[Federal Register Volume 89, Number 33 (Friday, February 16, 2024)]
[Proposed Rules]
[Pages 12289-12291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03270]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2024-3; Order No. 6965]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is acknowledging a recent filing requesting the 
Commission initiate a rulemaking proceeding to consider changes to 
analytical principles relating to periodic reports (Proposal One). This 
document informs the public of the filing, invites public comment, and 
takes other administrative steps.

DATES: Comments are due: February 26, 2024.

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. Proposal One
III. Notice and Comment
IV. Ordering Paragraphs

I. Introduction

    On February 8, 2024, the Postal Service filed a petition pursuant 
to 39 CFR 3050.11 requesting that the Commission initiate a rulemaking 
proceeding to consider changes to analytical principles relating to 
periodic reports.\1\ The Petition identifies the proposed analytical 
changes filed in this docket as Proposal One.
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    \1\ Petition of the United States Postal Service for the 
Initiation of a Proceeding to Consider Proposed Changes in 
Analytical Principles (Proposal One), February 8, 2024 (Petition).
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II. Proposal One

    Background. The Postal Service has in recent years made several 
proposals to improve the methodology used to calculate dropship 
workshare discounts for various flat-shaped USPS Marketing Mail 
mailpieces. Petition, Proposal One at 1. For some flat-shaped USPS 
Marketing Mail pieces, two rates are available: (1) a per-piece rate 
for pieces up to a 4-ounce breakpoint weight; (2) and a combined rate, 
per piece and per pound, for pieces heavier than the 4-ounce breakpoint 
weight. Id. In 2017, the Postal Service's passthrough calculation 
divided the discount for the heavier pieces by the avoided cost per 
pound for all pieces, both above and below the 4-ounce breakpoint. Id. 
at 2. The Postal Services states that this method was ``incomplete,'' 
because ``[i]t did not include in its numerator pieces below the 
pricing breakpoint, but it did include the weight of those pieces in 
the denominator.'' Id. Therefore, the Postal Service proposed, and the 
Commission approved, the following methodology to calculate dropship 
workshare discounts for USPS Marketing Mail that included the discount 
for pieces at or below the breakpoint weight in the numerator:

                                       ((Pound discount * Pounds above breakpoint) +
                                        (Piece discount * Pieces below breakpoint)).
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                                       (Avoided cost per pound * Pounds above and below
                                        breakpoint) \2\.
 

    The Postal Service states that the usual approach of taking ``the 
unit discount from the published benchmark price'' divided by the 
avoided cost ``did not work because the benchmark price varies with the 
different weights of the pieces mailed.'' Id. at 3. The Postal Service 
states that it could only calculate the workshare discounts for these 
flat-shaped USPS Marketing Mail mailpieces on a weighted basis after 
mailing, ``when the weights and numbers of pieces sent were known.'' 
Id. The Postal Service contends that, as a practical matter, the 
passthrough percentages for these mailpieces could sometime vary widely 
with changes in mail volumes and weights which, in turn, made it more 
difficult for the passthrough percentages to meet the requirements of 
39 CFR 3030.284 and 3030.284. Id.
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    \2\ Id. (citing Docket No. RM2017-11, Order on Analytical 
Principles Used in Periodic Reporting (Proposal Seven), November 20, 
2017, at 4, 8 (Order No. 4227)).
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    The Postal Services states that it identified the problem complying 
with 39 CFR 3030.284 and 3030.284 in Docket No. R2021-2, ``where it was 
mathematically impossible for the Postal Service to make all six 
passthrough percentages for Basic Carrier Route Flats (those on 5-Digit 
pallets and those on all other pallets)'' comply with the Commission's 
workshare discount regulations.\3\ The Postal Service therefore filed a 
petition to address the non-compliance by modifying how it calculated 
and

