[Federal Register Volume 69, Number 125 (Wednesday, June 30, 2004)]
[Notices]
[Pages 39522-39525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14846]


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POSTAL RATE COMMISSION

[Docket No. MC2004-4; Order No. 1410]


Negotiated Service Agreement

AGENCY: Postal Rate Commission.

ACTION: Notice and order on new negotiated service agreement case.

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SUMMARY: This document establishes a docket for consideration of the 
Postal Service's request for approval of a negotiated service agreement 
with Discover Financial Services, Inc. It identifies key elements of 
the proposed agreement, its relationship to the Capital One Services, 
Inc. negotiated service agreement, and addresses preliminary procedural 
matters. Issuance of this document provides the public with notice of 
the Service's filing, but does not constitute a decision on the merits. 
In a separate notice and order (No. 1409), also issued June 24, 2004, 
the Commission announces the establishment of a docket for 
consideration of a separate proposal for a negotiated service agreement 
with Bank One, Inc.

DATES: Key dates are:
    1. July 12, 2004: Deadline for filing notices of intervention.
    2. July 14, 2004: Settlement conference.
    3. July 15, 2004: Prehearing conference (11 a.m.).

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, general counsel, 
at 202-789-6818.

SUPPLEMENTARY INFORMATION: 

Procedural History

    Capital One Services, Inc. Negotiated Service Agreement, 67 FR 
61355 (September 30, 2002).
    Negotiated Service Agreement Proposed Rule, 68 FR 52546 (September 
4, 2003).
    Negotiated Service Agreement Final Rule, 69 FR 7574 (February 19, 
2004).
    On June 21, 2004, the United States Postal Service filed a request 
seeking a recommended decision from the Postal Rate Commission 
approving a negotiated service agreement with Discover Financial 
Services, Inc.\1\ The negotiated service agreement is proffered as 
functionally equivalent to the Capital One Services, Inc. negotiated 
service agreement (baseline agreement) was recommended by the 
Commission in docket No. MC2002-2. The Request, which includes six 
attachments, was filed pursuant to chapter 36 of the Postal 
Reorganization Act, 39 U.S.C. 3601 et seq.\2\
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    \1\ Request of the United States Postal Service for a 
Recommended Decision on Classifications, Rates and Fees to Implement 
Functionally Equivalent Negotiated Service Agreement with Discover 
Financial Services, Inc., June 21, 2004 (Request).
    \2\ Attachments A and B to the Request contain proposed changes 
to the Domestic Mail Classification Schedule and the associated rate 
schedules; Attachment C is a certification required by Commission 
rule 193(i) specifying that the cost statements and supporting data 
submitted by the Postal Service, which purport to reflect the books 
of the Postal Service, accurately set forth the results shown by 
such books; Attachment D is an index of testimony and exhibits; 
Attachment E is a compliance statement addressing satisfaction of 
various filing requirements; and Attachment F is a copy of the 
negotiated service agreement.
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    The Postal Service has identified Discover Financial Services, Inc. 
(DFS), along with itself, as parties to the negotiated service 
agreement. This identification serves as notice of intervention by DFS. 
It also indicates that DFS shall be considered a co-proponent, 
procedurally and substantively, of the Postal Service's

[[Page 39523]]

