[Federal Register Volume 79, Number 176 (Thursday, September 11, 2014)]
[Rules and Regulations]
[Pages 54552-54565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21689]



[[Page 54551]]

Vol. 79

Thursday,

No. 176

September 11, 2014

Part VII





 Postal Regulatory Commission





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39 CFR Parts 3001 and 3035





 Markets Tests of Experimental Products; Final Rule

  Federal Register / Vol. 79 , No. 176 / Thursday, September 11, 2014 / 
Rules and Regulations  

[[Page 54552]]


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POSTAL REGULATORY COMMISSION

39 CFR Parts 3001 and 3035

[Docket No. RM2013-5; Order No. 2173]


Markets Tests of Experimental Products

AGENCY: Postal Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Commission is issuing a set of final rules addressing 
Postal Service filings concerning market tests of experimental 
products. The rules address the contents of market test filings, review 
of filings, and related matters. Relative to the proposed rules, some 
of the changes are substantive and others are minor and non-
substantive.

DATES: Effective October 14, 2014.

FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 
202-789-6820.

SUPPLEMENTARY INFORMATION: Regulatory History: 78 FR 51678, August 21, 
2013.

Table of Contents

I. Introduction
II. Background
III. Changes to the Proposed Rules
IV. Comments on Commission Analysis
V. Ordering Paragraphs

I. Introduction

    In this Order, the Commission adopts final rules that establish 
procedures for the Postal Service to conduct market tests of 
experimental products in accordance with 39 U.S.C. 3641.

II. Background

    On August 9, 2013, the Commission issued a notice of proposed 
rulemaking to establish rules governing market tests of experimental 
products.\1\ The Postal Accountability and Enhancement Act (PAEA) \2\ 
authorizes the Postal Service to conduct market tests of experimental 
products. See 39 U.S.C. 3641(a)(1). Such tests are not covered by 
several other PAEA provisions (such as those in section 3622 concerning 
rate regulations, those in section 3633 concerning competitive 
products, and those in section 3642 concerning product list changes) as 
well as regulations promulgated under those provisions. Id. 3641(a)(2). 
The statute requires that the Postal Service may not test an 
experimental product unless the product is significantly different from 
those offered within the past two years, will not cause market 
disruption, and is appropriately categorized (as either market dominant 
or competitive). 39 U.S.C. 3641(b).
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    \1\ Notice and Order of Proposed Rulemaking Establishing Rules 
for Market Tests of Experimental Products, August 9, 2013 (Order No. 
1803).
    \2\ Postal Accountability and Enhancement Act, Pub. L. 109-435, 
120 Stat. 3198 (2006).
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    Under the statute and final rules, the Postal Service must file 
notice with the Commission and publish the notice in the Federal 
Register at least 30 days before initiating a market test. Id. 
3641(c)(1). The notice must describe the nature and scope of the market 
test and explain why the Postal Service believes that the market test 
is covered by section 3641. Id. 3641(c)(1)(A) and (B). The duration of 
a market test of an experimental product may not exceed 24 months 
unless the Commission grants an extension. Id. 3641(d). The Commission 
may extend the market test duration up to an additional 12 months if an 
extension is necessary to determine the feasibility or desirability of 
an experimental product. Id. 3641(d)(2). The Postal Service must file a 
request for extension at least 60 days before the market test ends. Id.
    In general, the Postal Service may conduct a market test only if 
total revenues anticipated or received by the Postal Service are not 
more than $10,000,000 per annum, subject to adjustments for inflation 
($10 Million Adjusted Limitation). Id. 3641(e)(1). The Commission may 
exempt a market test from the $10 Million Adjusted Limitation as long 
as revenues from the experimental product are not more than $50,000,000 
per annum, subject to adjustments for inflation ($50 Million Adjusted 
Limitation). Id. 3641(e)(2). The exemption request shall be approved if 
the Commission determines that the experimental product meets certain 
conditions related to public benefit, expected demand, contribution to 
the Postal Service's financial stability, and market disruption. Id.
    The PAEA authorizes the Commission to cancel a market test or take 
other appropriate action on an experimental product if it determines 
that the market test fails to meet any requirement of section 3641. Id. 
3641(f). The Commission by regulation must adjust all dollar amounts 
listed in section 3641 by the change in the Consumer Price Index (CPI) 
for the applicable year. Id. 3641(g). Lastly, the Commission must 
define the term small business concern consistent with the requirements 
of section 3 of the Small Business Act. Id. 3641(h).
    The Postal Service and the Public Representative submitted initial 
\3\ and reply comments \4\ suggesting changes to the rules proposed in 
Order No. 1803. After consideration of the comments submitted, the 
Commission adopts the rules as originally proposed, with several 
modifications.
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    \3\ Public Representative's Comments Concerning Notice and Order 
of Proposed Rulemaking, September 19, 2013 (PR Comments); Initial 
Comments of the United States Postal Service, September 20, 2013 
(Postal Service Comments).
    \4\ Reply Comments of the United States Postal Service, October 
10, 2013 (Postal Service Reply Comments); Public Representative's 
Reply Comments Concerning Notice and Order of Proposed Rulemaking, 
October 17, 2013 (PR Reply Comments). The Public Representative 
submitted an accompanying Motion of Public Representative for Late 
Acceptance of Reply Comments. The motion is granted.
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III. Changes to the Proposed Rules

    The following rules have been substantively modified from Order No. 
1803, and also include some minor, non-substantive changes:

 3035.3 (Contents of notice)
 3035.6 (Changes in market test)
 3035.10 (Duration)
 3035.11 (Extension of market test)
 3035.15 (Dollar amount limitation)
 3035.16 (Exemption from dollar amount limitation)
 3035.17 (Prevention of market disruption)
 3035.18 (Filing for permanent product status)
 3035.20 (Data collection and reporting requirements)

    The following rules are being enacted with minor, non-substantive 
changes:

 3001.5 (Definition of small business concern)
 3035.1 (Applicability)
 3035.4 (Review)
 3035.5 (Commission action)
 3035.12 (Cancellation of market test)

IV. Comments on Commission Analysis

    This section discusses the changes that the Commission adopts, or 
declines to adopt, in this Order after considering the comments 
received. Section A contains a discussion of the proposed rules that 
are substantively modified from those originally proposed.\5\ Section B 
addresses minor clarifications and corrections to the proposed rules 
that are stylistic and non-substantive. Section C discusses other 
issues raised in the comments.
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    \5\ Section A also contains a discussion of rule 3035.12. 
Although rule 3035.12 is adopted with minor, non-substantive 
changes, the Commission received extensive comments on this rule, 
which are more appropriately discussed in this section.
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A. Rules With Substantive Changes

1. Section 3035.3--Contents of Notice \6\
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    \6\ The Commission renumbered rule 3035.3 to conform to official 
publication requirements. See Section IV.B, below. This Order 
references subsections in rule 3035.3 as renumbered.
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a. Section 3035.3(a)(1)(i)
    Paragraph (a)(1)(i) of rule 3035.3 requires that the Postal 
Service's notice

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initiating a market test describe how the experimental product is 
significantly different from all products offered within the 2 fiscal 
years preceding the start of the market test. The Public Representative 
argues that the rule, as written, is problematic because it excludes 
any products offered during the same fiscal year as the market test. PR 
Comments at 7. She notes that for a market test beginning in FY 2014, 
only FY 2012 and FY 2013 products would be considered. Id. She contends 
that this gap could result in a market test offering a product 
substantially similar to a current product offering. Id. As an 
alternative, she suggests examining the previous eight fiscal quarters 
rather than the past two fiscal years. Id.
    The Postal Service does not comment on the Public Representative's 
suggestion.
    The Commission notes that an experimental product must be 
significantly different from all products offered by the Postal Service 
within the 2-year period preceding the start of the test. 39 U.S.C. 
3641(b)(1). The statute defines the term year as a fiscal year. Id. 
sec. 102(10). If Congress had intended to use quarters instead of 
years, it would have stated as much in section 3641.\7\ Moreover, the 
scenario the Public Representative posits--offering two substantially 
similar products within the same fiscal year--is unlikely. For these 
reasons, the Commission does not adopt the Public Representative's 
suggestion.
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    \7\ The legislative history also supports the use of the term 
year rather than quarter. S. Rep. 108-318, at 17 (2004) (Senate 
Report) (stating that the test used to determine whether market test 
provisions are applicable is a finding that the proposed product is 
different from those offered in the prior two years).
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b. Section 3035.3(a)(1)(ii)
    Rule 3035.3(a)(1)(ii) requires the Postal Service to establish that 
the introduction or continued offering of an experimental product will 
not create an unfair or otherwise inappropriate competitive advantage 
for the Postal Service or any mailer, particularly in regard to small 
business concerns. The Public Representative suggests two changes to 
this subsection. First, she proposes striking the words (or continued 
offering) from the rule. PR Comments, Appendix A at 1. She does not 
provide a rationale for this change.
    Second, she argues that additional analysis is necessary to assess 
whether the market test creates an unfair or otherwise inappropriate 
competitive advantage for the Postal Service or any mailer. PR Comments 
at 7. She suggests adding language to section 3035.3(a)(1)(ii) that 
would require the Postal Service to: (1) Analyze whether the market 
test creates an unfair or inappropriate competitive advantage for any 
mailer and the Postal Service; (2) identify any small business concerns 
that will likely be affected by the market test; and (3) analyze the 
impact of the market test on any small business concern identified. 
Id., Appendix A at 1-2.
    The Postal Service objects to striking the wording concerning 
continued offerings from the rule. Postal Service Reply Comments at 3. 
It argues that these words assist in implementing rule 3035.11, which 
addresses Commission review of Postal Service requests to extend market 
tests beyond their original expiration date. Id.
    The Postal Service also opposes adding language concerning the 
Postal Service's competitive advantage as suggested by the Public 
Representative. First, it contends that the suggested language would 
impose an additional threshold requirement that the Postal Service's 
notice also analyze whether the market test itself creates an unfair 
advantage regarding small business concerns. Id. at 4. It asserts that 
this language is either redundant or unsupported by the statute. Id.
    Second, the Postal Service argues that the suggested language 
appears to be based upon a misreading of the intent of 39 U.S.C. 
3641(b)(2). Id. at 5. It contends that the intent of section 3641(b)(2) 
is to require consideration of the potential impact of an experimental 
product on small businesses generally rather than individually. Id. It 
submits that the suggested language is contrary to the longstanding 
approach to postal product pricing, which requires consideration of the 
effect of proposed postal rate increases upon business mail users 
generally. Id. It points out that the suggested language also would 
require the Postal Service to possess information on small business 
concerns that it does not have nor could readily acquire. Id. at 6.
    The Commission notes that market tests are of limited duration and 
are exempt from provisions otherwise applicable to Postal Service 
products. 39 U.S.C. 3641(a)(2). The phrase concerning continued 
offerings is in section 3641(b)(2) and is relevant to both extensions 
and possible cancellation of market tests. See 39 U.S.C. 3641(d)(2) and 
rule 3035.11; 39 U.S.C. 3641(f) and rule 3035.12, respectively. 
Furthermore, the phrase bears on modifications to ongoing market tests. 
See rule 3035.6. Accordingly, the Commission declines to adopt the 
Public Representative's suggestion to strike a phrase (or continued 
offering) from the rule.
    The Commission also does not adopt the Public Representative's 
additional language concerning an unfair or otherwise inappropriate 
competitive advantage. 39 U.S.C. 3641(b)(2) requires the Postal Service 
to establish that a product will not create an unfair or inappropriate 
competitive advantage. Using the term market test instead of the term 
product would impose a requirement that is not in the statute. In 
addition, the suggested language would require the Postal Service to 
analyze the potential impact of the market test on individual small 
business concerns. Although small business concerns are a particular 
focus, the analysis of market disruption in section 3641(b)(2) relates 
to competition generally rather than specific small business concerns. 
See United States v. Microsoft Corp., 253 F.3d at 58 (D.C. Cir. 2001) 
(stating that anticompetitive effects must harm the competitive process 
and thereby harm consumers; harm to one or more competitors will not 
suffice).
    As discussed in more detail below, the Commission adopts the 
definition of the term small business concern as proposed with style 
revisions to conform to official publication requirements. See Section 
IV.B, below. The Commission includes that definition in 39 CFR 
3001.5(v). See Section IV.C.1, below. To promote clarity, the 
Commission provides a cross-reference to rule 3001.5(v) in rule 
3035.3(a)(1)(ii) regarding the contents of the notice.
c. Section 3035.3(a)(1)(iii)
    Rule 3035.3(a)(1)(iii) requires the Postal Service to identify the 
experimental product as either market dominant or competitive for 
purposes of the market test. The Public Representative recommends 
adding language that would require the Postal Service to explain the 
reasoning for the categorization in accordance with the criteria set 
forth in 39 U.S.C. 3642(b). PR Comments, Appendix A at 2. The Postal 
Service does not comment on this suggestion.
    The Commission finds that the Public Representative's suggestion 
has merit. However, the statute requires the Postal Service to identify 
the experimental product as market dominant or competitive consistent 
with the criteria under subsection 3642(b)(1) rather than section 
3642(b) in its entirety. 39 U.S.C. 3641(b)(3). Consistent with the 
statute, the Commission adopts a revised version of the Public 
Representative's

