5-digit
rate element includes pieces in 5-digit bundles that have been placed
in MADC, ADC or 3-digit tubs and incur additional bundle sorts. In the
incorrect versions, the 5-digit automation rate element only included
pieces in 5-digit trays, which do not incur bundle sorting costs. The
costs of 3-digit automation, ADC automation, and MADC automation pieces
increase because these rate elements previously included the relatively
lower cost pieces in bundles with a finer bundle presort than the
container sort. For example, the 3-digit automation modeled costs
included the modeled costs of 5-digit bundles that do not incur as many
piece-sorts as pieces in 3-digit bundles. The increase in the modeled
costs for each rate element decreases the CRA adjustment factor. As a
result of a decrease in the CRA adjustment factor, the non-auto presort
rate category costs go down. The effect on the avoided costs is
indeterminate because the avoided costs depend on the estimated
distribution of pieces across preparation characteristic.
[The following text added by Order No. 102.] On August 18, 2008,
Order No. 99 [footnote omitted] established this docket to evaluate
eight changes in costing methods that the Postal Service proposes to
use in its FY 2008 annual report that it must file under 39 U.S.C.
3652. Later that day, the Commission received the Motion of the United
States Postal Service to Supplement the List of Its Proposed Costing
Changes for Purposes of Preparing the FY 2008 Annual Compliance Report
(Motion). The Motion states that the Postal Service has finalized a
ninth proposed change in costing methodology. It requests the
Commission to consider its proposal under the procedures and schedule
established in Order No. 99.
The Postal Service characterizes this additional proposed change as
relatively straightforward. It notes that a description of the proposed
change, the rationale for adopting it, and an estimate of the impact of
adopting it, accompanies the Motion. Given these circumstances, the
Postal Service argues, consideration of this additional proposal could
be consolidated with the original eight proposals and evaluated under
the procedures outlined in Order No. 99, without detracting from the
ability of the postal community to evaluate the original eight.
The Commission agrees. It therefore orders consolidation of the
proposed change in costing methods described below with the eight
proposals already under consideration in Docket No. RM2008-2.
Proposal Nine: Proposed Change in Distribution Key for PARS
Equipment Depreciation, Maintenance Labor, and Parts/Supplies Costs.
Objective: A methodology change is proposed for FY 2008 in the
distribution key for the portion of depreciation (cost segment 20.1),
maintenance labor (cost segment 11.2), and parts and supplies (cost
segment 16.3.2) costs related to Postal Automation Redirection System
(PARS) equipment.
Background: PARS equipment is being deployed, replacing the use of
Computer Forwarding System (CFS) in the forwarding and return to sender
operations for letters. A description of PARS was provided in Docket
No. R2006-1 in the testimony of Marc McCrery, USPS-T-42. PARS reduces
the costs for processing, transporting and delivery of letters by
identifying letter mail that is to be forwarded or returned, at origin.
As shown in ACR 2007, USPS-FY07-8, spreadsheet fy07equip.xls, the FY07
depreciation, maintenance labor and parts and supplies for PARS were
$59.5, $3.6 and $0.7 million. These will grow in FY08.
These costs, having a volume variability of nearly 100 percent,
were distributed to class and subclass in the FY07 CRA based on the
distribution key for CFS.
Proposal: The Postal Service is proposing to distribute the
attributable costs to products based on the IOCS tallies for the PARS
related operations, as done for the distribution key for the PARS
related work in the remote encoding centers, LDC 15 (see ACR 2007,
USPS-FY07-7, Preface.Part1, page 2).
Rationale: The current method of distributing attributable PARS
costs to products, using the CFS distribution, was the best available
proxy in the past. But now that PARS tallies are available from the
IOCS, there is no reason why the CFS proxy should not be replaced with
information directly relating to relative usage of PARS. The current
method incorrectly apportions much PARS equipment costs to classes and
subclasses that benefit very little from PARS, particularly (because of
shape) Periodicals. The proposed PARS distribution key will assign PARS
equipment costs to those classes of mail processed with PARS, classes
that also obtain the labor savings enabled by PARS.
Impact: The following spreadsheet shows the impact of the proposed
change on products (using FY07 costs).
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY07 Change in
Component No. LDC 49--Comp forwarding Distribution FY07 PARS Distribution distribution
Component name cost segment system (938) 98.1 Set equal of PARS tallies based on PARS by adopting
notes to 938 Set W = 0.9992 related costs distribution tallies $ in proposal nine
$ in 000s 000s $ in 000s
--------------------------------------------------------------------------------------------------------------------------------------------------------
First-Class Mail:
Single Piece Letters.................. 101 26.......................... 16,597 30219.58 19,935 3,338
Presort Letters....................... 102 25.......................... 16,138 43172.00 28,480 12,341
Total Letters..................... 103 51.......................... 32,736 .............. .............. ..............
