Changes to Attributable Costing, 88120-88124 [2016-29270]

Download as PDF 88120 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations approved this document on October 3, 2016, for publication. Dated: December 2, 2016. Michael Shores, Acting Director, Regulation Policy & Management, Office of the Secretary, Department of Veterans Affairs. List of Subjects in 38 CFR Part 17 Administrative practice and procedure, Alcohol abuse, Alcoholism, Claims, Day care, Dental health, Drug abuse, Foreign relations, Government contracts, Grant programs—health, Grant programs—veterans, Health care, Health facilities, Health professions, Health records, Homeless, Medical and dental schools, Medical devices, Medical research, Mental health programs, Nursing homes, Philippines, Reporting and recordkeeping requirements, Scholarships and fellowships, Travel and transportation expenses, Veterans. For the reasons set out in the preamble, VA amends 38 CFR part 17 as follows: PART 17—MEDICAL 1. The authority citation for part 17 continues to read as follows: ■ Authority: 38 U.S.C. 501, and as noted in specific sections. Sections 17.640 and 17.647 also issued under Public Law 114–2, sec. 4. Sections 17.641 through 17.646 also issued under 38 U.S.C. 501(a) and Public Law 114– 2, sec. 4. § 17.110 [Amended] 2. Amend § 17.110 as follows: a. In paragraphs (b)(1)(i), (ii), and (iii), remove all references to ‘‘December 31, 2016’’ and add in each place ‘‘February 26, 2017’’. ■ b. In paragraph (b)(2), remove all references to ‘‘December 31, 2016’’ and add in each place ‘‘February 26, 2017’’. ■ ■ [FR Doc. 2016–29337 Filed 12–6–16; 8:45 am] BILLING CODE 8320–01–P to the proposed rules, one rule was revised to alleviate confusion and another revision was administrative in nature. DATES: Effective January 6, 2017. FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 202–789–6820. SUPPLEMENTARY INFORMATION: Regulatory History 81 FR 63448 (Sept. 15, 2016). Table of Contents I. Introduction II. Background III. Review and Analysis of Comments IV. Changes to Proposed Rules V. Ordering Paragraphs I. Introduction On September 9, 2016, the Commission issued proposed rules consisting of necessary changes, resulting from Order No. 3506, that specifically define or describe attributable costs.1 For the reasons discussed below, the Commission adopts final rules on this topic, with minor revisions to the proposed rules as discussed in chapter IV. II. Background On September 9, 2016, the Commission issued Order No. 3506 after consideration of a United Parcel Service, Inc. (UPS) petition which sought to make changes to the methodologies employed by the Postal Service to account for the costs of the Postal Service’s products in its periodic reports.2 In Proposal One, UPS recommended that the Postal Service calculate and attribute inframarginal costs to individual products in addition to the currently attributed volumevariable and product-specific fixed costs. Petition, Proposal One at 1. Proposal Two dealt with reclassifying some fixed costs as fully or partially variable, and attributing those costs to products. Petition, Proposal Two at 1. UPS also filed a third proposal, which POSTAL REGULATORY COMMISSION 39 CFR Parts 3015 and 3060 [Docket No. RM2016–13; Order No. 3641] asabaliauskas on DSK3SPTVN1PROD with RULES Changes to Attributable Costing Postal Regulatory Commission. Final rule. AGENCY: ACTION: The Commission is issuing a set of final rules amending some existing Commission rules related to attributable costing. The final rules are consistent with methodology changes approved by the Commission. Relative SUMMARY: VerDate Sep<11>2014 16:02 Dec 06, 2016 Jkt 241001 1 Notice of Proposed Rulemaking on Changes Concerning Attributable Costing, September 9, 2016 (Order No. 3507). See also Docket No. RM2016–2, Order Concerning United Parcel Service, Inc.’s Proposed Changes to Postal Service Costing Methodologies (UPS Proposals One, Two, and Three), September 9, 2016 (Order No. 3506). Discussed in greater detail below, the Commission issued an errata related to Order No. 3506. Docket No. RM2016–2, Notice of Errata, October 19, 2016 (Errata). Any reference to Order No. 3506 refers to the updated version including the changes identified in the Errata. 2 See generally Order No. 3506. See also Docket No. RM2016–2, Petition of United Parcel Service, Inc. for the Initiation of Proceedings to Make Changes to Postal Service Costing Methodologies, October 8, 2015 (Petition). PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 requested a review of competitive products’ share of institutional costs.3 The instant rulemaking stems from the Commission’s findings in Order No. 3506 on Proposal One. In that order, the Commission found that a portion of inframarginal costs (those inframarginal costs calculated as part of a product’s incremental cost) have a reliably identifiable causal relationship to products. Order No. 3506 at 61. Therefore, pursuant to Order No. 3506, attributable costs must also include those inframarginal costs calculated as part of a competitive product’s incremental costs (in addition to a product’s volume-variable costs and product-specific fixed costs).4 As noted above, on October 19, 2016, the Commission issued the Errata to clarify the definition of inframarginal costs described in Order No. 3506. See Errata. Generally, when defining inframarginal costs, the Errata replaced the phrase ‘‘do not vary directly with volume,’’ with the phrase ‘‘are not volume-variable costs.’’ Id. at 1–2. The revised definition of inframarginal costs does not impact the Commission’s findings in Order No. 3506. However, the definition cited in Order No. 3507, ‘‘[i]nframarginal costs are variable costs that do not vary directly with volume,’’ would now be cited as ‘‘[i]nframarginal costs are variable costs that are not volume-variable costs.’’ Id. at 1; Order No. 3507 at 4; see also Order No. 3506 at 10. III. Review and Analysis of Comments On October 17, 2016, the Commission received comments from Amazon Fulfillment Services, Inc. (Amazon),5 the Public Representative,6 and the Postal Service.7 On October 18, 2016, the Commission received comments from UPS8 and, on October 20, 2016, it 3 Petition, Proposal Three at 1. The Commission declined to consider Proposal Three as it planned to initiate its 5-year review pursuant to 39 U.S.C. 3633(b) following Order No. 3506’s issuance. Order No. 3506 at 124, 125; see also Docket No. RM2017– 1, Order No. 3624, Advance Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive Products, November 22, 2016. 4 On October 7, 2016, UPS appealed Order No. 3506 to the United States Court of Appeals for the District of Columbia Circuit. United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16–1354 (D.C. Cir. filed Oct. 7, 2016) (Case No. 16–1354). 5 Comments of Amazon Fulfillment Services, Inc., October 17, 2016 (Amazon Comments). 6 Public Representative Comments, October 17, 2016 (PR Comments). 7 Comments of the United States Postal Service in Response to Order No. 3507, October 17, 2016 (Postal Service Comments). 8 United Parcel Service, Inc.’s Comments on Notice of Proposed Rulemaking on Changes Concerning Attributable Costing, October 18, 2016 (UPS Comments). UPS also filed a motion for late E:\FR\FM\07DER1.SGM 07DER1 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations received comments from Valpak Direct Marketing Systems, Inc. and the Valpak Franchise Association, Inc. (Valpak).9 Comments and the Commission’s analysis of those comments are discussed below. In addition, Commission analysis related to revisions to the proposed rules is discussed in chapter IV of this Order. asabaliauskas on DSK3SPTVN1PROD with RULES a. Amazon Comments. Amazon supports adoption of the proposed rules but requests clarification concerning statements made in Order No. 3507 and suggests revisions to proposed § 3015.7(b). Amazon Comments at 1. Amazon seeks clarification concerning the Commission’s statement ‘‘[w]hile the Commission found that inframarginal costs are causally related to products, it determined inframarginal costs cannot be reliably identified, which is a necessary component of cost attribution.’’ Id. at 1–2; see Order No. 3507 at 4 (citing Order No. 3506 at 56). Amazon argues that the statement is unclear considering the Commission’s finding in Order No. 3506, that only some inframarginal costs are causally related to individual products. Amazon Comments at 2; see also Order No. 3506 at 35, 45–51, 55 (emphasis added). Amazon also seeks clarification on the description of inframarginal costs (variable costs that do not vary directly with volume) in Order No. 3507. Amazon Comments at 2; see also Order No. 3507 at 4. Amazon states inframarginal costs should not be described based on a direct or indirect relationship between volume and cost, but instead should be described based on a causal relationship between the level of costs and the marginal unit of output of a product. Amazon Comments at 2–3. Finally, Amazon suggests revisions to proposed 3015.7(b) in order to cure what it believes is a circular reference in the rule. Id. at 3. The proposed rule defines a product’s attributable cost as its ‘‘. . . incremental costs, which is the sum of volume-variable costs, productspecific costs, and those inframarginal costs calculated as part of a competitive product’s incremental costs. . . .’’ Id. acceptance of its comments. Motion of the United Parcel Service, Inc. for Late Acceptance of Filing of Comments in Response to RM2016–13, October 18, 2016 (UPS Motion). The UPS Motion is granted. 9 Valpak Direct Marketing Systems, Inc. and the Valpak Franchise Association, Inc. Comments on Changes Concerning Attributable Costing, October 20, 2016 (Valpak Comments). Valpak also filed a motion for late acceptance of its comments. Valpak Direct Marketing Systems, Inc. and the Valpak Franchise Association, Inc. Motion for Late Acceptance of Comments, October 20, 2016 (Valpak Motion). The Valpak Motion is granted. VerDate Sep<11>2014 16:02 Dec 06, 2016 Jkt 241001 (quoting proposed § 3015.7(b)). Because the term ‘‘incremental cost’’ appears both as a defined term, and as an element of the definition, Amazon asserts that this reference is circular. Id. Amazon provides a revised definition and states its adoption ‘‘would avoid needless confusion, and would allow the appropriate amount of inframarginal costs to be attributed to each product.’’ Id. at 4. Commission analysis. The Commission confirms that in Order No. 3506 it found only the portion of inframarginal costs calculated as part of an individual product’s incremental costs is causally related and reliably identifiable to individual products, and therefore can be linked to those products. Order No. 3506 at 35, 45–51, 55–56. In addition, the Commission notes that the Errata provided clarification as to the definition of inframarginal costs. See supra at 3; see generally Errata. In addition, the Commission recognizes the potential confusion related to the references to incremental costs in proposed § 3015.7(b). Clarifying changes to proposed § 3015.7(b) are discussed in chapter IV of this Order. b. Public Representative Comments. The Public Representative states that the proposed rules conform to Order No. 3506, but that the Commission should discuss the meaning of ‘‘to the extent that incremental cost data are unavailable,’’ in proposed § 3015.7(a), in order to ‘‘forestall potential attempts to game the outcome.’’ PR Comments at 2–3. In addition, the Public Representative suggests a rearrangement of the phrase ‘‘to calculate attributable costs’’ in proposed § 3015.7(b) for clarification and readability purposes. Id. at 7. Finally, the Public Representative cites to his comments in Docket No. RM2016–2 and, just as in that docket, maintains that a review of compliance with section 703(d) of the Postal Accountability and Enhancement Act (PAEA) is necessary in order to consider changes to attributable costs and revise related rules.10 He argues Order No. 3507 modifies rules under 39 U.S.C. 3633 and must therefore follow the requirements of section 703(d). PR Comments at 6. 10 Id. at 3. ‘‘Uncodified section 703 of the PAEA, Public Law 109–435, 120 Stat. 3198 (2006) requires that when promulgating new or revised regulations under section 3633, the Commission ‘shall take into account’ Federal Trade Commission recommendations about the net economic effects of laws that apply to the United States Postal Service, and subsequent relevant events.’’ Order No. 3507 at 3 n.4. PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 88121 Commission analysis. The phrase ‘‘to the extent that incremental cost data are unavailable’’ stems from the original establishment of part 3015 in Docket No. RM2007–1 and remains unchanged in § 3015.7.11 The Commission did not propose any revisions related to this particular phrase in Order No. 3507 and offers the following explanation. Currently, incremental cost data are available for all products with the exception of international mail. Incremental costs for international mail are not available because its cost pools are not sufficiently disaggregated between market dominant and competitive products. Order No. 3506, Appendix A at 18. The method of calculating incremental costs approved in Docket No. RM2010–4 is applicable to all domestic products, whether market dominant or competitive.12 Because international mail makes up a small percentage of volume, volumevariable costs, and product-specific costs relative to all mail, it is unlikely that the inability to calculate its incremental costs would allow the Postal Service to ‘‘game the outcome’’ and materially reduce the level of cost attribution. The Commission has previously discussed section 703(d) and its applicability to Order Nos. 3506 and 3507. In Order No. 3506, the Commission distinguished its review of attributable costing as a change in analytical principles pursuant to 39 U.S.C. 3652 rather than a proceeding under 39 U.S.C. 3633. Order No. 3506 at 117–122; see also 39 U.S.C. 3652 and 3633. In Order No. 3507, the Commission determined that ‘‘the proposed rules in this instance did not trigger the requirement to consider the net economic effect’’ because the proposed rules involve conforming changes required by the Commission’s action taken in Docket No. RM2016–2 and therefore is required by law. Order No. 3507 at 3 n.4. It also stated that because the proposed revisions are required by law, ‘‘any consideration of the ‘net economic effect’ recommendations identified in 11 Docket No. RM2007–1, Order No. 43, Establishing Ratemaking Regulations for Market Dominant and Competitive Products, October 29, 2007, at 138. 12 The methodology for calculating incremental costs approved in Docket No. RM2010–4 is based on a methodology originally proposed in Docket No. R2000–1. When originally proposed, this methodology was applied to all domestic products. See Docket No. RM2010–4, Order No. 399, Order Accepting Analytical Principles Used in Periodic Reporting (Proposals Twenty-Two through TwentyFive), January 27, 2010, at 2–5; see also Docket No. R2000–1, Direct Testimony of Nancy R. Kay on Behalf of United States Postal Service, January 12, 2000. E:\FR\FM\07DER1.SGM 07DER1 88122 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations uncodified section 703 would be moot.’’ Id. The Commission maintains that, notwithstanding section 703’s applicability, these conforming changes represent an improved, more complete, or more accurate measure of attributable costs pursuant to section 3622(c) and an improvement in the attribution of costs pursuant to section 3652(e) and therefore reduce potential economic distortions. Id. While the Commission appreciates the Public Representative’s comments, its conclusions related to section 703(d)’s applicability in this matter remain unchanged. Therefore, the Commission declines to consider compliance with section 703(d) because these conforming changes are required by law. asabaliauskas on DSK3SPTVN1PROD with RULES c. Postal Service Comments. The Postal Service notes the same circular reference to incremental costs as indicated by Amazon in proposed § 3015.7(b). Postal Service Comments at 1; see also Amazon Comments at 3–4. The Postal Service suggests two alternative versions to proposed § 3015.7(b) that would eliminate the circular reference and would more ‘‘clearly and directly convey[] the intent of the provision.’’ Postal Service Comments at 1–2. The Postal Service also recommends an update to PRC Form CP–01 as part of proposed § 3060.21 by including a ‘‘slightly broader housekeeping change.’’ 13 The Postal Service argues competitive market tests should be included in the institutional costs calculation pursuant to 39 U.S.C. 3641(b)(3) and 39 U.S.C. 3633(a)(3), but that in Fiscal Year (FY) 2014 the amounts were too small to ‘‘merit further consideration.’’ Postal Service Comments at 2. However, the Postal Service explains that as part of its FY 2015 Annual Compliance Report (ACR), the amounts had grown larger and it was able to incorporate competitive market test amounts in its contribution target analysis by introducing a new row, Net Contribution Competitive Product Market Tests, into PRC Form CP–01.14 The Postal Service recommends that the 13 Id. at 2. The Postal Service also notes a numerical inaccuracy with line (8) of proposed § 3060.21 which should read ‘‘Line (8): Difference between Competitive Products total revenues and attributable costs (line 3 less line 7)’’ which will no longer be inaccurate should the Postal Service’s other recommended update be included. Id.; Order No. 3507 at 10 (emphasis added). 