[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Proposed Rules]
[Pages 6679-6688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01930]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket Nos. RM2023-1; RM2023-3; Order No. 6430]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Order denying request and notice of proposed rulemaking.

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SUMMARY: The Commission is acknowledging a recent filing requesting the 
Commission consider a motion for reconsideration or, in the 
alternative, petition regarding appropriate analytical principles for 
retiree health benefit costs. This document informs the public of the 
filing, invites public comment, and takes other administrative steps.

DATES: Comments are due: February 8, 2023.

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. The Mailers' Motion and Petition and Responses
IV. Commission Analysis
V. Notice of Proposed Rulemaking on Analytical Principles Used in 
Periodic Reporting (NPPC ET AL Proposal One)

I. Introduction

    On December 9, 2022, the Commission issued Order No. 6363, which, 
in relevant part, identified how the accepted analytical principles 
would apply to the treatment of retiree health benefit normal costs in 
fiscal year (FY) 2022.\1\ The Commission stated that should any party 
``desire the Commission rely on a different analytical principle with 
regard to the . . . normal cost payments . . . , [it] may petition the 
Commission for a change pursuant to 39 [CFR] part 3050.'' Order No. 
6363 at 11. On December 19, 2022, the National Postal Policy Council, 
the Alliance of Nonprofit Mailers, the American Catalog Mailers 
Association, the Association for Postal Commerce, the Major Mailers 
Association, the National Association of Presort Mailers, and N/MA--The 
News/Media Alliance (Mailers) filed a motion requesting reconsideration 
of Order No. 6363, or in the alternative, adoption of a petition to 
change the analytical principles applied to the FY 2022 retiree health 
benefit normal costs.\2\ For the reasons discussed below, the 
Commission reaffirms the applicable findings in Order No. 6363 and 
provides notice of its intent to consider the Mailers' petition to 
change the analytical principles applied to the FY 2022 retiree health 
benefit normal costs.
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    \1\ Docket No. RM2023-1, Order Granting Petition, In Part, for 
Reconsideration, December 9, 2022, at 10 (Order No. 6363). The 
Postal Service has separately appealed Order No. 6363. See U.S. 
Postal Serv. v. Postal Regul. Comm'n, No. 23-1003 (D.C. Cir. Jan. 6, 
2023), ECF Document No. 1980503, at 1-3.
    \2\ Docket Nos. RM2023-1 and RM2023-3, Motion for 
Reconsideration or, in the Alternative, Petition to Initiate a 
Proceeding Regarding the Appropriate Analytical Principle for 
Retiree Health Benefit Normal Costs, December 19, 2022 (Mailers' 
Motion and Petition). The Mailers initially designated their 
petition as Proposal Eight. In Order No. 6382, the Commission 
redesignated the petition as NPPC et al. Proposal One to distinguish 
it from proposals initiated by the Postal Service. Docket Nos. 
RM2023-1 and RM2023-3, Order Granting Motion for Extension of Time, 
December 21, 2022, at 2 n.2 (Order No. 6382). This change continues 
to be reflected in the caption for Docket No. RM2023-3 and is how 
the Commission will reference the Mailers' petition in this 
proceeding.
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II. Background

    In its annual periodic reports to the Commission, the Postal 
Service is permitted to use only accepted analytical principles. 39 CFR 
3050.10. Accepted analytical principles refer to the analytical 
principles that were applied by the Commission in its most recent 
Annual Compliance Determination (ACD) unless different analytical 
principles subsequently were accepted by the Commission in a final 
rule. 39 CFR 3050.1(a).
    Retiree health benefit normal costs represent the present value of 
the estimated retiree health benefits attributable to active employees' 
current year of service.\3\ Between FY 2017 and FY 2021, the Postal 
Service was required to pay retiree health benefit normal costs and 
amortization payments for the unfunded portion of the Postal Service 
Retiree Health Benefit Fund (PSRHBF) obligation as calculated by the 
Office of Personnel Management (OPM).\4\ On April 6, 2022, President 
Joseph Biden signed the Postal Service Reform Act (PSRA) into law.\5\ 
Section 102 of the PSRA repealed former 5 U.S.C. 8909a(d), thus 
eliminating the required annual retiree health benefit payments. Under 
the requirements of the PSRA, the Postal Service will instead be 
required to pay into the PSRHBF for current retiree health care costs 
equal to the excess of the cost of annual claims over premiums. The 
Postal Service will not, however, be required to make these payments 
until OPM computes whether ``top up'' payments are due (which will 
occur not later than June 30, 2026) or the PSRHBF is exhausted. Thus, 
no retiree health benefit payments were due in FY 2022.
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    \3\ Docket No. ACR2021, Financial Analysis of United States 
Postal Service Financial Results and 10-K Statement, May 18, 2022, 
at 7 n.9.
    \4\ Former 5 U.S.C. 8909a(d)(3)(B). As explained in detail in 
Section IV.A., infra, these requirements replaced different retiree 
health benefit funding requirements that were in place between FY 
2007 and FY 2016.
    \5\ Postal Service Reform Act of 2022, Public Law 117-108, 136 
Stat. 1127 (2022).
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    After several letters and filings concerning how the Postal Service 
should address the changed retiree health benefit payment requirements 
(in addition to other changes to costs) caused by the PSRA,\6\ the 
Commission

[[Page 6680]]

issued Order No. 6363. In Order No. 6363, the Commission determined 
that the existing accepted analytical principles are to be applied in 
the Postal Service's FY 2022 Annual Compliance Report (ACR), which is 
filed by the Postal Service in late December of each calendar year.\7\ 
The Commission then identified how the accepted analytical principles 
would apply to the costs at issue, including the treatment of retiree 
health benefit normal costs, and described the process by which any 
party could petition for a change to the accepted analytical principles 
and receive a determination from the Commission prior to the FY 2022 
ACR docket's conclusion and the issuance of the FY 2022 ACD in late 
March of 2023. Order No. 6363 at 10-11; 39 U.S.C. 3653(b).
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    \6\ See Letter from Richard T. Cooper, Managing Counsel, 
Corporate and Postal Business Law to Erica A. Barker, Secretary and 
Chief Administrative Officer, August 12, 2022, available at https://www.prc.gov/docs/122/122469/Lttr%20re%20PSRA%20Effects%20ACR%20CRA.pdf; Letter from Erica A. 
Barker, Secretary and Chief Administrative Officer to Richard T. 
Cooper, Managing Counsel, Corporate and Postal Business Law, October 
7, 2022, available at https://www.prc.gov/docs/123/123096/Response%20Letter.pdf; Docket No. RM2023-1, Petition for 
Reconsideration and Initiation of Proceeding, November 4, 2022; 
Letter to Erica A. Barker, Secretary and Chief Administrative 
Officer, October 13, 2022, styled Motion for Reconsideration of 
Response to the Postal Service's Proposed Changes to Accepted 
Analytical Principles, available at https://www.prc.gov/docs/123/123145/Motion%20for%20Reconsideration_PropChange_.pdf; Docket No. 
RM2023-1, Response of the United States Postal Service in Opposition 
to GCA Petition for Reconsideration and Initiation of Proceeding, 
November 10, 2022; Docket No. RM2023-1, Reply of Mailer Associations 
to Response of the United States Postal Service in Opposition to GCA 
Petition for Reconsideration and Initiation of Proceeding, November 
21, 2022.
    \7\ Order No. 6363 at 2; 39 U.S.C. 3652. See Docket No. ACR2022, 
United States Postal Service FY 2022 Annual Compliance Report, 
December 29, 2022.
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    With regard to the treatment of retiree health benefit normal 
costs, the Commission noted that the PSRA removed the requirement that 
the Postal Service make retiree health benefit payments in FY 2022. See 
Order No. 6363 at 10. The Commission explained that:

    Accepted analytical principles dictate the treatment of the 
costs incurred by the Postal Service, and do not require inclusion 
of costs that are not incurred. Applying the accepted principles to 
the costs incurred under the new requirements of [the] PSRA does not 
require the Commission to accept a change in analytical principles.

Id. The Commission concluded that ``[a]s a result, under the accepted 
methodology, there are no amortization and normal costs to account for 
in the Postal Service's financial reporting for FY 2022. Including such 
costs not incurred by the Postal Service would require a change in 
accepted methodology.'' Id.
    The Commission stated that should any party ``desire the Commission 
rely on a different analytical principle with regard to the 
amortization and normal cost payments (which the Postal Service does 
not incur in FY 2022 or beyond), [it] may petition the Commission for a 
change pursuant to 39 [CFR] part 3050.'' Id. at 11. The Commission 
stated that for such a petition to be considered for purposes of the FY 
2022 ACD, it must be filed no later than December 21, 2022. Id. The 
Commission stated that review of any petitions will take place in new 
rulemaking dockets, rather than in Docket No. RM2023-1. Id.

