[Federal Register Volume 72, Number 101 (Friday, May 25, 2007)]
[Proposed Rules]
[Pages 29284-29287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10095]


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POSTAL REGULATORY COMMISSION

[Docket No. RM2007-1; Order No. 15]

39 CFR Part 3001


Administrative Practice and Procedure, Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Commission has received general comments on the 
development of regulations implementing new statutory provisions 
pertaining to market dominant and competitive postal products. It now 
seeks more specific comments on the same topic. The Commission 
anticipates using these comments as guidance for drafting proposed 
regulations.

DATES: Initial comments due June 18, 2007; reply comments due July 3, 
2007.

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, 
202-789-6820 and prc.gov">stephen.sharfman@prc.gov.

SUPPLEMENTARY INFORMATION: 

Regulatory History

    72 FR 5230 (February 5, 2007).

I. Introduction

    Thirty sets of initial comments were filed in response to Order No. 
2, which afforded interested persons an opportunity to comment on how 
the Commission can best fulfill its responsibilities under the Postal 
Accountability and Enhancement Act (PAEA), Public Law 109-435, 120 
Stat. 3198 (December 20, 2006), regarding establishing rate regulation 
for market dominant products and competitive products.\1\ Twenty-one 
sets of reply comments were also filed. The Commission appreciates 
those thoughtful and comprehensive comments and has found them very 
useful. For the most part, the comments are general in nature, taking a 
more global view of the type of regulations to be implemented, e.g., 
endorsing a light-handed approach, or advocating that competitive 
products make the maximum possible contribution to institutional 
costs,\2\ rather than suggesting specific proposals to implement the 
PAEA.\3\
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    \1\ PRC Order No. 2, Advance Notice of Proposed Rulemaking on 
Regulations Establishing a System of Ratemaking, Docket No. RM2007-
1, January 30, 2007.
    \2\ See, e.g., Initial Comments of the United States Postal 
Service, April 6, 2007, at 4-5; Comments of Alliance of Nonprofit 
Mailers, National Association of Presort Mailers and National Postal 
Policy Council on Advance Notice of Proposed Rulemaking, April 6, 
2007, at 4; Initial Comments of Time Warner Inc. in Response to 
Commission Order No. 2, April 6, 2007, at 9; Comments of United 
Parcel Service in Response to Advance Notice of Proposed Rulemaking 
on Regulations Establishing a System of Ratemaking, April 6, 2007, 
at 5.
    \3\ Some commenters did suggest that provisions of the PAEA be 
defined in certain ways. See, e.g., Reply Comments of the United 
States Postal Service, May 7, 2007, at 3-10, and Appendix C; Initial 
Comments of Pitney Bowes Inc. in Response to Advance Notice of 
Proposed Rulemaking on Regulations Establishing a System of 
Ratemaking, April 6, 2007, at 3-4, 17-20, 35-36; and Comments of the 
Parcel Shippers Association, April 6, 2007, at 24-26.
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    In considering the regulations to be issued pursuant to sections 
3622 and 3633 of the Postal Reorganization Act, as amended by the PAEA, 
the Commission concludes that the record would be enhanced by affording 
interested persons an opportunity to comment more specifically on 
potential ways to implement the statutory language prior to issuing 
proposed regulations. Therefore, the Commission is issuing this second 
advance notice of proposed rulemaking inviting interested persons to 
comment on specific issues central to implementing the necessary 
regulations. Interested persons are invited to comment on all (or any) 
of the following issues. Parties are encouraged to explain the basis 
for their position. The explanation need not be lengthy but should 
include whatever support the commenter believes to be relevant. 
Furthermore, although section III, below, addresses competitive 
products, persons primarily interested in market dominant products may 
wish to comment on common issues, e.g., section III, item 9, concerning 
the term ``product.'' Comments are due June 18, 2007. Reply comments 
are due July 3, 2007.
    Following this round of comments, the Commission intends to issue a 
formal notice of proposed rulemaking setting forth specific rules 
applicable to rate changes for market dominant and competitive 
products. Interested persons will have an opportunity to comment on 
those proposed rules. It is the Commission's current expectation that 
the final rules on these topics will be issued before the end of 
October, 2007.

