[Federal Register Volume 62, Number 106 (Tuesday, June 3, 1997)]
[Rules and Regulations]
[Pages 30242-30250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14257]
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POSTAL RATE COMMISSION
39 CFR Part 3001
[Docket No. RM97-1; Order No. 1176]
Rules of Practice and Procedure
AGENCY: Postal Rate Commission.
ACTION: Final rule.
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SUMMARY: The Commission amends Rule 54 of its rules of practice. When
the Postal Service files a request that proposes to change rates or
fees and, at the same time, proposes to change established cost
attribution principles, the amendment requires the Postal Service to
estimate the impact of its proposed changes in rates or fees separately
from the impact of its proposed changes in attribution principles. The
purpose of the amendment is to give other participants and the
Commission adequate and timely notice of the impact of the proposals
that it contains, in order to facilitate evaluation of those proposals.
DATES: This rule will take effect on June 3, 1997.
FOR FURTHER INFORMATION CONTACT: Stephen Sharfman, Legal Advisor, (202)
789-6820.
SUPPLEMENTARY INFORMATION: On December 17, 1996, the Commission issued
its Notice of Proposed Rulemaking (``NPR'') in this docket. Order No.
1146, 61 FR 67760-67763, December 24, 1996. The NPR proposed to amend
Rule 54(a) of the Commission's Rules of Practice [39 CFR 3001.54(a)] to
require Postal Service rate filings to include an alternate cost
presentation that estimates what the impact of its proposed changes in
rates would be on attributable costs and cost coverages if established
cost attribution principles were applied. The amendment proposed in the
NPR would not require an alternate cost presentation to show the impact
of minor changes in the procedures by which attribution principles are
implemented. In response to the comments received, the Commission has
modified the amendment proposed in the NPR in one respect. Under final
amended Rule 54(a), the Postal Service's rate request would have to
describe proposed changes in the detailed procedures by which
attribution principles are implemented, even though such changes would
not require an alternate cost presentation.
I. Procedural History
Current Rule 54(a) requires the Postal Service to include with its
rate filings enough information to ``fully inform'' the Commission and
the parties of the ``significance and impact'' of the proposed changes.
The NPR observed that the basic purpose of Rule 54 is to require the
Postal Service to accompany its requests for changes in rates with the
threshold level of cost, volume, and revenue information necessary to
support its direct case, so that its request can be evaluated within
the tight deadline that the Act imposes.
The Commission concluded that to satisfy Rule 54(a), the Postal
Service's request must separately identify the impact that its proposed
changes in rates and its proposed changes in attribution principles
would have on cost coverages. It noted that in Docket No. MC96-3, the
Postal Service's Rule 54 cost presentation did not satisfy this
objective. It estimated only the combined effect on subclass
attributable costs and cost coverages of its proposed changes in rates
and its proposed changes in attribution principles. It left the task of
distinguishing between these effects to other parties and the
Commission.
In its NPR, the Commission observed that it is not properly the
parties' burden to disentangle the effects of the Postal Service's
proposed changes in rates from the effects of its proposed changes in
attribution principles so that they can separately evaluate these
aspects of the Postal Service's proposals. As the proponent of change,
the Postal Service has the burden of going forward, and the burden of
persuasion. See 5 U.S.C. 556(d), 39 U.S.C. 3622, 39 CFR 3001.53 and
3001.54. If the Postal Service's request confounds the effects of its
proposals to change rates and its proposals to change cost attribution
principles, its request does not provide timely and effective notice of
the significance of either.
The Commission noted that when a Postal Service request combines
proposals to change rates with proposals to change established cost
attribution principles, mailers and competitors are not able to
determine from the Postal Service's request how its proposed changes in
attribution principles would affect their interests until they
calculate for themselves what cost coverages would be at the Postal
Service's
[[Page 30243]]
proposed rates, under established attribution principles. The NPR noted
that for many potential participants in Commission proceedings,
performing this elaborate set of calculations is a formidable and time
consuming task. It can defeat, or seriously delay, their ability to
determine how the Postal Service's proposals would affect them, and
whether they should intervene to support or oppose them.
Where a Postal Service rate request proposes to simultaneously
change rates and attribution principles, amended Rule 54(a) requires
that the request include an alternate attributable cost presentation
that calculates attributable costs and cost coverages at the Postal
Service's proposed rates according to established attribution
principles. This ensures that the Commission and potential participants
will receive timely and effective notice of the separate impact of the
Postal Service's proposed changes in rates and its proposed changes in
attribution principles.
II. Comments on the Notice of Proposed Rulemaking
The Commission received eleven sets of comments on the amendment
proposed in the NPR. The American Business Press (ABP), Dow Jones &
Company, Inc. (Dow Jones), the National Association of Presort Mailers
(NAPM), and the National Federation of Nonprofits (NFN), supported the
amendment as proposed. The American Bankers Association (ABA), the
Major Mailers Association (MMA), McGraw-Hill Companies, Inc. (McGraw-
Hill), the Newspaper Association of America (NAA), United Parcel
Service (UPS), and the Officer of the Consumer Advocate (OCA), proposed
strengthening the proposed amendment. Only the Postal Service opposed
it.
1. Adequacy of Notice
The bulk of the comments received argue proposed Rule 54(a) is
inadequate to provide the notice they need of the impact of the Postal
Service's proposals on attributable costs and cost coverages. They
offer numerous proposals for increasing the scope and the detail of the
information required in the alternate attributable cost presentation
required by the proposed rule. Out of concern for the burden on the
Postal Service, the alternate attributable cost presentation required
by the proposed rule is unchanged in the final rule. The final rule,
however, incorporates a proposal that Postal Service rate requests flag
all changes that it proposes in established attribution procedures,
including implementation details that do not meet the definition of
``attribution principles,'' and therefore do not trigger the alternate
cost presentation requirement.
