[Federal Register Volume 74, Number 135 (Thursday, July 16, 2009)]
[Notices]
[Pages 34598-34601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16844]


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POSTAL REGULATORY COMMISSION

[Docket Nos. MC2009-27 and CP2009-37; Order No. 231]


Priority Mail Contract

AGENCY: Postal Regulatory Commission.

ACTION: Notice of contract approval.

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SUMMARY: This document informs the public that the Commission has 
reviewed and approved the Postal Service's recent request to add a new 
Priority Mail contract to its list of competitive offerings. It also 
addresses other procedural and legal matters aspects of the review and 
approval.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6824 or [email protected].

SUPPLEMENTARY HISTORY:
    Regulatory History, 74 FR 30179 (June 24, 2009).

I. Background
II. Comments
III. Commission Analysis
IV. Ordering Paragraphs

    The Postal Service seeks to add a new product identified as 
Priority Mail Contract 11 to the Competitive Product List. For the 
reasons discussed below, the Commission approves the Request.

I. Background

    On June 11, 2009, the Postal Service filed a notice, pursuant to 39 
U.S.C. 3632(b)(3) and 39 CFR 3015.5, announcing that it has entered 
into an additional contract (Priority Mail Contract 11), which it 
attempts to classify within the previously proposed Priority Mail 
Contract Group product.\1\ In support, the Postal Service filed the 
proposed contract and referenced Governors' Decision 09-6 filed in 
Docket No. MC2009-25. Id. at 1. The Notice has been assigned Docket No. 
CP2009-37.
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    \1\ Notice of Establishment of Rates and Class Not of General 
Applicability (Priority Mail Contract 11), June 11, 2009 (Notice).
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    In response to Order No. 222,\2\ and in accordance with 39 U.S.C. 
3642 and 39 CFR 3020 subpart B, the Postal Service filed a formal 
request to add Priority Mail Contract 11 to the Competitive Product 
List as a separate product.\3\ The Postal Service asserts that the 
Priority Mail Contract 11 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. MC2009-27.
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    \2\ PRC Order No. 222, Notice and Order Concerning Filing of 
Priority Mail Contract 11 Negotiated Service Agreement, June 17, 
2009 (Order No. 222).
    \3\ Request of the United States Postal Service to Add Priority 
Mail Contract 11 to Competitive Product List, June 23, 2009 
(Request).
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    In support of its Notice and Request, the Postal Service filed the 
following materials: (1) 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 the day that the Commission 
issues all regulatory approvals; \4\ (2) requested changes in the Mail 
Classification Schedule product list; \5\ (3) a Statement of Supporting 
Justification as required by 39 CFR 3020.32; \6\ and (4) certification 
of compliance with 39 U.S.C. 3633(a).\7\
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    \4\ Attachment A to the Notice.
    \5\ Attachment A to the Request.
    \6\ Attachment B to the Request.
    \7\ Attachment B to the Notice.
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    In the Statement of Supporting Justification, Mary Prince Anderson, 
Acting 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 B, at 1. W. Ashley

[[Page 34599]]

Lyons, Manager, Corporate Financial Planning, Finance Department, 
certifies that the contract complies with 39 U.S.C. 3633(a). Notice, 
Attachment B.
    The Postal Service filed much of the supporting materials, 
including the unredacted contract, under seal. In its Notice, 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. Notice at 2-3.
    In Order No. 222, the Commission gave notice of the two dockets, 
requested supplemental information, appointed a public representative, 
and provided the public with an opportunity to comment.\8\ On June 22, 
2009, Chairman's Information Request No. 1 was filed.\9\ On June 23, 
2009, the Postal Service filed the supplemental information 
requested.\10\ The Postal Service filed its response to the Chairman's 
Information Request on June 26, 2009.\11\
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    \8\ Order No. 222 at 1-4.
    \9\ Chairman's Information Request No. 1 and Notice of Filing of 
Question Under Seal, June 22, 2009. A portion of the Chairman's 
Information Request was filed under seal.
    \10\ Response of the United States Postal Service to 
Commission's Request for Supplemental Information in Order No. 222, 
June 23, 2009.
    \11\ Response to Chairman's Information Request No. 1, Question 
2 and Notice of Filing Responses to Questions 1 and 3 Under Seal, 
June 26, 2009.
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II. Comments

    Comments were filed by the Public Representative.\12\ No comments 
were submitted by other interested parties. The Public Representative 
states that the Postal Service's filing complies with applicable 
Commission rules of practice and procedure, and concludes that the 
Priority Mail Contract 11 agreement comports with the requirements of 
title 39 and is appropriately classified as competitive. Id. at 3.
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    \12\ Public Representative Comments in Response to United States 
Postal Service Notice of Establishment of Rates and Class Not of 
General Applicability (Priority Mail Contract 11), June 26, 2009 
(Public Representative Comments).
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    The Public Representative believes that the Postal Service has 
provided adequate justification for maintaining confidentiality in this 
case. Id. at 2-3. He indicates that the contractual provisions are 
mutually beneficial to the parties and general public. Id. at 4.

