[Federal Register Volume 89, Number 100 (Wednesday, May 22, 2024)]
[Proposed Rules]
[Pages 44951-44953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11105]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2024-7; Order No. 7108]


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 Two). This 
document informs the public of the filing, invites public comment, and 
takes other administrative steps.

DATES: Comments are due: May 30, 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 Two
III. Notice and Comment
IV. Ordering Paragraphs

I. Introduction

    On May 10, 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 Two. Proposal Two seeks to 
establish a cost model for the purpose of disaggregating costs for the 
USPS Ground Advantage (GA) product. Petition, Proposal Two at 1.
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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 Two), May 10, 2024 (Petition). The 
Postal Service filed a notice of filing of non-public materials 
relating to Proposal Two. Notice of Filing of USPS-RM2024-7-NP1 and 
Application for Nonpublic Treatment, May 10, 2024.
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II. Proposal Two

    Background. Previously, USPS Retail Ground (RG), First-Class 
Package Service (FCPS), and Parcel Select (PS) were listed as separate 
Competitive products within the Mail Classification Schedule (MCS) with 
Parcel Select Ground (PSG) as a price category within the PS product. 
Id. at 2. In order to improve service standards for RG and PSG, the 
Postal Service implemented operational changes to process and transport 
RG and PSG mail along with FCPS mail in the contiguous United States 
beginning FY 2022, Quarter 4.\2\
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    \2\ Id.; see Docket No. N2022-1, United States Postal Service's 
Request for an Advisory Opinion on Changes in the Nature of Postal 
Services, March 21, 2022, at 3.
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    In addition, classification changes were made to the products on 
the MCS by removing RG from the Competitive product list, removing PSG 
as a price category from PS, and expanding the FCPS price structure to 
include mail pieces weighing up to 70 pounds, thus subsuming the RG and 
PSG price categories under FCPS.\3\
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    \3\ Petition, Proposal Two at 1-2; see Docket Nos. MC2022-81 and 
MC2022-82, Order Removing USPS Retail Ground from the Competitive 
Product List and Approving Competitive Classification Changes to 
First-Class Package Service and Parcel Select, October 28, 2022, at 
1-2 (Order No. 6318).
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    In Docket Nos. CP2023-113 and CP2023-114, the Commission approved 
additional proposed classification changes to rename FCPS to USPS 
Ground Advantage and several changes to the PS price structure 
including: (1) eliminating the distinction of machinable and 
nonmachinable prices for Parcel Select Heavy Weight (PSHW), (2) 
establishing a Destination Hub (DHUB) price category for PSHW, (3) 
establishing a DHUB price category for Parcel Select Lightweight 
(PSLW), and (4) revising the PSLW price structure that focused on 
destination entry only.\4\
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    \4\ Docket Nos. CP2023-113 and CP2023-114, Order Concerning 
Changes in Rates of General Applicability and Classifications for 
First-Class Package Service and Parcel Select, June 7, 2023, at 1 
(Order No. 6536).
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    Proposal. Proposal Two introduces a methodology for reporting GA 
negotiated service agreement (NSA) costs and presents a model for 
distributing GA transportation costs by zone. Petition, Proposal Two at 
1. The proposal also presents methodologies for distinguishing mail 
processing and delivery costs between those incurred by pieces under 1 
pound and those incurred by pieces 1 pound or greater. Id.
    The mail processing costs for PSG were previously identified 
through the Parcel Select Mail Processing Cost Model. Id. at 3. The 
Postal Service states that for purposes of the mail processing cost 
model, it was assumed that PSG had the same proportion of machinable 
and nonmachinable volume as Parcel Select Destination Entry. Id. at 4. 
However, the Postal Service asserts that GA does not have a separate 
rate table for nonmachinable volume and therefore there is no 
visibility into how much volume may be machinable or nonmachinable. Id.
    The Postal Service states that there was ``insufficient time to 
attempt to acquire the necessary data, iron out all of the details of 
the methodology, and present and litigate a proposal in time to 
incorporate the results of such litigation'' into the FY 2023 Annual 
Compliance Report preparation. Id. at 5.
    Accordingly, the Postal Service filed a motion for a temporary 
waiver of Rule 3050.10.\5\ The Commission subsequently issued an order 
taking the motion under advisement, stating that the applicable 
supporting documents must be sufficient to support the Commission's FY 
2023 compliance evaluation.\6\ On March 28, 2024, the

