[Federal Register: September 4, 2007 (Volume 72, Number 170)]
[Proposed Rules]
[Page 50743-50786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04se07-10]
[[Page 50743]]
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Part III
Postal Regulatory Commission
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39 CFR Parts 3001, 3010, 3015, and 3020
Administrative Practice and Procedure, Postal Service; Proposed Rule
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POSTAL REGULATORY COMMISSION
39 CFR Parts 3001, 3010, 3015 and 3020
[Docket No. RM2007-1; Order Nos. 26 and 27]
Administrative Practice and Procedure, Postal Service
AGENCY: Postal Regulatory Commission.
ACTION: Proposed rule.
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SUMMARY: A recently-enacted federal law directs the Commission to
develop rules to implement a new postal ratemaking system. This
proposal responds to that directive by presenting rules addressing
market dominant and competitive products, including negotiated service
agreements, the regulatory calendar, and product lists. This document
incorporates a revision identified in an errata notice. Issuance of
this document will allow the Commission to consider comments and, if
appropriate, to make revisions prior to adoption of final rules.
DATES: Submit comments by September 24, 2007; submit reply comments by
October 9, 2007.
ADDRESSES: Submit comments electronically via the Commission's Filing
Online system at http://www.prc.gov.
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
202-789-6820 and stephen.sharfman@prc.gov.
SUPPLEMENTARY INFORMATION:
Regulatory History
72 FR 5230, February 5, 2007.
72 FR 29284, May 25, 2007.
72 FR 33261, June 15, 2007.
I. Introduction
This is the third in a series of orders designed to establish
regulations implementing a modern system for regulating rates and
classes for market dominant and competitive products.\1\ In response to
those earlier orders, the Commission received more than 100 comments
from interested parties.\2\ The Commission has reviewed these comments
carefully. They have been useful in clarifying the Commission's
analysis, and the parties' contributions are appreciated.
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\1\ PRC Order No. 2, January 30, 2007 and PRC Order No. 15, May
17, 2007.
\2\ Attachment A to this order contains a list of the parties
filing comments.
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In this order, the Commission outlines how it intends to administer
various provisions of the Postal Accountability and Enhancement Act
(PAEA), Pub. L. No. 109-435, 120 Stat. 3198 (December 20, 2006). The
proposed regulations are set forth in section V. Comments are due by
September 14, 2007. Reply comments are due by September 28, 2007.
Although afforded 18 months, until June 19, 2008, to promulgate the
new regulations under the PAEA, the Commission has made a concerted
effort to accelerate that schedule considerably. The Commission views
early implementation as beneficial to all stakeholders. Early
implementation of a ratemaking framework prior to the statutory
deadline will enable the Postal Service to use new, streamlined
procedures to initiate rate (and class) changes as needed to respond to
its financial needs and market conditions. The regulations may serve as
a safety valve, providing an immediate means to address challenges
faced by the Postal Service and perhaps obviate the necessity for rate
relief through an omnibus rate case under existing procedures. The
commenters urge that such a filing should be avoided, thereby allowing
the Postal Service and the Commission to dedicate more resources to
thoughtfully implementing other aspects of the reform legislation. It
would be unfortunate if, in this reformed environment, rate changes had
to be litigated under the old cost of service system. Having this new
framework in place, and the Postal Service operating under the new
framework as early as practical, would provide the Postal Service
flexibility to respond quickly to changed conditions.
The Commission's goal is to make this new system of rate adjustment
advantageous for all stakeholders, enabling the Postal Service to price
its own products, ensuring the lawfulness of competitive rates,
providing increased transparency, and maintaining universal service at
affordable rates. Fulfilling these objectives requires that competing
interests be carefully balanced.
The Commission, among other things, identifies the mail matter that
comprises each type of mail listed in section 3631(a) and the products
within the competitive category of mail. It also discusses generally
the mail matter that comprises each type of mail listed in section
3621(a). However, in lieu of identifying specific market dominant
products, the Commission has determined that for reasons of accuracy
and expedition, it would be preferable to accept the Postal Service
offer to prepare and submit a draft mail classification schedule,
which, inter alia, identifies the market dominant products it believes
should be contained therein. This will enable the Postal Service to
categorize its market dominant services into products that best serve
its business needs. In addition, it will permit the Postal Service to
fashion a draft mail classification schedule with what it believes is
an appropriate level of detail. The Commission then will be able to
evaluate this draft for consistency with the principles discussed in
this order. The draft mail classification schedule is due September 14,
2007. Comments on the draft mail classification schedule are due
September 28, 2007.
The proposed regulations represent the Commission's initial effort
to establish a functional framework for regulating rates and classes
for market dominant and competitive products. The proposed regulations
do not seek to address every issue that might arise under the PAEA. The
intent is that these regulations provide a reasonable starting point
and that they will evolve over time.
In the sections that follow, the Commission discusses proposed
regulations governing:
Rules Applicable to Rate Adjustments for Market Dominant
Products (part 3010);
Regulation of Rates for Competitive Products (part 3015);
and
Product Lists (part 3020).
The Commission must also issue proposals amending the structure of
its rules, and specific regulations applicable to complaints, reporting
requirements, and commercially sensitive materials, as well as
regulations to implement sections 404a and 504(f). Completing those
tasks is complementary to the proposed regulations, which, once
implemented, will be sufficient to enable the Postal Service to begin
to operate as contemplated by the PAEA.
II. Market Dominant Products
A. Introduction
Background. This segment of the rulemaking focuses on rate changes
referred to as ``rate adjustments'' in the PAEA for market dominant
products. The emphasis is on proposing regulations that will provide
the Postal Service with the option of pursuing its next general round
of price changes under the new law's ratesetting provisions, which
feature a price cap mechanism and a streamlined advance notice and
review, and on providing a comprehensive framework.
Much of the discussion on this topic since the enactment of the
PAEA has occurred in the context of a joint Postal Regulatory
Commission-Postal Service
[[Page 50745]]
summit, regional field hearings, \3\ comments filed in response to
Commission orders, \4\ and Congressional hearings. The Commission's
preliminary conclusions about the direction of this regulatory effort
reflect considered review of the comments and testimony presented in
these forums.
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\3\ See PRC Order No. 19, Notice and Order on Field Hearings to
Receive Testimony on Implementation of Modern System of Ratemaking,
Docket No. RM2007-1, June 8, 2007.
\4\ The parties have submitted several rounds of comments in
response to the two advance notices of proposed rulemaking. As a
matter of convenience, citations to these comments will identify the
party's comments by filing date; reply comments will be so denoted.
For example, the referenced Postal Service initial comments are
cited as Postal Service Comments, June 18, 2007, at xx; reply
comments are cited similarly, e.g., PSA Reply Comments, July 3,
2007, at xx.
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Commenters identify two main tasks for the Commission at this stage
of implementation. One is reaching consensus on conceptual and
practical aspects of the scope, depth and timeframe of Commission
review of planned rate changes. The other is transforming numerous
statutory requirements, objectives and factors into a new ``road map''
for navigating the regulatory calendar, expedited procedures, and price
cap mechanism that are core components of the new system. Most
commenters observe that these tasks involve balancing policy
considerations, pragmatic concerns, and a revamped PRC/Postal Service
partnership.\5\ They agree that the statute provides certainty on some
key points, but point to numerous instances where other important
issues are open to interpretation. Some urge the Commission to adopt a
light-handed approach to the new notice-and-review process, with the
price cap calculation being the sole focus.\6\ Others caution that
implementation will allow price changes to occur more often than
annually, the cap to be applied unequally to products within a class of
mail, and the cap to be exceeded (within a certain range) under an
exception referred to as ``unused rate adjustment authority'' or the
banking exception. They suggest that these possibilities may have
significant implications with respect to mailers' expectations that the
modern system will provide predictability, certainty and stability.
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\5\ See, for example, Advo Comments, April 6, 2007, at 2-3; MOAA
Reply Comments, May 7, 2007, at 1-2; PSA Comments, April 6, 2007, at
1-4; Time Warner Comments, April 6, 2007, at 1-3; and Postal Service
Comments, April 6, 2007, at 2-4.
\6\ Jon Mulford, for example, states: ``[the] PAEA has given the
Commission extraordinary power to regulate the USPS. The Commission,
in devising its system for setting rates * * * should at all costs
avoid unnecessarily tying USPS management's hands as they attempt to
cope with an impending financial crisis.'' Mulford Comments, March
9, 2007, at 5.
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The Commission appreciates the responses to its request for
assistance in developing new regulations, and finds that the
commenters' observations provide useful guidance. It also appreciates
the Postal Service's efforts, outside of this rulemaking, to work with
mailers on developing a viable regulatory calendar and on addressing
rate implementation issues. See Postal Service Reply Comments, May 7,
2007, at 3-4 and Appendix B. The Commission proposes basic rules
regarding the regulatory calendar in proposed rule 3010.7.
B. Statutory Framework for Rate Changes
Section 3622(d) of the PAEA, captioned ``Requirements,'' addresses
some of the mandatory features the Commission must include in the
modern regulatory system.\7\ It provides, in pertinent part:
\7\ These requirements are not ``stand alone'' elements of the
new system, but must be given effect in concert with certain
statutory factors and objectives. However, unlike the
``requirements,'' most of which are new postal ratemaking features,
many of the factors and objectives are identical to those employed
in the Postal Reorganization Act of 1970 (PRA) ratemaking.
(1) In General.--The system for regulating rates and classes for
market-dominant products shall--
(A) include an annual limitation on the percentage changes in
rates to be set by the Postal Regulatory Commission that will be
equal to change in the Consumer Price Index for All Urban Consumers
unadjusted for seasonal variation over the most recent available 12-
month period preceding the date the Postal Service files notice of
its intention to increase rates;
(B) establish a schedule whereby rates, when necessary and
appropriate, would change at regular intervals by predictable
amounts;
(C) not later than 45 days before the implementation of any
adjustment in rates under this section, including adjustments made
under subsection (c)(10)-
(i) require the Postal Service to provide public notice of the
adjustment;
(ii) provide an opportunity for review by the Postal Regulatory
Commission;
(iii) provide for the Postal Regulatory Commission to notify the
Postal Service of any noncompliance of the adjustment with the
limitation under subparagraph (A); and
(iv) require the Postal Service to respond to the notice
provided under clause (iii) and describe the actions to be taken to
comply with the limitation under subparagraph (A);
(D) establish procedures whereby the Postal Service may adjust
rates not in excess of the annual limitations under subparagraph
(A).
* * * * *
However, the ``price cap'' in subsection 3622(d)(1)(A) is not an
absolute limit; other provisions expressly require that the new
system:
(E) notwithstanding any limitation set under subparagraphs (A)
and (C), and provided there is not sufficient unused rate authority
under paragraph (2)(C), establish procedures whereby rates may be
adjusted on an expedited basis due to either extraordinary or
exceptional circumstances, provided that the Commission determines,
after notice and opportunity for a public hearing and comment, and
within 90 days after any request by the Postal Service, that such
adjustment is reasonable and equitable and necessary to enable the
Postal Service, under best practices of honest, efficient, and
economical management, to maintain and continue the development of
postal services of the kind and quality adapted to the needs of the
United States.
* * * * *
Further, the following provisions in subsection 3622(d)(2)
authorize the annual cap to be exceeded under certain conditions:
* * * * *
(C) Use of Unused Rate Authority.--
(i) Definition.--In this subparagraph, the term ``unused rate
adjustment authority'' means the difference between--
(I) the maximum amount of a rate adjustment that the Postal
Service is authorized to make in any year subject to the annual
limitation under paragraph (1); and
(II) the amount of the rate adjustment the Postal Service
actually makes in that year.
(ii) Authority. Subject to clause (iii), the Postal Service may
use any unused rate adjustment authority for any of the 5 years
following the year such authority occurred.
Finally, the exercise of ``banking authority'' is itself subject
to the following limitations:
(iii) Limitations.--In exercising the authority under clause
(ii) in any year, the Postal Service--
(I) may use unused rate adjustment authority from more than 1
year;
(II) may use any part of the unused rate adjustment authority
from any year;
(III) shall use the unused rate adjustment authority from the
earliest year such authority first occurred and then each following
year; and
(IV) for any class or service, may not exceed the annual
limitation under paragraph (1) by more than 2 percentage points.
* * * * *
These comprehensive provisions unequivocally establish subsection
3622(d) as the administrative cornerstone of the new rate setting
system for market dominant products. Collectively, streamlined advance
review procedures, the price cap mechanism, the banking exception, and
the exigency clause are designed to foster pricing flexibility, reduce
burden, and facilitate quick implementation of rate changes. The
Commission's proposed regulations are intended to fill in many of the
details of price cap
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administration, content of rate change filings, and due process.
C. Summary of Main Issues
The PAEA specifies use of the Bureau of Labor Statistics' widely-
known CPI-U, but does not address some related aspects of
administration, such as how to calculate the index adjustment and how
to calculate the base to which the adjustment applies. It also does not
address the extent of documentation of worksharing discounts. The
Commission sought comments on these matters in its Second Advance
Notice of Proposed Rulemaking on Regulations Establishing a System of
Ratemaking, May 17, 2007.
Additional implementation issues raised in the comments include:
--whether the phrase ``not later than 45 days'' used in section
3622(d)(1)(C) limits Commission review to this number of days, or
allows a longer period;
--whether price change filings, other than exigent requests, involve
``barebones'' notice and documentation or more comprehensive support;
--Whether the Commission's advance review is limited to assessing
compliance with the price cap provisions or extends to other matters,
such as an evaluation of worksharing discounts;
--whether the Commission should solicit public comment in routine rate
change filings;
--whether the authority to ``bank'' unused rate adjustment authority
for up to 5 years carries with it the ability to apply the banked
pricing credit to a class other than the one in which it was
accumulated; and
--whether the rules should define ``exigent circumstances'' and whether
trial-type proceedings must or should be held.
D. Structure of New Proceedings and Rules
Review of the comments points to interest in a new road map for
rate changes. William Berkley usefully highlights this by observing:
We need to keep in mind that we have to keep proceedings simple
and rules of practice simple to avoid a system that only postal
attorneys and economists can use. We ask when you establish these
new rules that you remember to keep it as simple as you can.
Proceedings before every regulator are always difficult, but let us
also insure that we make it easy to navigate and understand the
proceedings in this evolving system.
Berkley Testimony at 5.\8\
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\8\ Testimony of William S. Berkley, President and CEO, Tension
Envelope Corporation, Before the United States Postal Regulatory
Commission Field Hearing, Kansas City, June 22, 2007.
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United Parcel Service (UPS), addressing implementation in general,
asserts: ``To the extent possible, the Commission should interpret PAEA
in a way that recognizes the value of administrative simplicity and
practicality, and that minimizes the Postal Service's burden, while
remaining consistent with the statutory requirements.'' UPS Reply
Comments, July 3, 2007, at 10.
Accordingly, the Commission proposes to:
--Organize most of the rules directly affecting market dominant
products into a largely self-contained unit;
--Standardize terms, definitions and methods to the extent feasible;
and
--Establish streamlined proceedings to facilitate all types of price
changes.
The Commission proposes to establish a separate part, designated
part 3010, Rules Applicable to Rate Adjustments for Market Dominant
Products, in 39 CFR. This part is divided into five subparts:
Subpart A--General Provisions.
Subpart B--Rules for Rate Adjustments for Rates of General
Applicability (Type 1 Rate Adjustments).
Subpart C--Rules for Applying the Price Cap.
Subpart D--Rules for Rate Adjustments for Negotiated Service
Agreements (Type 2 Rate Adjustments).
Subpart E--Rules for Rate Adjustments in Exigent Circumstances
(Type 3 Rate Adjustments).
E. Overview of Proposed Subpart A--General Provisions
This subpart consists of seven proposed rules. The first provision,
proposed 3010.1, captioned ``Applicability,'' is a general
representation that the rules in subpart A implement the ratesetting
policies and procedures of the PAEA for market dominant products. It
also notes a distinction between ``notice'' filings and ``request''
filings.
Proposed 3010.2(a) codifies the following basic scenarios in which
rate changes for market dominant products may be addressed: under price
cap authority or a variation thereon, often referred to by commenters
as the banking exception or banking authority; under a special
contractual, or negotiated service agreement; and under an exigent
circumstance. For ease of reference and reporting, this rule reflects
the Commission's proposal to refer to each of these scenarios as
``types'' of filings, similar to the approach that has been used
successfully for six categories of library references since Docket No.
RM98-2. The Commission notes, for example, that for purposes of
conducting the 10-year assessment of the new ratesetting approach, it
may prove useful to have a ready tool for determining how many
different types of notices and requests have been filed. The Commission
incorporates these definitions into the regulations and the
accompanying discussion. The following table summarizes this approach.
Table II-1.--Summary of Alternative Filing Terms
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Proposed
Statutory source Filing basis alternative(s)
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39 U.S.C. 3622(d)(1)(A)..... ``annual limitation Type 1-A Rate
on the percentage Adjustment.
changes in rates''.
39 U.S.C. 3622(d)(2)(C)(i).. ``unused rate Type 1-B Rate
adjustment Adjustment.
authority''.
39 U.S.C. 3622(c)(10)....... ``the desirability Type 2 Rate
of special Adjustment.
classifications . .
. including
agreements between
the Postal Service
and postal users''.
39 U.S.C. 3622(d)(1)(E)..... ``due to either Type 3 Rate
extraordinary or Adjustment.
exceptional
circumstances''.
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F. Overview of Proposed Subpart B--Rules for Rate Adjustments for Rates
of General Applicability (Type 1 Rate Adjustments)
This subpart consists of five rules. These rules lay out basic
procedures and certain fundamental Commission positions. Some of the
debate among commenters centered on the timeframe for Commission action
in a price change proceeding and on public input. The timeframe issue
stems from the highlighted wording in the following passage from the
PAEA:
(C) not later than 45 days before the implementation of any
adjustment in rates under this section, including adjustments made
under subsection (c)(10)--
(i) require the Postal Service to provide public notice of the
adjustment;
(ii) provide an opportunity for review by the Postal Regulatory
Commission.
39 U.S.C. 3622(d)(1)(C)(i)-(ii).
The crux of the issue is whether the statute intends 45 days as the
maximum or minimum period for advance notice and review. The Postal
Service appears to read this language as establishing a statutory
maximum, but acknowledges that some changes, as a matter of good
business practice, such as those involving new worksharing discounts,
will create more implementation issues. It indicates that it intends to
provide additional notice in these instances. Postal Service Comments,
June 18, 2007, at 14-15. The Mail Order Association of America (MOAA)
shares the Postal Service's view. MOAA Reply Comments, May 7, 2007, at
14-15. Many commenters, however, see the wording in the statute as
establishing a minimum, and therefore clearly authorizing the
Commission to require the Postal Service to provide more notice. Time
Warner suggests 90 days. Time Warner Comments, April 6, 2007, at 15.
The Commission concludes that as a matter of statutory
interpretation, the Postal Service's position reads the qualifier ``at
least'' completely out of the statute. The conclusion more consistent
with the statute's overall theme of transparency is that 45 days is the
minimum period required by the statute, and the Commission may require
a longer period in certain circumstances.\9\ At the same time, it seems
that any extension should be in keeping with the notion of streamlined
review; thus, the four months the OCA suggests as the routine approach
appears excessive for the Commission's task of assessing the planned
rate changes in terms of the price cap and/or the use of banking
authority.
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\9\ Based on the Postal Service's comments, it anticipates
filing 90 days in advance of implementation with the first 45 days
constituting the statutory period for Commission review and the
second half for implementation.
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The Commission concludes that for purposes of drafting an initial
set of regulations, the language from the statute requiring notice and
review ``not later than 45 days'' can be carried over directly into
proposed rules 3010.10(a)(1) and (2). A provision in proposed rule
3010.10(b) encouraging more time for review recognizes the Postal
Service's representations on this record that it intends to provide
additional time for review when price changes are more complicated.
Postal Service Comments, June 18, 2007, at 9-10. Proposed rule
3010.10(a) does not require the Postal Service to publish a Federal
Register notice concerning a planned adjustment, but does contemplate
broad dissemination of its intent to the mailing community and to the
general public. This typically provides more effective notice than a
Federal Register notice, in keeping with a modern rate setting system,
and reduces administrative burden by freeing the Postal Service from
the production details necessarily associated with Federal Register
publication. The Commission notes that it imposes on itself, in
proposed rule 3010.13(a), an obligation to publish notice of a rate
adjustment filing in the Federal Register.
Commenters are divided on the question of public input during the
review period. Some, including the Postal Service, argue against it on
grounds that the logic of the PAEA suggests that if public input is not
expressly provided for in the statute, it is not authorized. On the
other hand, the OCA and several others think it would be helpful.
Newspaper Association of America (NAA), for example, asserts that
allowing public comment would promote transparency. NAA Comments, March
30, 2007, at 2. NAA acknowledges that the new statute expressly
provides for public participation when rate adjustments are based on
exigent circumstances, but asserts:
Nothing in the PAEA, however, prohibits the Commission from
inviting such comment also when the Postal Service purports to
notice rate adjustments consistent with the CPI limitation. Public
comment--which necessarily would have to be expedited and would be
submitted in writing--would promote transparency and could provide
information helpful to the Commission's review.
Id. at 7.
It adds:
Where the Postal Service's notice is straightforward, there
likely will be relatively few comments. However, in instances when
the Postal Service notices a more complicated set of rate changes,
the Commission may benefit from the insights that the mailing
community and broader public may be able to offer. The stakes of
this review are important because the rates that will take effect
from this process will be in effect for a substantial period of time
before they are later reviewed by the Commission either in an annual
review or in a complaint.
Id. at 7-8.
The Commission agrees that the statute does not expressly provide
for public participation during the review period as it does in the
exigency clause (in subsection 3622(d)(1)(E)). At the same time, the
statute gives the Commission broad discretion in deciding on how to
conduct its review. It follows that if the Commission believes public
input might be helpful in determining the compliance of the anticipated
rate changes with the statutory pricing provisions, there is no
statutory bar to incorporating this into its review proceedings/
procedures. The Commission believes this will be the case, and
provides, in proposed rule 3010.13(a) for 20 days (from the date of
filing of a rate adjustment notice) for the public to file written
comments.
Proposed rule 3010.11 addresses several ``housekeeping'' details.
It notes the limitation on rate increases in any 12-month period, the
existence of CPI-U as a limitation, the exception allowing annual
recapture of unused rate authority, and the allocation of unused rate
authority to each class of mail. The latter provision directly
addresses some commenters' concerns about ``cross-class'' banking.
Proposed rule 3010.12 adopts the PAEA's stated inflation measure
(CPI-U) and describes the source as the Bureau of Labor Statistics. The
clarity of the PAEA on this point meant that there was no debate among
the commenters on the benchmark that is to be used.
Proposed rules 3010.13 and 14 address the nature of proceedings and
the content of rate adjustment filings, and are the most extensive
rules in this subpart. The flagship proceedings under the former
statutory structure were 10-month trial-type ``omnibus'' rate and
classification proceedings, bookended between considerable advance
preparation on the part of the Postal Service (and many mailers) and a
post-decision phase encompassing review by the Governors and the
potential for reconsideration. Commenters agree that, barring a final
omnibus rate case under 39 U.S.C. 3622(f), the PAEA casts that
apparatus aside and replaces it with a
[[Page 50748]]
simpler process. In keeping with the new statutory emphasis on simpler
proceedings, the Commission does not propose formal discovery, Notices
of Inquiry, Presiding Officer's Information Requests, testimony, and
hearings. It anticipates handling resolution of discrepancies or other
matters through direct communication with the Postal Service.
There also has been considerable discussion of the statutory scope
of the Commission's review. The main positions are that it extends to:
--Only, or primarily, the price cap;
--The price cap, plus some evaluation of worksharing; and
--The price cap, worksharing evaluation, plus consistency with
statutory factors and objectives, plus identification of certain
features, such as differential intra-class treatment exceeding a
certain percentage.
Some commenters, such as the Postal Service and MOAA, advocate
``light-handed'' review, the OCA seeks extensive review, and some, such
as the NAA, take a middle ground. NAA suggests that during the review
period, the Commission has, at a minimum, legal authority:
--To review the notices of rate adjustments for compliance with the CPI
cap;
--To review the noticed change to ensure at least facial compliance
with the provisions of section 3622(e) regarding workshare discounts;
--To prohibit rates that are unlawful on their face from taking effect;
and
--To review the justification for changes in rate categories within a
class that exceed CPI by an amount set by the Commission, such as the
CPI plus 2 percent proposed by NAA.
NAA Reply Comments, May 7, 2007, at 25-26.
The Commission agrees that the PAEA ushers in a fundamentally
different approach to rate regulation for market dominant products, and
that its implementing regulations should honor the spirit and letter of
the new law. Proposed rule 3010.13(b) limits the appropriate scope of
public comments to compliance with the price cap formula and
consistency with certain statutory policies; thus, they represent a
marked shift away from PRA-style in-depth examination. The proposed
scope of public comment is no longer open-ended. The Commission does
not invite, and will not entertain, public comment during the 45-day
review period on matters such as costing methods. Moreover, in proposed
rule 3010.13(e), the Commission expedites review to determine the
consistency of an amended notice of rate adjustment with filing
requirements.
Filing contents. Proposed rule 3010.14 describes the contents of
the Postal Service's rate adjustment filings. The notice is to include
a schedule of proposed rates, identification of the effective date(s),
and a representation or evidence that public notice of the planned
changes has been issued or will be issued at least 45 days before the
effective date(s) of the proposed rates.
In addition, proposed rule 3010.14(b)(1)-(8) identifies explanatory
material that is to be provided. This includes the amount of the
applicable change in CPI-U calculated under Commission rules and the
percentage change in rates for each class, calculated as required by
Commission rules along with supporting workpapers. It also includes the
amount of new unused rate authority that will be generated by the
instant notice of rate adjustment and a 5-year schedule showing unused
rate authority for each class of mail, along with supporting
calculations. For Type 1-B filings, which draw on recaptured pricing
authority, the Postal Service is to identify for each affected class
how much existing unused rate authority is used in the proposed rates
calculated as required by Commission rules. See proposed rule
3010.14(d). An explanation must be provided if new unused rate
authority will be generated for a class of mail that is not expected to
cover its attributable costs.
Several commenters express concern about the potential for intra-
class increases to exceed the cap. NAA asserts that the Postal
Service's authority to exceed the annual cap for a rate category is not
unlimited, as the phrase ``predictable amounts'' is not limited to the
aggregate change for a class, but ``on its face requires that the
specific rate changes themselves within the class should be reasonably
predictable.'' NAA Comments, March 30, 2007, at 9. It contends that
objective 8, which requires that the rate schedule be ``just and
reasonable'' supports this interpretation. Id. NAA suggests that the
Commission impose a standard whereby, absent special justification,
increases for a rate category beyond a pre-established range (such as
CPI plus 2 percent) would not be considered ``predictable'' or ``just
and reasonable.'' Id. at 9-10. It asserts that this approach, which it
refers to as a ``soft band,'' would satisfy the statutory objective of
providing the Postal Service with pricing flexibility, while honoring
the provision in objective 8 allowing changes of unequal magnitude
within, between or among class of mail. Id. at 9; NAA Reply Comments,
May 7, 2007, at 8. In terms of proposed rules, NAA suggests that the
Postal Service could be required to certify that no rate would change
by more than the permitted range (when this is the case) or bring
changes exceeding the range to the Commission's attention and provide
additional justification. NAA Comments, March 30, 2007, at 10. It
contends that over time, as the Commission reviews these explanations
on a case-by-case basis, it will become evident which explanations are
adequate to allow the rates to become effective, and which are not. NAA
Reply Comments, May 7, 2007, at 8.
The Parcel Shippers Association (PSA) does not suggest prohibiting
adjustments beyond a certain level, but suggests that the Commission
require the Postal Service to provide a written, on the record,
justification for any market dominant rate increases that substantially
exceed inflation. PSA Comments, April 6, 2007, at 4-5, 22-23. (Emphasis
in original.)
In a similar vein, OCA suggests, given the potential for large
percentage increases in rates for individual subclasses, that subclass
increases be capped at 50 percent above the overall class increase. OCA
Comments, June 18, 2007, at 2, 15-19. It notes:
Some of the principles of rate setting include continuity of
expectations, implementation of rates that are understandable, and
perceived and/or actual fairness. Accordingly, some level of
subclass protection appears to be appropriate. We suggest 50 percent
as reasonable: that is, if rates for a class of service increase by
an overall maximum of two percent, no subclass rate would increase
by more than three percent.
Id. at 15.
