[Federal Register Volume 89, Number 103 (Tuesday, May 28, 2024)]
[Proposed Rules]
[Pages 46046-46049]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11566]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3050

[Docket No. RM2024-8; Order No. 7120]


Periodic Reporting

AGENCY: Postal Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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

DATES: 
    Comments are due: July 8, 2024.
    Reply Comments are due: July 22, 2024.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at https://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 Three
III. Notice and Comment
IV. Ordering Paragraphs

I. Introduction

    On May 13, 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 Three.
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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 Three), May 13, 2024 (Petition). The 
Postal Service also filed a notice of filing of non-public materials 
relating to Proposal Three. Notice of Filing of USPS-RM2024-8-NP1 
and Application for Nonpublic Treatment, May 13, 2024.
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II. Proposal Three

    Background. On November 22, 2023, the Postal Service filed a notice 
to establish a new Zone 10 for Priority Mail Express (PME), Priority 
Mail (PM), and USPS Ground Advantage (GA) and proposed associated Zone 
10 rates.\2\ The Commission approved the proposed price and 
classification changes and directed the Postal Service to file a 
rulemaking proceeding proposing and

[[Page 46047]]

supporting the methodological changes necessary to derive separate Zone 
10 transportation costs for Priority Mail and USPS Ground Advantage.\3\
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    \2\ Docket No. CP2024-72, USPS Notice of Changes in Rates and 
Classifications of General Applicability for Competitive Products, 
November 22, 2023.
    \3\ Docket No. CP2024-72, Order Approving Price Adjustments and 
Classification Changes for Domestic Competitive Products, March 22, 
2024, at 36 (Order No. 7016). The Commission directed the Postal 
Service to file a rulemaking proceeding within 90 days from the 
issuance of the order. Id.
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    In accordance with Order No. 7016, the Postal Service filed notice 
with the Commission to develop procedures to derive separate Zone 10 
transportation cost estimates for PM and GA.\4\
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    \4\ See Petition, Proposal Three at 1 n.1, 2. The Postal Service 
indicates that PME models are unaffected by the addition of Zone 10, 
as the current PME transportation costs are not disaggregated by 
zone.
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    The Postal Service states that the mail transportation cost model 
for PM is updated annually and filed with the Annual Compliance Review 
(ACR), most recently in Docket No. ACR2023, Library Reference USPS-
FY23-NP27, December 29, 2023. Petition, Proposal Three at 2. The 
current GA transportation cost model was first introduced as an interim 
model during the FY 2023 ACR and is under concurrent review before the 
Commission in Docket No. RM2024-7.\5\
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    \5\ Docket No. RM2024-7, 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.
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    The Postal Service states that ``the current Priority Mail 
transportation models (USPS-FY23-NP27, `FY2023ParcelsCostModel.xls' and 
`FY2023FlatsCostModel.xls') group the costs from Cost Segment 14 into 
cube- and weight-related, air- and surface-related, distance- and non-
distance-related components to calculate an overall cost per pound and 
a cost per cube by zone.'' Petition, Proposal Three at 2. The Postal 
Service explains that ``[t]he distributions to each zone are based on 
the cube and weight of parcels and flats by zone, parameters derived 
from USPS-LR-L-39, and USPS-LR-L-37 Table 107 air weight and average 
haul mileage by zone summaries for aggregated air lanes.'' Id.
    The Postal Service states ``[t]he current USPS Ground Advantage 
transportation model (USPS-FY23-NP27, 
`GATransportationByZone_FY23.xls') groups the costs from Cost Segment 
14 in to Local/Intermediate costs, Long Distance Surface costs, and Air 
costs to derive a cost per cubic foot.'' Id. at 3. The Postal Service 
notes that ``[t]he distributions of these components by zone are based 
on mileage factors and proportions of weight by zone for Surface and 
Air volume from the Product Tracking and Reporting System (PTR).'' Id.
    The Postal Service states that it applies the resulting costs by 
zone to appropriately reflect the costs associated with a specific 
customer's weight and zone profile when calculating the financial 
projections of negotiated service agreements (NSA) that include PM or 
GA. Id. The Postal Service also states that the ``forward-looking 
financial projections are filed to demonstrate expected compliance with 
the requirements of 39 U.S.C. 3633(a), pursuant to 39 CFR 3035.105(c)'' 
and that ``these costs are applied in the ACR proceedings each year to 
demonstrate compliance with the same requirements, pursuant to 39 [CFR] 
3050.21(g)(2).'' Id.
    Proposal Three. The Postal Service proposes updating the 
methodology for distributing the transportation costs for PM and GA by 
using more granular data to produce distribution keys by zone for both 
the new Zone 10 assignment and the existing zones. Id. at 4. The Postal 
Service avers that the changes to the transportation cost models 
described in Proposal Three involve several phases. Id.
    First, Proposal Three entails a mechanical update to PM 
transportation models, where the Postal Service plans to consolidate 
and eliminate redundancy in workbooks detailing the models. Id. The 
Postal Service states that the result of this update is not a new 
methodology nor introduction of new information. Id. at 6.
    Second, the Postal Service would add Zone 10 to the model 
structures for PM and GA. Id. at 5-6. The Postal Service states, 
``inputs such as volumes, weights, and cubes would be remapped 
according to the new zone definitions.'' Id. at 5.
    Third, Proposal Three utilizes additional detailed information the 
Postal Service developed to account for the distance taper effect.\6\
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    \6\ See Docket No. RM2023-9, Order Approving Analytical 
Principles Used in Periodic Reporting (Proposal Four), November 2, 
2023, at 8 (Order No. 6771). Order No. 6771 approved methodology 
changes for PM transportation costs and encouraged the Postal 
service to conduct future analysis on the phenomenon whereby trips 
of shorter distances are more expensive per mile compared to trips 
of longer distances, i.e., the distance taper effect. The Postal 
Service indicates that it has ``conducted the additional analysis 
and proposes the following data-driven approach to developing cost 
adjustment factors that reflect the economies achieved as the number 
of zones traversed by surface trips increases.'' Petition, Proposal 
Three at 5.
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    The Postal Service states that ``[t]he proposed methodology takes 
advantage of detailed information that is available for Highway 
Contract Route (HCR) trips:''
     The total mileage in a quarter for each trip can be 
determined from its origin and destination together with the number of 
trips per quarter. The same information is currently used by 
Transportation Cost System (TRACS) to identify HCR trips and trip 
lengths.
     The predicted cost per mile is determined from contract 
information for each route within a contract type and cost segment. 
This cost per mile can be applied to all trips assigned to that route.
     For each trip, the zone from origin to destination can be 
determined from the three-digit ZIP Codes of the origin and destination 
facilities.