14 Id.; see also Docket No. ACR2015, United States Postal Service FY 2015 Annual Compliance Report, December 29, 2015, at 69 (FY 2015 ACR); Docket No. ACR2015, Library Reference USPS– FY15–39, December 29, 2015. VerDate Sep<11>2014 16:02 Dec 06, 2016 Jkt 241001 Commission take this opportunity to add the Net Contribution Competitive Product Market Tests row to PRC Form CP–01 in § 3060.21, as the requirements of 39 U.S.C. 3641(b)(3) are ‘‘unlikely to change’’ and competitive product market tests have the potential to continue to contribute to institutional costs. Postal Service Comments at 2–3. Commission analysis. The Commission approves of the update to PRC Form CP–01 as recommended by the Postal Service. While this additional revision to § 3060.21 is not directly related to the Commission’s findings in Order No. 3506, the Commission concludes the revision is appropriate as it will result in the Postal Service submitting a more accurate income report. In addition and as noted above, the Commission recognizes the potential confusion related to the references to incremental costs in proposed § 3015.7(b). Revisions to proposed §§ 3015.7(b) and 3060.21 are discussed in chapter IV of this Order. d. UPS Comments. UPS asserts the proposed rules are premature as Order No. 3506 is now under review by the Court in Case No. 16–1354 and the instant proceeding was initiated pursuant to that order. UPS Comments at 1; Case No. 16–1354. As a result, UPS requests that the Commission withdraw Order No. 3507 and defer any rule revisions until the Court issues its decision in Case No. 16–1354.15 Despite its request to defer this proceeding, UPS argues the Postal Service should still be obligated to comply with the directives set forth by the Commission in Order No. 3506.16 Commission analysis. The Commission recognizes UPS’s concern regarding potential ‘‘procedural complications’’ should these rules need to be revised in the future; however, it finds no compelling reason for it to defer this final rulemaking pending the Court’s decision in Case No. 16–1354, a proceeding that has not been resolved. Conforming changes to the Code of Federal Regulations (CFR) are necessary in order to comply with Order No. 3506 and require the Postal Service to attribute costs pursuant to that order. In Order No. 3506, based on the information provided, the only costs 15 UPS Comments at 1. UPS notes that the Court’s decision in Case No. 16–1354 could have a direct effect on any newly implemented rules and that revising any rules now could ‘‘create unnecessary procedural complications for the Commission and for interested parties.’’ Id. at 2–3. 16 UPS Comments at 3 (i.e., the calculation and attribution of product-level incremental costs for products and providing additional information for each cost segment sub-report). See also Order No. 3506 at 60–62, 108. PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 which the Commission found to have a reliably identified causal relationship to products are incremental costs. This finding expands the scope of cost attribution beyond volume-variable costs and product-specific costs. For these reasons, the Commission declines to defer the instant rulemaking proceeding. e. Valpak Comments. Valpak does not specifically support the adoption of the proposed rules but recommends the Commission revise certain CFR rules to require market dominant products to cover their attributable costs. Valpak Comments at 3–5. Valpak cites to a specific discussion in Order No. 3506 and states it ‘‘implies that the average revenue of every product, be it competitive or market dominant, henceforth will (or should) be required by the Commission to cover its incremental cost.’’ Valpak Comments at 2 (citing Order No. 3506 at 61). Based on this interpretation, Valpak asserts Order No. 3507 does not comport with Order No. 3506 because in Order No. 3507 the Commission notes attributable cost coverage is one of many factors considered when regulating market dominant products. Valpak Comments at 1–2 (citing Order No. 3507 at 3–4). Valpak argues the discussion in Order No. 3506 necessitates revisions to market dominant product rules that would require market dominant products to cover attributable costs just as competitive products are required to cover their attributable costs.17 It also states the requirement would protect against the cross-subsidization of competitive products by market dominant products. Id. at 5–6. Commission analysis. The Commission’s findings concerning incremental cost attribution across all postal products do not imply that the Commission intended for market dominant products to be required to cover their attributable costs. When referring to attributable costs, the definition is the same, i.e., attributable costs are the sum of a product’s volumevariable costs, product-specific costs, and those inframarginal costs calculated as part of a product’s incremental costs, regardless of whether one is referring to the attributable costs of market dominant products or competitive products. This newly established definition applies to both product types 17 Valpak Comments at 1–5. Valpak recommends revisions to §§ 3010.4 and 3050.1. Id. at 3–4. E:\FR\FM\07DER1.SGM 07DER1 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations equally. However, the requirement of attributable cost coverage does not.18 In 39 U.S.C. 3622(c)(2), a market dominant product’s ability to cover attributable costs is a factor in market dominant product rate regulation. See 39 U.S.C. 3622(c)(2). The Commission has long held that should a market dominant product fail to cover its attributable costs, it does not ‘‘compel a finding of noncompliance’’ for that product.19 The Commission’s findings in Order No. 3506 do not change prior Commission determinations as to the role of attributable costs. Therefore, the Commission declines to incorporate Valpak’s proposed changes to §§ 3010.4 and 3050.1 related to market dominant products and maintains that no rules aside from those discussed in Order No. 3507 require conforming revisions as a result of Order No. 3506. IV. Changes to Proposed Rules The Commission adopts final rules that reflect revisions to the proposed rules in response to comments.20 Mainly, Amazon, the Postal Service, and the Public Representative suggest alternatives to proposed § 3015.7(b) citing a circular reference to incremental costs and readability issues.21 The Commission finds that the Postal Service’s second alternative to proposed § 3015.7(b) provides the most clarity and also improves readability. Accordingly, the Commission revises § 3015.7(b) as set forth in the rules below. In addition, the Commission finds it appropriate, as an administrative matter, to update PRC Form CP–01 in proposed § 3060.21 and include a new row of expenses titled ‘‘Net Contribution Competitive Products Market Tests’’ as recommended by the Postal Service. See Id. at 2, 4. V. Ordering Paragraphs It is ordered: 1. Parts 3015 and 3060 of title 39, Code of Federal Regulations, are amended as set forth below the signature of this Order, effective 30 days after publication in the Federal Register. 2. The Secretary shall arrange for publication of this Order in the Federal Register. By the Commission. Stacy L. Ruble, Secretary. List of Subjects 39 CFR Part 3015 Administrative practice and procedure, Postal service. 39 CFR Part 3060 Administrative practice and procedure, Reporting and recordkeeping requirements. For the reasons discussed in the preamble, the Commission amends chapter III of title 39 of the Code of Federal Regulations as follows: PART 3015—REGULATION OF RATES FOR COMPETITIVE PRODUCTS 88123 Commission will use the sum of competitive products’ volume-variable costs and product-specific costs supplemented to include causally related, group-specific costs to test for cross-subsidies. (b) Each competitive product must recover its attributable costs as defined in 39 U.S.C. 3631(b). Pursuant to 39 U.S.C. 3631(b), the Commission will calculate a competitive product’s attributable costs as the sum of its volume-variable costs, product-specific costs, and those inframarginal costs calculated as part of a competitive product’s incremental costs. * * * * * PART 3060—ACCOUNTING PRACTICES AND TAX RULES FOR THE THEORETICAL COMPETITIVE PRODUCTS ENTERPRISE 3. The authority citation of part 3060 continues to read as follows: ■ Authority: 39 U.S.C. 503; 2011, 3633, 3634. 