[Federal Register Volume 81, Number 179 (Thursday, September 15, 2016)]
[Proposed Rules]
[Pages 63445-63448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22162]


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POSTAL REGULATORY COMMISSION

39 CFR Parts 3015 and 3060

[Docket No. RM2016-13]


Changes to Attributable Costing

AGENCY: Postal Regulatory Commission.

ACTION: Proposed rulemaking.

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SUMMARY: The Commission is issuing this proposed rulemaking which 
amends some existing rules concerning attributable costing. The primary 
purpose of this rulemaking is to make conforming changes to rules that 
specifically define or describe attributable costs, pursuant to 
Commission Order No. 3506. This notice informs the public of the 
docket's initiation, invites public comment, and takes other 
administrative steps.

DATES: Comments are due on or before October 17, 2016.

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

FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 
202-789-6820.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
III. Proposed Rules
IV. Comments Requested
V. Ordering Paragraphs

I. Introduction

    The Commission initiates this rulemaking to request comments on 
proposed changes to title 39 of the Code of Federal Regulations (CFR) 
as they relate to attributable costs. The primary purpose of the 
rulemaking is to make conforming changes to rules that specifically 
define or describe attributable costs, pursuant to Commission Order No. 
3506.\1\
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    \1\ Docket No. RM2016-2, Order Concerning United Parcel Service, 
Inc.'s Proposed Changes to Postal Service Costing Methodologies (UPS 
Proposals One, Two, and Three), September 9, 2016 (Order No. 3506).
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II. Background

    In Docket No. RM2016-2, the Commission issued Order No. 3506 after 
consideration of a United Parcel Service, Inc. (UPS) Petition which 
sought to make changes to the

[[Page 63446]]

