[Federal Register Volume 78, Number 165 (Monday, August 26, 2013)]
[Rules and Regulations]
[Pages 52694-52710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20583]
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POSTAL REGULATORY COMMISSION
39 CFR Part 3010
[Docket No. RM2013-2; Order No. 1786]
Price Cap Rules for Certain Postal Rate Adjustments
AGENCY: Postal Regulatory Commission.
ACTION: Final rule.
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[[Page 52695]]
SUMMARY: The Commission is issuing a set of final rules addressing the
price cap for market dominant price adjustments. Adoption of the rules
follows a review of comments on proposed rules. In brief, proposed
rules that generated no opposition have been adopted. Proposed rules
that raised easily-resolved questions have been modified, as
appropriate, and adopted. Action on proposals that generated
significant opposition (such as the treatment of service reductions and
promotional and incentive rates) has been deferred in the interest of
additional research and analysis. Adoption of these rules will
facilitate consideration of market dominant postal rate adjustments.
DATES: Effective September 25, 2013.
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
202-789-6820.
SUPPLEMENTARY INFORMATION:
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
73 FR 22490, April 16, 2013
Table of Contents
I. Introduction
II. Uncontroversial Rules
III. Changes Adopted In this Order
IV. Remaining Issues
V. Ordering Paragraphs
I. Introduction
On March 22, 2013, the Commission issued a notice of proposed
rulemaking relating to the Commission's price cap rules.\1\ That notice
was intended, in part, to clarify and improve the manner in which 39
CFR part 3010 implements statutory directives and policies previously
expressed in Commission orders. See Order No. 1678 at 1.
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\1\ Notice of Proposed Rulemaking Requesting Comments on
Proposed Commission Rules for Determining and Applying the Maximum
Amount of Rate Adjustments, March 22, 2013 (Order No. 1678). The
Commission issued errata several days later. Notice of Errata, March
25, 2013 (Errata). See also 78 FR 22490, April 16, 2013.
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The Commission received comments and reply comments from the Public
Representative \2\ and the Postal Service,\3\ as well as the
Association of Magazine Media (MPA),\4\ the Association for Postal
Commerce (PostCom),\5\ the National Association of Presort Mailers
(NAPM),\6\ Pitney Bowes Inc.,\7\ and Valpak Direct Marketing Systems,
Inc. and Valpak Dealers' Association, Inc. (Valpak).\8\ The National
Postal Policy Council (NPPC) submitted reply comments.\9\
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\2\ Public Representative Comments, May 17, 2013 (Public
Representative Comments); Public Representative Reply Comments, May
31, 2013 (PR Reply Comments). The Public Representative Comments
were accompanied by a motion for late acceptance asserting that no
party is harmed by the delay in filing. Public Representative Motion
for Late Acceptance, May 17, 2013. The motion is granted.
\3\ Initial Comments of the United States Postal Service, May
16, 2013 (Postal Service Comments); Reply Comments of the United
States Postal Service, June 3, 2013 (Postal Service Reply Comments).
The Postal Service's reply comments were accompanied by a motion for
late acceptance of filing asserting that no party is prejudiced by
the delay. Motion for Late Acceptance of Reply Comments, June 3,
2013. That motion is granted.
\4\ Comments of MPA--The Association of Magazine Media, May 16,
2013 (MPA Comments).
\5\ Comments of the Association for Postal Commerce, May 16,
2013 (PostCom Comments); Reply Comments of the Association for
Postal Commerce, May 31, 2013 (PostCom Reply Comments).
\6\ Comments of the National Association of Presort Mailers, May
16, 2013 (NAPM Comments).
\7\ Comments of Pitney Bowes Inc., May 16, 2013 (Pitney Bowes
Comments).
\8\ Valpak Direct Marketing Systems, Inc. and Valpak Dealers'
Association, Inc. Comments on Notice of Proposed Rulemaking, May 16,
2013 (Valpak Comments); Valpak Direct Marketing Systems, Inc. and
Valpak Dealers' Association, Inc. Reply Comments on Notice of
Proposed Rulemaking, May 31, 2013 (Valpak Reply Comments). Valpak
also filed a reply to the late-filed reply comments of the United
States Postal Service, along with a motion for leave to reply to the
Postal Service's comments. Valpak Direct Marketing Systems, Inc. and
Valpak Dealers' Association, Inc. Motion for Leave to File Response
to Late-Filed Postal Service Reply Comments, June 4, 2013. This
motion is granted.
\9\ Reply Comments of the National Postal Policy Council, May
31, 2013 (NPPC Reply Comments).
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Some of the rules proposed in Order No. 1678 generated opposition.
Others were relatively uncontroversial. The Commission finds that it
will be beneficial to promptly adopt rules that were unopposed or
raised issues that are easily resolved. The Commission will address the
other proposed rules in later proceedings.
This order is organized as follows. First, proposed rules that
generated no opposition are described and adopted. Next, proposed rules
that raised questions that are easily resolved are described, modified
as appropriate, and adopted. Finally, proposals concerning the
treatment of service reductions and promotional and incentive rates
that generated significant opposition requiring additional research and
analysis are described. Action in these areas is deferred to a later
date.
II. Uncontroversial Rules
No commenter objected to the reorganization of part 3010.
Consequently, the Commission adopts the changes relating to the
reorganization of part 3010, including changes to section numbers and
cross-references. The balance of this order refers to provisions of
part 3010 by the section and subpart numbers that appear in the final
rules, as printed below the signature of this order.
Many of the rules proposed in Order No. 1678 generated either
positive comments or no objections. In particular, commenters expressed
approval of proposed Sec. Sec. 3010.11(c) (providing for public
comments on consistency with Commission orders and directives); \10\
3010.12(e) (requiring that cost, avoided cost, volume, and revenue
figures included in a notice be developed based on the most recent
applicable analytical principles); \11\ 3010.23(b), requiring that the
percentage change in rates for a product be calculated in the same
manner as the percentage change in rates for a class,\12\ and 3010.43
(specifying that the Commission is interested in the change in net
financial position resulting from an agreement).\13\
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\10\ Valpak Comments at 2 (``Valpak supports this proposed rule
change.'').
\11\ Pitney Bowes Comments at 2 (``The proposed change is a
welcome improvement. . . .'').
\12\ Valpak Comments at 2.
\13\ Id. at 3 (``Valpak supports this proposed rule change.'').
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One of the substantive changes proposed by Order No. 1678 received
no comment. Section 3010.11(g) reduces the comment period for remanded
rates from 10 days to 7 days. This change reflects the Commission's
experience in Docket No. R2013-1, in which a 7-day period was
sufficient to solicit public comment concerning an amended notice of
rate adjustment.\14\ The Commission adopts these changes.
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\14\ Order No. 1678 at 12.
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Following is a section-by-section list of the changes the
Commission finds to be uncontroversial. These changes are adopted and
reflected in the final rules that appear below the signature of this
order.
Section 3010.1 defines the terms ``annual limitation,'' ``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.'' The definition of the term
``class'' is discussed in section III.A below.
Section 3010.2 reflects revisions that correct a statutory
reference and ensure terms are used consistently.
Section 3010.3 reflects revisions that ensure terms are used
consistently and move the requirement that the Postal Service maintain
a schedule tracking unused rate adjustment authority to Sec.
3010.26(f).
[[Page 52696]]
Section 3010.4 reflects revisions that ensure terms are used
consistently.
Section 3010.5 reflects revisions that strike duplicative
provisions.
Section 3010.6 reflects revisions that ensure terms are used
consistently.
Section 3010.7 reflects revisions that ensure terms are used
consistently.
Section 3010.8(d) reflects revisions that strike an obsolete
transition requirement.
Section 3010.8 reflects revisions that ensure terms are used
consistently.
Section 3010.10 reflects revisions that ensure terms are used
consistently and a revision to the heading to clarify the contents of
the section.
The contents of former Sec. Sec. 3010.11 and 3010.12 are included
in Sec. Sec. 3010.20, 3010.21, and 3010.22.