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suggested language, which replaces the statutory citation of section 
3642(b) with section 3642(b)(1). This revision is consistent with past 
practice as well. In prior market tests, the Postal Service explained 
its reasons for categorizing experimental products as market dominant 
or competitive for purposes of the market test.\8\
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    \8\ See, e.g., Docket No. MT2013-2, Notice of the United States 
Postal Service of Market Test of Experimental Product--International 
Merchandise Return Service--Non-Published Rates (IMRS-NPR) and 
Notice of Filing IMRS-NPR Model Contract and Application for Non-
Public Treatment of Materials Filed Under Seal, July 1, 2013, at 5-6 
(IMRS-NPR Notice).
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d. Section 3035.3(a)(2)
    Certified statement. Rule 3035.3(a)(2)(ii) requires the Postal 
Service to demonstrate why the market test is not inconsistent with the 
requirements of 39 U.S.C 3641. The Public Representative states that 
the rule requires the Postal Service to prove a negative, and Order No. 
1803 does not provide additional guidance on how the Postal Service can 
make the necessary demonstration. PR Comments at 8. She suggests 
amending the rule to require a certified statement, similar to the 
certified statement required by 39 CFR 3015.3(c)(2). Id. The Postal 
Service does not comment on this suggestion.
    The Commission finds that a certified statement for market tests is 
unnecessary. The certified statement for competitive products required 
in 39 CFR 3015.3(c)(2) concerns three quantifiable statutory cost or 
rate prerequisites. More specifically, the Postal Service must certify 
that each competitive product covers its attributable costs, is not 
cross-subsidized by market dominant products, and collectively covers 
an appropriate share of the Postal Service's institutional costs. The 
certification is important because part 3015 provides a limited time 
for Commission review of notices of change in rates for competitive 
products. By contrast, section 3641 contains no analogous requirements. 
Furthermore, as noted above, market tests are not subject to the same 
regulatory oversight applicable to Postal Service products. For these 
reasons, the Commission does not amend rule 3035.3(a)(2)(ii) to add a 
certified statement requirement.
    Mail Classification Schedule (MCS). The proposed rules required the 
Postal Service to provide proposed MCS language. The Postal Service 
opposes this requirement and urges the Commission to reconsider this 
rule. Postal Service Comments at 4. It argues that requiring the Postal 
Service to provide MCS language in the market test notice is too 
restrictive and inconsistent with the framework Congress established 
for conducting market tests. Id. It contends that this requirement 
appears contrary to 39 U.S.C. 3641(a)(2), which exempts experimental 
products from the requirements of sections 3622, 3633, and 3642, as 
well as regulations promulgated under those sections. Id. at 3. The 
Postal Service is concerned that this requirement may obstruct 
innovation by forcing the Postal Service to innovate in an inflexible 
manner, without a reasonable opportunity to mold or shape a product 
during the course of a test. Id. at 3-4.
    The Public Representative supports the Postal Service's view 
concerning the required MCS language. PR Reply Comments at 2. She 
suggests revising the rule to replace the MCS requirement with a 
description of the experimental product. Id.
    The Commission has considered the comments and concludes that a 
requirement to provide MCS language at the outset of a market test is 
unnecessary. It will suffice for the Postal Service to describe the 
market test and experimental product in its notice proposing a market 
test. The Commission previously stated that in general, the proposed 
rules do not require the Postal Service to provide more information 
than it currently does for market tests. Order No. 1803 at 5. In prior 
market test proceedings, the Postal Service has included descriptions 
of the experimental product in its notice.\9\ Those descriptions were 
sufficient for the Commission to determine compliance with the 
conditions in 39 U.S.C. 3641(b). In addition, a description of the 
market test is consistent with section 3641(c)(1)(B), which requires 
the Postal Service to describe the nature and scope of the market test.
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    \9\ See, e.g., Docket No. MT2013-1, Notice of the United States 
Postal Service of Market Test of Experimental Product--Metro Post--
and Notice of Filing Material Under Seal, October 12, 2012, at 2-3; 
Docket No. MT2012-1, Notice of the United States Postal Service of 
Market Test of Experimental Product-First-Class Tracer, November 7, 
2011, at 2-4.
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    The Commission will continue its current practice of listing market 
tests in the MCS by providing the name of the experimental product, 
identifying the docket number and Commission order authorizing its 
offering, and specifying the current expiration date.\10\ To promote 
clarity, the Commission reorders the subsections under rule 
3035.3(a)(2) so that the description of the market test and 
experimental product appears first on the list. The other items will be 
renumbered accordingly.
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    \10\ See, e.g., Mail Classification Schedule sections 2130, 
2800.
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    Data collection plan. Rule 3035.3(a)(2)(vi) requires the Postal 
Service to include a plan for monitoring the performance of the market 
test, including a description of the specific data items to be 
collected. The Public Representative suggests replacing a phrase 
(monitoring the performance of) with data collection plan. PR Comments, 
Appendix A at 2. She recommends adding a provision that would require 
the Postal Service to describe the process by which the data will be 
collected. Id. She proposes minor editorial changes as well. Id.
    The Postal Service objects to the Public Representative's 
suggestion that the Postal Service describe its data collection 
process. Postal Service Reply Comments at 6. It requests a measure of 
flexibility in this area and notes that the data collection methodology 
could be in flux when the market test notice is filed. Id. It argues 
that the focus of the Commission's review should be on the nature of 
the data to be collected and reported rather than data collection 
techniques and administration. Id. at 7.
    The Commission modifies rule 3035.3(a)(2)(vi) to adopt the Public 
Representative's suggested language and add minor editorial language 
regarding the data collection and reporting requirements in rule 
3035.20. The Commission declines, however, to adopt the suggestion that 
the Postal Service describe its data collection process. The rationale 
for having a data collection plan is that the data form the basis of a 
Postal Service request to add an experimental product to the market 
dominant or competitive product list. In addition, if a market test is 
unsuccessful, the data collected will inform the Postal Service of 
shortcomings and potential solutions. Identifying the data collection 
process is unnecessary for purposes of the data collection plan. 
Moreover, the data collection methodology could be in flux when the 
Postal Service files the market test notice, but subsequently resolves 
it at a later date. See Postal Service Reply Comments at 6-7.
2. Section 3035.6--Changes in Market Test
    Rule 3035.6 addresses filing requirements and Commission action 
regarding changes in market tests. The Public Representative argues 
that the rule limits the ability of the Commission to assess continued 
compliance with 39 U.S.C. 3641. PR Comments at 8. She contends that an 
after-the-fact review of

[[Page 54555]]

