UNITED STATES OF AMERICA

POSTAL REGULATORY COMMISSION

WASHINGTON, DC 20268-0001

Before Commissioners: Dan G. Blair, Chairman;

> Mark Acton, Vice Chairman;\
> Ruth Y. Goldway; and\
> Tony L. Hammond

Premium Forwarding Service Docket No. MC2007-3

OPINION AND

RECOMMENDED DECISION

![](media/image1.png){width="1.1097222222222223in" height="1.26875in"}

(Issued January 7, 2008)

TABLE OF CONTENTS

*Page*

I. INTRODUCTION AND SUMMARY [2](#introduction-and-summary)

II\. PROCEDURAL HISTORY [5](#procedural-history)

III\. SUMMMARY OF PROPOSAL [7](#summmary-of-proposal)

> A. Witness Hope's Testimony [7](#witness-hopes-testimony)
>
> B. Witness Abdirahman's Testimony [10](#witness-abdirahmans-testimony)
>
> C. Witness Dawson's Testimony [13](#witness-dawsons-testimony)

IV\. REVIEW OF STIPULATION AND AGREEMENT
[21](#review-of-stipulation-and-agreement)

V. FINDINGS AND CONCLUSIONS [24](#findings-and-conclusions)

RECOMMENDED DECISION

Appendix One Recommended Change in Fee Schedule

Appendix Two Recommended Changes in Domestic Mail Classification

Schedule

Appendix A Appearances: Participants and Counsel

# INTRODUCTION AND SUMMARY

The Commission adopts an unopposed settlement agreement as the basis for
a favorable opinion and recommended decision on the United States Postal
Service's Request to change the status of Premium Forwarding Service
(PFS) from experimental to permanent. If PFS is approved as recommended,
residential delivery customers --- as well as many post office box
customers --- will continue to have the option of having the Postal
Service reship their mail from a permanent address to a temporary
address once a week via prepaid Priority Mail.

The permanent service will be offered on essentially the same basis that
applied during the experiment. Fees will be identical to those currently
charged under the experiment: \$10 for enrollment (per application) and
\$11.95 to cover weekly reshipping and postage, multiplied by the
designated number of service weeks and, as now, will have to be
prepaid.[^1] Guidelines will continue to require a customer to appear at
the post office serving his or her primary address to apply for or
modify PFS; however, the Postal Service stipulates that it intends to
explore alternatives to this approach --- and to other PFS features ---
as time, other resources and priorities allow.

The following PFS terms, conditions, and limitations also track those of
the experiment:

--- forwarding periods ranging from a minimum of two weeks to a maximum
of one year;

--- a restriction to domestic addresses;

--- the exclusion of certain post office boxes associated with
commercial use; and

--- a prohibition against contemporaneous use of certain other
forwarding services.

The record shows that PFS is a popular and effective forwarding option,
as it offers a combination of features not otherwise available from the
Postal Service in one service. These include allowing individual members
of a household to obtain the service, providing the predictability of a
weekly shipment (typically mailed every Wednesday), offering the
convenience of reshipping, and providing the visibility and recognition
associated with Priority Mail packaging. The record also makes clear
that PFS covers costs and, with overall cost coverage exceeding 140
percent, makes a reasonable contribution to overhead costs.

The only significant issue is the Postal Service's decision to maintain
the status quo in terms of key PFS features, instead of taking this
opportunity to enhance the permanent service with certain
customer-friendly features, such as providing a variety of alternatives
to the in-person transaction requirement and allowing customers to
designate consecutive temporary addresses in one application, rather
than two separate ones. The Postal Service agrees that such features are
desirable, but asserts that the developmental stage of PFS, the need to
adequately assess cost considerations associated with application
alternatives and related implementation issues, justify retaining the
"least cost, maximum efficiency" focus that marked the experiment.

The Commission finds that the Postal Service raises legitimate reasons
why postponement of enhancements to PFS is warranted. The Postal Service
has stipulated to its intention to address more flexible approaches as
PFS matures and as time and other resources permit and has proposed
revised classification language that will allow any ensuing changes to
be made relatively easily. The Commission encourages the Postal Service
to follow through on this representation as soon as possible, and to
consider not only a full range of transaction options, but the addition
of tracking capabilities, better training for postal employees,
improvements that make forms clear and easy for customers to complete,
and publicity about the service in key markets.

# PROCEDURAL HISTORY

On July 31, 2007, the United States Postal Service filed a formal
Request with the Commission, pursuant to chapter 36 of title 39 of the
United States Code, seeking a recommended decision establishing Premium
Forwarding Service (PFS) as a permanent classification. Request of the
United States Postal Service for a Recommended Decision on Permanent
Premium Forwarding Service, July 31, 2007 (Request). PFS has been
available on an experimental basis since August 7, 2005.[^2]

The Request included five attachments and was accompanied by the direct
testimony of witnesses Hope (USPS-T-1), Abdirahman (USPS-T-2 ) and
Dawson (USPS-T-3); a concurrent statement on compliance with filing
requirements; and conditional motion for waiver.[^3] A request for
authorization of settlement negotiations followed on August 2, 2007.
United States Postal Service Request for Establishment of Settlement
Procedures, August 2, 2007 (Settlement Request).

The Commission formally noticed the Postal Service's Request in Order
No. 22 and took related preliminary steps, including appointing an
officer of the Commission to represent the interests of the general
public and authorizing settlement negotiations. Notice and Order on
Filing of Request for a Recommended Decision on Premium Forwarding
Service, August 3, 2007 (Order No. 22). *See also* 72 Fed. Reg. 44880,
August 9, 2007. The Association of Priority Mail Users (APMU), the
National Newspaper Association (NNA), and David B. Popkin (Popkin)
intervened.

