[Federal Register Volume 76, Number 164 (Wednesday, August 24, 2011)]
[Proposed Rules]
[Pages 52915-52917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21581]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2011-12; Order No. 810]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is establishing a docket in response to a 
Postal Service request for an informal rulemaking on proposed changes 
in certain analytical methods used in periodic reporting. The proposed 
changes are identified as Proposals Four through Eight. They affect, 
respectively, Inbound International Mail; cost assignment of certain 
flat sorting operations; bias in mixed mail tallies; and Express Mail. 
Establishing this docket will allow the Commission to consider the 
Postal Service's proposal and comments from the public.

DATES: Comments are due: September 9, 2011.

ADDRESSES: Submit comments electronically by accessing the ``Filing 
Online'' link in the banner at the top of the Commission's Web site 
(http://www.prc.gov) or by directly accessing the Commission's Filing 
Online system at https://www.prc.gov/prc-pages/filing-online/login.aspx. Commenters who cannot submit their views electronically 
should contact the person identified in the FOR FURTHER INFORMATION 
CONTACT section as the source for case-related information for advice 
on alternatives to electronic filing.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
at 202-789-6820 (case-related information) or [email protected] 
(electronic filing assistance).

SUPPLEMENTARY INFORMATION: On August 8, 2011, the Postal Service filed 
a petition pursuant to 39 CFR 3050.11 requesting that the Commission 
initiate an informal rulemaking proceeding to consider changes in the 
analytical methods approved for use in periodic reporting.\1\
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    \1\ Petition of the United States Postal Service Requesting 
Initiation of a Proceeding to Consider Proposed Changes in 
Analytical Principles (Proposals Four-Eight), August 8, 2011 
(Petition).
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    Proposal Four: Proposed change in method of reporting Revenue, 
Pieces, and Weight (RPW) for Inbound International Mail. Currently, in 
its RPW report, the Postal Service estimates the revenue that it 
receives from the terminal dues system for six major Inbound 
International Mail products by developing a distribution key for those 
products from the most recently completed International Cost and 
Revenue Analysis (ICRA) report. It applies that key to international 
mail revenues in the relevant General Ledger accounts. Where it relies 
on this method to estimate product revenues in the RPW, it does not 
estimate pieces or weight for those products.
    Since Quarter 2 of FY 2010, the Postal Service has been using the 
Foreign Postal Settlement (FPS) system to settle its international mail 
accounts. With respect to inbound settlement, FPS compiles revenue, 
piece, and weight information by product stream from billing documents/
electronic messaging. FPS posts revenue to the book of accounts based 
on actual inbound transactions processed, and on estimates of 
transactions received, but not yet processed. While the settlement 
process is not completed until months after the close of the calendar 
year, the FPS system accrues revenue monthly, based on the estimate of 
mail volume received that month. When final settlement occurs the 
following year, the difference between the accrued amount and the final 
settlement amount is posted to the appropriate General Ledger account. 
Id. at 6.
    The Postal Service has developed software that maps FPS inbound 
product streams to the categories used in the Inbound International 
RPW. Proposal Four would replace the ICRA distribution key method of 
estimating the revenue of inbound products with the more detailed and 
timely data mapped from FPS. The Postal Service explains that an 
incidental benefit of the proposed mapping is that it would align RPW 
reporting categories more closely with the Mail Classification Schedule 
than is the case currently.\2\
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    \2\ Id. at 8. As examples, the Postal Service notes that Inbound 
Return Receipt and Inbound Restricted Delivery are currently 
misreported as part of Outbound Ancillary Services, and that its 
proposed mapping would correct this. Id. at 5.
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    The Postal Service also proposes to report prior-year settlement 
revenues and currency gains and losses in Other Mailing Services 
Revenue (Market Dominant) and Other Shipping Services Revenue 
(Competitive). The Postal Service asserts that these entries have no 
direct correlation with current-period activity, and therefore would 
distort RPW relationships if they were to continue to be included in 
the current-period report. Id.
    The Postal Service summarizes the benefits to be gained from 
adopting Proposal Four. It asserts that the proposal would more closely 
align revenue, pieces, and weight reported in the Inbound International 
RPW with current-year activity; that it would report such information 
at a greater level of detail than is done currently (including volume 
and weight information for the first time); that it would separate 
current-year revenue from prior-year revenue and currency gains and 
losses; and that it would correct some current misreporting of inbound 
product data as outbound. Id. at 4.
    The Postal Service illustrates the impact of Proposal Four in 
Attachments B and C to the Petition. It asserts that the impacts would 
be minor, and would be confined to Inbound International Mail. Id. at 
10-12.
    Proposal Five: Assigning Flats Sequencing System (FSS) and 
Automated Flats Sorting Machine (AFSM) 100 Data to Separate Cost Pools. 
Currently, cost data for FSS operations are assigned to cost pools for 
the AFSM 100 3-digit Management Operating Data System (MODS) operation. 
Proposal Five would assign FSS cost data to FSS-specific cost pools. 
The Postal Service supports the separate break out of FSS costs by 
noting that the FSS is a major new flats processing system that is 
becoming widely deployed. It also notes that the mail mix in FSS 
operations can differ from that in AFSM 100 operations because FSS can 
be used to sequence non-saturation carrier route flats, which would 
bypass AFSM 100 operations. Id. at 13.
    Proposal Five would assign the Stand-Alone Mail Prep machine (MODS 
operation 530) operation and the FSS Sorter (MODS operation 538) 
distribution operations to the same cost pool. The Postal Service 
argues that they are interrelated in the same manner that the prep 
operations for the AFSM 100 (MODS operation 140) and the AFSM 100/
Automated Induction distribution

