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[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Proposed Rules]
[Pages 71643-71645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29558]

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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2011-3; Order No. 589]

Periodic Reporting Rules

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is initiating the first strategic rulemaking 
since enactment of a postal reform law in 2006. The broad focus is on 
product cost estimation. This document provides background information 
on the scope of a strategic rulemaking, identifies several potential 
areas for study, and seeks suggestions for additional topics. It also 
notes that a public forum, conducted as a technical conference, may be 
held in the future.

DATES: Comments are due: February 18, 2011.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system. Commenters who cannot submit filings electronically 
should contact the person identified in the FOR FURTHER INFORMATION 
CONTACT section for advice on alternatives.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
at [email protected] or 202-789-6820.

SUPPLEMENTARY INFORMATION: 39 U.S.C. 3652(a) through (c) describe the 
reports that the Postal Service is to provide to the Commission to 
enable it to evaluate the Postal Service's compliance with the various 
requirements and standards of the Postal Accountability and Enhancement 
Act (PAEA). Section 3652(e) provides that the Commission shall 
prescribe the form and content of those reports. Section 3652(e)(2) 
authorizes the Commission to initiate proceedings to improve the 
quality, accuracy, or completeness of the data

[[Page 71644]]

provided in the Postal Service's annual compliance reports.
    In Docket No. RM2008-4, the Commission described the framework that 
it contemplated for assuring that appropriate changes or additions are 
made both to the methods for collecting and reporting data, and to the 
methods for analyzing or modeling those data to develop the estimates 
that are reported to the Commission under section 3652. Order No. 104, 
issued August 22, 2008,\1\ observed that
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    \1\ Docket No. RM2008-4, Notice of Proposed Rulemaking 
Prescribing Form and Content of Periodic Reports, August 22, 2008 
(Order No. 104).

    A strategic rulemaking would be designed to make the ongoing 
development of analysis in cost causation or other areas of analysis 
as orderly and efficient as possible. It would take an inventory of 
longer-term data collection and analysis needs. It is likely to 
involve plans to meet those needs over a horizon longer than a year. 
It might focus on existing data collection systems that need to be 
improved or new data collection programs that need to be 
established. It might list existing analytical studies that need to 
be updated, or new analytical studies that need to be undertaken. 
The scope of a strategic rulemaking would be broad, since one of its 
purposes would be to compare the likely cost and benefits of 
improved data or analysis in different areas of research, and the 
lead time required to conduct the research. The purpose would be to 
prioritize research projects and draw up a tentative schedule for 
conducting them.
    A strategic rulemaking is likely to be general in focus and 
exploratory in nature in its early stages. Accordingly, the 
procedures followed would be quite flexible. They might begin with 
the equivalent of a prehearing conference in which interested 
parties identify areas in which research is most needed and most 
likely to bear fruit. Once a strategic rulemaking has identified and 
prioritized areas of needed research, it would then narrow its focus 
to specific data to be gathered or studies to be performed. The 
Notice of Proposed Rulemaking would be expected to culminate in 
Commission approval of a list of research projects to be undertaken 
and a preliminary projected time table for their completion.

Id. at 32-33.