III. The Mailers' Motion and Petition and Responses

A. Mailers' Motion and Petition

    On December 19, 2022, the Mailers' filed a motion for 
reconsideration of Order No. 6363, and in the alternative, requested 
that the Commission accept their petition and begin a proceeding to 
change the accepted analytical principles applying to FY 2022 retiree 
health benefit normal costs consistent with NPPC et al. Proposal One. 
Mailers' Motion and Petition at 1.
    The primary argument raised by the Mailers in favor of 
reconsideration is that the current accepted analytical principles 
dictate that FY 2022 retiree health benefit normal costs ``should be 
treated as accrued in FY 2022 and distributed as attributable or 
institutional in the same manner as they have been in every year since 
FY 2008.'' Id. Thus, the Mailers request that the Commission reconsider 
Order No. 6363's conclusion that excluding retiree health benefit 
normal costs from the annual Cost and Revenue Analysis Report (CRA) 
filed with the FY 2022 ACR is not a change in analytical principles. 
Id. at 2. They also request reconsideration of the decision ``to impose 
the burden on mailers to petition the Commission for a change in 
analytical treatment, when it is the Postal Service, not the mailers, 
that is proposing [a change in analytical principles].'' Id.
    The Mailers assert that ``[t]he normal costs at issue are the costs 
incurred this year for post-retirement health benefits for current 
employees'' and that because employees are entitled to those benefits 
due to work performed in FY 2022, those benefits are earned in FY 2022. 
Id. at 2-3. The Mailers further assert that retiree health benefit 
normal costs have been accrued and attributed in the year they are 
earned since 2008. Id. at 3. To support this assertion, the Mailers 
state that the Postal Service uses accrual accounting and that a basic 
principle of accrual accounting is that costs accrue when incurred. Id. 
The Mailers state that this principle is the accepted analytical 
principle for normal costs ``that the Commission and Postal Service 
have applied consistently in every year since 2008.'' Id.
    The Mailers explain that the accrued costs reflected in the Trial 
Balance form the basis of costs by cost segment and component, and that 
accrual in each segment in the Trial Balance matches the segment cost 
in the cost segments and components, which in turn form the basis of 
the CRA and ACR, critical documents for purposes of the ACD. Id. at 4. 
The Mailers note that the FY 2021 Cost Segment 18 summary description 
explains how the normal cost of retiree health benefits are attributed 
and assert that the Commission relied on this in the FY 2021 ACD. Id. 
at 4-5. They state that ``[a] failure to accrue and attribute [retiree 
health benefit] normal costs in FY 2022 would constitute a change in 
the distribution of normal costs among attributable and institutional 
costs'' and that ``[a]llowing the Postal Service to circumvent this 
process by categorically `omitting' these costs from the Trial Balance 
would circumvent this institutional safeguard on the integrity of the 
cost models.'' Id. at 5. The Mailers emphasize that the Commission's 
regulations require that the Postal Service use accepted analytical 
principles in the ACR, that is, those applied by the Commission in the 
most recent ACD unless different analytical principles were accepted by 
the Commission in a final rule. Id. (citing 39 CFR 3050.1(a), .10). 
They conclude that the regulations thus require the Postal Service to 
accrue in FY 2022 retiree health benefit normal costs that were earned 
in FY 2022, which they assert is the established analytical principle. 
Id. at 6.
    The Mailers further assert that the fact ``[t]hat normal costs are 
accrued in this way was resolved in Docket No. RM2007-1, as the 
Commission implemented the Postal Accountability and Enhancement Act.'' 
Id. The Mailers cite to the Postal Service's comments in that 
proceeding, which discuss attributing normal costs differently than in 
accordance with payment schedules and attributing normal costs as they 
are earned. Id. at 6-8. The Mailers also assert that accruing normal 
costs in this way was also consistent with the former General 
Accounting Office and current Government Accountability Office (GAO)'s 
``longstanding view on this issue'' and cite to documents from 1992 and 
2002, in which the Postal Service was urged to adopt accrual accounting 
for retiree health benefit costs. Id. at 7-8. The Mailers conclude that 
this was the approach adopted by the Commission and applied ``in every 
annual compliance review proceeding since FY 2008.'' Id. at 8.
    The Mailers state that ``failing to accrue the [retiree health 
benefit] normal costs in the year that they are earned would have real 
world negative consequences,'' the most important of which is violation 
of the principles of cost causation embodied in the Postal 
Accountability and Enhancement Act

[[Page 6681]]

(PAEA).\8\ The Mailers assert that ``[e]conomic costs are the 
foundation of postal cost accounting, and the economic costs of postal 
workers include [retiree health benefit] normal costs'' and that 
omitting such costs would mean that costs do not reflect economic 
costs. Mailers' Motion and Petition at 8-9. The Mailers argue that this 
would lead to inefficient rates, particularly for workshare discounts. 
Id. at 9. Specifically, the Mailers explain that ``[o]mitting a portion 
of the direct and indirect labor costs from the calculation of avoided 
costs would unavoidably result in underestimates of costs avoidances, 
which in turn would lead to inefficiently priced workshare discounts'' 
and could result in inaccurate findings that some workshare discounts 
exceed avoided costs and must be adjusted. Id. The Mailers assert that 
this harm could potentially lead to long-term distortions in workshare 
discounts. Id.
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    \8\ Id. See Postal Accountability and Enhancement Act, Public 
Law 109-435, 120 Stat. 3198 (2006).
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    Because the Mailers claim that the accepted analytical principle 
``unquestionably accrues [retiree health benefit] normal costs as a 
cost in the year in which they are incurred,'' they assert that it is 
the Postal Service, and not the Mailers, that wants to change the 
accepted analytical principle for FY 2022. Id. at 9-10. The Mailers 
assert that Order No. 6363 accepted an admission by the Postal Service 
that a change to an analytical principle was required but also 
``somehow simultaneously held that there is no change in the underlying 
analytical principle and that therefore mailers must initiate a 
proposed change.'' Id. at 10 (emphasis in original). The Mailers assert 
that ``[i]t is illogical and unreasonable both to accept a changed 
treatment and say that the principle has not changed.'' Id. The Mailers 
state that the Postal Service has not requested a change in accepted 
analytical principle for the retiree health benefit normal costs, but 
because a change is being proposed in the Mailers' view, the Postal 
Service should bear the burden of advocating for a change. Id. Thus, 
the Mailers allege that Order No. 6363 erred in requiring the Mailers, 
and not the Postal Service, to initiate a proceeding regarding the 
treatment of FY 2022 retiree health benefit normal costs. Id. at 10-11.
    The Mailers also argue that the PSRA provides no basis for 
abandoning the accepted analytical principle that retiree health 
benefit normal costs are accrued when earned because the timing of 
funding is irrelevant to accrual accounting. Id. at 11. Thus, the 
Mailers assert that the Postal Service and Order No. 6363 incorrectly 
contend that the PSRA changed postal cost accounting because the 
legislation only amended how the retiree health benefits are funded. 
Id. The Mailers assert that while Section 102 of the PSRA altered how 
the benefits are funded, it did not eliminate the cost of retiree 
health benefit normal costs because those costs are incurred (and 
accrued) ``daily as postal employees do their work, just as in past 
years.'' Id. at 11-12. The Mailers further assert that ``[n]othing in 
the PSRA changed the statutory definition of attributable costs or the 
statutory requirement that products cover their attributable costs 
based on reliably identified causal relationships.'' Id. at 12.
    The Mailers reiterate that the retiree health benefit normal costs 
have been accrued and attributed in a consistent manner for the past 14 
years, including years when payments were reduced and deferred by 
Congress and years when the Postal Service defaulted on them. Id. at 
13. They assert that Order No. 6363 reverses this long-standing 
practice ``even though the benefits are still being earned and the 
costs incurred in the very same way'' and that ``[c]osts that are 
incurred annually in the normal course of operation do not flip from 
accrued to non-accrued and back . . . depending on whether OPM deems an 
invoice necessary.'' Id. They further assert that the analytical 
principles identified in Order No. 6363 are inconsistent with the 
treatment the retiree health benefit normal costs received in FY 2009 
and FY 2011 when Congress reduced the payment amounts, but the retiree 
health benefit normal cost was calculated in the same way as other 
years. Id. at 13-14. The Mailers also assert that the Postal Service's 
FY 2022 Form 10-K shows that the Postal Service accrued $4.4 billion in 
FY 2022 retiree health benefit normal costs in its actuarial liability, 
which they claim contradicts the contention that there are no retiree 
health benefit normal costs to accrue and attribute. Id. at 15.
    The Mailers argue, in the alternative, that if the Commission finds 
the current accepted analytical principles permit exclusion and non-
attribution of retiree health benefit normal costs when there is no 
required current year payment, then the Commission should change the 
analytical principles. Id. at 16. The Mailers, thus, petition the 
Commission pursuant to 39 CFR 3050.11 to change the accepted analytical 
principles for retiree health benefit normal costs if the motion for 
reconsideration portion of the Mailers' Motion and Petition is not 
granted. Id. The Mailers' proposal (i.e., NPPC et al. Proposal One) and 
the basis for the proposal are discussed in Section V.A., infra.

