[Federal Register Volume 83, Number 129 (Thursday, July 5, 2018)]
[Proposed Rules]
[Pages 31346-31348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14349]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2018-7; Order No. 4685]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is noticing a recent filing requesting that the 
Commission initiate an informal rulemaking proceeding to consider 
changes to an analytical method for use in periodic reporting (Proposal 
Four). This document informs the public of the filing, invites public 
comment, and takes other administrative steps.

DATES: Comments are due: July 23, 2018.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov. Those who cannot submit comments 
electronically should contact the person identified in the FOR FURTHER 
INFORMATION CONTACT section by telephone for advice on filing 
alternatives.

FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 
202-789-6820.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Proposal Four
III. Notice and Comment
IV. Ordering Paragraphs

I. Introduction

    On June 25, 2018, the Postal Service filed a petition pursuant to 
39 CFR 3050.11, requesting that the Commission initiate a rulemaking 
proceeding to consider changes to analytical principles relating to 
periodic reports.\1\ The Petition identifies the proposed analytical 
principles changes filed in this docket as Proposal Four.
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    \1\ Petition of the United States Postal Service for the 
Initiation of a Proceeding to Consider Proposed Changes in 
Analytical Principles (Proposal Four), June 25, 2018 (Petition).
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II. Proposal Four

    Background. Proposal Four would change the costing methodology for 
assigning expenses related to debit card transactions in the component 
named Retail Credit Card Fees (Component No. 126) in Cost Segment 13. 
Petition, Proposal Four at 1. Debit card transactions, which are 
purchases made using debit cards, incur fees that merchants pay to the 
debit card issuer.\2\ For example, when a customer purchases a product 
or service from the Postal Service using a debit card, the Postal 
Service pays the debit card issuer a fee for each transaction.
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    \2\ One type of fee that may be incurred when using a debit card 
is an interchange fee, which is the largest categorical contributor 
to total debit card processing fees for a transaction. Id. at 5. A 
merchant pays an interchange fee to the debit card issuer whenever a 
customer makes a purchase using a debit card. See 12 CFR 235.2(j) 
(defining ``interchange transaction fee'' as ``any fee established, 
charged, or received by a payment card network and paid by a 
merchant or an acquirer for the purpose of compensating an issuer 
for its involvement in an electronic debit transaction.''). The 
debit card fees referred to in the Petition and this Order are 
interchange fees.
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    In Docket No. RM2015-4, the Commission approved the current 
methodology for assigning expenses related to credit and debit card 
transactions.\3\ The current methodology treats these expenses as fully 
volume variable and assigns them to products in the same proportions as 
the Postal Service revenue realized from aggregate credit and debit 
card transactions. Petition, Proposal Four at 1. When preparing the FY 
2017 Annual Compliance Report (ACR), the Postal Service explains that 
it recognized two flaws in the current methodology. Id. First, the 
current methodology uses the total of both credit and debit card fees 
when calculating distribution factors. Id. This assumes that 
transactions made with debit and credit cards are similar, which is not 
true for every product. Id. For example, Priority Mail generates more 
revenue from credit card purchases than debit cards. Id. Conversely, 
Money Orders cannot be purchased using credit cards. Id.
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    \3\ Petition, Proposal Four at 1; see Docket No. RM2015-4, Order 
Approving Analytical Principle Used in Periodic Reporting (Proposal 
Eleven), February 9, 2015 (Order No. 2350).
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    The Postal Service asserts that when calculating a distribution 
key, the type of card used (debit or credit) becomes more important 
because total credit card fees are almost four times greater than total 
debit card fees. Id. Because of this incorrect assumption, the current 
methodology misallocates expenses related to debit and credit card 
fees, especially for products that are more heavily purchased by one 
card type. Id.
    The second flaw in the current methodology identified by the Postal 
Service is that the distribution factors do not fully align with actual 
expenses incurred from the usage of debit and credit cards. Id. at 2. 
For example, for Money Order transactions, the Postal Service charges 
the customer the face value of the Money Order plus a Special Services 
fee. Id. When calculating the Money Order share of total ``revenue'' 
for distribution purposes, the current methodology only considers the 
Special Services fee the Postal Service charges the customer. Id. The 
Postal Service asserts that this methodology is erroneous because the 
amount the Postal Service pays to the debit card provider is based on 
the entire transaction amount, including the face value of the money 
order, rather than just the Special Services fee charged. Id.
    To address these two flaws in the current methodology, the Postal 
Service made two corrections to Library Reference USPS-FY17-32, which 
was filed with the FY 2017 ACR.\4\ First, the Postal Service separated 
credit and debit card fees to develop different sets of distribution 
factors for these fees. Petition, Proposal Four at 2. Second, the set 
of distribution factors for debit cards used the aggregate face value 
of Money Orders purchased with debit cards in conjunction with the 
revenue from all other products. Id.
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    \4\ Id.; see Docket No. ACR2017, Library Reference USPS-FY17-32, 
December 29, 2017.
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    In a supplemental Chairman's Information Request (CHIR) response, 
the Postal Service proposed a model attempting to account for the 
recognized major components of debit card fees.\5\ In the FY 2017 
Annual Compliance

