20834 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

1Comments of the Department of Defense in 

Docket No. RM2008–4, filed on October 15, 2008 

(DOD Comments); Initial Comments of the Public 

Representative (Public Representative Comments); 

Initial Comments of the Greeting Card Association 

(GCA Comments); Initial Comments of Time Warner 

Inc. in Response to Order No. 104 (Time Warner 

Comments); Initial Comments of the United States 

Postal Service in Response to Order No. 104 (Postal 

Service Comments); Valpak Direct Marketing 

Systems, Inc. and Valpak Dealer’s Association, Inc. 

Initial Comments Regarding Proposed Rules 

Prescribing Form and Content of Periodic Reports 

(Valpak Comments); and Initial Comments of Major 

Mailers Association (MMA Comments), filed on 

October 16, 2008. 

2Reply Comments of Time Warner Inc. in 

Response to Order No. 104 (Time Warner Reply 

Comments); Reply Comments of the Public 

Representative (Public Representative Reply 

Comments); Reply Comments of United Parcel 

Service on Notice of Proposed Rulemaking 

Prescribing Form and Content of Periodic Reports 

(UPS Reply Comments); Reply Comments of 

Magazine Publishers of America, Inc., Alliance of 

Nonprofit Mailers and American Business Media 

(MPA/ANM/ABM Reply Comments); Reply 

Comments of Pitney Bowes Inc. (Pitney Bowes 

Reply Comments); Valpak Direct Marketing 

Systems, Inc. and Valpak Dealers’ Association, Inc. 

Reply Comments Regarding Proposed Rules 

Prescribing Form and Content of Periodic Reports 

(Valpak Reply Comments); and Reply Comments of 

the United States Postal Service in Response to 

Order No. 104 (Postal Service Reply Comments), all 

filed on November 14, 2008. 

POSTAL REGULATORY COMMISSION 

39 CFR Parts 3001 and 3050 

[Docket No. RM2008–4; Order No. 203] 

Periodic Reporting Rules 

AGENCY: Postal Regulatory Commission. 

ACTION: Final rule. 

SUMMARY: The Commission is adopting 

a set of rules to address the need for 

periodic reports from the Postal Service. 

Adoption of these rules will facilitate 

accountability and transparency of 

Postal Service operations, consistent 

with a new postal law. This document 

incorporates a revision to an internal 

reference in the rules. This revision was 

identified in a recent notice. 

DATES: Effective June 4, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Stephen L. Sharfman, General Counsel, 

202–7689–6824 and 

stephen.sharfman@prc.gov. 

SUPPLEMENTARY INFORMATION: Regulatory 

History, 73 FR 53324 (September 15, 

2008). 

I. Introduction 

Under the Postal Accountability and 

Enhancement Act (PAEA), Public Law 

109–435, 120 Stat. 3218 (2006), the 

Postal Regulatory Commission was 

given enhanced information gathering 

and reporting responsibilities. To 

implement its information gathering and 

reporting functions under the PAEA, the 

Commission issued its Notice of 

Proposed Rulemaking Prescribing Form 

and Content of Periodic Reports on 

August 22, 2008 (Order No. 104). 

Initial comments on these proposed 

rules were filed by seven participants.1

Reply comments were filed on 

November 14, 2008 by eight 

participants.2 Comments were generally 

supportive of the proposed rules as 

appropriate and reasonable 

requirements on which to base financial 

reporting under the new regulatory 

regime under the PAEA. The Postal 

Service commends the rules for leaving 

the existing financial reporting structure 

essentially intact while adapting it from 

a subclass-based format to a productbased format. It notes that the 

fundamental building blocks of cost 

reporting will remain the same, 

separating accrued costs into segments, 

applying variability studies to form 

pools of attributable costs, and using 

data collection systems to distribute 

those pools to products, as summarized 

in the Cost and Revenue Analysis (CRA) 

Report and the Cost Segments and 

Components (CSC) Report. Costs 

avoided by worksharing and other 

characteristics will continue to be 

estimated, for the most part, by downflow models supplemented by special 

studies. Postal Service Comments at 1– 

2. 

The Postal Service also commends the 

rules for giving appropriate recognition 

to the transitional status of data 

reporting, providing a flexible approach 

for converting from subclass- to 

product-based reporting, and integrating 

negotiated service agreement (NSA) data 

into the larger reporting system. Id. The 

Postal Service concludes that overall the 

proposed new rules establish ‘‘a 

workable framework for the ACR and 

periodic reporting.’’ Id. at 2. Some 

participants argue that a few of the 

proposed rules should be pared back 

until experience indicates that there is 

a need for more robust versions of the 

rules while other participants argue that 

the proposed rules need to be made 

more robust in some respects. 

Comments are discussed in the context 

of the specific proposed rule to which 

they apply. 

II. Proposals To Revise Specific 

Reporting Rules 

A. Proposed Rule 3050.1 (Definitions) 

Definition of ‘‘Analytical Principle.’’ 

Proposed rule 3050.1 defines certain 

terms used in the periodic reporting 

rules. Proposed paragraph (c) of this 

section defines ‘‘analytical principle’’ 

as: 

A particular economic, mathematical, or 

statistical theory, precept, or assumption 

applied by the Postal Service in producing a 

periodic report to the Commission. 

Valpak argues that this definition is too 

narrow. Noting that the Commission 

considers a change in the specification 

of a regression model to be a change to 

an ‘‘analytical principle,’’ Valpak argues 

that a regression analysis ‘‘may be 

viewed as a tool or a technique, or even 

a method, but it is not commonly 

understood to be a ‘theory,’ ‘precept,’ or 

‘assumption.’ ’’ Valpak Comments at 21. 

Valpak’s argument is supported by the 

Public Representative. Public 

Representative Reply Comments at 17. 

The Commission believes that the 

ambiguity that Valpak and the Public 

Representative perceive is resolved 

when the definition of ‘‘analytical 

principle’’ in final rule 3050.1(c) is read 

together with the definition of 

‘‘quantification technique’’ in final rule 

3050.1(f). Final rule 3050.1(f) reads: 

Quantification technique refers to any data 

entry or manipulation technique whose 

validity does not require the acceptance of a 

particular economic, mathematical, or 

statistical theory, precept, or assumption. A 

change in quantification technique should 

not change the output of the analysis in 

which it is employed. 

Together, the definitions of ‘‘analytical 

principle’’ and ‘‘quantification 

technique’’ divide the data 

manipulation techniques used to 

produce the Postal Service’s periodic 

reports into two categories—those 

whose validity requires acceptance of a 

causal theory, and those whose validity 

does not. 

Explanatory terms are included in a 

regression equation because they are 

assumed to ‘‘explain,’’ or partially 

cause, the phenomenon being measured. 

Because explanatory terms are assumed 

to influence the phenomenon being 

measured (or are being tested to see if 

they do), they fit the definition of 

‘‘analytical principle.’’ In contrast, 

choosing a standard statistical package, 

such as SAS or STATA, to fit the 

regression equation to the data (using 

the standard mathematical formula for 

calculating least squares) does not 

depend on any assumption about what 

causes the phenomenon being measured 

and should not affect the result. The 

statistical package chosen to run the 

regression, therefore, fits the definition 

of ‘‘quantification technique.’’ This 

should clarify how the definitions in 

final rule 3050.1 fit together as a 

comprehensive whole. Because the 

Commission does not believe that the 

definition of ‘‘analytical principle’’ in 

§ 3050.1(c) needs to be modified, it 

declines to accept Valpak’s proposal. 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20835 

Definition of the term ‘‘product.’’ 

Proposed rule 3050.1 defines terms that 

are of unique relevance to part 3050 of 

the Commission’s rules. The Public 

Representative argues that the 

definitions contained in proposed rule 

3050.1 should be consistent with and 

not redundant of those found in 

§ 3001.5—the main definitional section 

of the Commission’s rules. He notes, in 

particular, that the term ‘‘product’’ is 

defined in proposed rule 3050.1 and in 

§ 3001.5, and that the definitions are not 

precisely the same. The Commission 

agrees that the term ‘‘product’’ does not 

need to be defined in its periodic 

reporting rules. Accordingly, it has 

eliminated the term ‘‘product’’ from the 

definitions provided in final rule 

3050.1. 

Definitions of ‘‘Annual Report’’ and 

‘‘section 3652 report.’’ Proposed rule 

3050.1(e) defined the term ‘‘Annual 

Report’’ as ‘‘the report that section 3652 

of the Postal Accountability and 

Enhancement Act requires the Postal 

Service to provide to the Commission 

each year.’’ In its discussion of revisions 

to § 3050.20, infra, the Commission 

observes that the analysis that § 3050.20 

requires the Postal Service to provide is 

meant to implement § 3652 of the 

PAEA. Generally, § 3652 requires the 

Postal Service to analyze how rates and 

service in the previous year complied 

with the requirements of title 39 of the 

United States Code. 

The comments received concerning 

proposed rule 3050.20 have persuaded 

the Commission that instead of ‘‘Annual 

Report,’’ its periodic reporting rules 

need to employ two standard references 

to the annual reports that the Postal 

Service is required to file with the 

Commission—one broader than the term 

‘‘Annual Report,’’ and one that is 

slightly more narrow. Where a broader 

definition is intended, the final rules 

use the phrase ‘‘annual periodic reports 

to the Commission.’’ Where the 

narrower definition is intended, the 

final rules use the phrase ‘‘section 3652 

report.’’ That phrase, however, will be 

used to encompass all of the Postal 

Service reports required by § 3652 

except for the program performance 

reports referenced by § 3652(g). Those 

reports are also required to be reported 

at the time that the Postal Service files 

its comprehensive statement with 

Congress. See 39 U.S.C. 2804(a) and 

2401(e). To avoid redundant reporting, 

‘‘section 3652 report’’ is understood to 

exclude program performance reporting 

under §§ 2803 and 2804. See final rule 

3050.1(g). 

B. Proposed Rule 3050.2 (Corrections 

and Changes in Input Data or 

Quantification Techniques) 

Proposed rule 3050.2 requires that the 

Postal Service document its periodic 

reports. Paragraph (a) requires it to list 

and explain corrections, changes in 

input data, and changes in 

quantification techniques made since 

the report was last filed. Paragraphs (b) 

and (c) require the submission of 

workpapers and spreadsheets that meet 

certain standards. Paragraph (d) allows 

portions of the documentation required 

by ‘‘this section’’ that are not time 

critical to be filed up to two weeks late 

if the Postal Service gets advance 

approval of the Commission. 

Delayed filing of documentation. 

Valpak observes that it is less 

appropriate to file the material required 

by paragraph (a) 2 weeks later than the 

other material required by proposed rule 

3050.2. The Commission agrees. Final 

rule 3050.2 applies the deferral option 

only to paragraphs (b) and (c). 

Tracking the impact of errors. Valpak 

argues that where errors have been 

corrected, the impact of the correction 

could be masked by other changes in the 

relevant periodic report. It argues that 

proposed rule 3050.2 would lead to 

more transparency if it were to state: 

Corrections should be presented in a 

manner that permits replication of the 

calculation both before, and after, correction 

of the error. 

Id. at 22. 

The Postal Service argues that 

complying with the proposed 

requirement might be a straightforward 

exercise if a model with an error 

consisted of a single spreadsheet. The 

spreadsheet program would allow the 

program to be run both with the error 

and with the error corrected. It points 

out, however, that where there is an 

elaborate set of linked models, as occurs 

in the CRA, complying with the 

proposal might require a large number 

of time-consuming model runs if there 

were multiple errors whose impact 

needed to be separately demonstrated. 

Under this circumstance, the Postal 

Service argues that complying with the 

proposal would be a large waste of effort 

and resources. Postal Service Reply 

Comments at 7–8. The Commission 

agrees. Accordingly, it declines to adopt 

the revision to proposed rule 3050.2 that 

Valpak proposes. 

Duty to explain variations in results 

that exceed a quantitative threshold. 

MMA argues that the Postal Service’s 

choices of what input data to use can be 

as significant in their impacts as what 

analytical methods the Postal Service 

chooses to apply to data. As an 

illustration, it complains that the Postal 

Service’s insistence on using theoretical 

Delivery Point Sequencing (DPS) 

percentages rather than actual DPS 

percentages has had a major impact on 

the cost of the kind of mail that it sends. 

It notes that proposed rule 3050.2 would 

require the Postal Service to identify 

input data or quantification techniques 

and to list any corrections that it has 

made since a periodic report was last 

submitted and to explain the change or 

correction. The listing and explanation 

are to be provided when the Postal 

Service submits the relevant periodic 

report. It argues that where the impact 

of such changes is sufficiently large, this 

proposed procedure is inadequate. It 

proposes that there be an opportunity 

for advance review of changes to input 

data, quantification techniques, or 

corrections that impact avoided costs by 

more than 0.1 cent. MMA Comments at 

2–4. It argues that this issue will grow 

with the adoption of the Intelligent Mail 

barcode. Id. at 4–5. 

The Postal Service opposes the 

proposal, arguing that it is impossible to 

identify the complete set of input 

changes that cause changes to cost 

avoidance estimates in excess of a 

particular threshold until the workshare 

models are finalized. It asserts that there 

is ‘‘virtually no lag time between 

finalization of the workshare models 

and filing of the ACR.’’ Postal Service 

Reply Comments at 22. The Commission 

accepts the Postal Service’s 

representation that there is not a 

sufficient interval between the 

finalization of its avoided cost model 

results and the filing of its § 3652 report 

to accommodate MMA’s proposal. 

Valpak offers a related proposal. It 

asks that the Postal Service be required 

to identify and explain its § 3652 report 

results that are anomalous from a logical 

perspective, and to explain results that 

change a product’s unit attributable 

costs from year to year by more than the 

change in the Consumer Price Index 

plus or minus 5 percent. Otherwise, 

Valpak states, in the brief time available 

to mailers, they ‘‘would need to search 

for such peculiarities on their own and, 

even if found, mailers would be left 

wondering about the relevant facts and 

their significance, because they would 

have received no explanation from the 

Postal Service.’’ Valpak Comments at 

20. 

The Postal Service responds by 

arguing that the definition of a logical 

anomaly is too subjective to serve as a 

workable rule. It also argues that the 

plus-or-minus 5 percent standard for 

variations in unit attributable costs is 

too objective; that is, it cannot be varied 

for small mail classes whose unit cost 

20836 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

results vary substantially due to the 

problem of small sample size. It also 

questions the value of pursuing such 

details of cost analysis in a price cap 

regulatory regime. Postal Service Reply 

Comments at 7. 

The Commission urges the Postal 

Service to include in its § 3652 report, 

to the maximum extent possible, 

explanations of both logical anomalies 

and unusually large swings from year to 

year in its unit attributable cost results. 

Nevertheless, it declines to adopt a 

quantitative threshold triggering this 

obligation as arbitrary. It also agrees that 

logical anomalies are too subjective to 

serve as a workable rule. It, therefore, 

declines to adopt periodic reporting 

rules with quantitative thresholds as 

Valpak requests. 

C. Proposed Rule 3050.3 (Confidential 

Treatment of Periodic Reports) 

Part 3007, proposed in Docket No. 

RM2008–1, would implement the 

provisions of the PAEA that generally 

authorize the Postal Service to designate 

information in the periodic reports that 

it provides to the Commission as 

confidential within the meaning of 5 

U.S.C. 552(b) or as commercially 

sensitive within the meaning of 39 

U.S.C. 410(c). See 39 U.S.C. 3654(f). 

Proposed part 3007 would resolve the 

issue of how information so designated 

could be made public. The Commission 

contemplates initiating a series of 

rulemakings designed to identify in part 

3050 specific categories of information 

that would be presumptively 

confidential and specific categories of 

information that presumptively would 

not, as a guide to future submissions by 

the Postal Service and third parties. 

D. Proposed Rule 3050.11 (Procedures 

for Changing Accepted Analytical 

Principles) 

Proposed rule 3050.11 sets forth 

procedures governing Commission 

review of a petition or notice of 

proceeding to change an accepted 

analytical principle. It would evaluate 

proposals to change accepted analytical 

principles under the informal 

rulemaking procedures of 5 U.S.C. 553. 

The proposed rule would allow the 

Commission, its Public Representative, 

the Postal Service, or private parties, to 

file a petition or notice of proceeding to 

change accepted analytical principles 

used in the Postal Service’s annual 

reports to the Commission. The rule 

goes on to identify content that the 

petition should contain and the 

procedures to be followed in obtaining 

additional information that would 

support the petition. 

Methodological rulemakings initiated 

by the Commission. Valpak points out 

that proposed rule 3050.11 would allow 

the Commission to institute this process 

on its own behalf although the rule has 

provisions with respect to the content of 

the instituting document and the 

procedures for gathering supporting 

information that are explicitly related 

only to ‘‘petitions.’’ It correctly observes 

that this leaves it unclear whether these 

provisions are meant to apply to 

proceedings begun by the Commission 

on its own initiative. Valpak Comments 

at 14. To remove this ambiguity, final 

rule 3050.11 explicitly relates these 

provisions not just to a ‘‘petition,’’ but 

to a ‘‘notice of proceeding’’ issued by 

the Commission. 

