FR Doc 04-13529
[Federal Register: June 16, 2004 (Volume 69, Number 115)]
[Notices]               
[Page 33686-33689]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jn04-92]                         

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POSTAL RATE COMMISSION

[Docket No. MC2004-2; Order No. 1408]

 
Experimental Priority Mail Flat-Rate Box

AGENCY: Postal Rate Commission.

ACTION: Notice and order on new experimental docket.

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SUMMARY: This document establishes a formal docket for consideration of 
a proposed two-year experiment testing the feasibility of two new 
Priority Mail packaging options. Both options are priced at a flat rate 
of $7.70. The shape of one package makes it suitable for mailing 
garments; the shape of other accommodates shoes. Conducting the 
experiment would allow the Service to collect data and information on 
customer response and related matters, and thereby determine whether it 
should seek to establish these products as permanent offerings.

DATES: See SUPPLEMENTARY INFORMATION for dates.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov.


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FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, general counsel, 
at 202-789-6818.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On June 3, 2004, the United States Postal Service filed a request 
for a recommended decision from the Postal Rate Commission approving a 
two-year experimental mail classification and rate for a new Priority 
Mail ``flat-rate box'' offering.\1\ The Request, which includes five 
attachments, was filed pursuant to chapter 36 of the Postal 
Reorganization Act, 39 U.S.C 3601 et seq.\2\ It was accompanied by 
three pieces of testimony (along with related exhibits and library 
references); a statement regarding satisfaction of certain compliance 
requirements, along with a conditional motion for waiver of certain 
standard filing requirements; and a request for prompt establishment of 
settlement procedures.\3\ The Request and all related material are 
available for inspection in the Commission's docket section during 
regular business hours, and can be accessed electronically, via the 
Internet, on the Commission's Web site at http://www.prc.gov.

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    \1\ Request of the United States Postal Service for a 
Recommended Decision on Experimental Classification and Rate for 
Priority Mail Flat-Rate Box, June 3, 2004 (Request). See also Notice 
of United States Postal Service of Filing of Library Reference USPS-
LR-1 and Notice of United States Postal Service of Filing of Library 
Reference USPS-LR-2, both filed June 3, 2004.
    \2\ Attachments A and B identify requested changes to the 
Domestic Mail Classification Schedule and the associated Priority 
Mail rate schedule; Attachment C is the certification regarding, 
among other things, the accuracy of the cost statements and 
supporting data submitted with the Request; Attachment D is an index 
of testimony and exhibits; and Attachment E is a compliance 
statement addressing the Service's satisfaction of various filing 
requirements or its interest in waiver of certain requirements.
    \3\ Statement of the United States Postal Service Concerning 
Compliance with Filing Requirements and Conditional Motion for 
Waiver, June 3, 2004 (collectively referred to as Motion for 
Waiver); United States Postal Service Request for Establishment of 
Settlement Procedures, June 3, 2004 (Settlement Request). The latter 
request seeks expedition in addition to that generally available 
under the Commission's experimental rules (39 CFR 3001.67-3001.67d).
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    Summary. The proposal encompasses two new Priority Mail flat-rate 
box options, each priced at $7.70, and is geared primarily to 
convenience-oriented customers. Special boxes would be provided at no 
additional charge to customers by the Postal Service, and would be 
readily available at post offices, other physical locations and via the 
Internet. The two proposed package shapes were chosen based on an 
analysis of a national Priority Mail survey. Both boxes have the same 
cubic volume (0.34 feet), but one is a longer, shallower shape suitable 
for mailing garments, while the other is a taller package that could 
accommodate items such as shoes.\4\ Text printed directly on the boxes 
would provide pertinent instructions and information, such as security-
related entry limitations and payment methods. One payment option, 
given that the proposed rate is twice the postage now charged for the 
Service's existing Priority Mail flat-rate envelope, would be the 
application of two $3.85 denomination stamps. Request at 2.
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    \4\ The external measurements of one box are 14'' x 12'' x 3.5'; 
the external measurements of the other are 11.25'' x 8.75'' x 6.'' 
Request at 2. Inside dimensions, respectively, are 13.25'' x 11.75'' 
x 3.25'' and 11'' x 8.5'' x 5.5''. USPS-T-2 at 4-5.
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    The Service asserts that the proposed experiment will not 
materially affect its overall revenue position and will not entail any 
capital investment. It also says the proposed rate is sufficient to 
guard against any significant loss of revenue from existing Priority 
Mail customers, while providing for additional revenues from new 
Priority Mail business. Thus, it says the proposed experiment creates 
no appreciable risk of significant, negative financial results or harm 
to the Postal Service, mailers using the new packaging, or other 
mailers. Id. at 3. The Service also asserts, among other things, that 
the proposal is consistent with the logic of the experimental rules; 
will further the general policies of the Postal Reorganization Act; and 
conforms to the applicable statutory criteria. Id. at 4-5.

