[Federal Register Volume 78, Number 73 (Tuesday, April 16, 2013)]
[Proposed Rules]
[Pages 22490-22501]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08805]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3010

[Docket Nos. RM2011-2 and RM2013-2; Order No. 1678]


Administrative Practice and Procedure; Postal Service; Review of 
Price Cap Rules

AGENCY: Postal Regulatory Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission is initiating a review of its Price Cap Rules. 
The review seeks to clarify how to the maximum amount of rate 
adjustments in postal rate cases is determined and applied. It also 
seeks to improve other aspects of the process of adjusting rates for 
market dominant products. This notice informs the public of the review, 
invites public comment, and takes other administrative steps.

DATES: Comments are due: May 16, 2013. Reply comments are due: May 31, 
2013.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov. Those who cannot submit comments 
electronically should contact the person identified in the FOR FURTHER 
INFORMATION CONTACT section by telephone for advice on filing 
alternatives.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
at 202-789-6820.

Regulatory History

72 FR 5230, February 5, 2007
72 FR 29284, May 25, 2007
72 FR 33261, June 15, 2007
72 FR 50744, September 4, 2007
72 FR 63622, November 9, 2007

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
III. Proposed Rules
IV. Comments Requested
V. Explanation of Proposed Rules
VI. Ordering Paragraphs

I. Introduction

    With this notice of proposed rulemaking, the Commission is 
initiating review of its rules in 39 CFR part 3010 and requesting 
comments and suggestions to clarify or improve the manner in which part 
3010 implements statutory directives and policies previously expressed 
in Commission orders.
    The purposes of this rulemaking are to clarify the Commission's 
rules for determining and applying the maximum amount of rate 
adjustments in rate cases before the Commission and to improve other 
aspects of the process of adjusting rates for market dominant products. 
The proposed rules are intended to provide more certainty for the 
Postal Service and the mailing community as they make decisions that 
rely upon the Postal Service's authority to adjust rates for market 
dominant products under 39 U.S.C. 3622(d) and part 3010.

II. Background

    Five ``regular'' rate cases have come before the Commission since 
the promulgation of 39 CFR part 3010.\1\ Initially, the Commission's 
rules in part 3010 were successfully applied in several proceedings 
without the Postal

[[Page 22491]]

Service or other parties requesting additional clarification.\2\ 
However, beginning in 2010, the Commission began to identify 
circumstances that led to confusion about the correct application of 
the rules. The following is a summary of the Commission's more recent 
experiences applying part 3010 in rate cases.
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    \1\ See 39 U.S.C. 3622(d)(1)(B). The five cases are: Docket No. 
R2008-1; Docket No. R2009-2; Docket No. R2011-1; Docket No. R2012-3; 
and Docket No. R2013-1.
    \2\ Docket No. R2008-1, United States Postal Service Notice of 
Market-Dominant Price Adjustment, February 11, 2008, at 2-5; Docket 
No. R2009-2, United States Postal Service Notice of Market Dominant 
Price Adjustment, February 10, 2009, at 2-6. The rules have also 
been relevant and discussed when the Postal Service proposed 
discounted rates for summer and winter sales programs. See, e.g., 
Docket No. R2009-3, Order Approving Standard Mail Volume Incentive 
Pricing Program, June 4, 2009 at 9-10; Docket No. R2009-4, Order 
Approving Price Adjustment for Standard Mail High Density Flats, 
July 1, 2009, at 6-9; Docket No. R2009-5, Order Approving First-
Class Mail Incentive Pricing Program, September 16, 2009, at 9; 
Docket No. R2010-3, Order Approving Standard Mail Volume Incentive 
Pricing Program, April 7, 2010, at 12-13. Similarly, the effect of a 
temporary price decrease adjustment for mail with a certain two-
dimensional barcode was implemented without a price cap calculation. 
Docket No. R2011-5, Order Approving Market Dominant Price 
Adjustment, May 17, 2011.
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    Postal Service request for clarification. On October 6, 2010, in 
preparation for its upcoming notice of rate adjustment, the Postal 
Service sought clarification of the application of 39 CFR 3010.26 
(relating to the calculation of unused rate adjustment authority) to 
notices of rate adjustment filed more than 12 months apart and in 
periods when the CPI-U is in decline.\3\ The Commission's General 
Counsel replied to the Postal Service in a letter providing ``informal 
advice'' on the interpretation of part 3010.\4\ A mailer coalition also 
replied to the Postal Service's request for interpretation. The 
coalition suggested that the amount calculated as unused rate 
adjustment authority when notices of rate adjustments are filed more 
than 12 months after the previous notice of rate adjustment, should, 
contrary to the Commission's view, be applied to reduce the calculated 
annual limitation on market dominant rate adjustments.\5\
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    \3\ Letter from R. Andrew German, Managing Counsel, Pricing & 
Product Development, United States Postal Service, to Shoshana Grove 
Regarding Available CPI-U Authority, October 6, 2010.
    \4\ Letter from the Commission's General Counsel in Response to 
Andrew German, October 12, 2010 (General Counsel's Letter).
    \5\ Response of the Affordable Mail Alliance to October 6 
Letter--Petition of the United States Postal Service; October 12 
Letter--Ruling of the Office of General Counsel, October 13, 2010 
(AMA Response). The letter also expresses procedural concerns with 
the issuance of the General Counsel's Letter, arguing that it should 
not be treated as a definitive or binding ruling of the Commission. 
Id. at 5-8.
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    Docket No. R2011-1 and Order No. 606. On November 2, 2010, the 
Postal Service submitted a notice of rate adjustment, in order to 
provide pricing incentives for Reply Rides Free and Saturation and High 
Density Standard Mail and to revise the threshold for the Move Update 
Assessment Charge.\6\ On November 10, 2010, the Commission issued a 
Chairman's Information Request concerning the Postal Service's 
calculation of annual limitations and unused rate adjustment 
authority.\7\ CHIR No. 1 prompted the Postal Service to respond that it 
was still ``uncertain how the rules defining the price cap should be 
applied.'' \8\ The Commission's Order No. 606 included an extensive 
discussion of the price cap rules and their application to a situation 
in which (1) notices of rate adjustment are filed more than 12 months 
apart; and (2) CPI-U declines.\9\
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    \6\ Docket No. R2011-1, United States Postal Service Notice of 
Market Dominant Price Adjustment, November 2, 2010.
    \7\ Chairman's Information Request No. 1, November 10, 2010 
(CHIR No. 1).
    \8\ Response of the United States Postal Service to Questions 1-
3 of Chairman's Information Request No. 1, November 16, 2010, at 2.
    \9\ Docket No. R2011-1, Order Approving Market Dominant 
Classification and Price Changes, and Applying Price Cap Rules 
(Order No. 606), December 10, 2010 at 6-19.
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    Petition for rulemaking. On the same day, the Commission issued 
CHIR No. 1, the Postal Service filed a petition for rulemaking 
regarding unused rate adjustment authority calculations.\10\ The 
Petition for Rulemaking requests ``formal clarification of whether 39 
CFR 3010.26(c)(1)-(3) or the CPI-U data provided on the Commission's 
Web site determine the amount of unused rate adjustment authority when 
rate adjustments are more than 12 months apart.'' Id. at 3. The 
Commission responded to this request in Order No. 606, which the 
Commission characterized as ``the formal determination sought by the 
Postal Service in its Petition for Rulemaking.'' \11\ Order No. 606 did 
not close the docket on the Petition for Rulemaking; instead, it 
promised to initiate a rulemaking ``to avoid future confusion.'' Id. 
Because this docket provides an opportunity to address the concerns 
expressed by the Postal Service in its Petition for Rulemaking, the 
Commission will now close Docket No. RM2011-2.
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    \10\ Petition for Rulemaking Regarding the Calculation of Unused 
Rate Adjustment Authority, November 10, 2010, Docket No. RM2011-2 
(Petition for Rulemaking).
    \11\ Docket No. R2011-1, Order Approving Market Dominant 
Classification and Price Changes, and Applying Price Cap Rules, 
December 10, 2010 (Order No. 606) at 5.
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    Docket No. R2012-3 and Order No. 987. The confusion over the 
correct application of part 3010 appeared to have abated in the 2012 
rate case.\12\ The Postal Service correctly calculated the applicable 
maximum rate adjustments, even though data for the full fiscal year 
2011 were not yet available. Id. at 2.
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    \12\ Docket No. R2012-3, Order on Price Adjustments for Market 
Dominant Products and Related Mail Classification Changes (Order No. 
987), November 22, 2011.
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    Docket No. R2013-1 and Order Nos. 1541 and 1573. In Order No. 1541, 
the Commission remanded Standard Mail Flats rates and stated that the 
Postal Service had unused rate adjustment authority available to it 
from Docket No. R2008-1 and Docket No. R2009-2.\13\ In its response to 
Order No. 1541, the Postal Service observed that the statement appeared 
to be at odds with 39 CFR 3010.28 and Order No. 606, which specified 
that the unused rate adjustment authority available to the Postal 
Service in any one rate case is the lesser of two percentage points or 
the sum of all unused rate adjustment authority from the previous five 
years.\14\ The Commission agreed, recognizing that in situations where 
the sum of unused rate adjustment authority is negative, ``it appears 
that rule 3010.28 is in conflict with rule 3010.27 and 39 U.S.C. 
3622(d)(2)(C)(iii)(III).'' \15\ The Commission stated that it would 
initiate a rulemaking to resolve the apparent conflict.
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    \13\ Docket No. R2013-1, Order on Price Adjustments for Market 
Dominant Products and Related Mail Classification Changes (Order No. 
1541), November 16, 2012, at 49 n.66.
    \14\ United States Postal Service Response to Order No. 1541, 
November 26, 2012, at 3-4 n.10.
    \15\ Docket No. R2013-1, Order on Standard Mail Rate Adjustments 
and Related Mail Classification Changes (Order No. 1573), December 
11, 2012 at 5.
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    Additional issues arose in Docket No. R2013-1, further indicating 
the need for clarification of part 3010. Perhaps the most notable of 
these involved the calculation of the percentage change in rates for 
particular Standard Mail products. Order No. 1541 at 36 and 45-46. In 
addition, the Postal Service continued to use projections rather than 
historical data for certain billing determinants. Id. at 17. The Postal 
Service's incorporation of promotional prices into the calculation of 
the percentage change in rates led to commenter requests that 
promotional pricing rules be evaluated in a separate docket.\16\ One 
commenter also

