2024-03270. Periodic Reporting

AGENCY:

Postal Regulatory Commission.

ACTION:

Notice of proposed rulemaking.

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.

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))
	(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.

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 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]

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]

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. 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.

Footnotes

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).

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)).

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.

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).