Methodological rulemakings initiated 

by a Public Representative. Proposed 

rule 3050.11 lists a ‘‘Public 

Representative’’ among those who 

would be authorized to petition for a 

rulemaking to change an accepted 

analytical principle. Valpak notes that 

the current Commission practice is to 

appoint public representatives only after 

a formal docket has been established. It 

says ‘‘[i]n such a situation, it is unclear 

whether anyone among the 

Commission’s rotating Pubic 

Representatives could initiate a change 

in an ‘accepted analytical principle.’ ’’ 

Valpak Comments at 24. The Public 

Representative makes a related 

recommendation that a public 

representative should be appointed in a 

methodology rulemaking immediately 

after the Commission has concluded 

that a petition should move from the 

evaluation stage (see paragraphs (a) and 

(b) of proposed rule 3050.11) to the 

notice of proposed rulemaking stage (see 

paragraph (c)(2) of proposed rule 

3050.11). Public Representative 

Comments at 7. 

The Commission appoints a public 

representative in every proceeding. 39 

U.S.C. 505. Thus, the public will be 

represented in strategic rulemakings as 

described in this order. Furthermore, 

public representatives are appointed in 

Annual Compliance Determination 

(ACD) dockets as well as dockets 

established to consider rate and 

classification adjustments. A public 

representative in any such proceeding 

could determine that petitioning to 

initiate a rulemaking would be an 

appropriate exercise of responsibility. 

Discovery. Paragraph (b) of proposed 

rule 3050.11 provides: 

To better evaluate a petition to change an 

accepted analytical principle, the 

Commission may order that it be made the 

subject of discovery. By request of any 

interested person, or on its own behalf, the 

Commission may order that the petitioner 

and/or the Postal Service provide experts on 

the subject matter of the proposal to 

participate in technical conferences, prepare 

statements clarifying or supplementing their 

views, or be deposed by officers of the 

Commission. 

This paragraph allows the 

Commission to make a petition for a 

methodological rulemaking the subject 

of discovery at its discretion. Valpak 

argues that ‘‘optional discovery provides 

neither protection nor due process.’’ 

Valpak Comments at 33. It comments 

that: 

This provision implicitly assumes that the 

Commission will be able to decide on its 

own, from the face of a petition to change, 

whether mailers should have the due process 

right to investigate the proposed change. But 

such an assumption is unlikely to be 

accurate. Mailers often focus on changes 

which appear significant to them, giving 

greater attention to details than the 

Commission staff can devote to the issues 

and consequences presented by such 

changes. Moreover, not all weaknesses are 

apparent of the face of each proposal. 

Id. Accordingly, Valpak contends that 

discovery should be provided for as of 

right. It recommends that this be 

accomplished by applying the formal 

hearing procedures of part 3001, subpart 

A, of the Commission’s rules to 

methodological rulemakings. Id. at 12. 

As explained in Order No. 104 at 30– 

35, the Commission has drafted 

proposed rule 3050.11 to accommodate 

methodological rulemakings that run 

the gamut from broad surveys of the 

Postal Service’s need for new data and 

research into analytical issues (which 

Order No. 104 labels ‘‘strategic 

rulemakings’’) to narrow relatively 

minor methodological changes that 

could be placed on a ‘‘fast track’’ to be 

evaluated in time to incorporate them 

into the next section 3652 report. Where 

technical issues are complex or 

controversial, technical conferences are 

likely to be the first procedure 

authorized as a vehicle for interested 

parties to identify issues that need to be 

explored. Where technical conferences 

demonstrate a need for follow up in 

more depth, discovery requests will be 

entertained and, very likely, granted. 

Where proposed methodological 

changes are relatively minor and noncontroversial, and time is of the essence, 

however, making discovery a ‘‘right’’ 

could take away the Commission’s 

ability to adapt review procedures to fit 

the underlying issues presented. This 

could ultimately hinder, rather than 

improve, the compliance review process 

if it results in a diversion of the 

technical resources of all concerned 

from more pressing issues. The Postal 

Service generally agrees. Postal Service 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20837 

3Proposed rule 3050.11(c) has become final rule 

3050.11(d). 

Reply Comments at 4–6. For these 

reasons, final rule 3050.11 retains the 

Commission’s discretion to order 

discovery in evaluating petitions for 

review of changes in analytical 

principles. 

‘‘Missing role of other parties.’’ In 

Valpak’s comments on paragraph (b) of 

proposed rule 3050.11, the topic 

heading ‘‘Missing Role of Other Parties’’ 

appears. Valpak Comments at 26. Under 

that heading, Valpak notes that 

paragraph (b) authorizes the 

Commission to ‘‘order’’ the ‘‘petitioner’’ 

and/or the ‘‘Postal Service’’ to provide 

experts on the subject matter of the 

petition ‘‘to participate in technical 

conferences, prepare statements * * * 

or be deposed.’’ Id. 

Valpak complains that ‘‘there is no 

express authority in this rule for expert 

testimony to be filed by other parties.’’ 

Id. From the fact that the rule does not 

require the expert testimony of third 

parties, Valpak seems to conclude that 

the rules do not permit such testimony. 

To remedy this alleged defect, it 

proposes that the language of paragraph 

(b) be expanded from ‘‘the Commission 

may order that the petitioner and/or the 

Postal Service’’ to ‘‘the Commission may 

order that the petitioner, any interested 

persons, and/or the Postal Service 

[provide experts to participate in the 

process.]’’ Id. at 27. 

As Valpak recognizes, the 

Commission does not have the authority 

to order experts employed by third 

parties to participate in a 

methodological rulemaking. Therefore, 

the fact that § 3050.11 does not do so 

should not give rise to any inference 

that third-party experts would not be 

permitted to participate in the petition 

evaluation stage of a rulemaking. Such 

participation will be encouraged, but 

the Commission does not believe that it 

is something that it can require. As the 

Commission noted in its notice of 

proposed rulemaking in this docket, it 

views collaboration as the ideal 

approach to the development and 

evaluation of analytical principles in 

postal ratemaking. See Order No. 104 at 

30–31. 

Referring to the procedures that it had 

to follow in vetting analytical issues 

under the Postal Reorganization Act 

(PRA), the Commission made the 

following observation: 

[T]he Commission was required to resolve 

an analytical issue by accepting or rejecting 

competing analyses submitted by opposing 

witnesses. * * * In almost all cases, analyses 

were presented as faits accomplis, with no 

opportunity for input or feedback from either 

the Commission or interested third parties. 

The process was cumbersome and the results 

were often less than satisfactory. 

Id. at 30. Valpak reads this comment as 

a Commission preference for a 

procedure that ‘‘eliminates all counterproposals’’ to those contained in a 

petition. Valpak Comments at 32, n.13. 

Valpak contends: 

The new process is likely to be more 

satisfactory only if various parties (i) are 

allowed to, and (ii) do, participate vigorously 

in the proposed process, from the outset. 

Otherwise, Postal Service studies will go 

largely unchallenged, and the Commission 

will be unaided by input from the parties. 

Id. 

The Commission agrees that broad 

and vigorous public participation is 

beneficial. The Commission believes 

this goal can be more fully realized by 

expanding the informal rulemaking 

process. In ‘‘on the record’’ hearings 

under the PRA, the Commission was 

required to choose one from among 

what typically was a very limited set of 

models that was sponsored ‘‘on the 

record’’ by the Postal Service or an 

intervenor. Any correction of a model, 

or synthesizing of competing models 

that the Commission tried to do to 

support a decision, was likely to be 

challenged as procedurally infirm 

because it was not ‘‘sponsored by a 

witness on the record.’’ The PAEA, on 

the other hand, allows methodological 

issues to be resolved through informal 

rulemakings which allow collaborative 

research and multi-party input. That is 

the Commission’s goal in conducting 

methodological rulemakings under 

§ 3050.11. 

Deposing witnesses. Among other 

things, paragraph (b) of proposed rule 

3050.11 provides that the petitioner or 

the Postal Service provide witnesses on 

the subject matter of the petition to be 

‘‘deposed by officers of the 

Commission.’’ Valpak associates the 

term ‘‘depose’’ with adversarial 

interrogation. It asserts that if the 

Commission’s officers were to depose 

witnesses, it would put them in the 

untenable position of being both 

litigators and decision-makers. 

To call informal rulemaking such as 

that which proposed rule 3050.11 

would authorize ‘‘litigation’’ 

mischaracterizes that process. 

Nevertheless, it may be beneficial to 

replace the phrase ‘‘deposed by officers 

of the Commission’’ with the phrase ‘‘or 

answer questions posed by the 

Commission or its representatives’’ as 

the Postal Service proposes. See Postal 

Service Reply Comments at 9. This 

should eliminate the inference that 

Valpak draws. Final rule 3050.11 

incorporates that change. 

Oral input. Valpak notes that 

proposed rule 3050.11 gives the 

Commission discretion to prescribe the 

form of input (oral or written) that it 

will receive from interested parties. It 

does this at two points in the informal 

rulemaking process. In paragraph (a)(2), 

it allows the petitioner to request access 

to Postal Service data to support its 

petition, and gives the Commission 

discretion to require that the Postal 

Service’s answers or objections be 

presented orally or in writing. In 

paragraph (c)(1), the rule allows 

interested parties to comment on any 

notice of proposed rulemaking that is 

issued based on a petition to change 

accepted analytical principles. It gives 

the Commission discretion to require 

that their comments be made orally as 

well as in writing. Valpak Comments at 

24–25. 

Valpak argues that requiring a 

petitioner to make its requests for Postal 

Service data to support its petition 

orally (paragraph (a)(1)) and requiring 

interested parties to comment on notices 

of proposed rulemaking orally 

(paragraph (c)(1)) ‘‘almost certainly 

would add confusion to a proceeding 

and, possibly, would restrict the due 

process rights of interested parties’’ 

because the answers could address 

‘‘some of the most complex, sometimes 

arcane, and significant matters that 

come before the Commission.’’ Id. at 25. 

It also argues that oral comments 

presented by lawyers would rarely be as 

useful as ‘‘thoughtful, written 

commentary.’’ Id., n.11. It requests that 

the discretion to require oral rather than 

written responses be eliminated from 

the two paragraphs referenced above. Id. 

at 25–26. 

The answer to Valpak’s concerns is 

that where complex or arcane matters 

are under review, the Commission is 

likely to reflect those considerations in 

its decision, and allow comments to be 

submitted in written form. While it 

might share Valpak’s skepticism of the 

value of oral comments presented by 

attorneys, the Commission notes that 

oral comments on technical matters 

could be presented by technical experts. 

The Commission notes that 5 U.S.C. 

553(c) affords interested persons a right 

to submit written comments in 

rulemakings covered by its procedures. 

Accordingly, the Commission has 

revised proposed rule 3050.11(c) 3 to 

provide interested persons with the 

right to submit written comments in 

response to a notice of proposed 

rulemaking issued under § 3050.11. 

Final rule 3050.11, however, preserves 

the Commission’s discretion to require 

answers or objections to data requests 

20838 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

4Proposed rule 3050.11(a)(2) has become final 

rule 3050.11(b)(2). 

5 It is worth pointing out that it is the Postal 

Service that has made the decision to have MODS 

perform dual service as both a management data 

system and a data system that plays a central role 

in ratemaking. To find mail processing volumes, it 

could have chosen to establish a data system that 

is designed primarily as a ratemaking data system 

comparable to the In-Office Cost System (IOCS) or 

the City Carrier Cost System (CCCS). As long as it 

has made this choice, it should recognize that it has 

made the Commission and the mailing public a 

stakeholder in the way that MODS is administered. 

made under § 3050.11(a)(2) 4 to be oral 

or in writing. This will allow the 

Commission to adjust procedures and 

review periods to fit the issues 

presented by a particular petition. 

Notice of pending studies. The 

purpose of proposed rule 3050.11 is to 

provide for the input of mailers and the 

Commission before the Postal Service 

settles upon the analytical principles 

that it will apply in its annual reports 

to the Commission. Valpak argues that 

the rule will not be effective in 

accomplishing that purpose unless it 

requires the Postal Service to notify 

mailers and the Commission of special 

studies that are intended to result in 

changes to accepted analytical 

principles while those studies are still 

in their formative stage. Id. at 30–35. It 

proposes that the Postal Service be 

required to publish a ‘‘short status 

report’’ on all special studies that it 

proposes or are already underway, 

regardless of whether they would have 

to be submitted as § 3050.11 proposals. 

It proposes that the list be updated 

quarterly, and include the ‘‘unit within 

the Postal Service’’ that is responsible 

for conducting the study, the study’s 

beginning date, current status, and 

expected completion date, and the 

analytical principles that the study 

‘‘may affect.’’ Id. at 35. 

The Postal Service considers adding 

such a requirement to § 3050.11 as 

impractical, burdensome and 

unnecessary. It argues that it has little 

incentive under the current regulatory 

system to keep its pending special 

studies secret until completed. It asserts 

that: 

The Commission has ample authority to 

discourage such inclinations simply by 

rejecting the resulting methodologies when 

the Postal Service ‘unveils’ its proposals. 

Consequently, not wishing to waste time, 

effort, and money, the Postal Service is not 

going to proceed with major new studies in 

the PAEA regulatory environment without 

engaging in what it believes will be deemed 

by the Commission to be an appropriate 

amount of prior consultation. This entire 

portion of the Valpak comments is written as 

if Valpak did not bother to read the 

Commission’s careful discussion of Strategic 

Rulemakings. Order No. 104 at 32–33. 

Postal Service Reply Comments at 10– 

11 (footnote omitted). 

The Postal Service validly comments 

that strategic rulemakings are intended 

to provide mailers and the Commission 

with a description of its plans for new 

special studies and status reports on any 

special studies that are already 

underway. This is because a strategic 

rulemaking’s main task is to obtain an 

overview of the Postal Service’s research 

efforts, take inventory of its research 

needs, and set priorities for future 

research. In the interim between 

strategic rulemakings, the Postal Service 

is expected to keep mailers and the 

Commission current on major special 

studies, planned or pending, that are 

expected to lead to proposed changes in 

the analytical principles that it will use 

to prepare its annual reports to the 

Commission. If its voluntary efforts to 

provide mailers and the Commission 

notice of its plans for special studies 

should falter, the Commission could 

always reconsider Valpak’s proposal to 

make notice mandatory. 

Advance review of changes to data 

reporting systems. The periodic 

reporting rules proposed by the 

Commission make an important 

distinction between analytical 

principles and mere quantification 

techniques. Analytical principles are 

methods that reflect a theory, precept, or 

assumption about causation. Changing 

analytical principles can be expected to 

change the results of an analysis. 

Quantification techniques, in contrast, 

are the mechanics of calculating 

numbers that are theory neutral. The 

classic example would be multiplying 

two numbers with a hand calculator 

versus multiplying the same two 

numbers with a slide rule. The 

technique used should not change the 

result. See proposed rules 3050.1 and 

3050.2. The Commission’s periodic 

reporting rules are designed to allow the 

Commission and the public to review 

changes to analytical principles before 

they are applied by the Postal Service to 

estimate its financial results. These 

rules intend to make this a manageable 

task by exempting mere quantification 

techniques from advance review and 

acceptance by the Commission. 

In Order No. 104, the Commission 

used a number of examples designed to 

illustrate the distinction between 

analytical principles, for which advance 

review is required, and quantification 

techniques, for which advance review is 

unnecessary. The Postal Service 

questions the appropriateness of several 

of these examples. 

One example used was a major 

change that the Postal Service recently 

made to the way that it collects Mail 

Processing Data System (MODS) data. 

MODS data is primarily used by postal 

managers to estimate plant workload so 

that the manager can adjust his staffing 

to match that workload. MODS data has 

long played a central role in modeling 

volume-variable mail processing costs, 

distributing those costs to subclasses, 

and in determining mail processing 

productivities in cost avoidance models. 

For decades, the Postal Service has 

relied on calculating First Handled 

Pieces (FHP) from MODS data as a 

proxy for how much volume was being 

handled by each processing plant. 

Finding a valid plant-wide estimate of 

FHP required that collection mail be 

weighed and the weight converted to 

the equivalent of pieces. This process 

was cumbersome, time consuming, and 

became less accurate if conversion 

factors were not updated. Nevertheless, 

for decades FHP has been the only 

reasonable proxy for plant-level volume 

that is available for modeling the 

volume variability of mail processing 

labor costs. 

Without knowing how much volume 

is coming in to mail processing plants, 

there is little chance of accurately 

estimating the share of the nearly $22 

billion of variable mail processing costs 

for which each product is responsible. 

If the Postal Service cannot successfully 

model how different products incur 

different shares of system mail 

processing costs, it cannot know how 

profitable its various products are at the 

rates it has chosen. Not surprisingly, to 

lose the empirical basis for modeling 

how mail processing costs are caused is 

of concern to the Commission, which is 

charged by the PAEA with the 

responsibility of determining cost 

estimation methods. 

The Postal Service emphasizes that 

MODS is a management data system 

first, and a ratemaking data system 

second. It asserts that this makes it 

inappropriate for the Commission to 

require advance review of its decisions 

about how and when this data 

collection system should be modified. 

Postal Service Comments at 30–31.5

Time Warner expands on the theme 

that the Commission should play a more 

passive role in the decisions that are 

made to modify the Postal Service’s 

basic data collection systems. It extends 

that theme to data systems, like the 

IOCS, that were established primarily 

for ratemaking purposes. Time Warner 

argues that there are myriad minor 

changes to the IOCS that the Postal 

Service implements at the beginning of 

each fiscal year, and that it would be 

burdensome and unnecessary for the 

Postal Service to have to get advance 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20839 

6The same data are now collected automatically 

and routinely updated. 

approval in an informal rulemaking 

before implementing most of these 

changes. As a substitute for that 

approach, Time Warner makes this 

proposal: 

A sounder, more moderate approach would 

be for the Postal Service, at the beginning of 

each fiscal year, to announce changes it is 

making in the instructions to IOCS data 

collectors and for interested parties to have 

an opportunity at that time to petition for the 

initiation of a rulemaking proceeding to 

review changes that seem questionable. 