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Determination (ACD), the Commission stated that the proposed model was 
not an approved methodology for attributing expenses related to debit 
card fees.\6\ It directed the Postal Service to continue investigating 
issues related to debit card fee attribution and update the Commission 
on its progress and any potential corresponding methodological changes 
within 90 days after the ACD was issued. FY 2017 ACD at 64. The Postal 
Service asserts that Proposal Four is a result of this investigation. 
Petition, Proposal Four at 3.
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    \5\ Id. at 2-3; see Docket No. ACR2017, Supplemental Response of 
the United States Postal Service to Question 1.b of Chairman's 
Information Request No. 2, February 23, 2018 (Response to CHIR No. 
2, Question 1.b).
    \6\ Docket No. ACR2017, Annual Compliance Determination, March 
29, 2018, at 64 (FY 2017 ACD). The Commission's rules require the 
Postal Service to use only accepted analytical principles in its 
annual periodic reports to the Commission, including the ACR. 39 CFR 
3050.10.
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    Proposal description. Proposal Four would change the methodology 
for assigning expenses related to debit card transactions (Debit Card 
Expenses). Proposal Four would disaggregate total Debit Card Expenses 
into two cost pools: Transactions and Proceeds. Id. The Transactions 
cost pool would account for Debit Card Expenses for regulated 
transactions, which have limits on debit card fee amounts based on 
Federal Reserve regulations. Id. at 3, 5. Unregulated transactions do 
not have these limits. Id. at 5.
    To calculate the amount of Debit Card Expenses allocated to the 
Transactions cost pool, the Postal Service would first determine the 
number of regulated debit card transactions. Id. at 3. This is the 
total number of debit card transactions multiplied by the proportion of 
regulated transactions. The number of regulated transactions would then 
be multiplied by the approximate per-transaction cost to calculate the 
amount of Debit Card Expenses allocated to the Transactions cost 
pool.\7\ The remaining amount would be allocated to the Proceeds cost 
pool. Petition, Proposal Four at 4.
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    \7\ Id. at 3-4. As discussed below, the ``per-transaction'' cost 
appears to refer to fixed debit card fees, which are the same for 
each transaction regardless of the transaction amount. See Response 
to CHIR No. 2, Question 1.b.
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    For example, in FY 2017, total Debit Card Expenses were 
approximately $58.6 million. Id. at 3. Proposal Four would disaggregate 
these expenses between the Transactions cost pool and Proceeds cost 
pool. There were approximately 150 million debit card transactions, 65 
percent of which were regulated. Id. at 3-4. The approximate per-
transaction cost was 22 cents. Id. at 4. Thus, the Transactions cost 
pool would equal approximately $21.3 million (150 million total debit 
card transactions x 65 percent regulated transactions x 22 cents per-
transaction cost). Id. The remaining amount of $37.3 million ($58.6 
million -$21.3 million) would be allocated to the Proceeds cost pool. 
Id.
    Under Proposal Four, Debit Card Expenses in the Transactions cost 
pool would be assigned to products proportionally based on the number 
of tenders captured from the Retail Data Mart. Id. Debit Card Expenses 
in the Proceeds cost pool would be assigned to products in proportion 
to the total proceeds realized with debit cards, which is the same 
distribution key used under the current methodology. Id. The final 
Debit Card Expenses assigned to each product would be the sum total of 
the respective amounts from each cost pool. Id.
    The Postal Service states that Proposal Four reflects the proposed 
model presented in Docket No. ACR2017. Id. However, it explains that 
Proposal Four differs by distinguishing between regulated and 
unregulated transactions. Id. By contrast, the proposed model assumed 
that all of the debit card transactions were regulated. Id.
    Rationale. The Postal Service asserts that Proposal Four would 
improve the accuracy of its costing methods by more closely reflecting 
how debit card fees are incurred. Id. at 4-5. Debit card fees generally 
have two components: A fixed fee per transaction (regardless of 
transaction amount) and a variable fee that changes based on the 
transaction amount. Response to CHIR No. 2, Question 1.b. For regulated 
transactions, the Federal Reserve limits debit card fees to 22 cents 
per transaction (fixed fee) plus 0.05 percent of the transaction 