Discover Financial Services, LLC (DFS) asserts that the OCA's
recommendation is ``at odds with the legislation, which nowhere
indicates that such a cap would be permissible. Indeed, notions that
rates should be capped in any fashion other than at the class level
were much debated in Congress and specifically rejected as not giving
the Postal Service sufficient rate flexibility.'' DFS Further Comments,
July 16, 2007, at 4.
NAA, PSA and OCA identify a clear example of where statutory
objectives may conflict. The Commission does not view capping subclass
increases as sanctioned by the PAEA. Requiring a separate certification
or justification is not statutorily suspect in the same sense; however,
adopting a rule of this sort makes the process cumbersome. It is to be
expected that rate adjustments within a class will be both above and
[[Page 50749]]
below average. Requiring written justification for individual rates is
contrary to the goals of a simpler, more flexible, process. The
Commission finds that the Postal Service should be given an opportunity
to exercise its pricing flexibility by making changes of unequal
magnitude without having to file separate justification for what some
might consider ``excessive'' above-cap increases within a class. Should
the Postal Service abuse this discretion, and regularly fail to develop
rate adjustments consistent with the statutory objective of maintenance
of just and reasonable rate schedules, additional regulations in this
area can be developed.
Information supporting proposed workshare discounts. The PAEA
charges the Commission with establishing a modern system of ratemaking
that is designed to achieve nine specific objectives including to
maximize incentives to reduce costs and increase efficiency. The PAEA
also enumerates several factors which must be considered by the
Commission in establishing this system. Two of these factors--
3622(c)(5), the degree of preparation of mail for delivery into the
postal system performed by the mailer and its effect upon reducing
costs to the Postal Service; and 3622(c)(12), the need for the Postal
Service to increase its efficiency and reduce its costs--can be linked
directly to workshare discounts. Section 3622(e)(2) directs the
Commission to ensure that [workshare] discounts do not exceed the cost
that the Postal Service avoids as a result of workshare activity.\10\
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\10\ There are four limited exceptions to this mandate: (1) When
the discount is new and mailers must be encouraged to use it; (2)
when the discount is already in place and reducing it will cause
rate shock; (3) when the discount is provided in connection with
subclasses consisting exclusively of mail matter of educational,
cultural, scientific, or informational value; and (4) when reducing
or eliminating the discount would cause a shift in mail mix that
would lead to operational inefficiencies for the Postal Service. For
the first two exceptions, the Postal Service must eventually phase
out the excess discount.
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The PAEA defines workshare discounts as rate discounts provided to
mailers for the presorting, pre-barcoding, handling, or transportation
of mail. Both the Commission and the Postal Service have long held the
view that setting workshare discounts in line with the Efficient
Component Pricing Rule (ECPR) is an effective method for encouraging
efficient mailing practices. The ECPR is the principle that workshare
discounts should be set equal, on a per-unit basis, to the costs
avoided by the Postal Service when the mailer performs the workshare
activity.
Several parties reiterated the importance of ECPR in encouraging
efficiency and satisfying the objectives of the PAEA. Pitney Bowes
states ``regulations should require the Postal Service to establish
discounts that reflect the full measure of workshare-related costs
avoided to the extent practicable.'' Pitney Bowes Comments, April 6,
2007, at 36. In addition, Pitney Bowes sponsored the comments of John
Panzar which focus exclusively on the merits of continued use of ECPR
in ratemaking. The Alliance of Nonprofit Mailers, National Association
of Presort Mailers, and National Postal Policy Council (ANM/NAPM/NPPC)
believe that the Postal Service's rates should be presumed reasonable
as long as the discounts satisfy the ECPR. ANM/NAPM/NPPC Comments,
April 6, 2007, at 16-19.
Support for efficient component pricing is also found in testimony
received during the Commission's field hearings. Don Hall, Jr.,
President and CEO of Hallmark Cards, seeks assurance that the workshare
discounts will reflect the true savings to the Postal Service.
Transcript of Kansas City Field Hearing, June 22, 2007, at 29. John
Campo, Vice President of Postal Relations for Pitney Bowes, said the
``regulations should encourage the Postal Service to adopt pricing
incentives or work sharing discounts to fully reward mailer activity
that reduces total postal system costs.'' Transcript of Wilmington
Field Hearing, July 9, 2007, at 10. John Carper, Director of Mail and
Receiving Services, Pepperdine University, claims that ``[worksharing]
can flourish fully only if the discounts offered by the Postal Service
* * * he costs that the Postal Service saves.'' Transcript of Los
Angeles Field Hearing, June 28, 2007, at 39.
In contrast, Advo, Inc. presents three reasons why ECPR should not
be followed in setting rates under the PAEA:
First, the statute does not permit consideration of factors
other than compliance with price caps in the review process. Second,
ECP, although useful in theory as a pricing tool, is not the only
appropriate consideration in setting discounts and is susceptible to
being misapplied. Third, adoption of ECP as the ``gold standard''
will inevitably and unnecessarily impinge on the Postal Service's
pricing flexibility--a flexibility that is imperative to its ability
to remain viable under the price cap regime.
Advo Reply Comments, July 3, 2007, at 6.
MOAA, NAA, and the Postal Service recognize the importance of the
ECPR, but contend that other, perhaps competing, factors are also
important. Therefore, they believe that ECPR should not be a
requirement for workshare discounts.
The Commission strongly believes that efficient component pricing
should be used as a guiding principle in establishing and maintaining
workshare discounts. In both sections 3622(b) and 3622(c) the statute
stresses the need for efficient rates and efficient component pricing
is an established method of measuring efficient ratemaking.
Nonetheless, the Commission recognizes that other factors must also be
considered, and that the PAEA grants the Postal Service substantial
flexibility in setting rates. However, in the interest of transparency
and accountability, the Postal Service has a burden to explain how its
rates, including workshare discounts, meet the objectives and factors
of the PAEA.
The Postal Service has proposed that when it files its notice of
price adjustment, it will also file, for pre-existing workshare
discounts, a comparison of the new (or unchanged) discount price with
the historical, Commission reviewed cost avoidances of the last Annual
Compliance Review, and will provide appropriate justification for any
discount that exceeds those cost avoidances. Postal Service Comments,
June 18, 2007, at 11. The proposed rules reflect this undertaking. To
meet its burden of ensuring that the rates are in compliance with the
objectives and factors of the PAEA, the Postal Service must also
identify and explain any discounts that are substantially below the
cost avoidances.
The Postal Service is to provide with each notice of rate
adjustment a schedule of the workshare discounts included in the
proposed rates, together with a companion schedule listing underlying
avoided costs, along with supporting workpapers. The avoided cost
figures must be developed from the most recent PRC Annual Compliance
Report. The Postal Service is to provide a separate justification for
all proposed workshare discounts that exceed avoided costs. The Postal
Service shall also identify and explain discounts that are set
substantially below avoided costs, and explain any relationship between
discounts that are above and those that are below avoided costs.
In addition, when new workshare discounts are established, the
Postal Service is to include with its filing a statement explaining its
reasons for establishing the discount; provide all data, economic
analyses, and other information believed to justify the discount; and
certify, based on
[[Page 50750]]
comprehensive, competent analyses that the discount will not adversely
affect either the rates or the service levels of users of postal
services who do not take advantage of the discount.
Lastly, the Postal Service is to provide a discussion of how the
proposed rates will help achieve the objectives listed in 39 U.S.C.
3622(b) and properly take into account the factors listed in 39 U.S.C
3622(c).
G. Overview of Subpart C--Rules for Applying the Price Cap
This subpart consists of nine rules related primarily to
administration of the price cap mechanism. Proposed rule 3010.21
addresses how to calculate the statutory annual inflation-based
limitation. A question has arisen over the
* * * an annual limitation * * * equal to the change in the Consumer
Price Index for All Urban Consumers unadjusted for seasonal
variation over the most recent available 12-month period preceding
the date the Postal Service files notice of its intention to
increase rates.
39 U.S.C. 3622(d)(1)(A). (Emphasis added.)
Two suggestions have emerged on this record, but commenters
generally agree that both approaches are consistent with the statute.
One is referred to as the ``point-to-point'' method and was initially
suggested by the Postal Service and the OCA. The other is the ``running
average'' or ``weighted average'' method which is incorporated in the
proposed rules.
JPMorgan Chase & Company (Chase) comments are representative. Chase
urges the Commission to calculate the index adjustment based on a 12-
month average of CPI levels, rather than on a ``snapshot'' of year-
over-year changes to the CPI between a single pair of beginning and end
dates. It reasons:
While the two approaches should achieve similar results over the
long run, the use of the twelve-month average is likely to produce a
much less bumpy and volatile path along the way by damping the
short-term oscillations in the CPI index. For Chase and other
mailers that operate on an annual budget cycle--i.e., for the
mailers that generate most of the Postal Service's volume, reducing
the short-term unpredictability of cost increases is extremely
important.
Emens Testimony at 5.\11\
\11\ Testimony of Daniel C. Emens on Behalf of JPMorgan Chase &
Co., July 9, 2007 (Emens Testimony).
---------------------------------------------------------------------------
Many parties commented that they prefer the moving average method
because it provides more predictability and stability in rates. NAA
states, the average method ``better advance[s] the statutory objective
of creating `predictability and stability in rates' while promoting
transparency in rates and assuring that the Postal Service is
financially sound.'' NAA Comments, June 18, 2007, at 2. See also Advo
Comments, June 18, 2007, at 2; Advo Reply Comments, July 3, 2007, at 1;
GCA Reply Comments, July 3, 2007, at 1-2; Pitney Bowes Reply Comments,
July 3, 2007, at 3; and PostCom Reply Comments, July 3, 2007, at 2.
Contrary to these views, OCA states that the point method ``does
not result in significantly less rate stability and predictability.''
OCA Reply Comments, July 3, 2007, at 6. It contends that the moving
average method ``would have substantial lags in the updating of
rates.'' OCA Initial Comments, June 18, 2007, at 7. See also Valpak
Comments, June 18, 2007, at 5; and OCA Reply Comments, July 3, 2007, at
2-4.
The Postal Service expressed concern that using the moving average
method includes 24 months of data rather than 12. USPS states, ``It is
arguable that calculating the price cap by reference to CPI-U data over
a 24-month period is counter to the statutory requirement that the CPI
calculation be ``equal to'' the change in CPI-U ``over the most recent
available 12-month period.'' Postal Service Comments, June 18, 2007, at
3-4. APWU also believes that the point method better adheres to the
plain language of the PAEA. APWU Comments, June 18, 2007, at 2-3. APWU
and Valpak advocate the point method as providing more transparency and
less administrative burden. APWU Comments, June 18, 2007, at 2; and
Valpak Comments, June 18, 2007, at 4-5.
The majority of commenters are satisfied that both the moving
average method and point method meet the statutory requirements of the
PAEA. MOAA states, ``The provisions of [the] PAEA are sufficiently
broad that either the [moving average method] or the [point method]
could be used for the purpose of calculating the CPI cap limitation as
set forth in 3622 (b), (c) and (d).'' MOAA Comments, June 18, 2007, at
1. See also GCA Comments, June 18, 2007, at 2; Advo Comments, June 18,
2007, at 2; PostCom Comments, June 18, 2007, at 2; and Pitney Bowes
Comments, June 18, 2007, at 2.
The Commission proposes to use the moving average method of
calculating the CPI-U limitation. This method provides mailers with
stable and predictable rates, and also grants the Postal Service the
same benefits. The moving average method does not impose any undue
administrative burden on the Postal Service and does not inhibit
transparency. The Commission finds the increased predictability and
stability resulting from use of the moving average method are quite
valuable, and directly further the specific objectives of the PAEA. The
Commission derives the moving average method from Bureau of Labor
Statistics (BLS) monthly CPI-U values. At the end of each calendar
year, BLS calculates the annual percentage change between two years as
the percentage change between the two years' annual averages. The only
difference in methodology is that BLS applies this methodology to
calendar years, and the Commission will apply it to 12-month periods.
Calculation of the annual limitation in this method involves three
steps. First, a simple average CPI-U index (Recent Average) is
calculated by summing the most recently available 12 monthly CPI-U
values from the date the Postal Service files notice of its intentions
to increase rates, and dividing the sum by 12. Then, a second simple
average CPI-U index (Base Average) is similarly calculated by summing
the 12 monthly CPI-U values preceding those used in the Recent Average
calculation and dividing the sum by 12. Finally, the percentage change
between the Recent Average and the Base Average is computed, using the
following formula: Annual Limitation (Moving Average Method) = (Recent
Average/ Base Average) - 1.
Example 1 illustrates the annual limitation calculation, using the
moving average method, assuming that the Postal Service had filed a
hypothetical notice of its intentions to increase rates during the
third week of April 2006.\12\
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\12\ All CPI-U data is obtained from the BLS Web site at: http://data.bls.gov/cpi-bin/surveymost
.
---------------------------------------------------------------------------
[[Page 50751]]
[GRAPHIC] [TIFF OMITTED] TP04SE07.000
Example 1 assumes that rate filings are 12 months apart; that is,
that the Postal Service filed its most recent previous notice for a
rate increase in April 2006. This assumption can be adjusted in two
ways depending on when the Postal Service files a notice of rate
adjustment.
The first adjustment occurs when the Postal Service files a notice
of rate adjustment less than one year after the previous adjustment. In
this instance, if the calculation were to use 12 months of data, the
Postal Service would benefit from double counting months of CPI data.
This would violate the statutory limitation. To remedy this problem, a
partial year limitation is calculated.
Example 2 calculates a partial year limitation. First, a simple 12-
month average must be calculated using the most recently available 12
months of CPI-U data from the BLS Web site (Recent Average). Then the
partial year limitation is calculated by dividing the Recent Average by
the Recent Average from the most recent previous notice and subtracting
1. The formula is as follows: Partial Year Limitation = (Recent
Average/Recent Average from most recent previous notice) - 1.
Still assuming that the Postal Service filed its first notice of
rate adjustment in April of 2006 (Example 1), assume now that the
Postal Service files its second hypothetical notice of rate adjustment
in October 2006 (six months later). Example 2 shows how the partial
year limitation will be calculated for the October 2006 rate
adjustment.
[[Page 50752]]
[GRAPHIC] [TIFF OMITTED] TP04SE07.001
A corresponding adjustment can be made should the Postal Service
file a notice of rate adjustment more than 12 months after the last
adjustment. This scenario provides no reason to alter the calculation
of the annual inflation-based limitation, but does present a different
concern; there are several months of CPI-U changes that the Postal
Service may lose. The clear intent of the statutory provision allowing
for recapture of unused rate authority is to encourage the Postal
Service to whenever possible refrain from imposing the maximum
permissible rate increases. If the Postal Service can delay imposing
increases on the public, it should not be penalized. See proposed rule
3010.26(c). To address this concern, the interim unused rate authority
will be added to the cumulative unused rate authority.
Still assuming that the Postal Service filed its first notice of
rate adjustment in April 2006 (Example 1), assume now that the Postal
Service files its second hypothetical notice of rate adjustment in July
2007 (15 months later). Example 3 illustrates how the price cap will be
calculated for the July 2007 notice of rate adjustment, along with the
calculation of the three months of interim unused rate authority. To
calculate interim unused rate authority, divide the Base Average of the
current notice by the Recent Average of the last notice and subtract 1.
The formula to calculate the amount of interim unused rate authority is
as follows: Interim Unused Rate Authority = (Base Average for Current
Notice/ Recent Average for Last Notice) - 1.
[[Page 50753]]
[GRAPHIC] [TIFF OMITTED] TP04SE07.002
APWU argues for cross-class application of unused rate authority
and recommends a method of weighting the revenue. This cross-class
application of unused rate authority would grant the Postal Service the
ability to use unused rate authority from one class, and apply it to
other classes of mail in later years. APWU Comments, April 6, 2007, at
9-10. Several parties assert that this would (1) be at odds with
section 3622(d)(2)(C), which states that the annual limitations shall
apply to a class of mail and defines unused rate authority in terms of
an individual class of mail; (2) be inconsistent with the legislative
history; and (3) merge multiple class-specific baskets into a single
basket. See ANM/MPA Reply Comments, May 7, 2007, at 3-6; ANM/NAPM/NPPC
Reply Comments, May 7, 2007, at 9-11; MOAA Reply Comments, May 7, 2007,
at 11; Pitney Bowes Comments, April 6, 2007, at 9; and USPS Reply
Comments, May 7, 2007, at 16.
The Commission agrees that unused rate authority for a given class
of mail may only be applied to the class where it originated.
Finally, The McGraw-Hill Companies, Inc. (McGraw-Hill) suggests
that the rules should include a method to reduce the price cap if the
Postal Service performance levels deteriorate, or if the Postal Service
places costly mail preparation requirements on mailers. See McGraw-Hill
Reply Comments, July 30, 2007, at 6-7. During the Kansas City field
hearings, witness Stumbo of Meredith Corporation expressed a similar
concern:
We would submit that the critical issues regarding cost shifting
and service reduction are [sic] the rate-setting process must
contain a mechanism to adjust rates to reflect the shift in cost
from the Postal Service to private industry. In addition, the rules
should contain methodology to adjust rates to reflect the diminished
level of service the imposition of preparation rule changes or other
means.
Transcript of Kansas City Field Hearing, June 22, 2007, at 40.
No commenter has suggested a method for applying such adjustments.
The Commission is sympathetic to these concerns, yet finds the better
course is to defer such considerations. The statute establishes a
system of accountability through increased transparency. The Commission
is developing separate rules providing for annual Postal Service
reports that will include data on service achievement. Additionally,
proposed rule 3020.91 requires the Postal Service to inform the
Commission of changes that would alter the nature of a product through
the imposition of preparation rule changes.
The Commission expects that the Postal Service will operate within
both the letter and the spirit of the PAEA. For now, it is best to
presume that the Postal Service will do so. If experience shows that
additional regulations in this area are necessary to achieve the
objectives of the legislation, the Commission is obligated to develop
such regulations, or
[[Page 50754]]
recommend to Congress appropriate additional legislation.
Test for compliance with the annual limitation. Proposed rule
3010.20 states that the appropriate annual limitation shall be applied
to a measure of the rates paid by mail sent in each class for which
rate adjustments are to be made to determine whether planned rates are
consistent with the annual limitation.
39 U.S.C. 3622(d) requires that the system for regulating rates and
classes for market dominant products include a limitation on the
percentage increase in rates. To calculate the percentage change in an
individual rate is a simple matter, but section 3622(d)(2)(A)
stipulates that the restriction be applied at the class level.
Therefore, to determine compliance in the context of a pre-
implementation compliance review of a notice of rate adjustment, it is
necessary to develop rules that provide a means of calculating the
aggregate percentage change in rates for each class. To accomplish
this, weights (in the form of billing determinants) must be applied to
the set of rates that comprise a class.
Postal Service proposal. The Postal Service proposes to apply the
most recent available billing determinants to the current rates, then
apply the same billing determinants to the new rates and compare the
resulting revenues to determine the change in rates for a class. As
acknowledged by the Postal Service, this is not ideal because an annual
rate cycle combined with the need for advance notice dictates that the
billing determinants will not correspond to a single set of rates, but
will reflect mailer behavior for part of a year at the current rates
and part at the previous rates. Postal Service Reply Comments, May 7,
2007, Appendix C. Rather than debating the rates (current or new) to
which the ideal billing determinants would correspond, the parties'
comments have focused on more practical considerations regarding the
use of historical billing determinants instead of forecast billing
determinants.
Parties' positions. On this, there is near universal support for
the Postal Service's proposed approach, or some slight variation
thereof. Pitney Bowes, OCA, MOAA, ANM/MPA, APWU, PostCom, Advo, and
JPMorgan/Chase all support the use of historical billing determinants
as weights in their comments. The primary rationale for this position
is that historical data are far less likely to be controversial than
forecasts, and given the limited time and public participation for the
review of notices of rate adjustment, simplicity and speed of analysis
should take precedence.
There is some disagreement regarding the treatment of
classification changes and negotiated service agreements. The Postal
Service proposes to make adjustments to the historical billing
determinants to incorporate the effects of classification changes, such
as the creation or elimination of rates. It proposes to use known mail
characteristics and reasonable judgments to make the necessary
adjustments. See Postal Service Comments, June 18, 2007, at 7-10, inter
alia. This proposal is supported by MOAA. See also MOAA Comments, April
6, 2007 at 4-5; ANM/MPA Comments, May 7, 2007, at 1-2; and APWU
Comments, June 18, 2007, at 3-4.
PostCom takes the position that the effects of classification
changes are outside the scope of the Commission's pre-implementation
review of a notice of rate adjustment. It argues that the effects of
such changes on compliance with the price cap may only be determined in
a post hoc review of the new rates. PostCom concludes that, ``any
attempt by the Commission to assess the effects of a change in rate
design at the time that the change is proposed will entail a re-
introduction of the old cost of service methods that the Commission has
used under the Postal Reorganization Act, including the attempt to
establish a test year, the reintroduction of roll-forwards and volume
and revenue forecasts, and all of the uncertainty, controversy and
confusion that these methods entail.'' PostCom Comments, June 18, 2007,
at 4-5.
Commission analysis. The Commission's proposed rules calculate the
percentage change in rates using the most recent available billing
determinant as weights. As many parties point out, any attempt to
develop a forecast of billing determinants would likely be
controversial and complex, and a worthwhile analysis and resolution
cannot realistically be achieved in the context of a pre-implementation
review under section 3622(d)(1)(C).
The rules also instruct the Postal Service to make reasonable
adjustments to the billing determinants to account for the effects of
classification changes. The Postal Service has stated that such
adjustments will typically be straightforward and based on known mail
characteristics. Any adjustments are to be fully explained by the
Postal Service at the time of the notice.
The Commission recognizes that the pre-implementation method of
calculating the percentage change in rates in the proposed rules is not
a perfect measure of what the actual change in rates will be. The
billing determinants to be used will likely not correspond to a single
set of rates, and adjustments for classification changes will be
imperfect. Some commenters suggest that the after-the-fact review will
be the most effective means of ensuring compliance with the rate cap.
Id. at 4-6; see also Transcript of Wilmington Field Hearing, July 9,
2007, at 47. (Emens).\13\ The statute requires the Commission to
monitor the effectiveness of these rules and consider modifications to
improve their effectiveness as events warrant.
---------------------------------------------------------------------------
\13\ See also Campbell James, An Analysis of Provisions of the
Postal Accountability and Enhancement Act Relating to the Regulation
of Postal Rates and Services. August 3, 2007, at 52-55.
---------------------------------------------------------------------------
Proposed rule 3010.23, captioned ``Calculation of percentage change
in rates,'' explains in paragraph (b) that for each class of mail, the
percentage change in rates is calculated in three steps. The first step
involves multiplying the volume of each rate cell in the class by the
current rate for that cell and summing the resulting products. (In the
case of seasonal or temporary rates, the most recently applied rate
shall be considered the current rate.) The second step involves
multiplying the same set of rate cell volumes by the corresponding
planned rate for each cell and summing the resulting products. The
third step involves calculating the percentage change in rates by
dividing the results of the first step by the results of the second
step and subtracting 1 from the quotient. The result is expressed as a
percentage. Paragraph (c) sets out the formula.
Treatment of volume associated with negotiated service agreements.
Advo and Pitney Bowes advocate the exclusion of negotiated service
agreements from the determination of percentage changes in rates. They
assert that including the lower rates offered to negotiated service
agreement partners will allow for offsetting larger increases for non-
negotiated service agreement mail, thus undermining the price cap
protection afforded to non-participating mailers. See Advo Comments,
June 18, 2007, at 4; Pitney Bowes Comments, June 18, 2007, at 4. The
Postal Service disagrees, arguing that in certain situations, some
negotiated service agreement mailers may pay prices higher than list
prices. If this occurs, excluding negotiated service agreements from
the calculation of change in revenue would deny non-negotiated service
agreement mailers the opportunity for potentially lower
[[Page 50755]]
increases. Postal Service Reply Comments, July 3, 2007, at 6-7.
The proposed rules exclude the effects of negotiated service
agreements from the calculation of percentage change in rates. The
foundational argument in support of negotiated service agreements is
that they can be structured to benefit the participating mailer and the
Postal Service, while not harming (and hopefully, benefiting) non-
participating mailers. Pitney Bowes and Advo are correct in their
conclusion that including negotiated service agreements in the test for
compliance with the rate cap may lead to rates for non-participating
mailers that exceed the rate cap. This would undermine the rationale
for permitting negotiated service agreements.
Proposed section 3010.24 addresses volume associated with
negotiated service agreements. Paragraph (a) provides that mail volumes
sent at non-tariff rates under negotiated service agreements are to be
included in the calculation of percentage change in rates as though
they paid the appropriate rates of general applicability. Where it is
impractical to identify the rates of general applicability, the volumes
associated with the mail sent under the terms of the negotiated service
agreement shall be excluded from the calculation of percentage change
in rates. Paragraph (b) requires related support in the form of
identification and explanation of all assumptions made with respect to
the treatment of negotiated service agreements in the calculation of
the percentage change in rates and the rationale for assumptions.
Limit on application of banking exception. Proposed rule 3010.25
addresses certain limits on unused rate adjustment authority. It
provides that these adjustments may only be applied together with
inflation-based limitation rate adjustments or when inflation-based
limitation rate adjustments are not possible. It further provides that
unused rate adjustment authority may not be used in lieu of an
inflation-based limitation rate adjustment.
H. Overview of Subpart D--Rules for Rate Adjustments for Negotiated
Service Agreements (Type 2 Rate Adjustments)
Section 3622(c)(10) of the PAEA requires consideration of the
desirability of special classifications for both postal users and the
Postal Service. Subsections 3622(c)(10)(A) and (B) mandate that such
agreements must improve the net finances of the Postal Service or
enhance operational performance while not causing unreasonable harm to
the marketplace. Section 3622(d)(1)(C) further details the review
period that will begin ``not later than 45 days before the
implementation'' of any agreement made under subsection (c)(10). These
subsections of the PAEA provide the basis and criteria for evaluating
and approving negotiated service agreements.
In their comments, parties have expressed a range of views on how
the Commission should implement the legislative framework for
negotiated service agreement regulation. The level of review described
in these diverse comments can be summarized into two groups: Parties
who consider the current negotiated service agreement process amenable
with the PAEA, and parties who assert that the PAEA calls for a
significantly streamlined process.
Parties who support a continuation of the current process, and in
some instances, the regulations as currently written, include Valpak,
NAA, Jon Mulford Associates, and APWU. This viewpoint was summarized by
NAA, stating
[t]he Commission should continue to adhere to its established,
balanced approach to considering special classifications in the form
of negotiated services agreements or niche classifications. This
includes conducting a thorough public and prior review, which
results in a determination that the proposed mailer-specific
agreement may or may not take effect. In keeping with the new
statutory approach giving the Commission the final say, that
determination should be subject to judicial review.
NAA Reply Comments, May 7, 2007, at 13.
Parties supporting a simplified and minimal review of negotiated
service agreements include Advo, Discover Financial Services, LLC
(DFS), MOAA, Pitney Bowes, and Time Warner. This viewpoint was
summarized by Pitney Bowes stating, ``The elimination of advance, on-
the-record Commission review of NSAs should significantly enhance the
Postal Service's ability to meet the needs of mailers * * *.'' Pitney
Bowes Reply Comments, May 7, 2007, at 13.
The Commission finds that the statute requires a regulatory
approach that combines elements of the divergent views among parties.
The legislation seeks to provide the Postal Service with added
flexibility to enhance producer and consumer surplus through negotiated
service agreements. The proposed rules will decrease the administrative
and economic burden in implementing such agreements. However, arguments
such as those presented in the comments of Jon Mulford, stating ``[t]he
Commission should insure that periodic audits verify that claimed
benefits persist through the duration of the NSA'' also reflect the
policies of the PAEA. See Jon Mulford Associates Comments, March 14,
2007, at 4. Combining flexibility and accountability is the essence of
the new legislation, and the Commission attempts to achieve the proper
balance in the subpart D rules.
This subpart consists of four rules. Proposed rule 3010.40
expresses the Commission's objective in administering the
implementation of negotiated service agreements. It clarifies that this
objective is directly tied to statutory requirements in 39 U.S.C.
3622(c)(10) mandating that special classifications either improve the
net financial position of the Postal Service or enhance the performance
of operational functions and do not cause unreasonable harm to the
marketplace.
Timing of notice and review. Proposed rule 3010.41 addresses
procedures. Paragraphs (a)(1) and (2) reflect the requirements for Type
2 changes that public notice and notice to the Commission occur not
later than 45 days prior to the intended rate implementation date.
