[Federal Register Volume 74, Number 134 (Wednesday, July 15, 2009)]
[Notices]
[Pages 34376-34379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16783]


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POSTAL REGULATORY COMMISSION

[Docket No. R2009-4; Order No. 236]


Postal Service Price Changes

AGENCY: Postal Regulatory Commission.

ACTION: Approval of price changes.

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DATES: Implementation is scheduled for July 19, 2009.

[[Page 34377]]


FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6924 or [email protected].
SUMMARY: This document discusses the Commission's consideration and 
approval of a Postal Service request to reduce prices for a component 
of the mail stream referred to as Standard Mail high density flats. The 
approval means that the Postal Service may implement the planned price 
reductions.

SUPPLEMENTARY INFORMATION: Regulatory History, 74 FR 27843 (June 11, 
2009).

I. Introduction

    On June 1, 2009, the Postal Service filed a notice with the 
Commission announcing its intention to adjust prices for Standard Mail 
High Density flat pieces pursuant to 39 U.S.C. 3622 and 39 CFR Part 
3010.\1\ The proposed adjustment (decrease) has a planned 
implementation date of July 19, 2009. The Postal Service submits that 
this proposal represents a way that it can take advantage of its 
greater pricing flexibility for market dominant products under the 
Postal Accountability and Enhancement Act (PAEA), Public Law 109-435, 
120 Stat. 3218 (2006), to ``respond quickly and flexibly to perceived 
needs in the mailing community.'' Id. at 3.
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    \1\ United States Postal Service Notice of Market-Dominant Price 
Adjustment, June 1, 2009 (Request).
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    In Order No. 220, the Commission established Docket No. R2009-4 to 
consider matters raised by the Postal Service's filing, appointed a 
public representative, and afforded interested persons an opportunity 
to comment on specific issues as well as any other matters related to 
the Postal Service's filing.\2\ In particular, the Commission sought 
comment on whether the price cap and unused rate adjustment authority 
were applicable to this overall price decrease.
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    \2\ PRC Order No. 220, Notice and Order Concerning Price 
Adjustment for Standard Mail High Density Flats, June 4, 2009 (Order 
No. 220).
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    On June 5, 2009, Chairman's Information Request No. 1 was 
issued.\3\ CHIR No. 1 sought information from the Postal Service with 
respect to price adjustment authority and annual limitation 
calculations. The Postal Service filed its response to the Chairman's 
Information Request on June 12, 2009.\4\
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    \3\ Chairman's Information Request No. 1, June 5, 2009 (CHIR No. 
1).
    \4\ Response of the United States Postal Service to Chairman's 
Information Request No. 1, June 12, 2009.
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    This case raises the issue of how the Commission should address a 
rate decrease in a period of deflation. The Postal Service's proposal 
was not opposed by any commenter. The Commission finds the Postal 
Service's proposal to be appropriate given the unique factual 
circumstances of this case. The Commission will initiate one or more 
rulemakings to consider revising its rules to address issues concerning 
application of the price cap and calculation of rate adjustment 
authority.

II. Postal Service Request

    The Postal Service explains that it has heard the concerns 
expressed by High Density flats mailers on the detrimental impact that 
the above-average price increases implemented on May 11, 2009, will 
have on their businesses. Request at 2. After taking these concerns 
into consideration, the Postal Service determined that High Density 
flat prices that reflect an increase from the previous year similar to 
the average Standard Mail increase are more appropriate at this time. 
Id. As a result, the Postal Service seeks to change the current rates 
for Standard Mail High Density flats. It asserts that the proposed 
reduced rates could potentially avoid diversion of large mail volumes 
from the postal system. Id. at 5.
    The Postal Service's proposal reduces prices for the Standard Mail 
High Density flats price categories for both commercial and nonprofit 
mailpieces. Id. at 2. The adjustment decreases the minimum per-piece 
prices for commercial and nonprofit High Density flats by 0.1 cent, and 
decreases the pound price element for commercial and nonprofit High 
Density flats to match the Standard Mail Saturation flats pound price 
element. The per-piece price element for pound-rated pieces increases 
by 0.7 cents per piece to ``ensure a smooth transition at the 
breakpoint,'' according to the Postal Service. Id. at 3. Dropship 
discounts for High Density flats do not change under this proposal.

