Express Mail Market Response Rate Requests: Rules of Practice and Procedure

POSTAL RATE COMMISSION

39 CFR Part 3001

[Docket No. RM95-1; Order No. 1038]

Express Mail Market Response Rate Requests: Rules of Practice and

Procedure

AGENCY: Postal Rate Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: In response to a petition filed by the Postal Service, the

Postal Rate Commission proposes to re-enact its rules of practice

allowing expedited consideration of Express Mail market response rate

requests. These rules expired recently pursuant to a sunset provision.

Re-enactment will insure the continued existence of a flexible

ratemaking mechanism for consideration of changes in Express Mail rates

between omnibus rate cases when required by market conditions.

DATES: Comments should be filed by January 23, 1995.

ADDRESSES: Comments should be sent to Charles L. Clapp, Secretary of

the Commission, 1333 H Street NW, 20268-0001. Comments will be

available for inspection and photocopying at the Commission's Docket

Room.

FOR FURTHER INFORMATION CONTACT: Stephen Sharfman, Legal Advisor (202)

789-6820.

SUPPLEMENTARY INFORMATION: On August 15, 1994, the Postal Service filed

a petition for institution of a rulemaking to re-enact Commission rules

of practice and procedure on Postal Service requests for changes in

Express Mail rates in response to market conditions. These rules were

the outcome of Docket No. RM88-2, Express Mail Rulemaking. That

rulemaking, like this one, was instituted at the Service's request. The

rules that were finally issued differed from those initially proposed

by the Service. They are codified at 39 CFR 3001.57-3001.57c. They took

effect August 16, 1989. At that time, they were identified as

experimental rules and issued subject to a five-year sunset provision.

That period has expired.

As the Service notes in its recent petition, the original impetus

for adoption of these rules was a period of intense price competition

in the expedited (overnight) delivery market. Postal Service Petition

at 2. Prior to their adoption, rates for Express Mail service could be

set only by filing a formal request under rule 54. Rule 54 requires

detailed information on costs, revenues, elasticities of demand and

entails numerous procedural stages. See 39 CFR 3001.54. Fulfillment of

these requirements generally means that decisions on rate change

requests require the full ten months allowed by the statute. This

effectively forecloses prompt responses to frequent price changes. See

generally 54 FR 33681 (August 16, 1989). As rapid price changes were

the hallmark of expedited delivery competition in the early-to-mid

1980s, it was believed that a flexible ratemaking mechanism would allow

the Postal Service to respond more effectively to market conditions.

In support of its petition for re-enactment, the Postal Service

acknowledges that it has never invoked the market response rules.

However, it asserts several reasons for their retention. One is that

the overnight delivery market remains competitive, primarily on price.

Another is Express Mail's emergence as a low-cost alternative for

household users and small- and medium-volume businesses not eligible

for discounts from other carriers' published rates. A third is

preservation of Express Mail's contribution to institutional costs.

The Commission's initial review of the Service's petition leads it

to agree that the Express Mail market response rules should be

retained. Interested parties are invited to comment on the

appropriateness of this action. The Commission directs W. Gail

Willette, Acting Director of the Office of the Consumer Advocate, to

participate to the extent necessary to fulfill her responsibilities

under 39 CFR 3002.7 and part 3002, Appendix A.

II. Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

PRC hereby certifies that this notice of proposed rulemaking is not

expected to have a significant economic impact on a substantial number

of small entities. Accordingly, a regulatory flexibility analysis is

not required.

III. List of Subjects in 39 CFR Part 3001

Administrative practice and procedure, Postal Service.

1. The authority citation for 39 CFR part 3001 continues to read as

follows:

Authority: 39 U.S.C. Sec. 404(b), 3603, 3622-3624, 3661, 3662.

2. Sections 3001.57 through 3001.57c are added to Subpart B to read

as follows:

Sec. 3001.57 Market response rate requests for Express Mail service--

purpose and duration of rules.

