[Federal Register Volume 73, Number 229 (Wednesday, November 26, 2008)]
[Rules and Regulations]
[Pages 71935-71940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28100]


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POSTAL REGULATORY COMMISSION

39 CFR Part 3020

[Docket Nos. MC2009-6 and CP2009-7; Order No. 138]


Administrative Practice and Procedure, Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Commission is adding Express Mail & Priority Mail to the 
Competitive Product List. This action is consistent with changes in a 
recent law governing postal operations and a recent Postal Service 
request. Republication of the lists of market dominant and competitive 
products is also consistent with new requirements in the law.

DATES: Effective November 26, 2008.

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, 
202-789-6820 and [email protected].

SUPPLEMENTARY INFORMATION: Regulatory History, 73 FR 66077 (November 6, 
2008).
    The Postal Service seeks to add a new product identified as Express 
Mail & Priority Mail Contract 1 to the Competitive Product List. For 
the reasons discussed below, the Commission approves the Request.

I. Background

    On October 27, 2008, the Postal Service filed a formal request 
pursuant to 39 U.S.C. 3642 and 39 CFR 3020.30 et seq. to add Express 
Mail & Priority Mail Contract 1 to the Competitive Product List.\1\ The 
Postal Service asserts that the Express Mail & Priority Mail Contract 1 
product is a competitive product ``not of general applicability'' 
within the meaning of 39 U.S.C. 3632(b)(3). This Request has been 
assigned Docket No. MC2009-6.
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    \1\ Request of the United States Postal Service to Add Express 
Mail & Priority Mail Contract 1 to Competitive Product List and 
Notice of Establishment of Rates and Class Not of General 
Applicability, October 27, 2008 (Request).
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    The Postal Service contemporaneously filed a contract related to 
the proposed new product pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 
3015.5. The contract has been assigned Docket No. CP2009-7.
    In support of its Request, the Postal Service filed the following 
materials: (1) A redacted version of the Governors' Decision 
authorizing the new product which also includes an analysis of Express 
Mail & Priority Mail Contract 1 and certification of the Governors' 
vote; \2\ (2) a redacted version of the contract which, among other 
things, provides that the contract will expire 3 years from the 
effective date, which is proposed to be 1 day after the Commission 
issues all regulatory approvals; \3\ (3) requested changes in the Mail 
Classification Schedule product list; \4\ (4) a Statement of Supporting 
Justification as required by 39 CFR 3020.32; \5\ and (5) certification 
of compliance with 39 U.S.C. 3633(a).\6\
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    \2\ Attachment A to the Request. The analysis that accompanies 
the Governors' Decision notes, among other things, that the contract 
is not risk free, but concludes that the risks are manageable.
    \3\ Attachment B to the Request.
    \4\ Attachment C to the Request.
    \5\ Attachment D to the Request.
    \6\ Attachment E to the Request.
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    In the Statement of Supporting Justification, Kim Parks, Manager, 
Sales and Communications, Expedited Shipping, asserts that the service 
to be provided under the contract will cover its attributable costs, 
make a positive contribution to coverage of institutional costs, and 
will increase contribution toward the requisite 5.5 percent of the 
Postal Service's total institutional costs. Request, Attachment D, at 
1. W. Ashley Lyons, Manager, Corporate Financial Planning, Finance 
Department, certifies that the contract complies with 39 U.S.C. 
3633(a). See id. Attachment E.
    The Postal Service filed much of the supporting materials, 
including the unredacted Governors' Decision and the unredacted Express 
Mail & Priority Mail contract, under seal. In its Request, the Postal 
Service maintains that the contract and related financial information, 
including the customer's name and the accompanying analyses that 
provide prices, terms, conditions, and financial projections, should 
remain confidential. Id. at 2-3.
    In Order No. 125, the Commission gave notice of the two dockets, 
appointed a public representative, and provided the public with an 
opportunity to comment.\7\ The Postal Service filed supplemental 
materials on November 19, 2008.\8\
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    \7\ PRC Order No. 125, Notice and Order Concerning Express Mail 
& Priority Mail Contract 1 Negotiated Service Agreement, October 31, 
2008 (Order No. 125).
    \8\ United States Postal Service Notice of Filing Under Seal of 
Additional Information Regarding Financial Analysis, November 19, 
2008.
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II. Comments