III. Comments

    Several parties filed comments in this case: Valpak Direct 
Marketing Systems, Inc. and Valpak Dealers' Association, Inc., the 
Public Representative, and Newspaper Association of America.\5\ In 
addition, the Postal Service responded to questions posed in Order No. 
220 concerning the Request.\6\ The parties' comments are summarized 
below.
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    \5\ Valpak Direct Marketing Systems, Inc. and Valpak Dealers' 
Association, Inc. Comments Regarding Price Adjustment for Standard 
Mail High Density Flats (Valpak Comments), Public Representative 
Comments in Response to Notice of Price Adjustment for Standard Mail 
High Density Flats (Public Representative Comments), Comments of the 
Newspaper Association of America on Notice of Market-Dominant Price 
Adjustment (NAA Comments), all filed June 22, 2009.
    \6\ Response of the United States Postal Service to Order No. 
220 (Postal Service Comments), June 22, 2009.
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    Valpak comments. Valpak argues that the Commission's rules should 
apply to price decreases, and that the Commission did not intend to 
permit all types of rate decreases without any Commission review. In 
support, it cites to the Commission's rules which, for the most part, 
discuss the price cap in terms of ``adjustments'' rather than increases 
or decreases. Valpak Comments at 2. Valpak submits that in the current 
``abnormal economic circumstances'' application of the Commission's 
rules can create ``strange results.'' Id. It believes that the proper 
response may be to modify the Commission's rules on this subject. The 
better approach here, according to Valpak, would have been for the 
Postal Service to file a motion to waive the filing requirements or 
request another type of one-time relief. Id. at 4.
    Public Representative comments. First, the Public Representative 
points out that the Postal Service does not provide any support or 
estimate for its claim that the request ``could potentially avoid 
diversion of large volumes'' of High Density flat mail. Public 
Representative Comments at 1-2. Second, the Public Representative 
contends, based on the text of 39 U.S.C. 3622(d)(1), that the price cap 
does not apply to price decreases. Such an application would be 
``illogical,'' according to the Public Representative. He notes that 
the PAEA does not include any provision suggesting that a rate decrease 
must be at least as great as the drop in consumer price index. He also 
discusses Congress' purpose in creating the price cap limitation--to 
create a ceiling to ensure against unreasonable price increases--a 
concern that is not present when rates are decreasing. Id. at 3-8.
    Third, the Public Representative contends that in the absence of a 
price increase calculation, the Postal Service's unused rate adjustment 
authority is not required or needed. In support of this conclusion, he 
cites certain Commission rules which he believes demonstrate that the 
annual limitation and unused rate adjustment authority only apply to 
rate increases. With respect to whether the Postal Service can waive 
unused rate adjustment authority, he believes this issue is ``moot'' 
because this rate decrease does not generate any unused rate adjustment 
authority since consumer prices have decreased. Id. at 8-9.

[[Page 34378]]