4. Amend § 3060.10 by revising paragraph (b)(1) to read as follows: ■ § 3060.10 Costing. * 1. The authority citation of part 3015 continues to read as follows: ■ Authority: 39 U.S.C. 503; 3633. 2. Amend § 3015.7 by revising paragraphs (a) and (b) to read as follows: ■ § 3015.7 Standards for compliance. * * * * * (a) Incremental costs will be used to test for cross-subsidies by market dominant products of competitive products. To the extent that incremental cost data are unavailable, the * * * * (b) * * * (1) Attributable costs, including volume-variable costs, product-specific costs, and those inframarginal costs calculated as part of a competitive product’s incremental costs; and * * * * * 5. Amend § 3060.21 by revising table 1 to read as follows: ■ § 3060.21 * Income report. * * * * TABLE 1—COMPETITIVE PRODUCTS INCOME STATEMENT—PRC FORM CP–01 [$ in 000s] FY 20xx asabaliauskas on DSK3SPTVN1PROD with RULES Revenue: .......................................................................................................... (1) Mail and Services Revenues .............................................................. (2) Investment Income .............................................................................. (3) Total Competitive Products Revenue ................................................. Expenses: ........................................................................................................ (4) Volume-Variable Costs ....................................................................... (5) Product Specific Costs ........................................................................ 18 Compare 39 U.S.C. 3622(c)(2) (market dominant products) and 39 U.S.C. 3633 (a)(2) (competitive products). 19 Docket No. ACR2010, FY 2010 Annual Compliance Determination Report, March 29, 2011, at 17 (FY 2010 ACD). Similar views were reiterated by the Commission in other dockets. See Docket No. ACR2013, Annual Compliance Determination Report Fiscal Year 2013, March 27, 2014 (FY 2013 VerDate Sep<11>2014 16:02 Dec 06, 2016 Jkt 241001 FY 20xx–1 Change from SPLY Percent change from SPLY $x,xxx xxx x,xx ........................ x,xxx x,xxx x,xxx $x,xxx xxx x,xxx ........................ ........................ x,xxx x,xxx $xxx xx xxx ........................ ........................ xxx xxx xx.x xx.x xx.x ........................ ........................ xx.x xx.x ACD) (‘‘The Commission must also consider the 9 objectives and 14 factors in their totality. . . .’’ FY 2013 ACD at 57.). See also Docket No. ACR2009, FY 2009 Annual Compliance Determination, March 29, 2010 (FY 2009 ACD) (The Commission stated ‘‘[a]s amended by the PAEA, section 3622(c)(2), along with the other factors enumerated, is to be taken into account in the rate-setting process’’ and ‘‘[a] finding that a particular factor (or objective) is PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 not satisfied need not result in a determination that a product is not in compliance with the PAEA.’’ FY 2009 ACD at 16.). 20 No comments were received on proposed §§ 3015.7(a) and 3060.10, and the Commission finds no reason to alter the proposed rules. 21 Amazon Comments at 3; Postal Service Comments at 1; PR Comments at 7. E:\FR\FM\07DER1.SGM 07DER1 88124 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations TABLE 1—COMPETITIVE PRODUCTS INCOME STATEMENT—PRC FORM CP–01—Continued [$ in 000s] FY 20xx (6) Incremental Inframarginal Costs ......................................................... (7) Total Competitive Products Attributable Costs ................................... (8) Net Contribution Competitive Products Market Tests ........................ (9) Net Income Before Institutional Cost Contribution ............................. (10) Required Institutional Cost Contribution ........................................... (11) Net Income (Loss) Before Tax .......................................................... (12) Assumed Federal Income Tax .......................................................... (13) Net Income (Loss) After Tax ............................................................. FY 20xx–1 x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx Change from SPLY x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx xxx xxx xxx xxx xxx xxx xxx xxx Percent change from SPLY xx.x xx.x xx.x ........................ x.x.x xx.x xx.x xx.x Line (1): Total revenues from Competitive Products volumes and Ancillary Services. Line (2): Income provided from investment of surplus Competitive Products revenues. Line (3): Sum total of revenues from Competitive Products volumes, services, and investments. Line (4): Total Competitive Products volume-variable costs as shown in the Cost and Revenue Analysis (CRA) report. Line (5): Total Competitive Products product-specific costs as shown in the CRA report. Line (6): Inframarginal costs calculated as part of total Competitive Products incremental costs as shown in ACR Library Reference ‘‘Competitive Product Incremental and Group Specific Costs’’ (Currently NP10). Line (7): Sum total of Competitive Products costs (sum of lines 4, 5, and 6). Line (8) Net Contribution Competitive Products Market Tests as shown in the Annual Compliance Report. Line (9): Difference between Competitive Products total revenues and attributable costs and Market Tests Contributions (line 3 less line 7 plus line 8). Line (10): Minimum amount of Institutional cost contribution required under 39 CFR 3015.7 of this chapter. Line (11): Line 9 less line 10. Line (12): Total assumed Federal income tax as calculated under 39 CFR 3060.40. Line (13): Line 11 less line 12. [FR Doc. 2016–29270 Filed 12–6–16; 8:45 am] BILLING CODE 7710–FW–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R06–OAR–2015–0495; FRL–9955–52– Region 6] Approval and Promulgation of Implementation Plans; Texas; Reasonable Further Progress Plan and Motor Vehicle Emissions Budgets for the Dallas/Fort Worth 2008 Ozone Nonattainment Area Environmental Protection Agency (EPA). ACTION: Final rule. AGENCY: The Environmental Protection Agency (EPA) is approving the Dallas/ Fort Worth (DFW) moderate nonattainment area Reasonable Further Progress (RFP) State Implementation Plan (SIP) revision for the 2008 ozone National Ambient Air Quality Standard (NAAQS or standard). EPA is also approving revisions to the 2011 base year emissions inventory for the DFW moderate nonattainment area for the 2008 ozone NAAQS, the 2017 transportation conformity motor vehicle emissions budgets (MVEBs), and the required contingency measures for asabaliauskas on DSK3SPTVN1PROD with RULES SUMMARY: VerDate Sep<11>2014 16:02 Dec 06, 2016 Jkt 241001 failure to meet RFP. This action is being taken under the Clean Air Act (CAA). DATES: This rule is effective on January 6, 2017. ADDRESSES: The EPA has established a docket for this action under Docket ID No. EPA–R06–OAR–2015–0495. All documents in the docket are listed on the http://www.regulations.gov Web site. Although listed in the index, some information is not publicly available, e.g., Confidential Business Information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically through http:// www.regulations.gov or in hard copy at the EPA Region 6, 1445 Ross Avenue, Suite 700, Dallas, Texas 75202–2733. FOR FURTHER INFORMATION CONTACT: Wendy Jacques, 214–665–7395, jacques.wendy@epa.gov. SUPPLEMENTARY INFORMATION: Throughout this document ‘‘we,’’ ‘‘us,’’ and ‘‘our’’ means the EPA. The background for this action is discussed in detail in our September 20, 2016 proposal (81 FR 64372). In that document we proposed to approve the DFW RFP SIP revision for the 2008 ozone standard submitted by the State Frm 00028 Fmt 4700 II. Final Action We are approving the DFW RFP SIP revision for the 2008 ozone standard that was submitted on July 10, 2015 and supplemented on April 22, 2016. We are approving the revised base year emission inventory, the RFP plan, the 2017 MVEBs and the required contingency measures for failure to meet RFP. The 2017 MVEBs are listed in Table 1. TABLE 1—DFW RFP MVEBS [Tons per day] Year NOX VOC 2017 .......... 148.36 77.18 This action is being taken under section 110 of the CAA. I. Background PO 00000 of Texas. EPA also proposed to approve revisions to the 2011 base year emissions inventory for the DFW moderate nonattainment area for the 2008 ozone NAAQS, the 2017 transportation conformity motor vehicle emissions budgets (MVEBs), and the required contingency measures for failure to meet RFP. We did not receive any comments regarding our proposal. Sfmt 4700 III. Statutory and Executive Order Reviews Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the E:\FR\FM\07DER1.SGM 07DER1

