[Federal Register Volume 61, Number 248 (Tuesday, December 24, 1996)]
[Proposed Rules]
[Pages 67760-67763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32492]


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POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM97-1; Order No. 1146]


Rules of Practice and Procedure

AGENCY: Postal Rate Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission proposes to amend its rules of practice and 
procedure to clarify what it requires under certain circumstances. 
Where the Postal Service files a request that proposes to change rates 
or fees and, at the same time, proposes to change established cost 
attribution principles, the proposed amendment would require the Postal 
Service's request to estimate the impact of its proposed changes in 
rates or fees separately from the impact of its proposed changes in 
attribution principles. The purpose of the proposed amendment is to 
require that such a request give other parties and the Commission 
adequate and timely notice of the impact of the rate proposals that it 
contains, in order not to delay evaluation of those proposals.

DATES: Comments must be filed by January 31, 1997.

ADDRESSES: Comments and correspondence should be sent to Margaret 
Crenshaw, Secretary of the Commission, 1333 H Street, NW, Suite 300, 
Washington, D.C., 20268-0001.

FOR FURTHER INFORMATION CONTACT: Stephen Sharfman, Legal Advisor (202) 
789-6820.

SUPPLEMENTARY INFORMATION: The basic purpose of Rule 54 of the 
Commission's Rules of Practice [39 CFR 3001.54] is to require the 
Postal Service to include with its request for changes in rates the 
threshold level of cost, volume, and revenue information necessary to 
support its direct case, so that its request can be evaluated within 
the tight deadline that the Act imposes. Most Rule 54 requirements also 
apply to Postal Service requests for classification changes, if such 
changes affect rates. See 39 CFR 3001.64. Evaluating the consistency of 
proposed changes in rates with the pricing standards of 39 USC 3622, 
requires accurate estimates of their impact. For this reason, Rule 
54(a) requires the Postal Service to include with a request for changes 
in rates enough information to ``fully inform'' the Commission and the 
parties of the ``significance and impact'' of the proposed changes.
    A Postal Service request for changes in rates cannot ``fully 
inform'' the Commission and the parties of its ``significance and 
impact'' if it does not show the effect that its proposed rates would 
have on the relative institutional cost burdens that the affected 
subclasses of mail would bear. The customary measure of relative 
institutional cost burdens is ``cost coverage,'' i.e., the ratio of 
subclass revenue to subclass attributable cost. To satisfy Rule 54(a), 
therefore, the Postal Service's request must demonstrate the impact 
that its proposed rates would have on cost coverages. Docket No. MC96-3 
is the most recent Postal Service request that involves proposals to 
significantly increase Postal Service revenues and rates. The Postal 
Service's Rule 54 cost presentation in that docket, however, did not 
satisfy this objective of Rule 54(a). It estimated only the combined 
effect on subclass attributable costs and cost coverages of its 
proposed changes in rates and its proposed changes in attribution 
principles. It left the task of distinguishing between these effects to 
other parties and the Commission.
    It is not properly the Commission's or the parties' burden to 
disentangle the effects of the Postal Service's proposed changes in 
rates from the effects of its proposed changes in attribution 
principles, in order to evaluate the Postal Service's proposals. As the 
proponent of change, the Postal Service has the burden of going 
forward. See 5 USC 556(d), 39 USC 3622, 39 CFR 3001.53 and 3001.54. If 
the Postal Service's request confounds the effects of its proposals to 
change rates and its proposals to change cost attribution principles, 
its request does not provide timely and effective notice of the 
significance of either.
    An important criterion for evaluating the significance and impact 
of proposed changes in rates is the effect that they would have on cost 
coverages. Because the attribution principles applied determine the 
amount of costs that are attributed to subclasses, they, too, affect 
cost coverages. When a Postal Service request combines proposals to 
change rates with proposals to change established cost attribution 
principles, mailers and competitors are not able to determine from the 
Postal Service's request how its proposed changes in attribution 
principles would affect their interests until they calculate for 
themselves what cost coverages would be at the Postal Service's 
proposed rates, under established attribution principles. For many 
potential participants in our hearings, performing this elaborate set 
of calculations is a formidable and time consuming task. It can defeat, 
or seriously delay, their ability to determine how the Postal Service's 
proposals would affect them, and whether they should intervene to 
support or oppose them. This is not consistent with the objective of 
Rule 54(a), which is to provide parties and the Commission with enough 
information from the outset of the proceeding to evaluate the 
significance and impact of the Postal Service's proposals.
    To ensure timely and effective notice of the impact of Postal 
Service requests that propose to simultaneously change rates and 
attribution principles, the Commission proposes to amend Rule 54(a). 
The proposed amendment would require the Postal Service to include with 
such a request an alternate attributable cost presentation that would 
calculate attributable costs and cost coverages at Postal Service 
proposed rates according to established attribution principles. A cost 
presentation that holds attribution principles constant is necessary to 
isolate the effect of the Postal Service's proposed changes in rates on 
cost coverages. The appropriate set of attribution principles to use as 
a baseline is the set that was used to establish current rates. That 
set defines the status quo, is most consistent with historic 
attributable cost and cost coverage estimates, and has the weight of 
precedent.
    As used in the proposed amendment to Rule 54(a), the phrase 
``attribution