    NAA comments. NAA supports the Postal Service's proposed adjustment 
to Standard Mail High Density Flats rates because it will encourage 
retained mail volume and discourage a migration of customers out of the 
mailstream. NAA Comments at 1.
    Postal Service comments. The Postal Service believes that applying 
the price cap to a price decrease is not required under the language or 
purpose of section 3622. Postal Service Comments at 2-3. First, it 
argues that section 3622(d)(1)(A) uses the word ``increase,'' and that 
the section is supposed to apply only to limit the Postal Service's 
flexibility with respect to increases. Id. at 3. Second, it believes 
that the legislative history of the PAEA indicates that Congress was 
concerned about capping the extent to which the Postal Service could 
increase prices, not decrease prices. Id. at 4. Third, it cites to 
Commission rule 3010.22(a) which generally discusses price adjustments 
in terms of ``increases.'' \7\
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    \7\ The Postal Service notes that the Commission may wish to 
consider the need for additional rules concerning the effect of mid-
year price adjustments that consist entirely of a decrease on the 
Postal Service's price adjustment authority. Id. at 7.
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    The Postal Service notes that section 3622(d)(1)(A) does not 
foreclose the Commission from adjusting the Postal Service's authority 
due to mid-cycle price decreases. Id. \8\ However, it submits that the 
Commission should not adjust the Postal Service's pricing authority due 
to the unique factual circumstances present in this case, where the 
partial-year annual limitation applicable to the proposed adjustment is 
negative. Id. at 2, 5. Applying the price cap would require the Postal 
Service to utilize a large portion of its unused price adjustment 
authority for Standard Mail to effectuate the decrease. This would, 
according to the Postal Service ``create a perverse incentive for the 
Postal Service not to implement mid-year price decreases in order to 
respond to market conditions, during an environment of declining CPI-
U'' by, in effect, ``penaliz[ing] the Postal Service for making a mid-
cycle price decrease in order to respond to market conditions, by 
requiring that the Postal Service give up a large portion of its unused 
price adjustment authority.'' Id. at 2-3, see also Id. at 5.
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    \8\ See also Postal Service Comments at 3, 4-5 (``Thus, while 
the Commission must apply the price cap structure of section 3622(d) 
to price adjustments that include increases to prices (i.e., either 
a price adjustment that consists solely of price increases, or a 
price adjustment that includes increases to some prices and 
decreases to others), it is not required to do so with respect to 
price adjustments consisting solely of a decrease in prices.''); 
(``While the statute clearly does not require that the price cap 
structure established by section 3622(d) apply to a mid-year 
decrease, this does not mean that the statute affirmatively 
forecloses the Commission from decided that the Postal Service's 
price adjustment authority may in certain circumstances be altered 
as a result of such a decrease.'').
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    The Postal Service also suggests that even if a mid-year decrease 
during a period of declining CPI-U does not implicate the Postal 
Service's price adjustment authority, the other provisions of section 
3622 (such as sections 3622(b), (c), and (e)), still apply, and the 
Commission can make a determination on such issues under rule 
3010.13(j).
    With respect to the issue of waiver, the Postal Service states that 
it does not view a price adjustment that is outside the price cap 
structure as presenting a question as to whether it can ``waive'' price 
adjustment authority because, in such circumstances, there no authority 
is being generated that would be eligible to be waived.