(variable fee).\8\ Proposal Four would account for the fixed debit card 
fees in the Transactions cost pool for regulated transactions. Id. The 
Proceeds cost pool would account for the variable debit card fees along 
with other fees, including fees for unregulated debit card 
transactions. Id.
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    \8\ Petition, Proposal Four at 5. The 22 cent per-transaction 
cost includes one cent for fraud protection costs. Id.
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    The Postal Service asserts that Proposal Four would address a flaw 
in the current methodology. Id. at 6. The current methodology assigns 
all Debit Card Expenses to products in the same proportions as the 
Postal Service revenue realized from aggregate debit card transactions. 
Id. at 1. However, this methodology ignores the fixed ``per-
transaction'' component of Debit Card Expenses.\9\ The current 
methodology would be appropriate if all products had the same average 
revenue per transaction. Petition, Proposal Four at 6. Because they do 
not, products with below average revenues per transaction are assigned 
less than their appropriate share of the Debit Card Expenses related to 
the fixed fee. Id. Conversely, products with above average revenues per 
transaction are assigned more than their share of these expenses. Id.
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    \9\ Id. at 6. The ``per-transaction'' component appears to refer 
to fixed debit card fees, which are the same for each transaction 
regardless of the transaction amount. See Response to CHIR No. 2, 
Question 1.b.
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    For example, the average revenue per transaction for Money Orders 
is substantially higher than those of other products. Id. at 7. The 
Postal Service asserts that the current methodology overstated the 
Debit Card Expenses assigned to Money Orders in FY 2017. Id. at 6-7. 
The Postal Service points out that applying Proposal Four would have 
properly distinguished between the fixed per-transaction and residual 
components for regulated transactions, which would have resulted in a 
more accurate assignment of Debit Card Expenses to Money Orders. Id. at 
7. The Transactions cost pool would account for the fixed per-
transaction component of Debit Card Expenses. See id. at 4. The Postal 
Service concludes that adopting Proposal Four would improve the 
accuracy of its costing methods by more closely aligning with the way 
debit card fees are incurred. Id.
    Impact. The Petition includes a table illustrating the cost impacts 
of Proposal Four. Id. at 7-8. This table compares the Debit Card 
Expenses distribution as presented in the FY 2017 ACR with the 
distributions that would have resulted if Proposal Four had been used. 
Id. at 7. The Postal Service explains that the most significant change 
to the cost coverages filed with the FY 2017 ACR would be to Money 
Orders, which would have experienced an increase in cost coverage under 
Proposal Four from 97 percent to approximately 107 percent. On a unit 
cost basis, the impact on all other products ``would be either trivial 
or, in most instances, entirely immaterial.'' Id. at 7-8. The Postal 
Service provides further details in workpapers filed with the 
Petition.\10\
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    \10\ See Petition, Excel file 
``Prop.4.Debit.Card.Attachment.xlsx.''
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III. Notice and Comment

    The Commission establishes Docket No. RM2018-7 to consider matters 
raised by the Petition. More information on the Petition may be 
accessed via the Commission's website at http://www.prc.gov. Interested 
persons may submit comments on the Petition and Proposal Four no later 
than July 23, 2018. Pursuant to 39 U.S.C. 505, Jennaca D. Upperman is 
designated as an officer

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of the Commission (Public Representative) to represent the interests of 
the general public in this proceeding.

IV. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. RM2018-7 to consider 
matters raised by the Petition of the United States Postal Service for 
the Initiation of a Proceeding to Consider Proposed Changes in 
Analytical Principles (Proposal Four), filed June 25, 2018.
    2. Comments by interested persons in this proceeding are due no 
later than July 23, 2018.
    3. Pursuant to 39 U.S.C. 505, the Commission appoints Jennaca D. 
Upperman to serve as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this docket.
    4. The Secretary shall arrange for publication of this Order in the 
Federal Register.

    By the Commission.
Stacy L. Ruble,
Secretary.
[FR Doc. 2018-14349 Filed 7-3-18; 8:45 am]
 BILLING CODE 7710-FW-P