Agencies

[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Rules and Regulations]
[Pages 88120-88124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29270]


=======================================================================
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POSTAL REGULATORY COMMISSION

39 CFR Parts 3015 and 3060

[Docket No. RM2016-13; Order No. 3641]


Changes to Attributable Costing

AGENCY: Postal Regulatory Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Commission is issuing a set of final rules amending some 
existing Commission rules related to attributable costing. The final 
rules are consistent with methodology changes approved by the 
Commission. Relative to the proposed rules, one rule was revised to 
alleviate confusion and another revision was administrative in nature.

DATES: Effective January 6, 2017.

FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 
202-789-6820.

SUPPLEMENTARY INFORMATION:

Regulatory History

    81 FR 63448 (Sept. 15, 2016).

Table of Contents

I. Introduction
II. Background
III. Review and Analysis of Comments
IV. Changes to Proposed Rules
V. Ordering Paragraphs

I. Introduction

    On September 9, 2016, the Commission issued proposed rules 
consisting of necessary changes, resulting from Order No. 3506, that 
specifically define or describe attributable costs.\1\ For the reasons 
discussed below, the Commission adopts final rules on this topic, with 
minor revisions to the proposed rules as discussed in chapter IV.
---------------------------------------------------------------------------

    \1\ Notice of Proposed Rulemaking on Changes Concerning 
Attributable Costing, September 9, 2016 (Order No. 3507). See also 
Docket No. RM2016-2, Order Concerning United Parcel Service, Inc.'s 
Proposed Changes to Postal Service Costing Methodologies (UPS 
Proposals One, Two, and Three), September 9, 2016 (Order No. 3506). 
Discussed in greater detail below, the Commission issued an errata 
related to Order No. 3506. Docket No. RM2016-2, Notice of Errata, 
October 19, 2016 (Errata). Any reference to Order No. 3506 refers to 
the updated version including the changes identified in the Errata.
---------------------------------------------------------------------------

II. Background

    On September 9, 2016, the Commission issued Order No. 3506 after 
consideration of a United Parcel Service, Inc. (UPS) petition which 
sought to make changes to the methodologies employed by the Postal 
Service to account for the costs of the Postal Service's products in 
its periodic reports.\2\ In Proposal One, UPS recommended that the 
Postal Service calculate and attribute inframarginal costs to 
individual products in addition to the currently attributed volume-
variable and product-specific fixed costs. Petition, Proposal One at 1. 
Proposal Two dealt with reclassifying some fixed costs as fully or 
partially variable, and attributing those costs to products. Petition, 
Proposal Two at 1. UPS also filed a third proposal, which requested a 
review of competitive products' share of institutional costs.\3\
---------------------------------------------------------------------------

    \2\ See generally Order No. 3506. See also Docket No. RM2016-2, 
Petition of United Parcel Service, Inc. for the Initiation of 
Proceedings to Make Changes to Postal Service Costing Methodologies, 
October 8, 2015 (Petition).
    \3\ Petition, Proposal Three at 1. The Commission declined to 
consider Proposal Three as it planned to initiate its 5-year review 
pursuant to 39 U.S.C. 3633(b) following Order No. 3506's issuance. 
Order No. 3506 at 124, 125; see also Docket No. RM2017-1, Order No. 
3624, Advance Notice of Proposed Rulemaking to Evaluate the 
Institutional Cost Contribution Requirement for Competitive 
Products, November 22, 2016.
---------------------------------------------------------------------------

    The instant rulemaking stems from the Commission's findings in 
Order No. 3506 on Proposal One. In that order, the Commission found 
that a portion of inframarginal costs (those inframarginal costs 
calculated as part of a product's incremental cost) have a reliably 
identifiable causal relationship to products. Order No. 3506 at 61. 
Therefore, pursuant to Order No. 3506, attributable costs must also 
include those inframarginal costs calculated as part of a competitive 
product's incremental costs (in addition to a product's volume-variable 
costs and product-specific fixed costs).\4\
---------------------------------------------------------------------------

    \4\ On October 7, 2016, UPS appealed Order No. 3506 to the 
United States Court of Appeals for the District of Columbia Circuit. 
United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16-
1354 (D.C. Cir. filed Oct. 7, 2016) (Case No. 16-1354).
---------------------------------------------------------------------------

    As noted above, on October 19, 2016, the Commission issued the 
Errata to clarify the definition of inframarginal costs described in 
Order No. 3506. See Errata. Generally, when defining inframarginal 
costs, the Errata replaced the phrase ``do not vary directly with 
volume,'' with the phrase ``are not volume-variable costs.'' Id. at 1-
2. The revised definition of inframarginal costs does not impact the 
Commission's findings in Order No. 3506. However, the definition cited 
in Order No. 3507, ``[i]nframarginal costs are variable costs that do 
not vary directly with volume,'' would now be cited as 
``[i]nframarginal costs are variable costs that are not volume-variable 
costs.'' Id. at 1; Order No. 3507 at 4; see also Order No. 3506 at 10.

III. Review and Analysis of Comments

    On October 17, 2016, the Commission received comments from Amazon 
Fulfillment Services, Inc. (Amazon),\5\ the Public Representative,\6\ 
and the Postal Service.\7\ On October 18, 2016, the Commission received 
comments from UPS\8\ and, on October 20, 2016, it

[[Page 88121]]

received comments from Valpak Direct Marketing Systems, Inc. and the 
Valpak Franchise Association, Inc. (Valpak).\9\ Comments and the 
Commission's analysis of those comments are discussed below. In 
addition, Commission analysis related to revisions to the proposed 
rules is discussed in chapter IV of this Order.
---------------------------------------------------------------------------