(a) This section and Secs. 3001.57a through 3001.57c only apply in

cases in which the Postal Service requests an expedited recommended

decision pursuant to section 3622 of the Postal Reorganization Act on

changes in rates and fees for Express Mail service, where the proposed

changes are intended to respond to a change in the market for expedited

delivery services for the purpose of minimizing the loss of Express

Mail contribution to institutional costs recommended in the most recent

omnibus rate case. These rules set forth the requirements for filing

data in support of such rate proposals and for providing notice of such

requests, and establish an expedited procedural schedule for evaluating

Market Response Rate Requests. These rules may not be used when the

Postal Service is requesting changes in Express Mail rates as part of

an omnibus rate case. Further explanation concerning these rules can be

found at 54 FR 11394-413 (March 20, 1989), 54 FR 251342-42 (June 13,

1989) and PRC Order No. 836.

(b) This section and Secs. 3001.57a through 3001.57c are initially

to be effective for the limited period of five years from the date of

their adoption by the Commission. During that period the Commission

will continue to analyze the need for these rules to enable the Postal

Service to respond to changes in the market for expedited delivery

services, and the impact of these procedures on Postal Service

proposals. These rules will cease to be effective at the end of this

period unless they have been reissued by the Commission following a

Notice of Proposed Rulemaking published in the Federal Register which

provides an appropriate opportunity for public comments.

Sec. 3001.57a Market Response Rate Requests--data filing requirements.

(a) Each formal request made under the provisions of Secs. 3001.57

through 3001.57c shall be accompanied by such information and data as

are necessary to inform the Commission and the parties of the nature

and expected impact of the change in rates proposed. Except for good

cause shown, the information specified in paragraphs (c) through (i) of

this section shall also be provided with each request.

(b) Except as otherwise expressly provided in this section, the

information required by Sec. 3001.54 (b) through (r) must be filed only

for those subclasses and services for which the Postal Service requests

a change in rates or fees. Test period volume, cost, and revenue

estimates presented in satisfaction of rule 57a shall be for four

postal quarters beginning after the filing date of the request. The

cost roll-forward may be developed by extending the cost forecasting

model used in the last omnibus rate case (utilizing available actual

data). Volume and revenue estimates required by these rules shall

utilize, to the extent practicable, the factors identified in rule 54

(j)(6), and must be fully explained, with all available supporting

documentation supplied, but they need not be econometrically derived.

(c) Every formal request made under the provisions of Secs. 3001.57

through 3001.57c shall contain an explanation of why the change

proposed by the Postal Service is a reasonable response to the change

in the market for expedited delivery services to which it is intended

to respond.

(d) Every formal request made under the provisions of Secs. 3001.57

through 3001.57c shall be accompanied by the then effective Domestic

Mail Classification Schedule sections which would have to be altered in

order to implement the changes proposed by the Postal Service, and,

arranged in a legislative format, the text of the replacement Domestic

Mail Classification Schedule sections the Postal Service proposes.

(e) In addition to the required test period cost estimates, every

formal request made under the provisions of Secs. 3001.57 through

3001.57c shall be accompanied by a statement of the attributable costs

by segment and component for Express Mail service determined in

accordance with the attributable cost methodology adopted by the

Commission in the most recent omnibus rate case, for the base year used

in that case, and for each fiscal year thereafter for which cost data

is available. If the Postal Service believes that an adjustment to that

methodology is warranted it may also provide costs using alternative

methodologies as long as a full rationale for the proposed changes is

provided.

(f) Each formal request made under the provisions of Secs. 3001.57

through 3001.57c shall include a description of all operational

changes, occurring since the most recent omnibus rate case, having an

important impact on the attributable cost of Express Mail. Postal

Service shall include an analysis and estimate of the cost impact of

each such operational change.

(g) Every formal request made under the provisions of Secs. 3001.57

through 3001.57c shall be accompanied by a statement of the actual

Express Mail revenues of the Postal Service from the then effective

Express Mail rates and fees for the most recent four quarters for which

information is available.

(h) Each formal request made under the provisions of Secs. 3001.57

through 3001.57c shall be accompanied by a complete description of the

change in the market for expedited delivery services to which the

Postal Service proposal is in response, a statement of when that change

took place, the Postal Service's analysis of the anticipated impact of

that change on the market, and a description of characteristics and

needs of customers and market segments affected by this change which

the proposed Express Mail rates are designed to satisfy.

