[Federal Register Volume 69, Number 32 (Wednesday, February 18, 2004)]
[Rules and Regulations]
[Pages 7574-7596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3440]


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POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM2003-5; Order No. 1391]


Negotiated Service Agreements

AGENCY: Postal Rate Commission.

ACTION: Final rule.

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SUMMARY: This document promulgates a final rule on procedural 
requirements for baseline and functionally equivalent Negotiated 
Service Agreements. The final rule incorporates relatively minor 
changes to the text of the rule as proposed, except in the area of the 
requisite Postal Service financial analysis. Adoption of this rule will 
provide the Postal Service and others with guidance on the procedures 
that will govern future cases involving Negotiated Service Agreements.

DATES: Effective March 19, 2004.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
(202) 789-6818.

SUPPLEMENTARY INFORMATION:

Regulatory History

68 FR 52552 (September 4, 2003)

Background

    On August 27, 2003, the Commission issued PRC Order No. 1383 to 
establish a rulemaking docket for the purpose of considering new 
procedural rules applicable to Postal Service requests for baseline and 
functionally equivalent Negotiated Service Agreements.\1\ The order 
included a proposal for the text of the procedural rules, and 
established a period, which concluded on September

[[Page 7575]]

29, 2003, for interested persons to comment. Seventeen parties 
submitted comments, arranged into twelve separate filings, expressing 
diverse opinions and suggesting many potential improvements to the 
proposed rules.\2\ The order also established a period for reply 
comments, which concluded on October 14, 2003. Eight parties submitted 
reply comments, arranged into seven separate filings.\3\ In addition, 
two parties filed supplemental comments.\4\ The Commission appreciates 
the efforts that went into the preparation of the comments and reply 
comments, and has considered all views and suggestions for improving 
the proposed rules.\5\
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    \1\ Notice and Order Establishing Rulemaking Docket for 
Consideration of Proposed Rules Applicable to Baseline and 
Functionally Equivalent Negotiated Service Agreements, PRC Order No. 
1383, August 27, 2003 (Order).
    \2\ PostCom Comments on Notice and Order Establishing Rulemaking 
Docket for Consideration of Proposed Rules Applicable to Baseline 
and Functionally Equivalent Negotiated Service Agreements [NSA 
Rulemaking], September 25, 2003 (PostCom); Comments of Capital One 
Services, Inc., September 29, 2003 (Capital One); Comments of The 
Direct Marketing Association, Inc., Magazine Publishers of America, 
Inc., Mail Order Association of America, and National Postal Policy 
Council, Parcel Shippers Association, September 29, 2003 (DMA et 
al.); Comments of Discover Financial Services, Inc., September 30, 
2003 (Discover); Comments of EW Consulting Relative to Retail 
Applications, September 30, 2003 (EW); Comments of First Data 
Corporation, September 29, 2003 (First Data); Initial Comments of 
Major Mailers Association, September 29, 2003 (MMA); Comments of the 
National Newspaper Association on Proposed Negotiated Service 
Agreement Rules, September 29, 2003 (NNA); Office of the Consumer 
Advocate Comments, September 29, 2003 (OCA); Valpak Direct Marketing 
Systems, Inc., and Valpak Dealers' Association, Inc. Comments on 
Proposed NSA Rules Pursuant to Commission Order No. 1383, September 
29, 2003 (Valpak); Comments of Pitney Bowes Inc., September 29, 2003 
(Pitney Bowes); Initial Comments of the United States Postal 
Service, September 30, 2003 (Postal Service).
    \3\ Reply Comments of Discover Financial Services, Inc., October 
14, 2003 (Discover Reply); Reply Comments of Major Mailers 
Association, October 14, 2003 (MMA Reply); Reply Comments of the 
Newspaper Association of America, October 14, 2003 (NAA Reply); 
Office of the Consumer Advocate Reply Comments, October 14, 2003 
(OCA Reply); Reply Comments of United Parcel Service, October 14, 
2003 (UPS Reply); Reply Comments of the United States Postal 
Service, October 14, 2003, Errata to Reply Comments of the United 
States Postal Service, October 16, 2003, Notice of the United States 
Postal Service of Filing of Corrected Version of Reply Comments, 
October 16, 2003, Reply Comments of the United States Postal 
Service, October 16, 2003 [Corrected Version] (Postal Service 
Reply); Valpak Direct Marketing Systems, Inc., and Valpak Dealers' 
Association, Inc. Reply Comments on Proposed NSA Rules Pursuant to 
Commission Order No. 1383, October 14, 2003 (Valpak Reply).
    \4\ Office of the Consumer Advocate Supplemental Comments on 
NSAs vs. Pilot Tests, October 10, 2003 (OCA Supplemental); 
Supplemental Comments of the United States Postal Service, October 
17, 2003 (Postal Service Supplemental).
    \5\ The following motions are granted: Motion for Late 
Acceptance of Comments by Discover Financial Services, Inc., 
September 30, 2003 (Discover Motion); Motion for a One-Day Extension 
of Time to File Comments, September 30, 2003 (EW Motion); Motion for 
a One-Day Extension of Time to File Comments, September 29, 2003 
(Postal Service Motion); Office of the Consumer Advocate Motion to 
be Permitted to File Supplemental Comments on NSAs vs. Pilot Tests, 
October 10, 2003 (OCA Motion); Motion of the United States Postal 
Service for Leave to File Supplemental Comments, October 17, 2003 
(Postal Service Supplemental Motion).
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    The comments express opinions on many issues, with most issues 
receiving a fair balance of comments from more than one perspective. 
Even with differences of opinion on specific rules, all parties appear 
to acknowledge the desirability of implementing rules specific to 
Negotiated Service Agreements. The Postal Service (the party that is 
directly responsible for complying with the rules) provides excellent 
commentary which tends to express an opinion that falls in the center 
of the extremes of all other commentary and is generally supportive of 
most provisions of the proposed rules. The comments from all parties 
have provided the Commission with a better appreciation of the 
benefits, and more importantly, the limitations of each rule proposal. 
As everyone gains experience with the new rules, there are sure to be 
suggestions for improvement that may be implemented in the future. The 
changes made to the proposed rules resulting from incorporating 
suggestions from the comments are relatively minor, and given the 
anticipation of future rulemakings in regard to these rules, the 
Commission has decided not to solicit further comments after 
incorporating these changes. The factors discussed above indicate that 
the rules as proposed are reasonable and appropriate for initial 
implementation. Thus, the Commission finds it appropriate to issue 
final rules at this time. The final rules appear following the 
Secretary's signature.
    Several general themes run through the comments. An overview of the 
most frequently addressed themes will be summarized below, followed by 
a rule by rule examination of each significant comment.
    The perceived burden that the rules impose is a common topic in 
most of the commentary. Some parties consider the burden imposed by the 
rules so great that it would inhibit mailers from pursuing Negotiated 
Service Agreements. There are comments indicating that it is premature 
to establish any detailed requirements before gaining further 
experience with Negotiated Service Agreements. There is support for 
adapting the arguably less burdensome rules for experimental 
classifications for use with Negotiated Service Agreements as an 
alternative to the proposed rules. Other parties want to add more 
requirements to the proposed rules. There are suggestions to add 
requirements to further justify a Negotiated Service Agreement 
classification versus a niche classification. There are suggestions to 
add provisions to facilitate the propagation of functionally equivalent 
agreements. There also are requests to add rules applicable to specific 
types of agreements, for example, agreements predicated on declining-
block discounts. The fairly even balance of comments on burden, both 
pro and con, from this diverse group of mailers indicate to the 
Commission that it has struck the appropriate balance on burden in the 
proposed rules.
    The requirements in regard to presenting a financial analysis of 
the Negotiated Service Agreement received many comments. There is 
limited disagreement over whether the financial analysis should be 
preformed over the duration of the agreement as proposed. There is 
considerable discussion of potential problems with obtaining mailer-
specific information, and the ability to make projections into the 
future. Some comments indicate that the Commission is requesting too 
much information, with suggestions that the Postal Service should only 
have to show that the agreement improves its financial position. Other 
comments indicate the need for considerably more information. For 
example, there is a request to require all cost information to be 
presented by cost segment. There are other suggestions to require the 
Postal Service to show that each element of an agreement adds to 
contribution and that the overall agreement materially improves the 
financial position of the Postal Service. Again, the proposed rule 
appears to represent a fair compromise among the parties wanting less 
onerous requirements and those wanting more detailed requirements.
    The Commission and the Postal Service are substantially in 
agreement on what a financial analysis should include for the first 
year of a multi-year Negotiated Service Agreement. For the potential 
second and third years of an agreement, the Notice of Proposed 
Rulemaking (NPRM) suggests a fairly mechanical approach to the analysis 
of the follow-on years. It requires the presentation for the second and 
third years to mimic the presentation of the first year. The Postal 
Service, alternatively, proposes to focus on factors that might cause a 
material change to the first year's financial analysis in presenting 
the financial analysis for the follow-on years. Both approaches should 
provide a sufficient financial analysis. Both approaches also

[[Page 7576]]

suffer from the same problems of availability and reliability of 
information the further out in time that information is projected. 
Because there is potentially some advantage to the Postal Service's 
approach, the Commission will adopt the Postal Service's proposal as 
presented in its initial comments.
    Comments in regard to the analysis of competitive effects range 
from full endorsement, to considering the requirement exceedingly 
burdensome. The requirement is written in general terms that allow the 
proponents to formulate a response that is appropriate under the 
circumstances. Other than potential difficulties with complying with 
the proposed rule, the comments focus on whether the proponents of an 
agreement or the parties challenging the agreement should have the 
initial burden of making a competitive effects argument. The Commission 
considers the proponents of the agreement to be the most knowledgeable 
and have the better resources available, after going through the 
negotiation process, to most efficiently respond to this information 
request. In many instances, such as worksharing arrangements, the 
response might be minimal. Several parties argue that it should be the 
responsibility of parties in opposition to the request to intervene and 
protect their own interests. The Commission is not persuaded that the 
parties concerned with the potential impacts of a request should carry 
the initial burden of proving adverse competitive effects. The Postal 
Service, as a governmental entity, has an obligation to consider the 
impact of its actions on the market, and to avoid causing unreasonable 
harm to private enterprises. It is appropriate that it make public its 
analysis in fulfilling this obligation. The Commission acknowledges 
that analyzing competitive effect issues can be complex, and will 
require time and thought, but it is necessary given the requirements of 
the Act. This requirement shall remain in the final rule as originally 
proposed.
    There is considerable concern about the protection of sensitive 
information. For the Commission to fulfill its statutory duty in a way 
favorable to the proponents, it requires information on which to base 
its recommendations. This is part of the ``cost'' of obtaining a 
special arrangement with the Postal Service. Participants will be 
required to cooperate with the Commission and provide relevant 
information to justify all requests, even if this information is 
considered sensitive. Requesting the application of protective 
conditions to safeguard sensitive information from public disclosure, 
if appropriate, remains an option.
    The Commission expressed its intent to make the actual text of 
proposed Negotiated Service Agreements public. This position resolves 
many issues such as providing transparency, curtailing claims of secret 
dealings and discrimination, being able to openly review the terms and 
conditions of the agreement, and making sufficient information 
available so that similarly situated mailers can seek the opportunity 
to benefit from a functionally equivalent agreement. Theoretically, the 
imposition of protective conditions remains available even for the text 
of an actual agreement, but this procedural step likely would make the 
review process more cumbersome and, especially as to monopoly products, 
commentators failed to describe circumstances where such a step would 
seem justified.
    There is considerable discussion on the procedures to be followed 
when information required by the rules is either not available and 
cannot be made available without undue burden, or is not required in 
light of the characteristics of the request. Comments represent both 
ends of the spectrum, from making all filing requirements mandatory, to 
requiring only a certification. The Commission will require the Postal 
Service to request waivers early in the process in the interest of 
resolving issues quickly in keeping with the goal of issuing 
recommendations in an expeditious manner.
    Finally, there are suggestions that the Commission establish a 150-
day procedural schedule for reviewing requests predicated on baseline 
Negotiated Service Agreements. The Commission has decided to not 
establish an artificial deadline for issuing a recommended decision at 
this time, but may revisit this issue in the future.
    The Commission recognizes that the rules apply in an area where it 
has only the experience of one Postal Service request, and anticipates 
future rulemakings to fine tune the rules as future experience might 
warrant. However, the Commission finds it is important to issue these 
rules at this time to gather real experience with their implementation, 
and to provide guidance for future Postal Service requests predicated 
on Negotiated Service Agreements. The Secretary shall arrange for the 
publication of this Order Establishing Rules Applicable to Requests for 
Baseline and Functionally Equivalent Negotiated Service Agreements in 
the Federal Register.
    The following is a rule by rule discussion of the comments received 
by the Commission in regard to this rulemaking.

Section 3001.5(r)--Definitions

    The proposed definition for ``Negotiated Service Agreement'' is 
stated in Sec. 3001.5(r) as follows: ``Negotiated Service Agreement 
means a written contract, to be in effect for a defined period of time, 
between the Postal Service and a mailer, that provides for customer-
specific rates or fees and/or postal services in accordance with the 
terms and conditions of the contract.''
    The Postal Service contends that although it would not be 
inaccurate in all instances, the term ``postal services'' might be too 
restrictive. It suggests that the definition focus on the Commission's 
statutory function, and proposes changing the term ``postal services'' 
to ``classification changes.'' It argues that ``classification 
changes'' encompasses both distinct levels of service, as well as less 
expansive changes to the Domestic Mail Classification Schedule. The 
definition proposed by the Postal Service states: ``Negotiated Service 
Agreement means a written contract, to be in effect for a defined 
period of time, between the Postal Service and a mailer, that provides 
for customer-specific rates or fees and/or classification changes in 
accordance with the terms and conditions of the contract.'' Postal 
Service Reply at 2-3, Attachment at 1.
    The Commission finds that in most instances either ``postal 
services'' or ``classifications'' would be appropriate for use in the 
definition.\6\ However, based on the Postal Service's contention that 
``postal services'' might be too restrictive,\7\ the Commission 
explored alternative terminology which could provide the Postal Service 
with the greatest flexibility and place the least restrictions on what 
it can propose when negotiating a Negotiated Service Agreement. The 
Commission decided upon the general terminology ``terms of

[[Page 7577]]

service'' in place of either ``postal services'' or ``classifications'' 
for use in the final rule. ``Terms of service'' is very broad, but 
still refers to a functional or ``service'' element of an agreement. 
The definition appearing in the final rule shall state: ``Negotiated 
Service Agreement means a written contract, to be in effect for a 
defined period of time, between the Postal Service and a mailer, that 
provides for customer-specific rates or fees and/or terms of service in 
accordance with the terms and conditions of the contract.''
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    \6\ The Commission omits the word ``changes'' from the Postal 
Service's suggestion of ``classification changes'' because a 
Negotiated Service Agreement typically should describe a 
classification.
    \7\ The Commission hypothesizes that ``classifications'' also 
might be too restrictive. Assume a multi-element Negotiated Service 
Agreement where one element involves a function (or term of service) 
that falls short of being considered a classification on its own 
under the Commission's statutory authority. If the overall 
Negotiated Service Agreement is within the Commission's 
jurisdiction, then the term of service assumed above would be 
included in the Commission's review by virtue of the Commission's 
jurisdiction over the overall agreement.
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Subpart B--Rules Applicable to Requests for Changes in Rates or 
Fees, Sec. 3001.51 Applicability

    Section 3001.51, which is currently in effect, governs the 
applicability of rules for requests to change rates or fees. The 
rulemaking proposes to add a sentence to Sec. 3001.51 which specifies 
that a request based on a Negotiated Service Agreement, which otherwise 
would be considered pursuant to the rules applicable to requests for 
changes in rates or fees, shall instead be considered pursuant to the 
rules applicable to Negotiated Service Agreements. The proposed 
sentence states: ``For requests of the Postal Service based on 
Negotiated Service Agreements, the rules applicable to Negotiated 
Service Agreements, Subpart L, supersede the otherwise applicable rules 
of this subpart.''
    The Postal Service contends that the reference to ``this subpart'' 
is somewhat ambiguous, and should be changed to specifically identify 
the referenced subpart as ``subpart B.'' Postal Service at 26-27.
    Although the Postal Service's suggestion may add clarity to the 
proposed rule, it does not conform to the existing drafting conventions 
for material that will be published in the Code of Federal Regulations. 
The final rule shall reference ``this subpart'' as originally proposed.

Subpart C--Rules Applicable to Requests for Establishing or 
Changing the Mail Classification Schedule, Sec. 3001.61 
Applicability

    Section 3001.61, which is currently in effect, governs the 
applicability of rules for requests to change the mail classification 
schedule. The rulemaking proposes to add a sentence to Sec. 3001.61 
which specifies that a request based on a Negotiated Service Agreement, 
which otherwise would be considered pursuant to the rules applicable to 
requests for establishing or changing the mail classification schedule, 
shall instead be considered pursuant to the rules applicable to 
Negotiated Service Agreements. The proposed sentence states: ``For 
requests of the Postal Service based on Negotiated Service Agreements, 
the rules applicable to Negotiated Service Agreements, Subpart L, 
supersede the otherwise applicable rules of this subpart.''
    The Postal Service contends that the reference to ``this subpart'' 
is somewhat ambiguous, and should be changed to specifically identify 
the referenced subpart as ``subpart C.'' Ibid.
    Although the Postal Service's suggestion may add clarity to the 
proposed rule, it does not conform to the existing drafting conventions 
for material that will be published in the Code of Federal Regulations. 
The final rule shall reference ``this subpart'' as originally proposed.

