[Federal Register: May 25, 2007 (Volume 72, Number 101)]
[Proposed Rules]
[Page 29284-29287]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25my07-16]
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POSTAL REGULATORY COMMISSION
[Docket No. RM2007-1; Order No. 15]
39 CFR Part 3001
Administrative Practice and Procedure, Postal Service
AGENCY: Postal Regulatory Commission.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Commission has received general comments on the
development of regulations implementing new statutory provisions
pertaining to market dominant and competitive postal products. It now
seeks more specific comments on the same topic. The Commission
anticipates using these comments as guidance for drafting proposed
regulations.
DATES: Initial comments due June 18, 2007; reply comments due July 3,
2007.
ADDRESSES: Submit comments electronically via the Commission's Filing
Online system at http://www. prc.gov.
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
202-789-6820 and stephen.sharfman@prc.gov.
SUPPLEMENTARY INFORMATION:
Regulatory History
72 FR 5230 (February 5, 2007).
I. Introduction
Thirty sets of initial comments were filed in response to Order No.
2, which afforded interested persons an opportunity to comment on how
the Commission can best fulfill its responsibilities under the Postal
Accountability and Enhancement Act (PAEA), Public Law 109-435, 120
Stat. 3198 (December 20, 2006), regarding establishing rate regulation
for market dominant products and competitive products.\1\ Twenty-one
sets of reply comments were also filed. The Commission appreciates
those thoughtful and comprehensive comments and has found them very
useful. For the most part, the comments are general in nature, taking a
more global view of the type of regulations to be implemented, e.g.,
endorsing a light-handed approach, or advocating that competitive
products make the maximum possible contribution to institutional
costs,\2\ rather than suggesting specific proposals to implement the
PAEA.\3\
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\1\ PRC Order No. 2, Advance Notice of Proposed Rulemaking on
Regulations Establishing a System of Ratemaking, Docket No. RM2007-
1, January 30, 2007.
\2\ See, e.g., Initial Comments of the United States Postal
Service, April 6, 2007, at 4-5; Comments of Alliance of Nonprofit
Mailers, National Association of Presort Mailers and National Postal
Policy Council on Advance Notice of Proposed Rulemaking, April 6,
2007, at 4; Initial Comments of Time Warner Inc. in Response to
Commission Order No. 2, April 6, 2007, at 9; Comments of United
Parcel Service in Response to Advance Notice of Proposed Rulemaking
on Regulations Establishing a System of Ratemaking, April 6, 2007,
at 5.
\3\ Some commenters did suggest that provisions of the PAEA be
defined in certain ways. See, e.g., Reply Comments of the United
States Postal Service, May 7, 2007, at 3-10, and Appendix C; Initial
Comments of Pitney Bowes Inc. in Response to Advance Notice of
Proposed Rulemaking on Regulations Establishing a System of
Ratemaking, April 6, 2007, at 3-4, 17-20, 35-36; and Comments of the
Parcel Shippers Association, April 6, 2007, at 24-26.
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In considering the regulations to be issued pursuant to sections
3622 and 3633 of the Postal Reorganization Act, as amended by the PAEA,
the Commission concludes that the record would be enhanced by affording
interested persons an opportunity to comment more specifically on
potential ways to implement the statutory language prior to issuing
proposed regulations. Therefore, the Commission is issuing this second
advance notice of proposed rulemaking inviting interested persons to
comment on specific issues central to implementing the necessary
regulations. Interested persons are invited to comment on all (or any)
of the following issues. Parties are encouraged to explain the basis
for their position. The explanation need not be lengthy but should
include whatever support the commenter believes to be relevant.
Furthermore, although section III, below, addresses competitive
products, persons primarily interested in market dominant products may
wish to comment on common issues, e.g., section III, item 9, concerning
the term ``product.'' Comments are due June 18, 2007. Reply comments
are due July 3, 2007.
Following this round of comments, the Commission intends to issue a
formal notice of proposed rulemaking setting forth specific rules
applicable to rate changes for market dominant and competitive
products. Interested persons will have an opportunity to comment on
those proposed rules. It is the Commission's current expectation that
the final rules on these topics will be issued before the end of
October, 2007.
