WIK-Consult has prepared a report for the Australian Competition and Consumer Commission (ACCC) that assesses the approach used by Australia Post to allocate its costs between different services, with particular attention to reserved (and notified) services. The study was commissioned against the background of Australia Post’s recent price notification. ACCC published the study in June 2008.
Under Australian postal legislation, Australia Post must notify any planned prices increases for monopoly services (letters below 250 grams) to the Australian Competition and Consumer Commission (ACCC), and the regulator can object to the price increase. In February 2008, Australia has announced plans to increase standard postage by about ten pre cent, from A$ 0,50 to A$ 0,55 for small letters. Prices for monopoly services had last risen in 2002.
Related to its assessments of the price notification, the Australian Competition and Consumer Commission (ACCC) has asked WIK-Consult to assess the approach used by Australia Post to allocate its costs between different services, with particular attention to reserved (and notified) services. Allocation of cost shared costs (= joint and common costs) is of great importance to regulating prices of postal services because only a part of the letter products are subject to price control.
Shared costs, particularly labour costs and other operational expenses, are very relevant in the postal sector: the WIK study estimates that at least two thirds of Australia Post’s total costs are shared between reserved and non-reserved services. An example for such shared cost is the salary of a delivery postman (‘postal delivery officer’ who deliver both reserved letters (below 250 gram) and other products.
A first conclusion of the WIK report is that the terminology used in Australia Post’s costing methodology (e.g. definitions for direct and indirect costs) is different from the categories set out in the regulator’s Record Keeping Rules. The confusing use of terminologies impedes transparency and the report thus recommends a standardised terminology be established between the ACCC and Australia Post. Moreover, in some instances the information provided in the Regulatory Accounting Procedures Manual (RAPM) is not sufficient to explain how the regulatory accounts have been drawn up.
The report finds the approach adopted by Australia Post to allocating shared costs to be generally appropriate but raises concerns in a number of areas: These concerns particularly relate to the factors used for allocating the costs of transportation and delivery to reserved services on the one hand, and (commercial) express letters and unaddressed times on the other hand.
In June 2008, the ACCC has published a preliminary view on the draft price notification for comments. This preliminary view raises several concerns but ultimately, the ACCC plans not to object to the price increase. However, the ACCC’s preliminary view set out additional requirements that Australia Post must meet for any future notifications. In this context, the ACCC calls for a review of the procedures employed by Australia Post for its regulatory accounts, and the documentation supporting the accounts. „In light of the concerns expressed by WIK regarding the level of detail in the RAPM, before any review of Australia Post’s cost allocation methodology, the ACCC considers that the first step is a review of the RAPM." It is expected that the ACCC will take a final decision on the notified price increase in August 2008.
The ACCC has published a non-confidential summary of the WIK report.
