[Federal Register Volume 59, Number 36 (Wednesday, February 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3675]
[[Page Unknown]]
[Federal Register: February 23, 1994]
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POSTAL RATE COMMISSION
39 CFR Part 3001
[Docket No. RM94-2; Order No. 1004]
Rules of Practice and Procedure
AGENCY: Postal Rate Commission.
ACTION: Final Rule.
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SUMMARY: In order to expedite litigation of revenue-related issues
presented by Postal Service rate change requests, the Commission amends
its rules governing the Postal Service's rate filings to require that
they include complete descriptions of the data, procedures, and
assumptions that underlie the Postal Service's estimate of domestic
mail revenues.
EFFECTIVE DATE: February 23, 1994.
FOR FURTHER INFORMATION CONTACT: Stephen Sharfman, Legal Advisor,
Postal Rate Commission, suite 300, 1333 H Street, NW., Washington, DC.
20268-0001 (telephone: (202)/789-6820).
SUPPLEMENTARY INFORMATION: The Commission published its Notice of
Proposed Rulemaking in this docket on November 2, 1993 [58 FR 58519].
In our Notice we proposed amendments to 39 CFR 3001.54(j), which
governs Postal Service presentations concerning estimated volumes and
revenues in our proceedings. As discussed in our Notice, during the
post-hearing phase of Docket No. R90-1 an issue emerged as to whether
the assumptions underlying the billing determinants that the Postal
Service used to project revenues were compatible with those underlying
the billing determinants that were implicit in the indexed prices that
the Postal Service used to project volumes. This caused us to review
our rules governing the Postal Service's volume and revenue
presentations to see if more complete initial documentation would
expedite hearings on these issues in future rate filings.
As part of that review, we noticed that our current rules do not
require the Postal Service's revenue presentation to be disaggregated
to the billing determinant level, although the Postal Service has done
so in recent rate filings. Nor do our current rules specifically
require the Postal Service to source the data underlying its revenue
presentation. We therefore proposed amendments to Rule Sec. 3001.54(j)
designed to bring it into conformity with current practice in these
respects.
The amendments that we initially proposed in this docket had three
basic objectives: (1) To require that revenue presentations be
disaggregated to the billing determinant level [proposed rule
Sec. 3001.54(j)(3)], (2) to require that the method of calculating
revenues be explained in detail, especially where the calculation
involved redesigned rates [proposed rule Sec. 3001.54(j)(4)], and (3)
where the assumptions underlying the billing determinants used to
calculate revenue differ from those underlying the billing determinants
implicit in the corresponding volume estimate that the Postal Service
provide an explanation for the difference [proposed rules
Sec. 3001.54(j)(5)(iv),(v), and (vi)].
As a result of comments received in response to our Notice of
Proposed Rulemaking, we have simplified our proposed amendments in ways
that still accomplish the objectives described above. Final rules
Sec. 3001.54(j)(3) and Sec. 3001.54(j)(4), as we adopt them here,
accomplish the first and second objectives, respectively, with simpler
and more concrete language. To accomplish the third objective, we have
deleted proposed rules Sec. 3001.54(j)(5)(iv) through (vi) in favor of
a simpler provision that we have incorporated in the preamble of rule
Sec. 3001.54(j)(6).
As a result, our final rules largely eliminate the basis for the
Postal Service's generalized complaint in its Comments of December 2,
1993, and Reply Comments of December 13, 1993, that our proposed
amendments are needlessly burdensome. Final rules Sec. 3001.54(j)(3)
and (4) bring our rules into conformity with what is essentially the
Postal Service's current practice. Proposed rules
Sec. 3001.54(j)(5)(iv) and (v) had asked for revenue presentations for
interim years, and the year following the test year. These proposals
might have added moderately to the Postal Service's documentation
burden. They have been deleted from our final rules.
Only a minor addition to the Postal Service's documentation burden
remains in our final rules. That is the simplified requirement,
incorporated in final rule Sec. 3001.54(j)(6), that the Postal Service
provide supporting rationale where its revenue estimate is based upon
billing determinants that differ from those that are implicit in its
volume forecast.
Final Rule Sec. 3001.54(j)(3)
The purpose of proposed rule Sec. 3001.54(j)(3) was to require that
the Postal Service's revenue presentation be disaggregated to the
billing determinant level, consistent with rule Sec. 3001.54(l), which
requires the Postal Service to provide class and subclass billing
determinants for each ``rate element'' that it uses to determine
revenues. The Office of the Consumer Advocate (OCA) observes that the
wording of proposed rule Sec. 3001.54(j)(3) could have been interpreted
as applying to elements other than those covered by rule
Sec. 3001.54(l). OCA Comments of November 24, 1993, at 3-4. Final rule
Sec. 3001.54(j)(3), therefore, adopts the alternate language proposed
by the OCA, which requires that the Postal Service's revenue
presentation be disaggregated to ``each unique rate element.''