II. Regulations Concerning Market Dominant Products
1. In Appendix C of its reply comments, the Postal Service provides
a series of examples to illustrate its proposal for calculations that
would
[[Page 29285]]
ensure compliance with the price cap defined in sections 3622(d)(1)(A)
and (2)(A). In part C of the appendix, the Postal Service describes its
proposed method of calculating the CPI cap limitation. The cap would be
equal to the difference between the most recently available monthly CPI
and the monthly CPI for the same month of the previous year, divided by
the monthly CPI for the previous year. The same result is reached by
dividing the most recently available monthly CPI by the monthly CPI for
the same month of the previous year and then subtracting one from the
quotient.
This point-to-point approach may be contrasted with an alternative
that would compare aggregated monthly CPI figures instead of those of a
single month. For example, the most recently available monthly CPI
could be averaged with the previous 11 monthly CPI values. This 12-
month average could then be compared to the average for the previous 12
months in the same way that the single-month figures are in the Postal
Service's proposal. Figures 1 and 2 show the cap as it would be
calculated under both methods for each month in 2005 and 2006,
respectively.
[GRAPHIC] [TIFF OMITTED] TP25MY07.001
[GRAPHIC] [TIFF OMITTED] TP25MY07.002
As the graphs show, the results of the point-to-point method
exhibit a greater variation based on the month that is selected. The
parties are requested to comment on the merits of each method and may
offer additional alternatives. Please discuss how each method conforms
to the language in section 3622(d), as well as how each method comports
with the objectives in section 3622(b) and the factors in section
3622(c).
2. Appendix C of the Postal Service reply comments provides a
series of examples to illustrate its proposal for
[[Page 29286]]
calculations that would ensure compliance with the price cap defined in
sections 3622(d)(1)(A) and (2)(A). Part B of the appendix describes the
Postal Service's proposed method of calculating the annual change in
rates to which the CPI cap shall be applied.
The discussion begins by proposing principles (``Standards 1 and
2'') that the measure of the change in rates should satisfy. It
concludes that any fixed volume weighting system will satisfy those
principles. After explaining the practical impediment to the use of the
ideal weights, it describes the weaknesses of two potential methods of
measuring the base rates.
The Postal Service proposes to use the most recent 12 months of
available data to establish the volume weights and to recalculate
average revenue per piece by applying those weights to the current
rates. The result would be considered the average base rate. The
average new rate would then be calculated by applying the same weights
to the new set of rates. The percentage difference between the average
base (current) rate and the average new rate would be compared to the
percentage change in CPI.
Parties are requested to comment on the method of calculating the
annual change in rates under section 3622(d). Please discuss the
strengths and weaknesses of the methods described by the Postal Service
in Appendix C of its reply comments (and alternative methods, if
desired) and how each method comports with the objectives in section
3622(b) and the factors in section 3622(c). Please include a discussion
of how to treat an altered rate design, for example, one for which
billing determinants do not exist, such as the new rates to be applied
to Periodicals.
3. Section 3622(e) directs the Commission to ``ensure that
workshare discounts do not exceed the cost that the Postal Service
avoids as a result of the workshare activity,'' except in certain
specified situations. In the context of a Notice of Rate Adjustment for
a class of mail--
a. What information and/or data are needed to allow the Commission
to evaluate whether new workshare discounts are consistent with this
standard?
b. What information and/or data are needed to allow the Commission
to evaluate whether unchanged workshare discounts remain consistent
with this standard?
c. What information and/or data are needed to allow the Commission
to evaluate whether changed workshare discounts remain consistent with
this standard?
III. Regulations Concerning Competitive Products
4. Subchapter II of title 39, 39 U.S.C. 3631-3634, sets forth the
provisions applicable to competitive products, which initially are to
consist of priority mail, expedited mail, bulk parcel post, bulk
international mail, and mailgrams. Sec. 3631(a).\4\ A procedure must
be established to allow for amending this list of competitive products.
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\4\ Pursuant to section 3642, the Commission may change the list
of competitive products under section 3631 and market dominant
products under section 3621 by adding new products to or removing
products from the lists, or transferring products between the lists.
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Regarding section 3631--
a. What current mail matter is ``priority mail''?
b. What current mail matter is ``expedited mail''?
c. What current mail matter is ``bulk parcel post''?
d. What current mail matter is ``bulk international mail''?
e. What, if any, current mail matter is ``mailgrams''?
f. To what does ``mail classification schedule,'' as used in
section 3631(c), refer?
5. Section 3632 authorizes the Governors to establish rates and
classes of mail for competitive products in accordance with subchapter
II of chapter 36 and regulations promulgated by the Commission under
section 3633. The rates and classes shall be established in writing,
accompanied by a statement of explanation and justification and the
effective date of each rate or class. Sec. 3632(b)(1).