Petition, Proposal Three at 6.
    The Postal Service states that ``[f]or each zone, the average cost 
per mile can be calculated by aggregating the quarterly miles and 
predicted quarterly costs for all trips whose origin and destination 
map to that zone.'' Id. The Postal Service asserts that ``[b]ecause 
there are relatively few trips that directly extend to high zones, even 
within the Inter-[sectional center facility]SCF contract type, there is 
some variability in the calculated cost per mile.'' Id. The Postal 
Service proposes to aggregate Zones 5 through 8 into a single group in 
order to mitigate this variability. Id.
    The Postal service summarizes the distance taper adjustment factors 
for Inter-SCF regular trips for FY 2023 Q4 as follows:

------------------------------------------------------------------------
                                                                Distance
                          Zone group                             taper
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1............................................................       1.54
2............................................................       1.14
3............................................................       1.04
4............................................................       0.94
5-8..........................................................       0.93
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Id. at 7.
    The Postal Service states that it ``intends to repeat this analysis 
each fiscal year and provide updated distance taper factors in USPS-
FYxx-NP27 along with other updated parameters that are provided for the 
transportation cost models utilized for NSAs.'' Id.
    Fourth, the Postal Service proposes a methodological change for the 
treatment of transportation cost pools for both PM and GA in order to 
refine the existing methodologies by using more granular data to 
develop new distribution keys by zone to distribute the costs more 
accurately in each Cost Segment 14 cost pool by the applicable cost 
driver. Id.
    Proposal Three--Priority Mail. In Proposal Three, the Postal 
Service also proposes several changes to methodology used to calculate 
the cost per pound and per cube for PM parcels

[[Page 46048]]