On October 5, 2007, the Postal Service filed a detailed status report
indicating settlement appeared likely and, shortly thereafter, filed a
motion seeking consideration of an accompanying Stipulation and
Agreement as the basis for a favorable recommendation from the
Commission on the underlying Request. Notice of the United States Postal
Service Regarding the Status of Settlement Discussion, October 5, 2007;
Motion of the United States Postal Service for Consideration of the
Stipulation and Agreement as the Basis for the Recommended Decision,
October 11, 2007 (Motion on Stipulation and Agreement).[^4] The
Commission received no requests for a hearing.

In Order No. 40, October 15, 2007, the Commission addressed all
remaining procedural steps and set corresponding deadlines. Material for
the record was subsequently filed, as were signature pages from the
APMU, NNA, and the Office of the Consumer Advocate (OCA) in support of
the Stipulation and Agreement. Mr. Popkin did not join in the settlement
agreement. The Postal Service, Popkin, and the OCA filed initial briefs
on November 14, 2007.[^5] The Postal Service's brief included a
suggestion that given the Commission's issuance of certain rules
implementing the Postal Accountability and Enhancement Act of 2006, the
Commission include recommended changes to the new Mail Classification
Schedule in its Opinion and Recommended Decision, assuming favorable
action on the underlying Request. Postal Service Brief at 4. Mr. Popkin
filed a reply brief on November 23, 2007.

# SUMMMARY OF PROPOSAL

## Witness Hope's Testimony

*Introduction*. Witness Hope addresses the PFS product offering, revenue
matters, the history of the PFS experiment, and internal and external
feedback. She also provides certain data collection reports;
correspondence from Daniel J. Foucheaux, Jr. to Commission Secretary
Steven W. Williams concerning certain post-Docket No. MC2005-1
operational adjustments to the experiment; the PFS application (Form
8176); and a customer survey form. *See generally* USPS-T-1 and
Attachments 1 through 4.

Hope characterizes PFS as a personalized service for residential
customers who want to receive all of their mail at a temporary domestic
address via Priority Mail. *Id*. at 2. She states that after receipt and
acceptance of a PFS application, the Postal Service bundles and reships
mail, once a week via Priority Mail, to a customer's temporary domestic
address for a period of not less than two weeks and up to one year per
application. She asserts that this approach offers customers who are
away from their primary addresses a convenient way to receive, for a
fee, substantially all their mail in one package, rather than receiving
only First-Class Mail and certain other pieces one-by-one on a less
predicable basis. *Id*.

*Operating plan*. Hope's overview indicates that the Postal Service
proposes no specific changes to how PFS now operates. The two main
activities will continue to entail the application for PFS and
reshipment. Application activities, on the part of the customer, include
applying for PFS service by filing a written application at the post
office responsible for delivering mail to the individual's primary
address; presenting appropriate identification and proof of residence at
that address; and paying all required fees. The clerk gives the
applicant one part of the application and retains two copies (one each
for the master file and the carrier) at the delivery unit. Verification
procedures for PFS are modeled on those for post office box
applications. *Id*. at 8.

Reshipment activities involve sending substantially all mail in the
weekly PFS shipment, with exceptions noted. *Id*. at 8-9. Post offices
are encouraged to use the Priority Mail packaging most appropriate for
each shipment, but Hope acknowledges that on occasion, especially in
months where catalog mailing volumes are high, the mail volume some
customers receive necessitates use of more than one box in a weekly
shipment. She notes that witness Dawson adjusts for this in the proposed
PFS costing. She further notes that all PFS reshipments are required to
bear the G-400 label for clear operational identification and financial
tracking purposes. *Id*.

*Impact of certain customer choices on PFS.* Hope states that an active
PFS agreement forecloses a customer from filing a temporary or permanent
change-of-address order (Form 3575) for a primary address. She explains
that in the event both types of orders are placed for the same address
and customer, the Postal Service may cancel the more recent request. She
also says that a customer who wishes to pick up mail in person at the
post office serving the primary address while PFS is active must cancel
PFS, but notes that a refund of unused shipment fees is available.
Restarting PFS requires the filing of an additional application and
payment of a non-refundable enrollment fee. *Id*. at 2-3.

*Classes of mail; availability*. Hope says all classes of mail are
reshipped, and that this feature distinguishes PFS from other forwarding
options. She notes that mailpiece endorsements have no impact on the
handling of PFS mail. However, Hope notes that "certain straightforward
and logical operational necessities" require that some mailpieces be
reshipped separately. *Id*. at 3.

Hope testifies that PFS is currently available to all domestic
residential delivery customers and post office box customers, with few
qualifications. She notes that PFS:

--- is not available for a secondary address that is an APO, FPO, or in
any U.S. territory or possession requiring a customs declaration;

--- is only available to size one or size two post office box customers
who have no other boxes in that facility, in the interest of limiting
PFS to residential rather than business customers; and

--- is available to, but not from, single-point addresses, such as RV
parks, hospitals and hotels.

*Id*.

*PFS alternatives*. Hope identifies a few, limited alternatives
available from both the Postal Service and other providers. One postal
option is a mail hold (for up to 30 days), although an individual within
a household cannot have mail held separately. This contrasts to PFS,
which allows individuals to use PFS from a shared primary address.
Another option is temporary or permanent forwarding, which Hope notes
applies to First-Class Mail on a piece-by-piece basis for one year and
may include Periodicals mail for up to 60 days. *Id*. at 5. Hope says
parcels may be forwarded locally, and that Standard Mail generally is
not forwarded, unless the mailer agrees via an endorsement to pay
forwarding postage. Alternatives outside the Postal Service include
reliance upon commercial mail receiving agencies, RV associations,
friends or family. *Id*.

*Revenue; seasonal patterns*. Hope asserts that PFS revenue has
demonstrated consistent growth since its August 2005 launch,
illustrating "both an ongoing increase over time and how each month's
revenue is substantially greater than the same month in a previous
year." *Id*. at 5-6. She provides a table showing, year-to-year, a total
FY 2005 revenue of \$321,300, FY 2006 revenue of \$7,332,000, and
FY 2007 (through June) of \$9,966,000, and total program-to-date revenue
of \$17,620,000. *Id*. at 6. Hope finds that PFS usage, as reflected in
revenue, has two seasonal peaks each year: one at the end of the year,
coinciding with the traditional holiday season, and the other in summer
travel months. *Id*. at 7 (Chart 1).