methodologies employed by the Postal Service to account for the costs 
of its products in its periodic reports.\2\ In Proposal One, UPS 
recommended that the Postal Service calculate and attribute 
inframarginal costs to individual products in addition to the currently 
attributed volume-variable and product-specific fixed costs.\3\
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    \2\ Docket No. RM2016-2, Petition of United Parcel Service, Inc. 
for the Initiation of Proceedings to Make Changes to Postal Service 
Costing Methodologies, October 8, 2015 (Petition).
    \3\ Petition, Proposal One at 1. Proposal Two dealt with 
reclassifying some fixed costs as fully or partially variable, and 
attributing those costs to products. See generally, Petition, 
Proposal Two at 1. UPS also filed a third proposal, which requested 
review of competitive products; share of institutional costs. 
Petition, Proposal Three at 1. In Order No. 2793, the Commission 
held consideration of Proposal Three in abeyance until the 
Commission completed its review of Proposals One and Two. Docket No. 
RM2016-2, Notice of Proposed Rulemaking on United Parcel Service, 
Inc.'s Proposed Changes to Postal Service Costing Methodologies (UPS 
Proposals One, Two, and Three), October 29, 2015, at 6-7 (Order No. 
2793). It is the Commission's decision concerning Proposal One that 
initiated this proposed rulemaking.
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    Section 3633(a)(2) (competitive rate regulation) requires the 
Commission to ensure that ``each competitive product covers its costs 
attributable.'' 39 U.S.C. 3633(a)(2); see also 39 CFR 3015.7(b).\4\ 
Section 3631(b) defines attributable cost as ``the direct and indirect 
postal costs attributable to [ ] product[s] through reliably identified 
causal relationships.'' 39 U.S.C. 3631(b).
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    \4\ This Notice of Proposed Rulemaking sets forth amendments to 
39 CFR part 3015, which implements 39 U.S.C. 3633. These proposed 
rules are conforming changes required by the Commission's action 
taken on the UPS Petition. See Order No. 3506 at 61-62, 123-124. 
(Adopting the use of incremental costs to calculate attributable 
cost). Uncodified section 703 of the Postal Accountability and 
Enhancement Act, Public Law 109-435, 120 Stat. 3198 (2006) requires 
that when promulgating new or revised regulations under section 
3633, the Commission ``shall take into account'' Federal Trade 
Commission recommendations about the net economic effects of laws 
that apply to the United States Postal Service, and subsequent 
relevant events.
    However, the proposed rules in this instance do not trigger the 
requirement to consider the net economic effect because the rules 
are a conforming change required by law. Section 3622(c) requires 
that costs must be attributed when there is a reliably identified 
causal relationship that links costs to a class or type of mail 
service. See 39 U.S.C. 3622(c). In Order No. 3506, the Commission 
found that there were additional costs that satisfied the 
requirements of section 3622(c), and, therefore, must be attributed. 
See Order No. 3506 at 61-62. Pursuant to section 3622(c), these 
costs must therefore be attributed to all products, including 
competitive products. This change in attribution requires conforming 
changes in 39 CFR part 3015 that are identified in this Notice. 
Because the rule changes are required by law, any consideration of 
the ``net economic effect'' recommendations identified in uncodified 
section 703 would be moot. Additionally, the Commission discusses 
the inapplicability of uncodified section 703 to UPS Proposals One 
and Two in Order No. 3506. Order No. 3506 at 117-120.
    The Commission notes, notwithstanding uncodified section 703's 
applicability, that this change in attribution results in an 
improved, more complete, or more accurate measure of attributable 
costs as defined by section 3622(c), and represents an improvement 
in the attribution of costs as required by section 3652(e). See 
Order No. 3506 at 122 n.152. The conforming changes identified in 
this Notice facilitate improved attribution and therefore reduce 
potential economic distortions.
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    Additionally, under section 3622 (market dominant rate and class 
regulation), a product's ability to cover its attributable costs is a 
factor to be considered when regulating rates for market dominant 
products and includes the same terminology, that postal costs should be 
attributed through reliably identified causal relationships, found in 
sections 3631(b). 39 U.S.C. 3622(c)(2).
    Therefore, title 39 introduces the concept of attributable costs 
and describes the role they play in the regulation of both market 
dominant and competitive products. For competitive products, coverage 
of attributable costs is a requirement in regulating competitive 
product rates; for market dominant products, it is only one of many 
factors the Commission considers when regulating market dominant rates. 
See 39 U.S.C. 3633(a)(2); 39 CFR 3015.7(b); 39 U.S.C. 3622(c).
    Historically, volume-variable costs and product-specific costs 
together totaled attributable costs, as the Commission found both 
volume-variable and product-specific costs are reliably identifiable 
and causally related to products pursuant to statute.\5\ All other 
costs are currently classified as institutional and are not attributed 
to specific products. Order No. 3506 at 10. Institutional costs include 
common fixed costs and inframarginal costs. Id. Inframarginal costs are 
variable costs that do not vary directly with volume. Id. (emphasis 
added).
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    \5\ Docket No. R74-1, Chief Administrative Law Judge's Initial 
Decision on Postal Rate and Fee Increases Volume I, May 28, 1975, at 
76. See generally at id. at 76-145; see also Summary Description of 
USPS Development of Costs by Segments and Components, Fiscal Year 
2015, July 6, 2016, ``PREF-15'' at i; Appendix H, at H-1; Docket No. 
R83-1, Opinion and Recommended Decision on E-COM Rate and 
Classification Changes, February 24, 1984, at 186.
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    While the Commission found that inframarginal costs are causally 
related to products, it determined inframarginal costs cannot be 
reliably identified, which is a necessary component of cost 
attribution. Order No. 3506 at 56. However, the Commission found that a 
portion of inframarginal costs (those inframarginal costs calculated as 
part of a product's incremental cost) are reliably identifiable and can 
be linked to products. Order No. 3506 at 61. Therefore, pursuant to 
Order No. 3506, attributable costs must also include those 
inframarginal costs calculated as part of a competitive product's 
incremental costs (in addition to a product's volume-variable costs and 
product-specific fixed costs). It is this change in the description of 
attributable costs that requires clarification of some attributable 
cost references in title 39 of the CFR.