(i) Each formal request made under the provisions of Secs. 3001.57

through 3001.57c shall include estimates, on a quarterly basis, of test

period volumes, revenues, and attributable costs determined in

accordance with the attributable cost methodology adopted by the

Commission in the most recent omnibus rate case for each Express Mail

service for which rate changes are proposed assuming:

(1) Rates remain at their existing levels, and

(2) Rates are changed after 90 days to the levels suggested in the

request.

(j)(1) Each formal request made under the provisions of

Secs. 3001.57 through 3001.57c shall be accompanied by the following

information, for each quarter following the base year in the most

recent omnibus rate case:

(i) Estimated volume by rate cell, for each Express Mail service;

(ii) Total postage pounds of Express Mail rated at:

(A) Up to \1/2\ pound,

(B) \1/2\ pound up to 2 pounds,

(C) 2 pounds up to 5 pounds; and

(iii) Total pounds of Express Mail and of each other subclass of

mail carried on hub contracts.

(2) In each instance when rates change based on a proceeding under

the provisions of Secs. 3001.57 through 3001.57c the Postal Service

shall provide, one year after the conclusion of the test period, the

data described in Sec. 3001.57a(j)(1)(i-iii), for each of the four

quarters of the test period.

(k) Each formal request made under the provisions of Secs. 3001.57

through 3001.57c shall include analyses to demonstrate:

(1) That the proposed rates are consistent with the factors listed

in 39 U.S.C. 3622 (b),

(2) That the proposed rate changes are in the public interest and

in accordance with the policies and applicable criteria of the Act, and

(3) That the proposed rates will preserve, or minimize erosion of,

the Express Mail contribution to institutional costs recommended in the

most recent omnibus rate case.

(l) Each formal request made under the provisions of Secs. 3001.57

through 3001.57c shall be accompanied by a certificate that service of

the filing in accordance with Sec. 3001.57b (c) has been made.

Sec. 3001.57b Market Response Rate Requests--expedition of public

notice and procedural schedule.

(a) The purpose of this section is to provide a schedule for

expediting proceedings when a trial-type hearing is required in a

proceeding in which the Postal Service proposes to adjust rates for

Express Mail service in order to respond to a change in the market for

expedited delivery services.

(b) The Postal Service shall not propose for consideration under

the provisions of Secs. 3001.57 through 3001.57c rates lower than:

(1) The average per piece attributable cost for Express Mail

service determined in the most recent omnibus rate case, or

(2) The average per piece attributable cost for Express Mail

service as determined by the Postal Service in accordance with

Sec. 3001.57a (e) for the most recent fiscal year for which information

is available, whichever is higher. Neither shall the Postal Service

propose a rate for any rate cell which is lower than the estimated test

period attributable cost of providing that rate cell with service.

(c) (1) Persons who are interested in participating in Express Mail

Market Response Rate Request cases may register at any time with the

Secretary of the Postal Rate Commission, who shall maintain a publicly

available list of the names and business addresses of all such Express

Mail Market Response Registrants. Persons whose names appear on this

list will automatically become parties to each Express Mail Market

Response rate proceeding. Other interested persons may intervene

pursuant to Sec. 3001.20 within 28 days of the filing of a formal

request made under the provisions of Secs. 3001.57 through 3001.57c.

Parties may withdraw from the register or a case by filing a notice

with the Commission.

(2) When the Postal Service files a request under the provisions of

Secs. 3001.57 through 3001.57c it shall on that same day effect service

by hand delivery of the complete filing to each Express Mail Market

Response Registrant who maintains an address for service within the

Washington metropolitan area and serve the complete filing by Express

Mail service on all other Registrants. Each Registrant is responsible

for insuring that his or her address remains current.

(3) When the Postal Service files a request under the provisions of

Secs. 3001.57 through 3001.57c, it shall on that same day send by

Express Mail service to all participants in the most recent omnibus

rate case a notice which briefly describes its proposal. Such notice

shall indicate on its first page that it is a notice of an Express Mail

Market Response Rate Request to be considered under Secs. 3001.57

through 3001.57c, and identify the last day for filing a notice of

intervention with the Commission.

