OCA_Comments_in_Response_to_Order_2
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OCA_Comments_in_Response_to_Order_2
UNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2COMMENTS IN RESPONSE TO ADVANCE NOTICE OF PROPOSED RULEMAKING ON REGULATIONS ESTABLISHING A SYSTEM OF RATEMAKING (April 6, 2007)In Order No. 2, "Advance Notice of Proposed Rulemaking on Regulations Establishing a System of Ratemaking." issued January 30. 2007. the Commission heralded a new system of OCA_Comments_in_Response_to_Order_2 ratemaking under the Postal Accountability and Enhancement Act, Public Law 109-435 (PAEA). Commenters are invited to provide comments and suggestionsOCA_Comments_in_Response_to_Order_2
on how to best fulfill the responsibilities and purposes of the PAEA. The Office of the Consumer Advocate thanks the Commission for the opportunity tUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2highlight the critical differences that Congress wrought as departures from the former system of ratemaking. Since amendments to the Postal Reorganization Act (PRA) in 1976, the Commission has been required to issue its omnibus rate case decisions in 10 months. Intervenors frequently complain that 1 OCA_Comments_in_Response_to_Order_20 months is a small fraction of the time ordinarily allotted other governmental agencies to reach decisions on matters of comparable breadth and complOCA_Comments_in_Response_to_Order_2
exity. Ten months now appear as an embarrassment of riches compared to the 45-day price increase determinations (39 u.s.c §3622(d)) and the 90-OCA ResUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2in the context of broad policy criteria necessitates a radical new paradigm that will allow the Commission to issue its statutorily required determinations within the specified statutory time limits. Aset of approaches that will allow the Commission to discharge Its new responsibilities fully and th OCA_Comments_in_Response_to_Order_2oroughly is discussed in the first section of these comments, Part One: Price Setting Under the PAEA.In enacting the PAEA, Congress recognized that onOCA_Comments_in_Response_to_Order_2
e of the most serious risks in substituting a price cap system for a breakeven system of ratemaking is that the Postal Service would allow service to UNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2 Commission significant new powers to shore up quality of service. This new system of quality assurance is embodied in a new statutory provision - 39 u.s.c. §3691. Establishing appropriate service standards and devising methods for measuring service performance of the Postal Service is discussed in OCA_Comments_in_Response_to_Order_2the second section of these comments. Part Two: Service Performance Under the PAEA.Congress took the revolutionary step of removing named competitiveOCA_Comments_in_Response_to_Order_2
products (priority mail, expedited mail, bulk parcel post, bulk international mail, and mailgrams) from the pricing policies of the PRAand the objectiUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2s in the provision of competitive products and services.OCA Response to Order No 2 1-3-Docket No. RM2007-OCA engaged in research of price cap systems in other regulatory fora and repons on the methods that have been effective (or ineffective) so that lessons learned by other regulators can be applie OCA_Comments_in_Response_to_Order_2d building a regulatory system under the PAEA. This research is discussed in Part Four: Lessons from other Regulatory Systems.Finally. Part Five: RoleOCA_Comments_in_Response_to_Order_2
of the OCA Under the PAEA focuses on the specific duties Congress established for the OCA under the new system.OCA Response to Order No. 2- 4 -DocketUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2hift of rate setting from the Commission to the Postal Service. The opportunity to earn profits should alter significantly the incentives of postal managers to contain expenses and to set rates above cost. The effectiveness of price-cap regulation depends on the existence of these incentives.1 If th OCA_Comments_in_Response_to_Order_2e profit motive works as hoped, the Commission can step back from marginal-cost estimation.2 A profit-seeking Postal Service would not be expected toOCA_Comments_in_Response_to_Order_2
price a product below marginal cost. In the interest of simplicity, transparency, and reduction of administrative burden, the Commission can now redefUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2can be greatly simplified.The “modern system of regulation" required by the PAEA IS both post-hoc and light-handed. That IS, the Commission no longer sets rates for the future.3 Rather, the Commission determines after the fact whether the Postal Service was in compliance with the PAEA. Under the new OCA_Comments_in_Response_to_Order_2 regulatory regime, the Commission must determine, within 90 days of receiving an annual report from the Postal Service and after comments from stakehOCA_Comments_in_Response_to_Order_2
olders, whether the Postal Service was in compliance with the requirements XM A. Crew and PR. Kieindorter, A Critique of the Theory of Incentive RegulUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2etter estimates of marginal cost. Marginal cost, together with marginal revenue, determines whether to produce a product at all and. if so. how much. See. e.g.. D. Kreps. Microeconomics for Managers 42-46 (2004).Although, as a result of its annual determination of compliance, the Commission may find OCA_Comments_in_Response_to_Order_2 itself prohibiting certain ratemaking methods. See 39 u.s.c. § 3653(b)(1) (as amended Dec. 20. 2006).OCA Response to Order No. 2- 5 -Docket No. RM200OCA_Comments_in_Response_to_Order_2
7-1of new Chapter 36 of Title 39 during the prior fiscal year. The number of different ratemaking techniques used by the Postal Service in a given yeaUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2ust be readily discernible from the Postal Service’s annual report.The PRA contained nine factors that the Commission had to balance when setting rates. Not only did rates have to cover costs, but eight other criteria had to be met by a recommended set of rates. In its Opinion in Docket No. R2006-1, OCA_Comments_in_Response_to_Order_2 the Commission "commented on the breadth of the non-cost factors, noting that they encompass both standards of efficiency and equity and indeed thatOCA_Comments_in_Response_to_Order_2
they serve sometimes-conflicting objectives."* The Postal Accountability and Enhancement Act ("PAEA" or "Act") directs the Commission to establish a "UNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA C OCA_Comments_in_Response_to_Order_2 conflicting objectives is illustrated by the Commission's treatment of Efficient Component Pricing in Docket No. R2006-1. The Commission stated?The Commission's recommendations analyze rates within a framework of Efficient Component Pricing. The rates are then weighed against the factors of the Act OCA_Comments_in_Response_to_Order_2 and appropriately adjusted where necessary. Generally.-PRC Op. R2006-1. para. (4046) (emphasis added).539 u s.c. § 3622(a)ePRC Op R2006-1, para. (509OCA_Comments_in_Response_to_Order_2
5).OCA Response to Order No. 2- 6 -Docket No. RM2007-UNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA CUNITED STATES OF AMERICA POSTAL REGULATORY COMMISSION WASHINGTON. DC 20268-0001Regulations Establishing System )Docket No. RM2007-1of Ratemaking)OCA CGọi ngay
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