[Federal Register Volume 79, Number 176 (Thursday, September 11, 2014)]
[Rules and Regulations]
[Pages 54552-54565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21689]
[[Page 54551]]
Vol. 79
Thursday,
No. 176
September 11, 2014
Part VII
Postal Regulatory Commission
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39 CFR Parts 3001 and 3035
Markets Tests of Experimental Products; Final Rule
Federal Register / Vol. 79 , No. 176 / Thursday, September 11, 2014 /
Rules and Regulations
[[Page 54552]]
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POSTAL REGULATORY COMMISSION
39 CFR Parts 3001 and 3035
[Docket No. RM2013-5; Order No. 2173]
Markets Tests of Experimental Products
AGENCY: Postal Regulatory Commission.
ACTION: Final rule.
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SUMMARY: The Commission is issuing a set of final rules addressing
Postal Service filings concerning market tests of experimental
products. The rules address the contents of market test filings, review
of filings, and related matters. Relative to the proposed rules, some
of the changes are substantive and others are minor and non-
substantive.
DATES: Effective October 14, 2014.
FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at
202-789-6820.
SUPPLEMENTARY INFORMATION: Regulatory History: 78 FR 51678, August 21,
2013.
Table of Contents
I. Introduction
II. Background
III. Changes to the Proposed Rules
IV. Comments on Commission Analysis
V. Ordering Paragraphs
I. Introduction
In this Order, the Commission adopts final rules that establish
procedures for the Postal Service to conduct market tests of
experimental products in accordance with 39 U.S.C. 3641.
II. Background
On August 9, 2013, the Commission issued a notice of proposed
rulemaking to establish rules governing market tests of experimental
products.\1\ The Postal Accountability and Enhancement Act (PAEA) \2\
authorizes the Postal Service to conduct market tests of experimental
products. See 39 U.S.C. 3641(a)(1). Such tests are not covered by
several other PAEA provisions (such as those in section 3622 concerning
rate regulations, those in section 3633 concerning competitive
products, and those in section 3642 concerning product list changes) as
well as regulations promulgated under those provisions. Id. 3641(a)(2).
The statute requires that the Postal Service may not test an
experimental product unless the product is significantly different from
those offered within the past two years, will not cause market
disruption, and is appropriately categorized (as either market dominant
or competitive). 39 U.S.C. 3641(b).
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\1\ Notice and Order of Proposed Rulemaking Establishing Rules
for Market Tests of Experimental Products, August 9, 2013 (Order No.
1803).
\2\ Postal Accountability and Enhancement Act, Pub. L. 109-435,
120 Stat. 3198 (2006).
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Under the statute and final rules, the Postal Service must file
notice with the Commission and publish the notice in the Federal
Register at least 30 days before initiating a market test. Id.
3641(c)(1). The notice must describe the nature and scope of the market
test and explain why the Postal Service believes that the market test
is covered by section 3641. Id. 3641(c)(1)(A) and (B). The duration of
a market test of an experimental product may not exceed 24 months
unless the Commission grants an extension. Id. 3641(d). The Commission
may extend the market test duration up to an additional 12 months if an
extension is necessary to determine the feasibility or desirability of
an experimental product. Id. 3641(d)(2). The Postal Service must file a
request for extension at least 60 days before the market test ends. Id.
In general, the Postal Service may conduct a market test only if
total revenues anticipated or received by the Postal Service are not
more than $10,000,000 per annum, subject to adjustments for inflation
($10 Million Adjusted Limitation). Id. 3641(e)(1). The Commission may
exempt a market test from the $10 Million Adjusted Limitation as long
as revenues from the experimental product are not more than $50,000,000
per annum, subject to adjustments for inflation ($50 Million Adjusted
Limitation). Id. 3641(e)(2). The exemption request shall be approved if
the Commission determines that the experimental product meets certain
conditions related to public benefit, expected demand, contribution to
the Postal Service's financial stability, and market disruption. Id.
The PAEA authorizes the Commission to cancel a market test or take
other appropriate action on an experimental product if it determines
that the market test fails to meet any requirement of section 3641. Id.
3641(f). The Commission by regulation must adjust all dollar amounts
listed in section 3641 by the change in the Consumer Price Index (CPI)
for the applicable year. Id. 3641(g). Lastly, the Commission must
define the term small business concern consistent with the requirements
of section 3 of the Small Business Act. Id. 3641(h).
The Postal Service and the Public Representative submitted initial
\3\ and reply comments \4\ suggesting changes to the rules proposed in
Order No. 1803. After consideration of the comments submitted, the
Commission adopts the rules as originally proposed, with several
modifications.
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\3\ Public Representative's Comments Concerning Notice and Order
of Proposed Rulemaking, September 19, 2013 (PR Comments); Initial
Comments of the United States Postal Service, September 20, 2013
(Postal Service Comments).
\4\ Reply Comments of the United States Postal Service, October
10, 2013 (Postal Service Reply Comments); Public Representative's
Reply Comments Concerning Notice and Order of Proposed Rulemaking,
October 17, 2013 (PR Reply Comments). The Public Representative
submitted an accompanying Motion of Public Representative for Late
Acceptance of Reply Comments. The motion is granted.
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III. Changes to the Proposed Rules
The following rules have been substantively modified from Order No.
1803, and also include some minor, non-substantive changes:
3035.3 (Contents of notice)
3035.6 (Changes in market test)
3035.10 (Duration)
3035.11 (Extension of market test)
3035.15 (Dollar amount limitation)
3035.16 (Exemption from dollar amount limitation)
3035.17 (Prevention of market disruption)
3035.18 (Filing for permanent product status)
3035.20 (Data collection and reporting requirements)
The following rules are being enacted with minor, non-substantive
changes:
3001.5 (Definition of small business concern)
3035.1 (Applicability)
3035.4 (Review)
3035.5 (Commission action)
3035.12 (Cancellation of market test)
IV. Comments on Commission Analysis
This section discusses the changes that the Commission adopts, or
declines to adopt, in this Order after considering the comments
received. Section A contains a discussion of the proposed rules that
are substantively modified from those originally proposed.\5\ Section B
addresses minor clarifications and corrections to the proposed rules
that are stylistic and non-substantive. Section C discusses other
issues raised in the comments.
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\5\ Section A also contains a discussion of rule 3035.12.
Although rule 3035.12 is adopted with minor, non-substantive
changes, the Commission received extensive comments on this rule,
which are more appropriately discussed in this section.
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A. Rules With Substantive Changes
1. Section 3035.3--Contents of Notice \6\
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\6\ The Commission renumbered rule 3035.3 to conform to official
publication requirements. See Section IV.B, below. This Order
references subsections in rule 3035.3 as renumbered.
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a. Section 3035.3(a)(1)(i)
Paragraph (a)(1)(i) of rule 3035.3 requires that the Postal
Service's notice
[[Page 54553]]
initiating a market test describe how the experimental product is
significantly different from all products offered within the 2 fiscal
years preceding the start of the market test. The Public Representative
argues that the rule, as written, is problematic because it excludes
any products offered during the same fiscal year as the market test. PR
Comments at 7. She notes that for a market test beginning in FY 2014,
only FY 2012 and FY 2013 products would be considered. Id. She contends
that this gap could result in a market test offering a product
substantially similar to a current product offering. Id. As an
alternative, she suggests examining the previous eight fiscal quarters
rather than the past two fiscal years. Id.
The Postal Service does not comment on the Public Representative's
suggestion.
The Commission notes that an experimental product must be
significantly different from all products offered by the Postal Service
within the 2-year period preceding the start of the test. 39 U.S.C.
3641(b)(1). The statute defines the term year as a fiscal year. Id.
sec. 102(10). If Congress had intended to use quarters instead of
years, it would have stated as much in section 3641.\7\ Moreover, the
scenario the Public Representative posits--offering two substantially
similar products within the same fiscal year--is unlikely. For these
reasons, the Commission does not adopt the Public Representative's
suggestion.
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\7\ The legislative history also supports the use of the term
year rather than quarter. S. Rep. 108-318, at 17 (2004) (Senate
Report) (stating that the test used to determine whether market test
provisions are applicable is a finding that the proposed product is
different from those offered in the prior two years).
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b. Section 3035.3(a)(1)(ii)
Rule 3035.3(a)(1)(ii) requires the Postal Service to establish that
the introduction or continued offering of an experimental product will
not create an unfair or otherwise inappropriate competitive advantage
for the Postal Service or any mailer, particularly in regard to small
business concerns. The Public Representative suggests two changes to
this subsection. First, she proposes striking the words (or continued
offering) from the rule. PR Comments, Appendix A at 1. She does not
provide a rationale for this change.
Second, she argues that additional analysis is necessary to assess
whether the market test creates an unfair or otherwise inappropriate
competitive advantage for the Postal Service or any mailer. PR Comments
at 7. She suggests adding language to section 3035.3(a)(1)(ii) that
would require the Postal Service to: (1) Analyze whether the market
test creates an unfair or inappropriate competitive advantage for any
mailer and the Postal Service; (2) identify any small business concerns
that will likely be affected by the market test; and (3) analyze the
impact of the market test on any small business concern identified.
Id., Appendix A at 1-2.
The Postal Service objects to striking the wording concerning
continued offerings from the rule. Postal Service Reply Comments at 3.
It argues that these words assist in implementing rule 3035.11, which
addresses Commission review of Postal Service requests to extend market
tests beyond their original expiration date. Id.
The Postal Service also opposes adding language concerning the
Postal Service's competitive advantage as suggested by the Public
Representative. First, it contends that the suggested language would
impose an additional threshold requirement that the Postal Service's
notice also analyze whether the market test itself creates an unfair
advantage regarding small business concerns. Id. at 4. It asserts that
this language is either redundant or unsupported by the statute. Id.
Second, the Postal Service argues that the suggested language
appears to be based upon a misreading of the intent of 39 U.S.C.
3641(b)(2). Id. at 5. It contends that the intent of section 3641(b)(2)
is to require consideration of the potential impact of an experimental
product on small businesses generally rather than individually. Id. It
submits that the suggested language is contrary to the longstanding
approach to postal product pricing, which requires consideration of the
effect of proposed postal rate increases upon business mail users
generally. Id. It points out that the suggested language also would
require the Postal Service to possess information on small business
concerns that it does not have nor could readily acquire. Id. at 6.
