[Federal Register Volume 68, Number 223 (Wednesday, November 19, 2003)]
[Rules and Regulations]
[Pages 65348-65373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28643]



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Part II





Postal Rate Commission





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39 CFR Part 3001



Periodic Reporting Rule; Final Rule

  Federal Register / Vol. 68, No. 223 / Wednesday, November 19, 2003 / 
Rules and Regulations  

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POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM2003-3; Order No. 1386]


Periodic Reporting Rule

AGENCY: Postal Rate Commission.

ACTION: Final rule.

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SUMMARY: The Commission is adopting a final rule that updates the 
periodic reporting regulations. These regulations identify the data and 
information the Postal Service is to file with the Commission on a 
regular, ongoing basis. The final rule differs from the proposed rule 
in several important respects. The Commission has narrowed or 
eliminated some filing requirements and has incorporated some 
flexibility in meeting other requirements. Adoption of these changes 
should facilitate the public's ability to more readily grasp the 
quantitative basis and support for Postal Service proposals.

DATES: Effective December 19, 2003.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820.

SUPPLEMENTARY INFORMATION:

Regulatory History

    68 FR 2272 (Thursday, January 16, 2003)

Executive Summary

    When the Postal Service requests a general rate increase it 
supports the request with estimates of how much each of its products 
costs, and how much revenue it needs. The validity of these estimates 
are central issues in the hearings that the Commission holds to review 
the request. Tens of thousands of pages of economic testimony and 
documentation, most of it highly technical, are offered to support 
raising almost $70 billion in annual revenue from over 200 postal 
products.
    The Postal Service and interested members of the public have the 
right to present a case in support of the rates that they advocate, and 
the right to challenge the cases presented by others. The Commission 
must develop recommended rates based on the record within a ten-month 
statutory deadline. Most participants agree that this severely 
compressed process strains their resources to the limit. The Commission 
also reviews Postal Service requests for experimental rates or 
classifications in even more compressed time frames.
    The Commission has a Periodic Reporting Rule to facilitate this 
process. It requires the Postal Service to provide certain relevant 
financial and operating reports prepared for Postal Service management. 
The process will be further streamlined by promptly providing the 
Commission and the interested public with access to the standard, 
routinely prepared cost and revenue data that serve as the basis for 
rate and classification requests.
    One of the key reports that the Postal Service currently submits 
each year is the Cost and Revenue Analysis (CRA). It contains the 
Postal Service's cost, volume, and revenue estimates for the most 
recently completed fiscal year, both in total, and by individual 
product. Because the postal system has a high proportion of shared 
costs, it is difficult to estimate the costs that each product causes. 
The CRA that the Postal Service submits under the current rule 
estimates unit costs caused by each product, but does not provide 
documentation showing how those estimates were derived. Consequently, 
it is of limited value in identifying trends in product costs, or in 
analyzing their causes, which are core issues in rate and 
classification cases.
    Under the existing Periodic Reporting Rule, the Postal Service has 
been providing some information about how it derives unit product costs 
(primarily in the mail processing and transportation areas.) The 
updated Periodic Reporting Rule adopted in this order asks the Postal 
Service to do this for all of its 20 cost segments.
    For each cost segment, the updated Periodic Reporting Rule asks the 
Postal Service to provide the basic datasets that it uses to estimate 
unit product costs, and identify any new estimating technique it 
applies to those data to derive the unit cost estimates in the CRA. 
Having this information filed each year, rather than waiting for the 
Postal Service to provide it in a general rate case, should produce the 
following benefits:
    [sbull] When the Postal Service files a general rate case, 
litigants and the Commission will already be familiar with the standard 
cost and revenue reports on which much of the case is based. This 
should reduce the need for discovery, and make it possible to shorten 
hearings.
    [sbull] When the Postal Service files requests for experimental 
classifications, market tests, or negotiated service agreements, 
litigants and the Commission should be able to evaluate them more 
quickly.
    [sbull] Between general rate cases, the Commission and the public 
will be able to analyze the accuracy of the cost, volume, and revenue 
projections on which current rates are based.
    [sbull] Between general rate cases, if the CRA shows that cross-
subsidy or other rate inequity exists, affected parties will have a 
basis for asking the Commission to hold a hearing to investigate the 
matter and fashion a remedy under Sec.  3662.
    [sbull] Between general rate cases, if the CRA shows that costs are 
shifting in ways that call current classifications into question, the 
Commission will have a basis for initiating a classification hearing to 
investigate the matter and fashion a remedy under Sec.  3623.
    [sbull] Between general rate cases, parties looking to propose 
alternative models of postal cost behavior in future rate cases will be 
able to analyze data that reflects current postal operations.
    Seven parties filed comments in response to the Commission's 
proposal to update the Periodic Reporting Rule. All but the Postal 
Service support the rule. They note that a general rate filing 
typically consists of thousands of pages of highly technical testimony 
and computer material. They complain that the Postal Service takes 
whatever ``lead time'' it needs to prepare such filings, whereas they 
have no lead time to react to it and prepare alternatives. They argue 
that this makes it extremely difficult for them to comprehend the 
Postal Service's case and to present alternatives in the brief hearing 
time available. They argue that having access to a more thoroughly 
documented CRA will help to ``level the playing field'' in rate 
litigation.
    The Postal Service objects that by requiring it to provide some 
supporting documentation for the CRA reports that it issues between 
rate cases, the updated Periodic Reporting Rule would impose a burden 
equivalent to a rate case presentation every year. It also argues that 
by requiring it to disclose the costs of its various products each 
year, the updated Rule would jeopardize the competitiveness of its 
products.
    The update is consistent with the main purpose of the current rule, 
which has always been to expedite the processing of general rate cases, 
and to allow research into postal cost, volume, and revenue behavior to 
continue between rate cases. The information required by the updated 
rule also will facilitate the Commission's statutory duties to hear 
complaint cases and to initiate classification cases, regardless of 
whether a Postal Service rate request is pending.
    The Commission finds that complying with the updated rule should 
not add significantly to the Postal Service's regulatory burden, since 
the Postal Service annually prepares almost all of this material for 
its own purposes. The

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Postal Service's own estimates indicate that under normal circumstances 
complying with the updated rule would involve only a tiny fraction of 
the resources that it devotes to preparing a general rate filing.
    With respect to potential competitive harm, the Commission believes 
that history shows that there is little cause for concern. The Postal 
Service annually disclosed the information required by the updated rule 
for six years (FY 1995 though FY 2000) with no indication that 
competitive harm resulted.
    The revised rule also is consistent with recent reports by the 
President's Commission on the Postal Service and the General Accounting 
Office that conclude that greater Postal Service financial transparency 
is necessary.

I. Introduction

    On January 8, 2003, the Commission issued a notice of proposed 
rulemaking (NPR) in this docket proposing to update its Periodic 
Reporting Rule (39 CFR Sec.  3001.102). PRC Order No. 1358; 68 FR 2272-
2275, Thursday, January 16, 2003. Rule 102 contains a list of reports 
and documentation that the Postal Service is required to provide on an 
ongoing basis to the Commission on its financial condition and 
operating results. Since its inception in 1976, the objective of the 
Periodic Reporting Rule has been to ensure that the Commission and the 
interested public have access to current financial data and operating 
results that are routinely reported to Postal Service management. This 
brings a number of important benefits to the ratemaking process. These 
benefits were mentioned briefly in the NPR, and are discussed in more 
depth in this notice.
    The NPR observed that the list of financial reports covered by the 
Periodic Reporting Rule has not changed since the mid-1980s, even 
though the nature of the reports that the Postal Service routinely 
produces to inform management of its financial and operating results 
have evolved substantially over that time. This final rule updates the 
list of required periodic reports and documentation to reflect the 
increasingly sophisticated financial information \1\ regularly produced 
by the Postal Service and the improved ability of the Commission and 
the public to understand and benefit from such reporting. The final 
rule is consistent with the goal of greater financial transparency for 
the Postal Service that has recently been recommended by the General 
Accounting Office and the President's Commission on the Postal Service.
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    \1\ Throughout this order references to ``financial 
information'' include cost, volume, and revenue information in 
aggregate, and for individual products, unless a narrower meaning is 
indicated.
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    Joint comments on the NPR were received from the American Bankers 
Association and the National Association of Presort Mailers (ABA/NAPM). 
Comments were also received from American Business Media (ABM), the 
Greeting Card Association (GCA), the Office of the Consumer Advocate 
(OCA), United Parcel Service (UPS) and the Postal Service. The OCA and 
UPS proposed additional changes that the Commission has decided not to 
include in the final rule.

The Purposes of the Final Rule

    The final rule calls for the periodic submission of financial 
information that is routinely prepared for postal management between 
omnibus rate cases. This information does not relate directly to a 
particular revenue requirement or set of proposed rates, and none of 
the information that it seeks about the Postal Service's financial 
estimation process relates to the justification for or merits of that 
process. The data and the estimation-process information that the rule 
requires shed light on the ratemaking process in a generic sense, and 
will improve the ability of the Commission to process future rate, 
classification, and complaint cases within the tight deadlines imposed 
by the Postal Reorganization Act and the Commission's own 
administrative rules. The information sought will also help the 
affected public to participate more meaningfully in such cases. The 
rule seeks routinely generated reports that disclose the Postal 
Service's current financial condition, allow operating and financial 
trends to be identified as they unfold, and allow the Commission and 
the public to test the validity of methods by which the Commission 
estimated the costs, volumes, and revenues upon which current rates are 
based. If the Commission and the affected public have evaluated this 
financial background information prior to the filing of a case, it is 
likely that they will not have to spend a substantial part of the brief 
time allotted for litigating the case trying to ``get up to speed'' on 
the issues related to the Postal Service's routine financial reports.
    The rule also seeks to permit the Commission to stay informed on 
the ``state of the art'' procedures by which the Postal Service 
currently attributes costs. Under the current regulatory scheme, the 
Commission is the expert body with the ultimate say on what methods 
should be used to attribute postal costs to classes of mail. See 
National Association of Greeting Card Publishers v. USPS (NAGCP IV), 
462 U.S. 810, 833 (1983). As a practical matter, however, most of the 
methods used to attribute postal costs to the classes of mail originate 
with the Postal Service. This is because it controls the cost, volume, 
and revenue data and determines for itself what estimating techniques 
it will use to compile its periodic financial reports. It also controls 
almost all of the data that will be used in rate, classification, and 
complaint cases. Between cases it decides for itself what techniques 
will be applied to the data and incorporated into its Cost and Revenue 
Analysis (CRA) report. Its CRA has become a massively intricate, 
partially documented, automated cost attribution engine that most 
interested participants cannot fathom, duplicate, or develop realistic 
alternatives to, in the narrow litigation window available to them. The 
difficulty in deciphering the CRA in the time allotted has profound due 
process implications, since the CRA inevitably provides the 
methodological baseline for Postal Service rate and classification 
requests.
    Because the data sources and estimating techniques that the Postal 
Service incorporates into its CRA change unpredictably, the ``state of 
the art'' is a moving target to the outside world. Neither the 
Commission nor the interested public can competently interpret the 
results presented in the Postal Service's routine financial reports, 
because they have no way to distinguish between what appear to be 
changes in cost, volume, and revenue behavior, from changes in the 
methods that the Postal Service uses to measure that behavior. Changes 
in data sources, or changes in estimation technique can have large 
impacts on the attributable cost estimates in the CRA, as the recent 
history of carrier street time attribution demonstrates. The 
Commission's rules require the Postal Service to provide detailed 
documentation in rate cases of the changes that it proposes in cost 
estimating procedures, and allows for discovery. Between rate cases, 
however, there is no way for the outside world to know what the state 
of the art in cost attribution is.
    To overcome this problem, the Periodic Reporting Rule will now 
require the Postal Service to identify all changes made since its most 
recent omnibus rate request to the data sources and estimation 
techniques used to produce the CRA, and to provide enough supporting 
material to allow the Commission and the affected public to understand 
these changes. This provides at least some basis for

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understanding and evaluating the estimates summarized in the CRA, and 
provides some insight into the likely causes of the trends discerned in 
these summary figures.
    The Commission will be able to use the information contained in 
adequately documented periodic reports to decide whether it should 
institute a classification case. Likewise, a customer or a competitor 
will be able to use information gained from adequately documented 
periodic reports to determine whether rates are in violation of the 
policies of the Act and whether a complaint should be filed with the 
Commission. Both are functions that the Act authorizes the Commission 
and the public to perform whether or not the Postal Service is 
litigating an omnibus rate request. The Commission, customers, and 
competitors of the Postal Service cannot make adequately informed 
decisions to invoke these provisions of the Act between omnibus rate 
cases if they cannot competently interpret or evaluate the Postal 
Service's routine financial reports.
    More important, the partial documentation of periodic reports that 
the rule requires facilitates the processing of future rate, 
classification, or complaint cases because it gives the Commission and 
the affected public some hope of keeping current with the ``state of 
the art'' by which the Postal Service attributes costs to the classes 
of mail. The rule does not require the Postal Service to explain or 
justify the changes that it has made to its cost attribution engine, 
but it requires the Postal Service to disclose changes to the 
mechanical process by which that engine attributes costs. This will 
allow the Commission and the interested public to identify what the 
Postal Service's current CRA does, if not why it does it. By staying 
informed of what the Postal Service's current cost attribution engine 
actually does, the Commission and the interested public will be able to 
respond more quickly to an omnibus rate request, or to a case filed by 
the Postal Service under expedited rules, because they will not have to 
spend a substantial portion of the available litigation window 
reacquiring this necessary expertise.
    The Periodic Reporting Rule requires the Postal Service to provide 
the basic datasets that it uses to produce its financial estimates in 
the CRA between cases. Public access to current datasets between rate 
cases is needed because they are the raw material that others must have 
if they are to develop their own cost attribution, volume forecasting, 
or revenue forecasting techniques that reflect current operations. 
Providing these datasets between omnibus rate cases facilitates the 
functioning of the Act because it allows potential intervenors 
sufficient time to develop alternative techniques.
    In omnibus rate cases, and in the various proceedings that are 
litigated under the Commission's expedited rules, intervenors are 
generally unable to develop alternative models of postal cost or volume 
behavior within the compressed litigation window provided. Because the 
Postal Service has custody of virtually all of the relevant data, it 
has an unlimited opportunity to develop such models. This imbalance is 
a basic flaw in the functioning of the Act, which presumes that all 
interested parties to a hearing will be afforded adequate due process 
and procedural fairness. If intervenors do not have the basic data with 
which to develop models between rate or classification cases, their 
right to present an opposing case in a rate hearing is unnecessarily 
limited and more theoretical than real. By requiring that the basic 
datasets used to produce the Postal Service's routine financial reports 
be made available to others between rate cases, the updated rule helps 
restore basic due process rights to intervenors who wish to develop 
alternative cost, volume, and revenue estimating procedures on which to 
base rates.

Differences Between the Proposed Rule and the Final Rule

    The Postal Service argues that releasing enough information between 
omnibus rate cases to allow its routine financial reports to be 
evaluated, or enough data to allow others to develop alternative models 
of cost or volume behavior, subverts, rather than facilitates the 
intended functioning of the Act. It seems to interpret the Postal 
Reorganization Act to grant it immunity from such activity between 
omnibus rate cases. The Postal Service is primarily concerned about 
documenting its annual CRA report, complaining that the rule would 
require it to provide as much supporting documentation for it as it 
provides in support of an omnibus rate case. In order to meet the 
Postal Service objections to the additional burden that the updated 
rule would impose, the Commission has pared back its requirements to 
the minimum that will still serve the basic purposes of the rule. The 
Commission has also incorporated some additional flexibility in meeting 
the requirements of the rule.
    The proposed rule required the Postal Service to provide three 
general classes of files used to produce the current year's CRA--(1) 
all input datasets, (2) all processing programs used to attribute mail 
processing costs, and (3) all other processing programs that have 
changed since the most recently completed omnibus rate case. See 
proposed Rule 102(a), Attachment to the NPR, at page 1 of 4. The final 
rule narrows the first general class of files to input datasets that 
have changed since the last general rate case. It deletes the second 
general category of files, and retains the third general category. 
Under the final rule, datasets that have not changed, such as those 
from already-documented special studies, need not be provided. 
Similarly, under the final rule, processing programs used to attribute 
mail processing costs that have not changed need not be provided. See 
final Rule 102(a)(1).
    The final rule is more flexible than the proposed rule with respect 
to datasets and processing programs that have been used for the first 
time to produce the CRA. If the Postal Service uses an estimation 
technique based on a new special study, the Postal Service may, under 
the final rule, choose to provide the Commission and the interested 
public with a short written narrative, or an oral briefing on that 
technique. The narrative or briefing should describe the data, the 
variables, and the analytical method used (such as the regression 
equation used). The purpose of the presentation would be to explain how 
the method was applied. The Postal Service may reserve its right to 
discuss the merits of its new method relative to alternative methods in 
the context of a formal hearing. After the written or oral 
presentation, the Postal Service may request a waiver of the 
requirement that input data and processing programs used to apply the 
new method be provided. If the presentation is sufficient to allow 
others to understand how the estimates affected by the new method were 
obtained, the requirement that the Postal Service provide the input 
data and processing programs used may be waived. See final Rule 
102(a)(1)(ii).\2\
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    \2\ The Postal Service did not analyze specific language of the 
proposed rule in its substantive comments. It complained generally, 
however, that the proposed rule is ``broadly worded,'' and cited 
this as one ground for concluding that it would require it to 
provide documentation that is comparable to an omnibus rate case in 
its ``scale and scope.'' Substantive Comments of the United States 
Postal Service (July 2, 2003) at 4, 22. Presumably it was referring 
to proposed paragraph 102(a)(1), since the remaining language in the 
rule is quite specific.
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    In its NPR, the Commission noted that there are significant 
differences between the methods used by the Commission and the Postal 
Service to attribute mail processing costs to subclasses of mail. It 
also noted that the methods that the

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Postal Service uses to attribute mail processing costs are in greater 
flux than in other segments. The Commission felt that this made it 
harder to determine whether the Postal Service has correctly applied 
PRC-approved methods in updating the Cost and Revenue Analysis-PRC 
Version. Accordingly, in its NPR, the Commission proposed that the 
Postal Service include with the CRA all of the processing programs that 
it used to attribute mail processing costs. NPR at 4-5. Despite these 
complicating factors, the Commission has decided not to require more 
complete documentation of the attribution of mail processing costs than 
of other costs, in order to reduce the Postal Service's burden in 
complying with the Periodic Reporting Rule.
    In addition to requiring the Postal Service to provide input data 
and processing programs that have changed since the most recently 
completed general rate case, the final rule requires that the Postal 
Service provide the spreadsheet workpapers (the ``B workpapers'') that 
show how the CRA was developed. See final Rule 102(a)(1)(i). There are 
so many links and interactions built into these spreadsheets that an 
effort to separately identify portions that have changed from portions 
that have not is impractical. They are so essential to understanding 
how the summary estimates in the CRA were obtained that they need to be 
provided as an integrated whole.
    Therefore, under the final rule, given current costing methods, 
documentation of the CRA should include the following:
    (1) Spreadsheets supporting the CRA. (The ``B'' workpapers. In 
Docket No. R2001-1 these were found in USPS-LR-J-57. These should 
include the workpapers for Segment 14, and the Alaska Air Adjustment, 
that have customarily been provided under the rule.)
    (2) The CRA model. This should include the files usually provided 
during an omnibus rate case to allow for the replication of all of the 
operations used by the Postal Service's COBOL CRA/Rollforward programs. 
These include the Manual Input Matrix, the ``A'' report matrix, and the 
``C'' report matrix. The files that contain the operating ``control 
strings,'' that is, the instructions to the computer model that 
distribute the indirect costs to classes and subclasses of mail, should 
be included. These files are usually named ``A,'' ``B,'' ``C,'' ``D,'' 
and ``F.'' They represent the instructions to the model for the 
development of the ``A'' report and the ``B'' report (Factor 
Development Report). Title files containing the categories of mail and 
special services that are reported in the CRA, and the titles of all 
1,600 components in the USPS CRA cost matrix, should be provided. (All 
of this material was provided in just eight of the over 100 files that 
made up USPS-LR-J-6 in Docket No. R2001-1.) The printouts of the CRA 
and the Cost Segment and Components report should be included, as has 
been customary under the rule.
    (3) The output data file for the In-Office Cost System (IOCS). 
(This was found in file PRC00.SD2 in USPS-LR-J-10 in Docket No. R2001-
1).
    (4) The Segment 3 accrued cost pools. (These were found in USPS-LR-
J-55, Table 1, in Docket No. R2001-1).
    (5) Equipment and facility-related cost spreadsheets. These three 
spreadsheets show the equipment variabilities for equipment maintenance 
labor costs, equipment parts and supplies, and capital interest costs 
by type of mechanized operation. The spreadsheets also develop the 
inputs for the components that determine the space and space-related 
separations for some facility-related costs, such as custodial, fuel 
and utilities, and rents. The inputs are data from the special facility 
studies and other maintenance databases. (In Docket No. R2001-1, these 
files were identified as FY00equip.xls, Facilt.xls, and equipvar.xls, 
and were sponsored by witness Smith.)
    (6) Output data file for the City Carrier Cost System (CCCS). (This 
was identified as ``cityz.sd2'' in USPS-LR-J-12 in Docket No. R2001-1.)
    (7) Output data file for the Rural Carrier Cost System (RCCS). 
(This was provided as the ``z'' folder in USPS-LR-J-13 in Docket No. 
R2001-1).
    (8) The National Mail Count for rural carriers.