    Comments were filed by the Public Representative.\9\ No filings 
were submitted by other interested parties. The Public Representative 
Comments focus principally on the adequacy of cost coverage, 
appropriate classification of the product, and overall 
transparency.\10\ Public Representative Comments at 2-3.
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    \9\ Public Representative Comments in Response to Order No. 125, 
November 10, 2008 (Public Representative Comments).
    \10\ With respect to transparency, the Public Representative 
concludes that ``[t]he Postal Service should be commended for 
proceeding diligently toward accommodating transparency concerns.'' 
Id. at 10.
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    The Public Representative does not see a substantial risk for this 
particular contract, but does raise concerns regarding mailing profiles 
that he says warrant close attention when evaluating this and similar 
agreements.\11\ The Public Representative believes that the proposed 
Express Mail & Priority Mail Contract 1 product is appropriately 
classified as competitive. After reviewing the cost savings measures 
underlying this contract, the Public Representative determines that the

[[Page 71936]]

contract is advantageous to the Postal Service and beneficial to the 
general public. Id. at 6. He concludes, inter alia, that the contract 
should generate sufficient revenue to cover the product's attributable 
costs and contribute to the recovery of total institutional costs 
assigned to competitive products. Id. at 3-4.
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    \11\ Id. at 3-4. The specific areas of concern identified by the 
Public Representative are whether mailer-specific projected volumes 
are sufficiently reliable, whether cost impacts of mailer-specific 
shape and weight profiles are sufficiently acknowledged, whether 
seasonal effects are taken into account, and whether package density 
has been considered. Id. at 7-9.
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III. Commission Analysis

    The Commission has reviewed the Request, the contract, the 
financial analysis provided under seal that accompanies it, and the 
comments filed by the Public Representative.
    Statutory requirements. The Commission's statutory responsibilities 
in this instance entail assigning Express Mail & Priority Mail Contract 
1 to either the Market Dominant Product List or to the Competitive 
Product List. 39 U.S.C. 3642. As part of this responsibility, the 
Commission also reviews the proposal for compliance with the Postal 
Accountability and Enhancement Act (PAEA) requirements. This includes, 
for proposed competitive products, a review of the provisions 
applicable to rates for competitive products. 39 U.S.C. 3633.
    Product list assignment. In determining whether to assign Express 
Mail & Priority Mail Contract 1 as a product to the Market Dominant 
Product List or the Competitive Product List, the Commission must 
consider whether

    The Postal Service exercises sufficient market power that it can 
effectively set the price of such product substantially above costs, 
raise prices significantly, decrease quality, or decrease output, 
without risk of losing a significant level of business to other 
firms or offering similar products.