Request during the Commission's review of the negotiated service 
agreement. Rule 191(b) [39 CFR 3001.191b]. An appropriate notice of 
appearance as co-proponent of Discover Financial Services, Inc., June 
21, 2004, also has been filed.
    In support of the Request, the Postal Service has filed direct 
testimony of Ali Ayub on behalf of United States Postal Service, June 
21, 2004 (USPS-T-1). DFS has separately filed direct testimony of Karin 
Giffney on behalf of Discover Financial Services, Inc., June 21, 2004 
(DFS-T-1). The Postal Service has reviewed the DFS testimony and, in 
accordance with rule 192(b) [39 CFR 3001.192b], states that such 
testimony may be relied upon in presentation of the Postal Service's 
direct case.\3\
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    \3\ Request at 2, fn. 2.
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    The Request relies substantially on record evidence entered in the 
baseline docket, docket no. MC2002-2. The Postal Service's Compliance 
Statement, Request Attachment E, identifies the baseline docket 
material on which it proposes to rely.
    Requests that are proffered as functionally equivalent to baseline 
negotiated service agreements are handled expeditiously, until a final 
determination has been made as to their proper status. The Postal 
Service's Compliance Statement, Request Attachment E, is noteworthy in 
that it is required to identify information to facilitate rapid review 
of the Request to aid participants in evaluating whether or not the 
procedural path suggested by the Postal Service is appropriate.
    The Postal Service submitted several contemporaneous related 
filings with its Request. The Postal Service has filed a proposal for 
limitation of issues in this docket.\4\ Rule 196(a)(6) [39 CFR 
3001.196a(6)]. The proposal identifies issues that were previously 
decided in the baseline docket, and a limited number of issues that 
remain in the instant Request. DFS has filed a pleading in support of 
the Postal Service's proposal for limitation of issues.\5\
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    \4\ United States Postal Service Proposal for Limitation of 
Issues, June 21, 2004.
    \5\ Statement of Support of Discover Financial Services, Inc. 
(DFS) for the Postal Service's Request to Establish Settlement 
Procedures and for the Postal Service's Proposal for Limitation of 
Issues, July 21, 2004 (DFS Statement of Support).
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    Rule 196(b) [39 CFR 3001.196b] requires the Postal Service to 
provide written notice of its Request, either by hand delivery or by 
First-Class Mail, to all participants in the baseline docket, MC2002-2. 
This requirement provides additional time, due to an abbreviated 
intervention period, for the most likely participants to decide whether 
or not to intervene. A copy of the Postal Service's notice was filed 
with the Commission on June 21, 2004.\6\
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    \6\ Notice of the United States Postal Service Concerning the 
Filing of a Request for a Recommended Decision on a Functionally 
Equivalent Negotiated Service Agreement, June 21, 2004.
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    The Postal Service has filed a request to establish settlement 
procedures.\7\ The Postal Service believes that there is a distinct 
possibility of settlement as the agreement is likely to be found 
functionally equivalent to the Capital One negotiated service 
agreement. DFS has filed a statement in support of the Postal Service's 
request for settlement procedures.\8\
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    \7\ Request of the United States Postal Service for 
Establishment of Settlement Procedures, June 21, 2004.
    \8\ DFS Statement of Support.
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    The Postal Service believes that it has met the specific filing 
requirements set forth in rules 193 and 196 [39 CFR 3001.67-3001.193, 
196]. It has filed a motion requesting that if the Commission concludes 
that the submitted materials and incorporations are not sufficient, 
that those requirements be waived.\9\
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    \9\ Statement of the United States Postal Service Concerning 
Compliance with Filing Requirements and Conditional Motion for 
Waiver, June 21, 2004 (Request for Waiver).
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    The Postal Service's Request, the accompanying testimonies of 
witnesses Ayub (USPS-T-1) and Giffney (DFS-T-1), the baseline docket 
no. MC2002-2 material, and other related material are available for 
inspection at the Commission's docket section during regular business 
hours. They also can be accessed electronically, via the Internet, on 
the Commission's website (http://www.prc.gov).

I. Background: The Baseline Capital One Negotiated Service Agreement, 
Docket No. MC2002-2

    If a request predicated on a negotiated service agreement is found 
to be functionally equivalent to a previously recommended and currently 
in effect negotiated service agreement it will be afforded accelerated 
review. Rule 196 [39 CFR 3001.196]. The Postal Service asserts that the 
negotiated service agreement in its instant Request is functionally 
equivalent to the now in effect Capital One negotiated service 
agreement recommended by the Commission in Docket No. MC2002-2.\10\ The 
Capital One negotiated service agreement will remain in force from 
September 1, 2003 to September 1, 2006.\11\
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    \10\ See Opinion and Recommended Decision, Docket No. MC2002-2, 
May 15, 2003.
    \11\ Notice of the United States Postal Service of Decision of 
the Governors, June 3, 2003.
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    The Capital One negotiated service agreement is based upon two 
significant mail service features--an address correction service 
feature, and a declining block rate volume discount feature.
    The address correction service feature provides Capital One, at 
certain levels of volume, electronic address corrections without fee 
for First-Class Mail solicitations that are undeliverable as addressed 
(UAA). In return for receipt of electronic address correction, Capital 
One will no longer receive physical return of its UAA First-Class 
solicitation mail that cannot be forwarded. Capital One will also be 
required to maintain and improve the address quality for its First-
Class Mail.
    Use of the address correction service feature is a prerequisite to 
use of the second feature of the negotiated service agreement, a 
declining block rate volume discount. This feature provides Capital One 
with a per-piece discount for bulk First-Class Mail volume above an 
annual threshold volume. The per-piece discount varies from 3 to 6 
cents under a ``declining-block'' rate structure. Should first-year 
mail volume decline under a predetermined quantity, a reduced threshold 
and lower initial discounts take effect. To account for several 
unknowns, total discounts pursuant to this agreement are limited by a 
stop-loss provision in the amount of $40.637 million.