Section 3010.11 reflects revisions throughout that ensure cross-
references are correct and terms are used consistently.
Section 3010.11(c) reflects revisions to clarify that comments on
compliance with relevant statutory provisions and Commission orders and
directives are permitted.
Section 3010.11(g) reflects revisions that change the comment
period from 10 days to 7 days and provide that comments on amended
notices may address subjects described in paragraph (c).
Section 3010.12 reflects revisions that strike paragraph headings
and ensure terms are used consistently.
Section 3010.12 also reflects revisions that amend paragraph (b)(5)
and add a paragraph (e) to require that cost, avoided cost, volume, and
revenue figures be developed from the most recent approved analytical
principles.
Changes to Sec. 3010.12(c) relating to the filing of information
concerning new discounts and surcharges are discussed in section III.B
below.
Section 3010.20 incorporates provisions from former Sec. 3010.11
and reflects revisions that ensure terms are used consistently.
Section 3010.22 reflects revisions that specify that it applies to
rate adjustments filed less than 12 months apart, incorporate
provisions from former Sec. 3010.12, and ensures terms are used
consistently.
Section 3010.23 reflects revisions throughout that ensure terms are
used consistently. Further changes to this section are discussed in
section III.D and IV.C.
Section 3010.23(b) reflects revisions that require the percentage
change in rates for a product to be calculated in the same manner as
for a class. The remainder of Sec. 3010.23 is discussed at greater
length below.
Section 3010.24 reflects revisions that specify that it applies to
calculations under Sec. 3010.23.
Section 3010.25 reflects revisions that clarify that unused rate
adjustment authority may only be applied after applying the annual
limitation.
Section 3010.26(c)(2) reflects revisions to correct cross-
references.
Section 3010.27 reflects revisions that ensure terms are used
consistently.
Section 3010.28 reflects a revision to the heading to clarify the
contents of the section. An additional proposed change to this section
is discussed in section III.F.
Former Sec. 3010.29 is stricken as an obsolete transition
provision.
Section 3010.41 reflects a revision to the heading to clarify the
contents of the section.
Section 3010.42 reflects revisions that ensure consistent
formatting and the consistent use of terms.
An additional comment concerning Sec. 3010.42 is discussed in
section III G.
Section 3010.43 reflects revisions that specify that both a plan
and a report are required and that the net financial position of the
Postal Service should be reported.
Section 3010.44 reflects revisions that ensure terms are used
consistently.
The heading of subpart E reflects revisions that ensure terms are
used consistently.
Section 3010.60 reflects revisions that ensure terms are consistent
with 39 U.S.C. 3622(d) and used consistently.
Section 3010.61 reflects revisions that ensure terms are consistent
with 39 U.S.C. 3622(d) and used consistently.
Section 3010.62 reflects revisions that ensure terms are consistent
with 39 U.S.C. 3622(d) and used consistently.
Section 3010.63 reflects revisions that are consistent with Sec.
3010.12(b)(2) and ensure that terms are used consistently.
Section 3010.65 reflects revisions that ensure terms are used
consistently.
Section 3010.66 reflects revisions that ensure terms are used
consistently.
III. Changes Adopted in This Order
Interested parties submitted comments suggesting modifications to
changes proposed in Order No. 1678 as well as additional changes to 39
CFR part 3010. The Commission has received sufficient information
concerning several of these changes to address commenter concerns. This
section discusses the changes that the Commission adopts, or declines
to adopt, in this order. They are grouped by the section of 39 CFR part
3010 they affect or, if no single section of part 3010 is affected, by
topic.
A. Section 3010.1(b)--Definition of ``class''
One commenter suggests that the definition of the term ``class'' in
Sec. 3010.1(b) should be modified to more closely track the definition
of the term ``class'' from 39 U.S.C. 3622(d)(2)(A). MPA Comments at 2.
MPA argues that the proposed definition ``is both circular and
insufficiently precise.'' Id. at 1. It asserts that applying the price
cap rules at the class level is an essential requirement of the Postal
Accountability and Enhancement Act (PAEA) that promotes rate stability
and predictability. Id. at 2-3. MPA urges that the definition of
``class'' be modified to read that a class is a class of mail as
defined in the Domestic Mail Classification Schedule in effect on the
date of enactment of the Postal Accountability and Enhancement Act. Id.
at 2.
Two commenters object to MPA's proposed change. Valpak Reply
Comments at 10-11; Postal Service Reply Comments at 5-6. Valpak objects
to a definition of the term ``class'' that would apply to rate
adjustments that are not subject to an annual limitation, such as
negotiated service agreements and exigent rate adjustments. Valpak
Comments at 10-11. It cautions that the proposed change has the
potential to work against congressional intent when applied outside the
context of 39 U.S.C. 3622(d). Id. at 11. Finally, it speculates that
the proposed change is an attempt to protect mailpieces that were
considered part of the Periodicals class at the time the PAEA was
enacted from future reclassification to the First-Class Mail or
Standard Mail class. Id. at 12. The Postal Service objects to MPA's
proposed change on the basis that it would require the Commission to
ignore the effects of changes to the market dominant and competitive
product lists made pursuant to 39 U.S.C. 3642. Postal Service Reply
Comments at 5-6.
The Commission does not propose to apply the annual limitation
under subpart B of part 3010 at anything other than the class level,
consistent with the clear language of 39 U.S.C. 3622(d)(2)(A). However,
the Commission does not intend to expand the annual limitation
requirements to negotiated service agreements or exigent requests.
Because the term ``class'' appears in the rules concerning exigent
requests, particularly Sec. Sec. 3010.61(a)(2) and 3010.63, the
definition of that term for purposes of part 3010 should not be limited
to the 39 U.S.C. 3622(d)(2)(A) definition. Additionally, the Commission
does not intend to limit the ability of the Postal Service to seek
[[Page 52697]]
transfers of products between the market dominant and competitive
product lists under 39 U.S.C. 3642 or to create, change, or remove
products.
Rather, it seeks to use the definition of the term ``class'' to
limit the scope of the part 3010 rules to market dominant postal
products (as opposed to competitive products or nonpostal products).
This approach is consistent with chapter 36 of title 39, United States
Code, as a whole, not just 39 U.S.C. 3622(d)(2)(A). The revised Sec.
3010.1(b) will read that a ``class'' means a class of market dominant
postal products.
B. Section 3010.12(c)--Filing of Information for Discounts and
Surcharges
Two commenters object to the proposed changes to Sec. 3010.12(c)
concerning information provided for workshare discounts and other
discounts and surcharges. Valpak Comments at 6-7; NPPC Reply Comments
at 8-9. Valpak argues that the proposed changes are ``too broad'' to
address the workshare issues identified in Order No. 1678 and hints
that the resulting requirement exceeds the Commission's statutory
authority. Valpak Comments at 6. It also contends that the proposed
rule would unnecessarily increase the administrative burden of the
Postal Service in preparing notices of rate adjustments. Id. at 6-7.
NPPC concurs with the Valpak Comments, arguing that Congress did not
intend to impose the heightened standards for workshare discounts under
39 U.S.C. 3622(e)(4)(C) on other types of discounts or surcharges. NPPC
Reply Comments at 6-7. NPPC goes further, though, positing that the
proposed rule creates a substantive restriction on the Postal Service's
ability to offer discounts, limiting it only to discounts that would
not `` `adversely affect either the rates or the service levels' of
postal users that do not use the discount.'' Id. at 8. NPPC suggests
that the Commission should ``simply defer, as an initial matter,'' to
the Postal Service's judgment about what constitutes a workshare
discount and then request supplemental information if necessary. Id. at
8-9.
The Commission, not the Postal Service, has the responsibility to
determine what constitutes a workshare discount. See 39 U.S.C.
3622(e)(1); see also U.S. Postal Service v. Postal Regulatory
Commission, 717 F.3d 209,209 (D.C. Cir. 2013) citing Chevron U.S.A.