39 U.S.C. 3642(b)(1). If so, the product will be categorized as market 
dominant. The competitive category of products shall consist of all 
other products.
    The Commission is further required to consider the availability and 
nature of enterprises in the private sector engaged in the delivery of 
the product, the views of those who use the product, and the likely 
impact on small business concerns. 39 U.S.C. 3642(b)(3).
    The Postal Service asserts that its bargaining position is 
constrained by the existence of other shippers who can provide similar 
services, thus precluding it from taking unilateral action to increase 
prices without the risk of losing volume to private companies. Request, 
Attachment D, at 2-3. The Postal Service also contends that it may not 
decrease quality or output without risking the loss of business to 
competitors that offer similar expedited delivery services. Id. at 2. 
It further states that the contract partner supports the addition of 
the contract to the product list to effectuate the negotiated 
contractual terms. Id. at 3. Finally, the Postal Service states that 
the market for expedited delivery services is highly competitive and 
requires a substantial infrastructure to support a national network. It 
indicates that large carriers serve this market. Accordingly, the 
Postal Service states that it is unaware of any small business concerns 
that could offer comparable service for this customer. Id.
    No commenter opposes the proposed classification of Express Mail & 
Priority Mail Contract 1 as competitive. Having considered the 
statutory requirements and the support offered by the Postal Service, 
the Commission finds that Express Mail & Priority Mail Contract 1 is 
appropriately classified as a competitive product and should be added 
to the Competitive Product List.
    Cost considerations. The Postal Service's filing seeks to establish 
a new domestic Express Mail and Priority Mail product. The contract is 
predicated on unit costs for major mail functions, e.g., window 
service, mail processing, and transportation, based on the shipper's 
mail characteristics.
    The Postal Service contends that adding the Express Mail & Priority 
Mail Contract 1 product will result in processing Express Mail and 
Priority Mail pieces that are less costly for the Postal Service than 
the average respective Express Mail and Priority Mail mailpiece. See 
id. Attachment A. It believes that its financial analysis shows that 
these cost savings can be accomplished while ensuring that the contract 
covers its attributable costs, does not result in subsidization of 
competitive products by market dominant products, and increases 
contribution from competitive products. Id., Attachment E, at 1.
    The Postal Service's supplemental filing of November 19, 2008 
modifies data it submitted in support of the Request.\12\ The 
Commission's analysis of the proposed contract is based on the updated 
information and alternate cost estimates of certain mail functions.\13\ 
The Commission employed the latter to determine whether changed cost 
inputs would materially affect the contract's financial analysis. Based 
on that analysis, the Commission concludes that the changed inputs do 
not have a material affect on the underlying financial analysis of the 
contract. In evaluating costs under a prospective contract compared to 
the average, the Postal Service should take into account all departures 
from average cost that may be due to services provided under the 
contract.
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    \12\ The Postal Service is encouraged to exercise greater care 
in reviewing supporting materials for accuracy. The Commission's 
efforts to review negotiated service agreements expeditiously is 
hampered if the underlying data are incomplete, erroneous, or 
otherwise not adequately supported.
    \13\ The Commission's analysis is set forth in Library Reference 
PRC-CP2009-7-NP-LR-1 which, because it contains confidential 
information, is being filed under seal.
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    Based on the data submitted and the Commission's analysis shown in 
Library Reference PRC-CP2009-7-NP-LR-1, the Commission finds that 
Express Mail & Priority Mail Contract 1 should cover its attributable 
costs (39 U.S.C. 3633(a)(2)), should not lead to the subsidization of 
competitive products by market dominant products (39 U.S.C. 
3633(a)(1)), and should have a positive effect on competitive products' 
contribution to institutional costs (39 U.S.C. 3633(a)(3)). Thus, an 
initial review of the proposed Express Mail & Priority Mail Contract 1 
indicates that it comports with the provisions applicable to rates for 
competitive products.
    The Postal Service shall promptly notify the Commission when the 
contract terminates, but no later than the actual termination date. The 
Commission will then remove the contract from the Mail Classification 
Schedule at the earliest possible opportunity.
    In conclusion, the Commission approves Express Mail & Priority Mail 
Contract 1 as a new product. The revision to the Competitive Product 
List is shown below the signature of this order and is effective upon 
issuance of this order.

IV. Ordering Paragraphs

    It is Ordered:
    1. Express Mail & Priority Mail Contract 1 (MC2009-6 and CP2009-7) 
is added to the Competitive Product List as a new product under 
Negotiated Service Agreements, Domestic.
    2. The Postal Service shall notify the Commission of the 
termination date of the contract as discussed in this order.
    3. The Secretary shall arrange for the publication of this Order in 
the Federal Register.

List of Subjects in 39 CFR Part 3020

    Administrative practice and procedure; Postal Service.

    By the Commission.
Steven W. Williams,
Secretary.

0
For the reasons stated in the preamble, under the authority at 39 
U.S.C. 503, the Postal Regulatory Commission amends 39 CFR part 3020 as 
follows:

[[Page 71937]]

PART 3020--PRODUCT LISTS

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1. The authority citation for part 3020 continues to read as follows:

    Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.

0
2. Revise Appendix A to subpart A of part 3020--Mail Classification to 
read as follows:

        Appendix A to Subpart A of Part 3020--Mail Classification
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                                Schedule
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Part A--Market Dominant Products:
    1000 Market Dominant Product List:
        First-Class Mail:
            Single-Piece Letters/Postcards
            Bulk Letters/Postcards
            Flats
            Parcels
            Outbound Single-Piece First-Class Mail International
            Inbound Single-Piece First-Class Mail International
        Standard Mail (Regular and Nonprofit)
            High Density and Saturation Letters
            High Density and Saturation Flats/Parcels
            Carrier Route
            Letters
            Flats
            Not Flat-Machinables (NFMs)/Parcels
        Periodicals
            Within County Periodicals
            Outside County Periodicals
        Package Services
            Single-Piece Parcel Post
            Inbound Surface Parcel Post (at UPU rates)
            Bound Printed Matter Flats
            Bound Printed Matter Parcels
            Media Mail/Library Mail
        Special Services
            Ancillary Services
            International Ancillary Services
            Address List Services
            Caller Service
            Change-of-Address Credit Card Authentication
            Confirm
            International Reply Coupon Service
            International Business Reply Mail Service
            Money Orders
            Post Office Box Service
        Negotiated Service Agreements
            HSBC North America Holdings Inc. Negotiated Service
             Agreement
            Bookspan Negotiated Service Agreement
            Bank of America corporation Negotiated Service Agreement
            The Bradford Group Negotiated Service Agreement
        Market Dominant Product Descriptions
        First-Class Mail
        [Reserved for Class Description]:
            Single-Piece Letters/Postcards
            [Reserved for Product Description]
            Bulk Letters/Postcards
            [Reserved for Product Description]
            Flats
            [Reserved for Product Description]
            Parcels
            [Reserved for Product Description]
            Outbound Single-Piece First-Class Mail International
            [Reserved for Product Description]
            Inbound Single-Piece First-Class Mail International
            [Reserved for Product Description]
        Standard Mail (Regular and Nonprofit)
        [Reserved for Class Description]:
            High Density and Saturation Letters
            [Reserved for Product Description]
            High Density and Saturation Flats/Parcels
            [Reserved for Product Description]
            Carrier Route
            [Reserved for Product Description]
            Letters
            [Reserved for Product Description]
            Flats

[[Page 71938]]

 
            [Reserved for Product Description]
            Not Flat-Machinables (NFMs)/Parcels
            [Reserved for Product Description]
        Periodicals
        [Reserved for Class Description]:
            Within County Periodicals
            [Reserved for Product Description]
            Outside County Periodicals
            [Reserved for Product Description]
        Package Services
        [Reserved for Class Description]:
            Single-Piece Parcel Post
            [Reserved for Product Description]
            Inbound Surface Parcel Post (at UPU rates)
            [Reserved for Product Description]
            Bound Printed Matter Flats
            [Reserved for Product Description]
            Bound Printed Matter Parcels
            [Reserved for Product Description]
            Media Mail/Library Mail
            [Reserved for Product Description]
        Special Services
        [Reserved for Class Description]:
            Ancillary Services
            [Reserved for Product Description]
            Address Correction Service
            [Reserved for Product Description]
            Applications and Mailing Permits
            [Reserved for Product Description]
            Business Reply Mail
            [Reserved for Product Description]
            Bulk Parcel Return Service
            [Reserved for Product Description]
            Certified Mail
            [Reserved for Product Description]
            Certificate of Mailing
            [Reserved for Product Description]
            Collect on Delivery
            [Reserved for Product Description]
            Delivery Confirmation
            [Reserved for Product Description]
            Insurance
            [Reserved for Product Description]
            Merchandise Return Service
            [Reserved for Product Description]
            Parcel Airlift (PAL)
            [Reserved for Product Description]
            Registered Mail
            [Reserved for Product Description]
            Return Receipt
            [Reserved for Product Description]
            Return Receipt for Merchandise
            [Reserved for Product Description]
            Restricted Delivery
            [Reserved for Product Description]
            Shipper-Paid Forwarding
            [Reserved for Product Description]
            Signature Confirmation
            [Reserved for Product Description]
            Special Handling
            [Reserved for Product Description]
            Stamped Envelopes
            [Reserved for Product Description]
            Stamped Cards
            [Reserved for Product Description]
            Premium Stamped Stationery
            [Reserved for Product Description]
            Premium Stamped Cards
            [Reserved for Product Description]
            International Ancillary Services
            [Reserved for Product Description]
            International Certificate of Mailing

