[Federal Register Volume 71, Number 149 (Thursday, August 3, 2006)]
[Notices]
[Pages 44052-44054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6653]


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POSTAL RATE COMMISSION

[Docket No. MC2006-6; Order No. 1472]


Extension of Negotiated Service Agreement

AGENCY: Postal Rate Commission.

ACTION: Notice and order.

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SUMMARY: This document informs the public that the Postal Service is 
seeking approval of a one-year extension of the negotiated service 
agreement with Capital One Services, Inc. The document describes the 
agreement, identifies certain preliminary decisions, and addresses 
procedural steps, including key deadlines.

DATES: 1. August 14, 2006: Deadline for intervention, statements 
identifying issues requiring a hearing, and objections to rule 197 
treatment.
    2. August 15, 2006: Prehearing 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 202-789-6820.

Procedural History

    Capital One Services, Inc. Negotiated Service Agreement, 67 FR 
61355 (September 30, 2002).
    On July 26, 2006, the United States Postal Service filed a request 
seeking a recommended decision from the Postal Rate Commission 
approving a one-year extension of the negotiated service agreement with 
Capital One Services, Inc.\1\ The Capital One negotiated service 
agreement was first recommended by the Commission on May 15, 2003,\2\ 
and ordered into effect for a period of three years ending September 1, 
2006, by the United States Postal Service Board of Governors.\3\ The 
Request, which includes seven attachments, was filed pursuant to 
chapter 36 of the Postal Reorganization Act, 39 U.S.C. 3601 et seq.\4\ 
The Postal Service asks that this case proceed under the Commission's 
rules for requests to renew previously recommended negotiated service 
agreements with existing participants. Rule 197 [39 CFR 3001.197].
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    \1\ Request of the United States Postal Service for a 
Recommended Decision to Extend the Duration of the Previously 
Recommended Negotiated Service Agreement with Capital One, July 26, 
2006 (Request).
    \2\ PRC Op. MC2002-2, May 15, 2003.
    \3\ Decision of the Governors of the United States Postal 
Service on the Opinion and Recommended Decision of the Postal Rate 
Commission Recommending Experimental Rate and Service Changes to 
Implement Negotiated Service Agreement with Capital One, Docket No. 
MC2002-2, June 2, 2003.
    \4\ Attachment A to the Request contains proposed changes to the 
Domestic Mail Classification Schedule; Attachment B contains the 
current rate schedules, which have not been modified from Docket No. 
MC2002-2; 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; Attachment F is a copy of the amendment 
to the Negotiated Service Agreement and the Negotiated Service 
Agreement itself; and Attachment G contains the decision of the 
Governors for the original Negotiated Service Agreement.
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    The Postal Service has identified Capital One Services, Inc. 
(Capital One), along with itself, as parties to the negotiated service 
agreement. This identification serves as notice of intervention by 
Capital One. It also indicates that Capital One 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)].
    In support of the direct case, the Postal Service has filed Direct 
Testimony of Jessica Lowrance on

[[Page 44053]]

Behalf of the United States Postal Service, July 26, 2006 (USPS-T-1). 
The Request further relies on record evidence entered in Docket No. 
MC2002-2. The Postal Service's Compliance Statement, Request Attachment 
E, identifies the Docket No. MC2002-2 material on which it proposes to 
rely.
    Rule 197(b) [39 CFR 3001.197(b)] 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 Commission docket 
established to consider the original agreement, Docket No. MC2002-2. 
This requirement permits an abbreviated intervention period by 
providing additional time 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 July 26, 2006.\5\
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    \5\ Notice of the United States Postal Service of Filing Request 
for a Recommended Decision to Extend the Duration of the Previously 
Recommended Negotiated Service Agreement with Capital One, July 26, 
2006.
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    The Postal Service submitted a contemporaneous filing requesting 
the expedited issuance of a recommended decision.\6\ The Motion further 
requests that participants in this docket accompany their notices of 
intervention with detailed pleadings responding to an order to show 
cause why the term extension should not be recommended as proposed.
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    \6\ Motion of the United States Postal Service for Expedited 
Issuance of a Recommended Decision, July 26, 2006 (Motion).
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    The Postal Service's Request, the accompanying testimony of witness 
Lowrance (USPS-T-1), the original 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 Web site (http://www.prc.gov).