and flats.\7\ The summary of each aspect of these proposed changes 
follows.
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    \7\ The Postal Service describes the existing methodology at 
length, and that description is not repeated here. See Petition, 
Proposal Three at 7-13.
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    First, calculations for PM air weight and average haul by zone have 
been updated to incorporate Zone 10. Id. at 14. In addition, ``instead 
of mapping each lane to a zone according to great circle mileage 
distance between origin and destination airports, the zone is now 
determined using the official mapping of the 3-digit ZIP pairs of the 
origin and destination airports (i.e., according to the distance 
between the centroids of the 3-digit ZIPs in which the origin and 
destination airports are located.).'' Id. The Postal Service claims 
this is ``an improvement over the current methodology because it would 
remove anomalies such as assigning some Intra-Alaska air lanes to Zone 
2 when there is no such Zone 2 ZIP pair within Alaska.'' Id. The Postal 
Service states that ``[t]he air weights by origin and destination 
airport for the relevant offshore lanes would be remapped from the 
current zone to Zone 10'' and ``the ODIS-RPW data would be remapped 
according to the new zone definitions.'' Id. 14-15. The Postal Service 
asserts that ``ODIS-RPW information is collected at the 3-digit ZIP 
level, but Zone 9 only applies to certain 5-digit ZIPS,'' therefore 
Zone 9 ODIS-RPW data is unavailable and would be combined with Zone 10. 
Id. at 15. The Postal Service indicates that because both Zone 9 and 
Zone 10 pieces would be on flights from the Continental U.S., and it is 
not possible to separate Zone 9 air weight from Zone 10 air weight, and 
Zones 9 and 10 must be reported together. Id.
    Additionally, air weights for Commercial Air, UPS, and Air Taxi 
distributions by zone would be kept separate rather than aggregated and 
Air Taxi air weights would be further split into Intra-Caribbean versus 
all other lanes. Id.
    The Postal Service proposes to remove calculating the average haul 
mileage per zone for the FedEx, Commercial Air, UPS, Hawaii, and Air 
Taxi cost pools because these cost pools do not have distance-related 
cost components. Id. at 16. However, the Postal Service indicates that 
the average haul calculation for the Alaska air modes would remain 
unchanged from the current methodology. Id.
    The Postal Service proposes maintaining the separation of the 
existing distributions by zone for Alaska, Hawaii, and the Caribbean 
instead of combining these distributions in the final step. Id.
    Second, the Postal Service proposes replacing several parameters in 
the cost model for costs pertaining to mail in Alaska, reflecting 
distance and non-distance related costs for that mail. Id. The Postal 
Service also removes the parameters identifying local volume that 
avoids contract transportation, as it found that local pieces are 
comingled with higher zone packages and incur the same transportation 
costs. Id. at 17. The Postal Service indicates that new distribution 
keys ``would be developed for each individual cost pool in Cost Segment 
14 based on the new air weights by cost pool, average haul mileages, 
total weights, and total cubic feet by zone for parcels and flats.'' 
Id.
    Third, The Postal Services proposes that air weight and average 
haul miles by zone be calculated for individual providers, rather than 
aggregated. Id. The Postal Service states:

    The Priority Mail air weight by zone would be distributed 
between parcels and flats, as in the current methodology, and the 
air cube for FedEx Day Turn parcels and flats would be calculated 
using the density factors and the air weight for FedEx. Next, the 
Air distribution keys for each air cost pool for parcels and flats 
would be calculated using the weight and cube by zone from the same 
cost pool. This refinement would represent an improvement over the 
current methodology because now, for example, UPS costs would be 
distributed to each zone according to the UPS weight by zone rather 
than being distributed based on the total air weight across all 
modes. Likewise, the FedEx Day costs would be distributed to each 
zone according to the FedEx cube by zone, rather than being 
distributed based on the total air cube across all modes.

Id.
    The Postal Service indicates that:

    Two distribution keys would be calculated for the Alaska cost 
pools: the pound distribution based solely on the Alaska air weight 
by zone; and the pound-miles distribution, which would be calculated 
by multiplying the Alaska air weight by zone by the average haul 
mileage by zone for Alaska. The Alaska Non-Preferential cost pool 
would employ a weighted average of the pound and pound-mile 
distributions using the percent distance-related Alaska Non-
Preferential parameter.

Id. at 18.
    Fourth, the Postal Service would calculate two distribution keys 
for surface transportation cost pools. One for distance-related surface 
transportation, and one for non-distance-related surface 
transportation. Id. The Postal Service further describes the breakout 
of these distribution keys into surface and air and details the 
calculation. Id. at 18-20. In sum, these distribution keys would be 
applied at the cost pool level for the cost pools within CS14:
     Commercial air costs would be distributed by the 
commercial air weight proportions by zone.
     FedEx Day Turn costs would be distributed by the FedEx 
cubic feet proportions by zone.
     UPS costs would be distributed by the UPS air weight 
proportions by zone.
     Peak air costs would be distributed by the total air 
weight proportions by zone.
     Alaska Non-Preferential costs would be distributed by a 
weighted average of the Alaska air weight and Alaska pound-miles 
proportions by zone.
     Alaska Preferential costs would be distributed by the 
Alaska air weight proportions by zone.
     Hawaii costs would be distributed by the Hawaii air weight 
proportions by zone.
     Air Taxi costs would be distributed by the air taxi air 
weight proportions by zone.
     CDS Intra-SCF Highway costs would be excluded from the 
model.
     Inter-SCF, Intra-NDC, Inter-NDC, Highway Plant Load, 
Alaskan Highway, Highway Empty Equipment, Freight Rail, Rail Plant 
Load, Rail Empty Equipment, Inland Water, and Offshore Water costs 
would be distributed by the distance-related surface cube proportions 
by zone.
     Intra-SCF Highway costs would be distributed by the non-
distance related surface cube proportions by zone.
     Peak Highway and Terminal/Van Damage costs would each be 
distributed by a weighted average of the distance- and non-distance-
related surface cube proportions by zone.

