[Federal Register Volume 70, Number 41 (Thursday, March 3, 2005)]
[Notices]
[Pages 10418-10420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4111]


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POSTAL RATE COMMISSION

[Docket No. MC2005-2; Order No. 1431]


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 HSBC North America Holdings 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.

DATES: Key dates are:
    1. March 16, 2005: Deadline for filing notices of intervention.
    2. March 18, 2005: Deadline for filing statements on need for 
hearing, objections to limiting issues, and objections to rule 196 [39 
CFR 3001.196] procuedures.
    3. March 24, 2005: Prehearing conference (10 a.m.), followed 
immediately by a settlement conference.

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).
    Negotiated Service Agreement Proposed Rule, 70 FR 7704 (February 
15, 2005).
    On February 23, 2005, the United States Postal Service filed a 
request seeking a recommended decision from the Postal Rate Commission 
approving a Negotiated Service Agreement with HSBC North America 
Holdings Inc.\1\ The Negotiated Service Agreement is proffered as 
functionally equivalent to the Capital One Services, Inc. Negotiated 
Service Agreement (baseline agreement) as 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 
a Functionally Equivalent Negotiated Service Agreement with HSBC 
North America Holdings Inc., February 23, 2005 (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 HSBC North America Holdings Inc. 
(HSBC), along with itself, as parties to the Negotiated Service 
Agreement. This identification serves as notice of intervention by 
HSBC. It also indicates that HSBC shall be considered a co-proponent, 
procedurally and substantively, of the Postal Service's Request during 
the Commission's review of the Negotiated Service Agreement. Rule 
191(b) (39 CFR 3001.191(b)). An appropriate Notice of Appearance and 
Filing of Testimony as Co-Proponent by HSBC North America Holdings 
Inc., February 23, 2005, also was filed.
    In support of the direct case, the Postal Service has filed Direct 
Testimony of Jessica A. Dauer on Behalf of the United States Postal 
Service, February 23, 2005 (USPS-T-1). HSBC has separately filed Direct 
Testimony of John H. Harvey on Behalf of HSBC North America Holdings 
Inc., February 23, 2005 (HSBC-T-1). The Postal Service has reviewed the 
HSBC testimony and, in accordance with rule 192(b) (39 CFR 
3001.192(b)), 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 2-3, 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 provides valuable 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 
3001.196(a)(6)). The proposal identifies issues that were previously 
decided in the baseline docket, and key issues that are unique to the 
instant Request.
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    \4\ United States Postal Service Proposal for Limitation of 
Issues, February 23, 2005.
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    Rule 196(b) (39 CFR 3001.196(b)) requires the Postal Service to 
provide written notice of its Request, either by hand delivery or by 
First-Class Mail, to all participants of 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 February 23, 2005.\5\
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    \5\ Notice of the United States Postal Service Concerning the 
Filing of a Request for a Recommended Decision on a Functionally 
Equivalent Negotiated Service Agreement, February 23, 2005.
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    The Postal Service has filed a conditional request to establish 
settlement procedures.\6\ The Postal Service believes that there is a 
distinct possibility that no party will identify any need for a 
hearing, thus there would be no need to engage in settlement 
discussions. However, if the parties do have issues that they want to 
explore, settlement discussions might provide a convenient forum to 
resolve those issues.
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    \6\ Conditional Request of the United States Postal Service for 
Establishment of Settlement Procedures, February 23, 2005.
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    The Postal Service's Request, the accompanying testimonies of 
witnesses Dauer (USPS-T-1) and Harvey (HSBC-T-1), the baseline Docket 
No. MC2002-2 material, and other related material are available for 
inspection at the

[[Page 10419]]

Commission's docket section during regular business hours. They also 
can be accessed electronically, via the Internet, on the Commission's 
Web site (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 may 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.\7\ The Capital One Negotiated Service Agreement will remain in force 
from September 1, 2003 to September 1, 2006.\8\
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    \7\ See, Opinion and Recommended Decision, Docket No. MC2002-2, 
May 15, 2003.
    \8\ 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 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, the Commission's recommendation 
incorporates a stop-loss provision in the amount of $40.637 million.

