[Federal Register Volume 69, Number 47 (Wednesday, March 10, 2004)]
[Proposed Rules]
[Pages 11353-11358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5399]


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POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM2004-2; Order No. 1394]


New Reporting Requirements for Nonpostal Services

AGENCY: Postal Rate Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission proposes amending its rules to establish 
certain reporting requirements for the Postal Service's nonpostal 
services and products. The relatively recent expansion of nonpostal 
services and products offered by the Postal Service has caused various 
stakeholders to express concerns that those services and products may 
be cross-subsidized by jurisdictional services. The proposed rule is 
designed primarily to provide sufficient information regarding the 
Postal Service's nonpostal services and products to determine the 
presence (or absence) of cross-subsidies. The data are needed so that 
the Commission can recommend rates for jurisdictional services that 
comport with the requirements of the Postal Reorganization Act.

DATES: Initial comments due April 15, 2004; reply comments due May 17, 
2004.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, general counsel, 
at 202-789-6818.

SUPPLEMENTARY INFORMATION: 

[[Page 11354]]

Regulatory History

69 FR 3288 (January 23, 2004)

    The Commission proposes to amend its rules of practice and 
procedure, 39 CFR 3001.1 et seq., to establish certain reporting 
requirements for the Postal Service's non-jurisdictional activities. 
The proposed amendments are designed to better enable the Commission to 
fulfill its ratemaking responsibilities under chapter 36 of the Postal 
Reorganization Act, 39 U.S.C. 3601 et seq.
1. Background
    In Order No. 1388, the Commission denied, in part, and granted, in 
part, a petition filed by Consumer Action (CA) requesting the 
Commission to initiate a proceeding to consider the jurisdictional 
status of 14 services provided by the Postal Service to the public 
without prior Commission approval.\1\ In granting the request that it 
initiate a rulemaking proceeding to establish reporting requirements 
for the Postal Service's non-jurisdictional activities, the Commission 
indicated that it would, in the near future, issue a notice of proposed 
rulemaking regarding such reporting requirements. This order fulfills 
that undertaking, setting forth the proposed rules governing the 
information to be filed by the Postal Service in support of its formal 
rate requests.
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    \1\ PRC Order No. 1388, January 16, 2004.
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    In urging the Commission to initiate a rulemaking proceeding, CA, 
joined by the Office of the Consumer Advocate (OCA), refers to the 
Commission's long-standing policy of reviewing the costs and revenues 
of non-jurisdictional services to ensure the absence of cross-
subsidies.\2\ Citing Commission precedent, CA and OCA argue that the 
Commission must have accurate financial data regarding non-
jurisdictional services to forecast accurately the costs and revenues 
of jurisdictional (domestic) services.\3\ They contend that absent that 
information, the Commission cannot determine the net revenues needed 
from jurisdictional services to enable the Postal Service to achieve a 
break-even financial result as required by section 3621 of the Act.\4\
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    \2\ Letter, executed by CA and OCA, incorporated by reference in 
support of Consumer Action's petition, October 15, 2003, at 34-38 
(Joint Letter).
    \3\ Id. at 35-36. The precedent cited includes PRC Order Nos. 
1025 and 1034 in Docket No. R94-1 and Presiding Officer's Ruling No. 
R87-1/78 in Docket No. R87-1.
    \4\ Id. at 36-37.
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    To test for cross-subsidies, CA and OCA urge ``application of the 
incremental cost test for non-jurisdictional services in the aggregate, 
for each individual non-jurisdictional service, and for each group of 
such services.''\5\ In addition, CA and OCA argue that any losses 
associated with nonpostal services be excluded from amounts recovered 
through prior year losses. To that end, they suggest that in omnibus 
rate proceedings the Postal Service be required to submit evidence 
separating past jurisdictional losses from non-jurisdictional 
losses.\6\
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    \5\ Id. at 38. Quoting testimony of Postal Service witness 
Panzar from Docket No. R97-1, they define the incremental cost test 
as follows: ``The revenues collected from any service (or group of 
services) must be at least as large as the additional (or 
incremental) cost of adding that service (or group of services) to 