Inc. v. Natural Resources Defense Council, 467 US 837 (1984). When
faced with a Type 1-A or Type 1-B rate adjustment that must be approved
or denied within 45 days, the Commission may not be able to easily
identify the discounts and surcharges that qualify as workshare
discounts. On the other hand, the Commission has no desire to create an
unnecessary administrative burden for the Postal Service.
Consistent with these goals, the Commission modifies proposed Sec.
3010.12(c) to remove references to discounts and surcharges. It also
adds a new paragraph (d) concerning the information that the Postal
Service must file with respect to any discount or surcharge that it
believes is not a workshare discount. Namely, the Postal Service must
file an explanation of the basis for its belief that the discount or
surcharge is not a workshare discount and a certification that its
treatment of the discount or surcharge conforms with approved
analytical principles. This information will enable the Commission to
quickly determine whether it is necessary to request supplemental
information concerning the discount in order to carry out the
Commission's responsibilities under 39 U.S.C. 3622(e).
C. Sections 3010.21 and 3010.26--Calculation of Annual Limitation and
Interim Unused Rate Adjustment Authority When Notices of Rate
Adjustments Are 12 or More Months Apart
Commenters focused on two issues concerning the calculation of the
annual limitation under Sec. 3010.21. One of these issues, a proposal
to incorporate reductions in service standards into the calculation of
the annual limitation, is discussed in section IV.A below. The second
issue concerns the appropriateness of using a 12-month period to
calculate the annual limitation when notices of rate adjustment are
more than 12 months apart. This issue is related to the questions of
how and when interim unused rate adjustment authority that accrues
between notices of rate adjustment may be used under Sec. 3010.26.
The Postal Service requests that the Commission reconsider existing
rules that require the annual limitation to be calculated using only
the most recent 12 months of available data and interim unused rate
adjustment authority to be calculated using data from the period
preceding the most recent 12-month period. Postal Service Comments at
2. It argues that the proposed rules (as well as current Commission
practices) create a ``disincentive to waiting beyond twelve months to
raise rates.'' Id. at 1. The Postal Service's objections seem to arise
chiefly in two contexts: (1) in periods of deflation, or (2) in periods
of high inflation. The Postal Service asserts that the Commission's
reading of 39 U.S.C. 3622(d)(1)(A)--which requires that the annual
limitation be equal to the change in the Consumer Price Index for All
Urban Consumers (CPI-U) ``over the most recent available 12-month
period''--is ``overly literal'' and at odds with the Commission's rules
allowing for calculation of a partial year limitation. Id. at 3. It
proposes that the Commission use data from the entire period between
notices of rate adjustment to calculate the annual limitation, not just
from the most recent 12 months, and allow the Postal Service to decide
whether to adjust rates to the full extent permissible consistent with
the annual limitation. Id. at 3-4.
Two commenters object to proposed Sec. 3010.26(d) and to the
Postal Service's proposal to revisit the calculation of the annual
limitation and interim unused rate adjustment authority.
The Public Representative argues that Sec. Sec. 3010.21 and
3010.26 are contrary to both Order No. 606 and the requirement under 39
U.S.C. 3622(d)(2)(C)(iii)(III) that unused rate adjustment authority be
used on a first-in, first-out (FIFO) basis. Public Representative Reply
Comments at 2-4. He reads Order No. 606 to require that ``interim
[unused rate adjustment authority] be added to annual [unused rate
adjustment authority], and both [. . .] become available for use by the
Postal Service in future rate cases on a FIFO basis by the terms of 39
U.S.C. 3622(d)(2)(C)(iii)(III).'' Id. at 3. He contends that proposed
Sec. 3010.26(d) allows the Postal Service to use interim unused rate
adjustment authority immediately, a practice that he views as allowing
the use of unused rate adjustment authority on a last-in, first-out
basis. Id. at 4.
Valpak agrees that ``it is not clear that the Commission's proposal
is correct under PAEA.'' Valpak Reply Comments at 9. It argues that 39
U.S.C. 3622(d)(1)(D) prevents a rate adjustment that uses ``more than
12 months of CPI increase plus the earliest available banked
authority,'' because the statute only allows rate adjustments that are
``not in excess of the annual limitations.'' Id. (Emphasis in
original). Valpak reads the plural ``limitations'' to refer to both the
annual limitation (based on CPI-U) established under 39 U.S.C.
3622(d)(1)(A) and the limitation on the use of unused rate adjustment
authority under 39 U.S.C. 3622(d)(2)(C). It argues that because section
3622(d)(2)(C)(iii)(III) specifies that unused rate adjustment authority
may only be used on a first-in, first-out basis, interim unused rate
adjustment authority may not be used in the same
[[Page 52698]]
case in which it is generated. Id. at 9-10.
The Commission agrees that section 3622(d)(2)(C)(iii)(III) requires
the Postal Service to use unused rate adjustment authority on a first-
in, first-out basis. However, Valpak's argument conflates the annual
limitations under subparagraph (A) (i.e., the annual limitations based
on CPI-U) with the unused rate adjustment authority permitted under 39
U.S.C. 3622(d)(2)(C). Section 3622(d)(1)(D) clearly refers only to the
CPI-U limitation established ``under subparagraph (A)'' (that is, under
subparagraph (A) of Sec. 3622(d)(1)). It would be a distortion of the
statute to infer that the use of the plural ``limitations'' rather than
the singular ``limitation'' in paragraph (1)(D) was meant to encompass
both the annual limitation based on CPI-U and the unused rate
adjustment authority calculated under paragraph (2)(C). That
construction would require the Commission to ignore the modifiers
surrounding the word ``limitations'' both ``annual'' that precedes it,
and importantly, the ``under subparagraph (A)'' that follows.
Interim unused rate adjustment authority calculated pursuant to
Sec. 3010.26(c) is distinct from the annual unused rate adjustment
authority calculated pursuant to Sec. 3010.26(b). It allows the Postal
Service to accrue some rate adjustment authority in the period between
notices of rate adjustments that are more than 12 months apart while
respecting the statutory directive that the annual limitation be
calculated on a 12-month basis.
The plain language of section 3622(d)(1)(A) (``the most recent
available 12-month period'') prevents the Commission from accepting the
Postal Service's request that it be allowed to include more than 12
months of data in the calculation of the annual limitation. Unused rate
adjustment authority, on the other hand, is intended to take into
consideration the amount of the rate adjustment that the Postal Service
``actually makes'' in a given year. 39 U.S.C. 3622(d)(2)(C)(i)(II). In
instances where notices of rate adjustments are filed 12 or more months
apart, the annual limitation does not allow the Postal Service to make
a rate adjustment that would take into account the period in excess of
12 months.\15\ Interim unused rate adjustment authority is a means of
addressing the difference between the period over which the statute
allows the annual limitation to be calculated and the actual period
between notices of rate adjustment.
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\15\ For example, when notices of rate adjustment are filed 14
months apart, the ``annual limitation'' excludes the first 2 months
of that period.
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Section 3010.26(d) allows the Postal Service to use interim rate
adjustment authority in the same case in which it is generated in order
to take into consideration the economic events of the entire period
between notices of rate adjustment. This authority is, of course,
limited by the FIFO requirements of 39 U.S.C. 3622(d)(2)(C)(iii)(III)
and 39 CFR 3010.27. In times of inflation, this practice has generally
worked to the Postal Service's advantage, allowing it to use interim
unused rate adjustment authority to increase prices consistent with the
change in CPI-U over the entire period between notices of rate
adjustment. Now, the Postal Service proposes that the Commission allow
it to ignore periods of deflation (which can result in negative unused
rate adjustment authority), but continue to calculate interim unused
rate adjustment authority for periods of inflation. The Commission
finds no legal basis for the Postal Service's proposed approach. Just
as the Postal Service benefits from positive interim unused rate
adjustment authority in periods of inflation, it must accept that in
periods of deflation, interim unused rate adjustment authority will be
negative.
The Commission does not find the use of interim unused rate
adjustment authority to violate the FIFO principle of 39 U.S.C.
