[Federal Register Volume 81, Number 75 (Tuesday, April 19, 2016)]
[Notices]
[Pages 23017-23021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09038]


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POSTAL REGULATORY COMMISSION

[Docket No. PI2016-3; Order No. 3238]


Public Inquiry on Commission Report to the President and Congress

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission is establishing a public inquiry to receive 
comments regarding the Commission's second report to the President and 
Congress pursuant to section 701 of the Postal Accountability and 
Enhancement Act. This notice informs the public of this proceeding, 
invites public comment, and takes other administrative steps.

DATES: Comments are due: June 14, 2016.

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

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

SUPPLEMENTARY INFORMATION:

I. Introduction
II. Legal Requirements and Background
III. Areas of Interest
IV. Conclusion
V. Ordering Paragraphs

I. Introduction

    The Commission establishes Docket No. PI2016-3 for the purpose of

[[Page 23018]]

obtaining public comment on its second report to the President and 
Congress pursuant to section 701 of the Postal Accountability and 
Enhancement Act of 2006.\1\
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    \1\ Postal Accountability and Enhancement Act (PAEA), Public Law 
109-435, 120 Stat. 3198 (2006), section 701.
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II. Legal Requirements and Background

A. Statutory Requirements

    Under the PAEA, the Commission is required at least every 5 years 
to submit a report to the President and Congress concerning (1) the 
operation of the amendments made by this Act; and (2) recommendations 
for any legislation or other measures necessary to improve the 
effectiveness or efficiency of the postal laws of the United States.
    PAEA section 701(a). Before submitting the ``701 Report,'' the 
Commission must afford the Postal Service a reasonable opportunity to 
review the report and submit written comments. PAEA section 701(b).

B. 2011 Report

    In 2011, the Commission submitted its first section 701 report.\2\ 
The 2011 Report focused on three main areas involved with the 
implementation of the PAEA: (1) The Postal Service's financial 
condition; (2) rate and service matters; and (3) improvements to 
Commission processes. 2011 Report at 1-2.
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    \2\ Postal Regulatory Commission, Section 701 Report, Analysis 
of the Postal Accountability and Enhancement Act of 2006, September 
22, 2011 (2011 Report).
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    In its review of the Postal Service's financial condition, the 
Commission recommended that Congress adjust the Postal Service Retiree 
Health Benefit Fund and suggested several alternative payment options 
intended to alleviate Postal Service liquidity issues. Id. at 21-25. 
The 2011 Report also discussed the Postal Service's annual financial 
reporting requirements and Sarbanes-Oxley Act compliance, finding that 
the PAEA requirements resulted in improved transparency and greater 
cost savings. Id. at 25-27.
    The 2011 Report also included several recommendations regarding 
rate and service matters. First, the Commission recommended that the 
PAEA be amended to allow the Postal Service to add new market dominant 
classes of mail. Id. at 44. Second, the 2011 Report recommended that if 
Congress chose to allow the Postal Service to introduce new nonpostal 
services, it should include adequate safeguards to reduce the potential 
for the introduction of unprofitable products. Id. at 50. The 
Commission suggested that new nonpostal products be subject to review 
under 39 U.S.C. 404(e)(3), the same regulatory review applied to 
determining whether to ``grandfather'' a nonpostal service. Id. 
Although the Commission found that the PAEA constraints on market tests 
were effective and not unduly burdensome, the 2011 Report included as 
its third recommendation that Congress consider raising the maximum 
revenue limitation on experimental market test products to further 
bolster Postal Service revenue streams. Id. at 70. Fourth, the 
Commission recommended that Congress clarify the PAEA to require the 
Postal Service to consult with the Commission not only in establishing 
service standards for market dominant products, but also when seeking 
to change existing service standards. Id. at 64-65. The Commission did 
not recommend any changes to existing procedures for price adjustments 
and indicated that it had not vetted this concept, stating that 
Congress should consider allowing the Postal Service increased pricing 
flexibility based on improvements to quality of service. Id. at 40. The 
Commission stated that service quality pricing authority would create 
``an incentive for the Postal Service to increase the service 
performance of its products.'' Id.
    Finally, the Commission made three major recommendations aimed at 
developing enhancements to improve Commission processes. The first was 
a recommendation that Congress require the Postal Service to provide 
the Commission regular reports on retail network plans and activities. 
Id. at 77. The second recommendation was to clarify the scope of the 
Commission's appellate review of post office closings, including a 
definition of ``post office'' that would encompass all Postal Service-
operated retail facilities. Id. at 77-78. The third recommendation was 
that Congress consider providing statutory language allowing the Postal 
Service expedited consideration of requests for advisory opinions by 
the Commission.\3\
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    \3\ Id. at 83-84. As noted below in section III.H, the 
Commission amended its internal procedures for considering requests 
for advisory opinions in 2014. See Docket No. RM2012-4.
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    Since submitting its 2011 Report, the Commission has benefitted 
from its additional years of experience implementing the provisions of 
the PAEA. The Commission also recognizes the value of input from public 
stakeholders on matters concerning the operation of the provisions of 
the PAEA and ideas for legislative reform. Accordingly, the Commission 
invites public comment for consideration in preparing the upcoming 701 
Report.

