[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21545-21547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06611]


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POSTAL REGULATORY COMMISSION

[Docket No. PI2024-2; Order No. 7017]


Public Inquiry on Zone 10 Packages Pursuant to 39 U.S.C. 3642

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission is initiating a public inquiry proceeding and 
appoint a presiding officer to serve as an investigator to explore the 
appropriate classification of Zone 10 packages pursuant to 39 U.S.C. 
3642. This notice informs the public of the filing and takes other 
administrative steps.

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:

Table of Contents

I. Introduction
II. Background
III. Public Inquiry
IV. Ordering Paragraphs

I. Introduction

    In Order No. 7016, the Commission stated that it would initiate a 
public inquiry proceeding and appoint a presiding officer to serve as 
an investigator to explore the appropriate classification of Zone 10 
packages pursuant to 39 U.S.C. 3642 and whether the implementation of 
Zone 10 prices raises a material issue of fact concerning whether a 
violation of 39 U.S.C. 403(c) has occurred if the Postal Service elects 
to implement the Zone 10 prices.\1\ The Commission establishes this 
docket to facilitate examination of those issues.
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    \1\ Docket No. CP2024-72, Order Approving Price Adjustments and 
Classification Changes for Domestic Competitive Products, March 22, 
2024, at 3, 28, 29-31 (Order No. 7016).
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II. Background

    On November 22, 2023, the Postal Service filed notice with the 
Commission of its intent to establish a new Zone 10 for Priority Mail 
Express, Priority Mail, and USPS Ground Advantage and proposed 
associated Zone 10 rates.\2\ The Postal Service states that the changes 
will take effect no earlier than July 1, 2024, with a specific date to 
be determined by the Postal Service in the future. Docket No. CP2024-72 
Notice at 1.
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    \2\ Docket No. CP2024-72, USPS Notice of Changes in Rates and 
Classifications of General Applicability for Competitive Products, 
November 22, 2023 (Docket No. CP2024-72 Notice).
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    Currently, Priority Mail Express, Priority Mail, and USPS Ground 
Advantage packages are charged prices based on weight and zone. For 
packages mailed within the United States, a package is assigned Zone 1-
8 based on the distance the package must travel to reach its 
destination. The proposed new Zone 10 and associated prices will apply 
to (1) packages originating in the Lower 48 States and destined to 
Alaska, Hawaii, or the U.S. Territories (which include Puerto Rico, the 
U.S. Virgin Islands, and territories in the Pacific, including Guam and 
American Samoa); (2) packages originating in Alaska and destined to 
Hawaii or the U.S. Territories; (3) packages originating in Hawaii or a 
territory in the Pacific Ocean and destined to Alaska, Puerto Rico, or 
the U.S. Virgin Islands; and (4) packages originating in Puerto Rico or 
the U.S. Virgin Islands and destined to Alaska, Hawaii, or a territory 
in the Pacific Ocean. Id. at 2-3. The proposed Zone 10 does not apply 
to packages that originate in Alaska, Hawaii, or the U.S. Territories 
and are destined to the Lower 48 States. Id. at 4.
    To explain the rationale for its proposal, the Postal Service 
states that the new Zone 10 and associated prices ``will better align 
with the zoning practices of [its] competitors, who currently have 
separate zones for offshore destinations.'' Id. at 3. The Postal 
Service states that its ``competitors charge significantly more for 
shipments from the Lower 48 states to offshore locations than for 
shipments in the reverse direction.'' \3\ The Postal Service also 
states that its decision to establish Zone 10 is ``cost-based in