*Feedback.* Hope characterizes customer reception of PFS as "strongly
positive." She notes that postal employees occasionally have asked
whether customers can file one application for two temporary addresses
within consecutive time periods. She says: "The short-term answer is
'no' ... both to keep the application and operational processes simple
and because a second temporary address still requires that most of the
enrollment activities be undertaken for each temporary address." *Id*.
at 9. However, she says that customers can file two separate
applications for consecutive time periods. She adds: "While PFS remains
a manual service at this time, the Postal Service would like to build
and leverage technology tools that might enhance and simplify a PFS
customer's use of the service when time and other resources permit."
*Id*.

Hope summarizes the results of a qualitative survey of PFS customers
that the Postal Service's Office of the Consumer Advocate supervised and
administered, based on a sampling of customers who provided an e-mail
address on their PFS applications.[^6] She says 1,007 surveys were
distributed electronically on February 5, 2007, and that 205 had been
answered when the survey was closed on March 6, 2007. Two-thirds of the
respondents have reported that they are "very satisfied" with PFS, and a
large percentage have indicated they have used the service more than
once. Moreover, two-thirds of the respondents also have said they are
"very likely" to recommend PFS to someone else, and over two-thirds have
said they are "very likely" to use PFS again themselves. At the same
time, Hope acknowledges that many respondents have indicated they want
the option of signing up online, and that "a very few customers" have
suggested the need for a clearer explanation of the potential for being
charged additional postage for reshipment. However, she says that less
than 10 percent have reported any need to pay more postage during the
term of service. *Id*. at 10.

## Witness Abdirahman's Testimony

*Introduction*. Witness Abdirahman provides cost data to support the PFS
pricing structure. His methodology involves developing cost estimates
based on witness Hope's product definition and on the analysis he used
for the PFS experiment.[^7] His analysis in this case estimates the
average unit cost for PFS, with costs separated into two cost
categories: set-up costs and per-shipment costs. Set-up costs (the
one-time costs associated with a single customer's PFS enrollment and
registration) consist of the costs of processing the PFS customer
application; collecting fees; and creating a PFS folder and recording
customer information in the PFS master log.

Abdirahman finds a proxy for each step. He assumes that most set-up
functions are performed by a clerk, and therefore uses the hourly costs
for a clerk. Abdirahman estimates that total one-time set-up costs,
consisting of the sum of the three proxies, amount to \$4.86 for each
PFS customer. His Appendix (at 2) includes detailed calculations and
provides sources for each proxy cost number. *Id*. at 3. The following
table summarizes his use of proxies.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**Summary of Proxies Used for Developing Set-Up Cost Estimate**

+-----+------------------------------------------+--------------------+
|     | **Activity**                             | **Proxy and        |
|     |                                          | Rationale**        |
+-----+------------------------------------------+--------------------+
| S   | Clerk (at post office serving            | Transaction time   |
| tep | applicant's primary address) processes   | for processing a   |
| One | PFS application by:                      | post office box    |
|     |                                          | application, given |
|     | checking for accuracy and completeness,  | that the same      |
|     |                                          | nature and         |
|     | verifying the identity of the applicant, | quantity of        |
|     |                                          | information is     |
|     | confirming PFS start and end dates, and  | required           |
|     |                                          |                    |
|     | ensuring that the customer has no active |                    |
|     | forwarding order in effect               |                    |
+-----+------------------------------------------+--------------------+
| S   | Clerk:                                   | Cost of collecting |
| tep |                                          | postage due at a   |
| Two | explains composition of all fees; and    | call window, given |
|     |                                          | similarities,      |
|     | collects prepayment from customer for    | serves as a good   |
|     | the entire PFS service period            | proxy for the PFS  |
|     |                                          | prepayment cost    |
+-----+------------------------------------------+--------------------+
| S   | Clerk:                                   | Cost of a clerk    |
| tep |                                          | processing         |
| Th  | creation of a PFS folder; and            | change-of-address  |
| ree |                                          | cards is used as a |
|     | recording customer information in the    | proxy for the cost |
|     | PFS post office's master log             | of processing the  |
|     |                                          | master log, as the |
|     |                                          | amount of          |
|     |                                          | information        |
|     |                                          | entered by the     |
|     |                                          | clerk in both      |
|     |                                          | processes is       |
|     |                                          | similar            |
+-----+------------------------------------------+--------------------+
| *So |                                          |                    |
| urc |                                          |                    |
| e*: |                                          |                    |
| A   |                                          |                    |
| dap |                                          |                    |
| ted |                                          |                    |
| f   |                                          |                    |
| rom |                                          |                    |
| US  |                                          |                    |
| PS- |                                          |                    |
| T-3 |                                          |                    |
| at  |                                          |                    |
| 2   |                                          |                    |
| -3. |                                          |                    |
+-----+------------------------------------------+--------------------+

*Per-shipment costs*. Abdirahman defines per-shipment costs as the costs
associated with mail separation, repackaging and dispatch. He says that
PFS activities are generally performed at the delivery unit serving the
customer's permanent address by the customer's carrier or a designated
clerk. His PFS costing model "conservatively assumes that most of the
per-shipment-related activities are performed by the carrier." *Id*. at
4.

Abdirahman says that per-shipment costs begin with mail separation, and
says that throughout the week, the carrier separates the PFS customer's
mail during the casing process and holds it (by setting it aside in a
designated area) until it is reshipped. He uses the cost of separating
the mail of a customer when mail is being held or forwarded within a
delivery unit as a proxy for the mail separation cost of PFS mail given
his conclusion that the activities are similar. *Id*. Abdirahman also
states that once per week, the carrier gathers the PFS customer's held
mail; places it into and labels a Priority Mail box, Tyvek envelope or
other Priority Mail packaging; and enters it into the outgoing Priority
Mail stream. He says the carrier then updates the PDF tracking log.[^8]
During field observations of the current experiment that were conducted
at small, medium and large delivery units, Abdirahman found that these
tasks take about three-and-one-half minutes per PFS customer.

