[Federal Register Volume 85, Number 148 (Friday, July 31, 2020)]
[Proposed Rules]
[Pages 46044-46046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15403]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2020-9; Order No. 5586]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is requesting that they initiate an informal 
rulemaking proceeding to change how the Postal Service determines 
incremental costs and how it accounts for peak-season costs in its 
periodic reports. This rulemaking informs the public of the filing, 
invites public comment, and takes other administrative steps.

DATES: Technical conference to be held: September 29, 2020 at 11 a.m. 
EST. Notice of Intent to Participate due: September 14, 2020.

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. Summary of the Petition
III. Commission Analysis
IV. Video Technical Conference
V. Ordering Paragraphs

I. Introduction

    On May 29, 2020, United Parcel Service, Inc. (UPS) filed a petition 
pursuant to 39 CFR 3050.11.\1\ UPS requests the Commission to initiate 
a proceeding to change how the Postal Service determines incremental 
costs and how it accounts for peak-season costs in its periodic 
reports. Petition at 1. UPS contends that pursuant to 39 U.S.C. 
3652(a), these periodic reports apply the Postal Service's costing 
methodologies to determine, among other things, ``whether the Postal 
Service's `costs, revenues, rates, and quality of service' comply with 
Title 39, including [section] 3633, which applies to competitive 
products.'' Id.
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    \1\ Petition of United Parcel Service, Inc. for the Initiation 
of Proceedings to Make Changes to Postal Service Costing 
Methodologies, May 29, 2020 (Petition). UPS also filed a library 
reference in support of the Petition. See Notice of Filing of 
Library Reference UPS-LR-RM2020-9/1, May 29, 2020.
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II. Summary of the Petition

    UPS alleges that the Postal Service's current costing models do not 
fully account for the increase in peak-season costs driven by package 
shipments. Id. UPS asserts that these shipments ``take on sharply 
different seasonal patterns than letters,'' which causes a ``disconnect 
between costing models and package delivery.'' Id. at 1-2. UPS asserts 
further that peak-season costs incurred in December and caused by 
competitive products would not exist if the Postal Service did not 
deliver packages and that, therefore, these costs are incremental 
costs, which should be attributed to competitive products. Id. at 2-3. 
Based on its analysis, UPS alleges that the current costing models fail 
to attribute approximately $500 million of the ``additional peak-season 
costs'' annually, thereby ``effectively ignoring them'' under 39 U.S.C. 
3633(a). Id. at 3. According to UPS, this alleged failure may be 
contributing to the Postal Service's growing losses. Id. at 4.
    UPS requests the Commission to address the alleged failure of 
existing cost models by directing the Postal Service to:
    (1) Attribute what UPS characterizes as ``unexplained peak-season 
costs'' to competitive products as a group under the incremental cost 
test utilized for 39 U.S.C. 3633(a)(1).
    (2) Properly analyze the seasonality effects and revise the cost 
models to accurately account for such effects, with respect to 39 
U.S.C. 3633(a)(2).
    (3) Produce additional data regarding peak-season operations, which 
would lead to an improved costing methodology.
    (4) Develop a new methodological approach for 39 U.S.C. 3633(a)(1) 
and (a)(2) that addresses more generally

[[Page 46045]]

peak-season costs and the deficiencies in allocating incremental costs.
    See id. at 39-41. UPS also suggests that ``a comprehensive 
technical conference would be an appropriate next step. . . .'' Id. at 
41.

III. Commission Analysis

    The Commission established periodic reporting rules in 39 CFR part 
3050 on April 16, 2009.\2\ In Order No. 3506, the Commission directed 
the Postal Service ``to use incremental costs as the basis for class-
level and product-level attributable costs'' in accounting for costs in 
its periodic reports.\3\ UPS asserts that peak-season costs ``are 
caused by competitive products'' and ``would not exist if the Postal 
Service did not deliver packages.'' Petition at 2-3 (emphasis in 
original). UPS therefore concludes that ``[p]eak-season costs plainly 
qualify as incremental costs'' and that ``the current costing models 
approved by the Commission fail to account for peak-season cost 
increases, effectively ignoring them under 39 U.S.C. 3633(a).'' Id. at 
3. To remedy these alleged shortcomings, UPS proposes changes which, if 
approved, would constitute changes in analytical principles relating to 
the Postal Service's periodic reports. As such, the proposed changes 
are properly presented under 39 CFR 3050.11.
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    \2\ Docket No. RM2008-4, Notice of Final Rule Prescribing Form 
and Content of Periodic Reports, April 16, 2009 (Order No. 203). 
Section 3050.60(f) of the periodic reporting rules requires the 
Postal Service to file periodic reports with an explanation of its 
costing methodologies, which describe the Postal Service's current 
methodologies and recent changes. 39 CFR 3050.60(f). For the most 
recent report, see Rule 39 CFR 3050.60(f) Report for FY 2019 
(Summary Descriptions), July 1, 2020, subfolders ``Rule 39 CFR Sec 
3050.60f_Report FY19,'' ``SummaryDescriptionsFY2019.'' A non-public 
version of the Summary Descriptions is filed under seal. See PDF 
file Letter_FY 2019_3050_60f.pdf.
    \3\ 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, at 125 (Order No. 
3506); Notice of Errata, October 19, 2016. Incremental costs are 
also used for other purposes, such as for testing for cross-subsidy 
of competitive products. See Order No. 3506 at 13.
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IV. Video Technical Conference