Final Rule Sec. 3001.54(j)(4)
The purpose of proposed rule Sec. 3001.54(j)(4) was to require that
the method of calculating revenues be described in detail, especially
where the calculation involved restructured rates. The OCA's comments
propose alternative language that is more concrete and less susceptible
to subjective interpretation. Instead of requiring an
``identification'' or ``specific description'' of its methods of
calculating revenue, the OCA's proposed language would require the
Postal Service to document its revenue calculations in such a way that
they can be replicated from ``primary data sources.'' OCA Comments of
November 24, 1993, at 4-5.
Final Rule Sec. 3001.54(j)(4) adopts the essence of the OCA's
proposed alternative. Appropriate sourcing of revenue presentations,
however, is most often to companion volume testimony and supporting
documents, rather than to ``primary data sources.'' We have modified
the OCA's proposed language accordingly. The OCA incorrectly inferred
from our Notice an intent to limit rule Sec. 3001.54(j)(4) to estimates
of ``per piece'' revenue. Final rule Sec. 3001.54(j)(4) applies to
revenue estimates generally, not just to estimates of ``per piece''
revenue.
Proposed Rules Sec. 3001.54(j)(5)(iv)-(v)
Proposed rules Sec. 3001.54(5)(j)(iv) and (v) would have required
that the Postal Service's revenue presentations include fully
disaggregated revenue estimates for interim years (years between the
base year and the test year), and for the year following the test year.
Interim year estimates would have facilitated tracking of the Postal
Service's revenue estimate against actual revenues as a rate hearing
progresses. Post-test year estimates would have assisted in evaluating
any proposed changes.
Since the added value of either exercise is relatively minor, we
have decided to drop these proposed rules. They were the focus of the
generalized complaints expressed in the Postal Service's Comments of
December 2, 1993, and Reply Comments of December 13, 1993, that the
amendments to rule Sec. 3001.54(j) that we propose in this docket are
burdensome and unnecessary.
Proposed Rule Sec. 3001.54(j)(5)(vi) and Final Rule Sec. 3001.54(j)(6)
As we discussed in our Notice of Proposed Rulemaking, the Postal
Service uses average, or indexed, subclass prices as key variables in
its volume forecasting models. Billing determinants are implicit in an
indexed price.
The broad purpose of proposed rule Sec. 3001.54(j)(5)(vi) was to
ensure that the Postal Service's volume presentation includes a
detailed description of how the indexed prices were constructed,
especially where they reflected restructured rates. The specific
purpose of the proposed rule was to require that the Postal Service
identify instances where the billing determinants implicit in the price
indices used to forecast subclass volumes differ from those used to
estimate subclass revenues, and that it explain such differences.
Partly in response to the Postal Service's general plea that we not
add to the complexity of rule Sec. 3001.54(j) unless it is clearly
necessary, we have decided to delete proposed rule
Sec. 3001.54(j)(5)(vi) from our final rules. The broad purpose of the
proposed rule was to ensure that the Postal Service provides full
narrative explanations of how its price indices are constructed. Having
focused attention on that purpose with this rulemaking, we believe that
current rule Sec. 3001.54(j)(6)(i) and (ii) will be adequate to achieve
it.
As noted, the specific purpose of proposed rule
Sec. 3001.54(j)(5)(vi) was to require the Postal Service to explain why
it sometimes bases its revenue estimates on billing determinants that
differ from those implicit in its volume forecasts. We believe that
this purpose can be accomplished more economically by adding the
following sentence at the end of the current preamble to rule
Sec. 3001.54(j)(6): Supporting rationale shall be provided for using
billing determinants to estimate revenues for any class, subclass, or
rate category of mail that differ from the billing determinants
implicit in the estimate of volumes for that class, subclass, or rate
category.
We simplified this requirement in response to comments from the
Postal Service. The Postal Service interpreted proposed rule
Sec. 3001.54(j)(5)(vi) to require it to (1) Multiply the after-rate
fixed weight price index by the after-rate volume forecast for each
subclass, (2) compare the result with the after-rate revenue forecast
for that subclass, (3) determine if the difference exceeded specified
thresholds, and (4) explain differences that exceeded the thresholds.
The Postal Service asserts that ``comparisons to the suggested
thresholds (three percent of subclass revenue or $20 million) add
nothing to the ultimate answer.'' It characterizes steps ``1'' through
``3,'' above, as a ``wasteful and burdensome exercise.'' Postal Service
Comments of December 2, 1993, at 5. Although the added burden would
have been slight, in our view, we have nevertheless decided to delete
the requirement that the Postal Service inventory instances in which
such differences exceed a threshold.
