Changes to Attributable Costing, 88120-88124 [2016-29270]
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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.
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For the reasons set out in the
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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–
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§ 17.110
[Amended]
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[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]
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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:
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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).
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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
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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.
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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.
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(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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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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
$xxx
xx
xxx
........................
........................
xxx
xxx
xx.x
xx.x
xx.x
........................
........................
xx.x
xx.x
ACD) (‘‘The Commission must also consider the 9
objectives and 14 factors in their totality. . . .’’ FY
2013 ACD at 57.). See also Docket No. ACR2009,
FY 2009 Annual Compliance Determination, March
29, 2010 (FY 2009 ACD) (The Commission stated
‘‘[a]s amended by the PAEA, section 3622(c)(2),
along with the other factors enumerated, is to be
taken into account in the rate-setting process’’ and
‘‘[a] finding that a particular factor (or objective) is
PO 00000
Frm 00027
Fmt 4700
Sfmt 4700
not satisfied need not result in a determination that
a product is not in compliance with the PAEA.’’ FY
2009 ACD at 16.).
20 No comments were received on proposed
§§ 3015.7(a) and 3060.10, and the Commission finds
no reason to alter the proposed rules.
21 Amazon Comments at 3; Postal Service
Comments at 1; PR Comments at 7.
E:\FR\FM\07DER1.SGM
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Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations
TABLE 1—COMPETITIVE PRODUCTS INCOME STATEMENT—PRC FORM CP–01—Continued
[$ 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 https://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 https://
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]
=======================================================================
-----------------------------------------------------------------------
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.
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\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.).
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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.
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\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.
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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
----------------------------------------------------------------------------------------------------------------
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