Abdirahman says the Postal Service provides and completes the necessary
PFS address labels, which are maintained with the PFS applications at a
designated location in a delivery unit. He uses the cost of a carrier
filling out one section of a change-of-address card as a proxy for the
cost of completing the PFS label, given that the quantity and nature of
information involved are comparable. He estimates the per-shipment
costs, calculated by using the proxies and observations described above,
at \$4.08, not including mail processing and delivery costs associated
with reshipment. His Appendix at 3 includes additional details. *Id*. at
5.

Abdirahman states that based on his cost estimates of \$4.86 for
enrollment and \$4.08 for per shipment (omitting costs for mail
processing and delivery), witness Dawson proposes two fees: one for
enrolling a customer and the other for each PFS shipment. Cost elements
and their sources are documented in an Appendix for USPS‑T‑2.

## Witness Dawson's Testimony

Witness Dawson addresses PFS rate design, pricing, the classification
rationale, the justification for permanent status, financial impacts,
and the consistency of the proposal with the statutory criteria.[^9] His
pricing approach and rationale entails examining three components: the
one-time application fee and set-up; hold-out and repackaging; and use
of Priority Mail for reshipment. *Id*. at 4.

*Reshipment cost*. For this component, Dawson estimates the average cost
of a PFS shipment, consistent with the Docket No. R2006-1 methodology,
by creating a PFS-specific rate cell using the weight, volume, distance,
and packaging profile of PFS shipments. He uses the actual weight per
piece and the zone distribution for PFS parcels from the Docket No.
MC2005-1 Second Data Collection Report. He estimates the average cubic
footage of PFS parcels based on a survey of PFS shipments. Survey
results appear in Attachment 4 to his testimony. *Id*.

*Adjustments to Priority Mail costs*. Dawson makes two adjustments to
Priority Mail costs for PFS pieces based on the particular
characteristics of PFS parcels. The first adjustment increases the cost
by 10 cents to account for the increased use of Priority Mail packaging
by PFS compared to Priority Mail, as substantially all PFS parcels use
Priority Mail packaging, while only about 50 percent of Priority Mail
uses branded packaging. *Id*. at 4-5. Dawson estimates, based on
conversations with Postal Service experts, that the average Priority
Mail package costs about 20 cents to produce. He uses this estimate to
calculate the additional charge to PFS packages as the difference
between the average Priority Mail use of branded packaging and the PFS
use multiplied by the average cost of the packaging (0.5 x .20 = .10).
*Id*. at 5.

Dawson's second adjustment removes Priority Mail window service costs
from the PFS cost estimates, resulting in a 9.7 cent cost reduction.
This is based on his observation that no PFS parcel incurs any window
cost and the fact that Abdirahman's repackaging cost already includes
time for labeling and entering the PFS parcels. He calculates the
average window service cost by dividing the Docket No. R2006-1 test year
total Priority Mail window service cost by total test year Priority Mail
volume, as forecasted in that docket. *Id.*

Dawson then applies an adjustment factor to the hold-out, repackaging,
and reshipping costs to account for cases when more than one parcel is
used to reship a customer's mail. He says this occurs primarily when
offices do not have appropriately sized Priority Mail boxes in stock and
must use two smaller boxes. He notes that management instructions
expressly discourage this practice, but says that anecdotal and survey
evidence suggests that it happens on rare occasions. Based on the
results of a special survey, he finds an approximately 1.2 percent
incidence of extra packages, and includes a conservative (large)
adjustment of 1.5 percent to the packaging and reshipping costs. He
considers the adjustment conservative because current instructions now
prohibit it, and because repeated directives and improved container
stock management should further curtail the practice.[^10] *Id*. at 5-6.

*Pricing*. Dawson asserts that because overall PFS costs are similar to
what was originally estimated in Docket No. MC2005-1, current prices
still provide reasonable cost coverage for PFS. Because Priority Mail is
used to ship PFS parcels, he applies the overall Priority Mail cost
coverage of 150 percent to the shipping cost. He places the overall cost
coverage at 142 percent. He considers this reasonable, given the
convenience and value of the service. He also notes that since the
one-time enrollment fee for PFS and the Priority Mail rate cell to which
the shipping fee has been tied changed recently, it would be disruptive
to adjust prices once again; he therefore proposes to leave the prices
for PFS unchanged. *Id*. at 6.

*Statutory pricing criteria*. Dawson says the proposed fees were
designed using the pricing criteria from former section 3622(b) of title
39, United States Code.[^11] He asserts that the proposed pricing is
fair and equitable (criterion 1) because it is available to
substantially all residential customers. He says that while PFS would
definitely have value to those away from home on an extended basis, it
somewhat resembles temporary forwarding, a service available at no
charge for First-Class Mail. He says this has a slightly moderating
influence on PFS's value of service (criterion 2). He further states
that PFS is valuable to customers who want to maintain their
professional, personal, and community ties since they can receive all of
their mail (including, for example, community newsletters and local
newspapers) when they are away from their primary address. He asserts
the proposed fees cover the costs of the service and provide a
reasonable contribution (criterion 3). He says the effect of the
proposed price on other private sector enterprises was considered,
noting that permanent PFS would compete directly with private sector
alternatives to the same extent it has throughout the experiment.
However, he says an unchanged price will not alter the terms of that
competition (criterion 4). He also says that PFS supplements current
forwarding and hold options, but that existing options remain unchanged
(criterion 5). He asserts that the proposed structure is simple and easy
for customers to remember, consistent with criterion 7. He notes that
the fixed weekly charge avoids the complexities of weighing and rating,
and provides a standard weekly fee for substantially all mail reshipped
via Priority Mail. *Id*. at 7-8.