B. Responses to the Mailers' Motion and Petition

    On January 4, 2023, the Postal Service and the Package Shippers 
Association (PSA) filed responses to the Mailers' Motion and 
Petition.\9\ PSA supports the Mailers' Motion and Petition, agreeing 
that FY 2022 retiree health benefit normal costs should be accrued and 
then attributed to products in the same proportions as direct labor 
costs and asserting that this is the same methodology that has been 
applied to these costs since 2006. PSA Response at 1. PSA acknowledges 
that the PSRA changed when the Postal Service makes payments for 
retiree health benefit costs but asserts that the PSRA did not 
``address cost accrual principles generally or the causality-based cost 
attribution requirements,'' which it believes necessitate that FY 2022 
retiree health benefit normal costs be accrued and attributed. Id. at 
1-2. Like the Mailers, PSA cites to the Postal Service's comments in 
Docket No. RM2007-1, which it asserts show that how retiree health 
benefit normal costs are incurred should not be linked to payment 
schedules and that such normal costs ``have been accrued and attributed 
. . . in the year in which they were incurred since the enactment of 
the PAEA.'' Id. at 2. PSA also echoes the Mailers' assertion that the 
PSRA's changes are not a sufficient reason to change the established 
approach and similarly points to FY 2011 when payments were deferred 
but retiree health benefit normal costs still accrued as an example of 
the accepted methodology. Id. at 2-3. PSA further asserts that ``[t]his 
approach of accruing and attributing [retiree health benefit] normal 
costs is the only approach that complies with the statutory causation-
based costing requirements'' as ``the statute . . . requires that costs 
with a reliably identified causal relationship to a specific product be 
attributed to that product.'' Id. at 3. PSA states that retiree health 
benefit normal costs have long

[[Page 6682]]

been attributed to products, and that such costs in FY 2022 are not 
less caused by products than in prior years and therefore cannot be 
excluded from attribution. Id. at 3-4.
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    \9\ Docket Nos. RM2023-1 and RM2023-3, Response of the United 
States Postal Service to Mailers' Motion for Reconsideration and 
Petition, January 4, 2023 (Postal Service Response); Docket Nos. 
RM2023-1 and RM2023-3, Comments of the Package Shippers Association, 
January 4, 2023 (PSA Response). In Order No. 6382, the Commission 
extended the deadline for responding to the Mailers' Motion and 
Petition to January 4, 2023. Order No. 6382 at 3. See Docket Nos. 
RM2023-1 and RM2023-3, Motion of the United States Postal Service 
for Leave to File Consolidated or Concurrent Responses to Mailers' 
December 19th Filing, December 20, 2022.
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    The Postal Service opposes both the request for reconsideration of 
Order No. 6363 and the alternative request to adopt NPPC et al. 
Proposal One. Postal Service Response at 1. With respect to the request 
for reconsideration, the Postal Service states that request is not 
justified under 39 CFR 3010.165 because the Commission committed no 
material errors of fact or law in identifying the accepted analytical 
principles in Order No. 6363 and the Mailers had adequate prior 
opportunity to submit arguments on this issue. Id. at 2. The Postal 
Service argues that the Commission should deny the request for 
consideration and proceed to the merits of resolving what analytical 
principles should apply in FY 2022 and future years with regard to 
retiree health benefit normal costs. Id. at 2-3. The Postal Service 
asserts that Order No. 6363 was correct in finding that the accepted 
methodology does not require the inclusion of costs that are not 
incurred by the Postal Service and further asserts that the Mailers' 
approach has ``an insurmountable impediment'' because it seeks to 
attribute costs where the actual entry for that component is zero, and 
with zero normal costs recorded in FY 2022, ``there are no costs to 
apportion between attributable and institutional.'' Id. at 3-4. The 
Postal Service states that this is confirmed by language in the FY 2021 
Cost Segment 18 summary description. Id. at 4. The Postal Service 
acknowledges that the Mailers ``wish to dispute whether or not the 
entry . . . should be zero in FY 2022'' but asserts that this issue is 
properly addressed in an evaluation of NPPC et al. Proposal One rather 
than through reconsideration of Order No. 6363. Id.
    The Postal Service contends that NPPC et al. Proposal One should be 
rejected on the merits. The Postal Service objects to the Mailers' 
contention that the PSRA should not have any effect on normal cost 
accruals and attribution in FY 2022 and argues that the Mailers' 
proposed approach runs afoul of Congressional intent. Id. at 5, 7. 
Specifically, the Postal Service argues that ``[t]he PSRA changes in 
fact bear directly on how [retiree health benefit] costs must be 
treated'' because the PSRA reversed key PAEA provisions relating to 
retiree health benefits. Id. at 7. The Postal Service explains that the 
PAEA required prefunding of future retiree health benefit normal costs 
and that the PSRA eliminated this requirement, switching back to the 
pre-PAEA pay-as-you-go approach to paying for these costs. Id. at 7-8. 
The Postal Service cites to the House Report accompanying the PSRA as 
affirming this. Id. at 8-9. The Postal Service emphasizes that ``a cost 
at its essence consists of an amount someone is required to pay'' and 
argues that the Commission should continue to recognize the limitations 
of a strictly ``economic'' approach to costing when ``disparities 
between theoretical `economic' costs and booked `accounting' costs'' 
exist.'' Id. at 9 (emphasis in original).
    The Postal Service specifically takes issue with the Mailers' 
assertion that ``[c]osts that are incurred annually in the normal 
course of operation do not flip from accrued to non-accrued and back . 
. . depending on whether OPM deems an invoice necessary.'' Id. at 10 
(citing Mailers' Motion and Petition at 13). The Postal Service argues 
that the format in which OPM conveys payment information is not 
necessarily dispositive, but ```[e]conomic' costs can indeed flip back 
and forth from accrued to non-accrued depending on whether Congress 
through legislation deems payment to be required or not (which, in 
turn, is what will determine whether OPM issues an invoice or not).'' 
Id. (emphasis in original). The Postal Service asserts that ``[w]ith 
respect to [retiree health benefit] costs, such flipping has occurred 
several times in the past'' and outlines the legislative history of 
varying payment requirements for retiree health benefits. Id. at 10-11. 
The Postal Service argues that ``[e]ach of these changes directly 
affected cost accruals by virtue of changing the nature or scope of the 
obligations that Congress was imposing on the Postal Service, and the 
PSRA is no exception, regardless of how adamantly Mailers insist[ ] 
that it is.'' Id. at 11. The Postal Service emphasizes that under the 
PSRA, it ``is at this time under no type of obligation to make 
prefunding payments reflecting those normal costs'' and that NPPC et 
al. Proposal One does not justify a change in the analytical principles 
to require that costs that are not incurred be included in either the 
financial or regulatory reporting. Id. (emphasis in original).
    The Postal Service also argues that NPPC et al. Proposal One should 
be rejected because ``Mailers fail to articulate exactly how their 
Proposal One would operate in any way that could possibly meet rational 
regulatory guidelines.'' Id. at 12. The Postal Service states that 
while the result the Mailers hope to achieve is clear ``how they would 
propose to get there is distinctly unclear'' and ``[t]o the extent that 
a potential pathway can be surmised, it has additional unacceptable 
shortcomings.'' Id.
    To support these arguments, the Postal Service first explains that 
steps it took in FY 2021 for accruing and attributing retiree health 
benefit normal costs, beginning with receiving an OPM invoice with a 
precise amount payable for FY 2021 retiree health benefit normal costs, 
reporting that amount in the Trial Balance and components 202 and 208, 
and then partially attributing component 202 costs to products. Id. at 
12-13. The Postal Service states that NPPC et al. Proposal One seeks to 
ensure that the amounts are attributed in FY 2022, but given that no 
OPM invoice was issued, it is unclear from the Mailers' proposal what 
steps would be taken to effectuate that since no retiree health benefit 
normal costs were entered in the Postal Service's accounting records 
for FY 2022. Id. at 13-14. The Postal Service explains the issues it 
sees with inserting the costs at the Trial Balance step, including that 
that such an approach would be inconsistent with Generally Accepted 
Accounting Principles (GAAP) requirements and would cause issues in 
future years as ``top up'' payments are required. Id. at 14-15, n.5.
    The Postal Service suggests that ``it seems much more plausible'' 
that Mailers are suggesting that the normal costs be inserted as a 
regulatory adjustment in a later step and that they are looking to use 
the accounting and regulatory process used prior to FY 2017, which the 
Postal Service views as a separate procedure from the one employed 
between FY 2017 and FY 2021. Id. at 15-19. However, the Postal Service 
takes issue with the Mailers' reference to negative adjustments made in 
FY 2009 and FY 2011. Id. at 19-20.
    The Postal Service differentiates the FY 2009 and FY 2011 
adjustments on the grounds that the legislative changes in FY 2009 and 
FY 2011 ``were transitory adjustments to or deferrals of payment 
amounts previously specified by Congress'' and not permanent changes to 
the Postal Service's payment obligations (unlike the PSRA, which 
``affirmatively did abandon the prefunding concept''). Id. The Postal 
Service also differentiates the FY 2009 and FY 2011 adjustments because 
making the same adjustments for FY 2022 would result in the 
attributable cost portion of the retiree health benefit normal costs 
exceeding the accrued retiree health benefit accounting costs when in 
FY 2009 and FY 2011 the attributed portion of the retiree health