the enterprise's other offerings.'' Ibid. n.97 (emphasis in 
original).
    \6\ Id. at 39.
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    The Postal Service contends that the specific rules proposed by CA 
and OCA are unnecessary and unauthorized.\7\ It characterizes them as 
having two purposes, namely, inducing it to account for nonpostal 
services in a way that conforms to CA/OCA's judgment, and arming the 
Commission with data to enable it to critique the specific rates and 
fees established by the Postal Service for each nonpostal service. The 
Postal Service concludes that ``[b]oth objectives are unnecessary and 
lie outside the Commission's authority.''\8\ Generally, the balance of 
the Postal Service's discussion recounts the discovery dispute from 
Docket No. R2001-1, involving several of the services raised by CA's 
petition.\9\ The Postal Service summarizes the procedural history and 
arguments that OCA and it advanced, concluding that the Presiding 
Officer's Ruling granting, in part, OCA's motion to compel was wrongly 
decided.\10\
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    \7\ Comments of United States Postal Service on Consumer Action 
Petition, January 30, 2003, at 38 (Postal Service Comments).
    \8\ Id. at 38-39.
    \9\ Id. 39-43.
    \10\ Id. at 44.
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    The Postal Service did not address the specific rules suggested by 
CA and OCA, indicating that it would reserve its comments until and if 
a rulemaking were initiated.\11\ More generally, it asserts that the 
``detailed information sought pertaining to specific nonpostal services 
is largely irrelevant and unnecessary for exercise of the Commission's 
functions in an omnibus rate case.''\12\ Moreover, it appears to 
suggest that requiring the filing of such information ``would be 
unauthorized and could lead to a denial of due process.''\13\ Finally, 
the Postal Service contends that the proposed rule barring recovery of 
losses incurred by non-jurisdictional services from jurisdictional 
services ``would be entirely unauthorized.''\14\
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    \11\ Ibid.
    \12\ Id. at 45.
    \13\ Ibid.
    \14\ Ibid.
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    Two commenters specifically endorsed the proposal by CA and OCA to 
initiate a rulemaking proceeding to establish reporting requirements 
concerning the Postal Service's non-jurisdictional activities. The 
Association for Postal Commerce (PostCom) states that the concept is 
not ``revolutionary,'' noting that other agencies have developed 
``fairly elaborate accounting conventions'' for industries subject to 
their jurisdiction.\15\ Pitney Bowes, Inc. argues that regulatory 
oversight is needed to guard against the possibility that 
jurisdictional services will subsidize non-jurisdictional services. 
Accordingly, it urged the Commission to commence hearings to consider 
establishing cost accounting controls and reporting standards for 
nonpostal services.\16\
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    \15\ Comments of PostCom, January 30, 2003, at 1.
    \16\ Comments of Pitney Bowes, Inc., April 18, 2003, at 6.
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2. Rationale for the Rule
    As a general matter, in rate proceedings nonpostal services have 
generated little controversy not only because the sums involved were 
relatively minor but also because few services were offered. Some 
entailed ``public'' services, such as the sale of U.S. savings bonds, 
sale of migratory bird stamps, and passport applications, performed by 
the Postal Service for other government agencies for which it is 
reimbursed.\17\ Others involved minor services, offered as a 
convenience to postal patrons, such as photocopying, over which the 
Commission disclaimed jurisdiction.\18\
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    \17\ For purposes of this discussion, it is unnecessary to dwell 
on any distinctions between nonpostal services provided to the 
public by the Postal Service on behalf of other federal agencies 
under section 404(a)(6) and those provided to other agencies 
pursuant to section 411 of the Act. As discussed below, the proposed 
rule is occasioned by the need to consider the rate effects of the 
Postal Service's introduction of new, commercial nonpostal ventures 
irrespective of the legal authority for them.
    \18\ PRC Op. R76-1, Vol. 2, App. F at 20.
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    No longer are nonpostal services noncontroversial. The relatively 
recent proliferation of nonpostal ``initiatives,'' ranging from various 
e-commerce services to prepaid phone cards to wireless communication 
towers on postal property, gives rise to the need to more closely 
consider their effects, if any, on jurisdictional rates. Not only has 
there been a sea change in the nature of