Subpart L--Rules Applicable to Negotiated Service Agreements, Sec. 
3001.190 Applicability

    Subsection (a) establishes that the rules proposed under subpart L 
are applicable to Postal Service requests based on Negotiated Service 
Agreements. The last sentence of proposed subsection (a) states: ``The 
requirements and procedures specified in these sections apply 
exclusively to requests predicated on Negotiated Service Agreements, 
and except where specifically noted, do not supersede any other rules 
applicable to Postal Service requests for recommendation of changes in 
rates or mail classifications.''
    OCA suggests a stylistic change, which proposes to separate the 
last sentence into two separate sentences as follows: ``The 
requirements and procedures specified in these sections apply 
exclusively to requests predicated on Negotiated Service Agreements. 
Except where specifically noted, this subpart does not supersede any 
other rules applicable to Postal Service requests for recommendation of 
changes in rates or mail classifications.'' OCA at 6.
    OCA's suggestion is an acceptable alternative, and may improve 
clarity. The Commission also has become aware that the proposed 
sentence references ``changes in rates or mail classifications,'' but 
omits any reference to ``fees.'' Correction of this oversight, along 
with the OCA's proposed modification, shall appear in the final rule. 
The last sentence of subsection (a) will state: ``The requirements and 
procedures specified in these sections apply exclusively to requests 
predicated on Negotiated Service Agreements. Except where specifically 
noted, this subpart does not supersede any other rules applicable to 
Postal Service requests for recommendation of changes in rates, fees, 
or mail classifications.''
    Subsection (b) states in part that ``it shall be the policy of the 
Commission to recommend Negotiated Service Agreements that are 
consistent with statutory criteria, and benefit the Postal Service, 
without causing unreasonable harm to the marketplace.''
    OCA proposes to expand these policy considerations by requiring: 
``It shall be the policy of the Commission to recommend Negotiated 
Service Agreements each of whose elements are consistent with statutory 
criteria, unambiguously benefit the Postal Service, and do not cause 
unreasonable harm to the marketplace.'' OCA wants to ensure that a 
proposed Negotiated Service Agreement, ``in whole and in part, 
materially improves the financial condition of the Postal Service.'' 
Id. at 6-10. The OCA asserts that the requirement for each element to 
unambiguously benefit the Postal Service will help overcome any 
uncertainty in Postal Service estimates and any transaction costs 
associated with implementing the agreement.\8\
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    \8\ The proposal also is consistent with the OCA's stated 
preference to not recommend revenue neutral Negotiated Service 
Agreements. OCA at 3-4.
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    The Postal Service contends that the benefits of a Negotiated 
Service Agreement need to be considered as a whole. It objects to the 
OCA's proposal because requiring each element to benefit the Postal 
Service would bar Negotiated Service Agreements that are on balance 
beneficial to the Postal Service just because one element in isolation 
is not beneficial. Postal Service Reply at 4-6.
    The Commission anticipates that negotiating a multi-element 
Negotiated Service Agreement will involve some give and take for the 
parties to reach agreement. Requiring each element to benefit the 
Postal Service could hinder this give and take process, and eliminate 
many possible arrangements from consideration. The Commission will 
review each element of an agreement, and integrate each element into a 
review of the agreement as a whole. The overall agreement must benefit 
the Postal Service. An individual element that does not benefit the 
Postal Service or that represents a high risk may receive added 
attention, and potentially could prevent a positive Commission 
recommendation. However, the OCA's policy proposal to require at the 
outset every element to benefit the Postal Service, without looking at 
the element's relationship to the overall

[[Page 7578]]

agreement, is too restrictive. It will not be incorporated into the 
final rule.
    OCA proposes an additional policy requirement related to declining-
block rates which states: ``It shall be the policy of the Commission to 
require declining-block rates to be supported by a company-specific 
demand analysis justifying each volume threshold and corresponding 
rate.'' OCA at 6.
    The Postal Service objects to the addition of this requirement 
because it would amount to a bar on declining-block arrangements. The 
Postal Service asserts that it is unlikely that a company-specific 
demand analysis would be available, and if it were available it is 
unclear how it would be used to justify the thresholds and rates. 
Postal Service Reply at 7.
    The Commission has proposed general rules designed to be applicable 
to a broad variety of potential Negotiated Service Agreements. It 
chooses not to include rules specific to only one type of agreement at 
this point in time. The Commission's preference is to allow the Postal 
Service flexibility in fashioning each request to provide, within 
general guidelines, the appropriate information under the 
circumstances. The Postal Service's requests will be litigated, and 
precedent will be developed to guide future requests. Participants are 
always free to challenge any aspect of the Postal Service's request 
during the proceeding, and ask for additional information.\9\ The 
Commission will not adopt the declining-block rate policy proposal at 
this time.
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    \9\ The OCA suggestion seems excessively restrictive, as rate 
cell-specific elasticities are not normally available in any 
Commission proceeding.
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    Subsection (b) also states: ``Except in extraordinary circumstances 
and for good cause shown, the Commission shall not recommend Negotiated 
Service Agreements of more than three years duration; * * * .''
    NNA proposes an additional restriction which specifies that the 
Commission will not recommend a Negotiated Service Agreement if a 
general or niche classification change will achieve substantially 
similar effects upon the Postal Service's revenues or costs. NNA's 
concern is with the competitive effects that a Negotiated Service 
Agreement could have on the smaller competitors of the proponent 
receiving the benefits of a Negotiated Service Agreement. It contends 
that including a presumption in favor of a less restrictive 
classification, such as a niche classification, is one possible 
protection that might be offered. NNA would modify the last sentence of 
subsection (b) to state: ``Except in extraordinary circumstances and 
for good cause shown, the Commission shall not recommend Negotiated 
Service Agreements of more than three years duration or if a general or 
niche classification change will achieve substantially similar effects 
upon the Postal Service's revenues or costs; * * * .'' NNA at 4-6 
(emphasis omitted).
    Valpak, NAA, and UPS support the NNA position on general or niche 
classifications. Valpak Reply at 8; NAA Reply at 6-7; UPS Reply at 7. 
NAA also offers a suggestion that the Commission adopt a presumption 
that if a baseline Negotiated Service Agreement is premised on 
worksharing, then a niche classification is preferable.
    The Postal Service is opposed to the NNA proposal, which 
essentially requires it to prove that a niche classification would not 
be an equally reasonable approach. Postal Service Reply at 7-8. The 
Postal Service contends that the Commission has already rejected this 
approach. See PRC Op. MC2002-2 at 33-34.
    The Commission supports the basic premise that, all other things 
being equal, more inclusive mail classifications are preferable to more 
restrictive alternatives, and has maintained a consistent policy of 
entertaining and acting upon claims that new mail classifications 
should be available on more inclusive terms than were originally 
proposed. However, the Commission's preference for more inclusive mail 
classifications does not reach the level of a presumption that must be 
overcome by the proponents of single mailer agreements.
    The rules as proposed already require the Postal Service to provide 
a written justification for requesting a Negotiated Service Agreement 
classification as opposed to a more generally applicable form of 
classification, Sec. 3001.195(a). This requires the Postal Service to 
explain why a Negotiated Service Agreement is the preferable 
classification. It does not require the Postal Service to prove (what 
amounts to a negative) that a more inclusive classification could not 
be implemented, or is otherwise not appropriate. Recognizing foremost 
that the Postal Service is burdened with demonstrating that the 
proposed Negotiated Service Agreement complies with the requirements of 
the Act, it is not reasonable to impose this additional burden on the 
Postal Service. If the Postal Service provides a persuasive 
justification pursuant to Sec. 3001.195(a), the Commission may find 
that the Postal Service has selected the appropriate classification. 
Participants are free to challenge this issue during the course of the 
proceeding.
    NNA also suggests that each docket contain a procedural opportunity 
for participants to petition the Commission to use the Commission's 
statutory authority, when appropriate, to initiate a separate niche 
classification. NNA at 4-6.
    The Commission will not incorporate an explicit procedural 
mechanism for participants to petition the Commission requesting that 
the Commission employ its statutory authority to initiate a separate 
niche classification. Participants are free to petition the Commission 
at any time on this matter. Participants should keep in mind that where 
rates or fees are involved, the Commission typically is limited to 
recommending a shell classification. To progress beyond a shell 
classification, participants would require the support of the Postal 
Service.

Section 3001.191 Filing of Formal Requests

    No substantive comments in opposition to proposed Sec. 3001.191 
have been received. Section 3001.191 shall be included in the final 
rule as originally proposed.

Section 3001.192 Filing of Prepared Direct Evidence

    No substantive comments in opposition to proposed Sec. 3001.192 
have been received. Section 3001.192 shall be included in the final 
rule as originally proposed.

Section 3001.193 Contents of Formal Requests

    Subsection (a)--General requirements. Subsection (a) in part 
establishes the requirement to request a waiver if information required 
to be submitted pursuant to Sec. 3001.193 is (1) not available and 
cannot be made available without undue burden, or (2) is not required 
in light of the characteristics of the request. The request for waiver 
would be in the form of a motion.
    DMA et al. propose that the Commission only require a satisfactory 
explanation, and not a waiver. The satisfactory explanation would end 
the inquiry into the necessity to provide the information, unless 
another party challenges the issue. If challenged, the burden of going 
forward would shift to the challenging party as is done under the 
experimental rules. DMA et al. argue that this would be less burdensome 
and still protect the rights of the challenging party. DMA et al. at 9-
10.

[[Page 7579]]

    Pitney Bowes contends that the requirement to request a waiver will 
further dissuade mailers from pursuing Negotiated Service Agreements 
because there is no meaningful ability to determine whether or not a 
waiver will be granted when first negotiating and preparing a 
Negotiated Service Agreement. It suggests that where information is not 
needed in light of the nature of the request, Sec. 3001.193(a)(3) 
should only require a certification stating this fact. Presumably, the 
inquiry into whether the information must be provided would end at this 
point, unless challenged. Pitney Bowes at 5-6.
    UPS argues that only requiring a certification would effectively 
eliminate the Commission as a meaningful participant in the decision-
making process. Thus, it is opposed to Pitney Bowes' proposal. UPS 
Reply at 2.
    OCA contends that Negotiated Service Agreements are extraordinary 
arrangements requiring extraordinary justification. It asserts that all 
Sec. 3001.193 filing requirements should be mandatory. OCA suggests 
deleting the special provisions on waivers, and alternatively relying 
on the general waiver provisions of Sec. 3001.22. If these suggestions 
are not adopted, OCA requests clarification as to whether it is 
necessary to reserve one's right to challenge the potential absence of 
information when answering the request for waiver. It also requests 
clarification as to when a potential challenge would be permitted. OCA 
at 10-15.
    The Postal Service is generally not opposed to the procedures in 
regard to unavailable or not required information. It is opposed to 
relying solely on the general waiver provisions of Sec. 3001.22 as 
proposed by OCA, and it is specifically opposed to requiring a waiver 
where information is unavailable and unduly burdensome to produce. The 
Postal Service contends that requiring a waiver in this instance might 
amount to a daunting entry barrier, which may dissuade potential 
partners from negotiating. It might invite opposition to granting the 
waiver. It also might require a factual examination as to whether the 
information is unavailable and whether the burden of producing the 
information is undue. The Postal Service also notes that this 
requirement is not consistent with other seemingly parallel sections of 
the Commission's rules. For example, Sec.Sec. 3001.54(a)(2) and 
3001.64(a)(2) both require ``a statement explaining with 
particularity,'' and not ``a request for waiver.'' Accordingly, the 
Postal Service proposes that ``a request for waiver'' be replaced with 
``a statement explaining with particularity,'' which would make this 
requirement consistent with other provisions of the Commission's rules.
    The Postal Service is not opposed to a request for waiver where 
information is not required in light of the characteristics of the 
request. It argues that determining such relevance issues early in the 
proceeding is useful and will aid in the development of the record. 
Furthermore, the Postal Service does not oppose the burden shifting 
provisions of Sec. 3001.193(a)(4), which similarly appear in other 
Commission rules. Postal Service Reply at 7-11.
    The Commission included the requirement to request a waiver in 
Sec.Sec. 3001.193(a)(2) and (a)(3) because of the emphasis placed on 
the desire for the Commission to expeditiously issue recommendations on 
requests predicated on Negotiated Service Agreements. Requiring waivers 
assures immediate focus on informational issues, and necessitates 
prompt resolution of any concerns early in the proceeding.
    Section 3001.193(a)(2) concerns information that is not available 
and cannot be made available without undue burden. It applies to 
information presumed to be relevant to the proceeding. Requiring only 
``a statement explaining with particularity'' does not expedite 
resolving issues that could be central to a Commission recommendation. 
It would necessitate additional motions practice and result in 
delay.\10\ The Commission will retain the requirement to request a 
waiver in this instance.
---------------------------------------------------------------------------

    \10\ Participants considering the ``statement'' inadequate would 
file motions at a subsequent stage of the proceeding, which could 
not be resolved prior to additional pleadings.
---------------------------------------------------------------------------

    Section 3001.193(a)(3) concerns information that is not required in 
light of the proceeding. This category of information is information 
that is presumed not relevant to the proceeding. The request for waiver 
in most instances should be straightforward. It is not anticipated that 
this process would cause unnecessary delay to the procedural schedule. 
In instances where the relevance of the information is challenged, it 
will benefit the schedule by resolving the issue early in the 
proceeding. Requiring a request for a waiver versus a mere 
``certification'' also stresses the importance of promptly resolving 
issues given a goal of expeditiously issuing a recommendation. The 
Commission also will retain the requirement to request a waiver in this 
instance.
    Parties are not required to reserve an objection to a Postal 
Service request for a waiver under Sec.Sec. 3001.193(a)(2) or (3). If 
it is apparent that granting a waiver is not warranted, the Commission 
expects the party opposed to the waiver to file in opposition at the 
time the request for waiver is pending. In the instance where it only 
later becomes apparent that there is an issue involving information for 
which a waiver has been granted, Sec. 3001.193(a)(4) sets the standard 
for contending that providing the information was in fact necessary. 
This contention must be raised by motion before the close of the record 
so that all parties have an opportunity to respond to the issue.
    Pitney Bowes requests a clarification of whether available 
information, which is unduly burdensome to produce, should be 
considered unavailable for the purposes of Sec. 3001.193(a)(2). Pitney 
Bowes at 5-6. The Commission would entertain the argument that 
available but burdensome to produce information is effectively 
unavailable. However, because this category of information is presumed 
relevant to the proceeding, a successful argument where the information 
is available would likely focus on limiting the scope of the 
information provided, or on providing a substitute form of the 
information.
    The Postal Service proposes the elimination of Sec.Sec. 
3001.193(2)(iii) and (v) in regard to a request for a waiver where 
information is not available and cannot be made available without undue 
burden. These sections require a request for waiver to include 
discussion of ``[t]he steps or actions which would be needed to make 
each such item of information available, together with an estimate of 
the time and expense required therefore'' and ``[w]hether sufficiently 
reliable estimates are available to mitigate the need for such 
information, and if so, the specifics of such estimates.'' The Postal 
Service contends that these requirements invite unnecessary litigation 
directed at the sufficiency of the response, which could prolong the 
proceeding. Discover supports the Postal Service's position. Discover 
Reply at 2-3.
    The implication in Sec. 3001.193(2) is that the required 
information is ``relevant'' to the proceeding. Because it is relevant 
to the proceeding, if the information cannot be produced the Commission 
requires certain information to weigh its relevance, to determine 
whether the information could be produced in the future, and if not, to 
determine whether a suitable substitute can be provided. If the 
Commission finds the unavailable information highly relevant with 
little hope of future production and without a reasonable substitute, 
the unavailability of the information could

[[Page 7580]]

be important in the Commission's review of the Postal Service's 
request. Therefore, it is reasonable for the Commission to inquire 
about the time, and effort, involved in making the information 
available, and about the possibility of substitute information in order 
to avoid a negative outcome. Once identified, a potential filing 
deficiency in regard to presumed relevant information should be 
resolved as promptly as possible because it could have a direct effect 
on the outcome of the proceeding. Sections 3001.193(2)(iii) and (v) 
provide important information for resolving this issue, and thus, shall 
remain in the final rule.
    The Postal Service suggests an editorial change to replace the word 
``schedule'' in Sec. 3001.193(a)(1) with ``schedule(s)'' to reflect the 
fact that the DMCS is made up of more than one schedule. The Commission 
shall incorporate this suggestion into the final rule.