[[Page 6683]]

benefit normal costs did not exceed accrued total costs. Id. at 20-21. 
The Postal Service concludes that in FY 2022, where there were no 
accrued retiree health benefit costs because no retiree health benefit 
payments were required, attributing a portion of normal costs as 
advocated by the Mailers ``would open the door for the complete 
untethering of regulatory costs from booked accounting costs.'' Id. at 
21.

C. Mailers' Reply Comments

    On January 11, 2023, the Mailers filed a motion for leave to file 
reply comments and concurrently submitted reply comments.\10\ The 
Commission received no objections to the motion and finds that no party 
is prejudiced by granting the motion, particularly in light of the 
additional opportunity to comment that will be provided as discussed in 
Section V.B., infra. Thus, the Motion for Reply Comments is granted.
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    \10\ Docket Nos. RM2023-1 and RM2023-3, Motion for Leave to File 
Reply Comments, January 11, 2023 (Motion for Reply Comments); Docket 
Nos. RM2023-1 and RM2023-3, Reply Comments Regarding the Appropriate 
Analytical Principle for Retiree Health Benefit Normal Costs, 
January 11, 2023 (Mailers' Reply Comments).
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    In the reply comments, the Mailers reemphasize that the burden of 
proof should be on the Postal Service. Mailers' Reply Comments at 1-2. 
The Mailers assert that nothing in the Postal Service Response supports 
excluding retiree health benefit normal costs from periodic reporting 
given that retiree health benefit normal costs are ``earned benefits'' 
and ``part of the economic costs of handling mail.'' Id. at 2. Mailers 
reiterate that the PSRA did not change the treatment of retiree health 
benefit costs, and that in their view, the PSRA ``addressed solely the 
timing of payment, not the regulatory handling of the cost.'' Id. The 
Mailers argue that the PSRA did not change the legal standard governing 
cost attribution or direct the Postal Service to abandon systemwide 
accrual costing. Id. at 2-3.
    The Mailers also assert that the ``real world consequences'' of 
failing to attribute retiree health benefit normal costs is 
demonstrated through the FY 2022 ACR, where ``[t]he omission of more 
than $2 billion of attributable costs makes material changes to 
workshare discount passthroughs compared to if those costs were 
included.'' Id. at 3 (footnote omitted). The Mailers point to several 
workshare discounts being reported as having passthroughs exceeding 100 
percent, despite those passthroughs previously being set at 100 percent 
in the most recent rate adjustment proceeding, which the Mailers assert 
``is very largely due to the omission of $2.4 billion in attributable 
costs.'' Id. at 4-5. The Mailers also note that workshare discounts 
with passthroughs below 85 percent were also affected as they ``now 
appear to have larger passthroughs--again almost entirely due to the 
omission of more than $2 billion in attributable retiree health benefit 
normal costs.'' Id. at 5. The Mailers assert that this will result in 
inaccurate compliance findings with respect to workshare discounts, may 
harm the goals of pricing and operational efficiency, and will impede 
efforts to move workshare discounts with low passthroughs to more 
efficient levels. Id.

IV. Commission Analysis

    As discussed in Section II., supra, the Commission's regulations 
permit that the Postal Service use only accepted analytical principles 
in its annual periodic reports to the Commission. 39 CFR 3050.10. 
Accepted analytical principles refer to the analytical principles that 
were applied by the Commission in its most recent ACD unless a 
different analytical principle subsequently was accepted by the 
Commission in a final rule. 39 CFR 3050.1(a). The filings before the 
Commission contain arguments concerning both what the accepted 
analytical principles related to the treatment of retiree health 
benefit normal costs currently are as well as arguments about whether 
and how the accepted analytical principles should be changed.
    The primary question that needs to be resolved with respect to the 
request for reconsideration is what the accepted analytical principles 
for the treatment of retiree health benefit normal costs are currently. 
Thus, this section elaborates on Order No. 6363's explanation and 
application of the current accepted analytical principles and addresses 
the arguments raised concerning what the accepted analytical principles 
are currently. Arguments concerning whether and how the accepted 
analytical principles should be changed will be addressed when the 
Commission considers the merits of NPPC et al. Proposal One in a future 
order after receiving further comment on NPPC et al. Proposal One. See 
Sections IV.C., V., infra.
    Order No. 6363 found that the current accepted analytical 
principles do not require the Postal Service to include costs not 
incurred (such as retiree health benefit normal costs in FY 2022) in 
its annual periodic reports to the Commission and that ``[i]ncluding 
such costs not incurred by the Postal Service would require a change in 
accepted methodology.'' Order No. 6363 at 10. The Mailers disagree and 
argue that the current accepted analytical principles require that FY 
2022 retiree health benefit normal costs ``be treated as accrued in FY 
2022 and distributed as attributed or institutional in the same manner 
as they have been in every year since FY 2008.'' Mailers' Motion and 
Petition at 1.

A. The Applicable Accepted Analytical Principles

    Between FY 2007 and FY 2016, the retiree health benefit expenses 
due and payable by the Postal Service were employer premiums and 
mandated statutory prefunding payments.\11\ OPM was required to 
annually estimate the balance in the PSRHBF taking into account retiree 
health benefit normal costs,\12\ which are the economic costs of the 
estimated future retiree health benefits earned during the year by 
current employees. Normal costs were included in the calculation of the 
PSRHBF balance and reported on the Postal Service's Forms 10-K \13\ but 
not assessed or required to be paid by the Postal Service. Thus, during 
that period, the only retiree health benefit costs due and payable were 
the premiums and mandated statutory prefunding payments, 
notwithstanding the separate calculation of retiree health benefit 
normal costs by OPM to fulfill the reporting requirements of former 5 
U.S.C. 8909a(d)(1) and 39 U.S.C. 3654(b)(2).\14\
---------------------------------------------------------------------------

    \11\ 5 U.S.C. 8906(g)(2)(A); former 5 U.S.C. 8909a(d)(3)(A).
    \12\ Former 5 U.S.C. 8909a(d)(1) stated ``[n]ot later than June 
30, 2007, and by June 30 of each succeeding year, [OPM] shall 
compute the net present value of the future payments required under 
section 8906(g)(2)(A) and attributable to the service of Postal 
Service employees during the most recently ended fiscal year.''
    \13\ See 39 U.S.C. 3654(b)(1).
    \14\ 39 U.S.C. 3654(b)(1)(C) in turn requires that the Postal 
Service report on its Forms 10-K ``components of net periodic 
costs.'' 39 U.S.C. 3654(b)(1)(C). The reporting requirements of 39 
U.S.C. 3654(b) remain in effect. The Mailers argue that the fact 
that the Postal Service's FY 2022 Form 10-K shows retiree health 
benefit normal costs illustrates that retiree health benefits 
accrued in FY 2022. Mailers' Motion and Petition at 15. However, the 
reason the FY 2022 Form 10-K shows retiree health benefit normal 
costs is solely because it is required by 39 U.S.C. 3654(b)(1)(C). 
The normal costs presented are not included in expenses, nor do they 
impact the Postal Service's balance sheet.
---------------------------------------------------------------------------