II. Regulations Concerning Market Dominant Products

    1. In Appendix C of its reply comments, the Postal Service provides 
a series of examples to illustrate its proposal for calculations that 
would

[[Page 29285]]

ensure compliance with the price cap defined in sections 3622(d)(1)(A) 
and (2)(A). In part C of the appendix, the Postal Service describes its 
proposed method of calculating the CPI cap limitation. The cap would be 
equal to the difference between the most recently available monthly CPI 
and the monthly CPI for the same month of the previous year, divided by 
the monthly CPI for the previous year. The same result is reached by 
dividing the most recently available monthly CPI by the monthly CPI for 
the same month of the previous year and then subtracting one from the 
quotient.
    This point-to-point approach may be contrasted with an alternative 
that would compare aggregated monthly CPI figures instead of those of a 
single month. For example, the most recently available monthly CPI 
could be averaged with the previous 11 monthly CPI values. This 12-
month average could then be compared to the average for the previous 12 
months in the same way that the single-month figures are in the Postal 
Service's proposal. Figures 1 and 2 show the cap as it would be 
calculated under both methods for each month in 2005 and 2006, 
respectively.
[GRAPHIC] [TIFF OMITTED] TP25MY07.001

[GRAPHIC] [TIFF OMITTED] TP25MY07.002

    As the graphs show, the results of the point-to-point method 
exhibit a greater variation based on the month that is selected. The 
parties are requested to comment on the merits of each method and may 
offer additional alternatives. Please discuss how each method conforms 
to the language in section 3622(d), as well as how each method comports 
with the objectives in section 3622(b) and the factors in section 
3622(c).
    2. Appendix C of the Postal Service reply comments provides a 
series of examples to illustrate its proposal for

[[Page 29286]]

calculations that would ensure compliance with the price cap defined in 
sections 3622(d)(1)(A) and (2)(A). Part B of the appendix describes the 
Postal Service's proposed method of calculating the annual change in 
rates to which the CPI cap shall be applied.
    The discussion begins by proposing principles (``Standards 1 and 
2'') that the measure of the change in rates should satisfy. It 
concludes that any fixed volume weighting system will satisfy those 
principles. After explaining the practical impediment to the use of the 
ideal weights, it describes the weaknesses of two potential methods of 
measuring the base rates.
    The Postal Service proposes to use the most recent 12 months of 
available data to establish the volume weights and to recalculate 
average revenue per piece by applying those weights to the current 
rates. The result would be considered the average base rate. The 
average new rate would then be calculated by applying the same weights 
to the new set of rates. The percentage difference between the average 
base (current) rate and the average new rate would be compared to the 
percentage change in CPI.
    Parties are requested to comment on the method of calculating the 
annual change in rates under section 3622(d). Please discuss the 
strengths and weaknesses of the methods described by the Postal Service 
in Appendix C of its reply comments (and alternative methods, if 
desired) and how each method comports with the objectives in section 
3622(b) and the factors in section 3622(c). Please include a discussion 
of how to treat an altered rate design, for example, one for which 
billing determinants do not exist, such as the new rates to be applied 
to Periodicals.
    3. Section 3622(e) directs the Commission to ``ensure that 
workshare discounts do not exceed the cost that the Postal Service 
avoids as a result of the workshare activity,'' except in certain 
specified situations. In the context of a Notice of Rate Adjustment for 
a class of mail--
    a. What information and/or data are needed to allow the Commission 
to evaluate whether new workshare discounts are consistent with this 
standard?
    b. What information and/or data are needed to allow the Commission 
to evaluate whether unchanged workshare discounts remain consistent 
with this standard?
    c. What information and/or data are needed to allow the Commission 
to evaluate whether changed workshare discounts remain consistent with 
this standard?