3622(d)(2)(C)(iii)(III). Contrary to the assertions of the Public
Representative and Valpak, 39 CFR part 3010 does not permit the Postal
Service to use interim unused rate adjustment authority before unused
rate adjustment authority generated during the previous 5 years. When
the Postal Service files a notice of rate adjustment more than 12
months after the previous notice of rate adjustment, the Commission
immediately calculates both interim and annual unused rate adjustment
authority under Sec. 3010.26(c). The interim unused rate adjustment is
immediately added to the schedule of unused rate adjustment authority
described in Sec. 3010.26(f) (commonly referred to as ``the bank'').
Section 3010.26(d) allows the Postal Service to use that interim unused
rate adjustment authority in the same case in which it is generated,
but only after it uses all unused rate adjustment authority from the
previous 5 years.\16\ This is consistent with the requirement under
Sec. 3010.27 that the unused rate adjustment authority used for a
class to make a Type 1-B rate adjustment ``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.''
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\16\ This is assuming the sum of the unused rate adjustment
authority from the previous five years does not exceed 2 percentage
points. If the sum of the unused rate adjustment authority from the
previous five years exceeds 2 percentage points, the Postal Service
could be prevented from using the interim unused rate adjustment
authority generated in a case by operation of Sec. 3010.28.
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The Postal Service objects to this approach because it creates a
``disincentive to waiting beyond twelve months to raise rates.'' Postal
Service Comments at 1. The Commission's rules and past practice are
based on 39 U.S.C. 3622, which was carefully crafted to foster the
objective of predictable and stable rates. Increases are limited to the
percentage change in CPI over the preceding 12 months plus up to 2
percent of previously unused authority. The Commission's current rules
were designed to be consistent with this statutory scheme, as are the
amendments approved in this order.
For these reasons, the Commission declines to alter its approach to
the calculation and use of interim unused rate adjustment authority.
However, the comments indicate that proposed Sec. 3010.26(d) did not
clearly convey the Commission's intent with respect to the use of
interim unused rate adjustment authority. Accordingly, the Commission
modifies Sec. 3010.26(d).
D. Section 3010.23(d)--Anticipated Changes in Mailer Behavior
Two commenters suggest that Sec. 3010.23(d) be altered to allow
adjustments to billing determinants based on anticipated changes in
mailer behavior. PostCom at 8-9; Postal Service Comments at 4-5.
PostCom argues that a ``complete prohibition on relying on anticipated
changes in mailer behavior is too restrictive.'' PostCom Comments at 8.
It points to Standard Mail Flats as an example of a product for which
the Postal Service should be allowed to take into consideration the
effect of potential mailer behavior on the ability of the product to
cover costs. Id. Although it acknowledges that the Commission
disapproved of this approach to Standard Mail Flats in Order No.
1541,\17\ it argues the Postal Service could ``inadvertently drive
volume to less profitable categories or out of the system entirely'' if
it does not take mailer behavior into consideration in setting rates.
PostCom Comments at 8-9. PostCom advocates allowing the
[[Page 52699]]
Postal Service to make adjustments to billing determinants based on
anticipated changes in mailer behavior in particular cases if it can
demonstrate that the changes are ``reasonably likely to occur.'' Id. at
9.
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\17\ Docket No. R2013-1, Order on Price Adjustments for Market
Dominant Products and Related Mail Classification Changes, November
16, 2012, at 39-41 (Order No. 1541).
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The Postal Service proposes that the Commission establish a
prohibition on the use of anticipated changes in mailer behavior to
make adjustments to billing determinants as its ``default approach''
but also allow exceptions to the rules for ``particular
circumstances.'' Postal Service Comments at 4. The Postal Service
points to two cases as examples of the Commission using anticipated
changes in mailer behavior to make adjustments to billing determinants:
the Full-Service Intelligent Mail barcode (IMb) discounts in Docket No.
R2009-2 and the Mobile Barcode Promotion approved in Docket No. R2013-
1. Id. at 4-5. It argues that these cases prove that the Commission
should allow the Postal Service to use projections of mailer behavior
``where it believes using historical volumes would either understate
volumes or otherwise be inappropriate.'' Id. at 5.
Valpak opposes the use of anticipated changes in mailer behavior to
make adjustments to billing determinants in any situation and supports
the proposed rule as written. Valpak Reply Comments at 4-8. It quotes
extensively from Order No. 1541 to support its contention that cost
projections are not appropriate in a rate case. Id. at 4-6. It asserts
that projections of mailer behavior are necessarily based on
``assumptions, speculation, and uncertainty'' that ``should be open to
challenge.'' Id. at 7. It further asserts that such challenges are not
feasible under the ``accelerated timetable'' of a market dominant rate
case. Id.
As the commenters point out, the Commission's experience with
projections based on forecasts of anticipated mailer behavior has not
been positive. As was the case with the Postal Service's projection of
future volume changes associated with Standard Mail Flats, projections
of mailer behavior carry the risk of relying on assumptions that are
``unfounded,'' ``unsupported,'' or ``erroneous.'' See Order No. 1541 at
40. In Docket No. R2011-1, the Commission disapproved of the use of
projections of mailer behavior.\18\
---------------------------------------------------------------------------
\18\ Docket No. R2011-1, Order Approving Market Dominant
Classification and Price Changes, and Applying Price Cap Rules,
December 10, 2010, at 19 (Order No. 606).
---------------------------------------------------------------------------
In contrast, the Commission found that the calculation of
percentage change in rates for the Mobile Barcode Promotion did not
rely on ``forecasts of expected volume.'' Order No. 1541 at 17. Rather,
the Postal Service permissibly used ``actual volumes . . .'' from the
promotion to make adjustments to billing determinants in Docket No.
R2013-1. Id. The Commission does not intend for Sec. 3010.23(d) to
prevent adjustments to billing determinants similar to the adjustments
made for the Mobile Barcode Promotion, ``where historical volumes
[were] available for the calculation of the effect of the price change
resulting from the promotions on the price cap.'' Id. To the contrary:
an adjustment that uses actual historical volumes to account for the
effects of a classification change ameliorates the problems anticipated
by Valpak.
A brief review of the development of Sec. 3010.23(d) in Docket No.
RM2007-1 demonstrates that the additional language is consistent with
how the rule was originally intended to operate. In response to the
Commission's initial advance notice of proposed rulemaking inviting
comments on 39 U.S.C. 3622,\19\ the Postal Service outlined the basic
concept that eventually formed the basis of Sec. 3010.23(d).\20\ The
Postal Service proposed a method of calculating the average price
change for each class using a fixed rate index of prices, where the
prior year's billing determinants served as the weight for each rate
cell that was proposed by the Postal Service, and allowing for
adjustments to reflect changes in the rate design structure. Id.
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\19\ Docket No. RM2007-1, Order No. 2, Advance Notice of
Proposed Rulemaking on Regulations Establishing a System of
Ratemaking, January 30, 2007 (Order No. 2).
\20\ Docket No. RM2007-1, Reply Comments of the United States
Postal Service, May 7, 2007, Appendix C at 7-8.
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To explore some of the important issues raised by commenters in the
responses to Order No. 2, the Commission issued a second advance notice
of proposed rulemaking, which asked parties to comment on several
questions.\21\ The Commission specifically requested additional
discussion about how adjustments to billing determinants might be
developed in circumstances where historical billing determinants were
not available. Id. at 5.
---------------------------------------------------------------------------
\21\ Docket No. RM2007-1, Second Advance Notice of Proposed
Rulemaking on Regulations Establishing a System of Ratemaking, May
17, 2007 (Order No. 15).
---------------------------------------------------------------------------
The Postal Service replied with an extended discussion of the
issue.\22\ It distinguished between ``mail characteristics which appear
in the mailstream, but for which billing determinants are not available
because those characteristics previously were not associated with
distinct rate treatment'' and ``those characteristics which do not
appear at all within the existing mailstream.'' Id. at 6-7. The Postal
Service explained that in either case, ``[t]o maintain consistency with
historical billing determinants, of course, the focus must remain on
the volume proportions as they exist without any rate distinction.''