[[Page 11355]]

the services provided, but there is also a growing concern that the 
costs associated with these services are largely being recovered 
through jurisdictional rates. In turn, this has led many to urge the 
need for greater transparency and accountability with respect to 
nonpostal services.
    Historically, nonpostal services performed by the Postal Service 
fell within the rubric of ``public service'' costs. The Kappel 
Commission identified various subsidies under which the Post Office 
Department (POD) operated, including nonpostal services performed for 
other government agencies. ``Unreimbursed non-postal services are some 
relatively small but widespread services rendered to other Government 
agencies (e.g., providing space for Civil Service examinations).''\19\ 
To eliminate this subsidy, the Kappel Commission advocated that the POD 
be reimbursed for all nonpostal services performed for other government 
agencies.\20\ That policy appears to be practiced today. See, e.g., 
Account 42341 (migratory bird stamps), Account 43420 (passport 
applications), and Account 42321 (food coupons).
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    \19\ Towards Postal Excellence, The Report of the President's 
Commission on Postal Reorganization, June 1968, at 137 (Kappel 
Commission Report); see also id., Vol. 2 at 6-7 (``Loss on nonpostal 
services, mainly for other Government agencies (e.g., sale of 
documentary stamps, provision of custodial service for building 
space occupied by other Government agencies));'' and id. at 6-9 (``A 
first category of subsidized services is the nonpostal services 
performed for other government agencies ($25.4 million in FY 1967) 
and very minor amounts of government mail ($0.4 million in FY 
1967)).'' (Footnote omitted.)
    \20\ Kappel Commission Report at 138. The Commission notes that 
the POD was ``reimbursed for most such services.'' Ibid.
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    Unlike these ``public services,'' the spate of recent ``nonpostal 
initiatives'' has an entirely different hue. The services identified in 
Consumer Action's petition, and discussed in Order No. 1388, are in no 
sense ``public services.''\21\ Rather, these represent commercial 
ventures, many of which, in competition with private industry, attempt 
to employ technological advances to grow revenues. Some of these 
services may ultimately be classified as ``postal services.'' Others 
may not. See PRC Order No. 1389, January 16, 2004. For purposes of this 
rulemaking resolution of their status is immaterial. The Postal Service 
classifies them all as nonpostal and thus, at a minimum, they would be 
subject to any reporting requirements adopted in this proceeding. The 
Commission recognizes the unresolved dispute concerning the scope of 
the Postal Service's authority to engage in such nonpostal activities 
under the Act.\22\ But again, resolution of that issue is of no moment 
to this rulemaking. Currently, the Postal Service is providing 
commercial, nonpostal services. Consequently, a need for the reporting 
requirements exists apart from the Postal Service's authority to offer 
the services. As the Commission has observed: ``[t]he lawfulness of the 
independent actions by which the Postal Service implemented a service 
is simply not an issue before the Commission[.]''\23\
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    \21\ The services identified in the petition include: Mall 
Package Shipment Program, Returns@Ease, Liberty Cash, Unisite 
Antenna Program, Retail Merchandise, NetPost CardStore, NetPost 
Certified Mail, USPS FirstClass Phone Card, Sure Money, USPS 
eBillPay, USPS Send Money, USPS Pay@Delivery, and USPS Electronic 
Postmark. For a description of these services, see PRC Order No. 
1388, January 16, 2004, at 6-9. The petition also identified 
ePayments as a separate service. In its Report on Nonpostal 
Initiatives, March 10, 2003, the Postal Service indicated that 
ePayments has been superseded by Online Payment Services.
    \22\ CA and the OCA contend that the Postal Service's authority 
under section 404(a)(6) of the Act is limited to providing nonpostal 
services on behalf of other government agencies. Joint Letter at 25-
26. The Postal Service argues that section 404(a)(6) authorizes it 
to provide commercial nonpostal services. In addition, it claims 
additional authority comes from its statutory mission and functions. 
Postal Service Comments at 13-17. For a discussion of this issue, 
see PRC Order No. 1388, January 16, 2004, at 15-21.
    \23\ PRC Order No. 1239, May 3 1999, at 13; see also PRC Order 
No. 1388, January 16, 2004, at 18-19.
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    Concerns about the Postal Service's development of new products 
began to surface as early as 1998. In a report that year, the General 
Accounting Office (GAO) provided, among other things, financial data on 
19 new products the Postal Service marketed and/or had under 
development during fiscal years 1995 through 1997.\24\ Among the 19 new 
services are: FirstClass Phone Card, Sure Money, Liberty Cash, Unisite 
Antenna Program, REMITCO, and Electronic Commerce Services.\25\ GAO 
reported that for fiscal years 1995 through 1997 these services lost an 
aggregate of $84.7 million, with only one product, Retail Merchandise, 
generating a profit ($5.0 million) during this period.\26\
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    \24\ U.S. Postal Service, Development and Inventory of New 
Products, November 1998, Report No. GAO/GGD-99-15, at 3-4.
    \25\ Id. at 19; the figures are unaudited. Appendix III to the 
report contains a description of each service and summary of its 
financial results.
    \26\ Id. at 4, 19 and 20. For the first three quarters of FY 
1998, the net loss narrowed to $3.7 million, with four of the 
remaining 13 active services reporting net profits.
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    Subsequent GAO reports, issued in 2000 and 2001, focused solely on 
the Postal Service's e-commerce activities. The first report, it is 
fair to say, was critical of the accuracy and completeness of the 
financial data the Postal Service provided concerning its various e-
commerce initiatives.\27\ As a consequence, GAO stated that it did:
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    \27\ U.S. Postal Service, Postal Activities and Laws Related to 
Electronic Commerce, September 2000, Report No. GAO/GGD-00-188, at 
4; see also id. at 27-30 (GAO Report GGD-00-195).