[[Page 12290]]

reported passthroughs for USPS Marketing Mail flats.\4\ Specifically, 
the Postal Service proposed to calculate and report passthroughs for 
USPS Marketing Mail Carrier Route Flats on 5-digit pallets and 
passthroughs for all other USPS Marketing Mail Carrier Route Flats 
together rather than separately. Petition, Proposal One at 4. The 
Commission approved this proposal and Postal Service notes that the 
Commission observed that the prior methodology ``leads to anomalous 
results and could precipitate inefficient pricing.'' \5\
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    \3\ Id.; see Docket No. R2021-2, Order on Price Adjustments for 
First-Class Mail, USPS Marketing Mail, Periodicals, Package 
Services, and Special Services Products and Related Mail 
Classification Changes, July 19, 2021 (Order No. 5937).
    \4\ Petition, Proposal One at 3; see Docket No. RM2021-6, 
Petition of the United States Postal Service for the Initiation of a 
Proceeding to Consider Proposed Changes in Analytical Principles 
(Proposal Three), April 8, 2021.
    \5\ Petition, Proposal One at 4-5 (citing Docket No. RM2021-6, 
Order on Analytical Principles Used in Periodic Reporting (Proposal 
Three), November 4, 2021, at 11 (Order No. 6032)). Additionally, the 
Postal Service states that, in approving the price adjustments in 
Docket No. R2021-2, the Commission also granted a one-time exemption 
from 39 CFR part 3030, subpart J for Basic Carrier Route Flats 
entered at the [Destination Delivery Unit] DDU workshare discount 
that noted the ``mathematical impossibility'' of compliance. 
Petition, Proposal One at 4.
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    The Postal Service states that while the adjustments in 2021 
prevented the compliance problem for USPS Marketing Mail Carrier Route 
Flats on 5-digit pallets from reoccurring, ``the adjustments did not 
otherwise change the methodology for calculating passthrough 
percentages for other flat-shaped [USPS] Marketing Mail pieces with 
piece and pound price components.'' Id. at 5. Instead, the Postal 
Services states that changes in volumes and weight cause compliance 
issues with 39 CFR 3030.284 and 3030.284. Id. The Postal Service states 
that it ``found a great disparity in the volumes and weights of [USPS] 
Marketing Mail Carrier Route Flats dropshipped at the [destination 
sectional center facility] DSCF and [destination delivery unit 
(DDU)].'' Id. at 5. The Postal Service states that it requested, and 
the Commission granted, a waiver permitting the passthrough percentage 
for USPS Marketing Mail Carrier Route Flats dropshipped at the DDU to 
be 105 percent.\6\ Thereafter, the Postal Service again revised the way 
it prices flat-shaped USPS Marketing Mail pieces with piece and pound 
price components and offering dropship discounts on per-piece prices 
only, which the Commission approved.\7\
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    \6\ Id. at 5-6 (citing Docket No. RM2022-12, Order Approving 
Postal Service Application for Waiver under 39 CFR 3030.286, August 
30, 2022, at 9, 11 (Order No. 6261)).
    \7\ Petition, Proposal One at 6, 7-8 (citing Docket No. RM2023-
4, Petition of the United States Postal Service for the Initiation 
of a Proceeding to Consider Proposed Changes in Analytical 
Principles (Proposal One), February 10, 2023; Docket No. RM2023-4, 
Order on Analytical Principles Used in Periodic Reporting (Proposal 
One), April 6, 2023, at 14 (Order No. 6474).
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    The Postal Service's current methodology for calculating workshare 
discount passthrough percentages is ``the same . . . as it uses for 
most other products, dividing the per-piece discount by the per-piece 
cost avoidance.'' Petition, Proposal One at 7. The Postal Service 
states that the passthrough percentages no longer vary with the 
different weights of pieces mailed because the passthroughs are 
calculated independently of the volumes and weights of pieces mailed. 
Id.
    The Postal Service states that its current methodology for 
calculating workshare discount passthrough percentages ``has some 
limitations.'' Id. The Postal Service argues that because pound prices 
do not vary by dropship entry point, it reduces incentives for mailers 
to dropship flat-shaped pieces weighing more than 4 ounces closer to 
their delivery destinations. Id. at 8. The Postal Service also states 
that its current methodology does not ``reflect the avoided costs of 
delivering flat-shaped [USPS] Marketing Mail pieces as closely as they 
could.'' Id. at 9. Instead, the Postal Service states that workshare 
discounts for pieces weighing more than 4 ounces are too small relative 
to their avoided costs, while those for pieces weighing 4 ounces or 
less are too large. Id.
    Proposal. The Postal Service proposes to address the limitations in 
its current methodology for calculating workshare discount passthrough 
percentages by separately deriving prices for flat-shaped USPS 
Marketing Mail pieces at or below the 4-ounce breakpoint from those 
pieces above the 4-ounce breakpoint. Id. For mailpieces at or below the 
4-ounce breakpoint, the Postal Service states that:
     mailers would continue to pay only a per-piece 
price;
     dropship discounts would be given on these per-
piece prices, so that per-piece prices would still vary based upon 
entry (i.e., origin, (destination network distribution center) DNDC, 
DSCF, or DDU); and
     the methodology for calculating passthroughs 
would remain substantially unchanged from the current formula.
    Id. at 10. The Postal Service states that the only difference in 
its proposed methodology and the current methodology is the per-piece 
cost avoidance from Folder 13, as submitted in its annual compliance 
filing. Id. The Postal Service's proposed methodology for calculating 
workshare discount passthrough percentages for these pieces is as 
follows:

Per-piece dropship discount/per-piece dropship cost avoidance of 
lightweight pieces (Folder 13)

    Id. The Postal Service contends that the change to the cost 
avoidance component of the passthrough calculation is much closer to 
actual avoided costs than if the weights of pieces over 4-ounces were 
included. Id.
    For mailpieces weighting 4-ounces or more, the Postal Services 
states:
     prices would continue to have per-piece and per-
pound components;
     pound prices would, once again, apply to the 
entire weight of a piece, not just the pounds above the breakpoint as 
they do in the current price structure; and
     the Postal Service would reintroduce per-pound 
dropship discounts, and so the per-pound prices would again vary by 
dropship entry point, as they did prior to adopting the current 
methodology.
    Id. at 10-11. The Postal Service states that, instead of basing 
dropship discounts on the per-piece rates and cost avoidances, it 
proposes to base dropship workshare discounts for pieces weighing 4 
ounces or more on the per-pound component of the rates. Id. at 12. As 
such, the Postal Service's proposed methodology for calculating 
passthroughs for pieces weighing 4 ounces or more is:

Per-pound dropship discount/Per-pound dropship cost avoidance (Folder 
13)

Id.
    The Postal Service contends that ``the virtue'' of the proposed 
methodology is that the discounts are tied directly to the per-pound 
cost avoidance and are ``better aligned with actual cost avoidances'' 
because they are ``based on actual weight.'' Id. at 12. Finally, the 
Postal Service argues that an ``immediate effect'' of its proposal 
would be to double the number of workshare discounts, from eight 
discounts to 16, for dropshipped flat-shaped USPS Marketing Mail 
mailpieces. Id. at 12-13.

III. Notice and Comment

    The Commission establishes Docket No. RM2024-3 for consideration of 
matters raised by the Petition. More information on the Petition may be 
accessed via the Commission's website at http://www.prc.gov. Interested 
persons may submit comments on the Petition and Proposal One no later 
than February 26, 2024. Pursuant to 39 U.S.C.

[[Page 12291]]

505, JP Klingenberg is designated as an officer of the Commission 
(Public Representative) to represent the interests of the general 
public in this proceeding.

IV. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. RM2024-3 for consideration 
of the matters raised by the Petition of the United States Postal 
Service for the Initiation of a Proceeding to Consider Proposed Changes 
in Analytical Principles (Proposal One), filed February 8, 2024.
    2. Comments by interested persons in this proceeding are due no 
later than February 26, 2024.
    3. Pursuant to 39 U.S.C. 505, the Commission appoints JP 
Klingenberg to serve as an officer of the Commission (Public 
Representative) to represent the interests of the general public in 
this docket.
    4. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Erica A. Barker,
Secretary.
[FR Doc. 2024-03270 Filed 2-15-24; 8:45 am]
BILLING CODE 7710-FW-P