[[Page 22492]]

contended that comments concerning the Postal Service's compliance with 
Commission orders were not appropriate, arguing that a determination of 
compliance with past orders cannot be made in a rate adjustment 
case.\17\
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    \16\ See Comment of Pitney Bowes Inc., November 1, 2012 at 8; 
Valpak Direct Marketing Systems, Inc. and Valpak Dealers' 
Association, Inc. Comments on the United States Postal Service 
Notice of Market-Dominant Price Adjustment, November 1, 2012, at 8; 
and Public Representative Comments in Response to United States 
Postal Service Notice of Market Dominant Price Adjustments, November 
1, 2012, at 6. The Commission found that ``the Postal Services price 
cap treatment of promotions is permissible so long as volumes are 
properly ascribed to the appropriate products.'' Order No. 1541 at 
18.
    \17\ Comments of the Association for Postal Commerce, October 
31, 2012, at 3.
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    The Commission also discussed difficulties in determining whether 
some pricing structures were workshare discounts subject to the 
requirements of 39 U.S.C. 3622(e) based on data provided by the Postal 
Service. Order No. 1541 at 48, 60-61. Docket No. R2013-1 also pointed 
to the need to revise Commission rules to improve cost calculations. 
For instance, the Commission acknowledged, in response to a comment 
concerning the use of older methodologies to calculate cost avoidance 
for workshare discounts, that ``the Commission's rules may need to be 
revised to ensure that the most up to date methodologies are 
incorporated in price adjustment filings.'' Id. at 11.

III. Proposed Rules

    The proposed rules included in this notice of proposed rulemaking 
reflect the Commission's efforts (1) to clarify the method for 
calculating the maximum rate adjustment authority available to the 
Postal Service in any given rate case; (2) to address issues with 39 
CFR part 3010 that arose in Docket No. R2013-1; and (3) to address an 
additional area for improvement identified by the Commission.