Advance knowledge of the changes in format 

and content of the IOCS sample data would 

facilitate analysis by the Commission and 

interested parties of such data when it 

becomes available after the fiscal year is 

ended. 

Time Warner Reply Comments at 4–5 

(footnote omitted). 

The procedure that Time Warner 

describes seems to be similar to the one 

in proposed rule 3050.2 for handling 

changes made by the Postal Service in 

the quantification techniques that it 

uses. In that proposed rule, the change 

is listed and briefly described after the 

Postal Service has already incorporated 

it into its analysis and it is, for all 

practical purposes, a fait accompli. 

A procedure of this kind is 

appropriate for quantification 

techniques that have changed because 

quantification techniques are, by 

definition, not supposed to affect the 

results of an analysis. Changes to a basic 

data system such as IOCS, however, 

could affect the results of an analysis 

that relies on IOCS data. For that reason, 

if the Postal Service plans myriad minor 

changes to the IOCS or other basic data 

systems used in ratemaking, the Postal 

Service should treat them as changes to 

analytical principles and solicit public 

comment on them early enough that 

revisions can be made, if needed, 

without jeopardizing the planned 

implementation date for the changes. 

Accordingly, the proposal of Time 

Warner is not accepted. 

E. Proposed Rule 3050.12 (Obsolete 

Special Studies) 

Proposed rule 3050.12 was inspired 

by some recent examples of cost 

estimates with important rate 

consequences that were significantly 

inaccurate because the Postal Service 

had relied on a one-time study or onetime data collection effort that had 

become grossly non-representative with 

the passage of time. An example is the 

bundle-flow model that the Postal 

Service continued to use for Periodicals. 

It reflected a flat-processing 

environment that had largely 

disappeared roughly 5 years before the 

Postal Service began a field study to 

update the bundle-flow model to reflect 

post-AFSM 100 bundle flows. Another 

example is the Barcode Sorter accept 

rate for letters, which has a major 

impact on estimates of avoided costs for 

workshared letters. Nearly a decade 

passed before the Postal Service 

updated an accept rate that was 

originally based on a special survey.6

Proposed rule 3050.12 would have 

required the Postal Service to list such 

one-time studies or one-time data 

collection efforts that it relies on to 

produce its annual periodic reports to 

the Commission and the study’s 

completion date. The proposed rule 

would have required the Postal Service 

to either certify that each one-time study 

on which it continues to rely still 

reflects the current operating 

environment or provide a timetable for 

updating the study so that it does. The 

proposed rule included a presumption 

that a one-time study or data collection 

effort that is more than 5 years old is 

obsolete. It also included liberal waiver 

provisions. See Order No. 104 at 36, 43. 

Even though one-time cost variability 

and cost avoidance studies are not 

routinely updated, the Postal Service 

asserts that they are ‘‘tied to’’ basic data 

reporting systems that are updated every 

year, thus minimizing the need for the 

proposed rule. Postal Service Comments 

at 15–16. It also argues that the 

proposed rule would be burdensome 

and unworkable. 

To make that case, it focuses on cost 

avoidance models that underlie the 

calculation of worksharing discounts. It 

asserts that it would be impractical to 

list such models and identify the 

completion date of each because it 

continually refines such models in 

minor ways which, it claims, would 

make it difficult to determine their 

vintage. Id. at 15–20. It says that cost 

avoidance models ‘‘have evolved over 

decades of postal litigation and 

incorporate new data as possible.’’ Id. at 

18. For example, ‘‘wage rates, total mail 

processing costs by shape, piggyback 

factors, MODS data, and other inputs to 

these models are updated every year.’’ It 

then asks ‘‘[w]hat is the date that the 

Commission will use as a reference? 

* * * If one input in a study is more 

than five years old, is the study 

presumed to be obsolete?’’ Id. It argues 

that such difficulties make it prudent to 

make proposed rule 3050.12 a mere 

placeholder, to be available when the 

need for such a rule becomes more 

compelling. Id. at 14–15, 17. 

The Postal Service’s argument that the 

vintage date of cost avoidance models is 

difficult to identify is essentially a 

‘‘straw man.’’ It works only if one 

chooses to disregard the clearly drawn 

distinction in these periodic reporting 

rules between changed analytical 

principles on the one hand, and mere 

updating of input data on the other. See 

Order No. 104 at 27–29. The string of 

examples cited by the Postal Service all 

fall clearly into the latter category and, 

therefore, would not have a bearing on 

the ‘‘completion date’’ of a cost 

avoidance model. Postal Service 

Comments at 18. The completion data of 

a cost avoidance model is determined 

by the analytical method on which it is 

based. As Order No. 104 explains, 

changed analytical principles are those 

that change a causal theory or 

assumption. With respect to cost 

avoidance models, this would include a 

change in the underlying operations that 

are being modeled, piggybacking a type 

of cost for the first time, a redefined 

MODS pool, a new CRA adjustment 

factor, or a new density study. The 

Commission’s recent experience with 

cost methodology rulemakings has 

demonstrated that the distinction 

between changing the analytical 

principles underlying cost models and 

updating the data that are input to those 

models is comprehensible and 

workable. 

The Commission, however, recognizes 

that the Postal Service’s technical staff 

has limited time and resources to devote 

to the problem of updating the cost 

studies. Final rule 3050.12, therefore, is 

revised to impose the minimum 

reporting requirement that will still give 

the Commission a systematic indicator 

of the potential scope of the problem of 

reliance on obsolete special studies. 

Only paragraph (a) of the proposed rule 

(see Order No. 104 at 43) is retained in 

final rule 3050.12. It now requires the 

Postal Service to list each special study 

relied on to produce its annual periodic 

reports to the Commission and its 

completion date. It requires the Postal 

Service to indicate whether the special 

study still reflects current operating 

conditions and procedures. It also 

requires the Postal Service to annually 

update the list. This will indicate to the 

Commission and the postal community 

where potential obsolescence problem 

areas might be. 

In paring back the requirements of 

§ 3050.12, the Commission accepts the 

suggestion of the Postal Service (Postal 

Service Comments at 17 and Time 

Warner (Time Warner Reply Comments 

at 2–3) that the problem of what to do 

about obsolescent special studies be 

addressed as part of a ‘‘strategic 

rulemaking’’ such as that described in 

Order No. 104 at 32. A strategic 

20840 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

7The acronym ‘‘IPPs,’’ or irregular parcels and 

pieces, refers to parcels that ‘‘do not meet the 

dimensional criteria of machinable parcels and 

other parcels that cannot be processed by parcel 

sorters.’’ Glossary of Postal Terms, Publication 32, 

May 1977 (Updated With Revisions through July 5, 

2007) at 56. 

rulemaking would be one designed to 

make a comprehensive evaluation of the 

costing research needed by the Postal 

Service, prioritize those needs, and 

reach a consensus within the postal 

community on a timetable for achieving 

them. 

F. Proposed Rule 3050.13 (Explanation 

of Changes Made to Accepted 

Analytical Principles) 

Proposed rule 3050.13(a) states: 

At the time the Postal Service files its 

Annual Report, it shall include a brief 

narrative explanation of any changes to 

accepted analytical principles that have been 

made since the most recent Annual 

Compliance Determination was issued, and 

the reasons that those changes were accepted. 

Valpak proposes adding to the proposed 

rule a requirement that the Postal 

Service provide a table of analytical 

principles that have been changed since 

the last section 3652 report, that 

specifies the docket in which the change 

was approved, and estimates the effect 

of the change using current-year data. 

Valpak comments that the latter 

requirement would be especially useful 

since the analytical principle would 

have been approved on the basis of the 

previous year’s data. Valpak Comments 

at 36–37. 

The Postal Service vigorously objects 

to adding the latter requirement. It 

emphasizes that Valpak is proposing 

that the Postal Service be required to 

run multiple versions of the currentyear models for each approved change, 

one version with the change, and one 

version without. The Postal Service 

argues that this would be a waste of 

effort because these changes would have 

all been approved in advance. 

The Commission agrees with the 

Postal Service that the benefit of 

requiring this information is limited 

since the analytical principles will have 

already been approved in an informal 

rulemaking. The burden on the Postal 

Service could be substantial, however, if 

it were required to run its current-year 

model multiple times in the very brief 

period that it has to prepare its section 

3652 report for the previous year. See 

Postal Service Reply Comments at 13– 

14. Because the burden appears to 

outweigh the benefit, the Commission 

declines to adopt the change proposed 

by Valpak. 

Paragraph (b) of proposed rule 

3050.13 stated that the Postal Service’s 

annual report was subject to proposed 

rule 3050.2. Proposed rule 3050.2 

requires the Postal Service to identify 

changes in input data, quantification 

techniques, and corrections of errors in 

its periodic reports. Since the section 

3652 report is a periodic report, the 

Commission concludes that paragraph 

(b) of this section is superfluous. 

Accordingly, paragraph (b) of this 

section has been deleted from final rule 

3050.13. 

G. Proposed Rule 3050.14 (Reporting the 

CRA in a More Disaggregated Format) 

Proposed rule 3050.14 states that the 

Postal Service’s Cost and Revenue 

Analysis (CRA) report shall be 

presented in a format that reflects the 

current Mail Classification Schedule, 

but should also be presented in an 

alternative, more disaggregated format 

that is capable of reflecting the 

classification structure that was in effect 

prior to the adoption of the PAEA. The 

purpose is to report data in a way that 

can serve as building blocks. This 

would allow the data to be structured to 

coincide with historical data, which 

would facilitate analysis of trends in 

postal finances and operations and 

support model building with the use of 

time series and panel data. It would also 

accommodate future changes in the Mail 

Classification Schedule without 

destroying the usefulness of historical 

data for analysis and modeling going 

forward. The alternative, disaggregated 

format is illustrated by the Appendix to 

Order No. 104 entitled ‘‘Products and 

Categories.’’ A comparable Appendix 

accompanies this order. 

The Public Representative proposes 

that the Commission clarify the status of 

the Appendix. He argues that it should 

be made a formal appendix to part 3050 

of the Commission’s rules for inclusion 

in the Code of Federal Regulations 

(CFR), or that the Appendix be issued as 

a guidance document, consistent with 

OMB Bulletin 07–02, 72 FR 3432 

(January 25, 2007). Otherwise, he says, 

the mailing public might be unaware of 

the alternative information that it 

contains. Public Representative 

Comments at 8. 

The Commission believes that it 

would be inappropriate to make the 

Appendix a formal appendix that would 

appear in the CFR because it would be 

too cumbersome to update, should that 

become necessary. The Commission, 

however, will consider making it a 

guidance document. 

The Postal Service suggests that the 

Commission make minor refinements to 

the categories of international mail 

listed in the alternative reporting format 

in the Appendix, ‘‘Products and 

Categories,’’ accompanying Order No. 

104. Postal Service Comments at 41. The 

Postal Service proposes that product 

names in the Appendix conform to the 

new product names that it gave to its 

‘‘rebranded’’ outbound international 

mail products on May 14, 2008. See 72 

FR 16604 (April 4, 2007). The Postal 

Service also seeks to update the 

Appendix to reflect the elimination of 

outbound economy mail services that 

use surface transportation. Id. 

Additional refinements requested 

include the use of a consistent naming 

convention for reporting purposes, and 

the elimination of reporting categories 

for which ‘‘neither revenue nor cost 

information exists.’’ Id. at 43. 

Most of the Postal Service’s suggested 

refinements are adopted in the revised 

Appendix. However, the Commission 

adds certain inbound Special Services 

categories for which data should be 

reported. The revised Appendix 

replaces ‘‘International First-Class Mail’’ 

and ‘‘International Priority Mail’’ with 

the rebranded names ‘‘First-Class Mail 

International’’ and ‘‘Priority Mail 

International,’’ respectively. The revised 

Appendix also removes references to 

‘‘surface’’ under First-Class Mail 

International for outbound single-piece 

letters, flats, IPPs, and parcels, and 

outbound single-piece cards.7 However, 

the revised Appendix shows that data 

for ‘‘air’’ and ‘‘surface’’ categories 

should be reported under ‘‘Inbound 

Single-Piece Mail (Letter Post)’’ because 

air and surface were not eliminated as 

service offerings for inbound First-Class 

Mail International. 

In keeping with the rebranded naming 

of outbound mail products, the 

Commission adds a reporting 

requirement for Global Express 

Guaranteed (GXG) and Express Mail 

International (EMI) under ‘‘Outbound 

International Expedited Services’’ in the 

Competitive Products section of the 

Appendix. This added reporting 

requirement is consistent with the 

Postal Service’s existing reporting of 

GXG and EMI in the FY 2007 and FY 

2008 International Cost and Revenue 

Analysis (ICRA) reports. 

The revised Appendix adopts a 

consistent, new naming convention for 

reporting data related to outbound and 

inbound international mail. The new 

naming convention preserves the 

Commission’s proposed reporting of 

disaggregated cost, volumes, and 

revenue data separately by terminal 

dues regime. See Order No. 104 at 18. 

The new naming convention also 

simplifies reporting by reducing the 

number of categories, primarily for 

inbound single-piece mail. Thus, the 

following naming convention is 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20841 

8For purposes of this category, the term 

‘‘multilateral’’ refers to an agreement other than the 

multilateral agreement of the UPU convention. 

9FY 2008 ICRA Report, December 29, 2008, 

worksheet tab A Pages (md) and A Pages (c). 

adopted: Target System Countries at 

UPU rates, Transition System Countries 

at UPU rates, Subject to Agreement, 

Canada, Other. 

The new naming convention is 

applicable to First-Class Mail 

International, outbound single-piece 

letters, flats, IPPs, and parcels, 

outbound single-piece cards, and 

inbound single-piece mail (i.e., ‘‘letter 

post’’) separately for inbound air and 

surface letter post; and Priority Mail 

International for outbound Priority Mail 

subject to terminal dues. For Inbound 

Air Parcel Post, the naming convention 

replaces ‘‘At Non-UPU Rates’’ with 

‘‘Subject to Agreement.’’ 

The new naming convention reference 

‘‘Subject to Agreement’’ throughout the 

revised Appendix is intended to 

encompass the separate reporting of 

data by negotiated agreements that are 

both bilateral and multilateral in 

nature.8 In this regard, ‘‘Canada’’ is 

listed for the relevant products and 

categories of mail covered by an existing 

bilateral agreement, while ‘‘Other’’ is 

intended as a placeholder for reporting 

data in response to future bilateral or 

multilateral agreements. 

International Ancillary Services is 

currently defined as a product on both 

the market dominant and competitive 

product lists. Among the component 

categories of that product are Inbound 

International Return Receipt and 

Inbound International Insurance. The 

FY 2008 ICRA includes line items for 

these services as well, although no 

revenue or cost information is reported.9

The Postal Service asserts that these 

categories should be dropped from the 

Appendix because revenue and cost 

information for them ‘‘does not exist.’’ 

Postal Service Comments at 43–44. As 

long as these categories remain 

components of International Ancillary 

Services, and appear as line items in the 

ICRA, the Commission prefers that they 

appear in the alternative format as well. 

If there is no data to report, the Postal 

Service may enter an ‘‘N/A’’ notation. 

At the Postal Service’s request, the 

Appendix is revised to include 

‘‘Inbound International Delivery 

Confirmation’’ as a reporting category 

for data on ‘‘revenue from the delivery 

confirmation surcharge for [inbound] 

Xpresspost and Expedited Services 

[from] Canada.’’ Id. at 44. 

Pitney Bowes proposes that the 

Commission attach a 3-year sunset 

provision to the Appendix, following up 

on the Commission’s remark in Order 

No. 104 at 16, that the alternative format 

might not be needed after a few 

transitional years. The Commission 

prefers to watch events unfold to see 

how quickly the Mail Classification 

Schedule stabilizes, after which it will 

make a decision about the usefulness of 

the alternative format in the longer run. 

H. Proposed Rule 3050.20 (Compliance 

and Other Postal Service Analyses) 

Time Warner provides several 

intricate arguments in support of what 

it terms ‘‘a relatively clear-cut 

jurisdictional issue’’ that it sees in 

§ 3050.20 as originally proposed. Time 

Warner Comments at 13. At the center 

of its discussion is concern over the 

types of circumstances where 

Commission action might be 

appropriate in response to a finding of 

‘‘noncompliance’’ under 39 U.S.C. 

3653(b). While some of Time Warner’s 

arguments are unpersuasive, the 

Commission finds that the language of 

proposed rule 3050.20 should be 

modified to eliminate confusion in this 

area. 

The Commission finds misguided 

Time Warner’s suggestion that the 

Postal Service is not required to develop 

and implement rates that comply with 

the rate policies of § 3622. Id. at 9–10. 

The PAEA provides an integrated set of 

policy guidelines for the Postal Service 

to follow in setting rates. Although the 

Commission is responsible for 

reviewing the Postal Service’s 

performance, most commenters believe 

that the initial responsibility for 

balancing and achieving these policies 

is, and should be, with the Postal 

Service rather than the Commission. 

Section 3622(a) does direct the 

Commission to establish, and when 

necessary revise, a system of ratemaking 

to foster achievement of the 

requirements, objectives, and factors 

spelled out in subsequent paragraphs. 

Order No. 43 implemented such a 

system, directing that the Postal Service 

accompany each planned rate increase 

with a demonstration of compliance 

with those policies. See 39 CFR 3010.14. 