Procedural History of the Rule

    This rulemaking has had an unusual procedural history. The NPR was 
issued on January 8, 2003. It allowed approximately a month for filing 
public comments and two weeks to file reply comments--the standard 
period for these procedures. The NPR proposed that part of the required 
information be provided in a PC-compatible format, and suggested that 
an informal technical conference be held if the Postal Service 
anticipated problems complying with this requirement. At the Postal 
Service's request, a technical conference was held on March 11, 2003. 
Afterward, the Postal Service was given three weeks to file substantive 
comments on the proposed update that reflected the information gained 
at the technical conference. See PRC Order No. 1363. At the end of that 
period, the Postal Service then requested an additional five weeks to 
file its substantive comments so that its staff could confer with its 
Board of Governors.
    Toward the end of that period, the Postal Service urged that it not 
be required to file its comments until well after July 31, 2003, the 
date on which the report of the President's Commission on the Postal 
Service was due. It asserted that the proposed update had major 
ramifications for the Postal Service and Commission, its prerogatives 
as a litigant in rate cases, and the confidentiality of its 
commercially sensitive information. It argued that these issues should 
not be addressed until after the recommendations of the President's 
Commission were made public. The report of the President's Commission, 
it said, would provide the appropriate context for discussing these 
issues. Motion of the United States Postal Service for Further 
Extension of Time to File Comments, June 6, 2003, at 2-3.

General Views of the Commenters

    Apart from the Postal Service, all of those commenting on the NPR 
have participated as intervenors in omnibus rate cases. They agree that 
the proposed updates would improve their ability to understand and 
respond to an omnibus rate filing in the time allotted. They argue that 
with the increasing complexity of the Postal Service's omnibus rate 
filings, the ``playing field'' has become tilted heavily in favor of 
the Postal Service. They argue that they have so little time to 
understand and react to the tens of thousands pages of data and 
documentation that support the Postal Service's rate filing that they 
cannot digest it all and respond to it in the time allowed. They say 
that by having access to enough data and documentation to understand 
how the Postal Service's routine financial reports are put together 
each year, they will be less likely to be overwhelmed when the Postal 
Service files an omnibus rate request that employs similar types of 
information. The intervenors also point out that under the regulatory 
structure of the Postal Reorganization Act, the Commission is required 
to make independent recommendations on postal rates under the severe 
time pressures imposed by the Act. To be adequately prepared to process 
an omnibus postal service rate filing under these difficult conditions, 
they argue, the Commission must maintain its expertise on postal cost 
systems and financial forecasting between rate cases. In order to do 
this, they say, the

[[Page 65352]]

Commission must have enough information to determine what data and 
methods the Postal Service is currently using to produce its routine 
financial reports.
    The Postal Service does not deny that providing the routinely 
compiled financial information called for by the updated rule would 
give the Commission and the intervenors the ability to respond to 
Postal Service rate filings more quickly and more competently. In fact, 
this appears to be its main objection to the updated rule. It contends 
that this would upset the statutory ``balance'' between it and the 
remaining players in the postal regulatory scheme.
    The Postal Service understands that when it withholds this 
information until it files a rate case, participants must spend so much 
of the 10-month period that is available to litigate a rate case 
reading and comprehending it that they have little time to prepare 
alternative rate proposals in response. The Postal Service does not 
consider this to be inconsistent with the Act. It emphasizes that the 
Act makes it the sole initiator of rate cases. In its view, this allows 
it to take all the time that it needs to prepare for litigation, and 
allows the Commission and the intervenors none. It insists that this 
procedural advantage is intended by the Act, and that it may withhold 
whatever financial information it wishes between rate cases in order to 
preserve it. It denies that it has any obligation to provide 
information between cases that would facilitate the Commission's 
performance of its functions during those cases, or would make it 
easier for intervenors or the public to comprehend or respond to its 
filings within the time constraints imposed by the statute. Substantive 
Comments at 15-17, 33-36.
    The Postal Service argues that since the Act does not give the 
Commission any meaningful function to perform between rate cases, the 
Commission has no legitimate need for financial information during 
these interim periods. Therefore, it reasons, the Commission has no 
legitimate motive for seeking access to financial information between 
rate cases. It concludes that the Commission can only have ulterior 
motives for seeking information between rate cases, e.g., to conduct 
annual audits and investigations of the Postal Service, to gain 
``oversight responsibility,'' and to indulge in ``day-to-day monitoring 
of [its] detailed operations and finances.'' Id. at 7, 11, 19, 22.
    Besides serving ulterior motives, the Postal Service complains that 
the updated rule would force it to prepare rate-case style 
documentation between rate cases. It argues that this will infringe 
upon management's statutory right not to concern itself with rate 
issues between rate cases, and will infringe on management's duty to 
manage. Id. at 21-23. It contends that most of the CRA documentation 
required by the rule has commercial value which the Commission would be 
unwilling or unable to protect from public disclosure. Id. at 31-32. 
Finally, it argues, by seeking basic information needed to understand 
and analyze the CRA, the Commission is seeking to preempt the 
legislative reform process that the President entrusted to the 
Commission on the Postal Service. Id. at 20.
    As the Postal Service now interprets the Act, between the rate 
cases that it files, the intervenors must avoid actions or thoughts 
that might relate to future rate or classification cases. Otherwise, 
the argument goes, they will nullify the litigation advantages that the 
Postal Service enjoys under the Act. Similarly, the Postal Service 
argues, the Commission must refrain from actions and thoughts that 
might help it prepare for future rate or classification cases. 
Otherwise, its collective mind will become contaminated. The updated 
rule, the Postal Service contends, seeks to circumvent these 
constraints that it infers from the structure of the Act. Id. at 15-17.
    The Postal Service's portrayal of the updated rule as a newly-
hatched plot by the Commission to circumvent the Act disregards the 
history of the Periodic Reporting Rule. As explained in more detail 
below, the updated rule meets the same standards, and is designed to 
accomplish the same objectives, as the original rule adopted 27 years 
ago by the Commission. At that time, the Commission explained that the 
rule had two main objectives: (1) to accelerate the discovery process 
during future rate and classification hearings, and (2) to enable all 
those in the postal regulatory arena, including the Commission and the 
intervenors, to study postal cost behavior between rate cases in order 
to improve the attribution of costs during rate cases.
    What is novel with this rulemaking is the Postal Service's 
interpretation of the Act as mandating that the flow of financial 
information cease between rate cases. This runs counter to the Postal 
Service's historic view that periodic reporting of financial data 
between rate cases, while not mandated by the Act, is a legitimate way 
to make the processing of future cases more efficient by reducing the 
need for discovery. Docket No. RM76-5, Postal Service Response to PRC 
Order No. 141 (December 7, 1976) at 2. For 27 years, the Postal Service 
supplied the type of information called for by the rule without 
suggesting that its objectives were in violation of the Act.
    The vast majority of the information previously required by the 
Periodic Reporting Rule has been willingly provided by the Postal 
Service. It accepted the modest additional burden of providing such 
information if it was likely to provide useful background information 
for processing future cases. It raised objections to only a few items, 
sometimes arguing that an item should not be included in the rule 
because it was not information ``which could be employed for rate 
purposes.'' Id. at 4. The views that the Postal Service has expressed 
in this rulemaking are the converse of its traditional view of the 
rule. Where it had traditionally considered items to be appropriate for 
inclusion in the rule only if they ``could be employed for rate 
purposes,'' it now considers items to be inappropriate for inclusion in 
the rule precisely because they ``could be employed for rate 
purposes.''
    The Commission did not include an elaborate justification for the 
update of the Periodic Reporting Rule in its NPR because it did not 
think that one would be necessary. The Commission assumed that the 
additional burden on the Postal Service of complying with the rule 
would be minor because the updated rule asks for only a small fraction 
of the information that the Postal Service provides with an omnibus 
rate filing. Of that small fraction, most is prepared each year by the 
Postal Service anyway, either to produce its own CRA, or to comply with 
rule 103. The Postal Service's right to litigate the merits of its 
procedures in a formal hearing is not infringed by the rule because the 
information required by the updated rule does not address the merits 
of, or justification for, the procedures that the Postal Service uses 
to produce its CRA. The Commission assumed that the commercial 
sensitivity of the information would not be a significant issue because 
the updated rule would require the types of information that the Postal 
Service has, in the past, freely disclosed to the public, both during 
and between omnibus rate cases. Because the Postal Service now 
challenges these assumptions, and misinterprets the Commission's 
motives for proposing these updates, the Commission will provide a 
detailed justification of the updated rule.

[[Page 65353]]

II. The Relationship of the Updated Periodic Reporting Rule to 
Legislative Reform

The Relevance of the President's Commission on Postal Service

    The Postal Service has chosen to depict the update to the 
Commission's Periodic Reporting Rule as an attempt to fundamentally 
alter the ``balance of power'' that the Act strikes between the Postal 
Service and the Commission, focusing almost all of its arguments on the 
CRA documentation that the rule requires. Substantive Comments at 20. 
The other commenters share the Commission's view that the updated 
Periodic Reporting Rule is a legitimate, restrained exercise of its 
Sec.  3603 authority under the Act whose effect is to only modestly 
increase the regularity with which the Postal Service would otherwise 
disclose this information.
    Based on the false premise that the rule attempts to rewrite the 
Act, the Postal Service criticizes the Commission's decision to go 
ahead with the update, rather than wait for the dust from the 
President's Commission on Postal Service to settle. The President's 
Commission was organized in December, 2002, and was charged with 
recommending a solution to what appeared to be the Postal Service's 
stagnating volumes and mounting losses. The Postal Rate Commission 
proposed to update its rule in January 2003, one month after the 
President's Commission began its work. At that time, nothing was known 
about the direction that the recommendations of the President's 
Commission might take.
    Due to a series of Postal Service requests for extensions of time 
to comment on the proposed updates, the rulemaking was still pending in 
June of this year. At that time, the Postal Service asked the 
Commission to suspend this rulemaking until after the report of the 
President's Commission was due to be issued, apparently so that the 
recommendations in that report could guide the deliberations of this 
rulemaking. With the unanimous support of all of the other commenters, 
the Commission declined the Postal Service's request for such a 
lengthy, additional delay, and ordered the Postal Service to file its 
substantive comments. The Postal Service responded with some 
indignation, accusing the Commission of, in effect, attempting to trump 
the legislative reform effort. Id. at 19-20.
    One of the dominant themes in the report of the President's 
Commission is the need for greater transparency of Postal Service 
operations and finances. Its proposed regulatory scheme would allow the 
Postal Service to retain its monopoly over letter mail, at least 
initially, and give it great flexibility to set rates for competitive 
products. The President's Commission, however, made it clear that the 
price for combining monopoly power with pricing discretion over 
competitive products would be greatly strengthened regulatory oversight 
and accountability, entrusted to a new Postal Regulatory Board. First 
on the list of duties entrusted to the new Board would be the duty to 
``ensure the financial transparency of the Postal Service.'' Report of 
the President's Commission on Postal Service, issued July 31, 2003, at 
53. The report elaborates, at page 66:

    The Commission believes that the Postal Service has a 
responsibility to the public to be transparent in its financial 
reporting. Given its important public mission and central role in 
the nation's economy, changes in Postal Service economic health 
should not come as a surprise to those responsible for or impacted 
by its performance.
* * * * *
    As a unifying force in American commerce and society, and as a 
customer-financed government endeavor, the Postal Service should be 
setting the standard for financial transparency by which all other 
Federal entities are judged. While the Postal Service does, in many 
respects, conduct financial reporting over and above what is 
required of Federal agencies, it remains behind the level of 
disclosure offered by its corporate peers. [Emphasis in original.]

And at page 68:

    In addition to SEC-like reporting, the Commission recommends 
that the Board of Directors be required to submit annually a 
detailed report to the Postal Regulatory Board on the financial 
viability of the institution, providing both significant financial 
insights as well as adequate explanation of related trends. The 
report should adhere to the 'no surprises' rule, ensuring that any 
major changes to the fiscal health of the institution are widely 
understood in advance, so appropriate responses can be anticipated 
and generated. The Commission further recommends that this report be 
made available to the public.

    The new Postal Regulatory Board would be empowered to set baseline 
rates and price caps for non-competitive services, and empowered to 
review rates for competitive products to ensure that they are not 
cross-subsidized by non-competitive products. The Board would complete 
reviews of competitive product prices in 60 days. In order to make this 
streamlined rate regulation possible, the report recommends, at page 
69:

    For the Postal Regulatory Board to ensure financial transparency 
and make fully informed determinations on issues from rate ceilings 
to cross-subsidies, it must have access to the most reliable and 
current information possible. For this reason, the Commission 
recommends that the Postal Regulatory Board have the authority to 
request accurate and complete financial information from the Postal 
Service, including through the use of subpoena powers, if necessary, 
to obtain a thorough and reliable snapshot of Postal Service 
operations.

At page 67, the report concludes:

    Where the Postal Service participates in markets also served by 
private industry, effective oversight is essential to ensure that 
monopoly revenues are not manipulated to the benefit of the Postal 
Service's competitive offerings. For this reason, the Commission 
recommends that the Postal Service periodically report on the 
allocation of costs among all products and services in accordance 
with form, content and timing requirements determined by the Postal 
Regulatory Board. [Emphasis added.]

    The guidance provided by the President's Commission could hardly be 
more direct in its support of the approach taken by the updated 
Periodic Reporting Rule. Indeed, the report of the President's 
Commission recommends going much further in mandating transparency both 
in general, and in the area of rate regulation. The Commission, 
however, is aware that the report of the President's Commission is only 
relevant to the extent that its recommendations are enacted into law. 
This may never happen, or may take years to accomplish. The Postal Rate 
Commission's proposal to update its Periodic Reporting Rule was 
conceived independently of the President's Commission, whose 
recommendations had not yet been formulated. The Commission's motive in 
persevering with its proposal was not to steer the legislative reform 
effort in any particular direction, or to trump it. The Commission 
motive was, and is, to make the existing regulatory regime more 
effective in achieving the objectives Congress set out for it.

The Report of the General Accounting Office

    On November 13, 2002, the General Accounting Office issued a report 
entitled ``U.S. Postal Service Actions to Improve Its Financial 
Reporting.'' GAO-03-26R Postal Financial Reporting. The report found 
that the Postal Service's financial reporting lacked the necessary 
transparency in general, and that its periodic reporting, in 
particular, was inadequate. At page 12 of the report, it states:

* * * it is clear from recently publicized problems in financial 
reporting that more detailed information and transparency are called 
for by both Congress and the public. Such transparency is critical 
for the Service because of the importance of its financial situation 
and the implications for

[[Page 65354]]

stakeholders in making their own financial plans. These factors help 
support stakeholders' need for timely, accurate, and complete 
financial information that is provided on a consistent basis.

At page 14, it continues:

    We acknowledge that the Postal Service provides a significant 
amount of information in its rate case filings; however, this 
information is provided only for rate-setting purposes, and rate 
cases are not filed on a regular cycle. Thus, rate case information 
does not provide stakeholders timely information about the Service's 
current financial condition and changes to its expected outlook.
* * * * *
    As we noted, however, these periodic financial reports do not 
clearly explain changes in its financial condition, outlook, and 
results of operations, and have not always been readily available to 
the public.

    Apart from the Postal Service, there appears to be a public 
consensus on the need for more complete periodic financial disclosure.

III. The Need for Updating the Periodic Reporting Rule

A. The History of the Rule

    Historically, during omnibus rate cases, the Postal Service has 
attempted to support its rate requests with input data, spreadsheets, 
and documentation that is sufficiently detailed and complete to allow 
the behavior of postal costs, revenues, and volumes to be evaluated and 
understood by the interested public. Typically, several years elapse 
between rate cases. During those intervals, the Postal Service has 
provided the Commission and the public with summary financial reports 
that it generates at regular intervals for use by postal management. It 
has included documentation of significant portions of those reports in 
response to the Periodic Reporting Rule. The portion provided has been 
a small subset of the kind of documentation that the Postal Service 
provides during an omnibus rate case.
    As noted, most of the Postal Service's objections to the updated 
rule are to the requirement that the Postal Service provide the input 
data and documentation that it uses to prepare its annual CRA report. 
Substantive Comments at 2. Each year this report summarizes, at the 
most general level, the results of the Postal Service's procedures that 
estimate the amount of costs caused by each subclass of mail, and the 
amount of revenue that each subclass earned. The process that produces 
the estimates in the CRA takes dollars from hundreds of subaccounts in 
the Postal Service's Books of Account and assigns them to one of 
hundreds of ``functional'' cost components. (Functional costs are 
viewed as economic costs). Costs in the various functional components 
are analyzed to see how they vary with mail volume. The volume variable 
part is then distributed to subclasses according to piece counts or 
other ``distribution keys'' that imply subclass causation.
    The Postal Service's estimates of the costs and revenues generated 
by each subclass of mail are derived from the intricate rules that it 
uses to convert its accounting costs to functional costs, apply 
variability percentages to functional costs, and distribute the 
variable portion to subclasses. When submitted in rate cases, these are 
the baseline estimates underlying the rate proposals made by the Postal 
Service. With some adjustments, CRA estimates also provide the basis of 
the rate proposals of the intervenors, and the rate recommendations of 
the Commission.
    When the Postal Service files an omnibus rate request, it includes 
spreadsheets and computer programs that contain the CRA's conversion, 
attribution, and distribution rules. This is its ``cost attribution 
engine'' described earlier in this order. These rules and their 
interactions are exceedingly complex. The input data, and the 
processing programs and spreadsheets showing how such rules are applied 
to the data, occupy the equivalent of tens of thousands of printed 
pages. Documentation of the myriad component parts of the process by 
which the CRA is produced is fragmentary. There is no single, coherent 
narrative explanation of the process to which an outside analyst could 
turn to understand, evaluate, and offer alternatives to the Postal 
Service's CRA. An outside analyst must rely primarily on a detailed 
study of processing program code and spreadsheet algorithms in order to 
discover how the CRA is developed. The analyst must make test runs 
replicating this largely automated process to confirm that his or her 
preliminary understanding of it is correct. The expertise necessary to 
evaluate the methods by which the Postal Service produces the CRA, or 
to develop alternatives to it, must be accumulated over many years. 
Despite attempts over the more than 30 years that the Commission has 
been processing omnibus rate requests, no outside party has been able 
to replicate the full CRA upon which the Postal Service bases its rate 
requests, or develop a comprehensive alternative to it, within the 10-
month window that the Act provides for litigating a rate case. Under 
these circumstances, even with the voluminous documentation provided by 
the Postal Service during omnibus rate cases, much of the process by 
which it produces its CRA has, of necessity, been accepted on faith by 
intervenors and the Commission.
    Since the methods that the Postal Service uses to produce the CRA 
continually evolve in minor, and sometimes major, ways, the CRA 
presents a ``moving target'' for outside analysts. Each time an omnibus 
rate request is filed, those on the outside of the CRA development 
process (the Commission and affected public) struggle to grasp these 
procedures and track their evolution. Even though this task can consume 
a majority of the 10-month period that the Act allots for processing a 
rate case, it must be completed before the intervenors and the 
Commission can effectively evaluate or respond to the Postal Service's 
rate proposals.
    To mitigate this problem, the Commission implemented its Periodic 
Reporting Rule in 1976. At that time it explained the purposes of the 
rule and the policies underlying its decision about what the rule 
should contain as follows:

    Currently, a majority of the data which the Commission receives 
from the United States Postal Service (Postal Service) is obtained 
only when a rate request is pending before the Commission. The 
present requirements of rule 54 (39 CFR 3001.54) and the 
Commission's regulations relating to interrogatory procedures and 
the discovery process have enabled the Commission and the 
participants in rate proceedings to obtain much of the data required 
to evaluate a request for increased postage rates and fees. However, 
the existing method of obtaining data, especially as regards 
discovery and the interrogatory process, is necessarily conducted on 
an ad hoc basis and is subject to all the pressures and exigencies 
of a rate case environment. If the Commission is to better fulfill 
its statutory responsibilities-particularly with respect to the 
Postal Reorganization Act's directive that we expedite our 
proceedings consistent with procedural fairness to the parties 
appearing in them [39 U.S.C. 3624(b)]--it must be continually and 
fully familiar with these data. To do this the Commission believes 
that it must improve the present method of obtaining data from the 
Service.
    At the present time, the Commission is aware of the existence of 
a number of reports routinely compiled by the Postal Service. The 
Postal Service also compiles manuals and handbooks which are 
necessary to understanding and analyzing such reports. It would 
appear that these documents would be useful for the purpose of 
evaluating Postal Service operations which are the subject of cost 
analyses presented in proceedings before the Commission. If these 
documents were to be obtained by the Commission as they were

[[Page 65355]]

completed (and were made publicly available at the Commission's 
offices) it is anticipated that the Commission and the numerous 
interested parties appearing in our formal proceedings would then 
have an opportunity to evaluate the data contained in the documents 
on an ongoing basis rather than solely during a rate proceeding.
    In addition to providing the Commission with a better 
opportunity for keeping abreast of the changing factors which will 
affect the execution of its regulatory functions, other benefits are 
likely to result if these reports were to be made available to the 
Commission. Since these data are necessary for evaluating a rate 
request, their early accessibility may aid in expediting rate 
proceedings. Relying solely on interrogatories and the discovery 
process to obtain information consumes time, both because data must 
initially be requested of the Service and, thereafter, additional 
time is expended while the Service responds. If the data which are 
the subject of this rulemaking were on file with the Commission, the 
time needed by the Commission and the parties would likely be 
reduced because of the ready availability of information.