changes to a market test, along with giving the Postal Service 
discretion to determine the materiality of changes, could result in 
changes that would affect compliance with the statute occurring without 
the Commission's knowledge. Id. She suggests revisions that would 
enable the Commission to determine the materiality of changes before 
they are adopted. Id. She recognizes that an after-the-fact review of a 
change may be necessary in certain circumstances and suggests an 
emergency provision addressing that concern. Id. The suggested 
revisions clarify that notices of changes to a market test should be 
filed in the proceeding's docket. Id. at 8-9. The Public Representative 
also proposes language detailing the Commission's actions upon 
receiving a notice of a change to a market test. Id. at 9.
    The Postal Service objects to the Public Representative's suggested 
revisions to rule 3035.6. Postal Service Reply Comments at 7. It argues 
that the suggested revisions, if implemented, would require the Postal 
Service to report and the Commission to adjudicate every change in a 
market test, regardless of materiality. Id. It asserts that the 
suggested revisions would clog Commission dockets with reports and 
adjudications about market test changes that have little to no relation 
to the merits of the experimental product. Id. It contends that these 
proceedings would be further complicated by disputes over whether a 
change was ordinary or an emergency. Id. at 7-8. It states that a more 
reasonable approach to reporting market test changes is reflected in 
the rule as currently written. Id. at 8.
    The Commission declines to adopt the Public Representative's 
suggested revisions. The intent of 39 U.S.C. 3641 is to increase 
flexibility and to facilitate a more entrepreneurial approach to 
product development. Senate Report at 16. The suggested revisions, 
which would require the Postal Service to report any change to a market 
test, regardless of materiality, introduce rigidity in an area where 
the Postal Service is afforded flexibility.
    The comments raise questions about determining the materiality of 
changes to a market test. See PR Comments at 8-9; Postal Service Reply 
Comments at 7-8. To clarify this issue, the Commission amends rule 
3035.6 to define material changes as changes to a market test or 
services offered under a market test that may affect compliance with 39 
U.S.C. 3641. To ensure that the Commission has sufficient time to 
review material changes before they are implemented, the Commission 
amends rule 3035.6 to require that a notice describing any material 
change must be filed with the Commission at least 10 days before the 
Postal Service implements such change. Material changes include, inter 
alia, revisions to prices, geographic scope, termination date, and 
eligibility for service, i.e., eligibility to participate in the market 
test.
    The need to amend the proposed rule can be observed from the 
following example from a current market test conducted by the Postal 
Service. As part of the Metro Post market test, the Postal Service 
entered into relationships with up to 10 qualifying online e-commerce 
companies to offer same-day local delivery.\11\ To participate in the 
market test, each company was required to have at least 10 physical 
locations nationally and at least one location within San Francisco. 
Id. A change in the criteria for eligible participants would qualify as 
a material change because it could, for example, affect the 
Commission's analysis of an experimental product's impact on small 
business concerns. See 39 U.S.C. 3641(b)(2).
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    \11\ Docket No. MT2013-1, Order No. 1539, Order Approving Metro 
Post Market Test, November 14, 2012, at 2.
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    The Commission incorporates language into rule 3035.6 to explicitly 
include eligibility for service as a material change. The final rule 
also clarifies that material changes include changes to either the 
market test or services offered under the market test.
    In a recent notice expanding the Metro Post market test to a new 
market, the Postal Service included a statement that all other aspects 
of the market test remain unchanged and in compliance with section 3641 
and the Commission's order authorizing the market test.\12\ The 
Commission finds that such a statement would be helpful to include in a 
notice of change to a market test or services offered under a market 
test filed under rule 3035.6.
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    \12\ Docket No. MT2013-1, Notice of the United States Postal 
Service of Expansion of Metro Post Market Test, December 4, 2013, at 
2.
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3. Section 3035.10--Duration
    Rule 3035.10 limits a market test's duration to 24 months unless 
the Postal Service requests an extension under 39 CFR 3035.11. The 
Public Representative argues that the rule raises a question as to what 
condition(s) must be met in order for a market test to be extended. PR 
Comments at 9. She contends that the rule, as currently written, could 
automatically extend a market test upon the Postal Service's filing of 
an extension request and suggests alternative language. Id. The Postal 
Service does not comment on this suggestion.
    The Commission finds that the suggested modification is an 
improvement to the rule because it clarifies that market test 
extensions are conditioned upon Commission approval. It revises the 
rule accordingly.
4. Section 3035.11--Extension of Market Test
    Rule 3035.11 describes the procedures for extending a market test. 
The Public Representative suggests expanding subsection (b)(1) to 
require that a request for extension explain what information or data 
the Postal Service currently lacks to assess the feasibility or 
desirability of an experimental product and how the extension will 
provide the missing information. Id. She argues that the request for 
extension should include any changes to the data collection plan, which 
will facilitate the collection of any necessary data or information. 
Id. She recommends that the Postal Service include supporting 
documentation for the calculation of total revenue received from the 
market test. Id. Other proposed changes include replacing the term 
fiscal year with fiscal quarter in subsections (b)(3) and (b)(4) and, 
in subsection (b)(4), striking a qualifier (available) from available 
supporting documentation and rewording a phrase (prior to the 
conclusion of the extension period of). Id., Appendix A at 5. In 
addition, the Public Representative recommends amending rule 
3035.11(b)(3) to require the Postal Service to provide supporting 
documentation for the calculations of total revenue received by the 
Postal Service from the market test. Id. at 9.
    The Commission notes that the Postal Service opposes most of the 
Public Representative's suggested changes to rule 3035.11. The Postal 
Service argues that expanding subsection (b)(1) seems redundant to the 
requirement that the Postal Service explain why an extension is 
necessary to determine the feasibility or desirability of the 
experimental product. Postal Service Reply Comments at 8. It contends 
that the suggested language appears to demand proof that an extension 
will provide needed data and that changes to the data collection plan 
will facilitate collection of needed data. Id. It submits that the 
suggested language unreasonably expects the Postal Service to do more 
than assert what is expected to occur. Id.
    The Postal Service objects to replacing the term fiscal year with 
fiscal quarter in subsections (b)(3) and (b)(4) because this change 
would require the Postal Service to report revenue quarterly

[[Page 54556]]

instead of annually. Id. at 8-9. It argues that the Postal Service 
should not be burdened with more frequent reporting without any 
indication that annual revenue data do not satisfy the Commission's 
needs. Id. at 9. It opposes striking a qualifier (available) from 
available supporting documentation in subsection (b)(4) because this 
change could require that a revenue estimate be provided as a table or 
spreadsheet when a narrative would be more suitable. Id.
    The Commission finds it unnecessary to expand subsection (b)(1) to 
include a detailed list of information the Postal Service must provide 
in a request for extension. The Postal Service may request an extension 
of a market test for up to an additional 12 months if the request is 
filed at least 60 days before the market test is scheduled to 
terminate. 39 U.S.C. 3641(d)(2). The Commission may grant a request for 
extension if an extension is necessary to determine the feasibility or 
desirability of an experimental product. Id. Extensions of market tests 
were intended to provide the Postal Service additional flexibility if a 
more limited duration test will not provide sufficient information to 
evaluate the market demand and the financial potential of a product. 
Senate Report at 16.
    The Commission notes that the Postal Service previously filed 
requests for extensions in Docket Nos. MT2009-1, MT2011-1, MT2011-2, 
and MT2013-2.\13\ In support of those requests, the Postal Service 
detailed its reasons for seeking an extension.\14\ Those requests 
provided sufficient information for the Commission to evaluate the 
merits of the extension. As long as it meets the requirements of rule 
3035.11(b), the Postal Service may structure the request for extension 
in any way it deems appropriate.
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    \13\ Docket No. MT2009-1, Motion of the United States Postal 
Service for Temporary Extension of Collaborative Logistics Market 
Test, April 26, 2011 (Collaborative Logistics Motion); Docket No. 
MT2011-1, Motion of the United States Postal Service for Temporary 
Extension of Alternate Postage for Greeting Cards Market Test, 
November 21, 2012 (Greeting Cards Motion); Docket No. MT2011-2, 
Motion of the United States Postal Service for Temporary Extension 
of Gift Cards Market Test, June 18, 2013 (Gift Cards Motion); Docket 
No. MT2013-2, IMRS-NPR Notice at 6.
    \14\ See Collaborative Logistics Motion at 1 (delay in filing a 
request to make experimental product permanent due to ongoing 
reorganization at Postal Service Headquarters); Greeting Cards 
Motion at 2 (need for additional research time and for market test 
participant to complete an internal review); Gift Cards Motion at 1 
(need for additional time to implement and evaluate new sales 
efforts); IMRS-NPR Notice at 6-7 (need to satisfy existing 
contractual obligations under the market test).
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    The Public Representative's proposal to replace the term fiscal 
year with fiscal quarter in subsections (b)(3) and (b)(4) appears to 
relate to her previous suggestion of examining fiscal quarters rather 
than fiscal years. See Section IV.A.1.a. As explained above, the 
Commission declines to adopt this change. In addition, annual reporting 
of total and anticipated revenue received from the market test is 
consistent with the applicable dollar amount limitations in 39 U.S.C. 
3641(e).
    The Commission adopts the Public Representative's suggestion to 
require the Postal Service to provide supporting documentation for the 
calculations of total revenue received by the Postal Service from the 
market test. This change will aid the Commission in verifying the 
Postal Service's calculations. In addition, rule 3035.11(b)(4) will 
retain a qualifier (available) to describe the type of supporting 
documentation required. The Commission agrees that expert projections 
of additional revenue expected from a market test extension can be 
judgmental and qualitative in nature. See Postal Service Reply Comments 
at 9. The Postal Service can reasonably be expected to provide 
available supporting documentation for additional revenue estimates. It 
will provide more accurate revenue calculations in its data collection 
reports as required by rule 3035.20.
    Final rule 3035.11(b)(4) will also replace a phrase (addressing the 
duration of a market test before it concludes) with language explaining 
that the Postal Service must estimate the additional revenue it 
anticipates receiving for each fiscal year remaining on the market 
test, including the requested extension period.
5. Section 3035.12--Cancellation of Market Test
    Rule 3035.12 outlines the procedures for canceling a market test. 
The Public Representative suggests amending rule 3035.12(a) to require 
notices of cancellation to be filed in the proceeding's docket. PR 
Comments, Appendix A at 6. She asserts that rule 3035.12(b) raises 
questions concerning how and under what circumstances the Commission 
will use its cancellation authority under 39 U.S.C. 3641(f). PR 
Comments at 10. She argues that the rule does not explain what criteria 
the Commission will use to assess whether to allow public comment or 
whether public comment will precede or follow the Postal Service's 
demonstration of compliance. Id. She contends that the Commission 
should consider several issues, including: (1) Who may initiate the 
cancellation procedures, (2) the parameters and form for the Postal 
Service's demonstration of compliance with section 3641, and (3) when 
comments will be considered. Id. She provides suggested language 
addressing these issues. Id., Appendix A at 6.
    The Postal Service opposes the Public Representative's suggested 
revisions, arguing that they add nothing to the more concise version 
proposed by the Commission. Postal Service Reply Comments at 9-10. It 
maintains that rule 3035.12 does not need to codify every conceivable 
step in the Commission's reasonable exercise of its cancellation 
authority. Id. at 10. The Postal Service favors adopting the rule as 
originally proposed to avoid a set of redundant rules. Id.
    The Commission declines to adopt the Public Representative's 
suggestion to require notices of cancellation to be filed in the 
particular market test's docket. The Commission's rules and many of its 
orders direct the Postal Service and participants to file documents 
such as notices, comments, and replies with the Commission. It is 
unnecessary to state that such documents must be filed in the relevant 
docket, just as it is unnecessary to state how they are to be 
filed.\15\
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    \15\ For example, when it terminated the Collaborative Logistics 
market test, the Postal Service appropriately filed a termination 
notice in Docket No. MT2009-1. See Docket No. MT2009-1, Notice of 
the United States Postal Service of Termination of Market Test, 
August 19, 2011.
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    The Commission adopts rule 3035.12(b) as proposed, with minor non-
substantive changes. 39 U.S.C. 3641(f) was established as an ultimate 
safeguard for consumers and competitors of the Postal Service. Senate 
Report at 17. The rule provides a reasonable and flexible framework to 
implement that section. The Public Representative's suggested 
amendments to rule 3035.12(b) are largely procedural in nature and can 
be accommodated in Commission orders as past practice demonstrates. 
Moreover, pursuant to the Commission's rules of practice, any person 
may ask the Commission to investigate whether to cancel a market test. 
See 39 CFR 3001.21. For these reasons, the Commission declines to adopt 
the Public Representative's suggested revisions to rule 3035.12(b).
6. Section 3035.15--Dollar Amount Limitation
    Rule 3035.15 sets forth the requirements for the $10 Million 
Adjusted Limitation. The Public Representative suggests two changes to 
the rule. First, she recommends clarifying that the CPI used for 
calculations under part 3035 is the Consumer Price Index All Urban 
(CPI-U) index. PR Comments at 11. She