The Commission notes that market tests are of limited duration and
are exempt from provisions otherwise applicable to Postal Service
products. 39 U.S.C. 3641(a)(2). The phrase concerning continued
offerings is in section 3641(b)(2) and is relevant to both extensions
and possible cancellation of market tests. See 39 U.S.C. 3641(d)(2) and
rule 3035.11; 39 U.S.C. 3641(f) and rule 3035.12, respectively.
Furthermore, the phrase bears on modifications to ongoing market tests.
See rule 3035.6. Accordingly, the Commission declines to adopt the
Public Representative's suggestion to strike a phrase (or continued
offering) from the rule.
The Commission also does not adopt the Public Representative's
additional language concerning an unfair or otherwise inappropriate
competitive advantage. 39 U.S.C. 3641(b)(2) requires the Postal Service
to establish that a product will not create an unfair or inappropriate
competitive advantage. Using the term market test instead of the term
product would impose a requirement that is not in the statute. In
addition, the suggested language would require the Postal Service to
analyze the potential impact of the market test on individual small
business concerns. Although small business concerns are a particular
focus, the analysis of market disruption in section 3641(b)(2) relates
to competition generally rather than specific small business concerns.
See United States v. Microsoft Corp., 253 F.3d at 58 (D.C. Cir. 2001)
(stating that anticompetitive effects must harm the competitive process
and thereby harm consumers; harm to one or more competitors will not
suffice).
As discussed in more detail below, the Commission adopts the
definition of the term small business concern as proposed with style
revisions to conform to official publication requirements. See Section
IV.B, below. The Commission includes that definition in 39 CFR
3001.5(v). See Section IV.C.1, below. To promote clarity, the
Commission provides a cross-reference to rule 3001.5(v) in rule
3035.3(a)(1)(ii) regarding the contents of the notice.
c. Section 3035.3(a)(1)(iii)
Rule 3035.3(a)(1)(iii) requires the Postal Service to identify the
experimental product as either market dominant or competitive for
purposes of the market test. The Public Representative recommends
adding language that would require the Postal Service to explain the
reasoning for the categorization in accordance with the criteria set
forth in 39 U.S.C. 3642(b). PR Comments, Appendix A at 2. The Postal
Service does not comment on this suggestion.
The Commission finds that the Public Representative's suggestion
has merit. However, the statute requires the Postal Service to identify
the experimental product as market dominant or competitive consistent
with the criteria under subsection 3642(b)(1) rather than section
3642(b) in its entirety. 39 U.S.C. 3641(b)(3). Consistent with the
statute, the Commission adopts a revised version of the Public
Representative's
[[Page 54554]]
suggested language, which replaces the statutory citation of section
3642(b) with section 3642(b)(1). This revision is consistent with past
practice as well. In prior market tests, the Postal Service explained
its reasons for categorizing experimental products as market dominant
or competitive for purposes of the market test.\8\
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\8\ See, e.g., Docket No. MT2013-2, Notice of the United States
Postal Service of Market Test of Experimental Product--International
Merchandise Return Service--Non-Published Rates (IMRS-NPR) and
Notice of Filing IMRS-NPR Model Contract and Application for Non-
Public Treatment of Materials Filed Under Seal, July 1, 2013, at 5-6
(IMRS-NPR Notice).
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d. Section 3035.3(a)(2)
Certified statement. Rule 3035.3(a)(2)(ii) requires the Postal
Service to demonstrate why the market test is not inconsistent with the
requirements of 39 U.S.C 3641. The Public Representative states that
the rule requires the Postal Service to prove a negative, and Order No.
1803 does not provide additional guidance on how the Postal Service can
make the necessary demonstration. PR Comments at 8. She suggests
amending the rule to require a certified statement, similar to the
certified statement required by 39 CFR 3015.3(c)(2). Id. The Postal
Service does not comment on this suggestion.
The Commission finds that a certified statement for market tests is
unnecessary. The certified statement for competitive products required
in 39 CFR 3015.3(c)(2) concerns three quantifiable statutory cost or
rate prerequisites. More specifically, the Postal Service must certify
that each competitive product covers its attributable costs, is not
cross-subsidized by market dominant products, and collectively covers
an appropriate share of the Postal Service's institutional costs. The
certification is important because part 3015 provides a limited time
for Commission review of notices of change in rates for competitive
products. By contrast, section 3641 contains no analogous requirements.
Furthermore, as noted above, market tests are not subject to the same
regulatory oversight applicable to Postal Service products. For these
reasons, the Commission does not amend rule 3035.3(a)(2)(ii) to add a
certified statement requirement.
Mail Classification Schedule (MCS). The proposed rules required the
Postal Service to provide proposed MCS language. The Postal Service
opposes this requirement and urges the Commission to reconsider this
rule. Postal Service Comments at 4. It argues that requiring the Postal
Service to provide MCS language in the market test notice is too
restrictive and inconsistent with the framework Congress established
for conducting market tests. Id. It contends that this requirement
appears contrary to 39 U.S.C. 3641(a)(2), which exempts experimental
products from the requirements of sections 3622, 3633, and 3642, as
well as regulations promulgated under those sections. Id. at 3. The
Postal Service is concerned that this requirement may obstruct
innovation by forcing the Postal Service to innovate in an inflexible
manner, without a reasonable opportunity to mold or shape a product
during the course of a test. Id. at 3-4.
The Public Representative supports the Postal Service's view
concerning the required MCS language. PR Reply Comments at 2. She
suggests revising the rule to replace the MCS requirement with a
description of the experimental product. Id.
The Commission has considered the comments and concludes that a
requirement to provide MCS language at the outset of a market test is
unnecessary. It will suffice for the Postal Service to describe the
market test and experimental product in its notice proposing a market
test. The Commission previously stated that in general, the proposed
rules do not require the Postal Service to provide more information
than it currently does for market tests. Order No. 1803 at 5. In prior
market test proceedings, the Postal Service has included descriptions
of the experimental product in its notice.\9\ Those descriptions were
sufficient for the Commission to determine compliance with the
conditions in 39 U.S.C. 3641(b). In addition, a description of the
market test is consistent with section 3641(c)(1)(B), which requires
the Postal Service to describe the nature and scope of the market test.
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\9\ See, e.g., Docket No. MT2013-1, Notice of the United States
Postal Service of Market Test of Experimental Product--Metro Post--
and Notice of Filing Material Under Seal, October 12, 2012, at 2-3;
Docket No. MT2012-1, Notice of the United States Postal Service of
Market Test of Experimental Product-First-Class Tracer, November 7,
2011, at 2-4.
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The Commission will continue its current practice of listing market
tests in the MCS by providing the name of the experimental product,
identifying the docket number and Commission order authorizing its
offering, and specifying the current expiration date.\10\ To promote
clarity, the Commission reorders the subsections under rule
3035.3(a)(2) so that the description of the market test and
experimental product appears first on the list. The other items will be
renumbered accordingly.
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\10\ See, e.g., Mail Classification Schedule sections 2130,
2800.
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Data collection plan. Rule 3035.3(a)(2)(vi) requires the Postal
Service to include a plan for monitoring the performance of the market
test, including a description of the specific data items to be
collected. The Public Representative suggests replacing a phrase
(monitoring the performance of) with data collection plan. PR Comments,
Appendix A at 2. She recommends adding a provision that would require
the Postal Service to describe the process by which the data will be
collected. Id. She proposes minor editorial changes as well. Id.
The Postal Service objects to the Public Representative's
suggestion that the Postal Service describe its data collection
process. Postal Service Reply Comments at 6. It requests a measure of
flexibility in this area and notes that the data collection methodology
could be in flux when the market test notice is filed. Id. It argues
that the focus of the Commission's review should be on the nature of
the data to be collected and reported rather than data collection
techniques and administration. Id. at 7.
The Commission modifies rule 3035.3(a)(2)(vi) to adopt the Public
Representative's suggested language and add minor editorial language
regarding the data collection and reporting requirements in rule
3035.20. The Commission declines, however, to adopt the suggestion that
the Postal Service describe its data collection process. The rationale
for having a data collection plan is that the data form the basis of a
Postal Service request to add an experimental product to the market
dominant or competitive product list. In addition, if a market test is
unsuccessful, the data collected will inform the Postal Service of
shortcomings and potential solutions. Identifying the data collection
process is unnecessary for purposes of the data collection plan.
Moreover, the data collection methodology could be in flux when the
Postal Service files the market test notice, but subsequently resolves
it at a later date. See Postal Service Reply Comments at 6-7.
2. Section 3035.6--Changes in Market Test
Rule 3035.6 addresses filing requirements and Commission action
regarding changes in market tests. The Public Representative argues
that the rule limits the ability of the Commission to assess continued
compliance with 39 U.S.C. 3641. PR Comments at 8. She contends that an
after-the-fact review of
[[Page 54555]]
changes to a market test, along with giving the Postal Service
discretion to determine the materiality of changes, could result in
changes that would affect compliance with the statute occurring without
the Commission's knowledge. Id. She suggests revisions that would
enable the Commission to determine the materiality of changes before
they are adopted. Id. She recognizes that an after-the-fact review of a
change may be necessary in certain circumstances and suggests an
emergency provision addressing that concern. Id. The suggested
revisions clarify that notices of changes to a market test should be
filed in the proceeding's docket. Id. at 8-9. The Public Representative
also proposes language detailing the Commission's actions upon
receiving a notice of a change to a market test. Id. at 9.
The Postal Service objects to the Public Representative's suggested
revisions to rule 3035.6. Postal Service Reply Comments at 7. It argues
that the suggested revisions, if implemented, would require the Postal
Service to report and the Commission to adjudicate every change in a
market test, regardless of materiality. Id. It asserts that the
suggested revisions would clog Commission dockets with reports and
adjudications about market test changes that have little to no relation
to the merits of the experimental product. Id. It contends that these
proceedings would be further complicated by disputes over whether a
change was ordinary or an emergency. Id. at 7-8. It states that a more
reasonable approach to reporting market test changes is reflected in
the rule as currently written. Id. at 8.
The Commission declines to adopt the Public Representative's
suggested revisions. The intent of 39 U.S.C. 3641 is to increase
flexibility and to facilitate a more entrepreneurial approach to
product development. Senate Report at 16. The suggested revisions,
which would require the Postal Service to report any change to a market
test, regardless of materiality, introduce rigidity in an area where
the Postal Service is afforded flexibility.