A. Clarification of Calculation of Maximum Rate Adjustment Authority

    The majority of the proposed changes to the existing rules are 
intended to clarify how to determine the maximum rate adjustment that 
can be made in any one rate case. That determination requires a 
calculation of the annual limitation for the rate case and a 
calculation of the unused rate adjustment authority available for the 
rate case.
    Defined terms. At the outset, the proposed rules contain a set of 
definitions intended to aid the Postal Service and postal customers in 
understanding terms that are used in part 3010. These changes are not 
merely stylistic. The inconsistent use of terms has played no small 
part in the confusion about the proper interpretation of part 3010 by 
the mailing community.\18\ The new definitions explain the meaning of 
commonly used terms, and the proposed rules include conforming changes 
to ensure that those terms are used consistently. For instance, 
existing part 3010 variously uses the terms ``rate adjustment,'' 39 CFR 
3010.4(a), ``rate changes,'' 39 CFR 3010.7(b), and ``rate increases.'' 
39 CFR 3010.11. The proposed rules consistently use the term ``rate 
adjustment,'' mirroring the language of 39 U.S.C. 3622(d). Similarly, 
the existing rules use ``annual limitation,'' 39 CFR 3010.2(a), 
``applicable change in CPI-U,'' 39 CFR 3010.3(a), and ``inflation-based 
limitation.'' 39 CFR 3010.6(b). The proposed rules use the term 
``annual limitation'' throughout.
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    \18\ See, e.g., AMA Response at 11-13, conflating the annual 
limitation calculated under 39 CFR 3010.21 and 3010.22 with the 
unused rate adjustment authority calculated under 39 CFR 3010.26.
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    The proposed rules replace the term ``price cap,'' with the term 
``maximum rate adjustment.'' The existing rules use the terms 
``limitation on rate increase'' and ``price cap'' interchangeably, 
which leads to confusion. Existing rule 3010.11 is a useful example. 
The heading purports to describe a ``limit on size of rate increases.'' 
Paragraph (a) of existing rule 3010.11 states that ``rate increases for 
each class of market dominant products in any 12-month period are 
limited.'' But paragraph (d) of that same existing rule states that 
``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.'' It is unclear whether the price cap 
referred to in paragraph (d) is the same as the ``rate increase'' 
limited under paragraph (a) and described in the heading (and, for that 
matter, the heading of subpart C of part 3010). Although previous 
orders have used the term ``price cap,'' for purposes of the 
Commission's rules, the term ``maximum rate adjustment'' is both 
clearer and more consistent with 39 U.S.C. 3622(d).
    In the proposed rules, the inflation-based limitation on rate 
adjustments under 39 U.S.C. 3622(d)(1)(A) is referred to as the 
``annual limitation.'' Unused rate adjustment authority, as defined in 
39 U.S.C. 3622(d)(2)(C)(i), is also called ``unused rate adjustment 
authority'' in the proposed rules. The total limit on the amount of a 
rate adjustment that can be made for a class in any one rate case 
includes both the ``annual limitation'' and the ``unused rate 
adjustment authority,'' and is called the ``maximum rate adjustment.''
    Calculation of annual limitation. The Commission proposes 
amendments to rules 3010.21 and 3010.22 in response to confusion in 
Docket No. R2011-2 concerning the appropriate method for calculating 
the annual limitation when rate cases are more than 12 months apart. 
Supra; Order No. 606 at 6-19. Depending on the length of time that has 
elapsed between rate cases, the annual limitation will be either a full 
year limitation or a partial year limitation. Proposed rule 3010.21 
clarifies that when notices of rate adjustment are 12 or more months 
apart, as was the case in Docket No. R2011-2, a full year limitation is 
calculated in accordance with 39 CFR 3010.21. This full year limitation 
is calculated using only the most recent 12 monthly CPI-U values, 
regardless of whether more than 12 months have elapsed since the last 
rate case. Proposed rule 3010.22 clarifies that when notices of rate 
adjustment are less than 12 months apart, a partial year limitation is 
calculated in accordance with 39 CFR 3010.22. In addition, both 
proposed rules contain provisions regarding the source of CPI-U data, 
taken from existing rule 3010.12, a change intended to assist postal 
customers and the Postal Service in identifying the correct source of 
data for the calculation of the annual limitation.
    Calculation of unused rate adjustment authority. Confusion 
concerning the calculation of unused rate adjustment authority in cases 
where notices of rate adjustments were 12 or more months apart also 
surfaced in Docket No. R2011-2. Although the annual limitation in such 
a case takes into account only CPI-U data from the previous 12 months, 
unused rate adjustment authority accrues over the entire period between 
notices of rate adjustments. Proposed rule 3010.26 seeks to clarify the 
manner in which unused rate adjustment authority is calculated, both in 
cases where notices of rate adjustments are 12 months or less apart and 
in cases where notices of rate adjustments are more than 12 months 
apart. Annual unused rate adjustment authority is calculated in both 
cases. However, in a case where notices of rate adjustment are filed 
more than 12 months apart, interim unused rate adjustment authority is 
also calculated. In such a case, annual unused rate adjustment 
authority is generated during the 12-month period ending on the date 
the second notice of rate adjustment is filed. Interim unused rate 
adjustment authority is generated during the period beginning on the 
date the first notice of rate adjustment is filed

[[Page 22493]]

and ending on the day before the date that is 12 months before the date 
on which the second notice of rate adjustment is filed. The proposed 
rule also specifies that interim rate adjustment authority may be used 
in the same case in which it is generated and that all unused rate 
adjustment authority lapses 5 years after the filing of the notice of 
rate adjustment leading to its calculation.
    Organization. To improve the organization of part 3010, the 
proposed rules move sections 3010.11 and 3010.12 from subpart B (which 
is largely concerned with general procedural requirements) to subpart C 
(which is a more detailed set of requirements for calculating the 
maximum rate adjustment). This change is designed to assist postal 
customers and the Postal Service in understanding how the maximum rate 
adjustment is calculated.
    Calculation of maximum unused rate adjustment authority. Proposed 
rule 3010.28 brings the Commission's rules concerning the use of unused 
rate adjustment authority in line with the requirements of 39 U.S.C. 
3622(d)(2)(C)(iii)(IV). As discussed above, the Commission's rules did 
not anticipate extended periods of declining CPI-U. Proposed rule 
3010.28 specifies that the maximum unused rate adjustment authority 
that may be used in a Type 1-A, Type 1-B, or Type 2 rate adjustment is 
2 percentage points. This is true even in situations where the sum of 
all 5 years of available unused rate adjustment authority is less than 
2 percentage points.
    Exhaustion of annual limitation. Finally, the proposed rules 
include a change to 39 CFR 3010.25 to specify that unused rate 
adjustment authority may only be used after the entire annual 
limitation is exhausted. This change is consistent with past Commission 
practice.