II. The Service Characterizes Its Proposal as a Short-Term Experiment 
Testing a Convenience-Oriented Option Similar, in Many Respects, to the 
Existing Priority Mail Flat-Rate Envelope

    The Service cites customer convenience as the primary justification 
for offering the proposed flat-rate boxes as additional expedited 
mailing options. It says customers can simply put an item in a box 
obtained from the Postal Service, apply the known postage amount and 
address, and enter the box into the mailstream in an appropriate 
fashion, thereby avoiding the need to weigh and rate Priority Mail 
parcels, or to visit a post office for weighing and rating. Id. at 2.
    The Service proposes a two-year experiment. It says this should 
allow mailers sufficient time to adjust their mailing practices to use 
the classification. It also says this amount of time will provide an 
adequate period to aggregate and analyze the experimental data, thereby 
facilitating a request for a permanent change in mail classification. 
Id. at 4. If a permanent request is made within the experimental 
period, the Service asks that the experiment be allowed to continue 
until action on that request can be completed, thus avoiding 
disruption. Id. at 5.

III. Supporting Testimony Supporting Testimony Addresses Pertinent 
Revenue, Volume and Statutory Criteria

A. Witness Scherer's Testimony (USPS-T-1)

    Witness Scherer addresses derivation of the proposed rate, assesses 
risk, and describes the proposed data collection and reporting plan. He 
also discusses the proposal's conformance with the criteria for 
experiments and for rate and classification changes.
    Scherer derives the proposed $7.70 rate from the current Priority 
Mail schedule, using new survey data on the size and density 
characteristics of existing Priority Mail parcels to determine an 
average weight for the box. These new data are from witness Loetscher's 
testimony. USPS-T-1 at 3, 5. The sampling study provides an average 
density of 6.70 pounds per cubic foot for a Priority Mail parcel of 
0.34 ft, or an average weight of 2.28 pounds. This weight is used to 
interpolate between the average Priority Mail postage for two-pound 
parcels and three-pound parcels (across all zones) to arrive at a base 
postage amount of $5.92. Witness Scherer then considers economic and 
pricing criteria to reach a postage amount of $7.70 for Priority Mail 
flat-rate boxes. Id. at 3.
    Risk. Scherer says the flat-rate box, like all new product 
offerings, entails risk to both the customer and the Postal Service. 
However, he considers the risk to customers minimal, as they may 
``overpay'' for the flat-rate box in some instances. Id. at 8-9. With 
respect to the Service, Scherer says the risk is quantifiable, has an 
acceptable upper bound for an experiment, and will be at least 
partially offset by some unquantifiable potential benefits. Id. at 6. 
In his view, the prevailing risk for the Service is the revenue leakage 
that would occur if Priority Mail customers currently paying more than 
$7.70 ``buy down'' to the flat-rate box. In brief, Scherer finds 9.3 
million eligible parcels currently priced above $7.70, but says he does 
not expect all of them to migrate to the flat-rate box.
    Data collection plan. Scherer proposes semi-annual tabulation of 
flat-rate box volume, distinguished for the two box sizes, by weight 
increment and zone. He says volume data will come from the ODIS-RPW 
sampling regularly

[[Page 33688]]

conducted by the Postal Service's Office of Revenue and Volume 
Reporting. He says some ODIS-RPW system changes will be required, but 
that sampling should be able to commence at the start of the 
experiment. In addition to weight and zone, the sampling will identify 
the method of postage payment, and thereby provide some insight into 
the types of customers using the flat-rate box. Id. at 13. Scherer also 
anticipates that sampling will be supplemented, in the second year of 
the experiment, with market research. He expects this to take the form 
of a nationwide flat-rate box user survey, and provides possible sample 
survey questions in Attachment A of his testimony. He notes that 
Question 8 addresses the main objective of the survey, which is to 
discern the origins of volume gravitating to the flat-rate box.
    Scherer also reviews the proposal in terms of the statutory 
classification and pricing criteria, and finds that the experiment is 
consistent with them. Id. at 14-18.