IV. Commission Analysis

    Impact on the price cap. The Postal Service considers this price 
adjustment to be outside the Commission's current rules because the 
proposed High Density flat price adjustments are decreases and were not 
part of the regular annual price adjustment. Request at 3. The Postal 
Service states that it ``is not claiming any new unused rate adjustment 
authority as a result of this price decrease.'' Id.\9\ In its comments, 
the Postal Service elaborates on its position. It believes that 
application of the price cap to this situation would ``requir[e] the 
Postal Service [to] give up a large portion of its unused price 
adjustment authority.'' Postal Service Comments at 5. In support of 
this statement, the Postal Service points to its calculation in 
response to CHIR No. 1 which shows a reduction to the Postal Service's 
unused rate adjustment authority as a result of this case.\10\
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    \9\ The Postal Service submits that the unused price adjustment 
authority for Standard Mail should remain at 0.081 percent. Id. at 3 
(citing PRC Order No. 191, Order Reviewing Postal Service Market 
Dominant Price Adjustment, May 16, 2009).
    \10\ The Postal Service's Notice and Response of the United 
States Postal Service to Chairman's Information Request No. 1 use a 
``before rates'' unused price adjustment authority for Standard Mail 
of 0.081 percent. See, e.g., Notice at 3. This before rates unused 
price adjustment authority is incorrect. The proper before rates 
unused price adjustment authority is 0.103 percent which is found in 
Order No. 201, Order Approving Revisions in Amended Notice of Market 
Dominant Price Adjustment at 4, April 9, 2009.
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    However, this position does not take into consideration the fact 
that any adjustment to the Postal Service's unused rate adjustment 
authority as a result of this case would also ``reset'' the cap 
calculation. In other words, if the unused rate adjustment authority is 
changed as a result of this case, the cap calculation going forward 
would also be ``reset.'' The negative change in CPI-U for the last five 
months of last year would have already been taken into account by the 
resetting of the cap calculation. Therefore, a future rate increase 
could be larger than it otherwise could have been if the cap 
calculation and unused rate adjustment authority were not reset as a 
result of this proceeding. Indeed, the change in unused rate adjustment 
authority as a result of this proceeding would be offset by the 
negative change in CPI-U that would have to be taken into account as a 
result of this proceeding. See Library Reference PRC-R2009-4-LR-1 for 
an example of this mathematical phenomenon. This balancing occurs 
whether or not the change in CPI-U is positive or negative.
    The Commission believes that the larger issue with respect to this 
proposed rate change is the impact that the one decimal place rounding 
constraint found in 39 CFR 3010.21 and 3010.22 potentially could have 
on the rate adjustment authority altered as a result of this 
proceeding. If the Commission alters the Postal Service's unused rate 
adjustment authority as a result of this proceeding, depending on how 
CPI-U changes in the upcoming months, proper application of 39 CFR 
3010.22 could result in a lower amount of Postal Service's rate 
adjustment authority for the next regular annual price adjustment due 
to rounding. See Library Reference PRC-R2009-4-LR-1 for an example of 
this calculation. This potential problem would not occur if the unused 
rate adjustment authority and annual limitation calculation were 
rounded to the same number of digits. If the Postal Service continues 
to exercise its pricing flexibility in a similar manner in the future 
(small increases or decreases in rates), this rounding problem could 
become more pernicious.
    In addition to these problems, an issue is whether the procedures 
of 39 CFR part 3010 used for calculating rate adjustment authority are 
applicable to rate decreases. The Commission's rules do not directly 
address such a situation. The Commission's rules are designed for price 
adjustment proposals during periods of inflation. However, as noted 
above, this case has highlighted some problems with the application of 
the Commission's current rules in unforeseen factual circumstances. 
Accordingly, the Commission will accept the Postal Service's approach 
here based on the unique facts of this

[[Page 34379]]

