[Federal Register Volume 70, Number 30 (Tuesday, February 15, 2005)]
[Proposed Rules]
[Pages 7704-7708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2883]


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POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM2005-3; Order No. 1430]


Negotiated Service Agreements

AGENCY: Postal Rate Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document initiates the third in a series of rulemakings 
on procedures related to Negotiated Service Agreements. This proposal 
addresses rules applicable to Postal Service requests to extend or 
modify previously recommended Negotiated Service Agreements that are 
currently in effect. The changes, if adopted, will assist in clarifying 
the type of requests that qualify as extensions and the type of 
conditions that constitute modifications.

DATES: Initial comments: March 14, 2005; reply comments: April 11, 
2005.

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:

Regulatory History

    68 FR 52552, September 4, 2003.
    69 FR 7574, February 18, 2004.
    70 FR 4802, January 31, 2005.
    In Opinion and Recommended Decision, Docket No. MC2002-2 (Opinion), 
the Commission made a commitment to initiate a series of rulemakings 
designed to facilitate consideration of Postal Service requests based 
on Negotiated Service Agreements.\1\ See, Opinion paras. 1006, 2007, 
4026, 4041-2, 7026, and 8023. The first rulemaking, docketed as RM2003-
5, developed rules for baseline and for functionally equivalent 
Negotiated Service Agreements.\2\ It also established the 
organizational framework for the complete set of Commission rules 
applicable to requests based on Negotiated Service Agreements.\3\
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    \1\ Docket No. MC2002-2, Experimental Rate and Service Changes 
to Implement Negotiated Service Agreement with Capital One Services, 
Inc., was the first docket in which the Commission considered and 
recommended a Postal Service request predicated on a Negotiated 
Service Agreement.
    \2\ PRC Order No. 1391 established the rules applicable to 
baseline and functionally equivalent Negotiated Service Agreements. 
The rules are incorporated into the Commission's Rules of Practice 
and Procedure at Subpart L. 39 CFR 3001.190 et seq.
    \3\ Space was reserved at 39 CFR 3001.197 for requests to renew 
previously recommended Negotiated Service Agreements with existing 
participant(s), and at 39 CFR 3001.198 for requests to modify 
previously recommended Negotiated Service Agreements.

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[[Page 7705]]