III. Proposed Rules

    The rules requiring conforming or clarifying changes in this notice 
of proposed rulemaking are Sec. Sec.  3015.7, 3060.10, and 3060.21.
    Proposed Sec.  3015.7(a) provides that when incremental cost data 
are unavailable to test for cross-subsidies by market dominant 
products, the Commission will use volume-variable costs and product-
specific costs, as well as causally related, group-specific costs, to 
test for cross-subsidies. This proposed section removes the 
``attributable costs'' phrase currently described as the alternative 
test when incremental costs are not available. The proposed rule is 
intended to provide a refined explanation of the alternative test for 
cross-subsidization by market dominant products after the Commission 
found in Order No. 3506 that some incremental costs (those 
inframarginal costs calculated as part of a competitive product's 
incremental costs) should be included as part of attributable costs. 
Order No. 3506 at 61-62, 123-124.
    Proposed Sec.  3015.7(b) includes the updated description of 
attributable costs to include those inframarginal costs calculated as 
part of a competitive product's incremental costs, as well as volume-
variable costs and product-specific costs. Order No. 3506 at 62. The 
proposed rule is intended to provide a clear description of which costs 
should be attributed to competitive products pursuant to the 
Commission's findings in Order No. 3506. In addition, proposed rule 
Sec.  3015.7(b) signifies these three costs not only comply with the 
description of attributable costs found in 39 U.S.C. 3631(b), but are 
the costs relevant to the Commission's evaluation of the Postal 
Service's compliance with part 3015.
    Proposed Sec. Sec.  3060.10(a) and 3060.21 both make conforming 
changes to the description of attributable costs, in each section, to 
include those inframarginal costs calculated as part of a competitive 
product's incremental costs, along with volume-variable costs and 
product-specific costs pursuant to Order No. 3506.
    While no other rules in title 39 require revisions as a result of 
the

[[Page 63447]]

Commission's Order No. 3506, the Commission's findings concerning the 
use a product's incremental costs (the sum of volume-variable costs, 
product-specific costs, and those inframarginal costs calculated as 
part of a product's incremental costs) to calculate attributable costs 
applies to any reference of attributable costs in title 39 unless 
otherwise indicated by the rules. See generally Order No. 3506.

IV. Comments Requested

    Interested persons are invited to provide written comments 
concerning the proposed rule. Comments are due no later than 30 days 
after the date of publication of this notice in the Federal Register. 
All comments and suggestions received will be available for review on 
the Commission's Web site, http://www.prc.gov.
    Pursuant to 39 U.S.C. 505, Kenneth E. Richardson is appointed to 
serve as an officer of the Commission (Public Representative) to 
represent the interests of the general public in the above-captioned 
docket.

V. Ordering Paragraphs

    It is ordered:
    1. Docket No. RM2016-13 is established for the purpose of receiving 
comments on the proposed change to parts 3015 and 3060, as discussed in 
this order.
    2. Interested persons may submit comments no later than 30 days 
from the date of the publication of this notice in the Federal 
Register.
    3. Pursuant to 39 U.S.C. 505, Kenneth E. Richardson is appointed to 
serve as the Public Representative in this proceeding.
    4. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Stacy L. Ruble,
Secretary.

List of Subjects

39 CFR Part 3015

    Administrative practice and procedure, Postal Service.

39 CFR Part 3060

    Administrative practice and procedure, Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, the Commission proposes 
to amend chapter III of title 39 of the Code of Federal Regulations as 
follows:

PART 3015--REGULATION OF RATES FOR COMPETITIVE PRODUCTS

0
1. The authority citation of part 3015 continues to read as follows:

    Authority: 39 U.S.C. 503; 3633.

0
2. Amend Sec.  3015.7 by revising paragraph (a) and (b) to read as 
follows:


Sec.  3015.7  Standards for compliance.