*Revenue, volume, and cost implications*. Dawson says that because
overall prices that customers will pay will not change, the Postal
Service anticipates no revenue, volume, or cost implications beyond what
has been reported. He says test year PFS shipment volume is projected to
be 1.1 million pieces. Using the ratio of applications to shipments
reported in the first two data collection reports from Docket No.
MC2005-1, he projects 188,000 applications in the test year. He expects
this to generate revenue of \$15.025 million on a cost of \$10.585
million, with a resulting cost coverage of 141.9 percent. *Id*. at 9.

*Rationale for permanent classification*. Dawson says the volume
reported in the Docket No. MC2005-1 data collection reports show that
customer response to PFS has been quite favorable. He notes that after
accounting for the extra two months in the first reporting period, PFS
volume has almost doubled in the first six months of FY 2007, compared
to the same period last year. He says that as discussed by witness Hope,
customer reaction has been favorable, with a high reported likelihood of
using PFS again. He also says that the creation of PFS has allowed the
Postal Service to standardize a previously diverse set of field
practices in a manner that allows for efficient administration,
tracking, and reporting, while making a positive financial contribution.
*Id*. at 10.

*Domestic Mail Classification Schedule (DMCS) changes*. Dawson proposes
five changes to the DMCS (presented in Attachment A of the Request). The
first is to delete, in section 937.11, the reference to "classes of"
mail in the first sentence after the word "all". With this change, the
provision reads, in pertinent part: "\... the option to receive
substantially all mail addressed to a primary address ...." Dawson
characterizes this as a housekeeping change which eliminates words that
"are unnecessary and arguably incorrect\[,\]" as PFS involves all
classes of mail, not "substantially all". *Id*. at 11.

The second proposed change also affects section 937.11, and is also
characterized as a housekeeping change. It consists of deleting the
phrase ", primarily Priority Mail postage due,". Thus, the provision
reads: "... pieces may be re-routed \[postage due\], as specified by the
Postal Service." Dawson notes that the need for this change was
addressed in correspondence from Mr. Foucheaux sent to the Commission on
September 16, 2005 (provided as USPS-T-1, Attachment 2 ). He adds:

As the Postal Service prepared to implement the PFS experiment, it
realized that reshipping Package Services and Standard Mail parcels
outside the weekly PFS shipment as Priority Mail pieces constituted an
upgrade from ground to air transportation that would violate aviation
security regulations. While mail pieces are reshipped 'as specified by
the Postal Service,' the previous emphasis upon use of Priority Mail for
'outside' pieces is no longer warranted.

*Id*.

The third proposed change involves deleting, in section 937.31, the
phrase "to the post office responsible for delivery to that customer's
primary address ...." This change removes a limitation on where a
customer can sign up for PFS service, while leaving control of where
sign-up can occur to the Postal Service. Dawson notes that if the Postal
Service develops Internet tools that enable a customer to initiate or
pay for PFS, such tools could be implemented without additional
classification changes. *Id*.

The fourth change involves deleting the text of existing section 937.51
and section number 937.52, thereby assigning the current text of section
937.52 the new designation of section 937.51. This recognizes that both
the application and weekly PFS fees now appear in Fee Schedule 937 and
that no reference to the Priority Mail rate schedule is necessary. *Id*.

The final proposed DMCS change is deletion of section 937.6, captioned
"Duration of the Premium Forwarding System Experiment". Dawson notes
that since PFS will be a permanent classification, expiration provisions
are inappropriate.

*Postal Accountability and Enhancement Act of 2006 (PAEA)* *transition
issues --- impact on new Mail Classification Schedule (MCS)*. The Postal
Service, on brief, observes that Order No. 43 establishes parts of the
new MCS, and that the MCS recognizes the existence of PFS as an
"Experiment" in three places. It asserts that these references,
including the accompanying parenthesis, should be removed from:

--- the Table of Contents (Appendix A, page 2 of 11) after the Premium
Forwarding Service listing at 1555;

--- the Market Dominant Product List under Special Services (Appendix A,
page 5 of 11) after the Premium Forwarding Service listing; and

--- the market Dominant Product Descriptions (Appendix A, page 8 of 11)
after the Premium Forwarding Service listing.

Postal Service Brief at 5.

The Postal Service further asserts the current unique context reaches
beyond the necessary DMCS and MCS changes to include two other
considerations. One involves PFS fees; the other pertains to descriptive
MCS language for PFS that is proposed by the Postal Service, but not
reached by the Commission in Order No. 43. It explains that on September
24, 2007, it submitted draft MCS language, derived from DMCS sections
937.11 ("Definition") and 937.21 ("Availability"), describing PFS in
terms that assume the classification changes sought in this docket are
approved and implemented.[^12] *Id*.

The Postal Service states that the MCS language it submitted for PFS
includes PFS fees, but incorrectly identifies the weekly reshipment fee
as \$2.85. It suggests that if the Commission recommends PFS as
requested, this should be changed to \$11.95 to comport with the Postal
Service's proposal to present the weekly reshipping and Priority Mail
postage as a single fee. *Id*. at 5-6.

The Postal Service correctly notes that the Commission did not decide
all issues related to the new MCS in Order No. 43, including the
appropriateness of the Postal Service's draft PFS description and fee
presentation. Instead, the Commission limited itself to adoption of a
Table of Contents, a Market Dominant Product List, and a Competitive
Product List. PFS was correctly identified (at that time) as an
experiment in the Table of Contents and in the Market Dominant Product
List.