    Notice of Proposed Rulemaking issued April 5, 1976, in Docket No. 
RM76-5 at 2-4.

    If the data currently made available to the Commission and 
interested persons were made available on an ongoing basis, rather 
than solely during the course of a rate proceeding, substantial 
benefits would inure to the Commission and the parties. The proposed 
rules will provide current data which will assist the Commission in 
keeping fully apprized of developing circumstances having an effect 
on its regulatory functions. Additionally, continued access to the 
data will assist interested members of the public in more thoroughly 
evaluating a filing of the Service and making alternative 
presentations within the time constraints imposed by the statutory 
directive that Commission proceedings be conducted with the ``utmost 
expedition consistent with procedural fairness to the parties.'' (39 
U.S.C. Sec.  3624). The reports, documents, and other data sources 
which are being made a part of the Commission's periodic reporting 
system will aid in achieving these objectives.
    The data sources which the Commission is now including in this 
amendment to the rules of practice have been evaluated on the basis 
of (1) the demonstrated utility of the data source, and (2) the 
burden imposed on the Service in filing the particular information. 
Although the information sources covered by our new rules do not 
include all the reports and documents proposed by the parties, the 
Commission is not foreclosing the possibility of the later inclusion 
of some or all of these items. As additional information is 
demonstrated to be useful, the underlying sources of information 
will be included in the data reporting system except where inclusion 
would impose an undue burden on the Service. So that interested 
parties may have the opportunity to analyze and experiment with 
additional information, even when there is no case in progress, the 
Service should provide access to these additional information 
sources. The Commission believes that where the information is 
available, its use on an experimental basis will be very helpful in 
determining its utility. [Footnote omitted.]

    PRC Order No. 141 (October 21, 1976) at 3-4.
    The initial version of the Periodic Reporting Rule emphasized 
accounting and other types of financial information that were likely to 
be useful in analyzing the behavior of the Postal Service's revenue 
requirement over time. It did not emphasize information on attributing 
costs to mail classes because analysis of Postal Service costs was 
still in its infancy. The process for attributing accounting costs to 
mail classes did not approach the complexity of the current CRA. Cost 
data collection systems and models of postal cost behavior were in 
considerable flux. Most of them were being developed on an arcane data 
processing platform that made it technically difficult for the 
Commission and the affected public to decipher and analyze. Primarily 
because attribution analysis was considered to be inadequate, the 
Postal Service, the Commission, and the affected public were all 
exploring ways to improve attribution methods. Facilitating such 
research with a view to speeding up the resolution of cost attribution 
issues in rate cases was among the primary goals of the Periodic 
Reporting Rule. Id. at 3-4, 15.
    In contrast to its current attitude, the Postal Service's response 
was accommodating. It did not challenge the legitimacy of providing 
basic financial data and documentation to facilitate independent 
research of postal cost behavior between rate cases. It did not assert 
the commercial sensitivity of the cost data that the Commission or the 
intervenors proposed to include in the rule, except where data were 
facility-specific or customer-specific. (The Commission readily 
accommodated this concern in its initial version of the rule.)
    From the beginning, the Commission's explicit policy has been to 
minimize the burden of the Periodic Reporting Rule on the Postal 
Service by limiting it to information that the Commission or the 
affected public was likely to use. With respect to cost information, 
the initial version of the rule asked primarily for summary-level cost 
reports [the precursors of the Cost and Revenue Analysis (CRA) and the 
Cost Segments and Components (CSC) reports] \3\ since the technical 
obstacles referred to above made it difficult for the Commission or the 
public to use the input data and documentation underlying the Postal 
Service's standard cost attribution reports.
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    \3\ See PRC Order No. 141 (October 21, 1976) at 6-8.
---------------------------------------------------------------------------

    By the mid-1980s, some Postal Service cost data collection systems 
had matured, and cost attribution analysis had grown more complex, 
notably in the method by which attributable costs were distributed to 
mail classes in the mail processing and transportation areas. Adjusting 
to these developments, the Commission updated its Periodic Reporting 
Rule to require supporting documentation of these methods (the LIOCATT 
in mail processing and workpapers 31 and 57 in transportation). See PRC 
Order No. 697 (June 27, 1986) at 7. The rule did not seek input data in 
these costing areas because technical problems still prevented the 
Commission from using input data in the form in which it was reported. 
In other major cost centers, such as carrier street time costs, ongoing 
data collection systems had not yet stabilized. Attribution of these 
costs depended primarily on ad hoc studies that had already been 
publicly documented in the course of rate hearings, rather than on the 
analysis of regularly-collected data. Because regularly-collected data 
on carrier street time cost played a lesser role in modeling carrier 
costs, the rule did not require that carrier cost data be periodically 
reported.
    The Periodic Reporting Rule has not been modified in 17 years. Over 
that time, the Postal Service's financial reporting systems have 
undergone major changes. Updating of the Periodic Reporting Rule to 
reflect those changes is long overdue. The sophistication of cost 
attribution methods has grown dramatically since the rule was last 
modified. The Postal Service has introduced elaborate cost variability 
models in the mail processing, transportation, and carrier cost areas. 
Also in each area, it has developed new, more complex methods of 
distributing attributable costs to subclasses. The ongoing data 
collection systems that the Postal Service used to develop these new 
attribution models and distribution methods were not used for these 
purposes, or did not exist, when the rule was last updated. These 
include ``MODS'' in the area of mail processing costs, ``TRACS'' in the 
area of transportation costs, and ``CCCS'' and ``RCCS'' in the area of 
delivery carrier costs. As the complexity of the Postal Service's cost 
attribution methods has grown, the need to document them in order to 
competently interpret them has

[[Page 65356]]

grown.\4\ Because these new models and methods use new data collection 
systems, the rule must be updated to include the new data systems if 
the Commission and the affected public are to understand how they are 
used to produce the CRA.
---------------------------------------------------------------------------

    \4\ In 1997, the Postal Service discarded the LIOCATT-based 
method of distributing mail processing costs in favor of the much 
more complex MODS-based method. In its recent submissions under the 
Periodic Reporting Rule it provides much less documentation of its 
new, complex method than it had been providing for the older, 
simpler method.
---------------------------------------------------------------------------

    A primary reason that the Commission was slow to update its 
Periodic Reporting Rule to include this new cost data was that the 
capability to use this information only became available gradually. For 
much of this time, the Commission wrestled with Postal Service datasets 
and programs developed on a mainframe COBOL platform. Despite hiring a 
series of service bureaus and consultants who specialized in this data 
processing platform, the Commission and participants in rate hearings 
were generally not successful in reading, understanding, and using the 
datasets and programs that the Postal Service developed on this 
platform. It was not until the mid-1990s, when the Postal Service began 
providing some of this information in the mainframe SAS language, that 
the Commission's staff and some hearing participants were able to 
convert such information to PC-compatible versions that they could 
read, understand, and use.
    Although the Commission, by the mid-1990s, was beginning to acquire 
the technical capacity to use the data and programs that underlie the 
Postal Service's periodic cost reports, it did not update the Periodic 
Reporting Rule to reflect its technical progress. This is because the 
Postal Service had been providing the information needed on an annual 
basis anyway, apart from the rule. It provided the basic data and 
documentation underlying the CRA each year from FY 1995 through FY 
2000. Sometimes it provided this information in support of a rate or 
classification request. Other times it provided it voluntarily, simply 
to be helpful.\5\
---------------------------------------------------------------------------

    \5\ For example, in 1998, the Postal Service voluntarily 
provided a fully documented CRA reflecting Commission-approved 
attribution methods for FY 1997.
---------------------------------------------------------------------------

    Since the most recent omnibus rate case was settled, however, the 
prospect for continuing to get an adequately documented CRA each year 
has dimmed. Passage of Pub. L. 108-18, which dramatically reduces the 
Postal Service's contribution to the Civil Service Retirement Fund, led 
to a Postal Service promise not to increase rates until 2006. 
Consequently, the Postal Service is unlikely to file a documented 
version of the CRA in support of an omnibus rate request for four 
years--from FY 2001 through FY 2004. The Postal Service is signaling 
that it will not voluntarily submit such information in the future. 
Unless the Periodic Reporting Rule is updated to seek a moderate level 
of documentation of the Postal Service's CRA each year, the outside 
world will not be able to competently interpret the CRA for up to four 
years. The Commission and the intervenors do not believe that the 
regulatory scheme established by the Postal Reorganization Act can 
function as Congress intended if they are to be kept in the dark for up 
to four years. By updating its Periodic Reporting Rule, the Commission 
will eliminate long blackout periods of this kind.

B. The Postal Service's Scope and Burden Objections

    The preceding discussion of the history of the Periodic Reporting 
Rule and the considerations that shaped the update to the rule respond 
to the Postal Service's speculations that the update was prompted by an 
array of improper motives. As the preceding discussion makes clear, the 
Commission's objective in adopting the rule has remained the same over 
the 27-year life of the rule--to help the Commission perform its 
statutory functions more quickly and efficiently.
    To do that, the rule directs the Postal Service to provide current-
year financial reports summarizing the Postal Service's financial 
results, with enough mid-level documentation to allow the Commission 
and the affected public to competently interpret them. The rule also 
directs the Postal Service to provide intermediate-level datasets that 
will allow outside analysis of postal cost and volume behavior to 
continue between omnibus rate cases. While the information sought is 
not case-specific, it facilitates the processing of future rate and 
classification cases by providing essential technical background for 
evaluating the kind of issues that typically arise in such cases.
    The information provided under the rule makes the Commission and 
the interested public better prepared to process rate and 
classification cases. As explained above, the rule needs to be updated 
because the Postal Service has made major changes to the way it 
estimates its costs and revenues over the past 17 years, and the 
Commission and the public have developed the technical capability to 
interpret and use the information supplied. The rule strikes a 
reasonable balance between these benefits and the added burden on the 
Postal Service of providing this additional information. As in the 
past, the Commission is willing to make appropriate arrangements to 
protect information that the Postal Service believes to be commercially 
sensitive.
    The Postal Service expresses concern that the Commission has 
ulterior motives for seeking to update the rule. These include a desire 
to change its institutional relationship with the Postal Service, to 
arrogate to itself auditing, supervisory, and managing functions 
reserved to others under the Postal Reorganization Act, and to hijack 
the legislative reform process. Substantive Comments at 2-3. This 
questioning of the Commission's motives proceeds from the premise that 
the amount of data that the updated rule would require the Postal 
Service to provide is far out of proportion to its needs. This premise 
reflects two beliefs--that the updated rule requires documentation of 
the CRA equivalent to that required in an omnibus rate case, and that 
the Commission has no need for financial information unless it is 
actively processing an omnibus rate request.
Scope Arguments Based on the Wording of the Rule
    When the Postal Service asserts that the updated rule requires CRA 
documentation on the same scale and scope as it provides in an omnibus 
rate case it grossly mischaracterizes the requirements of the rule. It 
finds support for its assertion in the ``very broad'' wording of the 
rule, quoting the preamble to proposed rule 102(a)(1):

    All input data, all processing programs that have changed since 
the most recently completed general rate proceeding, and all 
computer programs used to attribute mail processing costs to 
subclasses, if they are used to produce the Cost and Revenue 
Analysis Report (CRA).

    Without analyzing this language, it asserts that the proposed 
rule could

potentially call for production of virtually all information used in 
the production of the CRA report, from secondary, tertiary, and 
lower inputs to the CRA model and its inputs to raw data collected 
by the Postal Service's data collection systems.

Substantive Comments at 3.
    It should be made clear at the outset that the CRA deals with only 
half of the costing issues that are addressed in detail in an omnibus 
rate case. The CRA summarizes the Postal Service's estimates of 
attributable costs by cost segment and by subclass. Equally important 
to recommending a comprehensive set of rates, and equally

[[Page 65357]]

detailed, are the Postal Service's cost avoidance estimates upon which 
hundreds of worksharing discounts are based. The Commission's Periodic 
Reporting Rule does not require any reports or documentation that 
relate to this half of the Postal Service's cost presentation in an 
omnibus rate case.
    Focusing on the various levels of inputs into the CRA model, as the 
Postal Service has done, helps demonstrate how it has exaggerated the 
scope of the proposed rule compared to the costing documentation 
provided in omnibus rate cases. To organize the discussion, the 
Commission will characterize the Postal Service's CRA documentation as 
consisting of the following six layers, or levels:
    Level One--the programs that derive distribution keys for 
indirectly attributable costs and distributes them to subclasses
    Level Two--the spreadsheets that calculate directly attributable 
costs and distributes them to subclasses
    Level Three--cost attribution models
    Level Four--input datasets
    Level Five--data assembling, editing, and structuring techniques
    Level Six--raw data
    Omnibus rate cases involve formal hearings governed by the rules of 
evidence. Under those rules, the Postal Service is required to ``lay a 
foundation'' for the results of statistical or scientific studies that 
it wants to use to support its proposed rates. To lay the required 
foundation, it must start with the raw data it used and describe how 
that information was collected, edited, and structured before an 
estimating technique was applied to it.
    For sake of discussion, the Commission will label raw data as Level 
Six documentation and the various manipulations that convert raw data 
into input data as Level Five documentation. The Commission will label 
``input data'' as Level Four documentation. Input data are generally 
understood to mean data to which an estimating technique or model has 
been applied, which is its intended definition in the Periodic 
Reporting Rule. By specifying ``input data,'' the rule eliminates 
foundational information of the kind described above (Level Six and 
Level Five documentation) from its scope. The final rule is further 
narrowed to input data that have changed since the most recent omnibus 
rate case was completed. This eliminates input data collected as part 
of special studies that have already been reviewed in an omnibus rate 
case.
    Because Level Five and Level Six documentation are not required by 
the rule, it is substantially narrower in scope than full rate case CRA 
documentation. Level Five and Six documentation can make up a large 
part of the burden of documenting the CRA in an omnibus case.\6\
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    \6\ For example, the Postal Service spent a major portion of the 
most recent fully-litigated omnibus rate case (Docket No. R2000-1) 
producing and defending Level Five and Level Six documentation for 
the Engineered Standards data on which the Postal Service based its 
attribution of carrier street time labor costs.
---------------------------------------------------------------------------

    In the development of the CRA, input data are fed into spreadsheet, 
statistical, or econometric models of postal cost behavior to identify 
costs that are caused by particular classes of mail. The models 
themselves, including the theories upon which they are based, the 
definitions of the variables, the equations or other analytical 
techniques used, and the results, may be labeled Level Three 
documentation for purposes of this discussion. Typically, these models 
attempt to find the degree to which particular segment or component 
costs vary with volume, estimating a volume variability percentage or 
``factor'' for those costs. Variable costs are distributed to 
subclasses of mail in proportion to their relative piece volume, cubic 
volume, or other cost-driving characteristic. The Postal Service calls 
the relative subclass shares of a given cost characteristic a 
``distribution key.'' Level Three documentation sometimes shows how 
distribution keys were applied to volume variable costs to distribute 
them to subclasses. The updated rule requires the Postal Service to 
provide only a small subset of the Level Three documentation that it 
would provide in an omnibus rate case, i.e., the processing programs 
that have changed since the last general rate case.
    In an omnibus rate case, Level Three documentation is by far the 
most burdensome and time-consuming kind to produce. It usually requires 
a narrative explanation and defense of the theory, the variables, the 
equation specification, the research of alternative estimation 
procedures and the reasons for rejecting them, and the validity of the 
results. The fact that the Periodic Reporting Rule requires only input 
data and processing programs means that it altogether avoids the need 
to justify and defend any aspect of the CRA development process. 
Furthermore, because the final rule applies only to processing programs 
that have changed since the most recently completed general rate case, 
most Level Three documentation is eliminated from the scope of the 
rule. This is because most attribution models and distribution 
techniques do not change from one rate case to the next. These two 
considerations are the most important reasons that, with respect to 
documenting the CRA, the burden of complying with the rule is a small 
fraction of the burden that the Postal Service bears in an omnibus rate 
case.\7\
---------------------------------------------------------------------------

    \7\ Historically, the Postal Service has rarely incorporated 
major new attribution models or distribution techniques into its 
interim-year CRAs, because they have not been scrutinized in an 
omnibus rate case. In its FY 2002 CRA, the Postal Service apparently 
has departed from this traditional practice by incorporating major 
new attribution models in the areas of carrier street time labor and 
in facilities costs in the FY 2002 CRA before they have been 
presented in an omnibus rate case. This coincides with significant 
shifts in subclass attributable cost shares of the effected cost 
components. There is no way for the outside world to interpret these 
shifts, however, because the undocumented FY 2002 CRA provides no 
way of distinguishing between shifts in attributable costs, and 
shifts in the techniques that the Postal Service uses to measure 
attributable costs. If the outside world had the ability to 
replicate the Postal Service's cost attribution model, it could run 
the model with FY 2002 data using the established method, and again 
using the new method. This would provide a reasonable basis for 
separating changes in underlying economic activity from changes in 
the methods by which they are measured.
---------------------------------------------------------------------------

    Level Two documentation consists of a workbook called ``I-Forms'' 
and Excel spreadsheets called the ``B workpapers.'' In Level Three 
documentation, component costs are modeled to see what portion varies 
directly with volume.\8\ The Postal Service typically collects these 
variability factors in a workbook known as ``I-Forms.'' Excel 
spreadsheets known as the ``B workpapers'' take variability factors 
from the ``I-Forms'' and apply them, in proper sequence, to the accrued 
costs of the appropriate components to obtain attributable costs for 
those components. Typically, the B workpapers also distribute a 
component's attributable costs to subclasses of mail, according to 
subclass shares of piece volume or some other cost-causing factor.
---------------------------------------------------------------------------