    Between FY 2017 and FY 2021, the retiree health benefit expenses 
due and payable by the Postal Service changed. The Postal Service was 
no longer required to pay the employer premiums and mandated statutory 
prefunding requirements. The Postal Service was instead required to pay 
retiree health

[[Page 6684]]

benefit normal costs and to make amortization payments for the unfunded 
portion of the PSRHBF obligation. Former 5 U.S.C. 8909a(d)(3)(B).
    To address the PAEA's requirements, the Postal Service and the 
Commission developed the analytical principle that has been applied in 
each fiscal year from FY 2007 to FY 2021. It allows for the attribution 
of retiree health benefit normal costs, which have been attributed by 
applying the estimated labor volume variabilities to the retiree health 
benefit normal costs in the same proportions as direct labor costs.\15\ 
Thus, under this methodology, the attributable portion of normal costs 
have been calculated and distributed to specific products since FY 
2007. It is this analytical principle that the Mailers focus on and 
assert is the sole methodology applying to the treatment of retiree 
health benefit normal costs.
---------------------------------------------------------------------------

    \15\ See Docket No. ACR2007, Library Reference USPS-FY07-2--FY 
2007 Cost Segments and Components Report (Hard copy & Excel), 
December 28, 2007, Word document ``FY07-
2.Supplement.Health.Benefit.Costs.doc,'' at 4.
---------------------------------------------------------------------------

    However, as explained further below, the Commission's adoption of 
this analytical principle regarding the attribution of retiree health 
benefit normal costs in response to the PAEA did not supersede a 
separate longstanding analytical principle regarding the scope of 
postal costs and resulting limits on the pool of costs that may be 
attributable to products.
    This relevant analytical principle relates to the concepts of 
``economic costs'' and ``accounting costs.'' Accounting costs refer to 
booked costs or the actual amounts incurred in accordance with existing 
authoritative accounting literature by the Postal Service. As explained 
above, between FY 2007 and FY 2016, these were the employer premiums 
and mandated statutory prefunding payments. Between FY 2017 and FY 
2021, these were the amortization payments and retiree health benefit 
normal cost payments. In this case, economic costs refer to the retiree 
health benefit normal costs (even in years when there was not an 
accounting cost for the normal costs). Also included in economic costs 
were costs for the Civil Service Retirement System (CSRS) pensions 
between FY 2007 and FY 2016.\16\ Economic costs include costs for 
benefits as benefits are earned regardless of whether an actual payment 
is due for the costs (and thus regardless of whether the economic costs 
are also accounting costs). The longstanding analytical principle 
limits the extent to which economic costs can be attributed to the 
total amount of booked or accounting costs.\17\ As a result, total 
accounting costs serve as a ceiling that attributed economic costs 
cannot exceed.
---------------------------------------------------------------------------

    \16\ Id. at 4-5. The PAEA suspended the Postal Service's CSRS 
contributions after FY 2016.
    \17\ Even prior to the PAEA, the Postal Service and the 
Commission used accounting costs as the foundation for assigning 
costs to ``subclasses,'' which in turn were used as a basis for rate 
setting. As the Commission explained in a summary of the process 
generally used,
    The process that produces the estimates in the CRA takes dollars 
from hundreds of subaccounts in the Postal Service's Books of 
Account and assigns them to one of hundreds of `functional' cost 
components. (Functional costs are viewed as economic costs). Costs 
in the various functional components are analyzed to see how they 
vary with mail volume. The volume variable part is then distributed 
to subclasses according to piece counts or other `distribution keys' 
that imply subclass causation. The Postal Service's estimates of the 
costs and revenues generated by each subclass of mail are derived 
from the intricate rules that it uses to convert its accounting 
costs to functional costs, apply variability percentages to 
functional costs, and distribute the variable portion to subclasses.
    Docket No. RM2003-3, Final Rule on Periodic Reporting 
Requirement, November 3, 2003, at 21-22 (Order No. 1386). When the 
PAEA was enacted and the Commission put new periodic reporting 
requirements in place, the Commission generally left this pre-PAEA 
reporting structure in place with that structure forming the basis 
of the analytical principles applied after the PAEA's enactment. See 
Docket No. RM2008-4, Notice of Final Rule Prescribing Form and 
Content of Periodic Reports, April 16, 2009, at 2 (Order No. 203) 
(stating that ``[t]he Postal Service commends the rules for leaving 
the existing financial reporting structure essentially intact while 
adapting it from a subclass-based format to a product-based format. 
It notes that the fundamental building blocks of cost reporting will 
remain the same, separating accrued costs into segments, applying 
variability studies to form pools of attributable costs, and using 
data collection systems to distribute those pools to products, as 
summarized in the Cost and Revenue Analysis (CRA) Report and the 
Cost Segments and Components (CSC) Report.'').
---------------------------------------------------------------------------

    The Mailers and PSA place significant weight on Postal Service's 
comments in Docket No. RM2007-1, which they allege make clear that 
retiree health benefit normal costs were expected to be considered 
``economic costs'' that would be attributed as they were earned.\18\ 
The Mailers assert that the Commission ``agreed'' with the Postal 
Service's approach and that the attribution of these costs was resolved 
in Docket No. RM2007-1. Mailers' Motion and Petition at 6, 8. The 
Mailers and PSA are correct that the Postal Service's comments reflect 
the analytical principle that retiree health benefit normal costs would 
be attributed to products. However, the Mailers and PSA ignore that the 
Postal Service's comments and the approach adopted by the Commission 
also included the critical limiting principle that the extent to which 
these economic costs can be attributed is capped at the total amount of 
accounting costs and focus solely on the principle related to 
attributing retiree health benefit normal costs in their selective 
emphasis of the Postal Service's comments. In the referenced comments, 
the Postal Service emphasized the need to apply the limiting principle 
to retiree health benefit normal costs, stating that:
---------------------------------------------------------------------------

    \18\ Mailers' Motion and Petition at 6-8 (citing Docket No. 
RM2007-1, Initial Comments of the United States Postal Service on 
the Second Advance Notice of Proposed Rulemaking, June 18, 2007, at 
29, 30 (Docket No. RM2007-1 Postal Service Comments)); PSA Response 
at 2 (citing Docket No. RM2007-1 Postal Service Comments at 29). The 
Mailers also place emphasis on GAO statements on postal accounting; 
however, the Mailers do not provide any evidence of GAO's statements 
resulting in the adoption of a particular analytical principle or 
otherwise influencing the accepted analytical principles applied by 
the Commission. Mailers' Motion and Petition at 7-8.

    [I]t will be necessary to reconcile the economic and accounting 
costs reported in the Postal Service statements, with the primary 
concern being that the attributed `economic' costs not exceed the 
accounting costs. This can be addressed by setting the accounting 
---------------------------------------------------------------------------
costs as a ceiling that the attributed costs may not exceed.

Docket No. RM2007-1 Postal Service Comments at 30. It is these two 
principles together that determine the extent to which economic costs 
(e.g., retiree health benefit normal costs) are attributed to products.
    Another fundamental analytical principle is that the Postal 
Service's accounting systems record the costs that accrue to the Postal 
Service each fiscal year (i.e., the accounting costs). See n.17, supra 
and n.22, infra. While accounting rules incorporate elements that 
mirror concepts of economic costing (e.g., accrual accounting 
recognizes costs and revenues when incurred, even if payment occurs at 
a different time), accounting costs do not always align with economic 
costs.\19\
---------------------------------------------------------------------------

    \19\ For example, accounting depreciation schedules may not 
align with the economic depreciation of certain capital assets.
---------------------------------------------------------------------------

    Attributable costs are statutorily defined as ``the direct and 
indirect postal costs attributable to . . . product[s] through reliably 
identified causal relationships.'' 39 U.S.C. 3631(b). Economic cost 
analysis is relevant to the determination of attributable costs in some 
circumstances because it can identify and measure costs with a causal 
relationship to a product or group of products (as it has in the case 
of retiree health benefit normal costs). However, because attributable 
costs are a subset of total postal costs, they cannot exceed the 
corresponding total accounting costs, which define and measure the 
accrued costs of the Postal Service each fiscal year.
    In each year since FY 2007, the attributable portion of the 
economic

[[Page 6685]]

costs were less than the total accounting costs. This allowed the 
analytical principle regarding the attribution of retiree health 
benefit normal costs to be applied without contravening the additional 
limiting principle that attributable costs cannot be greater than 
accounting costs. The principle was applied so that the attributable 
portion of economic costs were classified as attributable costs and the 
remainder of the accounting costs were classified as institutional 
costs.
    In FY 2022, a different situation arose because accounting costs 
for retiree health benefits were zero in FY 2022 due to the PSRA. The 
FY 2022 retiree health benefit normal costs were accrued on the Trial 
Balance from October 2021 (the start of FY 2022) through March 2022 
(the last month before the PSRA took effect) because during that 
period, the Postal Service was expected to be obligated to pay the 
retiree health benefit normal costs pursuant to the not-yet-repealed 
provisions of the PAEA. Then the accrual was reversed pursuant to 
Section 102(c)(1) of the PSRA as shown in Table I.\20\
---------------------------------------------------------------------------

    \20\ Section 102(c)(1) of the PSRA repealed payments ``required 
from the Postal Service under section 8909a of title 5, United 
States Code, as in effect on the day before the date of enactment of 
this Act that remains unpaid as of such date of enactment.'' Postal 
Service Reform Act of 2022, Public Law 117-108, 136 Stat. 1127 
(2022).