Contents of filing. Proposed rule 3010.42 addresses the contents of
a notice in support of a negotiated settlement agreement. It indicates
that this should include, at a minimum, a copy of the negotiated
service agreement and a statement identifying all parties and a
description explaining the operative components. It is also to include
the estimated mailer-specific costs, volumes and revenues of the Postal
Service absent the implementation of the agreement; the estimated
mailer-specific costs, volumes and revenues of the Postal Service which
result from implementation; and an analysis of the effects of the
agreement on the contribution to institutional costs from mailers not
party to the agreement. If mailer-specific costs are not available, the
source and derivation of the costs that are used shall be provided,
together with a discussion of the currency and reliability of those
costs, and their suitability as a proxy for the mailer-specific costs.
The Postal Service is also to identify each component of the
agreement expected to enhance the performance of mail preparation,
processing, transportation or other functions in each year of the
agreement, and a discussion of the nature and expected impact of each
such agreement. Furthermore, it is to provide details regarding any and
all actions to assure that the agreement will not result in
unreasonable harm to the marketplace.
[[Page 50756]]
Finally, the Postal Service is to collect and provide annual data
that are intended to enable the Commission and interested persons to
evaluate whether each negotiated service agreement has met, and is
likely to meet in the future, the expectations that caused the Postal
Service to enter the agreement. It is understood that not every
agreement will meet Postal Service expectations. Nonetheless,
continuing periodic review is the best way to assure that flaws in
Postal Service projection techniques are recognized and remedied.
I. Overview of Subpart E--Rules for Rate Adjustments in Exigent
Circumstances (Type 3 Rate Adjustments)
The PAEA also requires that the Commission establish procedures to
allow rate adjustments in excess of the annual limitation on an
expedited basis due to either extraordinary or exceptional
circumstances, provided:
[T]here is not sufficient unused rate authority as defined in 39
U.S.C. 3622(d)(2)(C); and
[T]he Commission determines, after notice and opportunity for a
public hearing and comment, and within 90 days after any request by
the Postal Service, that such adjustment is reasonable and equitable
and necessary to enable the Postal Service, under best practices of
honest, efficient, and economical management, to maintain and
continue the development of postal services of the kind and quality
adapted to the needs of the United States.
See 39 U.S.C. 3622(d)(1)(E).
There are several significant differences between a Type 3 change
and the other three types. First, based on the legislative history, a
Type 3 change is expected to be an atypical occurrence, while the other
types are considered more routine. Types 1-A, 1-B and 2 changes follow
the streamlined 45-day notice-and-review process, while a Type 3 filing
occurs pursuant to a request and a hearing, with up to 90 days for
consideration.
Commenters addressing implementation of the exigency clause in 39
U.S.C. 3622(d)(1)(E) focus mainly on the extent to which Commission
rules should define ``exigent circumstances'' for purposes of rate
adjustments; the related possibility, if the definition is too broad,
that frequent requests for exigent increases could undermine the
intended discipline of the price cap mechanism; and the nature and
extent of public participation in exigent request filings.
The Postal Service describes the PAEA's exigency clause as a safety
valve for those ``extraordinary or exceptional situations in which the
[price] cap cannot be met even through honest, efficient, and
economical management.'' Postal Service Comments, April 6, 2007, at 16.
It does not address the content of an exigent rate filing or the role
of the public, but asserts, with respect to defining exigent
circumstances, that it is not necessary or prudent for the Commission
to attempt to specify in this rulemaking the situations that might be
covered in advance of an actual need to do so. Postal Service Reply
Comments, May 7, 2007, at 15.
Pitney Bowes and Time Warner share the Postal Service's view that
the Commission should not attempt to define qualifying circumstances at
this time. Pitney Bowes suggests addressing the question on a case-by-
case basis as circumstances arise. Pitney Bowes Comments, April 6,
2007, at 10. Similarly, Time Warner says:
* * * the Commission need not and should not attempt to
determine a substantive standard for granting Postal Service
requests under the exigent circumstances provision (other than the
standard set out in Sec. 3622(d)(1)(E) itself) until presented with
the concrete circumstances attending an actual Postal Service
request under that provision; the kind of judgment that the
Commission is called on to make in deciding whether to grant such a
request cannot be exercised well in the abstract or upon
hypotheticals; moreover, to the extent that such a standard might
err on the side of leniency, it would undermine the discipline that
the price caps are intended to instill, and to the extent that it
might err on the side of stringency, it could create perverse
incentives to find alternative ways of circumventing the caps.
Time Warner Comments, April 6, 2007, at 22-23.
Several other commenters echo Time Warner's concern about the
relationship between the exigency clause and the price cap mechanism.
The Alliance of Nonprofit Mailers, National Association of Presort
Mailers, and National Postal Policy Council jointly state: ``* * * the
exigency provision for ``extraordinary or exceptional'' services must
be drawn very narrowly; otherwise the availability of this mechanism
will undermine the index as a constraint on costs and efficiency.''
ANM/NAPM/NPPC Comments, April 6, 2007, at 2 and 11; see also ANM/NAPM/
NPPC Reply Comments, May 7, 2007, at 8. They urge the Commission to
make it clear that exigent financial consequences should have to be
large enough to threaten the Postal Service's financial integrity, and
must not be due to an unreasonable failure to hedge and insure against
risk or any other form of inefficient or uneconomical management. ANM/
NAPM/NPPC Comments, April 6, 2007, at 11. Randy Stumbo, representing
Meredith Corporation, says: ``An easy out provided by a liberal
exigency provision would seriously damage the cost control incentive
created by a rate cap.'' Stumbo Testimony at 3.\14\
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\14\ Testimony of Randy Stumbo, Director of Distributoin and
Postal Affairs for Meredith Corporation, Postal Regulatory
Commission Field Hearing, Kansas City, June 22, 2007 (Stumbo
Testimony).
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Don Hall, Jr., representing Hallmark, also cautions: ``* * * [I]f
the exigency provision is over-used, mail users in all classes will
have to conclude that the price cap scheme is not going to succeed--
and, as the Act also provides, after 10 years this Commission will have
to devise something better.'' Hall Testimony at 7.\15\
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\15\ Testimony of Don Hall, Jr., President and CEO, Hallmark
Cards, Inc., June 22, 2007 (Hall Testimony).
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Mr. Hall also asserts that it is imperative that the Commission
clarify what circumstances warrant the rate cap to be pierced and to
make certain that the Postal Service exhaust all other resources
provided by its ability to retain earnings before seeking rate
increases above the cap. Id. at 12.
Mr. Stumbo seeks more specific direction, as he suggests:
While it seems premature and imprudent to explicitly define in
the abstract the events under which exigency may be exercised, it is
necessary to define what it is not. Attributable cost shortfalls at
the class or subclass level do not constitute exigent circumstances.
Nor should the exigency clause be used to re-apportion rates in any
way.
Stumbo Testimony at 3.
The Magazine Publishers Association (MPA) and the Alliance of
Nonprofit Mailers (ANM) agree that the failure of a class to cover its
attributable costs should be affirmatively identified as not qualifying
as an exigent circumstances. ANM/MPA Comments, April 6, 2007, at 11-12.
Time Warner, however, claims that the Commission need not and should
not decide that failure of a class to recover attributable costs could
never constitute exigent circumstances justifying above-cap increases.
Time Warner Reply Comments, May 2, 2007, at 33.
The Greeting Card Association (GCA) suggests that the Commission
could clarify the scope of the exigency clause by defining
``extraordinary or exceptional circumstances'' to exclude matters that,
under the Postal Reorganization Act of 1970, would have been dealt with
under the provision for contingencies. GCA Comments, April 6, 2007, at
9. It says the Commission should provide guidance on how the nature of
the ``extraordinary or exceptional'' circumstances motivating the
adjustment relates to the allocation
[[Page 50757]]
of burdens among mail users. Id. at 11-12. GCA also concludes, after
addressing the potential impact of external and internal events, that
the Commission:
* * * should make clear in setting up the subparagraph (E)
[exigency clause] procedures that the Postal Service, in first
presenting its proposed adjustment, must explain fully (i) the
nature of the extraordinary or exceptional circumstances claimed to
justify the rate change, and (ii) the theory on which it considers
its proposed rate changes appropriate to reflect (i).
Id. at 13. Moreover, it asserts that this explanation should be
required to be part of the initial filing, as the Commission must make
its required findings in 90 days or less. Id.
Commenters differ on the nature and extent of public comment. Advo,
for example, simply notes, in contrasting the types of public input
called for in the PAEA, that the statute requires that the Commission
provide ``notice and opportunity for public hearing and comment,'' but
does not address the nature and scope of the public hearing. Advo
Comments, April 6, 2007, at 5. GCA and Time Warner note that the PAEA
provides an opportunity for public participation when the Postal
Service files an exigent request, but do not contend that this mandates
formal trial-type hearings. GCA, instead, asserts that the procedures
must provide ``some opportunity'' for parties to raise challenges to
the bases of the proposed increase, and that the Postal Service must
overcome such challenges to meet the burden of justifying exigent
increases. GCA Comments, April 6, 2007, at 14-15. Others suggest that
the PAEA's reference to an ``opportunity for public participation and
comment'' means that the Commission must establish trial-type
proceedings for exigent requests. See, for example, ANM/NAPM/NPPC
Comments, May 7, 2007, at 11.
Discussion. The Commission appreciates commenters' concerns that
the exigency clause, if invoked too frequently, could undermine the
statutory price cap mechanism. At this point, it should be assumed that
the Postal Service's intent is to honor the clear import of the PAEA's
overarching ratesetting philosophy that exigent requests are meant to
be a safety net for dealing with unforeseeable emergencies. The
Commission believes that the commenters' concerns can largely be
addressed by requiring, as proposed rule 3010.61 does, that the Postal
Service provide focused explanation in support of any exigent request.
This includes a full discussion of the circumstances giving rise to the
filing, the reasons why the requested increases are necessary, and why
the specific proposed increases are reasonable and equitable as between
the types of users of market dominant products. The Postal Service will
be required to provide considerable additional context, such as an
explanation of how long the exigent increases are intended to be in
effect, the circumstances under which rescission of the increases might
occur, a justification addressing the foreseeability or avoidability of
the circumstances giving rise to the request, and other information
that would assist the Commission in reaching a decision. The Commission
reserves the right, in proposed rule 3010.62, to require the Postal
Service to clarify or further supplement its request. These provisions
do not explicitly define ``exigent circumstances,'' and unmistakably
convey the message that exigent requests are indeed ``extraordinary or
exceptional.''
The proposed rules provide that upon receipt of an exigent request,
the Commission will conduct an expedited review, including a public
hearing, that allows for resolution within 90 days. The rulemaking
record is relatively slim on this aspect of PAEA implementation,
perhaps due to the focus on filings considered more routine. The
Commission has carefully considered the nature and extent of public
input for exigent requests, and preliminarily has concluded that while
the PAEA would not preclude reviving the trial-type proceedings that
held sway in the past, it also does not require them. The fact that the
statute does not explicitly refer to a hearing ``on the record,'' which
is universally associated with trial-type hearings under the
Administrative Procedure Act (APA), provides support for this
conclusion. The drafters were well aware that the system they were
replacing had included APA-style formal proceedings, and could have
mandated equivalent proceedings for exigent requests by including an
unmistakable reference to ``on the record'' proceedings, but did not.
Additional support is drawn from the period of time (90 days) allowed
for review, which is inconsistent with overly-elaborate hearings; and
as the Postal Service and some joint commenters suggest, the likelihood
that issues will not simply require adjudication of facts, but also may
involve significant policy considerations. Given these considerations,
the Commission proposes a written process, without cross-examination,
to facilitate public participation, coupled with public hearings at
which one or more responsible Postal Service official would appear for
questioning by the Commission. This mechanism strikes an appropriate
balance between assuring transparency and accountability in keeping
with the statute, while facilitating completion of review within 90
days. These provisions appear in proposed subpart E.
III. Competitive Products
Subchapter II of chapter 36 of 39 U.S.C., 39 U.S.C. 3631-34, sets
forth the provisions applicable to competitive products, which,
pursuant to Sec. 3631(a), initially include priority mail, expedited
mail, bulk parcel post, bulk international mail, and mailgrams.\16\
Section 3631(c) provides that ``[m]ail matter referred to in [Sec.
3631(a)] shall, for purposes of this subchapter, be considered to have
the meaning given to such mail matter under the mail classification
schedule.'' In Order No. 15, the Commission solicited the parties'
views on ``mail matter'' comprising each of the foregoing types of mail
and on the meaning of the phrase ``mail classification schedule.'' PRC
Order No. 15, May 17, 2007, at 6. Several parties addressed these
issues. See, e.g., Postal Service Comments, June 18, 2007, at 11-16;
UPS Comments, June 18, 2007, at 2-4; OCA Comments, June 18, 2007 at 22-
27; and PSA Comments, June 18, 2007, at 1-3.
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\16\ Pursuant to section 3642, the Commission may change the
lists of competitive products under section 3631 and market dominant
products under section 3621 by adding new products to or removing
products from the lists, or transferring products between the lists.
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A. Mail Classification Schedule
OCA and UPS contend that ``mail classification schedule'' as used
in section 3631(c) refers to the Domestic Mail Classification Schedule
(DMCS).\17\ For several reasons, the Commission is not persuaded by
this construction. First, section 3631(a) includes mail matter not
subject to the DMCS, i.e., bulk international mail. Second, when
Congress intended that the DMCS be used, it was specific. See section
3622(d)(2)(A), applying the price cap limit to ``a class of mail, as
defined in the Domestic Mail Classification Schedule as in effect on
the date of enactment of the [PAEA].'' Thus, the failure to specify the
DMCS in section 3631(c) suggests that something else is intended.
Third, while the DMCS may be useful in initially determining mail
matter comprising the competitive products, the mail classification
[[Page 50758]]
schedule has a continuing, if somewhat new, role under the statute.
Among other things, the mail classification schedule incorporates
international mail (both single-piece and bulk) and is subject to
section 3642, which authorizes the Commission to modify the makeup of
competitive and market dominant products.
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\17\ OCA Comments, June 18, 2007, at 23; UPS Comments, June 18,
2007, at 2.
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The Postal Service recognizes that the PAEA contemplates a mail
classification schedule, suggesting that it would contain ``a level of
detail equivalent to the current DMCS,'' with additional language added
to account for international mail. Postal Service Comments, June 18,
2007, at 16. The Postal Service advocates that separate classification
schedules be established for market dominant and competitive products.
Id.
In supplemental comments, the Postal Service offers its views on
what it calls the classification process.\18\ Regarding competitive
products, it argues that the Commission has no role in developing or
overseeing the mail classification schedule other than determining,
pursuant to section 3642, what products are in the competitive category
of mail. Id. at 14. The Postal Service asserts that ``the Governors
will maintain the ``Competitive Products Classification Schedule,'''
with changes made pursuant to section 3632(b). Id. The Commission
interprets its responsibilities under the PAEA differently, concluding
that the mail classification schedule falls within its purview.
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\18\ Postal Service Supplemental Comments, June 19, 2007. The
bulk of these comments relate to market dominant products, with the
Postal Service suggesting a framework for classification changes and
development of a mail classification schedule. Id. at 1-14.
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The Postal Service states that ``the PAEA clearly vests
classification authority with the Governors[.]'' Id. To a point, this
statement is unobjectionable. Notably, however, it overlooks
limitations on the Governors' authority, namely, that it is subject to
subchapter II (of chapter 36 of title 39) and regulations promulgated
by the Commission under section 3633. Moreover, the Governors'
authority to change rates or classes (pursuant to section 3632) cannot
reasonably be read to encompass the wholly separate power to develop
and maintain a mail classification schedule for competitive products.
If the Governors were intended to have such authority, there would be
no reason for the process mandated by section 3631 or for subjecting
the Governors' authority to change rates or classes to the Commission's
regulations. Nor would there be any reason for the separate provision,
section 3642, for establishing new products.
Section 3631(a) identifies the initial list of competitive mail
matter, including priority mail, expedited mail, bulk parcel post, and
bulk international mail.\19\ None of these terms is defined in the
statute. To establish what each of the foregoing means section 3631(c)
instructs that the ``[m]ail matter referred to in subsection (a) shall,
for purposes of this subchapter, be considered to have the meaning
given to such mail matter under the mail classification schedule.''
Pursuant to this rulemaking, the Commission will identify the mail
matter, including the products, in the (competitive) mail
classification schedule that initially comprise each type of mail
listed in section 3631(a). This process is integral to the Commission
fulfilling its responsibilities under the PAEA, which requires, among
other things, that each competitive product cover its attributable
costs.
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\19\ The list also includes ``mailgrams,'' a service which was
terminated on August 17, 2006. See Postal Bulletin 22192, October
26, 2006, at 5; see also letter from Daniel J. Foucheaux, Jr. to
Steven W. Williams, Secretary, Postal Rate Commission, filed
November 2, 2006.
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Commission maintenance of the mail classification schedule does not
deprive the Governors of any flexibility to change rates or classes or
offer new products. It does, however, assure non-discriminatory service
and transparency in a manner contemplated by the statute.\20\ The mail
classification schedule identifies the products subject to the
Commission's oversight, a task which does not fall to the
Governors.\21\
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\20\ The Commission concurs with the Postal Service's position
that the mail classification schedule should provide a level of
detail similar to the DMCS. The Commission also agrees with the
Postal Service that maintaining separate classification schedules
for market dominant products and competitive products is reasonable.
Nonetheless, for administrative convenience and clarity, the
Commission intends to initially combine the separate lists for
market dominant and competitive products in a single mail
classification schedule.
\21\ The mail classification schedule also serves as the source
of the list of competitive products maintained by the Commission
pursuant to section 3642.
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B. Competitive Mail Matter
Not unreasonably, parties addressing the issue define mail matter,
in the first instance, by reference to the existing materials, namely,
the DMCS and International Mail Manual (IMM). This works reasonably
well for ``priority mail'' and ``expedited mail,'' both of which appear
in the DMCS. Thus, for example, the Postal Service suggests that
``priority mail'' consists of mail within the ``Priority Mail''
subclass (DMCS section 223) and ``expedited mail'' consists of Express
Mail entered under the ``Expedited Mail Classification Schedule'' (DMCS
section 110 et seq.). Postal Service Comments, June 18, 2007, at 11-
12.\22\
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\22\ See also OCA Comments, June 18, 2007, at 22; PSA Comments,
April 6, 2007, at 8, n.8; PSA Comments, June 18, 2007, at 2; and UPS
Comments, June 18, 2007, at 2.
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For purposes of promulgating the initial regulations applicable to
competitive products, the Commission agrees that, at a minimum, mail
matter qualifying as priority mail and expedited mail is that described
in the DMCS. There are three features to this initial classification:
each represents only domestic mail; each is a separate product; and the
rates for each product are rates of general applicability.
OCA notes that the listing of priority mail and expedited mail in
section 3631(a) does not distinguish between domestic and international
mail or between single-piece and bulk. OCA Comments, June 18, 2007, at
23. Thus, it asserts that priority mail and expedited mail should
include both domestic and international in the competitive mail
classification schedule.\23\ This position is not unreasonable and the
Commission proposes to include outbound international priority mail
(Priority Mail International) and expedited mail (Global Express
Guaranteed and Express Mail International) as separate products within
the priority mail and expedited mail classifications respectively. As
discussed below, inbound shipments would be classified as market
dominant.
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\23\ Id. Elsewhere, however, OCA appears to suggest that other
than two ``bulk international mail'' services all remaining
international mail should be categorized as market dominant. Id. at
26.
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Reference to the DMCS and IMM works less well for ``bulk parcel
post'' and ``bulk international mail'' since neither is clearly
delineated.\24\ The parties addressing the issue agree generally that
``bulk parcel post'' consists of the following mail matter: Parcel
Select (DMCS sections 521.23-26); Parcel Select Return Service (DMCS
sections 521.27-28); Inter-BMC qualifying for OBMC and BMC discounts
(DMCS sections 521.41-42); and Inter-BMC and Intra-BMC qualifying for a
barcode discount (DMCS section 521.5). See Postal Service Comments,
June 18, 2007, at 12-13; PSA Comments, June 18, 2007, at 3;
[[Page 50759]]
OCA Comments, June 18, 2007, at 24; and UPS Comments, June 18, 2007, at
2-3.
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\24\ As PSA points out, the listing of ``Bulk Parcel Post''
among the rate categories of the Parcel Post subclass (DMCS section
521.3) is an anachronism since there is no current rate associated
with that rate category which preceded the Parcel Select rate
categories. PSA Comments, June 18, 2007, at 2.
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The Commission agrees with the consensus view that ``bulk parcel
post'' consists of the following mail matter: Parcel Select, Parcel
Return Service, and Parcel Post mail qualifying for OBMC, BMC, and
barcode discounts. Initially, therefore, bulk parcel post would be
comprised of these three products.
UPS and the Postal Service also suggest that bulk parcel post
include additional mail matter. UPS would include mail entered as
Inter-BMC or Intra-BMC Parcel Post by commercial mailers in quantities
greater than one. UPS Comments, June 18, 2007, at 3; see also UPS Reply
Comments, July 3, 2007, at 1. PSA opposes UPS's proposal as contrary to
the commonly accepted use of the terms ``bulk'' and ``single-piece'' in
the DMCS. PSA Reply Comments, July 3, 2007, at 2-3.
To qualify for various current Parcel Post discounts, mailers must
deposit at least 50 properly prepared pieces. See, e.g., DMCS sections
521.23-26 and 521.41-42. This minimum quantity is a prerequisite for
mailing at discounted (or non-single-piece) rates. UPS offers no
justification for reducing that minimum volume threshold to two.
Accordingly, the Commission will not adopt that suggestion.\25\
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\25\ Should experience prove otherwise, mail matter defined as
single-piece parcel post may, if appropriate, be transferred to the
competitive products classification pursuant to section 3642.
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The Postal Service suggests that ``bulk parcel post'' include
Inter- and Intra-BMC Parcel Post pieces if postage is paid using a
Merchandise Return Service permit. Postal Service Comments, June 18,
2007, at 12-13. Merchandise Return Service is a special service
enabling the permit holder to authorize a mailer to mail parcels,
including Parcel Post mail, with the postage and fees paid by the
permit holder. Merchandise Return Service is also available for sending
First-Class Mail parcels. No party commented on this proposal
specifically.\26\
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\26\ In its reply comments, UPS notes that it agrees generally
with the Postal Service's definition of bulk parcel post. UPS Reply
Comments, July 3, 2007, at 1.
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Although the proposal has some appeal, the Commission will not
adopt it at this juncture. Under the PAEA, special services are
classified as market dominant as are First-Class Mail parcels. The
availability of Merchandise Return Service as both a market dominant
and competitive service raises practical difficulties that are
unexplored in this docket. Moreover, there may well be other special
services that would be better categorized as competitive. Thus, to
consider one in isolation may lead to results with unintended
consequences. The better practice is to utilize the procedures for
transferring items between the market dominant and competitive product
lists once these lists have been established as specified by Congress
in the PAEA.
The parties' attempts to define the term ``bulk international
mail'' are handicapped by the lack of a long-standing mail
classification schedule. Instead, they turn to the IMM for guidance. It
is a useful tool, but does not eliminate uncertainty surrounding the
meaning of the term ``bulk international mail.'' Based on the parties''
comments, there appears to be little dispute that, at a minimum, bulk
international mail consists of the following: \27\ International
Priority Airmail Service (IPA), which is available to bulk mailers of
all international letter items (IMM section 292); International Surface
Airlift Service (ISAL), which is a bulk mailing system for the delivery
of letter items (IMM section 293); and International Customized Mailing
Agreements (ICMs), which are mailer-specific agreements subject to
minimum revenue or quantity requirements (IMM section 297).\28\ There
is, however, some controversy over the characterization of the
remaining international mail services.
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\27\ See Postal Service Reply Comments, May 7, 2007, at 32-33;
Postal Service Comments, June 18, 2007, at 13-14; UPS Comments, June
18, 2007, at 4; OCA Comments, June 18, 2007, at 26; and PSA
Comments, April 6, 2007, at 8, n.8; see also Pitney Bowes Comments,
June 18, 2007, at 12-13.
\28\ OCA contends that ICMs involving single-piece international
mail should be characterized as a market dominant product. OCA
Comments, June 18, 2007, at 56-57.
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The Postal Service suggests that bulk international mail should be
interpreted to include ``multi-item mailings tendered by a single
mailer.'' \29\ The Postal Service indicates that multiple quantities
may be satisfied by volume commitments or other types of annual
guarantees. Id. at 13. Thus, in addition to the foregoing international
services, the Postal Service proposes that the following be
characterized as bulk international mail: Global Bulk Economy, which it
indicates provides for surface transportation of bulk First-Class Mail
international items; Global Direct, which it indicates provides for
direct entry of bulk mailings sent through the Postal Service bearing
the indicia, postal markings, and return address of the destination
country; and direct sacks of printed matter sent to a single foreign
addressee, also known as M-bags. Id. at 14.\30\
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\29\ Postal Service Comments, June 18, 2007, at 13. In an
earlier round of comments, the Postal Service endorsed the views of
PSA and the International Mailers' Advisory Group (IMAG) that
certain single-piece international mail should be categorized as
competitive products, but on different grounds, namely, that the
products, e.g., Global Express Guaranteed, Priority Mail
International, and Express Mail International, are ``subject to
fierce competition[.]'' Postal Service Reply Comments, May 7, 2007,
at 32. In its more recent comments, the Postal Service's position on
what constitutes bulk international mail appears to be limited to
multi-item mailings tendered by a single mailer. See Postal Service
Reply Comments, July 3, 2007, at 38-39. As an exception to this, the
Postal Service indicates that because costs and revenues associated
with Global Package Discount service are not separately collected,
Express International Mail would need to be categorized as a
competitive product. Postal Service Comments, June 18, 2007, at 15,
n.17.
\30\ In its discussion of ICMs, the Postal Service refers to
Global Shipping Solutions and Global Package Discounts. Postal
Service Comments, June 18, 2007, at 15, see also id. at n.17.
Whether these are separate services or marketing programs in the
form of ICMs is unclear. In its comments, the Postal Service should
clarify their status.
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No party filed comments opposing the Postal Service's view of bulk
international mail.\31\ UPS agrees with it. UPS Reply Comments, July 3,
2007, at 1. For purposes of promulgating these initial regulations, the
Commission proposes to define bulk international mail by reference to
bulk commercial services, which may be satisfied by volume commitments
or other types of annual guarantees. This would include IPA, ISAL,
ICMs, and M-bags.\32\ The Commission proposes to define IPA, ISAL, and
M-bags as separate products and, at least initially, each ICM as a
product.
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\31\ As noted above, in earlier comments OCA contends that an
ICM involving single-piece international mail, such as Priority Mail
International, should be categorized as a market dominant product.
OCA Comments, June 18, 2007, at 56-57.
\32\ The Postal Service identifies Global Bulk Economy and
Global Direct as candidates for inclusion in the bulk international
mail category. Postal Service Comments, June 18, 2007, at 15. It
indicates that these services are available through an ICM. Whether
these services are available only as an ICM or if they represent a
separate category of international mail similar to IPA and ISAL is
unclear. In its comments, the Postal Service should clarify their
status.
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Regarding international mail determined by the Commission to be a
competitive product, the PAEA amends title 39 by adding section
407(e)(2) as follows: \33\
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\33\ The Express Delivery & Logistics Association filed a white
paper concerning section 407(e) taking issue with the Postal Service
position on inbound mail. White Paper by Express Delivery &
Logistics Association Regarding Implementation of Section 405 of the
Postal Accountability and Enhancement Act of 2006, July 20, 2007, at
2. See also FedEx Comments, April 6, 2007, at 4-5.
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With respect to shipments of international mail that are
competitive products within the meaning of section 3631 that are
exported or imported by
[[Page 50760]]
the Postal Service, the Customs Service and other appropriate Federal
agencies shall apply the customs laws of the United States and all
other laws relating to the importation or exportation of such shipments
in the same manner to both shipments by the Postal Service and similar
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shipments by private companies.
Section 407(e)(1) defines the term ``private company'' as one
``substantially owned or controlled by persons who are citizens of the
United States.'' Thus, the Commission's findings regarding
international mail classified as competitive products are relevant to
the application of customs and related laws to the importation and
exportation of such shipments, requiring that such laws be applied ``in
the same manner to both shipments by the Postal Service and similar
shipments by private companies.'' Regarding outbound international mail
classified as competitive products, e.g., IPA, ISAL, and ICMs, section
407(e)(2) would apply to shipments by the Postal Service and similar
shipments by private companies.\34\
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\34\ The Commission's interpretation of section 407(e) concerns
only its role as the arbiter of international mail to be classified
as a competitive product. It is not intended to suggest how other
federal agencies may apply the customs laws and other laws relating
to the importation and exportation of mail.