    Procedures for considering proposals to change accepted analytical 
principles are provided in section 3050.11(c). 39 CFR 3050.11(c). That 
section authorizes the Commission to order ``the petitioner and/or the 
Postal Service . . . to participate in technical conferences, prepare 
statements clarifying or supplementing their views, or answer questions 
posed by the Commission or its representatives.'' Id.
    Based upon allegations in the Petition, the Commission believes it 
would be appropriate to consider areas of possible improvement in 
costing methodology related to peak-season costs. As a preliminary 
step, the Commission intends to explore the ability of current costing 
models to identify and attribute additional peak-season costs. 
Accordingly, the Commission is establishing Docket No. RM2020-9 and 
scheduling a video technical conference to consider the alleged 
shortcomings of the Postal Service's costing methodologies and 
potential improvements. The Commission directs both UPS and the Postal 
Service to make presentations and participate in a discussion of 
relevant issues in that technical conference. The technical conference 
will be held online via WebEx on September 29, 2020 at 11:00 a.m. EST. 
Interested persons who wish to participate must file a notice of intent 
to participate (Notice) no later than September 14, 2020.
    The Notice shall provide the name and email address for each 
individual who will participate at the WebEx conference using an 
individual device (e.g., a desktop computer, laptop, tablet or smart 
phone). Entities, such as corporations, associations, or government 
agencies that identify more than one individual wishing to participate 
in the conference shall provide the names of interested persons with 
their email addresses and designate the individual who will serve as 
the primary point of contact for the entity.
    Prior to the conference, the Commission will provide participants 
with a WebEx link and a guide explaining how to connect to the 
conference, and detailing its schedule and procedures to be followed.
    At the conference, UPS shall present the analysis underlying its 
Petition and discuss its proposed modifications to the Postal Service's 
costing methodologies. UPS should specifically clarify:
    (1) How the attribution methodology, if modified, would ensure that 
the costs are attributed to products (or groups of products) through 
reliably identified causal relationships, as required by 39 U.S.C. 
3622(c)(2).
    (2) How the variability costing models, if modified, would be used 
consistently during both peak- and off-peak time periods.
    The Postal Service shall discuss how the current costing 
methodologies account for the peak-season costs. The Postal Service's 
presentation should address:
    (1) How the Postal Service's costing models (including, but not 
limited to, the city carrier street time regular delivery letter 
routes, city carrier street time Special Purpose Routes, and highway 
transportation models) account for seasonal volume spikes and peak-
season costs.
    (2) The extent to which the seasonal volume spikes are caused by 
competitive products and whether and how the current cost attribution 
methodology accounts for these volume spikes and any associated cost 
increases.
    (3) Whether and, if so, how the Postal Service's recently adopted 
changes to the methodology of incremental cost attribution allow for 
accounting for the peak-season cost increases in general and those 
caused by delivery of competitive products .\4\
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    \4\ See, e.g., Order No. 3506 at 60; Docket No. RM2016-13, Order 
Adopting Final Rules on Changes Concerning Attributable Costing, 
December 1, 2016, at 1, 13-15 (Order No. 3641); Docket No. RM2018-6, 
Order on Analytical Principles Used in Periodic Reporting (Proposal 
Three), July 19, 2018, at 1-2, 7-10 (Order No. 4719).
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    Pursuant to 39 U.S.C. 505, Lawrence Fenster is designated as 
officer of the Commission (Public Representative) to represent the 
interests of the general public in this proceeding.
    The Commission will establish additional procedures, as necessary, 
by further orders.

V. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. RM2020-9 for consideration 
of the matters raised by the Petition, filed May 29, 2020.
    2. A video technical conference is scheduled on September 29, 2020, 
at 11:00 a.m. EST and will be held online via WebEx to address issues 
identified in this Order and related to this matter.
    3. Interested persons who wish to participate in the technical 
conference shall file a notice of intent to participate on or before 
September 14, 2020.
    4. After the technical conference, the Commission shall post a 
recording of the conference on its website, which will be available to 
the general public.
    5. Additional procedures, including procedures following conclusion 
of the technical conference, will be established by further orders of 
the Commission.
    6. Pursuant to 39 U.S.C. 505, the Commission appoints Lawrence 
Fenster to serve as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this docket.
    7. The Secretary shall arrange for publication of this order in the 
Federal Register.


[[Page 46046]]


    By the Commission.
Erica A. Barker,
Secretary.

[FR Doc. 2020-15403 Filed 7-30-20; 8:45 am]
BILLING CODE 7710-FW-P