\23\ Id. at 8. It described the adjustments as a process whereby ``the
Postal Service would `map' the historical volumes to the noticed price
structure using the best data available. These data could include
historical volume data (e.g., for shape distribution) that were not
previously needed for postage calculation; the results of mail
characteristics or market research studies; or, observed volume
patterns for a recent period (shorter than a full year) for which the
price structures were in effect.'' Id. at 9. The Postal Service
anticipated that ``all `adjustments' to billing determinants would be
explained . . . with the materials submitted with the Notice of Price
Adjustment.'' Id.
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\22\ Docket No. RM2007-1, Initial Comments of the United States
Postal Service on the Second Advance Notice of Proposed Rulemaking,
June 18, 2007, at 7-10 (Postal Service Second Notice Comments).
\23\ The Postal Service further explained that estimating the
volume change in response to new price incentives may be useful for
other purposes, but that such an exercise should not be used ``for
purposes of calculating compliance with the cap.'' Id. at n.3.
---------------------------------------------------------------------------
PostCom initially expressed concern that the use of adjustments by
the Postal Service might entangle the process in the difficulties of
forecasting or rolling forward volumes.\24\ The Alliance of Nonprofit
Mailers (ANM) and the Magazine Publishers of America, Inc. (MPA) raised
an additional concern that the Postal Service's approach would need to
allow an exception to account for the price cap implications of
``changes in mail preparation requirements'' that require an adjustment
``to reflect the impact of the rule change on rate eligibility.'' \25\
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\24\ Docket No. RM2007-1, Comments of PostCom in Response to
Second Advance Notice of Proposed Rulemaking on Regulations
Establishing a System of Ratemaking, June 18, 2007. After the Postal
Service provided further clarification that forecasts and
rollforwards would be unnecessary, PostCom found the approach
``entirely reasonable''. Docket No. RM2007-1, Reply Comments of
PostCom in Response to Second Advance Notice of Proposed Rulemaking,
July 3, 2007, at 4 (2007 PostCom Reply Comments).
\25\ Docket No. RM2007-1, Initial Comments of Alliance of
Nonprofit Mailers and Magazine Publishers of America, Inc. on
Further Advance Notice of Proposed Rulemaking (Order No. 15), June
18, 2007, at 1-3.
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The Postal Service explained that the concerns expressed by these
commenters were founded on a
[[Page 52700]]
misunderstanding of both the Postal Service's intent and its proposed
method of developing the billing determinant adjustments.\26\ It
emphasized that its approach represented ``a sensible way to calculate
compliance for new rate structures by the use of historical volumes,
without the need for forecasts and rollforwards.'' Id. at 4 (footnote
omitted). The Postal Service also described how billing determinant
adjustments would be applied to ensure that a change in mail
preparation requirements that shifts some mail into a different price
category is fairly evaluated for compliance with the cap. Id. at 3.
---------------------------------------------------------------------------
\26\ Docket No. RM2007-1, Reply Comments of the United States
Postal Service on the Second Advance Notice of Proposed Rulemaking,
July 3, 2007, at 3-6.
---------------------------------------------------------------------------
Nearly all parties who commented on the issue in Docket No. RM2007-
1 ultimately supported the Postal Service's proposed weighting system.
Many of the comments in support of this approach cited the fact
that it would avoid ``the complexity and practical difficulty of
projected volume data'' as an important element that would help
ensure the speed and simplicity of the system of regulation
envisioned by the PAEA.\27\
---------------------------------------------------------------------------
\27\ Docket No. RM2007-1, Reply Comments of Pitney Bowes Inc. in
Response to Second Advance Notice of Proposed Rulemaking on
Regulations Establishing a System of Ratemaking, July 3, 2007, at 4;
see also Initial Comments of Pitney Bowes Inc. in Response to Second
Advance Notice of Proposed Rulemaking on Regulations Establishing a
System of Ratemaking, June 18, 2007, at 3-4; Comments of ADVO, Inc.
in Response to Second Advance Notice of Proposed Rulemaking on
Regulations Establishing a System of Ratemaking, June 18, 2007, at
3; Valpak Direct Marketing Systems, Inc. and Valpak Dealers'
Association, Inc. Reply Comments on Regulations Establishing a
System of Ratemaking in Response to Commission Order No. 15, July 3,
2007, at 12-3; Initial Comments of the American Postal Workers Union
AFL-CIO, in Response to Second Advance Notice of Proposed Rulemaking
on Regulations Establishing a System of Ratemaking, June 18, 2007,
at 3; 2007 PostCom Reply Comments at 4.
With the broad support for the approach among commenters and the
detailed explanations from the Postal Service of how it would be
applied in various scenarios, the Commission's final rule adopted the
concept of weighting the current and new rates by a fixed set of
historical billing determinants, with adjustments based on additional
historical mail characteristics data where necessary to reflect changes
in the rate and classification structure.
Consistent with the original design of the rule and its past
practice, the Commission finds that Sec. 3010.23(d) should be modified
to clarify that adjustments to billing determinants may not be based on
forecasts of mailer behavior. It is worth noting that, consistent with
the discussion above, an adjustment that ``maps'' historical volume
data to a noticed price structure, using the best available data, is
not considered an adjustment based on forecasts of mailer behavior.\28\
Paragraph (d) of Sec. 3010.23 is revised accordingly.
---------------------------------------------------------------------------
\28\ The Postal Service indicated that it may wish to use ``the
results of mail characteristics or market research studies'' to make
adjustments to billing determinants. Postal Service Second Notice
Comments at 9. If the Postal Service intends to use such studies to
make adjustments to billing determinants in a particular rate case,
the Commission encourages it to submit such studies to the
Commission in advance of its notice of proposed rate adjustment, to
provide the Commission and interested parties with additional time
for review.
---------------------------------------------------------------------------
E. Section 3010.26(f)--Clarify That Unused Rate Adjustment Authority Is
a Series of Numbers Rather Than a Single Number
The Public Representative expressed concern that Order No. 1678
appears to refer to a single ``calculation'' of unused rate adjustment
authority, rather than separate calculations for each class in each
rate case. Public Representative Comments at 2. He notes, however, that
proposed Sec. 3010.26(f) properly reflects the complexity of unused
rate adjustment authority calculations by requiring a table that tracks
the establishment and subsequent use of unused rate adjustment
authority by class.\29\ The Public Representative is correct that
unused rate adjustment is calculated for each class, in each rate case.
---------------------------------------------------------------------------
\29\ Id. Section 3010.12(b)(2) also requires the Postal Service
to submit with each notice of Type 1-A or Type 1-B rate adjustment 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.''
---------------------------------------------------------------------------
The Public Representative also expresses concern that the
Commission ``essentially treats [unused rate adjustment authority] for
a class as a single, cumulative number--the sum of five years of
[unused rate adjustment authority].'' Public Representative Comments at
2. He correctly points out that 39 U.S.C. 3622(d)(2)(C) requires the
Postal Service to use the oldest unused rate adjustment authority
first, and does not require it to use the sum of the unused rate
adjustment authority generated during the previous five years all at
once. Id. at 2-3. The Commission finds that the proposed rules
adequately express the nature of unused rate adjustment authority.
Section 3010.20(d)(2) allows for a maximum rate adjustment that
consists, in part, of ``the unused rate adjustment authority for the
class that the Postal Service elects to use, subject to the limitation
under Sec. 3010.28.'' Section 3010.27 provides that the unused rate
adjustment authority used in a case for a class ``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.'' In combination, these rules allow the Postal Service
to elect to use all, part, or none of its available unused rate
adjustment authority, provided that it uses the oldest unused rate
adjustment authority first.
Neither of the Public Representative's concerns appears to require
a modification of the proposed rules.
F. Section 3010.28--Maximum Size of Unused Rate Adjustment Authority
Rate Adjustment
One commenter argues that Sec. 3010.28 ``creates an ambiguity that
arguably might allow the Postal Service to raise rates by two percent
even when it lacks the unused rate authority necessary to do so.'' NPPC
Reply Comments at 2. It suggests that Sec. 3010.28 be revised.
The Commission finds this suggested change to be unnecessary.