However, even if no regulations had 

been implemented by the Commission, 

the Governors would have to establish 

rates that comply with the policies of 

§ 3622. 39 U.S.C. 404(b) only authorizes 

the Governors to establish rates that are 

in accordance with the policies of 

chapter 36 of title 39 of the United 

States Code. 

Time Warner contends that the 

concept of ‘‘compliance’’ is not easily 

applicable to such things as objectives 

and factors, which by their nature must 

be weighed and balanced. To ease 

concerns over the potential misuse of 

the Commission’s broad remedial 

powers, Time Warner requests a 

Commission statement on how or when 

it might find the Postal Service to be not 

in compliance with such subjective 

terms. The Commission believes that 

Time Warner’s request is well 

intentioned, but this rulemaking is not 

an appropriate vehicle for such a 

discussion. 

The Postal Service joins Time Warner 

in arguing that it should not have to 

analyze the extent to which it has 

achieved its program performance goals 

established under §§ 2803 and 2804 as 

part of the compliance analysis required 

by proposed rule 3050.20. It argues that 

these sections already require the Postal 

Service to discuss its performance goals 

and evaluate its achievement of those 

goals in the comprehensive statement 

that it is required to file with Congress 

by 39 U.S.C. 2401(e). When evaluating 

whether the Postal Service has met its 

program performance goals, the Postal 

Service argues, it is the Commission’s 

duty to review the Postal Service’s 

comprehensive statement. Postal 

Service Comments at 49. 

Sections 2803 and 2804 require the 

Postal Service to evaluate the degree to 

which its individual programs have met 

their objectives, by quantitative criteria 

where possible. The comprehensive 

statement that the Postal Service must 

file with Congress under § 2401(e) 

includes these program performance 

evaluations. Those evaluations, if done 

properly, would allow the Commission 

to determine whether the performance 

goals established under §§ 2803 and 

2804 have been met. Because it is 

redundant, the requirement in proposed 

rule 3050.20 that the Postal Service 

analyze whether it has met the program 

performance goals established under 

§§ 2803 and 2804 has been deleted from 

final rule 3050.20. The Commission 

does this on the understanding that the 

Postal Service’s comprehensive 

statement filed under § 2401(e) will be 

sufficiently specific and concrete to 

allow the Commission to make an 

informed determination as to whether 

the Postal Service has met the 

performance goals established for 

specific programs, as §§ 2803 and 2804 

contemplate. 

Section 3653(d) authorizes the 

Commission annually to make 

‘‘recommendations’’ to the Postal 

Service ‘‘related to the protection or 

promotion of public policy objectives 

set out in this title.’’ This authorization 

is broader in subject matter than the 

Postal Service’s comprehensive 

statement, which is limited to an 

analysis of how the Postal Service’s 

20842 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

10The coalition does not address scenarios in 

which a type of mail service does not cover its costs 

even though it, or the ‘‘class’’ to which it belongs, 

has cap room. Congress, however, contemplated 

scenarios under which a ‘‘loss-making’’ product 

could be out of compliance with the PAEA. See 39 

U.S.C. 3662(c). 

programs have met the public policy 

objectives of § 101 of title 39 of the 

United States Code. Because it is not 

redundant of the analyses required in 

the Postal Service’s comprehensive 

statement, the requirement in proposed 

rule 3050.20 that the Postal Service 

analyze how its products (individually 

or collectively) have promoted the 

public policy objectives of title 39 

remains in final rule 3050.20. 

Section 3653 allows the Commission 

the latitude to evaluate compliance ‘‘for 

products individually or collectively.’’ 

This language appears to authorize the 

Commission to determine what level of 

disaggregation makes sense when 

analyzing compliance with a particular 

criterion derived from the statute. The 

Commission believes that it will be 

beneficial to harmonize the analyses 

required of the Postal Service under 

proposed rule 3050.20 with the 

evaluations that § 3653 authorizes the 

Commission to make. Therefore, the 

Commission revises the language of 

final rule 3050.20 to allow the Postal 

Service to analyze whether its products 

have complied with a particular 

statutory goal, objective, or mandate, 

both at the individual product level, or 

for products collectively, where analysis 

at that level is appropriate. 

The Commission agrees with Time 

Warner that using the term 

‘‘compliance’’ in the title of proposed 

rule 3050.20 does not appropriately 

describe the task it assigns to the Postal 

Service—to analyze how its products 

have promoted the public policy 

objectives of title 39 of the United States 

Code. The Public Representative agrees. 

See Public Representative Reply 

Comments at 3. The solution is to 

broaden the title of proposed rule 

3050.20. Final rule 3050.20 is now 

entitled ‘‘Compliance and other 

analyses in the Postal Service’s section 

3652 report to the Commission.’’ This 

broadened title indicates that an 

analysis can be required annually by 

§ 3050.20 without constituting a 

‘‘compliance’’ issue. In this regard, the 

Commission notes that the set of rules 

adopted in this docket are generally 

referred to as ‘‘periodic reporting rules’’ 

rather than ‘‘compliance rules’’ because 

they are intended to provide the 

information needed for all reports that 

the Commission is obligated by the 

PAEA to produce, whether or not they 

are compliance related. 

Special reporting requirements for 

products out of compliance. Valpak 

proposes to amend proposed rule 

3050.20 to require the Postal Service to 

provide supplemental information about 

products that ‘‘do not comply with all 

applicable provisions of PAEA.’’ For 

such products, it proposes that the rule: 

i. Require the Postal Service to explain the 

most important circumstances underlying the 

failure to meet the applicable provisions of 

PAEA; 

ii. Explain what steps the Postal Service 

plans to take to bring the products into full 

compliance with PAEA; and 

iii. Indicate the time frame within which 

the Postal Service contemplates * * * 

achieving full compliance. 

Valpak Comments at 39. 

For example, for a product that failed 

to cover its costs, Valpak would require 

the Postal Service to (1) explain why it 

did not cover its costs; (2) explain what 

steps the Postal Service plans to take to 

ensure that it will cover its costs; and (3) 

indicate when it expects those steps to 

bring the product’s revenues above 

costs. Valpak argues that unless 

proposed rule 3050.20 is strengthened 

in this way, neither mailers who are 

cross-subsidizing such products, nor the 

Commission, will know how to respond 

to the failure of a product to comply 

with the requirements of the PAEA. Id. 

at 39–40. 

The Postal Service responds only 

briefly to Valpak’s proposal. It notes that 

Valpak would have the Postal Service 

give public notice in proposed rule 

3050.20 of forward-looking remedial 

steps. It argues that such requirements 

are not appropriate for that rule since it 

is intended to implement a section of 

the PAEA (3652) that is focused on the 

past year. Postal Service Reply 

Comments at 14 and n.7. 

MPA/ANM/ABM criticize Valpak’s 

proposal as one that misconstrues the 

role that § 3622(c)(2) plays in the 

statutory structure. (Section 3622(c)(2) 

requires each ‘‘class or type’’ of mail to 

cover its attributable costs.) Though 

§ 3622(c)(2) is characterized in the 

PAEA as a ‘‘requirement,’’ the coalition 

argues that it is little more than advisory 

in nature, since the price cap overrides 

it and all other objectives and factors 

that are found in the statute. They argue 

that failing to comply with an objective 

or factor in the course of complying 

with a more important one (the cap) 

does not give rise to a Postal Service 

obligation to explain anything in the 

context of compliance analysis.10 The 

coalition, however, considers it ‘‘not 

unreasonable’’ for the Commission to 

add a new paragraph (k) to proposed 

rule 3050.21 requiring the Postal Service 

to: 

[p]rovide an explanation when revenues 

for a mail class or service do not cover 

attributable costs, and provide any other 

explanation that the Postal Service believes 

will be helpful to clarify how the Postal 

Service has considered the objectives of 39 

U.S.C. § 3622(b) and the factors of 39 U.S.C. 

3622(c). 

MPA/ANM/ABM Reply Comments at 4. 

With respect to a product with a 

history of non-compliance with some 

requirement of the PAEA, the 

Commission agrees with Valpak that it 

would be helpful in the compliance 

review process to know what the Postal 

Service considers to be the causes of 

that product’s non-compliance, what the 

Postal Service plans to do to bring that 

product into compliance, and how long 

it expects that process to take. In the 

Commission’s view, providing such 

information with the section 3652 report 

itself would greatly benefit the review 

process. As the Commission observed in 

its FY 2007 ACD at 91: 

The Postal Service should support its 

annual report with more complete 

explanations, and discuss data which may be 

perceived as anomalous, such as large 

variations in unit costs. With only 90 days 

available for the Commission to make its 

findings and even less time for interested 

parties to analyze the data and submit 

comments, it is crucial to the process that the 

data filed by the Postal Service is 

accompanied by accurate descriptions and a 

thorough analysis. 

To encourage the Postal Service to 

provide a more thorough analysis of 

high priority topics relating to whether 

particular products have met particular 

standards articulated in the PAEA, the 

Commission has added paragraph (c) to 

final rule 3050.20. That paragraph 

provides: 

(c) [The Postal Service] shall address such 

matters as non-compensatory rates, discounts 

greater than avoided costs, and failures to 

achieve stated goals for on-time delivery 

standards, particularly where the 

Commission observed and commented upon 

the same matter in its Annual Compliance 

Determination for the previous year. 

This provision reflects the revision by 

Valpak to proposed rule 3050.20 in the 

sense that it establishes a specific duty 

to include in the section 3652 report an 

analysis of results for products that do 

not satisfy certain provisions of the 

PAEA. 

The Commission is mindful of the 

burdens that the Postal Service faces in 

preparing its section 3652 report and, 

therefore, the duty that it imposes on 

the Postal Service is narrower than that 

which Valpak’s proposal would have 

imposed. Rather than require the Postal 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20843 

11The Commission is not asking the Postal 

Service to make this separation in billing 

determinant data to reflect new price categories, 

new discounts, or new surcharges. The postimplementation data can be compared with the preContinued 

Service to explain the reasons that an 

outcome did not meet a particular 

standard of the PAEA, its plans for 

curing that deficiency, together with an 

expected timetable, it merely requires 

the Postal Service to ‘‘address’’ a very 

brief list of outcomes that do not satisfy 

a particular, objective PAEA standard. 

The purpose of the provision is 

essentially to provide interested persons 

and the Commission with salient 

information when a particular PAEA 

standard is not satisfied by a particular 

result involving a particular product. 

The breadth of the explanations will 

vary with each factual situation. 

Paragraph (c) is framed in a manner that 

does not require a conclusion that a 

product that fails to comply with some 

statutory policy does or does not 

‘‘comply’’ with the PAEA as a whole. It 

merely calls for relevant facts in those 

instances in which certain PAEA 

standards were not satisfied. Because 

the Commission has added paragraph 

(c) to final rule 3050.20, it declines to 

adopt Valpak’s proposed revision of 

proposed rule 3050.20 or the related 

suggestion by MPA/ANM/ABM to revise 

proposed rule 3050.21. 

I. Proposed Rule 3050.21 (Period for 

Measuring Institutional Cost 

Contribution of NSAs) 

Proposed rule 3050.21(f) prescribed 

the reporting requirements for market 

dominant NSAs. Among other things, 

the proposed rule requires the Postal 

Service to report results for the NSA’s 

contract year where that does not 

correspond to a fiscal year. The Postal 

Service observes that: 

it may also be possible to devise a means 

of conducting contribution assessments 

based directly on the fiscal year. If so, NSA 

data linked to the fiscal year would be more 

amenable to integration with the rest of the 

fiscal year reporting presented in the ACR. 

Therefore, the Postal Service requests that the 

proposed rule be amended to allow it the 

option to report on either a fiscal year basis 

or on the most recent year of operation. 

Building this flexibility into the rule could 

result in reporting procedures that are more 

efficient for both the Postal Service and the 

Commission. 

Postal Service Comments at 36 (footnote 

omitted). 

The Commission agrees with the goal 

expressed by the Postal Service of being 

able to report NSA results in a way that 

can be synchronized with the fiscal year 

report for the rest of the system. The 

problem appears to be that the Postal 

Service has not yet found a way to do 

that without sacrificing the accuracy of 

the resulting estimates. 

In library reference USPS–FY08–30, 

the Postal Service provides financial 

results for NSAs that were active in FY 

2008. Consistent with its proposal, the 

Postal Service provided volume data on 

a fiscal year basis. The analysis that 

used this volume information is, 

however, a flawed method of analyzing 

the compliance of volume-based NSAs 

with § 3622(c)(10) because it does not 

compare apples to apples. The 

Commission has approved application 

of a price elasticity test to NSAs as an 

objective way to measure the net 

contribution from any discount offered. 

The purpose of the elasticity test is to 

develop a meaningful before-rates 

forecast to measure possible revenue 

leakage from the discount. Applying the 

elasticity test to fiscal year volumes that 

do not align with the discount schedule, 

however, severs the connection between 

discounts and volumes, making any net 

contribution analysis meaningless. This 

approach creates a before-rates volume 

that does not correspond to any 

discount earned. The disconnect 

between contract years and fiscal years 

prevents a meaningful estimate of the 

net institutional cost contribution of 

NSAs. Accordingly, the Commission 

defers the Postal Service’s proposal 

until it can demonstrate that it has 

found a way to adjust data for NSAs that 

are out of phase with the fiscal year to 

a fiscal-year basis without substantially 

distorting the resulting estimates. 

J. Proposed Rule 3050.25 (Volume and 

Revenue Data) 

Proposed rule 3050.25 identifies the 

data reports that the Commission needs 

to estimate volumes and revenues, such 

as the Revenue, Pieces, and Weight 

System (RPW) reports, the Quarterly 

Statistics Reports, and the billing 

determinants. The Postal Service objects 

only to the proposal that it provide 

billing determinants on a quarterly 

basis. It explains that meeting this 

requirement would require added 

expense to generate special weight 

reports and other input data that it now 

generates only annually. It argues that 

the added expense is not warranted in 

view of the limited benefits of this 

requirement. Id. at 37–39. 

Time Warner supports the Postal 

Service’s comments in this regard. It 

points out, however, that most of the 

volume and mail characteristic data on 

bulk mail comes from electronically 

filed reports by bulk mailers. It suggests 

that quarterly billing determinants for 

bulk mail classes could be produced at 

little additional expense, with the 

understanding that revisions might need 

to be made to the results at the end of 

the year. It says that such information 

might provide useful indications ‘‘of the 

extent to which mailers are taking 

advantage of the various worksharing 

discounts offered by the rate 

structure[,]’’ which ‘‘might indicate the 

cost trends to anticipate for the various 

classes of mail.’’ Time Warner Reply 

Comments at 5–6. 

The Commission proposed that the 

Postal Service provide quarterly billing 

determinants primarily as an aid to 

analyzing the consistency of proposed 

rates with the price cap constraint. 

Because rate increases under the current 

calendar are out of phase with the 

annual billing determinant data, 

quarterly data are helpful in isolating 

what revenue changes are the result of 

changes in rates. The Commission 

believes that the benefits of this form of 

reporting outweigh its burdens, absent a 

more definitive estimate of the extra 

time and resources that providing 

quarterly billing determinants would 

entail. Therefore, final rule 3050.25 

requires the Postal Service to provide 

billing determinants quarterly within 40 

days of the close of the quarter. Annual 

billing determinants are required to be 

broken out by quarter as well. 

Additionally, it would be extremely 

helpful if the Postal Service could 

develop billing determinant data 

separated between periods when 

different sets of rates were in effect. The 

Commission requests that, if possible, 

the Postal Service provide this 

information on a voluntary basis. 

An example of the separation that the 

Commission requests is the set of new 

market dominant prices that will go into 

effect on May 11, 2009, roughly in the 

middle of the third quarter of FY 2009. 

If the Postal Service were able to 

separate the quarterly data between preMay 11 and post-May 11 revenue and 

volume information, the Commission 

would be able to develop a set of 

volume weights that correspond to the 

periods in which different prices were 

in effect. These weights could be used 

to develop weighted-average-rates per 

piece by class for comparison with the 

planned weighted-average-rate per piece 

by class, developed using historic 

billing determinant data in accordance 

with the Commission’s rules in Docket 

No. R2009–2. Of course, data for one 

part of a quarter would not be sufficient 

for such a comparison, but since the 

rates generally stay in effect for a year, 

the Commission and the public, by 

virtue of the periodic reporting rules, 

would eventually have access to data for 

a full year reflecting one set of rates.11

20844 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

implementation data based on current reporting 

techniques. For example, the quarterly data that 

will include volume and revenue data subject to the 

planned Intelligent Mail barcode (IMb) discount 

will not require separate reporting for the IMb 

discount because no corresponding revenue and 

volume will exist in the quarter until the discount 

goes into effect. Thus, any data that are reported for 

the IMb discount can only reflect the effect of the 

new discount. However, if the level of that discount 

is subsequently changed, the quarterly data would 

have to be separated between the two discount 

regimes for accurate comparisons of actual 

weighted-average-rate per piece with planned 

weighted-average-rate per piece. 

12Proposed rule 3050.60(f) has become final rule 

3050.60(g). 

These data would prove useful for the 

evaluation of the efficacy of the price 

cap. They would be particularly useful 

7 years from now when the Commission 

must re-evaluate the current system of 

ratemaking. See 39 U.S.C. 3622(d)(3). 