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

    The Capital One negotiated service agreement includes two 
significant mail service features that form the bases of the 
agreement--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. PRC Op. MC2002-2, para. 2004.
    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.
    The Commission's analysis of the Capital One negotiated service 
agreement focused on assuring that the agreement would not make mailers 
other than Capital One worse off. Id., para. 8006. To meet this 
condition, the Commission's recommendation of the Capital One 
negotiated service agreement included the addition of a provision 
establishing a cumulative three-year stop-loss limit on rate discounts 
of $40.637 million. Id., paras. 5116, 8011. The Commission found that 
the estimates of before-rates volumes for Capital One were so 
unreliable that without a stop-loss provision there would be no 
reasonable assurance that the Postal Service would not lose money on 
the Capital One negotiated service agreement. Id., para. 8013.

II. The Request to Extend the Duration of the Capital One Negotiated 
Service Agreement

    The Postal Service proposes to extend the duration of the ongoing 
negotiated service agreement with Capital One by one year while the 
parties develop a new negotiated service agreement to be filed in the 
upcoming year. The Postal Service asserts that the Capital One 
negotiated service agreement has proven successful, benefiting both the 
Postal Service and the mailing community as a whole. The Postal Service 
and Capital One propose no other modifications to the currently in 
effect negotiated service agreement and indicate their intent to 
terminate the ongoing agreement once a subsequent agreement is reached. 
Request Attachment F at 2.
    The Postal Service states that it is probable that no discounts 
will be earned in the third year of the agreement, but continuation of 
the agreement will serve two policy objectives. First, Capital One will 
be provided with an incentive to increase solicitations during the 
extension period. Second, Capital One will maintain its contractual 
obligation to employ worksharing practices related to Address 
Correction Service (ACS) as well as its agreement to participate in 
mail quality programs.
    The Postal Service asserts that the value from extending the 
current agreement will primarily occur from the use of electronic ACS 
notices to replace manual notices. The estimated savings from marketing 
pieces converted to electronic ACs notices in the extension period is 
$5.1 million. USPS-T-1 at 6.

III. Commission Response

    Applicability of the rules for requests to renew previously 
recommended negotiated service agreements. For administrative purposes, 
the Commission has docketed the instant filing as a request predicated 
on the extension of a previously recommended negotiated service 
agreement which is currently in effect. A final determination regarding 
the appropriate characterization of the request and application of the 
expedited rules, rule 197 [39 CFR 3001.197], will not be made until 
after the prehearing conference.
    Representation of the general public. In conformance with section 
3624(c) 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. Driefuss 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 August 14, 2006. 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 
3001.9(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 August 
15, 2006, at 2 p.m. in the Commission's hearing room. Participants 
shall be prepared to address whether or not it is appropriate to 
proceed under rule 197 [39 CFR 3001.197], and to identify any issue(s) 
that would indicate the need to

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schedule extended discovery or a hearing. Rule 197(c) [39 CFR 
3001.197(c)].
    Participants intending to object to proceeding under rule 197 [39 
CFR 3001.197] shall file supporting written argument, if any, by August 
14, 2006. Participants also shall file statements identifying issues 
that would indicate the need to schedule a hearing by August 14, 2006. 
The Commission intends to make a decision on these issues shortly after 
the prehearing conference.
    Motion for expedition. The Postal Service's motion for expedition 
and to show cause is denied. Rule 197(d) [39 CFR 3001.197(d)] already 
provides for expedited treatment of requests to renew negotiated 
service agreements. Likewise, rule 197(c) [38 CFR 3001.197(c)] already 
requires participants to plead whether or not any material issues of 
fact exist that require discovery or evidentiary hearings at the time 
of the prehearing conference.

Ordering Paragraphs

It is ordered:

    1. The Commission establishes Docket No. MC20056-6 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. Shelley S. Dreifuss, director of the Commission's Office of the 
Consumer Advocate, is designated to represent the interests of the 
general public.
    4. The deadline for filing notices of intervention is August 14, 
2006.
    5. A prehearing conference will be held August 15, 2006 at 2 p.m. 
in the Commission's hearing room.
    6. Participants shall file statements identifying issues that would 
indicate the need to schedule a hearing, or objections to proceeding 
under rule 197 [39 CFR 3001.197] by August 14, 2006.
    7. The Motion of the United States Postal Service for Expedited 
Issuance of a Recommended Decision, filed July 26, 2006, is denied.
    8. The Secretary shall arrange for publication of this notice and 
order in the Federal Register.

    Issued: July 27, 2006.

    By the Commission.
Steven W. Williams,
Secretary.
[FR Doc. 06-6653 Filed 8-2-06; 8:45 am]
BILLING CODE 7710-FW-M