[Federal Register Volume 79, Number 49 (Thursday, March 13, 2014)]
[Notices]
[Pages 14307-14308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05448]


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POSTAL REGULATORY COMMISSION

[Docket Nos. MC2014-21 and R2014-6; Order No. 2009]


New Postal Product

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission is noticing a recent Postal Service filing 
requesting the addition of PHI Acquisitions, Inc. to the market 
dominant product list. This notice informs the public of the filing, 
invites public comment, and takes other administrative steps.

DATES: Comments are due: March 27, 2014. Reply comments are due: April 
3, 2014.

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

FOR FURTHER INFORMATION CONTACT: Brian Corcoran, Acting General 
Counsel, at 202-789-6820.

SUPPLEMENTARY INFORMATION:

Table of Contents

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

I. Introduction

    On March 5, 2014, 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 PHI Acquisitions, Inc. (PHI) 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 PHI Acquisitions, 
Inc. Negotiated Service Agreement to the Market-Dominant Product 
List, March 5, 2014 (Request).
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    Request. In support of its Request, the Postal Service filed six 
attachments as follows:
     Attachment A--a copy of Governors' Resolution No. 14-02, 
authorizing a negotiated service agreement with PHI;
     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 have a net value of 
approximately $10.748 million.\2\
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    \2\ This Attachment is also referred to as ``Attachment X'' in 
the Request. Request at 12.
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    In its Request, the Postal Service identifies Bruce Allen, Manager, 
Pricing Innovation as the official able to provide responses to queries 
from the Commission. In his Statement of Supporting Justification, Mr. 
Allen reviews the factors and objectives of section 3622(b) and (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 
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 PHI 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). Request at 3. In particular, the Postal Service believes 
the agreement has the potential to enhance the Postal Service's 
financial position, and it will not cause unreasonable harm to the 
marketplace. Id.
    Related contract. The Postal Service indicates that the agreement 
is designed to increase the total contribution the Postal Service 
receives from PHI Standard Mail Carrier Route Flats volume and revenue 
by generating new, incremental Standard Mail Carrier Route Flats volume 
and revenue. Id. at 6-7. The Postal Service describes the agreement and 
its four main components: (1) A volume threshold, (2) a volume 
threshold adjustment, (3) a volume commitment, and (4) rebates on 
qualifying Standard Mail Carrier Route Flats volume.
    Specifically, the volume threshold is based on the amount of PHI's 
total volume for all four categories of Carrier Route Flats 
(Saturation, High Density Plus, High Density, and Basic), as well as 
Flats Sequencing System (``FSS'') Flats with a full-service IMb 
barcode.\3\ Id. The baseline for the volume threshold is PHI's total 
volume for these categories over the four quarters from October 1, 2012 
through September 30, 2013. For the first year of the agreement, the 
threshold is the baseline volume. Id. For years two through five of the 
agreement, the threshold is the previous year's annual volume growth 
times the adjustment factor plus the previous year's volume threshold. 
Id. at 7-8.
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    \3\ FSS Flats are included in the event FSS Flats become a 
category or sub-category during the term of the negotiated service 
agreement. Id. at 7.

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[[Page 14308]]

    The volume threshold adjustment is intended to ensure that, after 
rebates, total volume and contribution from PHI's overall business will 
continue to grow and thus is adjusted upward annually. Id. The 
adjustment factor is based on the incremental response rate for the 
incremental volume and the aggregate number of catalogs mailed annually 
to each new buyer. Id. The agreement also contains a volume commitment, 
equal to the volume threshold. If the amount of PHI's total volume from 
eligible Standard Mail Carrier Route Flats in the first year of the 
contract is less than the threshold, PHI must pay a $100,000 penalty to 
the Postal Service. Id. at 9.
    If PHI exceeds the quarterly volume threshold in any quarter, it 
will earn rebates on its qualifying Standard Mail Carrier Route Flats 
volume. The rebates for PHI's qualifying mail will be determined based 
on the volume increase above the quarterly volume threshold. Id. For 
volume increases up to 10 percent above the quarterly threshold, PHI 
will receive a 10 percent rebate from published prices for all 
qualifying mail. Id. For volume increases between 10.01 percent and 18 
percent above the quarterly threshold, PHI will receive a 15 percent 
rebate from published prices for all qualifying mail. Id. For volume 
increases over 18 percent above the quarterly threshold, PHI will 
receive a 20 percent rebate from published prices for all qualifying 
mail. Id.
    The Postal Service also describes several other elements of the 
agreement: (1) An acquisition clause, which accounts for the 
acquisition of another company or catalog title; (2) a divestiture 
clause, which accounts for decreased mailing activity due to the 
divestiture of a catalog title; (3) a termination clause, which allows 
either party to end the agreement with 30 days written notice to the 
other party, based on certain conditions, including a package volume 
commitment by PHI; (4) an option to renew clause, which allows the 
parties to renew the agreement for up to five additional years if 
specified criteria is met; and (5) an incentive programs clause, which 
allows PHI to participate in Postal Service incentive programs while 
preventing PHI from double-dipping on incentives. Id. at 9-10.
    The Postal Service indicates that the contract will become 
effective July 1, 2014 or on a date agreed to by the parties. Id. at 
1.\4\ The agreement will expire five years from the effective date. 
Id., Attachments A and B.
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    \4\ The agreement states the effective date ``shall be the day 
after the Commission issues all necessary regulatory approval.'' 
Id., Attachment B at 12.
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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 10-11. It notes that in assessing the 
desirability of the agreement, the Postal Service believes that the 
defining characteristics of PHI are its size, its large but stagnant 
catalog mail volume history, and the availability of company mail and 
catalog data. Id. at 11. In offering a similar agreement to similarly 
situated customers, the Postal Service will look for these 
characteristics and for the customer to demonstrate that it has the 
resources and infrastructure to add significant incremental catalog 
volume. Id.
    Notice. The Postal Service represents that it will inform customers 
of the new classification changes and associated price effects through 
a notice published in the Federal Register. Id. at 1.

II. Notice of Filing

    The Commission establishes Docket Nos. MC2014-21 and R2014-6 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 March 27, 2014. Reply comments to 
initial comments are due no later than April 3, 2014. The filing can be 
accessed via the Commission's Web site (http://www.prc.gov).
    The Commission appoints John P. Klingenberg to serve as Public 
Representative in these dockets.

III. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket Nos. MC2014-21 and R2014-6 for 
consideration of the matters raised in each docket.
    2. Pursuant to 39 U.S.C. 505, John P. Klingenberg 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 March 27, 2014.
    4. Reply comments may be filed no later than April 3, 2014.
    5. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Ruth Ann Abrams,
Acting Secretary.
[FR Doc. 2014-05448 Filed 3-12-14; 8:45 am]
BILLING CODE 7710-FW-P