    \8\ Sometimes this is a two-step process where component costs 
are modeled to see what portion varies with an intermediate cost 
driver, then that portion is modeled to see how much of it varies 
with volume.
---------------------------------------------------------------------------

    The development steps documented in Level Two are key steps in 
producing the CRA. The rules that the B workpaper spreadsheets apply 
summarize the Postal Service's cost attribution methods, and provide 
insight into the causes of trends in postal cost behavior. These rules 
are exceedingly intricate, and are continuing to evolve. This makes it 
difficult for an outside analyst to remain expert on this phase of the 
production of the CRA without current Level Two documentation. The 
Postal Service prepares Level Two CRA documentation each year when it 
produces the CRA-USPS Version. It

[[Page 65358]]

prepares the same Level Two documentation when it produces the CRA-PRC 
Version as part of its obligation to facilitate production of the 
international mail study. Because it prepares Level Two documentation 
for both versions anyway, and preparing it can be done automatically 
with little effort, providing Level Two documentation for the Periodic 
Reporting Rule should not impose an additional burden on the Postal 
Service of any significance. For these reasons, the Periodic Reporting 
Rule requires the Postal Service to provide essentially the same Level 
Two documentation of the CRA each year that it provides in an omnibus 
rate case. See Rule 102(a)(1)(i).
    Level Two documentation shows primarily how the Postal Service 
estimates subclass shares of costs that vary directly with volume. 
These estimates become direct inputs (what the Postal Service calls the 
``Manual Inputs'') into the ``CRA model.'' The CRA model is a mainframe 
COBOL program that distributes indirectly attributable costs to 
subclasses in the same proportions as the Manual Inputs to which they 
relate.\9\ The Level One CRA documentation shows how the CRA model does 
this.
---------------------------------------------------------------------------

    \9\ This may be described as ``piggybacking'' the indirect costs 
on the direct costs. For example, the CRA model spreads the costs of 
supervising city carriers to subclasses in the same proportion as 
the B workpapers distribute the cost of city carrier direct labor to 
subclasses. It does this separately for each of the numerous in-
office and street time components of city carrier direct labor 
costs.
---------------------------------------------------------------------------

    The subclass shares of directly attributable costs embodied in the 
Manual Inputs are fed into the CRA model to estimate total attributable 
costs and cost coverages by subclass. If outside analysts do not have 
access to the B workpapers that show how the Manual Inputs were 
calculated, they are unable to interpret or analyze the Postal 
Service's estimates of subclass attributable costs and cost coverages. 
They must simply take these summary estimates ``on faith.''
    In the Level One CRA documentation, the Manual Inputs perform 
roughly the same function that the ``I-Forms'' perform in Level Two. In 
Level One CRA documentation, ``control strings'' perform roughly the 
same function that the spreadsheets perform in Level Two. The control 
strings apply intricate relationship rules to the Manual Inputs to 
construct hundreds of distinct keys for distributing indirectly 
attributable costs to subclasses. The CRA model then aggregates these 
subclass shares of directly attributable, and indirectly attributable 
costs.
    With respect to space-related costs, such as rent, fuel, and 
utilities, the CRA model does more comprehensive calculations, 
calculating subclass shares of directly attributable, as well as 
indirectly attributable costs. Directly attributable space-related 
costs are not calculated in the B workpaper spreadsheets. There are 
distinct variability factors for many finely disaggregated activities 
that drive space costs, and there are many keys constructed from other 
keys that are used to distribute these costs. Because of this 
complexity, the Postal Service has used computer programs, rather than 
spreadsheets, to perform these calculations.
    Like the B workpaper spreadsheets in Level Two, the CRA model is 
essential to understanding how the Postal Service arrived at its 
estimated subclass shares of attributable costs. Because of the 
numerous links and interrelationships embodied in its control strings, 
the CRA model needs to be provided as an integrated whole. Like the B 
workpaper spreadsheets, the intricate rules that the CRA model applies 
are continually being refined. These rules are exceedingly intricate, 
and evolve continually in minor, and sometimes major ways. For example, 
in its comments, the Postal Service announced that it has incorporated 
the results of a special facilities cost study into the FY 2002 CRA 
that would take it a year to document. Substantive Comments at 22. For 
an outside analyst to remain expert on the CRA model, current-year 
Level One (and Level Two) documentation of the model must be provided.
    Each year, the Postal Service produces Level One documentation (the 
Manual Inputs and the Control Strings) for its own purposes when it 
produces the CRA-USPS Version. Each year, it produces Level One 
documentation for the CRA-PRC Version as part of its obligation to 
facilitate the international mail study. The CRA model is almost 
entirely automated. Because it prepares Level One documentation for 
both versions anyway, and preparing it can be done automatically with 
little effort, providing Level One documentation for the Periodic 
Reporting Rule should not impose an additional burden on the Postal 
Service of any significance. For these reasons, the rule requires the 
Postal Service to provide Level One CRA documentation each year that is 
comparable to that provided for the base year in an omnibus rate case.
    Of the six levels of CRA documentation that the Postal Service 
provides in an omnibus rate case, the Periodic Reporting Rule will, in 
a typical year, require Level One, Level Two, and Level Four 
documentation, almost exclusively. Level One and Level Two 
documentation is not burdensome for the Postal Service to provide, 
since its production is almost entirely automated, and the Postal 
Service produces it each year anyway, for reasons apart from the rule. 
The burden of providing Level Four documentation should be minor, too. 
The input databases have already been produced, since they are an 
indispensable step in producing the CRA, and their production is 
automated. In providing some Level Four data, the Postal Service faces 
the extra task of masking the identifying label for data that are 
facility specific or customer specific. This, however, should not be 
significant, since it, too, is easily automated.
    The only significant burden of complying with the rule that the 
Postal Service would not otherwise bear is that involved in providing 
Level Three documentation (the processing programs used in its 
component cost variability models). But it only needs to provide a 
minority of those programs used to produce the CRA (those that have 
changed since the last rate case), and it need not provide narrative 
explanations or justifications. The Postal Service thereby avoids most 
of the burden that it would encounter providing Level Three 
documentation in an omnibus rate case.
    For all of the above reasons, the Postal Service grossly 
mischaracterizes the Periodic Reporting Rule when it asserts that it 
will require CRA documentation on the ``scale and scope'' of an omnibus 
rate case. Id. at 4.
Scope Arguments Based on the List in the NPR
    As noted earlier, the Postal Service's principal support for this 
gross mischaracterization is an entirely non-analytical reference to 
the ``very broad'' language of the rule. It also cites a list of 
information at page 5 of the NPR, apparently to prove that the rule 
would require CRA documentation equal to that submitted in an omnibus 
rate case. Ibid. Here, too, it offers no analysis that explains how the 
contents of the list might support this assertion.
    The 11 items on the list do not support the Postal Service's 
assertions that the requirements of the rule are open ended and 
comparable to an omnibus rate case in scope and scale. The list 
illustrates the Level One documentation required by the proposed rule 
(the ``CRA Model'' itself) with item 2. It illustrates the Level Two 
documentation required by the proposed rule (B workpaper

[[Page 65359]]

spreadsheets and their equivalent) with items 1, 5, 10 and 11. It 
illustrates the Level Four documentation required by the proposed rule 
(input datasets) with items 3, 6 and 9. As noted above, the Postal 
Service would have to produce all of these items anyway for reasons 
apart from the rule, and their production is almost entirely automated, 
and therefore not a significant burden to provide.
    The Level Three documentation required by the rule (analytical 
studies supporting variability estimates or distribution techniques) 
potentially would require some significant additional burden in the 
rare case that a special study was used to produce the CRA before being 
vetted in an omnibus rate case. Even then, the documentation would be 
much less burdensome to provide than the documentation required in an 
omnibus rate case because the Postal Service need not include a 
narrative explanation and defense of the study, such as that which it 
would submit as sponsoring testimony in an omnibus rate case. The final 
version of the rule gives the Postal Service additional flexibility 
that it would not have in the context of an omnibus rate case. The 
Postal Service may provide an abbreviated written or oral description 
of the study, which should include a description of the theory, the 
data, and estimation technique used. It may then ask for a waiver of 
the requirement that it provide the underlying dataset and processing 
programs. If the description is sufficient to allow others to evaluate 
the resulting estimate at a general level, the Commission could grant a 
waiver. If the Postal Service concludes that an abbreviated narrative 
description would be burdensome to provide, it may provide the input 
data and the processing programs, and let them speak for themselves. In 
its length and its scope, the narrative presentation might resemble the 
kind of informal technical conference that is occasionally used in a 
rate case to acquaint litigants with the basic outlines of a complex 
new study. It would not, however, involve testimony, discovery, or 
cross-examination, which are the significant burdens associated with 
litigating a rate case. It should be borne in mind that the additional 
burden of documenting a special study this way for the Periodic 
Reporting Rule would be zero, since the study would eventually have to 
be fully explained in an omnibus rate case.
    Three items on the list on page 5 of the NPR (items 4, 7 and 8) 
illustrate the kind of Level Three CRA documentation that the proposed 
rule would require. These are special studies whose theory, variable 
definitions, and estimating techniques haven't changed from the most 
recent general rate case, but the accuracy of their results requires 
the use of updated input from routine data collection systems.\10\ 
Therefore, the Commission needs documentation related to these special 
studies that allows it to determine whether current data have, in fact, 
been used to produce the current-year CRA. This need relates primarily 
to the CRA-PRC Version, since the Postal Service does not audit that 
version as carefully as it audits the CRA-USPS Version. The Service's 
outside auditors do not review this document.
---------------------------------------------------------------------------

    \10\ The Van-Ty-Smith SAS programs that construct mail 
processing labor cost distribution keys from current-year IOCS tally 
data, stop coverage in the CAT/FAT study of coverage variability, 
and pieces-per-delivery in the Load Time Variability study are 
examples of studies whose accuracy depends upon using updated input 
data.
---------------------------------------------------------------------------

    Item 7 on the list indicates that under current circumstances, 
where Docket No. R2000-1 serves as the most recent fully-litigated rate 
case, the proposed rule would extend to the spreadsheets and programs 
used to estimate load-time variabilities in the CRA. To get accurate 
estimates of variable load-time costs, it is necessary to calibrate the 
Load Time Variability model with current-year data from the City 
Carrier Cost System (CCCS). The Postal Service purported to estimate 
variable load time costs according to Commission-approved methods in 
the FY 2001 International CRA-PRC Version, which it provided to help 
the Commission produce its FY 2001 international mail report. (In such 
reports, the Commission must determine if the Postal Service's 
attributable cost estimates for international mail categories 
accurately reflect Commission-approved methods.) Because the Commission 
could not replicate the estimates using the methods approved in the 
last full rate case, it asked for the processing programs to see if it 
could determine why. The Postal Service provided new spreadsheets in 
place of the SAS programs it had been using in prior rate proceedings.
    The Commission could not decipher the undocumented spreadsheets. 
Because the Commission did not have access to current-year CCCS data, 
it could not run the established programs to diagnose the problem 
itself.\11\ Consequently, the Commission could not determine whether 
the Postal Service had used current-year data to produce the current-
year CRA. Later, through cumbersome trial and error procedures, the 
Commission was able to decipher the Postal Service's new spreadsheets, 
and determine that the Postal Service had simply plugged in an obsolete 
variability factor instead of using current data to update the load 
time variability model. This illustrates why the Commission needs 
access to input data and processing programs that have changed since 
the most recently completed rate case, if it is to be able to evaluate 
the CRA.
---------------------------------------------------------------------------

    \11\ One way to diagnose a failure to update a special study is 
to compare the Postal Service's results to those obtained by 
rerunning the program with old data. This diagnostic tool is 
available to an outside analyst only if he or she is able to 
replicate the program.
---------------------------------------------------------------------------

    Item 8 on the list indicates that the Postal Service should provide 
``the underlying route-type data'' needed to produce the in-office 
worksheets in the B workpapers. In the past, the Postal Service used 
the IOCS tally information compiled in the LIOCATT to distribute mixed 
mail sorting costs incurred at delivery units to subclasses. Because 
the Postal Service changed the processing programs that it uses to 
perform this task, this item was included in the list. The Commission 
recognizes, however, that the changes were documented in the most 
recently completed rate proceeding. As a result, the Periodic Reporting 
Rule need not extend to this item. If the Commission receives the IOCS 
input data, it will not need these processing programs to competently 
evaluate the distribution of in-office mail sorting costs to 
subclasses.
    Item 4 on the list would require the Postal Service to provide the 
MODS-based costing spreadsheets needed to produce output for the B 
workpapers. While the processing programs used to attribute mail 
processing costs to subclasses were specifically required under 
proposed Rule 102(a)(1), they are not included in the final version of 
the rule. Many of those programs, however, change from year to year due 
to additions or deletions of activity codes or finance numbers. Also, 
because some programs use hard-coded numbers to compute distribution 
keys, they need to be updated each year. Consequently, the final rule 
would still require the Postal Service to provide many of the MODS-
based programs in item 4. It may be more practical for the Postal 
Service to submit them all, rather than to attempt to segregate out the 
ones that have changed. The final rule allows the Postal Service this 
option.
    The relatively recent switch from the LIOCATT-based system to the 
MODS-based system is a fundamental shift of methods governing a major 
portion of the Postal Service's overall operations. The Postal Service 
is apparently still making adjustments to the estimation methods that 
it uses to produce the CRA

[[Page 65360]]

in related areas to bring them into conformity with the fundamental 
shift. For these reasons, the Commission is likely to need the programs 
implementing the MODS-based method for distributing mail processing 
costs to subclasses if it is to stay abreast of these developments in 
cost attribution, and retain its ability to competently interpret the 
CRA.
Scope Arguments That Assume Improper Commission Motives
    The Postal Service seems to be aware that neither the wording of 
the Periodic Reporting Rule, nor the list of examples of what it would 
cover, supports its assertion that it would require as much CRA 
documentation as would be required in a full-blown rate case. The main 
support that it offers for this assertion is its hypothesis that the 
Commission has an array of improper motives for updating the rule 
(e.g., to supplant the Postal Service's auditors, to take day-to-day 
monitoring away from postal management, to conduct rate cases off the 
record, to upset the legislative balance, etc.). Given such motives, it 
claims, it is ``inevitable'' that the Commission will ignore the limits 
of its rule and seek the full-blown rate case documentation. 
Substantive Comments at 22.
    As an example of the full-blown rate case documentation the Postal 
Service says the rule will require, it cites two special studies that 
it says it has relied on to develop the CRA, neither of which has been 
publicly disclosed. One estimates attributable carrier costs, the other 
facility-related attributable costs. It argues that ``[u]nder the 
proposed rule, any such study would need to be extensively documented 
in order for its new data and methods to be understandable to, and 
usable by the Commission.'' Id. at 22. It estimates that it would take 
6 person-months to adequately document the carrier cost study, and 12 
person-months to adequately document the facility costs study. Ibid.
    The Postal Service does not attempt to explain why it would take 
this much additional time to document such studies, and no plausible 
explanation is readily apparent. These studies, presumably, have 
already been documented sufficiently by their authors to convince upper 
management that they provide a sound basis for one of its most 
important routine financial reports. The rule, however, only requires 
that the Postal Service provide the input data and processing programs 
used to perform the study. It is not plausible that a study could have 
received this level of scrutiny and acceptance unless there was already 
in existence a set of input data and processing programs that the 
author could locate and provide in less than six (or twelve) months. 
Similarly, it is not plausible that it would take six (or twelve) 
months for the author of the study to prepare a morning's briefing on 
the study for interested parties, if the Postal Service were to choose 
that option.
    In order to have any credibility, these burden estimates have to 
assume that the Commission will ignore the limits of the rule and seek 
full rate case documentation of the study, including detailed narrative 
testimony that establishes a foundation for study results and defends 
the theory, the estimating techniques, and the robustness of the 
results. It can be seen that, with respect to Level Three CRA 
documentation especially, there is an enormous gap between the 
relatively insignificant additional burden of complying with the rule 
and what the Postal Service spends its time and energy opposing.
    The Postal Service contends that if it did not use any new special 
studies in the CRA, complying with the rule would require 78\1/2\ 
additional person-days. It does not explain why it would take this much 
effort, since it already prepares this documentation for reasons apart 
from the rule, and its preparation is (or could be) almost entirely 
automated.
    Even if this estimate were accurate, however, it should be kept in 
perspective. When the Postal Service prepares an omnibus rate request, 
by its own account, it produces tens of thousands of pages of 
documentation, data, and testimony, most of which is devoted to 
explanation of its cost, revenue, and volume estimates. The burden of 
producing this information is so heavy, according to the Postal 
Service, that it must begin its preparation approximately six months in 
advance in order to file by its target date. Substantive Comments at 
21. Over that period, the Postal Service assigns a host of consultants 
and its own professional staff to this task. The hours that the Postal 
Service says it needs to comply with the CRA documentation requirements 
of the Periodic Reporting Rule (in the normal circumstance where it is 
not based on new special studies) is a tiny fraction of the burden of 
documenting an omnibus rate filing.\12\
---------------------------------------------------------------------------

    \12\ It should be borne in mind that the burden of documenting 
new cost studies is not increased by the Periodic Reporting Rule, 
since it is part of the burden of preparing an omnibus rate request.
---------------------------------------------------------------------------

    Yet the Postal Service's comments are replete with assertions 
designed to leave the impression that the rule would impose a burden 
that is comparable to the burden of preparing additional omnibus rate 
filings. Id. at 4, 7, 15, 21. The Postal Service's arguments about the 
balance of powers between the Postal Service and the Commission being 
``fundamentally altered'' due to a massive increase in the Postal 
Service's ``regulatory overhead,'' interference with postal 
management's ability to focus, conducting rate cases off the record, 
etc., evaporate when its gross mischaracterization of the burden of 
complying with the rule is exposed.
    The Postal Service becomes particularly apocalyptic about the 
prospect of answering informal questions about the way it produces the 
CRA. It asserts that comments were made at the technical conference 
held on April 3, 2003, indicating that the Commission staff 
``envisioned the establishment of a process'' whereby the Commission, 
and others, could direct questions to the Postal Service concerning the 
documentation that it provides under the rule. Id. at 7. According to 
the Postal Service, this raises ``the possibility of an open-ended, 
`perpetual' rate-case.'' Id. at 15. In the Postal Service's mind, this 
possibility then morphs into the specter of

year-round rate-making style data-production, documentation, and 
perhaps more significantly, ongoing inquiries by the Commission, 
Postal Service competitors, and any other interested party with the 
time and resources necessary to pursue such activities.

Id. at 18. This leads the Postal Service to warn

    [i]f such pseudo-discovery were similar to that encountered by 
the Postal Service in omnibus rate cases, one would expect the 
burden associated with responding to questions on new cost studies 
to be very large indeed. The very open-endedness of such extra-
record questioning not only raises serious concerns regarding the 
potential burden involved, but reinforces the fundamental objection 
that the Postal Service and the Commission should not be spending 
their time and resources devising ratemaking procedures that not 
only are unsupported by our governing statue, but actually conflict 
with that statute.

Id. at 23-24.
    Never, in recent memory, has the Postal Service tried to make such 
a grandiose mountain out of such an insignificant molehill. The 
Commission's staff entered the technical conference without having 
discussed, let alone taken a position, on the question of whether there 
should be informal questioning of the Postal Service staff under the 
rule. In the

[[Page 65361]]

memory of the Commission's staff, it was another attendee who asked 
whether such questioning would be compatible with the rule, and the 
response of the Commission staff was that it saw no incompatibility 
with the rule, and it had no objection.
    The Commission sees no problem with continuing the same helpful 
practice that has been followed for decades by the staffs of both the 
Postal Service and the Commission. Between rate cases, on rare 
occasion, a member of one staff, for example, would spot what appears 
to be error in a spreadsheet, make a call to the other staff, and ask 
if it was, in fact, an error. Someone on the other staff would 
typically investigate and respond informally with a corrected 
spreadsheet, or some brief explanation of the apparent error. The 
Postal Service staff occasionally does this after reviewing the 
workpapers that the Commission provides to explain the technical 
aspects of its Recommended Decisions. The Commission's staff 
occasionally does this after the Postal Service provides a periodic 
report. The Commission's staff saw no reason not to continue this 
practice. The Commission has never suggested launching general 
``procedures'' for ``pseudo discovery'' between rate cases under the 
auspices of the Periodic Reporting Rule. The option of providing a 
public briefing on special studies that the final rule provides in 
paragraph 102(a)(1)(ii) is one that the Postal Service is free to 
decline if it wishes.

