[Federal Register Volume 74, Number 138 (Tuesday, July 21, 2009)]
[Notices]
[Pages 35899-35902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17286]


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POSTAL REGULATORY COMMISSION

[Docket No. RM2009-3; Order No. 243]


Postal Rates

AGENCY: Postal Regulatory Commission.

ACTION: Notice of public forum.

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SUMMARY: This document announces a public forum to address workshare 
discount methodologies in First-Class Mail and Standard Mail. It 
invites public participation in the forum, responses to views expressed 
at the forum, and replies to comments filed in response to Order No. 
192. This document also incorporates revisions identified in a July 10, 
2009 errata notice. The revisions affected only the list of commenters 
presented in Order No. 243.

DATES: Public forum: August 11, 2009 at 1 p.m.; responses and reply 
comments due: August 31, 2009.

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 or [email protected].

SUPPLEMENTARY INFORMATION: Regulatory History, 74 FR 50744 (March 24, 
2009).

I. Introduction
II. Public Forum Issues
III. Ordering Paragraphs

I. Introduction

    On March 16, 2009, the Commission issued Order No. 191 in Docket 
No. R2009-2 approving a set of market dominant rate changes proposed by 
the Postal Service. It did so with the awareness that a number of 
complex issues relating to the proper application of the Postal 
Accountability and Enhancement Act (PAEA), Public Law 109-435, 120 
Stat. 3198 (2006), to those rates could best be resolved in a follow-on 
docket in which sufficient time and sufficiently flexible procedures 
would be available to ensure that these issues could be thoroughly 
examined. To that end, the Commission issued Order No. 192, also on 
March 16, 2009, soliciting public comment on the ``legal, factual, and 
economic bases'' underlying the discounts for First-Class and Standard 
Mail approved in Docket No. R2009-2, and any alternative workshare 
discount rate design and cost avoidance methodologies that participants 
wished to propose.\1\
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    \1\ See Order No. 192, Notice of Proposed Rulemaking on 
Application of Workshare Discount Rate Design Principles, March 16, 
2009, at 3 (Order No. 192).
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    The comments received on May 26 and 27, 2009 were numerous and 
wide-ranging.\2\ Those comments include legal interpretations of the 
relevant portions of the PAEA, offered arguments (largely qualitative) 
concerning the market position of various categories of First-Class and 
Standard Mail, and advocate both the use or abandonment of certain 
traditional benchmarks used to quantify the costs avoided by various 
mail characteristics associated with workshare discounts. Several 
participants offered classification proposals designed to recognize the 
unique cost characteristics of various subsets of First-Class Mail. 
Specifically, Stamps.com proposed that a ``Qualified PC Postage'' mail 
category be established to reflect the reduced costs that would 
accompany single-piece First-Class Mail to which the mailer has applied 
CASS certified software and a full-service Intelligent Mail Barcode. 
Stamps.com Comments at 1. In addition, the officer of the Commission 
appointed to represent the interests of the general public (Public 
Representative) proposed that if the link between single-piece First-
Class Mail costs and presorted First-Class Mail rates is to be 
abandoned, that single-piece First-Class Mail be established as a 
separate class of mail for rate setting purposes. Public 
Representative's Comments at 23-27.
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    \2\ There were 13 commenters in response to Order No. 192. For 
convenience, participant comments are identified in Appendix A to 
this order.
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    It is clear from the comments that resolving some of these issues 
will be contingent on how others are resolved. For example, if the 
Commission were to agree with the Postal Service's view

[[Page 35900]]

