[Federal Register Volume 74, Number 247 (Monday, December 28, 2009)]
[Proposed Rules]
[Pages 68556-68557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-30477]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2010-6; Order No. 363]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Proposed rule; notice of availability of rulemaking petition.

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SUMMARY: The Postal Service has proposed adjustments to the methodology 
of a key element in the Periodicals cost model. If adopted, the 
adjustments could affect the price of postage for periodical 
publications. The Commission is establishing a docket to consider this 
proposal and invites public comment.

DATES: Comments are due: January 11, 2010.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov. Commenters who cannot file submit 
their views electronically should contact the person identified in 
``FOR FURTHER INFORMATION CONTACT'' by telephone for advice on 
alternatives to electronic filing.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
at 202-789-6824 or [email protected].

SUPPLEMENTARY INFORMATION: On December 11, 2009, the Postal Service 
filed a petition to initiate an informal rulemaking proceeding to 
consider changes in the methods approved for use in periodic 
reporting.\1\ Proposal Twenty-Nine is part of a developing methodology 
for estimating the ratio of machine-sorted flats (automated or 
mechanical) to total sorted flats in the Incoming Secondary operation. 
The Postal Service refers to this as the ``In-Plant IS Coverage 
Factor.'' It is a key element in the Postal Service's Periodicals cost 
model. The In-Plant IS Coverage Factor is currently an input into the 
calculation of the Auto/Mech Factor. The Auto/Mech factor represents 
the percent of Periodicals that arrive at plants with mechanized 
sorting equipment that receive a mechanized incoming secondary sort. 
The percentage of Periodicals that receive a mechanized incoming 
secondary sort (i.e. the In-Plant IS Coverage Factor) depends on two 
things: the percentage of Periodicals volume arriving at plants with 
mechanized flat sorting equipment (also referred to as the Mechanized 
Coverage Factor), and the percentage of Periodicals that receive a 
mechanized incoming secondary sort once they arrive at a plant with 
mechanized flat sorting equipment. (Some flats will be rejected by the 
flat sorting machine within the plant.) In mathematical terms, the In-
Plant IS Coverage Factor is the product of the Auto/Mech Factor and the 
Mechanized Coverage Factor.
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    \1\ Petition of the United States Postal Service Requesting 
Initiation of a Proceeding to Consider a Proposed Change in Analytic 
Principles (Proposal Twenty-nine), December 11, 2009 (Petition).
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    As part of the changes made prior to the FY 2008 Annual Compliance 
Report (ACR), the Commission approved the use of MODS and RPW data to 
directly calculate the In-Plant IS Coverage Factor.\2\ The previous 
method assumed that the Auto/Mech factor was 85 percent. The Mechanized 
Coverage Factor had previously been updated in Docket No. R2006-1. In 
Docket No. RM2009-1, the Commission considered the Postal Service's 
proposal to directly calculate the In-Plant IS Coverage Factor as the 
ratio of non-carrier route flats sorted on mechanized sorting equipment 
and recorded in MODS reports and the volume of non-carrier route flats 
recorded in the RPW. The Commission approved the modification, but 
noted that the directly measured In-Plant IS Factor ``is an imperfect 
proxy for the mechanization rate for the incoming secondary flat bundle 
sorting operation.''\3\
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    \2\ See Docket No. RM2009-1, Petition of the United States 
Postal Service Requesting Initiation of a Proceeding to Consider 
Further Proposed Methodology Changes for the FY 2008 ACR, Proposal 
Twelve, November 4, 2008.
    \3\ See Docket No. RM2009-1, PRC Order No. 170, Order Concerning 
Costing Methods Used in Periodic Reporting (Proposal Twelve), 
January 12, 2009, at 14.
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    In its FY 2008 ACR, the Postal Service estimated the In-Plant IS 
Coverage Factor using the newly approved method, and also re-ordered 
the mathematical relation between the In-Plant IS Coverage Factor, the 
Mechanized Coverage Factor, and the Auto/Mech Factor. Doing this 
resulted in a value for the Auto/Mech Factor of approximately 99 
percent. The Commission rejected this derived Auto/Mech Factor. It 
viewed the formula revision which produced this result as an unapproved 
methodology change. It was also concerned that the very high derived 
value of the Auto/Mech Factor indicated that the use of this revised 
formula could easily produce the illogical conclusion that more than 
100 percent of flats arrived at plants with mechanized sorting 
equipment. See FY2008 Annual Compliance Determination, at 55-56.
    This year, in anticipation of the FY 2009 ACR, the Postal Service 
proposed to again calculate the In-Plant IS Coverage Factor using MODS 
and RPW data, but promised to take remedial steps if the resulting 
coverage factor was too close to 100 percent.\4\ The Commission 
approved that modification but recommended that the Postal Service 
consider revising it in certain respects to avoid an estimate that is 
unrealistically high.\5\ Meanwhile, the Postal Service filed a proposal 
to use data from somewhat different sources to calculate the Mechanized 
Coverage Factor.\6\ That proposal is still pending Commission approval.
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    \4\ Docket No. RM2009-10, Petition of the United States Postal 
Service Requesting Initiation of a Proceeding to Consider Proposed 
Changes in Analytic Principles (Proposals Three -Nineteen), July 28, 
2009, Proposal Twelve, at 3.
    \5\ See Docket No. RM2009-10, PRC Order No. 339, Order on 
Analytical Principles Used in Periodic Reporting (Proposals Three 
Through Nineteen), November 13, 200, at 35.
    \6\ See Docket No. RM2010-4, Petition of the United States 
Postal Service Requesting Initiation of a Proceeding to Consider 
Proposed Changes in Analytic Principles (Proposals Twenty-Two-
Twenty-Five), October 23, 2009, Proposal Twenty Five, Modification 
1.
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    In Proposal Twenty-Nine in the instant docket, the Postal Service 
recognizes that its current method for calculating an Auto/Mech factor 
for sorting flats when applied to FY 2009 data produces results that 
are unreasonably close to 100 percent. It ascribes this, in large part, 
to the growing volume of ``fletters,'' i.e., ``slim-jim'' sized 
letters. These are designed to take advantage of favorable letter 
rates. The Postal Service says that they are difficult to process on 
letter-sorting equipment, and, therefore, end up with increasing 
frequency being diverted to flat sorting equipment. It asserts that 
fletters raise the Total Piece Handling (TPH) counts of mail 
representing

