[Federal Register Volume 59, Number 36 (Wednesday, February 23, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3675]


[[Page Unknown]]

[Federal Register: February 23, 1994]


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POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM94-2; Order No. 1004]

 

Rules of Practice and Procedure

AGENCY: Postal Rate Commission.

ACTION: Final Rule.

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SUMMARY: In order to expedite litigation of revenue-related issues 
presented by Postal Service rate change requests, the Commission amends 
its rules governing the Postal Service's rate filings to require that 
they include complete descriptions of the data, procedures, and 
assumptions that underlie the Postal Service's estimate of domestic 
mail revenues.

EFFECTIVE DATE: February 23, 1994.

FOR FURTHER INFORMATION CONTACT: Stephen Sharfman, Legal Advisor, 
Postal Rate Commission, suite 300, 1333 H Street, NW., Washington, DC. 
20268-0001 (telephone: (202)/789-6820).

SUPPLEMENTARY INFORMATION: The Commission published its Notice of 
Proposed Rulemaking in this docket on November 2, 1993 [58 FR 58519]. 
In our Notice we proposed amendments to 39 CFR 3001.54(j), which 
governs Postal Service presentations concerning estimated volumes and 
revenues in our proceedings. As discussed in our Notice, during the 
post-hearing phase of Docket No. R90-1 an issue emerged as to whether 
the assumptions underlying the billing determinants that the Postal 
Service used to project revenues were compatible with those underlying 
the billing determinants that were implicit in the indexed prices that 
the Postal Service used to project volumes. This caused us to review 
our rules governing the Postal Service's volume and revenue 
presentations to see if more complete initial documentation would 
expedite hearings on these issues in future rate filings.
    As part of that review, we noticed that our current rules do not 
require the Postal Service's revenue presentation to be disaggregated 
to the billing determinant level, although the Postal Service has done 
so in recent rate filings. Nor do our current rules specifically 
require the Postal Service to source the data underlying its revenue 
presentation. We therefore proposed amendments to Rule Sec. 3001.54(j) 
designed to bring it into conformity with current practice in these 
respects.
    The amendments that we initially proposed in this docket had three 
basic objectives: (1) To require that revenue presentations be 
disaggregated to the billing determinant level [proposed rule 
Sec. 3001.54(j)(3)], (2) to require that the method of calculating 
revenues be explained in detail, especially where the calculation 
involved redesigned rates [proposed rule Sec. 3001.54(j)(4)], and (3) 
where the assumptions underlying the billing determinants used to 
calculate revenue differ from those underlying the billing determinants 
implicit in the corresponding volume estimate that the Postal Service 
provide an explanation for the difference [proposed rules 
Sec. 3001.54(j)(5)(iv),(v), and (vi)].
    As a result of comments received in response to our Notice of 
Proposed Rulemaking, we have simplified our proposed amendments in ways 
that still accomplish the objectives described above. Final rules 
Sec. 3001.54(j)(3) and Sec. 3001.54(j)(4), as we adopt them here, 
accomplish the first and second objectives, respectively, with simpler 
and more concrete language. To accomplish the third objective, we have 
deleted proposed rules Sec. 3001.54(j)(5)(iv) through (vi) in favor of 
a simpler provision that we have incorporated in the preamble of rule 
Sec. 3001.54(j)(6).
    As a result, our final rules largely eliminate the basis for the 
Postal Service's generalized complaint in its Comments of December 2, 
1993, and Reply Comments of December 13, 1993, that our proposed 
amendments are needlessly burdensome. Final rules Sec. 3001.54(j)(3) 
and (4) bring our rules into conformity with what is essentially the 
Postal Service's current practice. Proposed rules 
Sec. 3001.54(j)(5)(iv) and (v) had asked for revenue presentations for 
interim years, and the year following the test year. These proposals 
might have added moderately to the Postal Service's documentation 
burden. They have been deleted from our final rules.
    Only a minor addition to the Postal Service's documentation burden 
remains in our final rules. That is the simplified requirement, 
incorporated in final rule Sec. 3001.54(j)(6), that the Postal Service 
provide supporting rationale where its revenue estimate is based upon 
billing determinants that differ from those that are implicit in its 
volume forecast.