III. Commission Analysis

    The Commission has reviewed the Notice, the Request, the contract, 
the financial analysis provided under seal that accompanies it, the 
Postal Service's responses to Chairman's Information Request No. 1, the 
Postal Service's response to the Commission's request for supplemental 
information, and the comments filed by the Public Representative.
    Statutory requirements. The Commission's statutory responsibilities 
in this instance entail assigning Priority Mail Contract 11 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 Priority 
Mail Contract 11 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 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 B, para. (d). 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. It 
further states that the contract partner supports the addition of the 
contract to the Competitive Product List to effectuate the negotiated 
contractual terms. Id. at para. (g). 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. at para. (h).
    No commenter opposes the proposed classification of Priority Mail 
Contract 11 as competitive. Having considered the statutory 
requirements and the support offered by the Postal Service, the 
Commission finds that Priority Mail Contract 11 is appropriately 
classified as a competitive product and should be added to the 
Competitive Product List.
    Cost considerations. The Postal Service presents a financial 
analysis showing that Priority Mail Contract 11 results in cost savings 
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. Order 
No. 222 and Chairman's Information Request No. 1 sought additional 
support and justification for particular cost saving elements. The 
Postal Service's responses did not persuade the Commission that certain 
cost savings elements were appropriate here.
    Accordingly, the Commission's analysis of the proposed contract is 
based on alternative cost estimates of certain mail functions. The 
Commission employed this analysis to determine whether changed cost 
inputs would materially affect the contract's financial analysis.\13\ 
The Commission concludes that the changed inputs do not have a material 
effect on the underlying financial analysis of the contract.
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    \13\ The Commission's analysis is set forth in Library Reference 
PRC-CP2009-37-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 alternative 
analysis, the Commission finds that Priority Mail Contract 11 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 proposed Priority Mail Contract 
11 indicates that it comports with the provisions applicable to rates 
for competitive products.
    The electronic files submitted in support of the Notice did not 
include all supporting data. Future requests must provide all 
electronic files showing calculations in support of the financial 
models associated with the request. A failure to provide such 
information may delay resolution of requests in the future.
    Other considerations. The Postal Service shall promptly notify the

[[Page 34600]]

Commission of the scheduled termination date of the agreement. If the 
agreement terminates earlier than anticipated, the Postal Service shall 
inform the Commission prior to the new termination date. The Commission 
will then remove the product from the Mail Classification Schedule at 
the earliest possible opportunity.
    In conclusion, the Commission approves Priority Mail Contract 11 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. Priority Mail Contract 11 (MC2009-27 and CP2009-37) 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 scheduled 
termination date and update the Commission if the termination date 
occurs prior to that date, as discussed in this order.
    3. The Secretary shall arrange for the publication of this order in 
the Federal Register.

    Issued: July 1, 2009.

    By the Commission.
Judith M. Grady,
Acting Secretary.

Appendix A to Subpart A of Part 3020--Mail Classification Schedule

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
    Inbound International
    Canada Post--United States Postal Service Contractual Bilateral 
Agreement for Inbound Market Dominant Services
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
    [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
    [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

[[Page 34601]]

    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)
    Inbound International Expedited Services 2 (MC2009-10 and 
CP2009-12)
Priority Mail
    Priority Mail
    Outbound Priority Mail International
    Inbound Air Parcel Post
    Royal Mail Group Inbound Air Parcel Post Agreement
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)
    Canada Post--United States Postal Service Contractual Bilateral 
Agreement for Inbound Competitive Services (MC2009-8 and CP2009-9)
    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 Contract 3 (MC2009-15 and CP2009-21)
    Express Mail & Priority Mail Contract 1 (MC2009-6 and CP2009-7)
    Express Mail & Priority Mail Contract 2 (MC2009-12 and CP2009-
14)
    Express Mail & Priority Mail Contract 3 (MC2009-13 and CP2009-
17)
    Express Mail & Priority Mail Contract 4 (MC2009-17 and CP2009-
24)
    Express Mail & Priority Mail Contract 5 (MC2009-18 and CP2009-
25)
    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)
    Priority Mail Contract 5 (MC2009-21 and CP2009-26)
    Priority Mail Contract 6 (MC2009-25 and CP2009-30)
    Priority Mail Contract 7 (MC2009-25 and CP2009-31)
    Priority Mail Contract 8 (MC2009-25 and CP2009-32)
    Priority Mail Contract 9 (MC2009-25 and CP2009-33)
    Priority Mail Contract 10 (MC2009-25 and CP2009-34)
    Priority Mail Contract 11 (MC2009-27 and CP2009-37)
    Outbound International
    Global Direct Contracts (MC2009-9, CP2009-10, and CP2009-11)
    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 International
    Inbound Direct Entry Contracts with Foreign Postal 
Administrations (MC2008-6, CP2008-14 and CP2008-15)
    International Business Reply Service Competitive Contract 1 
(MC2009-14 and CP2009-20)
Competitive Product Descriptions
    Express Mail
    [Reserved for Group Description]
    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]

[FR Doc. E9-16844 Filed 7-15-09; 8:45 am]
BILLING CODE 7710-FW-P