The comments raise questions about determining the materiality of
changes to a market test. See PR Comments at 8-9; Postal Service Reply
Comments at 7-8. To clarify this issue, the Commission amends rule
3035.6 to define material changes as changes to a market test or
services offered under a market test that may affect compliance with 39
U.S.C. 3641. To ensure that the Commission has sufficient time to
review material changes before they are implemented, the Commission
amends rule 3035.6 to require that a notice describing any material
change must be filed with the Commission at least 10 days before the
Postal Service implements such change. Material changes include, inter
alia, revisions to prices, geographic scope, termination date, and
eligibility for service, i.e., eligibility to participate in the market
test.
The need to amend the proposed rule can be observed from the
following example from a current market test conducted by the Postal
Service. As part of the Metro Post market test, the Postal Service
entered into relationships with up to 10 qualifying online e-commerce
companies to offer same-day local delivery.\11\ To participate in the
market test, each company was required to have at least 10 physical
locations nationally and at least one location within San Francisco.
Id. A change in the criteria for eligible participants would qualify as
a material change because it could, for example, affect the
Commission's analysis of an experimental product's impact on small
business concerns. See 39 U.S.C. 3641(b)(2).
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\11\ Docket No. MT2013-1, Order No. 1539, Order Approving Metro
Post Market Test, November 14, 2012, at 2.
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The Commission incorporates language into rule 3035.6 to explicitly
include eligibility for service as a material change. The final rule
also clarifies that material changes include changes to either the
market test or services offered under the market test.
In a recent notice expanding the Metro Post market test to a new
market, the Postal Service included a statement that all other aspects
of the market test remain unchanged and in compliance with section 3641
and the Commission's order authorizing the market test.\12\ The
Commission finds that such a statement would be helpful to include in a
notice of change to a market test or services offered under a market
test filed under rule 3035.6.
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\12\ Docket No. MT2013-1, Notice of the United States Postal
Service of Expansion of Metro Post Market Test, December 4, 2013, at
2.
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3. Section 3035.10--Duration
Rule 3035.10 limits a market test's duration to 24 months unless
the Postal Service requests an extension under 39 CFR 3035.11. The
Public Representative argues that the rule raises a question as to what
condition(s) must be met in order for a market test to be extended. PR
Comments at 9. She contends that the rule, as currently written, could
automatically extend a market test upon the Postal Service's filing of
an extension request and suggests alternative language. Id. The Postal
Service does not comment on this suggestion.
The Commission finds that the suggested modification is an
improvement to the rule because it clarifies that market test
extensions are conditioned upon Commission approval. It revises the
rule accordingly.
4. Section 3035.11--Extension of Market Test
Rule 3035.11 describes the procedures for extending a market test.
The Public Representative suggests expanding subsection (b)(1) to
require that a request for extension explain what information or data
the Postal Service currently lacks to assess the feasibility or
desirability of an experimental product and how the extension will
provide the missing information. Id. She argues that the request for
extension should include any changes to the data collection plan, which
will facilitate the collection of any necessary data or information.
Id. She recommends that the Postal Service include supporting
documentation for the calculation of total revenue received from the
market test. Id. Other proposed changes include replacing the term
fiscal year with fiscal quarter in subsections (b)(3) and (b)(4) and,
in subsection (b)(4), striking a qualifier (available) from available
supporting documentation and rewording a phrase (prior to the
conclusion of the extension period of). Id., Appendix A at 5. In
addition, the Public Representative recommends amending rule
3035.11(b)(3) to require the Postal Service to provide supporting
documentation for the calculations of total revenue received by the
Postal Service from the market test. Id. at 9.
The Commission notes that the Postal Service opposes most of the
Public Representative's suggested changes to rule 3035.11. The Postal
Service argues that expanding subsection (b)(1) seems redundant to the
requirement that the Postal Service explain why an extension is
necessary to determine the feasibility or desirability of the
experimental product. Postal Service Reply Comments at 8. It contends
that the suggested language appears to demand proof that an extension
will provide needed data and that changes to the data collection plan
will facilitate collection of needed data. Id. It submits that the
suggested language unreasonably expects the Postal Service to do more
than assert what is expected to occur. Id.
The Postal Service objects to replacing the term fiscal year with
fiscal quarter in subsections (b)(3) and (b)(4) because this change
would require the Postal Service to report revenue quarterly
[[Page 54556]]
instead of annually. Id. at 8-9. It argues that the Postal Service
should not be burdened with more frequent reporting without any
indication that annual revenue data do not satisfy the Commission's
needs. Id. at 9. It opposes striking a qualifier (available) from
available supporting documentation in subsection (b)(4) because this
change could require that a revenue estimate be provided as a table or
spreadsheet when a narrative would be more suitable. Id.
The Commission finds it unnecessary to expand subsection (b)(1) to
include a detailed list of information the Postal Service must provide
in a request for extension. The Postal Service may request an extension
of a market test for up to an additional 12 months if the request is
filed at least 60 days before the market test is scheduled to
terminate. 39 U.S.C. 3641(d)(2). The Commission may grant a request for
extension if an extension is necessary to determine the feasibility or
desirability of an experimental product. Id. Extensions of market tests
were intended to provide the Postal Service additional flexibility if a
more limited duration test will not provide sufficient information to
evaluate the market demand and the financial potential of a product.
Senate Report at 16.
The Commission notes that the Postal Service previously filed
requests for extensions in Docket Nos. MT2009-1, MT2011-1, MT2011-2,
and MT2013-2.\13\ In support of those requests, the Postal Service
detailed its reasons for seeking an extension.\14\ Those requests
provided sufficient information for the Commission to evaluate the
merits of the extension. As long as it meets the requirements of rule
3035.11(b), the Postal Service may structure the request for extension
in any way it deems appropriate.
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\13\ Docket No. MT2009-1, Motion of the United States Postal
Service for Temporary Extension of Collaborative Logistics Market
Test, April 26, 2011 (Collaborative Logistics Motion); Docket No.
MT2011-1, Motion of the United States Postal Service for Temporary
Extension of Alternate Postage for Greeting Cards Market Test,
November 21, 2012 (Greeting Cards Motion); Docket No. MT2011-2,
Motion of the United States Postal Service for Temporary Extension
of Gift Cards Market Test, June 18, 2013 (Gift Cards Motion); Docket
No. MT2013-2, IMRS-NPR Notice at 6.
\14\ See Collaborative Logistics Motion at 1 (delay in filing a
request to make experimental product permanent due to ongoing
reorganization at Postal Service Headquarters); Greeting Cards
Motion at 2 (need for additional research time and for market test
participant to complete an internal review); Gift Cards Motion at 1
(need for additional time to implement and evaluate new sales
efforts); IMRS-NPR Notice at 6-7 (need to satisfy existing
contractual obligations under the market test).
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The Public Representative's proposal to replace the term fiscal
year with fiscal quarter in subsections (b)(3) and (b)(4) appears to
relate to her previous suggestion of examining fiscal quarters rather
than fiscal years. See Section IV.A.1.a. As explained above, the
Commission declines to adopt this change. In addition, annual reporting
of total and anticipated revenue received from the market test is
consistent with the applicable dollar amount limitations in 39 U.S.C.
3641(e).
The Commission adopts the Public Representative's suggestion to
require the Postal Service to provide supporting documentation for the
calculations of total revenue received by the Postal Service from the
market test. This change will aid the Commission in verifying the
Postal Service's calculations. In addition, rule 3035.11(b)(4) will
retain a qualifier (available) to describe the type of supporting
documentation required. The Commission agrees that expert projections
of additional revenue expected from a market test extension can be
judgmental and qualitative in nature. See Postal Service Reply Comments
at 9. The Postal Service can reasonably be expected to provide
available supporting documentation for additional revenue estimates. It
will provide more accurate revenue calculations in its data collection
reports as required by rule 3035.20.
Final rule 3035.11(b)(4) will also replace a phrase (addressing the
duration of a market test before it concludes) with language explaining
that the Postal Service must estimate the additional revenue it
anticipates receiving for each fiscal year remaining on the market
test, including the requested extension period.
5. Section 3035.12--Cancellation of Market Test
Rule 3035.12 outlines the procedures for canceling a market test.
The Public Representative suggests amending rule 3035.12(a) to require
notices of cancellation to be filed in the proceeding's docket. PR
Comments, Appendix A at 6. She asserts that rule 3035.12(b) raises
questions concerning how and under what circumstances the Commission
will use its cancellation authority under 39 U.S.C. 3641(f). PR
Comments at 10. She argues that the rule does not explain what criteria
the Commission will use to assess whether to allow public comment or
whether public comment will precede or follow the Postal Service's
demonstration of compliance. Id. She contends that the Commission
should consider several issues, including: (1) Who may initiate the
cancellation procedures, (2) the parameters and form for the Postal
Service's demonstration of compliance with section 3641, and (3) when
comments will be considered. Id. She provides suggested language
addressing these issues. Id., Appendix A at 6.
The Postal Service opposes the Public Representative's suggested
revisions, arguing that they add nothing to the more concise version
proposed by the Commission. Postal Service Reply Comments at 9-10. It
maintains that rule 3035.12 does not need to codify every conceivable
step in the Commission's reasonable exercise of its cancellation
authority. Id. at 10. The Postal Service favors adopting the rule as
originally proposed to avoid a set of redundant rules. Id.
The Commission declines to adopt the Public Representative's
suggestion to require notices of cancellation to be filed in the
particular market test's docket. The Commission's rules and many of its
orders direct the Postal Service and participants to file documents
such as notices, comments, and replies with the Commission. It is
unnecessary to state that such documents must be filed in the relevant
docket, just as it is unnecessary to state how they are to be
filed.\15\
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\15\ For example, when it terminated the Collaborative Logistics
market test, the Postal Service appropriately filed a termination
notice in Docket No. MT2009-1. See Docket No. MT2009-1, Notice of
the United States Postal Service of Termination of Market Test,
August 19, 2011.
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The Commission adopts rule 3035.12(b) as proposed, with minor non-
substantive changes. 39 U.S.C. 3641(f) was established as an ultimate
safeguard for consumers and competitors of the Postal Service. Senate
Report at 17. The rule provides a reasonable and flexible framework to
implement that section. The Public Representative's suggested
amendments to rule 3035.12(b) are largely procedural in nature and can
be accommodated in Commission orders as past practice demonstrates.