[[Page 44952]]

Commission issued the FY 2023 Annual Compliance Determination (ACD) 
granting the motion based on the review of the proposed interim 
methodology and the Postal Service's responses to various Chairman's 
Information Requests, which ``appear[ed] to demonstrate a good-faith 
effort on the part of the Postal Service to mitigate the consequences 
of its failure to promptly file a petition for a change of analytical 
principles.'' \7\ The Commission also directed the Postal Service to 
initiate a rulemaking docket to consider costing methodology for GA no 
later than 60 days after the issuance of the FY 2023 ACD. FY 2023 ACD 
at 60. The Postal Service filed the proposal subject to this proceeding 
in response to the directive in the FY 2023 ACD. Petition, Proposal Two 
at 6.
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    \5\ See Docket No. ACR2023, Motion of the United States Postal 
Service for Waiver of Rule 3050.10 with Respect to Disaggregated 
Ground Advantage Costs, December 8, 2023.
    \6\ See Docket No. ACR2023, Order Taking Under Advisement Postal 
Service Motion for Waiver of Rule 39 CFR 3050.10 Regarding 
Disaggregated USPS Ground Advantage Cost Information, December 22, 
2023 (Order No. 6894).
    \7\ See Docket No. ACR2023, Annual Compliance Determination, 
March 28, 2024, at 59 (FY 2023 ACD).
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    The Postal Service states that it considered alternative options 
using the FCPS and PSG methodologies or a combination of both for all 
GA costs and described the limitations of each. Id. at 6-10. The Postal 
Service proposes a GA transportation model designed similarly to the 
PSG component of the Parcel Select transportation model \8\ and a GA 
mail processing cost model which disaggregates the mail processing cost 
for GA between lightweight (under 1 pound) and heavyweight pieces (1 
pound and up). Petition, Proposal Two at 12-22.
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    \8\ See Docket No. ACR2023, Library Reference USPS-FY23-NP16, 
December 29, 2023.
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    Transportation cost model. The Postal Service states that the 
proposed transportation cost model contains some differences from the 
PSG transportation model. Id. at 12.
    First, the Postal Service states that the transportation costs by 
cost pool from Cost Segment 14 are split into local/intermediate, long-
distance, and air costs. Id. The Postal Service confirms, however, that 
air costs are identified separately from other long distance surface 
transportation costs. Id. The Postal Service explains that while PSG 
was primarily a ``fully ground product,'' GA has ``some lanes which 
currently travel by air in order to meet service standards'' and 
therefore the operational differences between the original PSG product 
and the GA product ``warrant a different treatment of air costs.'' Id. 
at 12-13.
    Second, the Postal Service states that both local and intermediate 
costs are ultimately distributed by zone using the same method (share 
of cubic feet by zone), and thus there is no need to distinguish 
between these costs in the GA transportation model. Id. at 13. The 
Postal Service confirms that the purpose of the Parcel Select 
transportation cost model is, first, to disaggregate Parcel Select 
transportation costs by entry point (destination delivery unit (DDU), 
destination sectional center facility (DSCF), destination network 
distribution center (DNDC), and Ground), and second, to disaggregate 
that entry point's costs further by zone. Id. The Postal Service states 
that because there are no destination entry rate categories for GA, the 
transportation model is only fulfilling the second function of the PSG 
transportation model, which is to split the costs by zone. Id. The 
Postal Service concludes that it is therefore not necessary to identify 
local and intermediate costs of the entry points separately, since they 
receive the same treatment. Id.
    Third, the Postal Service states that the GA highway costs by cost 
pool are assigned fully to local/intermediate or long distance, rather 