    \5\ Comments of Amazon Fulfillment Services, Inc., October 17, 
2016 (Amazon Comments).
    \6\ Public Representative Comments, October 17, 2016 (PR 
Comments).
    \7\ Comments of the United States Postal Service in Response to 
Order No. 3507, October 17, 2016 (Postal Service Comments).
    \8\ United Parcel Service, Inc.'s Comments on Notice of Proposed 
Rulemaking on Changes Concerning Attributable Costing, October 18, 
2016 (UPS Comments). UPS also filed a motion for late acceptance of 
its comments. Motion of the United Parcel Service, Inc. for Late 
Acceptance of Filing of Comments in Response to RM2016-13, October 
18, 2016 (UPS Motion). The UPS Motion is granted.
    \9\ Valpak Direct Marketing Systems, Inc. and the Valpak 
Franchise Association, Inc. Comments on Changes Concerning 
Attributable Costing, October 20, 2016 (Valpak Comments). Valpak 
also filed a motion for late acceptance of its comments. Valpak 
Direct Marketing Systems, Inc. and the Valpak Franchise Association, 
Inc. Motion for Late Acceptance of Comments, October 20, 2016 
(Valpak Motion). The Valpak Motion is granted.
---------------------------------------------------------------------------

a. Amazon

    Comments. Amazon supports adoption of the proposed rules but 
requests clarification concerning statements made in Order No. 3507 and 
suggests revisions to proposed Sec.  3015.7(b). Amazon Comments at 1. 
Amazon seeks clarification concerning the Commission's statement 
``[w]hile the Commission found that inframarginal costs are causally 
related to products, it determined inframarginal costs cannot be 
reliably identified, which is a necessary component of cost 
attribution.'' Id. at 1-2; see Order No. 3507 at 4 (citing Order No. 
3506 at 56). Amazon argues that the statement is unclear considering 
the Commission's finding in Order No. 3506, that only some 
inframarginal costs are causally related to individual products. Amazon 
Comments at 2; see also Order No. 3506 at 35, 45-51, 55 (emphasis 
added).
    Amazon also seeks clarification on the description of inframarginal 
costs (variable costs that do not vary directly with volume) in Order 
No. 3507. Amazon Comments at 2; see also Order No. 3507 at 4. Amazon 
states inframarginal costs should not be described based on a direct or 
indirect relationship between volume and cost, but instead should be 
described based on a causal relationship between the level of costs and 
the marginal unit of output of a product. Amazon Comments at 2-3.
    Finally, Amazon suggests revisions to proposed 3015.7(b) in order 
to cure what it believes is a circular reference in the rule. Id. at 3. 
The proposed rule defines a product's attributable cost as its ``. . . 
incremental costs, which is the sum of volume-variable costs, product-
specific costs, and those inframarginal costs calculated as part of a 
competitive product's incremental costs. . . .'' Id. (quoting proposed 
Sec.  3015.7(b)). Because the term ``incremental cost'' appears both as 
a defined term, and as an element of the definition, Amazon asserts 
that this reference is circular. Id. Amazon provides a revised 
definition and states its adoption ``would avoid needless confusion, 
and would allow the appropriate amount of inframarginal costs to be 
attributed to each product.'' Id. at 4.
    Commission analysis. The Commission confirms that in Order No. 3506 
it found only the portion of inframarginal costs calculated as part of 
an individual product's incremental costs is causally related and 
reliably identifiable to individual products, and therefore can be 
linked to those products. Order No. 3506 at 35, 45-51, 55-56. In 
addition, the Commission notes that the Errata provided clarification 
as to the definition of inframarginal costs. See supra at 3; see 
generally Errata. In addition, the Commission recognizes the potential 
confusion related to the references to incremental costs in proposed 
Sec.  3015.7(b). Clarifying changes to proposed Sec.  3015.7(b) are 
discussed in chapter IV of this Order.

b. Public Representative

    Comments. The Public Representative states that the proposed rules 
conform to Order No. 3506, but that the Commission should discuss the 
meaning of ``to the extent that incremental cost data are 
unavailable,'' in proposed Sec.  3015.7(a), in order to ``forestall 
potential attempts to game the outcome.'' PR Comments at 2-3. In 
addition, the Public Representative suggests a rearrangement of the 
phrase ``to calculate attributable costs'' in proposed Sec.  3015.7(b) 
for clarification and readability purposes. Id. at 7.
    Finally, the Public Representative cites to his comments in Docket 
No. RM2016-2 and, just as in that docket, maintains that a review of 
compliance with section 703(d) of the Postal Accountability and 
Enhancement Act (PAEA) is necessary in order to consider changes to 
attributable costs and revise related rules.\10\ He argues Order No. 
3507 modifies rules under 39 U.S.C. 3633 and must therefore follow the 
requirements of section 703(d). PR Comments at 6.
---------------------------------------------------------------------------

    \10\ Id. at 3. ``Uncodified section 703 of the PAEA, Public Law 
109-435, 120 Stat. 3198 (2006) requires that when promulgating new 
or revised regulations under section 3633, the Commission `shall 
take into account' Federal Trade Commission recommendations about 
the net economic effects of laws that apply to the United States 
Postal Service, and subsequent relevant events.'' Order No. 3507 at 
3 n.4.
---------------------------------------------------------------------------

    Commission analysis. The phrase ``to the extent that incremental 
cost data are unavailable'' stems from the original establishment of 
part 3015 in Docket No. RM2007-1 and remains unchanged in Sec.  
3015.7.\11\ The Commission did not propose any revisions related to 
this particular phrase in Order No. 3507 and offers the following 
explanation. Currently, incremental cost data are available for all 
products with the exception of international mail. Incremental costs 
for international mail are not available because its cost pools are not 
sufficiently disaggregated between market dominant and competitive 
products. Order No. 3506, Appendix A at 18. The method of calculating 
incremental costs approved in Docket No. RM2010-4 is applicable to all 
domestic products, whether market dominant or competitive.\12\ Because 
international mail makes up a small percentage of volume, volume-
variable costs, and product-specific costs relative to all mail, it is 
unlikely that the inability to calculate its incremental costs would 
allow the Postal Service to ``game the outcome'' and materially reduce 
the level of cost attribution.
---------------------------------------------------------------------------

    \11\ Docket No. RM2007-1, Order No. 43, Establishing Ratemaking 
Regulations for Market Dominant and Competitive Products, October 
29, 2007, at 138.
    \12\ The methodology for calculating incremental costs approved 
in Docket No. RM2010-4 is based on a methodology originally proposed 
in Docket No. R2000-1. When originally proposed, this methodology 
was applied to all domestic products. See Docket No. RM2010-4, Order 
No. 399, Order Accepting Analytical Principles Used in Periodic 
Reporting (Proposals Twenty-Two through Twenty-Five), January 27, 
2010, at 2-5; see also Docket No. R2000-1, Direct Testimony of Nancy 
R. Kay on Behalf of United States Postal Service, January 12, 2000.
---------------------------------------------------------------------------

    The Commission has previously discussed section 703(d) and its 
applicability to Order Nos. 3506 and 3507. In Order No. 3506, the 
Commission distinguished its review of attributable costing as a change 
in analytical principles pursuant to 39 U.S.C. 3652 rather than a 
proceeding under 39 U.S.C. 3633. Order No. 3506 at 117-122; see also 39 
U.S.C. 3652 and 3633. In Order No. 3507, the Commission determined that 
``the proposed rules in this instance did not trigger the requirement 
to consider the net economic effect'' because the proposed rules 
involve conforming changes required by the Commission's action taken in 
Docket No. RM2016-2 and therefore is required by law. Order No. 3507 at 
3 n.4. It also stated that because the proposed revisions are required 
by law, ``any consideration of the `net economic effect' 
recommendations identified in

[[Page 88122]]

uncodified section 703 would be moot.'' Id. The Commission maintains 
that, notwithstanding section 703's applicability, these conforming 
changes represent an improved, more complete, or more accurate measure 
of attributable costs pursuant to section 3622(c) and an improvement in 
the attribution of costs pursuant to section 3652(e) and therefore 
reduce potential economic distortions. Id.
    While the Commission appreciates the Public Representative's 
comments, its conclusions related to section 703(d)'s applicability in 
this matter remain unchanged. Therefore, the Commission declines to 
consider compliance with section 703(d) because these conforming 
changes are required by law.