Section 3010.28 establishes the maximum amount of unused rate
adjustment authority that may be used for a class in any one 12-month
period. Nothing in the plain language of this section creates (or
allows for the creation of) unused rate adjustment authority not
generated pursuant to Sec. 3010.26. A simple limitation on the amount
of unused rate adjustment authority used in any one 12-month period is
not enough to create additional authority.
G. Section 3010.42(f)--Projections of Changes in Net Financial Position
Resulting From Market Dominant Negotiated Service Agreements
Valpak suggests that the Commission modify Sec. 3010.42(f) to
require that the Postal Service's projection of the change in net
financial position resulting from a market dominant negotiated service
agreement be based on ``the Commission's methodology, including its
choice of proxy.'' Valpak Comments at 11. In addition, Valpak proposes
that the Commission detail how market dominant negotiated service
agreements are reported in the Postal Service's Annual Compliance
Report. Id. Valpak's concerns stem from the Postal Service's reporting
concerning the Discover Financial Services 1 product. Id.
Requirements relating to the Annual Compliance Report are found in
39 CFR part 3050 and are outside the scope of this docket. The
Commission will not address them here.
[[Page 52701]]
As for Sec. 3010.42(f), the Commission reaffirmed its accepted
analytical principle for the assessment of the financial effects of
price incentives (including negotiated service agreements) designed to
increase mail volume or shift mail volume between products in Docket
No. RM2010-9.\30\ In that docket, the Postal Service proposed a new
methodology for calculating the financial impact of pricing incentive
programs based on ``trend analysis'' to replace the Commission's
elasticity-based methodology. Id. at 1. The Commission rejected the
Postal Service's proposed methodology in favor of its accepted
analytical principle that the financial effect of price incentive
programs should be ``based on the Postal Service's best estimate of the
price elasticity of the discounted product.'' Id. at 3 (quotation marks
omitted). However, the Commission also encouraged the Postal Service to
continue to examine other methods for evaluating the financial impact
of pricing incentive programs that would be based on ``accurate and
reliable data.'' Id. at 16.
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\30\ Docket No. RM2010-9, Order Terminating Proceeding, May 27,
2011 (Order No. 738).
---------------------------------------------------------------------------
Consistent with Order No. 738, the Commission finds that, although
in many cases, the Commission's accepted analytical principles will
provide the best available model for evaluating the net financial
impact of a market dominant negotiated service agreement, part 3010
should not unnecessarily limit the Postal Service's ability to
supplement its filing with an alternative analysis of the net financial
impact. However, if the Postal Service elects to include a methodology
that differs from the Commission's accepted analytical principles, it
should include an explanation of why it believes its model produces a
more accurate estimate than the Commission's. Including an alternative
model does not remove the obligation to provide the Commission with a
calculation of net financial impact that is based on the Commission's
approved analytical principles. Finally, the Commission reminds the
Postal Service that, as a general matter, if it develops improved
methodologies it may propose them in a separate docket in accordance
with 39 CFR 3050.11. Generally speaking, a petition under 39 CFR
3050.11 will provide the Commission and interested persons with a
better opportunity to evaluate proposed methodologies thoroughly
without delaying the consideration of a notice of a market dominant
negotiated service agreement filed under 39 CFR 3010 subpart D.
In light of the foregoing considerations, the Commission modifies
Sec. 3010.42(f).
H. Library of Commission-Approved Cost Models
Two commenters support the establishment of an online, indexed
library of the Commission's approved cost models. Pitney Bowes Comments
at 2-3. Postal Service Reply Comments at 6. Pitney Bowes argues that
such a library would be consistent with the goals of this docket, aid
the Postal Service in complying with Sec. 3010.12(e), and result in
pricing decisions based on the most recent and accurate cost data.
Pitney Bowes Comments at 3. It notes that the Postal Service previously
requested similar information in connection with its FY 2012 Annual
Compliance Report. Id. at 2. The Postal Service expresses its support
for Pitney Bowes' recommendation. Postal Service Reply Comments at 6.
The development of rules to establish a library of Commission-
approved cost models is beyond the scope of this rulemaking. Such
regulation would more properly be considered in the context of 39 CFR
part 3050 rules. The Commission will not address the ramifications of
such rules here. However, the Commission agrees that such a library
would be useful for the Postal Service and postal customers. It earlier
made available on its Web site a chart identifying the most recent
Commission-approved workshare cost avoidance models.\31\ The Commission
will endeavor to provide additional and updated cost models as
appropriate.
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\31\ PRC Workshare Cost Avoidance Models, Last Update: 05/07/
2013, available http://www.prc.gov/prc-docs/home/whatsnew/Directory%20of%20PRC%20Workshare%20Cost%20Avoidance%20Models_3155.pdf.
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IV. Remaining Issues
Several of the proposed rules generated significant opposition or
additional suggestions from commenters. The issues raised by the
comments concerning these rules are discussed in this section. They
include a proposal to include reductions in service quality in the
calculation of the maximum rate adjustment, a proposal to alter the
contents of notices concerning market dominant negotiated service
agreements, and a number of proposals concerning the treatment of
promotions and incentives. The Commission finds that these issues
require additional research and analysis that exceed the scope of this
docket and will defer consideration of them to a later date.
A. Reductions in Service
Two commenters support modifying 39 CFR part 3010 to take
reductions in service quality into consideration when calculating the
maximum rate adjustment for each notice. Valpak Comments at 7-11, NPPC
Reply Comments at 9. Valpak alleges that ``[u]ntil Commission rules
state that some reductions in service, depending upon their severity or
egregiousness, will be given consideration when determining the maximum
price cap adjustment in any given year, the Postal Service each year
will have unrestrained license to increase operating profitability by
reducing the quality of service being provided to mailers and the
public.'' Valpak Comments at 8. Both Valpak and NPPC assert that this
is a problem common to price cap regimes generally. Valpak Comments at
7; NPPC Reply Comments at 9-12.
Valpak points to three actions by the Postal Service that it
asserts have reduced (or have the potential to reduce) quality of
service: Post office closings, reductions in hours of operation at post
offices, and the proposal to eliminate Saturday delivery. Valpak
Comments at 7. Valpak also uses the conversion to Full-Service IMb as
an example of a change the Postal Service can make to ``reduce its
costs while increasing costs to mailers.'' Id. at 9. Valpak asserts
that such changes should result in a reduction in the maximum rate
adjustment that the Postal Service could make in a particular rate
case. Id. In addition to echoing Valpak's concerns about network
rationalization and Full-Service IMb, NPPC alleges that First-Class
Mail service standards have already been reduced and that changes to
Periodicals service standards are expected in the future. NPPC Reply
Comments at 10.
This docket has not produced the information the Commission would
need to amend its rules to include reductions in service quality in the
calculation of the maximum rate adjustment. For instance, it is not
clear whether such reductions can or should be considered when
calculating the annual limitation under Sec. 3010.21 or Sec. 3010.22,
when calculating the percentage change in rates under Sec. 3010.23, or
even when calculating the available amount of unused rate adjustment
authority under Sec. 3010.26. Although Valpak provides examples of
changes, it believes reduce the quality of service provided by the
Postal Service, it does not suggest a definition or other framework
that the Commission could use to determine which changes result in a
reduction in service quality that
[[Page 52702]]
would necessitate an adjustment to the maximum rate adjustment. NPPC
proposes that adjustments to the maximum rate adjustment be made when
``the Postal Service makes changes that reduce service quality, raise
mailer costs, or force mailers into higher priced products'' but does
not specify how the Commission should determine when those conditions
have been met. NPPC Reply Comments at 12. Additionally, as Valpak
notes, its proposal does not address ``the issue of what data to use
when determining the extent'' of a reduction in service quality. Id. at
10.
Finally, the Commission notes that neither Valpak nor NPPC
discusses whether and how the price cap calculations might be adjusted
to reflect improvements in service.
The Commission, therefore, does not proceed with these suggestions.