C. The Need for Mid-Level Documentation of the CRA

Recognizing When There Are Grounds for Initiating Sec. Sec.  3623 and 
3662 Hearings
    The Postal Service devotes the majority of its comments to 
impressionistic descriptions of the CRA documentation that the rule 
would require, followed by conclusory statements that the documentation 
``far exceeds'' the Commission's ``legitimate'' needs. The Postal 
Service's conclusion that the CRA documentation required by the rule 
exceeds the Commission's needs rests heavily on the Postal Service's 
mischaracterizations of the documentation required as all information 
that the Postal Service uses to develop the CRA from raw data on up. 
Substantive Comments at 3, 21.
    As explained above, the rule does not extend to raw data, the 
design of Postal Service data collection systems, or the processing 
programs that edit and structure data into input datasets (``Level 
Five'' and ``Level Six'' documentation). As the most recent fully-
litigated rate case demonstrates, the design of data collection systems 
and the structure and editing of raw data into input datasets can be of 
fundamental importance in evaluating the soundness of a study. Even 
with the updated rule, analysts in interim years would have to assume 
that these aspects of the CRA are valid, and wait for an omnibus rate 
case for an opportunity to investigate them.
    With respect to Level Four documentation, the revised rule requires 
that only input datasets that have changed since the last general rate 
case be provided. More significantly, the rule only requires minimal 
Level Three documentation (the input data and processing programs that 
implement new analytical models). The rule, therefore, is a balanced 
compromise, falling well short of everything that would help the 
Commission understand and evaluate the CRA results.
    Narrative explanations of new studies are not required, so it may 
be difficult for the Commission and the affected public to evaluate 
their soundness. With the input datasets and the processing programs, 
however, the Commission and the interested public at least can run the 
CRA model with the established method, and then with new study inputs, 
to see the impact that the new study has on estimates of subclass 
attributable costs. Having the Level One and Level Two documentation 
required by the rule makes this crude level of diagnosis possible, as 
they are necessary to run the CRA model. Level One and Level Two 
documentation also make it possible to gain some insight into why the 
new study has the effect that it has on subclass attributable costs, 
because its effect on other inputs, and its effect on intermediate 
outputs, can be observed.
    The Level One, Two, Four, and partial Level Three documentation 
that the rule requires falls well short of what will be needed in a 
rate case to fully evaluate the merits of a new study. But without it, 
the Commission and the affected public would have to simply accept the 
estimates of total subclass attributable costs reported in an interim-
year CRA on faith. There would be no way to know if shifts in subclass 
attributable costs reflect true underlying economic effects, changes in 
data sources, or changes in estimation techniques. Similarly, if costs 
have not shifted, there is no way to tell if this reflects underlying 
economic stability, or the failure to update Level Three models with 
current-year data.
    The Postal Service apparently believes that the regulatory scheme 
established under the Postal Reorganization Act functions perfectly 
well when this level of public ignorance prevails between rate cases. 
But the Act clearly anticipated that the hearings that the Commission 
conducts when the Postal Service files a rate case are not, by 
themselves, enough to ensure that the policies of the Act are carried 
out. That is why Sec.  3623 of the Act authorizes the Commission to 
initiate classification hearings on its own. That is also why Sec.  
3662 of the Act empowers the Commission to review public complaints 
that current rates or classifications are in violation of the policies 
of the Act, in order to determine whether they warrant a hearing.
    The CRA is the Postal Service's most important and fundamental 
report on subclass attributable costs, volumes, and revenues. Without 
any documentation, its estimates are effectively unreviewable. Under 
these circumstances, the Commission's ability to make an informed 
decision on the need to initiate classification reform or to hold a 
hearing on a complaint that current rates or classifications violate 
the Act is severely circumscribed. If, in the period between rate 
cases, the Commission cannot thoroughly interpret and understand the 
Postal Service's routine financial reports that bear on ratemaking, 
these remedies that the Act provides are undermined.
    The following may help illustrate this point. In its comments, the 
Postal Service mentions the need for flexibility to respond to the 
``fast moving markets in which it competes.'' Id. at 19. Over four 
years, the volume patterns and cost structure of these markets might 
change enough to invalidate the assumptions upon which current rates 
were based. If the affected public has access to the partial CRA 
documentation required by the rule, it would have a way to identify 
when key assumptions underlying rates are no longer valid, and a 
greatly improved opportunity to learn whether a petition for relief is 
warranted. If the public were to go four years without documented CRA 
estimates, and therefore could not learn how they were estimated or 
what influences they reflect, it might seriously misestimate the basis 
for a petition for adjusted rates or classifications.
    An example of how key assumptions underlying a set of rates could 
become invalid over time without detection would be in Standard Mail. 
In the Enhanced Carrier Route (ECR) subclass of Standard Mail, seven 
IOCS-dependent discounts are offered. The size of the discounts is 
determined by IOCS tally data. There are instances in the past where 
appropriate cost-based

[[Page 65362]]

discounts, based on IOCS tally data, have abruptly and substantially 
increased or decreased in some of these presort levels but not others. 
If these abrupt, substantial shifts were sustained over several years, 
the disparity between the cost differences among density levels on 
which the discounts were based, and the cost differences reflected in 
current data, could become large, making the actual passthroughs of 
avoided costs so disparate that it might violate the fairness and 
equity criteria of the Act. See 39 U.S.C. Sec.  3622(b)(1).
    A mailer of presorted Enhanced Carrier Route mail could not know of 
the passthrough disparities that had emerged unless it had access to 
the kind of CRA documentation required by the rule. It could not make 
effective use of its right to ask for a hearing under Sec.  3662 to 
show that ECR rates violate the policies of the Act, because it could 
not demonstrate to the Commission that the cost assumptions underlying 
these discounts were no longer valid. Although the Act provides the 
public with this alternative way to secure its rights under the Act, 
this alternative is of little value when facts that are basic to 
ratemaking and classification are unavailable to the public.
Being Adequately Prepared To Process Rate Requests
    Beyond indicating when there are grounds for initiating Sec.  3623 
and Sec.  3662 hearings, the Commission and the public need mid-level 
documentation of the CRA to be adequately prepared to process cases 
brought by the Postal Service. These include omnibus rate cases under 
Sec.  3622, which must be processed within the severely compressed 10-
month window allowed by the Act. They also include ``experimental,'' 
``market test,'' ``negotiated service agreement'' and other special 
kinds of rate and classification cases for which the Commission has 
created even more compressed hearing procedures, at the Postal 
Service's request.
    The reasons that such documentation is needed for these kinds of 
cases were previously explained in describing the history of the 
Periodic Reporting Rule. The first of these reasons is the fact that 
the Postal Service's CRA, which is the starting point for analyzing any 
set of proposed rates, is exceedingly complex, continually changing, 
and has proved to be extremely difficult to comprehend in the few 
months allotted for discovery in a general rate case. Providing partial 
documentation of the most recent versions of the CRA between rate cases 
is the minimum necessary to make this task feasible in the hearing time 
allotted.
    In addition to keeping its technical expertise current in order to 
quickly process a rate case brought by the Postal Service, the 
Commission described a second reason that partial documentation of the 
CRA is needed between rate cases. See Docket No. RM76-5, Notice of 
Proposed Rulemaking, issued April 6, 1976, at 2-3. This is to narrow 
the scope of discovery and Presiding Officer's Information Requests 
needed in rate cases, and shorten this phase of the proceeding. The 
objective is to avoid, as far as possible, inquiries into technical 
costing issues that are background, or generic in nature, rather than 
tied to a specific set of proposed rates. This objective has not 
changed since the Periodic Reporting Rule was first issued 27 years 
ago.
Researching Cost Behavior Between Omnibus Rate Cases
    A third reason that partial documentation of the CRA is needed 
between rate cases is to gain access to the basic datasets needed to 
develop models of cost behavior that can be presented in an omnibus 
rate case, so that less of the litigation window is consumed with such 
development work. See PRC Order No. 141 at 3. This objective, also, has 
not changed since the Periodic Reporting Rule was first issued. What 
has changed since the Periodic Reporting Rule was last updated are the 
new sources of data that the Postal Service uses to develop the CRA, 
and the increased capability of the Commission and the intervenors to 
work with those data.
    To develop models of postal cost behavior, it is necessary to have 
two things--relevant data, and the time and resources to analyze the 
data. The Postal Service is in a unique position among all stakeholders 
in postal ratemaking in this regard. It has exclusive control of almost 
all of the data that could be used to model postal cost behavior. When 
it decides to study a particular area of postal cost behavior, it has 
well over 100 in-house analysts and consultants whose time and 
expertise can be enlisted in the effort. As the only initiator of rate 
cases, it has exclusive control over the timing of rate cases. 
Consequently, when the Postal Service wants to develop a model of 
postal cost behavior, it can decide for itself what data to access or 
what new data to collect, how long to spend developing its model, and 
when to initiate a hearing to present it.
    Currently, a mailer or competitor that would like to develop an 
alternative model of cost behavior has little chance of doing so. 
Between omnibus rate cases it cannot get access to data that reflect 
current postal operations. When the Postal Service files an omnibus 
rate case, an intervenor will have about two months to digest the 
mammoth filing and determine what to investigate, and perhaps three 
months to find analysts, request relevant data, develop a model, and 
defend the results. It might have only a few weeks to do this in more 
abbreviated hearings, such as hearings on experimental services. It is 
almost impossible for intervenors in rate cases to plan, complete, and 
defend models of postal cost behavior in the narrow litigation window 
allowed. As a result, in over 30 years of Commission hearings, 
intervenors have almost never succeeded in developing significant 
alternative cost attribution models. During rate cases, intervenors are 
confined almost entirely to reacting to and criticizing the models 
developed by the Postal Service.
Due Process and the Need for Data
    The Commission has explained why relevant data are an indispensable 
tool for researching, analyzing, or modeling postal cost, volume, or 
revenue behavior. In its comments, the Postal Service takes the 
position that, under the Act, no entity other than itself may possess 
this tool between omnibus rate cases. Substantive Comments at 6. It 
asserts that if the Commission or the intervenors make any use of the 
datasets or the programs underlying an interim-year CRA, they would be 
conducting a ``de facto rate case'' outside the confines of a formal 
hearing. Id. at 16-17. According to the Postal Service's logic, any 
activity that others do during a rate case--such as studying postal 
cost, volume, or revenue behavior--may not be done outside of a rate 
case; otherwise, the 10-month time limit on rate cases is violated. The 
Postal Service does not extend this logic to itself, however. It may 
devote whatever time it wants to studying and preparing for rate cases 
without violating the 10-month time limit for rate hearings under the 
Act. Bearing in mind that significant new studies of postal cost 
behavior almost never can be started, completed, and defended within 
the allotted portion of a 10-month rate case, the Postal Service's view 
of the Act means that only it has any realistic chance to develop 
analytical models for ratemaking, since only it may possess the 
required data between omnibus rate cases.
    The Postal Service insists that if it is to have due process during 
rate cases, it must be able to withhold basic financial data between 
rate cases. Otherwise, it argues, it would lose what it believes to

[[Page 65363]]

be its statutory prerogative to surprise opponents with every element 
of its rate filing. It insists that its prerogative extends to the 
generic, background financial data summarized in its standard financial 
reports. Substantive Comments at 36. Its view that the statute grants 
it an unlimited right of surprise ignores the due process needs of the 
affected public that participates in rate cases.
    When the Postal Service eventually decides to file a rate case, it 
may present numerous new models that it has had ample time to prepare. 
Since alternative models can rarely be developed and defended in the 
time available, the only effective alternatives to the Postal Service's 
new models are the Postal Service's old models on which existing rates 
are based. The Postal Service's models, new and old, are typically the 
only ones eligible for adoption, because they are typically the only 
ones that have been presented on the record.
    The Postal Service thinks that the due process objectives of the 
Act are well served under these circumstances. But if intervenors are 
to ever have a realistic chance to develop alternative cost attribution 
models for consideration in an omnibus rate case, they will, at a 
minimum, need access between rate cases to the current Level Four 
datasets that are used to produce the CRA.
Expertise and the Need To Replicate the CRA
    The Commission and the public also need Level Four datasets in 
order to replicate the various attribution and distribution techniques 
that the Postal Service uses to produce the CRA. The Postal Service 
doesn't appear to object to the Commission replicating its Base Year 
CRA model, and the various cost component analyses used to produce it, 
in the context of a rate case. As a practical matter, for reasons 
explained earlier, the Commission must use the Postal Service's ``state 
of the art'' attribution engine as the starting point for estimating 
the subclass attributable costs that will support the Commission's rate 
recommendations. The Commission must first replicate the Postal 
Service's CRA model in order to confirm that it understands how the 
model estimates subclass attributable costs, and that it can accurately 
reproduce the result that the Postal Service's version of the CRA 
produced. The Commission must then adapt the Postal Service's CRA model 
to produce Base Year subclass cost estimates that are consistent with 
the Commission's recommended attribution methods. Because developing a 
CRA model for a given year is a mammoth undertaking, even for the 
Postal Service, errors and inconsistencies are inevitable. Before it 
bases rate recommendations on the Postal Service's CRA, the Commission 
must ensure that errors and inconsistencies have been identified and 
corrected. To do this, the Commission issues Presiding Officer's 
Information Requests asking the Postal Service to explain or resolve 
apparent errors.
    No thorough and coherent statement of the mechanics of producing 
the CRA has ever been provided by the Postal Service. Narrative 
descriptions of something as complex as the CRA, such as the Service 
provides in rate cases, are unlikely ever to be adequate to enable an 
analyst to thoroughly understand it. Therefore, replication is the 
primary tool available to the Commission and the public to diagnose 
errors in the Postal Service's CRA model, and isolate their sources. 
Running the model is also the only way that the Commission can test the 
forecasts on which its recommended rates were based to see if its 
forecasting assumptions are holding up in interim years, and if not, 
which ones are failing. The ability to undertake this exercise should 
significantly improve the Commission's forecasting expertise.
    Replication makes diagnostic tests of various kinds possible. For 
example, to test whether the data that the Postal Service used in its 
CRA model were properly updated, this year's model could be run with 
this year's data, and then with last year's data, and the results 
compared. To test whether a processing program has changed, this year's 
data could be input into this year's CRA model, and then into last 
year's CRA model, and the results compared. Replication can also be 
done in stages, allowing intermediate outputs to be examined, to better 
isolate errors, or inconsistencies with earlier versions. And 
replication can be used to do sensitivity analyses, changing only 
selected inputs, or selected processing steps, to try to find reasons 
for unexpected results. To replicate the CRA model, or its components, 
the Commission and the public need the relevant input datasets and 
processing programs.
    The Postal Service is skeptical that the Commission and the public 
have a need for partial documentation of the CRA. It comments that 
``[t]he Commission has been carrying out [its] duties for decades 
without having routine and frequent access to such information.'' 
Substantive Comments at 11. In recounting the history of the Periodic 
Reporting Rule, the Commission has already described some of the 
compromises that it has been making during rate cases for decades. For 
decades, it has been unable to decipher and work with CRA-related 
databases and models that the Postal Service maintains on its mainframe 
COBOL computer platform. The Commission ultimately gave up this pursuit 
and developed its own PC-based CRA model that mimics the Postal 
Service's inaccessible model. During omnibus rate cases, the Commission 
most closely analyzes the Postal Service's ever-changing CRA model in 
areas that are in substantial dispute. Because so much of the available 
time is spent determining how the Postal Service arrived at its 
disputed estimates of attributable cost, the Commission's evaluation of 
undisputed estimation techniques is sometimes less thorough than is 
desirable. The Commission may not address less significant changes that 
the Postal Service makes in other costing areas, because there isn't 
sufficient time in a 10-month hearing to analyze it all.
    Intervenors in omnibus rate cases, of course, have, for decades, 
had similar problems. To quote American Business Media:

    With data available on an on-going basis, not only would the 
Commission be better prepared for a rate filing, but the Postal 
Service's customers would not bear the burden of having the ten or 
twelve feet of papers, plus computer materials, dropped on them with 
the expectation that they can review, understand, question and 
refute those portions that are relevant in time for the Commission 
to issue a recommended decision in ten months.

    ABM Reply Comments at 2. The OCA adds:

    As a participant in rate cases, the OCA has watched the 
complexity and sophistication of Postal Service presentations rise 
exponentially. The ``lead'' time required by the OCA (or any other 
participant) to match the level of the Service's evidence has also 
increased exponentially. But the Postal Service seeks to preserve 
its lead-time advantage of `six months' while denying any lead time 
to participants. At some point (already passed, as far as the OCA is 
concerned), the advantage to the Postal Service becomes 
overwhelming, and due process evaporates.

    OCA Reply Comments at 4-5 [footnote omitted]. The need for the 
updated Periodic Reporting Rule seems to be clear to everyone in the 
postal community except the Postal Service itself.
Replication and Bias
    While the Postal Service does not deny that the Commission may use 
replication of its CRA as a legitimate diagnostic tool in the context 
of a rate

[[Page 65364]]

case, it recoils at the thought that this tool might apply to an 
interim-year CRA. It warns:

as the Commission's staff confirmed, the new requirements are 
designed to allow the Commission to completely re-run the most 
recent, updated CRA model based on new or alternative inputs, and 
thereby give the Commission the capacity to develop anticipatory 
rate recommendations without any formal request or policy guidance 
from the Postal Service.

    Substantive Comments at 10.

    If the very staff that are replicating, validating, and 
otherwise manipulating the fundamental financial and operating 
information sought in this rulemaking are inevitably forming 
impressions and conclusions from their investigations, what is to 
prevent those impressions and conclusions from influencing the 
outcome before anyone has had their opportunity to persuade? No 
safeguards exist which would prevent such contamination of the 
hearing process, and it is difficult to imagine how such safeguards 
could be implemented in a practical manner. The Governors are 
entitled to a recommended decision free from any hint of extra-
record determinations, and which gives appropriate recognition to 
the respective statutory roles of the Governors, the Board of 
Governors, and the Commission.