Single Piece Cards.................... 104 1........................... 663 3023.10 1,994 1,331
Presort Cards......................... 105 1........................... 701 1663.90 1,098 396
Total Cards....................... 108 2........................... 1,365 .............. .............. ..............
Total First-Class......................... 109 53.......................... 34,100 .............. .............. ..............
Priority Mail............................. 110 1........................... 657 .............. .............. (657)
Express Mail.............................. 111 0........................... 19 .............. .............. (19)
Periodicals:
Within County......................... 113 1........................... 516 .............. .............. (516)
Outside County........................ 117 26.......................... 16,336 802.05 529 (15,807)
Total Periodicals......................... 123 26.......................... 16,852 .............. .............. ..............
Standard Mail:
[[Page 51990]]
Enhanced Carrier Route................ 126 1........................... 567 219.81 145 (422)
Regular............................... 127 10.......................... 6,688 16238.00 10,712 4,023
Total Standard Mail....................... 135 11.......................... 7,256 .............. .............. ..............
Package Services:
Parcel Post........................... 136 1........................... 516 .............. .............. (516)
Bound Printed Matter.................. 137 2........................... 1,014 .............. .............. (1,014)
Media Mail............................ 139 0........................... 236 .............. .............. (236)
Total Package Services.................... 141 3........................... 1,766 .............. .............. ..............
U.S. Postal Service....................... 142 4........................... 2,499 1076.50 710 (1,789)
Free Mail................................. 147 0........................... 96 222.77 .............. (96)
International Mail........................ 161 0........................... 89 .............. 147 57
Total All Mail............................ 162 99.......................... 63,336 .............. .............. ..............
Special Services:
Registry.............................. 163 0........................... 64 .............. .............. (64)
Certified............................. 164 0........................... .............. .............. .............. ..............
Insurance............................. 165 0........................... .............. .............. .............. ..............
COD................................... 166 0........................... .............. .............. .............. ..............
Money Orders.......................... 168 0........................... .............. .............. .............. ..............
Stamped Cards......................... 159 0........................... .............. .............. .............. ..............
Stamped Envelopes..................... 169 0........................... .............. .............. .............. ..............
Special Handling...................... 170 0........................... .............. .............. .............. ..............
Post Office Box....................... 171 0........................... .............. .............. .............. ..............
Other................................. 172 1........................... 351 .............. .............. (351)
Total Special Services.................... 173 1........................... 414 .............. .............. ..............
Total Attributable........................ 198 100......................... 63,750 96637.71 63,750 (0)
Other Costs............................... 199 ............................ .............. .............. .............. ..............
Total Costs............................... 200 ............................ .............. .............. .............. ..............
.............. Deprec...................... $59,476 .............. .............. ..............
.............. Maintenance Labor........... $ 3,627 .............. .............. ..............
.............. Parts & Supplies............ $ 698 .............. .............. ..............
.............. ............................ $63,801 .............. .............. ..............
.............. Variability................. 0.99920 .............. .............. ..............
.............. Total Vol. Var. Costs....... $63,750 .............. .............. ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
III. Ordering Paragraphs
[Order No. 99]
It is Ordered:
1. Docket No. RM2008-3 is established for the purpose of
considering the Request of the United States Postal Service for
Commission Order Amending the established Costing Methodologies for
Purposes of Preparing the FY 2008 Annual Compliance Report, filed
August 11, 2008.
2. An informal technical conference to explore and clarify
proposals is scheduled for August 27, 2008 at 10 a.m. in the
Commission's hearing room.
3. Interested persons may file initial comments on or before
September 8, 2008.
4. Reply comments may be filed on or before September 15, 2008.
5. William C. Miller is designated as the Public Representative
representing the interests of the general public in this proceeding.
6. The Secretary shall arrange for publication of this Notice in
the Federal Register.
[Order No. 102]
1. The Motion of the United States Postal Service to Supplement the
List of Its Proposed Costing Changes for Purposes of Preparing the FY
2008 Annual Compliance Report, filed August 18, 2008, is granted.
2. The proposal described in this Order will be considered under
the current procedural schedule in Docket No. RM2008-2.
3. The Secretary shall arrange for publication of this Notice in
the Federal Register.
Authority: 39 U.S.C. 3652.
By the Commission.
Judith M. Grady,
Acting Secretary.
[FR Doc. E8-20694 Filed 9-5-08; 8:45 am]
BILLING CODE 7710-FW-P