Order Number 4258

190 Pages·2017·1.11 MB·English

Postal Regulatory Commission
Submitted 12/1/2017 1:23:42 PM
Filing ID: 102715
Accepted 12/1/2017
ORDER NO. 4258

UNITED STATES OF AMERICA
POSTAL REGULATORY COMMISSION
WASHINGTON, DC 20268-0001

Before Commissioners: Robert G. Taub, Chairman;
Mark Acton, Vice Chairman;
Tony Hammond; and
Nanci E. Langley

Statutory Review of the System Docket No. RM2017-3
for Regulating Rates and Classes
for Market Dominant Products

NOTICE OF PROPOSED RULEMAKING FOR
THE SYSTEM FOR REGULATING RATES AND CLASSES
FOR MARKET DOMINANT PRODUCTS

Washington, DC 20268-0001
December 1, 2017
TABLE OF CONTENTS
Page

I. INTRODUCTION AND PROCEDURAL HISTORY ............................................... 1
II. STATUTORY AUTHORITY .................................................................................. 4
A. Introduction ................................................................................................ 4
B. Comments ................................................................................................. 5
1. Authority to Eliminate or Modify the Price Cap ................................ 6
2. Authority to Modify Workshare Discount Provisions ...................... 12
C. Commission Analysis ............................................................................... 14
III. PROPOSED REGULATORY CHANGES ........................................................... 26
A. Introduction .............................................................................................. 26
B. The Path to Financial Stability ................................................................. 27
1. Background ................................................................................... 27
2. Comments ..................................................................................... 28
3. Commission Analysis .................................................................... 33
C. Supplemental Rate Authority ................................................................... 39
1. Background ................................................................................... 39
2. Amount of Supplemental Rate Authority ....................................... 40
3. Phase-in Mechanism ..................................................................... 41
D. Performance-Based Rate Authority ......................................................... 46
1. Background ................................................................................... 46
2. Amount of Performance-Based Rate Authority ............................. 53
3. Performance Incentive Mechanism ............................................... 55
4. Operational Efficiency ................................................................... 57
5. Service .......................................................................................... 65
E. Non-Compensatory Classes and Products .............................................. 73
1. Introduction ................................................................................... 73
2. Non-Compensatory Products ........................................................ 74
3. Non-Compensatory Classes ......................................................... 81
F. Workshare Discounts ............................................................................... 87
1. Introduction ................................................................................... 87
2. Comments ..................................................................................... 90
3. Proposed Commission Solution .................................................... 93
4. Commission Analysis of Alternatives ............................................ 96
5. Proposed Regulatory Changes ..................................................... 97
6. Conclusion .................................................................................... 98
G. Procedural Improvements ........................................................................ 98
1. Introduction ................................................................................... 98
2. Schedule for Regular and Predictable Rate Adjustments ............. 99
3. Revised Procedural Schedule for Rate Adjustment Proceedings 102
IV. DESCRIPTION OF PROPOSED CHANGES TO RULES APPEARING IN THE
CODE OF FEDERAL REGULATIONS ............................................................. 107
A. Introduction ............................................................................................ 107
1. Affected Sections ........................................................................ 107
2. General Restructuring ................................................................. 107
3. Structure of the Proposed Rules ................................................. 110
B. Line-by-Line Discussion of Changes ..................................................... 112
1. Section 3010, Subpart A—General Provisions ........................... 112
2. Section 3010, Subpart B—Rate Adjustments ............................. 113
3. Section 3010, Subpart C—Consumer Price Index Rate Authority
.................................................................................................... 119
4. Section 3010, Subpart D—Supplemental Rate Authority ............ 119
5. Section 3010, Subpart E—Performance-Based Rate Authority .. 120
6. Section 3010, Subpart F—Non-Compensatory Classes or Products
.................................................................................................... 121
7. Section 3010, Subpart G—Accumulation of Unused and
Disbursement of Banked Rate Adjustment Authority .................. 122
8. Section 3010, Subpart H—Rate Adjustments Due to Extraordinary
and Exceptional Circumstances .................................................. 126
9. Section 3010, Subpart I—Workshare Discounts ......................... 126
10. Section 3020, Subpart G—Requests for Market Dominant
Negotiated Service Agreements.................................................. 127
11. Section 3050, Periodic Reporting ................................................ 129
12. Section 3055, Subpart A—Annual Reporting of Service
Performance ............................................................................... 129
- ii -
V. ADMINISTRATIVE ACTIONS........................................................................... 130
A. Assignment of Public Representative .................................................... 130
B. Request for Comments and Reply Comments ....................................... 130
VI. ORDERING PARAGRAPHS ............................................................................ 131