Id. at 17 [footnote omitted].
    It is important to understand what the Postal Service is expressing 
fear of in these comments. The CRA is the Postal Service's routine 
financial report that is most relevant to ratemaking because it 
estimates subclass attribution costs, volumes, and revenues each year. 
It has been examined by outside auditors, and undergone multiple layers 
of review by the Postal Service's staff to the point that it is 
accepted as the most reliable data that it can provide to postal 
management to guide it in matters of classification and pricing. In the 
Postal Service view, if the outside world understands little or nothing 
about how it obtains these estimates, it will not misinterpret them, or 
be biased, or be misled regarding the relative responsibility of the 
various subclasses for the Postal Service's financial condition. The 
Postal Service evidently believes that the more accurate an 
understanding the outside world gains about the data and estimation 
methods that produce the CRA results, the more likely that it will be 
misled, biased, and prejudiced by them.
    As the OCA commented, knowledge is a lot less likely than ignorance 
to produce bias. OCA Comments at 2-3. This is especially true where 
competence to form an opinion is presumed to require a great deal of 
industry-specific statistical and economic expertise. GCA points out in 
its comments that Congress's primary objective in creating the Postal 
Rate Commission was to ensure that rates would be based on these kinds 
of expertise. GCA Comments at 4. Congress intended that issues of cost 
attribution, in particular, should be resolved by application of the 
Commission's expertise. National Association of Greeting Card 
Publishers v. USPS, 462 U.S. 810, 823 (1983). The Commission, however, 
is in a difficult position when it comes to maintaining that expertise.
    As explained previously, the Postal Service controls all of the 
data, has almost exclusive access to field experts, and employs almost 
all of the analytical resources that are devoted to estimating postal 
cost, volume, and revenue behavior. For these reasons, when it comes to 
cost attribution, the Postal Service's cost attribution engine (the 
CRA) is the starting point for all analysis. Its most current CRA 
apparently is based on two major new studies of attributable carrier 
costs and facilities costs. Each study is a ``black box'' as far as the 
outside world is concerned, and is likely to remain so for several more 
years without an updated Periodic Reporting Rule. By imposing a 10-
month time limit on the Commission for processing rate requests, the 
Postal Reorganization Act assumes that the Commission can process such 
requests with extreme expedition and still base its recommendations on 
a thorough understanding of all aspects of the record.
    Once an omnibus rate request is filed, there isn't sufficient time 
in the 10-month statutory period to search and resolve issues relating 
to the mechanics of producing the CRA, and still address the major 
analytical and policy issues that are raised by a Postal Service 
omnibus rate request. The mechanics of producing the CRA are generic, 
background issues, that do not ordinarily depend on a particular time 
period, a particular revenue requirement, or a particular set of 
proposed rates. Therefore, documenting this aspect of the CRA should 
not compromise the right of participants to litigate rate-case-specific 
issues when a specific rate request is filed. Replication is the 
primary tool for understanding the technical aspects of estimates found 
in the CRA.\13\
---------------------------------------------------------------------------

    \13\ The Commission has restricted the Periodic Reporting Rule 
to documentation of the mechanics by which the CRA is produced 
(datasets, processing programs, spreadsheets, etc.) rather than 
justifications of theories or policies that are likely to be 
contested in a rate case. In this respect, the documentation 
performs a function similar to an informal technical conference held 
off the record during a rate case. The purpose of such conferences 
is to gain an understanding of what was done mechanically to 
implement a particular analysis, and avoids questions touching on 
the merits of the analysis. Restricted in this way, the Periodic 
Reporting Rule strikes a reasonable balance among the Postal 
Service's right to ``surprise'' intervenors with every aspect of its 
support of proposed rates, the intervenors rights to comprehend the 
Postal Service's rate request and respond to it with alternatives in 
the brief time allotted, and the Commission's need to enter a rate 
case already understanding how the Postal Service prepares its 
routine financial reports. If the Postal Service believes that its 
reasons for making changes to the CRA should be explained in order 
to eliminate misconceptions, it is free to provide them. The 
Commission does not require such explanations, in order to minimize 
the burden of complying with the rule.
---------------------------------------------------------------------------

    The Postal Service suggests that at the technical conference held 
on March 11, 2003, the Commission's staff somehow signaled its 
intention to use the documentation required by the Periodic Reporting 
Rule to develop ``anticipatory rate recommendations''' outside of a 
rate case. Substantive Comments at 10. The Commission does not 
contemplate going to the considerable trouble to develop rate 
recommendations that have nothing to do with a particular rate case. 
This isn't because there would be anything wrong with it. It is because 
such an exercise wouldn't be very informative if it were not tied to a 
particular rate request, revenue requirement, and time period.\14\
---------------------------------------------------------------------------

    \14\ The Commission disagrees that the rule seeks enough 
documentation to make it feasible to develop anticipatory rate 
recommendations. For example, two categories of inputs that would be 
needed to develop a realistic alternative rate schedule (if a test 
year and revenue requirement were known) are the appropriate DRI 
inflation factors, and details about the magnitude and timing of the 
Postal Service's cost reduction programs. Neither is required by the 
Periodic Reporting Rule.
---------------------------------------------------------------------------

    With respect to any tendency of replicating the CRA to produce bias 
in the replicating party, the salient point is that the Periodic 
Reporting Rule requires only input datasets and the processing steps 
applied to those datasets--the minimum documentation that will disclose 
the mechanical process by which CRA estimates were obtained. The data 
used and the processing steps applied are facts that speak for 
themselves, devoid of argument, interpretation, spin, or nuance. Making 
facts available for analysis risks bias only to the extent that the 
facts made available are selective, or one-sided. If facts disclosed in 
the documentation of an interim-year CRA were to resemble facts 
included in the Base Year documentation in a future rate case, the 
Postal Service's opponents might be able to argue that the Commission 
was swayed by having an early look at the Postal Service's version of 
the facts without any alternative version to counterbalance it. If this 
is a potential source of bias, it works for, not against the Postal 
Service.

[[Page 65365]]

    The Postal Service has suggested that it should not have to 
disclose a set of facts similar to those that it might present in a 
future rate case without having an opportunity to persuade the outside 
world of the merits of the procedures that those facts reflect. Id. at 
17. If the Postal Service would like to add to the documentation that 
is required by the rule a discussion of the merits of the procedures 
that it has used to produce an interim-year CRA, nothing in the rule 
would prevent it from doing so. Any bias that might result from this 
opportunity to persuade should benefit the Postal Service.
    The Postal Service's main argument, however, is that if the 
Commission has an opportunity to view facts in an interim year that 
might resemble those that will be submitted in a future rate case, it 
will have more time to form opinions about them than it would otherwise 
have. Ibid. Contrary to conventional wisdom, the Postal Service 
apparently believes that the less time a staff has to think about a 
subject, the less likely its thoughts are to be biased. As the Greeting 
Card Publishers point out, the solution to bias in exercising a 
judicial function is not to obtain less knowledge, but to exercise the 
appropriate caution in the use of the knowledge obtained. GCA Comments 
at 2-3, n.1.
    For example, the Postal Service expresses concern that an analyst 
that obtains an input dataset from the Postal Service could model it 
differently than the Postal Service modeled it. But this is not a 
reason to withhold the data. If an intervenor were to model the data 
differently, it would not affect the Postal Service unless the 
intervenor subsequently presented it for consideration in a formal 
hearing. In this way, the right of the Postal Service to debate or 
oppose it before it had an impact on recommended rates would be 
preserved. By the same token, if the Commission were to model data 
differently, it would not affect the Postal Service unless the 
Commission subsequently asked the participants in a formal hearing to 
comment on it in a Notice of Inquiry. The Commission could not 
affirmatively rely on any such model unless it were presented on the 
record. Here too, the right of the Postal Service to debate it or 
oppose it before it had an impact on recommended rates would be 
preserved.\15\
---------------------------------------------------------------------------

    \15\ In its Substantive Comments, at 12-13, the Postal Service 
mentions two instances in the Commission's 30 year history in which 
a reviewing court remanded a Commission Recommended Decision on the 
ground that it had employed an analytical technique without 
observing the full range of procedural safeguards required in formal 
hearings. This frequency of remand is probably among the lowest of 
any Federal regulatory body, and does not offer legitimate grounds 
for presuming that the Commission will ignore procedural safeguards 
that accompany formal hearings.
---------------------------------------------------------------------------

IV. The Legal Basis for the Periodic Reporting Rule

A. The Periodic Reporting Requirement Is Authorized by the Act

    In discussing the legal basis for the Periodic Reporting Rule, the 
Postal Service argues that the Commission does not need the information 
required by the rule to perform any statutory function. It also argues 
that it conflicts with its right to decide when to file a rate case 
under Sec.  3622, its implied right to decide when to reveal its 
evidence and argument in support of its proposed rates, and its implied 
right to have all analytical activity concerning postal rates confined 
to the 10-month litigation window allowed by the Act for rate cases. 
Substantive Comments at 15-17, 36.
    The Postal Service asserts that the Postal Reorganization Act does 
not authorize the Commission to adopt periodic reporting requirements. 
It recognizes that Sec.  3603 of the Act authorizes the Commission to 
``promulgate rules and regulations and establish procedures * * * and 
take any other action they deem necessary and proper to carry out their 
functions and obligations * * *.'' In its view, the Commission's only 
role under the Act is to process a Postal Service request for changes 
in rates within the 10 months allotted by the Act. Outside of that 10-
month litigation window, it reasons, the Postal Rate Commission has no 
functions or obligations, and therefore Sec.  3603 does not imply any 
authority to carry them out. Id. at 8-14.
The Scope of Sec.  3603 Is as Broad as Its Language
    The Postal Service argues that the scope of Sec.  3603 is much 
narrower than its broad language suggests. It contends that the 
following language in Sec.  3624(b) of the Act, which deals with the 
conduct of formal Commission proceedings, ``specifies the type of rules 
that were contemplated'' by Sec.  3603. It quotes:
    In order to conduct its proceedings with utmost expedition 
consistent with procedural fairness to the parties, the Commission may 
(without limitation) adopt rules which provide for--
    (1) The advance submission of written direct testimony;
    (2) The conduct of prehearing conferences to define issues, and for 
other purposes to insure orderly and expeditious proceedings;
    (3) Discovery both from the Postal Service and the parties to the 
proceedings;
    (4) Limitation of testimony; and the conduct of entire proceedings 
off the record with the consent of the parties.
    It then comments:

[b]y the very nature of the examples enumerated, the Commission's 
rulemaking authority is shown to be simply that necessary to 
implement its limited statutory role: The efficient administration 
of a hearing after it has been appropriately initiated under 
sections 3622, and 3623. The rules now contemplated go far beyond 
this intended role.

Id. at 14.
    In drawing this narrowing inference, the Postal Service makes no 
effort to account for the broad wording of Sec.  3603, which authorizes 
the Commission not only to ``promulgate rules'' but to ``establish 
procedures'' and to ``take any other action'' it deems to be necessary 
and proper to carry out its functions and obligations. If Sec.  3603 
were meant to authorize only rules governing formal hearings, one 
wonders why Congress saw any need to include Sec.  3603 in the Act, 
since the Act already specifies the kind of rules the Commission may 
adopt for that purpose in Sec.  3624(b). The Postal Service's 
interpretation of Sec.  3603 renders the section entirely unnecessary. 
It is a basic canon of statutory construction that statutory language 
will not be construed in such a way as to make another section of the 
same statute ``superfluous, void, or insignificant.''\16\
---------------------------------------------------------------------------

    \16\ Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 
1285 (D.C. Cir. 1983) quoting 2A C. Sands, Statutes and Statutory 
Construction Sec.  46.06 (4th ed. 1973).
---------------------------------------------------------------------------

Section 3603 Extends to Commission Initiated Proceedings Under 
Sec. Sec.  3623 and 3622
    By authorizing the Commission not just to promulgate rules, but to 
``establish procedures'' and to ``take any other action'' it is clear 
that Sec.  3603 authorizes the Commission to do more than promulgate 
rules of only one narrow type. In characterizing the Commission's 
authority as ``the efficient administration of a hearing after it has 
been appropriately initiated'' the Postal Service glosses over the fact 
that Chapter 36 of the Act gives the Commission discretion to initiate 
classification hearings under Sec.  3623, and complaint cases under 
Sec.  3662. The Act authorizes the Commission to exercise its 
discretion and judgment as to whether there are good grounds for 
initiating such hearings. In doing so, the Act contemplates that the 
Commission will have access to relevant, reasonably

[[Page 65366]]

current financial data--before hearings are held--that would allow the 
Commission to make informed decisions as to whether such hearings were 
warranted.
    The Commission's duty to determine if hearings are warranted 
potentially extends to hearings to reclassify rate categories as 
subclasses, or vice versa, depending, in part, whether they have enough 
common cost-driving characteristics. The Commission's duty to determine 
if hearings are warranted also potentially extends to complaints that 
certain rates or discounts are unfair because there have been major 
shifts in relative cost savings since rates were last approved. 
Determining whether such hearings are warranted requires the Commission 
to make informed judgements about subclass and rate category 
attributable costs. To exercise the discretion that the Act calls for, 
the Commission needs access to attributable cost estimates about which 
it can make some judgments, not just unreviewable, bottom-line 
estimates based on unknown data sources and estimation methods. The 
partial CRA documentation required by the Periodic Reporting Rule can 
fulfill this need.
Section 3603 Authorizes Measures That Make Processing Postal Service 
Requests More Efficient and More Fair
    The more important need that partial documentation of the CRA 
fulfills relates to the omnibus rate cases that the Postal Service 
files, and the myriad minor rate and classification cases that it files 
under abbreviated hearing schedules. The ``efficient administration'' 
of those hearings, to quote the Postal Service, is not the Commission's 
only function. Its function is not just to conduct those hearings 
``efficiently'' in a severely compressed time frame, but to conduct 
them fairly.
    In order to conduct omnibus rate hearings initiated by the Postal 
Service efficiently, the Commission has to be able to read, comprehend, 
and in some respects, repair, the Postal Service's ``cost attribution 
engine'' before it can address the analytical and policy issues raised 
by a rate request. For this process not to swallow up the majority of 
the available hearing time, the Commission needs to begin the process 
with an understanding of the current CRA. This requires reasonable 
familiarity with the mechanics of the Postal Service's current cost 
attribution methods. If it has to devote a major portion of the 
litigation window to acquiring this familiarity, it may have to give 
the merits of the Postal Service's cost attribution methods, as well as 
basic volume and revenue estimation issues, short shrift. All of these 
considerations apply equally to intervenors in Commission proceedings. 
For them to have meaningful due process, they not only need a 
reasonable chance to understand and respond to the Postal Service's 
entire case in the time allotted, which they cannot do without the 
documentation required by the Periodic Reporting Rule, they need a 
reasonable chance to develop, propose, and defend alternative cost 
estimation techniques in the time allotted. This they cannot do without 
the datasets required by the Periodic Reporting Rule.
Section 3603 Authorizes Measures Designed To Expedite Minor Cases
    Between omnibus rate cases, the Postal Service often files requests 
for changes in rates for individual mail categories. When it does, it 
usually seeks to expedite the case by seeking a waiver of the 
Commission's normal documentation requirements for rate and 
classification cases found in rules 54 and 64. These require the Postal 
Service to provide full documentation of its base year attributable 
cost, volume, and revenue estimates. The Postal Service usually files 
these requests under Commission rules that drastically shorten the 10-
month period that the statute makes available to intervenors to 
litigate a rate case. These range from ``experimental'' cases, which 
have a 150-day litigation schedule, to Negotiated Service Agreements, 
for which a 60-day litigation schedule has been proposed.
    These rules allow expedition when intervenors raise only issues of 
limited scope and complexity. The ability of the Commission and the 
intervenors to process such cases within severely compressed schedules 
also depends on their ability to do without a fully documented request. 
If a partially-documented CRA has been filed under the Periodic 
Reporting Rule for an interim year, the intervenors are much more 
likely to be able to do without a fully documented base year CRA, and 
the Commission is much more likely to grant the waivers that expedition 
requires, and allow cases to proceed under its expedited rules.
    The abbreviated hearing schedules provided for by the Commission's 
expedited rules are Commission attempts to implement the ratemaking 
provisions of the Act in a manner consistent with modern needs of the 
Postal Service. The concept behind them is that there is not a need in 
every case to litigate every issue--including the mechanical structure 
of the CRA--from scratch. The Periodic Reporting Rule is based on that 
concept as well.\17\
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    \17\ The Commission's expedited rules of practice incorporating 
abbreviated hearing schedules were adopted at the request of the 
Postal Service. They strain the due process protections that the Act 
provides to intervenors to the limit. So far, the intervenors have 
cooperated in this attempt to accommodate the Postal Service's need 
for speed and flexibility in ratemaking and classification 
procedures. The Commission's expedited rules ask the intervenors to 
assert all of the formal rights that they have under highly 
abbreviated record hearing procedures in order to meet the Postal 
Service's need for flexible ratesetting. It is ironic that after 
receiving the voluntary cooperation of the intervenors in foregoing 
some of rigidities of the statutory hearing process that benefit 
them, the Postal Service so adamantly seeks to retain all of the 
rigidities of the formal hearing process that benefit the Postal 
Service. These include its perceived right to surprise intervenors 
with all aspects of its rate requests, thereby maximizing the time 
pressure under which they must litigate, and minimizing their access 
to meaningful due process. See Substantive Comments at 36.
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Section 3603 Is Not Restricted to Measures Whose Need Is ``Compelling''
    The Postal Service comments that certain information required by 
the Periodic Reporting Rule is not ``strictly needed to conduct rate 
and classification proceedings'' and ``not required by a compelling and 
legitimate function.'' Substantive Comments at 11, 13. It thereby 
implies that the statutory threshold for invoking the authority of 
Sec.  3603 is that a regulation be an indispensable means of achieving 
a statutory purpose. This is a gloss on Sec.  3603 that cannot be found 
in the legislative history or inferred from the structure of the Act. 
The provision authorizes actions that the Commission deems to be 
``necessary and proper to carry out their functions and obligations * * 
*.''
    As the Commission has explained, it has an obligation to 
competently address the full range of issues presented by a rate 
request in the short time allotted by statute or the even shorter time 
allotted by special rule. To help do this it must maintain a certain 
level of expertise in current methods of attributable cost, volume, and 
revenue estimation. The partial documentation of the CRA required by 
the Periodic Reporting Rule will help it to maintain this expertise. 
Maintaining the requisite expertise to do the Commission's job 
effectively is not a minor consideration in making sure that the Postal 
Reorganization Act functions as Congress intended. As the Supreme 
Court, in National Greeting Card Publishers v. USPS, observed:

    Congress recognized that the increasing economic, accounting, 
and engineering complexity of ratemaking issues had caused Members 
of Congress, ``lacking the time,

[[Page 65367]]

training and staff support for thorough analysis,'' to place too 
much reliance on lobbyists. House Report, at 18. Consequently, it 
attempted to remove undue price discrimination and political 
influence by placing ratesetting in the hands of a Rate Commission, 
composed of ``professional economists, trained rate analysts, and 
the like,'' id., at 5, independent of Postal service management, 
id., at 13, and subject only to Congress' ``broad policy 
guidelines,'' id., at 12.

462 U.S. 810, at 822. [Emphasis added.] In its comment, the Greeting 
Card Association points out that--

    Since [the Commission's] duties centrally include acting as an 
expert decisionmaker on matters arising under ch. 36 of title 39, it 
seems clear that obtaining the information covered by this docket 
regularly and systematically, in usable form, and in a timeframe 
allowing it to be given mature consideration is a legitimate need.