Although the Postal Service 

implements price changes for 

competitive products at a different time 

of year and although these prices are not 

subject to the price cap, competitive 

product billing determinants split 

between the pre- and post-rate 

implementation date would also be 

helpful. It would enable the 

Commission to evaluate more accurately 

the effects of price changes on the 

financial condition of the Postal Service 

and how such pricing activities help the 

Postal Service meet the requirements of 

39 U.S.C. 3633(a). 

K. Proposed Rule 3050.26 (Demand 

Elasticity and Volume Forecasting) 

The proposed periodic reporting rules 

would have required the Postal Service 

to provide econometric estimates of 

demand elasticity for all postal products 

accompanied by the underlying 

econometric models and input data sets 

used. The provision establishing these 

requirements was proposed rule 

3050.26. To accommodate the Postal 

Service’s internal operational 

preferences, proposed rule 3050.26 

requires that this information be filed 

with the Commission by January 20 of 

each year. Proposed rule 3050.26 is not 

associated specifically with the Postal 

Service’s section 3652 report. The 

specific information items (other than 

avoided cost information) that the 

Commission deems necessary for it to 

carry out the compliance analysis 

required of it by § 3653 are found 

primarily in proposed rule 3050.21. For 

the sake of completeness, the 

requirement that the Postal Service 

provide a demand elasticity estimate for 

each postal product was included there 

as well. See Order No. 104, proposed 

rules 3050.21(f) and (g), at 45–46. 

The Postal Service points out that 

proposed rules 3050.21(f) and (g) are 

redundant of proposed rule 3050.26, but 

require the same demand information to 

be filed with the Commission several 

weeks in advance of January 20 in late 

December of each year. It urges the 

Commission to resolve this redundancy 

in favor of the January 20 due date 

incorporated in proposed rule 3050.26. 

Postal Service Comments at 29. We 

accept the Postal Service’s suggestion, 

and delete the references to demand 

elasticities from final rule 3050.21. 

Explanatory narrative. The Postal 

Service emphasizes that it includes an 

explanatory narrative of its methods for 

estimating demand in its January 20 

filing under proposed rule 3050.26 

(even though that proposed rule did not 

explicitly require a narrative 

explanation of methods). It then notes 

that proposed rule 3050.60(f) requires a 

brief narrative explanation of how the 

estimates in the most recent ACD were 

calculated and the reasons that 

particular analytical principles were 

followed (due on July 1 of each year). 

Id. at 24–25. 

Based on the Commission’s narrative 

in Order No. 104, the Postal Service 

correctly concludes that the 

Commission had intended the term 

‘‘analytical principle’’ to be broad 

enough to encompass the analytical 

principles used in econometric models 

of demand. The Postal Service argues 

that the brief narrative explanation of 

analytical principles underlying its 

demand analysis that proposed rule 

3050.60(f) would require is redundant of 

the narrative explanation that it 

provides to the Commission in January 

of each year under proposed rule 

3050.26. It urges the Commission to 

interpret proposed rule 3050.60(f) as not 

requiring a brief narrative explanation of 

analytical principles used in estimating 

demand elasticities. Id. at 29–30. 

The Commission had intended the 

brief narrative explanations called for by 

proposed rule 3050.60(f) as explanations 

‘‘in a nutshell’’ similar to those 

traditionally provided in Library 

Reference 1 in rate cases under the PRA. 

The main value of a set of such 

explanations of methods is that they 

would serve as a quick guide to the nonexpert in understanding the arcane 

world of postal cost, volume, and 

revenue analysis. Therefore, it is not 

entirely accurate to characterize the 

§ 3050.60(f) narrative as redundant of 

the more technical and detailed 

narrative that the Postal Service 

provides in January under proposed rule 

3050.26. The Commission believes that 

this ‘‘quick guide’’ is quite helpful in 

making postal analysis more accessible 

to the lay public, and that this is as true 

of demand analysis as of other kinds of 

analysis. It therefore continues to 

interpret final rule 3050.60(f) 12 as 

applicable to analytical principles 

underlying the Postal Service’s 

estimates of demand elasticity. Because 

a ‘‘nutshell’’ explanation is all that is 

expected, it is unlikely to significantly 

add to the Postal Service’s reporting 

burden. 

Advance review of analytical 

principles underlying demand and 

volume forecasting models. With respect 

to demand elasticity estimates, the 

Postal Service’s major criticism is not 

redundancy, but the Commission’s 

inclusion of demand elasticity estimates 

in its requirement that analytical 

principles used in its periodic reports be 

reviewed in advance by the Commission 

and the public. See proposed rule 

3050.11. The Postal Service argues that 

the econometric models that it uses to 

estimate demand elasticity and to 

forecast volume are not like econometric 

models that it uses to estimate volumevariable costs. It asserts that the former 

are respecified, reworked, or tweaked 

almost every time that new input data 

are used. Accordingly, it argues, it is 

impractical for it to subject such 

frequent model revisions to advance 

review in a rulemaking context, as 

proposed rule 3050.11 would 

apparently require. Id. at 22–29. 

Although it concedes that demand 

elasticities play an important role in 

evaluating rates under the PAEA, it 

asserts that the Commission does not 

have authority to ‘‘dictate’’ the methods 

by which it forecasts volumes 

comparable to what it arguably had 

under the PRA since the evaluations 

that the Commission is obligated to 

make are primarily retrospective. Id. at 

26. It, therefore, asks that analytical 

principles that underlie its volume and 

demand models be exempt from 

advance review. 

The Postal Service contends that the 

goals of advance review could largely be 

served by the opportunity that the 

Commission would have to react to the 

Postal Service’s demand modeling and 

volume forecasting methods, either in 

the course of the ACD or at another time 

of the Commission’s choosing. It states 

that it would remain receptive to 

Commission input as to how such 

modeling could be improved. Id. at 29. 

The Commission agrees with the 

Postal Service that its mandate to review 

analytical principles that the Postal 

Service uses to model demand elasticity 

and to forecast volume is not ‘‘parallel’’ 

with its mandate to review analytical 

principles that the Postal Service uses to 

estimate its costs. Its mandate to review 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20845 

13 Volume information (with respect to market 

dominant products) is also mentioned in section 

3652(a)(2) as within the Commission’s purview. 

14The Postal Service conjectured that the 

Commission viewed the presence of the term 

‘‘elasticity of demand’’ in proposed rule 

3050.11(a)(1) as the basis of its authority to require 

advance review of the analytical principles that it 

applies in estimating demand elasticities. It, 

therefore, requested that that term be deleted from 

proposed rule 3050.11. A close reading of that 

provision reveals that it is one item in a list of types 

of impact that the Postal Service should estimate 

(where feasible) that would arise from adopting a 

proposed change in an analytical principle. 

However, to remove any ambiguity about the 

Commission’s intentions in this regard, that term 

has been removed from final rule 3050.11(a)(1) 

(renumbered as final rule 3050.11(b)(1)). 

cost principles is based directly on the 

language of § 3652(a)(1) that the Postal 

Service shall analyze ‘‘costs, revenues, 

rates, and quality of service, using such 

methodologies as the Commission shall 

by regulation prescribe * * *.’’ Its 

mandate to review the analytical 

principles used to estimate demand 

elasticities arises from its duty to 

evaluate rates and service in terms of 

the many objectives and factors of the 

PAEA that implicitly incorporate 

elasticity of demand. See Order No. 104 

at 10–11. Elasticity of demand also 

provides essential evidence of ‘‘market 

power,’’ which is the root concept 

underlying the Commission’s 

determinations under § 3642 that certain 

products be given market dominant or 

competitive product status under the 

PAEA. 

The Commission’s mandate to review 

analytical principles underlying volume 

forecasting arises where forecasting 

volumes is an intermediate step in 

estimating unit attributable costs or unit 

revenues.13 Even though the 

Commission does not have rate design 

or revenue requirement responsibilities 

that require it to use the kind of roll 

forward that was part of formal rate 

cases under the PRA, it still has a need 

for volume forecasts to carry out some 

of its responsibilities. One is to review 

the compliance of rates proposed by the 

Postal Service with the price cap. 

Where, as in the last general rate 

adjustment, the Postal Service proposed 

rate increases for some products to take 

effect later than others, an accurate 

estimate of the revenue likely to be 

earned requires a product-level volume 

forecast. Volume forecasts are also 

needed to accurately assess whether 

revenues for specific competitive 

products with low profit margins are 

likely, at proposed rates, to remain 

above their attributable costs. In this 

regard, the Postal Service has 

voluntarily provided 1-year volume 

projections for a number of its 

competitive products at new rates to 

allow the Commission to more 

accurately verify the likelihood that 

they will, in fact, recover their costs in 

the coming year. Finally, in establishing 

service standards under § 3691, the 

Postal Service, in consultation with the 

Commission, is directed to take into 

account, among other things, ‘‘mail 

volume and revenues projected for 

future years[.]’’ See 39 U.S.C. 3691(c)(4). 

In addition to the role that the 

Commission plays in evaluating rates 

and service, the Commission has the 

duty to calculate the cost (understood as 

profit impact) of the various Universal 

Service Obligation (USO) mandates. 

Estimating the costs for at least two of 

these mandates—Nonprofit Mail 

discounts and uniform rates for FirstClass Mail—requires analysis of volume 

effects. Volume forecasts are also a 

necessary part of an analysis of the 

Postal Service’s near-term financial 

outlook, which is relevant to the 

Commission’s duties under § 3651 to 

assess the degree to which the modern 

system of rate regulation is achieving 

the objectives of §§ 3622 and 3633. The 

need for volume forecasts to adequately 

discharge this duty is obvious from the 

current alarm shared by the postal 

community over dramatic volume 

declines experienced and expected in 

the current fiscal year. The extent of 

near-term volume declines, current and 

expected, is highly relevant to a § 3651 

assessment, as is the method by which 

those volume declines have been 

estimated. 

Finally, volume forecasts can play an 

important role in the remedial phase of 

compliance review under §§ 3653(c) and 

3662(c). For example, in its FY 2007 

ACD, the Commission found that the 

performance of several loss-making 

products was not consistent with all of 

the applicable provisions of the PAEA. 

It did not take remedial action because 

new rates had already been 

recommended for those products before 

the issuance of the ACD. In that 

situation, volume and cost projections 

are needed to determine whether or not 

the new rates are likely to bring the 

affected products back above 

attributable costs. Because of their value 

in accomplishing the tasks described 

above, and because they are so closely 

related to the Postal Service’s 

econometric model of demand 

elasticity, the Commission has added to 

final rule 3050.26 the requirement that 

the Postal Service provide its volume 

forecasting model and underlying 

documentation in January of each year. 

As explained above, the Commission 

has a number of legitimate needs for 

estimates of demand elasticity and for 

volume forecasts, and to be able to 

evaluate the methods used to do them. 

That review, however, should interfere 

as little as possible with postal 

management’s administration of its 

volume forecasting capability. 

Accordingly, the Commission will not 

require advance review of the methods 

by which the Postal Service estimates 

demand elasticity or forecasts volumes. 

To that end, final rule 3050.10 has been 

revised to make it clear the analytical 

principles that the Postal Service 

applies in estimating demand 

elasticities or forecasting volumes need 

not be reviewed in advance by the 

Commission.14

Current-year roll forward. The Public 

Representative proposes that the 

periodic reporting rules include a 

requirement that the Postal Service 

provide a current-year financial forecast. 

He notes that § 3651 requires the 

Commission to evaluate its own 

operations, including ‘‘the extent to 

which regulations are achieving the 

objectives under sections 3622 and 

3633, respectively.’’ (Emphasis omitted.) 

Public Representative Comments at 3. 

He emphasizes that the task assigned to 

the Commission is to evaluate the 

current, rather than the past, success of 

its regulations in achieving their 

objectives. To do this effectively, he 

argues, it would be helpful to have 

information about the current year as 

well as historical information. He notes 

that the objectives of §§ 3622 and 3633 

referred to in § 3651 primarily address 

rate, classification, service, and other 

issues that Congress expects the 

Commission to assess on a current basis, 

including whether products cover their 

attributable costs and whether 

competitive products are contributing 

an appropriate share to institutional 

costs. With respect to the latter 

assessment, he notes, § 3633 requires 

the Commission to take into account 

‘‘prevailing,’’ as opposed to past, 

conditions in the market. He argues that 

to adequately meet the mandate of 

§ 3651, current as well as historical data 

would be required. Id. at 3–4. He argues 

that such projections will highlight any 

unusual trends expected in product 

costs, and allow the public to better 

determine whether particular products 

are likely to cover their attributable 

costs. Id. at 5. He assumes that the 

Postal Service projects costs and 

revenues for the current year as part of 

the process of selecting new rates and to 

meet numerous other management 

needs. Therefore, he argues, providing a 

current-year financial roll forward is 

unlikely to add significantly to the 

Postal Service’s reporting burden. Id. 

20846 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

15While this is generally a prudent approach, a 

countervailing consideration is that where there is 

a lack of relevant data, that lack of data has a 

tendency to drive the selection of the method used. 

The Public Representative’s logic is 

sound concerning the Commission’s 

need for a current-year financial 

projection. A current assessment of the 

extent to which the Commission’s 

regulations are achieving the objectives 

of §§ 3622 and 3633 would appear to 

require the best available data about the 

current as well as past years. Although 

the Public Representative is somewhat 

vague about the benefits of having a 

current-year projection to help the 

Commission in its evaluation, his 

general point is well taken. In its 

discussion of demand and volume 

forecasting, the Commission explained 

how having near-term cost and volume 

projections would improve its ability to 

carry out a number of specific tasks that 

have been assigned to it by the PAEA. 

The Postal Service, however, takes 

issue with the Public Representative’s 

assumption that providing the 

equivalent of a current-year roll forward 

would impose little added burden. It 

states that it ‘‘does not routinely run its 

rate case roll-forward model, and there 

is no other way to get the set of 

comprehensive cost projections at the 

product and the rate category level that 

the PR describes.’’ Postal Service Reply 

Comments at 20. It cautions that ‘‘the 

Commission should [not] blithely add 

preparation and documentation of a 

roll-forward model to the already 

crushing list of activities which the 

Postal Service must complete in 90 days 

following the end of the fiscal 

year* * *.’’ 

Although the Commission is 

sympathetic to the Postal Service’s 

burden argument, it would prefer to 

have a better grasp of exactly how much 

extra time and resources would be 

required to provide a roll forward for 

the current year. The Commission 

believes that the benefits of being able 

to predict the net revenue effect of the 

Postal Service’s proposed rates before it 

proposes them each year would be of 

substantial value to postal management. 

At the same time, it would be of 

significant benefit to the Commission in 

being able to more accurately evaluate 

the consistency of those rates with the 

price cap. Although a current-year roll 

forward would have these potentially 

important benefits, as discussed above, 

it is not clear at this time that it would 

outweigh the risk that this added 

requirement might be more than the 

Postal Service can handle in the very 

brief window available to it to produce 

the section 3652 report each year. 

Therefore, the Commission declines to 

adopt the Public Representative’s 

proposal for a comprehensive roll 

forward for the current year at this time. 

L. Proposed Rule 3050.28 (Monthly and 

Pay Period Reports) 

Proposed rule 3050.28 deals with 

monthly and pay period reports. It 

would require that the Postal Service 

provides, among others things, the 

National Consolidated Trial Balance and 

the Revenue and Expense Summary. 

The Postal Service was originally 

opposed to providing them, presuming 

that its enterprise-wide public 

disclosure obligations were co-extensive 

with those of the private sector. Id. at 

39–41. The Postal Service has since 

publicly provided similar, but 

somewhat less detailed information. 

That information, under the title 

‘‘Monthly Summary Financial Report’’ 

has been added to the list of reports 

required by final rule 3050.28. The form 

in which that information will be 

reported accompanies the text of the 

final rule. 

M. Proposed Rule 3050.30 (Universal 

Service Obligation) 

Proposed rule 3050.30 would have 

required a set of data that was designed 

to facilitate modeling of the cost of 

various USO mandates. It included mail 

flow volumes by product between each 

pair of mail processing facilities. It also 

would have included costs, work hours, 

and CCCS/RCCS volumes by sampled 

product, route, facility, and ZIP Code. In 

addition, it would have included for 

sampled city routes, actual and possible 

deliveries by type, actual and possible 

stops by type, collection boxes, number 

of businesses served, and miles. 

Roughly comparable data would have 

been required for sample rural routes. 

The general objection of the Postal 

Service to this proposed rule was that 

the USO studies underway were not yet 

complete (as of the October filing date 

for reply comments in this docket), and 

that it would be easier to isolate a set 

of data essential to costing the various 

USO mandates after the results of those 

studies were in. It reasons that the 

methodologies to be applied should be 

settled upon before the data is collected 

or reported.15 Id. at 5–8. 

Although this was an appropriate 

argument at the time, the USO studies 

conducted on behalf of both the Postal 

Service and the Commission have since 

been submitted and follow-up 

comments received. See Docket Nos. 

PI2008–3 and PI2009–1. This 

circumstance allows the Commission to 

form at least preliminary judgments 

about what data are likely to play an 

important role in estimating the costs of 

the various USO mandates. The 

Commission is aware, however, that 

issues of what data can reasonably be 

made available, and the costs and 

benefits of doing so, are complex and 

nuanced. The Postal Service 

recommends that when the studies are 

complete, that it, the Commission, and 

interested parties confer on what 

methodologies are appropriate to 

develop the annual USO cost estimates, 

what input data would be needed to 

apply those methodologies, and what 

data are already available or obtainable 

at reasonable cost. Id. at 5–6. 

The Commission accepts the Postal 

Service’s recommendation. It will retain 

proposed rule 3050.30 as a placeholder, 

as the Postal Service requests. It will 

institute a separate informal rulemaking 

docket to determine what data should 

be reported to allow the Commission to 

annually estimate the cost of the various 

USO mandates. 