                        Table I--FY 2022 Accrual of Retiree Health Benefits Normal Costs
                                            [National trial balance]
----------------------------------------------------------------------------------------------------------------
Effective  account                     Month beginning                         Prior  period
     (8 digits)                            balance          Month activity      adjustment        YTD balance
----------------------------------------------------------------------------------------------------------------
51204.000.........  RETIREE HEALTH                $0.00      $358,333,333.00           $0.00     $358,333,333.00
                     BENEFIT--NORMA
                     L COST.
51204.000.........  RETIREE HEALTH       358,333,333.00       358,333,333.00            0.00      716,666,666.00
                     BENEFIT--NORMA
                     L COST.
51204.000.........  RETIREE HEALTH       716,666,666.00       358,333,333.00            0.00    1,074,999,999.00
                     BENEFIT--NORMA
                     L COST.
51204.000.........  RETIREE HEALTH     1,074,999,999.00       358,333,333.00            0.00    1,433,333,332.00
                     BENEFIT--NORMA
                     L COST.
51204.000.........  RETIREE HEALTH     1,433,333,332.00       358,333,333.00            0.00    1,791,666,665.00
                     BENEFIT--NORMA
                     L COST.
51204.000.........  RETIREE HEALTH     1,791,666,665.00       358,333,333.00            0.00    2,149,999,998.00
                     BENEFIT--NORMA
                     L COST.
51204.000.........  RETIREE HEALTH     2,149,999,998.00   (2,149,999,998.00)            0.00                0.00
                     BENEFIT--NORMA
                     L COST.
----------------------------------------------------------------------------------------------------------------
Source: Postal Service National Trial Balance October 2021, Excel file ``NTB_Public_Oct2021_FY22.xlsx,'' tab ``1
  National Trial Balance,'' cells A through F1450, November 19, 2021; Postal Service National Trial Balance
  November 2021, Excel file ``National Trial Balance_Redacted_November 2021.xlsx,'' tab ``1 National Trial
  Balance,'' cells A through F1464, December 17, 2021; Postal Service National Trial Balance December 2021,
  Excel file ``National Trial Balance-Redacted, December, 2022 (FY 2022).xlsx,'' tab ``1 National Trial
  Balance,'' cells A through F1485, February 1, 2022; Postal Service National Trial Balance January 2022, Excel
  file ``National Trial Balance-January2022_Redacted.xlsx,'' tab ``1 National Trial Balance,'' cells A through
  F1503, February 28, 2022; Postal Service National Trial Balance February 2022, Excel file ``National Trial
  Balance-Redacted_February2022_FY2022.xlsx,'' tab ``1 National Trial Balance,'' cells A through F1510, March
  21, 2022; Postal Service National Trial Balance March 2022, Excel file ``National Trial Balance-Redacted_March-
  FY22.xlsx,'' tab ``1 National Trial Balance,'' cells A through F1515, May 5, 2022; Postal Service National
  Trial Balance April 2022, Excel file ``National Trial Balance_Redacted_April 2022_FY 2022.xlsx,'' tab ``1
  National Trial Balance,'' cells A through F1516, May 24, 2022.

    The accepted analytical principle requires that total accounting 
costs serve as the ceiling for attributed economic costs. As shown in 
Table I, in FY 2022, the total accounting costs were accrued in 
accordance with the provisions of the PAEA and then retroactively 
reversed according to the provisions of the PSRA.\21\ Due to the PSRA, 
there are no retiree health benefit costs incurred by the Postal 
Service in FY 2022, and thus the accounting costs in FY 2022 are 
zero.\22\ With no accounting costs in FY 2022 and that serving as a 
ceiling for the amount of economic costs that can be attributed, the 
amount of economic costs (i.e., retiree health benefit normal costs) 
that can be attributed in FY 2022 is also zero.
---------------------------------------------------------------------------

    \21\ OPM's FY 2022 Agency Financial Report affirms this 
reversal. See U.S. Office of Personnel Management, Agency Financial 
Report, Fiscal Year 2022, November 2022, at 69, available at https://www.opm.gov/about-us/budget-performance/performance/2022-agency-financial-report.pdf, (stating ``[t]he Postal Service Reform Act of 
2022, Public Law 117-108, changes the method in which required 
payments into the PSRHBF are calculated, and cancelled the payments 
due from Postal Service under Section 8909a. Pursuant to Public Law 
117-108, OPM wrote off the $57 billion receivables due from the 
Postal Service to the PSRHB in FY 2022. Additionally, FY 2022 
accrued Postal Service receivables related to PSRHBF were 
reversed.'').
    \22\ As stated above, the Postal Service's accounting systems 
record the costs that accrue to the Postal Service each fiscal year 
and those costs flow through to the CRA and Cost Segment and 
Component Reports (CSCs). See n.17, supra. The Mailers acknowledge 
this in the Mailers' Motion and Petition, stating that: [A]ccrued 
costs as reflected in the trial balance (submitted in each ACR and 
therefore an analytical principle) form the basis of costs by cost 
segments and components. The accrual in each segment in the trial 
balance matches exactly the segment cost in the cost segments and 
components (CSCs). This information forms the basis of the CRA and 
ACR upon which the Commission bases its annual compliance 
determinations. Mailers' Motion and Petition at 4. Despite this 
understanding, the Mailers state that applying the FY 2021 Cost 
Segment 18 summary description in FY 2022 necessitates accruing 
retiree health benefit normal costs and attributing them. Id. at 5. 
As the Postal Service explains, applying the FY 2021 methodology as 
the Mailers propose in FY 2022 results in ``no costs to apportion 
between attributable and institutional'' because as the FY 2021 Cost 
Segment 18 summary description makes clear, the actual entry in the 
component from which the costs are derived is zero. Postal Service 
Response at 4. See Docket No. ACR2022, Response of the United States 
Postal Service in Opposition to Mailers' Motion Seeking Information 
Request, January 19, 2023, at 4-5.
---------------------------------------------------------------------------

    This is not to say that the economic costs of retiree health 
benefits do not exist in FY 2022. As discussed above, economic costs 
include costs for benefits as benefits are earned, and retiree health 
benefit normal costs were earned by employees in FY 2022. However, as 
also discussed above, it is the Postal Service's accounting systems 
that record the costs that the Postal Service accrues each fiscal year, 
and because attributable costs are a subset of total postal costs, they 
cannot exceed the corresponding total accounting costs as recorded by 
the Postal Service's accounting systems. Given that accounting costs 
set the limit on the economic costs that can be attributed and no 
retiree health benefit accounting costs accrued in FY 2022, Order No. 
6363 correctly stated that ``under the accepted methodology, there are 
no . . . normal costs to account for in the Postal Service's financial 
reporting for FY 2022'' and that ``[i]ncluding such costs not incurred 
by the Postal Service would require a change in accepted methodology.'' 
Order No. 6363 at 10.
    Table II is an excerpt from the CSCs annually filed by the Postal 
Service as part of its ACR. It presents Component 208 ``Retiree Health 
Benefits'' appearing in Cost Segment 18 in the CSCs for FY 2008 through 
FY 2021. The ``Total Cost'' column reflects the total accounting costs 
for each fiscal year. The first and second columns reflect the total 
volume variable and product specific (i.e., attributed economic) costs, 
and total ``Other'' costs, respectively. The table reflects that in 
each fiscal year the total postal costs accounted for (i.e., the sum of 
attributed economic costs and ``Other'' costs) equals total accounting 
costs.