GCA Comments at 4. UPS agrees. See UPS Comments at 2,4.
    Similarly, the Commission is obligated to afford intervenors 
meaningful due process in its rate hearings. Making the information 
required by the rule available to prospective intervenors will help 
them comprehend the prodigious amount of technical information 
presented in an omnibus rate request, and to develop and present 
alternative estimation techniques, within the short time allotted by 
statute. As the OCA points out, ``providing due process to all 
participants within a ten-month time period is `a compelling and 
legitimate Commission function.' '' OCA Reply Comments at 3-4 [footnote 
omitted].
    The information required by the rule might not ``make or break'' 
the achievement of the legitimate statutory goals of maintaining the 
Commission's ratemaking expertise, and affording prospective 
intervenors due process, but it will greatly improve the odds. That is 
all that is required to come within the authority of Sec.  3603.
Illegitimate Purposes Hypothesized for the Periodic Reporting Rule
    Having identified the legitimate statutory functions that the 
Periodic Reporting Rule facilitates, it is helpful to identify what 
functions the rule is not designed to serve. The Postal Service 
suggests that the purpose of the rule is to allow the Commission to 
conduct ``day-to-day monitoring of [the Postal Service's] detailed 
operations and finances'' [Substantive Comments at 7], ``auditing of 
the Postal Service's books on a regular basis'' [Id. at 11] and obtain 
``oversight,'' ``data collection,'' and ``investigatory powers.'' Id. 
at 19.
    As UPS points out, the updated Periodic Reporting Rule does none of 
these things. UPS Comments at 1. The rule does not require the Postal 
Service to provide any backup data with which to audit its books of 
account, any documentation of its data collection activities, or any 
data that would make possible daily monitoring of operations or 
finances. No oversight is involved, and no investigation is involved. 
Nor does it involve any hearings, or any comments from the public. The 
rule simply requires the Postal Service to file some of the routinely 
prepared documentation that support its periodic financial reports that 
bear on ratemaking.\18\
---------------------------------------------------------------------------

    \18\ It is worth noting that when outside auditors review the 
Postal Service's CRA, they perform a ``process audit'' that is 
designed only to confirm that the processing steps that are intended 
to be performed are in fact performed. It does not involve a 
conceptual audit that addresses the suitability of the estimation 
methods used or the reasonableness of the results obtained. Review 
of the CRA by the Office of the Inspector General, or by GAO, are 
generally not conceptual audits either. There does not appear to be 
any provision in the current regulatory regime for regular 
conceptual audits of the Postal Service's cost, volume, and revenue 
estimates like the ones that the Commission performs intermittently 
during omnibus rate cases.
---------------------------------------------------------------------------

    In discussing the legal basis for the Periodic Reporting Rule, the 
Postal Service argues that the rule conflicts with its right to decide 
when to file a rate case under Sec.  3622, and what it considers to be 
two corollary rights--the right to decide when to reveal its evidence 
and argument in support of its proposed rates, and the right to have 
all analytical activity concerning postal rates confined to the 10-
month litigation window allowed by the Act. Substantive Comments at 15-
17, 36.
The Rule Does Not Affect the Timing of Rate Filings
    When the Postal Service files a rate request under Sec.  3622 of 
the Act, a complex set of legal consequences attach. These include the 
right to receive a recommended decision on proposed rates from the 
Commission, the right to receive it within ten months, and a complex 
set of options that the Governors have to respond to the Commission's 
recommended decision, including acceptance, rejection, modification, 
and the right to appeal that recommended decision. The public's right 
to intervene, to present evidence, and to appeal the result, also 
attach when the Postal Service files a rate request.
    No legal consequences that affect the Postal Service or the rates 
that it may charge attach to the filing of information under the 
Periodic Reporting Rule. When it complies with the rule, the Postal 
Service has no further legal obligation to do anything. Its complaints, 
therefore, can only be based on the effects that the rule might have, 
if any, on the way that its request is handled during a rate case.\19\
---------------------------------------------------------------------------

    \19\ The existing Periodic Reporting Rule contains a long list 
of routinely gathered financial and operating information that is 
prepared for the benefit of postal management, but also gives the 
Commission and the interested public useful background information 
that will help them process a rate case when it is eventually filed. 
Almost any of the categories of information covered by the rule are 
the kind that could be expected to eventually be discussed and 
analyzed in a rate case. For example, for decades, the rule has 
included accounting period financial reports, reports on revenue, 
pieces, and weight for groups of mail (RPW), various management 
plans, and the CRA and the Cost Segments and Components report, with 
partial documentation. For decades the rationale for including these 
reports in the rule was that they help the Commission and the 
affected public understand the kind of information, but not the 
specific information, that will be used to support rates when a case 
is eventually filed. This helps the Commission process a rate case 
more efficiently and more fairly. This is the principal effect that 
the rule has on the way that a Postal Service rate request is 
handled.
---------------------------------------------------------------------------

Section 410(c)(4) Is Not Relevant to the Rule
    Section 410(c)(4) of the Act exempts ``[i]nformation prepared for 
use in connection with proceedings under Chapter 36 of this title'' 
from mandatory disclosure under the Freedom of Information Act. The 
Postal Service argues Sec.  410(c)(4) protects information required by 
the Periodic Reporting Rule from public disclosure not just through 
Freedom of Information Act requests, but through any other mechanism, 
including Commission rules adopted under Sec.  3603 of the Act. Id. at 
26.
    Whether Sec.  410(c)(4) provides a general shield of protection for 
materials prepared for Chapter 36 litigation is not a question that 
needs to be decided as part of this rulemaking. There is a crucial 
distinction between standard financial reports that are routinely 
prepared for the benefit of management, and financial reports that have 
been adapted to support a specific proposed revenue requirement and a 
specific set of proposed new rates, to be implemented in a specific 
test period. The former class of reports are normal business records 
not prepared primarily for litigation. The Periodic Reporting Rule 
requires that some standard business records be provided. The principal 
effect of providing them is to allow the interested public to learn 
enough about the way that the Postal Service routinely estimates costs 
and revenues to comprehend an enormously complex omnibus rate filing in 
the narrow litigation window provided. Only the latter class of reports 
are prepared primarily for litigation purposes. The Periodic Reporting 
Rule

[[Page 65368]]

does not apply to them. See GCA Comments at 5, n. 6. Therefore, the 
rule does not infringe on the Postal Service's right under Sec.  
410(c)(4) not to disclose attorney work product intended for Chapter 36 
litigation, even if that provision were to apply outside of the context 
of Freedom of Information Act requests.
There Is No Statutory Ban on Evaluating Rate-Related Matters Between 
Sec.  3622 Proceedings
    Section 3624(c)(1) of the Act requires the Commission to transmit a 
recommended decision on the Postal Service's request for new rates 
within 10 months after receiving the request. The Postal Service argues 
that this provision entitles it to a respite from litigating rate-
related matters outside of this 10-month period.\20\ But the Postal 
Service goes further, and argues that this respite includes a right not 
to have to think about rate-related matters, and a respite from having 
others think about rate-related matters. The Postal Service argues that 
the Periodic Reporting Rule robs it of the respite to which it is 
entitled, because it provides others with information that would enable 
them, in the period between rate cases, to study how postal costs and 
revenues behave. Substantive Comments at 17.
---------------------------------------------------------------------------

    \20\ This argument, of course, ignores the various kinds of 
hearings that the Act authorizes the Commission to initiate between 
rate cases.
---------------------------------------------------------------------------

    Apparently, in the Postal Service's view, a ``rate case'' happens 
whenever, and wherever a person's thoughts turn to postal cost or 
revenue behavior, and if the Postal Service didn't ask them to do it, 
Sec.  3624(c)(1) is violated. It is hard to take this proposition 
seriously. One obvious flaw in this logic is the fact that the Act 
contains a complaint procedure whereby the public may ask the 
Commission, at any time, to hold a hearing on whether current rates 
violate the policies of the act. See 39 U.S.C. Sec.  3662. This cannot 
be reconciled with the Postal Service's ``respite'' theory. It should 
also be noted that there is nothing in the legislative history of Sec.  
3624(c) to suggest that it was motivated by a desire to give the Postal 
Service a respite from other Chapter 36 hearings, let alone give it a 
respite from others' rate-related thoughts.\21\
---------------------------------------------------------------------------

    \21\ Section 3624(c)(1) was adopted as part of the 1976 
amendments to the Act. The legislative history of this provision 
indicates only two motives for adopting the 10-month time limit for 
completing rate cases. The overriding motive was the desire to 
shorten rate cases so that revenues could be increased more quickly, 
and the financial crisis that prompted the 1976 amendments would not 
reoccur. See Report of Committee on Post Office and Civil Service, 
House of Representatives, on H.R. 8603, Postal Reorganization 
Amendments of 1976, Pub. L. 94-421, 94th Cong., 2d Sess., October 
1976, at page 334 (Remarks of Senator McGee). A secondary motive was 
to reduce the Postal Service's control over the ratesetting process 
by lengthening the period that the Postal Service must wait before 
it puts temporary rates into effect, from 90 days to 10 months after 
it files a rate request. Id. at 51. The OCA asserts that under the 
original statute, temporary rates, as a practical matter, became 
permanent rates, shortening the hearing time before de facto 
permanent rates were implemented to 90 days. It contends that the 
effect of the 1976 amendments was to greatly expand the opportunity 
of intervenors in rate cases to influence the selection of permanent 
rates. OCA Reply Comments at 4, n.9.
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B. Disclosure Policy Under the Periodic Reporting Rule

    The Postal Service expresses a deep-seated insecurity about the 
Commission's willingness and ability to afford confidential treatment 
to materials that it might provide under the Periodic Reporting Rule. 
The cause of this insecurity, it asserts, is its experience with 
Freedom of Information Act (FOIA) requests for information that it has 
provided to help the Commission prepare its report to Congress on 
international mail under 39 U.S.C. Sec.  3663. Substantive Comments at 
29-30.
    The Postal Service emphasizes that it is exempt from a duty to 
disclose commercial information that ``under good business practice 
would not be publicly disclosed'' by Sec.  410(c)(2) of the Postal 
Reorganization Act. It argues as though this section of the Act is a 
general-purpose exemption from the duty to disclose commercial 
information. Section 410(c)(2), however, is expressly limited to the 
Postal Service's duty to respond to FOIA requests. The Commission's 
authority to require the Postal Service to provide information on a 
periodic basis is not derived from FOIA, but from its authority under 
Sec.  3603 of the Act to adopt procedures that are ``necessary and 
proper'' to carry out its ratemaking and classification functions.
    More to the point, the stated concern about the potential need to 
afford confidential treatment to data provided to comply with the 
proposed rule changes appears to be largely a red herring. As discussed 
at some length above, all of the information called for by the proposed 
rules have been provided and made public in recent years, either as 
part of a rate case filing or as a courtesy to the Commission. Except 
for facility-specific data, the Postal Service has never seen fit to 
request confidential treatment for any of this information, and it does 
not now identify any competitive disadvantage it is likely to suffer as 
a result of public access to these historical operating results. Except 
for facility-specific data, it seems highly unlikely that the Postal 
Service will have justification to seek confidential treatment of the 
materials it will provide to comply with revised rule 102.
    Furthermore, the Commission always has conscientiously dealt with 
requests for confidential treatment of data both during and outside of 
docketed cases. Existing procedures assure that both the Postal 
Service, and all others providing information to the Commission, have 
ample safeguards to assure that their concerns will be fully heard and 
evaluated in timely fashion, and their rights fully protected.
Protecting Commercially Sensitive Information Required by the Rule
    In a rate case, a litigant occasionally will seek to discover 
information that another litigant considers to be commercially 
sensitive. The Commission resolves such issues by balancing one 
litigant's need for the information to support its case against the 
potential commercial harm that disclosure might cause to the other 
litigant. In such cases there is a general presumption that discovery 
should be granted in order to afford the discovering party its due 
process right to prove its case. The tension between the discovering 
party's need to prove its case and the opponents need to protect 
commercially valuable information is sometimes resolved by granting 
discovery subject to various protective conditions. For example, only 
temporary access may be granted, and only to specified persons or 
groups.
    The CRA documentation that the rule requires is among the 
documentation that the Postal Service has consistently disclosed in 
rate cases without asserting that the documentation has commercial 
value and without seeking protective conditions. The minor exception to 
this Postal Service policy has been its consistent request that 
facility-specific data, and mailer-specific data, be coded so as to 
mask the identity of the facility or the mailer. The Postal Service has 
not explained why the same approach could not be satisfactorily applied 
to disclosure under this rule.
    In its comments, the Postal Service strenuously objects to 
following the same disclosure policy with respect to the same 
documentation in the context of the Periodic Reporting Rule. It asserts 
that ``the majority of the information designated by the Commission's 
proposed rules consists of commercial information that would not be 
disclosed under good business practices.'' As part of its justification 
for this position, it notes that the material covered by the rule 
includes information specific to

[[Page 65369]]

particular facilities. Substantive Comments at 31-32. The position that 
the Postal Service has taken appears to be based in part on the 
assumption that facility-specific data would somehow be at risk if it 
were disclosed under the rule. The Commission has no intention of 
affording less protection to the information obtained under the 
Periodic Reporting Rule than it has consistently afforded in the 
context of a rate case. The position that the Postal Service has taken 
also appears to be influenced by its overly-broad and inaccurate 
characterizations of the documentation that the rule requires.
Express Authority for the Rule Is Not Required
    The Postal Service emphasizes that the Postal Reorganization Act 
does not expressly authorize the Commission to require the Postal 
Service to provide access to information outside the context of Chapter 
36 rate hearings. Id. at 24. The Postal Service further emphasizes that 
Sec.  410(c) of the Act exempts it from the obligation to disclose the 
following information in response to Freedom of Information Act 
requests:

    Information of a commercial nature, including trade secrets, 
whether or not obtained from a person outside the Postal Service, 
which under good business practice would not be publicly disclosed.

    The Postal Service assumes that Sec.  410(c) not only exempts such 
information from mandatory disclosure in response to requests filed 
under the Freedom of Information Act, but, by implication, exempts it 
from mandatory disclosure under any circumstance, other than pending 
Chapter 36 hearings. Id. at 26.
    Although the Act does not expressly authorize the Commission to 
require the Postal Service to provide information outside the context 
of Chapter 36 hearings, express authority is not required, given the 
availability of Sec.  3603. Because of its broad language, any exercise 
of Sec.  3603 authority is necessarily an exercise of implied 
authority. The issue is whether it is plausibly and reasonably implied.
    The Commission has already explained why it needs the documentation 
required by the rule if it is to effectively evaluate all of the issues 
presented in Sec.  3624 hearings within severely compressed litigation 
windows. It has already explained why that information is needed if the 
Commission is to ensure that intervenors in future rate cases have a 
realistic opportunity to understand the immensely complex documentation 
supporting Postal Service rate requests, and to develop alternatives, 
in the severely compressed litigation window available. Having shown 
the need for the rule to carry out its functions under Sec. Sec.  3622, 
3623, and 3662 of the Act, the Commission has demonstrated that the 
rule is the kind of procedure that Congress meant to authorize by the 
general language of Sec.  3603.
The Rule Does Not Conflict With the Policy Underlying Sec.  410(c)
    The Commission sees no conflict between the Periodic Reporting 
Rule, as authorized by Sec.  3603, and the disclosure policy reflected 
in Sec.  410(c) of the Act. Section 410(c) does not expressly apply in 
contexts other than Freedom of Information Act (FOIA) requests. There 
are special considerations that are likely to have led Congress to 
exempt the Postal Service from mandatory disclosure of commercially 
sensitive information in response to FOIA requests. The most 
significant of those considerations is that in deciding whether to 
comply with a FOIA request, an agency may not take into account the 
need of the requesting party for the information that it is requesting, 
NLRB v. Sears, Roebuck & Co., 421 U.S. 132 (1975) at 143 n. 10, and it 
generally may not take into account its own burden in complying with 
such a request. See Ruotolo v. Dept. of Justice, 53 F.3d 4, 10 (2d Cir. 
1995). Disclosure is mandatory unless the information falls within one 
of the narrow exemptions that the FOIA makes available. These 
simplifying procedures were thought necessary to make the FOIA 
effective, but they introduce a procedural arbitrariness that is not 
necessarily appropriate in all circumstances involving disclosure of 
sensitive materials. Aware that the FOIA does not allow a balancing of 
the public's need for information against the potential harm to the 
agency of providing it, Congress exempted the Postal Service from 
disclosing commercially sensitive materials in the FOIA context.
    The Postal Service does not have express authority to withhold 
information that the Commission needs to effectively carry out its 
functions under the Act. Outside of the FOIA context, Congress did not 
expressly exempt the Postal Service from disclosure of commercially 
sensitive materials, or expressly make the Postal Service the arbiter 
of what materials should be considered commercially sensitive. What 
Congress intended where another Federal agency, such as the Commission, 
has demonstrated a substantial need for information from the Postal 
Service, and is willing and able to balance its need for that 
information against the burden and potential commercial harm of 
providing it, can only be surmised from the other provisions of the 
Postal Reorganization Act.
    The Postal Service frequently points out that Congress, in adopting 
the Postal Reorganization Act, intended that the Postal Service 
function more like a private business than it had been functioning. 
Exemption from responding to some kinds of FOIA requests is one way in 
which the Postal Service resembles a private business.
    At the same time, however, Congress gave the Postal Service special 
monopoly privileges and made it clear that these privileges carried 
with them special duties toward the public that a private business does 
not have. The first section of the Act, 39 U.S.C. Sec.  101, is replete 
with these special duties. Chief among these are its obligation to 
provide the public with universal service [Sec.  101(b)] that is 
capable of binding the nation together [Sec.  101(a)].\22\ The Postal 
Service is also required to charge rates that are based on principles 
of equity and other public policies, not just profitability. See Sec.  
101(d). The Postal Rate Commission has a key role to play in ensuring 
that rates comply with these policies.
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    \22\ Section 101(a), states:
    The United States Postal Service shall be operated as a basic 
and fundamental service provided to the people by the Government of 
the United States, authorized by the Constitution, created by Act of 
Congress, and supported by the people. The Postal Service shall have 
as its basic function, the obligation to provide postal services to 
bind the Nation together through the personal, educational, 
literary, and business correspondence of the people. It shall 
provide prompt, reliable, and efficient services to patrons in all 
areas and shall render postal services to all communities. The costs 
of establishing and maintaining the Postal Service shall not be 
apportioned to impair the overall value of such service to the 
people.
---------------------------------------------------------------------------

    Given the remarkable dissimilarities between the Postal Service and 
a private business with respect to its obligations to the public, it is 
implausible that Congress would have intended the Postal Service to 
have the power to decide for itself what the outside world may know 
about it, including what the outside world may know about its 
operations and finances that bear on ratemaking, except during rate 
litigation. The Commission is not aware of any government monopoly that 
has been granted absolute power to decide for itself what its 
disclosure policy will be. It is much more plausible to surmise that, 
apart from litigation, the Postal Service's power to decide what its 
disclosure policy will be is not absolute, but qualified. One of the 
respects in which it is qualified is where the

[[Page 65370]]

Commission (which has primary ratemaking responsibility under the Act) 
\23\ has demonstrated a need for a limited amount of documentation of 
routine financial reports to make the ratesetting process function 
properly.
---------------------------------------------------------------------------

    \23\ See National Association of Greeting Card Publishers v. 
USPS, 462 U.S. 810, 821 (1983) quoting S. Rep. No. 91-912 at 4 
(1970).
---------------------------------------------------------------------------

    The Commission's Periodic Reporting Rule is a restrained exercise 
of its authority to establish procedures that ensure that its hearings 
afford meaningful due process both to the Postal Service and to the 
affected public, and ensure that the Commission maintains the expertise 
that is required to make informed rate recommendations. As such, it is 
authorized under Sec.  3603 of the Act.
    In deciding whether the updated Periodic Reporting Rule is an 
appropriate exercise of the Commission's Sec.  3603 authority, the 
questions to be answered are whether the need for the information 
identified by the Commission is real and substantial, and whether 
providing it would significantly impair the functioning of the Postal 
Service.
The Need of Litigants for Meaningful Due Process
    If there is a common theme among the comments received in this 
docket from potential intervenors in rate cases, it is that, under 
current circumstances, the litigation ``playing field'' in omnibus rate 
cases is tilted so steeply in favor of the Postal Service that their 
basic right to due process is jeopardized. The causes are severe 
asymmetry in the time and resources available to prepare for a rate 
filing, severe asymmetry in access to relevant information, the immense 
scope and detail of the filing, and the short statutory deadline for 
digesting and reacting to it. As the American Bankers Association 
points out

[m]uch of the complexity associated with omnibus rate cases for the 
Commission and intervenors arises from the fact that they cannot 
even begin to prepare for such a case until it is filed. The changes 
to the Commission's rules as proposed in Commission Order No. 1358, 
which would require the USPS to periodically file much of the basic 
information upon which requests for new rates are based, would 
greatly facilitate effective decision making by the Commission and 
effective participation by intervenors in omnibus rate cases.

    ABA Comments at 1-2. American Business Media concurs:

[w]ith data available on an ongoing basis, not only would the 
Commission be better prepared for a rate filing, but the Postal 
Service's customers would not bear the burden of having the ten or 
twelve feet of papers, plus computer material, dropped on them with 
the expectation that they can review, understand, question, and 
refute those portions that are relevant in time for the Commission 
to issue a recommended decision in ten months.

    ABM Reply Comments at 2. The OCA summarizes the dilemma of 
intervenors:

[a]s a participant in rate cases, the OCA has watched the complexity 
and sophistication of Postal Service presentations rise 
exponentially. The ``lead'' time required by the OCA (or any other 
participant) to match the level of the Service's evidence has also 
increased exponentially. But the Postal Service seeks to preserve 
its lead-time advantage of ``six months'' while denying any lead 
time to participants. At some point (already passed, as far as the 
OCA is concerned) the advantage to the Postal Service becomes 
overwhelming, and due process evaporates. Whatever may have 
motivated the Commission to propose the new periodic reporting 
rules, the effect of their implementation will be to level the 
litigation field for participants other than the Postal Service.

    OCA Reply Comments at 4-5. [Footnote omitted.]
    That the playing field is tilted is not merely the self-serving 
perception of intervenors in rate cases. The Federal court of appeals 
in Association of American Publishers, Inc. v. Governors of the United 
State Postal Service, 485 F.2d 768, 779 (D.C. Cir. 1973) has commented 
on the problem as well:

[The Postal Service] alone takes in the full scope of Postal Service 
operations when presenting its proposals. And it alone is in a 
position to influence the Postal Service's day-to-day accounting 
procedures and record keeping. Outsider challenges to the 
fundamental approach the Postal Service takes to ratemaking are 
unlikely to meet with stunning success under these circumstances 
[footnote omitted].