As in proposed Rule 54(a), the alternate cost presentation required
by the final rule applies to proposed changes in ``cost attribution
principles,'' not to proposed changes in the detailed mechanics by
which those principles are implemented. The final rule uses the phrase
``cost attribution principles'' to describe the baseline attribution
procedures that must be held constant in the alternative cost
presentation that the amendment would require. ``Cost attribution
principles'' include theories of cost causation (e.g., volume
variability, exclusivity), models of cost causation (e.g., econometric
models of volume variability), the identity and role of cost drivers
(e.g., shape, coverage), and the identity and role of distribution keys
(e.g., pieces, pound/miles). ``Cost attribution principles'' are not
intended to encompass minor adjustments to the mechanics of
implementing these principles if the adjustments do not conflict with
the principles themselves. Nor are attribution principles intended to
encompass data updates, apparent errors in arithmetic, spreadsheet
mechanics, or documentation that do not raise issues as to the theory
or logic by which costs are attributed to subclasses.
UPS questions whether notice would be adequate if the Postal
Service is excused from providing an alternate cost presentation where
it changes only the mechanics by which established attribution
principles are implemented. Notice of the effect of such changes is
necessary, it argues, because they could substantially affect subclass
attributable costs and cost coverages. UPS recognizes that the
Commission's motive for narrowing the scope of the rule in this way is
to reduce the burden of the alternate cost presentation requirement on
the Postal Service. It argues that only corrections of apparent
arithmetic, documentation, or presentation errors should be exempt from
the rule. If proposed changes in the mechanics of implementation are
exempt, it contends, the Postal Service would have too much discretion
to characterize its proposed attribution changes as changes in the
mechanics of implementation rather than in attribution principles. It
therefore suggests that the Commission adopt a rule similar to the
broader requirements of Federal Energy Regulatory Commission Rule
Sec. 154.301 [18 CFR] described in the NPR. Comments of UPS in response
to notice of proposed rulemaking, January 30, 1997, at 2-3.
The OCA supports the NPR's proposal not to subject minor changes in
the mechanics by which attribution principles are implemented to the
requirements of the rule. The OCA argues, however, that the rule should
require Postal Service rate requests to identify proposed changes in
implementation mechanics, in order to make it easier to assess whether
the effects of such changes are inconsequential. Comments of the Office
of the Consumer Advocate to the Postal Rate Commission, January 31,
1997, at 24.
In the past, the Postal Service has made continuous, evolutionary
changes in the mechanics by which attribution principles are
implemented that do not rise to the level of changes in ``attribution
principles'' as defined above. It is the Commission's observation that
over the past decade such changes have rarely had a substantial impact
on the relative shares of subclass attributable costs. Accordingly, it
appears that such changes do not need to be included within the scope
of the rule to achieve its purposes. In excluding such changes, the
Commission is assuming that they will continue to have only
inconsequential effects on subclass attributable costs and cost
coverages, as in the past. If past experience turns out not to be
representative of the future, the Commission will make appropriate
amendments to the rule. The Commission, however, agrees with the OCA
that the rule should require Postal Service requests to identify all
changes that it proposes to make in the mechanics of implementing
attribution principles to help parties and the Commission assess
whether their effects are inconsequential. Since the Postal Service
typically makes only a few such changes from one rate case to the next,
this rule should have a minor effect on the Postal Service's burden of
preparing rate requests. Accordingly, the language of amended Rule
54(a) has been modified to include this requirement.
McGraw-Hill makes a number of proposals for strengthening the
notice required by proposed Rule 54(a). The most significant of its
proposals is that alternate attributable cost presentations show the
impact of the Postal Service's proposed changes in attribution
principles, individually and collectively. Comments of the McGraw-Hill
Companies, Inc., January 31, 1997, at 3. Such a requirement can be
found in the rules of practice of other public utility commissions.
See, for example, Sec. 200.2 of the Municipal Regulations for
[[Page 30244]]
the Public Service Commission of the District of Columbia [15 DCMR
Sec. 200.2 (1991)] described in the NPR.
Such a rule would make it much easier for the parties and the
Commission to evaluate the significance of each proposed change if the
impact of each were separately estimated. In the context of the Postal
Service's rate filings, however, the Commission is concerned that such
a requirement would impose too great a burden on the Postal Service.
The Postal Service's attributable cost presentations are more complex
and more detailed than those required of most public utilities. The
Postal Service strenuously objects to the burden involved in preparing
a single alternate cost presentation that shows the collective effect
of its proposed changes in attribution principles. Postal Service
Comments at 2-6. If the Postal Service had been required to prepare
attributable cost presentations for each of its proposed changes in
attribution principles in the most recently filed rate request (Docket
No. MC97-2), such a rule would have required ten separate test year
attributable cost presentations. It would have had to separately show
the impact of its proposal to substitute volume-variable for single-
subclass access costs, to substitute the Bradley analysis of purchased
highway transportation cost variability for the established analysis,
to omit the Alaskan Air adjustment, the Hawaiian Air adjustment, non-
volume variable Special Delivery Messenger costs, non-volume variable
window service costs for postal cards, the Vehicle Service Drivers
variability adjustment, volume variable route time, special purpose
route adjustments, as well as the collective impact of all of these
proposals. Although such notice would be highly relevant and useful to
those evaluating these proposals, it might add so significantly to the
burden of documenting the Postal Service's rate requests as to be
impractical. For this reason, McGraw-Hill's proposal is not adopted in
the final rule.
MMA was concerned that proposed Rule 54(a) did not specify the
level of documentation of the alternate cost presentation that it would
require. It urged that the Rule specify that supporting exhibits are
required. Comments of Major Mailers Association on Notice of Proposed
Rulemaking, January 31, 1997, at 5. Proposed Rule 54(a) contemplated
that the Postal Service document its alternate cost presentation at the
same level of detail that it documents its main attributable cost
presentation. The Commission agrees with MMA that it would be helpful
to make the required level of documentation explicit in the amended
Rule. Accordingly, amended Rule 54(a) explicitly requires that an
alternate attributable cost presentation comply with Rule 54(h), which
prescribes the level of detail that the Postal Service is required to
provide in its main attributable cost presentation. The amended Rule
would provide parties with detailed calculations of attributable costs
under established attribution principles and under those proposed by
the Postal Service, both at the Postal Service's proposed rates and
volumes. This should help parties separately assess the impact of
proposed changes to specific attribution principles.
McGraw-Hill proposes strengthening the notice required by proposed
Rule 54(a) in several other respects. It proposes that the Rule makes
it clear that the alternate attributable cost presentation include a
base year as well as a test year presentation. McGraw-Hill Comments at
2. Because the amended rule requires that an alternate attributable
cost presentation satisfy Rule 54(h), it requires it to include base
year, interim year, and test year calculations.
