[Federal Register Volume 76, Number 16 (Tuesday, January 25, 2011)]
[Notices]
[Pages 4393-4395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1461]


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POSTAL REGULATORY COMMISSION

[Docket Nos. MC2011-19 and R2011-3; Order No. 654]


Discover Financial Services Negotiated Service Agreement

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission is noticing a recently-filed Postal Service 
request to add a Discover Financial Services negotiated service 
agreement to the market dominant product list. This notice addresses 
procedural steps associated with this filing.

DATES: Comments are due: February 7, 2011.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov. Commenters who cannot submit their 
views electronically should contact the person identified in FOR 
FURTHER INFORMATION CONTACT by telephone for advice on alternatives to 
electronic filing.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
[email protected] or 202-789-6820.

SUPPLEMENTARY INFORMATION: 

I. Introduction
II. Notice of Filing
III. Ordering Paragraphs

I. Introduction

    On January 14, 2011, the Postal Service filed a request pursuant to 
39 U.S.C. 3622 and 3642, as well as 39 CFR 3010 and 3020, et seq., to 
add a Discover Financial Services (DFS) negotiated service agreement to 
the market dominant product list.\1\
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    \1\ Notice of the United States Postal Service of Filing 
Contract and Supporting Data and Request to Add Discover Financial 
Services Negotiated Service Agreement to the Market-Dominant Product 
List, January 14, 2011 (Request).

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[[Page 4394]]