Subsection (b)--Negotiated Service Agreement

    Subsection (b) requires the Postal Service to include a copy of the 
Negotiated Service Agreement with its request. Comments were directed 
at the Commission's position that an unsigned text copy of the 
agreement will meet this filing requirement, the Commission's role in 
reviewing the agreement, public disclosure of the agreement, and the 
broader issue of potential public disclosure of sensitive information.
    PostCom proposes that the Commission require the Postal Service to 
file a signed copy of the Negotiated Service Agreement with the 
request. PostCom argues that a signed agreement is required to avoid 
the expenditure of energy on an approval process where the parties are 
free to walk away during the approval process because they are not 
bound by an executed agreement. PostCom at 4-5.
    As the Postal Service correctly interprets the Commission's 
intention, the Commission expects that requests will be based on 
executed Negotiated Service Agreements. Postal Service Reply at 5-6, 
fn. 4. The proponents would be at the greatest risk of expending energy 
if they choose not to proceed with the agreement. This alone should act 
as a deterrent to filing a request with no intent of carrying out the 
terms and conditions of an agreement. The Postal Service also properly 
points out that not requiring a signature is partially based on the 
requirements of the Commission's electronic filing system and the 
inconvenience of creating pdf files containing signatures. The 
Commission is not persuaded that the filing of a signed copy of the 
agreement is required, or that requiring a signature will or should act 
as a deterrent to a party's decision not to proceed once the review 
process begins.
    The Commission reasoned that filing an unsigned text file copy of 
the agreement is sufficient because: ``the agreement does not go into 
effect until after the Commission submits its opinion and recommended 
decision, and the Governors of the United States Postal Service provide 
its approval.'' PRC Order No. 1383 (August 27, 2003) at 9. The Postal 
Service is correct in pointing out that the Commission is speaking to 
the provisions of the agreement that are under review by the 
Commission. The agreement might include other provisions, which become 
binding upon the signature of the parties to the agreement. Postal 
Service Reply at 5-6, fn. 4.
    NAA contends that the copy of the agreement filed with the request 
should be signed, but only to assure that the version of the contract 
being filed is in fact the correct version, and not an earlier draft. 
NAA Reply at 4.
    Under the Commission's rules, the filing party has the obligation 
to assure that the proper documents are filed. See Sec. 3001.11(e). The 
Commission is not persuaded that requiring the copy of the Negotiated 
Service Agreement to be signed would offer anything more than a minimal 
improvement to assure that the correct version of a document is filed.
    PostCom contends that requiring the filing of a signed contract 
would bring the Commission's proceeding closer to an ``after the fact'' 
review as suggested by the President's Commission. PostCom at 4-5; see 
also, Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, Report of the President's Commission on the 
United States Postal Service, July 31, 2003 at 88-89, 174.
    Current law requires a more pro-active role for the Commission that 
goes beyond an ``after the fact review.'' The Commission's role is to 
protect the public interest by bringing to light potential problems 
``before'' the Postal Service proceeds with a new rate, fee, or 
classification. The Commission's statutory responsibility is foremost 
to review Postal Service requests for compliance with the requirements 
of the Act, and to issue a recommended decision on its findings. 
Through the Commission's recommendations, the Commission also provides 
the Governors of the United States Postal Service with an independent 
review of proposals put forth by the Postal Service. This independent 
review, which may incorporate additional views solicited from 
interested participants either through written comment or the hearing 
process, is used to inform the Governors in their decision-making 
process. Mailers in general further benefit because the transparency 
provided through the overall process adds to a better understanding of 
the Postal Service. The Commission's role in reviewing Postal Service 
requests is much broader than implied by PostCom.
    Discover suggests that the final rules state that the Commission 
will not redraw the contract or rebalance the benefits and risks of the 
agreement. It further contends that the Commission's review should not 
include ensuring that the Postal Service has reached the best deal 
possible in the manner most appropriate. Discover at 5.
    PostCom views the Commission's role as limited to ensuring the 
agreement is in compliance with the Act, and providing approval in the 
shortest time possible. PostCom's comments otherwise generally parallel 
the comments of Discover. PostCom at 4-5.
    The Commission has no intent of acting as a bargaining party, or is 
its interest in renegotiating the terms and conditions of a Negotiated 
Service Agreement. However, the Commission's role is not so limited as 
to only providing either a positive or negative recommendation. For 
example, if the initial request does not support an agreement that 
complies with the requirements of the Act, the Commission might, if 
possible, recommend modifications to the agreement to bring it into 
compliance. Another example is in the area of data collection. The 
Commission frequently recommends changes such that the Commission will 
have access to information for performing future statutory functions.
    Nor does the Commission view its role as ensuring that the Postal 
Service has made the best possible deal. However, the Commission will 
express its views and suggest (as opposed to recommend) potential 
changes such that the Postal Service is informed of the Commission's 
opinion when entering into future agreements. These same views and 
suggestions are also meant to independently inform the Governors in 
their decision-making process when considering the current agreement.
    Final positive Commission recommendations are frequently 
conditioned on implementation of the Commission's recommended 
modifications. It would cause considerably more delay and waste of

[[Page 7581]]

resources if the Commission were restricted to recommending either a 
positive or negative recommendation. A negative recommendation then 
would require the Postal Service to file a new request and start anew. 
After the Commission issues its final recommendations, the proponents 
are free to accept the Commission's recommendations, or abandon the 
agreement. The Postal Service has exhibited sufficient proficiency in 
drafting its agreements to allow parties to opt out of the agreement if 
they choose not to accept the Commission's recommended modifications.
    First Data is concerned about the Commission's indication that the 
actual text of the agreement will be made publicly available, and that 
the Commission will impose a high burden before granting a request for 
protective conditions on the contract itself. It contends that a 
Negotiated Service Agreement which involves changes in a mailer's 
operating practices is likely to require understandings on sensitive 
operational details. This could raise issues of the information being 
competitively sensitive, and of concerns about the physical security of 
the mail and the employees who handle it. First Data proposes that the 
Commission adopt a rule specifying that contractual terms specifying 
operational arrangements whose disclosure could jeopardize the safety 
of persons or property be redacted from public disclosure, and subject 
to protective conditions. In general, First Data suggests that the 
Commission not adopt a presumption in favor of general disclosure, and 
resolve these issues on a case-by-case basis. First Data at 5-7. Pitney 
Bowes expresses similar concerns that the proposed rules may not 
sufficiently protect the confidentiality of certain contract 
information. Pitney Bowes at 7.
    NAA argues in favor of public disclosure of the text of the 
contract. It contends that this will facilitate evaluation of the 
agreement, and will help mailers determine whether they might be 
eligible for a functionally equivalent agreement. NAA is concerned over 
the negative connotations of keeping an agreement secret. NAA Reply at 
4-5.
    The Postal Service contends that the Commission's indication of a 
higher burden may be required to justify confidential treatment of the 
actual contract is not well advised and may be unnecessary. It asserts 
that other agencies have been able to come up with the proper balance 
as discussed in First Data's comments at 5-7.\11\ Postal Service Reply 
at 13-15.
---------------------------------------------------------------------------

    \11\ First Data generally discusses the procedures used by the 
Surface Transportation Board.
---------------------------------------------------------------------------

    The Commission's intent is to make the actual contract publicly 
available on the Commission's web site in accordance with the general 
policy for documents filed at the Commission. The Commission has 
alerted the parties to the contract that any request for protective 
conditions placed on the contract itself will have to meet a high 
burden before being granted. See PRC Order No. 1383 (August 27, 2003) 
at 9.
    The general rule at the Commission has been and remains that 
requests for protective conditions must meet a high burden.\12\ 
Reminding participants of the general rule serves several purposes. 
Drafting an agreement in a fashion that does not require protective 
conditions is procedurally expedient. It does not require the 
additional step of requesting protective conditions, interested parties 
do not have to apply to view the material, and the overall proceeding 
is facilitated by being able to openly discuss, reference, and write 
about the subject material. Public disclosure also provides 
transparency, which helps curtail arguments of discrimination and 
secret dealings. Public disclosure also provides mailers with the 
information necessary to decide whether they wish to seek similar 
agreements with the Postal Service. The Commission will adhere to its 
preference, and presumption, that the contents of the actual contract 
shall be made publicly available. The application of protective 
conditions remains an option, but the negative effects of applying 
protective conditions must be recognized.
---------------------------------------------------------------------------

    \12\ The Postal Service's characterization that the Commission 
is imposing a higher burden than normal is not accurate.
---------------------------------------------------------------------------

    Several comments broaden the discussion of public disclosure of the 
terms and conditions of the contract to a discussion of the general 
disclosure of sensitive and confidential business data used to support 
the request during the course of the proceeding. Discover contends that 
private-sector firms must not be expected to reveal confidential 
business information in order to participate. Discover at 2, 6-7. It 
foresees that the more the Commission delves into mailer-specific data, 
the more likely the Commission will be faced with litigants whose main 
purpose is to uncover or gain access to a competitor's propriety 
information. Discover Reply at 4. Discover urges the Commission not to 
create the situation where a mailer seeking a functionally equivalent 
agreement must disclose confidential information, even if its 
competitor disclosed the same information in a baseline proceeding. In 
a related matter, Discover suggests the information collected through 
data collection plans also could raise competitive concerns. Id. at 6-
7. MMA urges the Commission to assure mailers that they will not be 
required to disclose highly confidential business information because 
this possibility might dissuade mailers from seeking Negotiated Service 
Agreements. MMA at 6.
    The Postal Service contends that the issue of confidentiality of 
mailer-specific information potentially presents a serious problem. It 
argues that the lack of procedural guarantees may become an impediment 
to exploring and developing beneficial Negotiated Service Agreements in 
the future. The Postal Service notes that the Commission was faced with 
similar problems in formulating rules for international services. It 
suggests that this issue be revisited in a subsequent rulemaking that 
could focus on specific solutions. Postal Service Reply at 13-15.
    The Commission has well-established policies for protecting 
sensitive information, and has not been persuaded that reviewing 
Negotiated Service Agreements require any changes to those policies. 
Protective conditions, where appropriate, remain an option to prevent 
public disclosure of sensitive information. At the same time, the 
Commission has a statutory role to fulfill in reviewing Postal Service 
requests predicated on Negotiated Service Agreements. If sensitive co-
proponent information is relevant to the Commission's review of a 
specific request, then the co-proponent should anticipate that this 
information will have to be disclosed in some form for the Commission 
to execute its review. The cooperation of the proponents of an 
agreement is expected, and it is required for the Commission to 
effectively carry out its statutory duties.\13\ Negotiated Service 
Agreements are optional voluntary agreements that can mutually benefit 
mailers and the Postal Service by capitalizing on mailer-specific 
characteristics. There is no right or guarantee that any mailer will 
obtain a mailer-specific Negotiated Service Agreement. The standard 
rates, fees, and classifications remain available for universal 
application. Thus, part of the

[[Page 7582]]

``cost'' of obtaining the special benefits associated with a Negotiated 
Service Agreement is participation in the review process, and the 
potential to have to disclose information relevant to the proceeding.
---------------------------------------------------------------------------

    \13\ In Docket No. MC2002-2, co-proponent Capital One was 
extremely cooperative in providing important information while 
identifying certain business plans it viewed as extremely 
confidential. The Commission was able to perform its function 
without the production of any of this confidential information.
---------------------------------------------------------------------------

Subsection (c)--Rates and Standards Information

    Proposed subsection (c) requires in part that the Postal Service 
provide a statement describing and explaining the proposed changes to 
the Domestic Mail Classification Schedule and any associated rate 
schedule. The Postal Service alerts the Commission to the fact that 
there are fee schedules in addition to the referenced rate schedules. 
Postal Service at 28. The Commission will correct this omission in the 
final rule by changing the words ``rate schedule'' to ``rate or fee 
schedule.'' Section 3001.193(c) shall be modified to state: ``Every 
formal request shall include a description of the proposed rates, fees, 
and/or classification changes, including proposed changes, in 
legislative format, to the text of the Domestic Mail Classification 
Schedule and any associated rate or fee schedule.''

Subsection (d)--Description of Agreement

    No substantive comments in opposition to proposed Sec. 3001.193(d) 
have been received. Section 3001.193(d) shall be included in the final 
rule as originally proposed.

Subsection (e)--Financial Analysis

    Subsection (e) requires every formal request to include an analysis 
of the effects of the Negotiated Service Agreement on Postal Service 
volumes, costs and revenues. Comments are fairly balanced between 
parties considering the specific requirements too onerous, and parties 
arguing in support of the proposed rule. The Postal Service contends 
that the rule generally solicits information necessary to explain and 
justify the financial components of a Negotiated Service Agreement, but 
has concerns over the rule's structure. Several parties also provide 
detailed suggestions for improving particular requirements of 
subsection (e).
    Capital One foresees several problems in complying with the 
proposed rule. It contends that in general mailer specific costs are 
not known. It questions the reliability of mailer-specific elasticities 
and their projection over a three-year period. It argues that obtaining 
mailer-specific volumes over the possible three years of an agreement 
is just wishful thinking. Furthermore, it foresees frequent use of 
waivers claiming that information is unavailable and cannot be produced 
without undue burden. Alternatively, Capital One favors adapting the 
rules for experimental requests for use with requests predicated on 
Negotiated Service Agreements. It argues that there is no reason to 
believe that future Negotiated Service Agreements will have any greater 
impact or be more complex than the typical experimental case. Capital 
One at 3-7.
    DMA et al. contend that the proposed rules ``are so burdensome and 
broad that * * * they would deter most from seeking NSAs and 
substantially increase the costs of obtaining NSAs to those who might 
be willing to go forward.'' It suggests, as a procedural alternative, 
that the Postal Service only be required to prove that a Negotiated 
Service Agreement improves the Postal Service's financial position, and 
require sufficient data to prove this point. It further argues for the 
adoption of rules analogous to the rules governing experimental 
classifications. DMA et al. are particularly troubled over the 
requirements to analyze costs, revenues and volumes over the life of 
the agreement versus just a test year, the use of mailer-specific 
costs, volumes, and elasticities, and certain aspects of providing a 
response in regard to contribution. DMA et al. further discuss the 
difficulty of developing estimates and the difficulty of defending 
estimates without disclosing a significant amount of proprietary 
information. DMA et al. at 6-8.
    Discover considers the DMA et al. comments as instructive, and 
believes that even the Postal Service's proposals (discussed below) are 
too rigid. It suggests that the level of detail specifying evidentiary 
support should not be written into stone at this time. Discover 
proposes the rule should just require that ``'[e]very formal request 
shall include a sufficient analysis of the effects of the Negotiated 
Service Agreement on Postal Service volumes, costs and revenues * * *.' 
'' It argues that the details of each Negotiated Service Agreement 
could then dictate the type and level of financial analysis required. 
Discover Reply at 5.
    First Data interprets the rule as establishing a rebuttable 
presumption which requires the presentation of data quantifying the 
additional mail volume potentially generated by the Negotiated Service 
Agreement, and the associated elasticity factors. It contends that 
volume and elasticity studies of this kind are time consuming and 
costly to generate. It argues that such data may be appropriate for 
some Negotiated Service Agreements (such as the Capital One agreement), 
but may not be appropriate for others. First Data further requests 
clarification ``that detailed volume and elasticity studies will not be 
required for proposed volume discounts that equal a uniform percentage 
of anticipated cost savings per piece.''\14\ First Data at 2-3.
---------------------------------------------------------------------------

    \14\ The Commission's analysis is not limited to analyzing the 
benefit to the Postal Service on a per piece basis. In most 
instances, volume information will be necessary to determine the 
agreement's aggregate effect on the overall finances of the Postal 
Service. Thus, the Commission can not adopt First Data's proposal.
---------------------------------------------------------------------------

    MMA's concern is with the requirements for mailer-specific 
information. It requests clarification that the Commission is 
interested in the costs incurred by the Postal Service for handling the 
specific mailer's mail, and not the costs incurred by the mailer to 
prepare the mail (for example, the mailer's cost of preparing workshare 
type mail). It also requests clarification that a mailer is not 
required to provide mailer-specific information or develop mailer-
specific elasticity factors unless such information is relevant to the 
Commission's review. MMA at 5-6.
    Pitney Bowes also interprets Sec. 3001.193(e) as creating a 
presumption that mailer-specific cost, volume, revenue, and elasticity 
information will be required, notwithstanding that such data and 
information may not be important for every agreement. It requests 
clarification that there is no presumption for extensive mailer-
specific information for every request predicated on a Negotiated 
Service Agreement. It also requests an express provision in the rules 
stating that data is not required where the proponents present a 
plausible explanation that the effects to be measured by the 
information would be de minimis. Pitney Bowes at 4-5.
    PostCom interprets Sec. 3001.193(e) as contemplating that a 
Negotiated Service Agreement cannot be approved in the absence of 
mailer-specific information. It contends that this would be an 
unacceptable standard. It argues that few, if any, mailers collect, or 
retain, mailer-specific information at the level of detail that the 
Postal Service does on a system-wide basis. PostCom proposes changes to 
Sec. 3001.193(e)(5) to stress that the focus is on the costs to the 
Postal Service. It further uses the terminology ``to the extent 
practical'' presumably to allow for the use of proxies for mailer-
specific information when it is unavailable. PostCom's proposal states:

    Include an analysis which sets forth, to the extent practical, 
estimated mailer-specific costs to the Postal Service and the 
estimated volumes and revenues which will result from implementation 
of the Negotiated Service

[[Page 7583]]

Agreement; PostCom at 6-7. PostCom also proposes complementary 
changes to Sec.Sec. 3001.193(e)(6)-(8).