not believe the financial data that USPS provided could be used to 
reliably assess USPS' progress toward meeting its overall financial 
performance expectation that revenues generated by e-commerce 
products and services in the aggregate are to cover their direct and 
indirect costs as well as make a contribution to overhead.\28\
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    \28\ Id. at 27. In emphasizing the need for reliable financial 
data, GAO specifically noted that expense data should include, among 
other things, expenses related to (a) information systems and (b) 
other infrastructure initiatives used to support the e-commerce 
services. Id. at 29.
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    In an update to this report, issued in December 2001, GAO concluded 
that the financial information reported by the Postal Service 
concerning its e-commerce and Internet-related activities remained 
deficient, finding it ``not complete, accurate, and consistent.''\29\ 
Aside from handcuffing management's ability to assess the financial 
performance of new service offerings, the lack of reliable data has 
important rate implications.
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    \29\ U.S. Postal Service, Update on E-Commerce Activities and 
Privacy Protections, December 2001, Report No. GAO-02-79, at 6-7; 
see also id. at 11-15 (GAO Report 02-79).
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    Concerns continue to be raised as to whether USPS e-commerce 
initiatives in the aggregate are being cross-subsidized by other 
postal products and services. In response to our previous report, 
USPS officials noted that eCommerce products and services in the 
aggregate are to cover their incremental costs and thus not be 
cross-subsidized. To date, based on financial information provided 
to us, this goal has not been met, and it is not clear when this 
goal will be realized.\30\
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    \30\ Id. at 3; see also id. at 15-16.