B. Changes Addressing Issues in Docket No. R2013-1

    Several of the proposed rules reflect the Commission's efforts to 
address issues that arose during Docket No. R2013-1. Those proposed 
rules are discussed in this section.
    Calculation of percentage change in rates for products. In Docket 
No. R2013-1, the Postal Service used different methods to calculate the 
percentage change in rates for Standard Mail Flats and the percentage 
change in rates for the Standard Mail class as a whole. Order No. 1541 
at 36, 46. The sum of the rate adjustments for all products within the 
Standard Mail class, as calculated by the Postal Service, exceeded the 
actual rate adjustment requested by the Postal Service for the class. 
Id. at 46 n.61. The Commission explained, ``While the Commission rules 
do not specifically address the method to calculate a percentage change 
in rates by product, the Postal Service should use the same methodology 
as prescribed for a market dominant class of mail when calculating a 
percentage change for a market dominant product.'' Id. at 46. Proposed 
rule 3010.23(b) seeks to restate that Commission directive in the 
Commission's rules.
    Adjustments to billing determinants. The Commission has repeatedly 
emphasized that, for purposes of calculating a percentage change in 
rates, adjustments to billing determinants should not be based on 
anticipated changes in mailer behavior. Order No. 1541 at 17, 37; Order 
No. 606 at 19. This position is consistent with the existing rule 
3010.23(d), which requires that ``[w]henever possible, adjustments 
shall be based on known mail characteristics.'' Proposed rule 
3010.23(d) expresses more strongly the Commission's preference for 
using historical data in the calculation of percentage change in rates 
by prohibiting the use of data based on anticipated changes in mailer 
behavior.
    Temporary promotional rates and incentive programs. Paragraphs (e) 
and (f) of proposed rule 3010.23 reflect past Postal Service practice 
concerning the inclusion of temporary promotional rates and incentive 
programs in the calculation of percentage change in rates. In past rate 
cases, the Postal Service chose not to include temporary promotional 
rates and incentive programs in the calculation of percentage change in 
rates when those rates and programs resulted in overall rate decreases. 
Order No. 1541 at 18. Proposed rule 3010.23(e) states the Commission's 
approval of this practice. Proposed rule 3010.23(f) explains how the 
Commission expects rates to be calculated in cases where the Postal 
Service chooses to begin to include a temporary promotional rate or 
incentive program in a calculation of percentage change in rates after 
previously excluding the rate or program from the calculation pursuant 
to proposed rule 3010.23(e).
    Content of comments. In Docket No. R2013-1, interested persons 
submitted comments concerning the Postal Service's compliance with 
orders and directives of the Commission, as well as with statutory 
provisions other than those contained in subchapter 1 of chapter 36 of 
title 39, United States Code. See, e.g., Order No. 1541 at 33-34. One 
interested person objected to the Commission considering such comments. 
Id. at 35. Proposed rule 3010.11(c) clarifies the Commission's position 
that such comments are appropriately before the Commission in a rate 
case. Id.
    Workshare discounts. The Commission has the authority to define 
workshare discounts. 39 U.S.C. 3622(e). In order to exercise that 
authority, the Commission requires the Postal Service to include 
information concerning workshare discounts in notices of rate 
adjustment. 39 CFR 3010.14. However, in Docket No. R2013-1, the 
Commission had reason to believe that the Postal Service's 
determination of what constituted a workshare discount might differ 
from the Commission's determination. Order No. 1541 at 47-48 and 61. In 
order to allow the Commission to determine which discounts and 
surcharges offered by the Postal Service constitute workshare discounts 
within the meaning of 39 U.S.C. 3622(e), proposed rule 3010.12(c) would 
require that the Postal Service submit certain supporting information 
concerning all discounts and surcharges.
    Calculation of costs, avoided costs, volumes, and revenues. 
Proposed rule 3010.12(e) would require the Postal Service to calculate 
costs, avoided costs, volumes, and revenues using the most recent 
analytical principles approved by the Commission, rather than the 
principles used in the most recent Annual Compliance Report. Initially, 
the Postal Service filed notices of rate adjustments more or less 
contemporaneously with the Annual Compliance Report. However, in recent 
years, the Postal Service has filed notices of rate adjustments at 
other intervals between Annual Compliance Reports. Often, those notices 
are filed after the Commission has approved changes to the analytical 
principles used for the most recent Annual Compliance Report. The 
proposed rule reflects the Commission's position that the Postal 
Service will be able to make more accurate calculations in notices of 
rate adjustments if its calculations use the most recent approved 
analytical principles. See Order No. 1541 at 11.

C. Additional Issue

    The Commission has identified an additional change that the 
Commission believes would improve the application of part 3010 to rate 
cases. The Commission recently conducted proceedings concerning an 
amended notice of rate adjustment filing in Docket No. R2013-1. In 
those proceedings, a 7-day period for public comment was sufficient. 
Proposed rule 3010.13(g) reflects this experience by

[[Page 22494]]

providing 7, rather than 10, days for comment in such proceedings.

IV. Comments Requested

    Interested persons are invited to provide written comments and 
suggestions to clarify or improve part 3010 of the Commission's 
regulations. These comments may address the changes discussed in this 
order, and they also may suggest additional changes. Comments may 
include specific language amending part 3010.
    Comments are due no later than 30 days after the date of 
publication of this notice in the Federal Register. All comments and 
suggestions received will be available for review on the Commission's 
Web site, http://www.prc.gov. Interested persons are further invited to 
review the submissions and provide follow-up comments and suggestions 
within 15 additional days (that is, within 45 days of the publication 
of this notice in the Federal Register).
    Emmett Rand Costich is designated the Public Representative to 
represent the interests of the general public in this docket.

V. Explanation of Proposed Rules

    Attached to this Order are proposed rules to clarify and improve 
the manner in which part 3010 implements statutory directives and 
policies previously expressed in Commission orders. Following is a 
section-by-section analysis of the proposed rules.
    Proposed rule 3010.1 defines the terms ``annual limitation,'' 
``class,'' ``maximum rate adjustment,'' ``Type 1-A rate adjustment,'' 
``Type 1-B rate adjustment,'' ``Type 2 rate adjustment,'' ``Type 3 rate 
adjustment,'' and ``unused rate adjustment authority.''
    Proposed rule 3010.2 revises a statutory reference and is revised 
to ensure consistent use of terms.
    Proposed rule 3010.3 is revised to ensure consistent use of terms 
and to move the requirement that the Postal Service maintain a schedule 
tracking unused rate adjustment authority to proposed rule 3010.26(f).
    Proposed rule 3010.4 is revised to ensure consistent use of terms.
    Proposed rule 3010.5 strikes duplicative provisions.
    Proposed rule 3010.6 is revised to ensure consistent use of terms.
    Proposed rule 3010.7 is revised to ensure consistent use of terms.
    Proposed rule 3010.8(d) strikes an obsolete transition requirement.
    Proposed rule 3010.8 is revised throughout to ensure consistent use 
of terms.
    Proposed rule 3010.10 is revised to ensure consistent use of terms.
    Existing rules 3010.11 and 3010.12 are stricken. The content of 
these rules is included in proposed rules 3010.20, 3010.21, and 
3010.22.
    Proposed rule 3010.11(c) clarifies that comments on compliance with 
relevant statutory provisions and Commission orders and directives are 
permitted.
    Proposed rule 3010.11(g) changes the comment period from 10 days to 
7 days and provides that comments on amended notices may address 
subjects described in paragraph (c).
    Proposed rule 3010.11 is revised throughout to ensure consistent 
use of terms.
    Proposed rule 3010.12 is revised by amending paragraph (b)(5) and 
adding a paragraph (e) to require that cost, avoided cost, volume, and 
revenue figures be developed from the most recent approved analytical 
principles. Proposed rule 3010.12(c) is revised to require the filing 
of information concerning all new discounts and surcharges.
    Proposed rule 3010.12 is revised to ensure consistent use of terms 
and to strike paragraph headings.
    Proposed rule 3010.20 is revised to incorporate provisions from 
existing rule 3010.11 and to ensure the consistent use of terms.
    Proposed rule 3010.21 is revised to specify that it applies to rate 
adjustments filed 12 or more months apart, to incorporate provisions 
from existing rule 3010.12, and to ensure the consistent use of terms.
    Proposed rule 3010.22 is revised to specify that it applies to rate 
adjustments filed less than 12 months apart, to incorporate provisions 
from existing rule 3010.12, and to ensure the consistent use of terms.
    Proposed rule 3010.23(b) is revised to specify that the percentage 
change in rates for a product is calculated in the same manner as for a 
class.
    Proposed rule 3010.23(d) is revised to specify that adjustments to 
billing determinants may not be based on anticipated changes in mailer 
behavior.
    Proposed rule 3010.23(e) allows the exclusion of temporary 
promotional rates and incentive programs from percentage change in 
rates calculations if they result in overall rate decreases.
    Proposed rule 3010.23(f) clarifies the manner in which the current 
rate for a rate cell is calculated.
    Proposed rule 3010.23 is revised throughout to ensure consistent 
use of terms.
    Proposed rule 3010.24 is revised to specify that it applies to 
calculations under proposed rule 3010.23.
    Proposed rule 3010.25 is revised to clarify that unused rate 
adjustment authority may only be applied after applying the annual 
limitation.
    Proposed rule 3010.26 is revised clarify the manner in which unused 
rate adjustment authority is calculated.
    Proposed rule 3010.27 is revised to ensure the consistent use of 
terms.
    Proposed rule 3010.28 is revised to conform with 39 U.S.C. 
3622(d)(2)(C)(iii)(IV) and to ensure the consistent use of terms.
    Existing rule 3010.29 is stricken as an obsolete transition 
provision.
    Proposed rule 3010.42 is revised to use consistent formatting and 
to ensure the consistent use of terms.
    Proposed rule 3010.43 is revised to specify that both a plan and a 
report are required and that the net financial position of the Postal 
Service should be reported.
    Proposed rule 3010.44 is revised to ensure consistent use of terms.
    The heading of subpart E is revised to ensure consistent use of 
terms.
    Proposed rule 3010.60 is revised to ensure terms are consistent 
with 39 U.S.C. 3622(d) and to ensure consistent use of terms.
    Proposed rule 3010.61 is revised to ensure terms are consistent 
with 39 U.S.C. 3622(d) and to ensure consistent use of terms.
    Proposed rule 3010.63 is revised to be consistent with proposed 
rule 3010.14(d) and to ensure the consistent use of terms.
    Proposed rule 3010.65 is revised to ensure the consistent use of 
terms.
    Proposed rule 3010.66 is revised to ensure the consistent use of 
terms.