particular situation. Moreover, no commenters voiced opposition to the 
Postal Service's suggested approach.
    Nonetheless, the issues raised by the Postal Service's filing need 
to be addressed on a holistic basis. Therefore, the Commission will be 
initiating a rulemaking to solicit public comment on how a rate 
decrease should affect the cap calculation and unused rate adjustment 
authority in the future, as well as how to deal with the rounding issue 
discussed above.
    The Commission's action in this case should not be construed as a 
finding that the Commission does not have authority under either the 
PAEA or its rules to apply the compliance cap calculation or adjust the 
Postal Service's unused rate adjustment authority in cases where there 
is a rate decrease. As the Postal Service correctly notes, ``[w]hile 
the statute clearly does not require that the price cap structure 
established by section 3622(d) apply to a mid-year decrease, this does 
not mean that the statute affirmatively forecloses the Commission from 
deciding that the Postal Service's price adjustment authority may in 
certain circumstances be altered as a result of such a decrease.'' The 
Commission's determination that the price cap should not apply in this 
case is limited to the narrow, unique factual situation at issue here.
    The rates resulting from this proceeding will be used as the base 
rates for the next cap calculation for the Standard Mail class. The 
unused rate adjustment authority for the Standard Mail class remains at 
0.103.
    Objectives and factors. Pursuant to the Commission's rules, 39 CFR 
3010.14(b)(7), the Postal Service addresses how this proposed rate 
adjustment helps achieve the objectives of 39 U.S.C. 3622(b) and takes 
into account the factors of 39 U.S.C. 3622(c). The Postal Service lists 
and discusses what it considers the relevant objectives and factors of 
39 U.S.C. 3622 to the proposed price adjustment. Id. at 4-8. It 
believes that, at most, the price reductions will cause only a modest 
decrease in Postal Service revenues, and could potentially avoid 
diversion to non-postal delivery of large volumes of mail currently 
paying High Density flats prices.
    The Commission finds that, under the circumstances of this case, 
the objectives and factors in 39 U.S.C. 3622(b) and (c) appear to be 
satisfied by explanations and data in the Request.
    Workshare discounts. 39 U.S.C. 3622(e) requires that workshare 
discounts given by the Postal Service do not exceed their avoided costs 
unless certain criteria are fulfilled. The Postal Service maintains its 
view that the price differences between the High Density categories and 
the Saturation and Carrier Route categories are not workshare 
discounts. It recognizes that the Commission has instituted Docket No. 
RM2009-3 to consider that issue. In this case, the Postal Service 
provided in Appendix B (and an associated Excel file) a table showing 
the cost and price differences, as well as passthroughs for Carrier 
Route, High Density, and Saturation flats (both commercial and 
nonprofit) following the proposed adjustments to the prices of High 
Density flats. The Postal Service notes that none of the passthroughs 
exceeds 100 percent, so the limitations of section 3622(e) do not 
apply. It explains that all of the passthroughs for the High Density/
Carrier Route relationship are slightly higher and the passthroughs for 
the High Density/Saturation relationship are slightly lower than those 
reported in Docket No. R2009-2 due to the instant proposed High Density 
flats price reduction.
    The Commission finds that the rate changes have only a minor effect 
on the passthroughs approved just a few months ago and they do not 
cause any of the affected ``passthroughs'' to exceed 100 percent, Thus, 
the requirements of section 3622(e) are satisfied here.\11\
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    \11\ As the Postal Service notes, the Commission is currently 
considering whether the relationship between High Density and 
Saturation mailpieces is to be considered ``worksharing'' for 
purposes of 39 U.S.C. 3622(e) in Docket No. RM2009-3.
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    Preferred rates. 39 U.S.C. 3626 requires that nonprofit categories 
of products shall be set to yield 60 percent of the per-piece revenue 
of their commercial counterparts. The Postal Service explains that 
nonprofit High Density flats receive the same price reductions as 
commercial flats. Due to the fact that the proposed price changes apply 
to both commercial and nonprofit flats and due to the small volumes of 
High Density nonprofit flats, the Postal Service submits that the 
required 60 percent ratio, required under 39 U.S.C. 3626, between 
commercial and nonprofit prices is not altered as a result of the 
proposed price adjustment.
    As the current commercial/nonprofit price ratio is not altered as a 
result of the proposed price adjustment, the Commission finds that the 
required 60 percent differential will be maintained.

V. Ordering Paragraphs

    A full review of the United States Postal Service Notice of Market-
Dominant Price Adjustment with respect to Standard Mail High Density 
flats, filed June 1, 2009, has been completed. With regard to the price 
adjustments contained therein, for the reasons set forth above
    It is ordered:
    1. The Commission approves the Standard Mail High Density flats 
rate adjustment.
    2. The rates resulting from this proceeding will be used as the 
base rates for the next cap calculation for the Standard Mail class.
    3. The unused rate adjustment authority for the Standard Mail class 
remains at 0.103.
    4. The Secretary of the Commission will arrange for publication of 
this Order in the Federal Register.

    Issued: July 1, 2009.

    By the Commission.
Judith M. Grady,
Acting Secretary.
[FR Doc. E9-16783 Filed 7-14-09; 8:45 am]
BILLING CODE 7710-FW-P