that, as a legal matter, the worksharing discount standards of 39 
U.S.C. 3622(e) apply only to components of individual ``products'' as 
defined in the Mail Classification Schedule, it would render moot any 
consideration of the market positions of the various First-Class and 
Standard Mail categories issued in Docket No. R2009-2. Similarly, if 
the Commission were to conclude that section 3622(e) may be applied 
across products, but each product at issue serves a separate and 
distinct market, that conclusion would dispense with the need to 
consider the issue of what benchmark would be most appropriate for 
measuring the cost avoided by the worksharing characteristics of those 
products. Likewise, if the Commission were to conclude that First-Class 
Mail may not be further subdivided for purposes of applying caps to 
rates, it would nullify the Public Representative's rationale for 
proposing to establish single-piece First-Class Mail as a separate 
class of mail. Because these issues are mutually dependent, they will 
be considered together in the current phase of this proceeding. 
Technical issues of how avoided costs should be calculated will be 
considered after the need for benchmarks has been confirmed and 
appropriate benchmarks have been identified.
    Some of the key issues to be addressed in this docket have basic 
public policy dimensions. The Commission has determined that those 
issues might benefit from being aired in the context of a public forum. 
A public forum will have the advantage of allowing representatives of 
various interests to have a dialogue, and exchange views in a non-
adversarial discussion that allows others to respond with their own 
supporting or contrasting views or with clarifying questions. The 
Commission hopes that such a forum will significantly strengthen the 
record on which these policy-laden decisions will be based. It 
envisions convening such a forum August 11, 2009, at 1 p.m. in the 
Commission's hearing room.
    Participants will have an opportunity to file written responses 
both to the exchange of views at the forum and to the comments filed in 
response to Order No. 192 (the notice of proposed rulemaking in this 
docket). Those responses will be due on or before August 31, 2009. The 
Commission also will provide interested parties with an opportunity to 
address technical issues concerning how avoided costs should be modeled 
at a later date, when the legal, policy, and economic issues described 
below have been resolved.\3\
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    \3\ For example, several commenters have indicated an interest 
in proposing modifications to established methods for modeling costs 
avoided by worksharing, depending on how logically prior issues have 
been resolved. See Postal Service Comments at 46-47; MMA Comments at 
12; and APWU Comments at 7. Consideration of such proposals will 
take place at a later, appropriate time.
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II. Public Forum Issues

    There are two issues that the Commission would like to explore 
further in the context of a public forum. The first is the issue of 
whether the users of single-piece First-Class Mail are entitled to 
special protection under the PAEA, and, if so, whether protection 
should take the form of:
    1. Maintaining the traditional linkage of single-piece rates to the 
rates charged for Presorted First-Class Mail through a suitable 
benchmark;
    2. Establishing a separate class of single-piece First-Class Mail 
subject to its own rate cap;
    3. Adopting a regulation that would limit the difference allowed 
between single-piece and presorted First-Class Mail in terms of either 
average revenue per piece or percent contribution to institutional 
costs;
    4. Relying on a qualitative or subjective standard of protection, 
such as the ``just and reasonable'' standard of section 3622(b)(8); or
    5. Other suggested forms of protection.
    The second policy issue that the Commission would like the public 
forum to address is whether a worksharing discount should be defined 
as:
    1. A ``pure'' presorting, prebarcoding, handling, or transportation 
activity that is a direct substitute for an equivalent Postal Service 
activity; or
    2. A ``pure'' worksharing activity as described above, plus other 
cost-reducing mail characteristics that are facilitated by or naturally 
support the ``pure'' worksharing activity, e.g., walk sequencing and 
density.
    A related aspect of the second policy issue is whether a discount 
that reflects both cost-reducing characteristics that are directly 
related to a worksharing activity, and others that are indirectly 
related to, or unrelated to the worksharing activity:
    1. Should be defined as ``worksharing'' or ``non-worksharing'' 
according to some rule, such as which cost-reducing effect is thought 
to predominate;
    2. Should be unbundled so that separate discounts are developed for 
the worksharing and non-worksharing components; or
    3. Should remain bundled, but be analytically decomposed into its 
worksharing and other components so that section 3622(e) standards may 
be applied to the worksharing component.
    In addition to the broad issues described above that the Commission 
considers appropriate for discussion in the August 11, 2009 forum, 
there are several technical aspects of those issues that participants 
should ponder and comment upon, either in the forum itself or in the 
written comments that are due on August 31, 2009.
    Issues specific to First-Class Mail. The assertions in the comments 
about the nature of markets for First-Class letters are, for the most 
part, qualitative. What little supporting data are offered are subject 
to more than one interpretation. In the next round of written comments, 
the Commission encourages parties to provide empirical support for 
their understanding of the state of the markets for single-piece and 
presort First-Class Mail letters. Information about attributes of 
smaller business mailers who can be converted (or already have been 
converted) by presort firms from users of single-piece into users of 
presorted First-Class would be especially useful. Similarly, 
information about how price signals influence mailers' decisions to 
invest in hardware, software or quality control processes to avoid 
postage penalties that could result from failing Postal Service 
acceptance tests would be particularly helpful.
    Issues specific to Standard Mail. Several commenters make 
assertions about the market differences between Carrier Route, High 
Density, and Saturation mail that are largely qualitative. They assert, 
for example, that Saturation mailers appear to have more delivery 
alternatives than Carrier Route or High Density mailers. Valassis/SMC 
argues that private delivery is a less viable option for High Density 
mailers because such mailings are demographically, rather than 
geographically targeted. See Valassis/SMC Comments at 12, n.7. This 
would seem to indicate that the market for High Density mail is more 
closely related to the market for Carrier Route mail because both 
target specific addresses. In the next round of comments, the 
Commission encourages parties to provide empirical support for their 
understanding of the state of the markets for the former components of 
Enhanced Carrier Route mail.
    The Commission also welcomes additional comment on how worksharing 
cost avoidance should be defined and measured in the context of