III. Areas of Interest

    The requirements of section 701 allow the Commission significant 
discretion when providing recommendations to the President and 
Congress. The Commission is thus empowered to consider the PAEA 
amendment generally, as well as provide any appropriate recommendations 
related to the operations of the amendment.
    However, to assist the public in focusing its comments and in 
furtherance of the Commission's mission of enhancing transparency and 
accountability of the Postal Service, the Commission has identified 
several topics that were either highlighted in the 2011 Report and not 
yet resolved, or the Commission has identified as potential areas of 
interest. Interested parties are invited to comment on any of the 
issues listed below, as well as any other pertinent areas related to 
the operation of PAEA amendments.

A. Postal Service Financial Situation

    Despite a slight improvement in its liquidity from 2014, the Postal 
Service continues to face significant financial challenges ahead. In 
its initial 701 Report issued in 2011, the Commission made several 
recommendations aimed at strengthening the Postal Service's financial 
situation. 2011 Report at 2-3. Subsequent to the 701 Report, the 
Commission issued reports highlighting the Postal Service's continued 
financial struggles.\4\ In its most recent review, the Commission found 
fundamental balance sheet issues with the Postal Service and made 
several additional findings.\5\
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    \4\ See, e.g., Postal Regulatory Commission, Analysis of the 
United States Postal Service Financial Results and 10-K Statement 
for Fiscal Year 2014, Revised April 10, 2014.
    \5\ Postal Regulatory Commission, Analysis of the United States 
Postal Service Financial Results and 10-K Statement, March 29, 2016, 
at 3-4 (FY 2015 Financial Report).
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    In sum, while the Postal Service's cash position is at the highest 
level since Fiscal Year (FY) 2007, significant balance sheet 
liabilities and off-balance sheet unfunded liabilities for pension and 
annuitant health benefits threaten the improvements in liquidity. See 
FY 2015 Financial Report at 3. In addition to requesting comments tied 
to specific parts of the PAEA as outlined below, the Commission also 
welcomes any comments or suggestions about provisions of the PAEA that 
impact the overall financial position of the Postal Service as 
described above.