VI. Ordering Paragraphs

    It is ordered:
    1. Docket No. RM2011-2 is closed.
    2. Docket No. RM2013-2 is established for the purpose of receiving 
comments with respect to the proposed rules attached to this notice.
    3. Interested persons may submit comments no later than 30 days 
after the date of publication of this proposed rulemaking in the 
Federal Register.
    4. Reply comments may be filed no later than 45 days after the date 
of publication of this proposed rulemaking in the Federal Register.
    5. Emmett Rand Costich is designated the Public Representative to 
represent the interests of the general public in this docket.
    6. The Secretary shall arrange for publication of this notice in 
the Federal Register.

List of Subjects in 39 CFR Part 3010

    Administrative practice and procedure; Postal Service.


[[Page 22495]]


    By the Commission.
Shoshana M. Grove,
Secretary.

    For the reasons stated above, the Postal Regulatory Commission 
proposes to amend 39 CFR chapter III as follows:

PART 3010--REGULATION OF RATES FOR MARKET DOMINANT PRODUCTS

0
1. Revise part 3010 to read as follows:

PART 3010--REGULATION OF RATES FOR MARKET DOMINANT PRODUCTS

Subpart A--General Provisions
Sec.
3010.1 Definitions
3010.2 Applicability.
3010.3 Types of rate adjustments for market dominant products.
3010.4 Type 1-A rate adjustment--in general.
3010.5 Type 1-B rate adjustment--in general.
3010.6 Type 2 rate adjustment--in general.
3010.7 Type 3 rate adjustment--in general.
3010.8 Schedule for Regular and Predictable Rate Adjustments.
Subpart B--Rules for Rate Adjustments for Rates of General 
Applicability (Type 1-A and 1-B Rate Adjustments)
3010.10 Procedures.
3010.11 Proceedings for Type 1-A and Type 1-B rate adjustment 
filings.
3010.12 Contents of notice of rate adjustment.
Subpart C--Rules for Determining the Maximum Rate Adjustment
3010.20 Calculation of maximum rate adjustment.
3010.21 Calculation of annual limitation when notices of rate 
adjustment are 12 or more months apart.
3010.22 Calculation of annual limitation when notices of rate 
adjustment are less than 12 months apart.
3010.23 Calculation of percentage change in rates.
3010.24 Treatment of volume associated with negotiated service 
agreements.
3010.25 Limitation on application of unused rate adjustment 
authority. Unused rate adjustment authority may only be applied 
after applying the annual limitation calculated pursuant to Sec.  
3010.21 or Sec.  3010.22.
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 Type 2 rate 
adjustment.
3010.43 Data collection plan and report.
3010.44 Proceedings for Type 2 rate adjustments.
Subpart E--Rules for Rate Adjustments in Extraordinary and Exceptional 
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.

PART 3010--REGULATION OF RATES FOR MARKET DOMINANT PRODUCTS

Subpart A--General Provisions


Sec.  3010.1  Definitions.

    In this subpart,
    (a) Annual limitation means:
    (1) in the case of a notice of a Type 1-A or Type 1-B rate 
adjustment filed 12 or more months after the last Type 1-A or Type 1-B 
notice of rate adjustment, the full year limitation on the size of rate 
adjustments calculated pursuant to Sec.  3010.21; and
    (2) in the case of a notice of a Type 1-A or Type 1-B rate 
adjustment filed less than 12 months after the last Type 1-A or Type 1-
B notice of rate adjustment, the partial year limitation on the size of 
rate adjustments calculated pursuant to Sec.  3010.22.
    (b) Class means a class of market dominant products.
    (c) Maximum rate adjustment means the maximum rate adjustment that 
the Postal Service may make for a class pursuant to a notice of Type 1-
A or Type 1-B rate adjustment. The maximum rate adjustment is 
calculated in accordance with Sec.  3010.20.
    (d) Type 1-A rate adjustment means a rate adjustment described in 
Sec.  3010.4.
    (e) Type 1-B rate adjustment means a rate adjustment described in 
Sec.  3010.5.
    (f) Type 2 rate adjustment means a rate adjustment described in 
Sec.  3010.6.
    (g) Type 3 rate adjustment means a rate adjustment described in 
Sec.  3010.7.
    (h) Unused rate adjustment authority means the percentage 
calculated pursuant to Sec.  3010.26.


Sec.  3010.2  Applicability.