The Postal Service also asserts that explanations of the difference
between estimated and implied subclass revenues would not be
``meaningful because, in every instance, the explanation would be the
same: any difference between the two numbers will be attributable to
the different billing determinants (before rate and after rates) used
in their calculation.'' Id. at 4.
Apparently because proposed rule Sec. 3001.54(j)(5)(vi)(e) asked
the Postal Service to ``explain'' differences between its estimated
revenues and those implied by its volume forecasts, the Postal Service
interpreted that rule merely to require a recitation that different
billing determinants give rise to different revenue results. We agree
that such a recitation would not be meaningful. The ``explanation''
intended by the proposed rule was not the perfunctory one assumed by
the Postal Service. The intent of the proposed rule was to elicit from
the Postal Service a theoretical or conceptual justification for using
different billing determinants to forecast volume than it does to
estimate revenue for the same period. If the Postal Service based
volume and revenue forecasts on different assumptions as to, for
example, the portion of the mailstream impacted by a proposed new rate
category, or its implementation date, the proposed rule contemplated
that the Postal Service would provide supporting reasons. To clarify
this intent, final rule Sec. 3001.54(j)(6) asks for ``supporting
rationale'' rather than an ``explanation.''
The Postal Service's comments appear to recognize that the
Commission's concern is that the Postal Service articulate a rationale
for basing volume and revenue forecasts on different assumptions. It
argues, however, that it would be more efficient if the desired
rationale were asked for and provided after a general rate hearing
begins. Id. at 5. We disagree. Where it is foreseeable that an aspect
of an analytical method will routinely be placed in issue during the
hearing, it expedites the hearing if supporting rationale for that
method is elicited ``up front,'' through standard filing requirements.
Other Proposals and Comments
The OCA proposes that this docket include rules that would identify
a minimum level of sampling error that the Commission will tolerate in
the Postal Service's volume estimates. The premise of the OCA's
proposal is that the amendments proposed in this docket might require
further disaggregation of the volume and revenue estimates presented by
the Postal Service, potentially reducing their reliability. OCA
Comments of November 24, 1993, at 1.
Although the OCA's objective has merit, it is only indirectly
related to the initial proposals in this docket. The focus of the rules
that we adopt in this docket is on documentation of the Postal
Service's revenue estimates. Their effect is not to further
disaggregate those estimates, but merely to bring our rules into
conformity with the Postal Service's recent practice. They do not
satisfy the premise of the OCA's proposal. The OCA's proposal should be
the focus of a separate rulemaking where its ramifications could be
explored in depth.
The Council of Public Utility Mailers (CPUM) proposes that current
rule 54 be amended throughout to add ``rate categories'' to each
reference to ``all classes and subclasses of mail and service.'' The
objective of CPUM's proposal is to require the Postal Service to
present data ``at the most discrete, disaggregated level that is
feasible.'' CPUM Comments of November 29, 1993, at 3.
We agree with the objective of CPUM's proposal, but do not think
that requiring rate category data throughout rule 54 is feasible or
wise. The final rules adopted in this docket require that revenue
estimates be disaggregated further than the rate category level.
Consequently, the primary impact of CPUM's proposal would be on
volumes. Current rules Sec. 3001.54(j) (5) and (6) require that volume
forecasts at the class and subclass level be derived from an
econometric demand study. It would not be appropriate to extend that
requirement indiscriminately to rate categories as well. For small rate
categories, sample data are too thin to allow reliable econometric
modelling. In this respect, CPUM's proposed language could require data
disaggregated beyond the maximum feasible level.
Final rule Sec. 3001.54(j)(6), which applies to both volumes and
revenues, moves in the direction of CPUM's proposal, since some of the
requirements contained in its preamble now apply at the rate category
level. The amended preamble reiterates that estimates required by rules
Sec. 3001.54(j) (2), (3), and (5), must be derived from econometric
demand studies at the class and subclass level. It is not required that
estimates at the rate category level be derived from econometric
studies. If they are derived from econometric studies, however, the
amended preamble language applies to them the requirement that
supporting rationale be provided if the assumptions underlying the
estimate depart from those underlying the econometrics. As discussed
above, the amended preamble language also requires supporting rationale
where the billing determinants underlying a rate category revenue
estimate differ from those implicit in the corresponding volume
forecast.
McGraw-Hill, Inc. proposed two refinements to the language of
proposed rule Sec. 3001.54(j)(5)(vi). One would have refined the
language of paragraph (a) of the proposed rule, which would have
required the Postal Service to identify its methods for deriving its
price indices. McGraw-Hill's proposed refinement would have
specifically required the Postal Service to identify the time period
and the rate schedule applicable to the billing determinants reflected
in the price indices. Comments of McGraw-Hill, Inc., of December 2,
1993, at 3.