[[Page 23019]]

B. Market Dominant Rate System

    Perhaps chief among the amendments of the PAEA are the provisions 
on the establishment of a modern system for regulating rates and 
classes for market dominant products. See 39 U.S.C. 3622. Although this 
system is subject to a 10-year review pursuant to 39 U.S.C. 3622(d)(3), 
the 701 Report also contemplates reviewing this system. The Commission 
promulgates regulations with respect to this system of regulating rates 
and classes for market dominant products in accordance with PAEA 
directives. See 39 CFR 3010. Issues for consideration in the 701 Report 
might include: The financial success of the ratemaking system; 
challenges faced as a result of the system; a review of rate 
adjustments; mail classification; or compliance with the Sarbanes-Oxley 
Act. Recent rate case dockets include market dominant price 
adjustments,\6\ as well as an exigent rate adjustment.\7\ Given these 
dockets, the Commission welcomes comments on the effectiveness and 
challenges of the current market dominant rate system administered by 
the Commission.\8\
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    \6\ See, e.g., Docket Nos. R2016-2 and R2015-4.
    \7\ See Docket No. R2013-11.
    \8\ For a discussion of negotiated service agreements for both 
market dominant and competitive products, see section III.D below.
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    One potential area of interest associated with the market dominant 
rate system is worksharing. Workshare discounts provide reduced rates 
for mailers based on the costs avoided as a result of the mailer 
performing an activity that would otherwise be performed by the Postal 
Service. Under the PAEA, the Commission must review workshare discounts 
to ensure that the discounts do not exceed the Postal Service's avoided 
costs, subject to limited exceptions. 39 U.S.C. 3622(e)(2). Legally, 
workshare discounts are only bound by this ceiling; the Postal Service 
is not bound by this provision to increase a workshare discount that is 
less than avoided costs. A discussion of noncompliant workshare 
discounts is typically included in the Commission's Annual Compliance 
Determination (ACD).\9\
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    \9\ See, e.g., Docket No. ACR2014, Annual Compliance 
Determination, March 27, 2015, at 8-32.
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    The Commission welcomes comments on the current operation of the 
provisions regarding workshare discounts, as well as insights on how 
the discounts and exceptions have functioned in practice.

C. Competitive Rate System

    The PAEA also tasks the Commission with the regulation of rates for 
competitive products. See 39 U.S.C. 3633. The Commission must ensure 
that market dominant products do not subsidize competitive products, 
that each competitive product covers its costs, and that competitive 
products collectively cover an appropriate share of institutional 
costs. Id. The current appropriate share is a minimum of 5.5 percent of 
the Postal Service's total institutional costs. 39 CFR 3015.7(c). The 
Commission uses this framework to evaluate Postal Service requests for 
changes in competitive product rates of general applicability.\10\ In 
2012, the Commission conducted its first review of the institutional 
costs contribution requirement.\11\ See 39 U.S.C. 3633(b). This review 
is to be conducted every 5 years. The Commission welcomes comments on 
the statutory framework for review of competitive product rates.
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    \10\ See, e.g., Docket No. CP2016-9, Order No. 2814, Order 
Approving Changes in Rates of General Applicability for Competitive 
Products, November 13, 2014.
    \11\ See Docket No. RM2012-3, Order No. 1449, Order Reviewing 
Competitive Products' Appropriate Share Contribution to 
Institutional Costs, August 23, 2012.
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    Section 703(a) of the PAEA required the Federal Trade Commission 
(FTC) to submit a comprehensive report identifying federal and state 
laws that apply differently to the Postal Service with respect to 
competitive products.\12\ The Commission seeks comment on the FTC 
Report's findings, including those regarding the postal and mailbox 
monopolies and the competitive products industry.
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    \12\ Federal Trade Commission, Accounting for Laws that Apply 
Differently to the United States Postal Service and Its Private 
Competitors: A Report by the Federal Trade Commission, December 2007 
(FTC Report) (available at https://www.ftc.gov/reports/accounting-laws-apply-differently-united-states-postal-service-its-private-competitors).
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D. Negotiated Service Agreements