Moreover, pursuant to the Commission's rules of practice, any person
may ask the Commission to investigate whether to cancel a market test.
See 39 CFR 3001.21. For these reasons, the Commission declines to adopt
the Public Representative's suggested revisions to rule 3035.12(b).
6. Section 3035.15--Dollar Amount Limitation
Rule 3035.15 sets forth the requirements for the $10 Million
Adjusted Limitation. The Public Representative suggests two changes to
the rule. First, she recommends clarifying that the CPI used for
calculations under part 3035 is the Consumer Price Index All Urban
(CPI-U) index. PR Comments at 11. She
[[Page 54557]]
suggests defining the term CPI-U index for those who may be less
familiar with economic terminology or Commission practice. Id. Second,
she proposes adding language under subsection (c) that states when the
Commission will publish the $10 Million Adjusted Limitation. Id.,
Appendix A at 7.
The Public Representative also notes that neither 39 U.S.C. 3641(g)
nor rule 3035.15 considers how the $10 Million Adjusted Limitation
would be adjusted during a deflationary period. Id. at 11. She
recommends revising the rule if the Commission intends to adjust the
$10 Million Adjusted Limitation solely for inflation. Id. The Postal
Service does not comment on the Public Representative's suggested
revisions to rule 3035.15.
The Commission revises rule 3035.15 to adopt some of the Public
Representative's recommendations. First, the Commission finds that
switching subsections (a) and (b) would improve the rule by setting
forth the description of CPI-U index at the beginning. New subsection
(a) specifies that the CPI used for calculations under part 3035 is the
CPI-U index, as specified in 39 CFR 3010.21(a) and 3010.22(a). To
ensure consistency with regulations in part 3010 that also refer to the
CPI-U index, the Commission declines to define the term CPI-U index in
rule 3035.15. If the Commission modifies the definition of the CPI-U
index in part 3010, those changes would also apply to rule 3035.15.
Consistent with new subsection (a), new subsection (b) replaces a
term (Consumer Price Index) with an abbreviation (CPI-U index).
Subsection (c) states that the Commission will publish the $10 Million
Adjusted Limitation each year on its Web site.
The Commission clarifies that the $10 Million Adjusted Limitation
and $50 Million Adjusted Limitation will be reduced during deflationary
periods. 39 U.S.C. 3641(g) states that each dollar amount contained in
section 3641 must be adjusted by the change in the CPI index for such
year. This provision is reflected in rules 3035.15 and 3035.16. The
term adjusted implies any change in the CPI-U index. Thus, the $10
Million Adjusted Limitation and $50 Million Adjusted Limitation would
either increase or decrease depending on whether the previous fiscal
year was an inflationary or deflationary period.
7. Section 3035.16--Exemption from Dollar Amount Limitation
Rule 3035.16 describes the procedures for requesting an exemption
from the $10 Million Adjusted Limitation. Similar to rule 3035.15, the
Public Representative suggests amending the rule to reflect the CPI-U
index and to state when the Commission will publish the $50 Million
Adjusted Limitation. PR Comments, Appendix A at 8.
The Public Representative comments on several aspects of subsection
(f). First, she reiterates her recommendation to define a phrase
(unfair or otherwise inappropriate competition). Id. at 11-12. Second,
she argues that subsection (f)(2) is problematic because it requests
revenue on a fiscal year rather than fiscal quarter basis. Id. at 12.
She contends that if the Postal Service requests an exemption for a
market test that has been in operation for less than one full fiscal
year, the total revenue received from the market test would not be
required under the rule. Id. She suggests amending subsections (f)(2)
and (f)(3) to require the Postal Service to report revenue for each
fiscal quarter and provide supporting documentation. Id. Third, she
requests clarification in subsection (f)(3) of language concerning the
duration of a market test before it concludes, suggesting alternative
language. Id. The Postal Service does not comment on these
recommendations.
The Commission revises rules 3035.16(a) and (b) to reflect the
Public Representative's suggestions concerning the CPI-U index and time
of publication for the reasons discussed in Section IV.A.6. However,
the Commission finds it unnecessary to define the term unfair or
otherwise inappropriate competition for the reasons discussed in
Section IV.C.1, below. In addition, the Commission declines to adopt
the Public Representative's suggestion of reporting revenue for each
fiscal quarter. As previously explained, the term fiscal year is more
appropriate than fiscal quarter for purposes of the rules. See Section
IV.A.1.a; see also Order No. 1803 at 9.
The Commission notes that the requirements of rule 3035.16(f) for
market tests in effect for less than one fiscal year parallel those
applicable to extensions. With regard to the latter, the Commission
stated that a request for extension must both calculate the total
revenue received by the Postal Service from the market test and
estimate the additional revenue anticipated by the Postal Service for
each fiscal year (or part thereof) before the market test ends,
including any extension period. Order No. 1803 at 7. Similarly, if the
Postal Service requests an exemption under rule 3035.16 for a market
test that has been in operation for less than one full fiscal year, it
must also report revenue received to date in that fiscal year.
The Commission adopts the Public Representative's suggestion in
subsection (f)(2) to require the Postal Service to provide supporting
documentation for its calculations of total revenue received from the
market test. This change, which parallels the change to rule
3035.11(b)(3), will help the Commission verify the information
provided.
The Commission notes that the phrase concerning the duration of a
market test extension period in the proposed rules is intended to cover
the duration of the market test, including any extensions. In final
subsection (f)(3), the Commission adopts the Public Representative's
revisions, which conveys this concept more clearly.
The Commission also revises rule 3035.16(f) to require requests for
an exemption to include product specific costs associated with the
development of the market test; that is, costs incurred before the
market test is implemented. The proposed rules contained a requirement
that the Postal Service quantify start-up costs in its data collection
reports. As further explained in Section IV.A.10.a, below, the
Commission revises the rules to require the Postal Service to quantify
start-up costs in two situations, one of which is when the Postal
Service applies for an exemption from the $10 Million Adjusted
Limitation under rule 3035.16(f). The other situation in which the
Postal Service must quantify start-up costs is when the Postal Service
files a request to make an experimental product permanent. See 39 CFR
3020.32(b) and (c); Section IV.A.10.a, below.
In applications for exemptions, the identification of start-up
costs is necessary for the Commission to determine whether an
experimental product will likely contribute to the Postal Service's
financial stability. See 39 U.S.C. 3641(e)(2)(B). The Postal Service
also requested clarification of the type of information the Commission
was seeking for these start-up costs. Postal Service Comments at 6-7.
As discussed in more detail below, in the final rules, the term start-
up costs is replaced with product specific costs, a term that is well
known and has long been used to attribute costs to specific products.
See Section IV.A.10.a, below.
Examples of product specific costs required by rule 3035.16(f) can
be found in other proceedings. For example, in Docket No. MT2012-1, the
Postal Service reported that the costs incurred in conducting the
First-Class Tracer market test included the production and fulfillment
of displays in addition to manufacturing the product (Tracer
[[Page 54558]]
barcode stickers).\16\ Similarly, in Docket Nos. MC2011-20, R2009-5,
and R2009-3, the Postal Service reported that costs for the Reply Rides
Free Volume Incentive Program, the First-Class Mail Incentive Program,
and the Standard Mail Volume Incentive Pricing Program included the
registration and creation of Web sites.\17\ If such costs were incurred
before the market test or incentive programs began, they are examples
of product specific costs that must be reported under rule 3035.16(f).
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\16\ Docket No. MT2012-1, First-Class Tracer Data Collection
Report FY 12, Q1-4 and FY 13, Q1-2 April 19, 2013, at 1-2.
\17\ Docket No. MC2011-20, Amended Reply Rides Free Data
Collection Report, June 11, 2012, at 3; Docket No. R2009-5, United
States Postal Service Notice of Market-Dominant Price Adjustment,
August 11, 2009, at 7; Docket No. R2009-3, United States Postal
Service Notice of Market-Dominant Price Adjustment, May 1, 2009, at
6.
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8. Section 3035.17--Prevention of Market Disruption
Rule 3035.17 authorizes the Commission to limit the amount of
revenues received by the Postal Service from any geographic market as
necessary to prevent market disruption as defined in 39 U.S.C.
3641(b)(2). The Public Representative recommends defining the terms
geographic market and market disruption. PR Comments at 12. She argues
that the rule should define market disruption rather than refer to
section 3641(b)(2). Id. at 3. She contends that the rule should also
provide additional information concerning how and when the Commission
plans to exercise its authority to limit revenues from any geographic
market. Id. at 12-13. She recommends that the rule explain: (1) The
circumstances under which the Commission will consider exercising its
authority; (2) the procedures used, including whether the Commission
will notice the issue, solicit comments, and provide the Postal Service
an opportunity to respond; and (3) the criteria used to assess whether
to limit revenues from particular geographic markets. Id. at 13.
The Postal Service opposes the Public Representative's
recommendation to define the terms geographic market and market
disruption. Postal Service Reply Comments at 1-2, 10-11; see Section
IV.C.1, below.
The Commission finds it unnecessary to define these terms for the
reasons explained in Section IV.C.1, below. To avoid confusion, rule
3035.17 is revised to identify each of the elements of market
disruption in 39 U.S.C. 3641(b)(2) rather than simply cite the relevant
statutory provision. Otherwise, the Commission declines to revise the
rule as suggested by the Public Representative.
9. Section 3035.18--Filing for Permanent Product Status
a. Suggested Amendments to Regulations
Rule 3035.18 outlines the procedures for making an experimental
product permanent. The Public Representative notes that experimental
products are added to either the market dominant or competitive product
list. PR Comments at 13. Thus, she argues that the definition of
modifications in 39 CFR 3020.30 should be amended to include changing
an experimental product to a permanent offering. Id. In addition, she
states that 39 CFR 3015.2, 3015.3, and 3015.5 apply to changes in rates
or class of general applicability, but not to new products. Id. at 14.
She recommends revising 39 CFR part 3015 and/or rule 3035.18 to ensure
that the rates for any competitive experimental product considered for
permanent product status are evaluated for compliance with 39 U.S.C.
3633. Id.
The Postal Service does not respond to these comments.