    The Postal Service supports PostCom's proposal to modify Sec.Sec. 
3001.193(e)(5)-(8), and has incorporated the essence of PostCom's 
proposal into its revised proposal. The Postal Service contends that 
these modifications streamline the structure of the rule and remove 
certain redundancies. Postal Service Reply at 15-16.
    Valpak contends that the rules in regard to requiring mailer-
specific cost information are reasonable and necessary. It asserts the 
relevant issue is the necessity to obtain reliable cost estimates on 
which the Commission can base its rate recommendations. It dismisses 
some commentary provided by other parties as arguing it is impractical 
to require the Postal Service to meet virtually any burden to obtain a 
desired change in rates. Valpak's comments provide examples discussing 
the importance of good proxies and mailer-specific costs.
    In regard to PostCom's proposal to focus on Postal Service costs, 
Valpak does not object to the rewording of Sec. 3001.193(e)(5). 
However, it contends that PostCom's implication that the proposed rule 
requires anything other than Postal Service costs is rather stretched. 
Valpak also objects to the addition of the phrase ``to the extent 
practical.'' It argues that this could vitiate the rule, potentially 
acting as a permanent waiver. Valpak Reply at 1-5.
    NAA contends that since the Postal Service does not have residual 
claimants to answer to if it enters into unwise deals, it is more 
important, not less, to understand the costs of what it is committing 
to. It is dismissive of other comments paying ``lip service'' to the 
concept that mailer-specific data is desirable, but that actually 
obtaining such data generally would be too difficult. It remains 
unconvinced of the Postal Service's position, which it summarizes as 
mailer-specific costs are unknowable, but average costs should usually 
suffice. NAA contends that private regulated carriers routinely engage 
in such cost analysis. NAA Reply at 5-7. NAA also supports requiring 
the financial analysis to be considered over the life of the agreement 
stating: ``If the Postal Service truly cannot arrive at a reasonably 
realistic assessment, taking into account all pertinent considerations, 
whether a particular deal would raise or lower contribution, it should 
not enter the agreement.'' Id. at 7-8.
    UPS views the gathering of mailer-specific information as the cost 
of offering mailer-specific rates, the absence of which draws into 
question the very concept of Negotiated Service Agreements. It asserts 
that ``large'' mailers are urging the Commission to abandon attempts to 
obtain mailer-specific costs and other information, but they do not 
contend that such information is not relevant to the proceeding. 
Generally, UPS supports the mailer-specific information requirements. 
UPS Reply at 3-4. UPS also supports the multi-year financial analysis 
proposed by the rules. Id. at 4-7.
    The Commission assumes that the negotiators and the decision-makers 
involved with entering into Negotiated Service Agreements require a 
certain level of information in order to exercise appropriate business 
judgement. Where information is unavailable that is necessary to 
exercise this judgement, the Commission expects the expenditure of some 
level of effort to gather the required information. In most instances, 
the information sought by the Commission is the minimum information 
that should be under consideration during the negotiation and decision-
making process. The Commission requires this information in order to 
carry out its statutory functions. Thus, the Commission is not 
persuaded by arguments that the rules impose too high of a burden, or 
that it is unreasonable to ask proponents to gather information 
required to justify any one particular request.
    Requests predicated on Negotiated Service Agreements are not 
requests for experimental classifications. The purpose of an 
experimental classification is for the Postal Service to learn 
something. Experimental rules anticipate that certain information might 
not be available because a purpose of the experiment might be to gather 
that information. The existence of these rules does not prevent the 
Postal Service from filing requests for experimental authority to test 
potentially beneficial arrangements.
    Nor are requests predicated on Negotiated Service Agreements the 
same as a request in an omnibus rate case. The rules for an omnibus 
rate case allow for a wide spectrum of material with its associated 
levels of uncertainty that potentially could effect postal services for 
an unknown period of time. Because of these and other characteristics, 
a test year approach is appropriate for an omnibus rate case. In 
contrast, Negotiated Service Agreements are limited in both scope and 
duration. The Postal Service should not be entering into a Negotiated 
Service Agreement unless it has good reason to believe the agreement 
benefits the Postal Service. Because of limited scope and duration, and 
the requirement to benefit the Postal Service, it appears reasonable to 
assume that the proponents of an agreement should and could have a high 
level of understanding as to the bases of that agreement. Without this 
understanding, it might be unwise to continue considering such an 
agreement. Because of the characteristics of Negotiated Service 
Agreements, compared with the characteristics of experimental and 
omnibus rate cases, the Commission believes that the financial analysis 
rule is appropriate under the circumstances, and is not unduly 
burdensome.
    The Commission is not persuaded by the argument that because a 
Negotiated Service Agreement typically might not have a substantial 
effect on the finances of the Postal Service, the less burdensome rules 
for experimental classifications might be more appropriate. While it 
might be true that any one Negotiated Service Agreement may have little 
effect on overall Postal Service finances, there has been an indication 
that many parties are interested in pursuing Negotiated Service 
Agreements. Assuming that multiple Negotiated Service Agreements are 
approved, the Commission has concern that the cumulative effects of 
multiple agreements could have an appreciable effect on Postal Service 
finances, and will have a further effect on the analysis of any future 
omnibus rate case. This makes it important to appropriately review 
every request predicated on a Negotiated Service Agreement.
    There does not appear to be any suggestion that the information 
that the rules require is not relevant. Most of the commentary is on 
the burden imposed with gathering information, the difficulties in 
obtaining mailer-specific information, or in making projections into 
the future. The Commission requires information relevant to analyzing a 
request over the proposed duration of the agreement. If information is 
unavailable over the duration of the agreement, this analysis cannot be 
accomplished, and the agreement cannot be reviewed for compliance with 
the requirements of the Act. Proponents have the option of requesting 
shorter duration agreements, if that is all that can be justified given 
the available information.
    The clarifications suggested by MMA are appropriate. For example, 
where discussion focuses on ``mailer-specific costs,'' the concern is 
with costs incurred by the Postal Service to handle the mail of the 
specific mailer.

[[Page 7584]]

Furthermore, if an element of analysis, such as mailer-specific 
elasticity factors, is not relevant to the Commission's review of a 
specific request, it need not be developed.
    The financial analysis rule as proposed provides the Postal Service 
with considerable latitude to appropriately formulate its response to 
the characteristics of the particular request. Because of this inherent 
flexibility, the Commission will apply the rule of reason in 
interpreting compliance with the rule. The Postal Service is 
sufficiently sophisticated to know generally what information is 
relevant, and must be submitted, and what is not relevant and need not 
be submitted. Thus, the Commission is not persuaded that the rules will 
result in the submission of substantial amounts of information not 
relevant to the analysis of the request.
    The Commission requires certain information in order to carry out 
its statutory duties. It is not persuaded that it is imposing an unfair 
burden on any proponent by requiring that this information be provided. 
Negotiated Service Agreements provide participating mailers with 
benefits that are not available to other mailers in general. The 
requirement to substantiate a request for a Negotiated Service 
Agreement is part of the cost of receiving those benefits. The 
Commission believes that the rules strike the right balance to provide 
the Commission with the information necessary to review the request, 
without unduly burdening the proponents of the agreement.
    The Postal Service supports Sec. 3002.193(e) in that the 
requirements ``appear to be intended to elicit a workable set of 
materials that should be sufficient to explain and justify the 
financial components of a proposed NSA.'' Nevertheless, the Postal 
Service has concerns over the structure of the requirement, and over a 
few of its provisions. Postal Service at 6-14.
    The Postal Service does not oppose (even though it is not convinced 
that it is the preferred approach) a multi-year financial analysis 
versus a test year financial analysis to analyze the financial effects 
of a Negotiated Service Agreement. It argues that the scope and 
reliability of estimates might not be consistent when going from the 
first year of an agreement to the subsequent years. From its Capital 
One experience, it asserts it found difficulty in obtaining a one-year 
forecast. Thus, it contends that projecting a forecast over multiple 
years would present serious challenges.
    To cope with these challenges, the Postal Service proposes a 
restructuring of subsection (e).\15\ Subsection (e) would be subdivided 
into two subdivisions. The first subdivision would focus on the first 
year of the agreement and essentially provide the same information as 
proposed in the Commission's rule. The second subdivision would 
continue to require a yearly financial analysis for the subsequent 
years. However, the focus in the subsequent years would shift to 
analyzing identifiable changes from the first year, rather than to 
build a separate analysis for each subsequent year from the ground up. 
The Postal Service would first identify factors that ``might'' cause 
the relevant elements of the analysis to differ materially from the 
corresponding elements in the first year. The potential effects of each 
factor would then be examined and quantified. Finally, the projected 
effects of all such factors would be aggregated into a restated 
financial analysis for each component of the agreement. The intent of 
the Postal Service's proposal is to better align the rule with what it 
views as the reality of the significant limitation on the amount and 
quality of information available past the first year of the agreement.
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    \15\ The Commission's comments and analysis are directed at the 
Postal Service proposal as it appears in its initial comments. 
Postal Service at Attachment 2-4. The Postal Service revises its 
initial proposal in its reply comments based on suggestions from 
other commentators. Postal Service Reply at Attachment 3-4. The 
suggestions of the other commentators incorporated by the Postal 
Service are addressed separately in this order.
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    The Postal Service also has concerns in regard to the mailer-
specific cost provisions of the rule. It reiterates its past position 
that determining ``mailer-specific costs in all but the most 
extraordinary circumstances would be nigh impossible.'' It asserts that 
generally speaking it cannot hope to trace any particular customer's 
mail through the postal system. Given these concerns, however, the 
Postal Service believes that subsection (e) as proposed will provide it 
with the necessary latitude to structure its financial analysis, 
without the necessity to resort to routine requests for waivers. It 
acknowledges the importance of using the most accurate costs available, 
and does not intend to use, for example, subclass averages where it 
does not believe that will do a good job of estimating true costs. 
Finally, the Postal Service recognizes that special studies may be 
appropriate in some instances.
    The Commission compliments the Postal Service for its well-reasoned 
commentary, analysis and proposals in regard to the proposed financial 
analysis rule. The Commission shares many of the Postal Service's 
observations and concerns in drafting rules applicable to a basically 
uncharted territory. Either the Commission's approach or the Postal 
Service's alternative approach could form the basis of a rule to 
analyze the financial consequences of a multi-year Negotiated Service 
Agreement. The two approaches substantially coincide for the first year 
of any agreement. For the potential second and third years of an 
agreement, the differences appear more philosophical than substantive.
    The Postal Service's approach potentially has one time savings 
advantage. It should present, up-front, potential changes to the 
financial analysis that might occur beyond the first year without 
requiring the Commission or interested parties to discover this 
information on their own. This could reduce the time necessary for 
analyzing a Postal Service request. The risk is that the Postal Service 
could apply a loose standard to interpreting what factors ``might'' 
cause the relevant elements of the analysis to differ ``materially'' 
from the corresponding elements in the first year, which would negate 
any benefit.
    The Commission shall adopt the Postal Service's approach as 
proposed in its initial comments. This decision is substantially based 
on the slight advantage inherent in the Postal Service's approach. Both 
the Commission's approach and the Postal Service's approach, if 
properly applied, have the potential to provide the Commission with the 
information necessary to make an informed recommendation. If the Postal 
Service's approach proves inadequate, the Commission has the option of 
revisiting these provisions at a later time.
    The Commission recognizes as valid many of the concerns raised by 
the Postal Service, and other intervenors. The rule requires the 
estimation of future events. It is a valid and acceptable argument that 
the farther out in time an estimation is made, the less certain the 
reliability of that estimation. The end effect will be that at a 
certain point in the future, the information becomes so unreliable that 
it is no longer of any use to justify a request. This might act to 
limit the duration of any proposed agreement. The Commission also 
accepts the Postal Service argument that it might not know every aspect 
of a mailer's costs. However, the Commission expects the Postal Service 
to know and understand mailer-specific costs where they have a bearing 
on a request. This is all part of analyzing the financial aspects of 
any proposed agreement.

[[Page 7585]]

    Subsection (e)(3) requires the financial analysis to: ``Be prepared 
in sufficient detail to allow independent replication, including 
citation to all referenced material.'' OCA proposes to include a 
reference in subsection (e)(3) to the Sec. 3001.193(h)(4) workpaper 
rules to make clear that the citation requirements of subsection (e)(3) 
are as stringent as the requirements for workpapers. OCA at 15. The 
Postal Service is opposed to this proposal because the requirement 
already requires the analysis to ``be prepared in sufficient detail to 
allow independent replication.'' Postal Service Reply at 16.
    The Commission finds subsection (e)(3) acceptable as proposed, and 
is not persuaded that the OCA proposal suggests a necessary or 
desirable change.
    Subsection (e)(4) requires the financial analysis to: ``Include an 
analysis, which sets forth the estimated mailer-specific costs, 
volumes, and revenues of the Postal Service for each year that the 
Negotiated Service Agreement is to be in effect assuming the then 
effective postal rates and fees absent the implementation of the 
Negotiated Service Agreement.'' Subsection (e)(5) requires the 
financial analysis to: ``Include an analysis which sets forth actual 
and estimated mailer-specific costs, volumes, and revenues of the 
Postal Service which result from implementation of the Negotiated 
Service Agreement.''
    PostCom and OCA note that subsection (e)(4) requires ``estimated'' 
mailer-specific costs, volumes, and revenues, whereas subsection (e)(5) 
requires ``actual and estimated'' mailer-specific costs, volumes, and 
revenues. PostCom suggests deleting the requirement for ``actual'' 
information from subsection (e)(5) because much more commonly, the 
costs and volume data will be estimates. PostCom at 5. OCA proposes to 
make subsection (e)(4) and (e)(5) symmetrical by adding ``actual'' to 
subsection (e)(4). OCA at 15-16. The Postal Service endorses the 
approach taken by PostCom by noting that the ``availability of actual 
financial information for a future period seems equally unlikely in 
either scenario.'' Postal Service Reply at 15-16.
    The Commission shall delete ``actual'' from subsection (e)(5). Both 
subsections (e)(4) and (e)(5) require the Postal Service to perform a 
prospective analysis of future events. The mailer-specific costs, 
volumes, and revenues might be known in the past, or at the present, 
but they would only be estimates in the future.\16\
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    \16\ This appears as Sec. 3001.193(e)(1)(ii) after incorporation 
of the Postal Service's proposed restructuring of Sec. 3001.193(e).
---------------------------------------------------------------------------

    Subsection (e)(6) requires the analysis to: ``Include a discussion 
of the effects of the Negotiated Service Agreement on contribution to 
the Postal Service (including consideration of the effect on 
contribution from mailers whom [sic] are not parties to the 
agreement).'' OCA proposes to require an ``analysis'' rather than a 
``discussion.''\17\ OCA at 16. The Postal Service does not support 
changing the terminology to ``analysis.'' It questions whether anything 
useful is gained by making the substitution, and contends that the term 
``analysis'' might be misconstrued. Postal Service Reply at 16-17.
---------------------------------------------------------------------------

    \17\ OCA proposes a similar change to the last sentence of Sec. 
3001.193(e) which delineates the procedures to be followed when 
mailer-specific costs or elasticity factors are not available. 
Within the context of the last sentence of Sec. 3001.193(e) 
[renumbered Sec. 3001.193(e)(1)], it is appropriate to ``discuss'' 
the suitability of proposed proxies for cost or elasticity factors.
---------------------------------------------------------------------------

    The Commission interprets OCA's concern as with the level of detail 
required to comply with this rule. Parties on their own should be able 
to determine the first order effects on contribution from the cost, 
volume, and revenue requirements of subsections (e)(4) and (e)(5). 
However, subsection (e)(6) is meant to emphasize the importance of the 
consideration of contribution to the overall recommendation, and alert 
the Postal Service that this issue warrants separate treatment. 
Subsection (e)(6) requires a quantitative as well as qualitative 
response. Because the word ``analysis'' may be interpreted as more 
inclusive, the Commission will accept the OCA proposal and change the 
word ``discussion'' to ``analysis'' in the final rule.
    NNA proposes the addition of a requirement for all costs to be 
presented by cost segment in regard to worksharing type Negotiated 
Service Agreements. It argues that the purpose of this requirement is 
to allow small competitors and the Commission to better identify 
potential functionally equivalent arrangements. NNA at 6-7. In 
addition, NNA proposes to add a requirement to Sec. 3001.193(e)(6) for 
the Postal Service to provide a plan demonstrating how it will make the 
individual features of a Negotiated Service Agreement available to 
mailers not party to the agreement. Id. at 7-8.
    The Postal Service is opposed to the NNA proposal requiring 
estimated costs to be presented by cost segment. Given the purported 
purpose of enabling smaller mailers to identify potentially 
functionally equivalent arrangements, and the ability of the 
uninitiated to understand and utilize arcane cost segment data, the 
Postal Service cannot conceive how this information could benefit a 
small mailer. Thus, the Postal Service contends that the proposed 
requirement is unnecessary and burdensome. Postal Service Reply at 17-
18.
    In instances outside of omnibus rate cases, the Commission does not 
always require cost estimates to be presented by cost segment.\18\ If 
this information becomes necessary to analyze a specific request, a 
participant or the Commission can request it separately. The Commission 
interprets NNA's goal as requiring the Postal Service to provide 
detailed information for examining the potential for developing new or 
functionally equivalent Negotiated Service Agreements, and not for 
analyzing the instant request. The inference is that picking and 
choosing desirable functional elements from a proposed multi-element 
Negotiated Service Agreement could be used to develop new Negotiated 
Service Agreements. While the Commission considers it a requirement 
that similarly situated mailers have the opportunity to obtain 
functionally equivalent Negotiated Service Agreements, dissecting an 
agreement for the purpose of developing and promoting future agreements 
is beyond what the Commission requires. It also is beyond what is 
necessary to evaluate the merits of any one Postal Service request.
---------------------------------------------------------------------------

    \18\ However, this level of detail might become necessary when 
integrating the effects of a Negotiated Service Agreement into an 
omnibus rate case.
---------------------------------------------------------------------------

    OCA proposes the addition of a ninth requirement to subsection (e) 
which states: [the analysis shall] ``demonstrate that the impact of the 
Negotiated Service Agreement on the net present values of the Postal 
Service is significant and positive.'' The OCA asserts that this would 
insure that the time value of money is accounted for in estimating the 
effect of a Negotiated Service Agreement on Postal Service finances. 
OCA at 16. The Postal Service opposes the addition of this requirement 
as it adds far more needless complication than real substance. Postal 
Service Reply at 17.
    The Commission concurs with the Postal Service. OCA fails to 
provide any persuasive explanation of how analyzing an effect on net 
present value, in light of all of the other informational requirements, 
would add further insight to the Commission's recommendations.