    Request. In support of its Request, the Postal Service filed six 
attachments as follows:
     Attachment A--a copy of Governors' Resolution No. 11-2, 
authorizing a negotiated service agreement with DFS;
     Attachment B--a copy of the contract;
     Attachment C--proposed descriptive language changes to the 
Mail Classification Schedule;
     Attachment D--a proposed data collection plan;
     Attachment E--a Statement of Supporting Justification as 
required by 39 CFR 3020.32, which the Postal Service also is using to 
satisfy the requirements of 39 CFR 3010.42(b)-(e); and
     Attachment F--a financial model, which the Postal Service 
believes demonstrates that the agreement will improve its net financial 
position by an additional $2 million to $15 million in contribution.
    In its Request, the Postal Service identifies Greg Dawson, Manager, 
Pricing Strategy, as the official able to provide responses to queries 
from the Commission. In his Statement of Supporting Justification, Mr. 
Dawson reviews the factors and objectives of section 3622(c) and 
concludes, inter alia, that the agreement will provide an incentive for 
profitable mail; will enhance the financial position of the Postal 
Service; will increase mail volume; will not imperil the ability of 
First-Class Mail or Standard Mail to cover its attributable costs; and 
promotes the use of intelligent mail. Id., Attachment E at 1-3.
    The Postal Service believes that the DFS negotiated service 
agreement conforms to the policies of the Postal Accountability and 
Enhancement Act, and meets the statutory standards supporting the 
desirability of this special classification under 39 U.S.C. 
3622(c)(10). In particular, the Postal Service believes the agreement 
has the potential to enhance significantly the Postal Service's 
financial position, and it will not cause unreasonable harm to the 
marketplace. Id. at 2.
    Related contract. The Postal Service indicates that the agreement 
is designed to maintain the total contribution the Postal Service 
receives from DFS First-Class Mail and Standard Mail and to provide an 
incentive for net contribution beyond that. Id. The Postal Service 
describes the agreement and its five main components: a revenue 
threshold, a revenue threshold adjustment, a postage commitment, 
rebates on First-Class Mail, and rebates on Standard Mail.
    Specifically, the revenue threshold is based on the amount of DFS' 
total postage paid for First-Class Mail automation presort letters, 
Standard Mail automation presort letters, and Standard Mail carrier 
route letters. The baseline for the revenue threshold is DFS' total 
postage for these categories over the period from February 2010 through 
January 2011. For the first year of the agreement, the threshold is 
calculated as an amount 10 percent above the baseline; for the second 
year, 15 percent above the baseline; and, for the final year, 20 
percent above the baseline. If DFS meets or exceeds the threshold in a 
contract year, it will earn rebates on its qualifying First-Class Mail 
and Standard Mail postage. The revenue threshold will be adjusted 
upward by 65 cents for every dollar decline in DFS' First-Class Mail 
postage. Under this adjustment, to qualify for rebates, DFS must send 
an extra $1.65 worth of Standard Mail to offset each dollar decline in 
postage from First-Class Mail. Id. at 3.
    The agreement also contains a postage commitment, equal to the 
adjusted threshold. If the amount of DFS' total postage from eligible 
mail in the first year of the contract is less than the adjusted 
threshold, DFS must pay a penalty in the amount of 10 percent of the 
difference between DFS' revenue threshold and the actual total postage 
paid for contract year one. Subsequent year threshold adjustments to 
the penalty are to be negotiated by the parties within 7 months of the 
previous contract year. Id. at 3-4.
    If DFS meets or exceeds the adjusted postage thresholds in any 
given year of the contract, it will earn rebates on its qualifying 
First-Class Mail and Standard Mail postage. The rebate for First-Class 
Mail will be equal to 75 percent of the increase in postage as a result 
of a subsequent cumulative price increase (relative to First-Class Mail 
prices in existence at the initiation of the agreement) for all 
qualifying pieces. For Standard Mail, the rebate will be equal to 37.5 
percent of the increase in postage as a result of a subsequent 
cumulative price increase (relative to Standard Mail prices in 
existence at the initiation of the agreement) for all qualifying 
pieces. Id. at 4.
    The Postal Service also describes several other elements of the 
agreement: (1) A merger and acquisition clause; (2) a termination 
clause; and (3) a clause that requires the Postal Service to negotiate 
with DFS on the terms upon which DFS may participate in other incentive 
programs so there is no ``double-dipping.'' Id. at 3-4.
    The Postal Service expects the value of the agreement to still be 
positive if the penalty provision is triggered, reducing the risk of 
the agreement.
    The Postal Service indicates that the contract will become 
effective March 1, 2011, and will expire 3 years from the effective 
date. Id. at 1; see also id., Attachments A and B. Either party may 
terminate the agreement for convenience prior to the last 90 days of 
each contract year, without penalty, with 90 days' written notice to 
the other party. Implementation of the agreement is pending regulatory 
approval.\2\
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    \2\ The Commission will make every possible effort to review the 
Request and issue its decision by March 1, 2011, consistent with 
parties' due process rights. The Commission, however, does not read 
39 U.S.C. 3642 as mandating regulatory action by a date certain. If 
the Postal Service (or an interested person) has a different view, 
the issue may be addressed in comments.
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    Similarly situated mailers. With respect to potential similarly 
situated mailers, the Postal Service states that the design imperative, 
to generate additional contributions, and the basic structure of the 
agreement described in the Request, will guide the Postal Service in 
the negotiation of similar agreements as well as those that are 
substantially different. Id. at 4; see also id., Attachment E at 3. It 
notes that in assessing the desirability of the agreement, the Postal 
Service believes that the defining characteristics of DFS are its size, 
its large but declining billing and statement volumes, its significant 
volume of advertising mail, and its almost complete reliance on letter-
shaped mail. The Postal Service views heavy use of both First-Class 
Mail and Standard Mail as necessary mailer attributes.
    Notice. The Postal Service represents that it will inform customers 
of the new classification changes and associated price effects through 
a press release, notification on USPS.com, and publication in the 
Federal Register.

II. Notice of Filing

    The Commission establishes Docket Nos. MC2011-19 and R2011-3 for 
consideration of the Request pertaining to the proposed new product and 
the related contract, respectively.
    Interested persons may submit comments on whether the Postal 
Service's filing in the captioned dockets are consistent with the 
policies of 39 U.S.C. 3622 and 3642 as well as 39 CFR parts 3010 and 
3020. Comments are due no later than February 7, 2011. The filing can 
be accessed via the

[[Page 4395]]

Commission's Web site (http://www.prc.gov).
    The Commission appoints Malin Moench to serve as Public 
Representative in these dockets.

III. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket Nos. MC2011-19 and R2011-3 for 
consideration of the matters raised in each docket.
    2. Pursuant to 39 U.S.C. 505, Malin Moench is appointed to serve as 
officer of the Commission (Public Representative) to represent the 
interests of the general public in these proceedings.
    3. Comments by interested persons in these proceedings are due no 
later than February 7, 2011.
    4. The Commission directs the Secretary of the Commission to 
arrange for prompt publication of this notice in the Federal Register.

    By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2011-1461 Filed 1-24-11; 8:45 am]
BILLING CODE 7710-FW-P