Similarly, McGraw-Hill proposes that an alternate cost presentation
be required ``whenever a cost element that had previously been treated
as either wholly attributable or wholly non-attributable is proposed to
be treated as attributable in part. * * *'' Id. If a proposed change
fits the definition of a change to an ``attribution principle''
provided above, it will require an alternate cost presentation,
regardless of the degree to which it alters the percent attributability
of a particular cost component. For the same reason, an alternate cost
presentation would be required ``whenever the Postal Service proposes
to implement any change in cost attribution principles that had been
suggested by the Commission on a prospective basis (but not fully
litigated) in a prior Commission proceeding[,]'' as McGraw-Hill
recommends. Id. The weight of precedent does not attach to prospective
recommendations by the Commission, since they have not been litigated.
Because parties should have an opportunity to litigate the validity of
such principles, they need notice of their significance and impact.
McGraw-Hill also recommends that an alternate cost presentation be
required ``when a requested change in rates or fees is based in part on
a significant change in data systems, or methods of extrapolating from
cost data (particularly IOCS data). * * *'' Id. The Commission does not
believe that it is practical to require the Postal Service to maintain
different, parallel data collection systems in order to maintain
consistency with prior attribution procedures unless it is necessary to
preserve the ability to apply established attribution principles.
Whether changes proposed by the Postal Service in ``methods of
extrapolating from cost data,'' such as IOCS data, should come within
the scope of the rule depends upon whether those proposed changes imply
changes to established theories or assumptions about how costs are
caused. If such changes are essentially mechanical, without theoretical
implications, obtaining information about the impact of such changes is
best left to the normal discovery process.
McGraw-Hill also recommends that an alternate cost presentation be
required ``whenever the Postal Service proposes to alter substantially
its mail processing cost treatment for time not spent handling mail. *
* *'' Id. Here, too, if the proposed change in how mail processing time
is allocated implies a change in an established theory or assumption
about how costs are caused, its effects should be reflected in an
alternate cost presentation. If the proposed change is essentially
mechanical, without theoretical implications, obtaining information
about its impact is best left to the normal discovery process.
The Postal Service notes that the purpose of proposed Rule 54(a) is
to ``provide parties and the Commission with enough information from
the outset of a proceeding to evaluate the significance and impact of
the Postal Service's proposals,'' Postal Service Comments at 12, citing
page 3 of the NPR. It argues that the alternate cost presentation
contemplated by proposed Rule 54(a) is not needed to accomplish this
purpose. In its view, it is the Commission's or the intervenors' burden
to determine how the Postal Service's attribution procedures differ
from established attribution principles, and to assess the impact those
differences have on subclass attributable costs and cost coverages at
the Postal Service's proposed rates. Postal Service Comments at 10-12.
It contends that adequate notice of the impact of its proposed
departures from Commission-approved attribution procedures can be
obtained by ``simple ratios derived from a comparison of past base
years under the Postal Service's and the Commission's methodology. * *
*'' Id. at 10-11. Attachments A through C to the Postal Service's
Comments on the NPR are spreadsheets that calculate such ratios for FY
1993, the base year in R94-1. Attachment D to the Postal Service's
Comments attempts to approximate the Commission's subclass
[[Page 30245]]
attributable costs for the test year in Docket No. MC96-3 by
multiplying the Postal Service's subclass attributable costs for the
test year in Docket No. MC96-3 by the percentage difference between the
Postal Service's FY 1993 subclass attributable costs and the
Commission's FY 1993 subclass attributable costs.
Attachment D then compares this approximation with fully modeled
subclass attributable costs using Commission-approved costing
principles (a preliminary set of attributable costs provided by the
Commission in Library Reference PRC-LR-2 in MC96-3). The Postal Service
characterizes the error produced in this instance by its ratioing
technique as ranging from -3.03 percent for parcel post to +2.36
percent for Express Mail. The Postal Service contends, without further
analysis, that this ``firmly establishe[s]'' the ``adequacy'' of its
ratioing technique to provide the required notice in future dockets.
Postal Service Comments at 12.
After filing its Comments on the NPR, the Postal Service filed a
request for changes in rates in Docket No. MC97-2. As in MC96-3, its
request proposed changes in rates and changes in cost attribution
principles, and estimated only their combined effect on attributable
costs and cost coverages. As in MC96-3, the Commission ordered the
Postal Service to separately show the effects of its proposed changes
in rates and its proposed changes in attribution principles on cost
coverages, so that the Commission and the parties could evaluate them
separately. See Order No. 1165, March 12, 1997. In MC96-3, the Postal
Service declined to calculate fully modeled costs using established
attribution principles. In MC97-2, as a substitute for fully modeled
costs, it offered approximations based on ratios of Postal Service and
Commission attributable costs in the MC96-3 base year. It relied on
Attachment D to its Comments on the NPR as having demonstrated that
ratioing will accurately approximate what fully modeled test year
attributable costs would be in any docket if they were calculated by
established attribution principles. See Response of USPS to Order No.
1165, March 24, 1997, at 1, citing LR-PCR-52.
In MC97-2, the Commission rejected the Postal Service's offer to
provide ratio-based approximations in lieu of fully modeled
attributable costs using established attribution principles. It
observed that the Postal Service had provided no statistical or
analytical basis for concluding what set of approximation errors would
result from a future application of its ratioing technique involving
other base and test periods. The Commission noted that the
approximation errors produced by the use of ratios in Attachment D
actually range from -25.58 percent to +2.36 percent for the various
subclasses, and that the Postal Service, with one exception, offered no
explanation for the magnitude of these errors. Order No. 1169, April
14, 1997, at 3-4.
In responding to the Postal Service's offer of provided ratio-based
approximations, the Commission focused on how ratioing measures the
impact of proposed changes in attribution principles on percentage
points of cost coverage--the traditional measure of impact in
Commission proceedings. It examined the seven subclasses most affected
by the Postal Services proposed changes in attribution principles.
Under realistic assumptions, it concluded, ratio-based approximations
for a majority of those subclasses have a predictive uncertainty that
is at least 50 percent as large as the impact of the Postal Service's
proposed changes in attribution principles. Id. at 4-7. The Commission
concluded that where uncertainty surrounding an approximated cost
coverage is more than half as large as the effect of proposed changes
in attribution principles itself, ratioing substantially obscures the
effect of which notice is required. Id. at 7.