[[Page 7586]]

Subsection (f)--Impact Analysis

    Subsection (f) requires the Postal Service to include an estimate 
of the impact of the Negotiated Service Agreement on: competitors of 
the parties to the Negotiated Service Agreement other than the Postal 
Service; competitors of the Postal Service; and mail users.
    First Data contends that the requirements of subsection (f) are 
burdensome and suggests that the subsection be deleted. First Data at 
3-5. MMA asserts that subsection (f) is burdensome, of questionable 
value, and also suggests that it should be deleted. MMA at 6. DMA et 
al. contend that subsection (f) is burdensome, and that the requirement 
is vague. DMA et al. at 11. Capital One objects to subsection (f) in 
general, and (f)(2) specifically. It contends that complying with the 
requirement would be an onerous task, and that the ``Panzar'' effects 
that this subsection arguably responds to are too remote for 
consideration. It also asserts that the Commission's obligation is to 
ensure that proposals promote rather than harm competition, and not to 
assess the benefit or harm to any particular competitor as Capital One 
argues is required by subsection (f)(2). Capital One at 6-7.
    NAA emphatically supports analyzing the competitive effects of 
Negotiated Service Agreements. NAA Reply at 8-11. UPS argues that 
subsection (f) is supported by the factors of the Act and urges the 
rejection of proposals to eliminate this requirement from the rule. UPS 
Reply at 4. Valpak supports a broad analysis on the consequences that 
Negotiated Service Agreements have on third parties. Valpak at 8-11; 
Valpak Reply at 10-11. OCA opposes elimination of subsection (f). It 
argues that because the Commission must find that each Negotiated 
Service Agreement serves the public interest, it should insist that the 
Postal Service's filing contain what is essentially a social cost-
benefit analysis. OCA Reply at 8-9.
    The Postal Service's concern is with the potential burden imposed 
by subsection (f), and it questions whether the information required to 
comply with the requirement will even be available. It suggests that 
the Postal Service could first provide some analysis, but then the 
burden should shift to the competitors to raise competitive issues. The 
Postal Service implies that it should really just be reacting to third-
party claims of competitive harm brought up in the proceeding. The 
Postal Service states that it ``would be willing to provide information 
with its filing concerning the competitive context in which the NSA 
takes place, and otherwise qualitatively demonstrate that it has 
considered such competitive effects prior to filing the NSA request.'' 
Postal Service at 15-19; Postal Service Reply at 18-20.
    The Commission anticipates that the burden of complying with 
subsection (f) will vary considerably depending on the specifics of the 
Negotiated Service Agreement and the parties involved. The subsection 
is written using general language to allow the Postal Service the 
flexibility to formulate a response appropriate under the 
circumstances. The commentary on the rule fairly equally argues in 
support of and in opposition to the proposed rule. The rule addresses a 
difficult subject area. However, the information it requires is 
necessary for the Commission to analyze the request in relation to the 
requirements of the Act. It is particularly important for Negotiated 
Service Agreements involving mail subject to the Postal Service 
monopoly. The Commission will retain this rule in the final rules, but 
will be willing to entertain suggestions for future improvements after 
gaining further experience.
    Several comments discuss whether it is appropriate for the Postal 
Service to have the initial burden of presenting competitive issues or 
whether third party competitors should be required to protect their own 
interest by intervening in the proceeding. First Data argues that the 
Commission should rely on the normal adversarial process for third 
parties to protect their interests. First Data at 3-5. MMA contends 
that the Commission should rely on intervention by third-party 
competitors to protect their own interests, and intervention by the OCA 
to represent the interests of the general public. MMA at 6. OCA 
supports the adversarial approach assuming that all adversely affected 
parties are of similar size and financial resources to the proponents 
of the Negotiated Service Agreement. However, OCA contends that if a 
large number of small firms were adversely affected, no single small 
firm would find it worthwhile to incur the costs of litigation, even if 
the aggregate negative effects of the Negotiated Service Agreement were 
large. OCA Reply at 8-9.
    The Commission believes that the adversarial process, in most 
instances, is the preferred methodology of resolving issues before the 
Commission. This methodology is most efficient where adversaries 
possess comparable resources and knowledge. In this situation, parties 
can be presumed to have the responsibility to intervene in a proceeding 
if their interests are at stake.
    However, requests predicated on Negotiated Service Agreements 
present a different situation to the Commission. Competitors of the 
proponent requesting a Negotiated Service Agreement cannot be presumed 
to have comparable resources and knowledge to intervene for the purpose 
of protecting their own interests. For example, the Capital One NSA 
experience showed very few competitors approaching Capital One's 
resources and knowledge. It is unreasonable to expect small businesses 
to be constantly aware of the potential impact of Negotiated Service 
Agreements filed with the Commission, and to be prepared to raise their 
concerns in the limited time frames established by these rules. This 
could leave multiple, similar small competitors not represented and 
unprotected when considering the aggregate effect of a Negotiated 
Service Agreement, especially since these cases are expected to proceed 
with expedited timetables. Thus, the Commission is not persuaded that 
total reliance on the adversarial system is consistent with its 
statutory obligations, or is in the best interest of all mailers or the 
postal system. Subsection (f) is intended to complement the adversarial 
process. Requiring the proponents of a Negotiated Service Agreement to 
initially analyze competitive issues and provide analysis to the 
Commission is a modest step in the direction of assuring an adequate 
record on this important issue.
    The Commission considers it fair and equitable to place the initial 
burden on the Postal Service and its co-proponents. The Postal Service 
is likely to have greater access to information about mail markets and 
be better able to evaluate potential impacts than the vast majority of 
mailers who may be concerned about the possible impacts of a Negotiated 
Service Agreement. Its co-proponents are assumed to be in the industry 
that would be affected by the Negotiated Service Agreement, and should 
be knowledgeable about competitive issues within their own industry, 
and competitive relationships within the industry. Both the Postal 
Service and its co-proponents presumably have recently undertaken the 
negotiation process where many of these issues may have been 
considered. Thus, the Postal Service and its co-proponents are in a 
superior position to efficiently address this topic.
    Providing information on the competitive issues of a Negotiated 
Service Agreement with the request also facilitates issuing a prompt 
decision.

[[Page 7587]]

Expediting the proceeding has been stressed in many of the comments. 
The Commission found it necessary to sponsor a witness to address 
certain issues when it evaluated the Capital One Negotiated Service 
Agreement. This was time consuming both from the aspect of providing 
time for the witness to develop the required testimony, and of 
providing time for interested parties to respond to the testimony. 
Assuring the availability of an analysis of impact on competition up 
front, with the request, appears to be a more efficient way to proceed.
    Discover and Pitney Bowes suggest textual changes that could make 
compliance with the requirement less onerous. Discover proposes that 
the word ``discussion'' be used in place of the words ``analysis'' and 
``estimate'' in subsection (f). It argues that most Negotiated Service 
Agreements only have limited impact on competition, providing there is 
rapid approval of functionally equivalent agreements. Thus, anything 
more than requiring a simple statement will only increase the 
transaction costs of the review process. Discover Reply at 5-6. 
Discover also suggests that the Commission distinguish between 
different types of Negotiated Service Agreements in setting 
requirements for analyzing the impact of a Negotiated Service 
Agreement. Id. at 7-8. Pitney Bowes suggests that subsection (f) only 
require the parties to ``consider'' competitive effects. It also 
suggests that extensive data or information is not necessary if 
competitors do not appear to oppose the Negotiated Service 
Agreement.\19\ Pitney Bowes at 6-7.
---------------------------------------------------------------------------

    \19\ Pitney Bowes questions whether there is a distinction 
between analyzing the impact on mail users as a group and analyzing 
overall system contribution. In many instances, changes in 
contribution will be the major impact on users of the mail. In other 
instances, a Negotiated Service Agreement could have an impact for 
example on service standards, which could effect users of the mail. 
The Commission does not know what types of Negotiated Service 
Agreements that the Postal Service is contemplating. The specifics 
of a particular Negotiated Service Agreement will determine how the 
Postal Service chooses to comply with this requirement.
---------------------------------------------------------------------------

    The Commission shall not adopt suggestions only to require that 
proponents ``consider'' or ``discuss'' the effect of a Negotiated 
Service Agreement. The Commission considers the effects of a Negotiated 
Service Agreement to be an important issue requiring more than the 
implied limited discussion or consideration. A simple statement that 
the effects of the Negotiated Service Agreement have been considered, 
or a broad statement about competition in general will not suffice in 
providing the Commission with the information necessary to evaluate the 
effects of a Negotiated Service Agreement.
    The Postal Service proposes to change the term ``estimate'' to 
``analysis'' in subsection (f). Postal Service at 15-19.
    The Commission interprets the Postal Service's intent as to require 
more of a qualitative than a quantitative response. The Commission 
expects an analysis to provide both quantitative and qualitative 
information, and thus will change the final rule to refer to an 
``analysis.'' This could be revisited in a future rulemaking after the 
Commission and the Postal Service come to a better understanding, 
through experience, of what information might reasonably be presented.
    Subsection (f) is written with inherent flexibility. The Commission 
tasks the Postal Service with using this flexibility to its advantage, 
and through the rule of reason, provide a response that is appropriate 
under the circumstances.

Subsection (g)--Data Collection Plan

    Subsection (g) requires Postal Service requests to provide a 
proposal for a data collection plan. The Postal Service alerts the 
Commission to a typographical error in a reference to a subsection. 
Postal Service at 27-28. The Commission shall correct the typographical 
error by referencing the correct sections of renumbered Sec. 
3001.193(e) in the final rule.
    OCA suggests an amendment to Sec. 3001.193 to make clear that a 
proposed data collection plan is subject to change by the Commission. 
The OCA proposes to specifically state: ``The proposed data collection 
plan will be subject to amendment by the Commission in its recommended 
decision.'' OCA at 16.
    The Commission has the right to task proponents with collecting 
data and performing analyses appropriate under the specific 
circumstances of any request. The data collection plan proposed in a 
request predicated on a Negotiated Service Agreement serves a different 
purpose, and is anticipated to be less burdensome, than a data 
collection plan appropriate for an experiment. See PRC Order No. 1383 
(August 27, 2003) at 13. The data gathered and analysis performed is 
anticipated to be that which would be done anyway in the normal course 
of business to quantify the benefit to the Postal Service. The 
Commission does not find it necessary to adopt OCA's suggestion in the 
final rule.

Subsection (h)--Workpapers

    No substantive comments in opposition to proposed Sec. 3001.193(h) 
have been received. Section 3001.193(h) shall be included in the final 
rule as originally proposed.

Subsection (i)--Certification by Officials

    No substantive comments in opposition to proposed Sec. 3001.193(i) 
have been received. Section 3001.193(i) shall be included in the final 
rule as originally proposed.

Subsection (j)--Rejection of Requests

    Subsection (j) provides that the Commission may reject any Postal 
Service request which patently fails to substantially comply with any 
requirements of the subpart (subpart L). Subsection (j) is modeled 
after identical language appearing in Sec.Sec. 3001.54(s) and 
3001.64(i).
    The Postal Service reiterates its position expressed in rulemaking 
Docket No. RM80-1 in regard to rules 3001.54 and 3001.64 that rejection 
by the Commission of a Postal Service request made under Sec.Sec. 3622 
and 3623 falls outside the bounds of the Commission's lawful 
authority.\20\ Further, the Postal Service preemptively rejects any 
argument that a rejection of a Postal Service request would affect the 
Postal Service's authority to impose temporary rate and classification 
changes under Sec. 3641, and specifically requests that the provisions 
of Sec. 3641 be cited in Sec. 3001.195. Postal Service at 19-21, 
Attachment at 5.
---------------------------------------------------------------------------

    \20\ See Docket No. RM80-1, Comments of the United States Postal 
Service in Response to Postal Rate Commission Notice of Proposed 
Rulemaking, March 12, 1980.
---------------------------------------------------------------------------

    The legal authority of the Commission to reject a Postal Service 
request that patently fails to substantially comply with filing 
requirements was litigated in Docket No. RM80-1, and comprehensively 
explained in PRC Order No. 354. The finding of legal authority was 
based on the holdings presented in Municipal Light Boards of Reading 
and Wakefield Massachusetts v. Federal Power Commission, 450 F.2d 1341 
(D.C. Cir. 1971), which is still current law. The Postal Service has 
not produced any new argument that would persuade the Commission to 
alter its position. Therefore, subsection (j) shall remain as part of 
the final rule.\21\
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    \21\ The Commission acknowledges that Sec. 3641 provides the 
Postal Service with the authority, under limited circumstances, to 
impose temporary changes in rates and fees. However, the Postal 
Service can only exercise this authority if it meets all of the 
requirements of Sec. 3641. The Postal Service must consider the 
anticipated minimal financial effect of any one Negotiated Service 
Agreement on the ``total'' estimated costs and revenues of the 
Postal Service. See Sec. 3641(b). The classification attached to the 
rate or a fee also would have to exist prior to the Postal Service 
imposing a temporary change to its rate or fee. For these reasons, 
the Commission will not adopt the Postal Service's suggestion of 
providing a cite to Sec. 3641 in Sec. 3001.195.

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[[Page 7588]]

Section 3001.194--Failure to Comply

    No substantive comments in opposition to proposed Sec. 3001.194 
have been received. Section 3001.194 shall be included in the final 
rule as originally proposed.