N. Proposed Rules 3050.40 and 3050.41 

(SEC-Type Financial Reports) 

Section 3654 of the PAEA requires the 

Postal Service to file with the 

Commission certain standard financial 

reports the Securities and Exchange 

Commission (SEC) normally requires 

publicly traded corporations to file, 

including the Form 10–K and the Form 

10–Q. Section 3654 articulates the 

requirement in considerable detail. In 

an attempt to make the Commission’s 

periodic reporting rules a 

comprehensive reflection of the 

reporting requirements that the PAEA 

imposes on the Postal Service, proposed 

rule 3050.40 essentially restates the 

SEC-style reporting requirement found 

in § 3654. Proposed rule 3050.41 

restates the audit requirements of that 

section. 

The Postal Service argues that § 3654 

is detailed and unambiguous and 

should be regarded as definitively 

expressing its obligation to furnish the 

Commission with SEC-style reports. 

Therefore, it argues, there is no need for 

an implementing regulation. It urges the 

Commission to make proposed rule 

3050.40 a placeholder to be available in 

the event that the Postal Service’s 

reporting should be shown to be 

inaccurate or in need of modification. 

Id. at 9–14. In the event that the 

Commission decides to retain a detailed 

counterpart of § 3654 in its periodic 

reporting rules, the Postal Service 

provides alternative language as 

Attachment A to its initial comments. 

The Commission agrees that § 3654 

makes the SEC-style reporting required 

of the Postal Service explicit in most 

respects, and that it is not of critical 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20847 

16Because the section 3050.60(f) narrative is 

meant to serve as a ‘‘Cliffs Notes’’ for the lay public 

seeking to understand postal costing, it would not 

have to be comprehensively redone each year. It 

would have to be updated only where accepted 

analytical principles have changed. This is 

consistent with what Pitney Bowes recommends. 

See Pitney Bowes Reply Comments at 3. 

importance that a detailed counterpart 

appear in the Commission’s periodic 

reporting rules. However, both the 

Commission and the Postal Service 

support minor modifications of the 

manner in which these requirements are 

stated, which makes it beneficial to 

restate the requirements in the 

Commission’s rules. There is also some 

value in collecting all of the Postal 

Service’s obligations to report 

information to the Commission in one 

place to simplify the task of those 

interested in tracking compliance with 

those obligations. 

Accordingly, final rule 3050.40 

restates the Postal Service’s SEC-style 

reporting obligations essentially as they 

appear in § 3654. One minor difference 

is that § 3654(a)(2) is omitted from the 

Commission’s rule. This is done to 

accommodate the Postal Service’s 

concern that it not be defined as a 

‘‘registrant’’ for purposes of determining 

what SEC reports it is obligated to file. 

Some aspects of some of those reports 

are highly specific to entities that have 

the legal status of private corporations 

and are inapplicable to the Postal 

Service because it does not share that 

legal status. Another minor difference is 

that the Commission includes a 

requirement that when the Postal 

Service receives the pension and postretirement health obligation information 

specified in § 3654(b)(1) from the Office 

of Personnel Management that it furnish 

copies of that information to the 

Commission. 

O. Proposed Rules 3050.50 et seq. 

(Service Performance) 

Section 3691 of title 39 of the United 

States Code requires the Postal Service, 

in consultation with the Commission, to 

establish and maintain a set of service 

standards for market dominant 

products. That section provides explicit 

statutory objectives for the service 

standards adopted, and requires a 

service performance measurement 

system in which the Commission plays 

a role. It also authorizes complaints 

under § 3662 for violations of the 

regulations that implement these service 

standards and performance 

measurement systems. 

The Commission is deferring 

consideration of data reporting on 

service quality. Proposed rules 3050.50 

et seq. are ultimately intended to 

describe the service performance 

information that would be required to 

implement the relevant provisions of 

the PAEA. A separate rulemaking 

docket will be initiated shortly to 

develop these reporting requirements. 

P. Proposed Rule 3050.60 (Master List of 

Handbooks, Etc.) 

Proposed rules 3050.60(a) through (c) 

would require the Postal Service to 

provide a master list of publications, 

handbooks, and data collection forms at 

the beginning of each fiscal year in hard 

copy and in electronic form. Data 

collection forms and corresponding 

training manuals would be provided 

‘‘when changed.’’ 

The Postal Service argues that the 

proposed rules should only require a 

comprehensive set of these materials 

initially, and further materials in all the 

categories listed only ‘‘when changed.’’ 

It also alleges that providing electronic 

versions of all such materials could be 

a significant burden. Id. at 47–48. The 

Commission incorporates these 

suggestions in final rules 3050.60(b) 

through (d). It also limits the 

requirement that these items be 

provided in electronic format to those 

already in that format. 

Q. Standardized Narrative Explanations 

Valpak observes that various rules 

proposed in this docket imply a need for 

a narrative explanation of lesser or 

greater elaboration. It argues that such 

narrative explanations should be 

standardized. It proposes that the 

Commission express a uniform standard 

as a definitional rule. The definition it 

advocates reads as follows: 

Rule 3050.1a. Full and detailed 

explanation. Where the rules in this Part 

require the Postal Service to file or otherwise 

submit an explanation, including the 

explanatory reports, analyses, lists, estimates, 

and other such items required by the various 

rules in Part 3050, the Postal Service shall 

provide a narrative setting forth a full and 

detailed explanation, providing the 

information requested, such as how the items 

in question were calculated and/or 

determined, how they differ from such items 

in the immediately preceding report of the 

same type, and how they comply with the 

requirements of the law and/or those 

imposed by the Commission. 

Valpak Comments at 16–17. The Public 

Representative generally supports 

Valpak’s proposal. Public 

Representative Reply Comments at 16– 

17. 

Providing full and detailed 

explanations everywhere an explanation 

would be helpful is ordinarily a 

laudable goal. Imposing a one-size-fitsall standard in the context of the 

periodic reporting rules, however, 

would tend to work at cross-purposes 

with these rules. 

In drafting these periodic reporting 

rules, the Commission is mindful that 

the need for detailed explanations 

differs markedly from one report to 

another, and that the time available to 

produce detailed explanations differs 

dramatically from one report to another 

as well. For example, the ratemaking 

schedule that has been adopted under 

the PAEA puts the Postal Service under 

considerable strain to produce its 

annual section 3652 report. It has 90 

days to prepare its CRA, apply the 

results of associated special studies, and 

to analyze the significance of the overall 

results. Rather than impose an 

obligation on the Postal Service to 

provide detailed explanations on every 

aspect of its section 3652 report, it 

would be more productive to allow the 

Postal Service to focus on the main 

issues that its report raises, and treat 

those in some depth. 

Valpak itself has suggested that for 

any rate or service that has not complied 

with the standards of title 39 in the 

review year, the Postal Service should 

provide an explanation of the causes, 

the remedy that it plans to pursue, and 

the expected time frame for bringing the 

rate or service into compliance. This is 

an example of where the Postal 

Service’s limited time in preparing a 

section 3652 report should be focused. 

The standard that Valpak proposes 

would interfere with this kind of 

prioritization. 

The Commission views flexibility in 

the nature of the narrative required as 

one of the strengths of its periodic 

reporting rules. Some of the periodic 

reports required by the Commission are 

intended to elicit only brief, simplified 

explanations to orient the lay public, 

rather than in-depth, technical 

explanations of things that are not in 

controversy and, if required, are likely 

to divert resources from more important 

work. A good example is final rule 

3050.60(f) which requires the Postal 

Service to submit the equivalent of the 

‘‘Library Reference 1’’ quick guide that 

was traditionally submitted in PRA rate 

cases.16

Final rule 3050.2(a) is another good 

example. It requires the Postal Service 

to list corrections that it has made and 

input data and quantification 

techniques that have changed since the 

pertinent periodic report was last 

submitted, together with ‘‘a brief 

narrative explanation of each listed 

change.’’ The Commission regards this 

requirement as reasonable because the 

narrative explanation only requires a 

20848 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

‘‘bare bones’’ explanation sufficient to 

give the public and the Commission 

notice of the reason for the change, 

rather than an in-depth discussion or 

defense of the change. 

In fashioning the periodic reporting 

rules, the Commission contemplates 

that in-depth technical or theoretical 

explanations will be reserved for the 

contexts in which they are most needed. 

Those would include the informal 

rulemakings where new analytical 

principles are evaluated, and the 

compliance review period where 

significant compliance issues have been 

identified. To keep the flexibility to 

adapt narrative explanations to the 

context in which they arise, the 

Commission believes it best not to 

impose the same standard on each. For 

that reason, the Commission declines to 

adopt Valpak’s proposal. 

III. Indirectly Related Proposals 

A. Substantive Proposals 

The Appendix to this order contains 

an illustrative alternative format for the 

CRA that breaks out costs, volumes, and 

revenues for products and for rate 

categories. The rationale for requiring 

this more detailed alternative format 

was provided in Order No. 104 at 16– 

17. Time Warner notes that for Outside 

County Periodicals, there have been 

distinct rate categories added for 

bundles, sacks, and pallets. It suggests 

that it is both feasible and desirable to 

further disaggregate the Outside County 

data in the Appendix by bundle, sack, 

and pallet. It argues that CRA costs 

could be disaggregated to this level by 

simply re-tabulating IOCS data that is 

already routinely gathered. It argues that 

this disaggregation of CRA costs would 

provide ‘‘better guidance for rate setting, 

as well as better guidance for possible 

cost reductions’’ within the Periodicals 

class. Time Warner Comments at 14–15. 

The Postal Service opposes this 

proposal. It validly observes that 

changing the source of the estimates for 

the costs of bundles, sacks, and pallets 

would constitute a change in analytical 

principles, and, therefore, should be 

handled in an informal cost 

methodology rulemaking under the 

procedures outlined in proposed rule 

3050.11. Postal Service Reply 

Comments at 25. For that reason, the 

Commission declines to adopt Time 

Warner’s proposal. 

Time Warner also suggests that 

because the alternative format 

illustrated in the Appendix is highly 

disaggregated, particularly with respect 

to international mail, some data might 

suffer from small-sample variation. To 

overcome this problem, it suggests that 

the data for small-volume categories be 

averaged over several years. This, too, 

would constitute a change in analytical 

principles. Time Warner Comments at 

14. The Commission declines to adopt 

it in the context of this rulemaking for 

the same reason. 

B. Procedural Proposals 

Discovery. None of the rules proposed 

by the Commission in this docket 

involved altering the procedures by 

which the Postal Service’s section 3652 

report is reviewed. Nevertheless, a 

number of procedural proposals have 

been offered for the Commission’s 

consideration, primarily by Valpak. 

Some of these proposals have been 

endorsed by the Public Representative. 

Valpak argues that the procedures for 

reviewing the Postal Service’s section 

3652 report do not provide enough 

opportunity for private parties to 

participate effectively. Given the 

paucity of explanatory narrative in the 

report itself, Valpak contends that the 

Commission should adopt rules that 

expressly allow private parties to engage 

in discovery against the Postal Service. 

It makes the same recommendation with 

respect to informal rulemakings in 

which proposals to change analytical 

principles are reviewed. It suggests that 

this be accomplished by making the 

formal hearing procedures described in 

part 3001, subpart A applicable to 

annual compliance review. Valpak 

Comments at 14–15. 

Time Warner responds that Valpak 

suffers from an illusion that the 

procedural due process rights that were 

guaranteed in rate hearings under the 

PRA were carried forward by Congress 

in the PAEA. It contends that Congress 

purposely omitted from the PAEA any 

right to a ‘‘hearing on the record’’ with 

its attendant rights of discovery, crossexamination, testimony, and briefs. It 

asserts that with respect to compliance 

review, the only procedure that the 

PAEA guarantees third parties is an 

opportunity to comment on the Postal 

Service’s section 3652 report. It likewise 

asserts that no procedural due process 

rights attach to an informal rulemaking 

reviewing changes to analytical 

principles other than the right to 

comment. Time Warner Reply 

Comments at 14–16. 

The Postal Service opposes Valpak’s 

proposal as well. It emphasizes that the 

Commission is allowed only 90 days to 

review its section 3652 report and third 

parties have considerably less than that 

to prepare their comments if they are to 

be meaningfully reviewed by the 

Commission. It argues that this schedule 

is so compressed that the Commission 

must screen third-party discovery 

requests so that the limited resources of 

its technical staff are available to 

respond to issues that the third parties 

and the Commission collectively view 

as of the highest priority. It contends 

that it should only be obligated to 

respond to discovery requests to the 

extent that they are reflected in 

Commission information requests. It 

concludes that the Commission should 

have the discretion to follow a similar 

approach in conducting methodological 

rulemakings where there is a need to 

expedite the process. Postal Service 

Reply Comments at 4–6. 

The Commission agrees with the 

Postal Service that the extremely 

compressed time schedules under 

which compliance review must be 

conducted, and under which some 

methodological rulemakings might have 

to be conducted, make it prudent for the 

Commission to retain the discretion to 

screen the kind and amount of 

discovery to which the Postal Service 

must respond. The Commission also 

agrees with Valpak and others that 

effective third-party participation in 

both compliance review and 

methodology review is extremely 

important. The Commission concludes 

that these rules will allow it to most 

effectively utilize the limited time and 

technical resources available to 

investigate the most pressing postal 

issues that arise in both annual 

compliance reviews and from 

methodological research. 

Period allowed for comments in 

compliance review. Section 3653 

requires the Commission to provide 

parties to a compliance review 

proceeding an opportunity for comment 

on the Postal Service’s section 3652 

report. The period allowed for comment 

is not prescribed by the Commission’s 

rules. On an ad hoc basis, the 

Commission afforded 30 days for initial 

comments and 15 days for reply 

comments in the first two compliance 

review cycles. 

Valpak argues that the Commission 

should adopt procedural rules 

governing compliance review, and that 

those rules should allow 45 days for 

initial comments and 15 for reply 

comments. It says that this would 

provide a more reasonable time for 

interested parties to review the complex 

documentation that accompanies the 

Postal Service’s section 3652 report, and 

still leave the Commission with enough 

time to take the comments of the public 

into account in its determination. 

Valpak Comments at 13. 

The Commission appreciates how 

challenging it is to evaluate the complex 

documentation that the Postal Service 

files supporting its section 3652 report. 

Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 20849 

The Commission, however, has found 

that the comment periods that have 

been established in the notices issued in 

the first two compliance review dockets 

have not provided it with any leeway in 

the amount of time that it has reserved 

to itself to draft and issue its Annual 

Compliance Determination. It, therefore, 

declines to act on Valpak’s suggestion. 

Appendix [Illustrative list referred to in 

part II.G. of SUPPLEMENTARY

INFORMATION.] 

Products and Categories 

Market Dominant Products 

Domestic First-Class Mail: 

Single-Piece: 

Letters 

Flats 

Parcels 

Total Single-Piece Letters, Flats & Parcels 

Presort: 

Letters 

Flats 

Parcels 

Total Presort Letters, Flats & Parcels 

Automation: 

Letters 

Flats 

Parcels 

Total Automation Letters, Flats & Parcels 

Total Letters, Flats & Parcels 

Single-Piece Cards 

Presort Cards 

Automation Cards 

Total Cards 

Total Domestic First-Class Mail 

First-Class Mail International: 

Outbound Single-Piece Letters, Flats, IPPs, 

and Parcels: 

Target System Countries at UPU Rates 

Transition System Countries at UPU Rates 

Subject to Agreement 

Canada 

Other 

Total Outbound Single-Piece Letters, Flats, 

IPPs, and Parcels 

Outbound Single-Piece Cards: 

Target System Countries at UPU Rates 

Transition System Countries at UPU Rates 

Subject to Agreement 

Canada 

Other 

Total Outbound Single-Piece Cards 

Total Outbound Single-Piece Mail 

Inbound Single-Piece Mail (Letter Post): 

Air: 

Target System Countries at UPU Rates 

Transition System Countries at UPU Rates 

Subject to Agreement 

Canada 

Other 

Surface: 

Target System Countries at UPU Rates 

Transition System Countries at UPU Rates 

Subject to Agreement 

Canada 

Other 

Total Inbound Single-Piece Mail 

Total International First-Class Mail 

Total First-Class Mail 

Periodicals: 

Within County 

Outside County: 

Regular Rate 

Nonprofit 

Classroom 

Total Outside County 

Total Periodicals 

Standard Mail: 

Regular Presort Mail: 

Letters 

Flats 

Parcels 

Not-Flat Machinables 

Total Regular Presort Mail 

Regular Automation Mail: 

Letters 

Flats 

Total Regular Automation Mail 

Total Regular Mail 

Nonprofit Presort Mail: 

Letters 

Flats 

Parcels 

Not-Flat Machinables 

Total Nonprofit Presort Mail 

Regular Automation Mail: 

Letters 

Flats 

Total Nonprofit Automation Mail 

Total Nonprofit Mail 

Total Regular and Nonprofit Mail 

Enhanced Carrier Route Mail: 

Basic Presort Letters 

High Density Letters 

Saturation Letters 

Total Enhanced Carrier Route Letters 

Basic Presort Flats 

High Density Flats 

Saturation Flats 

Total Enhanced Carrier Route Flats 

Basic Presort Parcels 

High Density Parcels 

Saturation Parcels 

Total Enhanced Carrier Route Parcels 

Total Enhanced Carrier Route Mail 

Nonprofit Enhanced Carrier Route Mail: 

