[Federal Register Volume 87, Number 136 (Monday, July 18, 2022)]
[Proposed Rules]
[Pages 42667-42669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15229]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2022-8; Order No. 6224]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is acknowledging a recent filing requesting the 
Commission initiate a rulemaking proceeding to consider changes to 
analytical principles relating to periodic reports (Proposal Two). This 
document informs the public of the filing, invites public comment, and 
takes other administrative steps.

DATES: Comments are due: August 26, 2022.

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

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

SUPPLEMENTARY INFORMATION: 

Table of Contents

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

I. Introduction

    On July 7, 2022, the Postal Service filed a petition pursuant to 39 
CFR 3050.11 requesting that the Commission initiate a rulemaking 
proceeding to consider changes to analytical principles relating to 
periodic reports.\1\

[[Page 42668]]

The Petition identifies the proposed analytical changes filed in this 
docket as Proposal Two.
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    \1\ Petition of the United States Postal Service for the 
Initiation of a Proceeding to Consider Proposed Changes in 
Analytical Principles (Proposal Two), July 7, 2022 (Petition). The 
Petition was accompanied by a study supporting its proposal. See 
Michael D. Bradley, Calculating Variabilities for Postmaster Costs, 
July 7, 2022. The Postal Service also filed a notice of filing of 
public and non-public materials relating to Proposal Two. Notice of 
Filing of USPS-RM2022-8-1 and USPS-RM2022-8-NP1 and Application for 
Nonpublic Treatment, July 7, 2022.
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II. Proposal Two

    Background. In Docket No. RM2020-2 (Proposal Ten), the Postal 
Service proposed revisions aimed at updating and improving the 
attribution of Postmaster costs.\2\ The Commission raised four main 
issues with Proposal Ten and ultimately rejected it because the Postal 
Service did not show that its proposed revisions to Postmaster cost 
variability and attribution would result in a significant improvement 
in the attribution of costs nor were necessitated by the public 
interest. See Order No. 5932 at 9-46. The Commission offered two 
alternative methods that would remedy the deficiencies in Proposal Ten, 
and encouraged the Postal Service to resubmit an updated Postmaster 
variability analysis. See id. at 47. Following the Commission's 
guidance in Order No. 5932, the Postal Service now submits Proposal Two 
to address and improve the Postmaster variability analysis. See 
Petition at 2.
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    \2\ See Petition at 1 (citing Docket No. RM2020-2, Order on 
Analytical Principles Used in Periodic Reporting (Proposal Ten), 
July 8, 2021 (Order No. 5932)).
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    Proposal. The first of the two variability calculation methods 
offered by the Commission in Order No. 5932 was termed the ``Large 
Sample Version of Proposal Ten Variability'' (LSVPTV) method.\3\ The 
LSVPTV method addresses the Postmaster variability discontinuity issue 
through analyzing the variability calculation under the assumption that 
there is an infinite number of Post Offices in the two grades for which 
the variability is calculated. See id. at 3. However, the Postal 
Service states that under this method, the Work Service Credit (WSC) 
probability distribution is unknown and must be estimated in an 
additional analysis before the variability can be calculated. See id.
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    \3\ See id. at 3 (citing Docket No. RM2020-2, Library Reference 
PRC-LR-RM2020-2/5, July 8, 2021, at 1 (File A5)).
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    The second variability calculation method offered by the Commission 
in Order No. 5932 was termed the ``Minimization of Error Distance 
Between Predicted and Actual Cost'' (MEDBPAC) method, which was also 
referred to as a ``geometrical'' approach. See id. at 3-4 (citing File 
A5 at 12). To calculate a variability for a given Executive 
Administrative Schedule (EAS) grade pair, the algorithm modifies the 
total Postmaster cost equation by replacing the counts of the numbers 
of offices in the higher and lower EAS grades with the sums of the 
probabilities of an office being in either the higher or lower EAS 
grade, as determined by the logit model. See id. at 4.
    The Postal Service considered and evaluated the two methods and 
determined that the MEDBPAC method provides a stronger foundation than 
the LSVPTV method for calculating Postmaster attributable costs. See 
id. The Postal Service asserts that the LSVPTV method has several 
disadvantages. First, it involves calculating the limit of the 
variability function, not calculating the variability directly from the 
variability function itself. See id. Second, it requires assuming that 
there is an infinite number of Post Offices, which may present issues 
for pairs of EAS grades with relatively few Post Offices. See id. at 4-
5. Third, it requires non-parametric estimation of the continuous 
probability distribution of the WSCs for each pair of Post Offices, 
which imparts arbitrariness to the estimation and adds another step of 
complexity to the calculation. See id. at 5. Fourth, the calculated 
LSVPTV variability turns out to be the variability of cost with respect 
to the threshold WSC level, not WSCs directly, which may cause issues 
for the calculation of incremental costs. See id.
    The Postal Service contends that in comparison, the MEDBPAC method 
has several advantages. First, it is much closer in form to established 
methods of variability calculation. See id. Second, it is transparent 
and does not require another layer of assumptions and estimations. See 
id. Third, it makes use of the actual distribution of WSCs across Post 
Offices, ensuring that the variabilities reflect the underlying cost 
surface. See id. Fourth, it is consistent with the economic theory 
underlying attributable cost calculation. See id. Therefore, the Postal 
Service proposes to use the MEDBPAC method to calculate the Postmaster 
variability.
    The Postal Service also determined to extract Form 150 WSC data 
from 2022 to update the logit models used in Docket No. RM2022-2, as 
those logit models were estimated from older Form 150 WSC data from 
2019. See id. The Postal Service states that doing so updates the 
variability analysis to the most recent data available and demonstrates 
the stability of the logit models. See id.
    As the 2022 Postmaster variabilities depend not only on the logit 
models estimated on the 2022 WSC data, but also on the EAS salary 
schedule for 2022, the Postal Service summarized the changes in EAS 
salary schedule for 2022 in comparison with the EAS salary schedule for 
2019. See id. at 7-8.
    Based on the logit models estimated on the 2022 WSC data and the 
2022 EAS salary schedule, the Postal Service calculated the 2022 
Postmaster variabilities. See id. at 8, Table 1. The Postal Service 
also included the 2019 Postmaster variabilities for comparison and 
found that three of the estimated variabilities were very stable, one 
showed modest change, and two showed substantial change due to EAS 
salary schedule change from 2019 to 2022. See id. at 8-9.
    Impact. In the Postmaster cost model used currently, a single 
variability is applied against the costs for EAS grades 18 through 22, 
and grades 24 and above receive a zero variability by assumption. See 
id. at 10. In contrast, the variability calculation using the MEDBPAC 
method as proposed by the Postal Service calculates variability for 
each of the EAS grades below EAS-26, including EAS-24. See id. The 
Postal Service states that doing so results in an overall variability 
of 3.03 percent, calculated by first calculating the total volume 
variable costs implied by the individual EAS grade variabilities and 
then dividing that sum by total accrued costs. See id.
    The Postal Service states that under the proposed approach the new 
overall variability is lower than the existing variability for three 
reasons. First, the Postal Service observes that current variability 
calculation method is overstated due to a computational error. See id.
    Second, the Postal Service notes that the Post Office Structure 
Plan (POStPlan) eliminated the lower EAS grades. See id. In lower EAS 
grades, Postmaster could move relatively rapidly through WSCs to a 
higher salary. See id. In higher EAS grades, Postmaster would need much 
larger increases in WSCs in order to move to a higher salary. See id. 
Therefore, the Postal Service contends that eliminating the lower EAS 
grades results in the less likelihood of Postmaster cost increase for a 
given percentage increase in volume, which in turn results in the lower 
overall variability. See id.
    Third, the Postal Service states that the current variability 
calculation method measures only the potential increase in cost from an 
increase in WSCs, not the actual increase captured by the distribution 
of offices, by WSCs, and within each grade. See id. at 10-11. Thus, the 
Postal Service notes that the current methodology tends to overstate 
the variability because it assumes that all offices would change grades 
when