The Commission finds it unnecessary to amend section 3020.30 at
this time. 39 CFR 3020.13 requires the market dominant and competitive
product lists to identify a product as an experimental product
undergoing a market test.\18\ Although permanent and experimental
products both appear on the product lists, they are distinct and serve
different purposes. Experimental products undergoing market tests are
subject to unique regulatory treatment under the PAEA. Order No. 26 ]
4017. They are identified on the product lists to facilitate
transparency during the market tests. Id. ] 4002. They also are
included because the Postal Service must identify experimental products
as either market dominant or competitive for purposes of a market test.
See 39 U.S.C. 3641(b)(3).
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\18\ Docket No. RM2007-1, Order Proposing Regulations to
Establish a System of Ratemaking, August 15, 2007, ] 4017 (Order No.
26); see Order No. 27, Errata to Order No. 26, August 16, 2007; 39
CFR 3020.13(a)(5), (b)(4).
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However, experimental products, unlike permanent products, are not
subject to the requirements of 39 U.S.C. 3622, 3633, or 3642, or
regulations promulgated under those sections. Id. 3641(a)(2). If the
Postal Service determines to make an experimental product permanent it
must file a request--pursuant to 39 U.S.C. 3642 and 39 CFR part 3020,
subpart B--to add a new product or price category to the market
dominant or competitive product list. The Commission revises rule
3035.18 to make this requirement clear.
The Commission declines to amend 39 CFR part 3015 and rule 3035.18
as recommended by the Public Representative. If the Postal Service
determines to make an experimental product a permanent competitive
product of general applicability, the statute and the Commission's
rules contain sufficient safeguards that ensure that the rates for the
new competitive product are evaluated for compliance with 39 U.S.C.
3633. Costs and revenues attributable to an experimental competitive
product must be included in any determination under 39 U.S.C.
3633(a)(3). 39 U.S.C. 3641(b)(3). As part of its request to add a new
product to the product list, the Postal Service must provide supporting
justification, including an explanation of why the addition, deletion,
or transfer of a competitive product will not violate any of the
standards of 39 U.S.C. 3633. 39 CFR 3020.32(c).
b. Procedures for Filing Request
The Public Representative proposes procedural changes to rule
3035.18. First, she suggests that when the Postal Service requests to
make an experimental product permanent, the Postal Service file a
notice of application for permanent product status in the market test
proceeding's docket, which should include the docket number(s) for the
proceeding evaluating request. PR Comments at 14. Second, she
recommends setting a finite deadline for filing the request. Id. at 15.
She suggests 45 days, but does not have a strong opinion on the length
of time required for review. Id. at 15 n.19. She states that tying the
deadline to the date on which the Postal Service wishes the product to
become permanent would provide additional flexibility. Id. at 15.
The Postal Service commends the Public Representative for her
observation regarding the limited nature of tying the deadline for
filing a permanent product request to the date on which the revenue cap
would be exceeded. Postal Service Reply Comments at 12. It notes that
reasons unrelated to the revenue cap may trigger the decision to
request permanent product status. Id. However, it objects to the 45-day
deadline suggested by the Public Representative and prefers the more
flexible standard reflected in rule 3035.18. Id.
The Commission adopts the Public Representative's suggestion to
require the Postal Service to file a notice of its request to make an
experimental product permanent in the market test
[[Page 54559]]
proceeding's docket. This requirement will help mailers and the general
public track the progress of a market test from an experimental product
to a permanent product. It will also provide more transparency into the
Commission's review of both experimental and permanent products. The
notice must include the applicable docket number(s) for the proceeding
evaluating the request. Rule 3035.18 is revised to add this
requirement.
The Postal Service recently filed notices requesting that two
experimental products--Alternate Postage Payment Method and Gift
Cards--become permanent price categories.\19\ Based on these
proceedings, the Commission finds it appropriate to clarify and revise
the procedures and deadline for filing requests to make an experimental
product permanent. First, the Commission amends rule 3035.18 to clarify
that future requests to make an experimental product permanent must be
filed pursuant to 39 U.S.C. 3642 and 39 CFR part 3020, subpart B. This
rule applies whether the Postal Service is adding an experimental
product as a new product or price category. This requirement is
consistent with the Commission's directive in its order granting
classification and price changes for Alternate Postage Payment.\20\ The
Postal Service complied with this order in its request to add Gift
Cards to the competitive product list as a new price category. Gift
Cards Request at 1 n.1.
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\19\ Docket No. R2014-1, United States Postal Service Notice of
Market Dominant Classification and Price Changes for the Alternative
Postage Payment Method, November 5, 2013; Docket No. MC2014-26,
Request of the United States Postal Service to Add Gift Cards as a
New Price Category in the Greeting Cards and Stationery Product,
June 9, 2014 (Gift Cards Request).
\20\ Docket No. R2014-1, Order No. 1917, Order Granting
Classification and Price Changes for Alternate Postage Payment,
December 20, 2013, at 8.
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Second, the Commission amends rule 3035.18 to clarify the deadline
for filing requests to make an experimental product permanent. In
Docket No. MC2014-26, the Postal Service filed its request to add Gift
Cards as a new price category 18 days before the Gift Cards market test
was scheduled to expire.\21\ This did not provide sufficient time for
the Commission to review the Postal Service's request before the market
test expired. Discontinuing the market test during the pendency of the
proceeding would have been inefficient and inconvenient to gift card
customers. Id. at 4. To avoid the disruption of service and
inconvenience, the Commission conditionally approved the addition of
Gift Cards to the competitive product list as a price category of the
Greeting Cards, Gift Cards, and Stationery competitive product. Id. It
noted, however, that the Postal Service jeopardized the continuation of
the Gift Cards service by filing the permanent product request so close
to the expiration date of the market test. Id. at 4 n.6. It noted that
this risk was unnecessary and could have been easily cured by a more
timely filing. Id.
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\21\ Docket No. MC2014-26, Order No. 2091, Notice and Order of
Filing Request to Add Gift Cards to the Competitive Product List and
Conditionally Authorizing the Sale of Gift Cards Pending Conclusion
of Proceeding, June 13, 2014, at 1-2.
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The Commission revises rule 3035.18 to avoid this situation in
future filings. In general, the Postal Service may file a request for
permanent product status any time it wishes. However, if the Postal
Service determines to make an existing experimental product \22\
permanent before the market test terminates, it must submit a request
for permanent product status at least 60 days before the market test
terminates. For the Commission to approve a request for permanent
product status before a market test terminates, the Postal Service must
file the request sufficiently in advance of the market test termination
date to provide adequate time for public input and Commission review of
the request. A market test must terminate if: (1) It reaches the end of
the market test duration period (24 months or up to 36 months if an
extension is granted); or (2) the revenues received by the Postal
Service from a market test reach any applicable authorized adjusted
limitation in any fiscal year. The Commission finds that 60 days'
notice before either event occurs is an appropriate time period because
it is consistent with the 60-day deadline for requesting a market test
extension under 39 U.S.C. 3641(d)(2).
---------------------------------------------------------------------------
\22\ Existing experimental products are experimental products
that the Postal Service is currently testing under a market test.
---------------------------------------------------------------------------
The final rules require that requests to make existing experimental
products permanent must be filed at least 60 days before the market
test expires (including any extension period granted) or exceeds any
authorized adjusted limitation in any fiscal year, whichever is
earlier. The 60-day notice period under rule 3035.18 applies to Postal
Service requests to make existing experimental products permanent. The
Postal Service may file requests to make former experimental products
permanent any time after the market test terminates.
The Commission also revises rule 3035.18 to require requests for
permanent product status to include product specific costs associated
with the development of the market test; that is, costs incurred before
the market test is implemented. The proposed rules contained a
requirement that the Postal Service quantify start-up costs in its data
collection reports. As further explained in Section IV.A.10.a, below,
the Commission revises the rules to require the Postal Service to
quantify start-up costs in two situations, one of which is when the
Postal Service files a request to make an experimental product
permanent. The other situation in which the Postal Service must
quantify start-up costs is when the Postal Service applies for an
exemption from the $10 Million Adjusted Limitation under rule
3035.16(f). See 39 U.S.C. 3641(e)(2); Section IV.A.10.a, below.
A quantification of start-up costs is necessary for the Commission
to evaluate whether a competitive product covers its attributable costs
and whether a market dominant product assures adequate revenues,
including retained earnings, to maintain financial stability. See 39
CFR 3020.32(b) and (c); 39 U.S.C. 3622(b)(5).\23\ The Postal Service
also requested clarification of the type of information the Commission
was seeking for these start-up costs. Postal Service Comments at 6-7.
As discussed in more detail below, the final rules replace the term
start-up costs with product specific costs, a term that is well known
and has long been used to attribute costs to specific products. See
Section IV.A.10.a, below. Examples of product specific costs required
by rule 3035.18(b) are discussed in Section IV.A.7, above.
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\23\ While an experimental product might be initially
categorized as market dominant under 39 U.S.C. 3641(b)(3),
experience or changes to the market test may dictate that the
Commission find that the experimental product should be added to the
competitive product list under 39 U.S.C. 3642 if the Postal Service
files a request to make the experimental product permanent. Thus,
start-up cost information could also be important for proposals to
add a market dominant experimental product to the competitive
product list.
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10. Section 3035.20--Data Collection and Reporting Requirements
a. Administrative, Ancillary, and Start-Up Costs
The proposed rules required the Postal Service to periodically
report several types of costs associated with each market test:
Administrative, ancillary, and start-up costs. The Postal Service does
not propose definitions for these terms but instead requests that the
[[Page 54560]]
Commission clarify their meanings. Postal Service Comments at 5-8. The
Postal Service asserts that it has responded in good faith to
Commission orders requiring the reporting of available administrative
costs, but it was not confident that the information provided met
Commission expectations. Id. at 5. Likewise, it provided available
ancillary cost data, but notes it lacked a clear understanding of the
types of costs the Commission deems to fall within this category. Id.
at 5-6. It argues that distinguishing start-up from administrative
costs may be difficult and describes the challenges involved in
calculating start-up costs. Id. at 6-7.
The Postal Service requests that the Commission's cost data
reporting requirements recognize the limitations on the Postal
Service's ability to record perfectly complete information that may
vary on a case-by-case basis. Id. at 7. It states that identifying
specific cost line items in which the Commission has an interest would
be helpful. Id. The Public Representative concurs that further
clarification of these types of costs will help the Postal Service and
the public better understand the Commission's expectations. PR Reply
Comments at 2.