Basic Presort Letters 

High Density Letters 

Saturation Letters 

Total Non-enhanced Carrier Route Letters 

Basic Presort Flats 

High Density Flats 

Saturation Flats 

Total Non-enhanced Carrier Route Flats 

Basic Presort Parcels 

High Density Parcels 

Saturation Parcels 

Total Non-enhanced Carrier Route Parcels 

Total Nonprofit Enhanced Carrier Route 

Mail 

Total ECR and Non-ECR Mail 

Total Standard Mail 

Package Services: 

Single-Piece Parcel Post: 

Intra-Bulk Mail Center 

Inter-Bulk Mail Center 

Total Single-Piece Domestic Parcel Post 

Inbound Surface Parcel Post (at UPU Rates) 

Total Single-Piece Parcel Post 

Bound Printed Matter: 

Bound Printed Matter Flats: 

Nonpresorted 

Presorted 

Carrier Route 

Total Bound Printed Matter Flats 

Bound Printed Matter Parcels: 

Nonpresorted 

Presorted 

Carrier Route 

Total Bound Printed Matter Parcels 

Total Bound Printed Matter 

Media Mail: 

Single Piece 

Presorted 

Total Media Mail 

Library Rate: 

Single Piece 

Presorted 

Total Library Mail 

Total Media and Library Mail 

Total Package Services 

USPS Penalty Mail 

Free-for-the-Blind Mail 

Negotiated Service Agreements (NSAs) (list 

each separately): 

Total Negotiated Service Agreement Mail 

Total Market Dominant Mail 

Special Services: 

Ancillary Services: 

Address Correction 

Applications and Mailing Permits: 

First-Class Mail Presort Fee 

Standard Mail Mailing Fee 

Total Applications and Mailing Permits 

Package Services Mailing Fees: 

Bound Printed Matter Destination Entry 

Mailing Fee 

Library Mail Presort Mailing Fee 

Media Mail Presort Mailing Fee 

Total Package Service Fees 

Parcel Return Service Fees: 

Account Maintenance Fee 

Permit Fee 

Total Parcel Return Service Fees 

Parcel Select Destination Entry Mailing Fee 

Periodicals Mailing Fees: 

Original Entry Fee 

Reentry Fee 

Additional Entry Fee 

News Agent Registry Fee 

Total Periodicals Mailing Fees 

Permit Imprint Fee 

Business Reply Mail: 

Per-Piece Fee 

Permit/Account Maintenance Fees 

Total Business Reply Mail 

Bulk Parcel Return Service: 

Per-Piece Fee 

Account Maintenance Fee 

Permit Fee 

Total Bulk Parcel Return Service 

Certified Mail 

Certificate of Mailing 

Collect-on-Delivery 

Delivery Confirmation 

Insurance 

Merchandise Return Service: 

Per-Piece Fee 

Account Maintenance Fee 

Permit Fee 

Total Merchandise Return Service 

Parcel Airlift 

Registered Mail 

Return Receipt 

Return Receipt for Merchandise 

Restricted Delivery 

Shipper Paid Forwarding 

Signature Confirmation 

Special Handling 

Stamped Envelopes 

Stamped Cards 

Premium Stamped Envelopes 

Premium Stamped Cards 

Total Ancillary Services 

International Ancillary Services: 

20850 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Rules and Regulations 

International Certificate of Mailing 

International Registered Mail: 

Outbound International Registered Mail 

Inbound International Registered Mail 

Total International Registered Mail 

International Return Receipt: 

Outbound International Return Receipt 

Inbound International Return Receipt 

Total International Return Receipt 

International Restricted Delivery: 

Outbound International Restricted Delivery 

Inbound International Restricted Delivery 

Total International Restricted Delivery 

Inbound International Insurance 

Inbound International Delivery 

Confirmation 

Customs Clearance and Delivery Fee 

Total International Ancillary Services 

Address List Services: 

ZIP Coding of Mailing Lists 

Correction of Mailing Lists 

Address Changes for Election Boards 

Carrier Sequencing of Address Cards 

Total Address List Services 

Caller Service/Reserve Numbers 

Change-of-Address Credit Card 

Authentication 

Confirm 

International Reply Coupon Services: 

Outbound International Reply Coupon 

Service 

Inbound International Reply Coupon 

Service 

Total International Reply Services 

International Business Reply Mail Services: 

Outbound Business Reply Mail Service 

Inbound International Business Reply Mail 

Service 

Total International Business Reply Service 

Money Orders 

Post Office Boxes 

Other Special Services: 

Standard Mail Forwarding/Return: 

Forwarding/Return Fee 

Weighted Factor Forwarding/Return Fee 

Total Standard Mail Forwarding/Return 

Total Market Dominant Special Services 

Total Market Dominant Mail and Services 

Competitive Products 

Priority Mail: 

Domestic Priority Mail 

Priority Mail International: 

Outbound Priority Mail International: 

Subject to UPU Inward Land Rates 

Subject to Terminal Dues 

Target System Countries at UPU Rates 

Transition System Countries at UPU Rates 

Subject to Agreement 

Canada 

Other 

Total Outbound Priority Mail International 

Inbound Air Parcel Post: 

Subject to UPU Inward Land Rates 

Subject to Agreement 

Canada 

Other 

Total Inbound Air Parcel Post 

Total Priority Mail International 

Total Priority Mail 

Express Mail: 

Domestic Express Mail: 

Custom Designed 

Next Day and Second Day Post Office-toPost Office 

Next Day and Second Day Post Office-toAddressee 

Total Domestic Express Mail 

Outbound International Expedited Services 

Global Express Guaranteed 

Express Mail International 

Inbound International Expedited Services: 

Subject to UPU Rates 

Subject to Agreement 

Canada 

Other 

Total Inbound International Expedited 

Services 

Total International Express Mail: 

Total Express Mail 

Package Services: 

Bulk Parcel Post: 

Inter-Bulk Mail Center: 

Barcoded 

Origin Bulk Mail Center Presort 

Bulk Mail Center Presort 

Total Inter-Bulk Mail Center 

Intra-Bulk Mail Center Barcoded 

Parcel Select: 

Destination Bulk Mail Center 

Destination Sectional Center Facility 

Destination Delivery Unit 

Total Parcel Select 

Parcel Return Service: 

Return Bulk Mail Center 

Return Destination Units 

Total Parcel Return Service 

Total Bulk Parcel Post 

International Mail: 

International Priority Airmail 

International Surface Airlift 

International Direct Sacks—M–Bags 

Outbound International Direct Sacks—M– 

Bags 

Inbound International Direct Sacks—M– 

Bags 

Total International Direct Sacks—M–Bags 

Global Customized Shipping Services 

Inbound Surface Parcel Post (at Non-UPU 

Rates): 

Canada 

Other 

Total Inbound Surface Parcel Post (at NonUPU Rates) 

Total International Mail 

International Special Services: 

International Money Transfer Service: 

Outbound International Money Transfer 

Service 

Inbound International Money Transfer 

Service 

Total International Money Transfer Service 

International Ancillary Services: 

International Certificate of Mailing 

International Registered Mail 

International Return Receipt: 

Outbound International Return Receipt 

Inbound International Return Receipt 

Total International Return Receipt 

International Restricted Delivery 

International Insurance: 

Outbound International Insurance 

Inbound International Insurance 

Total International Insurance 

Custom Clearance and Delivery Fee 

Total International Ancillary Services 

Total International Special Services 

IV. Ordering Paragraphs 

It is Ordered: 

1. The Commission hereby amends its 

rules of practice and procedure by 

deleting rules 3001.102 and 103, and 

adding new part 3050—Periodic 

Reporting as set forth below. 

2. These actions will take effect 30 

days after publication in the Federal 

Register. 

3. The Secretary shall arrange for 

publication of this order in the Federal 

Register. 

List of Subjects 

39 CFR Part 3001 

Administrative practice and 

procedure; Confidential business 

information, Freedom of information, 

Sunshine Act. 

39 CFR Part 3050 

Administrative practice and 

procedure, Postal Service, 

Recordkeeping and reporting 

requirements. 

Issued: April 16, 2009. 

By the Commission. 

Steven W. Williams, 

Secretary. 

■ For the reasons stated in the preamble, 

under the authority at 39 U.S.C. 503, the 

Postal Regulatory Commission amends 

39 CFR chapter III as follows: 

PART 3001—RULES OF PRACTICE 

AND PROCEDURE 

■ 1. The authority citation for part 3001 

continues to read as follows: 

Authority: 39 U.S.C. 404(d); 503; 3622; 

3633; 3652; 3661. 

§ 3001.102 [Removed] 

■ 2. Remove and reserve § 3001.102 in 

subpart G. 

§ 3001.103 [Removed] 

■ 3. Remove and reserve § 3001.103 in 

subpart G. 

■ 4. Add Part 3050—Periodic Reporting, 

to read as follows: 

PART 3050—PERIODIC REPORTING 

Sec. 

3050.1 Definitions applicable to this part. 

3050.2 Documentation of periodic reports. 

3050.3 Access to information supporting 

Commission reports or evaluations. 

3050.10 Analytical principles to be applied 

in the Postal Service’s annual periodic 

reports to the Commission. 

3050.11 Proposals to change an accepted 

analytical principle applied in the Postal 

Service’s annual periodic reports to the 

Commission. 

3050.12 Obsolescence of special studies 

relied on to produce the Postal Service’s 

annual periodic reports to the 

Commission. 

3050.13 Additional documentation required 

in the Postal Service’s section 3652 

report. 

3050.14 Format of the Postal Service’s 

section 3652 report. 

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3050.20 Compliance and other analyses in 

the Postal Service’s section 3652 report. 

3050.21 Content of the Postal Service’s 

section 3652 report. 

3050.22 Documentation supporting 

attributable cost estimates in the Postal 

Service’s section 3652 report. 

3050.23 Documentation supporting 

incremental cost estimates in the Postal 

Service’s section 3652 report. 

3050.24 Documentation supporting 

estimates of costs avoided by 

worksharing and other mail 

characteristics in the Postal Service’s 

section 3652 report. 

3050.25 Volume and revenue data. 

3050.26 Documentation of demand 

elasticities and volume forecasts. 

3050.27 Workers’ Compensation Report. 

3050.28 Monthly and pay period reports. 

3050.30 Information needed to estimate the 

cost of the universal service obligation. 

[Reserved] 

3050.35 Financial reports. 

3050.40 Additional financial reporting. 

3050.41 Treatment of additional financial 

reports. 

3050.42 Proceedings to improve the quality 

of financial data. 

3050.43 Information on program 

performance. 

3050.50 Information on service 

performance for domestic products. 

[Reserved] 

3050.51 Information on service 

performance for Special Services. 

[Reserved] 

3050.52 Information on service 

performance for international products. 

[Reserved] 

3050.53 Information on customer 

satisfaction and retail access. [Reserved] 

3050.60 Miscellaneous reports and 

documents. 

Authority: 39 U.S.C. 503, 3651, 3652, 

3653. 

§ 3050.1 Definitions applicable to this part. 

(a) Accepted analytical principle 

refers to an analytical principle that was 

applied by the Commission in its most 

recent Annual Compliance 

Determination unless a different 

analytical principle subsequently was 

accepted by the Commission in a final 

rule. 

(b) Accepted quantification technique 

refers to a quantification technique that 

was applied in the most recent iteration 

of the periodic report applying that 

quantification technique or was used to 

support a new analytical principle 

adopted in a subsequent rule 3050.11 

proceeding. 

(c) Analytical principle refers to a 

particular economic, mathematical, or 

statistical theory, precept, or 

assumption applied by the Postal 

Service in producing a periodic report 

to the Commission. 

(d) Annual Compliance 

Determination refers to the report that 

39 U.S.C. 3653 requires the Commission 

to issue each year evaluating the 

compliance of the Postal Service. 

(e) Annual periodic reports to the 

Commission refers to all of the reports 

that the Postal Service is required to 

provide to the Commission each year. 

(f) Quantification technique refers to 

any data entry or manipulation 

technique whose validity does not 

require the acceptance of a particular 

economic, mathematical, or statistical 

theory, precept, or assumption. A 

change in quantification technique 

should not change the output of the 

analysis in which it is employed. 

(g) Section 3652 report refers to the 

annual compliance report provided by 

the Postal Service to the Commission 

pursuant to 39 U.S.C. 3652, but does not 

include the reports required by 39 

U.S.C. 2803 and 2804. 

§ 3050.2 Documentation of periodic 

reports. 

(a) At the time that it submits any 

periodic report to the Commission, the 

Postal Service shall identify any input 

data that have changed, list any 

quantification techniques that it has 

changed, and list any corrections that it 

has made since that report was last 

submitted to and accepted by the 

Commission. It shall provide a brief 

narrative explanation of each listed 

change. 

(b) If workpapers are required to 

support a periodic report, they shall: 

(1) Show all calculations employed in 

producing each estimate; 

(2) Be sufficiently detailed to allow all 

numbers used in such calculations to be 

traced back to public documents or to 

primary data sources; and 

(3) Be submitted in a form, and be 

accompanied by sufficient explanation 

and documentation, to allow them to be 

replicated using a publicly available PC 

application. 

(c) Spreadsheets used in preparing 

periodic reports shall be submitted in 

electronic form. They shall display the 

formulas used, their links to related 

spreadsheets, and shall not be password 

protected. 

(d) Filing of portions of the 

documentation required by paragraphs 

(b) and (c) of this section that are not 

time critical may be delayed up to 2 

weeks if the Postal Service obtains 

permission from the Commission to 

defer filing of such portions at least 30 

days prior to the date on which the 

periodic report is due. 

§ 3050.3 Access to information supporting 

Commission reports or evaluations. 

(a) The Commission shall have access 

to material if, in its judgment, the 

information supports any report, 

assessment, or evaluation required by 

title 39 of the United States Code, 

including: 

(1) The working papers and 

supporting matter of the Postal Service 

or the Postal Service Inspector General 

in connection with any information 

submitted under 39 U.S.C. 3652; and 

(2) Information that supports the 

Commission’s annual assessment under 

39 U.S.C. 3651. 

(b) [Reserved] 

§ 3050.10 Analytical principles to be 

applied in the Postal Service’s annual 

periodic reports to the Commission. 

In its annual periodic reports to the 

Commission, the Postal Service shall 

use only accepted analytical principles. 

With respect to its submissions under 

§ 3050.26, however, the Postal Service 

may elect to use an analytical principle 

prior to its acceptance by the 

Commission. 

§ 3050.11 Proposals to change an 

accepted analytical principle applied in the 

Postal Service’s annual periodic reports to 

the Commission. 

(a) To improve the quality, accuracy, 

or completeness of the data or analysis 

of data contained in the Postal Service’s 

annual periodic reports to the 

Commission, the Commission, acting on 

its own behalf, may issue a notice of 

proceeding to change an accepted 

analytical principle. In addition, any 

interested person, including the Postal 

Service or a public representative, may 

submit a petition to the Commission to 

initiate such a proceeding. 

(b) Form and content of notice or 

petition. The notice of proceeding or 

petition shall identify the accepted 

analytical principle proposed for 

review, explain its perceived 

deficiencies, and suggest how those 

deficiencies should be remedied. 

(1) If the notice of proceeding or 

petition proposes that a specific 

alternative analytical principle be 

followed, it should include the data, 

analysis, and documentation on which 

the proposal is based, and, where 

feasible, include an estimate of the 

impact of the proposed change on the 

relevant characteristics of affected 

postal products, including their 

attributable cost, avoided cost, average 

revenue, or service attainment. 

(2) If the petitioner requests access to 

data from the Postal Service to support 

the assertions or conclusions in its 

petition, and such data are not 

otherwise available, it shall accompany 

the petition with a request to gain access 

to such data. The petitioner’s request 

should identify the data sought, and 

include the reasons for believing that 

the data will support its petition. To 

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expedite its evaluation of the data 

request, the Commission may, after 

reasonable public notice, order that 

answers or objections be presented 

orally or in writing. 

(c) Procedures for processing a notice 

or petition. To better evaluate a notice 

or petition to change an accepted 

analytical principle, the Commission 

may order that it be made the subject of 

discovery. By request of any interested 

person, or on its own behalf, the 

Commission may order that the 

petitioner and/or the Postal Service 

provide experts on the subject matter of 

the proposal to participate in technical 

conferences, prepare statements 

clarifying or supplementing their views, 

or answer questions posed by the 

Commission or its representatives. 

(d) Action on the notice or petition. 

(1) After the conclusion of discovery 

procedures, if any, the Commission 

shall determine whether to issue a 

notice of proposed rulemaking based on 

the petition and the supporting material 

received. Such notice shall be evaluated 

by procedures that are consistent with 5 

U.S.C. 553. Interested parties will be 

afforded an opportunity to present 

written comments and reply comments, 

and, if the Commission so orders, to 

present oral comments as well. 

(2) If accepted by the Commission, the 

change proposed in the notice of 

proposed rulemaking shall be published 

in a final rule in the Federal Register 

and on the Commission’s Web site. 

§ 3050.12 Obsolescence of special studies 

relied on to produce the Postal Service’s 

annual periodic reports to the Commission. 

The Postal Service shall provide a list 

of special studies whose results are used 

to produce the estimates in its annual 

periodic reports to the Commission. It 

shall indicate the date the study was 

completed and whether the study 

reflects current operating conditions 

and procedures. The Postal Service shall 

update the list annually. 

§ 3050.13 Additional documentation 

required in the Postal Service’s section 

3652 report. 

At the time the Postal Service files its 

section 3652 report, it shall include a 

brief narrative explanation of any 

changes to accepted analytical 

principles that have been made since 

the most recent Annual Compliance 

Determination was issued and the 

reasons that those changes were 

accepted. 

§ 3050.14 Format of the Postal Service’s 

section 3652 report. 