Where price indices reflect billing determinants of a specific time
period and rate schedule, the Postal Service should, of course,
identify them. But McGraw-Hill's refined language might have been too
restrictive to accommodate price indices based on median, composite, or
other adjusted billing determinant values. As noted above, we have
deleted specific references to price indices in our final rules, with
the understanding that full documentation of the manner in which they
are derived is required by current rules Sec. 3001.54(j)(6). McGraw-
Hill's proposed refinement is therefore moot.
McGraw-Hill also proposed refined language for paragraph (e) of
proposed rule Sec. 3001.54(j)(5)(vi), which proposed thresholds that
would have triggered the requirement that the Postal Service explain
differences between estimated and implied subclass revenue. McGraw-
Hill's refinement, though well considered, is moot, since we have
deleted threshold tests from our final rules.
McGraw-Hill also proposed that we make the following additions to
the Postal Service's ongoing data reporting requirements: (i) the
Postal Service shall furnish annually a pro forma Cost and Revenue
Analysis (``CRA'') report that tracks the determinations made in the
preceding omnibus rate case decision; (ii) the CRA report shall
identify any change in attribution assumptions from the previous year's
report; (iii) if the attribution assumptions employed in a CRA report
differ from those used in the Commission's decision in the preceding
rate case, the Postal Service shall file a pro forma report that uses
the assumptions employed in the Commission's decision; and (iv) billing
determinants shall be reported on a quarterly rather than annual basis.
[Comments of McGraw-Hill, Inc., of December 2, 1993, at 4-5.]
As McGraw-Hill notes, these requirements were first proposed in
Docket No. RM91-1 [57 FR 39160, 39163-39164], but were not actively
considered because of subsequent changes in the focus of that docket.
Id. at 5. We will defer their consideration. The proposals relating to
the CRA are well considered, but are more appropriately dealt with
after the impending omnibus rate case has been processed. The proposals
regarding billing determinant reports may also be taken up at that
time.
Regulatory Evaluation
It has been determined pursuant to 5 U.S.C. Sec. 605(b) that these
rules will only affect informational requirements applicable to the
United States Postal Service, and it is certified that these rules will
not have a significant impact on a substantial number of small entities
under the terms of the Regulatory Flexibility Act, 5 U.S.C. Sec. 501 et
seq. Since these rules apply only to the Postal Service, it has also
been determined that these rules do not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment
pursuant to Executive Order 12612. The rules, which would apply only to
the Postal Service in postal rate proceedings, do not contain any
information collection requirements as defined in the Paperwork
Reduction Act 44 U.S.C. Sec. 3502(4)(B), and consequently the review
provisions of 44 U.S.C. Sec. 3507 and the implementing regulations in 5
CFR part 1320 do not apply.
List of Subjects in 39 CFR Part 3001
Administrative practices and procedure, Postal service.
PART 3001--RULES OF PRACTICE AND PROCEDURE
1. The authority citation for 39 CFR part 3001 is revised to read
as follows:
Authority: 39 U.S.C. 404(b), 3603, 3622-3624, 3661, 3662.
2. Section 3001.54 is amended by revising paragraphs (j)(3),
(j)(4), and the introductory text to (j)(6) to read as follows:
Sec. 3001.54 Contents of formal requests.
* * * * *
(j) * * *
(3) Subject to paragraphs (a)(2) of this section, the actual and
estimated revenues referred to in paragraphs (j) (1) and (2) of this
section shall be shown in total and separately for each class and
subclass of mail and postal service and for all other sources of
revenue. Revenues derived from classes and subclasses of mail shall be
disaggregated to each unique rate element.
(4) Each revenue presentation required by paragraph (j)(1), (j)(2),
and (j)(3) of this section shall, subject to paragraph (a)(2) of this
section, be documented in sufficient detail to allow independent
replication. Revenue estimates shall be supported by exhibits or
workpapers that reference the source of all data used, including volume
levels, billing determinants, and adjustment factors. References may be
to published documents, library references, or companion testimony, and
shall include document identity, page, and line, as appropriate. All
assumptions used to estimate revenue for new or redesigned rate
elements shall be identified and explained.
* * * * *
(6) The estimated volumes and revenues referred to in paragraphs
(j)(2), (j)(3), and (j)(5) of this section shall be derived from the
econometric demand study referred to in paragraph (j)(5)(i) of this
section. Supporting rationale shall be provided for any departure from
the assumptions and specifications in the demand study made in
estimating volumes of any class, subclass, or rate category of mail.
Supporting rationale shall be provided for using billing determinants
to estimate revenues for any class, subclass, or rate category of mail
that differ from the billing determinants implicit in the estimate of
volumes for that class, subclass, or rate category.
* * * * *
Issued by the Commission on February 10, 1994.
Charles L. Clapp,
Secretary.
[FR Doc. 94-3675 Filed 2-22-94; 8:45 am]
BILLING CODE 7715-01-P