than being split based on the percent of volume that crosses network 
distribution center (NDC) service areas because GA pieces may travel on 
a distance-related leg of transportation that does not cross an NDC 
service area boundary. Id. at 14. Additionally, the Postal Service 
states that the NDC service area is not an appropriate distinction to 
identify long distance versus local/intermediate transportation because 
GA is not primarily processed in the NDCs. Id. at 15.
    Fourth, the Postal Service explains that the Vehicle Service Driver 
(VSD) costs included in the PSG transportation model in order to 
disaggregate transportation-related costs by entry point (DDU, DSCF, 
DNDC, and Ground) are not necessary for GA since there are no 
destination entry categories and thus, VSD costs can be identified and 
adjusted separately. Id. The Postal Service proposes instead that 
customer-specific VSD costs for GA are calculated by adjusting the VSD 
cost by the same percentage as the transportation cost and states this 
is the same methodology used to calculate customer-specific VSD costs 
for the legacy FCPS product. Id. at 15-16.
    Finally, the Postal Service states that once costs have been 
summarized into the three relevant categories (local/intermediate, long 
distance, and air), the next step is to distribute them by zone based 
on the relevant cost-causing characteristics for each category; 
however, air costs are not treated as non-zone-related long-distance 
costs and distributed based on the share of cubic feet by zone. Id. at 
16. The Postal Service states that the data from the Product Tracking 
and Reporting (PTR) system are used to identify the share of GA weight 
that flies by zone and that the distribution of air weight by zone is 
used to distribute the air cost by zone. Id.
    The Postal Service explains that the resulting total costs by zone 
for the three categories (local/intermediate, long distance, and air) 
are summed together and then divided by the total cubic feet per zone 
to calculate the cost per cubic foot for each zone, and then the cost 
per cubic foot for each zone are applied to the relevant volumes in 
each GA NSA. Id. at 17. The Postal Service confirms that this cubic 
dimensional measurement is in contrast to the legacy FCPS costs, which 
were adjusted based on weight rather than cubic feet because dimensions 
did not influence the rate paid for FCPS while PSG was subject to 
dimensional pricing and nonstandard length fees. Id. at 18.
    The Postal Service explains that total cubic feet per zone is 
calculated by multiplying the average cube per piece for each weight 
step by the total GA volume for that weight step. Id. The Postal 
Service further describes that the average cube per piece for each 
weight step is developed using a combination of statistical sampling 
data from the Origin-Destination Information System--Revenue, Pieces, 
and Weight (ODIS-RPW) for ounce-rated pieces under 1 pound and PTR data 
for pound-rated and cubic pieces, and dimension data for a sample of GA 
pieces are collected during ODIS-RPW tests. Id. The Postal Service 
states that although not every dimension of every piece is recorded, 
the Postal Service was able to construct an average cube per piece by 
weight step using PTR data. Id. The Postal Service also rationalizes 
that a linear regression was used to smooth the results for weight 
steps 8 pounds and up in order to mitigate the variation of GA 
dimension data at the highest weight steps. Id.
    The Postal Service contends that the use of cube for all rate 
categories within the GA product provides a more detailed measurement 
and is the most accurate evaluation of the GA NSA performance. Id. at 
19.
    The Postal Service concludes that ``the new GA transportation model 
represents an improvement over both the existing FCPS methodology and 
the existing PSG component of the Parcel Select Transportation cost 
model.'' Id.
    Mail processing cost. The Postal Service states that a GA cost 
analysis has been developed, and it disaggregates the mail processing 
costs for GA between lightweight pieces (under 1