Final Rule Sec. 3001.54(j)(3)

    The purpose of proposed rule Sec. 3001.54(j)(3) was to require that 
the Postal Service's revenue presentation be disaggregated to the 
billing determinant level, consistent with rule Sec. 3001.54(l), which 
requires the Postal Service to provide class and subclass billing 
determinants for each ``rate element'' that it uses to determine 
revenues. The Office of the Consumer Advocate (OCA) observes that the 
wording of proposed rule Sec. 3001.54(j)(3) could have been interpreted 
as applying to elements other than those covered by rule 
Sec. 3001.54(l). OCA Comments of November 24, 1993, at 3-4. Final rule 
Sec. 3001.54(j)(3), therefore, adopts the alternate language proposed 
by the OCA, which requires that the Postal Service's revenue 
presentation be disaggregated to ``each unique rate element.''

Final Rule Sec. 3001.54(j)(4)

    The purpose of proposed rule Sec. 3001.54(j)(4) was to require that 
the method of calculating revenues be described in detail, especially 
where the calculation involved restructured rates. The OCA's comments 
propose alternative language that is more concrete and less susceptible 
to subjective interpretation. Instead of requiring an 
``identification'' or ``specific description'' of its methods of 
calculating revenue, the OCA's proposed language would require the 
Postal Service to document its revenue calculations in such a way that 
they can be replicated from ``primary data sources.'' OCA Comments of 
November 24, 1993, at 4-5.
    Final Rule Sec. 3001.54(j)(4) adopts the essence of the OCA's 
proposed alternative. Appropriate sourcing of revenue presentations, 
however, is most often to companion volume testimony and supporting 
documents, rather than to ``primary data sources.'' We have modified 
the OCA's proposed language accordingly. The OCA incorrectly inferred 
from our Notice an intent to limit rule Sec. 3001.54(j)(4) to estimates 
of ``per piece'' revenue. Final rule Sec. 3001.54(j)(4) applies to 
revenue estimates generally, not just to estimates of ``per piece'' 
revenue.

Proposed Rules Sec. 3001.54(j)(5)(iv)-(v)

    Proposed rules Sec. 3001.54(5)(j)(iv) and (v) would have required 
that the Postal Service's revenue presentations include fully 
disaggregated revenue estimates for interim years (years between the 
base year and the test year), and for the year following the test year. 
Interim year estimates would have facilitated tracking of the Postal 
Service's revenue estimate against actual revenues as a rate hearing 
progresses. Post-test year estimates would have assisted in evaluating 
any proposed changes.
    Since the added value of either exercise is relatively minor, we 
have decided to drop these proposed rules. They were the focus of the 
generalized complaints expressed in the Postal Service's Comments of 
December 2, 1993, and Reply Comments of December 13, 1993, that the 
amendments to rule Sec. 3001.54(j) that we propose in this docket are 
burdensome and unnecessary.

Proposed Rule Sec. 3001.54(j)(5)(vi) and Final Rule Sec. 3001.54(j)(6)