The Postal Service’s Cost and 

Revenue Analysis (CRA) report shall be 

presented in a format reflecting the 

classification structure in the Mail 

Classification Schedule. It shall also be 

presented in an alternative, more 

disaggregated format capable of 

reflecting the classification structure in 

effect prior to the adoption of the Postal 

Accountability and Enhancement Act. 

§ 3050.20 Compliance and other analyses 

in the Postal Service’s section 3652 report. 

(a) The Postal Service’s section 3652 

report shall include an analysis of the 

information that it contains in sufficient 

detail to demonstrate the degree to 

which, in the fiscal year covered by its 

report, each of its products (market 

dominant and competitive) comply with 

all of the applicable provisions of title 

39 of the United States Code and the 

regulations promulgated thereunder, 

and promote the public policy 

objectives set out in title 39 of the 

United States Code. 

(b) Its analysis shall be applied to 

products individually, and, where 

appropriate, to products collectively. 

(c) It shall address such matters as 

non-compensatory rates, discounts 

greater than avoided costs, and failures 

to achieve stated goals for on-time 

delivery standards. A more detailed 

analysis is required when the 

Commission observed and commented 

upon the same matter in its Annual 

Compliance Determination for the 

previous fiscal year. 

§ 3050.21 Content of the Postal Service’s 

section 3652 report. 

(a) No later than 90 days after the 

close of each fiscal year, the Postal 

Service shall submit a report to the 

Commission analyzing its cost, volume, 

revenue, rate, and service information in 

sufficient detail to demonstrate that all 

products during such year comply with 

all applicable provisions of title 39 of 

the United States Code. The report shall 

provide the items in paragraphs (b) 

through (j) of this section. 

(b) The volume and revenue generated 

by each product; 

(c) The attributable costs of, and the 

contribution to institutional costs made 

by, each product; 

(d) The quality of service received by 

each market dominant product, 

including the speed of delivery and the 

reliability of delivery; 

(e) For each market dominant 

workshare discount offered during the 

reporting year: 

(1) The per-item cost avoided by the 

Postal Service by virtue of such 

discount; 

(2) The percentage of such per-item 

cost avoided that the per-item 

workshare discount represents; 

(3) The per-item contribution made to 

institutional costs; and 

(4) The factual and analytical bases 

for its conclusion that one or more of 

the exception provisions of 39 U.S.C. 

3622(e)(2)(A) through (D) apply. 

(f) For each market dominant 

negotiated service agreement: 

(1) Identify its rates and service 

features; 

(2) Estimate its costs, volumes, and 

revenues; 

(3) Analyze its effect on the 

operational performance of the Postal 

Service, specifying the affected 

operations and, to the extent possible, 

quantifying the effect; 

(4) Analyze the contribution of the 

agreement to institutional costs for its 

most recent year of operation. The year 

analyzed shall end on the anniversary of 

the negotiated service agreement that 

falls within the fiscal year covered by 

the Postal Service’s annual periodic 

reports to the Commission and include 

the 12 preceding months. The analysis 

shall show all calculations and fully 

identify all inputs. Inputs used to 

estimate the effect on total contribution 

to the Postal Service, such as unit costs 

and price elasticities, shall be updated 

using fiscal year values; and 

(5) Analyze the effect of the 

negotiated service agreement (and other 

functionally equivalent negotiated 

service agreements) on the marketplace. 

If there were harmful effects, explain 

why those effects were not 

unreasonable. 

(g) For each competitive negotiated 

service agreement: 

(1) Identify its rates and service 

features; and 

(2) Estimate its costs, volumes, and 

revenues. 

(h) For market tests of experimental 

products: 

(1) Estimate their costs, volumes, and 

revenues individually, and in aggregate, 

by market dominant and by competitive 

product group; 

(2) Estimate the quality of service of 

each individual experimental product; 

and 

(3) Indicate whether offering the 

experimental product has created an 

inappropriate competitive advantage for 

the Postal Service or any mailer. 

(i) For each nonpostal service, 

estimate its costs, volumes, and 

revenues; and 

(j) Provide any other information that 

the Postal Service believes will help the 

Commission evaluate the Postal 

Service’s compliance with the 

applicable provisions of title 39 of the 

United States Code. 

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§ 3050.22 Documentation supporting 

attributable cost estimates in the Postal 

Service’s section 3652 report. 

(a) The items in paragraphs (b) 

through (p) of this section shall be 

reported when they have changed from 

those used in the most recent Annual 

Compliance Determination. 

(b) The CRA report, including 

relevant data on international mail 

services; 

(c) The Cost Segments and 

Components (CSC) report; 

(d) All input data and processing 

programs used to produce the CRA 

report, to include: 

(1) CSC Reconciliation to Financial 

Statement and Account Reallocations; 

(2) Manual Input Requirement 

(reflecting direct accounting or modeled 

costs); 

(3) The CSC ‘‘A’’ report (showing how 

indirect costs are distributed to products 

based on the distribution of direct 

costs); 

(4) The CSC ‘‘B’’ report (showing how 

indirect Property Equipment Supplies 

Services and Administrative (PESSA) 

costs are distributed to products; 

(5) The CSC ‘‘D’’ report (showing final 

adjustments to total attributable and 

product-specific costs); 

(6) The CSC ‘‘F’’ report (containing 

distribution keys for indirect labor 

components); 

(7) The control file that includes the 

CRA program control string commands 

used to produce the CRA and the abovedescribed CSC reports; and 

(8) The master list of cost segment 

components, including all of the 

components used as distribution keys in 

the development of the CSC report and 

its accompanying reports. 

(e) Spreadsheet workpapers 

underlying development of the CSC 

report by component. These workpapers 

shall include the updated factors and 

input data sets from the supporting data 

systems used, including: 

(1) The In-Office Cost System (IOCS); 

(2) The Management Operating Data 

System (MODS); 

(3) The City Carrier Cost System 

(CCCS); 

(4) The City Carrier Street Time 

Sampling System (CCSTS); 

(5) The Rural Carrier Cost System 

(RCCS); 

(6) The National Mail Count; 

(7) The Transportation Cost System 

(TRACS); 

(8) System for International Revenues 

and Volumes/Outbound (SIRV/O); 

(9) System for International Revenues 

and Volumes/Inbound (SIRV/I); 

(10) Military and International 

Dispatch and Accountability System; 

and 

(11) Inbound International Revenue 

Accounting Systems (IAB data). 

(f) The econometric analysis of carrier 

street time, including input data, 

processing programs, and output; 

(g) The Window Service Supply Side 

Variability, Demand Side Variability, 

and Network Variability studies, 

including input data, processing 

programs, and output; 

(h) The econometric analysis of 

purchased highway transportation cost 

variability, including input data, 

processing programs, and output; 

(i) The econometric analysis of freight 

rail cost variability, including input 

data, processing programs, and output; 

(j) A list and summary description of 

any transportation contracts whose unit 

rates vary according to the level of 

postal volume carried. The description 

should include the product or product 

groups carried under each listed 

contract; 

(k) Spreadsheets and processing 

programs distributing attributable mail 

processing costs; 

(l) The Vehicle Service Driver Data 

Collection System; 

(m) Input data, processing programs, 

and output of the Vehicle Service Driver 

Cost Variability Study; 

(n) Econometric analysis of 

postmaster cost variability; 

(o) Floor Space Survey; and 

(p) Density studies used to convert 

weight to cubic feet of mail. 

§ 3050.23 Documentation supporting 

incremental cost estimates in the Postal 

Service’s section 3652 report. 

Input data, processing programs, and 

output of an incremental cost model 

shall be reported. 

§ 3050.24 Documentation supporting 

estimates of costs avoided by worksharing 

and other mail characteristics in the Postal 

Service’s section 3652 report. 

(a) The items in paragraphs (b) 

through (l) of this section shall be 

reported, including supporting 

calculations and derivations. 

(b) Letter, card, flat, parcel and nonflat machinable mail processing cost 

models with Delivery Point Sequence 

percentages calculated, which shall 

include: 

(1) Coverage factors for any 

equipment where coverage is less than 

100 percent; 

(2) MODS productivities; 

(3) Piggyback factors and supporting 

data; 

(4) Entry profiles, bundle sorts, and 

pieces per bundle; 

(5) Bundle breakage, handlings, and 

density; 

(6) Mail flow density and accept rates; 

(7) Remote Computer Reader 

finalization costs, cost per image, and 

Remote Bar Code Sorter leakage; 

(8) Percentage of mail finalized to 

carrier route; 

(9) Percentage of mail destinating at 

post office boxes; and 

(10) Wage rates and premium pay 

factors. 

(c) Pallet cost models for Periodicals; 

(d) Sack cost models for Periodicals; 

(e) Bundle cost models for 

Periodicals; 

(f) Other container cost models for 

Periodicals; 

(g) Analysis of Periodicals container 

costs; 

(h) Business Reply Mail cost 

supporting material; 

(i) Mail processing units costs for 

Carrier Route, High Density, and 

Saturation mail; 

(j) Mail processing unit costs by shape 

and cost pool for each product and 

benchmark category; 

(k) Delivery costs by product, shape, 

presort level, automation compatibility, 

and machinability, including Detached 

Address Label cost calculations; and 

(l) Dropship cost avoidance models. 

§ 3050.25 Volume and revenue data. 

(a) The items in paragraphs (b) 

through (e) of this section shall be 

provided. 

(b) The Revenue, Pieces, and Weight 

(RPW) report, including estimates by 

shape, weight, and indicia, and the 

underlying billing determinants, broken 

out by quarter, within 90 days of the 

close of each fiscal year; 

(c) Revenue, pieces, and weight by 

rate category and special service by 

quarter, within 30 days of the close of 

the quarter; 

(d) Quarterly Statistics Report, 

including estimates by shape, weight, 

and indicia, within 30 days of the close 

of the quarter; and 

(e) Billing determinants within 40 

days of the close of the quarter. 

§ 3050.26 Documentation of demand 

elasticities and volume forecasts. 

By January 20 of each year, the Postal 

Service shall provide econometric 

estimates of demand elasticity for all 

postal products accompanied by the 

underlying econometric models and the 

input data sets used; and a volume 

forecast for the current fiscal year, and 

the underlying volume forecasting 

model. 

§ 3050.27 Workers’ Compensation Report. 

The Workers’ Compensation Report, 

including summary workpapers, shall 

be provided by March 1 of each year. 

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§ 3050.28 Monthly and pay period reports. 

(a) The reports in paragraphs (b) 

through (f) of this section shall be 

provided within 15 days of the close of 

the relevant period or as otherwise 

stated. 

(b) Monthly Summary Financial 

Report on the 24th day of the following 

month, except that the report for the last 

month of each quarter shall be provided 

at the time that the Form 10–Q report is 

provided. 

(1) The report shall follow the formats 

as shown below. 

BILLING CODE 7710–FW–P 


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BILLING CODE 7710–FW–C 

(2) [Reserved] 

(c) National Consolidated Trial 

Balances and the Revenue and Expense 

Summary (monthly); 

(d) National Payroll Hours Summary 

in electronic form (pay period); 

(e) On-roll and Paid Employee 

Statistics (ORPES) (pay period); and 

(f) Postal Service Active Employee 

Statistical Summary (HAT report) (pay 

period). 

§ 3050.30 Information needed to estimate 

the cost of the universal service obligation. 

[Reserved] 

§ 3050.35 Financial reports. 

(a) The reports in paragraphs (b) 

through (d) of this section shall be 

provided annually at the time indicated. 

(b) Annual Report of the Postmaster 

General (when released to the public); 

(c) Congressional Budget Submission 

and supporting workpapers, including 

Summary Tables SE 1, 2, and 6 (within 

7 days of the submission of the Federal 

Budget by the President to the 

Congress); and 

(d) Integrated Financial Plan (within 7 

days of approval by the Board of 

Governors). 

§ 3050.40 Additional financial reporting. 

(a) In general. The Postal Service shall 

file with the Commission: 

(1) Within 40 days after the end of 

each fiscal quarter, a quarterly report 

containing the information required by 

the Securities and Exchange 

Commission to be included in quarterly 

reports under sections 13 and 15(d) of 

the Securities Exchange Act of 1934 (15 

U.S.C. 78m, 78o(d)) on Form 10–Q, as 

such form (or any successor form) may 

be revised from time to time; 

(2) Within 60 days after the end of 

each fiscal year, an annual report 

containing the information required by 

the Securities and Exchange 

Commission to be included in annual 

reports under such sections on Form 

10–K, as such form (or any successor 

form) may be revised from time to time; 

and 

(3) Periodic reports within the time 

frame and containing the information 

prescribed in Form 8–K of the Securities 

and Exchange Commission, as such 

form (or any successor form) may be 

revised from time to time. 

(b) Internal control report. For 

purposes of defining the reports 

required by paragraph (a)(2) of this 

section, the Postal Service shall comply 

with the rules prescribed by the 

Securities and Exchange Commission 

implementing section 404 of the 

Sarbanes-Oxley Act of 2002 (15 U.S.C. 

7262), beginning with the annual report 

for fiscal year 2010. 

(c) Financial reporting. The reports 

required by paragraph (a)(2) of this 

section shall include, with respect to the 

Postal Service’s pension and postretirement health obligations: 

(1) The funded status of the Postal 

Service’s pension and post-retirement 

health obligations; 

(2) Components of the net change in 

the fund balances and obligations and 

the nature and cause of any significant 

changes; 

(3) Components of net periodic costs; 

(4) Cost methods and assumptions 

underlying the relevant actuarial 

valuations; 

(5) The effect of a 1 percentage point 

increase in the assumed health care cost 

trend rate for each future year on the 

service and interest costs components of 

net periodic post-retirement health cost 

and the accumulated obligation; 

(6) Actual contributions to and 

payments from the funds for the years 

presented and the estimated future 

contributions and payments for each of 

the following 5 years; 

(7) The composition of plan assets 

reflected in the fund balances; and 

(8) The assumed rate of return on 

fund balances and the actual rates of 

return for the years presented. 

(d) Time of filing. Within 5 business 

days of receiving the data listed under 

paragraph (c) of this section from the 

Office of Personnel Management, the 

Postal Service shall provide two copies 

of that data to the Commission. 

(e) Segment reporting. 

(1) Beginning with reports for fiscal 

year 2010, for purposes of the reports 

required under paragraphs (a)(1) and (2) 

of this section, the Postal Service shall 

include segment reporting. 

(2) The Postal Service shall determine 

the appropriate segment reporting under 

paragraph (e)(1) of this section after 

consultation with the Commission. 

§ 3050.41 Treatment of additional financial 

reports. 

(a) For purposes of the reports 

required by § 3050.40(a)(2), the Postal 

Service shall obtain an opinion from an 

independent auditor on whether the 

information listed in § 3050.40(c) is 

fairly stated in all material respects, 

either in relation to the basic financial 

statements as a whole or on a standalone basis. 


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(b) Supporting matter. The 

Commission shall have access to the 

audit documentation and any other 

supporting matter of the Postal Service 

and its independent auditor in 

connection with any information 

submitted under § 3050.40. 

§ 3050.42 Proceedings to improve the 

quality of financial data. 

The Commission may, on its own 

motion or on request of an interested 

party, initiate proceedings to improve 

the quality, accuracy, or completeness 

of Postal Service data required under 

§ 3050.40 whenever it shall appear that 

the data have become significantly 

inaccurate or can be significantly 

improved; or those revisions are, in the 

judgment of the Commission, otherwise 

necessitated by the public interest. 

§ 3050.43 Information on program 

performance. 

(a) The Postal Service shall provide 

the items in paragraphs (b)(1) through 

(3) of this section at the same time that 

the President submits an annual budget 

to Congress: 

(b)(1) The comprehensive statement 

required by 39 U.S.C. 2401(e); 

(2) The performance plan required by 

39 U.S.C. 2803; and 

(3) The program performance reports 

required by 39 U.S.C. 2804. 

(c) Section 3050.10 does not apply to 

the reports referenced in this section. 

§ 3050.50 Information on service 

performance for domestic products. 

[Reserved] 

§ 3050.51 Information on service 

performance for Special Services. 

[Reserved] 

§ 3050.52 Information on service 

performance for international products. 

[Reserved] 

§ 3050.53 Information on customer 

satisfaction and retail access. [Reserved] 

§ 3050.60 Miscellaneous reports and 

documents. 

(a) The reports in paragraphs (b) 

through (g) of this section shall be 

provided at the times indicated. 

(b) A master list of publications and 

handbooks, including those related to 

internal information procedures, data 

collection forms, and corresponding 

training handbooks by July 1, 2009, and 

again when changed; 

(c) The items listed in paragraph (b) 

of this section in hard copy form, and 

in electronic form, if available; 

(d) Household Diary Study (when 

completed); 

(e) Input data and calculations used to 

produce the annual Total Factor 

Productivity estimates (by March 1 of 

each year); 

(f) Succinct narrative explanations of 

how the estimates in the most recent 

Annual Compliance Determination were 

calculated and the reasons that 

particular analytical principles were 

followed. The narrative explanations 

shall be comparable in detail to that 

which had been provided in Library 

Reference 1 in omnibus rate cases 

processed under the Postal 

Reorganization Act (by July 1 of each 

year); and 

(g) An update of the history of 

changes in postal volumes, revenues, 

rates, and fees that appears in library 

references USPS–LR–L–73 through 76 

in Docket No. R2006–1 (by July 1 of 

each year). 

[FR Doc. E9–9590 Filed 5–4–09; 8:45 am] 

BILLING CODE 7710–FW–P