[[Page 67761]]

principles'' is intended to refer to theories of cost causation (e.g., 
volume variability, exclusivity), models of cost causation (e.g., 
econometric models of volume variability), the identity and role of 
cost drivers (e.g., shape, coverage), and the identity and role of 
distribution keys (e.g., pieces, pound/miles). It is not intended to 
encompass the detailed mechanics of implementing these principles if 
proposed adjustments in implementation do not conflict with existing 
use of established attribution principles, as defined above. Nor are 
attribution principles intended to encompass apparent errors in 
arithmetic, spreadsheet mechanics, or documentation that do not raise 
issues as to the theory or logic by which costs are attributed to 
subclasses.
    To estimate attributable costs and cost coverages using established 
attribution principles, i.e., those applied by the Commission in the 
most recent general rate proceeding in which its recommended rates were 
implemented, the Postal Service would not have to replicate in exact 
detail every calculation that the Commission used to estimate the 
attributable cost relationships that underlie current rates. 
Adjustments are often necessary to account for new circumstances such 
as operational changes or intervening rate and classification changes. 
A ``best efforts'' attempt to follow the same basic attribution 
principles is all that would be required to satisfy the objective of 
Rule 54(a).
    Estimating the impact of its proposed rates on costs according to 
the attribution principles that the Commission applies should impose 
only a modest burden on the Postal Service. It has a large technical 
staff with the specialized background required to develop a 
comprehensive estimate of Postal Service attributable costs, and has 
previously demonstrated its ability to accurately attribute costs 
according to established principles .
    As previously noted, this task can be formidable and time consuming 
for other participants. Developing a comprehensive estimate of subclass 
attributable costs at the Postal Service's proposed rates can be time 
consuming for the Commission as well. Although its staff has the 
specialized technical background required, it faces some of the same 
obstacles that the parties face in developing a comprehensive estimate 
of Postal Service attributable costs. For example, in recent 
proceedings essential databases have not been provided by the Postal 
Service in a form that could be read and manipulated by conventional 
data processing techniques until after a lengthy dialogue between 
Commission and Postal Service technical staff had taken place. For 
these reasons, a Postal Service request that does not distinguish the 
impact of its proposed rate changes on cost coverages from the impact 
of its proposed changes in attribution principles on cost coverages, 
and shifts this burden to other parties or the Commission, can 
jeopardize the opportunity of other parties and the Commission to 
evaluate the Postal Service's proposals within the tight statutory 
deadline imposed by 39 USC Sec. 3624(c)(1).
    In Docket No. MC96-3, the Commission ordered the Postal Service to 
separately show the effect of its proposed rate changes and the effect 
of its proposed changes in attribution principles on cost coverages by 
calculating costs according to the principles upon which current rates 
are based. See PRC Order Nos. 1120 and 1126. The Postal Service 
refused. It justified its refusal, in part, by asserting that showing 
only the combined effect fully complied with the filing requirements of 
Rule 54. It argued that the only relevant requirement in Rule 54 is 
found in paragraphs (f)(1) and (f)(2), which require it to present 
total actual and estimated accrued costs for various years. It asserted 
that no obligation could be inferred from Rule 54 to estimate costs or 
cost coverages by any specific method. See Docket No. MC96-3, Motion of 
the United States Postal Service for Reconsideration of Order No. 1120, 
and Partial Response (June 28, 1996) at 9-10; Opposition of United 
States Postal Service to Office of the Consumer Advocate Motion Under 
39 USC 3624(c)(2) for Day-to-Day Extensions (August 22, 1996) at 6-7. 
It argued as though complying with paragraphs (f)(1) and (f)(2) of Rule 
54 satisfies its obligation to support its request with cost 
information, regardless of the proposed changes that its request 
contains.
    This fails to recognize that Rule 54(a) requires information that 
is sufficient to meet specific, listed objectives. One listed objective 
is to have the Postal Service's request give notice of the impact of 
proposed changes in rates. The kind of information that will meet this 
objective will depend on the nature of the rate changes that are 
proposed and the context in which they are proposed. Where the Postal 
Service proposes changes in rates with significant revenue effects, and 
at the same time proposes changes to established attribution principles 
that affect estimates of subclass attributable costs, the impact of its 
rate proposals on cost coverages cannot be separately identified and 
evaluated. To allow the impact of its rate proposals to be separately 
identified and evaluated, and thereby meet the objective of Rule 54(a), 
the Postal Service must include with its request an alternative 
estimate of attributable costs and cost coverages at its proposed 
rates, under established attribution principles.
    Because the Postal Service has construed Rule 54 to relieve it of 
such an obligation, it is necessary to clarify the Rule. The proposed 
amendment would apply if the Postal Service's request simultaneously 
proposes changes in rates and changes in the attribution principles 
upon which current rates are based. In that circumstance, it would 
require the Postal Service to include with its request an alternative 
estimate of attributable costs and cost coverages at its proposed rates 
that is consistent with the attribution principles upon which current 
rates are based.
    In determining the form that such an amendment should take, the 
Commission considered rules of other regulatory agencies that have the 
same purpose as the amendment proposed here. Federal Energy Regulatory 
Commission (FERC) rule Sec. 154.301 [18 CFR 154.301] is an analog of 
the Postal Rate Commission's Rule 54. It provides

