[Federal Register Volume 74, Number 138 (Tuesday, July 21, 2009)]
[Notices]
[Pages 35899-35902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17286]
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POSTAL REGULATORY COMMISSION
[Docket No. RM2009-3; Order No. 243]
Postal Rates
AGENCY: Postal Regulatory Commission.
ACTION: Notice of public forum.
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SUMMARY: This document announces a public forum to address workshare
discount methodologies in First-Class Mail and Standard Mail. It
invites public participation in the forum, responses to views expressed
at the forum, and replies to comments filed in response to Order No.
192. This document also incorporates revisions identified in a July 10,
2009 errata notice. The revisions affected only the list of commenters
presented in Order No. 243.
DATES: Public forum: August 11, 2009 at 1 p.m.; responses and reply
comments due: August 31, 2009.
ADDRESSES: Submit comments electronically via the Commission's Filing
Online system at http://www.prc.gov.
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel,
at 202-789-6820 or [email protected].
SUPPLEMENTARY INFORMATION: Regulatory History, 74 FR 50744 (March 24,
2009).
I. Introduction
II. Public Forum Issues
III. Ordering Paragraphs
I. Introduction
On March 16, 2009, the Commission issued Order No. 191 in Docket
No. R2009-2 approving a set of market dominant rate changes proposed by
the Postal Service. It did so with the awareness that a number of
complex issues relating to the proper application of the Postal
Accountability and Enhancement Act (PAEA), Public Law 109-435, 120
Stat. 3198 (2006), to those rates could best be resolved in a follow-on
docket in which sufficient time and sufficiently flexible procedures
would be available to ensure that these issues could be thoroughly
examined. To that end, the Commission issued Order No. 192, also on
March 16, 2009, soliciting public comment on the ``legal, factual, and
economic bases'' underlying the discounts for First-Class and Standard
Mail approved in Docket No. R2009-2, and any alternative workshare
discount rate design and cost avoidance methodologies that participants
wished to propose.\1\
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\1\ See Order No. 192, Notice of Proposed Rulemaking on
Application of Workshare Discount Rate Design Principles, March 16,
2009, at 3 (Order No. 192).
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The comments received on May 26 and 27, 2009 were numerous and
wide-ranging.\2\ Those comments include legal interpretations of the
relevant portions of the PAEA, offered arguments (largely qualitative)
concerning the market position of various categories of First-Class and
Standard Mail, and advocate both the use or abandonment of certain
traditional benchmarks used to quantify the costs avoided by various
mail characteristics associated with workshare discounts. Several
participants offered classification proposals designed to recognize the
unique cost characteristics of various subsets of First-Class Mail.
Specifically, Stamps.com proposed that a ``Qualified PC Postage'' mail
category be established to reflect the reduced costs that would
accompany single-piece First-Class Mail to which the mailer has applied
CASS certified software and a full-service Intelligent Mail Barcode.
Stamps.com Comments at 1. In addition, the officer of the Commission
appointed to represent the interests of the general public (Public
Representative) proposed that if the link between single-piece First-
Class Mail costs and presorted First-Class Mail rates is to be
abandoned, that single-piece First-Class Mail be established as a
separate class of mail for rate setting purposes. Public
Representative's Comments at 23-27.
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\2\ There were 13 commenters in response to Order No. 192. For
convenience, participant comments are identified in Appendix A to
this order.
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It is clear from the comments that resolving some of these issues
will be contingent on how others are resolved. For example, if the
Commission were to agree with the Postal Service's view
[[Page 35900]]
that, as a legal matter, the worksharing discount standards of 39
U.S.C. 3622(e) apply only to components of individual ``products'' as
defined in the Mail Classification Schedule, it would render moot any
consideration of the market positions of the various First-Class and
Standard Mail categories issued in Docket No. R2009-2. Similarly, if
the Commission were to conclude that section 3622(e) may be applied
across products, but each product at issue serves a separate and
distinct market, that conclusion would dispense with the need to
consider the issue of what benchmark would be most appropriate for
measuring the cost avoided by the worksharing characteristics of those
products. Likewise, if the Commission were to conclude that First-Class
Mail may not be further subdivided for purposes of applying caps to
rates, it would nullify the Public Representative's rationale for
proposing to establish single-piece First-Class Mail as a separate
class of mail. Because these issues are mutually dependent, they will
be considered together in the current phase of this proceeding.