In Order No. 1169, the Commission discussed possible reasons that
ratioing appears to yield inaccurate results for so many subclasses. It
noted that because attribution analysis focuses on cost behavior at the
segment and component level, analysis of the effect of applying
different attribution principles tends to be more reliable, and is more
verifiable, if it is built up by segments and components, rather than
arrived at by gross ratioing. Id.
The Postal Service characterizes its ratioing technique as
``simple'' and ``straightforward,'' yet the Postal Service recognizes
that various ad hoc adjustments are needed if key assumptions
underlying ratioing are to hold. For ratioing to be useful, the
differences between the attribution principles used by the Postal
Service and the Commission in the base period must remain unchanged in
the test period. The Postal Service recognized that ratios of Postal
Service to Commission attributable costs in the R94-1 base year would
not yield a useful approximation of Commission-approved MC96-3 test
year attributable costs, because the Postal Service applied different
attribution principles in MC96-3 than in R94-1. For that reason,
Attachment D bases ratios on the Postal Service's FY 1993 CRA, rather
than its R94-1 base year attributable costs.
The Postal Service also appears to recognize that the base period
that it used in Attachment D (its FY 1993 CRA) should have been further
adjusted to reflect subsequent corrections in the editing of second-
class IOCS tallies, in order to make its base period attribution
procedures consistent with the Commission's FY 1993 base year
procedures in all respects other than in attribution principles. See
Attachment D to Postal Service Comments, note 4. The Postal Service
also recognizes that a detailed adjustment to the Commission's R94-1
base year attributable costs is required to adjust costs associated
with Alaskan Air Bypass mail if base period ratios are to approximate
the Commission's test year attributable costs for some subclasses. See
Docket No. MC96-3, LR-SSR-122, at 9-10.
In Order No. 1169, the Commission discusses other assumptions
underlying ratioing, some of which appear not to hold in the base and
test periods used in Attachment D, and which appear to contribute to
the substantial approximation errors that it yields for some
subclasses. See Order No. 1169 at 7-8 and Attachment 2. The Commission
observed that whether key assumptions underlying ratioing have been met
is difficult to verify because the Postal Service did not provide the
detailed analysis reflected in the cost model. Id. at 8.
The Postal Service has not provided a statistical or analytical
basis for concluding that ratioing will accurately, reliably, and
verifiably predict how subclass attributable costs and cost coverages
in a test year would look if established attribution principles were
applied. Therefore, ratio-derived approximations of subclass
attributable costs will not be considered adequate notice of the impact
of its proposed changes in attribution principles under final Rule
54(a).
2. Definition of Baseline
Proposed Rule 54(a) makes the set of attribution principles that
the Commission applied in its most recent general rate proceeding in
which its recommended rates were adopted the baseline from which
changes in attribution principles would be determined. The Commission
believes that this set of attribution principles constitutes an
appropriate baseline because it has been fully litigated, provides the
cost basis for current rates, defines the status quo, and has the
weight of precedent. Order No. 1146 at
[[Page 30246]]
10-11 [61 FR at 67762]. The OCA proposes that amended Rule 54(a)
identify a particular set of appendices or workpapers of a specific
Commission opinion as containing the established set of attribution
principles, in order to reduce disputes as to what attribution
principles are ``established.'' It recognizes that this aspect of the
Rule would have to be amended periodically as the Commission adopts
changes in attribution principles. OCA Comments at 27-28.
NAA notes that if proposed Rule 54(a) were applied today, its
language would refer to Docket No. R94-1, the most recent general rate
case. It points out that in that docket there was an initial
Recommended Decision followed by a Further Recommended Decision on
reconsideration that corrected some inconsequential technical errors in
the Commission's attributable cost calculations. It notes that there is
no ambiguity as to which of those recommended decisions incorporates
established attribution principles, since the Governors adopted the
rates in the Further Recommended Decision on reconsideration. It
anticipates a future situation in which a recommended decision on
reconsideration is not accepted by the Governors. In that instance, it
advises, the Commission should indicate which of its recommended
decisions incorporates established attribution principles. NAA Comments
at 3-4.
The language of amended Rule 54(a) clearly indicates that the
baseline set of attribution principles is the set used in the
Commission recommended decision that forms the basis for the rates
adopted by the Governors. Even where there is more than one recommended
decision in a docket, it will be clear which decision provides the
basis for the rates adopted by the Governors. It is worth noting that
as the Commission defines ``attribution principles'' in this docket,
there is no difference between the Commission's initial recommended
decision and its recommended decision on reconsideration in R94-1. The
Opinion and Further Recommended Decision in R94-1 made trivial
corrections to the mechanics by which attribution principles were
implemented, but it did not change the attribution principles applied
in the initial Recommended Decision.
The Commission believes that it would be cumbersome to try to
specify in the rule a particular portion of the documentation of a
particular recommended decision as containing the established set of
attribution principles, because of the lag that would be involved in
amending that portion of the rule when the need arises. Ambiguity is
not likely to be a serious problem with respect to a Commission
recommended decision in an omnibus rate proceeding. Findings and
conclusions in such proceedings are usually intended to be definitive
and have general applicability. Ambiguity is more likely to arise if a
proposal to change an attribution principle were accepted in a more
limited proceeding between general rate cases. The set of attribution
principles used in the most recent general rate proceeding would remain
the baseline for purposes of Rule 54(a), but the Commission would be
receptive to a request for a waiver of Rule 54(a) with respect to
changes in attribution principles adopted in interim cases.
The Postal Service comments that it would be difficult to apply
proposed Rule 54(a) if the Commission were to treat as established
precedent attribution methods that ``have never been lawfully
established on the record.'' It asserts that the Commission's single
subclass stop method for attributing city delivery carrier access time
has not been lawfully established on the record. It contends that ``the
Commission's many single-subclass costing variants'' have not been
defended by a witness on the record, as required by the MOAA decision.
Postal Service Comments at 16. It argues that the single subclass stop
method does not fall within the proposed rule because it is not among
the methods that were ``arrived at following litigation during that or
prior Commission proceedings and have survived any appellate review
that might have been conducted under 39 U.S.C. Sec. 3628.'' Postal
Service Comments at 17, quoting Order No. 1146 at 11.