[[Page 54557]]

suggests defining the term CPI-U index for those who may be less 
familiar with economic terminology or Commission practice. Id. Second, 
she proposes adding language under subsection (c) that states when the 
Commission will publish the $10 Million Adjusted Limitation. Id., 
Appendix A at 7.
    The Public Representative also notes that neither 39 U.S.C. 3641(g) 
nor rule 3035.15 considers how the $10 Million Adjusted Limitation 
would be adjusted during a deflationary period. Id. at 11. She 
recommends revising the rule if the Commission intends to adjust the 
$10 Million Adjusted Limitation solely for inflation. Id. The Postal 
Service does not comment on the Public Representative's suggested 
revisions to rule 3035.15.
    The Commission revises rule 3035.15 to adopt some of the Public 
Representative's recommendations. First, the Commission finds that 
switching subsections (a) and (b) would improve the rule by setting 
forth the description of CPI-U index at the beginning. New subsection 
(a) specifies that the CPI used for calculations under part 3035 is the 
CPI-U index, as specified in 39 CFR 3010.21(a) and 3010.22(a). To 
ensure consistency with regulations in part 3010 that also refer to the 
CPI-U index, the Commission declines to define the term CPI-U index in 
rule 3035.15. If the Commission modifies the definition of the CPI-U 
index in part 3010, those changes would also apply to rule 3035.15.
    Consistent with new subsection (a), new subsection (b) replaces a 
term (Consumer Price Index) with an abbreviation (CPI-U index). 
Subsection (c) states that the Commission will publish the $10 Million 
Adjusted Limitation each year on its Web site.
    The Commission clarifies that the $10 Million Adjusted Limitation 
and $50 Million Adjusted Limitation will be reduced during deflationary 
periods. 39 U.S.C. 3641(g) states that each dollar amount contained in 
section 3641 must be adjusted by the change in the CPI index for such 
year. This provision is reflected in rules 3035.15 and 3035.16. The 
term adjusted implies any change in the CPI-U index. Thus, the $10 
Million Adjusted Limitation and $50 Million Adjusted Limitation would 
either increase or decrease depending on whether the previous fiscal 
year was an inflationary or deflationary period.
7. Section 3035.16--Exemption from Dollar Amount Limitation
    Rule 3035.16 describes the procedures for requesting an exemption 
from the $10 Million Adjusted Limitation. Similar to rule 3035.15, the 
Public Representative suggests amending the rule to reflect the CPI-U 
index and to state when the Commission will publish the $50 Million 
Adjusted Limitation. PR Comments, Appendix A at 8.
    The Public Representative comments on several aspects of subsection 
(f). First, she reiterates her recommendation to define a phrase 
(unfair or otherwise inappropriate competition). Id. at 11-12. Second, 
she argues that subsection (f)(2) is problematic because it requests 
revenue on a fiscal year rather than fiscal quarter basis. Id. at 12. 
She contends that if the Postal Service requests an exemption for a 
market test that has been in operation for less than one full fiscal 
year, the total revenue received from the market test would not be 
required under the rule. Id. She suggests amending subsections (f)(2) 
and (f)(3) to require the Postal Service to report revenue for each 
fiscal quarter and provide supporting documentation. Id. Third, she 
requests clarification in subsection (f)(3) of language concerning the 
duration of a market test before it concludes, suggesting alternative 
language. Id. The Postal Service does not comment on these 
recommendations.
    The Commission revises rules 3035.16(a) and (b) to reflect the 
Public Representative's suggestions concerning the CPI-U index and time 
of publication for the reasons discussed in Section IV.A.6. However, 
the Commission finds it unnecessary to define the term unfair or 
otherwise inappropriate competition for the reasons discussed in 
Section IV.C.1, below. In addition, the Commission declines to adopt 
the Public Representative's suggestion of reporting revenue for each 
fiscal quarter. As previously explained, the term fiscal year is more 
appropriate than fiscal quarter for purposes of the rules. See Section 
IV.A.1.a; see also Order No. 1803 at 9.
    The Commission notes that the requirements of rule 3035.16(f) for 
market tests in effect for less than one fiscal year parallel those 
applicable to extensions. With regard to the latter, the Commission 
stated that a request for extension must both calculate the total 
revenue received by the Postal Service from the market test and 
estimate the additional revenue anticipated by the Postal Service for 
each fiscal year (or part thereof) before the market test ends, 
including any extension period. Order No. 1803 at 7. Similarly, if the 
Postal Service requests an exemption under rule 3035.16 for a market 
test that has been in operation for less than one full fiscal year, it 
must also report revenue received to date in that fiscal year.
    The Commission adopts the Public Representative's suggestion in 
subsection (f)(2) to require the Postal Service to provide supporting 
documentation for its calculations of total revenue received from the 
market test. This change, which parallels the change to rule 
3035.11(b)(3), will help the Commission verify the information 
provided.
    The Commission notes that the phrase concerning the duration of a 
market test extension period in the proposed rules is intended to cover 
the duration of the market test, including any extensions. In final 
subsection (f)(3), the Commission adopts the Public Representative's 
revisions, which conveys this concept more clearly.
    The Commission also revises rule 3035.16(f) to require requests for 
an exemption to include product specific costs associated with the 
development of the market test; that is, costs incurred before the 
market test is implemented. The proposed rules contained a requirement 
that the Postal Service quantify start-up costs in its data collection 
reports. As further explained in Section IV.A.10.a, below, the 
Commission revises the rules to require the Postal Service to quantify 
start-up costs in two situations, one of which is when the Postal 
Service applies for an exemption from the $10 Million Adjusted 
Limitation under rule 3035.16(f). The other situation in which the 
Postal Service must quantify start-up costs is when the Postal Service 
files a request to make an experimental product permanent. See 39 CFR 
3020.32(b) and (c); Section IV.A.10.a, below.
    In applications for exemptions, the identification of start-up 
costs is necessary for the Commission to determine whether an 
experimental product will likely contribute to the Postal Service's 
financial stability. See 39 U.S.C. 3641(e)(2)(B). The Postal Service 
also requested clarification of the type of information the Commission 
was seeking for these start-up costs. Postal Service Comments at 6-7. 
As discussed in more detail below, in the final rules, the term start-
up costs is replaced with product specific costs, a term that is well 
known and has long been used to attribute costs to specific products. 
See Section IV.A.10.a, below.
    Examples of product specific costs required by rule 3035.16(f) can 
be found in other proceedings. For example, in Docket No. MT2012-1, the 
Postal Service reported that the costs incurred in conducting the 
First-Class Tracer market test included the production and fulfillment 
of displays in addition to manufacturing the product (Tracer

[[Page 54558]]

barcode stickers).\16\ Similarly, in Docket Nos. MC2011-20, R2009-5, 
and R2009-3, the Postal Service reported that costs for the Reply Rides 
Free Volume Incentive Program, the First-Class Mail Incentive Program, 
and the Standard Mail Volume Incentive Pricing Program included the 
registration and creation of Web sites.\17\ If such costs were incurred 
before the market test or incentive programs began, they are examples 
of product specific costs that must be reported under rule 3035.16(f).
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    \16\ Docket No. MT2012-1, First-Class Tracer Data Collection 
Report FY 12, Q1-4 and FY 13, Q1-2 April 19, 2013, at 1-2.
    \17\ Docket No. MC2011-20, Amended Reply Rides Free Data 
Collection Report, June 11, 2012, at 3; Docket No. R2009-5, United 
States Postal Service Notice of Market-Dominant Price Adjustment, 
August 11, 2009, at 7; Docket No. R2009-3, United States Postal 
Service Notice of Market-Dominant Price Adjustment, May 1, 2009, at 
6.
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8. Section 3035.17--Prevention of Market Disruption
    Rule 3035.17 authorizes the Commission to limit the amount of 
revenues received by the Postal Service from any geographic market as 
necessary to prevent market disruption as defined in 39 U.S.C. 
3641(b)(2). The Public Representative recommends defining the terms 
geographic market and market disruption. PR Comments at 12. She argues 
that the rule should define market disruption rather than refer to 
section 3641(b)(2). Id. at 3. She contends that the rule should also 
provide additional information concerning how and when the Commission 
plans to exercise its authority to limit revenues from any geographic 
market. Id. at 12-13. She recommends that the rule explain: (1) The 
circumstances under which the Commission will consider exercising its 
authority; (2) the procedures used, including whether the Commission 
will notice the issue, solicit comments, and provide the Postal Service 
an opportunity to respond; and (3) the criteria used to assess whether 
to limit revenues from particular geographic markets. Id. at 13.
    The Postal Service opposes the Public Representative's 
recommendation to define the terms geographic market and market 
disruption. Postal Service Reply Comments at 1-2, 10-11; see Section 
IV.C.1, below.
    The Commission finds it unnecessary to define these terms for the 
reasons explained in Section IV.C.1, below. To avoid confusion, rule 
3035.17 is revised to identify each of the elements of market 
disruption in 39 U.S.C. 3641(b)(2) rather than simply cite the relevant 
statutory provision. Otherwise, the Commission declines to revise the 
rule as suggested by the Public Representative.
9. Section 3035.18--Filing for Permanent Product Status
a. Suggested Amendments to Regulations
    Rule 3035.18 outlines the procedures for making an experimental 
product permanent. The Public Representative notes that experimental 
products are added to either the market dominant or competitive product 
list. PR Comments at 13. Thus, she argues that the definition of 
modifications in 39 CFR 3020.30 should be amended to include changing 
an experimental product to a permanent offering. Id. In addition, she 
states that 39 CFR 3015.2, 3015.3, and 3015.5 apply to changes in rates 
or class of general applicability, but not to new products. Id. at 14. 
She recommends revising 39 CFR part 3015 and/or rule 3035.18 to ensure 
that the rates for any competitive experimental product considered for 
permanent product status are evaluated for compliance with 39 U.S.C. 
3633. Id.
    The Postal Service does not respond to these comments.
    The Commission finds it unnecessary to amend section 3020.30 at 
this time. 39 CFR 3020.13 requires the market dominant and competitive 
product lists to identify a product as an experimental product 
undergoing a market test.\18\ Although permanent and experimental 
products both appear on the product lists, they are distinct and serve 
different purposes. Experimental products undergoing market tests are 
subject to unique regulatory treatment under the PAEA. Order No. 26 ] 
4017. They are identified on the product lists to facilitate 
transparency during the market tests. Id. ] 4002. They also are 
included because the Postal Service must identify experimental products 
as either market dominant or competitive for purposes of a market test. 
See 39 U.S.C. 3641(b)(3).
---------------------------------------------------------------------------