Technical issues of how avoided costs should be calculated will be
considered after the need for benchmarks has been confirmed and
appropriate benchmarks have been identified.
Some of the key issues to be addressed in this docket have basic
public policy dimensions. The Commission has determined that those
issues might benefit from being aired in the context of a public forum.
A public forum will have the advantage of allowing representatives of
various interests to have a dialogue, and exchange views in a non-
adversarial discussion that allows others to respond with their own
supporting or contrasting views or with clarifying questions. The
Commission hopes that such a forum will significantly strengthen the
record on which these policy-laden decisions will be based. It
envisions convening such a forum August 11, 2009, at 1 p.m. in the
Commission's hearing room.
Participants will have an opportunity to file written responses
both to the exchange of views at the forum and to the comments filed in
response to Order No. 192 (the notice of proposed rulemaking in this
docket). Those responses will be due on or before August 31, 2009. The
Commission also will provide interested parties with an opportunity to
address technical issues concerning how avoided costs should be modeled
at a later date, when the legal, policy, and economic issues described
below have been resolved.\3\
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\3\ For example, several commenters have indicated an interest
in proposing modifications to established methods for modeling costs
avoided by worksharing, depending on how logically prior issues have
been resolved. See Postal Service Comments at 46-47; MMA Comments at
12; and APWU Comments at 7. Consideration of such proposals will
take place at a later, appropriate time.
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II. Public Forum Issues
There are two issues that the Commission would like to explore
further in the context of a public forum. The first is the issue of
whether the users of single-piece First-Class Mail are entitled to
special protection under the PAEA, and, if so, whether protection
should take the form of:
1. Maintaining the traditional linkage of single-piece rates to the
rates charged for Presorted First-Class Mail through a suitable
benchmark;
2. Establishing a separate class of single-piece First-Class Mail
subject to its own rate cap;
3. Adopting a regulation that would limit the difference allowed
between single-piece and presorted First-Class Mail in terms of either
average revenue per piece or percent contribution to institutional
costs;
4. Relying on a qualitative or subjective standard of protection,
such as the ``just and reasonable'' standard of section 3622(b)(8); or
5. Other suggested forms of protection.
The second policy issue that the Commission would like the public
forum to address is whether a worksharing discount should be defined
as:
1. A ``pure'' presorting, prebarcoding, handling, or transportation
activity that is a direct substitute for an equivalent Postal Service
activity; or
2. A ``pure'' worksharing activity as described above, plus other
cost-reducing mail characteristics that are facilitated by or naturally
support the ``pure'' worksharing activity, e.g., walk sequencing and
density.
A related aspect of the second policy issue is whether a discount
that reflects both cost-reducing characteristics that are directly
related to a worksharing activity, and others that are indirectly
related to, or unrelated to the worksharing activity:
1. Should be defined as ``worksharing'' or ``non-worksharing''
according to some rule, such as which cost-reducing effect is thought
to predominate;
2. Should be unbundled so that separate discounts are developed for
the worksharing and non-worksharing components; or
3. Should remain bundled, but be analytically decomposed into its
worksharing and other components so that section 3622(e) standards may
be applied to the worksharing component.
In addition to the broad issues described above that the Commission
considers appropriate for discussion in the August 11, 2009 forum,
there are several technical aspects of those issues that participants
should ponder and comment upon, either in the forum itself or in the
written comments that are due on August 31, 2009.
Issues specific to First-Class Mail. The assertions in the comments
about the nature of markets for First-Class letters are, for the most
part, qualitative. What little supporting data are offered are subject
to more than one interpretation. In the next round of written comments,
the Commission encourages parties to provide empirical support for
their understanding of the state of the markets for single-piece and
presort First-Class Mail letters. Information about attributes of
smaller business mailers who can be converted (or already have been
converted) by presort firms from users of single-piece into users of
presorted First-Class would be especially useful. Similarly,
information about how price signals influence mailers' decisions to
invest in hardware, software or quality control processes to avoid
postage penalties that could result from failing Postal Service
acceptance tests would be particularly helpful.