c. Postal Service

    Comments. The Postal Service notes the same circular reference to 
incremental costs as indicated by Amazon in proposed Sec.  3015.7(b). 
Postal Service Comments at 1; see also Amazon Comments at 3-4. The 
Postal Service suggests two alternative versions to proposed Sec.  
3015.7(b) that would eliminate the circular reference and would more 
``clearly and directly convey[] the intent of the provision.'' Postal 
Service Comments at 1-2.
    The Postal Service also recommends an update to PRC Form CP-01 as 
part of proposed Sec.  3060.21 by including a ``slightly broader 
housekeeping change.'' \13\ The Postal Service argues competitive 
market tests should be included in the institutional costs calculation 
pursuant to 39 U.S.C. 3641(b)(3) and 39 U.S.C. 3633(a)(3), but that in 
Fiscal Year (FY) 2014 the amounts were too small to ``merit further 
consideration.'' Postal Service Comments at 2.
---------------------------------------------------------------------------

    \13\ Id. at 2. The Postal Service also notes a numerical 
inaccuracy with line (8) of proposed Sec.  3060.21 which should read 
``Line (8): Difference between Competitive Products total revenues 
and attributable costs (line 3 less line 7)'' which will no longer 
be inaccurate should the Postal Service's other recommended update 
be included. Id.; Order No. 3507 at 10 (emphasis added).
---------------------------------------------------------------------------

    However, the Postal Service explains that as part of its FY 2015 
Annual Compliance Report (ACR), the amounts had grown larger and it was 
able to incorporate competitive market test amounts in its contribution 
target analysis by introducing a new row, Net Contribution Competitive 
Product Market Tests, into PRC Form CP-01.\14\ The Postal Service 
recommends that the Commission take this opportunity to add the Net 
Contribution Competitive Product Market Tests row to PRC Form CP-01 in 
Sec.  3060.21, as the requirements of 39 U.S.C. 3641(b)(3) are 
``unlikely to change'' and competitive product market tests have the 
potential to continue to contribute to institutional costs. Postal 
Service Comments at 2-3.
---------------------------------------------------------------------------

    \14\ Id.; see also Docket No. ACR2015, United States Postal 
Service FY 2015 Annual Compliance Report, December 29, 2015, at 69 
(FY 2015 ACR); Docket No. ACR2015, Library Reference USPS-FY15-39, 
December 29, 2015.
---------------------------------------------------------------------------

    Commission analysis. The Commission approves of the update to PRC 
Form CP-01 as recommended by the Postal Service. While this additional 
revision to Sec.  3060.21 is not directly related to the Commission's 
findings in Order No. 3506, the Commission concludes the revision is 
appropriate as it will result in the Postal Service submitting a more 
accurate income report. In addition and as noted above, the Commission 
recognizes the potential confusion related to the references to 
incremental costs in proposed Sec.  3015.7(b). Revisions to proposed 
Sec. Sec.  3015.7(b) and 3060.21 are discussed in chapter IV of this 
Order.

d. UPS

    Comments. UPS asserts the proposed rules are premature as Order No. 
3506 is now under review by the Court in Case No. 16-1354 and the 
instant proceeding was initiated pursuant to that order. UPS Comments 
at 1; Case No. 16-1354. As a result, UPS requests that the Commission 
withdraw Order No. 3507 and defer any rule revisions until the Court 
issues its decision in Case No. 16-1354.\15\ Despite its request to 
defer this proceeding, UPS argues the Postal Service should still be 
obligated to comply with the directives set forth by the Commission in 
Order No. 3506.\16\
---------------------------------------------------------------------------

    \15\ UPS Comments at 1. UPS notes that the Court's decision in 
Case No. 16-1354 could have a direct effect on any newly implemented 
rules and that revising any rules now could ``create unnecessary 
procedural complications for the Commission and for interested 
parties.'' Id. at 2-3.
    \16\ UPS Comments at 3 (i.e., the calculation and attribution of 
product-level incremental costs for products and providing 
additional information for each cost segment sub-report). See also 
Order No. 3506 at 60-62, 108.
---------------------------------------------------------------------------

    Commission analysis. The Commission recognizes UPS's concern 
regarding potential ``procedural complications'' should these rules 
need to be revised in the future; however, it finds no compelling 
reason for it to defer this final rulemaking pending the Court's 
decision in Case No. 16-1354, a proceeding that has not been resolved. 
Conforming changes to the Code of Federal Regulations (CFR) are 
necessary in order to comply with Order No. 3506 and require the Postal 
Service to attribute costs pursuant to that order. In Order No. 3506, 
based on the information provided, the only costs which the Commission 
found to have a reliably identified causal relationship to products are 
incremental costs. This finding expands the scope of cost attribution 
beyond volume-variable costs and product-specific costs. For these 
reasons, the Commission declines to defer the instant rulemaking 
proceeding.

e. Valpak

    Comments. Valpak does not specifically support the adoption of the 
proposed rules but recommends the Commission revise certain CFR rules 
to require market dominant products to cover their attributable costs. 
Valpak Comments at 3-5. Valpak cites to a specific discussion in Order 
No. 3506 and states it ``implies that the average revenue of every 
product, be it competitive or market dominant, henceforth will (or 
should) be required by the Commission to cover its incremental cost.'' 
Valpak Comments at 2 (citing Order No. 3506 at 61). Based on this 
interpretation, Valpak asserts Order No. 3507 does not comport with 
Order No. 3506 because in Order No. 3507 the Commission notes 
attributable cost coverage is one of many factors considered when 
regulating market dominant products. Valpak Comments at 1-2 (citing 
Order No. 3507 at 3-4). Valpak argues the discussion in Order No. 3506 
necessitates revisions to market dominant product rules that would 
require market dominant products to cover attributable costs just as 
competitive products are required to cover their attributable 
costs.\17\ It also states the requirement would protect against the 
cross-subsidization of competitive products by market dominant 
products. Id. at 5-6.
---------------------------------------------------------------------------

    \17\ Valpak Comments at 1-5. Valpak recommends revisions to 
Sec. Sec.  3010.4 and 3050.1. Id. at 3-4.
---------------------------------------------------------------------------

    Commission analysis. The Commission's findings concerning 
incremental cost attribution across all postal products do not imply 
that the Commission intended for market dominant products to be 
required to cover their attributable costs. When referring to 
attributable costs, the definition is the same, i.e., attributable 
costs are the sum of a product's volume-variable costs, product-
specific costs, and those inframarginal costs calculated as part of a 
product's incremental costs, regardless of whether one is referring to 
the attributable costs of market dominant products or competitive 
products. This newly established definition applies to both product 
types

[[Page 88123]]

equally. However, the requirement of attributable cost coverage does 
not.\18\
---------------------------------------------------------------------------

    \18\ Compare 39 U.S.C. 3622(c)(2) (market dominant products) and 
39 U.S.C. 3633 (a)(2) (competitive products).
---------------------------------------------------------------------------

    In 39 U.S.C. 3622(c)(2), a market dominant product's ability to 
cover attributable costs is a factor in market dominant product rate 
regulation. See 39 U.S.C. 3622(c)(2). The Commission has long held that 
should a market dominant product fail to cover its attributable costs, 
it does not ``compel a finding of noncompliance'' for that product.\19\ 
The Commission's findings in Order No. 3506 do not change prior 
Commission determinations as to the role of attributable costs. 
Therefore, the Commission declines to incorporate Valpak's proposed 
changes to Sec. Sec.  3010.4 and 3050.1 related to market dominant 
products and maintains that no rules aside from those discussed in 
Order No. 3507 require conforming revisions as a result of Order No. 
3506.
---------------------------------------------------------------------------