[[Page 6686]]



                                   Table II--Cost Segment and Component Report
                                     [Cost Segment 18 Component Number 208]
----------------------------------------------------------------------------------------------------------------
                                                                   Tot vol var &
                           Fiscal year                               prod spec      Other costs     Total costs
----------------------------------------------------------------------------------------------------------------
2008............................................................       2,893,912       4,512,671       7,406,583
2009............................................................       2,508,684         881,649       3,390,333
2010............................................................       2,405,455       5,341,956       7,747,411
2011............................................................       2,208,733         231,970       2,440,704
2012............................................................       2,025,233      11,703,848      13,729,081
2013............................................................       1,870,005       6,579,793       8,449,798
2014............................................................       1,772,889       6,912,530       8,685,419
2015............................................................       1,870,872       6,940,267       8,811,140
2016............................................................       1,775,528       7,329,175       9,104,702
2017............................................................       1,844,997       2,415,224       4,260,221
2018............................................................       2,051,538       2,429,166       4,480,704
2019............................................................       2,125,932       2,438,478       4,564,409
2020............................................................       2,150,070       2,509,587       4,659,658
2021............................................................       2,345,438       2,764,664       5,110,102
----------------------------------------------------------------------------------------------------------------
Numbers may not add across due to rounding.
Source: Docket No. ACR2008, Library Reference USPS-FY08-2, Excel file ``FY08PubSeg&CompRpt.xlsx,'' tab ``CS18,''
  cells U58, U59, U60, December 29, 2008; Docket No. ACR2009, Library Reference USPS-FY09-2, Excel file ``FY09
  Public CS&C Rpt.xlsx,'' tab ``CS18,'' cells U59, U60, U61, December 29, 2009; Docket No. ACR2010, Library
  Reference USPS-FY10-2, Excel file ``FY10 Public CS&C Rpt.xlsx,'' ``tab CS18,'' cells U60, U61, U62, December
  29, 2010; Docket No. ACR2011, Library Reference USPS-FY11-2, Excel file ``FY11Public CS&CRpt.xlsx,'' tab
  ``CS18,'' cells U60, U61, U62, December 29, 2011; Docket No. ACR2012, Library Reference USPS-FY12-2, Excel
  file ``FY12.Public CS&CRpt.xlsx,'' tab ``CS18,'' cells U60, U61, U62, December 28, 2012; Docket No. ACR2013,
  Library Reference USPS-FY13-2, Excel file ``FY13.Public CS&CRpt.Revised.xlsx,'' tab ``CS18,'' cells U61, U62,
  U63, December 27, 2013; Docket No. ACR2014, Library Reference USPS-FY14-2, Excel file ``FY14.2.Public Cost
  Segs and Comp.xlsx,'' tab ``CS18,'' cells U61, U62, U63, December 29, 2014; Docket No. ACR2015, Library
  Reference USPS-FY15-2, Excel file ``FY15.Public Cost Segs and Comps.xlsx,'' tab ``CS18,'' cells U59, U60, U61,
  December 29, 2015; Docket No. ACR2016, Library Reference USPS-FY16-2, Excel file ``FY16Public Cost Segs and
  Comps.xlsx,'' tab ``CS18,'' cells AC59, AC60, AC61, December 29, 2016; Docket No. ACR2017, Library Reference
  USPS-FY17-2, Excel file ``FY17Public Cost Segs and Comps.xlsx,'' tab ``CS18,'' cells AE59, AE60, AE61,
  December 29, 2017; Docket No. ACR2018, Library Reference USPS-FY18-2, Excel file ``FY18Public Cost Segs and
  Comps.xlsx,'' tab ``CS18,'' cells AE58, AE59, AE60, December 29, 2018; Docket No. ACR2019, Library Reference
  USPS-FY19-2, Excel file ``FY19Public Cost Segs and Comps.xlsx,'' tab ``CS18,'' cells AE58, AE59, AE60,
  December 27, 2019; Docket No. ACR2020, Library Reference USPS-FY20-2, Excel file ``FY20Public Cost Segs and
  Comps.xlsx,'' tab ``CS18,'' cells AE58, AE59, AE60, December 29, 2020; Docket No. ACR2021, Library Reference
  USPS-FY21-2, Excel file ``FY21Public Cost Segs and Comps.xlsx,'' tab ``CS18,'' cells AE58, AE59, AE60,
  December 29, 2021.

    The Mailers and PSA point to FY 2009 and FY 2011 as supportive of 
their proposed approach because during those years Congress reduced or 
deferred retiree health benefit funding requirements, but retiree 
health benefit normal costs were still attributed to products. See 
Mailers' Motion and Petition at 13-14; PSA Response at 2-3. However, as 
shown in Table II, the Postal Service and the Commission have 
consistently applied the same analytical principle in all fiscal years. 
In FY 2009, the mandated statutory prefunding payment was retroactively 
reduced by statute, and in FY 2011, a scheduled payment was deferred to 
the following fiscal year.\23\ This caused, in both years, the total 
economic costs to exceed accounting costs, but the attributable portion 
of the economic costs were less than total accounting costs in those 
years as in all other years. See Table II, supra. The analytical 
principle setting accounting costs as the ceiling for attributed 
economic costs was correctly applied in each year because the 
attributable economic costs did not exceed total accounting costs 
despite the changes by Congress to the required payments in FY 2009 and 
FY 2011.
---------------------------------------------------------------------------

    \23\ Continuing Appropriations Resolution, 2010, Public Law 111-
68, 123 Stat. 2023 (2009); Continuing Appropriations Act, 2012, 
Public Law 112-33, 125 Stat. 363 (2011).
---------------------------------------------------------------------------

B. The Process To Change Accepted Analytical Principles

    The Mailers request reconsideration of the requirement that they 
petition for a change in the accepted analytical principles because 
they assert that it is the Postal Service, and not the Mailers, that 
wants to change the accepted analytical principles for FY 2022 and thus 
should bear the burden of advocating for the change. Mailers' Motion 
and Petition at 9-10. They further assert that that Order No. 6363 was 
contradictory in finding and accepting a change in analytical 
principles and saying the principles were unchanged. Id. at 10.
    As a preliminary matter, the Commission notes that the Mailers 
appear to misread Order No. 6363. Order No. 6363's primary objectives 
were to identify the current accepted analytical principles applying to 
the costs at issue (including retiree health benefit normal costs), 
find that those accepted analytical principles were the ones to be 
applied for purposes of the FY 2022 ACR, and delineate a process for 
proposing changes to those analytical principles. Order No. 6363 at 2, 
10-11. Order No. 6363 found that the current accepted analytical 
principles applying to the retiree health benefit normal costs do ``not 
require inclusion of costs that are not incurred'' and that ``under the 
accepted methodology, there are no . . . normal costs to account for in 
the Postal Service's financial reporting for FY 2022.'' Id. at 10. 
Thus, Order No. 6363 concluded that ``[i]ncluding such costs not 
incurred by the Postal Service would require a change in accepted 
methodology.'' Id. Because the Commission found with respect to retiree 
health benefit normal costs that the accepted analytical principles 
reflected the approach advocated by the Postal Service, and not the 
Mailers, the Commission further stated that ``should the Mailers desire 
the Commission rely on a different analytical principle with regard to 
the . . . normal cost payments (which the Postal Service does not incur 
in FY 2022 or beyond), Mailers may petition the Commission for a change 
pursuant to 39 [CFR] part 3050.'' Id. at 11.
    The application of the analytical principles described in Order No. 
6363 is consistent with the Commission's elaboration on the current 
accepted analytical principles related to retiree health benefit normal 
costs discussed in

[[Page 6687]]

Section IV.A., supra. Thus, the Mailers' view that FY 2022 retiree 
health benefit normal costs should be treated as accrued in FY 2022 and 
attributed to specific products (despite the fact there are no 
accounting costs in FY 2022) reflects a change in accepted analytical 
principles. As referenced in Order No. 6363, the Commission's 
regulations set forth a process for changing analytical principles, 
stating that ``any interested person, including the Postal Service or a 
public representative, may submit a petition to the Commission to 
initiate [a proceeding to change an accepted analytical principle].'' 
39 CFR 3050.11(a); see 39 U.S.C. 3652(e)(2). Because it is the Mailers 
who desire a change in the accepted analytical principles, the 
Commission's regulations and Order No. 6363 appropriately placed the 
burden to petition and advocate for such a change on the Mailers. In 
circumstances where it is the Postal Service that desires a change in 
the accepted analytical principles, the burden is on the Postal Service 
to propose and advocate for such a change.\24\
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    \24\ See, e.g., Order No. 6363 at 10-11; Docket No. RM2023-2, 
Petition of the United States Postal Service for the Initiation of a 
Proceeding to Consider Proposed Changes in Analytical Principles 
(Proposal Seven), December 12, 2022.
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C. Other Arguments Raised by the Mailers