Issues specific to Standard Mail. Several commenters make
assertions about the market differences between Carrier Route, High
Density, and Saturation mail that are largely qualitative. They assert,
for example, that Saturation mailers appear to have more delivery
alternatives than Carrier Route or High Density mailers. Valassis/SMC
argues that private delivery is a less viable option for High Density
mailers because such mailings are demographically, rather than
geographically targeted. See Valassis/SMC Comments at 12, n.7. This
would seem to indicate that the market for High Density mail is more
closely related to the market for Carrier Route mail because both
target specific addresses. In the next round of comments, the
Commission encourages parties to provide empirical support for their
understanding of the state of the markets for the former components of
Enhanced Carrier Route mail.
The Commission also welcomes additional comment on how worksharing
cost avoidance should be defined and measured in the context of
[[Page 35901]]
Standard Mail. The Commission has long concluded that to promote
productive efficiency, discounts for related categories of mail with
the same own-price demand elasticity should not exceed the costs that
the Postal Service avoids when mailers perform worksharing. This
principle is known as efficient component pricing (ECP). The Postal
Service has taken the former components of the Enhanced Carrier Route
subclass--Carrier Route, High Density, and Saturation mail--and
redefined them as separate products. The Postal Service, however,
continues to estimate an own-price elasticity for these categories as a
group, and the Commission has continued to apply ECP to worksharing
cost differences among these rate categories on the premise that they
serve the same market and have essentially the same elasticity of
demand. The Postal Service and some other commenters now contend that
the High Density and Saturation categories each serve distinct markets.
See Valpak Comments at 17-18; Valassis/SMC Comments at 10-14; and Haldi
Comments at 15-16. If true, economic theory suggests that cost
coverages for each of these products should reflect distinct market
conditions.
If there is not sufficient empirical evidence to conclude that
these categories serve separate markets, and ECP remains relevant,
applying it under the current classification structure with its
attendant eligibility requirements is problematic. For example, several
commenters contend that the difference in cost between High Density
mail and Saturation mail reflects only the effect of the density
eligibility requirement, not the effect of worksharing. See Postal
Service Comments at 29; Haldi Comments at 11; and Valassis/SMC Comments
at 2.
Sequencing mail, however, appears to fit the definition of
worksharing activity in section 3622(e). If the mailer does not
sequence the mail, then the Postal Service must do it. A mailer's
decision to sort the mail into walk-sequence order depends on the menu
of rates. If a mailer were to prepare a flat-shaped Saturation mailing
without sequencing it, the mailer would have to pay the 5-digit presort
rate. He would not be eligible for the Carrier Route rate because line-
of-travel sequencing is a prerequisite for that rate. Similarly, he
would not be eligible for the High Density rate because walk-sequencing
is a prerequisite for that rate.
Absent demand differences,\4\ the relationship between these
categories of mail suggests that the less deeply sequenced categories
could serve as benchmarks from which the costs avoided by more deeply
sequenced categories could be measured. For example, the 5-digit
category could be a suitable cost avoidance benchmark for all of the
remaining categories. Alternatively, a mailer who presents High Density
or Saturation mail rather than Carrier Route mail to the Postal Service
does so because the difference in his cost between sorting to line of
travel and sorting to walk-sequence is less than the corresponding rate
difference; otherwise, a prudent mailer would not sort the mail in
walk-sequence order. Accordingly, the cost of sorting mail to the line-
of-travel order as reflected in the attributable delivery cost of
Carrier Route mail could be viewed as the appropriate benchmark for
both High Density and Saturation mail.\5\
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\4\ As noted, in the past, the Commission determined that
Carrier Route, High Density, and Saturation mail, as a group, share
an own-price demand elasticity that is distinct from Non-carrier
Route mail. For this reason, it de-linked 5-digit mail and Carrier
Route mail in Docket No. MC95-1 when the former Enhanced Carrier
Route (ECR) subclass was established.
\5\ Using Carrier Route mail as a benchmark for letter-shaped
Standard Mail is also problematic because the minimum number of
pieces required for the 5-digit letter rate is 150, while the
Carrier Route letter rate requires only 10 pieces.
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With respect to the relationship between High Density and
Saturation mail, the Postal Service asserts that there is no
worksharing content difference between the two, and therefore ECP does
not apply. Although the Postal Service recognizes that there is a cost
difference, it contends that it is due to density, not to worksharing
activity. The observed cost difference, however, could be characterized
as gains in efficiency brought about by worksharing activity, i.e., the
Postal Service's cost per piece of sorting mail to walk-sequence order
declines as density increases.\6\
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\6\ This is confirmed by Witness Shipe's testimony in Docket No.