    Order No. 104 contemplated that a strategic rulemaking would 
develop an inventory of longer-term data collection and analysis needs, 
comprehensively evaluate these needs, and devise a plan for meeting 
these needs, with input from mailers, the interested public, the Postal 
Service and Commission staff. Id. This proceeding is the Commission's 
first strategic rulemaking. The Commission is aware that it comes at a 
time when the Postal Service is under considerable financial pressure. 
At the same time, the Commission is aware that it is necessary to have 
accurate estimates of product costs in order to understand the net 
revenue consequences of the rates and discounts that the Postal Service 
selects. For this reason, the benefits of obtaining accurate estimates 
of product costs can far outweigh the expense of properly designed data 
collection systems and properly executed analysis.
    Existing cost systems can become inaccurate or lose their relevance 
due to changes in operations or product offerings. Also, opportunities 
to develop more accurate estimates can arise if new sources of 
information, such as the Intelligent Mail barcode (IMb), become 
available. The Commission is mindful that modifications or improvements 
to cost estimation methods should only be undertaken when there is 
substantial reason to believe that existing systems are obsolete or 
otherwise inaccurate. For a publicly-owned entity like the Postal 
Service, changes to the level and quality of the business information 
that guides its operations should be based on understanding among the 
Postal Service, its stakeholders, and the regulator, about the need 
for, and the value of the changes. The Commission hopes that the postal 
community will weigh both the costs and benefits of any proposed 
changes and provide input on what improvements in data collection and 
analysis warrant attention in the near term and what improvements would 
be warranted over a longer time horizon. Of those that are considered 
to be warranted over the near term, comments are requested concerning 
which research topics should be given priority, and what time frame 
should be considered feasible for completing the research.
    Interested persons may propose areas of research that they think 
are needed, and may use the list of possible candidates in the 
attachment to this order as a starting point. In doing so, they should 
consider the magnitude of the candidate's potential impact on estimated 
volumes, costs or revenues; the time and expense likely to be required 
to resolve it; and its potential relevance to determining compliance 
with the standards of the PAEA or supporting the various studies and 
reports that the PAEA requires the Commission to prepare.
    To begin the discussion, the Commission identifies several 
candidate areas for study in the attachment. There are a number of 
narrower cost and revenue estimation issues that have been identified 
in the Commission's recent Annual Compliance Determinations and not yet 
resolved.\2\ Commenters may wish to express an opinion on which of 
these data reporting topics and estimation issues should be included in 
this strategic rulemaking planning process, and which are better left 
to the traditional rulemaking procedure in which petitions are filed to 
request that the Commission make specific changes or additions to 
established analytical principles. Finally, the Commission's periodic 
data reporting rules currently have placeholders for data required to 
calculate the cost of the Postal Service's Universal Service Obligation 
(see 39 CFR 3050.30) and data required to estimate the quality of 
service (see 39 CFR 3050.53). These topics will be addressed in 
separate dockets.
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    \2\ With respect to recognizing shape differences in the first-
ounce rate for First-Class Mail, see 2008 Annual Compliance 
Determination, March 30, 2009, at 54 (2008 ACD) and 2009 Annual 
Compliance Determination, March 29, 2010, at 73 (2009 ACD). With 
respect to Periodicals, estimating what portion receives an 
automated incoming sort is discussed in Docket No. RM2010-6, Order 
No. 400, January 28, 2010; how the cost models should treat allied 
costs is discussed in the 2008 ACD at 57-58; and calculating the 
proper percentage of 5-digit bundles, analyzing weight-related cost 
pools, and gathering Periodicals-specific field data is discussed in 
Docket No. RM2009-1, Order No. 170, January 12, 2009. With respect 
to Standard Mail, properly allocating the costs of letters 
ineligible for the letter rate is discussed in the 2008 ACD at 64-
65; negative cost avoidances between Basic and High Density parcels 
is discussed in the 2007 ACD at 96-97, the 2008 ACD at 66-67, and 
the 2009 ACD at 88-90; and reconciling the costs estimated for 
nonprofit Standard Mail with total Standard Mail costs is discussed 
in USPS-27 FY 2008 Nonprofit Mail Cost Approximations, December 29, 
2008, and the 2008 Annual Compliance Report (ACR). With respect to 
Bound Printed Matter, the need for new methods for estimating the 
costs avoided by presorting is discussed in the 2008 ACD at 75-76, 
and the 2009 ACD at 100. The need to develop methods for estimating 
the costs of new stand-alone Special Services is discussed in the 
2009 ACD at 106; the need for distinguishing the costs of Stamp 
Fulfillment Services from Philatelic Services is discussed in Docket 
No. MC2009-19, Order No. 487, July 13, 2010, at 5-6; and the need 
for distinguishing the costs of IMTS-outbound from IMTS-inbound is 
discussed in the 2009 ACD at 120. Estimating mailer-specific costs 
by indirect means is discussed in the 2009 ACR in USPS-FY-09 at 109, 
and the need for improvements is discussed in the 2009 ACD.
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    Following the submission of initial comments, the Commission will 
select an appropriate time to host a public forum. The public forum 
will function as a technical conference. Subject matter experts from 
the Postal Service, interested participants, and Commission staff will 
have an opportunity to interactively discuss matters, such as 
feasibility and cost, which would bear on the priority that should be 
assigned to the various research topics that are in need of further 
study. Proposed modifications to the list of topics and tentative 
prioritization of them will be

[[Page 71645]]