In this Order, the Commission clarifies the types of costs that are
to be reported under this section. The objective of the rules is to
ensure that the Postal Service tracks relevant costs associated with a
market test, including the costs incurred in conceiving of and
initiating a market test.
The Commission clarifies that start-up costs are costs incurred by
the Postal Service to implement a new service or offer a new product.
These costs include contractor costs, if applicable; administrative
costs, i.e., salary and fringe benefits of employees working on the
project, including senior management review; \24\ costs to acquire
materials, supplies, or equipment relevant to the proposed market test;
and costs associated with implementing the market test pursuant to
section 3641.
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\24\ The Commission appreciates the difficulty in isolating the
costs related to staff time given that Postal Service employees may
be assigned to more than one project. Reasonable good faith
estimates should suffice.
---------------------------------------------------------------------------
The Commission further clarifies that, generally, administrative
costs are a subset of product specific costs and include expenses
associated with the general administration of the market test. As
discussed below, they include, for example, the cost of employees
assigned to the market test, marketing, and materials and supplies. In
this context, the Commission intends for ancillary cost to represent
all other costs that may be incurred in connection with the market
test. They may include certain miscellaneous or unexpected expenses.
The proposed rules contained a requirement that the Postal Service
report start-up costs in data collection reports. After considering the
comments received, see Postal Service Comments at 6-7, the Commission
finds that a quantification of start-up costs is not necessary before a
market test is offered. Rather, start-up costs should be reported in
certain cases as the market test progresses. This will help display a
complete financial picture of whether the market test has a net
positive or net negative impact on the Postal Service's finances.\25\ A
quantification of start-up costs is important to stakeholders because
it promotes financial transparency. Moreover, if start-up cost
information is not captured early in the process, it may be difficult
to recreate start-up costs later on if, for example, the Postal Service
proposes to make an experimental product permanent.
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\25\ See, e.g., United States General Accounting Office, U.S.
Postal Service: Development and Inventory of New Products (GAO/GGD-
99-15), November 24, 1998, at 4 (stating that new products generally
take several years to become established and recover their start-up
costs).
---------------------------------------------------------------------------
Thus, the Commission finds that a quantification of start-up costs
associated with market tests is necessary in two situations: (1) The
Postal Service applies for an exemption from the $10 Million Adjusted
Limitation under 39 U.S.C. 3641(e)(2) and rule 3035.16; and (2) the
Postal Service files a request to make an experimental product
permanent under 39 U.S.C. 3642 and rule 3035.18. In applications for an
exemption, a quantification of start-up costs is necessary for the
Commission to determine whether an experimental product will likely
contribute to the Postal Service's financial stability. See 39 U.S.C.
3641(e)(2)(B). Similarly, in requests to make an experimental product
permanent, a quantification of start-up costs is necessary for the
Commission to evaluate whether a competitive product covers its
attributable costs and whether a market dominant product assures
adequate revenues, including retained earnings, to maintain financial
stability.\26\ See 39 CFR 3020.32(b) and (c); 39 U.S.C. 3622(b)(5).
---------------------------------------------------------------------------
\26\ Start-up cost information could also be important for
proposals to add a market dominant experimental product to the
competitive product list. See footnote 23, above.
---------------------------------------------------------------------------
The Commission revises rules 3035.16 and 3035.18 to require the
Postal Service to report start-up costs when applying for exemptions
from the $10 Million Adjusted Limitation and when filing requests for
permanent product status. See Sections IV.A.7 and IV.A.9, above.
However, the Postal Service is not required to report start-up costs in
ongoing data collection reports under rule 3035.20.
Administrative, ancillary, and start-up costs could also be
characterized as product specific costs, i.e., costs exclusively
incurred by a single product that do not vary by volume (e.g., costs to
advertise only Priority Mail or, in this context, research and
development costs associated with a market test). Because the term
product specific costs is well known and has long been used to
attribute costs to specific products, the Commission will substitute
that term for start-up, administrative, and ancillary costs. The
requirement to report product specific costs is intended to reflect
those costs unique to market tests before and after implementation of
such tests.
Final rule 3035.20(a) requires the Postal Service to track
attributable costs incurred in conducting the market test, including
product specific costs related to the administration of the market
test. The Commission observes that examples of the product specific
costs required by rule 3035.20(a) can be found in other proceedings.
For example, in Docket No. R2013-6, the Postal Service stated that the
costs of implementing the Technology Credit Promotion included the cost
of implementing software changes in the PostalOne! system, as well as
customer support and headquarters administrative costs.\27\ These costs
are examples of product specific costs related to the administration of
the Technology Credit Promotion. They are the types of product specific
costs related to the administration of a market test that must be
reported under rule 3035.20.
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\27\ Docket No. R2013-6, Responses of the United States Postal
Service to Chairman's Information Request No. 1, May 7, 2013,
question 4.
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b. Data Collection Plans and Reports
The Public Representative argues that the proposed rules do not
clearly distinguish between the requirements for the data collection
plan and data collection reports. PR Comments at 15. She suggests that
rule 3035.3 regarding the contents of the notice set forth expectations
for the data collection plan. Id. She recommends that rule 3035.20 set
forth requirements for the data collection reports. Id. at 15-16. Her
suggested revisions to rule 3035.20 include requiring data collection
reports to be filed no more than 40 days after the close of each fiscal
quarter during which the market test is offered. Id., Appendix A at 10.
She proposes adding
[[Page 54561]]
a requirement that the Postal Service report volumes of the
experimental product by fiscal quarter. Id.
The Postal Service objects to the Public Representative's
suggestion that data collection reports be filed no more than 40 days
from the end of the preceding quarter. It argues that the Commission
should preserve the flexibility reflected in the proposed rule. Postal
Service Reply Comments at 12. The Postal Service takes no position on
the Public Representative's suggestion that data collection reports
also include volume figures.
The Commission agrees that the distinction between data collection
plans and data collection reports in the proposed rules is unclear, and
the revised rules clarify these terms. As discussed above, revised rule
3035.3(a)(2)(vi) requires notices of proposed market tests to include a
data collection plan, which is a plan for monitoring the performance of
a market test. See Section IV.A.1.d. The Commission modifies rule
3035.20(a) to reiterate this requirement and list the specific items
that must be included in the data collection plan. These items will
also include volumes of the experimental product by fiscal quarter, as
suggested by the Public Representative. This requirement is consistent
with Commission orders in past market tests and thus codifies present
Commission practice.\28\ Rule 3035.20(d) requires the Postal Service to
file the information required by the data collection plan in the data
collection reports.
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\28\ See, e.g., Docket No. MT2013-2, Order No. 1806, Order
Authorizing Market Test to Proceed and Granting Extension, August
12, 2013, at 5; Docket No. MT2013-1, Order No. 1539, Order Approving
Metro Post Market Test, November 14, 2012, at 12.
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The Commission declines to adopt the Public Representative's
suggestion concerning the timing of data collection reports. In
general, the Postal Service must file data collection reports no more
than 40 days after the close of each fiscal quarter during which the
market test is offered. However, in some cases the Commission may find
it appropriate to prescribe a reporting deadline other than 40 days if
circumstances warrant. The final rules provide the Commission that
flexibility.
B. Rules With Non-Substantive Changes
The Public Representative suggests several non-substantive
stylistic and editorial changes to the rules. PR Comments at 1; see
Appendix A. The Postal Service does not comment on these suggestions.
As set forth below, the Commission adopts the following non-substantive
stylistic and editorial changes suggested by the Public Representative
(in addition to others) to promote consistency and clarity in the
rules:
Rule 3001.5(v) contains style revisions to conform to
official publication requirements.
Rule 3035.1 contains a minor editorial revision.
Rule 3035.3 was renumbered to conform to official
publication requirements. In addition, rule 3035.3 contains minor
editorial revisions.
Rules 3035.4 and 3035.5 contain style revisions and
renumbered sections to conform to official publication requirements.
Rule 3035.10 contains a style revision to conform to
official publication requirements.
Rule 3035.11 contains a style revision to conform to
official publication requirements and minor editorial changes.
Rule 3035.12 contains style revisions to conform to
official publication requirements.
Rule 3035.15 contains style revisions to conform to
official publication requirements.
Rule 3035.16 contains style revisions to conform to
official publication requirements.
Rule 3035.17 contains style revisions to conform to
official publication requirements.
Rule 3035.18 adds subsections to incorporate new
provisions.
Rule 3035.20 contains a style revision to conform to
official publication requirements.
C. Other Issues
1. Definitions
The Public Representative contends that the Commission should
clarify several ambiguous terms in the proposed rules. PR Comments at
2. She recommends defining market disruption rather than referencing 39
U.S.C. 3641(b)(2). Id. at 3. She argues that a phrase (unfair or
otherwise inappropriate competitive advantage) should be clarified in
the rules. Id. She asserts that because the Commission explained the
concept of unfair competitive advantage in Order No. 1739 (concerning
the proposed rules applicable to 39 U.S.C. 404a), the Commission should
use its prior analysis to develop a clear definition of the phrase
unfair or otherwise inappropriate competitive advantage.\29\
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\29\ Id. at 4; see Docket No. RM2013-4, Notice of Proposed
Rulemaking Establishing Rules Pursuant to 39 U.S.C. 404a, June 5,
2013 (Order No. 1739).
---------------------------------------------------------------------------
The Public Representative also recommends defining the term
geographic market. PR Comments at 4. Citing Black's Law Dictionary and
federal statutes, she defines the relevant geographic market as an area
of effective competition or the locale in which consumers of a product
or service can turn for alternative sources of supply. Id. at 4-5. She
argues that the Commission should follow this approach when it (1)
evaluates whether the market test creates an unfair or otherwise
inappropriate competitive advantage and (2) limits revenues in a
geographic market to abate anticompetitive behavior. Id. at 5.
In addition, the Public Representative recommends defining several
other terms: CPI-U index, experimental product, market test, and unfair
or otherwise inappropriate competition. Id. at 6. She suggests placing
these terms in a separate definitions section in part 3035, which would
also include the definition of small business concern. Id. at 5-6. She
notes that the term small business concern is also used in 39 CFR part
3020 and suggests amending part 3020 to add a cross-reference to the
definition of small business concern in part 3035. Id. at 6-7.