R90-1. It shows that carriers case mail at a rate of 20.6 pieces per
minute for non-sequenced Carrier Route letters, 29.0 pieces for
walk-sequenced High Density letters, and 41.2 pieces for Saturation
letters. The corresponding numbers for flats are 10.7, 13.6 and 27.4
pieces per minute. See Docket No. R90-1, Direct Testimony of Thomas
Shipe, USPS-T-10, Exhibit USPS-10B, at 3 and 6. This constitutes
declining marginal cost.
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Viewed as a worksharing-related cost difference, the rate for a
High Density flat would reflect the difference in attributable delivery
cost between a High Density flat and a Carrier Route flat. Similarly,
the rate for a Saturation flat would reflect the difference in
attributable delivery cost between a Saturation flat and a Carrier
Route flat. Using the same percentage passthrough for each walk-
sequencing discount would be the mathematical equivalent of retaining
the link between High Density and Saturation mail.
In addition to commenting on the broader, more theoretical
questions discussed above, the Commission invites interested
participants to comment on the following specific issues and questions:
1. What empirical evidence is there supporting the proposition that
Carrier Route, High Density, and Saturation mail each serve separate
markets?
2. If High Density and Saturation mail serve the same market,
should the difference in worksharing unit cost between High Density and
Saturation mail be subject to the standards of section 3622(e)? If the
answer is no, specify why marginal worksharing cost differences are not
pertinent to rate setting.
3. If Carrier Route and High Density mail serve the same market,
should rates for Saturation mail be set as though it serves a separate
market, even though it is not classified as a separate product?
4. What bearing does the probability of mail receiving automated or
manual delivery point sequencing have on the answers to the above
questions?
III. Ordering Paragraphs
It is ordered:
1. A public forum that addresses the issues described in the body
of this order will be held on August 11, 2009, at 1 p.m., in the
Commission's hearing room.
2. Written comments on the matters discussed at the public forum as
well as the issues discussed in the comments filed in response to Order
No. 192 are due on or before August 31, 2009.
3. The Secretary shall arrange for publication of this order in the
Federal Register.
Issued: July 10, 2009.
By the Commission.
Judith M. Grady,
Acting Secretary.
Appendix A--Comments on Notice of Proposed Rulemaking on Application of
Workshare Discount Rate Design Principles
[[Page 35902]]
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Participant Title Filing date
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American Postal Workers Initial Presentation May 27, 2009.
Union, AFL-CIO (APWU of American Postal
Comments). Workers Union, AFL-
CIO.
Bank of America Corporation, Initial Comments of May 27, 2009.
Discover Financial Bank of America
Services, J.P. Morgan Chase Corporation,
& Co., and the American Discover Financial
Bankers Association. Services, J.P.
Morgan Chase & Co.,
and the Bankers
Association.
Greeting Card Association... Initial Comments of May 26, 2009.
the Greeting Card
Association.
John Haldi (Haldi Comments). Statement of John May 26, 2009.
Haldi, Ph.D.
Concerning
Workshare Discounts.
Mail Order Association of Comments of Mail May 26, 2009.
America. Order Association
of America.
Major Mailers Association Initial Comments of May 26, 2009.
(MMA Comments). Major Mailers
Association.
National Postal Policy Comments of National May 26, 2009.
Council. Postal Policy
Council.
Pitney Bowes Inc............ Initial Comments of May 26, 2009.
Pitney Bowes Inc.
Public Representatives Comments of the May 26, 2009.
(Public Representatives Public
Comments). Representatives.
Stamps.com (Stamps.com Initial Presentation May 26, 2009.
Comments). of Stamps.com.
United States Postal Service Initial Comments of May 26, 2009.
(Postal Service Comments). the United States
Postal Service.
Valassis Direct Mail, Inc. Comments of Valassis May 26, 2009.
and Saturation Mailers Direct Mail, Inc.
Coalition (Valassis/SMC and Saturation
Comments). Mailers Coalition.
Valpak Direct Marketing Valpak Direct May 26, 2009.
Systems, Inc. and Valpak Marketing Systems,
Dealers' Association, Inc Inc. and Valpak
(Valpak Comments). Dealers'
Association, Inc.
Comments Regarding
Standard Mail
Volume Incentive
Pricing Program.
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[FR Doc. E9-17286 Filed 7-20-09; 8:45 am]
BILLING CODE 7710-FW-P