[[Page 44953]]

pound) and heavyweight pieces (1 pound and over). Id. at 19-20. The 
Postal Service explains that this analysis is based on In-Office Cost 
System (IOCS) tallies similar to the one applied each year for Priority 
Mail.\9\ The Postal Service explains that there are fewer IOCS tallies 
available for GA, especially in the higher weight steps because there 
was only one-quarter of data, and the product was still dominated by 
pieces weighing less than 1 pound. Petition, Proposal Two at 20. The 
Postal Service indicates that it evaluated the available data and 
determined that such data could not support additional weight groups 
over 1 pound. Id. The Postal Service confirms that the methodology used 
to estimate product-level mail processing costs is the same for all 
products (including GA) and its legacy products, but some differences 
occur.\10\ The Postal Service describes that a key distinction for PSG 
is that it is not directly distinguishable from other Parcel Select 
rate categories using mail piece markings observable to IOCS data 
collectors, making the modeling approach necessary to disaggregate 
Parcel Select costs. Id.
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    \9\ Id. at 20 (citing Docket No. ACR2023, Library Reference 
USPS-FY23-NP27, December 29, 2023, Excel file ``MP Cost by wgt-fn 
for PM NSA-FY2023.xlsx'').
    \10\ Id. These differences are relative to the methodologies 
employed for the legacy products when costs are disaggregated below 
the product level for application to NSA customers' specific volume 
profiles. Id. at 21.
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    The Postal Service explains, however, that the methodology 
applicable to GA mail processing costs relies on data from IOCS tallies 
to disaggregate mail processing labor volume-variable cost (VVC) by 
facility type, ``basic function,'' and weight category (lightweight 
USPS Ground Advantage pieces up to 1 pound and heavyweight pieces 1 
pound or over). Id. The Postal Service states that it applies the 
resulting costs for GA pieces under and over 1 pound to each customer's 
NSA profile by the same weight groups. Id. at 22.
    The Postal Service concludes that ``[t]his methodology for 
disaggregating the GA mail processing costs is an improvement over any 
of the alternatives available because it maintains the distinction in 
costs between those pieces under one pound and over one pound, and it 
also reflects the nature of the new product which is no longer fully 
commercial and bulk-entered.'' Id.
    Delivery cost. The Postal Service explains that delivery costs are 
also reported separately by weight group, which reflects the fact that 
lightweight pieces are more likely to fit into the mailbox rather than 
receive a deviation delivery and therefore will have a lower delivery 
cost (on average) than the pieces that are more than or equal to 1 
pound. Id. at 22-23.
    Other costs. The Postal Service confirms that costs for other 
functions, such as window service, packaging, advertising, and credit/
debit card fees, are treated in the same manner as they have been 
historically for FCPS. Id. at 24.
    Rationale and impact. The Postal Service states that a methodology 
is needed for reporting GA costs below the product level, for 
application to customer-specific volume profiles for each GA NSA and 
that this proposal is filed in compliance with the Commission's 
directive in the ACD to file such a rulemaking within 60 days of the 
issuance of the ACD. Id. at 11 (citing FY 2023 ACD at 60).
    Transportation cost model. The Postal Service states that because 
the prior methodology did not provide for any disaggregation by zone 
and instead applied the same transportation cost across all zones, the 
new methodology tends to reflect lower costs for the inner zones and 
higher costs for the outer zones, relative to the FCPS methodology. Id. 
at 26. The Postal Service asserts that these changes represent an 
improvement because air costs are assigned to the actual zones that 
incur them rather than being spread across all zones in proportion to 
the share of cubic feet in each zone, which could result in understated 
or overstated transportation cost for NSA customers. Id.
    Mail processing cost analysis. The Postal Service states that it 
has provided (under seal) comparisons of the resulting mail processing 
costs for GA lightweight and heavyweight pieces to the mail processing 
costs for legacy products during FY 2023. Id.
    Delivery cost. The Postal Service states that it has provided 
(under seal) comparisons of the resulting delivery costs for GA 
lightweight and heavyweight pieces to the delivery costs for legacy 
products during FY 2023.
    Negotiated service agreement costing. The Postal Service states 
that it has begun using the GA costs resulting from the interim 
methodology introduced in the FY 2023 ACR to project the financial 
performance of new GA NSAs for Calendar Year 2024. Id. at 27. The 
Postal Service notes that the Commission directed the Postal Service to 
provide alternate financial workpapers applying the cost models for the 
GA legacy products and asserts that it has complied by including 
alternate workpapers in every GA NSA filed since.\11\ The Postal 
Service maintains that application of the new GA costs allows for a 
more appropriate projection of the expected financial performance of 
upcoming GA NSAs and represents an improvement over the current 
situation wherein no accepted analytical principle exists for reporting 
GA costs below the product level. Petition, Proposal Two at 28.
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    \11\ Id. (citing Docket No. MC2024-158 et al., Order Adding 
Priority Mail & USPS Ground Advantage Contracts to the Competitive 
Product List, January 30, 2024, Order No. 6952).
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III. Notice and Comment

    The Commission establishes Docket No. RM2024-7 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 Two no later 
than May 30, 2024. Pursuant to 39 U.S.C. 505, Christopher C. Mohr 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. RM2024-7 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 Two), filed May 10, 2024.
    2. Comments by interested persons in this proceeding are due no 
later than May 30, 2024.
    3. Pursuant to 39 U.S.C. 505, the Commission appoints Christopher 
C. Mohr 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. 2024-11105 Filed 5-21-24; 8:45 am]
BILLING CODE 7710-FW-P