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Regarding inbound international mail, there are two issues. First,
the demarcation between bulk and single-piece international mail is
less clear. The Universal Postal Union (UPU) identifies three types of
mail: Letter Post, Express, and Parcel Post. The issues of inbound
international mail have not been addressed sufficiently to enable the
Commission to determine what inbound international mail qualifies as
``bulk international mail.'' Given the UPU's designations, one
possibility would be to classify Letter Post as market dominant with
the other types of mail classified as competitive products. The
Commission, however, has no data indicating that either Express or
Parcel Post is properly considered to be ``bulk international mail.''
Second, it is not apparent that classifying any inbound
international mail as a competitive product has the same significance
it does for outbound mail. To be sure, section 407(e) applies to the
importation of shipments deemed competitive. More specifically,
however, it applies to such shipments by the Postal Service and private
companies owned by U.S. citizens. The Postal Service does not operate
ETOEs (extra-territorial offices of exchange). Thus, there are no
foreign-originating mail shipments by the Postal Service. Currently,
shipments of inbound mail are handled by foreign posts and by private
carriers. Foreign posts are not defined as private companies for
purposes of section 407(e). In addition, although the Postal Service
receives inbound mail from foreign posts at various customs locations,
whether such mail is, within the meaning of section 407(e), ``imported
by the Postal Service'' is unclear. Finally, even if shipments received
by the Postal Service from foreign posts are construed as shipments by
the Postal Service, there may be good reason to view such inbound mail
as market dominant. The record is not sufficiently developed to enable
the Commission to determine what inbound international mail is
appropriately classified as ``bulk international'' and, therefore, a
competitive product. The parties commenting on the foregoing discussion
should thoroughly address the law and facts supporting their position
and, in particular, the application of section 407(e) to inbound mail.
Lastly, regarding competitive products, section 3632(b)(3) permits
rate (or class) changes not of general applicability for competitive
products. In recognition of this, the Commission is initially of the
view that negotiated service agreements for mail classified as
competitive are within the competitive products category and that each
such agreement should be classified as a separate product.
C. General Applicability of Rates and Classes
Section 3632(b) identifies two types of rates or classes--those of
general applicability and those not of general applicability. Each is
qualified by the phrase ``in the Nation as a whole or in any
substantial region of the Nation[.]'' Sections 3632(b)(2) and (b)(3).
Section 3632(b)(4) provides that the Commission shall establish by
regulation the criteria for determining whether a rate or class is or
is not of general applicability in the nation or any substantial part
of the nation.
Three parties address the ``general applicability'' of rates or
classes largely by reference to their availability. The Postal Service
suggests that a rate (or class) is of general applicability if it is
``publicly available throughout the nation[.]'' Postal Service
Comments, June 18, 2007, at 19. UPS advocates a generally similar
standard, contending that a rate or class is of general applicability
``if it is available to all mailers equally,'' even if not all mailers
satisfy the conditions for the rate or class. UPS Comments, June 18,
2007, at 7. At the other end of the spectrum, the parties suggest that
rates or classes negotiated between the Postal Service and individual
mailers are not of general applicability. See Postal Service Comments,
June 18, 2007, at 19; UPS Comments, June 18, 2007, at 7; and PSA
Comments, June 18, 2007, at 4.
Defining whether a rate or class is ``of general applicability'' by
reference to its availability is a reasonable means for establishing
the outer bounds of the term. The Commission will adopt that standard.
Thus, a rate (or class) of general applicability is one that is
available nationwide to all mailers equally, i.e., on the same terms.
That some mailers may not be able to qualify for the rate, e.g., for
failure to satisfy the preparation requirements, or because it is not
available in all geographic areas, does not alter the nature of the
rate as one of general applicability.\35\
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\35\ Express Mail is not available to or from certain difficult-
to-access locations. Nonetheless, it is available in the nation as a
whole.
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On the other hand, a contract rate (negotiated service agreement)
negotiated between the Postal Service and an individual mailer would
not be of general applicability.\36\ Between these parameters, however,
determining whether a rate or class is or is not of general
applicability throughout the nation or in any substantial region of the
nation is less exact and, in all likelihood, would turn on the facts.
In those situations, availability will continue to serve as a
reasonable touchstone for determining the general applicability of the
rate or class.
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\36\ A ``negotiated service agreement'' is a contract negotiated
between the Postal Service and another entity, most likely the
mailer, for service and rates different from those of general
applicability.
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Only the Postal Service addresses the meaning of the term
``substantial region,'' suggesting that it be defined by the size of
the population of the relevant region. Postal Service Comments, June
18, 2007, at 19-20. That standard is one of several that might be
appropriate.\37\ Rather than address the issue in the abstract, the
Commission concludes that whether a rate or class is or is not of
general applicability in any substantial
[[Page 50761]]
region of the country is, at least at the outset, best determined on a
case-by-case basis based on the facts presented. Currently, with the
possible exception of Alaska bypass, the Postal Service does not
provide any non-nationwide service.\38\ Among other things, section
3642 concerns the establishment of new products. Thus, to the extent
the Postal Service chooses to offer a product on a less-than-nationwide
basis, there will be an opportunity to consider the phrase
``substantial region of the nation'' in the context of a specific
proposal.
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\37\ The Census Bureau, for example, divides the country into
four regions, which are further subdivided into divisions. The
geographic area of the nine states that comprise the West Region's
Mountain Division is more than three times greater than that
occupied by the South Region's South Atlantic Division, which is
comprised of eight states and the District of Columbia stretching
from Delaware to Florida (856.1 thousand square miles versus 266.1
thousand square miles). However, the population in the South
Atlantic Division is more than 2.5 times greater than that of the
Mountain Division (57.1 million versus 20.8 million based on July
2006 estimates).
\38\ Although Express Mail service is not available at every
post office, unquestionably the service would be fairly
characterized as being of general applicability throughout the
nation.
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D. Information Supporting Rate and Class Decisions
The Governors' authority to establish rates and classes for
competitive products is subject to subchapter II of chapter 36 of title
39 and the regulations promulgated by the Commission under section 3633
to: (a) Prohibit cross-subsidies of competitive products by market
dominant products, (b) require each competitive product to cover its
attributable costs, and (c) ensure that collectively competitive
products cover an appropriate share of the institutional costs of the
Postal Service. In Order No. 15, the Commission solicited the parties'
views on what information is needed to support changes in rates or
classes whether of general applicability or not. PRC Order No. 15, May
17, 2007, at 6-7. In addition, the Commission asked whether the
information needed to support a rate decrease differed from that for a
rate increase. Id. at 6.
The parties offer starkly contrasting views on the information
needed to support changes in rates. Advo, PSA, and the Postal Service
contend that nothing need be filed with the Commission, other than the
notice required under section 3632(b)(3), at the time rate changes are
announced.\39\ These parties assert that competitive products'
compliance with section 3633 should be considered only in the annual
compliance review under section 3653. Id. UPS, on the other hand,
contends that rate changes should be accompanied by the following
information: Volumes, revenues, billing determinants, attributable
costs, including an explanation of substantial cost changes; prior
fiscal year audited data; projected data for the period when the rates
are in effect; and unaudited data for the current fiscal year.\40\ UPS
concludes that pre-implementation review is a prerequisite for
determining competitive products' compliance with section 3633. Id.
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\39\ Advo Comments, June 18, 2007, at 10-11; PSA Comments, June
18, 2007, at 4; and Postal Service Comments, June 18, 2007, at 18-
19.
\40\ UPS Comments, June 18, 2007, at 4-5. In its reply comments,
UPS appears to modify its position, indicating, among other things,
that it is not suggesting the Postal Service be required to file
test year projections and that fiscal year data included in the
annual report may be sufficient for rate changes noticed relatively
shortly after the filing of the annual report. UPS Reply Comments,
July 3, 2007, at 3-4.
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The Postal Service asserts that the ``structure of the statute,
including, the nature of the data required to show compliance with
3633, suggests that there is no prior review by the Commission.''
Postal Service Comments, June 18, 2007, at 18. In support, it points to
the different notice requirements associated with rate changes of
general applicability (Federal Register notice no less than 30 days
prior to the effective date) and rate changes of less than general
applicability (filing with the Commission not less than 15 days prior
to the effective date). Id. at 18-19. It argues that the former
suggests that any substantive review is limited to the annual
compliance review, whereas the latter seemingly is intended to protect
the confidentiality of customized agreements. Id. at 19. This argument
is not persuasive.
The statutory provisions governing competitive products, 39 U.S.C.
3631-34, neither explicitly provide for nor prohibit pre-implementation
review of rate changes by the Commission. Section 3633 directs the
Commission to promulgate regulations to: (a) Prohibit cross-subsidies
of competitive products by market dominant products; (b) ensure that
each competitive product covers its attributable costs; and (c) that
collectively competitive products make an appropriate contribution to
the Postal Service's overhead. To fulfill these responsibilities, the
Commission cannot turn a blind eye to changes which may not be in
compliance with those requirements. The different notice/filing
requirements prescribed by section 3632 suggest the need for closer
scrutiny of certain types of rate changes.
Section 3632(b)(2) requires that, for rate (or class) changes of
general applicability, the Governors publish each rate (or class)
decision and the record of the Governors' proceeding in the Federal
Register at least 30 days before the effective date of any new rates or
classes.\41\ Rates (or classes) of general applicability are available
to all mailers equally, i.e., those satisfying the eligibility
standards for the rate (or class). So, for example, Parcel Select rates
would be available to all mailers meeting the eligibility requirements
for such service. In essence, rates of general applicability are the
published (or tariff) rates for the particular service. When a
carrier's published rates (those of general applicability) are changed,
experience suggests that they are likely to be increased.\42\ As a
general rule, anytime competitive prices are increased concern over
unfair competition is diminished. Likewise, increases in postal rates
of general applicability above those found in compliance with section
3633 can, for purposes of these implementing regulations, be deemed to
be presumptively reasonable. In that situation, the annual review would
appear to be adequate to assure compliance with section 3633. The
complaint process would be available as well.
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\41\ Pursuant to the proposed regulations, the Postal Service
will also be required to file the notice of all proposed rate (and
class) changes of general applicability with the Commission no later
than the date such notice is published in the Federal Register.
\42\ See, e.g., FedEx Corporation's press releases of December
4, 2006, announcing a 4.9 percent increase in certain ``standard
list rates;'' and of November 3, 2006, announcing a 3.5 percent
increase in the net average shipping rate for FedEx Express, both of
which may be accessed at: http://www.fedex.com/us/about/news/pressreleases/?link=4
.
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An identical presumption of reasonableness cannot fairly be
presumed for rate decreases of general applicability, which, at a
minimum, intensify concerns about potentially unfair competition. This
is not to suggest any limitation on the Governors' authority to change
rates. Unlike its private enterprise counterparts, however, the Postal
Service has no residual claimants, i.e., stockholders, to shoulder the
consequences of an improvident decision to change rates. The
Commission's role is to ensure that rates and classes comply with
section 3633. By doing so, the Commission preserves fair competition.
The change in circumstances giving rise to the decrease, resulting in a
reduction from the pre-existing presumptively lawful rates, justifies
the pre-implementation review to ensure continued compliance with
section 3633. Thus, the Commission proposes that for decreases in rates
of general applicability the Postal Service will be required to
demonstrate the change is in compliance with section 3633. See section
3015.3(c) of the proposed regulations. The Commission does not
anticipate that the regulations will either unduly burden the Postal
Service
[[Page 50762]]
or delay the effectiveness of changes satisfying the minimal standards
of lawfulness.
Section 3632(b)(3) authorizes the Governors to establish rates (or
classes) not of general applicability, i.e., to execute negotiated
service agreements with mailers providing for rates different from the
published rates (of general applicability). Notably, negotiated service
agreements are subject to different filing requirements than are rate
changes of general applicability. Specifically, each such negotiated
service agreement (rate or class decision not of general applicability)
and the record of proceedings in connection with such decision must be
filed with the Commission not less than 15 days prior to the effective
date of any new rate or class. There is good reason for the different
filing requirements depending upon the type of rate change
involved.\43\
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\43\ The Postal Service's suggestion that customized agreements
are required to be filed with the Commission, as opposed to simply
being noticed in the Federal Register, to protect the
confidentiality of such agreements (Postal Service Comments, June
18, 2007, at 19), is only one aspect of this issue. The Postal
Service is aware that certain information should be public. See 72
FR 37454 (July 10, 2007), concerning recent revisions to the IMM
regarding the notifications of ICMs.
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Changes not of general applicability will invariably involve
discounts compared to published rates and perhaps involve combinations
of services. Thus, such arrangements will inevitably raise concerns
about the potential for unfair competition. The Commission would be
remiss if it did not review these filings prior to their implementation
to ensure compliance with section 3633. The Governors' rate (or class)
changes must be in writing and include a statement of explanation and
justification. 39 U.S.C. 3632(b)(1). The information to demonstrate
compliance with section 3633 will presumably have been reviewed by the
Postal Service and be readily available. Thus, the Commission proposes
to require the Postal Service to file with all competitive negotiated
service agreements, i.e., rate (or class) changes not of general
applicability, sufficient cost and revenue information to enable the
Commission to assess, as a preliminary screen, whether the agreement
satisfies the requirements of section 3633. In particular, the
Commission proposes that the Postal Service be required to show that
each negotiated service agreement covers its attributable costs and to
represent that the agreement is otherwise in compliance with section
3633.
The Commission does not anticipate that this review process will
delay the effective date of any negotiated service agreement found to
be in compliance with section 3633. Nor will the review process impinge
on the Governors' authority to change rates or execute negotiated
service agreements. The limited review is intended to provide some
assurance that, at least preliminarily, the arrangement is not
unlawful. As these arrangements will undoubtedly contain commercially
sensitive information, it is understood that the Postal Service may
exercise its prerogative to seek appropriate protective conditions.
E. Section 3633 Standards
Section 3633 contains three provisions by which the lawfulness of
competitive products' rates are judged. These provisions, prohibiting
cross-subsidies, establishing an attributable cost floor, and requiring
an appropriate institutional cost contribution, are designed to act in
concert to ensure that competitive rates are lawful. Each provision,
along with the parties' suggestions for its implementation, is
discussed in turn.
1. Prohibition Against Cross-Subsidies
Section 3633(a)(1) prohibits the subsidization of competitive
products by market dominant products. In response to Order No. 15, the
parties suggest a wide range of standards to be used to test for cross-
subsidies.
OCA suggests that the standard requires competitive
products to cover both their attributable costs plus an appropriate
share of institutional costs. OCA Comments, June 18, 2007, at 33.
APWU contends that there is no cross-subsidy if
competitive products cover their attributable costs. APWU Comments,
June 18, 2007, at 5.
PSA advocates use of the incremental cost test, whereby
``revenues for each competitive product cover its incremental cost.''
PSA Comments, April 6, 2007, at 5. It suggests that the Commission's
attributable costs serve as a proxy for incremental costs. Id.\44\
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\44\ PostCom supports PSA's position. PostCom Reply Comments,
July 3, 2007, at 5.
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Advo endorses the incremental cost test applied to
competitive products collectively, i.e., revenues from competitive
products ``cover their combined incremental costs.'' Advo Comments,
June 18, 2007, at 11.\45\
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\45\ Advo notes the possibility that implementation of section
2011(h) may cause an increase in competitive products' costs,
``resulting in a rate floor that is well in excess of the `cross
subsidy' threshold.'' Id.
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UPS contends that subsection (a)(1) redefines the term
``subsidy'' to require that competitive products collectively cover
their attributable costs, their appropriate share of institutional
costs, plus an additional amount representing ``a fair share of the
unattributable network costs from which competitive products benefit.''
UPS Comments, June 18, 2007, at 9.\46\
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\46\ UPS asserts that the Federal Trade Commission's report,
pursuant to section 703(d) of the PAEA, will aid the Commission in
determining the ``net economic benefit realized by the Postal
Service due to preferential legal treatment[.]'' Id.
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The Postal Service advocates a standard requiring
competitive products' total revenues to be at least equal to the sum of
each product's attributable costs ``plus the group-specific costs
caused by the competitive products as a group.'' Postal Service
Comments, June 18, 2007, at 24.\47\
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\47\ The Postal Service indicates that an analysis will be
required to identify group-specific costs. Id. at 21.
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To test for cross-subsidies, the Commission will initially apply
the incremental cost test, a standard that Advo and PSA suggest.\48\
Incremental costs are the variable and fixed costs that would be
eliminated if a product (or products) was (were) (hypothetically)
discontinued.\49\ In prior rate cases, the Commission has discussed the
issue and adopted a definition offered by Postal Service witness
Panzar: ``The revenues collected from any service (or group of
services) must be at least as large as the additional (or incremental)
cost of adding that service (or group of services) to the enterprise's
other offerings.'' PRC Op. R97-1, ] 4022, quoting USPS-T-11 at 8. While
acknowledging that this is the test it should endeavor to apply (id., ]
4026), the Commission's attempts to do so have been thwarted by
concerns about the underlying assumptions used, e.g., constant
variability and the stability of the operating plan. See, e.g., PRC Op.
R2000-1, ] 4055 (``the results of the test may still be unreliable
where deleting a subclass or combination of subclasses causes a large
reduction in an important cost driver.'')
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\48\ PSA's endorsement of the incremental cost test appears to
be designed to satisfy both the proscription against cross-subsidies
and the requirement that each product cover its attributable costs.
See PSA Comments, April 6, 2007, at 5.
\49\ See Docket No. R87-1, USPS-T-3 at 11.
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The Commission recognizes that presently it lacks the data that
would enable it to employ rigorously the incremental costs to test for
cross-subsidies of competitive products. Shortly, the Department of the
Treasury will provide its analysis of Postal Service costs, and the
Commission will initiate a public proceeding to evaluate
[[Page 50763]]
this information.\50\ Previously, to test for cross-subsidies the
Commission has used each product's attributable cost as a reasonable
proxy for the costs associated with that product.\51\ Endorsing this
standard as an appropriate surrogate, the Commission remarked that
``nonnegative markups are good evidence against the presence of the
most elementary cross subsidies.'' PRC Op. R97-1, ] 4024.\52\
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\50\ UPS and NAA urge the Commission to commence a separate
proceeding to address cost issues. UPS Comments, June 18, 2007, at
15; NAA Comments, June 18, 2007, at 11-12.
\51\ PSA suggests this as well. PSA Comments, April 6, 2007, at
5.
\52\ APWU does not elaborate on its suggestion there is no
cross-subsidy provided that competitive products cover their
attributable costs. APWU Comments, June 18, 2007, at 5-6. Without
more, however, that standard appears merely to restate subsection
(a)(2)'s requirement of an attributable cost floor. OCA's suggested
test, on the other hand, does take into account non-negative
markups, but also includes ``an appropriate share of institutional
costs[.]'' OCA Comments, June 18, 2007, at 33. The test for cross-
subsidies is independent from the issue of what the appropriate
share should be for competitive products as a whole. Revenues in
excess of incremental costs (or attributable costs in the interim)
demonstrate no cross-subsidy exists, but are not necessarily an
indication that the contribution to institutional costs (the share)
is appropriate.
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The Postal Service's suggested test, competitive products' revenues
at least equal to the sum of the products' attributable costs plus the
products' causally related group-specific costs, appears to be similar
to the incremental cost test. To test for cross-subsidies, the
incremental cost test should consider all possible combinations of
products (services). It is not clear whether this is different from
what the inclusion of ``group-specific costs'' contemplates. See Postal
Service Reply Comments, July 3, 2007, at 40. In any event, the Postal
Service does agree that ``analysis will be required'' to quantify the
additional, causally related, non-variable group-specific costs. Postal
Service Comments, June 18, 2007, at 21.
To test for cross-subsidies, the inclusion of such group-specific
costs is appropriate. Thus, until reliable incremental cost data are
available, the Commission will continue to use its current cross-
subsidy test, supplemented to include causally related, group-specific
costs. If and when incremental costs can be accurately determined, the
Commission may adjust its existing practice.
UPS asserts that the PAEA redefines cross-subsidy to require that
competitive products collectively bear costs in excess of their
attributable costs ``and a fair share of the unattributable network
costs from which competitive products benefit.'' UPS Comments, June 18,
2007, at 9. The Postal Service, Advo, and PSA take issue with UPS's
contention that the PAEA redefines the term ``subsidy.'' \53\ The
Commission will not adopt UPS's construction. The relevant PAEA
provisions, sections 3633(a)(1) and 2011(h)(1)(A)(i)(II), prohibit the
cross-subsidy of competitive products by market dominant products.
Apart from any consideration of the public policies that might be
furthered by the UPS test, an issue not developed on this record,\54\
the Commission does not interpret the foregoing provisions as
redefining the concept of cross-subsidy.
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\53\ Postal Service Reply Comments, July 3, 2007, at 24-27; Advo
Reply Comments, July 3, 2007, at 5-7; and PSA Reply Comments, July
3, 2007, at 3-5.
\54\ See Advo Reply Comments, July 3, 2007, at 7.
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2. Attributable Cost Floor
Section 3633(a)(2) requires that each competitive product cover its
attributable costs, which, in section 3631(b), are defined as ``the
direct and indirect postal costs attributable to such product through
reliably identified causal relationships.'' This standard codifies the
Commission's long-standing method of attribution under the Postal
Reorganization Act. See, e.g., PRC Op. R97-1, ] 4017 (``The Commission
is not prepared to depart from the position that attributable cost
means costs which can be said to be reliably caused by a subclass of
mail or service.'') \55\ For purposes of initially implementing
regulations pursuant to section 3633, the Commission intends to employ
this long-established attribution method to determine compliance with
section 3633(a)(2).
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\55\ Elaborating on the point, the Commission noted that in
addition to specific fixed costs it also found other nonvariable
costs to be attributable, e.g., the fixed portion of special
delivery messengers. Id. at ] 4016. See also PSA Comments, April 6,
2007, at 9.
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UPS advocates that long-run incremental costs be used as the
benchmark for each competitive product's attributable costs. UPS
Comments, June 18, 2007, at 12. It views this approach as preferable to
the existing method because it includes ``shared fixed costs,'' i.e.,
fixed costs incurred over the long run by more than one product. Id. In
reply comments, UPS appears to endorse this standard to test for cross-
subsidies as well, at least with respect to calculating group-specific
costs. UPS Reply Comments, July 3, 2007, at 5. The Commission does not
adopt UPS's suggestion.
Section 3633(a)(2) specifies attributable costs as a term that has
an accepted meaning in the context of Postal Service costing. Employing
long-run incremental costs as a measure of attributable costs renders
all costs variable in theory.\56\ Furthermore, although the notion of
shared fixed costs may be relevant to the issue of cross-subsidies, as
discussed in the previous subsection, UPS has not demonstrated any
reasonable nexus between those costs, which by definition are fixed
regardless of the number of products, and a product's attributable
costs, including those reliably identified based on causal
relationships.
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\56\ See Postal Service Reply Comments, July 3, 2007, at 29-30,
remarking on the period deemed sufficient to allow the Postal
Service to adjust fully to the impact the provision of the product
creates.
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In its response to Order No. 15, the Postal Service does not appear
to comment specifically on the standard to be used to measure
compliance with section 3633(a)(2). Rather, it includes that subsection
in its interpretation of what section 3633 requires as a whole, namely,
that competitive products' revenues ``be sufficient to cover the sum of
attributable costs and group specific costs, plus any mark-up on
attributable costs that the Commission determines is `appropriate.' ''
Postal Service Comments, June 18, 2007, at 23. In its reply comments,
the Postal Service recognizes that the statutory definition, section
3631(b), codifies the long-standing attribution method. Postal Service
Reply Comments, July 3, 2007, at 29. The Postal Service goes on,
however, to note its apparent agreement with UPS ``that, for purposes
of 3633(a)(2), the cost floor for each competitive product should be
the costs the Postal Service would avoid if it did not offer that
competitive product.'' Id. This statement appears to suggest agreement
with UPS's position regarding the use of long-run incremental costs for
purposes other than testing for cross-subsidies, although the Postal
Service does raise the issue of how one would define the period
sufficient to allow the Postal Service to adjust fully to the impact
the provision of the service creates. See id. at 30. This appears to be
an area where future analysis may be warranted.
3. Appropriate Share of Institutional Costs
Section 3633(a)(3) requires that competitive products collectively
cover an ``appropriate share'' of the Postal Service's institutional
costs. The term ``appropriate share'' is not defined; its meaning is
left for the Commission to determine based on consideration of all
relevant factors. The parties addressing this issue suggest a variety
of
[[Page 50764]]
approaches, the most concrete of which is that the Commission begin
with the markups from Docket No. R2006-1.\57\ Several parties urge that
the contribution be set at a low level, arguing, among other things,
that it represents a floor not a ceiling, that the Postal Service has
incentive to exceed that floor, and that if set too high the Postal
Service will be unable to compete and, as a result, contribution will
be lost to the detriment of market dominant mailers.\58\ One party
contends that contributions from market dominant and competitive
products must be compared, suggesting various ways in which this might
be accomplished, e.g., on a per-piece (unit contribution) or percentage
(markup) basis.\59\ The Postal Service advocates that the contribution
be set at a relatively low level,\60\ suggesting that it be
``calculated as a mark-up on the sum of the competitive products'
attributable cost.'' Id. at 23. UPS agrees with this method of
calculating the contribution. UPS Reply Comments, July 3, 2007, at 6.
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\57\ See OCA Comments, June 18, 2007, at 34-35; PSA Comments,
April 6, 2007, at 11-13; Pitney Bowes Comments, April, 6, 2007, at
38: and UPS Reply Comments, July 3, 2007, at 6. Initially, UPS
suggested that the contribution from competitive products should be
maximized. UPS Comments, April 6, 2007, at 5-7.
\58\ Advo Reply Comments, May 7, 2007, at 15-19; MOAA Comments,
June 18, 2007, at 2; and APMU Comments, April 6, 2007, at 3-5.
\59\ Valpak Comments, June 18, 2007, at 13-14. Valpak states
that such comparisons ``would enable the Commission to ensure that
competitive products are not subsidizing market-dominant
products[.]'' Id. at 14.
\60\ Postal Service Comments, June 18, 2007, at 24-26.
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The Commission considered various options, including all of those
suggested in the comments, in evaluating how best to quantify, at least
initially, appropriate share. Among the options considered and rejected
were: Equal unit contribution, equal percentage markup, markup of
competitive products' attributable costs, and percentage of revenues.
None of these was deemed preferable to the alternative of basing
competitive products' contribution on a percentage of total
institutional costs. To be sure, the various other methods could all be
expressed mathematically in terms of percentage of total institutional
costs, but each implies a pricing technique, e.g., a particular
coverage level, absent from simply basing appropriate share on a
percentage of total institutional costs. The latter better reflects the
section 3633(a)(3) directive and is more easily understood than the
various alternatives. Moreover, this approach is a fitting starting
point, recognizing that by year's end the Department of the Treasury
will submit recommendations to the Commission relating to treatment of
Postal Service costs. Interested persons will have an opportunity to
comment on those recommendations. See section 2011(h)(2)(A).
In attempting to quantify appropriate share, the Commission begins
its analysis with the competitive products' contribution resulting from
rates recommended in Docket No. R2006-1. Based on the recommended
rates, the Commission estimates that in TY 2008 competitive products
will contribute approximately $2.4 billion to the Postal Service's
institutional costs.\61\ Expressed as a percentage, this figure
represents approximately 6.9 percent of the total contribution to
institutional costs.
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\61\ Necessarily, the results are estimated since data are not
reported for bulk parcel post and bulk international mail separately
from their single-piece counterparts. For purposes of this exercise,
bulk parcel post consists of Parcel Select, Parcel Return Service,
and Parcel Post eligible for a BMC, OBMC, or barcode discount. The
foregoing estimate includes a TY 2008 contribution for bulk
international mail of approximately $176 million (out of $376
million), calculated using the average percentage contribution for
competitive international mail in FY 2005 and FY 2006 as a proxy.
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For purposes of implementing these regulations initially, the
Commission is persuaded that the competitive products' contribution
should be modified from Docket No. R2006-1 levels. The Commission
proposes to set the initial contribution at 5.5 percent of the Postal
Service's institutional costs. Illustratively, based on Docket No.
R2006-1 TY 2008 figures, this percentage yields a contribution of
approximately $1.9 billion.