    \18\ Docket No. RM2007-1, Order Proposing Regulations to 
Establish a System of Ratemaking, August 15, 2007, ] 4017 (Order No. 
26); see Order No. 27, Errata to Order No. 26, August 16, 2007; 39 
CFR 3020.13(a)(5), (b)(4).
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    However, experimental products, unlike permanent products, are not 
subject to the requirements of 39 U.S.C. 3622, 3633, or 3642, or 
regulations promulgated under those sections. Id. 3641(a)(2). If the 
Postal Service determines to make an experimental product permanent it 
must file a request--pursuant to 39 U.S.C. 3642 and 39 CFR part 3020, 
subpart B--to add a new product or price category to the market 
dominant or competitive product list. The Commission revises rule 
3035.18 to make this requirement clear.
    The Commission declines to amend 39 CFR part 3015 and rule 3035.18 
as recommended by the Public Representative. If the Postal Service 
determines to make an experimental product a permanent competitive 
product of general applicability, the statute and the Commission's 
rules contain sufficient safeguards that ensure that the rates for the 
new competitive product are evaluated for compliance with 39 U.S.C. 
3633. Costs and revenues attributable to an experimental competitive 
product must be included in any determination under 39 U.S.C. 
3633(a)(3). 39 U.S.C. 3641(b)(3). As part of its request to add a new 
product to the product list, the Postal Service must provide supporting 
justification, including an explanation of why the addition, deletion, 
or transfer of a competitive product will not violate any of the 
standards of 39 U.S.C. 3633. 39 CFR 3020.32(c).
b. Procedures for Filing Request
    The Public Representative proposes procedural changes to rule 
3035.18. First, she suggests that when the Postal Service requests to 
make an experimental product permanent, the Postal Service file a 
notice of application for permanent product status in the market test 
proceeding's docket, which should include the docket number(s) for the 
proceeding evaluating request. PR Comments at 14. Second, she 
recommends setting a finite deadline for filing the request. Id. at 15. 
She suggests 45 days, but does not have a strong opinion on the length 
of time required for review. Id. at 15 n.19. She states that tying the 
deadline to the date on which the Postal Service wishes the product to 
become permanent would provide additional flexibility. Id. at 15.
    The Postal Service commends the Public Representative for her 
observation regarding the limited nature of tying the deadline for 
filing a permanent product request to the date on which the revenue cap 
would be exceeded. Postal Service Reply Comments at 12. It notes that 
reasons unrelated to the revenue cap may trigger the decision to 
request permanent product status. Id. However, it objects to the 45-day 
deadline suggested by the Public Representative and prefers the more 
flexible standard reflected in rule 3035.18. Id.
    The Commission adopts the Public Representative's suggestion to 
require the Postal Service to file a notice of its request to make an 
experimental product permanent in the market test

[[Page 54559]]

proceeding's docket. This requirement will help mailers and the general 
public track the progress of a market test from an experimental product 
to a permanent product. It will also provide more transparency into the 
Commission's review of both experimental and permanent products. The 
notice must include the applicable docket number(s) for the proceeding 
evaluating the request. Rule 3035.18 is revised to add this 
requirement.
    The Postal Service recently filed notices requesting that two 
experimental products--Alternate Postage Payment Method and Gift 
Cards--become permanent price categories.\19\ Based on these 
proceedings, the Commission finds it appropriate to clarify and revise 
the procedures and deadline for filing requests to make an experimental 
product permanent. First, the Commission amends rule 3035.18 to clarify 
that future requests to make an experimental product permanent must be 
filed pursuant to 39 U.S.C. 3642 and 39 CFR part 3020, subpart B. This 
rule applies whether the Postal Service is adding an experimental 
product as a new product or price category. This requirement is 
consistent with the Commission's directive in its order granting 
classification and price changes for Alternate Postage Payment.\20\ The 
Postal Service complied with this order in its request to add Gift 
Cards to the competitive product list as a new price category. Gift 
Cards Request at 1 n.1.
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    \19\ Docket No. R2014-1, United States Postal Service Notice of 
Market Dominant Classification and Price Changes for the Alternative 
Postage Payment Method, November 5, 2013; Docket No. MC2014-26, 
Request of the United States Postal Service to Add Gift Cards as a 
New Price Category in the Greeting Cards and Stationery Product, 
June 9, 2014 (Gift Cards Request).
    \20\ Docket No. R2014-1, Order No. 1917, Order Granting 
Classification and Price Changes for Alternate Postage Payment, 
December 20, 2013, at 8.
---------------------------------------------------------------------------

    Second, the Commission amends rule 3035.18 to clarify the deadline 
for filing requests to make an experimental product permanent. In 
Docket No. MC2014-26, the Postal Service filed its request to add Gift 
Cards as a new price category 18 days before the Gift Cards market test 
was scheduled to expire.\21\ This did not provide sufficient time for 
the Commission to review the Postal Service's request before the market 
test expired. Discontinuing the market test during the pendency of the 
proceeding would have been inefficient and inconvenient to gift card 
customers. Id. at 4. To avoid the disruption of service and 
inconvenience, the Commission conditionally approved the addition of 
Gift Cards to the competitive product list as a price category of the 
Greeting Cards, Gift Cards, and Stationery competitive product. Id. It 
noted, however, that the Postal Service jeopardized the continuation of 
the Gift Cards service by filing the permanent product request so close 
to the expiration date of the market test. Id. at 4 n.6. It noted that 
this risk was unnecessary and could have been easily cured by a more 
timely filing. Id.
---------------------------------------------------------------------------

    \21\ Docket No. MC2014-26, Order No. 2091, Notice and Order of 
Filing Request to Add Gift Cards to the Competitive Product List and 
Conditionally Authorizing the Sale of Gift Cards Pending Conclusion 
of Proceeding, June 13, 2014, at 1-2.
---------------------------------------------------------------------------

    The Commission revises rule 3035.18 to avoid this situation in 
future filings. In general, the Postal Service may file a request for 
permanent product status any time it wishes. However, if the Postal 
Service determines to make an existing experimental product \22\ 
permanent before the market test terminates, it must submit a request 
for permanent product status at least 60 days before the market test 
terminates. For the Commission to approve a request for permanent 
product status before a market test terminates, the Postal Service must 
file the request sufficiently in advance of the market test termination 
date to provide adequate time for public input and Commission review of 
the request. A market test must terminate if: (1) It reaches the end of 
the market test duration period (24 months or up to 36 months if an 
extension is granted); or (2) the revenues received by the Postal 
Service from a market test reach any applicable authorized adjusted 
limitation in any fiscal year. The Commission finds that 60 days' 
notice before either event occurs is an appropriate time period because 
it is consistent with the 60-day deadline for requesting a market test 
extension under 39 U.S.C. 3641(d)(2).
---------------------------------------------------------------------------

    \22\ Existing experimental products are experimental products 
that the Postal Service is currently testing under a market test.
---------------------------------------------------------------------------

    The final rules require that requests to make existing experimental 
products permanent must be filed at least 60 days before the market 
test expires (including any extension period granted) or exceeds any 
authorized adjusted limitation in any fiscal year, whichever is 
earlier. The 60-day notice period under rule 3035.18 applies to Postal 
Service requests to make existing experimental products permanent. The 
Postal Service may file requests to make former experimental products 
permanent any time after the market test terminates.
    The Commission also revises rule 3035.18 to require requests for 
permanent product status to include product specific costs associated 
with the development of the market test; that is, costs incurred before 
the market test is implemented. The proposed rules contained a 
requirement that the Postal Service quantify start-up costs in its data 
collection reports. As further explained in Section IV.A.10.a, below, 
the Commission revises the rules to require the Postal Service to 
quantify start-up costs in two situations, one of which is when the 
Postal Service files a request to make an experimental product 
permanent. The other situation in which the Postal Service must 
quantify start-up costs is when the Postal Service applies for an 
exemption from the $10 Million Adjusted Limitation under rule 
3035.16(f). See 39 U.S.C. 3641(e)(2); Section IV.A.10.a, below.
    A quantification of start-up costs is necessary for the Commission 
to evaluate whether a competitive product covers its attributable costs 
and whether a market dominant product assures adequate revenues, 
including retained earnings, to maintain financial stability. See 39 
CFR 3020.32(b) and (c); 39 U.S.C. 3622(b)(5).\23\ The Postal Service 
also requested clarification of the type of information the Commission 
was seeking for these start-up costs. Postal Service Comments at 6-7. 
As discussed in more detail below, the final rules replace the term 
start-up costs with product specific costs, a term that is well known 
and has long been used to attribute costs to specific products. See 
Section IV.A.10.a, below. Examples of product specific costs required 
by rule 3035.18(b) are discussed in Section IV.A.7, above.
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    \23\ While an experimental product might be initially 
categorized as market dominant under 39 U.S.C. 3641(b)(3), 
experience or changes to the market test may dictate that the 
Commission find that the experimental product should be added to the 
competitive product list under 39 U.S.C. 3642 if the Postal Service 
files a request to make the experimental product permanent. Thus, 
start-up cost information could also be important for proposals to 
add a market dominant experimental product to the competitive 
product list.
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10. Section 3035.20--Data Collection and Reporting Requirements
a. Administrative, Ancillary, and Start-Up Costs
    The proposed rules required the Postal Service to periodically 
report several types of costs associated with each market test: 
Administrative, ancillary, and start-up costs. The Postal Service does 
not propose definitions for these terms but instead requests that the

[[Page 54560]]

Commission clarify their meanings. Postal Service Comments at 5-8. The 
Postal Service asserts that it has responded in good faith to 
Commission orders requiring the reporting of available administrative 
costs, but it was not confident that the information provided met 
Commission expectations. Id. at 5. Likewise, it provided available 
ancillary cost data, but notes it lacked a clear understanding of the 
types of costs the Commission deems to fall within this category. Id. 
at 5-6. It argues that distinguishing start-up from administrative 
costs may be difficult and describes the challenges involved in 
calculating start-up costs. Id. at 6-7.
    The Postal Service requests that the Commission's cost data 
reporting requirements recognize the limitations on the Postal 
Service's ability to record perfectly complete information that may 
vary on a case-by-case basis. Id. at 7. It states that identifying 
specific cost line items in which the Commission has an interest would 
be helpful. Id. The Public Representative concurs that further 
clarification of these types of costs will help the Postal Service and 
the public better understand the Commission's expectations. PR Reply 
Comments at 2.
    In this Order, the Commission clarifies the types of costs that are 
to be reported under this section. The objective of the rules is to 
ensure that the Postal Service tracks relevant costs associated with a 
market test, including the costs incurred in conceiving of and 
initiating a market test.
    The Commission clarifies that start-up costs are costs incurred by 
the Postal Service to implement a new service or offer a new product. 
These costs include contractor costs, if applicable; administrative 
costs, i.e., salary and fringe benefits of employees working on the 
project, including senior management review; \24\ costs to acquire 
materials, supplies, or equipment relevant to the proposed market test; 
and costs associated with implementing the market test pursuant to 
section 3641.
---------------------------------------------------------------------------