Assuming the Governors approve the Commission's recommendation in this
case, the overlap between the status change in PFS and the developmental
stage of the MCS appears to present a unique situation in terms of
implementing the PAEA. Given pertinent PAEA provisions, the Commission
believes that it could make conforming changes in the MCS Table of
Contents and Market Dominant Product List associated with this case on
its own accord, without the need for a further formal filing, by taking
official notice of an affirmative Governors' decision in this case. This
conclusion is based on the absence of any dispute to date over the
identification of PFS as a market dominant product; the absence of any
material change in operations or fees, lending support to the assertion
that PFS is not a new product in the traditional sense; and the
limitation of revisions to conforming changes to the portions of the MCS
published to date. Conforming changes to the fully-developed MCS could
be made on the same basis, when decisions on the initial document are
final. This approach appears to be consistent with the need to develop
effective and efficient solutions to PAEA transition issues, and does
not foreclose a challenge to placement of PFS on the Market Dominant
Product List.

*Classification criteria*. Dawson reviews the proposal in terms of the
statutory classification criteria.[^13] Dawson says the proposed
permanent classification is fair and equitable (criterion 1) because the
Postal Service would offer a consistent, standardized service available
to substantially all residential customers, as described in witness
Hope's testimony. He states customers value receiving all their mail at
an alternate address when they are temporarily away from their primary
residence (criterion 2). He says that by offering this service, the
Postal Service is responding to customer demand. Since reshipments are
processed as Priority Mail, Dawson asserts that PFS has a high degree of
reliability and speed of delivery, consistent with criterion 3. He
contends the stipulation of a specific day for shipments further
enhances the degree of reliability, allowing customers to know when to
expect their mail. He concludes PFS is a desirable special
classification from the point of view of the customer and the Postal
Service (criterion 5). Dawson says that with this proposal, the Postal
Service would make permanent an important option for customers who want
access to their hard-copy communications while away from their permanent
address. He notes the proposal is also desirable from the point of view
of the Postal Service, which benefits by offering a more consistent and
standardized service to all customers. Finally, he says PFS is expected
to generate contribution to help cover institutional costs. *Id*.

# REVIEW OF STIPULATION AND AGREEMENT

The Stipulation and Agreement (settlement agreement) submitted by the
Postal Service on behalf of the signatories consists of two parts. Part
I, captioned Background, provides a basic description of PFS, notes that
PFS was introduced as a two-year experiment as a result of Docket No.
MC2005-1, states that the Postal Service is seeking authorization to
make PFS a permanent option, and states that no change in PFS operations
will flow from permanent authorization. Settlement agreement at 1.

Part II, captioned Terms and Conditions, consists of 10 numbered
paragraphs. Paragraph No. 1 states that the settlement agreement
constitutes a negotiated settlement of all issues raised by the Postal
Service's Docket No. MC2007-3 Request for a recommended decision on
permanent PFS. *Id*. at 2.

Paragraph No. 2 states that the undersigned participants (signatories)
stipulate and agree, for purposes of this proceeding only, that the
following materials provide substantial evidence supporting and
justifying a recommended decision recommending to the Governors of the
Postal Service acceptance of the proposed permanent changes to DMCS
section 937 and Fee Schedule 937: the Docket No. MC2007-3 Request
together with supporting direct testimony and materials; and any written
cross-examination, as revised and supplemented, that is designated
before the record closes. It also notes that the proposed DMCS language
and fee schedule changes are attached to the settlement agreement as
Attachments A and B, respectively. *Id*.

Paragraph No. 3 states that on the basis of such record, for purposes of
this proceeding only, the signatories stipulate and agree that the
permanent DMCS and Fee Schedule changes set forth in the Attachment to
the settlement agreement are in accordance with the policies of title
39, United States Code, and in particular, with objectives and factors
of 39 U.S.C. § 3622. *Id*.

Paragraph No. 4 states that the settlement agreement is offered in total
and final settlement of this proceeding. It states that the signatories
agree that they will file no further pleadings or testimony with the
Commission in this proceeding, with the exception of pleadings or
testimony explicitly requested by the Commission or in reply to such
pleadings; pleadings or testimony filed in opposition to the settlement
agreement; or pleadings, testimony or comments in support of the
settlement agreement. *Id*. at 2-3.

Paragraph No. 5 states that if the Commission adopts a recommended
decision that materially differs from the classification and fees as
filed in the settlement agreement, or if the Governors of the Postal
Service fail to approve the Commission's recommended decision adopting
the classification and fees as filed by the Postal Service, each
signatory reserves the right to withdraw from the settlement agreement.
It provides that any signatory withdrawing under the terms of this
paragraph must provide written notice of its intention to withdraw to
all participants within five business days of the occurrence of the
specific event giving rise to the right to withdraw. It also provides
that any exercise of such right by one or more signatories shall not
affect the operation of the settlement agreement as to other
signatories. *Id*. at 3.

Paragraph No. 6 states that the settlement agreement pertains only to
this proceeding. It states that the signatories shall not be considered
as necessarily agreeing with or conceding the applicability of any
ratemaking principle; any method of cost of service determination; any
principle or method of rate or fee design; the validity or use of any
data relied upon by the Postal Service in this docket for any other
purposes or in any other classification or ratemaking proceeding; or the
application of any rule or interpretation of law, that may underlie, or
be thought to underlie, the settlement agreement. *Id.*

Paragraph No. 7 states that in any future negotiation or proceeding, the
signatories shall not be bound or prejudiced by the settlement
agreement, nor shall any participant rely for any purpose on the fact
that another participant entered into or did not oppose the settlement
agreement. It states that this condition shall not apply to proceedings
involving the honoring, enforcement, or construction of the settlement
agreement or a complaint proceeding under 39 U.S.C. § 3662 challenging
the lawfulness of the fees and classifications agreed to in the
settlement agreement, recommended by the Commission, and approved by the
Postal Service Governors. It further provides that this limitation on
the application of this condition shall not restrict any party in an
appeal or complaint proceeding from arguing that changed circumstances
justify challenging the fees or classifications in whole or in part,
notwithstanding this provision. *Id*. at 3-4.