B. NSA Notice Contents
In addition to the change to Sec. 3010.42(f) discussed in section
III.G above, Valpak proposes two requirements relating to market
dominant negotiated service agreements. Valpak Comments at 12-13. The
first would be a requirement that the Postal Service identify the
mailers it believes to be ``similarly situated'' to the mailer that is
a party to the proposed negotiated service agreement. Id. at 12. This
proposal is related to the Commission's consideration of the Valassis 1
product in Docket Nos. MC2012-14 and R2012-8. During that case, the
Commission issued a Notice of Inquiry to obtain clarification
concerning similarly situated mailers.
The second proposal is a requirement that the Postal Service
explain why it would be ``impracticable'' to establish a niche
classification instead of entering into a negotiated service agreement.
Id. at 13. Valpak asserts that this requirement is similar to a
regulation in effect before the enactment of the PAEA, and that it
would address ``systemic problems'' with negotiated service agreements,
including ``preferences and discrimination.'' Id.
Both proposals present potential difficulties that are not fully
explored in the Valpak Comments. For instance, the first proposal would
require the Postal Service to make an initial complex determination
about the universe of similarly situated mailers. Adding such a
requirement could make the notice requirements under 39 CFR part 3010
subpart D unduly burdensome. Such a burden may be contrary to the goals
of the PAEA, which requires the Commission to consider the desirability
of the Postal Service entering into appropriate market dominant
negotiated service agreements. See 39 U.S.C. 3622(c)(10).
The second proposal, to require the Postal Service to justify its
decision to enter into a negotiated service agreement rather than
establish a niche classification, could infringe on the Postal
Service's discretion with respect to the structure of its products.
Nothing in 39 U.S.C. 3622(c)(10) requires the Postal Service to make
``special classifications'' generally available to mailers that are not
similarly situated. Title 39 permits the Postal Service to make the
reasonable business decision to use a negotiated service agreement
rather than a niche classification in order to better understand the
implications of new strategies before broadening those strategies to
affect a wide range of customers. The choice to offer a negotiated
service agreement instead of a niche classification is a reasonable way
to limit the potential adverse effects of an unsuccessful initiative to
the benefit of postal customers generally. Valpak fails to offer
sufficient justification to support adding either of these requirements
to the subpart D rules.
C. Promotions and Incentive Programs
Many of the comments filed in this docket concern the treatment of
promotions and incentive programs. One commenter supported the rules as
proposed. Several other commenters raised general objections to the
idea of allowing the Postal Service to include temporary promotional
rates in the calculation of the percentage change in rates.
Commenters also suggested a range of possible modifications to the
proposed rules. Several of them focused on proposed paragraph (e) of
Sec. 3010.23, suggesting that the Commission change ``may'' to
``shall'' in order to require the Postal Service to exclude temporary
promotional rates from the calculation of the percentage change in
rates. PostCom suggests several alternative methods of accounting for
temporary promotions which generated additional reply comments. The
Postal Service suggests two alternatives to the proposed rules as well.
These comments indicate that the treatment of promotional rates and
incentive programs is likely to be crucial to the Commission's
calculation of maximum rate adjustments in future rate cases. In order
to allow for the development of a more complete record on this
important issue, the Commission will open a separate docket to solicit
targeted comments from interested persons.
1. General Comments
Alone among the commenters, the Public Representative supports
proposed Sec. 3010.23(e) and (f) without modification. Public
Representative Reply Comments at 4. In particular, he argues that
allowing the Postal Service to exclude some temporary promotions and
incentives from the calculation of the percentage change in rates is
appropriate. Id. Some promotions (like summer sales) are more like
negotiated service agreements: Their primary goal is to generate
volume. Id. These promotions should be excluded from the calculation of
percentage change in rates. Some promotions, on the other hand, are
more like investments. In these cases, the Public Representative argues
that the Postal Service should be permitted to include promotional
rates in the calculation of the percentage change in rates, in order to
generate unused rate adjustment authority that would allow it to
``recover'' the investment from all mailers. Id.
The Postal Service generally supports the treatment of temporary
promotions under the proposed rules, but suggests additional
modifications to specifically provide for the treatment of mid-year
promotions. Postal Service Reply Comments at 3-4. Those suggestions are
discussed below.
Other commenters object to the inclusion of any temporary
promotional rate in the calculation of the percentage change in rates.
Three commenters claim that proposed Sec. 3010.23(e) represents an
arbitrary reversal of the Commission's past practice. Valpak Comments
at 3-5; Valpak Reply Comments at 2-3; NAPM Comments at 3-4; NPPC Reply
Comments at 2-3. The Valpak Comments cite seven dockets that excluded
temporary promotions from the calculation of percentage change in
rates. Valpak Comments at 3-4; see also NAPM Comments at 3-4. Valpak
argues that the Commission failed to provide a reasoned analysis for
what Valpak views as the Commission's change in position in Docket No.
R2013-1. Valpak Comments at 5; see also NAPM Comments at 5. NPPC
further objects that in Order No. 1541, the Commission did not announce
that its treatment of promotional discounts represented a new approach.
NPPC Reply Comments at 3. NAPM asserts that many of the objections
raised in Docket No. R2013-1 were due to the treatment of temporary
promotions, which ``was a substantial departure from past practice.''
NAPM Comments at 4.
Two commenters assert that Sec. 3010.23(e) and (f) are
inequitable.
[[Page 52703]]
Valpak argues that the proposed rules are inequitable because they
would allow the Postal Service to provide discounts to some mailers
while increasing rates for other mailers. Valpak Comments at 5. It
cites Docket No. R2013-6, the technology credit promotion, as an
example of an attempt by the Postal Service to do just that. Id. at 5-
6. Pitney Bowes focuses on the ``inequitable'' effects of a failed
promotional program, and argues that under the proposed Sec. 3010.23
``the Postal Service is held harmless . . . but the nonparticipating
mailers pay.'' Pitney Bowes Comments at 3. Additionally, NPPC questions
whether ``requiring other (or future) mailers to pay higher rates to
recover temporary promotional rates is just and reasonable under the
PAEA . . .'' NPPC Reply Comments at 5.
One commenter expresses concern that proposed Sec. 3010.23(e)
could allow the Postal Service to raise rates above the maximum rate
adjustment. NPPC Reply Comments at 5. NPPC asserts that excluding
temporary promotional rates from the calculation of the percentage
change in rates has, until Docket No. R2013-1, been the Commission's
safeguard against the possibility of exceeding the maximum rate
adjustment. Id.
2. Changing ``May'' to ``Shall''
Proposed paragraphs (e) and (f) of Sec. 3010.23 would have
permitted the Postal Service to exclude temporary promotional rates and
incentive programs from the calculation of percentage change in rates
if they resulted in an overall rate decrease. Four commenters propose
modifying the Commission-proposed paragraph (e) to change the option to
exclude temporary promotions into a requirement to exclude temporary
promotions. PostCom Comments at 2-4; NAPM Comments at 4; Valpak Reply
Comments at 2-3; NPPC Reply Comments at 6. They support substituting
``shall'' for ``may'' in proposed paragraph (e). PostCom characterizes
this change as a codification of the Postal Service's past approach to
temporary promotions. PostCom Comments at 3. It also argues that the
change will provide additional certainty for mailers by making it
easier for small mailers to evaluate the impact of a proposed temporary
promotion. Id. at 4. PostCom suggests that it could support a ``good
cause'' exception to its proposed general rule that temporary
promotional rates must be excluded from the calculation of the
percentage change in rates. Id. at 5.
NPPC supports the change from ``may'' to ``shall,'' without a good
cause exception, on the basis that the Commission's approach in Docket
No. R2013-1 was ``mistaken.'' NPPC Reply Comments at 6. Valpak and NAPM
support this approach as well. Valpak Reply Comments at 3; NAPM
Comments at 5. NAPM also proposes to strike paragraph (f) of Sec.
3010.23. NAPM Comments at 5.
Although it does not explicitly support the suggestion to change
``may'' to ``shall,'' Pitney Bowes proposes that the Commission
``conform proposed rule 3010.23(e) to the analogous rule for NSAs, rule
3010.24(a).'' Pitney Bowes Comments at 4. This approach would likely
lead to the same results as changing ``may'' to ``shall'' in proposed
Sec. 3010.23(e) because it would require the Postal Service to exclude
temporary promotional rates from the calculation of the percentage
change in rates. Valpak supports this alternative approach. Valpak
Reply Comments at 3.