    The rules in this part implement provisions in subchapter I of 
chapter 36 of title 39, United States Code, establishing ratesetting 
policies and procedures for market dominant products. With the 
exception of Type 3 rate adjustments, these procedures allow a minimum 
of 45 days for advance public notice of the Postal Service's planned 
rate adjustments. Type 3 rate adjustments require the Postal Service to 
file a formal request with the Commission and are subject to special 
procedures.


Sec.  3010.3  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 is authorized under 39 U.S.C. 
3622(d)(1)(D). A Type 1-B rate adjustment is authorized under 39 U.S.C. 
3622(d)(2)(C). A Type 2 rate adjustment is authorized under 39 U.S.C. 
3622(c)(10). A Type 3 rate adjustment is authorized under 39 U.S.C. 
3622(d)(1)(E).
    (b) The Postal Service may combine Type 1-A, Type 1-B, and Type 2 
rate adjustments for purposes of filing with the Commission.


Sec.  3010.4  Type 1-A rate adjustment--in general.

    (a) A Type 1-A rate adjustment is a rate adjustment based on the 
annual limitation.
    (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 annual limitation 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 rate adjustment for 
that class, subject to the expiration terms in Sec.  3010.26(e).


Sec.  3010.5  Type 1-B rate adjustment--in general.

    A Type 1-B rate adjustment is a rate adjustment which uses unused 
rate adjustment authority in whole or in part.


Sec.  3010.6  Type 2 rate adjustment--in general.

    A Type 2 rate adjustment is based on a negotiated service 
agreement. A negotiated service agreement entails a rate adjustment 
negotiated between the Postal Service and a customer or group of 
customers.


Sec.  3010.7  Type 3 rate adjustment--in general.

    (a) A Type 3 rate adjustment is a rate adjustment that is 
authorized only when justified by exceptional or extraordinary 
circumstances.
    (b) A Type 3 rate adjustment is not subject to the annual 
limitation or the restrictions on the use of unused rate adjustment 
authority, and does not

[[Page 22496]]

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.  3010.8  Schedule for regular and predictable rate adjustments.

    (a) The Postal Service shall maintain on file with the Commission a 
Schedule for Regular and Predictable Rate Adjustments. The Commission 
shall display the Schedule for Regular and Predictable Rate Adjustments 
on the Commission Web site, http://www.prc.gov.
    (b) The Schedule for Regular and Predictable Rate Adjustments shall 
provide mailers with estimated implementation dates for future Type 1-A 
rate adjustments for each separate class of mail, should such 
adjustments be necessary and appropriate. Rate adjustments will be 
scheduled at specified regular intervals.
    (c) The Schedule for Regular and Predictable Rate Adjustments shall 
provide an explanation that will allow mailers to predict with 
reasonable accuracy the amounts of future scheduled rate adjustments.
    (d) The Postal Service should balance its financial and operational 
needs with the convenience of mailers of each class of mail in 
developing the Schedule for Regular and Predictable Rate Adjustments.
    (e) Whenever the Postal Service deems it appropriate to change the 
Schedule for Regular and Predictable Rate Adjustments, 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 Adjustments. In such case, the Postal Service shall 
provide a succinct explanation for such variation with its Type 1-A 
filing. No explanation is required for variations involving smaller 
than predicted rate adjustments.

Subpart B--Rules for Rate Adjustments for Rates of General 
Applicability (Type 1-A and 1-B 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 class shall:
    (1) Provide public notice in a manner reasonably designed to inform 
the mailing community and the general public that it intends to adjust 
rates no later than 45 days prior to the intended implementation date 
of the rate adjustment; and
    (2) Transmit a notice of rate adjustment to the Commission no later 
than 45 days prior to the intended implementation date of the rate 
adjustment.
    (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 rate 
adjustments include classification changes or operations changes likely 
to have a material impact on mailers.


Sec.  3010.11  Proceedings for Type 1-A and Type 1-B rate adjustment 
filings.

    (a) The Commission will establish a docket for each notice of Type 
1-A or Type 1-B rate adjustment filing, promptly publish notice of the 
filing in the Federal Register, and post the filing on its Web site. 
The notice shall include:
    (1) The general nature of the proceeding;
    (2) A reference to legal authority under which the proceeding is to 
be conducted;
    (3) A concise description of the planned changes in rates, fees, 
and the Mail Classification Schedule;
    (4) The identification of an officer of the Commission to represent 
the interests of the general public in the docket;
    (5) A period of 20 days from the date of the filing for public 
comment; and
    (6) Such other information as the Commission deems appropriate.
    (b) Public comments should focus primarily on whether planned rate 
adjustments comply with the following mandatory requirements of 39 
U.S.C. chapter 36, subchapter 1:
    (1) Whether the planned rate adjustments measured using the formula 
established in Sec.  3010.23(b) are at or below the annual limitation 
calculated under Sec.  3010.21 or Sec.  3010.22, as applicable; and
    (2) Whether the planned rate adjustments measured using the formula 
established in Sec.  3010.23(b) are at or below the limitations 
established in Sec.  3010.28.
    (c) Public comments may also address other relevant statutory 
provisions and applicable Commission orders and directives.
    (d) Within 14 days of the conclusion of the public comment period 
the Commission will determine, at a minimum, whether the planned rate 
adjustments are consistent with the annual limitation calculated under 
Sec.  3010.21 or Sec.  3010.22, as applicable, and the limitations set 
forth in Sec.  3010.28 and 39 U.S.C. 3626, 3627, and 3629 and issue an 
order announcing its findings.
    (e) If the planned rate adjustments are found consistent with 
applicable law by the Commission, they may take effect pursuant to 
appropriate action by the Governors.
    (f) If planned rate adjustments are found inconsistent with 
applicable law by the Commission, the Postal Service will submit an 
amended notice of rate adjustment that describes 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.
    (g) The Commission will post any amended notice of rate adjustment 
filing on its Web site and allow a period of 7 days from the date of 
the filing for public comment. Comments in the amended notice of rate 
adjustment should address the subjects identified in paragraph (b) and 
may address the subjects identified in paragraph (c).
    (h) The Commission will review any amended notice of rate 
adjustment together with any comments filed for compliance and within 
14 days issue an order announcing its findings.
    (i) If the planned rate adjustments as amended are found to be 
consistent with applicable law, they may take effect pursuant to 
appropriate action by the Governors. However, no rate shall take effect 
until 45 days after the Postal Service files a notice of rate 
adjustment specifying that rate.
    (j) If the planned rate adjustments in an amended notice of rate 
adjustment are found to be inconsistent with applicable law, the 
Commission shall explain the basis of its determination and suggest an 
appropriate remedy.
    (k) A Commission finding that a planned Type 1-A or Type 1-B rate 
adjustment is in compliance with the annual limitation calculated under 
Sec.  3010.21 or Sec.  3010.22, as applicable; the limitations set 
forth in Sec.  3010.28; and 39 U.S.C. 3626, 3627, and 3629 is decided 
on the merits. A Commission finding that a planned Type 1-A or Type 1-B 
rate adjustment does not contravene other policies of subchapter 1 of 
title 39 of the U.S. Code is provisional and subject to subsequent 
review.