(d) In the absence of a compelling showing of good cause, the

Postal Service and parties shall calculate Express Mail costs in

accordance with the methodologies used by the Commission in the most

recent omnibus rate case. In the analysis of customers' reactions to

the change in the market for expedited delivery services which prompts

the request, the Postal Service and parties may estimate the demand for

segments of the expedited delivery market and for types of customers

which were not separately considered when estimating volumes in the

most recent omnibus rate case.

(e) (1) In the event that a party wishes to dispute as an issue of

fact whether the Postal Service properly has calculated Express Mail

costs or volumes (either before or after its proposed changes), or

wishes to dispute whether the change in the market for expedited

delivery services cited by the Postal Service has actually occurred, or

wishes to dispute whether the rates proposed by the Postal Service are

a reasonable response to the change in the market for expedited

delivery services or are consistent with the policies of the Postal

Reorganization Act, that party shall file with the Commission a request

for a hearing within 28 days of the date that the Postal Service files

its request. The request for hearing shall state with specificity the

fact or facts set forth in the Postal Service's filing that the party

disputes, and when possible, what the party believes to be the true

fact or facts and the evidence it intends to provide in support of its

position.

(2) The Commission will not hold hearings on a request made

pursuant to Secs. 3001.57 through 3001.57c unless it determines that

there is a genuine issue of material fact to be resolved, and that a

hearing is needed to resolve this issue.

(3) Whether or not a hearing is held, the Commission may request

briefs and/or argument on an expedited schedule, but in any

circumstance it will issue its recommended decision as promptly as is

consistent with its statutory responsibilities.

(4) In order to assist in the rapid development of an adequate

evidentiary record, all participants may file appropriate discovery

requests on other participants as soon as an Express Mail Market

Response Rate Request is filed. Answers to such discovery requests will

be due within 10 days. Objections to such discovery requests must be

made within 10 days in the form of a Motion to Excuse from Answering,

with service on the questioning participant made by hand, facsimile, or

expedited delivery. Responses to Motions to Excuse from Answering must

be submitted within seven days, and should such a motion be denied, the

answers to the discovery in question are due within seven days of the

denial thereof. It is the Commission's intention that parties resolve

discovery disputes informally between themselves whenever possible. The

Commission, therefore, encourages the party receiving discovery

requests considered to be unclear or objectionable to contact counsel

for the party filing the discovery requests whenever further

explanation is needed, or a potential discovery dispute might be

resolved by means of such communication.

(5) If, either on its own motion, or after having received a

request for a hearing, the Commission concludes that there exist one or

more genuine issues of material fact and that a hearing is needed, the

Commission shall expedite the conduct of such record evidentiary

hearings to meet both the need to respond promptly to changed

circumstances in the market and the standards of 5 U.S.C. Sec. 556 and

557. The procedural schedule, subject to change as described in

paragraph (e) (6) of this section, is as follows: Hearings on the

Postal Service case will begin 35 days after the filing of an Express

Mail Market Response Rate Request; parties may file evidence either in

support of or in opposition to the Postal Service proposal 49 days

after the filing; hearings on the parties' evidence will begin 56 days

after the filing; briefs will be due 70 days after the filing; and

reply briefs will be due 77 days after the filing.

(6) The Presiding Officer may adjust any of the schedule dates

prescribed in paragraph (e)(5) of this section in the interests of

fairness, or to assist in the development of an adequate evidentiary

record. Requests for the opportunity to present evidence to rebut a

submission by a participant other than the Postal Service should be

filed within three working days of the receipt of that material into

the evidentiary record, and should include a description of the

evidence to be offered and the amount of time needed to prepare and

present it. Requests for additional time will be reviewed with

consideration as to whether the requesting participant has exercised

due diligence, and whether the requesting participant has been

unreasonably delayed from fully understanding the proposal.

Sec. 3001.57c Express Mail Market Response--``rule for decision.

The Commission will issue a recommended decision in accordance with

the policies of 39 U.S.C., and which it determines would be a

reasonable response to the change in the market for expedited delivery

services. The purpose of Secs. 3001.57 through 3001.57c is to allow for

consideration of Express Mail Market Response Rate Requests within 90

days, consistent with the procedural due process rights of interested

persons.

Issued by the Commission on December 14, 1994.

Charles L. Clapp,

Secretary

[FR Doc. 94-31344 Filed 12-21-94; 8:45 am]

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