    A second rulemaking, docketed as RM2005-2, has been initiated to 
explore whether improvements can be made to the previously issued rules 
applicable to functionally equivalent Negotiated Service Agreements. 
The Postal Service first invoked the rules applicable to functionally 
equivalent Negotiated Service Agreements in requests filed on June 21, 
2004, for proposed Negotiated Service Agreements with Discover 
Financial Services, Inc. and Bank One Corporation\4\.
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    \4\ 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 of the United 
States Postal Service for a Recommended Decision on Classifications, 
Rates and Fees to Implement Functionally Equivalent Negotiated 
Service Agreement with Bank One Corporation, June 21, 2004.
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    The rules applicable to new baseline Negotiated Service Agreements 
remain untested as the Postal Service has not submitted a request for a 
new baseline agreement.
    This notice and order represents the initiation of a third 
rulemaking to address rules applicable to: (1) Postal Service requests 
to extend the duration of previously recommended and currently in 
effect Negotiated Service Agreements, and (2) Postal Service requests 
to make modifications to previously recommended and currently in effect 
Negotiated Service Agreements. Both sets of rules assume that the 
previously recommended and currently in effect Negotiated Service 
Agreements were fully litigated in previous dockets where all 
outstanding issues have been resolved. The rules also assume that the 
modifications being proposed in the new requests are non-controversial, 
and do not materially alter the nature of the existing agreements. 
These are necessary assumptions if the Commission is to provide 
expedited review and rapid action in issuing recommendations on such 
requests. The proposed rules, appearing below the Secretary's signature 
to this notice and order, are discussed below.
    Proposed 39 CFR 3001.197 requests to renew previously recommended 
Negotiated Service Agreements with existing participant(s). Subsection 
(a) establishes that rule 197 is applicable to requests to extend the 
duration of a previously recommended and currently in effect Negotiated 
Service Agreement (the existing agreement). The intent is to limit use 
of the rule to instances where the proposed agreement and the existing 
agreement share substantially identical obligations. This restriction 
is necessary to limit the issues open to litigation, and to otherwise 
expedite the proceeding as much as possible. In instances where there 
are no contested issues it should be possible for the Commission to 
issue its recommendation shortly after the prehearing conference.
    Rule 197 allows for three instances where modifications to the 
terms and conditions (including modifications to the Domestic Mail 
Classification Schedule) may be appropriate: (1) Correcting a technical 
defect, (2) updating the schedule of rates and fees, and (3) accounting 
for an intervening event since the recommendation of the existing 
agreement. The rule notes that the above modifications should not 
materially alter the nature of the existing agreement. This notation 
serves as a reminder of the limited applicability of rule 197, and that 
modifications of any substance may not allow for expedited review, or 
in the more extreme case may cause the request to be considered de 
novo. This rule is inapplicable when material features are proposed to 
be significantly modified, added, or removed from the existing 
agreement.
    The exceptions are provided predominately to allow for correction 
of errors or to update the terms and conditions to the current 
situation when the existing agreement is renewed. The correction of 
technical defects, for example, allows for correction of scrivener's 
errors, and to correct for errors in description. An example of an 
error in description could be an instance of where the parties to the 
contract, the Commission, and the participants in the original docket 
understood the intent of a term or condition, but what was actually 
described in the documentation was technically not correct. Thus, the 
exception would allow the documentation to be corrected or clarified.
    Updating the schedule of rates and fees refers to updating the 
schedule of rates and fees to reflect the current conditions at the 
time the Negotiated Service Agreement is extended. It does not refer to 
a wholesale revamping of the schedule of rates and fees to accommodate 
new or remove existing incentives, or which change the underlying 
nature of the existing agreement.
    Accounting for intervening events since the recommendation of the 
existing agreement refers to an internal or an external event, 
typically unanticipated or unforeseen, that has occurred since 
recommendation of the agreement and that has an impact on some aspect 
of the agreement. For example, a merger, a change in the nature of a 
provided postal service, or an external economic occurrence that forces 
a change in business plans could be intervening events. It is important 
to stress that the more significant the event and the associated 
modification required, the less applicable rule 197 becomes and the 
more likely that the request would have to be considered de novo.
    Subsections (a)(1) through (7) highlight particular areas of 
interest to the Commission in reviewing requests to renew existing 
agreements. Supplemental testimony might be required to fully comply 
with these subsections.
    Subsection (a)(1) requires identification of the record testimony 
from the existing agreement docket, or any other previously concluded 
docket, on which the Postal Service proposes to rely. The identified 
record testimony will form the basis of the record of the instant 
request, with supplemental testimony completing the record where 
necessary.
    Subsection (a)(2) focuses on the modifications that are being 
proposed to be made to the agreement, which includes the terms and 
conditions of the actual contract and the contents of the Domestic Mail 
Classification Schedule as previously recommended by the Commission and 
approved by the Governors of the United States Postal Service. It 
requires a ``from to'' description of all proposed modifications to the 
agreement's documentation.
    Subsection (a)(3) requires an explanation or reason for the 
modifications that are being proposed to be made to the agreement. It 
focuses on describing the technical defect, rationale for revising the 
schedule of rates and fees, or intervening event, if any, that has 
necessitated a proposed modification.
    Subsection (a)(4) requires the Postal Service to provide all 
studies pertinent to the request which have been completed since the 
recommendation of the existing agreement. These studies are likely to 
be probative of the level of success of the existing agreement or they 
might shed light on the proposals being made in the request.
    Subsection (a)(5) requires a financial analysis applicable to the 
existing agreement comparing actual performance with predicted 
performance. Because the request for extending the duration must occur 
before the actual termination date of the existing agreement, an 
allowance is made for a final projection based on