    A natural gas company filing for a change in rates or charges 
must be prepared to go forward at a hearing and sustain, solely on 
the material submitted with its filing, the burden of proving that 
the proposed changes are just and reasonable. The filing and 
supporting workpapers must be of such composition, scope, and format 
as to comprise the company's case-in-chief in the event that the 
change is suspended and the matter is set for hearing. If the change 
in rates or charges presented are not in full accord with any prior 
Commission decision directly involving the filing company, the 
company must include in its working papers alternate material 
reflecting the effect of such prior decision. (Emphasis added.)

If applied in the context of postal ratemaking, such a rule would 
require an alternate attributable cost presentation showing the effect 
of departing from basic cost attribution principles applied by the 
Commission in prior proceedings. But this requirement is framed so 
broadly that it is capable of being construed to require an alternate 
cost presentation where one is not warranted.
    It is possible, for example, that a rule framed this broadly could 
be construed to require alternate presentations to show the effect of 
Postal Service corrections of apparent arithmetic, documentation, or 
presentation errors that do not involve questions of the theory or 
logic by which costs are attributed to subclasses. Illustrations of

[[Page 67762]]

these would be the alleged errors in the implementation procedures 
applied by the Commission in Docket No. R94-1 that the Postal Service 
cited during the post-hearing phase of that docket. See Comments of 
USPS in Response to Order No. 1039 (January 9, 1995) at 5, fn. 2, and 
Reply Comments of USPS in Response to Order No. 1041 (February 27, 
1995) at 6. These alleged errors are discussed at paragraphs 263-74 of 
the Commission's Opinion and Further Recommended Decision in Docket No. 
R94-1. It is also possible that a rule framed this broadly could be 
construed to require alternate workpapers to show the effect of Postal 
Service corrections to apparent errors in the Commission's spreadsheet 
mechanics. An illustration of this would be the error cited at page 12 
of the Governors Decision returning the Commission's recommended 
decision in R94-1 for reconsideration and discussed at paragraphs 264-
65 of the Commission's Opinion and Further Recommended Decision.
    Requiring the Postal Service to file alternative workpapers showing 
the effect of correcting such apparent errors on subclass attributable 
costs and cost coverages would be unwarranted. This is especially true 
where, as with the illustrations discussed above, their impact on 
subclass attributable costs is inconsequential. See the Commission's 
Opinion and Further Recommended Decision in Docket No. R94-1 at 
paragraph 260.
    A number of public service commissions at the state and local level 
also have procedural rules with the same objective as the Commission's 
proposed amendment to Rule 54. An example is Sec. 200.2 of the 
Municipal Regulations for the Public Service Commission of the District 
of Columbia [15 DCMR Sec. 200.2 (1991)]. That rule provides:

    Whenever, in a rate change application, a party proposes to 
change the ratemaking principles adopted in its most recent rate 
case, the party shall also file with its Sec. 200.1 filing [an 
application for changed rates] a statement describing each proposed 
change in the ratemaking principles adopted by the Commission in the 
applicant's last general rate proceeding, showing the effect of each 
such change upon the applicant's request if no such changes were 
made. (Emphasis added.)