[[Page 35901]]

Standard Mail. The Commission has long concluded that to promote 
productive efficiency, discounts for related categories of mail with 
the same own-price demand elasticity should not exceed the costs that 
the Postal Service avoids when mailers perform worksharing. This 
principle is known as efficient component pricing (ECP). The Postal 
Service has taken the former components of the Enhanced Carrier Route 
subclass--Carrier Route, High Density, and Saturation mail--and 
redefined them as separate products. The Postal Service, however, 
continues to estimate an own-price elasticity for these categories as a 
group, and the Commission has continued to apply ECP to worksharing 
cost differences among these rate categories on the premise that they 
serve the same market and have essentially the same elasticity of 
demand. The Postal Service and some other commenters now contend that 
the High Density and Saturation categories each serve distinct markets. 
See Valpak Comments at 17-18; Valassis/SMC Comments at 10-14; and Haldi 
Comments at 15-16. If true, economic theory suggests that cost 
coverages for each of these products should reflect distinct market 
conditions.
    If there is not sufficient empirical evidence to conclude that 
these categories serve separate markets, and ECP remains relevant, 
applying it under the current classification structure with its 
attendant eligibility requirements is problematic. For example, several 
commenters contend that the difference in cost between High Density 
mail and Saturation mail reflects only the effect of the density 
eligibility requirement, not the effect of worksharing. See Postal 
Service Comments at 29; Haldi Comments at 11; and Valassis/SMC Comments 
at 2.
    Sequencing mail, however, appears to fit the definition of 
worksharing activity in section 3622(e). If the mailer does not 
sequence the mail, then the Postal Service must do it. A mailer's 
decision to sort the mail into walk-sequence order depends on the menu 
of rates. If a mailer were to prepare a flat-shaped Saturation mailing 
without sequencing it, the mailer would have to pay the 5-digit presort 
rate. He would not be eligible for the Carrier Route rate because line-
of-travel sequencing is a prerequisite for that rate. Similarly, he 
would not be eligible for the High Density rate because walk-sequencing 
is a prerequisite for that rate.
    Absent demand differences,\4\ the relationship between these 
categories of mail suggests that the less deeply sequenced categories 
could serve as benchmarks from which the costs avoided by more deeply 
sequenced categories could be measured. For example, the 5-digit 
category could be a suitable cost avoidance benchmark for all of the 
remaining categories. Alternatively, a mailer who presents High Density 
or Saturation mail rather than Carrier Route mail to the Postal Service 
does so because the difference in his cost between sorting to line of 
travel and sorting to walk-sequence is less than the corresponding rate 
difference; otherwise, a prudent mailer would not sort the mail in 
walk-sequence order. Accordingly, the cost of sorting mail to the line-
of-travel order as reflected in the attributable delivery cost of 
Carrier Route mail could be viewed as the appropriate benchmark for 
both High Density and Saturation mail.\5\
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    \4\ As noted, in the past, the Commission determined that 
Carrier Route, High Density, and Saturation mail, as a group, share 
an own-price demand elasticity that is distinct from Non-carrier 
Route mail. For this reason, it de-linked 5-digit mail and Carrier 
Route mail in Docket No. MC95-1 when the former Enhanced Carrier 
Route (ECR) subclass was established.
    \5\ Using Carrier Route mail as a benchmark for letter-shaped 
Standard Mail is also problematic because the minimum number of 
pieces required for the 5-digit letter rate is 150, while the 
Carrier Route letter rate requires only 10 pieces.
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    With respect to the relationship between High Density and 
Saturation mail, the Postal Service asserts that there is no 
worksharing content difference between the two, and therefore ECP does 
not apply. Although the Postal Service recognizes that there is a cost 
difference, it contends that it is due to density, not to worksharing 
activity. The observed cost difference, however, could be characterized 
as gains in efficiency brought about by worksharing activity, i.e., the 
Postal Service's cost per piece of sorting mail to walk-sequence order 
declines as density increases.\6\
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    \6\ This is confirmed by Witness Shipe's testimony in Docket No. 
R90-1. It shows that carriers case mail at a rate of 20.6 pieces per 
minute for non-sequenced Carrier Route letters, 29.0 pieces for 
walk-sequenced High Density letters, and 41.2 pieces for Saturation 
letters. The corresponding numbers for flats are 10.7, 13.6 and 27.4 
pieces per minute. See Docket No. R90-1, Direct Testimony of Thomas 
Shipe, USPS-T-10, Exhibit USPS-10B, at 3 and 6. This constitutes 
declining marginal cost.
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    Viewed as a worksharing-related cost difference, the rate for a 
High Density flat would reflect the difference in attributable delivery 
cost between a High Density flat and a Carrier Route flat. Similarly, 
the rate for a Saturation flat would reflect the difference in 
attributable delivery cost between a Saturation flat and a Carrier 
Route flat. Using the same percentage passthrough for each walk-
sequencing discount would be the mathematical equivalent of retaining 
the link between High Density and Saturation mail.
    In addition to commenting on the broader, more theoretical 
questions discussed above, the Commission invites interested 
participants to comment on the following specific issues and questions:
    1. What empirical evidence is there supporting the proposition that 
Carrier Route, High Density, and Saturation mail each serve separate 
markets?
    2. If High Density and Saturation mail serve the same market, 
should the difference in worksharing unit cost between High Density and 
Saturation mail be subject to the standards of section 3622(e)? If the 
answer is no, specify why marginal worksharing cost differences are not 
pertinent to rate setting.
    3. If Carrier Route and High Density mail serve the same market, 
should rates for Saturation mail be set as though it serves a separate 
market, even though it is not classified as a separate product?
    4. What bearing does the probability of mail receiving automated or 
manual delivery point sequencing have on the answers to the above 
questions?