[[Page 21546]]

nature'' because ``[t]he cost of transport to offshore locations is 
higher on average than it is to transport to non-offshore 
destinations.'' Docket No. CP2024-72 Notice at 3. Specifically, the 
Postal Service explains that there are more limited transportation 
options to offshore destinations, and the use of air transportation, 
the mix of air transportation providers, and the need to use higher 
cost providers all contribute to higher costs.\4\ The Postal Service 
does not, however, provide specific data and sources demonstrating 
these cost factors or otherwise demonstrating support for the ``cost-
based'' nature of the new Zone 10 prices and has yet to undertake the 
effort to disaggregate Zone 10 costs and confirm that its cost-based 
assumption is supported by its available transportation data. See 
Docket No. CP2024-72 Response to CHIR No. 2, question 1.
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    \3\ Docket No. CP2024-72, USPS Response to Chairman's 
Information Request No. 1, With Portions Filed Under Seal, December 
20, 2023, question 2.c.
    \4\ Docket No. CP2024-72, USPS Response to Chairman's 
Information Request No. 2, With Portions Filed Under Seal, January 
12, 2024, question 1.a. (Docket No. CP2024-72 Response to CHIR No. 
2).
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    In Order No. 7016, the Commission acknowledged that its role in 
reviewing proposed Competitive product rate and classification changes 
was limited by law. Order No. 7016 at 1-2, 32-33. Because the proposed 
rate and classification changes complied with 39 U.S.C. 3633(a), 39 CFR 
part 3035, and Order Nos. 1062 and 6249,\5\ the Commission approved the 
proposed price and classification changes as consistent with applicable 
law and found that it had no legal basis to reject the proposed 
changes. Order No. 7016 at 15-22. However, the Commission also 
identified numerous concerns with the Postal Service's proposal and 
approach and urged the Postal Service to reconsider whether it is 
prudent or necessary to implement its proposal. Id. at 2, 22-32. The 
Commission also identified two areas that were particularly suited to 
further exploration in a separate public inquiry proceeding: (1) the 
question of whether Zone 10 packages are appropriately classified as 
Competitive products pursuant to 39 U.S.C. 3642 and (2) the question of 
whether the implementation of Zone 10 prices raises a material issue of 
fact concerning whether a violation of 39 U.S.C. 403(c) has occurred if 
the Postal Service elects to implement the Zone 10 prices. Id. at 28, 
30-32.
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    \5\ See 39 U.S.C. 3633(a); 39 CFR part 3035; Docket No. CP2012-
2, Order Approving Changes in Rates of General Applicability for 
Competitive Products, December 21, 2011 (Order No. 1062); Docket 
Nos. CP2022-22 and CP2022-62, Order Granting in Part the United 
States Postal Service's Motions for Clarification of Order Nos. 6071 
and 6195, August 15, 2022 (Order No. 6249).
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    Classification of Zone 10 packages. Postal products are separated 
into two distinct classifications: Market Dominant and Competitive. 39 
U.S.C. 3621, 3631, 3642. Section 3642 of Title 39 governs the addition 
of products to, removal of products from, or transfer of products (or 
components of a product) between the Market Dominant and Competitive 
product lists.\6\ The Commission may consider a change to a product's 
classification upon request of the Postal Service, upon request of 
users of the mail, or upon its own initiative. 39 U.S.C. 3642(a). There 
is nothing to prevent transfer of only part of a product between 
product lists. 39 U.S.C. 3642(c).
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    \6\ 39 U.S.C. 3642. The implementing regulations for this 
section appear in 39 CFR part 3040.
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    The criteria for assigning a product to either the Market Dominant 
or Competitive product list are described in 39 U.S.C. 3642(b). Section 
3642(b)(1) defines a Market Dominant product as a product over which 
``the Postal Service exercises sufficient market power that it can 