Section 3001.195--Requests to Recommend a Baseline Negotiated Service 
Agreement

    Section 3001.195 governs Postal Service requests for recommended 
decisions in regard to a baseline Negotiated Service Agreement. A 
baseline Negotiated Service agreement is not predicated on a 
functionally equivalent Negotiated Service Agreement that is currently 
in effect.
    Subsection (a)(1) requires the Postal Service request to include a 
written justification for requesting a Negotiated Service Agreement 
classification as opposed to a more generally applicable form of 
classification.
    NNA supports rigorous application of the requirement to justify 
requesting a Negotiated Service Agreement classification as opposed to 
a more generally applicable form of classification. NAA Reply at 12-17; 
further general support is demonstrated by NNA at 4-6, UPS Reply at 7 
and Valpak at 8. The requirements of subsection (a)(1) shall appear in 
the final rule.
    Subsection (a)(2) requires each Postal Service request to include a 
description of the operational bases of the Negotiated Service 
Agreement, including activities to be performed and facilities to be 
used by all participants.
    DMA et al. argue that the Commission should not be concerned with 
how the mailer's operations work. With respect to the Postal Service, 
DMA et al. argue that the Commission only should be concerned to the 
extent it allows the Commission to probe the validity of cost 
estimates. DMA et al. at 11.
    A thorough understanding of each participant's responsibilities and 
activities is relevant to the consideration of any request for a 
Negotiated Service Agreement. In some instances, this will require 
considerable detail, including information pertaining to operations to 
be performed, financial information, and the facilities to be used. The 
Commission also might require a broad understanding of the mailer's 
operations (and business activities) to review the competitive 
implications of the agreement. The level of detail required will be 
dependent on the specifics of the agreement. Negotiated Service 
Agreements are voluntary agreements; the standard rates, fees, and 
classifications are always available. Thus, mailers seeking Negotiated 
Service Agreements are expected to provide information relevant to the 
Commission's review of the agreement. The requirements of subsection 
(a)(2) shall appear in the final rule.
    Subsection (a)(3) requires the Postal Service request to include a 
statement of the parties' expectation regarding performance under the 
Negotiated Service Agreement.
    PostCom contends that subsection (a)(3) should be deleted because 
it is unlikely that the provision will solicit helpful views, the 
Commission should not be taking these views into consideration in its 
consideration of the agreement, and it could lead to regulatory and 
third-party intrusion into the negotiation process. PostCom at 8. DMA 
et al. question the relevance of subsection (a)(3), because only the 
terms and conditions of the agreement, and not expectations, are 
binding on any of the participants. DMA et al. at 11-12.
    The Commission concludes that although the information required by 
subsection (a)(3) might provide some background, such a response 
inquiring of expectations would involve unnecessary speculation on the 
part of the participants, and is unlikely to be relevant to the 
Commission's final decision. If this issue becomes relevant to a 
specific request, the Commission can always request this information on 
a case-by-case basis. Subsection (a)(3) will not appear in the final 
rule.
    Subsection (b) specifies that the Commission will establish a 
procedural schedule to allow for prompt issuance of a decision. A 
specific time requirement is not specified in the proposed rule.
    The Postal Service suggests the establishment of a 150-day time 
limit from the date of filing for the Commission to issue its 
recommended decision. The Postal Service contends that this will lower 
the perceived transaction costs, and result in sooner implementation of 
the agreement. Furthermore, the Postal Service argues that the 
Commission considers far ranging issues within an omnibus rate case 
within a 10-month time frame. Thus, a more limited inquiry impacting 
perhaps only several mailers should be manageable within five months. 
Postal Service at 21-23. DMA et al. similarly argue for establishment 
of a 150-day time limit from the date of filing. DMA et al. at 8-9. 
Discover supports the Postal Service's suggestion to establish a 150-
day time limit from the date of filing. Discover Reply at 4. Pitney 
Bowes does not suggest a specific limit, but argues that the Commission 
can add some certainty to the process by incorporating time limits into 
the rule. Pitney Bowes at 7.
    OCA and NAA conditionally support the establishment of time limits. 
Rather than an 150-day deadline, OCA would support an 150-day goal. 
Adherence to the goal would be predicated on the proponents of the 
agreement not requesting waiver(s) and fully complying with all filing 
requirements. OCA Reply at 6. NAA argues that if the Commission adopts 
a time limit, then it should expressly reserve the right to take longer 
time if necessary for full and fair consideration. NAA Reply at 11-12.
    The Commission is not inclined to include a deadline in the final 
rules. As the Commission previously stated, ``a Negotiated Service 
Agreement can take many forms, and may include unique and novel issues. 
Because of this, it is difficult to predict the duration of a 
proceeding before initial review of the actual request. A schedule will 
be established in each case, to allow for prompt issuance of a decision 
consistent with procedural fairness.'' PRC Order No. 1383 (August 27, 
2003) at 15. Although establishing a goal of 150 days appears 
reasonable, the Commission does not have sufficient experience with 
requests for Negotiated Service Agreements to be more precise. 
Uncontested and fully supported requests for Negotiated Service 
Agreements should take less than 150 days to be reviewed. Requests for 
Negotiated Service Agreements that are contested or not fully supported 
might take longer than 150 days to be reviewed--as might be warranted 
in such cases. The intent of the Commission is to provide reasonable 
expedition under the circumstances presented when the request is filed.

Section 3001.196--Requests to Recommend a Negotiated Service Agreement 
that is Functionally Equivalent to a Previously Recommended Negotiated 
Service Agreement

    Section 3001.196 governs Postal Service requests for recommended 
decisions in regard to Negotiated Service Agreements that are proffered 
as ``functionally equivalent'' to a Negotiated Service Agreement 
previously recommended by the Commission. The Negotiated Service 
Agreement previously recommended by the Commission is referred to as 
the ``baseline'' agreement. The baseline agreement is required to be in 
effect on the date that the request for a

[[Page 7589]]

functionally equivalent Negotiated Service Agreement is filed.
    The purpose of Sec. 3001.196 is to provide an opportunity to 
expedite the review of a request for a functionally equivalent 
Negotiated Service Agreement by allowing the proponents of the 
agreement to rely on relevant record testimony from a previous docket. 
This potentially could expedite the proceeding by avoiding the need to 
re-litigate issues that were recently litigated and resolved in a 
previous docket.
    The Postal Service contends that the terminology ``functional 
equivalence'' will cause unnecessary and unwarranted confusion, and 
suggests use of ``derivative NSA'' as an alternative. Postal Service at 
23-25. The Postal Service's concern is that previous usage of the 
terminology ``functional equivalence'' only referred to the operational 
functions of a service. For example, the Mailing Online Domestic Mail 
Classification Schedule language, which references a functionally 
equivalent service, only referred to the operational functions of 
Mailing Online.\22\ Another example is the Domestic Mail Classification 
Schedule language proposed in the Capital One Stipulation and Agreement 
that refers only to the minimal substantive characterizations of that 
agreement.\23\ In regard to Negotiated Service Agreements, the 
Commission has stated that functional equivalence is broader than the 
literal terms and conditions of each agreement. The Postal Service 
notes that the Commission suggests factors such as deriving a 
functionally equivalent benefit from a proposed agreement might be 
relevant to the determination of functional equivalency. PRC Order No. 
1383 (August 27, 2003) at 3. The Postal Service suggests that this 
broader interpretation of ``functional equivalence'' is not consistent 
with previous interpretations, and could cause confusion.
---------------------------------------------------------------------------

    \22\ The Commission was notified on August 29, 2003 that the 
Postal Service was no longer offering the experimental Mailing 
Online service. The Commission subsequently removed references to 
Mailing Online (including the definition for a functionally 
equivalent service) from the Domestic Mail Classification Schedule 
in the October 19, 2003 revision to the Domestic Mail Classification 
Schedule. Thus, this source of potential confusion no longer exists.
    \23\ The Postal Service contends that the Commission failed to 
incorporate language suggested by the Capital One Stipulation and 
Agreement into the Domestic Mail Classification Schedule in regard 
to mailers eligible for functionally equivalent Negotiated Service 
Agreements. The Postal Service assumes that this omission was an 
oversight. Postal Service at 23-24, fn. 9. The language in question 
had in fact been incorporated into the Domestic Mail Classification 
Schedule at Sec. 610.12.
---------------------------------------------------------------------------

    The Commission will not adopt the terminology ``derivative NSA'' 
because it does not offer a real improvement over the proposed 
terminology and it does not address the heart of the problem, which 
lies in formulating a working definition for a concept that has not 
been fully explored.
    The Commission has an additional concern in that the terminology 
``derivative NSA'' might imply a too expansive definition for what may 
be considered under the Sec. 3001.196 rules. This can best be described 
by example. Assume a baseline Negotiated Service Agreement that 
contains several operational elements. Then assume a second Negotiated 
Service Agreement that contains the identical operational elements, 
plus the addition of one or more additional, important, substantive 
functional elements. The second NSA could be said to be derived from, 
or a derivative of, the baseline Negotiated Service Agreement. The 
Commission would not find the second agreement ``functionally 
equivalent'' to the baseline agreement because the additional 
substantive elements, and their interaction with the other elements, 
would not previously have been reviewed. The Commission believes the 
term ``derivative NSA'' might cause confusion in such a case.
    As a second alternative to ``functional equivalence,'' the Postal 
Service suggests even more neutral terms such as ``category 1'' and 
``category 2'' to respectively describe a baseline and a functionally 
equivalent Negotiated Service Agreement. Postal Service Reply at 20-21.
    The Postal Service's alternate suggestions of category 1 and 
category 2 Negotiated Service Agreements lends even less clarity to the 
situation. To be useful, terminology such as category 1 and category 2 
necessarily require definitions. Thus, the original definitional 
problem remains and is only hidden behind more non-descriptive 
terminology.
    The Commission understands the Postal Service's concerns, but does 
not envision more complete resolution of this issue until further 
experience with Negotiated Service Agreements has been developed. To 
better understand the Commission's expectations, the Commission below 
discusses three terms: ``functionally equivalent,'' ``similarly 
situated,'' and a new term ``comparable benefit.'' This discussion 
should add some context in which the terminology can be more fully 
developed in the future.
    ``Functional equivalency'' focuses on (1) a comparison of the 
literal terms and conditions of one Negotiated Service Agreement with 
the literal terms and conditions of a second Negotiated Service 
Agreement, and (2) a comparison of the effect that each agreement has 
upon the Postal Service.
    The first part of the analysis is an examination of the literal 
terms and conditions of each Negotiated Service Agreement. For two 
different Negotiated Service Agreements to be considered functionally 
equivalent, each agreement must primarily rest on the same substantive 
functional elements. At this point, the Commission expects to focus on 
examining how each element functions or works, and not on the specific 
numeric details (i.e., costs, volumes, breakpoints, etc.).
    For example, the Capital One NSA contains two functional elements, 
an address correction element (which is the primary cost savings 
element for the Postal Service), and a declining-block rate element. 
Assume that a second Negotiated Service Agreement consists of a similar 
address correction element and a similar declining-block rate element, 
with no additional elements. This would satisfy the first part of the 
analysis for functional equivalency. Assume that a third Negotiated 
Service Agreement consists of a substitute cost savings element (other 
than the address correction element contained in the first agreement 
but still providing a comparable cost savings) and a similar declining-
block rate element. The cost savings element is not similar and thus 
this agreement would not satisfy the first part of the analysis for 
functional equivalency.\24\
---------------------------------------------------------------------------

    \24\ The Commission would entertain waiver requests to avoid re-
litigation of similar elements as long as the material is current 
and remains relevant.
---------------------------------------------------------------------------

    For the second part of the analysis, the Commission will go beyond 
the literal terms and conditions of the agreements and compare the 
effect that the baseline and proffered functionally equivalent 
agreements have on the Postal Service. The Commission gave an example 
that the analysis might examine whether the Postal Service derives a 
``functionally equivalent'' benefit from a proposed subsequent 
Negotiated Service Agreement. See PRC Order No. 1383 (August 27, 2003) 
at 3, fn. 3. The choice of words ``functionally equivalent benefit'' 
was unfortunate because of the confusion it could cause when 
considering overall functional equivalency. The Commission will instead 
adopt the terminology ``comparable benefit'' to describe this concept. 
A comparable benefit does not

[[Page 7590]]

mean an identical benefit, but instead will be placed into context by 
the terms and conditions of each agreement, and the characteristics of 
each participant.
    For example, again assume the Capital One NSA is proposed as the 
baseline agreement (an address correction element and a declining-block 
rate element). The proposed subsequent agreement contains identical 
terms and conditions to the terms and conditions contained in the 
Capital One NSA. Thus far, because the literal terms and conditions of 
both agreements are identical, the first condition of functional 
equivalency has been met. However, the second mailer, Mailer Two, does 
not approach the return rate of Capital One to the point that the 
address correction element is essentially irrelevant, and most if not 
all of the potential Postal Service cost savings are eliminated. (In 
reality, the agreement consists solely of a declining-block rate 
discount.) The Postal Service will not obtain a comparable benefit from 
such an agreement. The Commission would therefore not consider Mailer 
Two's agreement to be functionally equivalent to the Capital One 
Negotiated Service Agreement.
    In the above example, it can be concluded that Mailer Two is not 
``similarly situated'' to Capital One. ``Similarly situated'' refers to 
a comparison of the relevant characteristics of different mailers as 
the characteristics apply to a particular Negotiated Service Agreement. 
Mailer Two's agreement was found not functionally equivalent because it 
lacked a comparable benefit to the Postal Service. However, whether or 
not Mailer Two is similarly situated to Capital One is not dispositive 
of the issue. It is possible that two mailers who are not similarly 
situated could qualify for functionally equivalent Negotiated Service 
Agreements, given comparable benefits to the Postal Service.
    Discussions of whether mailers are similarly situated are more 
appropriately reserved for allegations of possible discrimination or 
discussion of competitive issues. A qualifying mailer that is similarly 
situated to a mailer participating in a Negotiated Service Agreement 
must have a similar opportunity to participate in a functionally 
equivalent Negotiated Service Agreement. Not providing this opportunity 
would raise the possibility of discrimination. In an attempt to 
differentiate the concepts of functionally equivalent from the concept 
of similarly situated, the Commission will strive to use the 
terminology similarly situated only when addressing concerns of 
competition or discrimination, and not to use similarly situated when 
addressing application of the functional equivalency rules.
    The issue of discrimination might arise in a separate complaint 
where a mailer alleges that it is similarly situated to a mailer 
operating under the terms and conditions of a Negotiated Service 
Agreement, but that it has been denied a similar opportunity to 
participate in a functionally equivalent Negotiated Service Agreement.
    The issue of discrimination also might arise in opposition to a 
Postal Service request to recommend a functionally equivalent 
Negotiated Service Agreement. In this instance, assume that the 
proposed Negotiated Service Agreement (the Mailer Two agreement) is 
found functionally equivalent to a baseline Negotiated Service 
Agreement. Further assume that Mailer Two is not similarly situated to 
the mailer in the baseline agreement. For example, Mailer Two is in a 
different industry than the mailer in the baseline agreement.\25\ 
Further assume the possibility that the industry in which Mailer Two 
operates might find the functionally equivalent Negotiated Service 
Agreement anti-competitive or discriminatory. The baseline case might 
or might not have addressed the industry specific issue of competition 
or discrimination in Mailer Two's industry.
---------------------------------------------------------------------------

    \25\ This might or might not require a more expansive definition 
of similarly situated than previously proposed. For this discussion, 
it shall be assumed that the mailer's industry is relevant to a 
finding of similarly situated.
---------------------------------------------------------------------------

    Section 3001.196(a)(6)(ii) and (iii), as proposed, alerts the 
Postal Service that competitive issues will be relevant to every 
request predicated on a functionally equivalent Negotiated Service 
Agreement. Assuming compliance with Sec. 3001.196(a)(6)(ii) and (iii), 
the Commission would likely find application of the expedited 
functional equivalency rules appropriate for streamlining much of the 
hypothetical proceeding. However, if substantive issues in regard to 
competition or discrimination are raised by a representative of Mailer 
Two's industry, and these industry specific issues were not adequately 
addressed in the baseline proceeding, the Commission would not bar 
representatives of Mailer Two's industry from raising these issues in 
the functionally equivalent proceeding. Furthermore, if these concerns 
have merit, it might not be possible to adhere to the expedited 
procedural schedule as proposed in Sec. 3001.196(d).
    Valpak advocates articulating specific criteria to determine 
whether one Negotiated Service Agreement is functionally equivalent to 
another Negotiated Service Agreement. It contends that this will help 
mailers argue their case for comparable treatment with the Postal 
Service, and that it will add certainty to whether the functional 
equivalency rules apply to review of a new request. Valpak at 4-8.
    Valpak's suggestion would add clarity to the rules, however as the 
preceding discussion highlights, without additional experience it may 
be neither possible nor wise to attempt to delineate distinctions at 
this time. The rules as proposed place the burden of arguing functional 
equivalency on the Postal Service. The Commission will decide this 
issue on a case-by-case basis early in the proceeding. Given the need 
to gain experience with the application of these rules, specific 
criteria defining functional equivalency will not be included in the 
rules. As noted throughout this discussion, it is the Commission's 
expectation that these rules will be refined and improved in the 
future.
    Subsection (a) limits the applicability of Sec. 3001.196 to an 
agreement that is proffered as functionally equivalent to a Negotiated 
Service Agreement previously recommended by the Commission and 
currently in effect.
    The Postal Service suggests the elimination of the limitation ``and 
currently in effect.'' \26\ It contends that the limitation is 
undesirable because it might encourage longer duration baseline 
Negotiated Service Agreements even where not appropriate, or because it 
may influence negotiations by creating a deadline to conclude 
negotiations. The Postal Service asserts that the option of using a 
waiver to circumvent the requirement would only inject more uncertainty 
into the Negotiated Service Agreement development process. It 
alternatively suggests that the timeliness of the proffered baseline 
Negotiated Service Agreement could be considered on a case-by-case 
basis as one element of the Sec. 3001.196 requirement for the 
Commission to determine whether it is appropriate to proceed under Sec. 
3001.196. Postal Service Supplement at 1-4.
---------------------------------------------------------------------------

    \26\ The following discussion also is applicable to the 
``currently in effect'' limitation appearing in Sec. 3001.195(a).
---------------------------------------------------------------------------

    The Commission included ``and currently in effect'' in the rule to 
add some certainty to what agreements can be used as baseline 
agreements for functionally equivalent proposals. After a period of 
time, the probability increases that the material used in support of a 
baseline agreement will