[[Page 7706]]

actual data. Except for the final projection, all of the data required 
to comply with this subsection previously should have been collected as 
required by the existing agreement's data collection plan.\5\ The 
intent of this subsection is to facilitate the continuation of 
beneficial agreements.
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    \5\ Required by 39 CFR 3001.193(g), as of requests filed after 
February 11, 2004.
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    Subsection (a)(6) requires a financial analysis to be performed 
over the duration of the extended agreement. The analysis is to be 
performed utilizing the methodology employed by the Commission in its 
recommendation of the existing agreement. Utilizing the Commission's 
methodology to the maximum extent possible should avoid the need to re-
examine and possibly relitigate methodology-related issues, which 
should result in an expedited proceeding. The financial analysis will 
weigh heavily in the Commission's recommendation.
    Subsection (a)(7) requires the Postal Service to identify 
circumstances that are unique to the request. This is a catch-all 
provision where the proponents can provide the Commission with 
additional information pertinent to the Commission's analysis. For 
example, any change in a service, change in a mailer's business plans, 
or change in the interaction between the mailer and the Postal Service 
since the initial recommendation that potentially bears on the 
Commission's recommendation should be discussed.
    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. This is in addition to 
the public notice that will result from filing the request. The 
requirement balances the Commission's intent to limit the time period 
for intervention which will help expedite consideration of requests 
under this rule, and the requirement for interested participants to be 
adequately notified of a pending proceeding.
    Subsection (c) establishes that a prehearing conference will be 
scheduled for each request. At the time of the prehearing conference, 
participants shall be prepared to address whether or not it is 
appropriate to proceed under the rules for renewing existing 
agreements, and whether or not there are any material issues of fact 
that require discovery or evidentiary hearings. The Commission will 
promptly determine, on the basis of materials submitted with the 
request and argument presented at or before the prehearing conference, 
whether or not it is appropriate to proceed under these rules and what 
direction the proceeding should follow. If it is determined that it is 
not appropriate to proceed under 39 CFR 3001.197, the Commission shall 
proceed under 39 CFR 3001.195. After experience is gained operating 
under rule 197(c), and the review of Negotiated Service Agreements 
becomes routine, the Commission will entertain proposals to further 
streamline the early phases of the proceeding.
    Proposed 39 CFR 3001.198 requests to modify previously recommended 
Negotiated Service Agreements. Subsection (a) establishes that rule 198 
is applicable to requests to modify a previously recommended and 
currently in effect Negotiated Service Agreement (the existing 
agreement). The intent of the rule is to expedite proceedings where 
limited modifications are being proposed that do not materially alter 
the nature of the agreement. The rule limits modifications to those: 
(1) Correcting a technical defect, (2) accounting for unforeseen 
circumstances not apparent when the existing agreement was first 
recommended, and (3) accounting for an intervening event since the 
recommendation of the existing agreement. The allowed modifications are 
not meant to include instances where a material feature is proposed to 
be significantly modified, added, or removed from the existing 
agreement. Restricting the allowable types of modifications is 
necessary to limit the issues open to litigation, and to otherwise 
expedite the proceeding as much as possible. The proceeding should take 
considerably less time to review, depending upon the extent of the 
modifications, than having to review the entire agreement de novo.
    The correction of technical defects and accounting for intervening 
events since the recommendation of the existing agreement were 
discussed above in proposed rule 197. Accounting for unforeseen 
circumstances not apparent when the existing agreement was recommended 
is intended to allow for modifications to be made after some experience 
has been gained operating under the agreement. For example, it might 
not be initially recognized that there is a more advantageous method of 
performing a specific function under the agreement. In such an 
instance, it might be appropriate to modify the agreement to reflect 
utilization of the more advantageous method.
    Subsections (a)(1) through (6) highlights particular areas of 
interest to the Commission in reviewing requests to modify existing 
agreements. Supplemental testimony might be required to fully comply 
with these subsections. Subsection (a)(1) requires identification of 
the record testimony from the existing agreement docket, or any other 
previously concluded docket, on which the Postal Service proposes to 
rely. The identified record testimony will form the basis of the record 
of the instant request, with supplemental testimony completing the 
record where necessary.
    Subsection (a)(2) focuses on the modifications that are being 
proposed to be made to the agreement, which includes the terms and 
conditions of the actual contract and the contents of the Domestic Mail 
Classification Schedule as previously recommended by the Commission and 
approved by the Governors of the United States Postal Service. It 
requires a ``from to'' description of all proposed modifications to the 
agreement's documentation.
    Subsection (a)(3) requires an explanation or reason for the 
modifications that are being proposed to be made to the agreement. It 
focuses on describing the technical defect, unforeseen circumstance, or 
intervening event that has necessitated the proposed modification.
    Subsection (a)(4) requires the Postal Service to provide all 
studies pertinent to the request which have been completed since the 
recommendation of the existing agreement. These studies are likely to 
be probative of the level of success of the existing agreement or they 
might shed light on the proposals being made in the request.
    Subsection (a)(5) requires a financial analysis to be performed 
over the duration of the extended agreement. It should be performed 
only if the proposed modification has an effect upon the financial 
analysis in the opinion recommending the existing agreement. The 
analysis is to be performed utilizing the methodology employed by the 
Commission in its recommendation of the existing agreement. Utilizing 
the Commission's methodology, to the maximum extent possible, will 
avoid the need to reexamine and possibly relitigate methodology-related 
issues, which should result in an expedited proceeding.
    Subsection (a)(6) requires the Postal Service to identify 
circumstances that are unique to the request. This is a catch-all 
provision where the proponents can provide the Commission with 
additional information pertinent to the Commission's analysis. For 
example, any change in a service, change in a mailer's business plans, 
or change in the interaction between the mailer and the Postal Service 
since the