    \24\ The Commission appreciates the difficulty in isolating the 
costs related to staff time given that Postal Service employees may 
be assigned to more than one project. Reasonable good faith 
estimates should suffice.
---------------------------------------------------------------------------

    The Commission further clarifies that, generally, administrative 
costs are a subset of product specific costs and include expenses 
associated with the general administration of the market test. As 
discussed below, they include, for example, the cost of employees 
assigned to the market test, marketing, and materials and supplies. In 
this context, the Commission intends for ancillary cost to represent 
all other costs that may be incurred in connection with the market 
test. They may include certain miscellaneous or unexpected expenses.
    The proposed rules contained a requirement that the Postal Service 
report start-up costs in data collection reports. After considering the 
comments received, see Postal Service Comments at 6-7, the Commission 
finds that a quantification of start-up costs is not necessary before a 
market test is offered. Rather, start-up costs should be reported in 
certain cases as the market test progresses. This will help display a 
complete financial picture of whether the market test has a net 
positive or net negative impact on the Postal Service's finances.\25\ A 
quantification of start-up costs is important to stakeholders because 
it promotes financial transparency. Moreover, if start-up cost 
information is not captured early in the process, it may be difficult 
to recreate start-up costs later on if, for example, the Postal Service 
proposes to make an experimental product permanent.
---------------------------------------------------------------------------

    \25\ See, e.g., United States General Accounting Office, U.S. 
Postal Service: Development and Inventory of New Products (GAO/GGD-
99-15), November 24, 1998, at 4 (stating that new products generally 
take several years to become established and recover their start-up 
costs).
---------------------------------------------------------------------------

    Thus, the Commission finds that a quantification of start-up costs 
associated with market tests is necessary in two situations: (1) The 
Postal Service applies for an exemption from the $10 Million Adjusted 
Limitation under 39 U.S.C. 3641(e)(2) and rule 3035.16; and (2) the 
Postal Service files a request to make an experimental product 
permanent under 39 U.S.C. 3642 and rule 3035.18. In applications for an 
exemption, a quantification of start-up costs is necessary for the 
Commission to determine whether an experimental product will likely 
contribute to the Postal Service's financial stability. See 39 U.S.C. 
3641(e)(2)(B). Similarly, in requests to make an experimental product 
permanent, a quantification of start-up costs is necessary for the 
Commission to evaluate whether a competitive product covers its 
attributable costs and whether a market dominant product assures 
adequate revenues, including retained earnings, to maintain financial 
stability.\26\ See 39 CFR 3020.32(b) and (c); 39 U.S.C. 3622(b)(5).
---------------------------------------------------------------------------

    \26\ Start-up cost information could also be important for 
proposals to add a market dominant experimental product to the 
competitive product list. See footnote 23, above.
---------------------------------------------------------------------------

    The Commission revises rules 3035.16 and 3035.18 to require the 
Postal Service to report start-up costs when applying for exemptions 
from the $10 Million Adjusted Limitation and when filing requests for 
permanent product status. See Sections IV.A.7 and IV.A.9, above. 
However, the Postal Service is not required to report start-up costs in 
ongoing data collection reports under rule 3035.20.
    Administrative, ancillary, and start-up costs could also be 
characterized as product specific costs, i.e., costs exclusively 
incurred by a single product that do not vary by volume (e.g., costs to 
advertise only Priority Mail or, in this context, research and 
development costs associated with a market test). Because the term 
product specific costs is well known and has long been used to 
attribute costs to specific products, the Commission will substitute 
that term for start-up, administrative, and ancillary costs. The 
requirement to report product specific costs is intended to reflect 
those costs unique to market tests before and after implementation of 
such tests.
    Final rule 3035.20(a) requires the Postal Service to track 
attributable costs incurred in conducting the market test, including 
product specific costs related to the administration of the market 
test. The Commission observes that examples of the product specific 
costs required by rule 3035.20(a) can be found in other proceedings. 
For example, in Docket No. R2013-6, the Postal Service stated that the 
costs of implementing the Technology Credit Promotion included the cost 
of implementing software changes in the PostalOne! system, as well as 
customer support and headquarters administrative costs.\27\ These costs 
are examples of product specific costs related to the administration of 
the Technology Credit Promotion. They are the types of product specific 
costs related to the administration of a market test that must be 
reported under rule 3035.20.
---------------------------------------------------------------------------

    \27\ Docket No. R2013-6, Responses of the United States Postal 
Service to Chairman's Information Request No. 1, May 7, 2013, 
question 4.
---------------------------------------------------------------------------

b. Data Collection Plans and Reports
    The Public Representative argues that the proposed rules do not 
clearly distinguish between the requirements for the data collection 
plan and data collection reports. PR Comments at 15. She suggests that 
rule 3035.3 regarding the contents of the notice set forth expectations 
for the data collection plan. Id. She recommends that rule 3035.20 set 
forth requirements for the data collection reports. Id. at 15-16. Her 
suggested revisions to rule 3035.20 include requiring data collection 
reports to be filed no more than 40 days after the close of each fiscal 
quarter during which the market test is offered. Id., Appendix A at 10. 
She proposes adding

[[Page 54561]]

a requirement that the Postal Service report volumes of the 
experimental product by fiscal quarter. Id.
    The Postal Service objects to the Public Representative's 
suggestion that data collection reports be filed no more than 40 days 
from the end of the preceding quarter. It argues that the Commission 
should preserve the flexibility reflected in the proposed rule. Postal 
Service Reply Comments at 12. The Postal Service takes no position on 
the Public Representative's suggestion that data collection reports 
also include volume figures.
    The Commission agrees that the distinction between data collection 
plans and data collection reports in the proposed rules is unclear, and 
the revised rules clarify these terms. As discussed above, revised rule 
3035.3(a)(2)(vi) requires notices of proposed market tests to include a 
data collection plan, which is a plan for monitoring the performance of 
a market test. See Section IV.A.1.d. The Commission modifies rule 
3035.20(a) to reiterate this requirement and list the specific items 
that must be included in the data collection plan. These items will 
also include volumes of the experimental product by fiscal quarter, as 
suggested by the Public Representative. This requirement is consistent 
with Commission orders in past market tests and thus codifies present 
Commission practice.\28\ Rule 3035.20(d) requires the Postal Service to 
file the information required by the data collection plan in the data 
collection reports.
---------------------------------------------------------------------------

    \28\ See, e.g., Docket No. MT2013-2, Order No. 1806, Order 
Authorizing Market Test to Proceed and Granting Extension, August 
12, 2013, at 5; Docket No. MT2013-1, Order No. 1539, Order Approving 
Metro Post Market Test, November 14, 2012, at 12.
---------------------------------------------------------------------------

    The Commission declines to adopt the Public Representative's 
suggestion concerning the timing of data collection reports. In 
general, the Postal Service must file data collection reports no more 
than 40 days after the close of each fiscal quarter during which the 
market test is offered. However, in some cases the Commission may find 
it appropriate to prescribe a reporting deadline other than 40 days if 
circumstances warrant. The final rules provide the Commission that 
flexibility.

B. Rules With Non-Substantive Changes

    The Public Representative suggests several non-substantive 
stylistic and editorial changes to the rules. PR Comments at 1; see 
Appendix A. The Postal Service does not comment on these suggestions. 
As set forth below, the Commission adopts the following non-substantive 
stylistic and editorial changes suggested by the Public Representative 
(in addition to others) to promote consistency and clarity in the 
rules:
     Rule 3001.5(v) contains style revisions to conform to 
official publication requirements.
     Rule 3035.1 contains a minor editorial revision.
     Rule 3035.3 was renumbered to conform to official 
publication requirements. In addition, rule 3035.3 contains minor 
editorial revisions.
     Rules 3035.4 and 3035.5 contain style revisions and 
renumbered sections to conform to official publication requirements.
     Rule 3035.10 contains a style revision to conform to 
official publication requirements.
     Rule 3035.11 contains a style revision to conform to 
official publication requirements and minor editorial changes.
     Rule 3035.12 contains style revisions to conform to 
official publication requirements.
     Rule 3035.15 contains style revisions to conform to 
official publication requirements.
     Rule 3035.16 contains style revisions to conform to 
official publication requirements.
     Rule 3035.17 contains style revisions to conform to 
official publication requirements.
     Rule 3035.18 adds subsections to incorporate new 
provisions.
     Rule 3035.20 contains a style revision to conform to 
official publication requirements.

C. Other Issues

1. Definitions
    The Public Representative contends that the Commission should 
clarify several ambiguous terms in the proposed rules. PR Comments at 
2. She recommends defining market disruption rather than referencing 39 
U.S.C. 3641(b)(2). Id. at 3. She argues that a phrase (unfair or 
otherwise inappropriate competitive advantage) should be clarified in 
the rules. Id. She asserts that because the Commission explained the 
concept of unfair competitive advantage in Order No. 1739 (concerning 
the proposed rules applicable to 39 U.S.C. 404a), the Commission should 
use its prior analysis to develop a clear definition of the phrase 
unfair or otherwise inappropriate competitive advantage.\29\
---------------------------------------------------------------------------

    \29\ Id. at 4; see Docket No. RM2013-4, Notice of Proposed 
Rulemaking Establishing Rules Pursuant to 39 U.S.C. 404a, June 5, 
2013 (Order No. 1739).
---------------------------------------------------------------------------

    The Public Representative also recommends defining the term 
geographic market. PR Comments at 4. Citing Black's Law Dictionary and 
federal statutes, she defines the relevant geographic market as an area 
of effective competition or the locale in which consumers of a product 
or service can turn for alternative sources of supply. Id. at 4-5. She 
argues that the Commission should follow this approach when it (1) 
evaluates whether the market test creates an unfair or otherwise 
inappropriate competitive advantage and (2) limits revenues in a 
geographic market to abate anticompetitive behavior. Id. at 5.
    In addition, the Public Representative recommends defining several 
other terms: CPI-U index, experimental product, market test, and unfair 
or otherwise inappropriate competition. Id. at 6. She suggests placing 
these terms in a separate definitions section in part 3035, which would 
also include the definition of small business concern. Id. at 5-6. She 
notes that the term small business concern is also used in 39 CFR part 
3020 and suggests amending part 3020 to add a cross-reference to the 
definition of small business concern in part 3035. Id. at 6-7.
    The Postal Service argues that a detailed and technically precise 
definition of the term market disruption may be difficult to achieve in 
the abstract given the narrow purpose of the market test policy 
guidelines and the fact-specific nature of determining market 
disruption under 39 U.S.C. 3641(b)(2). Postal Service Reply Comments at 
10-11. It encourages the Commission to proceed by viewing each market 
test on a case-by-case basis without pre-determined constraints that 
could stifle the investigation of potential product concepts and 
product innovation. Id. at 11.
    The Postal Service questions whether a prophylactic rule can be 
drafted to define the term geographic market relevant to every market 
test. Id. at 2. It notes that relevant factors include the types and 
numbers and proximity of available channels through which postal 
customers can access an experimental product. Id. It prefers that the 
Commission not establish a definition for geographic market based 
solely on its limited experience with market tests. Id.
    The Commission finds it unnecessary to define additional terms at 
this time. The market test rules are designed to increase flexibility 
and to facilitate a more entrepreneurial approach to product 
development. See Senate Report at 16. To that end, 39 U.S.C. 3641 
envisions a relatively simple process for the Postal Service to engage 
in experimental market tests. Three