    The Commission reviews negotiated service agreements (NSAs) for 
both competitive \13\ and market dominant products.\14\ NSAs for 
competitive products make up the overwhelming majority of all NSAs. The 
Commission reviews competitive NSAs to ensure: (1) That the competitive 
product is not subsidized by market dominant products; (2) that the NSA 
will cover its attributable costs; and (3) that competitive products as 
a whole cover an appropriate share of institutional costs. 39 U.S.C. 
3633. The Commission invites comments on the current legal requirements 
for NSAs.
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    \13\ See 39 CFR 3015.5.
    \14\ See 39 CFR 3010.40.
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E. Post Office Closing/Consolidation Procedures

    The Commission anticipates that its 701 Report will include a 
discussion of the procedures for appeals of Postal Service 
determinations to close or consolidate post offices. Under the PAEA, 
the Postal Service must consider, prior to closing or consolidating a 
post office, the effect on the community, the effect on its employees, 
economic savings, and consistency with a policy aimed toward providing 
a maximum degree of service to rural areas and communities. 39 U.S.C. 
404(d)(2). When considering a timely appeal, the Commission is required 
to set aside Postal Service determinations found to be arbitrary or 
capricious, without observance of procedure required by law, or 
unsupported by evidence on the record. 39 U.S.C. 404(d)(5). The 
Commission's rules governing these appeals are located at 39 CFR part 
3025.
    Docket No. PI2016-2 is a pending Commission proceeding concerning 
the scope of the Commission's authority to review certain Postal 
Service determinations of closings and consolidations. At issue is 
whether a relocation or rearrangement of postal services is subject to 
Commission review. Also at issue is whether the Commission has 
authority to review the closing of contract postal units.
    The Commission welcomes comments on the scope of the Commission's 
authority to review Postal Service determinations under the framework 
and procedures set forth in the PAEA for appeals of post office 
closings and consolidations.

F. Service Standards

    The PAEA required that the Postal Service, in consultation with the 
Commission, establish service standards for market dominant products. 
39 U.S.C. 3691(a). These standards and procedures are located at 39 CFR 
part 3055. The regulations outline the annual and periodic reporting of 
service performance achievements for each market dominant product. An 
assessment of service performance results for FY 2015 is included in 
the Commission's latest ACD.\15\
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    \15\ Docket No. ACR2015, Annual Compliance Determination, March 
28, 2016, at 94-146.
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    A public inquiry docket pertaining to improvements to service 
performance measurement data is currently pending before the 
Commission.\16\ The Commission recently updated its Web

[[Page 23020]]

site \17\ to provide service performance information to the public in a 
more readily accessible format. All service performance-related reports 
and dockets are available under a tab titled ``Reports/Data Service 
Reports.'' The Commission urges commenters to review background 
information on service standards and performance and welcomes comments 
on issues not already raised in Docket No. PI2016-1.
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    \16\ Docket No. PI2016-1, Order No. 2791, Notice Establishing 
Docket Concerning Service Performance Measurement Data, October 29, 
2015.
    \17\ The Commission's Web site is available at http://www.prc.gov.
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G. Nonpostal Services

    The PAEA revoked the Postal Service's authority to offer new 
nonpostal services. See 39 U.S.C. 404(e)(2). The Commission reviewed 
the Postal Service's existing nonpostal services and designated them 
market dominant, competitive, or experimental products, in accordance 
with 39 U.S.C. 404(e)(5). Currently, the Postal Service offers two 
market dominant nonpostal services and nine competitive nonpostal 
products.\18\ The Commission welcomes comments on issues related to 
nonpostal services, particularly, whether the Postal Service should be 
permitted to offer them in the future and, if so, whether and how the 
Commission should review new nonpostal services.
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    \18\ Mail Classification Schedule, sections 1700.2 and 2700.2.
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H. The Postal Service Fund and the Postal Service Competitive Products 
Fund