[[Page 68557]]

incoming secondary sorts on automated or mechanized machines, as 
reflected in the MODS data reporting system, but they are not counted 
as flats in the RPW data reporting system. The Postal Service asserts 
that the absence of fletters in the RPW estimate of flat volume and the 
presence of fletters in the machine piece-handling counts leads to an 
inflated In-Plant Coverage Factor which inflates the Auto/Mech factor.
    Proposal Twenty-Nine proposes adjustments to the Periodicals cost 
model that would reduce the Auto/Mech factor to a more realistic level. 
Adopting suggestions made by the Commission in Docket No. RM2009-10, 
the Postal Service proposes to remove the number of carrier route flats 
from broken bundles from the MODS volume of flats that receive a 
mechanized incoming secondary sort.\7\ It also proposes to use mail 
processing costs to estimate the proportion of letter-sized pieces that 
are worked on those machines. This too would reduce the volume of mail 
that receive a mechanized incoming secondary sort on flat sorting 
equipment (recorded in MODS reports, but not the RPW) and thus reduce 
upward bias in the measurement of the Auto/Mech Factor. See Proposal 
Twenty-Nine supporting material accompanying the Petition, at 3.
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    \7\ The In-Plant IS Coverage Factor is based upon the ratio of 
non-carrier route flats that receive a mechanized incoming secondary 
sort (in MODS data) and the volume of non-carrier route flats (in 
the RPW). Broken carrier route flats that receive a mechanized sort 
would be recorded in MODS volumes, but not RPW volumes, thereby 
producing an upward bias in the measurement of the In-Plant IS 
Coverage Factor unless these broken carrier route flats are removed 
from the MODS measurement of the number of flats that receive a 
mechanized incoming secondary sort.
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    The hard-copy attachment to the Postal Service's Petition explains 
the proposal's background, objective and rationale. In the electronic 
attachment, the Postal Service provides a means for estimating the 
impact of adopting Proposal Twenty-Nine by itself, and for estimating 
its impact in conjunction with Proposal Twenty-Five in Docket No. 
RM2010-4, in the event that Proposal Twenty-Five is adopted.
    Comments on Proposal Twenty-Nine are due no later than December 29, 
2009.
    Pursuant to 39 U.S.C. 505, John Klingenberg is appointed to serve 
as the officer of the Commission (Public Representative) to represent 
the interests of the general public in this docket.
    It is ordered:
    1. The Petition of the United States Postal Service Requesting 
Initiation of a Proceeding to Consider a Proposed Change in Analytic 
Principles (Proposal Twenty-Nine), filed December 11, 2009, is granted.
    2. The Commission establishes Docket No. RM2010-6 to consider the 
matters raised in the Postal Service's Petition.
    3. Interested persons may submit comments on Proposal Twenty-Nineno 
later than December 29, 2009.
    4. The Commission will determine the need for reply comments after 
review of the initial comments.
    5. John Klingenberg is designated to serve as the Public 
Representative representing the interests of the general public.
    6. The Secretary shall arrange for publication of this notice in 
the Federal Register.

    By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. E9-30477 Filed 12-23-09; 4:15 pm]
BILLING CODE 7710-FW-S