effectively set the price of such product substantially above costs, 
raise prices significantly, decrease quality, or decrease output, 
without risk of losing a significant level of business to other firms 
offering similar products.'' 39 U.S.C. 3642(b)(1). Competitive products 
are defined as ``all other products.'' Id. Products covered by the 
postal monopoly are not subject to transfer from the Market Dominant 
category. 39 U.S.C. 3642(b)(2). Additional considerations in 
determining the correct classification of a postal product include the 
availability and nature of private sector competitors, the views of 
users of the product, and the likely impact on small businesses. 39 
U.S.C. 3642(b)(3).
    In Docket No. CP2024-72, several commenters raised concerns 
relevant to an inquiry pursuant to 39 U.S.C. 3642, and the Commission 
recognized that the concerns raised by commenters may call into 
question whether the proposed Zone 10 volumes are correctly classified 
as Competitive. Order No. 7016 at 28-29. As a result, the Commission 
determined that this issue would be appropriate to consider in a public 
inquiry proceeding. Id. The Commission stated that it intended to 
appoint a presiding officer to serve as an investigator in the public 
inquiry proceeding to further explore the appropriate classification of 
these packages and to provide analysis and recommendations to the 
Commission on that issue. Id.
    Violation of 39 U.S.C. 403(c). 39 U.S.C. 403(c) prohibits the 
Postal Service from making ``any undue or unreasonable discrimination 
among users of the mails'' ``in establishing classifications, rates, 
and fees.'' 39 U.S.C. 403(c). In order to find that undue or 
unreasonable price discrimination exists in violation of 39 U.S.C. 
403(c), the Commission must find that: (1) a mailer has been offered 
less favorable rates or terms and conditions than one or more other 
mailers; (2) the mailer is ``similarly situated'' to the mailer or 
mailers who have been offered the more favorable rates or terms and 
conditions; and (3) there is no rational or legitimate basis for the 
Postal Service to deny the more favorable rates or terms and conditions 
offered to others.\7\ The Commission has the authority to take action 
to bring the Postal Service into compliance with 39 U.S.C. 403(c) if it 
finds the Postal Service is not operating in conformance with that 
provision based on a complaint raising such non-conformance. 39 U.S.C. 
3662(a), (c). The Commission has the authority to appoint an officer of 
the Commission representing the interests of the general public to 
bring a complaint for violation of 39 U.S.C. 403(c) or any other 
provision enumerated in 39 U.S.C. 3662(a). 39 U.S.C. 3662(a).
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    \7\ Docket No. C2020-2, Order Granting the Postal Service's 
Motion to Dismiss Complaint with Prejudice, April 28, 2020, at 8 
(Order No. 5491) (citing Docket No. C2009-1, Order on Complaint, 
April 20, 2011, at 28 (Order No. 718)).
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    In Order No. 7016, the Commission noted that the Postal Service was 
not required to justify its Zone 10 rates on a cost basis beyond 
showing compliance with 39 U.S.C. 3633(a). Order No. 7016 at 30-32. 
However, the Commission also noted that it previously found costs are a 
relevant consideration under the 39 U.S.C. 403(c) analysis and that 
costs may be particularly relevant in the case of Zone 10 because one 
of the Postal Service's rationales for its Zone 10 proposal is that it 
is ``cost-based in nature.'' See id. at 30; Order No. 5491 at 8; Docket 
No. CP2024-72 Notice at 3.
    The Commission stated that the Postal Service's cost-based 
rationale for its proposal appeared reasonable on its face given the 
Postal Service's representations regarding transportation costs to 
offshore areas; however, it also raised concern that the Postal Service 
failed to undertake the effort to disaggregate Zone 10 costs and 
confirm that its assumption regarding higher transportation costs for 
Zone 10 packages was supported by its available transportation data. 
Order No. 7016 at 31-32. The Commission directed the