    The Mailers raise two other arguments that the Commission finds 
important to address at this juncture. First, Mailers assert that 
failing to accrue and attribute retiree health benefit normal costs has 
``real world negative consequences.'' Mailers' Motion and Petition at 
8. Specifically, the Mailers argue that failing to attribute these 
costs violates the cost causation principles contained in the PAEA and 
would result in erroneous cost avoidances for workshare discounts, 
which would result in less efficient workshare discounts. Id. at 8-9. 
The Mailers point to workshare discounts in the FY 2022 ACR as 
demonstrating this issue. Mailers' Reply Comments at 3-5. PSA raises 
similar arguments. PSA Response at 1-3.
    The Commission notes that even if one were to accept the Mailers' 
analysis as true, it would not change what the accepted analytical 
principles currently are (as described in Section IV.A., supra) and 
thus does not influence the Commission's conclusions related to the 
Mailers' request for reconsideration of Order No. 6363. Instead, this 
argument relates to whether the current accepted analytical principles 
should be changed and how they may, from the Mailers' perspective, be 
improved. In accordance with 39 U.S.C. 3654(e), accepted analytical 
principles may be changed ``to improve the quality, accuracy, or 
completeness of Postal Service data . . . whenever it shall appear 
that--(1) the data have become significantly inaccurate or can be 
significantly improved; or (2) those revisions are, in the judgment of 
the Commission, otherwise necessitated by the public interest.'' 39 
U.S.C. 3654(e). Because the Commission will consider whether to adopt 
NPPC et al. Proposal One as new accepted analytical principles, the 
Commission plans to consider the Mailers' arguments that their approach 
better aligns with the PAEA and will result in more accurate costing 
for workshare discounts in conjunction with its consideration of NPPC 
et al. Proposal One. See Section V., infra.
    Second, the Mailers, PSA, and the Postal Service have significant 
disagreement over how the PSRA affected whether retiree health benefit 
normal costs should be accrued and attributed in FY 2022.\25\ 
Specifically, the Mailers argue that the PSRA had no effect on economic 
costs related to retiree health benefit normal costs, and because those 
costs still exist, they should continue to be attributed as they have 
been in the past. Mailers' Motion and Petition at 11-12; Mailers' Reply 
Comments at 2-3.
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    \25\ Mailers' Motion and Petition at 11-12; PSA Response at 1-3; 
Postal Service Response at 7-12; Mailers' Reply Comments at 2-3.
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    There is no dispute that the economic costs of retiree health 
benefit normal costs exist in FY 2022 as they have in prior years. 
However, as explained in Section IV.A., the PSRA changed whether there 
were any retiree health benefit accounting costs due and payable in FY 
2022. Due to the PSRA, there were zero accounting costs related to 
retiree health benefits in FY 2022, and under the current accepted 
analytical principles, with no accounting costs incurred in FY 2022, 
there is no basis for attributing retiree health benefit normal costs 
in FY 2022. See Section IV.A., supra.

D. Conclusion

    The primary basis of the Mailers' request for reconsideration of 
Order No. 6363 is that the Commission erred in determining that the 
current accepted analytical principles do not require retiree health 
benefit normal costs to be treated as accrued and attributed to 
products in FY 2022. Mailers' Motion and Petition at 1. As discussed in 
Order No. 6363 and Section IV.A., supra, the Commission finds that the 
Mailers' view of the current accepted analytical principles is 
incorrect. Thus, the Commission denies the Mailers' Motion and Petition 
with regard to the request for reconsideration of Order No. 6363.
    In the alternative to granting reconsideration in their favor, the 
Mailers request that the Commission initiate a rulemaking proceeding 
and determine in that proceeding that retiree health benefit normal 
costs should be treated as accrued and attributed to products in Docket 
No. ACR2022 (which will culminate in the FY 2022 ACD). The Commission 
grants the request to consider the Mailers' petition to change the 
analytical principles applied to the FY 2022 retiree health benefit 
normal costs and provides notice of the proposed rulemaking in Section 
V., infra.

V. Notice of Proposed Rulemaking on Analytical Principles Used in 
Periodic Reporting (NPPC et al. Proposal One)

A. NPPC et al. Proposal One

    On December 19, 2022, the Mailers requested that the Commission 
initiate a rulemaking proceeding to consider a change in analytical 
principles if the Commission denied their motion for reconsideration. 
See Mailers' Motion and Petition at 2. The Commission has designated 
the proposed change in analytical principles as NPPC et al. Proposal 
One. Order No. 6382 at 2 n.2. NPPC et al. Proposal One proposes that FY 
2022 retiree health benefit normal costs be treated as accrued in FY 
2022 and attributed to specific products to the same ``degree as 
composite labor costs.'' Mailers' Motion and Petition at 1, 5, 13.
    The Mailers assert that treating retiree health benefit normal 
costs as accrued each year and attributing them would improve the 
quality, accuracy, and completeness of the data in the Postal Service's 
periodic reports when compared to the current analytical principles. 
Id. at 16. The Mailers further assert that accruing and attributing 
retiree health benefit normal costs in the year in which they are 
earned ``is consistent with economic cost accounting'' as these normal 
costs ``are a component of the economic cost of postal work.'' Id. The 
Mailers claim that from a practical perspective, NPPC et al. Proposal 
One is preferable because excluding retiree health benefit normal costs 
would result in inaccurate cost avoidance estimates, which would, in 
turn, result in inaccurate compliance determinations with respect to 
workshare discounts. Id. at 16-17. The Mailers assert that this harm 
would not just occur in FY 2022, but would result in future distortions 
in workshare

[[Page 6688]]

discounts even if the treatment of normal costs changed in the future. 
Id. at 17. The Mailers also state that ``the categorical exclusion of 
select costs would also erode the accuracy of the Commission's 
compliance findings with respect to . . . competitive products.'' Id.
    The Mailers state the NPPC et al. Proposal One ``is fully 
consistent with the legal standard that attributable costs are `the 
direct and indirect postal costs attributable to each class or type of 
mail service through reliably identified causal relationships.' '' Id. 
(quoting 39 U.S.C. 3622(c)(2)). They assert that ``[e]arned [retiree 
health benefit] costs plainly satisfy that standard, and attributing 
them improves the quality of postal accounting by making it more 
consistent with statutory requirements.'' Id. The Mailers state that 
according to the Postal Service's FY 2022 10-K, retiree health benefit 
normal costs were $4.4 billion in FY 2022, and that ``proper treatment 
of these costs would increase attributable costs by approximately $2.6 
billion . . . consistent with attribution levels in recent years.'' Id. 
The Mailers represent that nothing in NPPC et al. Proposal One would 
affect how those costs are currently attributed to particular classes 
and products. Id. at 18.

B. Notice and Comment

    The Commission will use Docket No. RM2023-3 for consideration of 
matters raised by NPPC et al. Proposal One. More information on NPPC et 
al. Proposal One may be accessed via the Commission's website at http://www.prc.gov. Interested persons may submit comments on NPPC et al. 
Proposal One no later than February 8, 2023.\26\ Comments should be 
filed in Docket No. RM2023-3. Pursuant to 39 U.S.C. 505, Jennaca D. 
Upperman is designated as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this proceeding.
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    \26\ This comment deadline is set consistently with the 2-week 
deadline envisioned in Order No. 6363. Order No. 6363 at 11, n.17.
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VI. Ordering Paragraphs

    It is ordered:
    1. The Motion for Reconsideration or, in the Alternative, Petition 
to Initiate a Proceeding Regarding the Appropriate Analytical Principle 
for Retiree Health Benefit Normal Costs, filed December 19, 2022, is 
denied with regard to the request for reconsideration of Order No. 6363 
consistent with the body of this Order.
    2. The Commission will use Docket No. RM2023-3 for consideration of 
the matters raised by NPPC et al. Proposal One, as described in the 
Motion for Reconsideration or, in the Alternative, Petition to Initiate 
a Proceeding Regarding the Appropriate Analytical Principle for Retiree 
Health Benefit Normal Costs, filed December 19, 2022.
    3. Comments by interested persons on NPPC et al. Proposal One are 
due no later than February 8, 2023 and should be filed in Docket No. 
RM2023-3.
    4. Pursuant to 39 U.S.C. 505, the Commission appoints Jennaca D. 
Upperman to serve as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this docket.
    5. The Secretary shall arrange for publication of this Order in the 
Federal Register.

    By the Commission.
Erica A. Barker,
Secretary.
[FR Doc. 2023-01930 Filed 1-31-23; 8:45 am]
BILLING CODE 7710-FW-P