[[Page 54562]]

conditions must be satisfied: (1) The experimental product must be 
significantly different from all Postal Service products offered within 
the past two fiscal years; (2) the introduction or continued offering 
of the experimental product will not provide an unfair or otherwise 
inappropriate competitive advantage for the Postal Service or any 
mailer; and (3) the Postal Service identifies the experimental product 
as either market dominant or competitive. 39 U.S.C. 3641(b). While the 
term market disruption is defined in 39 U.S.C. 3641(b)(2), each market 
test raises fact-specific inquiries that militate against attempting to 
define terms such as geographic market and unfair or otherwise 
inappropriate competitive advantage in a vacuum.
    The Commission finds that the best course of action is to proceed 
on a case-by-case basis to evaluate these terms. In discussing the 
benefits of adjudication of statutory standards on a case-by-case 
basis, the Supreme Court noted that not every principle essential to 
administering a statute can or should be turned into a general 
rule.\30\ For several reasons, some principles must develop on their 
own, while others must be adjusted to meet particular, unforeseeable 
situations. Id. First, problems may arise in a case an agency could not 
reasonably foresee. Id. Those problems must be solved without a 
relevant general rule. Id. Second, an agency may not have had 
sufficient experience with a particular problem to justify creating a 
hard and fast rule. Id. Third, a problem may be so specialized and 
different that it cannot be solved within the boundaries of a general 
rule. Id. at 203. In those situations, an agency must retain the 
authority to address problems on a case-to-case basis if the 
administrative process is to be effective. Id.
---------------------------------------------------------------------------

    \30\ Securities and Exchange Comm'n v. Chenery Corp., 332 U.S. 
194, 202 (1947).
---------------------------------------------------------------------------

    As a result of these considerations, the Supreme Court concluded 
that the choice between proceeding by general rule or individual order 
lies primarily in the informed discretion of the agency. Id. For 
purposes of these market test rules, the Commission declines to define 
geographic market and unfair or otherwise inappropriate competitive 
advantage in the rules. It will consider each market test on its own 
merits, including whether it causes an unfair or otherwise 
inappropriate competitive advantage for the Postal Service or any 
mailer.
    As the Public Representative suggests, in Order No. 1739, the 
Commission did outline in general terms how it might evaluate or 
consider allegations of unfair competition by the Postal Service under 
section 404a. In Order No. 1739, the Commission stated that it would 
apply analogous federal precedent concerning claims of unfair 
competition to adjudicate claims under 39 U.S.C. 404a(a)(1). Order No. 
1739 at 8. The Commission noted that federal claims of unfair 
competition are reviewed under the rule of reason analysis, which 
focuses on whether the behavior unreasonably restricts competition. Id. 
at 7. In making such a determination, the decision maker reviews the 
anticompetitive effects of the action, which must harm the competitive 
process and harm consumers. Id. Harm to one or more competitors will 
not suffice. Id. While unnecessary to define the term unfair or 
otherwise inappropriate competitive advantage for purposes of these 
rules, the Commission undoubtedly will be guided by analogous precedent 
concerning claims of unfair competition when reviewing specific market 
tests.
    As discussed above, the Commission adopts the definition of small 
business concern with minor style revisions and places that definition 
in 39 CFR 3001.5. See Section IV.A.1.b. The Commission declines to 
adopt the Public Representative's proposals to place that term in a 
separate definitions section in 39 CFR part 3035 and add a cross-
reference to that definition in 39 CFR part 3020. The Public 
Representative correctly observes that the term is also used in 39 CFR 
part 3020. However, adopting the Public Representative's suggestions 
would require amending part 3020. Leaving the term in section 3001.5 
ensures that the definition applies to all parts of title 39 of the 
Code of Federal Regulations (CFR) administered by the Commission, 
including parts 3020 and 3035.
2. Deadlines
    The Public Representative suggests adding a rule to 39 CFR part 
3035 if the Commission plans to waive deadlines of rules related to 
market tests. PR Comments at 2. She notes that in several recent market 
test proceedings, the Commission waived the 60 day statutory deadline 
for requesting extensions of market tests. Id.; see 39 U.S.C. 
3641(d)(2). The Postal Service does not comment on this suggestion.
    The Commission declines to adopt the Public Representative's 
suggestion regarding deadlines. The Commission reiterates the 
importance of filing by the appropriate deadlines required under 39 
U.S.C. 3641 and the Commission's market test rules. All future filings 
must be submitted in conformance with the applicable deadline. Future 
requests for waivers of deadlines will be assessed on a case-by-case 
basis. However, the Postal Service should not assume that waivers will 
be granted absent exceptional circumstances.\31\
---------------------------------------------------------------------------

    \31\ See Docket No. MT2011-2, Order No. 1781, Order Granting 
Extension of Gift Card Market Test, July 19, 2013, at 3; Docket No. 
MC2014-26, Order No. 2145, Order Granting Request to Add Gift Cards 
to the Competitive Product List, August 8, 2014, at 15.
---------------------------------------------------------------------------

V. Ordering Paragraphs

    It is ordered:
    1. Part 3001 of title 39, Code of Federal Regulations, is amended 
as set forth below the signature of this Order, effective 30 days after 
publication in the Federal Register.
    2. Part 3035 of title 39, Code of Federal Regulations, is adopted 
as set forth below the signature of this Order, effective 30 days after 
publication in the Federal Register.
    3. The Secretary shall arrange for publication of this order in the 
Federal Register.

List of Subjects

39 CFR Part 3001

    Administrative practice and procedure; Freedom of information; 
Postal Service; Sunshine Act.

39 CFR Part 3035

    Administrative practice and procedure; Postal Service.

    For the reasons discussed in the preamble, the Commission amends 
chapter III of title 39 of the Code of Federal Regulations as follows:

PART 3001--RULES OF PRACTICE AND PROCEDURE

0
1. The authority citation for part 3001 continues to read as follows:

    Authority: 39 U.S.C. 404(d); 503; 504; 3661.


0
2. In Sec.  3001.5, add paragraph (v) to read as follows:


Sec.  3001.5  Definitions.

* * * * *
    (v) Small business concern means a for-profit business entity that:
    (1) Is independently owned and operated;
    (2) Is not dominant in its field of operation;
    (3) Has a place of business located in the United States;
    (4) Operates primarily within the United States or makes a 
significant contribution to the United States economy by paying taxes 
or using American products, materials, or labor; and

[[Page 54563]]

    (5) Together with its affiliates, qualifies as small in its primary 
industry under the criteria and size standards established by the Small 
Business Administration in 13 CFR 121.201 based on annual receipts or 
number of employees.

0
3. Add part 3035 to read as follows:

PART 3035--RULES FOR MARKET TESTS OF EXPERIMENTAL PRODUCTS

Sec.
3035.1 Applicability.
3035.2 Advance notice.
3035.3 Contents of notice.
3035.4 Review.
3035.5 Commission action.
3035.6 Changes in market test.
3035.7-3035.9 [Reserved]
3035.10 Duration.
3035.11 Extension of market test.
3035.12 Cancellation of market test.
3035.13-3035.14 [Reserved]
3035.15 Dollar amount limitation.
3035.16 Exemption from dollar amount limitation.
3035.17 Prevention of market disruption.
3035.18 Filing for permanent product status.
3035.19 [Reserved]
3035.20 Data collection and reporting requirements.

    Authority: 39 U.S.C. 3641.


Sec.  3035.1  Applicability.

    The rules in this part apply to market tests of experimental 
products undertaken pursuant to 39 U.S.C. 3641.


Sec.  3035.2  Advance notice.

    The Postal Service shall file notice with the Commission of its 
determination to initiate a market test at least 30 days before 
initiating the market test.


Sec.  3035.3  Contents of notice.

    (a) Notices of proposed market tests shall include:
    (1) The basis for the Postal Service's determination that the 
market test is governed by 39 U.S.C. 3641, which shall:
    (i) Describe, from the viewpoint of mail users, how the 
experimental product is significantly different from all products 
offered by the Postal Service within the 2 fiscal years preceding the 
start of the market test;
    (ii) Establish that the introduction or continued offering of the 
experimental product will not create an unfair or otherwise 
inappropriate competitive advantage for the Postal Service or any 
mailer, particularly in regard to small business concerns, as defined 
in Sec.  3001.5(v) of this chapter; and
    (iii) Identify the experimental product as either market dominant 
or competitive for purposes of the market test, and explain the 
reasoning for the categorization in accordance with the criteria set 
forth in 39 U.S.C. 3642(b)(1).
    (2) A description of the nature and the scope of the market test 
that:
    (i) Describes the market test and experimental product;
    (ii) Demonstrates why the market test is not inconsistent with the 
requirements of 39 U.S.C. 3641;
    (iii) Identifies the beginning and ending dates of the market test;
    (iv) Describes the geographic market(s) where the market test may 
be conducted;
    (v) Estimates the total revenue that is anticipated by the Postal 
Service for each fiscal year of the market test, including available 
supporting documentation; and
    (vi) Includes a data collection plan for the market test, including 
a description of the specific data items to be collected. The minimum 
data collection plan requirements are described in Sec.  3035.20.


Sec.  3035.4  Review.

    (a) The Commission will establish a docket for each market test 
initiated under this part, promptly publish a notice in the Federal 
Register, and post the filing on its Web site. The notice shall:
    (1) Describe the general nature of the proceeding;
    (2) Refer to the legal authority under which the proceeding is to 
be conducted;
    (3) Identify an officer of the Commission to represent the 
interests of the general public in the docket;
    (4) Specify a period for public comment; and
    (5) Include such other information as the Commission deems 
appropriate.
    (b) [Reserved]


Sec.  3035.5  Commission action.