It is difficult to understand the Postal Service's continuing
preoccupation with an approach to attributing carrier access time that
the Commission has abandoned ever since the remanded phase of Docket
No. R90-1. That approach is irrelevant to amended Rule 54(a) because
the Commission did not apply it in the most recent general rate
proceeding. As the Postal Service is well aware, and as the Commission
has previously summarized in its Opinion and Further Recommended
Decision in R94-1, the Commission applied a two-step approach to
analyzing access cost causation in R87-1 and in the initial phase of
R90-1. Step 1 attributed access costs to a subclass that were incurred
to access a delivery point to deliver mail only of that subclass, on
the theory that a subclass is responsible for costs that are incurred
exclusively for its benefit. Step 2 attempted to identify and attribute
the volume variable portion of remaining access costs. As the Postal
Service's own witnesses have freely conceded, Step 1 unambiguously and
validly traces causation of access costs to the responsible subclass,
independent of any attempt to attribute remaining access costs in Step
2. See, e.g., Docket No. R90-1 (Remand), Tr. 2/805-06 (Postal Service
witness Panzar). The Commission's attribution of single subclass access
costs consists only of Step 1. Step 1 was proposed, explained, and
defended on the record by witness Chown in R87-1, by witness Sowell in
the remanded phase of R90-1, and by witness Kolbe in R94-1. See
discussion in the Commission's Opinion and Further Recommended Decision
in Docket No. R94-1, paras. 221-245; NAA Comments at 2. The attribution
principle applied in Step 1 has not varied since it was first applied
in R87-1.
In R87-1 and the initial phase of R90-1, the Commission first
applied Step 1, but then tried different ways of performing Step 2. It
is the record basis for combining Step 1 with Step 2 that was
challenged in the MOAA case and addressed by the MOAA Court. In
remanding Docket No. R90-1 to the Commission, the MOAA Court referred
to the ``Commission's new double-barreled approach'' and its ``overlap
theory'' as having been developed off the record. Mail Order
Association of America v. USPS, 2 F.3d 408 (D.C. Cir. 1993) at 427,
429. The Commission abandoned its ``double barreled approach'' and its
``overlap theory'' in the remanded phase of R90-1 and has never again
applied it. It applied only Step 1 in the remanded phase of R90-1, and
in R94-1, after it was proposed, explained, and defended by witnesses
on the record in each. No appeal was taken from either of these
Commission recommended decisions. Step 1, therefore, has been fully
litigated on the record. For these reasons, amended Rule 54(a) clearly
encompasses the single subclass criterion that the Commission has
consistently used to attribute access costs since R87-1.
3. Burden
In its Comments on the NPR, the Postal Service asserts that
preparing the alternative cost presentation required by Rule 54(a)
would take between 10 and 15 person-days. It observes that it takes at
least six months to prepare the documentation required for an omnibus
rate filing. It states that although this ``may not seem overwhelming,
adding this to the already lengthy and time-consuming period of pre-
filing case preparation would be onerous.'' Postal
[[Page 30247]]
Service Comments at 8. It suggests that adding further to this lead
time might ``encroach on the prerogatives of postal management to
control the timing of rate requests. . . .'' Id. at 5. The Postal
Service suggests that a way to mitigate the burden of proposed Rule
54(a) would be to allow it to delay the alternate cost presentation
required until 25 days after the filing of its request, which would
shift the workload to a time ``characterized by relatively low
discovery requests. . . .'' Id. at 13.
MMA, McGraw-Hill, NAPM, and NFN argue that requiring each
intervenor to estimate the impact on attributable costs and cost
coverages of the Postal Service's proposed changes to established
attribution principles is unreasonable, considering the vast inequality
of resources and expertise between the Postal Service and most
intervenors in the area of postal cost analysis. MMA Comments at 2,
McGraw-Hill Comments at 2, NAPM Comments at 1, NFN Comments at 1. Where
the Postal Service estimates that preparing the alternate cost
presentation required by Rule 54(a) would require 10 to 15 man-days,
MMA cites the testimony of its witness Bentley in MC96-3 that he would
need six months and $150,000 to prepare such a presentation, despite
his background in postal cost analysis. MMA Comments at 2. Such an
expensive undertaking would be beyond the means of many of the
participants in Commission proceedings, such as those represented by
the National Federation of Nonprofits. NFN Comments at 1. Such a time
consuming undertaking would be of little value even for intervenors who
could afford it, since, in a typical rate proceeding, it would not be
completed until after intevenors' cases were due.
On balance, burden considerations tend to support, rather than
oppose adoption of proposed Rule 54(a). Estimating the impact of its
proposed rates on costs according to the attribution principles that
the Commission applies imposes only a modest burden on the Postal
Service. It has unlimited access to the relevant data, a large
technical staff with the specialized background required to develop a
comprehensive estimate of Postal Service attributable costs, and has
previously demonstrated its ability to accurately attribute costs
according to established principles. The 10 to 15 person days to which
the Postal Service refers appears to be an estimate of the effort that
preparing an alternate cost presentation would initially require. Once
its data processing programs were set up to regularly produce alternate
cost presentations, it is likely that the 10 to 15 person days of
effort would be greatly reduced. For these reasons, complying with
amended Rule 54(a) should add only marginally to the lead time required
to prepare rate filings. It should be noted, however, that the need to
accompany a rate filing with a large amount of detailed information, as
Rule 54 requires, is largely a function of the short time allowed the
Commission and the parties to process that information. The ten-month
deadline under which the Commission and the parties labor is
unprecedented in regulatory practice for filings of the inherent size
and complexity of omnibus postal rate filings. See, e.g., remarks in
Docket No. MC95-1 at Tr. 1/59-60. The burden on the Commission of
processing omnibus postal rate cases within a ten-month period is
comparable to the burden on the Postal Service of preparing omnibus
rate filings, considering the disparity of resources available. The
deciding factor, therefore, should be the burden on the parties.
The comments received confirm the Commission's observation in Order
No. 1146 at 3 [61 FR 67760], that
[w]hen a Postal Service request combines proposals to change
rates with proposals to change established cost attribution
principles, mailers and competitors are not able to determine from
the Postal Service's request how its proposed changes in attribution
principles would affect their interests until they calculate for
themselves what cost coverages would be at the Postal Service's
proposed rates, under established attribution principles. For many
potential participants in our hearings, performing this elaborate
set of calculations is a formidable and time consuming task. It can
defeat, or seriously delay, their ability to determine how the
Postal Service's proposals would affect them, and whether they
should intervene to support or oppose them.