    The problem of securing meaningful due process for intervenors in 
rate cases is real and substantial, and the information required by the 
updated Periodic Reporting Rule is reasonably designed to partially 
solve that problem. The remaining question is whether providing that 
information would significantly impair the functioning of the Postal 
Service. The Commission has explained earlier that the burden of 
complying with the rule is a tiny fraction of the burden of documenting 
a full-blown rate case, primarily because the Postal Service produces 
almost all of this information routinely anyway, for reasons apart from 
the rule.
The Postal Service's Assertions of Commercial Sensitivity Are 
Unexpectedly Broad
    The Postal Service, unexpectedly, asserts that the majority of the 
information required by the rule is commercially sensitive. It is very 
difficult to evaluate this assertion because it is made at such a 
general level. The Postal Service makes almost no effort to identify 
which of the diverse information required by the rule it now believes 
falls in this category.
    There are a number of reasons that this broad assertion of 
commercial sensitivity is unexpected. One is because the subject matter 
of the information required by the rule is information that the rule 
has required for decades, and the Postal Service has provided for 
decades, without suggesting that it is commercially sensitive. Another 
reason that this assertion is unexpected is because the information 
required by the rule is information that the Postal Service has 
routinely provided in omnibus rate cases without asserting that it is 
sensitive and without seeking to file it under protective conditions. 
Furthermore, on several occasions, the Postal Service has voluntarily 
disclosed much of the CRA documentation that it now seeks the most 
strenuously to withhold. In 1998, for example, after the Docket No. 
R97-1 omnibus rate case was concluded, the Postal Service voluntarily 
provided the Commission with an extensively documented interim-year CRA 
that was calculated according to Commission attribution methods. The 
documentation included the B workpaper spreadsheets and some of the 
input datasets that the updated Periodic Reporting Rule now requires. 
There was no assertion that this information was commercially 
sensitive, and no request that it be maintained under protective 
conditions. Similarly, on May 30 of this year, the Postal Service 
voluntarily included with its CRA submitted under the prior version of 
the Periodic Reporting Rule, the B workpaper spreadsheets for the major 
costs segments (Segments 3, 6, 7, and 14).\24\
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    \24\ See Letter of May 30, 2003, from Daniel J. Foucheaux, Chief 
Counsel, Ratemaking, to the Hon. Steven W. Williams, Secretary, 
Postal Rate Commission. This was apparently done on the assumption 
that the B workpapers for these cost segments are the current 
counterpart to the CRA documentation that it had provided in past 
years under the Periodic Reporting Rule.
---------------------------------------------------------------------------

    Taken together, this history adds up to a shift in the attitude of 
the Postal Service toward the commercial sensitivity of the CRA 
documentation that the updated rule requires. This new attitude is not 
satisfactorily justified by the Postal Service. Once facility 
identifiers are removed from the required datasets, there is no 
apparent commercial use to which any of this

[[Page 65371]]

documentation could be put, and the Postal Service has suggested none.
    The commenters argue that the Postal Service's main motive in 
opposing the update to the Periodic Reporting Rule is not its new-found 
concern for the commercial sensitivity of this data, but the loss of 
the tactical advantage that it has entering rate cases fully prepared 
while the intervenors play a desperate game of catch up in the short 
litigation window available. See ABA Comments at 3-4, OCA Reply 
Comments at 1, UPS Reply Comments at 6. American Business Media's 
comments are representative

    American Business Media submits that what the Postal Service 
fears is actually the loss of the enormous advantage it obtains by 
springing mountains of data, new costing methodologies, and hundreds 
of proposed rates upon the Commission and other parties a mere ten 
months before a heavily litigated case with dozens of active parties 
must be resolved.

    ABM Reply Comments at 5. [Footnote omitted.]
    The comments in this docket from those who have participated in 
past rate hearings agree that the Postal Service's assertions of the 
commercial sensitivity of the information required by the Periodic 
Reporting Rule are indiscriminately broad. The American Bankers 
Association, for example, argues that

* * * virtually no other enterprise, including those that compete 
with the Postal Service in the small area where there is direct 
competition, has a cost structure that even remotely resembles the 
cost structure of the USPS. Thus, the sort of data the proposed rule 
changes would require the Postal Service to produce does not seem to 
be the sort of data that would give competitors in the small area 
where there is competition information of value.

    ABA Comments at 4.
    These commenters point out that only a few of the Postal Service's 
products are provided in competitive markets (Express Mail, Priority 
Mail, and parcel post), and that their commercial significance is 
minor. (They accounted for only 7 percent of net postal revenue in FY 
2002.) They argue that this competitive ``tail'' should not wag the dog 
in matters of information disclosure. They note that if there is 
sensitive information about these services in the materials required by 
the rule, the Postal Service could identify it with specificity and 
seek appropriate protective conditions to prevent any perceived harm. 
ABA Comments at 4, GCA Comments at 6-7, UPS Reply Comments at 6.
Commercial Sensitivity Objections Involve Only the Frequency of 
Disclosure Required by the Rule
    As already noted, the Postal Service has consistently disclosed the 
CRA documentation required by the updated Periodic Reporting Rule to 
the public in its omnibus rate requests and has voluntarily disclosed 
most of this documentation in some interim years as well. It has not 
asked that it be treated as commercially sensitive in either context. 
The Postal Service's objections to its disclosure under the Periodic 
Reporting Rule, therefore, have to be based almost entirely on the 
prospect that under the rule, these same materials would be disclosed 
more frequently than they otherwise would be. The logic of the Postal 
Service's position seems to be that disclosing these materials is not a 
significant commercial risk when their disclosure occurs at the 
frequency that it has in the past, but would become a significant risk 
if disclosed annually.
The Potential Harm of Annual Disclosure Has Already Been Tested
    If annual disclosure were the true test of the dangers of 
disclosing these materials, the Postal Service has already conducted 
this test. Every year for a six-year period starting with FY 1995 
(provided in Docket No. MC96-3), and ending in FY 2000 (provided in 
Docket No. R2001-1), the Postal Service has publicly disclosed the CRA 
documentation that the Periodic Reporting Rule now requires. Rather 
than suffer financially, this was by far the most prosperous period 
that the Postal Service has had since the adoption of the Postal 
Reorganization Act in 1970. The Postal Service's competitive services 
participated fully in this unprecedented prosperity. This should dispel 
the Postal Service's fears that annual disclosure of the information 
required by the Periodic Reporting Rule will adversely affect its 
financial prospects or its competitiveness. By the same token, it 
should also dispel the notion that the institutional calamities that 
the Postal Service warned would ensue from annual disclosure will, in 
fact, occur. Over this period there was no attempt by the Commission to 
monitor day-to-day management of the Postal Service, to audit its books 
of account, to supervise its data collection activities, or develop 
rate recommendations outside of a pending rate case. Nor did the 
Commission compromise any Governors' decision through interim-year 
research, or take any other action that ``fundamentally altered'' the 
institutional relationship between the Commission and the Postal 
Service.
    What did happen over this six-year period of annual disclosure was 
that the Commission had a better opportunity to keep current on the 
``state of the art'' of cost attribution as practiced by the Postal 
Service. It had a better opportunity to evaluate its forecasting models 
to see where their assumptions held up and where they didn't. The 
Commission was better able to waive some documentation requirements in 
minor cases, due to the availability of recent Base Year CRA 
documentation. And, finally, some of the pressure was taken off of the 
Commission and the intervenors to quickly digest the enormous amount of 
supporting material filed with omnibus rate requests.
    Recent history with annual disclosure, therefore, confirms that it 
significantly improves the ability of the Commission to process rate 
hearings without causing any of the various forms of institutional harm 
that the Postal Service posits. The purpose of the updates to the 
Periodic Reporting Rule is to continue the successful pattern of the FY 
1995-FY 2000 period, rather than to restructure the Postal 
Reorganization Act, as the Postal Service asserts.

V. Provisions of the Rule Not Related to Documentation of the CRA

    In addition to updating the portions of the Periodic Reporting Rule 
that deal with documenting the CRA, the updated rule reduces the lag 
allowed for reporting billing determinants for Express Mail, Priority 
Mail, and parcel post to 12 months after the close of the fiscal year, 
[Sec.  102(a)(10)]; requires the Postal Service to provide its 
Integrated Financial Plan [Sec.  102(a)(11)]; requires it to provide 
the input data and calculations used to produce annual Total Factor 
Productivity estimates [Sec.  102(a)(12)]; requires it to provide a 
finer level of detail in its quarterly RPW reports [Sec.  102(b)(1)]; 
and requires it to provide On-roll and Paid Employee Statistics (OPRES) 
[Sec.  102(c)(4)]. The Postal Service indicates that it does not object 
to these changes in the updated Periodic Reporting Rule. Substantive 
Comments at 36-37.
    The Postal Service does object to Sec.  102(c)(5), which requires 
it to provide the ``HAT'' report, relating to the Postal Service's 
Active Employee Statistical Summary. It argues that the HAT report 
includes miscellaneous information about postal employees, most of 
which is not related to ratemaking. Id. at 37, n.22. While it includes 
miscellaneous information about employees, the HAT

[[Page 65372]]

report is very relevant to ratemaking because it lists the number of 
employees within each pay grade and step within the many different pay 
scales used by the Postal Service. This information, which can not be 
found in the On-Rolls and Paid Employee Statistics, is used to develop 
several estimates that are important in determining the revenue 
requirement in rate cases. For example, it is used to develop the 
average step increase for bargaining unit employees, as well as their 
attrition rate. The information in the HAT report cannot be associated 
with individual employees, and it is not reported by facility. The 
Postal Service does not contend that the availability of the data will 
have any specific detrimental effect on it or its employees. For these 
reasons, it is included in the updated rule.

VI. Suggestions of the Commenters

    In the past, the Periodic Reporting Rule required billing 
determinants to be reported within two weeks of their presentation to 
postal management. Since FY 1995, billing determinants have been 
received from 6 to 16 months after the close of the fiscal year. In the 
past the Periodic Reporting Rule allowed billing determinants for 
Express Mail, Priority Mail, and parcel post to be delayed an 
additional year, causing them to be from 18 to 28 months [entity] old 
when received. In its NPR, the Commission proposed that the rationale 
for the distinction between billing determinants for competitive mail 
classes and other mail classes be reexamined. In order to focus the 
reexamination, the Commission proposed that billing determinants for 
competitive classes be provided within a year after the close of the 
fiscal year to which they apply. NPR at 7.
    UPS is the only party to offer substantive comments on this issue. 
It argues that there has never been a reasoned justification for 
treating billing determinants for competitive classes differently than 
for other classes in the context of the Periodic Reporting Rule. It 
points out that the Postal Service provides all billing determinants at 
the same time in support of its omnibus rate requests, without 
suggesting that billing determinants for competitive classes are 
commercially sensitive. It argues that the Postal Service has never 
pointed to any instance in which providing current billing determinants 
for competitive services during a rate case has caused it competitive 
harm, nor identified any way in which a competitor could use current 
billing determinants to put the Postal Service at a competitive 
disadvantage. UPS Comments at 2-4. It also argues that all billing 
determinants should be provided on a date certain, shortly after the 
close of the fiscal year, rather than on a floating time table as they 
now are. It cites an example of the Postal Service voluntarily 
publicizing current volumes for parcel post rate categories at a recent 
National Postal Forum as evidence that the Postal Service itself does 
not consider them to be commercially sensitive. Id. at 5.
    The Commission agrees that it would be desirable to receive billing 
determinant information at a consistent and shorter interval after the 
close of each fiscal year. The Commission has, however, tried to adhere 
to a policy of requiring reports under the Periodic Reporting Rule that 
do not add significantly to the burden that the Postal Service already 
bears when it prepares these reports for its internal purposes. For 
that reason, the Commission declines to require that most billing 
determinants be provided on a date certain.
    The final Periodic Reporting Rule adopts the billing determinant 
provision as it was proposed in the NPR. It requires the Postal Service 
to provide billing determinants for competitive categories within one 
year of the close of the fiscal year to which they apply. UPS correctly 
notes that the Postal Service occasionally voluntarily discloses 
current volumes for competitive services by rate category. However, to 
the Commission's knowledge, the Postal Service does not voluntarily 
disclose other current billing determinant detail, such as weight and 
zone, for competitive categories. The updated rule should cut the delay 
in reporting billing determinant information for competitive categories 
from roughly two years to one year. The Commission is reluctant to go 
further in this regard, without a more thorough discussion of the 
ramifications than has been provided in this docket.
    At the beginning of each fiscal year, the Postal Service prepares 
an operating budget that includes detailed operating expense and 
revenue projections for the coming fiscal year, broken out by 
accounting period. Under the Periodic Reporting Rule, the Commission 
receives the Postal Service's Financial and Operating Statements 
several weeks after the close of each accounting period. See rule 
102(c)(1). These statements compare the detailed operating revenues and 
expenses projected in the Postal Service's operating budget with actual 
results. Under the updated Periodic Reporting Rule, the Postal Service 
would provide an annual Operating Plan as part of its Integrated 
Financial Plan. See rule 102(a)(11). This annual Operating Plan is less 
detailed than the operating plans contained in its accounting period 
reports.
    The OCA proposes that the updated Periodic Reporting Rule require 
the Postal Service to provide its operating budget projections for all 
12 accounting periods at the beginning of the fiscal year, rather than 
provide them shortly after each accounting period closes. The OCA's 
rationale for adding this requirement to the updated rule is that the 
Commission and the public should not have to wait until several weeks 
after each accounting period to find out the Postal Service's operating 
plan for that accounting period. OCA Comments at 4-5.
    It is not clear that the Board of Governors approves the operating 
plan as an annual summary document or as a document that is as detailed 
as the OCA describes. It is, therefore, not clear that requiring 
accounting period operating budget projections would conform to the 
criteria that the Commission applies to the Periodic Reporting Rule 
that it be confined to reports that have already been presented for use 
by postal management. In view of this ambiguity, and the tenuous 
demonstration of need for altering the time at which the rule would 
obtain this information, the Commission declines to include this change 
in the updated rule.
    The Postal Service is required to file a number of reports with 
Congress to meet the requirements of chapters 24 and 28 of the Postal 
Reorganization Act. One is the Comprehensive Statement of Postal 
Operations, which includes an Annual Performance Plan, and annual 
Program Performance Reports. Another is the five-year Strategic Plan. 
The OCA proposes that these and all other reports that the Postal 
Service is required by the Act to provide to Congress be provided under 
the Periodic Reporting Rule as well. Id. at 3-4. The Commission 
declines to add reports to Congress to its Periodic Reporting Rules. 
The Commission prefers to restrict the rule to reports prepared for 
postal management. The Commission notes that these reports are all 
readily accessible on the Postal Service's Web site.

VII. Conclusion

    For the reasons discussed above, the Commission hereby amends 39 
CFR part 3001 (the Periodic Reporting Rules) as set forth below in this 
order. Any suggestion or request to modify the Commissions rules raised 
by any participant not specifically addressed herein is denied.
    It is ordered:

[[Page 65373]]

    (1) The Commission adopts the provisions set forth below amending 
39 CFR Sec.  3001.102.
    (2) The Secretary shall cause this notice of adoption of a final 
rule to be published in the Federal Register.

    Issued November 3, 2003.

    By the Commission.
Steven W. Williams,
Secretary.

List of Subjects in 39 CFR Part 3001

    Administrative practice and procedure, Postal Service.

0
For the reasons stated in the accompanying Order, the Commission adopts 
the following amendments to 39 CFR part 3001.

PART 3001--RULES OF PRACTICE AND PROCEDURE

0
1. The authority citation for part 3001 continues to read as follows:

    Authority: 39 U.S.C. 404(b); 3603; 3622-24; 3661; 3662; 3663.

Subpart G--Rules Applicable to the Filing of Reports by the U.S. 
Postal Service

0
2. Revise Sec.  3001.102 to read as follows:


Sec.  3001.102  Filing of reports.

    Each report listed in this section shall be filed with the 
Secretary of the Commission within two weeks of its presentation for 
use by postal management, unless otherwise noted. Each report should be 
provided in a form that can be read by publicly available PC software. 
A processing program that was developed specifically to produce an 
accompanying workpaper must be provided in a form that can be executed 
by publicly available PC software. COBOL processing programs in use 
prior to FY 2003 are exempt from this requirement. The reports and 
information required to be provided by this subpart need not include 
matters that are exempt from disclosure by law. Whenever a specific 
source is cited in this section, that citation includes any successor 
or substituted source.
    (a) Annual reports. The following information will be filed by the 
Postal Service annually. If it is presented for use by postal 
management at more frequent intervals, it shall be filed at those 
intervals:
    (1) All input data and all processing programs that have changed 
since the most recently completed general rate proceeding, if they are 
used to produce the Cost and Revenue Analysis Report (CRA). Each change 
in attribution principles or methods from the previous report will be 
identified. The Postal Service shall submit a CRA-USPS Version, 
followed within two weeks by a CRA-PRC Version. Documentation of both 
versions of the CRA shall include, but not be limited to, the 
following:
    (i) Spreadsheet workpapers underlying the development of segment 
costs by cost component. These workpapers should include the updated 
factors, and data from the supporting data systems used, including the 
In-Office Cost System (IOCS), Management Operating Data System (MODS), 
City Carrier Cost System (CCCS), Rural Carrier Cost System (RCCS), and 
National Mail Count.
    (ii) Documentation of any special study that has a substantial 
effect on estimated costs in any cost segment and was not documented in 
the most recently completed general rate proceeding.
    (A) Documentation shall consist of all input data and all 
processing programs used to obtain the results of the special study.
    (B) The Postal Service may elect to provide a written or oral 
presentation describing the data and the estimating techniques used, as 
well as the results of the special study, and to apply for a waiver of 
the requirement in paragraph (a) of this section.
    (2) Cost Segments and Components Report. Documentation shall 
include, but not be limited to, the following:
    (i) Cost segments and components reconciliation to financial 
statements and account reallocations.
    (ii) The Manual Input Requirement, the ``A'' report, and the ``B'' 
report;
    (iii) The control string commands for the ``A'' report, the ``B'' 
report (including the PESSA factor calculations), and the ``C'' report;
    (iv) The master list of cost segment components, including the 
components used as distribution keys in the development of the ``B'' 
report and the ``C'' report.
    (3) City delivery information, including the number of routes by 
type, the number of possible deliveries by type, the number of 
collection boxes, and the number of businesses served (120 days from 
the close of the fiscal year).
    (4) Rural carrier information, including the number of routes by 
type and miles, stops, boxes served, and mail pieces by route type (120 
days from the close of the fiscal year).
    (5) Civil Service Retirement Fund Deficit Report (two weeks after 
release of the Annual Report of the Postmaster General).
    (6) Worker's Compensation Report, including summary workpapers (two 
weeks after release of the Annual Report of the Postmaster General).
    (7) Annual Report of the Postmaster General.
    (8) Congressional Budget Submission, including workpapers. The 
Postal Service will also file concurrently Summary Tables SE 1, 2, and 
6 (coinciding with their submission to Congress).
    (9) Audit Adjustment Vouchers, if any.
    (10) Billing Determinants, at the level of detail employed in the 
most recent formal request for a change in rates or fees. The provision 
of billing determinants for Express Mail, Priority Mail, and parcel 
post may be delayed up to 12 months from the close of the fiscal year 
to which they apply.
    (11) USPS Integrated Financial Plan.
    (12) Input data and calculations used to produce annual Total 
Factor Productivity estimates.
    (b) Quarterly reports. The following information will be filed by 
the Postal Service quarterly:
    (1) Revenue, Pieces, and Weight, by rate category and special 
service.
    (2) Origin/Destination Information Report National Service Index.
    (c) Accounting period reports. The following information will be 
filed by the Postal Service each accounting period:
    (1) Summary Financial and Operating Report.
    (2) National Consolidated Trial Balances and the Revenue and 
Expense Summary.
    (3) National Payroll Hours Summary.
    (4) On-Roll and Paid Employee Statistics (OPRES).
    (5) Postal Service Active Employee Statistical Summary (HAT 
report).
    (d) Miscellaneous reports. The following information will be filed 
by the Postal Service:
    (1) Before/After Pay Increase Reports.
    (2) Before/After COLA Cost Reports.
    (3) A master list of publications and handbooks including those 
related to internal information procedures, when changed.
    (4) Data collection forms and corresponding training handbooks, 
when changed.
    (5) Notice of changes in data reporting systems, 90 days before 
those changes are implemented.

[FR Doc. 03-28643 Filed 11-18-03; 8:45 am]
BILLING CODE 7710-01-P