[[Page 22497]]

Sec.  3010.12  Contents of notice of rate adjustment.

    (a) A Type 1-A or Type 1-B notice of rate adjustment must include 
the following information:
    (1) A schedule of the planned rates;
    (2) The planned effective date(s) of the planned 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 planned 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) The notice of rate adjustment shall be accompanied by:
    (1) The annual limitation 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 adjustment 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 adjustment 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 adjustment authority will be 
generated for a class of mail that is not expected to cover its 
attributable costs, the Postal Service must provide the rationale 
underlying this rate adjustment;
    (5) A schedule of the workshare discounts included in the planned 
rates, and a companion schedule listing the avoided costs that underlie 
each such discount. 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 that demonstrates how the planned rate adjustments 
are designed to 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) A discussion that demonstrates the planned rate adjustments are 
consistent with 39 U.S.C. 3626, 3627, and 3629;
    (9) A schedule identifying every change to the Mail Classification 
Schedule that will be necessary to implement the planned rate 
adjustments; and
    (10) Such other information as the Postal Service believes will 
assist the Commission to issue a timely determination of whether the 
planned rate adjustments are consistent with applicable statutory 
policies.
    (c) Whenever the Postal Service establishes a new discount or 
surcharge, it must include with its filing:
    (1) A statement explaining its reasons for establishing the 
discount or surcharge;
    (2) All data, economic analyses, and other information relied on to 
justify the discount or surcharge; and
    (3) In the case of a discount, 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) The notice of rate adjustment shall identify for each affected 
class how much existing unused rate adjustment authority is used in the 
planned rates calculated as required by Sec.  3010.27. All calculations 
are to be shown, including citations to the original sources.
    (e) All cost, avoided cost, volume, and revenue figures submitted 
with the notice of rate adjustment shall be developed from the most 
recent applicable Commission approved analytical principles.

Subpart C--Rules for Determining the Maximum Rate Adjustment


Sec.  3010.20  Calculation of maximum rate adjustment.

    (a) Rate adjustments for each class of market dominant products in 
any 12-month period are limited.
    (b) Rates of general applicability are subject to an inflation-
based annual limitation computed using CPI-U values as detailed in 
Sec.  3010.21(a) and Sec.  3010.22(a).
    (c) An exception to the annual limitation allows a limited annual 
recapture of unused rate adjustment authority. The amount of unused 
rate adjustment authority is measured separately for each class.
    (d) In any 12-month period the maximum rate adjustment applicable 
to a class is:
    (1) for a Type 1-A notice of rate adjustment, the annual limitation 
for the class; and
    (2) for a combined Type 1-A and Type 1-B notice of rate adjustment, 
the annual limitation for the class plus the unused rate adjustment 
authority for the class that the Postal Service elects to use, subject 
to the limitation under Sec.  3010.28.


Sec.  3010.21  Calculation of annual limitation when notices of rate 
adjustment are 12 or more months apart.

    (a) The monthly CPI-U values needed for the calculation of the full 
year limitation under this section 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.''
    (b) If a notice of a Type 1-A or Type 1-B rate adjustment is filed 
12 or more months after the last Type 1-A or Type 1-B notice of rate 
adjustment applicable to a class, then the calculation of an annual 
limitation for the class (referred to as the full year limitation) 
involves three steps. First, a simple average CPI-U index is 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 full year 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, rounded to three 
decimal places.
    (c) The formula for calculating a full year limitation for a notice 
of rate adjustment filed 12 or more months after the last notice is as 
follows:

Full Year Limitation = (Recent Average/Base Average) - 1.


[74 FR 49327, Sept. 28, 2009]


Sec.  3010.22  Calculation of annual limitation when notices of rate 
adjustment are less than 12 months apart.

    (a) The monthly CPI-U values needed for the calculation of the 
partial year

[[Page 22498]]

limitation under this section 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.''
    (b) If a notice of a Type 1-A or Type 1-B rate adjustment is filed 
less than 12 months after the last Type 1-A or Type 1-B notice of rate 
adjustment applicable to a class, then the annual limitation for the 
class (referred to as the partial year 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.
    (c) 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, rounded to three 
decimal places.
    (d) The formula for calculating the partial year limitation for a 
notice of rate adjustment filed less than 12 months 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) In this section, the term rate cell means each and every 
separate rate identified in any applicable notice of rate adjustment 
for rates of general applicability. A seasonal or temporary rate shall 
be identified and treated as a rate cell separate and distinct from the 
corresponding non-seasonal or permanent rate.
    (b) For each class of mail and product within the class, the 
percentage change in rates is calculated in three steps. First, the 
volume of each rate cell in the class is multiplied by the planned rate 
for the respective cell and the resulting products are summed. Then, 
the same set of rate cell volumes are multiplied by the corresponding 
current rate, as defined in paragraph (f) of this section, 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] TP16AP13.002
    
Where

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. 
Adjustments to billing determinants may not be based on anticipated 
changes in mailer behavior. 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.
    (e) Temporary promotional rates and incentive programs. The Postal 
Service may exclude temporary promotional rates and incentive programs 
from its percentage change in rates calculations if the temporary 
promotional rates and incentive programs result in overall rate 
decreases.
    (f) Current rate. For purposes of this section, the current rate 
for a rate cell is the rate that corresponds to the billing 
determinants described in paragraph (d) for the rate cell. For rate 
cells that include a temporary promotional rate or incentive program 
that was previously excluded under paragraph (e), the current rate is 
the generally applicable rate for the rate cell at the time of the 
filing of the notice of rate adjustment, not the temporary promotional 
rate or incentive program rate in effect for the rate cell at such 
time.


Sec.  3010.24  Treatment of volume associated with negotiated service 
agreements.

    (a) Mail volumes sent at rates under negotiated service agreements 
are to be included in the calculation of percentage change in rates 
under Sec.  3010.23 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 application of unused rate adjustment 
authority.

    Unused rate adjustment authority may only be applied after applying 
the annual limitation calculated pursuant to Sec.  3010.21 or Sec.  
3010.22.


Sec.  3010.26  Calculation of unused rate adjustment authority.