[[Page 7591]]

become dated and no longer relevant to the review of a functionally 
equivalent Negotiated Service Agreement. The Postal Service's concern, 
that the limitation will encourage entering into agreements that are 
more lengthy than appropriate to facilitate approval of functionally 
equivalent agreements, does not seem plausible. If a baseline agreement 
proves beneficial, it can easily be extended. If it is not beneficial, 
the desirability of a functionally equivalent agreement is suspect. The 
Commission will entertain waiver requests where appropriate when it is 
necessary to use a shorter-term (for example, less than 12 month) 
Negotiated Service Agreement as a baseline.\27\ Use of a longer-term 
Negotiated Service Agreement as a baseline poses less of a problem. 
Similarly situated mailers would have early and adequate notice of the 
potential for a functionally equivalent Negotiated Service Agreement 
upon approval of the baseline agreement. This then will provide a one 
to three year window in which to negotiate a functionally equivalent 
Negotiated Service Agreement. This appears to be adequate, given the 
emphasis placed on rapidly negotiating and implementing such agreements 
exhibited by many of the comments. The ``and currently in effect'' 
limitation serves as a useful benchmark for excluding outdated baseline 
agreements. While recognizing that exceptions might be made, the 
limitation will remain in the final rule.
---------------------------------------------------------------------------

    \27\ The transaction costs of negotiating and approving short-
term Negotiated Service Agreements potentially limit their 
usefulness, and thus might limit the number of such agreements. Use 
of waivers to facilitate timely, short-term functionally equivalent 
agreements should ease this concern. If the Postal Service were to 
anticipate a great interest in any particular short-term Negotiated 
Service Agreement, consideration could be given to reformulating the 
agreement as a niche classification. This potentially will reduce 
overall transaction costs, and implement the service in a shorter 
period of time.
---------------------------------------------------------------------------

    NAA suggests several items that could be incorporated into Sec. 
3001.196. For instance, NAA suggests that the rules expressly provide 
that particular volume levels are not necessary to be considered 
``similarly situated'' or ``functionally equivalent.'' NAA further 
requests the Commission to identify the record on which it will 
determine whether it is appropriate to proceed under Sec. 3001.196, and 
whether discovery will be allowed for this purpose. NAA Reply at 16-17.
    The rules proposed by the Commission are general enough to be 
applicable to a wide range of potential Negotiated Service Agreements. 
Consideration of specific issues is better left to case-by-case 
consideration until further experience is gained with the review of 
requests for Negotiated Service Agreements. The determination of 
whether it is appropriate to proceed under Sec. 3001.196 will be based 
on the Postal Service's request (including the associated and 
referenced material), the material from the proffered baseline docket, 
and oral and written argument presented prior to or on the date of the 
prehearing conference. If necessary, the Commission may request 
additional material for consideration. Consistent with subpart A of the 
Commission's rules, discovery will be allowed, for relevant purposes, 
from the moment of intervention to a period of time following the 
prehearing conference. This time period may or may not be adequate for 
the purpose of probing functional equivalency, and if necessary, 
requests for extensions or special provisions for discovery will be 
considered on a case-by-case basis.
    OCA suggests an amendment to Sec. 3001.196(a)(6)(i) to clarify that 
the financial consequences of mailer-specific differences from a 
baseline Negotiated Service Agreement would have to be presented at the 
same level of detail as for the baseline Negotiated Service Agreement. 
As originally proposed, Sec. 3001.196(a)(6)(i) states: ``[The Postal 
Service request shall include:] the financial impact of the Negotiated 
Service Agreement on the Postal Service over the duration of the 
agreement.'' OCA proposes to modify this section to read: ``[The Postal 
Service request shall include:] the financial impact of the Negotiated 
Service Agreement on the Postal Service as set forth in Sec. 
3001.193(e).'' OCA at 16-17.
    The requirement as proposed clearly indicates that the financial 
impact of the Postal Service request will be relevant to the 
Commission's decision, and that the Postal Service must cover this 
topic in its request. The Commission does not want to preclude use of 
relevant financial information that could be referenced from a baseline 
docket, or restrict the Postal Service's ingenuity in preparing its 
request so as to facilitate expedited consideration. This suggestion 
will not be adopted into the final rule.
    Subsection (b) requires the Postal Service to provide written 
notice of its request to certain participants who are assumed to be 
those potentially interested in the proceeding. The requirement is in 
addition to the requirement of providing notice by posting on the 
Commission's web site. This requirement balances the Commission's 
intent to limit the time period for intervention, and the requirement 
for interested participants to be adequately notified of a pending 
proceeding.
    The Postal Service does not object to subsection (b), but notes 
that after successful implementation of electronic filing, this 
requirement returns the Commission to the hard copy world. The Postal 
Service suggests that the Commission experiment with its e-mail 
notification system as an alternative to hard copy service. Postal 
Service at 27.
    Although the modest subsection (b) requirement is redundant, the 
Commission is concerned that the goal of expediting a procedural 
schedule could be thwarted by a claim of insufficient notice. The 
Commission will include the subsection (b) requirement in the final 
rule, but will not be averse to revisiting and potentially eliminating 
this requirement based on future experience.
    The Postal Service's comments about experimenting with the e-mail 
notification system for providing notice are well taken, and could be 
considered in the future. However, as it exists today, the e-mail 
notification system is strictly a voluntary system. It is not 
sufficiently developed and provides no assurance that a participant 
will receive notice without the participant properly activating the 
system.
    Subsection (c) establishes that a prehearing conference will be 
scheduled for each request. The proposed rule specifies that 
participants shall be prepared to address at the prehearing conference 
whether or not to proceed under the functional equivalency rules.
    Discover proposes a deadline of five days from the date of the 
prehearing conference for the Commission to determine whether or not to 
proceed under Sec. 3001.196. Discover at 2.
    The Commission intends to take a proactive approach to determine 
whether to proceed under Sec. 3001.196, rather than adhere to an 
artificial deadline and quickly issue a less informative ruling with 
limited guidance. For Postal Service proposals that support the 
application of the functional equivalency rules, and in which 
application of the functional equivalency rules are unopposed, the 
Commission could rule on this issue at the prehearing conference. More 
complex scenarios might require additional time. Where the issue is 
controversial, or where the Postal Service has not supported 
application of the functional equivalency rules, the process will 
benefit if the Commission takes the necessary time to evaluate the 
facts and present a well reasoned ruling. The Commission shall not 
establish a deadline to be included in the rules.

[[Page 7592]]

    The Postal Service proposes an additional provision to require 
participants to identify issues they wish to contest not later than 
five days prior to the prehearing conference. Postal Service at 26; see 
also, Discover Reply at 6.
    Assuming that the Commission determines it is appropriate to 
proceed under Sec. 3001.196, the Commission must then determine whether 
or not to schedule a hearing. The Postal Service's proposal to identify 
issues early in the proceeding will provide the Commission with the 
required basis on which to make this determination. Thus, the 
Commission sees benefit in the Postal Service's proposal. However, a 
requirement to identify issues five days prior to the prehearing 
conference does not provide adequate time for potential participants to 
study a new Postal Service request, determine whether or not to 
intervene, receive answers to discovery requests, and file pleadings 
identifying the issues to be contested. The Commission will establish 
the later deadline of the prehearing conference. This will provide five 
additional days to identify issues, and appears more reasonable.
    The final rule will modify subsection (c) to require identification 
of issues that participants wish to contest, and establish a deadline 
of the prehearing conference. As originally proposed, the second 
sentence of subsection (c) states: ``Participants shall be prepared to 
address whether or not it is appropriate to proceed under Sec. 3001.196 
at that time.'' The final rule will modify this sentence to read: 
``Participants shall be prepared at the prehearing conference to 
address whether or not it is appropriate to proceed under Sec. 
3001.196, and to identify any issue(s) that would indicate the need to 
schedule a hearing.'' \28\
---------------------------------------------------------------------------

    \28\ It is strongly suggested that oral argument on the above 
issues be accompanied by the filing of a clear and concise written 
pleading on the date of, or prior to, the prehearing conference. The 
Commission intends to decide the above issues in a timely fashion, 
and will work to avoid protracted motions practice.
---------------------------------------------------------------------------

    Subsection (d) specifies that the Commission will establish a 
procedural schedule to allow for issuing a decision not more than 60 
days (if no hearing is held) or 120 days (if a hearing is scheduled) 
after determining to proceed under Sec. 3001.196.
    Discover contends that these time periods are far too long and thus 
may prejudice or place the party seeking a functionally equivalent 
agreement at a competitive disadvantage. It suggests shortening the 
time periods to 30 and 90 days respectively. Discover at 3-4. UPS 
comments that shortening the schedule to consider a functionally 
equivalent Negotiated Service Agreement to as little as 90 days is a 
step in the wrong direction. UPS Reply at 7.
    The Commission shares an interest in expediting review of 
functionally equivalent agreements, but this interest must be balanced 
against due process and assuring compliance with the requirements of 
the Act. The 60-day and 120-day timelines are not targets, but 
maximums. It should be possible to more promptly issue recommendations 
in some cases. These time frames appear reasonable and necessary to 
assure due process, and will remain in the final rule.

OCA's Supplemental Comments

    The OCA filed supplemental comments which draw interesting 
comparisons between Negotiated Service Agreements, and the Postal 
Service's ``pilot test'' of access to Certified Mail bulk electronic 
delivery information addressed in Docket No. C2003-2. The OCA asks the 
Commission to ``indicate in its proposed NSA rules under what 
circumstances it is necessary to file a request for a proposed 
customer-specific arrangement that is subject to the Commission's 
jurisdiction under 39 U.S.C. Sec.Sec. 3622 and 3623.'' \29\
---------------------------------------------------------------------------

    \29\ OCA Supplemental at 5.
---------------------------------------------------------------------------

    Discover does not oppose OCA's filing of supplemental comments, but 
requests that the Commission defer consideration of the issues raised 
in the supplemental comments until after final consideration of the 
Negotiated Service Agreement rules proposed in Docket No. RM2003-5.\30\ 
The Postal Service suggests that the Commission reject the supplemental 
comments as untimely and inappropriate.\31\ The Postal Service notes 
that OCA's initiative ``is founded on a complicated and controversial 
question involving the circumstances under which any activity pursued 
by the Postal Service and its customers or others might rise to the 
level of an undertaking that must be pursued through a rate or 
classification proceeding at the Commission.''
---------------------------------------------------------------------------

    \30\ Response of Discover Financial Services, Inc. to OCA's 
Motion to File Supplemental Comments, October 14, 2003 (Discover 
Opposition).
    \31\ Postal Service Reply at 1-2, fn. 1.
---------------------------------------------------------------------------

    OCA's supplemental comments raise basic issues that the Commission 
and the Postal Service have been grappling with since the establishment 
of the Act, and which have led to the initiation of several complaint 
dockets.\32\ The comments concern the institutional relationship 
between the Postal Service and the Commission whenever the Postal 
Service decides to propose changes in its services, including rates, 
fees and classifications. The Commission will allow the supplemental 
comments to remain in the record of this docket because they might 
provoke thought on this issue at a future point in time. However, 
because the issues raised are so broad and encompassing, consideration 
would unreasonably delay resolution of the issues more pertinent to 
this rulemaking which is dedicated to rules concerning Negotiated 
Service Agreements. Thus, the Commission will not entertain the issues 
raised in the supplemental comments at this time.
---------------------------------------------------------------------------

    \32\ OCA states: ``In Order No. 1385, the Commission determined 
that a Postal Service decision to provide a new form of Certified 
Mail service, consisting of bulk electronic return information to 
three mailers--Pitney Bowes, U.S. Certified Letters LLC, and Out 
Source Solutions, explicitly excluding Walz, was in harmony with the 
requirements of the Postal Reorganization Act, apparently because 
only three mailers were involved (a `limited number of 
participants') and the pilot test was of `short duration'--either 8/
9 months by the Postal Service's reckoning or 19/20 months by the 
Commission's.'' OCA Supplemental at 3 (footnote omitted). This is 
not a correct interpretation of Order No. 1385. The Commission in 
general found issues related to the pilot test moot because the 
pilot test had been terminated well prior to the filing of the 
complaint, and there were no further issues related to the pilot 
test that could be remedied through the complaint process. See PRC 
Order No. 1385 (October 9, 2003) at 8, fn. 10. Thus, the Commission 
did not reach a conclusion on whether the pilot test was in harmony 
with the requirements of the Postal Reorganization Act.
---------------------------------------------------------------------------

Ordering Paragraphs

    It is ordered:
    1. Motion for Late Acceptance of Comments by Discover Financial 
Services, Inc., September 30, 2003, is granted.
    2. The EW Motion for a One-Day Extension of Time to File Comments, 
September 30, 2003, is granted.
    3. The Postal Service Motion for a One-Day Extension of Time to 
File Comments, September 29, 2003, is granted.
    4. Office of the Consumer Advocate Motion to be Permitted to File 
Supplemental Comments on NSAs vs. Pilot Tests, October 10, 2003, is 
granted.
    5. Motion of the United States Postal Service for Leave to File 
Supplemental Comments, October 17, 2003, is granted.
    6. Any suggestion not specifically addressed by this ruling is not 
accepted for incorporation into the final rule.
    7. The Commission shall incorporate the final amendments to rules 
5, 51 and 61; and new Subpart L following the Secretary's signature 
into the Commission's Rules of Practice and Procedure appearing in 39 
CFR Sec. 3001.
    8. The Secretary shall arrange for publication of this Order 
Establishing

[[Page 7593]]

Rules Applicable to Requests for Baseline and Functionally Equivalent 
Negotiated Service Agreements in the Federal Register. These changes 
will take effect 30 days after publication in the Federal Register.

    Issued: February 11, 2004.

    By the Commission.
Steven W. Williams,
Secretary.

List of Subjects in 39 CFR Part 3001

    Administrative practice and procedure, Postal Service.

0
For the reasons set forth in the preamble, the Commission amends 39 CFR 
part 3001 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(b), 3603, 3622-24, 3661, 3663.

Subpart A--Rules of General Applicability

0
2. Amend Sec. 3001.5 by adding new paragraph (r) to read as follows:


Sec. 3001.5  Definitions.

* * * * *
    (r) Negotiated Service Agreement means a written contract, to be in 
effect for a defined period of time, between the Postal Service and a 
mailer, that provides for customer-specific rates or fees and/or terms 
of service in accordance with the terms and conditions of the contract.

Subpart B--Rules Applicable to Requests for Changes in Rates or 
Fees

0
3. Revise Sec. 3001.51 to read as follows:


Sec. 3001.51  Applicability.

    The rules in this subpart govern the procedure with regard to 
requests of the Postal Service pursuant to section 3622 of the Act that 
the Commission submit a recommended decision on changes in a rate or 
rates of postage or in a fee or fees for postal service if the Postal 
Service determines that such changes would be in the public interest 
and in accordance with the policies of the Act. The Rules of General 
Applicability in subpart A of this part are also applicable to 
proceedings on requests subject to this subpart. For requests of the 
Postal Service based on Negotiated Service Agreements, the rules 
applicable to Negotiated Service Agreements, subpart L, supersede the 
otherwise applicable rules of this subpart.

Subpart C--Rules Applicable to Requests for Establishing or 
Changing the Mail Classification Schedule

0
4. Revise Sec. 3001.61 to read as follows:


Sec. 3001.61  Applicability.

    The rules in this subpart govern the procedure with regard to 
requests of the Postal Service pursuant to section 3623 of the Act that 
the Commission submit a recommended decision on establishing or 
changing the mail classification schedule. The Rules of General 
Applicability in subpart A of this part are also applicable to 
proceedings on requests subject to this subpart. For requests of the 
Postal Service based on Negotiated Service Agreements, the rules 
applicable to Negotiated Service Agreements, subpart L, supersede the 
otherwise applicable rules of this subpart.

0
5. Amend part 3001 by adding Subpart L--Rules Applicable to Negotiated 
Service Agreements to read as follows:
Subpart L--Rules Applicable to Negotiated Service Agreements
Sec.
3001.190 Applicability.
3001.191 Filing of formal requests.
3001.192 Filing of prepared direct evidence.
3001.193 Contents of formal requests.
3001.194 Failure to comply.
3001.195 Requests to recommend a baseline negotiated service 
agreement.
3001.196 Requests to recommend a Negotiated Service Agreement that 
is functionally equivalent to a previously recommended Negotiated 
Service Agreement.
3001.197 Requests to renew previously recommended Negotiated Service 
Agreements with existing participant(s). [Reserved]
3001.198 Requests to modify previously recommended Negotiated 
Service Agreements. [Reserved]
Subpart L--Rules Applicable to Negotiated Service Agreements


Sec. 3001.190  Applicability.

    (a) The rules in this subpart govern requests of the Postal Service 
for recommended decisions pursuant to sections 3622 or 3623 of the Act 
that are based on Negotiated Service Agreements. The Rules of General 
Applicability in subpart A of this part are also applicable to 
proceedings on requests subject to this subpart. The requirements and 
procedures specified in these sections apply exclusively to requests 
predicated on Negotiated Service Agreements. Except where specifically 
noted, this subpart does not supersede any other rules applicable to 
Postal Service requests for recommendation of changes in rates, fees, 
or mail classifications.
    (b) In administering this subpart, it shall be the policy of the 
Commission to recommend Negotiated Service Agreements that are 
consistent with statutory criteria, and benefit the Postal Service, 
without causing unreasonable harm to the marketplace. Except in 
extraordinary circumstances and for good cause shown, the Commission 
shall not recommend Negotiated Service Agreements of more than three 
years duration; however, this limitation is not intended to bar the 
Postal Service from requesting:
    (1) The renewal of the terms and conditions of a previously 
recommended Negotiated Service Agreement, see Sec. 3001.197; or
    (2) Recommendation of a Negotiated Service Agreement that is 
functionally equivalent to a previously recommended Negotiated Service 
Agreement, see Sec. 3001.196.