[[Page 52916]]

operation are interrelated. It notes that assigning FSS operations to 
cost pools separate from AFSM cost pools would affect cost tracking not 
just in MODS processing plants, but in Network Distribution Centers 
(NDCs) as well. Id. at 13-14.
    The Postal Service asserts that there are insufficient data in FY 
2010 to estimate the impact of separating FSS and AFSM 100 operations 
into separate cost pools. Id. at 14.
    Proposal Six: Disaggregating the cost pools in Non-MODS post 
offices. Cost pools for post offices in the MODS system are defined by 
Labor Distribution Codes or MODS operation number. They are generally 
more disaggregated than the cost pools in non-MODS post offices. Those 
cost pools are defined by activity data recorded in In-Office Cost 
System (IOCS) Question 18. According to the Postal Service, responses 
to IOCS Question 18 can be used to identify additional activities in 
non-MODS post offices that correspond to cost pools in MODS post 
offices. Proposal Six would add several cost pools to non-MODS post 
offices that have analogues in MODS post offices. The new proposed cost 
pools are listed at page 18 of the Petition.
    The Postal Service says that disaggregating cost pools in non-MODS 
post offices to more closely resemble those in MODS post offices will 
make it easier to analyze the cost of certain post office activities 
without having to use special studies to disaggregate the non-MODS cost 
pools. As an example, the Postal Service asserts that separating the 
sorting of mail to a post office box from other manual distribution 
activities would make it easier to distinguish shape-related work from 
mixed-shape work at box sections. Similarly, it asserts that the costs 
of reply mail and special services will not be over-stated if postage 
due and other accountable mail work were to be separated from 
miscellaneous processing that is unrelated to reply mail or special 
services. Id. at 17.
    Proposal Six would primarily impact certain special services. Those 
impacts are shown in Excel file ``Props6&7.Mail.Proc.Impact.xls'' 
attached to the Petition.
    Proposal Seven: Changing distribution keys for mixed mail costs in 
Allied Cost Pools in MODS processing plants. Prior to Docket No. R97-1, 
mail processing was broken down into broad functions (outgoing, 
incoming, and transit). The disaggregation of these broad mail 
processing cost functions into roughly 40 distinct 3-digit MODS 
operations raised concerns that there were biases in the frequency with 
which IOCS tally takers can directly identify a specific product as 
having been handled in an operation, and the frequency with which they 
can only identify mixed mail as having been handled in that operation. 
For example, using the product distribution of direct tallies as a 
proxy for the product distribution of mixed mail tallies could be 
biased if the presence of some products in a given operation is more 
easily identified than the presence of other products because of the 
manner in which they are packaged and presented to the Postal 
Service.\3\ Id. at 18.
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    \3\ See, e.g., the rebuttal testimony of Halstein Stralberg (TW-
TR-1) in Docket No. R97-1.
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    The risk of over-identification bias seems greatest for allied 
operations in MODS processing plants. In allied operations, the 
proportion of direct tallies to mixed mail tallies is relatively low 
because mail is often handled in mixed-product containers. To avoid the 
risk of over-identification bias, the Commission recommended in Docket 
No. R97-1 that the cost associated with mixed mail tallies in allied 
MODS operations be distributed to products in proportion to all direct 
tallies recorded within a facility group, rather than the direct 
tallies recorded within a given MODS operation. See PRC Op. R97-1, ]] 
3145-46. This distribution key is called the ``all pools'' key because 
it includes the direct tallies from all operations in the facility 
group. Using the ``all pools'' key, mixed mail costs associated with 
allied labor in MODS processing plants are currently distributed in 
proportion to direct tallies from all MODS cost pools; mixed mail costs 
associated with allied labor in NDCs are distributed in proportion to 
direct tallies from all NDC cost pools; and mixed mail costs associated 
with allied labor in non-MODS offices are distributed in proportion to 
direct tallies from all non-MODS cost pools. Id. at 18-19.
    For the MODS office group, the ``all pools'' key includes direct 
tallies from mail processing operations at MODS post offices and mail 
processing operations at International Service Centers (ISCs). The 
Postal Service asserts that including these tallies in the ``all 
pools'' key makes that key less representative of the actual incidence 
of products that are handled in mixed mail form in allied operations. 
Therefore, it argues, these direct tallies should be excluded from the 
key. Id. at 20-21.
    The Postal Service argues that including direct tallies from MODS 
post offices in the ``all pools'' key is a likely source of bias 
because, as destination delivery units (DDUs), those offices handle a 
substantial amount of ``bypass'' mail. ``Bypass'' mail includes mail 
that avoids processing plants because it is dropshipped directly to 
DDUs. Examples of mail processing activities at the DDU that involve 
``bypass'' mail include separating bundles from direct DDU pallets or 
incoming secondary sorting of Package Service mail. The Postal Service 
reasons that the IOCS tally taker can easily associate such activity 
with a single product, making it likely that it generates direct 
tallies when observed at MODS DDUs at greater frequency than those same 
products are likely to appear as mixed mail in allied operations at 
MODS processing plants. Id. at 19-20. Therefore, the Postal Service 
contends, removing direct tallies recorded at MODS post offices from 
the ``all pools'' distribution key is likely to reduce bias in that 
key.
    The Postal Service notes that removing direct tallies recorded at 
MODS post offices from the ``all pools'' key would make the treatment 
of those direct tallies consistent with the treatment direct tallies 
recorded at non-MODS post offices. Direct tallies from non-MODS post 
offices are currently excluded from the ``all pools'' key. Id. at 20.
    An ISC is a facility that specializes in processing International 
Mail. The Postal Service argues that including direct tallies from an 
ISC in the ``all pools'' key is a likely source of bias because an ISC 
processes some products that are not handled at MODS processing plants. 
It notes that those products are more likely to be processed manually, 
and therefore are likely to generate direct tallies at greater 
frequency than those same products would appear in mixed mail form at 
MODS processing plants. Therefore, it argues, removing direct tallies 
observed at ISCs is likely to reduce bias in the ``all pools'' key. Id.
    The Postal Service states that the benefit of reducing bias in the 
``all pools'' key as Proposal Seven would do is likely to outweigh the 
potential loss of information about the contents of mixed mail at 
processing plants. Id. at 21.
    The Postal Service estimates the impact of Proposal Seven in Tab 
``P7.Allied Mixed Mail Impact'' of the Excel file 
``Props6&7.Mail.Proc.Impact.xls.'' It notes that Proposal Seven would 
shift costs between products, but would have no affect on the 
variability of those product costs. Id. at 21-22.
    Proposal Eight: Dropping the assumption that all Express Mail is