The need for this information at the outset of the proceeding is clear,
and the burden of preparing an alternate cost presentation of the kind
required by proposed Rule 54(a) is vastly greater on many of the
intervenors than on the Postal Service. While delaying the alternate
cost presentation required by the proposed rule by 25 days would
marginally ease the Postal Service's burden of preparing rate filings,
it would substantially reduce the value of the notice it would provide,
since a large proportion of the time available to the parties for
discovery and preparation of their cases would have expired.
4. Due Process
Many of the comments responding to the NPR assert that the rights
of intervenors in postal rate proceedings to due process are violated
if the Postal Service fails to inform them of the impact of its
proposed changes in cost attribution principles on attributable costs
and cost coverages. Dow Jones Comments at 1, ABP Comments at 5, MMA
Comments at 1, McGraw-Hill Comments at 1-2, NAPM Comments at 1, OCA
Comments at 4. The Postal Service argues that requiring it to provide
this information violates its rights to due process, if it requires
estimating what the impact of its proposed rates would be using
attribution principles it does not espouse. Postal Service Comments at
14-20. The Postal Service contends that comments that the Commission
made in Docket No. RM83-2 confirm that its due process rights could be
violated by such a requirement. Id. at 15. Because of key differences
in the context of the proposals made in RM83-2 and proposed Rule 54(a),
and key differences in the substance of those proposals, the due
process concerns that the Commission expressed in connection with the
RM83-2 proposals are avoided by amended Rule 54(a).
In RM83-2, the United Parcel Service (UPS) proposed to require
Postal Service rate requests to provide an alternate attributable cost
presentation that replicated the attribution procedures most recently
applied by the Commission. UPS argued that the alternate cost
presentation should be as detailed and as comprehensive as the Postal
Service's main attributable cost presentation, integrating proposed and
alternate base year cost segment attributions, working through all
ripple effects, and rolling them forward to the test year.
The Commission did not adopt the UPS proposal. RM83-2 was
instituted fourteen years ago when basic approaches to postal cost data
collection and analysis were still unresolved. Extensive changes were
being made to the In Office Cost System which provides the basic data
for attributing mail processing costs, and the basic data collection
systems underlying current transportation and delivery cost
attributions were not yet in place. Basic issues in attribution theory
were still unresolved. Whether a third tier of costs (``assignable
costs'') should continue to be analyzed for causation, and whether it
should include ``service related costs'' was still unresolved, how to
treat specific fixed costs and peak load costs were still being
vigorously litigated; and the Postal Service's analysis of
transportation and delivery costs had been rapidly evolving from one
rate case to the next.
Because of the widespread changes being made to postal cost data
collection
[[Page 30248]]
and analysis, the Commission was concerned that unforeseen problems
could arise if the Postal Service were required to apply all of the
detailed base year and test year attribution procedures used by the
Commission in R80-1 to new data and circumstances in subsequent cases.
If the Postal Service were required to speculate as to what solutions
the Commission might have applied to unforeseen attribution issues, and
were required to affirm such speculations under oath, it appeared to
the Commission that there was a significant risk that the Postal
Service might have to adopt a litigating position with which it did not
agree, in violation of its right to due process. Order No. 478, January
21, 1983, at 6-7. The Commission did not adopt the UPS proposal,
primarily to avoid this potential infringement on the Postal Service's
right to determine its own litigating positions.
In RM83-2, the Commission proposed that the Postal Service's rate
requests include alternative cost presentations for individual cost
segments that were consistent with Commission-recommended procedures.
The Commission believed that limiting the alternate cost presentation
to individual cost segments would make this task sufficiently simple
and straightforward to avoid due process problems that might be
presented by the broader UPS proposal. In preparing supplemental cost
segment presentations, the Commission assumed that the Postal Service
would be able to apply the same method, and employ the same judgments
that the Commission had outlined in its most recent recommended
decision. Therefore, it was the Commission's view that under its more
limited proposal, the Postal Service would not be required to exercise
a significant degree of discretionary judgment. Id.
The Commission ultimately decided not to adopt the alternate cost
presentation requirement that it initially proposed in RM83-2. It found
some merit in the Postal Service's contention that reconstructing
detailed attributable cost presentations consistent with those used in
prior rate cases, even ones limited to individual cost segments, would
be difficult, given the extensive changes taking place in the
collection, editing, and analysis of postal cost data. In Docket No.
RM83-6, which was instituted to examine this issue, the Postal Service
provided plausible examples of how changes in the way cost data had
been collected since the completion of R80-1 made it impractical to
attempt a detailed reconstruction either of Commission-approved
attribution procedures or its own proposed attribution procedures in
that case. The Postal Service asserted that costs could not be
attributed according to either its or the Commission's R80-1 procedures
unless obsolete data collection forms and systems were reconstructed,
at a cost that it estimated to be from $60 to $120 million. See
Prepared Testimony of Postal Service witnesses Alenier and Alepa, filed
February 22, 1983, in Docket No. RM86-3.
Circumstances have changed since RM83-2. The Postal Service has not
materially changed its systems for collecting basic mail processing,
transportation, and delivery cost data since R90-1. Although
refinements have been made since then, they have not affected the
ability of the Postal Service or the Commission to apply established
attribution principles, as they have been defined in this docket.
Similarly, the basic approaches taken by the Postal Service and the
Commission to analyzing cost responsibility for mail processing,
transportation, and delivery costs have remained unchanged since R90-1,
with rare exceptions.
Because the collection and analysis of cost data has matured and
stabilized since R83-2, it is less likely that the Postal Service will
encounter unforeseen problems implementing established attribution
principles, and less likely that it will need to speculate as to what
procedures the Commission would have used to solve them. Accordingly,
there is little risk that requiring the Postal Service to provide an
alternate cost presentation consistent with established attribution
principles would infringe on its right to due process.