    In the intervening time since this report was issued, December 
2001, perhaps the Postal Service has corrected the deficiencies in its 
financial reporting identified by GAO. While the Commission hopes that 
is the case, concerns about whether nonpostal services are being cross-
subsidized by postal services and products remain legitimate. All 
stakeholders, including most notably ratepayers and competitors, have 
an interest in the performance of new nonpostal products and services 
offered by the Postal Service. Without accurate, complete, and 
consistent financial information regarding such services, there can be 
no assurance that no cross-subsidy exists.
    Two more recent reports, which endorse the need for greater 
accountability by the Postal Service, provide support for this 
rulemaking.

[[Page 11356]]

First, the President's Commission on the Postal Service stated its 
belief that the Postal Service, as a public entity, ``has a 
responsibility to the public to be transparent in its financial 
reporting.'' \31\ In addition, the President's Commission discussed the 
need to safeguard against cross-subsidization.\32\
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    \31\ Report of the President's Commission on the United States 
Postal Service, July 31, 2003, at 66.
    \32\ Id. at 67.
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    Second, based on audits in 2003, the Office of Inspector General 
(OIG) reports that the NetPost Services program, which consists of 
Mailing Online (now discontinued), CardStore, Premium Postcards, and 
Certified Mail, fell short of original financial projections.\33\ In 
addressing the issue of accountability, the OIG states: ``The Postal 
Service must also continue to improve its financial operations to 
ensure it is accountable to the public and is providing the best 
service at the lowest cost.'' \34\
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    \33\ Office of Inspector General, Semiannual Report to Congress, 
April 1, 2003-September 30, 2003, at 26.
    \34\ Id. at 8.
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    Finally, various stakeholders question whether the Postal Service 
should be engaged in nonpostal initiatives in competition with private 
industry.\35\ While that policy issue is beyond the scope of this 
rulemaking, it highlights the need for reporting requirements that may 
aid in evaluating complaints that the Postal Service is competing 
unfairly. Of late, much has been written about the need for greater 
financial transparency by the Postal Service in general and, more 
specifically, regarding its nonpostal activities.\36\ It is imperative 
that, to the extent of its authority to offer commercial nonpostal 
services in competition with private industry, the Postal Service, as a 
government-owned and -operated monopoly, price such services in a 
manner that, based on publicly available data, provides demonstrable 
assurance that it is not competing unfairly.
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    \35\ See, e.g., Comments of Pitney Bowes, Inc., April 18, 2003, 
Comments of the Computer & Communications Industry Association on 
the Motion of the Office of the Consumer Advocate to Request that 
the Commission Institute a Proceeding to Consider the Postal/
Nonpostal Character of Specified Services and the Establishment of 
Rules to Require a Full Accounting of the Costs and Revenues of 
Nonpostal Services, January 28, 2003; and Comments of the Council 
for Citizens Against Government Waste on the Motion of the Office of 
the Consumer Advocate to Request that the Commission Institute a 
Proceeding to Consider the Postal/Nonpostal Character of Specified 
Services and the Establishment of Rules to Require a Full Accounting 
of the Costs and Revenues of Nonpostal Services, January 30, 2003.
    \36\ In addition to the various reports cited above, see also 
Letter to The Honorable Daniel K. Akaka, Chairman, and The Honorable 
Thad Cochran, Ranking Minority Member, Subcommittee on International 
Security, Proliferation, and Federal Services Committee on 
Governmental Affairs from the General Accounting Office by Bernard 
L. Ungar, Director, Physical Infrastructure Issues and Linda Calbom, 
Director, Financial Management and Assurance, November 13, 2002.
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3. Legal Authority
    Section 3603 specifically authorizes the Commission to ``promulgate 
rules and regulations and establish procedures, subject to chapters 5 
and 7 of title 5, and take any other action they deem necessary and 
proper to carry out their functions * * *.'' 39 U.S.C. 3603. The 
Commission has concluded that it is ``necessary and proper to carry out 
[its] functions'' to amend its rules to ensure that the Postal 
Service's burgeoning nonpostal service activities are not being cross-
subsidized by jurisdictional services.