[[Page 52917]]

Accountable Mail. In the City Carrier Cost System (CCCS), 
``accountable'' mailpieces are defined as pieces that require customer 
contact. Currently, all Express Mail pieces delivered on letter routes 
are treated as accountable pieces. This stems from what was standard 
procedure in delivering Express Mail, which was to attempt to contact 
the customer regardless of the ``Signature Waiver'' option. This is no 
longer standard procedure, according to the Postal Service. Now, it 
explains, ``Signature Waiver'' Express Mail is scanned and then either 
placed in the mail receptacle or left ``in a secure location.'' Id. at 
23. The CCCS ``Signature Waiver'' data element now identifies whether 
``Signature Waiver'' Express Mail was placed in the receptacle, left in 
a secure place, or resulted in customer contact. Proposal Seven would 
recognize these distinctions, thereby reducing the proportion of 
Express Mail that is ``accountable'' mail. Id. Although Proposal Seven 
would remove some Express Mail from the accountable mail cost pool, the 
cost of scanning the Express Mail removed would be included with the 
cost of that mail. Id. at 24.
    The Postal Service estimates that Proposal Seven would reduce the 
cost of Express Mail by three-tenths of a percent, and increase the 
cost of other products by up to two-tenths of a percent. Id.
    The Petition, Attachments, and Library References estimating the 
impact of Proposals Four through Eight are available for review on the 
Commission's Web site, http://www.prc.gov. In several instances, the 
Postal Service's documentation of its impact estimates fails to 
demonstrate how those estimates were derived. The Postal Service will 
be directed to provide all spreadsheets and computer programs that are 
needed to derive the estimates that it has provided in connection with 
the Petition.
    Pursuant to 39 U.S.C. 505, Natalie Ward is designated as Public 
Representative to represent the interests of the general public in this 
proceeding. Comments are due no later than September 9, 2011.
    It is ordered:
    1. The Petition of the United States Postal Service Requesting 
Initiation of a Proceeding to Consider Proposed Changes in Analytical 
Principles (Proposals Four-Eight), filed August 8, 2011, is granted.
    2. The Commission establishes Docket No. RM2011-12 to consider the 
matters raised by the Postal Service's Petition.
    3. The Postal Service is directed to provide all spreadsheets and 
computer programs that are needed to derive the estimates that it has 
provided in connection with its Petition no later than August 22, 2011.
    4. Interested persons may submit comments on Proposals Four through 
Eight no later than September 9, 2011.
    5. The Commission will determine the need for reply comments after 
review of the initial comments.
    6. Natalie Ward is appointed to serve as the Public Representative 
to represent the interests of the general public in this proceeding.
    7. The Secretary shall arrange for publication of this notice in 
the Federal Register.

    By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2011-21581 Filed 8-23-11; 8:45 am]
BILLING CODE 7710-FW-P