    (a) Unused rate adjustment authority accrues during the entire 
period between notices of Type 1-A and Type 1-B rate adjustments. When 
notices of Type 1-A or Type 1-B rate adjustments are filed 12 months 
apart or less, the unused rate adjustment authority is the annual 
unused rate adjustment authority calculated under paragraph (b). When 
notices of Type 1-A or Type 1-B rate adjustments are filed more than 12 
months apart, unused rate adjustment authority is the sum of the annual 
unused rate adjustment calculated under paragraph (b) plus the interim 
unused rate adjustment authority calculated under paragraph (c)(2), 
less any interim unused rate adjustment authority used in accordance 
with paragraph (d).
    (b) When notices of Type 1-A or Type 1-B rate adjustments are filed 
12 months apart or less, annual unused rate adjustment authority will 
be calculated. Annual unused rate adjustment authority for a class is 
equal to the difference between the annual limitation calculated 
pursuant to Sec.  3010.21 or Sec.  3010.22 and the actual percentage 
change in rates for the class.
    (c)(1) When notices of Type 1-A or Type 1-B rate adjustments are 
filed more than 12 months apart, annual unused rate adjustment 
authority will be calculated for the 12-month period ending on the date 
on which the second notice is filed and interim unused rate adjustment 
authority will be calculated for the period beginning on the date the 
first notice is filed and ending on the

[[Page 22499]]

day before the date that is 12 months before the second notice is 
filed.
    (2) Interim unused rate adjustment authority is equal to the Base 
Average applicable to the second notice of rate adjustment (as 
developed pursuant to Sec.  3010.21(a)) divided by the Recent Average 
utilized in the first 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.
    (d) Interim unused rate adjustment authority may be used to make a 
rate adjustment pursuant to the second of two notices of rate 
adjustment filed more than 12 months apart.
    (e) Unused rate adjustment authority lapses 5 years after the date 
of filing of the notice of rate adjustment leading to its calculation.
    (f) 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 for that class.


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 for the class and the annual limitation 
shall be subtracted from the existing unused rate adjustment 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 used to make a Type 1-B rate 
adjustment for any class in any 12-month period may not exceed 2 
percentage points.

Subpart D--Rules for Rate Adjustments for Negotiated Service 
Agreements (Type 2 Rate Adjustments)


Sec.  3010.40  Negotiated service agreements.

    (a) 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). 
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)).
    (c) Negotiated service agreements must be available on public and 
reasonable terms to similarly situated mailers.


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 
implementation date.


Sec.  3010.42  Contents of notice of agreement in support of a Type 2 
rate adjustment.

    Whenever the Postal Service proposes to establish or change rates, 
fees, or the Mail Classification Schedule based on a negotiated service 
agreement, the Postal Service shall file with the Commission a notice 
of agreement that shall include at a minimum:
    (a) A copy of the negotiated service agreement;
    (b) The planned effective date(s) of the planned rates;
    (c) A representation or evidence that public notice of the planned 
rate adjustments has been issued or will be issued at least 45 days 
before the effective date(s) for the planned rates; and
    (d) The identity of a responsible Postal Service official who will 
be available to provide prompt responses to requests for clarification 
from the Commission.
    (e) A statement identifying all parties to the agreement and a 
description clearly explaining the operative components of the 
agreement.
    (f) 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;
    (3) An analysis of the effects of the negotiated service agreement 
on the contribution to institutional costs from mailers not party to 
the agreement; and
    (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.
    (g) 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.
    (h) 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.
    (i) Such other information as the Postal Service believes will 
assist the Commission to issue a timely determination of whether the 
requested changes are consistent with applicable statutory policies.


Sec.  3010.43  Data collection plan and report.

    (a) 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).
    (b) A data report under the plan is due 60 days after each 
anniversary date of implementation and shall include, at a minimum, the 
following information for each 12-month period the agreement has been 
in effect:
    (1) The change in net financial position of the Postal Service as a 
result of the agreement. This calculation shall include for each year 
of the agreement:
    (A) The actual mailer-specific costs, volumes, and revenues of the 
Postal Service;
    (B) An analysis of the effects of the negotiated service agreement 
on the net overall contribution to the institutional costs of the 
Postal Service; and
    (C) 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.
    (2) 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

[[Page 22500]]

preparation, processing, transportation, or other functions in each 
year of the agreement.
    (3) 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.


Sec.  3010.44  Proceedings for Type 2 rate adjustments.

    (a) The Commission will establish a docket for each notice of Type 
2 rate adjustment filed, promptly publish notice of the filing in the 
Federal Register, and post the filing on its Web site. The notice shall 
include:
    (1) The general nature of the proceeding;
    (2) A reference to legal authority under which the proceeding is to 
be conducted;
    (3) A concise description of the planned changes in rates, fees, 
and the Mail Classification Schedule;
    (4) The identification of an officer of the Commission to represent 
the interests of the general public in the docket;
    (5) A period of 10 days from the date of the filing for public 
comment; and
    (6) Such other information as the Commission deems appropriate.
    (b) The Commission shall review the planned Type 2 rate adjustments 
and the comments thereon, and issue an order announcing its findings. 
So long as such adjustments are not inconsistent with 39 U.S.C. 3622, 
they may take effect pursuant to appropriate action by the Governors. 
However, no rate shall take effect until 45 days after the Postal 
Service files a notice of rate adjustment specifying that rate.
    (c) Commission findings that a planned Type 2 rate adjustment is 
not inconsistent with 39 U.S.C. 3622 are provisional and subject to 
subsequent review.

Subpart E--Rules for Rate Adjustments in Extraordinary and 
Exceptional Circumstances (Type 3 Rate Adjustments)


Sec.  3010.60  Applicability.

    The Postal Service may request to adjust rates for market dominant 
products in excess of the maximum rate adjustment due to extraordinary 
or exceptional circumstances. In this subpart, such requests are 
referred to 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 
circumstances giving rise to the request, and a complete explanation of 
how both the requested overall increase, and the specific rate 
adjustments requested, relate to those circumstances;
    (4) A full discussion of why the requested rate adjustments 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 rate adjustments are 
reasonable and equitable as among types of users of market dominant 
products;
    (6) An explanation of when, or under what circumstances, the Postal 
Service expects to be able to rescind the exigent rate adjustments in 
whole or in part;
    (7) An analysis of the circumstances giving rise to the exigent 
request, which should, if applicable, include a discussion of whether 
the circumstances were foreseeable or could have been avoided 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 rate adjustments 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 adjustment 
authority available as of the date of the request for each class of 
mail and the available amount for each of the preceding 5 years.
    (b) Pursuant to an exigent request, rate adjustments may use 
existing 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 
adjustments in excess of the maximum rate adjustment 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) The Commission will establish a docket for each exigent 
request, promptly publish notice of the request in the Federal 
Register, and post the filing on its Web site. The notice shall 
include:
    (1) The general nature of the proceeding;
    (2) A reference to legal authority to which the proceeding is to be 
conducted;
    (3) A concise description of the proposals for changes in rates, 
fees, and the Mail Classification Schedule;
    (4) The identification of an officer of the Commission to represent 
the interests of the general public in the docket;
    (5) A specified period for public comment; and
    (6) Such other information as the Commission deems appropriate.
    (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.

[[Page 22501]]

    (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 the filing of an 
exigent request.

[FR Doc. 2013-08805 Filed 4-15-13; 8:45 am]
BILLING CODE 7710-FW-P