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Federal Register / Vol. 86, No. 23 / Friday, February 5, 2021 / Proposed Rules
performance.12 Actual performance within the dead-band a neutral zone would not result in a direct financial consequence.13
Therefore, to develop a mechanism that would balance simplicity with optimal refinement, the Commission raises the following discussion points:
1. How to identify the percentage of rate authority that would provide a meaningful incentives to the Postal Service, while also not leading to excessive rate increases for mailers nor threatening the financial integrity of the Postal Service?
2. How to identify data and methods available to develop a connection between the amount of the financial incentives at stake with the observed performance i.e., the changes in or levels of efficiency, costs, and/or service standards?
3. How to identify the relative advantages of applying incentives as upward adjustments increasing the amount of rate authorityies, downward adjustments reducing the amount of rate authorityies, a combination mechanism both, or another method?
4. How best to administer the chosen method?

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C. Operational Efficiency-Based Requirement The Commission intends to explore whether and how to translate the broad policy goals of the PAEAincentivizing the Postal Service to increase efficiency and reduce costsinto a specific PIM.
For purposes of evaluating the Postal Services operational efficiency, total factor productivity TFP is a highly comprehensive metric.14 The Commission intends to further explore whether TFP or an alternative metric is capable of producing sufficiently reliable, accurate, and transparent results that would be appropriate for use as a potential benchmark on which to condition rate authority. While the Commissions preliminary expectation is that there is not a practical way to refine TFP to focus on only Market Dominant products see Order No. 5337
at 134, the Commission would welcome any comments proposing a basis for doing so. There have been some changes in the TFP methodology 12 See 2015 PIM Handbook at 38; see also 2006
Joskow, supra at 8.
13 See 2015 PIM Handbook at 38.
14 See Docket No. RM20173, Northwest Postal Consulting NWPC for the Postal Regulatory Commission, Report 1, Adequacy of the Postal Services TFP Model, Final Report, March 27, 2017, at 2 NWPC Report 1 opining that the Postal Services TFP Model contains significant levels of detail regarding different aspects of Labor, Capital, Materials, Mail Volume, and Possible Deliveries.

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over the years, and TFP results have been revised after-the-fact on occasion.15 Accordingly, the Commission intends to review how these changes impact reliability and accuracy over time. While there is not necessarily a reason to believe that the Postal Service would attempt to influence TFP results by making unreasonable business decisions see Order No. 5337 at 135, the Commission also intends to further explore how TFP
could be refined methodologically to produce results that are adequately safeguarded against manipulation. A
critical step to enable this study of TFP
is to require the Postal Service to file the documentation and linked workpapers containing all formulae for its TFP
methodology.16 Therefore, this Order imposes a deadline for the Postal Service to file this information of February 16, 2021.
The Commission intends to explore whether TFP can be refined to better focus on efficiency gains within the Postal Services control or whether an alternative metric should be developed.
The Postal Service has used the Deliveries per Total Workhours DPTWH as an alternative efficiency metric in its annual reports to Congress and to develop its Integrated Financial Plan.17 The Commission has expressed 15 Compare, e.g., United States Postal Service, USPS Annual Tables, FY 2017 TFP Total Factor Productivity, February 28, 2018, Excel file table annual 2017 public 2017 cra.xlsx, tab Tfp52
updating FY 2016 TFP result to 1.262 with United States Postal Service, USPS Annual Tables, FY 2016
TFP Total Factor Productivity, March 1, 2017, Excel file table annual 2016 public 2016
cra.xlsx, tab Tfp52 reporting FY 2016 TFP
result as 1.260. While the Postal Service did not provide an explanation for the updated FY 2016
TFP result, Commission analysis identified updated source data for FY 2016. Additional technical changes to the TFP are detailed in the NWPC Report 2 filed by the Commission in conjunction with Order No. 5337. See generally Docket No. RM2017
3, Northwest Postal Consulting NWPC for the Postal Regulatory Commission, Report 2, Comparison of Postal Service Productivity Measurement: Before and After PAEA Enactment, March 27, 2017, at 811 NWPC Report 2.
16 By way of background, the TFP workpapers filed by the Postal Service contain hardcoded inputs and outputs rather than displaying the formulae used and links to related spreadsheets.
Compare, e.g., United States Postal Service, USPS
Annual Tables, FY 2019 TFP Total Factor Productivity, February 27, 2020 with 39 CFR
3050.2c.
17 See Docket No. ACR2019, Library Reference USPSFY1917, December 27, 2019, United States Postal Service FY 2019 Annual Report to Congress, at 34 FY 2019 Annual Report. DPTWH is calculated by multiplying the total possible deliveries by the number of delivery days and dividing that product by total work hours. FY 2019
Annual Report at 34. Starting in FY 2021, the DPTWH metric will no longer be tracked as a corporate indicator. Docket No. ACR2020, Library Reference USPSFY2017, December 29, 2020, United States Postal Service FY 2020 Annual Report to Congress, at 52 FY 2020 Annual Report.

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concerns with the underlying methodology, finding that DPTWH is less comprehensive than TFP for purposes of measuring productivity because DPTWH isolates workhours labor and because DPTWH does not recognize a major workload component:
The collection, processing, transporting, and sequencing for delivery of mail.18
However, it may be possible to develop an alternate methodology that is easier to calculate, understand, and apply than TFP but still comprehensive enough to reflect overall efficiency gains. If the Postal Service proposes that the Commission use a metric other than TFP for a PIM, then it shall file a detailed public explanation of the methodology along with its comments.
Some of the sources of inefficiency and the potentially resulting lost opportunities to reduce costs and improve service performance are known in theory but difficult to correct in practice. The following examples are not intended to exhaustively detail these types of issues and instead are intended to promote thoughtful engagement and exploration of the potential challenges and opportunities to enhance the design of the Market Dominant ratemaking system.19
For instance, while the Postal Service acknowledges that it must better align labor with volume, it has stated that this has been difficult to put into practice.20
During a given day, there are periods of higher workload peaks and lower workload valleys or off-peaks. More staff are needed to handle peaks, whereas, during the valleys, fewer staff are needed. These peaks and valleys do not naturally align with the traditional Postal Service labor structure, which operates in three tours, or 8-hour cycles, per day.21 Therefore, Postal Service 18 See Docket No. ACR2010, Annual Compliance Determination, March 29, 2011, at 39; see also Docket No. ACR2013, Review of Postal Service FY
2013 Performance Report and FY 2014 Performance Plan, July 7, 2014, at 25.
19 Extremely detailed discussions of issues related to specific processing referred to as pinch-points may be found in a number of other proceedings.
See, e.g., Docket No. ACR2015, Annual Compliance Determination, March 28, 2016, at 165180; Docket No. ACR2016, Annual Compliance Determination, March 28, 2017, at 165170; Docket No. ACR2017, Annual Compliance Determination, March 29, 2018, at 175181; Docket No. ACR2018, Annual Compliance Determination, April 12, 2019, at 215
222; Docket No. ACR2019, Annual Compliance Determination, March 25, 2020, at 161174 FY
2019 ACD.
20 See, e.g., Docket No. ACR2019, Library Reference USPSFY1929, December 27, 2019, PDF
file FY1929 Service Performance Report.pdf, at 7, 30.
21 Tour 1 is from 11:00 p.m. to 07:00 a.m.; Tour 2 is from 07:00 a.m. to 3:00 p.m.; Tour 3 is from 3:00 p.m. to 11:00 p.m. United States Postal Service, Office of the Inspector General, Report No. 20144

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