Several factors influence the Commission's proposal to establish an
appropriate share below the contribution level derived from rates
recommended in Docket No. R2006-1. The PAEA so thoroughly overhauls the
ratemaking process that the Commission would be remiss if it failed to
consider the differences in the rate setting process. Under the pre-
PAEA Postal Reorganization Act (PRA), postal rates were constrained by
a break-even requirement and systemwide pricing scheme under which
institutional costs were assigned based on non-cost factors.\62\ Given
these constraints, pricing was a ``zero-sum game,'' i.e., an increase
(or decrease) in the assignment to one subclass (or service) must be
offset by a decrease (or increase) to one or more other subclasses (or
services).
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\62\ Among the non-cost factors the Commission used to assign
institutional costs are: Value of service, impact on mailers and
competitors, availability of alternatives, and simplicity of rate
structure. See 39 U.S.C. 3622(b) (2002). For purposes of this
discussion, reference to the PRA is shorthand for the Act prior to
its amendment by the PAEA.
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In lieu of that system, the PAEA bifurcates Postal Service products
into market dominant and competitive categories with a principal
objective being to reduce costs and increase efficiency. Under the
PAEA, the Postal Service has an incentive to reduce both attributable
and institutional costs due to limitations on market dominant rates and
because it is authorized to retain earnings.
Under the PRA, the assignment of institutional costs was designed
to ensure that each subclass or type of mail made a reasonable
contribution to the Postal Service's overhead, yielding rates that were
fair and equitable and subsidy-free. The PAEA addresses the issues of
rate levels and subsidies differently. Market dominant rates are
limited by a price cap, not by policy considerations. Thus, market
dominant mailers are insulated from the consequences of any failure by
the Postal Service to compete successfully. Rates for competitive
products are subject to market conditions and, by statute, must satisfy
criteria which preclude the possibility of subsidization by market
dominant products.
The ``appropriate share'' required by the PAEA is not synonymous
with ``reasonably assignable'' required by PRA section 3622(b)(3). No
longer are rates for competitive products predicated on explicit
consideration of specific non-cost factors. Moreover, the resulting
rate levels represent significantly different things. Under the PRA,
rate levels equate with maximum rates for the subclass or type of mail,
as rates are not designed to generate a surplus. In contrast, under the
PAEA, the concept of rate levels for competitive products largely
disappears, with the Postal Service given the flexibility to price
competitive products however it wishes, provided its rates satisfy the
statutory standards of lawfulness. Appropriate share is a floor for all
competitive products, but the hope (and expectation) is that
competitive products will generate contributions in excess of the
floor. Thus, it is unlike reasonably assignable in two other respects:
it applies to competitive products collectively, not to subclasses or
services individually; and it represents a minimum (not maximum)
contribution level, serving as a threshold for compliance with section
3633(a)(3). Because it may retain earnings, the Postal Service has
incentives to exceed this threshold, including reducing rate pressure
on market dominant rates, continuation of
[[Page 50765]]
universal service, and the possibility of bonuses.
Section 3633 requires that each competitive product cover its
attributable costs and prohibits competitive products from being
subsidized by market dominant products. Thus, they must be self-
sustaining since any shortfall cannot be recovered by increasing market
dominant rates.
In attempting to quantify an appropriate contribution, the
Commission is mindful of the risks of setting it too high, particularly
at the outset of the new system of regulation. The market is
competitive; the Postal Service's market share is relatively small; and
the Postal Service needs some flexibility to compete. On the other
hand, the Commission has an obligation to preserve competition by not
establishing a markup so low as to give the Postal Service an
artificial competitive advantage. The task, as Advo noted, ``calls for
a delicate balance.'' Advo Reply Comments, May 7, 2007, at 16.
The Commission's proposal to set the minimum contribution level at
5.5 percent of total institutional costs is influenced by historic
results. A review of the Cost and Revenue Analysis (CRA) for domestic
and international postal operations supports a best estimate of
competitive products' contribution to institutional costs at 5.4
percent in FY 2005 and 5.7 percent in FY 2006. These figures were
developed based on the reported FY 2005 and FY 2006 data for Priority
Mail, Express Mail, and international mail.\63\ The CRA reports Parcel
Post data in the aggregate. Thus, to develop an estimate for bulk
Parcel Post, consisting of Parcel Select, Parcel Return Service, and
Parcel Post mail eligible for a BMC, OBMC, or barcode discount, the
Commission calculated an estimated bulk parcel post unit contribution
for FY 2005 based on actual FY 2005 data. Comparable data are not
available for FY 2006. Thus, the estimated FY 2006 bulk parcel post
contribution is based on the same proportional relationship between
bulk parcel post and parcel post as a whole used for FY 2005.\64\
Setting the initial competitive products' contribution at historic
levels is a reasonable means to quantify appropriate share,
particularly at the outset of the new form of competitive rate
regulation. Since it is no longer subject to the pricing constraints of
the PRA, the Postal Service should perform at least as well as it has
historically.
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\63\ The figures for international mail were developed based on
the contribution associated with that mail included within the
competitive category in this order. The international CRA for FY2006
does not separately identify data for Global Bulk Economy (GBE)
mail. However, since GBE had no reported volume in FY 2005, its
contribution in FY 2006, if any, would likely have no measurable
affect on the total international mail contribution.
\64\ The contribution from bulk parcel post is, in any event,
relatively minor. For the convenience of the parties, workpapers
showing the development of these estimates will be made available on
the Commission's Web site (http://www.prc.gov) in Docket No. RM2007-
1. The Commission is providing this level of detail so that parties
have an opportunity to review the underlying data and, if
appropriate, suggest revisions which may more accurately portray
historic results.
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This order represents the initial effort to implement the
competitive products' regulations. The Commission emphasizes that its
initial quantification of appropriate share is not written in stone.
The statute specifically authorizes the Commission to revise this share
as needed and, in any event, requires that the regulations be reviewed
every five years to determine whether they be retained, modified, or
eliminated. The Commission anticipates that that need may arise for any
number of reasons, e.g., additions or deletions to the competitive
product lists and market conditions.\65\
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\65\ Pursuant to section 2011(h)(1)(A)(ii), the Secretary of the
Treasury will recommend substantive and procedural rules that should
be followed in determining the assumed Federal income tax on
competitive products income. Those recommendations are due on or
before December 19, 2007. Interested persons will have an
opportunity to comment on those recommendations. For purposes of
this order, it is sufficient to note that the assumed Federal income
tax on competitive products income is an issue that may affect
future efforts to develop an appropriate share.
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4. Application of the term ``product''
The PAEA defines the term ``product'' to mean ``a postal service
with a distinct cost or market characteristic for which a rate or rates
are, or may reasonably be, applied.'' 39 U.S.C. 102(6). The parties
offer widely differing suggestions as to how this definition should be
applied. The Postal Service recognizes that the term could be
interpreted to mean individual rate categories are products. Postal
Service Supplemental Comments, June 19, 2007, at 6. It dismisses that
construction, however, contending that product should be ``interpreted
at a high level of aggregation'' and proposing that it be interpreted
``as generally equivalent to the current `subclasses' under the PRA.''
Id. Several parties echo the Postal Service's view that product should
be equated with subclass.\66\ OCA, on the other hand, takes the
position that, for competitive products, the term ``product'' be
interpreted ``at the rate-cell level.'' OCA Comments, April 6, 2007, at
36. NAA asserts that product is not synonymous with subclass or rate
category, but instead should be construed ``more consistent with
everyday understandings[.]'' \67\ Other parties assert that various
specific arrangements, e.g., special classifications, customized
agreements, and negotiated service agreements, either are or are not
products.\68\
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\66\ See, e.g., PSA Comments, June 18, 2007, at 11; MOAA Reply
Comments, July 3, 2007, at 4; Advo Reply Comments, July 3, 2007, at
12; and Pitney Bowes Comments, June 18, 2007, at 11.
\67\ NAA Comments, June 18, 2007, at 14. NAA observes,
correctly, that product is defined in a manner that ``resembles the
Commission's traditional test for a rate category.'' Id. at 14-15.
\68\ See, e.g., NPPC Comments, June 18, 2007, at 10 (negotiated
service agreements are products); PostCom Reply Comments, July 3,
2007, at 7-8 (each market dominant negotiated service agreement
should be viewed as a distinct product); GCA Comments, June 18,
2007, at 9-10 (special classifications and class not of general
applicability containing one service would be a product, but a
negotiated service agreement may or may not be); and NAA Comments,
June 18, 2007, at 16 (status of negotiated service agreements should
be decided on a case-by-case basis). See also UPS Comments, June 18,
2007, at 19 (rates for a given type of mail may vary only if there
is ``a distinct and significant cost or market characteristic for
[that] type of mail * * *'').
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Suggestions that the term ``product'' be applied in a blanket
fashion are neither practical nor justified. Instead, as discussed
below, a more nuanced approach, based on balancing the objectives of
the PAEA and practical considerations, is required.
Plainly, product cannot reasonably be read as equivalent to
subclass since product is defined as having either ``a distinct cost or
market characteristic'' \69\ whereas, under the Commission's long-
established practice, subclass requires both cost and demand
differences. The Commission has clearly expressed the relevant
standard: ``To identify groupings of mail, which should be accorded
subclass rather than rate category treatment, the Commission
traditionally has sought to identify differences in both cost and
market, or demand.'' \70\
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\69\ 39 U.S.C. 102(6) (emphasis added).
\70\ See PRC Op. MC95-1, ] 3022 (emphasis added); see also id. ]
3023 (``The Commission has consistently expected proponents of
separate subclass treatment to show differences in both costs and
demand.'').
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The PAEA overhauls postal ratemaking, bifurcating the mailstream
into market dominant and competitive mail categories, and prescribing
different rate setting mechanisms for each. Market dominant rates are
subject to an annual price cap. Section 3622(d)(1)(A). This foremost
ratemaking requirement is, by statute, applicable to classes of mail as
defined in the DMCS in effect on the date of enactment of the PAEA.
Section 3622(d)(2)(A). In
[[Page 50766]]
contrast, competitive rates are not tied to a cap; instead, they cannot
be set below certain cost thresholds, including, among other things,
the requirement that each competitive product covers its attributable
costs. Section 3633(a)(2). When drafting the PAEA, Congress was well
aware of the Commission's long-established definitions, as it showed
when defining ``costs attributable'' in section 3631(b). It can be
assumed to have intentionally chosen the term ``product'' in preference
to ``subclass,'' a term that is not defined by the PAEA and, under the
new rate setting procedures, is largely an irrelevant artifact.
Nor is the Commission persuaded by the Postal Service's attempts to
buttress its suggestion that product be defined as a subclass by
reference to other provisions of the PAEA. For example, it compares
section 3622(c)(2) with former section 3622(b)(3) and notes that
attribution ``is expressly linked `to each competitive product.' ''
Postal Service Supplemental Comments, June 19, 2007, at 7. Based on
this, it concludes ``there is nothing to suggest that attribution be
done differently under the PAEA than it was done under the PRA: at the
subclass level.'' Id. The focus on attribution does not support the
Postal Service's argument. The PAEA reaffirms the Commission's
attribution method and specifically applies it to each competitive
product, which is given a different meaning than subclass. Moreover,
concerning market dominant products, the price cap regulation
supersedes attribution.\71\ As discussed below, the rejection of the
contention that product should, in all instances, be equated with
subclass does not foreclose a finding that a specific subclass is a
product.
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\71\ The Postal Service also contends that language in section
3652(b), which concerns annual reports to the Commission, supports
its interpretation of product as being equivalent to subclass.
Specifically, it contends that the phrase ``with respect to each
market-dominant product for which a workshare discount was in
effect'' suggests that a market dominant product is not equivalent
to workshare discount, ``such that an individual workshare discount
(which is a rate category) is not itself an individual `product.' ''
Id. at 8. This supposition is not persuasive. First, as the Postal
Service concedes, the term ``product'' could be interpreted as a
rate category; thus a workshare discount could be a product. Second,
the Commission reads the phrase ``each market-dominant product for
which a workshare discount was in effect'' as reflecting the
possibility that mail matter for which a workshare discount is in
effect, e.g., First-Class automation letters, could be found to be a
separate product.
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OCA's proposal is the polar opposite of the Postal Service's.
Instead of ``a high level of aggregation,'' \72\ OCA would apply the
term ``product'' at the most disaggregated level. Specifically, OCA
proposes that, for competitive products, product be applied at the rate
cell level, a result it contends is suggested by the phrase ``
`distinct cost * * * characteristic.' '' OCA Comments, April 6, 2007,
at 36. Thus, under its reading, every competitive rate cell must cover
its attributable costs. The Commission does not construe section 102(6)
so narrowly.
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\72\ Id. at 6.
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Rate cells generally reflect cost differences, but that is not the
same as having separate distinct cost characteristics. There are myriad
cost driving factors, e.g., degree of preparation, density, weight,
shape, distance, and type of delivery, that may be characterized as
cost characteristics. Rate cells identify variations within
characteristics such as zoned rates, or levels of presortation. OCA's
system would be impractical to implement and impossible to administer.
Aside from these practical difficulties, OCA's proposal is flawed in
another respect. It contends that rate cell satisfies the requirement
that ``a rate or rates'' be applied because a rate cell may have more
than one rate, e.g., the same weight/zone Express Mail Post Office-to-
Post Office has different rates than Post Office-to-Addressee. This
hardly proves that a rate cell may have more than one rate; rather, the
example involves separate rate categories with separate rate cells.
To qualify as a product, a postal service must exhibit either a
distinct cost or market characteristic for which a rate or rates are,
or may reasonably be, applied. But the existence of a separate rate,
implying a cost difference, does not require that the particular postal
service, e.g., rate cell, be deemed a product. A rule of reason must be
applied.
The revamped ratemaking under the PAEA is designed to achieve
various goals, principal among them are to afford the Postal Service
enhanced pricing flexibility, while at the same time providing
accountability through greater transparency. These joint goals will
best be achieved if they are balanced with one another. Transparency
cannot be achieved if the term ``product'' is applied too broadly,
e.g., solely at the subclass level. Aggregating postal services into
only a few products, a result urged by several parties, forfeits
transparency and serves no legitimate business or regulatory need.
Stated differently, it will not provide for accountability, a bedrock
principle underlying the PAEA. By the same token, pricing flexibility
is illusory if the term ``product'' is applied too narrowly, e.g., at
the rate cell level. Disaggregating postal services into too many
products would impose unwarranted administrative burdens on the Postal
Service, thwart pricing flexibility, and serve no legitimate business
or regulatory need. It would not, in short, lead to any enhancement in
postal service, which, too, is a central principle underlying the PAEA.
In applying the term ``product'' to the competitive and market
dominant categories of mail, the Commission has been guided by these
principles and has tried to strike an appropriate balance between these
competing goals. In doing so, the Commission has also considered other
factors, including the type of mail involved, the pre-existing
classifications, and the potential for other reasonable groupings of
postal services.
The term ``product'' has greater significance for competitive
products than for market dominant products. Section 3633(a)(2) requires
each competitive product to cover its attributable costs. Each
competitive product is identified following the process outlined in
section 3631, which first, in section 3631(a), lists four types of mail
(``priority mail, expedited mail, bulk parcel post, and bulk
international mail'') as being within the competitive category of
mail;\73\ and second, in section 3631(c), instructs that the ``mail
matter'' comprising each of these types of mail has ``the meaning given
to such mail matter under the mail classification schedule.'' The
Commission is charged with the responsibility of determining what mail
matter comprises each of these types of mail, and that mail matter is
what initially becomes the competitive products.\74\
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\73\ Mailgrams have been discontinued and, thus, are not
discussed.
\74\ A few parties suggest that competitive products are defined
as the types of mail listed in section 3631(a). See, e.g., NAA
Comments, June 18, 2007, at 14-15; PSA Reply Comments, May 8, 2007,
at 6; see also Postal Service Supplemental Comments, June 19, 2007,
at 8-9. These contentions lack merit. Competitive products are not
``define[d]'' in section 3631(a). PSA Comments, May 8, 2007, at 6.
That section merely lists the types of mail designated as
competitive. It does not define, i.e., identify, what each
competitive product is. That process requires the Commission to
identify the mail matter that comprises each type of mail listed in
section 3631(a) and, as appropriate, to identify the product (or
products) within each.
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In the discussion above, the Commission identified 11 products that
initially comprise the competitive products' category. These are as
follows:
Priority mail, consisting of Domestic Priority Mail and
International Priority Mail;
Expedited mail, consisting of Domestic Express Mail and
International
Express Mail;
[[Page 50767]]
Bulk parcel post, consisting of Parcel Select, Parcel
Return Service, and parcel post qualifying for BMC, OBMC, and barcode
discounts;
Bulk international mail, consisting of IPA, ISAL, and M-
bags; and
Negotiated service agreements, which includes ICMs.\75\
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\75\ Each negotiated service agreement is a separate product.
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These products not only form the basis for the mail classification
schedule, but also comprise the initial competitive product list
required by section 3642.
In developing the initial list of competitive products, the
Commission balanced the Postal Service's business needs for pricing
flexibility with the public's need for accountability. The results
demonstrate that the term ``product'' can be applied in a judicious
manner, based on a consideration of the law and facts. This process
results in products based on classes of mail (Express Mail), subclasses
of mail (Priority), rate categories (Parcel Select), and negotiated
service agreements. While these products could, in theory, be further
disaggregated or, in the case of negotiated service agreements, further
aggregated, the Commission concludes that doing so at this time is
unwarranted. This effort represents the initial listing of competitive
products. In fashioning this list, the Commission has endeavored to
balance goals of the PAEA, while also taking into account the parties'
competing concerns. The PAEA contemplates that the implementing
regulations and the product lists may be changed. See sections 3622(a),
3633(a), and 3642(a). Once experience is gained, the list of products
may be changed as warranted.
The application of the term ``product'' to the types of mail listed
in section 3621(a) is of lesser significance because, as noted above,
the price cap is applied at the class level, not at a product (or any
other) level. Nonetheless, the same rule of construction applies.
Compare sections 3621(b) and 3631(c). The process begins with section
3621(a) which lists the following 10 types of mail as being within the
market dominant category of mail:
1. First-Class Mail letters and sealed parcels;
2. First-Class Mail cards;
3. Periodicals;
4. Standard Mail;
5. Single-piece parcel post;
6. Media Mail;
7. Bound Printed Matter;
8. Library Mail;
9. Special services; and
10. Single-piece international mail.
As with competitive products, section 3621(b) instructs that the
``mail matter'' comprising each of the foregoing types of mail ``have
the meaning given to such mail matter under the mail classification
schedule.'' Moreover, the foregoing list (and thus the mail matter
represented therein) are ``subject to any changes the Postal Regulatory
Commission may make under section 3642.'' Section 3621(a). The
Commission is charged with the responsibility of determining what mail
matter comprises each type of mail, and that mail matter is what
initially becomes the market dominant products. These products, in
turn, form the basis for the mail classification schedule and also
serve as the source of the market dominant product list required by
section 3642.
The types of market dominant mail listed in section 3621(a)
represent a medley of current postal services. Five are classes of
mail, i.e., Periodicals; Standard Mail; Bound Printed Matter; and Media
and Library Mail; two are subclasses, i.e., First-Class letters and
sealed parcels, and First-Class cards; and one, single-piece parcel
post, is a rate category. The remaining two include special services,
i.e., ancillary services, and single-piece international mail. An
additional consideration is that three of these types of mail, First-
Class letters and sealed parcels, First-Class cards, and Standard Mail,
are covered by the postal monopoly.\76\
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\76\ As a result, these types of mail are distinguishable from
other market dominant products. See section 3642(b)(2). At first
blush, this distinction may suggest a lesser need to disaggregate
these types of mail matter into more than one product. Other
considerations, e.g., transparency and the business and/or
regulatory needs, may outweigh that initial inclination.
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In considering how best to identify the mail matter comprising each
type of mail, the Commission turns initially to the existing reference
materials, an approach suggested by numerous parties. With respect to
domestic mail, identifying the relevant mail matter may be accomplished
by reference to the DMCS, a relatively straightforward proposition,
except for single-piece parcel post. However, since the Commission has
identified the competitive products associated with bulk parcel post,
the latter simply represents the remaining parcel post mail matter.
With respect to single-piece international mail, the relevant mail
matter may be gleaned from the IMM. In an earlier filing, the Postal
Service suggested specific types of mail matter that might be
considered single-piece international mail. Postal Service Reply
Comments, May 7, 2007, at 33. Since the Commission has identified the
competitive products associated with bulk international mail, the
single-piece counterpart would logically consist of the remaining
international mail matter.
In addition to the foregoing, the Commission proposes to add
negotiated service agreements, i.e., special classifications pursuant
to section 3622(c)(10), as separate market dominant product. Initially,
each agreement (special classification) will be treated as a separate
product.\77\ This treatment affords the Postal Service flexibility to
enter into any special classification it wishes, but provides the
necessary transparency to satisfy relevant business and regulatory
needs. Absent the discipline that such accountability imposes, both the
Postal Service and the Commission roles under the PAEA may be
compromised. For example, the Postal Service may lack agreement-
specific details on profitability of the agreement, while the
Commission would be unable to assess whether the agreement complied
with the statute.
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\77\ In some instances, it may be appropriate to group as a
single product negotiated service agreements that are functionally
equivalent and thus take on the characteristics of a niche
classification.
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In lieu of identifying at this time the market dominant products
associated with the foregoing mail, the Commission concludes, for
reasons of accuracy and expedition, that a preferable alternative
exists. In commenting on the mail classification process, the Postal
Service volunteered to compile a mail classification schedule. Postal
Service Supplemental Comments, June 19, 2007, at 11, n.34. The
Commission appreciates that offer. Doing so will be a useful exercise
as it will enable the Postal Service to draft a mail classification
schedule, consistent with this order, that best suits its needs.
Previously, the Postal Service indicated the mail classification
schedule would contain a level of detail similar to the DMCS. Id. at
10-11. The Commission finds that prospect acceptable.
In its submission, the Postal Service should identify the market
dominant products it believes should be in the mail classification
schedule. This will enable the Postal Service to categorize its
services into products so that it can make appropriate business
decisions. The draft mail classification schedule should incorporate
the competitive products discussed above.
The draft mail classification schedule is due September 14, 2007.
Responses to this schedule may be filed by no later than September 28,
2007. Lastly, section 3642 provides the Commission with authority to
add or remove products
[[Page 50768]]
from the market dominant and competitive product lists, and to transfer
products between the lists. This proceeding represents the initial
attempt to establish these lists. The Commission anticipates that
changes to these lists will be necessary. Once the initial lists are
established, the Postal Service may wish to modify them to better serve
its and its customers' needs.
IV. Part 3020--Product Lists
Rule 3020.1 explains the purpose of all rules that follow in part
3020. The rules establish a Mail Classification Schedule, which
categorizes products as either market dominant or competitive. The
categorizations must initially be consistent with the types of mail
specified by 39 U.S.C. 3621(a) and 39 U.S.C. 3631(a). Once the Mail
Classification Schedule is established, the rules specify the
procedures to modify the market dominant and competitive product lists
and to update the explanatory information contained therein. Authority
for this rule flows directly from the general requirements specified in
39 U.S.C. 3642, which allows the Commission to consider modifications
to the market dominant and competitive product lists.
Experimental products offered as market tests are specifically
excluded from the requirements of part 3020 by 39 U.S.C. 3641(a)(2).
The Commission intends to develop separate rules allowing recognition
of experimental products in the Mail Classification Schedule during the
market tests to facilitate transparency.
A. Subpart A--Mail Classification Schedule
The Commission is charged with maintaining accurate product lists.
39 U.S.C. 3642. The Commission views the Mail Classification Schedule
as the vehicle for presenting the product lists with necessary
descriptive content. The explanatory information included with the
product lists will inform participants in Commission proceedings of the
nature and scope of Postal Service products and must be sufficiently
detailed to allow the Commission to verify that the rates and
categorization of products are in compliance with the PAEA. Thus, the
Mail Classification Schedule is important in that it will provide for
the transparent and accurate maintenance of the product lists.
The Postal Service suggests two mail classification schedules: one
for market dominant products and one for competitive products. Postal
Service Supplemental Comments, June 19, 2007, at 11. The Postal Service
believes this is appropriate because different regulatory regimes apply
to each side of the business. Postal Service Comments, June 18, 2007,
at 16. Additionally, the Postal Service views the product lists as an
entity separate from the mail classification schedules.
The Commission, as a matter of preference and administrative ease,
proposes a single Mail Classification Schedule subdivided into two
parts. A single schedule will be less likely to cause confusion,
simpler to administer when modifying product lists, and will facilitate
the process of providing adequate public notice when modifications to
the product lists occur.
Rule 3020.10 describes the Mail Classification Schedule as a single
document containing two parts. The first part contains the list of
market dominant products with related explanatory information, and the
second part contains the list of competitive products with related
explanatory information.
The Postal Service has expressed the view that it should maintain
the physical Mail Classification Schedule. Postal Service Supplemental
Comments, June 19, 2007, at 14. The Commission finds the Mail
Classification Schedule to be the appropriate vehicle for maintaining
the market dominant and competitive product lists that the Commission
is charged with overseeing. This does not impose constraints on the
Postal Service's flexibility to develop new products or modify products
consistent with the policies of title 39. The Commission's primary role
under 39 U.S.C. 3642, as evident from the proposed rules, is the proper
categorization of Postal Service products. The rules proposed for
updating product descriptions and features in the Mail Classification
Schedule will not inhibit Postal Service flexibility.
The Postal Service has indicated that it may be appropriate for the
Mail Classification Schedule to be at a similar level of detail as the
previous Domestic Mail Classification Schedule (DMCS). Postal Service
Comments, June 18, 2007, at 16. Elements of the International Mail
Manual (IMM) also will have to be incorporated into the Mail
Classification Schedule. Id. The Commission concludes that the Postal
Service is in the best position to describe its own products and
propose descriptive language to be included in the Mail Classification
Schedule. Whether the type of mail is categorized as market dominant or
competitive is already determined by statute as specified in 39 U.S.C.
3621(a) and 39 U.S.C. 3631(a). The portion of this notice of proposed
rulemaking describing the regulation of competitive products clarifies
the proper categorization where potential questions of interpretation
might arise. Rule 3020.11 directs the Postal Service to initially
propose the contents of a Mail Classification Schedule consistent with
the categorization specified by statute.
A short 30-day period from the enactment of this rule is provided
for the Postal Service to formulate its Mail Classification Schedule
proposal. This should provide sufficient time because it is expected
that the Postal Service will draw heavily from existing material
provided in the DMCS and the IMM. The Postal Service also has
considerable time to plan and undertake preliminary preparation for
this activity prior to this rule becoming final.
Several comments suggest that the product categorizations specified
in the statute did not fully reflect the distinctions between market
dominant and competitive products. Some time after the initial rounds
of rulemakings are complete, the Commission expects the Postal Service
to propose comprehensive modifications to the product lists to more
accurately reflect market dominant and competitive products.\78\
---------------------------------------------------------------------------
\78\ This may include incorporating some ancillary services,
which currently are considered special services, into host products.
---------------------------------------------------------------------------
The Commission will file notice of the Postal Service's Mail
Classification Schedule proposal in the Federal Register, with initial
commentary by the Commission, and solicit public comment. This process
will allow the Commission to develop a Mail Classification Schedule
that can become part of the Commission's rules.
The Commission currently publishes the Domestic Mail Classification
Schedule in the Code of Federal Regulations. However, extensive
portions of this document are abridged to facilitate the Office of the
Federal Register's publication requirements. Redacting portions of this
document is labor intensive, and the portions of the document
eventually published do not provide a complete description of Postal
Service products to interested parties. The Postal Service incorporates
by reference the Mailing Standards of the United States Postal Service,
Domestic Mail Manual (DMM) and the IMM into its rules, which avoids
many of the publication problems now experienced by the Commission.
Incorporating a document by reference into the Code of Federal
Regulations requires permission from the Office of the Federal
Register. The Commission has initiated discussions with the Office of
the
[[Page 50769]]
Federal Register to obtain the permission necessary to incorporate by
reference the Mail Classification Schedule. Thus, rule 3020.12 adopts
the Postal Service's approach and pending Office of the Federal
Register approval incorporates the Mail Classification Schedule by
reference into the Commission's rules of practice.
Rule 3020.13 specifies the content of the Mail Classification
Schedule. Unlike the current DMCS which is organized by classes and
subclasses, the Mail Classification Schedule will be organized by
Postal Service products with market dominant and competitive products
each appearing in separate sections of the document. This is intended
to satisfy the requirement to maintain separate market dominant and
competitive product lists.
Unique to the market dominant section of the Mail Classification
Schedule is the requirement to specify the class of each product. See
rule 3020.13(a)(1). A single product might be a class in and of itself,
or a group of products such as single-piece Parcel Post, Media Mail,
Bound Printed Matter, and Library Mail might make up a class.