This alternate filing requirement is worded more narrowly than the 
Federal Energy Regulatory Commission rule referenced above. If applied 
in the context of postal ratemaking, it would imply a narrower duty 
than the FERC rule would imply. Rather than require an alternate 
attributable cost presentation whenever a Postal Service request for 
changes in rates is not ``in full accord'' with prior Commission 
recommended decisions, it would require an alternate presentation 
whenever a Postal Service request proposed a change in the attribution 
``principles'' adopted in the most recent Commission recommended 
decision. It is therefore less likely than the FERC rule to be 
construed as extending to minor adjustments in the mechanics of 
implementing those principles that do not warrant alternate cost 
presentations, such as those needed to conform to new facts, or 
corrections of inconsequential mathematical or documentation errors.
    Applied to postal ratemaking, a rule of this scope would allow the 
Postal Service to modify a particular procedure that the Commission 
uses when it implements established attribution principles. It would 
not require an alternate cost presentation as long as the modification 
is consistent with those principles. For example, it would not require 
the Postal Service to ignore changes that might have occurred since the 
Commission's most recent recommended decision in such things as how 
mail is handled, how employees are classified, or how subclasses of 
mail are defined. It would allow the Postal Service to adapt Commission 
procedures to accommodate such changes without being required to file 
an alternate cost presentation. Ordinarily, the need to exercise some 
judgment in adapting the Commission's implementation procedures would 
not activate the rule, unless the judgment exercised were in some way 
inconsistent with established attribution principles.
    Applied in the postal ratemaking context, the D.C. Public Service 
Commission rule would also be narrower than the FERC rule with respect 
to the reference point from which proposed changes in attribution 
principles would be measured. Rather than make the attribution 
principles adopted in any prior Commission recommended decision the 
reference point, the D.C. Public Service Commission rule would make 
attribution principles applied in the most recent general rate case the 
reference point. This would avoid any potential ambiguity as to what 
attribution principles are ``established.''
    The D.C. Public Service Commission rule appears to be a more 
suitable model for the Commission's proposed amendment than the FERC 
rule, because it would be less amenable to an overly broad 
construction, and would employ a more focused reference point from 
which departures from established attribution principles would be 
measured. The Commission's proposed amendment to Rule 54(a) is similar 
to that rule.
    Complying with this amended rule would not preclude the Postal 
Service from proposing changes to established attribution principles. 
The alternate attributable cost and cost coverage presentation that 
amended Rule 54(a) would require would apply only when a Postal Service 
request for changes in rates proposes simultaneous changes to 
established attribution principles. In providing the alternate 
presentation, the Postal Service is not required to affirm the 
theoretical soundness or the practical wisdom of the established 
attribution principles. It is merely required to affirm that it has 
provided the parties and the Commission with its best estimate of what 
the consequences of its proposed changes in rates would be if they were 
measured by established attribution principles.
    Under the amended rule, the reference point for determining 
proposed changes in established attribution principles would be the 
attribution principles followed by the Commission in the most recent 
general rate proceeding in which its recommended rates were 
implemented. The proposed amendment recognizes that these principles 
were arrived at following litigation during that or prior Commission 
proceedings and have survived any appellate review that might have been 
conducted under 39 U.S.C. Sec. 3628. Such principles are entitled to 
the weight of precedent, and the Commission may apply those principles 
in subsequent proceedings without additional litigation. It is not the 
purpose of the proposed amendment to require the Postal Service to 
provide a record basis for applying attribution principles previously 
litigated and approved. The purpose of the proposed amendment is to 
provide the Commission and other parties with timely notice of the 
impact of the Postal Service's proposed changes in rates.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
PRC hereby certifies that this notice of proposed rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities. Accordingly, a regulatory flexibility analysis is 
not required.

List of Subjects in 39 CFR Part 3001

    Administrative practice and procedure, Postal Service.

    For the reasons set out in the preamble, 39 CFR part 3001 is 
proposed to be amended as follows:

[[Page 67763]]

PART 3001--[AMENDED]

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

    Authority: 39 U.S.C. 404(b), 3603, 3622-24, 3661, 3662.

Sec. 3001.54  [Amended]

    2. Section 3001.54(a)(1) is revised to read as follows:
    (a) General requirements. (1) Each formal request filed under this 
subpart shall include such information and data and such statements of 
reasons and bases as are necessary and appropriate fully to inform the 
Commission and the parties of the nature, scope, significance, and 
impact of the proposed changes or adjustments in rates or fees and to 
show that the changes or adjustments in rates or fees are in the public 
interest and in accordance with the policies of the Act and the 
applicable criteria of the Act. To the extent information is available 
or can be made available without undue burden, each formal request 
shall include the information specified in paragraphs (b) through (r) 
of this section. If a request for changes in rates or fees proposes to 
change the cost attribution principles applied by the Commission in the 
most recent general rate proceeding in which its recommended rates were 
implemented, the Postal Service shall include with its request for 
changes in rates or fees a statement describing each change that it 
proposes in those cost attribution principles, and shall show what the 
effect on its request would be if its request did not propose such 
changes. If the required information is set forth in the Postal 
Service's prepared direct evidence, it shall be deemed to be part of 
the formal request without restatement.
* * * * *
    Issued by the Commission on December 17, 1996.
Margaret P. Crenshaw,
Secretary.
[FR Doc. 96-32492 Filed 12-23-96; 8:45 am]
BILLING CODE 7710-FN-P