III. Ordering Paragraphs

    It is ordered:
    1. A public forum that addresses the issues described in the body 
of this order will be held on August 11, 2009, at 1 p.m., in the 
Commission's hearing room.
    2. Written comments on the matters discussed at the public forum as 
well as the issues discussed in the comments filed in response to Order 
No. 192 are due on or before August 31, 2009.
    3. The Secretary shall arrange for publication of this order in the 
Federal Register.

    Issued: July 10, 2009.

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

Appendix A--Comments on Notice of Proposed Rulemaking on Application of 
Workshare Discount Rate Design Principles

[[Page 35902]]



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         Participant                  Title              Filing date
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American Postal Workers       Initial Presentation  May 27, 2009.
 Union, AFL-CIO (APWU          of American Postal
 Comments).                    Workers Union, AFL-
                               CIO.
Bank of America Corporation,  Initial Comments of   May 27, 2009.
 Discover Financial            Bank of America
 Services, J.P. Morgan Chase   Corporation,
 & Co., and the American       Discover Financial
 Bankers Association.          Services, J.P.
                               Morgan Chase & Co.,
                               and the Bankers
                               Association.
Greeting Card Association...  Initial Comments of   May 26, 2009.
                               the Greeting Card
                               Association.
John Haldi (Haldi Comments).  Statement of John     May 26, 2009.
                               Haldi, Ph.D.
                               Concerning
                               Workshare Discounts.
Mail Order Association of     Comments of Mail      May 26, 2009.
 America.                      Order Association
                               of America.
Major Mailers Association     Initial Comments of   May 26, 2009.
 (MMA Comments).               Major Mailers
                               Association.
National Postal Policy        Comments of National  May 26, 2009.
 Council.                      Postal Policy
                               Council.
Pitney Bowes Inc............  Initial Comments of   May 26, 2009.
                               Pitney Bowes Inc.
Public Representatives        Comments of the       May 26, 2009.
 (Public Representatives       Public
 Comments).                    Representatives.
Stamps.com (Stamps.com        Initial Presentation  May 26, 2009.
 Comments).                    of Stamps.com.
United States Postal Service  Initial Comments of   May 26, 2009.
 (Postal Service Comments).    the United States
                               Postal Service.
Valassis Direct Mail, Inc.    Comments of Valassis  May 26, 2009.
 and Saturation Mailers        Direct Mail, Inc.
 Coalition (Valassis/SMC       and Saturation
 Comments).                    Mailers Coalition.
Valpak Direct Marketing       Valpak Direct         May 26, 2009.
 Systems, Inc. and Valpak      Marketing Systems,
 Dealers' Association, Inc     Inc. and Valpak
 (Valpak Comments).            Dealers'
                               Association, Inc.
                               Comments Regarding
                               Standard Mail
                               Volume Incentive
                               Pricing Program.
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[FR Doc. E9-17286 Filed 7-20-09; 8:45 am]
BILLING CODE 7710-FW-P