    As we discussed in our Notice of Proposed Rulemaking, the Postal 
Service uses average, or indexed, subclass prices as key variables in 
its volume forecasting models. Billing determinants are implicit in an 
indexed price.
    The broad purpose of proposed rule Sec. 3001.54(j)(5)(vi) was to 
ensure that the Postal Service's volume presentation includes a 
detailed description of how the indexed prices were constructed, 
especially where they reflected restructured rates. The specific 
purpose of the proposed rule was to require that the Postal Service 
identify instances where the billing determinants implicit in the price 
indices used to forecast subclass volumes differ from those used to 
estimate subclass revenues, and that it explain such differences.
    Partly in response to the Postal Service's general plea that we not 
add to the complexity of rule Sec. 3001.54(j) unless it is clearly 
necessary, we have decided to delete proposed rule 
Sec. 3001.54(j)(5)(vi) from our final rules. The broad purpose of the 
proposed rule was to ensure that the Postal Service provides full 
narrative explanations of how its price indices are constructed. Having 
focused attention on that purpose with this rulemaking, we believe that 
current rule Sec. 3001.54(j)(6)(i) and (ii) will be adequate to achieve 
it.
    As noted, the specific purpose of proposed rule 
Sec. 3001.54(j)(5)(vi) was to require the Postal Service to explain why 
it sometimes bases its revenue estimates on billing determinants that 
differ from those implicit in its volume forecasts. We believe that 
this purpose can be accomplished more economically by adding the 
following sentence at the end of the current preamble to rule 
Sec. 3001.54(j)(6): Supporting rationale shall be provided for using 
billing determinants to estimate revenues for any class, subclass, or 
rate category of mail that differ from the billing determinants 
implicit in the estimate of volumes for that class, subclass, or rate 
category.
    We simplified this requirement in response to comments from the 
Postal Service. The Postal Service interpreted proposed rule 
Sec. 3001.54(j)(5)(vi) to require it to (1) Multiply the after-rate 
fixed weight price index by the after-rate volume forecast for each 
subclass, (2) compare the result with the after-rate revenue forecast 
for that subclass, (3) determine if the difference exceeded specified 
thresholds, and (4) explain differences that exceeded the thresholds.
    The Postal Service asserts that ``comparisons to the suggested 
thresholds (three percent of subclass revenue or $20 million) add 
nothing to the ultimate answer.'' It characterizes steps ``1'' through 
``3,'' above, as a ``wasteful and burdensome exercise.'' Postal Service 
Comments of December 2, 1993, at 5. Although the added burden would 
have been slight, in our view, we have nevertheless decided to delete 
the requirement that the Postal Service inventory instances in which 
such differences exceed a threshold.
    The Postal Service also asserts that explanations of the difference 
between estimated and implied subclass revenues would not be 
``meaningful because, in every instance, the explanation would be the 
same: any difference between the two numbers will be attributable to 
the different billing determinants (before rate and after rates) used 
in their calculation.'' Id. at 4.
    Apparently because proposed rule Sec. 3001.54(j)(5)(vi)(e) asked 
the Postal Service to ``explain'' differences between its estimated 
revenues and those implied by its volume forecasts, the Postal Service 
interpreted that rule merely to require a recitation that different 
billing determinants give rise to different revenue results. We agree 
that such a recitation would not be meaningful. The ``explanation'' 
intended by the proposed rule was not the perfunctory one assumed by 
the Postal Service. The intent of the proposed rule was to elicit from 
the Postal Service a theoretical or conceptual justification for using 
different billing determinants to forecast volume than it does to 
estimate revenue for the same period. If the Postal Service based 
volume and revenue forecasts on different assumptions as to, for 
example, the portion of the mailstream impacted by a proposed new rate 
category, or its implementation date, the proposed rule contemplated 
that the Postal Service would provide supporting reasons. To clarify 
this intent, final rule Sec. 3001.54(j)(6) asks for ``supporting 
rationale'' rather than an ``explanation.''
    The Postal Service's comments appear to recognize that the 
Commission's concern is that the Postal Service articulate a rationale 
for basing volume and revenue forecasts on different assumptions. It 
argues, however, that it would be more efficient if the desired 
rationale were asked for and provided after a general rate hearing 
begins. Id. at 5. We disagree. Where it is foreseeable that an aspect 
of an analytical method will routinely be placed in issue during the 
hearing, it expedites the hearing if supporting rationale for that 
method is elicited ``up front,'' through standard filing requirements.