B. Witness Barrett's Testimony (USPS-T-2)

    Witness Barrett discusses three facets of the convenience the 
Service seeks to create: obtaining the product, selecting a method of 
payment, and entering the item into the mailstream. USPS-T-2 at 6. His 
testimony indicates that the new boxes will be available via multiple 
channels, including the Internet, but indicates that post offices are 
expected to remain the primary contact point for consumers and small 
business customers. Ibid. He notes that payment may be made via 
existing methods, including stamps and electronic postage. Id. at 7.
    Barrett notes that given Postal Service security measures, Priority 
Mail packages bearing stamps and weighing 16 ounces or more may not be 
placed in a collection box, but instead must be entered at the post 
office or may be picked up by a letter carrier from a customer's home 
or place of business pursuant to certain conditions. He says the flat-
rate boxes will be subject to the same security guidelines that apply 
to similar mailings.
    Barrett asserts that the flat-rate box would meet customers' need 
for products that are easy to access and simple to use, and would 
provide enhanced simplicity and convenience. Id. at 3. He says it would 
offer customers a single, predetermined rate regardless of the actual 
weight or destination zone of the mailpiece. Ibid. He also says the 
Postal Service hopes, by creating a simplified transaction, to make it 
easier for retailers, contract postal units, and individuals or small 
businesses selling merchandise online to offer Priority Mail to their 
customers. Ibid.

C. Loetscher Testimony (USPS-T-3)

    Witness Loetscher presents and sponsors a national study that 
estimates the size distributions and densities of Priority Mail 
parcels. Details and documentation are supplied in USPS-LR-2/MC2004-
2.\5\ Section 1 of the library reference describes the study; section 2 
describes the sample frame, site selection, and data collection 
methods; and section 3 describes the estimation methodology. An 
appendix presents the software code used to generate the estimates. 
USPS-T-3 at 1.
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    \5\ In connection with his library reference, witness Loetscher 
states: ``Some estimates used by witness Scherer rely on 
distributional Priority Mail volume data. The Postal Service 
considers these data to be commercially sensitive because they are 
similar to the GFY 2003 Priority Mail Billing Determinants data 
which, by convention, will not be reported to the Postal Rate 
Commission until spring of 2005. Data deemed too commercially 
sensitive by the Postal Service are not disclosed in the library 
reference.'' USPS-T-3 at 1.
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    Loetscher's study estimates the proportion of Priority Mail parcels 
by pound increment, zone and cubic foot increment. Id. at 2. Based on 
the 5,368 Priority Mail parcels that were sampled, Loetscher estimated 
parcels as having a density of 6.70 pounds per cubic foot. Id. at 2-3.

IV. Experimental Designation

    The Service asserts that by designating its Request as an 
experiment, it intends for the Commission to apply its expedited rules 
of practice for experimental changes. Request at 3. The Service says 
that this filing is consistent with the logic of the experimental 
rules. In particular, it notes that flexibility is required because the 
detailed, conventional data necessary to support a request for a 
permanent classification are currently unavailable. The Service 
believes that this proposal will be attractive to mailers, contribute 
to the long-term viability of the postal system, and further the 
general policies of efficient postal operations and reasonable rates 
and fees enunciated in the Postal Reorganization Act, including 39 
U.S.C. 3622(b) and 3623(c). Id. at 4-5.

V. Conditional Motion for Waiver

    The instant filing incorporates by reference materials submitted 
with the Service's Docket No. R2001-1 Request, as well as other 
materials routinely provided to the Commission by the Service. Id. at 
5. The Service says it believes that its filing satisfies all 
applicable Commission filing requirements, but seeks waiver of 
pertinent provisions of rules 54, 64 and 67 to the extent the 
Commission concludes otherwise.
    In support of its position, the Service contends that its 
Compliance Statement (Attachment E to the Request) addresses each 
filing requirement and indicates which parts of the filing satisfy each 
rule. It also notes that it has incorporated by reference pertinent 
documentation from the recent omnibus rate case (Docket No. R2001-1). 
The Service contends, among other things, that the rate case 
documentation satisfies most filing requirements because the proposed 
discounts will not materially alter the rates, fees and classifications 
established in that docket, and therefore will have only a limited 
impact on overall postal costs, volumes and revenues. It further 
asserts that there is substantial overlap between the information 
sought in the general filing requirements and the materials provided in 
Docket No. R2001-1. Motion for Waiver at 1-4.
    In the event the Commission concludes that the materials from the 
omnibus case are not sufficient to satisfy the requirements, the 
Service seeks waiver. In support thereof, it cites the reasons 
expressed in support of its general position on the adequacy of its 
filing; the nature of the proposed experiment; and the small impact on 
total costs and revenues and on the costs, volumes and revenues of mail 
categories. Id. at 4-5.

VI. The Service Requests Establishment of Settlement Procedures

    The Service asks the Commission to authorize settlement procedures, 
citing, among other things, the straightforward nature of the proposal 
and its limited scope and duration. Settlement Request at 1-2. It asks 
that the Commission schedule several events: an informal, off-the-
record technical conference involving witness Scherer, sometime on June 
21-23, 2004; a settlement conference the following week, and a 
prehearing conference after the July 4th weekend. Id. at 3.