Supplemental Views of Vice Chairman Mark Acton

Supplemental Views of Commissioner Nanci E. Langley

Dissenting Views of Commissioner Tony Hammond

Attachment A—Proposed Rules

Appendix—List of Commenters and Comments

- iii -
ORDER NO. 4258

UNITED STATES OF AMERICA
POSTAL REGULATORY COMMISSION
WASHINGTON, DC 20268-0001

Before Commissioners: Robert G. Taub, Chairman;
Mark Acton, Vice Chairman;
Tony Hammond; and
Nanci E. Langley

Statutory Review of the System Docket No. RM2017-3
for Regulating Rates and Classes
for Market Dominant Products

NOTICE OF PROPOSED RULEMAKING FOR
THE SYSTEM FOR REGULATING RATES AND CLASSES
FOR MARKET DOMINANT PRODUCTS

(Issued December 1, 2017)
I. INTRODUCTION AND PROCEDURAL HISTORY
Pursuant to 39 U.S.C. 3622(d)(3), 10 years after the enactment of the Postal
Accountability and Enhancement Act (PAEA),1 the Commission was required to initiate
a review of the system for regulating rates and classes for market dominant products to
determine if the ratemaking system has achieved the objectives of 39 U.S.C. 3622(b),
taking into account the factors enumerated in 39 U.S.C. 3622(c).

1 Postal Accountability and Enhancement Act (PAEA), Pub. L. 109-435, 120 Stat. 3198 (2006).
Docket No. RM2017-3 - 2 -

On December 20, 2016, the Commission initiated its review by issuing an
advance notice of proposed rulemaking (ANPR).2 The ANPR established a framework
for the review, appointed an officer of the Commission to represent the interests of the
general public, and provided an opportunity for public comment.
On December 1, 2017, the Commission issued its findings concerning the
review.3 The findings are based on the Commission’s review of the system’s
performance during the 10 years following the passage of the PAEA with full
consideration of comments received on topics relevant to the review. In short, based on
its review of whether the existing ratemaking system has achieved the objectives of 39
U.S.C. 3622(b), taking into account the factors enumerated in 39 U.S.C. 3622(c), the
Commission finds the system has not achieved the objectives of the PAEA. Order No.
4257 at 275.
Since the review concludes that the system for regulating rates and classes has
not achieved the objectives, taking into account the factors, the Commission is initiating
the instant rulemaking. The purpose of this rulemaking is to propose such modifications
to existing regulations or adopt such an alternative system through new regulations that
the Commission deems necessary to achieve the objectives of 39 U.S.C. 3622(b).
As explained more fully below, 39 U.S.C. 3622(d)(3) authorizes this rulemaking
for the purpose of modifying existing regulations or adopting an alternative system as
necessary to meet the objectives. The Commission also has standing authority to
revise the existing system for regulating rates and classes as necessary. 39 U.S.C.
3622(a). Additionally, the Commission has general authority to promulgate rules and
regulations, establish procedures, and take any other action deemed necessary and

2 Advance Notice of Proposed Rulemaking on the Statutory Review of the System for Regulating
Rates and Classes for Market Dominant Products, December 20, 2016 (Order No. 3673); see also 81 FR
95071 (December 27, 2016) (to be codified at 39 CFR parts 3010 and 3020).
3 Order on the Findings and Determination of the 39 U.S.C. § 3622 Review, December 1, 2017
(Order No. 4257).
Docket No. RM2017-3 - 3 -

proper to carry out its functions and obligations, as prescribed under title 39 of the
United States Code. 39 U.S.C. 503.
This rulemaking proposes changes to title 39 of the Code of Federal Regulations.
The rules in 39 CFR part 3010, subparts A, B, C, and E (existing §§ 3010.1 et seq.,
3010.10 et seq., 3010.20 et seq., and 3010.60 et seq.) are replaced in their entirety by
new rules in new subparts A, B, C, D, E, F, G, H, and I (proposed §§ 3010.100 et seq.,
3010.120 et seq., 3010.140 et seq., 3010.160 et seq., 3010.180 et seq., 3010.200 et
seq., 3010.220 et seq., 3010.240 et seq., and 3010.260 et seq.). Rules specific to
negotiated service agreements (NSAs) appearing in 39 CFR part 3010, subpart D
(existing § 3010.40 et seq.) are moved to new 39 CFR part 3020, subpart G (proposed
§ 3020.120 et seq.). Minor changes are proposed in existing §§ 3050.20(c) and
3055.2(c). The proposed rules appear after the signature of this Order in Attachment A.
The next step in this rulemaking process is critical to the Commission’s
responsibility under the PAEA—seeking informed community participation and insight.
The Commission has implemented a robust comment and reply period designed to elicit
sound criticism of, concurrence with, or alternatives to the Commission’s proposed
approach.
Docket No. RM2017-3 - 4 -