    The need for an accurate accounting of the Postal Service's 
``postal'' and ``nonpostal'' activities is indisputably relevant to the 
Commission's authority to recommend rates for jurisdictional (postal) 
services. Section 3621 mandates that the Postal Service operate under a 
break-even requirement, i.e., revenues from postal rates and fees must 
equal as nearly practicable the Postal Service's total estimated costs. 
39 U.S.C. 3621. Section 3622(b)(3) requires that each class or type of 
mail bear the direct and indirect postal costs attributable to it plus 
a reasonably assignable portion of the Postal Service's other costs. In 
addition, section 403(c) prohibits both undue discrimination among 
users and any undue preference for any user.
    To recommend rates that satisfy the Act, the Commission must have 
accurate cost and revenue information regarding both jurisdictional 
(domestic postal) services and non-jurisdictional (nonpostal and 
international) services. Without such information, the Commission 
cannot reasonably determine the net revenue to be generated by 
jurisdictional services that would enable the Postal Service to achieve 
a financial break-even result. Nor, without reliable estimates of the 
Postal Service's non-jurisdictional revenues and expenses, can the 
Commission ensure, under section 3622(b)(3), that costs properly 
attributable to non-jurisdictional services are not reflected in rates 
for jurisdictional services. Such data are ``necessary and proper'' for 
the Commission to recommend rates for jurisdictional services that are 
fair and equitable and free from cross-subsidies.
    The Postal Service has recognized these principles, acknowledging 
that non-jurisdictional costs and revenues (concerning international 
mail services) are prerequisites to determine revenues from 
jurisdictional services.\37\ In addition, it has observed that 
nonpostal services must cover their costs, lest costs be unfairly 
shifted to users of other services.\38\ Apparently to preclude this, 
the Postal Service stated that ``it must seek to price its nonpostal 
services in a fair and reasonable way, including coverage of their 
attributable costs plus a reasonable contribution to overhead.''\39\
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    \37\ PRC Op. R94-1, November 30, 1994, para. 1085.
    \38\ GAO Report GGD-00-188, supra, at 46.
    \39\ Ibid.
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    The proposed rule does not represent a wholesale restructuring of 
the Commission's filing requirements. The Commission's Rules have long 
required the Postal Service to separate costs between postal and 
nonpostal services.\40\ Briefly, the proposed amendments to rule 54 
would require the Postal Service to identify each nonpostal service 
(rule 54(h)(1)(i)(a)), provide the total annual direct and indirect 
costs accrued in providing the service (rule 54(h)(1)(i)(b)), and 
provide the total annual revenues earned by the Postal Service in 
providing the service (rule 54(h)(1)(i)(c)). The proposed rule also 
encompasses those nonpostal services and products that are based on a 
strategic alliance or contract between the Postal Service and one or 
more parties. Rule 54(h)(1)(ii).
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    \40\ See, e.g., rule 54(h) promulgated March 22, 1972. 38 FR 
7528.
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    Concerning the scope of the proposed rule, two clarifying comments 
may be useful. First, while the proposed rule uses the term ``nonpostal 
service'' it is intended to encompass all of the Postal Service's 
commercial nonpostal activities, whether deemed a service, a product, 
or otherwise styled differently. Second, the proposed rule requires 
that the costs associated with any service that has been terminated or 
discontinued be reported. Regarding the phrase ``terminated or 
discontinued,'' the intent of the rule is for the Postal Service to 
report the costs of every nonpostal service which it has ceased to 
offer whether temporarily or permanently, including reconstituting the 
service in a revised form.\41\
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    \41\ To be sure, a distinction may be drawn between terminate 
and discontinue even if both may be defined as ``to put an end to.'' 
Webster's Encyclopedic Unabridged Dictionary of the English 
Language, 1989. In that regard, the Commission notes that in its 
Report on Nonpostal Initiatives, March 10, 2003, the Postal Service 
described the status of its Mall Package Shipment Program as 
``discontinued'' (at 5), whereas it described that program as 
``terminated'' in its Update to Report on Nonpostal Initiatives, 
November 14, 2003.
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    The proposed rule is designed primarily to provide sufficient 
information regarding the Postal