    \19\ Docket No. ACR2010, FY 2010 Annual Compliance Determination 
Report, March 29, 2011, at 17 (FY 2010 ACD). Similar views were 
reiterated by the Commission in other dockets. See Docket No. 
ACR2013, Annual Compliance Determination Report Fiscal Year 2013, 
March 27, 2014 (FY 2013 ACD) (``The Commission must also consider 
the 9 objectives and 14 factors in their totality. . . .'' FY 2013 
ACD at 57.). See also Docket No. ACR2009, FY 2009 Annual Compliance 
Determination, March 29, 2010 (FY 2009 ACD) (The Commission stated 
``[a]s amended by the PAEA, section 3622(c)(2), along with the other 
factors enumerated, is to be taken into account in the rate-setting 
process'' and ``[a] finding that a particular factor (or objective) 
is not satisfied need not result in a determination that a product 
is not in compliance with the PAEA.'' FY 2009 ACD at 16.).
---------------------------------------------------------------------------

IV. Changes to Proposed Rules

    The Commission adopts final rules that reflect revisions to the 
proposed rules in response to comments.\20\ Mainly, Amazon, the Postal 
Service, and the Public Representative suggest alternatives to proposed 
Sec.  3015.7(b) citing a circular reference to incremental costs and 
readability issues.\21\ The Commission finds that the Postal Service's 
second alternative to proposed Sec.  3015.7(b) provides the most 
clarity and also improves readability. Accordingly, the Commission 
revises Sec.  3015.7(b) as set forth in the rules below.
---------------------------------------------------------------------------

    \20\ No comments were received on proposed Sec. Sec.  3015.7(a) 
and 3060.10, and the Commission finds no reason to alter the 
proposed rules.
    \21\ Amazon Comments at 3; Postal Service Comments at 1; PR 
Comments at 7.
---------------------------------------------------------------------------

    In addition, the Commission finds it appropriate, as an 
administrative matter, to update PRC Form CP-01 in proposed Sec.  
3060.21 and include a new row of expenses titled ``Net Contribution 
Competitive Products Market Tests'' as recommended by the Postal 
Service. See Id. at 2, 4.

V. Ordering Paragraphs

    It is ordered:
    1. Parts 3015 and 3060 of title 39, Code of Federal Regulations, 
are amended as set forth below the signature of this Order, effective 
30 days after publication in the Federal Register.
    2. The Secretary shall arrange for publication of this Order in the 
Federal Register.

    By the Commission.
Stacy L. Ruble,
Secretary.

List of Subjects

39 CFR Part 3015

    Administrative practice and procedure, Postal service.

39 CFR Part 3060

    Administrative practice and procedure, Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, the Commission amends 
chapter III of title 39 of the Code of Federal Regulations as follows:

PART 3015--REGULATION OF RATES FOR COMPETITIVE PRODUCTS

0
1. The authority citation of part 3015 continues to read as follows:

    Authority:  39 U.S.C. 503; 3633.

0
2. Amend Sec.  3015.7 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  3015.7   Standards for compliance.

* * * * *
    (a) Incremental costs will be used to test for cross-subsidies by 
market dominant products of competitive products. To the extent that 
incremental cost data are unavailable, the Commission will use the sum 
of competitive products' volume-variable costs and product-specific 
costs supplemented to include causally related, group-specific costs to 
test for cross-subsidies.
    (b) Each competitive product must recover its attributable costs as 
defined in 39 U.S.C. 3631(b). Pursuant to 39 U.S.C. 3631(b), the 
Commission will calculate a competitive product's attributable costs as 
the sum of its volume-variable costs, product-specific costs, and those 
inframarginal costs calculated as part of a competitive product's 
incremental costs.
* * * * *

PART 3060--ACCOUNTING PRACTICES AND TAX RULES FOR THE THEORETICAL 
COMPETITIVE PRODUCTS ENTERPRISE

0
3. The authority citation of part 3060 continues to read as follows:

    Authority:  39 U.S.C. 503; 2011, 3633, 3634.

0
4. Amend Sec.  3060.10 by revising paragraph (b)(1) to read as follows:


Sec.  3060.10   Costing.

* * * * *
    (b) * * *
    (1) Attributable costs, including volume-variable costs, product-
specific costs, and those inframarginal costs calculated as part of a 
competitive product's incremental costs; and
* * * * *

0
5. Amend Sec.  3060.21 by revising table 1 to read as follows:


Sec.  3060.21   Income report.

* * * * *

                         Table 1--Competitive Products Income Statement--PRC Form CP-01
                                                   [$ in 000s]
----------------------------------------------------------------------------------------------------------------
                                                                                    Change from   Percent change
                                                      FY 20xx        FY 20xx-1         SPLY          from SPLY
----------------------------------------------------------------------------------------------------------------
Revenue:........................................          $x,xxx          $x,xxx            $xxx            xx.x
    (1) Mail and Services Revenues..............             xxx             xxx              xx            xx.x
    (2) Investment Income.......................            x,xx           x,xxx             xxx            xx.x
    (3) Total Competitive Products Revenue......  ..............  ..............  ..............  ..............
Expenses:.......................................           x,xxx  ..............  ..............  ..............
    (4) Volume-Variable Costs...................           x,xxx           x,xxx             xxx            xx.x
    (5) Product Specific Costs..................           x,xxx           x,xxx             xxx            xx.x

[[Page 88124]]

 
    (6) Incremental Inframarginal Costs.........           x,xxx           x,xxx             xxx            xx.x
    (7) Total Competitive Products Attributable            x,xxx           x,xxx             xxx            xx.x
     Costs......................................
    (8) Net Contribution Competitive Products              x,xxx           x,xxx             xxx            xx.x
     Market Tests...............................
    (9) Net Income Before Institutional Cost               x,xxx           x,xxx             xxx  ..............
     Contribution...............................
    (10) Required Institutional Cost                       x,xxx           x,xxx             xxx           x.x.x
     Contribution...............................
    (11) Net Income (Loss) Before Tax...........           x,xxx           x,xxx             xxx            xx.x
    (12) Assumed Federal Income Tax.............           x,xxx           x,xxx             xxx            xx.x
    (13) Net Income (Loss) After Tax............           x,xxx           x,xxx             xxx            xx.x
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Line (1): Total revenues from Competitive Products volumes and Ancillary Services.
Line (2): Income provided from investment of surplus Competitive Products revenues.
Line (3): Sum total of revenues from Competitive Products volumes, services, and investments.
Line (4): Total Competitive Products volume-variable costs as shown in the Cost and Revenue Analysis (CRA)
 report.
Line (5): Total Competitive Products product-specific costs as shown in the CRA report.
Line (6): Inframarginal costs calculated as part of total Competitive Products incremental costs as shown in ACR
 Library Reference ``Competitive Product Incremental and Group Specific Costs'' (Currently NP10).
Line (7): Sum total of Competitive Products costs (sum of lines 4, 5, and 6).
Line (8) Net Contribution Competitive Products Market Tests as shown in the Annual Compliance Report.
Line (9): Difference between Competitive Products total revenues and attributable costs and Market Tests
 Contributions (line 3 less line 7 plus line 8).
Line (10): Minimum amount of Institutional cost contribution required under 39 CFR 3015.7 of this chapter.
Line (11): Line 9 less line 10.
Line (12): Total assumed Federal income tax as calculated under 39 CFR 3060.40.
Line (13): Line 11 less line 12.
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[FR Doc. 2016-29270 Filed 12-6-16; 8:45 am]
 BILLING CODE 7710-FW-P