III. Regulations Concerning Competitive Products

    4. Subchapter II of title 39, 39 U.S.C. 3631-3634, sets forth the 
provisions applicable to competitive products, which initially are to 
consist of priority mail, expedited mail, bulk parcel post, bulk 
international mail, and mailgrams. Sec.  3631(a).\4\ A procedure must 
be established to allow for amending this list of competitive products.
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    \4\ Pursuant to section 3642, the Commission may change the list 
of competitive products under section 3631 and market dominant 
products under section 3621 by adding new products to or removing 
products from the lists, or transferring products between the lists.
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    Regarding section 3631--
    a. What current mail matter is ``priority mail''?
    b. What current mail matter is ``expedited mail''?
    c. What current mail matter is ``bulk parcel post''?
    d. What current mail matter is ``bulk international mail''?
    e. What, if any, current mail matter is ``mailgrams''?
    f. To what does ``mail classification schedule,'' as used in 
section 3631(c), refer?
    5. Section 3632 authorizes the Governors to establish rates and 
classes of mail for competitive products in accordance with subchapter 
II of chapter 36 and regulations promulgated by the Commission under 
section 3633. The rates and classes shall be established in writing, 
accompanied by a statement of explanation and justification and the 
effective date of each rate or class. Sec.  3632(b)(1).
    Regarding section 3632--
    a. What information is needed to support new rates of general 
applicability?
    b. What information is needed to support new rates not of general 
applicability?
    c. Is the information needed to support a rate decrease different 
from that needed to support a rate increase? Please elaborate.
    d. What information is needed to support new classes of general 
applicability?
    e. What information is needed to support new classes not of general 
applicability?
    f. What criteria should be used to determine whether a rate or 
class is of general applicability or is not of general applicability in 
the Nation as a whole?
    g. How should ``any substantial region of the Nation'' be defined?
    6. Pursuant to section 3633(a), the Commission is required to 
promulgate regulations applicable to rates for competitive products to:
    ``(1) prohibit the subsidization of competitive products by market-
dominant products;
    (2) ensure that each competitive product covers its costs 
attributable; and
    (3) ensure that all competitive products collectively cover what 
the Commission determines to be an appropriate share of the 
institutional costs of the Postal Service.''
    Regarding section 3633--
    a. What data should be filed periodically with the Commission to 
enable it to assess the Postal Service's compliance with subsection:
    i. (a)(1),
    ii. (a)(2), and
    iii. (a)(3)?
    b. How frequently, e.g., quarterly, annually, should such data be 
filed with the Commission?
    c. Are existing data systems adequate to enable the Commission to 
assess the Postal Service's compliance with section 3633(a)? If not, 
what modifications would be necessary?
    d. What is the appropriate standard for determining whether 
competitive products are being subsidized by market dominant products?
    e. What standard should be applied to determine the appropriate 
share of institutional costs to be recovered collectively from 
competitive products?
    f. Over what period of time should the standard identified in (e) 
be deemed valid?
    g. Should the standard identified in (e) raise a rebuttable 
presumption of validity?
    h. If return on investment (or assets) is used, what capital 
structure (assumed or otherwise) should be used for the Postal Service?
    7. Section 3634 provides for an annual, assumed Federal income tax 
on the competitive products income. The amount of the assumed tax is to 
be transferred from the Competitive Products Fund to the Postal Service 
Fund.\5\
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    \5\ Pursuant to section 2011(h) the Secretary of the Treasury is 
charged with developing recommendations regarding, inter alia, rules 
for determining the assumed Federal income tax on competitive 
products income for any year. Following receipt of those 
recommendations, which are due not earlier than June 20, 2007 or 
later than December 19, 2007, the Commission will provide interested 
persons an opportunity to comment on the recommendations.
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    Regarding section 3634--
    a. Is the assumed Federal income tax amount appropriately 
classified as an attributable cost?
    b. On what basis should the assumed Federal income tax amount be 
reasonably assigned among competitive products?

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    8. Section 3633(a)(2) requires each competitive product to cover 
its ``costs attributable,'' which are defined as ``the direct and 
indirect postal costs attributable to such product through reliably 
identified causal relationships.'' Sec.  3631(b). The Commission has 
historically used attributable costs to develop recommended rates under 
the Postal Reorganization Act. Enactment of the PAEA raises issues 
concerning the need, if any, to modify the Commission's historic 
approach as well as the classification of costs arising under the PAEA.
    Regarding the term ``costs attributable''--
    a. Identify any costs currently classified as attributable that, in 
light of PAEA, should be classified as institutional. The rationale for 
the proposed change should be explained.
    b. Identify any costs currently classified as institutional that, 
in light of PAEA, should be classified as attributable. The rationale 
for the proposed change should be explained.
    c. How should Retiree Health Benefit costs be classified?
    9. The PAEA establishes a rate floor for each competitive product, 
i.e., each competitive product must cover its attributable costs. Sec.  
3633(a)(2). Product is defined as ``a postal service with a distinct 
cost or market characteristic for which a rate or rates are, or may 
reasonably be, applied[.]'' Sec.  102(6).
    Regarding the term ``product''--
    a. Is each International Customized Agreement a competitive 
product?
    b. Is each Negotiated Service Agreement a product?
    c. Is each special classification a product?
    d. Is each class not of general applicability a product?

IV. Ordering Paragraphs

    It is ordered:
    1. Interested persons may submit comments on the questions 
contained herein on or before June 18, 2007.
    2. Reply comments are due on or before July 3, 2007.
    3. The Secretary shall arrange for publication of this Advance 
Notice in the Federal Register.

    By the Commission.

    Issued May 17, 2007.

    Signed May 21, 2007.
Steven W. Williams,
Secretary.
[FR Doc. E7-10095 Filed 5-24-07; 8:45 am]
BILLING CODE 7710-FW-P