Paragraph No. 8 states that PFS in its current form necessitates direct
contact between a customer and a postal representative of the post
office which serves the customer's primary address to establish or
modify service. It states that all participants in this docket,
including the Postal Service, want customer alternatives for
establishing or modifying service that avoids this necessity. It further
provides that the Postal Service accordingly affirms its commitment to
developing, as soon as available resources and priorities permit,
alternatives that do not require direct contact between the PFS customer
and a representative of the post office serving that customer's primary
address. *Id*. at 4.

Paragraph No. 9 states that the undersigned participants request that
the Commission issue a decision recommending adoption of the DMCS and
Fee Schedule provisions appended to the settlement agreement. *Id*.

Paragraph No. 10 states that the settlement agreement represents the
entire agreement of the signatories, and supersedes any understandings
or representations not contained in the settlement agreement. *Id*.

Attachments A and B to the settlement agreement consist, respectively,
of proposed Domestic Mail Classification Schedule language and proposed
Fee Schedule 937.

# FINDINGS AND CONCLUSIONS

*Nature of participation in the settlement*. The Commission finds that
all participants were given an opportunity to participate in the
negotiations that led to the filing of the settlement agreement that
forms the basis for this Opinion and Recommended Decision. It also finds
that all participants have had an adequate opportunity to comment on the
appropriateness of the settlement as a resolution of this case, given
the Commission's express provision for initial and reply briefs. It
affirmatively notes, in this regard, that the proposed DMCS language
that appears in an attachment to the settlement agreement is identical
to that which was filed with the Postal Service's Request on July 31,
2007. It further observes that the Postal Service stipulates (paragraph
8 of the settlement agreement) to its commitment, as soon as available
resources and priorities permit, to developing alternatives that do not
require direct contact between the PFS customer and a representative of
the post office serving that customer's primary address. The Commission
notes that this language does not limit potential alternatives to
Internet-only options, and that telephone service, mailing or faxing
hard-copy forms, and e-mail reasonably fall within the scope of this
provision.

*Consistency with statutory criteria.* The Commission has reviewed
witness Dawson's assessment of the consistency of the proposal with
applicable statutory pricing and classification criteria, and finds his
assessment sound. It adopts his assessment for purposes of this
decision.

UNITED STATES OF AMERICA

POSTAL REGULATORY COMMISSION

WASHINGTON, DC 20268-0001

Before Commissioners: Dan G. Blair, Chairman;

Mark Acton, Vice Chairman;

Tony Hammond; and

Ruth Y. Goldway

Premium Forwarding Service Docket No. MC2007-3

RECOMMENDED DECISION

(Issued January 7, 2008)

The Commission, having considered the Postal Service Request, has issued
its Opinion thereon. Based on that Opinion, which is attached hereto and
made a part hereof,

IT IS ORDERED:

That the Commission's Opinion and Recommended Decision shall be
transmitted to the Governors of the Postal Service and the Governors
shall thereby be advised that the proposed Fee Schedule (set forth in
Appendix One), and the proposed amendments to the Domestic Mail
Classification Schedule (set forth in Appendix Two), are in accordance
with the policies of title 39 of the United States Code and the factors
set forth in former 39 U.S.C. 3622(b) thereof; and they are hereby
recommended to the Governors for approval.

By the Commission.

> Steven W. Williams
>
> Secretary

**RECOMMENDED CHANGE IN FEE SCHEDULES**

The following change represents the fee schedule recommendation of the
Postal Regulatory Commission in response to the Postal Service's Docket
No. MC2007-3 Request. The change requires the revision of one fee
schedule. The underlined text signifies that the text is new, and shall
appear in addition to all other Domestic Mail Classification Schedule
text. Material appearing in brackets indicates deleted material.

**FEE SCHEDULE 937**

**PREMIUM FORWARDING SERVICE**

**Description Fee**

Enrollment fee \$10.00

Weekly reshipment fee \$[11.95]{.underline} \[2.85\]

**\[SCHEDULE 937 NOTE**

1\. The weekly reshipment fee is in addition to the postage applicable
to a 3-pound parcel mailed to zone 6, as stated in Rate Schedule 223
(Priority Mail).\]

RECOMMENDED CHANGES IN

DOMESTIC MAIL CLASSIFICATION SCHEDULE

The following material represents changes to the Domestic Mail
Classification Schedule recommended by the Postal Regulatory Commission
in response to the Postal Service's Docket No. MC2007-3 Request.
Material appearing in brackets indicates deleted material.

**937 Premium Forwarding Services**

**937.1 Definition**

**937.11** Premium Forwarding Service provides residential delivery
customers, and certain post office box customers, the option to receive
substantially all \[classes of\] mail addressed to a primary address
instead at a temporary address by means of a weekly Priority Mail
shipment. Parcels that are too large for the weekly shipment, mailpieces
that require a scan upon delivery or arrive postage due at the office
serving the customer's primary address, and certain Priority Mail pieces
may be re-routed as specified by the Postal Service. Re-routed Express
Mail, First-Class Mail, and Priority Mail pieces incur no additional
reshipping charges. Re-routed Standard Mail and Package Service pieces
may be re-routed postage due\[, primarily Priority Mail postage due,\]
as specified by the Postal Service. Mail sent to a primary address for
which an addressee has activated Premium Forwarding Service is not
treated as undeliverable-as-addressed.

\* \* \*

**937.3** **Customer Requirements**

**937.31** A customer must complete and submit a Premium Forwarding
Service application together with all postage and fees for the full
duration of service \[to the post office responsible for delivery to
that customer's primary address\], as specified by the Postal Service.

\* \* \*

**937.5 Rates and Fees**

**937.51** \[The postage rate for mail reshipped by Premium Forwarding
Service consists of the rate specified in Rate Schedule 223 for a
three-pound parcel mailed to zone 6 on the enrollment date.