[[Page 21547]]

Postal Service to file a rulemaking proceeding proposing and supporting 
the methodological changes necessary to derive separate Zone 10 
transportation costs for Priority Mail and USPS Ground Advantage within 
90 days of the date of Order No. 7016. Id. at 27.
    The Commission was concerned that if the Postal Service's actual 
cost data differed from the Postal Service's assumptions, the Postal 
Service's cost-based justification for the Zone 10 rates could be 
invalid and concerns of violation of 39 U.S.C. 403(c) could arise. Id. 
at 30-32. As a result, the Commission stated that it intended to 
appoint a presiding officer to serve as an investigator to gather 
information and explore whether the Postal Service would be in 
violation of 39 U.S.C. 403(c) if the Postal Service elects to implement 
the new Zone 10 and related prices. Id. The Commission also stated that 
the investigator may also consider whether violation of any other 
provision enumerated in 39 U.S.C. 3662(a) has occurred. Id. at 32. The 
Commission further stated that after gathering applicable information, 
the investigator shall issue a public, written report to the Commission 
as to whether the implementation of Zone 10 raises a material issue of 
fact concerning whether a violation of 39 U.S.C. 403(c) or any other 
provision enumerated in 39 U.S.C. 3662(a) has occurred. Id.

III. Public Inquiry

    The Commission establishes this proceeding to appoint and direct a 
presiding officer to serve as an investigator to explore the 
appropriate classification of Zone 10 packages pursuant to 39 U.S.C. 
3642 and whether the implementation of Zone 10 prices raises a material 
issue of fact concerning whether a violation of 39 U.S.C. 403(c) has 
occurred if the Postal Service elects to implement the Zone 10 prices. 
Pursuant to 39 CFR 3010.106, the Commission appoints John Avila to 
serve as presiding officer in this docket. In that role, the Commission 
expects the presiding officer to serve an investigatory role similar to 
the one envisioned by 39 CFR 3022.21 to procure applicable information, 
examine issues, and report back to the Commission with his analysis and 
recommendations.\8\
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    \8\ See 39 CFR 3022.21. 39 CFR 3022.21 contemplates the 
appointment of an investigator in the context of procuring 
information and examining issues before reporting back to the 
Commission during a complaint proceeding.
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    In addition to consideration of 39 U.S.C. 403(c) and 3642, the 
underlying regulations, Commission precedent, the record of Docket No. 
CP2024-72, and the disaggregated costs the Postal Service has been 
directed to file within 90 days, the Commission anticipates that the 
presiding officer may need additional information from the Postal 
Service prior to conducting analysis and reaching any conclusions and 
expects him to issue presiding officer information requests as he deems 
appropriate to gather such information. 39 CFR 3010.106(c).
    Once the presiding officer serving as investigator has sufficient 
information to analyze and assess whether Zone 10 packages should 
remain classified as Competitive pursuant to 39 U.S.C. 3642, the 
underlying regulations, and Commission precedent, the presiding officer 
shall file a public, written report to the Commission in this 
proceeding detailing his analysis and recommendations to the Commission 
on that issue. Once the presiding officer serving as investigator has 
sufficient information to assess whether the implementation of Zone 10 
raises a material issue of fact concerning whether a violation of 39 
U.S.C. 403(c) has occurred, the presiding officer shall issue a public, 
written report to the Commission as to whether the implementation of 
Zone 10 raises a material issue of fact concerning whether a violation 
of 39 U.S.C. 403(c) has occurred. The investigator may also consider 
whether violation of any other provision enumerated in 39 U.S.C. 
3662(a) has occurred. Upon receipt of these reports, the Commission 
will consider if further action in this docket or separate proceedings 
is appropriate.
    Materials filed in this proceeding will be available for review on 
the Commission's website unless the information contained therein is 
subject to an application for non-public treatment. The Commission's 
rules on non-public materials (including access to documents filed 
under seal) appear in 39 CFR part 3011. Additional information may be 
accessed via the Commission's website at http://www.prc.gov.

IV. Ordering Paragraphs

    It is ordered:
    1. The Commission establishes Docket No. PI2024-2 to review issues 
related to the appropriate classification of Zone 10 packages pursuant 
to 39 U.S.C. 3642 and whether the implementation of Zone 10 prices 
raises a material issue of fact concerning whether a violation of 39 
U.S.C. 403(c) has occurred if the Postal Service elects to implement 
the Zone 10 prices.
    2. Pursuant to 39 CFR 3010.106, the Commission appoints John Avila 
to serve as presiding officer in this docket. The presiding officer 
shall serve in an investigatory role and make filings in this docket as 
described in the body of this Order.
    3. The Secretary shall arrange for publication of this notice in 
the Federal Register.

    By the Commission.
Erica A. Barker,
Secretary.
[FR Doc. 2024-06611 Filed 3-27-24; 8:45 am]
BILLING CODE 7710-FW-P