The Postal Service argues that a detailed and technically precise
definition of the term market disruption may be difficult to achieve in
the abstract given the narrow purpose of the market test policy
guidelines and the fact-specific nature of determining market
disruption under 39 U.S.C. 3641(b)(2). Postal Service Reply Comments at
10-11. It encourages the Commission to proceed by viewing each market
test on a case-by-case basis without pre-determined constraints that
could stifle the investigation of potential product concepts and
product innovation. Id. at 11.
The Postal Service questions whether a prophylactic rule can be
drafted to define the term geographic market relevant to every market
test. Id. at 2. It notes that relevant factors include the types and
numbers and proximity of available channels through which postal
customers can access an experimental product. Id. It prefers that the
Commission not establish a definition for geographic market based
solely on its limited experience with market tests. Id.
The Commission finds it unnecessary to define additional terms at
this time. The market test rules are designed to increase flexibility
and to facilitate a more entrepreneurial approach to product
development. See Senate Report at 16. To that end, 39 U.S.C. 3641
envisions a relatively simple process for the Postal Service to engage
in experimental market tests. Three
[[Page 54562]]
conditions must be satisfied: (1) The experimental product must be
significantly different from all Postal Service products offered within
the past two fiscal years; (2) the introduction or continued offering
of the experimental product will not provide an unfair or otherwise
inappropriate competitive advantage for the Postal Service or any
mailer; and (3) the Postal Service identifies the experimental product
as either market dominant or competitive. 39 U.S.C. 3641(b). While the
term market disruption is defined in 39 U.S.C. 3641(b)(2), each market
test raises fact-specific inquiries that militate against attempting to
define terms such as geographic market and unfair or otherwise
inappropriate competitive advantage in a vacuum.
The Commission finds that the best course of action is to proceed
on a case-by-case basis to evaluate these terms. In discussing the
benefits of adjudication of statutory standards on a case-by-case
basis, the Supreme Court noted that not every principle essential to
administering a statute can or should be turned into a general
rule.\30\ For several reasons, some principles must develop on their
own, while others must be adjusted to meet particular, unforeseeable
situations. Id. First, problems may arise in a case an agency could not
reasonably foresee. Id. Those problems must be solved without a
relevant general rule. Id. Second, an agency may not have had
sufficient experience with a particular problem to justify creating a
hard and fast rule. Id. Third, a problem may be so specialized and
different that it cannot be solved within the boundaries of a general
rule. Id. at 203. In those situations, an agency must retain the
authority to address problems on a case-to-case basis if the
administrative process is to be effective. Id.
---------------------------------------------------------------------------
\30\ Securities and Exchange Comm'n v. Chenery Corp., 332 U.S.
194, 202 (1947).
---------------------------------------------------------------------------
As a result of these considerations, the Supreme Court concluded
that the choice between proceeding by general rule or individual order
lies primarily in the informed discretion of the agency. Id. For
purposes of these market test rules, the Commission declines to define
geographic market and unfair or otherwise inappropriate competitive
advantage in the rules. It will consider each market test on its own
merits, including whether it causes an unfair or otherwise
inappropriate competitive advantage for the Postal Service or any
mailer.
As the Public Representative suggests, in Order No. 1739, the
Commission did outline in general terms how it might evaluate or
consider allegations of unfair competition by the Postal Service under
section 404a. In Order No. 1739, the Commission stated that it would
apply analogous federal precedent concerning claims of unfair
competition to adjudicate claims under 39 U.S.C. 404a(a)(1). Order No.
1739 at 8. The Commission noted that federal claims of unfair
competition are reviewed under the rule of reason analysis, which
focuses on whether the behavior unreasonably restricts competition. Id.
at 7. In making such a determination, the decision maker reviews the
anticompetitive effects of the action, which must harm the competitive
process and harm consumers. Id. Harm to one or more competitors will
not suffice. Id. While unnecessary to define the term unfair or
otherwise inappropriate competitive advantage for purposes of these
rules, the Commission undoubtedly will be guided by analogous precedent
concerning claims of unfair competition when reviewing specific market
tests.
As discussed above, the Commission adopts the definition of small
business concern with minor style revisions and places that definition
in 39 CFR 3001.5. See Section IV.A.1.b. The Commission declines to
adopt the Public Representative's proposals to place that term in a
separate definitions section in 39 CFR part 3035 and add a cross-
reference to that definition in 39 CFR part 3020. The Public
Representative correctly observes that the term is also used in 39 CFR
part 3020. However, adopting the Public Representative's suggestions
would require amending part 3020. Leaving the term in section 3001.5
ensures that the definition applies to all parts of title 39 of the
Code of Federal Regulations (CFR) administered by the Commission,
including parts 3020 and 3035.
2. Deadlines
The Public Representative suggests adding a rule to 39 CFR part
3035 if the Commission plans to waive deadlines of rules related to
market tests. PR Comments at 2. She notes that in several recent market
test proceedings, the Commission waived the 60 day statutory deadline
for requesting extensions of market tests. Id.; see 39 U.S.C.
3641(d)(2). The Postal Service does not comment on this suggestion.
The Commission declines to adopt the Public Representative's
suggestion regarding deadlines. The Commission reiterates the
importance of filing by the appropriate deadlines required under 39
U.S.C. 3641 and the Commission's market test rules. All future filings
must be submitted in conformance with the applicable deadline. Future
requests for waivers of deadlines will be assessed on a case-by-case
basis. However, the Postal Service should not assume that waivers will
be granted absent exceptional circumstances.\31\
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\31\ See Docket No. MT2011-2, Order No. 1781, Order Granting
Extension of Gift Card Market Test, July 19, 2013, at 3; Docket No.
MC2014-26, Order No. 2145, Order Granting Request to Add Gift Cards
to the Competitive Product List, August 8, 2014, at 15.
---------------------------------------------------------------------------
V. Ordering Paragraphs
It is ordered:
1. Part 3001 of title 39, Code of Federal Regulations, is amended
as set forth below the signature of this Order, effective 30 days after
publication in the Federal Register.
2. Part 3035 of title 39, Code of Federal Regulations, is adopted
as set forth below the signature of this Order, effective 30 days after
publication in the Federal Register.
3. The Secretary shall arrange for publication of this order in the
Federal Register.
List of Subjects
39 CFR Part 3001
Administrative practice and procedure; Freedom of information;
Postal Service; Sunshine Act.
39 CFR Part 3035
Administrative practice and procedure; Postal Service.
For the reasons discussed in the preamble, the Commission amends
chapter III of title 39 of the Code of Federal Regulations as follows:
PART 3001--RULES OF PRACTICE AND PROCEDURE
0
1. The authority citation for part 3001 continues to read as follows:
Authority: 39 U.S.C. 404(d); 503; 504; 3661.
0
2. In Sec. 3001.5, add paragraph (v) to read as follows:
Sec. 3001.5 Definitions.
* * * * *
(v) Small business concern means a for-profit business entity that:
(1) Is independently owned and operated;
(2) Is not dominant in its field of operation;
(3) Has a place of business located in the United States;
(4) Operates primarily within the United States or makes a
significant contribution to the United States economy by paying taxes
or using American products, materials, or labor; and
[[Page 54563]]
(5) Together with its affiliates, qualifies as small in its primary
industry under the criteria and size standards established by the Small
Business Administration in 13 CFR 121.201 based on annual receipts or
number of employees.
0
3. Add part 3035 to read as follows:
PART 3035--RULES FOR MARKET TESTS OF EXPERIMENTAL PRODUCTS
Sec.
3035.1 Applicability.
3035.2 Advance notice.
3035.3 Contents of notice.
3035.4 Review.
3035.5 Commission action.
3035.6 Changes in market test.
3035.7-3035.9 [Reserved]
3035.10 Duration.
3035.11 Extension of market test.
3035.12 Cancellation of market test.
3035.13-3035.14 [Reserved]
3035.15 Dollar amount limitation.
3035.16 Exemption from dollar amount limitation.
3035.17 Prevention of market disruption.
3035.18 Filing for permanent product status.
3035.19 [Reserved]
3035.20 Data collection and reporting requirements.
Authority: 39 U.S.C. 3641.
Sec. 3035.1 Applicability.
The rules in this part apply to market tests of experimental
products undertaken pursuant to 39 U.S.C. 3641.
Sec. 3035.2 Advance notice.
The Postal Service shall file notice with the Commission of its
determination to initiate a market test at least 30 days before
initiating the market test.
Sec. 3035.3 Contents of notice.
(a) Notices of proposed market tests shall include:
(1) The basis for the Postal Service's determination that the
market test is governed by 39 U.S.C. 3641, which shall:
(i) Describe, from the viewpoint of mail users, how the
experimental product is significantly different from all products
offered by the Postal Service within the 2 fiscal years preceding the
start of the market test;
(ii) Establish that the introduction or continued offering of the
experimental product will not create an unfair or otherwise
inappropriate competitive advantage for the Postal Service or any
mailer, particularly in regard to small business concerns, as defined
in Sec. 3001.5(v) of this chapter; and
(iii) Identify the experimental product as either market dominant
or competitive for purposes of the market test, and explain the
reasoning for the categorization in accordance with the criteria set
forth in 39 U.S.C. 3642(b)(1).
(2) A description of the nature and the scope of the market test
that:
(i) Describes the market test and experimental product;
(ii) Demonstrates why the market test is not inconsistent with the
requirements of 39 U.S.C. 3641;
(iii) Identifies the beginning and ending dates of the market test;
(iv) Describes the geographic market(s) where the market test may
be conducted;
(v) Estimates the total revenue that is anticipated by the Postal
Service for each fiscal year of the market test, including available
supporting documentation; and
(vi) Includes a data collection plan for the market test, including
a description of the specific data items to be collected. The minimum
data collection plan requirements are described in Sec. 3035.20.
Sec. 3035.4 Review.
(a) The Commission will establish a docket for each market test
initiated under this part, promptly publish a notice in the Federal
Register, and post the filing on its Web site. The notice shall:
(1) Describe the general nature of the proceeding;
(2) Refer to the legal authority under which the proceeding is to
be conducted;
(3) Identify an officer of the Commission to represent the
interests of the general public in the docket;
(4) Specify a period for public comment; and
(5) Include such other information as the Commission deems
appropriate.
(b) [Reserved]
Sec. 3035.5 Commission action.