* * * * *
    (a) Incremental costs will be used to test for cross-subsidies by 
market dominant products of competitive products. To the extent that 
incremental cost data are unavailable, the Commission will use the sum 
of competitive products' volume-variable costs and product-specific 
costs supplemented to include causally related, group-specific costs to 
test for cross-subsidies.
    (b) Each competitive product must recover its attributable costs as 
defined in 39 U.S.C. 3631(b). Pursuant to 39 U.S.C. 3631(b), the 
Commission will use a competitive product's incremental costs, which is 
the sum of volume-variable costs, product-specific costs, and those 
inframarginal costs calculated as part of a competitive product's 
incremental costs, to calculate attributable costs.
* * * * *

PART 3060--ACCOUNTING PRACTICES AND TAX RULES FOR THE THEORETICAL 
COMPETITIVE PRODUCTS ENTERPRISE

0
3. The authority citation of part 3060 continues to read as follows:

    Authority: 39 U.S.C. 503; 2011, 3633, 3634.

0
4. Amend Sec.  3060.10 by revising paragraph (b)(1) to read as follows:


Sec.  3060.10  Costing.

* * * * *
    (b) * * *
    (1) Attributable costs, including volume-variable costs, product-
specific costs, and those inframarginal costs calculated as part of a 
competitive product's incremental costs; and
    (2) * * *
0
5. Amend Sec.  3060.21 by revising Table 1--Competitive Products Income 
Statement--PRC Form CP-01 to read as follows:


Sec.  3060.21  Income report.

* * * * *

                         Table 1--Competitive Products Income Statement--PRC Form CP-01
                                                   [$ in 000s]
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                                                                                  Percent change  Percent change
                                                      FY 20xx        FY 20xx-1       from SPLY       from SPLY
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Revenue:........................................          $x,xxx          $x,xxx             xxx            xx.x
    (1) Mail and Services Revenues..............             xxx             xxx              xx            xx.x
    (2) Investment Income.......................            x,xx           x,xxx             xxx            xx.x
    (3) Total Competitive Products Revenue......  ..............  ..............  ..............  ..............
Expenses:.......................................           x,xxx  ..............  ..............  ..............
    (4) Volume-Variable Costs...................           x,xxx           x,xxx             xxx            xx.x
    (5) Product Specific Costs..................           x,xxx           x,xxx             xxx            xx.x
    (6) Incremental Inframarginal Costs.........           x,xxx           x,xxx             xxx            xx.x
    (7) Total Competitive Products Attributable            x,xxx           x,xxx             xxx            xx.x
     Costs......................................
    (8) Net Income Before Institutional Cost               x,xxx           x,xxx             xxx  ..............
     Contribution...............................
    (9) Required Institutional Cost Contribution           x,xxx           x,xxx            $xxx           x.x.x
    (10) Net Income (Loss) Before Tax...........           x,xxx           x,xxx            $xxx            xx.x
    (11) Assumed Federal Income Tax.............           x,xxx           x,xxx            $xxx            xx.x
    (12) Net Income (Loss) After Tax............           x,xxx           x,xxx            $xxx            xx.x
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Line (1): Total revenues from Competitive Products volumes and Ancillary Services.
Line (2): Income provided from investment of surplus Competitive Products revenues.
Line (3): Sum total of revenues from Competitive Products volumes, services, and investments.
Line (4): Total Competitive Products volume-variable costs as shown in the Cost and Revenue Analysis (CRA)
 report.

[[Page 63448]]

 
Line (5): Total Competitive Products product-specific costs as shown in the CRA report.
Line (6): Inframarginal costs calculated as part of total Competitive Products incremental costs.
Line (7): Sum total of Competitive Products costs (sum of lines 4, 5, and 6).
Line (8): Difference between Competitive Products total revenues and attributable costs (line 3 less line 6).
Line (9): Minimum amount of Institutional cost contribution required under 39 CFR 3015.7 of this chapter.
Line (10): Line 8 less line 9.
Line (11): Total assumed Federal income tax as calculated under 39 CFR 3060.40.
Line (12): Line 10 less line 11.
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[FR Doc. 2016-22162 Filed 9-14-16; 8:45 am]
 BILLING CODE 7710-FW-P