[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