II. The HSBC Negotiated Service Agreement

    The Postal Service proposes to enter into a three-year Negotiated 
Service Agreement with HSBC. It asserts that the HSBC 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 solicitations 
sent by First-Class Mail that are undeliverable as addressed and cannot 
be forwarded under existing regulations. In return, HSBC agrees to 
forgo physical return of such undeliverable mail provided under the 
existing service features of First-Class Mail.
    The declining block rate volume discount element provides HSBC with 
per-piece discounts of those portions of its First-Class Mail 
solicitations that exceed specified volume thresholds. The initial 
volume threshold, which must be exceeded to receive any discount, is 
615 million pieces. The negotiated volume threshold is increased 
annually. The discounts range from 2.5 cents to 5.0 cents depending on 
the block volume.
    The Postal Service estimates it will benefit by $6.1 million over 
the life of the Negotiated Service Agreement. This is based on 
estimates of $6.6 million in savings due to the address correction 
feature, $3.9 million in increased contribution due to increased mail 
volume, and a net leakage of minus $4.4 million due to the discount 
feature of the agreement. The agreement establishes a $9 million 
discount cap over the life of the agreement. The agreement further 
provides for an annual adjustment mechanism to the volume thresholds.

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 3001.193), will not be made until after 
the prehearing conference.
    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 concluding with a 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 still can have 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 file 
periodic reports on the status of settlement discussions. The 
Commission authorizes the settlement coordinator to hold a settlement 
conference on March 24, 2005, immediately following the prehearing 
conference 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, 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 March 16, 2005. The 
notice of

[[Page 10420]]

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 3001.9(a) and 10(a)). 
Notices should indicate whether participation will be on a full or 
limited basis. See rules 20 and 20a (39 CFR 3001.20 and 20a). No 
decision has been made at this point on whether a hearing will be held 
in this case.
    Prehearing conference. A prehearing conference will be held March 
24, 2005, at 10 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), and to identify any issue(s) 
that would indicate the need to schedule a hearing, along with other 
matters referred to in this ruling. Rule 196(c) (39 CFR 3001.196(c)). 
In addition, discussion on the Postal Service's proposal for limiting 
issues should be presented at the prehearing conference.
    Participants intending to object to proceeding under rule 196 (39 
CFR 3001.196) shall file supporting written argument, if any, by March 
18, 2005. Participants also shall file supporting written argument, if 
any, in regard to the identification of issue(s) that would indicate 
the need to schedule a hearing, and objections to the Postal Service's 
proposal for limiting issues by March 18, 2005. The Commission intends 
on deciding upon these issues shortly after the prehearing conference.

Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. MC2005-2 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. Postal Service counsel is appointed to serve as settlement 
coordinator in this proceeding. The Commission will make its hearing 
room available for a settlement conference immediately following the 
prehearing conference scheduled on March 24, 2005, and at such times 
deemed necessary by the settlement coordinator.
    4. Shelley S. Dreifuss, director of the Commission's Office of the 
Consumer Advocate, is designated to represent the interests of the 
general public.
    5. The deadline for filing notices of intervention is March 16, 
2005.
    6. A prehearing conference will be held March 24, 2005 at 10 a.m. 
in the Commission's hearing room.
    7. Participants shall file supporting written argument, if any, in 
regard to the identification of issue(s) that would indicate the need 
to schedule a hearing, objections to the Postal Service's proposal for 
limiting issues, or objections to proceeding under rule 196 (39 CFR 
3001.196) by March 18, 2005.
    8. The Secretary shall arrange for publication of this notice and 
order in the Federal Register.

    By the Commission.

    Issued: February 28, 2005.
Steven W. Williams,
Secretary.
[FR Doc. 05-4111 Filed 3-2-05; 8:45 am]
BILLING CODE 7710-FW-P