II. STATUTORY AUTHORITY
A. Introduction
Section 3622(d)(3) of title 39 of the United States Code directs the Commission
to conduct a review of the market dominant ratemaking system 10 years after the
enactment of the PAEA in order to determine whether the system is achieving the
objectives enumerated at 39 U.S.C. 3622(b), taking into account the factors enumerated
at 39 U.S.C. 3622(c). This provision prescribes a two-step process. First, the
Commission must determine whether the current ratemaking system is achieving the
PAEA’s objectives, taking into account its factors.
Ten years after the date of enactment of the [PAEA] and as appropriate
thereafter, the Commission shall review the system for regulating rates
and classes for market-dominant products established under this section
to determine if the system is achieving the objectives in subsection (b),
taking into account the factors in subsection (c) . . . .
39 U.S.C. 3622(d)(3).
The Commission completed the first step of this process on December 1, 2017,
when it issued an order announcing its findings with regard to the current ratemaking
system. See Order No. 4257. The Commission specifically determined that the
ratemaking system has not achieved the objectives, taking into account the factors. Id.
at 275.
The Commission now proceeds to the second step of the process established by
section 3622(d)(3). This provision authorizes the Commission to promulgate rules
either modifying the current ratemaking system or adopting an alternative ratemaking
system, “as necessary to achieve the objectives.”
If the Commission determines, after notice and opportunity for public
comment, that the system is not achieving the objectives in subsection
(b), taking into account the factors in subsection (c), the Commission
may, by regulation, make such modification or adopt such alternative
system for regulating rates and classes for market-dominant products as
necessary to achieve the objectives.
Docket No. RM2017-3 - 5 -

39 U.S.C. 3622(d)(3). The Commission interprets this provision as providing broad
authority to make changes to the market dominant ratemaking system.
The authority to make changes to the system provided by section 3622(d)(3)
expands upon the statutory authority provided by section 3622(a).
The Postal Regulatory Commission shall, within 18 months after the date
of enactment of [the PAEA], by regulation establish (and may from time
to time thereafter by regulation revise) a modern system for regulating
rates and classes for market-dominant products.
39 U.S.C. 3622(a).
Finally, the Commission has general authority, pursuant to section 503, to
promulgate rules and regulations and establish procedures.
The Postal Regulatory Commission shall promulgate rules and
regulations and establish procedures, subject to chapters 5 and 7 of title
5, and take any other action they deem necessary and proper to carry
out their functions and obligations to the Government of the United
States and the people as prescribed under this title . . . .
39 U.S.C. 503.
B. Comments
The comments received in response to the ANPR that discuss the Commission’s
rulemaking authority primarily focus on two aspects of that authority pursuant to section
3622(d)(3): the authority to eliminate or modify the price cap and the authority to modify
workshare discount provisions. The Appendix to this Order provides a list of
commenters and citations to the comments filed in this docket in response to Order No.
3673.
Docket No. RM2017-3 - 6 -

1. Authority to Eliminate or Modify the Price Cap
a. Plain Language
With regard to the price cap, multiple commenters take the position that the plain
language of 39 U.S.C. 3622 constrains the Commission’s ability to eliminate, modify, or
replace the price cap. ANM et al. contend that the mandatory “shall” language used by
Congress in establishing the consumer price index (CPI) price cap and its central role in
the PAEA ratemaking scheme forecloses any claim that the statute makes the price cap
merely optional.4
Commenters also advance a number of structural arguments for why section
3622 precludes any changes to the price cap. ANM et al., MMA et al., and GCA all
assert that the scope of section 3622(d)(3) is limited by the title of section 3622(d)—
“Requirements.”5
ABA focuses on the use of the word “system” throughout section 3622, arguing
that “the consistent use of the word ‘system’ throughout the section, rather than
qualifiers such as ‘first system’ or ‘initial system’ or ‘system preceding the 10 year
review,’ suggests Congress contemplated the same requirements applying to any and
all rate structures the Commission would create.” ABA Comments at 8-10. GCA
focuses on the use of the phrase “requirement,” arguing that “[w]hen a particular phrase
is used repeatedly in the same enactment, it is customary to give it the same meaning
each time it appears . . . [which] suggests that . . . if a feature of the existing system is
present because [section] 3622(d) makes it a ‘requirement,’ then it must remain in any
modified or alternative system which emerges from the tenth-year review.”6

4 ANM et al. Comments at 9-10 n.2 (asserting that the Commission lacks authority to substantially
modify the price cap) (citing ANM et al., Limitations on the Commission’s Authority Under Section
3622(d)(3), October 28, 2014, at 6 (ANM et al. 2014 White Paper)).
5 ANM et al. 2014 White Paper at 4-7; MMA et al. Comments at 14-15; GCA Comments at 29-31.
6 GCA Comments at 30 (citing Ratzlaf v. United States, 510 U.S. 135, 143 (1994)).