Id. at 20-21.
    Proposal Three--USPS Ground Advantage. In Proposal Three, the 
Postal Service also proposes to update the USPS Ground Advantage 
transportation cost model.\8\ The summary of each aspect of these 
proposed changes follows.
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    \8\ The Postal Service describes the existing methodology, and 
that description is not repeated here. See Petition, Proposal Three 
at 22-23.
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    First, the Postal Service proposes the same distance taper factors 
as proposed in the PM model for GA. Id. at 24. The Postal Service avers 
the addition is an improvement because it would allow the model to 
reflect that shorter distance trips have a higher cost per mile on 
average compared to longer haul trips. Id.
    Second, the Postal Service proposes a methodological change to 
address the

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treatment of Domestic Water cost pools. Id. Specifically, Inland and 
Offshore Water costs would be disaggregated, and Offshore Water costs 
would be distributed independently. Id. at 24-25.
    Third, the Postal Service proposes a methodology for Zone 10 long-
distance surface transportation, because GA pieces over one pound may 
travel by ocean to offshore locations rather than flying, but they 
would also travel by truck to the ocean port. Id. at 25. The Postal 
Service proposes accounting for this transport by calculating the 
average haul mileage for Zone 10 by analyzing PTR and geographic data. 
Id. at 25-26. This analysis would calculate the average miles per piece 
for Zone 10 pieces destinating in the Caribbean, Pacific, and Alaska. 
Id. at 26. The Postal Service notes the pairs of most common departure 
ports and arrival ports for these pieces (Jacksonville, FL with Catano, 
PR; Richmond, CA with Honolulu, HI; and Seattle, WA with Anchorage, 
AK). Id. The Postal Service intends to use these pairs to calculate 
water miles (and by subtracting water miles from average miles per 
piece, estimating truck miles per piece) for these pieces. Id. The 
Postal Service uses the volume proportions by offshore destination to 
produce a weighted average truck mileage for all Zone 10 pieces. Id.
    Fourth, the Postal Service proposes to analyze PTR data to identify 
Offshore Water Ground Advantage weight percentages by zone. Id. The 
weight distribution would be calculated by identifying the zone of the 
GA over-one-pound pieces that travel by ocean to or from the offshore 
location. Id. The weight distribution would be used to distribute the 
GA costs or offshore water transportation by zone and avoids assigning 
GA costs to zones that do not incur them as is done with the current 
methodology. Id. at 26-27. The costs per cube for each component 
category would be summarized to produce the total unit cost per cube by 
zone. Id. at 27.
    Fifth, the Postal Service proposes to update customer-specific 
adjustments for Vehicle Service Driver (VSD) costs for local non-
distance-related surface transportation for GA. Id. This proposed 
adjustment allows the Postal Service to account for deviations in VSD 
costs driven by the average size of the customers cube. Id.
    Impact. The Postal Service provides the impact for each component 
of Proposal Three, as well as the combined impact, under seal in 
Library Reference USPS-RM2024-8-NP1. Id. Because the impact of Proposal 
Three is limited to PM and GA transportation costs separated by zone, 
there is no impact on product-level costs. Id. at 28. The Postal 
Service avers that the materials filed under seal ``substantiate and 
quantify the Postal Service's prior statements that the cost of 
transport to offshore locations is higher on average than it is to 
transport to non-offshore destinations.'' Id.

III. Notice and Comment

    The Commission establishes Docket No. RM2024-8 for consideration of 
matters raised by the Petition. More information on the Petition may be 
accessed via the Commission's website at https://www.prc.gov. 
Interested persons may submit comments on the Petition and Proposal 
Three no later than July 8, 2024. Reply comments on the Petition and 
Proposal Three are due no later than July 22, 2024. Pursuant to 39 
U.S.C. 505, Madison Lichtenstein 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. RM2024-8 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 Three), filed May 13, 2024.
    2. Comments by interested persons in this proceeding are due no 
later than July 8, 2024. Reply comments on the Petition and Proposal 
Three are due no later than July 22, 2024.
    3. Pursuant to 39 U.S.C. 505, the Commission appoints Madison 
Lichtenstein 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. 2024-11566 Filed 5-24-24; 8:45 am]
BILLING CODE 7710-FW-P