addressed at the forum. Participants at the public forum may also 
discuss a protocol whereby the Postal Service or outside contractor 
conducting a study growing out of this proceeding would afford an 
opportunity for outside review and input at interim stages. Additional 
technical conferences may be scheduled to discuss a particular research 
item or set of items in greater depth.
    The Commission will balance the urgency and importance of resolving 
each issue with the practical considerations of time, cost, and other 
resource limitations. A schedule with target dates for beginning data 
collection efforts or completing an initial group of analytical studies 
will be developed. Formal proposals to change or supplement current 
analytical principles are expected to grow out of the research 
completed in response to this proceeding. Such proposals will be vetted 
as they are now in informal rulemakings devoted to specific detailed 
changes.
    Topics in attachment. [This material appears as an attachment to 
Order No. 589 as published on the Commission Web site]. Some candidate 
areas for improvements in data collection and analysis [include:]
    1. The data underlying the current estimates of the variability of 
City Carrier street time were collected in 2002, and the subsequent 
update of the input data in 2004 produced substantially different 
results which have not been fully examined in public. Current (and 
future) operations may differ from those measured in 2002 due to volume 
declines, route adjustments, and the introduction of FSS. The expense 
of an appropriate study and its potential to broadly impact 
attributable cost estimates are likely to be substantial. Therefore, it 
would be preferable to develop a consensus as to the general design and 
scope of a study before beginning any data collection. It may also be 
appropriate to investigate the suitability of data from existing 
collection systems (e.g., Delivery Operations Information System) to 
reduce the need for reliance on one-time studies.
    2. Mail processing is the largest source of volume-variable costs 
in the postal system. Despite its prominence, its volume variability 
has never been successfully modeled. The Commission currently uses a 
general assumption that mail processing costs vary in proportion to 
volume with the exception of a few minor operations. Mail processing 
might not vary in proportion to volume in certain processing 
environments. Considerable progress has been made in developing a valid 
theoretical approach to modeling volume-variable mail processing costs. 
However, lack of data on volumes finalized at processing plants that 
are reasonably free of measurement error has remained an obstacle to 
implementing a theoretically sound approach.\3\ An important area of 
investigation is whether this obstacle could be overcome through 
ubiquitous use of an IMb that tracks each piece of bulk-entered mail 
through the mail processing network, coupled with the use of mail 
history data that tracks each individually-entered piece of mail 
through that network. Id. at ] 92, n.15, and ] 102, n.20. If 
comprehensive tracking of plant-level volumes is not realistic anytime 
soon, the potential value of modeling mail processing costs with the 
aid of plant-specific piece handling and other data should be 
evaluated. Plant-specific data might furnish instrumental variables 
capable of overcoming the problem of measurement error in what is 
supposed to serve as the volume variable (id., ]] 148-156) and might 
provide valuable control variables that would make successful modeling 
of mail processing cost variability more feasible.
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    \3\ See PRC Op. R2006-1, ]] 85-122.
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    3. In Docket No. ACR2008, the Postal Service identified group-
specific costs for competitive products in Cost Segment 18 
(Administration and Regional Operations) that are incurred for only one 
product group. The Postal Service identified these costs through a 
management questionnaire sent to all Headquarter's finance number 
groups asking whether the work conducted within that finance number was 
for the support of one specific product or a group of products. 
Additional work in this area would include the expansion of this 
exercise to other cost segments, as well as the possible development of 
decision rules to designate mixed group activity costs as group 
specific.\4\
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    \4\ See Docket No. RM2008-2, Order No. 115, Order Accepting 
Certain Analytical Principles for Use in the Postal Service's 
Periodic Reports, October 10, 2008, at 11-13.
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    4. The study underlying the variability of Cost Segment 8, Vehicle 
Service Drivers (VSDs), was adopted in Docket No. R97-1 and has not 
been revised. Changes in operations are likely to have altered the 
behavior of VSD costs since this study, and therefore the need for an 
updated study should be assessed. Also, when the Commission recently 
approved the short-term use of the Intra-SCF cubic-foot-miles proxy as 
the VSD distribution key, it instructed the Postal Service to move away 
from the use of proxies. Id. at 39. In the 2009 ACR, the Postal Service 
indicated that it planned to sample VSD in FY 2010, but that it had no 
current plans to review the variability.\5\ The Postal Service's 
schedule for these efforts could be reviewed in this docket.
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    \5\ See Docket No. ACR2009, USPS-FY09-9--FY 2009 ACR Roadmap 
Document, December 29, 2009, at 112.
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    5. The Postmaster Variability Study was completed in 1984. It has 
not been updated and may no longer be representative of current 
variability of postmaster costs.\6\ Specifically, according to the OIG, 
the analysis used FY 1979 postmaster salaries and FY 1978 Workload 
Service Credit (WSC) Index data to determine that the estimated 
postmaster variability was 18.23 percent. For example, the minimum 
postmaster salary for Executive and Administrative Schedule (EAS)-23 
increased from $22,500 in 1979 to $52,433 in 2008.\7\ The difficulty of 
developing an up-to-date analysis of postmaster variability could be 
explored.\8\
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    \6\ United States Postal Service, Office of Inspector General 
(OIG), Audit Report--Management of Special Studies (Report Number 
CRR-AR-10-0002), March 19, 2010, at 2 (OIG Report).
    \7\ The 1984 study was based on postmaster salaries EAS-22 and 
below, which has since changed to include EAS-23.
    \8\ The Commission accepted the Postmaster Variability Study in 
1984. At that time, the Commission recommended the Postal Service 
update the study with current salary and WSC data in subsequent rate 
cases. According to the OIG, in 1997 and again in 2007, the Postal 
Service considered conducting a new study; however, management set 
aside the study due to higher priority work. The OIG says that 
Postal Service personnel stated they are awaiting Commission 
guidance to prioritize updating the Postmaster Variability Study. 
See OIG Report, Appendix B, for detailed analysis of this topic.
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    It is ordered:
    1. Initial comments are due on or before February 18, 2011.
    2. Pursuant to 39 U.S.C. 505, Robert N. Sidman is designated as the 
Public Representative in this proceeding to represent the interests of 
the general public.
    3. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Ruth Ann Abrams,
Acting Secretary.
[FR Doc. 2010-29558 Filed 11-23-10; 8:45 am]
BILLING CODE 7710-FW-P
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