(a) The Commission shall review the Postal Service notice together
with any comments for initial compliance with the statutory
requirements of 39 U.S.C. 3641, and:
(1) Find that the market test is consistent with the requirements
of 39 U.S.C. 3641;
(2) Find that the market test is inconsistent with the requirements
of 39 U.S.C. 3641 and provide an opportunity to correct the identified
deficiencies;
(3) Find that the market test is inconsistent with the requirements
of 39 U.S.C. 3641 and order that the market test not go into effect; or
(4) Direct other action as the Commission may consider appropriate.
(b) [Reserved]
Sec. 3035.6 Changes in market test.
(a) The Postal Service shall file a notice with the Commission
describing each material change made to the market test or services
offered under the market test at least 10 days before implementing such
changes. Material changes are changes that may affect compliance with
39 U.S.C. 3641 and include, without limitation, adjustments to prices,
geographic scope, eligibility for service, and termination date.
(b) The Commission may, in its discretion, notice the filing and
provide an opportunity for comment.
Sec. Sec. 3035.7-3035.9 [Reserved].
Sec. 3035.10 Duration.
A market test may not exceed 24 months in duration unless the
Commission authorizes an extension pursuant to a request filed by the
Postal Service under Sec. 3035.11.
Sec. 3035.11 Extension of market test.
(a) The Postal Service may request an extension of the duration of
a market test, not to exceed an additional 12 months, if such an
extension is necessary to determine the feasibility or desirability of
a product being tested. The Postal Service must file a written request
for extension with the Commission at least 60 days before the market
test is scheduled to terminate.
(b) The request for extension shall:
(1) Explain why an extension is necessary to determine the
feasibility or desirability of the experimental product;
(2) List the new end date for the market test;
(3) Calculate the total revenue received by the Postal Service from
the market test for each fiscal year the market test has been in
operation and provide supporting documentation for the calculations;
(4) Estimate the additional revenue that is anticipated by the
Postal Service for each fiscal year remaining on the market test,
including the requested extension period, and provide available
supporting documentation; and
(5) Provide any additional information necessary for the Commission
to evaluate the continued consistency with the requirements of 39
U.S.C. 3641.
(c) The Commission shall review the Postal Service request for
extension to ensure that an extension is necessary in order to
determine the feasibility or desirability of the experimental product
and:
(1) Find that the extension is consistent with the requirements of
39 U.S.C. 3641;
(2) Find that the extension is inconsistent with the requirements
of 39
[[Page 54564]]
U.S.C. 3641 and provide an opportunity to correct the identified
deficiencies;
(3) Find that the extension is inconsistent with the requirements
of 39 U.S.C. 3641 and deny the extension; or
(4) Direct other action as the Commission considers appropriate.
Sec. 3035.12 Cancellation of market test.
(a) The Postal Service may cancel a market test at any time. It
shall file notice of cancellation with the Commission within 10 days of
cancelling the market test.
(b) Pursuant to 39 U.S.C. 3641(f), the Commission may direct the
Postal Service to demonstrate that the market test continues to meet
the requirements of 39 U.S.C. 3641 and the Commission's rules. The
Commission, in its discretion, may provide an opportunity for comments.
(c) Based upon its review, the Commission may:
(1) Find that the market test is consistent with the requirements
of 39 U.S.C. 3641;
(2) Find that the market test is inconsistent with the requirements
of 39 U.S.C. 3641 and provide an opportunity to correct the identified
deficiencies;
(3) Find that the market test is inconsistent with the requirements
of 39 U.S.C. 3641 and cancel the market test; or
(4) Direct other action as the Commission may consider appropriate.
Sec. Sec. 3035.13-3035.14 [Reserved]
Sec. 3035.15 Dollar amount limitation.
(a) The Consumer Price Index used for calculations under this part
is the CPI-U index, as specified in Sec. Sec. 3010.21(a) and
3010.22(a) of this chapter.
(b) An experimental product may only be tested if total revenues
that are anticipated or received by the Postal Service do not exceed
$10,000,000 in any fiscal year, as adjusted for the change in the CPI-U
index, as specified in paragraph (d) of this section ($10 Million
Adjusted Limitation). Total revenues anticipated or received may exceed
the $10 Million Adjusted Limitation in any fiscal year if an exemption
is granted pursuant to Sec. 3035.16.
(c) For each fiscal year, the $10 Million Adjusted Limitation shall
reflect the average CPI result during the previous fiscal year
calculated as described in paragraph (d) of this section. The
Commission shall publish this figure annually, after the close of the
fiscal year, on its Web site at http://www.prc.gov.
(d) The calculation of the $10 Million Adjusted Limitation involves
the following steps. First, a simple average CPI-U index was calculated
for fiscal year 2008 by summing the monthly CPI-U values from October
2007 through September 2008 and dividing the sum by 12 (Base Average).
The resulting Base Average is 214.5. Then, a second simple average CPI-
U index is similarly calculated for each subsequent fiscal year by
summing the 12 monthly CPI-U values for the previous fiscal year and
dividing the sum by 12 (Recent Average). Finally, the annual limitation
for the current fiscal year is calculated by multiplying $10,000,000 by
the Recent Average divided by 214.5. The result is expressed as a
number, rounded to the nearest dollar.
(e) The formula for calculating the $10 Million Adjusted Limitation
is as follows: $10 Million Adjusted Limitation = $10,000,000 * (Recent
Average/214.5).
Sec. 3035.16 Exemption from dollar amount limitation.
(a) The Postal Service may request an exemption from the $10
Million Adjusted Limitation by filing a written request with the
Commission. In no instance shall the request for exemption exceed the
market test dollar amount limitation of $50,000,000 in any fiscal year,
as adjusted for the change in the CPI-U index, as specified in
paragraph (c) of this section ($50 Million Adjusted Limitation).
(b) For each fiscal year, the $50 Million Adjusted Limitation shall
reflect the average CPI result during the previous fiscal year
calculated as described in paragraph (c) of this section. The
Commission shall publish this figure annually, after the close of the
fiscal year, on its Web site at http://www.prc.gov.
(c) The calculation of the $50 Million Adjusted Limitation involves
the following steps. First, a simple average CPI-U index was calculated
for fiscal year 2008 by summing the monthly CPI-U values from October
2007 through September 2008 and dividing the sum by 12 (Base Average).
The resulting Base Average is 214.5. Then, a second simple average CPI-
U index is similarly calculated for each subsequent fiscal year by
summing the 12 monthly CPI-U values for the previous fiscal year and
dividing the sum by 12 (Recent Average). Finally, the annual limitation
for the current fiscal year is calculated by multiplying $50,000,000 by
the Recent Average divided by 214.5. The result is expressed as a
number, rounded to the nearest dollar.
(d) The formula for calculating the $50 Million Adjusted Limitation
is as follows: $50 Million Adjusted Limitation = $50,000,000 * (Recent
Average/214.5).
(e) The Postal Service shall file its request for exemption at
least 45 days before it expects to exceed the $10 Million Adjusted
Limitation.
(f) The request for exemption shall:
(1) Explain how the experimental product will:
(i) Benefit the public and meet an expected demand;
(ii) Contribute to the financial stability of the Postal Service;
and
(iii) Not result in unfair or otherwise inappropriate competition;
(2) Calculate the total revenue received by the Postal Service from
the market test for each fiscal year the market test has been in
operation, and provide supporting documentation;
(3) Estimate the additional revenue that is anticipated by the
Postal Service for each fiscal year remaining on the market test,
including any extension period granted by the Commission in accordance
with Sec. 3035.11(c), and provide available supporting documentation;
and
(4) Quantify the product specific costs associated with the
development of the market test; that is, costs incurred before the
market test is implemented.
(g) The Commission shall review the request for exemption for
consistency with the statutory requirements of 39 U.S.C. 3641 and:
(1) Find that the exemption is consistent with the requirements of
39 U.S.C. 3641;
(2) Find that the exemption is inconsistent with the requirements
of 39 U.S.C. 3641 and provide an opportunity to correct the identified
deficiencies;
(3) Find that the exemption is inconsistent with the requirements
of 39 U.S.C. 3641 and deny the exemption; or
(4) Direct other action as the Commission may consider appropriate.
Sec. 3035.17 Prevention of market disruption.
Notwithstanding the $10 Million Adjusted Limitation or any
adjustment granted pursuant to Sec. 3035.16, the Commission may limit
the amount of revenues the Postal Service may obtain from any
particular geographic market as necessary to prevent the creation of an
unfair or otherwise inappropriate competitive advantage for the Postal
Service or any mailer, particularly in regard to small business
concerns, as defined in Sec. 3001.5(v) of this chapter.
Sec. 3035.18 Filing for permanent product status.
(a) If the Postal Service determines to make an experimental
product permanent, it shall file a request, pursuant to 39 U.S.C. 3642
and part
[[Page 54565]]
3020, subpart B of this chapter, to add a new product or price category
to the market dominant or competitive product list. Requests to make
existing experimental products permanent must be filed at least 60 days
before the market test expires (including any extension period granted)
or the market test exceeds any authorized adjusted limitation in any
fiscal year, whichever is earlier.
(b) A request to make an experimental product permanent must, among
other things, quantify the product specific costs associated with the
development of the market test; that is, costs incurred before the
market test is implemented.
(c) The Postal Service shall also file a notice of its request to
make an experimental product permanent in the market test proceeding's
docket. The notice shall include the applicable docket number(s) for
the proceeding evaluating the request.
Sec. 3035.19 [Reserved]
Sec. 3035.20 Data collection and reporting requirements.
(a) A notice of a market test shall include a data collection plan
for the market test as required by Sec. 3035.3(a)(2)(vi). Data
collection plans shall include, at a minimum:
(1) The revenue by fiscal quarter received to date by the Postal
Service from the market test;
(2) Attributable costs incurred in conducting the market test,
including product specific costs related to the administration of the
market test; and
(3) Volumes of the experimental product by fiscal quarter.
(b) The Commission may request additional information or data as it
deems appropriate.
(c) To assess the potential impact of a market test in a particular
geographic market, the Commission may require the Postal Service to
report the revenues from the market test for specified geographic
markets.
(d) The Postal Service shall file the information required by the
data collection plan in data collection reports. Data collection
reports must be filed within 40 days after the close of each fiscal
quarter during which the market test is offered, or such other period
as the Commission may prescribe.
(e) The Postal Service shall file in its Annual Compliance Report
information on each market test conducted during the fiscal year
pursuant to Sec. 3050.21(h) of this chapter.
By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2014-21689 Filed 9-10-14; 8:45 am]
BILLING CODE 7710-FW-P