Identification of class is necessary to implement the system of
regulating rates and classes required under 39 U.S.C. 3622(d)(2)(A).
Rules 3020.13(a)(2) and (b)(1) require presentation of product
descriptions, and rules 3020.13(a)(3) and (b)(2) require presentation
of the current rates and fees. The Commission invites comment on
whether the rate and fee schedules should be integrated with each
product description, or whether rate and fee schedules should be
collected and appear at the end of the market dominant section or the
competitive section as applicable, similar to how they now appear in
the DMCS.
For competitive products, the rules only require disclosure of
rates and fees for products of general applicability. For products not
of general applicability, the rates and fees of negotiated agreements
still may be disclosed, but disclosure is not required because of the
probability that these rates and fees may be subject to confidentiality
requirements.
Several products may be subject to unique regulatory treatment
under the PAEA, such as products of special classification, products
not of general applicability, experimental products undergoing market
tests, and non-postal products. Rules 3020.13(a)(4)-(6) and (b)(3)-(5)
simply require that these products be identified as such.
The Commission is required to provide notice in the Federal
Register whenever modifications are approved for the market dominant
and competitive product lists. Rule 3020.14(e) implements these notice
requirements specified by 39 U.S.C. 3642(d)(2).
B. Subpart B--Requests Initiated by the Postal Service To Modify the
Product Lists Described Within the Mail Classification Schedule
Rule 3020.30 provides the procedure for the Postal Service to
propose modifications to the market dominant and competitive product
lists as specified by 39 U.S.C. 3642(a). Proposals to modify the lists
shall be initiated by filing a request with the Commission. The
modifications that may be proposed are to add a product to a list,
remove a product from a list, or to transfer a product between lists.
Multiple modifications may be included in one request.
The Commission requires specific information to properly determine
the correct categorization of a product as either market dominant or
competitive. It also needs information to assure the accuracy of the
product lists in the Mail Classification Schedule. The Postal Service
is to provide this information in its request.
Rule 3020.31 specifies the content of the Postal Service's request.
It requires the Postal Service to identify the product and class of the
product, if applicable, (rule 3020.31(a)), and any special
characteristics of the product such as: whether it is a special
classification, whether it is a product not of general applicability,
or whether it is a non-postal product (rule 3020.31(d)). Rule
3020.31(c) requires the Postal Service to indicate the nature of the
request, i.e., whether it is a request to add, remove or transfer a
product. Rule 3020.31(f) requires the Postal Service to propose
modifications to the Mail Classification Schedule necessary to
implement its request. Finally, rules 3020.31(b) and (e) require the
Postal Service to provide supporting justification for its request. The
supporting justification includes a copy of the Governors' decision
supporting the request if one has been issued, and the material
specified in rule 3020.32 described below.
Rule 3020.32 directs the Postal Service to provide supporting
justification to demonstrate that the modification it requests is in
accordance with the policies and applicable criteria of title 39. The
supporting justification shall be in the form of a statement from a
sponsor(s) of the request who attests to the accuracy of the
information provided. Given a presumption that a hearing on the record
will not be provided unless a need is demonstrated, the statement need
not be in the form of testimony.
Paragraphs (b) through (h) of rule 3020.32 focus attention on
specific provisions of title 39. For market dominant products,
paragraph (b) requires the Postal Service to demonstrate that its
proposal is not inconsistent with the objectives, factors, and
requirements of modern rate regulation for market dominant products
specified in 39 U.S.C. 3622. For competitive products, paragraph (c)
requires the Postal Service to demonstrate that its proposal is not
inconsistent with the requirements for rates of competitive products
specified in 39 U.S.C. 3633.
The primary criteria upon which the Commission is to review the
Postal Service's request are provided in 39 U.S.C. 3642(b). These
criteria require consideration of the product's market power, monopoly
status, private sector provision of similar products, the opinions of
users of the product, and the impact on small business concerns.
Paragraphs (d) through (h) of the proposed rule require the Postal
Service to provide specific information necessary for the Commission to
analyze the request in light of these criteria. Finally, paragraph (i)
requires the Postal Service to provide other information as is
necessary to fully inform the Commission of its proposal.
Rule 3020.33 institutes a docket for each Postal Service request.
Assigning a docket allows the Commission to organize and track all
material related to a request within its docketing, i.e., filing
online, system. Notice of each docket shall be published in the Federal
Register. The notice will provide information regarding the opportunity
for written comment from the public. Written comment will be the
primary avenue for public input as to whether or not the proposed
product modification complies with applicable statutory provisions and
Commission rules.
The PAEA anticipates a different form of review than what was
provided for classification changes under previous legislation. The
primary focus of the review will be on compliance with the statutory
requirements for proper categorization of the Postal Service product as
either market dominant or competitive. Review of the operational
parameters of the product and the financial basis of the product
typically will be minimal. The Postal Service's request will be
reviewed as presented. Participant input into the review process will
be through notice and comment. The Commission will review
[[Page 50770]]
each request for compliance with applicable statutory provisions and
Commission rules with consideration of the views expressed in public
comments.
Rule 3020.34 outlines the review procedures. If the requested
modification appears to be in compliance with applicable statutory
provisions and Commission rules, the Commission may approve the
modification without further proceedings. This is consistent with
providing the Postal Service flexibility and with the after-the-fact
review anticipated by the PAEA. If the request does not appear to be in
compliance, the Commission will provide an explanation to the Postal
Service and, if appropriate, institute a proceeding to further consider
the request. Where minor problems are discovered, the Commission may
provide the Postal Service with the opportunity to modify its request
to bring the request into compliance.
Rule 3020.35 provides options for further consideration of a
request where there is an indication that the request is not in
compliance. Consideration will begin with the Commission convening a
conference to identify issues and discuss appropriate approaches for
exploring relevant issues. In preparation for the conference, the
Commission will request written statements of positions that identify
the issues and solicit proposals for further review procedures. Shortly
after the conclusion of the conference, the Commission will issue a
procedural ruling on how to proceed with the request. The Commission
preserves options ranging from immediately approving the request, to
providing an opportunity for a hearing, to instituting any other action
appropriate to the nature of issues involved.
C. Subpart C--Requests Initiated by Users of the Mail To Modify the
Product Lists Described Within the Mail Classification Schedule
Rule 3020.50 provides the procedure for users of the mail to
propose modifications to the market dominant and competitive product
lists as specified by 39 U.S.C. 3642(a). To allow the Postal Service to
be the first to initiate proposals to modify product lists, rules in
subpart C will not become effective until 6 months after the rules in
subpart B become effective.
In general, the rules in subpart C parallel the rules discussed
above in subpart B applicable to Postal Service requests. The notable
exceptions are discussed below.
In many instances, a Postal Service request will be supported by a
Governors' decision. Typically, a Governors' decision will not be
available for modification requests initiated by users of the mail.
Thus, a user of the mail does not have a requirement to provide a
Governors' decision in support of its request. Rule 3220.5, cf. rule
3020.31(b).
A user of the mail may or may not have informed the Postal Service
of its intent to file a request. Thus, rule 3020.54 directs the
Secretary of the Commission to provide a copy of the request to the
Postal Service. At the same time, the Postal Service is given an
opportunity to provide its initial views, within 28 days, as to the
request and to suggest appropriate Commission action. The initial views
provided by the Postal Service play an important part in the review
process. With a request initiated by the Postal Service, it is presumed
that the request is feasible to implement and consistent with the
operational plans and goals of the Postal Service. This may or may not
be the case for requests initiated by users of the mail.
The review of a request under rule 3020.55 is more complex than a
review of a Postal Service request under rule 3020.34 because the
initial views of the Postal Service must be considered. It would be
impractical to proceed with a request that was operationally not
feasible for the Postal Service to implement, or inconsistent with
Postal Service policies and goals. With this in mind, if the proposed
modification is in compliance with statutory provisions and Commission
rules, the Commission may approve the modification without further
proceedings, but only to the extent that the request is consistent with
the Postal Service's views. If the request does not appear in
compliance with applicable statutory provisions, Commission rules, or
is not consistent with the views of the Postal Service, the Commission
will either reject the request, or if appropriate, institute
proceedings to further consider the request under rule 3020.56.
D. Subpart D--Proposal of the Commission To Modify the Product Lists
Described Within the Mail Classification Schedule
Rule 3020.70 provides the procedure for the Commission to propose
modifications to the market dominant and competitive product lists as
specified by 39 U.S.C. 3642(a). To allow the Postal Service to be the
first to initiate proposals to modify product lists, rules in subpart C
will not become effective until 6 months after the rules in subpart B
become effective.
In general, the rules in subpart D parallel the rules discussed
above in subpart B applicable to Postal Service requests. The notable
exceptions are discussed below.
As with a request initiated by a user of the mail, a Governors'
decision will not be available for modification proposals initiated by
the Commission. Thus, the Commission does not have a requirement to
provide a Governors' decision in support of its request. The Commission
will, however, provide its explanation for initiating the docket. Rule
3220.71, cf. rule 3020.31(b).
To formally start the review process, rule 3020.74 directs the
Secretary of the Commission to provide a copy of the Commission
proposal to the Postal Service. As with a request initiated by a user
of the mail, the Postal Service is given an opportunity to provide its
initial views as to the proposal and to suggest appropriate Commission
action, within 28 days. The initial views provided by the Postal
Service play an equally important role in the review process, whether
the request was initiated by a user of the mails or proposed by the
Commission.
The review of a request under rule 3020.75 is similar to a request
initiated by a user of the mail under rule 3020.55 in that the initial
views of the Postal Service must be considered. With this in mind, if
the proposed modification is in compliance with statutory provisions
and Commission rules, the Commission may approve the modification
without further proceedings, but only to the extent that the request is
consistent with the Postal Service's views. If the request does not
appear in compliance with applicable statutory provisions, Commission
rules, or is not consistent with the views of the Postal Service, the
Commission will either withdraw the proposal, or if appropriate,
institute proceedings to further consider the proposal under rule
3020.76.
E. Subpart E--Requests Initiated by the Postal Service To Update the
Mail Classification Schedule
The accuracy and timeliness of the Mail Classification Schedule are
important as the Commission will rely on the Mail Classification
Schedule when undertaking its regulatory responsibilities. Users of the
mail also may rely on the Mail Classification Schedule to form the
basis for understanding and utilizing Postal Service products and
services and presenting their positions before the Commission. This
subpart provides a simplified path for the Postal Service to provide
necessary updates to the Mail Classification Schedule.
[[Page 50771]]
The Postal Service is in the best position to provide timely and
accurate descriptions of its products. Rule 3020.90 requires the Postal
Service to assure that the product descriptions (i.e., all information
about a product appearing in the Mail Classification Schedule)
accurately reflect the current offerings of Postal Service products and
services.
There are inherent limits on the scope or magnitude of any update
allowable under subpart E. Specifically excluded are updates that would
modify the market dominant or the competitive product lists. Implicitly
excluded are updates that might be governed by other rules such as
changes to rates and fees. A proposed update may not change the nature
of a service to such an extent that it effectively creates a new
product or eliminates an existing product. This subpart is not intended
for such changes.
Within these limitations, however, this subpart allows the Postal
Service the flexibility to update provisions of the Mail Classification
Schedule with minimal review. To prevent abuse, other checks and
balances always are available such as the compliant process. This is
consistent with both allowing the Postal Service flexibility and
providing after-the-fact review where appropriate.
The simplified path provided by rule 3020.91 to make changes to the
descriptions of the products and services described within the Mail
Classification Schedule only requires the Postal Service to provide
notice to the Commission prior to the effective date of a proposed
change. While preserving the Commission's editorial rights in the Mail
Classification Schedule, rule 3020.92 indicates that the Commission
intends to implement requested appropriate updates to the Mail
Classification Schedule. There is no provision requiring review of the
substance of such changes. The document will be updated to coincide
with the effective date of the change determined by the Postal Service.
F. Subpart F--Size and Weight Limitations for Mail Matter
The Postal Service may establish size and weight limitations for
mail matter pursuant to 39 U.S.C. 3682. Subpart F requires the Postal
Service to include size and weight limitations for mail matter in the
Mail Classification Schedule to provide visibility to users of the mail
and provide information necessary for the Commission to fulfill its
statutory role. For market dominant mail matter, the Commission will
provide notice of the proposed update in the Federal Register and allow
public comment. If the Commission finds the proposed update in
accordance with the policies and the applicable criteria of title 39,
the Mail Classification Schedule will be updated to coincide with the
effective date of the proposed change. If the Commission finds the
proposed update not in accordance with the policies and the applicable
criteria of title 39, the Commission will take such action as it deems
appropriate. For competitive mail matter, the Postal Service simply
provides notice of an update to the Mail Classification Schedule
pursuant to subpart E. The Commission does not review proposed updates
to weight and size limitations of competitive mail matter.
V. Ordering Paragraphs
It is ordered:
1. The Commission proposes to amend its rules of practice and
procedure as shown below. The proposed amendments involve revising rule
5, 39 CFR 3001.5, by amending rules 5(r) and (s) and adding new rules
5(t) and (u); and adding new parts 3010, Rules Applicable to Rate
Adjustments for Market Dominant Products; 3015, Regulation of Rates for
Competitive Products; and 3020, Product Lists.
2. Interested persons may submit comments by September 14, 2007.
3. Interested persons may submit reply comments by September 28,
2007.
4. The United States Postal Service shall submit, by September 14,
2007, a draft mail classification schedule containing a market dominant
product list and a competitive product list consistent with the
discussion in chapter III, section E.4.
5. Interested persons may submit comments concerning the draft mail
classification schedule by September 28, 2007.
6. The Secretary shall arrange for publication of this order in the
Federal Register.
Attachment A.--Comments to Regulations Establishing a System of
Ratemaking
------------------------------------------------------------------------
Participant Title Filing date
------------------------------------------------------------------------
Advo, Inc. (Advo)............. Comments of Advo, Inc. April 6, 2007.
in Response to
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of May 7, 2007.
Advo, Inc. in
Response to Advance
Notice of Proposed
Rulemaking.
Comments of Advo, Inc. June 18, 2007.
in Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of July 3, 2007.
Advo, Inc. in
Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Akerman Senterfitt Wickwire Submission of Comments April 2, 2007.
Gavin.
Alliance of Nonprofit Mailers, Comments of Alliance April 6, 2007.
National Association of of Nonprofit Mailers,
Presort Mailers and National National Association
Postal Policy Council (ANM- of Presort Mailers
NAPM-NPPC). and National Postal
Policy Council on
Advance Notice of
Proposed Rulemaking.
Reply Comments of May 7, 2007.
Alliance of Nonprofit
mailers, National
Association of
Presort Mailers and
National Postal
Policy Council on
Advance Notice of
Proposed Rulemaking.
Alliance of Nonprofit Mailers Comments of Alliance April 6, 2007.
and Magazine Publishers of of Nonprofit Mailers
America, Inc. (ANM-MPA). and Magazine
Publishers of
America, Inc. on
Advance Notice of
Proposed Rulemaking.
[[Page 50772]]
Reply Comments of May 7, 2007.
Alliance of Nonprofit
Mailers and Magazine
Publishers of
America, Inc. on
Advance Notice of
Proposed Rulemaking.
Initial Comments of June 18, 2007.
Alliance of Nonprofit
Mailers and Magazine
Publishers of
America, 2007. Inc.
on Further Advance
Notice of Proposed
Rulemaking (Order No.
15).
Reply Comments of July 3, 2007.
Alliance of Nonprofit
Mailers and Magazine
Publishers of
America, Inc. on
Further Advance
Notice of Proposed
Rulemaking (Order No.
15).
Amazon.com.................... Statement of Paul July 9, 2007.
Misener, Vice
President for Global
Public Policy on
Behalf of Amazon.com
at Wilmington,
Delaware Field
Hearing on July 9,
2007.
American Business Media (ABM). Initial Comments of April 6, 2007.
American Business
Media.
American Business Media, Joint Comments of April 6, 2007.
Greeting Card Association, American Business
and Newspaper Association of Media, Greeting Card
America (ABM-GCA-NAA). Association, and
Newspaper Association
of America With
Respect to the
Complaint Process.
American Postal Workers Union, Initial Comments of April 6, 2007.
AFL-CIO (APWU). the American Postal
Workers Union, AFL-
CIO, in Response to
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of the May 7, 2007.
American Postal
Workers Union, AFL-
CIO.
Initial Comments of June 18, 2007.
the American Postal
Workers Union, AFL-
CIO, in Response to
Second Advance Notice
of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
Reply Comments of the July 3, 2007.
American Postal
Workers Union, AFL-
CIO, in Response to
Second Advance Notice
of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
Association for Postal Initial Comments of April 6, 2007.
Commerce (PostCom). PostCom in Response
to Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of the May 7, 2007.
Association for
Postal Commerce.
Comments of PostCom in June 18, 2007.
Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Joint Comments on OCA July 3, 2007.
Positions.
Reply Comments of July 3, 2007.
PostCom in Response
to Second Advance
Notice of Proposed
Rulemaking.
Association of Priority Mail Association of April 6, 2007.
Users, Inc. (APMU). Priority Mail Users,
Inc. Comments on
Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
2.
Association of June 18, 2007.
Priority Mail Users,
Inc. Comments on
Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
15.
Association of July 3, 2007.
Priority Mail Users,
Inc. Reply Comments
on Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
15.
Senators Collins and Carper... PRC Comments from April 11, 2007.
Senators Collins and
Carper.
DigiStamp, Inc................ Comments of DigiStamp. April 2, 2007.
Direct Marketing Association, Direct Marketing April 6, 2007.
Inc. (DMA). Association, Inc.
Initial Comments
Pursuant to PRC Order
No. 2.
Direct Marketing May 7, 2007.
Association, Inc.
Reply Comments
Pursuant to PRC Order
No. 2.
Direct Marketing July 3, 2007.
Association, Inc.
Reply Comments
Pursuant to PRC Order
No. 15.
Discover Financial Services Reply Comments of May 7, 2007
LLC (DFS). Discover Financial
Services LLC.
Further Comments of July 16, 2007.
DFS Services LLC.
[[Page 50773]]
DST Systems, Inc., DST Output, Statement of Mury June 26, 2007.
Inc. and DST Mailing Service, Salls on Behalf of
Inc.. DST Systems, Inc.,
DST Output, Inc., and
DST Mailing Service,
Inc., at Kansas City
Field Hearing June
22, 2007.
Federal Express Corporation Comments of Federal April 5, 2007.
(FedEx). Express Corporation.
Greeting Card Association Comments of the April 6, 2007.
(GCA).. Greeting Card
Association in
Response to Advance
Notice of Proposed
Rulemaking.
Reply Comments of the May 7, 2007.
Greeting Card
Association.
Comments of the June 18, 2007.
Greeting Card
Association in
Response to Second
Advance Notice of
Proposed Rulemaking.
Reply Comments of the July 3, 2007.
Greeting Card
Association in
Response to Second
Advance Notice of
Proposed Rulemaking.
Hallmark Cards, Inc........... Statement of Don Hall, June 26, 2007.
Jr., President and
CEO, Hallmark Cards,
Inc. at Kansas City,
Missouri Field
Hearing, June 22,
2007.
International Mailers' Comments on Behalf of April 6, 2007.
Advisory Group. the International
Mailers' Advisory
Group.
JP Morgan Chase & Co.......... Statement of Daniel C. July 9, 2007.
Emens on Behalf of JP
Morgan Chase & Co. at
Wilmington, Delaware
Field Hearing on July
9, 2007.
Jon Mulford Associates........ Comments of Jonathan March 14, 2007.
Mulford on Behalf of
John Mulford
Associates Regarding
Docket No. RM2007-1.
Los Angeles Times............. Statement of David D. June 28, 2007.
Hiller, Publisher,
Los Angeles Times at
Los Angeles Field
Hearing on June 28,
2007.
Mail Order Association of Comments of Mail Order April 6, 2007.
America (MOAA). Association of
America.
Reply Comments of Mail May 7, 2007.
Order Association of
America.
Response of the Mail June 18, 2007.
Order Association of
America to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of Mail July 3, 2007.
Order Association of
America to Comments
Filed in Response to
Second Notice of
Proposed Rulemaking.
Major Mailers Association Initial Comments of June 18, 2007.
(MMA).. Major Mailers
Association.
The McGraw-Hill Companies, Reply Comments of The May 7, 2007.
Inc.. McGraw-Hill
Companies, Inc.
Pursuant to Order No.
2.
McBride, Ken.................. Statement of Ken June 28, 2007.
McBride at Los
Angeles Field Hearing
on June 28, 2007.
Reply Comments of The July 6, 2007.
McGraw-Hill
Companies, Inc. in
Response to
Supplemental Comments
of the United States
Postal Service on the
Classification
Process.
Meredith Corporation.......... Statement of Randy June 26, 2007.
Stumbo, Director of
Distribution and
Postal Affairs for
Meredith Corporation,
at Kansas City,
Missouri Field
Hearing on June 22,
2007.
The Nation.................... Comments of The Nation June 19, 2007.
on Docket RM2007-1.
National Association of Comments of National June 18, 2007.
Homebuilders. Home Association of
Home Builders.
National Association of Letter National Association May 7, 2007.
Carriers (NALC). of Letter Carriers'
Response to Other
Parties' Comments on
Proposed Rulemaking
Concerning Exigency
Clause and Future
Complaint Procedures.
National Association of Comments of the June 18, 2007.
Presort Mailers (NAPM). National Association
of Presort Mailers.
National Catholic Development Statement of Sr. July 9, 2007.
Conference. Georgette Lehmuth,
OSF on Behalf of
National Catholic
Development
Conference at
Wilmington, Delaware
Field Hearing on July
9, 2007.
National Newspaper Association Comments of the April 6, 2007.
(NNA). National Newspaper
Association (NNA).
[[Page 50774]]
National Newspaper Association Statement of Dave June 26, 2007.
(NNA) and Missouri Press Berry, Vice
Association. President, Community
Newspaper Publishers,
Inc. and Publisher of
the Bolivar Herald-
Free Press, Bolivar,
Missouri on Behalf of
the NNA and Missouri
Press Association, at
Kansas City Field
Hearing June 22, 2007.
National Postal Policy Council Comments of National June 18, 2007.
(NPPC). Postal Policy Council
in Response to
Further Advance
Notice of Proposed
Rulemaking.
National Postal Policy Council Reply Comments of July 3, 2007.
and National Association of National Postal
Presort Mailers (NPPC-NAPM). Policy Council and
National Association
of Presort Mailers in
Response to Further
Advance Notice of
Proposed Rulemaking.
Newgistics, Inc............... Initial Comments of April 6, 2007.
Newgistics, Inc.
Newspaper Association of Comments of the March 30, 2007.
America (NAA). Newspaper Association
of America.
Reply Comments of the May 7, 2007.
Newspaper Association
of America.
Comments of the June 18, 2007.
Newspaper Association
of America on Second
Advance Notice of
Proposed Rulemaking.
Reply Comments of the July 3, 2007.
Newspaper Association
of America on Second
Advance Notice of
Proposed Rulemaking.
Office of the Consumer OCA Comments in April 6, 2007.
Advocate (OCA). Response to Advance
Notice of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
OCA Comments in Reply May 7, 2007.
to Those Filed in
Response to Order No.
2.
Office of the Consumer June 18, 2007.
Advocate Comments in
Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Office of the Consumer July 3, 2007.
Advocate Reply
Comments in Response
to Second Advance
Notice of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
Office of the Consumer July 3, 2007.
Advocate Comments in
Response to
Supplemental Comments
of the United States
Postal Service on the
Classification
Process.
Parcel Shippers Association Comments of the Parcel April 6, 2007,
(PSA). Shippers Association.
Reply Comments of May 7, 2007.
Parcel Shippers
Association to
Comments of United
Parcel Service.
Errata to Reply May 8, 2007.
Comments of Parcel
Shippers Association
to Comments of United
Parcel Service.
Reply Comments of May 8, 2007.
Parcel Shippers
Association to
Comments of United
Parcel Service and
Comments of the
Office of the
Consumer Advocate
[Revised Filing].
Response of the Parcel June 18, 2007.
Shippers Association
to Second Advance
Notice of Proposed
Rulemaking.
Reply of Parcel July 3, 2007.
Shippers Association
to Comments Filed in
Response to Second
Notice of Proposed
Rulemaking.
Pepperdine University......... Statement of John June 28, 2007.
Carper on Behalf of
Pepperdine University
at Los Angeles Field
Hearing on June 28,
2007.
Pitney Bowes Inc.............. Initial Comments of April 6, 2007.
John C. Panzar on
Behalf of Pitney
Bowes Inc. in
Response to Advance
Notice of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
Initial Comments of April 6, 2007.
Pitney Bowes Inc. in
Response to Advance
Notice of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
Reply Comments of May 7, 2007.
Pitney Bowes Inc. in
Response to Advance
Notice of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
[[Page 50775]]
Initial Comments of June 18, 2007.
Pitney Bowes Inc. in
Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of July 3, 2007.
Pitney Bowes Inc. in
Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Statement of Michael July 9, 2007.
Monahan, Executive
Vice President and
President, Mailing
Solutions and
Services, on Behalf
of Pitney Bowes Inc.
at Wilmington,
Delaware Field
Hearing on July 9,
2007.
Sprint-Nextel................. Initial Comments of April 6, 2007.
Sprint-Nextel..
Stamps.com.................... Submission of Comments April 6, 2007.
of Stamps.com.
Reply Comments of May 7, 2007.
Stamps.com.
Stamps.com Comments... June 18, 2007.
Tension Envelope Corporation.. Statement of William June 26, 2007.
S. Berkley, President
and CEO, Tension
Envelope Corporation
at the Kansas City,
Missouri Field
Hearings on June 22,
2007.
Time Warner Inc............... Initial Comments of April 6, 2007.
Time Warner Inc. in
Response to
Commission Order No.
2.
Reply Comments of Time May 7, 2007.
Warner Inc. to
Initial Comments in
Response to
Commission Order No.
2.
Comments of Time June 18, 2007.
Warner Inc. In
Response to
Commission Order No.
15.
United Parcel Service (UPS)... Comments of United April 6, 2007.
Parcel Service in
Response to Advance
Notice of Proposed
Rulemaking on
Regulations
Establishing a System
of Ratemaking.
Reply Comments of May 7, 2007.
United Parcel Service
in Response to
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Comments of United June 18, 2007.
Parcel Service in
Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
Reply Comments of July 3, 2007.
United Parcel Service
in Response to Second
Advance Notice of
Proposed Rulemaking
on Regulations
Establishing a System
of Ratemaking.
United States Postal Service Initial Comments of April 6, 2007.
(USPS). the United States
Postal Service.
Reply Comments of the May 7, 2007.
United States Postal
Service.
Initial Comments of June 18, 2007.
the United States
Postal Service on the
Second Advance Notice
of Proposed
Rulemaking.
Supplemental Comments June 19, 2007.
of the United States
Postal Service on the
Classification
Process.
Reply Comments of the July 3, 2007.
United States Postal
Service on the Second
Advance Notice of
Proposed Rulemaking.
Valpak Direct Marketing Valpak Direct April 6, 2007.
Systems, Inc. and Valpak Marketing Systems,
Dealers' Association, Inc. Inc. and Valpak
(Valpak). Dealers' Association,
Inc. Comments on
Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
2.
Valpak Direct May 7, 2007.
Marketing Systems,
Inc. and Valpak
Dealers' Association,
Inc. Reply Comments
on Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
2.
Valpak Direct June 18, 2007.
Marketing Systems,
Inc. and Valpak
Dealers' Association,
Inc. Comments on
Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
15.
[[Page 50776]]
Valpak Direct July 3, 2007.
Marketing Systems,
Inc. and Valpak
Dealers' Association,
Inc. Reply Comments
on Regulations
Establishing a System
of Ratemaking in
Response to
Commission Order No.
15.
Williams-Sonoma Inc........... Statement of James June 28, 2007.
West, Director,
Postal and Government
Affairs, on Behalf of
Williams-Sonoma Inc.
at Los Angeles Field
Hearing on June 28,
2007.
YourAuctionCompany.com........ Statement of Adam and July 9, 2007.
Wendy Leidhecker,
Chief Executive
Officers, on Behalf
of
YourAuctionCompany.co
m at Wilmington,
Delaware Field
Hearing on July 9,
2007.
------------------------------------------------------------------------
List of Subjects
39 CFR Part 3001
Administrative practice and procedure, Confidential business
information, Freedom of information, Sunshine Act.
39 CFR Part 3010
Administrative practice and procedure, Postal Service.
39 CFR Part 3015
Administrative practice and procedure, Postal Service.
39 CFR Part 3020
Administrative practice and procedure, Postal Service.