II. The DFS Negotiated Service Agreement

    The Postal Service proposes to enter into a three year negotiated 
service agreement with DFS. It asserts that the DFS negotiated service 
agreement is based on the same two substantive functional elements that 
are central to the Capital One negotiated service agreement--an address 
correction element and a declining block rate volume discount element.
    The address correction element provides, at certain levels of 
volume, electronic address corrections without fee for properly 
endorsed First-Class Mail solicitations. DFS will receive the services 
associated with Change Service Requested, Option 2, which include 
forwarding. In return, DFS agrees to forgo physical return of 
undeliverable mail, which otherwise is provided under the existing 
service features of First-Class Mail for mail that cannot be forwarded.

[[Page 39524]]

    The declining block rate volume discount element provides DFS with 
per-piece discounts on those portions of its First-Class Mail that 
exceed specified volume thresholds. The initial volume threshold, which 
must be exceeded to receive any discount, is 405 million pieces. The 
discounts range from 2.5 cents to 4.5 cents depending on the block 
volume.
    The Postal Service estimates it will benefit by $6.8 million over 
the life of the Negotiated Service Agreement. This is based on 
estimates of $8.0 million in savings due to the address correction 
feature, $2.0 million in increased contribution due to increased First-
Class Mail volume, and a net leakage of minus $3.2 million due to the 
discount feature of the agreement. The agreement establishes a $13 
million discount cap over the life of the agreement. The agreement 
further provides an annual adjustment mechanism to both the volume 
thresholds and the cap.