[[Page 7707]]

initial recommendation that potentially bears on the Commission's 
recommendation should be discussed.
    Subsections (b) and (c) parallel the notice and prehearing 
conference requirements discussed above for 39 CFR 3001.197(b) and (c).
    Comments. By this order, the Commission hereby gives notice that 
comments from interested persons concerning the proposed amendments to 
the Commission's Rules are due on or before March 14, 2005. Reply 
comments may also be filed and are due April 11, 2005.
    Representation of the general public. In conformance with 39 CFR 
3624(a) of title 39, U.S. Code, the Commission designates Shelley S. 
Dreifuss, director of the Commission's Office of the Consumer Advocate, 
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.

Ordering Paragraphs

    It is ordered:
    1. Docket No. RM2005-3 is established to consider Commission rules 
applicable to Postal Service proposals to extend the duration of, or 
make modifications to, previously recommended and currently in effect 
Negotiated Service Agreements.
    2. Interested persons may submit comments no later than March 14, 
2005.
    3. Reply comments also may be filed and are due April 11, 2005.
    4. Shelley S. Dreifuss, director of the Office of the Consumer 
Advocate, is designated to represent the interests of the general 
public in this docket.
    5. The Secretary shall arrange for publication of this notice of 
proposed rulemaking in the Federal Register.

    Issued: February 10, 2005.

    By the Commission.
Steven W. Williams,
Secretary.

List of Subjects in 39 CFR Part 3001

    Administrative Practice and Procedure, Postal Service.

    For the reasons discussed above, the Commission proposes to amend 
39 CFR part 3001 as follows:

PART 3001--RULES OF PRACTICE AND PROCEDURE

    1. The authority citation for part 3001 continues to read as 
follows:

    Authority: 39 U.S.C. 404(b); 3603; 3622-24; 3661, 3662, 3663.

    2. Amend Sec.  3001.197 as follows:
    a. Revise the heading of section 3001.197 to read as follows: 
Requests to renew previously recommended Negotiated Service Agreements 
with existing participant(s).
    b. Add new paragraphs (a), (b) and (c) to read as follows:

Subpart L--Rules Applicable to Negotiated Service Agreements


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

    (a) This section governs Postal Service requests for a recommended 
decision seeking to extend the duration of a previously recommended and 
currently in effect Negotiated Service Agreement (existing agreement). 
The purpose of this section is to establish procedures that provide for 
accelerated review of Postal Service requests to extend the duration of 
an existing agreement under substantially identical obligations. In 
addition to extending the duration of the existing agreement, 
modifications may be entertained that do not materially alter the 
nature of the existing agreement for the purposes of: correcting a 
technical defect, updating the schedule of rates and fees, or 
accounting for an intervening event since the recommendation of the 
existing agreement. The Postal Service request shall include:
    (1) Identification of the record testimony from the existing 
agreement docket, or any other previously concluded docket, on which 
the Postal Service proposes to rely, including citation to the 
locations of such testimony;
    (2) A detailed description of all proposed modifications to the 
existing agreement;
    (3) A detailed description of any technical defect, rationale for 
revising the schedule of rates and fees, or intervening event since the 
recommendation of the existing agreement, to substantiate the 
modifications proposed in (a)(2) of this section;
    (4) All studies developing information pertinent to the request 
completed since the recommendation of the existing agreement;
    (5) A comparison of the analysis presented in Sec.  
3001.193(e)(1)(ii) and Sec.  3001.193(e)(2)(iii) applicable to the 
existing agreement with the actual results ascertained from 
implementation of the existing agreement, together with the most recent 
available projections for the remaining portion of the existing 
agreement, compared on an annual or more frequent basis;
    (6) The financial impact of the proposed Negotiated Service 
Agreement on the Postal Service in accordance with Sec.  3001.193(e) 
over the extended duration of the agreement utilizing the methodology 
employed by the Commission in its recommendation of the existing 
agreement; and
    (7) If applicable, the identification of circumstances unique to 
the request.
    (b) When the Postal Service submits a request to renew a 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 original agreement.
    (c) The Commission will schedule a pre-hearing conference for each 
request. Participants shall be prepared to address at that time whether 
or not it is appropriate to proceed under Sec.  3001.197, and whether 
or not any material issues of fact exist that require discovery or 
evidentiary hearings. 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.  3001.197. If the Commission's decision is to 
not proceed under Sec.  3001.197, the docket will proceed under Sec.  
3001.195.
    3. Amend Sec.  3001.198 as follows:
    a. Revise the heading of section 3001.198 to read as follows: 
Requests to modify previously recommended Negotiated Service 
Agreements.
    b. Add new paragraphs (a), (b) and (c) to read as follows:


Sec.  3001.198  Requests to modify previously recommended Negotiated 
Service Agreements.

    (a) This section governs Postal Service requests for a recommended 
decision seeking a modification to a previously recommended and 
currently in effect Negotiated Service Agreement (existing agreement). 
The purpose of this section is to establish procedures that provide for 
accelerated review of Postal Service requests to modify an existing 
agreement where the modification is necessary to correct a technical 
defect, to account for unforeseen circumstances not apparent when the 
existing agreement was first recommended, or to account for an 
intervening event since the recommendation of the existing agreement. 
This section is not applicable to requests to extend the duration of a 
Negotiated Service Agreement. The Postal Service request shall include:

[[Page 7708]]

    (1) Identification of the record testimony from the existing 
agreement docket, or any other previously concluded docket, on which 
the Postal Service proposes to rely, including citation to the 
locations of such testimony;
    (2) A detailed description of all proposed modifications to the 
existing agreement;
    (3) A detailed description of the technical defect, unforeseen 
circumstance, or intervening event, to substantiate the modifications 
proposed in (a)(2) of this section;
    (4) All studies developing information pertinent to the request 
completed since the recommendation of the existing agreement;
    (5) If applicable, an update of the financial impact of the 
Negotiated Service Agreement on the Postal Service in accordance with 
Sec.  3001.193(e) over the duration of the agreement utilizing the 
methodology employed by the Commission in its recommendation of the 
existing agreement; and
    (6) If applicable, the identification of circumstances unique to 
the request.
    (b) When the Postal Service submits a request to modify a 
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 
original agreement.
    (c) The Commission will schedule a pre-hearing conference for each 
request. Participants shall be prepared to address at that time whether 
or not it is appropriate to proceed under Sec.  3001.198, and whether 
or not any material issues of fact exist that require discovery or 
evidentiary hearings. 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.  3001.198. If the Commission's decision is to 
not proceed under Sec.  3001.198, the docket will proceed under Sec.  
3001.195.
[FR Doc. 05-2883 Filed 2-14-05; 8:45 am]
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