On November 19, 2008 the Postal Service Filed a Petition to Initiate a Proceeding to Consider

Docket No. RM2009-2–1 –

ORDER NO. 156

UNITED STATES OF AMERICA

POSTAL REGULATORY COMMISSION

WASHINGTON, DC20268-0001

Before Commissioners:Dan G. Blair, Chairman;
Nanci E. Langley, Vice Chairman;
Mark Acton;

Ruth Y. Goldway; and

Tony L. Hammond

Modification of Costing Methods 2009—Docket No. RM2009-2

Postal Service Proposal Thirteen

ORDER CONCERNING COSTING

METHODS USED IN PERIODIC REPORTING

(PROPOSAL THIRTEEN)

(Issued December 23, 2008)

On November 19, 2008, the Postal Service filed a petition to initiate an informalrulemaking proceeding to review changes that it proposes to the method by which it estimates the attributable costs of Single-Piece Parcel Post and its constituent rate categories (Proposal 13).[1] The Postal Service’s petition describes Proposal 13, explains its background, objectives, rationale, and its likely impact in FY 2008. Proposal Thirteen replaces the formerly integrated Parcel Post mail processing and transportation cost models with Single-Piece Parcel Post mail processing and transportation models. The changes disaggregate the Parcel Post mail processing and transportation cost models that were used in the FY 2007 Annual Compliance Report (ACR).

This proposal is an extension of Proposal Ten approved by the Commission on November 7, 2008. In accepting Proposal Ten, the Commissionauthorized, in principle, the development of separate costs for Single-Piece Parcel Post, Parcel Select, and Parcel Return Service in FY 2008 using In-Office Cost System (IOCS), Carrier Cost System (CCS), and Transportation Cost System (TRACS) data, and reporting them separately at the product level in the Cost and Revenue Analysis (CRA). Proposal Thirteen would authorize reconfiguration of the models that were used in Docket No. ACR2007 to distribute mail processing and transportation costs to the three Parcel Post products (USPS-FY07-15, and USPS-FY0716). The reconfiguration would isolate costs for Single-Piece Parcel Post. Proposal Thirteen also proposes changes to a small number of the assumptions incorporated in the reconfigured model. Petition at 2.

The Commission initiated Docket No. RM2009-2 on November 21, 2008, establishing December 5, 2008 as the due date for comments. PRC Order No. 139, Notice of Proposed Rulemaking on Costing Methods Used in Periodic Reporting (Proposal Thirteen), November 21, 2008. No comments were received in response to Order No. 139.

Commission analysis. Proposal Thirteen removes data from the Parcel Post cost model that are relevant to Parcel Select and Parcel Return Service, and updates the cost figures that are relevant to intra-BMC and inter-BMC Single-Piece Parcel Post. For the most part, the models are unchanged from those used in Docket No. ACR2007 in conceptual approach, the mechanical relationships of the data elements, assumptions, and analytical techniques.

In its Petition, the Postal Service notes that the ACR 2007 model must be disaggregated and replicated individually for each Parcel Post product. Petition at 2. Proposal Thirteen addresses only the single-piece portion. The Postal Service has listed 15 modifications to the mail processing model and 13 modifications to the transportation cost model that are needed to isolate the costs of Single-Piece Parcel Post from Parcel Select and Parcel Return Service. See Attachment to the Petition, Parcel Post Cost Modification.doc. The Postal Service has not provided separate models for Parcel Select and Parcel Return Service.[2]

The Commission supports the Postal Service’s continued efforts to disaggregate the attributable costs of the former Parcel Post subclass into its three successor products. The Commission accepts Proposal Thirteen.

It is Ordered:

Proposal Thirteen contained in the Petition of the United State Postal Service Requesting Initiation of a Proceeding to Consider Further Proposed Methodology Changes for the FY 2008 ACR (Proposal Thirteen), filed November 19, 2008, is accepted.

By the Commission.

Judith M. Grady

Acting Secretary

[1] Petition of the United States Postal Service Requesting Initiation of a Proceeding to Consider Further Proposed Methodology Changes for the FY 2008 ACR (Petition).

[2]The Commission anticipates that the Postal Service will file comparable segregated and updated models for the attributable costs associated with Parcel Select and Parcel Return Service and their constituent rate categories. The modifications made to these cost models remove data that are important in evaluating specific kinds of negotiated service agreements. Subsequent to the Commission’s FY 2007 Annual Compliance Determination (ACD), the Postal Service entered into Parcel Return Service Contract 1 (CP2009-2) and Parcel Select and Parcel Return Service Contract 1 (CP2009-13). The Commission’s evaluation of these contracts relied on data filed by the Postal Service in Docket No. ACR2007, including data in the aggregate Parcel Post cost models that Proposal Thirteen would remove. To facilitate expedited evaluation of new contracts and to ensure that older contracts can be reviewed in future ACDs by consistent standards, the Postal Service is expected to provide rate category data for Parcel Select and Parcel Return Service in future ACRs.