VII. Commission Response

    Appropriateness of proceeding under the experimental rules. At this 
stage of the proceeding, the Commission has docketed the instant filing 
as an experimental case for administrative purposes. Formal status as 
an experiment under Commission rules 67-67d, which the Service makes 
clear it seeks for this Request, is based on an evaluation of factors 
such as the proposal's novelty, magnitude, ease or

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difficulty of data collection, and duration. A final determination 
regarding the appropriateness of accepting the filing as an 
experimental case and application of Commission rules 67-67d will not 
be made until participants have had an adequate opportunity to comment. 
Participants are invited to file comments on this matter by June 24, 
2004.
    Authorization of settlement negotiations. The Commission grants the 
Service's Request for Establishment of Settlement Procedures and 
appoints Postal Service counsel as settlement coordinator. In this 
capacity, counsel for the Service shall file periodic reports on the 
status of settlement discussions, with the first report to be submitted 
on or before July 2, 2004. The Commission further authorizes the 
settlement coordinator to hold a technical conference, at the 
convenience of participants, anytime between June 21 and 23, 2004; 
authorizes a settlement conference to be held the next week, with 
notice to the Commission of the date and time selected; and sets a 
public post-settlement conference hearing for July 8, 2004, at 10 a.m. 
in the Commission's hearing room. If progress in the settlement 
conference overtakes the need for the July 8 conference, the settlement 
coordinator is to notify the Commission and participants as promptly as 
possible.
    The Commission notes that authorization of settlement discussions 
does not constitute a finding on the proposal's experimental status or 
on the need for a hearing in this case.
    Representation of the general public. In conformance with section 
3624(a) of title 39, the Commission designates Shelley S. Dreifuss, 
director of the Commission's Office of the Consumer Advocate (OCA), to 
represent the interests of the general public in this proceeding. 
Pursuant to this designation, Ms. Dreifuss will direct the activities 
of Commission personnel assigned to assist her and, upon request, will 
supply their names for the record. Neither Ms. Dreifuss nor any of the 
assigned personnel will participate in or provide advice on any 
Commission decision in this proceeding.
    Intervention; positions on need for hearing. Those wishing to be 
heard in this matter are directed to file a notice of intervention with 
Steven W. Williams, Secretary of the Commission, 1333 H Street, NW., 
Suite 300, Washington, DC 20268-0001, on or before June 24, 2004. 
Notices shall indicate whether participation will be on a full or 
limited basis. See 39 CFR 3001-20 and 3001-20a. Although the Commission 
is authorizing participants to engage in settlement discussions, no 
decision has been made at this time on whether a hearing will be held 
in this case. To assist the Commission in making this decision, 
participants are directed to indicate, in their notices of 
intervention, whether they seek a hearing and, if so, to identify with 
particularity any genuine issues of material facts believed to warrant 
such a hearing.
    It is ordered:
    1. The Commission establishes Docket No. MC2004-2, Experimental 
Priority Mail Flat-Rate Box, to consider the Postal Service Request 
referred to in the body of this order.
    2. The Commission will sit en banc in this proceeding.
    3. The deadline for filing notices of intervention is June 24, 
2004.
    4. Notices of intervention shall indicate whether the participant 
seeks a hearing and identify with particularity any genuine issues of 
material fact that warrant a hearing.
    5. The deadline for answers to the Statement of the United States 
Postal Service Concerning Compliance with Filing Requirements and 
Conditional Motion for Waiver, June 3, 2004, is June 24, 2004.
    6. The Commission grants the United States Postal Service Request 
for Establishment of Settlement Procedures, June 3, 2004, to the extent 
described in the body of this ruling.
    7. The Commission appoints Postal Service counsel to serve as 
settlement coordinator in this proceeding.
    8. The deadline for comments on the Postal Service's request for 
treatment under Commission rules 67-67d is June 24, 2004.
    9. The Commission will make its hearing room available for 
technical conferences during the period of June 21-23, 2004, and the 
following week for a settlement conference at such times deemed 
necessary by the settlement coordinator.
    10. A public post-settlement conference hearing will be held July 
8, 2004, at 10 a.m. in the Commission's hearing room.
    11. Shelley S. Dreifuss, director of the Commission's Office of the 
Consumer Advocate, is designated to represent the interests of the 
general public.
    12. The Secretary shall arrange for publication of this notice and 
order in the Federal Register.

    By the Commission.

    Dated: June 9, 2004.
Garry J. Sikora,
Acting Secretary.
[FR Doc. 04-13529 Filed 6-15-04; 8:45 am]