By the Commission.
Steven W. Williams,
Secretary.
For the reasons stated in the preamble, under the authority at 39
U.S.C. 503, the Postal Regulatory Commission proposes to amend 39 CFR
chapter III as follows:
PART 3001--RULES OF PRACTICE AND PROCEDURE
1. Revise the authority citation for part 3001 to read as follows:
Authority: 39 U.S.C. 404(d); 503; 3622; 3633; 3661, 3652.
2. Amend Sec. 3001.5 as follows:
a. Revise paragraphs (r) and (s); and
b. Add paragraphs (t) and (u).
Subpart A--Rules of General Applicability
Sec. 3001.5 Definitions.
* * * * *
(r) Negotiated service agreement means a written contract, to be in
effect for a defined period of time, between the Postal Service and a
mailer, that provides for customer-specific rates or fees and/or terms
of service in accordance with the terms and conditions of the contract.
A negotiated service agreement is not a rate of general applicability.
(s) Postal service refers to the delivery of letters, printed
matter, or mailable packages, including acceptance, collection,
sorting, transportation, or other functions ancillary thereto.
(t) Product means a postal service with a distinct cost or market
characteristic for which a rate or rates are, or may reasonably be,
applied.
(u) Rate or class of general applicability means a rate or class
that is available to all mailers equally on the same terms and
conditions.
3. Add part 3010 to read as follows:
PART 3010--RULES APPLICABLE TO RATE ADJUSTMENTS FOR MARKET DOMINANT
PRODUCTS
Subpart A--General Provisions
Sec.
3010.1 Applicability.
3010.2 Types of rate adjustments for market dominant products.
3010.3 Type 1-A rate adjustment--in general.
3010.4 Type 1-B rate adjustment--in general.
3010.5 Type 2 rate adjustment--in general.
3010.6 Type 3 rate adjustment--in general.
3010.7 Schedule of regular rate changes.
Subpart B--Rules for Rate Adjustments for Rates of General
Applicability (Type 1 Rate Adjustments)
3010.10 Procedures.
3010.11 Limit on size of rate increases.
3010.12 Source of CPI-U data for purposes of annual limitation.
3010.13 Proceedings for Type 1-A and Type 1-B rate adjustment
filings.
3010.14 Contents of notice of rate adjustment.
Subpart C--Rules for Applying the Price Cap
3010.20 Test for compliance with the annual limitation.
3010.21 Calculation of annual limitation.
3010.22 Calculation of less than annual limitation.
3010.23 Calculation of percentage change in rates.
3010.24 Treatment of volume associated with negotiated service
agreements.
3010.25 Limitation on unused rate adjustment authority rate
adjustments.
3010.26 Calculation of unused rate adjustment authority.
3010.27 Application of unused rate adjustment authority.
3010.28 Maximum size of unused rate adjustment authority rate
adjustments.
Subpart D--Rules for Rate Adjustments for Negotiated Service Agreements
(Type 2 Rate Adjustments)
3010.40 Negotiated service agreements.
3010.41 Procedures.
3010.42 Contents of notice of agreement in support of a negotiated
service agreement.
3010.43 Data collection plan.
Subpart E--Rules for Rate Adjustments for Exigent Circumstances (Type 3
Rate Adjustments)
3010.60 Applicability.
3010.61 Contents of exigent requests.
3010.62 Supplemental information.
3010.63 Treatment of unused rate adjustment authority.
3010.64 Expeditious treatment of exigent requests.
3010.65 Special procedures applicable to exigent requests.
3010.66 Deadline for Commission decision.
Authority: 39 U.S.C. 503; 3622.
Subpart A--General Provisions
Sec. 3010.1 Applicability.
The rules in this part implement provisions in the Postal
Accountability and Enhancement Act (PAEA) establishing ratesetting
policies and procedures for market dominant products. With the
exception of exigency-based rate adjustments, these procedures allow a
minimum of 45 days for advance public notice of the Postal Service's
planned rate adjustments and the Commission's assessment of their
compliance with provisions establishing an annual limitation, unused
rate adjustment authority, or standards for
[[Page 50777]]
negotiated service agreements, as applicable. Exigency-based rate
adjustments require the Postal Service to file a formal request with
the Commission and are subject to special procedures.
Sec. 3010.2 Types of rate adjustments for market dominant products.
(a) There are four types of rate adjustments for market dominant
products. A Type 1-A rate adjustment, authorized under 39 U.S.C.
3622(d)(1)(D), is based on the statutory annual limitation. A Type 1-B
rate adjustment, authorized under 39 U.S.C. 3622(d)(2)(C), is based on
an exception to the annual limitation, and is referred to as unused
rate adjustment authority. A Type 2 rate adjustment, authorized under
39 U.S.C. 3622(c)(10), is based on a negotiated service agreement. A
Type 3 rate adjustment, authorized under 39 U.S.C. 3622(d)(1)(E), is
based on exigent circumstances.
(b) Upon the establishment of unused rate adjustment authority in
any class, the Postal Service shall devise and maintain a schedule that
tracks the establishment and subsequent use of unused rate adjustment
authority.
(c) The Postal Service may combine Types 1-A, 1-B and 2 rate
adjustments for purposes of filing with the Commission.
Sec. 3010.3 Type 1-A rate adjustment--in general.
(a) A Type 1-A rate adjustment represents the usual type of
adjustment to rates of general applicability.
(b) A Type 1-A rate adjustment may result in a rate adjustment that
is less than or equal to the annual limitation, but may not exceed the
annual limitation.
(c) A Type 1-A rate adjustment for any class that is less than the
applicable change in CPI-U results in unused rate adjustment authority
associated with that class. Part or all of the unused rate adjustment
authority may be used in a subsequent adjustment for that class,
subject to the expiration terms in Sec. 3010.26(d).
Sec. 3010.4 Type 1-B rate adjustment--in general.
(a) A Type 1-B rate adjustment is a rate adjustment which uses
unused rate adjustment authority in whole or in part. A rate adjustment
using unused rate adjustment authority may not result in a rate that
exceeds the applicable annual limitation plus 2 percentage points.
(b) Unused rate adjustment authority in each class may be applied
to rate adjustments in the same class for up to 5 years.
Sec. 3010.5 Type 2 rate adjustment--in general.
A negotiated service agreement rate adjustment entails a rate
adjustment negotiated between the Postal Service and a customer or
group of customers.
Sec. 3010.6 Type 3 adjustment--in general.
(a) A Type 3 rate adjustment is a request for an exigency-based
rate adjustment. It is authorized only when justified by exceptional or
extraordinary circumstances.
(b) An exigency-based rate adjustment is not subject to the
inflation-based limitation or the restrictions on the use of unused
rate adjustment authority, and does not implement a negotiated service
agreement.
(c) A Postal Service request for a Type 3 rate adjustment is
subject to public participation and Commission review within 90 days.
Sec. 3010.7 Schedule of regular rate changes.
(a) The Postal Service shall maintain on file with the Commission a
Schedule for Regular and Predictable Rate Changes. The Commission shall
display the Schedule for Regular and Predictable Rate Changes on the
Commission Web site, http:// www.prc.gov.
(b) The Schedule for Regular and Predictable Rate Changes shall
provide mailers with estimated implementation dates for future Type 1-A
rate changes for each separate class of mail, should such changes be
necessary and appropriate. Rate changes will be scheduled at specified
regular intervals.
(c) The Schedule for Regular and Predictable Rate Changes shall
provide an explanation that will allow mailers to predict with
reasonable accuracy the amounts of future scheduled rate changes.
(d) The initial Schedule for Regular and Predictable Rate Changes
must be filed within 90 days of the effective date of this rule. The
Postal Service should balance its financial and operational needs with
the convenience of mailers of each class of mail in developing the
schedule.
(e) Whenever the Postal Service deems it appropriate to change the
Schedule for Regular and Predictable Rate Changes, it shall file a
revised schedule and explanation with the Commission.
(f) The Postal Service may, for good cause shown, vary rate
adjustments from those estimated by the Schedule for Regular and
Predictable Rate Changes. In such case, the Postal Service should
provide a succinct explanation for such variation with its Type 1-A
filing. No explanation is required for changes involving smaller than
predicted rate adjustments.
Subpart B--Rules for Rate Adjustments for Rates of General
Applicability (Type 1 Rate Adjustments)
Sec. 3010.10 Procedures.
(a) The Postal Service, in every instance in which it determines to
exercise its statutory authority to make a Type 1-A or Type 1-B rate
adjustment for a market dominant postal product shall:
(1) Provide public notice in a manner reasonably designed to inform
the mailing community and the general public that it intends to change
rates not later than 45 days prior to the intended implementation date;
and
(2) Transmit a notice of rate adjustment to the Commission no later
than 45 days prior to the intended rate implementation date.
(b) The Postal Service is encouraged to provide public notice and
to submit its notice of rate adjustment as far in advance of the 45-day
minimum as practicable, especially in instances where the intended
price changes include classification changes or operations changes
likely to have material impact on mailers.
Sec. 3010.11 Limit on size of rate increases.
Rate increases for each class of market dominant products in any
12-month period are limited.
(a) Rates of general applicability are subject to an inflation-
based limitation computed using CPI-U values as detailed in Sec.
3010.12.
(b) An exception to the inflation-based limitation allows a limited
annual recapture of unused rate authority. The amount of unused rate
authority is measured separately for each class of mail.
(c) In any 12-month period the inflation-based limitation combined
with the allowable recapture of unused rate authority equals the price
cap applicable to each class of mail.
Sec. 3010.12 Source of CPI-U data for purposes of annual limitation.
The monthly CPI-U values needed for the calculation of the annual
limitation under this part shall be obtained from the Bureau of Labor
Statistics (BLS) Consumer Price Index--All Urban Consumers, U.S. All
Items, Not Seasonally Adjusted, Base Period 1982-84 = 100. The current
Series ID for the index is ``CUUR0000SA0.''
[[Page 50778]]
Sec. 3010.13 Proceedings for Type 1-A and Type 1-B rate adjustment
filings.
(a) The Commission will establish a docket for each rate adjustment
filing, promptly publish notice of the filing in the Federal Register,
post the filing on its Web site, and allow 20 days from the date of the
filing for public comment.
(b) Public comments should address:
(1) Whether the planned rate adjustments measured using the formula
established in Sec. 3010.21(b) are at or below the annual limitation
established in Sec. 3010.11; and
(2) Whether the planned rate adjustments are consistent with the
policies of 39 U.S.C. 3622 and any subsequent amendments thereto.
(c) Within 14 days of the conclusion of the public comment period
the Commission will determine whether the planned rate adjustments are
consistent with the test for compliance with the annual limitation and
issue a notice and order announcing its findings.
(1) If the planned rate adjustments are in compliance with the
annual limitation and, if applicable, with the exception for unused
rate adjustment authority, they may take effect; or
(2) If the planned rate adjustments are not in compliance with the
annual limitation or with the exception for unused rate adjustment
authority, the Commission shall explain the basis of its determination.
(d) If planned rate adjustments are not in compliance with the
annual limitation or with the exception for unused rate adjustment
authority, the Postal Service will submit an amended notice of rate
adjustment and describe the modifications to its planned rate
adjustments that will bring its rate adjustments into compliance. An
amended notice of rate adjustment shall be accompanied by sufficient
explanatory information to show that all deficiencies identified by the
Commission have been corrected.
(e) The Commission will review any amended notice of rate
adjustment for compliance with the annual limitation and the exception
for unused rate adjustment authority and within 14 days issue a notice
and order announcing its findings.
(1) If the planned rate adjustments are in compliance with the
annual limitation or, if applicable, with the exception for unused rate
adjustment authority, they may take effect. However, no rate shall take
effect until 45 days after the Postal Service files a notice of rate
adjustment specifying that rate.
(2) If the planned rate adjustments in an amended notice of rate
adjustment are found to be not in compliance with the annual limitation
or, if applicable, with the exception for unused rate adjustment
authority, the Commission shall explain the basis of its determination
and suggest an appropriate remedy.
Sec. 3010.14 Contents of notice of rate adjustment.
(a) General. The Postal Service notice of rate adjustment must
include the following information:
(1) A schedule of the proposed rates;
(2) The planned effective date(s) of the proposed rates;
(3) A representation or evidence that public notice of the planned
changes has been issued or will be issued at least 45 days before the
effective date(s) for the proposed new rates; and
(4) The identity of a responsible Postal Service official who will
be available to provide prompt responses to requests for clarification
from the Commission.
(b) Supporting technical information and justifications. The notice
of rate adjustment shall be accompanied by:
(1) The amount of the applicable change in CPI-U calculated as
required by Sec. 3010.21 or Sec. 3010.22, as appropriate. This
information must be supported by workpapers in which all calculations
are shown, and all input values including all relevant CPI-U values are
listed with citations to the original sources.
(2) A schedule showing unused rate authority available for each
class of mail displayed by class and available amount for each of the
preceding 5 years. This information must be supported by workpapers in
which all calculations are shown.
(3) The percentage change in rates for each class of mail
calculated as required by Sec. 3010.23. This information must be
supported by workpapers in which all calculations are shown, and all
input values including current rates, new rates, and billing
determinants are listed with citations to the original sources.
(4) The amount of new unused rate authority, if any, that will be
generated by the rate adjustment calculated as required by Sec.
3010.26. All calculations are to be shown with citations to the
original sources. If new unused rate authority will be generated for a
class of mail that is not expected to cover its attributable costs, the
Postal Service should explain the rationale underlying this rate
adjustment.
(5) A schedule of the workshare discounts included in the proposed
rates, and a companion schedule listing the avoided costs that underlie
each such discount. The avoided cost figures must be developed from the
most recent PRC Annual Compliance Report. This information must be
supported by workpapers in which all calculations are shown, and all
input values are listed with citations to the original sources.
(6) Separate justification for all proposed workshare discounts
that exceed avoided costs. Each such justification shall reference
applicable reasons identified in 39 U.S.C. 3622(e)(2) or (3). The
Postal Service shall also identify and explain discounts that are set
substantially below avoided costs and explain any relationship between
discounts that are above and those that are below avoided costs.
(7) A discussion of how the proposed rates will help achieve the
objectives listed in 39 U.S.C. 3622(b) and properly take into account
the factors listed in 39 U.S.C. 3622(c).
(8) Such other information as the Postal Service believes will
assist the Commission to issue a timely determination of whether the
requested increases are consistent with applicable statutory policies.
(c) New workshare discounts. Whenever the Postal Service
establishes a new workshare discount rate, it must include with its
filing:
(1) A statement explaining its reasons for establishing the
discount;
(2) All data, economic analyses, and other information believed to
justify the discount; and
(3) A certification based on comprehensive, competent analyses that
the discount will not adversely affect either the rates or the service
levels of users of postal services who do not take advantage of the
discount.
(d) Information required only when Type 1-B rate adjustments are
proposed. The notice of rate adjustment shall identify for each
affected class how much existing unused rate authority is used in the
proposed rates calculated as required by Sec. 3010.27. All
calculations are to be shown, including citations to the original
sources.
Subpart C--Rules for Applying the Price Cap
Sec. 3010.20 Test for compliance with the annual limitation.
The appropriate annual limitation shall be applied to a measure of
the rates paid by mail sent in each class for which rate adjustments
are to be made to determine whether planned rates are consistent with
the annual limitation.
Sec. 3010.21 Calculation of annual limitation.
The calculation of an annual limitation involves three steps.
First, a simple average CPI-U index is
[[Page 50779]]
calculated by summing the most recently available 12 monthly CPI-U
values from the date the Postal Service files its notice of rate
adjustment and dividing the sum by 12 (Recent Average). Then, a second
simple average CPI-U index is similarly calculated by summing the 12
monthly CPI-U values immediately preceding the Recent Average and
dividing the sum by 12 (Base Average). Finally, the annual limitation
is calculated by dividing the Recent Average by the Base Average and
subtracting 1 from the quotient. The result is expressed as a
percentage. The formula for calculating an annual limitation is as
follows: Annual Limitation = (Recent Average/Base Average) - 1.
Sec. 3010.22 Calculation of less than annual limitation.
(a) If a notice of rate adjustment is filed less than 1 year after
the last Type 1-A or Type 1-B notice of rate adjustment applicable to
an affected class of mail, then the annual limitation will recognize
the rate increases that have occurred during the preceding 12 months.
When the effects of those increases are removed, the remaining partial
year limitation is the applicable restriction on rate increases.
(b) The applicable partial year limitation is calculated in two
steps. First, a simple average CPI-U index is calculated by summing the
12 most recently available monthly CPI-U values from the date the
Postal Service files its notice of rate adjustment and dividing the sum
by 12 (Recent Average). The partial year limitation is then calculated
by dividing the Recent Average by the Recent Average from the most
recent previous notice of rate adjustment (Previous Recent Average)
applicable to each affected class of mail and subtracting 1 from the
quotient. The result is expressed as a percentage.
(c) The formula for calculating the partial year limitation for a
notice of rate adjustment filed less than 1 year after the last notice
is as follows: Partial Year Limitation = (Recent Average/Previous
Recent Average) - 1.
Sec. 3010.23 Calculation of percentage change in rates.
(a) The term rate cell as applied in the test for compliance with
the annual limitation shall apply to each and every separate rate
identified in any applicable notice of rate adjustment for rates of
general applicability. Thus, seasonal or temporary rates, for example,
shall be identified and treated as rate cells separate and distinct
from the corresponding non-seasonal or permanent rates.
(b) For each class of mail, the percentage change in rates is
calculated in three steps. First, the volume of each rate cell in the
class is multiplied by the current rate for the respective cell and the
resulting products are summed. In the case of seasonal or temporary
rates, the most recently applied rate shall be considered the current
rate. Then, the same set of rate cell volumes are multiplied by the
corresponding planned rate for each cell and the resulting products are
summed. Finally, the percentage change in rates is calculated by
dividing the results of the first step by the results of the second
step and subtracting 1 from the quotient. The result is expressed as a
percentage.
(c) The formula for calculating the percentage change in rates for
a class described in paragraph (b) of this section is as follows:
Percentage change in rates =
[GRAPHIC] [TIFF OMITTED] TP04SE07.006
N = number of rate cells in the class
i = denotes a rate cell (i = 1, 2, ..., N)
Ri n = planned rate of rate cell i
Ri c = current rate of rate cell i
Vi = volume of rate cell i
(d) The volumes for each rate cell shall be obtained from the most
recent available 12 months of Postal Service billing determinants. The
Postal Service shall make reasonable adjustments to the billing
determinants to account for the effects of classification changes such
as the introduction, deletion, or redefinition of rate cells. Whenever
possible, adjustments shall be based on known mail characteristics. The
Postal Service shall identify and explain all adjustments. All
information and calculations relied upon to develop the adjustments
shall be provided together with an explanation of why the adjustments
are appropriate.
Sec. 3010.24 Treatment of volume associated with negotiated service
agreements.
(a) Mail volumes sent at non-tariff rates under negotiated service
agreements are to be included in the calculation of percentage change
in rates as though they paid the appropriate rates of general
applicability. Where it is impractical to identify the rates of general
applicability (e.g., because unique rate categories are created for a
mailer), the volumes associated with the mail sent under the terms of
the negotiated service agreement shall be excluded from the calculation
of percentage change in rates.
(b) The Postal Service shall identify and explain all assumptions
it makes with respect to the treatment of negotiated service agreements
in the calculation of the percentage change in rates and provide the
rationale for its assumptions.
Sec. 3010.25 Limitation on unused rate adjustment authority rate
adjustments.
Unused rate adjustment authority rate adjustments may only be
applied together with inflation-based limitation rate adjustments or
when inflation-based limitation rate adjustments are not possible.
Unused rate adjustment authority rate adjustments may not be used in
lieu of an inflation-based limitation rate adjustment.
Sec. 3010.26 Calculation of unused rate adjustment authority.
(a) Unused rate adjustment authority accrues during the entire
period between Type 1 rate adjustments.
(b) When notices of rate adjustments are filed 12 months apart or
less, either the annual or partial year limitation (developed pursuant
to Sec. 3010.21(a) or Sec. 3010.22(b) respectively) is used to
measure the accrued unused rate authority. In either circumstance, the
new unused rate authority for each class is equal to the difference
between the maximum allowable percentage change in rates under the
applicable rate limitation and the actual percentage change in rates
for that class.
(c) When a notice of rate adjustment is filed more than 12 months
after the previous notice of rate adjustment, unused rate authority is
computed in three steps.
(1) The unused rate authority for the 12 months represented by the
annual limitation is computed as described in paragraph (b) of this
section.
(2) The additional unused rate authority accrued is measured by
dividing the Base Average applicable to the instant notice of rate
adjustment (as developed pursuant to Sec. 3010.21(a)) by the Recent
Average utilized in the previous notice of rate adjustment (as
developed pursuant to Sec. 3010.21(a)) and subtracting 1 from the
quotient. The result is expressed as a percentage.
(3) The results from step one and step two are added together.
(d) Unused rate adjustment authority lapses 5 years after the date
of filing of the notice of rate adjustment leading to its computation.
Sec. 3010.27 Application of unused rate adjustment authority.
When the percentage change in rates for a class is greater than the
applicable annual limitation, then the difference between the
percentage change in rates
[[Page 50780]]
for the class and the price cap shall be subtracted from the existing
unused rate authority for the class, using a first-in, first-out (FIFO)
method, beginning 5 years before the instant notice.
Sec. 3010.28 Maximum size of unused rate adjustment authority rate
adjustments.
Unused rate adjustment authority rate adjustments for any class may
not exceed the applicable annual limitation described in Sec. 3010.21
plus the lesser of:
(a) 2 percent; or
(b) The sum of any unused rate adjustment authority for that class.
Subpart D--Rules for Rate Adjustments for Negotiated Service
Agreements (Type 2 Rate Adjustments)
Sec. 3010.40 Negotiated service agreements.
In administering this subpart, it shall be the objective of the
Commission to allow implementation of negotiated service agreements
that satisfy the statutory requirements of 39 U.S.C. 3622(c)(10)
mandating that special classifications:
(a) Negotiated service agreements must either:
(1) Improve the net financial position of the Postal Service (39
U.S.C. 3622(c)(10)(A)(i)), or
(2) Enhance the performance of operational functions (39 U.S.C.
3622(c)(10)(A)(ii)).
(b) Negotiated service agreements may not cause unreasonable harm
to the marketplace (39 U.S.C. 3622(c)(10)(B)).
Sec. 3010.41 Procedures.
The Postal Service, in every instance in which it determines to
exercise its statutory authority to make a Type 2 rate adjustment for a
market dominant postal product shall provide public notice in a manner
reasonably designed to inform the mailing community and the general
public that it intends to change rates not later than 45 days prior to
the intended implementation date; and transmit a notice of agreement to
the Commission no later than 45 days prior to the intended rate
implementation date.
Sec. 3010.42 Contents of notice of agreement in support of a
negotiated service agreement.
(a) Whenever the Postal Service proposes to establish or change
rates or fees and/or the Mail Classification Schedule based on a
negotiated service agreement, the Postal Service shall file with the
Commission a notice of agreement. This shall include at a minimum:
(b) General. Each notice of agreement will include:
(1) A copy of the negotiated service agreement;
(2) The planned effective date(s) of the proposed rates;
(3) A representation or evidence that public notice of the planned
changes has been issued or will be issued at least 45 days before the
effective date(s) for the proposed new rates; and
(4) The identity of a responsible Postal Service official who will
be available to provide prompt responses to requests for clarification
from the Commission.
(5) A statement identifying all parties to the agreement and a
description clearly explaining the operative components of the
agreement.
(c) Details regarding the expected improvements in the net
financial position or operations of the Postal Service. The projection
of change in net financial position as a result of the agreement shall
include for each year of the agreement:
(1) The estimated mailer-specific costs, volumes, and revenues of
the Postal Service absent the implementation of the negotiated service
agreement;
(2) The estimated mailer-specific costs, volumes, and revenues of
the Postal Service which result from implementation of the negotiated
service agreement; and
(3) An analysis of the effects of the negotiated service agreement
on the contribution to institutional costs from mailers not party to
the agreement.
(4) If mailer-specific costs are not available, the source and
derivation of the costs that are used shall be provided, together with
a discussion of the currency and reliability of those costs and their
suitability as a proxy for the mailer-specific costs.
(d) An identification of each component of the agreement expected
to enhance the performance of mail preparation, processing,
transportation or other functions in each year of the agreement, and a
discussion of the nature and expected impact of each such enhancement.
(e) Details regarding any and all actions (performed or to be
performed) to assure that the agreement will not result in unreasonable
harm to the marketplace.
(f) Such other information as the Postal Service believes will
assist the Commission to issue a timely determination of whether the
requested increases are consistent with applicable statutory policies.
Sec. 3010.43 Data collection plan.
The Postal Service shall include with any notice of agreement a
detailed plan for providing data or information on actual experience
under the agreement sufficient to allow evaluation of whether the
negotiated service agreement operates in compliance with 39 U.S.C.
3622(c)(10). This shall include, at a minimum, a plan for providing the
following annualized information on a yearly basis within 60 days of
the date of implementation of a proposed agreement:
(a) The change in net financial position as a result of the
agreement. This calculation shall include for each year of the
agreement:
(1) The actual mailer-specific costs, volumes, and revenues of the
Postal Service; and
(2) An analysis of the effects of the negotiated service agreement
on the net overall contribution to the institutional costs of the
Postal Service.
(3) If mailer-specific costs are not available, the source and
derivation of the costs that are used shall be provided, including a
discussion of the currency and reliability of those costs, and their
suitability as a proxy for the mailer-specific costs.
(b) A discussion of the changes in operations of the Postal Service
that have resulted from the agreement. This shall include, for each
year of the agreement, identification of each component of the
agreement known to enhance the performance of mail preparation,
processing, transportation, or other functions in each year of the
agreement.
(c) An analysis of the impact of the negotiated service agreement
on the marketplace, including a discussion of any and all actions taken
to protect the marketplace from unreasonable harm.
Subpart E--Rules for Rate Adjustments in Exigent Circumstances
(Type 3 Rate Adjustments)
Sec. 3010.60 Applicability.
The Postal Service may request to increase rates for market
dominant products in excess of the annual limitation on the percentage
changes in rates described in Sec. 3010.11(c) due to extraordinary or
exceptional circumstances. Such requests will be known as exigent
requests.
Sec. 3010.61 Contents of exigent requests.
(a) Each exigent request shall include the following:
(1) A schedule of the proposed rates;
(2) Calculations quantifying the increase for each affected product
and class;
(3) A full discussion of the extraordinary or exceptional
circumstance(s) giving rise to the request, and a complete explanation
of how both the requested overall increase,
[[Page 50781]]
and the specific rate increases requested, relate to those
circumstances;
(4) A full discussion of why the requested increases are necessary
to enable the Postal Service, under best practices of honest, efficient
and economical management, to maintain and continue the development of
postal services of the kind and quality adapted to the needs of the
United States;
(5) A full discussion of why the requested increases are reasonable
and equitable as between types of users of market dominant products;
(6) An explanation of when the exigent increase will be rescinded.
If the period that the exigent increases will be in is intended to be
permanent or temporary. If the increase is intended to be temporary,
the request should include a discussion of when and under what
circumstances the increase would be rescinded, in whole or in part;
(7) A justification for exigent treatment which analyzes why the
circumstance giving rise to the request was neither foreseeable nor
avoidable by reasonable prior action; and
(8) Such other information as the Postal Service believes will
assist the Commission to issue a timely determination of whether the
requested increases are consistent with applicable statutory policies.
(b) The Postal Service shall identify one or more knowledgeable
Postal Service official(s) who will be available to provide prompt
responses to Commission requests for clarification related to each
topic specified in Sec. 3010.61(a).
Sec. 3010.62 Supplemental information.
The Commission may require the Postal Service to provide
clarification of its request or to provide information in addition to
that called for by Sec. 3010.61 in order to gain a better
understanding of the circumstances leading to the request or the
justification for the specific rate increases requested.
Sec. 3010.63 Treatment of unused rate adjustment authority.
(a) Each exigent request will identify the unused rate authority
for each class of mail as of the date of the request.
(b) Pursuant to an exigent request, increases may use accumulated
unused rate adjustment authority in amounts greater than the limitation
described in Sec. 3010.28.
(c) Exigent increases will exhaust all unused rate adjustment
authority for each class of mail before imposing additional rate
increases in excess of the price cap for any class of mail.
Sec. 3010.64 Expeditious treatment of exigent requests.
Requests under this subpart seek rate relief required by
extraordinary or exceptional circumstances and will be treated with
expedition at every stage. It is Commission policy to provide
appropriate relief as quickly as possible consistent with statutory
requirements and procedural fairness.