[[Page 11357]]

Service's nonpostal services and products to determine the presence (or 
absence) of cross-subsidies. The data are needed so that the Commission 
can recommend rates for jurisdictional services that comport with the 
requirements of the Act. It may be recalled that the Postal Service 
contended that the purpose of the specific amendments suggested by CA 
and OCA was to provide, among other things, information ``to enable 
[the Commission] to critique the specific rates and fees established by 
the Postal Service for each nonpostal service.''\42\ In this context, 
the meaning of the term ``critique'' is unclear. Nonetheless, any 
concern the Postal Service may have about Commission review of its 
pricing of nonpostal services would be unfounded. The proposed rule 
does not require information about specific rates or rate design. Nor 
is the proposed rule intended as a means to set prices for nonpostal 
services or otherwise encumber management's legal authority to offer 
such services. This is not to suggest, however, that the Commission 
will eschew examining the performance of individual nonpostal services 
for purposes of considering claims of unfair competition.
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    \42\ Postal Service Comments at 38-39.
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    To test for cross-subsidies, CA and OCA suggest that the Commission 
employ an incremental cost test, one endorsed by the Postal Service in 
rate proceedings, as follows: ``The revenues collected from any service 
(or group of services) must be at least as large as the additional (or 
incremental) cost of adding that service (or group of services) to the 
enterprise's other offerings.''\43\ In Docket No. R97-1, the Commission 
accepted that description of the test,\44\ and furthermore, in Docket 
No. R2000-1, indicated that it ``remains interested in continuing the 
development of the incremental cost test to the point that it can be 
applied to reliably identify cross subsidies in proposed rates.''\45\ 
To the extent that nonpostal service incremental costs can be 
calculated, the incremental cost test would be an appropriate vehicle 
for testing the existence of cross-subsidies. In that regard, it would 
appear that the Postal Service believes that such costs can be 
calculated since, as noted below, it suggests the need for e-commerce 
services in the aggregate to cover their incremental costs to avoid 
being cross-subsidized.
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    \43\ Joint Letter at 38, n.97 (emphasis in original), citing 
Direct Testimony of John C. Panzar on Behalf of the United States 
Postal Service, Docket No. R97-1, Exh. USPS 11 at 8.
    \44\ PRC Op. R97-1, para. 4026.
    \45\ PRC Op. R2000-1, para. 4054.
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    With respect to its nonpostal initiatives, the Postal Service has 
recognized that ``complete and accurate cost, revenue and performance 
data [must] be tracked and periodically reported to senior 
management.''\46\ Consequently, any burden imposed on the Postal 
Service by the proposed rule would appear to be minimal. Moreover, the 
type of data the proposed rule is designed to yield is necessary to 
test for cross-subsidies, a standard the Postal Service appears to 
recognize as appropriate. For example, regarding its e-commerce 
services, the Postal Service has indicated that it will:
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    \46\ Letter from Mr. John M. Nolan, Deputy Postmaster General, 
to Mr. Bernard L. Ungar, Director, Government Business Operations 
Issues, August 29, 2000, GAO Report GGD-00-188, supra, at 74.
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ensure that in the aggregate, the revenues generated by such 
products and services will cover their direct and indirect costs as 
well as make a contribution to overhead. Further, eCommerce products 
and services in the aggregate are to cover their incremental costs 
and thus not be cross-subsidized. Also, it is intended that each 
eCommerce product and service should cover its costs. \47\
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    \47\ GAO Report GGD-00-188, supra, at 46. In its comments to the 
GAO, the Postal Service recognizes the principle that nonpostal 
services must cover their costs, lest costs be unfairly shifted to 
users of other services. It states that it should price such 
services ``in a fair and reasonable way, including coverage of their 
attributable costs plus a reasonable contribution to overhead.'' 
Ibid. It is unclear what, if any, distinction the Postal Service 
intended between the costs related to nonpostal services and those 
related to eCommerce products and services.