3. PostCom Alternative and Additional Modifications
PostCom suggests an alternative to proposed Sec. 3010.23(e):
Clarifying that the Postal Service may include temporary promotional
rates in the calculation of the percentage change in rates for a mid-
year rate case if it uses Sec. 3010.26(b) to calculate unused rate
adjustment authority for that case. PostCom Comments at 5. This
approach differs from the Postal Service's proposal in Docket No.
R2013-6. In that docket, the Postal Service sought (unsuccessfully) to
generate unused rate adjustment authority without adding it to the
schedule of unused rate adjustment authority. Id. Valpak states that it
prefers the change from ``may'' to ``shall'' to this alternative
approach. Valpak Reply Comments at 2.
In addition, PostCom proposes two modifications to the proposed
rules. The first would be to require that any unused rate adjustment
authority resulting from a temporary promotion be used only to adjust
rates for the product to which the temporary promotion applied. PostCom
Comments at 6-7. Valpak dismisses this proposal as ``an
impossibility,'' due to the Postal Service's authority to set its own
rates. Valpak Reply Comments at 12-13.
The second modification would be to ``require the Postal Service to
reconcile the volume sent at promotional rates with the adjustment
authority it claims in its next scheduled price adjustment.'' PostCom
Comments at 7. That is, the Commission should re-calculate the unused
rate adjustment authority resulting from a temporary promotion once it
receives data concerning the actual volumes associated with the
temporary promotion.
4. Postal Service Alternatives
The Postal Service objects to the approaches described above.
Postal Service Reply Comments at 1. Instead, it proposes that the
Commission ``expand its proposed rules'' to specifically address mid-
year promotions. Id. at 3. The Postal Service's preferred method to
address mid-year promotions is essentially the approach it proposed in
Docket No. R2013-6: Allow the Postal Service ``to forgo a full-scale
rate adjustment authority calculation and simply calculate the
authority resulting specifically from the promotion or rate decrease,
and then use such authority in the next annual price adjustment, when a
full rate adjustment authority calculation would be made.'' Id. The
Commission rejected this approach in Order No. 1743.\32\
---------------------------------------------------------------------------
\32\ Docket No. R2013-6, Order Approving Technology Credit
Promotion, June 10, 2013 (Order No. 1743).
---------------------------------------------------------------------------
As an alternative, the Postal Service proposes that the Commission
modify its proposed rules to allow it ``to convert revenue foregone in
promotions as well as any other rate decreases into unused rate
adjustment authority, without conducting a full-scale calculation of
all the rate adjustment authority that has accrued since the last
annual price adjustment.'' Postal Service Reply Comments at 4.
The Postal Service also notes the difficulty in isolating the
effects of temporary promotions from the effects of other rate
adjustments in the context of an ``annual price change,'' where rates
are adjusted for many products, often in several classes at once. Id.
5. Conclusion
The comments received in this docket indicate that the treatment of
promotional rates and incentive programs is likely to continue to be a
point of contention in future rate cases. The Commission recognizes the
need for certainty for the mailing community and the Postal Service in
this regard. In order to allow for the development of a complete record
on this important issue, the Commission will open a separate docket to
consider the treatment of promotional rates and incentive programs.
Consequently, proposed paragraphs (e) and (f) will not be included in
Sec. 3010.23. Section 3010.23(b) is revised to remove the reference to
paragraph (f).
[[Page 52704]]
V. Ordering Paragraphs
It is ordered:
1. Part 3010 of title 39, Code of Federal Regulations, is revised
as set forth below the signature of this order, effective 30 days after
publication in the Federal Register.
2. The Secretary shall arrange for publication of this order in the
Federal Register.
List of Subjects in 39 CFR Part 3010
Administrative practice and procedure; Postal Service.
By the Commission.
Shoshana M. Grove,
Acting Secretary.
For the reasons stated above, the Postal Regulatory Commission
amends 39 CFR chapter III by revising part 3010 to read as follows:
PART 3010--REGULATION OF RATES FOR MARKET DOMINANT PRODUCTS
Subpart A--General Provisions
Sec.
3010.1 Definitions in this subpart.
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 Notice.
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.
3010.26 Calculation of unused rate adjustment authority.
3010.27 Application of unused rate adjustment authority.
3010.28 Maximum size of rate adjustments.
Subpart D--Rules for Rate Adjustments for Negotiated Service Agreements
(Type 2 Rate Adjustments)
3010.40 Negotiated service agreements.
3010.41 Notice.
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 postal 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.
This part implements provisions in 39 U.S.C. of chapter 36,
subchapter I 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
[[Page 52705]]
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 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 Notice.
(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 I:
(1) Whether the planned rate adjustments measured using the formula
established in Sec. 3010.23(c) are at or below the annual limitation
calculated under Sec. Sec. 3010.21 or 3010.22, as applicable; and
(2) Whether the planned rate adjustments measured using the formula
established in Sec. 3010.23(c) 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. Sec. 3010.21 or 3010.22, as applicable, 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) of
this section and may address the subjects identified in paragraph (c)
of this section.
(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. Sec. 3010.21 or 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 39 U.S.C. chapter 36,
[[Page 52706]]
subchapter I is provisional and subject to subsequent review.
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 the
following information:
(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.
(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 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 relied on 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) Whenever the Postal Service establishes a new discount or
surcharge it does not believe is a workshare discount, it must include
with its filing:
(1) An explanation of the basis for its belief that the discount or
surcharge is not a workshare discount; and
(2) A certification that the Postal Service applied approved
analytical principles to the discount or surcharge.
(e) 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.
(f) 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. Sec. 3010.21(a) and 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.
[[Page 52707]]
(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.
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 limitation of 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 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] TR26AU13.001
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.
Adjustments shall be based on known mail characteristics or historic
volume data, as opposed to forecasts of 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.
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) of this
section. 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) of this section plus the interim unused rate adjustment authority
calculated under paragraph (c)(2) of this section, less any interim
unused rate adjustment authority used in accordance with paragraph (d)
of this section.
(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. Sec. 3010.21 or 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 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(b)) divided by the Recent Average
utilized in the first notice of rate adjustment (as developed pursuant
to Sec. 3010.21(b)) and subtracting 1 from the quotient. The result is
expressed as a percentage.
[[Page 52708]]
(d) Interim unused rate adjustment authority may be used to make a
rate adjustment pursuant to the notice of rate adjustment that led to
its calculation. If interim unused rate adjustment authority is used to
make such a rate adjustment, the interim unused rate adjustment
authority generated pursuant to the notice shall first be added to the
schedule of unused rate adjustment authority devised and maintained
under paragraph (f) of this section as the most recent entry. Then, any
interim unused rate adjustment authority used in accordance with this
paragraph shall be subtracted from the existing unused rate adjustment
authority using a first-in, first-out (FIFO) method, beginning 5 years
before the instant notice.
(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 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 Notice.
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 the following information:
(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;
(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
be based on accepted analytical principles:
(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;
(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; and
(5) If the Postal Service believes the Commission's accepted
analytical principles are not the most accurate and reliable
methodology available--
(i) An explanation of the basis for that belief; and
(ii) A projection of the change in net financial position resulting
from the agreement made using the Postal Service's alternative
methodology.
(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; and
(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:
(i) The actual mailer-specific costs, volumes, and revenues of the
Postal Service;
(ii) An analysis of the effects of the negotiated service agreement
on the net overall contribution to the institutional costs of the
Postal Service; and
[[Page 52709]]
(iii) 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 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 paragraph (a) of this section.
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 adjustments 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 of this subpart.
(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 under 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
[[Page 52710]]
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 of this chapter, 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
adjustment;
(2) The adequacy of the justification for adjustments 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. 2013-20583 Filed 8-23-13; 8:45 am]
BILLING CODE 7710-FW-P