Solicitation Number: PRC-2014-2
Agency: Postal Regulatory Commission
Office: PRC Office of Administration
Location: PRC HQ

Excerpt: Given the severe volume decline since FY 2007, one might think that institutional cost would have declined because of the infra-marginal cost included therein.  Further one might reasonably think that the volume variability ratio should have decreased because the Postal Service has reduced variable resources, but has not reduced fixed resources that are truly fixed with respect to volume changes.  However, that has not been the case because institutional costs increased, not decreased, by 7 percent between FY 2007 and FY 2013.  (See FY 2011 ACD at 5)  This phenomenon needs to be studied because it lies at the heart of the accepted cost methodology and the nature of these costs needs to be understood.

The work needed to support these studies can be divided in to 3 separate reports.

Report 1
Task 1: Produce a white paper that:

a. Provides a framework for the role of infra-marginal costs in pricing and product costing
b. Discusses the role of incremental costs vs. infra-marginal costs
c. Discusses the role of marginal cost under 39 U.S.C. 3622 and 3633
d. Identifies the type of cost needed to support 39 U.S.C. 3622(c)(2)
e. Identifies the type of cost needed to support the idea that the revenue for an individual competitive product should exceed its cost to protect competition and mailers of competitive products.

Task 2:  Brief the Commission
Task 3:  Brief the Public
Task 4: (Commission option):  At the Commission’s discretion, upon completion of the report the paper may be presented to a group of peers at a conference of the Commission’s choosing.

Report 2
Task 1:  Produce a report that

a. Describes a methodology for estimating the infra-marginal cost for each cost component
b. Use the methodology in part a to estimate the infra-marginal costs by cost component for FY 2013 USPS
c. Develop a distribution key for assigning the infra-marginal cost to products including  the rationale for the key
d. Calculate infra-marginal costs for each product
e. Estimate the fixed costs by cost component
f. If feasible, do parts b, d and e for the years FY 2007 though FY 2013.

Task 2: Brief the Commission
Task 3: (Commission option):  Brief the Public

Report 3
Task 1: Produce a report that

a. Determines if the systemwide variability ratio stays relatively constant over time, and if so why
b. Determines if the variability ratio should change over time
c. If feasible, develop a methodology for estimating the variability ratio in manner consistent with part b.
d. Discuss ramification of findings and next steps, if any

Task 2:  Brief the Commission
Task 3: (Commission option):  Brief the Public

via Study of Postal Service Institutional Cost – Federal Business Opportunities: Opportunities.