**937.52\]** Fees for Premium Forwarding Service are specified in Fee
Schedule 937.

**\[937.6 Duration of the Premium Forwarding Service Experiment**

**937.61** The provisions of section 937 expire the later of:

> a\. August 7, 2007, or
>
> b\. if, by the expiration date specified above, a request for the
> establishment of a permanent Premium Forwarding Service is pending
> before the Postal Rate Commission, the later of:
>
> \(1\) three months after the Commission takes action on such proposal
> under section 3624 of title 39, or, if applicable,
>
> \(2\) the implementation date for a permanent Premium Forwarding
> Service classification.\]

**PARTICIPANTS AND COUNSEL**

***Association of Priority Mail Users, Inc.***

William J. Olson

John S. Miles

Jeremiah Morgan

***National Newspaper Association***

Tonda Rush

***Office of the Consumer Advocate***

Kenneth E. Richardson

***David B. Popkin***[^14]

David B. Popkin

***United States Postal Service***

Daniel J. Foucheaux, Jr.

Kenneth Hollies

Rachael L. Hull

David H. Rubin

[^1]: The weekly charge reflects a reshipping fee of \$2.85 and Priority
    Mail postage of \$9.10.

[^2]: The experimental case, assigned Docket No. MC2005-1, involved the
    Postal Service's Request for a two-year experiment. *See* Request of
    the United States Postal Service for a Recommended Decision on
    Experimental Premium Forwarding Service, November 19, 2004, and 69
    Fed. Reg. 69640, November 30, 2004. The Commission issued a
    favorable opinion and recommended decision on April 15, 2005. The
    Governors subsequently approved the Commission's recommendation on
    May 12, 2005 and set an effective date of August 7, 2005. Upon
    introduction, the PFS enrollment fee was \$10 and the reshipment
    charge was \$10, comprised of weekly reshipping fees of \$2.85 and
    \$7.15 in Priority Mail postage. As a result of Docket No. R2006-1,
    the enrollment fee remained at \$10, but the weekly reshipping
    charge was increased to \$11.95. Absent the instant Request,
    experimental PFS would have expired August 7, 2007, given its
    two-year duration.

[^3]: Attachments A and B, respectively, identify requested changes to
    the Domestic Mail Classification Schedule and a fee schedule.
    Attachment C is a compliance statement addressing Commission rules
    54 and 64. Attachment D is an index of testimony. Attachment E is
    the certification required by Commission rule 193. *See also* Notice
    of the United States Postal Service of Filing Erratum to USPS-T-3
    Testimony (Errata), August 30, 2007; Notice of the United States
    Postal Service of Filing Second Errata to USPS-T-3, Testimony of
    Witness Dawson (Errata), September 13, 2007; and Statement of the
    United States Postal Service Concerning Compliance with Filing
    Requirements and Conditional Motion for Waiver, July 31, 2007
    (Motion for Waiver).

[^4]: The Commission hereby grants the Motion on Stipulation and
    Agreement.

[^5]: *See also* David B. Popkin Motion for Late Acceptance of Reply
    Brief, November 23, 2007 (Motion for Late Acceptance). The Motion
    for Late Acceptance makes clear the late filing was inadvertent, and
    the Commission finds that the minor delay did not give rise to any
    prejudice. Accordingly, the Commission hereby grants the Motion for
    Late Acceptance.

[^6]: A copy of the survey appears at USPS-T-1, Attachment 4.

[^7]: *See generally* USPS-T-2, and Appendix.

[^8]: Abdirahman says this log is used to inform the carrier of the
    receipt of a PFS application and the initiation of PFS service, to
    ensure that reshipments are processed and mailed every Wednesday,
    and to record shipments sent. *Id*.

[^9]: *See generally* USPS-T-3 and Attachments 1-4.

[^10]: The survey instrument and results related to package use appear
    in Attachment 3 of the Request.

[^11]: The complete reference is to the following factors referenced in
    subsections of former 39 U.S.C. 3622(b): 3622(b)(1) --- the
    establishment and maintenance of a fair and equitable schedule;
    3622(b)(2) --- the value of the mail service actually provided each
    class or type of mail service to both the sender and the recipient,
    including but not limited to, the collection, mode of
    transportation, and priority of delivery; 3622(b)(3) --- the
    requirement that each class of mail or type of mail service bear the
    direct and indirect postal costs attributable to that class or type
    plus that portion of all other costs of the Postal Service
    reasonably assignable to such class or type; 3622(b)(4) --- the
    effect of rate increases upon the general public, business mail
    users, and enterprises in the private sector of the economy engaged
    in the delivery of mail matter other than letters; 3622(b)(5) ---
    the available alternative means of sending and receiving letters and
    other mail matter at reasonable costs; 3622(b)(6) --- the degree of
    preparation of mail for delivery into the postal system performed by
    the mailer and its effect upon reducing costs to the Postal Service;
    3622(b)(7) --- simplicity of structure for the entire schedule and
    simple, identifiable relationships between the rates or fees charged
    the various classes of mail for postal services; 3622(b)(8) --- the
    educational, cultural, scientific, and informational value to the
    recipient of mail matter; and 3622(b)(9) --- such other factors as
    the Commission deems appropriate.

[^12]: The Postal Service notes that the two referenced paragraphs are
    located on pages 98 and 99 of the DMCS published on the Commission's
    website. *Id*. at 5.

[^13]: The complete set of referenced criteria are referenced in
    subsections of former 39 U.S.C. 3623(c): 3623(c)(1) --- the
    establishment and maintenance of a fair and equitable classification
    system for all mail; 3623(c)(2) the relative value to the people of
    the kinds of mail matter entered into the postal system and the
    desirability and justification for special classifications and
    services of mail; 3623(c)(3) --- the importance of providing
    classifications with extremely high degrees of reliability and speed
    of delivery; 3623(c)(4) --- the importance of providing
    classifications which do not require a high degree of reliability
    and speed of delivery; 3623(c)(5) --- the desirability of special
    classifications from the point of view of both the user and of the
    Postal Service; and 3623(c)(6) --- such other factors as the
    Commission may deem appropriate. USPS‑T‑3 at 13.

[^14]: ^\*^ Limited Participant