[[Page 42669]]

WSC changes. See id. at 11. In contrast, the Postal Service observes 
that its proposed MEDBPAC method averages the variabilities calculated 
at each Post Office used to estimate the logit models, and reflects the 
actual changes in cost associated with a given change in WSCs. See id. 
The Postal Service states that since most Post Offices have WSC levels 
that are unlikely to change EAS grades in response to a WSC change, the 
actual overall variability should be lower. See id.
    The Postal Service calculated the impact of new Postmaster 
variabilities on costs of domestic Market Dominant products in Table 
2.\4\ The Postal Service asserts that lower new variabilities do not 
have a large impact on those costs, as unit Postmaster costs are low to 
begin with. See id. at 11.
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    \4\ See id. at 12, Table 2. The impact of the new variabilities 
on Competitive products are presented in the non-public materials 
submitted by the Postal Service, Excel file ``Non Public 
Impact.xlsx'' in Library Reference USPS-RM2022-8/NP1.
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III. Notice and Comment

    The Commission establishes Docket No. RM2022-8 for consideration of 
matters raised by the Petition. More information on the Petition may be 
accessed via the Commission's website at https://www.prc.gov. 
Interested persons may submit comments on the Petition and Proposal Two 
no later than August 26, 2022. Pursuant to 39 U.S.C. 505, Madison 
Lichtenstein is designated as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this proceeding.

IV. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. RM2022-8 for consideration 
of the matters raised by the Petition of the United States Postal 
Service for the Initiation of a Proceeding to Consider Proposed Changes 
in Analytical Principles (Proposal Two), filed July 7, 2022.
    2. Comments by interested persons in this proceeding are due no 
later than August 26, 2022.
    3. Pursuant to 39 U.S.C. 505, the Commission appoints Madison 
Lichtenstein to serve as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this docket.
    4. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Erica A. Barker,
Secretary.
[FR Doc. 2022-15229 Filed 7-15-22; 8:45 am]
BILLING CODE 7710-FW-P