    In conclusion, by statute the Postal Service, a public entity, is 
to be operated as a basic and fundamental service for the public. 39 
U.S.C. 101(a). The public interest is not served if rates and fees for 
postal services are saddled with costs properly related to nonpostal 
services. Various stakeholders have expressed legitimate concerns 
regarding the nature and performance of the Postal Service's nonpostal 
activities. There is a demonstrable need for complete and accurate 
financial data regarding the Postal Service's nonpostal services and 
products to ensure that rates recommended by the Commission are free 
from cross-subsidies. In sum, the proposed rule, which provides for 
greater accountability and transparency regarding the Postal Service's 
nonpostal activities, is necessary and proper for the Commission to 
fulfill its ratemaking responsibility under the Act. The amendments to 
the Code of Federal Regulations proposed in this rulemaking are set 
forth following the ordering paragraphs herein.
4. Procedural Matters
    Comments. By this order, the Commission hereby gives notice that 
comments from interested persons concerning the proposed amendments to 
the Commission's rules are due on or before April 15, 2004. Reply 
comments may also be filed and are due May 17, 2004.
    Representation of the general public. In conformance with section 
3624(a) of title 39, the Commission designates Shelley S. Dreifuss, 
director of the Commission's Office of the Consumer Advocate, to 
represent the interests of the general public in this proceeding. 
Pursuant to this designation, Ms. Dreifuss will direct the activities 
of Commission personnel assigned to assist her and, upon request, will 
supply their names for the record. Neither Ms. Dreifuss nor any of the 
assigned personnel will participate in or provide advice on any 
Commission decision in this proceeding.
    It is ordered:
    1. Interested persons may submit initial comments by no later than 
April 15, 2004. Reply comments may also be filed and are due no later 
than May 17, 2004.
    2. Shelley S. Dreifuss, Director of the Office of the Consumer 
Advocate, is designated to represent the interests of the general 
public.
    3. The Secretary shall arrange for publication of this Proposed 
Rulemaking in the Federal Register.

    Issued: March 5, 2004.

    By the Commission.
Steven W. Williams,
Secretary.

List of Subjects in 39 CFR Part 3001

    Administrative Practice and Procedure, Postal Service.

    For the reasons discussed above, the Commission proposes to amend 
39 CFR part 3001 as follows:

PART 3001--RULES OF PRACTICE AND PROCEDURE

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

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

Subpart B--Rules Applicable to Requests for Changes in Rates or 
Fees

    2. Amend Sec.  3001.54 as follows:
    a. Remove paragraph (b)(4).
    b. Add new paragraphs (h)(1)(i) and (ii) to read as follows:


Sec.  3001.54  Contents of formal requests.

* * * * *

[[Page 11358]]

    (h) Separation, attribution, and assignment of certain costs. (1) * 
* * (i) With respect to each nonpostal service provided by the Postal 
Service for the fiscal years specified in paragraph (f) of this 
section, the Postal Service shall provide:
    (a) An identification and reasonably thorough description of the 
service, including any service terminated or discontinued during the 
relevant fiscal years;
    (b) The total, annual, accrued direct and indirect costs, 
separately identified, to provide the service, including, but not 
limited to, development costs, start-up costs, capital costs, common 
and joint costs, and costs associated with each service that has been 
terminated or discontinued.
    (c) The total annual revenues earned by the Postal Service in 
providing the service.
    (ii) Nonpostal services referred to in paragraph (h)(1)(i) of this 
section include those based on a strategic alliance or contract between 
the Postal Service and one or more parties.
* * * * *

[FR Doc. 04-5399 Filed 3-9-04; 8:45 am]
BILLING CODE 7710-FW-P