Other Proposals and Comments

    The OCA proposes that this docket include rules that would identify 
a minimum level of sampling error that the Commission will tolerate in 
the Postal Service's volume estimates. The premise of the OCA's 
proposal is that the amendments proposed in this docket might require 
further disaggregation of the volume and revenue estimates presented by 
the Postal Service, potentially reducing their reliability. OCA 
Comments of November 24, 1993, at 1.
    Although the OCA's objective has merit, it is only indirectly 
related to the initial proposals in this docket. The focus of the rules 
that we adopt in this docket is on documentation of the Postal 
Service's revenue estimates. Their effect is not to further 
disaggregate those estimates, but merely to bring our rules into 
conformity with the Postal Service's recent practice. They do not 
satisfy the premise of the OCA's proposal. The OCA's proposal should be 
the focus of a separate rulemaking where its ramifications could be 
explored in depth.
    The Council of Public Utility Mailers (CPUM) proposes that current 
rule 54 be amended throughout to add ``rate categories'' to each 
reference to ``all classes and subclasses of mail and service.'' The 
objective of CPUM's proposal is to require the Postal Service to 
present data ``at the most discrete, disaggregated level that is 
feasible.'' CPUM Comments of November 29, 1993, at 3.
    We agree with the objective of CPUM's proposal, but do not think 
that requiring rate category data throughout rule 54 is feasible or 
wise. The final rules adopted in this docket require that revenue 
estimates be disaggregated further than the rate category level. 
Consequently, the primary impact of CPUM's proposal would be on 
volumes. Current rules Sec. 3001.54(j) (5) and (6) require that volume 
forecasts at the class and subclass level be derived from an 
econometric demand study. It would not be appropriate to extend that 
requirement indiscriminately to rate categories as well. For small rate 
categories, sample data are too thin to allow reliable econometric 
modelling. In this respect, CPUM's proposed language could require data 
disaggregated beyond the maximum feasible level.
    Final rule Sec. 3001.54(j)(6), which applies to both volumes and 
revenues, moves in the direction of CPUM's proposal, since some of the 
requirements contained in its preamble now apply at the rate category 
level. The amended preamble reiterates that estimates required by rules 
Sec. 3001.54(j) (2), (3), and (5), must be derived from econometric 
demand studies at the class and subclass level. It is not required that 
estimates at the rate category level be derived from econometric 
studies. If they are derived from econometric studies, however, the 
amended preamble language applies to them the requirement that 
supporting rationale be provided if the assumptions underlying the 
estimate depart from those underlying the econometrics. As discussed 
above, the amended preamble language also requires supporting rationale 
where the billing determinants underlying a rate category revenue 
estimate differ from those implicit in the corresponding volume 
forecast.
    McGraw-Hill, Inc. proposed two refinements to the language of 
proposed rule Sec. 3001.54(j)(5)(vi). One would have refined the 
language of paragraph (a) of the proposed rule, which would have 
required the Postal Service to identify its methods for deriving its 
price indices. McGraw-Hill's proposed refinement would have 
specifically required the Postal Service to identify the time period 
and the rate schedule applicable to the billing determinants reflected 
in the price indices. Comments of McGraw-Hill, Inc., of December 2, 
1993, at 3.
    Where price indices reflect billing determinants of a specific time 
period and rate schedule, the Postal Service should, of course, 
identify them. But McGraw-Hill's refined language might have been too 
restrictive to accommodate price indices based on median, composite, or 
other adjusted billing determinant values. As noted above, we have 
deleted specific references to price indices in our final rules, with 
the understanding that full documentation of the manner in which they 
are derived is required by current rules Sec. 3001.54(j)(6). McGraw-
Hill's proposed refinement is therefore moot.
    McGraw-Hill also proposed refined language for paragraph (e) of 
proposed rule Sec. 3001.54(j)(5)(vi), which proposed thresholds that 
would have triggered the requirement that the Postal Service explain 
differences between estimated and implied subclass revenue. McGraw-
Hill's refinement, though well considered, is moot, since we have 
deleted threshold tests from our final rules.
    McGraw-Hill also proposed that we make the following additions to 
the Postal Service's ongoing data reporting requirements: (i) the 
Postal Service shall furnish annually a pro forma Cost and Revenue 
Analysis (``CRA'') report that tracks the determinations made in the 
preceding omnibus rate case decision; (ii) the CRA report shall 
identify any change in attribution assumptions from the previous year's 
report; (iii) if the attribution assumptions employed in a CRA report 
differ from those used in the Commission's decision in the preceding 
rate case, the Postal Service shall file a pro forma report that uses 
the assumptions employed in the Commission's decision; and (iv) billing 
determinants shall be reported on a quarterly rather than annual basis. 
[Comments of McGraw-Hill, Inc., of December 2, 1993, at 4-5.]
    As McGraw-Hill notes, these requirements were first proposed in 
Docket No. RM91-1 [57 FR 39160, 39163-39164], but were not actively 
considered because of subsequent changes in the focus of that docket. 
Id. at 5. We will defer their consideration. The proposals relating to 
the CRA are well considered, but are more appropriately dealt with 
after the impending omnibus rate case has been processed. The proposals 
regarding billing determinant reports may also be taken up at that 
time.