    The PAEA updated the guidelines for the Postal Service to utilize a 
separate Treasury fund to be made available for payment of costs 
attributable and allocable to competitive products, and for deposits of 
revenues and other receipts from competitive products (the Postal 
Service Competitive Products Fund, hereinafter ``Competitive Products 
Fund''). 39 U.S.C. 2011(a)(b). The Competitive Products Fund is 
intended to operate separately from the Postal Service Fund (Postal 
Fund). See 39 U.S.C. 2003. The Postal Service provides an annual report 
to the Secretary of the Treasury concerning the operation of the 
Competitive Products Fund. 39 U.S.C. 2011(h)(2)(D)(i). Reporting 
material is also filed with the Commission each year in the ACD. The 
Competitive Products Fund reporting information for FY 2015 is 
available on the Commission's Web site.\19\ The Commission invites 
comments on the operation of the Postal Fund and Competitive Products 
Fund to the extent they are not duplicative of matters raised within 
Docket No. RM2016-2.
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    \19\ Docket No. ACR2015, Library Reference USPS-FY15-39, 
December 29, 2015.
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    The Commission also reviews the Postal Service's annual calculation 
of the assumed Federal income tax on competitive products income 
pursuant to 39 U.S.C. 3634.\20\ The Commission's regulations require 
that the Postal Service develop a Competitive Products Income Statement 
for each fiscal year. 39 CFR 3060.21. The Commission reviews the 
calculation for compliance with Chapter 1 of the Internal Revenue Code. 
If the assumed taxable income from competitive products in a fiscal 
year is positive, the Postal Service must transfer the assumed Federal 
income tax amount to the Postal Service Fund no later than January 15 
of the following fiscal year. 39 CFR 3060.43(b). The Commission invites 
comments on the effectiveness of the requirements for the annual 
computation of the assumed Federal income tax on competitive products 
income.
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    \20\ 39 CFR 3060.42; see Docket No. T2016-1 and Docket No. 
T2015-1.
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I. Advisory Opinion Process

    Section 3661 of title 39 requires the Postal Service to seek an 
advisory opinion from the Commission whenever it determines that there 
should be a change in the nature of postal services which will 
generally affect service on a nationwide basis. In 2014, the Commission 
revised its rules of procedure for these advisory opinion requests, 
referred to as ``N-cases.'' \21\ The primary objective of the adoption 
of the Commission's new procedural rules was ``to establish a 
procedural framework in which advisory opinions could be issued within 
90 days of the filing of a Postal Service request.'' Order No. 2080 at 
6. The PAEA requires ``an opportunity for hearing on the record under 
sections 556 and 557 of title 5'' before the Commission issues an 
opinion. 39 U.S.C. 3661(c). Given this requirement, the revised rules 
preserve the opportunity for participants to request a formal hearing 
on Postal Service proposals.
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    \21\ Docket No. RM2012-4, Order Adopting Amended Rules of 
Procedure for Nature of Service Proceedings Under 39 U.S.C. 3661, 
May 20, 2014 (Order No. 2080).
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    Since the adoption of the new N-case procedural rules, the Postal 
Service has filed no request for an advisory opinion on the nature of 
postal services. Nevertheless, the Commission welcomes comments on the 
advisory opinion process, including the advisability of preserving the 
opportunity for a hearing on the record in the PAEA.

J. Market Tests

    The PAEA grants the Postal Service authority to conduct market 
tests of experimental products. 39 U.S.C. 3641(a). The Commission 
reviews market tests to ensure that: (1) The product is significantly 
different than all products offered by the Postal Service within the 
prior 2 years; (2) the product will not create an unfair competitive 
advantage for the Postal Service or any mailer; and (3) the Postal 
Service identifies the product as either market dominant or 
competitive. 39 U.S.C. 3641(b). The Commission also ensures compliance 
with the rules set forth at 39 CFR 3035. All notices of market tests 
must include a data collection plan including revenue, attributable 
costs, and volumes, but the Commission may request additional data as 
it deems appropriate. 39 CFR 3035.3. Market tests may not exceed 24 
months in duration, although the Postal Service may request an 
extension of no more than 12 months. 39 CFR 3035.10. Total anticipated 
revenues for a market test must not exceed $10 million in any fiscal 
year, as adjusted for the change in the Consumer Price Index. 39 CFR 
3035.15.
    The last notice of a market test was authorized by the Commission 
on October 23, 2014.\22\ The experimental product, Customized Delivery, 
was approved while a request for an exemption from the $10 million 
limitation was denied as premature. The Commission welcomes comments on 
the procedures for review of Postal Service notices of market tests of 
experimental products.
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    \22\ Docket No. MT2014-1, Order No. 2224, Order Authorizing 
Customized Delivery Market Test, October 23, 2014.
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K. Universal Service Obligation and the Postal Monopoly