Differences in substance between amended Rule 54(a) and the
proposals considered in RM83-2 provide an even more important reason
why amended Rule 54(a) will not require the Postal Service to adopt a
litigation position with which it does not agree. The Postal Service
understood the proposals in RM83-2 to require it to apply procedures
that were identical in every detail with the procedures used by the
Commission to attribute costs in the previous rate case, either
overall, or for individual segments. The Postal Service assumed that an
approved attribution method applied in a prior rate case could not be
considered to have been applied in a subsequent rate case unless the
process began with identical data collection forms, used identically
labeled cost accounts and subaccounts, and used identical mathematical
formulae at every step of every calculation. See, e.g., Docket No.
RM83-2, Initial Comments of USPS on the Notice of Inquiry, December 16,
1982, at 5, 10.
Proposed Rule 54(a) does not require alternate attributable cost
presentations to be identical in every detail with the attribution
procedures used by the Commission in the most recent general rate case.
It requires that an alternate cost presentation show the impact of
applying established attribution principles. Attribution principles
refer to a theories of cost causation (e.g., volume variability,
exclusivity), models of cost causation (e.g., econometric models of
volume variability), the identity and role of cost drivers (e.g.,
shape, coverage), and the identity and role of distribution keys (e.g.,
pieces, pound/miles). Attribution principles are not intended to
encompass the detailed mechanics by which they are implemented, as long
as they are not inconsistent with the principle itself. See Order No.
1146 at 4 [61 FR at 67761].
In RM83-2 the Postal Service assumed that the attribution
procedures with which the Commission was concerned were inseparable
from the details of data collection. See Docket No. RM83-2, Initial
Comments of USPS at 10. This assumption cannot be validly applied to
alternate cost presentations under amended Rule 54(a). Under the
amended rule, the Postal Service will not have to follow the detailed
mechanics by which the Commission implemented attribution principles in
the previous general rate case because refinements in such things as
data collection systems, cost account organization, and roll forward
techniques will generally not conflict with the basic logic of cost
causation by which a given cost component is associated with subclasses
of mail.
The Postal Service might perceive a need to alter the detailed
procedures by which the Commission implemented a particular attribution
principle in the most recent general rate case to accommodate new data
or changed circumstances. If it does, the Postal Service might be asked
by a Presiding Officers Information Request to explain why it believes
there is such a need, and why it chose one solution over another. But
its good faith judgments as to any needed innovations in detailed
implementation procedures would not be considered in violation of
amended Rule 54(a). However, if the Postal Service perceived a need to
alter an established attribution principle (i.e., established causation
theory, model, cost driver, or distribution key), to accommodate new
data or changed circumstances, it should explain the
[[Page 30249]]
need for such a change in a request for a waiver of Rule 54(a) with
respect to that principle.
There is a final distinction between the proposals made in RM83-2
and amended Rule 54(a) in this docket that essentially eliminates the
risk that the Postal Service would have to adopt a litigation position
with which it does not agree. The Postal Service assumed that the
primary purpose of the proposals in RM83-2 was to require an alternate
cost presentation that would provide an independent evidentiary basis
for the Commission recommended decisions. It assumed this because,
throughout RM83-2, the Commission emphasized its need to preserve
access to record cost data that it considered necessary to apply
Commission-approved attribution methods.
The primary purpose of proposed Rule 54(a) is not to preserve
access to record cost data. This concern has eased since RM83-2 as the
Postal Service's basic cost data collection systems have matured and
stabilized. The purpose of Rule 54(a) is to ensure that parties and the
Commission have timely notice of the effect that the Postal Service's
proposed changes in rates and in attribution principles would have on
cost coverages. Since the Commission is free to apply attribution
principles litigated and approved in prior dockets to new data
submitted in subsequent dockets, the alternate cost presentation
required by amended Rule 54(a) is not needed to provide an evidentiary
basis for applying those principles. Because the alternate cost
presentation required by Rule 54(a) is not needed to supply an
evidentiary basis for applying established attribution principles, the
alternate cost presentation may be provided in the form of either a
library reference or sworn testimony.
The NPR emphasized that the Postal Service would not be required to
affirm either the theoretical or the practical merits of established
attribution principles. It is merely required to affirm that it has
made a good faith effort to give notice of what the impact would be of
its proposed departures from established attribution principles. Order
No. 1146 at 10 [61 FR at 67762]. Such an affirmation would not require
the Postal Service to adopt a litigation position against it will,
except to the extent that any proponent must carry the burden of going
forward, and the burden of persuasion, if its proposals are to prevail.
The Postal Service criticizes the Commission's ``present attempt to
impose on the Postal Service significant judgmental decisionmaking with
respect to'' attribution methods that the Commission has applied.
Postal Service Comments at 19. Amended Rule 54(a) is not an attempt to
impose on the Postal Service significant judgmental decisionmaking with
respect to replicating previously applied attribution principles.
Although Rule 54(a) would allow the Postal Service's judgment to be
applied with respect to implementation details if changed circumstances
require it, the Commission expects that this would rarely be necessary.
Further, applying those attribution principles to a current rate case
would require the Postal Service to exercise judgment in only trivial
respects that have inconsequential effects on subclass attributable
costs and cost coverages. Cf. Docket No. MC95-1, Answer of Richard
Patelunas to Request During Oral Cross Examination, Tr. 28/13221-23.
In the NPR, the Commission indicated that exercising judgment that
does not conflict with established attribution principles will not be
considered a violation of the Rule. It did so because recent experience
indicates that the need for exercising judgment would be rare and the
consequences of exercising it would be exceedingly minor under most
circumstances. There are unusual circumstances in which it is
reasonably foreseeable that an alternate cost presentation might
require a significant exercise of judgment. An example would be if the
Postal Service were to file a rate case that involved a major
restructuring of mail classes. In that context, a waiver of proposed
Rule 54(a) might be appropriate if the cost characteristics of the
proposed new services are expected to differ substantially from
existing services.
The Postal Service asks what use participants and the Commission
could make of an alternate attributable cost presentation that is not
submitted in the form of sworn testimony. Postal Service Comments at
19. One use is to provide participants with a timely basis for deciding
whether to intervene and litigate a particular issue. Additionally,
participants may treat the impacts shown in the alternate cost
presentation as hypothetically correct, and submit testimony that
discusses what the ramifications would be for the Postal Service's
proposals if that hypothesis were correct. The weight that the
Commission ultimately would give such testimony would depend on how
consistent the alternate cost presentation turns out to be with
established attribution principles, as determined by the Commission
after it has analyzed the record.