Regarding section 3632--
a. What information is needed to support new rates of general
applicability?
b. What information is needed to support new rates not of general
applicability?
c. Is the information needed to support a rate decrease different
from that needed to support a rate increase? Please elaborate.
d. What information is needed to support new classes of general
applicability?
e. What information is needed to support new classes not of general
applicability?
f. What criteria should be used to determine whether a rate or
class is of general applicability or is not of general applicability in
the Nation as a whole?
g. How should ``any substantial region of the Nation'' be defined?
6. Pursuant to section 3633(a), the Commission is required to
promulgate regulations applicable to rates for competitive products to:
``(1) prohibit the subsidization of competitive products by market-
dominant products;
(2) ensure that each competitive product covers its costs
attributable; and
(3) ensure that all competitive products collectively cover what
the Commission determines to be an appropriate share of the
institutional costs of the Postal Service.''
Regarding section 3633--
a. What data should be filed periodically with the Commission to
enable it to assess the Postal Service's compliance with subsection:
i. (a)(1),
ii. (a)(2), and
iii. (a)(3)?
b. How frequently, e.g., quarterly, annually, should such data be
filed with the Commission?
c. Are existing data systems adequate to enable the Commission to
assess the Postal Service's compliance with section 3633(a)? If not,
what modifications would be necessary?
d. What is the appropriate standard for determining whether
competitive products are being subsidized by market dominant products?
e. What standard should be applied to determine the appropriate
share of institutional costs to be recovered collectively from
competitive products?
f. Over what period of time should the standard identified in (e)
be deemed valid?
g. Should the standard identified in (e) raise a rebuttable
presumption of validity?
h. If return on investment (or assets) is used, what capital
structure (assumed or otherwise) should be used for the Postal Service?
7. Section 3634 provides for an annual, assumed Federal income tax
on the competitive products income. The amount of the assumed tax is to
be transferred from the Competitive Products Fund to the Postal Service
Fund.\5\
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\5\ Pursuant to section 2011(h) the Secretary of the Treasury is
charged with developing recommendations regarding, inter alia, rules
for determining the assumed Federal income tax on competitive
products income for any year. Following receipt of those
recommendations, which are due not earlier than June 20, 2007 or
later than December 19, 2007, the Commission will provide interested
persons an opportunity to comment on the recommendations.
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Regarding section 3634--
a. Is the assumed Federal income tax amount appropriately
classified as an attributable cost?
b. On what basis should the assumed Federal income tax amount be
reasonably assigned among competitive products?
[[Page 29287]]
8. Section 3633(a)(2) requires each competitive product to cover
its ``costs attributable,'' which are defined as ``the direct and
indirect postal costs attributable to such product through reliably
identified causal relationships.'' Sec. 3631(b). The Commission has
historically used attributable costs to develop recommended rates under
the Postal Reorganization Act. Enactment of the PAEA raises issues
concerning the need, if any, to modify the Commission's historic
approach as well as the classification of costs arising under the PAEA.
Regarding the term ``costs attributable''--
a. Identify any costs currently classified as attributable that, in
light of PAEA, should be classified as institutional. The rationale for
the proposed change should be explained.
b. Identify any costs currently classified as institutional that,
in light of PAEA, should be classified as attributable. The rationale
for the proposed change should be explained.
c. How should Retiree Health Benefit costs be classified?
9. The PAEA establishes a rate floor for each competitive product,
i.e., each competitive product must cover its attributable costs. Sec.
3633(a)(2). Product is defined as ``a postal service with a distinct
cost or market characteristic for which a rate or rates are, or may
reasonably be, applied[.]'' Sec. 102(6).
Regarding the term ``product''--
a. Is each International Customized Agreement a competitive
product?
b. Is each Negotiated Service Agreement a product?
c. Is each special classification a product?
d. Is each class not of general applicability a product?
IV. Ordering Paragraphs
It is ordered:
1. Interested persons may submit comments on the questions
contained herein on or before June 18, 2007.
2. Reply comments are due on or before July 3, 2007.
3. The Secretary shall arrange for publication of this Advance
Notice in the Federal Register.
By the Commission.
Issued May 17, 2007.
Signed May 21, 2007.
Steven W. Williams,
Secretary.
[FR Doc. E7-10095 Filed 5-24-07; 8:45 am]
BILLING CODE 7710-FW-P