Regulatory Evaluation

    It has been determined pursuant to 5 U.S.C. Sec. 605(b) that these 
rules will only affect informational requirements applicable to the 
United States Postal Service, and it is certified that these rules will 
not have a significant impact on a substantial number of small entities 
under the terms of the Regulatory Flexibility Act, 5 U.S.C. Sec. 501 et 
seq. Since these rules apply only to the Postal Service, it has also 
been determined that these rules do not have sufficient federalism 
implications to warrant the preparation of a Federalism Assessment 
pursuant to Executive Order 12612. The rules, which would apply only to 
the Postal Service in postal rate proceedings, do not contain any 
information collection requirements as defined in the Paperwork 
Reduction Act 44 U.S.C. Sec. 3502(4)(B), and consequently the review 
provisions of 44 U.S.C. Sec. 3507 and the implementing regulations in 5 
CFR part 1320 do not apply.

List of Subjects in 39 CFR Part 3001

    Administrative practices and procedure, Postal service.

PART 3001--RULES OF PRACTICE AND PROCEDURE

    1. The authority citation for 39 CFR part 3001 is revised to read 
as follows:

    Authority: 39 U.S.C. 404(b), 3603, 3622-3624, 3661, 3662.

    2. Section 3001.54 is amended by revising paragraphs (j)(3), 
(j)(4), and the introductory text to (j)(6) to read as follows:


Sec. 3001.54  Contents of formal requests.

* * * * *
    (j) * * *
    (3) Subject to paragraphs (a)(2) of this section, the actual and 
estimated revenues referred to in paragraphs (j) (1) and (2) of this 
section shall be shown in total and separately for each class and 
subclass of mail and postal service and for all other sources of 
revenue. Revenues derived from classes and subclasses of mail shall be 
disaggregated to each unique rate element.
    (4) Each revenue presentation required by paragraph (j)(1), (j)(2), 
and (j)(3) of this section shall, subject to paragraph (a)(2) of this 
section, be documented in sufficient detail to allow independent 
replication. Revenue estimates shall be supported by exhibits or 
workpapers that reference the source of all data used, including volume 
levels, billing determinants, and adjustment factors. References may be 
to published documents, library references, or companion testimony, and 
shall include document identity, page, and line, as appropriate. All 
assumptions used to estimate revenue for new or redesigned rate 
elements shall be identified and explained.
* * * * *
    (6) The estimated volumes and revenues referred to in paragraphs 
(j)(2), (j)(3), and (j)(5) of this section shall be derived from the 
econometric demand study referred to in paragraph (j)(5)(i) of this 
section. Supporting rationale shall be provided for any departure from 
the assumptions and specifications in the demand study made in 
estimating volumes of any class, subclass, or rate category of mail. 
Supporting rationale shall be provided for using billing determinants 
to estimate revenues for any class, subclass, or rate category of mail 
that differ from the billing determinants implicit in the estimate of 
volumes for that class, subclass, or rate category.
* * * * *
    Issued by the Commission on February 10, 1994.
Charles L. Clapp,
Secretary.
[FR Doc. 94-3675 Filed 2-22-94; 8:45 am]
BILLING CODE 7715-01-P