    (a) The Commission shall review the Postal Service notice together 
with any comments for initial compliance with the statutory 
requirements of 39 U.S.C. 3641, and:
    (1) Find that the market test is consistent with the requirements 
of 39 U.S.C. 3641;
    (2) Find that the market test is inconsistent with the requirements 
of 39 U.S.C. 3641 and provide an opportunity to correct the identified 
deficiencies;
    (3) Find that the market test is inconsistent with the requirements 
of 39 U.S.C. 3641 and order that the market test not go into effect; or
    (4) Direct other action as the Commission may consider appropriate.
    (b) [Reserved]


Sec.  3035.6  Changes in market test.

    (a) The Postal Service shall file a notice with the Commission 
describing each material change made to the market test or services 
offered under the market test at least 10 days before implementing such 
changes. Material changes are changes that may affect compliance with 
39 U.S.C. 3641 and include, without limitation, adjustments to prices, 
geographic scope, eligibility for service, and termination date.
    (b) The Commission may, in its discretion, notice the filing and 
provide an opportunity for comment.


Sec. Sec.  3035.7-3035.9  [Reserved].


Sec.  3035.10  Duration.

    A market test may not exceed 24 months in duration unless the 
Commission authorizes an extension pursuant to a request filed by the 
Postal Service under Sec.  3035.11.


Sec.  3035.11  Extension of market test.

    (a) The Postal Service may request an extension of the duration of 
a market test, not to exceed an additional 12 months, if such an 
extension is necessary to determine the feasibility or desirability of 
a product being tested. The Postal Service must file a written request 
for extension with the Commission at least 60 days before the market 
test is scheduled to terminate.
    (b) The request for extension shall:
    (1) Explain why an extension is necessary to determine the 
feasibility or desirability of the experimental product;
    (2) List the new end date for the market test;
    (3) Calculate the total revenue received by the Postal Service from 
the market test for each fiscal year the market test has been in 
operation and provide supporting documentation for the calculations;
    (4) Estimate the additional revenue that is anticipated by the 
Postal Service for each fiscal year remaining on the market test, 
including the requested extension period, and provide available 
supporting documentation; and
    (5) Provide any additional information necessary for the Commission 
to evaluate the continued consistency with the requirements of 39 
U.S.C. 3641.
    (c) The Commission shall review the Postal Service request for 
extension to ensure that an extension is necessary in order to 
determine the feasibility or desirability of the experimental product 
and:
    (1) Find that the extension is consistent with the requirements of 
39 U.S.C. 3641;
    (2) Find that the extension is inconsistent with the requirements 
of 39

[[Page 54564]]

U.S.C. 3641 and provide an opportunity to correct the identified 
deficiencies;
    (3) Find that the extension is inconsistent with the requirements 
of 39 U.S.C. 3641 and deny the extension; or
    (4) Direct other action as the Commission considers appropriate.


Sec.  3035.12  Cancellation of market test.

    (a) The Postal Service may cancel a market test at any time. It 
shall file notice of cancellation with the Commission within 10 days of 
cancelling the market test.
    (b) Pursuant to 39 U.S.C. 3641(f), the Commission may direct the 
Postal Service to demonstrate that the market test continues to meet 
the requirements of 39 U.S.C. 3641 and the Commission's rules. The 
Commission, in its discretion, may provide an opportunity for comments.
    (c) Based upon its review, the Commission may:
    (1) Find that the market test is consistent with the requirements 
of 39 U.S.C. 3641;
    (2) Find that the market test is inconsistent with the requirements 
of 39 U.S.C. 3641 and provide an opportunity to correct the identified 
deficiencies;
    (3) Find that the market test is inconsistent with the requirements 
of 39 U.S.C. 3641 and cancel the market test; or
    (4) Direct other action as the Commission may consider appropriate.


Sec. Sec.  3035.13-3035.14  [Reserved]


Sec.  3035.15  Dollar amount limitation.

    (a) The Consumer Price Index used for calculations under this part 
is the CPI-U index, as specified in Sec. Sec.  3010.21(a) and 
3010.22(a) of this chapter.
    (b) An experimental product may only be tested if total revenues 
that are anticipated or received by the Postal Service do not exceed 
$10,000,000 in any fiscal year, as adjusted for the change in the CPI-U 
index, as specified in paragraph (d) of this section ($10 Million 
Adjusted Limitation). Total revenues anticipated or received may exceed 
the $10 Million Adjusted Limitation in any fiscal year if an exemption 
is granted pursuant to Sec.  3035.16.
    (c) For each fiscal year, the $10 Million Adjusted Limitation shall 
reflect the average CPI result during the previous fiscal year 
calculated as described in paragraph (d) of this section. The 
Commission shall publish this figure annually, after the close of the 
fiscal year, on its Web site at http://www.prc.gov.
    (d) The calculation of the $10 Million Adjusted Limitation involves 
the following steps. First, a simple average CPI-U index was calculated 
for fiscal year 2008 by summing the monthly CPI-U values from October 
2007 through September 2008 and dividing the sum by 12 (Base Average). 
The resulting Base Average is 214.5. Then, a second simple average CPI-
U index is similarly calculated for each subsequent fiscal year by 
summing the 12 monthly CPI-U values for the previous fiscal year and 
dividing the sum by 12 (Recent Average). Finally, the annual limitation 
for the current fiscal year is calculated by multiplying $10,000,000 by 
the Recent Average divided by 214.5. The result is expressed as a 
number, rounded to the nearest dollar.
    (e) The formula for calculating the $10 Million Adjusted Limitation 
is as follows: $10 Million Adjusted Limitation = $10,000,000 * (Recent 
Average/214.5).


Sec.  3035.16  Exemption from dollar amount limitation.

    (a) The Postal Service may request an exemption from the $10 
Million Adjusted Limitation by filing a written request with the 
Commission. In no instance shall the request for exemption exceed the 
market test dollar amount limitation of $50,000,000 in any fiscal year, 
as adjusted for the change in the CPI-U index, as specified in 
paragraph (c) of this section ($50 Million Adjusted Limitation).
    (b) For each fiscal year, the $50 Million Adjusted Limitation shall 
reflect the average CPI result during the previous fiscal year 
calculated as described in paragraph (c) of this section. The 
Commission shall publish this figure annually, after the close of the 
fiscal year, on its Web site at http://www.prc.gov.
    (c) The calculation of the $50 Million Adjusted Limitation involves 
the following steps. First, a simple average CPI-U index was calculated 
for fiscal year 2008 by summing the monthly CPI-U values from October 
2007 through September 2008 and dividing the sum by 12 (Base Average). 
The resulting Base Average is 214.5. Then, a second simple average CPI-
U index is similarly calculated for each subsequent fiscal year by 
summing the 12 monthly CPI-U values for the previous fiscal year and 
dividing the sum by 12 (Recent Average). Finally, the annual limitation 
for the current fiscal year is calculated by multiplying $50,000,000 by 
the Recent Average divided by 214.5. The result is expressed as a 
number, rounded to the nearest dollar.
    (d) The formula for calculating the $50 Million Adjusted Limitation 
is as follows: $50 Million Adjusted Limitation = $50,000,000 * (Recent 
Average/214.5).
    (e) The Postal Service shall file its request for exemption at 
least 45 days before it expects to exceed the $10 Million Adjusted 
Limitation.
    (f) The request for exemption shall:
    (1) Explain how the experimental product will:
    (i) Benefit the public and meet an expected demand;
    (ii) Contribute to the financial stability of the Postal Service; 
and
    (iii) Not result in unfair or otherwise inappropriate competition;
    (2) Calculate the total revenue received by the Postal Service from 
the market test for each fiscal year the market test has been in 
operation, and provide supporting documentation;
    (3) Estimate the additional revenue that is anticipated by the 
Postal Service for each fiscal year remaining on the market test, 
including any extension period granted by the Commission in accordance 
with Sec.  3035.11(c), and provide available supporting documentation; 
and
    (4) Quantify the product specific costs associated with the 
development of the market test; that is, costs incurred before the 
market test is implemented.
    (g) The Commission shall review the request for exemption for 
consistency with the statutory requirements of 39 U.S.C. 3641 and:
    (1) Find that the exemption is consistent with the requirements of 
39 U.S.C. 3641;
    (2) Find that the exemption is inconsistent with the requirements 
of 39 U.S.C. 3641 and provide an opportunity to correct the identified 
deficiencies;
    (3) Find that the exemption is inconsistent with the requirements 
of 39 U.S.C. 3641 and deny the exemption; or
    (4) Direct other action as the Commission may consider appropriate.


Sec.  3035.17  Prevention of market disruption.

    Notwithstanding the $10 Million Adjusted Limitation or any 
adjustment granted pursuant to Sec.  3035.16, the Commission may limit 
the amount of revenues the Postal Service may obtain from any 
particular geographic market as necessary to prevent the creation of an 
unfair or otherwise inappropriate competitive advantage for the Postal 
Service or any mailer, particularly in regard to small business 
concerns, as defined in Sec.  3001.5(v) of this chapter.


Sec.  3035.18  Filing for permanent product status.

    (a) If the Postal Service determines to make an experimental 
product permanent, it shall file a request, pursuant to 39 U.S.C. 3642 
and part

[[Page 54565]]

3020, subpart B of this chapter, to add a new product or price category 
to the market dominant or competitive product list. Requests to make 
existing experimental products permanent must be filed at least 60 days 
before the market test expires (including any extension period granted) 
or the market test exceeds any authorized adjusted limitation in any 
fiscal year, whichever is earlier.
    (b) A request to make an experimental product permanent must, among 
other things, quantify the product specific costs associated with the 
development of the market test; that is, costs incurred before the 
market test is implemented.
    (c) The Postal Service shall also file a notice of its request to 
make an experimental product permanent in the market test proceeding's 
docket. The notice shall include the applicable docket number(s) for 
the proceeding evaluating the request.


Sec.  3035.19  [Reserved]


Sec.  3035.20  Data collection and reporting requirements.

    (a) A notice of a market test shall include a data collection plan 
for the market test as required by Sec.  3035.3(a)(2)(vi). Data 
collection plans shall include, at a minimum:
    (1) The revenue by fiscal quarter received to date by the Postal 
Service from the market test;
    (2) Attributable costs incurred in conducting the market test, 
including product specific costs related to the administration of the 
market test; and
    (3) Volumes of the experimental product by fiscal quarter.
    (b) The Commission may request additional information or data as it 
deems appropriate.
    (c) To assess the potential impact of a market test in a particular 
geographic market, the Commission may require the Postal Service to 
report the revenues from the market test for specified geographic 
markets.
    (d) The Postal Service shall file the information required by the 
data collection plan in data collection reports. Data collection 
reports must be filed within 40 days after the close of each fiscal 
quarter during which the market test is offered, or such other period 
as the Commission may prescribe.
    (e) The Postal Service shall file in its Annual Compliance Report 
information on each market test conducted during the fiscal year 
pursuant to Sec.  3050.21(h) of this chapter.

    By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2014-21689 Filed 9-10-14; 8:45 am]
BILLING CODE 7710-FW-P