Sec. 3010.65 Special procedures applicable to exigent requests.
(a) When the Commission receives a request for exigent rate
increases, it will publish a notice in the Federal Register describing
the request and inviting public participation.
(b) The Commission will hold a public hearing on the Postal Service
request. During the public hearing, responsible Postal Service
officials will appear and respond under oath to questions from the
Commissioners or their designees addressing previously identified
aspects of the Postal Service's request and the supporting information
provided in response to the topics specified in Sec. 3010.61(a).
(c) Interested persons will be given an opportunity to submit to
the Commission suggested relevant questions that might be posed during
the public hearing. Such questions, and any explanatory materials
submitted to clarify the purpose of the questions, should be filed in
accordance with Sec. 3001.9, and will become part of the
administrative record of the proceeding.
(d) The timing and length of the public hearing will depend on the
nature of the circumstances giving rise to the request and the clarity
and completeness of the supporting materials provided with the request.
(e) If the Postal Service is unable to provide adequate
explanations during the public hearing, supplementary written or oral
responses may be required.
(f) Following the conclusion of the public hearings and submission
of any supplementary materials interested persons will be given the
opportunity to submit written comments on:
(1) The sufficiency of the justification for an exigent rate
increase;
(2) The adequacy of the justification for increases in the amounts
requested by the Postal Service; and
(3) Whether the specific rate adjustments requested are reasonable
and equitable.
(g) An opportunity to submit written reply comments will be given
to the Postal Service and other interested persons.
Sec. 3010.66 Deadline for Commission decision.
The Commission will act expeditiously on the Postal Service
request, taking into account all written comments. In every instance a
Commission decision will be issued within 90 days of a Postal Service
request for an exigent rate increase.
4. Add part 3015 to read as follows:
PART 3015--REGULATION OF RATES FOR COMPETITIVE PRODUCTS
Sec.
3015.1 Scope.
3015.2 Increase in rates of general applicability.
3015.3 Decrease in rates of general applicability.
3015.4 Change in class of general applicability.
3015.5 Rate or class not of general applicability.
3015.6 Sufficiency of information.
3015.7 Standards for compliance.
Authority: 39 U.S.C. 503; 3633.
Sec. 3015.1 Scope.
Rules in this part are applicable to competitive products.
Sec. 3015.2 Increase in rates of general applicability.
(a) When the Postal Service determines to increase a rate or rates
of general applicability, it shall file notice of the increase with the
Commission no later than the date of publication of the decision in the
Federal Register concerning such change, but at least 30 days before
the effective date of the increase.
(b) The notice filed with the Commission shall include an
explanation and justification for the change, the effective date, and a
schedule of the changed rates.
Sec. 3015.3 Decrease in rates of general applicability.
(a) When the Postal Service determines to decrease a rate or rates
of general applicability, it shall file notice of the decrease with the
Commission no later than the date of publication of the decision in the
Federal Register concerning such change, but at least 30 days before
the effective date of the decrease.
(b) The notice filed with the Commission shall include an
explanation and justification for the change, the effective date, and a
schedule of the changed rates.
(c) In addition to the notice, the Postal Service shall file with
the Commission:
(1) Sufficient annualized revenue and cost data to demonstrate that
each effected competitive product will be in
[[Page 50782]]
compliance with 39 U.S.C. 3633(a)(2); and
(2) A certified statement by a representative of the Postal Service
attesting to the accuracy of the data submitted, and explaining why,
following the change, competitive products in total will be in
compliance with 39 U.S.C. 3633(a)(1) and (3).
Sec. 3015.4 Change in class of general applicability.
(a) In the case of a change in class of general applicability, the
Postal Service shall file notice of the change with the Commission no
later than the date of publication of the decision in the Federal
Register, but at least 30 days before the effective date of the
increase.
(b) The notice filed with the Commission shall include an
explanation and justification for the change, the effective date, and
the record of proceedings regarding such decision.
Sec. 3015.5 Rate or class not of general applicability.
(a) When the Postal Service determines to add or change a rate or
class not of general applicability, it shall file notice of its
decision with the Commission at least 15 days before the effective date
of the change.
(b) The notice filed with the Commission shall include an
explanation and justification for the change, the effective date, the
rate and class decision, and the record of proceedings regarding such
decision.
(c) In addition to the notice, the Postal Service shall file with
the Commission:
(1) Sufficient annualized revenue and cost data to demonstrate that
each effected competitive product will be in compliance with 39 U.S.C.
3633(a)(2); and
(2) A certified statement by a representative of the Postal Service
attesting to the accuracy of the data submitted, and explaining why,
following the change, competitive products in total will be in
compliance with 39 U.S.C. 3633(a)(1) and (3).
Sec. 3015.6 Sufficiency of information.
If, after review of the information submitted pursuant to this
part, the Commission determines additional information is necessary to
enable it to evaluate whether competitive products will be in
compliance with 39 U.S.C. 3633(a), it may, in its discretion, require
the Postal Service to provide additional information as deemed
necessary.
Sec. 3015.7 Standards for compliance.
For purposes of determining competitive products' compliance with
39 U.S.C. 3633, the Commission will apply the following standards:
(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
competitive products' attributable 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).
(c) Annually, on a fiscal year basis, the appropriate share of
institutional costs to be recovered from competitive products
collectively is, at a minimum, 5.5 percent of the Postal Service's
total institutional costs.
5. Add part 3020 to read as follows:
PART 3020--PRODUCT LISTS
Subpart A--Mail Classification Schedule
Sec.
3020.1 Applicability.
3020.10 General.
3020.11 Initial Mail Classification Schedule.
3020.12 Publication of the Mail Classification Schedule.
3020.13 Contents of the Mail Classification Schedule.
3020.14 Notice of change.
Subpart B--Requests Initiated by the Postal Service to Modify the
Product Lists Described Within the Mail Classification Schedule
3020.30 General.
3020.31 Contents of a request.
3020.32 Supporting justification.
3020.33 Docket and notice.
3020.34 Review.
3020.35 Further proceedings.
Subpart C--Requests Initiated by Users of Mail to Modify the Product
Lists Described Within the Mail Classification Schedule
3020.50 General.
3020.51 Contents of a request.
3020.52 Supporting justification.
3020.53 Docket and notice.
3020.54 Postal Service notice and reply.
3020.55 Review.
3020.56 Further proceedings.
Subpart D--Proposal of the Commission to Modify the Product Lists
Described Within the Mail Classification Schedule
3020.70 General.
3020.71 Contents of a proposal.
3020.72 Supporting justification.
3020.73 Docket and notice.
3020.74 Postal Service notice and reply.
3020.75 Review.
3020.76 Further proceedings.
Subpart E--Requests Initiated by the Postal Service to Update the Mail
Classification Schedule
3020.90 General.
3020.91 Modifications.
3020.92 Implementation.
Subpart F--Size and Weight Limitations for Mail Matter
3020.110 General.
3020.111 Limitations applicable to market dominant mail matter.
3020.112 Limitations applicable to competitive mail matter.
Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.
Subpart A--Mail Classification Schedule
Sec. 3020.1 Applicability.
(a) The rules in this part provide for establishing a Mail
Classification Schedule. The Mail Classification Schedule shall
categorize postal products as either market dominant or competitive. As
established, the market dominant and competitive product lists
specified in the Mail Classification Schedule shall be consistent with
the market dominant product list specified in 39 U.S.C. 3621(a) and the
competitive product list specified in 39 U.S.C. 3631(a).
(b) Once established, the Mail Classification Schedule may be
modified subject to the procedures specified in this part. See part
3025 of this chapter for rules applicable to Mail Classification
Schedule modifications for market tests of experimental products.
Sec. 3020.10 General.
The Mail Classification Schedule shall consist of two parts. Part
One shall specify the list of market dominant products and include the
explanatory information specified in Sec. 3020.13(a). Part Two shall
specify the list of competitive products and include the explanatory
information specified in Sec. 3020.13(b).
Sec. 3020.11 Initial Mail Classification Schedule.
The Postal Service shall file with the Commission a proposed Mail
Classification Schedule within 30 days of enactment of this rule. The
proposed Mail Classification Schedule shall reflect the market dominant
and competitive product lists as specified in 39 U.S.C. 3621(a) and 39
U.S.C. 3631(a) respectively. The Commission shall cause notice of the
Postal Service filing to be published in the Federal Register. The
notice shall provide the opportunity for public comment. After
consideration of the proposed Mail Classification Schedule and public
comment, the Commission shall incorporate a Mail Classification
Schedule into the Commission's rules,
[[Page 50783]]
and cause notice thereof to be published in the Federal Register.
Thereafter, the Mail Classification Schedule may be modified as
specified by Commission rule.
Sec. 3020.12 Publication of the Mail Classification Schedule.
(a) Incorporation by reference. Section 552(a) of title 5 U.S.C.,
relating to the public information requirements of the Administrative
Procedure Act, provides in pertinent part that ``* * * matter
reasonably available to the class of persons affected thereby is deemed
published in the Federal Register when incorporated by reference
therein with the approval of the Director of the Federal Register.'' In
conformity with that provision, and with 39 U.S.C. 503, and as provided
in this part, the Postal Regulatory Commission hereby incorporates by
reference in this part, the Mail Classification Schedule, a looseleaf
document published and maintained by the Postal Regulatory Commission.
(b) Availability of the Mail Classification Schedule. (1) Copies of
the Mail Classification Schedule, both current and previous issues, are
available during regular business hours for reference and public
inspection at the Postal Regulatory Commission's Reading Room located
at 901 New York Avenue, NW., Suite 200, Washington, DC 20268-0001. The
Mail Classification Schedule, both current and previous issues, also
are available on the Internet at http://www.prc.gov. A copy of the Mail
Classification Schedule may be obtained by contacting the Postal
Regulatory Commission's Docket Section in Washington, DC.
(2) Interested persons may receive electronic notification of
updates to the Mail Classification Schedule by contacting the Postal
Regulatory Commission's Docket Section in Washington, DC.
(3) Interested persons may inspect a copy of the Mail
Classification Schedule at the National Archives and Records
Administration (NARA). For information on the availability of this
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html
.
(c) Amendments to the Mail Classification Schedule. (1) Except
final regulations published as provided in paragraph (c)(2) of this
section, only notices rather than complete text of changes made to the
Mail Classification Schedule are published in the Federal Register.
These notices are published in the form of one summary transmittal
letter for each issue of the Mail Classification Schedule. A complete
issue of the Mail Classification Schedule, including the text of all
changes published to date, will be filed with the Director, Office of
the Federal Register.
(2) When the Postal Regulatory Commission invites comments from the
public on a proposed change to the Mail Classification Schedule, the
proposed change and, if adopted, the full text of the final regulation
is published in the Federal Register.
(3) For references to amendments to the Mail Classification
Schedule adopted under paragraph (c)(2) of this section after issuance
of the most recent transmittal letter (termed Summary of Changes in the
Mail Classification Schedule) listed below, see Sec. 3020.12(c) in the
List of CFR sections affecting title 39 of the Code of Federal
Regulations.
------------------------------------------------------------------------
Federal Register
Transmittal letter for issue Dated publication
------------------------------------------------------------------------
1............................... [TBD]............. [TBD FR TBD]
------------------------------------------------------------------------
(d) [Reserved]
Sec. 3020.13 Contents of the Mail Classification Schedule.
The Mail Classification Schedule shall provide:
(a) The list of market dominant products, including:
(1) The class of each market dominant product;
(2) The description of each market dominant product;
(3) A schedule listing for each market dominant product the current
rates and fees;
(4) Where applicable, the identification of a product as a special
classification within the meaning of 39 U.S.C. 3622(c)(10) for market
dominant products;
(5) Where applicable, the identification of a product as an
experimental product undergoing a market test; and
(6) Where applicable, the identification of a product as a non-
postal product.
(b) The list of competitive products, including:
(1) The description of each competitive product;
(2) A schedule listing for each competitive product of general
applicability the current rates and fees;
(3) The identification of each product not of general applicability
within the meaning of 39 U.S.C. 3632(b)(3) for competitive products;
(4) Where applicable, the identification of a product as an
experimental product undergoing a market test; and
(5) Where applicable, the identification of a product as a non-
postal product.
Sec. 3020.14 Notice of change.
Whenever the Postal Regulatory Commission modifies the list of
products in the market dominant category or the competitive category,
it shall cause notice of such change to be published in the Federal
Register. The notice shall:
(a) Include the current list of market dominant products and the
current list of competitive products appearing in the Mail
Classification Schedule;
(b) Indicate how and when the previous product lists have been
modified; and
(c) Describe other changes to the Mail Classification Schedule as
necessary.
Subpart B--Requests Initiated by the Postal Service To Modify the
Product Lists Described Within the Mail Classification Schedule
Sec. 3020.30 General.
The Postal Service, by filing a request with the Commission, may
propose a modification to the market dominant product list or the
competitive product list appearing in the Mail Classification Schedule.
For purposes of this part, modification shall be defined as adding a
product to a list, removing a product from a list, or moving a product
from one list to the other list.
Sec. 3020.31 Contents of a request.
A request to modify the market dominant product list or the
competitive product list shall:
(a) Provide the name, and class if applicable, of each product that
is the subject of the request;
(b) Provide the name and class, if applicable, of each product that
is the subject of the request;
(c) Indicate whether the request proposes to add a product to the
market dominant list or the competitive list, remove a product from the
market dominant list or the competitive list, or transfer a product
from the market
[[Page 50784]]
dominant list to the competitive list or from the competitive list to
the market dominant list;
(d) Indicate whether each product that is the subject of the
request is:
(1) A special classification within the meaning of 39 U.S.C.
3622(c)(10) for market dominant products;
(2) A product not of general applicability within the meaning of 39
U.S.C. 3632(b)(3) for competitive products; or
(3) A non-postal product.
(e) Provide all supporting justification upon which the Postal
Service proposes to rely; and
(f) Include a copy of the applicable sections of the Mail
Classification Schedule and the proposed changes therein in legislative
format.
Sec. 3020.32 Supporting justification.
Supporting justification shall be in the form of a statement from
one or more knowledgeable Postal Service official(s) who sponsors the
request and attests to the accuracy of the information contained within
the statement. The justification shall:
(a) Demonstrate why the change is in accordance with the policies
and the applicable criteria of chapter 36 of 39 U.S.C.;
(b) Explain why, as to market dominant products, the change is not
inconsistent with each requirement of 39 U.S.C. 3622(d), and that it
advances the objectives of 39 U.S.C. 3622(b), taking into account the
factors of 39 U.S.C. 3622(c);
(c) Explain why, as to competitive products, the addition,
deletion, or transfer will not result in the violation of any of the
standards of 39 U.S.C. 3633.
(d) Verify that the change does not classify as competitive a
product over which the Postal Service exercises sufficient market power
that it can:
(1) Set the price of such product substantially above costs;
(2) Raise prices significantly;
(3) Decrease quality; or
(4) Decrease output without risk of losing a significant level of
business to other firms offering similar products.
(e) Explain whether or not each product that is the subject of the
request is covered by the postal monopoly as reserved to the Postal
Service under 18 U.S.C. 1696 subject to the exceptions set forth in 39
U.S.C. 601;
(f) Provide a description of the availability and nature of
enterprises in the private sector engaged in the delivery of the
product;
(g) Provide any information available on the views of those who use
the product on the appropriateness of the proposed modification;
(h) Provide a description of the likely impact of the proposed
modification on small business concerns; and
(i) Include such information and data, and such statements of
reasons and bases, as are necessary and appropriate to fully inform the
Commission of the nature, scope, significance, and impact of the
proposed modification.
Sec. 3020.33 Docket and notice.
The Commission shall institute a docket for consideration of each
request to modify the market dominant or the competitive product lists.
The Commission shall cause notice of each docket to be published in the
Federal Register, which includes:
(a) A description of the request;
(b) Direction to obtain further information in regard to the
request, if any;
(c) Direction for participation in the docket;
(d) Designation of an officer of the Commission to represent the
interests of the general public; and
(e) Information regarding an opportunity for written comment
addressing compliance with statutory provisions and applicable
Commission rules in regard to the proposed modification.
Sec. 3020.34 Review.
The Commission shall review the request and responsive comments.
The Commission shall either:
(a) Approve the request to modify the market dominant and
competitive product lists;
(b) Institute further proceedings to consider all or part of the
request if it finds that there is substantial likelihood that the
modification is inconsistent with statutory policies or Commission
rules, and explain its reasons for not approving the request to modify
the market dominant and competitive product lists;
(c) Provide an opportunity for the Postal Service to modify its
request; or
(d) Direct other action as the Commission may consider appropriate.
Sec. 3020.35 Further proceedings.
If the Commission determines that further proceedings are
necessary, a conference shall be scheduled to consider the concerns
expressed by the Commission. Written statements commenting on the
Commission's concerns shall be requested, to be filed 7 days prior to
the conference. Upon conclusion of the conference, the Commission shall
promptly issue a ruling to:
(a) Provide for a period of discovery to obtain further
information;
(b) Schedule a hearing on the record for further consideration of
the request;
(c) Explain the reasons for not going forward with additional
proceedings and approve the request to modify the market dominant and
competitive product lists; or
(d) Direct other action as the Commission may consider appropriate.
Subpart C--Requests Initiated by Users of the Mail To Modify the
Product Lists Described Within the Mail Classification Schedule
Sec. 3020.50 General.
Users of the mail, by filing a request with the Commission, may
propose a modification to the market dominant product list or the
competitive product list appearing in the Mail Classification Schedule.
For purposes of this part, modification shall be defined as adding a
product to a list, removing a product from a list, or transferring a
product from one list to the other list.
Sec. 3020.51 Contents of a request.
A request to modify the market dominant product list or the
competitive product list shall:
(a) Provide the name, and class if applicable, of each product that
is the subject of the request;
(b) Indicate whether the request proposes to add a product to the
market dominant list or the competitive list, remove a product from the
market dominant list or the competitive list, or move a product from
the market dominant list to the competitive list or from the
competitive list to the market dominant list;
(c) Indicate whether each product that is the subject of the
request is:
(1) A special classification within the meaning of 39 U.S.C.
3622(c)(10) for market dominant products;
(2) A product not of general applicability within the meaning of 39
U.S.C. 3632(b) for competitive products; or
(3) A non-postal product.
(d) Provide all supporting justification upon which the proponent
of the request proposes to rely; and
(e) Include a copy of the applicable sections of the Mail
Classification Schedule and the proposed changes therein in legislative
format.
Sec. 3020.52 Supporting justification.
Supporting justification shall be in the form of a statement from a
knowledgeable proponent of the request who attests to the accuracy of
the information contained within the statement. The justification
shall:
(a) Demonstrate why the change is in accordance with the policies
and the
[[Page 50785]]
applicable criteria of chapter 36 of 39 U.S.C.;
(b) Explain why, as to market dominant products, the change is not
inconsistent with each requirement of 39 U.S.C. 3622(d), and that it
advances the objectives of 39 U.S.C. 3622(b), taking into account the
factors of 39 U.S.C. 3622(c);
(c) Explain why, as to competitive products, the addition,
deletion, or transfer will not result in the violation of any of the
standards of 39 U.S.C. 3633.
(d) Verify that the change does not classify as competitive a
product over which the Postal Service exercises sufficient market power
that it can:
(1) Set the price of such product substantially above costs;
(2) Raise prices significantly;
(3) Decrease quality; or
(4) Decrease output without risk of losing a significant level of
business to other firms offering similar products.
(e) Explain whether or not each product that is the subject of the
request is covered by the postal monopoly, as reserved to the Postal
Service under 18 U.S.C. 1696 subject to the exceptions set forth in 39
U.S.C. 601;
(f) Provide a description of the availability and nature of
enterprises in the private sector engaged in the delivery of the
product;
(g) Provide any information available on the views of those who use
the product on the appropriateness of the proposed modification;
(h) Provide a description of the likely impact of the proposed
modification on small business concerns; and
(i) Include such information and data, and such statements of
reasons and bases, as are necessary and appropriate to fully inform the
Commission of the nature, scope, significance, and impact of the
proposed modification.
Sec. 3020.53 Docket and notice.
The Commission shall institute a docket for consideration of each
request to modify the market dominant or the competitive product lists.
The Commission shall cause notice of each docket to be published in the
Federal Register, which includes:
(a) A description of the request;
(b) Direction to obtain further information in regard to the
request, if any;
(c) Direction for participation in the docket;
(d) Designation of an officer of the Commission to represent the
interests of the general public; and
(e) Information regarding an opportunity for written comment
addressing compliance with statutory provisions and applicable
Commission rules in regard to the proposed modification.
Sec. 3020.54 Postal Service notice and reply.
The Secretary of the Commission shall forward to the Postal Service
a copy of the request. Within 28 days of the filing of the request, the
Postal Service shall provide its preliminary views in regard to the
request. The Postal Service may include suggestions for appropriate
Commission action in response to the request.
Sec. 3020.55 Review.
The Commission shall review the request, Postal Service reply, and
public comment to determine whether the proposed modification to the
market dominant and competitive product lists complies with applicable
statutory requirements and the Commission's rules, and whether the
proposed modification is consistent with the position of the Postal
Service as expressed in its reply. The Commission shall either:
(a) Approve the request to modify the market dominant and
competitive product lists, but only to the extent the modification is
consistent with the position of the Postal Service;
(b) Reject the request;
(c) Institute further proceedings to consider the request to modify
the market dominant and competitive product lists; or
(d) Direct other action as the Commission may consider appropriate.
Sec. 3020.56 Further proceedings.
If the Commission determines that further proceedings are
necessary, a conference shall be scheduled to consider the merits of
going forward with the request. Upon conclusion of the conference, the
Commission shall promptly issue a ruling to:
(a) Provide for a period of discovery to obtain further
information;
(b) Schedule a hearing on the record for further consideration of
the request;
(c) Explain the reasons for not going forward with formal
proceedings; or
(d) Direct other action as the Commission may consider appropriate.
Subpart D--Proposal of the Commission To Modify the Product Lists
Described Within the Mail Classification Schedule
Sec. 3020.70 General.
The Commission, of its own initiative, may propose a modification
to the market dominant product list or the competitive product list
provided within the Mail Classification Schedule. For purposes of this
part, modification shall be defined as adding a product to a list,
removing a product from a list, or transferring a product from one list
to the other list.
Sec. 3020.71 Contents of a proposal.
A proposal to modify the market dominant product list or the
competitive product list shall:
(a) Provide the name, and class if applicable, of each product that
is the subject of the proposal;
(b) Indicate whether the proposal would add a product to the market
dominant list or the competitive list, remove a product from the market
dominant list or the competitive list, or move a product from the
market dominant list to the competitive list or from the competitive
list to the market dominant list;
(c) Indicate whether each product that is the subject of the
proposal is:
(1) A special classification within the meaning of 39 U.S.C.
3622(c)(10) for market dominant products;
(2) A product not of general applicability within the meaning of 39
U.S.C. 3632(b) for competitive products, or
(3) A non-postal product.
(d) Provide justification supporting the proposal; and
(e) Include a copy of the applicable sections of the Mail
Classification Schedule and the proposed changes therein in legislative
format.
Sec. 3020.72 Supporting justification.
Supporting justification shall:
(a) Provide an explanation for initiating the docket;
(b) Explain why, as to market dominant products, the change is not
inconsistent with each requirement of 39 U.S.C. 3622(d), and that it
advances the objectives of 39 U.S.C. 3622(b), taking into account the
factors of 39 U.S.C. 3622(c);
(c) Explain why, as to competitive products, the addition,
subtraction, or transfer will not result in the violation of any of the
standards of 39 U.S.C. 3633.
(d) Verify that the change does not classify as competitive a
product over which the Postal Service exercises sufficient market power
that it can:
(1) Set the price of such product substantially above costs;
(2) Raise prices significantly;
(3) Decrease quality;
(4) Decrease output without risk of losing a significant level of
business to other firms offering similar products.
(e) Explain whether or not each product that is the subject of the
request is covered by the postal monopoly as reserved to the Postal
Service under 18
[[Page 50786]]
U.S.C. 1696 subject to the exceptions set forth in 39 U.S.C. 601;
(f) Provide a description of the availability and nature of
enterprises in the private sector engaged in the delivery of the
product;
(g) Provide any information available on the views of those who use
the product involved on the appropriateness of the proposed
modification;
(h) Provide a description of the likely impact of the proposed
modification on small business concerns; and
(i) Include such information and data, and such statements of
reasons and bases, as are necessary and appropriate to fully inform the
Postal Service and users of the mail of the nature, scope,
significance, and impact of the proposed modification.
Sec. 3020.73 Docket and notice.
The Commission shall institute a docket for consideration of each
proposal to modify the market dominant or the competitive product
lists. The Commission shall cause notice of each docket to be published
in the Federal Register, which includes:
(a) A description of the proposal;
(b) Direction to obtain further information in regard to the
proposal, if any;
(c) Direction for participation in the docket;
(d) Designation of an officer of the Commission to represent the
interests of the general public; and
(e) Information regarding an opportunity for written comment
addressing compliance with statutory provisions and applicable
Commission rules in regard to the proposed modification.
Sec. 3020.74 Postal Service notice and reply.
The Secretary of the Commission shall forward to the Postal Service
a copy of the notice of proposal. Within 28 days of the filing of the
proposal, the Postal Service shall provide its preliminary views in
regard to the proposal. The Postal Service may include suggestions for
appropriate further procedural steps.
Sec. 3020.75 Review.
The Commission shall review the Postal Service reply and public
comment. The Commission shall either:
(a) Approve the proposal to modify the market dominant and
competitive product lists, but only to the extent the modification is
consistent with the position of the Postal Service;
(b) Withdraw the proposal;
(c) Institute further proceedings to consider the proposal,
identifying relevant issues that may require further development; or
(d) Direct other action as the Commission may consider appropriate.
Sec. 3020.76 Further proceedings.
If the Commission determines that further proceedings are
appropriate, a conference shall be scheduled to consider the merits of
going forward with the proposal. Upon conclusion of the conference, the
Commission shall promptly issue a ruling to:
(a) Provide for a period of discovery to obtain further
information;
(b) Schedule a hearing on the record for further consideration of
the proposal;
(c) Explain the reasons for not going forward with formal
proceedings; or
(d) Direct other action as the Commission may consider appropriate.
Subpart E--Requests Initiated by the Postal Service To Conform the
Mail Classification Schedule
Sec. 3020.90 General.
The Postal Service shall assure that product descriptions in the
Mail Classification Schedule accurately represent the current offerings
of Postal Service products and services.
Sec. 3020.91 Modifications.
The Postal Service shall submit corrections to product descriptions
in the Mail Classification Schedule, that do not constitute a proposal
to modify the market dominant product list or the competitive product
list as defined in Sec. 3020.30, by filing notice of the proposed
change with the Commission no later than 15 days prior to the effective
date of the proposed change.
Sec. 3020.92 Implementation.
The Commission shall review the proposed corrections for formatting
and conformance with the structure of the Mail Classification Schedule,
and subject to editorial changes, shall update the Mail Classification
Schedule to coincide with the effective date of the proposed change.
Subpart F--Size and Weight Limitations for Mail Matter
Sec. 3020.110 General.
Applicable size and weight limitations for mail matter shall appear
in the Mail Classification Schedule as part of the description of each
product.
Sec. 3020.111 Limitations applicable to market dominant mail matter.
(a) The Postal Service shall inform the Commission of updates to
size and weight limitations for market dominant mail matter by filing
notice with the Commission 45 days prior to the effective date of the
proposed update. The notice shall include a copy of the applicable
sections of the Mail Classification Schedule and the proposed updates
therein in legislative format.
(b) The Commission shall provide notice of the proposed update in
the Federal Register and seek public comment on whether the proposed
update is in accordance with the policies and the applicable criteria
of chapter 36 of 39 U.S.C.;
(c) If the Commission finds the proposed update in accordance with
the policies and the applicable criteria of chapter 36 of 39 U.S.C.,
the Commission shall review the proposed Mail classification Schedule
language for formatting and conformance with the structure of the Mail
classification Schedule, and subject to editorial changes, shall change
the Mail Classification Schedule to coincide with the effective date of
the proposed update.
(d) If the Commission finds the proposed update not in accordance
with the policies and the applicable criteria of chapter 36 of 39
U.S.C., the Commission may direct other action as deemed appropriate.
Sec. 3020.112 Limitations applicable to competitive mail matter.
The Postal Service shall notify the Commission of updates to size
and weight limitations for competitive mail matter pursuant to subpart
E of this part.
[FR Doc. 07-4269 Filed 8-31-07; 8:45 am]
BILLING CODE 7710-FW-P