    The Commission's report is required to include any recommended 
changes to the universal service obligation (USO) and the postal 
monopoly. PAEA section 702(b)(1). The Commission must include the 
perceived effects of the recommended changes, as well as the costs and 
benefits of the postal monopoly under current law. PAEA section 
702(b)(2).
    Each year, the Commission includes a discussion of costs of the USO 
and the value of the postal monopoly in the Annual Report to the 
President and Congress. For the most recent estimates, please refer to 
the Annual Report for FY 2015.\23\
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    \23\ Postal Regulatory Commission, Annual Report to the 
President and Congress, Fiscal Year 2015, January 6, 2016.

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[[Page 23021]]

    In 2008, pursuant to PAEA section 702(a), the Commission issued an 
in-depth report on universal postal service and the postal 
monopoly.\24\ The USO Report reviews the historical development of the 
USO and postal monopoly, universal service and monopoly laws of other 
countries, economic considerations, needs and expectations of the 
United States public, policy options, and Commission recommendations. 
The Commission invites comments and recommendations regarding the USO 
and the postal monopoly.
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    \24\ Postal Regulatory Commission, Report of Universal Postal 
Service and the Postal Monopoly, December 19, 2008 (USO Report) 
(available at http://www.prc.gov/prc-reports).
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L. Requirement of a Public Representative

    The Commission must designate a public representative in all 
proceedings on a case-by-case basis. See 39 U.S.C. 505; 39 CFR 3002.14. 
The public representative serves the interest of the general public in 
these proceedings, and is subject to ex parte communication 
restrictions with the Commission for those proceedings. The Commission 
welcomes comments on the utility of the public representative in 
Commission proceedings, and any improvements the Commission should 
consider to improve the public representative program.

M. Requirement of Commission Inspector General

    The Commission's Office of the Inspector General has duties related 
to the oversight of Commission programs and operations. See 39 CFR 
3002.16. The Inspector General reports to Congress and the Commission 
on a bi-annual basis its activities related to audits, inspections, and 
other evaluations.\25\ The Commission welcomes comment on the Office of 
the Inspector General, and any perspectives on the cost benefit or 
effectiveness of the office.
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    \25\ See Postal Regulatory Commission Office of Inspector 
General, Semiannual Report to Congress, April 1, 2015 through 
September 30, 2015 (available at http://www.prc.gov/sites/default/files/oig-reports/SARC2015-2.pdf).
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IV. Conclusion

    The Commission invites public comment on the issues noted above, 
and on any other issues of interest related to the operation of the 
amendments of the PAEA. Comments shall be submitted no later than June 
14, 2016.
    The Commission appoints Richard A. Oliver to serve as Public 
Representative in this docket.

V. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. PI2016-3 and invites 
public comments on the operation of the amendments of the Postal 
Accountability and Enhancement Act.
    2. Comments are due no later than June 14, 2016.
    3. Pursuant to 39 U.S.C. 505, Richard A. Oliver is appointed to 
serve as an officer of the Commission to represent the interests of the 
general public in this proceeding (Public Representative).
    4. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Stacy L. Ruble,
Secretary.
[FR Doc. 2016-09038 Filed 4-18-16; 8:45 am]
 BILLING CODE 7710-FW-P