As with participants, the Commission may use the alternate cost
presentation required by amended Rule 54(a) to identify particular
issues in time to examine them during the discovery phase. If the
Commission were to observe flaws, inconsistencies, or unexplained
judgmental choices in the Postal Service's alternate cost presentation,
it could take steps to have them examined on the record, for example,
as topics of Presiding Officer Information Requests. What the impact of
the Postal Service's proposals actually would be is something that the
Commission would ultimately determine, based on record evidence.
The Postal Service argues that if the Commission considers adequate
notice to be important to the due process rights of participants, that
it issue an ``initial decision prior to the close of hearings * * *''
if it recommends methodological changes after the close of the
evidentiary record. Id. at 20. The Commission intends only to recommend
changes in attribution principles that are grounded in the record. As
long as they are, the parties have been afforded adequate notice.
Providing advance notice of the conclusions that the Commission
tentatively draws from the record prior to the time that it closes
might be helpful in hearings without deadlines. The record must close
at some point, however, so that the Commission can analyze and make
findings on the whole record. As the Postal Service is aware, there is
no realistic opportunity to further compress the 10-month statutory
deadline for processing general rate cases, given their size and
complexity. Therefore, there is no realistic opportunity for the
Commission to issue tentative decisions.
5. Enforcement
MMA argues that the major weakness of proposed Rule 54(a) is that
it does not provide any sanction for noncompliance. MMA notes that in
R94-1 and MC96-3, the Commission ordered the Postal Service to provide
an alternate cost presentation that is consistent with established
attribution principles and the Postal Service refused to comply. MMA
warns that the Postal Service will likely continue to resist complying
with such a requirement, and that there is a likelihood that requests
for waivers and other motion practice will drag out the controversy
past the time that the information could serve its intended purpose.
MMA Comments at 3-4.
39 U.S.C. Sec. 3624(c)(2) enables the Commission to extend the 10-
month deadline for issuing its final decision on a rate request if the
Postal Service fails to provide the information requested in a lawful
Commission order. MMA
[[Page 30250]]
proposes that Rule 54(a) be amended to automatically invoke
Sec. 3624(c)(2) if the required alternate cost presentation does not
accompany a Postal Service rate request. Id. at 3-4. As an alternate
means of enforcement, MMA proposes that the Commission adopt a rule
modeled upon the Federal Energy Regulatory Commission's rule 385.2001
[18 CFR], which authorizes that agency to reject filings that do not
comply with its rules. Id. at 4-5.
Like MMA, NAA comments that proposed Rule 54(a) will have to be
resolutely enforced, either through invocation Sec. 3624(c)(2) or
dismissal of the Postal Service's filing, if it is to be effective. NAA
Comments at 3-4. ABA also urges that failures to comply with Rule 54(a)
automatically invoke Sec. 3624(c)(2), although it recommends that
waivers be available in exceptional circumstances. ABA Comments at 1-2.
The OCA asks that the sanctions for noncompliance with proposed Rule
54(a) be clarified and strengthened. It urges that noncompliance with
proposed Rule 54(a) be treated as the equivalent of failure to respond
to discovery and that the sanctions available in 39 CFR Sec. 3001.28 be
applied. OCA Comments at 25-27.
It is understandable that the comments on proposed Rule 54(a) have
emphasized the need for sanctions, since the Postal Service has not
complied with orders to provide alternate cost presentations in recent
dockets. In doing so, the Postal Service has relied heavily on the fact
that current Rule 54 does not explicitly require it to give parties and
the Commission the notice that proposed Rule 54(a) would require. With
amended Rule 54(a) in place, the Commission is optimistic that the
Postal Service will comply with its requirements. Appropriate sanctions
for noncompliance with amended Rule 54(a) will be determined as the
need arises.
Regulatory Evaluation
It has been determined pursuant to 5 U.S.C. 605(b) that this
amended rule will apply exclusively to the Postal Service in
proceedings conducted by the Postal Rate Commission. Therefore, it is
certified that this amendment will not have a significant economic
impact on a substantial number of small entities under the terms of the
Regulatory Flexibility Act, 5 U.S.C. 501 et seq. Because this rule will
only apply to the Postal Service in Commission proceedings, it has also
been determined that it does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment
pursuant to Executive Order 12612. Inasmuch as the rule imposes
information reporting requirements exclusively upon the United States
Postal Service for the purpose of conducting postal rate proceedings,
it does not contain any information collection requirements as defined
in the Paperwork Reduction Act [44 U.S.C. 3502(4)], and consequently
the review provisions of 44 U.S.C. 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.
For the reasons set out in the preamble, 39 CFR part 3001 is
amended as follows:
PART 3001--RULES OF PRACTICE AND PROCEDURE
1. The authority citation for 39 CFR part 3001 continues to read as
follows:
T4Authority: 39 U.S.C. 404(b), 3603, 3622-24, 3661, 3662.
2. In Sec. 3001.54, paragraph (a)(1) is revised to read as follows:
Sec. 3001.54 Contents of formal requests.
(a) General requirements. (1) Each formal request filed under this
subpart shall include such information and data and such statements of
reasons and bases as are necessary and appropriate fully to inform the
Commission and the parties of the nature, scope, significance, and
impact of the proposed changes or adjustments in rates or fees and to
show that the changes or adjustments in rates or fees are in the public
interest and in accordance with the policies of the Act and the
applicable criteria of the Act. To the extent information is available
or can be made available without undue burden, each formal request
shall include the information specified in paragraphs (b) through (r)
of this section. The request shall describe any changes that it
proposes in the attribution procedures applied by the Commission in the
most recent general rate proceeding in which its recommended rates or
fees were adopted. If a request proposes to change the cost attribution
principles applied by the Commission in the most recent general rate
proceeding in which its recommended rates were adopted, the Postal
Service's request shall include an alternate cost presentation
satisfying paragraph (h) of this section that shows what the effect on
its request would be if it did not propose changes in attribution
principles. If the required information is set forth in the Postal
Service's prepared direct evidence, it shall be deemed to be part of
the formal request without restatement.
* * * * *
Issued by the Commission on May 27, 1997.
Margaret P. Crenshaw,
Secretary.
[FR Doc. 97-14257 Filed 6-2-97; 8:45 am]
BILLING CODE 7710-FW-P