III. Commission Response

    Applicability of the rules for functionally equivalent negotiated 
service agreements. For administrative purposes, the Commission has 
docketed the instant filing as a request predicated on a negotiated 
service agreement functionally equivalent to a previously recommended 
and ongoing negotiated service agreement. A final determination 
regarding the appropriateness of characterizing the negotiated service 
agreement as functionally equivalent to the Capital One negotiated 
service agreement, docket no. MC2002-2, and application of the 
expedited rules for functionally equivalent negotiated service 
agreements, rule 193 [39 CFR 3001.67-3001.193], will not be made until 
after the prehearing conference.
    Request for waiver of certain filing requirements. Although the 
Postal Service believes that it has met the specific filing 
requirements set forth in rules 193 and 196 [39 CFR 3001.67-3001.193, 
196], it has filed a Request for Waiver if the Commission concludes 
that the submitted materials and incorporations are not sufficient. 
Such requests sometimes serve a purpose under the Commission's general 
filing rules, when compliance with the standard filing requirements far 
exceeds what is required to justify a particular proposal. However, the 
rules promulgated for negotiated service agreements attempt to narrow 
the filing requirements to only what is necessary, and are specific as 
to what is required. Because the rules are narrow and specific, a 
request for waiver should also be narrow and specific as to the request 
to waive a particular item. General requests for waivers of filing 
requirements do not meet this standard. The Postal Service's Request 
for Waiver is denied. If, at a later time, it is concluded that a 
specific filing requirement has not, need not, or cannot be met, the 
Postal Service may, without prejudice, request a waiver of that 
requirement.
    Settlement. The Commission has established rules for expeditiously 
issuing recommendations in regard to requests predicated on 
functionally equivalent negotiated service agreements. If, after a 
prehearing conference, it is determined that the Postal Service's 
request is properly submitted as a functionally equivalent request, and 
there are no outstanding issues, the Commission will promptly issue its 
recommendations. In such instances, conducting a settlement conference 
for the purpose of eventually developing a proposed stipulation and 
agreement is both unnecessary and could interfere with the intent of 
the rules to expedite the schedule.
    However, the Commission encourages communications among the Postal 
Service and other participants to facilitate resolving issues early in 
a proceeding. These communications can be either informal, or formally 
sanctioned settlement conferences. Settlement conferences early in a 
proceeding have substantial value in exploring the various positions of 
the different participants.
    The Commission authorizes settlement negotiations in this 
proceeding. It appoints Postal Service counsel as settlement 
coordinator. In this capacity, counsel for the Service shall report on 
the status of settlement discussions at the prehearing conference. The 
Commission authorizes the settlement coordinator to hold settlement 
conferences on July 14, 2004, in the Commission's hearing room. 
Authorization of settlement discussions does not constitute a finding 
on the proposal's procedural status or on the need for a hearing.
    Representation of the general public. In conformance with section 
3624(a) of title 39, the Commission designates Shelley S. Dreifuss, 
director of the Commission's Office of the Consumer Advocate (OCA), to 
represent the interests of the general public in this proceeding. 
Pursuant to this designation, Ms. Dreifuss will direct the activities 
of Commission personnel assigned to assist her and, upon request, will 
supply their names for the record. Neither Ms. Dreifuss nor any of the 
assigned personnel will participate in or provide advice on any 
Commission decision in this proceeding.
    Intervention. Those wishing to be heard in this matter are directed 
to file a notice of intervention on or before July 12, 2004. The notice 
of intervention shall be filed using the Internet (Filing Online) at 
the Commission's Web site (http://www.prc.gov), unless a waiver is 
obtained for hardcopy filing. Rules 9(a) and 10(a) [39 CFR 3001.9a and 
10a]. Notices should indicate whether participation will be on a full 
or limited basis. See rules 20 and 20a [39 CFR 3001.20 and 20a], and 
shall indicate if a hearing on this Request is desired.
    Prehearing conference. A prehearing conference will be held July 
15, 2004, at 11 a.m. in the Commission's hearing room. Participants 
shall be prepared to address whether or not it is appropriate to 
proceed under rule 196 [39 CFR 3001.196], on the Postal Service's 
proposal for limiting issues, and any issue(s) that justify scheduling 
a hearing. Rule 196(c) [39 CFR 3001.196c].
    The Commission strongly urges participants intending to object to 
proceeding under rule 196 [39 CFR 3001.196] to file supporting written 
argument in advance of the prehearing conference. It would also greatly 
assist the Commission if participants file supporting written argument 
in advance of the prehearing conference in regard to the identification 
of any issue(s) that would indicate the need to schedule a hearing, and 
any objection to the Postal Service's proposal for limiting issues. The 
Commission intends on deciding upon these issues shortly after the 
prehearing conference.

Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. MC2004-4 to consider the 
Postal Service Request referred to in the body of this order.
    2. The Commission will sit en banc in this proceeding.
    3. Statement of the United States Postal Service Concerning 
Compliance with Filing Requirements and Conditional Motion for Waiver, 
June 21, 2004, is denied, without prejudice.
    4. Postal Service counsel is appointed to serve as settlement 
coordinator in this proceeding. The Commission will make its hearing 
room available for settlement conferences on July 14, 2004, and at such 
times deemed necessary by the settlement coordinator.
    5. Shelley S. Dreifuss, director of the Commission's Office of the 
Consumer Advocate, is designated to represent the interests of the 
general public.

[[Page 39525]]

    6. The deadline for filing notices of intervention is July 12, 
2004.
    7. A prehearing conference will be held July 15, 2004 at 11 a.m. in 
the Commission's hearing room.
    8. The Secretary shall arrange for publication of this notice and 
order in the Federal Register.

    Issued: June 24, 2004.

    By the Commission.
Steven W. Williams,
Secretary.
[FR Doc. 04-14846 Filed 6-29-04; 8:45 am]
BILLING CODE 7710-FW-P