Sec. 3001.191  Filing of formal requests.

    (a) Whenever the Postal Service proposes to establish or change 
rates or fees and/or the mail classification schedule based on a 
Negotiated Service Agreement, the Postal Service shall file with the 
Commission a formal request for a recommended decision. The request 
shall clearly state whether it is a request for a recommended decision 
pursuant to:
    (1) The review of a baseline Negotiated Service Agreement, see Sec. 
3001.195;
    (2) The review of a Negotiated Service Agreement that is 
functionally equivalent to a previously recommended Negotiated Service 
Agreement, see Sec. 3001.196;
    (3) The renewal of the terms and conditions of a previously 
recommended Negotiated Service Agreement, see Sec. 3001.197; or
    (4) The modification of the terms and conditions of a previously 
recommended Negotiated Service Agreement, see Sec. 3001.198. Such 
request shall be filed in accordance with the requirements of Sec.Sec. 
3001.9 through 3001.12. Within 5 days after the Postal Service has 
filed a formal request for a recommended decision in accordance with 
this subsection, the Secretary shall lodge a notice thereof with the 
director of the Office of the Federal Register for publication in the 
Federal Register.
    (b) The Postal Service shall clearly identify all parties to the 
Negotiated Service Agreement. Identification by the Postal Service 
shall serve as Notice of Intervention for such parties. Parties to the 
Negotiated Service Agreement are to be considered co-proponents,

[[Page 7594]]

procedurally and substantively, during the Commission's review of the 
proposed Negotiated Service Agreement.


Sec. 3001.192  Filing of prepared direct evidence.

    (a) Simultaneously with the filing of the formal request for a 
recommended decision under this subpart, the Postal Service and its co-
proponents shall file all of the prepared direct evidence upon which 
they propose to rely in the proceeding on the record before the 
Commission to establish that the proposed Negotiated Service Agreement 
is in the public interest and is in accordance with the policies and 
the applicable criteria of the Act. Such prepared direct evidence shall 
be in the form of prepared written testimony and documentary exhibits, 
which shall be filed in accordance with Sec. 3001.31.
    (b) Direct evidence may be filed in support of the Negotiated 
Service Agreement prepared by, or for, any party to the Negotiated 
Service Agreement. Direct evidence in support of the Negotiated Service 
Agreement prepared by, or for, any party to the Negotiated Service 
Agreement shall not be accepted without prior Postal Service review. 
The Postal Service shall affirm that it has reviewed such testimony and 
that such testimony may be relied upon in presentation of the Postal 
Service's direct case.


Sec. 3001.193  Contents of formal requests.

    (a) General requirements. (1) Each formal request filed under this 
subpart shall include such information and data and such statements of 
reasons and bases as are necessary and appropriate fully to inform the 
Commission and the parties of the nature, scope, significance, and 
impact of the proposed changes or adjustments in rates, fees, and/or 
the mail classification schedule(s) associated with the Negotiated 
Service Agreement, and to show that the changes or adjustments are in 
the public interest and in accordance with the policies and the 
applicable criteria of the Act. To the extent information is available 
or can be made available without undue burden, each formal request 
shall include the information specified in paragraphs (b) through (k) 
of this section. If the required information is set forth in the Postal 
Service's prepared direct evidence, it shall be deemed to be part of 
the formal request without restatement.
    (2) If any information required by paragraphs (b) through (k) of 
this section is not available and cannot be made available without 
undue burden, the request shall include a request for waiver of that 
requirement supported by a statement explaining with particularity:
    (i) The information which is not available or cannot be made 
available without undue burden;
    (ii) The reason or reasons that each such item of information is 
not available and cannot be made available without undue burden;
    (iii) The steps or actions which would be needed to make each such 
item of information available, together with an estimate of the time 
and expense required therefor;
    (iv) Whether it is contemplated that each such item of information 
will be supplied in the future and, if so, at what time; and
    (v) Whether sufficiently reliable estimates are available to 
mitigate the need for such information, and if so, the specifics of 
such estimates.
    (3) If the Postal Service believes that any of the data or other 
information required to be filed under Sec. 3001.193 should not be 
required in light of the character of the request, it shall move for a 
waiver of that requirement, stating with particularity the reasons why 
the character of the request and its circumstances justify a waiver of 
the requirement.
    (4) Grant of a waiver under paragraphs (a)(2) or (a)(3) of this 
section will be grounds for excluding from the proceeding a contention 
that the absence of the information should form a basis for rejection 
of the request, unless the party desiring to make such contention:
    (i) Demonstrates that, having regard to all the facts and 
circumstances of the case, it was clearly unreasonable for the Postal 
Service to propose the change in question without having first secured 
the information and submitted it in accordance with Sec. 3001.193; or
    (ii) Demonstrates other compelling and exceptional circumstances 
requiring that the absence of the information in question be treated as 
bearing on the merits of the proposal.
    (5) The provisions of paragraphs (a)(2) and (a)(3) of this section 
for the Postal Service to include in its formal request certain 
alternative information in lieu of that specified by paragraphs (b) 
through (k) of this section are not in derogation of the Commission's 
and the presiding officer's authority, pursuant to Sec.Sec. 3001.23 
through 3001.28, respecting the provision of information at a time 
following receipt of the formal request.
    (6) The Commission may request information in addition to that 
required by paragraphs (b) through (k) of this section.
    (b) Negotiated Service Agreement. Every formal request shall 
include a copy of the Negotiated Service Agreement.
    (c) Rates and standards information. Every formal request shall 
include a description of the proposed rates, fees, and/or 
classification changes, including proposed changes, in legislative 
format, to the text of the Domestic Mail Classification Schedule and 
any associated rate or fee schedule.
    (d) Description of agreement. Every formal request shall include a 
statement describing and explaining the operative components of the 
Negotiated Service Agreement. The statement shall include the reasons 
and bases for including the components in the Negotiated Service 
Agreement.
    (e) Financial analysis. Every formal request shall include an 
analysis, as described in Sec. 3001.193(e)(1), of the effects of the 
Negotiated Service Agreement on Postal Service volumes, costs and 
revenues in a one-year period intended to be representative of the 
first year of the proposed agreement. If the agreement is proposed to 
extend beyond one year, the request shall also include an analysis of 
the effects of the agreement on Postal Service volumes, costs and 
revenues in each subsequent year of the proposed agreement, as 
described in Sec. 3001.193(e)(2). For each year, the analysis shall 
provide such detail that the analysis of each component of a Negotiated 
Service Agreement can be independently reviewed, and shall be prepared 
in sufficient detail to allow independent replication, including 
citation to all referenced material.
    (1) The financial analysis for the one-year period intended to be 
representative of the first year of the proposed agreement shall:
    (i) Set forth the estimated mailer-specific costs, volumes, and 
revenues of the Postal Service for that year, assuming the then 
effective postal rates and fees absent the implementation of the 
Negotiated Service Agreement;
    (ii) Set forth the estimated mailer-specific costs, volumes, and 
revenues of the Postal Service for that year which result from 
implementation of the Negotiated Service Agreement;
    (iii) Include an analysis of the effects of the Negotiated Service 
Agreement on contribution to the Postal Service for that year 
(including consideration of the effect on contribution from mailers who 
are not parties to the agreement);
    (iv) Utilize mailer-specific costs for that year, and provide the 
basis used to determine such costs, including a discussion of material 
variances

[[Page 7595]]

between mailer-specific costs and system-wide average costs; and
    (v) Utilize mailer-specific volumes and elasticity factors for that 
year, and provide the bases used to determine such volumes and 
elasticity factors. If mailer-specific costs or elasticity factors are 
not available, the bases of the costs or elasticity factors that are 
proposed shall be provided, including a discussion of the suitability 
of the proposed costs or elasticity factors as a proxy for mailer-
specific costs or elasticity factors.
    (2) The financial analysis for each subsequent year covered by the 
agreement (if the proposed duration of the agreement is greater than 
one year) shall:
    (i) Identify each factor known or expected to operate in that 
subsequent year which might have a material effect on the estimated 
costs, volumes, or revenues of the Postal Service, relative to those 
set forth in the financial analysis provided for the first year of the 
agreement in response to Sec. 3001.193(e)(1). Such relevant factors 
might include (but are not limited to) cost level changes, anticipated 
changes in operations, changes arising from specific terms of the 
proposed agreement, or potential changes in the level or composition of 
mail volumes;
    (ii) Discuss the likely impact in that subsequent year of each 
factor identified in Sec. 3001.193(e)(2)(i), and quantify that impact 
to the maximum extent practical; and
    (iii) Estimate the cumulative effect in that subsequent year of all 
factors identified in Sec. 3001.193(e)(2)(i) on the estimated costs, 
volumes, and revenues of the Postal Service, relative to those 
presented for the first year of the agreement in response to Sec. 
3001.193(e)(1).
    (f) Impact analysis. (1) Every formal request shall include an 
analysis of the impact over the duration of the Negotiated Service 
Agreement on:
    (i) Competitors of the parties to the Negotiated Service Agreement 
other than the Postal Service;
    (ii) Competitors of the Postal Service; and
    (iii) Mail users.
    (2) The Postal Service shall include a copy of all completed 
special studies that were used to make such estimates. If special 
studies have not been performed, the Postal Service shall state this 
fact and explain the alternate bases of its estimates.
    (g) Data collection plan. Every formal request shall include a 
proposal for a data collection plan, which shall include a comparison 
of the analysis presented in Sec. 3001.193(e)(1)(ii) and Sec. 
3001.193(e)(2)(iii) with the actual results ascertained from 
implementation of the Negotiated Service Agreement. The results shall 
be reported to the Commission on an annual or more frequent basis.
    (h) Workpapers. (1) Whenever the Service files a formal request it 
shall accompany the request with seven sets of workpapers, five for use 
by the Commission staff and two which shall be available for use by the 
public at the Commission's offices.
    (2) Workpapers shall contain:
    (i) Detailed information underlying the data and submissions for 
paragraphs (b) through (k) of this section;
    (ii) A description of the methods used in collecting, summarizing 
and expanding the data used in the various submissions;
    (iii) Summaries of sample data, allocation factors and other data 
used for the various submissions;
    (iv) The expansion ratios used (where applicable); and
    (v) The results of any special studies used to modify, expand, 
project, or audit routinely collected data.
    (3) Workpapers shall be neat and legible and shall indicate how 
they relate to the data and submissions supplied in response to 
paragraphs (b) through (k) of this section.
    (4) Workpapers shall include citations sufficient to enable a 
reviewer to trace any number used but not derived in the associated 
testimony back to published documents or, if not obtained from 
published documents, to primary data sources. Citations shall be 
sufficiently detailed to enable a reviewer to identify and locate the 
specific data used, e.g., by reference to document, page, line, column, 
etc. With the exception of workpapers that follow a standardized and 
repetitive format, the required citations themselves, or a cross-
reference to a specific page, line, and column of a table of citations, 
shall appear on each page of each workpaper. Workpapers that follow a 
standardized and repetitive format shall include the citations 
described in this paragraph for a sufficient number of representative 
examples to enable a reviewer to trace numbers directly or by analogy.
    (i) Certification by officials. (1) Every formal request shall 
include one or more certifications stating that the cost statements and 
supporting data submitted as a part of the formal request, as well as 
the accompanying workpapers, which purport to reflect the books of the 
Postal Service, accurately set forth the results shown by such books.
    (2) The certificates required by paragraph (i)(1) of this section 
shall be signed by one or more representatives of the Postal Service 
authorized to make such certification. The signature of the official 
signing the document constitutes a representation that the official has 
read the document and that, to the best of his/her knowledge, 
information and belief, every statement contained in the instrument is 
proper.
    (j) Rejection of requests. The Commission may reject any request 
under this subpart that patently fails to substantially comply with any 
requirements of this subpart.


Sec. 3001.194  Failure to comply.

    If the Postal Service fails to provide any information specified by 
this subpart, or otherwise required by the presiding officer or the 
Commission, the Commission, upon its own motion, or upon motion of any 
participant to the proceeding, may stay the proceeding until 
satisfactory compliance is achieved. The Commission will stay 
proceedings only if it finds that failure to supply adequate 
information interferes with the Commission's ability promptly to 
consider the request and to conduct its proceedings with expedition in 
accordance with the Act.


Sec. 3001.195  Requests to recommend a baseline Negotiated Service 
Agreement.

    (a) This section governs Postal Service requests for a recommended 
decision in regard to a baseline Negotiated Service Agreement, i.e., a 
Negotiated Service Agreement that is not predicated on a functionally 
equivalent Negotiated Service Agreement currently in effect. The 
purpose of this section is to establish procedures which provide for 
maximum expedition of review consistent with procedural fairness, and 
which allows for the recommendation of a baseline Negotiated Service 
Agreement. The Postal Service request shall include:
    (1) A written justification for requesting a Negotiated Service 
Agreement classification as opposed to a more generally applicable form 
of classification; and
    (2) A description of the operational bases of the Negotiated 
Service Agreement, including activities to be performed and facilities 
to be used by both the Postal Service and the mailer under the 
agreement.
    (b) The Commission will treat requests predicated on a baseline 
Negotiated Service Agreement as subject to the maximum expedition 
consistent with procedural fairness. A schedule will be established, in 
each case, to allow for prompt issuance of a decision.

[[Page 7596]]

Sec. 3001.196  Requests to recommend a Negotiated Service Agreement 
that is functionally equivalent to a previously recommended Negotiated 
Service Agreement.

    (a) This section governs Postal Service requests for a recommended 
decision in regard to a Negotiated Service Agreement that is proffered 
as functionally equivalent to a Negotiated Service Agreement previously 
recommended by the Commission and currently in effect. The previously 
recommended Negotiated Service Agreement shall be referred to as the 
baseline agreement. The purpose of this section is to establish 
procedures that provide for accelerated review of functionally 
equivalent Negotiated Service Agreements. The Postal Service request 
shall include:
    (1) A detailed description of how the proposed Negotiated Service 
Agreement is functionally equivalent to the baseline agreement;
    (2) A detailed description of how the proposed Negotiated Service 
Agreement is different from the baseline agreement;
    (3) Identification of the record testimony from the baseline 
agreement docket, or any other previously concluded docket, on which 
the Postal Service proposes to rely, including specific citation to the 
locations of such testimony;
    (4) All available special studies developing information pertinent 
to the proposed Negotiated Service Agreement;
    (5) If applicable, the identification of circumstances unique to 
the request; and
    (6) If applicable, a proposal for limitation of issues in the 
proceeding, except that the following issues will be relevant to every 
request predicated on a functionally equivalent Negotiated Service 
Agreement:
    (i) The financial impact of the Negotiated Service Agreement on the 
Postal Service over the duration of the agreement;
    (ii) The fairness and equity of the Negotiated Service Agreement in 
regard to other users of the mail; and
    (iii) The fairness and equity of the Negotiated Service Agreement 
in regard to the competitors of the parties to the Negotiated Service 
Agreement.
    (b) When the Postal Service submits a request predicated on a 
functionally equivalent Negotiated Service Agreement, it shall provide 
written notice of its request, either by hand delivery or by First-
Class Mail, to all participants in the Commission docket established to 
consider the baseline agreement.
    (c) The Commission will schedule a prehearing conference for each 
request. Participants shall be prepared at the prehearing conference to 
address whether or not it is appropriate to proceed under Sec. 
3001.196, and to identify any issue(s) that would indicate the need to 
schedule a hearing. After consideration of the material presented in 
support of the request, and the argument presented by the participants, 
if any, the Commission shall promptly issue a decision on whether or 
not to proceed under Sec. 3001.196. If the Commission's decision is to 
not proceed under Sec. 3001.196, the request will proceed under Sec. 
3001.195.
    (d) The Commission will treat requests predicated on functionally 
equivalent Negotiated Service Agreements as subject to accelerated 
review consistent with procedural fairness. If the Commission 
determines that it is appropriate to proceed under Sec. 3001.196, a 
schedule will be established which allows a recommended decision to be 
issued not more than:
    (1) 60 days after the determination is made to proceed under Sec. 
3001.196, if no hearing is held; or
    (2) 120 days after the determination is made to proceed under Sec. 
3001.196, if a hearing is scheduled.


Sec. 3001.197  Requests to renew previously recommended Negotiated 
Service Agreements with existing participant(s). [Reserved]


Sec. 3001.198  Requests to modify previously recommended Negotiated 
Service Agreements. [Reserved]

[FR Doc. 04-3440 Filed 2-17-04; 8:45 am]
BILLING CODE 7710-FW-P