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            [Reserved for Product Description]
            International Registered Mail
            [Reserved for Product Description]
            International Return Receipt
            [Reserved for Product Description]
            International Restricted Delivery
            [Reserved for Product Description]
            Address List Services
            [Reserved for Product Description]
            Caller Service
            [Reserved for Product Description]
            Change-of-Address Credit Card Authentication
            [Reserved for Product Description]
            Confirm
            [Reserved for Product Description]
            International Reply Coupon Service
            [Reserved for Product Description]
            International Business Reply Mail Service
            [Reserved for Product Description]
            Money Orders
            [Reserved for Product Description]
            Post Office Box Service
            [Reserved for Product Description]
        Negotiated Service Agreements
        [Reserved for Class Description]:
            HSBC North America Holdings Inc. Negotiated Service
             Agreement
            [Reserved for Product Description]
            Bookspan Negotiated Service Agreement
            [Reserved for Product Description]
            Bank of America Corporation Negotiated Service Agreement
            The Bradford Group Negotiated Service Agreement
Part B--Competitive Products.
    Competitive Product List:
        Express Mail:
            Express Mail
            Outbound International Expedited Services
            Inbound International Expedited Services
                Inbound International Expedited Services 1 (CP2008-7)
        Priority Mail:
            Priority Mail
            Outbound Priority Mail International
            Inbound Air Parcel Post
        Parcel Select
        Parcel Return Service
        International:
            International Priority Airlift (IPA)
            International Surface Airlift (ISAL)
            International Direct Sacks-M-Bags
            Global Customized Shipping Services
            Inbound Surface Parcel Post (at non-UPU rates)
            International Money Transfer Service
            International Ancillary Services
        Special Services:
            Premium Forwarding Service
        Negotiated Service Agreements:
            Domestic
                Express Mail Contract 1 (MC2008-5)
                Express Mail Contract 2 (MC2009-3 and CP2009-4)
                Express Mail & Priority Mail Contract 1 (MC2009-6 and
                 CP2009-7)
                Parcel Return Service Contract 1 (MC2009-1 and CP2009-2)
                Priority Mail Contract 1 (MC2008-8 and CP2008-26)
                Priority Mail Contract 2 (MC2009-2 and CP2009-3)
                Priority Mail Contract 3 (MC2009-4 and CP2009-5)
                Priority Mail Contract 4 (MC2009-5 and CP2009-6)
            Outbound International
                Global Expedited Package Services (GEPS) Contracts GEPS
                 1 (CP2008-5, CP2008-11, CP2008-12, and CP2008-13,
                 CP2008-18, CP2008-19, CP2008-20, CP2008-21, CP2008-22,
                 CP2008-23, and CP2008-24)
                Global Plus Contracts Global Plus 1 (CP2008-9 and CP2008-
                 10) Global Plus 2 (MC2008-7, CP2008-16 and CP2008-17)
            Inbound Direct Entry Contracts with Foreign Postal
             Administrations (MC2008-6, CP2008-14 and CP2008-15)
        Competitive Product Descriptions
            Express Mail
            [Reserved for Group Description]

[[Page 71940]]

 
            Express Mail
            [Reserved for Product Description]
            Outbound International Expedited Services
            [Reserved for Product Description]
            Inbound International Expedited Services
            [Reserved for Product Description]
            Priority
            [Reserved for Product Description]
            Priority Mail
            [Reserved for Product Description]
            Outbound Priority Mail International
            [Reserved for Product Description]
            Inbound Air Parcel Post
            [Reserved for Product Description]
            Parcel Select
            [Reserved for Group Description]
            Parcel Return Service
            [Reserved for Group Description]
            International
            [Reserved for Group Description]
            International Priority Airlift (IPA)
            [Reserved for Product Description]
            International Surface Airlift (ISAL)
            [Reserved for Product Description]
            International Direct Sacks-M-Bags
            [Reserved for Product Description]
            Global Customized Shipping Services
            [Reserved for Product Description]
            International Money Transfer Service
            [Reserved for Product Description]
            Inbound Surface Parcel Post (at non-UPU rates)
            [Reserved for Product Description]
            International Ancillary Services
            [Reserved for Product Description]
            International Certificate of Mailing
            [Reserved for Product Description]
            International Registered Mail
            [Reserved for Product Description]
            International Return Receipt
            [Reserved for Product Description]
            International Restricted Delivery
            [Reserved for Product Description]
            International Insurance
            [Reserved for Product Description]
            Negotiated Service Agreements
            [Reserved for Group Description]
            Domestic
            [Reserved for Product Description]
            Outbound International
            [Reserved for Group Description]
        Part C--Glossary of Terms and Conditions [Reserved]
        Part D--Country Price Lists for International Mail [Reserved]
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[FR Doc. E8-28100 Filed 11-25-08; 8:45 am]
BILLING CODE 7710-FW-P